<PAGE> 1
JOHN HANCOCK FUNDS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
INCOME
SECURITIES
TRUST
SEMI-ANNUAL REPORT
June 30, 1995
<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 F. St. Pierre
President
Anne C. Hodsdon
Executive Vice President
Thomas H. Drohan
Senior Vice President and Secretary
Michael P. DiCarlo
Senior Vice President
James K. Ho
Senior Vice President
James B. Little
Senior Vice President and
Chief Financial Officer
John A. Morin
Vice President
Susan S. Newton
Vice President, Assistant Secretary and
Compliance Officer
James J. Stokowski
Vice President and Treasurer
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
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
LEGAL COUNSEL
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
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.]
Educating shareholders has always been one of the most important
responsibilities of an investment company. But that challenge has taken on new
significance in the past several years. Looking at the most recent statistics,
you can see why. According to the Investment Company Institute, the mutual fund
industry now manages more than $2.3 trillion for investors. More than half of
that money has come into mutual funds in just the last four years. Today, there
are more than 95 million mutual fund shareholder accounts. That's up from 12
million in 1980. These are people, perhaps like you, who are investing in mutual
funds to save for a home, to send their children to college or to build a nest
egg for a comfortable retirement. This explosive growth, coupled with the
growing complexity of the financial landscape, has made all of us in the mutual
fund industry work harder to inform our shareholders.
At John Hancock Funds, we strive to educate you about all aspects of your
fund: the performance, the strategies and the holdings. We want you to fully
understand what you own. We want you to have realistic expectations of the
potential rewards as well as the potential risks of your investment. These
shareholder reports -- which we send you twice a year -- are the best way to
give you the most in-depth and up-to-date information.
In the message that follows, the portfolio manager gives a candid commentary
on the market environment; the factors that affected performance; the Fund's
current investment strategies; and the outlook for the months ahead. The ensuing
financial statements provide a comprehensive look at the fund's statistics and
holdings. We've included explanations of what each financial statement shows and
how it is used.
We hope you find these shareholder reports a useful tool in evaluating your
investments. Of course, if you have any questions or need more information, feel
free to call us toll-free at 1-800-843-0900, from 8:30 a.m. to 5:00 p.m. eastern
time, Monday through Friday.
Sincerely,
/s/ Edward J. Boudreau, Jr.
- ---------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE> 3
BY JAMES K. HO, SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER
JOHN HANCOCK
INCOME SECURITIES TRUST
Economic slowdown ends Fed's cycle of rate increases,
creating ideal conditions for bonds
In February 1995, James K. Ho began managing John Hancock Income Securities
Trust. Mr. Ho is a senior vice president and senior fixed-income officer at John
Hancock Funds. He also manages John Hancock Sovereign Bond Fund, John Hancock
Investors Trust and John Hancock Investment Quality Bond Fund.
The bond market's performance in the first half of 1995 was a welcome antidote
to 1994. Signs of an impending economic slowdown began appearing early in the
period and were confirmed in April with the release of the first-quarter growth
rate in the gross domestic product (GDP) -- a tame 2.8% compared to 5.1% in the
fourth quarter of 1994. The Federal Reserve, which raised short-term interest
rates six times during 1994, raised rates a seventh time in February 1995. That
marked the end of a year-long Fed initiative to rein in economic growth and
prevent an outbreak of inflation. Throughout the spring, continued weakness in
key economic indicators such as employment, housing and consumer confidence
drove interest rates lower and bond prices higher.
The upshot was a rewarding six months for investors in John Hancock Income
Securities Trust. From December 31, 1994 through June 30, 1995, the Fund's total
return was
[CAPTION]
"THE BOND MARKET'S PERFORMANCE IN THE FIRST HALF OF 1995
WAS A WELCOME ANTIDOTE TO 1994."
[A 2 1/2" x 3/3/4" photo of James K. Ho at bottom right. Caption reads: "James
K. Ho, Portfolio Manager."]
JAMES K. HO, PORTFOLIO MANAGER
3
<PAGE> 4
John Hancock Funds - Income Securities Trust
[CAPTION]
"...THE FUND'S PORTFOLIO STRUCTURE HAS CHANGED DRAMATICALLY."
[Pie chart with heading "Portfolio Diversification" at top left hand column. The
chart is divided into five sections. Going from top left to right: U.S. Treasury
Bonds 20%; High- Quality Corporate Bonds 43%; Foreign Government Bonds 2%;
High-Yield Corporate Bonds 20%; Mortgage-Backed Securities 15%. " A footnote
below states: "As a percentage of net assets on June 30, 1995."]
12.38% at net asset value. That compared favorably with the average total return
of 11.36% for open-end corporate debt A-rated funds, according to Lipper
Analytical Services.(1)
STRUCTURAL CHANGES IN THE PORTFOLIO
Among the tools we use in managing the Fund is duration. Duration is a
calculation that takes into account a bond's maturity date, its yield, and the
frequency of its interest payments. It tells us how much a bond's price will
vary as interest rates change. When rates are falling -- and bond prices are
rising -- it pays to have a longer average duration. Accordingly, to take
advantage of falling rates, we extended the Fund's duration slightly -- from
just under 5 years in late 1994 to 5.5 years early in 1995.
