---------------------------
The latest report from your
Fund's management team
---------------------------
SEMIANNUAL REPORT
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Income
Securities Trust
JUNE 30, 2000
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
---------------------------------------
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
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, President and
Chief Executive Officer
Osbert M. Hood
Executive Vice President and
Chief Financial Officer
William L. Braman
Executive Vice President and
Chief Investment 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
Listed New York Stock Exchange Symbol: JHS
For Shareholder Assistance
Refer to Page 24
-------------------------------------------------
==================================CEO CORNER====================================
DEAR FELLOW SHAREHOLDERS:
After four years of spectacular returns, the stock market succumbed in the first
six months of 2000 largely to the pressures of rising interest rates, as the
Federal Reserve kept up its campaign to fight inflation. The red-hot economy has
begun to show signs of slowing, and investors are no longer blind to the real
possibility that rising rates could slow corporate profits. The result was
flat-to-negative results for the three main stock-market indexes through June.
Bonds also suffered during this period, since their prices generally move in the
opposite direction of rates.
But there was good news, too. The Treasury market, where shrinking supply
bolstered prices thanks to the government's efforts to retire some of its debt,
performed well. And the Fed appears closer to the end of its tightening cycle,
which will be a strong positive if it can slow the economy to a level that
supports corporate earnings growth but keeps inflation at bay. The picture on
the global economy is brighter and technology continues to dominate as the
driver of ever-improving corporate productivity.
--------------------------------------------------------------------------------
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman, President and Chief
Executive Officer flush right next to second paragraph.]
--------------------------------------------------------------------------------
No matter what happens next in the financial markets, these past several months
only served to reinforce some of the important lessons for investors: Diversify,
invest in line with your tolerance for risk and maintain a long-term
perspective.
Since not all parts of your portfolio will perform equally well all the time, it
is important to allocate your assets among different types of investments and
funds that target a variety of stock- and bond-market segments. This strategy,
executed under the guidance of a seasoned investment professional, could provide
you with a better chance of both realizing longer-term results and weathering
the market's changing conditions.
Sincerely,
/s/Maureen R. Ford
------------------
MAUREEN R. FORD, VICE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
By James K. Ho, CFA, Portfolio Manager
John Hancock
Income Securities Trust
Rising rates and an uncertain six-month environment for bonds
-------------------------------------------------------------
Bonds kicked off the millennium on somewhat shaky ground. Investment-grade
corporate and high-yield debt securities came into the year with relative
strength, as investors felt confident about the economy's health and corporate
earnings growth. But that sentiment changed to concern as it became apparent
that the Federal Reserve Board was committed to further monetary tightening to
slow down the economy. Investors quickly began to do the math. If the economy
slowed, corporate earnings could decelerate and the creditworthiness of some
corporate issuers might come into question. Credit spreads (the difference in
yield between bonds of different credit quality) widened as a result. When this
happens, the prices of more credit-sensitive issues decline while their yields
rise.
Coinciding with the Fed's three interest-rate increases was the U.S.
Treasury's intent to buy back roughly $30 million in securities, mainly
longer-term debt. This put further pressure on credit spreads through mid-May,
as the bellwether 30-year bond rallied and the Treasury yield curve inverted - a
scenario not experienced in the U.S. bond market since 1990. Yields on corporate
debt reached levels last seen in the 1990 recession. Mortgage-backed and
asset-backed securities also suffered downturns in the wake of the Clinton
Administration's support for eliminating government financial backing to Fannie
Mae and Freddie Mac.
Signs of improvement
By late May, however, the investment climate showed signs of improvement. Recent
leading economic indicators, such as housing sales and employment growth,
suggested that economic growth was moderating. Should this be the case,
investors surmised, the Fed might be near the end of raising interest rates for
a while. Indeed, the Fed was satisfied enough with the effects of its tightening
thus far on the economy that it took no action at its June meeting. By period's
end, investors had begun returning to the corporate arena and other spread
securities, such as mortgage-backed
--------------------------------------------------------------------------------
[A 2" x 3" photo at bottom middle of page of John Hancock Income Securities
Trust. Caption below reads "Fund management team members (l-r): Ben Matthews and
Jim Ho."]
--------------------------------------------------------------------------------
"Bonds kicked off the millennium on somewhat shaky ground."
3
<PAGE>
================================================================================
John Hancock Funds - Income Securities Trust
"...duration management...was critical in weathering the market's changes."
--------------------------------------------------------------------------------
[Table at top left hand column entitled "Top Five Bond Sectors." The first
listing is U.S. Government & Agencies 38%, the second is Financials 18%, the
third Utilities 13%, the fourth Media 4% and the fifth Telecommunications 4%. A
note below the table reads "As a percentage of net assets on June 30, 2000."]
--------------------------------------------------------------------------------
issues. Bond prices started to rise and the environment grew more conducive to
new corporate issues coming to market.
Fund performance
For the six-month period ended June 30, 2000, John Hancock Income Securities
Trust produced a gain of 3.89% at net asset value. This compares with the 3.00%
return at net asset value of the average open-end corporate debt A-rated fund,
according to Lipper, Inc.
Duration strategy
Throughout the six months, duration management - manipulating the Fund's
sensitivity to interest-rate changes - was critical in weathering the market's
challenges. We began 2000 on a defensive note, keeping the Fund's average
duration slightly shorter than its benchmark. When interest rates are rising, a
shorter duration tends to help buoy a portfolio's share price. Conversely, a
longer duration can help bolster price
--------------------------------------------------------------------------------
[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 Household
Finance followed by a sideways arrow with the phrase "Rising interest rates."
The second listing is Verio followed by an up arrow with the phrase "Merger with
NTT Japan, credit upgrade." The third listing is SFX Entertainment followed by
an up arrow with the phrase "Proposed acquisition by Clear Channel and potential
upgrade." A note below the table reads "See `Schedule of Investments.'
Investment holdings are subject to change."]
--------------------------------------------------------------------------------
appreciation possibilities when rates are trending downward. Not long into the
year, however, we began extending duration so that it now stands at neutral.
Yield curve positioning
We use the Fund's allocation to U.S. Treasury securities not only to take
advantage of market events in this sector, but also to position holdings for
possible changes in the yield curve. (The yield curve is a plotting of yields
across the maturity spectrum.) At the period's outset, we barbelled the Fund's
Treasury holdings, clustering assets in both long-term bonds and short-term
issues in anticipation of a continued flattening in the yield curve due to Fed
rate hikes. The Fund's exposure to long-term Treasury securities contributed
significantly to performance when the yield curve not only flattened but also
inverted because of the buy-back program. The long bond's price appreciated
significantly, benefiting the Fund's long-term Treasury holdings.
