HANCOCK JOHN REALTY INCOME FUND III LIMITED PARTNERSHIP
10-Q, 1997-08-14
REAL ESTATE
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                                FORM 10-Q

                    SECURITIES AND EXCHANGE COMMISSION

                          Washington, D.C. 20549

(Mark One)

[X]     QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
                     SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended   June 30, 1997

                                    OR

[  ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                     SECURITIES EXCHANGE ACT OF 1934

For the transition period from      N/A

Commission file number            0-18563

          JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
           (Exact name of registrant as specified in its charter)

          Massachusetts                             04-3025607
 (State or other jurisdiction of       (I.R.S. Employer Identification No.)
  incorporation or organization)

                 200 Clarendon Street, Boston, MA  02116
                 (Address of principal executive offices)
                                (Zip Code)

                              (800) 722-5457
           Registrant's telephone number, including area code:

                                   N/A
(Former name, former address and former fiscal year, if changed since last
report)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filling requirements for the past 90 days.
                           Yes    X     No








<PAGE>
         JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
                  (A Massachusetts Limited Partnership)


                                  INDEX


PART I:   FINANCIAL INFORMATION                                   PAGE

   Item 1   -   Financial Statements:

                Balance Sheets at June 30, 1997 and
                December 31, 1996                                      3
                
                Statements of Operations for the Three and
                Six Months Ended June 30, 1997 and 1996                4
                
                Statements of Partners' Equity for the
                Six Months Ended June 30, 1997 and
                for the Year Ended December 31, 1996                   5
                
                Statements of Cash Flows for the Six
                Months Ended June 30, 1997 and 1996                    6
                
                Notes to Financial Statements                       7-16
                
   Item 2 -     Management's Discussion and Analysis of
                Financial Condition and Results of Operations      17-23


PART II:  OTHER INFORMATION                                            24

























                                    2
<PAGE>
         JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
                  (A Massachusetts Limited Partnership)

                      PART I:  FINANCIAL INFORMATION
                      Item 1:  Financial Statements
                              BALANCE SHEETS
                               (Unaudited)

                                  ASSETS

                                               June 30,     December 31,
                                                 1997           1996
                                                 ----           ----
Cash and cash equivalents                    $2,712,753     $2,663,859
Restricted cash                                 113,656        107,959
Other assets                                    254,670        180,542

Deferred expenses, net of accumulated
  amortization of $1,207,250 in 1997 and
  $1,025,259 in 1996                          1,454,223      1,601,682

Investment in joint venture                   7,573,639      7,638,805

Investment in property:
  Land                                        8,410,535      8,410,535
  Building and improvements                  24,942,540     24,942,540
                                            -----------    -----------
                                             33,353,075     33,353,075
  Less:   accumulated depreciation            5,063,868      4,649,036
                                            -----------    -----------
                                             28,289,207     28,704,039
                                            -----------    -----------
     Total assets                           $40,398,148    $40,896,886
                                            ===========    ===========

                     LIABILITIES AND PARTNERS' EQUITY

Liabilities:
  Accounts payable and accrued expenses        $333,488       $287,374
  Accounts payable to affiliates                120,748         93,467
                                            -----------    -----------
     Total liabilities                          454,236        380,841

Partners' equity/(deficit):
  General partner's                            (44,824)       (43,423)
  Limited partners'                          39,988,736     40,559,468
                                            -----------    -----------
     Total partners' equity                  39,943,912     40,516,045
                                            -----------    -----------
     Total liabilities and
        partners' equity                    $40,398,148    $40,896,886
                                            ===========    ===========


                    See Notes to Financial Statements

                                    3
<PAGE>
         JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
                  (A Massachusetts Limited Partnership)

                         STATEMENTS OF OPERATIONS
                               (Unaudited)
<TABLE>
<CAPTION>
                                            Three Months Ended               Six Months Ended
                                                 June 30,                        June 30,
                                           1997            1996             1997           1996
                                           ----            ----             ----           ----
<S>                                        <C>             <C>              <C>            <C>
Income:
  Rental income                           $894,526       $891,270       $1,801,768     $1,780,705
  Income from joint venture                186,172        201,398          374,709        382,914
  Interest income                           36,214         36,556           68,407         69,281
                                        ----------     ----------       ----------     ----------
     Total income                        1,116,912      1,129,224        2,244,884      2,232,900

Expenses:
  Depreciation                             207,416        207,416          414,832        414,832
  General and administrative expenses       67,992         59,505          185,346        111,321
  Amortization of deferred expenses         91,477         79,096          181,991        154,338
  Property operating expenses               50,069         57,635          112,835        113,987
                                        ----------     ----------       ----------     ----------
     Total expenses                        416,954        403,652          895,004        794,478
                                        ----------     ----------       ----------     ----------
     Net income                           $699,958       $725,572       $1,349,880     $1,438,422
                                        ==========     ==========       ==========     ==========

Allocation of net income:
  General Partner                          $48,659        $49,367          $94,699        $97,943
  John Hancock Limited Partner              73,291        147,003          142,853        147,003
  Investors                                578,008        529,202        1,112,328      1,193,476
                                        ----------     ----------       ----------     ----------
                                          $699,958       $725,572       $1,349,880     $1,438,422
                                        ==========     ==========       ==========     ==========

Net Income per Unit                         $0.24          $0.21             $0.46          $0.49
                                        ==========     ==========       ==========     ==========
</TABLE>














                    See Notes to Financial Statements

                                    4
<PAGE>
         JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
                  (A Massachusetts Limited Partnership)

                      STATEMENTS OF PARTNERS' EQUITY
                               (Unaudited)

                    Six Months Ended June 30, 1997 and
                       Year Ended December 31, 1996