While the Fund's duration has changed only slightly since the last report,
the Fund's portfolio structure has changed dramatically. During most of 1994,
while interest rates were rising, we divided the Fund's assets among bonds with
both short and long maturities. For the most part, we left out intermediate-term
bonds. This is what's known as a barbell portfolio structure because it's heavy
on the ends and light in the middle. That followed from our belief that the
yield curve (or the difference in short- and long-term yields) would flatten as
the Fed raised rates, which is what happened. Late in 1994, as we began to feel
that rates had peaked and the yield curve would soon be steepening again, we
took off the barbell in favor of a bullet strategy. That simply meant
concentrating more of the Fund's assets in medium-term bonds.
[Table entitled "Scorecard" at bottom 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
"Massachusetts Mutual" followed by an up arrow and the phrase "Market recognized
value". The second listing is "Wierton Steel" followed by an up arrow and the
phrase "Tender Offer". The third listing is "Flagstar" followed by a down arrow
and the phrase "Troubles with restaurant chain". Footnote below reads: "See
"Schedule of Investments." Investment holdings are subject to change."]
LESS CREDIT RISK AS ECONOMY SLOWS
The Fund's asset mix at the end of the period was about the same as it was at
the beginning: 43% high-quality corporate bonds, 20% U.S. Treasury bonds, 20%
high-yield bonds, 15% mortgage-backed securities and 2% foreign government
bonds. Nevertheless, as the economy slowed, we took steps where appropriate to
lessen the Fund's exposure to credit risk. For example, we took profits on some
corporate bonds early in the period as the yield advantage of corporates over
U.S. Treasuries narrowed. We also looked for opportunities to shift assets out
of cyclical industries such as steel and paper, which are especially sensitive
to economic conditions. In turn, we moved into more stable industries, including
communications and utilities.
Among our top performers were high-quality corporate offerings by two
insurance companies: Massachusetts Mutual and New
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 six months ended June 30, 1995." The chart is
scaled in increments of 5% from top to bottom with 15% at the top and 0% at the
bottom. Within the chart, there are two solid bars. The first represents the
12.38% total return for John Hancock Income Securities Trust. The second
represents the 11.36% total return for the Average corporate A-rated debt fund.
Footnote below reads: "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.(1)"]
York Life. The bonds were structured in an unusual way, and so escaped the
attention of many market participants. In time, however, investors recognized
their value, prices rose and the Fund profited. Other winners included
high-yield bonds issued by Wierton Steel, which we sold back to the company in a
tender offer. Our "Yankee banks" -- foreign banks that issue bonds in the United
States -- continued to perform well as many foreign economies recovered. Among
the disappointments during the period was Flagstar, which owns the struggling
Denny's restaurant chain.
An interesting footnote to performance was the Fund's small (less than 1%)
stake in Argentinean and Brazilian bonds, which had a disproportionately
positive impact on performance. We began buying Latin American bonds in March
and April of this year after they'd been hammered in 1994. Later, after the
Mexican bailout package was completed, bond prices rose through the region and
we successfully sold our Mexican and Argentinian issues.
OUTLOOK
Soon after the Fund's June 30, 1995 reporting period, the Fed reversed its
fiscal policy and lowered short term interest rates one-quarter of a percentage
point, from 6.00% to 5.75%. Many market participants believe that we're on the
verge of an extended slowdown, perhaps even a recession, and that the Fed will
continue to cut rates this year. Our view, however, is that the Fed is more
likely to move slowly until current trends in the economy become more clear. A
recession seems unlikely, if for no other reason than that falling interest
rates have lowered the cost of borrowing, making houses, cars and other
big-ticket items that much more affordable. Moreover, sharp increases in
domestic financial markets since the beginning of the year have left a
significant portion of the population feeling wealthier. Together, those factors
point to the possibility of renewed acceleration in the economy beginning later
this year or early in 1996.
We're, therefore, in no rush to extend the Fund's duration. Instead, we'll be
looking for signs of strength in the economy that would tell us it's time to
shorten the Fund's duration, add more credit risk, and otherwise reverse some of
the strategic choices we made earlier this year. In any case, shareholders would
do well to temper their expectations in the months to come. As we begin the
second half of 1995, interest rates have come down enough that a repeat of the
first half's double-digit returns seems unlikely.
[CAPTION]
"...A REPEAT OF THE FIRST HALF'S DOUBLE-DIGIT RETURNS SEEMS UNLIKELY."
- --------------------------------------------------------------------------------
(1)Figures from Lipper Analytical Services include reinvested dividends and do
not take into account sales charges. Actual load-adjusted performance is
lower.
