SEMIANNUAL REPORT
[PHOTO OMITTED]
Income
Securities Trust
JUNE 30, 1998
[JHF LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
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 and Chief Operating Officer
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 & 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 02109-1803
Listed New York Stock Exchange Symbol: JHS
John Hancock Closed-End Funds:
1-800-843-0090
DEAR FELLOW SHAREHOLDERS:
During the last decade, investors have become used to seeing stock market
returns averaging 15% or so each year. In the past three years, the stock market
has treated us to a record run, producing annual returns in excess of 20%.
After such a long and remarkable performance, many began this year wondering
what the market would do for an encore in 1998. The answer through the end of
June was more of the same. But tremors from Asia have also sparked increased
volatility, as corporate earnings and the U.S. economy have shown signs of
slowing. What's more, a good part of the market's advance has come from just a
small group of the largest companies in the major stock market indexes.
- --------------------------------------------------------------------------------
[A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
- --------------------------------------------------------------------------------
The move ahead has been so narrow that some observers believe that most stocks
have actually been in a bear market this year. The bond market had its pockets
of volatility as well, although U.S. Treasury bonds benefited from their
safe-haven status.
While we don't make a practice of opining on what the market will do next, we
believe that after such a long run up, it would be wise for investors to set
more realistic expectations. Over the long term, the market's historical results
have been more in the 10% per year range, which is still a solid result,
considering it has been produced despite wars, depressions and other social
upheavals along the way.
In addition to adjusting, or at least re-examining, expectations, now
could also be a good time to review with your investment professional how your
assets are diversified, perhaps with an eye toward a more conservative approach.
Stocks, especially with their outsized gains of the last three years, might have
grown to represent a larger piece of your portfolio than you had originally
intended, given your objectives, time horizon and risk level.
At John Hancock Funds, our goal is to help you reach your financial objectives
and maintain wealth. One way we can do that is by helping you keep your feet on
the ground as you pursue your dreams.
Sincerely,
/s/Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
By James K. Ho, CFA, Portfolio Manager
John Hancock Income Securities Trust
Asia's turmoil tempers ideal conditions on the home front
---------------------------------------------------------
During the first half of John Hancock Income Securities Trust's 1998 fiscal
year, we witnessed some of the very same factors that influenced its performance
during the final months of fiscal 1997. On the positive side, inflation was
subdued, interest rates remained low, unemployment was down, corporate
profitability remained high, and the general mood among consumers was upbeat.
The primary unfavorable element continued to be the economic and currency
weakness in many Asian nations. The ongoing turmoil, combined with increasing
political unrest in certain countries, caused bouts of price weakness among U.S.
investment-grade and high-yield bonds. Investors feared that Asia's woes would
eventually affect corporate earnings and credit quality stateside. Heavy new
issuance amid lackluster demand placed further downward pressure on these
sectors as the period progressed. Emerging-market debt around the world took the
brunt of the volatility, falling in response to each new wave of concern.
"...we took a slightly more defensive approach..."
In this environment, producing solid results required extensive research and
selective investing. For the six months ended June 30, 1998, John Hancock Income
Securities Trust produced a total return of 4.20% at net asset value, including
dividends reinvested at prices that were the lower of either the market median
price or the net asset value price. The Fund outperformed the average open-end
corporate debt A-rated fund, as tracked by Lipper Analytical Services, Inc.,
[A 3 3/4" x 2 1/4" photo of fund management team. Caption reads: Jim Ho (seated)
and Fund management team members (l-r): Lester Duke, Beverly Cleathero, and Seth
Robbins.]
3
<PAGE>
John Hancock Funds - Income Securities Trust
- --------------------------------------------------------------------------------
[Chart at the top of left hand column with the heading "Top Five Bond Sectors".
The chart lists five sectors: 1.) U.S. Government & Agencies 31%; 2.) Banks &
Financials 23%; 3.) Utilities 14%; 4.) Media 6% and 5.) Transportation 4%. A
note below the chart reads "As a percentage of net assets on June 30, 1998."]
- --------------------------------------------------------------------------------
which produced a gain of 3.78% at net asset value.
"We've also lightened up on capital goods and cyclical credits..."
Defensive orientation favored
As the semiannual period progressed, we took a slightly more defensive approach
to fixed-income investing than we had in fiscal 1997. We stayed relatively
neutral in terms of duration, which is a measure of sensitivity to interest rate
changes, by keeping the Fund's average duration in line with its competitors and
benchmark, the Lehman Brothers Government/Corporate Bond Index.
On the corporate bond side N both investment-grade and high-yield N we upgraded
our credit exposure whenever possible, and selectively took advantage of price
weakness to either increase the Fund's exposure to certain issues or establish
new positions. For the most part, we favored bonds in sectors that stand to
perform well regardless of economic swings, such as utilities, media,
telecommunications, and healthcare. Merger and acquisition activity,
deregulation, and consolidation have been the catalysts of change and
opportunity in these industries. Several issues that contributed significantly
to performance included Time Warner, TCI Communications - the recent beneficiary
of a merger with AT&T - Nextel Communica-tions, News America Holdings,
Integrated Health Services, Cleveland Electric Illuminating Co. and Niagara
Mohawk Power Corp.
- --------------------------------------------------------------------------------
[Table at bottom of left hand column entitled "Scorecard". The header for the
left column is "Investment" and the header for the right column is "Recent
Performance...and What's Behind the Numbers". The first listing is Niagara
Mohawk followed by an up arrow with the phrase "Improving fundamentals." The
second listing is Connecticut Light & Power followed by an up arrow with the
phrase "Reopening of plants." The third listing is Zilog followed by a down
arrow with the phrase "Semiconductors hurt by Asian crisis." A note below the
table reads "See `Schedule of Investments.' Investment holdings are subject to
change."]
- --------------------------------------------------------------------------------
We've also lightened up on capital goods and cyclical credits, maintaining very
little exposure to paper, steel, oil and gas issues. As the period progressed,
we slightly increased our emphasis on high-quality asset-backed securities, such
as home equity loans, which have performed well. Our focus in mortgage-backed
securities was on discount coupon mortgages - those whose coupons are below
current market rates - as they tend to be relatively insulated from price swings
in a declining rate environment.
Yield curve positioning - ahead of the market
It is often said that the best defense is a good offense - an adage that we
believe might well apply to yield curve strategies. The yield curve is a widely
followed graph illustrating the difference between short-term and long-term
interest rates. Throughout the period, we maintained a "bullet" position,
emphasizing intermediate-term government securities in the middle of the
maturity curve. Such a structure historically works well when the difference
between short- and long-term Treasuries widens, an occurrence known as a
steepening yield curve.
