The latest report from your
Fund's management team
ANNUAL REPORT
Income
Securities Trust
DECEMBER 31, 1999
TRUSTEES
Dennis S. Aronowitz*
Stephen L. Brown
Richard P. Chapman, Jr.*
William J. Cosgrove
Leland O. Erdahl
Richard A. Farrell
Maureen R. Ford
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
Stephen L. Brown
Chairman
Maureen R. Ford
Vice Chairman and Chief Executive Officer
Anne C. Hodsdon
President, Chief Operating Officer
and Chief Investment Officer
Osbert M. Hood
Executive 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
CEO CORNER
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman and Chief Executive
Officer, flush right next to third paragraph.]
DEAR FELLOW SHAREHOLDERS:
As "The American Century" drew to a close this past year, the U.S.
economy ended the era on a high note. With robust growth continuing in
1999, our economy stood poised to enter the history books for producing
the longest expansion on record.
The stock market also rang out the century in style. For an
unprecedented fifth straight year, both the Dow Jones Industrial
Average and the Standard & Poor's 500 Index produced 20%-plus returns.
However, the market's advances were restricted to a very select group
of stocks, primarily in the technology sector. Many others, including
some of the household blue-chip names, languished or lost ground as the
result of investors' seemingly insatiable appetite for tech stocks.
Bonds struggled through their second-worst year in more than two
decades, as the strength of the U.S. economy and the rebound of many
others around the world provoked inflation fears. Though their outlook
from here looks brighter, in many instances, bond mutual fund investors
actually lost a little ground or made only slight advances in 1999.
While we expect the market to broaden eventually, we also expect more
volatility. More than ever, this type of environment calls for
investment diversification. Since not all parts of your portfolio will
perform equally well all the time, we believe it is important to
allocate your assets among different types of investments and funds
that target a variety of market segments. This strategy, executed under
the guidance of a seasoned investment professional, could provide you
with a better chance of both realizing results and weathering the
market's changing conditions.
The market's disappointingly narrow focus has created a widening gap in
investment performance. Keep that in mind as you read the report from
your fund's portfolio management team on the following pages. It's all
too easy to get caught up in the headlines and miss what lies
underneath.
Sincerely,
/S/ MAUREEN R. FORD
MAUREEN R. FORD, VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BY JAMES K. HO, CFA, PORTFOLIO MANAGER
[A 3" x 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, Jim Ho, Triet Nguyen and Tony Goodchild."]
John Hancock
Income Securities Trust
Fund performance reflects a bond market under pressure
Calendar year 1999 proved to be turbulent for the broad fixed-income
market and John Hancock Income Securities Trust. After shaking off the
yoke of impending global doom caused by events in 1998, most non-U.S.
Treasury bond sectors began the year on an upward trek, rallying
through mid-April. Inflation fears, a robust domestic economy and
rising interest rates worldwide soon brought the welcomed rebound to an
abrupt end. Although the Federal Reserve Board raised interest rates
three times during the year, the domestic economy continued to chug
along and investors' inflation concerns mounted. The uncertainty
surrounding Y2K placed further pressure on bonds.
Performance results
U.S. Treasury bonds were by far the year's worst fixed-income
performers, while emerging-market debt topped the charts, exceeding
most analysts' expectations. It seems the global economic rebound
fostered an increased willingness among investors to take on the risks
associated with emerging- market securities. The Fund had virtually no
exposure to emerging markets because of their illiquidity and high-risk
profiles. The bulk of our net assets remained in investment-grade
corporate bonds, with a lesser focus on high-yield bonds and a fair
representation in U.S. Treasury, agency and asset-backed issues. Thus,
the Fund's performance reflects not only the broad market's downturn,
but also the technical challenges that beset these sectors, such as
heavy new issuance supply in the corporate arena and reduced Treasury
borrowing.
"...investors'
inflation
concerns
mounted."
[Table at top left hand column entitled "Top Five Bond Sectors." The
first listing is U.S. Government & Agencies 32%, the second is
Financials 20%, the third Utilities 12%, the fourth Telecommunications
6% and the fifth Media 5%. A note below the table reads "As a
percentage of net assets on December 31, 1999."]
For the 12 months ended December 31, 1999, the Fund stayed flat,
posting a total return of 0.06% at net asset value. This compares with
the -2.61% return at net asset value of the average open-end corporate
debt A-rated fund, according to Lipper, Inc.
"Telecommuni-
cation and
cable issues
were the
Fund's star
performers."
Fund flexibility put to work
We attribute the Fund's good relative performance to it's flexibility
that allows us to modify our allocations to the various fixed-income
sectors in an effort to capture opportunity and minimize volatility.
Our duration management -- the tactics we employ to manage the
portfolio's sensitivity to interest rate changes -- also contributed to
the Fund's ability to largely hold its ground.
[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 Nextel Communications followed by an up arrow with the phrase
"Strong subscriber growth." The second listing is Ocean Energy followed
by a sideways arrow with the phrase "Stabilization of oil prices." The
third listing is Fine Air Services followed by a down arrow with the
phrase "Weakened business fundamentals." A note below the table reads
"See 'Schedule of Investments.' Investment holdings are subject to
change."]
Corporate bond moves
We began 1999 bolstering the Fund's weighting in both investment-grade
corporate bonds -- adding selectively to BBB-rated names -- as well as
high-yield bonds. With the stage set for a positive move in oil and
commodity bond prices, we initiated positions in some cyclical and
industrial issues, including Ocean Energy, Lyondell Chemical and
Packaging Corp. of America. We also purchased ProLogis Trust, a real
estate investment trust obligation. These forays allowed the Fund to
participate in these sectors' run-up through mid-spring. By early
summer, when increased volatility seemed imminent, we slightly
decreased our corporate-bond exposure and avoided the worst of the
summer's downdraft.
As yields rose and prices then became attractive once again, we
selectively added back to corporate and high-yield bonds and continued
doing so through period's end. Recent BBB-rated and high-yield
purchases include Dillard's, Lockheed Martin, Apache Finance Canada,
Exodus Communications and Abitibi-Consolidated. Credit spreads (the
difference in yield between bonds of different credit quality) narrowed
throughout the final months as the expected heavy new issue supply
failed to materialize. Many of the Fund's holdings bounced off their
price lows. We took advantage of the sector's relative strength to move
out of somewhat smaller, more illiquid positions, such as Primark and
Marvel Entertainment.
