a_incomesecurities.htm
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) 
 
Salvatore Schiavone
Treasurer
 
601 Congress Street 
 
Boston, Massachusetts 02210 
 
(Name and address of agent for service) 
 
Registrant's telephone number, including area code: 617-663-4497 
 
Date of fiscal year end:  October 31 
 
Date of reporting period:  October 31, 2013 

ITEM 1. REPORTS TO STOCKHOLDERS.





Management’s discussion of

Fund performance

By John Hancock Asset Management a division of Manulife Asset Management (US) LLC

U.S. bonds posted negative overall returns for the 12 months ended October 31, 2013. Bond yields were relatively stable for the first half of the period despite moderate signs of improving economic growth and federal government conflicts over the fiscal cliff and the sequester (the implementation of across the board spending cuts). In May, however, the U.S. Federal Reserve (Fed) announced that it planned to begin tapering its quantitative easing activity before the end of the year. In response, bond yields rose sharply and mortgage rates increased. Although the Fed postponed its tapering plans late in the period, bond yields rose overall during the 12 months, resulting in lower bond prices. From a sector perspective, high-yield corporate bonds generated the best returns for the period, while investment-grade corporate bonds and U.S. Treasury securities declined.

For the 12 months ended October 31, 2013, John Hancock Income Securities Trust produced a total return of 3.51% at net asset value (NAV) and –7.61% at closing market value. The fund’s return at NAV and its return at market value differ because the market share price is subject to the dynamics of secondary market trading, which could cause it to trade at a discount or premium to the fund’s NAV at any time. By comparison, the average leveraged closed-end investment-grade bond fund tracked by UBS Securities LLC returned 0.50% at NAV and –6.55% at market value. The Barclays U.S. Government/Credit Bond Index declined by 1.45%. The index does not include non-investment-grade bonds.

The fund’s outperformance of its benchmark index resulted primarily from sector allocation. In particular, a meaningful position in high-yield corporate bonds, which are not represented in the benchmark, and an overweight position in commercial mortgage-backed securities added value versus the index, as did an underweight position in U.S. Treasury bonds. The fund’s position in dividend-paying common stocks, which we increased from less than 2% to nearly 4% of the portfolio during the period, also contributed positively to performance as the broad equity indexes posted strong returns. On the downside, an overweight position in investment-grade corporate bonds—the fund’s largest sector weighting—weighed on results as this segment of the bond market underperformed.

This commentary reflects the views of the portfolio managers through the end of the 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.

Past performance is no guarantee of future results.

The fund is subject to interest-rate and credit risk. When interest rates rise, bond prices usually fall. Higher-yielding bonds are riskier than lower-yielding bonds, and their value may fluctuate more in response to market conditions.

6  Income Securities Trust | Annual report 

 



Portfolio summary

Portfolio Composition1       

Corporate Bonds  53.1%  Capital Preferred Securities  1.5% 


U.S. Government Agency  17.2%  Preferred Securities  1.4% 


Collateralized Mortgage Obligations  14.5%  Term Loans  0.4% 


Asset Backed Securities  5.4%  Foreign Government Obligations  0.2% 


Common Stocks  3.6%  Convertible Bonds  0.2% 


U.S. Government  2.3%  Short-Term Investments  0.2% 


 
Quality Composition1,2       

U.S. Government  2.3%  B  7.8% 


U.S. Government Agency  17.2%  CCC & Below  6.1% 


AAA  2.4%  Not Rated  0.9% 


AA  3.8%  Equity  3.6% 


A  6.4%  Preferred Securities  1.4% 


BBB  36.8%  Short-Term Investments  0.2% 


BB  11.1%     

 

 

1 As a percentage of total investments on 10-31-13.

2 Ratings are from Moody’s Investors Service, Inc. If not available, we have used Standard & Poor’s Ratings Services. In the absence of ratings from these agencies, we have used Fitch Ratings, Inc. “Not Rated” securities are those with no ratings available from these agencies. All ratings are as of 10-31-13 and do not reflect subsequent downgrades or upgrades, if any.

Annual report | Income Securities Trust  7 

 



Fund’s investments

As of 10-31-13

    Maturity     
  Rate (%)  date  Par value  Value 
Corporate Bonds 78.8% (53.1% of Total Investments)    $142,278,984 

(Cost $135,980,056)         
 
Consumer Discretionary 9.5%        17,220,871 
 
Auto Components 0.4%         

Dana Holding Corp.  6.000  09-15-23  $425,000  435,625 

Stackpole International Intermediate         
Company SA (S)  7.750  10-15-21  245,000  254,800 
 
Automobiles 2.4%         

Ford Motor Credit Company LLC (Z)  5.000  05-15-18  478,000  529,555 

Ford Motor Credit Company LLC (Z)  5.875  08-02-21  1,763,000  2,019,127 

Ford Motor Credit Company LLC (Z)  8.000  12-15-16  330,000  391,968 

General Motors Company (S)  4.875  10-02-23  445,000  450,563 

General Motors Financial Company,         
Inc. (S)  3.250  05-15-18  90,000  89,663 

Hyundai Capital Services, Inc. (S)(Z)  4.375  07-27-16  310,000  331,414 

Nissan Motor Acceptance Corp. (S)(Z)  1.950  09-12-17  490,000  489,316 
 
Distributors 0.1%         

Burlington Holdings LLC, PIK (S)(Z)  9.000  02-15-18  140,000  143,675 
 
Hotels, Restaurants & Leisure 2.5%         

CCM Merger, Inc. (S)  9.125  05-01-19  380,000  402,800 

GLP Capital LP (S)  4.375  11-01-18  90,000  91,800 

Greektown Superholdings, Inc. (Z)  13.000  07-01-15  1,713,000  1,787,944 

Landry’s, Inc. (S)(Z)  9.375  05-01-20  350,000  378,875 

Little Traverse Bay Bands of Odawa         
Indians (S)  9.000  08-31-20  299,000  293,020 

Marina District Finance Company, Inc. (Z)  9.500  10-15-15  288,000  302,040 

Mohegan Tribal Gaming Authority (S)  9.750  09-01-21  205,000  220,888 

Seminole Tribe of Florida (S)  6.535  10-01-20  650,000  698,750 

Seminole Tribe of Florida (S)(Z)  7.750  10-01-17  325,000  344,906 

Waterford Gaming LLC (S)  8.625  09-15-14  149,591  41,885 
 
Internet & Catalog Retail 0.3%         

QVC, Inc.  4.375  03-15-23  325,000  308,807 

QVC, Inc. (Z)  5.125  07-02-22  205,000  207,794 
 
Media 2.5%         

CBS Corp. (Z)  7.875  07-30-30  595,000  739,974 

Cinemark USA, Inc.  4.875  06-01-23  250,000  238,125 

Gibson Brands, Inc. (S)  8.875  08-01-18  120,000  125,400 

Gray Television, Inc. (S)  7.500  10-01-20  135,000  141,413 

 

8  Income Securities Trust | Annual report  See notes to financial statements 

 



    Maturity     
  Rate (%)  date  Par value  Value 
Media (continued)         

Myriad International Holdings BV (S)  6.000  07-18-20  $200,000  $213,000 

News America, Inc. (Z)  6.150  03-01-37  165,000  183,869 

News America, Inc. (Z)  6.400  12-15-35  150,000  171,310 

News America, Inc. (Z)  7.600  10-11-15  1,000,000  1,119,327 

News America, Inc. (Z)  7.750  01-20-24  1,020,000  1,232,125 

Time Warner Cable, Inc. (Z)  8.250  04-01-19  350,000  410,184 
 
Multiline Retail 0.3%         

Macy’s Retail Holdings, Inc. (Z)  7.875  08-15-36  444,000  501,910 
 
Specialty Retail 0.5%         

AutoNation, Inc.  5.500  02-01-20  375,000  401,719 

Hillman Group, Inc. (Z)  10.875  06-01-18  305,000  330,925 

Toys R Us, Inc.  10.375  08-15-17  180,000  168,750 
 
Textiles, Apparel & Luxury Goods 0.5%       

Burlington Coat Factory Warehouse         
Corp. (Z)  10.000  02-15-19  665,000  744,800 

Hot Topic, Inc. (S)(Z)  9.250  06-15-21  270,000  282,825 
 
Consumer Staples 2.9%        5,260,038 
 
Beverages 0.4%         

Crestview DS Merger Sub II, Inc. (S)(Z)  10.000  09-01-21  310,000  322,400 

Pernod-Ricard SA (S)(Z)  5.750  04-07-21  325,000  364,109 
 
Food & Staples Retailing 0.9%         

Safeway, Inc.  4.750  12-01-21  125,000  124,179 

Safeway, Inc. (Z)  5.000  08-15-19  840,000  867,682 

Safeway, Inc. (Z)  7.250  02-01-31  225,000  221,918 

Sun Merger Sub, Inc. (S)  5.875  08-01-21  85,000  88,825 

Tops Holding II Corp., PIK (S)(Z)  8.750  06-15-18  235,000  243,225 
 
Food Products 0.9%         

B&G Foods, Inc.  4.625  06-01-21  195,000  190,369 

Bunge, Ltd. Finance Corp. (Z)  8.500  06-15-19  389,000  485,768 

Corporacion Pesquera Inca SAC (S)(Z)  9.000  02-10-17  340,000  340,000 

KazAgro National Management Holding         
JSC (S)  4.625  05-24-23  200,000  189,050 

Simmons Foods, Inc. (S)(Z)  10.500  11-01-17  475,000  497,563 
 
Household Products 0.2%         

The Sun Products Corp. (S)(Z)  7.750  03-15-21  370,000  333,000 
 
Tobacco 0.5%         

Alliance One International, Inc. (S)(Z)  9.875  07-15-21  820,000  787,200 

Vector Group, Ltd.  7.750  02-15-21  195,000  204,750 
 
Energy 9.6%        17,348,162 
 
Energy Equipment & Services 1.2%         

Astoria Depositor Corp., Series B (S)  8.144  05-01-21  1,000,000  970,000 

Key Energy Services, Inc. (Z)  6.750  03-01-21  270,000  274,725 

RKI Exploration & Production LLC (S)  8.500  08-01-21  270,000  280,800 

Rowan Companies, Inc. (Z)  4.875  06-01-22  330,000  340,859 

Trinidad Drilling, Ltd. (S)(Z)  7.875  01-15-19  265,000  283,550 

 

See notes to financial statements  Annual report | Income Securities Trust  9 

 



    Maturity     
  Rate (%)  date  Par value  Value 
Gas Utilities 0.5%         

DCP Midstream LLC (S)(Z)  9.750  03-15-19  $405,000  $516,389 

DCP Midstream LLC (5.850% to         
5-21-23, then 3 month LIBOR         
+ 3.850%) (S)(Z)  5.850  05-21-43  370,000  345,950 
 
Oil, Gas & Consumable Fuels 7.9%         

Afren PLC (S)(Z)  10.250  04-08-19  240,000  274,800 

Afren PLC (S)(Z)  11.500  02-01-16  200,000  228,250 

BreitBurn Energy Partners LP (Z)  7.875  04-15-22  215,000  217,150 

CNOOC Finance 2013, Ltd. (Z)  3.000  05-09-23  230,000  209,409 

Continental Resources, Inc.  5.000  09-15-22  315,000  327,994 

DCP Midstream Operating LP (Z)  3.875  03-15-23  225,000  209,786 

Ecopetrol SA  5.875  09-18-23  190,000  206,245 

Energy Transfer Partners LP (Z)  5.200  02-01-22  135,000  145,230 

Energy Transfer Partners LP (Z)  9.700  03-15-19  425,000  557,680 

Enterprise Products Operating LLC         
(7.000% to 6-1-17, then 3 month         
LIBOR + 2.777%) (Z)  7.000  06-01-67  695,000  722,800 

Enterprise Products Operating LLC         
(8.375% to 8-1-16, then 3 month         
LIBOR + 3.708%)  8.375  08-01-66  230,000  253,863 

EP Energy LLC (Z)  7.750  09-01-22  195,000  219,375 

EV Energy Partners LP (Z)  8.000  04-15-19  400,000  400,000 

Halcon Resources Corp.  8.875  05-15-21  200,000  208,250 

Hess Corp. (Z)  8.125  02-15-19  570,000  717,999 

Kerr-McGee Corp. (Z)  6.950  07-01-24  600,000  723,373 

Kinder Morgan Energy Partners LP  7.750  03-15-32  195,000  242,170 

Lukoil International Finance BV (S)(Z)  3.416  04-24-18  675,000  680,063 

Midstates Petroleum Company, Inc.  9.250  06-01-21  425,000  437,750 

Newfield Exploration Company (Z)  5.750  01-30-22  260,000  273,000 

NuStar Logistics LP (Z)  8.150  04-15-18  381,000  426,720 

Petro-Canada (Z)  9.250  10-15-21  1,000,000  1,347,869 

Petrobras Global Finance BV (Z)  4.375  05-20-23  365,000  337,155 

Petrohawk Energy Corp. (Z)  6.250  06-01-19  595,000  652,133 

Petroleos de Venezuela SA  5.375  04-12-27  550,000  338,250 

Petroleos Mexicanos (Z)  4.875  01-24-22  275,000  286,000 

Plains Exploration &         
Production Company  6.750  02-01-22  545,000  599,214 

Plains Exploration &         
Production Company  6.875  02-15-23  110,000  121,825 

Regency Energy Partners LP  5.500  04-15-23  480,000  478,800 

Summit Midstream Holdings LLC (S)  7.500  07-01-21  150,000  157,875 

TransCanada Pipelines, Ltd. (6.350%         
to 5-15-17, then 3 month LIBOR         
+ 2.210%) (Z)  6.350  05-15-67  710,000  737,209 

Williams Partners LP (Z)  5.250  03-15-20  1,460,000  1,597,652 
 
Financials 27.8%        50,217,873 
 
Capital Markets 4.2%         

Jefferies Group, Inc. (Z)  6.875  04-15-21  1,005,000  1,135,650 

Jefferies Group, Inc. (Z)  8.500  07-15-19  235,000  285,870 

 

10  Income Securities Trust | Annual report  See notes to financial statements 

 



    Maturity     
  Rate (%)  date  Par value  Value 
Capital Markets (continued)         

Macquarie Bank, Ltd. (S)(Z)  6.625  04-07-21  $260,000  $288,871 

Macquarie Group, Ltd. (S)(Z)  6.000  01-14-20  340,000  373,857 

Morgan Stanley (Z)  4.100  05-22-23  580,000  560,013 

Morgan Stanley (Z)  5.500  01-26-20  450,000  507,738 

Morgan Stanley (Z)  5.550  04-27-17  1,080,000  1,213,310 

Morgan Stanley (Z)  5.750  01-25-21  515,000  589,458 

Morgan Stanley  7.300  05-13-19  895,000  1,092,687 

The Goldman Sachs Group, Inc. (Z)  5.250  07-27-21  1,195,000  1,318,543 

The Goldman Sachs Group, Inc. (Z)  5.750  01-24-22  275,000  311,731 
 
Commercial Banks 4.2%         

Abbey National Treasury Services PLC (Z)  4.000  04-27-16  420,000  447,360 

Ally Financial, Inc. (Z)  4.750  09-10-18  315,000  327,809 

Banco do Brasil SA/Cayman Island         
(6.250% to 4-15-24, then 10 Year U.S.         
Treasury + 4.398%) (Q)(S)  6.250  04-15-24  470,000  394,800 

Barclays Bank PLC (S)(Z)  10.179  06-12-21  575,000  761,260 

BPCE SA (S)  5.700  10-22-23  645,000  662,308 

Commerzbank AG (S)  8.125  09-19-23  350,000  373,625 

Fifth Third Bancorp (5.100% to 6-30-23,         
then 3 month LIBOR + 3.033%) (Q)(Z)  5.100  06-30-23  420,000  378,000 

ICICI Bank, Ltd. (S)(Z)  5.750  11-16-20  475,000  491,942 

Nordea Bank AB (S)(Z)  3.125  03-20-17  680,000  715,027 

PNC Financial Services Group, Inc. (P)(Q)  4.483  12-09-13  250,000  249,500 

PNC Financial Services Group, Inc.         
(4.850% to 6-1-23, then 3 month         
LIBOR + 3.040%) (Q)(Z)  4.850  06-01-23  310,000  282,875 

Santander Holdings USA, Inc.  4.625  04-19-16  115,000  123,375 

Sberbank of Russia (S)(Z)  6.125  02-07-22  200,000  216,750 

Swedbank AB (S)(Z)  2.125  09-29-17  460,000  465,298 

Synovus Financial Corp. (Z)  7.875  02-15-19  200,000  227,500 

VTB Bank OJSC (9.500% to         
12-6-22, then 10 Year U.S. Treasury         
+ 8.067%) (Q)(S)  9.500  12-06-22  235,000  257,043 

Wachovia Bank NA (Z)  5.850  02-01-37  390,000  444,560 

Wells Fargo & Company, Series K         
(7.980% to 3-15-18, then 3 month         
LIBOR + 3.770%) (Q)(Z)  7.980  03-15-18  635,000  715,963 
 
Consumer Finance 1.6%         

Capital One Financial Corp.  3.500  06-15-23  1,100,000  1,058,242 

Capital One Financial Corp. (Z)  4.750  07-15-21  485,000  521,875 

Discover Bank (Z)  7.000  04-15-20  270,000  318,651 

Discover Financial Services (Z)  5.200  04-27-22  585,000  620,841 

Springleaf Finance Corp. (S)(Z)  6.000  06-01-20  310,000  305,350 
 
Diversified Financial Services 6.9%         

Bank of America Corp. (Z)  3.300  01-11-23  260,000  249,430 

Bank of America Corp. (Z)  5.000  05-13-21  670,000  736,944 

Bank of America Corp. (Z)  5.700  01-24-22  370,000  424,589 

Bank of America NA (Z)  5.300  03-15-17  150,000  166,539 

Citigroup, Inc. (Z)  3.500  05-15-23  215,000  199,455 

 

See notes to financial statements  Annual report | Income Securities Trust  11 

 



    Maturity     
  Rate (%)  date  Par value  Value 
Diversified Financial Services (continued)       

Citigroup, Inc.  5.500  09-13-25  $405,000  $429,296 

Citigroup, Inc.  6.125  08-25-36  310,000  326,255 

Doric Nimrod Air Alpha 2013-1         
Pass Through Trust (S)  5.250  05-30-23  200,000  200,000 

Doric Nimrod Air Alpha 2013-1         
Pass Through Trust (S)  6.125  11-30-19  200,000  202,500 

Doric Nimrod Air Alpha 2012-1 Class A         
Pass Through (S)  5.125  11-30-22  193,935  194,420 

General Electric Capital Corp. (Z)  4.375  09-16-20  365,000  397,360 

General Electric Capital Corp. (Z)  5.550  05-04-20  615,000  712,112 

General Electric Capital Corp. (Z)  5.875  01-14-38  160,000  180,478 

General Electric Capital Corp. (6.375%         
to 11-15-17, then 3 month LIBOR         
+ 2.289%)  6.375  11-15-67  170,000  184,450 

General Electric Capital Corp. (7.125%         
until 6-15-22, then 3 month LIBOR         
+ 5.296%) (Q)(Z)  7.125  06-15-22  600,000  669,000 

