NPORT-EX 1 d765222dnportex.htm JOHN HANCOCK PREFERRED INCOME FUND III John Hancock Preferred Income Fund III

John Hancock

Preferred Income Fund III

Quarterly portfolio holdings 4/30/19

 

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Fund’s investments

As of 4-30-19 (unaudited)

 

     Shares      Value  

Preferred securities 123.0% (80.7% of Total investments)

       $ 719,123,918  

(Cost $709,233,661)

      

Communication services 10.4%

         61,011,014  
     

 

 

  

Diversified telecommunication services 2.6%

      

Qwest Corp., 6.125%

      20,000        455,200  

Qwest Corp., 6.500%

      141,033        3,253,631  

Qwest Corp., 6.750%

      330,000        7,943,100  

Qwest Corp., 6.875% (A)

      150,513        3,848,617  

Wireless telecommunication services 7.8%

      

Telephone & Data Systems, Inc., 6.875% (A)(B)

      473,000        12,075,690  

Telephone & Data Systems, Inc., 7.000% (A)

      415,000        10,541,000  

United States Cellular Corp., 6.950% (A)

      673,431        16,889,649  

United States Cellular Corp., 7.250% (A)

      227,085        6,004,127  

Consumer staples 2.0%

         11,812,500  
     

 

 

  

Food and staples retailing 2.0%

      

Ocean Spray Cranberries, Inc., 6.250% (C)

      135,000        11,812,500  

Energy 0.9%

         5,550,300  
     

 

 

  

Oil, gas and consumable fuels 0.9%

      

Enbridge, Inc., Series B (6.375% to 4-15-23, then 3 month LIBOR + 3.593%)

      210,000        5,550,300  

Financials 53.7%

         313,845,011  
     

 

 

  

Banks 29.1%

      

Bank of America Corp., 6.500% (A)

      145,100        3,731,972  

Bank of America Corp., 6.625%

      41,120        1,057,606  

BB&T Corp. (Callable 5-31-19), 5.200% (A)(B)

      462,500        11,474,625  

BB&T Corp., 5.625% (A)(B)

      302,325        7,709,288  

Citigroup Capital XIII (3 month LIBOR + 6.370%), 8.949% (D)

      338,275        9,157,104  

Citigroup, Inc. (7.125% to 9-30-23, then 3 month LIBOR + 4.040%) (A)(B)

      616,412        17,080,777  

GMAC Capital Trust I (3 month LIBOR + 5.785%), 8.469% (D)

      311,375        8,189,163  

JPMorgan Chase & Co., 6.000% (A)

      222,000        5,931,840  

JPMorgan Chase & Co., 6.100% (A)

      105,000        2,754,150  

JPMorgan Chase & Co., 6.125% (A)

      1,030,000        26,697,600  

JPMorgan Chase & Co., 6.300% (A)

      125,000        3,236,250  

MB Financial, Inc., 6.000%

      211,595        5,374,513  

Regions Financial Corp., 6.375% (A)

      144,408        3,699,733  

Synovus Financial Corp. (6.300% to 6-21-23, then 3 month LIBOR + 3.352%)

      211,500        5,666,085  

The PNC Financial Services Group, Inc., 5.375% (A)

      40,000        1,005,600  

The PNC Financial Services Group, Inc. (6.125% to 5-1-22, then 3 month LIBOR + 4.067%) (A)

      210,000        5,588,100  

U.S. Bancorp (6.500% to 1-15-22, then 3 month LIBOR + 4.468%) (A)(B)

      888,000        23,754,000  

Wells Fargo & Company, 6.000% (A)(B)

      650,000        16,731,000  

Wells Fargo & Company (6.625% to 3-15-24, then 3 month LIBOR + 3.690%) (A)

      388,450        10,826,102  

Western Alliance Bancorp, 6.250%

      20,000        528,000  

Capital markets 9.3%

      

Ares Management Corp., 7.000%

      2,513        65,891  

Deutsche Bank Contingent Capital Trust II, 6.550%

      13,800        346,104  

Morgan Stanley, 6.625% (A)

      170,000        4,329,900  

Morgan Stanley (6.375% to 10-15-24, then 3 month LIBOR + 3.708%) (A)

