-----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, Kh0BWXDb5UBwDgGALAgtb7y8ZzWJflQsoMuioXc1AHSh5xu3jpdfGRVUQRvUZQ5E 3ZhAjmYlY64dpfk8Aj3dEw== 0000746262-96-000016.txt : 19961001 0000746262-96-000016.hdr.sgml : 19961001 ACCESSION NUMBER: 0000746262-96-000016 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960930 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANCOCK JOHN REALTY INCOME FUND III LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0000842741 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 043025607 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-18563 FILM NUMBER: 96636683 BUSINESS ADDRESS: STREET 1: 200 BERKELEY STREET CITY: BOSTON STATE: MA ZIP: 02117 BUSINESS PHONE: 8007225457 10-K/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1995 Commission File Number 0-18563 JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) Massachusetts 04-3025607 (State or other Jurisdiction of (IRS Employer Incorporation or Organization) Identification No.) 200 Berkeley Street, Boston, MA 02117 (Address of Principal Executive Office) (Zip Code) Registrant's telephone number, including area code: (800) 722-5457 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Assignee Units Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: YES X NO --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the 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: Not applicable, since securities are non-voting. Documents incorporated by reference: None. Exhibit Index on Pages 25 - 30 Page 1 of 49 TABLE OF CONTENTS PART I Item 1 Business 3 Item 2 Properties 6 Item 3 Legal Proceedings 9 Item 4 Submission of Matters to a Vote of Security Holders 9 PART II Item 5 Market for the Partnership's Securities and Related Security Holder Matters 9 Item 6 Selected Financial Data 11 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 8 Financial Statements and Supplementary Data 19 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 19 PART III Item 10 Directors and Executive Officers of the Partnership 19 Item 11 Executive Compensation 22 Item 12 Security Ownership of Certain Beneficial Owners and Management 22 Item 13 Certain Relationships and Related Transactions 23 PART IV Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 25 Signatures 31 2 Part I Item 1 - Business The Registrant, John Hancock Realty Income Fund-III Limited Partnership (the "Partnership"), is a Limited Partnership organized on November 4, 1988 under the Massachusetts Uniform Limited Partnership Act. As of December 31, 1995, the partners in the Partnership consisted of a General Partner, John Hancock Realty Equities, Inc. (the "General Partner"), John Hancock Realty Funding, Inc. (the "John Hancock Limited Partner"), John Hancock Income Fund-III Assignor, Inc. (the "Assignor Limited Partner") and 2,671 Unitholders (the "Investors"). The Assignor Limited Partner holds 5 Limited Partnership Interests for its own account and 2,415,229 Assignee Units (the "Units") for the benefit of the Investors. The John Hancock Limited Partner, the Assignor Limited Partner and the Investors are collectively referred to as the Limited Partners. The initial capital of the Partnership was $2,100, representing capital contributions of $1,000 from the General Partner, $1,000 from the John Hancock Limited Partner and $100 from the Assignor Limited Partner. During the offering period, the John Hancock Limited Partner made additional capital contributions of $3,863,366. The Amended Agreement of Limited Partnership of the Partnership (the "Partnership Agreement") authorized the sale of up to 5,000,000 Assignee Units, representing economic and certain other rights attributable to Investor Limited Partnership Interests. The Units were offered and sold to the public during the period from February 17, 1989 to February 15, 1991 pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933. The Partnership sold the Units for $20 per Unit. No established public market exists on which the Units may be traded. The Partnership is engaged solely in the business of acquiring, improving, holding for investment and disposing of existing, income-producing, retail, industrial, and office properties on an all-cash basis, free and clear of mortgage indebtedness. Although the Partnership's properties were acquired, and are held, free and clear of mortgage indebtedness, the Partnership may incur mortgage indebtedness on its properties under certain circumstances, as specfied in the Partnership Agreement. The latest date on which the Partnership is due to terminate is December 31, 2019, unless it is sooner terminated in accordance with the terms of the Partnership Agreement. It is expected that in the ordinary course of the Partnership's business, the properties of the Partnership will be disposed of, and the Partnership terminated, before December 31, 2019. 3 Item 1 - Business (continued) The Partnership's equity real estate investments are subject to various risk factors. Although the risks of equity investing are reduced when properties are acquired on an unleveraged basis, the major risk of owning income-producing properties is the possibility that the properties will not generate income sufficient to meet operating expenses and to fund adequate reserves for repair, replacements, contingencies and anticipated obligations. The income from properties may be affected by many factors, including: i) adverse changes in general economic conditions and local conditions, such as competitive overbuilding, a decrease in employment, or adverse changes in real estate zoning laws, which may reduce the desirability of real estate in the area or ii) other circumstances over which the Partnership may have little or no control, such as fires, earthquakes and floods. To the extent that the Partnership's properties are leased in any substantial portion to a specific retail, industrial or office tenant, the financial failure of any such major tenant, resulting in the termination of the tenant's lease or non-payment of rentals due, would likely cause at least a temporary reduction in cash flow from any such property and might result in a decrease in the market value of that property. On December 28, 1988, the Partnership acquired a 0.5% interest in JH Quince Orchard Partners (the "Affiliated Joint Venture"), a joint venture between the Partnership and John Hancock Realty Income Fund-II Limited Partnership ("Income Fund-II"). The Affiliated Joint Venture then contributed 98% of the invested capital of, and acquired a 75% interest in, QOCC-1 Associates, an existing partnership which owns and operates a three-story office building and related land and improvements located in Gaithersburg, Maryland (the "Quince Orchard Corporate Center"). Pursuant to the terms of the partnership agreement of the Affiliated Joint Venture, the Partnership had the option, exercisable prior to December 31, 1990, to increase its investment and interest in the Affiliated Joint Venture to 50%. During the second quarter of 1989, the Partnership exercised such option and Income Fund-II transferred a 49.5% interest in the Affiliated Joint Venture to the Partnership. Since the second quarter of 1989 the Partnership has held a 50% interest in the Affiliated Joint Venture. During the years ended December 31, 1994 and 1993, the partners in QOCC-1 Associates were required to make additional capital contributions towards the funding of leasing costs incurred at the property. In accordance with the terms of the partnership agreement of QOCC-1 Associates, the Affiliated Joint Venture contributed 95% of such additional capital. Of the cumulative total invested capital in QOCC-1 Associates at December 31, 1995, 97.55% has been contributed by the Affiliated Joint Venture. The Affiliated Joint Venture continues to hold a 75% interest in QOCC-1 Associates. The Quince Orchard Corporate Center is occupied by Boehringer Mannheim Pharmaceuticals, Inc. under a ten-year lease which expires in February 2004. The tenant has two options under the lease agreement, one, to terminate the lease at the end of the seventy-sixth month of the lease, or June 2000, and, two, to extend the term of the lease for an additional five- year period. 4 Item 1 - Business (continued) On December 28, 1989, the Partnership acquired the Palms of Carrollwood Shopping Center, a neighborhood shopping center located in Tampa, Florida. During the fourth quarter of 1994, one of the anchor tenants which occupied 22% of the rentable space at the property informed the General Partner that it was seeking to sublease its space. The anchor tenant vacated the property during June 1995 and during July 1995, the General Partner secured a new anchor tenant. The former anchor tenant's lease obligations were terminated as of July 31, 1995 in consideration of the tenant not subleasing its space at the property. The new anchor tenant's lease commenced in November 1995 and is for a ten-year term. Although real estate market conditions for retail properties in the market in which the Palms of Carrollwood Shopping Center is located have declined since the Partnership acquired the property, occupancy levels and rental rates stablilized during 1994 and increased during 1995. As a result, the General Partner anticipates relatively favorable retail market conditions in Tampa and at the property during 1996. The Partnership acquired the following warehouse properties on the following dates. On July 17, 1991, the Partnership acquired Yokohama Tire Warehouse located in Louisville, Kentucky. On December 27, 1991, the Partnership acquired the Purina Mills Distribution Building located in St. Louis, Missouri. On March 6, 1992, the Partnership acquired the Allmetal Distribution Building located in Carrollton, Texas. On March 16, 1992, the Partnership acquired the Stone Container Building located in Cincinnati, Ohio. On March 27, 1992, the Partnership acquired the Business Center at Pureland located in Bridgeport, New Jersey. The Partnership's warehouse properties are presently 100% occupied. The following table sets forth the names of the lessees at each of the Partnership's warehouse properties and the earliest date on which the applicable lessee's lease obligations may terminate.