Our positioning appeared to have been a bit premature. The yield curve has
continued to flatten, with the difference in yields between two-year Treasury
securities
4
<PAGE>
John Hancock Funds - Income Securities Trust
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with the heading "Fund Performance". Under
the heading is a note that reads "For the six months ended June 30, 1998". The
chart is scaled in increments of 1% with 0% at the bottom and 5% at the top. The
first bar represents the 4.20% total return for John Hancock Income Securities
Trust. The second bar represents the 3.78% total return for the average open-end
corporate debt A-rated fund. A note below the chart reads "The total return for
John Hancock Investors Trust is at net asset value with all distributions
reinvested at prices that are the lower of either the market median price or the
net asset value price. The average open-end corporate debt A-rated fund is
tracked by Lipper Analytical Services, Inc.]
- --------------------------------------------------------------------------------
and 30-year issues a mere one-sixteenth of a percentage point at period's end.
However, we are holding steady with this approach because we believe the
difficulties in Asia may well create a drag on the U.S. economy later this year.
And as a result, the Federal Reserve Board may be prompted to cut the federal
funds rate in an effort to stimulate economic growth. In this case, the yield
curve would begin to steepen.
Knowing what to own and avoid
Exhaustive research has always played a vital role in our investment decisions
and never more so than this past year. As the fundamentals of many domestic and
foreign corporate bonds came into question on the heels of Asia's crises,
knowing what to own, sell, and avoid helped the Fund's performance. For example,
when several Japanese banks came to market a few months ago issuing attractively
priced, high-yielding securities that carried an investment-grade rating, many
fund managers, including ourselves, found the issues too compelling to ignore.
However, we soon determined that the risk was not worth the potential reward and
sold our stake - a timely maneuver since the bonds have dropped considerably in
price since.
To date, we have continued to avoid most Asian debt, believing the investment
environment remains murky. However, we are monitoring events in the Far East
closely to determine when, and if, there is a right time to reallocate assets to
that region. Our small investment in Latin American bonds has come under
pressure recently along with most emerging-market debt, yet we believe the
securities are well positioned to fully
"...we are upbeat about the prospects for fixed-income securities."
Optimism prevails
As we enter the second half of fiscal 1998, we are upbeat about the prospects
for fixed-income securities. The U.S. dollar's continuing strength, positive
developments on the U.S. budget front, and pressure from Asia's economic fallout
should help keep inflation in check and interest rates low. The wild card, of
course, remains the emerging markets and how their performance might influence
that of domestic investment-grade corporate and high-yield bonds. Clearly,
current investment conditions present the opportunity to capture value for those
willing to do their homework.
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio manager through the end of
the fiscal period discussed in this report. The manager's views are subject to
change as market and other conditions warrant.
5
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on June 30, 1998. You'll also
find the net asset value as of that date.
Statement of Assets and Liabilities
June 30, 1998 (Unaudited)
- -------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Publicly traded bonds (cost - $161,882,592) ..................... $167,847,715
Preferred stocks and warrants (cost - $2,713,017)................ 2,750,013
Joint repurchase agreement (cost- $5,585,000) ................... 5,585,000
Corporate savings account ....................................... 579
176,183,307
------------
Receivable for investments sold .................................. 3,040,091
Interest receivable .............................................. 3,221,823
Dividends receivable ............................................. 27,297
Other assets ..................................................... 10,307
------------
Total Assets .............. 182,482,825
----------------------------------------
Liabilities:
Payable for investments purchased ................................ 6,005,892
Dividend payable ................................................. 364,888
Payable for futures variation margin - Note A .................... 563
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ......................................... 396,484
Accounts payable and accrued expenses ............................ 56,007
------------
Total Liabilities ......... 6,823,834
----------------------------------------
Net Assets:
Capital paid-in .................................................. 169,895,847
Accumulated net realized loss on investments and
financial futures contracts ...................................... (269,810)
Net unrealized appreciation of investments and
financial futures contracts ...................................... 5,999,110
Undistributed net investment income .............................. 33,844
------------
Net Assets ................ $175,658,991
----------------------------------------
Net Asset Value Per Share:
(Based on 10,559,814 shares of beneficial
interest outstanding - 30 million shares
authorized with no par value) .................................... $16.63
===============================================================================
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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest .......................................................... $6,757,086
Dividend .......................................................... 67,441
----------
6,824,527
----------
Expenses:
Investment management fee - Note B ................................. 527,557
Transfer agent fee - Note B ....................................... 49,144
Custodian fee ...................................................... 32,821
Printing ........................................................... 28,597
Financial services fee- Note B ..................................... 16,234
Auditing fee ....................................................... 15,672
New York Stock Exchange fee ........................................ 10,291
Trustees' fees ..................................................... 4,625
Miscellaneous ...................................................... 3,069
Legal fees ......................................................... 1,124
----------
Total Expenses .............. 689,134
-----------------------------------------
Net Investment Income ....... 6,135,393
-----------------------------------------
Realized and Unrealized Gain (Loss) on Investments and
Financial Futures Contracts:
Net realized gain on investments sold ............................. 257,079
Net realized loss on financial futures contracts .................. (6,389)
Change in net unrealized appreciation/depreciation
of investments ................................................... 699,224
Change in net unrealized appreciation/depreciation
of financial futures contracts ................................... (4,234)
----------
Net Realized and Unrealized
Gain on Investments and
Financial Futures Contracts.. 945,680
-----------------------------------------
Net Increase in Net Assets
Resulting from Operations ... $7,081,073
=========================================
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Income Seurities Trust
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30, 1998
1997 (UNAUDITED)
------------ ----------------
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ...................... $12,581,334 $6,135,393
Net realized gain (loss) on investments sold
and financial futures contracts ............ (268,468) 250,690
Change in net unrealized appreciation/
depreciation of investments and financial
futures contracts .......................... 4,039,245 694,990
------------ ------------
Net Increase in Net Assets Resulting
from Operations .......................... 16,352,111 7,081,073
------------ ------------
Distributions to Shareholders:
Dividends from net investment income
($1.2025 and $0.5825 per share,
respectively) .............................. (12,592,069) (6,143,933)
------------ ------------
From Fund Share Transactions - Net : *
(Market value of shares issued in
reinvestment of distributions) ............. 1,219,573 781,468
------------ ------------
Net Assets:
Beginning of period ........................ 168,960,768 173,940,383
------------ ------------
End of period (including undistributed
net investment income of
$42,384 and $33,844, respectively) ......... $173,940,383 $175,658,991
============ ============
* Analysis of Fund Share Transactions:
Shares outstanding, beginning of period .... 10,431,824 10,511,835
Shares issued to shareholders in
reinvestment of distributions .............. 80,011 47,979
------------ ------------
Shares outstanding, end of period .......... 10,511,835 10,559,814
============ ============
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.
