John Hancock Funds
Income
Securities
Trust
SEMIANNUAL REPORT
June 30, 1997
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 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
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
200 Clarendon Street
Boston, Massachusetts 02116
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 LLP
60 State Street
Boston, Massachusetts 02109
Listed New York Stock Exchange Symbol: JHS
John Hancock Closed-End Funds:
1-800-843-0090
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
The stock market has certainly put on a show since the start of the
year. Stocks began 1997 on the high wires, bolstered by a near-perfect
"Goldilocks" economy -- not too hot, not too cold. In almost a straight
shot, the Dow Jones Industrial Average soared through the 7000 level for
the first time in early March. Just days later, stocks lost their
footing and staged a month-long free-fall in a nervous reaction to
rising interest rates and economic data that showed the economy was
picking up steam. Stocks gave back all of their year's gain and suffered
their worst decline since 1990 during this period. No sooner had real
fears begun to beset investors then they were gone, erased in a euphoric
rally caused by strong earnings and no signs of inflation. By the end of
June, both the Dow and the broader Standard & Poor's 500 Stock Index had
risen by 20% -- a level not many thought the market would reach all
year, let alone in six months. Bondholders have not enjoyed the same
bounty, as the bond market has mostly stayed worried about the strength
of the economy, the direction of interest rates, and the Federal
Reserve's next moves to pre-empt inflation.
A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief
Executive Officer, flush right, next to second paragraph.
But the stock market's latest advance has amazed many analysts and left
them pondering their valuation models, since the market is now more
expensive than it has been in decades. It's impossible to know what will
happen next in the markets. But whether it's another strong move forward
or a retreat, we recommend keeping a long-term perspective, rather than
over-focusing on the market's daily twists and turns. While the economic
backdrop seems to remain near perfect, the one thing we believe
investors should be prepared for is more market volatility. It also
makes sense to do something we've always advocated: set realistic
expectations, since, as we've also seen this year, markets can move down
as fast as they go up.
Use this time of heightened volatility as an opportunity to review your
portfolio's asset allocations with your investment professional. After
such a strong advance in equities over the last two and a half years, it
could be time to rebalance your portfolio, if you haven't already, to
maintain your desired targets of diversification. As part of that
process, make sure that your investment strategies still reflect your
individual time horizons, objectives and risk tolerance. Despite
turbulence, one thing remains constant. A well-constructed plan and a
cool head can be the best tools for reaching your financial goals.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BY JAMES K. HO, CFA, PORTFOLIO MANAGER
John Hancock
Income Securities Trust
Careful sector allocation and credit selection
help Fund performance in fitful environment
Fixed-income securities had a difficult time making headway during the
first three months of the semiannual period. Investors nervously awaited
each new economic report, hoping for some discernible signs as to the
direction of the economy and the Federal Reserve Board's stance on
monetary policy. Market turbulence was most pronounced in late February
and March, prior to and in response to the Fed's pre-emptive strike
against inflation, which entailed a .25% increase in the federal funds
rate -- the rate that member banks charge each other for overnight
loans.
The second quarter registered improved performance, as a series of
economic statistics indicating moderate growth and subdued inflation did
much to calm investors' inflation concerns. The possibility that the Fed
would raise short-term rates again in July became more remote with each
new report, and set the stage for what could wind up being an uneventful
summer. By the end of the six months ended June 30, 1997, the broad
fixed-income market had rebounded enough to effectively offset the weak
performance experienced months earlier.
A 2 1/4" x 3 1/2" photo of the Income Securities portfolio management
team. Caption reads: "Jim Ho (seated) and Fund management team members
(l - r) Lester Duke, Beverly Cleathero, Seth Robbins, Linda Carter".
Against this fitful backdrop, John Hancock Income Securities Trust
posted solid results, producing a total return of 3.91% at net asset
value. The Fund outperformed the average open-end corporate debt A-rated
fund, which produced a gain of 2.68% at net asset value, as tracked by
Lipper Analytical Services, Inc.
"...the
financial
strength of
corporate
America
helped boost
corporate
bond
prices..."
Fund begins fiscal year on a defensive note
Anticipating unsettled conditions upon entering fiscal 1997, we kept the
Fund's average duration, a measure of the Fund's sensitivity to
interest-rate changes, shorter than its competitors and its benchmark,
the Lehman Brothers Government/Corporate Bond Index. We achieved this
defensive orientation by aligning assets at opposite ends of the yield
curve, owning both short-term and long-term securities to optimize total
return potential. The yield curve flattened as bonds experienced
downward pressure during the first quarter. This "barbell" strategy
helped provide a level of stability.
Chart with heading "Top Five Bond Sectors" at top left hand column.
Chart lists five sectors: 1) Banks & Financials 28% 2) US Government &
Agencies 27% 3) Utilities 14% 4) Media 5% 5)Transportation 5%. Footnote
below states "As a percentage of net assets on June 30, 1997."
"Media,
financial
services
and utility
companies
are three
areas
we have
emphasized..."
As the period drew to a close, several leading indicators hinted at
weaker-than-expected economic growth and the market began to pick up
steam. Realizing the new data could well be enough to ease the Fed's
inflation concerns, we became a bit less defensive and adjusted duration
to a slightly more neutral position, redeploying assets in intermediate-
term securities and matching the benchmark's duration more closely.
Believing the Fed will stand pat on interest rates throughout the
summer, we anticipate maintaining this "ladder" positioning for the near
term.
Table entitled "Scorecard" at bottom left hand column. The header for
the left column is "Investment"' the header for the right column is
"Recent performance...and what's behind the numbers." The first listing
is "Owens Illinois" followed by an up arrow and the phrase "Tender offer
sparks gains from sale of bonds". The second listing is "Riverwood
International" followed by a horizontal arrow and the phrase
"Stabilization in paper prices". The third listing is "TCI Communications,
Inc." followed by an up arrow and the phrase "Benefited from consolidation
trend". Footnote below reads: "See "Schedule of Investments." Investment
holdings are subject to change."
