John Hancock Funds
Income
Securities
Trust
ANNUAL REPORT
December 31, 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 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
89 South Street
Boston, Massachusetts 02111
TRANSFER AGENT and REGISTRAR
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
INDEPENDENT AUDITOR
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116-5072
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:
Most analysts agree that the Social Security system will run out of
money by the year 2030 unless Congress makes some changes. Although it
seems a long way off, the issue is serious enough that at least one
group has already studied the problem, and experts and politicians alike
have weighed in with a slew of prescriptions. Legislative action could
be in the offing in 1997.
The problem stems from demographic and societal changes. The number
of retirees collecting Social Security is growing rapidly, while the
number of workers supporting the system is shrinking. Consider this: in
1950, there were 16 workers paying into the Social Security system for
each retiree collecting benefits. Today, there are three workers for
each retiree and by 2019 there will be two. Starting then, the Social
Security Administration estimates that the amount paid out in Social
Security benefits will start to be greater than the amount collected in
Social Security taxes. Compounding the issue is the fact that people are
retiring earlier and living longer.
The state of the system has already left many people, especially younger
and middle-aged workers, feeling insecure about Social Security. A
recent survey by the Employee Benefits Research Institute (EBRI) found
that 79% of current workers polled had little confidence in the ability
of Social Security to maintain the same level of benefits as those
received by today's retirees. Instead, they said they expect to use
their own savings or employer-sponsored pensions for their retirement.
Yet, remarkably, another EBRI survey revealed that only slightly more
than half of America's current workers are saving money for retirement.
Fewer than half own IRAs or participate in employer-sponsored pension or
savings plans.
No matter how Social Security's problems get solved, one thing is clear.
Americans need to rely on themselves for accumulating the bulk of their
retirement savings. There's no law that says you should have to reduce
your standard of living once you stop working. So we encourage you to
save all that you can now, so you can live the way you'd like to later.
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
Conflicting economic data and inflation fears
produce lackluster returns
It was a disappointing year for bond investors. Coming off a spectacular
1995, with the economic climate promising more of the same in 1996,
bondholders were brought up short in the spring. That's when signs of a
faster-growing economy sparked inflation fears and rising interest
rates, which caused bond prices to go down, since they move in the
opposite direction of rates. It soon became clear that the Federal
Reserve, which had only just cut short-term interest rates in January to
boost a sagging economy, would make no further rate cuts.
A 2 1/4" x 3 1/2" photo of the Fund's management team at bottom of page.
Caption reads: "Jim Ho (seated) and Income Securities Trust management
team members (l - r) Lester Duke, Beverly Cleathero, Seth Robbins, Linda
Carter"
"It was a
disappointing
year for
bond
investors."
Caught off guard by the unexpected health of the economy, investors
reversed course and began to wonder if the Fed would actually raise
rates to prevent an outbreak of inflation. Inflation is a bondholder's
nemesis because it erodes the value of their fixed-income stream. These
fears caused bond prices to slide and rates to rise throughout the first
half of the year. The yield on the bellwether 30-year Treasury bond,
which began the year at 5.95%, peaked in July at 7.2% and hovered around
that level through the summer, as the market reacted to each monthly set
of economic data. But despite the market's fears, actual inflation
remained tame and bonds rallied in the fall as the economy appeared to
slow. At year's end, the yield on the 30-year Treasury was 6.64%, three-
quarters of a percentage point above where it began the year. For the
year ending December 31, 1996, the Lehman Brothers government/corporate
bond index, a broad market measure, gained 2.90%. In this environment,
John Hancock Income Securities Trust performed well and significantly
outperformed its peers. For the year, the Fund posted a total return of
4.86% at net asset value, compared to the average open-end corporate
debt A-rated fund's average 2.49%, according to Lipper Analytical
Services, Inc.
Chart with the heading "Top Five Bond Sectors" at top of left hand
column. The chart lists five sectors: 1) U.S. Government & Agencies 24%;
2) Banks & Financials 22%; 3)Utilities 13%; 4)Broadcasting/Communications 8%;
5) Insurance 5%. A footnote below states: "As a percentage of net assets on
December 31, 1996."
"Corporate
bonds
were a
relative
bright
spot in
1996..."
Conservative stance helps Fund
As in the past, the Fund mainly focused on careful sector and credit
decisions, rather than on making any major shifts in portfolio duration.
Duration measures how much a bond's price will rise or fall with changes
in interest rates. The longer the duration, the more the bond's price
will fall as rates rise (and rise when rates fall). In the first nine
months of the year, we did maintain a fairly conservative posture,
keeping a shorter-than-average duration, which helped us do better than
our peers. We did this by utilizing a barbell strategy, which emphasizes
long- and short-duration securities while underweighting those of
intermediate duration. In February, our average duration was as short as
4.7 years, which offered some protection when bond prices began their
descent. In September, when prices began to rise, we shifted to a more
neutral stance of 5.0 years and moved away from the portfolio's barbell
structure.
Table entitled "Scorecard" at bottom of left hand column. The header for
the left hand column is "Investment"; the header for the right column is
"Recent performance .. and what's behind the numbers." The first listing
is "Bank Capital Notes" followed by an up arrow and the phrase "Prices
rise with increased investor comfort in this new type of security." The
second listing is "Cleveland Electric" followed by an up arrow and the phrase
"Bonds improve with Ohio Edison's announced buyout." The third listing is
"Riverwood International" followed by a down arrow and the phrase "Declining
paper prices hurt earnings." Footnote below reads: "See "Schedule of
Investments". Investment holdings are subject to change."
