ITEM 1. REPORT TO STOCKHOLDERS
John Hancock
Income Securities Trust
SEMI
ANNUAL
REPORT
6.30.03
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."]
[A photo of Maureen R. Ford, Chairman and Chief Executive Officer, flush
left next to first paragraph.]
WELCOME
Table of contents
Your fund at a glance
page 1
Managers' report
page 2
Fund's investments
page 6
Financial statements
page 15
For your information
page 29
Dear Fellow Shareholders,
The stock market made a strong recovery in the first half of 2003.
Historically low interest rates, improving corporate earnings and government
stimulus in the form of tax cuts gave investors hope that the economy would
soon begin to strengthen. Most of the market's move up occurred in the
second quarter, and the breadth of the rally was enormous. As a result, the
major indexes were able to wipe out their first-quarter losses and post
solid gains for the first six months of the year. With technology leading
the way, the tech-heavy Nasdaq Composite Index rose 21.51% through June, the
Dow Jones Industrial Average was up 9.02% and the Standard & Poor's 500
Index returned 11.75%. With falling interest rates, bonds also did well,
continuing their upward trend for a fourth consecutive year. High yield
bonds led the pack, returning 18.49% in the first half as measured by the
Lehman High Yield Index.
After the jarring stock-market losses of the last three years, it's a
welcome relief for investors to be reminded that the market is indeed
cyclical, and does move up -- not just down. And mutual fund investors
will finally like what they see in their second-quarter statements:
positive results. With the exception of bear funds, which bet on the
market going down, every fund category tracked by Morningstar, Inc. and
Lipper, Inc. posted double-digit gains in the quarter.
Whether this rally can be sustained depends in large part on whether the
economy actually does rebound, and by how much, and how corporate
earnings fare. It will also depend on how soon a lot of the investors
still sitting on the sidelines decide to get back into the stock market.
No matter what happens next, the dramatic reversal in the stock market's
fortunes, and other economic improvements, could be signals that it's
time for investors to review their portfolios with their investment
professionals to make sure they are well-positioned to meet their
long-term investment objectives.
Sincerely,
/S/ MAUREEN R. FORD
Maureen R. Ford,
Chairman and Chief Executive Officer
This commentary reflects the chairman's views as of June 30, 2003. They
are subject to change at any time.
YOUR FUND
AT A GLANCE
The Fund seeks
a high level of
current income
consistent with
prudent invest-
ment risk by
investing in a
diversified
portfolio of debt
securities.
Over the last six months
* Bonds rallied amid lingering economic weakness and low inflation.
* Corporate bonds were the best performers, especially lower-quality
bonds, followed by Treasury and mortgage-backed securities.
* The Fund added more lower-quality corporate bonds while reducing its
position in mortgage-backed bonds.
[Bar chart with heading "John Hancock Income Securities Trust." Under
the heading is a note that reads "Fund performance for the six months
ended June 30, 2003." The chart is scaled in increments of 4% with 0% at
the bottom and 8% at the top. The first bar represents the 7.76% total
return for John Hancock Income Securities Trust. A note below the chart
reads "The total return for the Fund is at net asset value with all
distributions reinvested."]
Top 10 issuers
18.7% Federal National Mortgage Assn.
9.3% United States Treasury
1.6% Financing Corp.
1.3% DPL, Inc.
1.1% NiSource Finance Corp.
1.1% Ford Motor Credit Co.
1.1% Federal Home Loan Mortgage Corp.
1.1% Sealed Air Corp.
1.0% Targeted Return Index Securities Trust
0.9% Midland Funding Corp. II
As a percentage of net assets on June 30, 2003.
MANAGERS'
REPORT
BY BARRY H. EVANS, CFA, AND JEFFREY N. GIVEN, CFA, PORTFOLIO MANAGERS
John Hancock
Income Securities Trust
U.S. bonds posted moderate gains during the first six months of 2003.
Bonds rallied thanks to a lethargic economy and low inflation, which led
the Federal Reserve to cut short-term interest rates in June. It was the
Fed's 13th rate cut since the beginning of 2001. Bonds also benefited
from safe-haven demand early in the year as investors grew jittery about
the impending war with Iraq. Bonds produced positive returns despite a
sharp stock market rally, which attracted investor demand away from the
bond market, and despite increased issuance by both corporations and the
federal government. Corporate bonds, which typically offer the highest
yields in the bond market, were the best performers. Treasury and other
government bonds also fared well, while mortgage-backed securities
lagged.
FUND PERFORMANCE
For the six months ended June 30, 2003, John Hancock Income Securities
Trust produced a total return of 7.76% at net asset value. The average
closed-end BBB-rated corporate debt fund returned 10.26% according to
Lipper, Inc., while the Lehman Brothers Government/Credit Bond Index
returned 5.23%.
"U.S. bonds posted moder
ate gains during the first
six months of 2003."
PORTFOLIO THEMES
In the first six months of the 2003, there were two key themes in the
portfolio, both of which carried over from the last half of 2002. The
first was an emphasis on higher-yielding securities, such as corporate
and mortgage-backed bonds. These bonds made up more than two-thirds of
the portfolio throughout the six-month period. The other theme was
lowering the overall credit quality of the portfolio by investing in
lower-rated corporate bonds, which we thought offered the best relative
values in the bond market.
[Photos of Barry Evans and Jeffrey Given flush right next to first
paragraph.]
CORPORATE BONDS ENHANCE PERFORMANCE
We increased our holdings of corporate bonds, which comprised more than
half of the portfolio throughout the first half of 2003. With Treasury
bond yields at their lowest levels in decades, many investors shifted
into corporate bonds to capture higher yields. Lower-quality bonds,
which offer the highest yields in the corporate market, attracted the
most demand and produced the best returns. The Lehman Brothers
High-Yield Corporate Index, an index of lower-rated bonds, returned
nearly 20% in the first half of the year.
Another factor behind the outperformance of corporate bonds, especially
lower-rated bonds, was a general trend toward improved fiscal
responsibility. Many corporations have been reducing debt and shoring up
their balance sheets in an effort to restore financial health and
investor confidence.
Our focus on lower-rated corporate bonds was a key contributor to Fund
performance. During the past six months, we reduced our exposure to
mortgage-backed securities and added more lower-quality corporate bonds
to the portfolio. In particular, we boosted our holdings of
below-investment-grade bonds (also known as "high-yield" or "junk"
bonds) from 15% to 20% of the portfolio. We also increased our position
in corporate bonds rated BBB, the lowest investment-grade rating.
"Our focus on lower-
rated corporate bonds
was a key contributor
to Fund performance."
BOTTOM-UP APPROACH
In selecting corporate bonds for the portfolio, we use a bottom-up
approach that evaluates potential investments on a company- by-company
basis. The end result is a diversified portfolio of bonds from a variety
of industries.