Emerging markets add value
With the exception of a few weeks in late March and early April, yield
spreads -- the difference in yields offered by corporate and Treasury
bonds, and corporate bonds of varying credit quality -- continued to
narrow, contributing to the Fund's solid performance. Investors'
continuing appetite for yield and the financial strength of corporate
America helped boost corporate bond prices and push yields lower,
bringing them closer to one another and to the yields offered by
Treasury securities. The Fund benefited substantially as corporate bonds
comprised the bulk of the portfolio's net assets.
As a natural result of narrowing yield spreads, risk premiums have come
down. This means that the level of return one anticipates earning in
exchange for taking on more risk is not as much as it was a year or two
ago. The challenge for us then was to find securities with attractive
yield potential commensurate with the risks involved in owning them.
Given this reality, we have begun to upgrade the portfolio's credit
quality by slightly reducing exposure to high-yield bonds.
One way we have been able to improve quality without sacrificing yield
has been to explore opportunities in emerging-market corporate bonds
whose values are pegged to the U.S. dollar. As privatization and fiscal
responsibility take hold in many emerging nations, attractive
opportunities are coming to market. Our in-depth credit research has led
us to several issues positioned to perform well, particularly bonds
involved in project finance. Bonds issued by Transgas in Colombia to
finance the construction of gas pipelines is a fine example. Other solid
performers include Petros Mexicanos, a state-owned oil company in
Mexico; Yanacocha, a Peruvian mining company; and Camuzzi Gas, a gas
company in Argentina.
Bar chart with heading "Fund Performance" at top of left hand column.
Under the heading is the footnote "For the six months ended June 30,
1997." The chart is scaled in increments of 1% from top to bottom with
0% at the bottom and 5% at the top. Within the chart, there are two
solid bars. The first represents the 3.91% total return for John Hancock
Income Securities Trust. The second represents the 2.68% total return
for the Average open-end corporate debt A-rated fund. Footnote below
reads: "The total return for John Hancock Income Securities Trust is at
net asset value with all distributions reinvested. The average open-end
corporate debt A-rated fund is tracked by Lipper Analytical Services."
Issues such as these are compelling to own because no corporation's
credit rating is allowed to be higher than that of its home country's
government bonds. Consequently, the better creditworthiness of many
emerging-market corporate debt securities is often masked.
Three industry sectors stand out
The Fund's portfolio is broadly diversified with roughly 200 securities
representing nearly 20 industry sectors. Media, financial services and
utility companies are three areas we have emphasized over the period.
The deregulation and consolidation that is taking place in the media
sector has created numerous opportunities for debt issuers to receive
credit upgrades. TCI Communications, Inc. is one holding that has
performed extremely well.
Deregulation is also a theme in the utility industry. Many companies
with below investment-grade ratings are being acquired by more
financially sound firms. Long Island Lighting is in the process of being
purchased by investment-grade rated Brooklyn Union Gas. The bonds issued
by Long Island Lighting have enjoyed substantial price appreciation in
anticipation of that event.
Three types of financial securities have also helped the Fund: Yankee
bonds, surplus notes and bank capital notes. Yankee bonds are dollar-
denominated high-quality foreign bank securities issued in the Unites
States; surplus notes are highly-rated debt issued by insurance
companies and bank capital notes are junior subordinated debt of a bank
that is carried on balance sheets as equity, yet interest is deductible.
These securities have not been widely followed by analysts, either
because they are fairly new to the market or misunderstood. By
conducting extensive research, we understood their potential early on
and the Fund benefited when the market began to recognize it.
"...the Fed
may raise
interest rates
before year's
end."
Outlook: optimistic yet cautious
Market conditions appear more favorable now than when the fiscal year
began. Although we are optimistic, we fully realize that with strong
labor numbers and high consumer confidence, inflation worries will
likely remain and the Fed may raise interest rates before year's end.
Our plan is to keep the Fund's duration relatively similar to its
benchmark for the near term and closely monitor upcoming economic
reports for signals that would encourage us to shorten duration once
again. Selectivity will continue to be emphasized in terms of credit
quality and valuation.
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.
John Hancock Funds - Income Securities Trust
FINANCIAL STATEMENTS
<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 June 30, 1997.
You'll also find the net asset value and the maximum offering price per
share as of that date.
Statement of Assets and Liabilities
June 30, 1997 (Unaudited)
- -------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Publicly traded bonds (cost - $157,787,023) $ 158,875,659
Joint repurchase agreement (cost - $5,160,000) 5,160,000
Corporate savings account 708
----------------
164,036,367
Receivable for investments sold 5,450,328
Interest receivable 3,240,530
Receivable for futures variation margin - Note A 1,125
Other assets 6,025
----------------
Total Assets 172,734,375
- -------------------------------------------------------------------------
Liabilities:
Payable for investments purchased 2,784,251
Dividend payable 404,425
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 326,277
Accounts payable and accrued expenses 32,989
----------------
Total Liabilities 3,547,942
- -------------------------------------------------------------------------
Net Assets:
Capital paid-in 168,303,390
Accumulated net realized loss on investments and
financial futures contracts ( 288,401)
Net unrealized appreciation of investments and
financial futures contracts 1,085,549
Undistributed net investment income 85,895
----------------
Net Assets $ 169,186,433
=========================================================================
Net Asset Value Per Share:
(Based on 10,459,219 shares of beneficial
interest outstanding - 30 million shares
authorized with no par value) $ 16.18
=========================================================================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
The Statement of Operations summarizes the Fund's investment income earned
and expenses incurred in operating the Fund. It also shows net gains
(losses) for the period stated.
