John Hancock Funds
Income
Securities
Trust
THIRD QUARTER REPORT
September 30, 1996
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle*
Leland O. Erdahl*
Richard A. Farrell*
Gail D. Fosler*
William F. Glavin*
Anne C. Hodsdon
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt*
Richard S. Scipione
Edward 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
Anne C. Hodsdon
President
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
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
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
Listed New York Stock Exchange Symbol: JHS
John Hancock Closed-End Funds:
1-800-843-0090
A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief
Executive Officer, flush right, next to second paragraph.
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
After a decisive victory in 1995, the bond market hasn't been able to
make up its mind this year. Sentiment has swung sharply and quickly in
the past nine months as investors have tried to figure out where
the U.S. economy is headed. The result has been a volatile bond market
susceptible to the whims of the latest economic reports.
Throughout the year, bond prices dropped as strong economic news sparked
fears of inflation -- and then rallied back as weaker reports reassured
investors that economic growth was under control. But by the end of the
third quarter, the bond market had stabilized somewhat after low
inflation numbers and signs of a slower-growing economy appeared and the
Federal Reserve decided not to raise short-term rates.
Our long-term outlook for bonds is optimistic. Even if the Fed raises
rates to prevent an outbreak of inflation, that could lead to a slowdown
in the economy, a drop in interest rates and rising bond prices. In the
near term, however, our bond outlook is more guarded and will largely
depend on the state of the economy and the potential shakeout from the
recent elections. A continuation of strong economic growth or signs of
higher inflation could well prompt more market jitters. Given this
environment, we'll maintain a conservative stance until we have a
clearer picture of where the economy is headed.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
John Hancock Funds - Income Securities Trust
<TABLE>
<CAPTION>
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 September 30, 1996. You'll also find the net asset value per
share as of that date.
Statement of Assets and Liabilities
September 30, 1996 (Unaudited)
- -------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Publicly traded bonds (cost - $157,866,160) $157,603,670
Joint repurchase agreement (cost - $5,541,000) 5,541,000
Corporate savings account 707
------------
163,145,377
Receivable for investments sold 7,000
Interest receivable 3,520,535
Receivable for variation margin 7,906
Other assets 6,025
------------
Total Assets 166,686,843
- -------------------------------------------------------------------------------------------------
Liabilities:
Payable for investments purchased 236,939
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 304,518
Accounts payable and accrued expenses 32,266
------------
Total Liabilities 573,723
- -------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in 167,478,335
Accumulated net realized loss on investments
and financial futures contracts (1,117,708)
Net unrealized depreciation of investments
and financial futures contracts (277,551)
Undistributed net investment income 30,044
------------
Net Assets $166,113,120
=================================================================================================
Net Asset Value Per Share:
(based on 10,403,707 shares of beneficial interest
outstanding - 30 million shares authorized with
no par value) $15.97
=================================================================================================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
The Statement of Operations summarizes the Fund's investment income and expenses incurred in
operating the Fund. It also shows net gains (losses) for the period stated.
Statement of Operations
Nine months ended September 30, 1996 (Unaudited)
- -------------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest $10,513,188
------------
Expenses:
Investment management fee - Note B 779,811
Transfer agent fee 81,144
Printing 58,106
Custodian fee 38,203
Auditing fee 30,402
Financial services fee - Note B 23,463
New York Stock Exchange fee 17,597
Trustees' fees 10,732
Legal fees 3,284
Miscellaneous 2,482
------------
Total Expenses 1,045,224
- -------------------------------------------------------------------------------------------------
Net Investment Income 9,467,964
- -------------------------------------------------------------------------------------------------
Realized and Unrealized Loss on Investments and
Financial Futures Contracts
Net realized loss on investments sold (409,541)
Net realized loss on financial futures contracts (133,997)
Change in net unrealized appreciation/depreciation
of investments (7,331,890)
Change in net unrealized appreciation/depreciation
of financial futures contracts (15,656)
------------
Net Realized and Unrealized Loss
on Investments and Financial
Futures Contracts (7,891,084)
- -------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $1,576,880
=================================================================================================
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------------------------------
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPT. 30, 1996
1995 (UNAUDITED)
------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $12,885,602 $9,467,964
Net realized gain (loss) on investments sold and financial
futures contracts 312,164 (543,538)
