ANNUAL REPORT
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[GRAPHIC OMITTED]
Institutional
Series Trust
Active Bond Fund
Dividend Performers Fund
Multi-Sector Growth Fund
Small Capitalization Growth Fund
Small Capitalization Value Fund
International Equity Fund
FEBRUARY 28, 1999
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
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================================Table of Contents===============================
John Hancock Funds - Institutional Series Trust
Page
1) Chairman's Message.................................................... 3
2) Portfolio Manager Commentary
This commentary reflects the views of the portfolio manager or
portfolio management team through the end of each 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 Dividend Performers Fund ............................. 7
John Hancock Multi-Sector Growth Fund.............................. 10
John Hancock Small Capitalization Growth Fund...................... 13
John Hancock Small Capitalization Value Fund....................... 16
John Hancock International Equity Fund............................. 19
3) Financial Statements.................................................. 22
4) Notes To Financial Statements......................................... 62
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TRUSTEES
EDWARD J. BOUDREAU, JR.
STEPHEN L. BROWN
JAMES F. CARLIN
WILLIAM H. CUNNINGHAM*
RONALD R. DION*
HAROLD R. HISER, JR.
ANNE C. HODSDON
CHARLES L. LADNER
LEO E. LINBECK, JR.
STEVEN R. PRUCHANSKY*
RICHARD S. SCIPIONE
LT. GEN. NORMAN H. SMITH, USMC (RET.)
JOHN P. TOOLAN
* Members of Audit Committee
OFFICERS
EDWARD J. BOUDREAU, JR.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ANNE C. HODSDON
PRESIDENT, CHIEF OPERATING OFFICER AND
CHIEF INVESTMENT OFFICER
OSBERT M. HOOD
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
SUSAN S. NEWTON
VICE PRESIDENT AND SECRETARY
JAMES J. STOKOWSKI
VICE PRESIDENT AND TREASURER
THOMAS H. CONNORS
VICE PRESIDENT AND COMPLIANCE OFFICER
CUSTODIANS
International Equity Fund
STATE STREET BANK AND TRUST COMPANY
225 FRANKLIN STREET
BOSTON, MA 02110
Active Bond Fund
Dividend Performers Fund
Multi-Sector Growth Fund
Small Capitalization Growth Fund
Small Capitalization Value Fund
INVESTORS BANK & TRUST COMPANY
200 CLARENDON STREET
BOSTON, MA 02116
TRANSFER AGENT
JOHN HANCOCK SIGNATURE SERVICES, INC.
1 JOHN HANCOCK WAY SUITE 1000
BOSTON, MA 02217-1000
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MA 02199-7603
SUB-INVESTMENT ADVISER
International Equity Fund
JOHN HANCOCK ADVISERS INTERNATIONAL LTD.
DUKES COURT, 6TH FLOOR
32-36 DUKE STREET ST. JAMES'S
LONDON, ENGLAND SWIY 6DF
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MA 02199-7603
LEGAL COUNSEL
HALE AND DORR LLP
60 STATE STREET
BOSTON, MA 02109
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
125 SUMMER STREET
BOSTON, MA 02110-1617
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2
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===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
Nineteen ninety-eight was a year that gave even veteran financial market
investors pause -- and not a little heartburn. The stock market produced a
record fourth straight year of double-digit returns, but volatility was
breathtaking along the way. With the exception of the U.S. Treasury market, even
bonds -- considered a safer alternative to stocks -- went on a roller coaster
ride.
But there was one clear lesson from 1998: that sticking out the tough
times paid off. After reaching new highs last July, stocks plunged in August in
one of their worst sell-offs in years. The average U.S. diversified-equity
mutual fund fell 16.8% in the month of August alone. For many mutual fund
investors, it was the largest one-month loss they had ever experienced, since
the average equity fund had only had three such double-digit monthly losses in
the previous 20 years, most recently in October 1987. But, in a dramatic
reversal of fortune, the market staged a stunning rebound in the fourth quarter.
The average U.S. diversified-equity fund made up all its August lost ground and
then some, returning 18.8% between October and December. The final result for
the year: an average 14.52% return, as calculated by Lipper, Inc.
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[A 1" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
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Given the dramatic swings, investors who tried to time the market's ups
and downs encountered a sharp whipsaw. We are very encouraged to report that an
overwhelming majority of mutual fund investors sat tight during last summer's
discontent; some even used the market's drop to pick up bargains. It was a clear
sign that long-term investors are willing to accept the reality of shorter-term
volatility.
In the first two months of 1999, the financial markets showed more
stability and the Dow Jones Industrial Average approached record highs. While
volatility remains on many investors' minds, at this time of year thoughts also
turn to more taxing matters. In our view, now is a perfect time to focus on how
much of your hard-earned money you are able to keep. Part of a good tax-planning
strategy should involve a review of your portfolio to ensure that you are taking
advantage of all available ways to minimize and defer your tax payments -- in an
effort to maximize investment returns.
We encourage you to work with your investment professional to consider the
various options. These include focusing on tax-exempt funds, contributing the
maximum to retirement plans, establishing or adding to IRAs and funding a
variable annuity. After all, while it's every American's responsibility to pay
taxes, there's no reason to pay more than your fair share.
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 MANAGEMENT TEAM LEADER, AND
ANTHONY A. GOODCHILD AND BENJAMIN A. MATTHEWS, PORTFOLIO MANAGERS
John Hancock
Active Bond Fund
Volatile year for bonds; Treasuries outperform corporates
"...careful security selection and some timely maneuvers..."
Bonds fell prey to the same volatility that hit the stock market over the last
12 months. The brunt of the turmoil came last summer and fall, when Russia's
debt default and the near collapse of several well-known hedge funds sent U.S.
corporate and emerging-market bond prices plunging. U.S. Treasury bonds were the
major beneficiary of the market's nervousness, as they represented a haven for
both stock and bond investors seeking only the safest investments. As a result,
Treasury prices rose and the yield on the bellwether 30-year Treasury bond fell
from 5.90% when the Fund's fiscal year began last March to 5.09% by the end of
December -- its lowest level in 30 years.
Three interest-rate cuts by the Federal Reserve between September and
November helped stocks and high-grade corporate bonds stage a rebound and eased
the credit crunch. But in the first two months of 1999, news that the U.S.
economy was growing at a stronger-than-expected rate caused Treasuries to give
back some of their gains. Investors no longer assumed that the Fed would keep
lowering rates, and fears grew that an overheated economy would spark inflation
and even cause the Fed to raise rates to slow it down. As a result, Treasury
prices fell and the yield on the 30-year Treasury bond rose to 5.55% by the end
of February.
Strategies that worked
Through careful security selection and some timely maneuvers between different
types of bonds, John Hancock Active Bond Fund closed the fiscal year with
competitive results despite the volatility. For the year ended February 28,
1999, the Fund posted a total return of 6.24%, compared to the 4.70% return of
the average corporate debt A-rated fund, according to Lipper, Inc. The Fund's
benchmark, the Lehman Brothers Government/Corporate Bond Index,
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[A 3" x 2" photo at bottom right side of page of John Hancock Active Bond Fund.
Caption below reads "Fund management team members (l-r): Ben Matthews, Lee
Crockett, Jim Ho, Tony Goodchild and Beverly Cleathero."]
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4
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JOHN HANCOCK ACTIVE BOND FUND
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[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended February 28, 1999." The chart
is scaled in increments of 5% with 0% at the bottom and 10% at the top. The
first bar represents the 6.24% Total return for John Hancock Active Bond Fund.
The second bar represents the 4.70% total return for Average corporate debt
A-rated fund. The third bar represents the 6.35% total return for Lehman
Brothers Government/Corporate Bond Index. A note below the chart reads "The
total return for John Hancock Active Bond Fund is at net asset value with all
distributions reinvested. The average corporate debt A-rated fund is tracked by
Lipper, Inc. See the following page historical performance information."]
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returned 6.35% in the same period. Historical performance can be found on page
six.
The Fund benefited from its overweighting during much of the year in
Treasury securities, which totaled 50% of the Fund's net assets by the end of
August. This enabled us to participate fully in the Treasury market's historic
run-up. We also avoided emerging-market debt, which bore the brunt of the
volatility.
By mid-fall, markets calmed down, liquidity returned and high-yield and
investment-grade bonds began to recover some lost ground. With their valuations
having fallen to historically low levels, higher-quality companies were able to
bring new issues to the market at extraordinarily cheap prices. We took
advantage of the opportunity by shifting some of our assets away from
Treasuries, which ended the year at 27% of the Fund, and adding some high-grade
names, including IBM. Not only did these bonds carry attractive yields, but we
were rewarded when their prices rebounded later in the period. Our utility
companies, including Niagara Mohwak Power, CalEnergy and Connecticut Light &
Power, also served us well, since they offered a haven from global turmoil and
predictable earnings growth. After lagging early in the period, our
mortgage-backed securities, which have boosted the Fund's yield, also saw their
prices rebound in the last two months of the period as rising rates slowed down
mortgage refinancings.
We were hurt by our investments in sub-prime lenders ContiFinancial and
United Companies Financial whose earnings suffered as falling interest rates
sparked a rash of loan prepayments. We sold the positions at a loss, but avoided
an even greater fall later.
A look ahead
With the U.S. economy still roaring, the days of Fed rate cuts seem over for
now. Although the Fed appears more disposed to raise rates to cool off the
economy, it probably will take a wait-and-see attitude in the near term, since
the market did that job on its own over the last two months. As long as the
economic data remain strong, with no signs of inflation, we'll stick with
corporate bonds, which should do well in an economy robust enough to support
earnings growth. We'll still avoid the cyclical industries and remain in those
sectors that appear more able to grow earnings in any economic environment, such
as media, utilities and health care.
"...the days of Fed rate cuts seem over for now."
5
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JOHN HANCOCK ACTIVE BOND FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1998
SINCE
ONE INCEPTION
YEAR (3/30/95)
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Cumulative Total Returns 8.97% 37.18%
Average Annual Total Returns(1) 8.97% 8.78%
YIELD
As of February 28, 1999
SEC 30-DAY
YIELD
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John Hancock Active Bond Fund 6.00%
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 7.27% and 4.76%, respectively.
WHAT HAPPENED TO
A $250,000 INVESTMENT...
The chart below shows how much a $250,000 investment in John Hancock Active Bond
Fund would be worth, assuming all distributions were reinvested for the period
indicated. For comparison, we've shown the same $250,000 investment in the
Lehman Brothers Government/Corporate Bond Index--an unmanaged index that
measures the performance of U.S. government bonds, U.S. corporate bonds and
Yankee bonds. Past performance is no guarantee of future results.
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[Line chart with the heading John Hancock Active Bond Fund, representing the
growth of a hypothetical $250,000 investment over the life of the fund. Within
the chart are two lines. The first line represents the Lehman Brothers
Government/Corporate Bond Index and is equal to $345,184 as of February 28,
1999. The second line represents the value of a hypothetical $250,000 investment
made in the John Hancock Active Bond Fund on March 30, 1995, and is equal to
$338,994 as of February 28, 1999.]
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6
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BY JOHN F. SNYDER, III, PORTFOLIO MANAGER
John Hancock
Dividend Performers Fund
Volatile year for stocks; large-cap growth stocks dominate
Sovereign Asset Management Corporation's mutual fund responsibilities were moved
to John Hancock Advisers, Inc. effective December 31, 1998. Mr. Snyder, an
executive vice president of John Hancock Advisers, continues to lead the Fund's
portfolio management team.
The stock market took investors on a wild ride over the last 12 months. At
first, good economic news sent the major indices to new highs through mid-July
before a string of overseas crises from Asia to Russia to Latin America sent
markets around the world into a tailspin. The U.S. market approached bear market
territory, falling almost 20% from its mid-July highs through early October. But
a sharp rebound quickly followed, as the Federal Reserve cut interest rates to
prevent the world's troubles from stalling the U.S. economy. The market wound up
regaining all its lost ground and then some in the fourth quarter of 1998 and
technology stocks dominated the market through the end of the fiscal period.
Despite the volatility, the Standard & Poor's 500 Stock Index still managed to
advance 19.73% for the year ended February 28, 1999. However, only a handful of
large-company stocks with extremely high valuations (many in the technology
sector) actually were the drivers of the strong stock-market advance. This trend
prevailed throughout the year and grew even more pronounced by the end of the
period.
Consumer cyclicals; technology boost
In such a turbulent environment, the Fund held up well, rebounding from its
first-half loss and outperforming its peers. For the year ended February 28,
1999, John Hancock Dividend Performers Fund posted a total return at net asset
value of 7.97%, compared to the 6.49% return of the average growth and income
fund, according to Lipper, Inc. Historical performance can be found on page
nine.
The biggest contributor to the Fund's performance was our large
overweighting in consumer cyclical stocks. Within that group, retailers Wal-Mart
Stores, Home Depot and Dayton Hudson benefited from low U.S. unem-
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[A 2" x 1 1/2" photo at bottom right side of page of John Hancock Dividend
Performers Fund. Caption below reads "Fund management team members (l-r):
William W. Young, Steve Paspal, John Snyder, and Peter Schofield."]
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"The biggest contributor to the Fund's performance was our large overweighting
in consumer cyclical stocks."
7
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JOHN HANCOCK DIVIDEND PERFORMERS FUND
"We expect to see more market volatility and sector rotation ahead..."
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[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended February 28, 1999." The chart
is scaled in increments of 5% with 0% at the bottom and 20% at the top. The
first bar represents the 7.97% Total return for John Hancock Dividend Performers
Fund. The second bar represents the 6.49% total return for Average growth and
income fund. The third bar represents the 19.73% total return for S&P 500 Stock
Index. A note below the chart reads "The total return for John Hancock Dividend
Performers Fund is at net asset value with all distributions reinvested. The
average growth and income fund is tracked by Lipper, Inc. See the following page
historical performance information."]
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ployment and strong wage growth that boosted consumer spending all year. More
importantly, these companies prevailed because of their dominant market
positions. Home Depot continues to gain market share from struggling competitors
and Dayton Hudson has grown with the aggressive expansion of its mass
merchandise chain, Target. Advertising giant Interpublic also continued to grow
its business. Not coincidentally, market dominance is the key, and common,
ingredient of all "dividend performer" companies that the Fund targets. These
are primarily companies that have increased their dividends for each of the last
10 years.
Other strong performers included worldwide property/casualty insurer
American International Group (AIG), due to its industry leadership position, and
our large drug company holdings, such as Bristol-Myers Squibb, Merck and Abbott
Laboratories, whose stock prices rose along with their consistent earnings
thanks to a strong flow of new products and rising demand. Disappointments
included Emerson Electric and Masco.
During the year, the Fund expanded its investment universe to include
companies that exhibit predictable and stable earnings growth, even if they have
not had a 10-year history of rising dividends. With a broader scope, we were
able to establish positions in some of the high-quality technology companies
that generally do not fit the "dividend performers" mold, but that are very
consistent earnings growers. We are optimistic that this should better position
the Fund going forward. Since June, we have added such companies as IBM, Xerox
and Microsoft. Even with a broader scope, however, we still intend to keep the
bulk of the Fund's assets invested in "dividend performer" companies.
A look ahead
We expect to see more market volatility and sector rotation ahead in the stock
market, as investors sort out whether the economy will slow down, and where
interest rates are headed. With last year's robust gains limited to such a small
number of stocks, we believe the opportunity now lies in those companies with
more reasonable valuations and solid fundamentals that lagged last year. But
with the rest of the world slowing down, and tame inflation causing diminishing
pricing power, we believe corporate earnings increases will be harder to come
by, and investors should temper their expectations accordingly. We will continue
to focus on those dividend performers and stable growth companies that have the
potential to hold up well regardless of the economic environment.
8
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JOHN HANCOCK DIVIDEND PERFORMERS FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1998
SINCE
ONE INCEPTION
YEAR (3/30/95)
---- ---------
Cumulative Total Returns 17.96% 122.28%
Average Annual Total Returns(1) 17.96% 23.70%
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 17.67% and 22.44%, respectively.
WHAT HAPPENED TO
A $250,000 INVESTMENT...
The chart below shows how much a $250,000 investment in John Hancock Dividend
Performers Fund would be worth, assuming all distributions were reinvested for
the period indicated. For comparison, we've shown the same $250,000 investment
in the Standard & Poor's 500 Stock Index--an unmanaged index that includes 500
widely traded common stocks and is often used as a measure of stock market
performance. Past performance is no guarantee of future results.
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[Line chart with the heading John Hancock Dividend Performers Fund, representing
the growth of a hypothetical $250,000 investment over the life of the fund.
Within the chart are two lines. The first line represents the Standard & Poor's
500 Stock Index and is equal to $666,899 as of February 28, 1999. The second
line represents the value of a hypothetical $250,000 investment made in the John
Hancock Dividend Performers Fund on March 30, 1995, and is equal to $544,768 as
of February 28, 1999.]
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9
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BY BARBARA C. FRIEDMAN, CFA, PORTFOLIO MANAGEMENT
TEAM LEADER, AND SUSAN E. KELLY, PORTFOLIO MANAGER
John Hancock
Multi-Sector Growth Fund
Volatility, uncertainty hurt mid-cap stocks
"When the market fell in September, we increased our stake in technology..."
Mid-cap stocks struggled through a difficult year, as stock-market volatility
reached a fever pitch. The trouble stemmed from economic and currency problems
abroad, and concerns about their impact on U.S. corporate profits and the
economy. After shrugging off those concerns and reaching new highs in the first
half of the Fund's fiscal year, the major indices fell precipitously when rising
anxiety prompted a massive -- and emotional -- flight from any security with
perceived risk, including the mid-sized companies that the Fund targets. From
August through October, investors overlooked the fact that most mid-cap
companies -- which are largely domestically oriented -- were fundamentally
unaffected by the turmoil overseas and delivered solid earnings. The picture
improved dramatically in the last quarter of 1998, however, when financial
markets calmed down and stocks rebounded sharply with the assist of three
interest-rate cuts by the Federal Reserve. Overall, much of the market's advance
throughout the fiscal year came from a small group of mega-cap stocks. The
Standard & Poor's 500 Stock Index, which included many of the select group of
winners, returned 19.73% for the year ended February 28, 1999. By contrast, the
Fund's benchmark, the Russell Midcap Growth Index, gained 7.47%, much of that
from its largest stocks.
Performance and strategy review
In this turbulent environment, many mid-cap stock funds had a hard time
advancing. John Hancock Multi-Sector Growth Fund was no exception, although it
did recover much of the ground it lost earlier in the period to close the fiscal
year ended February 28, 1999 with a total return of -5.34% at net asset value.
By comparison, the average mid-cap fund returned -0.41%, according to Lipper,
Inc. Historical performance information can be found on page 12. The Fund's
relative results were hurt by its
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[A 3" x 2" photo at bottom right side of page of John Hancock Multi-Sector
Growth Fund. Caption below reads "Fund management team members (l-r): Susan
Kelly, Lisa Welch, Barbara Friedman and John Golden."]
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10
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JOHN HANCOCK MULTI-SECTOR GROWTH FUND
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[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended February 28, 1999." The chart
is scaled in increments of 5% with -10% at the bottom and 10% at the top. The
first bar represents the -5.34% Total return for John Hancock Multi-Sector
Growth Fund. The second bar represents the -0.41% total return for Average
mid-cap fund. The third bar represents the 7.47% total return for Russell Midcap
Growth Index. A note below the chart reads "The total return for John Hancock
Multi-Sector Growth Fund is at net asset value with all distributions
reinvested. The average mid-cap fund is tracked by Lipper, Inc. See the
following page historical performance information."]
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pure mid-cap focus, whereas its peers typically own some large-cap stocks. In
addition, for part of the year we had a lower-than-average stake in the
top-performing technology sector and an above-average investment in the weaker
financial sector.
While the Fund has always had a mid-cap orientation, this was a year of
transition, as we repositioned the Fund as a true mid-cap fund. At first, we
kept the predominant percentage of our assets invested in companies with a $1
billion to $7 billion market capitalization. More recently, we migrated toward
the larger end of the mid-cap stock universe, adding Staples, Best Buy, SYSCO
and Amazon.com, all companies with strong earnings outlooks. As always, we
continued to target industry sectors with the potential for above-average
earnings growth. Technology, finance and health care remained among our top
long-term sector concentrations, accounting for almost 70% of the Fund's net
assets. Consumer cyclical stocks were a secondary focus.
Technology boost
When the market fell in September, we increased our stake in technology, buying
solid, long-term growth companies whose stock prices had fallen with the market
turmoil. Believing in a rebound in personal computer sales, we targeted
PC-related companies, including disk-drive company Quantum, semiconductor stock
Linear Technology and contract manufacturers like Jabil Circuit. We also added
some Internet companies, including Yahoo! and Amazon.com. These and some
longer-standing holdings, such as EMC Corp., Ascend Communications and Lexmark
International Group, all turned in strong performances. With the price
appreciation and additional names, technology, including telecommunications, was
the Fund's largest sector by year end at 40%.
In the finance sector, we maintained an overweighting, but pared our
holdings to 15% of the Fund to take advantage of opportunities in the technology
sector. Disappointments came mainly in the banking and insurance areas. However,
our financial services companies Fiserv, Northern Trust and Concord EFS served
us well. Health care ended the year at 13% of the Fund.
A look ahead
In our view, mid-cap stocks remain ripe for further rebound. The companies we
own in particular have strong fundamentals and good earnings growth expectations
for 1999, yet their stock prices are much more attractive than the large-cap
universe. We'll be on the lookout for additional corporate acquisitions -- such
as Medtronic's recent purchase of Sofamor Danek Group and Lucent Technologies'
purchase of Ascend Communications -- which could be the catalyst for a more
sustained mid-cap rally.
"In our view, mid-cap stocks remain ripe for further rebound."
11
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JOHN HANCOCK MULTI-SECTOR GROWTH FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1998
SINCE
ONE INCEPTION
YEAR (4/11/95)
---- ---------
Cumulative Total Returns 7.35% 76.74%
Average Annual Total Returns(1) 7.35% 16.53%
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 7.14% and 15.49%, respectively.
WHAT HAPPENED TO
A $250,000 INVESTMENT...
The chart below shows how much a $250,000 investment in John Hancock
Multi-Sector Growth Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$250,000 investment in the Russell Midcap Growth Index--an unmanaged index that
contains those Russell Midcap securities with a greater-than-average growth
orientation. Past performance is no guarantee of future results.
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[Line chart with the heading John Hancock 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 Russell Midcap
Growth Index and is equal to $502,396 as of February 28, 1999. The second line
represents the value of a hypothetical $250,000 investment made in the John
Hancock Multi-Sector Growth Fund on April 11, 1995, and is equal to $416,461 as
of February 28, 1999.]
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12
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BY BERNICE S. BEHAR, CFA, PORTFOLIO MANAGEMENT TEAM LEADER,
LAURA ALLEN, CFA, AND ANURAG PANDIT, CFA, PORTFOLIO MANAGERS
John Hancock
Small Capitalization
Growth Fund
Fund outpaces peers in difficult year for small caps
Despite a powerful late-1998 rally, small-company stocks posted weak returns for
the 12-month period ending February 28, 1999. Early in the period, small caps
were plagued by concerns that economic problems overseas would cut into
corporate profitability. Then October marked the beginning of a stunning
small-company stock rally that was set off by a series of interest-rate cuts by
the Federal Reserve. Small companies tend to benefit more than large companies
from lower rates, because they are more likely to fund their growth with
borrowed funds. In addition, the Fed's actions were interpreted as a sign that
the U.S. economy was slowing. With their history of outperforming large-cap
stocks in a weak economy, small-cap stocks became an increasingly attractive
alternative. They were also considered very inexpensive alternatives to
high-flying big-company growth stocks. But by the start of 1999, there was
evidence that the economy was expanding at a healthier-than-expected clip, which
fanned fears of inflation. Fearing higher interest rates, investors once again
gravitated toward large-company stocks, and small-cap stocks gave back nearly
all the gains they had achieved in the final quarter of 1998.
Performance and strategy review
Given the difficult environment throughout much of the year, we're gratified
that the Fund handily outpaced its benchmark and its peers. For the year ended
February 28, 1999, John Hancock Small Capitalization Growth Fund had a total
return of 4.67% at net asset value. In the same period, the average small-cap
fund returned -13.38%, according to Lipper, Inc., while the Russell 2000 Growth
Index
- --------------------------------------------------------------------------------
[A 2 1/2" x 1 1/2" photo at bottom right side of page of John Hancock Small
Capitalization Growth Fund. Caption below reads "Fund management team members
(l-r): Anurag Pandit, Bernice Behar and Laura Allen."]
- --------------------------------------------------------------------------------
"...the Fund handily outpaced its benchmark and its peers."
13
<PAGE>
================================================================================
JOHN HANCOCK SMALL CAPITALIZATION GROWTH FUND
"...simultaneously inexpensive and offer better growth prospects than their
large-cap growth counterparts."
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended February 28, 1999." The chart
is scaled in increments of 5% with -15% at the bottom and 5% at the top. The
first bar represents the 4.67% Total return for John Hancock Small
Capitalization Growth Fund Fund. The second bar represents the -13.38% total
return for Average small-cap fund. The third bar represents the -14.14% total
return for Russell 2000 Index. The fourth bar represents the -10.50 total return
for Russell 2000 Growth Index. A note below the chart reads "The total return
for John Hancock Small Capitalization Growth Fund is at net asset value with all
distributions reinvested. The average small-cap fund is tracked by Lipper, Inc.
See the following page historical performance information."]
- --------------------------------------------------------------------------------
returned -10.50%. Historical performance information can be found on page 15.
One of the keys to our outperformance was our stock selection.
Telecommunications provider Metromedia Fiber Network posted large gains as it
signed on big new clients. Another consistent winner was Network Appliance,
which benefited from growing demand for data storage. Retailers Genovese, Eagle
Hardware & Garden and Dominick's all benefited from being acquired, while
drugstore chain Duane Reade surged.
Our strategic moves among various technology sub-sectors throughout the
year also enhanced the Fund's performance. Very early on, we focused on computer
hardware companies, but later leaned more toward software businesses, because we
believed the ongoing corporate focus on productivity would drive software
demand. That proved to be the case, and stocks such as Advent Software served us
well. Entering the summer, we increased our holdings in semiconductor
manufacturers and semiconductor capital equipment makers -- such as Novellus
Systems, PMC-Sierra, Rambus and Micrel -- at a time when their prices were very
inexpensive. Those additions -- plus existing semiconductor holdings such as
Semtech and Level One Communications -- performed extremely well after the
industry successfully dealt with inventory excess problems. Later, we added to
our holdings in the Internet sector after a summer sell-off brought prices down
to relatively attractive levels. We were rewarded when long-time holding on-line
broker E-Trade, along with newer additions Beyond.com and Digital River, posted
incredibly strong gains. By the end of 1998, we sold some Internet-related
stocks whose prices we felt had exceeded their business prospects. More
recently, we also scaled back some of our long-term semiconductor holdings and
deployed the proceeds in other industry sectors.
As with any portfolio, there were stocks that didn't live up to our
expectations. In this case, it was many of our health-care services companies,
which performed poorly for a variety of reasons unique to each of the industry's
sub-sectors.
Outlook
Small-company growth stocks currently have a lot going for them. They're
simultaneously inexpensive and offer better growth prospects than their
large-cap growth counterparts. What we can't predict is when they will begin to
overtake their large-cap counterparts. So we'll devote our time to finding
companies with strong and sustainable revenue and earnings growth, dominant
market share and proven and effective management teams, because we believe they
have a better chance of performing well in any market environment.
- --------------------------------------------------------------------------------
See the prospectus for a discussion about the risks of investing in
small-company stocks.
14
<PAGE>
================================================================================
JOHN HANCOCK SMALL CAPITALIZATION GROWTH FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1998
SINCE
ONE INCEPTION
YEAR (5/2/96)
---- --------
Cumulative Total Returns 16.54% 51.90%
Average Annual Total Returns(1) 16.54% 16.98%
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 13.07% and 9.92%, 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 and the Russell 2000 Growth Index.
The Russell 2000 Index is an unmanaged small-cap index comprised of 2,000 U.S.
stocks. The Russell 2000 Growth Index is an unmanaged index containing Russell
2000 Index stocks with a greater-than-average growth orientation. Past
performance is no guarantee of future results.
- --------------------------------------------------------------------------------
[Line chart with the heading John Hancock Small Capitalization Growth Fund,
representing the growth of a hypothetical $250,000 investment over the life of
the fund. Within the chart are three lines. The first line represents the value
of a hypothetical $250,000 investment made in the John Hancock Small
Capitalization Growth Fund on May 2, 1996, and is equal to $362,047 as of
February 28, 1999. The second line represents the Russell 2000 Index and is
equal to $292,086 as of February 28, 1999. The third line represents the Russell
2000 Growth Index and is equal to $265,173 as of February 28, 1999.]
- --------------------------------------------------------------------------------
15
<PAGE>
================================================================================
BY TIMOTHY E. KEEFE, CFA, PORTFOLIO MANAGEMENT TEAM LEADER,
AND TIMOTHY E. QUINLISK, CFA, PORTFOLIO MANAGER
John Hancock
Small Capitalization
Value Fund
Small-cap stocks struggle and trail large-cap names
"An overweighting in technology and good stock selection helped the Fund contain
losses."
The past year was a bumpy one for stock investors. In the spring, Asia's
continued problems shook the market. Stocks peaked briefly in mid-July, before
economic troubles in Latin America and Russia sent U.S. stocks tumbling. By the
end of August, the downturn had erased all year-to-date gains. Failing hedge
funds and a growing liquidity crunch added to the market's woes. Finally, the
market got some relief when the Federal Reserve lowered interest rates and
third-quarter corporate earnings came in better than expected. This sparked a
strong recovery that lasted into the new year. Even small-capitalization names,
which had been hit hard, experienced a strong rebound. But it wasn't enough to
make up for lost ground. For the year ended February 28, 1999, the Russell 2000
Index returned -14.14%. Even though the Fund's results were not positive, John
Hancock Small Capitalization Value Fund far outperformed its benchmark and its
peers in the year, with a -9.46% total return at net asset value. Over the same
period, the average small-cap fund returned -13.38%, according to Lipper, Inc.
Historical performance information can be found on page 18.
Performance review
An overweighting in technology and good stock selection helped the Fund contain
losses. In the technology sector, we invested in several semiconductor capital
equipment manufacturers that relied on new tech nology purchases, including
Applied Science & Technology and Etec Systems. These stocks appreciated nicely
amidst strong demand for their product. Data General Corp., a company that has
invested heavily in the next generation of data storage devices, was another
excellent performer. In other areas, one of our top-performing stocks
- --------------------------------------------------------------------------------
[A 2 1/2" x 2" photo at bottom right side of page of John Hancock Small
Capitalization Value Fund. Caption below reads "Fund management team members
(l-r): Tim Keefe, Tim Quinlisk and Lisa Welch."]
- --------------------------------------------------------------------------------
16
<PAGE>
================================================================================
JOHN HANCOCK SMALL CAPITALIZATION VALUE FUND
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended February 28, 1999." The chart
is scaled in increments of 5% with -15% at the bottom and 5% at the top. The
first bar represents the -9.46% Total return for John Hancock Small
Capitalization Value Fund. The second bar represents the -13.38% total return
for Average small-cap fund. The third bar represents the -14.14% total return
for Russell 2000 Index. A note below the chart reads "The total return for John
Hancock Small Capitalization Value Fund is at net asset value with all
distributions reinvested. The average small-cap fund is tracked by Lipper, Inc.
See the following page historical performance information."]
- --------------------------------------------------------------------------------
was Calpine, an independent power producer whose stock rose over 100% for the
period. Executive Risk, a specialty insurer that was bought out by Chubb
Insurance, also did well, as did Salomon, Inc.-FSA, a bond insurer in the
asset-backed and municipal markets.
Financials and oils hurt the Fund's performance. Lower interest rates and
the severe liquidity crunch in credit markets hurt all financials, especially
sub-prime lenders like FIRSTPLUS Financial Group and ContiFinancial that relied
heavily on the credit markets for funding their growth. We sold ContiFinancial,
but, unfortunately, we did not sell soon enough to avoid losses. In the oil
sector, Triton Energy, which we also sold, took a major dip as efforts to sell
the company failed. Historically low oil prices and the diminishing value of the
company's Asian assets also hurt the stock.
Staying the course
Throughout the market's ups and downs, we stuck with our strategy of buying the
stocks of great businesses that we could own for the long term. The market
volatility gave us an opportunity to add to some existing positions and also to
buy new companies whose stocks were available at fire-sale prices. Among the
names we added to were Nielsen Media Research, a television rating company, and
Commonwealth Telephone Enterprises, a telephone company in eastern Pennsylvania.
Recent spin-offs of well-run businesses, both have done especially well since
their October lows. We also added some new ideas, including Pioneer Group, a
Boston-based mutual fund company with diverse foreign business interests. We
believe new management's commitment to restructuring the company has the
potential to unlock the stock's underlying asset value. Wind River Systems, a
company that makes imbedded operating systems -- the kind of intelligence found
in a printer or cell phone -- was another recent addition. It is uniquely
positioned for growth as more and more products incorporate this technology.
Going forward, we're cautiously optimistic. We expect decent stock
returns, but continued volatility. A healthy domestic economy along with stable
interest rates and low inflation bodes well. But curtailed technology spending
due to Y2K and lingering economic issues in other countries make us cautious.
Although small-cap stocks had a nice recovery in late 1998, the performance gap
between large- and small-cap stocks has not narrowed. We believe investors will
eventually recognize the value in the small-cap sector, as well as the increased
valuation risk inherent in large caps. When they do, the tide will turn in our
favor. Regardless of what happens, we'll maintain our strategy so we can fully
participate when the upturn arrives.
- --------------------------------------------------------------------------------
See the prospectus for a discussion about the risks of investing in
small-company stocks.
"We believe investors will eventually recognize the value in the small-cap
sector..."
17
<PAGE>
================================================================================
JOHN HANCOCK SMALL CAPITALIZATION VALUE FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1998
SINCE
ONE INCEPTION
YEAR (4/19/95)
---- ---------
Cumulative Total Returns 0.30% 58.82%
Average Annual Total Returns (1) 0.30% 13.31%
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 (0.36%) and 11.85%, 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 Russell 2000 Index--an unmanaged, small-cap index
comprised of 2,000 U.S. stocks. Past performance is no guarantee of future
results.
- --------------------------------------------------------------------------------
[Line chart with the heading John Hancock Small Capitalization Value Fund,
representing the growth of a hypothetical $250,000 investment over the life of
the fund. Within the chart are two lines. The first line represents the Russell
2000 Index and is equal to $397,084 as of February 28, 1999. The second line
represents the value of a hypothetical $250,000 investment made in the John
Hancock Small Capitalization Value Fund on April 19, 1995 and is equal to
$396,619 as of February 28, 1999.]
- --------------------------------------------------------------------------------
18
<PAGE>
================================================================================
BY MIREN ETCHEVERRY, JOHN L.F. WILLS AND
GERARDO J. ESPINOZA, PORTFOLIO MANAGERS
John Hancock
International Equity Fund
Europe dominates overseas markets in a strife-filled year
The last 12 months were a nerve-wracking period for international investors.
Economic slowdowns and currency crises plagued Asia and tainted far-away
emerging markets in Latin America, including Brazil, which sank into recession
and had its currency devalued. Turmoil peaked in late summer when Russia's
economy collapsed and several prominent hedge funds nearly failed. That sent
world markets into a free fall until the beginning of October, when
interest-rate cuts by the U.S. Federal Reserve Board and by more than 50 central
banks worldwide sparked a turnaround. Throughout much of the year, Europe was
the shining light, despite its own bouts of volatility, in part because it was
perceived as a place to find quality in a turbulent world. More importantly, the
lure of the Continent's new common currency, the euro, with its positive
implications, enticed a growing number of international investors.