Corporate bonds perform well
Corporate bonds were a relative bright spot in 1996. The prices of both
high quality and high-yield issues improved compared to Treasuries. In
October and November, corporations took advantage of the lower cost of
financing to issue a flood of new bonds. This offered us the opportunity
to swap out of issues that had become rather highly valued and replace
them with new issues that were relatively cheap.
During the year, the Fund's Board of Trustees agreed to expand the
Fund's ability to invest in bonds that are below-investment grade. Where
appropriate, the Fund can now invest 25% of its total net assets in
high-yield bonds, as opposed to the previous limit of 25% of the Fund's
corporate bond portfolio.
We also benefited from being early buyers of two types of new securities
that made their debut later in the year and were initially misunderstood
or not followed. The first was capital notes. These are notes issued by
banks, which carry them on their balance sheets as equity, but are able
to claim a deduction for the interest. Because investors did not seem to
know what to make of these high-quality securities at first, they came
to the market fairly cheap and we took advantage of that. The other new
security is home equity loan-backed securities, which appear to be
followed by relatively few analysts and investors. These are AAA-rated
securities with less prepayment risk than traditional mortgage-backed
securities. By watching the market closely and selling these securities
when they are trading at a modest premium, it is possible to reduce
prepayment risk even further, while achieving investment gains.
Bar chart with heading "Fund Performance" at top of the left hand
column. Under the heading is the footnote "For the year ended December
31, 1996." The chart is scaled in increments of 1% from top to bottom,
with 5% at the top and 0% at the bottom. Within the chart there are two
solid bars. The first represents the 4.86% total return for John Hancock
Income Securities Trust. The second represents the 2.49% total return for the
average open-end corporate debt A-rated fund. A 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."
Airline equipment trusts were another good performer. These issues are
smaller, and therefore less liquid, than corporate debt issued by the
same airlines. Yet not only are they secured (by airline equipment), but
they are also less expensive than corporate debt, which is unsecured.
Elsewhere, two of our utility companies also provided us with
opportunities during the year. Cleveland Electric, a poorly regarded
Ohio utility, received a credit upgrade when the highly rated Ohio
Edison announced that it would buy the company. And we took advantage of
Public Service of New Mexico's offer to buy back some of its bonds at a
premium.
Finally, bonds from emerging markets, particularly those of corporations
in Argentina, Brazil and Venezuela, did well in 1996. Because no
corporation's credit rating can be higher than that of its country's
government, we were able to invest in a number of issues whose
creditworthiness we believe is better than their ratings showed. These
provided high yields at comparatively low risk.
"We're taking
a cautious
approach
in the
short term."
Outlook
We're taking a cautious approach in the short term. The economy appears
to be showing some more strength, while interest rates remain relatively
low. As long as that's the case, there's a good chance that the Fed
could raise short-term rates to hold economic growth to a reasonable
pace and keep inflation in check. For now, we'll maintain a neutral
stance until the economy's direction becomes clearer. In the corporate
bond arena, we still favor the media sector, where consolidation is
benefiting large companies such as Viacom and Time-Warner. Overall,
domestic corporate bonds are fairly valued, and we'll be selective in
choosing individual securities.
We will also look for more opportunities overseas, where the markets are
not as widely followed and there are still good values to be found.
- -----------------------------------------------------------------------
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.
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------------------------------
DECEMBER 31,
----------------------------------------------
1995 1996
--------------------- ---------------------
<S> <C> <C>
Assets:
Investments at value - Note C:
Publicly traded bonds (cost - 1995 - $159,887,678;
1996- $159,038,661 ) $ 166,957,673 $ 160,302,941
Joint repurchase agreement (cost - 1995 -
$6,991,000; 1996 - $5,867,000) 6,991,000 5,867,000
Corporate savings account 664 163