In May we began to unwind the barbell and refocus our attention on the
middle part of the yield curve, bolstering the Fund's stake in intermediate-term
issues. We did so believing that the yield curve was about as inverted as it was
going to get and that the next phase would be one of steepening as the Fed winds
down on raising rates. Our emphasis recently has been securities with four- to
eight-year maturities.
Spread tactics
The bulk of the Fund's net assets remain in what we term "spread securities."
These are mainly corporate bonds, both investment-grade and high-yield - though
we have pared the portfolio's weighting in the latter. They also include
mortgage-backed and agency issues in the government arena. Emerging-market bonds
fall into
4
<PAGE>
================================================================================
John Hancock Funds - Income Securities Trust
--------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the six months ended June 30, 2000." The chart
is scaled in increments of 1% with 0% at the bottom and 4% at the top. The first
bar represents the 3.89% total return for John Hancock Income Securities Trust.
The second bar represents the 3.00% 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."]
--------------------------------------------------------------------------------
this category, too, but we maintained extremely limited exposure due to these
markets' illiquid and volatile nature.
Portfolio assets are diversified across industries, with in-depth
credit analysis driving individual security selection. The turbulent investment
environment notwithstanding, many telecom, media/cable and wireless holdings
performed well for the Fund. Continental Cablevision, Metromedia Fiber Network,
EchoStar, Verio, Nextel Communications, Clearnet Communications, SFX
Entertainment and VoiceStream Wireless are some standouts. The Fund's utility
holdings have performed in line with expectations as well. With the possibility
of an economic slowdown on the horizon, investors tend to gravitate to the
relative stability of such recession-resistant players as Niagara Mohawk Power
and Midland Funding. Energy-related holdings also enjoyed a good run, including
Apache Finance Canada, Occidental Petroleum and Tosco Corp. In general, finance,
retail and health-care issues performed under pressure.
We upgraded the Fund's credit-sensitive exposure. That is, wherever
possible we moved out of longer-term corporate bonds and into shorter-term
issues of the same name, such as Lockheed Martin, CalEnergy and General Motors.
As credit spreads widened and yields rose more in longer-term securities, this
shift in emphasis allowed the Fund to participate in the prospects of companies
we liked without having excessive sensitivity to rising yields. We also boosted
the Fund's stake in AAA-rated mortgage-backed issues and reduced exposure to
30-year bank securities, selling such names as First Union, Liberty Mutual and
Fairfax Financial prior to the worst of their downturns.
Further uncertainty a possibility
In the months ahead, the market could move in either direction. We are
simultaneously optimistic and cautious, recognizing there exists the potential
for stronger economic growth which could lead to further interest-rate hikes
later this year. For the time being, we believe the worst of the interest-rate
volatility has been priced into the market and we shall therefore look to extend
duration a bit further should the opportunity arise. With corporate bond prices
at such attractive levels, we are now looking to selectively move back into
longer-term corporate debt in anticipation of credit spread narrowing.
--------------------------------------------------------------------------------
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.
"...we believe the worst of the interest-rate volatility has been priced into
the market..."
5
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Income Securities Trust
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on June 30, 2000. You'll also
find the net asset value per share as of that date.
Statement of Assets and Liabilities
June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Publicly traded bonds (cost - $154,560,759) .................. $152,537,567
Preferred stocks and warrants (cost - $1,681,556) ............ 1,604,946
Commercial paper (cost - $6,992,309) ......................... 6,992,309
Joint repurchase agreement (cost - $4,038,000) ............... 4,038,000
Corporate savings account .................................... 806
---------------
165,173,628
Receivable for investments sold ............................... 5,991,775
Interest receivable ........................................... 2,905,884
Dividends receivable .......................................... 21,193
Other assets .................................................. 12,518
---------------
Total Assets .................... 174,104,998
------------------------------------------------
Liabilities:
Payable for investments purchased ............................. 8,666,861
Dividend payable .............................................. 313,768
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ...................................... 272,921
Accounts payable and accrued expenses ......................... 27,632
---------------
Total Liabilities ............... 9,281,182
------------------------------------------------
Net Assets:
Capital paid-in ............................................... 172,632,080
Accumulated net realized loss on investments and
financial futures contracts .................................. (5,770,924)
Net unrealized depreciation of investments .................... (2,099,802)
Undistributed net investment income ........................... 62,462
---------------
Net Assets ...................... $164,823,816
================================================
Net Asset Value Per Share:
(Based on 10,750,976 shares of beneficial
interest outstanding - 30 million shares
authorized with no par value) ................................ $15.33
==============================================================================
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Six months ended June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Investment Income:
Interest ...................................................... $6,352,595
Dividends ..................................................... 90,474
---------------