Statement of Operations
Six months ended June 30, 1997 (Unaudited)
- -------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest $ 7,028,712
----------------
Expenses:
Investment management fee - Note B 517,394
Transfer agent fee - Note B 57,333
Printing 39,411
Custodian fee 29,649
Auditing fee 18,956
Financial services fee - Note B 15,670
New York Stock Exchange fee 12,363
Trustees' fees 6,888
Miscellaneous 2,815
Legal fees 2,135
----------------
Total Expenses 702,614
- -------------------------------------------------------------------------
Net Investment Income 6,326,098
- -------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts:
Net realized loss on investments sold ( 20,856)
Net realized loss on financial futures contracts ( 15,513)
Change in net unrealized appreciation/depreciation
of investments ( 175,014)
Change in net unrealized appreciation/depreciation
of financial futures contracts ( 4,312)
----------------
Net Realized and Unrealized
Loss on Investments and
Financial Futures Contracts ( 215,695)
- -------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $ 6,110,403
=========================================================================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30, 1997
1996 (UNAUDITED)
------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $ 12,617,557 $ 6,326,098
Net realized gain (loss) on investments sold and financial futures contracts 342,684 ( 36,369)
Change in net unrealized appreciation/depreciation of investments and financial
futures contracts (5,805,120) ( 179,326)
------------ ------------
Net Increase in Net Assets Resulting from Operations 7,155,121 6,110,403
------------ ------------
Distributions to Shareholders:
Dividends from net investment income ($1.2175 and $0.6025 per share, respectively) ( 12,614,747) ( 6,293,322)
------------ ------------
From Fund Share Transactions - Net*:
(Market value of shares issued in reinvestment of distributions) 1,688,062 408,584
------------ ------------
Net Assets:
Beginning of period 172,732,332 168,960,768
------------ ------------
End of period (including undistributed net investment income of $53,119 and $85,895,
respectively) $168,960,768 $169,186,433
============ ============
* Analysis of Fund Share Transactions:
Shares outstanding, beginning of period 10,319,398 10,431,824
Shares issued to shareholders in reinvestment of distributions 112,426 27,395
------------ ------------
Shares outstanding, end of period 10,431,824 10,459,219
============ ============
The Statement of Changes in Net Assets shows how the value of the Fund's net assets has changed since the end of the
previous period. The difference reflects earnings less expenses, any investment gains and losses, distributions paid to
shareholders, and any increase due to reinvestment of distributions in the Fund. The footnote illustrates the number of
Fund shares outstanding at the beginning of the period, reinvested and outstanding at the end of the period, for the
last two periods.
See notes to financial statements.
</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:
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
--------------------------------------------------------- JUNE 30, 1997
1992 1993 1994 1995 1996 (UNAUDITED)
--------- --------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 16.25 $ 16.31 $ 16.97 $ 15.10 $ 16.74 $ 16.20
--------- --------- --------- --------- -------- ---------
Net Investment Income 1.37 1.31 1.28 1.26 1.22 0.60
Net Realized and Unrealized Gain (Loss)
on Investments and Financial Futures Contracts 0.07 0.80 ( 1.79) 1.64 ( 0.54) ( 0.02)
--------- --------- --------- --------- -------- ---------
Total from Investment Operations 1.44 2.11 ( 0.51) 2.90 0.68 0.58
--------- --------- --------- --------- -------- ---------
Less Distributions:
Dividends from Net Investment Income ( 1.38) ( 1.32) ( 1.28) ( 1.26) ( 1.22) ( 0.60)
Distributions from Net Realized Gain on
Investments Sold and Financial Futures
Contracts -- ( 0.13) ( 0.08) -- -- --
--------- --------- --------- --------- -------- ---------
Total Distributions ( 1.38) ( 1.45) ( 1.36) ( 1.26) ( 1.22) ( 0.60)
--------- --------- --------- --------- -------- ---------
Net Asset Value, End of Period $ 16.31 $ 16.97 $ 15.10 $ 16.74 $ 16.20 $ 16.18
========= ========= ========= ========= ========= =========
Per Share Market Value, End of Period $ 16.750 $ 16.500 $ 13.750 $ 15.750 $ 14.875 $ 15.250
Total Investment Return at Market Value 7.16% 7.22% ( 8.70%) 24.11% 2.34% 6.66%(1)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $162,468 $170,988 $154,116 $172,732 $168,961 $169,186
Ratio of Expenses to Average Net Assets 0.81% 0.84% 0.87% 0.84% 0.84% 0.84%(2)
Ratio of Net Investment Income to Average
Net Assets 8.46% 7.67% 8.03% 7.77% 7.50% 7.55%(2)
Portfolio Turnover Rate 111% 95% 82% 105% 117% 67%
(1) Not Annualized.
(2) 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
June 30, 1997 (Unaudited)
- -------------------------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by Income Securities Trust on June 30, 1997.