Sector highlights
Telecommunication and cable issues were the Fund's star performers. The
very same investor sentiment, dynamic growth potential and market
technicals that fueled the stock performance of these companies are
also doing so on the fixed-income side. Holdings such as Orange Plc, a
wireless operator in the U.K., Chancellor Media, Adelphia
Communications, Continental Cablevision, Metromedia Fiber Network,
Global Crossing Holdings, SFX Entertainment, PSINet and Nextel
Communications were some names that worked well for the Fund.
Health-care and utility bonds, for the most part, remained depressed
throughout the period. Disappointing performers included Integrated
Health and Oakwood Homes Corporation, both of which we sold.
[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,
1999." The chart is scaled in increments of .5% with -3.0% at the
bottom and 0.5% at the top. The first bar represents the 0.06% total
return for John Hancock Income Securities Trust. The second bar
represents the -2.61% 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, Inc."]
Yield curve and duration strategies
The year-long decline in Treasury bond prices steadily pushed yields up
to between 6.2% and 6.3%. At different points in the year, we used the
proceeds from the sale of corporate and high-yield issues to bolster
the Fund's stake in long-term Treasury bonds. We further modified our
Treasury weighting later in the period by selling some
intermediate-term holdings to create more of a barbell structure, so
that the Fund's assets were clustered at both the short and long end of
the Treasury maturity spectrum. Should the yield curve continue to
flatten as we expect -- with yields at the longer end declining while
short-term rates rise -- this positioning should help the Fund. We also
utilized the Fund's investment in Treasury bonds to extend the
portfolio's average duration slightly, bringing it back to more of a
neutral level with its benchmark. Being neutral means we are making no
major bets on the direction of interest rates at this time.
In the fall, we swapped out of some mortgage-backed issues as they
recovered in price and purchased a few government agency positions,
such as Fannie Mae (Federal National Mortgage Association). Should the
economy slow later in 2000, mortgage rates may likely decline. If so,
agency bonds tend to have a structure that can benefit from such an
event.
"...the Fed's
vigilance
should set
the stage
for a bond
market
rebound..."
Sights on the latter part of 2000
Until the economy shows signs of slowing and the Fed convinces
investors that it has corralled the threat of higher inflation,
fixed-income securities may be in for a bumpy ride in the months ahead.
We believe the Fed's vigilance should set the stage for a bond market
rebound in the latter months of 2000. Thus, our allocation efforts will
be focused upon the opportunities that a more benign inflation,
economic and interest-rate picture may reward.
- ------------------------------------------------------------------------
This commentary reflects the views of the portfolio manager through the
end of the Fund's period discussed in this report. Of course, the
manager's views are subject to change as market and other conditions
warrant.
FINANCIAL STATEMENTS
John Hancock Funds - Income Securities Trust
<TABLE>
<CAPTION>
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,
1999. You'll also find the net asset value per share as of that date.
Statement of Assets and Liabilities
December 31, 1999
- ------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Publicly traded bonds
(cost - $156,000,989) $151,477,185
Preferred stocks and warrants
(cost - $1,833,967) 1,852,594
Joint repurchase agreement
(cost - $9,691,000) 9,691,000
Corporate savings account 506
------------
163,021,285
Interest receivable 3,071,974
Dividends receivable 21,193
Receivable for futures variation
margin - Note A 8,000
Other assets 12,520
------------
Total Assets 166,134,972
------------
Liabilities:
Payable for investments purchased 928,473
Payable to John Hancock Advisers,
Inc. and affiliates - Note B 290,823
Accounts payable and accrued expenses 96,508
------------
Total Liabilities 1,315,804
------------
Net Assets:
Capital paid-in 172,310,709
Accumulated net realized loss on
investments and financial futures
contracts (3,061,907)
Net unrealized depreciation of
investments and financial futures
contracts (4,472,289)
Undistributed net investment income 42,655
------------
Net Assets $164,819,168
============
Net Asset Value Per Share:
(Based on 10,726,230 shares of
beneficial interest outstanding -
30 million shares authorized with
no par value) $15.37
============================================================
</TABLE>
<TABLE>
<CAPTION>
The Statement of Operations summarizes the Fund's investment income
earned and expenses incurred in operating the Fund. It also shows net
gains (losses) for the period stated.
Statement of Operations
Year ended December 31, 1999
- ------------------------------------------------------------
<S> <C>
Investment Income:
Interest $13,043,944
Dividends 92,416
-----------
13,136,360
-----------
Expenses:
Investment management fee - Note B 1,053,749
Transfer agent fee - Note B 93,683
Custodian fee 65,498
Printing 50,358
Auditing fee 41,164
Accounting and legal services fee -
Note B 30,125
New York Stock Exchange fee 24,260
Trustees' fees 8,405
Miscellaneous 6,889
Legal fees 1,542
-----------
Total Expenses 1,375,673
-----------
Net Investment Income 11,760,687
-----------
Realized and Unrealized Gain (Loss) on
Investments and Financial Futures Contracts:
Net realized loss on investments sold (2,437,539)
Net realized gain on financial
futures contracts 36,801
Change in net unrealized
appreciation/depreciation of
investments (10,956,616)
Change in net unrealized
appreciation/depreciation of
financial futures contracts 33,214
-----------
Net Realized and Unrealized Loss
on Investments and Financial
Futures Contracts (13,324,140)
-----------
Net Decrease in Net Assets
Resulting from Operations ($1,563,453)
===========
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1999
-------------- ----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $11,989,010 $11,760,687
Net realized loss on investments
sold and financial futures
contracts (138,946) (2,400,738)
Change in net unrealized
appreciation/depreciation of
investments and financial futures
contracts 1,146,993 (10,923,402)
-------------- --------------
Net Increase (Decrease) in Net
Assets Resulting from Operations 12,997,057 (1,563,453)
-------------- --------------
Distributions to Shareholders:
Dividends from net investment
income ($1.1350 and $1.1025 per
share, respectively) (11,996,781) (11,755,217)
-------------- --------------
From Fund Share Transactions - Net: *
(Market value of shares issued in
reinvestment of distributions) 1,839,203 1,357,976
-------------- --------------
Net Assets:
Beginning of period 173,940,383 176,779,862
-------------- --------------
End of period (including
undistributed net investment
income of $37,079 and $42,655,
respectively) $176,779,862 $164,819,168
============== ==============
* Analysis of Fund Share Transactions:
Shares outstanding, beginning of period 10,511,835 10,626,882
Shares issued to shareholders in
reinvestment of distributions 115,047 99,348
-------------- --------------
Shares outstanding, end of period 10,626,882 10,726,230
============== ==============
The Statement of Changes in Net Assets shows how the value of the
Fund's net assets has changed since the end of the previous period. The
difference reflects earnings less expenses, any investment gains and
losses, distributions paid to shareholders and any increase due to
reinvestment of distributions in the Fund. The footnote illustrates the
number of Fund shares outstanding at the beginning of the period,
reinvested and outstanding at the end of the period, for the last two
periods.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $15.10 $16.74 $16.20 $16.55 $16.64
-------- -------- -------- -------- --------
Net Investment Income 1.26 1.22 1.20 1.14 1.10
Net Realized and Unrealized Gain (Loss) on
Investments and Financial Futures Contracts 1.64 (0.54) 0.35 0.09 (1.27)
-------- -------- -------- -------- --------
Total from Investment Operations 2.90 0.68 1.55 1.23 (0.17)
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income (1.26) (1.22) (1.20) (1.14) (1.10)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $16.74 $16.20 $16.55 $16.64 $15.37
======== ======== ======== ======== ========
Per Share Market Value, End of Period $15.750 $14.875 $16.750 $15.875 $12.688
Total Investment Return at Market Value(1) 24.11% 2.34% 21.57% 1.75% (13.42%)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $172,732 $168,961 $173,940 $176,780 $164,819
Ratio of Expenses to Average Net Assets 0.84% 0.84% 0.84% 0.81% 0.80%
Ratio of Net Investment Income to Average
Net Assets 7.77% 7.50% 7.34% 6.79% 6.88%
Portfolio Turnover Rate 105% 117% 143% 240% 184%
(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.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
December 31, 1999
- ----------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned
by Income Securities Trust on December 31, 1999. 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.
