ANNUAL REPORT
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[GRAPHIC OMITTED]
Institutional
Series Trust
Active Bond Fund
Global Bond Fund
Small Capitalization Value Fund
(formerly Fundamental Value Fund)
Dividend Performers Fund
Multi-Sector Growth Fund
Small Capitalization Growth Fund
(formerly Small Capitalization Equity Fund)
International Equity Fund
FEBRUARY 28, 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 Small Capitalization Value Fund (formerly Fundamental
Value Fund)................................................... 10
John Hancock Dividend Performers Fund ............................. 13
John Hancock Multi-Sector Growth Fund.............................. 16
John Hancock Small Capitalization Growth Fund (formerly Small
Capitalization Equity 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*
CHARLES F. FRETZ
HAROLD R. HISER, JR.
ANNE C. HODSDON
CHARLES L. LADNER
LEO E. LINBECK, JR.
PATRICIA P. MCCARTER*
STEVEN R. PRUCHANSKY*
RICHARD S. SCIPIONE
LT. GEN. NORMAN H. SMITH, USMC (RET.)
JOHN P. TOOLAN
* Members of Audit Committee
OFFICERS
EDWARD J. BOUDREAU, JR.,
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ROBERT G. FREEDMAN,
VICE CHAIRMAN AND
CHIEF INVESTMENT OFFICER
ANNE C. HODSDON,
PRESIDENT
JAMES B. LITTLE,
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
SUSAN S. NEWTON,
VICE PRESIDENT AND SECRETARY
JAMES J. STOKOWSKI,
VICE PRESIDENT AND TREASURER
THOMAS H. CONNORS,
SECOND VICE PRESIDENT AND COMPLIANCE OFFICER
CUSTODIANS
Global Bond Fund
International Equity Fund
STATE STREET BANK AND TRUST COMPANY
225 FRANKLIN STREET
BOSTON, MA 02110
Active Bond Fund
Dividend Performers Fund
Multi-Sector Growth Fund
Small Capitalization Value Fund
Small Capitalization Growth Fund
INVESTORS BANK & TRUST COMPANY
200 CLARENDON STREET
BOSTON, MA 02116
TRANSFER AGENT
JOHN HANCOCK SIGNATURE SERVICES, INC.
1 JOHN HANCOCK WAY SUITE 1000
BOSTON, MA 02217-1000
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MA 02199-7603
SUB-INVESTMENT ADVISER
Dividend Performers Fund
SOVEREIGN ASSET MANAGEMENT CORPORATION
1235 WESTLAKES DRIVE
BERWYN, PA 19312
International Equity Fund
JOHN HANCOCK ADVISERS INTERNATIONAL LTD.
34 DOVER STREET
LONDON, ENGLAND W1X 3RA
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MA 02199-7603
LEGAL COUNSEL
HALE AND DORR LLP
60 STATE STREET
BOSTON, MA 02109-1803
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
125 SUMMER STREET
BOSTON, MA 02210-1617
2
<PAGE>
============================== CHAIRMAN'S MESSAGE ==============================
DEAR FELLOW SHAREHOLDERS:
The stock market astounded many in 1997 by producing a record-breaking third
straight year of 20%-plus returns. Bond investors also enjoyed the benefits of a
strong economy with no inflation. After such a remarkable performance, many are
wondering what the markets will do for an encore in 1998.
Within the first two months of the year, for instance, we saw two different
sides of the market. In January, the market underwent rapid mood swings and
barely advanced at all. While news on the domestic inflation and economic fronts
remained good, investors were still trying to determine how much of the Asian
financial crisis would filter through the U.S. economy and corporate profits.
Each week, it seemed, investors either had on their rose-colored glasses or had
taken them off. Then in February, fears apparently dissipated, and the market
rallied to new all-time highs by the month's end.
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
It's impossible to know what will happen next in the markets. But whether
it's a continued strong move forward or a retreat, we recommend keeping a
long-term perspective. It also makes sense to set realistic expectations, since
the market has registered three years of record-breaking 20%-plus annual
returns.
After such a strong advance in equities, it also could be time to rebalance
your portfolio, if you haven't already, to maintain your desired targets of
diversification. As part of that process, make sure that your investment
strategies still reflect your individual objectives, time horizons and risk
tolerance. Despite turbulence, one thing remains constant. A well-constructed
plan and a cool head can be the best tools for reaching your financial goals.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
3
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BY JAMES K. HO, CFA, PORTFOLIO MANAGER
John Hancock
Active Bond Fund
Low inflation and falling interest rates boost bonds,
despite heightened volatility
"It was a good year for bonds..."
It was a good year for bonds, one marked by tame, even falling, inflation, a
healthy economy and rising prices on most types of bonds. The bond market's
forward moves were most pronounced in the second half of the Fund's fiscal year,
when fears that a vibrant economy would lead to higher inflation dissipated. The
resulting surge also reflected the market's growing belief that the Federal
Reserve wasn't going to raise rates to slow down the economy. Bolstering the
Fed's sideline stance were a strong dollar eating into corporate profits and the
currency and financial woes that struck Southeast Asia in late summer. The
specter of a resulting slowdown in worldwide growth further eased inflation
fears. The Asian crisis did, however, cause a sell-off at the end of 1997 in
corporate bonds, because fearful investors gravitated to U.S. Treasury bonds in
a classic flight to safety. Although the bond rally stalled somewhat in January
and February as investors tried to determine whether the U.S. economy would
slow, bond investors fared well overall.
Performance and strategy review
In this environment, John Hancock Active Bond Fund produced attractive returns
on both an absolute and relative basis. For the year ended February 28, 1998,
the Fund posted a total return of 11.25% at net asset value. That compared
favorably to the 10.71% return of the Lehman Brothers Government/Corporate Bond
Index and the 9.82% return of the average corporate debt A-rated fund in the
same period, according to Lipper Analytical Services, Inc. Longer-term
performance can be found on page six.
The Fund benefited from several factors during the year, including its
overweighted position in U.S. Treasury and government securities, which ended
the year at 55% of the Fund's net assets, its relatively light positions in
emerging-market debt and no exposure to Asia. That
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[A 2 1/4" x 3 1/2" photo of fund management team. Caption reads: James Ho
(center) and Fund management team members Ben Matthews (l) and Seth Robbins
(r).]
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4
<PAGE>
================================================================================
JOHN HANCOCK ACTIVE BOND FUND
- --------------------------------------------------------------------------------
["Bar Chart with the heading "Fund Performance" at the top of left hand column.
Under the heading is the footnote: "For the year ended February 28, 1998." The
chart is scaled in increments of 5% with 15% at the top and 0% at the bottom.
The first represents the 11.25% total return for John Hancock Active Bond Fund.
The second represents the 9.82% total return for John Hancock Average Corporate
debt A-rated fund. The third represents the 10.71% total return for Lehman
Brothers Government/Corporate Bond Index. A Footnote below 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. The Lehman Brothers Government/Corporate Bond
Index is a broad index composed of investment-grade corporate and government
bonds. See the following page for historical preformance information."]
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helped us when all emerging-market bonds, even as far away as Latin America,
were tainted by the Asian turmoil. We were not completely immune, however. Our
stake in Transgas in Colombia felt the heat, as did Peruvian gold mine company
Yanacocha.
Our stake in corporate bonds, which totaled 32% of the Fund's net assets by
the end of February, also served us well until their late-year price drops
curtailed their advance. But the downward pressure that Asia's turmoil put on
U.S. corporate bonds also presented us with some attractive buying
opportunities. Believing that the fundamentals of many U.S. corporations remain
solid, we bought or added to our corporate holdings when prices dipped. In
particular, we focused on cable companies such as TCI Communications, Comcast,
Hearst-Argyle Television, and Adelphia Communications, and wireless telephone
companies including Iridium and Nextel Communications. We like both these
industries because they are still in their infancy, relatively speaking, and
show strong prospects for growth. We also took advantage of price declines to
bolster our stake in solid health-care companies like Tenet Healthcare and
Integrated Health Services.
Going forward
In our view, there is still room for bonds to do well in 1998. Recent worldwide
events suggest that the trend is toward slower, rather than faster, economic
growth. As the Asian countries try to export their way back to financial health,
their weaker currencies and less expensive products will keep the pricing
pressure on -- and inflation low. As the Fund's fiscal year closed, however,
signs of a slowdown were not yet apparent. Therefore, the Fed remained on hold,
not raising rates, but not lowering them either, until there were clearer
signals about the economy's growth path.
In this environment, we'll maintain our conservative stance, keeping the
Fund's duration -- a measure of a bond price's sensitivity to changes in
interest rates -- neutral or slightly shorter in case the economy's strength
translates to rising rates in the near term. But on the belief that the
economy's growth will slow later in the year, we're also continuing to upgrade
the Fund's credit quality and maintain our focus on industries that are less
affected by exports and changes in the economy. We're also minimizing our
investments in the emerging markets until there are further signs that the
crisis has passed. Until then, heavier exposure to this group would present too
much volatility for this type of fund.
"...there is still room for bonds to do well in 1998."
5
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JOHN HANCOCK ACTIVE BOND FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1997
SINCE
ONE INCEPTION
YEAR (3/30/95)
---- ---------
Cumulative Total Returns 10.39% 25.89%
Average Annual Total Returns(1) 10.39% 8.71%
YIELD
As of February 28, 1998
SEC 30-DAY
YIELD
-----
John Hancock Active Bond Fund 5.73%
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 8.45%
and 3.97%, 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.
- --------------------------------------------------------------------------------
Line chart with the heading Active Bond Fund, representing the growth of a
hypothetical $250,000 investment over the life of the fund. Within the chart are
two lines.
The first line represents the value of the Lehman Brothers Government/Corporate
Bond Index and is equal to $324,572 as of February 28, 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 $319,124 as of February 28, 1998.
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6
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BY LAWRENCE J. DALY, ANTHONY A. GOODCHILD AND
JANET L. CLAY, CO-PORTFOLIO MANAGERS
John Hancock
Global Bond Fund
Asian crisis provokes global bond volatility and
a flight to safe havens
Global bond investors were subjected over the last year to U.S. interest-rate
fears early in the period and major volatility spikes later caused by Asian
currency and financial woes. Regionally, bond market results varied widely. The
United States was one of the best-performing markets, overcoming its slow start
to embark on a rally that lasted until just weeks before the Fund's fiscal year
end. Moderating growth and tame inflation triggered the moves, and the momentum
grew stronger after Asian turmoil sent investors scurrying to the safe haven of
U.S. Treasuries. Starting in August and culminating in October, a wave of
currency devaluations swept through Southeast Asia and Korea, causing some
countries' bonds to be downgraded to junk status. A mass exodus from all
emerging Asian markets followed, hurting bond prices as far away as Latin
America and curtailing the strong gains that all emerging-market bonds had
enjoyed until then. Europe fared well for the most part, as countries worked on
lowering interest rates and reducing their deficits to qualify for inclusion in
the upcoming European Monetary Union (EMU).
Despite all the upheaval, global bond investors came out ahead over the past
year. For the year ended February 28, 1998, John Hancock Global Bond Fund posted
a total return of 5.62% at net asset value. That was in line with the 5.66%
return of the average global income fund, according to Lipper Analytical
Services, Inc. For the same period, the J.P. Morgan Global Government Bond Index
returned 6.56%. See page 9 for longer-term performance information.
Performance and
strategy review
The Fund benefited from completely avoiding Asia, downplaying Europe and foreign
currencies (given the U.S. dollar's strength) and increasing our stake in U.S.
government securities. As bond yields fell worldwide during the year,
particularly
"...global bond investors came out ahead over the past year."
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[A 2 1/4" x 3 1/2" photo of fund management team. Caption reads: The Global Bond
management team: (l-r) Tony Goodchild, Janet Clay, Larry Daly.]
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7
<PAGE>
================================================================================
JOHN HANCOCK GLOBAL BOND FUND
"We expect continued volatility in bond markets worldwide..."
- --------------------------------------------------------------------------------
["Bar Chart with the heading "Fund Performance" at the top of left hand column.
Under the heading is the footnote: "For the year ended February 28, 1998." The
chart is scaled in increments of 3% with 9% at the top and 0% at the bottom. The
first represents the 5.62% total return for John Hancock Global Bond Fund. The
second represents the 5.66% total return Average global income fund. The third
represents the 6.56% total return for the J.P. Morgan Global Government Bond
Index. A Footnote below 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. The J.P. Morgan
Global Government Bond Index is a broad-based index composed of government bonds
issued in 13 countries in Europe, Asia and North America. See the following page
for historical performance information."]
- --------------------------------------------------------------------------------
in Europe, the differences in yields between other countries and the United
States continued to narrow. Many foreign bonds, therefore, no longer offered a
significant yield advantage over U.S. Treasuries. With little prospect that
overseas bond prices would rise, and with Asia's ills looming large, we shifted
even more of our focus to U.S. government bonds in the five-year maturity
horizon. U.S. government bonds represented 80% of the Fund's net assets at year
end.
At the same time, we opportunistically cut our emerging-market stake on signs
of strength at the end of 1997, since we believed all emerging markets were not
yet free of the Asian contagion. Our remaining positions were in U.S.
dollar-denominated government bonds from Brazil, Mexico, Panama and Ecuador. In
Europe, we kept only U.K. bonds, given the country's economic and currency
strength and tight monetary policy. We're still avoiding the Continent, since
yields there just aren't attractive enough to offset the currency and
interest-rate volatility that could remain at least until EMU membership terms
have been set.
A look ahead
We expect continued volatility in bond markets worldwide, as Europe moves closer
to monetary union and fallout continues from the Southeast Asian crisis.
Investors are still trying to determine the impact of Asia's woes on worldwide
growth and whether there's more bad news coming. We are still looking for
further signs of resolve by the Asian governments toward making needed
structural reforms. A key factor -- which remains a wildcard for now -- is
whether Japan, as a dominant regional force, can stimulate its own fragile and
dormant economy to help resuscitate its neighbors'. In this environment, we plan
to stick with our more conservative strategy of focusing on high-quality U.S.
government bonds. In our view, they offer solid prospects, especially given the
uncertainty elsewhere. When the Asian crisis passes, we believe there will be
significant upside potential in high-quality Latin American bonds. But for now,
the highly unusual state of economic and world circumstances compels us to keep
the bulk of our assets closer to home.
- --------------------------------------------------------------------------------
International investing involves special risks such as political, economic and
currency risks and differences in accounting standards and financial reporting.
8
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JOHN HANCOCK GLOBAL BOND FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1997
SINCE
ONE INCEPTION
YEAR (4/19/95)
---- ---------
Cumulative Total Returns 1.47% 12.77%
Average Annual Total Returns(1) 1.47% 4.55%
YIELD
As of February 28, 1998
SEC 30-DAY
YIELD
-----
John Hancock Global Bond Fund 4.97%
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
(0.61%) and (20.06%), 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 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.
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Line chart with the heading Global Bond Fund, representing the growth of a
hypothetical $250,000 investment over the life of the fund. Within the chart are
two lines.
The first line represents the value of the J.P. Morgan Global Government Index
and is equal to $287,592 as of February 28, 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 $284,659 as of February 28, 1998.
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9
<PAGE>
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BY TIMOTHY E. KEEFE, CFA, PORTFOLIO MANAGER
John Hancock
Small Capitalization
Value Fund
Ideal economic environment keeps stocks on the march
"...greater-than-expected corporate profits and rising stock prices."
On January 1, 1998, John Hancock Fundamental Value Fund changed its name to John
Hancock Small Capitalization Value Fund. The change was made to more accurately
reflect the Fund's investment strategy of buying small-sized companies that are
believed to be undervalued.
The stock market produced spectacular returns for a third straight year,
swept along by the favorable currents of a buoyant economy, falling interest
rates and remarkably benign inflation. The result was greater-than-expected
corporate profits and rising stock prices. Large-company stocks were the leaders
when the Fund's fiscal year began in March 1997, and then small caps took the
helm in spring and summer. Their reign came to an end in late October, however,
when turmoil in Asia rocked financial markets worldwide and sent investors
fleeing to the relative safety of large-company stocks and U.S. bonds. As the
period ended, small-company stocks began to re-emerge, as investors finally
acknowledged their powerful combination of low stock valuations and strong
earnings growth.
For the year ended February 28, 1998, the broad market as measured by the
Standard & Poor's 500 Stock Index returned 35.00%, including reinvested
dividends. The Russell 2000 Index, a key measure of small-company stock
performance, advanced 30.04%. We are pleased to report that in the same period,
John Hancock Small Capitalization Value Fund strongly outperformed both the
market and its peers, posting a total return at net asset value of 41.81%,
compared to the 30.10% return of the average small-cap fund, according to Lipper
Analytical Services, Inc. Longer-term performance information can be found on
page 12.
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[A 2 1/4" x 3 1/2" photo of fund management team. Caption reads: Tim Keefe
(standing) and Fund management team members Anurag Pandit (l) and Ben Hock (r).
- --------------------------------------------------------------------------------
10
<PAGE>
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JOHN HANCOCK SMALL CAPITALIZATION VALUE FUND
- --------------------------------------------------------------------------------
["Bar Chart with the heading "Fund Performance" at the top of left hand column.
Under the heading is the footnote: "For the year ended February 28, 1998." The
chart is scaled in increments of 15% with 45% at the top and 0% at the bottom.
The first represents the 41.81% total return for John Hancock Small
Capitalization Fund. The second represents the 30.10% total return Average small
cap fund. The third represents the 30.04% total return for the Russell 2000
Index Fund. A Footnote below 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. The
Russell 2000 Index is an unmanaged index comprised of the smallest 2000
securities in the Russell 3000 Index, representing approximately 11% of the
Russell 3000 total market capitalization. See the following page for historical
performance information."]
- --------------------------------------------------------------------------------
Performance and strategy review
We attribute the Fund's performance to good stock picking and successfully
applying our strategy. We strive to buy companies at times when their stock
prices do not reflect their true worth -- either because they are misunderstood
or not followed, or because of temporary market moves. Following that formula
led us to envelope company Mail-Well and personal computer distributor En Pointe
Technologies, which both rewarded the Fund with significant gains before we sold
them during the year.
Our financial stocks and select moves within the technology sector were also
among the biggest contributors to performance, especially since these sectors
included our largest holdings. Benign inflation, low interest rates and
increased industry consolidation helped boost such financial holdings as AmerUs
Life Holdings, a consolidator in the life insurance industry, specialty insurer
Executive Risk and private mortgage insurer CMAC Investment Corp. Our consumer
finance stocks such as ContiFinancial ran into trouble during the year when one
of the category leaders fell upon hard times and tainted the whole group. These
stocks began to rebound as the period ended.
Within our technology group, the stock of Amphenol, the Fund's number five
holding, had risen by 50% since the summer on the strength of this connector
company's recent buyout and dominant position in its market. Later in the year,
we began to find good buying opportunities among several telecommunications
companies that emerged from spinouts and restructurings, such as RCN Corp., a
local provider of Internet, cable and long-distance telephone service, and
Commonwealth Telephone Enterprises, a local telephone company. Both companies
have strong management teams and solid growth potential, and their stock prices
have risen significantly since we bought them.
Outlook
We remain optimistic about the prospects for small-company stocks in 1998. After
lagging large-cap stocks for more than a year, small-company stock prices remain
very attractive compared to their larger brethren's. Not only are they a good
buy, but they also generate the bulk of their earnings at home, reducing
overseas currency and slowdown concerns. In any event, we'll keep applying our
disciplined strategy to find good companies selling at prices that don't reflect
their earnings potential. We believe that's the best way to capture price gains
and manage risk.
"...small-company stock prices remain very attractive..."
11
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JOHN HANCOCK SMALL CAPITALIZATION VALUE FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1997
SINCE
ONE INCEPTION
YEAR (4/19/95)
---- ---------
Cumulative Total Returns 29.12% 58.38%
Average Annual Total Returns(1) 29.12% 18.56%
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 28.48%
and 16.79%, respectively.
WHAT HAPPENED TO
A $250,000 INVESTMENT...
The chart below shows how much a $250,000 investment in the 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 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. The Fund is also compared to the Russell 2000
Index--an unmanaged, small-cap index comprised of 2,000 U.S. stocks. For future
reports, the Adviser has chosen to remove the Standard & Poor's 500 Stock Index,
but will continue to compare the Fund's performance to the Russell 2000 Index,
which more closely represents the investment strategy of the Fund.
- --------------------------------------------------------------------------------
Line chart with the heading Small Capitalization Value 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 Standard and Poor's 500 Stock Index
and is equal to $556,862 as of February 28, 1998. The second line represents the
value of the Russell 2000 Index and is equal to $462,499 as of February 28,
1998. The third line represents the hypothetical $250,000 investment made in the
Small Capitalization Value Fund on April 19, 1995 and is equal to $439,146 as of
February 28, 1998.
- --------------------------------------------------------------------------------
12
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BY JOHN F. SNYDER, III, PORTFOLIO MANAGER
John Hancock
Dividend Performers Fund
Stocks produce another year of great returns
The last 12 months produced another spectacular result for stock investors. With
the economic backdrop of a robust economy, declining interest rates and subdued
inflation, corporate profits and stock valuations continued to expand. The broad
market, as measured by the Standard & Poor's 500 Stock Index, advanced by
35.00%, including reinvested dividends, for the year ending February 28, 1998.
It wasn't all smooth sailing, however, as volatility increased particularly
after October, as worries about corporate profits and Asia's financial woes
heightened. Some of the biggest winners were the large-company stocks. In a
classic flight to safety, investors sought out those more liquid, easily
tradable companies with reliable earnings and clear market leadership.
Fund performance
John Hancock Dividend Performers Fund shared equally in the market's wealth
thanks to our focus on "dividend performer" stocks -- those large stocks with
consistent dividends and reliable earnings. For the year ended February 28,
1998, the Fund posted a total return of 35.55% at net asset value, outperforming
the average growth and income fund's 29.40% return in the same period, according
to Lipper Analytical Services, Inc. Longer-term performance information can be
found on page 15.
Two sectors within the Fund's investment universe contributed significantly
to performance: banks and retailers. Retail giants Wal-Mart and Home Depot rose
by 77% over the last year, as a result of market share gains and strong consumer
confidence levels. A favorable interest-rate environment and strong loan demand
helped banks' underlying fundamentals, along with a sharp increase in merger
activity. Banc One Corp. was among our strongest performers.
After strong gains, we felt that many of our consumer stocks were ripe for
profit taking. As a result, we sold several of our core holdings, such as Quaker
Oats, in favor of companies that offered
Bank and retail stocks boosted performance.
- --------------------------------------------------------------------------------
[A 2 1/4" x 3 1/2" photo of fund management team. Caption reads: John Snyder
(standing left) and Fund management team members: (l-r) Peter Schofield, John
Snyder, Jim Moorehead, William Young and Jere Estes.]
- --------------------------------------------------------------------------------
13
<PAGE>
================================================================================
JOHN HANCOCK DIVIDEND PERFORMERS FUND
"...consistency will be rewarded."
- --------------------------------------------------------------------------------
["Bar Chart with the heading "Fund Performance" at the top of left hand column.
Under the heading is the footnote: "For the year ended February 28, 1998." The
chart is scaled in increments of 10% with 40% at the top and 0% at the bottom.
The first represents the 35.55% total return for John Hancock Dividednd
Performers Fund. The second represents the 29.40% total return Average growth
and income fund. The third represents the 35.00% total return for the S&P 500
Stock Index. A Footnote below 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.
The S&P 500 Stock Index is an unmanaged index that includes 500 widely traded
common stocks. See the following page for historical performance information." ]
- --------------------------------------------------------------------------------
better growth potential and valuations. A perfect example is Grainger, (W.W.)
Inc., which is the leading distributor of electrical equipment. Market
leadership is critical in this industry, as customers strive to limit the number
of vendors they use. With its most recent acquisition of Ackland, Grainger has
been able to strengthen its market position.
Outlook
A change from the generally ebullient stock market may be at hand. The expected
slowdown in the Asian economies may slow the world economy. For now, the effect
on the U.S. economy appears to be minimal, but the U.S. will not be immune. We
also believe the impact will extend beyond those companies with direct
interaction with Asia, such as semiconductor manufacturers. Companies with
extensive retailing operations in the Far East, such as McDonald's and
Coca-Cola, are also likely to experience weaker demand. What's more, U.S.
companies that are vulnerable to imports, such as steel manufacturers and auto
makers, will face stiffer competition from Asian counterparts trying to export
their way out of trouble.
In general, we believe top-line revenue growth will be harder to come by and
that 1998 will be a more difficult year for earnings growth than any of the past
five years. If an economic slowdown materializes, this will be the "sweet spot"
of the market cycle for the Fund's dividend performers universe of companies. At
a time when earnings disappointments are dealt with severely by the market, we
believe consistency will be rewarded. Superior management and market dominance
become even more critical for success. If economic uncertainty continues to
characterize the market over the near term, we expect the types of high-quality,
stable growth companies that the Fund targets to be market leaders in terms of
safety and preservation of principal. Investors are more likely to fully
appreciate these companies' investment quality and be willing to pay premium
prices for them.
14
<PAGE>
================================================================================
JOHN HANCOCK DIVIDEND PERFORMERS FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1997
SINCE
ONE INCEPTION
YEAR (3/30/95)
---- ---------
Cumulative Total Returns 34.33% 88.43%
Average Annual Total Returns(1) 34.33% 25.84%
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 34.06%
and 24.24%, 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.
- --------------------------------------------------------------------------------
Line chart with the heading Dividend Performers Fund, representing the growth of
a hypothetical $250,000 investment over the life of the fund. Within the chart
are two lines.
The first line represents the value of the Standard & Poor's 500 Stock Index and
is equal to $556,863 as of February 28, 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 $504,457 as of February 28, 1998.
- --------------------------------------------------------------------------------
15
<PAGE>
================================================================================
BY BARBARA C. FRIEDMAN, CFA, PORTFOLIO MANAGER
John Hancock
Multi-Sector Growth Fund
Stocks continued their surge propelled by
strong economic environment
"...we focused our investments in companies that have a domestic orientation..."
Recently, Barbara Friedman assumed leadership responsibility of the Multi-Sector
Growth Fund management team. Mrs. Friedman, who joined John Hancock Funds as a
senior vice president and portfolio manager in January 1998, has over 25 years
of experience in the investment business.
It was a near-perfect environment for stocks over the last 12 months. Economic
growth was strong, yet inflation remained dormant and interest rates stayed low
or fell. As a result, stocks advanced into record territory by the end of the
Fund's fiscal year in February. During the year, however, the stock market was
volatile, as investors at times were concerned that a too-robust economy could
provoke inflation or that the Asian financial woes in October would have a
negative impact on the U.S. financial markets. Nonetheless, the overall market,
as measured by the Standard & Poor's 500 Stock Index, advanced by 35.00%
including reinvested dividends.
Performance and strategy review
John Hancock Multi-Sector Growth Fund posted a decent return on an absolute
basis, but a disappointing one compared to its peers. For the year ended
February 28, 1998, the Fund posted a total return of 17.39% at net asset value.
That compared to the 28.91% return of the Russell Midcap Growth Index and the
26.42% return of the average capital appreciation fund, according to Lipper
Analytical Services, Inc.
The Fund's underperformance came in the first six months of the fiscal year
due to our overweighted positions in basic materials and energy stocks, which
suffered from falling commodities prices. In addition, the Fund did not fully
participate in the strong performance of both the financial and technology
sectors as we were
- --------------------------------------------------------------------------------
[A 2 1/4" x 3 1/2" photo of fund management team. Caption reads: Barbara
Frieddman (1) and Fund management team members (l-r): Barbara Friedman, Ben
Hock, Lisa Welch and John Golden.]
- --------------------------------------------------------------------------------
16
<PAGE>
================================================================================
JOHN HANCOCK MULTI-SECTOR GROWTH FUND
- --------------------------------------------------------------------------------
["Bar Chart with the heading "Fund Performance" at the top of left hand column.
Under the heading is the footnote: "For the year ended February 28, 1998." The
chart is scaled in increments of 10% with 30% at the top and 0% at the bottom.
The first represents the 17.39% total return for John Hancock Multi-Sector
Growth Fund. The second represents the 26.42% total return Average capital
appreciation fund. The third represents the 28.91% total return for the Russell
Midcap Growth Index. A Footnote below reads "The total return for John Hancock
Multi-Sector Growth is at net asset value with all distributions reinvested. The
average capital appreciation fund is tracked by Lipper Analytical Services, Inc.
The Russell Midcap growth Index is an unmanaged index that contains those
securities from the Russell Midcap Index with a greater-than-average growth
orientation. See the following page for historical performance information." ]
- --------------------------------------------------------------------------------
underweighted in both. However, during the second half of the fiscal year, the
Fund's performance rebounded to match that of our peers. Aiding this better
performance were the Fund's increased exposure to financial stocks, and an
overweighting in both food and retail stocks.
Management and sector shifts
Although management leadership changed, the Fund's strategy remains that of
targeting the fastest-growing market sectors and the best stock prospects within
each sector. One change in execution, however, is a greater focus on
diversification within each sector and an increased number of stocks in the
portfolio.
At the end of the fiscal year, the Fund remained overweighted in financial,
technology, retail, and consumer cyclical stocks. In each of these sectors, we
focused our investments in companies that have a domestic orientation and
dominant market positions. Our 24% stake in financial stocks ranges from strong
regional banks like First American Corp. to insurance companies such as
Executive Risk. Within the technology sector, at 18%, we have emphasized
companies with a domestic focus such as software company Keane, and EMC, a data
storage company. Our 8% stake in retail holdings such as Ethan Allen Interiors
and regional grocery chain Fred Meyer, will benefit from rising consumer
incomes.
As the market experienced shifts in sector strength during the last fiscal
year, we took advantage of the rotations. For example, we purchased food stocks
last summer, but took profits when valuations increased. The proceeds were
directed to the better-valued health-care group, which ended as a focus sector
again at 15% of net assets. We also cut our energy stake to 6% of the Fund,
replacing it with an 11% stake in consumer cyclical stocks. We emphasized
companies in the media arena, such as radio broadcaster Clear Channel
Communications.
A look ahead
During 1998, we expect continued economic growth with modest inflation. This
outlook is favorable for stocks. We are especially optimistic about mid-cap
stocks -- the Fund's focus -- since their valuations remain attractive. We
expect earnings growth to continue, but at a more modest pace. Now, more than
ever, individual stock selection is critical for success.
"We are especially optimistic about mid-cap stocks..."
- --------------------------------------------------------------------------------
Sector investing is subject to different, and sometimes greater, risks than the
market as a whole.
17
<PAGE>
================================================================================
JOHN HANCOCK MULTI-SECTOR GROWTH FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1997
SINCE
ONE INCEPTION
YEAR (4/11/95)
---- ---------
Cumulative Total Returns 3.61% 64.64%
Average Annual Total Returns(1) 3.61% 20.09%
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 3.43%
and 19.01%, 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.
- --------------------------------------------------------------------------------
Line chart with the heading Multi-Sector Growth Fund, representing the growth of
a hypothetical $250,000 investment over the life of the fund. Within the chart
are two lines.
The first line represents the value of the Russell Midcap Growth Index and is
equal to $467,464 as of February 28, 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 $438,902 as of February 28, 1998.
- --------------------------------------------------------------------------------
18
<PAGE>
================================================================================
BY BERNICE S. BEHAR, CFA, PORTFOLIO MANAGER
John Hancock
Small Capitalization
Growth Fund
Small-company stocks lifted by favorable environment
and attractive prices
Effective January 1, 1998, John Hancock Small Capitalization Equity Fund changed
its name to John Hancock Small Capitalization Growth Fund to more accurately
reflect the Fund's strategy of investing in common stocks of rapidly growing
small-sized companies.
Despite bouts of unpopularity, small-company growth stocks posted strong
returns over the past year. While their performance was overshadowed by the
much-sought-out, large-company stocks in the early months of the period,
small-company stocks began to gather strength last April. Investors began to
question the relatively high prices that large-company stocks commanded, and
turned to the small-cap arena in search of more reasonably priced alternatives.
In the typically more volatile fashion of the small-cap universe, the move up
was fast. That favorable trend remained until October, when economic and
currency turmoil in Southeast Asia prompted a return to large companies, because
they were more easily traded, or liquid. By the end of the period, there was a
resurgence of interest in small-company stocks, although there was a decided
preference for small-company value stocks, which were perceived to be trading at
cheap levels relative to the value of their assets.
Performance review
For the year ended February 28, 1998, John Hancock Small Capitalization Growth
Fund posted a total return of 27.07% at net asset value. For the same period,
the average small-cap fund returned 30.10%, according to Lipper Analytical
Services, Inc., while the Russell 2000 Growth Index returned 25.93% and the
Russell 2000 Index returned 29.95%.
"Our technology investments overall were a plus."
- --------------------------------------------------------------------------------
[A 2 1/4" x 3 1/2" photo of fund management team. Caption reads: Bernice Behar
(seated) and Fund management team members (l-r) Anurag Pandit, Andrew Slabin and
Laura Allen.]
- --------------------------------------------------------------------------------
19
<PAGE>
================================================================================
JOHN HANCOCK SMALL CAPITALIZATION GROWTH FUND
"...small caps remain attractively priced..."
- --------------------------------------------------------------------------------
["Bar Chart with the heading "Fund Performance" at the top of left hand column.
Under the heading is the footnote: "For the year ended February 28, 1998." The
chart is scaled in increments of 10% with 40% at the top and 0% at the bottom.
The first represents the 27.07% total return for John Hancock Small
Capitalization Growth Fund. The second represents the 30.10% total return
Average small-cap fund. The third represents the 25.93% total return for the
Russell 2000 Growth Index. The Fourth represents the 29.95% total return for the
Russell 2000 Index. A Footnote below reads "The total return for John Hancock
Small Capitalization Growth is at net asset value with all distributions
reinvested. The average capital appreciation fund is tracked by Lipper
Analytical Services, Inc. The Russell 2000 Index is an unmanaged index comprised
of the smallest 2000 securities in the Russell 3000 Index, representing
approximately 11% of the Russell 3000 total market capitalization. The Russell
2000 Growth Index is an unmanaged index containing those russell 2000 securities
with a greater-than-average growth orientation. See the following page for
historical performance information.]
- --------------------------------------------------------------------------------
With consumer confidence at a 30-year high and unemployment at a 24-year low,
many of our consumer-related stocks posted strong gains over the past year. As
the strong economy continued to boost advertising revenues, related companies
performed extremely well during the period. Spanish language radio company
Heftel Broadcasting and billboard company Lamar Advertising, which we sold
during the period, were two of our largest holdings, as well as our best
performers. Strong consumer confidence also helped boost many of our retail
holdings, including Hibbett Sporting Goods and department store chain Stage
Stores, both of which serve small-town America. Two more recent additions and
strong performers include Steiner Leisure, which operates spas on cruise ships
and is benefiting from increased cruise traffic, and dairy and frozen food
distributor Suiza Foods, which is profiting from consolidation in the dairy
foods sector.
Our technology investments overall were a plus. In the first half, strong
demand for semiconductors helped our holdings in companies that manufacture
equipment used to produce and test semiconductor chips, including top performer
Semtech. Fears that an economic slowdown in Asia would curtail chip demand hurt
semiconductor-related stocks from late October on, although earlier gains were
substantial enough to offset the losses. Given the uncertainty surrounding Asia,
we pared back our holdings in technology. We remained committed, however, to
companies with proprietary and unique products or services that set them apart
from their competition, such as Semtech, Advent Software and CBT Group.
The end of 1997 provided us an opportunity to buy companies we favored at
very attractive levels. We selected fast-growing companies in the
telecommunications sector, including Metromedia Fiber Network, a fiber optic
networks company, and Intermedia Communications, an emerging leader among
competitive local exchange carriers.
Outlook
We are positive about the prospects for small-company growth stocks. Small caps
remain attractively priced relative to their large-company growth counterparts,
and their business fundamentals look stronger. By emphasizing companies with
earnings growth rates of 20% to 25%, we believe the Fund is well positioned to
benefit from any further advances in small-company growth stocks.
20
<PAGE>
================================================================================
JOHN HANCOCK SMALL CAPITALIZATION GROWTH FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1997
SINCE
ONE INCEPTION
YEAR (5/2/96)
---- --------
Cumulative Total Returns 14.86% 30.34%
Average Annual Total Returns(1) 14.86% 17.24%
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 11.44%
and 7.90%, respectively.
WHAT HAPPENED TO
A $250,000 INVESTMENT...
The chart below shows how much a $250,000 investment in the 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--an unmanaged, small-cap index
comprised of 2,000 U.S. stocks. The Fund is also compared to the Russell 2000
Growth Index--an unmanaged index containing Russell 2000 Index stocks with a
greater-than-average growth orientation. The Adviser has chosen to add the Index
of comparison to more closely represent the investment strategy of the Fund.
- --------------------------------------------------------------------------------
Line chart with the heading 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 Russell 2000 Index and is equal to
$340,203 as of February 28, 1998. The second 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 $345,896 as of February 28, 1998. The third line
represents the value of the Russell 2000 Growth Index and is equal to $296,270
as of February 28, 1998.
- --------------------------------------------------------------------------------
21
<PAGE>
================================================================================
BY MIREN ETCHEVERRY, JOHN L.F. WILLS AND
GERARDO J. ESPINOZA, CO-PORTFOLIO MANAGERS
John Hancock
International Equity Fund
Financial chaos in Asia marks a turbulent year
in overseas markets
"...we cut our stake in the Pacific Rim even more..."
It was a whirlwind year for international investors. The currency and financial
turmoil in Southeast Asia that started midway through the Fund's fiscal year
wound up rocking the entire world by October. Despite the chaos, the developed
worlds of Europe and North America had recovered by the end of February. On the
other hand, the Asian contagion painted all emerging markets with the same brush
and caused a reversal of fortune for previously booming Latin America, which
ended the year with mostly flat or tepid results. Almost every Asian market big
and small ended the year in negative territory.
When the dust had settled, international mutual fund investors wound up with
respectable returns on average. It was a more difficult year for John Hancock
International Equity Fund, which posted a total return of 3.07% at net asset
value for the year ended February 28, 1998. That compared to the 12.15% return
in the same period of the Morgan Stanley All Country World Free Ex-U.S. Index
(MSCI), and the 13.81% return of the average international fund, according to
Lipper Analytical Services, Inc. Longer-term performance information can be
found on page 24.