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 (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PUBLICLY TRADED BONDS
Aerospace (0.38%)
Jet Equipment Trust,
Equipment Trust Cert Ser 95B2 08-15-14 (R) 10.910% BBB- $ 550 $ 640,640
------------
Banks (9.64%)
Abbey National First Capital, B.V.,
Sub Note (United Kingdom) 10-15-04, (Y) 8.200 AA- 1,000 1,065,430
ABN-Amro Bank N.V. - Chicago Branch,
Gtd Sub Deb (Netherlands) 05-31-05, (Y) 7.250 AA- 500 506,475
African Development Bank,
Sub Note (Supra National) 12-15-03, (Y) 9.750 AA- 1,000 1,153,000
Bank of New York,
Cap Security 12-01-26 (R) 7.780 A- 595 573,431
Banque National de Paris - New York Branch,
Sub Note (France) 01-15-07, (Y) 7.200 A 540 536,814
Barclays North American Capital Corp.,
Gtd Cap Note 05-15-21 9.750 AA- 900 1,004,157
Dao Heng Bank Ltd.,
Sub Note (Hong Kong) 01-24-07 (R), (Y) 7.750 BBB 520 521,399
Humpuss Funding Corp.,
Gtd Note 12-15-09 (R) 7.720 Baa2 547 542,376
Landeskreditbank Baden - Wuerttemberg,
Sub Note (Germany) 02-01-23, (Y) 7.625 AAA 2,500 2,605,525
National Westminster Bank PLC - New York Branch,
Sub Note 05-01-01 9.450 AA- 1,250 1,363,488
Scotland International Finance No. 2 B.V.,
Gtd Sub Note (United Kingdom) 11-01-06 (R), (Y) 8.850 A+ 750 835,195
Scotland International Finance No. 2, B.V.,
Gtd Sub Note (Netherlands) 01-27-04 (R), (Y) 8.800 A 2,000 2,180,780
Security Pacific Corp.,
Medium Term Sub Note 04-26-01 10.500 A 1,500 1,683,840
Sub Note 11-15-00 11.500 A 1,000 1,140,590
State Street Institutional Capital B,
Cap Security 02-28-27 (R) 8.035 A 590 591,475
------------
16,303,975
------------
Chemicals (0.54%)
OPP Petroquimica S.A., (Brazil),
Bond (Brazil) 10-29-04 (R), (Y) 11.000 BB- 565 588,306
Sociedad Quimica y Minera de Chile S.A.,
Loan Part Ctf (Chile) 09-15-06 (R), (Y) 7.700 BBB+ 320 324,000
------------
912,306
------------
Containers (0.39%)
Stone Container Corp.,
Unit (Sr Sub Deb & Supplemental Interest Cert)
04-01-02 10.750 B- 650 663,000
------------
Cosmetics & Personal Care (0.42%)
Johnson & Johnson,
Deb 11-15-23 6.730 AAA 750 706,005
------------
Energy (1.16%)
AES China Generating Co. Ltd.,
Note (China) 12-15-06, (Y) 10.125 BB- 295 311,225
AES Corp.,
Sr Sub Note 06-15-00 9.750 B+ 660 681,450
Sr Sub Note 07-15-06 10.250 B+ 450 489,375
CalEnergy Co. Inc.,
Sr Note 09-15-06 9.500 BB- 450 479,444
------------
1,961,494
------------
Finance (12.51%)
APP Finance II Mauritius Ltd.,
Bond (Indonesia) 02-15-04 (R), (Y) 12.000 B+ 600 612,000
Banc One Credit Card Master Trust,
Asset Backed Ctf Ser 1994-B Class A 12-15-99 7.550 AAA 1,000 1,006,250
British Telecom Finance, Inc.,
Gtd Deb (United Kingdom) 02-15-19, (Y) 9.625 AAA 1,120 1,222,808
BVPS II Funding Corp.,
Collateralized Lease Bond 06-01-17 8.890 BB+ 700 703,500
CIT Group Holdings, Inc.,
Deb 03-15-01 9.250 A 1,000 1,085,170
Constitution Capital Trust I,
Cap Security 04-15-27 (R) 9.150 BBB 420 421,079
ContiFinancial Corp.,
Sr Note 08-15-03 8.375 BB+ 400 408,500
CS First Boston,
Sub Note 05-15-06 (R) 7.750 AA- 500 517,445
CSW Investments,
Sr Note (United Kingdom) 08-01-06 (R), (Y) 7.450 A- 450 452,651
DSPL Finance Co. B.V.,
Gtd Sr Sec Note (Netherlands) 12-30-10 (R), (Y) 9.120 BBB 500 513,125
EIP Funding-PNM,
Sec Fac Bond 10-01-12 10.250 Ba2 725 792,005
Green Tree Home Improvement Loan Trust,
Pass Thru Ctf Ser 1995-D Class M-1 09-15-25 6.950 Aa2 650 647,563
Pass Thru Ctf Ser 1996-F Class HI: A3 10-15-26 6.750 AAA 312 306,911
Pass Thru Ctf Ser 1997-A Class HI: A3 08-15-23 7.050 AAA 595 597,416
Greenpoint Capital Trust I,
Cap Security 06-01-27 (R) 9.100 BB 365 366,387
IMC Home Equity Loan Trust,
Pass Thru Ctf Ser 1996-1 Class A-5 12-25-13 6.290 AAA 720 706,725
MBNA Master Credit Card Trust,
Ser 1995-D Class A 11-15-02 6.050 AAA 1,585 1,568,151
Merrill Lynch Mortgage Investors, Inc.,
Sub Bond Ser 1992-B Class B 03-15-12 8.500 Aaa 365 373,478
Midland American Capital Corp.,
Gtd Deb 11-15-03 12.750 A 1,500 1,622,175
Midland Cogeneration Venture L.P.,
Sec Deb Ser C-91 07-23-02 10.330 BB 1,186 1,269,035
Midland Funding Corp. II,
Deb 07-23-05 11.750 B 300 349,191
Deb Ser B 07-23-06 13.250 B 225 273,929