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- -------------------------- --------- ------- -------------- ---------
<S> <C> <C> <C> <C>
PUBLICLY TRADED BONDS
Aerospace (0.36%)
Jet Equipment Trust,
Equipment Trust Cert Ser 95B2
08-15-14 (R) 10.910% BBB $550 $601,557
------------
Automobile/Trucks (0.72%)
Chrysler Financial Co. LLC,
Medium Term Note Ser S 11-15-01 5.690 A+ 515 504,345
ERAC USA Finance Co.,
Note 02-15-05 (R) 6.625 BBB+ 720 683,503
------------
1,187,848
------------
Banks (7.11%)
Abbey National First Capital, B.V.,
Sub Note (United Kingdom) 10-15-04 (Y) 8.200 AA- 1,000 1,031,320
African Development Bank,
Sub Note (Supranational) 12-15-03 (Y) 9.750 AA- 1,000 1,092,800
Bank of Boston,
Sub Note 12-01-05 6.625 A- 505 483,229
Bank of New York,
Cap Security 12-01-26 (R) 7.780 A- 650 594,724
Barclays North American Capital Corp.,
Gtd Cap Note 05-15-21 9.750 AA- 900 963,666
First Union National Bank,
Sub Note 12-01-28 6.500 A 525 437,010
National Westminster Bank Plc - New York Branch,
Sub Note 05-01-01 9.450 AA- 1,250 1,288,625
NB Capital Trust IV,
Gtd Cap Security 04-15-27 8.250 A- 335 329,975
Scotland International Finance No. 2, B.V.,
Gtd Sub Note (United Kingdom)
01-27-04 (R) (Y) 8.800 A 2,000 2,095,400
Gtd Sub Note (United Kingdom)
11-01-06 (R) (Y) 8.850 A+ 750 787,005
Security Pacific Corp.,
Medium Term Sub Note 04-26-01 10.500 A 1,500 1,567,725
Sub Note 11-15-00 11.500 A 1,000 1,039,220
------------
11,710,699
------------
Beverages (0.51%)
Canandaigua Brands, Inc.,
Sr Sub Note Ser C 12-15-03 8.750 B+ 460 457,700
Seagram (Joseph) & Sons, Inc.,
Deb 09-15-11 8.875 BBB- 355 375,775
------------
833,475
------------
Broker Services (0.39%)
Goldman Sachs Group, Inc.,
Medium Term Note Ser B 10-01-09 7.350 A+ 660 644,299
------------
Chemicals (0.67%)
Akzo Nobel, Inc.,
Bond 11-15-03 (R) 6.000 A 325 309,156
DuPont (E.I.) de Nemours & Co.,
Note 10-15-09 6.875 AA- 375 363,214
Equistar Chemicals L.P.,
Note 02-15-04 8.500 BBB- 440 436,700
------------
1,109,070
------------
Computers (1.00%)
Ceridian Corp.,
Sr Note 06-01-04 7.250 BBB 425 409,968
Exodus Communications, Inc.,
Sr Note 12-15-09 (R) 10.750 B- 190 193,325
PSINet, Inc.,
Sr Note 11-01-08 11.500 B- 325 341,250
Sr Note 08-01-09 11.000 B- 190 195,700
Verio, Inc.,
Sr Note 04-01-05 10.375 B- 215 217,150
Sr Note 11-15-09 (R) 10.625 B- 275 281,875
------------
1,639,268
------------
Energy (0.60%)
CalEnergy Co., Inc.,
Sr Bond 09-15-28 8.480 BBB- 530 546,547
P&L Coal Holdings Corp.,
Sr Sub Note Ser B 05-15-08 9.625 B 455 442,488
------------
989,035
------------
Finance (3.77%)
Bombardier Capital, Inc.,
Note 01-15-02 (R) 6.000 A- 520 507,156
CIT Group Holdings, Inc.,
Deb 03-15-01 9.250 A 1,000 1,026,200
Note 10-15-01 5.500 A+ 630 615,926
FINOVA Capital Corp.,
Note 11-01-02 6.250 A- 470 455,933
Ford Motor Credit Co.,
Note 04-28-03 6.125 A+ 630 611,220
Note 10-28-09 7.375 A+ 660 651,585
General Motors Acceptance Corp.,
Note 12-01-01 6.375 A 630 623,032
Household Finance Corp.,
Note 11-01-02 5.875 A 785 756,081
Marlin Water Trust & Marlin Water Capital Corp.,
Sr Sec Note 12-15-01 (R) 7.090 BBB 505 496,466
Merrill Lynch Mortgage Investors, Inc.,
Sub Bond Ser 1992-B Class B
04-15-12 8.500 Aaa 57 56,890
Yanacocha Receivables Master Trust,
Pass Thru Cert Ser 1997-A (Peru)
06-15-04 (R) (Y) 8.400 BBB- 442 406,971
------------
6,207,460
------------
Government - Foreign (1.15%)
Nova Scotia, Province of,
Deb (Canada) 04-01-22 (Y) 8.750 A- 750 821,332
Ontario, Province of,
Bond (Canada) 06-04-02 (Y) 7.750 AA- 500 509,130
Saskatchewan, Province of,
Bond (Canada) 12-15-20 (Y) 9.375 A 480 565,358
------------
1,895,820
------------
Government - U.S. (18.96%)
United States Treasury,
Bond 08-15-05 10.750 AAA 885 1,055,504
Bond 08-15-17 8.875 AAA 2,810 3,396,138
Bond 05-15-18 9.125 AAA 2,250 2,788,582
Bond 02-15-23 7.125 AAA 14,625 15,225,941
Note 05-15-01 8.000 AAA 278 284,427
Note 05-15-02 7.500 AAA 1,026 1,053,251
Note 08-15-03 5.750 AAA 1,360 1,332,161
Note 02-15-05 7.500 AAA 2,880 3,003,754
Note 07-15-06 7.000 AAA 3,039 3,112,605
------------
31,252,363
------------
Government - U.S. Agencies (12.60%)
Federal Home Loan Mortgage Corp.,
20 Yr Pass Thru Ctf 01-01-16 11.250 AAA 210 228,527
Federal National Mortgage Assn.,
15 Yr SF Pass Thru Ctf 02-01-08 7.500 AAA 134 135,117
15 Yr SF Pass Thru Ctf 09-01-10 7.000 AAA 498 492,230
15 Yr SF Pass Thru Ctf 09-01-12 7.000 AAA 131 129,828
15 Yr SF Pass Thru Ctf 12-01-12 6.500 AAA 1,043 1,012,114
30 Yr Pass Thru Ctf 11-01-28 6.500 AAA 282 266,184