Property Lessee Lease Expiration -------- ------ ---------------- Yokohama Tire Warehouse Yokohama Tire Corp. March 31, 2006 Purina Mills Distribution Building Purina Mills, Inc. December 1, 1998 Allmetal Distribution Building Allmetal, Inc. August 31, 1998 Stone Container Building Stone Container Corp. December 31, 2011 Business Center at Pureland Forbo Wallcoverings, Inc. December 31, 1998 Business Center at Pureland National Polystyrene Recycling Co., L.P. May 31, 2001
The General Partner anticipates that the warehouse properties should provide the Partnership with stable income performance during 1996. 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 of this Report. Industry segment information has not been provided since the Partnership is engaged in only one industry segment. Item 2 - Properties As of December 31, 1995 the Partnership held the following investments in its portfolio: JH Quince Orchard Partners - -------------------------- On December 28, 1988, the Partnership acquired a 0.5% interest in JH Quince Orchard Partners (the "Affiliated Joint Venture"), a joint venture between the Partnership and John Hancock Realty Income Fund-II Limited Partnership ("Income Fund-II"). The Partnership had an initial 0.5% interest and Income Fund-II had an initial 99.5% interest in the Affiliated Joint Venture. Pursuant to the partnership agreement of the Affiliated Joint Venture, the Partnerhsip had the option, exercisable prior to December 31, 1990, to increase its investment and interest in the Affiliated Joint Venture to 50%. During the second quarter of 1989, the Partnership exercised such option and Income Fund-II transferred a 49.5% interest in the Affiliated Joint Venture to the Partnership. The Partnership has held a 50% interest in the Affiliated Joint Venture since the second quarter of 1989. On December 28, 1988, the Affiliated Joint Venture contributed 98% of the invested capital of, and acquired a 75% interest in, QOCC-1 Associates, an existing partnership that owns and operates the Quince Orchard Corporate Center, a three-story office building and related land and improvements located in Gaithersburg, Maryland. The partnership agreement of QOCC-1 Associates requires the Affiliated Joint Venture to contribute 95% of additional capital contributions. Of the cumulative total invested capital in QOCC-1 Associates at December 31, 1995, 97.55% has been contributed by the Affiliated Joint Venture. The Affiliated Joint Venture continues to hold a 75% interest in QOCC-1 Associates. The average occupancy for the Quince Orchard Corporate Center for the year ended December 31, 1995 was 100%. 6 Item 2 - Properties (continued) Palms of Carrollwood - -------------------- On December 28, 1989, the Partnership acquired the Palms of Carrollwood Shopping Center, located in Tampa, Florida, from a non-affiliated seller. The property contains approximately 161,000 rentable square feet, including approximately 10,000 square feet of office space, situated on a 15 acre site. The average occupancy for the Palms of Carrollwood Shopping Center for the year ended December 31, 1995 was 76%. Yokohama Tire Warehouse - ----------------------- On July 17, 1991, the Partnership acquired the Yokohama Tire Warehouse, located in Louisville, Kentucky, from a non-affiliated seller. The property is situated on 24 acres of land and contains an aggregate of 309,791 rentable square feet, of which 297,391 square feet is warehouse space and 12,400 square feet is office space. The warehouse is 100% leased to the Yokohama Tire Corporation under a lease which expires on March 31, 2006. Under the terms of the lease agreement, the Yokohama Tire Corporation had the option to purchase the property for $10,228,173 on April 1, 1996, but did not choose to exercise such option. Yokohama Tire Corporation has additional options to purchase the property for $10,478,173 on April 1, 1999 and for $10,578,173 on April 1, 2001. In addition, the Yokohama Tire Corporation has the option, exercisable at any time during the term of the lease, to expand the square footage of the facility by any area of up to 220,000 square feet. Purina Mills Distribution Building - ---------------------------------- On December 27, 1991, the Partnership acquired the Purina Mills Distribution Building, located in St. Louis, Missouri, from a non- affiliated seller. The property is situated on 7.3 acres of land and contains an aggregate of 126,400 rentable square feet, of which 114,800 is warehouse space and 11,600 square feet is office space. Purina Mills Distribution Building is 100% leased to Purina Mills, Incorporated ("PMI") under a lease which expires on November 30, 2001. The lease contains a one-time option to terminate the lease on December 1, 1998 upon the payment of $240,815 to the Partnership. During 1993, PMI was sold by its parent company, BP Nutrition, Incorporated ("BPN"), and during March 1994, PMI assigned its right, title and interest in the lease to BPN. PMI remains fully liable to perform all of its obligations under the lease and BPN, as assignee, is also liable to perform all obligations under the lease. In addition, BP America, Incorporated, the parent company of BPN, has provided a guaranty to the Partnership for any monetary obligations under the lease. PMI has vacated the property and, during the second quarter of 1994, secured a tenant to sublease the space through November 1998. 7 Item 2 - Properties (continued) Allmetal Distribution Building - ------------------------------ On March 6, 1992, the Partnership acquired the Allmetal Distribution Building, located in Carrollton, Texas, from a non-affiliated seller. The property is situated on 3 acres of land and contains an aggregate of 56,531 rentable square feet, of which 51,531 square feet is warehouse space and 5,000 square feet is office space. The property is 100% leased to Allmetal, Inc. under a lease which expires on August 31, 1998. Stone Container Building - ------------------------ On March 16, 1992, the Partnership acquired the Stone Container Building, located in Cincinnati, Ohio, from a non-affiliated seller. The property is situated on 5.5 acres of land and contains an aggregate of 80,000 rentable square feet, of which 76,000 square feet is warehouse space and 4,000 square feet is office space. The property is 100% leased to Stone Container Corporation under a lease which expires on December 31, 2011. During 1995, Stone Container Corporation requested approval to construct additional office space within the existing 80,000 square foot area of the building. The General Partner agreed to construct the additional office space in exchange for i) an increase in the tenant's rental rate in an amount equivalent to the total cost of constructing the additional office space, through the end of the existing term of the lease (December 2001) and ii) the tenant exercising its two five-year options to extend the term of the lease to December 2011. Business Center at Pureland - --------------------------- On March 27, 1992, the Partnership acquired the Business Center at Pureland located in Bridgeport, New Jersey, from a non-affiliated seller. The property is situated on 10.5 acres of land and contains two buildings consisting of an aggregate of 119,651 rentable square feet of warehouse space. One building (consisting of 60,535 sq. ft.) is 100% leased to Forbo Wallcoverings, Inc. under a lease which expires on December 31, 1998. The second building (consisting of 59,116 sq. ft.) is 100% leased to National Polystyrene Recycling Company, L.P. under a lease which expires on May 31, 2001. The foregoing investments of the Partnership are further described in Item 7 of this Report. 8 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 defedants. The plaintiff sought unspecified damages stemming from alleged misrepresentatins 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. The General Partner believes the allegations are totally without merit and will vigorously contest the action. There are no other material pending legal proceedings, other than ordinary routine litigation incidental to the business of the Partnership, to which the Partnership is a party or to which any of its properties is subject. Item 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 1995. Part II Item 5 - Market for the Partnership's Securities and Related Security Holder Matters (a) Market Information The Partnership's outstanding securities consist of 2,415,229 Units originally sold for $20 per Unit. The Units were offered and sold to the public during the period from February 17, 1989 to February 15, 1991. No established public market exists on which the Units may be traded. Consequently, holders of Units may not be able to liquidate their investments in the event of an emergency, or for any other reason. Additionally, the assignment or other transfer of Units would be subject to compliance with the minimum investment and suitability standards imposed by the Partnership and by applicable law, including state "Blue Sky" laws. (B) Number of Security Holders Number of Number of Units record holders as of outstanding as of Title of Class December 31, 1995 December 31, 1995 -------------- ----------------- ----------------- Assignee Units 2,671 2,415,229 9 Item 5 - Market for the Partnership's Securities and Related Security Holder Matters (c) Dividend History and Restrictions During the fiscal years ended December 31, 1995 and 1994 the Partnership distributed each year cash in the aggregate amount of $3,050,815 from Distributable Cash from Operations (as defined in the Partnership Agreement). These amounts were allocated 5% to the General Partner and 95% to the Investors, in accordance with the terms of the Partnership Agreement. The John Hancock Limited Partner did not receive any Distributable Cash from Operations during such periods. The following table reflects cash distributions made during the two year period ended December 31, 1995:
Date of Amount of Amount Paid to Amount Paid Distribution Distribution Distribution General Partner to Investors Per Unit ------------ ------------ --------------- ------------ -------- February 15, 1994 $762,704 $38,135 $724,569 $0.30 May 14, 1994 762,704 38,135 724,569 0.30 August 15, 1994 762,704 38,136 724,568 0.30 November 15, 1994 762,703 38,135 724,568 0.30 February 15, 1995 762,704 38,135 724,569 0.30 May 15, 1995 762,704 38,135 724,569 0.30 August 15, 1995 762,704 38,136 724,568 0.30 November 15, 1995 762,703 38,135 724,568 0.30
The General Partner anticipates that the Partnership will make cash distributions in 1996 comparable to those made in both 1995 and 1994. For a further discussion of the financial condition and results of operations of the Partnership see Item 7 of this Report. 10 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, 1995. 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, 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Rental income $3,404,659 $3,407,133 $3,397,962 $3,211,958 $1,565,269 Income from joint venture 755,198 541,187 221,739 432,782 445,670 Interest income 162,332 105,917 107,122 195,768 1,242,935 Net income 2,776,632 2,543,261 2,228,039 2,334,283 1,015,490 Net income per Unit (b) 1.07 0.98 0.86 0.90 0.39 Ordinary tax income (a) 2,782,263 2,605,072 2,396,730 2,476,791 2,517,096 Ordinary tax income per Unit (b) 1.08 1.01 0.93 0.96 0.98 Cash distributions per Unit (c) 1.20 1.20 1.20 1.20 1.25 Cash and cash equivalents at December 31 2,431,272 2,637,722 3,270,201 3,146,887 11,572,628 Total assets at December 31 41,824,552 42,079,427 42,528,624 43,378,299 44,133,488 (a) The ordinary tax income for the Partnership was allocated as follows: Years Ended December 31, 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- General Partner $178,928 $168,666 $155,012 $156,969 $147,160 John Hancock Limited Partner - - - - - Investor Limited Partners 2,603,335 2,436,406 2,241,718 2,319,822 2,369,936 ---------- ---------- ---------- ---------- ---------- Total $2,782,263 $2,605,072 $2,396,730 $2,476,791 $2,517,096 ========== ========== ========== ========== ==========
