<PAGE> 1
JOHN HANCOCK FUNDS
- --------------------------------------------------------------------------------
INCOME
SECURITIES
TRUST
ANNUAL REPORT
December 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
Thomas H. Drohan
Senior Vice President and Secretary
James B. Little
Senior Vice President and Chief Financial Officer
Susan S. Newton
Vice President, Assistant Secretary and Compliance Officer
James J. Stokowski
Vice President and Treasurer
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
TRANSFER AGENT AND REGISTRAR
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
CHAIRMAN'S MESSAGE
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
DEAR FELLOW SHAREHOLDERS:
The stock market's record-breaking, whirlwind performance in 1995 will be a
tough act to follow in 1996. In fact, we've already seen greater market
volatility this year, particularly among last year's leaders -- technology
stocks. That's to be expected after a year that saw market indexes soar,
including the Standard & Poor's 500-Stock Index's 37% advance. While many of the
same economic conditions that fostered the stellar 1995 market are still in
place -- slow economic growth, muted inflation and decent corporate earnings --
it would be unrealistic to expect the market to stage a repeat in 1996. The old
saying "trees don't grow to the sky" comes to mind. Shareholders would do well
to temper expectations of investment returns and perhaps revisit their
investment allocations with their financial advisor to determine if rebalancing
their portfolio makes sense.
No matter how you scale back your market expectations, you should always be
able to count on consistent customer service performance. At John Hancock Funds,
we never stop working to find ways to sustain and improve the quality of
information and the level of assistance we provide you. Our commitment to this
task is no less than John Hancock's loyalty was to his fledgling country when he
is said to have uttered, "if it does the public good, burn Boston." We won't go
that far, of course, but we share our namesake's dedication to putting the
public before all else.
In our case, that public is you, our shareholders. We take very seriously the
role you have entrusted to us, that of helping you achieve your financial goals.
Part of that will always involve good customer service. So please do not
hesitate to call your Customer Service Representative at 1-800-225-5291 if you
have any questions or need information. We take pride in helping you with the
same spirit that John Hancock displayed at the dawning of America.
Sincerely,
/s/Edward J. Boudreau, Jr.
- --------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE> 3
BY JAMES K. HO, PORTFOLIO MANAGER
JOHN HANCOCK
INCOME SECURITIES TRUST
FIXED-INCOME SECURITIES THRIVE IN A CLIMATE OF MODEST GROWTH,
BENIGN INFLATION AND STEADILY FALLING INTEREST RATES
After the bond-market debacle of 1994, the new year brought dramatic proof of
just how swiftly the investment climate can change for the better. At the
beginning of 1995, the Federal Reserve was still in a restrictive mode, raising
interest rates in hopes of putting the brakes on the economy and preventing an
outbreak of inflation. During the fourth quarter of 1994, growth had surged
above an annual rate of 5%, lending credence to the consensus among market
participants that rates were likely to keep rising. Less than two months into
the new year, the Fed did as most expected, raising the interest rate banks
charge each other for overnight loans -- known as the federal funds rate --
one-half percentage point to 6.00%. It was the seventh rate increase in 12
months, and there's nothing the bond market likes less than rising interest
rates.
[A 2 1/4" x 3 1/2" photo of James K. Ho at bottom right. Caption reads: "James
K. Ho, Portfolio Manager."]
Already, however, the economy was exhibiting signs of weakness in key areas
such as employment, housing and consumer spending. Economic growth slowed to a
modest annual rate of 2.7% during the first quarter of 1995. As growth slowed
and inflation remained tame, interest rates began falling and the bond market
took off. When the growth rate dipped to 1.3% during the second quarter, it
looked as if we might be headed for another recession. In
[CAPTION]
"THIS CLIMATE OF MODERATE GROWTH, FALLING RATES AND LOW INFLATION WAS IDEAL FOR
BOND INVESTORS."
3
<PAGE> 4
John Hancock Funds - Income Securities Trust
[Chart entitled "Top Five Sectors" at top left hand column. The chart lists five
sectors: 1) U.S. Government & Agency Bonds 33%; 2) Financials 23%; 3) Utilities
14%; 4) Broadcasting/Communications 11% 5) Transportation 5%. A footnote below
states "As a percentage of net assets on December 31, 1995."]
July, the Fed shaved one-quarter percentage point off the federal funds rate. A
second quarter-point reduction followed in December, two weeks before the period
ended. Ironically, that brought the federal funds rate back to 5.50%, exactly
where it was when the period began.
This climate of moderate growth, falling rates and low inflation was ideal
for bond investors. While the second half of 1995 was not quite as strong as the
first half, the Fund's overall performance was impressive, both in absolute
terms and compared to competing funds with similar objectives. For the year
ended December 31, 1995, John Hancock Income Securities Trust had a total return
of 20.12% at net asset value. Those results compared favorably with the average
total return of 18.45% for all open-end corporate debt A-rated funds, according
to Lipper Analytical Services.
STRATEGY REVIEW
The Fund's duration -- a measure of how much its net asset value will vary in
response to changing interest rates -- was just above five years for most of the
period, or close to the average for our peers. In light of the way interest
rates fell during the period, a longer duration undoubtedly would have improved
the Fund's performance. However, interest-rate movements are notoriously hard to
predict. Maintaining a neutral average duration freed us to concentrate on
variables over which we feel we have some control, such as sector and security
selection.
[Table entitled "Scorecard" at bottom of left hand column. The header for the
left column is "Investment"; the header for the right column is "Recent
performance ... and what's behind the numbers. The first listing is Time Warner
followed by an up arrow and the phrase "Improving credit outlook." The second
listing is United Air Lines followed by an up arrow and the phrase "Chose not to
merge with USAir." The third listing is K-mart followed by a down arrow and the
phrase "Hurt by retailing slump." Footnote below reads: "See "Schedule of
Investments. "Investment holdings are subject to change."]
