<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED September 30, 1998
--------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM N/A
--------------------------------------------
COMMISSION FILE NUMBER 0-15680
----------------------------------------------------
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Massachusetts 04-2921566
- ------------------------------- --------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
200 Clarendon Street, Boston, MA 02116
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(800) 722-5457
- --------------------------------------------------------------------------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
N/A
- --------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE
LAST REPORT)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
Yes [X] No [ ]
<PAGE> 2
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
INDEX
PART I: FINANCIAL INFORMATION PAGE
Item 1 - Financial Statements:
Balance Sheets at September 30, 1998 and
December 31, 1997 3
Statements of Operations for the Three and Nine
Months Ended September 30, 1998 and 1997 4
Statements of Partners' Equity for the
Nine Months Ended September 30, 1998 and
Year Ended December 31, 1997 5
Statements of Cash Flows for the Nine
Months Ended September 30, 1998 and 1997 6
Notes to Financial Statements 7-12
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-18
PART II: OTHER INFORMATION 20
2
<PAGE> 3
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------ -----------
<S> <C> <C>
Cash and cash equivalents $ 2,290,075 $ 2,502,844
Restricted cash 59,400 58,400
Other assets 254,921 90,816
Property held for sale 18,780,091
Deferred expenses, net of accumulated
amortization of $329,823 in 1997 -- 360,166
Investment in property:
Land -- 6,198,330
Buildings and improvements -- 17,342,479
----------- -----------
-- 23,540,809
Less: accumulated depreciation -- (4,787,156)
----------- -----------
18,753,653
Total assets $21,384,487 $21,765,879
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 428,458 $ 263,396
Accounts payable to affiliates 214,969 150,907
----------- -----------
Total liabilities 643,427 414,303
Partners' equity/(deficit):
General Partners' deficit (250,795) (245,328)
Linited Partners' equity 20,991,855 21,596,904
----------- -----------
Total partners' equity 20,741,060 21,351,576
----------- -----------
Total liabilities and partners' equity $21,384,487 $21,765,879
=========== ===========
</TABLE>
See Notes to Financial Statements
3
<PAGE> 4
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDING NINE MONTHS ENDING
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income:
Rental income $ 635,133 $ 755,991 $1,908,452 $2,198,387
Interest income
22,715 20,434 72,475 64,236
Loss on sale of property
-- (5,321) -- (5,321)
---------- ---------- ---------- ----------
Total income 657,848 771,104 1,980,927 2,257,302
Expenses:
Depreciation
57,484 164,928 372,850 502,940
Property operating expenses
110,698 84,784 251,488 283,998
General & administrative expenses
132,858 54,524 349,854 261,134
Amortization of deferred expenses
18,986 40,207 64,380 100,330
Management fee
14,517 18,904 48,285 56,676
---------- ---------- ---------- ----------
Total expense 334,543 363,347 1,086,857 1,205,078
---------- ---------- ---------- ----------
Net income/(loss) $ 323,305 $ 407,757 $ 894,070 $1,052,224
========== ========== ========== ==========
Allocation of net income/(loss):
General Partner
3,233 4,077 8,941 10,522
John Hancock Limited Partner
(2,945) (13,018) (16,927) (37,600)
Investor 1,079,302
323,017 416,698 902,056
========== ========== ========== ==========
$ 323,305 $ 407,757 $ 894,070 $1,052,224
========== ========== ========== ==========
Net Income per Unit $ 3.52 $ 4.55 $ 9.84 $ 11.78
========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements
4
<PAGE> 5
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' EQUITY
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNER TOTAL
--------- ----------- -----------
<S> <C> <C> <C>
Partners' equity/(deficit) at January 1, 1997
(91,647 Units outstanding) $(230,844) $25,156,986 $24,926,142
Less: Cash Distributions (20,848) (4,190,101) (4,210,949)
Add: Net Income 6,364 630,019 636,383
--------- ----------- -----------
Partners' equity/(deficit) at December 31, 1997
(91,647 Units outstanding) (245,328) 21,596,904 21,351,576
Less: Cash Distributions (14,408) (1,490,178) (1,504,586)
Add: Net Income 8,941 885,129 894,070
--------- ----------- -----------
Partners' equity/(deficit) at September 30, 1998
(91,647 Units outstanding) $(250,795) $20,991,855 $20,741,060
========= =========== ===========
</TABLE>
See Notes to Financial Statements
5
<PAGE> 6
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
----------- -----------
<S> <C> <C>
Operating activities:
Net income/(loss) $ 894,070 $ 1,052,224
Adjustments to reconcile net income/(loss) to
net cash provided by operating activities:
Depreciation 372,850 502,940
Amortization of deferred expenses 64,380 100,330
Loss/(gain) on sale of property -- 5,321
----------- -----------
1,331,300 1,660,815
Changes in operating assets and liabilities:
(Increase) in restricted cash (1,000) 4,777
(Increase) in other assets (164,105) (186,488)
Increase/(decrease) in accounts payable and
accrued expenses 165,062 40,393
Increase in accounts payable to affiliates 64,062 30,818
----------- -----------
Net cash provided by operating activities 1,395,319 1,550,315
Investing activities:
Proceeds from sale -- 2,673,278
Increase in deferred expenses (103,502) (134,382)
----------- -----------
Net cash used in investing activities (103,502) 2,538,896
Financing activities:
Cash distributed to Partners (1,504,586) (1,563,554)
----------- -----------
Net cash used in financing activities (1,504,586) (1,563,554)
----------- -----------
Net decrease in cash and cash equivalents (212,769) 2,525,657
Cash and cash equivalents at beginning of year 2,502,844 2,197,847
----------- -----------
Cash and cash equivalents at end of period $ 2,290,075 $ 4,723,504
=========== ===========
</TABLE>
See Notes to Financial Statements
6
<PAGE> 7
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION OF PARTNERSHIP
John Hancock Realty Income Fund Limited Partnership (the "Partnership") was
formed under the Massachusetts Uniform Limited Partnership Act on June 12,
1986. As of September 30, 1998, the Partnership consisted of John Hancock
Realty Equities, Inc. (the "General Partner"), a wholly-owned, indirect
subsidiary of John Hancock Mutual Life Insurance Company; John Hancock
Realty Funding, Inc. (the "John Hancock Limited Partner"); and 3,760
Investor Limited Partners (the "Investors"), owning 91,647 Units of
Investor Limited Partnership Interests (the "Units"). The John Hancock
Limited Partner and the Investors are collectively referred to as the
Limited Partners. The initial capital of the Partnership was $2,000,
representing capital contributions of $1,000 from the General Partner and
$1,000 from the John Hancock Limited Partner. The Amended Agreement of
Limited Partnership of the Partnership (the "Partnership Agreement")
authorized the issuance of up to 100,000 Units of Limited Partnership
Interests at $500 per unit. During the offering period, which terminated on
September 9, 1987, 91,647 Units were sold and the John Hancock Limited
Partner made additional capital contributions of $7,330,760. There have
been no changes in the number of Units outstanding subsequent to the
termination of the offering period.