5
<PAGE> 6
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
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 JUNE 30, 1995. YOU'LL ALSO
FIND THE NET ASSET VALUE PER SHARE AS OF THAT DATE.
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
Publicly traded bonds (cost - $160,315,529) ...................$163,094,283
Joint repurchase agreement (cost - $775,000) .................. 775,000
Corporate savings account ..................................... 366,002
------------
164,235,285
Receivable for investments sold ................................. 3,890,326
Interest receivable ............................................. 3,332,301
------------
Total Assets ................................. 171,457,912
----------------------------------------------------------
LIABILITIES:
Payable for variation margin - Note A ........................... 8,750
Payable for investments purchased ............................... 3,719,309
Payable to John Hancock Advisers, Inc. and
affiliates - Note B ........................................... 289,713
Accounts payable and accrued expenses ........................... 81,505
------------
Total Liabilities ............................ 4,099,277
----------------------------------------------------------
NET ASSETS:
Capital paid-in ................................................. 165,333,961
Accumulated net realized loss on investments and
financial futures contracts ................................... (727,503)
Net unrealized appreciation of investments and
financial futures contracts ................................... 2,733,129
Undistributed net investment income ............................. 19,048
-----------
Net Assets ...................................$167,358,635
==========================================================
NET ASSET VALUE PER SHARE:
(based on 10,263,202 shares of beneficial interest
outstanding - 30 million shares authorized with no
par value) .....................................................$ 16.31
============================================================================
</TABLE>
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS (LOSSES) FOR
THE PERIOD STATED.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Six months ended June 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest .........................................................$ 7,167,038
-----------
Expenses:
Investment management fee - Note B ............................. 502,419
Transfer agent fee ............................................. 83,210
Printing ....................................................... 45,705
Custodian fee .................................................. 24,449
Auditing fee ................................................... 22,673
New York Stock Exchange fee .................................... 13,577
Trustees' fees ................................................. 12,478
Legal fees ..................................................... 6,412
Miscellaneous .................................................. 4,479
-----------
Total Expenses ................................ 715,402
----------------------------------------------------------
Net Investment Income ......................... 6,451,636
----------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FINANCIAL FUTURES CONTRACTS
Net realized gain on investments sold ............................ 516,356
Net realized loss on financial futures contracts ................. (357,525)
Change in net unrealized appreciation/depreciation
of investments ................................................. 12,108,203
Change in net unrealized appreciation/depreciation
of financial futures contracts ................................. 66,875
-----------
Net Realized and Unrealized Gain
on Investments and Financial
Futures Contracts ............................. 12,333,909
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ..................... $18,785,545
===========================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE> 7
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 1995 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1994
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income .................................................................... $ 6,451,636 $ 12,941,765
Net realized gain (loss) on investments sold and financial futures contracts ............. 158,831 (886,334)
Change in net unrealized appreciation/depreciation of investments
and financial futures contracts 12,175,078 (17,096,620)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations ........................ 18,785,545 (5,041,189)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income ($0.6300 and $1.2775 per share, respectively) ....... (6,438,755) (12,935,598)
Distributions from net realized gain on investments sold and financial futures contracts
(none and $0.0782 per share, respectively) ............................................. -- (788,088)
------------ ------------
Total Distributions to Shareholders .................................................... (6,438,755) (13,723,686)
------------ ------------
FROM FUND SHARE TRANSACTIONS
(Market value of shares issued to shareholders in reinvestment of distributions) ......... 895,384 1,892,903
------------ ------------
NET ASSETS:
Beginning of period ...................................................................... 154,116,461 170,988,433
------------ ------------
End of period (including undistributed net investment income of $19,048
and $6,167, respectively) $167,358,635 $154,116,461
============ ============
* ANALYSIS OF FUND SHARE TRANSACTIONS:
Shares outstanding beginning of period ................................................... 10,205,263 10,076,246
Shares issued to shareholders in reinvestment of distributions ........................... 57,939 129,017
------------ ------------
Shares outstanding end of period ......................................................... 10,263,202 10,205,263
============ ============
</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.