-------------- -------------
173,949,337 166,170,104
Receivable for investments sold 71,494 --
Interest receivable 3,169,962 3,161,508
Other assets 3,400 6,025
-------------- -------------
Total Assets 177,194,193 169,337,637
- ---------------------------------------------------------------------------------------------------
Liabilities:
Payable for investments purchased 4,079,983 --
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 287,222 295,877
Accounts payable and accrued expenses 94,656 80,992
-------------- -------------
Total Liabilities 4,461,861 376,869
- ---------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in 166,206,744 167,894,806
Accumulated net realized loss on investments
and financial futures contracts (574,170) (252,032)
Net unrealized appreciation of investments 7,069,995 1,264,875
Undistributed net investment income 29,763 53,119
-------------- -------------
Net Assets $ 172,732,332 $ 168,960,768
===================================================================================================
Net Asset Value Per Share:
(based on 10,319,398 and 10,431,824 shares of
beneficial interest outstanding - 30 million shares
authorized with no par value) $ 16.74 $ 16.20
===================================================================================================
The Statement of Assets and Liabilities is the Fund's balance sheet and shows the value of what the
Fund owns, is due and owes on December 31, 1996. You'll also find the net asset value and the maximum
offering price per share as of that date.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
- -------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------
1995 1996
--------------------- ----------------------
<S> <C> <C>
Investment Income:
Interest $ 14,285,112 $ 14,026,867
------------- -------------
Expenses:
Investment management fee - Note B 1,034,167 1,043,202
Transfer agent fee 130,675 110,944
Printing 91,485 81,161
Custodian fee 49,695 54,807
Auditing fee 37,436 42,800
New York Stock Exchange fee 25,296 24,773
Trustees' fees 13,927 14,593
Miscellaneous 13,180 2,936
Legal fees 3,649 2,559
Financial services fee - Note B -- 31,535
------------- -------------
Total Expenses 1,399,510 1,409,310
- ----------------------------------------------------------------------------------------------
Net Investment Income 12,885,602 12,617,557
- ----------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on
Investments and Financial Futures Contracts:
Net realized gain on investments sold 915,137 532,729
Net realized loss on financial futures contracts (602,973) (190,045)
Change in net unrealized appreciation/
depreciation of investments 16,399,444 (5,805,120)
Change in net unrealized appreciation/
depreciation of financial futures contracts 112,500 --
------------- -------------
Net Realized and Unrealized Gain (Loss)
on Investments and Financial Futures Contracts 16,824,108 (5,462,436)
- ----------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $ 29,709,710 $ 7,155,121
==============================================================================================
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.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -----------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1996
------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $ 12,885,602 $ 12,617,557
Net realized gain on investments sold
and financial futures contracts 312,164 342,684
Change in net unrealized appreciation/
depreciation of investments and financial
futures contracts 16,511,944 (5,805,120)
------------- -------------
Net Increase in Net Assets
Resulting from Operations 29,709,710 7,155,121
------------- -------------
Distributions to Shareholders:
Dividends from net investment income
($1.2550 and $1.2175 per share,
respectively) (12,862,006) (12,614,747)
------------- -------------
From Fund Share Transactions:
(Market value of shares issued
to shareholders in reinvestment
of distributions) 1,768,167 1,688,062
------------- -------------
Net Assets:
Beginning of period 154,116,461 172,732,332
------------- -------------
End of period (including undistributed
net investment income of $29,763
and $53,119, respectively) $ 172,732,332 $ 168,960,768
============= =============
* Analysis of Fund Share Transactions:
Shares outstanding, beginning of period 10,205,263 10,319,398
Shares issued to shareholders in
reinvestment of distributions 114,135 112,426
------------- -------------
Shares outstanding, end of period 10,319,398 10,431,824
============= =============
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 the period indicated, investment