6,443,069
---------------
Expenses:
Investment management fee - Note B ........................... 515,597
Transfer agent fee - Note B .................................. 57,158
Custodian fee ................................................ 31,198
Printing ..................................................... 23,017
Auditing fee ................................................. 15,893
Accounting and legal services fee - Note B ................... 14,865
New York Stock Exchange fee .................................. 11,016
Miscellaneous ................................................ 4,573
Trustees' fees ............................................... 4,179
Legal fees ................................................... 841
---------------
Total Expenses .................. 678,337
------------------------------------------------
Net Investment Income ........... 5,764,732
------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts:
Net realized loss on investments sold ........................ (2,669,519)
Net realized loss on financial futures contracts ............. (39,498)
Change in net unrealized appreciation/depreciation
of investments .............................................. 2,405,375
Change in net unrealized appreciation/depreciation
of financial futures contracts .............................. (32,888)
---------------
Net Realized and Unrealized
Loss on Investments and
Financial Futures Contracts ..... (336,530)
------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ....... $5,428,202
================================================
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Income Securities Trust
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30, 2000
1999 (UNAUDITED)
------------------- --------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ............................................................. $11,760,687 $5,764,732
Net realized loss on investments sold and financial futures contracts ............. (2,400,738) (2,709,017)
Change in net unrealized appreciation/depreciation of investments and
financial futures contracts ...................................................... (10,923,402) 2,372,487
--------------- --------------
Net Increase (Decrease) in Net Assets Resulting from Operations .................. (1,563,453) 5,428,202
--------------- --------------
Distributions to Shareholders:
Dividends from net investment income ($1.1025 and $0.5350 per share, respectively) (11,755,217) (5,744,925)
--------------- --------------
From Fund Share Transactions - Net : *
(Market value of shares issued in reinvestment of distributions) .................. 1,357,976 321,371
--------------- --------------
Net Assets:
Beginning of period ............................................................... 176,779,862 164,819,168
--------------- --------------
End of period (including undistributed net investment income
of $42,655 and $62,462, respectively) ............................................ $164,819,168 $164,823,816
=============== ==============
*Analysis of Fund Share Transactions:
Shares outstanding, beginning of period ........................................... 10,626,882 10,726,230
Shares issued to shareholders in reinvestment of distributions .................... 99,348 24,746
--------------- --------------
Shares outstanding, end of period ................................................. 10,726,230 10,750,976
=============== ==============
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:
--------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
---------------------------------------------------------- JUNE 30, 2000
1995 1996 1997 1998 1999 (UNAUDITED)
---------- ----------- ---------- ---------- ---------- ----------------
<S> <C> <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 $15.37
--------- --------- --------- --------- --------- ----------
Net Investment Income ................................. 1.26 1.22 1.20 1.14 1.10 0.54
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts ...................... 1.64 (0.54) 0.35 0.09 (1.27) (0.04)
--------- --------- --------- --------- --------- ----------
Total from Investment Operations .................... 2.90 0.68 1.55 1.23 (0.17) 0.50
--------- --------- --------- --------- --------- ----------
Less Distributions:
Dividends from Net Investment Income .................. (1.26) (1.22) (1.20) (1.14) (1.10) (0.54)
--------- --------- --------- --------- --------- ----------
Net Asset Value, End of Period ........................ $16.74 $16.20 $16.55 $16.64 $15.37 $15.33
========= ========= ========= ========= ========= ==========
Per Share Market Value, End of Period ................. $15.750 $14.875 $16.750 $15.875 $12.688 $13.313
Total Investment Return at Market Value(1) ............ 24.11% 2.34% 21.57% 1.75% (13.42%) 9.26%(2)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .............. $172,732 $168,961 $173,940 $176,780 $164,819 $164,824
Ratio of Expenses to Average Net Assets ............... 0.84% 0.84% 0.84% 0.81% 0.80% 0.83%(3)
Ratio of Net Investment Income to Average Net Assets .. 7.77% 7.50% 7.34% 6.79% 6.88% 7.03%(3)
Portfolio Turnover Rate ............................... 105% 117% 143% 240% 184% 121%
(1) Assumes dividend reinvestment.
(2) Not annualized.
(3) Annualized.
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
distributions and total investment return of the Fund. It shows how the Fund's
net asset value for a share has changed since the end of the previous period. It
also shows the total investment return for each period based on the market value
of Fund shares. Additionally, important relationships between some items
presented in the financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Income Securities Trust
Schedule of Investments
June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by Income
Securities Trust on June 30, 2000. 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.
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
------------------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C>
PUBLICLY TRADED BONDS
Aerospace (1.11%)
Jet Equipment Trust,
Equipment Trust Cert Ser 95B2 08-15-14 (R)........... 10.910% BBB $550 $557,480
Lockheed Martin Corp.,
Bond 12-01-29 ....................................... 8.500 BBB- 365 368,570
Note 12-01-05 ....................................... 7.950 BBB- 370 372,109
Raytheon Co.,
Note 03-01-03 (R) ................................... 7.900 BBB- 525 528,134