7
<PAGE> 8
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
<TABLE>
FINANCIAL HIGHLIGHTS
Selected data for each share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
(UNAUDITED) YEAR ENDED DECEMBER 31,
------------------------ ----------------------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ...................... $ 15.10 $ 16.97 $ 16.97 $ 16.31 $ 16.25
-------- -------- -------- -------- --------
Net Investment Income ..................................... 0.63 0.65 1.28 1.31 1.37
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts ......................... 1.21 (1.37) (1.79) 0.80 0.07
-------- -------- -------- -------- --------
Total from Investment Operations ....................... 1.84 (0.72) (0.51) 2.11 1.44
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ...................... (0.63) (0.64) (1.28) (1.32) (1.38)
Distributions from Net Realized Gain on Investments Sold
and Financial Futures Contracts ......................... -- (0.08) (0.08) (0.13) --
-------- -------- -------- -------- --------
Total Distributions .................................... (0.63) (0.72) (1.36) (1.45) (1.38)
-------- -------- -------- -------- --------
Net Asset Value, End of Period ............................ $ 16.31 $ 15.53 $ 15.10 $ 16.97 $ 16.31
======== ======== ======== ======== ========
Per Share Market Value, End of Period ..................... $ 16.00 $ 14.50 $ 13.75 $ 16.50 $ 16.75
Total Investment Return at Market Value ................... 21.15%(a) (7.92%)(a) (8.70%) 7.22% 7.16%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ................. $167,359 $157,530 $154,116 $170,988 $162,468
Ratio of Expenses to Average Net Assets ................... 0.89%* 0.85%* 0.87% 0.84% 0.81%
Ratio of Net Investment Income to Average Net Assets ...... 8.03%* 7.90%* 8.03% 7.67% 8.46%
Portfolio Turnover Rate ................................... 38% 46% 82% 95% 111%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1991 1990
---- ----
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ...................... $ 15.19 $ 15.61
-------- --------
Net Investment Income ..................................... 1.44 1.47
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts ......................... 1.08 (0.42)
-------- --------
Total from Investment Operations ....................... 2.52 1.05
-------- --------
Less Distributions:
Dividends from Net Investment Income ...................... (1.46) (1.47)
Distributions from Net Realized Gain on Investments Sold
and Financial Futures Contracts ......................... -- --
-------- --------
Total Distributions .................................... (1.46) (1.47)
-------- --------
Net Asset Value, End of Period ............................ $ 16.25 $ 15.19
======== ========
Per Share Market Value, End of Period ..................... $ 17.00 $ 15.00
Total Investment Return at Market Value ................... 23.25% 6.07%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ................. $159,990 $147,764
Ratio of Expenses to Average Net Assets ................... 0.74% 0.70%
Ratio of Net Investment Income to Average Net Assets ...... 9.28% 9.64%
Portfolio Turnover Rate ................................... 92% 85%
</TABLE>
* On an annualized basis.
(a) Not annualized.
THE FINANCIAL HIGHLIGHTS SUMMARIZES THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIOD INDICATED: NET INVESTMENT INCOME, GAINS (LOSSES),
DIVIDENDS AND TOTAL INVESTMENT RETURN OF THE FUND. IT SHOWS HOW THE FUND'S NET
ASSET VALUE FOR A SHARE HAS CHANGED SINCE THE END OF THE PREVIOUS PERIOD.
ADDITIONALLY, IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN THE
FINANCIAL STATEMENTS ARE EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 9
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
<TABLE>
SCHEDULE OF INVESTMENTS
June 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------------------------------------
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY INCOME
SECURITIES TRUST ON JUNE 30, 1995. IT'S DIVIDED INTO TWO MAIN CATEGORIES:
PUBLICLY TRADED BONDS 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.
<CAPTION>
PAR VALUE
INTEREST S+P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- ---- -------- -------- -----
<S> <C> <C> <C> <C>
PUBLICLY TRADED BONDS
BANKS (13.48%)
Abbey National First Capital B.V.,
Sub Note 10-15-04.......................................... 8.200% AA- $ 750 $ 813,743
African Development Bank,
Sub Note 12-15-03.......................................... 9.750 AA 1,000 1,183,140
Bank of Montreal - Chicago Branch,
Sub Note 11-01-00.......................................... 9.800 A+ 1,000 1,008,460
Barclays North American Capital Corp.,
Gtd Cap Note 05-15-21...................................... 9.750 AA- 900 1,031,031
Den Danske Bank Aktieselskab,
*Sub Note 06-15-05 (R)...................................... 7.250 BBB+ 800 793,664
International Bank for Reconstruction and Development,
30 Yr Bond 07-15-17........................................ 9.250 AAA 4,000 4,955,960
Landeskreditbank Baden - Wurttemberg,
Sub Note 02-01-23.......................................... 7.625 AAA 1,500 1,585,860
Midland American Capital Corp.,
