<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED December 31, 1999
-------------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (800) 722-5457
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Assignee Units
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
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [X]
STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF
THE REGISTRANT. THE AGGREGATE MARKET VALUE SHALL BE COMPUTED BY REFERENCE TO THE
PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE BID AND ASKED PRICES OF SUCH
STOCK, AS OF A SPECIFIED DATE WITHIN 60 DAYS PRIOR TO THE DATE OF FILING. (SEE
DEFINITION OF AFFILIATE IN RULE 405.) Not applicable, since the securities are
non-voting
NOTE: IF A DETERMINATION AS TO WHETHER A PARTICULAR PERSON OR ENTITY IS AN
AFFILIATE CANNOT BE MADE WITHOUT INVOLVING UNREASONABLE EFFORT AND EXPENSE, THE
AGGREGATE MARKET VALUE OF THE COMMON STOCK HELD BY NON-AFFILIATES MAY BE
CALCULATED ON THE BASIS OF ASSUMPTIONS REASONABLE UNDER THE CIRCUMSTANCES,
PROVIDED THAT THE ASSUMPTIONS ARE SET FORTH IN THIS FORM.
Exhibit Index on Pages 21 - 25
Page 1 of 26
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I
Item 1 Business 3
Item 2 Properties 5
Item 3 Legal Proceedings 7
Item 4 Submission of Matters to a Vote
of Security Holders 7
PART II
Item 5 Market for the Partnership's Securities and Related
Security Holder Matters 8
Item 6 Selected Financial Data 9
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 8 Financial Statements and Supplementary Data 15
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 16
PART III
Item 10 Directors and Executive Officers of the Registrant 16
Item 11 Executive Compensation 18
Item 12 Security Ownership of Certain Beneficial Owners
and Management 18
Item 13 Certain Relationships and Related Transactions 18
PART IV
Item 14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 21
Signatures 26
</TABLE>
2
<PAGE> 3
PART I
ITEM 1 - BUSINESS
The Registrant, John Hancock Realty Income Fund-III Limited Partnership (the
"Partnership"), is a Limited Partnership organized on November 4, 1988 under the
Massachusetts Uniform Limited Partnership Act. As of December 31, 1999, the
partners in the Partnership consisted of a General Partner, John Hancock Realty
Equities, Inc. (the "General Partner"), John Hancock Realty Funding, Inc. (the
"John Hancock Limited Partner"), John Hancock Income Fund-III Assignor, Inc.
(the "Assignor Limited Partner") and 2,226 Unitholders (the "Investors"). The
Assignor Limited Partner holds 5 Limited Partnership Interests for its own
account and 2,415,229 Assignee Units (the "Units") 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 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. During the offering period, the John
Hancock Limited Partner made additional capital contributions of $3,863,366. The
Amended Agreement of Limited Partnership of the Partnership (the "Partnership
Agreement") authorized the sale of up to 5,000,000 Assignee Units, representing
economic and certain other rights attributable to Investor Limited Partnership
Interests.
The Units were offered and sold to the public during the period from February
17, 1989 to February 15, 1991 pursuant to a Registration Statement on Form S-11
under the Securities Act of 1933. The Partnership sold the Units for $20 per
Unit. No established public market exists on which the Units may be traded.
The Partnership is engaged solely in the business of acquiring, improving,
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 on its properties 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.
The Partnership's equity real estate investments are subject to various risk
factors. Although the risks of equity investing are reduced when properties are
acquired on an unleveraged basis, the major risk of owning income-producing
properties is the possibility that the properties will not generate income
sufficient to meet operating expenses and to fund adequate reserves for repair,
replacements, contingencies and anticipated obligations. The income from
properties may be affected by many factors, including: i) adverse changes in
general economic conditions and local conditions, such as competitive
overbuilding, a decrease in employment, or adverse changes in real estate zoning
laws, which may reduce the desirability of real estate in the area or ii) other
circumstances over which the Partnership may have little or no control, such as
fires, earthquakes and floods. To the extent that the Partnership's properties
are leased in any substantial portion to a specific retail, industrial or office
tenant, the financial failure of any such major tenant, resulting in the
termination of the tenant's lease or non-payment of rentals due, would likely
cause at least a temporary reduction in cash flow from any such property and
might result in a decrease in the market value of that property.
Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real property may become liable for the costs of removal or
remediation of certain hazardous substances released on or in its property. Such
laws often impose such liability without regard to whether the owner or operator
knew of, or was responsible for, the release of such hazardous substances. If
any such substances were found in or on any property owned by the Partnership,
the Partnership could be exposed to liability and be required to incur
substantial remediation costs. The presence of such substances or the failure to
undertake proper remediation could adversely affect the ability to finance,
refinance or dispose of such property.
On December 28, 1988, the Partnership acquired 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"). Pursuant to the terms of 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. The Partnership has since held a 50% interest in the
Affiliated Joint Venture.
3
<PAGE> 4
ITEM 1 - BUSINESS (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 a three-story office building and
related land and improvements located in Gaithersburg, Maryland (the "Quince
Orchard Corporate Center"). The partnership agreement of QOCC-1 Associates
provides that the Affiliated Joint Venture shall contribute 95% of any required
additional capital contributions. Of the cumulative total invested capital in
QOCC-1 Associates at December 31, 1999, 97.55% has been contributed by the
Affiliated Joint Venture. The Affiliated Joint Venture continues to hold a 75%
interest in QOCC-1 Associates.
The Quince Orchard Corporate Center is leased to Boehringer Mannheim
Pharmaceuticals, Inc. under a ten-year lease that expires in February 2004. The
tenant has 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 100% of the space.
Hoffman-LaRoche has informed the General Partner that it intends to exercise its
right to terminate the lease in June 2000.
Real estate conditions in the Washington D.C. area for office space similar to
the Quince Orchard Corporate Center continue 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
development in the area. The General Partner does not anticipate that this new
development will negatively impact the market and, therefore, expects market
conditions to remain favorable through 2000. The General Partner is actively
marketing the property and is offering competitive leasing packages in an effort
to secure prospective tenants for the building.
On December 28, 1989, the Partnership acquired the Palms of Carrollwood Shopping
Center, a neighborhood shopping center located in Tampa, Florida. Although real
estate market conditions for retail properties in the market in which the Palms
of Carrollwood Shopping Center is located have declined since the Partnership
acquired the property, occupancy levels and rental rates have stabilized during
recent years. However, market conditions remain competitive due to the new
construction of retail space. The General Partner anticipates that retail market
conditions will remain competitive during 2000 and, therefore, will continue to
offer competitive leasing packages in order to attract new tenants as well as
retain existing tenants at the property.
On July 17, 1991, the Partnership acquired Yokohama Tire Warehouse located in
Louisville, Kentucky. The Property 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 had options to purchase the
property for $10,228,173 on April 1, 1996, and $10,478,173 on April 1, 1999 but
did not choose to exercise such options. Yokohama Tire Corporation has an
additional option to purchase the property for $10,578,173 on April 1, 2001. In
addition, the Yokohama Tire Corporation has the option, exercisable at any time
during the term of the lease, to expand the square footage of the facility by
any area of up to 220,000 square feet. In consideration of the property's strong
leasing position and due to the existing favorable market conditions in the
Louisville, Kentucky area, the General Partner listed the Yokohama Tire
Warehouse for sale during December 1999.
On December 27, 1991, the Partnership acquired the Purina Mills Distribution
Building located in St. Louis, Missouri. Due to the then existing favorable real
estate market conditions in the St. Louis, Missouri area, the General Partner
listed the property for sale during January 1999. On May 24, 1999, the
Partnership sold the Purina Mills Distribution Building to a non-affiliated
buyer and received net sales proceeds of $4,946,400. During August 1999 the
Partnership distributed $4,434,360 of the net proceeds of which $4,105,889 was
distributed to the Investors and $328,471 was distributed to the John Hancock
Limited Partner. The Partnership retained $512,040 in working capital reserves.
On March 6, 1992, the Partnership acquired the Allmetal Distribution Building
located in Carrollton, Texas. During the third quarter of 1997, Allmetal, Inc.,
the sole tenant at the Allmetal Distribution Building, extended the term of its
lease through August 2008. As a result of this lease extension and the existing
favorable conditions of the Carrollton, Texas real estate market, the General
Partner listed the Allmetal Distribution Building for sale during June 1998.
4
<PAGE> 5
ITEM 1 - BUSINESS (CONTINUED)
The General Partner entered into a Purchase and Sale Agreement on behalf of the
Partnership on February 5, 1999 for the sale of the Allmetal Distribution
Building to a non-affiliated buyer for a gross sales price of $2,180,000. On
February 25, 1999, the Partnership sold the Allmetal Distribution Building to
such non-affiliated buyer and received net sales proceeds of $2,080,039. During
May 1999 the Partnership distributed $2,060,673 of the net sales proceeds of
which $1,908,031 was distributed to the Investors and $152,642 was distributed
to the John Hancock Limited Partner. The Partnership retained $19,366 in working
capital reserves.
On March 16, 1992, the Partnership acquired the Stone Container Building located
in Cincinnati, Ohio. During June 1998, the General Partner listed the Stone
Container Building for sale because of the sole tenant at the property's
long-term lease on the property and the existing favorable conditions in the
Cincinnati real estate market. On December 29, 1998, the Partnership sold the
Stone Container Building to a non-affiliated buyer and received net sales
proceeds of $2,645,995. On February 12, 1999, the Partnership distributed
$2,634,532 of the net sales proceeds, of which $2,439,381 was distributed to the
Investors and $195,191 was distributed to the John Hancock Limited Partner. The
Partnership retained $11,463 in working capital reserves.
On March 27, 1992, the Partnership acquired the Business Center at Pureland
located in Bridgeport, New Jersey. The property contains two buildings of
approximately 60,000 square feet each and each of which was 100% occupied by a
single tenant. 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
commenced 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, the tenant requested, and the
General Partner agreed, to extend the term of the lease through March 31, 1999.
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 that market conditions will remain competitive during 2000 and,
therefore, will offer competitive rental rates and concessions in an effort to
lease the available space at the property.
Within the power accorded to the General Partner under the terms of the
Partnership Agreement, the General Partner contracted, effective as of January
1, 1992, with Hancock Realty Investors Incorporated ("HRI"), a wholly-owned,
indirect subsidiary of John Hancock Mutual Life Insurance Company ("John
Hancock"), to assist the General Partner in the performance of its management
duties as enumerated in the Partnership Agreement. Effective May 28, 1993, HRI
subcontracted with John Hancock to assist HRI in the performance of its duties
as enumerated in the January 1, 1992 contract. The Partnership has not incurred
any additional costs or expenses as a result of these agreements. The General
Partner is further described in Item 10 of this Report.
Industry segment information has not been provided since the Partnership is
engaged in only one industry segment.
ITEM 2 - PROPERTIES
As of December 31, 1999 the Partnership held the following investments in its
portfolio:
JH QUINCE ORCHARD PARTNERS
On December 28, 1988, the Partnership acquired 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. The
Partnership has since held a 50% interest in the Affiliated Joint Venture.
5
<PAGE> 6
ITEM 2 - PROPERTIES (CONTINUED)
JH QUINCE ORCHARD PARTNERS (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 that 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 shall contribute 95% of any required
additional capital contributions. Of the cumulative total invested capital in
QOCC-1 Associates at December 31, 1999, 97.55% has been contributed by the
Affiliated Joint Venture. The Affiliated Joint Venture continues to hold a 75%
interest in QOCC-1 Associates.
The average occupancy for the Quince Orchard Corporate Center for the year ended
December 31, 1999 was 100%. The current tenant has exercised its right to
terminate the lease in June 2000.
PALMS OF CARROLLWOOD
On December 28, 1989, the Partnership acquired the Palms of Carrollwood Shopping
Center, located in Tampa, Florida, from a non-affiliated seller. The property
contains approximately 161,000 rentable square feet, including approximately
10,000 square feet of office space, situated on a 15 acre site.
For the year ended December 31, 1999 the average occupancy for the Palms of
Carrollwood Shopping Center was 84%. At December 31, 1999 the property's
occupancy was 87%
YOKOHAMA TIRE WAREHOUSE
On July 17, 1991, the Partnership acquired the Yokohama Tire Warehouse, located
in Louisville, Kentucky, from a non-affiliated seller. The property is situated
on 24 acres of land and contains an aggregate of 309,791 rentable square feet,
of which 297,391 square feet is warehouse space and 12,400 square feet is office
space.
The warehouse is 100% leased to the Yokohama Tire Corporation under a lease
which expires on March 31, 2006. Under the terms of the lease agreement, the
Yokohama Tire Corporation had options to purchase the property for $10,228,173
on April 1, 1996 and for $10,478,173 on April 1, 1999, but did not choose to
exercise such options. Yokohama Tire Corporation has an additional option to
purchase the property for $10,578,173 on April 1, 2001. In addition, the
Yokohama Tire Corporation has the option, exercisable at any time during the
term of the lease, to expand the square footage of the facility by any area of
up to 220,000 square feet.
