ANNUAL REPORT
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[GRAPHIC OMITTED]
Income
Securities Trust
DECEMBER 31, 1998
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
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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
*Members of the Audit Committee
OFFICERS
EDWARD J. BOUDREAU, JR.
Chairman and Chief Executive Officer
ANNE C. HODSDON
President, Chief Operating Officer
and Chief Investment Officer
OSBERT M. HOOD
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
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
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116-5072
LISTED NEW YORK STOCK EXCHANGE SYMBOL: JHS
FOR SHAREHOLDER ASSISTANCE
REFER TO PAGE 26
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===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
Nineteen ninety-eight was a year that gave even veteran financial market
investors pause -- and not a little heartburn. The stock market produced a
record fourth straight year of double-digit returns, but volatility was
breathtaking along the way. With the exception of the U.S. Treasury market, even
bonds -- considered a safer alternative to stocks -- went on a roller coaster
ride.
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[A 1" x 1 1/2" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
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One lesson came through loud and clear this year: sticking out the tough
times paid off. After reaching new highs in mid-July, stocks plunged in August
in one of their worst sell-offs in years. The average U.S. diversified-equity
mutual fund fell 16.8% in the month of August alone. For many mutual fund
investors, it was the largest one-month loss they had ever experienced, since
the average equity fund had only had three such double-digit monthly losses in
the previous 20 years, most recently in October 1987. This year, in a dramatic
reversal of fortune, the market staged a stunning rebound in the fourth quarter.
The average U.S. diversified-equity fund made up all its August lost ground and
then some, returning 18.8% between October and December. The result for the
year: an average 14.52% return, as calculated by Lipper Analytical Services,
Inc.
Given the dramatic swings, investors who tried to time the market's ups and
downs encountered a sharp whipsaw. We are very encouraged to report that an
overwhelming majority of mutual fund investors sat tight during this summer of
discontent; some even used the market's drop to pick up bargains. It was a clear
sign that long-term investors are willing to accept the reality of shorter-term
volatility.
As we begin 1999, volatility remains on many investors' minds. But at this
time of year, many investors' thoughts also turn to more taxing matters. In our
view, now is a perfect time to focus on how much of your hard-earned money you
are able to keep. Part of a good tax-planning strategy should involve a review
of your portfolio to ensure that you are taking advantage of all available ways
to minimize and defer your tax payments -- in an effort to maximize investment
returns.
We encourage you to work with your investment professional to consider the
various options. These include focusing on tax-exempt funds, contributing the
maximum to retirement plans, establishing or adding to IRAs and funding a
variable annuity. After all, while it's every American's responsibility to pay
taxes, there's no reason to pay more than your fair share.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
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BY JAMES K. HO, CFA, PORTFOLIO MANAGER
John Hancock
Income Securities Trust
Markets gyrated wildly, but Fund still posts respectable gains
Over the course of 1998, stock and bond markets worldwide experienced firsthand
the power of the people. The Fund's fiscal year began last January on the heels
of Asia's currency debacle, which served to put investors on edge for the
remainder of the period and in the driver's seat when it came to global market
performance. With each new wave of political unrest and financial upheaval,
investors sent stock and bond prices reeling. This proved to be most frustrating
for many money managers, as the underlying fundamentals of the U.S. economy and
corporate America were strong.
Some of the year's more notable catalysts of investor concern included the
rioting in Indonesia, Japan's ongoing banking crisis, Brazil's deepening fiscal
woes and the once-unthinkable default of a nation--Russia--on its sovereign
debt. The widely publicized bailout of several large, highly leveraged hedge
funds served to further heighten the panic. By the final quarter of 1998,
however, relative stability seemed to have returned to the markets. Investors
responded favorably to the Federal Reserve Board's three successive
interest-rate cuts, reassured once again that the Fed was committed to
maintaining liquidity in the global marketplace.
Throughout the turbulent year, we held steady in our pursuit of high monthly
income in a prudent manner, balancing defensive strategies with timely maneuvers
among fixed-income sectors. Our efforts proved fruitful. For the 12 months ended
December 31, 1998, John Hancock Income Securities Trust produced a total return
of 7.94% at net asset value. This compared with the 7.47% return of the average
"...we held steady in our pursuit of high monthly income..."
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[A 3 1/2" x 2 1/2" photo at bottom right side of page of John Hancock Income
Securities Trust. Caption below reads "Fund management team members (l-r): "Ben
Matthews, Lee Crockett, Jim Ho, Tony Goodchild and Beverly Cleathero."]
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3
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John Hancock Funds - Income Securities Trust
"...we became more defensive..."
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[Table at top left hand column entitled "Top Five Bond Sectors." The first
listing is U.S. Government & Agencies 33%, the second is Banks & Financials 21%,
the third Utilities 13%, the fourth Media 6% and the fifth Transportation 4%. A
note below the table reads "As a percentage of net assets on December 31,
1998."]
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open-end corporate debt A-rated fund, according to Lipper Analytical Services,
Inc.
U.S. Treasury market was king
One major beneficiary of the year's volatility was the U.S. Treasury market.
Long regarded by investors worldwide as the safest investment haven,
government-guaranteed U.S. Treasury securities experienced an impressive rally
as investors became increasingly risk-averse. The yield on the bellwether
30-year bond ended the period at 5.09% -- the lowest it has been in roughly
three decades. High-quality corporate bonds, high-yield debt and emerging-market
issues experienced severe routs during the summer months as investors stampeded
out of these markets on fears of a global recession and slowing U.S. economy.
Emerging-market bonds suffered the brunt of the volatility, while high-yield and
investment-grade corporate bond prices retreated to levels last experienced in
the 1989-90 recession. The supply of new corporate issues ground to a halt and
demand for existing bonds vanished, creating an illiquid environment. Other
sectors that also came under pressure included mortgage-backed and asset-backed
securities.
Strategies that worked
The Fund entered fiscal 1998 with a duration stance that was relatively neutral
compared to its benchmark, the Lehman Brothers Government/Corporate Bond Index.
We kept it that way throughout the period. Duration is a measure of a fund's
sensitivity to interest rate fluctuations. The longer the duration, the more
dramatic the price swings when interest rates change. We achieved this by
"bulleting," or clustering, the Fund's assets in intermediate-term government
securities in the middle part of the yield curve. This type of structure
historically works well when the difference between short- and long-term
Treasury securities widens, an occurrence known as a steepening yield curve.
Throughout the first half of the year, however, this approach may have seemed a
bit premature as the yield curve continued to flatten. But we held steady,
confident that our positioning would be rewarded, and, indeed, it was. As the
summer progressed, concerns arose about corporate profitability and the extent
of the economic fallout from international turmoil. The market then began to
anticipate intervention by the Fed via interest-rate cuts and the yield curve
steepened a bit.