<TABLE>
<CAPTION>
                                                         General      Limited
                                                         Partner      Partners          Total
                                                         -------      --------          -----
<S>                                                        <C>          <C>              <C>
Partners' equity/(deficit) at January 1, 1996
  (2,415,234 Units outstanding)                         ($44,553)    $41,590,304      $41,545,751

Less:  Cash distributions                               (182,286)    (3,463,437)      (3,645,723)

Add:   Net income                                         183,416      2,432,601        2,616,017
                                                         --------     ----------       ----------

Partners' equity/(deficit) at December 31, 1996
  (2,415,234 Units outstanding)                          (43,423)     40,559,468       40,516,045

Less:  Cash distributions                                (96,100)    (1,825,913)      (1,922,013)

Add:   Net income                                          94,699      1,255,181        1,349,880
                                                         --------     ----------       ----------

Partners' equity/(deficit) at June 30, 1997
  (2,415,234 Units outstanding)                         ($44,824)    $39,988,736      $39,943,912
                                                         ========    ===========      ===========
</TABLE>



















                    See Notes to Financial Statements

                                    5
<PAGE>
         JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
                  (A Massachusetts Limited Partnership)

                         STATEMENTS OF CASH FLOWS
                               (Unaudited)
<TABLE>
<CAPTION>
                                                                         Six Months Ended
                                                                             June 30,
                                                                      1997              1996
                                                                      ----              ----
<S>                                                                   <C>               <C>
Operating activities:
  Net income                                                       $1,349,880        $1,438,422

  Adjustments to reconcile net income to net cash
  provided by operating activities:
     Depreciation                                                     414,832           414,832
     Amortization of deferred expenses                                181,991           154,338
     Cash distributions over equity
       in income from joint venture                                    65,166           112,153
                                                                   ----------        ----------
                                                                    2,011,869         2,119,745

  Changes in operating assets and liabilities:
     Increase in restricted cash                                      (5,697)           (2,608)
     (Increase)/decrease in other assets                             (74,128)           185,402
     Increase in accounts payable and
      accrued expenses                                                 46,114            58,793
     Increase in accounts payable to affiliates                        27,281             9,343
                                                                   ----------        ----------
       Net cash provided by operating activities                    2,005,439         2,370,675

Investing activities:
  Acquisition of deferred expenses                                   (34,532)         (128,601)
                                                                   ----------        ----------
       Net cash used in investing activities                         (34,532)         (128,601)

Financing activities:
  Cash distributed to Partners                                    (1,922,013)       (1,652,525)
                                                                   ----------        ----------
       Net cash used in financing activities                      (1,922,013)       (1,652,525)
                                                                   ----------        ----------

       Net increase in cash and cash equivalents                       48,894           589,549

       Cash and cash equivalents at beginning
        of year                                                     2,663,859         2,431,272
                                                                   ----------        ----------
       Cash and cash equivalents at end
        of period                                                  $2,712,753        $3,020,821
                                                                   ==========        ==========
</TABLE>

                    See Notes to Financial Statements

                                    6
<PAGE>
         JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
                  (A Massachusetts Limited Partnership)

                      NOTES TO FINANCIAL STATEMENTS
                               (Unaudited)

1.   Organization of Partnership
     ---------------------------
     John Hancock Realty Income Fund-III Limited Partnership (the
     "Partnership") was formed under the Massachusetts Uniform Limited
     Partnership Act on November 4, 1988.  As of June 30, 1997, the
     Partnership consisted of John Hancock Realty Equities, Inc. (the
     "General Partner"), a wholly-owned, indirect subsidiary of John
     Hancock Mutual Life Insurance Company; John Hancock Realty Funding,
     Inc. (the "John Hancock Limited Partner"); John Hancock Income
     Fund-III Assignor, Inc. (the "Assignor Limited Partner"); and 2,552
     Unitholders (the "Investors").  The Assignor Limited Partner holds
     five Investor Limited Partnership Interests for its own account and
     2,415,229 Assignee Units (the "Units"), representing economic and
     certain other rights attributable to Investor Limited Partnership
     Interests in the Partnership, for the benefit of the Investors.  The
     John Hancock Limited Partner, the Assignor Limited Partner and the
     Investors are collectively referred to as the Limited Partners.  The
     General Partner and the Limited Partners are collectively referred to
     as the Partners.  The initial capital of the Partnership was $2,100,
     representing capital contributions of $1,000 from the General Partner,
     $1,000 from the John Hancock Limited Partner, and $100 from the
     Assignor Limited Partner.  The Amended Agreement of Limited
     Partnership of the Partnership (the "Partnership Agreement")
     authorized the issuance of up to 5,000,000 Units at $20 per unit.
     During the offering period, which terminated on February 15, 1991,
     2,415,229 Units were sold and the John Hancock Limited Partner made
     additional capital contributions of $3,863,366.  There were no changes
     in the number of Units outstanding subsequent to the termination of
     the offering period.
     
     The Partnership is engaged solely in the business of acquiring,
     holding for investment and disposing of existing income-producing
     retail, industrial and office properties on an all-cash basis, free
     and clear of mortgage indebtedness.  Although the Partnership's
     properties were acquired and are held free and clear of mortgage
     indebtedness, the Partnership may incur mortgage indebtedness under
     certain circumstances as specified in the Partnership Agreement.
     
     The latest date on which the Partnership is due to terminate is
     December 31, 2019, unless it is sooner terminated in accordance with
     the terms of the Partnership Agreement.  It is expected that, in the
     ordinary course of the Partnership's business, the properties of the
     Partnership will be disposed of, and the Partnership terminated,
     before December 31, 2019.






