a_prinfdthree.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811- 21287

John Hancock Preferred Income Fund III
(Exact name of registrant as specified in charter)

601 Congress Street, Boston, Massachusetts 02210
(Address of principal executive offices) (Zip code)

Alfred E. Ouellette, Senior Attorney and Assistant Secretary

601 Congress Street
Boston, Massachusetts 02210
(Name and address of agent for service)

Registrant's telephone number, including area code: 617-663-4324

Date of fiscal year end:  May 31 
    
Date of reporting period:  February 28, 2006 

 

ITEM 1. SCHEDULE OF INVESTMENTS


John Hancock           
Preferred Income Fund III         
Securities owned by the Fund on         
February 28, 2006 (unaudited)         
 
  Interest  Maturity  Credit  Par value   
Issuer, description  rate (%)  date  rating (A)  ($000)  Value 
 
Bonds 6.69%          $72,125,701 
(Cost $71,400,628)           
 
Automobile Manufacturers 0.18%          1,956,050 
Ford Motor Co.,           
Note  7.450  07-16-31  BB-  2,755  1,956,050 


Consumer Finance 0.25%  		        2,739,714 
General Motors Acceptance Corp.,           
Bond  8.000  11-01-31  BB  3,000  2,739,714 


Electric Utilities 3.56%  		        38,362,574 
Black Hills Corp.,           
Note  6.500  05-15-13  BBB-  15,000  15,214,785 
DPL, Inc.,           
Sr Note  6.875  09-01-11  BB-  5,036  5,286,400 
Entergy Gulf States, Inc.,           
1st Mtg Bond  6.200  07-01-33  BBB+  15,000  14,499,480 
Kentucky Power Co.,           
Sr Note, Ser D  5.625  12-01-32  BBB  3,565  3,361,909 


Integrated Oil & Gas 0.54%  		        5,762,530 
Amerada Hess Corp.,           
Note  7.125  03-15-33  BBB-  5,000  5,762,530 


Multi-Utilities & Unregulated Power 1.09%  		      11,764,575 
DTE Energy Co.,           
Sr Note  6.375  04-15-33  BBB-  7,500  7,764,075 
TECO Energy, Inc.,           
Note  7.000  05-01-12  BB  3,810  4,000,500 


Oil & Gas Refining, Marketing & Transportation 1.07%  		      11,540,258 
Valero Energy Corp.,           
Note  7.500  04-15-32  BBB-  9,500  11,540,258 
 

     Credit  Par value   
Issuer, description, maturity date      rating (A)  ($000)  Value 
 
Capital preferred securities 7.96%        $85,808,475 
(Cost $88,541,154)           
 
Diversified Banks 3.18%          34,270,000 
Credit Agricole Preferred Funding Trust,         
7.00%, 01-29-49      A  9,000  9,112,500 

Page 1

John Hancock         
Preferred Income Fund III       
Securities owned by the Fund on       
February 28, 2006 (unaudited)       
 
Lloyds TSB Bank Plc, 6.90%, 11-29-49 (United       
Kingdom)    A+  25,000  25,157,500 


Electric Utilities 0.68%  		    7,283,250 
DPL Capital Trust II, 8.125%, 09-01-31  B+  6,225  7,283,250 


Gas Utilities 0.51%  		      5,545,047 
KN Capital Trust III, 7.63%, 04-15-28  BB+  4,960  5,545,047 


Integrated Telecommunication Services 1.42%  		    15,343,816 
TCI Communications Financing Trust III,       
9.65%, 03-31-27    BBB-  14,210  15,343,816 



 Investment Banking & Brokerage 0.93% 

    10,075,000 
HBOS Capital Funding L.P., 6.85%, 03-29-49       
(United Kingdom)    A  10,000  10,075,000 


Multi-Utilities & Unregulated Power 0.90%  		    9,669,975 
Dominion Resources Capital Trust I, 7.83%,       
12-01-27    BB+  9,097  9,669,975 


Other Diversified Financial Services 0.34%  		    3,621,387 
JPM Capital Trust I, 7.54%, 01-15-27  A-  3,447  3,621,387 


