-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OiqaZKNtFzdcdeUiPit4XRliHcftHQOJ1hq6+ZhfpaSl48L9FzpuOg2sT3dFxrrH PMtOVHRisTSs0T9IawJAfQ== 0000950135-00-001856.txt : 20000331 0000950135-00-001856.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950135-00-001856 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANCOCK JOHN REALTY INCOME FUND LTD PARTNERSHIP CENTRAL INDEX KEY: 0000795196 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 042921566 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-15680 FILM NUMBER: 587435 BUSINESS ADDRESS: STREET 1: 200 CLARENDON ST CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 8007225457 10-K 1 FORM 10-K DATED 12/31/99 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 0-15680 --------------------------------------------------------- JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP - -------------------------------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Massachusetts 04-2921566 - --------------------------------------- ----------------------------------- (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: Units of Investor Limited Partnership Interest 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 17 - 21 Page 1 of 22 2 TABLE OF CONTENTS
PART I Item 1 Business 3 Item 2 Properties 5 Item 3 Legal Proceedings 5 Item 4 Submission of Matters to a Vote of Security Holders 6 PART II Item 5 Market for the Partnership's Securities and Related Security Holder Matters 6 Item 6 Selected Financial Data 7 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 8 Financial Statements and Supplementary Data 12 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 12 PART III Item 10 Directors and Executive Officers of the Registrant 13 Item 11 Executive Compensation 15 Item 12 Security Ownership of Certain Beneficial Owners and Management 15 Item 13 Certain Relationships and Related Transactions 15 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 17 Signatures 22
2 3 PART I ITEM 1 -- BUSINESS The Registrant, John Hancock Realty Income Fund Limited Partnership (the "Partnership"), is a limited partnership organized on June 12, 1986 under the Massachusetts Uniform Limited Partnership Act. As of December 31, 1999, the partners in the Partnership consisted of John Hancock Realty Equities, Inc. (the "General Partner"), John Hancock Realty Funding, Inc. (the "John Hancock Limited Partner"), and 3,712 Investor Limited Partners (the "Investors") owning 91,647 Units of Investor Limited Partnership Interests (the "Units"). The John Hancock Limited Partner and the Investors are collectively referred to as the Limited Partners. The initial capital of the Partnership was $2,000 representing capital contributions of $1,000 from the General Partner and $1,000 from the John Hancock Limited Partner. During the offering period, the John Hancock Limited Partner made additional capital contributions of $7,330,760. There have been no changes in the number of Units outstanding subsequent to the termination of the offering period. The Amended Agreement of Limited Partnership of the Partnership (the "Partnership Agreement") authorized the sale of up to 100,000 Units of Investor Limited Partnership Interests. The Units were offered and sold to the public during the period from September 9, 1986 to September 9, 1987, pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933. The Partnership sold the Units for $500 per Unit. No established public market exists on which the Units may be traded. The Partnership was engaged in the business of acquiring, improving, holding for investment and disposing of existing, income-producing, commercial and industrial 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 had the ability to 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, 2016, 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, 2016. 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. During 1999 the Partnership sold the last four properties in its portfolio resulting in the termination of the operations of the Partnership. The Partnership will be dissolved, in accordance with the terms of the Partnership Agreement as soon as reasonably practicable. The Partnership's equity real estate investments were subject to various risk factors. 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 previously owned by the Partnership, the Partnership could be exposed to liability and be required to incur substantial remediation costs. On February 17, 1987, the Partnership acquired the Marlboro Square Shopping Center property (Marlboro Square), a neighborhood shopping center located in Marlboro, Massachusetts. Market conditions in Marlboro weakened since the Partnership acquired the property and remained depressed. An excess of supply over demand for retail space resulted in continued high vacancy rates and competitive pricing for available space in the Marlboro area. The General Partner anticipated that vacancy rates for retail space in the Marlboro, Massachusetts area would persist based upon both the lack of demand and the amount of available retail space in the area. Given the existing supply and demand conditions in the Marlboro area, the General Partner's projection of future leasing activity and the projected capital requirements of the property, the General Partner listed Marlboro Square for sale during September 1998 because it did not believe that the property would be likely to appreciate in value during the foreseeable future. On March 17, 1999, the Partnership sold Marlboro Square to a non-affiliated buyer and received net sales proceeds of $1,131,999. During May 1999, the Partnership distributed $956,795 of the net sales proceeds, of which $824,823 was distributed to the Investors and $131,972 was distributed to the John Hancock Limited Partner. The Partnership retained $175,204 in working capital reserves. This amount was subsequently distributed during November 1999 of which $151,038 was distributed to the Investors and $24,166 was distributed to the John Hancock Limited Partner. 3 4 ITEM 1 -- BUSINESS (CONTINUED) On November 20, 1987, the Partnership acquired the Crossroads Square Shopping Center, a neighborhood shopping center located in Jacksonville, Florida. During August 1998, the General Partner listed Crossroads Square for sale based upon the then existing real estate market conditions in the Jacksonville, Florida area, where the Crossroads Square is located, and the property's projected income performance. Subsequent to listing Crossroads Square for sale, the General Partner became aware that the property was environmentally contaminated with certain hazardous materials. The General Partner then sought to determine the scope of the contamination and to determine the impact on the future operating costs, repair and maintenance expenses and market value of the property. The General Partner estimated that to remediate the contamination would cost approximately $450,000. On July 13, 1999, the Partnership sold Crossroads Square to a non-affiliated buyer and received net proceeds of $8,733,420. The sale was not contingent upon the environmental issues, the costs of which were factored into the purchase price by the buyer. The General Partner has no reason to believe, as of the date of this report, that the Partnership will be held responsible for any further environmental costs associated with this property. No assurances can be given that no environmental liabilities will arise in the future. During August 1999 the Partnership distributed $6,873,525 of the net sales proceeds to the Investors. During November 1999 an additional $644,716 of the net sales proceeds were distributed to the Investors. The Partnership retained $1,215,179 in working capital reserves. On February 25, 1988, the Partnership acquired the Warner Plaza Shopping Center ("Warner Plaza"), a neighborhood shopping center located in Chandler, Arizona. The Partnership acquired Warner Plaza exclusive of areas totaling 55,562 rentable square feet owned by a non-affiliate of the Partnership. Real estate market conditions declined in the Chandler area after the Partnership acquired the property. However, steady population growth in the Chandler area over the past few years had increased demand for available retail space and stimulated the development of new retail space. Given these market conditions and the status of the property, the General Partner listed the Warner Plaza for sale during June 1998. On March 18, 1999, the Partnership sold Warner Plaza to a non-affiliated buyer and received net sales proceeds of $6,210,535. During May 1999, Partnership distributed $5,528,147 of the net sales proceeds of which $4,765,644 was distributed to the Investors and $762,503 was distributed to the John Hancock Limited Partner. The Partnership retained $682,388 in working capital reserves. This amount was subsequently distributed during November 1999 of which $588,266 was distributed to the Investors and $94,122 was distributed to the John Hancock Limited Partner. On December 22, 1987, the Partnership acquired the Carnegie Center, a multi-tenant office/industrial facility located in Cincinnati, Ohio. After the Partnership acquired the Carnegie Center, the