Polytama International Finance B.V.,
Gtd Sec Note (Indonesia) 06-15-07, (Y) 11.250 B+ 510 522,910
Santander Financial Issuances Ltd.,
Gtd Sub Note (Spain) 04-15-05, (Y) 7.875 A+ 650 676,137
Standard Credit Card Master Trust,
Credit Card Part Ctf Ser 1995-10 Class A 02-07-01 5.900 AAA 500 497,500
Termoemcali Funding Corp.,
Sr Sec Note 12-15-14 (R) 10.125 BBB- 370 401,450
Trump Hotels & Casino Resorts Funding, Inc./Holdings,
L.P., Sr Sec Note 06-15-05 15.500 B+ 550 638,000
UCFC Home Equity Loan Trust,
Pass Thru Ctf Ser 1996-D1 Class A6 02-15-25 7.180 AAA 710 708,669
United Companies Financial Corp.,
Sr Note 07-15-04 7.700 BBB- 600 591,486
Viasystems Inc.,
Sr Sub Note 06-01-07 (R) 9.750 B- 300 303,282
Wharf International Finance Ltd.,
Gtd Note (Cayman Islands) 03-13-07 (R), (Y) 7.625 A 500 497,770
Yanacocha Receivables Master Trust,
Pass Thru Cert Ser 1997-A (Mexico) 06-15-05 (R), (Y) 8.400 BBB- 502 513,295
------------
21,165,993
------------
Food (0.15%)
Arisco Produtos Alimenticios S.A.,
Bond (Brazil) 05-22-05 (R), (Y) 10.750 NR 250 255,625
------------
Funeral Services & Related (0.45%)
Loewen Group International, Inc.,
Gtd Sr Note 10-15-03 8.250 BB+ 740 764,975
------------
Glass Products (0.29%)
Vicap, S.A. de C.V.,
Gtd Sr Note (Mexico) 05-15-07 (R), (Y) 11.375 B+ 470 490,915
------------
Government - Foreign (3.03%)
City of Moscow (Russia),
Note (Russia) 05-31-00 (R), (Y) 9.500 NR 595 601,694
Croatia, Republic of,
Sr Note (Croatia) 02-27-02 (R), (Y) 7.000 BBB- 520 506,314
Nova Scotia, Province of,
Deb (Canada) 04-01-22, (Y) 8.750 A- 750 854,498
Ontario, Province of,
Bond (Canada) 06-04-02, (Y) 7.750 AA- 500 522,435
Deb (Canada) 08-31-12, (Y) 15.250 AA- 350 375,522
Petroleos Mexicanos,
Gtd Note (Mexico) 06-01-07 (R), (Y) 9.000 NR 625 635,156
Quebec, Province of,
Deb (Canada) 10-01-13, (Y) 13.000 A+ 500 562,455
Republic of Panama,
Note (Panama) 02-13-02 (R), (Y) 7.875 BB+ 495 492,525
Saskatchewan, Province of,
Bond (Canada) 12-15-20, (Y) 9.375 A- 480 581,587
------------
5,132,186
------------
Government - U.S. (18.35%)
United States Treasury,
Bond 08-15-05 10.750 AAA 885 1,116,206
Bond 08-15-17 8.875 AAA 1,741 2,120,486
Bond 05-15-18 9.125 AAA 2,250 2,810,048
Bond 02-15-23 + 7.125 AAA 9,445 9,728,350
Note 04-15-98 7.875 AAA 1,000 1,016,250
Note 02-15-99 8.875 AAA 5,725 5,973,694
Note 11-30-99 7.750 AAA 2,665 2,757,849
Note 05-15-01 8.000 AAA 1,326 1,400,588
Note 05-15-02 7.500 AAA 2,856 2,988,547
Note 02-15-05 7.500 AAA 1,073 1,135,363
------------
31,047,381
------------
Government - U.S. Agencies (8.83%)
Federal Home Loan Mortgage Corp.,
20 Yr Pass Thru Ctf 01-01-16 11.250 AAA 520 581,377
Federal National Mortgage Assn.,
15 Yr SF Pass Thru Ctf 01-25-05 8.000 AAA 1,000 1,029,060
15 Yr SF Pass Thru Ctf 02-01-08 7.500 AAA 549 558,006
15 Yr SF Pass Thru Ctf 06-01-10 7.000 AAA 995 992,821
30 Yr SF Pass Thru Ctf 10-01-23 7.000 AAA 784 772,460
Financing Corp.,
Bond 02-08-18 9.400 AAA 2,000 2,497,500
Government National Mortgage Assn.,
30 Yr SF Pass Thru Ctf 11-15-19 9.500 AAA 6 6,409
30 Yr SF Pass Thru Ctf 11-15-20 10.000 AAA 405 446,451
30 Yr SF Pass Thru Ctf 04-15-21 9.000 AAA 528 564,285
30 Yr SF Pass Thru Ctf 01-15-21 to 02-15-25 9.500 AAA 1,279 1,383,654
30 Yr SF Pass Thru Ctf 01-15-23 to 03-15-23 8.500 AAA 1,470 1,537,286
30 Yr SF Pass Thru Ctf 02-15-24 to 02-15-26 7.500 AAA 2,546 2,555,671
30 Yr SF Pass Thru Ctf 01-01-25 8.000 AAA 925 946,386
Tennessee Valley Authority,
Power Bonds 1989 Ser G 11-15-29 8.625 AAA 1,000 1,070,400
------------
14,941,766
------------
Insurance (4.74%)
Conseco, Inc.,
Sr Note 12-15-04 10.500 BBB 740 868,094
Equitable Life Assurance Society of the United States,
Surplus Note 12-01-05 (R) 6.950 A 550 544,844
Fairfax Financial Holdings Ltd.,
Note 04-15-26 8.300 BBB+ 695 721,396
Liberty Mutual Insurance Co.,
Surplus Note 05-04-07 (R) 8.200 A+ 1,100 1,171,731
Surplus Note 10-15-26 (R) 7.875 A+ 435 434,043
Massachusetts Mutual Life Insurance Co.,
Surplus Note 11-15-23 (R) 7.625 AA 1,145 1,139,023
NAC Re Corp.,
Note 06-15-99 8.000 A- 370 380,157
New York Life Insurance Co.,
Surplus Note 12-15-23 (R) 7.500 AA- 1,500 1,414,425