Issuer  		    Shares  Value 
 
Common stocks 3.28%      $35,418,613 
(Cost $30,574,170)         
 
Electric Utilities 0.90%      9,774,092 
FPL Group, Inc.      164,908  6,914,592 
Scottish Power Plc, American Depositary       
Receipt (United Kingdom)    70,000  2,859,500 

Gas Utilities 0.68%  		      7,325,418 
ONEOK, Inc.      239,471  7,325,418 

Multi-Utilities & Unregulated Power 1.70%  		    18,319,103 
CH Energy Group, Inc.      20,600  1,011,460 
DTE Energy Co.      281,516  12,189,643 
TECO Energy, Inc.      300,000  5,118,000 
    Credit     
Issuer, description    rating (A)  Shares  Value 
 

Preferred stocks  		81.20%      $875,829,845 
(Cost $882,566,454)         
 
Agricultural Products  1.49%      16,075,312 
Ocean Spray Cranberries, Inc., 6.25%,       
Ser A (S)    BB+  195,000  16,075,312 

Page 2

John Hancock       
Preferred Income Fund III       
Securities owned by the Fund on       
February 28, 2006 (unaudited)       
 
 
Asset Management & Custody Banks 0.39%      4,153,401 
BNY Capital V, 5.95%, Ser F  A-  170,361  4,153,401 
 
Automobile Manufacturers 2.05%      22,107,018 
Ford Motor Co., 7.50%  BB-  761,385  12,943,545 
General Motors Corp., 7.25%, Ser 07-15-41  B  50,641  762,653 
General Motors Corp., 7.375%, Ser 05-15-48  B2  558,194  8,400,820 
 
Consumer Finance 2.57%      27,733,857 
CIT Group, Inc., 6.35%, Ser A  BBB+  70,000  1,828,400 
Ford Motor Credit Co., 7.60%  Ba2  25,000  501,000 
HSBC Finance Corp., 6.36%, Depositary Shares,       
Ser B  BBB+  250,000  6,525,000 
HSBC Finance Corp., 6.875%  A  636,118  16,316,427 
SLM Corp., 6.00%  A  56,195  1,368,910 
SLM Corp., 6.97%, Ser A  BBB+  21,400  1,194,120 
 
Diversified Banks 7.04%      75,909,205 
BAC Capital Trust II, 7.00%  A  94,600  2,401,894 
BAC Capital Trust III, 7.00%  A  22,000  563,200 
BAC Capital Trust IV, 5.875%  A  411,400  10,071,072 
HSBC Holdings Plc, 6.20%, Ser A (United       
Kingdom)  A-  222,200  5,515,004 
Royal Bank of Scotland Group Plc, 5.75%,       
Ser L (United Kingdom)  A  960,000  23,232,000 
Santander Finance Preferred S.A. Unipersonal,       
6.41%, Ser 1 (Spain)  BBB+  100,000  2,504,000 
USB Capital IV, 7.35%  A  59,100  1,499,958 
USB Capital V, 7.25%  A  60,700  1,556,348 
USB Capital VIII, 6.35%, Ser 1  A  120,000  3,030,000 
Wachovia Preferred Funding Corp., 7.25%, Ser A  A-  674,800  18,826,920 
Wells Fargo Capital Trust IV, 7.00%  A  187,800  4,719,414 
Wells Fargo Capital Trust VII, 5.85%  A  81,700  1,989,395 
 
