-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PqLDk6SoBoQBAKnzbeKSE6pe31+NzNPj6i3tTN/Z+EkPcjS/KhdVg4MjhV3dcgcN ApPHMEgj2mbwIFOiJghgKg== 0000928816-05-001161.txt : 20050830 0000928816-05-001161.hdr.sgml : 20050830 20050830121610 ACCESSION NUMBER: 0000928816-05-001161 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20050630 FILED AS OF DATE: 20050830 DATE AS OF CHANGE: 20050830 EFFECTIVENESS DATE: 20050830 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANCOCK JOHN INCOME SECURITIES TRUST /MA CENTRAL INDEX KEY: 0000759866 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-04186 FILM NUMBER: 051057755 BUSINESS ADDRESS: STREET 1: C/O JOHN HANCOCK FUNDS STREET 2: 601 CONGRESS STREET CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 617-663-3000 MAIL ADDRESS: STREET 1: C/O JOHN HANCOCK FUNDS STREET 2: 601 CONGRESS STREET CITY: BOSTON STATE: MA ZIP: 02210 N-CSR 1 ist1.txt JOHN HANCOCK INCOME SECURITIES TRUST UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-4186 John Hancock Income Securities Trust (Exact name of registrant as specified in charter) 601 Congress Street, Boston, Massachusetts 02110 (Address of principal executive offices) (Zip code) Alfred P. Ouellette Senior Attorney and Assistant Secretary 601 Congress Street Boston, Massachusetts 02110 (Name and address of agent for service) Registrant's telephone number, including area code: 617-663-4324 Date of fiscal year end: December 31 Date of reporting period: June 30, 2005 ITEM 1. REPORT TO SHAREHOLDERS. JOHN HANCOCK Income Securities Trust 6.30.2005 Semiannual Report [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 Keith F. Hartstein, President and Chief Executive Officer of John Hancock Funds, LLC flush left next to first paragraph.] CEO CORNER Table of contents Your fund at a glance page 1 Managers' report page 2 Fund's investments page 6 Financial statements page 19 For more information page 37 To Our Shareholders, I am pleased to be writing to you as the new President and Chief Executive Officer of John Hancock Funds, LLC, following the departure of James A. Shepherdson to pursue other opportunities. In addition, on July 25, 2005, your fund's Board of Trustees appointed me to the roles of President and Chief Executive Officer of your fund. As a means of introduction, I have been involved in the mutual fund industry since 1985. I have been with John Hancock Funds for the last 15 years, most recently as executive vice president of retail sales and marketing and a member of the company's executive and investment committees. In my former capacity, I was responsible for all aspects of the distribution and marketing of John Hancock Funds' open-end and closed-end mutual funds. Outside of John Hancock, I have served as Chairman of the Investment Company Institute (ICI) Sales Force Marketing Committee since September 2003. It is an exciting time to be at John Hancock Funds, and I am grateful for the opportunity to lead and shape its future growth. With the acquisition of John Hancock by Manulife Financial Corporation in April 2004, we are receiving broad support toward the goal of providing our shareholders with excellent investment opportunities and a more complete lineup of choices for the discerning investor. As you may have read, John Hancock recently entered into an agreement with GMO, a Boston-based institutional money manager, to acquire eight of their mutual funds. In addition, we are in the process of adding five "Lifestyle Portfolio" funds-of-funds that blend multiple fund offerings from internal and external money managers to create a broadly diversified asset allocation portfolio. Look for more information about these exciting additions to the John Hancock family of funds in your fourth quarter shareholder newsletter. Although there has been a change in executive-level management, rest assured that the one thing that never wavers is John Hancock Funds' commitment to placing the needs of shareholders above all else. We are all dedicated to the task of working with you and your financial advisors to help you reach your long-term financial goals. Sincerely, /s/ Keith F. Hartstein Keith F. Hartstein, President and Chief Executive Officer This commentary reflects the CEO's views as of June 30, 2005. 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 investment risk by investing at least 80% of its assets in a diversified portfolio of income securities. Over the last six months * Despite further interest rate increases by the Federal Reserve, bonds gained ground amid tame inflation and mixed economic data. * Treasury and government agency bonds were the best performers, while corporate bonds lagged. * The Fund benefited from its exposure to higher-quality bonds, but its reduced interest rate sensitivity hindered performance as bond yields declined. [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, 2005." The chart is scaled in increments of 2% with -2% at the bottom and 8% at the top. The first bar represents the 1.30% net asset value of the Fund. The second bar represents the -0.03% market value of the Fund. The third bar represents the 6.88% yield on closing market price. The first note below the chart reads "The total returns for the Fund include the reinvestment of all distributions. The performance data contained within this material represents past performance, which does not guarantee future results." The second note below the chart reads "The yield on closing market price is calculated by dividing the current annualized distribution per share by the closing market price."] Top 10 issuers 15.0% Federal National Mortgage Assn. 12.2% Federal Home Loan Mortgage Corp. 9.0% U.S. Treasury 3.1% Federal Home Loan Bank 1.1% Financing Corp. 1.0% Countrywide Home Loans 1.0% Washington Mutual, Inc. 0.9% Global Signal Trust 0.9% Midland Funding Corp. II 0.8% Rabobank Capital Fund II As a percentage of net assets plus value of preferred shares on June 30, 2005. 1 BY BARRY H. EVANS, CFA, AND JEFFREY N. GIVEN, CFA, PORTFOLIO MANAGERS MANAGERS' REPORT JOHN HANCOCK Income Securities Trust The U.S. bond market confounded expectations during the first six months of 2005, as yields generally declined and bonds posted positive returns overall. Bonds rallied despite a series of interest rate increases by the Federal Reserve. The Fed raised its federal funds rate target by a quarter-point four times in the first half of 2005, for a total of nine rate hikes since June 2004. The federal funds rate ended the period at 3.25%, its highest level in nearly four years. Although short-term bond yields rose in response to the Fed's actions -- the two-year Treasury note yield climbed from 3.1% to 3.6% -- longer-term bond yields declined during the six-month period. Low inflation and mixed economic data, which suggested that the Fed may end its rate-raising cycle sooner than originally anticipated, were the main reasons behind the rally in the long end of the bond market. "The U.S. bond market con- founded expectations during the first six months of 2005, as yields generally declined and bonds posted positive returns overall." The Lehman Brothers U.S. Aggregate Index -- a broad measure of the U.S. bond market -- returned 2.51% in the first half of 2005. Treasury bonds, which tend to benefit the most from declining interest rates, posted the best results. Corporate bonds, the top performers in 2003 and 2004, lagged the rest of the bond market. In particular, high-yield corporate bonds produced nearly flat returns during the period. Fund performance For the six months ended June 30, 2005, John Hancock Income Securities Trust produced a total return of 1.30% at net asset value (NAV) and - -0.03% at market value. The Fund's NAV return and its market performance differ because the market share price is subject to the dynamics of secondary market trading, which could cause it to trade at a discount or premium to the Fund's NAV share 2 price at any time. For comparison, the average closed-end BBB-rated corporate debt fund returned 2.77% at net asset value, according to Lipper, Inc., while the Lehman Brothers Government/Credit Bond Index returned 2.75%. [Photos of Barry Evans and Jeff Given, flush right at top of page.] Staying defensive In our last report six months ago, we discussed our efforts to establish a more defensive position for the portfolio, reducing its risk profile through higher credit quality and less interest rate sensitivity. We maintained this defensive positioning throughout the first half of 2005, making few changes to the overall structure of the portfolio. The portfolio benefited from its exposure to higher-quality bonds as they outperformed lower-rated securities. However, the portfolio's reduced sensitivity to interest rate fluctuations hindered performance, thanks to the unexpected decline in longer-term bond yields during the period. The lower rate sensitivity, along with an underweight in Treasury bonds, led to the portfolio's underperformance of its Lipper peer group and the Lehman index. Better quality, same yield The few changes we made to the portfolio during the period involved upgrading credit quality by selling some of our lower-rated corporate bonds and adding more government agency and mortgage-backed securities to the portfolio. We focused on callable government agency securities maturing in two to three years. These AAA-rated bonds offered yields that were equal to or higher than BBB-rated corporate bonds with similar maturities, so we were able to trade up in credit quality without giving up any yield. "The best individual performers in the portfolio were longer-term, higher-quality bonds." In the mortgage-backed market, we invested in adjustable-rate mortgages, which reset their interest rates at regular intervals. These short-term bonds also carry AA or AAA ratings and offered higher yields than similar-maturity corporate bonds. Energy, telecom bonds perform well The best individual performers in the portfolio were longer-term, higher-quality bonds. One example was Alberta Energy, an A-rated 3 Canadian oil exploration and production company. Soaring oil prices provided a lift to Alberta Energy bonds, and the long maturity date (in 2030) allowed them to participate in the general rally in long-term bonds. [Table at top left-hand side of page entitled "Sector distribution 1." The first listing is Government - U.S. agency 32%, the second is Financials 22%, the third is Government - U.S. 9%, the fourth is Utilities 8%, the fifth is Telecommunication services 7%, the sixth is Industrials 6%, the seventh is Consumer discretionary 5%, the eighth is Materials 3%, the ninth is Consumer staples 3%, the tenth is Energy 2%, the eleventh is Health care 2% and the twelfth is Government - foreign 1%.] Another top performer was telecommunication services provider Sprint, which recently entered into a merger agreement with Nextel. In addition to their long maturity, Sprint bonds benefited from consolidation in the wireless industry, which is expected to improve pricing power for wireless service providers going forward. Autos hit the skids The weakest performers in the portfolio were bonds issued by the major U.S. automakers, General Motors and Ford. Disappointing auto sales, increased competition and higher gas prices caused GM to warn of lower earnings, and its credit rating was cut to below-investment-grade status. Ford, facing similar struggles, teetered on the edge of its own credit downgrade (which we expect to occur in the next few months). The downgrades caused sharp declines in the value of their bonds. [Pie chart at middle of page with heading "Portfolio diversification 1." The chart is divided into four sections (from top to left): Bonds 55%, U.S. government & agency bonds 39%, Preferred stocks 5% and Short-term investments & other 1%.] We owned a modest amount of both GM and Ford (less than 2% of the portfolio combined), and our holdings were all shorter-term securities -- Ford Motor Credit bonds maturing in 2009 and GMAC bonds maturing in 2011. Nonetheless, these securities declined by about 10% during the period. However, we are confident about the creditworthiness of these shorter-term bonds and intend to maintain our positions. 4 Outlook The U.S. economy, which grew by 4.4% in 2004, is slowing to a more moderate growth rate in 2005. In addition, the inflation rate has remained tame despite higher oil prices, and the dollar is strengthening after several years of weakness. Consequently, we think most of the Fed's work is done. We expect one or two more rate hikes in the coming months, followed by a period of stability. [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 Long-term Treasury bonds followed by an up arrow with the phrase "The longest-term Treasury bond returned 11% as interest rates declined." The second listing is Barclays Bank followed by an up arrow with the phrase "AA-rated, long-term security benefited from flight to quality." The third listing is Qwest followed by a down arrow with the phrase "Repeated attempts to outbid Verizon in order to acquire MCI disappointed investors."] Given the moderate economic and inflationary environment, we don't expect bond yields to rise significantly in the second half of 2005. The spreads between corporate bond yields and Treasury yields remain near historically low levels, but modest issuance in the corporate bond market and strong corporate balance sheets should help keep spreads from widening substantially. We continue to find many attractive investment opportunities in the corporate bond market. "Given the moderate economic and inflationary environment, we don't expect bond yields to rise significantly in the second half of 2005." Within the portfolio, we intend to maintain our current positioning going forward. If interest rates rise sharply, we may look to increase the portfolio's interest rate sensitivity. 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. 1 As a percentage of the Fund's portfolio on June 30, 2005. 5 FINANCIAL STATEMENTS FUND'S INVESTMENTS Securities owned by the Fund on June 30, 2005 (unaudited) This schedule is divided into four main categories: bonds, preferred stocks, U.S. government and agencies securities and short-term investments. Bonds, preferred stocks and U.S. government and agencies securities are further broken down by industry group. Short-term investments, which represent the Fund's cash position, are listed last.