Gtd Note 11-15-03.......................................... 12.750 A 1,500 1,773,840
National Westminster Bank PLC - New York Branch,
Sub Note 05-01-01.......................................... 9.450 AA- 1,250 1,412,050
Scotland International Finance No. 2 B.V.,
Sub Gtd Note 01-27-04 (R).................................. 8.800 A+ 2,000 2,220,620
Sub Gtd Note 11-01-06 (R).................................. 8.850 A+ 750 841,480
Security Pacific Corp.,
Medium Term Sub Note 04-26-01.............................. 10.500 A- 1,500 1,787,550
Sub Note 11-15-00.......................................... 11.500 A- 1,000 1,207,110
Toronto Dominion Bank - New York Branch,
Sub Note 01-15-09.......................................... 6.450 AA- 1,000 947,410
Westdeutsche Landesbank Girozentrale - New York Branch,
Sub Note 06-15-05.......................................... 6.750 AA+ 1,000 999,820
-----------
22,561,738
-----------
BROADCASTING (5.05%)
Cablevision Systems Corp.,
Sr Sub Deb 04-01-04........................................ 10.750 B 1,000 1,050,000
Century Communications Corp.,
Sr Sub Deb 10-15-03........................................ 11.875 B+ 1,250 1,325,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 10
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S+P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- ---- -------- -------- -----
<S> <C> <C> <C> <C>
BROADCASTING (CONTINUED)
Comcast Corp.,
*Sr Sub Deb 05-15-05.......................................... 9.375% B+ $ 400 $ 400,000
Continental Cablevision, Inc.,
Sr Sub Deb 06-01-07.......................................... 11.000 BB- 1,000 1,110,000
Jones Intercable, Inc.,
*Sr Note 03-15-02............................................. 9.625 BB 500 522,500
Le Groupe Videotron Ltee,
*Sr Note 02-15-05............................................. 10.625 BB+ 250 263,125
Rogers Cablesystems Ltd.,
*Sr Sec Second Priority Note 03-15-05......................... 10.000 BBB 500 513,750
TKR Cable I, Inc.,
Sr Deb 10-30-07.............................................. 10.500 BBB- 2,000 2,291,520
Viacom International,
Sub Deb 07-07-06............................................. 8.000 BB- 1,000 973,750
----------
8,449,645
----------
COMPUTERS (1.32%)
Unisys Corp.,
Credit Sensitive Note 07-01-97............................... 13.500 BB- 2,000 2,210,000
----------
CONTAINERS (0.61%)
Stone Container Corp.,
Sr Note 02-01-01............................................. 9.875 B+ 500 495,625
Sr Sub Note 10-01-04......................................... 11.500 B 500 528,750
----------
1,024,375
----------
COSMETICS & TOILETRIES (0.43%)
Johnson & Johnson,
Deb 11-15-23................................................. 6.730 AAA 750 719,603
----------
FINANCE (4.93%)
Banc One Credit Card Master Trust,
Class A Asset Backed Ctf, Ser 1994-B 12-15-99................ 7.550 AAA 1,000 1,025,620
CIT Group Holdings, Inc. (The),
Medium Term Sr Sub Cap Note 03-15-01......................... 9.250 A 1,000 1,125,440
DR Structured Finance Corp.,
Sec Pass thru Ctf Ser 1993K-1 08-15-18....................... 7.430 BBB 1,000 867,345
Great Western Financial Corp.,
Note 02-01-02................................................ 8.600 BBB+ 1,250 1,345,000
Merrill Lynch Mortgage Investors, Inc.,
Sr/Sub Pass thru Ctf Ser 1992, Class B (Sub) 04-15-12........ 8.500 AA 504 518,335
Santander Financial Issuances Ltd.,
*Sub Gtd Note 04-15-05........................................ 7.875 A+ 1,000 1,050,520
Standard Credit Card Master Trust I,
*Class A Credit Card Part Ctf Ser 1995-2 01-07-00............. 8.625 AAA 1,250 1,285,150
Class A Credit Card Part Ctf Ser 1994-2 04-07-08............. 7.250 AAA 1,000 1,026,870
----------
8,244,280
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 11
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S+P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- ---- -------- -------- -----
<S> <C> <C> <C> <C>
FOODS (0.54%)
Dominick's Finer Foods, Inc.,
*Sr Sub Note 05-01-05........................................ 10.875% B- $ 500 $ 506,250
Flagstar Corp.,
Sr Sub Deb 11-01-04......................................... 11.250 CCC+ 500 390,000
-----------
896,250
-----------
GLASS PRODUCTS (0.49%)
Owens-Illinois, Inc.,
Sr Deb 12-01-03............................................. 11.000 BB 750 823,125
-----------
GOLD MINING & PROCESSING (1.16%)
Magma Copper Co.,
Sr Sub Note 12-15-01........................................ 12.000 BB+ 1,750 1,933,750
-----------
GOVERNMENTAL - FOREIGN (1.79%)
Brazil, Republic of,
*Par Bond YL4 04-15-24....................................... 4.250 NR 500 220,000
Nova Scotia, Province of,
Deb 04-01-22................................................ 8.750 A- 750 842,197
Ontario, Province of,
Bond 06-04-02............................................... 7.750 AA- 500 531,290
Deb 05-01-11................................................ 15.125 AA- 325 365,365
Deb 08-31-12................................................ 15.250 AA- 350 429,569
Quebec, Province of,
Deb 10-01-13................................................ 13.000 A+ 500 611,945
-----------
3,000,366
-----------
GOVERNMENTAL - U.S. (20.76%)
United States Treasury,