      170,000        4,601,900  

Morgan Stanley (6.875% to 1-15-24, then 3 month LIBOR + 3.940%)

      130,000        3,582,800  

Morgan Stanley (7.125% to 10-15-23, then 3 month LIBOR + 4.320%) (A)(B)

      692,953        19,229,446  

State Street Corp., 5.250% (A)

      65,000        1,621,100  

 

2    JOHN HANCOCK PREFERRED INCOME FUND III    |    QUARTERLY REPORT    SEE NOTES TO FUND’S INVESTMENTS

     Shares      Value  

Financials (continued)

      

Capital markets (continued)

      

State Street Corp., 6.000% (A)(B)

      795,000      $ 20,399,700  

Consumer finance 2.5%

      

Capital One Financial Corp., 6.200% (A)(B)

      257,181        6,694,421  

Capital One Financial Corp., 6.700% (A)

      52,650        1,358,897  

Navient Corp., 6.000% (A)(B)

      295,208        6,397,157  

Insurance 12.7%

      

Aegon NV, 6.375% (A)

      354,054        9,081,485  

Aegon NV, 6.500% (A)

      330,000        8,355,600  

American International Group, Inc., 5.850%

      221,000        5,746,000  

Assurant, Inc., 6.500%

      15,000        1,560,150  

Brighthouse Financial, Inc., 6.600%

      237,500        6,272,375  

Prudential Financial, Inc., 5.750% (A)

      150,000        3,792,000  

Prudential PLC, 6.500% (A)(B)

      85,943        2,262,020  

RenaissanceRe Holdings, Ltd., Series C, 6.080%

      15,000        392,848  

The Hartford Financial Services Group, Inc. (7.875% to 4-15-22, then 3 month LIBOR + 5.596%) (A)

      61,882        1,711,037  

The Phoenix Companies, Inc., 7.450% (A)

      574,500        9,272,430  

Unum Group, 6.250%

      155,000        4,047,050  

W.R. Berkley Corp., 5.625% (A)

      863,030        21,644,792  

Thrifts and mortgage finance 0.1%

      

Federal National Mortgage Association, Series S, 8.250% (E)

      80,000        886,400  

Industrials 2.3%

         13,235,250  
     

 

 

  

Machinery 2.3%

      

Stanley Black & Decker, Inc., 5.750% (A)(B)

      525,000        13,235,250  

Real estate 10.3%

         59,918,653  
     

 

 

  

Equity real estate investment trusts 10.3%

      

American Homes 4 Rent, Series D, 6.500%

      84,530        2,235,819  

American Homes 4 Rent, Series E, 6.350%

      35,000        924,000  

American Homes 4 Rent, Series F, 5.875%

      175,450        4,359,933  

American Homes 4 Rent, Series G, 5.875%

      155,000        3,867,250  

Crown Castle International Corp., 6.875% (A)

      8,500        9,792,946  

Digital Realty Trust, Inc., 6.350%

      921        23,882  

Digital Realty Trust, Inc., 6.625%

      10,900        291,248  

Federal Realty Investment Trust, Series C, 5.000% (A)

      110,000        2,648,800  

Kimco Realty Corp., 6.000% (A)

      421,815        10,667,701  

Public Storage, 5.200% (A)

      189,500        4,684,440  

Public Storage, 5.375% (A)

      21,275        528,046  

Public Storage, 5.875% (A)

      30,000        763,200  

Senior Housing Properties Trust, 5.625% (A)

      889,832        19,131,388  

Utilities 43.4%

         253,751,190  
     

 

 

  

Electric utilities 17.7%

      

American Electric Power Company, Inc., 6.125%

      170,000        8,836,600  

Duke Energy Corp., 5.125% (A)

      856,300        21,364,685  

Duke Energy Corp., 5.750% (A)

      240,000        6,244,800  

Entergy Louisiana LLC, 5.250% (A)

      153,587        3,884,215  

HECO Capital Trust III, 6.500%

      228,100        5,739,635  

Interstate Power & Light Company, 5.100% (A)

      157,514        4,015,032  

NextEra Energy Capital Holdings, Inc., 5.125% (A)

      190,000        4,675,900  

PPL Capital Funding, Inc., 5.900% (A)