The Partnership is engaged in the business of acquiring, improving, holding
for investment and disposing of existing, income-producing, commercial and
industrial properties on an all-cash basis, free and clear of mortgage
indebtedness. Although the Partnership's properties were acquired and are
held free and clear of mortgage indebtedness, the Partnership may incur
mortgage indebtedness on its properties under certain circumstances, as
specified in the Partnership Agreement.
The latest date on which the Partnership is due to terminate is December
31, 2016, unless it is sooner terminated in accordance with the terms of
the Partnership Agreement. It is expected that in the ordinary course of
the Partnership's business, the properties of the Partnership will be
disposed of, and the Partnership terminated, before December 31, 2016. As
initially stated in its Prospectus, it was expected that the Partnership
would be dissolved upon the sale of its last remaining property, which at
that time was expected to be within seven to ten years following the date
such property was acquired by the Partnership. As of September 30, 1998,
and the date hereof, the Partnership has four properties remaining in its
portfolio, all of which are listed for sale. Upon the sale of the last
remaining property, the operations of the Partnership will terminate, and
the Partnership will be dissolved, in accordance with the terms of the
Partnership Agreement.
2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the
nine-month period ended September 30, 1998 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1998.
For further information, refer to the financial statements and footnotes
thereto included in the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1997.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results may differ from those
estimates.
Cash equivalents are highly liquid investments with maturities of three
months or less when purchased. These investments are recorded at cost plus
accrued interest, which approximates market value. Restricted cash
represents funds restricted for tenant security deposits and other escrows.
7
<PAGE> 8
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property held for sale is recorded at the lower of its carrying amount, at
the time the property is listed for sale, or its fair value, less cost to
sell. Carrying amount includes the property's cost, as described below,
less any accumulated depreciation thereon and less any property write-downs
for impairment in value and plus any related unamortized deferred expenses.
Investments in property are recorded at cost less any property write-downs
for permanent impairment in values. Cost includes the initial purchase
price of the property plus acquisition and legal fees, other miscellaneous
acquisition costs, and the cost of significant improvements.
The Partnership measures impairment in value in accordance with Financial
Accounting Standards Board Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of" ("Statement 121").
Statement 121 requires impairment losses to be recorded on long-lived
assets used in operations where indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amounts.
Depreciation has been provided on a straight-line basis over the estimated
useful lives of the various assets: thirty years for the buildings and five
years for related improvements. Maintenance and repairs are charged to
operations as incurred.
Deferred expenses relating to tenant improvements and lease commissions are
amortized on a straight-line basis over the terms of the leases to which
they relate.
The net income per Unit for the periods hereof are computed by dividing the
Investors' share of net income by the number of Units outstanding at the
end of such periods.
No provision for income taxes has been made in the financial statements as
such taxes are the responsibility of the individual partners and not of the
Partnership.
3. THE PARTNERSHIP AGREEMENT
Distributable Cash from Operations (defined in the Partnership Agreement)
is distributed 99% to the Limited Partners and 1% to the General Partner.
The Limited Partners' share of Distributable Cash from Operations is
distributed as follows: first, to the Investors until they receive a 7%
non-cumulative, non-compounded annual cash return on their Invested Capital
(defined in the Partnership Agreement); second, to the John Hancock Limited
Partner until it receives a 7% non-cumulative, non-compounded annual cash
return on its Invested Capital; and third, to the Investors and the John
Hancock Limited Partner in proportion to their respective Capital
Contributions (defined in the Partnership Agreement). However, any
Distributable Cash from Operations which is available as a result of the
reduction of working capital reserves funded by Capital Contributions of
the Investors will be distributed 100% to the Investors.