BUSINESS CENTER AT PURELAND
On March 27, 1992, the Partnership acquired the Business Center at Pureland
located in Bridgeport, New Jersey, from a non-affiliated seller. The property is
situated on 10.5 acres of land and contains two buildings consisting of an
aggregate of 119,651 rentable square feet of warehouse space.
One building (consisting of 60,535 sq. ft.) is currently vacant. The second
building (consisting of 59,116 sq. ft.) is 100% leased to National Paintball
Supply, Inc. through May 31, 2001.
The foregoing investments of the Partnership are further described in Item 7 of
this Report and Notes 5 and 6 to the Financial Statements included in Item 8 of
this Report.
6
<PAGE> 7
ITEM 3 - 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 Partnership and the other defendants answered the complaint, denying the
material allegations and raising numerous affirmative defenses. Discovery was
conducted, and the Partnership and other defendants have produced documents
relating to the plaintiff's claims. The court ruled on statute of limitations
defenses as to certain claims and ordered a hearing as to statute of limitations
defenses as to other claims. The parties commenced settlement discussions, which
resulted in a settlement agreement that was preliminary approved by the court on
November 10, 1999 and finally 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.
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 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 fourth quarter of 1999.
7
<PAGE> 8
PART II
ITEM 5 - MARKET FOR THE PARTNERSHIP'S SECURITIES AND RELATED SECURITY HOLDER
MATTERS
(a) MARKET INFORMATION
The Partnership's outstanding securities consist of 2,415,229 Units originally
sold for $20 per Unit. The Units were offered and sold to the public during the
period from February 17, 1989 to February 15, 1991. No established public market
exists on which the Units may be traded. Consequently, holders of Units may not
be able to liquidate their investments in the event of an emergency, or for any
other reason. Additionally, the assignment or other transfer of Units would be
subject to compliance with the minimum investment and suitability standards
imposed by the Partnership and by applicable law, including state "Blue Sky"
laws.
(b) NUMBER OF SECURITY HOLDERS
<TABLE>
<CAPTION>
Number of Number of Units
record holders as of outstanding as of
Title of Class December 31, 1999 December 31, 1999
-------------- ----------------- -----------------
<S> <C> <C>
Assignee Units 2,226 2,415,229
</TABLE>
(c) DIVIDEND HISTORY AND RESTRICTIONS
During the fiscal years ended December 31, 1999 and 1998, the Partnership
distributed cash in the aggregate amounts of $13,275,623 and $3,844,028,
respectively, from Distributable Cash from Operations and Distributable Cash
from Sales, Financings or Repayments (as defined in the Partnership Agreement).
These amounts were allocated 5% to the General Partner and 95% to the Investors
and the John Hancock Limited Partner, in accordance with the terms of the
Partnership Agreement. The following table reflects cash distributions made
during the two year period ended December 31, 1999:
<TABLE>
<CAPTION>
Amount Paid
Date of Amount of Amount Paid to to John Hancock Amount Paid Distribution
Distribution Distribution General Partner Limited Partner to Investors Per Unit
------------ ------------ --------------- --------------- ------------ --------
<S> <C> <C> <C> <C> <C>
February 13, 1998 $ 961,007 $48,050 $ 67,627 $ 845,330 $0.35
May 15, 1998 961,007 48,050 67,627 845,330 0.35
August 14, 1998 961,007 48,051 67,626 845,330 0.35
November 13, 1998 961,007 48,050 67,627 845,330 0.35
February 12, 1999 * 4,144,685 75,507 301,421 3,767,757 1.56
May 14, 1999 * 2,994,222 46,677 218,336 2,729,209 1.13
August 13, 1999 * 5,312,996 43,932 390,302 4,878,762 2.02
November 15, 1999 823,720 41,186 57,965 724,569 0.30
</TABLE>
*includes Distributable Cash from Sales, Financings or Repayments.
The source of future distributions from Cash from Operations is dependent upon
cash generated by the Partnership's investments and the use of working capital
reserves for leasing costs and capital expenditures. Distributions of Cash from
Operations (defined in the Partnership Agreement) represented a 7% return on
Investors' Invested Capital during the years ended 1999 and 1998. Distributions
of Distributable Cash from Sales or Financings in 2000 will be dependent upon
the occurrence of sales of Partnership real properties. There can be no
assurances that any properties will be sold or how much cash from such sales
will be distributable to the Limited Partners, if any. For further discussion on
the financial condition and results of operations of the Partnership see Item 7
of the Report.
In March 1999, the General Partner ended the distribution reinvestment plan
previously in effect for the Partnership. The General Partner took this action
pursuant to the Partnership Agreement and in what it considers to be the
Partnership's best interest. Therefore, beginning with the Partnership's cash
distribution in May 1999 and in all subsequent cash distributions, those Limited
Partners who previously had designated their distribution for reinvestment will
instead receive the amount of their distribution by check. Similarly, the
distribution reinvestment plan will no longer purchase or arrange the purchase
of Units of Limited Partners who submitted offers to sell Units through the
plan. Limited Partners who wish to purchase or sell Units may wish to consult
their securities advisors or contact a commercial matching service that deals in
limited partnership interests. The General Partner cannot and does not purport
to advise Limited Partners as to whether they should purchase or sell Units, at
what price or times, or through what mechanism.
8
<PAGE> 9
ITEM 6 - SELECTED FINANCIAL DATA
The following table sets forth selected financial information regarding the
Partnership's financial position and operating results for the five-year period
ended December 31, 1999. This information should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Financial Statements and Notes thereto, which are included in
Items 7 and 8, respectively, of this Report.
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Rental income $ 2,903,127 $ 4,091,476 $ 3,600,452 $ 3,606,964 $ 3,404,659
Income from joint venture 730,711 716,157 704,292 701,988 755,198
Interest income 236,610 150,593 142,959 145,734 162,332
Gain/(loss) on sale of property 2,065,783 783,054 - - -
Net income 4,371,090 3,773,989 2,579,607 2,616,017 2,776,632
Net income per Unit (b) 1.66 1.35 0.88 0.89 1.07
Ordinary tax income (a) 4,609,560 4,196,411 2,707,074 2,969,975 2,782,263
Ordinary tax income per Unit (b) 1.76 1.52 0.94 1.04 1.08
Cash distributions per Unit (c) 5.01 1.40 1.40 1.35 1.20
Cash and cash equivalents
at December 31 2,899,090 5,874,797 2,505,729 2,663,859 2,431,272
Total assets at December 31 30,650,344 39,797,736 39,595,199 40,896,886 41,824,552
</TABLE>
(a) The ordinary tax income for the Partnership was allocated as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
General Partner $ 179,128 $ 218,800 $ 176,436 $ 189,088 $ 178,928
John Hancock Limited Partner 170,837 316,679 262,772 280,404 -
Investor Limited Partners 4,259,595 3,660,932 2,267,866 2,500,483 2,603,335
----------- --------- --------- --------- ---------
Total $4,609,560 $4,196,411 $2,707,074 $2,969,975 $2,782,263
========== ========== ========== ========== ==========
</TABLE>
(b) The ordinary tax income per Unit for the fiscal years ended December 31,
1999, 1998, 1997, 1996 and 1995, as presented above, was computed by
dividing the Investors' share of ordinary tax income by the number of Units
outstanding during the year. The actual ordinary tax income per Unit has
not been presented because the actual ordinary tax income is allocated
between tax-exempt and tax-paying entities based upon the respective number
of Units held by each entity at December 31, 1999, 1998, 1997, 1996 and
1995.
(c) Represents the actual cash distribution per Unit for the years ended
December 31, 1999, 1998, 1997, 1996 and 1995.
9
<PAGE> 10
ITEM 7 - 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 Items 1 and 2 and Notes 5 and 6 to the Financial Statements included in Item
8 of this Report.
IMPACT OF YEAR 2000
The Partnership participated in the Year 2000 remediation project of its parent,
John Hancock Life Insurance Company (John Hancock). By late 1999, John Hancock
and the Partnership completed their Year 2000 readiness plan to address issues
that could result from computer programs written using two digits to define the
applicable year rather than four to define the applicable year and century. As a
result, John Hancock and the Partnership were prepared for the transition to the
Year 2000 and did not experience any significant Year 2000 problems with respect
to mission critical information technology ("IT") or non-IT systems,
applications or infrastructure. During the date rollover to the year 2000, John
Hancock and the Partnership implemented and monitored their millennium rollover
plan and conducted business as usual on Monday, January 3, 2000.
Since January 3, 2000, the information systems, including mission critical
systems, which in the event of a Year 2000 failure would have the greatest
impact on operations, have functioned properly. In addition, neither John
Hancock nor the Partnership experienced any significant Year 2000 issues related
to interactions with material business partners. No disruptions have occurred
which impact John Hancock or the Partnership's ability to process claims, update
customer accounts, process financial transactions, report accurate data to
management and no business interruptions due to Year 2000 issues have been
experienced. While John Hancock and the Partnership continue to monitor their
systems, and those of material business partners, closely to ensure that no
unexpected Year 2000 issues develop, neither John Hancock nor the Partnership
have reason, as of the date of this Report, to expect any such issues.
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,
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, impact of the year 2000 in computer
systems 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.
10
<PAGE> 11
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Partnership had $2,899,090 in cash and cash
equivalents and $88,844 in restricted cash. The Partnership's cash and cash
equivalents decreased by $2,975,707 from December 31, 1998 primarily due to the
net sales proceeds received from the sale of the Stone Container Building on
December 29, 1998 and lease termination fees that were received from tenants at
the Business Center at Pureland and Purina Mills Distribution Building. Cash
from these transactions was contained in the 1998 balance sheet and later
distributed during February 1999.
The Partnership has a working capital reserve with a current balance of
approximately $2,700,000. The General Partner anticipates that such amount
should 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, 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 June 1998, the General Partner listed the Stone Container Building for
sale because of the long-term lease with the sole tenant at the property and
current favorable conditions in the Cincinnati real estate market. On December
29, 1998, the Partnership sold the Stone Container Building and received net
sales proceeds of $2,645,995, after deductions for commissions and selling
expenses. This transaction generated a gain of $783,054, representing the
difference between the net sales price and the property's carrying value of
1,862,941. For the year ending December 31, 1998, the Stone Container Building
generated approximately 5% of the Partnerships net cash provided by operations.
During 1999, cash in the amount of $88,452 was used for the payment of leasing
costs incurred at the Palms of Carrollwood Shopping Center property. The General
Partner anticipates that the Partnership will incur approximately $850,000 in
leasing costs in 2000, at the Palms of Carrollwood and Business Center at
Pureland properties. The current balance in the working capital reserve should
be sufficient to pay such leasing costs.
During 1999, approximately $24,130 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 during 2000 the Partnership will incur
non-recurring repair and maintenance expenses of approximately $518,000 at the
Partnership's properties. 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 $13,275,623 was distributed to the Partners during 1999.
Of this amount $4,146,058 was generated from Distributable Cash from Operations
(defined in the Partnership Agreement), and $9,129,565 was distributed from
Distributable Cash from Sales, Financings or Repayments (defined in the
Partnership Agreement). These amounts were distributed in accordance with the
Partnership Agreement and were allocated as follows:
<TABLE>
<CAPTION>
From Distributable
From Distributable Cash from Sales,
Cash from Operations Refinancings or Repayments
-------------------- --------------------------
<S> <C> <C>
Investors $3,646,996 $8,453,301
John Hancock Limited Partner 291,760 676,264
General Partner 207,302 -
---------- ----------
Total $4,146,058 $9,129,565
========== ==========
</TABLE>
The General Partner anticipates that the Partnership's Distributable Cash from
Operations during 2000 will be reduced by the effect of the sales that have
taken place during 1999 and by the need for cash to fund non-recurring
maintenance and repair expenses.
11
<PAGE> 12
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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. At that time,
three tenants' leases at the Palms of Carrollwood contained clauses that made
reference to the situation in which the former anchor tenant ceased operations
at the property. One of these tenants paid all amounts due under its lease
through the lease's scheduled expiration in February 1997. Each of the other two
tenants reduced their rental payments by 25%. As a result of a settlement
negotiated with the General Partner, one of the other tenants recommenced making
its rental payments at 100% of the contracted amount. The Partnership brought an
action against the other tenant, who had reduced its rental payments during
November 1995, to obtain collection of 100% of the amounts due under the lease
agreement. The tenant claimed that it had the right to pay the reduced rent for
the remainder of the lease term, that is, until November 2004. During the first
quarter of 1998, this action was heard in a Florida court. The court issued a
judgment and written ruling during the second quarter of 1998, finding that the
tenant had only a limited period of time (approximately six months) during which
it could pay the reduced rent. After that, the tenant must pay the full amount
of rent specified in the lease. A judgment and written ruling were issued during
the second quarter of 1998. The tenant appealed the ruling. In July 1999 the
judgment was upheld and the Partnership received a total of approximately
$220,000 from the tenant in full satisfaction of the judgment.