The Fund's performance varied from its peers largely because the last 12
months were a time of gradual restructuring for the Fund, as we strove to make
it more diversified by investing in a greater number of securities. By year's
end, we owned 89 securities, up from 56 holdings a year ago. In addition, we
brought better balance to the Fund, as its top 10 holdings now represent a
smaller percentage of the Fund's assets. Over the longer term, this should help
manage the Fund's risk. Unfortunately, this task occurred during a time of
severe market volatility, which accounts for the Fund's disappointing result for
the year. However, we believe the Fund is now better positioned to participate
in worldwide opportunities.
- --------------------------------------------------------------------------------
[A 2 1/4" x 3 1/2" photo of fund management team. Caption reads: The
International Equity Fund management team: (l-r) Gerardo Espinoza, Miren
Etcheverry, John Wills.]
- --------------------------------------------------------------------------------
22
<PAGE>
================================================================================
JOHN HANCOCK INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
["Bar Chart with the heading "Fund Performance" at the top of left hand column.
Under the heading is the footnote: "For the year ended February 28, 1998." The
chart is scaled in increments of 5% with 15% at the top and 0% at the bottom.
The first represents the 3.07% total return for John Hancock International
Equity Fund. The second represents the 13.81% total return Average international
fund. The third represents the 12.15% total return for the MSCI All Country
World Free ex-US Index. A Footnote below reads "The total return for John
Hancock International Equity Fund is at net asset value with all distributions
reinvested. The average capital appreciation fund is tracked by Lipper
Analytical Services, Inc. The Morgan Stanley All Country World Free Ex-U.S.
Index (MSCI) is a market capitalization-weighted equity index comprising 46
countries ----- 20 developed markets and 26 emerging markets. The performance of
the index is tracked by Frank Russell Company. See the following page for
historical performance information.]
- --------------------------------------------------------------------------------
During the year, we were overweighted in Hong Kong and Singapore, both of which
we had significantly cut by year's end, although in hindsight not fast enough.
Our large stake in Brazil, which served us well in the first half of the year,
also contributed to the Fund's greater-than-average drop in the turbulent month
of October.
Asia shrinks; quality grows
We avoided the most vulnerable Southeast Asian markets during the year.
Nonetheless, the magnitude of the region's downfall was greater than expected,
especially in Hong Kong and Singapore -- the traditional safe havens given their
strong economies and banking systems. In the second half, we placed even more
emphasis than ever on quality, not only in the countries we chose, but also in
our sector and individual stock choices. That meant we cut our stake in the
Pacific Rim even more, to 21% of net assets, down from 31% six months ago. We
kept an underweighted stake in Japan because of the fragile state of its
financial system and weak economy, and we stayed focused on the exporters, which
remained strong. With Asia tainting all emerging markets, we also cut our Brazil
holdings from 12% six months ago to 2% by the period's end. Although we believe
in the long-term story there of growing privatization and its economic benefits,
the Asian flu has caused rising interest rates and an economic slowdown in
Brazil for the near term.
With heightened turbulence elsewhere, we continued to up our stake in the
more stable, established markets of Europe, to 66% from 44% six months ago.
There, our themes remained corporate restructurings and financial consolidation
stories. Our stake in the U.K., where the economy is buoyant and consumer
confidence high, increased to 19%.
A look ahead
In the near term, world markets will continue to be volatile as investors
wrestle with the implications of the Asian fallout. Until the situation in Asia
improves, we will keep our focus on higher-quality markets and stocks and avoid
the emerging Asian markets. We will also keep the Fund more diversified, both
across country lines and with a greater number of holdings, as a way to reduce
risk while working to enhance performance.
- --------------------------------------------------------------------------------
International investing involves special risks such as political, economic and
currency risks and differences in accounting standards and financial reporting.
"...world markets will continue to be volatile..."
23
<PAGE>
================================================================================
JOHN HANCOCK INTERNATIONAL EQUITY FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1997
SINCE
ONE INCEPTION
YEAR (3/30/95)
---- ---------
Cumulative Total Returns (7.34%) 7.16%
Average Annual Total Returns(1) (7.34%) 2.54%
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
(8.42%) and (0.98%), respectively.
WHAT HAPPENED TO
A $250,000 INVESTMENT...
The chart below shows how much a $250,000 investment in the 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 Financial Times-Actuaries World Ex-US Index--an
unmanaged index composed of securities in 23 countries. The Fund is also
compared to the Morgan Stanley All Country World Free Ex-US Index (MSCI)--an
unmanaged index used to measure the performance of developed and emerging
foreign stock markets. The index represents stocks that are freely traded on
equity exchanges around the world. For future reports, the Adviser has chosen to
remove the Financial Times-Actuaries World Ex-US Index, but will continue to
compare the Fund's performance to the MSCI, which more closely represents the
Fund's investment strategy.
- --------------------------------------------------------------------------------
Line chart with the heading International Equity Fund, representing the growth
of a hypothetical $250,000 investment over the life of the fund. Within the
chart are three lines.
The first line represents the value of the MSCI Index and is equal to $428,738
as of February 28, 1998. The second line represents the value of the Financial
Times-Actuaries World EX-US Index and is equal to $345,927 as of February 28,
1998. The third line represents the value of the hypothetical $250,000
investment made in the International Equity Fund on March 30, 1995 and is equal
to $290,848 as of February 28, 1998.
- --------------------------------------------------------------------------------
24
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds -- Institutional Series Trust
Statements of Assets and Liabilities
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACTIVE GLOBAL SMALL DIVIDEND
BOND BOND CAPITALIZATION PERFORMERS
Assets: FUND FUND VALUE FUND FUND
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Investments at value - Note C:
Common stocks and right (cost - none, none, $7,804,475 and
$16,117,073, respectively) ............................................. $ -- $ -- $ 8,658,813 $19,690,556
Preferred stocks (cost - none, none, $494,225 and none, respectively) .... -- -- 621,500 --
Bonds (cost - $4,720,743, $9,158,688, none and none, respectively) ....... 4,762,322 9,248,317 -- --
Warrants (cost - $103, none, none and none, respectively) ................ 350 -- -- --
Short-term investments (cost - $636,000, $576,000, $276,000 and
$1,650,000, respectively) .............................................. 636,000 576,000 276,000 1,650,000
Corporate savings account ................................................ 345 -- 874 464
----------- ------------ ----------- -----------
5,399,017 9,824,317 9,557,187 21,341,020
Cash ...................................................................... -- 875 -- --
Receivable for open forward foreign currency exchange contracts
purchased - Note A ..................................................... -- 852 -- --
Receivable for investments sold ........................................... 67,393 -- 87,647 251,219
Interest receivable ....................................................... 56,517 166,752 91 519
Dividends receivable ...................................................... -- -- 2,594 34,678
Deferred organization expenses - Note A ................................... 3,421 3,448 3,509 3,451
Receivable from John Hancock Advisers, Inc. and affiliates - Note B ....... -- 2,528 -- --
Other assets .............................................................. 1,452 6 56 5,296
----------- ------------ ----------- -----------
Total Assets ............................................ 5,527,800 9,998,778 9,651,084 21,636,183
----------------------------------------------------------------------------------------------------------------
Liabilities:
Payable for closed forward foreign currency exchange contracts
purchased - Note A ..................................................... -- 11,251 -- --
Payable for open forward foreign currency exchange contracts
purchased - Note A ..................................................... -- 2,082 -- --
Payable for investments purchased ......................................... 354,039 -- 82,389 729,520
Foreign tax payable ....................................................... -- -- 549 --
Dividend payable .......................................................... 2,082 2,824 -- --
Payable to John Hancock Advisers, Inc. and affiliates - Note B ............ 2,314 -- 3,083 10,514
Accounts payable and accrued expenses ..................................... 11,740 22,510 16,233 11,704
----------- ------------ ----------- -----------
Total Liabilities ....................................... 370,175 38,667 102,254 751,738
----------------------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in ........................................................... 5,046,364 10,074,266 7,601,990 16,237,866
Accumulated net realized gain (loss) on investments and foreign currency
transactions ........................................................... 69,582 (35,523) 962,327 1,036,435
Net unrealized appreciation of investments and foreign currency
transactions ........................................................... 41,830 88,485 981,516 3,573,494
Undistributed net investment income (distributions in excess of net
investment income) ..................................................... (151) (167,117) 2,997 36,650
----------- ------------ ----------- -----------
Net Assets .............................................. $ 5,157,625 $ 9,960,111 $ 9,548,830 $20,884,445
================================================================================================================
Net Asset Value Per Share
(based on 584,266, 1,220,246, 813,038 and 1,399,614 shares, respectively,
of beneficial interest outstanding - unlimited number of shares authorized
with no par value) ........................................................ $ 8.83 $ 8.16 $ 11.74 $ 14.92
==================================================================================================================================
</TABLE>
The Statement of Assets and Liabilities is each Fund's balance sheet and shows
the value of what the Fund owns, is due and owes as of February 28, 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)
February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MULTI-SECTOR SMALL INTERNATIONAL
GROWTH CAPITALIZATION EQUITY
FUND GROWTH FUND FUND
------------ ----------- -----------
<S> <C> <C> <C>
Assets:
Investments at value - Note C:
Common stocks and unit (cost - $34,335,989, $2,478,795 and $7,078,955,
respectively) ....................................................... $ 37,858,744 $ 3,066,825 $ 7,644,393
Preferred stocks (cost - none, none and $76,081, respectively) ......... -- -- 49,750
Short-term investments (cost - $916,000, $45,000 and $229,000,
respectively) ....................................................... 916,000 45,000 229,000
Corporate savings account .............................................. 997 570 --
------------ ----------- -----------
38,775,741 3,112,395 7,923,143
Cash .................................................................... -- -- 582
Foreign currency, at value (cost - none, none and $332,219, respectively) -- -- 332,415
Receivable for investments sold ......................................... 2,457,258 58,795 377,907
Interest receivable ..................................................... 294 18 72
Dividends receivable .................................................... 18,874 314 5,281
Foreign tax receivable .................................................. -- -- 3,452
Deferred organization expenses - Note A ................................. 4,316 12,988 3,420
Receivable from John Hancock Advisers, Inc. and affiliates - Note B ..... -- 2,009 4,232
Other assets ............................................................ 156 965 43
------------ ----------- -----------
Total Assets .......................................... 41,256,639 3,187,484 8,650,547
-------------------------------------------------------------------------------------------------
Liabilities:
Payable for open forward foreign currency exchange contracts
purchased - Note A ................................................... -- -- 791
Payable for open forward foreign currency exchange contracts
sold - Note A ........................................................ -- -- 528
Payable for investments purchased ....................................... 910,164 66,123 639,780
Payable for shares repurchased .......................................... 5,358 -- --
Foreign tax payable ..................................................... -- -- 586
Payable to John Hancock Advisers, Inc. and affiliates - Note B .......... 15,351 -- --
Accounts payable and accrued expenses ................................... 23,747 19,154 25,995
------------ ----------- -----------
Total Liabilities ..................................... 954,620 85,277 667,680
-------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in ......................................................... 34,377,137 2,584,118 7,737,429
Accumulated net realized gain (loss) on investments and foreign
currency transactions ................................................ 2,402,321 (69,924) (286,287)
Net unrealized appreciation of investments and foreign currency
transactions ......................................................... 3,522,779 588,029 537,971
Distributions in excess of net investment income ........................ (218) (16) (6,246)
------------ ----------- -----------
Net Assets ............................................ $ 40,302,019 $ 3,102,207 $ 7,982,867
=================================================================================================
Net Asset Value Per Share:
(based on 2,982,086, 264,310 and 828,701 shares, respectively, of
beneficial interest outstanding - unlimited number of shares
authorized with no par value) ........................................... $ 13.51 $ 11.74 $ 9.63
===================================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds -- Institutional Series Trust
Statements of Operations
Year ended February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACTIVE GLOBAL SMALL DIVIDEND
BOND BOND CAPITALIZATION PERFORMERS
FUND FUND VALUE FUND FUND
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Investment Income:
Interest (net of foreign withholding tax of none, $114, none and
none, respectively) ................................................. $ 270,649 $ 287,929 $ 32,755 $ 51,859
Dividends (net of foreign withholding tax of none, none, $506 and
none, respectively) ................................................. -- -- 70,692 255,516
--------- --------- ----------- -----------
270,649 287,929 103,447 307,375
--------- --------- ----------- -----------
Expenses:
Investment management fee - Note B .................................... 18,336 34,314 50,956 91,848
Custodian fee ......................................................... 34,242 19,179 14,016 14,648
Registration and filing fees .......................................... 22,682 21,311 16,670 15,675
Auditing fee .......................................................... 12,050 12,050 12,050 12,050
Printing .............................................................. 4,190 5,968 2,243 5,064
Transfer agent fee - Note B ........................................... 1,834 2,288 3,640 7,654
Organization expense - Note A ......................................... 1,642 1,613 1,643 1,657
Miscellaneous ......................................................... 688 1,046 466 2,578
Financial services fee - Note B ....................................... 658 812 1,308 2,742
Trustees' fees ........................................................ 298 587 555 1,216
Legal fees ............................................................ 54 69 116 272
--------- --------- ----------- -----------
Total Expenses ....................................... 96,674 99,237 103,663 155,404
---------------------------------------------------------------------------------------------------------
Less Expense Reductions - Note B ..................... (74,671) (60,348) (45,428) (48,247)
---------------------------------------------------------------------------------------------------------
Net Expenses ......................................... 22,003 38,889 58,235 107,157
---------------------------------------------------------------------------------------------------------
Net Investment Income ................................ 248,646 249,040 45,212 200,218
---------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and Foreign
Currency Transactions:
Net realized gain (loss) on investments sold ........................... 86,744 (53,488) 1,688,091 2,026,525
Net realized gain (loss) on foreign currency transactions .............. -- (114,217) 1,030 --
Change in net unrealized appreciation of investments ................... 37,222 100,022 742,136 2,433,147
Change in net unrealized depreciation of foreign currency transactions . -- (3,889) (118) --
--------- --------- ----------- -----------
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions .................... 123,966 (71,572) 2,431,139 4,459,672
---------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations . $ 372,612 $ 177,468 $ 2,476,351 $ 4,659,890
=========================================================================================================
</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)
Year ended February 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MULTI-SECTOR SMALL INTERNATIONAL
GROWTH CAPITALIZATION EQUITY
FUND GROWTH FUND FUND
----------- --------- ---------
<S> <C> <C> <C>
Investment Income:
Interest .......................................................................... $ 105,456 $ 7,227 $ 29,098
Dividends (net of foreign withholding tax of $1,506, $5 and $10,334, respectively) 243,143 8,113 81,131
----------- --------- ---------
348,599 15,340 110,229
----------- --------- ---------
Expenses:
Investment management fee - Note B ............................................... 301,382 18,750 61,818
Custodian fee .................................................................... 50,234 25,542 37,945
Transfer agent fee - Note B ...................................................... 18,836 1,172 3,434
Registration and filing fees ..................................................... 13,752 27,682 11,487
Auditing fee ..................................................................... 12,050 10,850 14,063
Financial services fee - Note B .................................................. 6,771 420 1,232
Printing ......................................................................... 4,713 6,245 4,993
Trustees' fees ................................................................... 2,856 134 502
Organization expense - Note A .................................................... 2,040 4,092 1,642
Miscellaneous .................................................................... 1,208 60 1,234
Legal fees ....................................................................... 661 25 113
----------- --------- ---------
Total Expenses .................................................. 414,503 94,972 138,463
-----------------------------------------------------------------------------------------------------------
Less Expense Reductions - Note B ................................ (75,448) (73,878) (69,776)
-----------------------------------------------------------------------------------------------------------
Net Expenses .................................................... 339,055 21,094 68,687
-----------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) .................................... 9,544 (5,754) 41,542
-----------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions:
Net realized gain (loss) on investments sold ...................................... 4,762,359 (14,167) (245,539)
Net realized loss on foreign currency transactions ................................ (13,316) (56) (33,409)
Change in net unrealized appreciation of investments .............................. 1,644,246 551,977 293,460
Change in net unrealized depreciation of foreign currency transactions ............ (19) -- (1,315)
----------- --------- ---------
Net Realized and Unrealized Gain on Investments and Foreign
Currency Transactions ........................................ 6,393,270 537,754 13,197
-----------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations ............ $ 6,402,814 $ 532,000 $ 54,739
===========================================================================================================
</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 YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
Increase (Decrease) in Net Assets: 1997 1998 1997 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
From Operations:
Net investment income ............................................... $ 116,552 $ 248,646 $ 63,630 $ 249,040
Net realized gain (loss) on investments sold and foreign
currency transactions .............................................. 7,241 86,744 (26,163) (167,705)
Change in net unrealized appreciation (depreciation) of investments
and foreign currency transactions .................................. (4,783) 37,222 (7,200) 96,133
----------- ----------- ----------- -----------
Net Increase in Net Assets Resulting from Operations ............... 119,010 372,612 30,267 177,468
----------- ----------- ----------- -----------
Distributions to Shareholders: *
Dividends from net investment income ................................ (116,555) (248,646) (42,732) (249,040)
Distributions in excess of net investment income .................... -- (148) -- --
Distributions from net realized gain on investments sold ............ (2,809) (23,264) -- (31,000)
Distributions from capital paid-in .................................. -- -- (20,898) --
----------- ----------- ----------- -----------
Total Distributions to Shareholders ................................ (119,364) (272,058) (63,630) (280,040)
----------- ----------- ----------- -----------
From Portfolio Share Transactions: **
Shares sold ......................................................... 1,178,749 4,645,044 901,911 9,080,251
Shares issued to shareholders in reinvestment of distributions ...... 118,599 261,643 14,405 17,009
----------- ----------- ----------- -----------
1,297,348 4,906,687 916,316 9,097,260
Less shares repurchased ............................................. (277,002) (2,040,235) (73,841) (60,430)
----------- ----------- ----------- -----------
Net Increase ....................................................... 1,020,346 2,866,452 842,475 9,036,830
----------- ----------- ----------- -----------
Net Assets:
Beginning of period ................................................. 1,170,627 2,190,619 216,741 1,025,853
----------- ----------- ----------- -----------
End of period (including distributions in excess of net
investment income of none, $151, $3,935 and $167,117,
respectively) ...................................................... $ 2,190,619 $ 5,157,625 $ 1,025,853 $ 9,960,111
=========== =========== =========== ===========
* Distributions to Shareholders:
Per share dividends from net investment income ...................... $ 0.5983 $ 0.5907 $ 0.3513 $ 0.4821
----------- ----------- ----------- -----------
Per share distributions in excess of net investment income .......... -- $ 0.0004 -- --
----------- ----------- ----------- -----------
Per share distributions from net realized gain on investments sold .. $ 0.0114 $ 0.0460 -- $ 0.0254
----------- ----------- ----------- -----------
Per share distributions from capital paid-in ........................ -- -- $ 0.1718 --
----------- ----------- ----------- -----------
** Analysis of Portfolio Share Transactions:
Shares sold ......................................................... 139,746 532,093 106,277 1,100,749
Shares issued to shareholders in reinvestment of distributions ...... 13,886 30,042 1,713 2,086
----------- ----------- ----------- -----------
153,632 562,135 107,990 1,102,835
Less shares repurchased ............................................. (32,519) (234,419) (8,773) (7,419)
----------- ----------- ----------- -----------
Net Increase ....................................................... 121,113 327,716 99,217 1,095,416
=========== =========== =========== ===========
</TABLE>
The Statement of Changes in Net Assets shows how the value of each Fund's net
assets have changed since the previous period. The difference reflects net
investment income, any investment gains and losses, distributions paid to
shareholders, and any increase or decrease in money shareholders invested in
each Fund. The footnotes illustrate the number of Fund shares sold, reinvested
and repurchased during the period, along with the per share amount of
distributions made to shareholders of each Fund for the period indicated.
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds -- Institutional Series Trust
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL CAPITALIZATION DIVIDEND
VALUE FUND PERFORMERS FUND
--------------------------- ---------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
Increase (Decrease) in Net Assets: 1997 1998 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
From Operations:
Net investment income ................................................ $ 84,569 $ 45,212 $ 96,299 $ 200,218
Net realized gain on investments sold ................................ 590,179 1,689,121 240,807 2,026,525
Change in net unrealized appreciation of investments ................. 13,894 742,018 674,538 2,433,147
------------ ------------ ------------ ------------
Net Increase in Net Assets Resulting from Operations ................ 688,642 2,476,351 1,011,644 4,659,890
------------ ------------ ------------ ------------
Distributions to Shareholders: *
Dividends from net investment income ................................. (73,585) (60,567) (76,479) (188,048)
Distributions from net realized gain on investments sold ............. (458,016) (857,697) (98,355) (1,154,688)
------------ ------------ ------------ ------------
Total Distributions to Shareholders ................................. (531,601) (918,264) (174,834) (1,342,736)
------------ ------------ ------------ ------------
From Portfolio Share Transactions: **
Shares sold .......................................................... 1,315,767 10,734,873 5,594,177 11,392,158
Shares issued to shareholders in reinvestment of distributions ....... 531,562 918,083 174,842 1,336,430
------------ ------------ ------------ ------------
1,847,329 11,652,956 5,769,019 12,728,588
Less shares repurchased .............................................. (1,286,544) (9,672,795) (1,257,538) (3,828,808)
------------ ------------ ------------ ------------
Net Increase ........................................................ 560,785 1,980,161 4,511,481 8,899,780
------------ ------------ ------------ ------------
Net Assets:
Beginning of period .................................................. 5,292,756 6,010,582 3,319,220 8,667,511
------------ ------------ ------------ ------------
End of period (including undistributed net investment income of
$17,322, $2,997, $24,480 and $36,650, respectively) ................. $ 6,010,582 $ 9,548,830 $ 8,667,511 $ 20,884,445
============ ============ ============ ============
* Distributions to Shareholders:
Per share dividends from net investment income ....................... $ 0.1236 $ 0.0962 $ 0.1752 $ 0.1749
------------ ------------ ------------ ------------
Per share distributions from net realized gain on investments sold ... $ 0.8103 $ 1.2633 $ 0.1901 $ 0.9152
------------ ------------ ------------ ------------
** Analysis of Portfolio Share Transactions:
Shares sold .......................................................... 135,360 907,426 498,503 856,008
Shares issued to shareholders in reinvestment of distributions ....... 57,853 89,116 15,790 99,380
------------ ------------ ------------ ------------
193,213 996,542 514,293 955,388
Less shares repurchased .............................................. (134,414) (824,315) (113,243) (283,722)
------------ ------------ ------------ ------------
Net Increase ........................................................ 58,799 172,227 401,050 671,666
============ ============ ============ ============
</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>
MULTI-SECTOR SMALL CAPITALIZATION INTERNATIONAL
GROWTH FUND GROWTH FUND EQUITY FUND
------------------------- ------------------------- -------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
Increase (Decrease) in Net Assets: 1997 1998 1997+ 1998 1997 1998
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
From Operations:
Net investment income (loss) ................. $ 10,399 $ 9,544 $ 1,870 $ (5,754) $ 41,479 $ 41,542
Net realized gain (loss) on investments sold
and foreign currency transactions .......... 1,221,912 4,749,043 (56,301) (14,223) (34,481) (278,948)
Change in net unrealized appreciation of
investments and foreign currency transactions 912,165 1,644,227 36,052 551,977 77,370 292,145
----------- ----------- ----------- ----------- ----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Operations .................. 2,144,476 6,402,814 (18,379) 532,000 84,368 54,739
----------- ----------- ----------- ----------- ----------- -----------
Distributions to Shareholders: *
Dividends from net investment income ......... -- (2,904) (1,629) (229) (35,170) (5,208)
Distributions from net realized gain on
investments sold ............................ (102,180) (3,575,102) -- -- (15,751) --
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions to Shareholders ......... (102,180) (3,578,006) (1,629) (229) (50,921) (5,208)
----------- ----------- ----------- ----------- ----------- -----------
From Portfolio Share Transactions: **
Shares sold .................................. 21,261,390 25,552,524 1,221,905 3,168,688 2,191,748 12,446,539
Shares issued to shareholders in reinvestment
of distributions ............................ 101,551 3,563,690 1,444 229 50,885 5,208
----------- ----------- ----------- ----------- ----------- -----------
21,362,941 29,116,214 1,223,349 3,168,917 2,242,633 12,451,747
Less shares repurchased ...................... (2,719,594) (20,723,580) (203,845) (1,597,977) (968,875) (8,722,378)
----------- ----------- ----------- ----------- ----------- -----------
Net Increase ................................ 18,643,347 8,392,634 1,019,504 1,570,940 1,273,758 3,729,369
----------- ----------- ----------- ----------- ----------- -----------
Net Assets:
Beginning of period .......................... 8,398,934 29,084,577 -- 999,496 2,896,762 4,203,967
----------- ----------- ----------- ----------- ----------- -----------
End of period (including undistributed net
investment income (distributions in
excess of net investment income) of ($1,998),
($218), $229, ($16), ($9,867) and
($6,246) respectively) ...................... $29,084,577 $40,302,019 $ 999,496 $ 3,102,207 $ 4,203,967 $ 7,982,867
=========== =========== =========== =========== =========== ===========
* Distributions to Shareholders:
Per share dividends from net investment income -- $ 0.0010 $ 0.0157 $ 0.0009 $ 0.1030 $ 0.0064
----------- ----------- ----------- ----------- ----------- -----------
Per share distributions from net realized gain
on investments sold ......................... $ 0.0534 $ 1.2186 -- -- $ 0.0461 --
----------- ----------- ----------- ----------- ----------- -----------
** Analysis of Portfolio Share Transactions:
Shares sold .................................. 1,719,796 1,989,505 129,297 312,919 233,402 1,326,050
Shares issued to shareholders in reinvestment
of distributions ............................ 7,658 294,763 153 22 5,396 604
----------- ----------- ----------- ----------- ----------- -----------
1,727,454 2,284,268 129,450 312,941 238,798 1,326,654
Less shares repurchased ...................... (218,299) (1,597,014) (21,244) (156,837) (102,900) (947,485)
----------- ----------- ----------- ----------- ----------- -----------
Net Increase ................................ 1,509,155 687,254 108,206 156,104 135,898 379,169
=========== =========== =========== =========== =========== ===========
</TABLE>
+ Small Capitalization Growth Fund commenced operations on May 2, 1996.
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>
FOR THE PERIOD MARCH 30, 1995 YEAR ENDED FEBRUARY 28,
(COMMENCEMENT OF OPERATIONS) -----------------------
TO FEBRUARY 29, 1996 1997 1998
-------------------- ---- ----
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ..................................... $ 8.50 $ 8.64 $ 8.54
------ ------ ------
Net Investment Income (6) ................................................ 0.51 0.60 0.59
Net Realized and Unrealized Gain (Loss) on Investments ................... 0.16 (0.09) 0.34
------ ------ ------
Total from Investment Operations ...................................... 0.67 0.51 0.93
------ ------ ------
Less Distributions:
Dividends from Net Investment Income .................................... (0.51) (0.60) (0.59)
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)
------ ------ ------
Net Asset Value, End of Period ........................................... $ 8.64 $ 8.54 $ 8.83
====== ====== ======
Total Investment Return at Net Asset Value (5) ........................... 7.76%(3) 6.17% 11.25%
Total Adjusted Investment Return at Net Asset Value (5,7) ................ (0.46%)(3) 2.72% 9.21%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................................. $1,171 $2,191 $5,158
Ratio of Expenses to Average Net Assets .................................. 0.65%(2) 0.60% 0.60%
Ratio of Adjusted Expenses to Average Net Assets (1,4) ................... 9.60%(2) 4.05% 2.64%
Ratio of Net Investment Income to Average Net Assets ..................... 6.53%(2) 7.10% 6.78%
Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (1,4) (2.42%)(2) 3.65% 4.74%
Portfolio Turnover Rate .................................................. 71% 136% 230%
Fee Reduction Per Share (6) .............................................. $ 0.75 $ 0.30 $ 0.18
</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 indicated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed since the commencement of operations.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
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>
FOR THE PERIOD APRIL 19, 1995 YEAR ENDED FEBRUARY 28,
(COMMENCEMENT OF OPERATIONS) -----------------------
TO FEBRUARY 29, 1996 1997 1998
-------------------- ---- ----
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ..................................... $ 8.50 $ 8.46 $ 8.22
------ ------ ------
Net Investment Income (6) ................................................ 0.41 0.52 0.48
Net Realized and Unrealized Loss on Investments and Foreign
Currency Transactions ................................................... (0.04) (0.24) (0.03)
------ ------ ------
Total from Investment Operations ...................................... 0.37 0.28 0.45
------ ------ ------
Less Distributions:
Dividends from Net Investment Income .................................... (0.41) (0.35) (0.48)
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)
------ ------ ------
Net Asset Value, End of Period ........................................... $ 8.46 $ 8.22 $ 8.16
====== ====== ======
Total Investment Return at Net Asset Value (5) ........................... 4.37%(3) 3.39% 5.62%
Total Adjusted Investment Return at Net Asset Value (5,7) ................ (54.55%)(3) (2.93%) 4.30%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................................. $ 217 $1,026 $9,960
Ratio of Expenses to Average Net Assets .................................. 0.91%(2) 0.85% 0.85%
Ratio of Adjusted Expenses to Average Net Assets (1,4) ................... 69.15%(2) 7.17% 2.17%
Ratio of Net Investment Income to Average Net Assets ..................... 5.91%(2) 6.26% 5.44%
Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (1,4) (62.33%)(2) (0.06%) 4.12%
Portfolio Turnover Rate .................................................. 129% 119% 123%
Fee Reduction Per Share (6) .............................................. $ 5.35 $ 0.56 $ 0.11
</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 --
Small Capitalization Value 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>
FOR THE PERIOD APRIL 19, 1995 YEAR ENDED FEBRUARY 28,
(COMMENCEMENT OF OPERATIONS) -----------------------
TO FEBRUARY 29, 1996 1997 1998
-------------------- ---- ----
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ..................................... $ 8.50 $ 9.09 $ 9.38
------ ------- -------
Net Investment Income (6) ................................................ 0.17 0.14 0.07
Net Realized and Unrealized Gain on Investments .......................... 0.56 1.08 3.65
------ ------- -------
Total from Investment Operations ...................................... 0.73 1.22 3.72
------ ------- -------
Less Distributions:
Dividends from Net Investment Income .................................... (0.14) (0.12) (0.10)
Distributions from Net Realized Gain on Investments Sold ................ -- (0.81) (1.26)
------ ------- -------
Total Distributions ................................................... (0.14) (0.93) (1.36)
------ ------- -------
Net Asset Value, End of Period ........................................... $ 9.09 $ 9.38 $ 11.74
====== ======= =======
Total Investment Return at Net Asset Value (5) ........................... 8.61%(3) 13.78% 41.81%
Total Adjusted Investment Return at Net Asset Value (5,8) ................ 5.40%(3) 12.75% 41.19%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................................. $5,293 $ 6,011 $ 9,549
Ratio of Expenses to Average Net Assets .................................. 0.83%(2) 0.80% 0.80%
Ratio of Adjusted Expenses to Average Net Assets (1,4) ................... 4.55%(2) 1.83% 1.42%
Ratio of Net Investment Income to Average Net Assets ..................... 2.04%(2) 1.46% 0.62%
Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (1,4) (1.68%)(2) 0.43% 0.00%
Portfolio Turnover Rate .................................................. 0% 96% 216%
Fee Reduction Per Share (6) .............................................. $ 0.30 $ 0.10 $ 0.07
Average Brokerage Commission Rate (7) .................................... N/A $0.0640 $0.0573
</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) Per portfolio share traded. Required for fiscal years that began
September 1, 1995 or later.
(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.
34
<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>
FOR THE PERIOD MARCH 30, 1995 YEAR ENDED FEBRUARY 28,
(COMMENCEMENT OF OPERATIONS) -----------------------
TO FEBRUARY 29, 1996 1997 1998
-------------------- ---- ----
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ..................................... $ 8.50 $ 10.15 $ 11.91
------ ------- -------
Net Investment Income (6) ................................................ 0.23 0.21 0.18
Net Realized and Unrealized Gain on Investments .......................... 1.68 1.92 3.92
------ ------- -------
Total from Investment Operations ...................................... 1.91 2.13 4.10
------ ------- -------
Less Distributions:
Dividends from Net Investment Income .................................... (0.19) (0.18) (0.17)
Distributions from Net Realized Gain on Investments Sold ................ (0.07) (0.19) (0.92)
------ ------- -------
Total Distributions ................................................... (0.26) (0.37) (1.09)
------ ------- -------
Net Asset Value, End of Period ........................................... $10.15 $ 11.91 $ 14.92
====== ======= =======
Total Investment Return at Net Asset Value (5) ........................... 22.79%(3) 21.26% 35.55%
Total Adjusted Investment Return at Net Asset Value (5,8) ................ 19.79%(3) 20.07% 35.23%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................................. $3,319 $ 8,668 $20,884
Ratio of Expenses to Average Net Assets .................................. 0.75%(2) 0.70% 0.70%
Ratio of Adjusted Expenses to Average Net Assets (1,4) ................... 4.02%(2) 1.89% 1.02%
Ratio of Net Investment Income to Average Net Assets ..................... 2.51%(2) 1.94% 1.31%
Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (1,4) (0.76%)(2) 0.75% 0.99%
Portfolio Turnover Rate .................................................. 70% 37% 77%
Fee Reduction Per Share (6) .............................................. $ 0.30 $ 0.13 $ 0.04
Average Brokerage Commission Rate (7) .................................... N/A $0.0700 $0.0699
</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) Per portfolio share traded. Required for fiscal years that began
September 1, 1995 or later.
(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 -- 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>
FOR THE PERIOD APRIL 11, 1995 YEAR ENDED FEBRUARY 28,
(COMMENCEMENT OF OPERATIONS) -----------------------
TO FEBRUARY 29, 1996 1997 1998
-------------------- ---- ----
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ..................................... $ 8.50 $ 10.69 $ 12.67
------ ------- -------
Net Investment Income (Loss) (6) ......................................... (0.01) 0.01 0.00(8)
Net Realized and Unrealized Gain on Investments and Foreign Currency
Transactions ............................................................ 2.22 2.02 2.06
------ ------- -------
Total from Investment Operations ...................................... 2.21 2.03 2.06
------ ------- -------
Less Distributions:
Dividends from Net Investment Income .................................... (0.02) -- (0.00)(8)
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
====== ======= =======
Total Investment Return at Net Asset Value (5) ........................... 25.98%(3) 19.00% 17.39%
Total Adjusted Investment Return at Net Asset Value (5,9) ................ 23.70%(3) 18.48% 17.19%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................................. $8,399 $29,085 $40,302
Ratio of Expenses to Average Net Assets .................................. 0.93%(2) 0.90% 0.90%
Ratio of Adjusted Expenses to Average Net Assets (1,4) ................... 3.51%(2) 1.42% 1.10%
Ratio of Net Investment Income (Loss) to Average Net Assets .............. (0.10%)(2) 0.06% 0.03%
Ratio of Adjusted Net Investment Loss to Average Net Assets (1,4) ........ (2.68%)(2) (0.46%) (0.17%)
Portfolio Turnover Rate .................................................. 189% 281% 341%
Fee Reduction Per Share (6) .............................................. $ 0.23 $ 0.06 $ 0.03
Average Brokerage Commission Rate (7) .................................... N/A $0.0620 $0.0673
</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) Per portfolio share traded. Required for fiscal years that began
September 1, 1995 or later.
(8) Less than $0.01 per share.
(9) 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 Growth 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>
FOR THE PERIOD MAY 2, 1996 YEAR ENDED
(COMMENCEMENT OF OPERATIONS) FEBRUARY 28,
TO FEBRUARY 28, 1997 1998
--------------------------- ------------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................................ $ 8.50 $ 9.24
------- -------
Net Investment Income (Loss) (6) ................................................ 0.03 (0.03)
Net Realized and Unrealized Gain on Investments and Foreign Currency Transactions 0.73 2.53
------- -------
Total from Investment Operations ............................................. 0.76 2.50
------- -------
Less Distributions:
Dividends from Net Investment Income ........................................... (0.02) (0.00)(7)
------- -------
Net Asset Value, End of Period .................................................. $ 9.24 $ 11.74
======= =======
Total Investment Return at Net Asset Value (8) .................................. 8.89%(3) 27.07%
Total Adjusted Investment Return at Net Asset Value (8,9) ....................... (3.84%)(3) 23.92%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........................................ $ 999 $ 3,102
Ratio of Expenses to Average Net Assets ......................................... 0.90%(2) 0.90%
Ratio of Adjusted Expenses to Average Net Assets (1,4) .......................... 16.24%(2) 4.05%
Ratio of Net Investment Income (Loss) to Average Net Assets ..................... 0.35%(2) (0.25%)
Ratio of Adjusted Net Investment Loss to Average Net Assets (1,4) ............... (14.99%)(2) (3.40%)
Portfolio Turnover Rate ......................................................... 92% 117%
Fee Reduction Per Share (6) ..................................................... $ 1.22 $ 0.34
Average Brokerage Commission Rate (5) ........................................... $0.0692 $0.0687
</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) Per portfolio share traded. Required for fiscal years that began
September 1, 1995 or later.
(6) Based on the average of the shares outstanding at the end of each month.
(7) Less than $0.01 per share.
(8) Total investment return assumes dividend reinvestment.
(9) 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>
FOR THE PERIOD MARCH 30, 1995 YEAR ENDED FEBRUARY 28,
(COMMENCEMENT OF OPERATIONS) -----------------------
TO FEBRUARY 29, 1996 1997 1998
-------------------- ---- ----
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ..................................... $ 8.50 $ 9.24 $ 9.35
------ ------- -------
Net Investment Income (6) ................................................ 0.15 0.12 0.06
Net Realized and Unrealized Gain on Investments and Foreign Currency
Transactions ............................................................ 0.68 0.14 0.23
------ ------- -------
Total from Investment Operations ...................................... 0.83 0.26 0.29
------ ------- -------
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
====== ======= =======
Total Investment Return at Net Asset Value (5) ........................... 9.81%(3) 2.79% 3.07%
Total Adjusted Investment Return at Net Asset Value (5,8) ................ 3.26%(3) 0.47% 2.05%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................................. $2,897 $ 4,204 $ 7,983
Ratio of Expenses to Average Net Assets .................................. 1.05%(2) 1.00% 1.00%
Ratio of Adjusted Expenses to Average Net Assets (1,4) ................... 8.19%(2) 3.32% 2.02%
Ratio of Net Investment Income to Average Net Assets ..................... 1.75%(2) 1.26% 0.60%
Ratio of Adjusted Net Investment Loss to Average Net Assets (1,4) ........ (5.39%)(2) (1.06%) (0.42%)
Portfolio Turnover Rate .................................................. 59% 68% 125%
Fee Reduction Per Share (6) .............................................. $ 0.60 $ 0.22 $ 0.10
Average Brokerage Commission Rate (7) .................................... N/A $0.0237 $0.0204
</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) Per portfolio share traded. Required for fiscal years that began
September 1, 1995 or later.
