<PAGE> 1
John Hancock Funds
- -------------------------------------------------------------------------------
INCOME
SECURITIES
TRUST
ANNUAL REPORT
December 31, 1994
<PAGE> 2
TRUSTEES
EDWARD J. BOUDREAU, JR.
Chairman
DENNIS S. ARONOWITZ*
RICHARD P. CHAPMAN, JR.*
WILLIAM J. COSGROVE*
GAIL D. FOSLER*
BAYARD HENRY*
RICHARD S. SCIPIONE
EDWARD J. SPELLMAN*
*Members of the Audit Committee
OFFICERS
EDWARD J. BOUDREAU, JR.
Chairman and Chief Executive Officer
ROBERT G. FREEDMAN
Vice Chairman and
Chief Investment Officer
ANDREW ST. PIERRE
President
ANNE C. HODSDON
Executive Vice President
THOMAS H. DROHAN
Senior Vice President and Secretary
JAMES B. LITTLE
Senior Vice President and
Chief Financial Officer
MICHAEL P. DICARLO
Senior Vice President
JAMES K. HO
Senior Vice President
BARRY H. EVANS
Vice President
JOHN A. MORIN
Vice President
SUSAN S. NEWTON
Vice President, Assistant Secretary and
Compliance Officer
JAMES J. STOKOWSKI
Vice President and Treasurer
CUSTODIAN
INVESTORS BANK & TRUST COMPANY
89 SOUTH STREET
BOSTON, MASSACHUSETTS 02111
TRANSFER AGENT AND REGISTRAR
STATE STREET BANK AND TRUST COMPANY
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
LEGAL COUNSEL
HALE AND DORR
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
LISTED:NEW YORK STOCK EXCHANGE SYMBOL: JHS
JOHN HANCOCK CLOSED END FUNDS: 1-800-843-0090
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
With 1995 upon us, New Year's resolutions abound. Dieting and saving money --
Americans' long-time favorites -- are sure to top the list once again. And once
again, they'll probably be the most difficult to keep. This year, however,
Congress may give savers an additional incentive to stick to their guns.
Both the Republicans and Democrats want to revive Individual Retirement
Accounts (IRAs). In an effort to encourage savings, IRAs were made available to
all working Americans in 1981. Anyone with earned income could contribute up to
$2,000 annually. The contributions were fully tax-deductible, and the earnings
weren't taxed until withdrawal. IRAs became the most successful savings program
in the U.S., drawing in more than $250 billion and 13 million new participants
by 1985.
Sweeping tax reforms in 1986, however, changed all that. As it stands now,
the full deduction only applies to individuals who earn less than $25,000,
married couples who earn less than $40,000 and people without employer-sponsored
retirement plans. The result of this congressional tinkering: the number of IRA
contributors declined dramatically, from 16.2 million in 1985 to 4.2 million in
1992.
Legislators are now taking a closer look at expanding the accessibility of
IRAs once again. Several proposals are on the table: (1) the Republicans'
"Contract with America" includes the American Dream Savings Account, a type of
IRA; (2) President Clinton has proposed expanding eligibility by raising income
limits; and (3) several congressional representatives have introduced
legislation to restore the universal availability of a fully tax-deductible IRA.
We enthusiastically support restoring IRAs to their original luster. Not
only will they provide a tax break to middle-income Americans, but they'll go a
long way toward raising the nation's dangerously low personal savings rate --
the lowest of any major industrialized country. There's an increasing awareness
that Social Security and pension plans will no longer provide for the retirement
needs of middle-income Americans. Increasing IRA accessibility for more working
individuals and families is one of the most sensible ways to help Americans take
responsibility for their future financial needs. We urge you to support the
expanded IRA by contacting your congressional representative or senator.
Sincerely,
/s/ Edward J. Boudreau, Jr.
- ---------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE> 3
BY BARRY H. EVANS, VICE PRESIDENT AND PORTFOLIO MANAGER
JOHN HANCOCK
INCOME SECURITIES TRUST
Inflation fears, rising interest rates take their toll
on bonds; high-yield exposure cushions blow
1994 was an extremely challenging year for bond investors. The key factor was
the Federal Reserve's ongoing attempt to slow the pace of economic growth -- and
lessen the threat of future inflation -- by raising short-term interest rates.
Rates began rising in February, when the Fed nudged the federal funds rate --
what banks charge each other for overnight loans -- up one-quarter point to
3.25%. The timing of the Fed's move caught many investors by surprise.
Afterwards, though, it was obvious there would have to be more rate increases in
the months ahead, and that's exactly what happened. They followed in rapid
succession: two more quarter-point increases in March and April, two half-point
increases in May and August, and a three-quarter-point jump in November,
bringing the federal funds rate up to 5.50%.
Because interest rates and bond prices move in opposite directions, most
bond funds lost money in 1994. John Hancock Income Securities Trust was no
exception. During the year ended December 31, 1994, the Fund's total return was
- -2.51% at net asset value.
[A 2 1/2" x 3 1/2" photo of Barry H. Evans at bottom right. Caption reads:
"Barry H. Evans, Portfolio Manager."]
[CAPTION]
"1994 WAS AN EXTREMELY CHALLENGING YEAR FOR BOND INVESTORS."
3
<PAGE> 4
John Hancock Funds - Income Securities Trust
[Pie chart with the heading "Portfolio Diversification" at top of left hand
column. The chart is divided into eight sections. Going from left to right:
Financials 19%; Other 4%; U.S. Government/Agencies 33%; Foreign Government 2%;
Cyclical/Industrials 23%; Supermarkets/Food 5%; Utilities 13%; and Cash 1%. A
footnote below states "As a percentage of net assets on December 31, 1994."]
Fortunately, though, the Fund fared somewhat better than the average open-end
corporate A-rated debt fund, which had a total return of -4.64%, according to
Lipper Analytical Services.(1)
TWO-PART STRATEGY: MORE CREDIT RISK...
We were able to outperform competing funds by following a two-pronged strategy.
The first part involved taking on above-average credit risk. Credit risk is the
risk that a bond issuer will be unable to meet its interest and principal
obligations. The lower a bond's credit rating, the higher the risk -- and
usually the more interest the bond pays to compensate for that risk. When the
economy is expanding and interest rates are rising -- as was the case in 1994 --
it often makes sense to assume more credit risk by investing in lower-rated
bonds. That's because as corporate cash flows improve, companies find themselves
better able to pay down debt, thereby diminishing the risk of default. A good
analogy is what happens when you refinance your mortgage at a lower rate. Your
cash flow improves and so does your personal balance sheet. Among the biggest
beneficiaries of improved cash flows last year were companies issuing high-yield
bonds or so-called junk bonds -- those with credit ratings of BB or lower.
