a_preferredinc3.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 Counsel and Assistant Secretary

601 Congress Street

Boston, Massachusetts 02210

(Name and address of agent for service)

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

Date of fiscal year end:  May 31 
 
Date of reporting period:  February 28, 2007 

ITEM 1. SCHEDULE OF INVESTMENTS


John Hancock
Preferred Income Fund III
Securities owned by the Fund on
February 28, 2007 (unaudited)

    Interest  Maturity  Credit  Par value   
Issuer, description    rate  date  rating (A)  (000)  Value 
Bonds 7.93%            $85,903,154 
(Cost $84,311,749)             
 
Automobile Manufacturers 0.20%          2,210,888 
Ford Motor Co.,             
Note    7.450%  07-16-31  CCC+  $2,755  2,210,888 
 
Consumer Finance 0.31%            3,308,007 
General Motors Acceptance Corp.,             
Bond    8.000  11-01-31  BB+  3,000  3,308,007 
 
Electric Utilities 3.58%            38,737,970 
Black Hills Corp.,             
Note    6.500  05-15-13  BBB-  15,000  15,243,075 
DPL, Inc.,             
Sr Note    6.875  09-01-11  BBB-  5,036  5,358,646 
Entergy Gulf States, Inc.,             
1st Mtg Bond    6.200  07-01-33  BBB+  15,000  14,741,745 
Kentucky Power Co.,             
Sr Note, Ser D    5.625  12-01-32  BBB  3,565  3,394,504 
 
Gas Utilities 1.19%            12,936,533 
Southern Union Co.,             
Jr Sub Note Ser A (P)    7.200  11-01-66  BB  12,900  12,936,533 
 
Integrated Oil & Gas 0.52%            5,607,595 
Amerada Hess Corp.,             
Note    7.125  03-15-33  BBB-  5,000  5,607,595 
 
Multi-Utilities 1.10%            11,918,685 
DTE Energy Co.,             
Sr Note    6.375  04-15-33  BBB-  7,500  7,918,185 
TECO Energy, Inc.,             
Note    7.000  05-01-12  BB  3,810  4,000,500 
 
Oil & Gas Refining & Marketing  1.03%          11,183,476 
Valero Energy Corp.,             
Note    7.500  04-15-32  BBB  9,500  11,183,476 

Page 1

John Hancock
Preferred Income Fund III
Securities owned by the Fund on
February 28, 2007 (unaudited)

    Credit  Par value   
Issuer, description, maturity date    rating (A)  (000)  Value 
Capital preferred securities 8.68%          $94,030,678 
(Cost $96,849,120)             
 
Diversified Banks 3.16%        34,249,200 
Credit Agricole Preferred Funding Trust,         
7.00%, 1/29/49    A  $9,000  9,124,200 
Lloyds TSB Bank Plc, 6.90%, 11-29-49         
(United Kingdom)    A+  25,000  25,125,000 
 
Electric Utilities 0.70%        7,594,500 
DPL Capital Trust II, 8.125%, 09-01-31    BB+  6,225  7,594,500 
 
Gas Utilities 1.29%        13,954,616 
KN Capital Trust I, 8.56%, Ser B, 04-15-27    B-  8,735  8,875,913 
KN Capital Trust III, 7.63%, 04-15-28    B-  4,960  5,078,703 
 
Integrated Telecommunication Services 1.38%        14,923,740 
TCI Communications Financing Trust III,         
9.65%, 03-31-27    BBB-  14,210  14,923,740 
 
Investment Banking & Brokerage 0.93%        10,088,000 
HBOS Capital Funding L.P., 6.85%,         
03-29-49 (United Kingdom)    A  10,000  10,088,000 
 
Multi-Utilities 0.89%        9,645,876 
Dominion Resources Capital Trust I,         
7.83%,12-01-27    BB+  9,097  9,645,876 
 
Other Diversified Financial Services 0.33%        3,574,746 
JPM Capital Trust I, 7.54%, 01-15-27    A  3,447  3,574,746 
 
Issuer      Shares  Value 
Common stocks 3.06%        $33,143,309 
(Cost $24,145,076)         
 
Electric Utilities 0.78%        8,433,069 
Great Plains Energy, Inc.      271,247  8,433,069 
 
Independent Power Producers & Energy Traders 1.59%        17,199,000 
TXU Corp.      260,000  17,199,000 
 