(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.
38
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds -- Institutional Series Trust -- Active Bond Fund
Schedule of Investments
February 28, 1998
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Active Bond Fund on February 28, 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 (0.40%)
ERAC USA Finance Co.,
Note 02-15-05 (R) ............................................................. 6.625% BBB $ 21 $ 20,895
--------
Banks - Foreign (2.02%)
Landeskreditbank Baden - Wuerttemberg,
Sub Note (Germany) 02-01-23 (Y) ............................................... 7.625 AAA 25 28,250
RBSG Capital Corp.,
Gtd Cap Note (United Kingdom) 03-01-04 (Y) .................................... 10.125 A+ 30 35,457
Scotland International Finance No. 2 B.V.,
Gtd Sub Note (United Kingdom) 11-01-06 (R) (Y) ................................ 8.850 A+ 35 40,377
--------
104,084
--------
Banks - United States (1.37%)
Barclays North American Capital Corp.,
Gtd Cap Note 05-15-21 ......................................................... 9.750 AA- 25 28,197
National Westminster Bank Plc - New York Branch,
Sub Note 05-01-01 ............................................................. 9.450 AA- 15 16,401
NB Capital Trust IV,
Gtd Cap Security 04-15-27 ..................................................... 8.250 A- 24 26,170
--------
70,768
--------
Broker Services (0.29%)
Salomon Smith Barney Holdings Inc.,
Note 10-15-02 ................................................................. 6.500 A 15 15,117
--------
Building (0.25%)
M.D.C. Holdings, Inc.,
Sr Note 02-01-08 .............................................................. 8.375 BB- 13 13,049
--------
Electronics (0.15%)
Zilog, Inc.,
Sr Sec Note 03-01-05 (R) ...................................................... 9.500 B 8 7,940
--------
Energy (0.68%)
AES Corp.,
Sr Sub Note 07-15-06 .......................................................... 10.250 B+ 17 18,743
CalEnergy Company, Inc.,
Sr Note 09-15-06 .............................................................. 9.500 BB- 15 16,331
--------
35,074
--------
</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 (2.97%)
Citibank Credit Card Master Trust I,
Pass Thru Ctf Ser 1998-2 Class A 01-15-10 ..................................... 6.050% Aaa $ 20 $ 19,612
Constitution Capital Trust I,
Gtd Cap Security 04-15-27 (R) ................................................. 9.150 BBB 6 6,698
ContiFinancial Corp.,
Sr Note 08-15-03 .............................................................. 8.375 BB+ 14 14,350
DR Investments,
Sr Note 05-15-07 (R) .......................................................... 7.450 A- 20 21,444
JCP Master Credit Card Trust,
Pass Thru Ctf Ser C Class A 06-30-00 .......................................... 9.625 AA+ 55 58,730
PNC Institutional Capital Trust B,
Gtd Cap Security 05-15-27 (R) ................................................. 8.315 BBB 9 9,532
SUSA Partnership, L.P.,
Note 12-01-07 ................................................................. 7.000 BBB 10 10,093
United Companies Financial Corp.,
Sr Note 01-15-04 .............................................................. 7.700 BBB- 5 4,799
Yanacocha Receivables Master Trust,
Pass Thru Cert Ser 1997-A (Peru) 06-15-05 (R) (Y) ............................. 8.400 BBB- 8 7,760
----------
153,018
----------
Food (0.13%)
Smithfield Foods, Inc., Sr Sub Note 02-15-08 (R) ............................... 7.625 BB+ 7 6,965
----------
Funeral Services & Related (0.40%)
Loewen Group International, Inc., Gtd Sr Note Ser 4 10-15-03 ................... 8.250 BB+ 20 20,750
----------
Glass Products (0.15%)
VICAP S.A. de C.V.,
Gtd Sr Note (Mexico) 05-15-07 (R) (Y) ......................................... 11.375 B+ 7 7,735
----------
Government - Foreign (0.72%)
Croatia, Republic of,
Sr Note (Croatia) 02-27-02 (R) (Y) ............................................ 7.000 BBB- 10 9,612
Panama, Republic of,
Note (Panama) 02-13-02 (R) (Y) ................................................ 7.875 BB+ 22 21,978
Quebec, Province of,
Deb (Canada) 07-15-23 (Y) ..................................................... 7.500 A+ 5 5,339
----------
36,929
----------
Government - U.S. (46.43%)
United States Treasury,
Bond 08-15-17 ................................................................. 8.875 AAA 4 5,320
Bond 02-15-23 ................................................................. 7.125 AAA 446 510,184
Note 02-15-99 ................................................................. 8.875 AAA 237 244,257
Note 11-30-99 ................................................................. 7.750 AAA 262 271,374
Note 05-15-01 ................................................................. 8.000 AAA 82 87,688
Note 05-15-02 ................................................................. 7.500 AAA 361 386,043
Note 02-15-05 ................................................................. 7.500 AAA 440 485,514
Note 07-15-06 ................................................................. 7.000 AAA 373 404,354
----------
2,394,734
----------
</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 (8.41%)
Federal Home Loan Mortgage Corp.,
CMO REMIC 1601 10-15-08 ....................................................... 6.000% AAA $ 25 $ 24,555
Federal National Mortgage Assn.,
15 Yr Dwarf 03-01-11 + ........................................................ 6.000 AAA 50 49,328
30 Yr Pass Thru Ctf 03-01-24 + ................................................ 6.500 AAA 30 29,717
Pass Thru Ctf 01-20-08 + ...................................................... 6.000 AAA 25 24,246
Pass Thru Ctf Ser 1997-M8 Class A-1 01-25-22 .................................. 6.940 AAA 7 7,153
Government National Mortgage Assn.,
30 Yr Pass Thru Ctf 02-15-25+ ................................................. 7.500 AAA 120 123,284
30 Yr Pass Thru Ctf 11-15-24 to 08-15-26+ ..................................... 8.000 AAA 169 175,235
----------
433,518
----------
Insurance (2.93%)
Conseco, Inc.,
Sr Note 12-15-04 .............................................................. 10.500 BBB 10 12,063
Fairfax Financial Holdings Ltd.,
Note (Canada) 04-15-26 (Y) .................................................... 8.300 BBB+ 25 27,782
Liberty Mutual Insurance Co.,
Surplus Note 05-04-07 (R) ..................................................... 8.200 A+ 15 16,739
Surplus Note 10-15-26 (R) ..................................................... 7.875 A2 15 16,341
Massachusetts Mutual Life Insurance Co.,
Surplus Note 11-15-23 (R) ..................................................... 7.625 AA 15 16,426
NAC Re Corp.,
Note 06-15-99 ................................................................. 8.000 A- 5 5,110
New York Life Insurance Co.,
Surplus Note 12-15-23 (R) ..................................................... 7.500 AA- 15 15,274
Phoenix Home Life Mutual Insurance Co.,
Surplus Note 12-01-06 (R) ..................................................... 6.950 A+ 10 10,249
Sun Canada Financial Co.,
Gtd Sub Note (Canada) 12-15-07 (R) (Y) ........................................ 6.625 AA 20 20,425
URC Holdings Corp.,
Sr Note 06-30-06 (R) .......................................................... 7.875 A- 10 10,660
----------
151,069
----------
Leisure (0.51%)
Sun International Hotels Ltd.,
Gtd Sr Sub Note (Bahamas) 03-15-07 (Y) ........................................ 9.000 B+ 7 7,368
Gtd Sr Sub Note (Bahamas) 12-15-07 (Y) ........................................ 8.625 B+ 7 7,210
Trump Hotels & Casino Resorts Funding, Inc./Holdings, L.P.,
Sr Note 06-15-05 .............................................................. 15.500 B- 10 11,500
----------
26,078
----------
Machinery (0.19%)
Newcor, Inc.,
Sr Sub Notes 03-01-08 (R) ..................................................... 9.875 B- 10 10,025
----------
</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 (3.74%)
Adelphia Communications Corp.,
Sr Note Ser B 10-01-02 ........................................................ 9.250% B3 $ 13 $ 13,504
Cablevision Systems Corp.,
Sr Deb 02-15-18 ............................................................... 7.875 BB+ 15 14,737
Sr Note 12-15-07 .............................................................. 7.875 BB+ 14 14,280
Clear Channel Communications, Inc.,
Deb 10-15-27 .................................................................. 7.250 BBB- 13 13,268
Comcast Cable Communications Inc.,
Note 05-01-17 ................................................................. 8.875 BBB- 8 9,472
Comcast Corp.,
Sr Sub Deb 07-15-12 ........................................................... 10.625 BB+ 9 11,330
Garden State Newspapers, Inc.,
Sr Sub Note 10-01-09 (R) ...................................................... 8.750 B+ 8 8,240
Hearst-Argyle Television, Inc.,
Sr Note 11-15-07 .............................................................. 7.000 Baa3 10 10,072
News America Holdings Inc.,
Gtd Sr Deb 08-10-18 ........................................................... 8.250 BBB- 13 14,395
Rogers Cablesystems Ltd.,
Sr Sec Second Priority Note (Canada) 08-01-02 (Y) ............................. 9.625 BB+ 29 31,175
SFX Broadcasting, Inc.,
Sr Sub Note Ser B 05-15-06 .................................................... 10.750 B- 10 11,200
TeleWest Communications Plc,
Sr Deb (United Kingdom) 10-01-06 (Y) .......................................... 9.625 B+ 5 5,325
Time Warner, Inc.,
Deb 01-15-13 .................................................................. 9.125 BBB- 16 19,075
TKR Cable I, Inc.,
Sr Deb 10-30-07 ............................................................... 10.500 BBB- 15 16,598
----------
192,671
----------
Medical (1.23%)
Dynacare Inc.,
Sr Note (Canada) 01-15-06 (Y) ................................................. 10.750 B+ 8 8,480
Fresenius Medical Care Capital Trust II,
Gtd Trust Preferred Security 02-01-08 (R) ..................................... 7.875 B+ 15 15,056
Integrated Health Services Inc.,
Sr Sub Note 01-15-08 .......................................................... 9.250 B- 6 6,255
Physician Sales & Service, Inc.,
Gtd Sr Sub Note 10-01-07 ...................................................... 8.500 B 6 6,270
Quest Diagnostics, Inc.,
Sr Sub Note 12-15-06 .......................................................... 10.750 B+ 6 6,735
Tenet Healthcare Corp.,
Sr Sub Note 01-15-07 .......................................................... 8.625 BB- 20 20,800
----------
63,596
----------
</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 (3.54%)
ContiMortgage Home Equity Loan Trust,
Pass Thru Ctf Ser 1995-2 Class A-5 08-15-25 ................................... 8.100% AAA $ 15 $ 15,656
Deutsche Financial Capital Securitization L.L.C.,
Pass Thru Ctf Ser 1998-I Class A-3 04-15-28 ................................... 6.100 AAA 25 24,770
EQCC Home Equity Loan Trust,
Pass Thru Ctf Ser 1997-3 Class A-9 02-15-29 ................................... 6.570 AAA 40 40,331
FirstPlus Home Loan Owner Trust,
Pass Thru Ctf Ser 1997-1 Class A-6 12-10-15 ................................... 6.950 AAA 10 10,191
GMAC Commercial Mortgage Securities, Inc.,
Pass Thru Ctf Ser 1997-C2 Class A-3 11-15-07 .................................. 6.566 AAA 25 25,414
Money Store Home Equity Trust (The),
Pass Thru Ctf Ser 1997-D Class AF-7 12-31-38 .................................. 6.485 AAA 24 24,255
Salomon Brothers Mortgage Securities VII, Inc.,
Mtg Pass Thru Ctf Ser 1997-HUD2 Class A-2 07-25-24 ............................ 6.750 Aaa 11 11,153
UCFC Home Equity Loan Trust,
Pass Thru Ctf Ser 1997-A1 Class A-8 06-15-28 .................................. 7.220 AAA 30 30,964
----------
182,734
----------
Oil & Gas (0.93%)
Camuzzi Gas Pampeana S.A.,
Bond (Argentina) 12-15-01 (Y) ................................................. 9.250 BBB- 16 16,640
Norsk Hydro ASA,
Deb (Norway) 10-01-16 (Y) ..................................................... 7.500 A 10 10,856
Transgas de Occidenta S.A.,
Sr Note (Colombia) 11-01-10 (R) (Y) ........................................... 9.790 BBB- 20 20,277
----------
47,773
----------
Paper & Paper Products (0.30%)
Fort James Corp.,
Sr Note 09-15-02 .............................................................. 6.500 BBB- 10 10,041
S.D. Warren Co.,
Sr Sub Note Ser B 12-15-04 .................................................... 12.000 B+ 5 5,563
----------
15,604
----------
Real Estate Investment Trust (0.98%)
American Health Properties, Inc.,
Note 01-15-07 ................................................................. 7.500 BBB- 20 20,626
EOP Operating L.P.,
Sr Note 02-15-05 (R) .......................................................... 6.625 BBB 20 19,950
TriNet Corporate Realty Trust, Inc.,
Note 05-15-01 ................................................................. 7.300 BBB- 10 10,254
----------
50,830
----------
Retail (0.53%)
Federated Department Stores, Inc.,
Deb 02-15-28 .................................................................. 7.000 BBB- 15 14,722
Southern Foods Group L.P.,
Sr Sub Note 09-01-07 (R) ...................................................... 9.875 B 12 12,780
----------
27,502
----------
</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>
Steel (0.11%)
IVACO, Inc.,
Sr Note (Canada) 09-15-05 (Y) ................................................. 11.500% B+ $ 5 $ 5,488
----------
Telecommunications (3.20%)
DTI Holdings Inc.,
Unit (Sr Disc Note & Warrants, Step Coupon, 12.50%, 03-01-03) 03-01-08 (A)(R) . Zero B- 20 10,850
Facilicom International,
Sr Note 01-15-08 (R) .......................................................... 10.500 B3 9 9,203
FLAG Ltd.,
Sr Note (Bermuda) 01-30-08 (R) (Y) ............................................ 8.250 B+ 18 18,360
GTE North, Inc.,
Note 02-15-10 ................................................................. 6.375 AA- 15 14,936
Iridium LLC/Iridium Capital Corp.,
Gtd Sr Note Ser A 07-15-05 .................................................... 13.000 B- 9 9,799
MetroNet Communications Corp.,
Sr Note (Canada) 08-15-07 (Y) ................................................. 12.000 B- 10 11,550
Nextel Communications, Inc.,
Sr Disc Note, Step Coupon (9.75%, 02-15-99) 08-15-04 (A) ...................... Zero CCC+ 18 17,190
Sr Disc Note, Step Coupon (9.95%, 02-15-03) 02-15-08 (A) (R) .................. Zero CCC+ 12 7,320
NEXTLINK Communications, Inc.,
Sr Note 03-15-08 (R) .......................................................... 9.000 B 10 10,025
Qwest Communications International Inc.,
Sr Note Ser B 04-01-07 ........................................................ 10.875 B+ 6 6,915
Satelites Mexicanos S.A. de C.V.,
Sr Note (Mexico) 11-01-04 (R) (Y) ............................................. 10.125 B- 12 12,240
TCI Communications, Inc.,
Sr Deb 08-01-15 ............................................................... 8.750 BBB- 21 24,248
Teligent, Inc.,
Sr Note 12-01-07 .............................................................. 11.500 CCC 12 12,330
----------
164,966
----------
Textile (0.29%)
Unifi, Inc.,
Note 02-01-08 (R) ............................................................. 6.500 A- 15 14,817
----------
Tobacco (0.76%)
Philip Morris Companies Inc.,
Note 08-15-02 ................................................................. 7.125 A 20 20,543
RJR Nabisco, Inc.,
Note 12-01-02 ................................................................. 8.625 BBB- 10 10,577
Note 09-15-03 ................................................................. 7.625 BBB- 8 8,090
----------
39,210
----------
Transport (1.70%)
America West Airlines,
Pass Thru Ctf Ser B 01-02-08 .................................................. 6.930 A- 5 4,883
Continental Airlines, Inc.,
Pass Thru Ctf Ser 972C 06-30-04 ............................................... 7.206 BBB- 25 25,565
</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 (continued)
Northwest Airlines Corp.,
Gtd Note 03-15-04 ............................................................. 8.375% BB $ 16 $ 16,447
Pass Thru Ctf Ser 1996-1 01-02-15 ............................................. 8.970 BBB- 5 5,465
NWA Trust,
Sr Note Ser A 06-21-14 ........................................................ 9.250 A2 7 8,810
U.S. Airways, Inc.,
Pass Thru Ctf Ser 1990-A1 03-19-05 ............................................ 11.200 BB+ 23 26,291
----------
87,461
----------
Utilities (7.02%)
Beaver Valley Funding Corp.,
Sec Lease Oblig Bond 06-01-17 ................................................. 9.000 BB- 4 4,492
BVPS II Funding Corp.,
Collateralized Lease Bond 06-01-17 ............................................ 8.890 BB- 7 7,875
Calpine Corp.,
Sr Note 07-15-07 .............................................................. 8.750 BB- 14 14,490
CE Electric UK Funding Co.,
Sr Note (United Kingdom) 12-30-07 (R)(Y) ...................................... 6.995 BBB+ 13 13,298
Cleveland Electric Illuminating Co. & Toledo Edison Co.,
Sec Note Ser B 07-01-04 ....................................................... 7.670 Ba1 10 10,471
Cleveland Electric Illuminating Co.,
1st Mtg Ser B 05-15-05 ........................................................ 9.500 BB+ 32 35,025
EIP Funding-PNM,
Sec Fac Bond 10-01-12 ......................................................... 10.250 Ba2 25 29,286
Enersis S.A.,
Note (Cayman Islands) 12-01-16 (Y) ............................................ 7.400 A- 10 9,682
First PV Funding Corp.,
Deb Ser 86B 01-15-16 .......................................................... 10.150 BB- 8 8,468
Hydro-Quebec,
Gtd Bond (Canada) 02-01-21 (Y) ................................................ 9.400 A+ 15 19,277
Gtd Bond (Canada) 01-15-22 (Y) ................................................ 8.400 A+ 25 29,245
Gtd Deb (Canada) 02-01-03 (Y) ................................................. 7.375 A+ 25 26,149
Iberdrola International B.V.,
Note 10-01-02 ................................................................. 7.500 AA- 20 20,970
Note (Spain) 06-01-03 (R) (Y) ................................................. 7.125 AA- 25 25,980
Long Island Lighting Co.,
Deb 07-15-19 .................................................................. 8.900 BB+ 7 7,448
Gen Ref Mtg Bond 05-01-21 ..................................................... 9.750 BBB 25 25,625
Midland Cogeneration Venture L.P.,
Sec Deb Ser C-91 07-23-02 ..................................................... 10.330 BB 18 19,203
North Atlantic Energy Corp.,
1st Mtg Bond 06-01-02 ......................................................... 9.050 B+ 14 14,404
PNPP II Funding Corp.,
Coll Lease Bond 05-30-16 ...................................................... 9.120 AAA 15 17,681
System Energy Resources, Inc.,
1st Mtg 08-01-01 .............................................................. 7.710 BBB- 5 5,122
</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)
Waterford 3 Funding Corp.,
Sec Lease Obligation Bond 01-02-17 ............................................ 8.090% BBB- $ 17 $ 17,731
----------
361,922
----------
TOTAL BONDS
(Cost $4,720,743) (92.33%) 4,762,322
------- ----------
<CAPTION>
NUMBER OF
WARRANTS
--------
<S> <C> <C>
WARRANT
MetroNet Communications Corp., (Canada)** ...................................... 10 350
----------
TOTAL WARRANT
(Cost $103) (0.01%) 350
------- ----------
<CAPTION>
PAR VALUE
INTEREST (000s
RATE OMITTED)
---- --------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (12.33%)
Investment in a joint repurchase agreement transaction with SBC Warburg, Inc.,
Dated 02-27-98, Due 03-02-98 (secured by U.S. Treasury Bonds, 8.000% thru
10.625%, Due 08-15-15 thru 11-15-21) - Note A ................................. 5.630% $636 $ 636,000
----------
Corporate Savings Account (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%............................................................ 345
----------
TOTAL SHORT-TERM INVESTMENTS (12.34%) 636,345
-------- ----------
TOTAL INVESTMENTS (104.68%) 5,399,017
-------- ----------
OTHER ASSETS AND LIABILITIES, NET (4.68%) (241,392)
-------- ----------
TOTAL NET ASSETS (100.00%) $5,157,625
======= ==========
</TABLE>
** Credit ratings are unaudited and rated by Moody's Investors Service or
John Hancock Advisers, Inc. where Standard & Poor's ratings are not
available.
** Non-income producing security.
+ A portion of these securities having an aggregate value of $278,411 or
5.40% of the Fund's net assets, have been purchased on a when issued
basis. The purchase price and the interest rate 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 current values at least equal to the amounts
of its when issued commitments. Accordingly, the market values of $109,243
of United States Treasury Bond 7.125%, 02-15-23 and $184,691 of United
States Treasury Notes 7.500% thru 7.750%, 11-30-99 thru 02-15-05 have 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 $475,471 or 9.22% of net assets as of
February 28, 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.
46
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds -- Institutional Series Trust -- Global Bond Fund
Schedule of Investments
February 28, 1998
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Global Bond Fund on February 28, 1998. It's divided into two main categories:
bonds and short-term investments. The bonds are further broken down by currency
denomination. Short-term investments, which represent the Fund's "cash"
position, are listed last.
PAR VALUE
INTEREST (000s MARKET
ISSUER, DESCRIPTION RATE OMITTED)# VALUE
- ------------------- ---- --------- -----
BONDS
British Pound Sterling (7.16%)
United Kingdom Treasury,
Bond 12-07-07 ............................ 7.250% 400 $ 713,294
----------
U.S. Dollar (85.69%)
Federative Republic of Brazil,
(Brazil), Global Bond
11-05-01 ................................. 8.875 $ 25 25,906
Petroleo Brasileiro S.A.,
(Brazil), Unsub Deb Ser REGS
10-17-01 ................................. 8.750 200 207,500
Petroleos Mexicanos, (Mexico),
Bond 09-15-07 ............................ 8.850 200 205,000
Republic of Ecuador, (Ecuador),
Unsub Deb 04-25-02 (R) ................... 11.250 25 26,187
Republic of Panama, (Panama),
Note Ser REGS 02-13-02 ................... 7.875 30 29,940
United Mexican States, (Mexico),
Global Bond 02-06-01 ..................... 9.750 25 26,625
United States Treasury,
Bond 08-15-27 ............................ 6.375 200 211,750
Note 05-31-02 ............................ 6.500 675 697,147
Note 09-30-02 ............................ 5.875 4,750 4,797,500
Note 11-30-02 ............................ 5.750 500 502,500
Note 08-15-07 ............................ 6.125 1,750 1,804,968
----------
8,535,023
----------
TOTAL BONDS
(Cost $9,158,688) (92.85%) 9,248,317
------- ----------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (5.79%)
Investment in a joint repurchase agreement
transaction with SBC Warburg, Inc.,
Dated 02-27-98, due 03-02-98, (secured by
U.S. Treasury Bond 6.000%, due
02-15-26, and Treasury Note, 9.125%, due
05-15-99) - Note A...... 5.630% $ 576 $ 576,000
----------
TOTAL SHORT-TERM INVESTMENTS (5.79%) 576,000
------- ----------
TOTAL INVESTMENTS (98.64%) 9,824,317
------- ----------
OTHER ASSETS AND LIABILITIES, NET (1.36%) 135,794
------- ----------
TOTAL NET ASSETS (100.00%) $9,960,111
======= ==========
# Par value of non US$ 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 $26,187 or 0.26% of the Fund's net assets
as of February 28, 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 February 28, 1998 assigned to the
various investment categories.
MARKET VALUE AS A
INVESTMENT CATEGORIES % OF FUND'S NET ASSETS
- --------------------- ----------------------
Government - Foreign................................. 8.25%
Government - U.S..................................... 80.46
Oil & Gas............................................ 4.14
Short-term Investments............................... 5.79
-----
TOTAL INVESTMENTS 98.64%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds -- Institutional Series Trust --
Small Capitalization Value Fund
Schedule of Investments
February 28, 1998
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Small Capitalization Value Fund on February 28, 1998. It's divided into three
main categories: common stocks and right, preferred stocks and short-term
investments. Common stocks and preferred stocks are further broken down by
industry groups. Short-term investments, which represent the Fund's "cash"
position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Advertising (0.69%)
Princeton Video Image, Inc.* ................. 10,000 $ 66,250
----------
Agricultural Operations (3.67%)
Scheid Vineyards, Inc., (Class A)* ........... 10,000 90,000
Tejon Ranch Co. .............................. 8,700 260,456
----------
350,456
----------
Automobile/Trucks (2.32%)
Arvin Industries, Inc. ....................... 5,600 221,900
----------
Banks - United States (2.48%)
Southwest Bancorp. of Texas, Inc.* ........... 1,800 64,800
Summit Bancshares, Inc. ...................... 8,000 172,000
----------
236,800
----------
Building (1.79%)
Coachmen Industries, Inc. .................... 6,000 171,375
----------
Business Services - Misc (0.98%)
Sensormatic Electronics Corp. ................ 5,000 93,125
STRATESEC, Inc.* ............................. 200 375
----------
93,500
----------
Chemicals (0.31%)
Millennium Chemicals, Inc. ................... 1,135 29,297
----------
Computers (7.21%)
Advanced Digital Information Corp.* .......... 5,000 78,750
Award Software International, Inc.* .......... 10,000 90,625
FDP Corp. .................................... 5,000 50,625
Inso Corp.* .................................. 6,000 84,000
Micromuse, Inc. * ............................ 200 3,800
OAO Technology Solutions Inc.* ............... 140 1,400
Pathways Group Inc* .......................... 12,000 285,000
Symix Systems, Inc.* ......................... 5,000 94,375
----------
688,575
----------
Consumer Products Misc. (2.25%)
Russ Berrie & Co., Inc. ...................... 7,700 214,638
----------
Electronics (8.77%)
Amphenol Corp. (Class A)* .................... 5,000 312,813
DII Group, Inc.* ............................. 2,600 68,900
Interphase Corp.* ............................ 5,100 42,075
Oak Industries, Inc.* ........................ 8,000 245,500
Sanmina Corp.* ............................... 2,112 168,300
----------
837,588
----------
Energy (1.66%)
Calpine Corp.* ............................... 10,000 $ 158,750
----------
Finance (13.04%)
AMRESCO, Inc.* ............................... 1,600 54,000
ContiFinancial Corp.* ........................ 5,300 143,763
Core Cap, Inc. (r) ........................... 11,100 222,000
FIRSTPLUS Financial Group, Inc.* ............. 4,200 138,600
Money Store, Inc. (The) ...................... 5,000 124,687
MoneyGram Payment Systems, Inc.* ............. 8,250 102,094
MSB Bancorp., Inc. ........................... 4,300 149,963
PIMCO Advisors Holdings L.P. ................. 8,000 284,500
Safeguard Scientifics, Inc.* ................. 700 25,200
----------
1,244,807
----------
Food (2.39%)
Authentic Specialty Foods, Inc.* ............. 10,000 141,250
Morrison Health Care, Inc. ................... 4,333 86,660
----------
227,910
----------
Insurance (7.15%)
Allmerica Financial Corp. .................... 2,000 123,000
AmerUs Life Holdings, Inc. (Class A) ......... 4,489 146,454
CMAC Investment Corp. ........................ 4,000 268,000
ESG Re Ltd.* (Bermuda) ....................... 600 15,900
Executive Risk, Inc. ......................... 700 47,731
HCC Insurance Holdings, Inc. ................. 4,000 82,000
----------
683,085
----------
Leisure (0.82%)
Equity Marketing Inc.* ....................... 3,800 78,375
----------
Linen Supply & Related (1.21%)
Angelica Corp. ............................... 5,000 115,312
----------
Media (0.45%)
Holdingmaatschappij De Telegraaf
(Netherlands) ............................... 2,000 42,992
----------
SEE NOTES TO FINANCIAL STATEMENTS.
48
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds -- Institutional Series Trust --
Small Capitalization Value Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Medical (6.79%)
DENTSPLY International Inc. .................. 7,000 $ 217,000
Respironics, Inc.* ........................... 10,000 271,250
Shire Pharmaceuticals Group PLC*
(United Kingdom) ............................ 27,000 160,261
----------
648,511
----------
Office (1.41%)
Gradco Systems, Inc.* ........................ 20,000 135,000
----------
Oil & Gas (3.24%)
Key Energy Group, Inc.* ...................... 4,000 70,750
Mitcham Industries, Inc.* .................... 5,000 88,750
Parker Drilling Co.* ......................... 13,600 149,600
----------
309,100
----------
Retail (7.43%)
Darden Restaurants, Inc. ..................... 3,400 45,900
Dominick's Supermarkets, Inc.* ............... 5,000 227,500
Ruddick Corp. ................................ 12,500 226,562
Savoir Technology Group Inc.* ................ 9,100 102,375
SED International Holdings, Inc.* ............ 7,700 106,838
----------
709,175
----------
Telecommunications (14.22%)
Cable Design Technologies* ................... 4,800 139,500
Commonwealth Telephone Enterprises, Inc.* .... 15,000 420,000
EIS International, Inc.* ..................... 40,000 357,500
RCN Corp.* ................................... 7,500 440,625
----------
1,357,625
----------
Transport (0.39%)
Coach USA, Inc.* ............................. 1,000 37,250
----------
RIGHT
Computers (0.01%)
DocuCorp International Inc.* ................. 140 542
----------
TOTAL COMMON STOCKS AND RIGHT
(Cost $7,804,475) (90.68%) 8,658,813
------ ----------
PREFERRED STOCKS
Broker Services (3.60%)
Salomon Inc., 7.625%, Ser FSA ................ 8,000 344,000
----------
Finance (2.91%)
Core Cap, Inc., 10%, Ser A/I (r) ............. 11,100 277,500
----------
TOTAL PREFERRED STOCKS
(Cost $494,225) (6.51%) 621,500
------ ----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.89%)
Investment in a joint repurchase
agreement transaction with SBC
Warburg, Inc., Dated 02-27-98,
Due 03-02-98 (Secured by U.S.
Treasury Bonds, 8.000% thru
10.625%, Due 8-15-15
thru 11-15-21 ) - Note A ........ 5.630% $276 $ 276,000
----------
Corporate Savings Account (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%............... 874
----------
TOTAL SHORT-TERM INVESTMENTS (2.90%) 276,874
------- ----------
TOTAL INVESTMENTS (100.09%) 9,557,187
------- ----------
OTHER ASSETS AND LIABILITIES, NET (0.09%) (8,357)
------- ----------
TOTAL NET ASSETS (100.00%) $9,548,830
======== ==========
* Non-income producing security.
(r) The Security listed below is a direct placement security and is 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 this restricted security is as
follows:
MARKET VALUE
AS A PERCENTAGE MARKET VALUE
ACQUISITION ACQUISITION OF FUNDS AT FEBRUARY 28,
DATE COST NET ASSETS 1998
---- ---- ---------- ----
Core Cap. Inc (Common) .... 10-31-97 $222,000 2.32% $222,000
Core Cap. Inc (Preferred) . 10-31-97 $277,500 2.91% $277,500
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds -- Institutional Series Trust -- Dividend Performers Fund
Schedule of Investments
February 28, 1998
Per share earnings and dividends, price/earnings ratios, company description,
and their compound growth rates are shown for the most recently reported ten
year periods on common stocks and are unaudited.
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Dividend Performers Fund on February 28, 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.
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
--------- -------- ------
<S> <C> <C> <C>
COMMON STOCKS
Advertising (1.30%)
5,000 Interpublic Group of Companies,
Inc. @ 54 1/2.............................................................. $ 272,500
-----------
One of the largest advertising agencies in
the world
Earnings P/S.......$ .60, .70, .79, .87, 1.00, 1.11, 1.25, 1.11, 1.71, 1.82 13.1%
Dividends P/S............$ .17, .21, .25, .27, .30, .33, .36, .40, .44, .50 12.7%
Price/Earnings Ratio...................................................31.5
Banks (6.38%)
8,800 Banc One Corp. @ 56 1/2.................................................... 497,200
Ohio-based bank holding company
Earnings P/S...$ 1.43, 1.45, 1.66, 1.72, 2.08, 2.62, 2.20, 2.91, 3.23, 2.25 5.2%
Dividends P/S........$ .50, .57, .63, .70, .81, .98, 1.13, 1.24, 1.36, 1.52 13.1%
Price/Earnings Ratio...................................................29.7
3,000 First Union Corp. @ 52 11/16............................................... 158,062
North Carolina-based bank holding company
Earnings P/S...$ 1.38, 1.20, 1.26, 1.28, 1.12, 2.37, 2.29, 2.52, 2.68, 3.43 10.6%
Dividends P/S..........$ .43, .50, .54, .56, .64, .75, .86, .98, 1.10, 1.22 12.3%
Price/Earnings Ratio...................................................17.6
4,000 KeyCorp. @ 70 1/16......................................................... 280,250
Bank holding company with offices from
coast to coast
Earnings P/S...$ 2.10, 2.32, 2.32, 1.31, 2.39, 2.89, 3.45, 3.30, 3.37, 3.73 6.6%
Dividends P/S.......$ .68, .80, .88, .92, .98, 1.12, 1.28, 1.44, 1.52, 1.68 10.6%
Price/Earnings Ratio...................................................16.9
4,000 NationsBank Corp. @ 68 1/2................................................. 274,000
Largest superregional bank in the Southeast
Earnings P/S....$ 1.44, 2.22, 1.31, .38, 2.30, 2.50, 3.06, 3.57, 4.00, 4.22 12.7%
Dividends P/S.........$ .47, .55, .71, .74, .76, .82, .94, 1.04, 1.20, 1.32 12.2%
Price/Earnings Ratio...................................................16.4
3,000 Norwest Corp.@ 40 15/16.................................................... 122,812
Large superregional bank providing commercial and retail banking services
Earnings P/S.........$ .57, .63, .22, .73, .71, .95, 1.23, 1.38, 1.54, 1.69 12.8%
Dividends P/S............$ .16, .19, .21, .24, .27, .32, .38, .45, .53, .62 16.2%
Price/Earnings Ratio...................................................24.3
-----------
1,332,324
-----------
Beverages (0.53%)
3,000 PepsiCo, Inc. @ 36 9/16.................................................... 109,687
-----------
Second largest soft drink company
Earnings P/S..........$ .48, .57, .69, .68, .81, .98, 1.11, 1.00, .72, 1.07 9.3%
Dividends P/S............$ .12, .15, .18, .21, .23, .28, .32, .36, .41, .47 16.4%
Price/Earnings Ratio...................................................32.1
Building (4.61%)
17,700 Masco Corp. @ 54 3/8....................................................... $ 962,437
-----------
Manufactures buildings, home improvement and consumer products
Earnings P/S.....$ 2.03, 1.42, .91, .30, 1.21, 1.45, 1.09, 1.25, 1.84, 2.23 1.1%
Dividends P/S............$ .44, .50, .54, .57, .61, .65, .69, .73, .77, .81 7.0%
Price/Earnings Ratio...................................................25.4
Chemicals (11.29%)
4,000 Air Products & Chemicals,
Inc. @ 83 15/16............................................................ 335,750
Producer of industrial gases
Earnings P/S...$ 1.95, 2.02, 2.08, 2.23, 2.45, 1.76, 2.05, 3.29, 3.73, 3.90 8.0%
Dividends P/S.........$ .55, .63, .69, .75, .83, .89, .95, 1.01, 1.07, 1.15 8.5%
Price/Earnings Ratio...................................................18.5
10,100 BetzDearborn, Inc. @ 64 3/16............................................... 648,294
Produces and markets a wide range of engineered programs and specialty
chemical products for process systems
Earnings P/S...$ 1.58, 1.77, 2.12, 2.47, 2.71, 2.05, 2.43, 2.27, 2.10, 2.47 5.1%
Dividends P/S....$ .80, .89, 1.01, 1.16, 1.30, 1.38, 1.42, 1.46, 1.49, 1.51 7.3%
Price/Earnings Ratio...................................................18.9
28,750 RPM, Inc. @ 17............................................................. 488,750
Manufacturer of specialty chemicals and coatings to waterproof and
rustproof structures
Earnings P/S.............$ .30, .37, .34, .44, .47, .47, .60, .68, .72, .80 11.5%
Dividends P/S............$ .20, .22, .24, .27, .29, .31, .34, .36, .39, .42 8.6%
Price/Earnings Ratio...................................................19.8
13,000 Schulman (A), Inc. @ 25 1/2................................................ 331,500
Manufactures plastic compounds, buys and sells plastic resins and
distributes plastic products and synthetic rubber for prime producers
in domestic and international markets
Earnings P/S......$ .73, .82, .64, 1.15, 1.18, 1.04, 1.19, 1.43, 1.12, 1.37 7.2%
Dividends P/S............$ .11, .14, .16, .19, .22, .26, .30, .34, .38, .42 16.1%
Price/Earnings Ratio...................................................17.6
14,000 Sigma - Aldrich Corp. @ 39 1/2............................................. 553,000
Manufacturer of biochemical and organic products used for research and
diagnostics
Earnings P/S........$ .57, .65, .72, .80, .96, 1.08, 1.11, 1.32, 1.48, 1.61 12.2%
Dividends P/S............$ .08, .09, .10, .11, .13, .15, .17, .19, .23, .26 14.0%
Price/Earnings Ratio...................................................23.1
-----------
2,357,294
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
50
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds -- Institutional Series Trust -- Dividend Performers Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
--------- -------- ------
<S> <C> <C> <C>
Computers (2.49%)
3,000 Automatic Data Processing,
Inc. @ 61 1/16............................................................. $ 183,187
Largest independent computing services
firm in the U.S.