Cash from Sales or Financings (defined in the Partnership Agreement) is
first used to pay all debts and liabilities of the Partnership then due and
is then used to fund any reserves for contingent liabilities. Cash from
Sales or Financings is then distributed as follows: first, to the Limited
Partners until they receive an amount equal to their Invested Capital with
the distribution being made between the Investors and the John Hancock
Limited Partner in proportion to their respective Capital Contributions;
second, to the Investors until they have received, with respect to all
previous distributions during the year, their Cumulative Return on
Investment (defined in the Partnership Agreement); third, to the John
Hancock Limited Partner until it has received, with respect to all previous
distributions during the year, its Cumulative Return on Investment; fourth,
to the General Partner to pay any Subordinated Disposition Fees (defined in
the Partnership Agreement); and fifth, 99% to the Limited Partners and 1%
to the General Partner, with the distribution being made between the
Investors and the John Hancock Limited Partner in proportion to their
respective Capital Contributions.
8
<PAGE> 9
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. THE PARTNERSHIP AGREEMENT (CONTINUED)
Cash from the sale of the last of the Partnership's properties is to be
distributed in the same manner as Cash from Sales or Financings, except
that before any other distribution is made to the Partners, each Partner
shall first receive from such cash, an amount equal to the then positive
balance, if any, in such Partner's Capital Account after crediting or
charging to such account the profits or losses for tax purposes from such
sale. To the extent, if any, that a Partner is entitled to receive a
distribution of cash based upon a positive balance in its capital account
prior to such distribution, such distribution will be credited against the
amount of such cash the Partner would have been entitled to receive based
upon the manner of distribution of Cash from Sales or Financings, as
specified in the previous paragraph.
Profits from the normal operations of the Partnership for each fiscal year
are allocated to the Limited Partners and General Partner in the same
amounts as Distributable Cash from Operations for that year. If such
profits are less than Distributable Cash from Operations for any year, they
are allocated in proportion to the amounts of Distributable Cash from
Operations for that year. If such profits are greater than Distributable
Cash from Operations for any year, they are allocated 99% to the Limited
Partners and 1% to the General Partner, with the allocation made between
the John Hancock Limited Partner and the Investors in proportion to their
respective Capital Contributions. Losses from the normal operations of the
Partnership are allocated 99% to the Limited Partners and 1% to the General
Partner, with the allocation made between the John Hancock Limited Partner
and the Investors in proportion to their respective Capital Contributions.
Depreciation deductions are allocated 1% to the General Partner and 99% to
the Investors, and not to the John Hancock Limited Partner.
Profits and Losses from Sales or Financings are generally allocated 99% to
the Limited Partners and 1% to the General Partners. In connection with the
sale of the last of the Partnership's properties, and therefore the
dissolution of the Partnership, profits will be allocated to any Partners
having a deficit balance in their Capital Account in an amount equal to the
deficit balance. Any remaining profits will be allocated in the same order
as cash from the sale would be distributed.
Neither the General Partner nor any Affiliate (as defined in the
Partnership Agreement) of the General Partner shall be liable, responsible
or accountable in damages to any of the Partners or the Partnership for any
act or omission of the General Partner in good faith on behalf of the
Partnership within the scope of the authority granted to the General
Partner by the Partnership Agreement and in the best interest of the
Partnership, except for acts or omissions constituting fraud, negligence,
misconduct or breach of fiduciary duty. The General Partner and its
Affiliates performing services on behalf of the Partnership shall be
entitled to indemnity from the Partnership for any loss, damage, or claim
by reason of any act performed or omitted to be performed by the General
Partner in good faith on behalf of the Partnership and in a manner within
the scope of the authority granted to the General Partner by the
Partnership Agreement and in the best interest of the Partnership, except
that they shall not be entitled to be indemnified in respect of any loss,
damage, or claim incurred by reason of fraud, negligence, misconduct, or
breach of fiduciary duty. Any indemnity shall be provided out of and to the
extent of Partnership assets only. The Partnership shall not advance any
funds to the General Partner or its Affiliates for legal expenses and other
costs incurred as a result of any legal action initiated against the
General Partner or its Affiliates by a Limited Partner in the Partnership,
except under certain specified circumstances.
9
<PAGE> 10
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. INVESTMENT IN PROPERTY
Investment in property at cost and reduced by write-downs consists of
managed, fully-operating, commercial real estate as follows:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Marlboro Square Shopping Center $ -- $ 1,000,000
Crossroads Square Shopping Center -- 12,266,920
Carnegie Center Office/Warehouse -- 3,800,000
Warner Plaza Shopping Center -- 6,473,889
----- -----------
Total $ -- $23,540,809
===== ===========
</TABLE>
The real estate market is cyclical in nature and is materially affected by
general economic trends and economic conditions in the market where a
property is located. As a result, determination of real estate values
involves subjective judgments. These judgments are based on current market
conditions and assumptions related to future market conditions. These
assumptions involve, among other things, the availability of capital,
occupancy rates, rental rates, interest rates and inflation rates. Amounts
ultimately realized from each property may vary significantly from the
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.
As of September 30, 1997, the Marlboro Square Shopping Center, Crossroads
Square Shopping Center, Carnegie Center Office/Warehouse and Warner Plaza
Shopping Center were listed for sale. Accordingly, these properties are
classified as "Property Held for Sale" on the Balance Sheet at September
30, 1998 at their carrying values, which are not in excess of their
estimated fair values, less selling costs.