That doesn't mean we ignored opportunities to capitalize on broad trends
affecting interest rates. Rising interest rates in 1994 narrowed the spread
between long-term rates and short-term rates, creating what's known as a flat
yield curve. We believed that the yield curve was likely to steepen in 1995. To
prepare, we emphasized mid-term securities -- those in the 3- to 10-year
maturity range -- while de-emphasizing short-term and long-term securities. This
is known as a "bullet" portfolio structure. Since then, as rates have fallen and
the yield curve has steepened, the bullet has proven to be a wise choice.
SECTOR AND SECURITY SELECTION
Our focus all year has been on corporate bonds, both investment-grade and
high-yield bonds, which are sometimes called junk bonds. High-yield bonds have
credit ratings below BBB or Baa from one of the bond-rating agencies and offer a
higher yield to compensate for the added credit risk. Slow but steady growth,
low inflation and declining interest rates during 1995 encouraged investors to
reach for the higher yield available from corporate bonds. As the year went on,
the yield advantage over Treasury securities narrowed, and corporate bonds
[CAPTION]
"OUR FOCUS ALL YEAR HAS BEEN ON CORPORATE BONDS..."
4
<PAGE> 5
John Hancock Funds - Income Securities Trust
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the year ended December 31, 1995." The chart is
scaled in increments of 5% from bottom to top, with 25% at the top and 0% at the
bottom. Within the chart, there are two solid bars. The first represents the
20.12% total return for John Hancock Income Securities Trust. The second
represents the 18.45% total return for the average open-end corporate debt
A-rated fund. The footnote below states: "The total return for John Hancock
Income Securities Trust is at net asset value with all distributions reinvested.
The average open-end corporate debt A-rated fund is tracked by Lipper Analytical
Services."]
realized corresponding price gains. As spreads have narrowed and the economy has
slowed, we've begun looking for opportunities to shift assets out of corporate
bonds and back into Treasuries. Mortgage-backed securities never totaled more
than 15% of the Fund's net assets all year, and were under 10% for most of the
past six months. Declining rates have increased prepayment risk on mortgages in
recent months and caused them to lag the broader market. Prepayment risk is the
risk that mortgage holders will pay off their debt early and refinance at the
lower prevailing rates.
Early in the year, when the economy was expanding more rapidly, we did well
with so-called cyclical sectors of the economy, such as paper and steel, whose
fortunes tend to rise and fall with the overall health of the economy. As growth
has slowed, we've gradually moved assets into non-cyclical sectors, including
media and cable companies. Top performers included Viacom, a programmer, and
Continental Cablevision. Time Warner also posted impressive gains during 1995 as
its credit outlook improved and investors applauded the proposed merger with
Turner Broadcasting System. Some other top performers were airlines, including
Delta Air Lines; AMR Corp., the parent of American Airlines which we sold during
the period; and United Air Lines, which rallied following the decision not to
merge with USAir. Our biggest disappointment of the year was K-mart, which we
sold during the period. It was hurt by the slump in retailing and rumors of a
possible bankruptcy.
OUTLOOK
We think the current favorable climate for bond investors may well last through
the spring. One indicator we'll be watching closely is the progress of the
budget debate in Washington. The Fed is a strong advocate of fiscal restraint.
If and when Congress and the White House can agree on a balanced budget, the Fed
could signal its approval with another rate cut.
Farther out, though, the outlook begins to change. Ultimately lower interest
rates can't help but stimulate growth. If so, then we begin to worry about
inflation again, and perhaps a return to market conditions more like those that
prevailed a year ago. Since 1995 was an outstanding year, it is unlikely to be
repeated in 1996 and shareholders would do well to lower their expectations
going forward.
[CAPTION]
"...WE'LL BE WATCHING CLOSELY... THE PROGRESS OF THE BUDGET DEBATE IN
WASHINGTON."
This commentary reflects the views of the portfolio manager through the end of
the Fund's period discussed in this report. Of course, the manager's views are
subject to change as market and other conditions warrant.
5
<PAGE> 6
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
----------------------------------
1995 1994
------------- -------------
<S> <C> <C>
ASSETS:
Investments at value - Note C:
Publicly traded bonds (cost 1995 - $159,887,678; 1994 - $157,860,231) ....... $ 166,957,673 $ 148,561,449
Common stock (cost 1995 - none; 1994 - $106,667) ............................ -- 76,000
Joint repurchase agreement (cost 1995 - $6,991,000; 1994 - $2,037,000) ...... 6,991,000 2,037,000
Corporate savings account ................................................... 664 23
------------- -------------
173,949,337 150,674,472
Receivable for investments sold .............................................. 71,494 --
Interest receivable .......................................................... 3,169,962 3,583,831
Receivable for variation margin - Note A ..................................... -- 11,250
Other assets ................................................................. 3,400 --
------------- -------------
Total Assets ............................................... 177,194,193 154,269,553
---------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased ............................................ 4,079,983 --
Payable to John Hancock Advisers, Inc. and affiliates - Note B ............... 287,222 95,624
Accounts payable and accrued expenses ........................................ 94,656 57,468
------------- -------------
Total Liabilities .......................................... 4,461,861 153,092
---------------------------------------------------------------------------------------------------
NET ASSETS:
Capital paid-in .............................................................. 166,206,744 164,438,577
Accumulated net realized loss on investments and financial futures contracts . (574,170) (886,334)
Net unrealized appreciation (depreciation) of investments and
financial futures contracts ................................................. 7,069,995 (9,441,949)
Undistributed net investment income .......................................... 29,763 6,167
------------- -------------
Net Assets ................................................. $ 172,732,332 $ 154,116,461
===================================================================================================
NET ASSET VALUE PER SHARE:
(based on 10,319,398 and 10,205,263 shares of beneficial interest
outstanding, respectively - 30 million shares
authorized with no par value) ................................................ $ 16.74 $ 15.10
=======================================================================================================================
</TABLE>
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON DECEMBER 31, 1995 AND
DECEMBER 31, 1994. YOU'LL ALSO FIND THE NET ASSET VALUE PER SHARE AS OF THOSE
DATES.