Earnings P/S........$ .55, .63, .72, .82, .92, 1.04, 1.19, 1.38, 1.57, 1.76 13.8%
Dividends P/S............$ .13, .15, .17, .20, .23, .26, .29, .35, .42, .48 15.6%
Price/Earnings Ratio...................................................34.7
5,000 Hewlett-Packard Co. @ 67................................................... 335,000
Manufactures and services electronic measurement, analysis and
computation instruments
Earnings P/S........$ .84, .88, .77, .76, .87, 1.16, 1.54, 2.32, 2.46, 2.95 15.0%
Dividends P/S............$ .07, .10, .11, .13, .20, .24, .29, .38, .46, .54 25.5%
Price/Earnings Ratio...................................................21.0
-----------
518,187
-----------
Containers (5.26%)
11,500 Bemis Co., Inc. @ 45 1/16.................................................. 518,218
Producer of a broad range of flexible packaging and equipment and
pressure sensitive materials
Earnings P/S.......$ .74, .90, .99, 1.03, 1.10, .89, 1.40, 1.63, 1.90, 1.93 11.2%
Dividends P/S............$ .22, .30, .36, .42, .46, .50, .54, .64, .72, .80 15.4%
Price/Earnings Ratio...................................................23.1
15,000 Sonoco Products Co. @ 38 11/16............................................. 580,312
Leading manufacturer of containers, paper products and packaging
Earnings P/S.....$ 1.05, 1.12, .55, 1.05, .89, 1.29, 1.33, 1.72, 1.81, 1.81 6.2%
Dividends P/S............$ .30, .39, .43, .44, .48, .50, .53, .59, .65, .71 10.0%
Price/Earnings Ratio...................................................19.5
-----------
1,098,530
-----------
Diversified Operations (3.36%)
5,000 DuPont (E.I.) De Nemours & Co.
@ 61 5/16.................................................................. 306,562
Nation's largest chemical manufacturer
Earnings P/S.....$ 1.52, 1.77, 1.70, 1.04, .72, .42, 2.00, 2.81, 3.24, 2.65 6.4%
Dividends P/S.........$ .62, .73, .81, .84, .87, .88, .91, 1.02, 1.12, 1.23 7.9%
Price/Earnings Ratio...................................................29.6
12,100 IKON Office Solutions, Inc. @ 32 11/16..................................... 395,518
Distributor of office and paper products
Earnings P/S......$ 1.06, 1.14, .88, .85, 1.11, (.02), .55, .86, 1.12, .77 NMF
Dividends P/S..$ .080, .089, .097, .103, .106, .111, .117, .123, .129, .160 8.0%
Price/Earnings Ratio...................................................47.7
-----------
702,080
-----------
Electronics (9.95%)
9,400 AMP, Inc. @ 44 3/16........................................................ 415,363
World's largest manufacturer of electrical/electronic connectors
Earnings P/S.........$ 1.48, 1.32, 1.35, 1.23, 1.38, 1.42, 1.72, 1.96, 1.31 NMF
Dividends P/S..........$ .50, .60, .68, .72, .76, .80, .84, .92, 1.00, 1.04 8.5%
Price/Earnings Ratio...................................................19.9
5,000 Emerson Electric Co. @ 63 13/16............................................ $ 319,063
Produces and sells electrical/electronic products and systems
Earnings P/S...$ 1.16, 1.32, 1.38, 1.42, 1.48, 1.58, 2.02, 2.08, 2.28, 2.52 9.0%
Dividends P/S..........$ .52, .58, .64, .67, .70, .74, .80, .92, 1.01, 1.11 8.8%
Price/Earnings Ratio...................................................24.7
2,000 General Electric Co. @ 77 3/4.............................................. 155,500
Dominant force in home appliances, electrical power, and financial services
Earnings P/S....$ .94, 1.09, 1.21, 1.28, 1.26, 1.23, 1.73, 1.95, 2.20. 2.42 11.1%
Dividends P/S...........$ .35, .41, .47, .51, .56, .63, .72, .82, .92, 1.04 12.9%
Price/Earnings Ratio...................................................31.1
5,000 Grainger (W.W.), Inc. @ 96 13/16........................................... 484,063
Leading distributor of electrical equipment
Earnings P/S...$ 1.96, 2.20, 2.31, 2.37, 2.58, 2.88, 2.50, 3.64, 4.04, 4.36 9.3%
Dividends P/S...........$ .43, .50, .57, .61, .65, .71, .78, .89, .98, 1.06 10.5%
Price/Earnings Ratio...................................................22.0
3,000 Honeywell, Inc. @ 79 1/4................................................... 237,750
Manufacturer of automation and control systems
Earnings P/S $ (2.73), 3.12, 2.45, 2.35, 2.89, 2.40, 2.15, 2.62, 3.18, 3.51 NMF
Dividends P/S.........$ .51, .55, .69, .77, .84, .91, .97, 1.01, 1.06, 1.09 8.8%
Price/Earnings Ratio...................................................21.3
3,000 Hubbell, Inc. (Class B) @ 50 3/8........................................... 151,125
Manufactures a variety of electrical products
Earnings P/S.......$ .93, 1.04,1.18, 1.30,1.41,1.00, 1.60, 1.83, 2.10, 2.28 10.5%
Dividends P/S..........$ .43, .53, .63, .70, .76, .78, .81, .92, 1.02, 1.13 11.3%
Price/Earnings Ratio...................................................26.9
6,750 Parker Hannifin Corp. @ 46 5/8............................................. 314,719
Operates in the Industrial and Aerospace industries producing a wide
range of motion control devices and designs and manufactures products
for the aircraft, missile and spacecraft markets
Earnings P/S.........$ .98, .94, 1.00, .55, .59, .60, .48, 1.97, 2.15, 2.46 10.8%
Dividends P/S..$ .366, .373, .393, .406, .413, .426, .433, .453, .480, .567 5.0%
Price/Earnings Ratio...................................................17.4
-----------
2,077,583
-----------
Food (1.94%)
6,000 ConAgra, Inc. @ 30......................................................... 180,000
Produces basic agricultural inputs and ingredients
Earnings P/S...........$ .43, .54, .62, .71, .75, .79, .91, 1.03, .40, 1.34 13.5%
Dividends P/S............$ .15, .18, .21, .24, .28, .32, .37, .43, .49, .57 16.0%
Price/Earnings Ratio...................................................22.5
4,000 Sara Lee Corp.@ 56 1/2..................................................... 226,000
Manufacturer of brand name package food and consumer products
Earnings P/S........... .71, .88, .31, .34, .44, .48, .51, .57, .64, (2.71) NMF
Dividends P/S............. .32, .38, .43, .48, .52, .60, .65, .70, .78, .86 11.6%
Price/Earnings Ratio...................................................26.0
-----------
406,000
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
51
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds -- Institutional Series Trust -- Dividend Performers Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
--------- -------- ------
<S> <C> <C> <C>
Furniture (2.64%)
11,000 Leggett & Platt, Inc. @ 50 3/16............................................ $ 552,063
-----------
Produces intermediate products for the home furnishings industry
Earnings P/S........$ .35, .66, .42, .56, .82, 1.05, 1.39, 1.49, 1.67, 2.08 21.9%
Dividends P/S............$ .16, .19, .21, .22, .23, .27, .31, .38, .46, .54 14.5%
Price/Earnings Ratio...................................................25.6
Insurance (9.84%)
2,000 AFLAC Corp. @ 61 7/16...................................................... 122,875
Global specialty insurer
Earnings P/S.......$ .72, .53, .77, .97, 1.19, 1.55, 1.89, 2.33, 2.73, 4.39 22.2%
Dividends P/S............$ .13, .15, .18, .20, .23, .26, .30, .34, .39, .45 14.8%
Price/Earnings Ratio...................................................15.5
6,500 Chubb Corp. @ 79 13/16..................................................... 518,781
Broadly based property-casualty insurance organization
Earnings P/S...$ 2.14, 2.46, 3.04, 3.16, 3.48, 1.96, 2.98, 3.70, 2.75, 3.46 5.5%
Dividends P/S..........$ .54, .58, .66, .74, .80, .86, .92, .98, 1.08, 1.16 8.9%
Price/Earnings Ratio...................................................18.2
1,100 General RE Corp. @ 213..................................................... 234,300
Broadly based re-insurance organization
Earnings P/S..$ 5.09, 6.52, 6.89, 7.46, 6.84, 8.11, 7.97, 9.92, 11.0, 11.91 9.9%
Dividends P/S..$ 1.20, 1.36, 1.52, 1.68, 1.80, 1.88, 1.92, 1.96, 2.04, 2.20 7.0%
Price/Earnings Ratio...................................................18.2
14,600 Reliastar Financial Corp. @ 47 9/16........................................ 694,413
Financial services company engaged in life/health insurance and
consumer finance
Earnings P/S.....$ 1.04, 1.00, .98, .86, 1.04, 1.32, 1.65, 2.18, 2.52, 2.57 10.6%
Dividends P/S............$ .29, .30, .32, .35, .37, .39, .44, .49, .55, .61 8.6%
Price/Earnings Ratio...................................................18.4
5,000 Travelers Group, Inc. @ 55 3/4............................................. 278,750
Diversified financial services company
Earnings P/S......$ .91, .71, .82, 1.07, 1.67, 1.94, 1.93, 2.75, 3.50, 3.00 14.2%
Dividends P/S..........$ .045, .048, .06, .08, .12, .16, .19, .27, .30, .40 27.5%
Price/Earnings Ratio...................................................23.4
4000 UNUM Corp.@ 51 7/16........................................................ 205,750
Leading provider of group long term disability insurance in the US/ UK
Earnings P/S.............. .75, .97, .34, .37, .45, .54, .38, .43, .33, .55 NMF
Dividends P/S............. .12, .14, .19, .25, .31, .38, .46, .52, .55, .57 18.9%
Price/Earnings Ratio...................................................19.8
-----------
2,054,869
-----------
Leisure (1.39%)
8,000 Hasbro, Inc.@ 36 5/16...................................................... 290,500
-----------
Designs, manufactures, and markets toys, games and infant care products
Earnings P/S.............. .55, .69, .69, .34, .49, .52, .57, .65, .75, .14 NMF
Dividends P/S............. .05, .07, .08, .10, .13, .15, .18, .21, .25, .31 22.5%
Price/Earnings Ratio...................................................35.5
Machinery (5.54%)
15,000 Dover Corp. @ 38 5/8....................................................... 579,375
Manufactures a variety of specialized
industrial products
Earnings P/S..........$ .56, .57, .64, .54, .56, .69, .89, 1.23, 1.72, 1.73 13.4%
Dividends P/S............$ .16, .18, .19, .21, .22, .23, .25, .28, .32, .36 9.4%
Price/Earnings Ratio...................................................20.9
14,000 Pentair, Inc. @ 41 3/16.................................................... $ 576,625
Manufactures enclosures for electrical, electronic, woodworking and
power tool equipment
Earnings P/S.....$ 1.23, .99, .84, 1.10, 1.07, 1.13, 1.21, 1.48, 1.83, 2.07 6.0%
Dividends P/S............$ .22, .27, .29, .31, .33, .34, .36, .40, .50, .54 10.5%
Price/Earnings Ratio...................................................18.9
-----------
1,156,000
-----------
Media (0.54%)
1,500 McGraw-Hill Cos., Inc. @ 75 5/8............................................ 113,438
-----------
Provides informational products and
services for business and industry
Earnings P/S.....$ 1.92, .41, 1.77, 1.52, 1.57, .12, 2.05, 2.28, 4.96, 5.32 12.0%
Dividends P/S...$ .92, 1.00, 1.08, 1.10, 1.12, 1.14, 1.16, 1.20, 1.32, 1.44 5.1%
Price/Earnings Ratio...................................................25.7
Medical (7.16%)
5,100 Abbott Laboratories @ 74 13/16............................................. 381,544
Major pharmaceutical and healthcare firm
Earnings P/S.....$ .83, .96, 1.11, 1.28, 1.47, 1.69, 1.87, 2.12, 2.41, 2.64 13.7%
Dividends P/S...........$ .29, .34, .40, .48, .58, .66, .74, .82, .93, 1.05 15.4%
Price/Earnings Ratio...................................................28.7
6,000 Baxter International, Inc. @ 56 5/8........................................ 339,750
The company operates four divisions: renal, biotech, cardiovascular and
intravenous systems and international distribution
Earnings P/S..$ 1.31, 1.50, (.05), 1.73, 1.99, (.97), 1.45, 1.34, 2.11. .99 NMF
Dividends P/S.........$ .47, .52, .60, .69, .80, .93, .95, 1.03, 1.11, 1.14 10.3%
Price/Earnings Ratio...................................................53.5
3,000 Becton, Dickinson & Co. @ 63 5/8........................................... 190,875
Manufactures and markets medical devices and diagnostic systems
Earnings P/S....$ .92, 1.00, 1.17, 1.22, 1.29, 1.36, 1.53, 1.79, 2.11, 2.30 10.7%
Dividends P/S............$ .22, .26, .28, .29, .31, .34, .38, .42, .48, .54 10.5%
Price/Earnings Ratio...................................................28.9
4,000 Johnson & Johnson @ 75 1/2................................................. 302,000
Major producer of prescription and non-prescription drugs, toiletries,
medical instruments and supplies
Earnings P/S......$ .72, .81, .86, 1.10, 1.23, 1.37, 1.56, 1.86, 2.17, 2.42 14.4%
Dividends P/S............$ .24, .28, .33, .39, .45, .51, .57, .64, .74, .85 15.1%
Price/Earnings Ratio...................................................30.6
2,200 Merck & Co. @ 127 9/16..................................................... 280,638
World's largest ethical drug manufacturer
Earnings P/S...$ 1.02, 1.26, 1.52, 1.83, 2.12, 1.87, 2.38, 2.70, 3.20, 3.66 15.3%
Dividends P/S.......$ .43, .55, .64, .77, .92, 1.03, 1.14, 1.24, 1.42, 1.69 16.4%
Price/Earnings Ratio...................................................33.9
-----------
1,494,807
-----------
Office (2.02%)
9,000 Pitney Bowes, Inc. @ 46 7/8................................................ 421,875
-----------
Manufactures office automation equipment
Earnings P/S...$ 1.50, 1.13, 1.30, 1.80, 1.96, 1.92, 2.21, 2.68, 3.12, 3.43 9.6%
Dividends P/S........$ .46, .52, .60, .68, .78, .90, 1.04, 1.20, 1.38, 1.60 14.9%
Price/Earnings Ratio...................................................27.6
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
52
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds -- Institutional Series Trust -- Dividend Performers Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
--------- -------- ------
<S> <C> <C> <C>
Oil & Gas (2.08%)
6,000 Mobil Corp. @ 72 7/16...................................................... $ 434,625
-----------
One of the largest integrated, international oil companies with
interest in petrochemicals and plastics
Earnings P/S...$ 2.47, 2.20, 2.30, 2.33, 1.57, 2.54, 2.14, 2.94, 3.69, 4.05 5.6%
Dividends P/S..$ 1.18, 1.28, 1.41, 1.56, 1.60, 1.63, 1.70, 1.81, 1.96, 2.12 6.7%
Price/Earnings Ratio...................................................17.7
Retail (9.84%)
8,000 Dayton Hudson Corp. @ 77 5/16.............................................. 618,500
General merchandiser selling through Target and Mervyn stores.
Earnings P/S....$ .80, 1.15, 1.79, 1.80, 1.29, 1.67, 1.66, 1.92, 1.34, 2.07 11.1%
Dividends P/S............$ .34, .37, .44, .48, .51, .53, .56, .58, .61, .66 7.6%
Price/Earnings Ratio...................................................23.8
10,000 Home Depot, Inc. @ 63 13/16................................................ 638,125
Operates a chain of retail building supply/home improvement "warehouse"
stores
Earnings P/S..........$ .15, .21, .30, .40, .55, .67, .88, 1.03, 1.29, 1.50 29.2%
Dividends P/S............$ .01, .02, .03, .04, .06, .08, .10, .13, .15, .19 38.7%
Price/Earnings Ratio...................................................43.9
10,000 Sysco Corp. @ 47 1/16...................................................... 470,625
Largest distributor of food service products
Earnings P/S........$ .45, .60, .73, .84, .93, 1.08, 1.18, 1.38, 1.52, 1.71 16.0%
Dividends P/S............$ .08, .09, .10, .14, .22, .28, .36, .44, .52, .60 25.1%
Price/Earnings Ratio...................................................27.2
7,100 Wal-Mart Stores, Inc. @ 46 5/16............................................ 328,819
Operates chain of discount department
stores
Earnings P/S........$ .37, .48, .57, .70, .87, 1.02, 1.17, 1.19, 1.33, 1.47 16.6%
Dividends P/S............$ .04, .06, .07, .09, .11, .13, .17, .20, .21, .27 23.6%
Price/Earnings Ratio...................................................33.0
-----------
2,056,069
-----------
Soap & Cleaning Preparations (1.10%)
8,000 Ecolab, Inc. @ 28 13/16.................................................... 230,500
-----------
Develops and markets premium institutional cleansing, sanitizing and
maintenance products and services
Earnings P/S......$ .82, .05, 1.07, .96, 1.03, 1.23, 1.25, 1.50, 1.75, 2.01 10.5%
Dividends P/S............$ .32, .33, .34, .35, .36, .40, .46, .52, .58, .67 8.6%
Price/Earnings Ratio...................................................27.7
Tobacco (1.87%)
9,000 Philip Morris Cos., Inc. @ 43 7/16......................................... 390,938
-----------
Global tobacco, brewing and food company
Earnings P/S....$ .74, 1.06, 1.28, 1.42, 1.82, 1.35, 1.82, 2.17, 2.56, 2.67 15.3%
Dividends P/S........$ .34, .42, .52, .64, .78, .87, 1.01, 1.22, 1.47, 1.60 18.8%
Price/Earnings Ratio...................................................16.7
Transport (0.76%)
7,000 C. H. Robinson Worldwide
Inc.@ 22 3/4............................................................... 159,250
-----------
Provides multimodal transportation services and logistics solutions
Earnings P/S......................................$ .28, .36, .52, .67, .78 NMF
Dividends P/S...$ .045, .058, .062, .067, .073, .087, .108, .130, .185, .20 21.0%
Price/Earnings Ratio...................................................25.5
Utilities (2.39%)
4,000 Century Telephone Enterprise,
Inc. @ 61.................................................................. $ 244,000
Louisiana based telecommunications company
Earnings P/S.......$ .57, .49, .67, .80, 1.25, 1.35, 1.88, 1.97, 2.15, 3.11 20.7%
Dividends P/S..$ .264, .272, .280, .287, .293, .310, .320, .330, .360, .370 3.8%
Price/Earnings Ratio...................................................14.2
6,000 Questar Corp. @ 42 1/2..................................................... 255,000
Diversified holding company for Utah, Wyoming and Colorado natural gas
transmission, distribution and storage
Earnings P/S....$ .64, 1.28, 1.46, 1.63, 1.85, 2.10, 1.21, 2.05, 2.39, 2.55 16.6%
Dividends P/S.....$ .94, .95, .97, 1.01, 1.04, 1.09, 1.13, 1.16, 1.19, 1.24 3.1%
Price/Earnings Ratio...................................................16.6
-----------
499,000
-----------
TOTAL COMMON STOCKS
(Cost $16,117,073) (94.28%) 19,690,556
------- -----------
INTEREST PAR VALUE
ISSUER, DESCRIPTION RATE (000s OMITTED)
- ------------------- ---- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (7.90%)
$1,650 Investment in a joint
repurchase agreement
transaction with SBC
Warburg, Inc., Dated
02-27-98, Due 03-02-98
(secured by U.S. Treasury
Bonds, 8.000% thru
10.625%, Due 08-15-15
thru 11-15-21) --
Note A..........................................................5.630% $1,650 1,650,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% ......................................... 464
-----------
TOTAL SHORT-TERM INVESTMENTS (7.90%) 1,650,464
-------- -----------
TOTAL INVESTMENTS (102.18%) 21,341,020
-------- -----------
OTHER ASSETS AND LIABILITIES, NET (2.18%) (456,575)
-------- -----------
TOTAL NET ASSETS (100.00%) $20,884,445
======== ===========
</TABLE>
NMF = No Meaningful Figure
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
53
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds -- Institutional Series Trust -- Multi-Sector Growth Fund
Schedule of Investments
February 28, 1998
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Multi-Sector Growth Fund on February 28, 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 (1.10%)
Outdoor Systems, Inc.* ....................... 14,800 $ 441,225
----------
Aerospace (0.96%)
Precision Castparts Corp. .................... 7,000 388,063
----------
Automobile/Trucks (0.97%)
Tower Automotive, Inc.* ...................... 8,600 390,762
----------
Banks - United States (4.34%)
First American Corp. ......................... 9,500 454,812
Republic New York Corp. ...................... 3,500 423,500
Silicon Valley Bancshares* ................... 8,000 456,000
TCF Financial Corp. .......................... 12,600 416,588
----------
1,750,900
----------
Business Services - Misc (1.20%)
Select Appointments Holdings PLC
American Depositary Receipts (ADR)
(United Kingdom) ............................ 23,000 483,000
----------
Computers (8.59%)
Cambridge Technology Partners* ............... 8,400 382,200
Compuware Corp.* ............................. 9,100 383,338
EMC Corp.* ................................... 22,900 875,925
Keane, Inc.* ................................. 12,500 581,250
Lexmark International Group, Inc.
(Class A)* .................................. 9,300 397,575
Networks Associates, Inc. .................... 6,700 432,988
Sterling Commerce, Inc.* ..................... 9,000 410,625
----------
3,463,901
----------
Consumer Products Misc. (1.19%)
Samsonite Corp.* ............................. 14,500 478,500
----------
Containers (0.99%)
Owens-Illinois, Inc.* ........................ 10,400 399,100
----------
Cosmetics & Personal Care (2.41%)
Rexall Sundown, Inc.* ........................ 12,000 444,000
Twinlab Corp.* ............................... 16,200 526,500
----------
970,500
----------
Electronics (4.35%)
Berg Electronics Corp.* ...................... 22,600 638,450
Jabil Circuit, Inc.* ......................... 4,300 226,287
Raychem Corp. ................................ 10,000 434,375
Waters Corp. * ............................... 9,150 452,353
----------
1,751,465
----------
Finance (4.72%)
Charter One Financial, Inc. .................. 6,975 $ 422,641
CIT Group, Inc. (The) (Class A)* ............. 11,100 366,300
Price (T. Rowe) Associates, Inc. ............. 6,000 398,250
Sovereign Bancorp., Inc. ..................... 20,000 387,500
Vornado Realty Trust ......................... 7,700 326,769
----------
1,901,460
----------
Food (2.22%)
International Home Foods, Inc.* ............. 12,400 333,250
Keebler Foods Co.* ........................... 4,600 144,325
Suiza Foods Corp.* ........................... 6,445 417,717
----------
895,292
----------
Funeral Services & Related (1.32%)
Loewen Group, Inc. (Canada) .................. 21,500 532,125
----------
Instruments - Scientific (1.45%)
Input/Output, Inc.* .......................... 8,500 183,281
Perkin-Elmer Corp. ........................... 5,500 402,531
----------
585,812
----------
Insurance (11.09%)
Allmerica Financial Corp. .................... 7,200 442,800
Berkley (W.R.) Corp. ......................... 9,200 419,750
CMAC Investment Corp. ........................ 6,200 415,400
Executive Risk, Inc. ......................... 6,000 409,125
Life Re Corp. ................................ 7,000 445,375
Mid Ocean Ltd. (Bermuda) ..................... 7,500 459,844
Mutual Risk Management Ltd. .................. 6,450 206,400
Reliance Group Holdings, Inc. ................ 29,000 493,000
ReliaStar Financial Corp. .................... 10,500 499,406
Selective Insurance Group, Inc. .............. 15,500 425,281
Vesta Insurance Group, Inc. .................. 4,400 252,175
----------
4,468,556
----------
SEE NOTES TO FINANCIAL STATEMENTS.
54
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds -- Institutional Series Trust -- Multi-Sector Growth Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Media (3.20%)
Central Newspapers, Inc. (Class A) ........... 8,350 $ 596,503
Clear Channel Communications, Inc.* .......... 3,500 317,187
Univision Communications, Inc. (Class A)* .... 9,800 376,075
----------
1,289,765
----------
Medical (12.44%)
Dura Pharmaceuticals, Inc.* .................. 10,000 251,250
Elan Corp., PLC * ADR (Ireland) ............. 9,000 558,563
Forest Laboratories, Inc.* ................... 8,500 531,781
Genesis Health Ventures, Inc.* ............... 15,000 435,000
Genzyme Corp. (General Division)* ............ 15,000 443,437
Health Management Associates, Inc.
(Class A)* .................................. 18,000 500,625
HEALTHSOUTH Corp.* ........................... 17,000 459,000
Mylan Laboratories, Inc. ..................... 20,500 417,688
Quorum Health Group, Inc.* ................... 17,000 471,218
Sofamor Danek Group, Inc.* ................... 6,500 489,125
Wellpoint Health Networks, Inc.* ............. 7,800 455,813
----------
5,013,500
----------
Oil & Gas (6.18%)
BJ Services Co.* ............................. 7,000 240,625
Columbia Energy Group ........................ 5,000 381,562
Cooper Cameron Corp.* ........................ 4,000 214,500
Diamond Offshore Drilling, Inc. .............. 5,000 226,562
El Paso Natural Gas Co. ...................... 5,900 391,612
EVI, Inc.* ................................... 4,500 220,781
Mitchell Energy & Development Corp. .......... 15,000 408,750
R&B Falcon Corp.* ............................ 8,000 212,000
Santa Fe International Corp. ................. 5,500 194,906
----------
2,491,298
----------
Pollution Control (2.23%)
US Filter Corp.* ............................. 13,000 441,188
USA Waste Services, Inc.* .................... 11,000 457,875
----------
899,063
----------
Real Estate Investment Trust (2.97%)
FelCor Suite Hotels, Inc. .................... 12,000 430,500
Spieker Properties, Inc. ..................... 9,100 361,156
Starwood Hotels & Resorts .................... 7,200 407,250
----------
1,198,906
----------
Retail (8.67%)
Costco Companies, Inc.* ...................... 10,600 518,075
CVS Corp. .................................... 5,700 422,156
Ethan Allen Interiors, Inc. .................. 9,200 512,900
Furniture Brands International, Inc.* ........ 14,000 383,250
Meyer (Fred), Inc. * ......................... 10,400 462,150
Retail (continued)
OfficeMax, Inc.* ............................. 25,000 $ 417,188
Rite Aid Corp. ............................... 11,700 378,788
Safeway, Inc.* ............................... 11,400 397,575
----------
3,492,082
----------
Service (1.15%)
Interim Services, Inc. * ..................... 16,000 464,000
----------
Telecommunications (4.91%)
ICG Communications Inc. ...................... 6,600 221,925
Intermedia Communications Inc.* ............. 2,680 204,685
McLeodUSA, Inc. (Class A)* ................... 12,100 471,521
NEXTLINK Communications, Inc. (Class A)* ..... 16,600 500,075
Tel-Save Holdings, Inc.* ..................... 21,000 581,438
----------
1,979,644
----------
Textile (1.07%)
St. John Knits, Inc. ......................... 10,200 430,950
----------
Transport (1.02%)
Kansas City Southern Industries, Inc. ........ 11,000 409,062
----------
Utilities (3.20%)
KN Energy Inc. ............................... 8,500 441,469
MCN Energy Group, Inc. ....................... 11,500 423,344
Questar Corp. ................................ 10,000 425,000
----------
1,289,813
----------
TOTAL COMMON STOCKS
(Cost $34,335,989) (93.94%) 37,858,744
------- ----------
SEE NOTES TO FINANCIAL STATEMENTS.
55
<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 (2.27%)
Investment in a joint repurchase
agreement transaction with SBC
Warburg, Inc., Dated 02-27-98,
Due 03-02-98 (secured by U.S.
Treasury Bonds, 8.000% thru
10.625%, Due 08-15-15 thru
11-15-21) - Note A............. 5.630% $916 $ 916,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%........................... 997
-----------
TOTAL SHORT-TERM INVESTMENTS (2.27%) 916,997
-------- -----------
TOTAL INVESTMENTS (96.21%) 38,775,741
-------- -----------
OTHER ASSETS AND LIABILITIES, NET (3.79%) 1,526,278
-------- -----------
TOTAL NET ASSETS (100.00%) $40,302,019
======== ===========
*Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
Portfolio Concentration (Unaudited)
- --------------------------------------------------------------------------------
The Multi-Sector Growth Fund invests primarily in common stocks of U.S. and
foreign issuers. The performance of the Fund is closely tied to the economic and
financial conditions within the countries in which it invests. The concentration
of investments by industry category for individual securities held by the Fund
is shown in the schedule of investments.
In addition, concentration of investments can be aggregated by
various countries. The table below shows the percentages of the Fund's
investments at February 28, 1998 assigned to country categories.
MARKET VALUE AS A
PERCENTAGE OF
COUNTRY DIVERSIFICATION FUND'S NET ASSETS
- ----------------------- -----------------
Bermuda..................................................... 1.14%
Canada...................................................... 1.32
Ireland..................................................... 1.39
United Kingdom.............................................. 1.20
United States............................................... 88.89
Short-term investments...................................... 2.27
-----
TOTAL INVESTMENTS 96.21%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
56
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds -- Institutional Series Trust --
Small Capitalization Growth Fund
Schedule of Investments
February 28, 1998
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Small Capitalization Growth Fund on February 28, 1998. It's divided into two
main categories: common stocks and unit 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 (2.55%)
DoubleClick, Inc.* ........................... 100 $ 3,194
Getty Images, Inc.* .......................... 800 20,000
Outdoor Systems, Inc.* ....................... 712 21,227
Princeton Video Image, Inc.* ................. 1,600 10,600
Universal Outdoor Holdings, Inc.* ........... 400 24,000
----------
79,021
----------
Aerospace (0.98%)
AAR Corp. .................................... 600 18,225
Kellstrom Industries, Inc.* .................. 500 12,000
----------
30,225
----------
Agricultural Operations (0.44%)
Scheid Vineyards, Inc. (Class A)* ........... 1,500 13,500
----------
Automobile/Trucks (1.78%)
Avis Rent A Car, Inc.* ....................... 700 20,037
Budget Group, Inc. (Class A)* ................ 700 21,831
Special Devices, Inc.* ....................... 300 8,513
United Rentals, Inc. * ....................... 200 4,938
----------
55,319
----------
Beverages (0.39%)
Beringer Wine Estates Holdings, Inc.
(Class B)* .................................. 300 12,187
----------
Broker Services (0.57%)
Dain Rauscher Corp. .......................... 300 17,587
----------
Building (2.23%)
Crossmann Communities, Inc.* ................. 600 15,600
D.R .Horton, Inc. ............................ 800 18,650
Standard-Pacific Corp. ....................... 1,100 19,044
Vari-Lite International, Inc.* ............... 1,300 15,925
----------
69,219
----------
Business Services - Miscellaneous (7.04%)
Abacus Direct Corp.* ......................... 500 23,562
Coinstar, Inc.* .............................. 1,200 10,125
CORESTAFF, Inc.* ............................. 600 18,712
Forrester Research, Inc.* .................... 300 7,462
Hagler Bailly, Inc.* ......................... 800 19,700
Innovative Valve Technologies, Inc.* ......... 1,000 18,375
Mac-Gray Corp.* .............................. 1,400 23,800
Market Facts, Inc. * ......................... 800 15,700
MAXIMUS, Inc.* ............................... 200 4,900
META Group, Inc. * ........................... 700 21,000
Metzler Group, Inc. (The)* ................... 300 $ 12,825
On Assignment, Inc.* ......................... 700 20,563
ProBusiness Services, Inc.* .................. 800 21,600
----------
218,324
----------
Computers (14.03%)
Advent Software, Inc.* ....................... 500 18,312
Aris Corp.* .................................. 800 22,400
Aspect Development, Inc.* .................... 300 14,325
BARRA, Inc.* ................................. 600 14,962
CBT Group PLC,* American Depositary
Receipt (Ireland) ........................... 300 27,450
CCC Information Services Group, Inc. * ....... 900 22,050
CheckFree Holdings Corp.* .................... 400 8,600
Concord Communications, Inc.* ................ 100 2,875
Dendrite International, Inc.* ................ 800 21,900
E*TRADE Group, Inc.* ......................... 600 16,050
FlexiInternational Software, Inc.* ........... 100 1,587
Hyperion Software Corp.* ..................... 500 20,562
Information Management Resources, Inc.* ...... 450 21,544
International Network Services * ............. 600 16,725
JDA Software Group, Inc.* .................... 400 19,350
Micromuse, Inc. * ............................ 800 15,200
National Computer Systems, Inc. .............. 600 23,925
National Instruments Corp.* .................. 750 22,594
Network Appliance, Inc.* ..................... 1,000 29,500
PRT Group, Inc.* ............................. 800 16,650
SCM Microsystems, Inc.* ...................... 400 23,000
Symantec Corp.* .............................. 700 17,631
VeriSign, Inc.* .............................. 500 14,313
Visio Corp.* ................................. 600 21,600
Visual Networks, Inc.* ....................... 100 2,013
----------
435,118
----------
SEE NOTES TO FINANCIAL STATEMENTS.
57
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds -- Institutional Series Trust --
Small Capitalization Growth Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Containers (0.24%)
Ivex Packaging Corp.* ........................ 300 $ 7,537
----------
Electronics (7.15%)
Aavid Thermal Technologies, Inc.* ........... 600 20,625
Aeroflex, Inc.* .............................. 1,600 18,300
Artisan Components, Inc.* .................... 300 5,137
ATMI, Inc.* .................................. 700 19,425
FARO Technologies, Inc.* ..................... 1,000 12,750
Flextronics International Ltd. * ............. 400 19,050
Genesis Microchip, Inc.* ..................... 800 10,550
Level One Communications, Inc.* .............. 500 22,469
Metromedia Fiber Network, Inc. (Class A)* .... 1,000 36,750
PRI Automation, Inc.* ........................ 300 10,434
SeaMED Corp.* ................................ 900 16,875
Semtech Corp.* ............................... 600 17,250
Zoran Corp.* ................................. 700 12,163
----------
221,778
----------
Finance (1.99%)
FIRSTPLUS Financial Group, Inc.* ............. 400 13,200
LINC Capital, Inc.* .......................... 1,200 21,000
Medallion Financial Corp. .................... 1,100 27,363
----------
61,563
----------
Food (1.48%)
American Italian Pasta Co. (Class A)* ........ 800 23,950
Fine Host Corp.* ............................. 200 0
Suiza Foods Corp.* ........................... 340 22,036
----------
45,986
----------
Funeral Services & Related (0.38%)
Rock of Ages Corp.* .......................... 700 11,681
----------
Insurance (3.79%)
AmerUs Life Holdings, Inc. (Class A) ......... 500 16,313
Capital Re Corp. ............................. 300 18,581
CMAC Investment Corp. ........................ 300 20,100
ESG Re Ltd.* (Bermuda) ....................... 200 5,300
Hartford Life, Inc. (Class A) ................ 500 21,531
Healthcare Recoveries, Inc.* ................. 800 17,000
Western National Corp. ....................... 600 18,600
----------
117,425
----------
Leasing Companies (1.22%)
Mitcham Industries, Inc.* .................... 900 15,975
Rollins Truck Leasing Corp. .................. 1,100 21,931
----------
37,906
----------
Leisure (3.79%)
Ballantyne of Omaha, Inc.* ................... 1,000 16,125
Cinar Films, Inc. (Class B)* (Canada) ........ 600 22,200
Premier Parks, Inc.* ......................... 400 20,950
Silverleaf Resorts, Inc.* .................... 700 $ 18,725
Steiner Leisure Ltd.* ........................ 500 20,000
Travel Services International, Inc.* ......... 700 19,688
----------
117,688
----------
Linen Supply & Related (0.28%)
G & K Services, Inc. (Class A) ............... 200 8,800
----------
Machinery (1.39%)
Applied Power, Inc. (Class A) ................ 600 21,600
Gardner Denver Machinery, Inc.* .............. 800 21,450
----------
43,050
----------
Media (3.78%)
Adelphia Communications Corp.(Class A)* ...... 800 20,600
Central Newspapers, Inc. (Class A) ........... 300 21,431
Heftel Broadcasting Corp. (Class A)* ......... 500 23,688
Network Event Theater, Inc.* ................. 3,000 13,125
Petersen Cos., Inc. (The) (Class A)* ......... 900 23,063
Univision Communications, Inc. (Class A)* .... 400 15,350
----------
117,257
----------
Medical (9.22%)
American Healthcorp, Inc.* ................... 1,100 9,281
Amsurg Corp. (Class A)* ...................... 101 941
Amsurg Corp. (Class B)* ...................... 653 6,367
Cyberonics, Inc.* ............................ 600 14,475
Incyte Pharmaceuticals, Inc.* ................ 400 18,200
MiniMed, Inc.* ............................... 500 21,000
Ocular Sciences, Inc.* ....................... 600 13,575
PAREXEL International Corp.* ................. 600 22,650
PathoGenesis Corp.* .......................... 400 14,400
Perclose, Inc.* .............................. 600 15,150
Protein Design Labs, Inc.* ................... 300 12,900
Province Healthcare Co.* ..................... 100 2,075
Res-Care, Inc.* .............................. 500 16,750
Respironics, Inc.* ........................... 800 21,700
Sano Corp.* .................................. 500 18,500
SONUS Pharmaceuticals, Inc.* ................. 500 12,625
Sunrise Assisted Living, Inc.* ............... 400 16,900
Symphonix Devices, Inc.* ..................... 700 9,450
Universal Health Services, Inc. (Class B)* ... 300 15,675
Ventana Medical Systems, Inc.* ............... 300 6,563
Wesley Jessen VisionCare, Inc.* .............. 500 16,938
----------
286,115
----------
Office (0.52%)
Shelby Williams Industries, Inc. ............. 1,000 16,125
----------
SEE NOTES TO FINANCIAL STATEMENTS.