Cincinnati industrial real estate market experienced an oversupply of office/industrial space that resulted in a decline in rental rates and an increase in vacancy rates. After late in 1994 the property's occupancy gradually improved. Given the existing status of the property, the projected future capital requirements necessary for the property to maintain its competitive position within the market and the existing conditions in the Cincinnati real estate market, the General Partner listed the Carnegie Center for sale during July 1998. On January 7, 1999, the Partnership sold the Carnegie Center to a non-affiliated buyer and received net sales proceeds of $4,096,441. During February 1999, the Partnership distributed $4,092,955 of the net sales proceeds, of which $3,528,410 was distributed to the Investors, and $564,545 was distributed to the John Hancock Limited Partner. The Partnership retained $3,486 in working capital reserves. This amount was subsequently distributed during November 1999, of which $3,004 was distributed to the Investors and $481 was distributed to the John Hancock Limited Partner. On October 24, 1986, the Partnership acquired the 1300 North Dutton Avenue property, an office/industrial facility located in Santa Rosa, California. Due to the then existing favorable market conditions in the Santa Rosa, California area, the General Partner listed the property for sale during October 1996. On September 29, 1997, the Partnership sold the property to a non-affiliated buyer and received net sales proceeds of $2,673,278. During November 1997, the Partnership distributed $2,126,210 of the net sales proceeds, of which $1,832,940 was distributed to the Investors, and $293,270 was distributed to the John Hancock Limited Partner. The Partnership retained $547,068 in working capital reserves. This amount was subsequently distributed during November 1999, of which $471,610 was distributed to the Investors and $75,458 was distributed to the John Hancock Limited Partner. On September 13, 1988, the Partnership acquired the J.C. Penney Credit Operations Center, an office/service center located in Albuquerque, New Mexico and 100% occupied by J.C. Penney. The General Partner listed the J.C. Penney Credit Operations Center for sale during July 1995 based upon then existing favorable real estate market conditions in Albuquerque, New Mexico. On December 29, 1995, the Partnership sold the J.C. Penney Credit Operations Center to a non-affiliated buyer and received net sales proceeds of $5,392,032. During February 1996, the Partnership distributed $5,315,526 of the net sales proceeds, of which $4,582,350 was distributed to the Investors, and $733,176 was distributed to the John Hancock Limited Partner. The Partnership retained $76,506 in working capital reserves. This amount was subsequently distributed during November 1999, of which $65,953 was distributed to the Investors and $10,553 was distributed to the John Hancock Limited Partner. 4 5 ITEM 1 -- BUSINESS (CONTINUED) 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 ("Directors and Executive Officers of the Partnership") of this Report. Industry segment information has not been provided since the Partnership is engaged in only one industry segment. ITEM 2 -- PROPERTIES At December 31, 1999, the Partnership held no properties in its portfolio. 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 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 have guaranteed certain minimum returns to class members on their investments and paid fees and expenses to class counsel in an amount determined by the court of $1.5 million. Payments under the settlement agreement will have no financial impact on the Partnership. In September 1997, a complaint for damages was filed in the Superior Court of the State of California for the County of Los Angeles by an investor in John Hancock Realty Income Fund-II Limited Partnership ("RIF-II"), a limited partnership affiliated with the Partnership. The complaint named the General Partner as a defendant. The plaintiff sought unspecified damages that allegedly arose from the General Partner's refusal to provide, without reasonable precautions on plaintiff's use of, a list of investors in the Partnership and in RIF-II. Plaintiff alleges that the General Partner's refusal unconditionally to provide a list was a breach of contract and a breach of the General Partner's fiduciary duty. In 1998, the plaintiff amended the complaint to name the Partnership and RIF-II as defendants. As a result of the defendants' demurrer (motion to dismiss), in May 1998 additional claims for tortious interference with prospective economic advantage and intentional interference with contract, were dismissed. In addition, as a result of a motion for summary judgment, in August 1998, the court dismissed all claims involving RIF-II, leaving only the breach of contract and breach of fiduciary duty claims involving the Partnership. On the eve of trial, plaintiffs dismissed without prejudice those claims not previously dismissed by the court, and subsequently filed a notice of appeal from the dismissal of the claims that the court had dismissed on motion. The Partnership has commenced its own action against the plaintiff seeking the court's declaration that the claims that remained on the eve of trial are without merit and seeking to bar the plaintiff from attempting to assert those claims at a later date. The parties commenced settlement discussions, which resulted in a settlement agreement on February 18, 2000 terminating all litigation between the parties. The settlement will not have a material adverse impact on the Partnership's financial position. There are no other material pending legal proceedings, other than routine litigation incidental to the business of the Partnership to which the Partnership or to which any of its assets is subject. 5 6 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. 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 91,647 Units originally sold for $500 per Unit. The Units were offered and sold to the public during the period from September 9, 1986 to September 9, 1987. 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 or by applicable law, including state "Blue Sky" laws. (b) NUMBER OF SECURITY HOLDERS
Number of Number of Units record holders as of outstanding as of Title of Class December 31, 1999 December 31, 1999 -------------- ----------------- ----------------- Units of Investor Limited Partnership Interests 3,615 91,647
(c) DIVIDEND HISTORY AND RESTRICTIONS During the fiscal year ended December 31, 1999, the Partnership distributed cash in the aggregate amount of $20,074,644 to the Partners. Of this amount, $493,854 was generated from Distributable Cash from Operations, and $19,580,790 was generated from Distributable Cash from Sales or Financings (defined in the Partnership Agreement). These amounts were distributed in accordance with the Partnership Agreement. During the fiscal year ended December 31, 1998, the Partnership distributed cash in the amount of $2,001,645 to the Partners. All of this amount was generated from Distributable Cash from Operations (defined in the Partnership Agreement). The following table reflects aggregate cash distributions with respect to Distributable Cash from Operations and Distributable Cash from Sales or Financings made during 1998 and 1999:
Amount Paid to Date of Amount of Amount Paid to John Hancock Amount Paid Distribution Distribution Distribution General Partner Limited Partner to Investors Per Unit - -------------------------- ------------- --------------- ----------------- ------------- ------------ February 13, 1998 $509,151 $5,092 $ -- $504,059 $5.50 May 15, 1998 498,041 4,980 -- 493,061 5.38 August 14, 1998 497,396 4,335 -- 493,061 5.38 November 13, 1998 497,057 3,998 -- 493,060 5.38 February 12, 1999* 4,586,810 795 564,545 4,021,470 43.88 May 14, 1999* 6,484,942 -- 894,475 5,590,467 61.00 August 13, 1999* 6,873,525 -- -- 6,873,525 75.00 November 15, 1999* 2,129,367 -- 204,780 1,924,587 21.00
* Includes Distributable Cash from Sales or Financings The amount of future cash distributions will be dependent upon the need to draw down working capital reserves. As of the date of this report, all of the properties in the Partnership have been sold. In order to adequately provide for all future contingencies, the General Partner has determined (as permitted by the Partnership Agreement) to retain rather than distribute to investors, net cash provided by the Partnership's normal operations in order to fund cash reserves for contingencies. Accordingly, no cash distributions with respect to Distributable Cash from Operations pertaining to 1999 were made to the Limited Partners. All distributions represent Distributable Cash from Sales. At such time as all liabilities with respect to the Partnership are resolved, the General Partner will make a final distribution of net assets to the Limited Partners, in accordance with the terms of the Partnership Agreement. Such final distribution, if any, will result in the liquidation and, as soon as reasonable practicable, dissolution of the Partnership. 6 7 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.