Junk bonds averaged about 20% of the Fund's assets during the year and were
the primary engine driving performance. About half of the junk bonds we owned
were in non-cyclical industries such as supermarkets and cable television
providers. We had the most success, though, in cyclical sectors of the economy
such as steel, paper and transportation that are more sensitive to economic
upturns (and downturns). Those included Stone Container, a paper company;
Northwest Airlines, whose fortunes improved dramatically after it was able to
sign a new collective-bargaining agreement with its pilots; and Weirton Steel.
...AND LESS INTEREST-RATE RISK
Our strategy with the rest of the Fund -- the 45% invested in high-grade
corporate bonds and the 35% in government securities -- was to look for ways to
lower interest-rate risk. That's the risk that bond prices will fall as interest
rates rise. One measure of interest-rate risk is duration, a calculation that
takes into account when a bond matures as well as the frequency and amount of
interest payments. When rates are rising, it makes sense to lower the Fund's
average duration. That's what we did -- lowering it from 5.6 years in the months
before the period began to 5.1 years throughout most of 1994.
[Table entitled "Scorecard" at bottom of left hand column. The header for the
left column is "Investment"; the header for the right column is "Recent
performance ... and what's behind the numbers. The first listing is RJR Nabisco
followed by an up arrow and the phrase "Bonds tendered." The second listing is
E.I.P. Refunding followed by an up arrow and the phrase "Improving credit
quality." The third listing is Flagstar followed by a down arrow and the phrase
"Weak earnings." Footnote below reads: "See "Schedule of Investments.
"Investment holdings are subject to change."]
"OUR STRATEGY...WAS TO LOOK FOR WAYS TO LOWER INTEREST-RATE RISK."
4
<PAGE> 5
John Hancock Funds - Income Securities Trust
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the year ended December 31, 1994." The chart is
scaled in increments of 1% from bottom to top, with 0% at the top and -5% at the
bottom. Within the chart, there are two solid bars. The first represents the
- -2.51% total return for John Hancock Income Securities Trust. The second
represents the -4.64% total return for the average open-end corporate debt
A-rated fund. The footnote below states: "The total return for John Hancock
Income Securities Trust is at net asset value with all distributions reinvested.
The average open-end corporate debt A-rated fund is tracked by Lipper Analytical
Services."]
We achieved that lower average duration by balancing long-term bonds with
short-term bonds and avoiding bonds with intermediate maturity dates. That's
known as a barbell strategy. It works best when the yield curve is flattening --
that is, when interest rates from one end of the maturity scale to the other are
leveling off -- as was the case throughout 1994. The few intermediate securities
we did own were mainly mortgages, which rose steadily from 8% of the Fund's
assets to 12% during the course of the year. Mortgages marginally outperformed
comparable corporate bonds as the volume of mortgage refinancings diminished.
OUTLOOK: BETTER TIMES AHEAD
One reason we are more hopeful about 1995 is that 1994 was so bad. Interest
rates are much higher now than they were a year ago, meaning we've got a better
cushion against the possibility of rates continuing to rise in the months ahead.
Also, with inflation holding steady at 3% and 30-year Treasuries paying 8%,
we're looking at a real rate of return of around 5%. That's near the top of the
historical range, making bonds seem more attractive now than they have been for
some time. We've already extended the Fund's average duration slightly to 5.5
years as of the end of the period.
The key variable, of course, is inflation. During the fourth quarter of
1994, many companies continued the practice begun several years ago of
announcing price increases that weren't slated to take effect until January.
Between the extra year-end demand spurred by this practice and the higher prices
themselves once they kick in, we may see another inflation scare or two before
we hit the peak in interest rates. On the other hand, we think that peak may not
be far off. Sooner or later -- perhaps by the middle of 1995 -- it's likely that
Fed policy will have its intended effect and the economy will begin to slow
down. That tells us that the current bond market assumption of a 4% future
inflation rate is probably excessive.
As the recovery begins to lose steam and rates level off, we'll want to
make a couple of strategic changes. Junk bonds will likely become less
attractive going forward, while high-quality corporate bonds and Treasuries will
become more attractive. Then as the yield curve begins to steepen again, we'll
probably take off the barbell and add more intermediate securities. Mortgages --
because they're high-quality government securities of mainly intermediate
maturity -could help us achieve both goals and will likely become an
increasingly important part of the Fund.
- -------------------------------------------------------------------------------
(1) Figures from Lipper Analytical Services include reinvested distributions and
do not take into account sales charges. Actual load-adjusted performance would
be lower.
"...WE ARE MORE HOPEFUL ABOUT 1995.''
5
<PAGE> 6
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1993
------------ ------------
<S> <C> <C>
ASSETS:
Investments at value - Note C:
Publicly traded bonds (cost 1994 - $157,860,231; 1993 - $161,076,582) ...................... $148,561,449 $168,730,315
Common stock (cost 1994 - $106,667; 1993 - none) ........................................... 76,000 --
Joint repurchase agreement (cost 1994 - $2,037,000 and 1993 - $993,090) .................... 2,037,000 993,090
Corporate savings account .................................................................. 23 495
------------ ------------
150,674,472 169,723,900
Receivable for investments sold .............................................................. -- 315,098
Interest receivable .......................................................................... 3,583,831 3,623,858
Receivable for variation margin .............................................................. 11,250 1,250
------------ ------------
Total Assets ........................................................... 154,269,553 173,664,106
--------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased ............................................................ -- 2,330,287
Payable to John Hancock Advisers, Inc. - Note B .............................................. 95,624 293,995
Accounts payable and accrued expenses ........................................................ 57,468 51,391
------------ ------------
Total Liabilities ...................................................... 153,092 2,675,673
--------------------------------------------------------------------------------------------------------
NET ASSETS:
Capital paid-in .............................................................................. 164,438,577 162,545,674
Accumulated net realized gain (loss) on investments and financial futures contracts .......... ( 886,334) 788,088
Net unrealized appreciation (depreciation) of investments and financial futures contracts..... ( 9,441,949) 7,654,671
Undistributed net investment income .......................................................... 6,167 --
------------ ------------
Net Assets ............................................................. $154,116,461 $170,988,433
========================================================================================================
NET ASSET VALUE PER SHARE:
(based on 10,205,263 and 10,076,246 shares of beneficial interest outstanding,
respectively - 30 million shares authorized with no par value) ............................... $ 15.10 $ 16.97
==============================================================================================================================
</TABLE>
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON DECEMBER 31, 1994 AND
DECEMBER 31, 1993. YOU'LL ALSO FIND THE NET ASSET VALUE PER SHARE AS OF THOSE
DATES.