                                    7
<PAGE>
         JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
                  (A Massachusetts Limited Partnership)

                NOTES TO FINANCIAL STATEMENTS (Continued)
                               (Unaudited)

2.   Significant Accounting Policies
     -------------------------------
     The accompanying unaudited financial statements have been prepared in
     accordance with generally accepted accounting principles for interim
     financial information and with the instructions for Form 10-Q and Rule
     10-01 of Regulation S-X.  Accordingly, they do not include all of the
     information and footnotes required by generally accepted accounting
     principles for complete financial statements.  In the opinion of
     management, all adjustments (consisting of normal recurring accruals)
     considered necessary for a fair presentation have been included.
     Operating results for the six month period ended June 30, 1997 are not
     necessarily indicative of the results that may be expected for the
     year ending December 31, 1997.  For further information, refer to the
     financial statements and footnotes thereto included in the
     Partnership's Annual Report on Form 10-K for the year ended December
     31, 1996.
     
     The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates
     and assumptions that affect the reported amounts of assets and
     liabilities and disclosure of contingent assets and liabilities at the
     date of the financial statements and the reported amounts of revenue
     and expenses during the reporting period.  Actual results may differ
     from those estimates.

     The Partnership maintains its accounting records and recognizes rental
     revenue on the accrual basis.
     
     Cash equivalents are highly liquid investments with maturities of
     three months or less when purchased.  These investments are recorded
     at cost plus accrued interest, which approximates market value.
     Restricted cash represents funds restricted for tenant security
     deposits.
     
     Investments in property are recorded at cost less any property write-
     downs for impairment in value.  Cost includes the initial purchase
     price of the property plus acquisition and legal fees, other
     miscellaneous acquisition costs, and the cost of significant
     improvements.
     
     Depreciation has been provided on a straight-line basis over the
     estimated useful lives of the various assets:  thirty years for the
     buildings and five years for related improvements.  Maintenance and
     repairs are charged to operations as incurred.
     
     Investment in joint venture is recorded using the equity method.




                                    8
<PAGE>
         JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
                  (A Massachusetts Limited Partnership)

                NOTES TO FINANCIAL STATEMENTS (Continued)
                               (Unaudited)

2.   Significant Accounting Policies (continued)
     -------------------------------
     Acquisition fees for the joint venture investment have been deferred
     and are amortized on a straight-line basis over a period of thirty-one
     and a half years.  Other deferred acquisition fees are amortized on a
     straight-line basis over a period of eighty-four months.  Capitalized
     tenant improvements and lease commissions are amortized on a straight-
     line basis over the terms of the leases to which they relate.
     
     No provision for income taxes has been made in the financial
     statements as such taxes are the responsibility of the individual
     Partners and not of the Partnership.
     
     The net income per Unit for the six months ended June 30, 1997 and
     1996 is calculated by dividing the Investors' share of net income by
     the number of Units outstanding at the end of such periods.
     
     Certain 1996 amounts have been reclassified to be consistent with the
     1997 presentation.
     
3.   The Partnership Agreement
     -------------------------
     Distributable Cash from Operations (defined in the Partnership
     Agreement) is distributed 5% to the General Partner and the remaining
     95% in the following order of priority:  first, to the Investors until
     they receive a 7% non-cumulative, non-compounded annual cash return on
     their Invested Capital (defined in the Partnership Agreement); second,
     to the John Hancock Limited Partner until it receives a 7%
     non-cumulative, non-compounded annual cash return on its Invested
     Capital; and third, to the Investors and the John Hancock Limited
     Partner in proportion to their respective Capital Contributions
     (defined in the Partnership Agreement).  However, any Distributable
     Cash from Operations which is available as a result of a reduction in
     working capital reserves funded by Capital Contributions of the
     Investors will be distributed 100% to the Investors.















                                    9
<PAGE>
         JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
                  (A Massachusetts Limited Partnership)

                NOTES TO FINANCIAL STATEMENTS (Continued)
                               (Unaudited)

3.   The Partnership Agreement (continued)
     -------------------------
     Profits for tax purposes from the normal operations of the Partnership
     for each fiscal year are allocated to the Partners in the same amounts
     as Distributable Cash from Operations for that year.  If such profits
     are less than Distributable Cash from Operations for any year, they
     are allocated in proportion to the amounts of Distributable Cash from
     Operations for that year.  If such profits are greater than
     Distributable Cash from Operations for any year, they are allocated 5%
     to the General Partner and 95% to the John Hancock Limited Partner and
     the Investors, with the allocation made between the John Hancock
     Limited Partner and the Investors in proportion to their respective
     Capital Contributions.  Losses for tax purposes from the normal
     operations of the Partnership are allocated 1% to the General Partner
     and 99% to the John Hancock Limited Partner and the Investors, with
     the allocation made between the John Hancock Limited Partner and the
     Investors in proportion to their respective Capital Contributions.
     However, all tax aspects of the Partnership's payment of the sales
     commissions from the Capital Contributions made by the John Hancock
     Limited Partner are allocated 1% to the General Partner and 99% to the
     John Hancock Limited Partner, and not to the Investors.  Depreciation
     deductions are allocated 1% to the General Partner and 99% to the
     Investors, and not to the John Hancock Limited Partner.
     