European focus boosts performance
For the year ended February 28, 1999, John Hancock International Equity Fund
posted a total return of 6.88% at net asset value, compared to the 1.61% return
of the average international fund, according to Lipper, Inc. The Fund's
benchmark, the MSCI All Country World Free Ex-U.S. Index, returned 1.74% in the
same period. Historical performance information can be found on page 21.
Our increasing focus on Western Europe was the main reason for our
outperformance. At work there was the positive combination of falling interest
rates in advance of the formation of the Economic and Monetary Union (EMU) and a
fertile environment of corporate mergers, acquisitions and privatizations. These
broad trends continue to overshadow the current potential for slower economic
growth. France, our top country weighting at 17% of the Fund's net assets, was
also our top contributor to performance. The privatization of France Tele-
- --------------------------------------------------------------------------------
[A 3" x 2" photo at bottom right side of page of John Hancock International
Equity Fund. Caption below reads "Fund management team members (l-r): John
Wills, Gerardo Espinoza, Jean-Marc Berteaux and Miren Etcheverry."]
- --------------------------------------------------------------------------------
"Our increasing focus on Western Europe was the main reason for our
outperformance."
19
<PAGE>
================================================================================
JOHN HANCOCK INTERNATIONAL EQUITY FUND
"...we are also increasing our holdings in the U.K. and Japan."
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended February 28, 1999." The chart
is scaled in increments of 5% with 0% at the bottom and 10% at the top. The
first bar represents the 6.88% Total return for John Hancock International
Equity Fund. The second bar represents the 1.61% total return for Average
international fund. The third bar represents the 1.74% total return for MSCI All
Country World Free Ex-U.S. Index. A note below the chart reads "The total return
for John Hancock International Equity Fund is at net asset value with all
distributions reinvested. The average international fund is tracked by Lipper,
Inc. See the following page historical performance information."]
- --------------------------------------------------------------------------------
com boosted that stock and also symbolized the accelerating trend of merger and
privatization activity, especially among the blue-chip names. This trend also
helped several of our holdings in the U.K. -- our other top country weighting at
17% of the Fund's net assets. These included telecommunications companies
Vodafone Group and British Telecommunications, media company Pearson and
advertiser WPP Group.
Indeed, consolidations and declining interest rates helped several of the
industry sectors in which the Fund was overweighted during the year, including
telecommunications, financials, utilities and health care. Finland's cellular
phone company Nokia, our top holding, was also our top-performing stock, as it
continued to grow its market share. Other strong telecommunications holdings
were Germany's Deutsche Telekom and Italy's Telecom Italia SpA. In the finance
sector, Allied Irish Banks, our second largest holding, was also our second best
performer. In addition to having a good management team, it lacks exposure to
emerging markets and is benefiting from the vibrant Irish economy.
Asia, emerging markets hurt
We were out of Latin America by the end of February and our stake in the Pacific
Rim was limited to a 12% position in Japan and small interests in Australia,
Singapore and Hong Kong. Nonetheless, we were still hurt by several of the
stocks we owned in those areas during the year, including Hong Kong
conglomerates Cheung Kong Holdings and Hutchison Whampoa, Brazilian telephone
company Telesp and Mexican bottler Panamerican Beverages.
Going forward
Although the prospects for ongoing volatility remain, we are optimistic about
the outlook for international equities. We are maintaining our emphasis on
Continental Europe, but we are also increasing our holdings in the U.K. and
Japan. In the U.K., there are more signs of the country's intent to join
"Euroland," and we expect a stronger economy there in the second half of this
year and into next. With Japan, in addition to the government's continued
efforts to stimulate the economy, we have observed evidence of increasing
corporate restructurings, which should contribute to earnings growth. As for
emerging markets, although it appears that the worst is over for these
countries, we are maintaining our cautious stance for now.
- --------------------------------------------------------------------------------
International investing involves special risks such as political, economic and
currency risks and differences in accounting standards and financial reporting.
20
<PAGE>
================================================================================
JOHN HANCOCK INTERNATIONAL EQUITY FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1998
SINCE
ONE INCEPTION
YEAR (3/30/95)
---- ---------
Cumulative Total Returns 18.77% 27.27%
Average Annual Total Returns(1) 18.77% 6.63%
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 17.12% and 3.60%, 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 Morgan Stanley Capital International (MSCI) All
Country World Free Ex-U.S. Index--an unmanaged index that measures the
performance of both developed and emerging foreign stock markets. The index
represents freely traded stocks. Past performance is no guarantee of future
results.
- --------------------------------------------------------------------------------
[Line chart with the heading John Hancock International Equity Fund,
representing the growth of a hypothetical $250,000 investment over the life of
the fund. Within the chart are two lines. The first line represents the MSCI All
Country World Fre Ex-U.S. Index and is equal to $476,395 as of February 28,
1999. The second line represents the value of a hypothetical $250,000 investment
made in the John Hancock International Equity Fund on March 30, 1995, and is
equal to $310,856 as of February 28, 1999.]
- --------------------------------------------------------------------------------
21
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust
Statements of Assets and Liabilities
February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACTIVE DIVIDEND MULTI-SECTOR
BOND PERFORMERS GROWTH
FUND FUND FUND
----------- ----------- -----------
<S> <C> <C> <C>
Assets:
Investments at value - Note C:
Bonds (cost - $5,424,634, none and none, respectively) ...................... $5,378,532 -- --
Common stocks (cost - none, $13,768,526 and $14,586,215, respectively) ...... -- $17,388,419 $15,639,352
Warrants (cost - $103, none and none, respectively) ......................... 713 -- --
Short-term investments (cost - $281,000, $578,000 and $791,000,
respectively) ............................................................. 281,000 578,000 791,000
Corporate savings account ................................................... 135 875 421
----------- ----------- -----------
5,660,380 17,967,294 16,430,773
Receivable for investments sold .............................................. 189,929 324,487 359,239
Receivable for shares sold ................................................... -- 52 --
Interest receivable .......................................................... 92,658 231 314
Dividends receivable ......................................................... -- 20,017 4,684
Deferred organization expenses - Note A ...................................... 1,778 1,794 2,276
Receivable from John Hancock Advisers, Inc. and affiliates - Note B .......... 15,237 -- --
Other assets ................................................................. 166 535 1,624
----------- ----------- -----------
Total Assets ............................................... 5,960,148 18,314,410 16,798,910
-------------------------------------------------------------------------------------------------------
Liabilities:
Payable for investments purchased ............................................ 234,296 528,364 64,146
Payable for shares repurchased ............................................... 39 -- 4,941
Dividend payable ............................................................. 4,851 -- --
Payable to John Hancock Advisers, Inc. and affiliates - Note B ............... -- 12,155 12,373
Accounts payable and accrued expenses ........................................ 35,349 31,047 30,865
----------- ----------- -----------
Total Liabilities .......................................... 274,535 571,566 112,325
-------------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in .............................................................. 5,737,494 13,745,271 15,877,930
Accumulated net realized gain (loss) on investments and foreign currency
transactions ............................................................... (5,572) 356,556 (243,315)
Net unrealized appreciation (depreciation) of investments and foreign currency
transactions ............................................................... (45,488) 3,619,904 1,053,162
Undistributed net investment income (distributions in excess of net
investment income) ......................................................... (821) 21,113 (1,192)
----------- ----------- -----------
Net Assets ................................................. $5,685,613 $17,742,844 $16,686,585
=======================================================================================================
Net Asset Value Per Share:
(Based on 662,257 and 1,227,051 and 1,517,670 shares, respectively, of
beneficial interest outstanding - unlimited number of shares authorized
with no par value) ......................................................... $8.59 $14.46 $10.99
=========================================================================================================================
</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, 1999. You'll
also find the net asset value per share as of that date.
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust
Statements of Assets and Liabilities (continued)
February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL SMALL INTERNATIONAL
CAPITALIZATION CAPITALIZATION EQUITY
GROWTH FUND VALUE FUND FUND
---------- ---------- ----------
<S> <C> <C> <C>
Assets:
Investments at value - Note C:
Common stocks and warrant (cost - $1,994,805, $6,701,075 and $6,826,678,
respectively) ............................................................... $2,449,808 $6,755,948 $7,609,335
Preferred stocks (cost - none, $494,225 and $21,551, respectively) ............ -- 603,740 23,916
Short-term investments (cost - $11,000, $53,000 and $120,000, respectively) ... 11,000 53,000 120,000
Corporate savings account ..................................................... 660 563 --
---------- ---------- ----------
2,461,468 7,413,251 7,753,251
Cash ........................................................................... -- -- 622
Foreign currency, at value (cost - none, none and $46, respectively) ........... -- -- 42
Receivable for open forward foreign currency exchange contracts purchased
- Note A ..................................................................... -- -- 163
Receivable for investments sold ................................................ 12,440 344,450 88,557
Receivable for shares sold ..................................................... 522 -- --
Interest receivable ............................................................ 5 22 48
Dividends receivable ........................................................... 8 1,839 9,143
Foreign tax receivable ......................................................... -- 9 9,240
Deferred organization expenses - Note A ........................................ 8,896 1,866 1,777
Receivable from John Hancock Advisers, Inc. and affiliates - Note B ............ 4,552 -- 7,686
Other assets ................................................................... 36 511 596
---------- ---------- ----------
Total Assets ................................................. 2,487,927 7,761,948 7,871,125
-------------------------------------------------------------------------------------------------------
Liabilities:
Payable for investments purchased .............................................. 5,981 315,520 27,844
Payable for shares repurchased ................................................. -- 401 5
Payable to John Hancock Advisers, Inc. and affiliates - Note B ................. -- 2,365 --
Accounts payable and accrued expenses .......................................... 29,155 25,540 38,189
---------- ---------- ----------
Total Liabilities ............................................ 35,136 343,826 66,038
-------------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in ................................................................ 1,828,896 7,361,824 7,081,956
Accumulated net realized gain (loss) on investments and foreign currency
transactions ................................................................. 168,899 (118,565) (19,151)
Net unrealized appreciation of investments and foreign currency transactions ... 455,003 164,409 784,418
Undistributed net investment income (distributions in excess of net
investment income) ........................................................... (7) 10,454 (42,136)
---------- ---------- ----------
Net Assets ................................................... $2,452,791 $7,418,122 $7,805,087
=======================================================================================================
Net Asset Value Per Share:
(Based on 210,511 and 809,453 and 766,860 shares, respectively, of beneficial
interest outstanding - unlimited number of shares authorized
with no par value) ............................................................ $11.65 $9.16 $10.18
=========================================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust
Statements of Operations
Year ended February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACTIVE DIVIDEND MULTI-SECTOR
BOND PERFORMERS GROWTH
FUND FUND FUND
----------- ----------- -----------
<S> <C> <C> <C>
Investment Income:
Interest ........................................................................... $387,246 $50,523 $67,564
Dividends (net of foreign withholding tax of none, none and $193, respectively) .... -- 278,341 178,670
----------- ----------- -----------
387,246 328,864 246,234
----------- ----------- -----------
Expenses:
Investment management fee - Note B ................................................ 27,798 119,729 255,994
Custodian fee ..................................................................... 52,966 13,069 29,683
Registration and filing fees ...................................................... 20,214 16,953 18,070
Auditing fee ...................................................................... 18,444 19,444 18,333
Printing .......................................................................... 3,808 4,103 4,108
Transfer agent fee - Note B ....................................................... 2,780 9,978 16,000
Organization expense - Note A ..................................................... 1,643 1,657 2,040
Financial services fee - Note B ................................................... 858 3,109 5,047
Miscellaneous ..................................................................... 433 788 1,450
Trustees' fees .................................................................... 390 1,407 2,119
Legal fees ........................................................................ 140 305 2,557
----------- ----------- -----------
Total Expenses ................................................... 129,474 190,542 355,401
--------------------------------------------------------------------------------------------------------------
Less Expense Reductions - Note B ................................. (96,073) (50,673) (66,990)
--------------------------------------------------------------------------------------------------------------
Net Expenses ..................................................... 33,401 139,869 288,411
--------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) ..................................... 353,845 188,995 (42,177)
--------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain (loss) on investments sold ....................................... 63,900 1,169,983 (98,184)
Change in net unrealized appreciation (depreciation) of investments ................ (87,318) 46,410 (2,469,617)
----------- ----------- -----------
Net Realized and Unrealized Gain (Loss) on Investments ........... (23,418) 1,216,393 (2,567,801)
--------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations .. $330,427 $1,405,388 ($2,609,978)
==============================================================================================================
</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.
24
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust
Statements of Operations (continued)
Year ended February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL SMALL INTERNATIONAL
CAPITALIZATION CAPITALIZATION EQUITY
GROWTH FUND VALUE FUND FUND
--------- --------- ---------
<S> <C> <C> <C>
Investment Income:
Interest ............................................................................. $3,394 $10,431 $12,947
Dividends (net of foreign withholding tax of none, $228 and $18,535, respectively) ... 3,326 88,431 131,057
--------- --------- ---------
6,720 98,862 144,004
--------- --------- ---------
Expenses:
Investment management fee - Note B .................................................. 18,107 55,114 76,692
Custodian fee ....................................................................... 31,237 13,855 102,263
Auditing fee ........................................................................ 16,444 17,444 19,444
Registration and filing fees ........................................................ 15,391 16,256 21,435
Printing ............................................................................ 6,018 4,103 4,103
Organization expense - Note A ....................................................... 4,092 1,643 1,643
Transfer agent fee - Note B ......................................................... 1,132 3,937 4,261
Financial services fee - Note B ..................................................... 352 1,235 1,324
Trustees' fees ...................................................................... 176 540 601
Miscellaneous ....................................................................... 85 811 702
Legal fees .......................................................................... 82 150 159
--------- --------- ---------
Total Expenses ..................................................... 93,116 115,088 232,627
--------------------------------------------------------------------------------------------------------------
Less Expense Reductions - Note B ................................... (72,718) (52,019) (147,337)
--------------------------------------------------------------------------------------------------------------
Net Expenses ....................................................... 20,398 63,069 85,290
--------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) ....................................... (13,678) 35,793 58,714
--------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions:
Net realized gain (loss) on investments sold ......................................... 386,744 (106,544) 297,741
Net realized gain (loss) on foreign currency transactions ............................ (2) 9 (33,962)
Change in net unrealized appreciation (depreciation) of investments .................. (133,026) (817,107) 245,920
Change in net unrealized appreciation of foreign currency transactions ............... -- -- 527
--------- --------- ---------
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions .................................. 253,716 (923,642) 510,226
--------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations .... $240,038 ($887,849) $568,940
==============================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACTIVE BOND DIVIDEND PERFORMERS
FUND FUND
---------------------------- ----------------------------
YEAR ENDED FEBRUARY 28, YEAR ENDED FEBRUARY 28,
---------------------------- ----------------------------
1998 1999 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ......................................... $248,646 $353,845 $200,218 $188,995
Net realized gain on investments sold and foreign
currency transactions ........................................ 86,744 63,900 2,026,525 1,169,983
Change in net unrealized appreciation (depreciation)
of investments and foreign currency transactions ............. 37,222 (87,318) 2,433,147 46,410
------------ ------------ ------------ ------------
Net Increase in Net Assets Resulting from Operations ......... 372,612 330,427 4,659,890 1,405,388
------------ ------------ ------------ ------------
Distributions to Shareholders: *
Dividends from net investment income .......................... (248,646) (353,845) (188,048) (204,553)
Distributions in excess of net investment income .............. (148) (677) -- --
Distributions from net realized gain on investments sold ...... (23,264) (139,091) (1,154,688) (1,850,025)
------------ ------------ ------------ ------------
Total Distributions to Shareholders .......................... (272,058) (493,613) (1,342,736) (2,054,578)
------------ ------------ ------------ ------------
From Portfolio Share Transactions: **
Shares sold ................................................... 4,645,044 3,910,036 11,392,158 6,443,397
Shares issued to shareholders in reinvestment of
distributions ................................................ 261,643 487,064 1,336,430 2,053,566
------------ ------------ ------------ ------------
4,906,687 4,397,100 12,728,588 8,496,963
Less shares repurchased ....................................... (2,040,235) (3,705,926) (3,828,808) (10,989,374)
------------ ------------ ------------ ------------
Net Increase (Decrease) ...................................... 2,866,452 691,174 8,899,780 (2,492,411)
------------ ------------ ------------ ------------
Net Assets:
Beginning of period ........................................... 2,190,619 5,157,625 8,667,511 20,884,445
------------ ------------ ------------ ------------
End of period (including undistributed net investment income
(distributions in excess of net investment income) of
($151), ($821), $36,650 and $21,113, respectively) ........... $5,157,625 $5,685,613 $20,884,445 $17,742,844
============ ============ ============ ============
* Distributions to Shareholders:
Per share dividends from net investment income ................ $0.5907 $0.5633 $0.1749 $0.1544
------------ ------------ ------------ ------------
Per share distributions in excess of net investment income .... $0.0004 $0.0011 -- --
------------ ------------ ------------ ------------
Per share distributions from net realized gain on
investments sold ............................................. $0.0460 $0.2195 $0.9152 $1.5008
------------ ------------ ------------ ------------
** Analysis of Portfolio Share Transactions:
Shares sold ................................................... 532,093 440,336 856,008 432,497
Shares issued to shareholders in reinvestment of
distributions ................................................ 30,042 55,263 99,380 140,269
------------ ------------ ------------ ------------
562,135 495,599 955,388 572,766
Less shares repurchased ....................................... (234,419) (417,608) (283,722) (745,329)
------------ ------------ ------------ ------------
Net Increase (Decrease) ...................................... 327,716 77,991 671,666 (172,563)
============ ============ ============ ============
</TABLE>
The Statement of Changes in Net Assets shows how the value of each Fund's net
assets has changed since the previous period. The difference reflects net
investment income, any investment gains and losses, distributions paid to
shareholders and any increase or decrease in money shareholders invested in each
Fund. The footnotes illustrate the number of Fund shares sold, reinvested and
repurchased during the period, along with the per share amount of distributions
made to shareholders of each Fund for the period indicated.
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MULTI-SECTOR SMALL CAPITALIZATION
GROWTH FUND GROWTH FUND
---------------------------- ----------------------------
YEAR ENDED FEBRUARY 28, YEAR ENDED FEBRUARY 28,
---------------------------- ----------------------------
1998 1999 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss) .............................. $9,544 ($42,177) ($5,754) ($13,678)
Net realized gain (loss) on investments sold .............. 4,749,043 (98,184) (14,223) 386,742
Change in net unrealized appreciation (depreciation)
of investments ........................................... 1,644,227 (2,469,617) 551,977 (133,026)
------------ ------------ ------------ ------------
Net Increase (Decrease) in Net Assets Resulting
from Operations ......................................... 6,402,814 (2,609,978) 532,000 240,038
------------ ------------ ------------ ------------
Distributions to Shareholders: *
Dividends from net investment income ...................... (2,904) -- (229) --
Distributions from net realized gain on investments sold .. (3,575,102) (2,304,137) -- (134,250)
Distributions in excess of net realized gain on
investments sold ......................................... -- (130,832) -- --
------------ ------------ ------------ ------------
Total Distributions to Shareholders ...................... (3,578,006) (2,434,969) (229) (134,250)
------------ ------------ ------------ ------------
From Portfolio Share Transactions: **
Shares sold ............................................... 25,552,524 10,062,888 3,168,688 1,965,870
Shares issued to shareholders in reinvestment of
distributions ............................................ 3,563,690 2,416,095 229 134,329
------------ ------------ ------------ ------------
29,116,214 12,478,983 3,168,917 2,100,199
Less shares repurchased ................................... (20,723,580) (31,049,470) (1,597,977) (2,855,403)
------------ ------------ ------------ ------------
Net Increase (Decrease) .................................. 8,392,634 (18,570,487) 1,570,940 (755,204)
------------ ------------ ------------ ------------
Net Assets:
Beginning of period ....................................... 29,084,577 40,302,019 999,496 3,102,207
------------ ------------ ------------ ------------
End of period (including distributions in excess of net
investment income of $218, $1,192, $16 and $7,
respectively) ............................................ $40,302,019 $16,686,585 $3,102,207 $2,452,791
============ ============ ============ ============
* Distributions to Shareholders:
Per share dividends from net investment income ............ $0.0010 -- $0.0009 --
------------ ------------ ------------ ------------
Per share distributions from net realized gain on
investments sold ......................................... $1.2186 $1.7180 -- $0.6321
------------ ------------ ------------ ------------
Per share distributions in excess of net realized gain
on investments sold ...................................... -- $0.0975 -- --
------------ ------------ ------------ ------------
** Analysis of Portfolio Share Transactions:
Shares sold ............................................... 1,989,505 789,843 312,919 174,923
Shares issued to shareholders in reinvestment of
distributions ............................................ 294,763 217,862 22 11,640
------------ ------------ ------------ ------------
2,284,268 1,007,705 312,941 186,563
Less shares repurchased ................................... (1,597,014) (2,472,121) (156,837) (240,362)
------------ ------------ ------------ ------------
Net Increase (Decrease) .................................. 687,254 (1,464,416) 156,104 (53,799)
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL CAPITALIZATION INTERNATIONAL
VALUE FUND EQUITY FUND
---------------------------- ----------------------------
YEAR ENDED FEBRUARY 28, YEAR ENDED FEBRUARY 28,
---------------------------- ----------------------------
1998 1999 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ......................................... $45,212 $35,793 $41,542 $58,714
Net realized gain (loss) on investments sold and foreign
currency transactions ........................................ 1,689,121 (106,535) (278,948) 263,779
Change in net unrealized appreciation (depreciation) of
investments and foreign currency transactions ................ 742,018 (817,107) 292,145 246,447
------------ ------------ ------------ ------------
Net Increase (Decrease) in Net Assets Resulting
from Operations ............................................. 2,476,351 (887,849) 54,739 568,940
------------ ------------ ------------ ------------
Distributions to Shareholders: *
Dividends from net investment income .......................... (60,567) (32,061) (5,208) (58,714)
Distributions in excess of net investment income .............. -- -- -- (38,609)
Distributions from net realized gain on investments sold ...... (857,697) (855,792) -- --
Distributions in excess of net realized gain on
investments sold ............................................. -- (116,108) -- --
------------ ------------ ------------ ------------
Total Distributions to Shareholders .......................... (918,264) (1,003,961) (5,208) (97,323)
------------ ------------ ------------ ------------
From Portfolio Share Transactions: **
Shares sold ................................................... 10,734,873 3,189,293 12,446,539 4,778,538
Shares issued to shareholders in reinvestment of
distributions ................................................ 918,083 1,003,958 5,208 97,210
------------ ------------ ------------ ------------
11,652,956 4,193,251 12,451,747 4,875,748
Less shares repurchased ....................................... (9,672,795) (4,432,149) (8,722,378) (5,525,145)
------------ ------------ ------------ ------------
Net Increase (Decrease) ...................................... 1,980,161 (238,898) 3,729,369 (649,397)
------------ ------------ ------------ ------------
Net Assets:
Beginning of period ........................................... 6,010,582 9,548,830 4,203,967 7,982,867
------------ ------------ ------------ ------------
End of period (including undistributed net investment
income (distributions in excess of net investment income)
of $2,997, $10,454, ($6,246) and ($42,136), respectively) .... $9,548,830 $7,418,122 $7,982,867 $7,805,087
============ ============ ============ ============
* Distributions to Shareholders:
Per share dividends from net investment income ................ $0.0962 $0.0426 $0.0064 $0.0687
------------ ------------ ------------ ------------
Per share distributions in excess of net investment income .... -- -- -- $0.0451
------------ ------------ ------------ ------------
Per share distributions from net realized gain on
investments sold ............................................. $1.2633 $1.1962 -- --
------------ ------------ ------------ ------------
Per share distributions in excess of net realized gain
on investments sold .......................................... -- $0.1623 -- --
------------ ------------ ------------ ------------
** Analysis of Portfolio Share Transactions:
Shares sold ................................................... 907,426 306,719 1,326,050 475,462
Shares issued to shareholders in reinvestment of
distributions ................................................ 89,116 114,375 604 9,438
------------ ------------ ------------ ------------
996,542 421,094 1,326,654 484,900
Less shares repurchased ....................................... (824,315) (424,679) (947,485) (546,741)
------------ ------------ ------------ ------------
Net Increase (Decrease) ...................................... 172,227 (3,585) 379,169 (61,841)
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust - Active Bond Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM MARCH 30, 1995 YEAR ENDED FEBRUARY 28,
(COMMENCEMENT OF OPERATIONS) ---------------------------------------
TO FEBRUARY 29, 1996 1997 1998 1999
---------------------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ....................... $8.50 $8.64 $8.54 $8.83
--------- --------- --------- ---------
Net Investment Income (6) .................................. 0.51 0.60 0.59 0.56
Net Realized and Unrealized Gain (Loss) on Investments ..... 0.16 (0.09) 0.34 (0.02)
--------- --------- --------- ---------
Total from Investment Operations ........................ 0.67 0.51 0.93 0.54
--------- --------- --------- ---------
Less Distributions:
Dividends from Net Investment Income ...................... (0.51) (0.60) (0.59) (0.56)
Distributions in Excess of Net Investment Income .......... -- -- (0.00)(8) (0.00)(8)
Distributions from Net Realized Gain on Investments Sold .. (0.02) (0.01) (0.05) (0.22)
--------- --------- --------- ---------
Total Distributions ..................................... (0.53) (0.61) (0.64) (0.78)
--------- --------- --------- ---------
Net Asset Value, End of Period ............................. $8.64 $8.54 $8.83 $8.59
========= ========= ========= =========
Total Investment Return at Net Asset Value (5) ............. 7.76%(3) 6.17% 11.25% 6.24%
Total Adjusted Investment Return at Net Asset Value (5,7) .. (0.46%)(3) 2.72% 9.21% 4.51%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................... $1,171 $2,191 $5,158 $5,686
Ratio of Expenses to Average Net Assets .................... 0.65%(2) 0.60% 0.60% 0.60%
Ratio of Adjusted Expenses to Average Net Assets (1,4) ..... 9.60%(2) 4.05% 2.64% 2.33%
Ratio of Net Investment Income to Average Net Assets ....... 6.53%(2) 7.10% 6.78% 6.36%
Ratio of Adjusted Net Investment Income (Loss) to Average
Net Assets (1,4) ......................................... (2.42%)(2) 3.65% 4.74% 4.63%
Portfolio Turnover Rate .................................... 71% 136% 230% 356%
Fee Reduction Per Share (6) ................................ $0.75 $0.30 $0.18 $0.15
</TABLE>
(1) Unreimbursed, without fee reduction.
(2) Annualized.
(3) Not annualized.
(4) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
(5) Total investment return assumes dividend reinvestment.
(6) Based on the average of the shares outstanding at the end of each month.
(7) An estimated total return calculation, which does not take into
consideration fee reductions by the Adviser during the periods shown.
(8) Less than $0.01 per share.
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indi cated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed since the commencement of operations.
Additionally, important rela tionships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust - Dividend Performers Fund
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM MARCH 30, 1995 YEAR ENDED FEBRUARY 28,
(COMMENCEMENT OF OPERATIONS) ----------------------------------------
TO FEBRUARY 29, 1996 1997 1998 1999
---------------------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ....................... $8.50 $10.15 $11.91 $14.92
---------- ---------- ---------- ----------
Net Investment Income (6) .................................. 0.23 0.21 0.18 0.15
Net Realized and Unrealized Gain on Investments ............ 1.68 1.92 3.92 1.04
---------- ---------- ---------- ----------
Total from Investment Operations ........................ 1.91 2.13 4.10 1.19
---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ...................... (0.19) (0.18) (0.17) (0.15)
Distributions from Net Realized Gain on Investments Sold .. (0.07) (0.19) (0.92) (1.50)
---------- ---------- ---------- ----------
Total Distributions ..................................... (0.26) (0.37) (1.09) (1.65)
---------- ---------- ---------- ----------
Net Asset Value, End of Period ............................. $10.15 $11.91 $14.92 $14.46
========== ========== ========== ==========
Total Investment Return at Net Asset Value (5) ............. 22.79%(3) 21.26% 35.55% 7.97%
Total Adjusted Investment Return at Net Asset Value (5,7) .. 19.79%(3) 20.07% 35.23% 7.72%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................... $3,319 $8,668 $20,884 $17,743
Ratio of Expenses to Average Net Assets .................... 0.75%(2) 0.70% 0.70% 0.70%
Ratio of Adjusted Expenses to Average Net Assets (1,4) ..... 4.02%(2) 1.89% 1.02% 0.95%
Ratio of Net Investment Income to Average Net Assets ....... 2.51%(2) 1.94% 1.31% 0.95%
Ratio of Adjusted Net Investment Income (Loss) to
Average Net Assets (1,4) ................................. (0.76%)(2) 0.75% 0.99% 0.70%
Portfolio Turnover Rate .................................... 70% 37% 77% 64%
Fee Reduction Per Share (6) ................................ $0.30 $0.13 $0.04 $0.04
</TABLE>
(1) Unreimbursed, without fee reduction.
(2) Annualized.
(3) Not annualized.
(4) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
(5) Total investment return assumes dividend reinvestment.
(6) Based on the average of the shares outstanding at the end of each month.
(7) An estimated total return calculation, which does not take into
consideration fee reductions by the Adviser during the periods shown.
SEE NOTES TO FINANCIAL STATEMENTS.
30
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust - Multi-Sector Growth Fund
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM APRIL 11, 1995 YEAR ENDED FEBRUARY 28,
(COMMENCEMENT OF OPERATIONS) ------------------------------------------
TO FEBRUARY 29, 1996 1997 1998 1999
--------------------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................ $8.50 $10.69 $12.67 $13.51
---------- ---------- ---------- ----------
Net Investment Income (Loss) (6) ............................ (0.01) 0.01 0.00(7) (0.02)
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions ............................. 2.22 2.02 2.06 (0.68)
---------- ---------- ---------- ----------
Total from Investment Operations ......................... 2.21 2.03 2.06 (0.70)
---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ....................... (0.02) -- (0.00)(7) --
Distributions from Net Realized Gain on Investments Sold ... -- (0.05) (1.22) (1.72)
Distributions in Excess of Net Realized Gain on
Investments Sold ......................................... -- -- -- (0.10)
---------- ---------- ---------- ----------
Total Distributions ...................................... (0.02) (0.05) (1.22) (1.82)
---------- ---------- ---------- ----------
Net Asset Value, End of Period .............................. $10.69 $12.67 $13.51 $10.99
========== ========== ========== ==========
Total Investment Return at Net Asset Value (5) .............. 25.98%(3) 19.00% 17.39% (5.34%)
Total Adjusted Investment Return at Net Asset Value (5,8) ... 23.70%(3) 18.48% 17.19% (5.55%)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................... $8,399 $29,085 $40,302 $16,687
Ratio of Expenses to Average Net Assets ..................... 0.93%(2) 0.90% 0.90% 0.90%
Ratio of Adjusted Expenses to Average Net Assets (1,4) ...... 3.51%(2) 1.42% 1.10% 1.11%
Ratio of Net Investment Income (Loss) to Average Net
Assets .................................................... (0.10%)(2) 0.06% 0.03% (0.13%)
Ratio of Adjusted Net Investment Loss to Average Net
Assets (1,4) .............................................. (2.68%)(2) (0.46%) (0.17%) (0.34%)
Portfolio Turnover Rate ..................................... 189% 281% 341% 116%
Fee Reduction Per Share (6) ................................. $0.23 $0.06 $0.03 $0.03
</TABLE>
(1) Unreimbursed, without fee reduction.
(2) Annualized.
(3) Not annualized.
(4) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
(5) Total investment return assumes dividend reinvestment.
(6) Based on the average of the shares outstanding at the end of each month.
(7) Less than $0.01 per share.
(8) An estimated total return calculation, which does not take into
consideration fee reductions by the Adviser during the periods shown.
SEE NOTES TO FINANCIAL STATEMENTS.
31
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust -
Small Capitalization Growth Fund
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM MAY 2, 1996 YEAR ENDED FEBRUARY 28,
(COMMENCEMENT OF OPERATIONS) -------------------------
TO FEBRUARY 28, 1997 1998 1999
--------------------------- --------- ---------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................... $8.50 $9.24 $11.74
--------- --------- ---------
Net Investment Income (Loss) (5) ................................... 0.03 (0.03) (0.07)
Net Realized and Unrealized Gain on Investments and
Foreign Currency Transactions .................................... 0.73 2.53 0.61
--------- --------- ---------
Total from Investment Operations ................................ 0.76 2.50 0.54
--------- --------- ---------
Less Distributions:
Dividends from Net Investment Income .............................. (0.02) (0.00)(6) --
Distributions from Net Realized Gain on Investments Sold .......... -- -- (0.63)
--------- --------- ---------
Total Distributions ............................................. (0.02) (0.00)(6) (0.63)
--------- --------- ---------
Net Asset Value, End of Period ..................................... $9.24 $11.74 $11.65
========= ========= =========
Total Investment Return at Net Asset Value (7) ..................... 8.89%(3) 27.07% 4.67%
Total Adjusted Investment Return at Net Asset Value (7,8) .......... (3.84%)(3) 23.92% 1.45%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........................... $999 $3,102 $2,453
Ratio of Expenses to Average Net Assets ............................ 0.90%(2) 0.90% 0.90%
Ratio of Adjusted Expenses to Average Net Assets (1,4) ............. 16.24%(2) 4.05% 4.12%
Ratio of Net Investment Income (Loss) to Average Net Assets ........ 0.35%(2) (0.25%) (0.60%)
Ratio of Adjusted Net Investment Loss to Average Net Assets (1,4) .. (14.99%)(2) (3.40%) (3.82%)
Portfolio Turnover Rate ............................................ 92% 117% 125%
Fee Reduction Per Share (5) ........................................ $1.22 $0.34 $0.35
</TABLE>
(1) Unreimbursed, without fee reduction.
(2) Annualized.
(3) Not annualized.
(4) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
(5) Based on the average of the shares outstanding at the end of each month.
(6) Less than $0.01 per share.
(7) Total investment return assumes dividend reinvestment.
(8) An estimated total return calculation, which does not take into
consideration fee reductions by the Adviser during the periods shown.
SEE NOTES TO FINANCIAL STATEMENTS.