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE> 7
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR END DECEMBER 31,
----------------------------
1994 1993
------------ ------------
<S> <C> <C>
INVESTMENT INCOME:
Interest ...................................................................................... $14,329,886 $14,596,113
Dividends ..................................................................................... 15,312 --
----------- -----------
14,345,198 14,596,113
----------- -----------
Expenses:
Investment management fee - Note B .......................................................... 1,016,554 1,055,537
Transfer agent fee .......................................................................... 164,420 170,858
Printing .................................................................................... 81,901 41,443
Custodian fee ............................................................................... 50,103 61,285
Auditing fee ................................................................................ 33,664 37,495
Administration fee - Note B ................................................................. -- 31,905
New York Stock Exchange fee ................................................................. 24,391 16,102
Trustees' fees .............................................................................. 16,570 14,680
Miscellaneous ............................................................................... 10,189 10,751
Legal fees .................................................................................. 5,641 6,767
----------- -----------
Total Expenses .......................................................... 1,403,433 1,446,823
-------------------------------------------------------------------------------------------------------
Net Investment Income ................................................... 12,941,765 13,149,290
-------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FINANCIAL FUTURES CONTRACTS
Net realized gain (loss) on investments sold .................................................. ( 1,757,122) 5,553,724
Net realized gain (loss) on financial futures contracts ....................................... 870,788 ( 463,575)
Change in net unrealized appreciation/depreciation of investments ............................. ( 16,983,182) 2,780,260
Change in net unrealized appreciation/depreciation of financial futures contracts ............. ( 113,438) 938
----------- -----------
Net Realized and Unrealized Gain (Loss) on Investments and
Financial Futures Contracts ............................................. ( 17,982,954) 7,871,347
-------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations ......... ($ 5,041,189) $21,020,637
=======================================================================================================
</TABLE>
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND FOR THE PERIOD STATED. IT ALSO SHOWS NET
GAINS (LOSSES) FOR THE PERIOD STATED.
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 8
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR END DECEMBER 31,
----------------------------
1994 1993
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income $ 12,941,765 13,149,290
Net realized gain (loss) on investments sold and financial futures contracts .................. ( 886,334) 5,090,149
Change in net unrealized appreciation/depreciation of investments and financial
futures contracts ........................................................................... ( 17,096,620) 2,781,198
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations ............................. ( 5,041,189) 21,020,637
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income ($1.2775 and $1.315 per share, respectively) ............. ( 12,935,598) ( 13,161,828)
Distributions from net realized gain on investments sold and financial futures contracts ......
($0.0782 and $0.1302 per share, respectively) ............................................... ( 788,088) ( 1,313,807)
------------ ------------
Total Distributions to Shareholders ......................................................... ( 13,723,686) ( 14,475,635)
------------ ------------
FROM FUND SHARE TRANSACTIONS
(Market value of shares issued to shareholders in reinvestment of distributions) .............. 1,892,903 1,975,784
------------ ------------
NET ASSETS:
Beginning of period ........................................................................... 170,988,433 162,467,647
------------ ------------
End of period (including undistributed net investment income of $6,167 and none,
respectively) ............................................................................... $154,116,461 $170,988,433
============ ============
*ANALYSIS OF FUND SHARE TRANSACTIONS:
Shares outstanding beginning of period......................................................... 10,076,246 9,960,202
Shares issued to shareholders in reinvestment of distributions................................. 129,017 116,044
------------ ------------
Shares outstanding end of period............................................................... 10,205,263 10,076,246
============ ============
</TABLE>
THE STATEMENT OF CHANGES IN NET ASSETS SHOWS HOW THE VALUE OF THE FUND'S NET
ASSETS HAS CHANGED SINCE THE END OF THE PREVIOUS PERIOD. THE DIFFERENCE REFLECTS
EARNINGS LESS EXPENSES, ANY INVESTMENT GAINS AND LOSSES, DISTRIBUTIONS PAID TO
SHAREHOLDERS, AND ANY INCREASE DUE TO REINVESTMENT OF DISTRIBUTIONS IN THE FUND.
THE FOOTNOTE ILLUSTRATES THE NUMBER OF FUND SHARES OUTSTANDING AT THE BEGINNING
OF THE PERIOD, REINVESTED AND OUTSTANDING AT THE END OF THE PERIOD, FOR THE LAST
TWO PERIODS.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 9
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
FINANCIAL HIGHLIGHTS
Selected data for each share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are as
follows:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ............................ $ 16.97 $ 16.31 $ 16.25 $ 15.19 $ 15.61
-------- -------- -------- -------- --------
Net Investment Income............................................. 1.28 1.31 1.37 1.44 1.47
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts................................. ( 1.79) 0.80 0.07 1.08 ( 0.42)
-------- -------- -------- -------- --------
Total from Investment Operations.............................. ( 0.51) 2.11 1.44 2.52 1.05
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income.............................. ( 1.28) ( 1.32) ( 1.38) ( 1.46) ( 1.47)
Distributions from Net Realized Gain on Investments Sold and
Financial Futures Contracts..................................... ( 0.08) ( 0.13) -- -- --
-------- -------- -------- -------- --------
Total Distributions........................................... ( 1.36) ( 1.45) ( 1.38) ( 1.46) ( 1.47)
-------- -------- -------- -------- --------
Net Asset Value, End of Period.................................... $ 15.10 $ 16.97 $ 16.31 $ 16.25 $ 15.19
======== ======== ======== ======== ========
Per Share Market Value, End of Period............................. $ 13.75 $ 16.50 $ 16.75 $ 17.00 $ 15.00
Total Investment Return at Market Value........................... ( 8.70%) 7.22% 7.16% 23.25% 6.07%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)......................... $154,116 $170,988 $162,468 $159,990 $147,764
Ratio of Expenses to Average Net Assets........................... 0.87% 0.84% 0.81% 0.74% 0.70%
Ratio of Net Investment Income to Average Net Assets.............. 8.03% 7.67% 8.46% 9.28% 9.64%
Portfolio Turnover Rate........................................... 82% 95% 111% 92% 85%
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZE THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIOD INDICATED: THE NET INVESTMENT INCOME, GAINS (LOSSES)
AND DISTRIBUTIONS OF THE FUND. IT SHOWS HOW THE FUND'S NET ASSET VALUE FOR A
SHARE HAS CHANGED SINCE THE END OF THE PREVIOUS PERIOD. IT ALSO SHOWS THE TOTAL
INVESTMENT RETURN FOR EACH PERIOD BASED ON THE MARKET VALUE OF FUND SHARES.