ING Bank NV (S)  5.800  09-25-23  235,000  246,358 

ING US, Inc. (5.650% to 05-15-23, then         
3 month LIBOR + 3.580%)  5.650  05-15-53  250,000  237,759 

iPayment, Inc. (Z)  10.250  05-15-18  200,000  154,000 

JPMorgan Chase & Company (Z)  4.625  05-10-21  895,000  969,704 

JPMorgan Chase & Company (5.150%         
to 5-1-23, then 3 month LIBOR         
+ 3.250%) (Q)  5.150  05-01-23  375,000  339,375 

JPMorgan Chase & Company (7.900%         
to 4-30-18, then 3 month LIBOR         
+ 3.470%) (Q)(Z)  7.900  04-30-18  655,000  722,138 

Leucadia National Corp.  5.500  10-18-23  655,000  661,039 

Merrill Lynch & Company, Inc. (Z)  6.875  04-25-18  1,000,000  1,187,399 

SPL Logistics Escrow LLC (S)(Z)  8.875  08-01-20  215,000  230,588 

The Bear Stearns Companies LLC (Z)  7.250  02-01-18  1,000,000  1,205,634 

UBS AG (Z)  7.625  08-17-22  445,000  507,166 

USB Realty Corp. (P)(Q)(S)(Z)  1.391  01-15-17  800,000  684,000 
 
Insurance 5.1%         

Aflac, Inc.  8.500  05-15-19  385,000  500,846 

American International Group, Inc.  4.125  02-15-24  295,000  303,129 

American International Group, Inc. (Z)  8.250  08-15-18  230,000  290,886 

American International Group, Inc.         
(8.175% to 5-15-38, then 3 month         
LIBOR + 4.195%)  8.175  05-15-58  250,000  308,125 

AXA SA (Z)  8.600  12-15-30  175,000  213,017 

CNA Financial Corp. (Z)  7.250  11-15-23  540,000  662,767 

Glen Meadow Pass-Through Trust         
(6.505% to 2-15-17, then 3 month         
LIBOR +2.125%) (S)  6.505  02-12-67  625,000  596,875 

Liberty Mutual Group, Inc. (S)(Z)  5.000  06-01-21  650,000  700,946 

Liberty Mutual Group, Inc. (S)(Z)  7.800  03-15-37  705,000  768,450 

Lincoln National Corp. (Z)  8.750  07-01-19  535,000  697,867 

 

12  Income Securities Trust | Annual report  See notes to financial statements 

 



    Maturity     
  Rate (%)  date  Par value  Value 
Insurance (continued)         

Lincoln National Corp. (6.050%         
until 4-20-17, then 3 month LIBOR         
+ 2.040%) (Z)  6.050  04-20-67  $395,000  $392,038 

Lincoln National Corp. (7.000%         
to 5-17-16, then 3 month LIBOR         
+ 2.358%)  7.000  05-17-66  135,000  139,388 

MetLife, Inc. (Z)  6.400  12-15-36  305,000  317,581 

Nippon Life Insurance Company         
(5.000% to 10-18-22, then 3 month         
LIBOR + 4.240%) (S)(Z)  5.000  10-18-42  310,000  314,650 

Pacific LifeCorp. (S)(Z)  6.000  02-10-20  180,000  203,496 

Prudential Financial, Inc. (5.200%         
to 3-15-24, then 3 month LIBOR         
+ 3.040%)  5.200  03-15-44  110,000  106,700 

Prudential Financial, Inc. (5.875%         
to 9-15-22, then 3 month LIBOR         
+ 4.175%) (Z)  5.875  09-15-42  445,000  451,675 

Teachers Insurance & Annuity         
Association of America (S)(Z)  6.850  12-16-39  475,000  598,231 

The Chubb Corp. (6.375% until         
4-15-17, then 3 month LIBOR         
+ 2.250%) (Z)  6.375  03-29-67  355,000  386,950 

The Hanover Insurance Group, Inc. (Z)  6.375  06-15-21  150,000  167,653 

Unum Group (Z)  7.125  09-30-16  395,000  451,576 

White Mountains Re Group, Ltd.         
(7.506% to 6-30-17, then 3 month         
LIBOR + 3.200%) (Q)(S)(Z)  7.506  06-30-17  415,000  427,081 

WR Berkley Corp. (Z)  5.375  09-15-20  265,000  292,195 
 
Metals & Mining 0.1%         

Xstrata Finance Canada, Ltd. (S)  4.250  10-25-22  220,000  213,307 
 
Real Estate Investment Trusts 5.2%         

DDR Corp.  4.625  07-15-22  85,000  87,980 

DDR Corp. (Z)  7.500  04-01-17  880,000  1,030,696 

DDR Corp.  7.875  09-01-20  110,000  136,567 

Goodman Funding Pty, Ltd. (S)(Z)  6.375  04-15-21  645,000  720,819 

Health Care REIT, Inc. (Z)  4.950  01-15-21  190,000  204,514 

Health Care REIT, Inc. (Z)  6.125  04-15-20  1,205,000  1,387,645 

Healthcare Realty Trust, Inc. (Z)  6.500  01-17-17  540,000  608,179 

Highwoods Realty LP (Z)  5.850  03-15-17  650,000  720,920 

Host Hotels & Resorts LP (Z)  5.875  06-15-19  439,000  476,344 

MPT Operating Partnership LP (Z)  6.375  02-15-22  320,000  330,400 

ProLogis International Funding II (S)  4.875  02-15-20  180,000  183,698 

ProLogis LP (C)  3.350  02-01-21  310,000  309,442 

ProLogis LP  6.250  03-15-17  475,000  538,897 

Realty Income Corp.  4.650  08-01-23  140,000  144,676 

Ventas Realty LP (Z)  2.700  04-01-20  220,000  213,370 

Ventas Realty LP (Z)  4.000  04-30-19  330,000  349,707 

Ventas Realty LP (Z)  4.750  06-01-21  670,000  714,830 

WEA Finance LLC (S)(Z)  6.750  09-02-19  290,000  347,751 

Weyerhaeuser Company (Z)  7.375  03-15-32  690,000  857,613 

 

See notes to financial statements  Annual report | Income Securities Trust  13 

 



    Maturity     
  Rate (%)  date  Par value  Value 
Real Estate Management & Development 0.1%       

General Shopping Investments, Ltd.         
(12.000% to 3-20-17, then 5 Year         
USGG + 11.052%) (Q)(S)  12.000  03-20-17  $260,000  $228,800 
 
Thrifts & Mortgage Finance 0.4%         

Nationstar Mortgage LLC (Z)  7.875  10-01-20  310,000  331,313 

Nationstar Mortgage LLC (Z)  9.625  05-01-19  295,000  332,613 
 
Health Care 1.4%        2,527,740 
 
Health Care Equipment & Supplies 0.1%       

MModal, Inc. (S)  10.750  08-15-20  285,000  168,150 
 
Health Care Providers & Services 0.5%       

Medco Health Solutions, Inc. (Z)  7.125  03-15-18  275,000  331,048 

National Mentor Holdings, Inc. (S)(Z)  12.500  02-15-18  460,000  492,200 

Tenet Healthcare Corp. (S)  6.000  10-01-20  105,000  111,038 
 
Pharmaceuticals 0.8%         

Hospira, Inc. (Z)  6.050  03-30-17  485,000  535,018 

Mylan, Inc. (S)(Z)  7.875  07-15-20  545,000  623,886 

Valeant Pharmaceuticals International (S)  7.500  07-15-21  240,000  266,400 
 
Industrials 9.6%        17,330,347 
 
Aerospace & Defense 1.3%         

Embraer Overseas, Ltd. (S)  5.696  09-16-23  296,000  299,700 

Kratos Defense & Security Solutions,         
Inc. (Z)  10.000  06-01-17  415,000  452,350 

Textron Financial Corp. (6.000%         
to 2-15-17, then 3 month LIBOR         
+ 1.735%) (S)(Z)  6.000  02-15-67  750,000  663,750 

Textron, Inc. (Z)  5.600  12-01-17  505,000  561,158 

Textron, Inc. (Z)  7.250  10-01-19  270,000  318,574 
 
Airlines 3.9%         

America West Airlines 2000-1         
Pass Through Trust (Z)  8.057  07-02-20  146,051  157,005 

American Airlines 2011-1 Class B         
Pass Through Trust (S)(Z)  7.000  01-31-18  780,153  813,310 

American Airlines 2013-2 Class A         
Pass Through Trust (S)(Z)  4.950  01-15-23  355,000  365,650 

British Airways PLC (S)  4.625  06-20-24  620,000  627,750 

British Airways PLC (S)  5.625  06-20-20  155,000  160,425 

Continental Airlines 1997-4 Class A         
Pass Through Trust (Z)  6.900  01-02-18  383,610  408,545 

Continental Airlines 1998-1 Class A         
Pass Through Trust (Z)  6.648  09-15-17  127,360  133,856 

Continental Airlines 1999-1 Class A         
Pass Through Trust (Z)  6.545  02-02-19  178,143  194,176 

Continental Airlines 2000-2 Class B         
Pass Through Trust (Z)  8.307  04-02-18  95,805  98,799 

Continental Airlines 2007-1 Class A         
Pass Through Trust (Z)  5.983  04-19-22  485,880  527,180 

Continental Airlines 2010-1 Class A         
Pass Through Trust  4.750  01-12-21  138,275  145,188 

 

14  Income Securities Trust | Annual report  See notes to financial statements 

 



    Maturity     
  Rate (%)  date  Par value  Value 
Airlines (continued)         

Continental Airlines 2012-1 Class B         
Pass Through Trust (Z)  6.250  04-11-20  $227,838  $235,812 

Delta Air Lines 2002-1 Class G-1         
Pass Through Trust (Z)  6.718  01-02-23  642,696  706,966 

Delta Air Lines 2007-1 Class A         
Pass Through Trust (Z)  6.821  08-10-22  629,021  699,786 

Delta Air Lines 2010-1 Class A         
Pass Through Trust (Z)  6.200  07-02-18  170,626  187,262 

Delta Air Lines 2011-1 Class A         
Pass Through Trust (Z)  5.300  04-15-19  286,038  307,490 

Hawaiian Airlines 2013-1 Class A         
Pass Through Certificates  3.900  01-15-26  235,000  215,613 

Northwest Airlines 2007-1 Class A         
Pass Through Trust (Z)  7.027  11-01-19  380,026  415,178 

UAL 2009-1 Pass Through Trust (Z)  10.400  11-01-16  106,828  120,715 

UAL 2009-2A Pass Through Trust (Z)  9.750  01-15-17  299,788  344,007 

US Airways 2012-1 Class A         
Pass Through Trust  5.900  10-01-24  168,081  176,485 
 
Building Products 1.0%         

Masco Corp. (Z)  7.125  03-15-20  285,000  324,900 

Owens Corning (Z)  4.200  12-15-22  395,000  392,070 

Ply Gem Industries, Inc.  9.375  04-15-17  45,000  48,263 

Voto-Votorantim Overseas Trading         
Operations NV (S)(Z)  6.625  09-25-19  450,000  511,425 

Voto-Votorantim, Ltd. (S)(Z)  6.750  04-05-21  490,000  556,150 
 
Commercial Services & Supplies 1.1%       

Ahern Rentals, Inc. (S)  9.500  06-15-18  195,000  209,138 

Casella Waste Systems, Inc.  7.750  02-15-19  365,000  368,650 

Garda World Security Corp. (S)  9.750  03-15-17  100,000  107,990 

Iron Mountain, Inc. (Z)  6.000  08-15-23  440,000  447,700 

Safway Group Holding LLC (S)  7.000  05-15-18  180,000  186,300 

Steelcase, Inc. (Z)  6.375  02-15-21  500,000  557,892 
 
Construction & Engineering 0.5%         

Aeropuertos Dominicanos Siglo XXI         
SA (S)(Z)  9.250  11-13-19  300,000  297,000 

Empresas ICA SAB de CV (S)  8.375  07-24-17  250,000  249,375 

Tutor Perini Corp. (Z)  7.625  11-01-18  335,000  355,938 
 
Industrial Conglomerates 0.6%         

KOC Holding AS (S)  3.500  04-24-20  340,000  304,300 

Odebrecht Finance, Ltd. (S)(Z)  7.125  06-26-42  425,000  416,500 

Odebrecht Finance, Ltd. (Q)(S)  7.500  09-14-15  200,000  200,000 

Tenedora Nemak SA de CV (S)  5.500  02-28-23  210,000  208,425 
 
Marine 0.3%         

Navios Maritime Acquisition Corp. (C)(S)  8.125  11-15-21  270,000  272,700 

Navios South American Logistics, Inc. (Z)  9.250  04-15-19  315,000  340,988 
 
Road & Rail 0.3%         

Penske Truck Leasing Company LP (S)(Z)  3.750  05-11-17  460,000  482,765 

 

See notes to financial statements  Annual report | Income Securities Trust  15 

 



    Maturity     
  Rate (%)  date  Par value  Value 
Trading Companies & Distributors 0.6%       

Air Lease Corp.  4.500  01-15-16  $95,000  $99,750 

Air Lease Corp.  5.625  04-01-17  175,000  190,750 

Aircastle, Ltd.  7.625  04-15-20  160,000  179,200 

Glencore Funding LLC (S)(Z)  4.125  05-30-23  370,000  351,585 

International Lease Finance Corp. (S)(Z)  7.125  09-01-18  290,000  333,863 
 
Information Technology 1.7%        3,038,794 
 
Internet Software & Services 0.6%         

Ancestry.com, Inc. (Z)  11.000  12-15-20  305,000  353,800 

Ancestry.com, Inc., PIK (S)  9.625  10-15-18  135,000  138,038 

Baidu, Inc. (Z)  3.250  08-06-18  355,000  362,569 

Healthcare Technology Intermediate,         
Inc., PIK (S)  7.375  09-01-18  185,000  191,244 
 
IT Services 0.8%         

Brightstar Corp. (S)  9.500  12-01-16  560,000  616,000 

Fiserv, Inc. (Z)  4.625  10-01-20  800,000  837,318 
 
Software 0.3%         

Aspect Software, Inc.  10.625  05-15-17  390,000  398,775 

Blackboard, Inc. (S)  7.750  11-15-19  140,000  141,050 
 
Materials 6.8%        12,296,980 
 
Chemicals 1.7%         

Braskem Finance, Ltd. (S)(Z)  7.000  05-07-20  515,000  562,638 

CF Industries, Inc. (Z)  7.125  05-01-20  580,000  690,761 

Incitec Pivot Finance LLC (S)(Z)  6.000  12-10-19  345,000  382,040 

LyondellBasell Industries NV (Z)  5.000  04-15-19  1,000,000  1,119,070 

Methanex Corp.  5.250  03-01-22  330,000  357,752 
 
Construction Materials 0.7%         

American Gilsonite Company (S)(Z)  11.500  09-01-17  390,000  404,625 

Cemex SAB de CV (S)  6.500  12-10-19  340,000  345,100 

Magnesita Finance, Ltd. (Q)(S)(Z)  8.625  04-05-17  420,000  411,600 

Severstal Columbus LLC  10.250  02-15-18  100,000  106,000 
 
Containers & Packaging 0.7%         

ARD Finance SA, PIK (S)(Z)  11.125  06-01-18  289,728  318,701 

Consolidated Container Company         
LLC (S)  10.125  07-15-20  320,000  345,600 

Pretium Packaging LLC  11.500  04-01-16  165,000  178,200 

Rock-Tenn Company (Z)  4.000  03-01-23  480,000  469,418 
 
Metals & Mining 2.7%         

Allegheny Technologies, Inc. (Z)  5.950  01-15-21  140,000  148,387 

Allegheny Technologies, Inc. (Z)  9.375  06-01-19  715,000  877,254 

AngloGold Ashanti Holdings PLC (Z)  8.500  07-30-20  405,000  433,350 

ArcelorMittal (Z)  10.350  06-01-19  370,000  468,050 

Barrick Gold Corp.  4.100  05-01-23  335,000  303,718 

Commercial Metals Company (Z)  7.350  08-15-18  310,000  353,400 

Edgen Murray Corp. (S)(Z)  8.750  11-01-20  310,000  358,050 

Gerdau Trade, Inc. (S)(Z)  4.750  04-15-23  225,000  212,625 

JMC Steel Group (S)  8.250  03-15-18  185,000  183,844 

MMC Finance, Ltd. (S)  5.550  10-28-20  235,000  235,411 

 

16  Income Securities Trust | Annual report  See notes to financial statements 

 



    Maturity     
  Rate (%)  date  Par value  Value 
Metals & Mining (continued)         

Rain CII Carbon LLC (S)(Z)  8.000  12-01-18  $340,000  $351,050 

SunCoke Energy, Inc. (Z)  7.625  08-01-19  259,000  277,778 

Thompson Creek Metals Company,         
Inc. (Z)  7.375  06-01-18  395,000  357,475 

Vedanta Resources PLC (S)(Z)  7.125  05-31-23  300,000  286,500 
 
Paper & Forest Products 1.0%         

Georgia-Pacific LLC (Z)  7.250  06-01-28  165,000  203,111 

International Paper Company (Z)  9.375  05-15-19  385,000  509,909 

Neenah Paper, Inc. (S)  5.250  05-15-21  135,000  131,288 

Westvaco Corp. (Z)  7.950  02-15-31  770,000  914,275 
 
Telecommunication Services 5.2%      9,451,953 
 
Diversified Telecommunication Services 3.6%       

American Tower Corp. (Z)  3.400  02-15-19  225,000  227,736 

American Tower Corp. (Z)  4.700  03-15-22  400,000  402,764 

BellSouth Telecommunications, Inc. (Z)  6.300  12-15-15  335,486  354,489 

CenturyLink, Inc. (Z)  5.800  03-15-22  480,000  475,200 

CenturyLink, Inc. (Z)  6.450  06-15-21  305,000  317,200 

Crown Castle Towers LLC (S)(Z)  4.883  08-15-20  760,000  817,198 

GTP Acquisition Partners I LLC (S)(Z)  4.704  05-15-18  485,000  479,320 

GTP Acquisition Partners I LLC (S)  7.628  06-15-16  650,000  701,680 

T-Mobile USA, Inc.  6.836  04-28-23  325,000  343,688 

Telecom Italia Capital SA (Z)  6.999  06-04-18  330,000  361,384 

Telecom Italia Capital SA (Z)  7.200  07-18-36  365,000  354,241 

Telefonica Emisiones SAU (Z)  6.421  06-20-16  600,000  667,996 

Verizon Communications, Inc.  4.500  09-15-20  455,000  492,273 

Verizon Communications, Inc.  6.550  09-15-43  470,000  545,002 
 
Wireless Telecommunication Services 1.6%       

Clearwire Communications LLC (S)(Z)  12.000  12-01-15  315,000  326,655 

Digicel Group, Ltd. (S)  8.250  09-30-20  385,000  406,175 

ENTEL Chile SA (S)  4.875  10-30-24  265,000  264,914 

Millicom International Cellular SA (S)  4.750  05-22-20  210,000  196,875 

Millicom International Cellular SA (S)  6.625  10-15-21  300,000  308,250 

SBA Tower Trust (S)(Z)  2.933  12-15-17  395,000  407,166 

SBA Tower Trust (S)  3.598  04-15-18  370,000  370,334 

SoftBank Corp. (S)  4.500  04-15-20  400,000  396,000 

Verizon New York, Inc. (Z)  7.000  12-01-33  235,000  235,413 
 
Utilities 4.2%        7,586,226 
 
Electric Utilities 3.0%         

Beaver Valley II Funding Corp.  9.000  06-01-17  103,000  104,006 

BVPS II Funding Corp. (Z)  8.890  06-01-17  357,000  379,078 

DPL, Inc. (Z)  7.250  10-15-21  570,000  592,800 

Electricite de France SA (5.250% to         
1-29-23, then 10 Year Swap Rate         
+ 3.709%) (Q)(S)(Z)  5.250  01-29-23  205,000  201,515 