[Table at top left-hand side of page entitled "Top five sectors". The
first listing is Government -- U.S. Agencies 22%, the second is Utilities
12%, the third Government -- U.S. 9%, the fourth Finance 8%, and the fifth
Media 7%.]
For example, we recently added bonds issued by XM Satellite Radio,
Dayton Power & Light and Sealed Air to the portfolio. XM provides
commercial-free satellite radio services and has seen a sharp increase
in subscriber growth, especially since General Motors began installing
the service in many of its cars. Dayton is a Midwestern utility that we
thought had better prospects than the market had priced into the value
of its bonds. Sealed Air makes bubble wrap and other packaging products,
and we believe this company is well positioned to benefit from an
improving economy.
MORTGAGES STRUGGLE
We were disappointed in the performance of our mortgage-backed
securities during the past six months. In 2002, mortgage-backed
securities underperformed other high-quality bonds as falling mortgage
rates led to a significant refinancing boom. When mortgage rates hit
record lows in late 2002, we sold some of our other high-quality bonds
and bought mortgage-backed bonds, increasing our position to nearly 30%
of the portfolio.
[Pie chart in middle of page with heading "Portfolio diversification As a
percentage of net assets on 6-30-03." The chart is divided into five
sections (from top to left): Corporate bonds 58%, U.S. government & agency
bonds 31%, Preferred stocks 9%, Foreign government bonds 1% and Short-term
investments & other 1%.]
We expected mortgage-backed securities to outperform in a relatively
stable interest rate environment. Unfortunately, mortgage rates
continued to fall in the first half of 2003, triggering two additional
refinancing waves in March and May. As a result, mortgages didn't
perform as well as we anticipated, posting returns that were comparable
to short-term Treasury bonds.
[Table at top of page entitled "SCORECARD". The header for the left
column is "INVESTMENT" and the header for the right column is "PERIOD'S
PERFORMANCE...AND WHAT'S BEHIND THE NUMBERS." The first listing is Telus
followed by an up arrow with the phrase "Telecom provider recovered from
credit-rating downgrade." The second listing is PanAmSat followed by an
up arrow with the phrase "Satellite TV company beat earnings
expectations." The third listing is Great Central Mines followed by a
down arrow with the phrase "Hurt by doubts about amount of gold in an
Australian mine."]
We cut back somewhat on our mortgage-backed holdings because we felt
that lower-rated corporate bonds offered better values. However, we
still think mortgage-backed securities look attractive and expect to
maintain our current position.
OUTLOOK
We believe that we are in the beginning stages of an economic recovery,
but it will be several quarters before we know for sure that the economy
is back on track. The Fed is likely to remain on hold until a clear
direction for the economy is evident. Given an environment of moderate
economic growth and low inflation, we believe interest rates should be
relatively stable during the second half of the year.
We continue to favor lower-quality corporate bonds despite their recent
outperformance. These bonds still offer a substantial yield advantage
over Treasury bonds, and issuers continue to improve their balance
sheets.
"We believe that we are in
the beginning stages of an
economic recovery..."
This commentary reflects the views of the portfolio managers through the
end of the Fund's period discussed in this report. The managers'
statements reflect their own opinions. As such, they are in no way
guarantees of future events, and are not intended to be used as
investment advice or a recommendation regarding any specific security.
They are also subject to change at any time as market and other
conditions warrant.
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
June 30, 2003
(unaudited)
This schedule is divided into three main categories: publicly traded
bonds, preferred stocks and short-term investments. Long-term debt is
further broken down by industry group. Short-term investments, which
represent the Fund's cash position, are listed last.
ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE
MATURITY DATE RATE RATING* (000s OMITTED) VALUE
PUBLICLY TRADED BONDS 90.31% $169,384,241
(Cost $161,153,049)
Aerospace 0.68% 1,266,097
Jet Equipment Trust,
Equipment Trust Ctf Ser 95B2 08-15-14 (B) (R) 10.910 CC 550 37,571
Raytheon Co.,
Note 03-01-10 ** 8.300 BBB- 1,000 1,228,526
Agricultural Operations 0.07% 139,273
Bunge Limited Finance Corp.,
Note 05-15-13 (R) 5.875 BBB 135 139,273
Automobiles/Trucks 1.48% 2,781,197
Avis Group Holdings, Inc.,
Sr Sub Note 05-01-09 11.000 BBB- 888 994,560
ERAC USA Finance Co.,
Note 12-15-09 (R) 7.950 BBB+ 340 406,014
General Motors Corp.,
Sr Note 07-15-13 + 7.125 BBB 1,000 994,660