ADDITIONALLY, IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN THE
FINANCIAL STATEMENTS ARE EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 10
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
SCHEDULE OF INVESTMENTS
December 31, 1994
- -------------------------------------------------------------------------------
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY INCOME
SECURITIES TRUST ON DECEMBER 31, 1994. IT'S DIVIDED INTO THREE MAIN CATEGORIES:
PUBLICLY TRADED BONDS, COMMON STOCKS AND SHORT-TERM INVESTMENTS. THE SECURITIES
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 S+P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- -------- -------- --------- ------
<S> <C> <C> <C> <C>
PUBLICLY TRADED BONDS
BANKS (13.10%)
Abbey National First Capital B.V.,
*Sub Note 10-15-04 .................................................... 8.200% AA- $ 750 $ 729,795
African Development Bank,
Sub Note 12-15-03 .................................................... 9.750 AA 1,000 1,085,210
Bank of Montreal - Chicago Branch,
Sub Note 11-01-00 .................................................... 9.800 A+ 1,000 1,014,100
Banque Paribas - New York Branch,
*Sub Note 03-01-09 .................................................... 6.875 A- 1,000 826,540
Barclays North American Capital Corp.,
Gtd Cap Note 05-15-21 ................................................ 9.750 AA- 500 531,740
International Bank for Reconstruction and Development,
30 Yr Bond 07-15-17 .................................................. 9.250 AAA 4,000 4,359,080
Landeskreditbank Baden - Wurttemberg,
*Sub Note 02-01-23 .................................................... 7.625 AAA 1,500 1,365,060
Midland American Capital Corp.,
Gtd Note 11-15-03 .................................................... 12.750 A- 1,500 1,705,725
National Westminster Bank PLC - New York Branch,
Sub Note 05-01-01 .................................................... 9.450 AA- 1,250 1,314,887
Scotland International Finance No. 2 B.V.,
Sub Gtd Note 01-27-04 (R) ............................................ 8.800 A+ 2,000 2,015,360
*Sub Gtd Note 11-01-06 (R) ............................................ 8.850 A+ 750 747,660
Security Pacific Corp.,
Medium Term Sub Note 04-26-01 ........................................ 10.500 A- 1,500 1,654,260
Sub Note 11-15-00 .................................................... 11.500 A- 1,000 1,129,180
Toronto Dominion Bank - New York Branch,
*Sub Note 01-15-09 .................................................... 6.450 AA- 1,000 818,040
Westdeutsche Landesbank Girozentrale - New York Branch,
Sub Note 06-15-05 .................................................... 6.750 AA+ 1,000 885,470
------------
20,182,107
------------
BROADCASTING (3.87%)
Cablevision Systems Corp.,
Sr Sub Deb 04-01-04 .................................................. 10.750 B 1,000 1,000,000
Century Communications Corp.,
Sr Sub Deb 10-15-03 .................................................. 11.875 B+ 1,000 1,042,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 11
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
SCHEDULE OF INVESTMENTS (continued)
December 31, 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S+P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- -------- -------- --------- ------
<S> <C> <C> <C> <C>
BROADCASTING (continued)
Continental Cablevision, Inc.,
Sr Sub Deb 06-01-07 .................................................. 11.000% BB- $1,000 $ 1,015,000
TKR Cable I, Inc.,
Sr Deb 10-30-07 ...................................................... 10.500 BBB- 2,000 2,045,420
Viacom International,
*Sub Deb 07-07-06 ..................................................... 8.000 B+ 1,000 857,500
------------
5,960,420
------------
CHEMICALS (0.32%)
UCC Investors Holding, Inc.,
Sr Sub Note 05-01-03 .................................................. 11.000 B- 500 492,500
------------
COMPUTERS (1.39%)
Unisys Corp.,
Credit Sensitive Note 07-01-97 ......................................... 13.500 BB- 2,000 2,140,000
------------
CONTAINERS (0.79%)
Stone Container Corp.,
*Sr Note 02-01-01 ...................................................... 9.875 B 500 470,000
*Sr Sub Note 10-01-04 .................................................. 11.500 B 750 753,750
------------
1,223,750
------------
COSMETICS & TOILETRIES (0.40%)
Johnson & Johnson,
Deb 11-15-23 .......................................................... 6.730 AAA 750 616,875
------------
FINANCE (3.57%)
Banc One Credit Card Master Trust,
*Class A Asset Backed Ctf, Ser 1994-B 12-15-99 ......................... 7.550 AAA 1,000 985,312
CIT Group Holdings, Inc. (The),
Medium Term Sr Sub Cap Note 03-15-01 .................................. 9.250 A 1,000 1,037,580
DR Structured Finance Corp.,
*Sec Pass thru Ctf Ser 1993K-1 08-15-18 ................................ 7.430 A 1,000 783,120
Great Western Financial Corp.,
Note 02-01-02 ......................................................... 8.600 BBB+ 1,250 1,241,150
Merrill Lynch Mortgage Investors, Inc.,
Sr/Sub Pass thru Ctf Ser 1992, Class B (Sub) 04-15-12 ................. 8.500 AA 552 535,392
Standard Credit Card Master Trust I,
*Class A Credit Card Part Ctf Ser 1994-2 04-07-08 ...................... 7.250 AAA 1,000 911,250
------------
5,493,804
------------
FOODS (0.80%)
Beatrice Foods, Inc.,
Sr Sub Note Ser B 12-01-01 ............................................ 12.000 B 750 738,750
Flagstar Corp.,
Sr Sub Deb 11-01-04 ................................................... 11.250 CCC+ 600 495,000
------------
1,233,750
------------
GLASS PRODUCTS (0.57%)
Owens-Illinois, Inc.,
Sr Deb 12-01-03 ....................................................... 11.000 BB 845 876,688
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 12
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
SCHEDULE OF INVESTMENTS (continued)
December 31, 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S+P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- -------- -------- --------- ------
<S> <C> <C> <C> <C>
GOLD MINING & PROCESSING (1.23%)
Magma Copper Co.,
*Sr Sub Note 12-15-01 ................................................. 12.000% BB+ $1,750 $ 1,890,000
------------
GOVERNMENTAL - FOREIGN (1.85%)
Nova Scotia, Province of,
Deb 04-01-22 ......................................................... 8.750 A- 1,000 979,640
Ontario, Province of,
Bond 06-04-02 ........................................................ 7.750 AA- 500 482,965
*Deb 05-01-11 ......................................................... 15.125 AA- 325 370,107
*Deb 08-31-12 ......................................................... 15.250 AA- 350 423,059
Quebec, Province of,
Deb 10-01-13 ......................................................... 13.000 A+ 500 588,675
------------
2,844,446
------------
GOVERNMENTAL - U.S. (19.12%)
United States Treasury,