(b) The actual ordinary tax income per Unit has not been presented because the actual ordinary tax income is allocated between tax-exempt and tax- paying entities based upon the respective number of Units held by each entity at December 31, 1995, 1994, 1993, 1992 and 1991. The ordinary tax income per Unit for the fiscal years ended December 31, 1995, 1994, 1993 and 1992 was computed by dividing the Investors' share of ordinary tax income by the number of Units outstanding during the year. The ordinary tax income per Unit for the fiscal year ended December 31, 1991 was computed by dividing the Investors' share of ordinary tax income by the weighted average number of Units outstanding during the year. 11 Item 6 - Selected Financial Data (continued) (c) Represents the actual cash distribution per Unit for the years ended December 31, 1995, 1994, 1993 and 1992. The offering period was completed during 1991, resulting in some Investors owning their Units for a partial year during the year ended December 31, 1991. Therefore, this table reflects an average cash distribution per Unit for the year ended December 31, 1991. For the year ended December 31, 1991, the actual cash distribution per Unit is based upon the respective dates on which the Investors were admitted to the Partnership. Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations General - ------- During the offering period, from February 17, 1989 to February 15, 1991, the Partnership sold 2,415,229 Units representing gross proceeds (exclusive of the John Hancock Limited Partner's contribution which was used to pay sales commissions) of $48,304,580. The proceeds of the offering were used to acquire investment properties, fund reserves, and pay acquisition fees and organizational and offering expenses. These investments are described more fully in Items 1 and 2 and Notes 5 and 6 to the Financial Statements included in Item 8 of this Report. Liquidity and Capital Resources - ------------------------------- At December 31, 1995, the Partnership had $2,431,272 in cash and cash equivalents, $6,323 in restricted cash and $91,885 in long-term restricted cash. The Partnership has a working capital reserve with a current balance of approximately 4% of the offering proceeds. The General Partner anticipates that such amount should be sufficient to satisfy the Partnership's general liquidity requirements. Liquidity would, however, be materially adversely affected if there were a significant reduction in revenues or significant unanticipated operating costs or unanticipated capital expenditures. If any or all of these events were to occur, to the extent that working capital reserves would be insufficient to satisfy the cash requirements of the Partnership, it is anticipated that additional funds would be obtained through a reduction of cash distributions to Investors, bank loans, short-term loans from the General Partner or its affiliates, or the sale or financing of Partnership investments. 12 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Liquidity and Capital Resources (continued) - ------------------------------- During the fourth quarter of 1994, one of the anchor tenants at the Palms of Carrollwood Shopping Center property ("Palms of Carrollwood") that occupied 22% of the rentable space at the property, under a lease scheduled to expire in February 2005, informed the General Partner of its intention to sublease its space and vacate the property. The anchor tenant vacated the property during June 1995 and in July 1995, the General Partner secured a new anchor tenant to occupy this space. The former anchor tenant's lease obligations were terminated as of July 31, 1995 in consideration of the former tenant not subleasing its space at the property. The new anchor tenant's lease commenced in November 1995 and is for a ten-year term. During the year ended December 31, 1995, the Partnership incurred approximately $814,000 in leasing costs in connection with the new anchor tenant's lease. Three tenants at the Palms of Carrollwood have leases that contain clauses that may be exercisable if the former anchor tenant ceased operations at the property and an acceptable replacement tenant, in accordance with the terms of the respective tenants' leases, was not secured. The following table sets forth the approximate amount of square footage leased by these three tenants, their applicable lease expiration dates and the applicable lease clauses relating to the replacement of the former anchor tenant: Amount of Lease Square Feet Expiration Leased Date Lease Clause Relating to Replacement of Former Anchor Tenant ------ ---- ------------------------------------------------------------ 38,000 November 2004 Reduce rental payments by 25% 10,500 January 2005 Reduce rental payments by 25% or terminate lease obligations 10,500 February 1997 Terminate lease obligations
The tenant leasing approximately 38,000 square feet reduced its rental payments effective November 28, 1995. In the General Partner's opinion, the replacement tenant is acceptable (in accordance with the terms of the tenant's lease) and, therefore, the tenant does not have the right to such a reduction. During March 1996, the General Partner filed a complaint against this tenant demanding payment of all amounts due under the lease agreement. The General Partner will continue to use all available legal remedies in order to obtain collection of any outstanding amounts due under the lease agreement. The two tenants leasing approximately 10,500 square feet continue to make scheduled rental payments. The General Partner does not believe that the replacement of the original anchor tenant, any reduction in rental payments or any possible lease terminations will have a material adverse affect on the Partnership's liquidity. 13 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Liquidity and Capital Resources (continued) - ------------------------------- In addition, two former tenants at the Palms of Carrollwood with leases representing an aggregate of approximately 12,000 square feet, or 7% of the rentable space at the property, vacated the property prior to the expiration of their lease obligations and are delinquent in making rental payments. The General Partner filed complaints demanding payment from both of these tenants for delinquent rental amounts as well as all future obligations due under their respective lease agreements and the Partnership obtained judgments against both former tenants in the approximate amounts of $48,000 and $57,000, respectively. However, the former tenant owing the Partnership approximately $48,000 declared bankruptcy and in January 1996, the Partnership received approximately $7,100 from the bankruptcy court as final settlement of the Partnership's judgment amount. As of the date hereof, the Partnership has not received payment from the former tenant owing $57,000 and the General Partner continues to pursue collection of the judgment amount. Based upon the financial condition of this former tenant, there can be no assurance that the Partnership will be able to collect upon this amount. The General Partner secured a replacement tenant to take occupancy of approximately 8,600 square feet of such vacated space under a lease that commenced in March 1995. The General Partner continues to seek new tenants for the remaining vacant space at the property. At December 31, 1995, Palms of Carrollwood was 83% occupied. During 1996, no significant leases are scheduled to expire at the property. The General Partner will continue to offer competitive leasing packages in an attempt to secure lease renewals with existing tenants as well as to secure new tenants for the remaining vacant space at the property. During the second quarter of 1995, a tenant holding a lease for approximately 60,500 square feet, or 51% of the Business Center at Pureland property renewed its lease for an additional three-year term commencing in January 1996. During the year ended December 31, 1995, the Partnership paid approximately $34,500 in leasing costs in connection with this renewal. The Partnership expects to spend an additional $142,000 in leasing costs in connection with this renewal during 1996. The current balance in the working capital reserve should be sufficient to pay such leasing costs. During 1995, Stone Container Corporation, the sole tenant at the Stone Container Building, requested approval to construct additional office space within the existing 80,000 square foot area of the building. The General Partner agreed to construct the additional office space in exchange for i) an increase in the tenant's rental rate in an amount equivalent to the total cost of constructing the additional office space, through the end of the existing term of the lease (December 2001) and ii) the tenant exercising its two five-year options to extend the term of the lease to December 2011. The General Partner expects to incur aproximately $124,000 in construction costs during 1996 in connection with this transaction. The General Partner believes that the construction of this additional space and the extension of the tenant's lease at the property should have a favorable impact on the market value of the property. 14 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Liquidity and Capital Resources (continued) - ------------------------------- Cash in the aggregate amount of $899,438 was used during 1995 for the payment of leasing costs incurred at the Palms of Carrollwood Shopping Center and Business Center at Pureland properties. The General Partner anticipates that the Partnership will incur an aggregate of approximately $569,000 in leasing costs at its properties during 1996. The current balance in the working capital reserve should be sufficient to pay such leasing costs. During 1995, approximately $11,000 of cash generated from the Partnership's operations was used to fund non-recurring repair and maintenance expenses incurred at the Allmetal Distribution Building and the Business Center at Pureland. The General Partner anticipates that the Partnership will incur non-recurring repair and maintenance expenses in the aggregate amount of approximately $223,000 at its properties during 1996. These expenses will be funded from the operations of the Partnership's properties and are not expected to have a significant impact on the Partnership's liquidity. Cash in the aggregate amount of $3,050,815, generated from the Partnership's operations, was distributed to the General Partner and the Investors during 1995. The General Partner anticipates that the Partnership will be able to make comparable distributions during 1996. The General Partner had the Business Center at Pureland property independently appraised during the first quarter of 1995. Based upon the appraiser's investigation and analysis, the property's market value was estimated to be approximately $4,500,000. The net book value of the Business Center at Pureland property of approximately $4,631,000 at December 31, 1995 was evaluated in comparison to its estimated future undiscounted cash flows and the recent independent appraisal and, based upon such evaluation, the General Partner determined that no permanent impairment in value existed and that a write-down in value was not required. The Partnership's cumulative investment in the property, before accumulated depreciation, is approximately $5,142,000. The General Partner had the Palms of Carrollwood Shopping Center property independently appraised during the third quarter of 1995. Based upon the appraiser's investigation and analysis, the property's market value was estimated to be approximately $10,000,000. The net book value of the Palms of Carrollwood Shopping Center property of approximately $9,763,000 at December 31, 1995 was evaluated in comparison to its estimated future undiscounted cash flows and the recent independent appraisal and, based upon such evaluation, the General Partner determined that no permanent impairment in value existed and that a write-down in value was not required. The Partnership's cumulative investment in the property, before accumulated depreciation and property write-downs, is approximately $12,361,978. 15 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Liquidity and Capital Resources (continued) - ------------------------------- The General Partner also evaluated the carrying value of each of the Partnership's other properties and joint venture investment as of December 31, 1995 by comparing such carrying value to its respective future undiscounted cash flows and most recent internal appraisal in order to determine whether a permanent impairment in value exists. Based on such evaluations, the General Partner determined that no permanent impairment in values exists and, therefore, no write-downs were recorded during 1995. The General Partner will continue to conduct property and investment valuations, using internal or independent appraisals, in order to determine whether future write-downs, if any, are required. Results of Operations - --------------------- Net income for the year ended December 31, 1995 was $2,776,632, as compared to net income of $2,543,261 and $2,228,039 in 1994 and 1993, respectively. Average occupancy for the Partnership's investments was as follows: Years ended December 31, 1995 1994 1993 ---- ---- ---- Palms of Carrollwood Shopping Center 76% 80% 89% Yokohama Tire Warehouse 100% 100% 100% Purina Mills Distribution Building 100% 100% 100% Allmetal Distribution Building 100% 100% 100% Stone Container Building 100% 100% 100% Business Center at Pureland 100% 100% 100% Quince Orchard Corporate Center (Affiliated Joint Venture) 100% 83% 75% The Partnership's allocation of income from the Affiliated Joint Venture for the year ended December 31, 1995 increased by $214,011, or 40%, and by $533,459, or 241%, as compared to 1994 and 1993, respectively. The increase in 1995 as compared to 1994 is primarily due to a 17% increase in average occupancy at the Quince Orchard Corporate Center. The increase in 1995 as compared to 1993 is due to a 25% increase in average occupancy at the Quince Orchard Corporate Center as well as the fact that the current lease on the property obligates the tenant to pay a rental rate greater than that which the former tenant's lease required. Interest income in 1995 increased by $56,415, or 53%, as compared to 1994 and by $55,210, or 52%, as compared to 1993. Both of these increases are primarily due to an increase in the interest rates earned on the Partnership's working capital reserves as well as an increase in the amount of such reserves. The Partnership's share of property operating expenses in 1995 was consistent with 1994 and decreased by $20,120, or 7%, as compared to 1993. 