Change in net unrealized appreciation/depreciation of investments
and financial futures contracts 16,511,944 (7,347,546)
------------ ------------
Net Increase in Net Assets Resulting from Operations 29,709,710 1,576,880
------------ ------------
Distributions to Shareholders:
Dividends from net investment income ($1.2550 and $0.9150 per share,
respectively) (12,862,006) (9,467,683)
------------ ------------
From Fund Share Transactions:
(Market value of shares issued to shareholders in reinvestment
of distributions) 1,768,167 1,271,591
------------ ------------
Net Assets:
Beginning of period 154,116,461 172,732,332
------------ ------------
End of period (including undistributed net investment income of $29,763 and
$30,044, respectively) $172,732,332 $166,113,120
============ ============
* Analysis of Fund Share Transactions:
Shares outstanding, beginning of period 10,205,263 10,319,398
Shares issued to shareholders in reinvestment of distributions 114,135 84,309
------------ ------------
Shares outstanding, end of period 10,319,398 10,403,707
============ ============
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 statments
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each period indicated, investment returns,
key ratios and supplemental data are listed as follows:
- --------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
YEAR ENDED DECEMBER 31, (UNAUDITED)
---------------------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net Asset Value,
Beginning of Period $15.19 $16.25 $16.31 $16.97 $15.10 $15.10 $16.74
-------- -------- -------- -------- -------- -------- --------
Net Investment Income 1.44 1.37 1.31 1.28 1.26 0.94 0.92
Net Realized and
Unrealized Gain
(Loss) on
Investments and
Financial Futures
Contracts 1.08 0.07 0.80 (1.79) 1.64 1.22 (0.77)
-------- -------- -------- -------- -------- -------- --------
Total from Investment
Operations 2.52 1.44 2.11 (0.51) 2.90 2.16 0.15
-------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net
Investment Income (1.46) (1.38) (1.32) (1.28) (1.26) (0.95) (0.92)
Distributions from
Net Realized Gain on
Investments Sold and
Financial Futures
Contracts -- -- (0.13) (0.08) -- -- --
-------- -------- -------- -------- -------- -------- --------
Total Distributions (1.46) (1.38) (1.45) (1.36) (1.26) (0.95) (0.92)
-------- -------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period $16.25 $16.31 $16.97 $15.10 $16.74 $16.31 $15.97
======== ======== ======== ======== ======== ======== ========
Per Share Market Value,
End of Period $17.00 $16.75 $16.50 $13.75 $15.75 $15.50 $14.88
Total Investment Return
at Market Value 23.25% 7.16% 7.22% (8.70%) 24.11% 19.75%(a) 0.28%(a)
Ratios and Supplemental
Data
Net Assets, End of Period
(000's omitted) $159,990 $162,468 $170,988 $154,116 $172,732 $167,478 $166,113
Ratio of Expenses to
Average Net Assets 0.74% 0.81% 0.84% 0.87% 0.84% 0.86%* 0.83%*
Ratio of Net Investment
Income to Average
Net Assets 9.28% 8.46% 7.67% 8.03% 7.77% 7.86%* 7.55%*
Portfolio Turnover Rate 92% 111% 95% 82% 105% 71% 76%
* On an annualized basis.
(a) Not annualized.
The Financial Highlights summarizes the impact of the following factors on a single share for each 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.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
September 30, 1996 (Unaudited)
- ------------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by Income Securities
Trust on September 30, 1996. 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.
PAR VALUE
INTEREST S&P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ---------------------------------------------------- ------------ -------- ----------- ------------
<S> <C> <C> <C> <C>
PUBLICLY TRADED BONDS
Aerospace (0.36%)
Jet Equipment Trust Ser 1995-B,
Cert 08-15-14, (R) 10.910% BB+ $550 $602,360
Banks (12.84%)
Abbey National First Capital B.V. - Chicago Branch,
Sub Note 10-15-04 8.200 AA- 1,000 1,057,350
ABN Amro Bank N.V. - Chicago Branch,
Global Bond 05-31-05 7.250 AA- 1,000 500,405
African Development Bank,
Sub Note 12-15-03 9.750 AA 1,000 1,149,540
Barclays North American Capital Corp.,
Gtd Cap Note 05-15-21 9.750 AA- 900 1,024,875
Den Danske Bank Aktieselskab,
Sub Note 06-15-05, (R) 7.250 BBB+ 1,000 989,890
First Nationwide Bank,
Sr Note 04-15-03 12.500 B 575 621,000
Sr Sub Note 10-01-03, (R) 10.625 Ba3* 250 261,250
International Bank For Reconstruction and Development,
30 Yr Bond 07-15-17 9.250 AAA 4,000 4,793,760
Landeskreditbank Baden - Wurttemberg,
Sub Note 02-01-23 7.625 AAA 1,500 1,533,960
Midland American Capital Corp.,
Gtd Note 11-15-03 12.750 A 1,500 1,677,420
National Westminster Bank PLC - New York Branch,
Sub Note 05-01-01 9.450 AA- 1,250 1,374,337
Scotland International Finance No. 2 B.V.,
Sub Gtd Note 01-27-04, (R) 8.800 A+ 2,000 2,158,320
Sub Gtd Note 11-01-06, (R) 8.850 A+ 750 827,576
Security Pacific Corp.,
Medium Term Sub Note 04-26-01 10.500 A- 1,500 1,707,120
Sub Note 11-15-00 11.500 A- 1,000 1,161,980
Westdeutsche Landesbank Girozentrale -
New York Branch, Sub Note 06-15-05 6.750 AA+ 500 486,350
------------
21,325,133
------------
Broadcasting (6.53%)
Cablevision Systems Corp.,
Sr Sub Deb 05-15-06 9.875 B 650 667,875
Century Communications Corp.,
Sr Sub Deb 10-15-03 11.875 B+ 850 909,500
Continental Cablevision, Inc.,
Sr Note 05-15-06, (R) 8.300 BB+ 765 791,102
Sr Sub Deb 06-01-07 11.000 BB- 1,210 1,358,225
Jones Intercable, Inc.,
Sr Sub Deb 07-15-04 11.500 B+ 1,000 1,100,000
Le Groupe Videotron Ltee,
Sr Note 02-15-05 10.625 BB+ 250 271,875
Rogers Cablesystems Ltd.,
Sr Sec Second Priority Note 03-15-05 10.000 BB+ 800 814,000
SFX Broadcasting, Inc.,
Sr Sub Note 05-15-06, (R) 10.750 B- 400 416,000
Teleport Communications Group, Inc.