Bond 08-15-05............................................... 10.750 AAA 4,437 5,891,493
Bond 08-15-17............................................... 8.875 AAA 2,860 3,560,700
Bond 05-15-18............................................... 9.125 AAA 2,250 2,873,318
Bond 02-15-23............................................... 7.125 AAA 3,270 3,445,239
Note 11-15-96............................................... 7.250 AAA 2,750 2,799,830
Note 04-15-98............................................... 7.875 AAA 1,000 1,050,310
Note 05-15-98............................................... 9.000 AAA 3,750 4,051,163
Note 11-30-99............................................... 7.750 AAA 5,810 6,196,714
Note 05-15-01............................................... 8.000 AAA 4,445 4,871,453
-----------
34,740,220
-----------
GOVERNMENTAL - U.S. AGENCIES (15.16%)
Federal National Mortgage Association,
15 Yr SF Pass thru Ctf 01-25-05............................. 8.000 AAA 1,000 1,045,620
15 Yr SF Pass thru Ctf 02-01-08............................. 7.500 AAA 836 850,051
*30 Yr SF Pass thru Ctf 11-01-24+............................ 7.000 AAA 935 918,927
Financing Corp.,
Bond Ser A 02-08-18......................................... 9.400 AAA 2,000 2,512,180
Bond Ser B 04-06-18......................................... 9.800 AAA 2,000 2,607,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 12
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S+P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- ---- -------- -------- -----
<S> <C> <C> <C> <C>
GOVERNMENTAL - U.S. AGENCIES (CONTINUED)
Government National Mortgage Association,
30 Yr SF Pass thru Ctf 10-15-23............................ 7.000% AAA $ 891 $ 876,485
*30 Yr SF Pass thru Ctf 02-15-24 to 02-15-25+............... 7.500 AAA 918 922,961
30 Yr SF Pass thru Ctf 09-15-22 to 06-15-25................ 8.000 AAA 5,306 5,455,290
30 Yr SF Pass thru Ctf 01-15-23 to 12-15-24................ 8.500 AAA 4,882 5,067,745
30 Yr SF Pass thru Ctf 04-15-21............................ 9.000 AAA 889 934,180
30 Yr SF Pass thru Ctf 11-15-19 to 02-15-25................ 9.500 AAA 2,156 2,285,698
30 Yr SF Pass thru Ctf 11-15-20............................ 10.000 AAA 735 799,476
Tennesse Valley Authority,
Power Bonds 1989 Ser G 11-15-29............................ 8.625 AAA 1000 1,097,900
-----------
25,374,013
-----------
INSURANCE (2.09%)
Liberty Mutual Insurance Co.,
*Surplus Note 05-04-07 (R).................................. 8.200 A2 375 392,801
Massachusetts Mutual Life Insurance Co.,
Surplus Note 11-15-23 (R).................................. 7.625 AA- 750 728,183
Metropolitan Life Insurance Co.,
Surplus Note 11-01-03 (R).................................. 6.300 AA 1,000 952,950
New York Life Insurance Co.,
Surplus Note 12-15-23 (R).................................. 7.500 AA 1,500 1,430,490
-----------
3,504,424
-----------
OIL & GAS (3.54%)
Ashland Oil, Inc.,
SF Deb 10-15-17............................................ 11.125 BBB 1,000 1,135,390
Coastal Corp. (The),
Sr Deb 06-15-06............................................ 11.750 BB+ 1,000 1,080,000
Maxus Energy Corp.,
Deb 05-01-13............................................... 11.250 BB- 229 223,275
Norsk Hydro, a.s.,
Deb 06-15-23............................................... 7.750 A- 1,000 1,026,150
Occidental Petroleum Corp.,
Sr Deb 09-15-09............................................ 10.125 BBB 600 735,468
Oryx Energy Co.,
Note 09-15-98.............................................. 9.750 BB 1,000 1,005,000
TransTexas Gas Corp.,
*Sr Note 06-15-02........................................... 11.500 BB- 700 714,000
-----------
5,919,283
-----------
PAPER (0.44%)
Georgia-Pacific Corp.,
Deb 02-15-18............................................... 9.500 BBB- 450 472,536
S.D. Warren Co.,
Sr Sub Note 12-15-04....................................... 12.000 B+ 250 268,750
-----------
741,286
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 13
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S+P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- ---- -------- -------- -----
<S> <C> <C> <C> <C>
PUBLISHING (1.77%)
News America Holdings Inc.,
Sr Note 10-15-99............................................ 9.125% BBB- $1,000 $ 1,084,650
Sr Note 12-15-01............................................ 12.000 BBB- 750 845,955
Time Warner Inc.,
Deb 01-15-13................................................ 9.125 BBB- 1,000 1,039,290
-----------
2,969,895
-----------
RETAIL (2.54%)
Kroger Co. (The),
Lease Ctf 02-01-09.......................................... 12.950 BB+ 1,910 2,105,775
May Department Stores Co. (The),
Deb 06-15-18................................................ 10.750 A 254 274,927
Pathmark Stores, Inc.,
Sub Note 06-15-02........................................... 11.625 B 750 793,125
Safeway Stores, Inc.,
Lease Ctf 01-15-09.......................................... 13.500 BBB- 500 562,500
Thrifty Payless Inc.,
*Sr Note 04-15-03............................................ 11.750 B 500 527,500
-----------
4,263,827
-----------
STEEL (0.82%)
UCAR Global Enterprises Inc.,
*Sr Sub Note 01-15-05........................................ 12.000 B 500 538,750