5. DEFERRED EXPENSES
Deferred expenses consist of the following:
<TABLE>
<CAPTION>
Unamortized Unamortized
Balance at Balance at
Description September 30, 1998 December 31, 1997
----------- ------------------ -----------------
<S> <C> <C>
Tenant improvements were amortized over
the terms of the leases to which they
relate. During 1998, the General Partner
listed all of its remaining properties
for sale. Accordingly, the unamortized
balance is included in carrying cost of
"Properties Held for Sale". -- $221,699
Lease Commissions were amortized over
the terms of the leases to which they
relate. During 1998, the General Partner
listed all of its remaining properties
for sale. Accordingly, the unamortized
balance is included in carrying cost of
"Properties Held for Sale". -- 138,467
----- --------
$ -- $360,166
===== ========
</TABLE>
10
<PAGE> 11
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6. TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES
Fees and expenses incurred or paid by the General Partner or its Affiliates
on behalf of the Partnership and to which the General Partner or its
Affiliates are entitled to reimbursement from the Partnership were as
follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
-------- --------
<S> <C> <C>
Reimbursement for operating expenses $ 80,373 $201,615
Partnership management fee expense 48,285 56,676
-------- --------
$128,658 $258,291
======== ========
</TABLE>
These expenses are included in expenses on the Statements of Operations.
The Partnership provides indemnification to the General Partner and its
Affiliates for any acts or omissions of the General Partner in good faith
on behalf of the Partnership, except for acts or omissions constituting
fraud, negligence, misconduct or breach of fiduciary duty. The General
Partner believes that this indemnification applies to the class action
complaint described in Note 8. Accordingly, included in the Statements of
Operations for the nine months ended September 30, 1998 and 1997 is $72,398
and $40,759, respectively, representing the Partnership's share of costs
incurred by the General Partner and its Affiliates relating to the class
action complaint. Through September 30, 1998, the Partnership has accrued a
total of $167,965 as its share of the costs incurred by the General Partner
and its Affiliates resulting from this matter.
Accounts payable to affiliates represents amounts due to the General
Partner or its Affiliates for various services provided to the Partnership,
including amounts to indemnify the General Partner or its Affiliates for
claims incurred by them in connection with their actions as General Partner
of the Partnership. All amounts accrued by the Partnership to indemnify the
General Partner or its Affiliates for legal fees incurred by them shall not
be paid unless or until all conditions set forth in the Partnership
Agreement for such payment have been fulfilled.
The General Partner serves in a similar capacity for two other affiliated
real estate limited partnerships.
7. FEDERAL INCOME TAXES
A reconciliation of the net income reported on the Statements of Operations
to the net income reported for federal income tax purposes is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
-------- ----------
<S> <C> <C>
Net income per Statements of Operations $894,070 $1,052,224
Add/(deduct):
Excess tax loss over book loss
on disposition of assets -- (111,709)
Eccess of tax depreciation
over book depreciation (288,764) (144,208)
Excess of book amortization
over tax amortization 25,849 12,206
-------- ----------
Net income for federal income tax purposes $631,155 $ 808,513
======== ==========
</TABLE>
11
<PAGE> 12
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
8. CONTINGENCIES
In February 1996, a putative class action complaint was filed in the
Superior Court in Essex County, New Jersey by a single investor in a
limited partnership affiliated with the Partnership. The complaint named as
defendants the Partnership, the General Partner, certain other Affiliates
of the General Partner, and certain unnamed officers, directors, employees
and agents of the named defendants. The plaintiff sought unspecified
damages stemming from alleged misrepresentations and omissions in the
marketing and offering materials associated with the Partnership and two
limited partnerships affiliated with the Partnership. On March 18, 1997,
the court certified a class of investors who were original purchasers in
the Partnership.
The Partnership provides indemnification to the General Partner and its
Affiliates for acts or omissions of the General Partner in good faith on
behalf of the Partnership, except for acts or omissions constituting fraud,
negligence, misconduct or breach of fiduciary duty. The General Partner
believes that this indemnification applies to the class action complaint
described above.
The Partnership has incurred an aggregate of approximately $420,000 in
legal expenses in connection with the class action lawsuit (see Part Il,
Item 1 of this Report). Of this amount, approximately $252,000 relates to
the Partnership's own defense and approximately $168,000 relates to the
indemnification of the General Partner and its Affiliates for their
defense. These expenses are funded from the operations of the Partnership.
At the present time, the General Partner can not estimate the aggregate
amount of legal expenses and indemnification claims to be incurred and
their impact on the Partnership's Financial Statements, taken as a whole.
Accordingly, no provision for any liability which could result from the
eventual outcome of these matters has been made in the accompanying
financial statements. However, while it is still too early to estimate
potential damages, they could possibly be material.
12
<PAGE> 13
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
During the offering period from September 9, 1986 to September 9, 1987, the
Partnership sold 91,647 Units representing gross proceeds (exclusive of the John
Hancock Limited Partner's contribution which was used to pay sales commissions,
acquisition fees and organizational and offering expenses) of $45,823,500. The
proceeds of the offering were used to acquire investment properties and fund
reserves. The Partnership's properties are described more fully in Note 4 to the
Financial Statements included in Item 1 of Part I of this Report.
IMPACT OF YEAR 2000
The General Partner and John Hancock Mutual Life Insurance Company, the General
Partner's ultimate parent (together, John Hancock) along with the Partnership,
have developed a plan to modify or replace significant portions of the
Partnership's computer information and automated technologies so that its
systems will function properly with respect to the dates in the year 2000 and
thereafter. The Partnership presently believes that with modifications to
existing systems and conversions to new technologies, the year 2000 will not
pose significant operational problems for its computer systems. However, if
certain modifications and conversions are not made, or are not completed timely,
the year 2000 issue could have an adverse impact on the operations of the
Partnership.