     Neither the General Partner nor any Affiliate of the General Partner
     shall be liable, responsible or accountable in damages to any of the
     Partners or the Partnership for any act or omission of the General
     Partner or such Affiliate in good faith on behalf of the Partnership
     within the scope of the authority granted to the General Partner by
     the Partnership Agreement and in the best interest of the Partnership,
     except for acts or omissions constituting fraud, negligence,
     misconduct or breach of fiduciary duty.  The Partnership shall not
     advance any funds to the General Partner or its Affiliates for legal
     expenses and other costs incurred as a result of any legal action
     initiated against the General Partner or its Affiliates by a Limited
     Partner in the Partnership.  The General Partner and its Affiliates
     performing services on behalf of the Partnership shall be entitled to
     indemnity from the Partnership for any loss, damage, or claim by
     reason of any act performed or omitted to be performed by the General
     Partner or such Affiliates in good faith on behalf of the Partnership
     and in a manner within the scope of the authority granted to the
     General Partner by the Partnership Agreement and in the best interest
     of the Partnership, except that they shall not be entitled to be
     indemnified in respect of any loss, damage, or claim incurred by
     reason of fraud, negligence, misconduct, or breach of fiduciary duty.
     Any indemnity shall be provided out of and to the extent of
     Partnership assets only.



                                    10
<PAGE>
         JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
                  (A Massachusetts Limited Partnership)

                NOTES TO FINANCIAL STATEMENTS (Continued)
                               (Unaudited)

4.   Transactions with the General Partner and Affiliates
     ----------------------------------------------------
     Fees, commissions and other costs incurred or paid by the General
     Partner or its Affiliates during the six months ended June 30, 1997
     and 1996, and to which the General Partner or its Affiliates are
     entitled to reimbursement from the Partnership were $155,959 and
     $92,488, respectively.

     The Partnership provides indemnification to the General Partner and
     its Affiliates for any acts or omissions of the General Partner or
     such Affiliate in good faith on behalf of the Partnership, except for
     acts or omissions constituting fraud, negligence, misconduct or breach
     of fiduciary duty.  The General Partner believes that this
     indemnification applies to the class action complaint described in
     Note 9.  Accordingly, included in the Statements of Operations for the
     six months ended June 30, 1997 and 1996 were $38,173 and $0,
     respectively, representing the Partnership's share of costs incurred
     by the General Partner and its Affiliates relating to the class action
     complaint.  As of June 30, 1997, the Partnership has accrued a total
     of $79,648 as its share of the costs incurred by the General Partner
     and its Affiliates resulting from this matter.
     
     Accounts payable to affiliates represents amounts due to the General
     Partner or its Affiliates for various services provided to the
     Partnership, including amounts to indemnify the General Partner or its
     Affiliates for claims incurred by them in connection with their
     actions as General Partner of the Partnership. All amounts accrued by
     the Partnership to indemnify the General Partner or its Affiliates for
     legal fees incurred by them shall not be paid unless or until all
     conditions set forth in the Partnership Agreement for such payment
     have been fulfilled.
     
     The General Partner serves in a similar capacity for two other
     affiliated real estate limited partnerships.
     
















                                    11
<PAGE>
         JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
                  (A Massachusetts Limited Partnership)

                NOTES TO FINANCIAL STATEMENTS (Continued)
                               (Unaudited)

5.   Investment in Property
     ----------------------
     Investment in property at cost, less any write-downs, consists of
     managed, fully-operating, commercial real estate as follows:
<TABLE>
<CAPTION>
                                                             June 30, 1997     December 31, 1996
                                                             -------------     ------------------
         <S>                                                      <C>                 <C>
        Palms of Carrollwood Shopping Center                   $10,930,578          $10,930,578
        Yokohama Tire Warehouse                                  9,352,221            9,352,221
        Purina Mills Distribution Building                       4,203,406            4,203,406
        Allmetal Distribution Building                           1,636,050            1,636,050
        Stone Container Building                                 2,088,804            2,088,804
        Business Center at Pureland                              5,142,016            5,142,016
                                                               -----------          -----------
                                                               $33,353,075          $33,353,075
                                                               ===========          ===========
     </TABLE>
     
     The real estate market is cyclical in nature and is materially
     affected by general economic trends and economic conditions in the
     market where a property is located.  As a result, determination of
     real estate values involves subjective judgments.  These judgments are
     based on current market conditions and assumptions related to future
     market conditions.

     These assumptions involve, among other things, the availability of
     capital, occupancy rates, rental rates, interest rates and inflation
     rates.  Amounts ultimately realized from each property may vary
     significantly from the market values presented and the differences
     could be material.  Actual market values of real estate can be
     determined only by negotiation between the parties in a sales
     transaction.

6.   Investment in Joint Venture
     ---------------------------
     On December 28, 1988, the Partnership invested $75,000 to acquire a
     0.5% interest in JH Quince Orchard Partners (the "Affiliated Joint
     Venture"), a joint venture between the Partnership and John Hancock
     Realty Income Fund-II Limited Partnership ("Income Fund-II").  The
     Partnership had an initial 0.5% interest and Income Fund-II had an
     initial 99.5% interest in the Affiliated Joint Venture.








                                    12
<PAGE>
         JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
                  (A Massachusetts Limited Partnership)

                NOTES TO FINANCIAL STATEMENTS (Continued)
                               (Unaudited)

6.   Investment in Joint Venture (continued)
     ---------------------------
     Pursuant to the partnership agreement of the Affiliated Joint Venture,
     the Partnership had the option, exercisable prior to December 31,
     1990, to increase its investment and interest in the Affiliated Joint
     Venture to 50%.  During the second quarter of 1989, the Partnership
     exercised such option and Income Fund-II transferred a 49.5% interest
     in the Affiliated Joint Venture to the Partnership for cash in the
     aggregate amount of $7,325,672.  The Partnership has held a 50%
     interest in the Affiliated Joint Venture since the second quarter of
     1989.
     