returns, key ratios and supplemental data are listed as follows:
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <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
-------- -------- -------- -------- --------
Net Investment Income 1.37 1.31 1.28 1.26 1.22
Net Realized and Unrealized Gain
(Loss) on Investments and Financial
Futures Contracts 0.07 0.80 (1.79) 1.64 (0.54)
-------- -------- -------- -------- --------
Total from Investment Operations 1.44 2.11 (0.51) 2.90 0.68
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income (1.38) (1.32) (1.28) (1.26) (1.22)
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)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $ 16.31 $ 16.97 $ 15.10 $ 16.74 $ 16.20
======== ======== ======== ======== ========
Per Share Market Value, End of Period $ 16.750 $ 16.500 $ 13.750 $ 15.750 $ 14.875
Total Investment Return at Market Value 7.16% 7.22% ( 8.70%) 24.11% 2.34%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $162,468 $170,988 $154,116 $172,732 $168,961
Ratio of Expenses to Average Net Assets 0.81% 0.84% 0.87% 0.84% 0.84%
Ratio of Net Investment Income
to Average Net Assets 8.46% 7.67% 8.03% 7.77% 7.50%
Portfolio Turnover Rate 111% 95% 82% 105% 117%
The Financial Highlights summarizes the impact of the following factors on a single share for the period indicated: net
investment income, gains (losses), dividends and total investment return of the Fund. It shows how the Fund's net asset value
for a share has changed since the end of the previous period. It also shows the total investment return for each period based
on the market value of Fund shares. Additionally, important relationships between some items presented in the financial
statements are expressed in ratio form.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
December 31, 1996
- -----------------------------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by Income Securities Trust on December 31, 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 (0.37%)
Jet Equipment Trust,
Equipment Trust Cert Ser 95B2, 08-15-14 (R) 10.910% BB+ $ 550 $ 620,186
------------
Banks (11.90%)
Abbey National First Capital, B.V.,
Sub Note 10-15-04 (United Kingdom) (Y) 8.200 AA- 1,000 1,072,570
ABN-Amro Bank N.V. -- Chicago Branch,
Sub Deb 05-31-05 7.250 AA- 500 508,040
African Development Bank,
Sub Note 12-15-03 (Supra National) (Y) 9.750 AA- 1,000 1,163,000
Banco Nacional de Obras y Servicios Publicos SNC,
Note 11-15-03 (Mexico) (Y) 9.625 BB 620 623,100
Bank of New York,
Cap Security Bond 12-01-26 (R) 7.780 BBB+ 595 583,100
BankAmerica Institutional Capital A,
Gtd Cap Sec 12-31-26 (R) 8.070 A- 580 576,375
Barclays North American Capital Corp.,
Gtd Cap Note 05-15-21 9.750 AA- 900 1,027,125
Chase Capital I,
Gtd Cap Sec 12-01-26 7.670 BBB+ 580 567,107
Den Danske Bank Aktieselskab,
Sub Note 06-15-05 (Denmark) (R) (Y) 7.250 A- 315 317,107
First Nationwide Holdings, Inc.,
Sr. Sub Note 10-01-03 (R) 10.625 Ba3 250 270,000
Sr. Note 04-15-03 (R) 12.500 B 575 636,813
Humpuss Funding Corp,
Co. Guarantee 12-15-09 (R) 7.720 Baa2 560 553,846
Landeskreditbank Baden - Wurttemberg,
Sub Note 02-01-23 (Germany) (Y) 7.625 AAA 2,500 2,653,700
Midland American Capital Corp.,
Deb 11-15-03 12.750 A 1,500 1,664,655
National Westminster Bank PLC - New York Branch,
Sub Note 05-01-01 9.450 AA- 1,250 1,383,138
Republic New York Corp.,
Bond 12-04-26 (R) 7.530 A+ 590 578,294
Scotland International Finance No. 2, B.V.,
Gtd Sub Note 01-27-04 (Netherlands) (R) (Y) 8.800 A 2,000 2,205,340
Gtd Sub Note 11-01-06 (United Kingdom) (R) (Y) 8.850 A 750 843,315
Security Pacific Corp.,
Medium Term Sub Note 04-26-01 10.500 A 1,500 1,713,435
Sub Note 11-15-00 11.500 A 1,000 1,164,540
------------
20,104,600
------------
Broadcasting (8.19%)
Cablevision Systems Corp.,
Sr Sub Deb 04-01-04 10.750 B 715 743,600
Century Communications Corp.,
Sr Sub Deb 10-15-03 11.875 B+ 850 901,000
Continental Cablevision, Inc.,
Sr Note 05-15-06 8.300 BBB+ 610 649,815
Sr Sub Deb 06-01-07 11.000 BBB 1,210 1,388,475
Jones Intercable, Inc.,
Sr Sub Deb 07-15-04 11.500 B+ 1,000 1,086,250
Le Groupe Videotron Ltee,
Sr Note 02-15-05 (Canada) (Y) 10.625 BB+ 250 275,000
News America Holdings Inc.,
Deb 08-10-18 8.250 BBB 950 959,158
Sr Note 10-15-99 9.125 BBB 1,000 1,067,040
NS Group Inc.,
Unit 07-15-03 13.500 B- 615 639,600
Rogers Cablesystems, Ltd.
Sr Note Ser B 03-15-05 (Canada) (Y) 10.000 BB+ 800 852,000
SFX Broadcasting, Inc.,
Sr Sub Note Ser B 05-15-06 10.750 B- 495 519,750
TeleWest PLC,
Sr Deb 10-01-06 (United Kingdom) (Y) 9.625 BB 380 387,600
Time Warner Inc.,
Deb 01-15-13 9.125 BBB- 1,000 1,091,700
TKR Cable I, Inc.,
Sr Deb 10-30-07 10.500 BBB- 2,000 2,102,140
Viacom, Inc.,