John Hancock as early as 1994 had begun assessing, modifying and converting the
software related to its significant systems and has initiated formal
communications with its significant business partners and customers to determine
the extent to which John Hancock's interface systems are vulnerable to those
third parties' failure to remediate their own year 2000 issues. While John
Hancock is developing alternative third party processing arrangements as it
deems appropriate, there is no guarantee that the systems of other companies on
which the Partnership's systems rely will be converted timely or will not have
an adverse effect on the Partnership's systems.
The Partnership expects the project to be substantially complete by early 1999.
This completion target was derived utilizing numerous assumptions of future
events, including availability of certain resources and other factors. However,
there can be no guarantee that this completion target will be achieved.
FORWARD-LOOKING STATEMENTS
In addition to historical information, certain statements contained herein
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Those statements appear in a number of places in this
Report and include statements regarding the intent, belief or expectations of
the General Partner with respect to, among other things, the prospective sale of
Partnership properties, actions that would be taken in the event of lack of
liquidity, unanticipated leasing costs, repair and maintenance expenses,
distributions to the General Partner and to Investors, the possible effects of
tenants vacating space at Partnership properties, the absorption of existing
retail space in certain geographical areas, the potential effect of the presence
of hazardous materials and the impact of inflation.
Forward-looking statements involve numerous known and unknown risks and
uncertainties, and they are not guarantees of future performance. The following
factors, among others, could cause actual results or performance of the
Partnership and future events to differ materially from those expressed or
implied in the forward-looking statements: general economic and business
conditions; any and all general risks of real estate ownership, including
without limitation adverse changes in general economic conditions and adverse
local conditions, the fluctuation of rental income from properties, changes in
property taxes, utility costs or maintenance costs and insurance, fluctuations
of real estate values, competition for tenants, uncertainties about whether real
estate sales under contract will close; the ability of the Partnership to sell
its properties; and other factors detailed from time to time in the filings with
the Securities and Exchange Commission.
Readers are cautioned not to place undue reliance on forward-looking statements,
which reflect the General Partner's analysis only as of the date hereof. The
Partnership assumes no obligation to update forward-looking statements. See also
the Partnership's reports to be filed from time to time with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended.
13
<PAGE> 14
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The latest date on which the Partnership is due to terminate is December 31,
2016, unless it is sooner terminated in accordance with the terms of the
Partnership Agreement. It is expected that in the ordinary course of the
Partnership's business, the properties of the Partnership will be disposed of,
and the Partnership terminated, before December 31, 2016.
As initially stated in its Prospectus, it was expected that the Partnership
would be dissolved upon the sale of its last remaining property, which at that
time was expected to be within seven to ten years following the date such
property was acquired by the Partnership. As of September 30, 1998, and the date
hereof, the Partnership has four properties remaining in its portfolio, all of
which are listed for sale (described below). Upon the sale of the last remaining
property, the operations of the Partnership will terminate, and the Partnership
will be dissolved, in accordance with the terms of the Partnership Agreement.
At September 30, 1998, the Partnership had $2,290,075 in cash and cash
equivalents and $59,400 in restricted cash.
The Partnership has established a working capital reserve with a current balance
of approximately 3.7% of the Investors' Invested Capital (defined in the
Partnership Agreement). 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 by a significant
reduction in revenues or significant unanticipated operating costs (including
but not limited to litigation expenses), unanticipated leasing costs or
unanticipated capital expenditures. If any or all of these events were to occur,
to the extent that the working capital reserve would be insufficient to satisfy
the cash requirements of the Partnership, it is anticipated that additional
funds would be obtained through a reduction of cash distributions to Investors,
bank loans, short-term loans from the General Partner or its Affiliates, or the
sale or financing of Partnership properties.
During the nine months ended September 30, 1998, cash from working capital
reserves was used for the payment of leasing costs in the amount of $103,502
incurred at the Partnership's properties. The General Partner estimates that the
Partnership will incur approximately $56,000 of additional leasing costs at its
properties during the remainder of 1998. The General Partner anticipates that
the current balance in the working capital reserve will be sufficient to pay
such costs.
During the nine months ended September 30, 1998, approximately $51,000 of cash
from operations was used to fund non-recurring maintenance and repair expenses
incurred at the Partnership's properties. The General Partner estimates that the
Partnership will incur additional non-recurring repair and maintenance expenses
of approximately $190,000 at the properties during the remainder of 1998. These
additional expenses will be funded from the operations of the Partnership's
properties and are not expected to have a significant impact on the
Partnership's liquidity.
Cash in the amount of $1,504,586 generated from the Partnership's operations was
distributed to the General Partner and Investors during the nine months ended
September 30, 1998. The Partnership will make a distribution from its operations
during the fourth quarter of 1998 comparable to those made during the first
three quarters of 1997.
The Partnership has incurred approximately $420,000 in legal expenses in
connection with the class action lawsuit (see Part II, Item 1 of this Report).
Of this amount, approximately $252,000 relates to the Partnership's own defense
and approximately $168,000 relates to the indemnification of the General Partner
and its Affiliates for their defense. These expenses are funded from the
operations of the Partnership. At the present time, the General Partner cannot
estimate the aggregate amount of legal expenses and indemnification claims to be
incurred and their impact on the Partnership's future operations. Liquidity
would, however, be materially adversely affected by a significant increase in
such legal expenses and related indemnification costs. If such increases were to
occur, to the extent that cash from operations and the working capital reserve
would be insufficient to satisfy the cash requirements of the Partnership, it is
anticipated that additional funds would be obtained through a reduction of cash
distributions to investors, bank loans, short-term loans from the General
Partner or its affiliates, or the sale or financing of Partnership properties.