58
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds -- Institutional Series Trust --
Small Capitalization Growth Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Oil & Gas (5.49%)
Brown (Tom) Inc.* ............................ 600 $ 11,887
Core Laboratories N.V.* (Netherlands) ........ 1,000 20,500
Dril-Quip, Inc.* ............................. 600 18,225
Key Energy Group, Inc.* ...................... 900 15,919
National-Oilwell, Inc.* ...................... 700 19,600
Newfield Exploration Co.* .................... 400 9,600
Pride International, Inc.* ................... 700 15,969
Santa Fe Energy Resources, Inc.* ............. 1,400 15,663
Stone Energy Corp.* .......................... 500 17,313
TransCoastal Marine Services, Inc.* .......... 900 12,038
Tuboscope, Inc.* ............................. 700 13,694
----------
170,408
----------
Pollution Control (3.51%)
American Disposal Services, Inc.* ........... 600 22,275
Eastern Environmental Services, Inc.* ........ 800 18,900
ITEQ, Inc.* .................................. 1,500 17,813
Newpark Resources, Inc.* ..................... 1,500 28,875
Superior Services, Inc.* ..................... 800 21,150
----------
109,013
----------
Printing - Commercial (0.52%)
Mail-Well, Inc.* ............................. 400 15,950
----------
Real Estate Investment Trust (1.13%)
Glenborough Realty Trust, Inc. ............... 700 19,950
Mack-Cali Realty Corp. ....................... 400 15,100
----------
35,050
----------
Retail (10.07%)
Abercrombie & Fitch Co. (Class A)* ........... 700 24,150
Arbor Drugs, Inc. ............................ 800 18,800
Brylane, Inc.* ............................... 400 21,450
CDnow, Inc.* ................................. 100 2,287
CKE Restaurants, Inc. ........................ 540 22,916
Coldwater Creek, Inc. * ...................... 300 12,150
Dominick's Supermarkets, Inc.* ............... 500 22,750
Duane Reade, Inc.* ........................... 500 11,187
Furniture Brands International, Inc.* ........ 700 19,162
Genovese Drug Stores, Inc. (Class A) ......... 640 11,560
Hibbett Sporting Goods, Inc.* ................ 800 22,800
Linens `N Things, Inc.* ...................... 300 15,112
Meadowcraft, Inc. * .......................... 600 7,425
99 Cents Only Stores* ........................ 625 24,063
Proffitt's, Inc.* ............................ 700 23,713
Quality Food Centers, Inc.* .................. 250 20,906
Stage Stores, Inc.* .......................... 600 25,200
White Cap Industries, Inc.* .................. 400 6,800
----------
312,431
----------
Schools/Education (1.54%)
EduTrek International, Inc. (Class A)* ....... 700 $ 15,400
ITI Education Corp.* (Canada) ................ 2,400 14,334
Strayer Education, Inc. ...................... 550 18,150
----------
47,884
----------
Service (0.56%)
Interim Services, Inc. * ..................... 600 17,400
----------
Shoes & Related Apparel (0.54%)
Wolverine World Wide, Inc. ................... 600 16,875
----------
Telecommunications (5.85%)
Global TeleSystems Group, Inc.* .............. 600 21,975
ICG Communications, Inc. ..................... 200 6,725
Innova Corp.* ................................ 1,300 21,612
Intermedia Communications, Inc.* ............. 300 22,913
NEXTLINK Communications, Inc. (Class A)* ..... 200 6,025
Primus Telecommunications Group, Inc. * ...... 900 23,400
REMEC, Inc.* ................................. 750 20,578
STAR Telecommunications, Inc. * .............. 400 14,950
Tel-Save Holdings, Inc.* ..................... 800 22,150
WinStar Communications, Inc.* ................ 500 21,031
----------
181,359
----------
Textile (2.15%)
Ashworth, Inc.* .............................. 900 12,544
Culp, Inc. ................................... 800 16,550
Cutter & Buck, Inc.* ......................... 800 19,400
Tefron Ltd.* (Israel) ........................ 800 18,300
----------
66,794
----------
Transport (1.64%)
C.H. Robinson Worldwide, Inc. ................ 800 18,200
Eagle USA Airfreight, Inc.* .................. 400 11,450
MotivePower Industries, Inc.* ................ 800 21,350
----------
51,000
----------
TOTAL COMMON STOCKS
(Cost $2,462,373) (98.24%) 3,047,575
------- ----------
UNIT
Real Estate Investment Trust (0.62%)
Hanover Capital Mortgage Holdings, Inc. ...... 1,000 19,250
----------
TOTAL UNIT
(Cost $16,422) (0.62%) 19,250
------- ----------
TOTAL COMMON STOCKS AND UNIT
(Cost $2,478,795) (98.86%) 3,066,825
------- ----------
SEE NOTES TO FINANCIAL STATEMENTS.
59
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds -- Institutional Series Trust --
Small Capitalization Growth Fund
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.45%)
Investment in a joint repurchase
agreement transaction with SBC
Warburg, Inc., Dated 02-27-98,
Due 03-02-98 (secured by U.S.
Treasury Bonds, 8.000% thru
10.625%, Due 8-15-15 thru
11-15-21) - Note A............... 5.630% $45 $ 45,000
----------
Corporate Savings Account (0.02%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%........................... 570
----------
TOTAL SHORT-TERM INVESTMENTS (1.47%) 45,570
-------- ----------
TOTAL INVESTMENTS (100.33%) 3,112,395
-------- ----------
OTHER ASSETS AND LIABILITIES, NET (0.33%) (10,188)
-------- ----------
TOTAL NET ASSETS (100.00%) $3,102,207
======== ==========
* 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.
60
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds -- Institutional Series Trust -- International Equity Fund
Schedule of Investments
February 28, 1998
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
International Equity Fund on February 28, 1998. It's divided into three main
categories: common stocks, preferred stock and short-term investments. Common
stocks and preferred stock are further broken down by country. Short-term
investments, which represent the Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Australia (1.69%)
National Australia Bank Ltd.
(Banks - Foreign) ........................... 1,460 $ 20,120
Normandy Mining Ltd. (Metal) ................. 115,706 114,679
----------
134,799
----------
Brazil (1.35%)
Telecomunicacoes Brasileiras S/A
American Depositary Receipts (ADR)
(Telecommunications) ........................ 878 107,500
----------
Canada (6.15%)
Bombardier Inc. (Diversified Operations) ..... 1,762 38,370
Royal Bank of Canada (Banks - Foreign) ....... 3,722 217,504
Toronto-Dominion Bank (Banks - Foreign) ...... 5,540 234,758
----------
490,632
----------
Finland (0.25%)
NOKIA Oy (Telecommunications) ................ 199 19,933
----------
France (8.47%)
Alcatel Alsthom SA (Telecommunications) ...... 151 19,665
Axa-UAP SA (Insurance) ....................... 1,800 174,332
Cap Gemini SA (Computers) .................... 571 65,724
Carrefour SA (Retail) ........................ 118 70,899
Compagnie Financiere de Paribas SA
(Broker Services) ........................... 195 18,565
Compagnie Generale des Eaux
(Diversified Operations) .................... 385 60,648
Elf Aquitaine SA (Oil & Gas) ................. 423 48,202
France Telecom SA (ADR)
(Telecommunications)* ....................... 3,235 156,695
L'OREAL SA (Cosmetics & Personal Care) ....... 91 41,030
Total SA (Oil & Gas) ......................... 183 20,101
----------
675,861
----------
Germany (7.90%)
Allianz AG (Insurance) ....................... 317 99,873
Bayerische Motoren Werke AG
(Automobile/Trucks) ......................... 235 237,079
Deutsche Bank AG (Banks - Foreign) ........... 559 38,413
Deutsche Telekom AG
(Telecommunications) ........................ 4,462 90,153
Mannesmann AG (Machinery) .................... 68 40,861
Munchener Ruckvers (Insurance) ............... 109 49,454
Siemens AG (Diversified Operations) .......... 606 $ 37,300
VEBA AG (Diversified Operations) ............. 557 37,385
----------
630,518
----------
Hong Kong (2.97%)
Cheung Kong Holdings Ltd.
(Real Estate Operations) .................... 8,588 60,174
China Telecom Ltd. (Telecommunications)* ..... 34,000 61,698
Hong Kong Telecommunications Ltd.
(Telecommunications) ........................ 26,317 55,404
Hutchison Whampoa Ltd.
(Diversified Operations) .................... 8,452 59,767
----------
237,043
----------
India (0.75%)
State Bank of India Global Depositary
Receipts (Banks - Foreign) .................. 3,031 60,165
----------
Ireland (2.89%)
Allied Irish Banks PLC (ADR)
(Banks - Foreign) ........................... 2,969 230,469
----------
Italy (4.15%)
Credito Italiano (Banks - Foreign)* .......... 5,117 19,667
ENI SpA (Oil & Gas) .......................... 3,261 19,065
Istituto Nazionale delle Assicurazioni
(Insurance) ................................. 31,172 84,755
Telecom Italia Mobile SpA
(Telecommunications) ........................ 15,986 73,202
Telecom Italia SpA (Telecommunications) ...... 19,800 134,810
----------
331,499
----------
SEE NOTES TO FINANCIAL STATEMENTS.
61
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds -- Institutional Series Trust -- International Equity Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Japan (14.05%)
Bank of Tokyo-Mitsubishi, Ltd.
(Banks - Foreign) ........................... 5,000 $ 70,975
Fuji Photo Film Co., Ltd. (Leisure) .......... 3,000 117,764
Honda Motor Co., Ltd. (Automobile/Trucks) .... 3,000 103,965
Ito-Yokado Co., Ltd. (Retail) ................ 3,000 164,155
Nippon Telephone & Telegraph Corp.
(Telecommunications) ........................ 13 119,588
Nomura Securities Co., Ltd. (Finance) ........ 7,000 96,590
Shin-Etsu Chemical Co., Ltd. (Chemicals) ..... 6,000 132,276
Sony Corp. (Electronics) ..................... 1,900 171,768
TDK Corp. (Electronics) ...................... 1,000 76,527
Tokio Marine & Fire Insurance Co.
(Insurance) ................................. 6,000 68,041
----------
1,121,649
----------
Mexico (2.44%)
Panamerican Beverages, Inc. (Beverages) ...... 5,343 194,685
----------
Netherlands (7.19%)
ABN Amro Holdings NV (ADR)
(Banks - Foreign) ........................... 5,598 126,655
AEGON N.V. (Insurance) ....................... 379 43,194
ING Groep NV (ADR) (Banks - Foreign) ......... 2,446 130,097
Philips Electronics N.V. (Electronics) ....... 576 44,796
Royal Dutch Petroleum Co. (Oil & Gas) ........ 2,140 117,130
Unilever PLC (Consumer Products/Misc.) ....... 12,400 112,360
----------
574,232
----------
Portugal (1.46%)
Cimpor-Cimentos de Portugal SGPS,
SA (Building) ............................... 1,613 46,706
Electricidade de Portugal, S.A. (Utilities) .. 1,108 23,496
Portugal Telecom SA (Telecommunications) ..... 884 46,389
----------
116,591
----------
Singapore (0.40%)
Oversea-Chinese Banking Corp., Ltd.
(Banks - Foreign) ........................... 5,374 32,002
----------
Spain (2.50%)
Banco Bilbao Vizcaya, S.A.
(Banks - Foreign) ........................... 880 40,239
Banco Santander S.A. (Banks - Foreign) ....... 926 42,885
Endesa S.A. (Utilities) ...................... 1,849 40,891
Repsol SA (Oil & Gas) ........................ 862 38,463
Telefonica de Espana (Utilities) ............. 1,086 37,368
----------
199,846
----------
Sweden (4.55%)
Astra AB (Medical) ........................... 1,608 $ 32,468
Ericsson (LM) Telefonaktiebolaget
(Telecommunications) ........................ 1,109 50,469
Investor AB (Diversified Operations) ......... 2,815 143,592
Nordbanken Holding AB (Banks - Foreign)* ..... 21,700 137,007
----------
363,536
----------
Switzerland (7.51%)
Credit Suisse Group (Banks - Foreign) ........ 477 86,195
Nestle SA (Food) ............................. 76 133,188
Novartis AG (Medical) ........................ 68 124,130
Roche Holding AG (Medical) ................... 3 35,145
Union Bank of Switzerland
(Banks - Foreign) ........................... 278 86,348
Zurich Versicherungs-Gesellschaft
(Insurance) ................................. 247 134,743
----------
599,749
----------
United Kingdom (19.09%)
B.A.T. Industries PLC (Tobacco) ............. 3,164 31,589
British Petroleum Co. PLC (Oil & Gas) ........ 5,707 78,791
EMAP PLC (Media) ............................. 7,517 136,598
Glaxo Wellcome PLC (Medical) ................. 3,577 100,183
Granada Group PLC (Diversified Operations) ... 5,000 78,174
Lloyds TSB Group PLC (Banks - Foreign) ....... 8,121 122,287
Marks & Spencer PLC (Retail) ................. 12,162 116,314
Northern Rock PLC (Banks - Foreign)* ......... 10,724 116,077
Pearson PLC (Media) .......................... 9,422 140,481
Regal Hotel Group PLC (Leisure) ............. 150,000 108,735
Royal & Sun Alliance Insurance Group
PLC (Insurance) ............................. 10,303 131,295
Royal Bank of Scotland Group PLC
(Banks - Foreign) ........................... 5,590 86,570
SmithKline Beecham PLC (Medical) ............. 7,608 95,260
WPP Group PLC (Advertising) .................. 16,000 85,143
Zeneca Group PLC (Medical) ................... 2,199 96,187
----------
1,523,684
----------
TOTAL COMMON STOCKS
(Cost $7,078,955) (95.76%) 7,644,393
------- ----------
SEE NOTES TO FINANCIAL STATEMENTS.
62
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds -- Institutional Series Trust -- International Equity Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
PREFERRED STOCK
Brazil (0.62%)
Compania Riograndense de
Telecomunicaciones
SA (Telecommunications) ..................... 49,105 $ 49,750
----------
TOTAL PREFERRED STOCK
(Cost $76,081) (0.62%) 49,750
------- ----------
INTEREST PAR VALUE
RATE (000'S OMITTED)
---- ---------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.87%)
Investment in a joint repurchase
agreement transaction with
SBC Warburg, Inc., Dated 02-27-98,
Due 03-02-98 (secured by U.S.
Treasury Bond, 6.000% Due 02-15-26,
and U.S. Treasury Note, 9.125%,
Due 05-15-99) - Note A ................ 5.630% $229 229,000
----------
TOTAL SHORT-TERM INVESTMENTS (2.87%) 229,000
-------- ----------
TOTAL INVESTMENTS (99.25%) 7,923,143
-------- ----------
OTHER ASSETS AND LIABILITIES, NET (0.75%) 59,724
-------- ----------
TOTAL NET ASSETS (100.00%) $7,982,867
======== ==========
* 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.
Industry Diversification (Unaudited)
- --------------------------------------------------------------------------------
The Fund primarily invests in securities issued by companies of other countries.
The performance of the Fund is closely tied to the economic conditions within
the countries it invests. The concentration of investments by country for
individual securities held by the Fund is shown in the schedule of investments.
In addition, the concentration of investments can be aggregated by various
industry groups. The table below shows the percentages of the Fund's investments
at February 28, 1998 assigned to the various investment categories.
MARKET VALUE OF SECURITIES
INVESTMENT CATEGORIES AS A % OF FUND NET ASSETS
- --------------------- -------------------------
Advertising ......................................... 1.07%
Automobile/Trucks ................................... 4.27
Banks - Foreign ..................................... 23.78
Beverages ........................................... 2.44
Building ............................................ 0.59
Broker Services ..................................... 0.23
Chemicals ........................................... 1.66
Computers ........................................... 0.82
Consumer Products/Misc .............................. 1.41
Cosmetics & Personal Care ........................... 0.51
Diversified Operations .............................. 5.70
Electronics ......................................... 3.67
Finance ............................................. 1.21
Food ................................................ 1.67
Insurance ........................................... 9.84
Leisure ............................................. 2.84
Machinery ........................................... 0.51
Media ............................................... 3.47
Medical ............................................. 6.05
Metal ............................................... 1.44
Oil & Gas ........................................... 4.03
Real Estate Operations .............................. 0.75
Retail .............................................. 4.40
Telecommunications .................................. 12.35
Tobacco ............................................. 0.40
Utilities ........................................... 1.27
Short-Term Investments .............................. 2.87
-----
TOTAL INVESTMENTS 99.25%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
63
<PAGE>
========================= NOTES TO FINANCIAL STATEMENTS ========================
John Hancock Funds -- Institutional Series Trust
NOTE A --
ACCOUNTING POLICIES
John Hancock Active Bond Fund ("Active Bond Fund"), John Hancock Global Bond
Fund ("Global Bond Fund"), John Hancock Small Capitalization Value Fund ("Small
Capitalization Value 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") 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 Value Fund was known as John Hancock
Fundamental Value Fund and Small Capitalization Growth Fund was known as John
Hancock Small Capitalization Equity 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. 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 Small
Capitalization Value Fund is capital appreciation with income as a secondary
objective. The investment objective of the Dividend Performers Fund is long-term
growth of capital and of income without assuming undue market risk. The
investment objective of the Multi-Sector Growth Fund is long-term capital
appreciation. The investment objective of the Small Capitalization Growth Fund
is long-term growth of capital. The investment objective of the International
Equity Fund is long-term growth of capital.
Significant accounting policies of the Funds are as follows:
VALUATION OF INVESTMENTS Securities in the Funds' portfolios are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency Translation"
below.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Funds, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
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 which 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
64
<PAGE>
========================= NOTES TO FINANCIAL STATEMENTS ========================
John Hancock Funds -- Institutional Series Trust
income even 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
Small
Capitalization
Value Fund ....... -- -- -- --
Dividend
Performers
Fund ............. -- -- -- --
Multi-Sector
Growth Fund ...... -- -- 4,815 --
Small
Capitalization
Growth Fund ...... 3,648 -- 63,035 15
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 $600 million,
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 a rate of 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 year ended February 28, 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 Funds' daily net assets. The Funds record realized
gains and losses at the time the forward foreign currency contract is closed out
or offset by a matching contract. Risks may arise upon entering these contracts
from 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 Funds' Statements of Assets and Liabilities. The
Funds may also purchase and sell forward contracts to facilitate the settlement
of foreign currency denominated portfolio transactions, under which it intends
to take delivery of the foreign currency. Such contracts normally involve no
market risk if they are offset by the currency amount of the underlying
transaction.
Open forward foreign currency buy contracts at February 28, 1998 for the
Global Bond Fund were as follows:
UNREALIZED
PRINCIPAL AMOUNT EXPIRATION APPRECIATION/
CURRENCY: COVERED BY CONTRACT MONTH (DEPRECIATION)
- --------- ------------------- ----- --------------
DEUTSCHE MARK 3,600,000 APRIL 98 ($2,082)
JAPANESE YEN 100,000,000 APRIL 98 852
-------
($1,230)
=======
Open forward foreign currency sell contracts at February 28, 1998 for the
International Equity Fund were as follows:
PRINCIPAL AMOUNT EXPIRATION UNREALIZED
CURRENCY: COVERED BY CONTRACT MONTH DEPRECIATION
- --------- ------------------- ----- --------------
AUSTRALIAN
DOLLAR 25,783 MAR 98 ($228)
SWISS FRANC 102,919 MAR 98 (300)
-----
($528)
=====
Open forward foreign currency buy contracts at February 28, 1998 for the
International Equity Fund were as follows:
PRINCIPAL AMOUNT EXPIRATION UNREALIZED
CURRENCY: COVERED BY CONTRACT MONTH DEPRECIATION
- --------- ------------------- ----- --------------
FRENCH FRANC 601,025 MAR 98 ($515)
POUND STERLING 107,453 MAR 98 (276)
-----
($791)
=====
There were no open forward foreign currency exchange contracts at February
28, 1998 for the 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'
66
<PAGE>
========================= NOTES TO FINANCIAL STATEMENTS ========================
John Hancock Funds -- Institutional Series Trust
exposure to the underlying instrument. Selling futures tends to decrease the
Funds' exposure to the underlying instrument or hedge other Fund instruments. At
the time the Fund enters into a financial futures contract, it is required to
deposit with its custodian a specified amount of cash or U.S. government
securities, known as the "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 February 28, 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 Funds' exposure to the underlying instrument and buying puts and
writing calls will tend to decrease the Funds' exposure to the underlying
instrument, or hedge other Fund investments.
The maximum exposure to loss for any purchased options will be limited to the
premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value will reflect the maximum exposure
of the Funds in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the contract's
terms ("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 counter-parties to each transaction,
and only present liquidity risk in highly unusual market conditions. To minimize
credit and liquidity risks in over-the-counter option contracts, the Fund will
continuously monitor the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit risk
may involve amounts in excess of those reflected in the Fund's period-end
Statement of Assets and Liabilities.
There were no written option transactions for the year ended February 28,
1998 for the 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
67
<PAGE>
========================= NOTES TO FINANCIAL STATEMENTS ========================
John Hancock Funds -- Institutional Series Trust
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
Dividend Performers 0.60% of average daily net assets up to $500 million
Fund 0.55% of such assets in excess of $500 million
Multi-Sector Growth 0.80% of average daily net assets up to $500 million
Fund 0.75% of such assets in excess of $500 million
Small Capitalization 0.80% of average daily net assets
Growth Fund
International Equity 0.90% of average daily net assets up to $500 million
Fund 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, 0.80% of Small Capitalization Value Fund's average daily net
assets, 0.70% of Dividend Performers Fund's average daily net assets, 0.90% of
Multi-Sector Growth Fund's average daily net assets, 0.90% of Small
Capitalization Growth 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 year
ended February 28, 1998, the reduction in the Fund's expenses with any
additional amounts not borne by the Funds by virtue of the expense limit
amounted to $74,671 for the Active Bond Fund, $60,348 for the Global Bond Fund,
$45,428 for the Small Capitalization Value Fund, $48,247 for the Dividend
Performers Fund, $75,448 for the Multi-Sector Growth Fund, $73,878 for the Small
Capitalization Growth Fund and $69,776 for the International Equity Fund.
The Adviser has entered into a sub-advisory agreement with Sovereign Asset
Management Corporation ("SAMCORP"), an affiliate of the Adviser, to provide
certain investment research and portfolio management services for 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, 1998.
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 subadvisory fees.
The Funds have a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the year ended February
28, 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 ("JHMLICo."). Each Fund pays transfer
agent fees at an annual fee accrued daily of 0.05% of its average daily net
assets, plus certain out-of-pocket expenses.
The Funds have an agreement with the Adviser to perform necessary tax and
financial management services for the Funds. The compensation for the year was
at an annual rate of less than 0.02% of the average net assets of each Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S. Scipione
are trustees 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 JHMLICo. owned 1,090,909 and 11,765
shares of
68
<PAGE>
========================= NOTES TO FINANCIAL STATEMENTS ========================
John Hancock Funds -- Institutional Series Trust
beneficial interest of the Global Bond Fund and Multi-Sector Growth Fund,
respectively, as of February 28, 1998. 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 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 February 28, 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, $21 for the Small Capitalization Value
Fund, $11 for the Dividend Performers Fund, $25 for the Multi-Sector Growth
Fund, none for the Small Capitalization Growth 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 year ended February 28, 1998 were as follows:
PURCHASES SALES
--------- -----
Active Bond Fund
U.S. Government Securities ............... $ 5,897,932 $ 4,943,068
Other Investments ........................ 4,302,694 2,787,484
Global Bond Fund
U.S. Government Securities ............... 9,470,527 1,986,326
Other Investments ........................ 3,887,991 3,153,003
Small Capitalization Value Fund ............ 16,257,494 14,836,277
Dividend Performers Fund ................... 18,387,617 11,100,433
Multi-Sector Growth Fund ................... 125,525,866 121,494,108
Small Capitalization Growth Fund ........... 4,168,114 2,593,441
International Equity Fund .................. 12,229,722 7,861,899
At February 28, 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>
AGGREGATE GROSS UNREALIZED GROSS UNREALIZED NET UNREALIZED
COST APPRECIATION DEPRECIATION APPRECIATION
---- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Active Bond Fund .......... $ 5,359,734 $ 63,117 $ (24,179) $ 38,938
Global Bond Fund .......... 9,734,688 95,542 (5,913) 89,629
Small Capitalization
Value Fund .............. 8,584,266 1,212,441 (240,394) 972,047
Dividend Performers
Fund .................... 17,767,073 3,611,485 (38,002) 3,573,483
Multi-Sector Growth
Fund .................... 35,279,814 4,022,930 (528,000) 3,494,930
Small Capitalization
Growth Fund ............. 2,527,037 650,181 (65,393) 584,788
International Equity
Fund .................... 7,414,301 701,929 (193,087) 508,842
</TABLE>
NOTE D --
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended February 28, 1998, reclassifications have been made in
each Fund's capital accounts which represent the cumulative amount necessary to
report these balances on a tax basis, excluding certain temporary differences,
as of February 28, 1998. Additional adjustments may be needed in subsequent
reporting periods. These reclassifications have no impact on the net asset value
of the Funds. The calculation of net investment income per share in the
financial
highlights excludes these adjustments.
ACCUMULATED
CAPITAL UNDISTRIBUTED NET NET REALIZED
PAID-IN INVESTMENT INCOME/LOSS GAIN (LOSS)
------- ---------------------- -----------
Active Bond Fund .................. $ 3 $ (3) $ --
Global Bond Fund................... -- (163,182) 163,182
Small Capitalization Value Fund ... -- 1,030 (1,030)
Dividend Performers Fund .......... -- -- --
Multi-Sector Growth Fund .......... (8,119) (4,860) 12,979
Small Capitalization Growth Fund .. (6,338) 5,738 600
International Equity Fund ......... -- (32,713) 32,713
69
<PAGE>
================================================================================
John Hancock Funds -- Institutional Series Trust
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Trustees of
John Hancock Institutional Series Trust:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of John Hancock Institutional Series Trust
(comprising, respectively, John Hancock Active Bond Fund, John Hancock Global
Bond Fund, John Hancock Small Capitalization Value Fund (formerly John Hancock
Fundamental Value Fund), John Hancock Dividend Performers Fund, John Hancock
Multi-Sector Growth Fund, John Hancock Small Capitalization Growth Fund
(formerly John Hancock Small Capitalization Equity Fund), and John Hancock
International Equity Fund) (The "Funds") as of February 28, 1998, the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the years in the two-year period ended February 28, 1998,
and the financial highlights for each of the years in the two-year period ended
February 28, 1998 and the period from the commencement of operations to February
28, 1996. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 28, 1998 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of each of the Funds
constituting John Hancock Institutional Series Trust at February 28, 1998, the
results of their operations, the changes in their net assets, and their
financial highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
April 3, 1998
TAX INFORMATION (Unaudited)
The Funds designated the following as long-term capital gain dividends during
the fiscal year ended February 28, 1998. The capital gain dividends are further
broken down into two capital gain tax rates, 28% and 20%, respectively.
Additionally, the following dividend distributions qualify for the dividends
received deduction available to corporations.
TOTAL 28% 20% DIVIDENDS
CAPITAL RATE RATE RECEIVED
GAINS GAINS GAINS DEDUCTION
----- ----- ----- ---------
Active Bond Fund .......... $ -- $ -- $ -- --%
Global Bond Fund .......... 1,355 1,355 -- --
Small Capitalization
Value Fund .............. 244,957 61,778 183,179 6.46
Dividend Performers
Fund .................... 647,534 409,874 237,660 22.14
Multi-Sector Growth Fund .. 1,282,665 871,345 411,320 5.05
Small Capitalization
Growth Fund ............. -- -- -- --
International Equity
Fund .................... -- -- -- 1.38
70
<PAGE>
================================================================================
John Hancock Funds -- Institutional Series Trust -- Dividend Performers Fund
Dividend Increases (Unaudited)
Listed below are the most recent dividend increases for the common stocks held
in the Dividend Performers Fund as of February 28, 1998
- --------------------------------------------------------------------------------
PERCENT OF
COMPANY DIVIDEND INCREASE
- ------- -----------------
Abbott Laboratories .......................................... 12.50%
AFLAC Corp. .................................................. 15.0
Air Products & Chemicals, Inc. ............................... 9.1
AMP, Inc. .................................................... 4.0
Automatic Data Processing, Inc. .............................. 15.2
Banc One Corp. ............................................... 11.7
Baxter International, Inc. ................................... 3.0
Becton Dickinson & Co. ....................................... 11.5
Bemis Company, Inc. .......................................... 11.1
BetzDearborn, Inc. ........................................... 1.3
Century Telephone Enterprise, Inc. ........................... 2.8
C.H. Robinson Worldwide, Inc. ................................ 8.1
Chubb Corp. .................................................. 7.4
ConAgra, Inc. ................................................ 14.7
Dayton Hudson Corp. .......................................... 12.5
Dover Corp. .................................................. 11.5
DuPont (E.I.) De Nemours & Co. ............................... 10.5
Ecolab, Inc. ................................................. 18.8
Emerson Electric Co. ......................................... 9.3
First Union Corp. ............................................ 15.6
General Electric Co. ......................................... 15.4
General RE Corp. ............................................. 7.8
Grainger (W.W.), Inc. ........................................ 8.0
Hasbro, Inc. ................................................. 19.9
Hewlett-Packard Co. .......................................... 16.7
Home Depot, Inc. ............................................. 25.0
Honeywell, Inc. .............................................. 3.7
Hubbell, Inc. (Class B) ...................................... 10.8
IKON Office Solutions, Inc. .................................. 24.0
Interpublic Group, Inc. ...................................... 14.7
Johnson & Johnson ............................................ 15.8
Key Corp. .................................................... 10.5
Leggett & Platt, Inc. ........................................ 7.7
Masco Corp. .................................................. 9.1
McGraw-Hill Companies, Inc. .................................. 15.8
Merck & Co. .................................................. 6.0
Mobil Corp. .................................................. 3.6
NationsBank Corp. ............................................ 10.0
Norwest Corp. ................................................ 25.0
Parker Hannifin Corp. ........................................ 11.1
Pentair, Inc. ................................................ 14.3
PepsiCo, Inc. ................................................ 8.8
Philip Morris Cos., Inc. ..................................... 20.0
Pitney Bowes, Inc. ........................................... 15.9
Questar Corp. ................................................ 3.3
RPM, Inc. .................................................... 7.7
Reliastar Financial Corp. .................................... 10.7
Sara Lee Corp. ............................................... 9.5
Sigma-Aldrich Corp. .......................................... 12.0
Schulman (A), Inc. ........................................... 10.5
Sonoco Products Corp. ........................................ 9.1
Sysco Corp. .................................................. 13.3
Travelers Group, Inc. ........................................ 25.0
UNUM Corp. ................................................... 3.5
Wal-Mart Stores, Inc. ........................................ 28.6
-----
The average dividend increase for this group was 11.70% 11.70%
=====
Historical Data (Unaudited)
The table below shows the record of the Dividend Performers Fund during past
periods.
- --------------------------------------------------------------------------------
PER SHARE
--------------------------------------------------
YEAR SHARES DIVIDENDS NET ASSET CAPITAL GAINS
ENDED OUTSTANDING FROM INCOME VALUE DISTRIBUTION
----- ----------- ----------- ----- ------------
February 29, 1996 326,898 $0.19 $10.15 $0.074
February 28, 1997 727,948 $0.18 $11.91 $0.190
February 28, 1998 1,399,614 $0.17 $14.92 $0.920
71
<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
1-800-755-4371 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 KB00A 2/98
4/98
<PAGE>
ANNUAL REPORT
================================================================================
[GRAPHIC OMITTED]
Institutional
Series Trust
Independence Balanced Fund
Independence Value Fund
Independence Diversified Core Equity Fund II
Independence Growth Fund
Independence Medium Capitalization Fund
FEBRUARY 28, 1998
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
=============================== 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........................................ 50
---------------------------------------
TRUSTEES
EDWARD J. BOUDREAU, JR.
JAMES F. CARLIN
WILLIAM H. CUNNINGHAM*
CHARLES F. FRETZ
HAROLD R. HISER, JR.
ANNE C. HODSDON
CHARLES L. LADNER
LEO E. LINBECK, JR.
PATRICIA P. MCCARTER*
STEVEN R. PRUCHANSKY*
RICHARD S. SCIPIONE
LT. GEN NORMAN H. SMITH, USMC (RET)
JOHN P. TOOLAN
* MEMBERS OF AUDIT COMMITTEE
OFFICERS
EDWARD J. BOUDREAU, JR.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ROBERT G. FREEDMAN
VICE CHAIRMAN AND
CHIEF INVESTMENT OFFICER
---------------------------------------
---------------------------------------
ANNE C. HODSDON
PRESIDENT
JAMES B. LITTLE
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
SUSAN S. NEWTON
VICE PRESIDENT AND SECRETARY
JAMES J. STOKOWSKI
VICE PRESIDENT AND TREASURER
THOMAS H. CONNORS
SECOND VICE PRESIDENT AND
COMPLIANCE OFFICER
CUSTODIAN
INVESTORS BANK & TRUST COMPANY
200 CLARENDON STREET
BOSTON, MA 02116
TRANSFER AGENT
JOHN HANCOCK SIGNATURE SERVICES, INC.
1 JOHN HANCOCK WAY, SUITE 1000
BOSTON, MA 02217-1000
---------------------------------------
---------------------------------------
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MA 02199-7603
INVESTMENT SUBADVISER
INDEPENDENCE INVESTMENT ASSOCIATES, INC.
53 STATE STREET
BOSTON, MA 02109
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MA 02199-7603
LEGAL COUNSEL
HALE AND DORR LLP
60 STATE STREET
BOSTON, MA 02109
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
125 SUMMER STREET
BOSTON, MA 02110-1617
---------------------------------------
2
<PAGE>
============================== CHAIRMAN'S MESSAGE ==============================
DEAR FELLOW SHAREHOLDERS:
The stock market astounded many in 1997 by producing a record-breaking third
straight year of 20%-plus returns. Bond investors also enjoyed the benefits of a
strong economy with no inflation. After such a remarkable performance, many are
wondering what the markets will do for an encore in 1998.
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
Within the first two months of the year, for instance, we saw two different
sides of the market. In January, the market underwent rapid mood swings and
barely advanced at all. While news on the domestic inflation and economic fronts
remained good, investors were still trying to determine how much of the Asian
financial crisis would filter through the U.S. economy and corporate profits.
Each week, it seemed, investors either had on their rose-colored glasses or had
taken them off. Then in February, fears apparently dissipated, and the market
rallied to new all-time highs by the month's end.
It's impossible to know what will happen next in the markets. But whether
it's a continued strong move forward or a retreat, we recommend keeping a
long-term perspective. It also makes sense to set realistic expectations, since
the market has registered three years of record-breaking 20%-plus annual
returns.
After such a strong advance in equities, it also could be time to rebalance
your portfolio, if you haven't already, to maintain your desired targets of
diversification. As part of that process, make sure that your investment
strategies still reflect your individual objectives, time horizons and risk
tolerance. Despite turbulence, one thing remains constant. A well-constructed
plan and a cool head can be the best tools for reaching your financial goals.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
3
<PAGE>
================================================================================
BY JANE A. SHIGLEY AND JEFFREY B. SAEF
FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Balanced Fund
Stocks continue their advance and bonds gain steam
"...U.S. Treasuries posted outsized gains..."
Stocks steadily advanced over the past year, thanks to the healthy U.S. economy
and its contribution to strong corporate profit growth. After suffering from
bouts of volatility triggered by inflation fears that proved groundless, bonds
staged an impressive rally in the second half of the Fund's fiscal year. Part of
the rebound was due to global investors' seeking safety amid the economic and
currency problems in Southeast Asia. For the year ended February 28, 1998, John
Hancock Independence Balanced Fund posted a total return of 20.44% at net asset
value. That compared to the average balanced fund's 21.18% return, according to
Lipper Analytical Services, Inc. During the same one-year period, a 50/50
blended index combining the Standard & Poor's 500 Stock Index and the Lehman
Brothers Government/Corporate Bond Index (L.B.G.C.) returned 22.58%. For
longer-term performance information, see page 6. During the period, we altered
the Fund's asset allocation to more closely align with our competitors' typical
allocation of 60% stocks and 40% bonds. By the end of the period, our stock
allocation had grown to 60% of the Fund's net assets, while our bond holdings
fell to 37%.
- --------------------------------------------------------------------------------
["Pie chart with the heading "Portfolio Diversification" at the bottom left hand
column. The chart is divided into 4 sections. Going from top left to right;
Stocks 60%; Bonds 37%; Other Assets 1%; Short-Term Investments 2%. Footnote
below states "As a percentage of net assets on February 28, 1998."]
- --------------------------------------------------------------------------------
Stocks: Winners and laggards
The Fund benefited from the good performance of a diversified mix of holdings.
In the financial sector, brokerage company Morgan Stanley, Dean Witter, Discover
saw rising profits generated by strong trading and investment banking activity,
while credit card company MBNA rose on healthy consumer spending and falling
interest costs. Problems in Southeast Asia provided a boost for many
domestically oriented companies, including Lowe's and Home Depot. These
companies also benefited from rising spending on building and home improvement.
Health-care company Bristol-Myers Squibb made a strong second half showing,
stemming from the anticipated introduction of several new drugs and management's
continued commitment to improving shareholder value. We lost ground in
4
<PAGE>
================================================================================
JOHN HANCOCK INDEPENDENCE BALANCED FUND
- --------------------------------------------------------------------------------
["Bar Chart with the heading "Fund Performance" at the top of left hand column.
Under the heading is the footnote: "For the year ended February 28, 1998." The
chart is scaled in increments of 10% with 30% at the top and 0% at the bottom.
The first represents the 20.44% total return for John Hancock Independence
Balanced Fund. The second represents the 21.18% total return for John Hancock
Average balance fund. The third represents the 22.58% total return for 50% S&P
500 Stock Index/50% L.B.G.C. Bond Index. A Footnote below 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. The S&P 500 Stock Index and the Lehman Brothers
Government/Corporate Bond Index are unmanaged indicies commonly used as broad
measures of stock and bond performance. The performance of these indicies is
tracked by The Frank Russell Company. See the following page for historical
performance information."]
- --------------------------------------------------------------------------------
the energy and paper sectors, as oil and pulp prices fell. Despite fairly decent
first-half gains, British Petroleum, Atlantic Richfield, Chevron and
International Paper all posted flat or negative returns in the second half of
the period.
Treasuries gain ground; corporates falter
After spending the first half overshadowed by corporate bonds, U.S. Treasuries
posted outsized gains in the second half of the period and made a positive
contribution to the Fund's performance. We also benefited from our changing
exposure to mortgage-backed securities. Our relatively large stake through July
provided us with good gains. Then, our pared-back stake by the year's end helped
us avoid much of the losses they incurred when fears grew that prepayments would
accelerate as interest rates fell. Our relatively heavy weighting in corporate
bonds, on the other hand, had a mixed impact on performance, helping throughout
September when they outpaced Treasuries, but retracting somewhat for the
remainder of the period. In the late fall, investors became increasingly
concerned that the turmoil in Southeast Asia could put pressure on U.S.
corporate earnings growth. Those concerns, coupled with the record supply of
corporate bonds issued in January, pushed corporate bond prices down to what we
viewed as attractive levels given their fundamentals. Taking advantage of price
weakness, we added to our stake in corporates during the final months of the
period.