----------
1,826,293
----------
Automobile/Trucks (0.93%)
Chrysler Corp.,
Deb 03-01-27 ........................................ 7.450 A+ 370 355,026
DaimlerChrysler North America Holding Corp.,
Note 01-20-05 ....................................... 7.400 A+ 505 501,005
ERAC USA Finance Co.,
Note 02-15-05 (R) ................................... 6.625 BBB+ 720 675,151
----------
1,531,182
----------
Banks (7.00%)
Abbey National First Capital, B.V.,
Sub Note (United Kingdom) 10-15-04 (Y) .............. 8.200 AA- 1,000 1,024,390
African Development Bank,
Sub Note (Supranational) 12-15-03 (Y) ............... 9.750 AA- 1,000 1,082,950
Bank of Boston,
Sub Note 12-01-05 ................................... 6.625 A- 505 477,897
Bank of New York,
Cap Security 12-01-26 (R) ........................... 7.780 A- 650 598,747
Barclays North American Capital Corp.,
Gtd Cap Note 05-15-21 ............................... 9.750 AA- 900 948,681
National Westminster Bank Plc - New York Branch,
Sub Note 05-01-01 ................................... 9.450 A+ 1,250 1,272,587
NB Capital Trust IV,
Gtd Cap Security 04-15-27 ........................... 8.250 A- 335 311,238
Royal Bank of Scotland Plc,
Bond (United Kingdom) 03-31-05 (Y) .................. 8.817 A- 380 391,480
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Income Securities Trust
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
------------------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C>
Banks (continued)
Scotland International Finance No. 2, B.V.,
Gtd Sub Note (United Kingdom) 01-27-04 (R) (Y) ...... 8.800% A $2,000 $2,082,460
Gtd Sub Note (United Kingdom) 11-01-06 (R) (Y) ...... 8.850 A+ 750 793,530
Security Pacific Corp.,
Medium Term Sub Note 04-26-01 ....................... 10.500 A 1,500 1,539,120
Sub Note 11-15-00 ................................... 11.500 A 1,000 1,015,630
----------
11,538,710
----------
Beverages (0.40%)
Canandaigua Brands, Inc.,
Sr Sub Note Ser C 12-15-03 .......................... 8.750 B+ 460 441,600
Seagram (Joseph E.) & Sons, Inc.,
Sr Deb 12-15-18 ..................................... 7.500 BBB- 235 224,796
----------
666,396
----------
Broker Services (0.20%)
Goldman Sachs Group, Inc.,
Medium Term Note Ser B 10-01-09 ..................... 7.350 A+ 340 326,662
----------
Chemicals (0.45%)
Akzo Nobel, Inc.,
Bond 11-15-03 (R) ................................... 6.000 A 325 308,263
Equistar Chemicals L.P.,
Note 02-15-04 ....................................... 8.500 BBB- 440 431,200
----------
739,463
----------
Computers (0.86%)
Ceridian Corp.,
Sr Note 06-01-04 .................................... 7.250 BBB 425 407,885
Exodus Communications, Inc.,
Sr Note 12-15-09 .................................... 10.750 B- 310 299,150
PSINet, Inc.,
Sr Note 11-01-08 .................................... 11.500 B- 195 183,300
Verio, Inc.,
Sr Note 04-01-05 .................................... 10.375 B- 500 532,500
----------
1,422,835
----------
Electronics (0.05%)
Amkor Technology, Inc.,
Sr Sub Note 05-01-09 ................................ 10.500 B 75 74,813
----------
Energy (0.68%)
CalEnergy Co., Inc.,
Sr Bond 09-15-28 .................................... 8.480 BBB- 425 428,468
Sr Note 09-15-05 .................................... 7.230 BBB- 285 277,148
P&L Coal Holdings Corp.,
Sr Sub Note Ser B 05-15-08 .......................... 9.625 B 455 420,875
----------
1,126,491
----------
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Income Securities Trust
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
------------------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C>
Finance (2.99%)
Bombardier Capital, Inc.,
Note 01-15-02 (R) ................................... 6.000% A- $520 $507,000
CIT Group Holdings, Inc.,
Deb 03-15-01 ........................................ 9.250 A 1,000 1,011,290
Ford Motor Credit Co.,
Note 04-28-03 ....................................... 6.125 A 630 607,018
Note 10-28-09 ....................................... 7.375 A 435 420,762
General Motors Acceptance Corp.,
Note 01-19-10 ....................................... 7.750 A 430 427,485
Household Finance Corp.,
Note 11-01-02 ....................................... 5.875 A 785 754,220
Note 02-01-09 ....................................... 5.875 A 365 317,441
Marlin Water Trust & Marlin Water Capital Corp.,
Sr Sec Note 12-15-01 (R) ............................ 7.090 BBB 505 499,003
Yanacocha Receivables Master Trust,
Pass Thru Cert Ser 1997-A 06-15-04 (R) .............. 8.400 BBB- 417 379,161
----------
4,923,380
----------
Government - Foreign (1.15%)
Nova Scotia, Province of,
Deb (Canada) 04-01-22 (Y) ........................... 8.750 A- 750 830,475
Ontario, Province of,
Bond (Canada) 06-04-02 (Y) .......................... 7.750 AA- 500 506,065
Saskatchewan, Province of,
Bond (Canada) 12-15-20 (Y) .......................... 9.375 A 480 567,086
----------
1,903,626
----------
Government - U.S. (20.98%)
United States Treasury,
Bond 08-15-05 ....................................... 10.750 AAA 885 1,054,947
Bond 08-15-17 ....................................... 8.875 AAA 2,495 3,180,352
Bond 05-15-18 ....................................... 9.125 AAA 2,250 2,941,875
Bond 02-15-23 ....................................... 7.125 AAA 10,965 12,186,611
Note 05-15-02 ....................................... 7.500 AAA 1,126 1,146,763
Note 08-15-03 ....................................... 5.750 AAA 280 275,232
Note 02-15-05 ....................................... 7.500 AAA 3,120 3,270,134
Note 07-15-06 ....................................... 7.000 AAA 3,009 3,118,076
Note 05-15-08 ....................................... 5.625 AAA 7,670 7,399,172
----------
34,573,162
----------
Government - U.S. Agencies (16.76%)
Fannie Mae,
Benchmark Bond 02-15-05 ............................. 7.125 AAA 2,010 2,018,161
Benchmark Note 09-15-09 ............................. 6.625 AAA 5,010 4,840,111
Benchmark Note 01-15-30 ............................. 7.125 AAA 2,345 2,362,212
Federal Home Loan Mortgage Corp.,
20 Yr Pass Thru Ctf 01-01-16 ........................ 11.250 AAA 190 204,823
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Income Securities Trust
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.,
15 Yr Pass Thru Ctf 03-01-02 + ...................... 7.000% AAA $430 $421,804
15 Yr SF Pass Thru Ctf 02-01-08 ..................... 7.500 AAA 94 94,435
15 Yr SF Pass Thru Ctf 09-01-10 ..................... 7.000 AAA 451 445,045