14
<PAGE> 15
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The following table summarizes the leasing activity and occupancy status at the
Partnership's properties during the nine months ended September 30, 1998:
<TABLE>
<CAPTION>
MARLBORO SQ. CROSSROADS SQ. CARNEGIE WARNER PL.
SHOPPING CTR. SHOPPING CTR. CENTER SHOPPING CTR.
------------ ------------ -------- ------------
<S> <C> <C> <C> <C>
Square Feet 42,150 174,196 128,059 92,848
Occupancy at January 1, 1998 67% 95% 73% 98%
New Leases 16% 1% 2% 8%
Lease Renewals 0% 5% 8% 10%
Leases Expired (1) 39% 0% 6% 8%
Occupancy at September 30, 1998 44% 96% 69% 100%
Leases Scheduled to
Expire, Balance of 1998 0% 6% 3% 4%
Leases Scheduled to
Commence, Balance of 1998 0% 0% 0% 0%
</TABLE>
(1) Includes leases terminated by the General Partner for non-payment of
rent and leases of tenants vacating property prior to lease expiration
At September 30, 1998, Marlboro Square's occupancy was 44%. During the first
nine months of 1998, a new tenant took occupancy of 6,600 square feet, or 16% of
the property, under a lease that will expire in January 1999, at which time the
tenant will have the option to renew its lease for a five-year term.
Approximately $20,000 in leasing costs was incurred in connection with this new
lease. However, three tenants having leases representing 16,600 square feet, or
39% of the property, vacated the property during the first three months of 1998.
One tenant's lease, representing approximately 7% of the property, expired. Of
the other two tenants, one, with a lease for approximately 28% of the property
that is scheduled to expire July 2005, is delinquent in rental payments due
since September 1998 and vacated the property during October 1998. The General
Partner will pursue all available legal remedies to obtain collection of all
delinquent and future amounts due under the tenant's lease agreement. The other
tenant, with a lease for approximately 4% of the property that was scheduled to
expire in January 2001, was delinquent in rental payments due since February
1998. As a result the General Partner terminated the tenant's lease effective
May 12, 1998. The General Partner has reached a settlement agreement with the
former tenant whereby the Partnership agreed to release the former tenant from
all past due and future rental obligations in exchange for $2,000.
The General Partner anticipates that absorption of available retail space in the
Marlboro, Massachusetts area will remain sluggish for at least the remainder of
1998 based upon both the lack of demand and the oversupply of available retail
space in the area. The General Partner will continue to offer competitive rental
rates and concessions in an effort to retain existing tenants as well as to
lease the remaining vacant space at the property. Given the existing supply and
demand conditions in the Marlboro area, the General Partner's projection of
future leasing activity and the projected capital requirements of the property,
the General Partner listed Marlboro Square for sale during September 1998
because it does not believe that the property is likely to appreciate in value
during the foreseeable future.
15
<PAGE> 16
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Carnegie Center's occupancy at September 30, 1998 was 69%. During the first
nine months of 1998, the General Partner renewed leases representing
approximately 8% of the property and signed one new lease representing
approximately 2% of the property. However, one lease representing approximately
6% of the property expired. During the remainder of 1998, one lease representing
approximately 3% of the property is scheduled to expire. The Cincinnati
industrial real estate market, where the Carnegie Center is located, has an
oversupply of office/industrial space, which has resulted in a decline in rental
rates and an increase in vacancy rates. Because of these market conditions,
rental rates and concessions will be priced aggressively in an effort to retain
existing tenants as well as secure new tenants at the property.
Since late 1994, when the Carnegie Center's occupancy declined to 35%, the
General Partner has gradually improved the property's occupancy to its current
level of 75%. Given the current status of the property, the projected future
capital requirements necessary for the property to maintain its competitive
position within the market and the current conditions in the Cincinnati real
estate market, the General Partner listed the Carnegie Center for sale during
July 1998.
A tenant at the Warner Plaza property with a lease for approximately 6,200
square feet, or 7% of the property, vacated the property and filed for
bankruptcy under Chapter 7 of the U.S Bankruptcy Code. The General Partner found
a replacement tenant to take occupancy of this space effective September 15,
1998.
Over the past few years steady population growth in the Chandler, Arizona area,
where the Warner Plaza property is located, has increased demand for available
retail space and stimulated the development of new retail space. Given these
market conditions as well as the current status of the property, the General
Partner listed the Warner Plaza for sale during June 1998.
During the second quarter of 1997, the anchor tenant at the Crossroads Square
property that occupies 49% of the property under a lease scheduled to expire in
August 2010 informed the General Partner of its intention to vacate its space
during the second half of 1998. As a result, the General Partner has commenced
efforts to find a replacement tenant for the space. The General Partner does not
believe that this situation is likely to have a materially adverse effect on the
Partnership's liquidity.
One tenant at the Crossroads Square property has a clause in its lease that may
be exercisable if the anchor tenant described above ceases to operate at the
property and a replacement tenant is not secured. Such clause provides that the
tenant may: i) reduce rental payments to the lesser of the fixed monthly rent or
2% of gross receipts if the anchor ceases to operate for 180 days, and, ii)
terminate lease obligations if the cessation of operations continues for an
additional six months and a substitute tenant has not been provided. This tenant
occupies approximately 10,500 square feet, or 6% of the property, under a lease
that is scheduled to expire in July 2005. The General Partner does not believe
that any reduction in rental payments or any possible lease termination that may
result from the anchor tenant vacating the property is likely to have a
materially adverse affect on the Partnership's liquidity.