7
<PAGE>
<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, 1998
1993 1994 1995 1996 1997 (UNAUDITED)
------ ------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of
Period ............................. $16.31 $16.97 $15.10 $16.74 $16.20 $16.55
Net Investment Income .............. 1.31 1.28 1.26 1.22 1.20 0.58
Net Realized and Unrealized Gain
(Loss) on Investments and
Financial Futures Contracts ........ 0.80 (1.79) 1.64 (0.54) 0.35 0.08
------- ------- ------- ------- ------- -------
Total from Investment Operations.. 2.11 (0.51) 2.90 0.68 1.55 0.66
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment
Income ............................. (1.32) (1.28) (1.26) (1.22) (1.20) (0.58)
Distributions from Net Realized Gain
on Investments Sold and Financial
Futures Contracts .................. (0.13) (0.08) - - - -
------- ------- ------- ------- ------- -------
Total Distributions ....... (1.45) (1.36) (1.26) (1.22) (1.20) (0.58)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period .. $16.97 $15.10 $16.74 $16.20 $16.55 $16.63
======= ======= ======= ======= ======= =======
Per Share Market Value, End of
Period ............................. $16.500 $13.750 $15.750 $14.875 $16.750 $15.750
Total Investment Return
at Market Value ................... 7.22% (8.70%) 24.11% 2.34% 21.57% (2.50%)(1)
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) ..................... $170,988 $154,116 $172,732 $168,961 $173,940 $175,659
Ratio of Expenses
to Average Net Assets .............. 0.84% 0.87% 0.84% 0.84% 0.84% 0.79%(2)
Ratio of Net Investment
Income to Average Net Assets ....... 7.67% 8.03% 7.77% 7.50% 7.34% 7.03%(2)
Portfolio Turnover Rate ............ 95% 82% 105% 117% 143% 127%
(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),
distributions 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.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
Schedule of Investments
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by Income
Securities Trust on June 30, 1998. It's divided into three main categories:
publicly traded bonds, preferred stocks and warrants, and short-term
investments. The bonds are further broken down by industry groups. Short-term
investments, which represent the Fund's "cash" position, are listed last.
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- -------- ------- -------- -----
<S> <C> <C> <C> <C>
PUBLICLY TRADED BONDS
Aerospace (0.41%)
Jet Equipment Trust,
Equipment Trust Cert Ser 95B2
08-15-14 (R) ....................... 10.910% BBB- $550 $721,160
--------
Automobiles/Trucks (0.75%)
ERAC USA Finance Co.,
Note 02-15-05 (R) .................. 6.625 BBB 720 713,385
Ford Motor Co.,
Bond 02-15-28 ..................... 6.625 A1 190 190,158
Deb 11-15-25 ...................... 7.125 A 380 404,426
---------
1,307,969
---------
Banks (9.63%)
Abbey National First Capital, B.V.,
Sub Note (United Kingdom)
10-15-04, (Y) ...................... 8.200 AA- 1,000 1,101,080
ABN-Amro Bank N.V.-D Chicago Branch,
Gtd Sub Deb (Netherlands)
05-31-05, (Y)....................... 7.250 AA- 500 525,285
African Development Bank,
Sub Note (Supranational)
12-15-03, (Y) ...................... 9.750 AA- 1,000 1,174,990
Banc One Corp.,
Sub Deb 10-15-26 ................... 7.625 A+ 370 411,943
Bank of New York,
Cap Security 12-01-26 (R) .......... 7.780 A- 595 635,639
BankBoston NA,
Sub Note 03-25-08 .................. 6.375 A2 530 529,730
Barclays North American
Capital Corp., Gtd Cap
Note 05-15-21 ...................... 9.750 AA- 900 1,006,830
Fleet Financial Group, Inc.,
Note 05-15-08 ...................... 6.375 A- 490 494,925
Landeskreditbank Baden-
Wuerttemberg, Sub Note
(Germany) 02-01-23, (Y)............. 7.625 AAA 2,500 2,902,075
National Westminster
Bank PLC - New York Branch,
Sub Note 05-01-01 .................. 9.450 AA- 1,250 1,356,888
NB Capital Trust IV,
Gtd Cap Security 04-15-27 .......... 8.250 A- 765 854,390
Scotland International
Finance No. 2, B.V., Gtd Sub
Note (Netherlands)
11-01-06 (R), (Y) .................. 8.850 A+ 750 870,870
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- -------- ------- -------- -----
<S> <C> <C> <C> <C>
Banks (continued)
Scotland International Finance
No. 2, B.V., Gtd Sub Note
(United Kingdom) 01-27-04 (R), (Y).. 8.800% A $2,000 $2,252,420
Security Pacific Corp.,
Medium Term Sub Note
04-26-01 ........................... 10.500 A1 1,500 1,674,885
Sub Note 11-15-00 .................. 11.500 A 1,000 1,118,960
-----------
16,910,910
-----------
Building (0.17%)
M.D.C. Holdings, Inc.,
Sr Note 02-01-08 ................... 8.375 BB- 305 305,000
-----------
Containers (0.23%)
Stone Container Corp.,
Unit 04-01-02 ...................... 12.250 B- 390 397,800
-----------
Cosmetics & Personal Care (0.62%)
Global Health Sciences, Inc.,
Sr Note 05-01-08 (R) ............... 11.000 B+ 290 286,375
Johnson & Johnson,
Deb 11-15-23 ....................... 6.730 AAA 750 800,025
-----------
1,086,400
-----------
Electronics (0.17%)
Zilog, Inc.,
Sr Sec Note 03-01-05 (R) ........... 9.500 B 405 295,650
-----------
Energy (1.05%)
AES Corp.,
Sr Sub Note 07-15-06 ............... 10.250 B+ 695 755,813
Sr Sub Note 08-15-07 ............... 8.375 B+ 405 409,050
CalEnergy Company, Inc.,
Sr Note 09-15-06 ................... 9.500 BB+ 450 488,597
P & L Coal Holdings Corp.,
Sr Sub Note 05-15-08 (R) ........... 9.625 B 182 187,005
-----------
1,840,465
-----------
Finance (3.55%)