Hertz Corp.,
Sr Note 06-01-12 7.625 BBB 380 385,963
Banks -- United States 2.25% 4,210,455
Bank of New York,
Cap Security 12-01-26 (R) 7.780 A- 650 744,407
Barclays Bank Plc,
Perpetual Bond (6.86% to 6-15-32 than variable)
(United Kingdom) 06-15-49 (R) 6.860 A+ 520 601,126
Capital One Bank,
Note 06-13-13 6.500 BB+ 750 742,967
Corporacion Andina de Fomento,
Note (Supra National) 05-21-13 5.200 A 760 769,922
Royal Bank of Scotland Group Plc,
Perpetual Bond (7.648% to 09-30-31 then variable)
(United Kingdom) 08-31-49 7.648 A- 650 824,780
Zions Financial Corp.,
Gtd Note (6.95% to 05-15-06 then variable)
05-15-11 6.950 BBB- 475 527,253
Building 1.19% 2,231,048
Georgia-Pacific Corp.,
Sr Note 02-01-10 (R) 8.875 BB+ 1,000 1,085,000
Toll Brothers, Inc.,
Note 11-15-12 (R) 6.875 BBB- 1,000 1,146,048
Chemical 0.72% 1,350,400
Nova Chemicals Corp.,
Sr Note (Canada) 05-15-06 7.000 BB+ 1,280 1,350,400
Computers 0.23% 428,417
NCR Corp.,
Note 06-15-09 7.125 BBB- 390 428,417
Containers 1.34% 2,511,280
Owens-Brockway Glass Container, Inc.,
Sr Note 05-15-13 (R) 8.250 B+ 500 522,500
Sealed Air Corp.,
Sr Note 04-15-08 (R) 5.375 BBB 1,895 1,988,780
Diversified Operations 1.12% 2,104,140
Hutchison Whampoa International Ltd.,
Note (U.S. Virgin Islands) 02-13-13 (R) 6.500 A- 1,000 1,049,140
Tyco International Group SA,
Note (Luxembourg) 10-15-11 ** 6.375 BBB- 1,000 1,055,000
Electronics 0.76% 1,424,611
HQI Transelect Chile SA,
Sr Note (Chile) 04-15-11 7.875 A- 1,230 1,424,611
Energy 0.39% 724,513
CalEnergy Co., Inc.,
Sr Bond 09-15-28 8.480 BBB- 550 724,513
Finance 6.68% 12,536,213
Bank One Issuance Trust,
Pass Thru Ser 2003-C1 09-15-10 4.540 BBB 1,000 1,038,079
Capital One Master Trust,
Sub Pass Thru Ser 2000-3 Class C 10-15-10 7.900 BBB 570 607,916
Citibank Credit Card Issuance Trust,
Pass Thru Ser 2003-C3 04-07-10 4.450 BBB 1,000 1,030,001
Conseco Finance Securitizations Corp.,
Home Equity Pass Thru Ctf Ser 2002-A
Class A-3 04-15-32 5.330 AAA 870 883,549
Ford Motor Credit Co.,
Note 10-28-09 7.375 BBB 2,000 2,096,624
General Motors Acceptance Corp.,
Note 08-28-12 ** 6.875 BBB 1,000 997,656
Household Finance Corp.,
Note 05-15-11 6.750 A 1,390 1,614,303
PDVSA Finance Ltd.,
Note (Cayman Islands) 11-16-12 8.500 B- 565 516,975
Sears Roebuck Acceptance Corp.,
Note 10-15-27 7.500 BBB+ 1,000 1,067,419
St. George Funding Co.,
Perpetual Bond (8.485% to 06-30-17 then variable)
12-31-49 (R) 8.485 Baa1 615 687,141
Targeted Return Index Securities Trust,
Ctf-02 08-15-08 (R) 6.539 Baa3 1,680 1,844,820
Yanacocha Receivables Master Trust,
Pass Thru Ctf Ser 1997-A 06-15-04 (R) 8.400 BBB- 151 151,730
Food 0.51% 951,900
Corn Products International, Inc.,
Sr Note 08-15-09 8.450 BBB- 835 951,900
Government -- Foreign 0.86% 1,620,000
Columbia, Republic of,
Note (Colombia) 01-23-12 10.000 BB 500 560,000
United Mexican States,
Global Med Term Note Ser A (Mexico) 01-16-13 6.375 BBB- 1,000 1,060,000
Government -- U.S. 9.31% 17,457,272
United States Treasury,
Bond 08-15-17 ** 8.875 AAA 1,215 1,838,067
Bond 05-15-18 ** 9.125 AAA 495 767,656
Bond 02-15-31 ** 5.375 AAA 10,500 11,823,577
Inflation Indexed Note 01-15-11 ** 3.500 AAA 1,130 1,283,487
Note 05-15-08 ** 2.625 AAA 730 736,673
Note 05-15-13 ** 3.625 AAA 1,000 1,007,812
Government -- U.S. Agencies 22.08% 41,417,498
Federal Home Loan Mortgage Corp.,
20 Yr Pass Thru Ctf 01-01-16 11.250 AAA 73 81,340
CMO REMIC 2496-PE 07-15-31 5.500 AAA 645 675,846
CMO REMIC 2563-PA 03-15-31 4.250 AAA 1,272 1,297,424
Federal National Mortgage Assn.,
15 Yr Pass Thru Ctf 02-01-08 7.500 AAA 15 16,292
15 Yr Pass Thru Ctf 09-01-10 7.000 AAA 133 141,850
15 Yr Pass Thru Ctf 09-01-12 7.000 AAA 38 40,624
15 Yr Pass Thru Ctf 04-01-17 7.000 AAA 155 164,571
15 Yr Pass Thru Ctf 02-01-18 5.500 AAA 6,550 6,804,363
15 Yr Pass Thru Ctf 05-01-18 5.000 AAA 1,120 1,158,686
15 Yr Pass Thru Ctf 06-01-18 5.000 AAA 1,055 1,091,441
Federal National Mortgage Assn.,
30 Yr Pass Thru Ctf 07-01-33 + 5.000 AAA 6,930 7,040,450
30 Yr Pass Thru Ctf 07-01-33 + 5.500 AAA 13,095 13,532,871
CMO REMIC 2002-73-PE 10-25-31 5.500 AAA 1,575 1,640,853
CMO REMIC 2003-16-PD 10-25-16 5.000 AAA 1,340 1,418,358
CMO REMIC 2003-17-QT 08-25-27 5.000 AAA 1,675 1,712,855
Pass Thru Ctf Ser 1997-M8 Class A-1 01-25-22 6.940 AAA 222 229,631
Financing Corp.,
Bond 02-08-18 9.400 Aaa 2,000 3,054,130
Government National Mortgage Assn.,
30 Yr Pass Thru Ctf 07-01-33 + 5.000 AAA 1,080 1,105,987
30 Yr Pass Thru Ctf 04-15-21 9.000 AAA 73 81,298
30 Yr Pass Thru Ctf 11-15-19 to 02-15-25 9.500 AAA 75 83,584
30 Yr Pass Thru Ctf 11-15-20 10.000 AAA 39 45,044
Insurance 3.58% 6,718,806
Anthem, Inc.,
Bond 08-01-12 6.800 BBB+ 1,000 1,167,458
CIGNA Corp.,
Note 10-15-11 6.375 BBB+ 585 655,017
Fund American Cos., Inc.,
Note 05-15-13 5.875 BBB- 1,355 1,416,830
Massachusetts Mutual Life Insurance Co.,
Surplus Note 11-15-23 (R) 7.625 AA 485 605,440
MONY Group, Inc. (The),
Sr Note 12-15-05 7.450 BBB+ 500 531,509