30 Yr SF Pass Thru Ctf 10-01-23 7.000 AAA 485 471,236
Benchmark Bond 05-15-29 6.250 AAA 2,225 1,980,250
Benchmark Note 08-15-04 6.500 AAA 1,575 1,555,313
Benchmark Note 09-15-09 6.625 Aaa 3,930 3,817,013
Pass Thru Ctf Ser 1997-M8 Class A-1
01-25-22 6.940 AAA 350 342,338
Financing Corp.,
Bond 02-08-18 9.400 AAA 2,000 2,423,120
Government National Mortgage Assn.,
30 Yr SF Pass Thru Ctf 07-15-28 6.500 AAA 1,701 1,596,010
30 Yr SF Pass Thru Ctf 02-15-28 to
04-15-29 7.000 AAA 3,218 3,107,080
30 Yr SF Pass Thru Ctf 02-15-24 to
01-15-29 + 7.500 AAA 2,163 2,140,581
30 Yr SF Pass Thru Ctf 01-15-30 + 8.000 AAA 281 283,818
30 Yr SF Pass Thru Ctf 04-15-21 9.000 AAA 192 201,435
30 Yr SF Pass Thru Ctf 11-15-19 to
02-15-25 9.500 AAA 430 455,901
30 Yr SF Pass Thru Ctf 11-15-20 10.000 AAA 120 129,664
------------
20,767,759
------------
Insurance (3.07%)
Conseco, Inc.,
Note 10-15-06 9.000 BBB+ 465 475,462
Equitable Life Assurance Society USA,
Surplus Note 12-01-05 (R) 6.950 A+ 550 533,307
Fairfax Financial Holdings Ltd.,
Note (Canada) 04-15-26 (Y) 8.300 BBB+ 425 376,822
Liberty Mutual Insurance Co.,
Surplus Note 10-15-26 (R) 7.875 A 165 152,559
Massachusetts Mutual Life Insurance Co.,
Surplus Note 11-15-23 (R) 7.625 AA 1,145 1,119,466
New York Life Insurance Co.,
Surplus Note 12-15-23 (R) 7.500 AA- 1,500 1,372,500
Sun Canada Financial Co.,
Sub Note 12-15-07 (R) 6.625 AA- 725 678,527
URC Holdings Corp.,
Sr Note 06-30-06 (R) 7.875 A- 355 358,206
------------
5,066,849
------------
Leasing Companies (0.19%)
United Rentals North America, Inc.,
Sr Sub Note Ser B 04-01-09 9.000 BB- 335 314,900
------------
Leisure (1.27%)
Harrah's Operating Co., Inc.,
Sr Note 01-15-09 7.500 BBB- 470 438,839
HMH Properties, Inc.,
Sr Note Ser A 08-01-05 7.875 BB 270 249,075
Premier Parks, Inc.,
Sr Note 06-15-07 9.750 B- 250 248,750
SFX Entertainment, Inc.,
Sr Sub Note 12-01-08 9.125 B- 510 483,225
Trump Hotels & Casino Resorts Funding, Inc./Holdings, L.P.,
Sr Note 06-15-05 15.500 B- 550 455,125
Waterford Gaming LLC,
Sr Note 03-15-10 (R) 9.500 B+ 215 215,000
------------
2,090,014
------------
Media (4.66%)
Adelphia Communications Corp.,
Sr Note Ser B 10-01-02 9.250 B+ 550 553,437
Sr Note Ser B 07-15-03 8.125 B1 265 253,075
Century Communications Corp.,
Sr Note 08-15-00 9.500 BB- 280 280,000
Chancellor Media Corp.,
Sr Sub Note 10-01-08 9.000 B 330 343,200
Charter Communications Holdings, LLC,
Sr Note 04-01-09 8.625 B+ 455 423,719
Comcast Cable Communications, Inc.,
Note 11-15-08 6.200 BBB 325 293,917
Continental Cablevision, Inc.,
Sr Note 05-15-06 8.300 BBB 435 450,456
CSC Holdings, Inc.,
Sr Note Ser B 07-15-09 8.125 BB+ 505 510,050
Sr Sub Deb 05-15-16 10.500 BB- 320 353,600
Echostar DBS Corp.,
Sr Note 02-01-09 9.375 B 345 345,862
Falcon Holdings Group L.P./Falcon Funding Corp.,
Sr Deb Ser B 04-15-10 8.375 B 200 201,500
Garden State Newspapers, Inc.,
Sr Sub Note 07-01-11 8.625 B+ 275 251,625
Sr Sub Note Ser B 10-01-09 8.750 B+ 276 259,440
Liberty Media Group,
Note 07-15-29 (R) 8.500 BBB- 440 448,285
Mediacom LLC/Mediacom Capital Corp.,
Sr Note Ser B 04-15-08 8.500 B+ 325 303,063
News America Holdings, Inc.,
Gtd Sr Deb 08-10-18 8.250 BBB- 432 432,186
Rogers Cablesystems Ltd.,
Sr Note Ser B (Canada) 03-15-05 (Y) 10.000 BB+ 445 476,150
TCI Communications, Inc.,
Sr Deb 02-15-26 7.875 AA- 530 532,920
Time Warner, Inc.,
Deb 01-15-13 9.125 BBB 549 601,243
TV Guide, Inc.,
Sr Sub Note Ser B 03-01-09 8.125 B+ 365 364,088
------------
7,677,816
------------
Medical (0.93%)
Dynacare, Inc.,
Sr Note (Canada) 01-15-06 (Y) 10.750 B+ 555 538,350
Fresenius Medical Care Capital Trust II,
Gtd Trust Preferred Security
02-01-08 7.875 B+ 405 376,650
IASIS Healthcare Corp.,
Sr Sub Note 10-15-09 (R) 13.000 B- 240 247,200
Quest Diagnostics, Inc.,
Sr Sub Note 12-15-06 10.750 B+ 360 378,000
------------
1,540,200
------------
Metal (0.18%)
Golden Northwest Aluminium, Inc.,
1st Mtg Note 12-15-06 12.000 BB- 280 294,000
------------
Mortgage Banking (3.81%)
Citibank Credit Card Master Trust I,
Pass Thru Ctf Ser 1997-7 Class A
08-15-02 6.350 AAA 1,010 1,008,182
Commercial Mortgage Acceptance Corp.,
Pass Thru Ctf Ser 1999-C1 Class A-1
08-15-08 6.790 Aaa 698 681,799
ContiMortgage Home Equity Loan Trust,
Pass Thru Ctf Ser 1995-2 Class A-5
08-15-25 8.100 AAA 425 428,320
Credit Suisse First Boston Mortgage Securities Corp.,
Commercial Mtg Pass Thru Ctf Ser
1998-C1 Class A-1A 12-17-07 6.260 AAA 597 573,725
Deutsche Mortgage & Asset Receiving Corp.,
Commercial Mtg Pass-Thru Ctf Ser
1998-C1 Class C 03-15-08 6.861 A2 415 382,643
