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 0-17664
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Massachusetts 04-2969061
(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 53
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TABLE OF CONTENTS
PART I
Item 1 Business 3
Item 2 Properties 7
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
<PAGE>
Part I
Item 1 - Business
The Registrant, John Hancock Realty Income Fund-II Limited Partnership (the
"Partnership"), is a limited partnership organized on June 30, 1987 under
the Massachusetts Uniform Limited Partnership Act. As of December 31,
1995, the partners in the Partnership consisted of John Hancock Realty
Equities, Inc. (the "General Partner"), John Hancock Realty Funding, Inc.
(the "John Hancock Limited Partner"), John Hancock Income Fund-II Assignor,
Inc. (the "Assignor Limited Partner") and 4,666 Unitholders (the
"Investors"). The Assignor Limited Partner holds 2,601,552 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 $2,000, representing capital contributions of $1,000 by the
General Partner and $1,000 by the John Hancock Limited Partner. During the
offering period, the John Hancock Limited Partner made additional capital
contributions of $4,161,483. The Amended Agreement of Limited Partnership
of the Partnership (the "Partnership Agreement") authorized the sale of up
to 5,000,000 Units representing economic and certain other rights
attributable to Investor Limited Partnership Interests in the Partnership.
The Units were offered and sold to the public during the period from
October 2, 1987 to January 2, 1989, 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 (i) 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, and (ii) making mortgage
loans consisting of conventional first mortgage loans and participating
first mortgage loans secured by income-producing retail, industrial and
office properties. 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, 2017, 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 investments of the Partnership will be
disposed of, and the Partnership terminated, before December 31, 2017.
3
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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 repairs, replacements, contingencies and anticipated
obligations. The income received 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 and 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 specific retail, industrial or
office tenants, the financial failure of any such major tenant, resulting
in the termination of the tenant's lease or non-payment of rent when 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.
The Partnership's mortgage loans are subject to the risk of default by the
borrowers, in which event the Partnership would have the added
responsibility of foreclosing on or pursuing other remedies on the property
involved to protect the value of its investment. A borrower's ability to
meet its regular mortgage loan payments is dependent upon the risks
generally incident to the ownership of real property, as discussed above.
On March 10, 1988, the Partnership made a participating mortgage loan to
205 Newbury Associates secured by a first mortgage on 205 Newbury Street,
an office and retail property located in Boston, Massachusetts. The
property contains 7,029 net rentable square feet of office and retail
space. The loan has a term of 120 months with interest only payable to the
Partnership on a monthly basis at a fixed interest rate of 9.5% per annum.
The full amount of the principal and accrued but unpaid interest is due and
payable to the Partnership on April 1, 1998. In addition to these amounts,
the borrower is also obligated to pay contingent interest payments to the
Partnership in the amount of 25% of the net cash flow derived from the
operations of the property during the term of the loan and a specified
portion of the net sales price or mutually agreed upon fair market value of
the property upon its sale or refinancing. 205 Newbury Associates remains
current on its minimum required debt service payments as of December 31,
1995 and as of the date hereof.
Contingent interest payments, which are based on the net cash flow from the
property, have not been received since 1990 because the property has not
generated any cash flow in excess of the minimum required debt service
payments. The General Partner has no reason to believe, based upon current
information and events, that the minimum debt service payments will not
continue to be met or that the outstanding principal balance of the loan
will not be repaid. Although market conditions in Boston, Massachusetts
weakened after the mortgage investment was made, market conditions
stabilized during 1993 and have improved since that time, resulting in
increasing market rental rates and a decline in vacancies. The General
Partner anticipates that these positive trends will continue during 1996.
4
<PAGE>
Item 1 - Business (continued)
On July 15, 1988, the Partnership acquired Park Square Shopping Center, a
neighborhood shopping center located in Brooklyn Park, Minnesota. The
Brooklyn Park real estate market, including the Park Square Shopping Center,
has experienced increasing vacancy rates as well as competitive pricing for
available space in recent years. The General Partner expects market
conditions in Brooklyn Park to remain competitive during 1996 and,
therefore, no increase in market rental rates is anticipated.
On September 20, 1988, the Partnership acquired Fulton Business Park, a
warehouse/distribution/office facility located in Atlanta, Georgia. Real
estate market conditions for industrial space in Atlanta have declined since
the Partnership purchased Fulton Business Park. However, during 1994 and
1995, vacancies in the Atlanta industrial real estate market declined and
rental rates increased. Although construction of new industrial projects
continues and a significant amount of rentable space remains vacant, demand
for industrial space in Atlanta is expected to exceed the amount of space
made available through new construction. Therefore, the General Partner
expects relatively favorable market conditions for industrial space in
Atlanta to continue during 1996.
On October 18, 1988, the Partnership made a participating first mortgage
loan to Siete Properties IV secured by a first mortgage on the Siete Square
IV Office Building ("Siete Square"), a four-story garden office building
located in Phoenix, Arizona. During 1990, the borrower was unable to meet
the minimum required debt service payments and on July 25, 1990, the
Partnership acquired title to this property by a deed-in-lieu of
foreclosure. On December 10, 1992 the Partnership sold Siete Square to a
non-affiliated buyer for a net sales price of $1,605,675. Of this amount
the Partnership distributed $1,456,869 to the Investors, $116,550 to the
John Hancock Limited Partner and retained $32,256 in working capital
reserves.
On December 28, 1988, the Partnership acquired a 99.5% interest in JH Quince
Orchard Partners (the "Affiliated Joint Venture"), a joint venture between
the Partnership and John Hancock Realty Income Fund-III Limited Partnership
("Income Fund-III"). 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, Income Fund-III 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, Income Fund-III exercised its option and the
Partnership transferred a 49.5% interest in the Affiliated Joint Venture to
Income Fund-III. 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.
5
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Item 1 - Business (continued)
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.
On June 30, 1989, the Partnership made a $5,500,000 mortgage loan to
General Camera Corporation ("GCC"), a non-affiliated borrower, secured by a
first mortgage on 540 West 36th Street, a 72,000 square foot
office/warehouse/service facility located in New York, New York. In
addition, the loan is personally guaranteed by the principal stockholders
of GCC. Under the original terms of the loan agreement, GCC was required
to pay interest only monthly at an annual rate of 11% with the entire
principal balance and all accrued but unpaid interest due on July 1, 1996.
The property had been primarily occupied by GCC. However, during the
second quarter of 1994, GCC sold substantially all of its operating assets
(but not the land and building securing the Partnership's mortgage loan) to
a non-affiliated buyer. In connection with this sale, approximately 70% of
the building was leased to the buyer of the operating assets. The General
Partner consented to the lease transaction in consideration of GCC
providing the Partnership with additional security for the mortgage loan in
addition to the Partnership's security interest in the property and the
personal guaranty of the principal stockholders of GCC, both of which the
Partnership retains. Such additional security included, among other
things, a one-time payment in the amount of $250,000 towards the
outstanding principal balance of the loan and a requirement that all future
monthly payments under the loan include amounts to amortize the outstanding
principal balance of the loan. GCC remained current on its minimum
required debt service payments as of December 31, 1995 and as of the date
hereof. The General Partner has no reason to believe, based upon current
information, events and representations made by GCC's management, that the
minimum debt service payments will not continue to be met or that the
outstanding principal balance of the loan will not be repaid.
On July 31, 1989, the Partnership acquired the Miami International
Distribution Center ("MIDC"), a warehouse/distribution facility located in
Miami, Florida. The General Partner acquired MIDC in its own name on an
interim basis from a non-affiliated seller on December 20, 1988. As of
July 31, 1989 the General Partner transferred title to the Partnership at
its original cost.
The MIDC property is located in an area that the Miami Airport Authority
has targeted for future expansion of the Airport. The Miami Airport
Authority has contacted the General Partner concerning a potential sale of
the property. It is possible that under certain circumstances the Miami
Airport Authority could obtain this property through its powers of eminent
domain, although at this time no such plans have been announced or
otherwise communicated to the General Partner. The Miami Airport Authority
has indicated that it will further apprise the General Partner of its
intentions regarding the property during the second quarter of 1996.
6
<PAGE>
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 investment
portfolio:
Park Square Shopping Center
- ---------------------------
On July 15, 1988, the Partnership purchased the Park Square Shopping Center
("Park Square") located in Brooklyn Park, Minnesota, from a non-affiliated
seller. The property, substantially completed during the first quarter of
1988, contains approximately 137,108 square feet of rentable space located
on a 17 acre site.
The average occupancy for Park Square for the year ended December 31, 1995
was 85%.
Fulton Business Park Warehouse
- ------------------------------
On September 20, 1988, the Partnership purchased the Fulton Business Park
located in Atlanta, Georgia, from a non-affiliated seller. The property,
completed in 1986, contains 150,535 square feet of rentable space located
on an 8 acre site.