QBE Insurance Group Ltd.,
Bond 07-01-23 (R) 5.647 BBB 1,000 971,556
UnumProvident Corp.,
Sr Note 03-01-11 7.625 BBB- 895 957,650
URC Holdings Corp.,
Sr Note 06-30-06 (R) 7.875 AA 355 413,346
Leisure 2.76% 5,179,635
Chukchansi Economic Development Authority,
Sr Note 06-15-09 (R) 14.500 N/R 500 551,250
Harrah's Operating Co., Inc.,
Sr Sub Note 12-15-05 7.875 BB+ 745 810,188
HMH Properties, Inc.,
Sr Note Ser A 08-01-05 7.875 B+ 345 351,038
Hyatt Equities LLC,
Note 06-15-07 (R) 6.875 BBB 1,060 1,103,944
Toys "R" Us, Inc.,
Note 04-15-13 7.875 BBB- 1,000 1,075,715
Waterford Gaming LLC,
Sr Note 09-15-12 (R) 8.625 B+ 700 735,000
Wynn Las Vegas LLC,
2nd Mtg Note 11-01-10 12.000 CCC+ 500 552,500
Machinery 0.82% 1,537,692
Kennametal, Inc.,
Sr Note 06-15-12 7.200 BBB 1,405 1,537,692
Media 5.05% 9,475,039
British Sky Broadcasting Group Plc,
Sr Note (United Kingdom) 07-15-09 8.200 BB+ 945 1,119,825
Clear Channel Communications, Inc.,
Sr Note 11-01-08 8.000 BBB- 385 447,563
Continental Cablevision, Inc.,
Deb 08-01-13 9.500 BBB 660 759,710
EchoStar DBS Corp.,
Sr Note 02-01-09 ** 9.375 BB- 325 346,531
Garden State Newspapers, Inc.,
Sr Sub Note 07-01-11 8.625 B+ 275 286,688
Grupo Televisa SA,
Note (Mexico) 09-13-11 8.000 BBB- 855 971,494
Innova S. de R.L.,
Sr Note (Mexico) 04-01-07 12.875 B- 165 168,300
Liberty Media Corp.,
Note 05-15-13 5.700 BBB- 750 762,391
News America Holdings, Inc.,
Gtd Sr Deb 08-10-18 8.250 BBB- 540 703,616
Rogers Cablesystems Ltd.,
Sr Note Ser B (Canada) 03-15-05 10.000 BBB- 445 482,825
TCI Communications, Inc.,
Sr Deb 02-01-12 9.800 BBB 860 1,139,224
Deb 04-15-22 10.125 BBB 335 475,364
Time Warner, Inc.,
Deb 01-15-13 9.125 BBB+ 1,114 1,426,758
XM Satellite Radio, Inc.,
Sr Sec Note, Step Coupon (14.00% to 12-31-05)
12-31-09 (A) Zero Caa1 540 384,750
Medical 1.05% 1,973,387
HCA -- The Healthcare Co.,
Note 09-01-10 8.750 BBB- 900 1,048,387
Tenet Healthcare Corp.,
Sr Note 12-01-11 6.375 BBB- 1,000 925,000
Metal 1.65% 3,101,535
Brascan Corp.,
Note (Canada) 03-01-10 5.750 A- 1,000 1,064,383
Great Central Mines Ltd.,
Sr Note (Australia) 04-01-08 8.875 D 350 175,000
Inco Ltd.,
Bond (Canada) 09-15-32 7.200 BBB- 490 540,060
Noranda, Inc.,
Note (Canada) 02-15-11 8.375 BBB- 1,175 1,322,092
Mortgage Banking 2.30% 4,316,780
ContiMortgage Home Equity Loan Trust,
Home Equity Pass Thru Ctf Ser 1995-2 Class A-5
08-15-25 8.100 AAA 400 399,796
Credit Suisse First Boston Mortgage Securities Corp.,
Commercial Mtg Pass Thru Ctf Ser 1998-C1
Class A-1A 05-17-40 6.260 AAA 729 779,617
Deutsche Mortgage & Asset Receiving Corp.,
Commercial Mtg Pass Thru Ctf Ser 1998-C1
Class C 06-15-31 6.861 A2 415 473,187
GMAC Commercial Mortgage Securities, Inc.,
Mtg Pass Thru Ctf Ser 1998-C1 Class A-1 05-15-30 6.853 Aaa 951 1,009,259
MBNA Master Credit Card Trust,
Sub Bond Ser 1999-B Class C 08-15-11 6.650 BBB 1,500 1,654,921
Oil & Gas 3.59% 6,729,747
Alberta Energy Co. Ltd.,
Note (Canada) 09-15-30 8.125 A- 725 989,633
Enterprise Products Partners L.P.,
Note 03-01-33 (R) 6.875 BBB 1,000 1,132,591
Kinder Morgan, Inc.,
Sr Note 09-01-12 6.500 BBB 335 384,010
Louis Dreyfus Natural Gas Corp.,
Sr Note 12-01-07 6.875 BBB+ 345 397,912
Lyondell Chemical Co.,
Sr Note 12-15-08 9.500 BB 220 209,000
Occidental Petroleum Corp.,
Sr Deb 09-15-09 10.125 BBB+ 1,160 1,550,420
Pemex Project Funding Master Trust,
Gtd Note 10-13-10 9.125 BBB- 1,115 1,349,150
Tosco Corp.,
Note 02-15-30 8.125 A- 535 717,031
Paper & Paper Products 2.55% 4,784,592
Abitibi-Consolidated, Inc.,
Bond (Canada) 08-01-10 8.550 BB+ 1,135 1,271,379
Corporacion Durango S.A. de C.V.,
Sr Note (Mexico) 07-15-09 (B) (R) # 13.750 D 500 210,000
International Paper Co.,
Note 10-30-12 5.850 BBB 1,000 1,089,888
MDP Acquisitions Plc,
Sr Note (Ireland) 10-01-12 9.625 B 750 828,750
Stone Container Corp.,
Sr Note 02-01-11 9.750 B 285 312,075
Sr Note 07-01-12 8.375 B 1,000 1,072,500
Real Estate Investment Trust 0.10% 194,586
Healthcare Realty Trust, Inc.,
Sr Note 05-01-11 8.125 BBB- 175 194,586
Real Estate Operations 0.57% 1,066,044
Socgen Real Estate Co. LLC,
Perpetual Bond Ser A (7.64% to 09-30-07
then variable) 12-31-49 (R) 7.640 A 920 1,066,044
Retail 1.46% 2,733,725
Delhaize America, Inc.,
Gtd Note 04-15-06 7.375 BB+ 1,010 1,060,500
Gap, Inc. (The),
Note 12-15-08 10.550 BB+ 515 625,725
Penney J.C. Corp., Inc.,
Note 03-01-10 8.000 BB+ 1,000 1,047,500
Revenue Bonds 0.49% 920,989
Golden State Tobacco Securitization Corp.,
Rev Ser 2003-A-1 06-01-39 6.750 A- 1,020 920,989
Telecommunications 4.79% 8,977,682
AT&T Wireless Services, Inc.,
Sr Note 03-01-11 7.875 BBB 1,025 1,210,548
Deutsche Telekom International Finance B.V.,
Bond (Coupon rate step up/down on rating)
(Netherlands) 06-15-10 8.000 BBB+ 1,005 1,234,521
France Telecom SA,
Note (France) 03-01-11 7.750 BBB 1,135 1,428,471
Mobile Telesystems Finance S.A.,
Gtd Sr Note (Luxembourg) 01-30-08 (R) 9.750 B+ 400 435,000
PanAmSat Corp.,
Sr Note 02-01-12 8.500 B- 675 730,688
