<PAGE> 1
JOHN HANCOCK FUNDS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
INCOME
SECURITIES
TRUST
FIRST QUARTER REPORT
March 31, 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
The Patriot Group of 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.]
Now that we are into 1995, returns on New Year's resolutions are coming in.
Dieting and saving money -- Americans' long-time favorites -- are often the most
difficult resolutions 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 it provide a tax break to middle-income Americans, but it will go a
long way toward raising the nation's dangerously low personal savings rate,
which is 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
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 MARCH 31, 1995. YOU'LL ALSO
FIND THE NET ASSET VALUE PER SHARE AS OF THAT DATE.
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1995 (Unaudited)
- -------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
Publicly traded bonds (cost - $159,334,103)......... $155,379,678
Joint repurchase agreement (cost - $2,407,000)...... 2,407,000
Corporate savings account........................... 177
------------
157,786,855
Receivable for investments sold....................... 525,181
Interest receivable................................... 3,307,327
Receivable for variation margin....................... 2,500
------------
Total Assets 161,621,863
-----------------------------------------------------------
LIABILITIES:
Payable for investments purchased..................... 1,782,444
Payable to John Hancock Advisers, Inc. and
affiliates - Note B................................. 111,598
Accounts payable and accrued expenses................. 87,912
------------
Total Liabilities 1,981,954
-----------------------------------------------------------
NET ASSETS:
Capital paid-in....................................... 164,889,454
Accumulated net realized loss on investments
and financial futures contracts..................... (1,282,386)
Net unrealized depreciation of investments
and financial futures contracts..................... (3,970,363)
Undistributed net investment income................... 3,204
------------
Net Assets $159,639,909
===========================================================
NET ASSET VALUE PER SHARE:
(based on 10,235,205 shares of beneficial interest
outstanding - 30 million shares authorized with
no par value)........................................ $ 15.60
===============================================================================
</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.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Three months ended March 31, 1995 (Unaudited)
- -------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest.............................................. $3,579,384
----------
Expenses:
Investment management fee - Note B.................. 245,306
Transfer agent fee.................................. 55,865
Printing............................................ 18,144
Custodian fee....................................... 16,349
Auditing fee........................................ 13,419
New York Stock Exchange fee......................... 9,005
Trustees' fees...................................... 5,828
Miscellaneous....................................... 2,686
Legal fees.......................................... 1,045
----------
Total Expenses..................... 367,647
-----------------------------------------------------------
Net Investment Income.............. 3,211,737
-----------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FINANCIAL FUTURES CONTRACTS
Net realized loss on investments sold................. (124,220)
Net realized loss on financial futures contracts...... (271,832)
Change in net unrealized appreciation/depreciation
of investments...................................... 5,375,024
Change in net unrealized appreciation/depreciation
of financial futures contracts...................... 96,562
----------
Net Realized and Unrealized
Gain on Investments and
Financial Futures Contracts........ 5,075,534
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations.......... $8,287,271
===========================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE> 4
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1995 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1994
------------------ -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income................................................................... $ 3,211,737 $ 12,941,765
Net realized loss on investments sold and financial futures contracts................... (396,052) (886,334)
Change in net unrealized appreciation/depreciation of investments
and financial futures contracts....................................................... 5,471,586 (17,096,620)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations....................... 8,287,271 (5,041,189)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income ($0.315 and $1.2775 per share, respectively)....... (3,214,700) (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................................................... (3,214,700) (13,723,686)
------------ ------------
FROM FUND SHARE TRANSACTIONS
(Market value of shares issued to shareholders in reinvestment of distributions)........ 450,877 1,892,903
------------ ------------
NET ASSETS:
Beginning of period..................................................................... 154,116,461 170,988,433
------------ ------------
End of period (including undistributed net investment income of
$3,204 and $6,167, respectively)...................................................... $159,639,909 $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.......................... 29,942 129,017
------------ ------------
Shares outstanding end of period........................................................ 10,235,205 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.