The average occupancy for Fulton Business Park for the year ended December
31, 1995 was 87%.
7
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Item 2 - Properties (continued)
JH Quince Orchard Partners
- --------------------------
On December 28, 1988, the Partnership acquired a 99.5% interest in JH
Quince Orchard Partners (the "Affiliated Joint Venture"), a joint venture
between the Partnership and John Hancock Realty Income Fund-III Limited
Partnership ("Income Fund-III"). The Partnership had an initial 99.5%
interest and Income Fund-III had an initial 0.5% interest in the Affiliated
Joint Venture. Pursuant to the partnership agreement of the Affiliated
Joint Venture, Income Fund-III 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, Income
Fund-III exercised its option and the Partnership transferred a 49.5%
interest in the Affiliated Joint Venture to Income Fund-III. 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. The partnership agreement of QOCC-1
Associates requires that the Affiliated Joint Venture contribute 95% of any
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%.
Miami International Distribution Center
- ---------------------------------------
On July 31, 1989, the Partnership purchased the Miami International
Distribution Center ("MIDC") located in Miami, Florida, from the General
Partner, which transferred title to the property through a nominee
corporation. MIDC is a 215,019 square foot warehouse/distribution facility
located on a 9 acre site.
Average occupancy for MIDC for the year ended December 31, 1995 was 87%.
As of December 31, 1995 the Partnership held the following mortgage loans
in its investment portfolio:
Loan to 205 Newbury Associates
- ------------------------------
On March 10, 1988, the Partnership made a $1,700,000 participating
non-recourse mortgage loan to 205 Newbury Associates (the "Borrower"), a
non-affiliated borrower, secured by a first mortgage on a property located
at 205 Newbury Street, Boston, Massachusetts. The property contains 7,029
rentable square feet of office and retail space.
8
<PAGE>
Item 2 - Properties (continued)
Loan to General Camera Corporation
- ----------------------------------
On June 30, 1989, the Partnership made a $5,500,000 mortgage loan to
General Camera Corporation, a non-affiliated borrower, secured by a first
mortgage on a 72,000 square foot office/warehouse/service facility located
at 540 West 36th Street, New York, New York.
The foregoing investments of the Partnership are further described in Item
7 of this Report.
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 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.
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 2,601,552 Units
originally sold for $20 per Unit. The Units were offered and sold to the
public during the period from October 2, 1987 to January 2, 1989. No
established public market exists on which the Units may be traded.
Consequently, Investors 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.
9
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Item 5 - Market for the Partnership's Securities and Related Security
Holder Matters (continued)
(b) Number of Security Holders
Number of
Record holders Number of Units
as of outstanding as of
Title of Class December 31, 1995 December 31, 1995
-------------- ----------------- -----------------
Assignee Units 4,666 2,601,552
(c) Dividend History and Restrictions
During the fiscal years ended December 31, 1995 and 1994, the Partnership
distributed cash in the amount of $2,522,718 and $2,522,714, respectively,
from Distributable Cash from Operations (as defined in the Partnership
Agreement). These amounts were allocated to the General Partner, John
Hancock Limited Partner and the Investors in accordance with the terms of
the Partnership Agreement.
(c) Dividend History and Restrictions (continued)
The following table reflects cash distributions made during the two year
period ended December 31, 1995:
<TABLE>
<CAPTION>
Amount Paid to
Date of Amount of Amount Paid to John Hancock Amount Paid Distribution
Distribution Distribution General Partner Limited Partner to Investors Per Unit
------------ ----------- --------------- --------------- ----------- --------
<S> <C> <C> <C> <C> <C>
February 15, 1994 $630,678 $6,307 - $624,372 $0.24
May 13, 1994 629,609 5,236 - 624,373 0.24
August 15, 1994 629,858 5,486 - 624,372 0.24
November 15, 1994 632,569 8,196 - 624,373 0.24
February 15, 1995 630,679 6,307 - 624,372 0.24
May 15, 1995 630,680 6,307 - 624,373 0.24
August 15, 1995 630,679 6,307 - 624,372 0.24
November 15, 1995 630,680 6,307 - 624,373 0.24
</TABLE>
The source of future cash distributions is dependent upon cash generated by
the Partnership's investments and the use of working capital reserves for
leasing costs and capital expenditures. The General Partner anticipates
that the Partnership will make cash distributions in 1996 comparable to
those made during 1995. For a further discussion on the financial
condition and results of operations of the Partnership, see Item 7 of this
Report.
10
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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.
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Rental income $2,447,532 $2,170,416 $2,296,571 $2,817,557 $2,885,906
Interest income 879,508 843,631 872,180 883,680 933,924
Income from joint venture 755,198 541,188 221,738 432,782 445,670
Net income 2,414,024 1,985,107 1,935,917 273,753 2,258,118
Net income per Unit (b) 0.92 0.76 0.74 0.16 0.86
Ordinary tax income (a) 2,515,024 2,025,648 2,072,792 384,410 2,456,533
Ordinary tax income per Unit (b) 0.96 0.77 0.79 0.21 0.93
Cash distributions per Unit from
operations 0.96 0.96 1.07 1.20 1.25
Distributable cash from sales or
refinancings - - - 1,573,419 -
Cash distribution per Unit from
sales or refinancings - - 0.56 - -
Cash and cash equivalents at
December 31 3,520,394 2,561,288 3,742,273 4,713,396 3,189,873
Total assets at December 31 39,349,380 39,413,410 40,559,574 42,421,785 45,381,848
</TABLE>
(a) The ordinary tax income for the Partnership was allocated as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
General Partner $25,150 $20,256 $20,728 $3,844 $24,565
John Hancock Limited Partner - - - (159,110) -
Investors 2,489,874 2,005,392 2,052,064 539,676 2,431,968
---------- ---------- ---------- -------- ----------
Total $2,515,024 $2,025,648 $2,072,792 $384,410 $2,456,533
========== ========== ========== ======== ==========
</TABLE>
(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 as presented for 1995, 1994, 1993, 1992 and 1991
was computed by dividing the Investors' share of ordinary tax income
by the number of Units outstanding during the year.
11
<PAGE>
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
- -------
During the offering period, from October 2, 1987 to January 2, 1989, the
Partnership sold 2,601,552 Units representing gross proceeds (exclusive of
the John Hancock Limited Partner's contribution, which was used to pay sales
commissions) of $52,031,040. The proceeds of the offering were used to
acquire investments, 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, 6 and 8 to the Financial Statements
included in Item 8 of this Report.
Liquidity and Capital Resources
- -------------------------------
At December 31, 1995, the Partnership had $3,520,394 in cash and cash
equivalents, $26,240 in restricted cash and $106,027 in long-term
restricted cash. The Partnership's cash and cash equivalents increased by
$959,106 from December 31, 1994 to December 31, 1995 primarily as a result
of principal payments made on the General Camera Corporation mortgage loan
as well as the Partnership retaining net cash provided by operations in
order to replenish the balance of its working capital reserves.
The Partnership has a working capital reserve with a current balance of
approximately 5.6% 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 further 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.
A former tenant at the Miami International Distribution Center that had
occupied approximately 70,000 square feet, or 33% of the property, has been
delinquent in rental payments and expense reimbursements since July 1993
and vacated the property in September 1993. The former tenant's lease
obligations expired in December 1994. The General Partner has brought an
action against the former tenant to obtain full collection of all
delinquent and other amounts due under the lease agreement in the aggregate
amount of approximately $550,000. The matter had been scheduled to be
heard by the court during the fourth quarter of 1995; however, because the
General Partner amended its complaint to include additional defendants, the
court rescheduled the hearing date. The matter is now expected to be heard
during the third quarter of 1996. Should the Partnership prevail in the
action, there can be no assurance that the Partnership will be able to
collect all, or any, of this amount. The General Partner will continue to
pursue all available legal remedies in an effort to obtain collection from
this former tenant.
12
<PAGE>
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liquidity and Capital Resources (continued)
- -------------------------------
The General Partner subsequently secured two replacement tenants for the
vacated space at the Miami International Distribution Center. One tenant
took occupancy of approximately 28,000 square feet, or 13% of the property,
under a lease commencing during June 1994 and the other tenant took
occupancy of approximately 42,000 square feet, or 20% of the property,
under a lease commencing during July 1994. However, the tenant leasing the
28,000 square foot space (and whose lease is scheduled to expire in
September 2004) subsequently vacated its space and has been delinquent in
its rental payments and expense reimbursements due since November 1, 1994.
The General Partner filed a complaint demanding payment from this tenant
for delinquent rental amounts as well as all future obligations due under
the lease agreement. The Partnership received a default judgment in the
amount of approximately $1,830,000 against this tenant on November 1, 1995
and received a final judgment in the amount of approximately $2,010,000 on
January 31, 1996. The final judgment amount represents the aggregate of
the default judgment amount plus interest thereon from the default judgment
date through the final judgment date. Based upon the financial condition
of this tenant, there can be no assurance that the Partnership will be able
to collect all, if any, of the judgment amount. The General Partner has
also been seeking a replacement tenant for this space.