Bond 08-15-05 ........................................................ 10.750 AAA 8,515 10,228,644
Bond 08-15-17 ........................................................ 8.875 AAA 5,360 5,839,023
Bond 05-15-18 ........................................................ 9.125 AAA 2,250 2,513,678
Bond 02-15-23 ........................................................ 7.125 AAA 1,250 1,137,500
*Note 11-15-96 ........................................................ 7.250 AAA 3,000 2,976,570
*Note 04-15-98 ........................................................ 7.875 AAA 1,000 1,000,940
*Note 05-15-98 ........................................................ 9.000 AAA 2,500 2,583,975
*Note 11-30-99 ........................................................ 7.750 AAA 2,000 1,992,500
*Note 05-15-01 ........................................................ 8.000 AAA 1,190 1,199,294
------------
29,472,124
------------
GOVERNMENTAL - U.S. AGENCIES (13.57%)
Federal National Mortgage Association,
*15 Yr SF Pass thru Ctf 01-25-05 ...................................... 8.000 AAA 1,000 960,312
15 Yr SF Pass thru Ctf 02-01-08 ...................................... 7.500 AAA 883 844,823
Financing Corp.,
Bond Ser A 02-08-18 .................................................. 9.400 AAA 2,000 2,205,400
Bond Ser B 04-06-18 .................................................. 9.800 AAA 2,000 2,287,000
Government National Mortgage Association,
30 Yr SF Pass thru Ctf 10-15-23 ...................................... 7.000 AAA 1,894 1,699,446
*30 Yr SF Pass thru Ctf 02-15-24 ...................................... 7.500 AAA 1,788 1,658,529
30 Yr SF Pass thru Ctf 09-15-22 to 05-15-23 .......................... 8.000 AAA 2,203 2,105,898
*30 Yr SF Pass thru Ctf 01-15-23 to 12-15-24 .......................... 8.500 AAA 5,754 5,653,528
*30 Yr SF Pass thru Ctf 04-15-21 ...................................... 9.000 AAA 925 933,475
30 Yr SF Pass thru Ctf 11-15-19 to 01-15-21 .......................... 9.500 AAA 752 776,239
30 Yr SF Pass thru Ctf 11-15-20 ...................................... 10.000 AAA 761 800,082
Tennessee Valley Authority,
Power Bonds 1989 Ser G 11-15-29 ...................................... 8.625 AAA 1,000 992,270
------------
20,917,002
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 13
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
SCHEDULE OF INVESTMENTS (continued)
December 31, 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S+P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- -------- -------- --------- ------
<S> <C> <C> <C> <C>
INSURANCE (2.11%)
Massachusetts Mutual Life Insurance Co.,
*Surplus Note 11-15-23 (R) ............................................ 7.625% AA- $1,250 $ 1,064,013
Metropolitan Life Insurance Co.,
*Surplus Note 11-01-03 (R) ............................................ 6.300 AA 1,000 838,750
New York Life Insurance Co.,
Surplus Note 12-15-23 (R) ............................................ 7.500 AA 1,625 1,344,038
------------
3,246,801
------------
OIL & GAS (3.92%)
Ashland Oil, Inc.,
SF Deb 10-15-17 ...................................................... 11.125 BBB 1,000 1,098,700
Coastal Corp. (The),
Sr Deb 06-15-06 ...................................................... 11.750 BB+ 1,000 1,093,750
Maxus Energy Corp.,
Deb 05-01-13 ......................................................... 11.250 BB- 229 210,680
Norsk Hydro a.s.,
*Deb 06-15-23 ......................................................... 7.750 A- 1,000 876,180
Occidental Petroleum Corp.,
Sr Deb 09-15-09 ...................................................... 10.125 BBB 600 647,688
Oryx Energy Co.,
Note 09-15-98 ........................................................ 9.750 BB 1,000 972,110
TransTexas Gas Corp.,
*Sr Sec Note 09-01-00 ................................................. 10.500 BB- 1,200 1,146,000
------------
6,045,108
------------
PAPER (0.29%)
Georgia-Pacific Corp.,
Deb 02-15-18 ......................................................... 9.500 BBB- 450 450,410
------------
PUBLISHING (2.17%)
News America Holdings Inc.,
Sr Note 10-15-99 ..................................................... 9.125 BBB- 1,000 1,007,950
Sr Note 12-15-01 ..................................................... 12.000 BBB- 750 833,295
Time Warner Entertainment Co.,
Note 05-01-12 ........................................................ 10.150 BBB- 400 402,536
Time Warner Inc.,
Deb 01-15-13 ......................................................... 9.125 BBB- 1,225 1,103,652
------------
3,347,433
------------
RETAIL (4.22%)
Kroger Co. (The),
Lease Ctf 02-01-09 ................................................... 12.950 BB 1,910 2,158,300
May Department Stores Co. (The),
Deb 06-15-18 ......................................................... 10.750 A 254 260,845
Pathmark Stores, Inc.,
Sub Note 06-15-02 ,................................................... 11.625 B 1,500 1,440,000
Safeway Stores, Inc.,
Lease Ctf 01-15-09 ................................................... 13.500 BB+ 500 552,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 14
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
SCHEDULE OF INVESTMENTS (continued)
December 31, 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S+P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- -------- -------- --------- ------
<S> <C> <C> <C> <C>
RETAIL (continued)
S.D. Warren Co.,
*Sr Sub Note Ser A 12-15-04 (R) ....................................... 12.000% B+ $ 250 $ 253,750
Specialty Retailers,Inc,
*Note 08-15-00 ........................................................ 10.000 B+ 1,000 900,000
Thrifty Payless Inc.,
*Sr Sub Note 04-15-04 ................................................. 12.250 B- 1,000 945,000
------------
6,510,395
------------
STEEL (0.80%)
Weirton Steel Corp.,
Sr Note 10-15-99 ..................................................... 10.875 B 1,250 1,234,375
------------
TELECOMMUNICATIONS (0.68%)
British Telecom Finance Inc.,
*Gtd Deb 02-15-19 ..................................................... 9.625 AAA 1,000 1,053,970
------------
TOBACCO (0.60%)
RJR Nabisco Capital Corp.,
*Sr Note 04-15-04 ..................................................... 8.750 BBB- 1,000 921,140
------------
TRANSPORTATION (8.42%)
American Airlines, Inc.,
1991-A Pass thru Trust 01-02-07 ...................................... 9.710 BBB- 807 776,146
Sec Equip Ctf Ser B 01-06-05 ......................................... 14.375 BBB- 2,000 2,126,800
Delta Air Lines, Inc.,
*Deb 05-15-21 ......................................................... 9.750 BB 500 459,610
NWA Inc.,
Note 08-01-96 ........................................................ 8.625 B- 2,265 2,174,400
Rail Car Trust No. 1992-1
*Trust Note 06-01-04 .................................................. 7.750 AAA 1,821 1,774,575
Scandinavian Airlines System,
Bond 07-20-99 ........................................................ 9.125 A3 1,000 1,004,880