4
<PAGE> 5
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>
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED) YEAR ENDED DECEMBER 31,
---------------------- ------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <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 $ 15.19 $ 15.61
-------- -------- -------- -------- -------- -------- --------
Net Investment Income.......................... 0.32 0.33 1.28 1.31 1.37 1.44 1.47
Net Realized and Unrealized Gain (Loss) on
Investments and Financial Futures Contracts.. 0.50 (0.81) (1.79) 0.80 0.07 1.08 (0.42)
-------- -------- -------- -------- -------- -------- --------
Total from Investment Operations............ 0.82 (0.48) (0.51) 2.11 1.44 2.52 1.05
-------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income........... (0.32) (0.32) (1.28) (1.32) (1.38) (1.46) (1.47)
Distributions from Net Realized Gain on
Investments Sold and Financial Futures
Contracts................................... -- (0.08) (0.08) (0.13) -- -- --
-------- -------- -------- -------- -------- -------- --------
Total Distributions......................... (0.32) (0.40) (1.36) (1.45) (1.38) (1.46) (1.47)
-------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of Period................. $ 15.60 $ 16.09 $ 15.10 $ 16.97 $ 16.31 $ 16.25 $ 15.19
======== ======== ======== ======== ======== ======== ========
Per Share Market Value, End of Period.......... $ 14.88 $ 15.25 $ 13.75 $ 16.50 $ 16.75 $ 17.00 $ 15.00
Total Investment Return at Market Value........ 10.44%(a) (5.70)%(a) (8.70)% 7.22% 7.16% 23.25% 6.07%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)...... $159,640 $162,731 $154,116 $170,988 $162,468 $159,990 $147,764
Ratio of Expenses to Average Net Assets........ 0.94%* 0.84%* 0.87% 0.84% 0.81% 0.74% 0.70%
Ratio of Net Investment Income to Average Net
Assets...................................... 8.22%* 7.67%* 8.03% 7.67% 8.46% 9.28% 9.64%
Portfolio Turnover Rate........................ 18% 28% 82% 95% 111% 92% 85%
<FN>
* On an annualized basis.
(a) Not annualized.
</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.
5
<PAGE> 6
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
<TABLE>
SCHEDULE OF INVESTMENTS
March 31, 1995 (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY INCOME
SECURITIES TRUST ON MARCH 31, 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>
INTEREST S+P PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING** (000'S OMITTED) VALUE
- ------------------- -------- -------- ---------------- ------
<S> <C> <C> <C> <C>
PUBLICLY TRADED BONDS
BANKS (13.28%)
Abbey National First Capital B.V.,
Sub Note 10-15-04...................................................... 8.200% AA- $ 750 $ 766,320
African Development Bank,
Sub Note 12-15-03...................................................... 9.750 AA 1,000 1,124,230
Bank of Montreal - Chicago Branch,
Sub Note 11-01-00...................................................... 9.800 A+ 1,000 1,013,810
Banque Paribas - New York Branch,
Sub Note 03-01-09...................................................... 6.875 A- 1,000 869,200
Barclays North American Capital Corp.,
Gtd Cap Note 05-15-21.................................................. 9.750 AA- 750 831,270
International Bank for Reconstruction and Development,
30 Yr Bond 07-15-17.................................................... 9.250 AAA 4,000 4,528,400
Landeskreditbank Baden - Wurttemberg,
Sub Note 02-01-23...................................................... 7.625 AAA 1,500 1,437,930
Midland American Capital Corp.,
Gtd Note 11-15-03...................................................... 12.750 A- 1,500 1,736,175
National Westminster Bank PLC - New York Branch,
Sub Note 05-01-01...................................................... 9.450 AA- 1,250 1,348,263
Scotland International Finance No. 2 B.V.,
Sub Gtd Note 01-27-04 (R).............................................. 8.800 A+ 2,000 2,092,880
Sub Gtd Note 11-01-06 (R).............................................. 8.850 A+ 750 783,622
Security Pacific Corp.,
Medium Term Sub Note 04-26-01.......................................... 10.500 A- 1,500 1,707,330
Sub Note 11-15-00...................................................... 11.500 A- 1,000 1,159,670