During 1996, one tenant's lease representing approximately 50,000 square
feet, or 23% of the property, is scheduled to expire. The General Partner
is currently negotiating with this tenant for a lease renewal. If the
General Partner is unable to secure a renewal, then it will seek a
replacement tenant, or tenants, for this space.
The Miami International Distribution Center is located in an area that the
Miami Airport Authority has targeted for future expansion of the Airport.
The Miami Airport Authority has contacted the General Partner concerning a
potential sale of the property. It is possible that under certain
circumstances the Miami Airport Authority could obtain this property
through its powers of eminent domain, although at this time no such plans
have been announced or otherwise communicated to the General Partner. The
Miami Airport Authority has indicated that it will further apprise the
General Partner of its intentions regarding the property during the second
quarter of 1996.
The Fulton Business Park's occupancy was 100% at December 31, 1995. During
1995, three new tenants took occupancy at the property under leases
representing an aggregate of approximately 29,500 square feet, or 20% of
the property. In addition, two existing tenants renewed their leases
during 1995. One of the leases represents approximately 30,500 square
feet, or 20% of the property, and the other lease represents approximately
6,500 square feet, or 4% of the property. This latter tenant also decided
to expand the space it occupies at the property by approximately 7,000
square feet, for an aggregate of approximately 13,500 square feet, or 9% of
the property. Two tenants occupying an aggregate of approximately 7,500
square feet, or 5% of the property, vacated the property upon the
expiration of their leases during 1995.
13
<PAGE>
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liquidity and Capital Resources (continued)
- -------------------------------
During 1994, a tenant at the Fulton Business Park holding a lease
representing approximately 20,000 square feet, or 13% of the property, and
who had been delinquent in meeting its rental obligations, requested an
amendment to its lease to reduce the amount of space it occupied by
approximately 7,000 square feet, or 5% of the property. The General
Partner agreed to the tenant's request and the lease was amended i) to
reduce the amount of space occupied by the tenant and ii) to provide for
payment of the delinquent amounts due (approximately $19,000). Payments on
the delinquent amounts were originally scheduled to commence on July 1,
1995. At the request of the tenant, the lease was further amended to
provide for payments on the delinquent amounts commencing on January 1,
1996. The tenant has not made any payments due on the delinquent amounts
note since January 1, 1996 and is delinquent on rental payments due since
December 1995. As a result, the General Partner terminated the tenants
lease effective February 9, 1996. As of the date hereof, the tenant is in
the process of vacating the space. The General Partner is actively seeking
a replacement tenant for this space.
During 1996, a lease representing approximately 5,000 square feet, or 3% of
the property, is scheduled to expire. The General Partner believes that,
given current market conditions, Fulton Business Park will be able to
retain existing tenants or secure a new tenant, or tenants, at the property
during 1996.
At December 31, 1995, the Park Square Shopping Center's occupancy was 86%.
During 1996, six leases representing approximately 13,000 square feet, or
10% of the property, are scheduled to expire. The General Partner will
continue to offer aggressive rental packages in an effort to retain
existing tenants as well as to secure new tenants for the vacant space at
the property.
Cash in the aggregate amount of $197,252 was used during 1995 for the
payment of leasing costs incurred at the Partnership's properties. The
General Partner estimates that the Partnership will incur an aggregate of
approximately $371,000 of leasing costs at its properties during 1996. The
current balance in the working capital reserve should be sufficient to pay
such costs.
During 1995, approximately $108,000 of cash generated from the
Partnership's operations was used to fund non-recurring repair and
maintenance costs incurred at the Miami International Distribution Center
and the Fulton Business Park. The General Partner anticipates that the
Partnership will incur non-recurring repair and maintenance costs in the
aggregate amount of approximately $124,000 at its properties during 1996.
These additional costs 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.
14
<PAGE>
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 $2,522,718, 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.
Both of the borrowers on the Partnership's mortgage investments, 205
Newbury Associates and General Camera Corporation, remained current on
their minimum required debt service payments as of December 31, 1995 and as
of the date hereof. Contingent interest payments on the 205 Newbury
Associates mortgage investment, which are based upon the net cash flow of
the property, have not been received since 1990 because the property has
not generated any cash flow in excess of the minimum required debt service
payments. The entire unamortized principal balance and all accrued but
unpaid interest on the mortgage loan to General Camera Corporation is due
on July 1, 1996. The General Partner has no reason to believe, based upon
current information and events, that the minimum required debt service
payments will not continue to be met or that the outstanding principal
balance of the loans will not be repaid. Should either of the borrowers
fail to meet the minimum required debt service payments, there would be a
material adverse effect on the Partnership's liquidity as well as a
permanent impairment in the book value of the mortgage investment.
The General Partner had the Fulton Business Park property independently
appraised during the second quarter of 1995. Based upon the appraiser's
investigation and analysis, the property's market value was estimated to be
approximately $3,150,000. The net book value of the Fulton Business Park
property of approximately $4,016,000 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 exists and that a write-
down in value was not required as of December 31, 1995. The Partnership's
cumulative investment in the property, before accumulated depreciation, is
approximately $5,139,000.
The General Partner evaluated the carrying value of each of the
Partnership's other properties and its joint venture investment as of
December 31, 1995 by comparing each such carrying value to the related
property's future undiscounted cash flows and the then most recent internal
appraisal, in order to determine whether any permanent impairment in values
existed. In addition, the General Partner evaluated the status of its
mortgage investments and their ultimate collectibility as of December 31,
1995. Based upon such evaluations, the General Partner determined that no
permanent impairment in values existed and, therefore, no write-downs were
recorded.
The General Partner will continue to conduct periodic property and
investment valuations, using internal or independent appraisals, in order
to determine whether a permanent impairment in value exists on any of the
Partnership's investments.
15
<PAGE>
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results of Operations
- ---------------------
Net income for the year ended December 31, 1995 was $2,414,024 as compared
to $1,985,107 in 1994 and $1,935,917 in 1993.
Average occupancy for the Partnership's equity real estate investments was
as follows:
Years Ended December 31,
1995 1994 1993
Park Square Shopping Center 85% 85% 93%
Fulton Business Park 87% 84% 82%
Miami International Distribution Center 87% 70% 92%
Quince Orchard Corporate Center
(Affiliated Joint Venture) 100% 83% 75%
Rental income for the year ended December 31, 1995 increased by $277,116,
or 13%, as compared to 1994 and by $150,961, or 7%, as compared to 1993.
Rental income at the Miami International Distribution Center increased by
23% during 1995 as compared to 1994 and by 10% as compared to 1993. The
increase in 1995 as compared to 1994 is primarily due to a 17% increase in
average occupancy. The increase in 1995 as compared to 1993 resulted from
a tenant that ceased making rental payments in July 1993 and vacated the
property in September 1993. Rental income at the Fulton Business Park
increased by 28% and 26% as compared to 1994 and 1993, respectively. These
increases were primarily due to an increase in average occupancy at the
property and increases in the rental rates paid by certain tenants. Rental
income at the Park Square Shopping Center was consistent between periods.
The Partnership's allocation of income from the Affiliated Joint Venture
for the year ended December 31, 1995 increased by $214,010, or 40%, and by
$533,460, 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 also due to a 25% increase in average occupancy
at the Quince Orchard Corporate Center and the fact that the current lease
on the property is for a rental rate that is higher than that provided by
the former lease.
During 1995, the Partnership's share of property operating expenses
increased by $114,099, or 27%, as compared to 1994 and by $182,213, or 51%,
as compared to 1993. Included in the 1993 results is a refund of a portion
of the prior year's real estate taxes due to a successful appeal of the
assessed valuation of the Siete Square property, which was sold in December
1992.
16
<PAGE>
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results of Operations (continued)
- ---------------------
The Partnership's share of property operating expenses at the Miami
International Distribution Center increased by 48% in 1995 as compared to
1994 and by 23% as compared to 1993. The property incurred approximately
$84,000 and $4,500 of non-recurring maintenance and repair expenses during
1995 and 1994, respectively. Excluding these amounts, the Partnership's
share of property operating expenses at the property increased by 7% in
1995 as compared to 1994 and decreased by 13% as compared to 1993. The
increase in 1995 as compared to 1994 is primarily due to legal costs
incurred in connection with collecting delinquent rental amounts due from
certain former tenants. The decrease in 1995 as compared to 1993 is
primarily due to cleanup expenses incurred in 1993 as a result of damage
caused by Hurricane Andrew.
During 1995, the Partnership's share of property operating expenses at the
Park Square Shopping Center decreased by 6% as compared to 1994 and
increased by 55% as compared to 1993. During 1994, the property incurred
approximately $8,000 in non-recurring maintenance and repair expenses.