Sea-Land Service, Inc.,
Sec Bond Ser A 01-02-11 .............................................. 10.600 BBB 1,000 1,049,110
Swire Pacific Ltd.,
*Note 09-29-04 (R) .................................................... 8.500 A 500 481,100
United Air Lines, Inc.,
Deb 07-15-21 ......,,,,,.............................................. 10.250 BB 500 471,200
*Deb Ser B 05-01-14 ................................................... 11.210 BB 1,000 1,024,420
USAir 1990-A Pass Through Trusts,
Pass thru Ctf Ser 1990-A1 03-19-05 ................................... 11.200 BB 1,890 1,625,611
------------
12,967,852
------------
UTILITIES (12.61%)
ALLTEL Corp.,
*Deb 04-01-09 ......................................................... 10.375 A+ 500 532,920
Chugach Electric Association, Inc.,
1st Mtg 1991 Ser A 03-15-22 .......................................... 9.140 A 2,000 2,034,300
CTC Mansfield Funding Corp.,
Sec Lease Oblig 09-30-16 ............................................. 11.125 B+ 4,000 3,706,280
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 15
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
SCHEDULE OF INVESTMENTS (continued)
December 31, 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S+P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- -------- -------- --------- ------
<S> <C> <C> <C> <C>
UTILITIES (continued)
E.I.P. Refunding Corp.,
Sec Fac Bond 10-01-12 ................................................ 10.250% B+ $ 750 $ 667,500
First PV Funding Corp.,
*Lease Oblig Ser 1986 A 01-15-14 ...................................... 10.300 B 750 712,500
GTE Corp.,
*Deb 11-15-17 ......................................................... 10.300 BBB+ 500 543,465
Deb 11-01-20 ......................................................... 10.250 BBB+ 1,500 1,577,715
GTE South Inc.,
1st Mtg Ser GG 06-15-30 .............................................. 9.375 A+ 1,000 1,004,280
Hydro-Quebec (Gtd by Province of Quebec),
Deb Ser HS 02-01-21 .................................................. 9.400 A+ 2,000 2,073,860
Iberdrola International B.V.,
Gtd Note 10-01-02 (R) ................................................ 7.500 AA- 2,000 1,872,960
Midland Funding Corp. I,
Sr Sec Lease Oblig Ser C 07-23-02 .................................... 10.330 BB- 888 839,127
System Energy Resources, Inc.,
*1st Mtg 09-01-96 ..................................................... 10.500 BBB- 1,100 1,136,377
*Sec Lease Oblig 01-15-14 ............................................. 8.200 BBB- 500 431,555
Tenaga Nasional Berhad,
*Note 06-15-04 (R) .................................................... 7.875 A 750 712,035
Transco Energy Co.,
Note 07-01-99 ........................................................ 11.250 B+ 1,500 1,595,625
------------
19,440,499
------------
TOTAL PUBLICLY TRADED BONDS
(Cost $157,860,231) ( 96.40%) 148,561,449
------- ------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES
---------
<S> <C> <C>
COMMON STOCKS
RETAIL (0.05%)
Thrifty Payless Holdings,
Class C .............................................................. 19,000 76,000
------------
TOTAL COMMON STOCKS
(Cost $106,667) ( 0.05%) 76,000
------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE> 16
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
<TABLE>
<CAPTION>
PAR VALUE
INTEREST (000'S MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- -------- --------- ------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (1.32%)
Investment in a joint repurchase agreement
transaction with Lehman Bros., Inc.,
Dated 12-30-94, due 01-03-95 (secured by
U.S. Treasury Bonds, 9.25%, due 02-15-16 and
8.125%, due 08-15-21, and U.S. Treasury Notes,
5.500%, due 02-15-95, and 4.625%, due 08-15-95) Note A ............... 5.85% 2,037 $ 2,037,000
CORPORATE SAVINGS ACCOUNT (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 3.00% ................................................... 23
------------
TOTAL SHORT TERM INVESTMENTS ( 1.32%) 2,037,023
------- ------------
TOTAL INVESTMENTS ( 97.77%) $150,674,472
======= ============
</TABLE>
NOTES TO THE SCHEDULE OF INVESTMENTS
(R) These securities are exempt from registration under Rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from registration.
Rule 144A securities amounted to $9,329,666 as of December 31, 1994. See
Note A of the notes to Financial Statements for valuation policy.
* Securities, other than short-term investments, newly added to the
portfolio during the year ended December 31, 1994.
** Credit ratings are unaudited and are rated by Moody's Investor Services or
John Hancock Advisers, Inc. where Standard and Poors ratings are not
available.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
NOTE A --
ACCOUNTING POLICIES
John Hancock Income Securities Trust (the "Fund") is a closed-end, diversified
investment management company registered under the Investment Company Act of
1940. Significant accounting policies of the Fund 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.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's 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.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investment, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, the Fund has $692,312 of capital loss
carryforward available, to the extent provided by regulations, to offset future
net realized capital gains. If such carryforward is used by the Fund, no capital
gain distributions will be made. The carryforward expires December 31, 2002.
Additionally, net capital losses of $19,610 attributable to security
transactions occurring after October 31, 1994 are treated as arising on the
first day (January 1, 1995) of the Fund's next taxable year.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date. Interest income on investment securities is
recorded on the accrual basis.
The Fund records all dividends to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are determined in
conformity with federal income tax regulations, which may differ from generally
accepted accounting principles.
DISCOUNT ON SECURITIES The Fund accretes original issue discount from par value
on securities purchased from either the date of issue or the date of purchase
over the life of the security, as required by the Internal Revenue Code.
FINANCIAL FUTURES CONTRACTS 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. commodity exchange. Subsequent payments, known as
"variation margin", to and from the broker are made on a daily basis as the
market price of the financial futures contract fluctuates. Daily variation
margin adjustments, arising from this "mark to market", are recorded by the Fund
as unrealized gains or losses.
When the contracts are closed, the Fund recognizes 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 contract may not
correlate with changes in the value of the underlying securities.
For Federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures contracts.