Sr Note 06-01-05 7.750 BB+ 575 566,185
Sub Deb 07-07-06 8.000 BB- 625 604,688
------------
13,834,001
------------
Chemicals (0.62%)
OPP Petroquimica S.A.,
Bond 10-29-04 (Brazil) (R) (Y) 11.000 B+ 715 711,425
Sociedad Quimica y Minera de Chile S.A.,
Loan Part Ctf 09-15-06 (Chile) (R) (Y) 7.700 BBB+ 320 328,288
------------
1,039,713
------------
Commercial Real Estate (0.30%)
Trinet Corp. Realty Trust,
Note 05-15-01 7.300 BBB- 500 506,200
------------
Cosmetics & Toiletries (0.42%)
Johnson & Johnson,
Deb 11-15-23 6.730 AAA 750 713,640
------------
Energy (0.47%)
AES China Generating Co. Ltd.,
Sr Note 12-15-06 (China) (Y) 10.125 BB- 295 305,325
AES Corp.,
Sr Sub Note 07-15-06 10.250 B+ 450 483,750
------------
789,075
------------
Finance (9.66%)
Access Financial Mortgage Loan Trust,
Pass thru Ctf Ser 1996-A4 03-18-20 6.775 AAA 535 534,833
Banc One Credit Card Master Trust,
Class A Asset Backed Ctf Ser 1994-B 12-15-99 7.550 AAA 1,000 1,014,370
CIT Group Holdings, Inc.,
Deb 03-15-01 9.250 A 1,000 1,097,870
ContiFinancial Corp.,
Sr Note 08-15-03 8.375 BB+ 600 616,860
CS First Boston,
Sub Note 05-15-06 (R) 7.750 A2 500 521,115
CSW Investments,
Sr Note 08-01-06 (United Kingdom) (R) (Y) 7.450 A- 450 456,705
DSPL Finance Co., B.V.,
Sr Sec Note 12-30-10 (R) 9.120 BBB 500 515,550
GreenTree Home Improvement Loan Trust,
Ctf Home Improv Ln Ser 1995-D Class M-1 09-15-25 6.950 Aa2 650 650,800
IMC Home Equity Loan Trust,
Class A-5 Ser 1996-1 12-25-13 6.290 AAA 720 697,388
Intertek Finance PLC,
Sr Sub Note 11-01-06 (United Kingdom) (R) (Y) 10.250 B2 260 270,400
MBNA Master Credit Card Trust,
Class A Ser 1995-D 11-15-02 6.050 AAA 1,585 1,572,114
Merrill Lynch Mortgage Investors, Inc.,
Class B Sub Bond Ser 1992-B 04-15-12 8.500 Aaa 392 403,747
Midland Funding Corp. II,
Deb 07-23-05 11.750 B- 300 332,148
Deb 07-23-06 13.250 B- 225 259,949
Midland Funding Corp.,
Sr Sec Lease Oblig Ser C 07-23-02 10.330 BB- 1,250 1,328,190
Money Store Home Equity Trust,
Ser 1995-C 09-15-11 6.375 AAA 315 308,306
Ser 1996-B 04-15-12 7.350 AAA 500 506,250
Polysindo International Finance Co. B.V.,
Company Guaranty 06-15-06 (Indonesia) (Y) 11.375 BB 235 256,738
Santander Financial Issuances Ltd.,
Note 04-15-05 (Cayman Islands) (Y) 7.875 A+ 1,000 1,046,300
Standard Credit Card Master Trust I,
Class A Credit Card Part Ctf Ser 1994-2 04-07-08 7.250 AAA 1,000 1,022,500
Class A Credit Card Part Ctf Ser 1995-2 01-07-02 8.625 AAA 1,250 1,253,750
United Companies Financial Corp.,
Sr Note 01-15-04 7.700 BBB- 600 599,238
UCFC Home Equity Loan Trust,
Pass Thru Ctf Ser 1994-A 07-10-18 6.100 AAA 350 344,750
Pass Thru Ctf Ser 1996-D1 01-15-25 7.180 AAA 710 716,213
------------
16,326,084
------------
Funeral Services (0.44%)
Loewen Group International, Inc.,
Sr Gtd Note 10-15-03 (R) 8.250 BB+ 740 750,138
------------
Glass Products (1.46%)
Owens-Illinois, Inc.,
Sr Deb 12-01-03 11.000 BB 2,220 2,469,750
------------
Government - Foreign (2.24%)
Republic of Brazil,
For Govt Gtd 04-15-09 (Brazil, Republic of) (Y) 6.563# B+ 750 609,375
Nova Scotia, Province of,
Deb 04-01-22 (Canada) (Y) 8.750 A- 750 870,263
Ontario, Province of,
Bond 06-04-02 (Canada) (Y) 7.750 AA- 500 528,010
Deb 08-31-12 (Canada) (Y) 15.250 AA- 350 390,523
Quebec, Province of,
Deb 10-01-13 (Canada) (Y) 13.000 A+ 500 575,025
Saskatchewan, Province of,
Govt Gtd 12-15-20 (Canada) (Y) 9.375 A- 480 592,320
Republic of Venezuela,
Deb 12-18-07 (Venezuela, Republic of) (Y) 6.500# Ba2 250 220,000
------------
3,785,516
------------
Government - U.S. (15.65%)
United States Treasury,
Bond 08-15-05 10.750 AAA 885 1,135,428
Bond 08-15-17 8.875 AAA 1,869 2,308,514
Bond 05-15-18 9.125 AAA 2,250 2,850,120
Bond 02-15-23 7.125 AAA 6,300 6,577,578
Note 04-15-98 7.875 AAA 1,000 1,026,090
Note 05-15-98 9.000 AAA 3,910 4,074,963
Note 02-15-99 8.875 AAA 1,935 2,047,172
Note 11-30-99 7.750 AAA 3,735 3,902,477
Note 05-15-01 8.000 AAA 1,286 1,374,207
Note 02-15-05 7.500 AAA 1,073 1,147,606
------------
26,444,155
------------
Government - U.S. Agencies (8.86%)
Federal Home Loan Mortgage Corp.,
30 Yr SF Pass Thru Ctf 01-01-16 11.250 AAA 566 626,913
Federal National Mortgage Assn.,
15 Yr SF Pass Thru Ctf 01-25-05 8.000 AAA 1,000 1,030,310
15 Yr SF Pass Thru Ctf 02-01-08 7.500 AAA 586 596,017
15 Yr SF Pass Thru Ctf 10-01-23 7.000 AAA 816 801,613
Financing Corp.,
Bond Ser A 02-08-18 9.400 AAA 2,000 2,512,500
Government National Mortgage Assn.,
30 Yr SF Pass Thru Ctf 02-15-24 to 02-15-26 7.500 AAA 2,638 2,643,064
30 Yr SF Pass Thru Ctf 09-15-22 8.000 AAA 556 571,623
30 Yr SF Pass Thru Ctf 01-15-23 to 03-15-23 8.500 AAA 1,648 1,726,412
30 Yr SF Pass Thru Ctf 04-15-21 9.000 AAA 597 636,769
30 Yr SF Pass Thru Ctf 11-15-19 to 02-15-25 9.500 AAA 1,451 1,571,517