Toronto Dominion Bank - New York Branch,
Sub Note 01-15-09...................................................... 6.450 AA- 1,000 867,170
Westdeutsche Landesbank Girozentrale - New York Branch,
Sub Note 06-15-05...................................................... 6.750 AA+ 1,000 931,430
----------
21,197,700
----------
BROADCASTING (4.66%)
Cablevision Systems Corp.,
Sr Sub Deb 04-01-04.................................................... 10.750 B 1,000 1,030,000
Century Communications Corp.,
Sr Sub Deb 10-15-03.................................................... 11.875 B+ 1,000 1,047,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE> 7
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
<TABLE>
<CAPTION>
INTEREST S+P PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING** (000'S OMITTED) VALUE
- ------------------- -------- -------- --------------- ------
<S> <C> <C> <C> <C>
BROADCASTING (CONTINUED)
Continental Cablevision, Inc.,
Sr Sub Deb 06-01-07.................................................... 11.000% BB- $1,000 $ 1,060,000
Jones Intercable, Inc.,
*Sr Note 03-15-02....................................................... 9.625 BB 500 495,000
Le Groupe Videotron Ltee,
*Sr Note 02-15-05....................................................... 10.625 BB+ 250 253,750
Rogers Cablesystems Ltd.,
*Sr Sec Second Priority Note 03-15-05 (R)............................... 10.000 BB+ 500 501,250
TKR Cable I, Inc.,
Sr Deb 10-30-07........................................................ 10.500 BBB- 2,000 2,140,600
Viacom International,
Sub Deb 07-07-06....................................................... 8.000 B+ 1,000 905,000
-----------
7,433,100
-----------
COMPUTERS (1.37%)
Unisys Corp.,
Credit Sensitive Note 07-01-97......................................... 13.500 BB- 2,000 2,185,000
-----------
CONTAINERS (0.47%)
Stone Container Corp.,
Sr Note 02-01-01....................................................... 9.875 B 775 751,750
-----------
COSMETICS & TOILETRIES (0.41%)
Johnson & Johnson,
Deb 11-15-23........................................................... 6.730 AAA 750 653,438
-----------
ELECTRONICS (0.16%)
Alliant Techsystems, Inc.,
*Sr Sub Note 03-01-03 (R)............................................... 11.750 B2 250 255,000
-----------
FINANCE (4.34%)
Banc One Credit Card Master Trust,
Class A Asset Backed Ctf, Ser 1994-B 12-15-99.......................... 7.550 AAA 1,000 1,008,437
CIT Group Holdings, Inc. (The),
Medium Term Sr Sub Cap Note 03-15-01................................... 9.250 A 1,000 1,072,730
DR Structured Finance Corp.,
Sec Pass thru Ctf Ser 1993K-1 08-15-18................................. 7.430 BBB- 1,000 817,050
Great Western Financial Corp.,
Note 02-01-02.......................................................... 8.600 BBB+ 1,250 1,279,013
Merrill Lynch Mortgage Investors, Inc.,
Sr/Sub Pass thru Ctf Ser 1992, Class B (Sub) 04-15-12.................. 8.500 AA 527 523,925
Standard Credit Card Master Trust I,
*Class A Credit Card Part Ctf Ser 1995-2 01-07-00....................... 8.625 AAA 1,250 1,260,156
Class A Credit Card Part Ctf Ser 1994-2 04-07-08....................... 7.250 AAA 1,000 959,060
-----------
6,920,371
-----------
FOODS (0.41%)
Beatrice Foods, Inc.,
Sr Sub Note Ser B 12-01-01............................................. 12.000 B 250 240,000
Flagstar Corp,
Sr Sub Deb 11-01-04.................................................... 11.250 CCC+ 500 420,000
-----------
660,000
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 8
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
<TABLE>
<CAPTION>
INTEREST S+P PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING** (000'S OMITTED) VALUE
- ------------------- -------- -------- --------------- ------
<S> <C> <C> <C> <C>
GLASS PRODUCTS (0.50%)
Owens-Illinois, Inc.,
Sr Deb 12-01-03........................................................ 11.000% BB $ 750 $ 800,625
-----------
GOLD MINING & PROCESSING (1.18%)
Magma Copper Co.,
Sr Sub Note 12-15-01................................................... 12.000 BB+ 1,750 1,890,000
-----------
GOVERNMENTAL - FOREIGN (1.83%)
Nova Scotia, Province of,
Deb 04-01-22........................................................... 8.750 A- 1,000 1,019,100