32
<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>
PERIOD FROM APRIL 19, 1995 YEAR ENDED FEBRUARY 28,
(COMMENCEMENT OF OPERATIONS) -------------------------------------
TO FEBRUARY 29, 1996 1997 1998 1999
---------------------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ....................... $8.50 $9.09 $9.38 $11.74
--------- --------- --------- ---------
Net Investment Income (6) .................................. 0.17 0.14 0.07 0.05
Net Realized and Unrealized Gain (Loss) on Investments ..... 0.56 1.08 3.65 (1.23)
--------- --------- --------- ---------
Total from Investment Operations ........................ 0.73 1.22 3.72 (1.18)
--------- --------- --------- ---------
Less Distributions:
Dividends from Net Investment Income ...................... (0.14) (0.12) (0.10) (0.04)
Distributions from Net Realized Gain on Investments Sold .. -- (0.81) (1.26) (1.20)
Distributions in Excess of Net Realized Gain on
Investments Sold ........................................ -- -- -- (0.16)
--------- --------- --------- ---------
Total Distributions ..................................... (0.14) (0.93) (1.36) (1.40)
--------- --------- --------- ---------
Net Asset Value, End of Period ............................. $9.09 $9.38 $11.74 $9.16
========= ========= ========= =========
Total Investment Return at Net Asset Value (5) ............. 8.61%(3) 13.78% 41.81% (9.46%)
Total Adjusted Investment Return at Net Asset Value (5,7) .. 5.40%(3) 12.75% 41.19% (10.12%)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................... $5,293 $6,011 $9,549 $7,418
Ratio of Expenses to Average Net Assets .................... 0.83%(2) 0.80% 0.80% 0.80%
Ratio of Adjusted Expenses to Average Net Assets (1,4) ..... 4.55%(2) 1.83% 1.42% 1.46%
Ratio of Net Investment Income to Average Net Assets ....... 2.04%(2) 1.46% 0.62% 0.45%
Ratio of Adjusted Net Investment Income (Loss) to
Average Net Assets (1,4) ................................. (1.68%)(2) 0.43% 0.00% (0.21%)
Portfolio Turnover Rate .................................... 0% 96% 216% 126%
Fee Reduction Per Share (6) ................................ $0.30 $0.10 $0.07 $0.07
</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 - International Equity Fund
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM MARCH 30, 1995 YEAR ENDED FEBRUARY 28,
(COMMENCEMENT OF OPERATIONS) -------------------------------------
TO FEBRUARY 29, 1996 1997 1998 1999
---------------------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ....................... $8.50 $9.24 $9.35 $9.63
--------- --------- --------- ---------
Net Investment Income (6) .................................. 0.15 0.12 0.06 0.07
Net Realized and Unrealized Gain on Investments and
Foreign Currency Transactions ............................ 0.68 0.14 0.23 0.59
--------- --------- --------- ---------
Total from Investment Operations ........................ 0.83 0.26 0.29 0.66
--------- --------- --------- ---------
Less Distributions:
Dividends from Net Investment Income ...................... (0.08) (0.10) (0.01) (0.07)
Distributions in Excess of Net Investment Income .......... -- -- -- (0.04)
Distributions from Net Realized Gain on Investments Sold .. (0.01) (0.05) -- --
--------- --------- --------- ---------
Total Distributions ..................................... (0.09) (0.15) (0.01) (0.11)
--------- --------- --------- ---------
Net Asset Value, End of Period ............................. $9.24 $9.35 $9.63 $10.18
========= ========= ========= =========
Total Investment Return at Net Asset Value (5) ............. 9.81%(3) 2.79% 3.07% 6.88%
Total Adjusted Investment Return at Net Asset Value (5,7) .. 3.26%(3) 0.47% 2.05% 5.15%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................... $2,897 $4,204 $7,983 $7,805
Ratio of Expenses to Average Net Assets .................... 1.05%(2) 1.00% 1.00% 1.00%
Ratio of Adjusted Expenses to Average Net Assets (1,4) ..... 8.19%(2) 3.32% 2.02% 2.73%
Ratio of Net Investment Income to Average Net Assets ....... 1.75%(2) 1.26% 0.60% 0.69%
Ratio of Adjusted Net Investment Loss to Average
Net Assets (1,4) ......................................... (5.39%)(2) (1.06%) (0.42%) (1.04%)
Portfolio Turnover Rate .................................... 59% 68% 125% 83%
Fee Reduction Per Share (6) ................................ $0.60 $0.22 $0.10 $0.17
</TABLE>
(1) Unreimbursed, without fee reduction.
(2) Annualized.
(3) Not annualized.
(4) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
(5) Total investment return assumes dividend reinvestment.
(6) Based on the average of the shares outstanding at the end of each month.
(7) An estimated total return calculation, which does not take into
consideration fee reductions by the Adviser during the periods shown.
SEE NOTES TO FINANCIAL STATEMENTS.
34
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust - Active Bond Fund
Schedule of Investments
February 28, 1999
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Active Bond Fund on February 28, 1999. 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
Agricultural Operations (0.17%)
Pioneer Hi-Bred International, Inc.,
Sr Note 01-15-09 .......................................................... 5.750% A+ $10 $9,675
----------
Banks - Foreign (1.10%)
Abbey National First Capital, B.V.,
Sub Note (United Kingdom) 10-15-04 (Y) .................................... 8.200 AA- 20 22,210
Scotland International Finance No. 2 B.V.,
Gtd Sub Note (United Kingdom) 11-01-06 (R) (Y) ............................ 8.850 A+ 35 40,386
----------
62,596
----------
Banks - United States (3.39%)
Banc One Corp.,
Sub Deb 10-15-26 .......................................................... 7.625 A 15 16,277
Bank of New York,
Cap Security 12-01-26 (R) ................................................. 7.780 A- 25 25,564
Barclays North American Capital Corp.,
Gtd Cap Note 05-15-21 ..................................................... 9.750 AA- 25 27,571
First Union National Bank,
Sub Note 12-01-28 ......................................................... 6.500 A 15 14,598
National Westminster Bank Plc - New York Branch,
Sub Note 05-01-01 ......................................................... 9.450 AA- 15 16,069
NB Capital Trust IV,
Cap Security 04-15-27 ..................................................... 8.250 A- 10 10,700
Norwest Corp.,
Med Term Sr Note Ser G 09-15-02 ........................................... 6.375 A+ 20 20,158
RBSG Capital Corp.,
Gtd Cap Note 03-01-04 ..................................................... 10.125 A 30 34,494
Security Pacific Corp.,
Sub Note 03-01-01 ......................................................... 11.000 A 25 27,430
----------
192,861
----------
Beverages (0.36%)
Seagram (Joseph E.) & Sons, Inc.,
Sr Deb 12-15-28 ........................................................... 7.600 BBB- 20 20,540
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
35
<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>
Broker Services (0.53%)
Merrill Lynch & Co., Inc.,
Note 11-15-18 ............................................................. 6.875% AA- $15 $14,842
Salomon Smith Barney Holdings, Inc.,
Note 10-15-02 ............................................................. 6.500 A 15 15,167
----------
30,009
----------
Building (0.17%)
Amatek Industries Property Ltd.,
Sr Sub Note (Australia) 02-15-08 (R) (Y) .................................. 12.000 B 10 9,525
----------
Business Services - Misc. (0.18%)
Primark Corp.,
Sr Sub Note 12-15-08 (R) .................................................. 9.250 B+ 10 10,000
----------
Chemicals (0.53%)
Akzo Nobel, Inc.,
Bond 11-15-03 (R) ......................................................... 6.000 A 15 14,949
Equistar Chemicals, LP,
Sr Note 02-15-04 (R) ...................................................... 8.500 BBB- 15 15,188
----------
30,137
----------
Computers (0.80%)
International Business Machines Corp.,
Deb 01-15-28 .............................................................. 6.500 A+ 15 14,665
Med Term Note 09-22-03 .................................................... 5.370 A+ 20 19,605
PSINet, Inc.,
Sr Note 11-01-08 (R) ...................................................... 11.500 B- 10 11,100
----------
45,370
----------
Diversified Operations (0.26%)
Triarc Consumer Products Group LLC,
Sr Sub Note 02-15-09 (R) .................................................. 10.250 B- 15 14,775
----------
Energy (1.59%)
AES Corp.,
Sr Sub Note 07-15-06 ...................................................... 10.250 B+ 17 18,020
CalEnergy Co., Inc.,
Sr Bond 09-15-28 .......................................................... 8.480 BB+ 25 28,757
Sr Note 09-15-06 .......................................................... 9.500 BB+ 15 16,488
Sr Sec Note 06-30-03 ...................................................... 9.875 BB+ 20 21,814
Calpine Corp.,
Sr Note 04-01-08 .......................................................... 7.875 BB- 5 5,100
----------
90,179
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
36
<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 (8.05%)
Associates Corp. of North America,
Sr Note 04-15-03 .......................................................... 6.000% AA- $45 $45,037
Bombardier Capital, Inc.,
Note 01-15-02 (R) ......................................................... 6.000 BBB+ 20 19,792
Chrysler Financial Co. LLC,
Med Term Note Ser S 11-15-01 .............................................. 5.690 A+ 15 14,926
CIT Group Holdings, Inc.,
Med Term Note 06-17-02 .................................................... 7.125 A+ 20 20,655
Note 10-15-01 ............................................................. 5.500 A+ 20 19,830
Commercial Credit Co.,
Note 07-01-02 ............................................................. 6.450 A+ 30 30,478
Constitution Capital Trust I,
Gtd Cap Security 04-15-27 (R) ............................................. 9.150 BBB 16 17,411
FINOVA Capital Corp.,
Note 11-01-02 ............................................................. 6.250 A- 15 15,066
Ford Capital B.V.,
Gtd Deb 05-15-02 .......................................................... 9.875 A 35 38,857
Ford Motor Credit Co.,
Note 04-28-03 ............................................................. 6.125 A 20 20,048
General Motors Acceptance Corp.,
Med Term Note 04-17-01 .................................................... 6.850 A 30 30,620
Note 12-01-01 ............................................................. 6.375 A 20 20,225
HomeSide Lending, Inc.,
Note 05-15-03 ............................................................. 6.200 A+ 20 19,755
Household Finance Corp.,
Note 11-01-02 ............................................................. 5.875 A 25 24,848
Note 09-25-04 ............................................................. 5.875 A 25 24,783
Sr Note 02-01-09 .......................................................... 5.875 A 15 14,447
Marlin Water Trust & Marlin Water Capital Corp.,
Sr Sec Note 12-15-01 (R) .................................................. 7.090 BBB 20 20,025
WMC Finance (USA) Ltd.,
Gtd Note (Australia) 11-15-03 (Y) ......................................... 6.500 A 55 53,798
Yanacocha Receivables Master Trust,
Pass Thru Cert Ser 1997-A (Peru) 06-15-04 (R) (Y) ......................... 8.400 BBB- 8 7,219
----------
457,820
----------
Food (0.27%)
Agrilink Foods, Inc.,
Sr Sub Note 11-01-08 (R) .................................................. 11.875 B 5 5,338
Luigino's, Inc.,
Sr Sub Note 02-01-06 (R) .................................................. 10.000 B- 10 10,025
----------
15,363
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
37
<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 - Foreign (0.91%)
Manitoba, Province of,
Note (Canada) 10-01-08 (Y) ................................................ 5.500% AA- $35 $33,911
Nova Scotia, Province of,
Deb (Canada) 11-15-19 (Y) ................................................. 8.250 A- 15 17,929
----------
51,840
----------
Government - U.S. (27.18%)
United States Treasury,
Bond 08-15-17 ............................................................. 8.875 AAA 162 216,877
Bond 02-15-23 ............................................................. 7.125 AAA 489 569,304
Note 05-15-01 ............................................................. 8.000 AAA 187 197,695
Note 05-15-02 ............................................................. 7.500 AAA 146 155,445
Note 08-15-03 ............................................................. 5.750 AAA 142 144,418
Note 02-15-05 ............................................................. 7.500 AAA 129 142,646
Note 07-15-06 ............................................................. 7.000 AAA 109 119,185
----------
1,545,570
----------
Government - U.S. Agencies (8.14%)
Federal Home Loan Mortgage Corp.,
CMO REMIC 1601 10-15-08 ................................................... 6.000 AAA 25 24,570
Federal National Mortgage Assn.,
15 Yr Pass Thru Ctf 12-01-12 .............................................. 6.500 AAA 47 47,314
30 Yr Pass Thru Ctf 03-01-27 .............................................. 6.500 AAA 60 59,105
30 Yr Pass Thru Ctf 01-01-28 .............................................. 6.000 AAA 24 22,839
30 Yr Pass Thru Ctf 11-01-28 .............................................. 6.500 AAA 128 127,385
Pass Thru Ctf Ser 1997-M8 Class A-1 01-25-22 .............................. 6.940 AAA 7 6,853
Government National Mortgage Assn.,
30 Yr SF Pass Thru Ctf 07-15-28 to 12-15-28 ............................... 6.500 AAA 29 29,167
30 Yr SF Pass Thru Ctf 11-15-28 ........................................... 7.000 AAA 50 50,541
30 Yr SF Pass Thru Ctf 08-15-26 ........................................... 7.500 AAA 25 25,383
30 Yr SF Pass Thru Ctf 11-15-24 to 08-15-26 ............................... 8.000 AAA 67 69,829
----------
462,986
----------
Insurance (3.33%)
Conseco, Inc.,
Note 06-15-05 ............................................................. 6.800 BBB 15 14,094
Equitable Life Assurance Society USA,
Surplus Note 12-01-05 (R) ................................................. 6.950 A 10 10,219
Fairfax Financial Holdings Ltd.,
Note (Canada) 04-15-26 (Y) ................................................ 8.300 BBB+ 25 25,454
Liberty Mutual Insurance Co.,
Surplus Note 05-04-07 (R) ................................................. 8.200 A+ 20 21,990
Surplus Note 10-15-26 (R) ................................................. 7.875 A+ 15 15,471
Massachusetts Mutual Life Insurance Co.,
Surplus Note 11-15-23 (R) ................................................. 7.625 AA 15 16,387
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
38
<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>
Insurance (continued)
NAC Re Corp.,
Note 06-15-99 ............................................................. 8.000% A- $5 $5,030
New York Life Insurance Co.,
Surplus Note 12-15-23 (R) ................................................. 7.500 AA- 15 14,578
Phoenix Home Life Mutual Insurance Co.,
Surplus Note 12-01-06 (R) ................................................. 6.950 A+ 15 14,904
Sun Canada Financial Co.,
Gtd Sub Note 12-15-07 (R) ................................................. 6.625 AA 20 20,020
URC Holdings Corp.,
Sr Note 06-30-06 (R) ...................................................... 7.875 A- 20 20,911
Willis Corroon Group PLC,
Sr Sub Note 02-01-09 (R) .................................................. 9.000 B+ 10 10,000
----------
189,058
----------
Leisure (1.56%)
Circus Circus Enterprises, Inc.,
Deb 11-15-36 .............................................................. 7.000 BBB- 5 4,501
Harrah's Operating Co., Inc.,
Sr Note 01-15-09 .......................................................... 7.500 BBB- 20 19,806
HMH Properties, Inc.,
Sr Note Ser A 08-01-05 .................................................... 7.875 BB 15 14,475
Marvel Enterprises, Inc.,
Sr Note 06-15-09 (R) ...................................................... 12.000 NR 15 15,150
Mohegan Tribal Gaming Auth,
Sr Note 01-01-06 (R) ...................................................... 8.125 BB 10 10,075
Sun International Hotels Ltd.,
Sr Sub Note (Bahamas) 03-15-07 (Y) ........................................ 9.000 B+ 7 7,315
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 10,200
----------
88,732
----------
Manufacturing (0.03%)
Globe Manufacturing Corp.,
Sr Sub Note 08-01-08 (R) .................................................. 10.000 B- 2 1,640
----------
Media (5.84%)
Adelphia Communications Corp.,
Sr Note Ser B 10-01-02 .................................................... 9.250 B+ 15 15,975
Sr Note Ser B 07-15-03 .................................................... 8.125 B1 8 8,160
Comcast Cellular Holdings, Inc.,
Sr Note Ser B 05-01-07 .................................................... 9.500 BB+ 30 34,350
Continental Cablevision, Inc.,
Sr Note 05-15-06 .......................................................... 8.300 BBB 15 16,408
CSC Holdings, Inc.,
Sr Note 07-15-08 .......................................................... 7.250 BB+ 20 20,090
</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>
Media (continued)
EchoStar DBS Corp.,
Sr Note 02-01-09 (R) ...................................................... 9.375% B $20 $20,050
Garden State Newspapers, Inc.,
Sr Sub Note Ser B 10-01-09 ................................................ 8.750 B+ 8 8,080
Jones Intercable, Inc.,
Sr Note 04-15-08 .......................................................... 7.625 BB+ 20 21,200
Mediacom LLC/Mediacom Capital Corp.,
Sr Note 02-15-11 (R) ...................................................... 7.875 B+ 10 9,775
News America Holdings, Inc.,
Gtd Sr Deb 08-10-18 ....................................................... 8.250 BBB- 16 17,826
Rogers Cablesystems Ltd.,
Sr Sec 2nd Priority Note (Canada) 08-01-02 (Y) ............................ 9.625 BB+ 29 31,102
SFX Broadcasting, Inc.,
Sr Sub Note Ser B 05-15-06 ................................................ 10.750 B- 10 11,200
Sprint Capital Corp.,
Note 11-15-28 ............................................................. 6.875 A- 15 14,970
TCI Communications, Inc.,
Sr Deb 02-15-26 ........................................................... 7.875 AA- 20 22,738
Time Warner, Inc.,
Deb 01-15-13 .............................................................. 9.125 BBB 16 19,503
TKR Cable I, Inc.,
Sr Deb 10-30-07 ........................................................... 10.500 AA- 15 16,214
TV Guide, Inc.,
Sr Sub Note 03-01-09 (R) .................................................. 8.125 B+ 20 19,875
USA Networks, Inc.,
Sr Note 11-15-05 (R) ...................................................... 6.750 BBB- 25 24,656
----------
332,172
----------
Medical (1.77%)
Dynacare, Inc.,
Sr Note (Canada) 01-15-06 (R) (Y) ......................................... 10.750 B+ 10 10,000
Sr Note (Canada) 01-15-06 (Y) ............................................. 10.750 B+ 8 8,000
Fresenius Medical Care Capital Trust II,
Gtd Trust Preferred Security 02-01-08 ..................................... 7.875 B+ 15 14,475
Guidant Corp.,
Note 02-15-06 ............................................................. 6.150 A- 15 14,611
Integrated Health Services, Inc.,
Sr Sub Deb 01-01-01 ....................................................... 5.750 B- 15 10,500
Sr Sub Note Ser A 01-15-08 ................................................ 9.250 B- 6 4,440
Quest Diagnostics, Inc.,
Sr Sub Note 12-15-06 ...................................................... 10.750 B+ 11 12,210
Sola International, Inc.,
Note 03-15-08 ............................................................. 6.875 BBB- 10 9,110
</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>
Medical (continued)
Tenet Healthcare Corp.,
Sr Note 12-01-03 .......................................................... 8.625% BB+ $10 $10,175
Sr Sub Note 01-15-07 ...................................................... 8.625 BB- 2 2,000
Watson Pharmaceuticals, Inc.,
Sr Note 05-15-08 .......................................................... 7.125 BBB- 5 4,950
----------
100,471
----------
Metal (0.18%)
Golden Northwest Aluminum, Inc.,
1st Mtg Note 12-15-06 (R) ................................................. 12.000 BB- 10 10,125
----------
Mortgage Banking (6.59%)
Citibank Credit Card Master Trust I,
Pass Thru Ctf Ser 1997-7 Class A 08-15-02 ................................. 6.350 AAA 55 55,599
ContiMortgage Home Equity Loan Trust,
Pass Thru Ctf Ser 1995-2 Class A-5 08-15-25 ............................... 8.100 AAA 15 14,920
Credit Suisse First Boston Mortgage Securities Corp.,
Commercial Mtg Pass Thru Ctf Ser 1998-C1 Class A-1A 12-17-07 .............. 6.260 AAA 19 19,129
EQCC Home Equity Loan Trust,
Pass Thru Ctf Ser 1997-3 Class A-9 02-15-29 ............................... 6.570 AAA 40 39,750
GMAC Commercial Mortgage Securities, Inc.,
Pass Thru Ctf Ser 1997-C2 Class A-3 11-15-07 .............................. 6.566 Aaa 25 25,250
IMC Home Equity Loan Trust,
Pass Thru Ctf Ser 1998-1 Class A-4 03-20-25 ............................... 6.600 AAA 20 19,656
JCP Master Credit Card Trust,
Pass Thru Ctf Ser C Class A 06-15-00 ...................................... 9.625 AA+ 55 57,110
Money Store Home Equity Trust (The),
Pass Thru Ctf Ser 1997-D Class AF-7 12-15-38 .............................. 6.485 AAA 24 24,210
Morgan Stanley Capital I, Inc.,
Pass Thru Ctf Ser 1997-WF1 Class A-1 10-15-06 (R) ......................... 6.830 AAA 76 77,544
Salomon Brothers Mortgage Securities VII, Inc.,
Mtg Pass Thru Ctf Ser 1997-HUD2 Class A-2 07-25-24 ........................ 6.750 Aaa 11 11,017
UCFC Home Equity Loan Trust,
Pass Thru Ctf Ser 1997-A1 Class A-8 06-15-28 .............................. 7.220 AAA 30 30,652
----------
374,837
----------
Oil & Gas (1.50%)
Camuzzi Gas Pampeana S.A.,
Bond (Argentina) 12-15-01 (Y) ............................................. 9.250 BBB- 11 10,450
Occidental Petroleum Corp.,
Sr Note 02-15-06 .......................................................... 7.650 BBB 10 9,946
Petroleos Mexicanos Finance Ltd.,
Note (Cayman Islands) 02-15-08 (R) (Y) .................................... 6.550 AAA 15 14,812
Petroleos Mexicanos,
Gtd Sr Note (Mexico) 12-02-08 (R) (Y) ..................................... 9.375 BB 5 4,875
Petroleum Geo-Services, Inc.,
Sr Note (Norway) 03-30-08 (Y) ............................................. 6.625 BBB 20 18,777
</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>
Oil & Gas (continued)
R&B Falcon Corp.,
Sr Note 12-15-08 (R) ...................................................... 9.500% BB+ $10 $9,375
Union Pacific Resources Group, Inc.,
Deb 05-15-28 .............................................................. 7.150 BBB 20 17,112
----------
85,347
----------
Paper & Paper Products (0.46%)
Fort James Corp.,
Sr Note 09-15-02 .......................................................... 6.500 BBB- 10 9,972
S.D. Warren Co.,
Sr Sub Note Ser B 12-15-04 ................................................ 12.000 B+ 15 16,313
----------
26,285
----------
Real Estate Operations (0.18%)
Security Capital Group, Inc.,
Med Term Note Ser A 11-15-03 .............................................. 7.750 BBB 10 10,080
----------
Real Estate Investment Trusts (1.01%)
American Health Properties, Inc.,
Note 01-15-07 ............................................................. 7.500 BBB- 20 18,040
EOP Operating L.P.,
Note 01-15-09 ............................................................. 6.800 BBB 20 19,597
Liberty Property L.P.,
Med Term Note 06-05-02 .................................................... 6.600 BBB- 10 9,700
TriNet Corporate Realty Trust, Inc.,
Note 05-15-01 ............................................................. 7.300 BBB- 10 9,931
----------
57,268
----------
Retail (0.98%)
Great Atlantic & Pacific Tea Co., Inc. (The),
Note 04-15-07 ............................................................. 7.750 BBB- 20 19,368
Meyer (Fred), Inc.,
Note 03-01-08 ............................................................. 7.450 BB+ 25 26,333
Safeway, Inc.,
Note 11-15-01 ............................................................. 5.875 BBB 10 9,985
----------
55,686
----------
Steel (0.39%)
AK Steel Corp.,
Sr Note 02-15-09 (R) ...................................................... 7.875 BB- 15 14,813
EES Coke Battery Co., Inc.,
Sr Note 04-15-02 (R) ...................................................... 7.125 BBB 7 7,478
----------
22,291
----------
</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>
Telecommunications (3.61%)
AXIA, Inc.,
Sr Sub Note 07-15-08 ...................................................... 10.750% B- $10 $10,050
Hermes Europe Railtel BV,
Sr Note (Belgium) 01-15-09 (R) (Y) ........................................ 10.375 B 5 5,275
Intermedia Communications, Inc.,
Sr Note Ser B 01-15-08 .................................................... 8.500 B 5 4,675
Sr Note Ser B 06-01-08 .................................................... 8.600 B 10 9,425
LCI International, Inc.,
Sr Note 06-15-07 .......................................................... 7.250 BB+ 15 15,228
McLeodUSA, Inc.,
Sr Note 11-01-08 (R) ...................................................... 9.500 B+ 15 16,050
Sr Note 02-15-09 (R) ...................................................... 8.125 B+ 5 4,925
Metromedia Fiber Network, Inc.,
Sr Note 11-15-08 (R) ...................................................... 10.000 B 20 20,850
MetroNet Communications Corp.,
Sr Note (Canada) 08-15-07 (Y) ............................................. 12.000 B 10 11,450
Nextel Communications, Inc.,
Sr Disc Note, Step Coupon 08-15-04 ........................................ 9.750 CCC+ 8 8,080
Sr Disc Note, Step Coupon (9.95%, 02-15-03) 02-15-08 (A) .................. Zero CCC+ 10 6,400
NEXTLINK Communications, Inc.,
Sr Note 11-15-08 (R) ...................................................... 10.750 B 10 10,300
NTL, Inc.,
Sr Note 10-01-08 (R) ...................................................... 11.500 B- 10 11,250
Qwest Communications International, Inc.,
Sr Note 11-01-08 (R) ...................................................... 7.250 BB+ 5 5,075
Viatel, Inc.,
Sr Sec Note 04-15-08 ...................................................... 11.250 Caa1 15 15,375
WorldCom, Inc.,
Note 08-15-01 ............................................................. 6.125 BBB+ 35 35,192
Worldwide Fiber, Inc.,
Sr Note (Canada) 12-15-05 (R) (Y) ......................................... 12.500 B- 15 15,450
----------
205,050
----------
Textile (0.27%)
WestPoint Stevens, Inc.,
Sr Note 06-15-05 .......................................................... 7.875 BB 15 15,488
----------
Tobacco (0.94%)
Philip Morris Companies, Inc.,
Note 09-15-01 ............................................................. 7.250 A 5 5,136
Note 08-15-02 ............................................................. 7.125 A 20 20,578
RJR Nabisco, Inc.,
Note 12-01-02 ............................................................. 8.625 BBB- 20 20,108
Note 09-15-03 ............................................................. 7.625 BBB- 8 7,738
----------
53,560
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust - Active Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Transport (3.69%)
America West Airlines,
Pass Thru Ctf Ser 1996-1B 01-02-08 ........................................ 6.930% A- $4 $4,017
Continental Airlines, Inc.,
Pass Thru Ctf Ser 1997-2C 06-30-04 ........................................ 7.206 BBB 24 23,842
Pass Thru Ctf Ser 1999-1A 08-02-20 ........................................ 6.545 AA+ 20 19,650
Sr Note 12-15-05 .......................................................... 8.000 BB- 15 14,700
ERAC USA Finance Co.,
Note 02-15-05 (R) ......................................................... 6.625 BBB 21 20,527
Fine Air Services, Inc.,
Sr Note 06-01-08 .......................................................... 9.875 B 15 13,612
Northwest Airlines 1996-1 Pass Through Trusts,
Pass Thru Ctf Ser 1996-1 01-02-15 ......................................... 8.970 BBB- 5 4,968
Northwest Airlines, Inc.,
Note 03-15-04 ............................................................. 8.375 BB 20 19,232
NWA Trust,
Sr Note Ser A 12-21-12 .................................................... 9.250 AA 34 38,347
U.S. Airways, Inc.,
Pass Thru Ctf Ser 1990-A1 03-19-05 ........................................ 11.200 BB 27 29,604
Union Pacific Corp.,
Deb 02-01-29 .............................................................. 6.625 BBB- 15 14,298
Wisconsin Central Transportation Corp.,
Note 04-15-08 ............................................................. 6.625 BBB- 7 6,982
----------
209,779
----------
Utilities (8.64%)
Avon Energy Partners Holdings,
Sr Note (United Kingdom) 12-11-02 (R) (Y) ................................. 6.730 A- 10 10,091
Beaver Valley Funding Corp.,
Sec Lease Oblig Bond 06-01-17 ............................................. 9.000 BB- 19 21,399
BVPS II Funding Corp.,
Collateralized Lease Bond 06-01-17 ........................................ 8.890 BB- 7 7,980
Cleveland Electric Illuminating Co.,
1st Mtg Ser B 05-15-05 .................................................... 9.500 BB+ 35 37,669
Sr Sec Note Ser D 11-01-17 ................................................ 7.880 BB+ 20 21,538
CMS Energy Corp.,
Sr Note 05-15-02 .......................................................... 8.125 BB 15 15,383
Sr Note 01-15-04 (R) ...................................................... 6.750 BB 15 14,663
Sr Note 01-15-09 .......................................................... 7.500 BB 20 20,000
Connecticut Light & Power Co.,
1st Ref Mtg Ser C 06-01-02 ................................................ 7.750 BB+ 15 15,293
EIP Funding-PNM,
Sec Fac Bond 10-01-12 ..................................................... 10.250 Ba2 23 26,653
GG1B Funding Corp.,
Deb 01-15-11 .............................................................. 7.430 BBB- 13 12,894
</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>
Utilities (continued)
Hydro-Quebec,
Gtd Bond (Canada) 02-01-21 (Y) ............................................ 9.400% A+ $15 $19,664
Gtd Bond (Canada) 01-15-22 (Y) ............................................ 8.400 A+ 10 11,967
Gtd Deb (Canada) 02-01-03 (Y) ............................................. 7.375 A+ 25 26,156
Iberdrola International B.V.,
Note (Spain) 10-01-02 (Y) ................................................. 7.500 AA- 28 29,327
Note (Spain) 06-01-03 (R) (Y) ............................................. 7.125 AA- 25 25,952
Long Island Lighting Co.,
Deb 03-15-23 .............................................................. 8.200 A- 20 21,675
Midland Cogeneration Venture L.P.,
Sec Deb Ser C-91 07-23-02 ................................................. 10.330 BB- 18 19,156
Niagara Mohawk Power Corp.,
Deb 01-01-18 .............................................................. 8.770 BBB- 25 25,429
Sr Note Ser G 10-01-08 .................................................... 7.750 BB+ 15 16,050
North Atlantic Energy Corp.,
1st Mtg Ser A 06-01-02 .................................................... 9.050 B+ 14 14,376
Northeast Utilities,
Note Ser A 12-01-06 ....................................................... 8.580 B+ 4 4,069
Philadelphia Electric Co.,
1st Ref Mtg 09-01-02 ...................................................... 7.125 BBB+ 20 20,661
PNPP II Funding Corp.,
Deb 05-30-16 .............................................................. 9.120 BB- 15 17,306
Puget Sound Energy Capital Trust I,
Gtd Cap Security Ser B 06-01-27 ........................................... 8.231 BBB- 10 10,150
System Energy Resources, Inc.,
1st Mtg 08-01-01 .......................................................... 7.710 BBB- 5 5,038
Waterford 3 Funding Corp.,
Sec Lease Obligation Bond 01-02-17 ........................................ 8.090 BBB- 20 20,878
----------
491,417
----------
TOTAL BONDS
(Cost $5,424,634) (94.60%) 5,378,532
-------- ----------
NUMBER OF
WARRANTS
--------
WARRANTS
MetroNet Communications Corp. (Canada) (R)** ............................... 10 713
----------
TOTAL WARRANTS
(Cost $103) (0.01%) 713
-------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust - Active Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST (000s MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- ---- -------- -----
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (4.94%)
Investment in a joint repurchase agreement transaction with
ABN AMRO, Inc. - Dated 02-26-99, due 03-01-99
(Secured by U.S. Treasury Bonds, 8.750% and 11.875%,
due 11-15-03 and 05-15-20 and U.S. Treasury Notes, 5.500% thru
7.875%, due 05-31-02 thru 08-15-07) - Note A .............................. 4.750% $281 $281,000
----------
Corporate Savings Account (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.500% ....................................................... 135
----------
TOTAL SHORT-TERM INVESTMENTS (4.95%) 281,135
-------- ----------
TOTAL INVESTMENTS (99.56%) 5,660,380
-------- ----------
OTHER ASSETS AND LIABILITIES, NET (0.44%) 25,233
-------- ----------
TOTAL NET ASSETS (100.00%) $5,685,613
======== ==========
</TABLE>
* Credit ratings are unaudited and rated by Standard & Poor's where
available, or Moody's Investors Service or John Hancock Advisers, Inc.
where Standard & Poor's ratings are not available.
** Non-income producing security.
(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 $777,141 or 13.67% of net assets as of
February 28, 1999.
(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 - Dividend Performers Fund
Schedule of Investments
February 28, 1999
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Dividend Performers Fund on February 28, 1999. 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 (1.69%)
Interpublic Group of Companies, Inc. (The) ........ 4,000 $299,250
-----------
Banks - United States (7.69%)
Bank One Corp. .................................... 8,800 473,000
BankAmerica Corp. ................................. 4,000 261,250
Citigroup, Inc. ................................... 5,000 293,750
First American Corp. .............................. 5,000 202,813
FirstMerit Corp. .................................. 5,500 134,406
-----------
1,365,219
-----------
Beverages (1.91%)
PepsiCo, Inc. ..................................... 9,000 338,625
-----------
Building (2.05%)
Masco Corp. ....................................... 13,900 364,875
-----------
Computers (9.21%)
Cisco Systems, Inc.* .............................. 3,300 322,781
Compaq Computer Corp. ............................. 9,500 334,875
Hewlett-Packard Co. ............................... 5,000 332,188
International Business Machines Corp. ............. 2,200 374,000
Microsoft Corp.* .................................. 1,800 270,225
-----------
1,634,069
-----------
Electronics (4.12%)
Emerson Electric Co. .............................. 4,000 229,750
General Electric Co. .............................. 2,000 200,625
Intel Corp. ....................................... 2,500 299,844
-----------
730,219
-----------
Finance (2.63%)
Household International, Inc. ..................... 11,500 467,188
-----------
Food (4.61%)
Bestfoods ......................................... 5,000 234,688
Nabisco Holdings Corp. (Class A) .................. 5,800 257,375
Sara Lee Corp. .................................... 12,000 326,250
-----------
818,313
-----------
Furniture (2.12%)
Leggett & Platt, Inc. ............................. 18,000 376,875
-----------
Insurance (7.87%)
American International Group, Inc. ................ 4,500 512,719
ReliaStar Financial Corp. ......................... 9,600 435,600
UNUM Corp. ........................................ 10,000 447,500
-----------
1,395,819
-----------
Leisure (1.67%)
Hasbro, Inc. ...................................... 8,000 296,000
-----------
Machinery (2.99%)
Pentair, Inc. ..................................... 14,000 530,250
-----------
Media (3.07%)
Gannett Co., Inc. ................................. 6,000 381,000
McGraw-Hill Cos., Inc. (The) ...................... 1,500 164,156
-----------
545,156
-----------
Medical (14.41%)
Abbott Laboratories ............................... 10,200 473,662
Baxter International, Inc. ........................ 5,500 387,063
Becton, Dickinson & Co. ........................... 6,000 201,000
Bristol-Myers Squibb Co. .......................... 3,700 465,968
Johnson & Johnson ................................. 4,000 341,500
Merck & Co., Inc. ................................. 2,200 179,850
Pfizer, Inc. ...................................... 1,300 171,519
Schering-Plough Corp. ............................. 6,000 335,624
-----------
2,556,186
-----------
Mortgage Banking (0.99%)
Fannie Mae ........................................ 2,500 175,000
-----------
Office (4.56%)
Pitney Bowes, Inc. ................................ 6,700 423,356
Xerox Corp. ....................................... 7,000 386,313
-----------
809,669
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust - Dividend Performers Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Oil & Gas (4.04%)
Conoco, Inc. (Class A)* ........................... 10,700 $217,344
Mobil Corp. ....................................... 6,000 499,124
-----------
716,468
-----------
Retail (13.40%)
Albertson's, Inc. ................................. 4,000 228,000
Dayton Hudson Corp. ............................... 9,000 563,063
Home Depot, Inc. (The) ............................ 8,000 477,500
Lowe's Cos., Inc. ................................. 6,000 355,875
SYSCO Corp. ....................................... 17,500 494,375
Wal-Mart Stores, Inc. ............................. 3,000 259,125
-----------
2,377,938
-----------
Soap & Cleaning Preparations (1.80%)
Ecolab, Inc. ...................................... 8,000 319,000
-----------
Telecommunications (1.04%)
Bell Atlantic Corp. ............................... 3,200 183,800
-----------
Tobacco (1.98%)
Philip Morris Cos., Inc. .......................... 9,000 352,125
-----------
Utilities (4.15%)
ALLTEL Corp. ...................................... 7,000 419,125
SBC Communications, Inc. .......................... 6,000 317,250
-----------
736,375
-----------
TOTAL COMMON STOCKS
(Cost $13,768,526) (98.00%) 17,388,419
-------- -----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (3.26%)
Investment in a joint repurchase
agreement transaction with ABN AMRO,
Inc. - Dated 02-26-99, due 03-01-99
(Secured by U.S. Treasury Bonds, 8.750%
and 11.875%, due 11-15-03 and 05-15-20
and U.S. Treasury Notes, 5.500% thru
7.875%, due 05-31-02 thru 08-15-07) -
Note A ................................. 4.750% $578 578,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.500% .................... 875
-----------
TOTAL SHORT-TERM INVESTMENTS (3.26%) 578,875
-------- -----------
TOTAL INVESTMENTS (101.26%) 17,967,294
-------- -----------
OTHER ASSETS AND LIABILITIES, NET (1.26%) (224,450)
-------- -----------
TOTAL NET ASSETS (100.00%) $17,742,844
======== ===========
* Non-income producing security.