Weirton Steel Corp.,
*Sr Note 03-01-98............................................ 11.500 B 250 260,000
*Sr Note 06-01-05 (R)........................................ 10.750 B 600 567,000
-----------
1,365,750
-----------
TELECOMMUNICATIONS (1.01%)
British Telecom Finance Inc.,
Gtd Deb 02-15-19............................................ 9.625 AAA 1,000 1,134,470
Tele-Communications Inc.,
*Sr Deb 02-01-12............................................. 9.800 BBB- 500 549,780
-----------
1,684,250
-----------
TEXTILES (0.14%)
Westpoint Stevens Inc.,
*Sr Sub Deb 12-15-05......................................... 9.375 B+ 250 240,625
-----------
TOBACCO (0.62%)
RJR Nabisco Capital Corp.,
Sr Note 04-15-04............................................ 8.750 BBB- 1,000 1,026,440
-----------
TRANSPORTATION (5.83%)
American Airlines, Inc.,
1991-A Pass thru Trust 01-02-07............................. 9.710 BBB- 793 880,725
NWA Inc.,
Note 08-01-96............................................... 8.625 B 2,265 2,276,325
Rail Car Trust, No. 1992-1
Trust Note 06-01-04......................................... 7.750 AAA 1,755 1,847,812
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 14
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S+P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- ---- -------- -------- -----
<S> <C> <C> <C> <C>
TRANSPORTATION (CONTINUED)
Scandinavian Airlines System,
Bond 07-20-99............................................... 9.125% A3 $1,000 $ 1,074,050
Sea-Land Service, Inc.,
Sec Bond Ser A 01-02-11..................................... 10.600 BBB+ 1,000 1,068,960
United Air Lines, Inc.,
Deb Ser B 05-01-14.......................................... 11.210 BB 700 850,129
USAir 1990-A Pass Through Trusts,
Pass thru Ctf Ser 1990-A1 03-19-05.......................... 11.200 B+ 1,851 1,765,408
-----------
9,763,409
-----------
UTILITIES (12.93%)
ALLTEL Corp.,
Deb 04-01-09................................................ 10.375 A+ 500 530,480
BVPS II Funding Corp.,
*Collateralized Lease Bond 06-01-17.......................... 8.890 BB 998 933,499
Chugach Electric Association, Inc.,
1st Mtg 1991 Ser A 03-15-22................................. 9.140 A 2,000 2,254,180
Cleveland Electric Illuminating Co.,
*1st Mtg Ser 2005-B 05-15-05................................. 9.500 BB 400 400,000
CTC Mansfield Funding Corp.,
Sec Lease Oblig 09-30-16.................................... 11.125 B+ 2,575 2,621,196
E.I.P. Refunding Corp.,
Sec Fac Bond 10-01-12....................................... 10.250 B+ 750 772,530
First PV Funding Corp.,
*Lease Oblig Ser 1986 B 01-15-16............................. 10.150 B+ 1,100 1,131,625
GTE Corp.,
Deb 11-15-17................................................ 10.300 BBB+ 500 571,810
Deb 11-01-20................................................ 10.250 BBB+ 1,500 1,752,600
GTE South Inc.,
1st Mtg Ser GG 06-15-30..................................... 9.375 A+ 1,000 1,052,500
Hydro-Quebec (Gtd by Province of Quebec),
Deb Ser HS 02-01-21......................................... 9.400 A+ 1,000 1,178,630
Iberdrola International B.V.,
Gtd Note 10-01-02 (R)....................................... 7.500 AA- 2,000 2,063,722
Long Island Lighting Co.,
*Deb 03-15-03................................................ 7.050 BB+ 500 458,015
*Deb 07-15-19................................................ 8.900 BB+ 500 458,730
Gen. Ref. 05-01-21.......................................... 9.750 BBB- 250 254,700
Louisiana Power & Light Co.,
*Sec Lease Oblig Ser B 01-02-17.............................. 10.670 BBB- 1,350 1,444,743
Midland Funding Corp. I,
Sr Sec Lease Oblig Ser C 07-23-02........................... 10.330 BB- 1,285 1,329,806
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 15
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S+P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- ---- -------- -------- -----
<S> <C> <C> <C> <C>
UTILITIES (CONTINUED)
System Energy Resources, Inc.,
1st Mtg 09-01-96............................................ 10.500% BBB- $1,100 $ 1,149,764
Sec Lease Oblig 01-15-14.................................... 8.200 BBB- 500 483,599
Tenaga Nasional Berhad,
Note 06-15-04 (R)........................................... 7.875 A+ 750 795,600
------------
21,637,729
------------
TOTAL PUBLICLY TRADED BONDS
(Cost $160,315,529) (97.45%) 163,094,283
------ ------------
INTEREST
RATE
----
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (0.46%)
Investment in a joint repurchase agreement transaction
with Lehman Bros. Inc., Dated 06-30-95, due 07-03-95 (secured by U.S. Treasury
Bill 5.45%, due 12-28-95 and U.S. Treasury Note 6.875%, due 12-28-95) - Note A... 6.180% 775 775,000
------------
CORPORATE SAVINGS ACCOUNT (0.22%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 3.00%............................................................... 366,002
------------
TOTAL SHORT-TERM INVESTMENTS (0.68%) 1,141,002
------ ------------
TOTAL INVESTMENTS (98.13%) $164,235,285
====== ============
</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 $10,786,510 as of June 30, 1995. See Note A of the
Notes to Financial Statements for valuation policy.