Note 07-01-06 9.875 B 610 625,250
TeleWest PLC,
Sr Deb 10-01-06 9.625 BB 250 247,500
TKR Cable I, Inc.,
Sr Deb 10-30-07 10.500 BBB- 2,000 2,179,800
Viacom Inc.,
Sr Note 06-01-05 7.750 BB+ 575 555,461
Sr Deb 01-15-16 7.625 BB+ 375 331,597
Sub Deb 07-07-06 8.000 BB- 625 583,594
------------
10,851,779
------------
Chemicals (0.19%)
Sociedad Quimica Y Minera de Chile S.A.,
Loan Part Cert 09-15-06 7.700 BBB+ 320 321,200
------------
Commercial Real Estate (0.30%)
TriNet Corporate Realty Trust, Inc.,
Note 05-15-01 7.300 BBB- 500 500,850
------------
Containers (0.40%)
Riverwood International Corp.,
Sr Sub Note 04-01-08 10.875 B 678 667,830
------------
Cosmetics & Toiletries (0.42%)
Johnson & Johnson,
Deb 11-15-23 6.730 AAA 750 691,755
------------
Finance (10.77%)
Banc One Credit Card Master Trust,
Class A Asset Backed Ctf Ser 1994-B
12/15/99 7.550 AAA 1,000 1,014,680
CIT Group Holdings, Inc. (The),
Medium Term Sr Sub Cap Note 03-15-01 9.250 A 1,000 1,087,510
Conseco, Inc.,
Sr Note 12-15-04 10.500 BBB- 700 808,388
ContiFinancial Corp.,
Sr Note 08-15-03 8.375 BB+ 600 601,500
CS First Boston,
Sub Note 05-15-06, (R) 7.750 NR 1,000 1,023,160
CSW Investments,
Sr Note 08-01-06, (R) 7.450 A- 450 447,480
DSPL Finance Co.,
Gtd Sr Sec Note 12-30-10, (R) 9.120 BBB 500 502,500
Fairfax Financial Holdings, Ltd.,
Note 04-15-26 8.300 BBB+ 695 699,552
Greentree Financial Corp.,
Ctf Home Improv Ln Ser 1995-D CI M-2 09-15-25 6.950 AAA 650 637,000
Impsat Corp.,
Sr Gtd Note 07-15-03, (R) 12.125 BB- 575 596,563
IMC Home Equity Loan Trust,
Pass thru Ctf Ser 1996-A5 12-25-03 6.290 AAA 720 687,263
MBNA Master Credit Card Trust,
Asset Backed Ctf , Ser 1995-D 06-15-00 6.050 AAA 1,585 1,554,774
Merrill Lynch Mortgage Investors, Inc.,
Sr/Sub Pass thru Ctf Ser 1992, Class B
(Sub) 04-15-12 8.500 AA 408 416,988
Money Store Trust, (The),
Asset Backed Ctf , Ser 1996-B05-15-02 7.350 AAA 500 501,406
Asset Backed Ctf , Ser 1995-C09-15-11 6.375 AAA 315 305,944
Asset Backed Ctf , Ser 1996-A03-15-24 7.360 AAA 685 676,652
Polysindo International Finance Co., B.V.,
Gtd Sec Note 06-15-06 11.375 BB- 450 247,337
Santander Financial Issuances Ltd.,
Sub Gtd Note 04-15-05 7.875 A+ 1,000 1,029,300
Showboat Marina Finance Corp.,
1st Mtg Note 03-15-03, (R) 13.500 B 500 542,500
Standard Credit Card Master Trust I,
Class A Credit Card Part Ctf Ser 1993-2
10/7/04 5.950 AAA 1,335 1,259,065
Class A Credit Card Part Ctf Ser 1994-2
4/7/08 7.250 AAA 1,000 999,680
Class A Credit Card Part Ctf Ser 1995-2
1/7/00 8.625 AAA 1,250 1,263,662
UCFC Home Equity Loan,
Pass thru Ctf Ser 1994-A 07-10-18 6.100 AAA 350 342,453
Pass thru Ctf Ser 1996-C1 09-01-05 7.475 AAA 140 140,569
URC Holdings Corp.,
Sr Note 06-30-06, (R) 7.875 A- 500 510,370
------------
17,896,296
------------
Glass Products (0.49%)
Owens-Illinois, Inc.,
Sr Deb 12-01-03 11.000 BB 750 820,312