15 Yr SF Pass Thru Ctf 09-01-12 ..................... 7.000 AAA 122 119,754
15 Yr SF Pass Thru Ctf 12-01-12 ..................... 6.500 AAA 971 937,462
30 Yr Pass Thru Ctf 11-01-28 ........................ 6.500 AAA 273 257,181
30 Yr SF Pass Thru Ctf 10-01-23 ..................... 7.000 AAA 458 444,853
Pass Thru Ctf Ser 1997-M8 Class A-1 01-25-22 ........ 6.940 AAA 342 337,752
Financing Corp.,
Bond 02-08-18 ....................................... 9.400 AAA 2,000 2,444,680
Government National Mortgage Assn.,
30 Yr SF Pass Thru Ctf 01-15-29 to 07-15-29 + ....... 6.500 AAA 4,285 4,066,721
30 Yr SF Pass Thru Ctf 02-15-28 to 07-15-30 + ....... 7.000 AAA 5,647 5,489,452
30 Yr SF Pass Thru Ctf 09-15-29 to 01-15-30 ......... 7.500 AAA 2,192 2,176,542
30 Yr SF Pass Thru Ctf 07-15-29 + ................... 8.000 AAA 281 283,995
30 Yr SF Pass Thru Ctf 04-15-21 ..................... 9.000 AAA 186 192,956
30 Yr SF Pass Thru Ctf 11-15-19 to 02-15-25 ......... 9.500 AAA 364 382,107
30 Yr SF Pass Thru Ctf 11-15-20 ..................... 10.000 AAA 94 100,054
----------
27,620,100
----------
Insurance (2.03%)
Equitable Life Assurance Society USA,
Surplus Note 12-01-05 (R) ........................... 6.950 A+ 550 539,841
Massachusetts Mutual Life Insurance Co.,
Surplus Note 11-15-23 (R) ........................... 7.625 AA 485 457,210
New York Life Insurance Co.,
Surplus Note 12-15-23 (R) ........................... 7.500 AA- 1,500 1,304,550
Sun Canada Financial Co.,
Sub Note 12-15-07 (R) ............................... 6.625 AA- 725 677,150
URC Holdings Corp.,
Sr Note 06-30-06 (R) ................................ 7.875 A- 355 361,855
----------
3,340,606
----------
Leasing Companies (0.13%)
United Rentals North America, Inc.,
Sr Sub Note Ser B 04-01-09 .......................... 9.000 BB- 240 212,400
----------
Leisure (1.00%)
Harrah's Operating Co., Inc.,
Sr Note 01-15-09 .................................... 7.500 BBB- 300 278,376
HMH Properties, Inc.,
Sr Note Ser A 08-01-05 .............................. 7.875 BB 415 392,175
Premier Parks, Inc.,
Sr Note 06-15-07 .................................... 9.750 B- 250 240,625
SFX Entertainment, Inc.,
Sr Sub Note 12-01-08 ................................ 9.125 B- 510 515,100
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Income Securities Trust
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
------------------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C>
Leisure (continued)
Waterford Gaming LLC,
Sr Note 03-15-10 (R) ................................ 9.500% B+ $226 $219,220
----------
1,645,496
----------
Media (4.40%)
Adelphia Communications Corp.,
Sr Note 11-15-09 .................................... 9.375 B+ 150 139,125
Sr Note Ser B 10-01-02 .............................. 9.250 B+ 550 539,000
Sr Note Ser B 07-15-03 .............................. 8.125 B+ 265 247,775
Century Communications Corp.,
Sr Note 08-15-00 .................................... 9.500 BB- 280 278,600
Chancellor Media Corp.,
Sr Sub Note 10-01-08 ................................ 9.000 B 330 335,775
Clear Channel Communications, Inc.,
Note 06-15-05 ....................................... 7.875 BBB- 520 520,650
Comcast Cable Communications, Inc.,
Note 11-15-08 ....................................... 6.200 BBB 325 293,387
Continental Cablevision, Inc.,
Sr Note 05-15-06 .................................... 8.300 AA- 435 448,568
CSC Holdings, Inc.,
Sr Note Ser B 07-15-09 .............................. 8.125 BB+ 570 550,050
Sr Sub Deb 05-15-16 ................................. 10.500 BB- 320 341,600
EchoStar DBS Corp.,
Sr Note 02-01-09 .................................... 9.375 B 380 366,700
Garden State Newspapers, Inc.,
Sr Sub Note 07-01-11 ................................ 8.625 B+ 275 242,000
Mediacom LLC/Mediacom Capital Corp.,
Sr Note Ser B 04-15-08 .............................. 8.500 B+ 325 299,000
News America Holdings, Inc.,
Gtd Sr Deb 08-10-18 ................................. 8.250 BBB- 255 245,677
Rogers Cablesystems Ltd.,
Sr Note Ser B (Canada) 03-15-05 (Y) ................. 10.000 BB+ 445 455,013
TCI Communications, Inc.,
Sr Deb 02-15-26 ..................................... 7.875 AA- 530 517,020
Telewest Communications Plc,
Sr Note (United Kingdom) 02-01-10 (R) (Y) ........... 9.875 B+ 240 223,200
Time Warner, Inc.,
Deb 01-15-13 ........................................ 9.125 BBB 779 853,706
TV Guide, Inc.,
Sr Sub Note Ser B 03-01-09 .......................... 8.125 B+ 365 360,438
----------
7,257,284
----------
Medical (1.04%)
Dynacare, Inc.,
Sr Note (Canada) 01-15-06 (Y) ....................... 10.750 B+ 540 486,000
Fresenius Medical Care Capital Trust II,
Gtd Trust Preferred Security 02-01-08 ............... 7.875 B+ 405 362,475
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Income Securities Trust
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
------------------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C>
Medical (continued)
IASIS Healthcare Corp.,
Sr Sub Note 10-15-09 ................................ 13.000% B- $240 $238,200
Quest Diagnostics, Inc.,
Sr Sub Note 12-15-06 ................................ 10.750 B+ 360 372,600
Tenet Healthcare Corp.,
Sr Note 01-15-05 .................................... 8.000 BB+ 260 248,950
----------
1,708,225
----------
Metal (0.17%)
Golden Northwest Aluminum, Inc.,
1st Mtg Note 12-15-06 ............................... 12.000 BB- 280 280,000
----------
Mortgage Banking (4.06%)
Commercial Mortgage Acceptance Corp.,
Pass Thru Ctf Ser 1999-C1 Class A-1 08-15-08 ........ 6.790 Aaa 676 659,545
ContiMortgage Home Equity Loan Trust,
Pass Thru Ctf Ser 1995-2 Class A-5 08-15-25 ......... 8.100 AAA 425 427,059
Credit Suisse First Boston Mortgage Securities Corp.,
Commercial Mtg Pass Thru Ctf Ser 1998-C1
Class A-1A 12-17-07 ................................ 6.260 AAA 572 549,013
Deutsche Mortgage & Asset Receiving Corp.,
Commercial Mtg Pass-Thru Ctf Ser 1998-C1
Class C 03-15-08 ................................... 6.861 A2 415 387,506
FirstPlus Home Loan Trust,
Pass Thru Ctf Ser 1998-4 Class A-5 01-10-18 ......... 6.380 AAA 730 710,378
GMAC Commercial Mortgage Securities, Inc.,
Pass Thru Ctf Ser 1997-C2 Class A-3 11-15-07 ........ 6.566 Aaa 705 663,141
LB Commercial Mortgage Trust,
Pass Thru Ctf Ser 1999-C1 Class A-1 08-15-07 ........ 6.410 Aaa 661 636,582
Morgan Stanley Capital I, Inc.,
Pass Thru Ctf Ser 1999-CAM1 Class A-3 11-15-08 ...... 6.920 AAA 1,555 1,516,611