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.
48
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust - Multi-Sector Growth Fund
Schedule of Investments
February 28, 1999
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Multi-Sector Growth Fund on February 28, 1999. 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 (2.22%)
Lamar Advertising Co.* ............................ 3,450 $133,256
Outdoor Systems, Inc.* ............................ 8,500 237,469
-----------
370,725
-----------
Banks - United States (4.61%)
First American Corp. .............................. 3,900 158,194
First Tennessee National Corp. .................... 3,650 138,928
Firstar Corp. ..................................... 550 46,062
FirstMerit Corp. .................................. 3,200 78,200
Northern Trust Corp. .............................. 2,500 223,438
Wilmington Trust Corp. ............................ 2,200 124,712
-----------
769,534
-----------
Broker Services (2.17%)
Schwab (Charles) Corp. ............................ 4,850 361,628
-----------
Business Services - Misc. (2.65%)
Interim Services, Inc. * .......................... 7,100 134,900
Metzler Group, Inc. (The)* ........................ 900 38,250
Modis Professional Services, Inc.* ................ 9,400 128,662
Select Appointments Holdings Plc,
American Depositary Receipts (ADR)
(United Kingdom) ................................. 2,286 59,722
Snyder Communications, Inc. ....................... 2,350 80,487
-----------
442,021
-----------
Computers (22.45%)
3Com Corp.* ....................................... 3,550 111,603
Ascend Communications, Inc.* ...................... 3,680 283,130
BMC Software, Inc.* ............................... 3,350 136,931
Cadence Design Systems, Inc.* ..................... 4,200 101,062
Cambridge Technology Partners, Inc.* .............. 700 17,587
Ceridian Corp. .................................... 1,050 75,206
Citrix Systems, Inc.* ............................. 2,400 185,100
Computer Sciences Corp.* .......................... 2,050 136,581
Compuware Corp.* .................................. 2,900 162,219
DST Systems, Inc.* ................................ 3,150 170,887
EMC Corp.* ........................................ 2,550 261,056
E*TRADE Group, Inc.* .............................. 1,850 85,100
Edwards (J.D.) & Co.* ............................. 5,200 82,225
Fiserv, Inc.* ..................................... 3,700 173,900
i2 Technologies, Inc.* ............................ 5,000 124,687
IDX Systems Corp.* ................................ 1,050 24,937
Inktomi Corp.* .................................... 850 52,806
Keane, Inc. ....................................... 4,100 126,844
Lexmark International Group, Inc. (Class A)* ...... 1,625 167,680
Micron Electronics, Inc.* ......................... 6,700 96,312
Novell, Inc.* ..................................... 9,300 180,187
Quantum Corp.* .................................... 7,425 122,048
SunGard Data Systems, Inc.* ....................... 5,200 206,050
Unisys Corp.* ..................................... 4,450 132,666
Wang Laboratories, Inc.* .......................... 7,800 186,225
Yahoo!, Inc.* ..................................... 2,240 343,840
-----------
3,746,869
-----------
Cosmetics & Personal Care (0.98%)
Dial Corp. (The) .................................. 5,595 163,304
-----------
Diversified Operations (0.58%)
Corning, Inc. ..................................... 1,800 96,300
-----------
Electronics (8.45%)
Altera Corp.* ..................................... 1,270 61,754
Analog Devices, Inc.* ............................. 950 23,809
Applied Materials, Inc.* .......................... 1,185 65,916
CIENA Corp.* ...................................... 4,450 124,044
Conexant Systems, Inc.* ........................... 8,400 142,800
Jabil Circuit, Inc.* .............................. 4,410 143,876
KLA-Tencor Corp.* ................................. 1,560 80,827
Linear Technology Corp. ........................... 1,800 78,862
Maxim Intergrated Products, Inc.* ................ 1,500 62,531
Novellus Systems, Inc.* ........................... 2,400 141,750
Sanmina Corp.* .................................... 1,470 76,807
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust - Multi-Sector Growth Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Electronics (continued)
Teradyne, Inc.* ................................... 2,200 $104,775
Vitesse Semiconductor Corp.* ...................... 750 34,453
Waters Corp.* ..................................... 2,075 193,105
Xilinx, Inc.* ..................................... 1,060 73,935
-----------
1,409,244
-----------
Finance (2.39%)
Charter One Financial, Inc. ....................... 5,145 148,240
Concord EFS, Inc.* ................................ 4,165 133,020
FINOVA Group, Inc. (The) .......................... 2,300 116,869
-----------
398,129
-----------
Funeral Services & Related (0.18%)
Loewen Group, Inc. (Canada) ....................... 15,900 30,806
-----------
Furniture (0.95%)
Leggett & Platt, Inc. ............................. 7,600 159,125
-----------
Household (0.93%)
WestPoint Stevens, Inc.* .......................... 6,100 155,550
-----------
Insurance (4.39%)
Ace, Ltd. (Bermuda) ............................... 5,100 138,975
Allmerica Financial Corp. ......................... 1,000 53,375
Horace Mann Educators Corp. ....................... 3,500 82,031
Mutual Risk Management Ltd. ....................... 4,550 166,359
Progressive Corp. (The) ........................... 600 77,100
Reinsurance Group of America, Inc. ................ 3,200 169,800
UNUM Corp. ........................................ 1,000 44,750
-----------
732,390
-----------
Leisure (0.75%)
Hasbro, Inc. ...................................... 3,400 125,800
-----------
Media (2.98%)
Chancellor Media Corp.* ........................... 4,200 183,750
Clear Channel Communications, Inc.* ............... 850 51,000
Heftel Broadcasting Corp. (Class A)* .............. 2,025 83,531
Infinity Broadcasting Corp. (Class A)* ............ 1,900 45,125
Univision Communications, Inc. (Class A)* ......... 3,300 134,475
-----------
497,881
-----------
Medical (12.62%)
Becton, Dickinson & Co. ........................... 2,150 72,025
Cardinal Health, Inc. ............................. 3,035 219,089
Elan Corp., Plc (ADR) (Ireland)* .................. 2,227 170,783
Forest Laboratories, Inc.* ........................ 3,400 168,088
Genzyme Corp.* .................................... 2,400 108,000
Genzyme Molecular Oncology* ....................... 845 3,222
Guidant Corp. ..................................... 4,900 279,300
HCR Manor Care, Inc.* ............................. 5,600 125,300
Health Management Associates, Inc. (Class A)* ..... 7,700 99,619
HEALTHSOUTH Corp.* ................................ 12,900 149,963
McKesson HBOC, Inc. ............................... 4,500 306,000
Mylan Laboratories, Inc. .......................... 8,405 229,562
Omnicare, Inc. .................................... 5,000 119,688
Total Renal Care Holdings, Inc.* .................. 6,200 55,025
-----------
2,105,664
-----------
Oil & Gas (1.61%)
Anadarko Petroleum Corp. .......................... 1,400 38,500
Apache Corp. ...................................... 4,800 95,700
Cooper Cameron Corp.* ............................. 1,600 37,000
Noble Affiliates, Inc. ............................ 2,400 54,300
Santa Fe International Corp. ...................... 3,200 42,800
-----------
268,300
-----------
Pollution Control (1.56%)
US Filter Corp.* .................................. 5,700 140,006
Waste Management, Inc. ............................ 2,450 119,744
-----------
259,750
-----------
Retail (8.90%)
Amazon.com, Inc.* ................................. 1,500 192,188
AutoZone, Inc.* ................................... 1,450 50,750
Best Buy Co., Inc.* ............................... 1,050 97,388
CVS Corp. ......................................... 1,750 92,750
Circuit City Stores-Circuit City Group ............ 2,300 124,775
Kohl's Corp.* ..................................... 2,400 165,600
Meyer (Fred), Inc. * .............................. 2,550 163,838
SYSCO Corp. ....................................... 2,100 59,325
Saks, Inc.* ....................................... 4,750 170,703
Staples, Inc.* .................................... 5,700 167,616
TJX Cos., Inc. .................................... 4,750 135,672
Williams-Sonoma, Inc.* ............................ 1,900 64,956
-----------
1,485,561
-----------
Soap & Cleaning Preparations (0.82%)
Clorox Co. ........................................ 1,150 136,059
-----------
Telecommunications (8.97%)
American Tower Corp. (Class A) .................... 6,400 171,600
Comverse Technology, Inc.* ........................ 2,450 175,788
Global Crossing Ltd.* ............................. 2,450 144,550
Global TeleSystems Group, Inc.* ................... 1,200 66,600
ICG Communications, Inc.* ......................... 6,200 116,638
Intermedia Communications, Inc.* .................. 5,900 106,938
SEE NOTES TO FINANCIAL STATEMENTS.
50
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust - Multi-Sector Growth Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Telecommunications (continued)
McLeodUSA, Inc. (Class A)* ........................ 4,505 $173,443
Nextel Communications, Inc. (Class A)* ............ 3,600 108,225
NEXTLINK Communications, Inc. (Class A)* .......... 3,950 180,713
Qwest Communications International, Inc.* ......... 3,000 184,313
Tel-Save.com, Inc.* ............................... 6,900 68,569
-----------
1,497,377
-----------
Textile (0.62%)
Jones Apparel Group, Inc.* ........................ 3,700 103,369
-----------
Utilities (1.10%)
ALLTEL Corp. ...................................... 1,425 85,322
Montana Power Co. ................................. 1,600 97,400
-----------
182,722
-----------
Waste Disposal Service & Equip. (0.85%)
Republic Services, Inc. (Class A)* ................ 8,100 141,244
-----------
TOTAL COMMON STOCKS
(Cost $14,586,215) (93.73%) 15,639,352
-------- -----------
INTEREST PAR VALUE
RATE (000s OMITTED)
---- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (4.74%)
Investment in a joint repurchase
agreement transaction with ABN
AMRO, Inc. - Dated 02-26-99, due
03-01-99 (Secured by U.S. Treasury
Bonds, 8.750% and 11.875%,
due 11-15-03 and 05-15-20 and
U.S. Treasury Notes, 5.500% thru
7.875%, due 05-31-02 thru
08-15-07) - Note A ..................... 4.750% $791 791,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.500% .................... 421
-----------
TOTAL SHORT-TERM INVESTMENTS (4.74%) 791,421
-------- -----------
TOTAL INVESTMENTS (98.47%) 16,430,773
-------- -----------
OTHER ASSETS AND LIABILITIES, NET (1.53%) 255,812
-------- -----------
TOTAL NET ASSETS (100.00%) $16,686,585
======== ===========
* 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, 1999 assigned to country
categories.
MARKET VALUE AS A
PERCENTAGE OF
COUNTRY DIVERSIFICATION FUND'S NET ASSETS
- ----------------------- -----------------
Bermuda ....................................................... 0.83%
Canada ........................................................ 0.18
Ireland ....................................................... 1.02
United Kingdom ................................................ 0.36
United States ................................................. 91.34
Short-Term Investments ........................................ 4.74
-----
TOTAL INVESTMENTS 98.47%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
51
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust -
Small Capitalization Growth Fund
Schedule of Investments
February 28, 1999
- -------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Small Capitalization Growth Fund on February 28, 1999. It's divided into two
main categories: common stocks and short-term investments. Common stocks are
further broken down by industry groups. Short-term investments, which represent
the Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Advertising (1.51%)
Catalina Marketing Corp.* ......................... 250 $16,094
Getty Images, Inc. * .............................. 1,100 21,037
-----------
37,131
-----------
Automobile/Trucks (1.54%)
Gentex Corp.* ..................................... 700 15,181
United Rentals, Inc. * ............................ 700 22,531
-----------
37,712
-----------
Banks - United States (0.58%)
Greater Bay Bancorp ............................... 500 14,187
-----------
Beverages (0.49%)
Beringer Wine Estates Holdings, Inc. (Class B)* ... 300 12,094
-----------
Building (0.61%)
Crossmann Communities, Inc.* ...................... 600 15,000
-----------
Business Services - Miscellaneous (13.35%)
Abacus Direct Corp.* .............................. 350 23,712
AHL Services, Inc. * .............................. 500 13,062
Charles River Associates, Inc.* ................... 600 16,725
Coinstar, Inc.* ................................... 450 7,087
Corporate Executive Board Co. (The)* .............. 400 9,800
First Consulting Group, Inc* ...................... 750 10,594
Forrester Research, Inc.* ......................... 500 17,250
INSpire Insurance Solutions, Inc.* ................ 1,150 18,687
Intraware, Inc.* .................................. 50 944
Lason, Inc.* ...................................... 250 13,547
MAXIMUS, Inc.* .................................... 400 11,175
MedQuist, Inc.* ................................... 600 20,513
META Group, Inc. * ................................ 1,000 22,375
Metro Networks, Inc.* ............................. 300 13,500
Metzler Group, Inc. (The) * ....................... 400 17,000
Nielsen Media Research, Inc. ...................... 900 17,663
On Assignment, Inc.* .............................. 600 21,300
ProBusiness Services, Inc.* ....................... 500 16,625
Professional Detailing, Inc.* ..................... 600 18,675
Profit Recovery Group International, Inc. (The) * . 600 19,800
Provant, Inc.* .................................... 700 13,563
Veritas DGC, Inc.* ................................ 400 3,775
-----------
327,372
-----------
Computers (20.42%)
AboveNet Communications, Inc.* .................... 700 21,875
Advent Software, Inc.* ............................ 500 23,062
AnswerThink Consulting Group, Inc.* ............... 700 20,300
Apex PC Solutions, Inc.* .......................... 600 14,700
Aspect Development, Inc.* ......................... 700 21,350
BindView Development Corp.* ....................... 800 18,000
Bottomline Technologies, Inc.* .................... 100 2,100
Cognizant Technology Solutions Corp.* ............. 650 27,950
Concentric Network Corp. * ........................ 300 13,162
Dendrite International, Inc.* ..................... 600 16,875
Exodus Communications, Inc.* ...................... 150 11,006
Fundtech Ltd. (Israel)* ........................... 970 20,249
Healtheon Corp.* .................................. 100 2,700
HNC Software, Inc.* ............................... 600 16,125
IMRglobal Corp.* .................................. 575 10,422
International Network Services, Inc.* ............. 300 15,337
Manhattan Associates, Inc. * ...................... 750 12,375
Micromuse, Inc. * ................................. 100 3,225
Modem Media Poppe Tyson, Inc.* .................... 200 5,375
National Computer Systems, Inc. ................... 600 19,219
National Instruments Corp.* ....................... 350 10,194
Network Appliance, Inc.* .......................... 500 21,000
ONYX Software Corp.* .............................. 100 1,856
Pacific Internet Ltd. (Singapore) ................ 100 2,988
pcOrder.com, Inc.* ................................ 50 2,356
Prodigy Communications Corp.* ..................... 100 3,888
PSINet, Inc.* ..................................... 300 10,744
RealNetworks, Inc.* ............................... 250 17,531
SCM Microsystems, Inc.* ........................... 300 24,900
SOFTWORKS, Inc.* .................................. 1,000 8,875
SportsLine USA, Inc.* ............................. 200 9,000
SEE NOTES TO FINANCIAL STATEMENTS.
52
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust -
Small Capitalization Growth Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Computers (continued)
Symantec Corp.* ................................... 600 $10,838
Verio, Inc.* ...................................... 500 14,188
VeriSign, Inc.* ................................... 100 9,800
VerticalNet, Inc.* ................................ 100 4,125
Vignette Corp.* ................................... 100 5,425
WebTrends Corp.* .................................. 100 2,513
Whittman-Hart, Inc.* .............................. 900 28,181
Wind River Systems, Inc.* ......................... 750 17,109
-----------
500,918
-----------
Electronics (7.54%)
ATMI, Inc.* ....................................... 850 19,337
Credence Systems Corp.* ........................... 700 14,787
DuPont Photomasks, Inc.* .......................... 300 11,775
Flextronics International Ltd.* ................... 500 18,844
Level One Communications, Inc.* ................... 600 20,100
Micrel, Inc.* ..................................... 300 13,500
Novellus Systems, Inc.* ........................... 250 14,766
PMC-Sierra, Inc.* (Canada) ........................ 200 14,175
Powerwave Technologies, Inc.* ..................... 400 9,400
PRI Automation, Inc.* ............................. 500 15,000
Rambus, Inc.* ..................................... 250 18,172
Semtech Corp.* .................................... 500 15,188
-----------
185,044
-----------
Finance (1.94%)
Financial Federal Corp.* .......................... 300 5,906
Gabelli Asset Management, Inc. (Class A)* ......... 250 3,672
Medallion Financial Corp. ......................... 1,100 17,050
Raymond James Financial, Inc. ..................... 350 6,388
TeleBanc Financial Corp.* ......................... 350 14,525
-----------
47,541
-----------
Food (1.04%)
American Italian Pasta Co. (Class A)* ............. 1,000 25,500
-----------
Funeral Services & Related (0.52%)
Carriage Service, Inc. (Class A)* ................ 700 12,819
-----------
Leasing (0.55%)
Rental Service Corp.* ............................. 600 13,350
-----------
Leisure (3.75%)
Cinar Films, Inc. (Class B)* (Canada) ............. 1,100 22,825
Imax Corp.* (Canada) .............................. 900 16,087
Premier Parks, Inc.* .............................. 700 20,388
Steiner Leisure Ltd.* ............................. 750 22,125
Travel Services International, Inc.* .............. 700 10,675
-----------
92,100
-----------
Linen Supply & Related (0.61%)
G & K Services, Inc. (Class A) .................... 300 14,962
-----------
Machinery (0.49%)
Applied Power, Inc. (Class A) ..................... 500 12,062
-----------
Media (4.84%)
Adelphia Communications Corp. (Class A)* .......... 500 28,187
Entercom Communications Corp.* .................... 100 3,137
Heftel Broadcasting Corp. (Class A)* .............. 300 12,375
Network Event Theater, Inc.* ...................... 1,800 30,713
Pegasus Communications Corp.* ..................... 600 14,625
Saga Communications, Inc. (Class A)* .............. 400 7,300
Wiley (John) & Sons, Inc. (Class A) ............... 500 22,281
-----------
118,618
-----------
Medical (9.88%)
Alkermes, Inc.* ................................... 700 19,644
American Healthcorp, Inc.* ........................ 1,400 15,750
Andrx Corp.* ...................................... 400 27,150
Boron, LePore & Associates, Inc.* ................ 400 5,050
GelTex Pharmaceuticals, Inc.* ..................... 600 10,313
Gilead Sciences, Inc.* ............................ 400 16,500
Hanger Orthopedic Group, Inc.* .................... 300 4,556
Human Genome Sciences, Inc.* ...................... 400 11,950
IDEC Pharmaceuticals Corp.* ....................... 400 17,325
Inhale Therapeutic Systems, Inc. * ................ 500 13,750
Millennium Pharmaceuticals, Inc.* ................ 200 6,213
MiniMed, Inc.* .................................... 150 12,788
Neurogen Corp.* ................................... 700 8,313
Perclose, Inc.* ................................... 500 21,125
Pharmacyclics, Inc.* .............................. 600 11,400
Renal Care Group, Inc.* ........................... 850 16,841
Res-Care, Inc.* ................................... 700 16,625
Vertex Pharmaceuticals, Inc.* ..................... 300 7,050
-----------
242,343
-----------
Oil & Gas (1.37%)
Core Laboratories N.V.* (Netherlands) ............. 700 12,906
Dril-Quip, Inc.* .................................. 500 6,375
National-Oilwell, Inc.* ........................... 500 4,438
Newfield Exploration Co.* ......................... 600 9,750
-----------
33,469
-----------
Pollution Control (0.66%)
Newpark Resources, Inc.* .......................... 1,100 5,775
Tetra Tech, Inc.* ................................. 550 10,484
-----------
16,259
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
53
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust -
Small Capitalization Growth Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Printing - Commercial (1.09%)
Consolidated Graphics, Inc.* ...................... 300 $18,225
Mail-Well, Inc.* .................................. 600 8,475
-----------
26,700
-----------
Retail (11.48%)
Abercrombie & Fitch Co. (Class A)* ................ 250 19,000
Applebee's International, Inc. .................... 300 7,781
bebe stores, inc.* ................................ 500 15,562
Buckle, Inc. (The)* ............................... 500 12,219
CSK Auto Corp.* ................................... 654 22,440
Duane Reade, Inc.* ................................ 400 12,100
Eagle Hardware & Garden, Inc.* .................... 500 18,781
Ethan Allen Interiors, Inc. ....................... 300 13,500
Garden Fresh Restaurant Corp.* .................... 1,000 15,313
Hot Topic, Inc.* .................................. 600 8,475
Linens `N Things, Inc.* ........................... 400 14,400
99 Cents Only Stores* ............................. 406 19,209
Noodle Kidoodle, Inc.* ............................ 1,400 11,200
O'Reilly Automotive, Inc.* ........................ 400 17,575
P.F. Chang's China Bistro, Inc.* .................. 700 16,800
Pacific Sunwear of California, Inc.* .............. 500 14,250
Select Comfort Corp.* ............................. 500 11,938
Whole Foods Market, Inc.* ......................... 400 12,350
Wild Oats Markets, Inc.* .......................... 700 18,725
-----------
281,618
-----------
Schools / Education (2.18%)
Education Management Corp.* ....................... 800 21,500
ITT Educational Services, Inc.* ................... 550 20,041
Strayer Education, Inc. ........................... 350 11,944
-----------
53,485
-----------
Telecommunications (8.30%)
Allegiance Telecom, Inc.* ......................... 1,000 23,938
Crown Castle International Corp.* ................ 1,000 17,000
Global TeleSystems Group, Inc.* ................... 250 13,875
L-3 Communications Holdings, Inc.* ................ 200 8,575
Metromedia Fiber Network, Inc. (Class A)* ......... 500 21,750
Microwave Power Devices, Inc.* .................... 1,300 13,000
NEXTLINK Communications, Inc. (Class A)* .......... 600 27,450
P-Com, Inc.* ...................................... 1,400 8,881
Quanta Services, Inc.* ............................ 600 16,200
RF Micro Devices, Inc.* ........................... 400 30,800
Transaction Network Services, Inc.* ............... 800 15,700
WinStar Communications, Inc.* ..................... 200 6,300
-----------
203,469
-----------
Textile (0.85%)
Cutter & Buck, Inc.* .............................. 700 20,737
-----------
Transportation (3.64%)
Carey International, Inc.* ........................ 900 15,806
Eagle USA Airfreight, Inc.* ....................... 500 14,437
Expeditors International of Washington, Inc. ...... 500 23,281
MotivePower Industries, Inc.* ..................... 700 19,294
United Road Services, Inc.* ....................... 1,000 16,500
-----------
89,318
-----------
Waste Disposal Service & Equipment (0.65%)
Waste Connections, Inc.* .......................... 800 16,000
-----------
TOTAL COMMON STOCKS
(Cost $1,994,805) (99.88%) 2,449,808
-------- -----------
SEE NOTES TO FINANCIAL STATEMENTS.
54
<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 (0.45%)
Investment in a joint repurchase
agreement transaction with ABN
AMRO, Inc. - Dated 02-26-99, due
03-01-99 (Secured by U.S. Treasury
Bonds, 8.750% and 11.875%, due 11-15-03
and 05-15-20 and U.S. Treasury Notes,
5.500% thru 7.875%, due 05-31-02
thru 08-15-07) - Note A ................. 4.750% $11 $11,000
-----------
Corporate Savings Account (0.02%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.500% ..................... 660
-----------
TOTAL SHORT-TERM INVESTMENTS (0.47%) 11,660
-------- -----------
TOTAL INVESTMENTS (100.35%) 2,461,468
-------- -----------
OTHER ASSETS AND LIABILITIES, NET (0.35%) (8,677)
-------- -----------
TOTAL NET ASSETS (100.00%) $2,452,791
======== ===========
* Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
55
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust -
Small Capitalization Value Fund
Schedule of Investments
February 28, 1999
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Small Capitalization Value Fund on February 28, 1999. It's divided into three
main categories: common stocks, preferred stocks and short-term investments.
Common and preferred stocks are further broken down by industry groups.
Short-term investments, which represent the Fund's "cash" position, are listed
last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Advertising (2.37%)
Donnelley (R.H.) Corp. ............................ 5,500 $82,500
Penton Media, Inc. ................................ 5,000 93,437
-----------
175,937
-----------
Banks - United States (3.00%)
HUBCO, Inc. ....................................... 2,521 82,720
Summit Bancshares, Inc. ........................... 8,000 140,000
-----------
222,720
-----------
Broker Services (1.97%)
Jefferies Group, Inc. ............................. 3,700 145,919
-----------
Building (0.27%)
Coachmen Industries, Inc. ......................... 1,000 20,250
-----------
Business Services - Misc. (4.93%)
Nielsen Media Research ............................ 18,633 365,679
-----------
Computers (13.33%)
Data General Corp. * .............................. 22,000 303,875
FDP Corp. ......................................... 5,000 80,938
Fundtech Ltd.* .................................... 100 2,088
IMRglobal Corp.* .................................. 15,000 271,875
Pathways Group, Inc. (The)* ....................... 3,000 44,625
Wind River Systems, Inc.* ......................... 12,500 285,156
-----------
988,557
-----------
Electronics (11.10%)
Amphenol Corp. (Class A)* ......................... 3,000 107,437
ANADIGICS, Inc.* .................................. 7,000 99,313
CommScope, Inc. * ................................. 8,000 148,500
Etec Systems, Inc. * .............................. 1,000 44,313
Oak Industries, Inc.* ............................. 8,700 275,681
Vicor Corp.* ...................................... 13,300 147,962
-----------
823,206
-----------
Energy (4.41%)
Calpine Corp.* .................................... 10,000 327,500
-----------
Finance (13.25%)
Core Cap, Inc. (Class A) (r) ...................... 11,100 159,840
Duff & Phelps Credit Rating Co. ................... 1,400 76,388
Eaton Vance Corp. ................................. 7,500 147,656
Federated Investors, Inc. (Class B) ............... 9,000 172,687
FIRSTPLUS Financial Group, Inc.* .................. 8,000 11,000
Pioneer Group, Inc. (The)* ........................ 20,000 326,250
Staten Island Bancorp., Inc. ...................... 5,000 89,375
-----------
983,196
-----------
Instruments - Scientific (2.25%)
Millipore Corp. ................................... 6,000 167,250
-----------
Insurance (9.52%)
Allmerica Financial Corp. ......................... 2,300 122,762
American Bankers Insurance Group, Inc. ............ 3,000 144,000
CMAC Investment Corp. ............................. 5,250 216,891
HCC Insurance Holdings, Inc. ...................... 4,000 69,500
Horace Mann Educators Corp. ....................... 2,000 46,875
Reinsurance Group of America, Inc. ................ 2,000 106,125
-----------
706,153
-----------
Leisure (0.29%)
Equity Marketing, Inc.* ........................... 3,800 21,613
-----------
Machinery (3.05%)
Applied Science & Technology, Inc.* ............... 13,600 158,100
SPX Corp.* ........................................ 1,200 68,550
-----------
226,650
-----------
Manufacturing (0.75%)
Dexter Corp. (The) ................................ 2,000 55,500
-----------
Media (0.68%)
N.V. Holdingmaatschappij De Telegraaf
(Netherlands) .................................... 2,000 50,165
-----------
Medical (5.97%)
DENTSPLY International, Inc. ...................... 4,000 102,000
Shire Pharmaceuticals Group Plc*
(United Kingdom) ................................. 27,000 181,235
Total Renal Care Holdings, Inc. * ................. 18,000 159,750
-----------
442,985
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
56
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust -
Small Capitalization Value Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Oil & Gas (1.06%)
Veritas DGC, Inc.* ................................ 8,300 $78,331
-----------
Pollution Control (0.60%)
Newpark Resources, Inc.* .......................... 8,500 44,625
-----------
Retail (3.89%)
Elder-Beerman Stores Corp. (The)* ................ 16,150 127,687
Whole Foods Market, Inc.* ......................... 5,200 160,550
-----------
288,237
-----------
Telecommunications (7.84%)
Cable Design Technologies* ........................ 3,000 38,813
Commonwealth Telephone Enterprises, Inc.* ......... 12,500 404,687
RCN Corp.* ........................................ 5,750 138,000
-----------
581,500
-----------
Waste Disposal Service & Equipment (0.54%)
Waste Systems International, Inc.* ................ 7,800 39,975
-----------
TOTAL COMMON STOCKS
(Cost $6,701,075) (91.07%) 6,755,948
-------- -----------
PREFERRED STOCKS
Broker Services (4.64%)
Salomon, Inc., Ser FSA, 7.625% .................... 8,000 344,000
-----------
Finance (3.50%)
Core Cap, Inc., Ser A/I, 10.00% (r) ............... 11,100 259,740
-----------
TOTAL PREFERRED STOCKS
(Cost $494,225) (8.14%) 603,740
-------- -----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (0.71%)
Investment in a joint repurchase
agreement transaction with ABN
AMRO, Inc. - Dated 02-26-99, due
03-01-99 (Secured by U.S. Treasury
Bonds, 8.750% and 11.875%,
due 11-15-03 and 05-15-20 and
U.S. Treasury Notes, 5.500% thru
7.875%, due 05-31-02 thru
08-15-07) - Note A .................... 4.750% $53 $53,000
-----------
Corporate Savings Account (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.500% ................... 563
-----------
TOTAL SHORT-TERM INVESTMENTS (0.72%) 53,563
-------- -----------
TOTAL INVESTMENTS (99.93%) 7,413,251
-------- -----------
OTHER ASSETS AND LIABILITIES (0.07%) 4,871
-------- -----------
TOTAL NET ASSETS (100.00%) $7,418,122
======== ===========
* Non-income producing security.
(r) The securities listed below are direct placement securities and are
restricted as to resale. The Fund has limited rights to registration under
the Securities Act of 1933 with respect to restricted securities (not
including rule 144A securities). In certain circumstances the Fund may
bear a portion of the cost of such registrations; otherwise, such costs
would be borne by the issuer. Additional information on these restricted
securities is as follows:
<TABLE>
<CAPTION>
MARKET VALUE
AS A PERCENTAGE MARKET VALUE
ACQUISITION ACQUISITION OF FUND'S AS OF
DATE COST NET ASSETS FEBRUARY 28, 1999
---- ---- ---------- -----------------
<S> <C> <C> <C> <C>
Core Cap, Inc. (Common) 10-31-97 $222,000 2.15% $159,840
Core Cap, Inc. (Preferred) 10-31-97 277,500 3.50 259,740
</TABLE>
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
57
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust - International Equity Fund
Schedule of Investments
February 28, 1999
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
International Equity Fund on February 28, 1999. It's divided into four main
categories: common stocks, warrants, preferred stock and short-term investments.
Common stocks, warrants and preferred stocks 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 (2.69%)
Australia & New Zealand Banking Group Ltd.,
American Depositary Receipts (ADR)
(Banks - Foreign) ................................ 2 $64
National Australia Bank Ltd. (Banks - Foreign) .... 1,839 30,663
News Corp., Ltd. (The) (Media) .................... 3,500 24,561
News Corp., Ltd. (The) (ADR) (Media) .............. 725 20,572
Normandy Mining Ltd. (Metal) ...................... 29,475 25,259
Telstra Corp., Ltd. (Telecommunications) .......... 16,792 85,675
Westpac Banking Corp., Ltd. (Banks - Foreign) ..... 3,500 23,141
-----------
209,935
-----------
Belgium (4.62%)
Electrabel SA (Utilities) ......................... 300 125,332
Fortis (B) (Insurance) ............................ 1,917 69,865
Fortis (B) (Certificate De Valeur Garantie)
(Insurance)* ..................................... 63 298
Fortis (B) (Insurance)* ........................... 567 6
PetroFina SA (Oil & Gas) .......................... 120 55,568
Tractebel SA (Utilities) .......................... 620 109,265
-----------
360,334
-----------
Canada (0.54%)
Bombardier, Inc. (Class B) (Diversified Operations) 2,940 43,181
Royal Bank of Canada (Banks - Foreign) ............ 1 49
-----------
43,230
-----------
Denmark (0.82%)
Novo Nordisk A/S (Medical) ........................ 292 33,550
Tele Danmark A/S (Telecommunications) ............. 250 30,092
-----------
63,642
-----------
Finland (2.45%)
Nokia AB (Telecommunications) ..................... 1,394 190,957
-----------
France (16.66%)
Accor SA (Leisure) ................................ 95 22,142
Axa SA (Insurance) ................................ 1,214 158,559
Banque Nationale de Paris (Banks - Foreign) ....... 489 39,084
Cap Gemini SA (Computers) ......................... 240 41,557
Carrefour SA (Retail) ............................. 30 21,405
Castorama Dubois Investissements SA (Retail) ...... 210 44,328
Danone SA (Food) .................................. 460 114,749
Elf Aquitaine SA (Oil & Gas) ...................... 872 91,074
Etablissements Economiques du Casino
Guichard-Perrachon SA (Retail) ................... 308 28,342
France Telecom SA (Telecommunications) ............ 920 86,226
Legrand SA (Electronics) .......................... 96 19,747
L'Oreal SA (Cosmetics & Personal Care) ............ 214 131,752
Pinault-Printemps-Redoute SA (Retail) ............. 581 96,515
Promodes SA (Retail) .............................. 63 40,207
Renault SA (Automobile/Trucks) .................... 364 17,008
Schneider SA (Machinery) .......................... 270 15,881
Suez Lyonnaise des Eaux SA
(Diversified Operations) ......................... 570 114,114
Total SA (Oil & Gas) .............................. 598 62,457
Vivendi SA (Diversified Operations) ............... 594 155,098
-----------
1,300,245
-----------
Germany (5.85%)
Allianz AG (Insurance) ............................ 358 108,669
Bayerische Hypo- und Vereinsbank AG
(Banks - Foreign) ................................ 1,001 56,786
DaimlerChrysler AG (Automobile/Trucks)* ........... 396 37,071
Deutsche Telekom AG (Telecommunications) .......... 859 39,475
Fresenius AG (Medical) ............................ 102 15,139
Mannesmann AG (Machinery) ......................... 850 114,288
Metro AG (Retail) ................................. 159 11,257
VEBA AG (Diversified Operations) .................. 557 29,761
Viag AG (Diversified Operations) .................. 82 43,840
-----------
456,286
-----------
Hong Kong (0.85%)
Cheung Kong Holdings Ltd. (Real Estate
Operations) ...................................... 2,000 13,617
HSBC Holdings Ltd. (Banks - Foreign) .............. 400 11,255
Hutchison Whampoa Ltd. (Diversified
Operations) ...................................... 2,000 13,875
SEE NOTES TO FINANCIAL STATEMENTS.
58
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust - International Equity Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Hong Kong (continued)
New World Development Co., Ltd.