Electric Utilities 12.52%      134,977,011 
Cleveland Electric Financing Trust I, 9.00%  BB+  27,400  715,140 
Consolidated Edison, Inc., $5.00, Ser A  BBB+  30,000  2,746,500 
Consolidated Edison, Inc., 7.25%  A-  56,000  1,455,440 
Entergy Mississippi, Inc., 7.25%  A-  113,668  2,908,764 
FPC Capital I, 7.10%, Ser A  BB+  743,600  18,642,052 
FPL Group Capital Trust I, 5.875%  BBB+  490,000  12,034,400 
Georgia Power Capital Trust V, 7.125%  BBB+  156,100  4,007,087 
Georgia Power Co., 6.00%, Ser R  A  730,000  18,323,000 
Great Plains Energy, Inc., 8.00%, Conv  BBB-  685,400  16,877,975 
HECO Capital Trust III, 6.50%  BBB-  130,000  3,305,900 
Interstate Power & Light Co., 7.10%, Ser C  BBB-  354,900  9,724,260 
Interstate Power & Light Co., 8.375%, Ser B  Baa3  54,500  1,798,500 
Northern States Power Co., 8.00%  BBB-  74,550  1,948,737 
NVP Capital I, 8.20%, Ser A  CCC+  56,300  1,434,524 
NVP Capital III, 7.75%  CCC+  379,705  9,678,680 
Sierra Pacific Power Co., 7.80%, Ser 1     
(Class A)  CCC+  73,507  1,856,052   

Page 3

John Hancock       
Preferred Income Fund III       
Securities owned by the Fund on       
February 28, 2006 (unaudited)       
 
Southern California Edison Co., 6.125%  BBB-  20,000  2,020,000 
TXU Corp., 8.125%, Conv  Ba1  170,000  14,172,900 
Virginia Power Capital Trust, 7.375%  BB+  444,200  11,327,100 
 
Gas Utilities 3.32%      35,806,222 
Laclede Capital Trust I, 7.70%  BBB+  76,500  1,978,290 
Southern Union Co., 7.55%  BB+  449,000  11,808,700 
Southwest Gas Capital II, 7.70%  BB  810,250  21,431,112 
Vectren Utility Holdings, Inc., 7.25%  A-  23,200  588,120 
 
Hotels, Resorts & Cruise Lines 0.28%      2,998,208 
Hilton Hotels Corp., 8.00%  BB  118,600  2,998,208 
 
Integrated Telecommunication Services 2.56%      27,557,424 
Telephone & Data Systems, Inc., 6.625%  A-  462,900  11,387,340 
Telephone & Data Systems, Inc., 7.60%, Ser A  A-  492,976  12,472,293 
Verizon New England, Inc., 7.00%, Ser B  A3  146,100  3,697,791 
 
Investment Banking & Brokerage 9.61%      103,682,751 
Fleet Capital Trust VII, 7.20%  A  61,604  1,575,830 
Fleet Capital Trust IX, 6.00%  A  469,200  11,645,544 
Goldman Sachs Group, Inc., 6.20%, Ser B  A-  240,000  6,247,200 
Lehman Brothers Holdings Capital Trust III,       
6.375%, Ser K  A-  793,400  20,255,502 
Lehman Brothers Holdings, Inc., 5.67%,       
Depositary Shares, Ser D  A-  142,500  7,267,500 
Merrill Lynch Preferred Capital Trust III,       
7.00%  A-  417,017  10,825,761 
Merrill Lynch Preferred Capital Trust IV,       
7.12%  A-  232,700  6,043,219 
Merrill Lynch Preferred Capital Trust V, 7.28%  A-  373,700  9,824,573 
Morgan Stanley Capital Trust III, 6.25%  A-  764,025  18,879,058 
Morgan Stanley Capital Trust IV, 6.25%  A-  393,925  9,852,064 
Morgan Stanley Capital Trust VI, 6.60%  A-  50,000  1,266,500 
 
Life & Health Insurance 2.21%      23,837,046 
Lincoln National Capital VI, 6.75%, Ser F  BBB  304,000  7,797,600 
Phoenix Cos., Inc. (The), 7.45%  BBB  387,849  9,835,851 
PLC Capital Trust IV, 7.25%  BBB+  120,600  3,099,420 
PLC Capital Trust V, 6.125%  BBB+  73,300  1,814,175 
Prudential Plc, 6.50% (United Kingdom)  A  50,000  1,290,000 
 