FirstPlus Home Loan Trust,
Pass Thru Ctf Ser 1998-4 Class A-5
01-10-18 6.380 AAA 730 706,047
GMAC Commercial Mortgage Securities, Inc.,
Pass Thru Ctf Ser 1997-C2 Class A-3
11-15-07 6.566 Aaa 705 660,937
IMC Home Equity Loan Trust,
Pass Thru Ctf Ser 1996-1 Class A-5
12-25-13 6.290 AAA 691 686,805
Salomon Brothers Mortgage Securities VII, Inc.,
Mtg Pass Thru Ctf Ser 1997-HUD2
Class A-2 07-25-24 6.750 Aaa 454 448,484
UCFC Home Equity Loan Trust,
Pass Thru Ctf Ser 1996-D1 Class A6
02-15-25 7.180 AAA 710 706,894
------------
6,283,836
------------
Municipals (0.88%)
Massachusetts Bay Transportation Authority,
Gen Trans Sys Ser 1998B 03-01-28 5.000 AAA 600 502,530
Massachusetts Water Resource Authority,
Ref Gen Rev Ser D 08-01-24 5.000 AAA 510 432,699
New York State Dormitory Authority,
Mental Hlth Serv Facil Imp Rev Ser
1998D 02-15-23 5.000 AAA 600 510,174
------------
1,445,403
------------
Oil & Gas (2.18%)
Amerada Hess Corp.,
Bond 10-01-29 7.875 BBB 530 516,909
Apache Finance Canada Corp.,
Note (Canada) 12-15-29 (Y) 7.750 BBB+ 360 348,300
CMS Panhandle Holding Co.,
Sr Note 07-15-29 7.000 BBB- 325 287,040
Lyondell Chemical Co.,
Sr Sec Note Ser A 05-01-07 9.625 BB 265 270,963
Occidental Petroleum Corp.,
Sr Deb 09-15-09 10.125 BBB 600 685,212
Ocean Energy, Inc.,
Sr Sub Note Ser B 07-15-07 8.875 BB- 225 223,313
Petroleum Geo-Services,
Sr Note (Norway) 03-30-08 (Y) 6.625 BBB 480 443,789
Snyder Oil Corp.,
Sr Sub Note 06-15-07 8.750 BB- 290 290,000
Triton Energy Ltd.,
Sr Note 04-15-02 8.750 BB- 515 518,862
------------
3,584,388
------------
Paper & Paper Products (1.06%)
Abitibi-Consolidated, Inc.,
Deb (Canada) 08-01-29 (Y) 8.500 BBB- 360 347,036
Fort James Corp.,
Sr Note 09-15-02 6.500 BBB 470 460,680
Packaging Corp. of America,
Sr Sub Note Ser B 04-01-09 9.625 B 200 204,500
S.D. Warren Co.,
Sr Sub Note Ser B 12-15-04 12.000 B+ 707 738,815
------------
1,751,031
------------
Real Estate Investment Trust (1.34%)
American Health Properties, Inc.,
Note 01-15-07 7.500 BBB- 270 239,209
Cabot Industrial Properties, L.P.,
Note 05-01-04 7.125 BBB- 380 364,914
Camden Property Trust,
Note 04-15-04 7.000 BBB 420 405,229
Liberty Property L.P.,
Medium Term Note 06-05-02 6.600 BBB- 355 344,173
ProLogis Trust,
Note 04-15-04 6.700 BBB+ 390 371,966
TriNet Corporate Realty Trust, Inc.,
Note 05-15-01 7.300 BB 500 483,470
------------
2,208,961
------------
Retail (1.07%)
Dillard's, Inc.,
Deb 08-01-18 7.130 BBB 425 364,242
Great Atlantic & Pacific Tea Co., Inc. (The),
Note 04-15-07 7.750 BBB- 290 271,701
Kmart Corp.,
Note 12-01-04 8.375 BB+ 175 174,466
Meyer (Fred), Inc.,
Note 03-01-08 7.450 BBB- 515 501,507
Pathmark Stores, Inc.,
Sub Note 06-15-02 11.625 CCC+ 505 176,750
Safeway, Inc.,
Note 11-15-01 5.875 BBB 280 273,468
------------
1,762,134
------------
Soap & Cleaning Preparations (0.42%)
Procter & Gamble Co. (The),
Bond 09-15-09 6.875 AA 715 698,448
------------
Steel (0.66%)
National Steel Corp.,
1st Mtg Bond Ser D 03-01-09 9.875 B+ 325 333,938
UCAR Global Enterprises, Inc.,
Sr Sub Note Ser B 01-15-05 12.000 B 720 752,400
------------
1,086,338
------------
Telecommunications (5.53%)
AXIA, Inc.,
Sr Sub Note 07-15-08 10.750 B- 190 174,325
Clearnet Communications, Inc.,
Sr Disc Note, Step Coupon (10.125%,
05-01-04) (Canada) 05-01-09 (A) (Y) Zero B3 685 416,137
Sr Disc Note, Step Coupon (14.75%,
12-15-00) (Canada) 12-15-05 (A) (Y) Zero B3 175 171,500
Crown Castle International Corp.,
Sr Note 05-15-11 9.000 B 460 453,100
Global Crossing Holdings Ltd.,
Sr Note 11-15-06 (R) 9.125 BB 190 187,625
Sr Note 11-15-09 (R) 9.500 BB 435 430,106
Hermes Europe Railtel BV,
Sr Note (Netherlands) 08-15-07 (Y) 11.500 B 330 338,250
Sr Note (Netherlands) 01-15-09 (Y) 10.375 B 170 168,300
LCI International, Inc.,
Sr Note 06-15-07 7.250 BB+ 425 408,625
Level 3 Communications, Inc.,
Sr Note 05-01-08 9.125 B 260 245,700
McLeodUSA, Inc.,
Sr Note 11-01-08 9.500 B+ 370 370,925
Metromedia Fiber Network, Inc.,
Sr Note Ser B 11-15-08 10.000 B+ 450 460,125
MetroNet Communications Corp.,
Sr Note (Canada) 08-15-07 (Y) 12.000 BBB 280 324,800
Nextel Communications, Inc.,
Sr Disc Note, Step Coupon (9.95%,
02-15-03) 02-15-08 (A) Zero B 365 256,412
Sr Note 11-15-09 (R) 9.375 B 375 368,438
NEXTLINK Communications, Inc.,
Sr Note 11-15-08 10.750 B 440 453,200
NTL Communications Corp.,
Sr Note Ser B 10-01-08 11.500 B- 500 540,000
Omnipoint Corp.,
Sr Note 09-15-09 (R) 11.500 CCC+ 295 318,600
Orange Plc,
Sr Note (United Kingdom) 08-01-08 (Y) 8.000 BBB 370 376,475
RCN Corp.,
Sr Note Ser B 10-15-07 10.000 B- 255 253,725