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE> 7
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994
------------ ------------
INVESTMENT INCOME:
<S> <C> <C>
Interest ........................................................................ $ 14,285,112 $ 14,329,886
Dividends ....................................................................... -- 15,312
------------ ------------
14,285,112 14,345,198
------------ ------------
Expenses:
Investment management fee - Note B ............................................. 1,034,167 1,016,554
Transfer agent fee ............................................................. 130,675 164,420
Printing ....................................................................... 91,485 81,901
Custodian fee .................................................................. 49,695 50,103
Auditing fee ................................................................... 37,436 33,664
New York Stock Exchange fee .................................................... 25,296 24,391
Trustees' fees ................................................................. 13,927 16,570
Miscellaneous .................................................................. 13,180 10,189
Legal fees ..................................................................... 3,649 5,641
------------ ------------
Total Expenses ................................................ 1,399,510 1,403,433
------------------------------------------------------------------------------------------------------
Net Investment Income ......................................... 12,885,602 12,941,765
------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FINANCIAL FUTURES CONTRACTS
Net realized gain (loss) on investments sold .................................... 915,137 (1,757,122)
Net realized gain (loss) on financial futures contracts ......................... (602,973) 870,788
Change in net unrealized appreciation/depreciation of investments ............... 16,399,444 (16,983,182)
Change in net unrealized appreciation/depreciation of financial futures contracts 112,500 (113,438)
------------ ------------
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts ............................ 16,824,108 (17,982,954)
------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations $ 29,709,710 $ (5,041,189)
======================================================================================================
</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 PERIODS STATED.
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 8
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ................................................................ $ 12,885,602 $ 12,941,765
Net realized gain (loss) on investments sold and financial futures contracts ......... 312,164 (886,334)
Change in net unrealized appreciation/depreciation of investments and
financial futures contracts ......................................................... 16,511,944 (17,096,620)
------------- -------------
Net Increase (Decrease) in Net Assets Resulting from Operations ..................... 29,709,710 (5,041,189)
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income $(1.2550 and $1.2775 per share, respectively).... (12,862,006) (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 ................................................. (12,862,006) (13,723,686)
------------- -------------
FROM FUND SHARE TRANSACTIONS
(Market value of shares issued to shareholders in reinvestment of distributions) ..... 1,768,167 1,892,903
------------- -------------
NET ASSETS:
Beginning of period .................................................................. 154,116,461 170,988,433
------------- -------------
End of period (including undistributed net investment income of $29,763
and $6,167, respectively) ........................................................... $ 172,732,332 $ 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 ....................... 114,135 129,017
------------- -------------
Shares outstanding, end of period .................................................... 10,319,398 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 FISCAL PERIOD. THE DIFFERENCE
REFLECTS EARNINGS LESS EXPENSES, ANY INVESTMENT GAINS AND LOSSES, DISTRIBUTIONS
PAID TO SHAREHOLDERS, AND ANY INCREASE DUE TO REINVESTMENT OF DISTRIBUTIONS IN
THE FUND. THE FOOTNOTE ILLUSTRATES THE NUMBER OF FUND SHARES OUTSTANDING AT THE
BEGINNING OF THE PERIOD, REINVESTED AND OUTSTANDING AT THE END OF THE PERIOD,
FOR THE LAST TWO PERIODS.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 9
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
FINANCIAL HIGHLIGHTS
<TABLE>
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>
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ..................... $ 15.10 $ 16.97 $ 16.31 $ 16.25 $ 15.19
----------- ----------- ----------- ----------- -----------
Net Investment Income .................................... 1.26 1.28 1.31 1.37 1.44
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts ........................ 1.64 (1.79) 0.80 0.07 1.08
----------- ----------- ----------- ----------- -----------
Total from Investment Operations .................... 2.90 (0.51) 2.11 1.44 2.52
----------- ----------- ----------- ----------- -----------
Less Distributions:
Dividends from Net Investment Income ..................... (1.26) (1.28) (1.32) (1.38) (1.46)
Distributions from Net Realized Gain on Investments
Sold and Financial Futures Contracts ................... -- (0.08) (0.13) -- --
----------- ----------- ----------- ----------- -----------
Total Distributions ................................. (1.26) (1.36) (1.45) (1.38) (1.46)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ........................... $ 16.74 $ 15.10 $ 16.97 $ 16.31 $ 16.25
=========== =========== =========== =========== ===========
Per Share Market Value, End of Period .................... $ 15.75 $ 13.75 $ 16.50 $ 16.75 $ 17.00
Total Investment Return at Market Value .................. 24.11% (8.70)% 7.22% 7.16% 23.25%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ................ $ 172,732 $ 154,116 $ 170,988 $ 162,468 $ 159,990
Ratio of Expenses to Average Net Assets .................. 0.84% 0.87% 0.84% 0.81% 0.74%
Ratio of Net Investment Income to Average Net Assets ..... 7.77% 8.03% 7.67% 8.46% 9.28%
Portfolio Turnover Rate .................................. 105% 82% 95% 111% 92%
</TABLE>
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. IT
ALSO SHOWS THE TOTAL INVESTMENT RETURN FOR EACH PERIOD BASED ON THE MARKET VALUE
OF FUND SHARES. ADDITIONALLY, IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS
PRESENTED IN THE FINANCIAL STATEMENTS ARE EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 10
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
SCHEDULE OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY INCOME
SECURITIES TRUST ON DECEMBER 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.