Excluding this amount, the Partnership's share of property operating
expenses at the property was consistent between 1995 and 1994. A decline
in occupancy at the property in 1995 as compared to 1993 resulted in a
decrease in the amount of expenses reimbursed by the tenants and a
corresponding increase in property operating expenses incurred by the
Partnership.
The Partnership's share of property operating expenses incurred at the
Fulton Business Park during 1995 increased by 43% as compared to 1994 and
53% as compared to 1993. During 1995 and 1994, the Fulton Business Park
incurred approximately $24,000 and $14,000, respectively in non-recurring
maintenance and repair expenses. Excluding these amounts, the
Partnership's share of property operating expenses at the property
increased by 36% and 18% during 1995 as compared to 1994 and 1993,
respectively. These increases are due to the fact that during 1995, the
Partnership paid additional real estate taxes relating to 1994 that had not
been billed by the taxing authority during 1994. In addition, the results
for 1994 include a refund of a portion of the prior year's real estate
taxes which had the effect of reducing operating expenses during that
period.
Amortization of deferred expenses for the year ended December 31, 1995
decreased by $13,677, or 5%, as compared to 1994 and increased by $36,066,
or 15%, as compared to 1993. The decrease in 1995 as compared to 1994 is
primarily due to the full amortization during 1994 of a portion of leasing
costs incurred at the Miami International Distribution Center. The
increase in 1995 as compared to 1993 is primarily due to the Partnership
reducing the period over which deferred expenses relating to acquisition
fees are amortized. Commencing with the third quarter of 1993, the
Partnership reduced the amortization period for such deferred acquisition
fees from thirty years, the estimated useful life of the buildings owned by
the Partnership, to eight and one-half years, the then estimated remaining
life of the Partnership, thereby resulting in increased amortization.
17
<PAGE>
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results of Operations (continued)
- ---------------------
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 inflation will not have a significant
impact during 1996.
Cash Flow
- ---------
The following table provides the calculations of Cash from Operations and
Distributable Cash from Operations which are calculated in accordance with
Section 17 of the Partnership Agreement:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities (a) $3,361,696 $2,224,822 $3,695,258 $3,425,279 $3,451,763
Net change in operating assets and
liabilities (a) (7,724) 645,878 (724,719) 92,471 (90,306)
---------- ---------- ---------- ---------- ----------
Net cash provided by operations (a) 3,353,972 2,870,700 2,970,539 3,517,750 3,361,457
Increase in working capital reserves (831,254) (347,986) (316,431) (364,354) (208,059)
---------- ---------- ---------- ---------- ----------
Cash from operations (b) 2,522,718 2,522,714 2,654,108 3,153,396 3,153,398
Decrease in working capital reserves - - - - -
---------- ---------- ---------- ---------- ----------
Distributable cash from operations (b) $2,522,718 $2,522,714 $2,654,108 $3,153,396 $3,153,398
========== ========== ========== ========== ==========
Allocation to General Partner $25,228 $25,224 $26,541 $31,534 $31,534
Allocation to Investors 2,497,490 2,497,490 2,627,567 3,121,862 3,121,864
Allocation to John Hancock Limited
Partner - - - - -
---------- ---------- ---------- ---------- ----------
$2,522,718 $2,522,714 $2,654,108 $3,153,396 $3,153,398
========== ========== ========== ========== ==========
</TABLE>
(a) Net cash provided by operating activities, net change in operating
assets and liabilities, and net cash provided by operations are as
calculated in the Statements of Cash Flows included in Item 8 of this
Report.
(b) As defined in the Partnership Agreement. Distributable Cash from
Operations should not be considered as an alternative to net income
(i.e. not an indicator of performance) or to reflect cash flows or
availability of discretionary funds.
18
<PAGE>
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Cash Flow (continued)
- ---------
On February 15, 1996, the Partnership made a cash distribution of $624,372
to the Investors representing a 5% annualized return to all Investors of
record at 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 in each of the four
quarters of 1996 comparable to those made during 1995.
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
19
<PAGE>
Item 10 - Directors and Executive Officers of the Partnership
(c) Identification of certain significant persons
The General Partner is responsible for the identification, analysis,
purchase, operation, and disposal of specific Partnership real estate and
mortgage loan 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
Stephen Kindl Senior Investment Officer of 38
John 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 Managing 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 (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 Counsel of John Hancock's Real Estate Law Division
since 1993. From 1989 to 1993, he was an Associate Counsel of John
Hancock. He holds a J.D. from Yale Law School and a B.A. from Oberlin
College.
20
<PAGE>
Item 10 - Directors and Executive Officers of the Partnership
(e) Business experience (continued)
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, Mr. Frank 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.
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
21
<PAGE>
Item 10 - Directors and Executive Officers of the Partnership
Compliance with Section 16(a) of the Exchange Act
Under Section 16(a) of the Securities Exchange Act of 1934, as amended, the
General Partner's directors and executive officers, as well as any person
holding more than ten percent of the Units, are required to report their
initial ownership of Units and any subsequent change in such ownership to
the Securities and Exchange Commission and the Partnership (such
requirements hereinafter referred to as "Section 16(a) filing
requirements"). Specific time deadlines for Section 16(a) filing
requirements have been established.
To the Partnership's knowledge, no officer or director of the General
Partner has any ownership interest in the Partnership and no person holds
more than ten percent of the Units.
Item 11 - Executive Compensation
None of the officers or directors of the General Partner or any of the Real
Estate Investment Committee members referred to in Item 10(c) receive any
current or proposed direct remuneration in their capacities as officers,
directors or Real Estate Investment Committee members, 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 persons in such capacities.
No long-term incentive plan exists with any such persons in such capacities
and no remuneration plan or arrangement exists with any such persons
resulting from resignation, retirement or any other termination.
Therefore, tables relating to these topics have been omitted.
Compensation Committee Interlocks and Insider Participation:
The Partnership did not have a Compensation Committee in 1995 and does not
currently have such a committee. No current or former officer or employee
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 2,601,552
outstanding Units as of December 31, 1995.
(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 holds, or possesses the right to acquire, a
beneficial ownership of Units.
22
<PAGE>
Item 12 - Security Ownership of Certain Beneficial Owners and Management
(continued)
(c) Changes in control.
The Partnership does not know of any arrangements the operations of which
may at a subsequent date result in a change of control of the Partnership.
Item 13 - Certain Relationships and Related Transactions
See Note 4 to the Notes to Financial Statements included in Item 8 of this
Report for a description of certain transactions and related amounts paid
by the Partnership to the General Partner or its Affiliates during the
years ended December 31, 1995, 1994 and 1993.
In accordance with the terms of the Partnership Agreement, the General
Partner and its Affiliates (defined in the Partnership Agreement) are
entitled to the following types of compensation, fees, profits/(losses),
expense reimbursements and distributions:
An Affiliate of the General Partner is entitled to receive a Property
Management Fee for providing property management services for Partnership
properties. The Partnership may pay a fee equal to the amount customarily
charged in arm's-length transactions by independent parties rendering
comparable services for comparable properties in the localities where such
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 and the Partnership did not pay any such fees during the years
ended December 31, 1995, 1994 and 1993.
An Affiliate of the General Partner is entitled to receive a Mortgage
Servicing Fee for providing mortgage servicing services for Partnership
mortgage loans. The Partnership may pay a monthly servicing fee equal to
the amount customarily charged in arm's-length transactions by independent
parties rendering comparable services, but in no event to exceed 1/4 of 1%
annually of any mortgage loan serviced under such agreement. The
Partnership did not pay any such fees during the years ended December 31,
1995, 1994 and 1993.
The General Partner and its Affiliates are also entitled to Reimbursement
for Expenses (defined in the Partnership Agreement) relating to the
administrative services necessary to the prudent operation of the
Partnership, such as legal, accounting, computer, transfer agent and other
services. The amounts charged to the Partnership for such administrative
services may not exceed the lesser of the General Partner's or such
Affiliates' costs or 90% of those which the Partnership would be required
to pay to independent parties for similar services in the same geographic
area. The Partnership reimbursed the General Partner for $135,632,
$135,667 and $138,697 of such expenses during the years ended December 31,
1995, 1994 and 1993, respectively.
23
<PAGE>
Item 13 - Certain Relationships and Related Transactions (continued)
A Subordinated Disposition Fee (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 Fees may be paid to the General Partner unless and until the
Investors and the John Hancock Limited Partner have received a return of
their total Invested Capital (defined in the Partnership Agreement) plus
the Cumulative Return on Investment (defined in the Partnership Agreement)
of 12% per annum for all fiscal years ended prior to the date of payment.