(Real Estate Operations) ......................... 7,121 $13,098
Swire Pacific Ltd. (Diversified Operations) ....... 3,500 14,321
-----------
66,166
-----------
Ireland (4.18%)
Allied Irish Banks PLC (ADR) (Banks - Foreign) .... 1,743 179,965
Anglo Irish Bank Corp. PLC (Banks - Foreign) ...... 15,471 45,135
CRH PLC (Building) ................................ 4,232 78,396
Irish Life PLC (Insurance) ........................ 2,269 22,940
-----------
326,436
-----------
Italy (5.66%)
Assicurazioni Generali SpA (Insurance) ............ 700 27,089
Banca Popolare di Brescia SpA
(Banks - Foreign) ................................ 2,300 70,548
Ente Nazionale Idrocarburi SpA (Oil & Gas) ........ 6,261 36,138
Istituto Nazionale delle Assicurazioni SpA
(Insurance) ...................................... 20,172 49,011
Telecom Italia Mobile SpA
(Telecommunications) ............................. 12,986 87,374
Telecom Italia SpA (Telecommunications) ........... 9,954 104,947
UniCredito Italiano SpA (Banks - Foreign) ......... 10,475 55,163
Unione Immobiliare SpA (Real Estate
Operations)* ..................................... 20,172 11,199
-----------
441,469
-----------
Japan (12.43%)
Bank of Tokyo-Mitsubishi, Ltd.
(Banks - Foreign) ................................ 3,000 36,170
Bridgestone Corp. (Rubber - Tires & Misc.) ........ 2,000 44,770
Fuji Photo Film Co., Ltd. (Leisure) ............... 1,000 36,761
Fujitsu Ltd. (Computers) .......................... 4,000 49,914
Honda Motor Co., Ltd. (Automobile/Trucks) ......... 2,000 77,063
Ito-Yokado Co., Ltd. (Retail) ..................... 1,000 58,345
Kansai Electric Power Co., Inc. (Utilities) ....... 3,000 57,165
Marui Co., Ltd. (Retail) .......................... 2,000 32,714
Matsushita Electric Industrial Co., Ltd.
(Electronics) .................................... 6,000 100,417
Nippon Telegraph & Telephone Corp.
(Telecommunications) ............................. 13 107,196
Nomura Securities Co., Ltd. (Finance) ............. 4,000 32,916
Sankyo Co., Ltd. (Medical) ........................ 1,000 21,500
Secom Co., Ltd. (Protection - Safety Equip
& Svc.) .......................................... 1,000 77,653
Sony Corp. (Electronics) .......................... 1,200 90,856
Takeda Chemical Industries, Ltd. (Medical) ........ 1,000 34,400
TDK Corp. (Electronics) ........................... 1,000 71,751
Terumo Corp. (Medical) ............................ 2,000 40,808
-----------
970,399
-----------
Netherlands (5.60%)
ABN AMRO Holding NV (ADR) (Banks - Foreign) ....... 159 3,250
AEGON NV (Insurance) .............................. 1,092 114,172
Akzo Nobel NV (Chemicals) ......................... 880 33,426
ING Groep NV (ADR) (Banks - Foreign) .............. 2,102 117,581
Royal KPN NV (Telecommunications) ................ 900 47,296
Royal Philips Electronics NV (Electronics) ........ 1,296 90,476
TNT Post Group NV (Transport) ..................... 900 30,822
-----------
437,023
-----------
Norway (0.68%)
Orkla ASA (Diversified Operations) ................ 3,988 53,425
-----------
Portugal (1.90%)
Electricidade de Portugal SA (Utilities) .......... 2,653 57,284
Portugal Telecom SA (Telecommunications) .......... 1,854 90,928
-----------
148,212
-----------
Singapore (0.61%)
Overseas-Chinese Banking Corp., Ltd.
(Banks - Foreign) ................................ 5,374 35,875
Singapore Telecommunications, Ltd.
(Telecommunications) ............................. 8,000 11,377
-----------
47,252
-----------
Spain (4.05%)
Argentaria SA (Banks - Foreign) ................... 1,856 44,483
Banco Bilbao Vizcaya SA (Banks - Foreign) ......... 2,009 29,795
Banco Santander SA (Banks - Foreign) .............. 52 1,035
Endesa SA (Utilities) ............................. 1,042 27,654
Iberdrola SA (Utilities) .......................... 1,290 20,210
Repsol SA (Oil & Gas) ............................. 431 22,697
Telefonica SA (Telecommunications) ................ 1,986 90,830
TelePizza SA (Retail)* ............................ 9,719 79,604
-----------
316,308
-----------
Sweden (2.11%)
Ericsson (LM) Telefonaktiebolaget
(Telecommunications) ............................. 787 20,857
Investor AB (Diversified Operations) .............. 1,879 76,532
Nordbanken Holding AB (Banks - Foreign) ........... 10,368 62,806
Saab AB (Aerospace)* .............................. 494 4,344
-----------
164,539
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
59
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust - International Equity Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Switzerland (9.14%)
Adecco SA (Business Services - Misc.) ............. 120 $62,953
Barry Callebaut AG (Food) ......................... 116 23,221
Credit Suisse Group (Banks - Foreign) ............. 127 19,725
Nestle SA (Food) .................................. 76 143,480
Novartis AG (Medical) ............................. 75 131,601
Roche Holding AG (Medical) ........................ 7 88,666
UBS AG (Banks - Foreign) .......................... 221 68,800
Zurich Allied AG (Insurance) ...................... 264 175,308
-----------
713,754
-----------
United Kingdom (16.65%)
Allied Zurich PLC (Insurance)* .................... 1,582 23,406
Anglian Water PLC (B shares) (Utilities)* ......... 2,000 1,475
BP Amoco PLC (Oil & Gas) .......................... 6,257 88,612
British Aerospace PLC (Aerospace) ................ 2,880 18,327
British American Tobacco PLC (Tobacco) ............ 1,582 14,442
British Telecommunications PLC
(Telecommunications) ............................. 4,134 71,600
Diageo PLC (Beverages) ............................ 3,888 42,629
Glaxo Wellcome PLC (Medical) ...................... 3,618 115,525
Kingfisher PLC (Retail) ........................... 6,000 76,076
Lloyds TSB Group PLC (Banks - Foreign) ............ 10,022 143,780
Pearson PLC (Media) ............................... 1,941 42,625
Pennon Group PLC (Utilities) ...................... 2,000 33,726
Royal & Sun Alliance Insurance Group PLC
(Insurance) ...................................... 6,303 53,321
Royal Bank of Scotland Group PLC
(Banks - Foreign) ................................ 1,114 21,696
Scottish & Southern Energy PLC (Utilities) ........ 4,000 37,188
SEMA Group PLC (Computers) ........................ 4,973 55,800
SmithKline Beecham PLC (Medical) .................. 9,958 140,866
Tesco PLC (Retail) ................................ 11,000 31,254
Thames Water PLC (Utilities) ...................... 1,200 19,793
Unilever PLC (Consumer Products - Misc.) .......... 10,240 98,813
Vodafone Group PLC (Telecommunications) ........... 7,024 128,917
WPP Group PLC (Advertising) ....................... 2,667 21,119
Zeneca Group PLC (Medical) ........................ 448 18,657
-----------
1,299,647
-----------
TOTAL COMMON STOCKS
(Cost $6,826,588) (97.49%) 7,609,259
-------- -----------
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES OR WARRANTS VALUE
- ------------------- ------------------ -----
WARRANTS
Germany (0.00%)
Muenchener Rueckversicherungs-Gesellschaft
AG (Insurance)* .................................. 2 $76
-----------
TOTAL WARRANTS
(Cost $90) 76
-----------
TOTAL COMMON STOCKS AND WARRANTS
(Cost $6,826,678) (97.49%) 7,609,335
-------- -----------
PREFERRED STOCK
Germany (0.31%)
Henkel KGaA (Chemicals) ........................... 298 23,916
-----------
TOTAL PREFERRED STOCK
(Cost $21,551) (0.31%) 23,916
-------- -----------
INTEREST PAR VALUE
RATE (000s OMITTED)
---- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.54%)
Investment in a joint repurchase
agreement transaction with ABN
AMRO, Inc. - Dated 02-26-98,
due 03-01-99 (Secured by U.S.
Treasury Notes, 5.50% thru 7.50%,
due 07-15-99 thru 08-15-07)
- Note A .............................. 4.75% $120 120,000
-----------
TOTAL SHORT-TERM INVESTMENTS (1.54%) 120,000
-------- -----------
TOTAL INVESTMENTS (99.34%) 7,753,251
-------- -----------
OTHER ASSETS AND LIABILITIES, NET (0.66%) 51,836
-------- -----------
TOTAL NET ASSETS (100.00%) $7,805,087
======== ===========
* 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
Portfolio Concentration (Unaudited)
- --------------------------------------------------------------------------------
The Fund primarily invests in securities issued by companies of other countries.
The performance of the Fund is closely tied to the economic conditions within
the countries in which it invests. The concentration of investments by country
for individual securities held by the Fund is shown in the schedule of
investments. In addition, the concentration of investments can be aggregated by
various industry groups. The table below shows the percentages of the Fund's
investments at February 28, 1999 assigned to the various investment categories.
MARKET VALUE OF SECURITIES
INVESTMENT CATEGORIES AS A % OF NET ASSETS
- --------------------- --------------------
Advertising .......................... 0.27%
Aerospace ............................ 0.29
Automobile/Trucks .................... 1.68
Banks - Foreign ...................... 14.05
Beverages ............................ 0.55
Building ............................. 1.00
Business Services - Misc. ............ 0.81
Chemicals ............................ 0.73
Computers ............................ 1.89
Consumer Products - Misc. ............ 1.27
Cosmetics & Personal Care ............ 1.69
Diversified Operations ............... 6.97
Electronics .......................... 4.78
Finance .............................. 0.42
Food ................................. 3.61
Insurance ............................ 10.28
Leisure .............................. 0.75
Machinery ............................ 1.67
Media ................................ 1.12
Medical .............................. 8.21
Metal ................................ 0.32
Oil & Gas ............................ 4.57
Protection - Safety Equip. & Svc. .... 1.00
Real Estate Operations ............... 0.49
Retail ............................... 6.66
Rubber - Tires & Misc. ............... 0.57
Telecommunications ................... 15.29
Tobacco .............................. 0.19
Transport ............................ 0.40
Utilities ............................ 6.27
Short-Term Investments ............... 1.54
-----
TOTAL INVESTMENTS 99.34%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
61
<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 Dividend
Performers Fund ("Dividend Performers Fund"), John Hancock Multi-Sector Growth
Fund ("Multi-Sector Growth Fund"), John Hancock Small Capitalization Growth Fund
("Small Capitalization Growth Fund"), John Hancock Small Capitalization Value
Fund ("Small Capitalization Value Fund") and John Hancock International Equity
Fund ("International Equity Fund") (each, a "Fund" and collectively, the
"Funds") are separate portfolios of John Hancock Institutional Series Trust (the
"Trust") an open-end management investment company registered under the
Investment Company Act of 1940. Prior to January 1, 1998, Small Capitalization
Growth Fund was known as John Hancock Small Capitalization Equity Fund and Small
Capitalization Value Fund was known as John Hancock Fundamental Value Fund. All
shareholders had redeemed out of the John Hancock Global Bond Fund ("Global Bond
Fund") by the close of business on February 12, 1999, and the Global Bond Fund
was abolished by unanimous consent of the Trustees in March 1999. The Trust,
organized as a Massachusetts business trust in 1994, consists of eleven series
portfolios: the Funds, John Hancock Independence Balanced Fund, John Hancock
Independence Value Fund, John Hancock Independence Diversified Core Equity Fund
II, John Hancock Independence Growth Fund and John Hancock Independence Medium
Capitalization Fund. The other five series of the Trust are reported in separate
financial statements. Each Fund currently has one class of shares with equal
rights as to voting, redemption, dividends and liquidation within their
respective Fund. The Trustees may authorize the creation of additional
portfolios from time to time to satisfy various investment objectives.
The investment objective of the Active Bond Fund is a high rate of total
return, consistent with prudent investment risk. The investment objective of the
Dividend Performers Fund is long-term growth of capital and of income without
assuming undue market risk. The investment objective of the Multi-Sector Growth
Fund is long-term capital appreciation. The investment objective of the Small
Capitalization Growth Fund is long-term growth of capital. The investment
objective of the Small Capitalization Value Fund is capital appreciation with
income as a secondary objective. The investment 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 a joint repurchase agreement transaction. Aggregate
cash balances are invested in one or more repurchase agreements, whose
underlying securities are obligations of the U.S. government and/or its
agencies. The Funds' custodian bank receives delivery of the underlying
securities for the joint account on the Funds' behalf. The Adviser is
responsible for ensuring that the agreement is fully collateralized at all
times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis. Capital gains realized
on some foreign securities are subject to foreign taxes and are accrued, as
applicable.
FEDERAL INCOME TAXES The Funds' policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies 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.
The following Funds had capital loss carryforwards available, to the extent
provided by regulations, to offset future net realized gains. To the extent such
carryforwards are used by the Funds, no capital gain distributions will be made.
62
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Institutional Series Trust
Additionally, net capital losses attributable to security transactions
occurring after October 31, 1998 are treated as arising on the first day (March
1, 1999) of the Funds' next taxable year.
<TABLE>
<CAPTION>
POST 10/31/1998
CURRENCY
CAPITAL LOSS POST 10/31/1998 LOSS TREATED
CARRYFORWARD LOSS TREATED AS AS ARISING
FUND EXPIRES 2/28/07 ARISING 3/1/99 3/1/99
- ---- --------------- -------------- ------
<S> <C> <C> <C>
Active Bond Fund .................. -- $811 --
Dividend Performers Fund .......... -- -- --
Multi-Sector Growth Fund .......... $141,762 -- --
Small Capitalization Growth Fund .. -- -- --
Small Capitalization Value Fund ... 29,564 -- --
International Equity Fund ......... -- -- $20,465
</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.
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. Effective March 12, 1999,
the Funds entered into a syndicated line of credit agreement with various banks,
and the agreements previously in effect were terminated. This agreement enables
the Funds to participate with other funds managed by the Adviser in unsecured
lines of credit with banks, which permit borrowings up to $500 million,
collectively. Interest is charged to each of the funds based on its borrowings.
In addition, a commitment fee is charged based on the average daily unused
portion of the line of credit and is allocated among the participating funds.
The Funds had no borrowing activity for the year ended February 28, 1999.
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
63
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Institutional Series Trust
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 they intend
to take delivery of the foreign currency. Such contracts normally involve no
market risk if they are offset by the currency amount of the underlying
transaction.
Open forward foreign currency exchange contracts for the Funds at February
28, 1999 were as follows:
PRINCIPAL AMOUNT EXPIRATION UNREALIZED
CURRENCY COVERED BY CONTRACT MONTH APPRECIATION
- -------- ------------------- ----- ------------
INTERNATIONAL EQUITY FUND
Sells
Pound Sterling 55,246 MAR 99 $163
====
FINANCIAL FUTURES CONTRACTS The Funds may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects of
fluctuations in interest rates, currency exchange rates and other market
conditions. Buying futures tends to increase the Funds' exposure to the
underlying instrument. Selling futures tends to decrease the Funds' exposure to
the underlying instrument or hedge other Fund instruments. At the time the Fund
enters into a financial futures contract, it is required to deposit with its
custodian a specified amount of cash or U.S. government securities, known as
"initial margin," equal to a certain percentage of the value of the financial
futures contract being traded. Each day, the futures contract is valued at the
official settlement price of the board of trade or U.S. commodities exchange on
which it trades. Subsequent payments, known as "variation margin," to and from
the broker are made on a daily basis as the market price of the financial
futures contract fluctuates. Daily variation margin adjustments, arising from
this "mark to market," are recorded by the 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.
There were no open positions in financial futures contracts at February 28,
1999 for the Funds.
OPTIONS The Funds may enter into option contracts. Listed options will be valued
at the last quoted sales price on the exchange on which they are primarily
traded. Over-the-counter options are valued at the mean between the last bid and
asked prices. Upon the writing of a call or put option, an amount equal to the
premium received by the Funds will be included in the Statements 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-
64
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Institutional Series Trust
traded options have minimal credit risk as the exchanges act as counterparties
to each transaction, and only present liquidity risk in highly unusual market
conditions. To minimize credit and liquidity risks in over-the-counter option
contracts, the Funds will continuously monitor the creditworthiness of all their
counterparties.
At any particular time, except for purchased options, market or credit risk
may involve amounts in excess of those reflected in the Funds' period-end
Statements of Assets and Liabilities.
There were no written option transactions for the year ended February 28,
1999 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
Dividend Performers Fund 0.60% of average daily net assets up to $500 million
0.55% of such assets in excess of $500 million
Multi-Sector Growth Fund 0.80% of average daily net assets up to $500 million
0.75% of such assets in excess of $500 million
Small Capitalization
Growth Fund 0.80% of average daily net assets
Small Capitalization 0.70% of average daily net assets up to $500 million
Value Fund 0.65% of such assets in excess of $500 million
International Equity Fund 0.90% of average daily net assets up to $500 million
0.65% of such assets in excess of $500 million
Effective September 12, 1995, the Adviser agreed to limit the Funds' expenses
further to the extent required to prevent expenses from exceeding: 0.60% of
Active Bond Fund's average daily net assets, 0.70% 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 Funds' average daily net assets,
0.80% of Small Capitalization Value Fund's average daily net assets and 1.00% of
International Equity Fund's average daily net assets. The Adviser reserves the
right to terminate this limitation in the future. Accordingly, for the year
ended February 28, 1999, the reduction in the Funds' expenses with any
additional amounts not borne by the Funds by virtue of the expense limit
amounted to $96,073 for the Active Bond Fund, $50,673 for the Dividend
Performers Fund, $66,990 for the Multi-Sector Growth Fund, $72,718 for the Small
Capitalization Growth Fund, $52,019 for the Small Capitalization Value Fund and
$147,337 for the International Equity Fund.
The Adviser 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 paid 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
waived their fee for the year ended February 28, 1999. As of the close of
business on December 31, 1998, the service agreement with SAMCorp was
eliminated.
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, 1999, 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
65
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Institutional Series Trust
in connection with the sale and offering for sale of the shares of the Funds
which have not been herein specifically allocated to the Trust.
The Funds have a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect wholly owned subsidiary of
JHMLICo. Each Fund pays transfer agent fees at an annual fee accrued daily of
0.05% of its average daily net assets, plus certain out-of-pocket expenses.
The Funds have an agreement with the Adviser to perform necessary tax and
financial management services for the Funds. The compensation for the year was
at an annual rate of less than 0.02% of the average net assets of each Fund.
Mr. Edward J. Boudreau, Jr., Mr. Stephen L. Brown, Ms. Anne C. Hodsdon and
Mr. Richard S. Scipione are directors and/or officers of the Adviser and/or its
affiliates, as well as Trustees of the Funds. The compensation of unaffiliated
Trustees is borne by the Funds. The Adviser owned 11,765 shares of beneficial
interest of the Multi-Sector Growth Fund as of February 28, 1999. 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, 1999, the Funds' investment to cover the deferred compensation had
unrealized appreciation of $4 for the Active Bond Fund, $11 for the Dividend
Performers Fund, $25 for the Multi-Sector Growth Fund, none for the Small
Capitalization Growth Fund, $21 for the Small Capitalization Value Fund and $9
for the International Equity Fund.
NOTE C --
INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding short-term
obligations, for the year ended February 28, 1999 were as follows:
PURCHASES SALES
--------- -----
Active Bond Fund
U.S. government securities ............... $12,172,102 $13,122,383
Other investments ........................ 6,983,913 5,307,997
Dividend Performers Fund ................... 11,989,028 15,507,559
Multi-Sector Growth Fund ................... 35,350,449 54,377,681
Small Capitalization Growth Fund ........... 2,797,019 3,650,048
Small Capitalization Value Fund ............ 9,792,755 10,710,875
International Equity Fund .................. 6,889,767 7,539,999
In addition, the Multi-Sector Growth Fund had investments with an aggregate
market value of $14,772,231 at the date of withdrawal which were distributed in
payment for capital withdrawals, resulting in capital gains for book purposes of
$112,844.
At February 28, 1999, the cost (excluding the corporate savings account) and
gross unrealized appreciation and depreciation in value of investments owned by
the Funds, as computed on a federal income tax basis, were as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
AGGREGATE GROSS UNREALIZED GROSS UNREALIZED APPRECIATION/
COST APPRECIATION DEPRECIATION (DEPRECIATION)
---- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Active Bond Fund ......................... $5,721,882 $38,460 ($100,097) ($61,637)
Dividend Performers
Fund ................................... 14,346,526 3,832,551 (212,658) 3,619,893
Multi-Sector Growth
Fund ................................... 15,478,768 2,430,425 (1,478,841) 951,584
Small Capitalization
Growth Fund ............................ 2,006,021 626,563 (171,776) 454,787
Small Capitalization
Value Fund ............................. 7,337,300 946,563 (871,175) 75,388
International Equity
Fund ................................... 7,008,355 1,119,732 (374,836) 744,896
</TABLE>
66
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Institutional Series Trust
NOTE D --
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended February 28, 1999, reclassifications have been made in
each Fund's capital accounts to report these balances on a tax basis, excluding
certain temporary differences. 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 NET ACCUMULATED NET
PAID-IN INVESTMENT INCOME (LOSS) REALIZED GAIN (LOSS)
------- ------------------------ --------------------
<S> <C> <C> <C>
Active Bond Fund ........................ ($44) $7 $37
Dividend Performers Fund ................ (184) 21 163
Multi-Sector Growth Fund ................ 71,280 41,203 (112,483)
Small Capitalization Growth Fund ........ (18) 13,687 (13,669)
Small Capitalization Value Fund ......... (1,268) 3,725 (2,457)
International Equity Fund ............... (6,076) 2,719 3,357
</TABLE>
67
<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 Dividend
Performers Fund, John Hancock Multi-Sector Growth Fund, John Hancock Small
Capitalization Growth Fund (formerly John Hancock Small Capitalization Equity
Fund), John Hancock Small Capitalization Value Fund (formerly John Hancock
Fundamental Value Fund) and John Hancock International Equity Fund) (the
"Funds") as of February 28, 1999, the related statements of operations for the
year then ended, the statements of changes in net assets for the years ended
February 28, 1999 and 1998, and the financial highlights for each of the years
in the four-year period ended February 28, 1999. 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, 1999 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, 1999, 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 2, 1999
TAX INFORMATION (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the taxable distributions of the Funds for the fiscal year ended
February 28, 1999.
The Funds designated the following as long-term capital gain dividends during
the fiscal year ended February 28, 1999.
Additionally, the following dividend distributions qualify for the dividends
received deduction available to corporations.
LONG-TERM DIVIDENDS
CAPITAL GAINS RECEIVED
DESIGNATED DEDUCTION
---------- ---------
Active Bond Fund ........................... $2,890 --%
Dividend Performers Fund ................... 1,367,155 100.00
Multi-Sector Growth Fund ................... 144,312 5.05
Small Capitalization Growth Fund ........... 134,250 --
Small Capitalization Value Fund ............ 501,590 100.00
International Equity Fund .................. -- --
68
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Institutional Series Trust
69
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Institutional Series Trust
70
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Institutional Series Trust
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
1-800-225-5291 1-800-554-6713 (TDD) Permit No. 75
INTERNET: www.jhancock.com/funds ---------------
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
Institutional Series Trust. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
[RECYCLE LOGO] Printed on Recycled Paper KB00A 2/99
4/99
<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, 1999
[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............................................ 48
-------------------------------------------------------
TRUSTEES
EDWARD J. BOUDREAU, JR.
STEPHEN L. BROWN
JAMES F. CARLIN
WILLIAM H. CUNNINGHAM*
RONALD R. DION*
HAROLD R. HISER, JR.
ANNE C. HODSDON
CHARLES L. LADNER
LEO E. LINBECK, JR.
STEVEN R. PRUCHANSKY*
RICHARD S. SCIPIONE
LT. GEN. NORMAN H. SMITH, USMC (RET.)
JOHN P. TOOLAN
* MEMBERS OF AUDIT COMMITTEE
OFFICERS
EDWARD J. BOUDREAU, JR.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ANNE C. HODSDON
PRESIDENT, CHIEF OPERATING OFFICER
AND CHIEF INVESTMENT OFFICER
OSBERT M. HOOD
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
SUSAN S. NEWTON
VICE PRESIDENT AND SECRETARY
JAMES J. STOKOWSKI
VICE PRESIDENT AND TREASURER
THOMAS H. CONNORS
VICE PRESIDENT AND 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:
Nineteen ninety-eight was a year that gave even veteran financial market
investors pause-- and not a little heartburn. The stock market produced a record
fourth straight year of double-digit returns, but volatility was breathtaking
along the way. With the exception of the U.S. Treasury market, even bonds--
considered a safer alternative to stocks-- went on a roller coaster ride.
But there was one clear lesson from 1998: that sticking out the tough
times paid off. After reaching new highs last July, stocks plunged in August in
one of their worst sell-offs in years. The average U.S. diversified-equity
mutual fund fell 16.8% in the month of August alone. For many mutual fund
investors, it was the largest one-month loss they had ever experienced, since
the average equity fund had only had three such double-digit monthly losses in
the previous 20 years, most recently in October 1987. But, in a dramatic
reversal of fortune, the market staged a stunning rebound in the fourth quarter.
The average U.S. diversified-equity fund made up all its August lost ground and
then some, returning 18.8% between October and December. The final result for
the year: an average 14.52% return, as calculated by Lipper, Inc.
- --------------------------------------------------------------------------------
[A 1" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
- --------------------------------------------------------------------------------
Given the dramatic swings, investors who tried to time the market's ups
and downs encountered a sharp whipsaw. We are very encouraged to report that an
overwhelming majority of mutual fund investors sat tight during last summer's
discontent; some even used the market's drop to pick up bargains. It was a clear
sign that long-term investors are willing to accept the reality of shorter-term
volatility.
In the first two months of 1999, the financial markets showed more
stability and the Dow Jones Industrial Average approached record highs. While
volatility remains on many investors' minds, at this time of year thoughts also
turn to more taxing matters. In our view, now is a perfect time to focus on how
much of your hard-earned money you are able to keep. Part of a good tax-planning
strategy should involve a review of your portfolio to ensure that you are taking
advantage of all available ways to minimize and defer your tax payments -- in an
effort to maximize investment returns.
We encourage you to work with your investment professional to consider the
various options. These include focusing on tax-exempt funds, contributing the
maximum to retirement plans, establishing or adding to IRAs and funding a
variable annuity. After all, while it's every American's responsibility to pay
taxes, there's no reason to pay more than your fair share.
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
Large-cap stocks and U.S. Treasury bonds post
strong returns amid growing U.S. economy
"Our successful asset allocation approach was the main reason for our out
performance."
Despite economic problems in many areas of the world, a strong U.S. economy and
falling interest rates continued to help boost stock prices over the past year,
especially those of the largest, well-known companies. At the same time, a
global flight to quality helped Treasury bonds perform well at the expense of
other fixed-income securities for much of the year -- an imbalance that
partially reversed itself in 1999. For the 12-month period ended February 28,
1999, John Hancock Independence Balanced Fund posted a total return of 14.50% at
net asset value, compared to the average balanced fund's 6.96% return, according
to Lipper, Inc. In the same period, a 50/50 blended index combining the Standard
& Poor's 500 Stock Index and the Lehman Brothers Government/Corporate Bond Index
(L.B.G.C.) returned 13.55%. For historical performance information, see page
six.
- --------------------------------------------------------------------------------
[Pie chart at bottom left hand column with heading "Portfolio Diversification."
The chart is divided into four sections (from top to left): Common Stocks 61%,
Short-Term Investments & Other 1%, Corporate Bonds 12%, and U.S. Government &
Agency Bonds 26%. A note below the chart reads "As a percentage of net assets on
February 28, 1999."]
- --------------------------------------------------------------------------------
Our successful asset allocation approach was the main reason for our
outperformance. We kept the Fund more or less constant at 60% stocks, 40% bonds
through August. By the end of that month, we raised our equity allocation to
65%, based on our view that the market's summer sell-off had created some
compelling values. We benefited from that stance throughout the fourth-quarter
1998 stock market rally, and eventually brought our equity stake back to 61% by
the end of the fiscal year.
Stocks: Leaders and laggards
Security selection also helped our performance in a year that clearly separated
the winning stocks from the losers. Specialty retailer Home Depot benefited from
a red-hot home building and improvement boom, while rival Lowe's Cos. proved
itself a formidable competitor. Our telephone holdings generally did well, with
MCI WorldCom leading the pack. While car makers
4
<PAGE>
================================================================================
JOHN HANCOCK INDEPENDENCE BALANCED FUND
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended February 28, 1999." The chart
is scaled in increments of 5% with 0% at the bottom and 20% at the top. The
first bar represents the 14.50% total return for John Hancock Independence
Balanced Fund. The second bar represents the 6.96% total return for Average
balanced fund. The third bar represents the 13.55% total return for 50% S&P 500
Stock Index/50% L.B.G.C. Bond Index. A note below the chart reads "The total
return for John Hancock Independence Balanced Fund is at net asset value with
all distributions reinvested. The average balanced fund is tracked by Lipper,
Inc. See the following page for historical performance information."]
- --------------------------------------------------------------------------------
had a relatively good year, Ford Motor Co. clearly was one of the best
performers in that sector. Communications companies, particularly Lucent
Technologies, also were consistently good performers. Insurer General Re
performed well when it was acquired by Berkshire Hathaway. On the down side, our
stock selection in the health-care segment modestly detracted from our
performance. Despite being high-quality companies, HEALTHSOUTH Corp. and Health
Management Associates suffered from various governmental investigations of the
industry's pricing practices. Oil service companies including Baker Hughes,
Halliburton, Phillips Petroleum and USX-Marathon Group were weak throughout the
year when oil prices collapsed, and we sold some.
Flight to quality
All bonds generally performed well during the first several months of the period
as interest rates drifted lower. In the late summer and early fall, however,
there were growing fears about the protracted economic problems in Asia,
Russia and Latin America and new worries about financial institutions' exposure
to hedge funds. Those concerns prompted investors to seek out the safety and
liquidity of U.S. Treasury bonds from August through October and to
simultaneously shun U.S. government agency, corporate and mortgage securities.
In mid-October, the Federal Reserve stepped in to calm the markets, cutting
interest rates and reassuring investors. Since then, investors have returned to
agency, corporate and mortgage securities. Treasury bonds have retreated after
investors pushed their yields higher on news of stronger-than-expected economic
growth. Our overweighted stake in corporate and mortgage securities detracted
from our performance for much of the year, although both gained ground on U.S.
Treasuries during the final four months of the period. Despite their short-term
travails, we hung on to mortgage and corporate bonds because we feel that their
high yields and attractive prices, relative to Treasuries, will ultimately
translate into higher total returns.
Outlook
We're optimistic about the prospects for stocks, although we don't think that
their 1999 returns will rival the gains of 1998. Although robust now, we see
indications that the economy will slow later this year, potentially as a result
of weaker capital spending. That would go a long way toward thwarting any
inflationary pressures that might build. In that type of non-inflationary,
slower growth environment, we think the corporate and mortgage securities are
poised to perform better than U.S. Treasuries.
"...we see indications that the economy will slow later this year..."
5
<PAGE>
================================================================================
JOHN HANCOCK INDEPENDENCE BALANCED FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1998
SINCE
ONE INCEPTION
YEAR (7/6/95)
----- ------
Cumulative Total Returns 21.45% 71.96%
Average Annual Total Returns(1) 21.45% 16.82%
YIELD
As of February 28, 1999
SEC 30-DAY
YIELD
------
John Hancock Independence Balanced Fund 2.01%
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 21.40%
and 15.69%, respectively.
WHAT HAPPENED TO
A $250,000 INVESTMENT...
The chart below shows how much a $250,000 investment in John Hancock
Independence Balanced Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$250,000 investment in a blend of 50% in the Standard & Poor's 500 Stock Index
and 50% in the Lehman Brothers Government/Corporate Bond Index. The Standard &
Poor's 500 Stock Index is an unmanaged index that includes 500 widely traded
common stocks and is a commonly used measure of stock market performance. The
Lehman Brothers Government/Corporate Bond Index is an unmanaged index that
measures the performance of U.S. corporate bonds and Yankee bonds.
- --------------------------------------------------------------------------------
[Line chart with the heading John Hancock Independence Balanced Fund,
representing the growth of a hypothetical $250,000 investment over the life of
the fund. Within the chart are two lines. The first line represents the 50/50
blended index of the Standard & Poor's 500 Stock Index and Lehman Brothers
Government/Corporate Bond Index and is equal to $466,504 as of February 28,
1999. The second line represents the value of the hypothetical $250,000
investment made in the John Hancock Independence Balanced Fund on July 6, 1995,
and is equal to $427,770 as of February 28, 1999.]
- --------------------------------------------------------------------------------
6
<PAGE>
================================================================================
BY COREEN KRAYSLER FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Value Fund
Stock market is volatile, but large-company
growth stocks deliver strong returns
The stock market cut a jagged course throughout the year. In the spring,
continued deterioration in Asia and the possibility of corporate earnings
shortfalls pulled U.S. stocks down. A brief recovery led to a new high in
mid-July. But Russia's decision to default on its debt along with concerns about
Latin America's financial markets again sent the market swooning. Failing hedge
funds further aggravated growing liquidity problems. The Federal Reserve gave
stocks a boost, however, when it cut short-term interest rates during the fall.
This, along with a healthy U.S. economy, fueled the market to a strong finish.
The Standard & Poor's 500 Stock Index delivered a 19.73% return for the year
ended February 28, 1999. Market leaders were large-company stocks, especially
growth stocks and technology names. The Russell 1000 Value Index -- which does
not include high-priced technology leaders -- returned 9.21% for the same
period. The average growth and income fund returned 6.49%, according to Lipper,
Inc. Thanks to its large-company bias and strong stock selection, John Hancock
Independence Value Fund delivered a 9.87% return at net asset value. For
historical performance information, please see page nine.
- --------------------------------------------------------------------------------
[Table at bottom left hand column entitled "Top Five Common Stock Holdings." The
first listing is Wells Fargo 3.7%, the second is IBM 2.8%, the third SBC
Communications 2.6%, the fourth United Technologies 2.6% and the fifth Comerica
2.5%. A note below the table reads "As a percentage of net assets on February
28, 1999."]
- --------------------------------------------------------------------------------
Leaders and laggards
Utilities and telecommunications stocks were top performers. Investors flocked
to utilities for safety, dividends and insulation from overseas problems.
Montana Power, which returned 98% for the period, also benefited from shifting
its focus away from power generation toward telecommunications. Our largest name
in the utilities sector was SBC Communications, which we bought last May
following its merger with Ameritech. The stock has since returned 38%. AT&T also
did well as new management began leveraging the brand name to expand its share
of the high-growth wireless services market while also cutting costs.
"Utilities and telecommunications stocks were top performers."
7
<PAGE>
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JOHN HANCOCK INDEPENDENCE VALUE FUND
"We expect continued market volatility to provide more opportunities..."
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended February 28, 1999." The chart
is scaled in increments of 5% with 0% at the bottom and 20% at the top. The
first bar represents the 9.87% total return for John Hancock Independence Value
Fund . The second bar represents the 6.49% total return for Average growth and
income fund. The third bar represents the 9.21% total return for Russell 1000
Value Index. A note below the chart reads "The total return for John Hancock
Independence Value Fund is at net asset value with all distributions reinvested.
The average growth and income fund is tracked by Lipper, Inc. See the following
page for historical performance information."]
- --------------------------------------------------------------------------------
Other top performers included IBM, up 64% for the period, thanks to its
successful remake as an information technology solutions provider. United
Technologies, the diversified aerospace conglomerate, delivered strong results
as operating performance improved. And Viacom -- the media company that owns
Blockbuster Video, MTV and Nickelodeon television networks, and produces major
movies like "Titanic" -- racked up an 85% return for the period. Allegiance, a
medical distribution company that successfully restructured its business and was
bought by Cardinal Health in October, also boosted performance significantly.
Finally, Pitney Bowes had a strong year as users migrated from mechanical
postage meters to higher margin digital meters.
Our disappointments came mainly in the finance and oil sectors.