Shortly into the fiscal period, we became more defensive in managing the
Fund. We upgraded our credit exposure within the corporate sector and stayed
away from cyclical issues such as paper, steel, oil, gas and capital goods. We
also steered clear of most emerging-market debt.
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[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 Power Corp. followed by an up arrow with the phrase "Restructuring story;
credit upgrade potential." The second listing is Tenet Healthcare followed by an
up arrow with the phrase "Solid fundamentals." The third listing is CE Casecnan
Water & Energy followed by a down arrow with the phrase "Hurt by emerging-market
rout." A note below the table reads "See `Schedule of Investments.' Investment
holdings are subject to change."]
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4
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John Hancock Funds - Income Securities Trust
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[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended December 31, 1998." The chart
is scaled in increments of 2% with 0% at the bottom and 8% at the top. The first
bar represents the 7.94% Total return for John Hancock Income Securities Trust.
The second bar represents the 7.47% total return for Average open-end corporate
debt A-rated fund. A note below the chart 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, Inc. "]
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Early in the summer months, we cut back the Fund's exposure to high-yield and
investment-grade corporate bonds, redeploying assets into Treasury securities.
The Fund's timely increase in these issues helped the portfolio weather one of
the most difficult periods for fixed-income securities in a long time, a time
when valuations in the corporate arena became historically attractive. By
mid-fall, markets calmed down and liquidity had begun to return, so bonds began
to recover some lost ground. Higher-quality companies were able to bring new
issues to the market at extraordinarily cheap prices. We started to trim back
the Fund's Treasury exposure and take advantage of the opportunity to add
several high-grade names to the Fund, including Associates Corp. of North
America, IBM, Merrill Lynch Mortgage Investors and Seagram & Sons. We continued
to do so, quite aggressively, through December.
Throughout the period, we favored industries that either exhibit strong
growth characteristics for any environment, such as telecommunications and
media, or those that enjoy steady demand through all market cycles, such as
utility and health care. Several holdings that are positioned to perform well
include Tenet Healthcare, Niagara Mohawk Power Corp., Time Warner and News
America Holdings.
As the year progressed, we also chose to increase the Fund's mortgage-backed
and asset-backed allocations. This, however, proved to hinder, rather than help,
the portfolio's performance as these securities experienced downward pressure
along with corporate issues in the summer and fall. The portfolio continues to
hold these securities going into fiscal 1999 because their yield levels are
attractive and we believe they remain worthwhile to own.
What we see ahead
As we enter fiscal 1999, we are cautiously optimistic about the prospects for
corporate issues. All of the fundamental factors that tend to contribute to
solid performance are still in place: inflation is dormant, interest rates are
low, the economy is healthy and corporate profitability is still solid. We are,
however, on our guard about the international situation, monitoring events
closely to determine if there are any signs pointing toward further worldwide
economic slowing. We are selectively looking at opportunities to shorten the
Fund's duration slightly, aware of the possibility that further volatility may
exist. We are confident the Fund is well positioned for any surprises that may
lie ahead.
"We are, however, on our guard about the international situation..."
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This commentary reflects the views of the portfolio manager through the end of
the Fund's period discussed in this report. Of course, the manager's views are
subject to change as market and other conditions warrant.
5
<PAGE>
==============================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 December 31, 1998. You'll
also find the net asset value as of that date.
Statement of Assets and Liabilities
December 31, 1998
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Assets:
Investments at value - Note C:
Publicly traded bonds (cost - $163,417,427) .............. $169,885,053
Preferred stocks and warrants (cost - $1,296,704) ........ 1,279,292
Joint repurchase agreement (cost - $835,000) ............. 835,000
Corporate savings account ................................ 375
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171,999,720
Receivable for investments sold ........................... 3,176,242
Interest receivable ....................................... 2,981,520
Dividends receivable ...................................... 15,001
Receivable for futures variation margin - Note A .......... 250
Other assets .............................................. 10,308
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Total Assets ............................ 178,183,041
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Liabilities:
Payable for investments purchased ......................... 1,026,889
Payable to John Hancock Advisers, Inc.
and affiliates - Note B .................................. 281,655
Accounts payable and accrued expenses ..................... 94,635
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Total Liabilities ....................... 1,403,179
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Net Assets:
Capital paid-in ........................................... 170,953,039
Accumulated net realized loss on investments
and financial futures contracts .......................... (661,369)
Net unrealized appreciation of investments
and financial futures contracts .......................... 6,451,113
Undistributed net investment income ....................... 37,079
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Net Assets .............................. $176,779,862
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Net Asset Value Per Share:
(Based on 10,626,882 shares of beneficial
interest outstanding - 30 million shares
authorized with no par value) ............................ $16.64
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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
Year ended December 31, 1998
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Investment Income:
Interest .................................................. $13,288,172
Dividends ................................................. 135,250
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13,423,422
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Expenses:
Investment management fee - Note B ....................... 1,074,366