16 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Results of Operations (continued) - --------------------- Property operating expenses incurred at the Allmetal Distribution Building during 1995 were consistent with 1994 and decreased by 23% as compared to 1993 due to an adjustment made during 1993 in the method of calculating tenant expense reimbursements, as negotiated with the tenant. This adjustment was made retro-active to 1992 and resulted in lower tenant reimbursements for operating expenses. Therefore, 1993 results include a one-time retroactive adjustment to account for the decrease in tenant expense reimbursements in 1992. Property operating expenses incurred at the Business Center at Pureland in 1995 were consistent with 1994 and decreased as compared to 1993 due to certain non-recurring maintenance and repair expenses incurred during 1993. Property operating expenses incurred at the Palms of Carrollwood Shopping Center decreased by 5% as compared to 1994 and increased by 5% as compared to 1993. The decrease in 1995 as compared to 1994 is primarily due to legal fees which were incurred in 1994 relating to tenants that are delinquent in fulfilling their rental obligations and to a slight decline in maintenance and repair expenses. The increase in property operating expenses in 1995 as compared to 1993 is primarily a result of a decline in average occupancy between periods and, therefore, a decrease in tenant reimbursements. Amortization of deferred expenses in 1995 decreased by $16,501, or 7%, as compared to 1994, and increased by $14,540, or 7%, as compared to 1993. Included in the 1994 results is a deferred expense write-off of $47,880 resulting from tenants who vacated their spaces prior to the termination of their respective leases. Excluding this write-off, amortization of deferred expenses in 1995 increased by 18% as compared to 1994. The increase in 1995 as compared to both 1994 and 1993 is primarily due to an increase in deferred expenses relating to leasing costs incurred at the Palms of Carrollwood Shopping Center and the Business Center at Pureland. General and administrative expenses in 1995 increased by $52,765, or 28%, as compared to 1994 and by $52,353, or 28%, as compared to 1993. These increases are primarily due to an increase in the time required to be expended by the General Partner and expenses incurred in connection with securing a new anchor tenant at the Palms of Carrollwood Shopping Center and in attempting to collect delinquent rental amounts from two former tenants at the Palms of Carrollwood. The General Partner believes that inflation has had no significant impact on income from operations during the last three fiscal years and the General Partner anticipates that it will not have a significant impact during 1996. 17 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Cash Flow - --------- The following table provides the calculations of Cash from Operations and Distributable Cash from Operations, which are calculated in accordance with Section 17 of the Partnership Agreement:
Years Ended December 31, 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Net cash provided by operating activities (a) $3,743,803 $3,580,615 $3,382,661 $3,334,499 $3,291,058 Net change in operating assets and liabilities (a) 111,983 (10,043) 40,419 111,775 (226,516) ---------- ---------- ---------- ---------- ---------- Net cash provided by operations (a) 3,855,786 3,570,572 3,423,080 3,446,274 3,064,542 Increase in working capital reserves (804,971) (519,757) (372,265) (395,461) (18,423) ---------- ---------- ---------- ---------- ---------- Cash from operations (b) 3,050,815 3,050,815 3,050,815 3,050,813 3,046,119 Decrease in working capital reserves - - - - - ---------- ---------- ---------- ---------- ---------- Distributable cash from operations (b) $3,050,815 $3,050,815 $3,050,815 $3,050,813 $3,046,119 ========== ========== ========== ========== ========== Allocation to General Partner $152,541 $152,541 $152,541 $152,541 $152,306 Allocation to John Hancock Limited Partner - - - - - Allocation to Investors 2,898,274 2,898,274 2,898,274 2,898,272 2,893,813 ---------- ---------- ---------- ---------- ---------- $3,050,815 $3,050,815 $3,050,815 $3,050,813 $3,046,119 ========== ========== ========== ========== ==========
(a) Net cash provided by operating activities, net change in operating assets and liabilities, and net cash provided by operations are as calculated in the Statements of Cash Flows included in Item 8 of this Report. (b) As defined in the Partnership Agreement. Distributable Cash from Operations should not be considered as an alternative to net income (i.e. not an indicator of performance) or to reflect cash flows or availability of discretionary funds. On February 15, 1996, the Partnership made a cash distribution of $724,569 to the Investors, representing a 6% annualized return to Investors of record on December 31, 1995, based on Distributable Cash from Operations for the quarter then ended. The General Partner anticipates that the Partnership will be able to make cash distributions during 1996 comparable to those made during 1995. 18 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. 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 are as follows: Name Title Age ---- ----- --- William M. Fitzgerald President and Director 52 Malcolm G. Pittman, III Director 44 Susan M. Shephard Director 43 Richard E. Frank Treasurer (Chief Accounting Officer) 34 (c) Identification of certain significant persons The General Partner is responsible for the identification, analysis, purchase, operation, and disposal of specific Partnership real estate investments. The General Partner has established a Real Estate Investment Committee utilizing senior real estate personnel of John Hancock and its affiliates to review each proposed investment. The members of the Real Estate Investment Committee are designated each year at the annual meeting of the Board of Directors of John Hancock Realty Equities, Inc. The current members of the committee are as follows: Name Title Age ---- ----- --- Edward P. Dowd Senior Vice President of 53 John Hancock's Real Estate Investment Group Kevin McGuire Vice President of John Hancock's 49 Real Estate Investment Group, President of John Hancock Realty Services Corp. and subsidiaries 19 Item 10 - Directors and Executive Officers of the Partnership (continued) (c) Identification of certain significant persons (continued) Name Title Age ---- ----- --- Stephen Kindl Senior Investment Officer of John 38 Hancock's Real Estate Investment Group, Assistant 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. (e) Business Experience William M. Fitzgerald (age 52), joined John Hancock in 1968. He has been President and a Director of the General Partner, and a Senior Investment Officer of John Hancock, since June 1993 and a Director of Hancock Realty Investors Incorporated since November 1991. His term as a Director of the General Partner expires in May 1996. From 1987 to 1991, Mr. Fitzgerald was a Senior Vice President of John Hancock Properties, Inc. Prior to that time, he held a number of positions including Senior Real Estate Management Officer and Real Estate Management Officer of John Hancock. He holds an M.B.A. from Boston University and a B.A. from Boston College. Malcolm G. Pittman, III (age 44), 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 1996. Mr. Pittman has been a Counsel of John Hancock's Mortgage and Real Estate Law Division since 1993. From 1989 to 1993, he was an Associate Counsel of John Hancock. He holds a J.D. from Yale Law School and a B.A. from Oberlin College. Susan M. Shephard (age 43), 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 1996. 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. Richard E. Frank (age 34), joined John Hancock in 1983. He has been Treasurer of the General Partner since June 1993. Mr. Frank has been an Associate Investment Officer of John Hancock since January 1995. From 1993 to 1995, he was a Senior Financial Administrator of John Hancock; from 1991 to 1993, he was an Associate of Hancock Realty Investors, Incorporated; from 1990 to 1991, he held the position of Assistant Treasurer of John Hancock Realty Services Corp. He holds a B.S. from Stonehill College. 20 Item 10 - Directors and Executive Officers of the Partnership (continued) (e) Business Experience (continued) Edward P. Dowd (age 53), 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. Kevin McGuire (age 49), joined John Hancock in 1968. He has been a Vice President of John Hancock since June 1993 and President of John Hancock Realty Services Corp. and subsidiaries since July 1993. He has been a Managing Director and a Director of Hancock Realty Investors, Incorporated since 1991, and a Director of John Hancock Property Investors Corp. since 1987. Mr. McGuire served as an interim basis President of the General Partner from May 1991 to November 1991 and was President of John Hancock Properties, Inc. from 1987 to 1991. Prior to that time, he held a number of positions including Second Vice President, Senior Real Estate Investment Officer and Real Estate Investment Officer of John Hancock. He holds an M.B.A. from Babson College and a B.A. from Boston College. Stephen Kindl (age 38), joined John Hancock in 1995 as a Senior Real Estate Investment Officer. Prior to joining John Hancock, he held a number of positions with Aetna Real Estate Investment, Inc., including Managing Director and Director. He holds an M.B.A. from the University of Hartford and a B.S. from the University of Connecticut (f) Involvement in certain legal proceedings None. Compliance with Section 16(a) of the Exchange Act Under Section 16(a) of the Securities Exchange Act of 1934, as amended, the General Partner's directors and executive officers, as well as any person holding more than ten percent of the Units, are required to report their initial ownership to the Securities and Exchange Commission and the Partnership (such requirements hereinafter referred to as "Section 16(a) filing requirements"). Specific time deadlines for Section 16(a) filing requirements have been established. To the Partnership's knowledge, no officer or director of the General Partner has or had an ownership interest in the Partnership during the 1995 fiscal year or as of the date hereof. In addition, to the Partnership's knowledge, the County Employees Annuity and Benefit Fund of Cook County, the greater than 10% holder of Units, was not required to file any reports relating to Section 16(a) filing requirements during the 1995 fiscal year. 21 Item 11 - Executive Compensation None of the officers or directors of the General Partner or any of the members of the Real Estate Investment Committee referred to in Item 10(c) receive any current direct remuneration in their capacities as officers, directors or members of the Real Estate Investment Committee, pursuant to any standard arrangements or otherwise, from the Partnership nor is any such remuneration currently proposed. In addition, the Partnership has not given and does not propose to give any options, warrants or rights, including stock appreciation rights, to any such person in such capacities. No remuneration plan or arrangement exists with any such person in such capacities resulting from resignation, retirement or any other termination. Therefore, tables relating to these topics have been omitted. Compensation Committee Interlocks and Insider Participation: The Partnership did not have a Compensation Committee in 1995 and does not currently have such a committee. No current or former officer or employer of the General Partner or its Affiliates participated during the 1995 fiscal year in deliberations regarding the General Partner's compensation as it relates to the Partnership. Item 12 - Security Ownership of Certain Beneficial Owners and Management (a) Security ownership of certain beneficial owners No person or group, including the General Partner, is known by the General Partner to own beneficially more than 5% of the Partnership's 2,415,229 outstanding Units as of December 31, 1995, except as follows: Title of Name and Address of Amount and Nature of Percent of Class Beneficial Owner Beneficial Ownership Class ----- ---------------- -------------------- ----- Assignee County Employees 806,451 Units 33.39% Units Annuity and Benefit owned directly Fund of Cook County 118 N. Clark St. Chicago, IL (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. 