Sun Canada Financial Co.,
Gtd Sub Note 12-15-07 (R) 6.625 AA 725 689,700
URC Holdings Corp.,
Sr Note 06-20-06 (R) 7.875 A- 640 660,608
------------
8,024,021
------------
Leisure (0.45%)
Mohegan Tribal Gaming Authority,
Sr Sec Note Ser B 11-15-02 13.500 BB+ 150 196,500
Showboat Marina Casino Partnership/Finance Corp.,
1st Mtg Note Ser B 03-15-03 13.500 B 500 572,500
------------
769,000
------------
Media (5.44%)
Azteca Holdings S.A.,
Sr Note (Mexico) 06-15-02 (R), (Y) 11.000 B- 190 194,038
Century Communications Corp.,
Sr Note 08-15-00 9.500 BB- 280 289,800
Comcast Corp.,
Sr Sub Deb 07-15-12 10.625 BB+ 605 713,900
Continental Cablevision, Inc.,
Sr Sub Deb 06-01-07 11.000 BBB 1,210 1,360,585
Le Groupe Videotron Ltee,
Sr Note (Canada) 02-15-05, (Y) 10.625 BB+ 250 278,750
News America Holdings Inc.,
Gtd Sr Deb 08-10-18 8.250 BBB 765 771,564
Sr Note 10-15-99 9.125 BBB 1,000 1,054,240
Rogers Cablesystems Ltd.,
Sr Note Ser B (Canada) 03-15-05, (Y) 10.000 BB+ 800 864,000
SFX Broadcasting, Inc.,
Sr Sub Note Ser B 05-15-06 10.750 B- 495 534,600
TeleWest Communications PLC,
Sr Deb (United Kingdom) 10-01-06, (Y) 9.625 B+ 380 391,400
Time Warner, Inc.,
Deb 01-15-13 9.125 BBB- 585 646,846
TKR Cable I, Inc.,
Sr Deb 10-30-07 10.500 BBB- 1,555 1,714,932
Viacom Inc.,
Sr Note 06-01-05 7.750 BB+ 388 385,063
------------
9,199,718
------------
Medical (0.44%)
Quest Diagnostics, Inc.,
Sr Sub Note 12-15-06 10.750 B+ 355 386,063
Tenet Healthcare Corp.,
Sr Sub Note 01-15-07 8.625 B+ 355 362,100
------------
748,163
------------
Mortgage Banking (0.84%)
Deutsche Financial Capital 1997-1,
Note 09-15-27 7.100 NR 920 914,250
TriNet Corporate Realty Trust, Inc.,
Note 05-15-01 7.300 BBB- 500 505,000
------------
1,419,250
------------
Oil & Gas (2.96%)
Ashland Oil, Inc.,
SF Deb 10-15-17 11.125 BBB 1,000 1,067,560
Camuzzi Gas Pampeana S.A.,
Note 12-15-01 9.250 BBB- 328 341,940
Enserch Exploration, Inc.,
Pass Thru Ctf 01-02-09 (R) 7.540 NR 530 524,795
Maxus Energy Corp.,
Deb 05-01-13 11.250 BBB- 229 237,015
Norsk Hydro ASA,
Deb (Norway) 10-01-16, (Y) 7.500 A 720 727,934
Occidental Petroleum Corp.,
Sr Deb 09-15-09 10.125 BBB 600 731,904
Petroliam Nasional Berhad,
Bond (Malaysia) 10-15-26 (R), (Y) 7.625 A+ 600 599,196
Transgas de Occidenta S.A.,
Sr Note (Colombia) 11-01-10 (R), (Y) 9.790 BBB- 737 779,263
------------
5,009,607
------------
Paper & Paper Products (1.60%)
Copamex Industrias, S.A. de C.V.,
Bond (Mexico) 04-30-04 (R), (Y) 11.375 BB 440 473,550
Georgia Pacific Corp.,
Deb 01-15-18 9.750 BBB- 685 714,976
Deb 02-15-18 9.500 BBB- 450 468,995
Indah Kiat International Finance Co.,
Gtd Sec Bond Ser C (Indonesia) 06-15-06, (Y) 12.500 BB 505 571,913
S.D. Warren Co.,
Sr Sub Note 12-15-04 12.000 B+ 432 479,520
------------
2,708,954
------------
Retail (2.02%)
Kroger Co. (The),
Lease Ctf 02-01-09 12.950 BBB- 1,910 2,122,965
May Department Stores Co. (The),
Deb 06-15-18 10.750 A 254 266,799
Safeway Inc.,
Deb 01-15-09 13.500 BBB 474 527,222
Supermercados Norte,
Bond (Argentina) 02-09-04 (R), (Y) 10.875 NR 490 502,250
------------
3,419,236
------------
Steel (0.80%)
CSN Iron, S.A.,
Gtd Note (Panama) 06-01-07 (R), (Y) 9.125 NR 500 485,938
IVACO Inc.,
Sr Note (Canada) 09-15-05, (Y) 11.500 B+ 320 343,200
NS Group, Inc.,
Unit (Sr Sec Note & Warrant) 07-15-03 13.500 B- 310 368,900
Weirton Steel Corp.,
Sr Note 03-01-98 11.500 B 149 152,725
------------
1,350,763
------------
Telecommunications (1.91%)
Impsat Corp.,
Gtd Sr Sec Note (Argentina) 07-15-03, (Y) 12.125 BB- 353 378,593
Jasmine Submarine,
Gtd Sr Note 05-30-11 (R) 8.483 Baa1 520 521,316
NEXTEL Communications, Inc.,
Note 09-01-03 11.500 CCC- 700 605,500
Paging Network, Inc.,
Sr Sub Note (Brazil) 10-15-08, (Y) 10.000 B 495 480,769
Qwest Communications International Inc.,
Senior Notes 04-01-07 (R) 10.875 B2 465 504,525
TCI Communications, Inc.,
Sr Deb 08-01-15 8.750 BBB- 708 742,055
------------
3,232,758
------------
Tobacco (0.50%)
RJR Nabisco, Inc.,
Note 12-01-02 8.625 BBB- 455 467,708
Note 09-15-03 7.625 BBB- 375 369,360
------------
837,068
------------
Transport (4.65%)
America West Airlines,