Transfer agent fee - Note B .............................. 125,690
Custodian fee ............................................ 77,147
Printing ................................................. 49,276
Auditing fee ............................................. 34,346
Financial services fee - Note B .......................... 28,303
New York Stock Exchange fee .............................. 24,624
Trustees' fees ........................................... 10,816
Miscellaneous ............................................ 7,999
Legal fees ............................................... 1,845
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Total Expenses .......................... 1,434,412
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Net Investment Income ................... 11,989,010
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Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts:
Net realized loss on investments sold ..................... (119,257)
Net realized loss on financial futures contracts .......... (19,689)
Change in net unrealized appreciation/depreciation
of investments ........................................... 1,144,006
Change in net unrealized appreciation/depreciation
of financial futures contracts ........................... 2,987
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Net Realized and Unrealized
Gain on Investments
and Financial Futures Contracts ......... 1,008,047
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Net Increase in Net Assets
Resulting from Operations ............... $12,997,057
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SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Income Securities Trust
Statement of Changes in Net Assets
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<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998
------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income .................................................................. $12,581,334 $11,989,010
Net realized loss on investments sold and financial futures contracts .................. (268,468) (138,946)
Change in net unrealized appreciation/depreciation of investments and
financial futures contracts .......................................................... 4,039,245 1,146,993
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Net Increase in Net Assets Resulting from Operations ................................. 16,352,111 12,997,057
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Distributions to Shareholders:
Dividends from net investment income ($1.2025 and $1.1350 per share, respectively) ..... (12,592,069) (11,996,781)
------------- -------------
From Fund Share Transactions - Net : *
(Market value of shares issued in reinvestment of distributions) ....................... 1,219,573 1,839,203
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Net Assets:
Beginning of period .................................................................... 168,960,768 173,940,383
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End of period (including undistributed net investment income of $42,384 and $37,079,
respectively) ........................................................................ $173,940,383 $176,779,862
============= =============
* Analysis of Fund Share Transactions:
Shares outstanding, beginning of period ................................................ 10,431,824 10,511,835
Shares issued to shareholders in reinvestment of distributions ......................... 80,011 115,047
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Shares outstanding, end of period ...................................................... 10,511,835 10,626,882
============= =============
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous 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>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Income Securities Trust
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:
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<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ...................... $16.97 $15.10 $16.74 $16.20 $16.55
-------- -------- -------- -------- --------
Net Investment Income ..................................... 1.28 1.26 1.22 1.20 1.14
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts ......................... (1.79) 1.64 (0.54) 0.35 0.09
-------- -------- -------- -------- --------
Total from Investment Operations ...................... (0.51) 2.90 0.68 1.55 1.23
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ...................... (1.28) (1.26) (1.22) (1.20) (1.14)
Distributions from Net Realized Gain on Investments Sold
and Financial Futures Contracts ......................... (0.08) -- -- -- --
-------- -------- -------- -------- --------
Total Distributions ................................... (1.36) (1.26) (1.22) (1.20) (1.14)
-------- -------- -------- -------- --------
Net Asset Value, End of Period ............................ $15.10 $16.74 $16.20 $16.55 $16.64
======== ======== ======== ======== ========
Per Share Market Value, End of Period ..................... $13.750 $15.750 $14.875 $16.750 $15.875
Total Investment Return at Market Value (1) ............... (8.70%) 24.11% 2.34% 21.57% 1.75%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................. $154,116 $172,732 $168,961 $173,940 $176,780
Ratio of Expenses to Average Net Assets ................... 0.87% 0.84% 0.84% 0.84% 0.81%
Ratio of Net Investment Income to Average Net Assets ...... 8.03% 7.77% 7.50% 7.34% 6.79%
Portfolio Turnover Rate ................................... 82% 105% 117% 143% 240%
</TABLE>
(1) Assumes dividend reinvestment.
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.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Income Securities Trust
Schedule of Investments
December 31, 1998
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The Schedule of Investments is a complete list of all securities owned by Income
Securities Trust on December 31, 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 (0.39%)
Jet Equipment Trust,
Equipment Trust Cert Ser 95B2 08-15-14 (R) ....................... 10.910% BBB- $550 $686,565
------------
Automobile/Trucks (0.69%)
Chrysler Financial Co. LLC,
Medium Term Note Ser S 11-15-01 .................................. 5.690 A+ 515 517,421
ERAC USA Finance Co.,
Note 02-15-05 (R) ................................................ 6.625 BBB 720 702,000
------------
1,219,421
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Banks (7.20%)
Abbey National First Capital, B.V.,
Sub Note (United Kingdom) 10-15-04 (Y) ............................ 8.200 AA- 1,000 1,121,900
African Development Bank,
Sub Note (Supranational) 12-15-03 (Y) ............................. 9.750 AA- 1,000 1,185,720
Banc One Corp.,
Sub Deb 10-15-26 ................................................. 7.625 A 510 583,833
Bank of New York,
Cap Security 12-01-26 (R) ........................................ 7.780 A- 595 648,247
Barclays North American Capital Corp.,