CIT Group Holdings, Inc.,
Deb 03-15-01 ....................... 9.250 A 1,000 1,080,190
Constitution Capital Trust I,
Gtd Cap Security 04-15-27 (R)....... 9.150 BBB 420 472,567
DR Investments,
Sr Note 05-15-07 (R) ............... 7.450 A- 450 477,333
General Motors Acceptance Corp.,
Medium Term Note 04-06-00 .......... 5.850 A2 1,010 1,008,940
Merrill Lynch Mortgage Investors,
Inc., Sub Bond Ser 1992-B
Class B 04-15-12 ................... 8.500 Aaa 322 330,222
Midland American Capital Corp.,
Gtd Deb 11-15-03 ................... 12.750 A 1,500 1,534,800
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
JOHN HANCOCK FUNDS
John Hancock Funds - Income Securities Trust
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- -------- ------- -------- -----
<S> <C> <C> <C> <C>
Finance (continued)
Niantic Bay Fuel Trust,
Bond 06-04-03 (R) .................. 8.590% NR $275 $277,357
United Companies Financial
Corp., Sr Note 01-15-04 ............ 7.700 BB+ 600 593,778
Yanacocha Receivables
Master Trust, Pass Thru Cert
Ser 1997-A (Peru)
06-15-04 (R), (Y) .................. 8.400 BBB- 482 469,294
-----------
6,244,481
-----------
Funeral Services & Related (0.43%)
Loewen Group International, Inc.,
Gtd Sr Note Ser 4 10-15-03 ......... 8.250 BB+ 740 758,500
-----------
Glass Products (0.20%)
Vicap S.A. de C.V.,
Gtd Sr Note (Mexico)
05-15-07 (R), (Y) .................. 11.375 B+ 340 348,500
-----------
Government - Foreign (2.14%)
Federative Republic of
Brazil, Global Bond
(Brazil) 04-07-08, (Y) ............. 9.375 BB- 380 337,725
Nova Scotia, Province of,
Deb (Canada) 04-01-22, (Y) ......... 8.750 A- 750 966,300
Ontario, Province of,
Bond (Canada) 06-04-02, (Y) ........ 7.750 AA- 500 530,955
Panama, Republic of,
Note (Panama) 02-13-02 (R), (Y)..... 7.875 BB+ 750 735,000
Quebec, Province of,
Deb (Canada) 10-01-13, (Y) ......... 13.000 A+ 500 531,470
Saskatchewan, Province of,
Bond (Canada) 12-15-20, (Y)......... 9.375 A 480 654,216
-----------
3,755,666
-----------
Government - U.S. (22.22%)
United States Treasury,
Bond 08-15-05 ...................... 10.750 Aaa 885 1,151,465
Bond 08-15-17 ...................... 8.875 Aaa 2,080 2,835,622
Bond 05-15-18 ...................... 9.125 Aaa 2,250 3,149,640
Bond 02-15-23 ...................... 7.125 Aaa 10,105 11,953,912
Note 05-15-01 ...................... 8.000 Aaa 1,286 1,369,191
Note 05-15-02 ...................... 7.500 Aaa 4,353 4,645,478
Note 08-15-03 ...................... 5.750 Aaa 4,080 4,123,330
Note 02-15-05 ...................... 7.500 Aaa 4,260 4,715,266
Note 07-15-06 ...................... 7.000 Aaa 4,656 5,084,492
-----------
39,028,396
-----------
Government - U.S. Agencies (8.36%)
Federal Home Loan Mortgage Corp.,
20 Yr Pass Thru Ctf 01-01-16 ....... 11.250 AAA 389 435,697
Federal National Mortgage Assn.,
15 Yr SF Pass Thru Ctf 01-25-05..... 8.000 AAA 1,000 1,032,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- -------- ------- -------- -----
<S> <C> <C> <C> <C>
Government - U.S. Agencies (continued)
Federal National Mortgage Assn. (continued),
15 Yr SF Pass Thru Ctf 02-01-08..... 7.500% AAA $326 $333,973
15 Yr SF Pass Thru Ctf 06-01-10+.... 7.000 AAA 995 1,013,029
15 Yr SF Pass Thru Ctf 02-15-11+.. 6.500 AAA 1,295 1,302,278
30 Yr SF Pass Thru Ctf 10-01-23 .... 7.000 AAA 683 693,152
30 Yr Pass Thru Ctf 03-01-24+....... 6.500 AAA 300 298,779
Pass Thru Ctf Ser 1997-M8 Class
A-1 01-25-22 ....................... 6.940 AAA 376 390,233
Financing Corp.,
Bond 02-08-18 ...................... 9.400 AAA 2,000 2,790,320
Government National Mortgage Assn.,
30 Yr SF Pass Thru Ctf 11-15-19
to 02-15-25 ........................ 9.500 AAA 938 1,012,851
30 Yr SF Pass Thru Ctf 11-15-20 .... 10.000 AAA 282 309,798
30 Yr SF Pass Thru Ctf 04-15-21 .... 9.000 AAA 370 398,110
30 Yr SF Pass Thru Ctf 02-15-24
to 02-15-26 + ...................... 7.500 AAA 2,213 2,274,218
30 Yr Pass Thru Ctf 08-01-24 + ..... 7.000 AAA 710 721,310
30 Yr SF Pass Thru Ctf 08-15-26..... 8.000 AAA 554 574,312
Tennessee Valley Authority,
Power Bonds 1989 Ser G 11-15-29 .... 8.625 AAA 1,000 1,105,280
-----------
14,685,840
-----------
Household (0.23%)
WestPoint Stevens, Inc.,
Sr Note 06-15-05 (R) ............... 7.875 BB 405 408,038
-----------
Insurance (4.71%)
Conseco, Inc.,
Note 06-15-05 ...................... 6.800 BBB 500 500,835
Equitable Life Assurance
Society of the United States,
Surplus Note 12-01-05 (R) .......... 6.950 A 550 570,972
Fairfax Financial Holdings Ltd.,
Note (Canada) 04-15-26, (Y)......... 8.300 BBB+ 695 788,672
Liberty Mutual Insurance Co.,
Surplus Note 05-04-07 (R) .......... 8.200 A+ 1,100 1,240,811
Surplus Note 10-15-26 (R) .......... 7.875 A2 435 490,945
Massachusetts Mutual Life
Insurance Co., Surplus Note
11-15-23 (R) ....................... 7.625 AA 1,145 1,298,350
NAC Re Corp.,
Note 06-15-99 ...................... 8.000 A- 370 376,235
New York Life Insurance Co.,
Surplus Note 12-15-23 (R) .......... 7.500 AA- 1,500 1,567,215
Sun Canada Financial Co.,
Gtd Sub Note 12-15-07 (R) .......... 6.625 AA 725 750,738
URC Holdings Corp.,
Sr Note 06-20-06 (R) ............... 7.875 A- 640 690,240
-----------
8,275,013
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- -------- ------- -------- -----
<S> <C> <C> <C> <C>
Leisure (1.08%)
Mohegan Tribal Gaming Authority,
Sr Sec Note Ser B 11-15-02 ......... 13.500% BB+ $150 $190,875
Showboat Marina Casino Partnership/
Finance Corp., 1st Mtg Note
