-----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,
V+7ZECiaHreZOxlYlD3IJ6UCZnStxl9pfnfhfCFo0OVHMGrTGPuV3NlbfFvJkp/E
wqPebk/O1PSWDtzEi6IBHQ==
ITEM 1. REPORT TO SHAREHOLDERS. Discussion of Fund performance By MFC Global Investment Management (U.S.), LLC The U.S. bond market enjoyed solid gains in 2007, with most of the advance occurring in the last six months. Bonds were largely unchanged in the first half of the year, but a meltdown in the housing and mortgage markets over the last six months led to greater interest rate volatility and several interest rate cuts from the Federal Reserve. As a result, bonds rallied, with Treasury bonds delivering the best returns, while high-yield corporate bonds lagged. The U.S. bond market enjoyed solid For the year ended December 31, 2007, John Hancock Income Securities Trust produced a total return of 1.97% at net asset value (NAV) and 6.94% at market value. The Funds 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 Funds NAV share price at any time. By comparison, the average closed-end intermediate-term bond fund returned 3.43%, according to Morningstar, Inc., and the Lehman Brothers Government/Credit Bond Index returned 7.23% . The Funds current annualized distribution rate was 6.40% at closing NAV and 7.24% at closing market price. The portfolios sector weightings were the main reason behind the underperformance of the benchmark index and Morningstar peer group, primarily over the last six months. An underweight in Treasury bonds and an overweight in corporate b
onds, including a healthy weighting in high yield securities, detracted from results. Within the corporate sector, our financial holdings had the biggest negative impact on performance. The most significant underperformer was real estate investment trust Public Storage REIT, Inc. which owns and operates self-storage facilities. On the positive side, beverage maker Ocean Spray Cranberries, Inc. and movie theater chain Cinemark, Inc. added value during the year. In the mortgage-backed sector, the portfolio benefited from its exposure to interest-only securities backed by pay-option mortgages, which generated strong returns. A steeper yield curve also boosted performance as the portfolio was positioned to benefit from this environment. This commentary reflects the views of the portfolio managers through the end of the Funds 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. Income Securities Trust | Annual report 6 Portfolio summary
1 As a percentage of the Funds total investments on December 31, 2007. Annual report | Income Securities Trust 7 Funds investments Securities owned by the Fund on 12-31-07 This schedule is divided into five main categories: bonds, preferred stocks, tranche loans, U.S. government and agencies securities, and short-term investments. Bonds, preferred stocks, tranche loans, and U.S. government and agencies securities are further broken down by industry group. Short-term investments, which represent the Funds cash position, are listed last. See notes to financial statements Income Securities Trust | Annual report 8 See notes to financial statements Annual report | Income Securities Trust 9 See notes to financial statements Income Securities Trust | Annual report 10 See notes to financial statements Annual report | Income Securities Trust 11 See notes to financial statements Income Securities Trust | Annual report 12 See notes to financial statements Annual report | Income Securities Trust 13 See notes to financial statements Income Securities Trust | Annual report 14 See notes to financial statements Annual report | Income Securities Trust 15 See notes to financial statements Income Securities Trust | Annual report 16 See notes to financial statements Annual report | Income Securities Trust 17 See notes to financial statements Income Securities Trust | Annual report 18 See notes to financial statements Annual report | Income Securities Trust 19 See notes to financial statements Income Securities Trust | Annual report 20 See notes to financial statements Annual report | Income Securities Trust 21 See notes to financial statements Income Securities Trust | Annual report 22 The percentage shown for each investment category is the total value of that category, as a percentage of the net assets applicable to common shareholders. IO Interest only (carries notional principal amount) REIT Real Estate Investment Trust (A) Credit ratings are unaudited and are rated by Moodys Investors Service where Standard & Poors ratings are not available unless indicated otherwise. (F) Parenthetical disclosure of a foreign country in the security description represents country of a foreign issuer. (G) Security rated internally by John Hancock Advisers, LLC. (L) All or a portion of this security is on loan as of December 31, 2007. (O) Cash interest will be paid on this obligation at the stated rate beginning on the stated date. (P) Variable rate obligation. The coupon rate shown represents the rate at end of period. (S) This security is 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 $44,134,655 or 26.78% of the net assets applicable to common shareholders as of December 31, 2007. (T) Represents investment of securities lending collateral. (W) Issuer is an affiliate of John Hancock Advisers, LLC. (Y) Represents current yield on December 31, 2007. See notes to financial statements Annual report | Income Securities Trust 23 Financial statements Statement of assets and liabilities 12-31-07 This Statement of Assets and Liabilities is the Funds balance sheet. It shows the value of what the Fund owns, is due and owes. Youll also find the net asset value for each common share. See notes to financial statements Income Securities Trust | Annual report 24 Statement of operations For the year ended 12-31-07 This Statement of Operations summarizes the Funds investment income earned and expenses incurred in operating the Fund. It also shows net gains (losses) for the period stated. See notes to financial statements Annual report | Income Securities Trust 25 Statement of changes in net assets These Statements of Changes in Net Assets show how the value of the Funds 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. 1 Includes undistributed (distributions in excess of) net investment income of ($13,222) and $276,098, respectively. See notes to financial statements Income Securities Trust | Annual report 26 Financial highlights The Financial Highlights show how the Funds net asset value for a share has changed since the end of the previous period. See notes to financial statements Annual report | Income Securities Trust 27 Notes to Financial Highlights 1 Based on the average of the shares outstanding. 2 APS Series A and B were issued on 11-4-03. 3 Total return based on net asset value reflects changes in the Funds net asset value during each period. Total return based on market value reflects changes in market value. Each figure assumes that dividend and capital gain distributions, if any, were reinvested. These figures will differ depending upon the level of any discount from or premium to net asset value at which the Funds shares traded during the period. 4 Unaudited. 5 Ratios calculated on the basis of expenses relative to the average net assets of common shares. Without the exclusion of preferred shares, the ratios of expenses would have been 0.81%, 0.76%, 0.77%, 0.77% and 0.76% for the periods ended 12-31-03, 12-31-04, 12-31-05, 12-31-06 and 12-31-07, respectively. 6 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 ratios of net investment income would have been 5.19%, 4.99%, 5.06%, 5.45% and 5.82% for the periods ended 12-31-03, 12-31-04, 12-31-05, 12-31-06 and 12-31-07, respectively. 7 The portfolio turnover rate including the effect of when-issued/delayed delivery securities is 66% for the year ended December 31, 2007. Prior years exclude the effect of when-issued/delayed delivery securities. 8 Calculated by subtracting the Funds total liabilities from the Funds 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 Income Securities Trust | Annual report 28 Notes to financial statements Note 1 John Hancock Income Securities Trust (the Fund) is a closed-end diversified investment management company registered under the Investment Company Act of 1940, as amended (the 1940 Act). Note 2 The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. The following summarizes the significant accounting policies of the Fund: Security valuation The net asset value of the common shares of the Fund is determined daily as of the close of the New York Stock Exchange (NYSE), normally at 4:00 p.m., Eastern Time. Short-term debt investments that have a remaining maturity of 60 days or less are valued at amortized cost, and thereafter assume a constant amortization to maturity of any discount or premium, which approximates market value. Investments in John Hancock Cash Investment Trust (JHCIT), an affiliate of John Hancock Advisers, LLC (the Adviser), a wholly owned subsidiary of John Hancock Financial Services, Inc., a subsidiary of Manulife Financial Corporation (MFC), are valued at their net asset value each business day. Debt securities are valued based on the evaluated prices provided by an independent pricing service, which utilizes both dealer-supplied and ele
ctronic data processing techniques, which take into account factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data. Debt securities whose prices cannot be provided by an independent pricing service are valued at prices provided by broker-dealers. Other assets and securities for which no such quotations are readily available are valued at fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees. The Fund holds securities that are valued on the basis of a price provided by a single pricing source, including broker-dealers from whom the security was purchased. The risk associated with single sourced prices is that when markets are less liquid, the price realized upon sale may be different than the price to value the security and the difference could be material to the Fund. At December 31, 2007, securities valued on the basis of a single source price amounted to 6.72% of the Funds net assets. Investment risk The Fund may invest a portion of their assets in securities of issuers that hold mortgage securities, including subprime mortgage securities. The value of these securities is sensitive to changes in economic conditions, including delinquencies and/or defaults, and may be adversely affected by shifts in the markets perception of the issuers and changes in interest rates. Joint repurchase agreement Pursuant to an exemptive order issued by the Securities and Exchange Commission (SEC), the Fund, along with other registered investment companies having a management contract with the Adviser, 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 Funds custodian bank receives delivery of the underlying securities for the joint account on the Funds behalf. Annual report | Income Securities Trust 29 Investment transactions Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment security transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. Discounts/ premiums are accreted/amortized for financial reporting purposes. Realized gains and losses from investment transactions are recorded on an identified cost basis. When-issued/delayed delivery securities The Fund may purchase securities with delivery or payment to occur at a later date beyond the normal settlement period. At the time the Fund enters into a commitment to purchase a security, the transaction is recorded and the value of the security is reflected in the net asset value. The price of such security and the date when the security will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security may vary with market fluctuations. No interest accrues to the Fund until payment takes place. At the time the Fund enters into this type of transaction it is required to segregate cash or other liquid assets at least equal to the amount of the commitment. Certain risks may arise upon entering into when-issued or delayed delivery securities from the potential inability of counterparties to meet the terms of their contracts or if the issuer does not issue the securities due to political, economic, or other factors. Additionally, losses may arise due to changes in the value of the underlying securities. Guarantees and indemnifications Under the Funds organizational documents, its Officers and Trustees are indemnified against certain liability arising out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Funds maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Expenses The majority of expenses are directly identifiable to an individual fund. Expenses that are not readily identifiable to a specific fund are allocated in such a manner as deemed equitable, taking into consideration, among other things, the nature and type of expense and the relative size of the funds. Securities lending The Fund has entered into an agreement with Morgan Stanley & Co. Incorporated and MS Securities Services Inc. (collectively, Morgan Stanley) which permits the Fund to lend securities to Morgan Stanley on a principal basis. Morgan Stanley is the primary borrower of securities of the Fund. The risk of having one primary borrower of Fund securities (as opposed to several borrowers) is that should Morgan Stanley fail financially, all securities lent will be affected by the failure and by any delays in recovery of the securities (or in the rare event, loss of rights in the collateral). The Fund may lend portfolio securities from time to time in order to earn additional income. The Fund retains beneficial ownership of the securities it has loaned and continues to receive interest and dividends paid by the issuer of securities and to participate in any changes in their value. On the settlement date of the loan, the Fund receives collateral against the loaned securities and maintains collateral in an amount not less than 100% of the market value of the loaned securities during the period of the loan. The market value of the loaned securities is determined at the close of business of the Fund and any additional required collateral is delivered to the Fund on the next business day. Any cash collateral received is invested in the JHCIT. If the borrower defaults on its obligation to return the securities loaned because of insolvency or other reasons, a fund could experience delays and costs in recovering the securities loaned or in gaining access to the colla
teral. The Fund receives compensation for lending their securities either in the form of fees, guarantees, and/or by retaining a portion of interest on the investment of any cash received as collateral. Prior to May 8, 2007, the Fund paid the Adviser $465 for security lending services relating to an arrangement which ended on May 7, 2007. Income Securities Trust | Annual report 30 Futures The Fund may purchase and sell financial futures contracts and options on those contracts. The Fund invests in contracts based on financial instruments such as U.S. Treasury Bonds or Notes or on securities indices such as the Standard & Poors 500 Index, in order to hedge against a decline in the value of securities owned by the Fund. Initial margin deposits required upon entering into futures contracts are satisfied by the delivery of specific securities or cash as collateral to the broker (the Funds agent in acquiring the futures position). If the position is closed out by an opposite position prior to the settlement date of the futures contract, a final determination of variation margin is made, cash is required to be paid to or released by the broker and the Fund realizes a gain or loss. When the Fund sells a futures contract based on a financial instrument, the Fund becomes obligated to deliver that kind of instrument at an agreed upon date for a specified price. The Fund realizes a gain or loss depending on whether the price of an offsetting purchase is less or more than the price of the initial sale or on whether the price of an offsetting sale is more or less than the price of the initial purchase. The Fund could be exposed to risks if it could not close out futures positions because of an illiquid secondary market or the inability of counterparties to meet the terms of their contracts. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. The Fund had no open financial futures contracts on December 31, 2007. Swap contracts The Fund may enter into swap transactions in order to hedge the value of the Funds portfolio against interest rate fluctuations or to enhance the Funds income. Interest rate swaps represent an agreement between two counter-parties to exchange cash flows based on the difference in the two interest rates, applied to the notional principal amount for a specified period. The payment flows are usually netted against each other, with the difference being paid by one party to the other. The Fund settles accrued net receivable or payable under the swap contracts on a periodic basis. The Fund records changes in the value of the swaps as unrealized gains or losses on swap contracts. Net periodic payments accrued, but not yet received (paid) are included in change in the unrealized appreciation/depreciation on the Statement of Operations. Accrued interest income and interest expense on the swap contracts are recorded as realized gain (loss). Swap contracts are subject to risks related to the counterpartys ability to perform under the contract, and may decline in value if the counterpartys creditworthiness deteriorates. The risks may arise from unanticipated movement in interest rates. The Fund may also suffer losses if it is unable to terminate outstanding swap contracts or reduce its exposure through offsetting transactions. 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, Annual report | Income Securities Trust 31 the Fund has $9,261,520 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 loss carryforwards expire as follows: December 31, 2012 $2,123,466, December 31, 2013 $2,443,482, December 31, 2014 $3,342,775, December 31, 2015 $1,351,797. Net capital losses of $1,268,723 that are attributable to security transactions incurred after October 31, 2007, are treated as arising on January 1, the first day of the Funds next taxable year. The Fund adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109 (FIN 48), on January 1, 2007. FIN 48 prescribes a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The implementation of FIN 48 did not result in any unrecognized tax benefits in the accompanying financial statements. Each of the Funds federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service. New accounting pronouncement In September 2006, FASB Standard No. 157, Fair Value Measurements (FAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishing a framework for measuring fair value and expands disclosure about fair value measurements. Management is currently evaluating the application of FAS 157 to the Fund and its impact, if any, resulting from the adoption of FAS 157 on the Funds financial statement disclosures. Distribution of income and gains 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, 2006, the tax character of distributions paid was as follows: ordinary income $14,667,522. During the year ended December 31, 2007, the tax character of distributions paid was as follows: ordinary income $15,141,022. As of December 31, 2007, the components of distributable earnings on a tax basis included $286,646 of undistributed ordinary income. Such distributions and distributable earnings, 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 Funds financial statements as a return of capital. Capital accounts within financial statements are adjusted for permanent book-tax differences. These adjustments have no impact on net assets or the results of operations. Temporary book-tax differences will reverse in a subsequent period. Permanent differences are primarily attributable to swap derivative transactions and premium amortization. Note 3 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 Funds 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 Funds average daily managed assets in excess of $300,000,000. The effective management fee rate is 0.53% of the Funds average managed assets for the year ended December 31, 2007. The Fund has a subadvisory agreement with MFC Global Investment Management (U.S.), LLC, a subsidiary of John Hancock Financial Services, Inc. The Fund is not responsible for payment of subadvisory fees. The Fund has an agreement with the Adviser and affiliates to perform necessary tax, accounting, compliance, legal and other administrative services for the Fund. The compensation for the year amounted to $29,674 with an Income Securities Trust | Annual report 32 effective rate of 0.01% of the Funds average daily managed assets. Mr. James R. Boyle is Chairman of the Adviser, as well as affiliated Trustee of the Fund, and is compensated by the Adviser and/or its affiliates. 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 Funds deferred compensation liability are recorded on the Funds books as an other asset. The deferred compensation liability and the related other asset are always equal and are marked to market on a periodic basis to reflect any income earned by the investments, as well as any unrealized gains or losses. The Deferred Compensation Plan investments had no impact on the operations of the Fund. Note 4 Common shares This listing illustrates reclassification of the Funds capital accounts, dividend reinvestments and the number of common shares outstanding at the beginning and end of the years ended December 31, 2006, and December 31, 2007, along with the corresponding dollar value. 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. APS holders may be subject to auction risk. The dividend rate for the APS is normally set through an auction process, where holders may indicate the dividend rate at which they would be willing to hold or sell their APS or purchase additional APS. An auction provides liquidity for the APS; however, holders may not be able to remarket their APS at an auction. APS will not be remarketed if there are more APS offered for sale than there are buyers. If the APS are unable to be remarketed on an auction date, a maximum interest rate is applied to the APS to compensate the investor for having to hold the shares. In the case of the Funds APS, the maximum interest rate is the higher of 125 bps over or 125% of the 30-day AA Commercial Paper Rate on the date of the auction. If sufficient clearing bids do not exist at an auction, holders wishing to sell will not be able to sell all, and may not be able to sell any, of such APS in
the auction. As a result, an investment in APS may be illiquid. Neither broker-dealers nor the Fund are obligated to purchase APS in an auction or otherwise, nor is the Fund required to redeem APS in the event of an unsuccessful remarketing effort at an auction. 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 seven days thereafter by an auction. Dividend rates on APS Series A ranged from 5.00% to 6.513% and Series B from 4.50% to 6.50% during the year ended December 31, 2007. Accrued dividends on APS are included Annual report | Income Securities Trust 33 in the value of APS on the Funds Statement of Assets and Liabilities. During the year ended December 31, 2007, APS of the Fund were successfully remarketed at each remarketing date. All remarketing efforts of APS shares occurring between February 13, 2008 and February 26, 2008 were not successful. As a result, the dividend rates for all series were reset to the maximum, which ranged from 4.17% to 4.35%. The APS are 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 Funds bylaws. Under the 1940 Act, the Fund is required to maintain asset coverage of at least 200% with respect to the Preferred Shares as of the last business day of each month in which any shares are outstanding. 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 sh
areholders. Leverage The Fund issued preferred shares to increase its assets available for investment. When the Fund leverages its assets, the fees paid to the Adviser for investment advisory and administrative services will be higher than if the Fund did not borrow because the Advisers fees are calculated based on the Funds total assets, including the proceeds of the issuance of preferred shares. Consequently, the Fund and the Adviser may have differing interests in determining whether to leverage the Funds assets. Leverage creates risks which may adversely affect the return for the holders of common shares, including: the likelihood of greater volatility of net asset value and market price of common shares fluctuations in the dividend rates on any preferred shares increased operating costs, which may reduce the Funds total return to the holders of common shares the potential for a decline in the value of an investment acquired through leverage, while the Funds obligations under such leverage remains fixed To the extent the income or capital appreciation derived from securities purchased with funds received from leverage exceeds the cost of leverage, the Funds return will be greater than if leverage had not been used, conversely, return would be lower if the cost of the leverage exceeds the income or capital appreciation derived. Note 5 Purchases and proceeds from sales or maturities of securities, other than short-term securities and obligations of the U.S. government, during the year ended December 31, 2007, aggregated $129,906,177 and $126,268,129, respectively. Purchases and proceeds from sales or maturities of obligations of the U.S. government aggregated $8,584,459 and $13,629,372, respectively, during the year ended December 31, 2007. The cost of investments owned on December 31, 2007, including short-term investments, for federal income tax purposes was $259,344,592. Gross unrealized appreciation and depreciation of investments aggregated $3,283,198 and $7,864,338 respectively, resulting in net unrealized depreciation of $4,581,140. The difference between book basis and tax basis net unrealized appreciation of investments is attributable primarily to amortization of premiums and accretion of discounts on debt securities. Income Securities Trust | Annual report 34
Auditors report
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of John Hancock Income Securities Trust,
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of John Hancock Income Securities Trust (the Fund) at December 31, 2007, and the results of its operations, the changes in its net assets and the financial highlights for the periods indicated, in
conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as financial statements) are the responsibility of the Funds management. Our
responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of
securities at December 31, 2007, by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Annual report | Income Securities Trust
35
Tax information
Unaudited
For federal income tax purposes, the following information is furnished with respect to the distributions of the Fund, if any, paid during its taxable year ended December 31, 2007.