Exelon Corp. (Z)  4.900  06-15-15  985,000  1,043,667 

FPL Energy National Wind LLC (S)(Z)  5.608  03-10-24  172,388  167,242 

Israel Electric Corp., Ltd. (S)(Z)  5.625  06-21-18  420,000  441,932 

 

See notes to financial statements  Annual report | Income Securities Trust  17 

 



    Maturity     
  Rate (%)  date  Par value  Value 
Electric Utilities (continued)         

NextEra Energy Capital Holdings, Inc.         
(6.650% to 06-15-17, then 3 month         
LIBOR + 2.125%)  6.650  06-15-67  $180,000  $184,500 

Oncor Electric Delivery Company LLC (Z)  5.000  09-30-17  820,000  913,941 

PNPP II Funding Corp. (Z)  9.120  05-30-16  162,000  167,131 

PPL Capital Funding, Inc. (6.700%         
to 3-30-17, then 3 month LIBOR         
+ 2.665%) (Z)  6.700  03-30-67  525,000  530,250 

Southern California Edison Company         
(6.250% to 2-1-22, then 3 month         
LIBOR + 4.199%) (Q)(Z)  6.250  02-01-22  320,000  334,400 

W3A Funding Corp. (Z)  8.090  01-02-17  301,225  301,124 
 
Independent Power Producers & Energy Traders 0.2%     

AES Corp.  4.875  05-15-23  80,000  76,600 

Calpine Corp. (S)  6.000  01-15-22  110,000  114,125 

Exelon Generation Company LLC  5.600  06-15-42  200,000  192,007 
 
Multi-Utilities 1.0%         

Integrys Energy Group, Inc. (6.110%         
to 12-1-16, then 3 month LIBOR         
+ 2.120%) (Z)  6.110  12-01-66  650,000  653,250 

MidAmerican Energy Holdings         
Company (Z)  8.480  09-15-28  550,000  768,408 

Wisconsin Energy Corp. (6.250%         
to 5-15-17, then 3 month LIBOR         
+ 2.113%) (Z)  6.250  05-15-67  410,000  420,250 
 
Convertible Bonds 0.3% (0.2% of Total Investments)    $520,645 

(Cost $267,530)         
 
Consumer Discretionary 0.3%        520,645 
 
Media 0.3%         

XM Satellite Radio, Inc. (S)(Z)  7.000  12-01-14  $248,000  520,645 
 
Term Loans (M) 0.5% (0.4% of Total Investments)    $930,957 

(Cost $930,775)         
 
Consumer Discretionary 0.1%        166,216 
 
Hotels, Restaurants & Leisure 0.1%         

CCM Merger, Inc.  5.000  03-01-17  $165,081  166,216 
 
Consumer Staples 0.1%        364,201 
 
Household Products 0.1%         

The Sun Products Corp.  5.500  03-23-20  379,048  364,201 
 
Financials 0.1%        96,424 
 
Real Estate Investment Trusts 0.1%         

iStar Financial, Inc.  4.500  10-16-17  96,093  96,424 
 
Industrials 0.1%        148,751 
 
Aerospace & Defense 0.1%         

WP CPP Holdings LLC  4.750  12-27-19  148,875  148,751 

 

18  Income Securities Trust | Annual report  See notes to financial statements 

 



    Maturity     
  Rate (%)  date  Par value  Value 
Utilities 0.1%        $155,365 
 
Electric Utilities 0.1%         

La Frontera Generation LLC  4.500  09-30-20  $154,544  155,365 
 
Capital Preferred Securities (a) 2.2% (1.5% of Total Investments)  $3,979,462 

(Cost $3,907,948)         
 
Financials 2.2%        3,979,462 
 
Capital Markets 0.4%         

State Street Capital Trust IV (P)(Z)  1.254  06-15-37  935,000  734,555 
 
Commercial Banks 0.9%         

Fifth Third Capital Trust IV (6.500%         
to 4-15-17, then 3 month LIBOR         
+ 1.368%) (Z)  6.500  04-15-37  825,000  814,688 

PNC Financial Services Group, Inc.         
(6.750% to 8-1-21, then 3 month         
LIBOR + 3.678%) (Q)(Z)  6.750  08-01-21  215,000  226,825 

Sovereign Capital Trust VI (Z)  7.908  06-13-36  480,000  499,800 
 
Insurance 0.9%         

MetLife Capital Trust IV (7.875%         
to 12-15-32, then 3 month LIBOR         
+ 3.960%) (S)  7.875  12-15-37  110,000  126,775 

MetLife Capital Trust X (9.250%         
to 4-8-38 then 3 month LIBOR         
+ 5.540%) (S)(Z)  9.250  04-08-38  315,000  407,138 

ZFS Finance USA Trust II (6.450%         
to 6-15-16 then 3 month LIBOR         
+ 2.000%) (S)(Z)  6.450  12-15-65  870,000  930,900 

ZFS Finance USA Trust V (6.500%         
to 5-9-17, then 3 month LIBOR         
+ 2.285%) (S)(Z)  6.500  05-09-37  225,000  238,781 
 
U.S. Government & Agency Obligations 29.0%     
(19.5% of Total Investments)        $52,338,485 

(Cost $53,028,727)         
 
U.S. Government 3.4%        6,218,511 

U.S. Treasury Bonds         
Bond  2.875  05-15-43  435,000  372,945 
Bond (Z)  3.125  02-15-42  2,025,000  1,843,066 

U.S. Treasury Notes         
Note  1.875  06-30-20  4,000,000  4,002,500 
 
U.S. Government Agency 25.6%      46,119,974 

Federal Home Loan Mortgage Corp.         
30 Yr Pass Thru (Z)  3.000  03-01-43  1,056,364  1,039,239 
30 Yr Pass Thru (Z)  5.000  03-01-41  4,862,892  5,311,898 
30 Yr Pass Thru (Z)  6.500  04-01-39  511,216  567,512 

Federal National Mortgage Association         
15 Yr Pass Thru (Z)  3.000  07-01-27  1,766,264  1,835,294 
15 Yr Pass Thru (Z)  3.000  10-29-27  705,000  638,655 
30 Yr Pass Thru (Z)  3.000  12-01-42  4,591,846  4,535,166 
30 Yr Pass Thru  3.000  03-01-43  303,556  299,856 
30 Yr Pass Thru (Z)  3.500  12-01-42  6,214,501  6,380,059 
30 Yr Pass Thru (Z)  3.500  01-01-43  4,735,953  4,862,862 

 

See notes to financial statements  Annual report | Income Securities Trust  19 

 



    Maturity     
  Rate (%)  date  Par value  Value 

Federal National Mortgage Association         
30 Yr Pass Thru (Z)  4.000  10-01-40  $537,546  $568,203 
30 Yr Pass Thru (Z)  4.000  09-01-41  3,520,881  3,715,079 
30 Yr Pass Thru (Z)  4.000  09-01-41  1,755,143  1,850,304 
30 Yr Pass Thru (Z)  4.000  09-01-41  819,505  867,395 
30 Yr Pass Thru (Z)  4.000  10-01-41  2,526,342  2,670,028 
30 Yr Pass Thru (Z)  4.500  10-01-40  2,406,266  2,592,752 
30 Yr Pass Thru (Z)  5.000  02-01-41  2,345,140  2,580,362 
30 Yr Pass Thru (Z)  5.000  04-01-41  666,309  734,078 
30 Yr Pass Thru (Z)  5.500  02-01-36  929,881  1,015,241 
30 Yr Pass Thru (Z)  5.500  10-01-39  1,666,542  1,815,619 
30 Yr Pass Thru (Z)  5.500  08-01-40  269,137  293,213 
30 Yr Pass Thru (Z)  6.500  07-01-36  317,231  354,128 
30 Yr Pass Thru (Z)  6.500  01-01-39  1,434,993  1,593,031 
 
Foreign Government Obligations 0.2% (0.2% of Total Investments)  $393,982 

(Cost $369,013)         
 
South Korea 0.2%        393,982 
 
Korea Development Bank (Z)  4.000  09-09-16  $370,000  393,982 
 
Collateralized Mortgage Obligations 21.5%     
(14.5% of Total Investments)        $38,813,673 

(Cost $38,639,004)         
 
Commercial & Residential 17.6%      31,791,726 
 
American Home Mortgage Assets LLC         
Series 2006-6, Class XP IO  2.089  12-25-46  $5,735,950  410,075 

American Home Mortgage         
Investment Trust         
Series 2005-1, Class 1A1 (P)(Z)  0.390  06-25-45  654,733  598,687 

Americold 2010 LLC Trust         
Series 2010-ARTA, Class D (S)  7.443  01-14-29  605,000  685,957 

Bear Stearns Adjustable Rate Mortgage Trust       
Series 2005-2, Class A1 (P)(Z)  2.600  03-25-35  493,247  496,744 
Series 2005-5, Class A2 (P)  2.250  08-25-35  549,607  551,693 

Bear Stearns Adjustable Rate Mortgage         
Trust, Inc.         
Series 2005-1, Class B2 (P)  3.209  03-25-35  751,640  18,411 

Bear Stearns Alt-A Trust         
Series 2004-12, Class 1A1 (P)(Z)  0.870  01-25-35  790,944  766,307 
Series 2005-5, Class 1A4 (P)  0.730  07-25-35  487,232  449,132 
Series 2005-7, Class 11A1 (P)  0.710  08-25-35  733,086  659,406 

Bear Stearns Asset Backed         
Securities Trust         
Series 2004-AC5, Class A1  5.750  10-25-34  403,415  404,474 

Citigroup/Deutsche Bank Commercial         
Mortgage Trust         
Series 2005-CD1, Class C (P)  5.219  07-15-44  295,000  300,708 

Commercial Mortgage Pass Through Certificates       
Series 2010-C1, Class D (P)(S)  5.908  07-10-46  475,000  503,123 
Series 2012-CR5, Class XA IO  1.933  12-10-45  4,636,610  504,834 
Series 2012-LC4, Class B (P)  4.934  12-10-44  360,000  385,860 
Series 2012-LC4, Class C (P)  5.648  12-10-44  645,000  692,372 
Series 2013-300P, Class D (P)(S)  4.394  08-10-30  620,000  582,086 

 

20  Income Securities Trust | Annual report  See notes to financial statements 

 



    Maturity     
  Rate (%)  date  Par value  Value 
Commercial Mortgage Pass Through Certificates       
Series 2013-CR11, Class B (P)  5.333  10-10-46  $560,000  $595,350 
Series 2013-LC13, Class B (P)(S)  5.009  08-10-46  525,000  552,713 

Deutsche Mortgage Securities, Inc.         
Series 2004-4, Class 2AR1 (P)  0.710  06-25-34  567,386  521,113 

Extended Stay America Trust         
Series 2013-ESFL, Class DFL (P)(S)  3.309  12-05-31  505,000  496,292 

Fontainebleau Miami Beach Trust         
Series 2012-FBLU, Class C (S)  4.270  05-05-27  315,000  321,778 
Series 2012-FBLU, Class D (S)  5.007  05-05-27  465,000  477,992 

GMAC Mortgage Corp. Loan Trust         
Series 2004-AR2, Class 3A (P)  3.325  08-19-34  663,301  649,049 

GS Mortgage Securities Corp. II         
Series 2013-KYO, Class D (P)(S)  2.773  11-08-29  570,000  563,252 

GSR Mortgage Loan Trust         
Series 2006-4F, Class 6A1  6.500  05-25-36  2,099,375  1,620,871 
Series 2004-9, Class B1 (P)  3.121  08-25-34  775,269  456,557 

HarborView Mortgage Loan Trust         
Series 2005-11, Class X IO  2.064  08-19-45  2,403,755  129,661 
Series 2005-2, Class IX IO  2.171  05-19-35  8,389,425  535,892 
Series 2005-9, Class 2A1C (P)  0.623  06-20-35  731,066  694,267 
Series 2005-8, Class 1X IO  2.136  09-19-35  3,251,934  254,012 
Series 2007-3, Class ES IO (S)  0.350  05-19-47  9,527,780  85,750 
Series 2007-4, Class ES IO  0.350  07-19-47  10,343,802  103,438 
Series 2007-6, Class ES IO (S)  0.342  08-19-37  7,980,610  67,835 

IndyMac Index Mortgage Loan Trust         
Series 2005-AR18, Class 1X IO  2.051  10-25-36  8,279,289  540,077 
Series 2005-AR18, Class 2X IO  1.688  10-25-36  7,484,289  300,915 

JPMorgan Chase Commercial Mortgage Securities Corp.       
Series 2006-LDP9, Class AM  5.372  05-15-47  1,020,000  1,098,087 
Series 2007-LD12, Class AM (P)(Z)  5.997  02-15-51  880,000  984,734 
Series 2007-LDPX Class AM (P)  5.464  01-15-49  945,000  977,391 
Series 2012-HSBC Class XA IO (S)  1.431  07-05-32  3,620,000  380,013 
Series 2012-PHH, Class D (P)(S)  3.442  10-15-25  260,000  261,393 
Series 2013-INMZ, Class M (P)(S)  6.160  09-15-18  510,000  511,609 
Series 2013-JWRZ, Class D (P)(S)  3.164  04-15-30  440,000  437,714 

Merrill Lynch Mortgage Investors Trust         
Series 2004-1, Class 2A1 (P)  2.175  12-25-34  512,393  510,173 
Series 2007-3, Class M1 (P)  3.213  09-25-37  237,165  127,268 
Series 2007-3, Class M2 (P)  3.213  09-25-37  91,461  10,205 
Series 2007-3, Class M3 (P)  3.213  09-25-37  25,144  413 

Morgan Stanley Bank of America Merrill         
Lynch Trust         
Series 2013-C7, Class C (P)  4.188  02-15-46  293,000  280,648 

Morgan Stanley Mortgage Loan Trust         
Series 2004-11, Class 1A2A (P)  0.480  01-25-35  1,152,208  1,123,350 

MortgageIT Trust         
Series 2005-2, Class 1A2 (P)  0.500  05-25-35  488,059  452,147 

Motel 6 Trust         
Series 2012-MTL6, Class D (S)  3.781  10-05-25  975,000  971,531 

Springleaf Mortgage Loan Trust         
Series 2012-3A, Class M1 (P)(S)  2.660  12-25-59  265,000  262,136 

Thornburg Mortgage Securities Trust         
Series 2004-1, Class II2A (P)  1.776  03-25-44  672,694  667,288 

 

See notes to financial statements  Annual report | Income Securities Trust  21 

 



    Maturity     
  Rate (%)  date  Par value  Value 
UBS Commercial Mortgage Trust         
Series 2012-C1, Class B  4.822  05-10-45  $405,000  $428,008 
Series 2012-C1, Class C (P)(S)  5.535  05-10-45  270,000  289,190 

UBS-Barclays Commercial         
Mortgage Trust         
Series 2012-C2, Class XA IO (S)  1.800  05-10-63  4,927,085  458,189 

VFC 2013-1 LLC         
Series 2013-1, Class A (S)  3.130  03-20-26  465,952  468,351 

Wachovia Bank Commercial         
Mortgage Trust         
Series 2007-C31, Class AM (P)  5.591  04-15-47  285,000  309,051 

WaMu Mortgage Pass Through Certificates       
Series 2005-AR19, Class A1A2 (P)(Z)  0.460  12-25-45  716,361  657,371 
Series 2005-AR2, Class 2A1B (P)  0.540  01-25-45  265,499  239,613 
Series 2005-AR8, Class 2AB2 (P)  0.590  07-25-45  692,632  639,433 

Wells Fargo Commercial Mortgage Trust         
Series 2013-1, Class 20B (P)(S)  2.710  03-18-28  910,000  843,425 
Series 2013-BTC, Class E (P)(S)  3.550  04-16-35  415,000  323,646 

WF-RBS Commercial Mortgage Trust         
Series 2012-C9, Class XA IO (S)  2.261  11-15-45  5,140,678  660,947 
Series 2013-C15, Class B (P)  4.486  08-15-46  155,000  158,794 
Series 2013-C16, Class B (P)  4.986  09-15-46  265,000  282,925 
 
U.S. Government Agency 3.9%        7,021,947 

Federal Home Loan Mortgage Corp.         
Series 290, Class IO  3.500  11-15-32  3,491,862  681,843 
Series 3747, Class HI IO  4.500  07-15-37  4,215,315  429,218 
Series 3794, Class PI IO  4.500  02-15-38  688,728  77,224 
Series 3830, Class NI IO  4.500  01-15-36  3,304,804  357,988 
Series 4077, Class IK IO  5.000  07-15-42  948,655  188,678 
Series 4136, Class IH IO  3.500  09-15-27  2,687,738  384,930 
Series K017, Class X1 IO  1.448  12-25-21  2,789,946  249,114 
Series K018, Class X1 IO (Z)  1.458  01-25-22  3,729,276  335,799 
Series K021, Class X1 IO  1.512  06-25-22  812,156  81,445 
Series K022, Class X1 IO  1.306  07-25-22  6,050,124  524,461 
Series K707, Class X1 IO  1.557  12-25-18  2,453,713  166,997 
Series K708, Class X1 IO  1.511  01-25-19  5,783,878  393,824 
Series K709, Class X1 IO  1.544  03-25-19  3,374,282  238,164 
Series K710, Class X1 IO  1.783  05-25-19  2,565,860  213,397 

Federal National Mortgage Association         
Series 2010-68, Class CI IO  5.000  11-25-38  874,868  118,993 
Series 2012-118, Class IB IO  3.500  11-25-42  1,458,116  327,218 
Series 2012-137, Class QI IO  3.000  12-25-27  2,833,874  421,725 
Series 2012-137, Class WI IO  3.500  12-25-32  2,079,137  441,829 
Series 402, Class 3 IO  4.000  11-25-39  499,278  94,066 
Series 402, Class 4 IO  4.000  10-25-39  782,902  132,942 
Series 402, Class 7 IO  4.500  11-25-39  742,016  133,606 
Series 402, Class 8 IO  4.500  11-25-39  681,488  101,167 
Series 407, Class 15 IO  5.000  01-25-40  810,382  135,411 
Series 407, Class 21 IO  5.000  01-25-39  440,054  76,812 
Series 407, Class 7 IO  5.000  03-25-41  322,319  61,603 
Series 407, Class 8 IO  5.000  03-25-41  330,162  52,507 
Series 407, Class C6 IO  5.500  01-25-40  1,307,767  222,854 