------------
Gold Mining & Processing (1.13%)
Magma Copper Co.,
Sr Sub Note 12-15-01 12.000 BB+ 1,750 1,869,210
------------
Governmental - Foreign (2.49%)
Nova Scotia, Province of,
Deb 04-01-22 8.750 A- 750 839,370
Ontario, Province of,
Bond 06-04-02 7.750 AA- 500 521,745
Deb 08-31-12 15.250 AA- 350 396,319
Quebec, Province of,
Deb 10-01-13 13.000 A+ 500 579,390
Republic of Argentina
Deb 03-31-05 6.625# BB- 743 621,844
Republic of Brazil,
For Gvt Gtd 04-15-09 6.563# NR 750 608,437
Saskatchewan, Province of,
Deb 12-15-20 9.375 BBB+ 480 570,058
------------
4,137,163
------------
Governmental - U.S. (16.03%)
United States Treasury,
Bond 08-15-05 10.750 AAA 885 1,120,074
Bond 08-15-17 8.875 AAA 3,244 3,882,160
Bond 05-15-18 9.125 AAA 2,250 2,760,458
Bond 02-15-23 7.125 AAA 5,360 5,399,342
Note 04-15-98 7.875 AAA 1,000 1,026,870
Note 05-15-98 9.000 AAA 5,710 5,966,950
Note 11-30-99 7.750 AAA 3,340 4,170,400
Note 05-15-01 8.000 AAA 1,606 1,703,870
Note 02-15-05 7.500 AAA 562 591,415
------------
26,621,539
------------
Governmental - U.S. Agencies (10.68%)
Federal Home Loan Mortgage Corp.,
30 Yr SF Pass thru Ctf 01-01-16 11.250 AAA 631 702,556
Federal National Mortgage Association,
15 Yr SF Pass thru Ctf 02-01-08 7.500 AAA 610 615,519
15 Yr SF Pass thru Ctf 01-25-05 8.000 AAA 1,000 1,040,310
30 Yr SF Pass thru Ctf 10-01-23 7.000 AAA 810 809,560
Financing Corp.,
Bond Ser A 02-08-18 9.400 AAA 2,000 2,438,120
Government National Mortgage Association,
30 Yr SF Pass thru Ctf 01-15-26 7.000 AAA 736 708,245
30 Yr SF Pass thru Ctf 02-15-24 to
2/15/26 7.500 AAA 2,196 2,170,545
30 Yr SF Pass thru Ctf 09-15-22 to
5/15/23 8.000 AAA 2,099 2,129,106
30 Yr SF Pass thru Ctf 01-15-23 to
12/15/24 8.500 AAA 3,006 3,103,199
30 Yr SF Pass thru Ctf 04-15-21 9.000 AAA 642 677,672
30 Yr SF Pass thru Ctf 11-15-19 to
2/15/25 9.500 AAA 1,645 1,767,468
30 Yr SF Pass thru Ctf 11-15-20 10.000 AAA 480 523,352
Tennessee Valley Authority,
Power Bonds 1989 Ser G 11-15-29 8.625 AAA 1,000 1,061,430
------------
17,747,082
------------
Healthcare (0.22%)
Smith Food & Drug Centers, Inc.,
Sr Sub Note 05-15-07 11.250 B- 350 371,875
------------
Insurance (2.82%)
Equitable Life Assurance Society of
The United States (The),
Surplus Note 12-01-05, (R) 6.950 A 550 528,715
Liberty Mutual Insurance Co.,
Surplus Note 05-04-07, (R) 8.200 A+ 1,000 1,046,160
Massachusetts Mutual Life Insurance Co.,
Surplus Note 11-15-23, (R) 7.625 AA- 1,050 1,020,442
New York Life Insurance Co.,
Surplus Note 12-15-23, (R) 7.500 AA 1,780 1,407,990
Sun Canada Financial Co.,
Sub Note 12-15-07, (R) 6.625 AA 725 679,622
------------
4,682,929
------------
Leisure & Recreation (0.50%)
Mohegan Tribal Gaming Authority,
Sr Sec Note 11-15-02, (R) 13.500 BB+ 150 189,000
Trump Hotels & Casino Resorts Funding, Inc.,
Sr Note 06-15-05 15.500 B+ 550 638,000
------------