With respect to the ordinary dividends paid by the Fund for the fiscal year ended December 31, 2007, 3.80% of the dividends qualifies for the corporate dividends-received deduction.
The Fund hereby designates the maximum amount allowable of its net taxable income as qualified dividend income as provided in the Jobs and Growth Tax Relief Reconciliation Act of 2003. This amount will be reflected on Form
1099-DIV for the calendar year 2007.
Shareholders will be mailed a 2007 U.S. Treasury Department Form 1099-DIV in January 2008. This will reflect the total of all distributions that are taxable for calendar year 2007.
Income Securities Trust | Annual report
36 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 NYSE. The Funds 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 Funds 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 Moodys Investors Service, Inc. or Standard & Poors Corporation. The Fund intends to engage in short-term trading and may invest in repurchase agreements. The Fund may issue a single class of senior securities not to exceed 33 1 / 3 % of its net assets at market value and may borrow from banks as a temporary measure for emergency purposes in amounts not to exceed 5% of the total assets at cost. The Fund may lend portfolio securities not to exceed 33 1 / 3 % of total assets. Bylaws In November 2002, the Board of Trustees adopted several amendments to the Funds bylaws, 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 bylaws 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 years annual meeting of shareholders. The notification must be in the form prescribed by the bylaws. The advance notice provisions provide the Fund and its Trustees with the opportunity to thoughtfully consider and address the matters proposed before the Fund prepares and mails its proxy statement to shareholders. Other amendments set forth the procedures that must be followed in order
for a shareholder to call a special meeting of shareholders. Please contact the Secretary of the Fund for additional information about the advance notice requirements or the other amendments to the bylaws. On August 21, 2003, shareholders approved the amendment of the Funds bylaws 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 Funds 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 Funds bylaws 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 Funds ability to hedge successfully will depend on the Advisers 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. Annual report | Income Securities Trust 37 37 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 Funds 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 Funds total assets. Dividends and distributions During the period ended June 30, 2007, dividends from net investment income totaling $0.9200 per share were paid to shareholders. The dates of payments and the amounts per share are as follows: 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 Funds 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 Agents 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 Funds 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 NYSE on that date. Net asset value will be determined in accordance with the established procedures of the Fund. However, if as of such payment date the market price of the common shares is lower than such net asset value per share, the number of shares to be issued will be determined on the basis of such market price. Fractional shares, carried out to four decimal places, will be credited to the shareholders 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 Agents Web site, and such termination will Income Securities Trust | Annual report 38 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 NYSE as of the dividend payment date. Distributions from the Funds 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 calenda
r 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 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 If your shares are held with a brokerage firm, you should contact that firm, bank or other nominee for assistance. Shareholder meeting (unaudited) Proxies covering 10,017,147 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: The preferred shareholders elected Patti McGill Peterson and John A. Moore as Trustees of the Fund until their successors are duly elected and qualified, with the votes tabulated as follows: 2,923 FOR and 5 WITHHELD. Annual report | Income Securities Trust 39 39 Board Consideration of and 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 meet in person to review and consider the continuation of: (i) the investment advisory agreement (the Advisory Agreement) with John Hancock Advisers, LLC (the Adviser) and (ii) the investment subadvisory agreement (the Subadvisory Agreement) with MFC Global Investment Management (U.S.), LLC (the Subadviser). The Advisory Agreement and the Subadvisory Agreement are collectively referred to as the Advisory Agreements. At meetings held on May 7 and June 45, 2007, the Board considered the factors and reached the conclusions described below relating to the selection of the Adviser and Subadviser and the continuation of the Advisory Agreements. During such meetings, the Boards Contracts/ Operations Committee and the Independent Trustees also met in executive sessions with their independent legal counsel. In evaluating the Advisory Agreements, 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: (i) the investment performance of the Fund relative to a category of relevant funds (the Category) and a peer group of comparable funds (the Peer Group) each selected by Morningstar, Inc. (Morningstar), an independent provider of investment company data, for a range of periods ended December 31, 2006, (ii) advisory and other fees incurred by, and the expense ratios of, the Fund relative to a Category and a Peer Group, (iii) the advisory fees of comparable portfolios of other clients of the Adviser and the Subadviser, (iv) the Advisers financial results and condition, including its and certain of its affiliates profitability from services performed for the Fund, (v) breakpoints in the Funds and the
Peer Groups fees, and information about economies of scale, (vi) the Advisers and Subadvisers record of compliance with applicable laws and regulations, with the Funds investment policies and restrictions, and with the applicable Code of Ethics, and the structure and responsibilities of the Advisers and Subadvisers 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 and by the Subadviser. The Independent Trustees considered the legal advice of independent legal counsel and relied on their own business judgment in determining the factors to be considered in evaluating the materials that were presented to them and the weight to be given to each such factor. The Boards review and conclusions were based on a comprehensive consideration of all information presented to the Board and not the result of any single controlling factor. They principally considered performance and other information from Morningstar as of December 31, 2006. The Board also considered updated performance information provided to it by the Adviser or Subadviser at the May and June 2007 meetings. Performance and other information may be quite different as of the date of this shareholders report. The key factors considered by the Board and the conclusions reached are described below. Nature, extent and quality of services The Board considered the ability of the Adviser and the Subadviser, based on their resources, reputation and other attributes, to attract and retain qualified investment professionals, including research, advisory and supervisory personnel. The Board considered the investment philosophy, research and investment decision-making processes of the Adviser and Subadviser. The Board further considered the culture of compliance, resources dedicated to compliance, compliance programs and compliance records of the Adviser and Subadviser. In addition, the Board took into account the Income Securities Trust | Annual report 40 administrative and other non-advisory 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 and Subadviser supported renewal of the Advisory Agreements. Fund performance The Board considered the performance results for the Fund over various time periods ended December 31, 2006. The Board also considered these results in comparison to the performance of the Category, as well as the Funds Peer Group and benchmark index. Morningstar determined the Category and Peer Group for the Fund. The Board reviewed with a representative of Morningstar the methodology used by Morningstar to select the funds in the Category and the Peer Group. The Board noted the imperfect comparability of the Peer Group. The Board noted that the Funds performance was lower than the performance of the Category and Peer Group medians, but was higher than the performance of its benchmark index, the Lehman Brothers Government/ Credit Bond Index, over the 3-, 5- and 10- year periods. The Board noted that the Funds more recent performance during the 1-year period was lower than, but generally competitive with, the performance of the Category median, and higher than the performance of the Peer Group median and benchmark index. The Adviser noted that the Funds Peer Group contained primarily unleveraged closed-end funds, which had a high level of high-yield exposure. The Adviser explained that these factors impacted the Funds comparative performance results. Investment advisory fee and subadvisory 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 Category and Peer Group. The Board noted that the Advisory Agreement Rate was higher than the median rate of the Peer Group and Category. The Board received and considered expense information regarding the Funds various components, including advisory fees, and other non-advisory fees, including transfer agent fees, custodian fees and other miscellaneous fees (e.g., fees for accounting and legal services). The Board considered comparisons of these expenses to the Peer Group median. The Board also received and considered expense information regarding the Funds total operating expense ratio (Expense Ratio). The Board noted that, unlike the Fund, several funds in the Peer Group employed fee waivers or reimbursements. The Board received and considered information comparing the Expense Ratio of the Fund to that of the Category and Peer Group medians before the application of fee waivers and reimbursements (Gross Expense Ratio) and after the application of such waivers and reimbursement (Net Expense Ratio). The Board noted that the Funds Expense Ratio was higher than the Gross and Net Expense Ra
tio of the Peer Group median. The Board also noted the differences in the funds included in the Peer Group, including differences in the employment of fee waivers and reimbursements and differences in the amount of assets under management. The Board noted that the Funds Expense Ratio was lower than the Gross Expense Ratio and equal to the Net Expense Ratio of the Category median. The Adviser also discussed the Morningstar data and rankings, and other relevant information, for the Fund. The Adviser noted that most of the funds in the Peer Group were unleveraged, which contributed to the results. Based on the above-referenced considerations and other factors, the Board concluded that the Funds overall expense results and performance supported the re-approval of the Advisory Agreements. The Board also received information about the investment subadvisory fee rate (the Subadvisory Agreement Rate) payable by the Adviser to the Subadviser for investment subadvisory services. The Board concluded Annual report | Income Securities Trust 41 that the Subadvisory Agreement Rate was fair and equitable, based on its consideration of the factors described here. Profitability The Board received and considered a detailed profitability analysis of the Adviser based on the Advisory Agreements, as well as on other relationships between the Fund and the Adviser and its affiliates, including the Subadviser. The Board also considered a comparison of the Advisers profitability to that of other similar investment advisers whose profitability information is publicly available. 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 Funds ability to appropriately benefit from economies of scale under the Funds fee structure. The Board recognized the inherent limitations of any analysis of economies of scale, stemming largely from the Boards understanding that most of the Advisers and Subadvisers costs are not specific to individual Funds, but rather are incurred across a variety of products and services. The Board noted that the Advisory Agreements offered breakpoints. However, the Board considered the limited 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. The Board noted that the Fund, as a closed-end investment company, was not expected to increase materially in size and that its assets would grow (if at all) through the investment performance of the Fund. Therefore, the Board did not consider potential economies of scale as a principal factor in assessing the fees payable under the Advisory Agreements, but concluded that the fees were fair and equitable based on relevant factors. 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 Advisers 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 Advisers, Subadvisers and Funds 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 and Subadviser as part of the annual re-approval process. 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 and Subadviser at least quarterly, which include, among other things, 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 Agreements for the Fund was in the best interest of the Fund and its shareholders. Accordingly, the Board unanimously approved the continuation of the Advisory Agreements. Income Securities Trust | Annual report 42 Information about the portfolio managers Management Biographies and Fund ownership Below is an alphabetical list of the portfolio managers who share joint responsibility for the day-to-day investment management of the Fund. It provides a brief summary of their business careers over the past five years and their range of beneficial share ownership in the Fund as of December 31, 2007. Barry H. Evans, CFA President, Chief Fixed Income Officer and Chief Operating Officer, MFC Global Investment Management (U.S.), LLC since 2005 Senior Vice President, John Hancock Advisers LLC (19862005) Jeffrey N. Given, CFA Vice President, MFC Global Investment Management (U.S.), LLC since 2005 Howard C. Greene, CFA Senior Vice President, MFC Global Investment Management (U.S.), LLC since 2005 Other Accounts the Portfolio Managers are Managing The table below indicates for each portfolio manager information about the accounts over which the portfolio manager has day-to-day investment responsibility. All information on the number of accounts and total assets in the table is as of December 31, 2007. For purposes of the table, Other Pooled Investment Vehicles may include investment partnerships and group trusts, and Other Accounts may include separate accounts for institutions or individuals, insurance company general or separate accounts, pension funds and other similar institutional accounts. Annual report | Income Securities Trust 43 Neither the Adviser or the Subadviser receives a fee based upon the investment performance of any of the accounts included under Other Accounts Managed by the Portfolio Managers in the table above. When a portfolio manager is responsible for the management of more than one account, the potential arises for the portfolio manager to favor one account over another. For the reasons outlined below, the Fund does not believe that any material conflicts are likely to arise out of a portfolio managers responsibility for the management of the Fund as well as one or more other accounts. The Adviser and the Subadviser have adopted procedures, overseen by the Chief Compliance Officer, that are intended to monitor compliance with the policies referred to in the following paragraphs. The Subadviser has policies that require a portfolio manager to allocate investment opportunities in an equitable manner and generally to allocate such investments proportionately among all accounts with similar investment objectives. When a portfolio manager intends to trade the same security for more than one account, the policies of the Subadviser generally require that such trades for the individual accounts are aggregated so each account receives the same price. Where not possible or may not result in the best possible price, the Subadviser will place the order in a manner intended to result in as favorable a price as possible for such client. The investment performance on specific accounts is not a factor in determining the portfolio managers compensation. See Compensation of Portfolio Managers below. Neither the Adviser nor the Subadviser receives a performance-based fee with respect to other accounts managed by the Funds portfolio managers. The Subadviser imposes certain trading restrictions and reporting requirements for accounts in which a portfolio manager or certain family members have a personal interest in order to confirm that such accounts are not favored over other accounts. The Subadviser seeks to avoid portfolio manager assignments with potentially conflicting situations. However, where a portfolio manager is responsible for accounts with differing investment objectives and policies, it is possible that the portfolio manager will conclude that it is in the best interest of one account to sell a portfolio security while another account continues to hold or increase the holding in such security. Compensation of Portfolio Managers The Subadviser has adopted a system of compensation for portfolio managers and others involved in the investment process that is applied consistently among investment professionals. At the Subadviser, the structure of compensation of investment professionals is currently comprised of the following basic components: fixed base salary, and an annual investment bonus plan, as well as customary benefits that are offered generally to all full-time employees of the Subadviser. A limited number of senior investment professionals, who serve as officers of both the Subadviser and its parent company, may also receive options or restricted stock grants of common shares of Manulife Financial. Only investment professionals are eligible to participate in the Investment Bonus Plan on an annual basis. While the amount of any bonus is discretionary, the following factors are generally used in determining bonuses: 1) The investment performance of all accounts managed by the investment Income Securities Trust | Annual report 44 professional over one-, three- and five-year periods are considered. The pre-tax performance of each account is measured relative to an appropriate peer group benchmark. 2) The profitability of the Subadviser and its parent company are also considered in determining bonus awards, with greater emphasis placed upon the profitability of the Adviser. 3) The more intangible contributions of an investment professional to the Subadvisers business, including the investment professionals support of sales activities, new fund/strategy idea generation, professional growth and development, and management, where applicable, are evaluating in determining the amount of any bonus award. While the profitability of the Subadviser and the investment performance of the accounts that the investment professionals maintain are factors in determining an investment professionals overall compensation, the investment professionals compensation is not linked directly to the net asset value of any fund. Annual report | Income Securities Trust 45 Trustees and Officers This chart provides information about the Trustees and Officers who oversee your John Hancock fund. Officers elected by the Trustees manage the day-to-day operations of the Fund and execute policies formulated by the Trustees. Income Securities Trust | Annual report 46 Annual report | Income Securities Trust 47 Income Securities Trust | Annual report 48 The business address for all Trustees and Officers is 601 Congress Street, Boston, Massachusetts 02210-2805. The Statement of Additional Information of the Fund includes additional information about members of the Board of Trustees of the Fund and is available without charge, upon request, by calling 1-800-225-5291. 1 Each Trustee serves until resignation, retirement age or until his or her successor is elected. 2 Member of Audit and Compliance Committee. 3 Non-Independent Trustee holds positions with the Funds investment adviser, underwriter and certain other affiliates. Annual report | Income Securities Trust 49 For more information The Funds proxy voting policies, procedures and records are available without charge, upon request: 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 SECs Web site, www.sec.gov. Income Securities Trust | Annual report 50 1-800-852-0218 PRESORTED
ITEM 2. CODE OF ETHICS.