22 Item 13 - Certain Relationships and Related Transactions See Note 4 of the Notes to the Financial Statements included in Item 8 of this Report for a description of certain transactions and related amounts payable by the Partnership to the General Partner and its Affiliates during 1995, 1994 and 1993. In accordance with the terms of the Partnership Agreement, the General Partner and its Affiliates (as defined in the Partnership Agreement) are entitled to the following types of compensation, fees, profits/(losses), expense reimbursements and distributions: A reimbursement for Acquisition Expenses (as defined in the Partnership Agreement) incurred by the General Partner or its Affiliates was payable at cost to the General Partner or its Affiliates. The Partnership completed its property acquisitions on March 27, 1992 and, therefore, did not pay any such reimbursements during the years ended 1995, 1994 or 1993. An Affiliate of the General Partner is entitled to receive a Property Management Fee for providing property management services for the Partnership's properties. The Partnership is obligated to pay a fee equal to the amount customarily charged in arms-length transactions by other entities rendering comparable services for comparable properties in the localities where the Partnership's properties are located but in no event may such fee exceed 6% of the gross receipts of the property under management. To date, no Affiliate of the General Partner has provided property management services to the Partnership. Therefore, the Partnership did not pay any such fees during the years ended 1995, 1994 or 1993. The General Partner and its Affiliates are also entitled to Reimbursement for Expenses relating to the administrative services necessary to the prudent operation of the Partnership, such as legal, accounting, computer, transfer agent and other services. The amounts charged to the Partnership for such administrative services may not exceed the lesser of the General Partner's or such Affiliate's costs or 90% of those which the Partnership would be required to pay to independent parties for comparable services in the same geographic area. The Partnership reimbursed the General Partner or its Affiliates for $156,119, $121,196 and $122,220 of such expenses during the years ended December 31, 1995, 1994 and 1993, respectively. A Subordinated Disposition Fee (as defined in the Partnership Agreement) for selling properties is payable to the General Partner in the amount of 3% of the sales price of each property sold. However, no such Subordinated Disposition Fee may be paid to the General Partner unless and until the Investors and the John Hancock Limited Partner have received a return of their total Invested Capital (as defined in the Partnership Agreement) plus the Cumulative Return on Investment (as defined in the Partnership Agreement) of 12% per annum for all fiscal years ended prior to the date of payment. Such Subordinated Disposition Fee may not exceed 50% of the competitive real estate commissions in the area where the property is located or, together with any other brokerage commission payable to or by any other person, exceed 6% of the contract sales price of such property. The Partnership did not pay any such fees during the years ended 1995, 1994 or 1993. 23 Item 13 - Certain Relationships and Related Transactions (continued) In accordance with Section 8 of the Partnership Agreement (as described more fully in Note 3 to the Financial Statements included in Item 8 of this Report), 5% of Distributable Cash from Operations is distributable to the General Partner and the remaining 95% in the following order of priority: first, to the Investors in an amount sufficient to provide a non- cumulative, non-compounded cash return equal to 7% per annum on their Invested Capital; second, to the John Hancock Limited Partner in an amount sufficient to provide a non-cumulative, non-compounded cash return equal to 7% per annum on its Invested Capital; and third, to the Investors and the John Hancock Limited Partner in proportion to their respective capital contributions. The General Partner's Share of Distributable Cash from Operations was $152,541 for each of the three years ended December 31, 1995, 1994 and 1993, respectively. In accordance with the terms of the Partnership Agreement, the John Hancock Limited Partner was not entitled to receive any such distributions during the years ended 1995, 1994 or 1993. A Share of Cash from Sales or Financings may be distributed to the General Partner and the John Hancock Limited Partner. Cash from Sales or Financings are distributable in accordance with Section 8 of the Partnership Agreement (as described more fully in Note 3 to the Financial Statements included in Item 8 of this Report). No Sales or Financings have occurred during the years ended 1995, 1994 or 1993 and, therefore, no such distributions were made. A Share of the Partnership's Profits or Losses for tax purposes is allocable to the General Partner and to the Investors and the John Hancock Limited Partner. Such allocation generally approximates, insofar as practicable, their percentage share of Distributable Cash from Operations and of Cash from Sales or Financings. The General Partner will generally be allocated 1% of Partnership Losses for tax purposes, and the John Hancock Limited Partner will be allocated tax losses associated with the Partnership's sales commissions funded by the John Hancock Limited Partner's Capital Contributions. The General Partner's Share of such Profits or Losses were profits of $178,928, $168,666 and $155,012 during the years ended December 31, 1995, 1994 and 1993, respectively. In accordance with the terms of the Partnership Agreement, the John Hancock Limited Partner was not entitled to any such allocation during the years ended 1995, 1994 or 1993. The following table reflects all compensation, fees, profits/(losses), expense reimbursements and distributions from the Partnership to the General Partner and/or its Affiliates for the three years ended December 31, 1995: Years Ended December 31, 1995 1994 1993 ---- ---- ---- Operating Expenses $156,119 $121,196 $122,220 General Partner Share of Distributable Cash from Operations 152,541 152,541 152,541 General Partner Share of Profits or Losses for tax purposes 178,928 168,666 155,012 24 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 and Restated Exhibit A to the Agreement of Limited Prospectus Partnership* filed under the Partnership's Amendment No. 1 to Form S-11 Registration Statement (File 33-25298) 4.2 Subscription Agreement Exhibit D to the Signature Page and Power of Prospectus Attorney whereby a subscriber filed under agrees to purchase Units and the Partnership's adopts the provisions of the Amendment No. 1 to Amended Agreement of Limited Form S-11 Partnership* Registration Statement (File 33-25298) 4.3 Copy of Certificate of Exhibit 4.3 to the Limited Partnership filed Partnership's with the Massachusetts Secretary Amendment No. 1 to of State on November 4, 1988* Form S-11 Registration Statement (File 33-25298) 4.4 Copy of First Amendment and Exhibit 4.4 to the Restatement of Certificate Partnership's of Limited Partnership filed Amendment No. 1 to with the Massachusetts Secretary Form S-11 of State on February 8, 1989* Registration Statement (File 33-25298) 25 Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K (continued) 10 Material contracts and other documents 10.1 Form of Escrow Agreement* Exhibit 10.1 to the Partnership's Amendment No. 1 to Form S-11 Registration Statement (File 33-25298) 10.2 Documents relating to Quince Orchard CorporateCenter (a) Investment Agreement dated Exhibit 10.2(a) to December 27, 1988, among the Partnership's JH Quince Orchard Partners, Amendment No. 1 to Quad Properties, Inc. and Form S-11 General Electric Real Estate Registration Statement Credit Operations* (File 33-25298) (b) Amended and Restated Partnership Exhibit 10.2(b) to Agreement for QOCC-1 Associates the Partnership's dated December 27, 1988, among Amendment No. 1 to JH Quince Orchard Partners, Form S-11 Quad Properties, Inc. and Registration General Electric Real Estate Statement Credit Operations* (File 33-25298) (c) Property Management Agreement Exhibit 10.2(c) to dated December 27, 1988, the Partnership's between QOCC-1 Associates and Amendment No. 1 to Quadrangle Development Form S-11 Corporation* Registration Statement (File 33-25298) (d) Partnership Agreement for Exhibit 10.2(d) to JH Quince Orchard Partners the Partnership's dated as of December 23, 1988, Amendment No. 1 to between John Hancock Realty Form S-11 Income Fund-II Limited Registration Partnership and John Hancock Statement Realty Income Fund-III Limited (File 33-25298) Partnership* (d) Audited financial statements of Page 32 QOCC-1 Associates for the year ended December 31, 1995+ 10.3 Documents relating to Palms of Carrollwood Shopping Center 26 Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K (continued) (a) Letter Agreement dated November 9, Exhibit 1 to the 1989 between Special Asset Partnership's Report Holdings, Inc. and John Hancock on Form 8-K dated Realty Equities, Inc.* December 29, 1989 (File 33-25298) (b) Amendment to Agreement of Purchase Exhibit 2 to the and Sale dated August 28, 1989 Partnership's Report between Special Asset Holding Inc. on Form 8-K dated and John Hancock Realty Equities, December 29, 1989 Inc.* (File 33-25298) (c) Agreement of Purchase and Sale Exhibit 3 to the dated June 22, 1989, between Partnership's Report on Special Asset Holding Inc. and Form 8-K dated John Hancock Realty Equities, December 29, 1989 Inc.* (File 33-25298) (d) Warranty and Guaranty dated Exhibit 4 to the December 28, 1989 between Partnership's Report Pittsburgh National Bank and on Form 8-K dated John Hancock Realty Income Fund - December 29, 1989 III Limited Partnership.* (File 33-25298) (e) Rental Escrow Agreement dated Exhibit 5 to the December 28, 1989 relating to Partnership's Report Palms of Carrollwood Shopping on Form 8-K dated Center.* December 29, 1989 (File 33-25298) 10.4 Documents relating to Yokohama Tire Warehouse (a) Agreement of Purchase and Sale Exhibit to the dated June 25, 1991 between D/S Partnership's Report Louisville Joint Venture and John on Form 8-K dated Hancock Realty Income Fund-III July 25, 1991 Limited Partnership.* (File 0-18563) (b) Lease/Purchase option dated Exhibit to the October 12, 1989 relating to Partnership's Report Yokohama Tire Warehouse* on Form 8-K dated July 25, 1991 (File 0-18563) (c) Amendment to lease dated Exhibit to the September 24, 1990 relating to Partnership's Report Yokohama Tire Warehouse* on Form 8-K dated July 25, 1991 (File 0-18563) 10.5 Documents relating to the Purina Mills Distribution Building 27 Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K (continued) (a) Agreement of Purchase and Sale Exhibit 1 to the dated November 25, 1991 between Partnership's report on Perkinson Realty Corporation and Form 8-K dated John Hancock Realty Income December 27, 1991 Fund-III Limited Partnership* (File 0-18563) (b) Office/Warehouse lease dated Exhibit 2 to the April 16, 1991 relating to the Partnership's report on Purina Mills Distribution Form 8-K dated Building* December 27, 1991 (File 0-18563) 10.6 Documents relating to the Allmetal Distribution Building (a) Real Estate Sale Agreement Exhibit 1 to Amendment dated January 31, 1992 between Number 1 on Form 8 to The Travelers Insurance Company the Partnership's report and John Hancock Realty on Form 8-K dated Income Fund-III Limited February 11, 1992 Partnership* (File 0-18563) 10.7 Documents relating to the Stone Container Building (a) Agreement of Purchase and Exhibit 1 to Amendment Sale dated January 30, 1992 Number 2 on Form 8 to between World Park Limited the Partnership's report Partnership and John Hancock on Form 8-K dated Realty Income Fund-III February 11, 1992 Limited Partnership* (File 0-18563) (b) Amendment to Purchase Exhibit 2 to Amendment and Sale Agreement dated Number 2 on Form 8 to February 28, 1992 between the Partnership's report World Park Limited Partnership on Form 8-K dated and John Hancock Realty Income February 11, 1992 Fund-III Limited Partnership* (File 0-18563) (c) Lease dated March 2, 1992 Exhibit 3 to Amendment relating to the Stone Number 2 on Form 8 to Container Building* the Partnership's report on Form 8-K dated February 11, 1992 (File 0-18563) 10.8 Documents relating to the Business Center at Pureland 28 Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K (continued) (a) Agreement of Purchase and Sale Exhibit 1 to Amendment dated January 24, 1992 between Number 3 on Form 8 to The Prentiss/Copley Investment the Partnership's report Group and John Hancock Realty on Form 8-K dated Income Fund-III Limited February 11, 1992 Partnership* (File 0-18563) (b) Amendment to Purchase and Sale Exhibit 2 to Amendment Agreement dated March 5, 1992 Number 3 on Form 8 to between The Prentiss/Copley the Partnership's report Investment Group and John on Form 8-K dated Hancock Realty Income Fund-III February 11, 1992 Limited Partnership* (File 0-18563) (c) Lease dated February 5, 1991 Exhibit 3 to Amendment relating to Building Number One Number 3 on Form 8 to at the Business Center at the Partnership's report Pureland* on Form 8-K dated February 11, 1992 (File 0-18563) (d) First Amendment to Lease Exhibit 4 to Amendment dated March 26, 1992 relating Number 3 on Form 8 to to Building Number One at the the Partnership's report Business Center at Pureland* on Form 8-K dated February 11, 1992 (File 0-18563) (e) Lease Agreement dated Exhibit 5 to Amendment December 7, 1989 relating to Number 3 on Form 8 to Building Number Two at the the Partnership's report Business Center at Pureland* on Form 8-K dated February 11, 1992 (File 0-18563) (f) First Amendment to Lease Exhibit 6 to Amendment dated January 4, 1990 relating Number 3 on Form 8 to to Building Number Two at the the Partnership's report Business Center at Pureland* on Form 8-K dated February 11, 1992 (File 0-18563) (g) Second Amendment to Lease Exhibit 7 to Amendment dated March 16, 1990 relating Number 3 on Form 8 to to Building Number Two at the the Partnership's report Business Center at Pureland* on Form 8-K dated February 11, 1992 (File 0-18563) 29 Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K (continued) (h) Third Amendment to Lease Exhibit 8 to Amendment dated September 17, 1990 Number 3 on Form 8 to relating to Building Number the Partnership's report Two at the Business Center on Form 8-K dated at Pureland* February 11, 1992 (File 0-18563) 10.9 Documents relating to the Management Agreement (a) Management Agreement dated January Exhibit 10.9(a) to the 1, 1992 between Hancock Realty Partnership's report on Investors Incorporated and Form 10-K dated John Hancock Realty Equities, December 31, 1992 Inc.