Interest Maturity Credit Par value Issuer, description rate date rating (A) (000) Value Bonds 84.68% $149,764,617 (Cost $146,563,277) Aerospace & Defense 0.65% 1,158,892 Raytheon Co., Note 8.300% 03-01-10 BBB- $1,000 1,158,892 Agricultural Products 0.53% 940,066 Corn Products International, Inc., Sr Note 8.450 08-15-09 BBB- 835 940,066 Airlines 1.06% 1,883,662 Continental Airlines, Inc., Pass Thru Ctf Ser 1999-1 Class A 6.545 02-02-19 A- 626 626,733 Pass Thru Ctf Ser 2000-2 Class A-1 7.707 04-02-21 BBB 449 449,199 Pass Thru Ctf Ser 2000-2 Class B (L) 8.307 10-02-19 BB- 438 364,142 Pass Thru Ctf Ser 2001-1 Class C 7.033 06-15-11 B+ 338 283,422 Jet Equipment Trust, Equip Trust Ctf Ser 1995-B2 (B)(H)(S) 10.910 08-15-14 D 550 2,750 Northwest Airlines Corp., Pass Thru Ctf Ser 1996-1D 8.970 01-02-15 CCC+ 257 157,416 Apparel Retail 0.34% 593,806 Gap, Inc. (The), Note (P) 9.550 12-15-08 BBB- 515 593,806 Asset Management & Custody Banks 1.20% 2,124,360 Rabobank Capital Fund II, Perpetual Bond (5.260% to 12-31-13 then variable) (S) 5.260 12-29-49 AA 2,065 2,124,360 Auto Parts & Equipment 0.25% 440,000 American Axle & Manufacturing, Inc., Sr Note (L) 5.250 02-11-14 BBB 500 440,000 Broadcasting & Cable TV 2.22% 3,934,844 AT&T Broadband Corp., Gtd Note 8.375 03-15-13 BBB 1,020 1,243,738 British Sky Broadcasting Group Plc, Gtd Sr Note (United Kingdom) 8.200 07-15-09 BBB- 945 1,069,728 See notes to financial statements. 6 FINANCIAL STATEMENTS Interest Maturity Credit Par value Issuer, description rate date rating (A) (000) Value Broadcasting & Cable TV (continued) TCI Communications, Inc., Sr Deb 9.800% 02-01-12 BBB $860 $1,095,380 XM Satellite Radio, Inc., Sr Sec Note, Step Coupon (Zero to 12-31-05 then 14.000%) (O) Zero 12-31-09 CCC+ 509 525,998 Building Products 1.23% 2,183,991 Pulte Homes Inc., Sr Note 6.250 02-15-13 BBB- 1,000 1,068,712 Toll Brothers, Inc., Gtd Sr Note 6.875 11-15-12 BBB- 1,000 1,115,279 Casinos & Gaming 1.64% 2,897,895 Chukchansi Economic Development Auth., Sr Note (G)(S) 14.500 06-15-09 CCC+ 500 611,250 Harrah's Operating Co., Inc., Gtd Sr Note 8.000 02-01-11 BBB- 765 877,182 Gtd Sr Note 5.500 07-01-10 BBB- 755 779,193 Waterford Gaming LLC, Sr Note (S) 8.625 09-15-12 B+ 596 630,270 Commodity Chemicals 0.77% 1,367,773 RPM International, Inc., Sr Note 6.250 12-15-13 BBB 1,300 1,367,773 Construction Materials 0.22% 390,000 Votorantim Overseas IV, Gtd Note (Cayman Islands) (S) 7.750 06-24-20 BBB- 390 390,000 Consumer Finance 4.32% 7,642,216 Barclays Bank Plc, Perpetual Bond (6.86% to 6-15-32 then variable) (United Kingdom) (S) 6.860 09-29-49 A+ 1,600 1,881,306 CIT Group, Inc., Sr Note 5.000 02-13-14 A 750 757,545 Ford Motor Credit Co., Note 7.375 10-28-09 BBB- 1,625 1,587,929 General Motors Acceptance Corp., Note 7.250 03-02-11 BBB- 1,245 1,167,402 Household Finance Corp., Note 6.375 10-15-11 A 645 705,203 HSBC Finance Corp., Sr Note 6.750 05-15-11 A 1,390 1,542,831 Department Stores 0.35% 622,875 Penney, J.C. Co., Inc., Deb 7.650 08-15-16 BB+ 550 622,875 See notes to financial statements. 7 FINANCIAL STATEMENTS Interest Maturity Credit Par value Issuer, description rate date rating (A) (000) Value Diversified Banks 1.67% $2,953,220 Bank of New York, Cap Security (S) 7.780% 12-01-26 A- $650 699,597 Chuo Mitsui Trust & Banking Co., Perpetual Sub Note (5.506% to 04-15-15 then variable) (Japan) (S) 5.506 12-01-49 Baa2 390 383,146 Royal Bank of Scotland Group Plc, Perpetual Bond (7.648% to 09-30-31 then variable) (United Kingdom) 7.648 08-29-49 A 650 826,590 Wachovia Corp., Sub Note 5.250 08-01-14 A- 1,000 1,043,887 Diversified Chemicals 2.12% 3,749,617 Lyondell Chemical Co., Gtd Sr Sub Note 10.875 05-01-09 B 500 518,750 NOVA Chemicals Corp., Med Term Note (Canada) 7.400 04-01-09 BB+ 2,045 2,070,563 Potash Corp. of Saskatchewan, Inc., Note (Canada) 7.750 05-31-11 BBB+ 1,000 1,160,304 Diversified Commercial Services 1.13% 1,991,247 Hutchison Whampoa International Ltd., Gtd Note (United Kingdom) (S) 6.500 02-13-13 A- 750 814,262 Noble Group Ltd., Sr Note (Bermuda) (S) 6.625 03-17-15 BB+ 1,000 923,235 Sotheby's Holdings, Inc., Note 6.875 02-01-09 BB- 250 253,750 Diversified Financial Services 1.65% 2,915,155 Beaver Valley Funding Corp., Sec Lease Obligation Bond 9.000 06-01-17 BB+ 513 608,716 Glencore Funding LLC, Gtd Note (S) 6.000 04-15-14 BBB- 1,380 1,323,278 St. George Funding Co., Perpetual Bond (8.485% to 06-30-17 then variable) (Australia) (S) 8.485 12-31-49 Baa1 870 983,161 Electric Utilities 9.06% 16,014,667 AES Eastern Energy, L.P., Pass Thru Ctf Ser 1999-A 9.000 01-02-17 BB+ 1,106 1,282,586 BVPS II Funding Corp., Collateralized Lease Bond 8.890 06-01-17 BB+ 700 849,947 Empresa Electrica Guacolda S.A., Sr Sec Note (Chile) (S) 8.625 04-30-13 BBB- 830 918,316 FPL Energy National Wind, Sec Note (S) 5.608 03-10-24 BBB- 400 408,160 See notes to financial statements. 8 FINANCIAL STATEMENTS Interest Maturity Credit Par value Issuer, description rate date rating (A) (000) Value Electric Utilities (continued) HQI Transelect Chile S.A., Sr Note (Chile) 7.875% 04-15-11 A- $1,230 $1,419,066 Indiantown Cogeneration, L.P., 1st Mtg Note Ser A-9 9.260 12-15-10 BB+ 480 511,356 IPALCO Enterprises, Inc., Sr Sec Note 8.625 11-14-11 BB- 325 365,625 Kansas Gas & Electric Co., Bond (S) 5.647 03-29-21 BB- 310 314,631 Midland Funding Corp. II, Deb Ser B 13.250 07-23-06 BB- 2,225 2,355,554 Monterrey Power S.A. de C.V., Sr Sec Bond (Mexico) (S) 9.625 11-15-09 BBB 514 595,328 PNPP II Funding Corp., Deb 9.120 05-30-16 BB+ 491 589,372 PPL Capital Funding, Gtd Sr Note Ser A 4.330 03-01-09 BBB- 500 496,131 System Energy Resources, Inc., Sec Bond (S) 5.129 01-15-14 BBB 449 447,632 TNP Enterprises, Inc., Sr Sub Note Ser B (G) 10.250 04-01-10 B 365 384,345 TransAlta Corp., Note (Canada) 5.750 12-15-13 BBB- 2,000 2,103,044 TXU Corp., Note (S) 6.500 11-15-24 BBB- 1,020 999,133 Sec Bond 7.460 01-01-15 BBB 638 694,440 Waterford 3 Funding Corp., Sec Lease Obligation Bond 8.090 01-02-17 BBB- 1,150 1,280,001 Electrical Components & Equipment 1.62% 2,871,483 AMETEK, Inc., Sr Note 7.200 07-15-08 BBB 1,500 1,607,958 Jabil Circuit, Inc., Sr Note 5.875 07-15-10 BB+ 1,220 1,263,525 Food Retail 1.89% 3,341,989 Ahold Lease USA, Inc., Gtd Pass Thru Ctf Ser 2001A-1 7.820 01-02-20 BB 1,360 1,469,271 Delhaize America, Inc., Gtd Note 9.000 04-15-31 BB+ 1,500 1,872,718 Foreign Government 1.64% 2,902,665 Colombia, Republic of, Note (Colombia) 10.000 01-23-12 BB 750 873,750 Mexican States, United, Global Med Term Note Ser A (Mexico) 6.375 01-16-13 BBB 1,890 2,028,915 See notes to financial statements. 9 FINANCIAL STATEMENTS Interest Maturity Credit Par value Issuer, description rate date rating (A) (000) Value Gas Utilities 0.60% $1,054,927 Energy Transfer Partners, Gtd Sr Note (G)(S) 5.950% 02-01-15 BBB- $500 504,323 NorAm Energy Corp., Deb 6.500 02-01-08 BBB 525 550,604 Health Care Facilities 0.84% 1,477,686 HCA, Inc., Note 8.750 09-01-10 BB+ 900 1,022,859 Manor Care, Inc., Gtd Note 6.250 05-01-13 BBB 425 454,827 Health Care Services 0.88% 1,552,078 Wellpoint, Inc., Jr Note 5.000 12-15-14 BBB+ 1,520 1,552,078 Hotels, Resorts & Cruise Lines 1.61% 2,850,819 Hyatt Equities LLC, Note (S) 6.875 06-15-07 BBB 1,060 1,093,794 Meditrust, Note 7.000 08-15-07 BB- 1,710 1,757,025 Hypermarkets & Super Centers 0.17% 293,480 Controladora Comercial Mexicana S.A. de C.V, Sr Note (Mexico) (S) 6.625 06-01-15 BBB- 290 293,480 Industrial Conglomerates 0.35% 611,786 Vedanta Resources Plc, Sr Note (United Kingdom) (S) 6.625 02-22-10 BB+ 620 611,786 Industrial Machinery 1.65% 2,920,644 Kennametal, Inc., Sr Note 7.200 06-15-12 BBB 1,405 1,571,783 Manitowoc Co., Inc., (The) Sr Note 7.125 11-01-13 B+ 500 522,500 Trinity Industries Leasing Co., Pass Thru Ctf (S) 7.755 02-15-09 Ba1 781 826,361 Insurance Brokers 1.10% 1,942,278 Marsh & McLennan Cos., Inc., Sr Note (L) 5.375 03-15-07 BBB 1,530 1,549,973 Willis Group North America, Gtd Note 5.625 07-15-15 BBB- 195 196,254 Gtd Note 5.125 07-15-10 BBB- 195 196,051 Integrated Oil & Gas 1.53% 2,710,917 Pemex Project Funding Master Trust, Gtd Note 9.125 10-13-10 BBB 1,115 1,305,665 Petro-Canada, Deb (Canada) 9.250 10-15-21 BBB 1,000 1,405,252 See notes to financial statements. 10 FINANCIAL STATEMENTS Interest Maturity Credit Par value Issuer, description rate date rating (A) (000) Value Integrated Telecommunication Services 5.44% $9,626,052 AT&T Corp., Med Term Note 8.350% 05-15-25 BB+ $500 516,250 Sr Note (P) 9.750 11-15-31 BB+ 510 663,637 Bellsouth Corp., Deb 6.300 12-15-15 A 1,118 1,195,165 France Telecom S.A., Note (France) 8.500 03-01-11 A- 910 1,056,031 Qwest Capital Funding, Inc., Gtd Note (L) 7.000 08-03-09 B 1,000 977,500 SBC Communications, Inc., Note 5.100 09-15-14 A 870 889,542 Sprint Capital Corp., Gtd Sr Bond 7.625 01-30-11 BBB- 1,000 1,142,079 Note 6.875 11-15-28 BBB- 820 941,263 Telecom Italia Capital, Gtd Note (Luxembourg) (S) 4.950 09-30-14 BBB+ 1,500 1,485,218 Telefonos de Mexico S.A. de C.V., Note (Mexico) (S) 5.500 01-27-15 BBB 765 759,367 Investment Banking & Brokerage 0.71% 1,260,416 Merrill Lynch & Co., Med Term Note Ser C 5.000 01-15-15 A+ 430 440,291 Mizuho Financial Group Cayman Ltd., Gtd Note (Cayman Islands) 8.375 12-29-49 A2 750 820,125 IT Consulting & Other Services 0.24% 421,930 NCR Corp., Note 7.125 06-15-09 BBB- 390 421,930 Metal & Glass Containers 0.31% 543,125 Owens-Brockway Glass Container, Inc., Gtd Sr Note 8.250 05-15-13 B 500 543,125 Multi-Line Insurance 1.02% 1,802,935 Assurant, Inc., Sr Note 6.750 02-15-34 BBB+ 510 582,710 Massachusetts Mutual Life Insurance Co., Surplus Note (S) 7.625 11-15-23 AA 485 622,317 MetLife, Inc., Note 5.700 06-15-35 A 580 597,908 Multi-Media 1.17% 2,071,747 News America Holdings, Inc., Gtd Sr Deb 8.250 08-10-18 BBB- 540 664,038 Time Warner, Inc., Deb 9.125 01-15-13 BBB+ 1,114 1,407,709 See notes to financial statements. 11 FINANCIAL STATEMENTS Interest Maturity Credit Par value Issuer, description rate date rating (A) (000) Value Multi-Utilities & Unregulated Power 1.51% $2,669,752 CalEnergy Co., Inc., Sr Bond 8.480% 09-15-28 BBB- $550 739,268 Salton Sea Funding Corp., Sr Sec Note Ser C 7.840 05-30-10 BB+ 1,825 1,930,484 Office Services & Supplies 1.51% 2,670,921 Office Depot, Inc., Sr Note 6.250 08-15-13 BBB- 1,560 1,635,602 Steelcase, Inc., Sr Note 6.375 11-15-06 BBB- 1,020 1,035,319 Oil & Gas Drilling 0.75% 1,329,653 Alberta Energy Co., Ltd., Note (Canada) 8.125 09-15-30 A- 725 982,846 Delek & Avner-Yam Tethys, Sr Sec Note (Israel) (S) 5.326 08-01-13 BBB- 348 346,807 Oil & Gas Exploration & Production 0.79% 1,401,093 Occidental Petroleum Corp., Sr Deb 10.125 09-15-09 BBB+ 1,160 1,401,093 Oil & Gas Refining & Marketing & Trucking 0.58% 1,029,051 Enterprise Products Operations, L.P., Gtd Sr Note Ser B 5.600 10-15-14 BB+ 1,000 1,029,051 Paper Packaging 0.74% 1,311,388 Stone Container Corp., Sr Note 9.750 02-01-11 B 285 301,388 Sr Note 8.375 07-01-12 B 1,000 1,010,000 Paper Products 1.14% 2,015,625 Abitibi-Consolidated Co., Gtd Sr Note (Canada) 6.950 12-15-06 BB- 1,250 1,265,625 MDP Acquisitions Plc, Sr Note (Ireland) 9.625 10-01-12 B- 750 750,000 Pharmaceuticals 1.88% 3,323,507 Medco Health Solutions, Inc., Sr Note 7.250 08-15-13 BBB 1,550 1,744,830 Wyeth, Note 5.500 03-15-13 A 1,500 1,578,677 Property & Casualty Insurance 0.93% 1,641,184 Markel Corp., Sr Note 7.350 08-15-34 BBB- 535 600,208 Ohio Casualty Corp., Note 7.300 06-15-14 BB 750 824,848 URC Holdings Corp., Sr Note (S) 7.875 06-30-06 AA- 210 216,128 See notes to financial statements. 12 FINANCIAL STATEMENTS Interest Maturity Credit Par value Issuer, description rate date rating (A) (000) Value Real Estate Investment Trusts 1.34% $2,368,918 Healthcare Realty Trust, Inc., Sr Note 8.125% 05-01-11 BBB- $175 200,367 iStar Financial, Inc., Sr Note 7.000 03-15-08 BBB- 820 870,039 ProLogis Trust, Sr Note 7.050 07-15-06 BBB+ 510 522,543 Simon Property Group, L.P., Note (S) 5.100 06-15-15 BBB+ 525 524,719 Ventas Realty, L.P./Capital Corp., Sr Note 6.625 10-15-14 BB 250 251,250 Real Estate Management & Development 0.82% 1,443,170 Post Apartment Homes, Sr Note 5.125 10-12-11 BBB 870 892,076 Socgen Real Estate Co., LLC, Perpetual Bond Ser A (7.640% to 09-30-07 then variable) (S) 7.640 12-29-49 A 515 551,094 Regional Banks 2.58% 4,571,561 Colonial Capital II, Gtd Cap Security Ser A 8.920 01-15-27 BB 1,085 1,190,353 Crestar Capital Trust I, Gtd Cap Security 8.160 12-15-26 A- 910 989,220 First Chicago NDB Institutional Capital, Gtd Cap Bond Ser A (S) 7.950 12-01-26 A1 500 540,251 Greater Bay Bancorp, Sr Note (S) 5.125 04-15-10 BBB- 565 572,293 NB Capital Trust IV, Gtd Cap Security 8.250 04-15-27 A 1,170 1,279,444 Soft Drinks 0.62% 1,088,750 Panamerican Beverages, Inc., Sr Note (Panama) 7.250 07-01-09 BBB 1,000 1,088,750 Specialized Finance 1.32% 2,343,299 Astoria Depositor Corp., Pass Thru Ctf Ser B (G)(S) 8.144 05-01-21 BB 750 740,625 Bosphorous Financial Services, Sr Sec Floating Rate Note (P)(S) 5.068 02-15-12 Baa3 500 499,863 ESI Tractebel Acquistion Corp., Gtd Sec Bond Ser B 7.990 12-30-11 BB 858 912,147 Humpuss Funding Corp., Gtd Note (S) 7.720 12-15-09 B2 197 190,664 See notes to financial statements. 13 FINANCIAL STATEMENTS Interest Maturity Credit Par value Issuer, description rate date rating (A) (000) Value Telecommunication Services 0.92% $1,631,455 Telus Corp., Note (Canada) 8.000% 06-01-11 BBB $1,395 1,631,455 Telecommunications Equipment 1.12% 1,976,957 Corning, Inc., Med Term Note 8.300 04-04-25 Ba2 1,150 1,200,988 Note 6.050 06-15-15 BBB- 775 775,969 Thrifts & Mortgage Finance 9.97% 17,627,277 Bear Stearns Alt-A Trust, Collateralized Mtg Obligation Ser 2005-3 Class B2 5.424 04-25-35 AA+ 460 468,373 Bear Stearns Commericial Mortgage Securities, Inc., Commercial Sub Bond Ser 2004-ESA Class C (S) 4.937 05-14-16 AA 1,000 1,019,070 Centex Home Equity Loan Trust, Home Equity Ln Asset Backed Ctf Ser 2004-A Class AF-4 4.510 08-25-32 AAA 2,000 2,001,456 Chaseflex Trust, Pass Thru Ctf Ser 2005-2 Class 4A1 5.000 05-25-20 AAA 1,283 1,293,234 ContiMortgage Home Equity Loan Trust, Pass Thru Ctf Ser 1995-2 Class A-5 8.100 08-15-25 AAA 181 190,936 Countrywide Alternative Loan Trust, Mtg Asset Backed Pass Thru Ctf Ser 2004-24CB Class 1A1 6.000 11-25-34 AAA 1,174 1,195,520 Mtg Asset Backed Pass Thru Ctf Ser 2005-J1 Class 3A1 6.500 08-25-32 AAA 694 708,782 Countrywide Home Loans Servicing, L.P., Mtg Asset Backed Pass Thru Ctf Ser 2005-6 Class 2A1 5.500 04-25-35 Aaa 784 793,607 Credit-Based Asset Servicing and Securitization LLC, Mtg Asset Backed Pass Thru Ctf Ser 2004-CB4 Class A3 4.632 05-25-35 AAA 1,000 1,003,088 DLJ Mortgage Acceptance Corp., Commercial Mortgage Pass Thru Ctf Ser 1996-CF1 Class B1 (S) 8.356 03-13-28 AAA 1,535 1,567,696 First Horizon Alternative Mortgage Securities, Mtg Pass Thru Ctf Ser 2004-AA5 Class B1 5.262 12-25-34 AA 320 322,473 Global Signal Trust, Sub Bond Ser 2004-1A Class D (S) 5.098 01-15-34 BBB 2,000 1,975,048 Sub Bond Ser 2004-2A Class D (S) 5.093 12-15-14 Baa2 405 401,734 GSR Mortgage Loan Trust, Mtg Pass Thru Ctf Ser 2004-9 Class B1 (G) 4.429 08-25-34 AA 721 719,239 See notes to financial statements. 14 FINANCIAL STATEMENTS Interest Maturity Credit Par value Issuer, description rate date rating (A) (000) Value Thrifts & Mortgage Finance (continued) Indymac Index Mortgage Loan Trust, Asset Backed Ctf Ser 2004-AR13 Class B1 5.296% 01-25-35 AA $484 $489,248 Asset Backed Ctf Ser 2005-AR5 Class B1 5.463 05-25-35 AA 524 538,636 Provident Funding Mortgage Loan Trust, Mtg Pass Thru Ctf Ser 2005-1 Class B1 4.384 05-25-35 AAA 325 321,203 Washington Mutual, Inc., Mtg Ln Pass Thru Ctf (N) 6.500 08-29-35 AA 1,090 1,123,552 Mtg Ln Pass Thru Ctf Ser 2005-AR4 Class B1 4.684 04-25-35 AA 1,515 1,494,382 Utilities Other 0.31% 546,145 Magellan Midstream Partners, L.P., Note 6.450 06-01-14 BBB 500 546,145 Wireless Telecommunication Services 2.67% 4,713,668 America Movil S.A. de C.V., Sr Note (Mexico) 5.750 01-15-15 BBB 1,275 1,294,588 AT&T Wireless Services , Inc., Sr Note 8.125 05-01-12 A 1,525 1,827,174 Crown Castle Towers LLC, Sub Bond Ser 2005-1A Class D 5.612 06-15-35 Baa2 620 622,906 Mobile Telesystems Finance S.A., Gtd Sr Note (Luxembourg) (S) 9.750 01-30-08 BB- 400 429,000 Nextel Communications, Inc., Sr Note 7.375 08-01-15 BB 500 540,000 Credit Issuer, description rating (A) Shares Value Preferred stocks 7.74% $13,683,319 (Cost $13,717,794) Agricultural Products 0.62% 1,103,125 Ocean Spray Cranberries, Inc., 6.25%, Ser A (S) BB+ 12,500 1,103,125 Broadcasting & Cable TV 0.57% 1,013,200 Viacom, Inc., 7.25% A- 40,000 1,013,200 Consumer Finance 0.31% 542,678 HSBC Finance Corp., 6.36%, Depositary Shares Ser B BBB+ 21,680 542,678 Diversified Banks 2.82% 4,983,016 Abbey National Plc, 7.375% (United Kingdom) A- 41,300 1,087,016 Bank One Capital Trust VI, 7.20% A- 55,000 1,434,400 Fleet Capital Trust VII, 7.20% A 55,000 1,416,800 USB Capital IV, 7.35% A- 40,000 1,044,800 See notes to financial statements. 