30 Yr SF Pass Thru Ctf 11-15-20 10.000 AAA 436 478,834
30 Yr SF Pass Thru Ctf 01-15-26 7.000 AAA 731 714,781
Tennessee Valley Authority,
Power Bonds 1989 Ser G 11-15-29 8.625 AAA 1,000 1,053,120
-------------
14,963,473
-------------
Insurance (5.07%)
Conseco, Inc.,
Sr Note 12-15-04 10.500 BBB 740 873,400
Equitable Life Assurance Society of the United States,
Surplus Note 12-01-05 (R) 6.950 A 550 539,220
Fairfax Financial Holdings Ltd.,
Note 04-15-26 (Canada) (Y) 8.300 BBB+ 695 728,242
Liberty Mutual Insurance Co.,
Surplus Note 05-04-07 (R) 8.200 A+ 1,100 1,168,134
Surplus Note 10-15-26 (R) 7.875 A+ 435 436,675
Massachusetts Mutual Life Insurance Co.,
Surplus Note 11-15-23 (R) 7.625 AA 1,145 1,145,870
Nac Re Corp.,
Note 06-15-99 8.000 A- 370 381,736
New York Life Insurance Co.,
Surplus Note 12-15-23 (R) 7.500 AA 1,500 1,453,380
Phoenix Home Life Mutual Insurance Co.,
Surplus Note 12-01-06 (R) 6.950 A+ 635 622,895
Sun Canada Financial Co.,
Note 12-15-07 (Canada) (R) (Y) 6.625 AA 725 695,232
URC Holdings Corp.,
Sr Note 06-30-06 (R) 7.875 A- 500 519,345
-------------
8,564,129
-------------
Leasing Companies (0.25%)
Ryder TRS Inc.,
Sr Sub Note 12-01-06 (R) 10.000 B+ 410 426,400
-------------
Leisure and Recreation (0.81%)
Mohegan Tribal Gaming Authority,
Sr Note 11-15-02 13.500 BB+ 150 196,500
Showboat Marina Casino Partnership,
1st Mtg Ser B 03-15-03 13.500 B 500 551,250
Trump Hotels & Casinos Resorts Funding, Inc.,
Sr Note 06-15-05 15.500 B+ 550 627,000
-------------
1,374,750
-------------
Medical Products (0.16%)
Quest Diagnostics, Inc.,
Sr Sub Note 12-15-06 10.750 B+ 250 263,125
-------------
Oil & Gas (4.46%)
Ashland Oil, Inc.,
SF Deb 10-15-17 11.125 BBB 1,000 1,086,720
Camuzzi Gas, Pampeana S.A.,
Bond 12-15-01 (Argentina) (R) (Y) 9.250 BB- 328 331,280
Enserch Exploration Inc.,
Pass thru Ctf 01-02-09 (R) 7.540 BBB 530 520,725
Iberdrola International B.V.,
Gtd Note 10-01-02 (R) 7.500 AA- 2,000 2,077,500
Maxus Energy Corp.,
Deb 05-01-13 11.250 BB- 229 232,435
Norsk Hydro ASA,
Deb 10-01-16 (Norway) (Y) 7.500 A 720 736,855
Occidental Petroleum Corp.,
Sr Deb 09-15-09 10.125 BBB 600 739,044
Petroliam Nasional Berhad,
Bond 10-15-26 (Malaysia) (R) (Y) 7.625 A+ 600 608,784
Transgas de Occidenta S.A.,
Sr Note 11-01-10 (Colombia) (R) (Y) 9.790 BBB- 650 677,105
TransTexas Gas Corp.,
Sr Note 06-15-02 11.500 BB- 490 529,200
-------------
7,539,648
-------------
Paper & Paper Products (1.45%)
Georgia-Pacific Corp.,
Deb 01-15-18 9.750 BBB- 685 714,626
Deb 02-15-18 9.500 BBB- 450 470,736
Indah Kiat International Finance,
Co Gtd Ser C 06-15-06 (Indonesia) (Y) 12.500 BB 240 264,000
SD Warren Co.,
Sr Sub Note 12-15-04 12.000 B+ 432 466,560
Stone Consolidated Corp.,
Sr Note 12-15-00 (Canada) (Y) 10.250 BB+ 500 532,500
-------------
2,448,422
-------------
Retail (2.15%)
Flagstar Corp.,
Sr Note 09-15-01 10.750 B- 385 348,425
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 254 270,716
Safeway Stores, Inc.,
Lease Ctf 01-15-09 13.500 BBB 474 524,138
Smith's Food & Drug Centers, Inc.,
Sr Sub Note 05-15-07 11.250 B- 350 386,750
-------------
3,640,579
-------------
Steel (0.69%)
IVACO Inc.,
Sr Note 09-15-05 (Canada) (Y) 11.500 B+ 570 567,863
Weirton Steel Corp.,
Sr Note 03-01-98 11.500 B 149 153,470
Sr Note 07-01-04 11.375 B 440 446,600
-------------
1,167,933
-------------
Telecommunications (1.81%)
Comtel Brasileira Ltda.,
Note 09-26-04 (Brazil) (R) 10.750 NR 470 484,100
IMPSAT Corp.,
Sr Gtd Note 07-15-03 (Argentina) (R) (Y) 12.125 BB- 575 609,500
Paging Network Inc.,
Sr Sub Note 10-15-08 10.000 B 565 567,825
TCI Communications, Inc.,
Sr Deb 08-01-15 8.750 BBB- 595 587,789
Teleport Communications Group, Inc.,
Sr Note 07-01-06 9.875 B 115 122,763
Total Access Communication Public Co. Ltd.,
Bond 11-04-06 (Thailand) (R) (Y) 8.375 BBB- 680 684,556
-------------
3,056,533
-------------
Textile (0.07%)
Polysindo Eka Perkasa (P.T.),
Sec Note Co Gtd 06-15-01 (India) (Y) 13.000 BB 100 112,000
-------------
Tobacco (0.58%)
RJR Nabisco, Inc.,
Note 12-01-02 8.625 BBB- 100 102,074
Note 09-15-03 7.625 BBB- 915 877,192
-------------
979,266
-------------
Transportation (4.20%)
America West Airlines, Inc.,
Pass Thru Ctf Ser B 01-02-08 6.930 A- 535 530,319
Continental Airlines,
Pass Thru Ctf Ser 96-C 10-15-13 9.500 BBB 500 562,455
NWA Trust,
Sr Note Ser A 06-21-14 9.250 AA 602 684,886
Northwest Airlines, Inc.,
Pass Thru Ctf Ser 1996-1C 01-02-05 10.150 BB+ 400 420,000
Pass Thru Ctf Ser 1996-1D 01-02-15 8.970 BBB- 400 436,000
Rail Car Trust,
Class A Pass Thru Ser 1992-1 06-01-04 7.750 AAA 1,593 1,664,753
Scandinavian Airlines System,
Deb 07-20-99 (Multinational) (Y) 9.125 A3 700 742,875
Sea-Land Service, Inc.,