Salomon Brothers Mortgage Securities VII, Inc.,
Mtg Pass Thru Ctf Ser 1997-HUD2 Class A-2 07-25-24 .. 6.750 Aaa 454 453,555
UCFC Home Equity Loan Trust,
Pass Thru Ctf Ser 1996-D1 Class A-6 02-15-25 ........ 7.180 AAA 710 696,688
----------
6,700,078
----------
Oil & Gas (3.08%)
Apache Finance Canada Corp.,
Note (Canada) 12-15-29 (Y) .......................... 7.750 BBB+ 370 362,341
Coastal Corp. (The),
Note 06-15-10 ....................................... 7.750 BBB 370 365,808
Occidental Petroleum Corp.,
Sr Deb 09-15-09 ..................................... 10.125 BBB- 600 680,688
Sr Note 02-15-29 .................................... 8.450 BBB- 545 557,916
Ocean Energy, Inc.,
Sr Sub Note Ser B 07-15-07 .......................... 8.875 BB- 265 263,675
Panhandle East Pipe Line Co.,
Sr Note 04-01-10 (R) ................................ 8.250 BBB- 370 368,844
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Income Securities Trust
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
------------------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C>
Oil & Gas (continued)
Petroleum Geo-Services,
Sr Note (Norway) 03-30-08 (Y) ....................... 6.625% BBB $480 $435,446
Phillips Petroleum Co.,
Note 05-25-10 ....................................... 8.750 BBB 370 389,765
Snyder Oil Corp.,
Sr Sub Note 06-15-07 ................................ 8.750 BB+ 290 287,100
Tosco Corp.,
Note 02-15-30 ....................................... 8.125 BBB 485 483,492
Triton Energy Ltd.,
Sr Note 04-15-02 .................................... 8.750 BB- 515 511,137
Valero Energy Corp.,
Bond 06-15-30 ....................................... 8.750 BBB- 365 361,967
----------
5,068,179
----------
Paper & Paper Products (0.70%)
Abitibi-Consolidated, Inc.,
Deb (Canada) 08-01-29 (Y) ........................... 8.500 BBB- 185 172,777
Fort James Corp.,
Sr Note 09-15-02 .................................... 6.500 BBB 470 459,068
International Paper Co.,
Note 07-08-05 (R) ................................... 8.125 BBB+ 520 523,796
----------
1,155,641
----------
Real Estate Investment Trust (1.34%)
American Health Properties, Inc.,
Note 01-15-07 ....................................... 7.500 BBB- 270 240,300
Cabot Industrial Properties, L.P.,
Note 05-01-04 ....................................... 7.125 BBB- 380 365,476
Camden Property Trust,
Note 04-15-04 ....................................... 7.000 BBB 420 401,402
Liberty Property L.P.,
Medium Term Note 06-05-02 ........................... 6.600 BBB- 355 345,016
ProLogis Trust,
Note 04-15-04 ....................................... 6.700 BBB+ 390 373,339
TriNet Corporate Realty Trust, Inc.,
Note 05-15-01 ....................................... 7.300 BB 500 488,605
----------
2,214,138
----------
Telecommunications (4.31%)
AXIA, Inc.,
Sr Sub Note 07-15-08 ................................ 10.750 B- 190 148,200
Clearnet Communications, Inc.,
Sr Disc Note, Step Coupon (10.125%, 05-01-04)
(Canada) 05-01-09 (A) (Y) .......................... Zero B3 460 273,700
Sr Disc Note, Step Coupon (14.75%, 12-15-00)
(Canada) 12-15-05 (A) (Y) .......................... Zero B3 175 179,156
Crown Castle International Corp.,
Sr Note 05-15-11 .................................... 9.000 B 335 308,200
Dominion Resources, Inc.,
Sr Note Ser A 06-15-10 .............................. 8.125 BBB+ 290 289,710
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Income Securities Trust
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
------------------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C>
Telecommunications (continued)
Focal Communications Corp.,
Sr Note 01-15-10 (R) ................................ 11.875% B $150 $153,750
Global Crossing Holdings Ltd.,
Sr Note (Bermuda) 11-15-09 (Y) ...................... 9.500 BB 450 436,500
LCI International, Inc.,
Sr Note 06-15-07 .................................... 7.250 BBB+ 425 402,403
Level 3 Communications, Inc.,
Sr Note 03-15-08 (R) ................................ 11.000 B 225 221,625
McLeodUSA, Inc.,
Sr Note 11-01-08 .................................... 9.500 B+ 310 300,700
Metromedia Fiber Network, Inc.,
Sr Note Ser B 11-15-08 .............................. 10.000 B+ 385 380,188
MetroNet Communications Corp.,
Sr Note (Canada) 08-15-07 (Y) ....................... 12.000 BBB 280 316,400
Nextel Communications, Inc.,
Sr Note 11-15-09 .................................... 9.375 B 410 391,550
NEXTLINK Communications, Inc.,
Sr Note 11-15-08 .................................... 10.750 B 220 216,700
NTL Communications Corp.,
Sr Note Ser B 10-01-08 .............................. 11.500 B- 400 402,000
Omnipoint Corp.,
Sr Note 09-15-09 .................................... 11.500 CCC+ 295 321,550
Sprint Capital Corp.,
Note 05-01-19 ....................................... 6.900 BBB+ 525 466,809
TeleCorp PCS, Inc.,
Sr Sub Disc Note, Step Coupon
(11.625%, 04-15-04) 04-15-09 (A) ................... Zero B 335 219,425
Triton PCS, Inc.,
Sr Sub Disc Note, Step Coupon
(11.00%, 05-01-03) 05-01-08 (A) .................... Zero CCC+ 130 93,600
United Pan-Europe Communications N.V.,
Sr Note Ser B (Netherlands) 11-01-09 (Y) ............ 11.250 B 215 189,200
Vodafone AirTouch Plc,
Note (United Kingdom) 02-15-10 (R) (Y) .............. 7.750 A- 370 360,920
VoiceStream Wireless Corp.,
Sr Note 11-15-09 .................................... 10.375 B- 190 197,125
Williams Communications Group, Inc.,
Sr Note 10-01-09 .................................... 10.875 BB- 370 362,600
WorldCom, Inc.,
Note 05-15-06 ....................................... 8.000 A- 475 479,988
----------
7,111,999
----------
Transportation (3.34%)
America West Airlines,
Pass Thru Ctf Ser 1996-1B 01-02-08 .................. 6.930 A- 364 341,718
Continental Airlines,
Pass Thru Ctf Ser 1996-C 10-15-13 ................... 9.500 BBB+ 444 450,242
Pass Thru Ctf Ser 1999-1A 08-02-20 .................. 6.545 AA+ 614 552,520
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Income Securities Trust
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
------------------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C>
Transportation (continued)
Fine Air Services, Inc.,
Sr Note 06-01-08 .................................... 9.875% CC $462 $207,776
Humpuss Funding Corp.,
Note 12-15-09 (R) ................................... 7.720 B3 217 157,461
Northwest Airlines 1996-1 Pass Through Trusts,
Pass Thru Ctf Ser 1996-1C 01-02-05 .................. 10.150 BBB- 220 213,174