As of the end of the period, December 31, 2007, 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.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Charles L. Ladner is the audit committee financial expert and is independent, pursuant to general instructions on Form N-CSR Item 3.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The aggregate fees billed for professional services rendered by the principal accountant(s) for the audit of the registrants annual financial statements or services that are normally provided by the accountant(s)
in connection with statutory and regulatory filings or engagements amounted to $26,250 for the fiscal year ended December 31, 2007 and $26,250 for the fiscal year ended December 31, 2006. These fees were billed to the registrant and were
approved by the registrants audit committee.
(b) Audit-Related Services
There were no audit-related fees during the fiscal year ended December 31, 2007 and fiscal year ended December 31, 2006 billed to the registrant or to the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant
("control affiliates").
(c) Tax Fees
The aggregate fees billed for professional services rendered by the principal accountant(s) for the tax compliance, tax advice and tax planning (tax fees) amounted to $3,500 for the fiscal year ended
December 31, 2007 and $3,500 for the fiscal year ended December 31, 2006. The nature of the services comprising the tax fees was the review of the registrants income tax returns and tax distribution requirements. These fees were billed to
the registrant and were approved by the registrants audit committee. There were no tax fees billed to the control affiliates.
(d) All Other Fees
The all other fees billed to the registrant for products and services provided by the principal accountant were $3,000 for the fiscal year ended December 31, 2007 and $3,000 for the fiscal year ended December
31, 2006. There were no other fees during the fiscal year ended December 31, 2007 and December 31, 2006 billed to control affiliates for products and services provided by the principal accountant. The nature of the services comprising the all other
fees was related to the principal accountants report on the registrants Eligible Asset Coverage. These fees were approved by the registrants audit committee. (e)(1) Audit Committee Pre-Approval Policies and Procedures: The trusts Audit Committee must pre-approve all audit and non-audit services provided by the independent registered public accounting firm (the Auditor) relating to the operations or financial reporting of the funds. Prior to the commencement of any audit or non-audit services to a fund, the Audit Committee reviews the services to determine whether they are appropriate and permissible under applicable law. The trusts Audit Committee has adopted policies and procedures to, among other purposes, provide a framework for the Committees consideration of audit-related and non-audit services by the Auditor. The policies and procedures require that any audit-related and non-audit service provided by the Auditor and any non-audit service provided by the Auditor to a fund service provider that relates directly to the operations and financial reporting of a fund are subject to approval by the Audit Committee before such service is provided. Audit-related services provided by the Auditor that are expected to exceed $50,000 per year/per fund are subject to specific pre-approval by the Audit Committee. Tax services provided by the Auditor that are expected to exceed $50,000 per year/per fund are subject to specific pre-approval by the Audit Committee. Other services provided by the Auditor that are expected to exceed $10,000 per year/per fund are subject to specific pre
- -approval by the Audit Committee. All audit services, as well as the audit-related and non-audit services that are expected to exceed the amounts stated above, must be approved in advance of provision of the service by formal resolution of the Audit Committee. At the regularly scheduled Audit Committee meetings, the Committee reviews a report summarizing the services, including fees, provided by the Auditor. (e)(2) Services approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X: Audit-Related Fees, Tax Fees and All Other Fees: (f) According to the registrants principal accountant, for the fiscal year ended December 31, 2007, the percentage of hours spent on the audit of the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons who were not full-time, permanent employees of principal accountant was less than 50%. (g) The aggregate non-audit fees billed by the registrant's accountant(s) for services rendered to the registrant and rendered to the registrant's control affiliates for each of the last two fiscal years of the registrant were $1,553,823 for the fiscal year ended December 31, 2007, and $872,192 for the fiscal year ended December 31, 2006. (h) The audit committee of the registrant has considered the non-audit services provided by the registrants principal accountant(s) to the control affiliates and has determined that the services that were not pre-approved are compatible with maintaining the principal accountant(s)' independence. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. The registrant has a separately-designated standing audit committee comprised of independent trustees. The members of the audit committee are as follows: Dr. John A. Moore - Chairman ITEM 6. SCHEDULE OF INVESTMENTS. Not applicable. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. See attached Exhibit Proxy Voting Policies and Procedures. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Information about the portfolio managers Management Biographies and Fund ownership Below is an alphabetical list of the portfolio managers who share joint responsibility for the day-to-day investment management of the Fund. It provides a brief summary of their business careers over the past five years and their range of beneficial share ownership in the Fund as of December 31, 2007. Barry H. Evans, CFA President, Chief Fixed Income Officer and Chief Operating Officer, MFC Global Investment Management (U.S.), LLC since 2005 Senior Vice President, John Hancock Advisers LLC (19862005) Jeffrey N. Given, CFA Vice President, MFC Global Investment Management (U.S.), LLC since 2005 Howard C. Greene, CFA Senior Vice President, MFC Global Investment Management (U.S.), LLC since 2005 Other Accounts the Portfolio Managers are Managing The table below indicates for each portfolio manager information about the accounts over which the portfolio manager has day-to-day investment responsibility. All information on the number of accounts and total assets in the table is as of December 31, 2007. For purposes of the table, Other Pooled Investment Vehicles may include investment partnerships and group trusts, and Other Accounts may include separate accounts for institutions or individuals, insurance company general or separate accounts, pension funds and other similar institutional accounts. Neither the Adviser or the Subadviser receives a fee based upon the investment performance of any of the accounts included under Other Accounts Managed by the Portfolio Managers in the table above. When a portfolio manager is responsible for the management of more than one account, the potential arises for the portfolio manager to favor one account over another. For the reasons outlined below, the Fund does not believe that any material conflicts are likely to arise out of a portfolio managers responsibility for the management of the Fund as well as one or more other accounts. The Adviser and the Subadviser have adopted procedures, overseen by the Chief Compliance Officer, that are intended to monitor compliance with the policies referred to in the following paragraphs. The Subadviser has policies that require a portfolio manager to allocate investment opportunities in an equitable manner and generally to allocate such investments proportionately among all accounts with similar investment objectives. When a portfolio manager intends to trade the same security for more than one account, the policies of the Subadviser generally require that such trades for the individual accounts are aggregated so each account receives the same price. Where not possible or may not result in the best possible price, the Subadviser will place the order in a manner intended to result in as favorable a price as possible for such client. The investment performance on specific accounts is not a factor in determining the portfolio managers compensation. See Compensation of Portfolio Managers below. Neither the Adviser nor the Subadviser receives a performance-based fee with respect to other accounts managed by the Funds portfolio managers. The Subadviser imposes certain trading restrictions and reporting requirements for accounts in which a portfolio manager or certain family members have a personal interest in order to confirm that such accounts are not favored over other accounts. The Subadviser seeks to avoid portfolio manager assignments with potentially conflicting situations. However, where a portfolio manager is responsible for accounts with differing investment objectives and policies, it is possible that the portfolio manager will conclude that it is in the best interest of one account to sell a portfolio security while another account continues to hold or increase the holding in such security. Compensation of Portfolio Managers The Subadviser has adopted a system of compensation for portfolio managers and others involved in the investment process that is applied consistently among investment professionals. At the Subadviser, the structure of compensation of investment professionals is currently comprised of the following basic components: fixed base salary, and an annual investment bonus plan, as well as customary benefits that are offered generally to all full-time employees of the Subadviser. A limited number of senior investment professionals, who serve as officers of both the Subadviser and its parent company, may also receive options or restricted stock grants of common shares of Manulife Financial. Only investment professionals are eligible to participate in the Investment Bonus Plan on an annual basis. While the amount of any bonus is discretionary, the following factors are generally used in determining bonuses: 1) The investment performance of all accounts managed by the investment professional over one-, three- and five-year periods are considered. The pre-tax performance of each account is measured relative to an appropriate peer group benchmark. 2) The profitability of the Subadviser and its parent company are also considered in determining bonus awards, with greater emphasis placed upon the profitability of the Adviser. 3) The more intangible contributions of an investment professional to the Subadvisers business, including the investment professionals support of sales activities, new fund/strategy idea generation, professional growth and development, and management, where applicable, are evaluating in determining the amount of any bonus award.
FONT> While the profitability of the Subadviser and the investment performance of the accounts that the investment professionals maintain are factors in determining an investment professionals overall compensation, the investment professionals compensation is not linked directly to the net asset value of any fund. 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. There were no material changes to previously disclosed 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)(1) 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) Proxy Voting Policies and Procedures are attached.
(c)(2) Submission of Matters to a Vote of Security Holders is attached. See attached John Hancock Funds Governance Committee Charter.
(c)(3) 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 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
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.
By: /s/ Keith F. Hartstein
CERTIFICATION
I, Charles A. Rizzo, 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.
By: /s/ Charles A. Rizzo Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of 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 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. JOHN HANCOCK TRUST SARBANES-OXLEY CODE OF ETHICS I. Covered Officers/Purpose of the Code This code of ethics (this Code) for John Hancock Trust, John Hancock Funds1, John Hancock Funds II and John Hancock Funds III, each a registered management investment company under the Investment Company Act of 1940, as amended (1940 Act), which may issue shares in separate and distinct series (each investment company and series thereunder to be hereinafter referred to as a Fund), applies to each Funds Principal Executive Officer (President) and Principal Financial Officer (Chief Financial Officer) (the Registrants Executive Officers or Executive Officers as set forth in Exhibit A) for the purpose of promoting: ► honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; ► full, fair, accurate, timely and understandable disclosure in reports and documents that the Fund files with, or submits to, the Securities and Exchange Commission (SEC) and in other public communications made by the Fund; ► compliance with applicable laws and governmental rules and regulations; ► the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and ► accountability for adherence to the Code. ___________________________________________ 1 of 6 Each of the Registrants Executive Officers should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. II. Covered Officers Should Handle Ethically Actual and Apparent Conflicts of Interest Overview A conflict of interest occurs when an Executive Officers private interest interferes with the interests of, or his service to, the Fund. For example, a conflict of interest would arise if a Registrants Executive Officers, or a member of his family, receives improper personal benefits as a result of his position with the Fund. Certain conflicts of interest arise out of the relationships between the Executive Officers and the Fund and already are subject to conflict of interest provisions in the Investment Company Act of 1940, as amended (the Investment Company Act) and the Investment Advisers Act of 1940, as amended (the Investment Advisers Act). For example, Executive Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Fund because of their status as affiliated persons of the Fund. Each of the Registrants Executive Officers is an off
icer or employee of the investment adviser or a service provider (Service Provider) to the Fund. The Funds, the investment advisers and the Service Providers compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between the Fund and the investment adviser and the Service Provider of which the Executive Officers are also officers or employees. As a result, this Code recognizes that the Registrants Executive Officers will, in the normal course of their duties (whether formally for the Fund, for the investment adviser or for the Service Provider), be involved in establishing policies and implementing decisions which will have different effects on the investment adviser, the Service Provider and the Fund. The participation of the Executive Officers in such activities is inherent in the contractual relationship between the Fund and the investment adviser and the Service Provider and is consistent with the performance by the Executive Officers of their duties as officers of the Fund. Thus, if such participation is performed in conformity
with the provisions of the Investment Company Act and the Investment Advisers Act, it will be deemed to have been handled ethically. In addition, it is recognized by the Funds Board of Trustees/Directors (the Board) that the Executive Officers may also be officers or employees of one or more other investment companies covered by other Codes. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but the Registrants Executive Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of an Executive Officer should not be placed improperly before the interest of the Fund. 2 of 6 * * * Each Covered Officer must: ► not use his/her personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Fund whereby the Executive Officer would benefit personally to the detriment of the Fund; ► not cause the Fund to take action, or fail to take action, for the individual personal benefit of the Executive Officer rather than for the benefit of the Fund; and ► not use material non-public knowledge of portfolio transactions made or contemplated for the Fund to trade personally or cause others to trade personally in contemplation of the market effect of such transactions. Additionally, conflicts of interest may arise in other situations, the propriety of which may be discussed, if material, with the Funds Chief Compliance Officer (CCO). Examples of these include: ► service as a director/trustee on the board of any public or private company; ► the receipt of any non-nominal gifts; ► the receipt of any entertainment from any company with which the Fund has current or prospective business dealings unless such entertainment is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety (or other formulation as the Fund already uses in another code of conduct); ► any ownership interest in, or any consulting or employment relationship with, any of the Funds service providers, other than its investment adviser, any sub-adviser, principal underwriter, administrator or any affiliated person thereof; and ► a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Fund for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Executive Officers employment, such as compensation or equity ownership. III. Disclosure & Compliance ► Each Executive Officer should familiarize himself or herself with the disclosure requirements generally applicable to the Fund; ► Each Executive Officer should not knowingly misrepresent, or cause others to misrepresent, facts about the Fund to others, whether within or outside the Fund, 3 of 6 including to the Funds directors and auditors, and to governmental regulators and self-regulatory organizations; ► Each Executive Officer should, to the extent appropriate within his/her area of responsibility, consult with other officers and employees of the Fund and the Funds adviser or any sub-adviser with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Fund files with, or submits to, the SEC and in other public communications made by the Fund; and ► It is the responsibility of each Executive Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. IV. Reporting & Accountability Each Executive Officer must: ► upon adoption of the Code (or thereafter as applicable, upon becoming an Executive Officer), affirm in writing to the Funds CCO that he/she has received, read, and understands the Code; ► annually thereafter affirm to the Funds CCO that he/she has complied with the requirements of the Code; ► not retaliate against any employee or Executive Officer or their affiliated persons for reports of potential violations that are made in good faith; ► notify the Funds CCO promptly if he/she knows of any violation of this Code (Note: failure to do so is itself a violation of this Code); and ► report at least annually any change in his/her affiliations from the prior year. The Funds CCO is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. However, any approvals or waivers sought by the Principal Executive Officer will be considered by the Funds Board or the Compliance Committee thereof (the Committee). The Fund will follow these procedures in investigating and enforcing this Code: ► the Funds CCO will take all appropriate action to investigate any potential violations reported to him/her; ► if, after such investigation, the CCO believes that no violation has occurred, the CCO is not required to take any further action; ► any matter that the CCO believes is a violation will be reported to the Board or, if applicable, Compliance Committee; 4 of 6 ► if the Board or, if applicable, Compliance Committee concurs that a violation has occurred, the Board, either upon its determination of a violation or upon recommendation of the Compliance Committee, if applicable, will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the Service Provider or the investment adviser or its board; or a recommendation to dismiss the Registrants Executive Officer; ► the Board, or if applicable the Compliance Committee, will be responsible for granting waivers, as appropriate; and ► any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. V. Other Policies & Procedures This Code shall be the sole code of ethics adopted by the Fund for purposes of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Fund, the Funds adviser, any sub-adviser, principal underwriter or other service providers govern or purport to govern the behavior or activities of the Registrants Executive Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The Funds and its investment advisers codes of ethics under Rule 204A-1 under the Investment Advisers Act and Rule 17j-1 under the Investment Company Act, respectively, are separate requirements applying to the Registrants Executive Officers and others, and are not part of this Code. VI. Amendments Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of the Funds Board, including a majority of independent directors. VII. Confidentiality All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Funds Board and its counsel, the investment adviser and the relevant Service Providers. VIII. Internal Use The Code is intended solely for the internal use by the Fund and does not constitute an admission, by or on behalf of the Fund, as to any fact, circumstance, or legal conclusion. 5 of 6 Exhibit A John Hancock Trust ► Principal Executive Officer and President Keith Hartstein John Hancock Funds ► Principal Executive Officer and President Keith Hartstein John Hancock Funds II ► Principal Executive Officer and President Keith Hartstein John Hancock Funds III ► Principal Executive Officer and President Keith Hartstein 6 of 6
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 02210
(Address of principal executive offices) (Zip code)
Alfred P. Ouellette
Senior Counsel and Assistant Secretary
601 Congress Street
Boston, Massachusetts 02210
(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:
December 31, 2007
gains in 2007, with most of the
advance occurring in the last
six months.