Ontario, Province of,
Bond 06-04-02.......................................................... 7.750 AA- 500 500,180
Deb 05-01-11........................................................... 15.125 AA- 325 368,761
Deb 08-31-12........................................................... 15.250 AA- 350 426,066
Quebec, Province of,
Deb 10-01-13........................................................... 13.000 A+ 500 599,035
-----------
2,913,142
-----------
GOVERNMENTAL - U.S. (20.03%)
United States Treasury,
Bond 08-15-05.......................................................... 10.750 AAA 7,565 9,421,981
Bond 08-15-17.......................................................... 8.875 AAA 1,610 1,830,119
Bond 05-15-18.......................................................... 9.125 AAA 2,250 2,622,645
Bond 02-15-23.......................................................... 7.125 AAA 2,975 2,835,086
*Note 08-15-95.......................................................... 8.500 AAA 5,250 5,295,098
Note 11-15-96.......................................................... 7.250 AAA 2,750 2,771,917
Note 04-15-98.......................................................... 7.875 AAA 1,000 1,025,160
Note 05-15-98.......................................................... 9.000 AAA 1,250 1,320,900
Note 11-30-99.......................................................... 7.750 AAA 2,900 2,974,298
Note 05-15-01.......................................................... 8.000 AAA 1,810 1,886,635
-----------
31,983,839
-----------
GOVERNMENTAL - U.S. AGENCIES (16.09%)
Federal National Mortgage Association,
15 Yr SF Pass thru Ctf 01-25-05........................................ 8.000 AAA 1,000 998,125
15 Yr SF Pass thru Ctf 02-01-08........................................ 7.500 AAA 866 857,939
Financing Corp.,
Bond Ser A 02-08-18.................................................... 9.400 AAA 2,000 2,313,120
Bond Ser B 04-06-18.................................................... 9.800 AAA 2,000 2,399,680
Government National Mortgage Association,
*30 Yr SF Pass thru Ctf 10-15-23 to 05-15-24............................ 7.000 AAA 2,856 2,671,391
30 Yr SF Pass thru Ctf 02-15-24........................................ 7.500 AAA 1,764 1,702,214
*30 Yr SF Pass thru Ctf 09-15-22 to 11-15-24............................ 8.000 AAA 3,921 3,884,673
30 Yr SF Pass thru Ctf 01-15-23 to 12-15-24............................ 8.500 AAA 5,680 5,757,681
30 Yr SF Pass thru Ctf 04-15-21........................................ 9.000 AAA 916 945,327
*30 Yr SF Pass thru Ctf 11-15-19 to 02-28-25............................ 9.500 AAA 2,220 2,328,025
30 Yr SF Pass thru Ctf 11-15-20........................................ 10.000 AAA 752 806,066
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 9
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
<TABLE>
<CAPTION>
INTEREST S+P PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING** (000'S OMITTED) VALUE
- ------------------- -------- -------- --------------- -----
<S> <C> <C> <C> <C>
GOVERNMENTAL - U.S. AGENCIES (CONTINUED)
Tennessee Valley Authority,
Power Bonds 1989 Ser G 11-15-29 ...................... 8.625% AAA $1,000 $ 1,026,200
------------
25,690,441
------------
INSURANCE (1.79%)
Massachusetts Mutual Life Insurance Co.,
Surplus Note 11-15-23 (R) ............................ 7.625 AA- 1,250 1,104,512
Metropolitan Life Insurance Co.,
Surplus Note 11-01-03 (R) ............................ 6.300 AA 1,000 872,570
New York Life Insurance Co.,
Surplus Note 12-15-23 (R) ............................ 7.500 AA 1,000 878,850
------------
2,855,932
------------
OIL & GAS (3.89%)
Ashland Oil, Inc.,
SF Deb 10-15-17 ...................................... 11.125 BBB 1,000 1,117,560
Coastal Corp. (The),
Sr Deb 06-15-06 ...................................... 11.750 BB+ 1,000 1,075,000
Maxus Energy Corp.,
Deb 05-01-13 ......................................... 11.250 BB- 229 194,650
Norsk Hydro, a.s.,
Deb 06-15-23 ......................................... 7.750 A- 1,000 935,690
Occidental Petroleum Corp.,
Sr Deb 09-15-09 ...................................... 10.125 BBB 600 679,638
Oryx Energy Co.,
Note 09-15-98 ........................................ 9.750 BB 1,000 1,005,000
TransTexas Gas Corp.,