Gtd Cap Note 05-15-21 ............................................. 9.750 AA- 900 1,014,957
National Westminster Bank PLC - New York Branch,
Sub Note 05-01-01 ................................................. 9.450 AA- 1,250 1,360,812
NationsBank Corp.,
Sub Note 02-15-08 ................................................ 6.375 A 480 498,365
NB Capital Trust IV,
Gtd Cap Security 04-15-27 ........................................ 8.250 A- 335 373,662
Scotland International Finance No. 2 B.V.,
Gtd Sub Note (United Kingdom) 01-27-04 (R) (Y) .................... 8.800 A 2,000 2,275,320
Gtd Sub Note (United Kingdom) 11-01-06 (R) (Y) .................... 8.850 A+ 750 887,400
Security Pacific Corp.,
Medium Term Sub Note 04-26-01 .................................... 10.500 Aa3 1,500 1,666,800
Sub Note 11-15-00 ................................................ 11.500 A 1,000 1,106,720
------------
12,723,736
------------
Beverages (0.29%)
Seagram (Joseph E.) & Sons, Inc.,
Sr Deb 12-15-28 ................................................... 7.600 BBB- 515 520,150
------------
</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>
Chemicals (0.48%)
Akzo Nobel, Inc.,
Note 11-15-03 (R) ................................................ 6.000% A $325 $326,593
Monsanto Co.,
Deb 12-01-28 (R) ................................................. 6.600 A 515 516,288
------------
842,881
------------
Computers (0.83%)
International Business Machines Corp.,
Deb 01-15-28 ..................................................... 6.500 A+ 690 724,217
PSINet, Inc.,
Sr Note 11-01-08 (R) ............................................. 11.500 B- 355 370,088
Verio, Inc.,
Sr Note 12-01-08 (R) ............................................. 11.250 B- 370 373,700
------------
1,468,005
------------
Cosmetics & Personal Care (0.68%)
Johnson & Johnson,
Deb 11-15-23 ..................................................... 6.730 AAA 750 828,262
Revlon Consumer Products Corp.,
Sr Note 11-01-06 (R) ............................................. 9.000 B 385 381,150
------------
1,209,412
------------
Electronics (0.30%)
Motorola, Inc.,
Deb 11-15-28 ..................................................... 6.500 AA- 520 525,720
------------
Energy (0.89%)
CalEnergy Co., Inc.,
Sr Bond 09-15-28 ................................................. 8.480 BB+ 800 889,520
Sr Note 09-15-06 ................................................. 9.500 BB+ 450 500,688
P & L Coal Holdings Corp.,
Sr Sub Note Ser B 05-15-08 ........................................ 9.625 B 182 185,185
------------
1,575,393
------------
Fertilizers (0.36%)
IMC Global, Inc.,
Deb 11-01-02 ..................................................... 7.400 BBB 635 642,938
------------
Finance (3.91%)
Associates Corp. of North America,
Sr Note 11-01-08 ................................................. 6.250 AA- 205 212,895
CIT Group Holdings, Inc.,
Deb 03-15-01 ..................................................... 9.250 A 1,000 1,078,100
Note 10-15-01 .................................................... 5.500 A+ 630 631,707
Constitution Capital Trust I,
Gtd Cap Security 04-15-27 (R) .................................... 9.150 BBB 420 543,669
DR Investments,
Sr Note (United Kingdom) 05-15-07 (R) (Y) ......................... 7.450 A 450 490,820
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<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>
Finance (continued)
Finova Capital Corp.,
Note 11-01-02 .................................................... 6.250% A- $470 $475,875
Ford Motor Credit Co.,
Note 04-28-03 .................................................... 6.125 A 630 643,413
General Motors Acceptance Corp.,
Note 12-01-01 .................................................... 6.375 A 630 645,372
Household Finance Corp.,
Note 11-01-02 .................................................... 5.875 A 785 786,884
Marlin Water Trust & Marlin Water Capital Corp.,
Sr Sec Note 12-15-01 (R) ......................................... 7.090 BBB 625 626,875
Merrill Lynch Mortgage Investors, Inc.,
Sub Bond Ser 1992-B Class B 04-15-12 ............................. 8.500 Aaa 305 309,457
Yanacocha Receivables Master Trust,
Pass Thru Cert Ser 1997-A (Peru) 06-15-04 (R) (Y) ................. 8.400 BBB- 472 468,341
------------
6,913,408
------------
Food (0.10%)
Agrilink Foods, Inc.,
Sr Sub Note 11-01-08 (R) ......................................... 11.875 B 180 183,600
------------
Government - Foreign (1.24%)
Nova Scotia, Province of,
Deb (Canada) 04-01-22 (Y) ......................................... 8.750 A- 750 983,077
Ontario, Province of,
Bond (Canada) 06-04-02 (Y) ........................................ 7.750 AA- 500 539,005
Saskatchewan, Province of,
Bond (Canada) 12-15-20 (Y) ........................................ 9.375 A 480 662,472
------------
2,184,554
------------
Government - U.S. (20.90%)
United States Treasury,
Bond 08-15-05 .................................................... 10.750 Aaa 885 1,180,369
Bond 08-15-17 .................................................... 8.875 Aaa 4,710 6,634,459
Bond 05-15-18 .................................................... 9.125 Aaa 2,250 3,254,760
Bond 02-15-23 .................................................... 7.125 Aaa 11,070 13,642,004
Note 05-15-01 .................................................... 8.000 Aaa 863 926,784
Note 05-15-02 .................................................... 7.500 Aaa 1,493 1,621,069
Note 08-15-03 .................................................... 5.750 Aaa 1,360 1,420,139
Note 02-15-05 .................................................... 7.500 Aaa 2,850 3,263,250
Note 07-15-06 .................................................... 7.000 Aaa 4,394 5,002,964
------------
36,945,798
------------
Government - U.S. Agencies (12.45%)
Federal Home Loan Mortgage Corp.,
20 Yr Pass Thru Ctf 01-01-16 ..................................... 11.250 AAA 320 354,148
Federal National Mortgage Assn.,
15 Yr SF Pass Thru Ctf 01-25-05 .................................. 8.000 AAA 1,000 1,018,120
15 Yr SF Pass Thru Ctf 02-01-08 .................................. 7.500 AAA 214 220,074
15 Yr SF Pass Thru Ctf 09-01-10 .................................. 7.000 AAA 706 721,364
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<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>
Government - U.S. Agencies (continued)
Federal National Mortgage Assn. (continued),
30 Yr SF Pass Thru Ctf 09-01-12 .................................. 7.000% AAA $171 $174,580
15 Yr SF Pass Thru Ctf 12-01-12 .................................. 6.500 AAA 1,270 1,288,018
30 Yr Pass Thru Ctf 03-01-27 ..................................... 6.500 AAA 1,770 1,792,071
30 Yr Pass Thru Ctf 11-01-28 ..................................... 6.500 AAA 300 301,728
30 Yr SF Pass Thru Ctf 10-01-23 .................................. 7.000 AAA 598 610,413
Pass Thru Ctf Ser 1997-M8 Class A-1 01-25-22 ..................... 6.940 AAA 368 389,332
Financing Corp.,
Bond 02-08-18 .................................................... 9.400 AAA 2,000 2,845,320
Government National Mortgage Assn.,
