<PAGE> 1
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
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 SEPTEMBER 30, 2000
-------------------------------------------------
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 FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
Yes X No
---- ----
<PAGE> 2
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 September 30, 2000 and
December 31, 1999 3
Statements of Operations for the Three and Nine
Months Ended September 30, 2000 and 1999 4
Statements of Partners' Equity for the
Nine Months Ended September 30, 2000 and
for the Year Ended December 31, 1999 5
Statements of Cash Flows for the Nine
Months Ended September 30, 2000 and 1999 6
Notes to Financial Statements 7-12
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-17
PART II: OTHER INFORMATION 18
2
<PAGE> 3
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
----------- -----------
<S> <C> <C>
Cash and cash equivalents $ 9,081,863 $ 2,899,090
Restricted cash 85,684 88,844
Other assets 106,200 110,669
Property held for sale 20,718,448 6,924,617
Investment in joint venture 130,000 6,760,170
Investment in property:
Land -- 6,355,135
Building and improvements 9,717,459
----------- -----------
-- 16,072,594
Less: accumulated depreciation 2,967,494
----------- -----------
13,105,100
Deferred expenses, net of accumulated
amortization of $56,824 in 2000
and $1,855,329 in 1999 96,056 761,854
----------- -----------
Total assets $30,218,251 $30,650,344
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Accounts payable and accrued expenses 387,314 $ 205,003
Accounts payable to affiliates 125,388 168,288
--------- -----------
Total liabilities 512,702 373,291
Partners' equity/(deficit):
General partner's (7,779) ( 67,086)
Limited partners' 29,713,328 30,344,139
---------- -----------
Total partners' equity 29,705,549 30,277,053
----------- -----------
Total liabilities and partners' equity $30,218,251 $30,650,344
=========== ===========
</TABLE>
See Notes to Financial Statements
3
<PAGE> 4
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
-------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Income:
Rental income $709,560 $ 832,823 $1,940,180 $2,277,523
Income/(loss) from joint venture (37,062) 212,302 446,124 637,905
Interest income 43,864 70,264 125,696 194,347
Gain/(loss) on sales of property interests (91,590) -- (91,590) 2,065,783
--------- ----------- ---------- ----------
Total income 624,772 1,115,389 2,420,410 5,175,558
Expenses:
Depreciation -- 152,292 80,540 466,968
General and administrative expenses 86,915 70,278 205,261 218,775
Amortization of deferred expenses 1,213 34,291 34,085 140,731
Property operating expenses 319,619 107,922 533,753 291,771
--------- ----------- ---------- ----------
Total expenses 407,747 364,783 853,639 1,118,245
--------- ----------- ---------- ----------
Net income $217,025 $ 750,606 $1,566,771 $4,057,313
======== ========== ========== ==========
Allocation of net income:
General Partner $ 17,812 $ 48,194 $ 96,333 $ 152,609
John Hancock Limited Partner -- 63,961 -- 175,617
Investors 199,213 638,451 1,470,438 3,729,087
-------- ----------- ---------- ----------
$217,025 $ 750,606 $1,566,771 $4,057,313
======== ========== ========== ==========
Net Income per Unit $ 0.08 $ 0.26 $ 0.61 $ 1.54
======== ========== ========== ==========
</TABLE>
See Notes to Financial Statements
4
<PAGE> 5
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' EQUITY
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
---------- ----------- ------------
<S> <C> <C> <C>
Partners' equity/(deficit) at January 1, 1999
(2,415,234 Units outstanding) $ (38,068) $39,219,654 $ 39,181,586
Less: Cash distributions (207,302) (13,068,321) (13,275,623)
Add: Net income 178,284 4,192,806 4,371,090
--------- ----------- ------------
Partners' equity/(deficit) at December 31, 1999
(2,415,234 Units outstanding) (67,086) 30,344,139 30,277,053
Less: Cash distributions (37,026) ( 2,101,249) ( 2,138,275)
Add: Net income 96,333 1,470,438 1,566,771
--------- ----------- ------------
Partners' equity/(deficit) at September 30, 2000
(2,415,234 Units outstanding) $ (7,779) $29,713,328 $ 29,705,549
========= =========== ============
</TABLE>
See Notes to Financial Statements
5
<PAGE> 6
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
---------- -----------
<S> <C> <C>
Operating activities:
Net income $1,566,771 $ 4,057,313
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 80,540 466,968
Amortization of deferred expenses 34,085 140,731
Cash distributions over equity
in income from joint venture 253,958 12,634
(Gain)/loss on sales of property interests 91,590 (2,065,783)
----------- ------------
2,026,944 2,611,863
Changes in operating assets and liabilities:
Decrease/(Increase) in restricted cash 3,160 (5,500)
Decrease/(increase) in other assets 4,469 107,058
Increase/(decrease) in accounts payable and
accrued expenses 182,311 26,425
Increase/(decrease) in accounts payable to affiliates (42,900) 67,814
------------ -------------