Given the current real estate market conditions in the Jacksonville, Florida
area, where the Crossroads Square is located and the property's current and
projected income performance, the General Partner listed the Crossroads Square
for sale during August 1998. Subsequent to listing Crossroads Square for sale,
the General Partner became aware that the property was environmentally
contaminated with certain hazardous materials. The General Partner is seeking to
determine the scope of the contamination and to determine the impact on the
future operating costs, repair and maintenance expenses and market value of the
property. As of the date hereof, no assurances can be given that this
contamination will not have a materially adverse effect on the liquidity of the
Partnership.
16
<PAGE> 17
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The General Partner evaluated the carrying value of each of the Partnership's
properties as of December 31, 1997 by comparing such value to the respective
property's future undiscounted cash flows and the then most recent independent
or internal appraisal. Based on such evaluations, the General Partner determined
that the Marlboro Square property's estimated future undiscounted cash flows
were not expected to exceed its carrying value. Therefore, a write-down in value
of $668,520, representing the difference between the property's carrying value
and its then estimated market value (and not its estimated future undiscounted
cash flows) was required as of December 31, 1997. No permanent impairment in
values existed with respect to the Partnerships other properties as of December
31, 1997 and, therefore, no additional write-downs were recorded.
The General Partner will continue to conduct property valuations, using internal
or independent appraisals, in order to determine whether a permanent impairment
in value exists on any of the Partnership's properties.
RESULTS OF OPERATIONS
The Partnership generated net income of $894,070 for the nine months ended
September 30, 1998 as compared to net income of $1,052,224 for the same period
in 1997.
Average occupancy for the Partnership's investments was as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
Marlboro Square Shopping Center 68% 65%
Crossroads Square Shopping Center 95% 94%
Carnegie Center Office/Warehouse 74% 67%
Warner Plaza Shopping Center 94% 99%
</TABLE>
Rental income for the nine months ended September 30, 1998, decreased by
$289,934, or 13%, as compared to the same period in 1997. This decrease is
primarily due to the sale of the 1300 North Dutton Avenue property on September
29, 1997. Excluding rental income generated by the 1300 North Dutton Avenue
property, rental income was consistent between periods. Increases in rental
income at the Crossroads Square and Carnegie Center properties were offset by
decreases in rental income at the Warner Plaza and Marlboro Square.
Interest income for the nine months ended September 30, 1998 increased by
$8,239, or 12%, as compared to the same period in 1997. This increase was
primarily due to an increase in the balance of the Partnership's working capital
reserves. The Partnership's working capital reserves increased because the
Partnership retained a portion of the net sales proceeds from the sale of the
1300 North Dutton Avenue property.
Depreciation expense for the nine months ended September 30, 1998 decreased by
$130,090, or 26%, as compared to the same period in 1997. This decrease is
primarily due to the reclassification of the Crossroads Square, Warner Plaza,
Carnegie Center and Marlboro Square properties as "Property Held for Sale"
during the third quarter of 1998. Accordingly, no depreciation has been recorded
on these properties since the time that they were listed for sale. In addition,
depreciation expense also declined due to the write-down in value of Marlboro
Square's carrying value at December 31, 1997.
The Partnership's share of property operating expenses for the nine months ended
September 30, 1998 decreased by $32,510, or 11%, as compared to the same period
in 1997. This decrease is primarily due to the sale of the 1300 North Dutton
Avenue property. Excluding amounts attributable to the 1300 North Dutton Avenue
property, the Partnership's share of property operating expenses increased by 7%
primarily due to non-recurring maintenance and repair expenses incurred at the
Carnegie Center, Marlboro Square and Warner Plaza properties. Property operating
expenses at the Crossroads Square property was consistent between periods.
17
<PAGE> 18
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
General and administrative expenses for the nine months ended September 30, 1998
increased by $88,720, or 34%, as compared to the same period during 1997. This
increase is primarily due to an increase in legal fees incurred by the
Partnership in connection with the class action compliant (see Part II, Item 1
of this Report).
Amortization of deferred expenses for the nine months ended September 30, 1998
decreased by $35,950, or 36%, as compared to the same period in 1997. This
decrease is due to the write-down in carrying value of the Marlboro Square
property at December 31, 1997 as well as reclassifying deferred expenses to
"Property Held for Sale" and, accordingly, no longer amortizing such amounts.
Management fee expense, which is equal to 3.5% of Cash from Operations (as
defined in the Partnership Agreement), decreased during the first nine months of
1998 by $8,391, or 15%, as compared to the same period in 1997. This decrease
was due to a decline in Cash from Operations between periods primarily resulting
from the sale of the 1300 North Dutton Avenue property.
The General Partner believes that inflation has had no significant impact on the
Partnership's operations during the nine months ended September 30, 1998, and
the General Partner anticipates that inflation will not have a significant
impact during the remainder of 1998.