Pass Thru Ctf Ser B 07-02-09 6.930 A- 535 528,313
Continental Airlines,
Pass Thru Ctf Ser 96-C 04-15-15 9.500 BBB 490 551,279
Greater Beijing First Expressways Ltd.,
Sr Note (China) 06-15-04 (R), (Y) 9.250 NR 470 474,700
Northwest Airlines Inc.,
Gtd Note 03-15-04 8.375 BB- 800 813,200
Pass Thru Ctf Ser 1996-1C 01-02-05 10.150 BB+ 325 344,680
Pass Thru Ctf Ser 1996-1D 07-02-16 8.970 BBB- 395 430,205
NWA Trust,
Sr Note Ser A 06-21-14 9.250 AA 594 670,383
Rail Car Trust,
Pass Thru Ser 1992-1 Class A 06-01-04 7.750 AAA 1,521 1,576,843
Scandinavian Airlines System,
Deb (Multinational) 07-20-99, (Y) 9.125 A3 700 733,688
Sea-Land Service, Inc.,
Gtd Deb Ser A 01-02-11 10.600 BBB 1,000 1,058,760
USAir, Inc.,
Pass Thru Ctf Ser 1990-A1 03-19-05 11.200 BB+ 640 676,713
------------
7,858,764
------------
Utilities (11.42%)
Calpine Corp.,
Sr Note 05-15-06 10.500 B+ 465 502,200
CE Casecnan Water & Energy Co., Inc.,
Sr Note Ser A (Philippine Islands) 11-15-05, (Y) 11.450 BB 400 444,000
Chugach Electric Association, Inc.,
1St Mtg 1991 Ser A 03-15-22 9.140 A 2,000 2,238,360
Cleveland Electric Illuminating Co. & Toledo
Edison Co., Sec Note Ser A 07-01-04 (R) 7.670 BB+ 585 590,850
Cleveland Electric Illuminating Co.,
1st Mtg Ser B 05-15-05 9.500 BB 1,090 1,172,458
Compania Paranaense de Energy,
Note (Brazil) 05-02-05 (R), (Y) 9.750 BB- 260 269,100
Enersis S.A.,
Note (Chile) 12-01-16, (Y) 7.400 A- 825 799,367
Entergy Louisiana, Inc.,
Sec Lease Oblig Bond 01-02-17 8.090 NR 510 511,275
Fideicomiso Petacalco Trust,
Sr Sec Note (Mexico) 12-23-09 (R), (Y) 10.160 BB 470 487,038
First PV Funding Corp.,
Deb Ser 86A 01-15-14 10.300 BB- 219 230,949
Deb Ser 86B 01-15-16 10.150 BB- 719 757,848
GTE Corp.,
Deb 11-15-17 10.300 A 500 531,480
Deb 11-01-20 10.250 A 1,500 1,694,685
Hydro-Quebec,
Gtd Bond (Canada) 02-01-21, (Y) 9.400 A+ 900 1,067,886
Gtd Deb Ser IF (Canada) 02-01-03, (Y) 7.375 A+ 750 763,695
Iberdrola International B.V.,
Note (Spain) 10-01-02, (Y) 7.500 AA- 2,000 2,057,360
Long Island Lighting Co.,
Deb 07-15-19 8.900 BB+ 195 203,243
Gen Ref Mtg 05-01-21 9.750 BBB- 920 932,365
Gen Ref Mtg 07-01-24 9.625 BBB- 1,055 1,081,375
Louisiana Power & Light,
Lt Corporate Bonds 01-02-17 10.670 BBB- 1,350 1,437,831
Puget Sound Energy, Inc.,
Jr Sub Deb 06-01-27 (R) 8.231 BBB 330 334,950
System Energy Resources, Inc.,
1st Mtg 08-01-01 7.710 BBB- 615 628,838
Tenaga Nasional Berhad,
Note (Malaysia) 06-15-04 (R), (Y) 7.875 A+ 550 574,943
------------
19,312,096
------------
TOTAL PUBLICLY TRADED BONDS
(Cost $157,787,023) (93.91%) 158,875,659
------------ ------------
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
PAR VALUE
INTEREST (000s MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- ---------- ---------- ----------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (3.05%)
Investment in a joint repurchase agreement transaction
with Toronto Dominion Securities, Ltd., Dated 06-30-97,
Due 07--01-97 (secured by U.S. Treasury Notes, 5.625%
thru 8.125%, Due 07-31-97 thru 11-15-04) -- Note A 5.970% $ 5,160 $ 5,160,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company Daily Interest Savings
Account Current Rate 4.95% 708
------------
TOTAL SHORT-TERM INVESTMENTS ( 3.05%) 5,160,708
------------ ------------
TOTAL INVESTMENTS ( 96.96%) $164,036,367
============ ============
NOTES TO THE SCHEDULE OF INVESTMENTS
(R) These securities are exempt from registration under rule 144A of the Securities Act of 1933. Such
securities may be resold, normally to qualified institutional buyers, in transactions exempt from
registration. Rule 144A securities amounted to $27,749,141 or 16.40% of net assets as of June 30, 1997.
(Y) Parenthetical disclosure of a foreign country in the security description represents country of foreign
issuer; however, security is U.S. dollar denominated.
+ A portion of this United States Treasury Bond with a value of $5,150 owned by the Fund was designated as
margin deposits for futures contracts as of June 30, 1997.
* Credit ratings are unaudited and rated by Moody's Investors Services or John Hancock Advisers, Inc. where
Standard & Poor's ratings are not available.