Ser B 03-15-03 ..................... 13.500 BB- 500 585,000
Sun International Hotels Ltd.,
Gtd Sr Sub Note 03-15-07 ........... 9.000 B+ 230 240,925
Gtd Sr Sub Note (Bahamas)
12-15-07 (Y) ....................... 8.625 B+ 260 267,800
Trump Hotels & Casino Resorts
Funding, Inc./Holdings, L.P.,
Sr Note 06-15-05 ................... 15.500 B- 550 618,750
-----------
1,903,350
-----------
Media (6.03%)
Adelphia Communications Corp.,
Sr Note 07-15-02 (R)................ 8.125 B 240 238,649
Sr Note Ser B 10-01-02 ............. 9.250 B2 550 569,250
Century Communications Corp.,
Sr Note 08-15-00 ................... 9.500 BB- 280 292,600
Clear Channel Communications, Inc.,
Deb 10-15-27 ....................... 7.250 BBB- 710 731,520
Comcast Corp.,
Sr Sub Deb 07-15-12 ................ 10.625 BB+ 605 780,450
Continental Cablevision, Inc.,
Sr Sub Deb 06-01-07 ................ 11.000 BBB- 1,210 1,321,066
Cumulus Media, Inc.,
Sr Sub Note 07-01-08 ............... 10.375 CCC+ 200 202,750
Garden State Newspapers, Inc.,
Sr Sub Note 10-01-09 ............... 8.750 B+ 276 280,140
Le Groupe Videotron Ltee,
Sr Note (Canada) 02-15-05, (Y) ..... 10.625 BBB- 540 593,060
News America Holdings, Inc.,
Gtd Sr Deb 08-10-18 ................ 8.250 BBB- 537 605,886
OpTel, Inc.,
Sr Note 07-01-02 (R) ++ ............ 11.500 B- 190 190,000
Rogers Cablesystems Ltd.,
Sr Note Ser B (Canada)
03-15-05, (Y) ...................... 10.000 BB+ 800 888,000
Sr Sec Second Priority Note
(Canada) 08-01-02, (Y) ............. 9.625 BB+ 300 321,000
SFX Broadcasting, Inc.,
Sr Sub Note Ser B 05-15-06 ......... 10.750 B- 330 363,825
TeleWest Communications PLC,
Sr Deb (United Kingdom)
10-01-06, (Y) ...................... 9.625 B+ 380 400,900
Time Warner, Inc.,
Deb 01-15-13 ....................... 9.125 BBB- 539 655,990
TKR Cable I, Inc.,
Sr Deb 10-30-07 .................... 10.500 BBB- 1,955 2,150,852
-----------
10,585,938
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMETNS.
13
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- -------- ------- -------- -----
<S> <C> <C> <C> <C>
Medical (2.11%)
Dynacare, Inc.,
Sr Note (Canada) 01-15-06, (Y)...... 10.750% B+ $275 $290,813
Fresenius Medical Care Capital
Trust II, Gtd Trust Preferred
Security 02-01-08 (R) .............. 7.875 B+ 405 400,950
Integrated Health Services, Inc.,
Sr Sub Note 01-15-08 ............... 9.250 B- 500 519,375
PharMerica, Inc.,
Sr Sub Note 04-01-08 (R) ........... 8.375 B 175 175,875
Physician Sales & Service, Inc.,
Gtd Sr Sub Note 10-01-07 ........... 8.500 B 275 283,250
Quest Diagnostics, Inc.,
Sr Sub Note 12-15-06 ............... 10.750 B+ 355 396,713
Sola International, Inc.,
Note 03-15-08 ...................... 6.875 BBB- 425 424,745
Tenet Healthcare Corp.,
Sr Sub Note 01-15-07 ............... 8.625 BB- 410 420,250
Sr Sub Note 12-01-08 (R) ........... 8.125 BB- 235 235,294
Vencor, Inc.,
Sr Sub Note 05-01-05 (R) ........... 9.875 B- 205 200,388
Watson Pharmaceuticals, Inc.,
Sr Note 05-15-08 ................... 7.125 BBB- 350 354,813
-----------
3,702,466
-----------
Metals (0.15%)
Freeport-McMoRan Copper & Gold, Inc.,
Sr Note 11-15-26 ................... 7.200 CCC+ 335 269,467
-----------
Mortgage Banking (4.50%)
Citibank Credit Card Master Trust I,
Pass Thru Ctf Ser 1997-7 Class A
08-15-02 ........................... 6.350 AAA 1,010 1,018,048
ContiFinancial Corp.,
Sr Note 03-15-02 ................... 7.500 BB+ 495 496,683
ContiMortgage Home Equity Loan
Trust, Pass Thru Ctf Ser 1995-2
Class A-5 08-15-25 ................. 8.100 AAA 425 442,199
Countywide Home Loans, Inc.,
Mortgage Pass Thru Ctf Ser
1997-7 Cl A8 12-25-27 .............. 7.250 Aaa 914 960,382
CS First Boston Mortgage Securities
Corp., Commercial Mtg Pass Thru
Ctf Ser 1998-C1 Class A-1A
05-17-40 ........................... 6.260 AAA 675 680,168
Deutsche Mortgage & Asset
Receiving Corp., Commercial Mtg
Pass-Through Ctf Ser 1998-C1
Class C 03-15-08 ................... 6.861 A2 415 423,948
FirstPlus Home Loan Trust,
Pass Thru Ctf Ser 1998-4
Class A-5 01-01-01 ................. 6.380 AAA 730 730,449
GMAC Commercial Mortgage
Securities, Inc., Pass Thru Ctf
Ser 1997-C2 Class A-3 11-15-07 ..... 6.566 AAA 705 722,184
IMC Home Equity Loan Trust,
Pass Thru Ctf Ser 1996-1
Class A-5 12-25-13 ................. 6.290 AAA 720 721,125
Nomura Asset Securities Corp.,
Pass Thru Ctf Ser 1998-6
Class A-1A 03-17-28 ................ 6.280 AAA 507 511,243
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- -------- ------- -------- -----
<S> <C> <C> <C> <C>
Mortgage Banking (continued)
Salomon Brothers Mortgage
Securities VII, Inc., Mtg Pass
Thru Ctf Ser 1997-HUD2
Class A-2 07-25-24 ................. 6.750% Aaa $454 $461,378
UCFC Home Equity Loan Trust,
Pass Thru Ctf Ser 1996- 1
Class A6 02-15-25 .................. 7.180 AAA 710 734,406
-----------
7,902,213
-----------
Oil & Gas (2.01%)
Camuzzi Gas Pampeana S.A.,
Bond (Argentina) 12-15-01, (Y)...... 9.250 BBB- 403 406,023
Norsk Hydro ASA,
Deb (Norway) 10-01-16, (Y) ......... 7.500 A 720 805,356
Occidental Petroleum Corp.,
Sr Deb 09-15-09 .................... 10.125 BBB 600 760,104
Petroleum Geo-Services,
Sr Note (Norway) 03-30-08, (Y)...... 6.625 BBB 555 555,999
Union Pacific Resources Group, Inc.,
Deb 05-15-28 ....................... 7.150 BBB 440 440,057
YPF Sociedad Anonima,
Sr Note (Argentina)
03-15-03, (Y) ...................... 7.250 BBB- 580 563,586
-----------
3,531,125
-----------
Paper & Paper Products (0.65%)