      1,016,981        25,882,166  

SCE Trust II, 5.100% (A)(B)

      712,307        15,186,385  

 

SEE NOTES TO FUND’S INVESTMENTS    QUARTERLY REPORT    |    JOHN HANCOCK PREFERRED INCOME FUND III     3

                   Shares      Value  

Utilities (continued)

            

Electric utilities (continued)

            

SCE Trust III (5.750% to 3-15-24, then 3 month LIBOR + 2.990%) (A)

            120,000      $ 2,928,000  

The Southern Company, 6.250% (A)

            190,000        4,959,000  

Gas utilities 2.4%

            

South Jersey Industries, Inc., 7.250%

            270,750        13,978,823  

Multi-utilities 22.5%

            

Algonquin Power & Utilities Corp. (6.875% to 10-17-23, then 3 month LIBOR + 3.677%) (A)

 

      406,450        10,884,731  

CenterPoint Energy, Inc., 7.000%

            443,000        23,585,320  

CMS Energy Corp., 5.625% (A)(B)

            235,000        6,175,800  

Dominion Energy, Inc., 6.750% (A)

            781,166        39,237,968  

DTE Energy Company, 5.250% (A)(B)

            435,175        11,001,224  

DTE Energy Company, 5.250% (A)

            200,000        5,098,000  

DTE Energy Company, 6.000% (A)

            100,550        2,667,592  

DTE Energy Company, 6.500%

            92,650        5,170,797  

Integrys Holding, Inc. (6.000% to 8-1-23, then 3 month LIBOR + 3.220%) (A)(B)

 

      296,303        7,644,617  

NiSource, Inc. (6.500% to 3-15-24, then 5 Year CMT + 3.632%)

            348,000        9,180,240  

Sempra Energy, 6.000%

            41,000        4,382,490  

Sempra Energy, 6.750%

            57,700        6,204,481  

Water utilities 0.8%

            

Aqua America, Inc., 6.000%

            88,360        4,822,689  

Common stocks 4.7% (3.1% of Total investments)

             $ 27,217,949  

(Cost $31,159,275)

            

Communication services 0.4%

               2,341,100  
           

 

 

  

Diversified telecommunication services 0.4%

            

CenturyLink, Inc. (A)

            205,000        2,341,100  

Energy 4.3%

               24,876,849  
           

 

 

  

Oil, gas and consumable fuels 4.3%

            

BP PLC, ADR (A)

            88,000        3,848,240  

Equitrans Midstream Corp. (A)

            423,013        8,811,361  

Kinder Morgan, Inc.

            614,859        12,217,248  
     Rate (%)      Maturity date      Par value^      Value  

Corporate bonds 24.3% (15.9% of Total investments)

             $ 141,978,065  

(Cost $139,705,087)

            

Communication services 1.4%

               8,001,028  
           

 

 

  

Wireless telecommunication services 1.4%

            

Vodafone Group PLC (7.000% to 1-4-29, then 5 Year U.S. Swap Rate + 4.873%)

      7.000        04-04-79        7,616,000        8,001,028  

Consumer discretionary 2.1%

               12,269,835  
           

 

 

  

Automobiles 2.1%

            

General Motors Financial Company, Inc. (6.500% to 9-30-28, then 3 month LIBOR + 3.436%) (A)(B)(F)

      6.500        09-30-28        12,682,000        12,269,835  

Energy 4.9%

               28,650,940  
           

 

 

  

Oil, gas and consumable fuels 4.9%

            

DCP Midstream LP (7.375% to 12-15-22, then 3 month LIBOR + 5.148%) (F)

      7.375        12-15-22        12,273,000        12,088,905  

Enbridge, Inc. (6.250% to 3-1-28, then 3 month LIBOR + 3.641%)

      6.250        03-01-78        1,000,000        1,014,535  

Energy Transfer Operating LP (3 month LIBOR + 3.018%) (A)(B)(D)

      5.754        11-01-66        9,000,000        7,425,000  

Energy Transfer Operating LP (6.625% to 2-15-28, then 3 month LIBOR + 4.155%) (A)(F)

      6.625        02-15-28        8,550,000        8,122,500  
           

 