     On December 28, 1988, the Affiliated Joint Venture contributed 98% of
     the invested capital of, and acquired a 75% interest in, QOCC-1
     Associates, an existing partnership which owns and operates the Quince
     Orchard Corporate Center, a three-story office building and related
     land and improvements located in Gaithersburg, Maryland.  The
     partnership agreement of QOCC-1 Associates provides that the
     Affiliated Joint Venture contribute 95% of any required additional
     capital contributions.  Of the cumulative total invested capital in
     QOCC-1 Associates at June 30, 1997, 97.55% has been contributed by the
     Affiliated Joint Venture.  The Affiliated Joint Venture continues to
     hold a 75% interest in QOCC-1 Associates.
     
     Net cash flow from QOCC-1 Associates is distributed in the following
     order of priority:  (i) to the payment of all debts and liabilities of
     QOCC-1 Associates and to fund reserves deemed reasonably necessary;
     ii), to the partners in proportion to their respective invested
     capital until each has received a 9% return on invested capital and
     iii) the balance, if any, to the partners in proportion to their
     interests.  Prior to 1996, QOCC-1 Associates had not provided the
     partners with a return in excess of 9% on their invested capital.
     During 1996, the Affiliated Joint Venture received a return on
     invested capital of approximately 12%.
     
     Income and gains of QOCC-1 Associates, other than the gains allocated
     arising from a sale or other similar event with respect to the Quince
     Orchard Corporate Center, are allocated in the following order of
     priority:  i) to the partners who are entitled to receive a
     distribution of net cash flow, pro rata in the same order and amounts
     as such distributions are made and ii) the balance, if any, to the
     partners, pro rata in accordance with their interests.









                                    13
<PAGE>
         JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
                  (A Massachusetts Limited Partnership)

                NOTES TO FINANCIAL STATEMENTS (Continued)
                               (Unaudited)

7.   Deferred Expenses
     -----------------
     Deferred expenses consist of the following:
<TABLE>
<CAPTION>
                                                               Unamortized          Unamortized
                                                                Balance At           Balance At
     Description                                              June 30, 1997      December 31, 1996
     -----------                                              -------------     --------------------
     <S>                                                           <C>                  <C>

     $152,880 of acquisition fees for
     investment in the Affiliated Joint
     Venture.  This amount
     is amortized over a period
     of 31.5 years.                                                $111,829            $114,256

     $1,106,378 of tenant improvements.  These
     amounts are amortized over the terms
     of the leases to which they relate.                            842,064             900,220

     $328,594 of lease commissions.  These
     amounts are amortized over the terms
     of the leases to which they relate.                            231,925             242,114

     $1,073,621 of acquisition fees paid to the
     General Partner.  This amount
     is amortized over a period of
     eighty-four months.                                            268,405             345,092
                                                                 ----------          ----------
                                                                 $1,454,223          $1,601,682
                                                                 ==========          ==========
</TABLE>
















                                    14
<PAGE>
         JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
                  (A Massachusetts Limited Partnership)

                NOTES TO FINANCIAL STATEMENTS (Continued)
                               (Unaudited)

8.  Federal Income Taxes
    --------------------
     A reconciliation of the net income reported in the Statements of
     Operations to the net income reported for federal income tax purposes
     is as follows:
     <TABLE>
     <CAPTION>
                                                                     Six Months Ended June 30,
                                                                         1997           1996
                                                                         ----           ----
<S>                                                                      <C>            <C>
       Net income per Statements of Operations                        $1,349,880     $1,438,422
       Add/(less):   Excess of book depreciation
                        over tax depreciation                             69,728         71,010
                     Excess of book amortization
                        over tax amortization                             94,460         74,382
                     Other income                                        (8,504)       (79,585)
                                                                      ----------     ----------
       Net income for federal income tax purposes                     $1,505,564     $1,504,229
                                                                      ==========     ==========
</TABLE>

9.   Contingencies
     -------------
     In February 1996, a putative class action complaint was filed in the
     Superior Court in Essex County, New Jersey by a single investor in a
     limited partnership affiliated with the Partnership.  The complaint
     named as defendants the Partnership, the General Partner, certain
     other Affiliates of the General Partner, and certain unnamed officers,
     directors, employees and agents of the named defendants.  The
     plaintiff sought unspecified damages stemming from alleged
     misrepresentations and omissions in the marketing and offering
     materials associated with the Partnership and two limited partnerships
     affiliated with the Partnership.  On March 18, 1997, the court
     certified a class of investors who were original purchasers in the
     Partnership.
     
     The Partnership provides indemnification to the General Partner and
     its Affiliates for acts or omissions of the General Partner in good
     faith on behalf of the Partnership, except for acts or omissions
     constituting fraud, negligence, misconduct or breach of fiduciary
     duty.  The General Partner believes that this indemnification applies
     to the class action complaint described above.
     
     The Partnership has incurred an aggregate of approximately $200,000 in
     legal expenses in connection with this matter.  Of this amount,
     approximately $120,000 relates to the Partnership's own defense and
     approximately $80,000 relates to indemnification of the General
     Partner and its Affiliates for their defense.  These expenses are
     funded from the operations of the Partnership.

                                    15
<PAGE>
         JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
                  (A Massachusetts Limited Partnership)

                NOTES TO FINANCIAL STATEMENTS (Continued)
                               (Unaudited)

9.   Contingencies
     -------------
     At the present time, the General Partner can not estimate the impact,
     if any, of the potential indemnification claims on the Partnership's
     financial statements, taken as a whole.  Accordingly, no provision for
     any liability which could result from the eventual outcome of these
     matters has been made in the accompanying financial statements.
     











































                                    16
<PAGE>
         JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
                  (A Massachusetts Limited Partnership)

ITEM 2:  Management's Discussion and Analysis of Financial Condition and
Results of Operations

General
- -------
During the offering period, from February 17, 1989 to February 15, 1991,
the Partnership sold 2,415,229 Units representing gross proceeds (exclusive
of the John Hancock Limited Partner's contribution which was used to pay
sales commissions) of $48,304,580.  The proceeds of the offering were used
to acquire investment properties, fund reserves and pay acquisition fees
and organizational and offering expenses.  These investments are described
more fully in Notes 5 and 6 to the Financial Statements included in Item 1
of this Report.