Quality distribution1
AAA
48%
BB
10%
AA
7%
B
11%
A
6%
CCC
2%
BBB
15%
Sector distribution1
Government U.S. agency
38%
Industrials
4%
Mortgage bonds
19%
Telecommunication services
4%
Financials
12%
Energy
3%
Consumer discretionary
7%
Health care
2%
Utilities
5%
Other
2%
Materials
4%
Interest
Maturity
Credit
Par value
Issuer, description
rate
date
rating (A)
(000)
Value
Bonds 87.55%
$144,286,627
(Cost $149,123,667)
Advertising 0.45%
748,125
R.H. Donnelley Corp.,
Sr Disc Note Ser A-1
6.875%
01-15-13
B
$200
179,000
Sr Disc Note Ser A-2
6.875
01-15-13
B
300
268,500
Sr Note (S)
8.875
10-15-17
B
325
300,625
Agricultural Products 0.33%
539,550
Chaoda Modern Agriculture
(Holdings) Ltd.,
Gtd Sr Note (Cayman Islands) (F)(L)(S)
7.750
02-08-10
BB
545
539,550
Airlines 1.79%
2,957,991
Continental Airlines, Inc.,
Pass Thru Ctf Ser 1999-1A
6.545
02-02-19
A
359
360,730
Pass Thru Ctf Ser 2000-2 Class B
8.307
10-02-19
BB
395
392,763
Pass Thru Ctf Ser 2001-1 Class C
7.033
06-15-11
B+
107
103,836
Delta Airlines, Inc.,
Collateralized Bond (S)
6.821
08-10-22
A
795
829,900
Sr Pass Thru Ctf Ser 02-1
6.417
07-02-12
AAA
825
843,562
Northwest Airlines, Inc.,
Gtd Collateralized Note Ser 07-1 (L)
7.027
11-01-19
A
445
427,200
Aluminum 0.31%
507,275
CII Carbon LLC,
Gtd Sr Sub Note (S)
11.125
11-15-15
CCC+
515
507,275
Apparel Retail 0.13%
217,800
Hanesbrands, Inc.,
Gtd Sr Floating Rate Note
Ser B (P)
8.204
12-15-14
B
220
217,800
Automobile Manufacturers 0.27%
451,100
General Motors Corp.,
Sr Note
7.125
07-15-13
B
520
451,100
Automotive Retail 0.12%
191,000
Avis Budget Car Rental LLC,
Gtd Sr Note
7.625
05-15-14
BB
200
191,000
Interest
Maturity
Credit
Par value
Issuer, description
rate
date
rating (A)
(000)
Value
Broadcasting & Cable TV 1.00%
$1,645,083
Charter Communications Holdings
II, LLC,
Gtd Sr Note
10.250%
09-15-10
CCC
$415
406,700
Comcast Cable Communications
Holdings, Inc.,
Gtd Note
8.375
03-15-13
BBB+
395
443,144
Nexstar Finance, Inc.,
Sr Sub Note
7.000
01-15-14
CCC+
340
316,625
Rogers Cable, Inc.,
Sr Sec Note (Canada) (F)
6.750
03-15-15
BB+
455
478,614
Casinos & Gaming 5.47%
9,014,811
Chukchansi Economic Development
Authority,
Sr Note (S)
8.000
11-15-13
BB
460
448,500
Downstream Development Authority
of the Quapaw Tribe of Oklahoma,
Sr Sec Note (S)
12.000
10-15-15
B
500
467,500
Fontainbleau Las Vegas
Holdings Ltd.,
Note (S)
10.250
06-15-15
CCC+
495
429,412
Greektown Holdings LLC,
Sr Note (S)
10.750
12-01-13
CCC+
315
306,338
Harrahs Operating Co., Inc.,
Gtd Sr Bond
5.625
06-01-15
BB
425
310,250
Indianapolis Downs LLC &
Capital Corp.,
Sr Note (S)
11.000
11-01-12
B
310
299,150
Isle of Capri Casinos, Inc.,
Gtd Sr Sub Note
7.000
03-01-14
B
375
307,500
Jacobs Entertainment, Inc.,
Gtd Sr Note
9.750
06-15-14
B
500
465,000
Little Traverse Bay Bands of
Odawa Indians,
Sr Note (S)
10.250
02-15-14
B
500
502,500
Majestic Star Casino LLC,
Gtd Sr Sec Note
9.500
10-15-10
B+
415
392,175
Mashantucket West Pequot,
Bond (S)
5.912
09-01-21
BBB
285
271,867
MTR Gaming Group, Inc.,
Gtd Sr Sub Note Ser B
9.000
06-01-12
B
290
272,600
Pinnacle Entertainment, Inc.,
Sr Sub Note (L)
7.500
06-15-15
B
1,000
907,500
Pokagon Gaming Authority,
Sr Note (S)
10.375
06-15-14
B
215
231,125
Seminole Hard Rock Entertainment,
Sr Sec Note (P)(S)
7.491
03-15-14
BB
500
477,500
Interest
Maturity
Credit
Par value
Issuer, description
rate
date
rating (A)
(000)
Value
Casinos & Gaming (continued)
Seminole Tribe of Florida,
Bond (S)
6.535%
10-01-20
BBB
$650
$657,144
Trump Entertainment
Resorts, Inc.,
Gtd Sr Sec Note (L)
8.500
06-01-15
B
440
334,950
Turning Stone Casino Resort
Enterprise,
Sr Note (S)
9.125
09-15-14
B+
1,540
1,570,800
Waterford Gaming LLC,
Sr Note (S)
8.625
09-15-14
BB
363
363,000
Commodity Chemicals 0.14%
238,525
Sterling Chemicals, Inc.,
Sr Sec Note (S)
10.250
04-01-15
B
235
238,525
Construction & Farm Machinery & Heavy Trucks 0.45%
736,200
Manitowoc Co., Inc. (The),
Sr Note
7.125
11-01-13
BB
500
495,000
Odebrecht Finance Ltd.,
Gtd Sr Note (Cayman Islands) (F)(S)
7.500
10-18-17
BB
240
241,200
Consumer Finance 2.02%
3,334,471
CIT Group, Inc.,
Sr Note
5.000
02-13-14
A
375
330,129
Ford Motor Credit Co.,
Note
7.375
10-28-09
B
1,625
1,529,525
Sr Note
9.875
08-10-11
B
295
279,019
Sr Note
8.000
12-15-16
B
140
118,918
General Motors Acceptance Corp.,
Sr Note
6.000
12-15-11
BB+
465
389,986
Nelnet, Inc.,
Note (P)
7.400
09-29-36
BBB
715
686,894
Data Processing & Outsourced Services 0.29%
470,571
Fiserv, Inc.,
Gtd Sr Note
6.800
11-20-17
BBB
460
470,571
Department Stores 0.29%
474,378
Penney J.C. Co., Inc.,
Deb
7.650
08-15-16
BBB
445
474,378
Diversified Banks 4.67%
7,692,911
Banco Mercantil del Norte SA,
Sub Note (Mexico) (F)(S)
6.862
10-13-21
Baa2
685
673,971
Bank of America Corp.,
Sr Note
5.750
12-01-17
AA
505
506,158
Barclays Bank Plc,
Perpetual Bond (6.860% to 6-15-32
then variable) (United Kingdom) (F)(S)
6.860
09-29-49
A+
1,655
1,543,534
Chuo Mitsui Trust & Banking Co. Ltd.,
Perpetual Sub Note (5.506% to
4-15-15 then variable) (Japan) (F)(S)
5.506
12-15-49
Baa1
940
864,321
ICICI Bank Ltd.,
Note (India) (F)(S)
6.625
10-03-12
BBB
640
634,183
Interest
Maturity
Credit
Par value
Issuer, description
rate
date
rating (A)
(000)
Value
Diversified Banks (continued)
Lloyds TSB Group Plc,
Bond (United Kingdom) (F)(S)
6.267%
11-14-49
A
$730
$662,249
Royal Bank of Scotland Group Plc,
Jr Sub Bond (7.640% to 9-29-17
then variable) (United Kingdom) (F)(S)
7.640
03-29-49
A
400
411,237
Perpetual Bond (7.648% to 9-30-31
then variable) (United Kingdom) (F)
7.648
08-29-49
A
650
670,628
Societe Generale,
Sub Note (France) (F)(S)
5.922
04-05-49
A+
460
425,662
Standard Chartered Plc,
Bond (Great Britain) (F)(P)(S)
7.014
06-30-49
BBB+
500
473,418
Sub Note (Great Britain) (F)(S)
6.400
09-26-17
A
235
238,641
Wachovia Bank NA,
Sub Note Ser BKNT
6.000
11-15-17
AA
585
588,909
Diversified Chemicals 1.44%
2,378,650
Mosiac Co. (The),
Sr Note (S)
7.625
12-01-16
BB
290
313,200
NOVA Chemicals Corp.,
Med Term Note (Canada) (F)(L)
7.400
04-01-09
B+
2,045
2,065,450
Diversified Commercial & Professional Services 0.76%
1,257,495
Grupo Kuo SAB de CV,
Gtd Sr Note (Mexico) (F)
9.750
10-17-17
BB
475
469,063
Hutchison Whampoa
International Ltd.,
Gtd Sr Note (Cayman Islands) (F)(S)
6.500
02-13-13
A
750
788,432
Diversified Financial Services 2.24%
3,692,151
Cosan Finance Ltd.,
Gtd Bond (Brazil) (F)(L)(S)
7.000
02-01-17
BB
300
281,250
Erac USA Finance Co.,
Gtd Sr Note (S)
6.375
10-15-17
BBB
465
449,243
General Electric Capital Corp.,
Sub Bond (P)
6.375
11-15-67
AA+
760
784,686
Huntington Capital III,
Gtd Sub Bond (P)
6.650
05-15-37
BBB
590
503,950
QBE Capital Funding II LP,
Gtd Sub Bond (Jersey Islands) (F)(P)(S)
6.797
06-29-49
BBB
695
665,509
SMFG Preferred Capital Ltd.,
Perpetual Bond (6.078% to 1-25-17
then variable) (S)
6.078
01-25-49
BBB
590
543,520
Sovereign Capital Trust VI,
Gtd Note
7.908
06-13-36
BB+
480
463,993
Diversified Metals & Mining 0.39%
648,150
Freeport-McMoRan Copper &
Gold, Inc.,
Sr Note
8.375
04-01-17
BB
130
139,425
Vedanta Resources Plc,
Sr Note (United Kingdom) (F)(S)
6.625
02-22-10
BB
510
508,725
Interest
Maturity
Credit
Par value
Issuer, description
rate
date
rating (A)
(000)
Value
Diversified REITs 0.17%
$275,847
HRPT Properties Trust,
Sr Note
6.650%
01-15-18
BBB
$285
275,847
Drug Retail 0.94%
1,545,642
CVS Caremark Corp.,
Jr Sub Bond (P)
6.302
06-01-37
BBB
990
956,877
Sr Note
5.750
06-01-17
BBB+
585
588,765
Electric Utilities 5.94%
9,785,776
Abu Dhabi National Energy Co.,
Bond (United Arab
Emirates) (F)(S)
6.500
10-27-36
A+
935
900,551
AES Eastern Energy LP,
Sr Pass Thru Ctf Ser 1999-A
9.000
01-02-17
BB+
1,005
1,088,321
Beaver Valley Funding Corp.,
Sec Lease Obligation Bond
9.000
06-01-17
BBB
736
829,119
BVPS II Funding Corp.,
Collateralized Lease Bond
8.890
06-01-17
BBB
700
787,128
FPL Energy National Wind,
Sr Sec Note (S)
5.608
03-10-24
BBB
347
347,469
HQI Transelect Chile SA,
Sr Note (Chile) (F)
7.875
04-15-11
BBB
1,230
1,327,955
Indiantown Cogeneration LP,
1st Mortgage Note Ser A-9
9.260
12-15-10
BB+
297
310,193
IPALCO Enterprises, Inc.,
Sr Sec Note
8.625
11-14-11
BB
325
339,625
Monterrey Power SA de CV,
Sr Sec Bond (Mexico) (F)(S)
9.625
11-15-09
BBB
514
547,753
Pepco Holdings, Inc.,
Note
6.450
08-15-12
BBB
565
591,270
PNPP II Funding Corp.,
Deb
9.120
05-30-16
BBB
437
515,682
Teco Finance, Inc.,
Note (S)
7.000
05-01-12
Baa3
337
355,434
Note (S)
6.572
11-01-17
Baa3
233
236,914
TXU Corp.,
Sec Bond
7.460
01-01-15
BB
545
496,514
Waterford 3 Funding Corp.,
Sec Lease Obligation Bond
8.090
01-02-17
BBB
1,111
1,111,848
Electronic Equipment Manufacturers 0.65%
1,073,383
Thomas & Betts Corp.,
Sr Note
7.250
06-01-13
BBB
775
805,955
Tyco Electronics Group SA,
Gtd Sr Bond (Luxembourg) (F)(S)
6.550
10-01-17
BBB
260
267,428
Gas Utilities 0.58%
956,223
KN Capital Trust I,
Gtd Cap Security Ser B
8.560
04-15-27
B
445
400,500
Southern Union Co.,
Jr Sub Note
7.200
11-01-66
BB
565
555,723
Interest
Maturity
Credit
Par value
Issuer, description
rate
date
rating (A)
(000)
Value
Health Care Distributors 0.25%
$419,067
Covidien International
Finance SA,
Gtd Sr Note (Luxembourg) (F)(S)
6.000%
10-15-17
A
$405
419,067
Health Care Facilities 0.43%
708,031
Community Health Systems, Inc.,
Sr Note (S)
8.875
07-15-15
B
695
708,031
Health Care Services 1.17%
1,934,250
Alliance Imaging, Inc.,
Sr Sub Note (L)
7.250
12-15-12
B
255
242,250
Sr Sub Note (S)
7.250
12-15-12
B
185
175,750
HealthSouth Corp.,
Gtd Sr Note (P)
11.409
06-15-14
CCC+
500
508,750
Sun Healthcare Group, Inc.,
Gtd Sr Sub Note
9.125
04-15-15
CCC+
1,000
1,007,500
Health Care Supplies 0.11%
182,700
Bausch & Lomb, Inc.,
Sr Note (S)
9.875
11-01-15
B
180
182,700
Insurance 0.52%
849,707
Merna Reinsurance Ltd.,
Sec Sub Note Ser B
6.580
06-30-10
A2
550
543,345
Progressive Corp. (The),
Jr Sub Deb (P)
6.700
06-15-37
A
330
306,362
Integrated Oil & Gas 0.85%
1,400,841
Pemex Project Funding
Master Trust,
Gtd Note
9.125
10-13-10
BBB
135
149,175
Petro-Canada,
Deb (Canada) (F)
9.250
10-15-21
BBB
1,000
1,251,666
Integrated Telecommunication Services 2.86%
4,719,241
Axtel SAB de CV,
Sr Note (Mexico) (F)(S)
7.625
02-01-17
BB
520
520,000
Bellsouth Corp.,
Deb
6.300
12-15-15
A
914
957,262
Cincinnati Bell, Inc.,
Gtd Sr Sub Note
8.375
01-15-14
B
325
316,875
Qwest Capital Funding, Inc.,
Gtd Note
7.000
08-03-09
B+
1,000
997,500
Qwest Corp.,
Sr Note
7.875
09-01-11
BBB
445
462,800
Sprint Capital Corp.,
Gtd Sr Note
6.900
05-01-19
BBB+
1,000
993,366
West Corp.,
Gtd Sr Sub Note
11.000
10-15-16
B
475
471,438
Interest
Maturity
Credit
Par value
Issuer, description
rate
date
rating (A)
(000)
Value
Investment Banking & Brokerage 0.75%
$1,228,300
American General Finance Corp.,
Note
6.900%
12-15-17
A+
$470
470,470
Mizuho Financial Group
Cayman Ltd.,
Gtd Sub Bond (Cayman Islands) (F)
8.375
12-29-49
A2
750
757,830
IT Consulting & Other Services 0.24%
403,069
NCR Corp.,
Note
7.125
06-15-09
BBB
390
403,069
Life & Health Insurance 0.40%
666,559
Lincoln National Corp.,
Jr Sub Bond
6.050
04-20-17
A
250
233,390
Symetra Financial Corp.,
Jr Sub Bond (P)(S)
8.300
10-15-37
BB
440
433,169
Marine 1.05%
1,732,100
