FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A
Commission file number 0-17664
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 (I.R.S. Employer Identification No.)
incorporation or organization)
200 Clarendon Street, Boston, MA 02116
(Address of principal executive offices)
(Zip Code)
(800) 722-5457
Registrant's telephone number, including area code:
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filling requirements for the past 90 days.
Yes X No
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
INDEX
PART I: FINANCIAL INFORMATION PAGE
Item 1 - Financial Statements:
Balance Sheets at March 31, 1997 and
December 31, 1996 3
Statements of Operations for the Three
Months Ended March 31, 1997 and 1996 4
Statements of Partners' Equity for the
Three Months Ended March 31, 1997 and
for the Year Ended December 31, 1996 5
Statements of Cash Flows for the Three
Months Ended March 31, 1997 and 1996 6
Notes to Financial Statements 7-18
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 19-26
PART II: OTHER INFORMATION 27
2
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
BALANCE SHEETS
(Unaudited)
ASSETS
March 31, December 31,
1997 1996
---- ----
Cash and cash equivalents $3,383,741 $8,669,990
Restricted cash 99,552 111,612
Other assets 227,895 112,762
Deferred expenses, net of accumulated
amortization of $1,027,780 in 1997
and $1,086,688 in 1996 999,485 1,034,045
Real estate loans 1,700,000 5,245,361
Investment in joint venture 7,518,929 7,574,268
Investment in property:
Land 5,040,000 5,040,000
Buildings and improvements 14,218,208 14,218,208
----------- -----------
19,258,208 19,258,208
Less: accumulated depreciation 3,993,597 3,875,115
----------- -----------
15,264,611 15,383,093
----------- -----------
Total assets $29,194,213 $38,131,131
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses $370,879 $282,825
Accounts payable to affiliates 123,226 88,991
----------- -----------
Total liabilities 494,105 371,816
Partners' equity/(deficit):
General Partner's deficit (168,706) (166,057)
Limited Partners' equity 28,868,814 37,925,372
----------- -----------
Total partners' equity 28,700,108 37,759,315
----------- -----------
Total liabilities and
partners' equity $29,194,213 $38,131,131
=========== ===========
See Notes to Financial Statements
3
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
1997 1996
---- ----
Income:
Rental income $541,374 $608,875
Income from joint venture 188,537 181,516
Interest income 144,361 219,562
-------- --------
Total income 874,272 1,009,953
Expenses:
Depreciation 118,482 156,957
General and administrative expenses 112,063 54,466
Property operating expenses 92,017 125,888
Amortization of deferred expenses 54,560 72,156
-------- --------
Total expenses 377,122 409,467
-------- --------
Net income $497,150 $600,486
======== ========
Allocation of net income:
General Partner $4,972 $6,005
John Hancock Limited Partner - -
Investors 492,178 594,481
-------- --------
$497,150 $600,486
======== ========
Net income per Unit $0.19 $0.23
======== ========
See Notes to Financial Statements
4
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
STATEMENTS OF PARTNERS' EQUITY
(Unaudited)
Three Months Ended March 31, 1997 and
Year Ended December 31, 1996
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Partner's equity/(deficit) at January 1, 1996
(2,601,552 Units outstanding) ($152,910) $39,226,989 $39,074,079
Less: Cash distributions (29,168) (2,887,723) (2,916,891)
Add: Net income 16,021 1,586,106 1,602,127
--------- ----------- -----------
Partner's equity/(deficit) at December 31, 1996
(2,601,552 Units outstanding) (166,057) 37,925,372 37,759,315
Less: Cash distributions (7,621) (9,548,736) (9,556,357)
Add: Net income 4,972 492,178 497,150
--------- ----------- -----------
Partner's equity/(deficit) at March 31, 1997
(2,601,552 Units outstanding) ($168,706) $28,868,814 $28,700,108
======== =========== ===========
</TABLE>
See Notes to Financial Statements
5
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
---- ----
<S> <C> <C>
Operating activities:
Net income $497,150 $600,486
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 118,482 156,957
Amortization of deferred expenses 54,560 72,156
Cash distributions over equity in
income from joint venture 55,339 94,064
--------- ---------
725,531 923,663
Changes in operating assets and liabilities:
Decrease/(increase) in restricted cash 12,060 (19,558)
Increase in other assets (115,133) (74,512)
Increase in accounts payable
and accrued expenses 88,054 203,824
Increase in accounts payable to
affiliates 34,235 5,824
--------- ---------
Net cash provided by operating
activities 744,747 1,039,241
Investing activities:
Principal payments on real estate loans 3,545,361 123,807
Increase in deferred expenses (20,000) (10,655)
--------- ---------
Net cash provided by investing
activities 3,525,361 113,152
Financing activities:
Cash distributed to Partners (9,556,357) (630,678)
--------- ---------
Net cash used in financing
activities (9,556,357) (630,678)
--------- ---------
Net (decrease)/increase in cash
and cash equivalents (5,286,249) 521,715
Cash and cash equivalents at beginning
of year 8,669,990 3,520,394
--------- ---------
Cash and cash equivalents at end
of period $3,383,741 $4,042,109
========== ==========
</TABLE>
See Notes to Financial Statements
6
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 March 31, 1997, 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 4,575 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.
7
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
2. Significant Accounting Policies
-------------------------------
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair representation have been included.
Operating results for the three month period ended March 31, 1997 are
not necessarily indicative of the results that may be expected for the
year ending December 31, 1997. For further information, refer to the
financial statements and footnotes thereto included in the
Partnership's Annual Report on Form 10-K for the year ended December
31, 1996.
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.
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.
8
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
2. Significant Accounting Policies (continued)
-------------------------------
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 the periods hereof was calculated by
dividing the Investors' share of net income by the number of Units
outstanding at the end of such period.
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.
Certain 1996 amounts have been reclassified to be consistent with the
1997 presentation.
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.
9
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
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 then 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.
10
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
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.
Neither the General Partner nor any Affiliate (as defined in the
Partnership Agreement) of the General Partner shall be liable,
responsible or accountable in damages to any of the Partners or the
Partnership for any act or omission of the General Partner or such
affiliate in good faith on behalf of the Partnership within the scope
of the authority granted to the General Partner by the Partnership
Agreement and in the best interest of the Partnership, except for acts
or omissions constituting fraud, negligence, misconduct or breach of
fiduciary duty. The General Partner and its Affiliates performing
services on behalf of the Partnership shall be entitled to indemnity
from the Partnership for any loss, damage, or claim by reason of any
act performed or omitted to be performed by the General Partner or
such Affiliates in good faith on behalf of the Partnership and in a
manner within the scope of the authority granted to the General
Partner by the Partnership Agreement and in the best interest of the
Partnership, except that they shall not be entitled to be indemnified
in respect of any loss, damage, or claim incurred by reason of fraud,
negligence, misconduct, or breach of fiduciary duty. Any indemnity
shall be provided out of and to the extent of Partnership assets only.
The Partnership shall not advance any funds to the General Partner or
its Affiliates for legal expenses and other costs incurred as a result
of any legal action initiated against the General Partner or its
Affiliates by a Limited Partner in the Partnership, except under
certain specified circumstances.
11
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
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 months ended
March 31, 1997 and 1996 and to which the General Partner or its
affiliates are entitled to reimbursement from the Partnership were
$112,386 and $41,559, respectively. These expenses are included in
expenses on the Statements of Operations.
The Partnership provides indemnification to the General Partner and
its Affiliates for any acts or omissions of the General Partner or
such affiliate in good faith on behalf of the Partnership, except for
acts or omissions constituting fraud, negligence, misconduct or breach
of fiduciary duty. The General Partner believes that this
indemnification applies to the class action complaint described in
Note 10. Accordingly, included in the Statements of Operations for
the three months ended March 31, 1997 is $31,579 representing the
Partnership's share of costs incurred by the General Partner and its
Affiliates relating to the class action complaint. As of March 31,
1997, the Partnership has accrued a total of $73,054 as its share of
the costs incurred by the General Partner and its Affiliates resulting
from this matter.