Multi-Line Insurance 6.30%      68,000,926 
AEGON N.V., 6.375% (Netherlands)  A-  236,265  5,989,318 
AEGON N.V., 6.50% (Netherlands)  A-  30,000  757,500 
ING Groep N.V., 7.05% (Netherlands)  A  603,970  15,461,632 
ING Groep N.V., 7.20% (Netherlands)  A  641,000  16,563,440 
MetLife, Inc., 6.375%, Ser B, Conv  BBB+  11,680  321,317 
MetLife, Inc., 6.50%, Ser B  BBB  1,108,850  28,907,719 

Page 4

John Hancock       
Preferred Income Fund III       
Securities owned by the Fund on       
February 28, 2006 (unaudited)       
 
Multi-Utilities & Unregulated Power 7.92%      85,444,405 
Aquila, Inc., 7.875%  B2  218,707  5,480,797 
Avista Corp., $6.95, Ser K  BB-  138,517  14,197,993 
BGE Capital Trust II, 6.20%  BBB-  639,428  15,972,911 
Consumers Energy Co. Financing IV, 9.00%  Ba2  211,700  5,419,520 
DTE Energy Trust I, 7.80%  BB+  147,400  3,764,596 
DTE Energy Trust II, 7.50%  BB+  20,000  528,000 
Energy East Capital Trust I, 8.25%  BBB-  204,900  5,204,460 
PNM Resources, Inc., 6.75%, Conv  BBB-  258,199  12,832,490 
PSEG Funding Trust II, 8.75%  BB+  462,275  12,361,234 
Public Service Electric & Gas Co., 5.05%,       
Ser D  BB+  30,000  2,760,000 
Puget Sound Energy Capital Trust II, 8.40%  BB  185,600  4,740,224 
TECO Capital Trust I, 8.50%  B  85,845  2,182,180 
 
Oil & Gas Exploration & Production 4.30%      46,336,794 
Anadarko Petroleum Corp., 5.46%, Depositary       
Shares, Ser B  BBB-  24,600  2,449,238 
Apache Corp., 5.68%, Depositary Shares, Ser B  BBB  27,500  2,738,830 
Devon Energy Corp., 6.49%, Ser A  BB+  25,250  2,586,547 
Nexen, Inc., 7.35% (Canada)  BB+  1,494,079  38,562,179 
 
Other Diversified Financial Services 9.44%      101,868,462 
ABN AMRO Capital Funding Trust V, 5.90%  A  867,400  20,947,710 
ABN AMRO Capital Funding Trust VI, 6.25%  A  353,900  8,939,514 
Citigroup Capital VII, 7.125%  A  30,042  756,758 
Citigroup Capital VIII, 6.95%  A  241,200  6,138,540 
Citigroup Capital IX, 6.00%  A  384,700  9,540,560 
Citigroup Capital X, 6.10%  A  720,000  18,072,000 
General Electric Capital Corp., 5.875%  AAA  325,930  8,089,583 
General Electric Capital Corp., 6.10%  AAA  94,747  2,379,097 
JPMorgan Chase Capital XI, 5.875%, Ser K  A-  1,030,000  24,864,200 
JPMorgan Chase Capital XIV, 6.20%, Ser N  A-  25,000  625,500 
JPMorgan Chase Capital XVI, 6.35%  A-  60,000  1,515,000 
 
Real Estate Investment Trusts 5.00%      53,968,444 
Duke Realty Corp., 6.50%, Depositary Shares,       
Ser K  BBB  151,600  3,752,100 
Duke Realty Corp., 6.60%, Depositary Shares,       
Ser L  BBB  118,500  2,961,315 
Duke Realty Corp., 6.625%, Depositary Shares,       
Ser J  BBB  638,100  15,856,785 
Kimco Realty Co., 6.65%, Depositary Shares,       
Ser F  BBB+  384,750  9,830,363 
Public Storage, Inc., 6.18%, Depositary       
Shares, Ser D  BBB+  20,000  477,000 
Public Storage, Inc., 6.50%, Depositary       
Shares, Ser W  BBB+  450,000  11,119,500 
Public Storage, Inc., 7.50%, Depositary       
Shares, Ser V  BBB+  184,530  4,777,482 
Public Storage, Inc., 7.625%, Depositary       
Shares, Ser T  BBB+  25,500  653,055 
Public Storage, Inc., 8.00%, Depositary       
Shares, Ser R  BBB+  177,100  4,540,844 