Such Subordinated Disposition Fees may not exceed 50% of the competitive
real estate commission in the area where the property is located or,
together with any other brokerage commission payable to or by any other
person, exceed 6% of the contract sales price of such property. The
Partnership did not pay any such Subordinated Disposition Fee during the
years ended December 31, 1995, 1994 and 1993.
A share of the Partnership's Distributable Cash from Operations (defined in
the Partnership Agreement) is distributable to the General Partner and may
be distributable to the John Hancock Limited Partner. Distributable Cash
from Operations is distributed 1% to the General Partner and the remaining
99% among the Investors, the General Partner and the John Hancock Limited
Partner, in accordance with Section 8 of the Partnership Agreement
(described more fully in Note 3 to the Financial Statements included in
Item 8 of this Report). The General Partner's Share of Distributable Cash
from Operations was $25,228, $25,224 and $26,541 for the years ended
December 31, 1995, 1994 and 1993, respectively. The John Hancock Limited
Partner was not entitled to receive any such distributions during 1995,
1994 and 1993.
A share of Cash from Sales, Financings or Repayments (defined in the
Partnership Agreement) may be distributed to the General Partner and the
John Hancock Limited Partner. Cash from Sales, Financings or Repayments
are distributable in accordance with Section 8 of the Partnership Agreement
(described more fully in Note 3 to the Financial Statements included in
Item 8 of this Report). No Sales, Financings or Repayments occurred during
1995, 1994 and 1993 and, therefore, no such distributions were made during
the years ended December 31, 1995, 1994 or 1993.
A share of the Partnership's Profits or Losses for tax purposes is
allocable to the General Partner and the John Hancock Limited Partner.
Such allocation generally approximates, insofar as practicable, their
percentage share of Distributable Cash from Operations and of Cash from
Sales, Financings or Repayments. 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 and Losses were profits of $25,150, $20,256 and $20,728 during the
years ended December 31, 1995, 1994 and 1993, respectively. The John
Hancock Limited Partner did not receive an allocation of such Profits or
Losses during the years ended December 31, 1995, 1994 and 1993.
24
<PAGE>
Item 13 - Certain Relationships and Related Transactions (continued)
This table reflects all compensation, fees, profits/(losses), expense
reimbursements and distributions made by the Partnership to the General
Partner and/or its Affiliates for the three year period ended December 31,
1995:
Years Ended December 31,
1995 1994 1993
---- ---- ----
Reimbursement for Operating
Expenses $135,632 $135,667 $138,697
General Partner Share of Distributable
Cash from Operations 25,228 25,224 26,541
General Partner Share of Profits/
(Losses) for tax purposes 25,150 20,256 20,728
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
Page Number
or Exhibit Page Number or
Number Under Incorporation by
Regulation S-K Description Reference
- --------------- ----------- ---------
4 Instruments defining the rights
of security holders
4.1 Amended Agreement of Exhibit A to the
Limited Partnership* Prospectus filed under
the Partnership's
Amendment No. 1 to
Form S-11
Registration Statement
(File 33-15630)
4.2 Subscription Agreement Exhibit C to the
Signature Page and Power of Prospectus filed under
Attorney whereby a subscriber the Partnership's
agrees to purchase Units and Form S-11
adopts the provisions of the Registration Statement
Amended Agreement of Limited (File 33-15630)
Partnership*
4.3 Copy of Certificate of Exhibit 4.3 to the
Limited Partnership filed Partnership's Form S-11
with the Massachusetts Secretary Registration
of State on June 30, 1987* Statement
(File 33-15630)
25
<PAGE>
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
(continued)
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 September 28, 1987* Registration Statement
(File 33-15630)
10 Material contracts and other
documents
10.1 Form of Escrow Agreement* Exhibit 10.1 to
the Partnership's
Form S-11
Registration Statement
(File 33-15630)
10.2 Letter from John Hancock Exhibit 10.2 to
Subsidiaries, Inc. containing the Partnership's
undertaking as to the net Form S-11 worth of
the General Partner*
Registration Statement
(File 33-15630)
10.3 Documents relating to
205 Newbury Street
(a) Promissory Note between Exhibit 10.3 (a) to
John Hancock Realty Income the Partnership's
Fund-II Limited Partnership Report on Form 10-K
and Trustees of 205 Newbury dated December 31, 1987
Associates* (File 33-15630)
(b) Mortgage Deed and Security Exhibit 10.3 (b) to
Agreement between John Hancock the Partnership's
Realty Income Fund-II Limited Report on
Partnership and Trustees of Form 10-K dated
205 Newbury Associates* December 31, 1987
(File 33-15630)
10.4 Documents relating to
Park Square Shopping Center
(a) Agreement of Purchase and Sale Exhibit 10.4(a)
dated April 11, 1988, between to the Partnership's
Carolyn M. Johnson, as Post-Effective
Personal Representative of the Amendment No. 2
Estate of Curtis O. Johnson and to Form S-11
John Hancock Realty Equities, Registration Statement
Inc.* (File 33-15630)
26
<PAGE>
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
(continued)
(b) Lease Guaranty dated July 15, Exhibit 10.4(b)
1988, by CMT Investments to the Partnership's
Limited Partnership to and Post-Effective
for the benefit of John Hancock Amendment No. 2
Realty Income Fund-II Limited to Form S-11
Partnership* Registration Statement
(File 33-15630)
10.5 Documents relating to
Fulton Business Park
(a) Agreement of Purchase and Exhibit 10.5(a) to
Sale dated August 10, 1988, the Partnership's
between Fulton Business Park Post-Effective
Associates and John Hancock Amendment No. 3
Realty Equities, Inc.* to Form S-11
Registration Statement
(File 33-15630)
10.6 Documents relating to
Siete Square IV
(a) Promissory Note dated Exhibit 10.6(a) to the
October 14, 1988, between Partnership's Report
John Hancock Realty Income on Form 10-K dated
Fund-II Limited Partnership December 31, 1990
and Siete Properties IV (File 33-15630)
General Partnership*
(b) Contingent Interest Agreement Exhibit 10.6(b) to the
dated October 14, 1988, between Partnership's Report
John Hancock Realty Income on Form 10-K dated
Fund-II Limited Partnership and December 31, 1990
Siete Properties IV General (File 33-15630)
Partnership*
(c) Deed of Trust, Assignment of Exhibit 10.6(c) to the
Rents and Security Agreement Partnership's Report
dated October 14, 1988, between on Form 10-K dated
John Hancock Realty Income December 31, 1990
Fund-II Limited Partnership, (File 33-15630)
Founder's Title Company and
Siete Properties IV General
Partnership*
(d) Letter of Credit Agreement Exhibit 10.6(d) to the
dated October 14, 1988, between Partnership's Report
Siete Properties IV General on Form 10-K dated
Partnership and John Hancock December 31, 1990
Realty Income Fund-II Limited (File 33-15630)
Partnership*
27
<PAGE>
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
(continued)
(e) Deed-in-lieu of Foreclosure Exhibit 1 to Amendment
between Siete Properties IV Number 1 to the
General Partnership and Partnership's Report on
John Hancock Realty Income Form 10-K dated
Fund-II Limited Partnership * December 31, 1991
(File 0-17664)
(f) Agreement of Purchase and Sale Exhibit 1 to the
dated November 17, 1992 Partnership's
between John Hancock Realty Report on Form 8-K
Income Fund-II and Century dated December 10, 1992
National Insurance Company * (File 0-17664)
10.7 Documents relating to
JH Quince Orchard Partners
(a) Amended and Restated Partnership Exhibit 10.7(a) to the
Agreement dated December 28, Partnership's Report
1988, for QOCC-1 Associates among on Form 10-K dated
JH Quince Orchard Partners and December 31, 1990
Quad Properties Inc.* (File 33-15630)
(b) Amended and Restated Declaration Exhibit 10.7(b) to the
of Protective Covenants, Partnership's Report
Conditions and Restrictions of on Form 10-K dated
Quince Orchard Corporate Park December 31, 1990
dated December 27, 1988* (File 33-15630)
(c) Partnership Agreement dated Exhibit 10.7(c) to the
December 23, 1988, between Partnership's Report
John Hancock Realty Income on Form 10-K dated
Fund-II Limited Partnership December 31, 1990
and John Hancock Realty Income (File 33-15630)
Fund-III Limited Partnership*
(d) Audited financial statements of Page 32
QOCC-1 Associates for the year
ended December 31, 1995+
10.8 Documents relating to
General Camera Corporation
(a) Mortgage dated June 30, 1989 Exhibit 1 to the
by and between General Partnership's Report
Camera Corporation and on Form 8-K dated
John Hancock Realty Income June 30, 1989
Fund-II Limited Partnership* (File 33-15630)
(b) Secured Note dated June 30, Exhibit 2 to the
1989 from General Camera Partnership's
Corporation to John Hancock Report on Form
Realty Income Fund-II Limited 8-K dated
Partnership.* June 30, 1989
(File 33-15630)
28
<PAGE>
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
(continued)
(c) Guaranty dated June 30, 1989 Exhibit 3 to the
by Richard Dibona, Margaret Partnership's
Dibona, Milton Keslow and Report on Form
Sandra Keslow to and for the 8-K dated
benefit of John Hancock June 30, 1989
Realty Income Fund-II (File 33-15630)
Limited Partnership.*
(d) First Amendment to Mortgage, Exhibit 10.8(d) to the
First Amendment to Assignment Partnership's Report on
of Leases, and First Amendment to Form 10-K dated
Assignment of Rents dated June 1, December 31, 1994
1994 by and between General (File 0-17664)
Camera Corporation and John
Hancock Realty Income Fund-II LP*
(e) First Amendment to Note dated Exhibit 10.8(e) to the
June 1, 1994 from General Camera Partnership's Report on
Corporation and John Hancock Form 10-K dated
Realty Income Fund-II LP* December 31, 1994
(File 0-17664)
10.9 Documents relating to Miami
International Distribution
Center
(a) Agreement of Purchase and Exhibit 1 to the
Sale between National Life Partnership's
Insurance Company and John Report on
Hancock Realty Equities Form 8-K dated
Incorporated.* June 30, 1989
(File 33-15630)
(b) Warranty deed dated July 31, Exhibit 2 to the
1989, between Palms of Partnership's
Carrollwood, Inc. and Report on
John Hancock Realty Income Form 8-K dated
Fund-II Limited Partnership.* June 30, 1989
(File 33-15630)
10.10 Documents relating to Management
Agreement
(a) Management Agreement dated Exhibit 10.10(a) to the
January 1, 1992 between Partnership's Report on
Hancock Realty Investors Form 10-K dated
Incorporated and John Hancock December 31, 1992
Realty Equities, Inc.* (File 0-17664)
29
<PAGE>
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
(continued)
(b) Agreement Concerning Subcontracting Exhibit 10.10(b)to the
of Management Services Pertaining Partnership's Report on
to John Hancock Realty Income Form 10-K dated
Fund-II Limited Partnership dated December 31, 1993
May 28, 1993between John Hancock (File 0-17664)
Realty Equities,Inc., Hancock
Realty Investors, Incorporated and
John Hancock Mutual Life Insurance
Company*
10.11 Documents relating to Executive
Compensation Plans and Arrangements
(a) Amended Agreement of Limited Exhibit A to the
Partnership* Prospectus filed
under the
Partnership's
Amendment No. 1
to Form S-11
Registration
Statement
(File 33-15630)
(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-
18.