<TABLE>
<CAPTION>
INTEREST S+P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- ---- -------- -------- -----
<S> <C> <C> <C> <C>
PUBLICLY TRADED BONDS
AEROSPACE (0.35%)
Jet Equipment Trust Ser 1995-B,
*Cert 08-15-14 (R)...................................................... 10.910% BB+ $ 550 $ 603,570
-----------
BANKS (13.83%)
Abbey National First Capital B.V.,
Sub Note 10-15-04...................................................... 8.200 AA- 1,000 1,134,120
ABN Amro Bank N.V. - Chicago Branch,
*Global Bond 05-31-05................................................... 7.250 AA- 1,000 1,073,580
African Development Bank,
Sub Note 12-15-03...................................................... 9.750 AA 1,000 1,234,770
Barclays North American Capital Corp.,
Gtd Cap Note 05-15-21.................................................. 9.750 AA- 900 1,084,500
Den Danske Bank Aktieselskab,
*Sub Note 06-15-05 (R).................................................. 7.250 BBB+ 800 844,456
International Bank for Reconstruction and Development,
30 Yr Bond 07-15-17.................................................... 9.250 AAA 4,000 5,312,000
Landeskreditbank Baden - Wurttemberg,
Sub Note 02-01-23...................................................... 7.625 AAA 1,500 1,703,535
Midland American Capital Corp.,
Gtd Note 11-15-03...................................................... 12.750 A 1,500 1,770,375
National Westminster Bank PLC - New York Branch
Sub Note 05-01-01...................................................... 9.450 AA- 1,250 1,448,725
Scotland International Finance No. 2 B.V.
Sub Gtd Note 01-27-04 (R).............................................. 8.800 A+ 2,000 2,295,260
Sub Gtd Note 11-01-06 (R).............................................. 8.850 A+ 750 890,442
Security Pacific Corp.,
Medium Term Sub Note 04-26-01.......................................... 10.500 A- 1,500 1,810,770
Sub Note 11-15-00...................................................... 11.500 A- 1,000 1,229,430
Toronto Dominion Bank - New York Branch,
Sub Note 01-15-09...................................................... 6.450 AA- 1,000 1,004,830
Westdeutsche Landesbank Girozentrale - New York Branch,
Sub Note 06-15-05...................................................... 6.750 AA+ 1,000 1,047,980
-----------
23,884,773
-----------
</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>
BROADCASTING (7.41%)
Cablevision Systems Corp.,
Sr Sub Deb 04-01-04.................................................... 10.750% B $1,000 $1,055,000
Century Communications Corp.,
Sr Sub Deb 10-15-03.................................................... 11.875 B+ 1,250 1,346,875
Comcast Corp.,
*Sr Sub Deb 05-15-05.................................................... 9.375 B+ 250 264,375
Continental Cablevision, Inc.,
*Sr Note 05-15-06 (R)................................................... 8.300 BB+ 625 625,000
Sr Sub Deb 06-01-07.................................................... 11.000 BB- 1,210 1,352,175
Jones Intercable, Inc.,
*Sr Note 03-15-02....................................................... 9.625 BB 250 268,750
*Sr Sub Deb 07-15-04.................................................... 11.500 B+ 1,000 1,110,000
Le Groupe Videotron Ltee,
*Sr Note 02-15-05....................................................... 10.625 BB+ 250 268,125
Lenfest Communications, Inc.,
*Sr Note 11-01-05....................................................... 8.375 BB+ 500 501,875
Rogers Cablesystems Ltd.,
*Sr Sec Second Priority Note 03-15-05................................... 10.000 BB+ 750 806,250
*Sr Sub Deb 12-01-15.................................................... 11.000 BB- 250 268,750
TeleWest plc,
*Sr Deb 10-01-06........................................................ 9.625 BB 450 457,875
TKR Cable I, Inc.,
Sr Deb 10-30-07........................................................ 10.500 BBB- 2,000 2,381,640
Turner Broadcasting System, Inc.,
*Sr Note 07-01-13....................................................... 8.375 BB+ 550 570,933
Viacom, Inc.,
*Sr Deb 01-15-16........................................................ 7.625 BB+ 500 506,400
Sub Deb 07-07-06....................................................... 8.000 BB- 1,000 1,017,500
-----------
12,801,523
-----------
COMPUTERS (0.27%)
Unisys Corp.,
Credit Sensitive Note 07-01-97......................................... 13.500 BB- 500 475,000
-----------
CONTAINERS (0.07%)
Stone Container Corp.,
Sr Sub Note 10-01-04................................................... 11.500 B 115 114,425
-----------
COSMETICS & TOILETRIES (0.45%)
Johnson & Johnson,
Deb 11-15-23........................................................... 6.730 AAA 750 777,143
-----------
FINANCE (6.56%)
Banc One Credit Card Master Trust,
Class A Asset Backed Ctf, Ser 1994-B 12-15-99.......................... 7.550 AAA 1,000 1,036,560
CIT Group Holdings, Inc. (The),
Medium Term Sr Sub Cap Note 03-15-01................................... 9.250 A 1,000 1,145,640
Great Western Financial Corp.,