As of the date hereof, the Palms of Carrollwood is 87% occupied. During 2000, no
significant leases are scheduled to expire. The General Partner will continue to
offer competitive leasing packages in an effort to secure lease renewals with
existing tenants as well as to secure new tenants for the remaining vacant
space.
During the third quarter of 1997, Allmetal, Inc., the sole tenant at the
Allmetal Distribution Building, extended the term of its lease through August
2008. As a result of this lease extension and the existing favorable conditions
of the Carrollton, Texas real estate market, the Allmetal Distribution Building
was listed for sale by the General Partner during June 1998. The General Partner
entered into a Purchase and Sale Agreement on behalf of the Partnership on
February 5, 1999 for the sale of the Allmetal Distribution Building to a
non-affiliated buyer. On February 25, 1999, the Partnership sold the Allmetal
Distribution Building and received net sales proceeds of $2,080,039, after
deductions for commissions and selling expenses. This transaction generated a
non-recurring gain of $575,591, representing the difference between the net
sales price and the property's carrying value of $1,504,448.
During the first quarter of 1998, Purina Mills, Inc., ("PMI") the lessee at the
Purina Mills Distribution Building, notified the Partnership of its intention to
exercise its option to terminate the lease on December 1, 1998, in accordance
with the terms of its lease agreement. PMI was required to pay a lease
termination fee in the approximate amount of $241,000. PMI had previously
vacated the property and secured a tenant to sublease the space. The General
Partner then secured a lease with the subtenant to occupy the entire property
under a seven-year lease that commenced in December 1998. Due to this lease at
the property and the existing favorable real estate market conditions in the St.
Louis, Missouri area, the General Partner listed the property for sale during
January 1999. On May 24, 1999, the Partnership sold the Purina Mills
Distribution Building and received net sales proceeds of $4,946,400, after
deductions for commissions and selling expenses. This transaction generated a
non-recurring gain of $1,490,192, representing the difference between the net
sales price and the property's carrying value of $3,456,208.
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 commenced 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
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.
12
<PAGE> 13
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Quince Orchard Corporate Center is leased to Boehringer Mannheim
Pharmaceuticals, Inc. under a ten-year lease that expires in February 2004. The
tenant has 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
has informed the General Partner that it intends to exercise its right to
terminate the lease in June 2000.
Real estate conditions in the Washington D.C. area for office space similar to
the Quince Orchard Corporate Center continue 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
development in the area. The General Partner does not anticipate that this new
development will negatively impact the market and, therefore, expects market
conditions to remain favorable through 2000. The General Partner is actively
seeking a tenant(s) for the property and will offer competitive leasing packages
in an effort to secure new tenants for the building.
The Yokohama Tire Warehouse is 100% leased to the Yokohama Tire Corporation
under a lease which 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. The General Partner is in the process of
negotiating terms of a Purchase and Sale Agreement with a prospective buyer. No
assurances can be given that an agreement will be reached with a prospective
buyer.
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 assist in its evaluation of whether an
impairment in value exists on any of the Partnership's properties.
RESULTS OF OPERATIONS
Average occupancy for the Partnership's investments was as follows:
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Palms of Carrollwood Shopping Center 84% 81% 79%
Yokohama Tire Warehouse 100% 100% 100%
Purina Mills Distribution Building N/A 100% 100%
Allmetal Distribution Building N/A 100% 100%
Stone Container Building N/A 100% 100%
Business Center at Pureland 63% 100% 100%
Quince Orchard Corporate Center (Affiliated Joint Venture) 100% 100% 100%
</TABLE>
RESULTS OF OPERATIONS - 1999 COMPARED WITH 1998
Net income for the year ended December 31, 1999 was $4,371,090, as compared to
net income of $3,773,989 in 1998. The 1999 results include a non-recurring gain
of $2,065,783 from the sales of the Allmetal and Purina Mills Distribution
Buildings. Excluding the results of this gain, net income for the year ended
December 31, 1999 decreased by $1,468,682, or 39%, as compared to the prior
year. This is primarily due to the sales of the Stone Container Building, the
Allmetal Distribution Building and the Purina Mills Distribution Building.
13
<PAGE> 14
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS - 1999 COMPARED WITH 1998 (CONTINUED)
Rental Income for the year ended December 31, 1999 decreased by $1,188,349, or
29%, as compared to 1998 primarily due to the sales of the Stone Container,
Allmetal and Purina Mills Buildings and to reduced occupancy as of April 1, 1999
at the Business Center at Pureland. This decrease was offset by the $220,000
judgment received for Palms of Carrollwood as discussed in the Liquidity and
Capital Resource Section of Item 7. Rental income at the Partnership's other
properties was consistent between periods.
Interest income for the year ended December 31, 1999 increased by $86,017, or
56%, as compared to 1998. This increase was primarily due to the interest earned
on the net sales proceeds received from the sales of the Stone Container,
Allmetal and Purina Mills Buildings for the periods these proceeds were held
before the next distribution date.
Property operating expenses for the year ended December 31, 1999 increased by
$220,931, or 72%, as compared to 1998. This increase is primarily due to certain
non-recurring legal fees and maintenance and repair expenses incurred at the
Palms of Carrollwood Shopping Center during the current period. Also, recoveries
of such expenses from tenants were lower as a result of reduced occupancy at the
Business Center at Pureland.
Depreciation expense for the year ended December 31, 1999 decreased by $160,707,
or 21%, as compared to 1998 primarily due to the sale of the Stone Container
Building in December 1999, the sale of the Allmetal Distribution Building in
February 1999, and to the reclassification of the Purina Mills Distribution
Building as "Property Held for Sale" in January 1999. Accordingly, no
depreciation was recorded on these properties since the time that they were
listed for sale. The Purina Mills Building was sold in May 1999.
Amortization expense for the year ended December 31, 1999 decreased by $195,940,
or 53%, as compared to 1998 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, therefore, no amortization expense
was recorded since that time.
General and administrative expenses for the year ended December 31, 1999
decreased by $266,434, or 53%, as compared to 1998, primarily due to a decrease
in legal fees incurred by the Partnership in connection with the legal
proceedings described in Item 3 of Part I of this Report. Excluding such legal
fees, general and administrative expenses were consistent between periods.
RESULTS OF OPERATIONS - 1998 COMPARED WITH 1997
Net income for the year ended December 31, 1998 was $3,773,989 as compared to
net income of $2,579,607 for the year ended December 31, 1997. This increase is
due to the results for 1998 including a $783,054 non-recurring gain from the
sale of the Stone Container Building, as well as lease termination payments
received from tenants at the Business Center at Pureland and Purina Mills
Distribution Building.
Depreciation during 1998 decreased by $49,698, or 6%, as compared to 1997. This
decrease is primarily due to the reclassification of the Stone Container
Building and Allmetal Distribution building as "Property Held for Sale" during
1998. Accordingly, no depreciation has been recorded on these properties since
the time that they were listed for sale.
General and administrative expenses increased during 1998 by $151,223, or 42%,
as compared to the 1997. This increase is primarily due to an increase in legal
fees incurred by the Partnership in connection with the legal proceedings
described in Item 3 of Part I of this Report.
The General Partner believes that inflation has had no significant impact on the
Partnership's income from operations during the last three fiscal years and the
General Partner anticipates that it will not have a significant impact during
2000.
14
<PAGE> 15
ITEM 7 - 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>
Years Ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities (a) ...................... $ 3,361,929 $ 4,697,816 $ 3,919,545 $ 4,250,925 $ 3,743,803
Net change in operating assets
and liabilities (a) ................. 14,492 (242,710) 146,780 (209,228) 111,983
----------- ----------- ----------- ----------- -----------
Net cash provided by operations (a) ...... 3,376,421 4,455,106 4,066,325 4,041,697 3,855,786
Increase in working capital reserves ..... -- (61,932) (222,297) (197,669) (804,971)
----------- ----------- ----------- ----------- -----------
Cash from operations (b) ................. 3,376,421 4,393,174 3,844,028 3,844,028 3,050,815
Decrease in working capital reserves ..... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Distributable cash from operations (b) ... $ 3,376,421 $ 4,393,174 $ 3,844,028 $ 3,844,028 $ 3,050,815
=========== =========== =========== =========== ===========
Allocation to General Partner ............ $ 168,821 $ 219,659 $ 192,201 $ 192,201 $ 152,541
Allocation to John Hancock Limited Partner 172,944 309,149 270,506 270,506 --
Allocation to Investors .................. 3,034,656 3,864,366 3,381,321 3,381,321 2,898,274
----------- ----------- ----------- ----------- -----------
$ 3,376,421 $ 4,393,174 $ 3,844,028 $ 3,844,028 $ 3,050,815
=========== =========== =========== =========== ===========
</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 8 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 February 2000, the Partnership made a cash distribution in the amount of
$737,442 that was generated from the total Distributable Cash from Operations
for the year ended December 31, 1999 less amounts previously distributed during
1999. This amount was distributed in accordance with the Partnership Agreement
and was allocated as follows:
<TABLE>
<CAPTION>
Distributable Cash
From Operations
---------------
<S> <C>
Investors $700,416
John Hancock Limited Partner -
General Partner 37,026
--------
Total $737,442
========
</TABLE>
In March 1999, the General Partner ended the distribution reinvestment plan
previously in effect for the Partnership. The General Partner took this action
pursuant to the Partnership Agreement and in what it considers to be the
Partnership's best interest. Therefore, beginning with the Partnership's cash
distribution in May 1999 and in all subsequent cash distributions, those Limited
Partners who previously had designated their distribution for reinvestment will
instead receive the amount of their distribution by check. Similarly, the
distribution reinvestment plan will no longer purchase or arrange the purchase
of Units of Limited Partners who submitted offers to sell Units through the
plan. Limited Partners who wish to purchase or sell Units may wish to consult
their securities advisors or contact a commercial matching service that deals in
limited partnership interests. The General Partner cannot and does not purport
to advise Limited Partners as to whether they should purchase or sell Units, at
what price or times, or through what mechanism.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item appears beginning on page F-1 of this Report. The
financial statements of QOCC-1 Associates, an investee of the Registrant, as of
and for the years ending December 31, 1999, 1998 and 1997 are included herewith.
15
<PAGE> 16
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No events requiring disclosure under this Item have occurred.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
(a-b) IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
By virtue of its organization as a limited partnership, the Partnership has no
directors or executive officers. As indicated in Item 1 of this Report, the
General Partner of the Partnership is John Hancock Realty Equities, Inc., a
Delaware corporation. Pursuant to the terms of the Partnership Agreement, the
General Partner is solely responsible for the management of the Partnership's
business. The names and ages of the directors and executive officers of the
General Partner at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Name Title Age
---- ----- ---
<S> <C> <C>
John M. Garrison President and Director 49
Malcolm G. Pittman, III Director 48
Susan M. Shephard Director 47
Virginia H. Lomasney Treasurer (Chief Accounting Officer) 38
</TABLE>
The term of office and other positions held by the persons listed above appear
in paragraph (e) below.
(c) IDENTIFICATION OF CERTAIN SIGNIFICANT PERSONS
The General Partner is responsible for the identification, analysis, purchase,
operation, and disposal of specific Partnership real estate investments. The
General Partner has established a Real Estate Investment Committee utilizing
senior real estate personnel of John Hancock and its affiliates to review each
proposed investment. The members of the Real Estate Investment Committee are
designated each year at the annual meeting of the Board of Directors of John
Hancock Realty Equities, Inc. The current members of the committee are as
follows:
<TABLE>
<CAPTION>
Name Title Age
---- ----- ---
<S> <C> <C>
Edward P. Dowd Senior Vice President of 57
John Hancock's Real Estate
Investment Group
John M. Garrison Senior Investment Officer of John Hancock's 49
Real Estate Investment Group;
President of John Hancock Realty
Equities, Inc.
John M. Nagle Senior Investment Officer of John 49
Hancock's Real Estate Investment
Group; Vice President of
John Hancock Realty Equities, Inc.
</TABLE>
(d) FAMILY RELATIONSHIPS
There exist no family relationships among any of the foregoing directors or
officers of the General Partner.
16
<PAGE> 17
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP (CONTINUED)
(e) BUSINESS EXPERIENCE
John M. Garrison (age 49) joined John Hancock in 1995 as an Investment Officer.
He has been President and a Director of the General Partner, Hancock Realty
Investors Incorporated and John Hancock Property Investors Corp. since July
1999. His term as Director of the General Partner expires in May 2000. Mr.
Garrison has been a Senior Investment Officer of John Hancock since November
1999. Prior to joining John Hancock, he held a number of positions with the
Metropolitan Life Real Estate Investment Group. He holds an M.B.A. from Yale
University and a B.A. from Hamilton College.