Sprint Capital Corp.,
Note 05-01-19 6.900 BBB+ 525 477,477
TeleCorp PCS, Inc.,
Sr Sub Disc Note, Step Coupon
(11.625%, 04-15-04) 04-15-09 (A) Zero B3 335 211,050
Tritel PCS, Inc.,
Sr Disc Note, Step Coupon (12.75%,
05-15-04) 05-15-09 (A) (R) Zero B3 145 91,350
Triton PCS, Inc.,
Sr Sub Disc Note, Step Coupon
(11.00%, 05-01-03) 05-01-08 (A) Zero CCC+ 275 194,563
United Pan-Europe Communications N.V.,
Sr Note (Netherlands) 11-01-09 (R) (Y) 11.250 B 205 210,125
WorldCom, Inc.,
Note 08-15-01 6.125 A- 715 707,271
Worldwide Fiber, Inc.,
Sr Note (Canada) 12-15-05 (Y) 12.500 B+ 485 506,825
------------
9,115,029
------------
Transportation (4.40%)
America West Airlines,
Pass Thru Ctf Ser 1996-1B 01-02-08 6.930 A- 396 375,558
Continental Airlines,
Pass Thru Ctf Ser 1996-C 10-15-13 9.500 BBB+ 456 469,150
Pass Thru Ctf Ser 1999-1A 08-02-20 6.545 AA+ 630 572,336
Sr Note 12-15-05 8.000 BB- 450 415,125
Delta Air Lines, Inc.,
Deb 12-15-29 (R) 8.300 BBB- 360 350,028
Fine Air Services, Inc.,
Sr Note 06-01-08 9.875 B 440 374,000
Humpuss Funding Corp.,
Note (Indonesia) 12-15-09 (R) (Y) 7.720 B3 225 157,365
Lockheed Martin Corp.,
Bond 12-01-29 8.500 BBB- 430 431,505
Northwest Airlines, Inc.,
Note 03-15-04 8.375 BB 330 312,160
Northwest Airlines 1996-1 Pass Through Trusts,
Pass Thru Ctf Ser 1996-1C 01-02-05 10.150 BBB- 246 243,397
Pass Thru Ctf Ser 1996-1D 01-02-15 8.970 BBB- 379 377,971
NWA Trust,
Sr Note Ser A 12-21-12 9.250 AA 563 586,567
Railcar Trust No. 1992-1,
Pass Thru Ser 1992-1 Class A
06-01-04 7.750 AAA 1,088 1,098,507
USAir, Inc.,
Pass Thru Ctf Ser 1989-A2 01-01-13 9.820 BB 575 549,125
U.S. Airways, Inc.,
Pass Thru Ctf Ser 1990-A1 03-19-05 11.200 BB 657 673,696
Wisconsin Central Transportation Corp.,
Note 04-15-08 6.625 BBB- 290 265,510
------------
7,252,000
------------
Utilities (12.42%)
AES Corp.,
Sr Sub Note 07-15-06 10.250 BB 695 705,425
AES Eastern Energy,
Pass Thru Ctf 07-02-17 (R) 9.000 BBB- 410 385,666
Beaver Valley Funding Corp.,
Sec Lease Oblig Bond 06-01-17 9.000 BB- 588 589,470
BVPS II Funding Corp.,
Collateralized Lease Bond 06-01-17 8.890 BB- 700 708,750
Calpine Corp.,
Sr Note 05-15-06 10.500 BB+ 465 489,412
Chugach Electric Association, Inc.,
1st Mtg 1991 Ser A 03-15-22 9.140 A 2,000 2,236,680
Cleveland Electric Illuminating Co.,
1st Mtg Ser B 05-15-05 9.500 BB+ 1,205 1,244,162
CMS Energy Corp.,
Sr Note Ser B 01-15-02 6.750 BB 400 382,072
Sr Note 01-15-09 7.500 BB 590 542,800
Connecticut Light & Power Co.,
1st Ref Mtg Ser C 06-01-02 7.750 BBB- 215 217,636
Note 06-05-03 (R) 8.590 B+ 275 274,450
East Coast Power, LLC,
Sec Note 03-31-12 (R) 7.066 BBB- 525 472,500
EIP Funding-PNM,
Sec Fac Bond 10-01-12 10.250 BBB- 683 723,201
GG1B Funding Corp.,
Deb 01-15-11 7.430 BBB- 410 397,419
GTE North, Inc.,
Deb Ser H 11-15-08 5.650 AA- 645 571,612
Hydro-Quebec,
Gtd Bond (Canada) 02-01-21 (Y) 9.400 A+ 735 852,482
Gtd Bond (Canada) 01-15-22 (Y) 8.400 A+ 340 360,703
Gtd Deb Ser IF (Canada) 02-01-03 (Y) 7.375 A+ 750 754,290
Iberdrola International B.V.,
Note (Spain) 10-01-02 (Y) 7.500 AA- 2,000 2,012,680
Long Island Lighting Co.,
Deb 03-15-23 8.200 A- 640 638,400
Midland Funding Corp. I,
Deb Ser C-91 07-23-02 10.330 BBB- 674 693,761
Midland Funding Corp. II,
Deb Ser A 07-23-05 11.750 BB 575 620,914
Deb Ser B 07-23-06 13.250 BB 225 264,285
Monterrey Power S.A. de C.V.,
Sec Bond (Mexico) 11-15-09 (R) (Y) 9.625 BB 155 138,725
Niagara Mohawk Power Corp.,
Sec Fac Bond 01-01-18 8.770 BBB 775 791,360
North Atlantic Energy Corp.,
1st Mtg Ser A 06-01-02 9.050 BB+ 415 420,602
Northeast Utilities,
Note Ser A 12-01-06 8.580 BB+ 103 103,506
PECO Energy Transition Trust,
Pass Thru Ctf Ser 1999-A Class A-6
03-01-09 6.050 AAA 500 469,060
PNPP II Funding Corp.,
Deb 05-30-16 9.120 BB- 435 448,607
System Energy Resources, Inc.,
1st Mtg 08-01-01 7.710 BBB- 615 615,738
U.S. WEST Capital Funding, Inc.,
Deb 07-15-28 6.875 A- 525 459,244
Waterford 3 Funding Corp.,
Sec Lease Obligation Bond 01-02-17 8.090 BBB- 921 881,573
------------
20,467,185
------------
TOTAL PUBLICLY TRADED BONDS
(Cost $156,000,989) (91.91%) 151,477,185
------- ------------
NUMBER OF
SHARES OR
WARRANTS
--------
PREFERRED STOCKS AND WARRANTS
California Federal Preferred
Capital Corp., 9.125%, Ser A,
Preferred Stock 37,160 $838,422
CSC Holdings, Inc., 11.125% Ser M,
Preferred Stock 5,704 623,162
CSC Holdings, Inc., 11.750%, Ser H,
Preferred Stock 1,002 110,972
MetroNet Communications Corp.,
Warrant (Canada) (R) (Y)** 530 71,550
Packaging Corp. of America,
12.375%, Preferred Stock (R) 1,904 208,488
------------