18
<PAGE> 19
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
CASH FLOW
The following table provides the calculations of Cash from Operations and
Distributable Cash from Operations which are calculated in accordance with
Section 17 of the Partnership Agreement:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
----------- ----------
<S> <C> <C>
Net cash provided by operating activities (a) $1,395,319 $1,550,315
Net charge in operating assets and liabilities (a) (64,019) 110,500
---------- ----------
Cash provided by operations (a) 1,331,300 1,660,815
Increase in working capital reserves -- (97,261)
Add: Accrual basis Partnership Management fee 48,285 56,676
---------- ----------
Cash from operations (b) 1,379,585 1,620,230
Decrease in working capital reserves 161,195
Less: Accrual basis Partnership Management fee (48,285) (56,676)
---------- ----------
Distributable cash from operations (b) $1,492,495 $1,563,554
========== ==========
Allocation to General Partner $ 13,313 $ 15,636
Allocation to John Hancock Limited Partner
Allocation to Investors 1,479,182 1,547,918
---------- ----------
Distributable cash from operations (b) $1,492,495 $1,563,554
========== ==========
</TABLE>
(a) Net cash provided by operating activities, net change in operating
assets and liabilities, and cash provided by operations are as
calculated in the Statements of Cash Flows included in Item 1 of this
Report.
(b) As defined in the Partnership Agreement. Distributable Cash from
Operations should not be considered as an alternative to net income
(i.e. not an indicator of performance) or to reflect cash flows or
availability of discretionary funds.
During the fourth quarter of 1998, the Partnership will to make a cash
distribution to the Investors of $493,061, representing a 5% annualized return,
to all Investors that held units during the third quarter 1998, based on
Distributable Cash from Operations for the quarter then ended.
The source of future cash distributions is dependent upon cash generated by the
Partnership's properties and the use of working capital reserves. The General
Partner currently anticipates that the Partnership's Distributable Cash from
Operations during the fourth quarter of 1998 will be comparable to that
generated during the first three quarters of 1998.
19
<PAGE> 20
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In February 1996, a putative class action complaint was filed in the
Superior Court in Essex County, New Jersey by a single investor in a
limited partnership affiliated with the Partnership. The complaint
named as defendants the Partnership, the General Partner, certain
other affiliates of the General Partner, and certain unnamed officers,
directors, employees and agents of the named defendants.
The plaintiff sought unspecified damages stemming from alleged
misrepresentations and omissions in the marketing and offering
materials associated with the Partnership and two limited partnerships
affiliated with the Partnership. The complaint alleged, among other
things, that the marketing materials for the Partnership and the
affiliated limited partnerships did not contain adequate risk
disclosures.
On March 18, 1997, the court certified a class of investors who were
original purchasers in the Partnership. The certification order should
not be construed as suggesting that any member of the class is
entitled to recover, or will recover, any amount in the action.
The General Partner believes the allegations are totally without merit
and intends to vigorously contest the action.
In September 1997, a complaint for damages was filed in the Superior
Court of the State of California for the County of Los Angeles by an
investor in John Hancock Realty Income Fund-II Limited Partnership
("RIF-II"), a limited partnership affiliated with the Partnership. The
complaint named the General Partner as a defendant.
The plaintiff sought unspecified damages that allegedly arose from the
General Partner's refusal to provide, without reasonable precautions
on plaintiff's use of, a list of investors in the Partnership and in
RIF-II. Plaintiff alleges that the General Partner's refusal
unconditionally to provide a list was a breach of contract and a
breach of the General Partner's fiduciary duty.
In 1998, the plaintiff amended the complaint to name the Partnership
and RIF-II as defendants. The defendants filed demurrer motions,
asking that the complaint be dismissed at law. These motions were
under consideration during the first quarter of 1998.
Although the court dismissed the complaint against RIF-II during the
second quarter of 1998, the plaintiff subsequently amended its
complaint, again naming RIF-II as a defendant. On August 12, 1998, the
court granted RIF-II's motion for summary adjudication of the issues
against RIF-II. The court ruled that the plaintiff could not prevail
upon its claims since it was not an investor of the RIF-II. RIF-II
intends to move for a judgment dismissing it from the case. The
Partnership continues to contest the action.
There can be no assurances given as to the timing, costs or outcome of
this legal proceeding.
There are no other material pending legal proceedings, other than
ordinary routine litigation incidental to the business of the
Partnership, to which the Partnership is a party or to which any of
its properties is subject.
ITEM 2. CHANGES IN SECURITIES
There were no changes in securities during the third quarter of 1998.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There were no defaults upon senior securities during the third quarter
of 1998.
20
<PAGE> 21
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
PART II: OTHER INFORMATION (CONTINUED)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders of the
Partnership during the third quarter of 1998
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) There were no Reports on Form 8-K filed during the third quarter
of 1998.
21
<PAGE> 22
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 13th day of November, 1998.
John Hancock Realty Income Fund
Limited Partnership
By: John Hancock Realty Equities, Inc.,
General Partner
By: /s/ William M. Fitzgerald
-----------------------------------
William M. Fitzgerald, President
By: /s/ Richard E. Frank
-----------------------------------
Richard E. Frank, Treasurer
(Chief Accounting Officer)
22
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000795196
<NAME> JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,349,475
<SECURITIES> 0
<RECEIVABLES> 254,921
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,604,396
<PP&E> 23,540,809
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,384,487
<CURRENT-LIABILITIES> 643,427
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 20,741,060
<TOTAL-LIABILITY-AND-EQUITY> 21,384,487
<SALES> 0
<TOTAL-REVENUES> 1,980,927
<CGS> 0
<TOTAL-COSTS> 649,627
<OTHER-EXPENSES> 437,230
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 894,070
<INCOME-TAX> 0
<INCOME-CONTINUING> 894,070
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 894,070
<EPS-PRIMARY> 9.84
<EPS-DILUTED> 9.84
</TABLE>