30 Yr SF Pass Thru Ctf 11-15-19 to 02-15-25 ....................... 9.500 AAA 696 746,413
30 Yr SF Pass Thru Ctf 11-15-20 ................................... 10.000 AAA 211 228,761
30 Yr SF Pass Thru Ctf 04-15-21 ................................... 9.000 AAA 315 338,261
30 Yr SF Pass Thru Ctf 02-15-24 to 08-15-26 ....................... 7.500 AAA 2,731 2,815,558
30 Yr SF Pass Thru Ctf 01-15-26 to 11-15-28 ....................... 7.000 AAA 3,978 4,069,891
30 Yr SF Pass Thru Ctf 08-15-26 ................................... 8.000 AAA 382 396,715
30 Yr SF Pass Thru Ctf 07-15-28 to 12-15-28 ....................... 6.500 AAA 2,578 2,603,371
Tennessee Valley Authority,
Power Bonds 1989 Ser G 11-15-29 .................................. 8.625 AAA 1,000 1,087,570
------------
22,001,708
------------
Household (0.24%)
WestPoint Stevens, Inc.,
Sr Note 06-15-05 ................................................. 7.875 BB 425 431,375
------------
Insurance (4.66%)
Conseco, Inc.,
Note 06-15-05 .................................................... 6.800 BBB 500 467,200
Equitable Life Assurance Society of the United States,
Surplus Note 12-01-05 (R) ........................................ 6.950 A 550 583,061
Fairfax Financial Holdings Ltd.,
Note (Canada) 04-15-26 (Y) ........................................ 8.300 BBB+ 695 726,435
Liberty Mutual Insurance Co.,
Surplus Note 05-04-07 (R) ........................................ 8.200 A+ 1,100 1,260,578
Surplus Note 10-15-26 (R) ........................................ 7.875 A+ 435 478,852
Massachusetts Mutual Life Insurance Co.,
Surplus Note 11-15-23 (R) ........................................ 7.625 AA 1,145 1,296,712
NAC Re Corp.,
Note 06-15-99 .................................................... 8.000 A- 370 373,826
New York Life Insurance Co.,
Surplus Note 12-15-23 (R) ........................................ 7.500 AA- 1,500 1,593,315
Sun Canada Financial Co.,
Gtd Sub Note 12-15-07 (R) ........................................ 6.625 AA 725 755,812
URC Holdings Corp.,
Sr Note 06-30-06 (R) ............................................. 7.875 A- 640 695,693
------------
8,231,484
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<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>
Leisure (2.14%)
Circus Circus Enterprises, Inc.,
Deb 11-15-36 ..................................................... 7.000% BBB- $230 $210,107
Sr Sub Note 12-01-05 ............................................. 9.250 BB+ 140 142,800
Harrah's Operating Co., Inc.,
Sr Sub Note 12-15-05 ............................................. 7.875 BB+ 255 256,275
HMH Properties, Inc.,
Sr Note Ser A 08-01-05 ........................................... 7.875 BB 515 503,413
Sr Note Ser C 12-01-08 ........................................... 8.450 BB 335 335,000
Mohegan Tribal Gaming Authority,
Sr Sec Note Ser B 11-15-02 ....................................... 13.500 BB+ 150 180,750
SFX Entertainment, Inc.,
Sr Sub Notes 12-01-08 (R) ........................................ 9.125 B- 510 507,450
Showboat Marina Casino Partnership/Finance Corp.,
1st Mtg Note Ser B 03-15-03 ...................................... 13.500 BB- 500 565,000
Sun International Hotels Ltd.,
Gtd Sr Sub Note (Bahamas) 03-15-07 ............................... 9.000 B+ 230 239,200
Gtd Sr Sub Note (Bahamas) 12-15-07 (Y) ........................... 8.625 B+ 260 266,500
Trump Hotels & Casino Resorts Funding, Inc./Holdings, L.P.,
Sr Note 06-15-05 ................................................. 15.500 B- 550 572,000
------------
3,778,495
------------
Manufacturing (0.13%)
Globe Manufacturing Corp.,
Sr Sub Note 08-01-08 (R) ......................................... 10.000 B- 253 228,965
------------
Media (5.97%)
Adelphia Communications Corp.,
Sr Note Ser B 10-01-02 ........................................... 9.250 B+ 550 580,250
Sr Note Ser B 07-15-03 ........................................... 8.125 B 265 270,963
Century Communications Corp.,
Sr Note 08-15-00 ................................................. 9.500 BB- 280 293,300
Continental Cablevision, Inc.,
Sr Note 05-15-06 ................................................. 8.300 BBB 435 482,680
Sr Sub Deb 06-01-07 .............................................. 11.000 BBB- 1,210 1,299,661
CSC Holdings, Inc.,
Sr Note 07-15-08 ................................................. 7.250 BB+ 495 501,782
Garden State Newspapers, Inc.,
Sr Sub Note Ser B 10-01-09 ....................................... 8.750 B+ 276 276,000
Le Groupe Videotron Ltee,
Sr Note (Canada) 02-15-05 (Y) ..................................... 10.625 BBB- 850 920,346
News America Holdings, Inc.,
Gtd Sr Deb 08-10-18 .............................................. 8.250 BBB- 552 625,416
Rogers Cablesystems Ltd.,
Sr Note Ser B (Canada) 03-15-05 (Y) ............................... 10.000 BB+ 800 896,000
Sr Sec Second Priority Note (Canada) 08-01-02 (Y) ................. 9.625 BB+ 300 322,500
SFX Broadcasting, Inc.,
Sr Sub Note Ser B 05-15-06 ....................................... 10.750 B- 330 366,300
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<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>
Media (continued)
Sprint Capital Corp.,
Note 11-15-28 .................................................... 6.875% A- $510 $527,799
Time Warner, Inc.,
Deb 01-15-13 ..................................................... 9.125 BBB 539 682,352
Note 06-15-05 .................................................... 7.750 BBB 335 370,523
TKR Cable I, Inc.,
Sr Deb 10-30-07 .................................................. 10.500 BBB- 1,955 2,131,243
------------
10,547,115
------------
Medical (1.68%)
Dynacare, Inc.,
Sr Note (Canada) 01-15-06 (Y) ..................................... 10.750 B+ 275 273,625
Fresenius Medical Care Capital Trust II,
Gtd Trust Preferred Security 02-01-08 ............................ 7.875 B+ 405 400,950
Genesis Health Ventures, Inc.,
Sr Sub Note 01-15-09 (R) ......................................... 9.875 B- 230 221,950
Integrated Health Services, Inc.,
Sr Sub Deb 01-01-01 .............................................. 5.750 B- 405 356,400
Sr Sub Note 01-15-08 ............................................. 9.250 B- 215 202,100
Quest Diagnostics, Inc.,
Sr Sub Note 12-15-06 ............................................. 10.750 B+ 355 394,050
Sola International, Inc.,
Note 03-15-08 .................................................... 6.875 BBB- 425 402,148
Tenet Healthcare Corp.,
Sr Note 12-01-03 ................................................. 8.625 BB+ 330 345,675
Sr Sub Note 01-15-07 ............................................. 8.625 BB- 170 177,650
Watson Pharmaceuticals, Inc.,
Sr Note 05-15-08 ................................................. 7.125 BBB- 190 189,763
------------
2,964,311
------------
Metal (0.16%)
Golden Northwest Aluminum, Inc.,
1st Mtg Note 12-15-06 (R) ........................................ 12.000 BB- 280 283,500
------------
Mortgage Banking (4.15%)
Citibank Credit Card Master Trust I,
Pass Thru Ctf Ser 1997-7 Class A 08-15-02 ........................ 6.350 AAA 1,010 1,028,311