Malcolm G. Pittman, III (age 48), joined John Hancock in 1986 as an Assistant
Counsel. He has been a Director of the General Partner since November 1991. His
term as a Director of the General Partner expires in May 2000. Mr. Pittman has
been a Counsel of John Hancock's Mortgage and Real Estate Law Division since
1993. From 1989 to 1993, he was an Associate Counsel of John Hancock. He holds a
J.D. from Yale Law School and a B.A. from Oberlin College.
Susan M. Shephard (age 47), joined John Hancock in 1985 as an Attorney. She has
been a Director of the General Partner since November 1991. Her term as a
Director of the General Partner expires in May 2000. Ms. Shephard has been a
Mortgage Investment Officer of John Hancock since 1991. From 1988 to 1991, she
was an Associate Counsel of John Hancock and from 1987 to 1988, she was an
Assistant Counsel of John Hancock. She holds a J.D. from Georgetown University
Law Center and a B.A. from the University of Rhode Island.
Virginia H. Lomasney (age 38) joined John Hancock in 1983. She was appointed
Treasurer of the General Partner effective March 25, 1999. Ms. Lomasney has been
an Associate Investment Officer of John Hancock since 1993. She holds an M.B.A.
from Bentley College and a B.S. from Boston University.
Edward P. Dowd (age 57), joined John Hancock in 1970. He has been a Director of
Hancock Realty Investors, Incorporated since 1991, and a Director of John
Hancock Realty Services Corp. and subsidiaries and John Hancock Property
Investors Corp. since 1987. Mr. Dowd has been a Senior Vice President of John
Hancock since 1991. From 1989 to 1990, he was a Vice President of John Hancock
and from 1986 to 1989, he was a Second Vice President of John Hancock. Prior to
that time, he held a number of positions including Senior Real Estate Investment
Officer and Real Estate Investment Officer of John Hancock. From July 1982 to
May 1986, Mr. Dowd was President of the General Partner. He holds an A.B. from
Boston College.
John M. Nagle (age 49) joined John Hancock in 1979. He has been Vice President
of the General Partner, John Hancock Realty Services Corp. and Hancock Realty
Investors Incorporated since July 1999. Mr. Nagle has been a Senior Investment
Officer of John Hancock since 1987. From 1991 through 1993 he was Vice President
of Hancock Realty Investors Incorporated. He holds an M.B.A. and a B.B.A. from
the University of Massachusetts at Amherst.
(f) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
None.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Under Section 16(a) of the Securities Exchange Act of 1934, as amended, the
General Partner's directors and executive officers, as well as any person
holding more than ten percent of the Units, are required to report their initial
ownership to the Securities and Exchange Commission and the Partnership (such
requirements hereinafter referred to as "Section 16(a) filing requirements").
Specific time deadlines for Section 16(a) filing requirements have been
established.
To the Partnership's knowledge, no officer or director of the General Partner
has or had an ownership interest in the Partnership during the 1999 fiscal year
or as of the date hereof. In addition, to the Partnership's knowledge, the
County Employees' Annuity and Benefit Fund of Cook County, the greater than 10%
holder of Units, was not required to file any reports relating to Section 16(a)
filing requirements during the 1999 fiscal year.
17
<PAGE> 18
ITEM 11 - EXECUTIVE COMPENSATION
None of the officers or directors of the General Partner or any of the members
of the Real Estate Investment Committee referred to in Item 10(c) receive any
current direct remuneration from the Partnership in their capacities as
officers, directors or members of the Real Estate Investment Committee, pursuant
to any standard arrangements or otherwise, nor is any such remuneration
currently proposed. In addition, the Partnership has not given and does not
propose to give any options, warrants or rights, including stock appreciation
rights, to any such person in such capacities. No remuneration plan or
arrangement exists with any such person in such capacities resulting from
resignation, retirement or any other termination. Therefore, tables relating to
these topics have been omitted.
Compensation Committee Interlocks and Insider Participation:
The Partnership did not have a Compensation Committee in 1999 and does not
currently have such a committee. No current or former officer or employer of the
General Partner or its Affiliates participated during the 1999 fiscal year in
deliberations regarding the General Partner's compensation as it relates to the
Partnership.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
No person or group, including the General Partner, is known by the General
Partner to own beneficially more than 5% of the Partnership's 2,415,229
outstanding Units as of December 31, 1999, except as follows:
<TABLE>
<CAPTION>
Title of Name and Address of Amount and Nature of Percent of
Class Beneficial Owner Beneficial Ownership Class
----- ---------------- -------------------- -----
<S> <C> <C> <C>
Assignee County Employees' 806,451 Units owned 33.39%
Units Annuity and Benefit directly
Fund of Cook County
33 N. Dearborn St.
Chicago, IL
</TABLE>
(b) SECURITY OWNERSHIP OF MANAGEMENT
By virtue of its organization as a Limited Partnership, the Partnership has no
officers or directors. Neither the General Partner nor any officer or director
of the General Partner possesses the right to acquire a beneficial ownership of
Units.
(c) CHANGES IN CONTROL
The Partnership does not know of any arrangements the operations of which may at
a subsequent date result in a change in control of the Partnership.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Note 4 of the Notes to the Financial Statements included in Item 8 of this
Report for a description of certain transactions and related amounts payable by
the Partnership to the General Partner and its Affiliates during 1999, 1998 and
1997.
In accordance with the terms of the Partnership Agreement, the General Partner
and its Affiliates (as defined in the Partnership Agreement) are entitled to the
following types of compensation, fees, profits/(losses), expense reimbursements
and distributions:
A reimbursement for Acquisition Expenses (as defined in the Partnership
Agreement) incurred by the General Partner or its Affiliates was payable at cost
to the General Partner or its Affiliates. The Partnership completed its property
acquisitions on March 27, 1992 and, therefore, did not pay any such
reimbursements during the years ended 1999, 1998 or 1997.
18
<PAGE> 19
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED)
An Affiliate of the General Partner may receive a Property Management Fee for
providing property management services for the Partnership's properties. The
Partnership is obligated to pay a fee equal to the amount customarily charged in
arms-length transactions by other entities rendering comparable services for
comparable properties in the localities where the Partnership's properties are
located but in no event may such fee exceed 6% of the gross receipts of the
property under management. To date, no Affiliate of the General Partner has
provided property management services to the Partnership. Therefore, the
Partnership did not pay any such fees during the years ended 1999, 1998 or 1997.
The General Partner and its Affiliates are also entitled to Reimbursement for
Expenses relating to the administrative services necessary to the prudent
operation of the Partnership, such as legal, accounting, computer, transfer
agent and other services. The amounts charged to the Partnership for such
administrative services may not exceed the lesser of the General Partner's or
such Affiliate's costs or 90% of those which the Partnership would be required
to pay to independent parties for comparable services in the same geographic
area. The Partnership reimbursed the General Partner or its Affiliates for
$153,216, $234,860 and $244,487 of such expenses during the years ended December
31, 1999, 1998 and 1997, respectively.
A Subordinated Disposition Fee (as defined in the Partnership Agreement) for
selling properties is payable to the General Partner in the amount of 3% of the
sales price of each property sold. However, no such Subordinated Disposition Fee
may be paid to the General Partner unless and until the Investors and the John
Hancock Limited Partner have received a return of their total Invested Capital
(as defined in the Partnership Agreement) plus the Cumulative Return on
Investment (as defined in the Partnership Agreement) of 12% per annum for all
fiscal years ended prior to the date of payment. Such Subordinated Disposition
Fee may not exceed 50% of the competitive real estate commissions in the area
where the property is located or, together with any other brokerage commission
payable to or by any other person, exceed 6% of the contract sales price of such
property. The Partnership did not pay any such fees during the years ended 1999,
1998 or 1997.
In accordance with Section 8 of the Partnership Agreement (as described more
fully in Note 3 to the Financial Statements included in Item 8 of this Report),
5% of Distributable Cash from Operations is distributable to the General Partner
and the remaining 95% in the following order of priority: first, to the
Investors in an amount sufficient to provide a non-cumulative, non-compounded
cash return equal to 7% per annum on their Invested Capital; second, to the John
Hancock Limited Partner in an amount sufficient to provide a non-cumulative,
non-compounded cash return equal to 7% per annum on its Invested Capital; and
third, to the Investors and the John Hancock Limited Partner in proportion to
their respective capital contributions. The General Partner's share of
Distributable Cash from Operations was $168,821, $219,659 and $192,201 for the
years ended December 31, 1999, 1998 and 1997. In accordance with the terms of
the Partnership Agreement, the John Hancock Limited Partner was entitled to
$172,944, $309,149 and $270,506 of Distributable Cash from Operations for the
years ended December 31, 1999, 1998 and 1997, respectively.
A Share of Cash from Sales or Financings may be distributed to the General
Partner and the John Hancock Limited Partner. Cash from Sales or Financings are
distributable in accordance with Section 8 of the Partnership Agreement (as
described more fully in Note 3 to the Financial Statements included in Item 8 of
this Report). The John Hancock Limited Partner's share of Cash from Sales or
Financings was $481,113, $195,151 and $0 for the years ended December 31, 1999,
1998 and 1997, respectively.
A Share of the Partnership's Profits or Losses for tax purposes is allocable to
the General Partner and to the Investors and the John Hancock Limited Partner.
Such allocation generally approximates, insofar as practicable, their percentage
share of Distributable Cash from Operations and of Cash from Sales or
Financings. The General Partner will generally be allocated 1% of Partnership
Losses for tax purposes, and the John Hancock Limited Partner will be allocated
tax losses associated with the Partnership's sales commissions funded by the
John Hancock Limited Partner's Capital Contributions. The General Partner's
Share of such Profits or Losses were profits of $179,128, $218,800 and $176,436
during the years ended December 31, 1999, 1998 and 1997, respectively. In
accordance with the terms of the Partnership Agreement, the John Hancock Limited
Partner was allocated $170,837, $316,679 and $262,772 of profits during the
years ended December 31, 1999, 1998 and 1997, respectively.
19
<PAGE> 20
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED)
The following table reflects all compensation, fees, profits/(losses), expense
reimbursements and distributions from the Partnership to the General Partner
and/or its Affiliates for the three years ended December 31, 1999:
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Operating Expenses $153,216 $234,860 $244,487
General Partner Share of Distributable
Cash from Operations 168,821 219,659 192,201
John Hancock Limited Partner's share
of Distributable Cash from Operations 172,944 309,149 270,506
John Hancock Limited Partner's share
Of Distributable Cash from Sales,
Financings or Repayments 481,113 195,151 -
General Partner Share of Profits or
Losses for tax purposes 179,128 218,800 176,436
John Hancock Limited Partner's share
of Profits or Losses for tax purposes 170,837 316,679 262,772
</TABLE>
The Partnership provides indemnification to the General Partner and its
Affiliates for acts or omissions of the General Partner or its Affiliates
performed in good faith on behalf of the Partnership, subject to certain
specified exceptions, as described in the following paragraph:
The Partnership Agreement provides that 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 General Partner believes that this indemnification applies to costs incurred
in the class action complaint described in Item 3 of Part I of this Report.
Accordingly, the Partnership indemnified the General Partner and its Affiliates
for costs of $31,787, $82,749 and $54,092, relating to the class action
complaint in the years ended December 31, 1999, 1998 and 1997, respectively.
20
<PAGE> 21
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) - Listed on Index to Financial Statements and Financial
Statement Schedules.