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
At December 31, 1994, open positions in financial futures transactions were
as follows:
<TABLE>
<CAPTION>
UNREALIZED
EXPIRATION OPEN CONTRACTS POSITION DEPRECIATION
- ----------- -------------- -------- ------------
<S> <C> <C> <C>
MARCH, 1995 20 U.S. TREASURY BOND SHORT ($ 58,750)
MARCH, 1995 40 U.S. TREASURY NOTE SHORT ( 53,750)
--------
($112,500)
========
</TABLE>
At December 31, 1994, the Fund has deposited in a segregated account
$26,250 par value of U.S. Treasury Bond, 10.75%, 08-15-05, and $94,500 par value
of U.S. Treasury Bond, 8.875%, 08-15-17, to cover margin requirements on open
financial futures contracts.
NOTE B --
MANAGEMENT FEE, AND ADMINISTRATIVE SERVICES
Under the present investment management contract, the Fund pays a quarterly
management fee to the Adviser, for a continuous investment program, equivalent
on an annual basis, to the sum of (a) 0.650% of the first $150,000,000 of the
Fund's average weekly net asset value, (b) 0.375% of the next $50,000,000, (c)
0.350% of the next $100,000,000 and (d) 0.300% of the Fund's average weekly net
asset value in excess of $300,000,000.
Effective January 1, 1994, the former administration fee was eliminated.
In the event normal operating expenses of the Fund, exclusive of taxes,
interest, brokerage commissions and extraordinary expenses, exceeds 1.5% of the
first $30,000,000 of the Fund's average weekly net asset value and 1.0% of the
Fund's average weekly net asset value in excess of $30,000,000, the fee payable
to the Adviser will be reduced to the extent of such excess and the Adviser will
make additional arrangements necessary to eliminate any remaining excess
expenses.
Messrs. Edward J. Boudreau, Jr., Francis C. Cleary, Jr. (until December 14,
1994), and Richard S. Scipione are directors and/or officers of the Adviser
and/or its affiliates, as well as Trustees of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases of securities, other than obligations of the U.S. government and its
agencies and short-term securities, during the years ended December 31, 1994,
and 1993 aggregated $75,980,881 and $83,777,889, respectively. Proceeds from
sales of securities, other than obligations of the U.S. government and its
agencies and short-term securities, during the years ended December 31, 1994 and
1993 aggregated $83,883,725 and $84,896,447, respectively. Purchases and
proceeds from sales of obligations of the U.S. government and its agencies
aggregated $60,083,126 and $53,481,624, respectively, in 1994. Purchases and
proceeds from sales of obligations of the U.S. government and its agencies
aggregated $78,198,522 and $73,564,429, respectively, in 1993.
The cost of investments owned at December 31, 1994 and 1993 (including the
joint repurchase agreement) for Federal income tax purposes was $160,178,310 and
$162,069,672, respectively. Gross unrealized appreciation and depreciation of
investments aggregated $889,151 and $10,393,012, respectively, resulting in net
unrealized depreciation of $9,503,861 at December 31, 1994, and $8,480,809 and
$827,076, respectively, resulting in net unrealized appreciation of $7,653,733
at December 31, 1993.
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
NOTE D --
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Unaudited quarterly results of operations for each of the two years in the
period ended December 31, 1994 are as follows:
<TABLE>
<CAPTION>
1994
----
THREE MONTHS ENDED
-----------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(OOO's OMITTED EXCEPT PER SHARE DATA)
-------------------------------------
<S> <C> <C> <C> <C>
Net investment income ........................................................... $3,226 $3,256 $3,222 $3,238
Dividends from net investment income ............................................ 3,174 3,235 3,246 3,281
Net realized and unrealized loss on investments and financial futures contracts.. ( 8,059) ( 5,676) ( 2,078) ( 2,170)
Per share of beneficial interest:
Net investment income ......................................................... 0.33 0.32 0.31 0.32
Dividends ..................................................................... 0.32 0.32 0.32 0.32
Net asset value at end of quarter ............................................... $16.09 $14.50 $14.50 $15.10
</TABLE>
<TABLE>
<CAPTION>
1993
----
THREE MONTHS ENDED
-----------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(OOO's OMITTED EXCEPT PER SHARE DATA)
-------------------------------------
<S> <C> <C> <C> <C>
Net investment income ........................................................... $3,324 $3,298 $3,292 $3,235
Dividends from net investment income ............................................ 3,348 3,303 3,305 3,213
Net realized and unrealized gain (loss) on investments and financial
futures contracts ............................................................... 4,622 2,618 2,605 ( 2,568)
Per share of beneficial interest:
Net investment income ........................................................... 0.33 0.33 0.33 0.32
Dividends ....................................................................... 0.34 0.33 0.33 0.32
Net asset value at end of quarter ............................................... $16.83 $17.10 $17.36 $16.97
</TABLE>
19
<PAGE> 20
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees and Shareholders of
John Hancock Income Securities Trust
We have audited the accompanying statement of assets and liabilities of John
Hancock Income Securities Trust (the "Fund"), as of December 31, 1994 and 1993,
including the schedule of investments as of December 31, 1994, and the related
statements of operations and changes in net assets for the years then ended, and
financial highlights for each of the five years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's 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
December 31, 1994 and 1993, by correspondence with the custodian. 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, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
John Hancock Income Securities Trust at December 31, 1994 and 1993, the results
of its operations and changes in its net assets for the years then ended and
financial highlights for each of the five years in the period then ended, in
conformity with generally accepted accounting principles.
[SIGNATURE]
/s/ Ernst & Young LLP
Boston, Massachusetts
February 13, 1995
TAX INFORMATION NOTICE (UNAUDITED)
For Federal Income Tax purposes, the following information is furnished with
respect to the distributions of the Fund during its fiscal year ended December
31, 1994.
Corporate Dividends Received Deduction: None of the 1994 dividends qualify
for the corporate dividends received deduction.
The Fund designated distributions to shareholders of $788,000 as long-term
capital gain dividends. Shareholders were mailed a 1994 U.S, Treasury Department
Form 1099-DIV in January 1995 representing their proportionate share.
U.S. Government Obligations: Income from these investments may be exempt
from certain state and local taxes. The percentage of assets invested in U.S.
Treasury bonds. bills and notes was 19.10%. The percentage of annual income
derived from U.S. Treasury bonds, bills and notes was 13.45%. The percentage of
assets invested in obligations of other U.S. government agencies (excluding
securities issued by Federal National Mortgage Association and Government
National Motgage Association) at year end was 3.56%. The percentage of income
derived from these instruments was 3.42%. For specific information on exemption
provisions in your state, consult your local state tax office or your tax
adviser.