Sr Sec Note 09-01-00 ................................. 10.500 BB- 1,200 1,207,500
------------
6,215,038
------------
PAPER (0.29%)
Georgia-Pacific Corp.,
Deb 02-15-18 ......................................... 9.500 BBB- 450 464,337
------------
PUBLISHING (2.07%)
News America Holdings Inc.,
Sr Note 10-15-99 ..................................... 9.125 BBB- 1,000 1,042,770
Sr Note 12-15-01 ..................................... 12.000 BBB- 750 842,340
Time Warner Inc.,
Deb 01-15-13 ......................................... 9.125 BBB- 1,500 1,425,450
------------
3,310,560
------------
RETAIL (2.98%)
Kroger Co. (The),
Lease Ctf 02-01-09 ................................... 12.950 BB 1,910 2,148,750
May Department Stores Co. (The),
Deb 06-15-18 ......................................... 10.750 A 254 270,271
Pathmark Stores, Inc.,
Sub Note 06-15-02..................................... 11.625 B 1,000 1,010,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 10
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
<TABLE>
<CAPTION>
INTEREST S+P PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING** (000'S OMITTED) VALUE
- ------------------- -------- -------- --------------- ------
<S> <C> <C> <C> <C>
RETAIL (CONTINUED)
Safeway Stores, Inc.,
Lease Ctf 01-15-09 ................................... 13.500% BB+ $ 500 $ 545,000
S.D. Warren Co.,
Sr Sub Note Ser A 12-15-04 (R) ....................... 12.000 B+ 250 263,750
Thrifty Payless Inc.,
*Sr Note 04-15-03 ..................................... 11.750 B 500 520,000
----------
4,757,771
----------
STEEL (1.10%)
Ucar Global Enterprises Inc.,
*Sr Sub Note 01-15-05 (R) ............................. 12.000 B 500 525,000
Weirton Steel Corp.,
*Sr Note 03-01-98 ..................................... 11.500 B 250 250,625
Sr Note 10-15-99 ..................................... 10.875 B 1,000 975,000
----------
1,750,625
----------
TELECOMMUNICATIONS (0.68%)
British Telecom Finance Inc.,
Gtd Deb 02-15-19 ..................................... 9.625 AAA 1,000 1,082,750
----------
TOBACCO (0.62%)
RJR Nabisco Capital Corp.,
Sr Note 04-15-04 ..................................... 8.750 BBB- 1,000 988,810
----------
TRANSPORTATION (6.12%)
American Airlines, Inc.,
1991-A Pass thru Trust 01-02-07 ...................... 9.710 BBB- 793 822,103
NWA Inc.,
Note 08-01-96 ........................................ 8.625 B- 2,265 2,242,350
Rail Car Trust, No. 1992-1
Trust Note 06-01-04 .................................. 7.750 AAA 1,785 1,800,699
Scandinavian Airlines System,
Bond 07-20-99 ........................................ 9.125 A3 1,000 1,037,520
Sea-Land Service, Inc.,
Sec Bond Ser A 01-02-11 .............................. 10.600 BBB 1,000 1,067,060
United Air Lines, Inc.,
Deb Ser B 05-01-14 ................................... 11.210 BB 1,000 1,094,230
USAir 1990-A Pass Through Trusts,
Pass thru Ctf Ser 1990-A1 03-19-05.................... 11.200 B+ 1,851 1,707,564
----------
9,771,526
----------
UTILITIES (13.06%)
ALLTEL Corp.,
Deb 04-01-09 ......................................... 10.375 A+ 500 530,105
BVPS II Funding Corp.,
*Collateralized Lease Bond 06-01-17.................... 8.890 BB+ 1,000 869,980
Chugach Electric Association, Inc.,
1st Mtg 1991 Ser A 03-15-22 .......................... 9.140 A 2,000 2,123,560
CTC Mansfield Funding Corp.,
Sec Lease Oblig 09-30-16.............................. 11.125 B+ 2,575 2,549,224
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 11
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
<TABLE>
<CAPTION>
INTEREST S+P PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING** (000'S OMITTED) VALUE
- ------------------- -------- -------- --------------- ------
<S> <C> <C> <C> <C>
UTILITIES (CONTINUED)
E.I.P. Refunding Corp.,
Sec Fac Bond 10-01-12 ................................ 10.250% B+ $ 750 $ 762,240
First PV Funding Corp.,
*Lease Oblig Ser 1986 B 01-15-16 ...................... 10.150 B 750 735,000
GTE Corp.,
Deb 11-15-17 ......................................... 10.300 BBB+ 500 563,535
Deb 11-01-20 ......................................... 10.250 BBB+ 1,500 1,676,850
GTE South Inc.,
1st Mtg Ser GG 06-15-30 .............................. 9.375 A+ 1,000 1,048,090
Hydro-Quebec (Gtd by Province of Quebec),