- --------------------------
+Filed herewith
*Incorporated by reference
30
<PAGE>
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-II
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
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14 (a) (1) AND (2), (c) AND (d)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
YEAR ENDED DECEMBER 31, 1995
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
BOSTON, MASSACHUSETTS
F-1
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II 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-18
Schedule IV: Mortgage Loans on Real Estate F-21
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and, therefore,
have been omitted.
F-2
<PAGE>
Report of Independent Auditors
To the Partners
John Hancock Realty Income Fund-II Limited Partnership
We have audited the accompanying balance sheets of John Hancock Realty
Income Fund-II 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 responsiblity 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-II 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 10,
as to which the
date is February
15, 1996
F-3
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
BALANCE SHEETS
ASSETS
December 31,
1995 1994
---- ----
Current assets:
Cash and cash equivalents $3,520,394 $2,561,288
Restricted cash 26,240 24,557
Other current assets 107,596 92,152
---------- ----------
Total current assets 3,654,230 2,677,997
Real estate loans 6,557,159 6,874,539
Investment in property:
Land 5,560,000 5,560,000
Buildings and improvements 18,836,994 18,836,994
---------- ----------
24,396,994 24,396,994
Less: accumulated depreciation 4,524,369 3,896,483
---------- ----------
19,872,625 20,500,511
Investment in joint venture 7,842,586 7,882,420
Long-term restricted cash 106,027 86,214
Deferred expenses, net of
accumulated amortization of $995,374 in
1995 and $903,073 in 1994 1,316,753 1,391,729
---------- ----------
Total assets $39,349,380 $39,413,410
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $239,566 $200,424
Accounts payable to affiliates 35,735 30,213
---------- ----------
Total current liabilities 275,301 230,637
Partners' equity/(deficit):
General Partner's deficit (152,910) (151,822)
Limited Partners' equity 39,226,989 39,334,595
---------- ----------
Total partners' equity 39,074,079 39,182,773
---------- ----------
Total liabilities and partners' equity $39,349,380 $39,413,410
=========== ===========
See Notes to Financial Statements
F-4
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
STATEMENTS OF OPERATIONS
Years Ended December 31,
1995 1994 1993
---- ---- ----
Income:
Rental income $2,447,532 $2,170,416 $2,296,571
Interest income 879,508 843,631 872,180
Income from joint venture 755,198 541,188 221,738
---------- ---------- ----------
Total income 4,082,238 3,555,235 3,390,489
Expenses:
Depreciation 627,886 628,198 628,198
Property operating expenses 536,613 422,514 354,400
General and administrative expenses 231,487 233,511 235,812
Amortization of deferred expenses 272,228 285,905 236,162
---------- ---------- ----------
Total expenses 1,668,214 1,570,128 1,454,572
---------- ---------- ----------
Net income $2,414,024 $1,985,107 $1,935,917
========== ========== ==========
Allocation of net income:
General Partner $24,140 $19,851 $19,359
John Hancock Limited Partner - - -
Investors 2,389,884 1,965,256 1,916,558
---------- ---------- ----------
$2,414,024 $1,985,107 $1,935,917
========== ========== ==========
Net income per Unit $0.92 $0.76 $0.74
========== ========== ==========
See Notes to Financial Statements
F-5
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
STATEMENTS OF PARTNERS' EQUITY
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Partners' equity/(deficit) at January 1, 1993
(2,601,552 Units outstanding) ($137,690) $42,307,351 $42,169,661
Less: Cash distributions (28,118) (4,357,080) (4,385,198)
Add: Net Income 19,359 1,916,558 1,935,917
-------- ---------- ----------
Partners' equity/(deficit) at December 31, 1993
(2,601,552 Units outstanding) (146,449) 39,866,829 39,720,380
Less: Cash distributions (25,224) (2,497,490) (2,522,714)
Add: Net income 19,851 1,965,256 1,985,107
-------- ---------- ----------
Partner's equity/(deficit) at December 31, 1994
(2,601,552 Units outstanding) (151,822) 39,334,595 39,182,773
Less: Cash Distributions (25,228) (2,497,490) (2,522,718)
Add: Net Income 24,140 2,389,884 2,414,024
-------- ---------- ----------
Partner's equity at December 31, 1995
(2,601,552 Units outstanding) ($152,910) $39,226,989 $39,074,079
======== =========== ===========
</TABLE>
See Notes to Financial Statements
F-6
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net income $2,414,024 $1,985,107 $1,935,917
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 627,886 628,198 628,198
Amortization of deferred expenses 272,228 285,905 236,162
Cash distributions over/(under) equity
in income from joint venture 39,834 (28,510) 170,262
---------- ---------- ----------
3,353,972 2,870,700 2,970,539
Changes in operating assets and liabilities:
Decrease/(increase) in restricted cash (21,496) (39,044) 27,454
Decrease/(increase) in other current assets (15,444) 1,723 105,995
Decrease in other assets - - 4,200
Increase/(decrease) in accounts payable
and accrued expenses 39,142 (628,231) 614,857
Increase/(decrease) in accounts payable to
affiliates 5,522 19,674 (27,787)
---------- ---------- ----------
Net cash provided by operating activities 3,361,696 2,224,822 3,695,258
Investing activities:
Principal payments on real estate loans 317,380 325,461 -
Increase in deferred expenses and other assets (197,252) (103,652) (103,842)
Increase in investment in joint venture - (1,104,902) (177,341)
---------- ---------- ----------
Net cash provided by/(used in) investing
activities 120,128 (883,093) (281,183)
Financing activities:
Cash distributed to Partners (2,522,718) (2,522,714) (4,385,198)
---------- ---------- ----------
Net cash used in financing activities (2,522,718) (2,522,714) (4,385,198)
---------- ---------- ----------
Net increase/(decrease) in cash
and cash equivalents 959,106 (1,180,985) (971,123)
Cash and cash equivalents at beginning
of year 2,561,288 3,742,273 4,713,396
---------- ---------- ----------
Cash and cash equivalents at end
of year $3,520,394 $2,561,288 $3,742,273
========== ========== ==========
</TABLE>
See Notes to Financial Statements
F-7
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Organization of Partnership
---------------------------
John Hancock Realty Income Fund-II Limited Partnership (the
"Partnership") was formed under the Massachusetts Uniform Limited
Partnership Act on June 30, 1987. As of December 31, 1995, the
partners in 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-II Assignor, Inc. (the "Assignor Limited Partner"); and
4,666 Unitholders (the "Investors"). The Assignor Limited Partner
holds 2,601,552 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 $2,000,
representing capital contributions of $1,000 by 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 5,000,000 Assignee Units
at $20 per Unit. During the offering period, which terminated on
January 2, 1989, 2,601,552 Units were sold and the John Hancock
Limited Partner made additional capital contributions of $4,161,483.