ContiMortgage Home Equity Loan Trust,
Pass Thru Ctf Ser 1995-2 Class A-5 08-15-25 ...................... 8.100 AAA 425 445,852
Countywide Home Loans, Inc.,
Mortgage Pass Thru Ctf Ser 1997-7 Cl A8 12-25-27 ................. 7.250 Aaa 910 927,306
Credit Suisse First Boston Mortgage Securities Corp.,
Commercial Mtg Pass Thru Ctf Ser 1998-C1 Class A 1A 12-17-07 ..... 6.260 AAA 653 665,817
Deutsche Mortgage & Asset Receiving Corp.,
Commercial Mtg Pass Thru Ctf Ser 1998-C1 Class C 03-15-08 ........ 6.861 A2 415 410,720
FirstPlus Home Loan Trust,
Pass Thru Ctf Ser 1998-4 Class A-5 01-01-01 ...................... 6.380 AAA 730 719,963
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<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>
Mortgage Banking (continued)
GMAC Commercial Mortgage Securities, Inc.,
Pass Thru Ctf Ser 1997-C2 Class A-3 11-15-07 ..................... 6.566% Aaa $705 $730,556
IMC Home Equity Loan Trust,
Pass Thru Ctf Ser 1996-1 Class A-5 12-25-13 ...................... 6.290 AAA 720 719,888
Nomura Asset Securities Corp.,
Pass Thru Ctf Ser 1998-D6 Class A-1A 03-17-28 .................... 6.280 AAA 489 491,476
Salomon Brothers Mortgage Securities VII, Inc.,
Mtg Pass Thru Ctf Ser 1997-HUD2 Class A-2 07-25-24 ............... 6.750 Aaa 454 458,812
UCFC Home Equity Loan Trust,
Pass Thru Ctf Ser 1996-D1 Class A6 02-15-25 ....................... 7.180 AAA 710 739,509
------------
7,338,210
------------
Municipals (0.93%)
Atlanta, City of,
GO Ref Ser 1998 12-01-20 ......................................... 5.000 AAA 290 287,700
Harris County-Houston Sports Authority,
Sr Lien Special Rev Ser 1998A 11-15-28 ........................... 5.000 AAA 300 293,157
Massachusetts Water Resource Authority,
Gen Rev Ref Ser 1997D 08-01-24 ................................... 5.000 AAA 335 329,288
New York City Municipal Water Finance Authority,
Wtr & Swr Sys Rev Ref Ser 1997A 06-15-21 ......................... 5.125 AAA 210 210,071
San Jose Redevelopment Agency,
Tax Alloc Merged Area Redevel Proj 08-01-26 ...................... 5.000 AAA 520 516,131
------------
1,636,347
------------
Oil & Gas (1.38%)
Camuzzi Gas Pampeana S.A.,
Bond (Argentina) 12-15-01 (Y) ..................................... 9.250 BBB- 403 386,880
Occidental Petroleum Corp.,
Sr Deb 09-15-09 .................................................. 10.125 BBB 600 742,086
Sr Note 11-15-08 ................................................. 7.375 BBB 335 341,030
Petroleos Mexicanos,
Gtd Sr Note (Mexico) 12-02-08 (R) (Y) ............................. 9.375 BB 210 206,850
Petroleum Geo-Services,
Sr Note (Norway) 03-30-08 (Y) ..................................... 6.625 BBB 480 468,581
R&B Falcon Corp.,
Sr Note 12-15-08 (R) ............................................. 9.500 BB+ 305 304,619
------------
2,450,046
------------
Paper & Paper Products (0.70%)
Fort James Corp.,
Sr Note 09-15-02 ................................................. 6.500 BBB- 470 476,961
S.D. Warren Co.,
Sr Sub Note Ser B 12-15-04 ....................................... 12.000 B+ 707 767,095
------------
1,244,056
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<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>
Real Estate Operations (0.18%)
Security Capital Group, Inc.,
Medium Term Note Ser A 11-15-03 .................................. 7.750% BBB $320 $319,968
------------
Real Estates Investment Trusts (0.70%)
American Health Properties, Inc.,
Note 01-15-07 .................................................... 7.500 BBB- 410 385,400
Liberty Property L.P.,
Med Term Note 06-05-02 ........................................... 6.600 BBB- 355 342,575
TriNet Corporate Realty Trust, Inc.,
Note 05-15-01 .................................................... 7.300 BBB- 500 502,295
------------
1,230,270
------------
Retail (1.40%)
Great Atlantic & Pacific Tea Co., Inc. (The),
Note 04-15-07 .................................................... 7.750 BBB- 530 532,899
Kroger Co. (The),
Sr Note 07-15-06 ................................................. 8.150 BBB- 270 301,676
May Department Stores Co. (The),
Deb 06-15-18 ..................................................... 10.750 A 254 268,547
Meyer (Fred), Inc.,
Note 03-01-08 .................................................... 7.450 BB+ 550 593,439
Safeway, Inc.,
Deb 01-15-09 ..................................................... 13.500 BBB 474 505,165
Note 11-15-01 .................................................... 5.875 BBB 280 280,322
------------
2,482,048
------------
Steel (0.06%)
Bayou Steel Corp.,
1st Mtg Note 05-15-08 ............................................ 9.500 B 110 103,400
------------
Telecommunications (3.41%)
AXIA, Inc.,
Sr Sub Note 07-15-08 ............................................. 10.750 B- 190 192,375
Call-Net Enterprises, Inc.,
Sr Note (Canada) 08-15-08 (Y) ..................................... 8.000 BB- 300 286,500
Global Crossing Holdings Ltd.,
Sr Note 05-15-08 ................................................. 9.625 B 325 344,500
GTE North, Inc.,
Deb Ser H 11-15-08 ............................................... 5.650 AA- 315 318,465
Hermes Europe Railtel BV,
Sr Note (Belgium) 01-15-09 (R) (Y)++ .............................. 10.375 B 230 234,600
Intermedia Communications, Inc.,
Sr Note Ser B 01-15-08 ........................................... 8.500 B 60 57,000
Sr Note Ser B 06-01-08 ........................................... 8.600 B 215 205,325
IXC Communications, Inc.,
Sr Sub Note 04-15-08 ............................................. 9.000 CCC+ 290 292,175
McLeodUSA, Inc.,
Sr Note 11-01-08 (R) ............................................. 9.500 B+ 355 376,300
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<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>
Telecommunications (continued)
Metromedia Fiber Network, Inc.,
Sr Note 11-15-08 (R) ............................................. 10.000% B $375 $386,250
MetroNet Communications Corp.,
Sr Note (Canada) 08-15-07 (Y) ..................................... 12.000 B 280 310,800
Nextel Communications, Inc.,
Sr Disc Note, Step Coupon (9.75%, 02-15-99) 08-15-04 ............. Zero CCC+ 642 622,740
NEXTLINK Communications, Inc.,
Sr Note 11-15-08 (R) ............................................. 10.750 B 345 353,625
NTL, Inc.,
Sr Note 10-01-08 (R) ............................................. 11.500 B- 560 621,600
Qwest Communications International, Inc.,
Sr Note 11-01-08 (R) ............................................. 7.250 BB+ 205 209,613
WorldCom, Inc.,
Note 08-15-01 .................................................... 6.125 BBB+ 715 726,426
Worldwide Fiber, Inc.,
Sr Note (Canada) 12-15-05 (R) (Y) ................................. 12.500 B- 485 487,425
------------
6,025,719
------------
Textile (0.51%)
Tropical Sportswear International Corp.,
Sr Sub Note Ser A 06-15-08 ....................................... 11.000 B- 345 363,113
Unifi, Inc.,
Note Ser B 02-01-08 .............................................. 6.500 A- 545 539,823
------------
902,936
------------
Tobacco (0.47%)
RJR Nabisco, Inc.,