Qwest Capital Funding, Inc.,
Note 08-15-06 7.750 CCC+ 1,000 935,000
Sprint Capital Corp.,
Note 05-01-19 6.900 BBB- 1,000 1,047,448
Telus Corp.,
Note (Canada) 06-01-11 8.000 BBB 1,395 1,611,225
VoiceStream Wireless Corp.,
Sr Note 09-15-09 11.500 BBB+ 295 344,781
Transportation 0.57% 1,066,764
Continental Airlines, Inc.,
Pass Thru Ctf Ser 1999-1A 02-02-19 6.545 A- 270 261,552
Humpuss Funding Corp.,
Note 12-15-09 (R) 7.720 B3 264 211,441
Northwest Airlines 1996-1 Pass Through Trusts,
Pass Thru Ctf Ser 1996-1C 01-02-05 10.150 B 68 38,256
Pass Thru Ctf Ser 1996-1D 01-02-15 8.970 B+ 313 203,615
TFM S.A. de C.V.,
Gtd Sr Disc Note (Mexico) 06-15-09 11.750 B+ 345 351,900
Utilities 8.81% 16,523,237
AES Eastern Energy L.P.,
Pass Thru Ctf Ser 1999-A 01-02-17 9.000 BB+ 410 435,625
Beaver Valley Funding Corp.,
Sec Lease Obligation Bond 06-01-17 9.000 BBB- 463 555,016
BVPS II Funding Corp.,
Collateralized Lease Bond 06-01-17 8.890 BBB- 700 841,190
Cleveland Electric Illuminating Co.,
1st Mtg Ser B 05-15-05 9.500 BBB 1,205 1,212,272
CMS Energy Corp.,
Sr Note Ser B 01-15-04 6.750 B+ 400 404,000
DPL, Inc.,
Sr Note 09-01-11 6.875 BBB- 2,200 2,414,840
Duke Power Co.,
1st Ref Mtg 07-01-33 7.000 A- 1,500 1,543,279
Empresa Electrica Guacolda SA,
Sr Note (Chile) 04-30-13 (R) 8.625 BBB- 1,000 1,048,717
GG1B Funding Corp.,
Deb 01-15-11 7.430 BBB- 294 306,864
IPALCO Enterprises, Inc.,
Sr Sec Note 11-14-11 7.625 BB- 325 355,875
Midland Funding Corp. II,
Deb Ser A 07-23-05 11.750 BB- 1,410 1,522,800
Deb Ser B 07-23-06 13.250 BB- 225 254,250
Niagara Mohawk Power Corp.,
Sec Fac Bond 01-01-18 8.770 A 735 765,025
NiSource Finance Corp.,
Note 11-15-03 7.500 BBB 1,350 1,375,294
Note 11-15-10 7.875 BBB 615 726,131
Pinnacle Partners,
Sr Note 08-15-04 (R) 8.830 BB+ 690 715,875
PNPP II Funding Corp.,
Deb 05-30-16 9.120 BBB- 495 618,636
Southern California Edison Co.,
1st Mtg Bond 02-15-07 (R) 8.000 BB 690 756,412
Waterford 3 Funding Corp.,
Sec Lease Obligation Bond 01-02-17 8.090 BBB- 611 671,136
Waste Disposal Service & Equip. 0.50% 929,687
Allied Waste North America, Inc.,
Sr Sub Note Ser B 08-01-09 ** 10.000 B+ 875 929,687
ISSUER, DESCRIPTION SHARES VALUE
PREFERRED STOCKS 8.78% $16,479,472
(Cost $15,980,011)
Banks 2.33% 4,374,790
Abbey National Plc, 7.375% (United Kingdom) 41,300 1,127,490
Bank One Capital Trust VI, 7.20% 40,000 1,102,800
Fleet Capital Trust VII, 7.20% 42,000 1,144,500
J.P. Morgan Chase Capital XI, 5.875% 40,000 1,000,000
Finance 0.87% 1,632,000
Citigroup Capital VII, 7.125% 20,000 544,000
Morgan Stanley Capital Trust II, 7.25% 40,000 1,088,000
Media 1.74% 3,271,082
CSC Holdings, Inc., 11.125%, Ser M 17,029 1,745,473
CSC Holdings, Inc., 11.75%, Ser H 4,076 418,809
Viacom, Inc., 7.250% 40,000 1,106,800
Mortgage Banking 0.59% 1,110,000
Wachovia Preferred Funding Corp., 7.25%, Ser A 40,000 1,110,000
Telecommunications 0.56% 1,050,400
Telephone & Data Systems, Inc., 7.60%, Ser A 40,000 1,050,400
Utilities 2.69% 5,041,200
Ameren Corp., 9.75%, Conv 20,000 568,400
Dominion Resources, Inc., 9.50%, Conv 20,000 1,179,200
DTE Energy Co., 8.75%, Conv 20,000 525,800
KeySpan Corp., 8.75%, Conv 20,000 1,059,000
PSEG Funding Trust II, 8.75% 40,000 1,108,400
TECO Energy, Inc., 9.50%, Conv 31,600 600,400
ISSUER, DESCRIPTION, INTEREST PAR VALUE
MATURITY DATE RATE (000s OMITTED) VALUE
SHORT-TERM INVESTMENTS 11.02% $20,663,000
(Cost $20,663,000)
Joint Repurchase Agreement 11.02%
Investment in a joint repurchase agreement
transaction with UBS Warburg, Inc. -- Dated
06-30-03, due 07-01-03 (Secured by U.S.
Treasury Bonds, 5.250% thru 7.875% due
02-15-21 thru 11-15-28) 1.100% $20,663 20,663,000
TOTAL INVESTMENTS 110.11% $206,526,713
OTHER ASSETS AND LIABILITIES, NET (10.11%) ($18,965,439)
TOTAL NET ASSETS 100.00% $187,561,274
Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer; however, security is
U.S.-dollar-denominated, unless otherwise indicated.
(A) Cash interest will be paid on this obligation at the stated rate
beginning on the stated date.
(B) Non-income-producing issuer, filed for protection under the Federal
Bankruptcy Code or is in default on interest payment.
(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 $20,360,166 or 10.86% of
the Fund's net assets as of June 30, 2003.
+ All or a portion of these securities, having an aggregate value of
$22,673,968 or 12.09% 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 $25,166,701 of Anthem, Inc. 6.800% due
08-01-12, Avis Group Holdings, Inc. 11.000% due 05-01-09, Beaver Valley
Funding Corp. 9.000% due 06-01-17, Clear Channel Communications, Inc.
8.000% due 11-01-08, Harrah's Operating Co., Inc., 7.875% due 12-15-05,
Hertz Corp. 7.625% due 06-01-12, Household Finance Corp. 6.750% due
05-15-11, International Paper Co. 5.850% due 10-30-12, IPALCO
Enterprises, Inc. 7.625% due 11-14-11, Kennametal Inc. 7.200% due
06-15-12, Kinder Morgan, Inc. 6.500% due 09-01-12, Liberty Media Corp.