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 (i) 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, and (ii) making mortgage loans consisting of
conventional first mortgage loans and participating mortgage loans
secured by income-producing retail, industrial and office properties.
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, 2017, 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 investments of the
Partnership will be disposed of, and the Partnership terminated,
before December 31, 2017.
2. Significant Accounting Policies
-------------------------------
The Partnership maintains its accounting records and recognizes rental
income on the accrual basis.
F-8
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
2. Significant Accounting Policies (continued)
-------------------------------
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 has been designated as short or long-term based upon the
term of the related lease agreement.
Real estate loans are recorded at amortized cost unless it is
determined by the General Partner that in economic substance the loan
represents an investment in property or joint venture. In such
instances, these investments are accounted for using the equity
method.
Investments in property are recorded at the lower of cost or market.
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.
Fees paid to the General Partner for the acquisition of joint venture
and mortgage loan investments have been deferred and are being
amortized over the life of the investments to which they apply.
During 1993, the Partnership reduced the period over which its
remaining deferred acquisition fees are amortized from thirty years,
the estimated useful life of the buildings owned by the Partnership,
to eight and one-half years, the then estimated remaining life of the
Partnership. Capitalized tenant improvements and lease commissions
are being amortized on a straight-line basis over the terms of the
leases to which they relate.
The net income per Unit for each year was calculated by dividing the
Investors' share of net income by the number of Units outstanding
during each year.
F-9
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
2. Significant Accounting Policies (continued)
-------------------------------
No provision for income taxes has been made in the Financial
Statements since such taxes are the responsibility of the individual
Partners and Investors and not of the Partnership.
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 1% to the General Partner and the remaining
99% 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 General Partner to pay the Subordinated Allocation (defined in
the Partnership Agreement) equal to 3 1/2% of Distributable Cash from
Operations for managing the Partnership's activities; third, to the
John Hancock Limited Partner until it receives a 7% non-cumulative,
non-compounded annual cash return on its Invested Capital; fourth, to
the Investors and the John Hancock Limited Partner in proportion to
their respective Capital Contributions (defined in the Partnership
Agreement), until they have received a 10% non-cumulative,
non-compounded annual cash return on their Invested Capital; fifth, to
the General Partner to pay the Incentive Allocation (defined in the
Partnership Agreement) equal to 2 1/2% of Distributable Cash from
Operations; and sixth, to the Investors and the John Hancock Limited
Partner in proportion to their respective Capital Contributions. Any
Distributable Cash from Operations which is available as a result of a
reduction of working capital reserves funded by Capital Contributions
of the Investors, will be distributed 100% to the Investors.
F-10
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
3. The Partnership Agreement (continued)
-------------------------
Cash from a Sale, Financing or Repayment (defined in the Partnership
Agreement) of a Partnership Investment, is first used to pay all debts
and liabilities of the Partnership then due and then to fund any
reserves for contingent liabilities. Cash from Sales, Financings or
Repayments is distributed and paid in the following order of priority:
first, to the Investors and the John Hancock Limited Partner, with the
distribution made between the Investors and the John Hancock Limited
Partner in proportion to their respective Capital Contributions, until
the Investors and the John Hancock Limited Partner have received an
amount equal to their Invested Capital; second, to the Investors until
they have received, after giving effect to all previous distributions
of Distributable Cash from Operations and any previous distributions
of Cash from Sales, Financings or Repayments after the return of their
Invested Capital, the Cumulative Return on Investment (defined in the
Partnership Agreement); third, to the John Hancock Limited Partner
until it has received, after giving effect to all previous
distributions of Distributable Cash from Operations and any previous
distributions of Cash from Sales, Financings or Repayments after the
return of its Invested Capital, the Cumulative Return on Investment;
fourth, to the General Partner to pay any Subordinated Disposition
Fees then payable pursuant to Section 6.4(c) of the Partnership
Agreement; and fifth, 99% to the Investors and the John Hancock
Limited Partner and 1% to the General Partner, with the distribution
made between the Investors and the John Hancock Limited Partner in
proportion to their respective Capital Contributions.
Cash from the sale or repayment of the last of the Partnership's
properties or mortgage loans is distributed in the same manner as Cash
from Sales, Financings or Repayments, 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, Financings
or Repayments, as specified in the previous paragraph.
F-11
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
3. The Partnership Agreement (continued)
-------------------------
Profits for tax purposes from the normal operations of the Partnership
for each fiscal year are allocated to the Partners in the same amounts
as Distributable Cash from Operations for that year. If such profits
are less than Distributable Cash from Operations for any year, then
they are allocated in proportion to the amounts of Distributable Cash
from Operations allocated for that year. If such profits are greater
than Distributable Cash from Operations for any year, they 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. 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.
Profits and Losses from Sales, Financings or Repayments are generally
allocated 99% to the Limited Partners and 1% to the General Partners.
4. Transactions with the General Partner and Affiliates
----------------------------------------------------
Fees and expenses incurred and/or paid by the General Partner or its
affiliates on behalf of the Partnership 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
$135,632, $135,667 and $138,697, 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 consists of managed, fully-operating,
commercial real estate as follows:
December 31,
1995 1994
---- ----
Park Square Shopping Center $12,886,230 $12,886,230
Fulton Business Park 5,138,786 5,138,786
Miami International Distribution Center 6,371,978 6,371,978
----------- -----------
$24,396,994 $24,396,994
=========== ===========
F-12
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
5. Investment in Property (continued)
----------------------------------
The real estate market is cyclical in nature and is materially
affected by general economic trends and economic conditions in the
market where a property is located. As a result, determination of
real estate values involves subjective judgments. These judgments are
based on current market conditions and assumptions related to future
market conditions. These assumptions involve, among other things, the
availability of capital, occupancy rates, rental rates, interest rates
and inflation rates. Amounts ultimately realized from each property
may vary significantly from the values presented and the differences
could be material. Actual market values of real estate can be
determined only by negotiation between the parties in a sales
transaction.
The Partnership leases its properties to non-affiliated tenants
primarily under long-term operating leases.
At December 31, 1995, future minimum rentals on non-cancelable leases
relating to the above properties were as follows:
1996 $2,329,372
1997 2,029,173
1998 1,797,134
1999 1,511,858
2000 918,665
Thereafter 2,854,566
-----------
$11,440,768
===========
6. Real Estate Loans
-----------------
On March 10, 1988, the Partnership made a $1,700,000 participating non-
recourse mortgage loan to a non-affiliated borrower, secured by a
first mortgage on commercial real estate known as 205 Newbury Street,
located in Boston, Massachusetts. Under the terms of the loan
agreement, the borrower is required to pay interest only monthly at an
annual rate of 9.5% with the entire outstanding principal balance due
on April 1, 1998. In addition to these amounts, the borrower is also
obligated to pay the Partnership 25% of the net cash flow derived from
the operations of the property during the term of the loan and a
specified portion of the net sales price or mutually agreed upon fair
market value of the property upon its sale or refinancing. Contingent
interest payments, based on the net cash flow from the property, have
not been received since 1990 because the property has not generated
any cash flow in excess of the required minimum debt service payments.
F-13
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
6. Real Estate Loans (continued)
-----------------
On June 30, 1989, the Partnership made a $5,500,000 mortgage loan to a
non-affiliated borrower, secured by a first mortgage on commercial
real estate known as the General Camera Corporation Building, located
in New York, New York. Under the original terms of the loan
agreement, General Camera Corporation ("GCC") was required to pay
interest only monthly at an annual rate of 11%. Effective June 1,
1994, the loan agreement was amended i) to require GCC to make a one-
time payment of $250,000 towards the outstanding balance of the loan
and ii) to require that all future monthly payments include amounts to
amortize the outstanding loan balance. GCC was required to make
payments of $60,416 per month on the first day of each month
commencing on July 1, 1994 and ending on June 1, 1995. Commencing on
July 1, 1995, payments of $85,416 per month are required on the first
day of each month. The entire unamortized principal balance and all
accrued but unpaid interest are due on July 1, 1996.
Real estate loans are evaluated for collectibility on an on-going
basis.