15 FINANCIAL STATEMENTS Credit Issuer, description rating (A) Shares Value Diversified Financial Services 1.15% $2,031,600 ABN AMRO Capital Funding Trust VII, 6.08% A 40,000 994,000 Citigroup Capital VII, 7.125% A 40,000 1,037,600 Electric Utilities 0.29% 504,200 DTE Energy Co., 8.75%, Conv BBB- 20,000 504,200 Integrated Telecommunication Services 0.58% 1,030,000 Telephone & Data Systems, Inc., 7.60%, Ser A A- 40,000 1,030,000 Multi-Utilities & Unregulated Power 0.61% 1,084,000 PSEG Funding Trust II, 8.75% BB+ 40,000 1,084,000 Real Estate Investment Trusts 0.79% 1,391,500 Apartment Investment & Management Co., 8.00%, Ser T B+ 55,000 1,391,500 Interest Maturity Credit Par value Issuer, description rate date rating (A) (000) Value U.S. government and agencies securities 60.60% $107,175,423 (Cost $104,897,968) Government U.S. 13.45% 23,780,307 United States Treasury, Bond (L) 9.125% 05-15-18 AAA $495 740,509 Bond (L) 8.875 08-15-17 AAA 1,215 1,765,879 Bond (L) 6.250 02-15-07 AAA 2,350 2,448,040 Bond (L) 5.375 02-15-31 AAA 3,050 3,599,000 Note (L) 5.250 11-15-28 AAA 515 588,206 Note (L) 4.125 05-15-15 AAA 165 167,410 Note (L) 4.000 02-15-15 AAA 14,420 14,471,263 Government U.S. Agency 47.15% 83,395,116 Federal Home Loan Bank, Bond 4.600 04-11-08 AAA 2,530 2,544,368 Bond 4.500 04-11-08 AAA 3,000 3,008,175 Bond 4.430 04-07-08 AAA 2,550 2,559,912 Federal Home Loan Mortgage Corp., 15 Yr Pass Thru Ctf 4.500 04-01-18 AAA 771 767,687 15 Yr Pass Thru Ctf 4.500 05-01-19 AAA 1,816 1,809,524 20 Yr Pass Thru Ctf 11.250 01-01-16 AAA 35 37,300 30 Yr Pass Thru Ctf 6.000 08-01-34 AAA 15,250 15,648,446 30 Yr Pass Thru Ctf 5.500 04-01-33 AAA 2,173 2,205,455 CMO REMIC 2901-UB 5.000 03-15-33 AAA 4,345 4,411,495 CMO REMIC 2978-CL 5.500 01-15-31 AAA 2,695 2,754,233 CMO REMIC 2978-JD 5.500 08-15-31 AAA 2,640 2,702,515 Med Term Note 4.300 09-24-08 AAA 2,000 2,008,178 Federal National Mortgage Assn., 15 Yr Pass Thru Ctf 7.500 02-01-08 AAA 1 1,073 15 Yr Pass Thru Ctf 7.000 09-01-10 AAA 42 44,325 15 Yr Pass Thru Ctf 7.000 09-01-12 AAA 7 7,442 See notes to financial statements. 16 FINANCIAL STATEMENTS Interest Maturity Credit Par value Issuer, description rate date rating (A) (000) Value Government U.S. Agency (continued) Federal National Mortgage Assn., (continued) 15 Yr Pass Thru Ctf 7.000% 04-01-17 AAA $64 $66,587 15 Yr Pass Thru Ctf 5.000 10-01-19 AAA 1,006 1,017,741 30 Yr Pass Thru Ctf (M) 5.500 07-01-33 AAA 2,640 2,675,476 Federal National Mortgage Assn., 30 Yr Pass Thru Ctf (M) 5.000 08-01-33 AAA 9,480 9,459,258 30 Yr Pass Thru Ctf 6.000 01-01-34 AAA 3,809 3,906,802 30 Yr Pass Thru Ctf 6.000 05-01-35 AAA 5,106 5,236,366 30 Yr Pass Thru Ctf 5.500 05-01-34 AAA 1,150 1,166,804 30 Yr Pass Thru Ctf 5.500 11-01-34 AAA 2,685 2,723,302 CMO REMIC 2003-17-QT 5.000 08-25-27 AAA 1,675 1,683,731 Note 6.000 05-20-25 AAA 1,720 1,727,102 Note (L) 5.000 04-19-10 AAA 2,530 2,553,309 Note 4.500 04-01-08 AAA 2,465 2,465,000 Note (L) 4.450 04-11-08 AAA 2,550 2,554,858 Note (L) 4.300 05-05-08 AAA 2,670 2,678,694 Financing Corp., Bond 9.400 02-08-18 Aaa 2,000 2,941,928 Government National Mortgage Assn., 30 Yr Pass Thru Ctf 10.000 11-15-20 AAA 7 7,832 30 Yr Pass Thru Ctf 9.500 11-15-19 AAA 0 496 30 Yr Pass Thru Ctf 9.500 01-15-21 AAA 5 5,062 30 Yr Pass Thru Ctf 9.500 02-15-25 AAA 13 14,640 Interest Credit Par value Issuer, description, maturity date rate rating (A) (000) Value Short-term investments 2.28% $4,035,000 (Cost $4,035,000) Government U.S. Agency 2.20% 3,900,000 Federal Home Loan Bank, Disc Note 07-01-05 Zero AAA $3,900 3,900,000 Joint Repurchase Agreement 0.08% 135,000 Investment in a joint repurchase agreement transaction with Morgan Stanley -- Dated 06-30-05 due 07-01-05 (secured by U.S. Treasury Inflation Indexed Note 1.875% due 07-15-13) 2.900% 135 135,000 Total investments 155.30% $274,658,359 Other assets and liabilities, net (4.98%) ($8,807,247) Fund preferred shares, at value (50.32%) ($89,000,000) Total net assets 100.00% $176,851,112
See notes to financial statements. 17 FINANCIAL STATEMENTS Notes to Schedule of Investments (A) Credit ratings are rated by Moody's Investors Service where Standard & Poor's ratings are not available unless indicated otherwise. (B) This security is fair valued in good faith under procedures established by the Board of Trustees. (G) Security rated internally by John Hancock Advisers, LLC. (H) Non-income-producing issuer filed for protection under the Federal Bankruptcy Code or is in default of interest payment. (L) All or a portion of this security is on loan as of June 30, 2005. (M) These securities having an aggregate value of $12,134,734, or 6.86% of the Fund's net assets, have been purchased as forward commitments--that is, the Fund has agreed on trade date to take delivery of and to make payment for these securities on a delayed basis subsequent to the date of this schedule. The purchase price and interest rate of these securities are fixed at trade date, although the Fund does not earn any interest on these until settlement date. The Fund has segregated assets with a current value at least equal to the amount of the forward commitments. Accordingly, the market value of $12,376,215 of Federal Home Loan Mortgage Corp., 6.000%, 08-01-34, Federal Home Loan Mortgage Corp., 5.000%, 03-15-33, and Federal National Mortgage Assn., 6.000%, 05-01-35 has been segregated to cover the forward commitments. (N) This security having an aggregate value of $1,123,552 or 0.64% of the Fund's net assets, has been purchased on a when issued basis. The purchase price and the interest rate of such securities are fixed at trade date, although the Fund does not earn any interest on such securities until settlement date. The Fund has instructed its custodian bank to segregate assets with a current value at least equal to the amount of its when issued commitments. Accordingly, the market value of $1,149,140 of Federal Home Loan Mortgage Corp., 6.000%, 08-01-34 has been segregated to cover the when issued commitments. (O) Cash interest will be paid on this obligation at the stated rate beginning on the stated date. (P) Represents rate in effect on June 30, 2005. (S) 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 $31,324,578 or 17.71% of the Fund's net assets as of June 30, 2005. Parenthetical disclosure of a foreign country in the security description represents country of a foreign issuer; however, security is U.S. dollar-denominated. 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. 18 FINANCIAL STATEMENTS ASSETS AND LIABILITIES June 30, 2005 (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 $269,214,039) including $31,942,801 of securities loaned $274,658,359 Cash 175 Cash segregated for futures contacts 402,750 Receivable for investments sold 11,536,671 Receivable for shares sold 273,551 Dividends and interest receivable 3,320,622 Other assets 15,855 Total assets 290,207,983 Liabilities Payable for investments purchased 23,806,572 Payable for futures variation margin 109,075 Payable to affiliates Management fees 348,161 Other 5,117 Other payable and accrued expenses 83,798 Total liabilities 24,352,723 Auction Preferred Shares (APS) Series A, including accrued dividends, unlimited number of shares of beneficial interest authorized with no par value, 1,780 shares issued, liquidation preference of $25,000 per share 44,502,074 APS Series B, including accrued dividends, unlimited number of shares of beneficial interest authorized with no par value, 1,780 shares issued, liquidation preference of $25,000 per share 44,502,074 Net assets Common shares capital paid-in 176,833,010 Accumulated net realized loss on investments and financial futures contracts (3,872,868) Net unrealized appreciation of investments and financial futures contracts 4,337,050 Distributions in excess of net investment income (446,080) Net assets applicable to common shares $176,851,112 Net asset value per common share Based on 11,179,708 common shares outstanding -- 30 million shares authorized with no par value $15.82 See notes to financial statements. 19 FINANCIAL STATEMENTS OPERATIONS For the period ended June 30, 2005 (unaudited) 1 This 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. Investment income Interest $7,158,301 Dividends 534,032 Securities lending 57,447 Total investment income 7,749,780 Expenses Investment management fees 672,378 APS auction fees 111,415 Transfer agent fees 53,877 Custodian fees 38,701 Printing fees 31,267 Accounting and legal services fees 27,522 Professional fees 22,920 Miscellaneous 19,499 Registration and filing fees 11,648 Trustees' fees 3,542 Security lending fees 2,923 Interest 474 Total expenses 996,166 Net investment income 6,753,614 Realized and unrealized loss Net realized loss on Investments (239,124) Financial futures contracts (1,179,054) Change in net unrealized appreciation (depreciation) of Investments (1,336,557) Financial futures contracts (839,830) Net realized and unrealized loss (3,594,565) Distributions to APS Series A (623,825) Distributions to APS Series B (618,637) Increase in net assets from operations $1,916,587 1 Semiannual period from 1-1-05 through 6-30-05. See notes to financial statements. 20 FINANCIAL STATEMENTS CHANGES IN NET ASSETS These Statements of Changes in Net Assets show how the value of the Fund's net assets has changed during the last two periods. The difference reflects earnings less expenses, any investment gains and losses, distributions, if any, paid to shareholders and the net of Fund share transactions. Year Period ended ended 12-31-04 6-30-05 1 Increase (decrease) in net assets From operations Net investment income $13,479,487 $6,753,614 Net realized loss (1,090,604) (1,418,178) Change in net unrealized appreciation (depreciation) (1,578,388) (2,176,387) Distributions to APS Series A and B (1,337,920) (1,242,462) Increase in net assets resulting from operations 9,472,575 1,916,587 Distributions to common shareholders From net investment income (13,140,127) (6,021,584) From Fund share transactions 1,322,600 570,859 Net assets Beginning of period 182,730,202 180,385,250 End of period 2 $180,385,250 $176,851,112 1 Semiannual period from 1-1-05 through 6-30-05. Unaudited. 2 Includes accumulated (distributions in excess of) net investment income of $64,352 and ($446,080), respectively. See notes to financial statements. 21 FINANCIAL HIGHLIGHTS 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 12-31-00 1 12-31-01 1,2 12-31-02 1 12-31-03 12-31-04 6-30-05 3 Per share operating performance Net asset value, beginning of period $15.37 $15.89 $16.06 $16.31 $16.53 $16.19 Net investment income 4 1.07 1.00 0.89 0.93 1.22 0.61 Net realized and unrealized gain (loss) on investments 0.52 0.19 0.28 0.63 (0.25) (0.33) Distributions to APS Series A and B 5 -- -- -- (0.02) (0.12) (0.11) Total from investment operations 1.59 1.19 1.17 1.54 0.85 0.17 Less distributions to common shareholders From net investment income (1.07) (1.02) (0.92) (0.96) (1.19) (0.54) From net realized gains -- -- -- (0.26) -- -- (1.07) (1.02) (0.92) (1.22) (1.19) (0.54) Capital charges Offering costs and underwriting discount related to APS -- -- -- (0.10) -- -- Net asset value, end of period $15.89 $16.06 $16.31 $16.53 $16.19 $15.82 Per share market value, end of period $14.44 $14.65 $14.66 $15.39 $15.68 $15.12 Total return at market value 6 (%) 23.06 8.69 6.42 13.49 9.95 (0.03) 7 Ratios and supplemental data Net assets applicable to common shares, end of period (in millions) $172 $175 $179 $183 $180 $177 Ratio of expenses to average net assets (%) 0.84 0.80 0.84 0.87 8 1.14 8 1.13 8,9 Ratio of net investment income to average net assets (%) 6.89 6.17 5.56 5.58 10 7.44 10 7.63 9,10 Portfolio turnover (%) 248 299 371 273 135 62 Senior securities Total APS Series A outstanding (in millions) -- -- -- $45 $45 $45 Total APS Series B outstanding (in millions) -- -- -- $45 $45 $45 Involuntary liquidation preference APS Series A per unit (in thousands) -- -- -- $25 $25 $25 Involuntary liquidation preference APS Series B per unit (in thousands) -- -- -- $25 $25 $25 Average market value per unit (in thousands) -- -- -- $25 $25 $25 Asset coverage per unit 11 -- -- -- $75,402 $75,049 $74,365
See notes to financial statements. 22 Notes to Financial Highlights 1 Audited by previous auditor. 2 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 and accretion, 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. 3 Semiannual period from 1-1-05 through 6-30-05. Unaudited. 4 Based on the average of the shares outstanding. 5 APS Series A and B were issued on 11-4-03. 6 Assumes dividend reinvestment. 7 Not annualized. 8 Ratios calculated on the basis of expenses relative to the average net assets of common shares. Without the exclusion of preferred shares, the annualized ratios of expenses would have been 0.81%, 0.76% and 0.75% for the periods ended 12-31-03, 12-31-04 and 6-30-05, respectively. 9 Annualized. 10 Ratios calculated on the basis of net investment income relative to the average net assets of common shares. Without the exclusion of preferred shares, the annualized ratios of net investment income would have been 5.19%, 4.99% and 5.09% for the periods ended 12-31-03, 12-31-04 and 6-30-05, respectively. 11 Calculated by subtracting the Fund's total liabilities from the Fund's total assets and dividing that amount by the number of APS outstanding, as of the applicable 1940 Act Evaluation Date, which may differ from the financial reporting date. See notes to financial statements. 23 NOTES TO STATEMENTS Unaudited Note A Accounting policies John Hancock Income Securities Trust (the "Fund") is a closed-end diversified 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 which have a remaining maturity of 60 days or less may be valued at amortized cost, which approximates market value. The Fund determines the net asset value of the common shares each business day. 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 John Hancock Financial Services, Inc., 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 24 the Fund negotiated lender fees. 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, 2005, the Fund loaned securities having a market value of $31,942,801 collateralized by securities in the amount of $32,292,636. Securities lending expenses are paid by the Fund to the Adviser. 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 financial futures contracts, 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 financial 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 financial 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 financial futures contracts. On June 30, 2005, the Fund had deposited $402,750 in a segregated account to cover margin requirements on open financial futures contracts. The Fund had the following financial futures contracts open on June 30, 2005: NUMBER OF OPEN CONTRACTS CONTRACTS POSITION EXPIRATION DEPRECIATION - ------------------------------------------------------------------------------- U.S. 10-Year Treasury Note 505 Short Sep 05 ($1,082,546) U.S. 10-Year Treasury Note 32 Short Sep 05 (24,724) ($1,107,270) 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. Therefore, no federal income tax provision is required. For federal income tax purposes, the Fund has $2,123,466 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, 2012. 25 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, if any, on the ex-dividend date. During the year ended December 31, 2004, the tax character of distributions paid was as follows: ordinary income $14,478,047. 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 and the value attributable to the Auction Preferred Shares (collectively, "managed assets"), (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 daily managed assets in excess of $300,000,000. The Fund has an agreement with the Adviser to perform necessary tax, accounting and legal services for the Fund. The compensation for the period amounted to $27,522. The Fund also paid the Adviser the amount of $4,037 for certain compliance costs, included in the miscellaneous expenses. 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. The Fund is listed for trading on the New York Stock Exchange ("NYSE") and has filed with the NYSE its chief executive officer certification regarding compliance with the NYSE's listing standards. The Fund also files with the Securities and Exchange Commission the certification of its chief executive officer and chief accounting officer required by Section 302 of the Sarbanes-Oxley Act. 26 Note C Fund share transactions This listing illustrates the number of Fund common shares distributions reinvested, offering costs and underwriting discount charged to capital paid-in, reclassification of capital accounts and the number of common shares outstanding at the beginning and end of the last two periods, along with the corresponding dollar value.
Beginning of period 11,056,746 $175,501,784 11,141,310 $176,262,151 Distributions reinvested 84,564 1,302,088 38,398 570,859 Offering costs and underwriting discount related to Auction Preferred Shares -- 20,512 -- -- Reclassification of capital accounts -- (562,233) -- -- End of period 11,141,310 $176,262,151 11,179,708 $176,833,010