Integrated Oil & Gas 0.24%        2,594,674 
BP Plc, American Depositary Receipt (ADR)         
(United Kingdom)      42,094  2,594,674 

Page 2

John Hancock
Preferred Income Fund III
Securities owned by the Fund on
February 28, 2007 (unaudited)

Multi-Utilities 0.45%        4,916,566 
CH Energy Group, Inc.      20,600  975,616 
TECO Energy, Inc.      235,000  3,940,950 
 
        Credit     
Issuer, description    rating (A)  Shares  Value 
Preferred stocks 78.54%        $850,527,078 
(Cost $859,900,331)         
 
Agricultural Products 1.47%        15,886,416 
Ocean Spray Cranberries, Inc., 6.25%,       
Ser A (S)    BB+  195,000  15,886,416 
 
Automobile Manufacturers 2.49%      26,996,267 
Ford Motor Co., 7.50%    CCC+  761,385  14,732,800 
General Motors Corp., 7.25%, Ser 07-15-41  B-  50,641  1,015,858 
General Motors Corp., 7.375%, Ser 05-15-48  Caa1  558,194  11,247,609 
 
Broadcasting & Cable TV 1.69%      18,297,210 
Comcast Corp., 7.00%    BBB+  119,900  3,103,012 
Comcast Corp., 7.00%, Ser B  BBB+  587,556  15,194,198 
 
Consumer Finance 2.38%      25,728,912 
Ford Motor Credit Co., 7.60%  B1  25,000  552,500 
HSBC Finance Corp., 6.36%, Depositary       
Shares, Ser B    A  250,000  6,477,500 
HSBC Finance Corp., 6.875%  AA-  636,118  16,163,758 
SLM Corp., 6.00%    A  64,195  1,538,754 
SLM Corp., 6.97%, Ser A  BBB+  18,800  996,400 
 
Diversified Banks 5.93%      64,269,926 
BAC Capital Trust II, 7.00%  A+  94,600  2,382,974 
BAC Capital Trust III, 7.00%  A+  22,000  554,400 
BAC Capital Trust IV, 5.875%  A+  131,400  3,175,938 
Royal Bank of Scotland Group Plc, 5.75%,       
Ser L (United Kingdom)    A  960,000  23,328,000 
Santander Finance Preferred SA,       
Unipersonal, 6.41%, Ser 1 (Spain)  A  100,000  2,508,000 
USB Capital VIII, 6.35%, Ser 1  A+  269,700  6,764,076 
USB Capital X, 6.50%    A+  85,000  2,153,900 
Wachovia Preferred Funding Corp., 7.25%,       
Ser A    A  674,800  18,941,636 
Wells Fargo Capital Trust IV, 7.00%  AA-  177,800  4,461,002 

Page 3

John Hancock
Preferred Income Fund III
Securities owned by the Fund on
February 28, 2007 (unaudited)

Electric Utilities 10.65%      115,344,077 
Cleveland Electric Financing Trust I,       
9.00%    BB+  27,400  711,852 
Consolidated Edison, Inc., $5.00, Ser A  BBB+  30,000  2,760,000 
Consolidated Edison, Inc., 7.25%    A-  56,000  1,428,000 
DTE Energy Trust II, 7.50%  BB+  36,600  950,502 
Entergy Mississippi, Inc., 7.25%  A-  113,668  2,865,570 
FPC Capital I, 7.10%, Ser A    BB+  746,700  18,742,170 
FPL Group Capital Trust I, 5.875%  BBB+  490,000  11,941,300 
Georgia Power Capital Trust V, 7.125%  BBB+  156,100  3,963,379 
Georgia Power Co., 6.00%, Ser R  A  730,000  18,359,500 
HECO Capital Trust III, 6.50%  BBB-  130,000  3,513,900 
Interstate Power & Light Co., 7.10%, Ser C  BBB-  354,900  9,793,040 
Interstate Power & Light Co., 8.375%,       
Ser B  Baa2  54,500  1,723,563 
Northern States Power Co., 8.00%  BBB-  84,550  2,181,390 
PPL Electric Utilities Corp., 6.25%,       
Depositary Shares  BBB  130,000  3,440,944 
PPL Energy Supply, LLC, 7.00%  BBB  633,770  16,471,682 
Southern California Edison Co., 6.00%,       
Ser C  BBB-  30,000  3,084,375 
Southern California Edison Co., 6.125%  BBB-  20,000  2,066,250 
Virginia Power Capital Trust, 7.375%  BB+  447,600  11,346,660 
 