Note 02-01-02.......................................................... 8.600 BBB+ 1,250 1,402,163
</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>
FINANCE (CONTINUED)
Greentree Financial Corp.,
*Ctf Home Improv Ln Ser 1995-D CI M-2 09-15-25.......................... 6.950% AAA $ 650 $ 663,605
MBNA Master Credit Card Trust,
*Ser 1995-D Asset Backed Ctf 06-15-00................................... 6.050 AAA 1,585 1,608,775
Merrill Lynch Mortgage Investors, Inc.,
Sr/Sub Pass Thru Ctf Ser 1992, Class B (Sub) 04-15-12.................. 8.500 AA 461 479,477
Santander Financial Issuances Ltd.,
*Sub Gtd Note 04-15-05.................................................. 7.875 A+ 1,000 1,103,760
Standard Credit Card Master Trust I,
*Class A Credit Card Part Ctf Ser 1995-2 01-07-00....................... 8.625 AAA 1,250 1,287,100
*Class A Credit Card Part Ctf Ser 1993-2 10-07-04....................... 5.950 AAA 505 500,894
*Class A Credit Card Part Ctf Ser 1995-9 10-07-07....................... 6.550 AAA 1,000 1,030,000
Class A Credit Card Part Ctf Ser 1994-2 04-07-08....................... 7.250 AAA 1,000 1,077,810
-----------
11,335,784
-----------
GLASS PRODUCTS (0.49%)
Owens-Illinois, Inc.,
Sr Deb 12-01-03........................................................ 11.000 BB 750 847,500
-----------
GOLD MINING & PROCESSING (1.13%)
Magma Copper Co.,
Sr Sub Note 12-15-01................................................... 12.000 BB+ 1,750 1,949,062
-----------
GOVERNMENTAL - FOREIGN (2.15%)
Brazil, Republic of,..................................................... 4.250 NR 250 132,813
*Par Bond YL4 04-15-24
Nova Scotia, Province of,
Deb 04-01-22........................................................... 8.750 A- 850 1,032,401
Ontario, Province of,
Bond 06-04-02.......................................................... 7.750 AA- 500 544,335
Deb 05-01-11........................................................... 15.125 AA- 325 352,892
Deb 08-31-12........................................................... 15.250 AA- 350 421,452
Quebec, Province of,
Deb 10-01-13........................................................... 13.000 A+ 500 609,650
Saskatchewan, Province of,
*Deb 12-15-20........................................................... 9.375 BBB+ 480 623,386
-----------
3,716,929
-----------
GOVERNMENTAL - U.S. (16.06%)
United States Treasury,
Bond 08-15-05.......................................................... 10.750 AAA 1,957 2,688,742
Bond 08-15-17.......................................................... 8.875 AAA 475 636,201
Bond 05-15-18.......................................................... 9.125 AAA 2,250 3,092,332
Bond 02-15-23.......................................................... 7.125 AAA 5,630 6,437,567
Note 11-15-96.......................................................... 7.250 AAA 1,130 1,148,713
Note 04-15-98.......................................................... 7.875 AAA 1,000 1,055,940
Note 05-15-98.......................................................... 9.000 AAA 5,600 6,063,736
Note 11-30-99.......................................................... 7.750 AAA 3,825 4,144,732
</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>
GOVERNMENTAL - U.S. (CONTINUED)
*Note 11-15-04.......................................................... 7.875% AAA $2,145 $ 2,482,837
-----------
27,750,800
-----------
GOVERNMENTAL - U.S. AGENCIES (14.63%)
Federal National Mortgage Association,
15 Yr SF Pass thru Ctf 01-25-05........................................ 8.000 AAA 1,000 1,074,680
15 Yr SF Pass thru Ctf 02-01-08........................................ 7.500 AAA 775 796,519
*30 Yr SF Pass thru Ctf 10-01-23........................................ 7.000 AAA 889 896,104
Financing Corp.,
Bond Ser A 02-08-18.................................................... 9.400 AAA 2,000 2,712,180
Bond Ser B 04-06-18.................................................... 9.800 AAA 2,000 2,809,380
Government National Mortgage Association,
*30 Yr SF Pass thru Ctf 12-15-99+....................................... 7.000 AAA 1,605 1,624,051
*30 Yr SF Pass thru Ctf 02-15-24 to 8-15-25............................. 7.500 AAA 803 826,269
*30 Yr SF Pass thru Ctf 09-15-22 to 01-15-25+........................... 8.000 AAA 4,711 4,909,683
*30 Yr SF Pass thru Ctf 01-15-23 to 12-15-24............................ 8.500 AAA 4,659 4,891,594
30 Yr SF Pass thru Ctf 04-15-21........................................ 9.000 AAA 779 829,621
*30 Yr SF Pass thru Ctf 11-15-19 to 02-15-25............................ 9.500 AAA 1,919 2,062,963
30 Yr SF Pass thru Ctf 11-15-20........................................ 10.000 AAA 644 709,161
Tennessee Valley Authority,
Power Bonds 1989 Ser G 11-15-29........................................ 8.625 AAA 1,000 1,133,980
-----------
25,276,185
-----------
INSURANCE (2.62%)
Equitable Life Assurance Society of the United States (The),
*Surplus Note 12-01-05 (R).............................................. 6.950 A 550 559,389
Liberty Mutual Insurance Co.