CMA CGM SA,
Sr Note (France) (F)(S)
7.250
02-01-13
BB+
700
672,000
Minerva Overseas Ltd.,
Gtd Note (Cayman Islands) (F)(S)
9.500
02-01-17
B
680
651,100
Navios Maritime Holdings, Inc.,
Sr Note (Marshall Islands) (F)(S)
9.500
12-15-14
B
400
409,000
Metal & Glass Containers 0.69%
1,130,550
Blaze Recycling & Metals LLC,
Sr Sec Note (S)
10.875
07-15-12
B
165
151,800
Owens-Brockway Glass
Container, Inc.,
Gtd Sr Note
8.250
05-15-13
B
500
518,750
Vitro SAB de CV,
Sr Note (Mexico) (F)
9.125
02-01-17
B
500
460,000
Movies & Entertainment 0.19%
319,356
Cinemark, Inc.,
Sr Disc Note, Step Coupon (O)(P)
9.750
03-15-14
CCC+
245
228,156
Quebecor Media, Inc.,
Note (Canada) (F)(S)
7.750
03-15-16
B
95
91,200
Multi-Line Insurance 1.66%
2,734,111
Genworth Financial, Inc.,
Jr Sub Note
6.150
11-15-66
BBB+
430
390,677
Horace Mann Educators Corp.,
Sr Note
6.850
04-15-16
BBB
395
409,315
Liberty Mutual Group,
Bond (S)
7.500
08-15-36
BBB
885
863,551
Jr Gtd Sub Bond (S)
7.800
03-15-37
BB+
705
627,109
Sul America Participacoes SA,
Bond (Brazil) (F)(S)
8.625
02-15-12
B
430
443,459
Multi-Media 0.70%
1,147,206
News America Holdings,
Gtd Sr Deb
7.750
01-20-24
BBB
1,020
1,147,206
Interest
Maturity
Credit
Par value
Issuer, description
rate
date
rating (A)
(000)
Value
Multi-Utilities 1.34%
$2,206,250
CalEnergy Co., Inc.,
Sr Bond
8.480%
09-15-28
BBB+
$550
672,005
Dynegy-Roseton Danskamme,
Gtd Pass Thru Ctf Ser B
7.670
11-08-16
B
500
497,500
Salton Sea Funding Corp.,
Sec Note Ser C
7.840
05-30-10
BBB
1,002
1,036,745
Office Services & Supplies 0.42%
698,354
Xerox Corp.,
Sr Note
6.750
02-01-17
BB+
670
698,354
Oil & Gas Drilling 0.35%
581,695
Allis-Chalmers Energy, Inc.,
Gtd Sr Note
8.500
03-01-17
B
335
319,925
Delek & Avner-Yam Tethys Ltd.,
Sr Sec Note (Israel) (F)(S)
5.326
08-01-13
BBB
260
261,770
Oil & Gas Exploration & Production 0.77%
1,267,236
EnCana Corp.,
Note (Canada) (F)
5.900
12-01-17
A
485
496,143
McMoRan Exploration Co.,
Gtd Sr Note
11.875
11-15-14
CCC+
340
341,700
Western Oil Sands, Inc.,
Sr Note (Canada) (F)
8.375
05-01-12
BBB+
385
429,393
Oil & Gas Refining & Marketing 0.32%
534,803
Enterprise Products Operating LP,
Gtd Jr Sub Note (P)
7.034
01-15-68
BB
590
534,803
Oil & Gas Storage & Transportation 1.58%
2,601,342
Markwest Energy Partners LP,
Gtd Sr Note Ser B
8.500
07-15-16
B
545
547,725
NGPL PipeCo LLC,
Sr Note (S)
7.119
12-15-17
BBB
580
594,702
TEPPCO Partners LP,
Jr Gtd Sub Note (P)
7.000
06-01-67
BB
695
634,915
Williams Partners LP,
Gtd Sr Note
7.250
02-01-17
BB+
800
824,000
Paper Packaging 0.84%
1,376,431
Smurfit-Stone Container
Enterprises, Inc.,
Sr Note
8.375
07-01-12
CCC+
1,000
992,500
Sr Note
8.000
03-15-17
CCC+
245
236,731
US Corrugated, Inc.,
Sr Sec Note
10.000
06-01-13
CCC+
160
147,200
Interest
Maturity
Credit
Par value
Issuer, description
rate
date
rating (A)
(000)
Value
Paper Products 1.10%
$1,810,427
Graphic Packaging
International, Inc.,
Sr Note
8.500%
08-15-11
B
$445
440,550
Plum Creek Timber Co., Inc.,
Gtd Note
5.875
11-15-15
BBB
365
359,877
Verso Paper Holdings LLC,
Sr Sec Note (S)
9.125
08-01-14
B+
1,000
1,010,000
Pharmaceuticals 0.42%
698,646
Abbott Laboratories,
Sr Note
5.600
11-30-17
AA
680
698,646
Property & Casualty Insurance 0.49%
804,460
Ohio Casualty Corp.,
Sr Note
7.300
06-15-14
BBB
750
804,460
Publishing 0.20%
325,713
Idearc, Inc.,
Gtd Sr Note
8.000
11-15-16
B+
355
325,713
Real Estate Management & Development 1.61%
2,647,544
Healthcare Realty Trust, Inc.,
Sr Note
8.125
05-01-11
BBB
175
191,062
Health Care REIT, Inc.,
Sr Note
6.200
06-01-16
BBB
505
481,246
Post Apartment Homes,
Sr Note
5.125
10-12-11
BBB
870
879,386
Shimao Property Holding Ltd.,
Gtd Sr Note (Cayman
Islands) (F)(S)
8.000
12-01-16
BB+
940
848,350
Ventas Realty LP/Capital Corp.,
Sr Note
6.625
10-15-14
BB+
250
247,500
Regional Banks 0.14%
228,861
SunTrust Capital VIII,
Gtd Bond (6.100% to 12-15-36
then variable)
6.100
12-01-66
A
275
228,861
Restaurants 0.11%
174,825
Dave & Busters, Inc.,
Gtd Sr Note
11.250
03-15-14
CCC+
185
174,825
Semiconductors 0.54%
892,500
Freescale Semiconductor, Inc.,
Sr Note (S)
8.875
12-15-14
B
1,000
892,500
Specialized Finance 2.21%
3,645,592
Astoria Depositor Corp.,
Pass Thru Ctf Ser B (G)(S)
8.144
05-01-21
BB
1,000
1,015,000
Bosphorous Financial Services,
Sec Floating Rate Note (P)(S)
7.160
02-15-12
Baa2
500
495,115
Drummond Co., Inc.,
Sr Note (S)
7.375
02-15-16
BB
290
268,975
ESI Tractebel Acquisition Corp.,
Gtd Sec Bond Ser B
7.990
12-30-11
BB
804
812,346
Interest
Maturity
Credit
Par value
Issuer, description
rate
date
rating (A)
(000)
Value
Specialized Finance (continued)
UCAR Finance, Inc.,
Gtd Sr Note
10.250%
02-15-12
B
$333
$343,406
USB Realty Corp.,
Perpetual Bond (6.091% to 1-15-12
then variable) (S)
6.091
12-15-49
A+
800
710,750
Specialty Chemicals 0.36%
591,475
American Pacific Corp.,
Sr Note (S)
9.000
02-01-15
B
590
591,475
Steel 0.39%
641,900
WCI Steel Acquisition, Inc.,
Sr Sec Note (G)
8.000
05-01-16
B+
655
641,900
Thrifts & Mortgage Finance 28.68%
47,268,629
American Home Mortgage Assets,
Mtg Pass Thru Ctf Ser 2006-6
Class XP IO
2.580
12-25-46
AAA
13,850
640,557
American Home Mortgage
Investment Trust,
Mtg Pass Thru Ctf Ser 2007-1
Class GI0P IO
2.154
05-25-47
AAA
8,425
505,476
American Tower Trust,
Mtg Pass Thru Ctf Ser 2007-1A
Class D (S)
5.957
04-15-37
BBB
865
800,255
Banc of America Commercial
Mortgage, Inc.,
Mtg Pass Thru Ctf Ser 2005-6
Class A4 (P)
5.181
09-10-47
AAA
300
298,713
Banc of America Funding Corp.,
Mtg Pass Thru Ctf Ser 2006-B
Class 6A1 (P)
5.880
03-20-36
AAA
1,073
1,071,811
Mtg Pass Thru Ctf Ser 2006-D
Class 6B2 (P)
5.946
05-20-36
AA
1,826
1,567,872
Bear Stearns Adjustable Rate
Mortgage Trust,
Mtg Pass Thru Ctf Ser 2005-1
Class B2 (P)
5.104
03-25-35
AA+
845
859,385
Bear Stearns Alt-A Trust,
Mtg Pass Thru Ctf Ser 2005-3
Class B2 (P)
5.352
04-25-35
AA+
588
601,285
Mtg Pass Thru Ctf Ser 2006-4
Class 3B1
6.342
07-25-36
AA
2,525
1,294,829
Bear Stearns Commercial Mortgage
Securities, Inc.,
Mtg Pass Thru Ctf Ser 2006-PW14
Class D (P)(S)
5.412
12-01-38
A
655
567,234
Citigroup Mortgage Loan
Trust, Inc.,
Mtg Pass Thru Ctf Ser 2005-5
Class 2A3
5.000
08-25-35
AAA
516
514,647
Mtg Pass Thru Ctf Ser 2005-10
Class 1A5A (P)
5.831
12-25-35
AAA
779
777,459
Interest
Maturity
Credit
Par value
Issuer, description
rate
date
rating (A)
(000)
Value
Thrifts & Mortgage Finance (continued)
Citigroup/Deutsche Bank
Commercial Mortgage Trust,
Mtg Pass Thru Ctf Ser 2005-CD1
Class C (P)
5.225%
07-15-44
AA
$295
$280,368
ContiMortgage Home Equity
Loan Trust,
Pass Thru Ctf Ser 1995-2
Class A-5
8.100
08-15-25
AAA
78
77,518
Countrywide Alternative
Loan Trust,
Mtg Pass Thru Ctf Ser 2005-59
Class 2X IO (P)
2.428
11-20-35
AAA
11,040
386,401
Mtg Pass Thru Ctf Ser 2006-0A8
Class X IO (P)
1.987
07-25-46
AAA
10,647
405,925
Mtg Pass Thru Ctf Ser 2006-0A10
Class XPP IO (P)
1.974
08-25-46
AAA
5,587
207,752
Mtg Pass Thru Ctf Ser 2006-0A12
Class X IO (P)
2.839
09-20-46
AAA
18,588
882,950
Mtg Pass Thru Ctf Ser 2006-11CB
Class 3A1
6.500
05-25-36
Aaa
3,200
3,145,082
Mtg Pass Thru Ctf Ser 2007-0A8
Class X IO
2.000
06-25-47
AAA
6,996
277,659
Crown Castle Towers LLC,
Mtg Pass Thru Ctf Ser 2006-1A
Class G (S)
6.795
11-15-36
Ba2
3,000
2,835,900
DB Master Finance LLC,
Sub Bond Ser 2006-1 Class M1 (S)
8.285
06-20-31
BB
340
341,258
Dominos Pizza Master Issuer LLC,
Sub Bond Ser 2007-1 Class M1 (S)
7.629
04-25-37
BB
1,000
951,890
DSLA Mortgage Loan Trust,
Mtg Pass Thru Ctf Ser 2005-AR5
Class X2 IO
2.468
08-19-45
AAA
30,201
962,643
First Horizon Alternative
Mortgage Securities,
Mtg Pass Thru Ctf Ser 2004-AA5
Class B1 (P)
5.211
12-25-34
AA
457
447,676
Mtg Pass Thru Ctf Ser 2006-AA2
Class B1 (G)(P)
6.184
05-25-36
AA
1,547
1,207,930
Global Signal Trust,
Sub Bond Ser 2004-2A Class D (S)
5.093
12-15-14
Baa2
495
484,501
Sub Bond Ser 2006-1 Class E (S)
6.495
02-15-36
Baa3
460
447,488
GS Mortgage Securities Corp.,
Mtg Pass Thru Ctf Ser 2006-NIM3
Class N1 (S)
6.414
06-25-46
A2
140
139,683
GSR Mortgage Loan Trust,
Mtg Pass Thru Ctf Ser 2004-9
Class B1 (G)(P)
5.240
08-25-34
AA
970
978,365
Mtg Pass Thru Ctf Ser 2006-4F
Class 6A1
6.500
05-25-36
AAA
3,897
3,910,837
Interest
Maturity
Credit
Par value
Issuer, description
rate
date
rating (A)
(000)
Value
Thrifts & Mortgage Finance (continued)
Harborview Mortgage Loan Trust,
Mtg Pass Thru Ctf Ser 2005-8
Class 1X IO (P)
2.294%
09-19-35
AAA
$7,903
$222,277
Mtg Pass Thru Ctf Ser 2007-3
Class ES IO (G)
0.350
05-19-47
AAA
24,342
186,368
Mtg Pass Thru Ctf Ser 2007-4
Class ES IO (G)
0.304
07-19-47
AAA
24,248
215,956
Mtg Pass Thru Ctf Ser 2007-6
Class ES IO (G)(S)
0.292
11-19-15
AAA
17,293
132,402
Harborview NIM Corp.,
Mtg Pass Thru Ctf Ser 2006-9A
Class N2 (G)
8.350
11-19-36
BBB
1,625
1,616,875
Indymac Index Mortgage
Loan Trust,
Mtg Pass Thru Ctf Ser 2005-AR5
Class B1 (P)
5.440
05-25-35
AA
496
505,371
Mtg Pass Thru Ctf Ser 2004-AR13
Class B1
5.296
01-25-35
AA
344
336,549
Mtg Pass Thru Ctf Ser 2005-AR18
Class 1X IO
2.307
10-25-36
AAA
16,984
530,760
Mtg Pass Thru Ctf Ser 2006-AR19
Class 1B1 (P)
6.404
08-25-36
AA
453
414,019
JP Morgan Chase Commercial
Mortgage Security Corp.,
Mtg Pass Thru Ctf Ser 2005-LDP4
Class B
5.129
10-15-42
Aa2
2,035
1,915,311
JP Morgan Mortgage Trust,
Mtg Pass Thru Ctf Ser 2005-S3
Class 2A2
5.500
01-25-21
AAA
863
869,016
Luminent Mortgage Trust,
Mtg Pass Thru Ctf Ser 2006-1
Class X IO
2.462
04-25-36
AAA
24,388
838,323
Merrill Lynch Mortgage
Investors Trust,
Mtg Pass Thru Ctf Ser 2006-AF1
Class MF1 (P)
6.105
08-25-36
AA
1,220
1,102,053
MLCC Mortgage Investors, Inc.,
Mtg Pass Thru Ctf Ser 2007-3
Class M1 (G)(P)
5.979
09-25-37
AA
420
400,659
Mtg Pass Thru Ctf Ser 2007-3
Class M2 (G)(P)
5.979
09-25-37
A
155
138,175
Mtg Pass Thru Ctf Ser 2007-3
Class M3 (G)(P)
5.979
09-25-37
BBB
105
87,602
Morgan Stanley Capital I,
Mtg Pass Thru Ctf Ser 2005-HQ7
Class A4 (P)
5.204
11-14-42
AAA
840
834,425
Mtg Pass Thru Ctf Ser 2006-IQ12
Class E
5.538
12-15-43
A+
640
565,383
Provident Funding Mortgage
Loan Trust,
Mtg Pass Thru Ctf Ser 2005-1
Class B1 (P)
4.379
05-25-35
AA
418
399,870
Interest
Maturity
Credit
Par value
Issuer, description
rate
date
rating (A)
(000)
Value
Thrifts & Mortgage Finance (continued)
Residential Accredit Loans, Inc.,
Mtg Pass Thru Ctf Ser 2005-QA12
Class NB5 (P)
5.961%
12-25-35
AAA
$3,336
$3,337,384
SBA CMBS Trust,
Sub Bond Ser 2005-1A Class D (S)
6.219
11-15-35
Baa2
225
220,232
Sub Bond Ser 2005-1A Class E (S)
6.706
11-15-35
Baa3
200
195,801
Sub Bond Ser 2006-1A Class H (S)
7.389
11-15-36
Ba3
365
344,559
Sub Bond Ser 2006-1A Class J (S)
7.825
11-15-36
B1
220
205,826
Washington Mutual Alternative
Loan Trust,
Mtg Pass Thru Ctf Ser 2005-6
Class 1CB
6.500
08-25-35
AAA
490
499,197
Washington Mutual, Inc.,
Mtg Pass Thru Ctf Ser 2005-AR4
Class B1 (P)
4.672
04-25-35
AA
1,511
1,445,780
Mtg Pass Thru Ctf Ser 2007-0A4
Class XPPP IO
0.776
04-25-47
Aaa
19,970
397,411
Mtg Pass Thru Ctf Ser 2007-0A5
Class 1XPP IO
0.806
06-25-47
Aaa
46,568
582,103
Mtg Pass Thru Ctf Ser 2007-0A6
Class 1XPP IO
0.560
07-25-47
Aaa
26,681
350,192
Mtg Pass Thru Ctf Ser 2007-1
Class B1
6.205
02-25-37
AA
573
507,401
Tires & Rubber 0.18%
297,113