1 Semiannual period from 1-1-05 through 6-30-05. Unaudited. Auction preferred shares The Fund issued a total of 3,560 Auction Preferred Shares: 1,780 shares of Series A Auction Preferred Shares and 1,780 shares of Series B Auction Preferred Shares (collectively, the "Preferred Shares" or "APS") on November 4, 2003, in a public offering. The total offering costs of $188,388 and the total underwriting discount of $890,000 has been charged to capital paid-in of common shares during the years ended December 31, 2003 and December 31, 2004. Dividends on the APS, which accrue daily, are cumulative at a rate that was established at the offering of the APS and has been reset every 7 days thereafter by an auction. Dividend rates on APS Series A ranged from 2.10% to 3.40% and Series B from 2.24% to 3.45% during the period ended June 30, 2005. Accrued dividends on APS are included in the value of APS on the Fund's Statement of Assets and Liabilities. The APS are redeemable at the option of the Fund, at a redemption price equal to $25,000 per share, plus accumulated and unpaid dividends on any dividend payment date. The APS are also subject to mandatory redemption at a redemption price equal to $25,000 per share, plus accumulated and unpaid dividends, if the Fund is in default on its asset coverage requirements with respect to the APS as defined in the Fund's by-laws. If the dividends on the APS shall remain unpaid in an amount equal to two full years' dividends, the holders of the APS, as a class, have the right to elect a majority of the Board of Trustees. In general, the holders of the APS and the common shareholders have equal voting rights of one vote per share, except that the holders of the APS, as a class, vote to elect two members of the Board of Trustees, and separate class votes are required on certain matters that affect the respective interests of the APS and common shareholders. 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, 2005, aggregated $118,105,102 and $107,531,247, respectively. Purchases and proceeds from sales or maturities of obligations of U.S. government aggregated $50,836,745 and $54,136,215, respectively, during the period ended June 30, 2005. The cost of investments owned on June 30, 2005, including short-term investments, for federal income tax purposes was $270,587,813. 27 Gross unrealized appreciation and depreciation of investments aggregated $6,905,067 and $2,834,521, respectively, resulting in net unrealized appreciation of $4,070,546. The difference between book basis and tax basis net unrealized appreciation of investments is attributable primarily to the tax deferral of losses on certain sales of securities and amortization of premiums on debt securities. 28 Investment objective and policy The Fund is a closed-end diversified management investment company, common 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 331/3% 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 331/3% of total assets. By-laws 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, which 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 August 21, 2003, shareholders approved the amendment of the Fund's by-laws effective August 26, 2003, to provide for the issuance of preferred shares. Effective March 9, 2004, the Trustees approved additional changes to conform with the Fund's maximum dividend rate on the preferred shares with the rate used by other John Hancock funds. On September 14, 2004, the Trustees approved an amendment to the Fund's by-laws increasing the maximum applicable dividend rate ceiling on the preferred shares to conform with the modern calculation methodology used by the industry and other John Hancock funds. 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 29 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. 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, 2005, the Fund paid to shareholders dividends from net investment income totaling $0.540 per share. The dates of payments and the amounts per share are as follows: INCOME PAYMENT DATE DIVIDEND - -------------------------------- March 31, 2005 $0.280 June 30, 2005 0.260 Dividend reinvestment plan The Fund offers its common shareholders a Dividend Reinvestment Plan (the "Plan"), which offers the opportunity to earn compounded yields. Any holder of common shares 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 common 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 determine whether and how they may 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 30 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 common 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. 31 Shareholder meeting On March 2, 2005, the Annual Meeting of the Fund was held to elect ten Trustees and to ratify the actions of the Trustees in selecting independent auditors for the Fund. Proxies covering 9,743,702 shares of beneficial interest were voted at the meeting. The common shareholders elected the following Trustees to serve until their respective successors are duly elected and qualified, with the votes tabulated as follows: WITHHELD FOR AUTHORITY - -------------------------------------------------------------- James F. Carlin 9,651,626 88,516 Richard P. Chapman, Jr. 9,645,751 94,391 William Cosgrove 9,639,538 100,604 William H. Cunningham 9,638,442 101,700 Ronald R. Dion 9,648,175 91,967 Charles L. Ladner 9,651,175 88,967 Steven R. Pruchansky 9,650,732 89,410 James A. Shepherdson * 9,651,651 88,491 * Mr. James A. Shepherdson resigned effective July 15, 2005. The preferred shareholders elected Dr. John A. Moore and Patti McGill Peterson to serve as the Fund's Trustees until their successors are duly elected and qualified, with the votes for each Trustee tabulated as follows: 3,548 FOR, 0 AGAINST, 12 ABSTAINING. The common and preferred shareholders ratified the Trustees' selection of PricewaterhouseCoopers LLP as the Fund's independent auditor for the fiscal year ending December 31, 2005, with votes tabulated as follows: 9,639,963 FOR, 36,850 AGAINST and 66,889 ABSTAINING. 32 Board Consideration of and Continuation of Investment Advisory Agreement Section 15(c) of the Investment Company Act of 1940 (the "1940 Act") requires the Board of Trustees (the "Board") of John Hancock Income Securities Trust (the "Fund"), including a majority of the Trustees who have no direct or indirect interest in the investment advisory agreement and are not "interested persons" of the Fund, as defined in the 1940 Act (the "Independent Trustees"), annually to review and consider the continuation of the investment advisory agreement (the "Advisory Agreement") with John Hancock Advisers, LLC (the "Adviser") for the Fund. At meetings held on May 19-20 and June 6-7, 2005, the Board, including the Independent Trustees considered the factors and reached the conclusions described below relating to the selection of the Adviser and the continuation of the Advisory Agreement. During such meetings, the Board's Contracts/Operations Committee and the Independent Trustees also met in executive sessions with their independent legal counsel. In evaluating the Advisory Agreement, the Board, including the Contracts/Operations Committee and the Independent Trustees, reviewed a broad range of information requested for this purpose by the Independent Trustees, including but not limited to the following: (i) the investment performance of the Fund and a broader universe of relevant funds (the "Universe") selected by Lipper Inc. ("Lipper"), an independent provider of investment company data, for a range of periods, (ii) advisory and other fees incurred by, and the expense ratios of, the Fund and a peer group of comparable funds selected by Lipper (the "Peer Group"), (iii) the advisory fees of comparable portfolios of other clients of the Adviser, (iv) the Adviser's financial results and condition, including its and certain of its affiliates' profitability from services performed for the Fund, (v) breakpoints in the Fund's and the Peer Group's fees and a study undertaken at the direction of the Independent Trustees as to the allocation of the benefits of economies of scale between the Fund and the Adviser, (vi) the Adviser's record of compliance with applicable laws and regulations, with the Fund's investment policies and restrictions, and with the Fund's Code of Ethics and the structure and responsibilities of the Adviser's compliance department, (vii) the background and experience of senior management and investment professionals, and (viii) the nature, cost and character of advisory and non-investment management services provided by the Adviser and its affiliates. Nature, Extent and Quality of Services The Board considered the ability of the Adviser, based on its resources, reputation and other attributes, to attract and retain qualified investment professionals, including research, advisory, and supervisory personnel. The Board further considered the compliance programs and compliance records of the Adviser. In addition, the Board took into account the administrative services provided to the Fund by the Adviser and its affiliates. Based on the above factors, together with those referenced below, the Board concluded that, within the context of its full deliberations, the nature, extent and quality of the investment advisory services provided to the Fund by the Adviser were sufficient to support renewal of the Advisory Agreement. Fund Performance The Board considered the performance results for the Fund over various time periods. The Board also considered these results in comparison to the performance of the Universe, as well as the Fund's benchmark indices. Lipper determined the Universe 33 for the Fund. The Board reviewed with a represen tative of Lipper the methodology used by Lipper to select the funds in the Universe and the Peer Group. The Board noted that the performance of the Fund was below the median and average performance of its Universe for the time periods under review. The Board also noted that the Fund consistently performed higher than one of its benchmark indices, the Lehman Brothers Government/Corporate Bond Index, for the time periods under review, but performed lower than its other benchmark index, the Lipper Closed-End Investment Grade Funds Index, during the more recent periods under review. The Adviser discussed with the Board factors contributing to the Fund's performance results. The Adviser noted that, in its view, the Fund's Universe was over-inclusive. The Adviser provided additional analysis which demonstrated that the Fund's performance was consistent with other similarly leveraged closed-end funds. The Board indicated its intent to continue to monitor the Fund's performance trends. Investment Advisory Fee Rates and Expenses The Board reviewed and considered the contractual investment advisory fee rate payable by the Fund to the Adviser for investment advisory services (the "Advisory Agreement Rate"). The Board received and considered information comparing the Advisory Agreement Rate with the advisory fees for the Peer Group. The Board noted that the Advisory Agreement Rate was lower than the median rate of the Peer Group, and reasonable in relation to the services provided. The Board received and considered information regarding the Fund's total operating expense ratio and its various components, including contractual advisory fees, actual advisory fees, non-management fees, transfer agent fees and custodian fees, including and excluding investment-related expenses. The Board also considered comparisons of these expenses to the Peer Group and the Universe. The Board noted that the total operating expense ratio of the Fund was slightly higher than the Peer Group's and Universe's median total operating expense ratio due, in part, to the Fund's transfer agency expense. The Board noted that, historically, the Fund's total operating expense ratio has been consistently below the Universe's median total operating expense ratio. The Adviser also discussed the Lipper data and rankings, and other relevant information, for the Fund. Based on the above-referenced considerations and other factors, the Board concluded that the Fund's overall expense results and performance supported the re-approval of the Advisory Agreement. Profitability The Board received and considered a detailed profitability analysis of the Adviser based on the Advisory Agreement, as well as on other relationships between the Fund and the Adviser and its affiliates. The Board concluded that, in light of the costs of providing investment management and other services to the Fund, the profits and other ancillary benefits reported by the Adviser were not unreasonable. Economies of Scale The Board received and considered general information regarding economies of scale with respect to the management of the Fund, including the Fund's ability to appropriately benefit from economies of scale under the Fund's fee structure. The Board recognized the inherent limitations of any analysis of economies of scale, stemming largely from the Board's understanding that most of the Adviser's costs are not specific to individual Funds, but rather are incurred across a variety of products and services. The Board observed that the Advisory Agreement offers breakpoints. However, the Board considered the limited 34 relevance of economies of scale in the context of a closed-end fund that, unlike an open-end fund, does not continuously offer its shares, and concluded that the fees were fair and equitable based on relevant factors, including the Fund's total expenses ranking relative to its Peer Group. Information About Services to Other Clients The Board also received information about the nature, extent and quality of services and fee rates offered by the Adviser to its other clients, including other registered investment companies, institutional investors and separate accounts. The Board concluded that the Advisory Agreement Rate was not unreasonable, taking into account fee rates offered to others by the Adviser and giving effect to differences in services covered by such fee rates. Other Benefits to the Adviser The Board received information regarding potential "fall-out" or ancillary benefits received by the Adviser and its affiliates as a result of the Adviser's relationship with the Fund. Such benefits could include, among others, benefits directly attributable to the relationship of the Adviser with the Fund and benefits potentially derived from an increase in the business of the Adviser as a result of its relationship with the Fund (such as the ability to market to shareholders other financial products offered by the Adviser and its affiliates). The Board also considered the effectiveness of the Adviser's and the Fund's policies and procedures for complying with the requirements of the federal securities laws, including those relating to best execution of portfolio transactions and brokerage allocation. Other Factors and Broader Review As discussed above, the Board reviewed detailed materials received from the Adviser as part of the annual re-approval process under Section 15(c) of the 1940 Act. The Board also regularly reviews and assesses the quality of the services that the Fund receives throughout the year. In this regard, the Board reviews reports of the Adviser at least quarterly, which include, among other things, a detailed portfolio review, detailed fund performance reports and compliance reports. In addition, the Board meets with portfolio managers and senior investment officers at various times throughout the year. After considering the above-described factors and based on its deliberations and its evaluation of the information described above, the Board concluded that approval of the continuation of the Advisory Agreement for the Fund was in the best interest of the Fund and its shareholders. Accordingly, the Board unanimously approved the continuation of the Advisory Agreement. 35 36 For more information The Fund's proxy voting policies, procedures and records are available without charge, upon request: By phone On the Fund's Web site On the SEC's Web site 1-800-225-5291 www.jhfunds.com/proxy www.sec.gov Trustees Charles L. Ladner, Chairman* James F. Carlin Richard P. Chapman, Jr.* William H. Cunningham Ronald R. Dion Dr. John A. Moore* Patti McGill Peterson* Steven R. Pruchansky *Members of the Audit Committee Officers Keith F. Hartstein President and Chief Executive Officer William H. King Vice President and Treasurer Francis V. Knox, Jr. Vice President and Chief Compliance Officer Investment adviser John Hancock Advisers, LLC 601 Congress Street Boston, MA 02210-2805 Custodian The Bank of New York One Wall Street New York, NY 10286 Transfer agent and registrar Mellon Investor Services 85 Challenger Road Overpeck Centre Ridgefield Park, NJ 07660 Transfer agent for APS Deutsche Bank Trust Company Americas 280 Park Avenue New York, NY 10017 Legal counsel Wilmer Cutler Pickering Hale and Dorr LLP 60 State Street Boston, MA 02109-1803 Stock symbol Listed New York Stock Exchange: JHS For shareholder assistance refer to page 31 How to contact us Internet www.jhfunds.com Mail Regular mail: Mellon Investor Services 85 Challenger Road Overpeck Centre Ridgefield Park, NJ 07660 Phone 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 A listing of month-end portfolio holdings is available on our Web site, www.jhfunds.com. A more detailed portfolio holdings summary is available on a quarterly basis 60 days after the fiscal quarter on our Web site or upon request by calling 1-800-225-5291, or on the Securities and Exchange Commission's Web site, www.sec.gov. 37 [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 - ------------------ PRESORTED STANDARD U. S. POSTAGE PAID MIS - ------------------ P60SA 6/05 8/05 ITEM 2. CODE OF ETHICS. As of the end of the period, June 30, 2005, the registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR, that applies to its Chief Executive Officer, Chief Financial Officer and Treasurer (respectively, the principal executive officer, the principal financial officer and the principal accounting officer, the "Senior Financial Officers"). A copy of the code of ethics is filed as an exhibit to this Form N-CSR. The code of ethics was amended effective February 1, 2005 to address new Rule 204A-1 under the Investment Advisers Act of 1940 and to make other related changes. The most significant amendments were: (a) Broadening of the General Principles of the code to cover compliance with all federal securities laws. (b) Eliminating the interim requirements (since the first quarter of 2004) for access persons to preclear their personal trades of John Hancock mutual funds. This was replaced by post-trade reporting and a 30 day hold requirement for all employees. (c) A new requirement for "heightened preclearance" with investment supervisors by any access person trading in a personal position worth $100,000 or more. 