Outlook
In our view, inflation should remain subdued and the U.S. economy should
continue to post modest growth -- both positives for stocks and bonds. That
said, we also believe that corporate earnings growth will likely slow from last
year's incredible pace. Given that outlook, it appears that stocks may be priced
somewhat expensively now. As the market digests news of slower corporate
earnings and how Southeast Asia's problems could impact worldwide growth, we
think there could be a fairly significant level of market volatility. Whatever
the market does next, we'll stick to our discipline in search of companies whose
stock prices are inexpensive while their fundamentals are improving. As for
bonds, we think that corporate securities will likely outpace U.S. Treasuries in
the months to come, so we're likely to maintain our relatively large stake, as
well as look for a point at which to re-enter the mortgage market.
"...corporate earnings growth
will likely slow..."
5
<PAGE>
================================================================================
JOHN HANCOCK INDEPENDENCE BALANCED FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1997
SINCE
ONE INCEPTION
YEAR (7/6/95)
---- --------
Cumulative Total Returns 17.42% 41.58%
Average Annual Total Returns(1) 17.42% 15.00%
YIELD
As of February 28, 1998
SEC 30-DAY
YIELD
-----
John Hancock Independence Balanced Fund 2.76%
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 total return
for the one-year and since inception periods would have been 17.18% and 13.44%,
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 50/50 blended index of the Standard & Poor's 500 Stock
Index and 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.
- --------------------------------------------------------------------------------
Line chart with the heading Independence Balanced Fund, representing the growth
of a hypothetical $250,000 investment over the life of the fund. Within the
chart are two lines.
The first line represents the value of a 50% blend of the Standard & Poor's 500
Stock Index and the Lehman Brothers Government/Corporate Bond Index and is equal
to $409,596 as of February 28, 1998. The second line represents the value of the
hypothetical $250,000 investment made in the Independence Balanced Fund on July
6, 1995 and is equal to $371,390 as of February 28, 1998.
- --------------------------------------------------------------------------------
6
<PAGE>
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BY COREEN KRAYSLER FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Value Fund
Healthy economy sends U.S. stocks soaring
Good times for the economy often translate into good times for the stock market.
This past year was no exception. The economy grew at a moderate pace, inflation
and interest rates stayed in check and consumer confidence was strong. At the
same time, U.S. corporations worked hard to increase productivity and expand
profit margins. The result was another year of double-digit earnings growth,
record asset inflows, and rising stock prices. With so many positive forces at
work, corrections in March and August were short-lived. Even the turmoil in Asia
during October caused only a brief, yet steep, tumble in U.S. stocks. When the
year was through, large-company growth stocks accounted for much of the market's
gains, with top performance coming from the finance and consumer goods
- --------------------------------------------------------------------------------
[Chart at the bottom left hand column. Header states "Top Five Common Stock
Holdings" they are numbered one to five. One being the highest and five the
lowest. The first represents Bell Atlantic 4.5%. The second represents
BankAmerica 3.8%. The third represents Ford Motor Co. 3.2%. The fourth
represents Mobil Corp 2.9%. The fifth represents Hartford Financial Services
Group 2.7%. The footnote at the bottom states "As a percentage of net assets on
February 28, 1998."]
- --------------------------------------------------------------------------------
sectors. John Hancock Independence Value Fund had a heavy stake in both mega-cap
and bank stocks. This helped the Fund return 32.97% at net asset value for the
year ended February 28, 1998. By comparison, the average growth and income fund
returned 29.40% over the same period, according to Lipper Analytical Services,
Inc., while the Russell 1000 Value Index returned 33.70%. For longer-term
performance information, please see page 9.
Largest investments boost returns
The Fund did well by sticking to its disciplined investment strategy. As always,
we matched the Fund's characteristics to those of the Russell 1000 Value Index.
In doing so, we selected stocks with the best return prospects -- those with
cheap prices and the potential for improving fundamentals. Our top contributor
to performance -- and third largest investment -- was Ford Motor Co., which
returned 79% for the period. Although domestic auto sales were modest, Ford
benefited from focusing on profitability more than market share.
In the finance sector, bank stocks in general prospered from better loan
growth. BankAmerica, the Fund's second largest investment, posted a return of
39% for the period. Its
"...bank stocks in general prospered..."
7
<PAGE>
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JOHN HANCOCK INDEPENDENCE VALUE FUND
"We expect favorable economic conditions to push stock prices even higher..."
- --------------------------------------------------------------------------------
["Bar Chart with the heading "Fund Performance" at the top of left hand column.
Under the heading is the footnote: "For the year ended February 28, 1998." The
chart is scaled in increments of 10% with 40% at the top and 0% at the bottom.
The first represents the 32.97% total return for John Hancock Independence Value
Fund. The second represents the 29.40% total return Average growth and income
fund. The third represents the 33.70% total return for the Russell 1000 Value
Index. A Footnote below 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. The
Russell 1000 Value Index is unmanged index comprised of stocks of companies from
the Russell 1000 index with a less-than-average growth orientation. See the
following pages for historical information."]
- --------------------------------------------------------------------------------
stock price rose as the bank's new management team began divesting weak
businesses, buying back stock, closing less profitable branches, and focusing on
lower-cost distribution methods. Insurance stocks likewise benefited from lower
interest rates, in addition to strong life insurance and annuity sales. Our
largest investment in this sector was Hartford Financial Services Group. Its
earnings grew through its exclusive selling relationship with the American
Association of Retired Persons, as well as strength in its annuity and auto
insurance businesses. Other top performers included utilities stocks, which did
especially well late in the year when uncertainty about the Asian crisis forced
many investors to look for safer havens closer to home. Our most sizable
investments in this area were two telephone companies -- Bell Atlantic and US
WEST Communications Group. Bell Atlantic's stock has done well following its
merger with NYNEX, and US WEST's stock has taken off amid takeover speculation.
Oil and gas stocks were not as fortunate, lagging the market because of
weaker oil prices. Even so, Mobil -- our fourth largest investment -- managed to
return 21% for the period. It benefited from having the biggest percentage of
fixed margin oil production in the business and stronger-than-expected results
domestically, but was held back by disappointing results internationally and
weak chemical prices. We continue to own the stock, believing that Mobil has
good growth prospects given its strong balance sheet, potential for share
buybacks, and cost-cutting program.
A look ahead
Despite the stock market's height, we're still finding stocks that are cheap
with improving earnings prospects. We recently bought Northern Telecom, a
company in the high-growth telecommunications industry with a superior wireless
product. Stocks like this make us optimistic about the Fund's prospects, as does
the market's outlook. We expect favorable economic conditions to push stock
prices even higher, although future gains may be more modest. Volatility may
also increase, especially as events in Asia and the Middle East unfold.
Regardless of what happens, we believe our disciplined investment strategy will
best equip us to match the return of our benchmark, the Russell 1000 Value
Index.
8
<PAGE>
================================================================================
JOHN HANCOCK INDEPENDENCE VALUE FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1997
SINCE
ONE INCEPTION
YEAR (10/2/95)
---- ---------
Cumulative Total Returns 30.63% 69.85%
Average Annual Total Returns(1) 30.63% 26.59%
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 0.95% of the Fund's
average daily net assets. Without the limitation of expenses, the total return
for the one-year and since inception periods would have been 29.65% and 17.72%,
respectively.
WHAT HAPPENED TO
A $250,000 INVESTMENT...
The chart below shows how much a $250,000 investment in 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.
- --------------------------------------------------------------------------------
Line chart with the heading Independence Value Fund, representing the growth of
a hypothetical $250,000 investment over the life of the fund. Within the chart
are two lines.
The first line represents the value of the Russell 1000 Value Index and is equal
to $461,270 as of February 28, 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 $459,358 as of February 28, 1998.
- --------------------------------------------------------------------------------
9
<PAGE>
================================================================================
BY PAUL MCMANUS FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Diversified
Core Equity Fund II
Ideal economic environment propels U.S. stocks to new highs
"...financial stocks were among the biggest contributors..."
Stocks continued their bull-market charge throughout the last 12 months amid an
ideal climate for financial assets. The economy was buoyant, interest rates
stayed low and inflation never raised its head, despite the tightest labor
market in more than 20 years. The result was solid corporate profits and
expanding stock valuations. For a good part of the year, the market's advance
was dominated by the larger-company stocks that lured investors with their
strong and stable earnings growth. They had a brief spring and summer
retrenchment because investors thought their prices had soared to lofty levels.
In October, big-company stocks again took center stage as a secure place to be
in the wake of Asian currency and financial turmoil. In the
- --------------------------------------------------------------------------------
[Chart at the bottom left hand column. Header states "Top Five Common Stock
Holdings" they are numbered one to five. One being the highest and five the
lowest. The first represents Lucent Technologies 2.7%. The second represents
General Electric 2.6%. The third represents Microsoft 2.5%. The fourth
represents Cendant 2.4%. The fifth represents General Re 2.4%. The footnote at
the bottom states "As a percentage of net assets on February 28, 1998."]
- --------------------------------------------------------------------------------
latter part of the Fund's fiscal year, the market's advance had broadened to
include a wider range of companies. By the end of February, the market had
reached historic highs, and for the year, the broad market, as measured by the
Standard & Poor's 500 Stock Index, returned 35.00%, including reinvested
dividends. John Hancock Independence Diversified Core Equity Fund II also
prospered. For the year ended February 28, 1998, the Fund posted a total return
of 33.61% at net asset value. That compared favorably with the 29.40% return of
the average growth and income fund, according to Lipper Analytical Services,
Inc. Longer-term performance information can be found on page 12.
Performance review
Throughout the year, financial stocks were among the biggest contributors to the
Fund's performance. The combination of falling interest rates, growing profits
and heightened industry consolidations propelled such Fund holdings as Travelers
Group, General Re and Citicorp. We continued to overweight the finance sector
since the fundamentals remain attractive, but we
10
<PAGE>
================================================================================
JOHN HANCOCK INDEPENDENCE DIVERSIFIED CORE EQUITY FUND II
- --------------------------------------------------------------------------------
["Bar Chart with the heading "Fund Performance" at the top of left hand column.
Under the heading is the footnote: "For the year ended February 28, 1998." The
chart is scaled in increments of 10% with 40% at the top and 0% at the bottom.
The first represents the 33.61% total return for John Hancock Independence
Diversified Core Equity Fund II. The second represents the 29.40% total return
Average growth and income fund. The third represents the 35.00% total return for
the S&P 500 Stock Index. A Footnote below 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. The S&P 500 Index is an unmanaged index that
includes 500 widely traded common stocks. See the following page for historical
performance information. " ]
- --------------------------------------------------------------------------------
made several shifts within the sector during the year. We placed more emphasis
on insurance companies, since their prices remain relatively attractive, while
many bank stocks have risen to the point that they currently reflect the value
of any potential mergers. We also became more focused on domestic names, such as
Norwest, which are less connected to the Asian markets.
Indeed, our domestic focus increased during the year across several industry
sectors. We sold or cut back companies where we had reduced our earnings
estimates based on exposure to Asia, such as DuPont, Dow Chemical and United
Technologies. In their place, we bought or upped our stake in more domestically
focused companies in the telephone and retail sectors, as well as select
technology names such as Cisco Systems.
In addition to financial stocks, we were boosted by our health-care stocks,
particularly the large drug companies such as Merck and Warner-Lambert. Their
strong flow of new products has propelled revenues and earnings. What's more,
some of our specialty retailers, such as building supplier Home Depot and
Lowe's, a regional Home Depot equivalent, have done well thanks to the strong
economy and heightened consumer confidence. This confidence, however, didn't
help some apparel companies, which are still struggling with overcapacity and a
slowdown in orders. As a result, we sold our stakes in Nike and Nine West.
Outlook
As stock investors, we couldn't ask for a better economic environment, and that
keeps our outlook positive for stocks in 1998. The economy, even if it slows,
shows signs that it will continue to grow at a reasonable pace, while the
interest-rate picture remains good, given tame inflation and a balanced budget.
That said, we do not believe it is reasonable to expect the market to produce a
fourth year of 20%-plus returns. No matter what the market does next, we'll
stick to our disciplined approach to buying companies with attractive stock
prices and improving earnings prospects. We remain focused on providing
shareholders with above-average total returns by investing in a diversified
stock portfolio that has a risk level comparable to that of the S&P 500. By
combining elements of both growth and value investing, our strategy helps us
stay in the hunt regardless of which investment style is currently in favor.
"The economy...shows signs that it will continue to grow at a reasonable
pace..."
11
<PAGE>
================================================================================
JOHN HANCOCK INDEPENDENCE DIVERSIFIED CORE EQUITY FUND II
A LOOK AT PERFORMANCE
For the period ended December 31, 1997
SINCE
ONE INCEPTION
YEAR (3/10/95)
---- ---------
Cumulative Total Returns 29.49% 95.66%
Average Annual Total Returns(1) 29.49% 26.94%
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 year ended February 28, 1998, the
Fund's expense ratio was 0.65% of the Fund's average daily net assets. Without
the limitation of expenses, the total return for the since inception period
would have been 26.92%.
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.
- --------------------------------------------------------------------------------
Line chart with the heading Independence Diversified Core Equity Fund II,
representing the growth of a hypothetical $250,000 investment over the life of
the fund. Within the chart are two lines.
The first line represents the value of the Standard & Poor's 500 Stock Index and
is equal to $556,863 as of February 28, 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 $533,198 as of
February 28, 1998.
- --------------------------------------------------------------------------------
12
<PAGE>
================================================================================
BY COREEN KRAYSLER FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Growth Fund
U.S. stocks deliver robust returns, thanks to
favorable market conditions
Once again, stocks catapulted to new records this past year. And it was easy to
see why. Consumer confidence was strong, while both inflation and interest rates
remained low. At the same time, corporations enjoyed increases in productivity,
expanded profit margins, and double-digit earnings growth. As the market climbed
to new heights, investors poured money into stocks and stock funds. The market's
momentum was so strong that corrections last March and August derailed the
market only briefly. In October, as the Asian financial crisis unfolded, stock
prices took another plunge, but soon bounced back. Leading the market's charge
were large-company stocks with a history of steady earnings growth. This
benefited many U.S. stock indices, which posted exceptionally strong results.
- --------------------------------------------------------------------------------
[Chart at the bottom left hand column. Header states "Top Five Common Stock
Holdings" they are numbered one to five. One being the highest and five the
lowest. The first represents Lucent Technologies 4.2%. The second represents
General Electric 4.1%. The third represents PepsiCo 4.1%. The fourth represents
Abbott Laboratories 3.6%. The fifth represents Microsoft 3.3%. The footnote at
the bottom states "As a percentage of net assets on February 28, 1998."]
- --------------------------------------------------------------------------------
The Russell 1000 Growth Index, for example, returned 36.04% for the year ended
February 28, 1998. John Hancock Independence Growth Fund returned 40.52% at net
asset value for the same period. This was well ahead of the average growth fund,
which returned 30.39%, according to Lipper Analytical Services, Inc. For
longer-term performance information, please see page 15.
Superior stock selection makes the difference
Our goal is to beat the Russell 1000 Growth Index through our stock picking. To
do this, we match the index's characteristics. Then we use a combination of
in-depth research and computer modeling to select cheap stocks with improving
fundamentals. Our largest investment was Lucent Technologies, a
telecommunications company that has benefited from industry deregulation, the
explosion in voice, mobile and wireless communications and the huge growth in
data transmission over the Internet. In addition, the company has rejuvenated
its corporate culture, improved productivity, and cut costs. The stock returned
over 100% for the period. Our second largest investment, General Electric, also
did well, returning 54% for the period. GE has
"Our goal is to beat the Russell 1000 Growth Index..."
13
<PAGE>
================================================================================
JOHN HANCOCK INDEPENDENCE GROWTH FUND
"...the market has demonstrated remarkable resilience..."
- --------------------------------------------------------------------------------
["Bar Chart with the heading "Fund Performance" at the top of left hand column.
Under the heading is the footnote: "For the year ended February 28, 1998." The
chart is scaled in increments of 15% with 45% at the top and 0% at the bottom.
The first represents the 40.52% total return for John Hancock Independence
Growth Fund. The second represents the 30.39% total return Average growth fund.
The third represent the 36.04% total return for the Russell 1000 Growth Index. A
Footnote below 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. The Russell 1000 is an
unmanaged index comprised of stocks with a greater-than-average growth
orientation. It is comprised of the largest 1000 public companies in the Unites
States equity markets. See the following page for historical performance
information." ]
- --------------------------------------------------------------------------------
continued to benefit from strong cash flow, terrific management, good
international growth, a stock buy-back program, and progress in quality
improvement.
In the technology sector, our biggest stake was in Microsoft, the largest and
most profitable seller of computer software. Despite Justice Department
investigations into the company's marketing practices and a rout in technology
stocks during the fourth quarter, Microsoft's stock returned 73% for the period.
Earnings grew from the company's rapid and successful entry into client-server
and multimedia technologies, both of which generate high margins. In addition,
Microsoft increased revenues through selling service and maintenance contracts.
Our biggest investment in the medical sector was Abbott Laboratories, which kept
pace with the market's gains thanks to accelerated growth in the company's
diagnostic division and strategic alliances with other drug companies. Merck and
Bristol-Myers Squibb also did well because of their strong pipelines of new
products.
Despite the favorable market environment, some stocks struggled. PepsiCo
posted a disappointing return due to a substantial investment in new packaging.
We held on, however, convinced that the company could benefit from further
restructuring. By contrast, we sold stocks like Fruit of the Loom and Komag (a
hard drive manufacturer), whose outlooks remained poor given the overcapacity
in their respective industries.
Positive prospects
Although stock prices are at all-time highs, we remain confident. Economic
conditions remain ideal, and there's every reason to believe the stock market
could continue to go higher. The pace may be more moderate, however, with
continued bouts of volatility. But the market has demonstrated remarkable
resilience, which bodes well for the future. Similarly, we're optimistic about
the Fund's prospects. Even though assets have more than doubled over the past
six months, the Fund is still very manageable. And there's no shortage of stocks
that meet our criteria. Among the names we've purchased recently are Travelers
Group, which has great growth opportunities from exploiting its cross-selling
opportunities. We'll continue to follow a disciplined investment strategy in
search of stocks like these that can form a diversified portfolio and deliver
optimal results going forward.
14
<PAGE>
================================================================================
JOHN HANCOCK INDEPENDENCE GROWTH FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1997
SINCE
ONE INCEPTION
YEAR (10/2/95)
---- ---------
Cumulative Total Returns 36.22% 72.13%
Average Annual Total Returns(1) 36.22% 27.35%
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 total return
for the one-year and since inception periods would have been 33.27% and 16.32%,
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 less-than-average
growth orientation.
- --------------------------------------------------------------------------------
Line chart with the heading Independence Growth Fund, representing the growth of
a hypothetical $250,000 investment over the life of the fund. Within the chart
are two lines.
The first line represents the value of the hypothetical $250,000 investment made
in the Independence Growth Fund on October 2, 1995 and is equal to $484,208 as
of February 28, 1998. The second line represents the value of the Russell 1000
Growth Index and is equal to $461,270 as of February 28, 1998.
- --------------------------------------------------------------------------------
15
<PAGE>
================================================================================
BY DAVID CANAVAN FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Medium
Capitalization Fund
Medium-cap stocks post strong returns,
gain ground on larger counterparts
"Among the top contributors...were our financial holdings."
Medium-capitalization stocks gathered considerable steam during the past year,
and ended up posting their best results in several years. The period got off to
a rather weak start when investors were intensely focused on large-company
stocks, sending them to record high after record high while medium-cap stocks
languished. But by late summer, the pendulum had started to swing in favor of
mid-cap stocks. Worried that they had bid up large-company stocks to
unreasonable levels given their growth prospects, investors began to turn their
sights toward mid-sized companies in search of more rea-
- --------------------------------------------------------------------------------
[Chart at the bottom left hand column. Header states "Top Five Common Stock
Holdings" they are numbered one to five. One being the highest and five the
lowest. The first represents Hartford Financial Services Group 2.9%. The second
represents Cendant Corp. 2.1%. The third represents Commerica 2.1%. The fourth
represents Bankers Trust 2.1%. The fifth represents FPL Group 1.9%. The footnote
at the bottom states "As a percentage of net assets on February 28, 1998."]
- --------------------------------------------------------------------------------
sonably priced alternatives. Furthermore, the strength of the U.S. dollar became
problematic for many large companies which, as a result, began to warn of lower
earnings. The future earnings growth of these large, multinational companies
was of particular concern throughout the fall when economic and currency
problems in Southeast Asia surfaced. With 30% of U.S. exports going to Asia,
investors fretted that an economic slowdown in that region would further curtail
large-company earnings. The more domestically oriented medium-cap stocks began
to benefit from this concern and outpaced large-company stocks throughout most
of the remainder of the year. Although January was a bit challenging for mid-cap
stocks, February saw them quickly regaining their footing.
Strategy and performance review
For the year ended February 28, 1998, John Hancock Independence Medium
Capitalization Fund had a strong total return of 37.30% at net asset value. For
the same period, the average mid-cap fund returned 28.87%, according to
16
<PAGE>
================================================================================
JOHN HANCOCK INDEPENDENCE MEDIUM CAPITALIZATION FUND
- --------------------------------------------------------------------------------
["Bar Chart with the heading "Fund Performance" at the top of left hand column.
Under the heading is the footnote: "For the year ended February 28, 1998." The
chart is scaled in increments of 10% with 40% at the top and 0% at the bottom.
The first represents the 37.30% total return for John Hancock Independence
Medium Capitalization Fund. The second represents the 28.87% total return
Average mid-cap fund. The third represent the 33.53% total return for the Callan
Medium Capitalization Index. A Footnote below reads "The total return for John
Hancock Medium Capitalization Fund is at net asset value with all distributions
reinvested. The average mid-cap fund is tracked by Lipper Analytical Services,
Inc. The Callan Medium Capitalization Index is an unmanaged index commonly used
as a broad measure of performance of the stocks of companies with market
capitalizations of $1 billion to $5 billion. See the following page for
historical performance information." ]
- --------------------------------------------------------------------------------
Lipper Analytical Services, Inc., and the Callan Medium Capitalization Index
returned 33.53%. Please see page 18 for longer-term performance information. The
key to our performance was stock selection. We believe that the most attractive
stocks combine cheapness with improving fundamentals -- meaning a company's
basic business is getting better. While this strategy wasn't necessarily in
sync with the market's first-half focus on earnings growth at any price, it
proved itself nicely in the second half of the year.
Among the top contributors to the Fund's results were our financial holdings.
A wave of mergers and acquisitions among banks, brokers and insurers, coupled
with a favorable interest-rate environment, propelled our holdings in savings
and loan H.F. Ahmanson and bank holding company Northern Trust. Consolidation
was also a theme that ran through the airline and hotel industries. Delta Air
Lines, Northwest Airlines and Southwest Airlines scored big on the
transportation front, and Promus Hotel Corp. was a big winner in the lodging
sector. Domestically oriented companies including Home Depot, Lowe's, Montana
Power and Florida Power and Light (FPL Group) came on strong after the Southeast
Asia crisis surfaced.
Our technology holdings proved to be a mixed bag. While they were some of our
biggest winners in the first half of the year, they were among our
disappointments over the past six months. Our energy holdings -- including Baker
Hughes, Consolidated Natural Gas and Phillips Petroleum -- also performed poorly
in the second half as the price of oil declined.
Outlook
Our view is that stocks can continue to perform well in 1998, although it would
be unlikely that they will duplicate last year's outsized gains. The economic
crisis in Southeast Asia presents a good news/bad news situation for U.S.
stocks. The good news is that a slowdown there could translate into a slower
U.S. economy, thereby removing the need for the Federal Reserve Board to raise
interest rates. The bad news is that corporate earnings are likely to slow
somewhat. Our outlook calls for earnings to grow a still respectable 10% to 12%
in 1998, down from their torrid pace in 1997. We believe that if the U.S.
economy remains healthy and the international economy slows, the more
domestically oriented, attractively-priced mid-cap sector of the market is
poised to outpace the larger, multinational stocks.
"...stocks can continue to perform well in 1998..."
17
<PAGE>
================================================================================
JOHN HANCOCK INDEPENDENCE MEDIUM CAPITALIZATION FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1997
SINCE
ONE INCEPTION
YEAR (10/2/95)
---- ---------
Cumulative Total Returns 33.09% 63.25%
Average Annual Total Returns(1) 33.09% 24.38%
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 total return
for the one-year and since inception periods would have been 32.71% and 22.28%,
respectively.
WHAT HAPPENED TO
A $250,000 INVESTMENT...
The chart below shows how much a $250,000 investment in 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 approximately $1 billion to $5 billion in capitalization.
- --------------------------------------------------------------------------------
Line chart with the heading Independence Medium Capitalization Fund,
representing the growth of a hypothetical $250,000 investment over the life of
the fund. Within the chart are two lines.
The first line represents the value of the hypothetical $250,000 investment made
in the Independence Medium Capitalization Fund on October 2, 1995 and is equal
to $451,937 as of February 28, 1998. The second line represents the value of the
Callan Medium Capitalization Index and is equal to $428,930 as of February 28,
1998.
- --------------------------------------------------------------------------------
18
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust
Statements of Assets and Liabilities
February 28, 1998
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<TABLE>
<CAPTION>
INDEPENDENCE INDEPENDENCE
BALANCED FUND VALUE FUND
------------- ----------
<S> <C> <C>
Assets:
Investments at value - Note C:
Common stocks (cost - $40,012,507 and $6,511,327, respectively) ............................. $46,368,696 $ 7,739,256
Corporate bonds (cost - $18,188,279 and none, respectively) ................................. 18,440,485 --
U.S. government and agencies securities (cost - $10,188,543 and none, respectively) ......... 10,195,159 --
Short-term investments (cost - $1,619,000 and $24,000, respectively) ........................ 1,619,000 24,000
Corporate savings account ................................................................... 972 270
----------- -----------
76,624,312 7,763,526
Receivable for investments sold .............................................................. 130,044 --
Receivable for shares sold ................................................................... 4,328 --
Dividends receivable ......................................................................... 74,104 21,844
Interest receivable .......................................................................... 502,605 9
Deferred organization expenses - Note A ...................................................... 4,402 4,519
Other assets ................................................................................. 264 6
----------- -----------
Total Assets ............................................................... 77,340,059 7,789,904
--------------------------------------------------------------------------------------------------------
Liabilities:
Payable for shares repurchased ............................................................... 148,332 21,208
Payable to John Hancock Advisers, Inc. and affiliates - Note B ............................... 32,480 407
Accounts payable and accrued expenses ........................................................ 42,786 20,929
----------- -----------
Total Liabilities .......................................................... 223,598 42,544
--------------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in .............................................................................. 69,244,979 6,074,436
Accumulated net realized gain on investments ................................................. 871,115 423,900
Net unrealized appreciation of investments ................................................... 6,615,031 1,227,931
Undistributed net investment income .......................................................... 385,336 21,093
----------- -----------
Net Assets ................................................................. $77,116,461 $ 7,747,360
========================================================================================================
Net Asset Value Per Share:
(based on 6,752,112 and 556,145 shares, respectively, of beneficial interest
outstanding - unlimited number of shares authorized with no par value) ....................... $ 11.42 $ 13.93
============================================================================================================================
</TABLE>
The Statement of Assets and Liabilities is each Fund's balance sheet and shows
the value of what the Fund owns, is due and owes as of February 28, 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)
February 28, 1998
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<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 - $430,101,366, $3,824,708 and $7,223,068, respectively) ..... $557,349,077 $ 4,559,799 $ 9,576,907
Short-term investments (cost - $14,129,000, $52,000 and $147,000, respectively) .. 14,129,000 52,000 147,000
Corporate savings account ........................................................ 345 173 557
------------ ------------ ------------
571,478,422 4,611,972 9,724,464
Receivable for investments sold .................................................... -- -- 4,462
Receivable for shares sold ......................................................... 59,677 -- --
Dividends receivable ............................................................... 922,407 4,065 11,695
Interest receivable ................................................................ 4,438 18 48
Receivable from John Hancock Advisers, Inc. - Note B ............................... -- 7,877 --
Deferred organization expenses - Note A ............................................ 3,835 4,519 4,519
Other assets ....................................................................... 8,560 5 171
------------ ------------ ------------
Total Assets .................................................. 572,477,339 4,628,456 9,745,359
------------------------------------------------------------------------------------------------------------
Liabilities:
Payable for shares repurchased ..................................................... 36,643 -- --
Payable to John Hancock Advisers, Inc. and affiliates - Note B ..................... 8,560 -- 4,343
Accounts payable and accrued expenses .............................................. 338,719 22,961 19,240
------------ ------------ ------------
Total Liabilities ............................................. 383,922 22,961 23,583
------------------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in .................................................................... 424,477,020 3,742,196 7,061,732
Accumulated net realized gain on investments ....................................... 19,579,819 127,561 299,222
Net unrealized appreciation of investments ......................................... 127,248,355 735,092 2,353,853
Undistributed net investment income ................................................ 788,223 646 6,969
------------ ------------ ------------
Net Assets .................................................... $572,093,417 $ 4,605,495 $ 9,721,776
============================================================================================================
Net Asset Value Per Share:
(based on 37,292,376, 309,512 and 730,875 shares, respectively, of beneficial
interest outstanding - unlimited number of shares authorized with no par value) .... $ 15.34 $ 14.88 $ 13.30
====================================================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust
Statements of Operations
Year ended February 28, 1998
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<TABLE>
<CAPTION>
INDEPENDENCE INDEPENDENCE
BALANCED FUND VALUE FUND
------------- ----------
<S> <C> <C>
Investment Income:
Interest ................................................................................. $ 1,644,582 $ 12,598
Dividends (net of foreign withholding tax of $1,969 and $848, respectively) .............. 359,078 139,409
----------- -----------
2,003,660 152,007
----------- -----------
Expenses:
Investment management fee - Note B ..................................................... 317,469 47,689
Custodian fee .......................................................................... 57,049 17,341
Registration and filing fees ........................................................... 49,738 22,613
Transfer agent fee - Note B ............................................................ 22,676 2,981
Auditing fee ........................................................................... 11,300 11,300
Financial services fee - Note B ........................................................ 8,091 1,067
Printing ............................................................................... 6,204 7,111
Trustees' fees ......................................................................... 4,413 508
Organization expense - Note A .......................................................... 1,872 1,748
Miscellaneous .......................................................................... 1,276 554
Legal fees ............................................................................. 457 64
----------- -----------
Total Expenses ...................................................... 480,545 112,976
------------------------------------------------------------------------------------------------------------
Less Expense Reductions - Note B .................................... (72,371) (56,345)
------------------------------------------------------------------------------------------------------------
Net Expenses ........................................................ 408,174 56,631
------------------------------------------------------------------------------------------------------------
Net Investment Income ............................................... 1,595,486 95,376
------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold .................................................... 1,714,204 617,872
Change in net unrealized appreciation of investments ..................................... 5,930,015 1,060,357
----------- -----------
Net Realized and Unrealized Gain on Investments ..................... 7,644,219 1,678,229
------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations ................ $ 9,239,705 $ 1,773,605
============================================================================================================
</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)
Year ended February 28, 1998
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<TABLE>
<CAPTION>
INDEPENDENCE
INDEPENDENCE MEDIUM
DIVERSIFIED CORE INDEPENDENCE CAPITALIZATION
EQUITY FUND II GROWTH FUND FUND
-------------- ----------- -------------
<S> <C> <C> <C>
Investment Income:
Dividends (net of foreign withholding tax of $37,334, $161 and $223, respectively).. $ 7,392,699 $ 21,610 $ 112,606
Interest ........................................................................... 407,419 5,247 12,480
------------ ------------ ------------
7,800,118 26,857 125,086
------------ ------------ ------------
Expenses:
Investment management fee - Note B ................................................ 2,212,037 16,618 57,318
Transfer agent fee - Note B ....................................................... 221,204 1,039 3,582
Custodian fee ..................................................................... 174,015 11,933 12,279
Registration and filing fees ...................................................... 109,477 22,056 2,303
Financial services fee - Note B ................................................... 79,447 371 1,287
Trustees' fees .................................................................... 35,215 224 567
Auditing fee ...................................................................... 11,300 11,300 11,300
Miscellaneous ..................................................................... 10,960 702 573
Legal fees ........................................................................ 7,497 11 127
Printing .......................................................................... 3,646 7,109 6,588
Organization expense - Note A ..................................................... 1,898 1,748 1,748
------------ ------------ ------------
Total Expenses ................................................... 2,866,696 73,111 97,672
---------------------------------------------------------------------------------------------------------------
Less Expense Reductions - Note B ................................. -- (53,378) (26,025)
---------------------------------------------------------------------------------------------------------------
Net Expenses ..................................................... 2,866,696 19,733 71,647
---------------------------------------------------------------------------------------------------------------
Net Investment Income ............................................ 4,933,422 7,124 53,439
---------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold .............................................. 54,376,230 211,135 730,981
Change in net unrealized appreciation of investments ............................... 73,641,789 599,553 1,628,168
------------ ------------ ------------
Net Realized and Unrealized Gain on Investments .................. 128,018,019 810,688 2,359,149
---------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations ............. $132,951,441 $ 817,812 $ 2,412,588
===============================================================================================================
</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
----------------------------- -----------------------------
YEAR ENDED FEBRUARY 28, YEAR ENDED FEBRUARY 28,
----------------------------- -----------------------------
1997 1998 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ........................................ $ 312,000 $ 1,595,486 $ 21,128 $ 95,376
Net realized gain on investments sold ........................ 191,257 1,714,204 60,494 617,872
Change in net unrealized appreciation of investments ......... 514,502 5,930,015 109,991 1,060,357
------------ ------------ ------------ ------------
Net Increase in Net Assets from Operations .................. 1,017,759 9,239,705 191,613 1,773,605
------------ ------------ ------------ ------------
Distributions to Shareholders: *
Dividends from net investment income ......................... (264,635) (1,287,391) (18,692) (78,693)
Distributions from net realized gain on investments sold ..... (84,382) (970,387) (39,488) (218,123)
------------ ------------ ------------ ------------
Total Distributions to Shareholders ......................... (349,017) (2,257,778) (58,180) (296,816)
------------ ------------ ------------ ------------
From Fund Share Transactions: **
Shares sold .................................................. 9,549,116 81,192,471 514,840 8,846,958
Shares issued to shareholders in reinvestment of
distributions .............................................. 348,838 2,258,195 58,180 296,816
------------ ------------ ------------ ------------
9,897,954 83,450,666 573,020 9,143,774
Less shares repurchased ...................................... (2,628,947) (26,408,815) (65,038) (4,196,521)
------------ ------------ ------------ ------------
Net Increase ................................................ 7,269,007 57,041,851 507,982 4,947,253