 

22  Income Securities Trust | Annual report  See notes to financial statements 

 



    Maturity     
  Rate (%)  date  Par value  Value 
Government National Mortgage Association       
Series 2012-114, Class IO  1.031  01-16-53  $2,063,655  $194,388 
Series 2013-42, Class IO  3.500  03-20-43  1,095,709  183,744 
 
Asset Backed Securities 8.0% (5.4% of Total Investments)    $14,508,395 

(Cost $13,978,610)         
 
Asset Backed Securities 8.0%        14,508,395 

ACE Securities Corp.         
Series 2005-HE3, Class M2 (P)  0.620  05-25-35  315,000  297,290 
Series 2006-ASP5, Class A2B (P)  0.300  10-25-36  335,462  156,679 
Series 2006-ASP5, Class A2C (P)  0.350  10-25-36  294,229  137,780 
Series 2006-ASP5, Class A2D (P)  0.430  10-25-36  562,109  266,101 

Aegis Asset Backed Securities Trust         
Series 2005-4, Class M1 (P)  0.620  10-25-35  750,000  620,228 

Ameriquest Mortgage Securities, Inc.         
Series 2005-R3, Class M2 (P)  0.640  05-25-35  480,000  436,776 

Argent Securities, Inc.         
Series 2003-W10, Class M1 (P)  1.250  01-25-34  268,192  257,878 
Series 2004-W6, Class M1 (P)  0.720  05-25-34  304,208  296,904 
Series 2006-M2, Class A2C (P)  0.320  09-25-36  1,538,821  612,823 

Bravo Mortgage Asset Trust         
Series 2006-1A, Class A2 (P)(S)(Z)  0.410  07-25-36  715,111  654,306 

Citicorp Residential Mortgage         
Securities, Inc.         
Series 2007-2, Class A6  5.939  06-25-37  307,166  310,160 

CKE Restaurant Holdings, Inc.         
Series 2013-1A, Class A2 (S)  4.474  03-20-43  1,106,638  1,130,993 

ContiMortgage Home Equity Loan Trust         
Series 1995-2, Class A5  8.100  08-15-25  29,615  29,430 

Countrywide Asset-Backed Certificates         
Series 2004-10, Class AF5B  5.110  02-25-35  538,159  563,204 

CSMC Trust         
Series 2006-CF2, Class M1 (P)(S)  0.640  05-25-36  540,000  520,660 

Dominos Pizza Master Issuer LLC         
Series 2012-1A, Class A2 (S)(Z)  5.216  01-25-42  1,085,731  1,180,264 

Encore Credit Receivables Trust         
Series 2005-2, Class M2 (P)  0.630  11-25-35  600,000  550,968 

GSAA Home Equity Trust         
Series 2005-11, Class 3A1 (P)  0.440  10-25-35  731,724  677,807 

GSAA Trust         
Series 2005-10, Class M3 (P)  0.720  06-25-35  675,000  631,067 

GSAMP Trust         
Series 2006-NC1, Class A2 (P)  0.350  02-25-36  304,450  285,147 

Home Equity Mortgage Loan Asset-         
Backed Trust         
Series 2005-C, Class AII3 (P)  0.540  10-25-35  455,000  426,913 

Mastr Asset Backed Securities Trust         
Series 2007-HE2, Class A2 (P)(Z)  0.870  08-25-37  210,401  206,318 

Merrill Lynch Mortgage Investors, Inc.         
Series 2005-WMC1, Class M1 (P)  0.920  09-25-35  256,559  237,568 

Morgan Stanley ABS Capital I         
Series 2006-HE4, Class A3 (P)  0.320  06-25-36  450,338  283,488 

RAMP Trust         
Series 2005-RS3, Class M1 (P)  0.590  03-25-35  320,000  302,398 

 

See notes to financial statements  Annual report | Income Securities Trust  23 

 



    Maturity     
  Rate (%)  date  Par value  Value 
Sonic Capital LLC         
Series 2011-1A, Class A2 (S)  5.438  05-20-41  $377,471  $406,264 

Soundview Home Loan Trust         
Series 2006-OPT2, Class A3 (P)  0.350  05-25-36  252,294  231,267 

Specialty Underwriting & Residential         
Finance Trust         
Series 2006-BC1, Class A2D (P)  0.470  12-25-36  1,090,000  1,022,284 

Westgate Resorts LLC         
Series 2012-2A, Class A (S)  3.000  01-20-25  454,896  455,960 
Series 2012-2A, Class B (S)  4.500  01-20-25  686,986  683,984 
Series 2012-3A, Class A (S)  2.500  03-20-25  331,899  331,561 
Series 2012-3A, Class B (S)  4.500  03-20-25  98,864  98,432 
Series 2013-1A, Class B (S)  3.750  08-20-25  209,054  205,493 
 
      Shares  Value 
Common Stocks 5.3% (3.6% of Total Investments)    $9,610,524 

(Cost $9,111,449)         
 
Consumer Staples 0.9%        1,706,900 
 
Food Products 0.4%         

Kraft Foods Group, Inc. (Z)      15,000  815,700 
 
Tobacco 0.5%         

Philip Morris International, Inc. (Z)      10,000  891,200 
 
Energy 0.7%        1,247,480 
 
Oil, Gas & Consumable Fuels 0.7%         

Royal Dutch Shell PLC, ADR      8,000  533,280 

The Williams Companies, Inc.      20,000  714,200 
 
Financials 0.4%        760,000 
 
Real Estate Investment Trusts 0.4%         

Weyerhaeuser Company      25,000  760,000 
 
Health Care 1.3%        2,360,433 
 
Pharmaceuticals 1.3%         

Eli Lilly & Company (Z)      17,000  846,940 

Johnson & Johnson (Z)      8,258  764,773 

Sanofi, ADR (Z)      14,000  748,720 
 
Industrials 0.8%        1,419,640 
 
Commercial Services & Supplies 0.4%       

Republic Services, Inc.      20,000  669,400 
 
Machinery 0.4%         

Caterpillar, Inc.      9,000  750,240 
 
Information Technology 0.4%        635,180 
 
Semiconductors & Semiconductor Equipment 0.4%     

Intel Corp.      26,000  635,180 
 
Materials 0.5%        918,000 
 
Chemicals 0.5%         

E.I. du Pont de Nemours & Company (Z)      15,000  918,000 

 

24  Income Securities Trust | Annual report  See notes to financial statements 

 



      Shares  Value 
Telecommunication Services 0.3%      $562,891 
 
Diversified Telecommunication Services 0.3%       

Oi SA, ADR      313,276  541,967 

Oi SA, ADR, Series C      12,025  20,924 
 
Preferred Securities (b) 2.1% (1.4% of Total Investments)    $3,790,840 

(Cost $3,624,021)         
 
Consumer Staples 0.3%        555,859 
 
Food & Staples Retailing 0.3%         

Ocean Spray Cranberries, Inc., Series A,       
6.250% (S)      6,250  555,859 
 
Financials 1.4%        2,471,144 
 
Capital Markets 0.2%         

The Goldman Sachs Group, Inc., 5.500% (Z)    12,425  283,663 
 
Commercial Banks 0.7%         

FNB Corp., 7.250%      9,000  225,000 

PNC Financial Services Group, Inc. (6.125% to       
5-1-22, then 3 month LIBOR + 4.067%) (Z)    19,375  491,738 

U.S. Bancorp (6.000% to 04-15-17, then       
3 month LIBOR + 4.861%) (Z)      15,475  420,456 

Wells Fargo & Company, Series L, 7.500%    192  218,688 
 
Consumer Finance 0.2%         

Ally Financial, Inc., 7.300%      11,815  298,683 
 
Diversified Financial Services 0.2%       

GMAC Capital Trust I (8.125% to 2-15-16,       
then 3 month LIBOR + 5.785%) (Z)      16,350  439,161 
 
Real Estate Investment Trusts 0.1%       

Weyerhaeuser Company, 6.375%      1,700  93,755 
 
Industrials 0.2%        386,388 
 
Aerospace & Defense 0.2%         

United Technologies Corp., 7.500% (Z)    6,106  386,388 
 
Materials 0.0%        57,669 
 
Metals & Mining 0.0%         

ArcelorMittal, 6.000%      2,420  57,669 
 
Telecommunication Services 0.2%      319,780 
 
Diversified Telecommunication Services 0.2%       

Intelsat SA, 5.750%      5,900  319,780 
 
  Rate  Maturity     
  (%)  date  Par value  Value 
Escrow Certificates 0.0% (0.0% of Total Investments)    $319 

(Cost $0)         
 
Materials 0.0%        319 
 
Smurfit-Stone Container Corp. (I)  8.000  03-15-17  $245,000  319 

 

See notes to financial statements  Annual report | Income Securities Trust  25 

 



  Par value  Value 
Short-Term Investments 0.4% (0.2% of Total Investments)    $634,000 

(Cost $634,000)     
 
Repurchase Agreement 0.4%    634,000 
 
Repurchase Agreement with State Street Corp. dated 10-31-13 at     
0.000% to be repurchased at $634,000 on 11-1-13, collateralized     
by $650,000 U.S. Treasury Notes, 1.000% due 5-31-18 (valued at     
$647,563, including interest)  634,000  634,000 
 
Total investments (Cost $260,471,133)148.3%    $267,800,266 

 
Other assets and liabilities, net (48.3%)    ($87,259,734) 

 
Total net assets 100.0%    $180,540,532 

 

 

The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the fund.

ADR American Depositary Receipts

IO Interest-Only Security — (Interest Tranche of Stripped Mortgage Pool). Rate shown is the annualized yield at the end of the period.

LIBOR London Interbank Offered Rate

PIK Paid-in-kind

REIT Real Estate Investment Trust

USGG U.S. Generic Government Yield Index

(a) Includes hybrid securities with characteristics of both equity and debt that trade with, and pay, interest income.

(b) Includes preferred stocks and hybrid securities with characteristics of both equity and debt that pay dividends on a periodic basis.

(C) Security purchased on a when-issued or delayed delivery basis.

(I) Non-income producing.

(M) Term loans are variable rate obligations. The coupon rate shown represents the rate at period end.

(P) Variable rate obligation. The coupon rate shown represents the rate at period end.

(Q) Perpetual bonds have no stated maturity date. Date shown as maturity date is next call date.

(S) These securities are exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be resold, normally to qualified institutional buyers, in transactions exempt from registration. Rule 144A securities amounted to $63,413,640 or 35.1% of the fund’s net assets as of 10-31-13.

(Z) All or a portion of this security is pledged as collateral pursuant to the Credit Facility Agreement. Total collateral value at 10-31-13 was $157,768,220.

† At 10-31-13, the aggregate cost of investment securities for federal income tax purposes was $261,555,327. Net unrealized appreciation aggregated $6,244,939, of which $13,313,490 related to appreciated investment securities and $7,068,551 related to depreciated investment securities.

26  Income Securities Trust | Annual report  See notes to financial statements 

 



F I N A N C I A L   S T A T E M E N T S

Financial statements

Statement of assets and liabilities 10-31-13

This Statement of assets and liabilities is the fund’s balance sheet. It shows the value of what the fund owns, is due and owes. You’ll also find the net asset value for each common share.

Assets   

Investments, at value (Cost $260,471,133)  $267,800,266 
Cash  1,012,424 
Cash held at broker for futures contracts  114,750 
Cash segregated at custodian for swap contracts  550,000 
Receivable for investments sold  1,444,659 
Dividends and interest receivable  2,756,319 
Receivable for futures variation margin  1,875 
Other receivables and prepaid expenses  16,665 
 
Total assets  273,696,958 
 
Liabilities   

Credit facility agreement payable  90,300,000 
Payable for investments purchased  1,312,804 
Payable for delayed delivery securities purchased  579,950 
Swap contracts, at value  811,228 
Interest payable  50,683 
Payable to affiliates   
Accounting and legal services fees  8,077 
Trustees’ fees  9,334 
Other liabilities and accrued expenses  84,350 
 
Total liabilities  93,156,426 
 
Net assets  $180,540,532 
 
Net assets consist of   

Paid-in capital  $185,634,025 
Undistributed net investment income  1,429,224 
Accumulated net realized gain (loss) on investments, futures contracts and   
swap agreements  (13,099,315) 
Net unrealized appreciation (depreciation) on investments, futures   
contracts and swap agreements  6,576,598 
 
Net assets  $180,540,532 
 
Net asset value per share   

Based on 11,743,104 shares of beneficial interest outstanding — unlimited   
number of shares authorized with no par value  $15.37 

 

See notes to financial statements  Annual report | Income Securities Trust  27 

 



F I N A N C I A L   S T A T E M E N T S

Statement of operations For the year ended 10-31-13

This Statement of operations summarizes the fund’s investment income earned and expenses incurred in operating the fund. It also shows net gains (losses) for the period stated.

Investment income   

Interest  $12,502,403 
Dividends  619,838 
Less foreign taxes withheld  (9,127) 
 
Total investment income  13,113,114 
 
Expenses   

Investment management fees  1,419,602 
Accounting and legal services fees  63,895 
Transfer agent fees  85,466 
Trustees’ fees  40,830 
Printing and postage  49,792 
Professional fees  97,947 
Custodian fees  24,827 
Stock exchange listing fees  26,232 
Interest expense  630,636 
Other  33,107 
 
Total expenses  2,472,334 
 
Net investment income  10,640,780 
 
Realized and unrealized gain (loss)   

 
Net realized gain (loss) on   
Investments  6,323,228 
Realized loss on investments not meeting investment restrictions  (3,909) 
Payment from investment advisor for loss on investments not meeting   
investment restrictions  3,909 
Futures contracts  (283,716) 
Swap contracts  (411,521) 
 
  5,627,991 
Change in net unrealized appreciation (depreciation) of   
Investments  (10,627,390) 
Futures contracts  58,693 
Swap contracts  397,835 
 
  (10,170,862) 
 
Net realized and unrealized loss  (4,542,871) 
 
Increase in net assets from operations  $6,097,909 

 

28  Income Securities Trust | Annual report  See notes to financial statements 

 



F I N A N C I A L   S T A T E M E N T S

Statements of changes in net assets

These Statements of changes in net assets show how the value of the fund’s net assets has changed during the last two periods. The difference reflects earnings less expenses, any investment gains and losses, distributions, if any, paid to shareholders and the net of fund share transactions.

  Year  Year 
  ended  ended 
  10-31-13  10-31-12 
Increase (decrease) in net assets     

 
From operations     
Net investment income  $10,640,780  $12,044,957 
Net realized gain (loss)  5,627,991  (168,211) 
Change in net unrealized appreciation (depreciation)  (10,170,862)  15,369,312 
 
Increase in net assets resulting from operations  6,097,909  27,246,058 
 
Distributions to shareholders     
From net investment income  (12,035,602)  (12,769,589) 
 
From fund share transactions     
Issued pursuant to Dividend Reinvestment Plan  686,806  1,017,966 
 
Total increase (decrease)  (5,250,887)  15,494,435 
 
Net assets     

Beginning of year  185,791,419  170,296,984 
 
End of year  $180,540,532  $185,791,419 
 
Undistributed net investment income  $1,429,224  $1,466,762 
 
Share activity     

 
Shares outstanding     
Beginning of year  11,699,015  11,631,473 
Issued pursuant to Dividend Reinvestment Plan  44,089  67,542 
 
End of year  11,743,104  11,699,015 

 

See notes to financial statements  Annual report | Income Securities Trust  29 

 



F I N A N C I A L   S T A T E M E N T S

Statement of cash flows

This Statement of cash flows shows cash flow from operating and financing activities for the period stated.

  For the 
  year ended 
  10-31-13 
Cash flows from operating activities   

Net increase in net assets from operations  $6,097,909 
Adjustments to reconcile net increase in net assets from operations to net   
cash provided by operating activities:   
Long-term investments purchased  (165,756,512) 
Long-term investments sold  162,520,968 
Decrease in short-term investments  466,000 
Net amortization of premium (discount)  4,619,323 
Decrease in dividends and interest receivable  152,265 
Increase in receivable for futures variation margin  (1,875) 
Increase in payable for investments purchased  1,114,606 
Increase in payable for delayed delivery securities purchased  488,024 
Increase in receivable for investments sold  (1,441,869) 
Decrease in cash segregated at custodian for swap contracts  270,000 
Increase in cash held at broker for futures contracts  (114,750) 
Decrease in other receivables and prepaid assets  3,475 
Decrease in unrealized depreciation of swap contracts  (397,835) 
Decrease in payable to affiliates  (3,672) 
Decrease in interest payable  (6,866) 
Decrease in other liabilities and accrued expenses  (20,985) 
Net change in unrealized (appreciation) depreciation on investments  10,627,390 
Net realized gain on investments  (6,323,228) 
 
Net cash provided by operating activities  $12,292,368 

 
Cash flows from financing activities   
Distributions to common shareholders net of reinvestments  ($11,348,796) 
 
Net cash used in financing activities  ($11,348,796) 
 
Net increase in cash  $943,572 
 
Cash at beginning of period  $68,852 
 
Cash at end of period  $1,012,424 
 
Supplemental disclosure of cash flow information   

 
Cash paid for interest  $637,502 
 
Noncash financing activities not included herein consist of  686,806 
reinvestment of distributions   

 

30  Income Securities Trust | Annual report  See notes to financial statements 

 



Financial highlights

The Financial highlights show how the fund’s net asset value for a share has changed during the period.

COMMON SHARES Period ended  10-31-13  10-31-12  10-31-11  10-31-10  10-31-09 
 
Per share operating performance           

Net asset value, beginning of period  $15.88  $14.64  $14.82  $13.42  $10.67 
Net investment income1  0.91  1.03  1.08  1.19  1.18 
Net realized and unrealized gain (loss)           
on investments  (0.39)  1.31  (0.13)  1.37  2.70 
Total from investment operations  0.52  2.34  0.95  2.56  3.88 
Less distributions to common shareholders           
From net investment income  (1.03)  (1.10)  (1.13)  (1.16)  (1.13) 
Net asset value, end of period  $15.37  $15.88  $14.64  $14.82  $13.42 
Per share market value, end of period  $14.28  $16.53  $14.81  $14.76  $12.94 
Total return at net asset value (%)2  3.51  16.57  6.78  19.90  39.06 
Total return at market value (%)2  (7.61)  19.95  8.46  23.85  47.95 
 
Ratios and supplemental data           

Net assets applicable to common shares, end of           
period (in millions)  $181  $186  $170  $171  $154 
Ratios (as a percentage of average net assets):           
Expenses3  1.35  1.53  1.56  1.78  2.25 
Net investment income  5.81  6.88  7.34  8.44  10.56 
Portfolio turnover (%)  60  50  71  79  94 
 
Senior securities           

Total debt outstanding end of period (in millions)  $90  $90  $87  $84  $58 
Asset coverage per $1,000 of debt4  $2,999  $3,057  $2,957  $3,051  $3,656 

 

1 Based on the average daily shares outstanding.
2 Total return based on net asset value reflects changes in the fund’s 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 fund’s shares traded during the period.
3 Expenses excluding interest were 1.01%, 1.06%, 1.04%, 1.12% and 1.40% for the periods ended 10-31-13, 10-31-12, 10-31-11, 10-31-10 and 10-13-09, respectively.
4 Asset coverage equals the total net assets plus borrowings divided by the borrowings of the fund outstanding at period end (Note 7). As debt outstanding changes, level of invested assets may change accordingly. Asset coverage ratio provides a measure of leverage.