Years Ended December 31, 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Rental income .............................. $ 886,432 $ 2,544,074 $ 2,861,166 $ 2,614,989 $ 3,065,751 Interest income ............................ 246,789 100,005 107,469 171,767 173,286 (Loss)/gain on sale of property ............ 1,320,277 -- (5,321) -- 128,539 Property write-downs ....................... -- -- (668,520) (1,907,093) -- Net income/(loss) .......................... 1,403,520 1,050,152 636,383 (851,115) 1,551,706 Net income/(loss) per Unit(b) .............. 13.19 11.53 8.41 (5.60) 17.42 Ordinary tax income/(loss)(a) .............. (8,052,297) 761,396 1,167,990 1,130,346 1,480,158 Ordinary tax income/(loss) per Unit (b) .... (92.52) 8.68 13.33 12.74 16.80 Cash distribution per Unit from operations ............................. 5.38 21.64 22.52 23.44 25.00 Distributable cash from sales or financings .......................... 19,580,790 -- 2,126,210 -- 5,315,526 Cash distribution per Unit from sales or Financings ............................. 195.50 -- 20.00 50.00 -- Cash and cash equivalents at December 31 ............................ 2,476,260 2,055,017 2,502,844 2,197,847 8,397,420 Total assets at December 31 ................ 2,476,260 21,026,013 21,765,879 25,375,190 33,605,444
(a) The ordinary tax income (loss) for the Partnership was allocated as follows:
Years Ended December 31, 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- General Partner ................ $ (80,523) $ 7,614 $ 11,680 $ 11,303 $ 14,802 John Hancock Limited Partner ... 506,967 (41,901) (65,297) (48,543) (74,321) Investors ...................... (8,478,741) 795,683 1,221,607 1,167,586 1,539,677 ----------- ----------- ----------- ----------- ----------- Total ...................... $(8,052,297) $ 761,396 $ 1,167,990 $ 1,130,346 $ 1,480,158 =========== =========== =========== =========== ===========
(b) The ordinary tax income per Unit as presented was computed by dividing the Investors' share of ordinary tax income by the number of Units outstanding at December 31, 1999, 1998, 1997, 1996 and 1995, respectively. The actual ordinary tax income/(loss) per Unit has not been presented because the actual ordinary tax income/(loss) is allocated between tax-exempt and tax-paying entities based upon the respective number of Units held by each group at December 31, 1999, 1998, 1997, 1996 and 1995. ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL During the offering period from September 9, 1986 to September 9, 1987, the Partnership sold 91,647 Units representing gross proceeds (exclusive of the John Hancock Limited Partner's contribution which was used to pay sales commissions, acquisition fees and organizational and offering expenses) of $45,823,500. The proceeds of the offering were used to acquire investment properties and fund reserves. These properties are described more fully in Item 2 of this Report and Note 4 to the Financial Statements included in Item 8 of this Report. 7 8 ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 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, as of the date of this report neither John Hancock nor the Partnership have reason 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 sale of Partnership properties, the dissolution and liquidation of the Partnership, actions that would be taken in the event of lack of liquidity, litigation expenses and indemnification claims, distributions to the General Partner and to Investors, the impact of the year 2000 on 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, and other factors detailed from time to time in the filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect the General Partner's analysis only as of the date hereof. The Partnership assumes no obligation to update forward-looking statements. See also the Partnership's reports to be filed from time to time with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended. LIQUIDITY AND CAPITAL RESOURCES 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. The Partnership sold the last property in its portfolio, Crossroads Square Shopping Center, on July 13, 1999. The sale of this last remaining property resulted in the termination of the operations of the Partnership, and the Partnership will be dissolved, in accordance with the terms of the Partnership Agreement as soon as reasonably practicable. At such time as all liabilities with respect to the Partnership are resolved, the General Partner will make a final distribution of net assets to the Limited Partners, as soon as practicable. No assurances can be given as to whether any distribution can be made after all liabilities of the Partnership are resolved. Such final distribution, if any, will result in the liquidation and termination of the Partnership. At such time of such final distribution, the outstanding Units will be canceled and, in accordance with federal securities laws, they will be de-registered with the Securities and Exchange Commission, after which time the Partnership will no longer be required to file periodic reports with the Commission. 8 9 ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) At December 31, 1999, the Partnership had $2,476,260 in cash and cash equivalents. Cash and cash equivalents increased by $421,243 from 1998. This increase occurred because the Partnership retained a portion of net sales proceeds in working capital reserves as permitted by the Partnership Agreement. The Partnership's working capital reserve has a current balance of approximately $1,729,000. The General Partner anticipates that such amount should be sufficient to satisfy the Partnership's general liquidity requirement as the Partnership business is wound down. Liquidity would, however, be materially adversely affected by significant unanticipated operating and liquidation costs (including but not limited to litigation expenses). 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, or short-term loans from the General Partner or its Affiliates. During 1999, cash from working capital reserves in the aggregate amount of $22,434 was used for the payment of leasing costs incurred at the Crossroads Square, and Warner Plaza properties. The Partnership will not incur any leasing costs during 2000. During the years ended December 31, 1999 and 1998, approximately $6,886 and $92,000, respectively, of cash from operations was used to fund non-recurring maintenance and repair expenses incurred at the Partnership's properties. The Partnership will not incur any non-recurring maintenance and repair expenses during 2000. The Partnership has incurred approximately $525,246 in legal expenses in connection with the class action lawsuit (see Part I, Item 3 of this Report). Of this amount, approximately $315,147 relates to the Partnership's own defense and approximately $210,098 relates to the indemnification of the General Partner and its Affiliates for their defense. In addition, the Partnership incurred approximately $834,663 in legal expenses in connection with the lawsuit filed in the Superior Court of the State of California for the County of Los Angeles by an investor in the Partnership (see Part I, Item 3 of this Report). Of this amount, approximately $509,901 relates to the Partnership's own defense and approximately $324,762 relates to the indemnification of the General Partner and its Affiliates for their defense. These expenses are funded from the operations of the Partnership. At the present time, the General Partner cannot estimate the aggregate amount of legal expenses and indemnification claims to be incurred and their impact on the Partnership's future operations, winding down and distributions. Liquidity would, however, be materially adversely affected by a significant increase in such legal expenses and related indemnification costs. If such increases were to occur, to the extent that cash from operations and the working capital reserve would be insufficient to satisfy the cash requirements of the Partnership, it is anticipated that additional funds would be obtained through a reduction of cash distributions to Investors, bank loans, or short-term loans from the General Partner or its Affiliates. Cash in the amount of $20,074,644 was distributed to the General Partner and the Limited Partners during 1999. The amount was $756 less than expected due to an adjustment for the third quarter of 1998. Of this distribution amount, $494,854 was from Distributable Cash from Operations for the quarter ended December 31, 1998 and $19,580,790 was from Distributable Cash from Sales during 1999. As a result of the disposition by the Partnership of all four of its remaining properties during 1999, the General Partner determined that it was in the best interests of the Partnership to retain, rather than distribute to Investors, net cash provided by the Partnership's normal operations in order to fund cash reserves for contingencies, as is permitted by the Partnership Agreement. Accordingly, for 1999, no cash distributions with respect to Distributable Cash from Operations were made to Investors. The General Partner evaluated the carrying value of each of the Partnership's properties as of December 31, 1998 by comparing such value to the respective property's future undiscounted cash flows and the then most recent internal appraisal. No impairment in values exists with respect to the Partnership's properties as of December 31, 1998 and, therefore no write-downs were recorded. As of December 31, 1999, all of the properties in the Partnership have been sold. 9 10 ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS Average occupancy for the Partnership's properties was as follows:
Years ended December 31, 1999* 1998 1997 ----- ---- ---- Marlboro Square Shopping Center N/A 62% 65% Crossroads Square Shopping Center N/A 95% 95% Carnegie Center Office/Industrial N/A 73% 68% Warner Plaza Shopping Center N/A 96% 99%