Deb Ser A 01-02-11 10.600 BBB+ 1,000 1,058,170
USAir, Inc.,
Pass Thru Ctf Ser 1990-A1 03-19-05 11.200 B+ 975 995,307
-------------
7,094,765
-------------
Utilities (12.60%)
AMTROL Inc.,
Sr Sub Note 12-31-06 (R) 10.625 B- 325 335,562
British Telecom Finance, Inc.,
Gtd Deb 02-15-19 (United Kingdom) (Y) 9.625 AAA 1,000 1,106,660
BVPS II Funding Corp.,
Collateralized Lease Bond 06-01-17 8.890 BB+ 700 693,552
CalEnergy Co., Inc.,
Sr Note 09-15-06 (R) 9.500 Ba2 450 465,750
Calpine Corp.,
Sr Note 05-15-06, 10.500 B+ 465 491,737
CE Casecnan Water & Energy Co., Inc.,
Sr Note Ser A 11-15-05 (Philippine Islands) (Y) 11.450 BB 400 449,000
Chugach Electric Association, Inc.,
1St Mtg 1991 Ser A 03-15-22 9.140 A 2,000 2,253,060
Cleveland Electric Illuminating Co.,
1st Mtg Ser B 05-15-05 9.500 BB 830 875,134
CSW Investments,
Sr Note 08-01-01 (United Kingdom) (R) (Y) 6.950 A- 600 603,060
CTC Mansfield Funding Corp.,
Deb 03-30-03 10.250 B+ 450 456,641
Sec Lease Oblig 09-30-16 11.125 B+ 1,900 2,004,500
EIP Funding-PNM,
Sec Fac Bond 10-01-12 10.250 BB- 732 775,436
Enersis S.A.
Note 12-01-16 (Cayman Islands) (Y) 7.400 A- 825 803,137
First PV Funding Corp.,
Deb Ser 86A 01-15-14 10.300 BB- 225 239,625
Deb Ser 86A 01-15-16 10.150 BB- 719 763,937
GTE Corp.,
Deb 11-15-17 10.300 A- 500 541,225
Deb 11-01-20 10.250 A- 1,500 1,713,120
Hydro-Quebec,
Deb (SCRIF) 02-01-03 (Canada) (Y) 7.375 A+ 750 770,347
Deb (SCRIF) 02-01-21 (Canada) (Y) 9.400 A+ 900 1,085,327
Long Island Lighting Co.,
Deb 03-15-03 7.050 BB+ 750 732,683
Deb 07-15-19 8.900 BB+ 195 198,949
Gen Ref Bond 05-01-21 9.750 BBB- 450 480,546
Gen Ref Mtg 07-01-24 9.625 BBB- 750 797,633
Louisiana Power & Light Co.,
Sec Lease Oblig Bond Ser B 01-02-17 10.670 BBB- 1,350 1,444,905
System Energy Resources, Inc.,
1st Mtg 08-01-01 7.710 BBB- 615 628,838
Tenaga Nasional Berhad,
Note 06-15-04 (Malaysia) (R) (Y) 7.875 A+ 550 578,496
-------------
21,288,860
-------------
TOTAL PUBLICLY TRADED BONDS
(Cost $159,038,661) (94.88%) 160,302,941
------- -------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (3.47%)
Investment in a joint repurchase agreement transaction
with Lehman Brothers Inc., Dated 12-31-96,
due 01-02-97 (secured by U.S. Treasury Bonds, 7.250%
thru 12.500%, due 08-15-14 thru 08-15-22) - Note A 6.700 5,867 5,867,000
-------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily interest Savings Account Current Rate 4.75% 163
-------------
TOTAL SHORT-TERM INVESTMENTS (3.47%) 5,867,163
------- -------------
TOTAL INVESTMENTS (98.35%) $166,170,104
======= =============
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 $25,721,566 as of December 31, 1996. 6
(Y) Parenthetical disclosure of a foreign country in the security description represents country of foreign issuer, however,
security is U.S. dollar denominated.
* Credit ratings are unaudited and 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 December 31, 1996.
See notes to financial statements.
</TABLE>
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 gain 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 underling 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 December 31, 1996, there were no open positions in financial futures
contracts.
NOTE B -
MANAGEMENT FEE AND
ADMINISTRATIVE SERVICES
Under the present investment management contract, the Fund pays a
quarterly management fee to the Adviser, for a continuous investment
program, equivalent on an annual basis, to the sum of (a) 0.650% of the
first $150,000,000 of the Fund's average weekly net asset value, (b)
0.375% of the next $50,000,000, (c) 0.350% of the next $100,000,000 and
(d) 0.300% of the Fund's average weekly net asset value in excess of
$300,000,000.
In the event normal operating expenses of the Fund, exclusive of taxes,
interest, brokerage commissions and extraordinary expenses, exceeds 1.5%
of the first $30,000,000 of the Fund's average weekly net asset value
and 1.0% of the Fund's average weekly net asset value in excess of
$30,000,000, the fee payable to the Adviser will be reduced to the
extent of such excess and the Adviser will make additional arrangements
necessary to eliminate any remaining excess expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for 1996
was paid 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. 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
December 31, 1996, the Fund's investment to cover the deferred
compensation 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 December 31, 1996 aggregated $91,798,681 and
$84,511,166, respectively. Purchases and proceeds from sales of
obligations of the U.S. government and its agencies aggregated
$96,033,366 and $104,752,654, respectively.