4    JOHN HANCOCK PREFERRED INCOME FUND III    |    QUARTERLY REPORT    SEE NOTES TO FUND’S INVESTMENTS

     Rate (%)      Maturity date      Par value^      Value  

Financials 12.0%

             $ 70,371,667  
           

 

 

  

Banks 8.8%

            

Bank of America Corp. (5.875% to 3-15-28, then 3 month LIBOR + 2.931%) (F)

      5.875        03-15-28        2,500,000        2,581,250  

Barclays PLC (7.750% to 9-15-23, then 5 Year U.S. Swap Rate + 4.842%) (F)

      7.750        09-15-23        7,809,000        8,072,554  

BNP Paribas SA (7.375% to 8-19-25, then 5 Year U.S. Swap Rate + 5.150%) (F)

      7.375        08-19-25        1,750,000        1,892,188  

Citizens Financial Group, Inc. (6.000% to 7-6-23, then 3 month LIBOR + 3.003%) (F)

      6.000        07-06-23        3,750,000        3,787,500  

Citizens Financial Group, Inc. (6.375% to 4-6-24, then 3 month LIBOR + 3.157%) (A)(F)

      6.375        04-06-24        7,500,000        7,725,000  

HSBC Holdings PLC (6.500% to 3-23-28, then 5 Year U.S. ISDAFIX + 3.606%) (A)(F)

      6.500        03-23-28        8,500,000        8,648,750  

Huntington Bancshares, Inc. (5.700% to 4-15-23, then 3 month LIBOR + 2.880%) (F)

      5.700        04-15-23        4,500,000        4,511,250  

Lloyds Banking Group PLC (7.500% to 6-27-24, then 5 Year U.S. Swap Rate + 4.760%) (A)(B)(F)

      7.500        06-27-24        8,000,000        8,400,000  

The Royal Bank of Scotland Group PLC (8.000% to 8-10-25, then 5 Year U.S. Swap Rate + 5.720%) (F)

      8.000        08-10-25        3,175,000        3,456,781  

Wells Fargo & Company (5.900% to 6-15-24, then 3 month LIBOR + 3.110%) (A)(F)

      5.900        06-15-24        2,000,000        2,078,000  

Capital markets 1.3%

            

Credit Suisse Group AG (7.250% to 9-12-25, then 5 Year U.S. Swap Rate + 4.332%) (C)(F)

      7.250        09-12-25        3,150,000        3,274,425  

Credit Suisse Group AG (7.500% to 7-17-23, then 5 Year U.S. Swap Rate + 4.600%) (C)(F)

      7.500        07-17-23        4,330,000        4,541,088  

Consumer finance 0.8%

            

Discover Financial Services (5.500% to 10-30-27, then 3 month LIBOR + 3.076%) (F)

      5.500        10-30-27        5,000,000        4,843,750  

Insurance 1.1%

            

MetLife, Inc. (5.875% to 3-15-28, then 3 month LIBOR + 2.959%) (A)(F)

      5.875        03-15-28        5,000,000        5,212,500  

Prudential Financial, Inc. (5.700% to 9-15-28, then 3 month LIBOR + 2.665%) (A)

      5.700        09-15-48        1,300,000        1,346,631  

Utilities 3.9%

               22,684,595  
           

 

 

  

Electric utilities 1.4%

            

Emera, Inc. (6.750% to 6-15-26, then 3 month LIBOR + 5.440%)

      6.750        06-15-76        4,500,000        4,841,415  

Southern California Edison Company (6.250% to 2-1-22, then 3 month LIBOR + 4.199%) (A)(B)(F)

      6.250        02-01-22        3,000,000        2,997,210  

Multi-utilities 2.5%

            

CenterPoint Energy, Inc. (6.125% to 9-1-23, then 3 month LIBOR + 3.270%) (A)(B)(F)

      6.125        09-01-23        9,525,000        9,726,930  

Dominion Energy, Inc. (5.750% to 10-1-24, then 3 month LIBOR + 3.057%) (A)(B)

      5.750        10-01-54        3,000,000        3,111,600  

NiSource, Inc. (5.650% to 6-15-23, then 5 Year CMT + 2.843%) (F)