Net cash provided by operating activities 2,173,984 2,807,660
Investing activities:
Increase in deferred expenses (137,559) (66,522)
Proceeds from sales of property interests 6,284,623 7,026,439
----------- ------------
Net cash provided by investing activities 6,147,064 6,595,917
Financing activities:
Cash distributed to Partners (2,138,275) (12,009,346)
----------- -----------
Net cash used in financing activities (2,138,275) (12,009,346)
----------- -----------
Net increase/(decrease) in cash and cash equivalents 6,182,773 (2,241,769)
Cash and cash equivalents at beginning
of year 2,899,090 5,874,797
----------- -----------
Cash and cash equivalents at end
of period $9,081,863 $3,633,028
========== ==========
</TABLE>
See Notes to Financial Statements
6
<PAGE> 7
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 September 30, 2000, 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 2,202 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.
As initially stated in its Prospectus, it was expected that the
Partnership would be dissolved upon the sale of its last remaining
property, which at that time was expected to be within seven to ten
years following the date such property was acquired by the Partnership.
As of September 30, 2000, the Partnership has three properties
remaining in its portfolio, all of which are listed for sale. Upon the
sale of the last remaining property, the operations of the Partnership
will terminate, and the Partnership will be dissolved, in accordance
with the terms of the Partnership Agreement, as soon as reasonably
practicable.
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 nine-month period ended September 30, 2000
are not necessarily indicative of the results that may be expected for
the year ending December 31, 2000. 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, 1999.
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.
7
<PAGE> 8
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Property held for sale is recorded at the lower of its carrying amount,
at the time the property is listed for sale, or its fair value, less
cost to sell. Carrying amount includes the property's cost, as
described below, less accumulated depreciation thereon and less any
property write-downs for impairment in value and plus any related
unamortized deferred expenses. Operating results for properties held
for sale are reported on the statement of operations along with the
operations of other investments in property.
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.
The Partnership measures impairment in value in accordance with
Financial Accounting Standards Board Statement No. 121, "Accounting for
the Impairment of Long-Lived Assets to Be Disposed Of" ("Statement
121"). Statement 121 requires impairment losses to be recorded on
long-lived assets used in operations where indicators of impairment are
present and the undiscounted cash flows estimated to be generated by
those assets are less than the assets' carrying amounts.
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.
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 nine months ended September 30, 2000
and 1999 was calculated by dividing the Investors' share of net income
by the number of Units outstanding at the end of such periods.
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.
8
<PAGE> 9
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 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.
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.
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 nine months ended September 30,
2000 and 1999, and to which the General Partner or its Affiliates are
entitled to reimbursement from the Partnership were $101,972 and
$98,208, 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 10.
Accordingly, included in the Statement of Operations for the nine
months ended September 30, 2000 and 1999 are $0 and $23,744,
respectively, representing the Partnership's share of costs incurred by
the General Partner and its Affiliates relating to the class action
complaint. Through September 30, 2000, the Partnership has accrued a
total of $210,098 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.
9
<PAGE> 10
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:
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
Palms of Carrollwood Shopping Center $ -- $10,930,578
Business Center at Pureland -- 5,142,016
---------- -----------
-- 16,072,594
Accumulated Depreciation -- (2,967,494)
---------- -----------
$ -- $13,105,100
========== ===========
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. PROPERTY HELD FOR SALE
During the first quarter of 2000, the Pureland Business Center and the
Palms of Carrollwood Shopping Center were listed for sale and during
December 1999, the Yokohama Tire Warehouse was listed for sale.
Accordingly, these properties are classified as "Property Held for
Sale" on the Balance Sheet at September 30, 2000 at their carrying
values, which are not in excess of their estimated fair values, less
selling costs.