*As of December 31, 1999, all of the Partnership's properties had been sold. RESULTS OF OPERATIONS -- 1999 COMPARED WITH 1998 Net income for 1999 was $1,403,520 as compared to $1,050,152 in 1998. The 1999 results include a net non-recurring gain of $1,320,277 resulting from the sales of the Carnegie Center, Marlboro Square, Warner Plaza and Crossroads Square properties. Excluding the results of this gain, net income decreased by $966,909, or 92%, during 1999 as compared to 1998. This decrease is primarily due to the sales of these four buildings during 1999. Rental income for 1999 decreased by $1,657,642, or 65%, as compared to 1998. This decrease is primarily due to the sales of the Carnegie Center, Marlboro Square, Warner Plaza and Crossroads Square properties during 1999. Interest income for the year ended December 31, 1999 increased by $146,784, or 147% as compared to 1998. This increase is primarily due to an increase in working capital reserves, which increased because the Partnership retained a portion of the net sales proceeds from the sales of the Marlboro Square, Warner Plaza and Crossroads Square properties. Depreciation expense for 1999 decreased by $372,850, or 100%, as compared to 1998. This decrease is due to the reclassification of the Crossroads Square, Warner Plaza, Carnegie Center and Marlboro Square properties 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. The Partnership's share of property operating expenses for 1999 decreased by $257,803, or 65%, as compared to 1998. This decrease is primarily due to the sales of the Carnegie Center, Marlboro Square, Warner Plaza and Crossroads Square Properties. General and administrative expenses increased during 1999 by $200,684, or 28%, as compared to the 1998. 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. Amortization of deferred expenses for 1999 decreased by $63,358, or 100%, as compared to 1998. This decrease is due to reclassifying deferred expenses to "Property Held for Sale" and, accordingly, no longer amortizing such amounts. Management fee expense, which is equal to 3.5% of Cash from Operations (as defined in the Partnership Agreement), decreased during 1999 by $50,622, or 94%, as compared to the same period in 1998. This decrease was due to a decline in Cash from Operations between periods which resulted from the sales of the Carnegie Center, Marlboro Square, Warner Plaza and Crossroads Square properties as well as from an increase in general and administrative expenses between periods. RESULTS OF OPERATIONS -- 1998 COMPARED WITH 1997 Net income for 1998 was $1,050,152 as compared to $636,383 in 1998. The 1997 results include a $668,520 write-down of the value of the Marlboro Square property and a $5,321 non-recurring loss resulting from the sale of the 1300 North Dutton Avenue property as well as approximately $196,000 of operating income from the 1300 North Dutton Avenue property. Excluding these amounts, net income decreased by 7% during 1998 as compared to 1997. 10 11 ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS -- 1998 COMPARED WITH 1997 (CONTINUED) Rental income for 1998 decreased by $317,092, or 11%, as compared to 1997. This decrease is primarily due to the sale of the 1300 North Dutton Avenue property on September 29, 1997. Excluding rental income generated by the 1300 North Dutton Avenue property, rental income was consistent between periods. Increases in rental income at the Crossroads Square and Carnegie Center properties were offset by decreases in rental income at Marlboro Square and Warner Plaza. Interest income for the year ended December 31, 1998 decreased by $7,464, or 7% as compared to 1997. This decrease is primarily due to a decrease in working capital reserves, which declined due to an increase in general and administrative expenses. Depreciation expense for 1998 decreased by $295,019, or 44%, as compared to 1997. This decrease is primarily due to the reclassification of the Crossroads Square, Warner Plaza, Carnegie Center and Marlboro Square properties 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. In addition, depreciation expense also declined due to the write-down in value of Marlboro Square's carrying value at December 31, 1997. The Partnership's share of property operating expenses was consistent between 1998 and 1997; however, excluding amounts attributable to 1300 North Dutton Avenue, the Partnership's share of property operating expenses increased by 23%. Increases in the Partnership's share of property operating expenses at the Marlboro Square and Crossroads Square properties were partially offset by a decrease in the Partnership's share of property operating expenses at the Warner Plaza. The Partnership's share of property operating expenses was consistent between periods at the Carnegie Center. The Partnership's share of property operating expenses at the Marlboro Square increased $38,000 during 1998 as compared to 1997 primarily due to a decrease in occupancy at the property, and therefore, decreases in tenant reimbursements for such expenses. The Partnership's share of property operating expenses at Crossroads Square increased in 1998 as compared to 1997 primarily due to an increase in non-recurring maintenance and repair expenses during 1998 as compared to 1997. The property incurred approximately $50,000 and $15,000 of non-recurring maintenance and repair expenses during 1998 and 1997, respectively. The Partnership's share of property operating expenses at Warner Plaza decreased in 1998 as compared to 1997 primarily due to an decrease in non-recurring maintenance and repair expenses during 1998 as compared to 1997. The property incurred approximately $23,000 and $75,000 of non-recurring maintenance and repair expenses during 1998 and 1997, respectively. This decrease in the Partnership's share of property operating expenses was partially offset by an increase in certain operating expenses as well as a decrease in average occupancy between periods, and therefore decreases in tenant reimbursements for such expenses. General and administrative expenses increased during 1998 by $324,094, or 84%, 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. Amortization of deferred expenses for 1998 decreased by $71,145, or 53%, as compared to 1997. This decrease is primarily due to reclassifying deferred expenses to "Property Held for Sale" and, accordingly, no longer amortizing such amounts. Management fee expense, which is equal to 3.5% of Cash from Operations (as defined in the Partnership Agreement), decreased during 1998 by $21,535, or 29%, as compared to the same period in 1997. This decrease was due to a decline in Cash from Operations between periods which resulted from the sale of the 1300 North Dutton Avenue property as well as from an increase in general and administrative expenses between periods. 11 12 ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS -- 1998 COMPARED WITH 1997 (CONTINUED) During 1997, the General Partner determined that the value of the Marlboro Square property had been impaired. As a result, the Partnership reduced the carrying amount of the property by $668,520 and this amount was charged directly to operations. The General Partner believes that inflation has had no significant impact on the Partnership's operations during the last three fiscal years, and the General Partner anticipates that inflation will not have a significant impact during 2000. 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:
Years Ended December 31, 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Net cash provided by operating activities (a) ......... $ 345,926 $ 1,705,891 $ 2,066,766 $ 2,239,462 $ 2,431,249 Net change in operating assets and liabilities (a) .............. (262,683) (219,531) 45,830 (201,460) 77,507 ----------- ----------- ----------- ----------- ----------- Cash provided by operations (a) ...... 83,243 1,486,360 2,112,596 2,038,002 2,508,756 Increase in working capital reserves . (83,243) -- (39,893) -- (194,438) Add: Accrual basis Partnership management fee ............. 3,019 53,641 75,176 76,619 83,939 ----------- ----------- ----------- ----------- ----------- Cash from operations (b) ............. 3,019 1,540,001 2,147,879 2,114,621 2,398,257 Decrease in working capital reserves . -- 500,747 -- 74,507 -- Less: Accrual basis Partnership management fee ............. (3,019) (53,641) (75,176) (76,619) (83,939) ----------- ----------- ----------- ----------- ----------- Distributable cash from operations (b) $ 0 $ 1,987,107 $ 2,072,703 $ 2,112,509 $ 2,314,318 =========== =========== =========== =========== =========== Allocation to General Partner ........ $ -- $ 14,864 $ 20,727 $ 21,125 $ 23,143 Allocation to John Hancock Limited Partner .................. -- -- -- -- -- Allocation to Investors .............. -- 1,972,243 2,051,976 2,091,384 2,291,175 ----------- ----------- ----------- ----------- ----------- Distributable cash from operations (b) $ -- $ 1,987,107 $ 2,072,703 $ 2,112,509 $ 2,314,318 =========== =========== =========== =========== ===========
(a) Net cash provided by operating activities, net change in operating assets and liabilities, and 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. ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response to this Item appears beginning on page F-1 of this Report. ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE No events requiring disclosure under this Item have occurred. 12 13 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:
Name Title Age ---------- ------------- ------- 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
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 (defined in the Partnership Agreement) 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:
Name Title Age -------- --------- ------- Edward P. Dowd Senior Vice President of 57 John Hancock's Real Estate Investment Group John M. Garrison Senior Investment Officer of John 49 Hancock's Real Estate Investment Group, President of John Hancock Realty Equities, Inc. John M. Nagle Senior Investment Officer of 49 John Hancock's Real Estate Investment Group, Vice President of John Hancock Realty Equities, Inc.