Note 12-01-02 .................................................... 8.625 BBB- 455 462,262
Note 09-15-03 .................................................... 7.625 BBB- 375 365,430
------------
827,692
------------
Transportation (4.45%)
America West Airlines,
Pass Thru Ctf Ser B 01-02-08 ..................................... 6.930 A- 488 484,593
Continental Airlines,
Pass Thru Ctf Ser 96-C 10-15-13 .................................. 9.500 BBB+ 477 529,868
Continental Airlines, Inc.,
Sr Note 12-15-05 ................................................. 8.000 BB- 450 450,000
Fine Air Services, Inc.,
Sr Note 06-01-08 ................................................. 9.875 B 440 396,000
Humpuss Funding Corp.,
Gtd Note (Indonesia) 12-15-09 (R) (Y) ............................. 7.720 B3 506 336,447
Northwest Airlines, Inc.,
Note 03-15-04 .................................................... 8.375 BB 525 513,980
Northwest Airlines 1996-1 Pass Thru Trusts,
Pass Thru Ctf Ser 1996-1C 01-02-05 ............................... 10.150 BBB- 294 305,296
Pass Thru Ctf Ser 1996-1D 01-02-15 ............................... 8.970 BBB- 389 419,349
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<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>
Transportation (continued)
NWA Trust,
Sr Note Ser A 12-21-12 ........................................... 9.250% AA $579 $704,069
Primark Corp.,
Sr Sub Note 12-15-08 (R) ......................................... 9.250 B+ 365 366,825
Railcar Trust No. 1992-1,
Pass Thru Ser 1992-1 Class A 06-01-04 ............................ 7.750 AAA 1,286 1,356,140
Scandinavian Airlines System,
Deb (Sweden) 07-20-99 (Y) ......................................... 9.125 A3 700 713,125
U.S. Airways, Inc.,
Pass Thru Ctf Ser 1990-A1 03-19-05 ............................... 11.200 BB 923 1,002,624
Wisconsin Central Transportation Corp.,
Note 04-15-08 .................................................... 6.625 BBB- 290 294,350
------------
7,872,666
------------
Utilities (12.07%)
AES Corp.,
Sr Sub Note 07-15-06 ............................................. 10.250 B+ 695 750,600
Sr Sub Note 08-15-07 ............................................. 8.375 B+ 405 409,050
Avon Energy Partners Holdings,
Note (United Kingdom) 03-04-08 (R) (Y) ............................ 6.460 A- 320 324,608
Beaver Valley Funding Corp.,
Sec Lease Oblig Bond 06-01-17 .................................... 9.000 BB- 588 661,500
British Telecom Finance, Inc.,
Gtd Deb (United Kingdom) 02-15-19 (Y) ............................. 9.625 AAA 1,120 1,178,027
BVPS II Funding Corp.,
Collateralized Lease Bond 06-01-17 ............................... 8.890 BB- 700 801,500
Calpine Corp.,
Sr Note 05-15-06 ................................................. 10.500 BB- 465 502,200
CE Casecnan Water & Energy Co., Inc.,
Sr Note Ser A (Philippine Islands) 11-15-05 (Y) ................... 11.450 BB+ 400 352,000
Chugach Electric Association, Inc.,
1st Mtg 1991 Ser A 03-15-22 ...................................... 9.140 A 2,000 2,356,860
Cleveland Electric Illuminating Co.,
1st Mtg Ser B 05-15-05 ........................................... 9.500 BB+ 1,205 1,319,475
Connecticut Light & Power Co.,
1st Ref Mtg Ser C 06-01-02 ........................................ 7.750 BB+ 215 223,024
Note 06-05-03 (R) ................................................ 8.590 NR 275 284,281
EIP Funding-PNM,
Sec Fac Bond 10-01-12 ............................................ 10.250 Ba2 701 854,154
GTE Corp.,
Deb 11-01-20 ..................................................... 10.250 A 1,500 1,686,315
Hydro-Quebec,
Gtd Deb (Canada) 02-01-03 (Y) ..................................... 7.375 A+ 750 798,510
Gtd Bond (Canada) 02-01-21 (Y) .................................... 9.400 A+ 500 680,785
Gtd Bond (Canada) 01-15-22 (Y) .................................... 8.400 A+ 340 422,946
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<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>
Utilities (continued)
Iberdrola International B.V.,
Note (Spain) 10-01-02 (Y) ......................................... 7.500% AA- $2,000 $2,133,680
Long Island Lighting Co.,
Deb 03-15-23 ..................................................... 8.200 A- 640 710,400
Midland Cogeneration Venture L.P.,
Sec Deb Ser C-91 07-23-02 ........................................ 10.330 BB- 763 809,194
Midland Funding Corp. II,
Deb Ser A 07-23-05 ............................................... 11.750 B 300 349,500
Deb Ser B 07-23-06 ............................................... 13.250 B 225 288,232
Monterrey Power S.A. de C.V.,
Sr Sec Bond (Mexico) 11-15-09 (R) (Y) ............................. 9.625 BB 155 119,350
Niagara Mohawk Power Corp.,
Sr Note Ser G 10-01-08 ........................................... 7.750 BB+ 305 326,350
North Atlantic Energy Corp.,
1st Mtg Bond 06-01-02 ............................................ 9.050 B+ 555 576,639
Northeast Utilities,
Note Ser A 12-01-06 .............................................. 8.580 B+ 114 121,225
Puget Sound Energy Capital Trust I,
Gtd Cap Security Ser B 06-01-27 .................................. 8.231 Baa2 370 392,936
System Energy Resources, Inc.,
1st Mtg 08-01-01 ................................................. 7.710 BBB- 615 641,045
U.S. West Capital Funding, Inc.,
Co Gtd 07-15-28 ................................................... 6.875 A- 515 549,984
Waterford 3 Funding Corp.,
Sec Lease Obligation Bond 01-02-17 ............................... 8.090 BBB- 663 718,791
------------
21,343,161
------------
TOTAL PUBLICLY TRADED BONDS
(Cost $163,417,427) (96.10%) 169,885,053
-------- ------------
<CAPTION>
NUMBER OF
SHARES OR WARRANTS
------------------
<S> <C> <C>
PREFERRED STOCKS AND WARRANTS
CSC Holdings, Inc., 11.125%, Ser M, Preferred Stock................. 7,183 800,947
Global Crossing Ltd., 10.50%, Payment-in-Kind, Preferred Stock (R). 4,650 451,050
MetroNet Communications Corp., Warrant (Canada) (R) (Y)............. 530 27,295
------------
TOTAL PREFERRED STOCKS AND WARRANTS
(Cost $1,296,704) (0.72%) 1,279,292
-------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Income Securities Trust
<TABLE>
<CAPTION>
PAR VALUE
INTEREST (000s MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- ---- -------- -----
<S> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (0.47%)
Investment in a joint repurchase agreement transaction with
SBC Warburg, Inc. - Dated 12-31-98, due 01-04-99
(Secured by U.S. Treasury Bonds, 6.250% thru 9.125%
due 05-15-18 thru 08-15-23) - Note A............................... 4.75% $835 $835,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.00%................................................. 375
------------
TOTAL SHORT-TERM INVESTMENTS (0.47%) 835,375
-------- ------------
TOTAL INVESTMENTS (97.29%) 171,999,720
-------- ------------
OTHER ASSETS AND LIABILITIES, NET (2.71%) 4,780,142
-------- ------------
TOTAL NET ASSETS (100.00%) $176,779,862
======== ============
</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 $22,477,282 or 12.71% of net assets as of December
31, 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.