      5.650        06-15-23        2,000,000        2,007,440  
     Yield* (%)      Maturity date      Par value^      Value  

Short-term investments 0.4% (0.3% of Total investments)

             $ 2,310,000  

(Cost $2,310,000)

            

U.S. Government Agency 0.4%

               2,166,000  
           

 

 

  

Federal Agricultural Mortgage Corp. Discount Note

      2.350        05-01-19        849,000        849,000  

Federal Home Loan Bank Discount Note

      2.300        05-01-19        1,317,000        1,317,000  

 

SEE NOTES TO FUND’S INVESTMENTS    QUARTERLY REPORT    |    JOHN HANCOCK PREFERRED INCOME FUND III     5

     Par value^      Value  

Repurchase agreement 0.0%

         144,000  
     

 

 

  

Repurchase Agreement with State Street Corp. dated 4-30-19 at 1.300% to be repurchased at $144,005 on 5-1-19, collateralized by $145,000 U.S. Treasury Notes, 2.625% due 7-15-21 (valued at $147,122, including interest)

      144,000        144,000  

Total investments (Cost $882,408,023) 152.4%

       $ 890,629,932  

Other assets and liabilities, net (52.4%)

         (306,061,099 ) 

Total net assets 100.0%

       $ 584,568,833  

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

 

^

All par values are denominated in U.S. dollars unless otherwise indicated.

Security Abbreviations and Legend

 

ADR   American Depositary Receipt
CMT   Constant Maturity Treasury
ISDAFIX   International Swaps and Derivatives Association Fixed Interest Rate Swap Rate
LIBOR   London Interbank Offered Rate
(A)   All of a portion of this security is pledged as collateral pursuant to the Credit Facility Agreement. Total collateral value at 4-30-19 was $603,619,992. A portion of the securities pledged as collateral were loaned pursuant to the Credit Facility Agreement. The value of securities on loan amounted to $221,499,043.
(B)   All or a portion of this security is on loan as of 4-30-19, and is a component of the fund’s leverage under the Credit Facility Agreement.
(C)   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.
(D)   Variable rate obligation. The coupon rate shown represents the rate at period end.
(E)   Non-income producing security.
(F)   Perpetual bonds have no stated maturity date. Date shown as maturity date is next call date.
*   Yield represents either the annualized yield at the date of purchase, the stated coupon rate or, for floating rate securities, the rate at period end.

The fund had the following country composition as a percentage of total investments on 4-30-19:

 

United States

      89.7 % 

United Kingdom

      4.8 % 

Canada

      2.4 % 

Netherlands

      2.0 % 

Other countries

      1.1 % 
  

 

 

  

TOTAL

      100.0 % 

 

6    JOHN HANCOCK PREFERRED INCOME FUND III    |    QUARTERLY REPORT    SEE NOTES TO FUND’S INVESTMENTS

DERIVATIVES

FUTURES

 

                                Unrealized  
     Number of         Expiration    Notional     Notional     appreciation  

Open contracts

    contracts    Position    date    basis^     value^     (depreciation)  

10-Year U.S. Treasury Note Futures

    680    Short    Jun 2019    $ (83,275,302 )    $ (84,096,875 )    $ (821,573 ) 
                $ (821,573 ) 

 

^

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

SWAPS

Interest rate swaps

 

                                                  Unamortized                
                                                  upfront                
                             Fixed      Floating             payment      Unrealized         
Counterparty (OTC)/    Notional           Payments     Payments     payment      payment      Maturity      paid      appreciation         

Centrally cleared        

    amount      Currency    made     received     frequency      frequency      date      (received)      (depreciation)      Value  

Centrally cleared

      77,000,000      USD      Fixed 2.136 %      USD LIBOR BBA (a)       Semi-Annual        Quarterly      Oct 2022        —        $ 159,232      $ 159,232  
                        —        $ 159,232      $ 159,232  

 

(a) 

At 4-30-19, the 3 month LIBOR was 2.576%

Derivatives Currency Abbreviations

 

USD

   

U.S. Dollar

Derivatives Abbreviations

 

BBA    The British Banker’s Association
LIBOR    London Interbank Offered Rate
OTC    Over-the-counter

See Notes to Fund’s investments regarding investment transactions and other derivatives information.