Goodyear Tire & Rubber Co. (The)
Sr Note (S)
8.625
12-01-11
B
285
297,113
Tobacco 0.79%
1,296,609
Alliance One International, Inc.,
Gtd Sr Note (S)
8.500
05-15-12
B
245
238,875
Reynolds American, Inc.,
Gtd Sr Sec Note
7.250
06-01-13
BB
1,000
1,057,734
Wireless Telecommunication Services 2.00%
3,288,026
Citizens Communications Co.,
Sr Note
6.250
01-15-13
BB+
460
445,625
Crown Castle Towers LLC,
Sub Bond Ser 2005-1A Class D
5.612
06-15-35
Baa2
1,340
1,327,391
Digicel Group Ltd.,
Sr Note (Bermuda) (F)(S)
8.875
01-15-15
Caa2
580
530,700
Mobile Telesystems Finance SA,
Gtd Sr Note (Luxembourg) (F)(S)
9.750
01-30-08
BB
400
400,200
Nextel Communications, Inc.,
Sr Note Ser D
7.375
08-01-15
BBB
500
492,310
Rural Cellular Corp.,
Sr Sub Note (P)
10.661
11-01-12
CCC
90
91,800
Credit
Issuer, description
rating (A)
Shares
Value
Preferred stocks 5.09%
$8,394,406
(Cost $8,816,257)
Agri cultural Products 0.70%
1,149,610
Ocean Spray Cranberries, Inc.,
6.25%, Ser A (S)
BB+
12,500
1,149,610
Broadcasting & Cable TV 0.52%
865,200
CBS Corp., 7.250%
BBB
40,000
865,200
Diversified Banks 0.78%
1,281,500
Bank One Capital Trust VI, 7.20%
A
55,000
1,281,500
Diversified Metals & Mining 0.91%
1,505,000
Freeport-McMoRan Copper & Gold,
Inc., 6.75%, Conv
B+
10,000
1,505,000
Government U.S. Agency 0.52%
862,496
Federal National Mortgage
Assn., 8.25%
AA
33,495
862,496
Integrated Telecommunication Services 0.51%
832,800
Telephone & Data Systems, Inc.,
7.60%, Ser A
BB+
40,000
832,800
Real Estate Management & Development 1.15%
1,897,800
Apartment Investment & Management
Co., 8.00%, Ser T
B+
55,000
1,146,200
Public Storage REIT, Inc., 6.50%,
Depositary Shares, Ser W
BBB+
40,000
751,600
Credit
Par value
Issuer, description, maturity date
rating (A)
(000)
Value
Tranche loans 0.30%
$500,000
(Cost $495,000)
Hotels, Resorts & Cruise Lines 0.30%
500,000
East Valley Tourist Development
Authority,
Tranche (Fac LN5501750),
8-06-12 (G)
B3
$500
500,000
Interest
Maturity
Credit
Par value
Issuer, description
rate
date
rating (A)
(000)
Value
U.S. government and agencies securities 58.75%
$96,819,190
(Cost $95,643,335)
Government U.S. Agency 58.75%
96,819,190
Federal Home Loan Mortgage Corp.,
20 Yr Pass Thru Ctf
11.250%
01-01-16
AAA
$14
14,677
30 Yr Adj Rate Pass Thru Ctf (P)
5.154
11-01-35
AAA
2,025
2,031,504
30 Yr Pass Thru Ctf
6.000
08-01-34
AAA
1,917
1,945,131
30 Yr Pass Thru Ctf
6.000
05-01-37
AAA
4,054
4,115,265
30 Yr Pass Thru Ctf
6.000
08-01-37
AAA
3,498
3,549,844
30 Yr Pass Thru Ctf
5.500
04-01-33
AAA
1,580
1,579,981
30 Yr Pass Thru Ctf
5.500
05-15-35
AAA
3,000
2,965,860
Interest
Maturity
Credit
Par value
Issuer, description
rate
date
rating (A)
(000)
Value
Government U.S. Agency (continued)
Federal Home Loan Mortgage Corp.,
CMO REMIC Ser 3174-CB
5.500%
02-15-31
AAA
$300
$305,401
CMO REMIC Ser 3294-NB
5.500
12-15-29
AAA
340
344,590
CMO REMIC Ser 3320-PB
5.500
11-15-31
AAA
1,030
1,047,256
Federal National Mortgage Assn.,
15 Yr Pass Thru Ctf
7.000
09-01-10
AAA
14
14,150
15 Yr Pass Thru Ctf
7.000
09-01-12
AAA
3
2,688
15 Yr Pass Thru Ctf
7.000
04-01-17
AAA
32
33,071
15 Yr Pass Thru Ctf
6.000
05-01-21
AAA
748
765,920
30 Yr Adj Rate Pass Thru Ctf (P)
5.755
04-01-37
AAA
7,214
7,270,414
30 Yr Adj Rate Pass Thru Ctf (P)
5.315
11-01-35
AAA
3,544
3,522,446
30 Yr Pass Thru Ctf
6.500
07-01-36
AAA
365
375,680
30 Yr Pass Thru Ctf
6.500
12-01-36
AAA
393
403,725
30 Yr Pass Thru Ctf
6.500
08-01-37
AAA
2,790
2,867,827
30 Yr Pass Thru Ctf
6.000
05-01-35
AAA
3,230
3,280,314
30 Yr Pass Thru Ctf
6.000
08-01-36
AAA
11,738
11,922,187
30 Yr Pass Thru Ctf
6.000
09-01-36
AAA
15,855
16,103,780
30 Yr Pass Thru Ctf
6.000
11-01-36
AAA
2,244
2,279,244
30 Yr Pass Thru Ctf
6.000
12-01-36
AAA
3,434
3,487,958
30 Yr Pass Thru Ctf
6.000
07-01-37
AAA
3,111
3,159,518
30 Yr Pass Thru Ctf
5.500
04-01-35
AAA
1,902
1,902,140
30 Yr Pass Thru Ctf
5.500
11-01-35
AAA
1,670
1,668,762
30 Yr Pass Thru Ctf
5.500
01-01-36
AAA
2,189
2,187,988
30 Yr Pass Thru Ctf
5.500
02-01-36
AAA
4,202
4,199,856
30 Yr Pass Thru Ctf
5.500
03-01-37
AAA
4,753
4,747,496
30 Yr Pass Thru Ctf
5.500
05-01-37
AAA
593
592,381
30 Yr Pass Thru Ctf
5.500
06-01-37
AAA
5,173
5,166,888
CMO REMIC Ser 2006-67-PD
5.500
12-25-34
AAA
1,230
1,221,240
Note
6.000
05-30-25
AAA
1,720
1,720,740
Government National
Mortgage Assn.,
30 Yr Pass Thru Ctf
10.000
11-15-20
AAA
4
4,985
30 Yr Pass Thru Ctf
9.500
01-15-21
AAA
4
4,559
30 Yr Pass Thru Ctf
9.500
02-15-25
AAA
12
13,724
Interest
Maturity
Par value
Issuer, description
rate
date
(000)
Value
Short-term investments 2.89%
$4,763,229
(Cost $4,763,091)
Government U.S. Agency 1.27%
2,100,000
Federal Home Loan Bank,
Disc Note
4.15%
(Y) 01-02-08
$2,100
2,100,000
Interest
Issuer
rate
Shares
Value
Cash Equivalents 1.62%
$2,663,229
John Hancock Cash Investment Trust (T)(W)
5.10% (Y)
2,663,229
2,663,229
Total investments (Cost $258,841,350) 154.58%
$254,763,452
Other assets and liabilities, net (0.54%)
($888,888)
Fund preferred shares, at liquidation value (54.04%)
($89,061,227)
Total net assets applicable to common shareholders 100.00%
$164,813,337
Assets
Investments in unaffiliated issuers, at value (cost $256,178,121)
including $2,604,516 of securities loaned (Note 2)
$252,100,223
Investments in affiliated issuers, at value (cost $2,663,229)
2,663,229
Total investments, at value (cost $258,841,350)
254,763,452
Cash
111,767
Receivable for investments sold
3,390
Receivable for dividends reinvested
224,327
Dividends and interest receivable
2,819,174
Receivable from affiliates
19,535
Total assets
257,941,645
Liabilities
Unrealized depreciation of swap contracts (Note 2)
911,104
Payable upon return of securities loaned (Note 2)
2,663,229
Payable to affiliates
Management fees
340,346
Other
22,289
Other payables and accrued expenses
130,113
Total liabilities
4,067,081
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
44,530,614
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
44,530,613
Net assets
Common shares capital paid-in
180,072,123
Accumulated net realized loss on investments, financial futures contracts
and swap contracts
(10,545,882)
Net unrealized depreciation of investments, financial futures contracts
and swap contracts
(4,989,002)
Undistributed net investment income
276,098
Net assets applicable to common shares
$164,813,337
Net asset value per common share
Based on 11,346,364 common shares outstanding the Fund has an
unlimited number of shares authorized with no par value
$14.53
Investment income
Interest
$16,532,465
Dividends
498,284
Securities lending
51,615
Total investment income
17,082,364
Expenses
Investment management fees (Note 3)
1,370,150
Accounting and legal services fees (Note 3)
29,674
APS auction fees
236,593
Transfer agent fees
107,135
Printing fees
66,590
Custodian fees
63,555
Professional fees
41,401
Registration and filing fees
25,768
Trustees fees
11,061
Miscellaneous
20,733
Total expenses
1,972,660
Net investment income
15,109,704
Realized and unrealized gain (loss)
Net realized gain (loss) on
Investments
(455,947)
Financial futures contracts
(1,604,911)
Swap contracts
418,072
(1,642,786)
Change in net unrealized appreciation (depreciation) of
Investments
(4,914,876)
Financial futures contracts
(245,154)
Swap contracts
(911,104)
(6,071,134)
Net realized and unrealized loss
(7,713,920)
Distributions to APS Series A
(2,370,224)
Distributions to APS Series B
(2,369,931)
(4,740,155)
Increase in net assets from operations
$2,655,629
Year
Year
ended
ended
12-31-06
12-31-07
Increase (decrease) in net assets
From operations
Net investment income
$14,120,827
$15,109,704
Net realized loss
(2,401,780)
(1,642,786)
Change in net unrealized appreciation (depreciation)
2,048,384
(6,071,134)
Distributions to APS Series A and B
(4,255,519)
(4,740,155)
Increase in net assets resulting from operations
9,511,912
2,655,629
Distributions to common shareholders
From net investment income
(10,412,003)
(10,400,867)
From Fund share transactions (Note 4)
932,358
889,931
Total increase (decrease)
32,267
(6,855,307)
Net assets
Beginning of year
171,636,377
171,668,644
End of year1
$171,668,644
$164,813,337
COMMON SHARES
Period ended
12-31-03
12-31-04
12-31-05
12-31-06
12-31-07
Per share operating performance
Net asset value, beginning of period
$16.31
$16.53
$16.19
$15.30
$15.22
Net investment income1
0.93
1.22
1.20
1.26
1.34
Net realized and unrealized
gain (loss) on investments
0.63
(0.25)
(0.81)
(0.03)
(0.69)
Distributions to APS Series A and B 2
(0.02)
(0.12)
(0.25)
(0.38)
(0.42)
Total from investment operations
1.54
0.85
0.14
0.85
0.23
Less distributions to common shareholders
From net investment income
(0.96)
(1.19)
(1.03)
(0.93)
(0.92)
From net realized gain
(0.26)
(1.22)
(1.19)
(1.03)
(0.93)
(0.92)
Capital charges
Offering costs and underwriting
discount related to APS
(0.10)
Net asset value, end of period
$16.53
$16.19
$15.30
$15.22
14.53
Per share market value, end of period
$15.39
$15.68
$13.68
$14.75
12.85
Total return at net asset value3 (%)
9.574
5.704
1.364
6.24
1.97
Total return at market value3 (%)
13.49
9.95
(6.42)
15.15
(6.94)
Ratios and supplemental data
Net assets applicable to common shares,
end of period (in millions)
$183
$180
$172
$172
$165
Ratio of expenses to average
net assets5 (%)
0.87
1.14
1.16
1.17
1.16
Ratio of net investment income
to average net assets6 (%)
5.58
7.44
7.62
8.30
8.87
Portfolio turnover (%)
273
135
148
94
547
Senior securities
Total APS Series A outstanding
(in millions)
$45
$45
$45
$45
$45
Total APS Series B outstanding
(in millions)
$45
$45
$45
$45
$45
Involuntary liquidation preference
APS Series A per unit (in thousands)
$25
$25
$25
$25
$25
Involuntary liquidation preference
APS Series B per unit (in thousands)
$25
$25
$25
$25
$25
Average market value per unit
(in thousands)
$25
$25
$25
$25
$25
Asset coverage per unit 8
$75,402
$75,049
$72,470
$73,375
$71,228
Organization
Significant accounting policies
The Fund had the following interest rate swap contracts open on December 31, 2007:
RATE TYPE
NOTIONAL
PAYMENTS MADE
PAYMENTS RECEIVED
TERMINATION
UNREALIZED
AMOUNT
BY FUND
BY FUND
DATE
COUNTERPARTY
DEPRECIATION
$29,000,000
4.6875% (a)
3-month LIBOR
Sep 2010
Bank of America
$899,690
29,000,000
3.996% (a)
3-month LIBOR
Dec 2010
Barclays Bank, Plc
11,414
Total
$911,104
(a) Fixed rate
Management fee and transactions
with affiliates and others
Fund share transactions
Year ended 12-31-06
Year ended 12-31-07
Shares
Amount
Shares
Amount
Beginning of period
11,215,223
$177,367,356
11,282,039
$178,860,851
Distributions reinvested
66,816
932,358
64,325
889,931
Reclassification of capital accounts
561,137
321,341
End of period
11,282,039
$178,860,851
11,346,364
$180,072,123
Purchase and sales of securities
Boston, Massachusetts
February 29, 2008
INCOME
PAYMENT DATE
DIVIDEND
March 30, 2007
$0.2225
June 29, 2007
0.2300
September 28, 2007
0.2350
December 31, 2007
0.2325
and assistance
Newport Office Center VII
480 Washington Boulevard
Jersey City, NJ 07310
Telephone: 1-800-852-0218
On March 27, 2007, the Annual Meeting of the Fund was held to elect eight Trustees.