Fort James Corp.,
Sr Note 09-15-02 ................... 6.500 BBB- 470 473,257
Repap New Brunswick,
Sr Note (Canada) 04-15-05, (Y)...... 10.625 CCC+ 195 196,950
S.D. Warren Co.,
Sr Sub Note Ser B 12-15-04 ......... 12.000 B+ 432 477,360
-----------
1,147,567
-----------
Real Estate Investment Trusts (0.73%)
American Health Properties, Inc.,
Note 01-15-07 ...................... 7.500 BBB- 410 420,496
Liberty Property L.P.,
Med Term Note 06-05-02 ............. 6.600 BBB- 355 355,355
TriNet Corporate Realty Trust, Inc.,
Note 05-15-01 ..................... 7.300 BBB- 500 507,915
-----------
1,283,766
-----------
Retail (1.97%)
Kroger Co. (The),
Lease Ctf 02-01-09 ................. 12.950 BBB- 1,910 2,129,650
May Department Stores Co. (The),
Deb 06-15-18 ....................... 10.750 A 254 268,379
Safeway, Inc.,
Deb 01-15-09 ....................... 13.500 BBB 474 528,882
Southern Foods Group L.P.,
Sr Sub Note 09-01-07 (R) ........... 9.875 B 515 536,888
-----------
3,463,799
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- -------- ------- -------- -----
<S> <C> <C> <C> <C>
Steel (0.36%)
Bayou Steel Corp.,
1st Mtg Bond 05-15-08 (R) .......... 9.500% B $290 $287,463
IVACO, Inc.,
Sr Note (Canada) 09-15-05, (Y)...... 11.500 B+ 320 351,200
-----------
638,663
-----------
Telecommunications (3.59%)
Compagnie De Radiocomunicaciones
Moviles S.A., Bond (Argentina)
05-08-08 (R), (Y) .................. 9.250 Ba3 80 76,800
Esprit Telecom Group PLC,
Sr Note (United Kingdom)
06-15-08 (R), (Y) .................. 10.875 B- 295 292,050
Facilicom International,
Sr Note 01-15-08 (R) ............... 10.500 NR 344 337,120
FLAG Ltd.,
Sr Note 01-30-08 (R)................ 8.250 B+ 494 497,705
McLeodUSA, Inc.,
Sr Note 03-15-08 (R)................ 8.375 B+ 408 409,020
MetroNet Communications Corp.,
Sr Note (Canada) 08-15-07, (Y)...... 12.000 B 530 609,500
Nextel Communications, Inc.,
Sr Disc Note, Step Coupon
(9.75%, 02-15-99) 08-15-04 ......... Zero CCC+ 967 940,408
Sr Disc Note, Step Coupon
(9.95%, 02-15-03) 02-15-08 (R)...... Zero CCC+ 438 279,225
NEXTLINK Communications, Inc.,
Sr Note 10-01-07 ................... 9.625 B 212 216,240
Sr Note 03-15-08 (R)................ 9.000 B 160 160,000
Paging Network, Inc.,
Sr Sub Note 10-15-08 ............... 10.000 B 316 326,270
Qwest Communications International,
Inc., Sr Note Ser B 04-01-07 ....... 10.875 BB+ 465 535,913
Satelites Mexicanos S.A. de C.V.,
Sr Note (Mexico) 11-01-04 (R), (Y).. 10.125 B- 165 160,875
TCI Communications, Inc.,
Sr Deb 08-01-15 .................... 8.750 BBB- 648 780,140
Teligent, Inc.,
Sr Note 12-01-07 ................... 11.500 CCC 400 405,000
Viatel, Inc.,
Unit (Sr Note & Preferred Stock)
04-15-08 (R) ....................... 11.250 Caa1 275 288,063
-----------
6,314,329
-----------
Textile (0.75%)
Tommy Hilfiger USA,
Gtd Note 06-01-03 .................. 6.500 BBB- 485 486,819
Tropical Sportswear International
Corp., Sr Sub Note 06-15-08 (R)..... 11.001 B- 290 290,725
Unifi, Inc.,
Note, Ser B 02-01-08 ............... 6.500 A- 545 538,842
-----------
1,316,386
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- -------- ------- -------- -----
<S> <C> <C> <C> <C>
Tobacco (0.48%)
RJR Nabisco, Inc.,
Note 12-01-02 ...................... 8.625% BBB- $455 $469,646
Note 09-15-03 ...................... 7.625 BBB- 375 372,844
-----------
842,490
-----------
Transportation (4.30%)
America West Airlines,
Pass Thru Ctf Ser B 01-02-08........ 6.930 A- 517 524,471
Continental Airlines,
Pass Thru Ctf Ser 96-C 10-15-13 .... 9.500 BBB+ 481 555,466
Enterprises Shipholding Corp.,
Sr Note (Greece) 05-01-08 (R), (Y).. 8.875 BB 270 264,600
Fine Air Services, Inc.,
Sr Note 06-01-02 (R) ............... 9.875 B 440 430,100
Humpuss Funding Corp.,
Gtd Note (Indonesia)
12-15-09 (R), (Y) .................. 7.720 B3 520 379,807
Northwest Airlines Corp.,
Gtd Note 03-15-04 .................. 8.375 BB 425 438,243
Pass Thru Ctf Ser 1996-1
07-02-16 ........................... 8.970 BBB- 391 440,651
Northwest Airlines, Inc.,
Pass Thru Ctf Ser 1996-1C
01-02-15 ........................... 10.150 BB+ 309 327,773
NWA Trust,
Sr Note Ser A 06-21-14 ............. 9.250 A2 586 703,332
Railcar Trust No. 1992-1,
Pass Thru Ser 1992-1 Class A
06-01-04 ........................... 7.750 AAA 1,379 1,452,011
Scandinavian Airlines System,
Deb (Sweden) 07-20-99, (Y) ......... 9.125 A3 700 724,500
U.S. Airways, Inc.,
Pass Thru Ctf Ser 1990-A1
03-19-05 ........................... 11.200 BB 914 1,027,999
Wisconsin Central Transportation
Corp., Note 04-15-08 ............... 6.625 BBB- 290 288,115
-----------
7,557,068
-----------
Utilities (11.97%)
Beaver Valley Funding Corp.,
Sec Lease Oblig Bond 06-01-17 ...... 9.000 BB- 588 672,407
British Telecom Finance, Inc.,
Gtd Deb (United Kingdom)
02-15-19, (Y) ...................... 9.625 AAA 1,120 1,193,909
BVPS II Funding Corp.,
Collateralized Lease Bond
06-01-17 ........................... 8.890 BB- 700 809,375
Calpine Corp.,
Sr Note 05-15-06 ................... 10.500 BB- 465 509,175
Sr Note 07-15-07 ................... 8.750 BB- 200 205,500
CE Casecnan Water & Energy Co., Inc.,
Sr Note Ser A (Philippine Islands)
11-15-05, (Y) ...................... 11.450 BB 400 399,000
Chugach Electric Association, Inc.,
1St Mtg 1991 Ser A 03-15-22 ........ 9.140 A 2,000 2,410,480
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- -------- ------- -------- -----
<S> <C> <C> <C> <C>