* (File 0-18563) (b) Agreement Concerning Subcontracting Exhibit 10.9(b) to the of Management Services Pertaining Partnership's report to John Hancock Realty Income on Form 10-K dated Fund-III Limited Partnership December 31, 1993 dated May 28, 1993between John (File 0-18563) Hancock Realty Equities, Inc., Hancock Realty Investors, Incorporated and John Hancock Mutual Life Insurance Company* 10.10 Documents relating to Executive Compensation Plans and Arrangements (a) Amended and Restated Agreement of Exhibit A to the Limited Partnership* Prospectus filed under the Partnership's Amendment No. 1 to Form S-11 Registration Statement (File 33-25298) (b) There were no reports on Form 8-K filed during the quarter ended December 31, 1995. (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-16. ---------------------- +Filed herewith *Incorporated by reference 30 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 29th day of March, 1996. JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP By: John Hancock Realty Equities, Inc. General Partner By: WILLIAM M. FITZGERALD -------------------------------- William M. Fitzgerald, 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 29th day of March, 1996. Signatures Title ---------- ----- President (Principal Executive Officer) and Director of John Hancock Realty Equities, WILLIAM M. FITZGERALD Inc. (General Partner of Registrant) --------------------- William M. Fitzgerald Treasurer (Chief Accounting Officer) of John Hancock Realty Equities, Inc. RICHARD E. FRANK (General Partner of Registrant) ---------------------- Richard E. Frank Director of John Hancock Realty Equities, MALCOLM G. PITTMAN Inc. (General Partner of Registrant) --------------------- Malcolm G. Pittman, III Director of John Hancock Realty Equities, SUSAN M. SHEPHARD Inc. (General Partner of Registrant) --------------------- Susan M. Shephard 31 ANNUAL REPORT ON FORM 10-K ITEM 8, ITEM 14 (a) (1) AND (2), (c) AND (d) FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES YEAR ENDED DECEMBER 31, 1995 JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP BOSTON, MASSACHUSETTS F-1 JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES (ITEMS 8 AND 14 (A) (1) AND (2)) (1) Financial Statements Page Report of Independent Auditors F-3 Balance Sheets at December 31, 1995 and 1994 F-4 Statements of Operations for the Years Ended December 31, 1995, 1994 and 1993 F-5 Statements of Partners' Equity for the Years Ended December 31, 1995, 1994 and 1993 F-6 Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 F-7 Notes to Financial Statements F-8 (2) Financial Statement Schedules Schedule III: Real Estate and Accumulated Depreciation F-16 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 Report of Independent Auditors To the Partners John Hancock Realty Income Fund-III Limited Partnership We have audited the accompanying balance sheets of John Hancock Realty Income Fund-III Limited Partnership as of December 31, 1995 and 1994, and the related statements of operations, partners' equity and cash flows for each of the three years in the period ended December 31, 1995. 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 generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of John Hancock Realty Income Fund-III Limited Partnership at December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. 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 9, 1996, except for Note 9, as to which the date is February 15, 1996 F-3 JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) BALANCE SHEETS ASSETS December 31, 1995 1994 ---- ---- Current assets: Cash and cash equivalents $2,431,272 $2,637,722 Restricted cash 6,323 55,657 Other current assets 282,343 154,155 ----------- ----------- 2,719,938 2,847,534 Investment in property: Land 8,410,535 8,410,535 Building and improvements 24,942,540 24,942,540 ----------- ----------- 33,353,075 33,353,075 Less: accumulated depreciation 3,819,371 2,989,706 ----------- ----------- 29,533,704 30,363,369 Investment in joint venture 7,907,123 7,946,957 Long-term restricted cash 91,885 48,246 Deferred expenses, net of accumulated amortization of $724,584 in 1995, and $529,212 in 1994 1,556,764 866,981 Other assets 15,138 6,340 ----------- ----------- Total assets $41,824,552 $42,079,427 =========== =========== LIABILITIES AND PARTNERS' EQUITY Current liabilities: Accounts payable and accrued expenses $240,389 $229,440 Accounts payable to affiliates 38,412 30,053 ----------- ----------- Total current liabilities 278,801 259,493 Partners' equity/(deficit): General partner's (44,553) (78,720) Limited partners' 41,590,304 41,898,654 ----------- ----------- Total partners' equity 41,545,751 41,819,934 ----------- ----------- Total liabilities and partners' equity $41,824,552 $42,079,427 =========== =========== See Notes to Financial Statements F-4 JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) STATEMENTS OF OPERATIONS Years Ended December 31, 1995 1994 1993 ---- ---- ---- Income: Rental income $3,404,659 $3,407,133 $3,397,962 Income from joint venture 755,198 541,187 221,739 Interest income 162,332 105,917 107,122 ---------- ---------- ---------- Total income 4,322,189 4,054,237 3,726,823 Expenses: Depreciation 829,665 829,665 829,665 Property operating expenses 264,629 266,312 284,749 Amortization of deferred expenses 209,655 226,156 195,115 General and administrative expenses 241,608 188,843 189,255 ---------- ---------- ---------- Total expenses 1,545,557 1,510,976 1,498,784 ---------- ---------- ---------- Net income $2,776,632 $2,543,261 $2,228,039 ========== ========== ========== Allocation of net income: General Partner $186,708 $175,393 $152,596 John Hancock Limited Partner - - - Investors 2,589,924 2,367,868 2,075,443 ---------- ---------- ---------- $2,776,632 $2,543,261 $2,228,039 ========== ========== ========== Net Income per Unit $1.07 $0.98 $0.86 ========== ========== ========== See Notes to Financial Statements F-5 JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) STATEMENTS OF PARTNERS' EQUITY Years Ended December 31, 1995, 1994 and 1993
General Limited Partner Partners Total ------- --------- ----- Partners' equity/(deficit) at January 1, 1993 (2,415,234 Units outstanding) ($101,627) $43,251,891 $43,150,264 Less: Cash distributions (152,541) (2,898,274) (3,050,815) Add: Net income 152,596 2,075,443 2,228,039 -------- ----------- ---------- Partners' equity/(deficit) at December 31, 1993 (2,415,234 Units outstanding) (101,572) 42,429,060 42,327,488 Less: Cash distributions (152,541) (2,898,274) (3,050,815) Add: Net income 175,393 2,367,868 2,543,261 -------- ----------- ---------- Partners' equity/(deficit) at December 31, 1994 (2,415,234 Units outstanding) (78,720) 41,898,654 41,819,934 Less: Cash distributions (152,541) (2,898,274) (3,050,815) Add: Net income 186,708 2,589,924 2,776,632 -------- ----------- ---------- Partners' equity/(deficit) at December 31, 1995 (2,415,234 Units outstanding) ($44,553) $41,590,304 $41,545,751 ======== =========== ===========
See Notes to Financial Statements F-6 JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995 1994 1993 ---- ---- ---- Operating activities: Net income $2,776,632 $2,543,261 $2,228,039 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 829,665 829,665 829,665 Amortization of deferred expenses 209,655 226,156 195,115 Cash distributions over/(under) equity in income from joint venture 39,834 (28,510) 170,261 ---------- ---------- ---------- 3,855,786 3,570,572 3,423,080 Changes in operating assets and liabilities: Decrease/(increase) in restricted cash 5,695 (8,957) (420) Increase in other current assets (128,188) (39,357) (13,100) Increase in other assets (8,798) - - Increase/(decrease) in accounts payable and accrued expenses 10,949 40,954 (12,747) Increase/(decrease) in accounts payable to affiliates 8,359 17,403 (14,152) ---------- ---------- ---------- Net cash provided by operating activities 3,743,803 3,580,615 3,382,661 Investing activities: Increase in investment in joint venture - (1,104,902) (177,340) Acquisition of deferred expenses and other assets (899,438) (57,377) (31,192) ---------- ---------- ---------- Net cash used in investing activities (899,438) (1,162,279) (208,532) Financing activities: Cash distributed to Partners (3,050,815) (3,050,815) (3,050,815) ---------- ---------- ---------- Net cash used in financing activities (3,050,815) (3,050,815) (3,050,815) ---------- ---------- ---------- Net increase/(decrease) in cash and cash equivalents (206,450) (632,479) 123,314 Cash and cash equivalents at beginning of year 2,637,722 3,270,201 3,146,887 ---------- ---------- ---------- Cash and cash equivalents at end of year $2,431,272 $2,637,722 $3,270,201 ========== ========== ==========
See Notes to Financial Statements F-7 JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS 1. Organization of Partnership --------------------------- John Hancock Realty Income Fund-III Limited Partnership (the "Partnership") was formed under the Massachusetts Uniform Limited Partnership Act on November 4, 1988. As of December 31, 1995, the Partnership consisted of John Hancock Realty Equities, Inc. (the "General Partner"), a wholly-owned, indirect subsidiary of John Hancock Mutual Life Insurance Company; John Hancock Realty Funding, Inc. (the "John Hancock Limited Partner"); John Hancock Income Fund-III Assignor, Inc. (the "Assignor Limited Partner"); and 2,671 Unitholders (the "Investors"). The Assignor Limited Partner holds five Investor Limited Partnership Interests for its own account and 2,415,229 Assignee Units (the "Units"), representing economic and certain other rights attributable to Investor Limited Partnership Interests in the Partnership, for the benefit of the Investors. The John Hancock Limited Partner, the Assignor Limited Partner and the Investors are collectively referred to as the Limited Partners. The General Partner and the Limited Partners are collectively referred to as the Partners. The initial capital of the Partnership was $2,100, representing capital contributions of $1,000 from the General Partner, $1,000 from the John Hancock Limited Partner, and $100 from the Assignor Limited Partner. The Amended Agreement of Limited Partnership of the Partnership (the "Partnership Agreement") authorized the issuance of up to 5,000,000 Units at $20 per unit. During the offering period, which terminated on February 15, 1991, 2,415,229 Units were sold and the John Hancock Limited Partner made additional capital contributions of $3,863,366. There were no changes in the number of Units outstanding subsequent to the termination of the offering period. The Partnership is engaged solely in the business of acquiring, holding for investment and disposing of existing income-producing retail, industrial and office properties on an all-cash basis, free and clear of mortgage indebtedness. Although the Partnership's properties were acquired and are held free and clear of mortgage indebtedness, the Partnership may incur mortgage indebtedness under certain circumstances as specified in the Partnership Agreement. The latest date on which the Partnership is due to terminate is December 31, 2019, unless it is sooner terminated in accordance with the terms of the Partnership Agreement. It is expected that, in the ordinary course of the Partnership's business, the properties of the Partnership will be disposed of, and the Partnership terminated, before December 31, 2019. F-8 JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (continued) 2. Significant Accounting Policies ------------------------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates. The Partnership maintains its accounting records and recognizes rental revenue on the accrual basis. Cash equivalents are highly liquid investments with 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 has been designated as current or long-term based upon the term of the related lease agreement. Investments in property are recorded at cost less any property write- downs for permanent impairment in value. Cost includes the initial purchase price of the property plus acquisition and legal fees, other miscellaneous acquisition costs, and the cost of significant improvements. Depreciation has been provided on a straight-line basis over the estimated useful lives of the various assets: thirty years for the buildings and five years for related improvements. Maintenance and repairs are charged to operations as incurred. Investment in joint venture is recorded using the equity method. Acquisition fees for the joint venture investment have been deferred and are being amortized on a straight-line basis over a period of thirty-one and a half years. Other deferred acquisition fees are being amortized on a straight-line basis over a period of eighty-four months. Capitalized tenant improvements and lease commissions are being amortized on a straight-line basis over the terms of the leases to which they relate. No provision for income taxes has been made in the financial statements as such taxes are the responsibility of the individual partners and not of the Partnership. The net income per Unit for the years ended December 31, 1995, 1994 and 1993 is calculated by dividing the Investors' share of net income by the number of Units outstanding during each year. F-9 JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (continued) 2. Significant Accounting Policies (continued) ------------------------------- In March 1995, the Financial Accounting Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of", which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying value. Statement No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Partnership adopted Statement No. 121 in the fourth quarter of 1995. The effect of adoption is not material. 