Deb Ser HS 02-01-21 .................................. 9.400 A+ 2,000 2,165,640
Iberdrola International B.V.,
Gtd Note 10-01-02 (R) ................................ 7.500 AA- 2,000 1,948,800
Long Island Lighting Co.,
*Deb 07-15-19 ......................................... 8.900 BB+ 500 420,605
*Deb 03-15-03 ......................................... 7.050 BB+ 500 425,285
Louisiana Power & Light Co.,
*Sec Lease Oblig Bond Ser B 01-02-17 .................. 10.670 BBB- 1,350 1,410,750
Midland Funding Corp. I,
Sr Sec Lease Oblig Ser C 07-23-02 .................... 10.330 BB- 1,285 1,278,412
System Energy Resources, Inc.,
1st Mtg 09-01-96 ..................................... 10.500 BBB- 1,100 1,146,849
Sec Lease Oblig 01-15-14 ............................. 8.200 BBB- 500 449,275
Tenaga Nasional Berhad,
Note 06-15-04 (R) .................................... 7.875 A+ 750 743,723
------------
20,847,923
------------
TOTAL PUBLICLY TRADED BONDS
(Cost $159,334,103) (97.33%) 155,379,678
-------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 12
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
<TABLE>
<CAPTION>
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- ------------------- -------- --------------- ------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (1.51)%
Investment in a joint repurchase agreement transaction with U.B.S. Securities
Inc., Dated 03-31-95, Due 04-03-95 (secured by U.S. Treasury Bond, 6.250%,
due 08-15-23, and U.S. Treasury Notes, 5.250% thru 9.125%
due 07-31-98 thru 05-15-01) - Note A ............................................. 6.125% $ 2,407 $ 2,407,000
------------
CORPORATE SAVINGS ACCOUNT (0.00)%
Investors Bank & Trust Company Daily Interest Savings Account Current Rate 3.00% .. 177
------------
TOTAL SHORT-TERM INVESTMENTS (1.51)% 2,407,177
------- ------------
TOTAL INVESTMENTS (98.84)% $157,786,855
======= ============
</TABLE>
NOTES TO THE SCHEDULE OF INVESTMENTS
(R) These securites 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
securites amounted to $9,969,957 as of March 31, 1995. 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 three months ended March 31, 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.
12
<PAGE> 13
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 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 and distributions to shareholders from net
invest ment 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.
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
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.
At March 31, 1995, open positions in financial futures contracts were as
follows:
<TABLE>
<CAPTION>
UNREALIZED
EXPIRATION OPEN CONTRACTS POSITION DEPRECIATION
- ---------- --------------------- -------- ------------
<S> <C> <C> <C>
JUNE, 1995 10 U.S. TREASURY NOTE SHORT ($15,938)
========
</TABLE>
At March 31, 1995, the Fund has deposited in a segregated account $26,250 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
AFFILIATED 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 in 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 short-term
securities, during the three months ended March 31, 1995, aggregated $32,911,152
and $31,445,589, respectively.
The cost of investments owned at March 31, 1995 (excluding the corporate
savings account) for Federal income tax purposes was $161,827,888. Gross
unrealized appreciation and depreciation of investment aggregated $2,262,511 and
$6,303,721, respectively, resulting in net unrealized depreciation of
$4,041,210.
14
<PAGE> 15
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 33 1/3% 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.
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
15
<PAGE> 16
John Hancock Funds - Income Securities Trust
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 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.
16
<PAGE> 17
NOTES
John Hancock Funds - Income Securities Trust
17
<PAGE> 18
NOTES
John Hancock Funds - Income Securities Trust
18
<PAGE> 19
NOTES
John Hancock Funds - Income Securities Trust
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
So. Hackensack
Permit No. 750
[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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JHF P60Q1 03/95