Utilities (continued)
Cleveland Electric Illuminating Co.,
1st Mtg Ser B 05-15-05 ............. 9.500% BB+ $1,090 $1,203,960
EIP Funding-PNM,
Sec Fac Bond 10-01-12 .............. 10.250 Ba2 710 838,430
Enersis S.A.,
Note (Chile) 12-01-16, (Y) ......... 7.400 A- 300 274,119
First PV Funding Corp.,
Deb Ser 86A 01-15-14 ............... 10.300 BB- 200 213,110
Deb Ser 86B 01-15-16 ............... 10.150 BB- 294 313,164
GTE Corp.,
Deb 11-01-20 ....................... 10.250 A 1,500 1,679,595
Hydro-Quebec,
Gtd Deb (Canada) 02-01-03, (Y)...... 7.375 A+ 750 788,753
Gtd Bond (Canada) 02-01-21, (Y)..... 9.400 A+ 500 664,830
Gtd Bond (Canada) 01-15-22, (Y)..... 8.400 A+ 880 1,074,452
Iberdrola International B.V.,
Note (Spain) 10-01-02, (Y) ......... 7.500 AA- 2,000 2,092,660
Long Island Lighting Co.,
Deb 07-15-19 ....................... 8.900 A- 395 418,605
Deb 11-01-22 ....................... 9.000 A- 370 422,018
Midland Cogeneration Venture L.P.,
Sec Deb Ser C-91 07-23-02 .......... 10.330 BB- 912 979,991
Midland Funding Corp. II,
Deb 07-23-05 ....................... 11.750 B 300 360,880
Deb Ser B 07-23-06 ................. 13.250 B 225 291,020
Monterrey Power S.A. de C.V.,
Sr Sec Bond (Mexico)
11-15-09 (R), (Y)................... 9.625 BB 290 271,150
Niagara Mohawk Power Corp.,
Sr Note Sr G 10-01-08 .............. 7.750 BB- 355 363,431
North Atlantic Energy Corp.,
1st Mtg Bond 06-01-02 .............. 9.050 B+ 555 570,479
Puget Sound Energy Capital Trust I,
Gtd Cap Security Ser B 06-01-27 .... 8.231 Baa2 370 384,650
System Energy Resources, Inc.,
1st Mtg 08-01-01 ................... 7.710 BBB- 615 629,459
U.S. West Capital Funding Inc.,
Co Gtd 7-15-28 ..................... 6.875 A- 370 370,030
Waterford 3 Funding Corp.,
Sec Lease Obligation
Bond 01-02-17 ...................... 8.090 BBB- 593 614,668
-----------
21,019,300
-----------
TOTAL PUBLICLY TRADED BONDS
(Cost $161,882,592) (95.55%) 167,847,715
--------- -----------
</TABLE>
SEE NOTES T0 FINANCIAL STATEMENTS.
18
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
ISSUER DESCRIPTION SHARES OR WARRANTS MARKET VALUE
- ------------------ ------------------ ------------
<S> <C> <C>
PREFERRED STOCKS AND WARRANTS
California Federal Preferred Capital Corp., 9.125%,
Ser A, Preferred Stock.................................. 21,560 $588,858
Connecticut Light & Power Co., 5.30%, Ser 1993,
Preferred Stock ......................................... 22,643 1,041,578
MetroNet Communications Corp., Warrant (Canada)
(R), (Y) ................................................ 530 25,440
Time Warner, Inc., 10.25%, Ser M,
Preferred Stock ......................................... 985 1,094,137
------------
2,750,013
------------
TOTAL PREFERRED STOCKS AND WARRANTS
(Cost $2,713,017) (1.57%) 2,750,013
-------- ------------
</TABLE>
<TABLE>
<CAPTION>
INTEREST PAR VALUE
RATE (000S OMITTED)
---- --------------
<S> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (3.18%)
Investment in a joint repurchase agreement
transaction with Toronto Dominion Securities
USA, Inc. - dated 06-30-98, due 07-01-98
(Secured by U. S. Treasury Notes, 5.000%
thru 9.125% due 02-15-99 thru 05-15-18)-
Note A ...................................... 5.750% $5,585 5,585,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% .......................... 579
------------
TOTAL SHORT-TERM INVESTMENTS (3.18%) 5,585,579
-------- ------------
TOTAL INVESTMENTS (100.30%) 176,183,307
-------- ------------
OTHER ASSETS AND LIABILITIES, NET (0.30%) (524,316)
-------- ------------
TOTAL NET ASSETS (100.00%) $175,658,991
======== ============
</TABLE>
(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 $22,188,051 or 12.63% of net assets as of
June 30, 1998.
(Y) Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer; however, security is U.S. dollar
denominated.
+ These securities, having an aggregate value of $3,607,727 or 2.05% of the
Fund's net assets, have been purchased on a when-issued basis. The purchase
price and the interest rate of such securities are fixed at trade date,
although the Fund does not earn any interest on such securities until
settlement date. The Fund has instructed its custodian bank to segregate
assets with a current value at least equal to the amount of its when-issued
commitments. Accordingly, the market values of $2,655,768 of U.S. Treasury
Bond, 7.125%, 02-15-23, and $1,048,206, U.S. Treasury Note, 7.500%,
02-15-05, have been segregated to cover the when-issued commitments.
++ This security, having an aggregate value of $190,000 or 0.11% of the Fund's
net assets, has been purchased as a forward commitment; that is, the Fund
has agreed on trade date to take delivery of and make payment for such
security on a delayed basis subsequent to the date of this schedule. The
purchase price and interest rate of such security are fixed at trade date,
although the Fund does not earn any interest on such security until
settlement date. The Fund has instructed its Custodian Bank to segregate
assets with a current value at least equal to the amount of the forward
commitment. Accordingly, the market value of $194,578 of United States
Treasury Bond, 9.125%, 05-15-18, has been segregated to cover the forward
commitment.
* Credit ratings are unaudited and rated by Standard & Poor's where
available, or Moody's Investors Service or John Hancock Advisers, Inc.
where Standard & Poor's ratings are not available.
NR = Not rated.