(3) - Listing of Exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER PAGE NUMBER OR
UNDER INCORPORATION BY
REGULATION S-K DESCRIPTION REFERENCE
-------------- ----------- ---------
<S> <C> <C>
4 Instruments defining the rights
of security holders
4.1 Amended and Restated Exhibit A to the Prospectus
Agreement of Limited Partnership* filed under the Partnership's
Amendment No. 1 to Form
S-11 Registration Statement
(File 33-25298)
4.2 Subscription Agreement Exhibit D to the Prospectus
Signature Page and Power of filed under the Partnership'
Attorney whereby a subscriber Amendment No. 1 to
agrees to purchase Units and Form S-11 Registration Statement
adopts the provisions of the (File 33-25298)
Amended Agreement of Limited
Partnership*
4.3 Copy of Certificate of Exhibit 4.3 to the
Limited Partnership filed Partnership's
with the Massachusetts Secretary Amendment No. 1 to
of State on November 4, 1988* Form S-11 Registration Statement
(File 33-25298)
4.4 Copy of First Amendment and Exhibit 4.4 to the
Restatement of Certificate Partnership's
of Limited Partnership filed Amendment No. 1 to
with the Massachusetts Secretary Form S-11 Registration Statement
of State on February 8, 1989* (File 33-25298)
10 Material contracts and other documents
10.1 Form of Escrow Agreement* Exhibit 10.1 to the Partnership's
Amendment No. 1 to Form S-11
Registration Statement
10.2 Documents relating to Quince Orchard Corporate Center
(a) Investment Agreement dated Exhibit 10.2(a) to
December 27, 1988, among the Partnership's
JH Quince Orchard Partners, Amendment No. 1 to
Quad Properties, Inc. and Form S-11
General Electric Real Estate Registration Statement
Credit Operations* (File 33-25298)
</TABLE>
21
<PAGE> 22
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
<TABLE>
<S> <C> <C>
(b) Amended and Restated Partnership Exhibit 10.2(b) to
Agreement for QOCC-1 Associates the Partnership's
dated December 27, 1988, among Amendment No. 1 to
JH Quince Orchard Partners, Form S-11
Quad Properties, Inc. and Registration
General Electric Real Estate Statement
Credit Operations* (File 33-25298)
(c) Property Management Agreement Exhibit 10.2(c) to
dated December 27, 1988, the Partnership's
between QOCC-1 Associates and Amendment No. 1 to
Quadrangle Development Form S-11
Corporation* Registration Statement
(File 33-25298)
(d) Partnership Agreement for Exhibit 10.2(d) to
JH Quince Orchard Partners the Partnership's
dated as of December 23, 1988, Amendment No. 1 to
between John Hancock Realty Form S-11
Income Fund-II Limited Partnership Registration Statement
and John Hancock Realty Income (File 33-25298)
Fund-III Limited Partnership*
10.3 Documents relating to Palms
of Carrollwood Shopping Center
(a) Letter Agreement dated November 9, Exhibit 1 to the
1989 between Special Asset Partnership's Report
Holdings, Inc. and John Hancock on Form 8-K dated
Realty Equities, Inc.* December 29, 1989
(File 33-25298)
(b) Amendment to Agreement of Purchase Exhibit 2 to the
and Sale dated August 28, 1989 Partnership's Report
between Special Asset Holding Inc. on Form 8-K dated
and John Hancock Realty Equities, December 29, 1989
Inc.* (File 33-25298)
(c) Agreement of Purchase and Sale Exhibit 3 to the
dated June 22, 1989, between Partnership's Report on
Special Asset Holding Inc. and Form 8-K dated
John Hancock Realty Equities, December 29, 1989
Inc.* (File 33-25298)
(d) Warranty and Guaranty dated Exhibit 4 to the
December 28, 1989 between Partnership's Report
Pittsburgh National Bank and on Form 8-K dated
John Hancock Realty Income Fund - December 29, 1989
III Limited Partnership.* (File 33-25298)
(e) Rental Escrow Agreement dated Exhibit 5 to the
December 28, 1989 relating to Partnership's Report
Palms of Carrollwood Shopping on Form 8-K dated
Center.* December 29, 1989
(File 33-25298)
</TABLE>
22
<PAGE> 23
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
<TABLE>
<S> <C> <C>
10.4 Documents relating to Yokohama
Tire Warehouse
(a) Agreement of Purchase and Sale Exhibit to the
dated June 25, 1991 between D/S Partnership's Report
Louisville Joint Venture and John on Form 8-K dated
Hancock Realty Income Fund-III July 25, 1991
Limited Partnership.* (File 0-18563)
(b) Lease/Purchase option dated Exhibit to the
October 12, 1989 relating to Partnership's Report
Yokohama Tire Warehouse* on Form 8-K dated
July 25, 1991
(File 0-18563)
(c) Amendment to lease dated Exhibit to the
September 24, 1990 relating to Partnership's Report
Yokohama Tire Warehouse* on Form 8-K dated
July 25, 1991
(File 0-18563)
10.5 Documents relating to the
Purina Mills Distribution Building
(a) Agreement of Purchase and Sale dated Exhibit 1 to the Partnership's
November 25, 1991 between report on Form 8-K dated
Perkinson Realty Corporation and December 27, 1991
John Hancock Realty Income Fund-III (File 0-18563)
Limited Partnership*
(b) Office/Warehouse lease dated Exhibit 2 to the Partnership's
April 16, 1991 relating to the report on Form 8-K dated
Purina Mills Distribution Building* December 27, 1991
(File 0-18563)
10.6 Documents relating to the
Allmetal Distribution Building
(a) Real Estate Sale Agreement Exhibit 1 to Amendment dated
January 31, 1992 between Number 1 on Form 8 to the
The Travelers Insurance Company Partnership's report on 8-K
and John Hancock Realty dated February 11, 1992
Income Fund-III Limited Partnership* (File 0-18563)
10.7 Documents relating to the Stone
Container Building
(a) Agreement of Purchase and Exhibit 1 to Amendment
Sale dated January 30, 1992 Number 2 on Form 8 to the
between World Park Limited Partnership's report on Form
Partnership and John Hancock 8-K dated February 11, 1992
Realty Income Fund-III (File 0-18563)
Limited Partnership*
</TABLE>
23
<PAGE> 24
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
<TABLE>
<S> <C> <C>
(b) Amendment to Purchase Exhibit 2 to Amendment
and Sale Agreement dated Number 2 on Form 8 to the
February 28, 1992 between Partnership's report on Form
World Park Limited Partnership 8-K dated February 11, 1992
and John Hancock Realty Income (File 0-18563)
Fund-III Limited Partnership*
(c) Lease dated March 2, 1992 relating Exhibit 3 to Amendment Number
to the Stone Container Building* 2 on Form 8 to the Partnership's
report on Form 8-K dated
February 11, 1992
(File 0-18563)
(d) Agreement of Purchase and Sale dated Exhibit 1 to the Partnership
October 22, 1998 between TJ Squared, LLC report on Form 8-K dated
and John Hancock Realty Income December 29, 1998
Fund-III Limited Partnership* (File 0-18563)
10.8 Documents relating to the Business Center
at Pureland
(a) Agreement of Purchase and Sale Exhibit 1 to Amendment Number
dated January 24, 1992 between 3 on Form 8 to the Partnership's
The Prentiss/Copley Investment Group report on Form 8-K dated
and John Hancock Realty Income February 11, 1992
Fund-III Limited Partnership* (File 0-18563)
(b) Amendment to Purchase and Sale Exhibit 2 to Amendment Number
Agreement dated March 5, 1992 3 on Form 8 to the Partnership's
between The Prentiss/Copley report on Form 8-K dated
Investment Group and John February 11, 1992
Hancock Realty Income Fund-III (File 0-18563)
Limited Partnership*
(c) Lease dated February 5, 1991 Exhibit 3 to Amendment Number
relating to Building Number One at 3 on Form 8 to the Partnership's
the Business Center at Pureland* report on Form 8-K dated
February 11, 1992
(File 0-18563)
(d) First Amendment to Lease Exhibit 4 to Amendment Number
dated March 26, 1992 relating 3 on Form 8 to the Partnership's
to Building Number One at the report on Form 8-K dated
Business Center at Pureland* February 11, 1992
(File 0-18563)
(e) Lease Agreement dated Exhibit 5 to Amendment Number
December 7, 1989 relating to 3 on Form 8 to the Partnership's
Building Number Two at the Business report on Form 8-K dated
Center at Pureland* February 11, 1992
(File 0-18563)
</TABLE>
24
<PAGE> 25
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
<TABLE>
<S> <C> <C>
(f) First Amendment to Lease Exhibit 6 to Amendment Number
dated January 4, 1990 relating 3 on Form 8 to the Partnership's
to Building Number Two at the report on Form 8-K dated
Business Center at Pureland* February 11, 1992
(File 0-18563)
(g) Second Amendment to Lease Exhibit 7 to Amendment Number
dated March 16, 1990 relating 3 on Form 8 to the Partnership's
to Building Number Two at the report on Form 8-K dated
Business Center at Pureland* February 11, 1992
(File 0-18563)
(h) Third Amendment to Lease Exhibit 8 to Amendment Number
dated September 17, 1990 3 on Form 8 to the Partnership's
relating to Building Number report on Form 8-K dated
Two at the Business Center February 11, 1992
at Pureland* (File 0-18563)
10.9 Documents relating to the Management Agreement
(a) Management Agreement dated January Exhibit 10.9(a) to the Partnership's
1, 1992 between Hancock Realty Investors report on Form 10-K dated
Incorporated and John Hancock Realty December 31, 1992
Equities, Inc.* (File 0-18563)
(b) Agreement Concerning Subcontracting Exhibit 10.9(b) to the Partnership's
of Management Services Pertaining to report on Form 10-K dated
John Hancock Realty Income Fund-III December 31, 1993
Limited Partnership dated May 28, 1993 (File 0-18563)
between John Hancock Realty Equities, Inc.,
Hancock Realty Investors, Inc. and John
Hancock Mutual Life Insurance Company*
10.10 Documents relating to Executive
Compensation Plans and Arrangements
(a) Amended and Restated Agreement of Exhibit A to the Prospectus
Limited Partnership* filed under the Partnership's
Amendment No. 1 to Form S-11
Registration Statement
(File 33-25298)
</TABLE>
(b) There were no reports on Form 8-K filed during the quarter ended December
31, 1999.
(c) Exhibits - See Item 14 (a) (3) of this Report.
(d) Financial Statement Schedules - The response to this portion of Item 14 is
submitted as a separate section of this Report commencing on Page F-45.
- ---------------
+Filed herewith
*Incorporated by reference
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 30th day of March,
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
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on the 30th day of March, 2000.
<TABLE>
<CAPTION>
Signatures Title
---------- -----
<S> <C>
/s/ John M. Garrison President (Principal Executive Officer) and
- ------------------------------------ Director of John Hancock Realty Equities,
John M. Garrison Inc. (General Partner of Registrant)
/s/ Virginia H. Lomasney Treasurer (Chief Accounting Officer) of
- ------------------------------------ John Hancock Realty Equities, Inc.