Accounts payable to affiliates represents amounts due to the General
Partner or its Affiliates for various services provided to the
Partnership, including amounts to indemnify the General Partner or its
Affiliates for claims incurred by them in connection with their
actions as General Partner of the Partnership. All amounts accrued by
the Partnership to indemnify the General Partner or its Affiliates for
legal fees incurred by them, shall not be paid unless or until all
conditions set forth in the Partnership Agreement for such payment
have been fulfilled.
The General Partner serves in a similar capacity for two other
affiliated real estate limited partnerships.
12
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
5. Investment in Property
----------------------
Investment in property at cost consists of managed, fully-operating,
commercial real estate as follows:
March 31, December 31,
1997 1996
---- ----
Park Square Shopping Center $12,886,230 $12,886,230
Miami International Distribution
Center 6,371,978 6,371,978
----------- -----------
$19,258,208 $19,258,208
=========== ===========
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.
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
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, were
not received from 1990 through 1995 because the property did not
generate any cash flow in excess of the required minimum debt service
payments. During the three months ended March 31, 1997 and the year
ended December 31, 1996, the Partnership received contingent interest
payments, the amount of which is not material.
13
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
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. In addition, the loan is personally guaranteed
by the principal stockholders of General Camera Corporation ("GCC").
Under the original terms of the loan agreement, 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 then 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 and ending on June 1, 1996,
payments of $85,416 per month were required on the first day of each
month. The entire unamortized principal balance of $4,606,110 and all
accrued but unpaid interest came due on July 1, 1996.
During the second quarter of 1996, GCC requested a three month
extension of time in which to satisfy the loan while it continued to
pursue alternate financing. The General Partner granted GCC this
extension in consideration of GCC making an additional one-time
payment of $250,000 to reduce the outstanding principal balance of the
loan. In addition, GCC was required to make monthly loan payments of
$85,416 from July 1, 1996 through September 1, 1996. On July 1, 1996,
GCC made the $250,000 payment as required by the extension agreement.
During August 1996, GCC made an additional payment of $125,000 to
further reduce the outstanding principal balance of the loan. The
entire unamortized principal balance and all accrued but unpaid
interest came due on October 1, 1996.
During the third quarter of 1996, GCC requested an additional three
month extension of time in which to satisfy the loan while it
continued to pursue alternate financing. The General Partner granted
GCC this extension in consideration of GCC making an additional
payment in the aggregate amount of $400,000 to reduce the outstanding
principal balance of the loan. In addition, GCC was required to make
monthly loan payments of $85,416 from October 1, 1996 through December
1, 1996. On October 11, 1996, and November 8, 1996, GCC made
additional payments of $200,000 each as required by the extension
agreement. The entire unamortized principal balance and all accrued
but unpaid interest came due on January 1, 1997. On January 9, 1997,
GCC paid the entire outstanding principal balance and accrued but
unpaid interest then due.
Real estate loans are evaluated for collectibility on an on-going
basis.
14
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
7. Investment in Joint Venture
---------------------------
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 sold 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 provides that the
Affiliated Joint Venture shall contribute 95% of any required
additional capital contributions. Of the cumulative total invested
capital in QOCC-1 Associates at March 31, 1997, 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. Prior to 1996, QOCC-1 Associates had not provided the
partners with a return in excess of 9% on their invested capital.
During 1996, the partners received a return on invested capital of
approximately 12%.
Income and gains of QOCC-1 Associates, other than the gains allocated
arising from a sale other similar event with respect to the Quince
Orchard Corporate Center, are allocated in the following order of
priority: i) to the partners who are entitled to receive a
distribution of net cash flow, pro rata in the same order and amounts
as such distributions are made and ii) the balance, if any, to the
partners, pro rata in accordance with their interests.