Property held for sale consists of commercial real estate as follows:
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
Yokohama Tire Warehouse $ 6,924,617 $6,924,617
Palms of Carrollwood Shopping Center 9,743,019 --
Business Center at Pureland 4,050,812 --
----------- ----------
$20,718,448 $6,924,617
=========== ==========
On November 6, 2000, the Partnership sold the Yokohama Tire Warehouse
and received net proceeds of approximately $9,085,000, resulting in a
net gain of approximately $2,160,000, representing the difference
between the net sales price and the property's carrying value.
On November 10, 2000, the Partnership sold the Palms of Carrollwood
Shopping Center and received net proceeds of approximately $11,926,000.
This transaction resulted in a net gain of approximately $1,749,000,
representing the difference between the net sales price and the
property's carrying value of approximately $10,177,000.
7. 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.
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.
10
<PAGE> 11
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
7. INVESTMENT IN JOINT VENTURE (CONTINUED)
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 September 30, 2000, 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 1999, 1998,
1997 and 1996, the partners received returns on invested capital of
approximately 12%.
Income and gains of QOCC-1 Associates, other than the gains allocated
arising from a sale 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.
On September 29, 2000, QOCC-1 Associates sold the Quince Orchard
Corporate Center to a non-affiliated buyer for a total net sales price
of $12,569,246 after deductions for commissions and selling expenses
incurred in connection with the sale of the property. $6,284,623,
representing fifty percent of the net proceeds of the sale, was
distributed to the Partnership and fifty percent was distributed to
Income Fund-II. This transaction resulted in a non-recurring loss of
$91,950 to the Partnership, representing the difference between the net
sales price and the carrying value of the investment of $6,376,213.
8. DEFERRED EXPENSES
Deferred expenses consist of the following:
<TABLE>
<CAPTION>
Unamortized Unamortized
Balance At Balance At
Description September 30, 2000 December 31, 1999
----------- ------------------ -----------------
<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. $96,056 $ 99,696
Tenant improvements were amortized over the terms of the leases to
which they relate. As of September 30, 2000, the General partner had
listed its three investments in property for sale. Accordingly, the
unamortized balance is included
in carrying cost of "Properties held for sale". -- 476,432
Lease Commissions were amortized over the terms of the leases to which
they relate. As of September 30, 2000, the General Partner had listed
its three investments in property for sale. Accordingly, the
unamortized balance is included in carrying cost of "Properties held
for sale".
-- 185,726
------- --------
$96,056 $761,854
======= ========
</TABLE>
11
<PAGE> 12
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
9. 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>
Nine Months Ended September 30,
2000 1999
---------- ----------
<S> <C> <C>
Net income per Statements of Operations $1,566,771 $4,057,313
Add/(less): Excess of tax gain over book
gain on disposition of assets -- 180,722
Excess of book depreciation
over tax depreciation (401,445) 32,693
Excess of book amortization
over tax amortization 7,548 125,918
---------- ----------
Net income for federal income tax purposes $1,172,874 $4,396,646
========== ==========
</TABLE>
10. 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.
A settlement agreement was approved by the court on December 22, 1999.
Under the terms of the settlement, the defendants guaranteed certain
minimum returns to class members on their investments and have paid
fees and expenses for class counsel in an amount determined by the
court to be $1.5 million. Payment under the settlement agreement will
have no financial impact on 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 $532,173 in
legal expenses in connection with this matter. Of this amount,
approximately $322,075 relates to the Partnership's own defense and
approximately 210,098 relates to indemnification of the General Partner
and its affiliates for their defense. These expenses are funded from
the operations of the Partnership.
12
<PAGE> 13
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, 6
and 7 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, unanticipated leasing costs, repair and maintenance expenses,
litigation expenses and indemnification claims, 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.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Partnership had $9,081,863 in cash and cash
equivalents and $85,684 in restricted cash.
The Partnership has a working capital reserve with a current balance of
approximately $2,500,000. 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 nine months ended September 30, 2000, cash from working capital
reserves in the aggregate amount of $137,559 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 a total of approximately $700,000 of additional leasing costs during
the remainder of 2000 at Palms of Carrollwood and the Business Center at
Pureland. The General Partner anticipates that the current balance in the
working capital reserve should be sufficient to pay such leasing costs.