Virginia H. Lomasney (General Partner of Registrant)
/s/ Malcolm G. Pittman, III Director of John Hancock Realty Equities,
- ------------------------------------ Inc. (General Partner of Registrant)
Malcolm G. Pittman, III
/s/ Susan M. Shephard Director of John Hancock Realty Equities,
- ------------------------------------ Inc. (General Partner of Registrant)
Susan M. Shephard
</TABLE>
26
<PAGE> 27
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14 (a) (1) AND (2), (c) AND (d)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
YEARS ENDED DECEMBER 31, 1999, 1998, 1997
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
BOSTON, MASSACHUSETTS
F-1
<PAGE> 28
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
(ITEMS 8 AND 14 (A) (1) AND (2))
<TABLE>
<CAPTION>
(1) (a) Financial Statements of the Registrant Page
----
<S> <C> <C>
Report of Independent Auditors F-3
Balance Sheets at December 31, 1999 and 1998 F-4
Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997 F-5
Statements of Partners' Equity for the Years Ended
December 31, 1999, 1998 and 1997 F-6
Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 F-7
Notes to Financial Statements F-8
(b) Financial Statements of the Investee
Report of Independent Auditors F-17
Balance Sheet at December 31, 1999 F-18
Statement of Operations for the Year Ended December 31, 1999 F-19
Statement of Partners' Equity for the Year Ended December 31, 1999 F-20
Statement of Cash Flows for the Year Ended December 31, 1999 F-21
Notes to Financial Statements F-22
Report of Independent Auditors F-27
Balance Sheet at December 31, 1998 F-28
Statement of Operations for the Year Ended December 31, 1998 F-29
Statement of Partners' Equity for the Year Ended December 31, 1998 F-30
Statement of Cash Flows for the Year Ended December 31, 1998 F-31
Notes to Financial Statements F-32
Report of Independent Auditors F-37
Balance Sheet at December 31, 1997 F-38
Statement of Operations for the Year Ended December 31, 1997 F-39
Statement of Partners' Equity for the Year Ended December 31, 1997 F-40
Statement of Cash Flows for the Year Ended December 31, 1997 F-41
Notes to Financial Statements F-42
(2) Financial Statement Schedules
Schedule III: Real Estate and Accumulated Depreciation S-1
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
F-2
<PAGE> 29
Report of Independent Auditors
To the Partners
John Hancock Realty Income Fund-III Limited Partnership
We have audited the accompanying balance sheets of John Hancock Realty Income
Fund-III Limited Partnership (the "Partnership") as of December 31, 1999 and
1998, and the related statements of operations, partners' equity and cash flows
for each of the three years in the period ended December 31, 1999. Our audits
also included the financial statement schedule listed in the index at Item
14(a). These financial statements and schedule are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits. The financial statements
of QOCC-1 Associates (a limited partnership in which JH Quince Orchard Partners,
a joint venture in which the Partnership has a 50% interest, has a 75% interest)
have been audited by other auditors whose reports have been furnished to us;
insofar as our opinion on the financial statements relates to data included for
QOCC-1 Associates, it is based solely on their reports.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the reports of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of John Hancock Realty Income Fund-III Limited
Partnership at December 31, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
ERNST & YOUNG LLP
Boston, Massachusetts
February 7, 2000
F-3
<PAGE> 30
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1999 1998
---- ----
<S> <C> <C>
Cash and cash equivalents $ 2,899,090 $ 5,874,797
Restricted cash 88,844 79,541
Other assets 110,669 348,339
Property held for sale 6,924,617 1,504,448
Investment in property:
Land 6,355,135 7,667,535
Building and improvements 9,717,459 21,960,686
----------- -----------
16,072,594 29,628,221
Less: accumulated depreciation 2,967,494 5,633,631
----------- -----------
13,105,100 23,994,590
Investment in joint venture 6,760,170 7,036,529
Deferred expenses, net of accumulated
amortization of $1,890,092 in 1999 and
$1,718,411 in 1998 761,854 959,492
----------- -----------
Total assets $30,650,344 $39,797,736
=========== ===========
</TABLE>
LIABILITIES AND PARTNERS' EQUITY
<TABLE>
<CAPTION>
Liabilities:
<S> <C> <C>
Accounts payable and accrued expenses $ 205,003 $ 383,720
Accounts payable to affiliates 168,288 232,430
------------ -------
Total liabilities 373,291 616,150
Commitments and contingencies
Partners' equity/(deficit):
General partners (67,086) (38,068)
Limited partners 30,344,139 39,219,654
----------- ----------
Total partners' equity 30,277,053 39,181,586
------------ ----------
Total liabilities and partners' equity $30,650,344 $39,797,736
=========== ===========
</TABLE>
See Notes to Financial Statements
F-4
<PAGE> 31
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998 1997
---- ---- ----
Income:
<S> <C> <C> <C>
Rental income $2,903,127 $4,091,476 $3,600,452
Income from joint venture 730,711 716,157 704,292
Interest income 236,610 150,593 142,959
Gain on sale 2,065,783 783,054 --
---------- ---------- ----------
Total income 5,936,231 5,741,280 4,447,703
Expenses:
Depreciation 619,260 779,967 829,665
Amortization of deferred expenses 175,495 371,435 367,546
Property operating expenses 529,586 308,655 314,874
General and administrative expenses 240,800 507,234 356,011
---------- ---------- ----------
Total expenses 1,565,141 1,967,291 1,868,096
---------- ---------- ----------
Net income $4,371,090 $3,773,989 $2,579,607
========== ========== ==========
Allocation of net income:
General Partner $ 178,284 $ 206,582 $ 183,175
John Hancock Limited Partner 172,810 302,616 276,868
Investors 4,019,996 3,264,791 2,119,564
---------- ---------- ----------
$4,371,090 $3,773,989 $2,579,607
========== ========== ==========
Net Income per Unit $ 1.66 $ 1.35 $ 0.88
========== ========== ==========
</TABLE>
See Notes to Financial Statements
F-5
<PAGE> 32
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
------- -------- -----
<S> <C> <C> <C>
Partners' equity/(deficit) at January 1, 1997
(2,415,234 Units outstanding) ($ 43,423) $40,559,468 $40,516,045
Less: Cash distributions (192,201) (3,651,826) (3,844,027)
Add: Net income 183,175 2,396,432 2,579,607
--------- ------------- -------------
Partners' equity/(deficit) at December 31, 1997
(2,415,234 Units outstanding) (52,449) 39,304,074 39,251,625
Less: Cash distributions (192,201) (3,651,827) (3,844,028)
Add: Net income 206,582 3,567,407 3,773,989
--------- ------------- -------------
Partners' equity/(deficit) at December 31, 1998
(2,415,234 Units outstanding) (38,068) 39,219,654 39,181,586
Less: Cash distributions (207,302) (13,068,321) (13,275,623)
Add: Net income 178,284 4,192,806 4,371,090
--------- ------------- -------------
Partners' equity/(deficit) at December 31, 1999
(2,415,234 Units outstanding) ($ 67,086) $30,344,139 $30,277,053
========= =========== ===========
</TABLE>
See Notes to Financial Statements
F-6
<PAGE> 33
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net income $4,371,090 $3,773,989 $2,579,607
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of property (2,065,783) (783,054) -
Depreciation 619,260 779,967 829,665
Amortization of deferred expenses 175,495 371,435 367,546
Cash distributions over equity
in income from joint venture 276,359 312,769 289,507
---------- ---------- ----------
3,376,421 4,455,106 4,066,325
Changes in operating assets and liabilities:
(Increase)/decrease in restricted cash (9,303) 30,515 (2,097)
(Increase)/decrease in other assets 237,670 (60,381) (107,416)
(Decrease)/increase in accounts payable and
accrued expenses (178,717) 171,591 (75,245)
(Decrease)/increase in accounts payable
to affiliates (64,142) 100,985 37,978
----------- ---------- ----------
Net cash provided by operating activities 3,361,929 4,697,816 3,919,545
Investing activities:
Proceeds from sale of property 7,026,439 2,645,995 -
Increase in deferred expenses and other assets (88,452) (130,715) (233,648)
----------- ---------- ----------
Net cash provided by/(used) in investing activities 6,937,987 2,515,280 (233,648)
Financing activities:
Cash distributed to Partners (13,275,623) (3,844,028) (3,844,027)
------------- ----------- ----------
Net cash used in financing activities (13,275,623) (3,844,028) (3,844,027)
------------- ----------- ----------
Net (decrease)/increase in cash and
cash equivalents (2,975,707) 3,369,068 (158,130)
Cash and cash equivalents at beginning
of year 5,874,797 2,505,729 2,663,859
------------ ----------- ----------
Cash and cash equivalents at end
of year $2,899,090 $5,874,797 $2,505,729
============ ========== ==========
</TABLE>
See Notes to Financial Statements
F-7
<PAGE> 34
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
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 December 31, 1999, 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 2,226 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 December 31, 1999, the Partnership has four properties remaining
in its portfolio, one of which is listed for sale and three of which
will be listed for sale during 2000. 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 reasonable practicable.
2. SIGNIFICANT ACCOUNTING POLICIES
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 original 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.
F-8
<PAGE> 35
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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. Property held for sale
is not depreciated.
Investment in joint venture is recorded using the equity method.
Acquisition fees for the joint venture investment have been deferred
and are being amortized on a straight-line basis over a period of
thirty-one and a half years. Other deferred acquisition fees are being
amortized on a straight-line basis over a period of eighty-four months.
Capitalized tenant improvements and lease commissions are being
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 years ended December 31, 1999, 1998 and
1997 is calculated by dividing the Investors' share of net income by
the number of Units outstanding during each year.
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.
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.
F-9
<PAGE> 36
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. THE PARTNERSHIP AGREEMENT (CONTINUED)
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 three years ended December 31,
1999, 1998 and 1997, and to which the General Partner or its affiliates
are entitled to reimbursement from the Partnership were $153,216,
$234,860 and $244,487, respectively.
The Partnership provides indemnification to the General Partner and its
affiliates for any acts or omissions of the General Partner 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 years ended December 31, 1999, 1998, and 1997
were $31,787, $82,745, and $54,092, respectively, representing the
Partnership's share of costs incurred by the General Partner and its
affiliates relating to the class action complaint. As of December 31,
1999, the Partnership has incurred 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.
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>
December 31,
------------
1999 1998
---- ----
<S> <C> <C>
Palms of Carrollwood Shopping Center $10,930,578 $10,930,578
Yokohama Tire Warehouse - 9,352,221
Purina Mills Distribution Building - 4,203,406
Business Center at Pureland 5,142,016 5,142,016
----------- -----------
$16,072,594 $29,628,221
=========== ===========
</TABLE>
F-10
<PAGE> 37
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENT IN PROPERTY (CONTINUED)
During June 1998, the Allmetal Distribution Building was listed for
sale. Accordingly, this property was classified as "Property Held for
Sale" on the Balance Sheet at December 31, 1998 at its carrying value,
which was not in excess of its estimated fair value, less selling
costs. On February 25, 1999, the Partnership sold the Allmetal
Distribution Building and received net sales proceeds of $2,080,039,
after deduction for commissions and selling expenses. This transaction
generated a non-recurring gain of $575,591, representing the difference
between the net sales price and the property's carrying value of
$1,504,448.
During January 1999, the Purina Mills Distribution Building was listed
for sale. Accordingly, this property was classified as "Property Held
for Sale" on the Balance Sheet at March 31, 1999 at its carrying value,
which was not in excess of its estimated fair value, less selling
costs. On May 24, 1999, the Partnership sold the Purina Mills
Distribution Building and received net sales proceeds of $4,946,400,
after deductions for commissions and selling expenses. This transaction
generated a non-recurring gain of $1,490,192, representing the
difference between the net sales price and the property's carrying
value of $3,456,208.
During December 1999, the Yokohama Tire Warehouse was listed for sale.
Accordingly, this property is classified as "Property Held for Sale" on
the Balance Sheet at December 31, 1999 at its carrying value, which is
not in excess of its estimated fair value, less selling costs. The
General Partner is in the process of negotiating terms of a Purchase
and Sale Agreement with a prospective buyer. No assurances can be given
that an agreement will be reached with a prospective buyer.
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 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.
The Partnership leases its properties to non-affiliated tenants
primarily under long-term operating leases.
At December 31, 1999, future minimum rentals on non-cancelable leases
relating to the above properties were as follows:
<TABLE>
<S> <C> <C>
2000 $1,696,251
2001 1,213,752
2002 1,046,541
2003 1,016,266
2004 938,814
Thereafter 618,892
----------
Total $6,530,516
</TABLE>
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. 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.
F-11
<PAGE> 38
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. 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 December 31, 1999, 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 and
1997, the partners 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 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.
Summarized financial information for QOCC-1 Associates is as follows:
<TABLE>
<CAPTION>
Financial Position at
December 31,
1999 1998
---- ----
<S> <C> <C>
Current assets $ 551,822 $ 535,140
Deferred expenses, net 1,181,080 1,280,719
Other assets 1,030,291 1,330,111
Investment in property, net 11,216,608 11,590,339
------------- ----------
Total assets $13,979,801 $14,736,309
=========== ===========
Current liabilities $ 317,737 $ 484,303
Partners' equity 13,662,064 14,252,006
------------ ----------
Total liabilities and equity $13,979,801 $14,736,309
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Results of Operations
Years Ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Total income $2,791,306 $2,788,939 $2,761,035
Total expenses 1,178,230 1,198,608 1,212,058
---------- ---------- ----------
Net income $1,613,076 $1,590,331 $1,548,977
========== ========== ==========
</TABLE>
The Affiliated Joint Venture's share of QOCC-1 Associates' partners'
equity was $13,456,393 and $14,009,111 at December 31, 1999 and 1998,
respectively. The Affiliated Joint Venture's share of QOCC-1
Associates' net income was $1,461,422, $1,432,312 and $1,408,558 for
the years ended December 31, 1999, 1998 and 1997, respectively. As
noted above, the Partnership has a 50% interest in the Affiliated Joint
Venture.
F-12
<PAGE> 39
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. DEFERRED EXPENSES
Deferred expenses consist of the following:
<TABLE>
<CAPTION>
Unamortized Balance at
December 31,
Description 1999 1998
----------- ---- ----
<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. $ 99,696 $104,549
$1,049,417 of tenant improvements. These
amounts are amortized over the terms
of the leases to which they relate. 476,432 519,358
$376,029 of lease commissions. These
amounts are amortized over the terms
of the leases to which they relate. 185,726 297,241
$1,073,620 of acquisition fees paid to the
General Partner. This amount
is amortized over a period of
eighty-four months. - 38,344
-------- --------
$761,854 $959,492
======== ========
</TABLE>
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>
Years Ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Net income per Statements of Operations $4,371,090 $3,773,989 $2,579,607
Add/(less): Excess of tax gain
Over book gain on 117,654 - -
Disposition of assets
Excess of book depreciation
over tax depreciation 32,628 91,319 138,779
Excess of book amortization
over tax amortization 126,712 187,342 189,010
Other income (62,124) (56,079) (211,950)
Other expenses 23,600 199,840 11,628
---------- ---------- ----------
Net income for federal income tax purposes $4,609,560 $4,196,411 $2,707,074
========== ========== ==========
</TABLE>
F-13
<PAGE> 40
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 and the other defendants answered the complaint,
denying the material allegations and raising numerous affirmative
defenses. Discovery was conducted, and the Partnership and other
defendants produced documents relating to the plaintiff's claims. The
court ruled on statute of limitations defenses as to certain claims and
ordered a hearing as to statute of limitations defenses as to other
claims. The parties commenced settlement discussions, which resulted in
a settlement agreement that was preliminarily approved by the court on
November 10, 1999 and finally approved by the court on December 22,
1999. Under the terms of the settlement, the defendants guarantee
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 $525,245 in
legal expenses in connection with this matter. Of this amount,
approximately $315,147 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 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 Financial Statements, taken as a
whole. Accordingly, no provision for any liability that could result
from the eventual outcome of these matters has been made in the
accompanying financial statements. However, while it is still too early
to estimate potential damages, they could possibly be material.