 

See notes to financial statements  Annual report | Income Securities Trust  31 

 



Notes to financial statements

Note 1 — Organization

John Hancock Income Securities Trust (the fund) is a closed-end management investment company organized as a Massachusetts business trust and registered under the Investment Company Act of 1940, as amended (the 1940 Act).

Note 2 — Significant accounting policies

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 as of the date of the financial statements. Actual results could differ from those estimates and those differences could be significant. Events or transactions occurring after the end of the fiscal period through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. The following summarizes the significant accounting policies of the fund:

Security valuation. Investments are stated at value as of the close of regular trading on the New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. In order to value the securities, the fund uses the following valuation techniques: Equity securities held by the fund are valued at the last sale price or official closing price on the principal securities exchange on which they trade. In the event there were no sales during the day or closing prices are not available, the securities are valued using the last quoted bid or evaluated price. Debt obligations are valued based on the evaluated prices provided by an independent pricing service, which utilizes both dealer-supplied and electronic data processing techniques, taking 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. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. Swaps are marked-to-market daily based upon values from third party vendors, which may include a registered commodities exchange, or broker quotations. Foreign securities and currencies are valued in U.S. dollars, based on foreign currency exchange rates supplied by an independent pricing service. Certain securities traded only in the over-the-counter (OTC) market are valued at the last bid price quoted by brokers making markets in the securities at the close of trading. Certain short-term securities with maturities of 60 days or less at the time of purchase are valued at amortized cost. Other portfolio securities and assets, for which reliable market quotations are not readily available, are valued at fair value as determined in good faith by the fund’s Pricing Committee following procedures established by the Board of Trustees. The frequency with which these fair valuation procedures are used cannot be predicted and fair value of securities may differ significantly from the value that would have been used had a ready market for such securities existed.

The fund uses a three-tier hierarchy to prioritize the pricing assumptions, referred to as inputs, used in valuation techniques to measure fair value. Level 1 includes securities valued using quoted prices in active markets for identical securities. Level 2 includes securities valued using other significant observable inputs. Observable inputs may include quoted prices for similar securities, interest rates, prepayment speeds and credit risk. Prices for securities valued using these inputs are received from independent pricing vendors and brokers and are based on an evaluation of the inputs described. Level 3 includes securities valued using significant unobservable inputs when market prices are not readily available or reliable, including the fund’s own assumptions in determining the fair value of investments. Factors used in determining value may include market or issuer specific events or trends, changes in interest rates and credit quality. The inputs or methodology used for valuing

32  Income Securities Trust | Annual report 

 



securities are not necessarily an indication of the risks associated with investing in those securities. Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy.

The following is a summary of the values by input classification of the fund’s investments as of October 31, 2013, by major security category or type:

        LEVEL 3 
      LEVEL 2  SIGNIFICANT 
  TOTAL MARKET  LEVEL 1  SIGNIFICANT  UNOBSERVABLE 
INVESTMENTS IN SECURITIES  VALUE AT 10-31-13  QUOTED PRICE  OBSERVABLE INPUTS  INPUTS 

Corporate Bonds  $142,278,984    $142,278,984   
Convertible Bonds  520,645    520,645   
Term Loans  930,957    930,957   
Capital Preferred Securities  3,979,462    3,979,462   
U.S. Government & Agency         
Obligations  52,338,485    52,338,485   
Foreign Government         
Obligations  393,982    393,982   
Collateralized Mortgage         
Obligations  38,813,673    38,556,650  $257,023 
Asset Backed Securities  14,508,395    14,302,902  205,493 
Common Stocks  9,610,524  $9,610,524     
Preferred Securities  3,790,840  3,234,981  555,859   
Escrow Certificates  319    319   
Short-Term Investments  634,000    634,000   
 
Total Investments in         
Securities  $267,800,266  $12,845,505  $254,492,245  $462,516 
Other Financial Instruments         
Futures  $58,693  $58,693     
Interest Rate Swaps  ($811,228)    ($811,228)   

 

The following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value. Transfers into or out of Level 3 represent the beginning value of any security or instrument where a change in the level has occurred from the beginning to the end of the period.

 

    COLLATERALIZED         
  CORPORATE  MORTGAGE  ASSET BACKED  COMMON  PREFERRED   
  BONDS  OBLIGATIONS  SECURITIES  STOCKS  SECURITIES  TOTAL 

Balance as of 10-31-12  $625,692  $989,419    $43,162  $1,177,393  $2,835,666 
Realized gain (loss)        (15,805)  (172,570)  ($188,375) 
Change in unrealized             
appreciation (depreciation)    26,771  ($44,507)  41,763  344,367  $368,394 
Purchases      250,000      $250,000 
Sales        (69,120)  (1,349,190)  ($1,418,310) 
Transfers into Level 3             
Transfers out of Level 3  (625,692)  (759,167)        ($1,384,859) 
Balance as of 10-31-13    $257,023  $205,493      $462,516 
Change in unrealized at             
period end*    $26,771  ($44,507)      ($17,736) 

 

*Change in unrealized appreciation (depreciation) attributable to Level 3 securities held at the period end. This balance is included in the change in unrealized appreciation (depreciation) on the Statement of operations.

Repurchase agreements. The fund may enter into repurchase agreements. When the fund enters into a repurchase agreement, it receives collateral that is held in a segregated account by the fund’s custodian. The collateral amount is marked-to-market and monitored on a daily basis to ensure that

Annual report | Income Securities Trust  33 

 



the collateral held is in an amount not less than the principal amount of the repurchase agreement plus any accrued interest.

Repurchase agreements are typically governed by the terms and conditions of the Master Repurchase Agreement and/or Global Master Repurchase Agreement (collectively, MRA). Upon an event of default, the non-defaulting party may close out all transactions traded under the MRA and net amounts owed. Absent an event of default, the MRA does not result in an offset of the reported amounts of assets and liabilities in the statement of assets and liabilities. In the event of a default by the counterparty, realization of the collateral proceeds could be delayed, during which time the collateral value may decline or the counterparty may have insufficient assets to pay back claims resulting from close-out of the transactions. Collateral received by the fund for repurchase agreements is disclosed in the Fund’s investments as part of the caption related to the repurchase agreement.

Security transactions and related investment income. Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Interest income includes coupon interest and amortization/accretion of premiums/discounts on debt securities. Debt obligations may be placed in a non-accrual status and related interest income may be reduced by stopping current accruals and writing off interest receivable when the collection of all or a portion of interest has become doubtful. Dividend income is recorded on the ex-date, except for dividends of foreign securities where the dividend may not be known until after the ex-date. In those cases, dividend income, net of withholding taxes, is recorded when the fund becomes aware of the dividends. Distributions received on securities that represent a return of capital or capital gain are recorded as a reduction of cost of investments and/or as a realized gain if amounts are estimable. Foreign taxes are provided for based on the fund’s understanding of the tax rules and rates that exist in the foreign markets in which it invests. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds from litigation.

Foreign taxes. The fund may be subject to withholding tax on income and/or capital gains or repatriation taxes imposed by certain countries in which the fund invests. Taxes are accrued based upon investment income, realized gains or unrealized appreciation.

Stripped securities. Stripped securities are financial instruments structured to separate principal and interest cash flows so that one class receives principal payments from the underlying assets (PO or principal only), while the other class receives the interest cash flows (IO or interest only). Both PO and IO investments represent an interest in the cash flows of an underlying stripped security. If the underlying assets experience greater than anticipated prepayments of principal, the fund may fail to fully recover its initial investment in an IO security. The market value of these securities can be extremely volatile in response to changes in interest rates or prepayments on the underlying securities. In addition, these securities present additional credit risk such that the fund may not receive all or part of its principal or interest payments because the borrower or issuer has defaulted on its obligation.

Overdrafts. Pursuant to the custodian agreement, the fund’s custodian may, in its discretion, advance funds to the fund to make properly authorized payments. When such payments result in an overdraft, the fund is obligated to repay the custodian for any overdraft, including any costs or expenses associated with the overdraft. The custodian may have a lien, security interest or security entitlement in any fund property that is not otherwise segregated or pledged, to the maximum extent permitted by law, to the extent of any overdraft.

Expenses. Within the John Hancock funds complex, expenses that are directly attributable to an individual fund are allocated to such fund. Expenses that are not readily attributable to a

34  Income Securities Trust | Annual report 

 



specific fund are allocated among all funds in an equitable manner, taking into consideration, among other things, the nature and type of expense and the fund’s relative net assets. Expense estimates are accrued in the period to which they relate and adjustments are made when actual amounts are known.

Federal income taxes. The fund intends to continue to qualify 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.

Under the Regulated Investment Company Modernization Act of 2010, the fund is permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. Any losses incurred during those taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.

For federal income tax purposes, as of October 31, 2013, the fund has a capital loss carryforward of $12,109,942 available to offset future net realized capital gains. The following table details the capital loss carryforward available:

CAPITAL LOSS CARRYFORWARD EXPIRING AT OCTOBER 31

2014  2015  2016  2017  2018 

$2,169,323  $1,351,797  $1,367,076  $6,785,450  $436,296 

 

As of October 31, 2013, the fund had no uncertain tax positions that would require financial statement recognition, derecognition or disclosure. The fund’s federal tax returns are subject to examination by the Internal Revenue Service for a period of three years.

Distribution of income and gains. Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-date. The fund generally declares and pays dividends quarterly and capital gain distributions, if any, annually. The tax character of distributions for the years ended October 31, 2013 and October 31, 2012 was as follows:

  OCTOBER 31, 2013  OCTOBER 31, 2012 

Ordinary Income  $12,035,602  $12,769,589 

 

As of October 31, 2013, the components of distributable earnings on a tax basis consisted of $1,433,443 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. Material distributions in excess of tax basis earnings and profits, if any, are reported in the fund’s financial statements as a return of capital.

Capital accounts within the 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, if any, will reverse in a subsequent period. Book-tax differences are primarily attributable to derivative transactions and amortization and accretion on debt securities.

Statement of cash flows. Information on financial transactions that have been settled through the receipt and disbursement of cash is presented in the Statement of cash flows. The cash amount shown in the Statement of cash flows is the amount included in the fund’s Statement of assets and liabilities and represents the cash on hand at the fund’s custodian and does not include any

Annual report | Income Securities Trust  35 

 



short-term investments or cash segregated at the custodian for swap contracts or cash held at the broker for futures contracts.

Note 3 — Derivative instruments

The fund may invest in derivatives in order to meet its investment objectives. Derivatives include a variety of different instruments that may be traded in the OTC market, on a regulated exchange or through a clearing facility. The risks in using derivatives vary depending upon the structure of the instruments, including the use of leverage, optionality, the liquidity or lack of liquidity of the contract, the creditworthiness of the counterparty or clearing organization and the volatility of the position. Some derivatives involve risks that are potentially greater than the risks associated with investing directly in the referenced securities or other referenced underlying instrument. Specifically, the fund is exposed to the risk that the counterparty to an OTC derivatives contract will be unable or unwilling to make timely settlement payments or otherwise honor its obligations. OTC derivatives transactions typically can only be closed out with the other party to the transaction.

Certain swaps are typically traded through the OTC market. Derivative counterparty risk is managed through an ongoing evaluation of the creditworthiness of all potential counterparties and, if applicable, designated clearing organizations. The fund attempts to reduce its exposure to counterparty risk for derivatives traded in the OTC market, whenever possible, by entering into an International Swaps and Derivatives Association (ISDA) Master Agreement with each of its OTC counterparties. The ISDA gives each party to the agreement the right to terminate all transactions traded under the agreement if there is certain deterioration in the credit quality or contractual default of the other party, as defined in the ISDA. Upon an event of default or a termination of the ISDA, the non-defaulting party has the right to close out all transactions and to net amounts owed. This right to close out and net payments across all transactions traded under the ISDA could result in a reduction of the fund’s risk to a counterparty equal to any amounts payable by the fund, if any.

As defined by the ISDA, the fund may have collateral agreements with certain counterparties to mitigate counterparty risk on OTC derivatives. Subject to established minimum levels, collateral for OTC transactions is generally determined based on the net aggregate unrealized gain or loss on contracts with a particular counterparty. Collateral pledged to the fund is held in a segregated account by a third-party agent or held by the custodian bank for the benefit of the fund and can be in the form of cash or debt securities issued by the U.S. government or related agencies; collateral posted by the fund for OTC transactions is held in a segregated account at the fund’s custodian and is noted in the accompanying Fund’s investments, or if cash is posted, on the Statement of assets and liabilities. The fund’s maximum risk of loss due to counterparty risk is equal to the asset value of outstanding contracts offset by collateral received.

Futures are traded or cleared on an exchange or central clearinghouse. Exchange-traded or cleared transactions generally present less counterparty risk to a fund than OTC transactions. The exchange or clearinghouse stands between the fund and the broker to the contract and therefore, credit risk is generally limited to the failure of the exchange or clearinghouse and the clearing member. Securities pledged by the fund for exchange-traded and cleared transactions, if any, are identified in the Fund’s investments.

For financial reporting purposes, the fund does not offset OTC derivative assets or liabilities that are subject to master netting arrangements, as defined by the ISDAs, in the Statement of assets and liabilities. In the event of default by the counterparty or a termination of the agreement, the ISDA allows an offset of amounts across the various transactions between the fund and the applicable counterparty.

36  Income Securities Trust | Annual report 

 



Futures. A futures contract is a contractual agreement to buy or sell a particular currency or financial instrument at a pre-determined price in the future. Risks related to the use of futures contracts include possible illiquidity of the futures markets, contract prices that can be highly volatile and imperfectly correlated to movements in the underlying financial instrument and potential losses in excess of the amounts recognized on the Statement of assets and liabilities. Use of long futures contracts subjects the fund to the risk of loss up to the notional value of the futures contracts. Use of short futures contracts subjects the fund to unlimited risk of loss.

Upon entering into a futures contract, the fund is required to deposit initial margin with the broker in the form of cash or securities. The amount of required margin is generally based on a percentage of the contract value; this amount is the initial margin for the trade. The margin deposit must then be maintained at the established level over the life of the contract. Futures collateral receivable/payable is included on the Statement of assets and liabilities. Futures contracts are marked-to-market daily and an appropriate payable or receivable for the change in value (variation margin) and unrealized gain or loss is recorded by the fund. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.

During the year ended October 31, 2013, the fund used futures contracts to manage duration of the portfolio. During the year ended October 31, 2013, the fund held futures contracts with notional values ranging up to $2.9 million, as measured at each quarter end. The following table summarizes the contracts held at October 31, 2013.

OPEN  NUMBER OF    EXPIRATION  NOTIONAL  NOTIONAL UNREALIZED 
CONTRACTS  CONTRACTS  POSITION  DATE  BASIS  VALUE APPRECIATION 

U.S. Treasury Ultra  20  Long  Dec 2013  $2,823,182  $2,881,875 $58,693 
Long Bond Futures           

 

Notional basis refers to the contractual amount agreed upon at inception of open contracts; notional value represents the current value of the open contract.

Interest rate swaps. Interest rate swaps represent an agreement between the fund and a counterparty to exchange cash flows based on the difference between two interest rates applied to a notional amount. 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 interest receivable or payable under the swap contracts at specified, future intervals. Swap agreements are privately negotiated in the OTC market or may be executed on a registered commodities exchange (centrally cleared swaps). Swaps are marked-to-market daily and the change in value is recorded as unrealized appreciation/depreciation of swap contracts. A termination payment by the counterparty or the fund is recorded as realized gain or loss, as well as the net periodic payments received or paid by the fund. The value of the swap will typically impose collateral posting obligations on the party that is considered out-of-the-money on the swap.

Entering into swap agreements involves, to varying degrees, elements of credit, market and documentation risk that may amount to values that are in excess of the amounts recognized on the Statement of assets and liabilities. Such risks involve the possibility that there will be no liquid market for the swap, or that a counterparty may default on its obligation or delay payment under the swap terms. The counterparty may disagree or contest the terms of the swap. Market risks may also accompany the swap, including interest rate risk. The fund may also suffer losses if it is unable to terminate or assign outstanding swaps or reduce its exposure through offsetting transactions.

During the year ended October 31, 2013, the fund used interest rate swaps in anticipation of rising interest rates. The following table summarizes the interest rate swap contracts held as of October 31, 2013.

Annual report | Income Securities Trust  37 

 



  USD NOTIONAL  PAYMENTS MADE  PAYMENTS RECEIVED  MATURITY  MARKET 
COUNTERPARTY  AMOUNT  BY FUND  BY FUND  DATE  VALUE 

Morgan Stanley  $22,000,000  Fixed 1.442500%  3 Month LIBOR (a)  Aug 2016  ($559,689) 
Capital Services           
Morgan Stanley  $22,000,000  Fixed 1.093750%  3 Month LIBOR (a)  May 2017  (251,539) 
Capital Services           
TOTAL  $44,000,000        ($811,228) 

 

(a) At 10-31-13, the 3-month LIBOR rate was 0.24200%

No interest rate swap positions were entered into or closed during the year ended October 31, 2013.

Fair value of derivative instruments by risk category

The table below summarizes the fair value of derivatives held by the fund at October 31, 2013 by risk category:

    FINANCIAL  ASSET  LIABILITY 
  STATEMENT OF ASSETS  INSTRUMENTS  DERIVATIVES FAIR  DERIVATIVES 
RISK  AND LIABILITIES LOCATION  LOCATION  VALUE  FAIR VALUE 

Interest rate  Receivable/payable  Futures†  $58,693   
contracts  for futures       
 
Interest rate  Swap contracts, at  Interest    ($811,228) 
contracts  value  rate swaps     

 

† Reflects cumulative appreciation/depreciation on futures as disclosed in Note 3. Only the year end variation margin is separately disclosed on the Statement of assets and liabilities.

Effect of derivative instruments on the Statement of operations

The table below summarizes the net realized gain (loss) included in the net increase (decrease) in net assets from operations, classified by derivative instrument and risk category, for the year ended October 31, 2013:

  STATEMENT OF  FUTURES  SWAP   
RISK  OPERATIONS LOCATION  CONTRACTS  CONTRACTS  TOTAL 

Interest rate  Net realized  ($283,716)    ($283,716) 
contracts  gain (loss)       
 
Interest rate  Net realized    ($411,521)  (411,521) 
contracts  gain (loss)       
 
Total    ($283,716)  ($411,521)  ($695,237) 

 

The table below summarizes the net change in unrealized appreciation (depreciation) included in the net increase (decrease) in net assets from operations, classified by derivative instrument and risk category, for the year ended October 31, 2013:

 

  STATEMENT OF  FUTURES  SWAP   
RISK  OPERATIONS LOCATION  CONTRACTS  CONTRACTS  TOTAL 

Interest rate  Change in unrealized  $58,693  $397,835  $456,528 
contracts  appreciation (depreciation)       

 

Note 4 — Guarantees and indemnifications

Under the fund’s organizational documents, its Officers and Trustees are indemnified against certain liabilities 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

38  Income Securities Trust | Annual report 

 



indemnification clauses. The fund’s 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. The risk of material loss from such claims is considered remote.