827,000
------------
Manufacturing (0.21%)
Flagstar Corp.,
Sr Note 09-15-01 10.750 B- 385 341,688
------------
Medical/Dental (0.36%)
Fisher Scientific International Inc.,
Note 12-15-05 7.125 BBB 900 597,363
------------
Oil & Gas (2.20%)
Ashland Oil, Inc.,
SF Deb 10-15-17 11.125 BBB 1,000 1,093,590
Maxus Energy Corp.,
Deb 05-01-13 11.250 BB- 229 234,153
Norsk Hydro, A.S.,
Deb 06-15-23 7.750 A- 1,000 994,620
Occidental Petroleum Corp.,
Sr Deb 09-15-09 10.125 BBB 600 724,686
TransTexas Gas Corp.,
Sr Sec Note 06-15-02 11.500 BB- 1,000 610,938
------------
3,657,987
------------
Paper (1.52%)
APP International Finance Co. B.V.,
Gtd Sec Note 10-01-05 11.750 BB 445 414,000
Georgia-Pacific Corp.,
Deb 02-15-18 9.500 BBB- 450 470,727
Repap New Brunswick,
Sr Note 04-15-05 10.625 B+ 425 579,313
S.D. Warren Co.,
Sr Sub Note 12-15-04 12.000 B+ 650 538,750
Stone Consolidated Corp.,
Sr Note 12-15-00 10.250 B+ 500 528,750
------------
2,531,540
------------
Publishing (2.06%)
News America Holdings Inc.,
Deb 08-10-18 8.250 BBB 500 502,535
Sr Note 10-15-99 9.125 BBB 1,000 1,062,220
Sr Note 12-15-01 12.000 BBB 750 803,385
Time Warner Inc.,
Deb 01-15-13 9.125 BBB- 1,000 1,060,120
------------
3,428,260
------------
Retail (1.75%)
Kroger Co. (The),
Lease Ctf 02-01-09 12.950 BB 1,910 2,110,550
May Department Stores Co. (The),
Deb 06-15-18 10.750 A 254 264,686
Safeway Stores, Inc.,
Lease Ctf 01-15-09 13.500 BBB- 474 524,138
------------
2,899,374
------------
Steel (0.94%)
NS Group, Inc.,
Sr Sec Note 07-15-03 13.500 B- 615 615,000
Republic Engineered Steel Corp.,
1st Mtg Note 12-15-01 9.875 B 475 267,400
Weirton Steel Corp.,
Sr Note 03-01-98 11.500 B 385 154,215
Sr Note 07-01-04 11.375 B 250 527,625
------------
1,564,240
------------
Telecommunications (1.04%)
British Telecom Finance Inc.,
Gtd Deb 02-15-19 9.625 AAA 1,000 1,098,540
Comtel Brasileira Ltd.,
Sec Note 09-26-04 10.750 NR 280 285,600
TCI Communications, Inc.,
Deb 08-01-15 8.750 BBB- 600 340,309
------------
1,724,449
------------
Tobacco (0.15%)
RJR Nabisco, Inc.,
Note 12-01-02 8.625 BBB- 100 100,168
Note 09-15-03 7.625 BBB- 150 141,672
------------
241,840
------------
Transportation (3.48%)
Continental Airlines Inc.,
Pass thru Ctf Ser 1996-C 10-15-13 9.500 BBB- 500 550,810
Northwest Airlines Inc.,
Pass thru Ctf Ser 1996-1 01-02-05 10.150 BB+ 400 428,000
Pass thru Ctf Ser 1996-1 01-02-15 8.970 BB+ 400 421,000
Rail Car Trust No. 1992-1,
Trust Note Ser 92-1 06-01-04 7.750 AAA 1,599 1,653,503
Scandinavian Airlines System,
Bond 07-20-99 9.125 A3* 700 746,375
Sea-Land Service, Inc.,
Sec Bond Ser A 01-02-11 10.600 BBB+ 1,000 1,064,190
USAir 1990-A Pass Through Trusts,
Pass thru Ctf Ser 1990-A1 03-19-05 11.200 B+ 903 910,956
------------
5,774,834
------------
Utilities (15.00%)
AES Corp.,
Sr Sub Note 07-15-06 10.250 B+ 450 478,125
BVPS II Funding Corp.