TOTAL PREFERRED STOCKS AND WARRANTS
(Cost $1,833,967) (1.12%) 1,852,594
------- ------------
INTEREST PAR VALUE
RATE (000s OMITTED)
-------- ------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (5.88%)
Investment in a joint repurchase agreement transaction with
Barclay's, Inc. - Dated 12-31-99 due 01-03-00 (Secured by U.S.
Treasury Bond 10.625% due 03-15-15 and U. S. Treasury Notes
5.375% thru 7.125% due 01-31-00 thru 05-15-00) - Note A 2.490% $9,691 9,691,000
------- ------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.500% 506
------------
TOTAL SHORT-TERM INVESTMENTS (5.88%) 9,691,506
------- ------------
TOTAL INVESTMENTS (98.91%) 163,021,285
------- ------------
OTHER ASSETS AND LIABILITIES, NET (1.09%) 1,797,883
------- ------------
TOTAL NET ASSETS (100.00%) $164,819,168
======= ============
(A) Cash interest will be paid on this obligation at the stated rate
beginning on the stated date.
(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 $15,747,204 or 9.55% of
the Fund's net assets as of December 31, 1999.
(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 $916,618 or 0.57% of the
Fund's net assets, have been purchased on a when-issued basis. The
purchase price and 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
the when-issued commitments. Accordingly, the market value of $966,872
of United States Treasury Bond, 8.875%, 08-15-17, has been segregated to
cover the when-issued commitments.
* 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.
** Non-income producing security.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
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.
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, at
December 31, 1999, the Fund has $1,895,164 of capital loss
carryforwards available, to the extent provided by regulations, to
offset future net realized capital gains. To the extent such
carryforwards are used by the Fund, no capital gains distributions will
be made. The carryforward expires as follows: December 31, 2004 --
$32,498, December 31, 2005 -- $35,925 and December 31, 2007--
$1,826,741. Additionally, net capital losses of $246,722 attributable
to security transactions incurred after October 31, 1999 are treated as
arising on the first day (January 1, 2000) 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 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, 1999, open positions in financial futures contracts
were as follows:
UNREALIZED
EXPIRATION OPEN CONTRACT POSITION APPRECIATION
- ---------- ------------- -------- ------------
MAR 00 16 U.S. TREASURY BOND SHORT $32,888
=======
At December 31, 1999, the Fund has deposited in a segregated account
$40,000 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, 1999.
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,
accounting and legal 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.
Mr. Stephen L. Brown, Ms. Anne C. Hodsdon, Ms. Maureen R. Ford 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. The investment had no impact on the
operations of the Fund.
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, 1999 aggregated $143,759,361 and
$146,188,442, respectively. Purchases and proceeds from sales of
obligations of the U.S. government and its agencies aggregated
$152,403,428 and $154,490,076, respectively.
The cost of investments owned at December 31, 1999 (excluding the
corporate savings account) for federal income tax purposes was
$168,444,603. Gross unrealized appreciation and depreciation of
investments at December 31, 1999 aggregated $1,138,913 and $6,562,737,
respectively, resulting in net unrealized depreciation of $5,423,824.
NOTE D -
RECLASSIFICATION OF ACCOUNTS
During the year ended December 31, 1999, the Fund has reclassified
amounts to reflect a decrease in accumulated net realized loss on
investments of $200, an increase in undistributed net investment income
of $106 and a decrease in capital paid-in of $306. This represents the
amount necessary to report these balances on a tax basis, excluding
certain temporary differences, as of December 31, 1999. Additional
adjustments may be needed in subsequent reporting periods. These
reclassifications, which have no impact on the net asset value of the
Fund, are primarily attributable to certain differences in the
computation of distributable income and capital gains under federal tax
rules versus generally accepted accounting principles. The calculation
of net investment income per share in the financial highlights excludes
these adjustments.