Emerging-market fears and hedge fund fall-out hurt banking stocks. This affected
even Comerica, a regional bank with no overseas business, as well as Citigroup
and BankAmerica. Insurance stocks like Hartford Financial Services Group and
Travelers Property Casualty suffered from a competitive operating environment
that kept a lid on prices. Finally, oil stocks like Texaco and Baker Hughes
remained depressed by historically low oil prices.
More opportunity ahead
During the past six months, we capitalized on many market opportunities. We
added substantially to our stake in Wells Fargo, following trouble with its
First Interstate acquisition. The stock has great prospects and a strong
management team dedicated to ensuring it meets or exceeds earnings expectations.
We also beefed up our investment in telecommunications names, picking up MCI
WorldCom after the third-quarter correction and Tellabs, as concerns mounted
that overseas turmoil would slow demand. We expect continued market volatility
to provide more opportunities like these. Going forward, we're optimistic about
the economy, the market and value stocks. The same factors remain in place to
keep the economy growing in the coming year: low interest rates, low inflation,
low unemployment and decent demand. We expect the stock market to continue to
produce gains, as increased productivity helps boost corporate earnings. We'll
stick to our disciplined stock picking strategy and patiently wait for value
stocks to come back into favor.
8
<PAGE>
================================================================================
JOHN HANCOCK INDEPENDENCE VALUE FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1998
SINCE
ONE INCEPTION
YEAR (10/2/95)
----- -------
Cumulative Total Returns 18.79% 101.76%
Average Annual Total Returns(1) 18.79% 24.14%
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 17.93%
and 17.74%, respectively.
WHAT HAPPENED TO
A $250,000 INVESTMENT...
The chart below shows how much a $250,000 investment in the John Hancock
Independence Value Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$250,000 investment in the Russell 1000 Value Index--an unmanaged capitalization
weighted price-only index, which is comprised of 1,000 of the largest
capitalized U.S.-domiciled companies whose common stock is traded on the New
York Stock Exchange. The securities in this index have a less-than-average
growth orientation.
- --------------------------------------------------------------------------------
[Line chart with the heading John Hancock Independence Value Fund, representing
the growth of a hypothetical $250,000 investment over the life of the fund.
Within the chart are two lines. The first line represents the Russell 1000 Value
Index and is equal to $503,729 as of February 28, 1999. The second line
represents the value of the hypothetical $250,000 investment made in the John
Hancock Independence Value Fund on October 2, 1995, and is equal to $498,758 as
of February 28, 1999.]
- --------------------------------------------------------------------------------
9
<PAGE>
================================================================================
BY PAUL MCMANUS FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Diversified Core Equity Fund II
Large growth stocks lead the market in a volatile year
"...dual focus on value and growth stocks helped..."
A handful of mega-cap, blue-chip stocks sustained the stock market's advance
over the last 12 months, overcoming extreme volatility that battered much of the
broader market. After reaching new highs in mid-July, stocks plunged across the
board through early October, hit by a dramatic change in investor sentiment when
a growing list of economic and currency woes hit Asia, Russia and Latin America.
On the edge of a bear market, stocks reversed course yet again in the fourth
quarter of 1998 on the strength of solid corporate earnings and three
interest-rate cuts by the Federal Reserve aimed at preventing a stall in the
U.S. economy. However, the market's strength grew ever narrower, and the gap
widened between the performance of different market segments. Large companies
far outperformed smaller ones, often regardless of company fundamentals. For the
year ended February 28, 1999, the broad Standard & Poor's 500 Stock Index -- the
Fund's benchmark -- returned 19.73%, with much of that return coming from its
largest names. Growth stocks of all sizes -- those with strong earnings growth
selling for high valuation levels (many of them technology companies) -- beat
value stocks, or those selling for less than their worth.
- --------------------------------------------------------------------------------
[Table at top bottom hand column entitled "Top Five Common Stock Holdings." The
first listing is Microsoft 4.2%, the second is Intel 3.5%, the third General
Electric 3.5%, the fourth Citigroup 3.3% and the fifth MCI WorldCom 2.4%. A note
below the table reads "As a percentage of net assets on February 28, 1999."]
- --------------------------------------------------------------------------------
Performance review
Despite the cross currents, John Hancock Diversified Core Equity Fund II kept
pace with the Index and significantly outperformed its peers. For the year ended
February 28, 1999, the Fund posted a total return of 18.98% at net asset value,
compared to the 6.49% return of the average growth and income fund, according to
Lipper, Inc. Historical performance information can be found on page 12. Strong
individual stock selection was the key to our performance, as our strategy of
buying reasonably valued stocks of companies with improving fundamentals
10
<PAGE>
================================================================================
JOHN HANCOCK INDEPENDENCE DIVERSIFIED CORE EQUITY FUND II
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended February 28, 1999." The chart
is scaled in increments of 5% with 0% at the bottom and 20% at the top. The
first bar represents the 18.98% total return for John Hancock Independence
Diversified Core Equity Fund II . The second bar represents the 6.49% total
return for Average growth and income fund. The third bar represents the 19.73%
total return for S&P 500 Stock Index. A note below the chart reads "The total
return for John Hancock Independence Diversified Core Equity Fund II is at net
asset value with all distributions reinvested. The average growth and income
fund is tracked by Lipper, Inc. See the following page for historical
performance information."]
- --------------------------------------------------------------------------------
proved its worth. Our dual focus on value and growth stocks helped in this
divergent market and we didn't take large sector or stock bets, which helped
manage our risk level.
From the outset of the period, we also kept an underweighting in
multinational companies, based on our expectation that weak Asian demand in the
short term would lead to reduced earnings. This move helped cushion the Fund
during last summer and fall's market downdraft.
Technology, retailers, health care
Technology, telecommunications and consumer stocks-- all areas of perceived
growth-- were the strongest sectors for the Fund. Included were some of the
Fund's top holdings, like Microsoft, Intel and telecommunications giant MCI
WorldCom. Telecommunications equipment companies including Lucent Technologies,
Northern Telecom Ltd. and Tellabs were particularly strong. They were boosted by
increased spending on telecommunications equipment.
Strong consumer spending all year boosted retailers Home Depot and Lowe's
Cos. Within the health-care arena, our large drug-company stocks, including Eli
Lilly, Merck and Bristol-Myers Squibb, led the way. Their steady earnings growth
continues to be powered by a healthy pipeline of new products, favorable
demographics and the ability to control pricing. Another great performer was
Sepracor, a manufacturer of molecules that, when attached to existing drugs,
reduce their side effects.
Disappointments came from health-care services companies, like
HEALTHSOUTH, whose stock prices were hurt by reduced government reimbursements.
Apparel companies Liz Claiborne and Warnaco were weak due to excess inventory
and cheaper competition from Asian companies, so we sold these positions.
Outlook
Our optimism for the stock market is tinged with caution in the near term. The
U.S. economy remains stronger than expected, which has sparked a rise in
interest rates since January and renewed inflation fears, even though inflation
is tame. At the same time, corporate profit growth forecasts appear lower -- a
formula that heightens the market's risk element. In this environment, our
disciplined investment strategy of owning companies with improving fundamentals
and good value, and our strong emphasis on risk management, should continue to
serve us well.
"Our optimism for the stock market is tinged with caution in the near term."
11
<PAGE>
================================================================================
JOHN HANCOCK INDEPENDENCE DIVERSIFIED CORE EQUITY FUND II
A LOOK AT PERFORMANCE
For the period ended December 31, 1998
SINCE
ONE INCEPTION
YEAR (3/10/95)
----- -------
Cumulative Total Returns 30.16% 154.69%
Average Annual Total Returns(1) 30.16% 27.78%
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, 1999,
the Fund's expense ratio was 0.63% of the Fund's average daily net assets.
Without the limitation of expenses, the total return for the since
inception period would have been 27.76%.
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 John Hancock Independence Diversified Core Equity
Fund II, representing the growth of a hypothetical $250,000 investment over the
life of the fund. Within the chart are two lines. The first line represents the
Standard & Poor's 500 Stock Index and is equal to $666,899 as of February 28,
1999. The second line represents the value of the hypothetical $250,000
investment made in the John Hancock Independence Diversified Core Equity Fund II
on March 10, 1995, and is equal to $635,916 as of February 28, 1999.]
- --------------------------------------------------------------------------------
12
<PAGE>
================================================================================
BY COREEN KRAYSLER FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Growth Fund
U.S. stock market is rocky, but economy remains strong
"Some of our biggest winners were also the Fund's largest investments."
Fear and uncertainty dominated investment markets over the past year. Concerns
about Asia and possible corporate earnings shortfalls dogged U.S. stocks last
spring. Stocks peaked briefly in mid-July before Latin America's financial
problems, Russia's debt troubles, failing hedge funds and a growing liquidity
crunch sent the market into a free fall. Meanwhile, the U.S. economy remained
healthy, with low inflation, low unemployment and strong consumer spending. When
the Federal Reserve cut interest rates in the fall, the market was ready to take
off. Led by large-company stocks and the technology sector, the Standard &
Poor's 500 Index returned 19.73% for the year ended February 28, 1999.
- --------------------------------------------------------------------------------
[Table at bottom left hand column entitled "Top Five Common Stock Holdings." The
first listing is Microsoft 5.0%, the second is Intel 4.6%, the third General
Electric 3.7%, the fourth Lucent Technologies 3.5% and the fifth Home Depot
2.8%. A note below the table reads "As a percentage of net assets on February
28, 1999."]
- --------------------------------------------------------------------------------
While many investors panicked, we stuck to our disciplined strategy of
buying cheap stocks with good prospects for earnings growth. We also matched the
sector weightings and risk characteristics of the Russell 1000 Growth Index.
This combination helped John Hancock Independence Growth Fund generate a 22.92%
return at net asset value for the year ended February 28, 1999. During the same
period, the average growth fund returned 13.19%, according to Lipper, Inc., and
the Russell 1000 Growth Index returned 26.55%. For historical performance
information, please see page 15. The Fund benefited from owning large-company
stocks, making good stock selections and capitalizing on market opportunities.
However, our decision not to participate in the Internet mania, along with a few
disappointments late in the period, kept us from further gains.
Top names deliver
Some of our biggest winners were also the Fund's largest investments. Lucent
Technologies, the telecommunications equipment manufacturer, and Home Depot, the
building retailer, continued to post strong sales, gain market share and surpass
earnings expectations. Both stocks posted returns in excess of 80% for
13
<PAGE>
================================================================================
JOHN HANCOCK INDEPENDENCE GROWTH FUND
"We expect stocks to do well, even if they don't match the returns of recent
years."
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended February 28, 1999." The chart
is scaled in increments of 5% with 0% at the bottom and 30% at the top. The
first bar represents the 22.92% total return for John Hancock Independence
Growth Fund . The second bar represents the 13.19% total return for Average
growth fund. The third bar represents the 26.55% total return for Russell 1000
Growth Index. A note below the chart reads "The total return for John Hancock
Independence Growth Fund is at net asset value with all distributions
reinvested. The average growth fund is tracked by Lipper, Inc. See the following
page for historical performance information."]
- --------------------------------------------------------------------------------
the period. Not far behind was Microsoft, which benefited from a shift toward
higher-margin products like operating systems for servers. A similar shift also
helped Intel, while strong management continued to propel General Electric.
Other top performers included Amgen, a drug company that sells kidney dialysis
medicine, and Guidant, which has developed superior stents for opening up
blocked arteries. In addition, United Technologies, a diversified aerospace
company with a great balance sheet and skilled management, saw its stock price
rise 41% for the period.
We also had our share of disappointments. HEALTHSOUTH, a national
rehabilitation company, crumbled as HMOs pressured it to cut rates. We held on,
expecting the cuts to be less than anticipated. We sold our stake in Procter &
Gamble, which continued to have weaker sales than expected due to pricing
problems in major markets and softening demand overseas. In addition, slower
demand related to Y2K temporarily hurt companies like J.D. Edwards, which
develops software to improve business efficiency, and Computer Associates
International, which develops software to manage computer networks as well as
mainframe systems.
Market opportunities
The market downturn gave us a great buying opportunity. We acquired Avon
Products when most investors feared that troubles in Brazil would hurt earnings.
We also bought MCI WorldCom, which has the best collection of global network
assets in the industry, along with great cost synergies from the merger and
robust revenue and earnings growth. Both Avon and MCI rebounded quickly from
their lows, significantly boosting performance. We also added Compaq Computer
after it acquired Digital Equipment Company, and Colgate-Palmolive, which
suffered from its large Latin American exposure despite management's proven
skill in emerging markets.
As we look ahead, we believe volatility will provide more opportunities
like these. We remain optimistic about both the economy and the stock market.
Continued low interest rates, low inflation, decent demand and low unemployment
should keep the U.S. economy growing at a moderate pace. We expect stocks to do
well, even if they don't match the returns of recent years. In all market
conditions, we believe the best returns will come from sticking with our
disciplined strategy.
14
<PAGE>
================================================================================
JOHN HANCOCK INDEPENDENCE GROWTH FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1998
SINCE
ONE INCEPTION
YEAR (10/2/95)
----- -------
Cumulative Total Returns 37.94% 137.43%
Average Annual Total Returns(1) 37.94% 30.52%
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 36.71%
and 22.61%, respectively.
WHAT HAPPENED TO
A $250,000 INVESTMENT...
The chart below shows how much a $250,000 investment in John Hancock
Independence Growth Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$250,000 investment in the Russell 1000 Growth Index -- an unmanaged
capitalization weighted price-only index, which is comprised of 1,000 of the
largest capitalized U.S.-domiciled companies whose common stock is traded on the
New York Stock Exchange. The securities in this index have a
greater-than-average growth orientation.
- --------------------------------------------------------------------------------
[Line chart with the heading John Hancock Independence Growth Fund, representing
the growth of a hypothetical $250,000 investment over the life of the fund.
Within the chart are two lines. The first line represents the value of the
hypothetical $250,000 investment made in the John Hancock Independence Growth
Fund on October 2, 1995, and is equal to $589,574 as of February 28, 1999. The
second line represents the Russell 1000 Growth Index and is equal to $588,526 as
of February 28, 1999.]
- --------------------------------------------------------------------------------
15
<PAGE>
================================================================================
BY DAVID CANAVAN FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Medium Capitalization Fund
Investor neglect leads to flat mid-cap stock returns
"...more cyclical, or economically sensitive, mid-cap stocks were hurt the
worst..."
Medium-capitalization stocks made only slight progress during the past 12
months, stymied by the flight to quality that overtook global markets.
Throughout the year, investors continued to add to their growing list of
concerns. Initially they feared that sagging Southeast Asian economies would
curtail earnings growth. Depending on what month it was, investors also fretted
that inflation was picking up or, conversely, that deflation was about to take
hold. In late summer, Russia effectively defaulted on its debt, a large hedge
fund veered toward collapse and Latin America looked shaky as Brazil devalued
its currency. In response, frazzled investors pushed an extremely small handful
of very large-company stocks higher, leaving behind less-prominent stocks --
including the vast majority of the mid-cap market.
- --------------------------------------------------------------------------------
[Table at bottom left hand column entitled "Top Five Common Stock Holdings." The
first listing is Marsh & McLennan Cos. 2.0%, the second is Comerica, Inc. 1.9%,
the third Tellabs 1.8%, the fourth Hartford Financial Services Group 1.8% and
the fifth Honeywell 1.7%. A note below the table reads "As a percentage of net
assets on February 28, 1999."]
- --------------------------------------------------------------------------------
Strategy and performance review
The weak performance of medium-capitalization stocks was reflected in the
performance of John Hancock Independence Medium Capitalization Fund, which had a
total return of 0.96% at net asset value for the year ended February 28, 1999.
For the same period, the average mid-cap fund returned -0.41%, according to
Lipper, Inc., and the Callan Medium Capitalization Index returned 3.77%. Please
see page 18 for historical performance information.
The more cyclical, or economically sensitive, mid-cap stocks were hurt the
worst in response to shriveling global demand coupled with supply gluts. Energy
stocks, for instance, got crushed when the price of oil collapsed to 12-year
lows. Some of the biggest detractors from the Fund's performance were oil
16
<PAGE>
================================================================================
JOHN HANCOCK INDEPENDENCE MEDIUM CAPITALIZATION FUND
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended February 28, 1999." The chart
is scaled in increments of 5% with -5% at the bottom and 5% at the top. The
first bar represents the 0.96% total return for John Hancock Independence Medium
Capitalization Fund . The second bar represents the -0.41% total return for
Average mid-cap fund. The third bar represents the 3.77% total return for Callan
Medium Capitalization Index. A note below the chart reads "The total return for
John Hancock Independence Medium Capitalization Fund is at net asset value with
all distributions reinvested. The average mid-cap fund is tracked by Lipper,
Inc. See the following page for historical performance information."]
- --------------------------------------------------------------------------------
companies such as Baker Hughes, which we sold. Chemical stocks also performed
poorly for similar supply and demand reasons, which hurt the bulk of our
holdings in that sector as well.
In contrast, domestically focused companies topped our list of leaders.
They benefited from the somewhat surprising resiliency of the U.S. economy,
falling interest rates and strong consumer confidence. Some of the brightest
spots for the Fund were selected health-care holdings, which also enjoyed gains
from investors' search for predictable earnings growth. Guidant Corp. advanced
as the company continued to operate a profitable business while its competitors
faltered. Sepracor, which makes improved versions of poplar drugs and partners
with largepharmaceutical companies to distribute them, also had good gains.
Retailers -- including clothier Tommy Hilfiger, office supply chain Staples and
discounter TJX Cos. -- performed nicely thanks to their domestic focus and
strong consumer spending. Lowe's Cos. was helped by the twin engines of a home
improvement boom and its own aggressive expansion, both of which aided sales.
Our financial stocks also were winners for the most part, with General Re
performing particularly well, so we took profits. After suffering through the
market's darkest days last fall, financial stocks rebounded somewhat when the
Federal Reserve revived investor confidence with three interest-rate cuts.
Because of our emphasis on companies that provide superior earnings at a
reasonable value, we avoided Internet stocks. We felt that most were priced
beyond what we considered to be the most remote frontiers of reason. We did,
however, enjoy strong gains from some indirect plays on the Internet. Montana
Power, for example, was one of our best performers thanks in large part to its
huge fiber-optic network which is used for Internet connectivity, among other
things.
Outlook
We believe that the overall backdrop for stocks is reasonably good. We expect
the U.S. economy and corporate earnings to continue to grow, although both will
likely slow some from last year's pace. As long as the world's economies
continue to struggle, inflation should hover around its current, almost
non-existent level. That's why we believe that interest rates will move lower by
year end. As for medium-capitalization stocks, we think they offer both a good
value and attractive return potential compared to their large-company
counterparts.
"We expect the U.S. economy and corporate earnings to continue to grow..."
17
<PAGE>
================================================================================
JOHN HANCOCK INDEPENDENCE MEDIUM CAPITALIZATION FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1998
SINCE
ONE INCEPTION
YEAR (10/2/95)
----- -------
Cumulative Total Returns 12.25% 83.24%
Average Annual Total Returns(1) 12.25% 20.51%
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 11.76%
and 18.89%, respectively.
WHAT HAPPENED TO
A $250,000 INVESTMENT...
The chart below shows how much a $250,000 investment in the John Hancock
Independence Medium Capitalization Fund would be worth, assuming all
distributions were reinvested for the period indicated. For comparison, we've
shown the same $250,000 investment in the Callan Medium Capitalization Index--an
unmanaged index that covers 25% of the Callan Broad Market Index, with companies
that range from approximately $1 billion to $5 billion in capitalization.
- --------------------------------------------------------------------------------
[Line chart with the heading John Hancock Independence Medium Capitalization
Fund, representing the growth of a hypothetical $250,000 investment over the
life of the fund. Within the chart are two lines. The first line represents the
value of the hypothetical $250,000 investment made in the John Hancock
Independence Medium Capitalization Fund on October 2, 1995, and is equal to
$445,518 as of February 28, 1999. The second line represents the Callan Medium
Capitalization Index and is equal to $445,101 as of February 28, 1999.]
- --------------------------------------------------------------------------------
18
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust
Statements of Assets and Liabilities
February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDEPENDENCE INDEPENDENCE
BALANCED FUND VALUE FUND
------------- ----------
<S> <C> <C>
Assets:
Investments at value - Note C:
Common stocks (cost - $40,888,483 and $5,561,823, respectively) .......................... $50,897,225 $6,596,331
Corporate bonds (cost - $9,671,632 and none, respectively) ............................... 9,592,258 --
U.S. government and agencies securities (cost - $21,941,069 and none,
respectively) .......................................................................... 21,558,124 --
Joint repurchase agreement (cost - $1,207,000 and $105,000, respectively) ................ 1,207,000 105,000
Corporate savings account ................................................................ 589 432
----------- ----------
83,255,196 6,701,763
Receivable for investments sold ............................................................ 3,975,142 --
Dividends receivable ....................................................................... 54,944 13,381
Interest receivable ........................................................................ 437,932 43
Receivable from John Hancock Advisers, Inc. - Note B ....................................... -- 5,604
Deferred organization expenses - Note A .................................................... 2,530 2,771
Other assets ............................................................................... 1,323 118
----------- ----------
Total Assets ....................................................... 87,727,067 6,723,680
---------------------------------------------------------------------------------------------------
Liabilities:
Payable for investments purchased .......................................................... 4,649,636 --
Payable for shares repurchased ............................................................. 376 31
Payable to John Hancock Advisers, Inc. and affiliates - Note B ............................. 36,280 --
Accounts payable and accrued expenses ...................................................... 71,685 38,918
----------- ----------
Total Liabilities .................................................. 4,757,977 38,949
---------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in ............................................................................ 71,224,043 5,615,821
Accumulated net realized gain on investments ............................................... 1,927,778 22,874
Net unrealized appreciation of investments ................................................. 9,546,443 1,034,510
Undistributed net investment income ........................................................ 270,826 11,526
----------- ----------
Net Assets ......................................................... $82,969,090 $6,684,731
===================================================================================================
Net Asset Value Per Share:
(Based on 6,919,809 and 540,757 shares, respectively, of beneficial interest
outstanding - unlimited number of shares authorized with no par value) ..................... $11.99 $12.36
===========================================================================================================================
</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, 1999. 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, 1999
- --------------------------------------------------------------------------------
<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 - $403,350,363, $5,970,891 and $8,998,211, respectively) .... $548,439,581 $7,628,419 $10,223,322
Joint repurchase agreement (cost - $2,966,000, $250,000 and $330,000,
respectively) ................................................................. 2,966,000 250,000 330,000
Corporate savings account ....................................................... 677 152 699
------------ ---------- -----------
551,406,258 7,878,571 10,554,021
Receivable for investments sold ................................................... 783,763 2,997 309,150
Receivable for shares sold ........................................................ 23,179 -- --
Dividends receivable .............................................................. 555,057 5,697 13,184
Interest receivable ............................................................... 1,210 100 132
Receivable from John Hancock Advisers, Inc. - Note B .............................. -- 3,548 4,343
Deferred organization expenses - Note A ........................................... 1,937 2,771 2,771
Other assets ...................................................................... 23,591 67 391
------------ ---------- -----------
Total Assets .............................................. 552,794,995 7,893,751 10,883,992
---------------------------------------------------------------------------------------------------------
Liabilities:
Payable for investments purchased ................................................. -- -- 434,349
Payable for shares repurchased .................................................... 133,214 320 2,770
Payable to John Hancock Advisers, Inc. and affiliates - Note B .................... 280,717 -- --
Accounts payable and accrued expenses ............................................. 84,809 38,854 39,590
------------ ---------- -----------
Total Liabilities ......................................... 498,740 39,174 476,709
---------------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in ................................................................... 389,571,290 6,018,778 8,767,046
Accumulated net realized gain on investments ...................................... 17,225,486 178,307 410,338
Net unrealized appreciation of investments ........................................ 145,089,882 1,657,530 1,225,125
Undistributed net investment income (distributions in excess of net investment
income) ......................................................................... 409,597 (38) 4,774
------------ ---------- -----------
Net Assets ................................................ $552,296,255 $7,854,577 $10,407,283
=========================================================================================================
Net Asset Value Per Share:
(Based on 35,211,236, 445,024 and 864,732 shares, respectively, of beneficial
interest outstanding - unlimited number of shares authorized with no par value) ... $15.69 $17.65 $12.04
=================================================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust
Statements of Operations
Year ended February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDEPENDENCE INDEPENDENCE
BALANCED FUND VALUE FUND
------------- ----------
<S> <C> <C>
Investment Income:
Interest ................................................................... $1,790,248 $5,318
Dividends (net of foreign withholding tax of $3,487 and $356,
respectively) ............................................................ 683,817 128,841
----------- --------
2,474,065 134,159
----------- --------
Expenses:
Investment management fee - Note B ....................................... 548,817 54,202
Custodian fee ............................................................ 48,781 11,937
Registration and filing fees ............................................. 47,037 26,234
Transfer agent fee - Note B .............................................. 39,201 3,388
Auditing fee ............................................................. 26,444 17,444
Financial services fee - Note B .......................................... 12,152 1,055
Printing ................................................................. 9,383 9,683
Trustees' fees ........................................................... 5,579 495
Miscellaneous ............................................................ 2,350 1,195
Organization expense - Note A ............................................ 1,872 1,748
Legal fees ............................................................... 797 144
----------- --------
Total Expenses ..................................... 742,413 127,525
------------------------------------------------------------------------------------
Less Expense Reductions - Note B ................... (36,828) (63,080)
------------------------------------------------------------------------------------
Net Expenses ....................................... 705,585 64,445
------------------------------------------------------------------------------------
Net Investment Income .............................. 1,768,480 69,714
------------------------------------------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold ...................................... 5,998,751 834,769
Change in net unrealized appreciation/(depreciation) of investments ........ 2,931,412 (193,421)
----------- --------
Net Realized and Unrealized Gain on Investments .... 8,930,163 641,348
------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $10,698,643 $711,062
====================================================================================
</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 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, 1999
- --------------------------------------------------------------------------------
<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 $20,922, $74 and $355,
respectively) ................................................................. $7,327,311 $53,817 $151,357
Interest ........................................................................ 271,042 7,341 11,451
----------- ----------- -----------
7,598,353 61,158 162,808
----------- ----------- -----------
Expenses:
Investment management fee - Note B ............................................ 2,716,529 48,402 81,698
Transfer agent fee - Note B ................................................... 271,653 3,025 5,106
Custodian fee ................................................................. 211,226 13,113 18,261
Financial services fee - Note B ............................................... 84,538 929 1,587
Registration and filing fees .................................................. 55,737 24,133 24,782
Trustees' fees ................................................................ 38,520 428 685
Auditing fee .................................................................. 31,444 17,444 18,444
Miscellaneous ................................................................. 17,246 734 1,159
Printing ...................................................................... 9,636 9,683 9,683
Legal fees .................................................................... 4,793 163 179
Organization expense - Note A ................................................. 1,898 1,748 1,748
----------- ----------- -----------
Total Expenses .......................................... 3,443,220 119,802 163,332
--------------------------------------------------------------------------------------------------------
Less Expense Reductions - Note B ........................ -- (62,289) (61,129)
--------------------------------------------------------------------------------------------------------
Net Expenses ............................................ 3,443,220 57,513 102,203
--------------------------------------------------------------------------------------------------------
Net Investment Income ................................... 4,155,133 3,645 60,605
--------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold ........................................... 71,775,828 295,853 1,069,926
Change in net unrealized appreciation/(depreciation) of investments ............. 17,841,527 922,438 (1,128,728)
----------- ----------- -----------
Net Realized and Unrealized Gain (Loss) on Investments .. 89,617,355 1,218,291 (58,802)
--------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations .... $93,772,488 $1,221,936 $1,803
========================================================================================================
</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,
--------------------------- ---------------------------
1998 1999 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ............................................... $1,595,486 $1,768,480 $95,376 $69,714
Net realized gain on investments sold ............................... 1,714,204 5,998,751 617,872 834,769
Change in net unrealized appreciation/depreciation of investments ... 5,930,015 2,931,412 1,060,357 (193,421)
------------ ------------ ------------ ------------
Net Increase in Net Assets from Operations ........................ 9,239,705 10,698,643 1,773,605 711,062
------------ ------------ ------------ ------------
Distributions to Shareholders: *
Dividends from net investment income ................................ (1,287,391) (1,883,494) (78,693) (79,584)
Distributions from net realized gain on investments sold ............ (970,387) (4,942,695) (218,123) (1,235,864)
------------ ------------ ------------ ------------
Total Distributions to Shareholders ............................... (2,257,778) (6,826,189) (296,816) (1,315,448)
------------ ------------ ------------ ------------
From Fund Share Transactions: **
Shares sold ......................................................... 81,192,471 22,172,670 8,846,958 1,518,766
Shares issued to shareholders in reinvestment of distributions ...... 2,258,195 6,826,699 296,816 1,315,448
------------ ------------ ------------ ------------
83,450,666 28,999,369 9,143,774 2,834,214
Less shares repurchased ............................................. (26,408,815) (27,019,194) (4,196,521) (3,292,457)
------------ ------------ ------------ ------------
Net Increase (Decrease) ........................................... 57,041,851 1,980,175 4,947,253 (458,243)
------------ ------------ ------------ ------------
Net Assets:
Beginning of period ................................................. 13,092,683 77,116,461 1,323,318 7,747,360
------------ ------------ ------------ ------------
End of period (including undistributed net investment income of
$385,336, $270,826, $21,093 and $11,526, respectively) ............ $77,116,461 $82,969,090 $7,747,360 $6,684,731
============ ============ ============ ============
* Distributions to Shareholders
Per share dividends from net investment income ...................... $0.3496 $0.2864 $0.1303 $0.1785
------------ ------------ ------------ ------------
Per share distributions from net realized gain on investments sold .. $0.1479 $0.7715 $0.3613 $2.7712
------------ ------------ ------------ ------------
**Analysis of Fund Share Transactions:
Shares sold ......................................................... 7,672,953 1,880,717 747,624 106,470
Shares issued to shareholders in reinvestment of distributions ...... 213,374 573,736 23,538 106,255
------------ ------------ ------------ ------------
7,886,327 2,454,453 771,162 212,725
Less shares repurchased ............................................. (2,450,824) (2,286,756) (336,616) (228,113)
------------ ------------ ------------ ------------
Net Increase (Decrease) ........................................... 5,435,503 167,697 434,546 (15,388)
============ ============ ============ ============
</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,
----------------------------- -----------------------------
1998 1999 1998 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ........................................... $4,933,422 $4,155,133 $7,124 $3,645
Net realized gain on investments sold ........................... 54,376,230 71,775,828 211,135 295,853
Change in net unrealized appreciation/depreciation of
investments ................................................... 73,641,789 17,841,527 599,553 922,438
------------- ------------- ------------- -------------
Net Increase in Net Assets from Operations .................... 132,951,441 93,772,488 817,812 1,221,936
------------- ------------- ------------- -------------
Distributions to Shareholders: *
Dividends from net investment income ............................ (4,912,959) (4,534,833) (7,336) (4,291)
Distributions in excess of net investment income ................ -- -- -- (1,769)
Distributions from net realized gain on investments sold ........ (45,208,159) (74,134,615) (132,773) (243,704)
------------- ------------- ------------- -------------
Total Distributions to Shareholders ........................... (50,121,118) (78,669,448) (140,109) (249,764)
------------- ------------- ------------- -------------
From Fund Share Transactions: **
Shares sold ..................................................... 265,869,777 141,552,444 3,657,210 3,737,661
Shares issued to shareholders in reinvestment of
distributions ................................................. 50,122,592 77,658,752 140,097 249,790
------------- ------------- ------------- -------------
315,992,369 219,211,196 3,797,307 3,987,451
Less shares repurchased ......................................... (146,757,914) (254,111,398) (752,800) (1,710,541)
------------- ------------- ------------- -------------
Net Increase (Decrease) ....................................... 169,234,455 (34,900,202) 3,044,507 2,276,910
------------- ------------- ------------- -------------
Net Assets:
Beginning of period ............................................. 320,028,639 572,093,417 883,285 4,605,495
------------- ------------- ------------- -------------
End of period (including undistributed net investment
income (distributions in excess) of $788,223, $409,597,
$646 and ($38), respectively) ................................. $572,093,417 $552,296,255 $4,605,495 $7,854,577
============= ============= ============= =============
* Distributions to Shareholders
Per share dividends from net investment income .................. $0.1667 $0.1350 $0.0266 $0.0108
------------- ------------- ------------- -------------
Per share distributions in excess of net investment income ...... -- -- -- $0.0047
------------- ------------- ------------- -------------
Per share distributions from net realized gain on investments
sold and foreign currency transactions ........................ $1.3273 $2.3923 $0.4820 $0.6213
------------- ------------- ------------- -------------
**Analysis of Fund Share Transactions:
Shares sold ..................................................... 18,671,866 8,858,010 274,154 227,978
Shares issued to shareholders in reinvestment of distributions .. 3,704,135 4,981,738 10,945 14,225
------------- ------------- ------------- -------------
22,376,001 13,839,748 285,099 242,203
Less shares repurchased ......................................... (10,157,269) (15,920,888) (55,833) (106,691)
------------- ------------- ------------- -------------
Net Increase (Decrease) ....................................... 12,218,732 (2,081,140) 229,266 135,512
============= ============= ============= =============
</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,
----------------------------------
1998 1999
------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ................................................................ $53,439 $60,605
Net realized gain on investments sold ................................................ 730,981 1,069,926
Change in net unrealized appreciation/depreciation of investments .................... 1,628,168 (1,128,728)
------------ ------------
Net Increase in Net Assets from Operations ......................................... 2,412,588 1,803
------------ ------------
Distributions to Shareholders: *
Dividends from net investment income ................................................. (56,108) (63,104)
Distributions from net realized gain on investments sold ............................. (523,103) (958,878)
------------ ------------
Total Distributions to Shareholders ................................................ (579,211) (1,021,982)
------------ ------------
From Fund Share Transactions: **
Shares sold .......................................................................... 10,618,575 3,319,841
Shares issued to shareholders in reinvestment of distributions ....................... 579,211 1,021,983
------------ ------------
11,197,786 4,341,824
Less shares repurchased .............................................................. (8,549,263) (2,636,138)
------------ ------------
Net Increase ....................................................................... 2,648,523 1,705,686
------------ ------------
Net Assets:
Beginning of period .................................................................. 5,239,876 9,721,776
------------ ------------
End of period (including undistributed net investment income
of $6,969 and $4,774, respectively) ................................................ $9,721,776 $10,407,283
============ ============
* Distributions to Shareholders
Per share dividends from net investment income ....................................... $0.0901 $0.0860
------------ ------------
Per share distributions from net realized gain on investments sold ................... $0.8402 $1.3068
------------ ------------
**Analysis of Fund Share Transactions:
Shares sold .......................................................................... 859,487 256,677
Shares issued to shareholders in reinvestment of distributions ....................... 49,044 84,531
------------ ------------
908,531 341,208
Less shares repurchased .............................................................. (678,916) (207,351)
------------ ------------
Net Increase ....................................................................... 229,615 133,857
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust - Independence Balanced Fund
Financial Highlights
The following tables include selected data for a share outstanding throughout
each period, total investment return, key ratios and supplemental data.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM JULY 6, 1995 YEAR ENDED FEBRUARY 28,
(COMMENCEMENT OF OPERATIONS) -----------------------------
TO FEBRUARY 29, 1996 1997 1998 1999
-------------------- ------- ------- -------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................... $8.50 $9.25 $9.94 $11.42
------ ------- ------- -------
Net Investment Income (3) ...................................... 0.25 0.38 0.38 0.26
Net Realized and Unrealized Gain on Investments ................ 0.63 0.73 1.60 1.37
------ ------- ------- -------
Total from Investment Operations ........................... 0.88 1.11 1.98 1.63
------ ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ......................... (0.13) (0.34) (0.35) (0.29)
Distributions from Net Realized Gain on Investments Sold ..... -- (0.08) (0.15) (0.77)
------ ------- ------- -------
Total Distributions ........................................ (0.13) (0.42) (0.50) (1.06)
------ ------- ------- -------
Net Asset Value, End of Period ................................. $9.25 $9.94 $11.42 $11.99
====== ======= ======= =======
Total Investment Return at Net Asset Value (6) ................. 10.42%(2) 12.36% 20.44% 14.50%
Total Adjusted Investment Return at Net Asset Value (6,7) ...... 7.36%(2) 11.62% 20.28% 14.45%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ....................... $5,155 $13,093 $77,116 $82,969
Ratio of Expenses to Average Net Assets ........................ 0.90%(1) 0.90% 0.90% 0.90%
Ratio of Adjusted Expenses to Average Net Assets (4,5) ......... 5.58%(1) 1.64% 1.06% 0.95%
Ratio of Net Investment Income to Average Net Assets ........... 3.96%(1) 3.96% 3.52% 2.26%
Ratio of Adjusted Net Investment Income (Loss) to Average Net
Assets (4,5) ................................................. (0.72%)(1) 3.22% 3.36% 2.21%
Portfolio Turnover Rate ........................................ 31% 149% 224% 158%
Fee Reduction Per Share (3) .................................... $0.29 $0.07 $0.02 $0.01
</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.