3. The Partnership Agreement ------------------------- Distributable Cash from Operations (defined in the Partnership Agreement) is distributed 5% to the General Partner and the remaining 95% in the following order of priority: first, to the Investors until they receive a 7% non-cumulative, non-compounded annual cash return on their Invested Capital (defined in the Partnership Agreement) second, to the John Hancock Limited Partner until it receives a 7% non-cumulative, non-compounded annual cash return on its Invested Capital; and third, to the Investors and the John Hancock Limited Partner in proportion to their respective Capital Contributions (defined in the Partnership Agreement). However, any Distributable Cash from Operations which is available as a result of a reduction in working capital reserves funded by Capital Contributions of the Investors will be distributed 100% to the Investors. Profits for tax purposes from the normal operations of the Partnership for each fiscal year are allocated to the Partners in the same amounts as Distributable Cash from Operations for that year. If such profits are less than Distributable Cash from Operations for any year, they are allocated in proportion to the amounts of Distributable Cash from Operations for that year. If such profits are greater than Distributable Cash from Operations for any year, they are allocated 5% to the General Partner and 95% to the John Hancock Limited Partner and the Investors, with the allocation made between the John Hancock Limited Partner and the Investors in proportion to their respective Capital Contributions. Losses for tax purposes from the normal operations of the Partnership are allocated 1% to the General Partner and 99% to the John Hancock Limited Partner and the Investors, with the allocation made between the John Hancock Limited Partner and the Investors in proportion to their respective Capital Contributions. However, all tax aspects of the Partnership's payment of the sales commissions from the Capital Contributions made by the John Hancock Limited Partner are allocated 1% to the General Partner and 99% to the John Hancock Limited Partner, and not to the Investors. Depreciation deductions are allocated 1% to the General Partner and 99% to the Investors, and not to the John Hancock Limited Partner. F-10 JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (continued) 4. Transactions with the General Partner and Affiliates ---------------------------------------------------- Fees, commissions and other costs incurred or paid by the General Partner or its Affiliates during the three years ended December 31, 1995, 1994 and 1993, and to which the General Partner or its Affiliates are entitled to reimbursement from the Partnership were $156,119, $121,196 and $122,220, respectively. These expenses are included in expenses on the Statements of Operations. Accounts payable to Affiliates represents amounts due to the General Partner and its Affiliates for various services provided to the Partnership. The General Partner serves in a similar capacity for three other affiliated real estate limited partnerships. 5. Investment in Property ---------------------- Investment in property at cost, less any write-downs, consists of managed, fully-operating, commercial real estate as follows: December 31, 1995 1994 ---- ---- Palms of Carrollwood Shopping Center $10,930,578 $10,930,578 Yokohama Tire Warehouse 9,352,221 9,352,221 Purina Mills Distribution Building 4,203,406 4,203,406 Allmetal Distribution Building 1,636,050 1,636,050 Stone Container Building 2,088,804 2,088,804 Business Center at Pureland 5,142,016 5,142,016 ----------- ----------- $33,353,075 $33,353,075 =========== =========== The real estate market is cyclical in nature and is materially affected by general economic trends and economic conditions in the market where a property is located. As a result, determination of real estate values involves subjective judgments. These judgments are based on current market conditions and assumptions related to future market conditions. These assumptions involve, among other things, the availability of capital, occupancy rates, rental rates, interest rates and inflation rates. Amounts ultimately realized from each property may vary significantly from the market values presented and the differences could be material. Actual market values of real estate can be determined only by negotiation between the parties in a sales transaction. F-11 JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (continued) 5. Investment in Property (continued) ---------------------- The Partnership leases its properties to non-affiliated tenants primarily under long-term operating leases. At December 31, 1995, future minimum rentals on non-cancelable leases relating to the above properties were as follows: 1996 $3,679,923 1997 3,564,227 1998 3,612,212 1999 1,725,764 2000 1,451,611 Thereafter 6,339,433 ----------- Total $20,373,170 =========== 6. Investment in Joint Venture --------------------------- On December 28, 1988, the Partnership invested $75,000 to acquire a 0.5% interest in JH Quince Orchard Partners (the "Affiliated Joint Venture"), a joint venture between the Partnership and John Hancock Realty Income Fund-II Limited Partnership ("Income Fund-II"). The Partnership had an initial 0.5% interest and Income Fund-II had an initial 99.5% interest in the Affiliated Joint Venture. Pursuant to the partnership agreement of the Affiliated Joint Venture, the Partnership had the option, exercisable prior to December 31, 1990, to increase its investment and interest in the Affiliated Joint Venture to 50%. During the second quarter of 1989, the Partnership exercised such option and Income Fund-II transfered a 49.5% interest in the Affiliated Joint Venture to the Partnership for cash in the aggregate amount of $7,325,672. The Partnership has held a 50% interest in the Affiliated Joint Venture since the second quarter of 1989. On December 28, 1988, the Affiliated Joint Venture contributed 98% of the invested capital of, and acquired a 75% interest in, QOCC-1 Associates, an existing partnership which owns and operates the Quince Orchard Corporate Center, a three-story office building and related land and improvements located in Gaithersburg, Maryland. During the years ended December 31, 1994 and 1993, the partners in QOCC-1 Associates were required to make additional capital contributions towards the funding of leasing costs incurred at the property. In accordance with the terms of the partnership agreement of QOCC-1 Associates, the Affiliated Joint Venture contributed 95% of such additional capital, the Partnership's share of which amounted to an aggregate of $1,282,242. Of the cumulative total invested capital in QOCC-1 Associates at December 31, 1995, 97.55% has been contributed by the Affiliated Joint Venture. The Affiliated Joint Venture continues to hold a 75% interest in QOCC-1 Associates. F-12 JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (continued) 6. Investment in Joint Venture (continued) --------------------------- Net cash flow from QOCC-1 Associates is distributed in the following order of priority: first, to the payment of all debts and liabilities of QOCC-1 Associates and to fund reserves deemed reasonably necessary; second, to the partners in proportion to their respective invested capital until each has received a 9% return on invested capital; third, the balance, if any, to the partners in proportion to their interests. Since its inception, QOCC-1 Associates has not provided the partners with a return in excess of 9% on their invested capital. Summarized financial information for QOCC-1 Associates is as follows: Financial Position at December 31, 1995 1994 ---- ---- Current assets $168,756 $185,785 Deferred expenses, net 2,140,529 2,428,865 Other assets 1,623,912 1,004,518 Investment in property, net 12,644,363 13,013,140 ----------- ----------- Total assets $16,577,560 $16,632,308 =========== =========== Current liabilities $465,743 $429,182 Minority interest 361,521 373,162 Partners' equity 15,750,296 15,829,964 ----------- ----------- Total liabilities and equity $16,577,560 $16,632,308 =========== =========== Results of Operations Years Ended December 31, 1995 1994 1993 ---- ---- ---- Total income $2,719,151 $2,243,942 $1,294,989 Total expenses 1,180,460 1,144,080 853,695 ---------- ---------- ---------- Net income $1,538,691 $1,099,862 $441,294 ========== ========== ========== F-13 JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (continued) 7. Deferred Expenses ----------------- Deferred expenses consist of the following: Unamortized Balance at December 31, Description 1995 1994 ----------- ---- ---- $152,880 of acquisition fees for investment in the Affiliated Joint Venture. This amount is amortized over a period of 31.5 years. $119,109 $123,962 $782,979 of tenant improvements. These amounts are amortized over the terms of the leases to which they relate. 719,916 13,332 $271,868 of lease commissions. These amounts are amortized over the terms of the leases to which they relate. 219,273 77,846 $1,073,621 of acquisition fees paid to the General Partner. This amount is amortized over a period of eighty-four months. 498,466 651,841 ---------- -------- $1,556,764 $866,981 ========== ======== 8. Federal Income Taxes ------------------- A reconciliation of the net income reported in the Statements of Operations to the net income reported for federal income tax purposes is as follows:
Years Ended December 31, 1995 1994 1993 ---- ---- ---- Net income per Statements of Operations $2,776,632 $2,543,261 $2,228,039 Add/(less): Excess of book depreciation over tax depreciation 142,021 142,890 142,276 Excess of book amortization over tax amortization 59,511 81,580 8,180 Other income (195,901) (183,625) (16,333) Other expenses - 20,966 34,568 ---------- ---------- ---------- Net income for federal income tax purposes $2,782,263 $2,605,072 $2,396,730 ========== ========== ==========
F-14 JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (continued) 9. Subsequent Events ----------------- On February 15, 1996, the Partnership made a cash distribution in the aggregate amount of $762,704, based on Distributable Cash from Operations for the quarter then ended. This amount was allocated 5% ($38,135) to the General Partner and 95% ($724,569) to the Investors, in accordance with the Partnership Agreement, and represents a 6% annualized return to all Investors of record on December 31, 1995. F-15
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Year Ended December 31, 1995 Costs Capitalized Initial Costs to Subsequent to Gross Amount Partnership Acquisition At Which Carried at Close of Period ---------------------- ----------------------- ----------------------------------- Buildings Buildings and and Description Encumbrances Land Improvements ImprovementsWrite-down (1) Land Improvements Total (2) - ----------- ------------ ---- ------------ -------------------------- ---- ------------ --------- Palms of Carrollwood Shopping Center Tampa, FL - $6,000,000 $ 6,359,816 $2,162 ($1,431,400) $ 5,305,135 $5,625,443 $10,930,578 Yokohama Tire Warehouse Louisville, KY - 742,000 8,610,221 - - 742,000 8,610,221 9,352,221 Purina Mills Distribution Building St. Louis, MI - 570,400 3,633,006 - - 570,400 3,633,006 4,203,406 Allmetal Distribution Building Carrollton, TX - 263,000 1,373,050 - - 263,000 1,373,050 1,636,050 Stone Container Building Cincinnati, OH - 480,000 1,608,804 - - 480,000 1,608,804 2,088,804 Business Center at Pureland Bridgeport, NJ - 1,050,000 4,092,016 - - 1,050,000 4,092,016 5,142,016 -- ---------- ----------- ------- ---------- ---------- ----------- ----------- - $9,105,400 $25,676,913 $2,162 ($1,431,400) $8,410,535 $24,942,540 $33,353,075 == ========== =========== ======= ========== ========== =========== ===========
F-16
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) SCHEDULE III (Continued) REAL ESTATE AND ACCUMULATED DEPRECIATION Year Ended December 31, 1995 Life on Which Depreciation in Latest Statement Accumulated Date of Date of Operations Description Depreciation (5) Construction Acquired is Computed ----------- ---------------- ------------ -------- ----------- Palms of Carrollwood Shopping Center Tampa, FL $1,167,347 1984 12/28/89 30 Years Yokohama Tire Warehouse Louisville, KY 1,279,575 1991 7/17/91 30 Years Purina Mills Distribution Building St. Louis, MI 484,401 1991 12/27/91 30 Years Allmetal Distribution Building Carrollton, TX 175,445 1987 3/6/92 30 Years Stone Container Building Cincinnati, OH 201,101 1991 3/16/92 30 Years Business Center at Pureland Bridgeport, NJ 511,502 1989 3/27/92 30 Years $3,819,371 (1) This write-down of carrying value represents a deterioration in the value of the property based upon the General Partner's estimate. For further discussion relating to the determination of property write-downs, please see "Management's Discussion and Analysis of Financial Condition" included in Item 7 of this Report. (2) The Partnership's properties' aggregate cost for federal income tax purposes at December 31, 1995 are as follows: Property Amount -------- ------ Palms of Carrollwood Shopping Center $12,375,787 Yokohama Tire Warehouse 9,352,221 Purina Mills Distribution Building 4,203,406 Allmetal Distribution Building 1,636,050 Stone Container 2,088,804 Business Center at Pureland 5,162,776 ----------- $34,819,044 =========== The Partnership's aggregate cost for federal income tax purposes may differ from the aggregate cost for Financial Statement purposes. The tax basis excludes property write-downs which were recognized for Financial Statement purposes.