Sec Lease Oblig 06-01-17 8.890 BB+ 700 677,019
CalEnergy Company, Inc.,
Sr Note 09-15-06, (R) 9.500 Ba2* 450 457,875
Calpine Corp.,
Sr Note 05-15-06, (R) 10.500 B 765 475,462
CE Casecnan Water & Energy Co., Inc.,
Sr Sec Note Ser A 11-15-05, (R) 11.450 BB 500 417,500
Chugach Electric Association, Inc.,
1st Mtg 1991 Ser A 03-15-22 9.140 A 2,000 2,186,780
Cleveland Electric Illuminating Co.,
1st Mtg Ser 2005-B 05-15-05 9.500 BB 900 851,613
CTC Mansfield Funding Corp.,
Deb 03-30-03 10.250 B+ 450 459,693
Sec Lease Oblig 09-30-16 11.125 B+ 1,900 2,010,067
E.I.P. Refunding Corp.,
Sec Fac Bond 10-01-12 10.250 B+ 760 759,860
Empresa Electrica Pehuenche S.A.,
Note 05-01-03 7.300 BBB+ 525 523,383
First PV Funding Corp.,
Lease Oblig Ser 1986 A 01-15-14 10.300 B+ 300 318,375
Lease Oblig Ser 1986 B 01-15-16 10.150 B+ 1,500 1,590,000
GG1B Funding Corp.,
Deb 01-15-14 8.200 BBB- 500 462,281
Sec Lease Oblig 01-15-11 7.430 BBB- 887 819,827
GTE Corp.,
Deb 11-15-17 10.300 BBB+ 500 544,300
Deb 11-01-20 10.250 BBB+ 1,500 1,697,940
Hydro-Quebec (Gtd By Province of Quebec),
Deb 02-01-03 7.375 A+ 750 1,042,794
Deb Ser HS 02-01-21 9.400 A+ 900 759,833
Iberdrola International B.V.,
Gtd Note 10-01-02 7.500 AA- 2,000 2,067,500
Long Island Lighting Co.,
Deb 03-15-03 7.050 BB+ 750 681,075
Gen Ref Mtg 05-01-21 9.750 BBB- 450 448,767
Gen Ref Mtg 07-01-24 9.625 BBB- 750 747,413
Louisiana Power & Light Co.,
Sec Lease Oblig Bond Ser B 01-02-17 10.670 BBB- 1,350 1,444,675
Midland Funding Corp. I,
Sr Sec Lease Oblig Ser C 07-23-02 12.75 BB- 1,500 1,312,564
Midland Funding Corp. II,
Deb 07-23-05 11.750 B- 300 323,229
System Energy Resources, Inc.,
1st Mtg 09-01-96 10.500 BBB- 1,100 781,781
Tenaga Nasional Berhad,
Note 06-15-04, (R) 7.875 A+ 550 568,051
------------
24,907,782
------------
TOTAL PUBLICLY TRADED BONDS
(COST $157,866,160) (94.88%) 157,603,670
------ ------------
<CAPTION>
PAR VALUE
INTEREST (000'S MARKET
ISSUER,DESCRIPTION RATE OMITTED) VALUE
- ----------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (3.33%)
Investment in a joint repurchase agreement
transaction with Toronto
Dominion Bank, Ltd., Dated 09-30-96, due
10-01-96 (secured by
U.S. Treasury Bond, 7.625%, due 11-15-22 and
by U. S. Treasury
Notes, 5.000% thru 6.375%, due 01-31-99 thru
03-31-01) - Note A 5.500% $5,541 $5,541,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75% 4.750 707
------------
TOTAL SHORT-TERM INVESTMENTS (3.33%) 5,541,707
------- ------------
TOTAL INVESTMENTS (98.21%) $163,145,377
======= ============
NOTES TO THE SCHEDULE OF INVESTMENTS
(R) These securities are exempt from registration under Rule 144A of the Securities Act of 1933.
Such securities may be resold, normally to qualified institutional buyers, in transactions exempt
from registration. Rule144A securities amounted to $16,459,888 as of September 30, 1996. See Note A
of the Notes to Financial Statements for valuation policy.
* 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.
# Represents rate in effect on September 30, 1996.
See notes to financial statements.
</TABLE>
(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.
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, INTEREST AND DISTRIBUTIONS 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.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles incorporates
estimates made by management in determining the reported amounts of
assets, liabilities, revenues, and expenses of the Fund. Actual results
could differ from these estimates.
FINANCIAL FUTURES CONTRACTS At the time the Fund enters into a financial
futures contract, it is required to deposit with its custodian a
specified amount of cash or U.S. government securities, known as
"initial margin", equal to a certain percentage of the value of the
financial futures contract being traded. Each day, the futures contract
is valued at the official settlement price of the board of trade or U.S.
commodities exchange. Subsequent payments, known as "variation margin",
to and from the broker are made on a daily basis as the market price of
the financial futures contract fluctuates. Daily variation margin
adjustments, arising from this "mark to market", are recorded by the
Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks
of entering into futures contracts include the possibility that there
may be an illiquid market and/or that a change in the value of the
contract may not correlate with changes in the value of the underlying
securities.
For Federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures
transactions.
At September 30, 1996, open positions in financial futures contracts
were as follows:
OPEN UNREALIZED
EXPIRATION CONTRACTS POSITION DEPRECIATION
- ----------- ----------- ---------- --------------
DEC 1996 42 U.S. TREASURY NOTE SHORT ($15,656)
=======
At June 30, 1996, the Fund has deposited in a segregated account $30,000
par value of U.S. Treasury Bond, 9.125%, 05-15-18 and $25,000 par value
of U.S. Treasury Bond, 10.75%, 08-15-05, to cover margin requirements on
open financial futures contracts.
NOTE B --
MANAGEMENT FEE AND
ADMINISTRATIVE SERVICES
Under the present investment management contract, the Fund pays a
quarterly management fee to the Adviser, for a continuous investment
program, equivalent on an annual basis, to the sum of (a) 0.650% of the
first $150,000,000 of the Fund's average weekly net asset value,
(b) 0.375% of the next $50,000,000, (c) 0.350% of the next $100,000,000
and (d) 0.300% of the Fund's average weekly net asset value in excess of
$300,000,000.
In the event normal operating expenses of the Fund, exclusive of taxes,
interest, brokerage commissions and extraordinary expenses, exceeds 1.5%
of the first $30,000,000 of the Fund's average weekly net asset value
and 1.0% of the Fund's average weekly net asset value in excess of
$30,000,000, the fee payable to the Adviser will be reduced to the
extent of such excess and the Adviser will make additional arrangements
necessary to eliminate any remaining excess expenses.
On March 5, 1996, the Board of Directors approved retroactively to
January 1, 1996, an agreement with the Adviser to perform necessary tax
and financial management services for the Funds. The compensation for
1996 is estimated to be at an annual rate of 0.01875% of the average net
assets of each Fund.
Mr. Edward J. Boudreau, Jr., Mr. Richard S. Scipione and Ms. Anne C.
Hodsdon 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 into 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 and the related other asset are always
equal and are marked to market on a periodic basis to reflect any income
earned by the investment as well as any unrealized gains or losses. At
September 30, 1996, the Fund's investment to cover the deferred
compensation liability had unrealized appreciation of $595.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligation
of the U.S. government and its agencies and short-term securities,
during the period ended September 30, 1996 aggregated $62,402,775 and
$65,167,109, respectively. Purchases and proceeds from sales of
obligations of the U.S. government and its agencies aggregated
$59,877,784 and $58,773,878, respectively.
The cost of investments owned at September 30, 1996 (excluding the
corporate savings account) for Federal income tax purposes was
$163,407,160. Gross unrealized appreciation and depreciation of
investments at September 30, 1996 aggregated $3,073,130 and $3,335,620,
respectively, resulting in net unrealized depreciation of $262,490.
INVESTMENT OBJECTIVE AND POLICY
John Hancock Income Securities Trust is a closed-end diversified
investment management company, shares of which were initially offered to
the public on February 14, 1973 and are publicly traded on the New York
Stock Exchange. Its investment objective is to generate a high level of
current income consistent with prudent investment risk. The Fund invests
in a diversified portfolio of freely marketable debt securities and may
invest an amount not exceeding 20% of its assets in income-producing
preferred and common stock. The Fund intends to engage in short-term
trading, may issue a single class of senior securities not to exceed
331/3% of its net assets at market value, may borrow from banks as a
temporary measure for emergency purposes in amounts not to exceed 5% of
the total assets at cost and may lend its portfolio securities. The Fund
pays quarterly dividends from net investment income and intends to
distribute any available net realized capital gains annually. All
distributions are paid in cash unless the shareholder elects to
participate in the Automatic Dividend Reinvestment Plan.
FINANCIAL FUTURES CONTRACTS
The Fund may buy and sell financial futures contracts and options on
futures contracts to hedge against the effects of fluctuations in
interest rates and other market conditions. The Fund's ability to hedge
successfully will depend on the Adviser's ability to predict accurately
the future direction of interest rate changes and other market factors.
There is no assurance that a liquid market for futures and options will
always exist. In addition, the Fund could be prevented from opening, or
realizing the benefits of closing out, a futures or options position
because of position limits or limits on daily price fluctuations imposed
by an exchange.
The Fund will not engage in transactions in futures contracts and
options on futures for speculation, but only for hedging or other
permissible risk management purposes. All of the Fund's futures
contracts and options on futures will be traded on a U.S. commodity
exchange or board of trade. The Fund will not engage in a transaction in
futures or options on futures if, immediately thereafter, the sum of
initial margin deposits on existing positions and premiums paid for
options on futures would exceed 5% of the Fund's total assets.