The cost of investments owned at December 31, 1996 (excluding the
corporate savings account) for Federal income tax purposes was
$165,105,341. Gross unrealized appreciation and depreciation of
investments at December 31, 1996 aggregated $3,722,383 and $2,657,783,
respectively, resulting in net unrealized appreciation of $1,064,600.
NOTE D -
RECLASSIFICATION OF ACCOUNTS
During the period ended December 31, 1996, the Fund has reclassified
$20,546 from accumulated net realized loss to undistributed net
investment income. This represents the amount necessary to report these
balances on a tax basis, excluding certain temporary differences, as of
December 31, 1996. Additional adjustments may be needed in subsequent
reporting periods. These reclassifications, which have no impact on the
net asset value of the Fund, are primarily attributable to certain
differences in the computation of distributable income and capital gains
under federal tax rules versus generally accepted accounting principles.
The calculation of net investment income per share in the financial
highlights excludes these adjustments.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
John Hancock Income Securities Trust
We have audited the accompanying statement of assets and liabilities of
the John Hancock Income Securities Trust (the "Trust"), as of December
31, 1996 and 1995, including the schedule of investments as of December
31, 1996, and the related statements of operations and changes in net
assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. Our
procedures included confirmation of securities owned as of December 31,
1996 and 1995, by correspondence with the custodian and brokers, and
other auditing procedures when replies from brokers were not received.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of John Hancock Income Securities Trust at December
31, 1996 and 1995, the results of its operations and changes in its net
assets for each of the two years in the period then ended and the
financial highlights for each of the five years in the period then
ended, in conformity with generally accepted accounting principles.
/S/ERNST & YOUNG LLP
Boston, Massachusetts
February 7, 1997
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Unaudited quarterly results of operations for each of the two years in
the period ended December 31, 1996 and 1995 are as follows:
1996
--------------
THREE MONTHS ENDED
--------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
------- ------ ------ -------
(000's OMITTED EXCEPT
PER SHARE DATA)
------------------
Net investment income $3,119 $3,135 $3,214 $3,150
Dividends from net
investment income 3,147 3,156 3,164 3,148
Net realized and
unrealized gain on
investments and financial
futures contracts ( 6,207) ( 2,229) 545 2,429
Per share of beneficial
interest:
Net investment income 0.30 0.30 0.32 0.30
Dividends 0.31 0.31 0.30 0.30
Net asset value at end
of quarter $16.13 $15.91 $15.97 $16.20
1995
--------------
THREE MONTHS ENDED
--------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
------- ------ ------ -------
(000's OMITTED EXCEPT
PER SHARE DATA)
------------------
Net investment income $3,212 $3,240 $3,184 $3,250
Dividends from net
investment income 3,215 3,224 3,133 3,290
Net realized and
unrealized gain on
investments and financial
futures contracts 5,076 7,258 99 4,391
Per share of beneficial
interest:
Net investment income 0.32 0.31 0.31 0.32
Dividends 0.32 0.31 0.32 0.31
Net asset value at
end of quarter $15.60 $16.31 $16.31 $16.74
DIVIDENDS AND DISTRIBUTIONS
During 1996, dividends from net investment income totaling $1.2175 per
share was paid to shareholders. The dates of payment and the amounts per
share are as follows:
INCOME
PAYMENT DATE DIVIDEND
------------------ --------
March 29, 1996 $0.3050
June 28, 1996 0.3050
September 30, 1996 0.3050
December 30, 1996 0.3025
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.
It is contemplated that at least 75 percent of the value of the Fund's
total will be represented by debt securities which have at the time of
purchase a rating within the four highest grades as determined by
Moody's Investor Service, Inc., (Aaa, Aa, A or Baa) or Standard & Poor's
Corporation (AAA, AA, A or BBB); and debt securities of banks and other
issuers which, although not rated as a matter of policy by either
Moody's Investors Service, Inc., or Standard & Poor's Corporation, are
considered by the Fund to have investment quality comparable to
securities receiving ratings within such four highest grades.
RESTRICTED SECURITIES
The Fund may purchase restricted securities, including those eligible
for resale to "qualified institutional buyers" pursuant to Rule 144A
under the Securities Act of 1993 (the "Securities Act"). The Trustees
will carefully monitor the Fund's investments in these securities,
focusing on certain factors, including valuation, liquidity and
availability of information. Subject to market conditions, Fund
management intends to limit all illiquid securities held by the Fund to
no more than 15% of the Fund's net assets.
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 REPORTS
In accordance with the requirements of the Investment Company Act of
1940, the Fund will mail to shareholders an annual report within 60 days
after the end of each fiscal year and a semi-annual report within 60
days after the end of each second fiscal quarter. To reduce fund
expenses, the Fund has discontinued the practice of mailing reports to
shareholders after the end of each first and third fiscal quarters.
NOTES
John Hancock Funds - Income Securities Trust
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NOTES
John Hancock Funds - Income Securities Trust
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NOTES
John Hancock Funds - Income Securities Trust
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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
Bulk Rate
U.S. Postage
PAID
S. Hackensack, NJ
Permit No. 750
A recycled logo in lower left hand corner with caption "Printed on
Recycled Paper." P600A 12/96
2/97