Forward-looking Statements
- --------------------------
In addition to historical information, certain statements contained herein
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended.  Those statements appear in a number of
places in this Report and include statements regarding the intent, belief
or expectations of the General Partner with respect to, among other things,
the prospective sale of Partnership properties, actions that would be taken
in the event of lack of liquidity, anticipated leasing costs, repair and
maintenance expenses, distributions to the General Partner and to
Investors, the possible effects of tenants vacating space at Partnership
properties, the absorption of existing retail space in certain geographical
areas, and the impact of inflation.

Forward-looking statements involve numerous known and unknown risks and
uncertainties, and they are not guarantees of future performance.  The
following factors, among others, could cause actual results or performance
of the Partnership and future events to differ materially from those
expressed or implied in the forward-looking statements:  general economic
and business conditions; any and all general risks of real estate
ownership, including without limitation adverse changes in general economic
conditions and adverse local conditions, the fluctuation of rental income
from properties, changes in property taxes, utility costs or maintenance
costs and insurance, fluctuations of real estate values, competition for
tenants, uncertainties about whether real estate sales under contract will
close; the ability of the Partnership to sell its properties; and other
factors detailed from time to time in the filings with the Securities and
Exchange Commission.

Readers are cautioned not to place undue reliance on forward-looking
statements, which reflect the General Partner's analysis only as of the
date hereof.  The Partnership assumes no obligation to update forward-
looking statements.  [See also the Partnership's reports to be filed from
time to time with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended.]




                                    17
<PAGE>
         JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
                  (A Massachusetts Limited Partnership)

ITEM 2:  Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)

Liquidity and Capital Resources
- -------------------------------
At June 30, 1997, the Partnership had $2,712,753 in cash and cash
equivalents and $113,656 in restricted cash.

The Partnership has a working capital reserve with a current balance of
approximately 3.4% of the offering proceeds.  The General Partner
anticipates that such amount will be sufficient to satisfy the
Partnership's general liquidity requirements. The Partnership's liquidity
would, however, be materially adversely affected if there were a
significant reduction in revenues or significant unanticipated operating
costs (including but not limited to litigation expenses), unanticipated
leasing costs or unanticipated capital expenditures.  If any or all of
these events were to occur, to the extent that the working capital reserve
would be insufficient to satisfy the cash requirements of the Partnership,
it is anticipated that additional funds would be obtained through a
reduction of cash distributions to Investors, bank loans, short-term loans
from the General Partner or its affiliates, or the sale or financing of
Partnership investments.

During the six months ended June 30, 1997, cash from working capital
reserves in the aggregate amount of $34,532 was used for the payment of
leasing costs incurred at the Palms of Carrollwood Shopping Center ("Palms
of Carrollwood") property.  The General Partner anticipates that the
Partnership will incur an aggregate of approximately $480,000 of additional
leasing costs at the Allmetal Distribution Building and Palms of
Carrollwood properties during the remainder of 1997, the majority of which
would be incurred at Palms of Carrollwood.  The General Partner anticipates
that the current balance in the working capital reserve should be
sufficient to pay such leasing costs.

During the six months ended June 30, 1997, $4,954 of cash generated from
the Partnership's operations was used to fund non-recurring maintenance and
repair expenses incurred at the Palms of Carrollwood and the Business
Center at Pureland properties.  The General Partner anticipates that the
Partnership will incur additional non-recurring repair and maintenance
expenses in the aggregate amount of approximately $150,000 at its
properties during the remainder of 1997.  These additional expenses will be
funded from the operations of the Partnership's properties and are not
expected to have a significant impact on the Partnership's liquidity.










                                    18
<PAGE>
         JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
                  (A Massachusetts Limited Partnership)

ITEM 2:  Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)

Liquidity and Capital Resources (continued)
- -------------------------------
Cash in the amount of $1,922,013, generated from the Partnership's
operations, was distributed to the General Partner, the John Hancock
Limited Partner and the Investors during the six months ended June 30,
1997.  These amounts were distributed in accordance with the Partnership
Agreement and were allocated as follows:

Investors                               $1,690,661
John Hancock Limited Partner               135,252
General Partner                             96,100
                                        ----------
     Total                              $1,922,013
                                        ==========

The Partnership has incurred an aggregate of approximately $200,000 in
legal expenses in connection with the class action lawsuit (see Part II,
Item 1 of this Report).  Of this amount, approximately $120,000 relates to
the Partnership's own defense and approximately $80,000 relates to
indemnification of the General Partner and its Affiliates for their
defense.  These expenses are funded from the operations of the Partnership.
At the present time, the General Partner cannot estimate the aggregate
amount of legal expenses and indemnification claims to be incurred and
their impact on the Partnership's future operations.  Liquidity would,
however, be materially adversely affected by a significant increase in such
legal expenses and related indemnification costs.  If such increases were
to occur, to the extent that cash from operations and the working capital
reserve would be insufficient to satisfy the cash requirements of the
Partnership, it is anticipated that additional funds would be obtained
through a reduction of cash distributions to Investors, bank loans, short-
term loans from the General Partner or its Affiliates, or the sale or
financing of Partnership properties.