+ These securities having an aggregate value of $1,722,927 or 1.03% of the
Fund's net assets, have been purchased on a when issued basis subsequent to
the date of this schedule. The purchase price and the interest rate of such
security is fixed at trade date, although the Fund does not earn any
interest on such securities until settlement date. The Fund has instructed
its Custodian Bank to segregated assets with a current value at least equal
to the amount of its when issued commitments. Accordingly, the market value
of $1,805,250 of U.S. Treasury Bond 8.875%, 08-15-17 has been segregated to
cover the when issued commitments.
* Securities, other than short-term investments, newly added to the portfolio
during the six months ended June 30, 1995.
** Credit ratings 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.
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Income Securities Trust (the "Fund") is a closed-end 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 occuring after October 31, 1994 are treated as arising on the first
day (January 1, 1995) of the Fund's current 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 and distributions 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. commodities 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 transactions.
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
At June 30, 1995, open positions in financial futures contracts were as
follows:
<TABLE>
<CAPTION>
UNREALIZED
EXPIRATION OPEN CONTRACTS POSITION DEPRECIATION
- ---------- -------------- -------- ------------
<S> <C> <C> <C>
SEPTEMBER, 1995 20 U.S. TREASURY NOTE SHORT ($45,625)
</TABLE>
At June 30, 1995, the Fund has deposited in a segregated account $39,250 par
value of U.S. Treasury Bond, 10.75%, 08-15-05 and $64,500 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.
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. 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. Effective with
the fees paid for 1995, 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 Fund will make investments into other John
Hancock Funds, as applicable, to cover its liability with regard to the deferred
compensation. Investments to cover the Fund's deferred compensation liability
will be recorded on the Fund's books as an other asset. The deferred
compensation liability will be marked to market on a periodic basis and income
earned by the investment will be recorded on the Fund's books.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the six
months ended June 30, 1995, aggregated $23,000,477 and $26,385,588,
respectively. Purchases and proceeds from sales of obligations of the U.S.
government and its agencies during the six months ended June 30, 1995,
aggregated $45,642,385 and $39,656,805, respectively.
The cost of investments owned at June 30, 1995 (excluding the corporate
savings account) for Federal income tax purposes was $161,264,941. Gross
unrealized appreciation and depreciation of investment aggregated $5,329,816 and
$2,725,474, respectively, resulting in net unrealized appreciation of
$2,604,342.
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
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.
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.
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.
18<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
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 prices 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.
SHAREHOLDER MEETING
On April 27, 1995, the Annual Meeting of John Hancock Income Securities Trust
("The Trust") was held to elect Trustees and to ratify the action of the
Trustees in selecting independent auditors for the Fund.
The shareholders elected the following Trustees to serve until their
respective successors are duly elected and qualified, with the votes tabulated
as follows:
<TABLE>
<CAPTION>
FOR WITHHELD AUTHORITY
--- ------------------
<S> <C> <C>
Edward J. Boudreau, Jr..................... 8,264,488 146,258
Dennis S. Aronowitz........................ 8,260,011 150,735
Richard P. Chapman, Jr..................... 8,267,398 143,348
William J. Cosgrove........................ 8,267,207 143,539
Gail D. Fosler............................. 8,247,692 163,054
Bayard Henry............................... 8,289,368 121,378
Richard S. Scipione........................ 8,282,194 128,552
Edward J. Spellman......................... 8,296,881 113,865
</TABLE>
The shareholders also voted to ratify the Trustees' selection of Ernst &
Young LLP as independent auditors for the Trust for the fiscal year ended
December 31, 1995, with the votes as follows: 8,252,273 FOR, 39,539 AGAINST and
118,934 ABSTAINING.
19
<PAGE> 20
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A GLOBAL INVESTMENT MANAGEMENT FIRM U.S. Postage
101 HUNTINGTON AVENUE BOSTON, MA 02199-7603 PAID
S. Hackensack NJ
Permit No. 750
[A 1/2" x 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."]
- --------------------------------------------------------------------------------
[A recycled logo in lower left hand corner with caption "Printed on Recycled
Paper."]
JHD P60SA 6/95