Note 5 — Fees and transactions with affiliates

John Hancock Advisers, LLC (the Advisor) serves as investment advisor for the fund. The Advisor is an indirect, wholly owned subsidiary of Manulife Financial Corporation (MFC).

Management fee. The fund has an investment advisory agreement with the Advisor under which the fund pays a daily management fee to the Advisor equivalent, on an annual basis, to the sum of (a) 0.650% of the first $150,000,000 of the fund’s average daily managed assets (net assets plus borrowings under the Credit Facility Agreement) (see Note 7), (b) 0.375% of the next $50,000,000 of the fund’s average daily managed assets, (c) 0.350% of the next $100,000,000 of the fund’s average daily managed assets and (d) 0.300% of the fund’s average daily managed assets in excess of $300,000,000. The Advisor has a subadvisory agreement with John Hancock Asset Management a division of Manulife Asset Management (US) LLC, an indirectly owned subsidiary of MFC and an affiliate of the Advisor. The fund is not responsible for payment of the subadvisory fees.

The investment management fees incurred for the year ended October 31, 2013, were equivalent to a net annual effective rate of 0.52% of the fund’s average daily managed assets.

Accounting and legal services. Pursuant to a service agreement, the fund reimburses the Advisor for all expenses associated with providing the administrative, financial, legal, accounting and recordkeeping services to the fund, including the preparation of all tax returns, periodic reports to shareholders and regulatory reports, among other services. These accounting and legal services fees incurred for the year ended October 31, 2013 amounted to an annual rate of 0.02% of the fund’s average daily managed assets.

Trustee expenses. The fund compensates each Trustee who is not an employee of the Advisor or its affiliates. Under the John Hancock Group of funds Deferred Compensation Plan (the Plan), which was terminated in November 2012, certain Trustees could have elected, for tax purposes, to defer receipt of this compensation. Any deferred amounts were invested in various John Hancock funds. The investment of deferred amounts and the offsetting liability are included within Other receivables and prepaid expenses and Payable to affiliates — Trustees’ fees, respectively, in the accompanying Statement of assets and liabilities. Plan assets will be liquidated in accordance with the Plan documents.

Note 6 — Leverage risk

The fund utilizes a Credit Facility Agreement (CFA) to increase its assets available for investment. When the fund leverages its assets, common shareholders bear the fees associated with the CFA and have the potential to benefit or be disadvantaged from the use of leverage. The Advisor’s fee is also increased in dollar terms from the use of leverage. Consequently, the fund and the Advisor may have differing interests in determining whether to leverage the fund’s assets. Leverage creates risks that 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 interest rate paid for the use of the credit facility;

• increased operating costs, which may reduce the fund’s total return;

• the potential for a decline in the value of an investment acquired through leverage, while the fund’s obligations under such leverage remains fixed; and

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• the fund is more likely to have to sell securities in a volatile market in order to meet asset coverage or other debt compliance requirements.

To the extent the income or capital appreciation derived from securities purchased with funds received from leverage exceeds the cost of leverage, the fund’s return will be greater than if leverage had not been used, conversely, returns would be lower if the cost of the leverage exceeds the income or capital appreciation derived.

In addition to the risks created by the fund’s use of leverage, the fund is subject to the risk that it would be unable to timely, or at all, obtain replacement financing if the CFA is terminated. Were this to happen, the fund would be required to de-leverage, selling securities at a potentially inopportune time and incurring tax consequences. Further, the fund’s ability to generate income from the use of leverage would be adversely affected.

Note 7 — Credit Facility Agreement

The fund has entered into a CFA with Credit Suisse Securities (USA) LLC (CSSU), pursuant to which the fund borrows money to increase its assets available for investment. In accordance with the 1940 Act, the fund’s borrowings under the CFA will not exceed 33 1/3% of the fund’s managed assets (net assets plus borrowings) at the time of any borrowing.

The fund pledges a portion of its assets as collateral to secure borrowings under the CFA. Such pledged assets are held in a special custody account with the fund’s custodian. The amount of assets required to be pledged by the fund is determined in accordance with the CFA. The fund retains the benefits of ownership of assets pledged to secure borrowings under the CFA. Interest charged is at the rate of three month London Interbank Offered Rate (LIBOR) plus 0.41% and is payable monthly. As of October 31, 2013, the fund had borrowings of $90,300,000, at an interest rate of 0.65%, which is reflected in the Credit facility agreement payable on the Statement of assets and liabilities. During the year ended October 31, 2013, the average borrowings under the CFA and the effective average interest rate were $90,300,000 and 0.70%, respectively.

The fund may terminate the CFA with CSSU at any time. If certain asset coverage and collateral requirements or other covenants are not met, the CFA could be deemed in default and result in termination. Absent a default or facility termination event, CSSU is required to provide the fund with 270 calendar days’ notice prior to terminating or amending the CFA.

Note 8 — Purchase and sale of securities

Purchases and sales of securities, other than short-term securities and U.S. Treasury obligations, amounted to $139,773,590 and $139,657,378, respectively, for the year ended October 31, 2013. Purchases and sales of U.S. Treasury obligations aggregated $25,982,922 and $22,863,590, respectively, for the year ended October 31, 2013.

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Auditor’s 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 portfolio of investments, and the related statements of operations, of changes in net assets and of cash flows and the financial highlights present fairly, in all material respects, the financial position of John Hancock Income Securities Trust (the “Fund”) at October 31, 2013, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s 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 October 31, 2013 by correspondence with the custodian, agent bank and brokers, and the application of alternative auditing procedures where securities purchased confirmations had not been received, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Boston, Massachusetts
December 20, 2013

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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 October 31, 2013.

The fund reports the maximum amount allowable of its net taxable income as eligible for the corporate dividends-received deduction.

The fund reports 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.

Eligible shareholders will be mailed a 2013 Form 1099-DIV in early 2014. This will reflect the tax character of all distributions paid in calendar year 2013.

Please consult a tax advisor regarding the tax consequences of your investment in the fund.

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Additional information

Investment objective and policy

The fund is a closed-end, diversified management investment company, common shares of which were initially offered to the public on February 14, 1973 and are publicly traded on the New York Stock Exchange (the NYSE). The fund’s investment objective is to generate a high level of current income consistent with prudent investment risk. There can be no assurance that the fund will achieve its investment objective.

Under normal circumstances, the fund invests at least 80% of its net assets (plus borrowings for investment purposes) in income securities, consisting of the following: (i) marketable corporate debt securities, (ii) governmental obligations and (iii) cash and commercial paper. The fund will notify shareholders at least 60 days prior to any change in this 80% investment policy. The fund may invest up to 20% of its total assets in income-producing preferred securities and common stocks.

Effective March 20, 2013, the Board of Trustees approved a revision to the fund’s investment policy regarding the amount of the fund’s securities that is rated investment grade. The new investment policy provides that the fund will invest at least 75% of its net assets (plus borrowings for investment purposes) in debt securities that are rated, at the time of acquisition, investment grade (i.e., at least “Baa” by Moody’s Investors Service, Inc. (Moody’s) or “BBB” by Standard & Poor’s Ratings Services (S&P)), or in unrated securities determined by the fund’s investment advisor or subadvisor to be of comparable credit quality. Under the new investment policy, the fund can invest up to 25% of its net assets (plus borrowings for investment purposes) in debt securities that are rated, at the time of acquisition, below investment grade (junk bonds) (i.e., rated “Ba” or lower by Moody’s or “BB” or lower by S&P), or in unrated securities determined by the fund’s advisor or subadvisor to be of comparable quality.

Under the prior investment policy, the fund was required to invest at least 75% of its total assets in debt securities which were rated, at the time of acquisition, investment grade or in unrated securities determined to be of comparable credit quality. In addition, under the prior investment policy, the fund had the ability to invest up to 25% of its total assets in debt securities rated below investment grade at the time of acquisition.

Bylaws

Effective September 27, 2013, the Board of Trustees of the fund amended and restated in its entirety the By-laws of the fund (the “Amended and Restated By-laws”). The Amended and Restated By-laws include, among other changes, provisions that: (i) require a shareholder to give written advance notice and other information to the fund of the shareholder’s nominees for Trustees and proposals for other business to be considered at shareholders’ meetings, or in the event a shareholder proposes to seek a shareholder action by written consent or request a special meeting of shareholders; (ii) require any such notice by a shareholder be accompanied by certain information as provided in the By-laws; (iii) provide that Trustees may be nominated by shareholders only at an annual meeting of the fund or special meeting in lieu of an annual meeting; and (iv) reserve to the Trustees the exclusive power to adopt, alter, amend or repeal any provision of the By-laws or to make new By-laws, except where the Declaration of Trust, By-laws or applicable law would also require a shareholder vote to effect such adoption, alteration, amendment or repeal. The foregoing description of the By-laws is qualified in its entirety by the full text of the Amended and Restated By-laws effective as of September 27, 2013, which are available by writing to the Secretary of the fund at 601 Congress Street, 11th Floor, Boston, Massachusetts 02210.

Annual report | Income Securities Trust  43 

 



Dividends and distributions

During the year ended October 31, 2013, distributions from net investment income totaling $1.0269 per share were paid to shareholders. The dates of payments and the amounts per share were as follows:

  INCOME 
PAYMENT DATE  DISTRIBUTIONS 

December 31, 2012  $0.3086 
March 28, 2013  0.2298 
June 28, 2013  0.2591 
September 30, 2013  0.2294 
Total  $1.0269 

 

Dividend reinvestment plan

The fund’s Dividend Reinvestment Plan (the Plan) provides that distributions of dividends and capital gains are automatically reinvested in common shares of the fund by Computershare Trust Company, N.A. (the Plan Agent). Every shareholder holding at least one full share of the fund is entitled to participate in the Plan. In addition, every shareholder who became a shareholder of the fund after June 30, 2011 and holds at least one full share of the fund will be automatically enrolled in the Plan. Shareholders may withdraw from the Plan at any time and shareholders who do not participate in the Plan will receive all distributions in cash.

If the fund declares a dividend or distribution payable either in cash or in common shares of the fund and the market price of shares on the payment date for the distribution or dividend equals or exceeds the fund’s net asset value per share (NAV), the fund will issue common shares to participants at a value equal to the higher of NAV or 95% of the market price. The number of additional shares to be credited to each participant’s account will be determined by dividing the dollar amount of the distribution or dividend by the higher of NAV or 95% of the market price. If the market price is lower than NAV, or if dividends or distributions are payable only in cash, then participants will receive shares purchased by the Plan Agent on participants’ behalf on the NYSE or otherwise on the open market. If the market price exceeds NAV before the Plan Agent has completed its purchases, the average per share purchase price may exceed NAV, resulting in fewer shares being acquired than if the fund had issued new shares.

There are no brokerage charges with respect to common shares issued directly by the fund. However, whenever shares are purchased or sold on the NYSE or otherwise on the open market, each participant will pay a pro rata portion of brokerage trading fees, currently $0.05 per share purchased or sold. Brokerage trading fees will be deducted from amounts to be invested.

The reinvestment of dividends and net capital gains distributions does not relieve participants of any income tax that may be payable on such dividends or distributions.

Shareholders participating in the Plan may buy additional shares of the fund through the Plan at any time in amounts of at least $50 per investment, up to a maximum of $10,000, with a total calendar year limit of $100,000. Shareholders will be charged a $5 transaction fee plus $0.05 per share brokerage trading fee for each order. Purchases of additional shares of the fund will be made on the open market. Shareholders who elect to utilize monthly electronic fund transfers to buy additional shares of the fund will be charged a $2 transaction fee plus $0.05 per share brokerage trading fee for each automatic purchase. Shareholders can also sell fund shares held in the Plan account at any time by contacting the Plan Agent by telephone, in writing or by visiting the Plan Agent’s website at www.computershare.com/investor. The Plan Agent will mail a check (less applicable brokerage trading fees) on settlement date, which is three business days after the shares have been sold. If shareholders choose to sell

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shares through their stockbroker, they will need to request that the Plan Agent electronically transfer those shares to their stockbroker through the Direct Registration System.

Shareholders participating in the Plan may withdraw from the Plan at any time by contacting the Plan Agent by telephone, in writing or by visiting the Plan Agent’s website at www.computershare.com/investor. Such termination will be effective immediately if the notice is received by the Plan Agent prior to any dividend or distribution record date; otherwise, such termination will be effective on the first trading day after the payment date for such dividend or distribution, with respect to any subsequent dividend or distribution. If shareholders withdraw from the Plan, their shares will be credited to their account; or, if they wish, the Plan Agent will sell their full and fractional shares and send the shareholders the proceeds, less a transaction fee of $5 and less brokerage trading fees of $0.05 per share. If a shareholder does not maintain at least one whole share of common stock in the Plan account, the Plan Agent may terminate such shareholder’s participation in the Plan after written notice. Upon termination, shareholders will be sent a check for the cash value of any fractional share in the Plan account, less any applicable broker commissions and taxes.

Shareholders who hold at least one full share of the fund may join the Plan by notifying the Plan Agent by telephone, in writing or by visiting the Plan Agent’s website at www.computershare.com/investor. If received in proper form by the Plan Agent before the record date of a dividend, the election will be effective with respect to all dividends paid after such record date. If shareholders wish to participate in the Plan and their shares are held in the name of a brokerage firm, bank or other nominee, shareholders should contact their nominee to see if it will participate in the Plan. If shareholders wish to participate in the Plan, but their brokerage firm, bank or other nominee is unable to participate on their behalf, they will need to request that their shares be re-registered in their own name, or they will not be able to participate. The Plan Agent will administer the Plan on the basis of the number of shares certified from time to time by shareholders as representing the total amount registered in their name and held for their account by their nominee.

Experience under the Plan may indicate that changes are desirable. Accordingly, the fund and the Plan Agent reserve the right to amend or terminate the Plan. Participants generally will receive written notice at least 90 days before the effective date of any amendment. In the case of termination, participants will receive written notice at least 90 days before the record date for the payment of any dividend or distribution by the fund.

Effective July 1, 2013, the Plan was revised to reflect an updated definition of the market price. Under the revised Plan, “market price” is defined as “the last sale price for the fund’s shares in the market on that date as of the close of regular trading on the New York Stock Exchange (NYSE), or, if there is no sale in the market on that date or sale prices are not available, then the mean between the closing bid and asked quotations for such shares on such date.” This definition replaces the previous definition, stating that “market price” is “the last sale price for the fund’s shares on the New York Stock Exchange (NYSE) on that date, or, if there is no sale on the NYSE on that date, then the mean between the closing bid and asked quotations for such shares on the NYSE on such date”. In addition, effective November 1, 2013, the Plan was revised to provide that Computershare Trust Company, N.A. no longer provides mail loss insurance coverage when shareholders mail their certificates to the fund’s administrator.

All correspondence or additional information about the Plan should be directed to Computershare Trust Company, N.A., at the address stated below, or by calling 800-852-0218, 201-680-6578 (For International Telephone Inquiries) and 800-952-9245 (For the Hearing Impaired (TDD)).

Annual report | Income Securities Trust  45 

 



Shareholder communication and assistance

If you have any questions concerning the fund, we will be pleased to assist you. If you hold shares in your own name and not with a brokerage firm, please address all notices, correspondence, questions or other communications regarding the fund to the transfer agent at:

Computershare
P.O. Box 43006
Providence, RI 02940-3006
Telephone: 800-852-0218

If your shares are held with a brokerage firm, you should contact that firm, bank or other nominee for assistance.

Portfolio manager change

Effective May 15, 2013, the portfolio management team at John Hancock Asset Management a division of Manulife Asset Management (US) LLC has changed as follows: Barry H. Evans no longer serves on the portfolio management team responsible for managing the fund. Jeffrey N. Given, CFA and Howard C. Greene, CFA continue to serve as portfolio managers of the Fund.

46  Income Securities Trust | Annual report 

 



Continuation of Investment Advisory and Subadvisory Agreements

Evaluation of Advisory and Subadvisory Agreements by the Board of Trustees

This section describes the evaluation by the Board of Trustees (the Board) of John Hancock Income Securities Trust (the fund) of the Advisory Agreement (the Advisory Agreement) with John Hancock Advisers, LLC (the Advisor) and the Subadvisory Agreement (the Subadvisory Agreement) with John Hancock Asset Management a division of Manulife Asset Management (US) LLC (the Subadvisor). The Advisory Agreement and Subadvisory Agreement are collectively referred to as the Agreements.

Approval of Advisory and Subadvisory Agreements

At in-person meetings held on May 16–17, 2013, the Board, including the Trustees who are not considered to be interested persons of the fund under the Investment Company Act of 1940, as amended (the 1940 Act) (the Independent Trustees), reapproved for an annual period the continuation of the Advisory Agreement between the fund and the Advisor and the Subadvisory Agreement between the Advisor and the Subadvisor with respect to the fund.

In considering the Advisory Agreement and the Subadvisory Agreement, the Board received in advance of the meeting a variety of materials relating to the fund, the Advisor, and the Subadvisor, including comparative performance, fee and expense information for a peer group of similar funds prepared by an independent third-party provider of fund data; performance information for an applicable benchmark index; and other matters such as the prices at which the fund’s shares have traded and, with respect to the Subadvisor, comparative performance information for comparably managed accounts; and other information provided by the Advisor and the Subadvisor regarding the nature, extent, and quality of services provided by the Advisor and the Subadvisor under their respective Agreements, as well as information regarding the Advisor’s revenues and costs of providing services to the fund and any compensation paid to affiliates of the Advisor. At the meeting at which the renewal of the Advisory Agreement and Subadvisory Agreement is considered, particular focus is given to information concerning fund performance, comparability of fees and total expenses, and profitability. However, the Board notes that the evaluation process with respect to the Advisor and the Subadvisor is an ongoing one. In this regard, the Board also took into account discussions with management and information provided to the Board at prior meetings with respect to the services provided by the Advisor and the Subadvisor to the fund, including quarterly performance reports prepared by management containing reviews of investment results and prior presentations from the Subadvisor with respect to the fund. The Board noted the affiliation of the Subadvisor with the Advisor, noting any potential conflicts of interest. The Board also considered the nature, quality, and extent of non-advisory services, if any, to be provided to the fund by the Advisor’s affiliates.

Throughout the process, the Board asked questions of and requested additional information from management. The Board is assisted by counsel for the fund and the Independent Trustees are also separately assisted by independent legal counsel throughout the process. The Independent Trustees also received a memorandum from their independent counsel discussing the legal standards for their consideration of the proposed continuation of the Agreements and discussed the proposed continuation of the Agreements in private sessions with their independent legal counsel at which no representatives of management were present.

Approval of Advisory Agreement

In approving the Advisory Agreement with respect to the fund, the Board, including the Independent Trustees, considered a variety of factors, including those discussed below. The Board also considered other factors (including conditions and trends prevailing generally in the economy, the securities markets, and the industry) and does not treat any single factor as determinative, and each Trustee may attribute different weights to different factors. The Board’s conclusions may be based in part

Annual report | Income Securities Trust  47 

 



on its consideration of the advisory and subadvisory arrangements in prior years and on the Board’s ongoing regular review of fund performance and operations throughout the year.