DIVIDEND REINVESTMENT PLAN
John Hancock Income Securities Trust offers shareholders the opportunity
to elect to receive shares of the Fund's Common Shares in lieu of cash
dividends. The Plan is available to all shareholders without charge.
Any shareholder of record of John Hancock Income Securities Trust
("Income Securities") may elect to participate in the Automatic Dividend
Reinvestment Plan (the "Plan") and receive shares of Income Securities'
Common Shares in lieu of all or a portion of the cash dividends.
Shareholders may join the Plan by filling out and mailing an
authorization card showing an election to reinvest all or a portion of
dividend payments. If received in proper form by State Street Bank and
Trust Company, P.O. Box 8209, Boston, Massachusetts 02266-8209 (the
"Agent Bank") not later than seven business days before the record date
for a dividend, the election will be effective with respect to all
dividends paid after such record date. Shareholders whose shares are
held in the name of a broker or nominee should contact the broker, bank,
or nominee to participate in the Plan.
Participation in the Plan may be terminated at any time by written
notice to the Agent Bank and such termination will be effective
immediately. However, notice of termination must be received seven days
prior to the record date of any distribution to be effective for that
distribution. Upon termination, certificates will be issued representing
the number of full shares of Common Shares held by the Agent Bank. A
shareholder will receive a cash payment for any fractional share held.
The Agent Bank will act as agent for participating shareholders. The
Board of Trustees of Income Securities will declare dividends from net
investment income payable in cash or, in the case of shareholders
participating in the Plan, partially or entirely in Income Securities'
Common Shares. The number of shares to be issued for the benefit of each
shareholder will be determined by dividing the amount of the cash
dividend otherwise payable to such shareholder on shares included under
the Plan by the per share net asset value of the Common Shares on the
date for payment of the dividend, unless the net asset value per share
on the payment date is less than 95% of the market price per share on
that date, in which event the number of shares to be issued to a
shareholder will be determined by dividing the amount of the cash
dividend payable to such shareholder by 95% of the market price per
share of the Common Shares on the payment date. The market price of the
Common Shares on a particular date shall be the mean between the highest
and lowest sales price on the New York Stock Exchange on that date. Net
asset value will be determined in accordance with the established
procedures of Income Securities. However, if as of such payment date the
market price of the Common Shares is lower than such net asset value per
share, the number of shares to be issued will be determined on the basis
of such market price. Fractional shares, carried out to three decimal
places, will be credited to your account. Such fractional shares will be
entitled to future dividends.
The shares issued to participating shareholders, including fractional
shares, will be held by the Agent Bank in the name of the participant. A
confirmation will be sent to each shareholder promptly, normally within
seven days, after the payment date of the dividend. The confirmation
will show the total number of shares held by such shareholder before and
after the dividend, the amount of the most recent cash dividend which
the shareholder has elected to reinvest and the number of shares
acquired with such dividend.
The reinvestment of dividends does not in any way relieve participating
shareholders of any Federal, state or local income tax which may be due
with respect to such dividend. Dividends reinvested in shares will be
treated on your Federal income tax return as though you had received a
dividend in cash in an amount equal to the fair market value of the
shares received, as determined by the 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.
John Hancock Funds - Income Securities Trust
SHAREHOLDER MEETING
On April 24, 1996, the Annual Meeting of John Hancock Income Securities
Trust was held.
The Shareholders elected the following Trustees with the votes as
indicated:
NAME OF TRUSTEE FOR WITHHELD
- ---------------- -------------- ------------------
Dennis S. Aronowitz 7,520,975 143,844
Edward J. Boudreau, Jr. 7,525,440 139,379
Richard P. Chapman, Jr. 7,531,070 133,749
William J. Cosgrove 7,531,142 133,678
Douglas M. Costle 7,510,843 153,976
Leland O. Erdahl 7,508,143 156,676
Richard A. Farrell 7,533,486 131,333
Gail D. Fosler 7,509,820 154,999
William F. Glavin 7,509,884 154,935
Bayard Henry 7,530,339 134,480
Dr. John A. Moore 7,508,523 156,296
Patti McGill Peterson 7,509,416 155,403
John W. Pratt 7,510,077 154,742
Richard S. Scipione 7,527,356 137,463
Edward J. Spellman 7,531,793 133,027
The Shareholders also ratified the Trustees selection of Ernst & Young
LLP as auditor for the fiscal year ending December 31, 1996, with the
votes tabulated as follows: 7,493,852 FOR, 31,666 AGAINST and 139,301
ABSTAINING.
On March 5, 1996, Anne C. Hodsdon was appointed Trustee.
Bayard Henry resigned on April 26, 1996.
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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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Recycled Paper." P60Q3 9/96
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