10. SUBSEQUENT EVENTS
During February 2000, the Partnership made a cash distribution from
Distributable Cash from Operations in the amount of $737,442. The
amount was distributed in accordance with the Partnership Agreement and
allocated as follows:
<TABLE>
<CAPTION>
Distributable Cash
From Operations
---------------
<S> <C>
Investors $700,416
John Hancock Limited Partner -
General Partner 37,026
Total $737,442
</TABLE>
F-14
<PAGE> 41
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
QOCC-1 ASSOCIATES
DECEMBER 31, 1998
F-15
<PAGE> 42
QOCC-1 ASSOCIATES
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT F-17
FINANCIAL STATEMENTS
BALANCE SHEET F-18
STATEMENT OF INCOME F-19
STATEMENT OF PARTNERS' EQUITY F-20
STATEMENT OF CASH FLOWS F-21
NOTES TO FINANCIAL STATEMENTS F-22
F-16
<PAGE> 43
INDEPENDENT AUDITORS' REPORT
To the Partners
QOCC-1 Associates
We have audited the accompanying balance sheet of QOCC-1 Associates as
of December 31, 1999, and the related statements of income, partners' equity and
cash flows for the year then ended. These financial statements are the
responsibility of the partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of QOCC-1 Associates as
of December 31, 1999, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
Bethesda, Maryland
January 10, 2000
F-17
<PAGE> 44
QOCC-1 Associates
BALANCE SHEET
December 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
RENTAL PROPERTY
Land $ 3,670,000
Land improvements 35,425
Building 11,461,343
Building improvements 92,888
-----------
15,259,656
Less accumulated depreciation 4,043,048
-----------
11,216,608
-----------
OTHER ASSETS
Cash and cash equivalents 551,822
Prepaid taxes and insurance 108,835
Prepaid leasing commissions 43,162
Deferred rent concessions 1,181,080
Leasing costs, less accumulated amortization of $1,275,071 878,294
-----------
2,763,193
-----------
$13,979,801
===========
</TABLE>
<TABLE>
LIABILITIES AND PARTNERS' EQUITY
<S> <C>
LIABILITIES
Accounts payable and accrued expenses $ 74,454
Security deposit 243,283
-----------
317,737
COMMITMENT --
PARTNERS' EQUITY 13,662,064
-----------
$13,979,801
===========
</TABLE>
F-18
<PAGE> 45
QOCC-1 Associates
STATEMENT OF INCOME
Year ended December 31, 1999
<TABLE>
<S> <C> <C>
Revenue
Rental income - base $ 2,691,797
Rental income - reimbursements 77,381
Interest income 22,128
------------
Total revenue 2,791,306
Expenses
Accounting and legal $ 11,270
Advertising 1,381
Bank fees 2,187
Commissions 86,320
Depreciation and amortization 592,397
Dues 1,239
Insurance 6,603
Management fees 54,308
Personnel services 63,200
Repairs and maintenance 142,770
Supplies 2,236
Taxes 212,735
Travel 22
Utilities 1,562
-----------
Total expenses 1,178,230
------------
NET INCOME $ 1,613,076
============
</TABLE>
F-19
<PAGE> 46
QOCC-1 Associates
STATEMENT OF PARTNERS' EQUITY
Year ended December 31, 1999
<TABLE>
<CAPTION>
Equity at Equity at
January 1, Net December 31,
1999 income Distributions 1999
---- ------ ------------- ----
<S> <C> <C> <C> <C>
JH Quince Orchard Partners $ 14,009,111 $ 1,461,422 $ (2,014,140) $ 13,456,393
Quad Properties, Inc. 242,895 151,654 (188,878) 205,671
------------ ------------ ------------ ------------
$ 14,252,006 $ 1,613,076 $ (2,203,018) $ 13,662,064
============ ============ ============ ============
</TABLE>
F-20
<PAGE> 47
QOCC-1 Associates
STATEMENT OF CASH FLOWS
Year ended December 31, 1999
<TABLE>
<S> <C>
Cash flows from operating activities
Net income $ 1,613,076
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 592,397
Increase in prepaid taxes and insurance (5,166)
Decrease in prepaid leasing commissions 86,320
Decrease in deferred rent concessions 99,639
Increase in accounts payable and accrued expenses 57,648
Increase in security deposit liability 11,326
Decrease in advanced rent (235,540)
-----------
Net cash provided by operating activities 2,219,700
-----------
Cash flows from financing activities
Distributions to partners (2,203,018)
-----------
Net cash used in financing activities (2,203,018)
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 16,682
Cash and cash equivalents, beginning 535,140
-----------
Cash and cash equivalents, end $ 551,822
===========
</TABLE>
F-21
<PAGE> 48
QOCC-1 Associates
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The partnership was organized on December 27, 1988, as a general partnership
under the laws of the State of Maryland for the purpose of operating an office
building with approximately 101,114 net rentable square feet in Gaithersburg,
Maryland. The building was acquired in December 1988. The partnership conducts
its rental operations under a lease agreement with one tenant.
Use of Estimates
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 could differ from those estimates.
Specifically, management reviews the carrying value of rental property using
estimated future cash flows, including estimates from disposition, whenever an
event or change in circumstance might indicate that the asset value may not be
recoverable. Because of the inherent uncertainties in estimating future cash
flows, it is at least reasonably possible that the estimates used will change
within the near term.
Rental Property
Rental property is carried at cost. Depreciation is provided for in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives by use of the straight-line method.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the partnership considers all
highly liquid investments with original maturities of 90 days or less to be
cash equivalents.
F-22
<PAGE> 49
QOCC-1 Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
RENTAL INCOME
RENTAL INCOME IS RECOGNIZED USING THE STRAIGHT-LINE METHOD OVER THE TERM OF THE
LEASE, WHICH INCLUDES THE RENT CONCESSION PERIOD. THE AMOUNT APPLICABLE TO THE
RENT CONCESSION IS RECORDED AS A DEFERRED ASSET AGAINST WHICH FUTURE COLLECTIONS
ARE APPLIED. RENTAL PAYMENTS RECEIVED IN ADVANCE ARE DEFERRED UNTIL EARNED. THE
LEASE BETWEEN THE PARTNERSHIP AND THE TENANT OF THE PROPERTY IS AN OPERATING
LEASE.
INCOME TAXES
No provision or benefit for income taxes has been included in these financial
statements since taxable income or loss passes through to, and is reportable by,
the partners individually.
PREPAID LEASING COMMISSIONS
Prepaid leasing commissions are charged to operations using the
straight-line method over 76 months.
LEASING COSTS
Leasing costs were incurred to obtain a new tenant for the office building
and improve the rental space. These costs are being written off using the
straight-line method over the ten-year term of the lease.
NOTE B - RENTAL INCOME UNDER OPERATING LEASE
The partnership has leased the office building to a tenant effective March
1994 under a ten-year term with a five-year renewal option at the discretion
of the lessee. The tenant may terminate the lease after the 76th calendar
month of the term, which is June 2000, by notifying the landlord as outlined
in the lease agreement. During 1999, the tenant notified the partnership
that it will terminate the lease at June 2000. Management of the property
has hired a leasing agent who is actively marketing the property. Rental
income consists of fixed base rent plus a fixed annual increase and variable
lease reimbursement escalation, calculated annually.
F-23
<PAGE> 50
QOCC-1 Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999
NOTE C - RELATED PARTY TRANSACTION
During 1999, the partnership incurred charges of approximately $117,882 for
management fees, personnel services and supplies provided by affiliates of one
of the partners.
NOTE D - COMMITMENT
The partnership has entered into a lease commission agreement with Carey
Winston. The agreement provides for $546,696 of commissions to be paid for
the first 76 months of the tenant's lease, which began March 1994.
NOTE E - CONCENTRATION OF CREDIT RISK
The partnership maintains its cash balances in two banks. The balances are
insured by the Federal Deposit Insurance Corporation up to $100,000 by each
bank. As of December 31, 1999, the uninsured portion of the cash balances held
at the banks was $143,283.
F-24
<PAGE> 51
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
QOCC-1 ASSOCIATES
DECEMBER 31, 1998
F-25
<PAGE> 52
QOCC-1 ASSOCIATES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INDEPENDENT AUDITORS' REPORT F-27
FINANCIAL STATEMENTS
BALANCE SHEET F-28
STATEMENT OF INCOME F-29
STATEMENT OF PARTNERS' EQUITY F-30
STATEMENT OF CASH FLOWS F-31
NOTES TO FINANCIAL STATEMENTS F-32
</TABLE>
F-26
<PAGE> 53
INDEPENDENT AUDITORS' REPORT
To the Partners
QOCC-1 Associates
We have audited the accompanying balance sheet of QOCC-1 Associates as
of December 31, 1998, and the related statements of income, partners' equity and
cash flows for the year then ended. These financial statements are the
responsibility of the partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of QOCC-1 Associates as
of December 31, 1998, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
Bethesda, Maryland
January 11, 1999
F-27
<PAGE> 54
QOCC-1 Associates
BALANCE SHEET
December 31, 1998
<TABLE>
<S> <C>
ASSETS
RENTAL PROPERTY
Land $ 3,670,000
Land improvements 35,425
Building 11,461,343
Building improvements 92,888
15,259,656
Less accumulated depreciation 3,669,317
11,590,339
OTHER ASSETS
Cash and cash equivalents 535,140
Prepaid taxes and insurance 103,669
Prepaid leasing commissions 129,482
Deferred rent concessions 1,280,719
Leasing costs, less accumulated amortization of $1,056,405 1,096,960
3,145,970
-----------
$14,736,309
===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 16,806
Security deposit 231,957
Advanced rent 235,540
484,303
COMMITMENT --
PARTNERS' EQUITY 14,252,006
-----------
$14,736,309
===========
</TABLE>
See notes to financial statements
F-28
<PAGE> 55
QOCC-1 Associates
STATEMENT OF INCOME
Year ended December 31, 1998
<TABLE>
<S> <C> <C>
Revenue
Rental income-base $ 2,691,797
Rental income-reimbursements 83,409
Interest income 13,733
-------------
Total revenue 2,788,939
Expenses
Accounting $ 8,565
Miscellaneous 1,537
Commissions 86,320
Depreciation and amortization 592,307
Insurance 5,749
Management fees 52,983
Personnel services 66,152
Repairs and maintenance 173,209
Supplies 2,836
Taxes 205,711
Utilities 3,239
----------
Total expenses 1,198,608
-------------
NET INCOME $ 1,590,331
=============
</TABLE>
See notes to financial statements
F-29
<PAGE> 56
QOCC-1 Associates
STATEMENT OF PARTNERS' EQUITY
Year ended December 31, 1998
<TABLE>
<CAPTION>
Equity at Equity at
January Net December
1, 1998 Income Distributions 31, 1998
------- ------ ------------- --------
<S> <C> <C> <C> <C>
JH Quince Orchard Partners $ 14,634,651 $ 1,432,312 $ (2,057,852) $ 14,009,111
Quad Properties, Inc. 288,324 158,019 (203,448) 242,895
------------ ------------ ------------ ------------
$ 14,922,975 $ 1,590,331 $ (2,261,300) $ 14,252,006
============ ============ ============ ============
</TABLE>
See notes to financial statements
F-30
<PAGE> 57
QOCC-1 Associates
STATEMENT OF PARTNERS' EQUITY
Year ended December 31, 1998
<TABLE>
<S> <C>
Cash flows from operating activities
Net income $ 1,590,331
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 592,307
Increase in prepaid taxes and insurance (3,669)
Decrease in prepaid leasing commissions 86,320
Decrease in deferred rent concessions 31,555
Increase in leasing costs (584)
Decrease in accounts payable and accrued expenses (3,168)
Increase in advanced rent 235,540
Net cash provided by operating activities 2,528,632
Cash flows from investing activities
Investment in rental property (12,990)
Net cash used in investing activities (12,990)
Cash flows from financing activities
Distributions to partners (2,261,300)
Net cash used in financing activities (2,261,300)
NET INCREASE IN CASH AND CASH EQUIVALENTS 254,342
Cash and cash equivalents, beginning 280,798
-----------
Cash and cash equivalents, end $ 535,140
===========
</TABLE>
See notes to financial statements
F-31
<PAGE> 58
QOCC-1 Associates
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The partnership was organized on December 27, 1988, as a general partnership
under the laws of the State of Maryland for the purpose of operating an
office building with approximately 99,782 net rentable square feet in
Gaithersburg, Maryland. The building was acquired in December 1988. The
partnership conducts its rental operations under a lease agreement with one
tenant.
Use of Estimates
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 could differ from those estimates.
Rental Property
Rental property is carried at cost. Depreciation is provided for in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives by use of the straight-line method.
Cash Equivalents
For purposes of the statement of cash flows, the partnership considers all
highly liquid investments with original maturities of 90 days or less to be
cash equivalents.
Rental Income
Rental income is recognized using the straight-line method over the term of
the lease, which includes the rent concession period. The amount applicable
to the rent concession is recorded as a deferred asset against which future
collections are applied. Rental payments received in advance are deferred
until earned. The lease between the partnership and the tenant of the
property is an operating lease.
F-32
<PAGE> 59
QOCC-1 Associates
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
No provision or benefit for income taxes has been included in these
financial statements since taxable income or loss passes through to, and is
reportable by, the partners individually.