Nature, extent, and quality of services. Among the information received by the Board from the Advisor relating to the nature, extent, and quality of services provided to the fund, the Board reviewed information provided by the Advisor relating to its operations and personnel, descriptions of its organizational and management structure, and information regarding the Advisor’s compliance and regulatory history, including its Form ADV. The Board also noted that on a regular basis it receives and reviews information from the fund’s Chief Compliance Officer (CCO) regarding the fund’s compliance policies and procedures established pursuant to Rule 38a-1 under the 1940 Act. The Board also considered the Advisor’s risk management processes. The Board considered that the Advisor is responsible for the management of the day-to-day operations of the fund, including, but not limited to, general supervision of and coordination of the services provided by the Subadvisor, and is also responsible for monitoring and reviewing the activities of the Subadvisor and third-party service providers.

The Board also considered the differences between the Advisor’s services to the fund and the services it provides to other clients that are not closed-end funds, including, for example, the differences in services related to the regulatory and legal obligations of closed-end funds.

In considering the nature, extent, and quality of the services provided by the Advisor, the Trustees also took into account their knowledge of the Advisor’s management and the quality of the performance of the Advisor’s duties through Board meetings, discussions, and reports during the preceding year and through each Trustee’s experience as a Trustee of the fund and of the other funds in the complex.

In the course of their deliberations regarding the Advisory Agreement, the Board considered, among other things:

(a) the skills and competency with which the Advisor has in the past managed the fund’s affairs and its subadvisory relationship, the Advisor’s oversight and monitoring of the Subadvisor’s investment performance and compliance programs, such as the Subadvisor’s compliance with fund policies and objective; review of brokerage matters, including with respect to trade allocation and best execution and the Advisor’s timeliness in responding to performance issues;

(b) the background, qualifications and skills of the Advisor’s personnel;

(c) the Advisor’s compliance policies and procedures and its responsiveness to regulatory changes and fund industry developments;

(d) the Advisor’s administrative capabilities, including its ability to supervise the other service providers for the fund;

(e) the financial condition of the Advisor and whether it has the financial wherewithal to provide a high level and quality of services to the fund; and

(f) the Advisor’s reputation and experience in serving as an investment advisor to the fund and the benefit to shareholders of investing in funds that are part of a family of funds offering a variety of investments.

The Board concluded that the Advisor may reasonably be expected to continue to provide a high quality of services under the Advisory Agreement with respect to the fund.

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Investment performance. In considering the fund’s performance, the Board noted that it reviews at its regularly scheduled meetings information about the fund’s performance results. In connection with the consideration of the Advisory Agreement, the Board:

(a) reviewed information prepared by management regarding the fund’s performance;

(b) considered the comparative performance of an applicable benchmark index;

(c) considered the performance of comparable funds, if any, as included in the report prepared by an independent third-party provider of fund data. Such report included the fund’s ranking within a smaller group of peer funds and the fund’s ranking within a broader group of funds;

(d) took into account the Advisor’s analysis of the fund’s performance; and

(e) considered the fund’s share performance and premium/discount information.

The Board noted that, based on its net asset value, the fund outperformed the benchmark index and peer group average for the one-, three-, and five-year periods ended December 31, 2012.

The Board noted the fund’s favorable performance relative to the benchmark index and peer group for the one-, three-, and five-year periods. The Board took into account the limited number of funds in the peer group.

The Board concluded that the performance of the fund has generally been in line with or outperformed the historical performance of comparable funds and the benchmark index.

Fees and expenses. The Board reviewed comparative information prepared by an independent third-party provider of fund data including, among other data, the fund’s contractual and net management fees and total expenses as compared to similarly situated investment companies deemed to be comparable to the fund. The Board considered the fund’s ranking within a smaller group of peer funds chosen by the independent third-party provider, as well as the fund’s ranking within a broader group of funds. In comparing the fund’s contractual and net management fees to those of comparable funds, the Board noted that such fees include both advisory and administrative costs.

The Board also took into account the impact of leverage on fund expenses. The Board took into account the management fee structure, including that management fees for the fund were based on the fund’s total managed assets, which are attributable to stock and borrowings.

The Board noted that net management fees for the fund are lower than the peer group median. The Board also noted that total expenses, based on total managed assets, which include the fund’s assets attributable to its common stock plus borrowings for investment purposes, for the fund are higher than the peer group median.

The Board took into account management’s discussion of the fund’s expenses, including the differences among the funds in the peer group with respect to the utilization of leverage.

The Board also took into account management’s discussion with respect to the advisory/subadvisory fee structure, including the amount of the advisory fee retained by the Advisor after payment of the subadvisory fee. The Board reviewed information provided by the Advisor concerning investment advisory fees charged by the Advisor or one of its advisory affiliates to other clients (including other funds in the complex) having similar investment mandates, if any. The Board considered any differences between the Advisor’s and Subadvisor’s services to the fund and the services they provide to other comparable clients or funds. The Board concluded that the advisory fee paid with respect to the fund is reasonable.

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Profitability/indirect benefits. In considering the costs of the services to be provided and the profits to be realized by the Advisor and its affiliates (including the Subadvisor) from the Advisor’s relationship with the fund, the Board:

(a) reviewed financial information of the Advisor;

(b) reviewed and considered an analysis presented by the Advisor regarding the net profitability to the Advisor and its affiliates with respect to the fund;

(c) received and reviewed profitability information with respect to the John Hancock fund complex as a whole;

(d) received information with respect to the Advisor’s allocation methodologies used in preparing the profitability data;

(e) considered that the Advisor also provides administrative services to the fund on a cost basis pursuant to an administrative services agreement;

(f) noted that the fund’s Subadvisor is an affiliate of the Advisor;

(g) noted that the Advisor also derives reputational and other indirect benefits from providing advisory services to the fund;

(h) noted that the subadvisory fees for the fund are paid by the Advisor; and

(i) considered that the Advisor should be entitled to earn a reasonable level of profits in exchange for the level of services it provides to the fund and the entrepreneurial risk that it assumes as Advisor.

Based upon its review, the Board concluded that the level of profitability, if any, of the Advisor and its affiliates (including the Subadvisor) from their relationship with the fund was reasonable and not excessive.

Economies of scale. The Board considered whether there should be changes in the management fee rate or structure in order to enable the fund to participate in any economies of scale, noting that the fund has a limited ability to increase its assets as a closed-end fund. The Board took into account management’s discussions of the current advisory fee structure and, as noted above, the services the Advisor provides in performing its functions under the Advisory Agreement and in supervising the Subadvisor. The Board also considered potential economies of scale that may be realized by the fund as part of the John Hancock fund complex. The Board also considered the Advisor’s overall operations and its ongoing investment in its business in order to expand the scale of, and improve the quality of, its operations that benefit the fund. The Board noted that the fund has breakpoints in its contractual management fee schedule and that the fund’s net management fees are lower than the peer group median. The Board determined that the management fee structure for the fund was reasonable.

Approval of Subadvisory Agreement

In making its determination with respect to approval of the Subadvisory Agreement, the Board reviewed:

(1) information relating to the Subadvisor’s business, including current subadvisory services to the fund (and other funds in the John Hancock family of funds); and

(2) the historical and current performance of the fund and comparative performance information relating to an applicable benchmark index and comparable funds.

50  Income Securities Trust | Annual report 

 



Nature, extent, and quality of services. With respect to the services provided by the Subadvisor, the Board received information provided to the Board by the Subadvisor, including the Subadvisor’s Form ADV, as well as took into account information presented throughout the past year. The Board considered the Subadvisor’s current level of staffing and its overall resources, as well as received information relating to the Subadvisor’s compensation program. The Board reviewed the Subadvisor’s history and investment experience, as well as information regarding the qualifications, background, and responsibilities of the Subadvisor’s investment and compliance personnel who provide services to the fund. The Board also considered, among other things, the Subadvisor’s compliance program and any disciplinary history. The Board also considered the Subadvisor’s risk assessment and monitoring process. The Board reviewed the Subadvisor’s regulatory history, including whether it was involved in any regulatory actions or investigations as well as material litigation, and any settlements and amelioratory actions undertaken, as appropriate. The Board noted that the Advisor conducts regular, periodic reviews of the Subadvisor and its operations, including regarding investment processes and organizational and staffing matters. The Board also noted that the fund’s CCO and his staff conduct regular, periodic compliance reviews with the Subadvisor and present reports to the Independent Trustees regarding the same, which includes evaluating the regulatory compliance systems of the Subadvisor and procedures reasonably designed by it to assure compliance with the federal securities laws. The Board also took into account the financial condition of the Subadvisor.

The Board considered the Subadvisor’s investment process and philosophy. The Board took into account that the Subadvisor’s responsibilities include the development and maintenance of an investment program for the fund that is consistent with the fund’s investment objective, the selection of investment securities and the placement of orders for the purchase and sale of such securities, as well as the implementation of compliance controls related to performance of these services. The Board also received information with respect to the Subadvisor’s brokerage policies and practices, including with respect to best execution and soft dollars.

Subadvisor compensation. In considering the cost of services to be provided by the Subadvisor and the profitability to the Subadvisor of its relationship with the fund, the Board noted that the fees under the Subadvisory Agreement are paid by the Advisor and not the fund.

The Board also received information and took into account any other potential conflicts of interest the Advisor might have in connection with the Subadvisory Agreement. In addition, the Board considered other potential indirect benefits that the Subadvisor and its affiliates may receive from the Subadvisor’s relationship with the fund, such as the opportunity to provide advisory services to additional funds in the John Hancock fund complex and reputational benefits.

Subadvisory fees. The Board considered that the fund pays an advisory fee to the Advisor and that, in turn, the Advisor pays a subadvisory fee to the Subadvisor. The Board also took into account the subadvisory fee paid by the Advisor to the Subadvisor with respect to the fund to fees charged by the Subadvisor to manage other subadvised portfolios and portfolios not subject to regulation under the 1940 Act, as applicable.

Subadvisor performance. As noted above, the Board considered the fund’s performance as compared to the fund’s peer group and the benchmark index and noted that the Board reviews information about the fund’s performance results at its regularly scheduled meetings. The Board noted the Advisor’s expertise and resources in monitoring the performance, investment style, and risk-adjusted performance of the Subadvisor. The Board was mindful of the Advisor’s focus on the Subadvisor’s performance. The Board also noted the Subadvisor’s long-term performance record for similar accounts, as applicable.

Annual report | Income Securities Trust  51 

 



The Board’s decision to approve the Subadvisory Agreement was based on a number of determinations, including the following:

(1) The Subadvisor has extensive experience and demonstrated skills as a manager;

(2) The performance of the fund has been in line with or outperformed the historical performance of comparable funds and the benchmark index and the fund’s overall performance is satisfactory; and

(3) The subadvisory fees are reasonable in relation to the level and quality of services being provided.

* * * 

 

Based on the Board’s evaluation of all factors that the Board deemed to be material, including those factors described above, the Board, including the Independent Trustees, concluded that renewal of the Advisory Agreement and the Subadvisory Agreement would be in the best interest of the fund and its shareholders. Accordingly, the Board, and the Independent Trustees voting separately, approved the Advisory Agreement and Subadvisory Agreement for an additional one-year period.

 

52  Income Securities Trust | Annual report 

 



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.

Independent Trustees     
 
Name, year of birth  Trustee  Number of John 
Position(s) held with fund  of the  Hancock funds 
Principal occupation(s) and other  Trust  overseen by 
directorships during past 5 years  since1  Trustee 
 
James M. Oates,2 Born: 1946  2012  233 

Managing Director, Wydown Group (financial consulting firm) (since 1994); Chairman and Director, 
Emerson Investment Management, Inc. (since 2000); Independent Chairman, Hudson Castle Group, Inc. 
(formerly IBEX Capital Markets, Inc.) (financial services company) (1997–2011); Director, Stifel Financial 
(since 1996); Director, Investor Financial Services Corporation (1995–2007); Director, Connecticut River 
Bancorp (since 1998); Director, Virtus Funds (formerly Phoenix Mutual Funds) (since 1988).   
Trustee and Chairperson of the Board, John Hancock retail funds4 (since 2012); Trustee (2005–2006 and 
since 2012) and Chairperson of the Board (since 2012), John Hancock Funds III; Trustee (since 2004) and 
Chairperson of the Board (since 2005), John Hancock Variable Insurance Trust; Trustee and Chairperson 
of the Board, John Hancock Funds II (since 2005).     
 
Charles L. Bardelis,2,3 Born: 1941  2012  233 

Director, Island Commuter Corp. (marine transport).     
Trustee, John Hancock retail funds4 (since 2012); Trustee, John Hancock Funds III (2005–2006 and 
since 2012); Trustee, John Hancock Variable Insurance Trust (since 1988); Trustee, John Hancock 
Funds II (since 2005).     
 
Peter S. Burgess,2,3 Born: 1942  2012  233 

Consultant (financial, accounting, and auditing matters) (since 1999); Certified Public Accountant; 
Partner, Arthur Andersen (independent public accounting firm) (prior to 1999); Director, Lincoln 
Educational Services Corporation (since 2004); Director, Symetra Financial Corporation (since 2010); 
Director, PMA Capital Corporation (2004–2010).     
Trustee, John Hancock retail funds4 (since 2012); Trustee, John Hancock Funds III (2005–2006 and 
since 2012); Trustee, John Hancock Variable Insurance Trust and John Hancock Funds II (since 2005). 
 
William H. Cunningham, Born: 1944  2005  233 

Professor, University of Texas, Austin, Texas (since 1971); former Chancellor, University of Texas System 
and former President of the University of Texas, Austin, Texas; Director, LIN Television (since 2009); 
Chairman (since 2009) and Director (since 2006), Lincoln National Corporation (insurance); Director, 
Resolute Energy Corporation (since 2009); Director, Southwest Airlines (since 2000); former Director, 
Introgen (manufacturer of biopharmaceuticals) (until 2008); former Director, Hicks Acquisition Company I, 
Inc. (until 2007); former Director, Texas Exchange Bank, SSB (formerly Bank of Crowley) (until 2009); 
former Advisory Director, JP Morgan Chase Bank (formerly Texas Commerce Bank–Austin) (until 2009). 
Trustee, John Hancock retail funds4 (since 1986); Trustee, John Hancock Variable Insurance Trust 
(since 2012); Trustee, John Hancock Funds II (since 2012 and 2005–2006).     

 

Annual report | Income Securities Trust  53 

 



Independent Trustees (continued)     
 
Name, year of birth  Trustee  Number of John 
Position(s) held with fund  of the  Hancock funds 
Principal occupation(s) and other  Trust  overseen by 
directorships during past 5 years  since1  Trustee 
 
Grace K. Fey,2 Born: 1946  2012  233 

Chief Executive Officer, Grace Fey Advisors (since 2007); Director and Executive Vice President, Frontier 
Capital Management Company (1988–2007); Director, Fiduciary Trust (since 2009).   
Trustee, John Hancock retail funds4 (since 2012); Trustee, John Hancock Variable Insurance Trust and 
John Hancock Funds II (since 2008).     
 
Theron S. Hoffman,2,3 Born: 1947  2012  233 

Chief Executive Officer, T. Hoffman Associates, LLC (consulting firm) (since 2003); Director, The Todd 
Organization (consulting firm) (2003–2010); President, Westport Resources Management (investment 
management consulting firm) (2006–2008); Senior Managing Director, Partner, and Operating Head, 
Putnam Investments (2000–2003); Executive Vice President, The Thomson Corp. (financial and legal 
information publishing) (1997–2000).     
Trustee, John Hancock retail funds4 (since 2012); Trustee, John Hancock Variable Insurance Trust and 
John Hancock Funds II (since 2008).     
 
Deborah C. Jackson, Born: 1952  2008  233 

President, Cambridge College, Cambridge, Massachusetts (since 2011); Chief Executive Officer, 
American Red Cross of Massachusetts Bay (2002–2011); Board of Directors of Eastern Bank Corporation 
(since 2001); Board of Directors of Eastern Bank Charitable Foundation (since 2001); Board of Directors 
of American Student Assistance Corporation (1996–2009); Board of Directors of Boston Stock Exchange 
(2002–2008); Board of Directors of Harvard Pilgrim Healthcare (health benefits company) (2007–2011). 
Trustee, John Hancock retail funds4 (since 2008); Trustee of John Hancock Variable Insurance Trust and 
John Hancock Funds II (since 2012).     
 
Hassell H. McClellan,2 Born: 1945  2012  233 

Associate Professor, The Wallace E. Carroll School of Management, Boston College (since 1984); 
Trustee, Virtus Variable Insurance Trust (formerly Phoenix Edge Series Funds) (since 2008); Director, The 
Barnes Group (since 2010).     
Trustee, John Hancock retail funds4 (since 2012); Trustee, John Hancock Funds III (2005–2006 and 
since 2012); Trustee, John Hancock Variable Insurance Trust and John Hancock Funds II (since 2005). 
 
Steven R. Pruchansky, Born: 1944  2005  233 

Chairman and Chief Executive Officer, Greenscapes of Southwest Florida, Inc. (since 2000); Director 
and President, Greenscapes of Southwest Florida, Inc. (until 2000); Member, Board of Advisors, First 
American Bank (until 2010); Managing Director, Jon James, 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).     
Trustee (since 1992) and Chairperson of the Board (2011–2012), John Hancock retail funds4; Trustee and 
Vice Chairperson of the Board, John Hancock retail funds4, John Hancock Variable Insurance Trust, and 
John Hancock Funds II (since 2012).     

 

54  Income Securities Trust | Annual report 

 



Independent Trustees (continued)     
 
Name, year of birth  Trustee  Number of John 
Position(s) held with fund  of the  Hancock funds 
Principal occupation(s) and other  Trust  overseen by 
directorships during past 5 years  since1  Trustee 
 
Gregory A. Russo, Born: 1949  2008  233 

Director and Audit Committee Chairman (since 2012), and Member, Audit Committee and Finance 
Committee (since 2011), NCH Healthcare System, Inc. (holding company for multi-entity healthcare 
system); Director and Member of Finance Committee, The Moorings, Inc. (nonprofit continuing care 
community) (since 2012); Vice Chairman, Risk & Regulatory Matters, KPMG LLP (KPMG) (2002–2006); 
Vice Chairman, Industrial Markets, KPMG (1998–2002); Chairman and Treasurer, Westchester County, 
New York, Chamber of Commerce (1986–1992); Director, Treasurer, and Chairman of Audit and 
Finance Committees, Putnam Hospital Center (1989–1995); Director and Chairman of Fundraising 
Campaign, United Way of Westchester and Putnam Counties, New York (1990–1995).   
Trustee, John Hancock retail funds4 (since 2008); Trustee, John Hancock Variable Insurance Trust and 
John Hancock Funds II (since 2012).     
 
Non-Independent Trustees5     
 
Name, year of birth  Trustee  Number of John 
Position(s) held with fund  of the  Hancock funds 
Principal occupation(s) and other  Trust  overseen by 
directorships during past 5 years  since1  Trustee 
 
James R. Boyle,2 Born: 1959  2012  233 

Senior Executive Vice President, John Hancock Financial Services (1999–2012, including prior positions); 
Chairman and Director, John Hancock Advisers, LLC, John Hancock Funds, LLC, and John Hancock 
Investment Management Services, LLC (2005–2010).     
Trustee, John Hancock retail funds4 (since 2012 and 2005–2010); Trustee, John Hancock Variable 
Insurance Trust and John Hancock Funds II (since 2005).     
 