Pass Thru Ctf Ser 1996-1D 01-02-15 .................. 8.970 BBB- 368 365,100
Northwest Airlines, Inc.,
Note 03-15-04 ....................................... 8.375 BB 300 283,581
NWA Trust,
Sr Note Ser A 12-21-12 .............................. 9.250 AA 552 587,635
Railcar Trust No. 1992-1,
Pass Thru Ser 1992-1 Class A 06-01-04 ............... 7.750 AAA 983 984,518
USAir, Inc.,
Pass Thru Ctf Ser 1989-A2 01-01-13 .................. 9.820 BB- 575 492,344
U.S. Airways, Inc.,
Pass Thru Ctf Ser 1990-A1 03-19-05 .................. 11.200 BB- 610 608,140
Wisconsin Central Transportation Corp.,
Note 04-15-08 ....................................... 6.625 BBB- 290 257,581
----------
5,501,790
----------
Utilities (13.39%) AES Corp.,
Sr Note 06-01-09 ...................................... 9.500 BB 185 181,300
Sr Sub Note 07-15-06 .................................. 10.250 B+ 695 691,525
AES Eastern Energy L.P.,
Pass Thru Ctf Ser 1999-A 01-02-17 ..................... 9.000 BBB- 410 395,281
Beaver Valley Funding Corp.,
Sec Lease Oblig Bond 06-01-17 ......................... 9.000 BB- 463 468,209
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+ 465 487,087
Chugach Electric Association, Inc.,
1st Mtg 1991 Ser A 03-15-22 ........................... 9.140 A 2,000 2,099,000
Cleveland Electric Illuminating Co.,
1st Mtg Ser B 05-15-05 ................................ 9.500 BB+ 1,205 1,239,644
CMS Energy Corp.,
Sr Note 01-15-09 ...................................... 7.500 BB 250 221,250
Sr Note Ser B 01-15-04 ................................ 6.750 BB 400 367,000
Connecticut Light & Power Co.,
1st Ref Mtg Ser C 06-01-02 ............................ 7.750 BBB- 215 215,684
Note 06-05-03 (R) ..................................... 8.590 B+ 275 273,661
Deutsche Telekom International Finance B.V.,
Gtd Note (Netherlands) 06-15-30 (Y) + ................. 8.250 AA- 440 444,444
East Coast Power LLC,
Sec Note 03-31-12 ..................................... 7.066 BBB- 370 336,811
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Income Securities Trust
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
------------------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C>
Utilities (continued)
EIP Funding-PNM,
Sec Fac Bond 10-01-12 ............................... 10.250% BBB- $673 $733,368
GG1B Funding Corp.,
Deb 01-15-11 ........................................ 7.430 BBB- 395 377,145
GTE North, Inc.,
Deb Ser H 11-15-08 .................................. 5.650 A+ 510 444,893
Hydro-Quebec,
Gtd Bond (Canada) 02-01-21 (Y) ...................... 9.400 A+ 735 856,275
Gtd Bond (Canada) 01-15-22 (Y) ...................... 8.400 A+ 340 366,149
Gtd Deb Ser IF (Canada) 02-01-03 (Y) ................ 7.375 A+ 750 750,607
Iberdrola International B.V.,
Note (Spain) 10-01-02 (Y) ........................... 7.500 AA- 2,000 2,013,460
Long Island Lighting Co.,
Deb 03-15-23 ........................................ 8.200 A- 640 608,000
Midland Funding Corp. I,
Deb Ser C-91 07-23-02 ............................... 10.330 BBB- 572 583,127
Midland Funding Corp. II,
Deb Ser A 07-23-05 .................................. 11.750 BB+ 575 643,666
Deb Ser B 07-23-06 .................................. 13.250 BB+ 225 264,605
Monterrey Power S.A. de C.V.,
Sec Bond (Mexico) 11-15-09 (R) (Y) .................. 9.625 BB+ 155 141,050
Niagara Mohawk Power Corp.,
Sec Fac Bond 01-01-18 ............................... 8.770 BBB 764 786,966
North Atlantic Energy Corp.,
1st Mtg Ser A 06-01-02 .............................. 9.050 BB+ 273 274,998
Northeast Utilities,
Note Ser A 12-01-06 ................................. 8.580 BB+ 124 124,669
PECO Energy Transition Trust,
Pass Thru Ctf Ser 1999-A Class A-6 03-01-09 ......... 6.050 AAA 500 465,500
Pass Thru Ctf Ser 2000-A Class A-3 03-01-10 ......... 7.625 AAA 1,535 1,545,898
PNPP II Funding Corp.,
Deb 05-30-16 ........................................ 9.120 BB- 495 505,474
Sierra Pacific Resources,
Note 05-15-05 ....................................... 8.750 BBB 515 521,793
System Energy Resources, Inc.,
1st Mtg 08-01-01 .................................... 7.710 BBB- 615 613,770
U.S. WEST Capital Funding, Inc.,
Deb 07-15-28 ........................................ 6.875 BBB+ 550 472,423
Waterford 3 Funding Corp.,
Sec Lease Obligation Bond 01-02-17 .................. 8.090 BBB- 854 845,136
----------
22,068,618
----------
TOTAL LONG-TERM DEBT
(Cost $154,560,759) (92.55%) 152,537,567
-------- -----------
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Income Securities Trust
NUMBER OF SHARES MARKET
ISSUER, DESCRIPTION OR WARRANTS VALUE
------------------- ---------------- ------
<S> <C> <C>
PREFERRED STOCKS AND WARRANTS
California Federal Preferred Capital Corp., 9.125%, Ser A, Preferred Stock ......... 37,160 $787,327
CSC Holdings, Inc., 11.125%, Ser M, Preferred Stock ................................ 6,025 634,131
CSC Holdings, Inc., 11.750%, Ser H, Preferred Stock ................................ 1,061 114,588
MetroNet Communications Corp., Warrant (Canada) (R) (Y) ** ......................... 530 68,900
-----------
TOTAL PREFERRED STOCKS AND WARRANTS
(Cost $1,681,556) (0.97%) 1,604,946
------- -----------
INTEREST PAR VALUE
RATE (000s OMITTED)
------------ ----------------
SHORT-TERM INVESTMENTS
Commercial Paper (4.24%)
General Electric Capital Corp.,
07-07-00 ............................................................. 6.550% $5,000 4,994,542
07-07-00 ............................................................. 6.700 2,000 1,997,767
-----------
6,992,309
-----------
Joint Repurchase Agreement (2.45%)
Investment in a joint repurchase agreement transaction with
UBS Warburg, Inc. - Dated 06-30-00, due 07-03-00 (Secured
by U.S. Treasury Bonds 6.250% thru 7.500%, due 08-15-22
thru 08-15-27) - Note A ............................................... 6.550 4,038 4,038,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 5.20% ..................................................... 806
-----------
TOTAL SHORT-TERM INVESTMENTS (6.69%) 11,031,115
-------- -----------
TOTAL INVESTMENTS (100.21%) 165,173,628
-------- -----------
OTHER ASSETS AND LIABILITIES, NET ( 0.21%) (349,812)
-------- -----------
TOTAL NET ASSETS (100.00%) $164,823,816
======== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Income Securities Trust
NOTES TO THE SCHEDULE OF INVESTMENTS
(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 $12,981,962 or 7.88% of the Fund's net assets as of
June 30, 2000.