7. Investment in Joint Venture
---------------------------
On December 28, 1988, the Partnership invested $14,726,079 to acquire
a 99.5% interest in JH Quince Orchard Partners (the "Affiliated Joint
Venture"), a joint venture between the Partnership and John Hancock
Realty Income Fund-III Limited Partnership ("Income Fund-III"). The
Partnership had an initial 99.5% interest and Income Fund-III had an
initial 0.5% interest in the Affiliated Joint Venture. Pursuant to
the partnership agreement of the Affiliated Joint Venture, Income
Fund-III 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, Income Fund-III exercised
its option and the Partnership transferred a 49.5% interest in the
Affiliated Joint Venture to Income Fund-III for cash in the aggregate
amount of $7,325,672. The Partnership has held a 50% interest in the
Affiliated Joint Venture since the second quarter of 1989.
F-14
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
7. Investment in Joint Venture (continued)
---------------------------
On December 28, 1988, the Affiliated Joint Venture contributed 98% of
the invested capital of, and acquired a 75% interest in, QOCC-1
Associates, an existing partnership which owns and operates the Quince
Orchard Corporate Center, a three-story office building and related
land and improvements located in Gaithersburg, Maryland. 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 $1,282,243. 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.
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
=========== ===========
F-15
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
7. Investment in Joint Venture (continued)
---------------------------
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
========== ========== ========
8. Deferred Expenses
-----------------
Deferred expenses consist of the following:
<TABLE>
<CAPTION>
Unamortized Balance at
December 31,
Description 1995 1994
------------ ---- ----
<S> <C> <C>
$35,072 acquisition fee for 205 Newbury St.
loan. This amount is amortized
over the term of the loan. $8,531 $12,322
$113,468 acquisition fee for GCC
mortgage loan. This amount is
amortized over the term of the loan. 8,105 24,315
$152,880 acquisition fee for investment in
the Affiliated Joint Venture. This amount
is amortized over a period of 31.5 years. 119,108 123,962
$1,203,097 acquisition fees paid to the
General Partner. Prior to June 30, 1993, this
amount was amortized over a period of 30 years.
Subsequent to June 30, 1993, the unamortized
balance is amortized over a period of 8.5 years. 727,523 848,777
$260,132 of tenant improvements. These amounts
are amortized over the terms of the leases
to which they relate. 156,298 105,252
$547,478 of lease commissions. These amounts
are amortized over the terms of the leases
to which they relate. 297,188 277,101
---------- ----------
$1,316,753 $1,391,729
========== ==========
</TABLE>
F-16
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
9. Federal Income Taxes
--------------------
A reconciliation of the net income reported in the Statements of
Operations to the net income reported for federal income tax purposes
is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net income per Statements of Operations $2,414,024 $1,985,107 $1,935,917
Add/(deduct): Excess of book depreciation
over tax depreciation 105,505 107,477 106,680
Excess of book amortization
over tax amortization 73,609 111,468 38,270
Other income and expense (78,114) (178,404) (8,075)
---------- ---------- ----------
Net income for federal income tax purposes $2,515,024 $2,025,648 $2,072,792
========== ========== ==========
</TABLE>
10. Subsequent Events
-----------------
On February 15, 1996 the Partnership made a cash distribution of
$624,372 to the Investors representing a 5% annualized return to all
Investors of record at December 31, 1995, based on Distributable Cash
from Operations for the quarter then ended.
F-17
<PAGE>
<TABLE>
<CAPTION> JOHN HANCOCK REALTY INCOME FUND - II 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 Improvements Land Improvements Total (1)
- ----------- ------------ ---- ------------ ------------ ---- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Park Square
Shopping Center
Brooklyn Park, MN - $2,410,000 $10,419,611 $56,619 $2,410,000 $10,476,230 $12,886,230
Fulton Business Park
Warehouse
Atlanta, GA - 520,000 4,584,494 34,292 520,000 4,618,786 5,138,786
Miami International
Distribution Center
Miami, FL - 2,630,000 3,729,947 12,031 2,630,000 3,741,978 6,371,978
-- ---------- ---------- -------- ---------- ---------- ----------
Total - $5,560,000 $18,734,052 $102,942 $5,560,000 $18,836,994 $24,396,994
== ========== =========== ======== ========== =========== ===========
</TABLE>
F-18
<PAGE>
<TABLE>
<CAPTION> JOHN HANCOCK REALTY INCOME FUND - II 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 (4) Construction Acquired is Computed
- ----------- ---------------- ------------ -------- -----------
<S> <C> <C> <C> <C>
Park Square
Shopping Center
Brooklyn Park, MN $2,600,546 1988 7/15/88 30 Years (2)
5 years (3)
Fulton Business Park
Warehouse
Atlanta, GA 1,123,181 1986 9/20/88 30 Years (2)
5 years (3)
Miami International
Distribution Center
Miami, FL 800,642 1977 7/31/89 30 Years (2)
----------- 5 years (3)
Total $4,524,369
1) The Partnership's properties' aggregate cost for federal income tax purposes
at December 31, 1995 is as follows:
Property Amount
Park Square Shopping Center $12,760,226
Fulton Business Park Warehouse 5,134,189
Miami International Distribution Center 6,450,095
------------
$24,344,510
============
The Partnership's aggregate cost for federal income tax purposes may differ
from the aggregate cost for Financial Statement purposes.
2) Estimated useful life for buildings
3) Estimated useful life for improvements
4) Reconciliation of Real Estate and Accumulated Depreciation
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION> JOHN HANCOCK REALTY INCOME FUND - II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
SCHEDULE III (Continued)
REAL ESTATE AND ACCUMULATED DEPRECIATION
Year Ended December 31, 1995
Years Ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Investment in Real Estate
Balance at beginning of year $24,396,994 $24,396,994 $24,396,994
Dispositions - - -
Improvements - - -
----------- ----------- -----------
$24,396,994 $24,396,994 $24,396,994
=========== =========== ===========
Accumulated Depreciation
Balance at beginning of year $3,896,483 $3,268,285 $2,640,087
Additions charged to costs and expenses 627,886 628,198 628,198
Dispositions - - -
----------- ----------- -----------
Balance at end of year $4,524,369 $3,896,483 $3,268,285
=========== =========== ===========
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION> JOHN HANCOCK REALTY INCOME FUND - II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
Year Ended December 31, 1995
Final Maturity Periodic
Description Interest Rate Date Payment Terms Prior Liens
----------- ------------- ---- ------------- -----------
<S> <C> <C> <C> <C>
Participating first 9.5% per annum and April 1, 1998 Monthly payments
mortgage on an office/ 25% of net cash flow of interest only. The
retail property located from property principal and all accrued
in Boston, MA operations but unpaid interest
are due on April 1, 1998
First mortgage on an 11% per annum July 1, 1996 Monthly payments
office/warehouse property of interest only through
located in New York, NY June 30, 1994, $60,416
through June 30, 1995,
and $85,416 through
June 30, 1996. The
principal and all accrued
and unpaid interest are
due on July 1, 1996
Principal Amount
of Loans Subject
To Delinquent
Face Amount Carrying Amount Principal or
Description of Mortgages of Mortgages (1) Interest
----------- ------------ ---------------- --------
<S> <C> <C> <C>
Participating first $1,700,000 $1,700,000 -
mortgage on an office/
retail property located
in Boston, MA
First mortgage on an
office/warehouse property
located in New York, NY 4,857,159 4,857,159 -
--------- --------- -
$6,557,159 $6,557,159 -
========== ========== =
(1) Aggregate cost for federal income tax purposes is the same as for
Financial Statement purposes.
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION> JOHN HANCOCK REALTY INCOME FUND - II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
SCHEDULE IV (Continued)
MORTGAGE LOANS ON REAL ESTATE
Year Ended December 31, 1995
INVESTMENT IN MORTGAGE LOANS
Years Ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $6,874,539 $7,200,000 $7,200,000
New mortgage loans - - -
Collection of principal 317,380 325,461 -
Foreclosures - - -
---------- ---------- ----------
Balance at end of year $6,557,159 $6,874,539 $7,200,000
========== ========== ==========
</TABLE>
F-22
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
QOCC-1 ASSOCIATES
DECEMBER 31, 1995
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
QOCC-1 Associates
STATEMENT OF PARTNERS' EQUITY
Year ended December 31, 1995
<TABLE>
<CAPTION>
Equity at Equity at
January Net Distri- December
1, 1995 Income butions 31, 1995
------- ------ ------- --------
<S> <C> <C> <C> <C>
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
=========== ========== =========== ===========
</TABLE>
See notes to financial statements
6
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000818257
<NAME> JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,652,661
<SECURITIES> 0
<RECEIVABLES> 107,596
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,654,230
<PP&E> 24,396,994
<DEPRECIATION> 4,524,369
<TOTAL-ASSETS> 39,349,380
<CURRENT-LIABILITIES> 275,301
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 39,074,079
<TOTAL-LIABILITY-AND-EQUITY> 39,349,380
<SALES> 0
<TOTAL-REVENUES> 3,202,730
<CGS> 0
<TOTAL-COSTS> 536,613
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
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