 

SEE NOTES TO FUND’S INVESTMENTS    QUARTERLY REPORT    |    JOHN HANCOCK PREFERRED INCOME FUND III     7

Notes to Fund’s investments (unaudited)

Security valuation. Investments are stated at value as of the scheduled close of regular trading on the New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. In case of emergency or other disruption resulting in the NYSE not opening for trading or the NYSE closing at a time other than the regularly scheduled close, the net asset value may be determined as of the regularly scheduled close of the NYSE pursuant to the fund’s Valuation Policies and Procedures.

In order to value the securities, the fund uses the following valuation techniques: Equity securities held by the fund are typically valued at the last sale price or official closing price on the exchange or principal market where the security trades. In the event there were no sales during the day or closing prices are not available, the securities are valued using the last available bid price. Debt obligations are typically valued based on the evaluated prices provided by an independent pricing vendor. Independent pricing vendors utilize matrix pricing which takes 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, as well as broker supplied prices. Swaps are generally valued using evaluated prices obtained from an independent pricing vendor. Futures contracts are typically valued at the last traded price on the exchange on which they trade.

In certain instances, the Pricing Committee may determine to value equity securities using prices obtained from another exchange or market if trading on the exchange or market on which prices are typically obtained did not open for trading as scheduled, or if trading closed earlier than scheduled, and trading occurred as normal on another exchange or market.

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 securities are not necessarily an indication of the risks associated with investing in those securities. Changes in valuation techniques and related inputs 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 April 30, 2019, by major security category or type:

 

                   Level 2      Level 3  
     Total      Level 1      significant      significant  
     value at      quoted      observable      unobservable  
     4-30-19      price      inputs      inputs  

Investments in securities:

            

Assets

            

Preferred securities

            

Communication services

    $ 61,011,014      $ 61,011,014        —          —    

Consumer staples

      11,812,500        —        $ 11,812,500        —    

Energy

      5,550,300        5,550,300        —          —    

Financials

      313,845,011        299,198,068        14,646,943        —    

Industrials

      13,235,250        13,235,250        —          —    

Real estate

      59,918,653        50,125,707        9,792,946        —    

Utilities

      253,751,190        240,366,938        13,384,252        —    

Common stocks

      27,217,949        27,217,949        —          —    

Corporate bonds

      141,978,065        —          141,978,065        —    

Short-term investments

      2,310,000        —          2,310,000        —    
  

 

 

     

 

 

     

 

 

     

 

 

  

Total investments in securities

    $ 890,629,932      $ 696,705,226      $ 193,924,706        —    
  

 

 

     

 

 

     

 

 

     

 

 

  

Derivatives:

            

Assets

            

Swap contracts

    $ 159,232        —        $ 159,232        —    

Liabilities

            

Futures

      (821,573 )     $ (821,573 )       —          —    

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

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, assets and liabilities resulting from repurchase agreements are not offset. In the event of a default by the counterparty, realization of the collateral proceeds

 

8   

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.

Derivative instruments. The fund may invest in derivatives in order to meet its investment objective. Derivatives include a variety of different instruments that may be traded in the over-the-counter (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.

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 and contract prices that can be highly volatile and imperfectly correlated to movements in the underlying financial instrument. Use of long futures contracts subjects the funds to the risk of loss up to the notional value of the futures contracts. Use of short futures contracts subjects the funds to unlimited risk of loss.

During the period ended April 30, 2019, the fund used futures contracts to manage against anticipated interest rate changes.

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.

During the period ended April 30, 2019, the fund used interest rate swaps to manage against anticipated interest rate changes.

For additional information on the fund’s significant accounting policies, please refer to the fund’s most recent semiannual or annual shareholder report.

 

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More information

How to contact us

 

Internet    www.jhinvestments.com   
Mail   

Computershare

P.O. Box 30170

College Station, TX 77842-3170

   
Phone    Customer service representatives    800-852-0218
   Portfolio commentary    800-344-7054
   24-hour automated information    800-843-0090
   TDD line    800-231-5469

 

     P12Q3   04/19  
This report is for the information of the shareholders of John Hancock Preferred Income Fund III.        6/19