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. SCHEDULE OF INVESTMENTS. Not applicable. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The registrant has adopted procedures by which shareholders may recommend nominees to the registrant's Board of Trustees. A copy of the procedures is filed as an exhibit to this Form N-CSR. See attached "John Hancock Funds - Administration Committee Charter" and "John Hancock Funds - Governance Committee Charter". ITEM 11. 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 12. EXHIBITS. (a)(1) Code of Ethics for Senior Financial Officers is attached. (a)(2) 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) 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)(1) Submission of Matters to a Vote of Security Holders is attached. See attached "John Hancock Funds - Administration Committee Charter" and "John Hancock Funds - Governance Committee Charter". (c)(2) Contact person at the registrant. 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. John Hancock Income Securities Trust By: /s/ Keith F. Hartstein ------------------------------ Keith F. Hartstein President and Chief Executive Officer Date: August 29, 2005 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: /s/ Keith F. Hartstein ------------------------------ Keith F. Hartstein President and Chief Executive Officer Date: August 29, 2005 By: /s/ William H. King ------------------------------ William H. King Vice President and Treasurer Date: August 29, 2005 EX-99.CERT 2 exnn2.txt CERTIFICATION CERTIFICATION I, Keith F. Hartstein, certify that: 1. I have reviewed this report on Form N-CSR of the John Hancock Income Securities Trust (the "registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change 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 has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 29, 2005 /s/ Keith F. Hartstein - ------------------------------ Keith F. Hartstein President and Chief Executive Officer CERTIFICATION I, William H. King, certify that: 1. I have reviewed this report on Form N-CSR of the John Hancock Income Securities Trust (the "registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change 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 has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 29, 2005 /s/ William H. King - ------------------------------ William H. King Vice President and Treasurer EX-99.906 CERT 3 exnnos3.txt CERTIFICATION 906 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the attached Report of John Hancock Income Securities Trust (the "registrant") on Form N-CSR to be filed with the Securities and Exchange Commission (the "Report"), each of the undersigned officers of the registrant does hereby certify that, to the best of such officer's knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the registrant as of, and for, the periods presented in the Report. /s/ Keith F. Hartstein - ------------------------------ Keith F. Hartstein President and Chief Executive Officer Dated: August 29, 2005 /s/ William H. King - ------------------------------ William H. King Vice President and Treasurer Dated: August 29, 2005 A signed original of this written statement, required by Section 906, has been provided to the registrant and will be retained by the registrant and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.CODE ETH 4 exnncodeth4.txt CODE OF ETHICS Owner: Tim Fagan Administrator: Tim Fagan Last Revision Date: 02/05 Next Revision Date: 05/05 This is the code of ethics of: o John Hancock Advisers, LLC o Sovereign Asset Management Co. o each open-end and closed-end fund advised by John Hancock Advisers, LLC o John Hancock Funds, LLC (together, called "John Hancock Funds") 1. General Principles Each person within the John Hancock Funds organization is responsible for maintaining the very highest ethical standards when conducting our business. This means that: o You have a fiduciary duty at all times to place the interests of our clients first. o All of your personal securities transactions must be conducted consistent with this code of ethics and in such a manner as to avoid any actual or potential conflict of interest or other abuse of your position of trust and responsibility. o You should not take inappropriate advantage of your position or engage in any fraudulent or manipulative practice (such as front-running or manipulative market timing) with respect to our clients' accounts. o You must treat as confidential any information concerning the identity of security holdings and financial circumstances of clients. o You must comply with all applicable federal securities laws. o You must promptly report any violation of this code of ethics that comes to your attention to the Chief Compliance Officer, Timothy M. Fagan, or the Chief Legal Officer, Susan S. Newton. The General Principles discussed above govern all conduct, whether or not the conduct is also covered by more specific standards and procedures in this code of ethics. As described below under the heading "Interpretation and Enforcement", failure to comply with the code of ethics may result in disciplinary action, including termination of employment. 2. To Whom Does This Code Apply? This code of ethics applies to you if you are a director, officer or employee of John Hancock Advisers, LLC, Sovereign Asset Management Co., John Hancock Funds, LLC or a "John Hancock fund" (any fund advised by John Hancock Advisers, LLC or Sovereign Asset Management Co.). It also applies to you if you are an employee of John Hancock Life Insurance Co. or its subsidiaries who participates in making recommendations for, or receives information about, portfolio trades or holdings of the John Hancock funds or accounts. Certain provisions apply to trustees of the John Hancock mutual funds and closed-end funds-see Appendix C for more information. Please note that if a policy described below applies to you, it also applies all accounts over which you have a beneficial interest. Normally, you will be deemed to have a beneficial interest in your personal accounts, those of a spouse, "significant other," minor children or family members sharing a household, as well as all accounts over which you have discretion or give advice or information. "Significant others" are defined for these purposes as two people who (1) share the same primary residence; (2) share living expenses; and (3) are in a committed relationship and intend to remain in the relationship indefinitely. There are three main categories for persons covered by this code of ethics, taking into account their positions, duties and access to information regarding fund portfolio trades. You have been notified about which of these categories applies to you, based on the Investment Compliance Department's understanding of your current role. If you have a level of investment access beyond your assigned category, or if you are promoted or change duties and as a result should more appropriately be included in a different category, it is your responsibility to notify Timothy M. Fagan, Chief Compliance Officer. The basic definitions of the three main categories, with examples, are provided below. The more detailed definitions of each category are attached as Appendix A. - --------------------------------------- -------------------------------------- -------------------------------------- "Investment Access" person "Regular Access" person "Non-Access" person A person who regularly participates A person who regularly obtains A person who does not regularly in a fund's investment process or information regarding (1) fund participate in a fund's investment makes securities recommendations portfolio trades or (2) non-public process or obtain information to clients. information regarding holdings or regarding fund portfolio trades. securities recommendations to clients. examples: examples: examples: - --------- --------- --------- o portfolio managers o personnel in Investment o wholesalers o analysts Operations or Compliance o inside wholesalers who o traders o most FFM personnel don't attend investment o Technology personnel with "morning meetings" access to investment systems o certain administrative o attorneys and some legal personnel administration personnel o investment admin. personnel - --------------------------------------- -------------------------------------- --------------------------------------
3. Which Accounts and Securities are Subject to the Code's Personal Trading Restrictions? If this code of ethics describes "Personal Trading Requirements" (i.e. John Hancock Mutual Fund reporting requirement and holding period, the preclearance requirement, the ban on short-term profits, the ban on IPOs, the disclosure of private placement conflicts and the reporting requirements) that apply to your access category as described above, then the requirements apply to trades for any account over which you have a beneficial interest. Normally, this includes your personal accounts, those of a spouse, "significant other," minor children or family members sharing your household, as well as all accounts over which you have discretion or give advice or information. This includes all brokerage accounts that contain securities (including brokerage accounts that only contain securities exempt from reporting). Accounts over which you have no direct or indirect influence or control are exempt. To prevent potential violations of this code of ethics, you are strongly encouraged to request clarification for any accounts that are in question. These personal trading requirements do not apply to the following securities: o Direct obligations of the U.S. government (e.g., treasury securities); o Bankers' acceptances, bank certificates of deposit, commercial paper, and high quality short-term debt obligations, including repurchase agreements; o Shares of open-end mutual funds that are not advised or sub-advised by John Hancock Advisers or by John Hancock or Manulife entities; o Shares issued by money market funds; and o Securities in accounts over which you have no direct or indirect influence or control. Except as noted above, the Personal Trading Requirements apply to all securities, including: o stocks or bonds; o government securities that are not direct obligations of the U.S. government, such as Fannie Mae or municipal securities; o Shares of all closed-end funds; o Options on securities, on indexes, and on currencies; o All kinds of limited partnerships; o Foreign unit trusts and foreign mutual funds; o Private investment funds and hedge funds; and o Futures, investment contracts or any other instrument that is considered a "security" under the Investment Advisers Act. Different requirements apply to shares of open-end mutual funds that are advised or sub-advised by John Hancock Advisers or by John Hancock or Manulife entities-see the section below titled "John Hancock Mutual Funds Reporting Requirement and Holding Period". 4. Overview of Policies - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Investment Regular Access Non-Access Access Person Person Person - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- General principles yes yes yes - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Policies outside the code - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Conflict of interest policy yes yes yes - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Inside information policy yes yes yes - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Policy regarding dissemination of mutual fund portfolio information yes yes yes - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Policies in the code - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Restriction on gifts yes yes yes - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- John Hancock mutual funds reporting requirement and holding period yes yes yes - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Pre-clearance requirement yes yes Limited - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Heightened preclearance of securities transactions for "Significant Personal Positions" yes yes no - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Ban on short-term profits yes no no - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Ban on IPOs yes no no - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Disclosure of private placement conflicts yes no no - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Seven day blackout period yes no no - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Reports and other disclosures outside the code - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Broker letter/duplicate confirms yes yes yes - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Reports and other disclosures in the code - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Annual recertification form yes yes yes - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Initial/annual holdings reports yes yes no - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Quarterly transaction reports yes yes no - ------------------------------------------------------ ---------------------- ---------------------- ----------------------
5. Policies Outside the Code of Ethics John Hancock Funds has certain policies that are not part of the code of ethics, but are equally important. The two most important of these policies are (1) the Company Conflict and Business Practice Policy; and (2) the Inside Information Policy. >> Company Conflict & Business Practice Policy - ---------------------------------------- Applies to: Investment Access Persons Regular Access Persons Non-Access Persons - ---------------------------------------- A conflict of interest occurs when your private interests interfere or could potentially interfere with your responsibilities at work. You must not place yourself or the company in a position of actual or potential conflict. This Policy for officers and employees covers a number of important issues. For example, you cannot serve as a director of any company without first obtaining the required written executive approval. This Policy includes significant requirements to be followed if your personal securities holdings overlap with John Hancock Funds investment activity. For example, if you or a member of your family own: o a 5% or greater interest in a company, John Hancock Funds and its affiliates may not make any investment in that company; o a 1% or greater interest in a company, you cannot participate in any decision by John Hancock Funds and its affiliates to buy or sell that company's securities; o ANY interest in a company, you cannot recommend or participate in a decision by John Hancock Funds and its affiliates to buy or sell that company's securities unless your personal interest is fully disclosed at all stages of the investment decision. (This is just a summary of this requirement-please read Section IV of the Company Conflict and Business Practices Policy for more detailed information.) Other important issues in this Policy include: o personal investments or business relationships o misuse of inside information o receiving or giving of gifts, entertainment or favors o misuse or misrepresentation of your corporate position o disclosure of confidential or proprietary information o antitrust activities o political campaign contributions and expenditures on public officials >> Inside Information Policy and Procedures - ---------------------------------------- Applies to: Investment Access Persons Regular Access Persons Non-Access Persons - ---------------------------------------- The antifraud provisions of the federal securities laws generally prohibit persons with material non-public information from trading on or communicating the information to others. Sanctions for violations can include civil injunctions, permanent bars from the securities industry, civil penalties up to three times the profits made or losses avoided, criminal fines and jail sentences. While Investment Access persons are most likely to come in contact with material non-public information, the rules (and sanctions) in this area apply to all John Hancock Funds personnel and extend to activities both related and unrelated to your job duties. The Inside Information Policy and Procedures covers a number of important issues, such as: o The misuse of material non-public information o The information barrier procedure o The "restricted list" and the "watch list" o broker letters and duplicate confirmation statements (see section 7 of this code of ethics) >> Policy Regarding Dissemination of Mutual Fund Portfolio Information - ---------------------------------------- Applies to: Investment Access Persons Regular Access Persons Non-Access Persons - ---------------------------------------- Information about securities held in a mutual fund cannot be disclosed except in accordance with this Policy, which generally requires time delays of approximately one month and public posting of the information to ensure that it uniformly enters the public domain. 