(Y) Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer; however, security is U.S. dollar
denominated.
+ All or a portion of these securities, having an aggregate value of $6,025,442
or 3.66% of the Fund's net assets, have been purchased as forward commitments;
that is, the Fund has agreed on a trade date to take delivery of and make
payment for such securities on a delayed basis subsequent to the date of this
schedule. 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 forward
commitments. Accordingly, the market value of $6,256,360 of United States
Treasury Bond (8.875%, 08-15-17; 10.75%, 08-15-05; and 9.125%, 05-15-18) has
been segregated to cover the forward 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.
20
<PAGE>
===========================NOTES TO FINANCIAL STATEMENTS========================
John Hancock Funds - Income Securities Trust
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Income Securities Trust (the "Fund") is a closed-end investment
management company registered under the Investment Company Act of 1940.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost, which approximates market value.
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 had $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 carryforwards
expire as follows: December 31, 2004 - $32,498, December 31, 2005 - $35,925 and
December 31, 2007 - $1,826,741.
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
21
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===========================NOTES TO FINANCIAL STATEMENTS========================
John Hancock Funds - Income Securities Trust
may be an illiquid market and/or that a change in the value of the contract may
not correlate with changes in the value of the underlying securities. In
addition, the Fund could be prevented from opening or realizing the benefits of
closing out futures positions because of position limits or limits on daily
price fluctuations imposed by an exchange.
For federal income tax purposes, the amount, character and timing of
the Fund's gains and/or losses can be affected as a result of futures
transactions.
At June 30, 2000, there were no open positions in financial futures
contracts.
NOTE B -
MANAGEMENT FEE AND
ADMINISTRATIVE SERVICES
Under the present investment management contract, the Fund pays a quarterly
management fee to the Adviser, for a continuous investment program, equivalent
on an annual basis, to the sum of (a) 0.650% of the first $150,000,000 of the
Fund's average weekly net asset value, (b) 0.375% of the next $50,000,000, (c)
0.350% of the next $100,000,000 and (d) 0.300% of the Fund's average weekly net
asset value in excess of $300,000,000.
In the event normal operating expenses of the Fund, exclusive of taxes,
interest, brokerage commissions and extraordinary expenses, 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 period was
at an annual rate of less than 0.02% of the average net assets of the Fund.
Mr. Stephen L. Brown, Ms. Maureen R. Ford and Mr. Richard S. Scipione
are directors 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 period
ended June 30, 2000 aggregated $61,808,297 and $69,350,223, respectively.
Purchases and proceeds from sales of obligations of the U.S. government and its
agencies aggregated $125,377,451 and $116,857,040, respectively.
The cost of investments owned at June 30, 2000 (excluding the corporate
savings account) for federal income tax purposes was $167,643,390. Gross
unrealized appreciation and depreciation of investments at June 30, 2000
aggregated $2,461,767 and $4,932,335, respectively, resulting in net unrealized
depreciation of $2,470,568.
22
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===========================NOTES TO FINANCIAL STATEMENTS========================
John Hancock Funds - Income Securities Trust
DIVIDENDS AND DISTRIBUTIONS
During the first six months of 2000, dividends from net investment income
totaling $0.5350 per share were paid to shareholders. The dates of payment and
the amounts per share are as follows:
INCOME
PAYMENT DATE DIVIDEND
------------ --------
March 31, 2000 $0.2700
June 30, 2000 0.2650
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. It is contemplated
that at least 75% of the value of the Fund's total assets will be represented by
debt securities which have at the time of purchase a rating within the four
highest grades as determined by Moody's Investors Service, Inc., or Standard &
Poor's Corporation. The Fund intends to engage in short-term trading and may
invest in repurchase agreements. The Fund may use option contracts to manage its
exposure to the stock market. The Fund may buy and sell financial futures
contracts to hedge against the effects of fluctuations in interest rates and
other market conditions. The Fund may issue a single class of senior securities
not to exceed 33 1/3% of its net assets at market value and may borrow from
banks as a temporary measure for emergency purposes in amounts not to exceed 5%
of the total assets at cost. The Fund may lend portfolio securities not to
exceed 33 1/3% of total assets. 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.
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John Hancock Funds - Income Securities Trust
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).
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.
24
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John Hancock Funds - Income Securities Trust
SHAREHOLDER MEETING
On March 16, 2000, the Annual Meeting of John Hancock Income Securities Trust
was held.
The Shareholders elected the following Trustees with the votes as
indicated:
WITHHELD
NAME OF TRUSTEE FOR AUTHORITY
--------------- --- ---------
Dennis S. Aronowitz 8,839,669 121,991
Stephen L. Brown 8,839,640 122,020
Richard P. Chapman, Jr. 8,839,803 121,856
William J. Cosgrove 8,839,770 121,890
Leland O. Erdahl 8,837,528 124,132
Richard A. Farrell 8,840,680 120,979
Maureen R. Ford 8,829,760 131,899
Gail D. Fosler 8,837,382 124,278
William F. Glavin 8,832,368 129,292
Anne C. Hodsdon* 8,837,722 123,937
Dr. John A. Moore 8,832,900 128,759
Patti McGill Peterson 8,832,892 128,768
John W. Pratt 8,839,902 121,758
Richard S. Scipione 8,835,679 125,980
*Resigned effective May 1, 2000.
The Shareholders also ratified the Trustees' Selection of Ernst & Young
LLP as auditors for the fiscal year ending December 31, 2000, with the votes
tabulated as follows: 8,844,250 FOR, 27,266 AGAINST and 90,144 ABSTAINING.
25
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John Hancock Funds - Income Securities Trust
26
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John Hancock Funds - Income Securities Trust
27
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