REPORT OF ERNST & YOUNG, 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
the John Hancock Income Securities Trust (the "Trust"), including the
schedule of investments, as of December 31, 1999, 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 Fund'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 auditing standards generally
accepted in the United States. 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. Our
procedures included confirmation of securities owned as of December 31,
1999, 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 the John Hancock Income Securities Trust at
December 31, 1999, 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 accounting
principles generally accepted in the United States.
/S/ ERNST & YOUNG LLP
Boston, Massachusetts
February 10, 2000
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished
with respect to the distributions of the Fund during its fiscal year
ended December 31, 1999.
With respect to the ordinary dividends paid by the Fund for the fiscal
year ended December 31, 1999, 0.79% of the dividends qualify for the
corporate dividends received deduction.
DIVIDENDS AND DISTRIBUTIONS
During 1999, dividends from net investment income totaling $1.1025 per
share were paid to shareholders. The dates of payment and the amounts
per share are as follows:
INCOME
PAYMENT DATE DIVIDEND
- ------------ --------
March 30, 1999 $0.2725
June 30, 1999 0.2750
September 30, 1999 0.2775
December 30, 1999 0.2775
INVESTMENT OBJECTIVE AND POLICY
John Hancock Income Securities Trust is a closed-end diversified
investment management company, shares of which were initially offered to
the public on February 14, 1973 and are publicly traded on the New York
Stock Exchange. Its investment objective is to generate a high level of
current income consistent with prudent investment risk. The Fund invests
in a diversified portfolio of freely marketable debt securities and may
invest an amount not exceeding 20% of its assets in income-producing
preferred and common stock. The Fund intends to engage in short-term
trading, may issue a single class of senior securities not to exceed
331/3% of its net assets at market value, may borrow from banks as a
temporary measure for emergency purposes in amounts not to exceed 5% of
the total assets at cost and may lend its portfolio securities. The
Fund pays quarterly dividends from net investment income and intends to
distribute any available net realized capital gains annually. All
distributions are paid in cash unless the shareholder elects to
participate in the Automatic Dividend Reinvestment Plan.
FINANCIAL FUTURES CONTRACTS
The Fund may buy and sell financial futures contracts and options on
futures contracts to hedge against the effects of fluctuations in
interest rates and other market conditions. The Fund's ability to hedge
successfully will depend on the Adviser's ability to predict accurately
the future direction of interest rate changes and other market factors.
There is no assurance that a liquid market for futures and options will
always exist. In addition, the Fund could be prevented from opening, or
realizing the benefits of closing out, a futures or options position
because of position limits or limits on daily price fluctuations imposed
by an exchange.
The Fund will not engage in transactions in futures contracts and
options on futures for speculation, but only for hedging or other
permissible risk management purposes. All of the Fund's futures
contracts and options on futures will be traded on a U.S. commodity
exchange or board of trade. The Fund will not engage in a transaction in
futures or options on futures if, immediately thereafter, the sum of
initial margin deposits on existing positions and premiums paid for
options on futures would exceed 5% of the Fund's total assets.
DIVIDEND REINVESTMENT PLAN
John Hancock Income Securities Trust offers shareholders the opportunity
to elect to receive shares of the Fund's Common Shares in lieu of cash
dividends. The Plan is available to all shareholders without charge.
Any shareholder of record of John Hancock Income Securities Trust
("Income Securities") may elect to participate in the Automatic Dividend
Reinvestment Plan (the "Plan") and receive shares of Income Securities'
Common Shares in lieu of all or a portion of the cash dividends.
Shareholders may join the Plan by filling out and mailing an
authorization card showing an election to reinvest all or a portion of
dividend payments. If received in proper form by State Street Bank and
Trust Company, P.O. Box 8209, Boston, Massachusetts 02266-8209 (the
"Agent Bank") not later than seven business days before the record date
for a dividend, the election will be effective with respect to all
dividends paid after such record date. Shareholders whose shares are
held in the name of a broker or nominee should contact the broker, bank
or nominee to participate in the Plan.
Participation in the Plan may be terminated at any time by written
notice to the Agent Bank and such termination will be effective
immediately. However, notice of termination must be received seven days
prior to the record date of any distribution to be effective for that
distribution. Upon termination, certificates will be issued representing
the number of full shares of Common Shares held by the Agent Bank. A
shareholder will receive a cash payment for any fractional share held.
The Agent Bank will act as agent for participating shareholders. The
Board of Trustees of Income Securities will declare dividends from net
investment income payable in cash or, in the case of shareholders
participating in the Plan, partially or entirely in Income Securities'
Common Shares. The number of shares to be issued for the benefit of each
shareholder will be determined by dividing the amount of the cash
dividend otherwise payable to such shareholder on shares included under
the Plan by the per share net asset value of the Common Shares on the
date for payment of the dividend, unless the net asset value per share
on the payment date is less than 95% of the market price per share on
that date, in which event the number of shares to be issued to a
shareholder will be determined by dividing the amount of the cash
dividend payable to such shareholder by 95% of the market price per
share of the Common Shares on the payment date. The market price of the
Common Shares on a particular date shall be the mean between the highest
and lowest sales price on the New York Stock Exchange on that date. Net
asset value will be determined in accordance with the established
procedures of Income Securities. However, if as of such payment date
the market price of the Common Shares is lower than such net asset value
per share, the number of shares to be issued will be determined on the
basis of such market price. Fractional shares, carried out to three
decimal places, will be credited to your account. Such fractional
shares will be entitled to future dividends.
The shares issued to participating shareholders, including fractional
shares, will be held by the Agent Bank in the name of the participant. A
confirmation will be sent to each shareholder promptly, normally within
seven days, after the payment date of the dividend. The confirmation
will show the total number of shares held by such shareholder before and
after the dividend, the amount of the most recent cash dividend which
the shareholder has elected to reinvest and the number of shares
acquired with such dividend.
The reinvestment of dividends does not in any way relieve participating
shareholders of any federal, state or local income tax which may be due
with respect to such dividend. Dividends reinvested in shares will be
treated on your federal income tax return as though you had received a
dividend in cash in an amount equal to the fair market value of the
shares received, as determined by the prices for shares of the Fund on
the New York Stock Exchange as of the dividend payment date.
Distributions from the Fund's long-term capital gains will be processed
as noted above for those electing to reinvest in shares and will be
taxable to you as long-term capital gains. The confirmation referred to
above will contain all the information you will require for determining
the cost basis of shares acquired and should be retained for that
purpose. At year end, each account will be supplied with detailed
information necessary to determine total tax liability for the calendar
year.
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.
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