13
<PAGE> 14
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)
During the nine months ended September 30, 2000, approximately $324,049 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
Business Center at Pureland properties. The General Partner anticipates that the
Partnership will incur additional non-recurring repair and maintenance expenses
of approximately $204,000 at its properties during the remainder of 2000. These
expenses will be funded from the operations of the Partnership's properties and
may reduce the amount of cash available for distribution during 2000.
Cash in the amount of $2,138,275, generated from the Partnership's operations,
was distributed to the General Partner, the John Hancock Limited Partner and the
Investors during the nine months ended September 30, 2000. These amounts were
distributed in accordance with the Partnership Agreement and were allocated as
follows:
Dist. Cash
From Operations
---------------
Investors $2,101,249
John Hancock Limited Partner -
General Partner 37,026
----------
Total $2,138,275
==========
The Partnership has incurred approximately $532,173 in legal expenses in
connection with the class action lawsuit (see Part II, Item 1 of this Report).
Of this amount, approximately $322,075 relates to the Partnership's own defense
and approximately $210,098 relates to indemnification of the General Partner and
its Affiliates for their defense. These expenses are funded from the operations
of the Partnership.
At September 30, 2000, Palms of Carrollwood was 92% occupied. During the
remainder of 2000, no significant leases are scheduled to expire. The General
Partner has secured a lease with a 24,000 square foot tenant for a start date of
October 1, 2000. During the second quarter another tenant representing 10,000
square feet with a lease expiring in January 2005 announced its intention to
close its store at the property. The General Partner negotiated a termination
payment of approximately $97,000 that was received during the quarter. Given the
current status of the property and due to the existing favorable market
conditions in the Carrollwood, Hillsborough County, Florida area, the property
was listed for sale during March 2000.
During the quarter, the General Partner entered into a purchase and sale
agreement on behalf of the Partnership for the sale of the Palms of Carrollwood
to a non-affiliated buyer for a gross sales price of $12,300,000. On November
10, 2000, the Partnership sold the Palms of Carrollwood Shopping Center and
received net proceeds of approximately $11,926,000. This transaction generated a
net gain of approximately $1,749,000, representing the difference between the
net sales price and the property's carrying value of approximately $10,177,000.
One of the tenants at the Business Center at Pureland, National Polystyrene
Recycling Co., L.P., ("NPRC") ceased operations and vacated its space during the
fourth quarter of 1997. A replacement tenant was located to occupy this space
during the third quarter of 1998. NPRC's lease obligations were terminated as of
September 30, 1998 in consideration of NPRC paying a lease buyout fee of
approximately $230,000. The new tenant's lease obligations commended October 1,
1998 for a 32-month term. The other tenant at the Business Center at Pureland,
Forbo Wallcoverings, Inc. ("Forbo"), had a lease that was scheduled to expire on
December 31, 1998. However, Forbo requested and the General Partner agreed to
extend the term of the lease through March 31, 1999, and subsequently, Forbo has
vacated. The Bridgeport, New Jersey real estate market currently has a
relatively high amount of vacant space. In addition, there is a significant
amount of land available for development. The General Partner anticipates
continued competitive market conditions during 2000 and, therefore will offer
competitive rental rates and concessions in an effort to lease the available
space at the property. At September 30, 2000 Business Center at Pureland was 50%
occupied. Given the current status of the property and the existing supply and
demand conditions in the Bridgeport area, the General partner listed the
Business Center at Pureland for sale during first quarter of 2000.
14
<PAGE> 15
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)
The Quince Orchard Corporate Center was occupied by Boehringer Mannheim
Pharmaceuticals, Inc. under a ten-year lease which expired in February 2004. The
tenant had two options under the lease agreement, one, to terminate the lease at
the end of its seventy-sixth month of the lease, or June 2000, and, two, to
extend the term of the lease for an additional five- year period. During the
first quarter of 1998, Hoffman-LaRoche, Inc. received approval from the Federal
Trade Commission to acquire Boehringer Mannheim Pharmaceuticals, Inc.
Subsequently Hoffman-LaRoche vacated and subleased the space. Hoffman-LaRoche
informed the General Partner that it intended to exercise its right to terminate
the lease in June 2000. The subtenant has subsequently vacated the space.
Real estate conditions in the Washington D.C. area for office space similar to
the Quince Orchard Corporate Center have continued to improve. The supply of
such office space has been unable to keep pace with the demand, resulting in a
slight increase in market rents. Further this condition has given rise to new
real estate development in the area. The General Partner does not anticipate
that this new development will negatively impact the market and, therefore,
expects market conditions remain favorable through 2000.