WITHHELD
FOR
AUTHORITY
James R. Boyle
9,871,674
145,473
James F. Carlin
9,877,727
139,420
William H. Cunningham
9,870,137
147,010
Ronald R. Dion
9,874,528
142,619
Charles L. Ladner
9,880,350
136,797
Steven R. Pruchansky
9,877,998
139,149
Continuation of Investment Advisory
Agreement and Subadvisory
Agreement: John Hancock Income
Securities Trust
Began business career in 1986
Joined fund team in 2002
Fund ownership $10,001$50,000
Second Vice President, John Hancock Advisers LLC (19932005)
Began business career in 1993
Joined fund team in 1999
Fund ownership $1$10,000
Senior Vice President, John Hancock Advisers LLC (20022005)
Vice President at Sun Life Financial Services Company of Canada (19872002)
Began business career in 1979
Joined fund team in 2005
Fund ownership None
P O R T F O L I O M A N A G E R
O T H E R A C C O U N T S M A N A G E D B Y T H E P O R T F O L I O M A N A G E R S
Barry H. Evans, CFA
Other Investment Companies: 5 funds with assets of
approximately $3.3 billion.
Other Pooled Investment Vehicles: 2 accounts with assets of
approximately $156.2 million.
Other Accounts: 125 accounts with assets of
approximately $5.3 billion.
Jeffrey N. Given, CFA
Other Investment Companies: 5 funds with assets of
approximately $2 billion.
Other Pooled Investment Vehicles: None
Other Accounts: 19 accounts with assets of
approximately $4.2 billion.
Howard C. Greene, CFA
Other Investment Companies: 3 funds with assets of
approximately $1.4 billion.
Other Pooled Investment Vehicles: None
Other Accounts: 19 accounts with assets of
approximately $4.2 billion.
Independent Trustees
Name, Year of Birth
Number of
Position(s) held with Fund
Trustee
John Hancock
Principal occupation(s) and other
of Fund
funds overseen
directorships during past 5 years
since1
by Trustee
James F. Carlin, Born: 1940
2005
55
Interim Chairman (since December 2007); Director and Treasurer, Alpha Analytical Laboratories, Inc.
(chemical analysis) (since 1985); Part Owner and Treasurer, Lawrence Carlin Insurance Agency, Inc.
(since 1995); Part Owner and Vice President, Mone Lawrence Carlin Insurance Agency, Inc. (until 2005);
Chairman and Chief Executive Officer, Carlin Consolidated, Inc. (management/investments) (since 1987);
Trustee, Massachusetts Health and Education Tax Exempt Trust (19932003).
William H. Cunningham, Born: 1944
2005
55
Professor, University of Texas at Austin (since 1971); former Chancellor, University of Texas System and
former President, University of Texas at Austin (until 2001); Chairman and Chief Executive Officer, IBT
Technologies (until 2001); Director of the following: Hicks Acquisition Company I, Inc. (since 2007);
Hire.com (until 2004), STC Broadcasting, Inc. and Sunrise Television Corp. (until 2001), Symtx, Inc.
(electronic manufacturing) (since 2001), Adorno/Rogers Technology, Inc. (until 2004), Pinnacle Foods
Corporation (until 2003), rateGenius (until 2003), Lincoln National Corporation (insurance) (since 2006),
Jefferson-Pilot Corporation (diversified life insurance company) (until 2006), New Century Equity
Holdings (formerly Billing Concepts) (until 2001), eCertain (until 2001), ClassMap.com (until 2001),
Agile Ventures (until 2001), AskRed.com (until 2001), Southwest Airlines (since 2000), Introgen (man-
ufacturer of biopharmaceuticals) (since 2000) and Viasystems Group, Inc. (electronic manufacturer)
(until 2003); Advisory Director, Interactive Bridge, Inc. (college fundraising) (until 2001); Advisory
Director, Q Investments (until 2003); Advisory Director, JPMorgan Chase Bank (formerly Texas Commerce
BankAustin), LIN Television (until 2008), WilTel Communications (until 2003) and Hayes Lemmerz
International, Inc. (diversified automotive parts supply company) (since 2003).
Charles L. Ladner, 2 Born: 1938
2004
55
Chairman and Trustee, Dunwoody Village, Inc. (retirement services) (until 2003); Senior Vice President
and Chief Financial Officer, UGI Corporation (public utility holding company) (retired 1998); Vice
President and Director, AmeriGas, Inc. (retired 1998); Director, AmeriGas Partners, L.P. (gas distribution)
(until 1997); Director, EnergyNorth, Inc. (until 1997); Director, Parks and History Association (until 2005).
John A. Moore,2 Born: 1939
1996
55
President and Chief Executive Officer, Institute for Evaluating Health Risks (nonprofit institution)
(until 2001); Senior Scientist, Sciences International (health research) (until 2003); Former Assistant
Administrator and Deputy Administrator, Environmental Protection Agency; Principal, Hollyhouse
(consulting) (since 2000); Director, CIIT Center for Health Science Research (nonprofit research)
(until 2007).
Independent Trustees (continued)
Name, Year of Birth
Number of
Position(s) held with Fund
Trustee
John Hancock
Principal occupation(s) and other
of Fund
funds overseen
directorships during past 5 years
since1
by Trustee
Patti McGill Peterson,2 Born: 1943
1996
55
Senior Associate, Institute for Higher Education Policy (since 2007); Executive Director, Council for
International Exchange of Scholars and Vice President, Institute of International Education (until 2007);
Senior Fellow, Cornell Institute of Public Affairs, Cornell University, Ithaca, NY (until 1998); Former
President, Wells College, Aurora, NY, and St. Lawrence University, Canton, NY; Director, Niagara
Mohawk Power Corporation (until 2003); Director, Ford Foundation, International Fellowships Program
(since 2002); Director, Lois Roth Endowment (since 2002); Director, Council for International Educational
Exchange (since 2003).
Steven R. Pruchansky, Born: 1944
2005
55
Chairman and Chief Executive Officer, Greenscapes of Southwest Florida, Inc. (since 2000); Director and
President, Greenscapes of Southwest Florida, Inc. (until 2000); Managing Director, JonJames, LLC (real
estate) (since 2000); Director, First Signature Bank & Trust Company (until 1991); Director, Mast Realty
Trust (until 1994); President, Maxwell Building Corp. (until 1991).
Non-Independent Trustees3
Name, Year of Birth
Number of
Position(s) held with Fund
Trustee
John Hancock
Principal occupation(s) and other
of Fund
funds overseen
directorships during past 5 years
since1
by Trustee
James R. Boyle, Born: 1959
2005
265
Executive Vice President, Manulife Financial Corporation (since 1999); President, John Hancock Variable
Life Insurance Company (since March 2007); Executive Vice President, John Hancock Life Insurance
Company (since 2004); Chairman and Director, John Hancock Advisers, LLC (the Adviser), John Hancock
Funds, LLC and The Berkeley Financial Group, LLC (The Berkeley Group) (holding company) (since 2005);
Senior Vice President, The Manufacturers Life Insurance Company (U.S.A.) (until 2004).
Principal officers who are not Trustees
Name, Year of Birth
Position(s) held with Fund
Officer
Principal occupation(s) and other
of Fund
directorships during past 5 years
since
Keith F. Hartstein, Born: 1956
2005
President and Chief Executive Officer
Senior Vice President, Manulife Financial Corporation (since 2004); Director, President and Chief
Executive Officer, the Adviser, The Berkeley Group and John Hancock Funds, LLC (since 2005); Director,
MFC Global Investment Management (U.S.), LLC (MFC Global (U.S.)) (since 2005); Director, John
Hancock Signature Services, Inc. (since 2005); President and Chief Executive Officer, John Hancock
Investment Management Services, LLC (since 2006); President and Chief Executive Officer, John Hancock
Funds, John Hancock Funds II, John Hancock Funds III and John Hancock Trust (since 2005); Director,
Chairman and President, NM Capital Management, Inc. (since 2005); Member, Investment Company
Institute Sales Force Marketing Committee (since 2003); President and Chief Executive Officer, MFC
Global (U.S.) (20052006); Executive Vice President, John Hancock Funds, LLC (until 2005).
Thomas M. Kinzler, Born: 1955
2006
Secretary and Chief Legal Officer
Vice President and Counsel, John Hancock Life Insurance Company (U.S.A.) (since 2006); Secretary and
Chief Legal Officer, John Hancock Funds and John Hancock Funds II (since 2006); Chief Legal Officer
and Assistant Secretary, John Hancock Trust (since 2006); Vice President and Associate General Counsel,
Massachusetts Mutual Life Insurance Company (19992006); Secretary and Chief Legal Counsel, MML
Series Investment Fund (20002006); Secretary and Chief Legal Counsel, MassMutual Institutional Funds
(20002004); Secretary and Chief Legal Counsel, MassMutual Select Funds and MassMutual Premier
Funds (20042006).
Francis V. Knox, Jr., Born: 1947
2005
Chief Compliance Officer
Vice President and Chief Compliance Officer, John Hancock Investment Management Services, LLC,
the Adviser and MFC Global (U.S.) (since 2005); Vice President and Chief Compliance Officer, John
Hancock Funds, John Hancock Funds II, John Hancock Funds III and John Hancock Trust (since 2005);
Vice President and Assistant Treasurer, Fidelity Group of Funds (until 2004); Vice President and Ethics &
Compliance Officer, Fidelity Investments (until 2001).
Charles A. Rizzo, Born: 1957
2007
Chief Financial Officer
Chief Financial Officer, John Hancock Funds, John Hancock Funds II, John Hancock Funds III and John
Hancock Trust (since June 2007); Assistant Treasurer, Goldman Sachs Mutual Fund Complex (regis-
tered investment companies) (2005June 2007); Vice President, Goldman Sachs (2005June 2007);
Managing Director and Treasurer of Scudder Funds, Deutsche Asset Management (20032005);
Director, Tax and Financial Reporting, Deutsche Asset Management (20022003); Vice President and
Treasurer, Deutsche Global Fund Services (Deutsche Registered Investment Companies) (19992002).
Gordon M. Shone, Born: 1956
2006
Treasurer
Senior Vice President, John Hancock Life Insurance Company (U.S.A.) (since 2001); Treasurer, John
Hancock Funds (since 2006), John Hancock Funds II, John Hancock Funds III and John Hancock Trust
(since 2005); Vice President and Chief Financial Officer, John Hancock Trust (20032005); Vice President,
John Hancock Investment Management Services, Inc., John Hancock Advisers, LLC (since 2006) and The
Manufacturers Life Insurance Company (U.S.A.) (19982000).
Principal officers who are not Trustees (continued)
Name, Year of Birth
Position(s) held with Fund
Officer
Principal occupation(s) and other
of Fund
directorships during past 5 years
since
John G. Vrysen, Born: 1955
2005
Chief Operating Officer
Senior Vice President, Manulife Financial Corporation (since 2006); Director, Executive Vice President
and Chief Operating Officer, the Adviser, The Berkeley Group and John Hancock Funds, LLC (since
June 2007); Executive Vice President and Chief Operating Officer, John Hancock Investment
Management Services, LLC (since December 2007); Chief Operating Officer, John Hancock Funds,
John Hancock Funds II, John Hancock Funds III and John Hancock Trust (since June 2007); Director,
Executive Vice President and Chief Financial Officer, the Adviser, The Berkeley Group and John Hancock
Funds, LLC (20052007); Executive Vice President and Chief Financial Officer, John Hancock Investment
Management Services, LLC (20052007); Executive Vice President and Chief Financial Officer, MFC
Global (U.S.) (2005 until August 2007); Director, John Hancock Signature Services, Inc. (since 2005);
Chief Financial Officer, John Hancock Funds, John Hancock Funds II, John Hancock Funds III and John
Hancock Trust (2005 until June 2007); Vice President and General Manager, John Hancock Fixed
Annuities, U.S. Wealth Management (20042005); Vice President, Operations, Manulife Wood Logan
(20002004).
By phone
On the Funds Web site
On the SECs Web site
1-800-225-5291
www.jhfunds.com/proxy
www.sec.gov
Investment adviser
Transfer agent for
Independent registered
John Hancock Advisers, LLC
common shareholders
public accounting firm
601 Congress Street
Mellon Investor Services
PricewaterhouseCoopers LLP
Boston, MA 02210-2805
Newport Office Center VII
125 High Street
480 Washington Boulevard
Boston, MA 02110
Subadviser
Jersey City, NJ 07310
MFC Global Investment
Stock symbol
Management (U.S.), LLC
Transfer agent for
Listed New York Stock
101 Huntington Avenue
preferred shareholders
Exchange:
Boston, MA 02199
Deutsche Bank Trust
JHS
Company Americas
Custodian
280 Park Avenue
For shareholder assistance
The Bank of New York
New York, NY 10017
refer to page 39
One Wall Street
New York, NY 10286
Legal counsel
Kirkpatrick & Lockhart
Preston Gates Ellis LLP
One Lincoln Street
Boston, MA 02111-2950
How to contact us
Internet
www.jhfunds.com
Mail
Mellon Investor Services
Newport Office Center VII
480 Washington Boulevard
Jersey City, NJ 07310
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
1-800-231-5469 TDD
1-800-843-0090 EASI-Line
www.jhfunds. com
STANDARD
U.S. POSTAGE
PAID
MIS
P600A 12/07
2/08
There were no amounts that were approved by the Audit Committee pursuant to the de minimis exception under Rule 2-01 of Regulation S-X.