*Surplus Note 05-04-07 (R).............................................. 8.200 A2 1,000 1,112,590
Massachusetts Mutual Life Insurance Co.,
Surplus Note 11-15-23 (R).............................................. 7.625 AA- 1,050 1,096,988
New York Life Insurance Co.,
Surplus Note 12-15-23 (R).............................................. 7.500 AA 1,000 1,025,050
Sun Canada Financial Co.,
*Sub Note 12-15-07 (R).................................................. 6.625 AA 725 731,808
-----------
4,525,825
-----------
LEISURE & RECREATION (0.09%)
Mohegan Tribal Gaming Authority
*Sr Sec Note 11-15-02 (R)............................................... 13.500 NR 150 162,000
-----------
MEDICAL/DENTAL (0.44%)
Fisher Scientific International Inc.,
*Note 12-15-05.......................................................... 7.125 BBB 750 753,075
-----------
OIL & GAS (3.11%)
Ashland Oil, Inc.,
SF Deb 10-15-17........................................................ 11.125 BBB 1,000 1,131,900
Coastal Corp. (The),
Sr Deb 06-15-06........................................................ 11.750 BB+ 1,000 1,063,750
</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>
OIL & GAS (CONTINUED)
Maxus Energy Corp.,
Deb 05-01-13........................................................... 11.250% BB- $229 $ 237,015
Norsk Hydro, a.s.,
Deb 06-15-23........................................................... 7.750 A- 1,000 1,117,650
Occidental Petroleum Corp.,
Sr Deb 09-15-09........................................................ 10.125 BBB 600 783,294
TransTexas Gas Corp.,
*Sr Sec Note 06-15-02................................................... 11.500 BB- 1,000 1,032,500
-----------
5,366,109
-----------
PAPER (1.11%)
APP International Finance Co. B.V.,
*Gtd Sec Note 10-01-05.................................................. 11.750 BB 400 394,000
Georgia-Pacific Corp.,
Deb 02-15-18........................................................... 9.500 BBB- 450 472,680
Repap New Brunswick,
*Sr Note 04-15-05....................................................... 10.625 B+ 400 392,000
S.D. Warren Co.,
Sr Sub Note 12-15-04................................................... 12.000 B+ 250 275,625
Stone Consolidated,
*Sr Note 12-15-00....................................................... 10.250 B+ 350 374,500
-----------
1,908,805
-----------
PUBLISHING (2.63%)
News America Holdings Inc.,
*Deb 08-10-18........................................................... 8.250 BBB 1,100 1,195,656
Sr Note 10-15-99....................................................... 9.125 BBB 1,000 1,105,380
Sr Note 12-15-01....................................................... 12.000 BBB 750 834,698
Time Warner Inc.,
Deb 01-15-13........................................................... 9.125 BBB- 1,250 1,408,687
-----------
4,544,421
-----------
RETAIL (2.04%)
Kroger Co. (The),
Lease Ctf 02-01-09..................................................... 12.950 BB 1,910 2,139,200
May Department Stores Co. (The),
Deb 06-15-18........................................................... 10.750 A 254 291,193
Safeway Stores, Inc.,
Lease Ctf 01-15-09..................................................... 13.500 BBB- 474 546,669
Thrifty Payless Inc.,
*Sr Note 04-15-03....................................................... 11.750 B 500 540,000
-----------
3,517,062
-----------
STEEL (0.81%)
UCAR Global Enterprises Inc.,
*Sr Sub Note 01-15-05................................................... 12.000 B+ 400 462,000
</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>
STEEL (CONTINUED)
Weirton Steel Corp.,
*Sr Note 03-01-98....................................................... 11.500% B $ 300 $ 308,250
*Sr Note 10-15-99....................................................... 10.875 B 260 260,000
*Sr Note 06-01-05....................................................... 10.750 B 400 377,000
-----------
1,407,250
-----------
TELECOMMUNICATIONS (0.90%)
British Telecom Finance Inc.,
Gtd Deb 02-15-19....................................................... 9.625 AAA 1,000 1,141,480
Tele-Communications Inc.,
*Sr Deb 02-01-12........................................................ 9.800 BBB- 350 419,710
-----------
1,561,190
-----------
TOBACCO (0.48%)
RJR Nabisco, Inc.,
*Note 12-01-02.......................................................... 8.625 BBB- 650 677,098
*Note 09-15-03.......................................................... 7.625 BBB- 150 147,002
-----------
824,100
-----------
TRANSPORTATION (5.33%)
Delta Air Lines, Inc.,
*Deb 05-15-21........................................................... 9.750 BB 375 462,649
NWA Inc.,
Note 08-01-96.......................................................... 8.625 B 2,265 2,287,650
Rail Car Trust No. 1992-1,
Trust Note 06-01-04.................................................... 7.750 AAA 1,715 1,854,755
Scandinavian Airlines System,
Bond 07-20-99.......................................................... 9.125 A3 700 768,250
Sea-Land Service, Inc.,
Sec Bond Ser A 01-02-11................................................ 10.600 BBB+ 1,000 1,063,250
United Air Lines, Inc.,
Deb Ser B 05-01-14..................................................... 11.210 BB 1,000 1,323,650
USAir 1990-A Pass Through Trusts,
Pass thru Ctf Ser 1990-A1 03-19-05..................................... 11.200 B+ 1,476 1,444,816
-----------
9,205,020
-----------
UTILITIES (13.69%)
BVPS II Funding Corp.,
*Collateralized Lease Bond 12-01-07..................................... 8.330 BB+ 595 595,595
*Collateralized Lease Bond 06-01-17..................................... 8.890 BB 200 205,370
CE Casecnan Water & Energy Co., Inc.,
*Sr Sec Note Ser A 11-15-05 (R)......................................... 11.450 BB 500 505,000
Chugach Electric Association, Inc.,
1st Mtg 1991 Ser A 03-15-22............................................ 9.140 A 2,000 2,280,000
Cleveland Electric Illuminating Co.,
*1st Mtg Ser 2005-B 05-15-05............................................ 9.500 BB 750 776,250
CTC Mansfield Funding Corp.,
Sec Lease Oblig 09-30-16............................................... 11.125 B+ 1,900 2,022,740
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE> 16
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)
E.I.P. Refunding Corp.,
Sec Fac Bond 10-01-12.................................................. 10.250% B+ $ 744 $ 788,804
First PV Funding Corp.,
*Lease Oblig Ser 1986 A 01-15-14........................................ 10.300 B+ 250 261,562
*Lease Oblig Ser 1986 B 01-15-16........................................ 10.150 B+ 1,500 1,533,750
GG1B Funding Corp.,
*Sec Lease Oblig 01-15-11............................................... 7.430 BBB- 887 882,953
*Sec Lease Oblig 01-15-14............................................... 8.200 BBB- 500 502,787
GTE Corp.,
Deb 11-15-17........................................................... 10.300 BBB+ 500 607,470
Deb 11-01-20........................................................... 10.250 BBB+ 1,500 1,788,150
Hydro-Quebec (Gtd by Province of Quebec),
*Deb 02-01-03........................................................... 7.375 A+ 750 800,932
Deb Ser HS 02-01-21.................................................... 9.400 A+ 545 691,730
Iberdrola International B.V.