------------ ------------ ------------ ------------
Net Assets:
Beginning of period .......................................... 5,154,934 13,092,683 681,903 1,323,318
------------ ------------ ------------ ------------
End of period (including undistributed net investment
income of $76,825, $385,336, $4,118 and $21,093,
respectively) .............................................. $ 13,092,683 $ 77,116,461 $ 1,323,318 $ 7,747,360
============ ============ ============ ============
* Distributions to Shareholders:
Per share dividends from net investment income ............... $ 0.3399 $ 0.3496 $ 0.1878 $ 0.1303
------------ ------------ ------------ ------------
Per share distributions from net realized gain
on investments sold ........................................ $ 0.0831 $ 0.1479 $ 0.3968 $ 0.3613
------------ ------------ ------------ ------------
** Analysis of Fund Share Transactions:
Shares sold .................................................. 996,538 7,672,953 50,457 747,624
Shares issued to shareholders in reinvestment
of distributions ........................................... 36,803 213,374 5,605 23,538
------------ ------------ ------------ ------------
1,033,341 7,886,327 56,062 771,162
Less shares repurchased ...................................... (274,027) (2,450,824) (6,435) (336,616)
------------ ------------ ------------ ------------
Net Increase ................................................ 759,314 5,435,503 49,627 434,546
============ ============ ============ ============
</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
------------------------------ ------------------------------
YEAR ENDED FEBRUARY 28, YEAR ENDED FEBRUARY 28,
------------------------------ ------------------------------
1997 1998 1997 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ........................................ $ 4,229,282 $ 4,933,422 $ 3,356 $ 7,124
Net realized gain on investments sold ........................ 19,375,843 54,376,230 82,811 211,135
Change in net unrealized appreciation of investments ......... 31,355,986 73,641,789 90,749 599,553
------------- ------------- ------------- -------------
Net Increase in Net Assets from Operations .................. 54,961,111 132,951,441 176,916 817,812
------------- ------------- ------------- -------------
Distributions to Shareholders: *
Dividends from net investment income ......................... (4,049,756) (4,912,959) (3,202) (7,336)
Distributions from net realized gain on investments sold ..... (10,321,883) (45,208,159) (35,190) (132,773)
------------- ------------- ------------- -------------
Total Distributions to Shareholders ......................... (14,371,639) (50,121,118) (38,392) (140,109)
------------- ------------- ------------- -------------
From Fund Share Transactions: **
Shares sold .................................................. 129,325,966 265,869,777 197,312 3,657,210
Shares issued to shareholders in reinvestment of
distributions ............................................... 14,371,926 50,122,592 38,392 140,097
------------- ------------- ------------- -------------
143,697,892 315,992,369 235,704 3,797,307
Less shares repurchased ...................................... (52,937,315) (146,757,914) (40,370) (752,800)
------------- ------------- ------------- -------------
Net Increase ................................................ 90,760,577 169,234,455 195,334 3,044,507
------------- ------------- ------------- -------------
Net Assets:
Beginning of period .......................................... 188,678,590 320,028,639 549,427 883,285
------------- ------------- ------------- -------------
End of period (including undistributed net investment
income of $767,464, $788,223, $566 and $646,
respectively) ............................................... $ 320,028,639 $ 572,093,417 $ 883,285 $ 4,605,495
============= ============= ============= =============
* Distributions to Shareholders:
Per share dividends from net investment income ............... $ 0.1937 $ 0.1667 $ 0.0407 $ 0.0266
------------- ------------- ------------- -------------
Per share distributions from net realized gain on
investments sold and foreign currency transactions .......... $ 0.4361 $ 1.3273 $ 0.4478 $ 0.4820
------------- ------------- ------------- -------------
** Analysis of Fund Share Transactions:
Shares sold .................................................. 11,159,217 18,671,866 21,181 274,154
Shares issued to shareholders in reinvestment of
distributions ............................................... 1,201,115 3,704,135 3,764 10,945
------------- ------------- ------------- -------------
12,360,332 22,376,001 24,945 285,099
Less shares repurchased ...................................... (4,501,092) (10,157,269) (3,871) (55,833)
------------- ------------- ------------- -------------
Net Increase ................................................ 7,859,240 12,218,732 21,074 229,266
============= ============= ============= =============
</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
----------------------------
YEAR ENDED FEBRUARY 28,
----------------------------
1997 1998
------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ........................................................................ $ 55,030 $ 53,439
Net realized gain on investments sold ........................................................ 225,644 730,981
Change in net unrealized appreciation of investments ......................................... 433,951 1,628,168
------------ ------------
Net Increase in Net Assets from Operations .................................................. 714,625 2,412,588
------------ ------------
Distributions to Shareholders: *
Dividends from net investment income ......................................................... (55,362) (56,108)
Distributions from net realized gain on investments sold ..................................... (129,653) (523,103)
------------ ------------
Total Distributions to Shareholders ......................................................... (185,015) (579,211)
------------ ------------
From Fund Share Transactions: **
Shares sold .................................................................................. 1,356,381 10,618,575
Shares issued to shareholders in reinvestment of distributions ............................... 185,014 579,211
------------ ------------
1,541,395 11,197,786
Less shares repurchased ...................................................................... (754,037) (8,549,263)
------------ ------------
Net Increase ................................................................................ 787,358 2,648,523
------------ ------------
Net Assets:
Beginning of period .......................................................................... 3,922,908 5,239,876
------------ ------------
End of period (including undistributed net investment income of $9,347 and
$6,969, respectively) ....................................................................... $ 5,239,876 $ 9,721,776
============ ============
* Distributions to Shareholders:
Per share dividends from net investment income ............................................... $ 0.1247 $ 0.0901
------------ ------------
Per share distributions from net realized gain on investments sold ........................... $ 0.2919 $ 0.8402
------------ ------------
** Analysis of Fund Share Transactions:
Shares sold .................................................................................. 137,397 859,487
Shares issued to shareholders in reinvestment of distributions ............................... 18,576 49,044
------------ ------------
155,973 908,531
Less shares repurchased ...................................................................... (77,092) (678,916)
------------ ------------
Net Increase ................................................................................ 78,881 229,615
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period, total investment return, key ratios and supplemental data.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<TABLE>
<CAPTION>
FOR THE PERIOD JULY 6, 1995 YEAR ENDED FEBRUARY 28,
(COMMENCEMENT OF OPERATIONS) ------------------------
TO FEBRUARY 29, 1996 1997 1998
--------------------- ---------- ---------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period .......................................... $ 8.50 $ 9.25 $ 9.94
-------- ---------- ---------
Net Investment Income (3) ..................................................... 0.25 0.38 0.38
Net Realized and Unrealized Gain on Investments ............................... 0.63 0.73 1.60
-------- ---------- ---------
Total from Investment Operations ........................................... 0.88 1.11 1.98
-------- ---------- ---------
Less Distributions:
Dividends from Net Investment Income ......................................... (0.13) (0.34) (0.35)
Distributions from Net Realized Gain on Investments Sold ..................... -- (0.08) (0.15)
-------- ---------- ---------
Total Distributions ........................................................ (0.13) (0.42) (0.50)
-------- ---------- ---------
Net Asset Value, End of Period ................................................ $ 9.25 $ 9.94 $ 11.42
======== ========== =========
Total Investment Return at Net Asset Value (6) ................................ 10.42%(2) 12.36% 20.44%
Total Adjusted Investment Return at Net Asset Value (6,7) ..................... 7.36%(2) 11.62% 20.28%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ...................................... $ 5,155 $ 13,093 $ 77,116
Ratio of Expenses to Average Net Assets ....................................... 0.90%(1) 0.90% 0.90%
Ratio of Adjusted Expenses to Average Net Assets (4,5) ........................ 5.58%(1) 1.64% 1.06%
Ratio of Net Investment Income to Average Net Assets .......................... 3.96%(1) 3.96% 3.52%
Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (4,5) .... (0.72%)(1) 3.22% 3.36%
Portfolio Turnover Rate ....................................................... 31% 149% 224%
Fee Reduction Per Share (3) ................................................... $ 0.29 $ 0.07 $ 0.02
Average Brokerage Commission Rate (8) ......................................... N/A $ 0.0276 $ 0.0059
</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) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed since the commencement of operations.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust -- Independence Value Fund
Financial Highlights (continued)
The following table includes selected data for a share outstanding throughout
each period, total investment return, key ratios and supplemental data.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<TABLE>
<CAPTION>
FOR THE PERIOD OCTOBER 2, 1995 YEAR ENDED FEBRUARY 28,
(COMMENCEMENT OF OPERATIONS) -----------------------
TO FEBRUARY 29, 1996 1997 1998
-------------------- -------- --------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................................... $ 8.50 $ 9.47 $ 10.88
----------- -------- --------
Net Investment Income (3) ...................................................... 0.10 0.23 0.21
Net Realized and Unrealized Gain on Investments ................................ 0.96 1.77 3.33
----------- -------- --------
Total from Investment Operations ............................................ 1.06 2.00 3.54
----------- -------- --------
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
=========== ======== ========
Total Investment Return at Net Asset Value (6) ................................. 12.52%(2) 21.36% 32.97%
Total Adjusted Investment Return at Net Asset Value (6,7) ...................... (1.18%)(2) 15.92% 32.02%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ....................................... $ 682 $ 1,323 $ 7,747
Ratio of Expenses to Average Net Assets ........................................ 0.95%(1) 0.95% 0.95%
Ratio of Adjusted Expenses to Average Net Assets (4,5) ......................... 34.06%(1) 6.39% 1.90%
Ratio of Net Investment Income to Average Net Assets ........................... 2.81%(1) 2.26% 1.60%
Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (4,5) ..... (30.30%)(1) (3.18%) 0.65%
Portfolio Turnover Rate ........................................................ 12% 66% 119%
Fee Reduction Per Share (3) .................................................... $ 1.22 $ 0.55 $ 0.12
Average Brokerage Commission Rate (8) .......................................... N/A $ 0.0233 $ 0.0304
</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) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust --
Independence Diversified Core Equity Fund II
Financial Highlights (continued)
The following table includes selected data for a share outstanding throughout
each period, total investment return, key ratios and supplemental data.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<TABLE>
<CAPTION>
FOR THE PERIOD MARCH 10, 1995 YEAR ENDED FEBRUARY 28,
(COMMENCEMENT OF OPERATIONS) -----------------------
TO FEBRUARY 29, 1996 1997 1998
-------------------- -------- --------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................................... $ 8.50 $ 10.96 $ 12.76
----------- -------- --------
Net Investment Income (3) ...................................................... 0.20 0.20 0.17
Net Realized and Unrealized Gain on Investments and Foreign Currency
Transactions ................................................................ 2.38 2.23 3.91
----------- -------- --------
Total from Investment Operations ............................................ 2.58 2.43 4.08
----------- -------- --------
Less Distributions:
Dividends from Net Investment Income .......................................... (0.11) (0.19) (0.17)
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)
----------- -------- --------
Net Asset Value, End of Period ................................................. $ 10.96 $ 12.76 $ 15.34
=========== ======== ========
Total Investment Return at Net Asset Value (6) ................................. 30.48%(2) 22.63% 33.61%
Total Adjusted Investment Return at Net Asset Value (6,7) ...................... 30.42%(2) N/A N/A
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ....................................... $ 188,679 $320,029 $572,093
Ratio of Expenses to Average Net Assets ........................................ 0.70%(1) 0.67% 0.65%
Ratio of Adjusted Expenses to Average Net Assets (4,5) ......................... 0.76%(1) N/A N/A
Ratio of Net Investment Income to Average Net Assets ........................... 2.00%(1) 1.65% 1.12%
Ratio of Adjusted Net Investment Income to Average Net Assets (4,5) ............ 1.94%(1) N/A N/A
Portfolio Turnover Rate ........................................................ 39% 81% 76%
Fee Reduction Per Share (3) .................................................... $ 0.01 N/A N/A
Average Brokerage Commission Rate (8) .......................................... N/A $ 0.0420 $ 0.0459
</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) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust -- Independence Growth Fund
Financial Highlights (continued)
The following table includes selected data for a share outstanding throughout
each period, total investment return, key ratios and supplemental data.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<TABLE>
<CAPTION>
FOR THE PERIOD OCTOBER 2, 1995 YEAR ENDED FEBRUARY 28,
(COMMENCEMENT OF OPERATIONS) -----------------------
TO FEBRUARY 29, 1996 1997 1998
-------------------- -------- --------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................................... $ 8.50 $ 9.29 $ 11.01
----------- -------- --------
Net Investment Income (3) ...................................................... 0.03 0.05 0.04
Net Realized and Unrealized Gain on Investments ................................ 0.81 2.16 4.34
----------- -------- --------
Total from Investment Operations ............................................ 0.84 2.21 4.38
----------- -------- --------
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
=========== ======== ========
Total Investment Return at Net Asset Value (6) ................................. 9.94%(2) 24.19% 40.52%
Total Adjusted Investment Return at Net Asset Value (6,7) ...................... (5.63%)(2) 17.40% 37.95%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ....................................... $ 549 $ 883 $ 4,605
Ratio of Expenses to Average Net Assets ........................................ 0.95%(1) 0.95% 0.95%
Ratio of Adjusted Expenses to Average Net Assets (4,5) ......................... 38.57%(1) 7.74% 3.52%
Ratio of Net Investment Income to Average Net Assets ........................... 0.91%(1) 0.49% 0.34%
Ratio of Adjusted Net Investment Loss to Average Net Assets (4,5) .............. (36.71%)(1) (6.30%) (2.23%)
Portfolio Turnover Rate ........................................................ 21% 142% 91%
Fee Reduction Per Share (3) .................................................... $ 1.36 $ 0.68 $ 0.33
Average Brokerage Commission Rate (8) .......................................... N/A $ 0.0233 $ 0.0315
</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) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust --
Independence Medium Capitalization Fund
Financial Highlights (continued)
The following table includes selected data for a share outstanding throughout
each period, total investment return, key ratios and supplemental data.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<TABLE>
<CAPTION>
FOR THE PERIOD OCTOBER 2, 1995 YEAR ENDED FEBRUARY 28,
(COMMENCEMENT OF OPERATIONS) -----------------------
TO FEBRUARY 29, 1996 1997 1998
-------------------- -------- --------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................................... $ 8.50 $ 9.29 $ 10.45
----------- -------- --------
Net Investment Income (3) ...................................................... 0.08 0.12 0.09
Net Realized and Unrealized Gain on Investments ................................ 0.74 1.45 3.69
----------- -------- --------
Total from Investment Operations ............................................ 0.82 1.57 3.78
----------- -------- --------
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
=========== ======== ========
Total Investment Return at Net Asset Value (6) ................................. 9.71%(2) 17.19% 37.30%
Total Adjusted Investment Return at Net Asset Value (6,7) ...................... 7.00%(2) 15.49% 36.94%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ....................................... $ 3,923 $ 5,240 $ 9,722
Ratio of Expenses to Average Net Assets ........................................ 1.00%(1) 1.00% 1.00%
Ratio of Adjusted Expenses to Average Net Assets (4,5) ......................... 7.55%(1) 2.70% 1.36%
Ratio of Net Investment Income to Average Net Assets ........................... 1.94%(1) 1.26% 0.75%
Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (4,5) ..... (4.61%)(1) (0.44%) 0.39%
Portfolio Turnover Rate ........................................................ 3% 78% 65%
Fee Reduction Per Share (3) .................................................... $ 0.26 $ 0.17 $ 0.04
Average Brokerage Commission Rate (8) .......................................... N/A $ 0.0252 $ 0.0276
</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) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
SEE NOTES TO FINANCIAL STATEMENTS.
30
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
Schedule of Investments
February 28, 1998
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The Schedule of Investments is a complete list of all securities owned by the
Independence Balanced Fund on February 28, 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.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Aerospace (1.63%)
Northrop Grumman Corp. .................... 1,400 $ 194,600
Precision Castparts Corp. ................. 4,500 249,469
Raytheon Co. (Class A) * .................. 159 9,222
United Technologies Corp. ................. 9,000 803,813
----------
1,257,104
----------
Automobile/Trucks (2.68%)
Dana Corp. ................................ 3,600 196,425
Ford Motor Co. ............................ 16,700 944,594
General Motors Corp. ...................... 10,500 723,844
Ryder System, Inc. ........................ 5,500 201,781
----------
2,066,644
----------
Banks - United States (4.58%)
BankAmerica Corp. ......................... 9,800 759,500
Bankers Trust New York Corp. .............. 2,200 260,150
Citicorp .................................. 4,800 636,000
Comerica, Inc. ............................ 10,500 1,058,531
Norwest Corp. ............................. 13,500 552,656
State Street Corp. ........................ 4,300 265,794
----------
3,532,631
----------
Beverages (0.96%)
PepsiCo, Inc. ............................. 20,200 738,563
----------
Building (0.37%)
Masco Corp. ............................... 5,200 282,750
----------
Business Services (0.93%)
Cendant Corp. * ........................... 16,872 632,700
Dun & Bradstreet Corp. .................... 2,500 83,750
----------
716,450
----------
Chemicals (1.01%)
Air Products & Chemicals, Inc. ............ 4,300 360,931
Millennium Chemicals, Inc. ................ 4,600 118,738
Morton International, Inc. ................ 5,000 165,313
Rohm & Haas Co. ........................... 1,300 132,519
----------
777,501
----------
Computers (3.89%)
Adobe Systems, Inc. ....................... 4,500 198,842
Autodesk, Inc. ............................ 2,500 118,436
Bay Networks, Inc.* ....................... 2,700 91,461
Cadence Design Systems, Inc.* ............. 4,800 167,700
Compaq Computer Corp. ..................... 8,300 266,119
Computer Associates International, Inc. ... 5,950 280,394
Hewlett-Packard Co. ....................... 7,900 529,300
International Business Machines Corp. ..... 800 83,550
Microsoft Corp.* .......................... 11,400 966,150
Oracle Corp.* ............................. 6,000 147,750
PeopleSoft, Inc.* ......................... 3,300 147,469
----------
2,997,171
----------
Cosmetics & Personal Care (0.54%)
Dial Corp. (The) .......................... 14,200 336,363
Revlon, Inc. (Class A) * .................. 1,700 79,794
----------
416,157
----------
Diversified Operations (0.99%)
Canadian Pacific, Ltd. (Canada) .......... 7,200 205,650
National Service Industries Inc. .......... 3,500 194,031
Textron, Inc. ............................. 4,900 367,194
----------
766,875
----------
Electronics (3.52%)
General Electric Co. ...................... 17,400 1,352,850
Intel Corp. ............................... 8,600 771,311
Linear Technology Corp. ................... 2,400 181,800
Parker/Hannifin Corp. ..................... 900 41,961
Tektronix, Inc. ........................... 3,200 142,800
Texas Instruments, Inc. ................... 1,600 92,600
Thomas & Betts Corp. ...................... 2,300 130,381
----------
2,713,703
----------
Finance (1.63%)
American Express Co. ...................... 3,700 333,231
Household International, Inc. ............. 300 38,963
MBNA Corp. ................................ 8,300 297,244
Morgan Stanley, Dean Witter,
Discover & Co. ........................... 8,400 585,375
----------
1,254,813
----------
SEE NOTES TO FINANCIAL STATEMENTS.
31
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Food (0.92%)
ConAgra, Inc. ............................. 7,500 $ 225,000
Quaker Oats Co. ........................... 5,000 269,375
Unilever N.V., American Depositary
Receipt (ADR) (Netherlands) .............. 3,300 212,231
----------
706,606
----------
Instruments - Scientific (0.13%)
Perkin-Elmer Corp. ........................ 1,400 102,463
----------
Insurance (5.61%)
American International Group, Inc. ........ 7,300 877,369
Equitable Companies, Inc. (The) .......... 2,600 136,013
General Re Corp. .......................... 4,600 979,800
Hartford Financial Services
Group Inc. (The) ......................... 6,600 648,450
Hartford Life, Inc. (Class A) ............. 2,800 120,575
Marsh & McLennan Companies, Inc. .......... 3,800 329,413
Travelers Group, Inc. ..................... 17,500 975,625
Travelers Property Casualty Corp. (Class A) 6,400 262,400
----------
4,329,645
----------
Machinery (0.23%)
Cooper Industries, Inc. ................... 2,000 112,250
Ingersoll-Rand Co. ........................ 1,350 64,294
----------
176,544
----------
Medical (6.59%)
Abbott Laboratories ....................... 10,900 815,456
Allegiance Corp. .......................... 1,300 45,338
Becton/Dickinson & Co. .................... 2,500 159,063
Bristol-Myers Squibb Co. .................. 5,600 561,050
Cardinal Health, Inc. ..................... 5,000 409,375
Health Management Associates,
Inc. (Class A)* .......................... 8,100 225,281
HEALTHSOUTH Corp.* ........................ 18,300 494,100
Johnson & Johnson ......................... 2,800 211,400
Merck & Co., Inc. ......................... 8,100 1,033,256
Mylan Laboratories, Inc. .................. 7,900 160,963
Schering-Plough Corp. ..................... 8,500 646,531
Tenet Healthcare Corp.* ................... 8,600 320,888
----------
5,082,701
----------
Metal (0.06%)
Illinois Tool Works, Inc. ................. 800 47,950
----------
Mortgage Banking (1.48%)
Federal National
Mortgage Association ..................... 17,900 1,142,244
----------
Office (2.32%)
Avery Dennison Corp. ...................... 2,200 111,100
Pitney Bowes, Inc. ........................ 20,100 942,188
Reynolds and Reynolds Co. (The)
(Class A) ................................ 6,800 144,500
Xerox Corp. ............................... 6,700 594,206
----------
1,791,994
----------
Oil & Gas (6.34%)
Anadarko Petroleum Corp. .................. 1,100 70,950
Ashland, Inc. ............................. 3,100 172,631
Atlantic Richfield Co. .................... 7,200 559,800
Baker Hughes, Inc. ........................ 2,700 110,531
British Petroleum Co. PLC (ADR)
(United Kingdom) ......................... 8,600 711,111
Chevron Corp. ............................. 7,600 616,550
Dresser Industries, Inc. .................. 8,100 361,969
El Paso Natural Gas Co. ................... 2,700 179,212
Halliburton Co. ........................... 5,000 232,500
Mobil Corp. ............................... 7,400 536,038
Phillips Petroleum Co. .................... 11,100 543,900
Schlumberger, Ltd. ........................ 3,300 248,738
Texaco Inc. ............................... 6,000 334,875
USX - Marathon Group ...................... 6,000 207,375
----------
4,886,180
----------
Paper & Paper Products (0.23%)
Fort James Corp. .......................... 4,000 181,500
----------
Pollution Control (0.46%)
Browning-Ferris Industries, Inc. .......... 10,600 353,113
----------
Retail (2.52%)
Costco Companies, Inc.* ................... 1,200 58,650
Dayton Hudson Corp. ....................... 4,400 340,175
Home Depot, Inc. (The) .................... 11,000 701,938
Lowe's Companies, Inc. .................... 4,200 245,438
Staples, Inc.* ............................ 8,850 186,956
TJX Companies, Inc. ....................... 5,200 200,850
Wal-Mart Stores, Inc. ..................... 4,500 208,406
----------
1,942,413
----------
Soap & Cleaning Preparations (0.31%)
Procter & Gamble Co. (The) ................ 2,800 237,825
----------
Telecommunications (4.28%)
A T & T Corp. ............................. 11,000 669,625
Bell Atlantic Corp. ....................... 13,100 1,175,725
Lucent Technologies, Inc. ................. 10,439 1,131,327
Northern Telecom Ltd. (Canada) ............ 6,100 325,206
----------
3,301,883
----------
SEE NOTES TO FINANCIAL STATEMENTS.
32
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Textile (0.80%)
Jones Apparel Group, Inc.* ................ 2,700 $ 148,500
Liz Claiborne, Inc. ....................... 3,600 180,000
Tommy Hilfiger Corp.* ..................... 2,500 133,906
Unifi, Inc. ............................... 4,200 154,350
----------
616,756
----------
Tobacco (0.71%)
Philip Morris Companies, Inc. ............. 11,300 490,844
UST, Inc. ................................. 1,500 53,156
----------
544,000
----------
Transportation (1.63%)
Burlington Northern Santa Fe Corp. ........ 5,800 577,825
Norfolk Southern Corp. .................... 1,300 44,769
Southwest Airlines Co. .................... 9,150 262,491
UAL Corp.* ................................ 4,400 374,550
----------
1,259,635
----------
Utilities (2.78%)
BellSouth Corp. ........................... 4,200 256,200
Consolidated Natural Gas Co. .............. 2,500 143,750
Dominion Resources, Inc. .................. 5,600 223,300
FPL Group, Inc. ........................... 5,800 336,763
GTE Corp. ................................. 15,100 817,288
NIPSCO Industries, Inc. ................... 6,000 154,125
US WEST Communications Group .............. 4,100 213,456
----------
2,144,882
----------
TOTAL COMMON STOCKS
(Cost $40,012,507) (60.13%) 46,368,696
---------- ----------
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 (2.73%)
Chrysler Corp.,
Deb 08-01-97 ................................................. 7.400% A $ 840 $ 881,294
Ford Motor Co.,
Bond 05-15-97 ................................................ 7.700 A1 1,005 1,101,782
General Motors Acceptance Corp.,
Med Term Note 05-22-01 ....................................... 6.800 A- 70 71,362
General Motors Corp.,
Deb 12-01-00 ................................................. 9.625 A 50 54,362
---------------
2,108,800
---------------
Banks - United States (1.17%)
Bankers Trust New York Corp.,
Sub Note 05-01-05 ............................................ 8.250 A- 590 643,779
Capital One Bank,
Sr Note 06-20-00 ............................................. 7.350 Baa3 250 255,175
---------------
898,954
---------------
Beverages (0.28%)
Coca-Cola Enterprises, Inc.,
Bond 10-15-36 ................................................ 6.700 A+ 210 218,201
---------------
Broker Services (0.29%)
Lehman Brothers Inc.,
Sr Sub Note 04-15-03 ......................................... 7.250 A 220 226,930
---------------
Chemicals (0.07%)
Monsanto Co.,
Note 07-01-00 ................................................ 6.000 A 50 49,971
---------------
Computers (1.42%)
International Business Machines Corp.,
Deb 12-01-96 ................................................. 7.125 A+ 1,050 1,098,038
---------------
Finance (1.38%)
CARCO Auto Loan Master Trust,
Pass Thru Ctf Ser 1997-1 Class A 08-15-04 .................... 6.689 AAA 220 221,514
First Union Institutional Capital II,
Co Gtd 01-01-27 .............................................. 7.850 A1 80 82,580
Fleet Capital Trust II,
Co Gtd 12-11-26 .............................................. 7.920 BBB 100 104,642
Mellon Capital II,
Co Gtd 01-15-27 .............................................. 7.995 BBB+ 150 159,401
SUSA Partnership, L.P.,
Note 06-01-17 ................................................ 8.200 Baa3 260 283,317
Wells Fargo Capital I,
Bond 12-15-26 ................................................ 7.960 BBB+ 200 209,490
---------------
1,060,944
---------------
</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>
Government - Foreign (0.24%)
Quebec, Province of,
Note (Canada) 03-02-26 ....................................... 5.735% A2 $ 180 $ 185,594
---------------
Instruments - Scientific (0.32%)
Millipore Corporation,
Note 04-01-07 ................................................ 7.500 BBB 230 243,664
---------------
Insurance (0.82%)
Travelers Group, Inc.,
Deb 02-15-98 ................................................. 6.875 AA- 650 633,672
---------------
Leisure (1.02%)
Hilton Hotels Corp.,
Sr Note 07-15-04 ............................................. 7.000 BBB 620 624,018
Sr Note 04-15-07 ............................................. 7.950 BBB 150 159,282
---------------
783,300
---------------
Media (1.33%)
News America Holdings Inc.,
Sr Note 06-01-00 ............................................. 7.450 BBB- 1,000 1,024,630
---------------
Mortgage Banking (3.30%)
AMRESCO Commercial Mortgage Funding I Corp.,
Mtg Pass Thru Ctf Ser 1997-C1 Class A3 06-17-29 .............. 7.190 AAA 348 365,635
Camden Property Trust,
Med Term Note 06-21-04 ....................................... 7.172 BBB- 160 163,571
Chase Commercial Mortgage Securities Corp.,
Commercial Pass Thru Ctf Ser 1997-1 Class A2 02-19-07 ........ 7.370 AAA 140 148,711
Citibank Credit Card Master Trust I,
Pass Thru Ctf Ser 1998-1 Class A 01-15-03 .................... 5.750 AAA 810 805,189
Credit Suisse First Boston Mortgage Securities Corp.,
Commercial Mtg Pass Thru Ctf Ser 1997-C1 Class A1C 04-20-07 .. 7.240 AAA 580 610,815
Merrill Lynch Mortgage Investors, Inc.,
Mtg Pass Thru Ctf Ser 1997-C1 Class A3 06-18-29 .............. 7.120 AAA 90 94,373
Mortgage Capital Funding, Inc.,
Commercial Mtg Pass Thru Ctf Ser 1996-MC2 Class A1 02-20-04 .. 6.758 Aaa 48 48,648
United Dominion Realty Trust Inc.,
Note 01-15-07 ................................................ 7.250 BBB+ 300 305,496
---------------
2,542,438
---------------
Oil & Gas (2.45%)
Petroleum Geo-Services ASA,
Note (Norway) 03-31-07 ....................................... 7.500 BBB 810 860,949
Phillips 66 Capital Trust II,
Co Gtd 01-15-37 .............................................. 8.000 BBB+ 990 1,031,184
---------------
1,892,133
---------------
</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>
Real Estate Investment Trust (1.47%)
Avalon Properties Inc.,
Note 12-15-07 ................................................ 6.875% BBB $ 390 $ 390,917
Security Capital Industrial Trust,
Deb 07-01-17 ................................................. 7.625 BBB+ 70 72,681
Simon DeBartolo Group, L.P.,
Co Gtd 07-15-04 .............................................. 6.750 BBB 350 348,352
Spieker Properties L.P.,
Deb 10-01-27 ................................................. 7.500 Baa2 180 181,658
Med Term Note 07-19-05 ....................................... 8.000 BBB 110 117,522
Note 12-01-06 ................................................ 7.125 BBB 20 20,331
---------------
1,131,461
---------------
Real Estate Operations (0.24%)
Post Apartment Homes, L.P.,
Med Term Note 04-01-04 ....................................... 7.300 BBB+ 180 185,463
---------------
Retail (3.53%)
Sears Roebuck Acceptance Corp.,
Med Term Note Ser II 06-26-01 ................................ 7.130 A- 1,440 1,484,309
Med Term Note Ser III 11-05-03 ............................... 6.720 A- 120 122,424
Woolworth Corp.,
Note 06-01-00 ................................................ 7.000 BBB- 1,100 1,115,081
---------------
2,721,814
---------------
Telecommunications (0.22%)
WorldCom, Inc.,
Sr Note 04-01-07 ............................................. 7.750 BBB- 160 172,768
---------------
Transportation (1.33%)
Delta Air Lines, Inc.,
Deb 05-15-21 ................................................. 9.750 BBB- 800 1,028,400
---------------
Utilities (0.30%)
Enersis S.A.,
Note (Chile) 12-01-06 ........................................ 6.900 A- 180 174,056
GTE Southwest Inc.,
1st Mtg 11-15-31 ............................................. 8.500 AA- 50 59,254
---------------
233,310
---------------
TOTAL CORPORATE BONDS
(Cost $18,188,279) (23.91%) 18,440,485
--------- ---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
36
<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. (13.10%)
United States Treasury,
Bond 11-15-26 ................................................ 6.500% AAA $ 800 $ 856,248
Note 02-28-99 ................................................ 5.875 AAA 3,100 3,109,207
Note 05-15-99 ................................................ 6.375 AAA 2,745 2,770,721
Note 08-15-03 ................................................ 5.750 AAA 2,710 2,725,664
Note 10-15-06 ................................................ 6.500 AAA 610 641,927
---------------
10,103,767
---------------
Government - U.S. Agencies (0.12%)
Federal National Mortgage Assn.,
30 Yr SF Pass Thru Ctf 08-16-00 .............................. 6.360 AAA 90 91,392
---------------
TOTAL U.S. GOVERNMENT AND
AGENCIES SECURITIES
(Cost $10,188,543) (13.22%) 10,195,159
--------- ---------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.10%)
Investment in a joint repurchase agreement
transaction with SBC Warburg, Inc.-
Dated 02-27-98, Due 03-02-98 (secured by U. S.
Treasury Bonds 8.00% thru 10.625%, Due
08-15-15 thru 11-15-21) - Note A ............................. 5.630 1,619 1,619,000
---------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% ........................................... 972
---------------
TOTAL SHORT-TERM INVESTMENTS (2.10%) 1,619,972
--------- ---------------
TOTAL INVESTMENTS (99.36%) 76,624,312
--------- ---------------
OTHER ASSETS AND LIABILITIES, NET (0.64%) 492,149
--------- ---------------
TOTAL NET ASSETS (100.00%) $77,116,461
========= ===============
</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.
37
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust -- Independence Value Fund
Schedule of Investments
February 28, 1998
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The Schedule of Investments is a complete list of all securities owned by the
Independence Value Fund on February 28, 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 (3.12%)
Goodrich (B.F.) Co. ....................... 700 $ 34,694
Northrop Grumman Corp. .................... 100 13,900
Precision Castparts Corp. ................. 100 5,544
United Technologies Corp. ................. 2,100 187,556
----------
241,694
----------
Automobile/Trucks (6.34%)
Borg-Warner Automotive, Inc. .............. 200 11,725
Dana Corp. ................................ 900 49,106
Ford Motor Co. ............................ 4,400 248,875
General Motors Corp. ...................... 2,599 179,200
Meritor Automotive, Inc. .................. 100 2,500
----------
491,406
----------
Banks - United States (16.49%)
Bank of New York Co., Inc. ................ 800 46,850
BankAmerica Corp. ......................... 3,800 294,500
Bankers Trust New York Corp. .............. 1,400 165,550
Citicorp .................................. 1,100 145,750
Comerica, Inc. ............................ 1,700 171,381
First Union Corp. ......................... 3,500 184,406
NationsBank Corp. ......................... 900 61,650
Northern Trust Corp. ...................... 200 15,213
Norwest Corp. ............................. 3,800 155,562
State Street Corp. ........................ 600 37,088
----------
1,277,950
----------
Beverages (0.33%)
PepsiCo, Inc. ............................. 700 25,594
----------
Building (0.88%)
Centex Corp. .............................. 400 29,225
Clayton Homes, Inc. ....................... 300 5,963
Masco Corp. ............................... 600 32,625
----------
67,813
----------
Chemicals (0.20%)
Millennium Chemicals, Inc. ................ 600 15,488
----------
Computers (1.35%)
Cadence Design Systems, Inc.* ............. 400 13,975
Computer Associates International, Inc. ... 150 7,069
International Business Machines Corp. ..... 800 83,550
----------
104,594
----------
Cosmetics & Personal Care (0.49%)
Dial Corp. (The) ............................. 1,600 37,900
----------
Diversified Operations (1.74%)
Canadian Pacific, Ltd. (Canada) .............. 1,200 34,275
National Service Industries, Inc. ............ 1,300 72,069
Ogden Corp. .................................. 500 13,750
Textron, Inc. ................................ 200 14,988
----------
135,082
----------
Electronics (3.45%)
General Electric Co. ......................... 2,100 163,275
Parker-Hannifin Corp. ........................ 450 20,981
Perkin-Elmer Corp. ........................... 400 29,275
Tektronix, Inc. .............................. 700 31,238
Thomas & Betts Corp. ......................... 400 22,675
----------
267,444
----------
Finance (3.46%)
Ahmanson (H.F.) & Co. ........................ 700 43,706
American Express Co. ......................... 300 27,019
Federal National
Mortgage Association ........................ 700 44,669
MBNA Corp. ................................... 750 26,859
Morgan Stanley, Dean Witter, Discover & Co. .. 1,800 125,437
----------
267,690
----------
Food (0.61%)
Quaker Oats Co. .............................. 800 43,100
Universal Foods Corp. ........................ 100 4,500
----------
47,600
----------
Funeral Services & Related (0.34%)
Service Corp. International .................. 700 26,513
----------
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
- ------------------- ------ -----
Insurance (11.40%)
Allstate Corp. ................................. 500 $ 46,625
American International Group, Inc. ............. 850 102,159
Equitable Cos., Inc. (The) ..................... 600 31,388
General Re Corp. ............................... 800 170,400
Hartford Financial Services Group Inc. (The) ... 2,100 206,325
Marsh & McLennan Cos., Inc. .................... 900 78,019
Mid Ocean Ltd. (Bermuda) ....................... 500 30,656
Partner Re Ltd. (Bermuda) ...................... 400 19,500
Travelers Group, Inc. .......................... 2,600 144,950
Travelers Property Casualty Corp. (Class A) .... 1,300 53,300
----------
883,322
----------
Leasing Company (0.43%)
Ryder System, Inc. ............................. 900 33,019
----------
Leisure (0.17%)
Promus Hotel Corp.* ............................ 270 13,028
----------
Machinery (1.40%)
Cooper Industries, Inc. ........................ 700 39,288
Deere & Co. .................................... 600 33,675
Ingersoll-Rand Co. ............................. 750 35,719
----------
108,682
----------
Media (0.81%)
Viacom, Inc. (Class B)* ........................ 1,300 62,400
----------
Medical (2.67%)
Allegiance Corp. ............................... 600 20,925
Bristol-Myers Squibb Co. ....................... 400 40,075
Cardinal Health, Inc. .......................... 800 65,500
HEALTHSOUTH Corp.* ............................. 1,600 43,200
Mylan Laboratories Inc. ........................ 900 18,338
Tenet Healthcare Corp.* ........................ 500 18,656
----------
206,694
----------
Office (1.76%)
Avery Dennison Corp. ........................... 500 25,250
Pitney Bowes, Inc. ............................. 1,800 84,375
Xerox Corp. .................................... 300 26,606
----------
136,231
----------
Oil & Gas (13.50%)
Anadarko Petroleum Corp. ....................... 100 6,450
Ashland Inc. ................................... 800 44,550
Atlantic Richfield Co. ......................... 500 38,875
Baker Hughes, Inc. ............................. 300 12,281
British Petroleum Co. PLC. American
Depositary Receipts (ADR) (United Kingdom) .... 1,600 132,300
Chevron Corp. .................................. 1,200 97,350
Dresser Industries, Inc. ....................... 1,500 67,031
El Paso Natural Gas Co. ........................ 1,100 73,012
Halliburton Co. ................................ 400 18,600
Mobil Corp. .................................... 3,100 224,556
Phillips Petroleum Co. ......................... 2,000 98,000
Rowan Cos., Inc.* .............................. 500 14,094
Texaco Inc. .................................... 2,800 156,275
USX - Marathon Group ........................... 1,800 62,212
----------
1,045,586
----------
Paper & Paper Products (0.59%)
Fort James Corp. ............................... 1,000 45,375
----------
Pollution Control (0.59%)
USA Waste Services, Inc.* ...................... 1,100 45,788
----------
Retail (3.79%)
Cendant Corp. * ................................ 3,762 141,075
Dayton Hudson Corp. ............................ 500 38,656
Home Depot, Inc. (The) ......................... 1,050 67,003
Staples, Inc.* ................................. 750 15,844
TJX Cos., Inc. (The) ........................... 800 30,900
----------
293,478
----------
Telecommunications (6.75%)
AT&T Corp. ..................................... 800 48,700
Bell Atlantic Corp. ............................ 3,900 350,025
Lucent Technologies, Inc. ...................... 900 97,537
Northern Telecom Ltd. (Canada) ................. 500 26,656
----------
522,918
----------
Textile (1.67%)
Jones Apparel Group, Inc.* ..................... 700 38,500
Liz Claiborne, Inc. ............................ 700 35,000
Tommy Hilfiger Corp.* .......................... 700 37,494
Unifi, Inc. .................................... 500 18,375
----------
129,369
----------
Tobacco (0.25%)
Universal Corp. ................................ 400 19,000
----------
Transport (3.31%)
Burlington Northern Santa Fe Corp. ............. 700 69,737
Delta Air Lines, Inc. .......................... 700 79,144
Norfolk Southern Corp. ......................... 1,200 41,325
Southwest Airlines Co. ......................... 1,200 34,425
Trinity Industries, Inc. ....................... 300 15,075
UAL Corp.* ..................................... 200 17,025
----------
256,731
----------
Utilities (12.01%)
ALLTEL Corp. ................................... 1,200 54,825
Baltimore Gas & Electric Co. ................... 2,200 69,437
Consolidated Natural Gas Co. ................... 1,700 97,750
SEE NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust -- Independence Value Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Utilities (continued)
Dominion Resources, Inc. ....................... 1,400 $ 55,825
DQE, Inc. ...................................... 800 26,550
Florida Progress Corp. ......................... 1,500 58,031
FPL Group, Inc. ................................ 1,100 63,869
GTE Corp. ...................................... 1,900 102,837
Houston Industries, Inc. ....................... 2,000 51,750
Montana Power Co. .............................. 2,300 73,600
NIPSCO Industries, Inc. ........................ 3,600 92,475
Pinnacle West Capital Corp. .................... 1,700 69,381
US WEST Communications Group ................... 2,200 114,537
----------
930,867
----------
TOTAL COMMON STOCKS
(Cost $6,511,327) (99.90%) 7,739,256
------ ----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (0.31%)
Investment in a joint repurchase
agreement transaction with SBC
Warburg, Inc. - Dated 02-27-98,
Due 03-02-98 (secured by U.S.
Treasury Bonds, 8.00% thru
10.625%, Due 08-15-15 thru
11-15-21) - Note A..................... 5.63% $24 $ 24,000
----------
Corporate Saving Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%..................... 270
----------
TOTAL SHORT-TERM INVESTMENTS (0.31%) 24,270
------- ----------
TOTAL INVESTMENTS (100.21%) 7,763,526
------- ----------
OTHER ASSETS AND LIABILITIES, NET (0.21%) (16,166)
------- ----------
TOTAL NET ASSETS (100.00%) $7,747,360
======= ==========
* 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.