One of the anchor tenants at the Palms of Carrollwood vacated the property
during June 1995.  In July 1995, the General Partner secured a new anchor
tenant to occupy this space under a lease commencing in November 1995.
Three tenants' leases at the Palms of Carrollwood contain clauses that make
reference to the situation in which the former anchor tenant ceases
operations at the property.  One of these tenants paid all amounts due
under its lease through the lease's scheduled expiration in February 1997
and two of the tenants reduced their rental payments by 25%.  As a result
of a settlement negotiated with the General Partner, one of these two
tenants recommenced making its rental payments at 100% of the contracted
amount.  The General Partner is using all available legal remedies to
obtain collection from the other tenant of all outstanding amounts due.
The General Partner does not believe that any reduction in rental payments
resulting from the replacement of the original anchor tenant will have a
materially adverse affect on the Partnership's liquidity.


                                    19
<PAGE>
         JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
                  (A Massachusetts Limited Partnership)

ITEM 2:  Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)

Liquidity and Capital Resources (continued)
- -------------------------------
At June 30, 1997, Palms of Carrollwood was 78% occupied.  During the
remainder of 1997, no significant leases are scheduled to expire at the
property.  The General Partner will continue to offer competitive leasing
packages in an effort to improve the property's occupancy.

The Partnership's warehouse properties are presently 100% occupied.  The
following table sets forth the names of the lessees at each of the
Partnership's warehouse properties and the earliest date on which the
applicable lessee's lease obligations may terminate.
<TABLE>
<CAPTION>
      Property                             Lessee                   Lease Expiration
      --------                             ------                   ----------------
        <S>                                 <C>                           <C>
  Yokohama Tire Warehouse               Yokohama Tire Corp.           March 31, 2006
  Purina Mills Distribution Building    Purina Mills, Inc.            December 1, 1998
  Allmetal Distribution Building        Allmetal, Inc.                August 31, 1998
  Stone Container Building              Stone Container Corp.         December 31, 2011
  Business Center at Pureland           Forbo Wallcoverings, Inc.     December 31, 1998
  Business Center at Pureland           National Polystyrene
                                        Recycling Co., L.P.           May 31, 2001
</TABLE>

The General Partner anticipates that the warehouse properties should
provide the Partnership with stable income performance during the remainder
of 1997.

The General Partner evaluated the carrying value of each of the
Partnership's properties and its investment in the Affiliated Joint Venture
as of December 31, 1996 by comparing such carrying value to the related
property's future undiscounted cash flows and the then most recent internal
appraisal in order to determine whether a permanent impairment in value
existed.  Based upon such evaluations, the General Partner determined that
no permanent impairment in values existed and, therefore, no write-downs
were recorded as of December 31, 1996.

The General Partner will continue to conduct property valuations, using
internal or independent appraisals, in order to determine whether a
permanent impairment in value exists on any of the Partnership's
properties.

Results of Operations
- ---------------------
Net income for the six months ended June 30, 1997 was $1,349,880, as
compared to net income of $1,438,422 for the same period in 1996,
representing a decrease of 6% in net income.  This decline is primarily due
to the legal fees incurred in connection with the class action lawsuit
(described in Item 1 of Part II of this Report).


                                    20
<PAGE>
         JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
                  (A Massachusetts Limited Partnership)

ITEM 2:  Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)

Results of Operations (continued)
- ---------------------
Average occupancy for the Partnership's investments was as follows:

                                                 Six Months Ended June 30,
                                                      1997      1996
                                                      ----      ----
       Palms of Carrollwood Shopping Center           78%       81%
       Quince Orchard Corporate Center
         (Affiliated Joint Venture)                  100%      100%
       Yokohama Tire Warehouse                       100%      100%
       Purina Mills Distribution Building            100%      100%
       Allmetal Distribution Building                100%      100%
       Stone Container Building                      100%      100%
       Business Center at Pureland                   100%      100%

General and administrative expenses for the six months ended June 30, 1997
increased by $74,025, or 66%, primarily due to legal fees incurred by the
Partnership in connection with the class action complaint (see Part II,
Item 1 of this Report).  Excluding such legal fees, general and
administrative expenses were consistent between periods.  At the present
time, the General Partner cannot estimate the aggregate legal fees and
indemnification claims to be incurred with respect to the class action
lawsuit and their impact on the Partnership's future operations.
Operations would, however, be materially adversely affected by a
significant increase in such legal fees and related indemnification costs.
If such increases were to occur, to the extent that cash from operations
and the working capital reserve would be insufficient to satisfy the cash
requirements of the Partnership, it is anticipated that additional funds
would be obtained through a reduction of cash distributions to Investors,
bank loans, short-term loans from the General Partner or its Affiliates, or
the sale or financing of Partnership properties.

Amortization of deferred expenses for the six months ended June 30, 1997
increased by $27,653, or 18%, as compared to the same period in 1996.  This
increase is primarily due to the amortization of leasing costs incurred at
the Business Center at Pureland and Stone Container properties during 1996
and leasing costs incurred at the Palms of Carrollwood property during 1996
and the first six months of 1997.

The General Partner believes that inflation has had no significant impact
on the Partnership's income from operations during the six months ended
June 30, 1997, and the General Partner anticipates that it will not have a
significant impact during the remainder of 1997.