The percentage shown for each investment category is the total value of that category as a percentage of the
net assets of the Fund.
See notes to financial statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Income Securities Trust (the "Fund") is a closed-end
investment management company registered under the Investment Company
Act of 1940. Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued
on the basis of market quotations, valuations provided by independent
pricing services or at fair value as determined in good faith in
accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost which
approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with John
Hancock Advisers, Inc. (the "Adviser"), a wholly owned subsidiary of The
Berkeley Financial Group, may participate in a joint repurchase
agreement transaction. Aggregate cash balances are invested in one or
more repurchase agreements whose underlying securities are obligations
of the U.S. government and/or its agencies. The Fund's custodian bank
receives delivery of the underlying securities for the joint account on
the Fund's behalf. The Adviser is responsible for ensuring that the
agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the
date of purchase, sale or maturity. Net realized gains and losses on
sales of investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the
requirements of the Internal Revenue Code that are applicable to
regulated investment companies and to distribute all of its taxable
income, including any net realized gain on investment, to its
shareholders. Therefore, no federal income tax provision is required.
For federal income tax purposes, the Fund has $52,353 of a capital loss
carryforward available, to the extent provided by regulations, to offset
future net realized capital gains. To the extent that such carryforward
is used by the Fund, no capital gains distributions will be made. The
carryforward expires on December 31, 2004.
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.
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.
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
and other market conditions. Buying futures tends to increase the Fund's
exposure to the underlying instrument. Selling futures tends to decrease
the Fund's exposure to the underlying instrument or hedge other Fund
instruments. At the time the Fund enters into a financial futures
contract, it will be 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 future
contracts being traded. Each day, the futures contract is valued at the
official settlement price of the board of trade or U.S. commodities
exchange on which it trades. 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 fluctuations 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.
At June 30, 1997, open positions in financial futures contracts were as
follows:
UNREALIZED
EXPIRATION OPEN CONTRACTS POSITION DEPRECIATION
- ---------- -------------------- ---------- ---------------
SEP 97 2 U.S. TREASURY NOTE SHORT ($4,312)
======
At June 30, 1997, the Fund has deposited in a segregated account $5,000
par value of U.S. Treasury Bond, 7.125% due 02-15-23, 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.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the
period was at an annual rate of 0.01875% of the average net assets of
the Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione are trustees 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. 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 June 30, 1997, the Fund's investment
to cover the deferred compensation had unrealized appreciation of
$1,225.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations
of the U.S. government and its agencies and short-term securities,
during the period ended June 30, 1997 aggregated $55,625,058 and
$62,237,213, respectively. Purchases and proceeds from sales of
obligations of the U.S. government and its agencies aggregated
$50,023,524 and $44,636,285, respectively.
The cost of investments owned at June 30, 1997 (excluding the corporate
savings account) for federal income tax purposes was $162,947,023. Gross
unrealized appreciation and depreciation of investments at June 30, 1997
aggregated $3,553,090 and $2,464,454, respectively, resulting in net
unrealized appreciation of $1,088,636.
DIVIDENDS AND DISTRIBUTIONS
During 1997, dividends from net investment income totaling $0.6025 per
share was paid to shareholders. The dates of payment and the amounts per
share are as follows:
INCOME
PAYMENT DATE DIVIDEND
-------------- ----------
March 31, 1997 $0.3025
June 30, 1997 $0.3000
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.
The Fund will invest primarily in debt securities that have at the time
of purchase an investment-grade rating by Standard & Poor's Corporation
(S&P) or Moody's Investors Service, Inc. (Moody's) or are unrated debt
securities of comparable investment quality. The Fund may invest up to
25% of the value of its total assets in debt securities that at the time
of purchase have a rating below BBB by S&P or below Baa by Moody's
which may be rated as low as CC/Ca (junk bonds) and unrated debt
securities of comparable investment quality. If any debt security is
rated differently by Moody's and S&P, the security will be classified by
the Adviser as belonging in the higher group. The Fund is not obligated
to dispose of securities whose securities are subsequently in default or
that are down-graded below the above-stated ratings.
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.
SHAREHOLDER MEETING
On April 23, 1997, 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 8,137,885 131,602
Edward J. Boudreau, Jr. 8,141,435 128,053
Richard P. Chapman, Jr. 8,144,927 124,560
William J. Cosgrove 8,144,584 124,903
Douglas M. Costle 8,124,539 144,949
Leland O. Erdahl 8,121,314 148,173
Richard A. Farrell 8,148,134 121,354
Gail D. Fosler 8,123,895 145,592
William F. Glavin 8,124,967 144,520
Anne C. Hodsdon 8,142,670 126,817
Dr. John A. Moore 8,126,029 143,458
Patti McGill Peterson 8,124,316 145,171
John W. Pratt 8,143,153 126,334
Richard S. Scipione 8,142,745 126,743
Edward J. Spellman 8,147,939 121,548
The Shareholders also ratified the Trustees' selection of Ernst & Young
LLP as auditor for the fiscal year ending December 31, 1997, with the
votes tabulated as follows: 8,110,191 FOR, 36,107 AGAINST and 123,190
ABSTAINING.
A 1/2" x 1/2" John Hancock Funds logo in upper left hand corner of the
page. A box sectioned in quadrants with a triangle in upper left, a
circle in upper right, a cube in lower left and a diamond in lower
right. A tag line below reads "A Global Investment Management Firm."
101 Huntington Avenue, Boston, MA 02199-7603
1-800-843-0090
Internet: www.jhancock.com/funds
Bulk Rate
U.S. Postage
PAID
S. Hackensack, NJ
Permit No. 750
[RECYCLE LOGO]
A recycled logo in lower left hand corner with caption "Printed on
Recycled Paper."
P60SA 6/97
8/97