6. Policies in the Code of Ethics >> Restriction on Gifts - ---------------------------------------- Applies to: Investment Access Persons Regular Access Persons Non-Access Persons - ---------------------------------------- You and your family cannot accept preferential treatment or favors (for example, gifts) from securities brokers or dealers or other organizations with which John Hancock Funds might transact business, except in accordance with the Company Conflict and Business Practice Policy. For the protection of both you and John Hancock Funds, the appearance of a possible conflict of interest must be avoided. You should exercise caution in any instance in which business travel and lodging are paid for by someone other than John Hancock Funds. The purpose of this policy is to minimize the basis for any charge that you used your John Hancock Funds position to obtain for yourself opportunities which otherwise would not be offered to you. Please see the Company Conflict and Business Practice Policy's "Compensation and Gifts" section for additional details regarding restrictions on gifts and exceptions for "nominal value" gifts. >> John Hancock Mutual Funds Reporting Requirement and Holding Period - ---------------------------------------- Applies to: Investment Access Persons Regular Access Persons Non-Access Persons - ---------------------------------------- You must follow a reporting requirement and a holding period requirement if you purchase either: o a "John Hancock Mutual Fund" (i.e. a mutual fund that is advised by John Hancock Advisers or by John Hancock or Manulife entity, excluding the money market funds and any dividend reinvestment, payroll deduction, systematic investment/withdrawal and other program trades); or o a "John Hancock Variable Product" (i.e. contacts funded by insurance company separate accounts that use one or more portfolios of Manufacturers Investment Trust or John Hancock Variable Series Trust). Reporting Requirement: You must report your holdings and your trades in a John Hancock Mutual Fund or a John Hancock Variable Product. This is not a preclearance requirement-you can report your holdings after you trade by submitting duplicate confirmation statements to the Investment Compliance Department. If you are an Investment Access Person or a Regular Access Person, you must also make sure that your holdings in a John Hancock Mutual Fund are included in your Initial Holdings Report (upon hire) and Annual Holdings Report (each year end). If you purchase a John Hancock Variable Product, you must notify the Investment Compliance Department. The Investment Compliance Department will then obtain directly from the contract administrators the personal trade and holdings information regarding the portfolios underlying the Manulife or John Hancock variable insurance contracts. The Investment Compliance Department will obtain personal securities trade and holdings information in the 401(k) plans for John Hancock Funds or John Hancock employees directly from the plan administrators. Holding Requirement: You cannot profit from the purchase and sale of a John Hancock Mutual Fund within 30 calendar days. The purpose of this policy is to address the risk, real or perceived, of manipulative market timing or other abusive practices involving short-term personal trading in the John Hancock Mutual Funds. Any profits realized on short-term trades must be surrendered by check payable to John Hancock Advisers, LLC and will be contributed by John Hancock Advisers, LLC to a charity, upon determination by the Compliance and Business Practices Committee. If you give away a security, it is considered a sale. You may request an exemption from this policy for involuntary sales due to unforeseen corporate activity (such as a merger), or hardship reasons (such as unexpected medical expenses) by sending an e-mail to Timothy M. Fagan, Chief Compliance Officer. >> Preclearance of Securities Transactions - ---------------------------------------- Applies to: Investment Access Persons Regular Access Persons Also, for a limited category of trades: -------------------------- Non-Access Persons - ---------------------------------------- Limited Category of Trades for Non-Access Persons: If you are a Non-Access person, you must preclear transactions in securities of any closed-end funds advised by John Hancock Advisers, LLC. A Non-Access person is not required to preclear other trades. However, please keep in mind that a Non-Access person is required to report securities transactions after every trade (even those that are not required to be precleared) by requiring your broker to submit duplicate confirmation statements, as described in section 7 of this code of ethics. Investment Access persons and Regular Access persons: If you are an Investment Access person or Regular Access person, you must "preclear" (i.e.: receive advance approval of) any personal securities transactions in the categories described above in the section "Which Accounts and Securities are Subject to the Code's Personal Trading Restrictions". Due to this preclearance requirement, participation in investment clubs is prohibited. Preclearance of private placements requires some special considerations - -- the decision will take into account whether, for example: (1) the investment opportunity should be reserved for John Hancock Funds clients; and (2) it is being offered to you because of your position with John Hancock Funds. How to preclear: You preclear a trade by following the steps outlined in the preclearance procedures, which are attached as Appendix B. Please note that: o You may not trade until clearance is received. o Clearance approval is valid only for the date granted (i.e. the preclearance date and the trade date should be the same. o A separate procedure should be followed for requesting preclearance of a private placement or a derivative, as detailed in Appendix B. The Investment Compliance Department must maintain a five-year record of all clearances of private placement purchases by Investment Access persons, and the reasons supporting the clearances. The preclearance policy is designed to proactively identify possible "problem trades" that raise front-running, manipulative market timing or other conflict of interest concerns (example: when an Investment Access person trades a security on the same day as a John Hancock fund). >> Heightened Preclearance of Securities Transactions for "Significant Personal Positions" - ---------------------------------------- Applies to: Investment Access Persons Regular Access Persons - ---------------------------------------- If you are an Investment Access person or Regular Access person with a personal securities position that is worth $100,000 or more, this is deemed to be a "Significant Personal Position". This applies to any personal securities positions in the categories described above in the section "Which Accounts and Securities are Subject to the Code's Personal Trading Restrictions". Before you make personal trades to establish, increase or decrease a Significant Personal Position, you must notify either the Chief Fixed Income Officer or the Chief Equity Officer that (1) you intend to trade in a Significant Personal Position and (2) confirm that you are not aware of any clients for whom related trades should be completed first. You must receive their pre-approval to proceed--their approval will be based on their conclusion that your personal trade in a Significant Personal Position will not "front-run" any action that John Hancock Funds should take for a client. This Heightened Preclearance requirement is in addition to, not in place of, the regular preclearance requirement described above-you must also receive the regular preclearance before you trade. >> Ban on Short-Term Profits - ---------------------------------------- Applies to: Investment Access Persons - ---------------------------------------- If you are an Investment Access person, you cannot profit from the purchase and sale (or sale and purchase) of the same (or equivalent) securities within 60 calendar days. This applies to any personal securities trades in the categories described above in the section "Which Accounts and Securities are Subject to the Code's Personal Trading Restrictions". You may invest in derivatives or sell short provided the transaction period exceeds the 60-day holding period. If you give away a security, it is considered a sale. The purpose of this policy is to address the risk, real or perceived, of front-running, manipulative market timing or other abusive practices involving short-term personal trading. Any profits realized on short-term trades must be surrendered by check payable to John Hancock Advisers, LLC and will be contributed by John Hancock Advisers, LLC to a charity, upon determination by the Compliance and Business Practices Committee. You may request an exemption from this policy for involuntary sales due to unforeseen corporate activity (such as a merger), or hardship reasons (such as unexpected medical expenses) by sending an e-mail to Timothy M. Fagan, Chief Compliance Officer. >> Ban on IPOs - ---------------------------------------- Applies to: Investment Access Persons - ---------------------------------------- If you are an Investment Access person, you may not acquire securities in an initial public offering (IPO). You may not purchase any newly-issued securities until the next business (trading) day after the offering date. This applies to any personal securities trades in the categories described above in the section "Which Accounts and Securities are Subject to the Code's Personal Trading Restrictions". There are two main reasons for this prohibition: (1) these purchases may suggest that persons have taken inappropriate advantage of their positions for personal profit; and (2) these purchases may create at least the appearance that an investment opportunity that should have been available to the John Hancock funds was diverted to the personal benefit of an individual employee. You may request an exemption for certain investments that do not create a potential conflict of interest, such as: (1) securities of a mutual bank or mutual insurance company received as compensation in a demutualization and other similar non-voluntary stock acquisitions; (2) fixed rights offerings; or (3) a family member's participation as a form of employment compensation in their employer's IPO. >> Disclosure of Private Placement Conflicts - ---------------------------------------- Applies to: Investment Access Persons - ---------------------------------------- If you are an Investment Access person and you own securities purchased in a private placement, you must disclose that holding when you participate in a decision to purchase or sell that same issuer's securities for a John Hancock fund. This applies to any private placement holdings in the categories described above in the section "Which Accounts and Securities are Subject to the Code's Personal Trading Restrictions". Private placements are securities exempt from SEC registration under section 4(2), section 4(6) or rules 504 -506 of the Securities Act of 1933. The investment decision must be subject to an independent review by investment personnel with no personal interest in the issuer. The purpose of this policy is to provide appropriate scrutiny in situations in which there is a potential conflict of interest. >> Seven Day Blackout Period - ---------------------------------------- Applies to: Investment Access Persons - ---------------------------------------- If you are a portfolio manager (or were identified to the Investment Compliance Department as part of a portfolio management team) you are prohibited from buying or selling a security within seven calendar days before and after that security is traded for a fund that you manage unless no conflict of interest exists in relation to that security (as determined by the Compliance and Ethics Committee). In addition, all investment access persons are prohibited from knowingly buying or selling a security within seven calendar days before and after that security is traded for a John Hancock fund unless no conflict of interest exists in relation to that security. This applies to any personal securities trades in the categories described above in the section "Which Accounts and Securities are Subject to the Code's Personal Trading Restrictions". If a John Hancock fund trades in a security within seven calendar days before or after you trade in that security, you may be required to demonstrate that you did not know that the trade was being considered for that John Hancock fund. You will be required to sell any security purchased in violation of this policy unless it is determined that no conflict of interest exists in relation to that security (as determined by the Compliance and Ethics Committee). Any profits realized on trades determined by the Compliance and Ethics Committee to be in violation of this policy must be surrendered by check payable to John Hancock Advisers, LLC and will be contributed by John Hancock Advisers, LLC to a charity. 7. Reports and Other Disclosures Outside the Code of Ethics >> Broker Letter/Duplicate Confirm Statements - ---------------------------------------- Applies to: Investment Access Persons Regular Access Persons Non-Access Persons - ---------------------------------------- As required by the Inside Information Policy, you must inform your stockbroker that you are employed by an investment adviser or broker. Your broker is subject to certain rules designed to prevent favoritism toward your accounts. You may not accept negotiated commission rates that you believe may be more favorable than the broker grants to accounts with similar characteristics. When a brokerage account is opened for which you have a beneficial interest, before any trades are made, you must: o Notify the broker-dealer with which you are opening an account that you are a registered associate of JHF; o Ask the firm in writing to have duplicate written confirmations of any trade, as well as statements or other information concerning the account, sent to the JHF Investment Compliance Department (contact: Fred Spring), 10th Floor, 101 Huntington Avenue, Boston, MA 02199; and o Notify the JHF Investment Compliance Department, in writing, that you have an account before you place any trades. This applies to any personal securities trades in the categories described above in the section "Which Accounts and Securities are Subject to the Code's Personal Trading Restrictions" as well as trades in John Hancock Mutual Funds and John Hancock Variable Products. The Investment Compliance Department may rely on information submitted by your broker as part of your reporting requirements under this code of ethics. 8. Reports and Other Disclosures In the Code of Ethics >> Initial Holdings Report and Annual Holdings Report - ---------------------------------------- Applies to: Investment Access Persons Regular Access Persons - ---------------------------------------- You must file an initial holdings report within 10 calendar days after becoming an Investment Access person or a Regular Access person. The information must be current as of a date no more than 45 days prior to your becoming an Investment Access person or a Regular Access person. You must also file an annual holdings report (as of December 31st) within 45 calendar days after the calendar year end. This applies to any personal securities holdings in the categories described above in the section "Which Accounts and Securities are Subject to the Code's Personal Trading Restrictions" as well as holdings in John Hancock Mutual Funds and John Hancock Variable Products. Your reports must include: o the title and type of security, and as applicable the exchange ticker symbol or CUSIP number, number of shares, and principal amount of each reportable security; o the name of any broker, dealer or bank with which you maintain an account; and o the date that you submit the report. >> Quarterly Transaction Reports - ---------------------------------------- Applies to: Investment Access Persons Regular Access Persons - ---------------------------------------- You must file a quarterly transaction report within 30 calendar days after the end of a calendar quarter if you are an Investment Access person or a Regular Access person. This report must cover all transactions during the past calendar quarter for any accounts and personal securities trades in the categories described above in the section "Which Accounts and Securities are Subject to the Code's Personal Trading Restrictions" as well as transactions in John Hancock Mutual Funds and John Hancock Variable Products. You must submit a quarterly report even if you have no transactions during the quarter. Your quarterly transaction report must include the following information about these transactions: o the date of the transaction, the title, and as applicable the exchange ticker symbol or CUSIP number, interest rate and maturity date, number of shares, and principal amount of each reportable security involved; o the nature of the transaction (i.e. purchase, sale or any other type of acquisition or disposition); o the price at which the transaction was effected; o the name of the broker, dealer or bank with or through which the transaction was effected; and o the date that you submit the report. >> Annual Certification - ---------------------------------------- Applies to: Investment Access Persons Regular Access Persons Non-Access Persons - ---------------------------------------- At least annually (or additionally when the code of ethics has been significantly changed), you must provide a certification at a date designated by the Investment Compliance Department that: (1) you have read and understood this code of ethics; (2) you recognize that you are subject to its policies; and (3) you have complied with its requirements. You are required to make this certification to demonstrate that you understand the importance of these policies and your responsibilities under the code of ethics. 