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indi cated: net investment income, gains (losses),
distributions and total investment return of each Fund. It shows how the Fund's
net asset value for a share has changed since the commencement of operations.
Additionally, important rela tionships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust - Independence Value Fund
Financial Highlights (continued)
The following tables include selected data for a share outstanding throughout
each period, total investment return, key ratios and supplemental data.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM OCTOBER 2, 1995 YEAR ENDED FEBRUARY 28,
(COMMENCEMENT OF OPERATIONS) -----------------------------------------
TO FEBRUARY 29, 1996 1997 1998 1999
-------------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................ $8.50 $9.47 $10.88 $13.93
--------- --------- --------- ---------
Net Investment Income (3) ................................... 0.10 0.23 0.21 0.15
Net Realized and Unrealized Gain on Investments ............. 0.96 1.77 3.33 1.23
--------- --------- --------- ---------
Total from Investment Operations ........................ 1.06 2.00 3.54 1.38
--------- --------- --------- ---------
Less Distributions:
Dividends from Net Investment Income ...................... (0.09) (0.19) (0.13) (0.18)
Distributions from Net Realized Gain on Investments Sold .. -- (0.40) (0.36) (2.77)
--------- --------- --------- ---------
Total Distributions ..................................... (0.09) (0.59) (0.49) (2.95)
--------- --------- --------- ---------
Net Asset Value, End of Period .............................. $9.47 $10.88 $13.93 $12.36
========= ========= ========= =========
Total Investment Return at Net Asset Value (6) .............. 12.52%(2) 21.36% 32.97% 9.87%
Total Adjusted Investment Return at Net Asset Value (6,7) ... (1.18%)(2) 15.92% 32.02% 8.94%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................... $682 $1,323 $7,747 $6,685
Ratio of Expenses to Average Net Assets ..................... 0.95%(1) 0.95% 0.95% 0.95%
Ratio of Adjusted Expenses to Average Net Assets (4,5) ...... 34.06%(1) 6.39% 1.90% 1.88%
Ratio of Net Investment Income to Average Net Assets ........ 2.81%(1) 2.26% 1.60% 1.03%
Ratio of Adjusted Net Investment Income (Loss) to Average
Net Assets (4,5) .......................................... (30.30%)(1) (3.18%) 0.65% 0.10%
Portfolio Turnover Rate ..................................... 12% 66% 119% 61%
Fee Reduction Per Share (3) ................................. $1.22 $0.55 $0.12 $0.13
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Unreimbursed, without fee reduction.
(5) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
(6) Total investment return assumes dividend reinvestment.
(7) An estimated total return calculation that does not take into
consideration fee reductions by the Adviser during the periods shown.
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Institutional Series Trust
- Independence Diversified Core Equity Fund II
Financial Highlights (continued)
The following tables include 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 1999
-------------------- -------- -------- --------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ................................ $8.50 $10.96 $12.76 $15.34
-------- -------- -------- --------
Net Investment Income (3) ........................................... 0.20 0.20 0.17 0.12
Net Realized and Unrealized Gain on Investments and
Foreign Currency Transactions ..................................... 2.38 2.23 3.91 2.76
-------- -------- -------- --------
Total from Investment Operations ................................ 2.58 2.43 4.08 2.88
-------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income .............................. (0.11) (0.19) (0.17) (0.14)
Distributions from Net Realized Gains on Investments Sold and
Foreign Currency Transactions ................................... (0.01) (0.44) (1.33) (2.39)
-------- -------- -------- --------
Total Distributions ............................................. (0.12) (0.63) (1.50) (2.53)
-------- -------- -------- --------
Net Asset Value, End of Period ...................................... $10.96 $12.76 $15.34 $15.69
======== ======== ======== ========
Total Investment Return at Net Asset Value (6) ...................... 30.48%(2) 22.63% 33.61% 18.98%
Total Adjusted Investment Return at Net Asset Value (6,7) ........... 30.42%(2) N/A N/A N/A
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............................ $188,679 $320,029 $572,093 $552,296
Ratio of Expenses to Average Net Assets ............................. 0.70%(1) 0.67% 0.65% 0.63%
Ratio of Adjusted Expenses to Average Net Assets (4,5) .............. 0.76%(1) N/A N/A N/A
Ratio of Net Investment Income to Average Net Assets ................ 2.00%(1) 1.65% 1.12% 0.76%
Ratio of Adjusted Net Investment Income to Average Net Assets (4,5).. 1.94%(1) N/A N/A N/A
Portfolio Turnover Rate ............................................. 39% 81% 76% 55%
Fee Reduction Per Share (3) ......................................... $0.01 N/A N/A N/A
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Unreimbursed, without fee reduction.
(5) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
(6) Total investment return assumes dividend reinvestment.
(7) An estimated total return calculation that does not take into
consideration fee reductions by the Adviser during the periods shown.
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust - Independence Growth Fund
Financial Highlights (continued)
The following tables include selected data for a share outstanding throughout
each period, total investment return, key ratios and supplemental data.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM OCTOBER 2, 1995 YEAR ENDED FEBRUARY 28,
(COMMENCEMENT OF OPERATIONS) ----------------------------------
TO FEBRUARY 29, 1996 1997 1998 1999
---------------------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................ $8.50 $9.29 $11.01 $14.88
--------- --------- --------- ---------
Net Investment Income (3) ....................................... 0.03 0.05 0.04 0.01
Net Realized and Unrealized Gain on Investments ................. 0.81 2.16 4.34 3.40
--------- --------- --------- ---------
Total from Investment Operations ............................. 0.84 2.21 4.38 3.41
--------- --------- --------- ---------
Less Distributions:
Dividends from Net Investment Income ........................... (0.03) (0.04) (0.03) (0.02)
Distributions in Excess of Net Investment Income ............... -- -- -- (0.00)(8)
Distributions from Net Realized Gain on Investments ............ (0.02) (0.45) (0.48) (0.62)
--------- --------- --------- ---------
Total Distributions .......................................... (0.05) (0.49) (0.51) (0.64)
--------- --------- --------- ---------
Net Asset Value, End of Period .................................. $9.29 $11.01 $14.88 $17.65
========= ========= ========= =========
Total Investment Return at Net Asset Value (6) .................. 9.94%(2) 24.19% 40.52% 22.92%
Total Adjusted Investment Return at Net Asset Value (6,7) ....... (5.63%)(2) 17.40% 37.95% 21.89%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........................ $549 $883 $4,605 $7,855
Ratio of Expenses to Average Net Assets ......................... 0.95%(1) 0.95% 0.95% 0.95%
Ratio of Adjusted Expenses to Average Net Assets (4,5) .......... 38.57%(1) 7.74% 3.52% 1.98%
Ratio of Net Investment Income to Average Net Assets ............ 0.91%(1) 0.49% 0.34% 0.06%
Ratio of Adjusted Net Investment Loss to Average
Net Assets (4,5) .............................................. (36.71%)(1) (6.30%) (2.23%) (0.97%)
Portfolio Turnover Rate ......................................... 21% 142% 91% 54%
Fee Reduction Per Share (3) ..................................... $1.36 $0.68 $0.33 $0.17
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Unreimbursed, without fee reduction.
(5) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
(6) Total investment return assumes dividend reinvestment.
(7) An estimated total return calculation that does not take into consideration
fee reductions by the Adviser during the periods shown.
(8) Less than $0.01 per share.
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust - Independence Medium
Capitalization Fund
Financial Highlights (continued)
The following tables include selected data for a share outstanding throughout
each period, total investment return, key ratios and supplemental data.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM OCTOBER 2, 1995 YEAR ENDED FEBRUARY 28,
(COMMENCEMENT OF OPERATIONS) -------------------------------------
TO FEBRUARY 29, 1996 1997 1998 1999
---------------------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period .............................. $8.50 $9.29 $10.45 $13.30
--------- --------- --------- ---------
Net Investment Income (3) ......................................... 0.08 0.12 0.09 0.08
Net Realized and Unrealized Gain on Investments ................... 0.74 1.45 3.69 0.06
--------- --------- --------- ---------
Total from Investment Operations ............................... 0.82 1.57 3.78 0.14
--------- --------- --------- ---------
Less Distributions:
Dividends from Net Investment Income ............................. (0.03) (0.12) (0.09) (0.09)
Distributions from Net Realized Gain on Investments Sold ......... -- (0.29) (0.84) (1.31)
--------- --------- --------- ---------
Total Distributions ............................................ (0.03) (0.41) (0.93) (1.40)
--------- --------- --------- ---------
Net Asset Value, End of Period .................................... $9.29 $10.45 $13.30 $12.04
========= ========= ========= =========
Total Investment Return at Net Asset Value (6) .................... 9.71%(2) 17.19% 37.30% 0.96%
Total Adjusted Investment Return at Net Asset Value (6,7) ......... 7.00%(2) 15.49% 36.94% 0.36%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .......................... $3,923 $5,240 $9,722 $10,407
Ratio of Expenses to Average Net Assets ........................... 1.00%(1) 1.00% 1.00% 1.00%
Ratio of Adjusted Expenses to Average Net Assets (4,5) ............ 7.55%(1) 2.70% 1.36% 1.60%
Ratio of Net Investment Income to Average Net Assets .............. 1.94%(1) 1.26% 0.75% 0.59%
Ratio of Adjusted Net Investment Income (Loss) to
Average Net Assets (4,5) (4.61%)(1) (0.44%) 0.39% (0.01%)
Portfolio Turnover Rate ........................................... 3% 78% 65% 67%
Fee Reduction Per Share (3) ....................................... $0.26 $0.17 $0.04 $0.08
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Unreimbursed, without fee reduction.
(5) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
(6) Total investment return assumes dividend reinvestment.
(7) An estimated total return calculation that does not take into consideration
fee reductions by the Adviser during the periods shown.
SEE NOTES TO FINANCIAL STATEMENTS.
30
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust - Independence Balanced Fund
Schedule of Investments
February 28, 1999
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Independence Balanced Fund on February 28, 1999. It's divided into four main
categories: common stocks, corporate bonds, U.S. government and agencies
securities and short-term investments. The Common Stocks and Corporate Bonds 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 (2.39%)
General Dynamics Corp. ....................... 5,200 $314,275
Lockheed Martin Corp. ........................ 10,900 410,794
Precision Castparts Corp. .................... 4,500 167,063
United Technologies Corp. .................... 8,800 1,090,100
----------
1,982,232
----------
Automobile/Trucks (1.34%)
Dana Corp. ................................... 3,600 135,900
Ford Motor Co. ............................... 14,000 830,375
Ryder System, Inc. ........................... 5,500 148,500
----------
1,114,775
----------
Banks - United States (6.24%)
Bank One Corp. ............................... 9,000 483,750
BankAmerica Corp. ............................ 4,600 300,438
Citigroup, Inc. .............................. 32,900 1,932,875
Comerica, Inc. ............................... 15,200 1,007,000
First Tennessee National Corp. ............... 7,500 285,469
Wells Fargo Co. .............................. 31,800 1,168,650
----------
5,178,182
----------
Beverages (0.87%)
Anheuser-Busch Cos., Inc. .................... 9,400 720,863
----------
Building (0.25%)
Masco Corp. .................................. 7,800 204,750
----------
Computers (6.64%)
Cadence Design Systems, Inc.* ................ 3,500 84,219
Cisco Systems, Inc.* ......................... 3,400 332,563
Compaq Computer Corp. ........................ 18,400 648,600
Computer Associates International, Inc. ...... 10,200 428,400
Dell Computer Corp.* ......................... 7,800 624,975
Edwards (J.D.) & Co.* ........................ 16,500 260,906
International Business Machines Corp. ........ 4,700 799,000
Microsoft Corp.* ............................. 15,500 2,326,938
----------
5,505,601
----------
Cosmetics & Personal Care (0.59%)
Avon Products, Inc. .......................... 2,500 104,063
Dial Corp. (The) ............................. 13,200 385,275
----------
489,338
----------
Diversified Operations (1.89%)
Canadian Pacific, Ltd. (Canada) (Y) .......... 5,700 105,806
Textron, Inc. ................................ 3,500 273,000
Tyco International Ltd. ...................... 16,000 1,191,000
----------
1,569,806
----------
Electronics (5.02%)
General Electric Co. ......................... 17,400 1,745,438
Honeywell, Inc. .............................. 8,300 580,481
Intel Corp. .................................. 14,300 1,715,106
Texas Instruments, Inc. ...................... 1,400 124,863
----------
4,165,888
----------
Finance (0.56%)
Associates First Capital Corp. (Class A) ..... 8,752 355,550
MBNA Corp. ................................... 4,350 105,488
----------
461,038
----------
Food (1.74%)
Bestfoods .................................... 9,400 441,213
Flowers Industries, Inc. ..................... 14,300 348,563
General Mills, Inc. .......................... 1,200 96,825
Heinz (H.J.) Co. ............................. 5,200 283,075
Quaker Oats Co. .............................. 5,000 273,125
----------
1,442,801
----------
Insurance (3.34%)
Allstate Corp. (The) ......................... 6,400 240,000
American International Group, Inc. ........... 7,200 820,350
CIGNA Corp. .................................. 3,700 290,450
Hartford Financial Services Group, Inc. (The) 8,400 454,125
Hartford Life, Inc. (Class A) ................ 2,800 162,400
Marsh & McLennan Cos., Inc. .................. 7,900 559,419
Travelers Property Casualty Corp. (Class A) .. 6,400 242,800
----------
2,769,544
----------
Machinery (0.61%)
Ingersoll-Rand Co. ........................... 10,600 503,500
----------
Media (0.82%)
Viacom, Inc. (Class B)* ...................... 7,700 680,488
----------
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
- ------------------- ------ -----
Medical (7.41%)
Abbott Laboratories .......................... 14,100 $654,769
Bristol-Myers Squibb Co. ..................... 5,700 717,844
Cardinal Health, Inc. ........................ 12,150 877,078
Health Management Associates, Inc. (Class A)* 12,150 157,191
HEALTHSOUTH Corp.* ........................... 29,200 339,450
Johnson & Johnson ............................ 3,500 298,813
Lilly (Eli) & Co. ............................ 1,700 160,969
Lincare Holdings, Inc.* ...................... 4,400 156,750
Merck & Co., Inc. ............................ 11,400 931,950
Mylan Laboratories, Inc. ..................... 6,600 180,263
Omnicare, Inc. ............................... 5,100 122,081
Pfizer, Inc. ................................. 2,200 290,263
Schering-Plough Corp. ........................ 10,400 581,750
Sepracor, Inc. * ............................. 1,100 137,225
Warner-Lambert Co. ........................... 3,100 214,094
Wellpoint Health Networks, Inc.* ............. 4,200 331,275
----------
6,151,765
----------
Mortgage Banking (1.04%)
Fannie Mae ................................... 12,300 861,000
----------
Office (0.88%)
Avery Dennison Corp. ......................... 1,900 102,006
Pitney Bowes, Inc. ........................... 7,900 499,181
Reynolds & Reynolds Co. (The) (Class A) ...... 6,800 128,350
----------
729,537
----------
Oil & Gas (1.57%)
BP Amoco PLC American Depositary Receipts (ADR)
(United Kingdom) (Y) ........................ 5,600 476,000
Exxon Corp. .................................. 4,800 319,500
Mobil Corp. .................................. 2,800 232,925
Sunoco, Inc. ................................. 5,700 173,494
USX - Marathon Group ......................... 4,800 99,300
----------
1,301,219
----------
Paper & Paper Products (0.51%)
Fort James Corp. ............................. 4,100 122,488
Smurfit-Stone Container Corp.* ............... 16,900 305,256
----------
427,744
----------
Pollution Control (0.23%)
Waste Management, Inc. ....................... 3,900 190,613
----------
Retail (3.50%)
Albertson's, Inc. ............................ 3,900 222,300
Home Depot, Inc. (The) ....................... 14,300 853,531
Lowe's Cos., Inc. ............................ 8,400 498,225
Tandy Corp. .................................. 11,700 650,813
Tricon Global Restaurants, Inc. * ........... 4,800 297,600
Wal-Mart Stores, Inc. ........................ 4,400 380,050
----------
2,902,519
----------
Soap & Cleaning Preparations (0.60%)
Procter & Gamble Co. (The) ................... 5,600 501,200
----------
Telecommunications (6.30%)
AT&T Corp. ................................... 12,700 1,042,987
Bell Atlantic Corp. .......................... 4,200 241,237
Lucent Technologies, Inc. .................... 10,400 1,056,250
MCI WorldCom, Inc.* .......................... 22,100 1,823,250
Northern Telecom Ltd. (Canada) (Y) ........... 6,800 394,825
Tellabs, Inc.* ............................... 8,400 672,524
----------
5,231,073
----------
Textile (0.59%)
Jones Apparel Group, Inc.* ................... 1,300 36,319
Tommy Hilfiger Corp.* ........................ 6,600 455,813
----------
492,132
----------
Tobacco (0.82%)
Philip Morris Cos., Inc. ..................... 12,100 473,413
UST, Inc. .................................... 6,900 203,981
----------
677,394
----------
Transportation (1.05%)
AMR Corp.* ................................... 1,900 105,331
Burlington Northern Santa Fe Corp. ........... 15,300 506,813
UAL Corp.* ................................... 4,400 262,900
----------
875,044
----------
Utilities (4.35%)
Ameritech Corp. .............................. 8,200 536,073
BellSouth Corp. .............................. 23,000 1,063,750
Consolidated Natural Gas Co. ................. 4,700 258,205
Dominion Resources, Inc. ..................... 3,800 146,773
El Paso Energy Corp. ......................... 4,400 160,325
Florida Progress Corp. ....................... 8,800 353,100
GTE Corp. .................................... 2,300 149,213
PECO Energy Co. .............................. 10,700 379,179
PG&E Corp. ................................... 6,200 195,300
Reliant Energy, Inc. ......................... 6,600 176,961
SBC Communications, Inc. ..................... 3,600 190,350
----------
3,609,229
----------
Waste Disposal Service & Equipment (0.19%)
Allied Waste Industries, Inc.* ............... 8,100 157,950
----------
TOTAL COMMON STOCKS
(Cost $40,888,483) ............ (61.34%) 50,897,225
------- ----------
SEE NOTES TO FINANCIAL STATEMENTS.
32
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust - Independence Balanced Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- ---- ------ -------- -----
<S> <C> <C> <C> <C>
CORPORATE BONDS
Aerospace (0.51%)
Raytheon Co.,
Sr Note 11-01-03.......................................................... 5.700% BBB $430 $422,380
------------
Automobile/Trucks (1.45%)
Ford Motor Co.,
Bond 10-01-28............................................................. 6.625 A 450 434,160
General Motors Acceptance Corp.,
Med Term Note 05-22-01.................................................... 6.800 A- 70 71,423
General Motors Corp.,
Bond 05-01-28............................................................. 6.750 A 710 696,432
------------
1,202,015
------------
Banks - United States (1.53%)
Capital One Bank,
Sr Note 06-20-00.......................................................... 7.350 Baa3 250 252,433
Chase Manhattan Corp.,
Sub Note 11-01-05......................................................... 6.000 A 540 529,475
PNC Funding Corp.,
Gtd Sub Note 09-01-03..................................................... 6.125 BBB+ 490 488,555
------------
1,270,463
------------
Beverages (0.43%)
Coca-Cola Enterprises, Inc.,
Deb 09-15-28.............................................................. 6.750 A+ 360 354,208
------------
Diversified Operations (0.28%)
Tyco International Group S.A.,
Gtd Note (Luxembourg) 06-15-01 (Y)........................................ 6.125 A- 230 230,771
------------
Finance (0.47%)
American General Finance Corp.,
Med Term Note Ser E 11-23-01.............................................. 5.750 A+ 390 390,390
------------
Government - Foreign (0.72%)
Quebec, Province of,
Deb (Canada) 07-15-23 (Y)................................................. 7.500 A+ 550 599,968
------------
Media (0.64%)
Viacom, Inc.,
Sr Note 06-01-05.......................................................... 7.750 BBB- 500 533,085
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust - Independence Balanced Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- ---- ------ -------- -----
<S> <C> <C> <C> <C>
Mortgage Banking (1.53%)
AMRESCO Commercial Mortgage Funding I Corp.,
Mtg Pass Thru Ctf Ser 1997-C1 Class A3 06-17-29........................... 7.190% AAA $348 $363,938
Chase Commercial Mortgage Securities Corp.,
Commercial Pass Thru Ctf Ser 1997-1 Class A2 02-19-07..................... 7.370 AAA 140 148,400
Credit Suisse First Boston Mortgage Securities Corp.,
Commercial Mtg Pass Thru Ctf Ser 1997-C1 Class A1C 04-20-07............... 7.240 AAA 580 612,805
Merrill Lynch Mortgage Investors, Inc.,
Mtg Pass Thru Ctf Ser 1997-C1 Class A3 06-18-29........................... 7.120 AAA 90 94,500
Mortgage Capital Funding, Inc.,
Commercial Mtg Pass Thru Ctf Ser 1996-MC2 Class A1 12-21-26............... 6.758 Aaa 46 47,212
------------
1,266,855
------------
Oil & Gas (0.49%)
Enron Corp.,
Note 09-10-04............................................................. 7.625 BBB+ 390 408,825
------------
Retail (1.31%)
Sears Roebuck Acceptance Corp.,
Med Term Note Ser II 06-26-01............................................. 7.130 A- 1,060 1,087,306
------------
Telecommunications (1.57%)
TCI Communications, Inc.,
Deb 09-15-04.............................................................. 8.650 BBB+ 1,000 1,125,900
WorldCom, Inc.,
Sr Note 04-01-07.......................................................... 7.750 BBB+ 160 175,565
------------
1,301,465
------------
Tobacco (0.50%)
Philip Morris Cos., Inc.,
Deb 10-15-03.............................................................. 8.250 A 200 215,500
Note 05-15-02............................................................. 7.625 A 190 198,007
------------
413,507
------------
Transportation (0.13%)
Norfolk Southern Corp.,
Bond 05-15-27............................................................. 7.800 BBB+ 100 111,020
------------
TOTAL CORPORATE BONDS
(Cost $9,671,632) (11.56%) 9,592,258
------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
34
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust - Independence Balanced Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- ---- ------ -------- -----
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES SECURITIES
Government - U.S. (25.98%)
United States Treasury,
Bond 08-15-26............................................................. 6.750% AAA $1,705 $1,923,717
Note 05-31-00............................................................. 5.500 AAA 3,590 3,606,837
Note 07-31-01............................................................. 6.625 AAA 5,370 5,539,477
Note 04-30-03............................................................. 5.750 AAA 1,370 1,391,399
Note 02-15-05............................................................. 7.500 AAA 855 945,442
Note 05-15-05............................................................. 6.500 AAA 4,030 4,262,370
Note 11-15-05............................................................. 5.875 AAA 460 471,500
Note 02-15-07............................................................. 6.250 AAA 950 998,982
Note 11-25-28............................................................. 5.250 AAA 2,560 2,418,400
-------------
TOTAL U.S. GOVERNMENT AND
AGENCIES SECURITIES
(Cost $21,941,069) (25.98%) 21,558,124
-------- -------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.46%)
Investment in a joint repurchase agreement transaction with
ABN AMRO, Inc. - Dated 02-26-99, due 03-01-99
(Secured by U.S. Treasury Bonds, 8.750% and 11.875%,
due 11-15-03 and 05-15-20 and U.S. Treasury Notes, 5.500% thru
7.875%, due 05-31-02 thru 08-15-07) - Note A.............................. 4.750 1,207 1,207,000
-------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.500%....................................................... 589
-------------
TOTAL SHORT-TERM INVESTMENTS (1.46%) 1,207,589
-------- -------------
TOTAL INVESTMENTS (100.34%) 83,255,196
-------- -------------
OTHER ASSETS AND LIABILITIES, NET (0.34%) (286,106)
-------- -------------
TOTAL NET ASSETS (100.00%) $82,969,090
======== =============
</TABLE>
* Non-income producing security.
** Credit ratings are rated by Moody's Investors Service or John Hancock
Advisers, Inc. where Standard and Poor's ratings are not available.
(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.
35
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust - Independence Value Fund
Schedule of Investments
February 28, 1999
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Independence Value Fund on February 28, 1999. 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 (4.93%)
General Dynamics Corp. ....................... 300 $18,131
Goodrich (B.F.) Co. (The) .................... 1,400 47,775
Lockheed Martin Corp. ........................ 1,200 45,225
Precision Castparts Corp. .................... 300 11,138
Sundstrand Corp. ............................. 500 33,844
United Technologies Corp. .................... 1,400 173,425
----------
329,538
----------
Automobile/Trucks (3.87%)
Dana Corp. ................................... 900 33,975
Federal-Mogul Corp. .......................... 600 29,513
Ford Motor Co. ............................... 2,200 130,487
Lear Corp.* .................................. 500 17,656
Meritor Automotive, Inc. ..................... 1,600 25,400
Ryder System, Inc. ........................... 800 21,600
----------
258,631
----------
Banks - United States (17.50%)
Bank of New York Co., Inc. ................... 1,600 55,900
Bank One Corp. ............................... 1,496 80,410
BankAmerica Corp. ............................ 2,304 150,480
Chase Manhattan Corp. ........................ 800 63,700
Citigroup, Inc. .............................. 2,800 164,500
Comerica, Inc. ............................... 2,550 168,937
First Tennessee National Corp. ............... 600 22,838
First Union Corp. ............................ 2,800 149,275
Fleet Financial Group, Inc. .................. 500 21,469
State Street Corp. ........................... 600 46,012
Wells Fargo Co. .............................. 6,700 246,225
----------
1,169,746
----------
Beverages (0.46%)
Anheuser-Busch Cos., Inc. .................... 400 30,675
----------
Building (1.63%)
Centex Corp. ................................. 800 29,450
Masco Corp. .................................. 1,200 31,500
Oakwood Homes Corp. .......................... 1,300 20,963
Webb (Del E.) Corp. .......................... 1,200 27,000
----------
108,913
----------
Chemicals (0.16%)
Solutia, Inc. ................................ 600 10,688
----------
Computers (4.15%)
Compaq Computer Corp. ........................ 1,000 35,250
Computer Associates International, Inc. ...... 500 21,000
First Data Corp. ............................. 900 34,425
International Business Machines Corp. ........ 1,100 187,000
----------
277,675
----------
Cosmetics & Personal Care (0.70%)
Dial Corp. (The) ............................. 1,600 46,700
----------
Diversified Operations (1.94%)
National Service Industries, Inc. ............ 1,200 38,550
Ogden Corp. .................................. 1,300 31,769
Tyco International Ltd. ...................... 800 59,550
----------
129,869
----------
Electronics (1.65%)
Honeywell, Inc. .............................. 1,100 76,931
Parker-Hannifin Corp. ........................ 450 16,706
Thomas & Betts Corp. ......................... 400 16,675
----------
110,312
----------
Finance (2.65%)
Associates First Capital Corp. (Class A) ..... 1,152 46,800
Fannie Mae ................................... 900 63,000
Morgan Stanley Dean Witter & Co. ............. 700 63,350
Washington Mutual, Inc. ...................... 100 4,000
----------
177,150
----------
Food (1.72%)
Bestfoods .................................... 900 42,244
Flowers Industries, Inc. ..................... 1,200 29,250
Quaker Oats Co. .............................. 800 43,700
----------
115,194
----------
SEE NOTES TO FINANCIAL STATEMENTS.
36
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust - Independence Value Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Insurance (9.88%)
Allstate Corp. (The) ......................... 2,800 $105,000
American International Group, Inc. ........... 900 102,544
Equitable Cos., Inc. (The) ................... 400 27,025
Hartford Financial Services
Group, Inc. (The) ........................... 2,400 129,750
Hartford Life, Inc. (Class A) ................ 600 34,800
Lincoln National Corp. ....................... 500 47,344
Marsh & McLennan Cos., Inc. .................. 1,550 109,759
PartnerRe Ltd. (Bermuda) ..................... 400 17,300
Travelers Property Casualty Corp. (Class A) .. 2,300 87,256
----------
660,778
----------
Machinery (0.89%)
Ingersoll-Rand Co. ........................... 1,250 59,375
----------
Media (1.72%)
Viacom, Inc. (Class B)* ...................... 1,300 114,887
----------
Medical (3.18%)
Cardinal Health, Inc. ........................ 1,200 86,625
HEALTHSOUTH Corp.* ........................... 3,800 44,175
Lincare Holdings, Inc.* ...................... 500 17,813
Mylan Laboratories, Inc. ..................... 900 24,581
Omnicare, Inc. ............................... 600 14,363
Sepracor, Inc. * ............................. 200 24,950
----------
212,507
----------
Office (1.42%)
Pitney Bowes, Inc. ........................... 1,500 94,781
----------
Oil & Gas (4.37%)
Baker Hughes, Inc. ........................... 2,500 45,000
BP Amoco Plc, American Depositary
Receipts (ADR) (United Kingdom) ............. 1,000 85,000
Sunoco, Inc. ................................. 1,400 42,612
Texaco, Inc. ................................. 1,900 88,469
USX - Marathon Group ......................... 1,500 31,031
----------
292,112
----------
Paper & Paper Products (0.36%)
Fort James Corp. ............................. 800 23,900
----------
Pollution Control (0.22%)
Waste Management, Inc. ....................... 300 14,663
----------
Retail (2.37%)
Albertson's, Inc. ............................ 1,100 62,700
Home Depot, Inc. (The) ....................... 400 23,875
Sears, Roebuck & Co. ......................... 300 12,188
Tandy Corp. .................................. 300 16,688
TJX Cos., Inc. ............................... 1,500 42,844
----------
158,295
----------
Telecommunications (8.93%)
AT&T Corp. ................................... 1,800 147,825
Bell Atlantic Corp. .......................... 2,800 160,825
Lucent Technologies, Inc. .................... 300 30,469
MCI WorldCom, Inc.* .......................... 1,500 123,750
Northern Telecom Ltd. (Canada) ............... 800 46,450
Tellabs, Inc.* ............................... 300 24,019
U S WEST, Inc. ............................... 1,200 63,975
----------
597,313
----------
Textile (1.72%)
Jones Apparel Group, Inc.* ................... 1,400 39,112
Tommy Hilfiger Corp.* ........................ 1,100 75,969
----------
115,081
----------
Tobacco (0.94%)
Philip Morris Cos., Inc. ..................... 200 7,825
Universal Corp. .............................. 600 16,313
UST, Inc. .................................... 1,300 38,431
----------
62,569
----------
Transportation (3.70%)
AMR Corp.* ................................... 500 27,719
Burlington Northern Santa Fe Corp. ........... 2,100 69,562
Delta Air Lines, Inc. ........................ 1,000 60,812
Kansas City Southern Industries, Inc. ........ 800 37,400
Southwest Airlines Co. ....................... 100 3,013
UAL Corp.* ................................... 500 29,875
US Airways Group, Inc.* ...................... 400 18,950
----------
247,331
----------
Utilities (17.62%)
Ameritech Corp. .............................. 1,800 117,675
Baltimore Gas & Electric Co. ................. 2,200 56,375
BellSouth Corp. .............................. 1,200 55,500
Consolidated Natural Gas Co. ................. 1,700 93,394
Dominion Resources, Inc. ..................... 900 34,762
DQE, Inc. .................................... 800 30,550
El Paso Energy Corp. ......................... 1,800 65,587
SEE NOTES TO FINANCIAL STATEMENTS.
37
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust - Independence Value Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Utilities (continued)
Florida Progress Corp. ....................... 2,600 $104,325
FPL Group, Inc. .............................. 1,200 61,725
GTE Corp. .................................... 1,900 123,262
Montana Power Co. ............................ 1,600 97,400
New Century Energies, Inc. ................... 300 12,169
NIPSCO Industries, Inc. ...................... 1,000 25,937
PECO Energy Co. .............................. 2,000 70,875
Reliant Energy, Inc. ......................... 2,000 53,625
SBC Communications, Inc. ..................... 3,300 174,487
----------
1,177,648
----------
TOTAL COMMON STOCKS
(Cost $5,561,823) (98.68%) 6,596,331
-------- ----------
INTEREST PAR VALUE MARKET
ISSER, DESCRIPTION RATE (000's OMITTED) VALUE
- ------------------ ---- --------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.57%)
Investment in a joint repurchase
agreement transaction with
ABN AMRO, Inc. - Dated 02-26-99,
due 03-01-99 (Secured by U.S.
Treasury Bonds, 8.750% and
11.875%, due 11-15-03 and
05-15-20 and U.S. Treasury Notes,
5.500% thru 7.875%, due 05-31-02
thru 08-15-07) - Note A... ............. 4.750% $105 $105,000
----------
Corporate Savings Account (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.500% ......................... 432
----------
TOTAL SHORT-TERM INVESTMENTS ............. (1.58%) 105,432
-------- ----------
TOTAL INVESTMENTS ............. (100.26%) 6,701,763
-------- ----------
OTHER ASSETS AND LIABILITIES, NET ............. (0.26%) (17,032)
-------- ----------
TOTAL NET ASSETS ............ (100.00%) $6,684,731
======== ==========
* 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.