Gas Utilities 3.21%      34,783,958 
Laclede Capital Trust I, 7.70%  BBB+  82,000  2,107,400 
Southern Union Co., 7.55%, Ser A  BB  449,000  11,682,980 
Southwest Gas Capital II, 7.70%  BB  810,250  20,993,578 
 
Hotels, Resorts & Cruise Lines 0.28%      3,024,300 
Hilton Hotels Corp., 8.00%  BB+  118,600  3,024,300 
 
Integrated Telecommunication Services 2.63%      28,460,238 
Telephone & Data Systems, Inc., 6.625%  BBB-  480,000  11,870,400 
Telephone & Data Systems, Inc., 7.60%,       
Ser A  BBB-  492,976  12,408,206 
Verizon New England, Inc., 7.00%, Ser B  A3  166,400  4,181,632 

Page 4

John Hancock
Preferred Income Fund III
Securities owned by the Fund on
February 28, 2007 (unaudited)

Investment Banking & Brokerage 9.37%      101,444,590 
Fleet Capital Trust IX, 6.00%  A+  469,200  11,608,008 
Goldman Sachs Group, Inc., 6.20%, Ser B  A  240,000  6,264,000 
Lehman Brothers Holdings Capital Trust       
III, 6.375%, Ser K    A-  793,400  19,946,076 
Lehman Brothers Holdings, Inc., 5.67%,       
Depositary Shares, Ser D  A-  142,500  7,182,000 
Merrill Lynch Preferred Capital Trust       
III, 7.00%  A  417,017  10,633,933 
Merrill Lynch Preferred Capital Trust IV,       
7.12%  A  232,700  5,987,371 
Merrill Lynch Preferred Capital Trust V,       
7.28%  A  373,700  9,686,304 
Morgan Stanley Capital Trust III, 6.25%  A-  764,025  18,978,381 
Morgan Stanley Capital Trust IV, 6.25%  A-  393,925  9,887,517 
Morgan Stanley Capital Trust VI, 6.60%  A-  50,000  1,271,000 
 
Life & Health Insurance 5.45%      59,004,624 
Lincoln National Capital VI, 6.75%, Ser F  A-  304,000  7,788,480 
MetLife, Inc., 6.50%, Ser B  BBB  1,108,850  29,417,791 
Phoenix Cos., Inc. (The), 7.45%  BBB  554,449  13,988,748 
PLC Capital Trust IV, 7.25%  BBB+  141,400  3,598,630 
PLC Capital Trust V, 6.125%  BBB+  83,300  2,057,510 
Prudential Plc, 6.50% (United Kingdom)  A-  83,500  2,153,465 
 
Movies & Entertainment 1.89%      20,528,564 
Viacom Inc., 6.85% (Class B)  BBB  821,800  20,528,564 
 
Multi-Line Insurance 3.83%      41,447,017 
Aegon NV, 6.375% (Netherlands)  A-  241,265  6,161,908 
Aegon NV, 6.50% (Netherlands)  A-  150,850  3,839,133 
ING Groep NV, 7.05% (Netherlands)  A  603,970  15,183,806 
ING Groep NV, 7.20% (Netherlands)  A  641,000  16,262,170 
 
Multi-Utilities 7.00%      75,784,710 
Aquila, Inc., 7.875%  B2  266,707  6,689,012 
Avista Corp., $6.95, Ser K  BB-  129,860  13,050,930 
BGE Capital Trust II, 6.20%  BBB-  786,528  19,403,646 
DTE Energy Trust I, 7.80%  BB+  229,400  5,794,644 
PNM Resources, Inc., 6.75%, Conv  BBB-  305,999  16,077,187 
PSEG Funding Trust II, 8.75%  BB+  462,275  11,986,791 
Public Service Electric & Gas Co., 5.05%,       
Ser D  BB+  30,000  2,782,500 
 
Oil & Gas Exploration & Production 3.94%      42,662,349 
Chesapeake Energy Corp., 6.25%, Conv (G)  B+  7,330  1,891,140 
Devon Energy Corp., 6.49%, Ser A  BB+  25,250  2,567,609 
Nexen, Inc., 7.35% (Canada)  BB+  1,494,079  38,203,600 

Page 5

John Hancock
Preferred Income Fund III
Securities owned by the Fund on
February 28, 2007 (unaudited)