Gtd Note 10-01-02...................................................... 7.500 AA- 2,000 2,152,000
Long Island Lighting Co.,
*Deb 03-15-03........................................................... 7.050 BB+ 750 737,302
*Gen Ref 05-01-21....................................................... 9.750 BBB- 250 257,172
*Gen Ref Mtg 07-01-24................................................... 9.625 BBB- 750 763,470
Louisiana Power & Light Co.,
*Sec Lease Oblig Bond Ser B 01-02-17.................................... 10.670 BBB- 1,350 1,452,235
Midland Funding Corp. I,
Sr Sec Lease Oblig Ser C 07-23-02...................................... 10.330 BB- 1,476 1,534,527
Philippine Long Distance Telephone Co.,
*Note 08-01-05.......................................................... 9.875 BB 255 270,619
System Energy Resources, Inc.,
1st Mtg 09-01-96....................................................... 10.500 BBB- 1,100 1,140,854
Tenaga Nasional Berhad,
Note 06-15-04 (R)...................................................... 7.875 A+ 1,000 1,098,850
-----------
23,650,122
-----------
TOTAL PUBLICLY TRADED BONDS
(Cost $159,887,678) (96.65%) 166,957,673
------ -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE> 17
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
<TABLE>
<CAPTION>
PAR VALUE
INTEREST (000'S MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- ---- -------- -----
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (4.05%)
Investment in a joint repurchase agreement
transaction with SBC Capital Markets, Inc. -
Dated 12-29-95, due 01-02-96
(secured by U.S. Treasury Bond,
7.500% due 11-15-16 and
10.375% due 11-15-12) - Note A ....................... 5.90% $6,991 $ 6,991,000
------------
CORPORATE SAVINGS ACCOUNT (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 5.00% ................................... 664
------------
TOTAL SHORT-TERM INVESTMENTS (4.05%) 6,991,664
------- ------------
TOTAL INVESTMENTS (100.70%) $173,949,337
======= ============
</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, nomally to qualified
institutional buyers, in transactions exempt from registration. Rule 144A
securities amounted to $11,550,403 as of December 31, 1995. See Note A of
the Notes to Financial Statements for valuation policy.
+ These securities having an aggregated value of $4,093,283 or 2.37% 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
securities are fixed at trade date, although the Fund does not earn any
interest on such securities until settlement date. The Fund has instructed
the Custodian Bank to segregate assets with a current value at least equal
to the amount of its when issued commitment. Accordingly, the market value
of $6,063,736 of U.S. Treasury Note 9.000%, 05-15-98 has been segregated to
cover the when issued commitments.
* Securities, other than short-term investments, newly added to the portfolio
during the year ended December 31, 1995.
** Credit ratings are rated by Moody's Investor Services or John Hancock
Advisers, Inc. where Standard and Poors ratings are not available and are
unaudited.
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.
17
<PAGE> 18
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
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. Additionally, net capital losses of $509,987 attributable to security
transactions occurring after October 31, 1995 are treated as arising on the
first day (January 1, 1996) 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
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 The Fund may buy and sell financial futures
contracts to hedge against the effects of fluctuations in interest rates,
currency exchange rates and other market conditions. 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. In addition,
the Fund could be prevented from opening, or realizing the benefits of closing
out, futures positions because of position limits or limits on daily price
fluctuation imposed by an exchange.
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.
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds-Income Securities Trust
At December 31, 1995, there were no open positions in 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 makes investments in other John
Hancock Funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation liability
are recorded on the Fund's books as an other asset. The deferred compensation
liability is marked to market on a periodic basis and income earned by the
investment is recorded on the Fund's books.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases of securities, other than obligations of the U.S. government and its
agencies and short-term securities, during the periods ended December 31, 1995
and 1994 aggregated $61,807,426 and $75,980,881, respectively. Proceeds from
sales of securities, other than obligations of the U.S. government and its
agencies and short-term securities, during the periods ended December 31, 1995
and 1994 aggregated $58,636,609 and $83,883,725, respectively. Purchases and
proceeds from sales of obligations of the U.S. government and its agencies
aggregated $99,653,420 and $101,924,771, respectively, in 1995. Purchases and
proceeds from sales of obligations of the U.S. government and its agencies
aggregated $60,083,126 and $53,481,624, respectively, in 1994.
The cost of investments owned at December 31, 1995 and 1994 (excluding the
corporate savings account) for Federal income tax purposes was $166,886,557 and
$160,178,310, respectively. Gross unrealized appreciation and depreciation of
investment aggregated $8,338,492 and $1,276,376, respectively, resulting in net
unrealized appreciation of $7,062,116 at December 31, 1995, and $889,151 and
$10,393,012, respectively, resulting in net unrealized depreciation of
$9,503,861 at December 31, 1994.
19
<PAGE> 20
John Hancock Funds - Income Securities Trust
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Trustees and Shareholders of
John Hancock Income Securities Trust
We have audited the accompanying statement of assets and liabilities of John
Hancock Income Securities Trust (the "Trust'), as of December 31, 1995 and 1994,
including the schedule of investments as of December 31, 1995, and the related
statement of operations and changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995 and 1994, by correspondence with the custodian and brokers, or
other appropriate auditing procedures when replies from brokers were not
received. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of John
Hancock Income Securities Trust at December 31, 1995 and 1994, the results of
its operations and changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
February 9, 1996
TAX INFORMATION NOTICE (UNAUDITED)
For Federal Income Tax purposes, the following information is furnished with
respect to the distributions of the Fund during its fiscal year ended December
31, 1995.