Prepaid Leasing Commissions
Prepaid leasing commissions are charged to operations using the
straight-line method over 76 months.
Leasing Costs
Leasing costs were incurred to obtain a new tenant for the office building
and improve the rental space. These costs are being written off using the
straight-line method over the ten-year term of the lease.
NOTE B - RENTAL INCOME UNDER OPERATING LEASE
The partnership has leased the office building to a new tenant effective
March 1994 under a ten-year term with a five-year renewal option at the
discretion of the lessee. The tenant may terminate the lease after the 76th
calendar month of the term by notifying the landlord as outlined in the
lease agreement. Rental income consists of fixed base rent plus a fixed
annual increase and variable lease reimbursement escalation, calculated
annually.
Future minimum base rental payments due under the noncancelable operating
lease are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1999 $ 2,791,436
2000 2,861,222
2001 2,932,752
2002 3,006,071
2003 3,081,223
Thereafter 515,633
-----------
$15,188,337
===========
</TABLE>
F-33
<PAGE> 60
QOCC-1 Associates
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE C - RELATED PARTY TRANSACTION
During 1998, the partnership incurred charges of approximately $121,827 for
management fees, personnel services and supplies provided by affiliates of
one of the partners.
NOTE D - COMMITMENT
The partnership has entered into a lease commission agreement with Carey
Winston. The agreement provides for $546,696 of commissions to be paid for
the first 76 months of the tenant's lease, which began March 1994. If the
tenant does not exercise its option to terminate the lease after the 76th
month, additional commissions in the amount of $376,198 for the remaining 44
months of the tenant's lease will be due at that time.
NOTE E - CONCENTRATION OF CREDIT RISK
The partnership maintains its cash balances in two banks. The balances are
insured by the Federal Deposit Insurance Corporation up to $100,000 by each
bank. As of December 31, 1998, the uninsured portion of the cash balances
held at the banks was $131,957.
F-34
<PAGE> 61
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
QOCC-1 ASSOCIATES
DECEMBER 31, 1997
F-35
<PAGE> 62
QOCC-1 ASSOCIATES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INDEPENDENT AUDITORS' REPORT F-37
FINANCIAL STATEMENTS
BALANCE SHEET F-38
STATEMENT OF INCOME F-39
STATEMENT OF PARTNERS' EQUITY F-40
STATEMENT OF CASH FLOWS F-41
NOTES TO FINANCIAL STATEMENTS F-42
</TABLE>
F-36
<PAGE> 63
INDEPENDENT AUDITORS' REPORT
To the Partners
QOCC-1 Associates
We have audited the accompanying balance sheet of QOCC-1 Associates as
of December 31, 1997, and the related statements of income, partners' equity and
cash flows for the year then ended. These financial statements are the
responsibility of the partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of QOCC-1 Associates as
of December 31, 1997, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
Bethesda, Maryland
January 8, 1998
F-37
<PAGE> 64
QOCC-1 Associates
BALANCE SHEET
December 31, 1997
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
RENTAL PROPERTY
Land $ 3,670,000
Land improvements 35,425
Building 11,461,343
Building improvements 79,896
------------
15,246,664
Less accumulated depreciation 3,295,590
------------
11,951,074
OTHER ASSETS
Cash and cash equivalents 280,798
Prepaid taxes and insurance 99,999
Prepaid leasing commissions 215,803
Deferred rent concessions 1,312,273
Leasing costs, less accumulated amortization of $837,831 1,314,956
------------
3,223,829
------------
$ 15,174,903
============
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 19,971
Security deposit 231,957
------------
251,928
COMMITMENT -
PARTNERS' EQUITY 14,922,975
------------
$ 15,174,903
============
</TABLE>
See notes to financial statements
F-38
<PAGE> 65
QOCC-1 Associates
STATEMENT OF INCOME
Year ended December 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Revenue
Rental income - base $ 2,691,797
Rental income - reimbursements 67,665
Interest income 1,573
-----------
Total revenue 2,761,035
Expenses
Accounting $ 8,250
Miscellaneous 2,637
Commissions 86,320
Depreciation and amortization 589,198
Insurance 5,772
Management fees 51,691
Personnel services 73,941
Repairs and maintenance 188,130
Supplies 2,137
Taxes 197,519
Utilities 6,463
Total expenses ------- 1,212,058
-----------
NET INCOME $ 1,548,977
===========
</TABLE>
See notes to financial statements
F-39
<PAGE> 66
QOCC-1 Associates
STATEMENT OF PARTNERS' EQUITY
Year ended December 31, 1997
<TABLE>
<CAPTION>
Equity at January Net Equity at December
1, 1997 income Distributions 31, 1997
------- ------ ------------- --------
<S> <C> <C> <C> <C>
JH Quince Orchard $ 15,213,661 $ 1,408,588 $ (1,987,598) $ 14,634,651
Partners
Quad Properties, Inc. 327,337 140,389 (179,402) 288,324
------------- ----------- ------------ -------------
$ 15,540,998 $ 1,548,977 $ (2,167,000) $ 14,922,975
============= =========== ============ =============
</TABLE>
See notes to financial statements
F-40
<PAGE> 67
QOCC-1 Associates
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31, 1997
<S> <C>
Cash flows from operating activities
Net income $ 1,548,977
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 589,198
Increase in prepaid taxes and insurance (3,904)
Decrease in accounts payable and accrued expenses (9,599)
Decrease in prepaid leasing commissions 86,319
Decrease in prepaid rent and security deposit (215,131)
Increase in deferred rent concessions (34,868)
-----------
Net cash provided by operating activities 1,960,992
-----------
Cash flows from investing activities
Investment in rental property (16,760)
-----------
Net cash used in investing activities (16,760)
----------
Cash flows from financing activities
Distributions to partners (2,167,000)
-----------
Net cash used in financing activities (2,167,000)
-----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (222,768)
Cash and cash equivalents, beginning 503,566
-----------
Cash and cash equivalents, end $ 280,798
===========
</TABLE>
See notes to financial statements
F-41
<PAGE> 68
QOCC-1 Associates
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The partnership was organized on December 27, 1988, as a general partnership
under the laws of the State of Maryland for the purpose of operating an
office building with approximately 99,782 net rentable square feet in
Gaithersburg, Maryland. The building was acquired in December 1988. The
partnership conducts its rental operations under a lease agreement with one
tenant.
Use of Estimates
----------------
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 could differ from those estimates.
Rental Property
---------------
Rental property is carried at cost. Depreciation is provided for in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives by use of the straight-line method.
Cash Equivalents
----------------
For purposes of the statement of cash flows, the partnership considers all
highly liquid investments with original maturities of 90 days or less to be
cash equivalents.
Rental Income
-------------
Rental income is recognized using the straight-line method over the term of
the lease, which includes the rent concession period. The amount applicable
to the rent concession is recorded as a deferred asset against which future
collections are applied. Rental payments received in advance are deferred
until earned. The lease between the partnership and the tenant of the
property is an operating lease.
F-42
<PAGE> 69
QOCC-1 Associates
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
No provision or benefit for income taxes has been included in these
financial statements since taxable income or loss passes through to, and is
reportable by, the partners individually.
Prepaid Leasing Commissions
Prepaid leasing commissions are charged to operations using the
straight-line method over 76 months.
Leasing Costs
Leasing costs were incurred to obtain a new tenant for the office building
and improve the rental space. These costs are being written off using the
straight-line method over the ten-year term of the lease.
NOTE B - RENTAL INCOME UNDER OPERATING LEASE
The partnership has leased the office building to a new tenant effective
March 1994 under a ten-year term with a five-year renewal option at the
discretion of the lessee. The tenant may terminate the lease after the 76th
calendar month of the term by notifying the landlord as outlined in the
lease agreement. Rental income consists of fixed base rent plus a fixed
annual increase and variable lease reimbursement escalation, calculated
annually.
Future minimum base rental payments due under the noncancelable operating
lease are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1998 $ 2,723,352
1999 2,791,436
2000 2,861,222
2001 2,932,752
2002 3,006,071
Thereafter 3,596,856
------------
$ 17,911,689
============
</TABLE>
F-43
<PAGE> 70
QOCC-1 Associates
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE C - RELATED PARTY TRANSACTION
During 1997, the partnership incurred charges of approximately $125,809 for
management fees, personnel services and supplies provided by affiliates of
one of the partners.
NOTE D - COMMITMENT
The partnership has entered into a lease commission agreement with Carey
Winston. The agreement provides for $546,696 of commissions to be paid for
the first 76 months of the tenant's lease, which began March 1994. If the
tenant does not exercise its option to terminate the lease after the 76th
month, additional commissions in the amount of $376,198 for the remaining 44
months of the tenant's lease will be due at that time.
NOTE E - CONCENTRATION OF CREDIT RISK
The partnership maintains its cash balances in two banks. The balances are
insured by the Federal Deposit Insurance Corporation up to $100,000 by each
bank. As of December 31, 1997, the uninsured portion of the cash balances
held at the banks was $131,957.
F-44
<PAGE> 71
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Costs
Capitalized
Initial Costs to Subsequent to
Partnership Acquisition
Buildings and Write-down of
Description Encumbrances Land Improvements Improvements Carrying Value (1)
- ----------- ------------ ---- ------------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Palms of Carrollwood
Shopping Center
Tampa, FL -- $ 6,000,000 $ 6,359,816 $ 2,162 ($ 1,431,400)
Yokohama Tire Warehouse (4) -- 742,000 8,610,221 -- --
Business Center at Pureland
Bridgeport, NJ -- 1,050,000 4,092,016 -- --
------------ ------------ ------------ ------------ ------------
-- $ 7,792,000 $ 19,062,053 $ 2,162 ($ 1,431,400)
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Gross Amount Life on Which
At Which Carried at Close of Period Depreciation in
Latest Statement
Buildings and Accumulated Date of Date of Operations
Description Land Improvements Total (2)+(3) Depreciation (3) Construction Acquired is Computed
- ----------- ---- ------------- ------------- ---------------- ------------ -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Palms of Carrollwood
Shopping Center
Tampa, FL $ 5,305,135 $ 5,625,443 $10,930,578 $1,910,391 1984 12/28/89 30 Years
Yokohama Tire Warehouse (4) 742,000 8,610,221 9,352,221 2,427,604 1991 7/17/91 30 Years
Business Center at Pureland
Bridgeport, NJ 1,050,000 4,092,016 5,142,016 1,057,104 1989 3/27/92 30 Years
------------ ----------- ----------- ----------
$ 7,097,135 $18,327,680 $25,424,815 $5,395,099
============ =========== =========== ==========
</TABLE>
(1) This write-down of carrying value represents an impairment in the
value of the property based upon the General Partner's estimate.
S-1
<PAGE> 72
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
SCHEDULE III (CONTINUED)
REAL ESTATE AND ACCUMULATED DEPRECIATION
YEAR ENDED DECEMBER 31, 1999
(2) The Partnership's properties' aggregate cost for federal income tax purposes
at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Property Amount
-------- ------
<S> <C>
Palms of Carrollwood Shopping Center $13,463,356
Yokohama Tire Warehouse 9,352,221
Business Center at Pureland 5,336,128
-----------
$28,151,705
</TABLE>
The Partnership's aggregate cost for federal income tax purposes may
differ from the aggregate cost for Financial Statement purposes. The
tax basis excludes property write-downs which were recognized for
Financial Statement purposes.
(3) Reconciliation of Real Estate and Accumulated Depreciation:
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Investment in Real Estate
Balance at beginning of year $ 31,264,271 $ 33,353,075 $ 33,353,075
Other acquisitions -- -- --
Dispositions (5,839,456) (2,088,804) --
------------ ------------ ------------
Balance at end of year $ 25,424,815 $ 31,264,271 $ 33,353,075
============ ============ ============
Accumulated Depreciation
Balance at beginning of year $ 5,923,497 $ 5,478,701 $ 4,649,036
Additions charged to costs and expenses 619,261 779,967 829,665
Dispositions (1,147,659) (335,171) --
------------ ------------ ------------
Balance at end of year $ 5,395,099 $ 5,923,497 $ 5,478,701
============ ============ ============
</TABLE>
(4) Yokohama Tire Warehouse is classified as Property Held for Sale on the
Balance Sheet.
S-2
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000842741
<NAME> JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,987,934
<SECURITIES> 0
<RECEIVABLES> 110,669
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,098,603
<PP&E> 16,072,594
<DEPRECIATION> 2,967,494
<TOTAL-ASSETS> 30,650,344
<CURRENT-LIABILITIES> 373,291
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 30,277,053
<TOTAL-LIABILITY-AND-EQUITY> 30,650,344
<SALES> 0
<TOTAL-REVENUES> 5,936,231
<CGS> 0
<TOTAL-COSTS> 770,386
<OTHER-EXPENSES> 794,755
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,371,090
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,371,090
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,371,090
<EPS-BASIC> 1.66
<EPS-DILUTED> 1.66
</TABLE>