38
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust - Independence Diversified
Core Equity Fund II
Schedule of Investments
February 28, 1999
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Independence Diversified Core Equity Fund II on February 28, 1999. It's divided
into two main categories: common stocks and short-term investments. Common
stocks are further broken down by industry group. Short-term investments, which
represent the Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Aerospace (3.75%)
General Dynamics Corp. ......................... 31,400 $1,897,737
Goodrich (B.F.) Co. (The) ...................... 62,500 2,132,812
Lockheed Martin Corp. .......................... 93,600 3,527,550
Precision Castparts Corp. ...................... 30,900 1,147,162
United Technologies Corp. ...................... 96,900 12,003,488
------------
20,708,749
------------
Automobile/Trucks (2.07%)
Ford Motor Co. ................................. 124,400 7,378,475
Lear Corp.* .................................... 53,600 1,892,750
Ryder System, Inc. ............................. 80,500 2,173,500
------------
11,444,725
------------
Banks - United States (10.04%)
Bank One Corp. ................................. 39,500 2,123,125
BankAmerica Corp. .............................. 98,000 6,400,625
Citigroup, Inc. ................................ 311,900 18,324,125
Comerica, Inc. ................................. 101,400 6,717,750
First Tennessee National Corp. ................. 20,000 761,250
First Union Corp. .............................. 31,900 1,700,669
Mellon Bank Corp. .............................. 96,500 6,525,812
Wells Fargo Co. ................................ 350,000 12,862,500
------------
55,415,856
------------
Beverages (1.76%)
Anheuser-Busch Cos., Inc. ...................... 98,700 7,569,056
PepsiCo, Inc. .................................. 56,400 2,122,050
------------
9,691,106
------------
Building (0.33%)
Masco Corp. .................................... 69,700 1,829,625
------------
Chemicals (0.39%)
Air Products & Chemicals, Inc. ................. 30,900 992,663
Solutia, Inc. .................................. 66,100 1,177,406
------------
2,170,069
------------
Computers (10.78%)
Cadence Design Systems, Inc.* .................. 59,600 1,434,125
Cisco Systems, Inc.* ........................... 49,500 4,841,719
Compaq Computer Corp. .......................... 223,400 7,874,850
Computer Associates International, Inc. ........ 101,000 4,242,000
Dell Computer Corp.* ........................... 87,200 6,986,900
Edwards (J.D.) & Co.* .......................... 193,400 3,058,137
International Business Machines Corp. .......... 46,200 7,854,000
Microsoft Corp.* ............................... 154,900 23,254,362
------------
59,546,093
------------
Cosmetics & Personal Care (1.18%)
Avon Products, Inc. ............................ 45,600 1,898,100
Dial Corp. (The) ............................... 158,500 4,626,219
------------
6,524,319
------------
Diversified Operations (2.93%)
Textron, Inc. .................................. 59,800 4,664,400
Tyco International Ltd. ........................ 154,900 11,530,369
------------
16,194,769
------------
Electronics (8.32%)
General Electric Co. ........................... 192,100 19,270,031
Honeywell, Inc. ................................ 85,300 5,965,669
Intel Corp. .................................... 162,200 19,453,862
Texas Instruments, Inc. ........................ 14,300 1,275,381
------------
45,964,943
------------
Finance (2.80%)
Associates First Capital Corp. (Class A) ....... 114,582 4,654,894
Fannie Mae ..................................... 154,900 10,843,000
------------
15,497,894
------------
Food (2.23%)
Bestfoods ...................................... 18,400 863,650
Heinz (H.J.) Co. ............................... 137,600 7,490,600
Quaker Oats Co. ................................ 72,300 3,949,387
------------
12,303,637
------------
Insurance (7.48%)
Allstate Corp. (The) ........................... 64,600 2,422,500
American International Group, Inc. ............. 90,600 10,322,738
SEE NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust - Independence Diversified
Core Equity Fund II
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Insurance (continued)
CIGNA Corp. .................................... 35,600 $2,794,600
Hartford Financial Services Group, Inc. (The) .. 164,800 8,909,500
Hartford Life, Inc. (Class A) .................. 48,200 2,795,600
Marsh & McLennan Cos., Inc. .................... 142,800 10,112,025
Travelers Property Casualty Corp. (Class A) .... 104,000 3,945,500
------------
41,302,463
------------
Machinery (0.47%)
Ingersoll-Rand Co. ............................. 54,900 2,607,750
------------
Media (1.22%)
Viacom, Inc. (Class B)* ........................ 75,900 6,707,663
------------
Medical (13.68%)
Abbott Laboratories ............................ 123,000 5,711,812
Bristol-Myers Squibb Co. ....................... 77,200 9,722,375
Cardinal Health, Inc. .......................... 132,800 9,586,500
Guidant Corp. .................................. 45,600 2,599,200
HEALTHSOUTH Corp.* ............................. 342,400 3,980,400
Johnson & Johnson .............................. 24,400 2,083,150
Lilly (Eli) & Co. .............................. 40,500 3,834,844
Lincare Holdings, Inc.* ........................ 42,800 1,524,750
Merck & Co., Inc. .............................. 119,200 9,744,600
Mylan Laboratories, Inc. ....................... 127,900 3,493,269
Omnicare, Inc. ................................. 66,400 1,589,450
Pfizer, Inc. ................................... 57,700 7,612,794
Schering-Plough Corp. .......................... 106,800 5,974,125
Sepracor, Inc. * ............................... 11,400 1,422,150
Warner-Lambert Co. ............................. 47,200 3,259,750
Wellpoint Health Networks, Inc.* ............... 43,500 3,431,063
------------
75,570,232
------------
Office (0.70%)
Pitney Bowes, Inc. ............................. 61,300 3,873,394
------------
Oil & Gas (1.28%)
Exxon Corp. .................................... 87,900 5,850,844
Sunoco, Inc. ................................... 39,900 1,214,456
------------
7,065,300
------------
Paper & Paper Products (0.78%)
Fort James Corp. ............................... 37,300 1,114,337
Smurfit-Stone Container Corp.* ................. 178,300 3,220,544
------------
4,334,881
------------
Pollution Control (0.58%)
Waste Management, Inc. ......................... 66,100 3,230,638
------------
Retail (5.46%)
Albertson's, Inc. .............................. 12,000 684,000
Consolidated Stores Corp.* ..................... 53,700 1,352,569
Home Depot, Inc. (The) ......................... 189,000 11,280,937
Lowe's Cos., Inc. .............................. 147,500 8,748,594
Tandy Corp. .................................... 44,100 2,453,063
Tricon Global Restaurants, Inc. * ............. 13,800 855,600
Wal-Mart Stores, Inc. .......................... 55,100 4,759,263
------------
30,134,026
------------
Soap & Cleaning Preparations (1.27%)
Colgate-Palmolive Co. .......................... 62,400 5,296,200
Procter & Gamble Co. (The) ..................... 19,300 1,727,350
------------
7,023,550
------------
Telecommunications (8.04%)
AT&T Corp. ..................................... 94,700 7,777,237
Bell Atlantic Corp. ............................ 36,900 2,119,444
Lucent Technologies, Inc. ...................... 113,300 11,507,031
MCI WorldCom, Inc.* ............................ 159,500 13,158,750
Northern Telecom Ltd. (Canada) ................. 83,000 4,819,187
Tellabs, Inc.* ................................. 45,000 3,602,812
U S WEST, Inc. ................................. 26,700 1,423,444
------------
44,407,905
------------
Textile (0.56%)
Tommy Hilfiger Corp.* .......................... 44,600 3,080,188
------------
Tobacco (1.41%)
Philip Morris Cos., Inc. ....................... 108,000 4,225,500
UST, Inc. ...................................... 120,000 3,547,500
------------
7,773,000
------------
Transportation (1.68%)
Burlington Northern Santa Fe Corp. ............. 136,200 4,511,625
Delta Air Lines, Inc. .......................... 40,200 2,444,662
UAL Corp.* ..................................... 22,300 1,332,425
US Airways Group, Inc.* ........................ 20,500 971,188
------------
9,259,900
------------
Utilities (8.11%)
Ameren Corp. ................................... 29,300 1,093,256
Ameritech Corp. ................................ 159,800 10,446,925
BellSouth Corp. ................................ 139,600 6,456,500
Consolidated Natural Gas Co. ................... 35,100 1,928,306
El Paso Energy Corp. ........................... 30,200 1,100,412
Florida Progress Corp. ......................... 119,600 4,798,950
FPL Group, Inc. ................................ 53,700 2,762,194
GTE Corp. ...................................... 80,200 5,202,975
Montana Power Co. .............................. 54,600 3,323,775
SEE NOTES TO FINANCIAL STATEMENTS.
40
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust - Independence Diversified
Core Equity Fund II
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Utilities (continued)
PECO Energy Co. ................................ 153,700 $5,446,744
PG&E Corp. ..................................... 26,200 825,300
Reliant Energy, Inc. ........................... 51,900 1,391,569
------------
44,776,906
------------
TOTAL COMMON STOCKS
(Cost $403,350,363) .............. (99.30%) 548,439,581
-------- ------------
INTEREST PAR VALUE MARKET
ISSER, DESCRIPTION RATE (000's OMITTED) VALUE
- ------------------ ---- --------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (0.54%)
Investment in a joint repurchase
agreement transaction with
ABN AMRO, Inc. - Dated 02-26-99,
due 03-01-99 (Secured by U.S.
Treasury Bonds, 8.750% and
11.875%, due 11-15-03 and
05-15-20 and U.S. Treasury Notes,
5.500% thru 7.875%, due 05-31-02
thru 08-15-07) - Note A............... 4.750% $2,966 $2,966,000
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.500% ........................... 677
------------
TOTAL SHORT-TERM INVESTMENTS (0.54%) 2,966,677
-------- ------------
TOTAL INVESTMENTS (99.84%) 551,406,258
-------- ------------
OTHER ASSETS AND LIABILITIES, NET (0.16%) 889,997
-------- ------------
TOTAL NET ASSETS (100.00%) $552,296,255
======== ============
* 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.
41
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust - Independence Growth Fund
Schedule of Investments
February 28, 1999
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Independence Growth Fund on February 28, 1999. It's divided into two main
categories: common stocks and short-term investments. Common stocks are further
broken down by industry groups. Short-term investments, which represent the
Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Advertising (0.68%)
Omnicom Group, Inc. ............................ 800 $53,000
------------
Aerospace (2.85%)
General Dynamics Corp. ......................... 400 24,175
Goodrich (B.F.) Co. (The) ...................... 1,200 40,950
Lockheed Martin Corp. .......................... 600 22,613
United Technologies Corp. ...................... 1,100 136,263
------------
224,001
------------
Automobile/Trucks (1.07%)
Federal-Mogul Corp. ............................ 400 19,675
Ford Motor Co. ................................. 900 53,381
Lear Corp.* .................................... 300 10,594
------------
83,650
------------
Banks - United States (4.58%)
Citigroup, Inc. ................................ 3,400 199,750
Comerica, Inc. ................................. 800 53,000
Wells Fargo Co. ................................ 2,900 106,575
------------
359,325
------------
Beverages (0.77%)
PepsiCo, Inc. .................................. 1,600 60,200
------------
Building (0.27%)
Centex Corp. ................................... 200 7,362
Clayton Homes, Inc. ............................ 1,125 13,922
------------
21,284
------------
Chemicals (0.11%)
Solutia, Inc. .................................. 500 8,906
------------
Computers (13.47%)
Cadence Design Systems, Inc.* .................. 1,000 24,063
Cisco Systems, Inc.* ........................... 1,600 156,500
Compaq Computer Corp. .......................... 3,800 133,950
Computer Associates International, Inc. ........ 2,500 105,000
Dell Computer Corp.* ........................... 1,900 152,237
Edwards (J.D.) & Co.* .......................... 2,100 33,206
Microsoft Corp.* ............................... 2,600 390,325
Network Appliance, Inc.* ....................... 800 33,600
Sun Microsystems, Inc.* ........................ 300 29,194
------------
1,058,075
------------
Cosmetics & Personal Care (1.12%)
Avon Products, Inc. ............................ 1,200 49,950
Dial Corp. (The) ............................... 1,300 37,944
------------
87,894
------------
Diversified Operations (2.11%)
Textron, Inc. .................................. 500 39,000
Tyco International Ltd. ........................ 1,700 126,544
------------
165,544
------------
Electronics (10.25%)
Analog Devices, Inc.* .......................... 600 15,038
General Electric Co. ........................... 2,900 290,906
Honeywell, Inc. ................................ 1,100 76,931
Intel Corp. .................................... 3,000 359,812
Texas Instruments, Inc. ........................ 700 62,431
------------
805,118
------------
Finance (2.72%)
Associates First Capital Corp. (Class A) ....... 1,000 40,625
Fannie Mae ..................................... 1,900 133,000
MBNA Corp. ..................................... 1,650 40,013
------------
213,638
------------
Food (1.57%)
Flowers Industries, Inc. ....................... 2,600 63,375
Heinz (H.J.) Co. ............................... 300 16,331
Quaker Oats Co. ................................ 800 43,700
------------
123,406
------------
Insurance (4.53%)
Allstate Corp. (The) ........................... 600 22,500
American International Group, Inc. ............. 1,050 119,634
CIGNA Corp. .................................... 700 54,950
Hartford Life, Inc. (Class A) .................. 900 52,200
Marsh & McLennan Cos., Inc. .................... 1,200 84,975
PartnerRe Ltd. (Bermuda) ....................... 500 21,625
------------
355,884
------------
SEE NOTES TO FINANCIAL STATEMENTS.
42
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust - Independence Growth Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Media (1.13%)
Viacom, Inc. (Class B)* ........................ 1,000 $88,375
------------
Medical (20.70%)
Abbott Laboratories ............................ 2,800 130,025
Amgen, Inc.* ................................... 900 112,387
Becton, Dickinson & Co. ........................ 600 20,100
Bristol-Myers Squibb Co. ....................... 900 113,344
Cardinal Health, Inc. .......................... 2,100 151,594
Guidant Corp. * ................................ 1,600 91,200
HEALTHSOUTH Corp.* ............................. 7,800 90,675
Johnson & Johnson .............................. 1,200 102,450
Lilly (Eli) & Co. .............................. 900 85,219
Lincare Holdings, Inc.* ........................ 600 21,375
McKesson HBOC, Inc. ............................ 300 20,400
Medtronic, Inc. ................................ 800 56,500
Merck & Co., Inc. .............................. 1,600 130,800
Mylan Laboratories, Inc. ....................... 800 21,850
Omnicare, Inc. ................................. 2,700 64,631
Pfizer, Inc. ................................... 1,300 171,519
Schering-Plough Corp. .......................... 2,400 134,250
Sepracor, Inc. * ............................... 200 24,950
Warner-Lambert Co. ............................. 1,200 82,875
------------
1,626,144
------------
Office (1.13%)
Pitney Bowes, Inc. ............................. 1,200 75,825
Reynolds & Reynolds Co. (The) (Class A) ........ 700 13,213
------------
89,038
------------
Paper & Paper Products (0.70%)
Fort James Corp. ............................... 800 23,900
Smurfit-Stone Container Corp.* ................. 1,700 30,706
------------
54,606
------------
Pollution Control (1.91%)
Allied Waste Industries, Inc.* ................. 4,200 81,900
Waste Management, Inc. ......................... 1,400 68,425
------------
150,325
------------
Retail (7.61%)
Albertson's, Inc. .............................. 500 28,500
Consolidated Stores Corp.* ..................... 1,100 27,706
Dayton Hudson Corp. ............................ 1,100 68,819
Home Depot, Inc. (The) ......................... 3,700 220,844
Lowe's Cos., Inc. .............................. 1,800 106,763
Tandy Corp. .................................... 600 33,375
TJX Cos., Inc. (The) ........................... 900 25,706
Wal-Mart Stores, Inc. .......................... 1,000 86,375
------------
598,088
------------
Soap & Cleaning Preparations (0.32%)
Colgate-Palmolive Co. .......................... 300 25,462
------------
Telecommunications (9.28%)
AT&T Corp. ..................................... 900 73,912
Lucent Technologies, Inc. ...................... 2,700 274,219
MCI WorldCom, Inc.* ............................ 2,200 181,500
Northern Telecom Ltd. (Canada) ................. 900 52,256
Tellabs, Inc.* ................................. 1,700 136,106
US WEST, Inc. .................................. 200 10,663
------------
728,656
------------
Textile (1.45%)
Jones Apparel Group, Inc.* ..................... 1,600 44,700
Tommy Hilfiger Corp.* .......................... 1,000 69,063
------------
113,763
------------
Tobacco (1.69%)
Philip Morris Cos., Inc. ....................... 1,800 70,425
Universal Corp. ................................ 1,100 29,906
UST, Inc. ...................................... 1,100 32,519
------------
132,850
------------
Transportation (3.07%)
Airborne Freight Corp. ......................... 300 11,700
Alaska Air Group, Inc.* ........................ 600 30,412
AMR Corp.* ..................................... 500 27,719
Burlington Northern Santa Fe Corp. ............. 1,200 39,750
Delta Air Lines, Inc. .......................... 200 12,163
Kansas City Southern Industries, Inc. .......... 700 32,725
Southwest Airlines Co. ......................... 1,000 30,125
US Airways Group, Inc.* ........................ 1,200 56,850
------------
241,444
------------
Utilities (2.03%)
Ameritech Corp. ................................ 300 19,612
BellSouth Corp. ................................ 400 18,500
GTE Corp. ...................................... 400 25,950
PECO Energy Co. ................................ 2,700 95,681
------------
159,743
------------
TOTAL COMMON STOCKS
(Cost $5,970,891) (97.12%) 7,628,419
------- ------------
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust - Independence Growth Fund
INTEREST PAR VALUE MARKET
ISSER, DESCRIPTION RATE (000's OMITTED) VALUE
- ------------------ ---- --------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (3.18%)
Investment in a joint repurchase
agreement transaction with
ABN AMRO, Inc. - Dated 02-26-99,
due 03-01-99 (Secured by U.S.
Treasury Bonds, 8.750% and
11.875%, due 11-15-03 and
05-15-20 and U.S. Treasury Notes,
5.500% thru 7.875%, due 05-31-02
thru 08-15-07) - Note A................ 4.750% $250 $250,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.500% ........................... 152
------------
TOTAL SHORT-TERM INVESTMENTS (3.18%) 250,152
-------- ------------
TOTAL INVESTMENTS (100.30%) 7,878,571
-------- ------------
OTHER ASSETS AND LIABILITIES, NET (0.30%) (23,994)
-------- ------------
TOTAL NET ASSETS (100.00%) $7,854,577
======== ============
* 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.
44
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust - Independence Medium
Capitalization Fund
The Schedule of Investments is a complete list of all securities owned by the
Independence Medium Capitalization Fund on February 28, 1999. 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.
Schedule of Investments
February 28, 1999
- --------------------------------------------------------------------------------
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Advertising (1.66%)
Omnicom Group, Inc. ............................ 2,000 $132,500
WPP Group Plc, American Depositary
Receipts (ADR) (United Kingdom) ............... 500 39,813
------------
172,313
------------
Aerospace (3.90%)
Goodrich (B.F.) Co. (The) ...................... 2,400 81,900
Lockheed Martin Corp. .......................... 1,200 45,225
Northrop Grumman Corp. ......................... 400 24,925
Precision Castparts Corp. ...................... 1,200 44,550
Sundstrand Corp. ............................... 900 60,919
United Technologies Corp. ...................... 1,200 148,650
------------
406,169
------------
Automobile/Trucks (3.02%)
Borg-Warner Automotive, Inc. ................... 500 21,781
Dana Corp. ..................................... 1,300 49,075
Federal-Mogul Corp. ............................ 1,800 88,537
Lear Corp.* .................................... 1,600 56,500
Meritor Automotive, Inc. ....................... 2,100 33,338
Ryder System, Inc. ............................. 2,400 64,800
------------
314,031
------------
Banks - United States (8.06%)
BankBoston Corp. ............................... 2,000 80,875
Comerica, Inc. ................................. 3,000 198,750
Fifth Third Bancorp ............................ 1,500 99,094
First Tennessee National Corp. ................. 1,600 60,900
Fleet Financial Group, Inc. .................... 1,800 77,287
Mercantile Bancorp., Inc. ...................... 700 31,938
Northern Trust Corp. ........................... 1,200 107,250
State Street Corp. ............................. 1,500 115,031
U.S. Bancorp ................................... 2,100 67,856
------------
838,981
------------
Building (3.61%)
Black & Decker Corp. ........................... 800 39,000
Centex Corp. ................................... 1,200 44,175
Clayton Homes, Inc. ............................ 3,000 37,125
Danaher Corp. .................................. 700 33,775
Masco Corp. .................................... 2,800 73,500
Oakwood Homes Corp. ............................ 3,000 48,375
Ryland Group, Inc. ............................. 1,800 45,900
Webb (Del E.) Corp. ............................ 2,400 54,000
------------
375,850
------------
Business Services - Misc. (0.22%)
Diebold, Inc. .................................. 800 23,350
------------
Chemicals (2.16%)
Air Products & Chemicals, Inc. ................. 3,000 96,375
Imperial Chemical Industries Plc (ADR)
(United Kingdom) .............................. 2,100 73,763
Praxair, Inc. .................................. 700 24,456
Solutia, Inc. .................................. 1,700 30,281
------------
224,875
------------
Computers (4.40%)
Adobe Systems, Inc. ............................ 1,100 44,275
Autodesk, Inc. ................................. 1,100 44,138
Cadence Design Systems, Inc.* .................. 2,300 55,344
Computer Sciences Corp.* ....................... 700 46,638
Edwards (J.D.) & Co.* .......................... 3,400 53,762
First Data Corp. ............................... 3,600 137,700
Network Appliance, Inc.* ....................... 1,800 75,600
------------
457,457
------------
Cosmetics & Personal Care (1.36%)
Avon Products, Inc. ............................ 2,000 83,250
Dial Corp. (The) ............................... 2,000 58,375
------------
141,625
------------
Diversified Operations (2.45%)
Canadian Pacific, Ltd. (Canada) ................ 4,000 74,250
Ogden Corp. .................................... 2,700 65,981
Textron, Inc. .................................. 1,100 85,800
Viad Corp. ..................................... 1,100 29,081
------------
255,112
------------
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust - Independence Medium
Capitalization Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Electronics (3.52%)
Analog Devices, Inc.* .......................... 3,200 $80,200
Honeywell, Inc. ................................ 2,600 181,838
Parker-Hannifin Corp. .......................... 800 29,700
Teradyne, Inc.* ................................ 600 28,575
Thomas & Betts Corp. ........................... 1,100 45,856
------------
366,169
------------
Finance (1.48%)
Associates First Capital Corp. (Class A) ....... 2,000 81,250
Golden West Financial Corp. .................... 300 28,181
Household International, Inc. .................. 1,100 44,688
------------
154,119
------------
Food (2.76%)
Flowers Industries, Inc. ....................... 2,300 56,062
General Mills, Inc. ............................ 1,600 129,100
Quaker Oats Co. ................................ 1,200 65,550
Universal Foods Corp. .......................... 1,600 36,300
------------
287,012
------------
Household (0.37%)
Premark International, Inc. .................... 1,200 38,325
------------
Insurance (11.63%)
Aon Corp. ...................................... 500 29,469
Chubb Corp. (The) .............................. 400 23,900
CIGNA Corp. .................................... 1,800 141,300
Equitable Cos., Inc. (The) ..................... 1,900 128,369
Hartford Financial Services Group, Inc. (The) .. 3,400 183,812
Hartford Life, Inc. (Class A) .................. 1,300 75,400
Lincoln National Corp. ......................... 1,400 132,562
Marsh & McLennan Cos., Inc. .................... 3,000 212,437
PartnerRe Ltd. (Bermuda) ....................... 900 38,925
Progressive Corp. (The) ........................ 200 25,700
Travelers Property Casualty Corp. (Class A) .... 3,400 128,987
UNUM Corp. ..................................... 500 22,375
XL Capital Ltd. (Class A)(Bermuda) ............. 1,100 67,375
------------
1,210,611
------------
Leisure (0.41%)
Mattel, Inc. ................................... 1,600 42,200
------------
Machinery (1.05%)
Ingersoll-Rand Co. ............................. 2,300 109,250
------------
Media (1.64%)
Knight-Ridder, Inc. ............................ 800 40,150
New York Times Co. (The) (Class A) ............. 800 24,800
Viacom, Inc. (Class B)* ........................ 1,200 106,050
------------
171,000
------------
Medical (8.18%)
Bausch & Lomb, Inc. ............................ 1,000 60,312
Becton, Dickinson & Co. ........................ 1,200 40,200
Biogen, Inc.* .................................. 700 67,287
Cardinal Health, Inc. .......................... 1,600 115,500
Genentech, Inc.* ............................... 900 71,831
Guidant Corp. .................................. 1,400 79,800
Health Management Associates, Inc. (Class A)* .. 4,250 54,984
HEALTHSOUTH Corp.* ............................. 6,600 76,725
Lincare Holdings, Inc.* ........................ 900 32,063
McKesson HBOC, Inc. ............................ 600 40,800
Mylan Laboratories, Inc. ....................... 2,200 60,088
Omnicare, Inc. ................................. 1,300 31,119
Sepracor, Inc. * ............................... 200 24,950
Universal Health Services, Inc. (Class B)* ..... 600 24,375
Wellpoint Health Networks, Inc.* ............... 900 70,988
------------
851,022
------------
Office (1.99%)
Avery Dennison Corp. ........................... 1,100 59,056
Pitney Bowes, Inc. ............................. 1,200 75,825
Reynolds & Reynolds Co. (The) (Class A) ........ 3,800 71,725
------------
206,606
------------
Oil & Gas (2.18%)
Ashland, Inc. .................................. 800 35,600
Conoco, Inc. (Class A) ......................... 3,600 73,125
Phillips Petroleum Co. ......................... 800 30,950
Sunoco, Inc. ................................... 1,700 51,744
USX - Marathon Group ........................... 1,700 35,169
------------
226,588
------------
Paper & Paper Products (0.94%)
Fort James Corp. ............................... 2,200 65,725
Smurfit-Stone Container Corp.* ................. 1,800 32,513
------------
98,238
------------
Pollution Control (2.50%)
Allied Waste Industries, Inc.* ................. 5,500 107,250
Browning-Ferris Industries, Inc. ............... 1,300 40,950
Waste Management, Inc. ......................... 2,300 112,412
------------
260,612
------------
Retail (7.67%)
Albertson's, Inc. .............................. 1,400 79,800
Consolidated Stores Corp.* ..................... 1,700 42,819
Dayton Hudson Corp. ............................ 1,000 62,562
Federated Department Stores, Inc. * ............ 2,000 76,125
Intimate Brands, Inc. .......................... 1,000 39,313
Lowe's Cos., Inc. .............................. 1,500 88,969
Pier 1 Imports, Inc. ........................... 4,800 41,400
SEE NOTES TO FINANCIAL STATEMENTS.
46
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust - Independence Medium
Capitalization Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Retail (continued)
Staples, Inc.* ................................. 2,400 $70,575
SYSCO Corp. .................................... 1,200 33,900
Tandy Corp. .................................... 1,600 89,000
TJX Cos., Inc. ................................. 2,400 68,550
Tricon Global Restaurants, Inc. * ............. 1,700 105,400
------------
798,413
------------
Soap & Cleaning Preparations (0.34%)
Clorox Co. (The) ............................... 300 35,494
------------
Telecommunications (2.95%)
General Instrument Corp. * ..................... 1,800 52,650
Northern Telecom Ltd. (Canada) ................. 1,200 69,675
Tellabs, Inc.* ................................. 2,300 184,144
------------
306,469
------------
Textile (2.00%)
Jones Apparel Group, Inc.* ..................... 2,700 75,431
Tommy Hilfiger Corp.* .......................... 1,300 89,781
VF Corp. ....................................... 900 43,313
------------
208,525
------------
Tobacco (1.00%)
Universal Corp. ................................ 2,200 59,812
UST, Inc. ...................................... 1,500 44,344
------------
104,156
------------
Transportation (5.25%)
Airborne Freight Corp. ......................... 200 7,800
Alaska Air Group, Inc.* ........................ 700 35,481
AMR Corp.* ..................................... 1,300 72,069
Burlington Northern Santa Fe Corp. ............. 1,800 59,625
Delta Air Lines, Inc. .......................... 1,600 97,300
Kansas City Southern Industries, Inc. .......... 1,800 84,150
Norfolk Southern Corp. ......................... 900 25,256
Southwest Airlines Co. ......................... 400 12,050
UAL Corp.* ..................................... 900 53,775
Union Pacific Corp. ............................ 1,000 46,875
US Airways Group, Inc.* ........................ 1,100 52,113
------------
546,494
------------
Utilities (9.53%)
Ameren Corp. ................................... 1,800 67,162
Baltimore Gas & Electric Co. ................... 4,000 102,500
CMS Energy Corp. ............................... 1,100 45,513
Consolidated Natural Gas Co. ................... 1,200 65,925
Dominion Resources, Inc. ....................... 1,500 57,937
El Paso Energy Corp. ........................... 1,500 54,656
Florida Progress Corp. ......................... 3,500 140,437
FPL Group, Inc. ................................ 2,500 128,594
Hawaiian Electric Industries, Inc. ............. 700 24,413
Montana Power Co. .............................. 2,700 164,362
New Century Energies, Inc. ..................... 600 24,338
PECO Energy Co. ................................ 2,100 74,419
Sempra Energy .................................. 2,000 42,000
------------
992,256
------------
TOTAL COMMON STOCKS
(Cost $8,998,211) .............. (98.23%) 10,223,322
------- ------------
INTEREST PAR VALUE
RATE (000's OMITTED)
---- ---------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (3.17%)
Investment in a joint repurchase
agreement transaction with
ABN AMRO, Inc. - Dated 02-26-99,
due 03-01-99 (Secured by U.S.
Treasury Bonds, 8.750% and
11.875%, due 11-15-03 and
05-15-20 and U.S. Treasury Notes,
5.500% thru 7.875%, due 05-31-02
thru 08-15-07) - Note A ............... 4.750% $330 330,000
------------
Corporate Savings Account (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.500% ........................... 699
------------
TOTAL SHORT-TERM INVESTMENTS (3.18%) 330,699
--------- ------------
TOTAL INVESTMENTS (101.41%) 10,554,021
--------- ------------
OTHER ASSETS AND LIABILITIES, NET (1.41%) (146,738)
--------- ------------
TOTAL NET ASSETS (100.00%) $10,407,283
========= ============
* 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.
47
<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 eleven series portfolios: the Funds, John Hancock Active Bond Fund,
John Hancock Small Capitalization Value Fund, John Hancock Dividend Performers
Fund, John Hancock Multi-Sector Growth Fund, John Hancock Small Capitalization
Growth Fund and John Hancock International Equity Fund. The other six series of
the Trust are reported in separate financial statements. The investment
objective of Independence Balanced Fund and Independence Diversified Core Equity
Fund II is to seek above-average total return consisting of capital appreciation
and income. The investment objective of Independence Value Fund, 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 Funds are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost, which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency Translation."
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Funds, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
Inc., may participate in 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 and are accrued, as
applicable.
FEDERAL INCOME TAXES The Funds' policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of their taxable income, including net realized gain on
investments, to their shareholders. Therefore, no federal income tax provisions
are required.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Funds identify the dividend. Interest income on
investment securities is recorded on the accrual basis. Foreign income may be
subject to foreign withholding taxes which are accrued as applicable.
The Funds record all dividends and distributions to shareholders from net
investment income and realized gains on the ex-dividend date. Such distributions
are determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles.
DISCOUNT ON SECURITIES The Funds accrete discount from par value on securities
from either the date of issue or the date of purchase over the life of the
security, as required by the Internal Revenue Code.
48
<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 size 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.
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. Effective March 12, 1999,
the Funds entered into a syndicated line of credit agreement with various banks,
and the agreements previously in effect were terminated. This agreement enables
the Funds to participate with other funds managed by the Adviser in unsecured
lines of credit with banks which permit borrowings up to $500 million,
collectively. Interest is charged to each of the funds based on its borrowings.
In addition, a commitment fee is charged based on the average daily unused
portion of the line of credit and is allocated among the participating funds.
The Funds had no borrowing activity for the year ended February 28, 1999.
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 0.80% of average daily net assets up to $500 million
Medium 0.75% of such assets in excess of $500 million
Capitalization Fund
The Adviser is responsible for managing the Funds' investment business
affairs and overseeing the investment activities of Independence Investment
Associates, Inc. (the "Sub-Adviser"). The Adviser has a sub-investment
management contract with the Sub-Adviser, under
49
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Institutional Series Trust
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 Core average daily net assets
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 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, 1999, the reduction in the
Funds' expenses collectively with any additional amounts not borne by the Funds
by virtue of the expense limit amounted to $36,828 for Independence Balanced
Fund, $63,080 for Independence Value Fund, none for Independence Diversified
Core Equity Fund II, $62,289 for Independence Growth Fund and $61,129 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, 1999, all sales of shares of beneficial interest were sold at net asset
value. The Funds pay all expenses of printing prospectuses and other sales
literature, all fees and expenses in connection with qualification as a dealer
in various states, and all other expenses in connection with the sale and
offering for sale of the shares of the Funds which have not been herein
specifically allocated to the Trust.
The Funds have a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect wholly owned subsidiary of
John Hancock Mutual Life Insurance Company. The Funds pay Signature Services a
monthly transfer agent fee equivalent, on an annual basis, to 0.05% of the
Funds' average daily net asset value, plus certain out-of-pocket expenses.
The Funds have an agreement with the Adviser to perform necessary tax and
financial management services for the Funds. The compensation for the period was
at an annual rate of less than 0.02% of the average net assets of the Funds.
Mr. Edward J. Boudreau, Jr., Mr. Stephen L. Brown, Ms. Anne C. Hodsdon and
Mr. Richard S. Scipione are directors and/or officers of the Adviser and/or its
affiliates, as well as Trustees of the Funds. The compensation of unaffiliated
Trustees is borne by the Funds. The unaffiliated Trustees may elect to defer,
for tax purposes, their receipt of this compensation under the John Hancock
Group of Funds Deferred Compensation Plan. The Funds make investments into other
John Hancock funds, as applicable, to cover their liabilities for the deferred
compensation. Investments to cover the Funds' deferred compensation liability
are recorded on the Funds' books as an other asset. The deferred compensation
liability and the related other asset are always equal and are marked to market
on a periodic basis to reflect any income earned by the investment as well as
any unrealized gains or losses. At February 28, 1999 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
50
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Institutional Series Trust
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 shortterm
obligations, for the year ended February 28, 1999 were as follows:
PURCHASES PROCEEDS
--------- --------
Independence Balanced Fund
U.S. Government Securities ........ $65,222,211 $53,720,770
Other Investments ................. 56,407,393 69,746,636
Independence Value Fund ............. 4,085,807 5,870,089
Independence Diversified Core
Equity Fund II .................... 293,156,829 391,683,660
Independence Growth Fund ............ 5,034,132 3,183,803
Independence Medium
Capitalization Fund ............... 7,403,726 6,698,509
At February 28, 1999, 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 ............ $73,818,775 $11,684,822 ($2,248,990) $9,435,832
Independence
Value Fund ...... 5,668,349 1,334,038 (301,056) 1,032,982
Independence
Diversified
Core Equity
Fund II ......... 406,508,777 160,665,452 (15,768,648) 144,896,804
Independence
Growth Fund ..... 6,221,457 1,904,591 (247,629) 1,656,962
Independence
Medium
Capitalization
Fund ............ 9,341,080 1,900,699 (688,457) 1,212,242
</TABLE>
NOTE D --
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended February 28, 1999, reclassifications have been made in
each Fund's capital accounts to report these balances on a tax basis, excluding
certain temporary differences. 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.
CAPITAL UNDISTRIBUTED ACCUMULATED NET
PAID-IN NET INVESTMENT INCOME REALIZED GAIN (LOSS)
------- --------------------- --------------------
Independence
Balanced Fund ...... ($1,111) $504 $607
Independence
Value Fund ......... (372) 303 69
Independence
Diversified Core
Equity Fund II ..... (5,528) 1,074 4,454
Independence
Growth Fund ........ (328) 1,731 (1,403)
Independence
Medium
Capitalization
Fund ............... (372) 304 68
51
<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, 1999, the related
statements of operations for the year then ended, the statement of changes in
net assets for each of the years in the two-year period ended February 28, 1999,
and the financial highlights for each of the years in the three-year period
ended February 28, 1999, 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 at February
28, 1999 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 the Funds
constituting John Hancock Institutional Series Trust at February28, 1999, 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 2, 1999
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the taxable distributions of the Funds for the fiscal year ended
February 28, 1999.
The Funds'designated the following as long-term capital gain dividends during
the fiscal year ended February 28, 1999.
Additionally, the following dividend distributions qualify for the dividends
received deduction available to corporations.
LONG-TERM DIVIDENDS
CAPITAL RECEIVED
GAINS DESIGNATED DEDUCTION
---------------- ---------
Independence Balanced Fund ................... $1,825,578 11.18%
Independence Value Fund ...................... 499,553 23.80
Independence Diversified Core
Equity Fund II ............................. 63,008,644 34.41
Independence Growth Fund ..................... 186,137 55.91
Independence Medium Capitalization
Fund ....................................... 803,091 79.93
52
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Institutional Series Trust
53
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Institutional Series Trust
54
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Institutional Series Trust
55
<PAGE>
================================================================================
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