During the second quarter, the General Partner received unsolicited offers to
purchase the property. On September 29, 2000, QOCC-1 Associates sold the Quince
Orchard Corporate Center to a non-affiliated buyer for a total net sales price
of $12,569,246 after deductions for commissions and selling expenses incurred in
connection with the sale of the property. $6,284,623, representing fifty percent
of the net proceeds of the sale, was distributed to the Partnership and fifty
percent was distributed to Income Fund-II. This transaction resulted in a
non-recurring loss of $91,950 to the Partnership, representing the difference
between the net sales price and the carrying value of the investment of
$6,376,213.
The Yokohama Tire Warehouse is 100% leased to the Yokohama Tire Corporation
under a lease that expires on March 31, 2006. Under the terms of the lease
agreement, the Yokohama Tire Corporation has one remaining option to purchase
the property on April 1, 2001 for $10,578,173. In addition the tenant has the
option to expand the square footage of the facility up to 220,000 square feet at
any time during the term of the lease. In consideration of the property's strong
leasing position and due to the existing favorable market conditions in the
Louisville Kentucky area, the Yokohama Warehouse was listed for sale by the
General Partner during December 1999. On November 6, 2000, the Partnership sold
the Yokohama Tire Warehouse to non-affiliated buyer for a gross sales price of
$9,300,000. After deductions for commissions and selling expenses, the sale
generated net proceeds of approximately $9,085,000 resulting in a gain of
approximately $2,160,000, representing the difference between the net sales
price and the property's carrying value of $6,925,000.
The General Partner evaluated the carrying value of each of the Partnership's
properties and its joint venture investment as of December 31, 1999 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 an
impairment in value existed. Based upon such evaluations, the General Partner
determined that no impairment in values existed and, therefore, no write-downs
were recorded as of December 31, 1999.
The General Partner will continue to conduct property valuations, using internal
or independent appraisals, in order to determine whether an impairment in value
exists on any of the Partnership's properties.
RESULTS OF OPERATIONS
Net income for the nine months ended September 30, 2000 was $1,566,771, as
compared to net income of $4,057,313 for the same period in 1999. The prior
period results include a non-recurring gain of $2,065,783 from the sales of the
Allmetal and Purina Mills Distribution Buildings during the period. The current
period results include a non-recurring loss of $91,590 from QOCC-1 Associate's
sale of Quince Orchard Corporate Center. Excluding these amounts, net income for
the period ended September 30, 2000 decreased by $333,169, or 17%, as compared
to the prior year. Although rental income and interest income decreased between
periods, this was somewhat offset by a reduction in depreciation and
amortization expenses. Income from joint venture was lower in the current period
and property operating expenses were higher than in the prior period due to the
sales of the Allmetal Distribution Building and the Purina Mills Distribution
Building.
15
<PAGE> 16
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:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999
---- ----
<S> <C> <C>
Palms of Carrollwood Shopping Center 87% 84%
Quince Orchard Corporate Center (Affiliated Joint Venture) 67% 100%
Yokohama Tire Warehouse 100% 100%
Business Center at Pureland 50% 67%
</TABLE>
Rental income for the period ended September 30, 2000 decreased by $337,343, or
15%, as compared to the same period during 1999 primarily due to the sales of
the Allmetal and Purina Mills Distribution Buildings. Rental income at the Palms
of Carrollwood Shopping Center improved in the current period due to higher
average occupancy compared to the prior period. This was offset by lower rental
income at Business Center at Pureland due to lower occupancy in the current
period and to the sales mentioned previously.
Income from joint venture for the period ended September 30, 2000 decreased by
$191,781, or 30%, as compared to the same period during 1999 primarily due to
the termination of the lease, as of June 30, 2000 with the tenant that leased
100% of the building.
Interest income for the nine months ended September 30, 2000 decreased by
$68,741, or 35%, as compared to the same period in 1999. This decrease was
primarily due to the inclusion of net proceeds from the sales of the Allmetal
and Purina Mills Distribution Buildings in cash available for investment during
the prior period from the time of the sales until the next distribution date to
Investors.