(d) FAMILY RELATIONSHIPS There exist no family relationships among any of the foregoing directors or officers of the General Partner. 13 14 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 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. 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. 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. (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 of Units and any subsequent change in such 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 at any time during the 1999 fiscal year or as of the date hereof. In addition, to the Partnership's knowledge, the Commonwealth of Massachusetts Pension Reserve Investment Trust Fund, the only greater than ten percent holder of the Units, was not required to file any reports relating to Section 16(a) filing requirements during the 1999 fiscal year. 14 15 ITEM 11 -- EXECUTIVE COMPENSATION None of the officers or directors of the General Partner or any of the Real Estate Investment Committee members referred to in Item 10(c) receive any current or proposed direct remuneration from the Partnership in their capacities as officers, directors or Real Estate Investment Committee members, 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 persons in such capacities. No long-term incentive plan exists with any such persons in such capacities and no remuneration plan or arrangement exists with any such persons 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. During the 1999 fiscal year, no current or former officer or employee of the General Partner or its Affiliates participated in deliberations regarding the General Partner's or its Affiliates' 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 91,647 outstanding Units as of December 31, 1999, except as follows:
Title Amount and Percent of Name and Address Nature of of Class of Beneficial Owner Beneficial Ownership Class ----- ------------------- -------------------- ----- Units of The Commonwealth of 10,000 Units 10.91% Investor Massachusetts Pension owned directly Limited Reserve Investment Partnership Trust Fund Interests 125 Summer Street, 10th Floor Boston, MA
(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 of control of the Partnership. ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See Note 5 of the Notes to the Financial Statements included in Item 8 of this Report for a description of certain transactions and related amounts paid by the Partnership to the General Partner and its Affiliates (as defined in the Partnership Agreement) during the years ended 1999, 1998 and 1997. In accordance with the terms of the Partnership Agreement, the General Partner and/or its Affiliates are entitled to the following types of compensation, fees, profits/(losses), expense reimbursements and distributions: The General Partner shall receive a Partnership Management Fee (defined in the Partnership Agreement) for managing the normal operations of the Partnership in an amount equal to 3.5% of cash flow from operations. The General Partner was paid a Partnership Management Fee totaling, $3,019, $53,641 and $75,176 during the years ended December 31, 1999, 1998 and 1997, respectively. 15 16 ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED) An Affiliate of the General Partner is entitled to receive a Property Management Fee (defined in the Partnership Agreement) for providing property management services to 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 services in an area where the Partnership's properties are located, but in no event may such fees exceed 6% of the gross receipts of any property under management. To date, no Affiliate of the General Partner has provided property management services to the Partnership's properties; therefore, the Partnership did not pay any such fees during the years ended December 31, 1999, 1998 or 1997. The General Partner and its Affiliates are entitled to receive 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 Affiliates' costs or 90% of those which the Partnership would be required to pay to independent parties for comparable services in the same or comparable geographic locations. The Partnership reimbursed the General Partner for $290,965, $250,276 and $252,103 of such expenses during the years ended December 31, 1999, 1998 and 1997, respectively. Upon disposition of any property, the General Partner is entitled to a Subordinated Disposition Fee (defined in the Partnership Agreement) in the amount of 3% of the sales price of each property sold. However, no such Subordinated Disposition Fees 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 (defined in the Partnership Agreement) plus the Cumulative Return on Investment (defined in the Partnership Agreement) of 12% per annum for all fiscal years ended prior to the date of payment. Such Subordinated Disposition Fees may not exceed 50% of the competitive real estate commission 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 to the General Partner during the years ended December 31, 1999, 1998 or 1997. A share of the Partnership's Distributable Cash from Operations (defined in the Partnership Agreement) may be distributed to the General Partner and the John Hancock Limited Partner. Distributable Cash from Operations is distributable 1% to the General Partner and the remaining 99% among the Investors, the General Partner and the John Hancock Limited Partner, in accordance with Section 8 of the Partnership Agreement (described more fully in Note 3 to the Financial Statements included in Item 8 of this Report). The General Partner's Share of Distributable Cash from Operations was $0, $14,864 and $20,727 for the years ended December 31, 1999, 1998 and 1997, respectively. In accordance with the Partnership Agreement, the John Hancock Limited Partner was not entitled to receive any such distributions during the 1999, 1998 and 1997 fiscal years. A share of Cash from Sales or Financings (defined in the Partnership Agreement) may be distributable 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 (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 $1,663,800, $0 and $293,270 during the years ended December 31, 1999, 1998 and 1997, respectively. In accordance with the Partnership Agreement, the General Partner was not entitled to receive any such distributions during the years ended 1999, 1998 or 1997. A share of the Partnership's profits or losses for tax purposes (defined in the Partnership Agreement) is allocable to the General Partner 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 is generally allocated 1% of the Partnership's losses for tax purposes, while the John Hancock Limited Partner is 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 losses of $80,523 during the year ended December 31, 1999 and profits of $7,614 and $11,680 during the years ended December 31, 1998 and 1997, respectively. The John Hancock Limited Partner's share of such profits or losses were profits of $506,967 during the year ended December 31, 1999 and losses of $41,901 and $65,297 during the years ended December 31, 1998 and 1997, respectively. 16 17 ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED) The following table reflects compensation, fees, profits/(losses), expense reimbursements or distributions from the Partnership to the General Partner and/or its Affiliates:
Years Ended December 31, 1999 1998 1997 -------- -------- -------- Partnership management fee expense ...................... $ 3,019 $ 53,641 $ 75,176 Reimbursement for operating expenses ......................... 290,965 250,276 252,103 General Partner's share of Distributable Cash from Operations -- 14,864 20,727 John Hancock Limited Partner's share of Cash from Sales or Financings . 1,663,800 -- 293,270 General Partner's share of profits/ (losses) for tax purposes ........ (80,253) 7,614 11,680 John Hancock Limited Partner's share of profits/(losses) for tax purposes ......................... 506,967 (41,901) (65,297)
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 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 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, except under certain specified circumstances. The General Partner believes that this indemnification applies to costs incurred in the legal proceedings described in Item 3 of Part I of this Report. Accordingly, the Partnership indemnified the General Partner and its Affiliates for costs of $250,183, $189,111 and $54,092 relating to such legal proceedings in the years ended December 31, 1999, 1998 and 1997, respectively. 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
EXHIBIT NUMBER PAGE NUMBER OR UNDER INCORPORATION BY REGULATION S-K DESCRIPTION REFERENCE ------------------ --------------- ------------------- 4 Instruments defining the rights of security holders 4.1 Amended Agreement of Limited Exhibit A to the Partnership* final Prospectus dated September 4, 1986 filed under the Partnership's Form S-11 Registration Statement (File 33-6451)
17 18 ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (CONTINUED) 4.2 The Seventeenth Amendment and Exhibit 4.2 to the Restatement of Certificate of Partnership's Report Limited Partnership filed with on Form 10-K dated the Massachusetts Secretary of December 31, 1987 State on September 15, 1987* (File 0-15680) 10 Material contracts and other documents 10.1 Form of Escrow Agreement* Exhibit 10.1 to the Partnership's Form S-11 Registration Statement (File 33-6451) 10.2 Letter from John Hancock Exhibit 10.1 to Subsidiaries, Inc. containing the Partnership's undertaking as to the net Form S-11 worth of the General Partner* Registration Statement (File 33-6451) 10.3 Documents relating to 1300 North Dutton Avenue (a) Agreement of Purchase and Sale Exhibit 10.3(a) to dated September 30, 1986, and the Post-Effective First Amendment to Agreement of Amendment No. 1 to Purchase and Sale dated the Partnership's October 22, 1986, between Form S-11 Park Campus Associates and Registration Statement John Hancock Realty Income Fund (File 33-6451) Limited Partnership* (b) Lease dated June 12, 1986, and Exhibit 10.3(b) to First Amendment to Lease dated the Post-Effective June 12, 1986, between Amendment No. 1 to Park Campus Associates and the Partnership's Mag Media Ltd.* Form S-11 Registration Statement (File 33-6451) (c) Amended and Restated Statements Exhibit 10.3(c) to of Development Policy and the Post-Effective Declarations of Restrictions of Amendment No. 1 to Santa Rosa Business Park dated the Partnership's June 5, 1986* Form S-11 Registration Statement (File 33-6451) (d) Declaration of Covenants, Exhibit 10.3(d) to Conditions and Restrictions of the Post-Effective Park Campus dated October 2, Amendment No. 1 to 1986* the Partnership's Form S-11 Registration Statement (File 33-6451)