Page 5

John Hancock             
Preferred Income Fund III           
Securities owned by the Fund on           
February 28, 2006 (unaudited)             
 
Regional Banks 2.47%            26,621,552 
National Commerce Capital Trust II, 7.70%      A-  86,800  2,232,496 
PFGI Capital Corp., 7.75%        A-  926,900  24,389,056 
Reinsurance 0.26%            2,826,936 
RenaissanceRe Holdings Ltd., 6.08%, Ser C           
(Bermuda)        BBB  127,800  2,826,936 
Thrifts & Mortgage Finance 1.19%            12,853,199 
Abbey National Plc, 7.25% (United Kingdom)      A-  163,265  4,127,339 
Abbey National Plc, 7.375% (United Kingdom)      A-  339,000  8,725,860 
Wireless Telecommunication Services  0.28%          3,071,672 
United States Cellular, 7.50%        A-  119,800  3,071,672 
    Interest  Maturity  Credit  Par value   
Issuer, description    rate (%)  date  rating (A)  ($000)  Value 
Short-term investments 0.87%          $9,400,000 
(Cost $9,400,000)             
 
Government U.S. Agency 0.87%            9,400,000 
Federal Home Loan Bank, Disc Note    4.300  03-01-06  AAA  9,400  9,400,000 
 
Total investments 100.00%          $1,078,582,634 

Page 6

John Hancock         
Preferred Income Fund III       
Financial futures contracts       
February 28, 2006 (unaudited)       
 
  Number of       
Open contracts  contracts  Position  Expiration  Appreciation 
U.S. 10-Year Treasury Note  275  Short  Jun 06  $41,044 

Financial futures contracts

John Hancock         
Preferred Income Fund III       
Interest rate swap contracts       
February 28, 2006 (unaudited)       
 
  Rate type         
   
Notional  Payments made  Payments received  Termination   
amount  by Fund  by Fund  date  Appreciation 
$35,000,000  4.00% (a)  3-month LIBOR  Apr 09  $1,076,831 
 
(a) Fixed rate         

Interest rate swap contracts

John Hancock
Preferred Income Fund III
Footnotes to Schedule of Investments
February 28, 2006 (unaudited)

(A) Credit ratings are unaudited and are rated by Moody's Investors Service where Standard & Poor's ratings are not available.

(S) This security is exempt from registration under Rule 144A of the Securities Act of 1933. Such security may be resold, normally to qualified institutional buyers, in transactions exempt from registration. Rule 144A securities amounted to $16,075,312 or 1.49% of the Fund's total investments as of February 28, 2006.

Parenthetical disclosure of a foreign country in the security description represents country of a foreign issuer.

The percentage shown for each investment category is the total value of that category as a percentage of the total investments of the Fund.

The cost of investments owned on February 28, 2006, including short-term investments, was $1,084,367,861. Gross unrealized appreciation and depreciation of investments aggregated $28,409,899 and $34,195,126, respectively, resulting in net unrealized depreciation of $5,785,227.

Footnotes to Schedule of Investments - Page 1


ITEM 2. 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-Q, the registrant's principal executive officer and principal accounting 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 last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

ITEM 3. EXHIBITS.

Separate certifications for the registrant's principal executive officer and principal accounting officer, as required by Rule 30a-2(a) under the Investment Company Act of 1940, are attached.

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 Preferred Income Fund III

By: /s/ Keith F. Hartstein
-------------------------------------
Keith F. Hartstein
President and Chief Executive Officer

Date: April 24, 2006

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By: /s/ Keith F. Hartstein
-------------------------------------
Keith F. Hartstein
President and Chief Executive Officer

Date: April 24, 2006

By: /s/ John G. Vrysen
-------------------------------------
John G. Vrysen
Executive Vice President and Chief Financial Officer

Date: April 24, 2006