5.700% due 05-15-13, Massachusetts Mutual Life Insurance Co. 7.625% due
11-15-23, MBNA Credit Card Trust 6.650% due 08-15-11, Midland Fund Corp.
II 11.750% due 07-23-05, News America Holdings, Inc. 8.250% due
08-10-18, Occidental Petroleum Corp. 10.125% due 09-15-09, Penney J.C.
Corp., Inc. 8.000% due 03-01-10, Qwest Capital Funding, Inc. 7.750% due
08-15-06, Sprint Capital Corp. 6.900% due 05-01-19, Stone Container
Corp. 8.375% due 07-01-12, Time Warner, Inc. 9.125% due 01-15-13, Toll
Brothers, Inc. 6.875% due 11-15-12 and Toys "R" Us, Inc. 7.875% due
04-15-13, has been segregated to cover the forward commitments.
# Par value of foreign bond is expressed in local currency, as shown
parenthetically in security description.
* Credit ratings are rated by Standard & Poor's where available, or
Moody's Investors Service or John Hancock Advisers, LLC where Standard &
Poor's ratings are not available.
** Represent investment of securities lending collateral.
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.
ASSETS AND
LIABILITIES
June 30, 2003
(unaudited)
This Statement
of Assets and
Liabilities is the
Fund's balance
sheet. It shows
the value of
what the Fund
owns, is due
and owes.
You'll also find
the net asset
value for each
common share.
ASSETS
Investments at value (cost $177,133,060) including
$21,395,461 of securities loaned $185,863,713
Joint repurchase agreement (cost $20,663,000) 20,663,000
Cash 739
Cash segregated for futures contracts 27,500
Receivable for investments sold 4,657,878
Dividends and interest receivable 2,612,175
Other assets 12,688
Total assets 213,837,693
LIABILITIES
Payable for investments purchased 25,950,335
Payable for futures variation margin 9,375
Payable to affiliates
Management fee 277,587
Other 7,202
Other payables and accrued expenses 31,920
Total liabilities 26,276,419
NET ASSETS
Capital paid-in 175,720,544
Accumulated net realized gain on investments
and financial futures contracts 3,193,142
Net unrealized appreciation of investments
and financial futures contracts 8,729,501
Distributions in excess of net investment income (81,913)
Net assets $187,561,274
NET ASSET VALUE PER SHARE
Based on 10,986,086 common shares outstanding $17.07
See notes to
financial statements.
OPERATIONS
For the period ended
June 30, 2003
(unaudited) 1
This Statement
of Operations
summarizes the
Fund's invest-
ment income
earned and
expenses
incurred in
operating the
Fund. It also
shows net gains
(losses) for the
period stated.
INVESTMENT INCOME
Interest (including security lending income of $17,474
and net of foreign withholding tax of $3,718) $5,031,437
Dividends 527,591
Total investment income 5,559,028
EXPENSES
Investment management fee 549,555
Transfer agent fee 54,516
Custodian fee 33,714
Printing 29,328
Accounting and legal services fee 27,464
Auditing fee 17,152
Registration and filing fee 16,420
Trustees' fee 5,252
Miscellaneous 3,521
Legal fee 1,652
Interest expense 601
Total expenses 739,175
Net investment income 4,819,853
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on
Investments 5,105,399
Financial futures contracts (66,366)
Change in net unrealized appreciation (depreciation) of
Investments 3,602,537
Financial futures contracts (1,152)
Net realized and unrealized gain 8,640,418
Increase in net assets from operations $13,460,271
1 Semiannual period from 1-1-03 through 6-30-03.
See notes to
financial statements.
CHANGES IN
NET ASSETS
This 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 dif-
ference reflects
earnings less
expenses, any
investment gains
and losses,
distributions to
shareholders,
and increase due
to reinvestment
of distributions.
YEAR PERIOD
ENDED ENDED
12-31-02 6-30-03 1
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income $9,721,830 $4,819,853
Net realized gain 886,746 5,039,033
Change in net unrealized
appreciation (depreciation) 2,151,819 3,601,385
Increase in net assets
resulting from operations 12,760,395 13,460,271
Distributions to shareholders
From net investment income (9,996,235) (4,994,800)
From Fund share transactions 795,011 507,571
NET ASSETS
Beginning of period 175,029,061 178,588,232
End of period 2 $178,588,232 $187,561,274
1 Semiannual period from 1-1-03 through 6-30-03. Unaudited.
2 Includes accumulated (distributions in excess of) net investment
income of $93,034 and ($81,913), respectively.
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
COMMON SHARES
The Financial Highlights show how the Fund's net asset value for a share
has changed since the end of the previous period.
PERIOD ENDED 12-31-98 12-31-99 12-31-00 12-31-01 1 12-31-02 6-30-03 2
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $16.55 $16.64 $15.37 $15.89 $16.06 $16.31
Net investment income 3 1.14 1.10 1.07 1.00 0.89 0.44
Net realized and unrealized
gain (loss) on investments 0.09 (1.27) 0.52 0.19 0.28 0.78
Total from
investment operations 1.23 (0.17) 1.59 1.19 1.17 1.22
Less distributions
From net investment income (1.14) (1.10) (1.07) (1.02) (0.92) (0.46)
Net asset value,
end of period $16.64 $15.37 $15.89 $16.06 $16.31 $17.07
Per share market value,
end of period $15.88 $12.69 $14.44 $14.65 $14.66 $15.70
Total return at
market value 4 (%) 1.75 (13.42) 23.06 8.69 6.42 10.26 5
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $177 $165 $172 $175 $179 $188
Ratio of expenses
to average net assets (%) 0.81 0.80 0.84 0.80 0.84 0.81 6
Ratio of net investment income
to average net assets (%) 6.79 6.88 6.89 6.17 5.56 5.31 6
Portfolio turnover (%) 240 184 248 299 371 151
1 As required, effective January 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies, as revised, relating to the amortization of premiums and
accretion of discounts on debt securities. The effect of this change on
per share amounts for the year ended December 31, 2001, was to decrease
net investment income per share by $0.02, increase net realized and
unrealized gain per share by $0.02, and, had the Fund not made these
changes to amortization, the ratio of net investment income to average
net assets would have been 6.30%. Per share ratios and supplemental data
for periods prior to January 1, 2001, have not been restated to reflect
this change in presentation.
2 Semiannual period from 1-1-03 through 6-30-03. Unaudited.
3 Based on average shares outstanding.
4 Assumes dividend reinvestment.
5 Not annualized.
6 Annualized.
See notes to
financial statements.
NOTES TO
STATEMENTS
Unaudited
NOTE A
Accounting policies
John Hancock Income Securities Trust (the "Fund") is a closed-end
diversified management investment 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, LLC (the
"Adviser"), a wholly owned subsidiary of The Berkeley Financial Group, LLC,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more large 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. Some securities may be purchased on
a "when issued" or "forward delivery" basis, which means that the securities
will be delivered to the Fund at a future date, usually beyond the customary
settlement date.