Charles L. Ladner
Patti McGill Peterson
Began business career in 1986
Joined fund team in 2002
Fund ownership $10,001$50,000
Second Vice President, John Hancock Advisers LLC (19932005)
Began business career in 1993
Joined fund team in 1999
Fund ownership $1$10,000
Senior Vice President, John Hancock Advisers LLC (20022005)
Vice President at Sun Life Financial Services Company of Canada (19872002)
Began business career in 1979
Joined fund team in 2005
Fund ownership None
P O R T F O L I O M A N A G E R
O T H E R A C C O U N T S M A N A G E D B Y T H E P O R T F O L I O M A N A G E R S
Barry H. Evans, CFA
Other Investment Companies: 5 funds with assets of
approximately $3.3 billion.
Other Pooled Investment Vehicles: 2 accounts with assets of
approximately $156.2 million.
Other Accounts: 125 accounts with assets of
approximately $5.3 billion.
Jeffrey N. Given, CFA
Other Investment Companies: 5 funds with assets of
approximately $2 billion.
Other Pooled Investment Vehicles: None
Other Accounts: 19 accounts with assets of
approximately $4.2 billion.
Howard C. Greene, CFA
Other Investment Companies: 3 funds with assets of
approximately $1.4 billion.
Other Pooled Investment Vehicles: None
Other Accounts: 19 accounts with assets of
approximately $4.2 billion.
By: /s/ Keith F. Hartstein
-------------------------------------
Keith F. Hartstein
President and Chief Executive Officer
Date: February 28, 2008
-------------------------------------
Keith F. Hartstein
President and Chief Executive Officer
Date: February 28, 2008
By: /s/ Charles A. Rizzo
-------------------------------------
Charles A. Rizzo
Chief Financial Officer
Date: February 28, 2008
-------------------------------------
Keith F. Hartstein
President and Chief Executive Officer
Date: February 28, 2008
-------------------------------------
Charles A. Rizzo
Chief Financial Officer
Date: February 28, 2008
the Sarbanes-Oxley Act of 2002
-------------------------------------
Keith F. Hartstein
President and Chief Executive Officer
Dated: February 28, 2008
/s/ Charles A. Rizzo
-------------------------------------
Charles A. Rizzo
Chief Financial Officer
Dated: February 28, 2008
JOHN HANCOCK FUNDS
JOHN HANCOCK FUNDS II
JOHN HANCOCK FUNDS III
FOR
PRINCIPAL EXECUTIVE & PRINCIPAL FINANCIAL OFFICERS
1 John Hancock Funds includes the following trusts: John Hancock Bank and Thrift Opportunity Fund; John Hancock Bond Trust; John Hancock California Tax-Free Income Fund; John Hancock Capital Series; John Hancock Current Interest; John Hancock Equity Trust; John Hancock Income Securities Trust; John Hancock Investment Trust; John Hancock Investment Trust II; John Hancock Investment Trust III; John Hancock Investors Trust; John Hancock Municipal Securities Trust; John Hancock Patriot Premium Dividend Fund II; Trust; John Hancock Preferred Income Fund; John Hancock Preferred Income Fund II; John Hancock Preferred Income Fund III; John Hancock Series Trust; John Hancock Sovereign Bond Fund; John Hancock Strategic Series; John Hancock Tax-Exempt Series Fund; John Hancock World Fund; John Hancock Tax-Advantaged Dividend Income Fund and John Hancock Tax-Advantaged Global Shareholder Yield Fund.
Persons Covered by this Code of Ethics
(As of June 2007)
► Principal Financial Officer and Chief Financial Officer Charles Rizzo
► Principal Financial Officer and Chief Financial Officer Charles Rizzo
► Principal Financial Officer and Chief Financial Officer Charles Rizzo
► Principal Financial Officer and Chief Financial Officer Charles Rizzo
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 of any fund's investment adviser or principal underwriter (the "Independent Trustees") who are designated for membership from time to time by the Board of 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 recommend nominees 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 nominate individuals recommended by others, to recommend to the Board of Trustees individuals for nomination to serve as Trustees.
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, including incremental amounts, if any, payable to Committee Chairmen, and to address compensation-related matters.
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 evaluate, from time to time, the retirement policies for the Independent Trustees.
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 all expenditures of the Board or the Committees or the Independent Trustees not otherwise incurred and/or monitored by a particular Committee, including, but not limited to: legal, consulting, and D&O insurance costs; association dues, including Investment Company Institute membership dues; meeting expenditures and policies relating to
reimbursement of travel expenses and expenses associated with offsite meetings; expenses associated with Trustee attendance at educational or informational conferences; and publication expenses.
9. To consider, evaluate and make recommendations and necessary findings regarding independent legal counsel and any other advisers, experts or consultants, that may be engaged by the Board of Trustees, by the Trustees who 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, or by the Governance Committee, from time to time, other than as may be engaged directly by another Committee.
10. To periodically review the Board's committee structure and the charters of the Board's committees, and recommend to the Board of Trustees changes to the committee structure and charters as it deems appropriate.
11. To coordinate and administer 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 Board of Trustees 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 of the Board or by the Board of Trustees, and will report findings and recommendations to the Board of Trustees, 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 Board of Trustees, 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 Board of Trustees 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 funds and should be willing and able to contribute positively to the decision-making process of the funds.
3. Nominees should have a commitment to understand the funds, 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 funds, 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 their ability to represent the interests of all the shareholders and to fulfill the responsibilities of a director/trustee.
Application of Criteria to Existing Trustees
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 Governance Committee shall consider the existing Trustee's performance on the Board and any committee.
Review of Shareholder Nominations |
Any shareholder nomination must be submitted in compliance with all of the pertinent provisions of Rule 14a-8 under the Securities Exchange Act of 1934 in order to be considered by the Governance Committee. In evaluating a nominee recommended by a shareholder, the Governance 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 its designated nominees, the candidate's name will be placed on the funds' proxy card. If the Board determines not to include such candidate among its 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 funds' proxy statement.
As long as an existing Independent Trustee continues, in the opinion of the Governance 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 Governance Committee will consider nominees recommended by shareholders to serve as trustees, the Governance Committee may only act upon such recommendations if there is a vacancy on the Board, or the Governance Committee determines that the selection of a new or additional 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 Governance Committee will, in addition to any shareholder recommendations, consider candidates identified by other means, including candidates proposed by members of the Governance Committee. The Governance Committee may retain a consultant to assist the Committee in a search for a qualified candidate.
JOHN HANCOCK FUNDS
PROXY VOTING POLICIES
John Hancock Advisers, LLC MFC Global Investment Management (U.S.), LLC (formerly known as Sovereign Asset Management LLC) Proxy Voting Guidelines |
We believe in placing our clients' interests first. Before we invest in a particular stock or bond, our team of portfolio managers and research analysts look closely at the company by examining its earnings history, its management team and its place in the market. Once we invest, we monitor all our clients' holdings, to ensure that they maintain their potential to produce results for investors.
As part of our active investment management strategy, we keep a close eye on each company we invest in. Routinely, companies issue proxies by which they ask investors like us to vote for or against a change, such as a new management team, a new business procedure or an acquisition. We base our decisions on how to vote these proxies with the goal of maximizing the value of our clients' investments.
Currently, John Hancock Advisers, LLC ("JHA") and MFC Global Investment Management (U.S.), LLC ("MFC") manage open-end funds, closed-end funds and portfolios for institutions and high-net-worth investors. Occasionally, we utilize the expertise of an outside asset manager by means of a subadvisory agreement. In all cases, JHA or MFC makes the final decision as to how to vote our clients' proxies. There is one exception, however, and that pertains to our international accounts. The investment management team for international investments votes the proxies for the accounts they manage. Unless voting is specifically retained by the named fiduciary of the client, JHA and MFC will vote proxies for ERISA clients.
In order to ensure a consistent, balanced approach across all our investment teams, we have established a proxy oversight group comprised of associates from our investment, operations and legal teams. The group has developed a set of policies and procedures that detail the standards for how JHA and MFC vote proxies. The guidelines of JHA have been approved and adopted by each fund client's board of trustees who have voted to delegate proxy voting authority to their investment adviser, JHA. JHA and MFC's other clients have granted us the authority to vote proxies in our advisory contracts or comparable documents.
JHA and MFC have hired a third party proxy voting service which has been instructed to vote all proxies in accordance with our established guidelines except as otherwise instructed.
In evaluating proxy issues, our proxy oversight group may consider information
from many sources, including the portfolio manager, management of a company presenting a proposal, shareholder groups, and independent proxy research services. Proxies for securities on loan through securities lending programs will generally not be voted, however a decision may be made to recall a security for voting purposes if the issue is material.
Below are the guidelines we adhere to when voting proxies. Please keep in mind that these are purely guidelines. Our actual votes will be driven by the particular circumstances of each proxy. From time to time votes may ultimately be cast on a case-by-case basis, taking into consideration relevant facts and circumstances at the time of the vote. Decisions on these matters (case-by-case, abstention, recall) will normally be made by a portfolio manager under the supervision of the chief investment officer and the proxy oversight group. We may abstain from voting a proxy if we conclude that the effect on our clients' economic interests or the value of the portfolio holding is indeterminable or insignificant.
Proxy Voting Guidelines
Board of Directors
We believe good corporate governance evolves from an independent board.
We support the election of uncontested director nominees, but will withhold our vote for any nominee attending less than 75% of the board and committee meetings during the previous fiscal year. Contested elections will be considered on a case by case basis by the proxy oversight group, taking into account the nominee's qualifications. We will support management's ability to set the size of the board of directors and to fill vacancies without shareholder approval but will not support a board that has fewer than 3 directors or allows for the removal of a director without cause.
We will support declassification of a board and block efforts to adopt a classified board structure. This structure typically divides the board into classes with each class serving a staggered term.
In addition, we support proposals for board indemnification and limitation of director liability, as long as they are consistent with corporate law and shareholders' interests. We believe that this is necessary to attract qualified board members.
Selection of Auditors
We believe an independent audit committee can best determine an auditor's qualifications.
We will vote for management proposals to ratify the board's selection of auditors, and for proposals to increase the independence of audit committees.
Capitalization
We will vote for a proposal to increase or decrease authorized common or preferred stock and the issuance of common stock, but will vote against a proposal to issue or convert preferred or multiple classes of stock if the board has unlimited rights to set the terms and conditions of the shares, or if the shares have voting rights inferior or superior to those of other shareholders.
In addition, we will support a management proposal to: create or restore preemptive rights; approve a stock repurchase program; approve a stock split or reverse stock split; and, approve the issuance or exercise of stock warrants
Acquisitions, mergers and corporate restructuring
Proposals to merge with or acquire another company will be voted on a case-by-case basis, as will proposals for recapitalization, restructuring, leveraged buyout, sale of assets, bankruptcy or liquidation. We will vote against a reincorporation proposal if it would reduce shareholder rights. We will vote against a management proposal to ratify or adopt a poison pill or to establish a supermajority voting provision to approve a merger or other business combination. We would however support a management proposal to opt out of a state takeover statutory provision, to spin-off certain operations or divisions and to establish a fair price provision.
Corporate Structure and Shareholder Rights
In general, we support proposals that foster good corporate governance procedures and that provide shareholders with voting power equal to their equity interest in the company.
To preserve shareholder rights, we will vote against a management proposal to restrict shareholders' right to: call a special meeting and to eliminate a shareholders' right to act by written consent. In addition, we will not support a management proposal to adopt a supermajority vote requirement to change certain by-law or charter provisions or a non-technical amendment to by-laws or a charter that reduces shareholder rights.
Equity-based compensation
Equity-based compensation is designed to attract, retain and motivate talented executives and independent directors, but should not be so significant as to materially dilute shareholders' interests.
We will vote against the adoption or amendment of a stock option plan if the:
plan dilution is more than 10% of outstanding common stock,
plan allows for non-qualified options to be priced at less than 85% of the fair market value on the grant date,
company allows or has allowed the re-pricing or replacement of underwater options in the past fiscal year (or the exchange of underwater options).
With respect to the adoption or amendment of employee stock purchase plans or a stock award plan, we will vote against management if:
the plan allows stock to be purchased at less than 85% of fair market value;
this plan dilutes outstanding common equity greater than 10%;
all stock purchase plans, including the proposed plan, exceed 15% of outstanding common equity.
Other Business
For routine business matters which are the subject of many proxy related questions, we will vote with management proposals to:
change the company name;
approve other business;
adjourn meetings;
make technical amendments to the by-laws or charters;
approve financial statements;
approve an employment agreement or contract.
Shareholder Proposals
Shareholders are permitted per SEC regulations to submit proposals for inclusion in a company's proxy statement. We will generally vote against shareholder proposals and in accordance with the recommendation of management except as
follows where we will vote for proposals:;
calling for shareholder ratification of auditors;
calling for auditors to attend annual meetings;
seeking to increase board independence;
requiring minimum stock ownership by directors;
seeking to create a nominating committee or to increase the independence of the nominating committee;
seeking to increase the independence of the audit committee.
Corporate and social policy issues
We believe that "ordinary business matters" are primarily the responsibility of management and should be approved solely by the corporation's board of directors.
Proposals in this category, initiated primarily by shareholders, typically request that the company disclose or amend certain business practices. We generally vote against business practice proposals and abstain on social policy issues, though we may make exceptions in certain instances where we believe a proposal has substantial economic implications.
John Hancock Advisers,
LLC MFC Global Investment Management (U.S.), LLC (formerly known as Sovereign Asset Management LLC) Proxy Voting Procedures |
The role of the proxy voting service
John Hancock Advisers, LLC ("JHA") and MFC Global Investment Management (U.S.), LLC ("MFC") have hired a proxy voting service to assist with the voting of client proxies. The proxy service coordinates with client custodians to ensure that proxies are received for securities held in client accounts and acted on in a timely manner. The proxy service votes all proxies received in accordance with the proxy voting guidelines established and adopted by JHA and MFC. When it is unclear how to apply a particular proxy voting guideline or when a particular proposal is not covered by the guidelines, the proxy voting service will contact the proxy oversight group coordinator for a resolution.
The role of the proxy oversight group and coordinator
The coordinator will interact directly with the proxy voting service to resolve any issues the proxy voting service brings to the attention of JHA or MFC. When a question arises regarding how a proxy should be voted the coordinator contacts the firm's investment professionals and the proxy oversight group for a resolution. In addition the coordinator ensures that the proxy voting service receives responses in a timely manner. Also, the coordinator is responsible for identifying whether, when a voting issue arises, there is a potential conflict of interest situation and then escalating the issue to the firm's Executive Committee. For securities out on loan as part of a securities lending program, if a decision is made to vote a proxy, the coordinator will manage the return/recall of the securities so the proxy can be voted.
The role of mutual fund trustees |
The boards of trustees of our mutual fund clients have reviewed and adopted the proxy voting guidelines of the funds' investment adviser, JHA. The trustees will periodically review the proxy voting guidelines and suggest changes they deem advisable.
Conflicts of interest |
Conflicts of interest are resolved in the best interest of clients.
With respect to potential conflicts of interest, proxies will be voted in accordance with JHA's or MFC's predetermined policies. If application of the predetermined policy is unclear or does not address a particular proposal, a special internal review by the JHA Executive Committee or MFC Executive Committee will determine the vote. After voting, a report will be made to the client (in the case of an investment company, to the fund's board of trustees), if requested. An example of a conflict of interest created with respect to a proxy solicitation is when JHA or MFC must vote the proxies of companies that they provide investment advice to or are currently seeking to provide investment advice to, such as to pension plans.
5!*K`Q[ANROJD>Z".4=4.P_0\C^M9M;DD9E
MAEA[LO'U'(K#J(O0VD%213&,%"H>)OO1MR#_`)]:CZG`K1M;7R,2S#]YU5#_
M``^Y_P`*IL2%MK*&R#M$R@9#]4']W/^>U2T$DG).2:*@H*QI[F\6.Y2WED
ME:(C#/&`P)#=L#Y