F-17
JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) SCHEDULE III (Continued) REAL ESTATE AND ACCUMULATED DEPRECIATION Year Ended December 31, 1995 (3) Reconciliation of Real Estate and Accumulated Depreciation: Years Ended December 31, 1995 1994 1993 ---- ---- ---- Investment in Real Estate Balance at beginning of year $33,353,075 $33,353,075 $33,353,075 Other acquisitions - - - Adjustment to purchase price - - - ----------- ----------- ----------- Balance at end of year $33,353,075 $33,353,075 $33,353,075 =========== =========== =========== Accumulated Depreciation Balance at beginning of year $2,989,706 $2,160,041 $1,330,376 Additions charged to costs and expenses 829,665 829,665 829,665 ----------- ----------- ----------- Balance at end of year $3,819,371 $2,989,706 $2,160,041 =========== =========== =========== F-18
EX-99 2 FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT QOCC-1 ASSOCIATES DECEMBER 31, 1995 QOCC-1 Associates TABLE OF CONTENTS PAGE INDEPENDENT AUDITORS' REPORT 3 FINANCIAL STATEMENTS: BALANCE SHEET 4 STATEMENT OF INCOME 5 STATEMENT OF PARTNERS' EQUITY 6 STATEMENT OF CASH FLOWS 7 NOTES TO FINANCIAL STATEMENTS 8 2 INDEPENDENT AUDITORS' REPORT To the Partners QOCC-1 Associates We have audited the accompanying balance sheet of QOCC-1 Associates as of December 31, 1995, and the related statements of income, partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of QOCC-1 Associates as of December 31, 1995, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. REZNICK FEDDER & SILVERMAN Bethesda, Maryland January 10, 1996 3 QOCC-1 Associates BALANCE SHEET December 31, 1995 ASSETS RENTAL PROPERTY Land $3,670,000 Land improvements 35,425 Building 11,461,343 Building improvements 32,622 ----------- 15,199,390 Less accumulated depreciation 2,555,027 ----------- 12,644,363 ----------- OTHER ASSETS Cash and cash equivalents 518,071 Accounts receivable - other 2,186 Prepaid taxes and insurance 94,677 Prepaid leasing commissions 388,442 Deferred rent 1,177,734 Leasing costs, less accumulated amortization of $400,701 1,752,087 ----------- 3,933,197 ----------- $16,577,560 =========== LIABILITIES AND PARTNERS' EQUITY LIABILITIES Accounts payable and accrued expenses $19,565 Prepaid rent and security deposit 446,178 ----------- 465,743 COMMITMENT - PARTNERS' EQUITY 16,111,817 ----------- $16,577,560 =========== See notes to financial statements 4 QOCC-1 Associates STATEMENT OF INCOME Year ended December 31, 1995 Revenue Rental income - base $2,691,797 Rental income - escalations 25,100 Interest income 1,975 Other revenue 279 ----------- Total revenue 2,719,151 Expenses Accounting $7,800 Advertising and promotion 441 Commissions 103,584 Depreciation and amortization 553,531 Insurance 5,392 Management fees 49,200 Personnel services 66,996 Repairs and maintenance 196,099 Supplies 4,099 Taxes 185,376 Travel 506 Utilities 7,436 ----------- Total expenses 1,180,460 ----------- NET INCOME $1,538,691 =========== See notes to financial statements 5 QOCC-1 Associates STATEMENT OF PARTNERS' EQUITY Year ended December 31, 1995
Equity at Equity at January Net Distri- December 1, 1995 Income butions 31, 1995 ------- ------ ------- -------- JH Quince Orchard Partners $15,829,964 $1,510,397 $(1,590,065) $15,750,296 Quad Properties, Inc. 373,162 28,294 (39,935) 361,521 ----------- ---------- ----------- ----------- $16,203,126 $1,538,691 $(1,630,000) $16,111,817 =========== ========== =========== ===========
See notes to financial statements 6 QOCC-1 Associates STATEMENT OF CASH FLOWS Year ended December 31, 1995 Cash flows from operating activities Net income $1,538,691 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 553,531 Decrease in accounts receivable - other 1,546 Increase in accounts receivable - rent concessions (586,098) Increase in prepaid taxes and insurance (4,051) Increase in accounts payable and accrued expenses 3,263 Decrease in prepaid leasing commissions 103,584 Increase in prepaid rent and security deposit 33,296 ---------- Net cash provided by operating activities 1,643,762 ---------- Cash flows from financing activities Distributions to partners (1,630,000) ---------- Net cash used in financing activities (1,630,000) ---------- NET INCREASE IN CASH AND CASH EQUIVALENTS 13,762 Cash and cash equivalents, beginning 504,309 ---------- Cash and cash equivalents, end $518,071 ========== See notes to financial statements 7 QOCC-1 Associates NOTES TO FINANCIAL STATEMENTS December 31, 1995 NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The partnership was organized on December 27, 1988 as a general partnership under the laws of the State of Maryland for the purpose of operating an office building with approximately 99,782 of net rentable square feet in Gaithersburg, Maryland. The building was acquired in December, 1988. The partnership conducts its rental operations under a lease agreement with one tenant. Use of Estimates ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Rental Property --------------- Rental property is carried at cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives by use of the straight-line method. Cash Equivalents ---------------- For purposes of the statement of cash flows, the partnership considers all highly liquid investments with original maturities of 90 days or less to be cash equivalents. The fair value of cash equivalents approximates its carrying amount. Rental Income ------------- Rental income is recognized as rentals become due. For instances in which rent concession periods are involved, rental income is recognized using the straight-line method over the term of the lease, which includes the rent concession period. The amount applicable to the rent concession is recorded as a deferred asset against which future collections are applied. Rental payments received in advance are deferred until earned. The lease between the partnership and the tenant of the property is an operating lease. 8 QOCC-1 Associates NOTES TO FINANCIAL STATEMENTS December 31, 1995 NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Income Taxes ------------ No provision or benefit for income taxes has been included in these financial statements since taxable income or loss passes through to, and is reportable by, the partners individually. Prepaid Leasing Commissions --------------------------- Prepaid leasing commissions are charged to operations using the straight- line method over seventy-six months. Leasing Costs ------------- Leasing costs were incurred to obtain a new tenant for the office building and improve the rental space. These costs are being written off using the straight-line method over the ten-year term of the lease. NOTE B - RENTAL INCOME UNDER OPERATING LEASE The partnership has leased the office building to a new tenant effective March 1994 under a ten-year term with a five-year renewal option at the discretion of the lessee. The tenant may terminate the lease after the 76th calendar month of the term by notifying the landlord as outlined in the lease agreement. Rental income consists of fixed base rent and variable lease escalation reimbursements, calculated annually. Future minimum base rental payments due under the noncancelable operating lease are as follows: Year Ending December 31, Amount ------------ ------ 1996 $2,592,126 1997 2,656,929 1998 2,723,352 1999 2,791,436 2000 2,861,222 Thereafter 9,535,611 ----------- $23,160,745 =========== 9 QOCC-1 Associates NOTES TO FINANCIAL STATEMENTS December 31, 1995 NOTE C - RELATED PARTY TRANSACTION During 1995, the partnership incurred charges of approximately $120,295 for management fees, personnel services and reimbursable maintenance expenses provided by affiliates of one of the partners. NOTE D - COMMITMENT The partnership has entered into a lease commission agreement with Carey Winston. The agreement provides for $546,696 of commissions to be paid for the first 76 months of the tenant's lease, which began March 1994. If the tenant does not exercise its option to terminate the lease after the 76th month, additional commissions in the amount of $376,198 for the remaining 44 months of the tenant's lease will be due at that time. NOTE E - CONCENTRATION OF CREDIT RISK The partnership maintains its cash balances in two banks. The balances are insured by the Federal Deposit Insurance Corporation up to $100,000 by each bank. As of December 31, 1995, the uninsured portion of the cash balances held at the banks was $293,643. 10 EX-27 3
5 0000842741 JOHN HANCOCK REALTY INCOME FUND-III LIMITED PARTNERSHIP YEAR DEC-31-1995 DEC-31-1995 2,529,480 0 282,343 0 0 2,719,938 33,353,075 3,819,371 41,824,552 278,801 0 0 0 0 41,545,751 41,824,552 0 4,159,857 0 264,629 0 0 0 2,776,632 0 2,776,632 0 0 0 2,776,632 1.07 1.07
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