                                    21
<PAGE>
         JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
                  (A Massachusetts Limited Partnership)

ITEM 2:  Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)

Cash Flow
- ---------
The following table provides the calculations of Cash from Operations and
Distributable Cash from Operations, which are calculated in accordance with
Section 17 of the Partnership Agreement:
<TABLE>
<CAPTION>
                                                           Six Months Ended June 30,
                                                               1997            1996
                                                               ----            ----
<S>                                                            <C>             <C>
  Net cash provided by operating
    activities (a)                                         $2,005,439     $2,370,675
  Net change in operating assets
    and liabilities (a)                                         6,430      (250,930)
                                                           ----------     ----------
  Net cash provided by operations (a)                       2,011,869      2,119,745
  Increase in working capital reserves                       (89,855)      (197,731)
                                                           ----------     ----------
  Cash from Operations (b)                                  1,922,014      1,922,014
  Decrease in working capital reserves                              -              -
                                                           ----------     ----------
  Distributable Cash from Operations (b)                   $1,922,014     $1,922,014
                                                           ==========     ==========
  
  Allocation to General Partner                               $96,101        $96,101
  Allocation to John Hancock Limited Partner                  135,253        135,253
  Allocation to Investors                                   1,690,660      1,690,660
                                                           ----------     ----------
                                                           $1,922,014     $1,922,014
                                                           ==========     ==========
  </TABLE>
  (a)   Net cash provided by operating activities, net change in
        operating assets and liabilities, and net cash provided by
        operations are as calculated in the Statements of Cash
        Flows included in Item 1 of this Report.
  
  (b)   As defined in the Partnership Agreement.  Distributable
        Cash from Operations should not be considered as an
        alternative to net income (i.e. not an indicator of
        performance) or to reflect cash flows or availability of
        discretionary funds.

During the third quarter of 1997, the Partnership will make a cash
distribution in the amount of $961,007 to the General Partner and Limited
Partners.  This amount is allocated 5% to the General Partner and 95% to
the Limited Partners, in accordance with the Partnership Agreement.  Of the
amount to be distributed to the Limited Partners, the Investors will
receive $845,330 and the John Hancock Limited Partner will receive $67,626.
Such amounts represent a 7% annualized return on Limited Partners' Invested
Capital.

                                    22
<PAGE>
         JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
                  (A Massachusetts Limited Partnership)

ITEM 2:  Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)

Cash Flow (continued)
- ---------

The source of future cash distributions is dependent upon cash generated by
the Partnership's properties and the use of working capital reserves.  The
General Partner currently anticipates that the Partnership's Distributable
Cash from Operations during each of the two remaining quarters of 1997 will
be comparable to that generated during the second quarter of 1997.










































                                    23
<PAGE>
         JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
                  (A Massachusetts Limited Partnership)

                       PART II:  OTHER INFORMATION

Item 1.   Legal Proceedings
       In February 1996, a putative class action complaint was filed in
       the Superior Court in Essex County, New Jersey by a single investor
       in a limited partnership affiliated with the Partnership.  The
       complaint named as defendants the Partnership, the General Partner,
       certain other affiliates of the General Partner, and certain
       unnamed officers, directors, employees and agents of the named
       defendants.
       
       The plaintiff sought unspecified damages stemming from alleged
       misrepresentations and omissions in the marketing and offering
       materials associated with the Partnership and two limited
       partnerships affiliated with the Partnership.  The complaint
       alleged, among other things, that the marketing materials for the
       Partnership and the affiliated limited partnerships did not contain
       adequate risk disclosures.
       
       On March 18, 1997, the court certified a class of investors who
       were original purchasers in the Partnership.  The certification
       order should not be construed as suggesting that any member of the
       class is entitled to recover, or will recover, any amount in the
       action.
       
       The General Partner believes the allegations are totally without
       merit and intends to vigorously contest the action.
       
       There are no other material pending legal proceedings, other than
       ordinary routine litigation incidental to the business of the
       Partnership, to which the Partnership is a party or to which any of
       its properties is subject.
       
Item 2.   Changes in Securities
       There were no changes in securities during the second quarter of
       1997.

Item 3.   Defaults Upon Senior Securities
       There were no defaults upon senior securities during the second
       quarter of 1997.

Item 4.   Submission of Matters to a Vote of Security Holders
       There were no matters submitted to a vote of security holders of
       the Partnership during the second quarter of 1997.
       
Item 5.   Other information
       

Item 6.   Exhibits and Reports on Form 8-K
       (a)   There are no exhibits to this Report.
       (b)   There were no Reports on Form 8-K filed during the second
             quarter of 1997.


                                    24
<PAGE>
         JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
                  (A Massachusetts Limited Partnership)


                                Signatures
                                ----------


Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 14th day of August, 1997.


                               John Hancock Realty Income Fund-III
                               Limited Partnership


                               By:  John Hancock Realty Equities, Inc.,
                                    General Partner



                                    By:  WILLIAM M. FITZGERALD
                                         --------------------------------
                                         William M. Fitzgerald, President



                                    By:  RICHARD E. FRANK
                                         --------------------------------
                                         Richard E. Frank, Treasurer
                                         (Chief Accounting Officer)








<TABLE> <S> <C>

<ARTICLE> 5
<CIK> 0000842741
<NAME> JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
       
<S>                             <C>
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                          DEC-31-1997
<PERIOD-END>                               JUN-30-1997
<CASH>                                       2,826,409
<SECURITIES>                                         0
<RECEIVABLES>                                  238,618
<ALLOWANCES>                                         0
<INVENTORY>                                          0
<CURRENT-ASSETS>                             3,081,079
<PP&E>                                      33,353,075
<DEPRECIATION>                               5,063,868
<TOTAL-ASSETS>                              40,398,148
<CURRENT-LIABILITIES>                          454,236
<BONDS>                                              0
                                0
                                          0
<COMMON>                                             0
<OTHER-SE>                                  39,943,912
<TOTAL-LIABILITY-AND-EQUITY>                40,398,148
<SALES>                                              0
<TOTAL-REVENUES>                             2,244,884
<CGS>                                                0
<TOTAL-COSTS>                                  298,181
<OTHER-EXPENSES>                               596,823
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                   0
<INCOME-PRETAX>                              1,349,880
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                          1,349,880
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                 1,349,880
<EPS-PRIMARY>                                     0.46
<EPS-DILUTED>                                     0.46
        

</TABLE>


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