Discount and premium on securities
The Fund accretes discount and amortizes premium from par value on
securities from either the date of issue or the date of purchase over
the life of the security.
Expenses
The majority of the expenses are directly identifiable to an individual
fund. Expenses that are not readily identifiable to a specific fund will
be allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and
the relative sizes of the funds.
Securities lending
The Fund may lend securities to certain qualified brokers who pay the Fund
negotiated lender fees. These fees are included in interest income. The
loans are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As with
other extensions of credit, the Fund may bear the risk of delay of the
loaned securities in recovery or even loss of rights in the collateral,
should the borrower of the securities fail financially. On June 30, 2003,
the Fund loaned securities having a market value of $21,395,461
collateralized by securities in the amount of $21,933,913.
Financial futures contracts
The Fund may buy and sell financial futures contracts. 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's instruments. At the time the Fund
enters into a financial futures contract, it is 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 futures 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 to and from the broker, known as "variation margin," 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
contracts 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 fluctuation 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
contracts.
At June 30, 2003, the Fund had deposited $27,500 in a segregated account
to cover margin requirements on open futures contracts.
The Fund had the following open financial futures contracts on June 30, 2003:
NUMBER OF
OPEN CONTRACTS CONTRACTS POSITION EXPIRATION DEPRECIATION
------------------------------------------------------------------------------
U.S. Treasury Note 25 Short SEP 03 ($1,152)
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 that is distributed to
shareholders. There fore, no federal income tax provision is required.
For federal income tax purposes, the Fund has $1,647,579 of a capital
loss carryforward available, to the extent provided by regulations, to
offset future net realized capital gains. To the extent that such
carryforward is used by the Fund, no capital gain distributions will be
made. The entire amount of the loss carryforward expires December 31,
2008.
Dividends, interest and distributions
Dividend income on investment securities is recorded on the ex-dividend
date or, in the case of some foreign securities, on the date thereafter
when the Fund identifies the dividend. Interest income on investment
securities is recorded on the accrual basis. The Fund may place a debt
obligation on non-accrual status and reduce related interest income by
ceasing current accruals and writing off interest receivables when the
collection of interest has become doubtful. Foreign income may be subject
to foreign withholding taxes, which are accrued as applicable.
The Fund records distributions to shareholders from net investment
income and net realized gains on the ex-dividend date. The Fund's net
investment income is declared and distributed quarterly.
Such distributions, on a tax basis, are determined in conformity with
income tax regulations, which may differ from accounting principles
generally accepted in the United States of America. Distributions in
excess of tax basis earnings and profits, if any, are reported in the
Fund's financial statements as a return of capital.
Use of estimates
The preparation of these financial statements, in accordance with
accounting principles generally accepted in the United States of
America, incorporates estimates made by management in determining the
reported amount of assets, liabilities, revenues and expenses of the
Fund. Actual results could differ from these estimates.
NOTE B
Management fee and transactions with affiliates and others
The Fund has an investment management contract with the Adviser. Under
the investment management contract, the Fund pays a quarterly management
fee to the Adviser, 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. There were no
management fee reductions during the period ended June 30, 2003.
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 approximately 0.03% of the average net
assets of the Fund.
Ms. Maureen R. Ford and Mr. John M. DeCiccio 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 investments as well as any unrealized gains or losses. The
Deferred Compensation Plan investments had no impact on the operations
of the Fund.
NOTE C
Fund common share transactions
This listing illustrates the number of Fund shares reinvested, the
reclassification of capital accounts and the number of shares
outstanding at the beginning and end of the last two periods, along with
the corresponding dollar value. The Fund has 30 million shares
authorized with no par value.
YEAR ENDED 12-31-02 YEAR ENDED 6-30-03 1
SHARES AMOUNT SHARES AMOUNT
Beginning of period 10,898,374 $174,131,001 10,952,182 $175,212,973
Distributions
reinvested 53,808 795,011 33,904 507,571
Reclassification of
capital accounts -- 286,961 -- --
End of period 10,952,182 $175,212,973 10,986,086 $175,720,544
1 Semiannual period from 1-1-03 through 6-30-03. Unaudited.
NOTE D
Investment transactions
Purchases and proceeds from sales or maturities of securities, other
than short-term securities and obligations of the U.S. government,
during the period ended June 30, 2003, aggregated $222,144,973 and
$216,820,914, respectively. Purchases and proceeds from sales or
maturities of obligations of U.S. government aggregated $48,163,082 and
$54,156,373, respectively, during the period ended June 30, 2003.
The cost of investments owned on June 30, 2003, including short-term
investments, for federal income tax purposes was $198,218,111. Gross
unrealized appreciation and depreciation of investments aggregated
$10,016,640 and $1,708,038, respectively, resulting in net unrealized
appreciation of $8,308,602. The difference between book basis and tax
basis net unrealized appreciation of investments is attributable
primarily to the tax deferral of losses on wash sales.
INVESTMENT OBJECTIVE AND POLICY
The Fund 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. The Fund's
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. Under normal circumstances the Fund will
invest at least 80% of net assets in income securities. Income
securities will consist of the following: (i) marketable corporate debt
securities, (ii) governmental obligations and (iii) cash and commercial
paper. "Net assets" is defined as net assets plus borrowings for
investment purposes. The Fund will notify shareholders at least 60 days
prior to any change in this 80% investment policy.
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 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.
FINANCIAL FUTURES CONTRACTS AND OPTIONS
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 an 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.
DIVIDENDS AND DISTRIBUTIONS
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 Dividend Reinvestment Plan.
During the period ended June 30, 2003, the Fund paid to shareholders
dividends from net investment income totaling $0.455 per share. The
dates of payment and the amounts per share are as follows:
PAYMENT DATE DIVIDEND
-----------------------------------
March 31, 2003 $0.2275
June 30, 2003 0.2275
DIVIDEND
REINVESTMENT PLAN
The Fund offers shareholders a Dividend Reinvestment Plan (the "Plan"),
which offers the opportunity to earn compounded yields. Any shareholder
of record of the Fund may elect to participate in the Plan and receive
the Fund's common shares in lieu of all or a portion of the cash
dividends. The Plan is available to all shareholders without charge.
Mellon Investor Services (the "Plan Agent") will act as agent for
participating shareholders.
Shareholders may join the Plan by notifying the Plan Agent by telephone, in
writing or by visiting the Plan Agent's Web site at www.melloninvestor.com
showing an election to reinvest all or a portion of dividend payments. If
received in proper form by the Plan Agent prior to 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 or nominee to participate in the
Plan.