18 19 ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (CONTINUED) (e) Purchase and Sale Agreement Exhibit 1 to the between John Hancock Realty Partnership's Report Income Fund Limited Partnership on Form 8-K dated and GHB Holdings, Inc. dated September 29, 1997 June 18, 1997 (File 0-15680) 10.4 Documents relating to Marlboro Square Shopping Center (a) Agreement of Purchase and Sale Exhibit 10.4(a) to dated January 17, 1987, between the Post-Effective Marlborough GLR Realty Trust Amendment No. 2 to and John Hancock Realty Equities, the Partnership's Form S-11 Inc.* Registration Statement (File 33-6451) 10.5 Documents relating to Crossroads Square Shopping Center (a) Agreement of Purchase and Sale Exhibit 1 to the dated November 20, 1987, between Partnership's Crossroads Square Limited Report on Partnership and John Hancock Form 8-K dated Realty Income Fund Limited December 8, 1987 Partnership* (File 0-15680) (b) Limited Warranty Deed dated Exhibit 2 to the November 20, 1987, relating Partnership's to Crossroads Square Shopping Report on Center* Form 8-K dated December 8, 1987 (File 0-15680) (c) Master Lease Agreement Exhibit 3 to the dated November 18, 1987, Partnership's relating to Crossroads Square Report on Shopping Center* Form 8-K dated December 8, 1987 (File 0-15680) 10.6 Documents relating to Carnegie Center Office/Warehouse (a) Agreement of Purchase and Sale Exhibit 1 to the between Carnegie Properties Partnership's Partnership, Carnegie Properties Report on Partnership II and John Hancock Form 8-K dated Realty Income Fund Limited January 22, 1988 Partnership* (File 0-15680) (b) General Warranty Deed dated Exhibit 2 to the December 22, 1987, between Partnership's Carnegie Properties Partnership Report on and John Hancock Realty Income Form 8-K dated Fund Limited Partnership* January 22, 1988 (File 0-15680)
19 20 ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (CONTINUED) (c) General Warranty Deed dated Exhibit 3 to the December 22, 1987, between Partnership's Carnegie Properties Partnership Report on II and John Hancock Realty Income Form 8-K dated Fund Limited Partnership* January 22, 1988 (File 0-15680) 10.7 Documents relating to Warner Plaza Shopping Center (a) Agreement of Purchase and Sale Exhibit 1 to the between First Republic bank Partnership's Dallas, N.A., and John Hancock Report on Realty Income Fund Limited Form 8-K dated Partnership* March 17, 1988 (File 0-15680) (b) Special Warranty Deed dated Exhibit 2 to the February 24, 1988, between Partnership's First Republic bank, Dallas, Report on N.A., and John Hancock Form 8-K dated Realty Income Fund Limited March 17, 1988 Partnership* (File 0-15680) 10.8 Documents relating to J.C. Penney Credit Operations Center (a) Agreement of Purchase and Sale Exhibit 1 to the between Noro-Rocky Mountains Partnership's B.V., a Netherlands Corporation, Report on and John Hancock Realty Income Form 8-K dated Fund Limited Partnership* November 17, 1988 (File 0-15680) (b) Warranty and Guaranty dated Exhibit 2 to the August 18, 1988, between Partnership's Noro-Rocky Mountains Report on B.V., a Netherlands Corporation, Form 8-K dated and John Hancock Realty Income November 17, 1988 Fund Limited Partnership* (File 0-15680) (c) Purchase and Sale Agreement Exhibit 1 to the between John Hancock Realty Partnership's Report Income Fund Limited Partnership on Form 8-K dated and 4580 Paradise Blvd. December 29, 1995 Associates Limited Partnership (File 0-15680) dated November 20, 1995* 10.9 Documents relating to Management Agreement (a) Management Agreement dated Exhibit 10.9(a) to the January 1, 1992, between Partnership's Report on Hancock Realty Investors Form 10-K dated Incorporated and John Hancock December 31, 1992 Realty Equities, Inc.* (File 0-15680)
20 21 ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (CONTINUED) (b) Agreement Concerning Subcontracting Exhibit 10.9(b) to the of Management Services Pertaining to Partnership's Report on John Hancock Realty Income Fund Form 10-K dated Limited Partnership dated May 28, 1993 December 31, 1993 between John Hancock Realty Equities, (File 0-15680) Inc., Hancock Realty Investors, Incorporated and John Hancock Mutual Life Insurance Company* 10.10 Documents relating to Executive Compensation Plans and Arrangements (a) Amended Agreement of Exhibit A to the Final Limited Partnership* Prospectus dated September 4, 1986, filed under the Partnership's Form S-11 Registration Statement (File 33-6451)
(b) No reports on Form 8-K were 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-15. - --------------------- +Filed herewith *Incorporated by reference 21 22 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 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.
Signatures Title -------------- --------- /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
22 23 ANNUAL REPORT ON FORM 10-K ITEM 8, ITEM 14 (a) (1) AND (2), (c) AND (d) INDEX TO FINANCIAL STATEMENTS FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP BOSTON, MASSACHUSETTS F-1 24 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A MASSACHUSETTS LIMITED PARTNERSHIP) INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES (ITEMS 8 AND 14(a)(1) AND (2))
Page 1. Financial Statements 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 2. Financial Statement Schedules Schedule III: Real Estate and Accumulated Depreciation S-1
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 25 Report of Independent Auditors To the Partners John Hancock Realty Income Fund Limited Partnership We have audited the accompanying balance sheets of John Hancock Realty Income Fund 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. 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 provide a reasonable basis for our opinion. In our opinion, the financial position referred to above present fairly, in all material respects, the financial position of John Hancock Realty Income Fund 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, except for Note 7, as to which the date is February 18, 2000 F-3 26 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A MASSACHUSETTS LIMITED PARTNERSHIP) BALANCE SHEETS ASSETS
DECEMBER 31, 1999 1998 ---- ---- Cash and cash equivalents $ 2,476,260 $ 2,055,017 Restricted cash -- 63,879 Other assets -- 77,433 Property held for sale -- 18,829,684 ----------- ----------- Total assets $ 2,476,260 $21,026,013 =========== =========== LIABILITIES AND PARTNERS' EQUITY Liabilities: Accounts payable and accrued expenses $ 266,759 $ 309,631 Accounts payable to affiliates 480,542 316,299 ----------- ----------- Total liabilities 747,301 625,930 Partners' equity/(deficit): General Partner's deficit (239,991) (253,231) Limited Partners' equity 1,968,950 20,653,314 ----------- ----------- Total partners' equity 1,728,959 20,400,083 ----------- ----------- Total liabilities and partners' equity $ 2,476,260 $21,026,013 =========== ===========
See Notes to Financial Statements F-4 27 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A MASSACHUSETTS LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 1998 1997 ---- ---- ---- Income: Rental income $ 886,432 $2,544,074 $2,861,166 Interest income 246,789 100,005 107,469 Gain/(loss) on sale of property 1,320,277 -- (5,321) ---------- ---------- ---------- Total income 2,453,498 2,644,079 2,963,314 Expenses: Depreciation -- 372,850 667,869 Property operating expenses 137,454 395,257 396,136 General and administrative expenses 909,505 708,821 384,727 Amortization of deferred expenses -- 63,358 134,503 Management fee 3,019 53,641 75,176 Property write-downs -- -- 668,520 ---------- ---------- ---------- Total expenses 1,049,978 1,593,927 2,326,931 ---------- ---------- ---------- Net income $1,403,520 $1,050,152 $ 636,383 ========== ========== ========== Allocation of net income/(loss): General Partner $ 14,035 $ 10,502 $ 6,364 John Hancock Limited Partner 180,286 (16,927) (141,179) Investors 1,209,199 1,056,577 771,198 ---------- ---------- ---------- $1,403,520 $1,050,152 $ 636,383 ========== ========== ========== Net income per Unit $ 13.19 $ 11.53 $ 8.41 ========== ========== ==========
See Notes to Financial Statements F-5 28 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A MASSACHUSETTS LIMITED PARTNERSHIP) STATEMENTS OF PARTNERS' EQUITY YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
GENERAL LIMITED PARTNER PARTNERS TOTAL Partners' equity/(deficit) at January 1, 1997 (91,647 Units outstanding) ($230,844) $25,156,986 $24,926,142 Less: Cash distributions (20,848) (4,190,101) (4,210,949) Add: Net income 6,364 630,019 636,383 ---------- ------------- ------------- Partners' equity/(deficit) at December 31, 1997 (91,647 Units outstanding) (245,328) 21,596,904 21,351,576 Less: Cash distributions (18,405) (1,983,240) (2,001,645) Add: Net income 10,502 1,039,650 1,050,152 ----------- ------------ ------------- Partners' equity/(deficit) at December 31, 1998 (91,647 Units outstanding) (253,231) 20,653,314 20,400,083 Less: Cash distributions (795) (20,073,849) (20,074,644) Add: Net Income 14,035 1,389,485 1,403,520 ------------ ----------- --------- Partners' equity/(deficit) at December 31, 1999 (91,647 Units outstanding) ($239,991) $1,968,950 $ 1,728,959 ========== ========== ===========