Property operating expenses for the period ended September 30, 2000 increased by
$241,982, or 83%, as compared to the same period during 1999. This increase is
primarily due to certain non-recurring maintenance and repair expenses incurred
at the Palms of Carrollwood Shopping Center during the current period which were
somewhat offset by lower expenses due to the sales of the Allmetal and Purina
Mills Distribution Buildings.
Depreciation expense for the period ended September 30, 2000 decreased by
$386,428 or 83%, as compared to the same period during 1999, primarily due to
the reclassification of the Yokohama Tire Warehouse in December 1999 and the
Business Center at Pureland and Palms of Carrollwood Shopping Center during the
first quarter of 2000 as "Property Held for Sale." Accordingly, no depreciation
has been recorded on these properties since the time that they were listed for
sale.
Amortization expense for the period ended September 30, 2000 decreased by
$106,646, or 76%, as compared to the same period during 1999 primarily due to
the sales and reclassifications of properties as reported above and accordingly
no longer amortizing such amounts for these properties. Also, the acquisition
fees paid to the General Partner were fully amortized at March 31, 1999 and,
accordingly, no amortization expense has been recorded since that time.
General and administrative expenses for the period ended September 30, 2000
decreased by $13,514, or 6%, as compared to the same period in 1999, primarily
due to a decrease in 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.
The General Partner believes that inflation has had no significant impact on the
Partnership's income from operations during the nine months ended September 30,
2000, and the General Partner anticipates that it will not have a significant
impact during the remainder of 2000.
16
<PAGE> 17
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>
Nine Months Ended September 30,
2000 1999
---------- ----------
<S> <C> <C>
Net cash provided by operating activities (a) $2,173,984 $2,807,660
Net change in operating assets and liabilities (a) (147,040) (195,797)
---------- ----------
Net cash provided by operations (a) 2,026,944 2,611,863
Increase in working capital reserves -- --
---------- ----------
Cash from operations (b) 2,026,944 2,611,863
Decrease in working capital reserves 184,897 24,039
---------- ----------
Distributable cash from operations (b) $2,211,841 $2,635,902
========== ==========
Allocation to General Partner $ 110,592 $ 131,795
Allocation to John Hancock Limited Partner -- 185,489
Allocation to Investors 2,101,249 2,318,618
---------- ----------
$2,211,841 $2,635,902
========== ==========
</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 fourth quarter of 2000, the Partnership will make a cash distribution
in the amount of $16,022,782 to the General Partner and Limited Partners. Of
this amount, $737,281 is generated from Distributable Cash from Operations for
the quarter ended September 30, 2000 and is allocated 5% to the General Partner
and 95% to the Limited Partners, in accordance with the Partnership Agreement.
The remainder of the amount is generated from Distributable Cash from Sales and
includes net proceeds from the Partnership's share of QOCC-1 Associate's sale of
Quince Orchard Corporate Center on September 29, 2000 and the sale of the
Yokohama Tire Warehouse on November 6, 2000. These amounts will be distributed
in accordance with the Partnership Agreement and will be allocated as follows:
Dist. Cash Dist. Cash
From Operations From Sale
--------------- -----------
Investors $700,417 $14,153,242
John Hancock Limited Partner -- 1,132,259
General Partner 36,864 --
-------- -----------
$737,281 $15,285,501
======== ===========
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 the fourth quarter of 2000 will be reduced by the effect of
the sales that have taken place during 2000. A cash distribution generated from
Distributable Cash from Sales resulting from the sale of the Palms of
Carrollwood Shopping Center on November 10, 2000 will be made during December
2000.
17
<PAGE> 18
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.
A settlement agreement was approved by the court on December 22,
1999. Under the terms of the settlement, the defendants have
guaranteed certain minimum returns to class members on their
investments and paid fees and expenses to class counsel in an
amount determined by the court to be $1.5 million. These terms of
the settlement will have no financial impact on the Partnership.
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 third quarter of
2000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There were no defaults upon senior securities during the third
quarter of 2000.
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 third quarter of 2000.
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 third
quarter of 2000.
18
<PAGE> 19
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 November, 2000.
John Hancock Realty Income Fund-III
Limited Partnership
By: John Hancock Realty Equities, Inc.,
General Partner
By: /s/ John M. Garrison
----------------------------------------
John M. Garrison, President
By: /s/ Virginia H. Lomasney
---------------------------------------
Virginia H. Lomasney, Treasurer
(Chief Accounting Officer)
19