Craig Bromley,2 Born: 1966  2012  233 

President, John Hancock Financial Services (since 2012); Senior Executive Vice President and General 
Manager, U.S. Division, John Hancock Financial Services (since 2012); President and Chief Executive 
Officer, Manulife Insurance Company (Manulife Japan) (2005–2012, including prior positions). 
Trustee, John Hancock retail funds,4 John Hancock Variable Insurance Trust, and John Hancock Funds 
II (since 2012).     
 
Warren A. Thomson,2 Born: 1955  2012  233 

Senior Executive Vice President and Chief Investment Officer, Manulife Financial Corporation and The 
Manufacturers Life Insurance Company (since 2009); Chairman and Chief Executive Officer, Manulife 
Asset Management (since 2001, including prior positions); Director (since 2006), and President and 
Chief Executive Officer (since 2013), Manulife Asset Management Limited; Director and Chairman, 
Hancock Natural Resources Group, Inc. (since 2013).     
Trustee, John Hancock retail funds,4 John Hancock Variable Insurance Trust, and John Hancock 
Funds II (since 2012).     

 

Annual report | Income Securities Trust  55 

 



Principal officers who are not Trustees   
 
Name, year of birth  Officer 
Position(s) held with fund  of the 
Principal occupation(s) and other  Trust 
directorships during past 5 years  since 
 
Hugh McHaffie, Born: 1959  2012 

President   
Executive Vice President, John Hancock Financial Services (since 2006, including prior positions);   
Chairman and Director, John Hancock Advisers, LLC, John Hancock Investment Management Services, 
LLC, and John Hancock Funds, LLC (since 2010); President, John Hancock Advisers, LLC (since 2012); 
President, John Hancock Investment Management Services, LLC (since 2010); President (since 2012) and 
former Trustee (2010–2012), John Hancock retail funds,4 President, John Hancock Variable Insurance 
Trust and John Hancock Funds II (since 2009).   
 
Andrew G. Arnott, Born: 1971  2009 

Executive Vice President   
Senior Vice President, John Hancock Financial Services (since 2009); Director and Executive Vice   
President, John Hancock Advisers, LLC (since 2005, including prior positions); Director and Executive 
Vice President, John Hancock Investment Management Services, LLC (since 2006, including prior   
positions); President, John Hancock Funds, LLC (since 2004, including prior positions); Executive Vice 
President, John Hancock retail funds,4 John Hancock Variable Insurance Trust, and John Hancock Funds 
II (since 2007, including prior positions).   
 
Thomas M. Kinzler, Born: 1955  2006 

Secretary and Chief Legal Officer   
Vice President, John Hancock Financial Services (since 2006); Secretary and Chief Legal Counsel,   
John Hancock Funds, LLC (since 2007); Secretary and Chief Legal Officer, John Hancock retail funds,4 
John Hancock Variable Insurance Trust, and John Hancock Funds II (since 2006).   
 
Francis V. Knox, Jr., Born: 1947  2005 

Chief Compliance Officer   
Vice President, John Hancock Financial Services (since 2005); Chief Compliance Officer, John Hancock 
retail funds,4 John Hancock Variable Insurance Trust, John Hancock Funds II, John Hancock Advisers, 
LLC, and John Hancock Investment Management Services, LLC (since 2005); Vice President and Chief 
Compliance Officer, John Hancock Asset Management a division of Manulife Asset Management (US) 
LLC (2005–2008).   
 
Charles A. Rizzo, Born: 1957  2007 

Chief Financial Officer   
Vice President, John Hancock Financial Services (since 2007); Senior Vice President, John Hancock   
Advisers, LLC and John Hancock Investment Management Services, LLC (since 2007); Treasurer,   
John Hancock retail funds4 (since 2007, including prior positions); Treasurer, John Hancock Variable 
Insurance Trust and John Hancock Funds II (2007–2009 and since 2010, including prior positions).   

 

56  Income Securities Trust | Annual report 

 



Principal officers who are not Trustees (continued)   
 
Name, year of birth  Officer 
Position(s) held with fund  of the 
Principal occupation(s) and other  Trust 
directorships during past 5 years  since 
 
Salvatore Schiavone, Born: 1965  2010 

Treasurer   
Assistant Vice President, John Hancock Financial Services (since 2007); Vice President, John Hancock 
Advisers, LLC and John Hancock Investment Management Services, LLC (since 2007); Treasurer,   
John Hancock retail funds4 (since 2007, including prior positions); Treasurer, John Hancock Variable 
Insurance Trust and John Hancock Funds II (since 2010 and 2007–2009, including prior positions).   

 

The business address for all Trustees and Officers is 601 Congress Street, Boston, Massachusetts 02210-2805.

1 Mr. Bromley, Ms. Jackson, Mr. Oates, and Mr. Pruchansky serve as Trustees for a term expiring in 2016; Mr. Bardelis, Mr. Burgess, Mr. Hoffman, and Mr. Thomson serve as Trustees for a term expiring in 2015; and Mr. Boyle, Mr. Cunningham, Ms. Fey, Mr. McClellan, and Mr. Russo serve as Trustees for a term expiring in 2014.

2 Became a Trustee of the fund effective December 1, 2012.

3 Member of the Audit Committee.

4 “John Hancock retail funds” comprises John Hancock Funds III and 34 other John Hancock funds consisting of 24 series of other John Hancock trusts and 10 closed-end funds.

5 The Trustee is a Non-Independent Trustee due to current or former positions with the Advisor and certain of its affiliates.

Annual report | Income Securities Trust  57 

 



More information

Trustees  Officers  Investment advisor 
James M. Oates,  Hugh McHaffie  John Hancock Advisers, LLC 
Chairperson  President   
Steven R. Pruchansky,  Andrew G. Arnott  Subadvisor 
Vice Chairperson  Executive Vice President  John Hancock Asset Management 
Charles L. Bardelis*  Thomas M. Kinzler  a division of Manulife Asset 
James R. Boyle  Secretary and Chief Legal Officer  Management (US) LLC 
Craig Bromley  Francis V. Knox, Jr.   
Peter S. Burgess*  Chief Compliance Officer  Custodian 
William H. Cunningham  Charles A. Rizzo  State Street Bank and 
Grace K. Fey  Chief Financial Officer  Trust Company 
Theron S. Hoffman*  Salvatore Schiavone   
Deborah C. Jackson  Treasurer  Transfer agent 
Hassell H. McClellan  Computershare Shareowner 
Gregory A. Russo  Services, LLC 
Warren A. Thomson   
  Legal counsel 
*Member of the    K&L Gates LLP 
Audit Committee   
†Non-Independent Trustee    Independent registered 
  public accounting firm 
    PricewaterhouseCoopers LLP 
 
    Stock symbol 
    Listed New York Stock 
    Exchange: JHS 

 

For shareholder assistance refer to page 46

 

You can also contact us:     
  800-852-0218  Regular mail: 
  jhinvestments.com  Computershare 
    P.O. Box 43006 
    Providence, RI 02940-3006 

 

The fund’s proxy voting policies and procedures, as well as the fund’s proxy voting record for the most recent twelve-month period ended June 30, are available free of charge on the Securities and Exchange Commission (SEC) website at sec.gov or on our website.

The fund’s complete list of portfolio holdings, for the first and third fiscal quarters, is filed with the SEC on Form N-Q. The fund’s Form N-Q is available on our website and the SEC’s website, sec.gov, and can be reviewed and copied (for a fee) at the SEC’s Public Reference Room in Washington, DC. Call 800-SEC-0330 to receive information on the operation of the SEC’s Public Reference Room.

We make this information on your fund, as well as monthly portfolio holdings, and other fund details available on our website at jhinvestments.com or by calling 800-852-0218.

The report is certified under the Sarbanes-Oxley Act, which requires closed-end funds and other public companies to affirm that, to the best of their knowledge, the information in their financial reports is fairly and accurately stated in all material respects.

58  Income Securities Trust | Annual report 

 




800-852-0218
800-843-0090 EASI-Line
jhinvestments.com

PRESORTED 
STANDARD
U.S. POSTAGE 
PAID
MIS

 


 
  P6A 10/13 
MF164559  12/13 

 


ITEM 2. CODE OF ETHICS.

As of the end of the year, October 31, 2013, 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.

Peter S. Burgess 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 registrant’s annual financial statements or services that are normally provided by the accountant(s) in connection with statutory and regulatory filings or engagements amounted to $46,704 for the fiscal year ended October 31, 2013 and $48,638 for the fiscal year ended October 31, 2012. These fees were billed to the registrant and were approved by the registrant’s audit committee.

(b) Audit-Related Services

Audit-related fees amounted to $0 for the fiscal year ended October 31, 2013 and $0 for the fiscal year ended October 31, 2012 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 $3,200 for the fiscal year ended October 31, 2013 and $3,200 for the fiscal year ended October 31, 2012. The nature of the services comprising the tax fees was the review of the registrant’s tax returns and tax distribution requirements. These fees were billed to the registrant and were approved by the registrant’s audit committee.

(d) All Other Fees

Other fees amounted to $3,964 for the fiscal year ended October 31, 2013 and $419 for the fiscal year ended October 31, 2012 billed to the registrant or the control affiliates.

(e)(1) Audit Committee Pre-Approval Policies and Procedures:

The trust’s 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 trust’s Audit Committee has adopted policies and procedures to, among other purposes, provide a framework for the Committee’s 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 $25,000 per instance/per fund are subject to specific pre-approval by the Audit Committee. Tax services provided by the Auditor that are expected to exceed $30,000 per instance/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:

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.

(f) According to the registrant’s principal accountant, for the fiscal year ended October 31, 2013, 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 $4,606,033 for the fiscal year ended October 31, 2013 and $3,659,553 for the fiscal year ended October 31, 2012.

(h) The audit committee of the registrant has considered the non-audit services provided by the registrant’s 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:

Peter S. Burgess - Chairman
Charles L. Bardelis
Theron S. Hoffman

ITEM 6. SCHEDULE OF INVESTMENTS.

(a) Not applicable.
(b) 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

Below is a 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. Information is provided as of December 1, 2013.

Jeffrey N. Given, CFA

Senior Managing Director and Senior Portfolio Manager, John Hancock Asset Management since 2012
Managing Director, John Hancock Asset Management (2005-2012)
Second Vice President, John Hancock Advisers, LLC (1993-2005)
Began business career in 1993 Joined Fund team in 1999

Howard C. Greene, CFA

Senior Managing Director and Senior Portfolio Manager, John Hancock Asset Management since 2005
Began business career in 1979
Joined Fund team in 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 October 31, 2013. 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.

PORTFOLIO MANAGER  OTHER ACCOUNTS MANAGED BY THE PORTFOLIO 
NAME  MANAGER 

Jeffrey N. Given, CFA  Other Investment Companies: Fourteen (14) funds 
  with assets of approximately $18.3 billion. 
 
  Other Pooled Investment Vehicles: Three (3) accounts 
  with assets of approximately $223.4 million. 
 
  Other Accounts: Twelve (12) accounts with assets of 
  approximately $4.4 billion. 

 
Howard C. Greene, CFA  Other Investment Companies: Ten (10) funds with 
  assets of approximately $12.9 billion. 
 
  Other Pooled Investment Vehicles: Two (2) accounts 
  with assets of approximately $163.9 million. 
 
  Other Accounts: Eleven (11) accounts with assets of 

 



PORTFOLIO MANAGER  OTHER ACCOUNTS MANAGED BY THE PORTFOLIO 
NAME  MANAGER 

  $4.4 billion 

With respect to accounts managed by Messrs. Given, the Subadviser receives a performance-based fee with respect to one Other Account with total assets of approximately $59 million.

Conflicts of Interest 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. The principal types of potential conflicts of interest that may arise are discussed below. For the reasons outlined below, the Fund does not believe that any material conflicts are likely to arise out of a portfolio manager’s responsibility for the management of the Fund as well as one or more other accounts. The Subadviser has adopted procedures that are intended to monitor compliance with the policies referred to in the following paragraphs. Generally, the risks of such conflicts of interests are increased to the extent that a portfolio manager has a financial incentive to favor one account over another. The Subadviser has structured its compensation arrangements in a manner that is intended to limit such potential for conflicts of interests. See “Compensation of Portfolio Managers” below.

•  A portfolio manager could favor one account over another in allocating new investment opportunities that have limited supply, such as initial public offerings (“IPOs”) and private placements. If, for example, an IPO that was expected to appreciate in value significantly shortly after the offering was allocated to a single account, that account may be expected to have better investment performance than other accounts that did not receive an allocation on the IPO. The Subadviser has policies that require a portfolio manager to allocate such investment opportunities in an equitable manner and generally to allocate such investments proportionately among all accounts with similar investment objectives.

•  A portfolio manager could favor one account over another in the order in which trades for the accounts are placed. If a portfolio manager determines to purchase a security for more than one account in an aggregate amount that may influence the market price of the security, accounts that purchased or sold the security first may receive a more favorable price than accounts that made subsequent transactions. The less liquid the market for the security or the greater the percentage that the proposed aggregate purchases or sales represent of average daily trading volume, the greater the potential for accounts that make subsequent purchases or sales to receive a less favorable price. 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 be “bunched,” which means that the trades for the individual accounts are aggregated and each account receives the same price. There are some types of accounts as to which bunching may not be possible for contractual reasons (such as directed brokerage arrangements). Circumstances also may arise where the trader believes that bunching the orders may not result in the best possible price. Where those



accounts or circumstances are involved, the Subadviser will place the order in a manner intended to result in as favorable a price as possible for such client.

•  A portfolio manager could favor an account if the portfolio manager’s compensation is tied to the performance of that account rather than all accounts managed by the portfolio manager. If, for example, the portfolio manager receives a bonus based upon the performance of certain accounts relative to a benchmark while other accounts are disregarded for this purpose, the portfolio manager will have a financial incentive to seek to have the accounts that determine the portfolio manager’s bonus achieve the best possible performance to the possible detriment of other accounts. Similarly, if the Subadviser receives a performance-based advisory fee, the portfolio manager may favor that account, whether or not the performance of that account directly determines the portfolio manager’s compensation. The investment performance on specific accounts is not a factor in determining the portfolio manager’s compensation. See “Compensation of Portfolio Managers” below. The Subadviser receives a performance-based fee with respect to certain of the other accounts managed by the portfolio managers of the Fund described above.

•  A portfolio manager could favor an account if the portfolio manager has a beneficial interest in the account, in order to benefit a large client or to compensate a client that had poor returns. For example, if the portfolio manager held an interest in an investment partnership that was one of the accounts managed by the portfolio manager, the portfolio manager would have an economic incentive to favor the account in which the portfolio manager held an interest. 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.

•  If the different accounts have materially and potentially conflicting investment objectives or strategies, a conflict of interest may arise. For example, if a portfolio manager purchases a security for one account and sells the same security short for another account, such trading pattern could disadvantage either the account that is long or short. In making portfolio manager assignments, the Subadviser seeks to avoid such 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. While these accounts have many similarities, the investment performance of each account will be different due to differences in fees, expenses and cash flows.

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 systematically among investment professionals. At the Subadviser, investment professionals are compensated with a combination of base salary and performance bonuses (e.g., cash and deferral awards). The following describes each component of the compensation package for the individuals identified as a portfolio manager for the Fund.

Base salaries. Base salaries are market-based and fixed. Salary ranges are reviewed and adjusted annually. Individual salary adjustments are based on individual performance against mutually-agreed-upon objectives and development of technical and experiential skills.

Performance Bonuses. Performance bonuses take the form of cash and deferred incentives.

Short-Term Cash Incentives. Short-term incentives take the form of annual cash awards. Individual targets are market-based and actual awards are tied to performance against various objective measures and on overall personal performance ratings. These include:

Investment Performance. The majority of the bonus considered under the plan is based on investment performance of accounts managed by the investment professional over one, three and five year periods (to the extent applicable). The pre-tax performance of each account is measured relative to an appropriate benchmark or universe as identified in the table below.

Financial Performance of the Subadviser. The financial performance of the Subadviser and its parent corporation are also considered in determining bonus awards.

Non-Investment Performance. The more intangible contributions of an investment professional to the Subadviser’s business, including new strategy idea generation, professional growth and development, and management, where applicable, are evaluated in determining the amount of any bonus award.

Long-Term Incentives. All investment professionals are eligible for participation in a deferred incentive plan. 100% of the eligible awards are invested in the strategies that the team manages as well as other strategies managed by other teams at the Subadviser. The Subadviser believes that owning units in the same strategies a team manages aligns the performance goals of both client and manager giving the team added incentive to act in the best interest of the Company’s clients.

As an added incentive, certain investment professionals (considered officers of Manulife Financial) would receive a portion of their award in Manulife Restricted Share Units (“RSUs”) or stock options. This plan is based on the value of the underlying common shares of Manulife Financial.



Fund  Peer Universe 

Income Securities Trust  Morningstar US OE Intermediate-Term Bond 

Share Ownership by Portfolio Managers. The following table indicates as of October 31, 2013 the value, within the indicated range, of shares beneficially owned by the portfolio managers in the Fund.

  Range of 
  Beneficial 
Portfolio Manager  Ownership 

 
Jeffrey N. Given, CFA  $1-$10,000 

 
Howard C. Greene, CFA  $1-$10,000 

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.

Revisions to  the Governance Committee Charter are as follows.

Effective September 27, 2013, the Board of Trustees of the fund amended and restated in its entirety the By-laws of the fund (the “Amended and Restated By-laws”). The Amended and  Restated By-laws include, among other changes, provisions that: (i) require a shareholder to give written advance notice and other information to the fund of the shareholder’s nominees for Trustees and proposals for other business to be considered at shareholders’ meetings, or in the event a shareholder proposes to seek a shareholder action by written consent or request a special meeting of shareholders; (ii) require any such notice by a shareholder to be accompanied by certain information as provided in the By-laws; (iii) provide that Trustees may be nominated by shareholders only at an annual meeting of the fund ;or special meeting in lieu of an annual meeting; and (iv) reserve to the Trustees the exclusive power to adopt, alter, amend or repeal any provision of the By-laws or to make new By-laws, except where the Declaration of Trust, By-laws or applicable law would also require a shareholder vote to effect such adoption, alteration, amendment or repeal. The foregoing description of the By-laws is qualified in its entirety by the full text   of the Amended and Restated By-laws effective as of September 27, 2013, which are available by writing to the Secretary of the fund at 601 Congress Street, 11th Floor, Boston, Massachusetts 02210.

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

By:  /s/ Hugh McHaffie 
  ------------------------------ 
Hugh McHaffie
  President 
 
 
Date:  December 20, 2013 

 

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/ Hugh McHaffie 
  ------------------------------- 
Hugh McHaffie
  President 
 
 
Date:  December 20, 2013 
 
 
 
By:  /s/ Charles A. Rizzo 
  -------------------------------- 
Charles A. Rizzo
  Chief Financial Officer 
 
 
Date:  December 20, 2013