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.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Income Securities Trust (the "Fund") is a closed-end investment
management company registered under the Investment Company Act of 1940.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost, which approximates market value.
Effective June 1,1998, the Fund determines the net asset value of the Common
Shares each business day at the close of regular trading.
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,
Inc., 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 $94,631 of capital loss
carryforwards 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 carryforwards expire as
follows: December 31, 2004 N $76,080 and December 31, 2005 N $18,551.
DIVIDENDS, INTEREST AND DISTRIBUTIONS 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
"Ovariation 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.
20
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
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, 1998, open positions in financial futures contracts were as follows:
UNREALIZED
EXPIRATION OPEN CONTRACT POSITION DEPRECIATION
- ---------- ------------- -------- ------------
SEP 98 2 U.S. TREASURY NOTE SHORT ($4,234)
========
At June 30, 1998, 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 less than 0.02% 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, 1998, 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, 1998 aggregated $82,438,303 and $80,521,811, respectively.
Purchases and proceeds from sales of obligations of the U.S. government and its
agencies aggregated $131,955,609 and $134,411,484 respectively. The cost of
investments owned at June 30, 1998 (including the joint repurchase agreement)
for federal income tax purposes was $170,392,974. Gross unrealized appreciation
and depreciation of investments at June 30, 1998 aggregated $7,390,041 and
$1,600,287, respectively, resulting in net unrealized appreciation of
$5,789,754.
21
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John Hancock Funds - Income Securities Trust
DIVIDENDS AND DISTRIBUTIONS
During 1998, dividends from net investment income totaling $0.5825 per share was
paid to shareholders. The dates of payment and the amounts per share are as
follows:
INCOME
PAYMENT DATE DIVIDEND
- ------------ --------
March 31, 1998 $0.2950
June 30, 1998 $0.2875
INVESTMENT OBJECTIVE AND POLICY
John Hancock Income Securities Trust is a closed-end diversified investment
management company, shares of which were initially offered to the public on
February 14, 1973 and are publicly traded on the New York Stock Exchange. Its
investment objective is to generate a high level of current income consistent
with prudent investment risk. The Fund invests in a diversified portfolio of
freely marketable debt securities and may invest an amount not exceeding 20% of
its assets in income-producing preferred and common stock. The Fund intends to
engage in short-term trading, may issue a single class of senior securities not
to exceed 331/3% of its net assets at market value, may borrow from banks as a
temporary measure for emergency purposes in amounts not to exceed 5% of the
total assets at cost and may lend its portfolio securities. The Fund pays
quarterly dividends from net investment income and intends to distribute any
available net realized capital gains annually. All distributions are paid in
cash unless the shareholder elects to participate in the Automatic Dividend
Reinvestment Plan.
FINANCIAL FUTURES CONTRACTS
The Fund may buy and sell financial futures contracts and options on futures
contracts to hedge against the effects of fluctuations in interest rates and
other market conditions. The Fund's ability to hedge successfully will depend on
the Adviser's ability to predict accurately the future direction of interest
rate changes and other market factors. There is no assurance that a liquid
market for futures and options will always exist. In addition, the Fund could be
prevented from opening, or realizing the benefits of closing out, a futures or
options position because of position limits or limits on daily price
fluctuations imposed by an exchange.
The Fund will not engage in transactions in futures contracts and options on
futures for speculation, but only for hedging or other permissible risk
management purposes. All of the Fund's futures contracts and options on futures
will be traded on a U.S. commodity exchange or board of trade. The Fund will not
engage in a transaction in futures or options on futures if, immediately
thereafter, the sum of initial margin deposits on existing positions and
premiums paid for options on futures would exceed 5% of the Fund's total assets.
DIVIDEND REINVESTMENT PLAN
John Hancock Income Securities Trust offers shareholders the opportunity to
elect to receive shares of the Fund's Common Shares in lieu of cash dividends.
The Plan is available to all shareholders without charge.
Any shareholder of record of John Hancock Income Securities Trust ("Income
Securities") may elect to participate in the Automatic Dividend Reinvestment
Plan (the "Plan") and receive shares of Income Securities' Common Shares in lieu
of all or a portion of the cash dividends.
Shareholders may join the Plan by filling out and mailing an authorization card
showing an election to reinvest all or a portion of dividend payments. If
received in proper form by State Street Bank and Trust Company, P.O. Box 8209,
Boston, Massachusetts 02266-8209 (the "Agent Bank") not later than seven
business days before the record date for a dividend, the election will be
effective with respect to all dividends paid after such record date.
Shareholders whose shares are held in the name of a broker or nominee should
contact the broker, bank or nominee to participate in the Plan.
Participation in the Plan may be terminated at any time by written notice to the
Agent Bank and such termination will be effective immediately. However, notice
of termination must be received seven days prior to the record date of any
distribution to be effective for that distribution. Upon termination,
certificates will be issued representing the number of full shares of Common
Shares held by the Agent Bank. A shareholder will receive a cash payment for any
fractional share held.
The Agent Bank will act as agent for participating shareholders. The Board of
Trustees of Income Securities will declare dividends from net investment income
payable in cash or, in the case of shareholders participating in the Plan,
partially or entirely in Income Securities' Common Shares. The number of shares
to be issued for the benefit of each shareholder will be determined by dividing
22
<PAGE>
John Hancock Funds - Income Securities Trust
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.
All correspondence or additional information concerning the plan should be
directed to the Plan Agent, State Street Bank and Trust Company, at P.O. Box
8209, Boston, Massachusetts 02266-8209, (telephone 1-800-426-5523).
YEAR 2000 COMPLIANCE
The Adviser and the Fund's service providers are taking steps to address any
year 2000-related computer problems. However, there is some risk that these
problems could disrupt the Fund's operations or financial markets generally.
SHAREHOLDER MEETING
On April 16, 1998, 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 8,724,321 115,438
Edward J. Boudreau, Jr. 8,714,601 125,158
Richard P. Chapman, Jr. 8,725,922 113,837
William J. Cosgrove 8,724,769 114,990
Douglas M. Costle 8,712,005 127,754
Leland O. Erdahl 8,710,004 129,755
Richard A. Farrell 8,734,503 105,256
Gail D. Fosler 8,718,224 121,535
William F. Glavin 8,711,913 127,846
Anne C. Hodsdon 8,715,229 124,530
Dr. John A. Moore 8,713,618 126,141
Patti McGill Peterson 8,712,543 127,216
John W. Pratt 8,714,795 124,964
Richard S. Scipione 8,732,797 106,962
Edward J. Spellman 8,729,606 110,153
The Shareholders also ratified the Trustees' Selection of Ernst & Young LLP as
auditors for the fiscal year ending December 31, 1998, with the votes tabulated
as follows: 8,695,991 FOR, 44,238 AGAINST and 99,530 ABSTAINING.
23
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