9. Limited Access Persons There is an additional category of persons called "Limited Access" persons. This category consists only of directors of John Hancock Advisers, LLC or the John Hancock funds who: (a) are not also officers of John Hancock Advisers, LLC; and (b) do not ordinarily obtain information about fund portfolio trades. A more detailed definition of Limited Access persons, and a list of the policies that apply to them, is attached as Appendix C. 10. Subadvisers A subadviser to a John Hancock fund has a number of code of ethics responsibilities, as described in Appendix D. 11. Reporting Violations If you know of any violation of our code of ethics, you have a responsibility to promptly report it. You should also report any deviations from the controls and procedures that safeguard John Hancock Funds and the assets of our clients. You can request confidential treatment of your reporting action. You can report violations to: Alfred P. Ouellette, Senior Attorney and Assistant Secretary (617) 663-4324 12. Interpretation and Enforcement This code of ethics cannot anticipate every situation in which personal interests may be in conflict with the interests of our clients. You should be responsive to the spirit and intent of this code of ethics as well as its specific provisions. When any doubt exists regarding any code of ethics provision or whether a conflict of interest with clients might exist, you should discuss the transaction in advance with the Chief Compliance Officer Timothy M. Fagan, (617-375-6205) or the Chief Legal Officer Susan Newton (617-375-1702)). The code of ethics is designed to detect and prevent fraud against clients and fund investors, and to avoid the appearance of impropriety. If you feel inequitably burdened by any policy, you should feel free to contact Timothy Fagan, Susan Newton or the Compliance and Business Practices Committee. Exceptions may be granted where warranted by applicable facts and circumstances. For example, exemption for some Personal Trading Requirements may be granted for transactions effected pursuant to an automatic investment plan. To provide assurance that policies are effective, the Investment Compliance Department will monitor and check personal securities transaction reports and certifications against fund portfolio transactions. Additional administration and recordkeeping procedures are described in Appendix E. The Chief Compliance Officer has general administrative responsibility for this code of ethics, and will administer procedures to review personal trading reports. The Compliance and Business Practices Committee of John Hancock Funds approves amendments to the code of ethics and dispenses sanctions for violations of the code of ethics. Accordingly, the Investment Compliance Department will refer violations to the Complaince and Business Practices Committee for review and appropriate action. The following factors will be considered when the Compliance and Business Practices Committee determines a fine or other disciplinary action: o the person's position and function (senior personnel may be held to a higher standard); o the amount of the trade; o whether the funds or accounts hold the security and were trading the same day; o whether the violation was by a family member. o whether the person has had a prior violation and which policy was involved. o whether the employee self-reported the violation. You can request reconsideration of any disciplinary action by submitting a written request to the Compliance and Business Practices Committee. No less frequently than annually, a written report of all material violations and sanctions, significant conflicts of interest and other related issues will be submitted to the boards of directors of the John Hancock funds for their review. Sanctions for violations could include fines, limitation of personal trading activity, suspension or termination of the violator's position with John Hancock Funds and/or a report to the appropriate regulatory authority. 13. Education of Employees The Investment Compliance Department will provide a paper copy or electronic version of the code of ethics (and any amendments) to each person subject to this code of ethics. The Investment Compliance Department will also administer training of employees on the principles and procedures of the code of ethics. Appendix A: Categories of Personnel You have been notified about which of these categories applies to you, based on the Investment Compliance Department's understanding of your current role. If you have a level of investment access beyond that category, or if you are promoted or change duties and as a result should more appropriately be included in a different category, it is your responsibility to immediately notify the Chief Compliance Officer Timothy M. Fagan, (617-375-6205) or the Code of Ethics Administrator Fredrick Spring (617-375-4987). 1) Investment Access person: You are an Investment Access person if you are an employee of John Hancock Advisers, LLC, a John Hancock fund, or John Hancock Life Insurance Company or its subsidiaries who, in connection with your regular functions or duties, makes or participates in making recommendations regarding the purchase or sale of securities by a John Hancock fund. (examples: portfolio managers, analysts, traders) 2) Regular Access person: You are a Regular Access person if you do not fit the definition of Investment Access Person, but you do fit one of the following two sub-categories: o You are an officer (vice president and higher) or director of John Hancock Advisers, LLC or a John Hancock fund. (Some directors may be Limited Access persons-please see Appendix C for this definition.) o You are an employee of John Hancock Advisers, LLC, a John Hancock fund or John Hancock Life Insurance Co. or its subsidiaries , or a director, officer (vice president and higher) or employee of John Hancock Funds, LLC who has access to nonpublic information regarding any clients' purchase or sale of securities, or nonpublic information regarding the portfolio holdings of any reportable fund or who is involved in making securities recommendations to clients, or who has access to such recommendations that are nonpublic. (examples: Investment Operations personnel, Investment Compliance Department personnel, most Fund Financial Management personnel, investment administrative personnel, Technology Resources personnel with access to investment systems, attorneys and some legal administration personnel) 3) Non-Access person: You are a non-access person if you are an employee of John Hancock Advisers, LLC, John Hancock Funds, LLC or a John Hancock fund who does not fit the definitions of any of the other three categories (Investment Access Person, Regular Access Person or Limited Access Person). To be a non-access person, you must not obtain information regarding the purchase or sale of securities by a John Hancock fund or nonpublic information regarding the portfolio holdings in connection with your regular functions or duties. (examples: wholesalers, inside wholesalers, certain administrative staff) 4) Limited Access Person: Please see Appendix C for this definition. Appendix B: Preclearance Procedures You should read the Code of Ethics to determine whether you must obtain a preclearance before you enter into a securities transaction. If you are required to obtain a preclearance, you should follow the procedures detailed below. 1. Pre-clearance for Public Securities including Derivatives, Futures, Options and Selling Short: A request to pre-clear should be entered into the John Hancock Personal Trading & Reporting System. The John Hancock Personal Trading & Reporting System is located under your Start Menu on your Desktop. It can be accessed by going to Programs/Personal Trading & Reporting/ Personal Trading & Reporting and by entering your Web Security Services user id and password. If the John Hancock Personal Trading & Reporting System is not on your Desktop, please contact the HELP Desk at (617) 572-6950 for assistance. The Trade Request Screen: At times you may receive a message like "System is currently unavailable". The system is scheduled to be offline from 8:00 PM until 7:00 AM each night. [GRAPHIC: Trade Request Screen] Ticker/Security Cusip: Fill in this one of these fields with the proper information of the security you want to buy or sell. Then click the [Lookup] button. Select one of the hyperlinks for the desired security, and the system will populate the proper fields Ticker, Security Cusip, Security Name and Security Type automatically on the Trade Request Screen. If You Don't Know the Ticker, Cusip, or Security Name: If you do not know the full ticker, you may type in the first few letters followed by an asterisk * and click the [Lookup] button. For example, let's say you want to buy some shares of Intel, but all you can remember of the ticker is that it begins with int, so you enter int* for Ticker. If any tickers beginning with int are found, they are displayed on a new screen. Select the hyperlink of the one you want, and the system will populate Security Cusip, Security Name and Security Type automatically on the Trade Request Screen. If you do not know the full cusip, you may type in the first few numbers followed by an asterisk * and click the [Lookup] button. For example, let's say you want to buy some shares of Microsoft, but all you can remember of the cusip is that it begins with 594918, so you enter 594918* for Ticker. If any cusips beginning with 594918 are found, they are displayed on a new screen. Select the hyperlink of the one you want, and the system will fill in Ticker, Security Name and Security Type automatically on the Trade Request Screen. If you do not know the Ticker but have an idea of what the Security Name is, you may type in an asterisk, a few letters of the name and an asterisk * and click the [Lookup] button. For example, let's say you want to buy some shares of American Brands, so you enter *amer* for Security Name. Any securities whose names have amer in them are displayed on a new screen, where you are asked to select the hyperlink of the one you want, and the system will fill in Ticker, Cusip and Security Type automatically on the Trade Request Screen. Other Items on the Trade Request Screen: Brokerage Account: Click on the dropdown arrow to the right of the Brokerage Account field to choose the account to be used for the trade. Transaction Type: Choose one of the values displayed when you click the dropdown arrow to the right of this field. Trade Date: You may only submit trade requests for the current date. Note: One or more of these fields may not appear on the Request Entry screen if the information is not required. Required fields are determined by the Investment Compliance Department. Click the [Submit Request] button to send the trade request to your Investment Compliance department. Once you click the [Submit Request] button, you will be asked to confirm the values you have entered. Review the information and click the [Confirm] button if all the information is correct. After which, you will receive immediate feedback in your web browser. (Note: We suggest that you print out this confirmation and keep it as a record of the trade you have made). After this, you can either submit another trade request or logout. Attention Investment Access Persons: If the system identifies a potential violation of the Ban on Short Term Profits Rule, your request will be sent to the Investment Compliance Department for review and you will receive feedback via the e-mail system. Starting Over: To clear everything on the screen and start over, click the [Clear Screen] button. Exiting Without Submitting the Trade Request: If you decide not to submit the trade request before clicking the [Submit Request] button, simply exit from the browser by clicking the [X] button on the upper right or by pressing [Alt+F4], or by clicking the Logout hyperlink on the lower left side of the screen. Ticker/Security Name Lookup Screen: You arrive at this screen from the Trade Request Screen, where you've clicked the [Lookup] button (see above, "If You Don't Know the Ticker, Cusip, or Security Name"). If you see the security you want to trade, you simply select its corresponding hyperlink, and you will automatically return to the Trade Request Screen, where you finish making your trade request. If the security you want to trade is not shown, that means that it is not recognized by the system under the criteria you used to look it up. Keep searching under other names (click the [Return to Request] button) until you are sure that the security is not in the system. If you determine that the desired security is not in the system, please contact a member of the Investment Compliance department to add the security for you. Contacts are listed below: Fred Spring x54987 Adding Brokerage Accounts: To access this functionality, click on the Add Brokerage Account hyperlink on the left frame of your browser screen. You will be prompted to enter the Brokerage Account Number, Brokerage Account Name, Date Opened, and Broker. When you click the [Create New Brokerage Account] button, you will receive a message that informs you whether the account was successfully created. [GRAPHIC: Add Brokerage Account screen] 3. Pre-clearance for Private Placements and Initial Public Offerings: You may request a preclearance of private placement securities or an Initial Public Offering by contacting Fred Spring via Microsoft Outlook (please "cc." Tim Fagan on all such requests). Please keep in mind that the code of ethics prohibits Investment Access persons from purchasing securities in an initial public offering. The request must include: |_| the associate's name; |_| the associate's John Hancock Funds' company; |_| the complete name of the security; |_| the seller and whether or not the seller is one with whom the associate does business on a regular basis; |_| any potential conflict, present or future, with fund trading activity and whether the security might be offered as inducement to later recommend publicly traded securities for any fund; and |_| the date of the request. Clearance of private placements or initial public offerings may be denied if the transaction could create the appearance of impropriety. Clearance of initial public offerings will also be denied if the transaction is prohibited for a person due to his or her access category under the code of ethics. Appendix C: Limited Access Persons There are two types of Limited Access Persons-(1) Certain directors of the Adviser and (2) the Independent Trustees/Directors of the Funds. (1) Certain Directors of the Adviser: You are a Limited Access person if you are a director of John Hancock Advisers, LLC or Sovereign Asset Management Co. and you meet the three following criteria: (a) you are not also an officer of John Hancock Advisers, LLC, Sovereign Asset Management Co. or a John Hancock fund; (b) you do not have access to nonpublic information regarding any clients' purchase or sale of securities, or nonpublic information regarding the portfolio holdings of any John Hancock fund or account; and (c) you are not involved in making securities recommendations to clients and do not have access to such recommendations that are nonpublic. (examples: directors of John Hancock Advisers, LLC or Sovereign Asset Management Co. who are not involved in the daily operations of the adviser) If you are a Limited Access Person who fits this definition, the following policies apply to your category. These policies are described in detail in the code of ethics. o General principles o Inside information policy and procedures o Broker letter/Duplicate Confirms o Initial/annual holdings reports o Quarterly transaction reports o Annual recertification Preclearance requirement LIMITED: You only need to preclear any direct or indirect acquisition of beneficial ownership in any security in an initial public offering (an IPO) or in a limited offering (i.e. a private placement). To request preclearance of these securities, contact Timothy Fagan at tfagan@jhancock.com and/or Fredrick Spring at fspring@jhancock.com. - --------------- *A Limited Access Person may complete this requirement under the code of ethics of another Manulife/John Hancock adviser or fund by the applicable regulatory deadlines and arrange for copies of the required information to be sent to the John Hancock Funds Compliance Department. - --------------- (2) The Independent Trustees/Directors of the Funds: If you are an independent trustee/director to a John Hancock fund (i.e. not an "interested person" of the fund within the meaning of the Investment Company Act of 1940), the following policies apply to your category. These policies are described in detail in the code of ethics. o General principles o Annual recertification o Quarterly transaction report, but only if you knew (or should have known) that during the 15 calendar days before or after you trade a security, either: (i) a John Hancock fund purchased or sold the same security, or (ii) a John Hancock fund or John Hancock Advisers, LLC considered purchasing or selling the same security. This