Other Diversified Financial Services 7.57%      81,953,800 
ABN AMRO Capital Funding Trust V, 5.90%  A  665,400  16,235,760 
ABN AMRO Capital Funding Trust VI, 6.25%  A  353,900  8,996,138 
Citigroup Capital VII, 7.125% (G)    A+  28,042  706,658 
Citigroup Capital VIII, 6.95%    A+  241,200  6,119,244 
Citigroup Capital X, 6.10%  A+  720,000  17,942,400 
DB Capital Funding VIII, 6.375%    A  228,500  5,895,300 
JPMorgan Chase Capital XI, 5.875%, Ser K  A  985,000  23,925,650 
JPMorgan Chase Capital XIV, 6.20%, Ser N  A  25,000  624,250 
JPMorgan Chase Capital XVI, 6.35%  A  60,000  1,508,400 
 
Real Estate Investment Trusts 3.63%      39,301,828 
Duke Realty Corp., 6.50%, Depositary       
Shares, Ser K  BBB  151,600  3,812,740 
Duke Realty Corp., 6.60%, Depositary       
Shares, Ser L  BBB  118,500  2,998,050 
Duke Realty Corp., 6.625%, Depositary       
Shares, Ser J  BBB  638,100  16,048,215 
Public Storage, Inc., 6.18%, Depositary       
Shares, Ser D  BBB+  20,000  493,200 
Public Storage, Inc., 6.50%, Depositary       
Shares, Ser W  BBB+  450,000  11,227,500 
Public Storage, Inc., 7.50%, Depositary       
Shares, Ser V  BBB+  184,530  4,722,123 
 
Regional Banks 2.23%      24,099,400 
PFGI Capital Corp., 7.75%  A  926,900  24,099,400 
 
Reinsurance 0.28%      3,085,092 
RenaissanceRe Holdings Ltd., 6.08%, Ser C       
(Bermuda)  BBB  127,800  3,085,092 
 
Specialized Finance 0.49%      5,324,850 
CIT Group, Inc., 6.35%, Ser A  BBB+  70,000  1,838,200 
Repsol International Capital Ltd., 7.45%,       
Ser A (Cayman Islands)  BB+  137,000  3,486,650 
 
Thrifts & Mortgage Finance 0.79%      8,573,310 
Abbey National Plc, 7.375% (United       
Kingdom)  A+  339,000  8,573,310 
 
Wireless Telecommunication Services 1.34%      14,525,640 
United States Cellular Corp., 7.50%  BBB-  565,200  14,525,640 

Page 6

John Hancock
Preferred Income Fund III
Securities owned by the Fund on
February 28, 2007 (unaudited)

    Interest  Maturity  Credit  Par value   
Issuer, description  rate  date  rating (A)  (000)  Value 
Short-term investments 1.79%          $19,400,000 
(Cost $19,400,000)           
 
Government U.S. Agency 1.79%          19,400,000 
Federal Home Loan Bank,           
Discount Note  5.14  03-01-07  AAA  $19,400  19,400,000 
 
Total investments (Cost $1,084,606,276) 100.00%    $1,083,004,219 

Page 7

John Hancock
Preferred Income Fund III
Footnotes to Schedule of Investments
February 28, 2007 (unaudited)

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

(G) Security rated internally by John Hancock Advisers, LLC.

(P) Represents rate in effect on February 28, 2007.

(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 $15,886,416 or 1.47% of the Fund's net assets as of February 28, 2007.

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, 2007, including short-term investments, was $1,084,606,276. Gross unrealized appreciation and depreciation of investments aggregated $27,239,109 and $28,841,166, respectively, resulting in net unrealized depreciation of $1,602,057.

Footnotes to Schedule of Investments - Page 1

John Hancock
Preferred Income Fund III
Financial futures contracts
February 28, 2007 (unaudited)

  Number of       
Open contracts  contracts  Position  Expiration  Depreciation 
U.S. 10-Year Treasury Note  1,100  Short  Jun 07  $863,451 

Financial futures contracts

John Hancock
Preferred Income Fund III
Interest rate swap contracts
February 28, 2007 (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  $717,610 
 
 
(a)  Fixed rate           

Interest rate swap contracts


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 30, 2007

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 30, 2007

By: /s/ John G. Vrysen
-------------------------------------
John G. Vrysen
Chief Financial Officer

Date: April 30, 2007