20
<PAGE> 21
John Hancock Funds - Income Securities Trust
DIVIDENDS AND DISTRIBUTIONS
During 1994 dividends from net investment income totalling $1.2775 per share
were paid to shareholders. A capital gains distribution of $0.0782 was paid in
1994. The dates of payment and the amounts per share were as follows:
<TABLE>
<CAPTION>
INCOME
PAYMENT DATE DIVIDEND
- ------------ --------
<S> <C>
March 31, 1994 $0.3150
June 30, 1994 0.3200
September 30, 1994 0.3200
December 30, 1994 0.3225
</TABLE>
<TABLE>
<CAPTION>
CAPITAL GAINS
DISTRIBUTION
-------------
<S> <C>
December 30, 1994 $0.0782
</TABLE>
INVESTMENT OBJECTIVE AND POLICY
John Hancock Income Securities Trust is a closed-end diversified investment
management company, shares of which were initially offered to the public on
February 14, 1973 and are publicly traded on the New York Stock Exchange. Its
investment objective is to generate a high level of current income consistent
with prudent investment risk. The Fund invests in a diversified portfolio of
freely marketable debt securities and may invest an amount not exceeding 20% of
its assets in income-producing preferred and common stock. The Fund intends to
engage in short-term trading, may issue a single class of senior securities not
to exceed 331/3% of its net assets at market value, may borrow from banks as a
temporary measure for emergency purposes in amounts not to exceed 5% of the
total assets at cost and may lend its portfolio securities. The Fund pays
quarterly dividends from net investment income and intends to distribute any
available net realized capital gains annually. All distributions are paid in
cash unless the shareholder elects to participate in the Automatic Dividend
Reinvestment Plan.
FINANCIAL FUTURES CONTRACTS
The Fund may buy and sell financial futures contracts and options on futures
contracts to hedge against the effects of fluctuations in interest rates and
other market conditions. The Fund's ability to hedge successfully will depend on
the Adviser's ability to predict accurately the future direction of interest
rate changes and other market factors. There is no assurance that a liquid
market for futures and options will always exist. In addition, the Fund could be
prevented from opening, or realizing the benefits of closing out, a futures or
options position because of position limits or limits on daily price
fluctuations imposed by an exchange.
The Fund will not engage in transactions in futures contracts and options
on futures for speculation, but only for hedging or other permissible risk
management purposes. All of the Fund's futures contracts and options on futures
will be traded on a U.S. commodity exchange or board of trade. The Fund will not
engage in a transaction in futures or options on futures if, immediately
thereafter, the sum of initial margin deposits on existing positions and
premiums paid for options on futures would exceed 5% of the Fund's total assets.
DIVIDEND REINVESTMENT PLAN
John Hancock Income Securities Trust offers shareholders the opportunity to
elect to receive shares of the Fund's Common Shares in lieu of cash dividends.
The Plan is available to all shareholders without charge.
Any shareholder of record of John Hancock Income Securities Trust ("Income
Securities") may elect to participate in the Automatic Dividend Reinvestment
Plan (the "Plan") and receive shares of Income Securities' Common Shares in lieu
of all or a portion of the cash dividends.
Shareholders may join the Plan by filling out and mailing an authorization
card showing an election to reinvest all or a portion of dividend payments. If
received in proper form by State Street Bank and Trust Company, P.O. Box 8209,
Boston, Massachusetts 02266-8209 (the "Agent Bank") not later than seven
business days before the record date for a dividend, the election will be
effective with respect to all dividends paid after such record date.
Shareholders whose shares are held in the name of a broker or nominee should
contact the broker, bank, or nominee to participate in the Plan.
21
<PAGE> 22
John Hancock Funds - Income Securities Trust
Participation in the Plan may be terminated at any time by written notice
to the Agent Bank and such termination will be effective immediately. However,
notice of termination must be received seven days prior to the record date of
any distribution to be effective for that distribution. Upon termination,
certificates will be issued representing the number of full shares of Common
Shares held by the Agent Bank. A shareholder will receive a cash payment for any
fractional share held.
The Agent Bank will act as agent for participating shareholders. The Board
of Trustees of Income Securities will declare dividends from net investment
income payable in cash or, in the case of shareholders participating in the
Plan, partially or entirely in Income Securities' Common Shares. The number of
shares to be issued for the benefit of each shareholder will be determined by
dividing the amount of the cash dividend otherwise payable to such shareholder
on shares included under the Plan by the per share net asset value of the Common
Shares on the date for payment of the dividend, unless the net asset value per
share on the payment date is less than 95% of the market price per share on that
date, in which event the number of shares to be issued to a shareholder will be
determined by dividing the amount of the cash dividend payable to such
shareholder by 95% of the market price per share of the Common Shares on the
payment date. The market price of the Common Shares on a particular date shall
be the mean between the highest and lowest sales price on the New York Stock
Exchange on that date. Net asset value will be determined in accordance with the
established procedures of Income Securities. However, if as of such payment date
the market price of the Common Shares is lower than such net asset value per
share, the number of shares to be issued will be determined on the basis of such
market price. Fractional shares, carried out to three decimal places, will be
credited to your account. Such fractional shares will be entitled to future
dividends.
The shares issued to participating shareholders, including fractional
shares, will be held by the Agent bank in the name of the participant. A
confirmation will be sent to each shareholder promptly, normally within seven
days, after the payment date of the dividend. The confirmation will show the
total number of shares held by such shareholder before and after the dividend,
the amount of the most recent cash dividend which the shareholder has elected to
reinvest and the number of shares acquired with such dividend.
The reinvestment of dividends does not in any way relieve participating
shareholders of any Federal, state or local income tax which may be due with
respect to such dividend. Dividends reinvested in shares will be treated on your
Federal income tax return as though you had received a dividend in cash in an
amount equal to the fair market value of the shares received, as determined by
the price for shares of the Fund on the New York Stock Exchange as of the
dividend payment date. Distributions from the Fund's long-term capital gains
will be processed as noted above for those electing to reinvest in shares and
will be taxable to you as long-term capital gains. The confirmation referred to
above will contain all the information you will require for determining the cost
basis of shares acquired and should be retained for that purpose. At year end,
each account will be supplied with detailed information necessary to determine
total tax liability for the calendar year.
Additional information may be obtained from the Customer Service
Department, John Hancock Income Securities Trust, 101 Huntington Avenue, Boston,
Massachusetts 02199-7603, 1 (800) 843-0090.
22
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NOTES
John Hancock Funds - Growth Fund
23
<PAGE> 24
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 HUNTINGTON AVENUE BOSTON, MA 02199-7603
[A 1/2" by 1/2" John Hancock Funds logo in upper left hand corner of the page. A
box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below
reads: "A Global Investment Management Firm."]
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This report is for the information of shareholders of the John Hancock
Growth Fund. It may be used as sales literature when preceded or accompanied by
the current prospectus, which details charges, investment objectives and
operating policies.
[A recycled logo in lower left hand corner with the caption " Printed on
Recycled Paper."]
JH P600A 12/94