The Board of Trustees of the Fund will declare dividends from net
investment income payable in cash or, in the case of shareholders
participating in the Plan, partially or entirely in the Fund's 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 the Fund. 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 four decimal
places, will be credited to the shareholder's account. Such fractional
shares will be entitled to future dividends.
The shares issued to participating shareholders, including fractional
shares, will be held by the Plan Agent in the name of the participant. A
confirmation will be sent to each shareholder promptly, normally within
five to 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 that the shareholder has elected to reinvest and the
number of shares acquired with such dividend.
Participation in the Plan may be terminated at any time by contacting
the Plan Agent by telephone, in writing or by visiting the Plan Agent's
Web site, and such termination will be effective immediately. However,
notice of termination must be received 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 Plan Agent. A shareholder will receive a cash
payment for any fractional share held.
The reinvestment of dividends will not relieve participants of any
federal, state or local income tax, which may be due with respect to
such dividend. Dividends reinvested in common 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 common 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, Mellon Bank, N.A., c/o Mellon Investor
Services, P.O. Box 3338, South Hackensack, New Jersey 07606-1938
(telephone 1-800-852-0218).
SHAREHOLDER COMMUNICATION AND ASSISTANCE
If you have any questions concerning the Fund, 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:
Mellon Investor Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
Telephone: 1-800-852-0218
If your shares are held with a brokerage firm, you should contact that
firm, bank or other nominee for assistance.
SHAREHOLDER MEETINGS
In November 2002, the Board of Trustees adopted several amendments to
the Fund's by-laws, including provisions relating to the calling of a
special meeting and requiring advance notice of shareholder proposals or
nominees for Trustee. The advance notice provisions in the by-laws
require shareholders to notify the Fund in writing of any proposal which
they intend to present at an annual meeting of shareholders, including
any nominations for Trustee, between 90 and 120 days prior to the first
anniversary of the mailing date of the notice from the prior year's
annual meeting of shareholders. The notification must be in the form
prescribed by the by-laws. The advance notice provisions provide the
Fund and its Trustees with the opportunity to thoughtfully consider and
address the matters proposed before the Fund prepares and mails its
proxy statement to shareholders. Other amendments set forth the
procedures that must be followed in order for a shareholder to call a
special meeting of shareholders. Please contact the Secretary of the
Fund for additional information about the advance notice requirements or
the other amendments to the by-laws.
On March 20, 2003, the Annual Meeting of the Fund was held to elect
eleven Trustees and to ratify the actions of the Trustees in selecting
independent auditors for the Fund. Proxies covering 9,732,741 shares of
beneficial interest were voted at the meeting.
The shareholders elected the following Trustees to serve until their
respective successors are duly elected and qualified, with the votes
tabulated as follow:
WITHHELD
FOR AUTHORITY
--------------------------------------------------------------------
Dennis S. Aronowitz 9,595,611 137,130
Richard P. Chapman, Jr 9,605,315 127,426
William Cosgrove 9,601,375 131,366
John M. DeCiccio 9,549,913 182,828
Richard Farrell 9,608,612 124,129
Maureen R. Ford 9,609,338 123,403
William F. Glavin 9,592,043 140,698
John A. Moore 9,601,340 131,401
Patti McGill Peterson 9,603,530 129,211
John W. Pratt 9,597,860 134,881
The shareholders also ratified the Trustees' selection of
PricewaterhouseCoopers LLP as the Fund's independent auditors for the
fiscal year ending December 31, 2003, with the votes tabulated as
follows: 9,584,537 FOR, 48,635 AGAINST and 99,568 ABSTAINING.
FOR YOUR
INFORMATION
TRUSTEES
Dennis S. Aronowitz
Richard P. Chapman, Jr.
William J. Cosgrove
John M. DeCiccio
Richard A. Farrell
Maureen R. Ford
William F. Glavin*
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt
*Members of the Audit Committee
OFFICERS
Maureen R. Ford
Chairman, President
and Chief Executive Officer
William L. Braman
Executive Vice President
and Chief Investment Officer
Richard A. Brown
Senior Vice President
and Chief Financial Officer
Susan S. Newton
Senior Vice President
and Secretary
William H. King
Vice President and Treasurer
Thomas H. Connors
Vice President and
Compliance Officer
INVESTMENT ADVISER
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CUSTODIAN
The Bank of New York
One Wall Street
New York, New York 10286
TRANSFER AGENT AND REGISTRAR
Mellon Investor Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
STOCK SYMBOL
Listed New York Stock Exchange:
JHS
For shareholder assistance refer to page 25
HOW TO
CONTACT US
On the Internet www.jhfunds.com
By regular mail Mellon Investor Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
Customer service representatives 1-800-852-0218
Portfolio commentary 1-800-344-7054
24-hour automated information 1-800-843-0090
TDD Line 1-800-231-5469
The Fund's voting policies and procedures are available without charge,
upon request:
By phone 1-800-225-5291
On the Fund's Web site www.jhfunds.com/proxy
On the SEC's Web site http://www.sec.gov
PRESORTED
STANDARD
U. S. POSTAGE
PAID
MIS
[A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner.
A tag line below reads "JOHN HANCOCK FUNDS."]
1-800-852-0218
1-800-843-0090 EASI-Line
1-800-231-5469 (TDD)
www.jhfunds.com
P60SA 6/03
8/03
ITEM 2. CODE OF ETHICS.
Not applicable at this time.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable at this time.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable at this time.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
See attached Exhibit "Proxy Voting Policies and Procedures".
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the registrant's disclosure controls and
procedures as conducted within 90 days of the filing date of this Form N-CSR,
the registrant's principal executive officer and principal financial officer
have concluded that those disclosure controls and procedures provide reasonable
assurance that the material information required to be disclosed by the
registrant on this report is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission's rules and
forms.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
have materially affected, or are reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 10. EXHIBITS.
(a) Not applicable at this time.
(b)(1) Separate certifications for the registrant's principal executive officer
and principal financial officer, as required by Section 302 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of
1940, are attached.
(b)(2) Separate certifications for the registrant's principal executive officer
and principal financial officer, as required by 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and Rule
30a-2(b) under the Investment Company Act of 1940, are attached. The
certifications furnished pursuant to this paragraph are not deemed to be "filed"
for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise
subject to the liability of that section. Such certifications are not deemed to
be incorporated by reference into any filing under the Securities Act of 1933 or
the Securities Exchange Act of 1934, except to the extent that the Registrant
specifically incorporates them by reference.
(c) Proxy Voting Policies and Procedures
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
By:
-----------------------
Maureen R. Ford
Chairman, President and Chief Executive Officer
Date: August 27, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By:
-----------------------
Maureen R. Ford
Chairman, President and Chief Executive Officer
Date: August 27, 2003
By:
-----------------------
Richard A. Brown
Senior Vice President and Chief Financial Officer
Date: August 27, 2003