40
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust --
Independence Diversified Core Equity Fund II
Schedule of Investments
February 28, 1998
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The Schedule of Investments is a complete list of all securities owned by the
Independence Diversified Core Equity Fund II on February 28, 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 (2.88%)
Northrop Grumman Corp. ......................... 16,900 $ 2,349,100
Precision Castparts Corp. ...................... 29,200 1,618,775
United Technologies Corp. ...................... 140,000 12,503,750
-------------
16,471,625
-------------
Automobile/Trucks (4.29%)
Chrysler Corp. ................................. 78,000 3,037,125
Dana Corp. ..................................... 26,500 1,445,906
Ford Motor Co. ................................. 218,600 12,364,562
General Motors Corp. ........................... 85,300 5,880,369
Lear Corp.* .................................... 34,200 1,808,325
-------------
24,536,287
-------------
Banks - United States (7.00%)
Banc One Corp. ................................. 39,500 2,231,750
BankAmerica Corp. .............................. 134,200 10,400,500
Bankers Trust New York Corp. ................... 51,800 6,125,350
Citicorp ....................................... 59,600 7,897,000
Comerica, Inc. ................................. 67,600 6,814,925
First Union Corp. .............................. 31,900 1,680,731
Norwest Corp. .................................. 99,300 4,065,094
State Street Corp. ............................. 13,800 853,013
-------------
40,068,363
-------------
Beverages (2.11%)
PepsiCo, Inc. .................................. 329,900 12,061,969
-------------
Building (0.63%)
Masco Corp. .................................... 66,800 3,632,250
-------------
Chemicals (1.45%)
Air Products & Chemicals, Inc. ................. 74,000 6,211,375
Millennium Chemicals, Inc. ..................... 49,400 1,275,138
Morton International, Inc. ..................... 24,800 819,950
-------------
8,306,463
-------------
Computers (7.15%)
Autodesk, Inc. ................................. 44,300 2,098,712
Bay Networks, Inc.* ............................ 43,800 1,483,725
Cadence Design Systems, Inc.* .................. 80,300 2,805,481
Cisco Systems, Inc.* ........................... 33,000 2,173,875
Compaq Computer Corp. .......................... 81,000 2,597,062
Computer Associates International, Inc. ........ 82,100 3,868,962
Hewlett-Packard Co. ............................ 52,500 3,517,500
International Business Machines Corp. .......... 42,600 4,449,037
Microsoft Corp.* ............................... 167,400 14,187,150
Oracle Corp.* .................................. 50,600 1,246,025
Parametric Technology Corp.* ................... 19,700 1,193,081
PeopleSoft, Inc.* .............................. 28,200 1,260,188
-------------
40,880,798
-------------
Cosmetics & Personal Care (1.09%)
Dial Corp. (The) ............................... 219,900 5,208,881
Revlon, Inc. (Class A) * ....................... 22,200 1,042,013
-------------
6,250,894
-------------
Diversified Operations (1.05%)
National Service Industries Inc. ............... 24,800 1,374,850
Textron, Inc. .................................. 61,800 4,631,138
-------------
6,005,988
-------------
Electronics (5.80%)
General Electric Co. ........................... 192,100 14,935,775
Honeywell, Inc. ................................ 98,100 7,774,425
Intel Corp. .................................... 56,100 5,031,469
Linear Technology Corp. ........................ 33,100 2,507,325
Perkin-Elmer Corp. ............................. 24,200 1,771,138
Texas Instruments, Inc. ........................ 20,400 1,180,650
-------------
33,200,782
-------------
Finance (5.27%)
American Express Co. ........................... 38,100 3,431,381
Federal National
Mortgage Association .......................... 172,500 11,007,656
Household International, Inc. .................. 13,200 1,714,350
MBNA Corp. ..................................... 158,500 5,676,281
Morgan Stanley, Dean Witter,
Discover & Co. ................................ 119,600 8,334,625
-------------
30,164,293
-------------
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
- ------------------- ------ -----
Food (1.51%)
ConAgra, Inc. .................................. 144,800 $ 4,344,000
Quaker Oats Co. ................................ 79,600 4,288,450
-------------
8,632,450
-------------
Funeral Services & Related (0.26%)
Service Corp. International .................... 40,000 1,515,000
-------------
Insurance (9.64%)
American International Group, Inc. ............. 67,000 8,052,562
Equitable Cos., Inc. (The) ..................... 47,800 2,500,537
General Re Corp. ............................... 65,000 13,845,000
Hartford Financial Services Group
Inc. (The) .................................... 100,600 9,883,950
Marsh & McLennan Cos., Inc. .................... 104,600 9,067,513
Travelers Group, Inc. .......................... 181,950 10,143,713
Travelers Property Casualty Corp.
(Class A) ..................................... 39,700 1,627,700
-------------
55,120,975
-------------
Leasing Companies (0.52%)
Ryder System, Inc. ............................. 80,500 2,953,344
-------------
Leisure (0.17%)
Promus Hotel Corp.* ............................ 19,517 941,695
-------------
Machinery (0.39%)
Deere & Co. .................................... 12,800 718,400
Dover Corp. .................................... 38,800 1,498,650
-------------
2,217,050
-------------
Medical (11.31%)
Abbott Laboratories ............................ 61,500 4,600,969
Allegiance Corp. ............................... 45,800 1,597,275
Becton, Dickinson & Co. ........................ 28,100 1,787,862
Bristol-Myers Squibb Co. ....................... 100,500 10,068,844
Cardinal Health, Inc. .......................... 79,000 6,468,125
Guidant Corp. .................................. 18,400 1,342,050
Health Management Associates, Inc.
(Class A)* .................................... 51,500 1,432,344
HEALTHSOUTH Corp.* ............................. 198,700 5,364,900
Johnson & Johnson .............................. 111,600 8,425,800
Merck & Co., Inc. .............................. 77,700 9,911,606
Pfizer, Inc. ................................... 57,700 5,106,450
Schering-Plough Corp. .......................... 54,400 4,137,800
Tenet Healthcare Corp.* ........................ 28,700 1,070,869
Warner-Lambert Co. ............................. 23,000 3,363,750
-------------
64,678,644
-------------
Office (3.00%)
Avery Dennison Corp. ........................... 39,600 1,999,800
Pitney Bowes, Inc. ............................. 125,400 5,878,125
Xerox Corp. .................................... 104,600 9,276,713
-------------
17,154,638
-------------
Oil & Gas (8.70%)
Atlantic Richfield Co. ......................... 21,900 1,702,725
Baker Hughes, Inc. ............................. 42,000 1,719,375
British Petroleum Co. PLC American
Depositary Receipts (ADR)
(United Kingdom) .............................. 77,500 6,408,281
Chevron Corp. .................................. 66,400 5,386,700
Cooper Cameron Corp.* .......................... 21,300 1,142,212
Dresser Industries, Inc. ....................... 111,200 4,969,250
El Paso Natural Gas Co. ........................ 15,100 1,002,262
Exxon Corp. .................................... 39,000 2,491,125
Halliburton Co. ................................ 26,100 1,213,650
Imperial Oil Ltd. (Canada) ..................... 19,500 1,150,500
Phillips Petroleum Co. ......................... 173,200 8,486,800
Rowan Cos., Inc.* .............................. 35,000 986,563
Schlumberger, Ltd. ............................. 69,100 5,208,413
Texaco Inc. .................................... 77,600 4,331,050
USX - Marathon Group ........................... 103,700 3,584,131
-------------
49,783,037
-------------
Paper & Paper Products (0.30%)
Fort James Corp. ............................... 37,900 1,719,712
-------------
Retail (7.24%)
Cendant Corp. * ................................ 370,700 13,901,250
Dayton Hudson Corp. ............................ 22,300 1,724,069
Home Depot, Inc. (The) ......................... 208,750 13,320,859
Lowe's Cos., Inc. .............................. 96,700 5,650,906
Staples, Inc.* ................................. 62,775 1,326,122
TJX Cos., Inc. ................................. 54,800 2,116,650
Wal-Mart Stores, Inc. .......................... 73,100 3,385,444
-------------
41,425,300
-------------
Soap & Cleaning Preparations (0.23%)
Procter & Gamble Co. (The) ..................... 15,700 1,333,519
-------------
Telecommunications (6.26%)
A T & T Corp. .................................. 127,600 7,767,650
Bell Atlantic Corp. ............................ 138,200 12,403,450
Lucent Technologies, Inc. ...................... 144,500 15,660,187
-------------
35,831,287
-------------
SEE NOTES TO FINANCIAL STATEMENTS.
42
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust --
Independence Diversified Core Equity Fund II
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Textile (0.75%)
Liz Claiborne, Inc. ............................ 38,000 $ 1,900,000
Tommy Hilfiger Corp.* .......................... 44,600 2,388,888
-------------
4,288,888
-------------
Tobacco (1.17%)
Philip Morris Cos., Inc. ....................... 153,900 6,685,031
-------------
Transportation (2.38%)
AMR Corp.* ..................................... 14,700 1,860,469
Burlington Northern Santa Fe Corp. ............. 45,400 4,522,975
Norfolk Southern Corp. ......................... 35,100 1,208,756
Southwest Airlines Co. ......................... 149,000 4,274,438
UAL Corp.* ..................................... 20,500 1,745,063
-------------
13,611,701
-------------
Utilities (4.87%)
BellSouth Corp. ................................ 61,200 3,733,200
Consolidated Natural Gas Co. ................... 94,400 5,428,000
Florida Progress Corp. ......................... 93,300 3,609,544
FPL Group, Inc. ................................ 47,100 2,734,744
GTE Corp. ...................................... 145,800 7,891,425
Houston Industries, Inc. ....................... 51,900 1,342,912
Montana Power Co. .............................. 54,600 1,747,200
US WEST Communications Group ................... 26,700 1,390,069
-------------
27,877,094
-------------
TOTAL COMMON STOCKS
(Cost $430,101,366) (97.42%) 557,349,077
---------- -------------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.47%)
Investment in a joint repurchase
agreement transaction with SBC
Warburg, Inc. - Dated 02-27-98,
Due 03-02-98 (secured by U.S.
Treasury Bonds 8.00% thru
10.625%, Due 08-15-15 thru
11-15-21) - Note A................... 5.63% $14,129 $ 14,129,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%................... 345
------------
TOTAL SHORT-TERM INVESTMENTS (2.47%) 14,129,345
------- ------------
TOTAL INVESTMENTS (99.89%) 571,478,422
------- ------------
OTHER ASSETS AND LIABILITIES, NET (0.11%) 614,995
------- ------------
TOTAL NET ASSETS (100.00%) $572,093,417
======= ============
* 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.
43
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust -- Independence Growth Fund
Schedule of Investments
February 28, 1998
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The Schedule of Investments is a complete list of all securities owned by the
Independence Growth Fund on February 28, 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 (2.44%)
Northrop Grumman Corp. ......................... 100 $ 13,900
United Technologies Corp. ...................... 1,100 98,244
-------------
112,144
-------------
Automobile/Trucks (1.11%)
Ford Motor Co. ................................. 900 50,906
-------------
Banks - United States (1.96%)
BankAmerica Corp. .............................. 500 38,750
Citicorp ....................................... 100 13,250
Comerica, Inc. ................................. 300 30,244
Norwest Corp. .................................. 200 8,188
-------------
90,432
-------------
Beverages (4.05%)
PepsiCo, Inc. .................................. 5,100 186,469
-------------
Building (0.53%)
Centex Corp. ................................... 100 7,306
Clayton Homes, Inc. ............................ 850 16,894
-------------
24,200
-------------
Chemicals (0.91%)
Air Products & Chemicals, Inc. ................. 500 41,969
-------------
Computers (10.90%)
Autodesk, Inc. ................................. 400 18,950
Bay Networks, Inc.* ............................ 600 20,325
Cadence Design Systems, Inc.* .................. 1,000 34,938
Cognizant Corp. ................................ 400 19,975
Compaq Computer Corp.* ......................... 1,900 60,919
Computer Associates International, Inc. ........ 1,800 84,825
Hewlett-Packard Co. ............................ 400 26,800
Microsoft Corp.* ............................... 1,800 152,550
Oracle Corp.* .................................. 1,100 27,087
PeopleSoft, Inc.* .............................. 800 35,750
Stratus Computer, Inc.* ........................ 400 20,075
-------------
502,194
-------------
Cosmetics & Personal Care (2.71%)
Avon Products, Inc. ............................ 1,200 84,525
Dial Corp. (The) ............................... 1,300 30,794
Revlon, Inc. (Class A) * ....................... 200 9,388
-------------
124,707
-------------
Diversified Operations (0.98%)
Textron, Inc. .................................. 600 44,963
-------------
Electronics (9.36%)
Applied Materials, Inc.* ....................... 100 3,681
General Electric Co. ........................... 2,400 186,600
Intel Corp. .................................... 1,600 143,500
Linear Technology Corp. ........................ 200 15,150
Maxim Integrated Products, Inc.* ............... 600 24,225
Tektronix, Inc. ................................ 200 8,925
Teradyne, Inc.* ................................ 300 14,156
Texas Instruments, Inc. ........................ 600 34,725
-------------
430,962
-------------
Finance (4.05%)
American Express Co. ........................... 600 54,037
Federal National
Mortgage Association .......................... 900 57,431
MBNA Corp. ..................................... 1,125 40,289
Morgan Stanley, Dean Witter, Discover & Co. .... 500 34,844
-------------
186,601
-------------
Food (2.24%)
ConAgra, Inc. .................................. 400 12,000
Heinz (H.J.) Co. ............................... 700 39,419
Kellogg Co. .................................... 200 8,525
Quaker Oats Co. ................................ 800 43,100
-------------
103,044
-------------
Funeral Services & Related (0.74%)
Service Corp. International .................... 900 34,087
-------------
Household (0.52%)
Tupperware Corp. ............................... 500 13,438
WestPoint Stevens, Inc.* ....................... 200 10,675
-------------
24,113
-------------
Insurance (6.81%)
American International Group, Inc. ............. 700 84,131
Equitable Cos., Inc. (The) ..................... 300 15,694
General Re Corp. ............................... 200 42,600
SEE NOTES TO FINANCIAL STATEMENTS.
44
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust -- Independence Growth Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Insurance (continued)
Marsh & McLennan Cos., Inc. .................... 500 $ 43,344
Mid Ocean Ltd. (Bermuda) ....................... 600 36,788
Partner Re Ltd. (Bermuda) ...................... 500 24,375
Travelers Group, Inc. .......................... 1,200 66,900
-------------
313,832
-------------
Leisure (0.49%)
Promus Hotel Corp. ............................. 462 22,291
-------------
Machinery (0.49%)
Cooper Industries, Inc. ........................ 400 22,450
-------------
Media (0.31%)
Viacom, Inc. (Class B)* ........................ 300 14,400
-------------
Medical (19.45%)
Abbott Laboratories ............................ 2,200 164,587
Allegiance Corp. ............................... 300 10,463
Becton, Dickinson & Co. ........................ 300 19,088
Biogen, Inc.* .................................. 300 13,238
Bristol-Myers Squibb Co. ....................... 1,000 100,187
Cardinal Health, Inc. .......................... 900 73,687
Chiron Corp. * ................................. 1,400 26,862
Guidant Corp. .................................. 600 43,762
Health Management Associates, Inc.
(Class A)* .................................... 1,000 27,812
HEALTHSOUTH Corp.* ............................. 2,000 54,000
Johnson & Johnson .............................. 600 45,300
Merck & Co., Inc. .............................. 900 114,806
Mylan Laboratories, Inc. ....................... 800 16,300
Pfizer, Inc. ................................... 1,000 88,500
Schering-Plough Corp. .......................... 800 60,850
United Healthcare Corp. ........................ 600 36,413
-------------
895,855
-------------
Office (4.07%)
Danka Business Systems PLC, American
Depositary Receipt (ADR) (United Kingdom) ..... 400 7,150
Pitney Bowes, Inc. ............................. 1,200 56,250
Xerox Corp. .................................... 1,400 124,162
-------------
187,562
-------------
Oil & Gas (4.88%)
Baker Hughes, Inc. ............................. 300 12,281
British Petroleum Co. PLC (ADR)
(United Kingdom) .............................. 700 57,881
Cooper Cameron Corp.* .......................... 300 16,088
Dresser Industries, Inc. ....................... 800 35,750
El Paso Natural Gas Co. ........................ 100 6,638
Halliburton Co. ................................ 400 18,600
Phillips Petroleum Co. ......................... 700 34,300
Rowan Cos., Inc.* .............................. 300 8,456
Schlumberger, Ltd. ............................. 300 22,612
Sun Co., Inc. .................................. 300 11,981
-------------
224,587
-------------
Paper & Paper Products (0.39%)
Fort James Corp. ............................... 400 18,150
-------------
Pollution Control (0.90%)
USA Waste Services, Inc.* ...................... 1,000 41,625
-------------
Retail (7.58%)
Cendant Corp. * ................................ 2,141 80,287
Costco Cos., Inc.* ............................. 400 19,550
Dayton Hudson Corp. ............................ 600 46,387
Home Depot, Inc. (The) ......................... 1,800 114,862
Lowe's Cos., Inc. .............................. 500 29,219
Staples, Inc.* ................................. 1,500 31,687
TJX Cos., Inc. ................................. 700 27,038
-------------
349,030
-------------
Soap & Cleaning Preparations (0.74%)
Procter & Gamble Co. (The) ..................... 400 33,975
-------------
Telecommunications (5.51%)
Lucent Technologies, Inc. ...................... 1,800 195,075
Northern Telecom Ltd. (Canada) ................. 1,100 58,644
-------------
253,719
-------------
Textile (1.26%)
Jones Apparel Group, Inc.* ..................... 500 27,500
Liz Claiborne, Inc. ............................ 400 20,000
Tommy Hilfiger Corp.* .......................... 200 10,713
-------------
58,213
-------------
Tobacco (1.33%)
Philip Morris Cos., Inc. ....................... 1,300 56,469
Universal Corp. ................................ 100 4,750
-------------
61,219
-------------
Transportation (1.36%)
Burlington Northern Santa Fe Corp. ............. 400 39,850
Southwest Airlines Co. ......................... 800 22,950
-------------
62,800
-------------
Utilities (0.94%)
GTE Corp. ...................................... 800 43,300
-------------
TOTAL COMMON STOCKS
(Cost $3,824,708) (99.01%) 4,559,799
---------- -------------
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust -- Independence Growth Fund
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.13%)
Investment in a joint repurchase
agreement transaction with SBC
Warburg, Inc. - Dated 2-27-98,
Due 03-02-98 (secured by U. S.
Treasury Bonds, 8.00% thru 10.625%,
Due 8-15-15 thru 11-15-21) -
Note A............................... 5.63% $52 $ 52,000
----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%................... 173
----------
TOTAL SHORT-TERM INVESTMENTS (1.13%) 52,173
------- ----------
TOTAL INVESTMENTS (100.14%) 4,611,972
------- ----------
OTHER ASSETS AND LIABILITIES, NET (0.14%) (6,477)
------- ----------
TOTAL NET ASSETS (100.00%) $4,605,495
======= ==========
* Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
46
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust --
Independence Medium Capitalization Fund
Schedule of Investments
February 28, 1998
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The Schedule of Investments is a complete list of all securities owned by the
Independence Medium Capitalization Fund on February 28, 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 (0.65%)
Omnicom Group, Inc. ............................ 800 $ 36,600
WPP Group PLC American Depositary
Receipts (ADR) (United Kingdom) ............... 500 26,813
-------------
63,413
-------------
Aerospace (2.29%)
Goodrich (B.F.) Co. ............................ 1,000 49,562
Precision Castparts Corp. ...................... 700 38,806
United Technologies Corp. ...................... 1,500 133,969
-------------
222,337
-------------
Automobile/Trucks (3.10%)
Borg-Warner Automotive, Inc. ................... 700 41,038
Chrysler Corp. ................................. 1,500 58,406
Dana Corp. ..................................... 1,300 70,931
Eaton Corp. .................................... 300 28,819
Lear Corp.* .................................... 1,100 58,163
Meritor Automotive, Inc. ....................... 900 22,500
Superior Industries International, Inc. ........ 700 21,744
-------------
301,601
-------------
Banks - United States (7.40%)
Bankers Trust New York Corp. ................... 1,700 201,025
Comerica, Inc. ................................. 2,000 201,625
Mellon Bank Corp. .............................. 700 43,619
Northern Trust Corp. ........................... 1,400 106,487
State Street Corp. ............................. 1,400 86,537
U.S. Bancorp ................................... 700 80,544
-------------
719,837
-------------
Beverages (0.23%)
Brown-Forman Corp. ............................. 400 22,200
-------------
Building (1.57%)
Centex Corp. ................................... 600 43,838
Fluor Corp. .................................... 700 32,944
Masco Corp. .................................... 1,400 76,125
-------------
152,907
-------------
Chemicals (3.33%)
Air Products & Chemicals, Inc. ................. 1,400 117,512
Albemarle Corp. ................................ 1,000 24,375
Millennium Chemicals, Inc. ..................... 2,000 51,625
Morton International, Inc. ..................... 1,600 52,900
Sigma-Aldrich Corp. ............................ 1,000 39,500
Solutia, Inc. .................................. 1,400 38,238
-------------
324,150
-------------
Computers (3.80%)
Adobe Systems, Inc. ............................ 500 22,094
Autodesk, Inc. ................................. 700 33,163
Cabletron Systems, Inc.* ....................... 1,100 17,050
Cadence Design Systems, Inc.* .................. 2,200 76,863
Cognizant Corp. ................................ 1,200 59,925
First Data Corp. ............................... 1,700 57,800
PeopleSoft, Inc.* .............................. 1,800 80,437
Policy Management Systems Corp.* ............... 300 21,713
-------------
369,045
-------------
Cosmetics & Personal Care (0.95%)
Avon Products, Inc. ............................ 300 21,131
Dial Corp. (The) ............................... 2,000 47,375
Revlon, Inc. (Class A) * ....................... 500 23,469
-------------
91,975
-------------
Diversified Operations (2.96%)
Canadian Pacific, Ltd. (Canada) ............... 4,000 114,250
National Service Industries Inc. ............... 500 27,719
Ogden Corp. .................................... 1,500 41,250
Textron, Inc. .................................. 1,400 104,912
-------------
288,131
-------------
Electronics (3.17%)
Analog Devices, Inc.* .......................... 1,700 54,825
Honeywell, Inc. ................................ 200 15,850
Linear Technology Corp. ........................ 1,000 75,750
Parker-Hannifin Corp. ......................... 400 18,650
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
- ------------------- ------ -----
Electronics (continued)
Perkin-Elmer Corp. ............................. 900 $ 65,869
Tektronix, Inc. ................................ 450 20,081
Thomas & Betts Corp. ........................... 1,000 56,687
-------------
307,712
-------------
Finance (3.46%)
Ahmanson (H.F.) & Co. .......................... 400 24,975
American Express Co. ........................... 300 27,019
Household International, Inc. .................. 500 64,937
MBNA Corp. ..................................... 2,437 87,275
Morgan Stanley, Dean Witter,
Discover & Co. ................................ 1,900 132,406
-------------
336,612
-------------
Food (1.04%)
Quaker Oats Co. ................................ 1,200 64,650
Universal Foods Corp. .......................... 800 36,000
-------------
100,650
-------------
Funeral Services & Related (1.13%)
Service Corp. International .................... 2,900 109,837
-------------
Household (0.26%)
Premark International, Inc. .................... 800 24,900
-------------
Insurance (12.82%)
CIGNA Corp. .................................... 400 76,400
Equitable Cos., Inc. (The) ..................... 2,600 136,012
General Re Corp. ............................... 700 149,100
Hartford Financial Services Group Inc. (The) ... 2,900 284,925
Hartford Life, Inc. (Class A) .................. 1,000 43,062
Marsh & McLennan Cos., Inc. .................... 2,000 173,375
Mid Ocean Ltd. (Bermuda) ....................... 1,000 61,312
Partner Re Ltd. (Bermuda) ...................... 900 43,875
SAFECO Corp. ................................... 800 41,950
Torchmark Corp. ................................ 600 27,938
Travelers Group, Inc. .......................... 1,900 105,925
Travelers Property Casualty Corp.
(Class A) ..................................... 2,500 102,500
-------------
1,246,374
-------------
Leasing Companies (0.91%)
Ryder System, Inc. ............................. 2,400 88,050
-------------
Leisure (1.47%)
Choice Hotels International, Inc.* ............. 1,100 16,500
Marriott International, Inc. ................... 400 30,300
Mattel, Inc. ................................... 800 33,850
Promus Hotel Corp.* ............................ 1,295 62,484
-------------
143,134
-------------
Machinery (1.61%)
Cooper Industries, Inc. ........................ 800 44,900
Dover Corp. .................................... 1,400 54,075
Ingersoll-Rand Co. ............................. 1,200 57,150
-------------
156,125
-------------
Media (1.11%)
Knight-Ridder, Inc. ............................ 800 45,000
Viacom, Inc. (Class B)* ........................ 1,300 62,400
-------------
107,400
-------------
Medical (5.25%)
Allegiance Corp. ............................... 900 31,388
Becton, Dickinson & Co. ........................ 700 44,538
Cardinal Health, Inc. .......................... 1,200 98,250
Guidant Corp. .................................. 1,100 80,231
Health Management Associates, Inc.
(Class A)* .................................... 1,500 41,719
HEALTHSOUTH Corp.* ............................. 4,200 113,400
Lincare Holdings, Inc.* ........................ 400 25,962
Mylan Laboratories, Inc. ....................... 1,300 26,487
United Healthcare Corp. ........................ 800 48,550
-------------
510,525
-------------
Office (3.26%)
Avery Dennison Corp. ........................... 1,400 70,700
Pitney Bowes, Inc. ............................. 2,600 121,875
Reynolds & Reynolds Co. (The)
(Class A) ..................................... 2,100 44,625
Xerox Corp. .................................... 900 79,819
-------------
317,019
-------------
Oil & Gas (6.44%)
Anadarko Petroleum Corp. ....................... 800 51,600
Baker Hughes, Inc. ............................. 1,500 61,406
Cooper Cameron Corp.* .......................... 400 21,450
Dresser Industries, Inc. ....................... 2,100 93,844
El Paso Natural Gas Co. ........................ 755 50,113
Halliburton Co. ................................ 1,200 55,800
Phillips Petroleum Co. ......................... 2,400 117,600
Rowan Cos., Inc.* .............................. 1,000 28,188
Sun Co., Inc. .................................. 800 31,950
USX - Marathon Group ........................... 3,300 114,056
-------------
626,007
-------------
Paper & Paper Products (0.79%)
Fort James Corp. ............................... 1,700 77,138
-------------
Pollution Control (1.95%)
Browning-Ferris Industries, Inc. ............... 1,200 39,975
USA Waste Services, Inc.* ...................... 3,600 149,850
-------------
189,825
-------------
SEE NOTES TO FINANCIAL STATEMENTS.
48
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust --
Independence Medium Capitalization Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Real Estate Operations (0.30%)
Webb (Del E.) Corp. ............................ 900 $ 28,800
-------------
Retail (8.27%)
Cendant Corp. * ................................ 5,544 207,900
Costco Cos., Inc.* ............................. 600 29,325
Dayton Hudson Corp. ............................ 1,000 77,312
Home Depot, Inc. (The) ......................... 2,550 162,722
Lowe's Cos., Inc. .............................. 2,300 134,406
Nordstrom, Inc. ................................ 600 34,406
Staples, Inc.* ................................. 3,075 64,959
TJX Cos., Inc. ................................. 1,800 69,525
Toys "R" Us, Inc.* ............................. 900 23,625
-------------
804,180
-------------
Rubber - Tires & Misc (0.85%)
Goodyear Tire & Rubber Co. (The) ............... 1,200 82,950
-------------
Telecommunications (2.48%)
Harris Corp. ................................... 800 40,550
Lucent Technologies, Inc. ...................... 1,256 136,119
Northern Telecom Ltd. (Canada) ................. 1,200 63,975
-------------
240,644
-------------
Textile (2.23%)
Liz Claiborne, Inc. ............................ 1,400 70,000
Tommy Hilfiger Corp.* .......................... 900 48,206
Unifi, Inc. .................................... 900 33,075
VF Corp. ....................................... 600 28,613
Warnaco Group, Inc. (Class A) .................. 1,000 37,125
-------------
217,019
-------------
Tobacco (1.18%)
Universal Corp. ................................ 1,300 61,750
UST, Inc. ...................................... 1,500 53,156
-------------
114,906
-------------
Transportation (4.46%)
AMR Corp.* ..................................... 300 37,969
CSX Corp. ...................................... 800 44,750
Delta Air Lines, Inc. .......................... 800 90,450
Kansas City Southern Industries, Inc. .......... 900 33,469
Norfolk Southern Corp. ......................... 900 30,994
Northwest Airlines Corp. (Class A)* ............ 800 47,100
Southwest Airlines Co. ......................... 2,550 73,153
Trinity Industries, Inc. ....................... 500 25,125
UAL Corp.* ..................................... 600 51,075
-------------
434,085
-------------
Utilities (7.79%)
Baltimore Gas & Electric Co. ................... 1,700 53,656
CMS Energy Corp. ............................... 1,300 57,525
Consolidated Natural Gas Co. ................... 1,800 103,500
Dominion Resources, Inc. ....................... 300 11,963
Florida Progress Corp. ......................... 1,400 54,162
FPL Group, Inc. ................................ 3,100 179,994
Hawaiian Electric Industries, Inc. ............. 800 32,400
Houston Industries, Inc. ....................... 400 10,350
Montana Power Co. .............................. 4,600 147,200
New Century Energies, Inc. ..................... 1,500 69,938
Pinnacle West Capital Corp. .................... 900 36,731
-------------
757,419
-------------
TOTAL COMMON STOCKS
(Cost $7,223,068) (98.51%) 9,576,907
---------- -------------
INTEREST PAR VALUE
RATE (000s OMITTED)
---- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.51%)
Investment in a joint repurchase
agreement transaction with SBC
Warburg, Inc. - Dated 02-27-98,
Due 03-02-98 (secured by U.S.
Treasury Bonds 8.00% thru
10.625%, Due 08-15-15 thru
11-15-21) - Note A .................. 5.63% $147 147,000
-----------
Corporate Savings Account (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% .................. 557
-----------
TOTAL SHORT-TERM INVESTMENTS (1.52%) 147,557
------- -----------
TOTAL INVESTMENTS (100.03%) 9,724,464
------- -----------
OTHER ASSETS AND LIABILITIES, NET (0.03%) (2,688)
------- -----------
TOTAL NET ASSETS (100.00%) $ 9,721,776
======= ===========
* Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE>
========================= NOTES TO FINANCIAL STATEMENTS ========================
John Hancock Funds - Institutional Series Trust
NOTE A --
ACCOUNTING POLICIES
John Hancock Independence Balanced Fund ("Independence Balanced Fund"), John
Hancock Independence 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 Small Capitalization Value Fund
(formerly the John Hancock Fundamental Value Fund), John Hancock Dividend
Performers Fund, John Hancock Multi-Sector Growth Fund, John Hancock Small
Capitalization Growth Fund (formerly the John Hancock Small Capitalization
Equity Fund) and John Hancock International Equity Fund. The other seven series
of the Trust are reported in separate financial statements. The investment
objective of Independence Balanced Fund, Independence Value Fund, Independence
Diversified Core Equity Fund II, Independence Growth Fund and Independence
Medium Capitalization 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 Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Funds' portfolios are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency Translation"
below.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Funds, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
Inc., may participate in joint repurchase agreement transactions. 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 which 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.
50
<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 an unsecured
line of credit with banks which permit borrowings up to $600 million,
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 a rate of 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 year ended February 28, 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
51
<PAGE>
========================= NOTES TO FINANCIAL STATEMENTS ========================
John Hancock Funds - Institutional Series Trust
The Adviser is responsible for managing the Funds' investment business
affairs and overseeing the investment activities of the sub-adviser. The
Adviser has a sub-investment management contract with Independence Investment
Associates, Inc. (the "Sub-Adviser"), under which the Sub-Adviser, subject to
the review of the Trustees and the overall supervision of the Adviser, provides
the Funds with investment services and advice with respect to investment
transactions. The Adviser pays the Sub-Adviser a portion of its advisory fee
quarterly from each Fund as follows:
Independence 60% of the advisory fee payable on the Fund's
Balanced Fund average daily net assets
Independence 55% of the advisory fee payable on the Fund's
Value Fund average daily net assets
Independence 80% of the advisory fee payable on the Fund's
Diversified average daily net assets
Core Equity Fund II
Independence 55% of the advisory fee payable on the Fund's
Growth Fund average daily net assets
Independence 55% of the advisory fee payable on the Fund's
Medium average daily net assets
Capitalization Fund
Effective July 1, 1995, the Sub-Adviser has waived its fees until further
notice on Independence Value Fund, Independence Growth Fund and Independence
Medium Capitalization Fund. The Sub-Adviser had waived its fee for the period
July 6, 1995 (commencement of operations) through December 31, 1997 on
Independence Balanced 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 year ended February 28, 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 $72,371 for Independence Balanced
Fund, $56,345 for Independence Value Fund, none for Independence Diversified
Core Equity Fund II, $53,378 for Independence Growth Fund and $26,025 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 year ended February
28, 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 year 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 trustees and officers of the Adviser, and/or its affiliates as well as
Trustees of the Funds. The compensation of unaffiliated Trustees is borne by the
Funds. The unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Funds make investments into other John Hancock funds, as
applicable, to cover their liabilities for the deferred compensation.
Investments to cover the Funds' deferred compensation liability are recorded on
the Funds' books as an other asset. The deferred com-
52
<PAGE>
========================= NOTES TO FINANCIAL STATEMENTS ========================
John Hancock Funds - Institutional Series Trust
pensation 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 February 28, 1998 the Funds'
investments to cover the deferred compensation had unrealized appreciation of
$20 for the Independence Balanced Fund, $2 for the Independence Value Fund, $664
for the Independence Diversified Core Equity Fund II, $2 for the Independence
Growth Fund and $14 for the Independence Medium Capitalization Fund.
NOTE C --
INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding short term
obligations, for the year ended February 28, 1998 were as follows:
PURCHASES PROCEEDS
--------- --------
Independence Balanced Fund
U.S. Government Securities ............. $ 84,036,060 $ 77,673,079
Other Investments ...................... 69,810,988 21,457,119
Independence Value Fund .................. 11,498,690 6,758,376
Independence Diversified Core
Equity Fund II ......................... 442,116,552 330,427,403
Independence Growth Fund ................. 4,852,326 1,968,132
Independence Medium
Capitalization Fund .................... 6,467,333 4,395,057
At February 28, 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>
AGGREGATE GROSS UNREALIZED GROSS UNREALIZED NET UNREALIZED
COST APPRECIATION DEPRECIATION APPRECIATION
---- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Independence
Balanced
Fund ............ $70,012,074 $6,908,787 ($297,521) $6,611,266
Independence
Value Fund ...... 6,544,781 1,234,275 (15,800) 1,218,475
Independence
Diversified
Core Equity
Fund II ......... 444,303,769 130,032,335 (2,854,353) 127,177,982
Independence
Growth
Fund ............ 3,879,488 756,289 (23,978) 732,311
Independence
Medium
Capitalization
Fund ............ 7,370,068 2,400,334 (46,495) 2,353,839
</TABLE>
NOTE D --
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended February 28, 1998, reclassifications have been made in
each Fund's capital accounts which represent the cumulative amount necessary to
report these balances on a tax basis, excluding certain temporary differences,
as of February 28, 1998. Additional adjustments may be needed in subsequent
reporting periods. These reclassifications, which have no impact on the net
asset value of the Funds, are primarily attributable to differences in the
treatment of net operating losses and foreign currency gains and losses under
federal tax rules versus generally accepted accounting principles. The
calculation of net investment income per share in the financial highlights
excludes these adjustments.
<TABLE>
<CAPTION>
CAPITAL UNDISTRIBUTED ACCUMULATED NET
PAID-IN NET INVESTMENT INCOME REALIZED GAIN (LOSS)
------- --------------------- --------------------
<S> <C> <C> <C>
Independence Balanced Fund ...... $(416) $416 $
Independence Value Fund ......... (292) 292 --
Independence Diversified Core
Equity Fund II ................ (291) 296 (5)
Independence Growth Fund ........ (292) 292 --
Independence Medium
Capitalization Fund ........... (291) 291 --
</TABLE>
53
<PAGE>
================================================================================
John Hancock Funds - Institutional Series Trust
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Trustees of John
Hancock Institutional Series Trust:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of John Hancock Institutional Series Trust
(comprising, respectively, John Hancock Independence Balanced Fund, John Hancock
Independence Value Fund, John Hancock Independence Diversified Core Equity Fund
II, John Hancock Independence Growth Fund, John Hancock Independence Medium
Capitalization Fund) (the "Funds") as of February 28, 1998, and the related
statements of operations and changes in net assets, and financial highlights for
the year then ended. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial statements of the Funds' for the year ended February 28,
1997 and the financial highlights for the periods from each respective Fund's
commencement of operations to February 28, 1997 were audited by other auditors
whose report, dated April 4, 1997, expressed an unqualified opinion on those
statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at February
28, 1998 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Funds
constituting John Hancock Institutional Series Trust at February 28, 1998, the
results of their operations, the changes in their net assets, and their
financial highlights for the respective stated periods in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 3, 1998
TAX INFORMATION (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the taxable distribution of the Funds for the fiscal year ended
February 28, 1998.
The Funds' designated the following as long-term capital gain dividends
during the fiscal year ended February 28, 1998. The capital gain dividends are
further broken down into two capital gain tax rates, 28% and 20% respectively.
Shareholders were mailed a 1997 U.S. Treasury Department Form 1099-DIV in
January 1998 representing their proportionate share.
Additionally, the following dividend distributions qualify for the dividends
received deduction available to corporations.
TOTAL 28% 20% DIVIDENDS
CAPITAL RATE RATE RECEIVED
GAINS GAINS GAINS DEDUCTION
----- ----- ----- ---------
Independence
Balanced Fund ......... $ 237,758 $ 84,173 $ 153,585 12.34%
Independence
Value Fund ............ 67,529 24,590 42,939 25.09
Independence
Diversified Core
Equity Fund II ........ 26,550,959 3,894,413 22,656,546 38.53
Independence
Growth Fund ........... 34,530 6,063 28,467 17.92
Independence
Medium
Capitalization
Fund .................. 316,904 88,391 228,513 38.03
54
<PAGE>
===================================== NOTES ====================================
John Hancock Funds - Institutional Series Trust
55
<PAGE>
================================================================================
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This report is for the information of shareholders of the John Hancock
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objectives and operating policies.
[LOGO] Printed on Recycled Paper KI00A 2/98
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