Corporate Dividends Received Deduction: None of the 1995 dividends qualify
for the corporate dividends received deduction.
U.S. Government Obligations: Income from these investments may be exempt
from certain state and local taxes. The percentage of assets invested in U.S.
Treasury bonds. bills and notes was 15.66%. The percentage of annual income
derived from U.S. Treasury bonds, bills and notes was 17.39%. The percentage of
assets invested in obligations of other U.S. government agencies (excluding
securities issued by Federal National Mortgage Association and Government
National Mortgage Association) at year end was 3.76%. The percentage of income
derived from these instruments was 3.27%. For specific information on exemption
provisions in your state, consult your local state tax office or your tax
adviser.
20
<PAGE> 21
John Hancock Funds - Income Securities Trust
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Unaudited quarterly results of operations for each of the two years in the
period ended December 31, 1995 are as follows:
<TABLE>
<CAPTION>
1995
----
THREE MONTHS ENDED
------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(OOO's OMITTED EXCEPT
PER SHARE DATA)
----------------------
<S> <C> <C> <C> <C>
Net investment income ............................. $ 3,212 $ 3,240 $ 3,184 $ 3,250
Dividends from net investment income .............. 3,215 3,224 3,133 3,290
Net realized and unrealized gain on investments and
financial futures contracts ..................... 5,076 7,258 99 4,391
Per share of beneficial interest:
Net investment income ........................... 0.32 0.31 0.31 0.32
Dividends ....................................... 0.32 0.31 0.32 0.31
Net asset value at end of quarter ................. $ 15.60 $ 16.31 $ 16.31 $ 16.74
</TABLE>
<TABLE>
<CAPTION>
1994
----
THREE MONTHS ENDED
------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(OOO's OMITTED EXCEPT
PER SHARE DATA)
----------------------
<S> <C> <C> <C> <C>
Net investment income ............................. $ 3,226 $ 3,256 $ 3,222 $ 3,238
Dividends from net investment income .............. 3,174 3,235 3,246 3,281
Net realized and unrealized loss on investments and
financial futures contracts ..................... (8,059) (5,676) (2,078) (2,170)
Per share of beneficial interest:
Net investment income ........................... 0.33 0.32 0.31 0.32
Dividends ....................................... 0.32 0.32 0.32 0.32
Net asset value at end of quarter ................. $ 16.09 $ 14.50 $ 14.50 $ 15.10
</TABLE>
21
<PAGE> 22
John Hancock Funds - Income Securities Trust
DIVIDENDS AND DISTRIBUTIONS
During 1995, dividends from net investment income totaling $1.2550 per share
were paid to shareholders. The dates of payment and the amounts per share were
as follows:
<TABLE>
<CAPTION>
INCOME
PAYMENT DATE DIVIDEND
- ------------ --------
<S> <C>
MARCH 31, 1995 $0.3150
JUNE 30, 1995 0.3150
SEPTEMBER 29, 1995 0.3150
DECEMBER 28, 1995 0.3100
</TABLE>
INVESTMENT OBJECTIVE AND POLICY
John Hancock Income Securities Trust is a closed-end diversified investment
management company, shares of which were initially offered to the public on
February 14, 1973 and are publicly traded on the New York Stock Exchange. Its
investment objective is to generate a high level of current income consistent
with prudent investment risk. The Fund invests in a diversified portfolio of
freely marketable debt securities and may invest an amount not exceeding 20% of
its assets in income-producing preferred and common stock. The Fund intends to
engage in short-term trading, may issue a single class of senior securities not
to exceed 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
22
<PAGE> 23
John Hancock Funds - Income Securities Trust
number of full shares of Common Shares held by the Agent Bank. A shareholder
will receive a cash payment for any fractional share held.
The Agent Bank will act as agent for participating shareholders. The Board of
Trustees of Income Securities will declare dividends from net investment income
payable in cash or, in the case of shareholders participating in the Plan,
partially or entirely in Income Securities' Common Shares. The number of shares
to be issued for the benefit of each shareholder will be determined by dividing
the amount of the cash dividend otherwise payable to such shareholder on shares
included under the Plan by the per share net asset value of the Common Shares on
the date for payment of the dividend, unless the net asset value per share on
the payment date is less than 95% of the market price per share on that date, in
which event the number of shares to be issued to a shareholder will be
determined by dividing the amount of the cash dividend payable to such
shareholder by 95% of the market price per share of the Common Shares on the
payment date. The market price of the Common Shares on a particular date shall
be the mean between the highest and lowest sales price on the New York Stock
Exchange on that date. Net asset value will be determined in accordance with the
established procedures of Income Securities. However, if as of such payment date
the market price of the Common Shares is lower than such net asset value per
share, the number of shares to be issued will be determined on the basis of such
market price. Fractional shares, carried out to three decimal places, will be
credited to your account. Such fractional shares will be entitled to future
dividends.
The shares issued to participating shareholders, including fractional shares,
will be held by the Agent Bank in the name of the participant. A confirmation
will be sent to each shareholder promptly, normally within seven days, after the
payment date of the dividend. The confirmation will show the total number of
shares held by such shareholder before and after the dividend, the amount of the
most recent cash dividend which the shareholder has elected to reinvest and the
number of shares acquired with such dividend.
The reinvestment of dividends does not in any way relieve participating
shareholders of any Federal, state or local income tax which may be due with
respect to such dividend. Dividends reinvested in shares will be treated on your
Federal income tax return as though you had received a dividend in cash in an
amount equal to the fair market value of the shares received, as determined by
the 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>
WITHHELD
FOR 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.............. 8,267,207 143,540
Gail D. Fosler................... 8,247,692 163,054
Bayard Henry..................... 8,289,369 121,378
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.
23
<PAGE> 24
[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
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[A 1/2" by 1/2" John Hancock Funds logo in upper left hand corner of the page. A
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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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