policy applies to holdings in your personal accounts, those of a spouse, "significant other" or family members sharing your household, as well as all accounts over which you have discretion or give advice or information. If this situation occurs, it is your responsibility to contact Timothy M. Fagan, Chief Compliance Officer, at (617) 375-6205 and he will assist you with the requirements of the quarterly transaction report. This means that the independent trustees of the funds will not usually be required to file a quarterly transaction report-they are only required to file in the situation described above. Appendix D: Subadvisers Each subadviser to a John Hancock fund is subject to its own code of ethics, which must meet the requirements of Rule 17j-1 and Rule 204A-1. Approval of Code of Ethics Each subadviser to a John Hancock fund must provide a copy of its code of ethics to the trustees of the relevant John Hancock funds for approval initially and within 60 calendar days of any material amendment. The trustees will give their approval if they determine that the code: o contains provisions reasonably necessary to prevent the subadviser's Access Persons (as defined in Rule 17j-1) from engaging in any conduct prohibited by Rule 17j-1; o requires the subadviser's Access Persons to make reports to at least the extent required in Rule 17j-1(d); o requires the subadviser to institute appropriate procedures for review of these reports by management or compliance personnel (as contemplated by Rule 17j-1(d)(3)); o provides for notification of the subadviser's Access Persons in accordance with Rule 17j-1(d)(4); and o requires the subadviser's Access Persons who are Investment Personnel to obtain the pre-clearances required by Rule 17j-1(e); Reports and Certifications Each subadviser must provide an annual report and certification to John Hancock Advisers, LLC and the fund's trustees in accordance with Rule 17j-1(c)(2)(ii). The subadviser must also provide other reports or information that John Hancock Advisers, LLC may reasonably request. Recordkeeping Requirements The subadviser must maintain all records for its Access Persons as required by Rule 17j-1(f). Appendix E: Administration and Recordkeeping Adoption and Approval The trustees of a John Hancock fund must approve the code of ethics of an adviser, subadviser or affiliated principal underwriter before initially retaining its services. Any material change to a code of ethics of a John Hancock fund, John Hancock Funds, LLC, John Hancock Advisers, LLC or a subadviser to a fund must be approved by the trustees of the John Hancock fund, including a majority of trustees who are not interested persons, no later than six months after adoption of the material change. Administration No less frequently than annually, John Hancock Funds, LLC, John Hancock Advisers, LLC, each subadviser and each John Hancock fund will furnish to the trustees of each John Hancock fund a written report that: o describes issues that arose during the previous year under the code of ethics or the related procedures, including, but not limited to, information about material code or procedure violations, and o certifies that each entity has adopted procedures reasonably necessary to prevent its access persons from violating its code of ethics. Recordkeeping The Investment Compliance Department will maintain: o a copy of the current code of ethics for John Hancock Funds, LLC, John Hancock Advisers, LLC, and each John Hancock fund, and a copy of each code of ethics in effect at any time within the past five years. o a record of any violation of the code of ethics, and of any action taken as a result of the violation, for six years. o a copy of each report made by an Access person under the code of ethics, for six years (the first two years in a readily accessible place). o a record of all persons, currently or within the past five years, who are or were required to make reports under the code of ethics. This record will also indicate who was responsible for reviewing these reports. o a copy of each code of ethics report to the trustees, for six years (the first two years in a readily accessible place). o a record of any decision, and the reasons supporting the decision, to approve the acquisition by an Investment Access person of initial public offering securities or private placement securities, for six years. EX-99 5 exnnadmincom5.txt ADMINISTRATION COMMITTEE CHARTER JOHN HANCOCK FUNDS ADMINISTRATION COMMITTEE CHARTER A. Composition. The Administration Committee shall be composed entirely of Trustees who are "independent" as defined in the rules of the New York Stock Exchange ("NYSE") and the NASDAQ Stock Market, Inc. ("NASDAQ") or any other exchange, as applicable and are not "interested persons" as defined in the Investment Company Act of 1940 of any of the funds, or any fund's investment adviser or principal underwriter (the "Independent Trustees"). All of the Board's Independent Trustees shall be members of the Administration Committee. B. Overview. The overall charter of the Administration Committee is: (i) to review and comment on complex-wide matters to facilitate uniformity among, and administration of, the funds; (ii) to oversee liaison between management and the Independent Trustees; (iii) to review matters relating to the Independent Trustees, such as retirement arrangements that have not been assigned to another committee; (iv) to review the performance of the Independent Trustees as appropriate; and (v) when appropriate, to oversee the assignment of tasks to other Committees. C. Specific Responsibilities. The Administration Committee shall have the following duties and powers, to be exercised at such times and in such manner as the Committee shall deem necessary or appropriate: 1. To consider the number of funds under supervision by the Independent Trustees and the ability of the Independent Trustees to discharge successfully their fiduciary duties. 2. To evaluate, from time to time, the retirement policies for the Independent Trustees. 3. To participate in the development of agendas for Board and Committee meetings. 4. To consider, evaluate and make recommendations regarding the type and amount of fidelity bond, and director and officer and/or errors and omission insurance coverage, for the funds, the Board and the Independent Trustees, as applicable. 5. To identify qualified individuals to serve as Chief Compliance Officer ("CCO"), and recommend an appropriate candidate to the Board, as needed from time to time. The Administration Committee shall assist the Board in monitoring: (i) the performance of the CCO and (ii) the cooperation of the adviser(s) and other service providers with the CCO, including the requirement of regular reports by the CCO to the Administration Committee and to the Board. The Administration Committee shall have the power to annually review the CCO's responsibilities and the extent of his or her authority and to conduct annual compensation and retention review with the CCO and make appropriate recommendations to the Board. 6. To consider, evaluate and make recommendations and necessary findings regarding independent legal counsel and any other advisers, experts or consultants, that may be engaged from time to time, other than as may be engaged directly by another Committee. 7. To evaluate feedback from shareholders as appropriate. D. Additional Responsibilities. The Committee will also perform other tasks assigned to it from time to time by full Board, and will report findings and recommendations to the full Board at each Regular Board meeting following a Committee meeting, as appropriate. E. Governance. The Chairman of the Board shall serve as the chair of the Administration Committee. The chair shall be responsible for leadership of the Committee, including scheduling meetings or reviewing and approving the schedule for them, preparing agendas or reviewing and approving them before meetings, presiding over meetings, and making reports to the full Board, as appropriate. F. Miscellaneous. The Committee shall meet as often as it deems appropriate, with or without management, as circumstances require. The Committee shall have the resources and authority appropriate to discharge its responsibilities, including the authority to retain special counsel and other advisers, experts or consultants, at the funds' expense, as it determines necessary to carry out its duties. The Committee shall have direct access to such officers of and service providers to the funds as it deems desirable. G. Review. The Committee shall review this Charter periodically and recommend such changes to the full Board as it deems desirable. EX-99 6 exnngovcom6.txt GOVERNANCE COMMITTEE CHARTER JOHN HANCOCK FUNDS GOVERNANCE COMMITTEE CHARTER A. Composition. The Governance Committee shall be composed entirely of Trustees who are "independent" as defined in the rules of the New York Stock Exchange ("NYSE") and the NASDAQ Stock Market, Inc. ("NASDAQ") or any other exchange, as applicable and are not "interested persons" as defined in the Investment Company Act of 1940 of any of the funds, or any fund's investment adviser or principal underwriter (the "Independent Trustees"). The Chairman of the Board shall be a member of the Governance Committee. B. Overview. The overall charter of the Governance Committee is to make recommendations to the Board on issues related to corporate governance applicable to the Independent Trustees and to the composition and operation of the Board, and to assume duties, responsibilities and functions to nominate candidates to the Board, together with such additional duties, responsibilities and functions as are delegated to it from time to time. C. Specific Responsibilities. The Governance Committee shall have the following duties and powers, to be exercised at such times and in such manner as the Committee shall deem necessary or appropriate: 1. Except where the Funds are legally required to provide others with the ability to nominate Trustees, to nominate Trustees, as needed. 2. To consider, as it deems necessary or appropriate, the criteria for persons to fill existing or newly created Trustee vacancies. The Governance Committee shall use the criteria and principles set forth in Annex A to guide its Trustee selection process. 3. To consider and recommend the amount of compensation to be paid by the funds to the Independent Trustees and to address compensation-related matters, such as expense reimbursement policies. 4. To consider and recommend the duties and compensation of the Chairman of the Board. 5. To consider and recommend changes to the Board regarding the size, structure, and composition of the Board. 6. To consider and recommend changes to the Board's retirement policy. 7. To develop and recommend to the Board guidelines for corporate governance ("Corporate Governance Guidelines") for the funds that take into account the rules of the NYSE and any applicable law or regulation, and to periodically review and assess the Corporate Governance Guidelines and recommend any proposed changes to the Board for approval. 8. [To monitor and comment on the expenditures of the Board or the Committees or the Independent Trustees, including, but not limited to: legal, consulting, meeting, and D&O insurance costs; association dues; and publication expenses.] 9. To establish policies, and arrange for and coordinate the participation in continuing education or information programs for Trustees. 10. To periodically review the Board's committee structure and the charters of the Board's committees, and recommend changes to the committee structure and charters as it deems appropriate. 11. To conduct an annual self-evaluation of the Board, which will include, at a minimum, a review of its effectiveness in overseeing the number of funds in the fund complex and the effectiveness of its committee structure. 12. To report its activities to the full Board and to make such recommendations with respect to the matters described above and other matters as the Governance Committee may deem necessary or appropriate. D. Additional Responsibilities. The Committee will also perform other tasks assigned to it from time to time by the Chairman or the full Board, and will report findings and recommendations to the full Board, as appropriate. E. Governance. One member of the Committee shall be appointed as chair. The chair shall be responsible for leadership of the Committee, including scheduling meetings or reviewing and approving the schedule for them, preparing agendas or reviewing and approving them before meetings, and making reports to the Administration Committee or the full Board, as appropriate. F. Miscellaneous. The Committee shall meet as often as it deems appropriate, with or without management, as circumstances require. The Committee shall have the resources and authority appropriate to discharge its responsibilities, including the authority to retain special counsel and other advisers, experts or consultants, at the funds' expense, as it determines necessary to carry out its duties. The Committee shall have direct access to such officers of and service providers to the funds as it deems desirable. G. Review. The Committee shall review this Charter periodically and recommend such changes to the full Board as it deems desirable. ANNEX A General Criteria 1. Nominees should have a reputation for integrity, honesty and adherence to high ethical standards. 2. Nominees should have demonstrated business acumen, experience and ability to exercise sound judgments in matters that relate to the current and long-term objectives of the Fund(s) and should be willing and able to contribute positively to the decision-making process of the Fund(s). 3. Nominees should have a commitment to understand the Fund(s), and the responsibilities of a Trustee/Director of an investment company and to regularly attend and participate in meetings of the Board and its committees. 4. Nominees should have the ability to understand the sometimes conflicting interests of the various constituencies of the Fund, including shareholders and the management company, and to act in the interests of all shareholders. 5. Nominees should not have, nor appear to have, a conflict of interest that would impair the nominee's ability to represent the interests of all the shareholders and to fulfill the responsibilities of a director/trustee. 6. Nominees shall not be discriminated against on the basis of race, religion, national origin, sex, sexual orientation, disability or any other basis proscribed by law. The value of diversity on the Board should be considered. Application of Criteria to Existing The renomination of existing Trustees should not be viewed as automatic, but should be based on continuing qualification under the criteria set forth above. In addition, the Administrative Committee shall consider the existing trustees' performance on the Board and any committee. Review of Shareholder Nominations Any shareholder recommendation must be submitted in compliance with all of the pertinent provisions of Rule 14a-8 under the Securities Exchange Act of 1934 to be considered by the Administration Committee. In evaluating a nominee recommended by a shareholder, the Administration Committee, in addition to the criteria discussed above, may consider the objectives of the shareholder in submitting that nomination and whether such objectives are consistent with the interests of all shareholders. If the Board determines to include a shareholder's candidate among the slate of nominees, the candidate's name will be placed on the Fund's proxy card. If the Administration Committee or the Board determines not to include such candidate among the Board's designated nominees and the shareholder has satisfied the requirements of Rule 14a-8, the shareholder's candidate will be treated as a nominee of the shareholder who originally nominated the candidate. In that case, the candidate will not be named on the proxy card distributed with the Fund's proxy statement. As long as an existing Independent Trustee continues, in the opinion of the Administration Committee, to satisfy the criteria listed above, the Committee generally would favor the re-nomination of an existing Trustee rather than a new candidate. Consequently, while the Administration Committee will consider nominees recommended by shareholders to serve as trustees, the Administration Committee may only act upon such recommendations if there is a vacancy on the Board or the Administration Committee determines that the selection of a new or additional Independent Trustee is in the best interests of the Fund. In the event that a vacancy arises or a change in Board membership is determined to be advisable, the Administration Committee will, in addition to any shareholder recommendations, consider candidates identified by other means, including candidates proposed by members of the Administration Committee. While it has not done so in the past, the Administration Committee may retain a consultant to assist the Committee in a search for a qualified candidate. Communications from Shareholders Shareholders may communicate with the members of the Board as a group or individually. Any such communication should be sent to the Board or an individual Trustee c/o the secretary of the Fund at the address on the notice of this meeting. The Secretary may determine not to forward any letter to the members of the Board that does not relate to the business of the Fund. -----END PRIVACY-ENHANCED MESSAGE-----