See Notes to Financial Statements F-6 29 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A MASSACHUSETTS LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 1998 1997 ---- ---- ---- Operating activities: Net income $ 1,403,520 $ 1,050,152 $ 636,383 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of deferred expenses -- 63,358 134,503 Depreciation -- 372,850 667,869 Property write-downs -- -- 668,520 (Gain)/loss on sale of property (1,320,277) -- 5,321 ----------- ----------- ----------- 83,243 1,486,360 2,112,596 Changes in operating assets and liabilities: Decrease/(increase) in restricted cash 63,879 (5,479) 732 (Increase)/decrease in other assets 77,433 13,383 (11,817) (Decrease)/increase in accounts payable and accrued expenses (42,872) 46,235 (76,691) Increase in accounts payable to affiliates 164,243 165,392 41,946 ----------- ----------- ----------- Net cash provided by operating activities 345,926 1,705,891 2,066,766 Investing activities: Proceeds from sale of property 20,172,395 -- 2,673,278 Increase in deferred expenses (22,434) (152,073) (224,098) ----------- ----------- ----------- Net cash (used in)/provided by investing activities 20,149,961 (152,073) 2,449,180 Financing activities: Cash distributed to Partners (20,074,644) (2,001,645) (4,210,949) ----------- ----------- ----------- Net cash used in financing activities (20,074,644) (2,001,645) (4,210,949) ------------ ----------- ----------- Net increase/(decrease) in cash and cash equivalents 421,243 (447,827) 304,997 Cash and cash equivalents at beginning of year 2,055,017 2,502,844 2,197,847 ----------- ----------- ----------- Cash and cash equivalents at end of year $ 2,476,260 $ 2,055,017 $ 2,502,844 ============ =========== ===========
See Notes to Financial Statements F-7 30 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A MASSACHUSETTS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION OF PARTNERSHIP John Hancock Realty Income Fund Limited Partnership (the "Partnership") was formed under the Massachusetts Uniform Limited Partnership Act on June 12, 1986. 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"); and 3,615 Investor Limited Partners (the "Investors"), owning 91,647 Units of Investor Limited Partnership Interests (the "Units"). The John Hancock Limited Partner and the Investors are collectively referred to as the Limited Partners. The initial capital of the Partnership was $2,000, representing capital contributions of $1,000 from the General Partner and $1,000 from the John Hancock Limited Partner. The Amended Agreement of Limited Partnership of the Partnership (the "Partnership Agreement") authorized the issuance of up to 100,000 Units of Limited Partnership Interests at $500 per unit. During the offering period, which terminated on September 9, 1987, 91,647 Units were sold and the John Hancock Limited Partner made additional capital contributions of $7,330,760. There have been no changes in the number of Units outstanding subsequent to the termination of the offering period. The Partnership is engaged in the business of acquiring, improving, holding for investment and disposing of existing, income-producing, commercial and industrial 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, 2016, 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, 2016. 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. During 1999 the Partnership sold the last four properties in its portfolio resulting in the termination of the operations of the Partnership. The Partnership will be dissolved in accordance with the terms of the Partnership Agreement, as soon as reasonably practicable. 2. SIGNIFICANT ACCOUNTING POLICIES The Partnership maintains its accounting records and recognizes rental revenue on the accrual basis. 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. 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 and other escrows. 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. Investments in property are recorded at cost less any property write-downs for impairment in values. Cost includes the initial purchase price of the property plus acquisition costs and the cost of significant improvements. F-8 31 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A MASSACHUSETTS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. Deferred expenses relating to tenant improvements and lease commissions are amortized on a straight-line basis over the terms of the leases to which they relate. During 1993, the Partnership reduced the period over which its remaining deferred acquisition fees are amortized from thirty years, the estimated useful life of the buildings owned by the Partnership, to four and one-half years, the then estimated remaining life of the Partnership. The net income per Unit for each year is computed by dividing the Investors' share of net income by the number of Units outstanding during each year. 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. 3. THE PARTNERSHIP AGREEMENT Distributable Cash from Operations (defined in the Partnership Agreement) is distributed 99% to the Limited Partners and 1% to the General Partner. The Limited Partners' share of Distributable Cash from Operations is distributed as follows: 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 the reduction of working capital reserves funded by Capital Contributions of the Investors will be distributed 100% to the Investors. Cash from Sales or Financings (defined in the Partnership Agreement) is first used to pay all debts and liabilities of the Partnership then due and is then used to fund any reserves for contingent liabilities. Cash from Sales or Financings is then distributed as follows: first, to the Limited Partners until they receive an amount equal to their Invested Capital with the distribution being made between the Investors and the John Hancock Limited Partner in proportion to their respective Capital Contributions; second, to the Investors until they have received, with respect to all previous distributions during the year, their Cumulative Return on Investment (defined in the Partnership Agreement); third, to the John Hancock Limited Partner until it has received, with respect to all previous distributions during the year, its Cumulative Return on Investment; fourth, to the General Partner to pay any Subordinated Disposition Fees (defined in the Partnership Agreement); and fifth, 99% to the Limited Partners and 1% to the General Partner, with the distribution being made between the Investors and the John Hancock Limited Partner in proportion to their respective Capital Contributions. Cash from the sale of the last of the Partnership's properties is to be distributed in the same manner as Cash from Sales or Financings, except that before any other distribution is made to the Partners, each Partner shall first receive from such cash, an amount equal to the then positive balance, if any, in such Partner's Capital Account after crediting or charging to such account the profits or losses for tax purposes from such sale. To the extent, if any, that a Partner is entitled to receive a distribution of cash based upon a positive balance in its capital account prior to such distribution, such distribution will be credited against the amount of such cash the Partner would have been entitled to receive based upon the manner of distribution of Cash from Sales or Financings, as specified in the previous paragraph. F-9 32 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A MASSACHUSETTS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. THE PARTNERSHIP AGREEMENT (CONTINUED) Profits from the normal operations of the Partnership for each fiscal year are allocated to the Limited Partners and General Partner 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 99% to the Limited Partners and 1% to the General Partner, with the allocation made between the John Hancock Limited Partner and the Investors in proportion to their respective Capital Contributions. Losses from the normal operations of the Partnership are allocated 99% to the Limited Partners and 1% to the General Partner, with the allocation made between the John Hancock Limited Partner and the Investors in proportion to their respective Capital Contributions. Depreciation deductions are allocated 1% to the General Partner and 99% to the Investors, and not to the John Hancock Limited Partner. Profits and Losses from Sales or Financings are generally allocated 99% to the Limited Partners and 1% to the General Partners. In connection with the sale of the last of the Partnership's properties, and therefore the dissolution of the Partnership, profits will be allocated to any Partners having a deficit balance in their Capital Account in an amount equal to the deficit balance. Any remaining profits will be allocated in the same order as cash from the sale would be distributed. Neither the General Partner nor any Affiliate (as defined in the Partnership Agreement) 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 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 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, except under certain specified circumstances. F-10 33 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A MASSACHUSETTS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. PROPERTY HELD FOR SALE During 1998, the Marlboro Square Shopping Center, Crossroads Square Shopping Center, Carnegie Center Office/Warehouse and Warner Plaza Shopping Center were listed for sale. Accordingly, these properties were classified as "Property Held for Sale" on the Balance Sheet at December 31, 1998 at their carrying values, which were not in excess of their estimated fair values, less selling costs. Property held for sale consists of commercial real estate as follows:
December 31, 1998 ---- Marlboro Square Shopping Center $ 989,981 Crossroads Square Shopping Center 9,070,837 Carnegie Center Office/Warehouse 3,763,285 Warner Plaza Shopping Center 5,005,581 ------------ Total $18,829,684 ===========
On January 7, 1999, the Partnership sold the Carnegie Center to a non-affiliated buyer for a net sales price of $4,096,441, after deductions for commissions and selling expenses incurred in connection with the sale of the property. This transaction resulted in a non-recurring gain of $333,156, representing the difference between the net sales price and the property's carrying value of $3,763,285. On March 17, 1999, the Partnership sold the Marlboro Square Shopping Center to a non-affiliated buyer for a net sales price of $1,131,999, after deductions for commissions and selling expenses incurred in connection with the sale of the property. This transaction resulted in a non-recurring gain of $142,018, representing the difference between the net sales price and the property's carrying value of $989,981. On March 18, 1999, the Partnership sold the Warner Plaza Shopping Center to a non-affiliated buyer for a net sales price of $6,210,535, after deductions for commissions and selling expenses incurred in connection with the sale of the property. This transaction resulted in a non-recurring gain of $1,202,254, representing the difference between the net sales price and the property's carrying value of $5,008,281. On July 13, 1999, the Partnership sold the Crossroads Square Shopping Center to a non-affiliated buyer for a net sales price of $8,733,420, after deductions for commissions and selling expenses incurred in connection with the sale of the property. This transaction resulted in a non-recurring loss of $357,151, representing the difference between the net sales price and the property's carrying value of $9,090,571. F-11 34 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A MASSACHUSETTS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES Fees and expenses incurred or paid by the General Partner or its affiliates on behalf of the Partnership and to which the General Partner or its affiliates are entitled to reimbursement from the Partnership were as follows:
Years Ended December 31, 1999 1998 1997 ---- ---- ---- Reimbursement for operating expenses $290,965 $ 250,276 $252,103 Partnership management fee expense 3,019 53,641 75,176 --------- ------ ------ Total $293,984 $ 303,917 $327,279 ======== ========== ========
These expenses are included in expenses on the Statements of Operations. 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 legal proceedings described in Note 7. Accordingly, included in the Statements of Operations for the years ended December 31, 1999, 1998, and 1997 were $250,183, $189,111, and $54,092, respectively, representing the Partnership's share of costs incurred by the General Partner and its Affiliates relating to such legal proceedings. As of December 31, 1999, the Partnership has incurred a total of $534,861 as its share of the costs incurred by the General Partner and its Affiliates resulting from these matters. 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. F-12 35 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A MASSACHUSETTS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. FEDERAL INCOME TAXES A reconciliation of the net (loss)/income reported in the Statements of Operations to the net income reported for federal income tax purposes is as follows:
Years Ended December 31, 1999 1998 1997 ---- ---- ---- Net income/(loss) per Statements of Operations $ 1,403,520 $ 1,050,152 $ 636,383 Add/(deduct): Excess of book gain over tax gain on disposition of assets (9,197,379) -- (131,409) Excess of tax depreciation over book depreciation (258,378) (385,605) (162,002) Excess of book amortization over tax amortization (6,945) 6,222 44,071 Other income/(loss) -- 7,774 2,573 Impairment write-down -- -- 668,520 Other expenses 6,885 82,853 109,854 ----------- ----------- ----------- Net income/(loss) for federal income tax purposes ($8,052,297) $ 761,396 $ 1,167,990 =========== =========== ===========
7. 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 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 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 have guaranteed certain minimum returns to class members on their investments and paid fees and expenses to class counsel in an amount determined by the court to be $1.5 million. Payments under the settlement agreement will have no financial impact on the Partnership. In September 1997, a complaint for damages was filed in the Superior Court of the State of California for the County of Los Angeles by an investor in John Hancock Realty Income Fund-II Limited Partnership ("RIF-II"), a limited partnership affiliated with the Partnership. The complaint named the General Partner as a defendant. The plaintiff sought unspecified damages that allegedly arose from the General Partner's refusal to provide, without reasonable precautions on plaintiff's use of, a list of investors in the Partnership and in RIF-II. Plaintiff alleges that the General Partner's refusal unconditionally to provide a list was a breach of contract and a breach of the General Partner's fiduciary duty. F-13 36 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A MASSACHUSETTS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. CONTINGENCIES (CONTINUED) In 1998, the plaintiff amended the complaint to name the Partnership and RIF-II as defendants. As a result of the defendants' demurrer (motion to dismiss), in May 1998 plaintiff's additional claims for tortuous interference with prospective economic advantage and intentional interference with contract, were dismissed. In addition, as a result of a motion for summary judgment, in August 1998, the court dismissed all claims involving RIF II, leaving only the breach of contract and breach of fiduciary duty claims involving the Partnership. On the eve of trial, plaintiffs dismissed without prejudice those claims not previously dismissed by the court, and subsequently filed a notice of appeal from the dismissal of the claims that the court had dismissed on motion. The Partnership commenced its own action against the plaintiff seeking the court's declaration that the claims that remained on the eve of trial were without merit and seeking to bar and plaintiff from attempting to assert those claims at a later date. The parties commenced settlement discussions, which resulted in a settlement agreement on February 18, 2000 terminating all litigation between the parties. The settlement will not have a material adverse impact on the Fund's financial position. 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 $1,359,909 in legal expenses in connection with these legal proceedings. Of this amount, approximately $825,046 relates to the Partnership's own defense and approximately $534,861 relates to the 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 which 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. During August 1998, the General Partner became aware that the Crossroads Square Shopping Center was environmentally contaminated with certain hazardous materials. The General Partner then sought to determine the scope of the contamination and to determine the impact on the future operating costs, repair and maintenance expenses and market value of the property. The General Partner estimated that to remediate the contamination would cost approximately $450,000. The Partnership sold the property on July 13, 1999 to a non-affiliated buyer for a net sales price of $8,733,420 after deductions for commissions and selling expenses incurred in connection with the sale of the property. The sale was not contingent upon the environmental issues, the costs of which were factored into the purchase price by the buyer. The General Partner has no reason to believe, as of the date of this report, that the Partnership will be held responsible for any further environmental costs associated with this property. No assurances can be given that no environmental liabilities will arise in the future. F-14 37 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A MASSACHUSETTS LIMITED PARTNERSHIP) SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION YEAR ENDED DECEMBER 31, 1999
Costs Capitalized Initial Costs to Subsequent to Partnership Acquisition ----------- ----------- Buildings and Description Encumbrances Land Improvements Improvements - ----------- ------------ ---- ------------ ------------
Gross Amount At Which Carried at Close of Period Life on Which ------------------ Depreciation in Buildings Latest Statement and Accumulated Date of Date of Operations Land Improvements Total Depreciation (1) Construction Acquired is Computed ---- ------------ ------ ---------------- ------------ -------- -----------
There are no real estate investments owned as of December 31, 1999. (1) Reconciliation of Real Estate and Accumulated Depreciation
Years Ended December 31, 1999 1998 1997 ---- ---- ---- Investment in Real Estate Balance at beginning of year - $ 23,540,809 $ 24,189,939 Dispositions - -- -- Reduction of carrying value, including leasing costs -- (649,130) Property held for sale - (23,540,809) -- Improvements - -- -- - ------------ ------------ - $ -- $ 23,540,809 = ============ ============ Accumulated Depreciation Balance at beginning of year - $ 4,787,156 $ 4,214,134 Additions charged to costs and expenses - 372,850 667,869 Reduction of carrying value - -- (94,847) Property held for sale - (5,160,006) -- Dispositions - -- -- - ------------ ------------ Balance at end of year - $ -- $ 4,787,156 = ============ ============
S-1 EX-27 2 FINANCIAL DATA SCHEDULE
5 0000795196 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 2,476,260 0 0 0 0 2,476,260 0 0 2,476,260 747,301 0 0 0 0 1,728,959 2,476,260 0 2,453,498 0 1,049,978 0 0 0 1,403,520 0 1,403,520 0 0 0 1,403,520 13.19 13.19
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