++ This security having an aggregate value of $234,600 or 0.13% 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 $239,460 of United States
Treasury Bond, 8.875%, 08-15-17, 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.
20
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==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Income Securities Trust
NOTE A -
ACCOUNTING POLICIES
John Hancock Income Securities Trust (the "Fund") is a closed-end investment
management company registered under the Investment Company Act of 1940.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost, which approximates market value.
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 qualifies as a "regulated investment company" by
complying with the applicable provisions of the Internal Revenue Code and will
not be subject to federal income tax on taxable income which is distributed to
shareholders. Therefore, no federal income tax provision is required. For
federal income tax purposes, the Fund has $119,425 of capital loss carryforwards
available, to the extent provided by regulations, to offset future net realized
capital gains. If such carryforwards are used by the Fund, no capital gains
distributions will be made. The carryforward expires as follows: December 31,
2004 -- $76,080, December 31, 2005 -- $35,925 and December 31, 2006 -- $7,420.
Additionally, net capital losses of $63,177 attributable to security
transactions incurred after October 31,1998 are treated as arising on the first
day (January 1,1999) of the Fund's next taxable year.
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 contract being traded. Each day, the futures contract is valued
at the official settlement price of the board of trade or U.S. commodities
exchange 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
21
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Income Securities Trust
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, 1998, open positions in financial futures contracts were as
follows:
UNREALIZED
EXPIRATION OPEN CONTRACT POSITION DEPRECIATION
- ---------- ------------- -------- ------------
MAR 99 2 U.S. TREASURY BOND SHORT $326
====
At December 31, 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.
OPTIONS Listed options are valued at the last quoted sales price on the exchange
on which they are primarily traded. Over-the-counter options are valued at the
mean between the last bid and asked prices. Upon the writing of a call or put
option, an amount equal to the premium received by the Fund is included in the
Statement of Assets and Liabilities as an asset and corresponding liability. The
amount of the liability is subsequently marked to market to reflect the current
market value of the written option.
The Fund may use option contracts to manage its exposure to the stock market.
Writing puts and buying calls tend to increase the Fund's exposure to the
underlying instrument, and buying puts and writing calls tend to decrease the
Fund's exposure to the underlying instrument, or hedge other Fund investments.
The maximum exposure to loss for any purchased options will be limited to the
premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value reflects the maximum exposure of
the Fund in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the contracts'
terms ("credit risk"), or if the Fund is unable to offset a contract with a
counterparty on a timely basis ("liquidity risk"). Exchange-traded options have
minimal credit risk as the exchanges act as counterparties to each transaction,
and only present liquidity risk in highly unusual market conditions. To minimize
credit risk and liquidity risks in over-the-counter option contracts, the Fund
will continuously monitor the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit risk
may involve amounts in excess of those reflected in the Fund's period-end
Statement of Assets and Liabilities.
There were no written option transactions for the year ended December 31,
1998.
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, exceed 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 year was at
an annual rate of less than 0.02% of the average net assets of the Fund.
22
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==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Income Securities Trust
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 December 31, 1998, the Fund's investment to cover the deferred
compensation liability 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 year
ended December 31, 1998, aggregated $149,799,467 and $143,744,616, respectively.
Purchases and proceeds from sales of obligations of the U.S. government and its
agencies aggregated $257,054,375 and $263,203,217, respectively.
The cost of investments owned at December 31, 1998 (excluding the corporate
savings account) for federal income tax purposes was $165,953,601. Gross
unrealized appreciation and depreciation of investments at December 31, 1998
aggregated $7,686,794 and $1,641,050, respectively, resulting in net unrealized
appreciation of $6,045,744.
NOTE D -
RECLASSIFICATION OF ACCOUNTS
During the year ended December 31, 1998, the Fund has reclassified amounts to
reflect an increase in accumulated net realized loss on investments options and
financial futures contracts of $1,923, an increase in undistributed net
investment income of $2,466 and a decrease in capital paid-in of $543. This
represents the amount necessary to report these balances on a tax basis,
excluding certain temporary differences, as of December 31, 1998. 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 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.
23
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Income Securities Trust
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
John Hancock Income Securities Trust
We have audited the accompanying statement of assets and liabilities of John
Hancock Income Securities Trust (the "Trust"), including the schedule of
investments, as of December 31, 1998, and the related statement of operations
for the year then ended, the statement of 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, 1998, by correspondence with the custodian
and brokers, or other appropriate auditing procedures where 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, 1998, the results of its
operations for the year then ended, the 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 8, 1999
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund during the fiscal year ended December
31, 1998.
1.12% of the distributions qualify for the dividends received deduction
available to corporations.
Shareholders will be mailed a 1998 U.S.Treasury Department Form 1099-DIV in
January of 1999. This will reflect the total of all distributions which are
taxable for the calendar year 1998.
24
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John Hancock Funds - Income Securities Trust
DIVIDENDS AND DISTRIBUTIONS
During 1998, dividends from net investment income totaling $1.1350 per share
were 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
September 30, 1998 0.2825
December 30, 1998 0.2700
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 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 Common Shares held
by the Agent Bank. A shareholder will receive a cash payment for any fractional
share held.
25
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John Hancock Funds - Income Securities Trust
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.
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 COMMUNICATION AND ASSISTANCE
If you have any questions concerning the John Hancock Income Securities Trust,
we will be pleased to assist you. If you hold shares in your own name and not
with a brokerage firm, please address all notices, correspondence, questions or
other communications regarding the Fund to the transfer agent at:
State Street Bank and Trust Company
P.O. Box 8200
Boston, Massachusetts 02266-8200
Telephone: (800) 426-5523
If your shares are held with a brokerage firm, you should contact that firm,
bank or other nominee for assistance.
26
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======================================NOTES=====================================
John Hancock Funds - Income Securities Trust
27
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