15
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
8. Deferred Expenses
-----------------
Deferred expenses consist of the following:
<TABLE>
<CAPTION>
Unamortized Unamortized
Balance at Balance at
Description March 31, 1997 December 31, 1996
----------- -------------- -----------------
<S> <C> <C>
$35,072 acquisition fee for 205 Newbury St.
loan. This amount is amortized
over the term of the loan. $3,792 $4,739
$152,880 acquisition fee for investment in
the Affiliated Joint Venture. This amount
is amortized over a period of 31.5 years. 113,042 114,256
$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. 575,956 606,269
$135,079 of tenant improvements. These amounts
are amortized over the terms of the leases
to which they relate. 41,059 46,828
$501,137 of lease commissions. These amounts
are amortized over the terms of the leases
to which they relate. 265,636 261,953
-------- ----------
$999,485 $1,034,045
======== ==========
</TABLE>
16
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
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>
Three Months Ended March 31,
1997 1996
---- ----
<S> <C> <C>
Net income per Statements of Operations $515,740 $600,486
Add/(deduct): Excess of book depreciation
over tax depreciation 19,439 25,848
Excess of book amortization
over tax amortization 19,397 25,803
Other income and expense (4,252) (39,792)
-------- --------
Net income for federal income tax purposes $550,324 $612,345
======== ========
</TABLE>
10. Contingencies
-------------
In February 1996, a putative class action complaint was filed in the
Superior Court in Essex County, New Jersey by a single investor in the
Partnership. The complaint named as defendants the Partnership, the
General Partner, certain other Affiliates of the General Partner, two
limited partnerships affiliated with the Partnership, and certain
unnamed officers, directors, employees and agents of the named
defendants. The plaintiff sought unspecified damages stemming from
alleged misrepresentations and omissions in the marketing and offering
materials associated with the Partnership and two limited partnerships
affiliated with the Partnership. On March 18, 1997, the court
certified a class of investors who were original purchasers in the
Partnership.
17
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
10. Contingencies (continued)
-------------
The Partnership provides indemnification to the General Partner and
its Affiliates for acts or omissions of the General Partner in good
faith on behalf of the Partnership, except for acts or omissions
constituting fraud, negligence, misconduct or breach of fiduciary
duty. The General Partner believes that this indemnification applies
to the class action complaint described above. Accordingly, included
in the Statements of Operations for the three months ended March 31,
1997 is $31,579 representing the Partnership's share of costs incurred
by the General Partner and its Affiliates relating to the class action
complaint. As of March 31, 1997, the Partnership has accrued a total
of $73,054 as its share of the costs incurred by the General Partner
and its Affiliates resulting from this matter.
At the present time, the General Partner can not estimate the impact,
if any, of the potential indemnification claims on the Partnership's
Financial Statements, taken as a whole. Accordingly, no provision for
any liability which could result from the eventual outcome of these
matters has been made in the accompanying financial statements.
18
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
- - -------
During the offering period, from October 2, 1987 to January 2, 1989, the
Partnership sold 2,601,552 Units representing gross proceeds (exclusive of
the John Hancock Limited Partners' 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 Notes 5, 6 and 7 to the Financial Statements included in Item 1 of
this Report.
Liquidity and Capital Resources
- - -------------------------------
At March 31, 1997 the Partnership had $3,383,741 in cash and cash
equivalents, $99,552 in restricted cash. The Partnership's cash and cash
equivalents decreased by $5,528,249 from December 31, 1996 primarily due to
the distribution on February 14, 1997 of net sales proceeds from the
earlier sale of the Fulton Business Park property and the repayment of the
General Camera Corporation's ("GCC") mortgage loan.
The Partnership has a working capital reserve with a current balance of
approximately 5.7% of the Investors' Invested Capital (defined in the
Partnership Agreement). The General Partner anticipates that such amount
should be sufficient to satisfy the Partnership's general liquidity
requirements. The Partnership's liquidity would, however, be materially
adversely affected if there were a significant reduction in revenues or
significant unanticipated operating costs (including but not limited to
litigation expenses), unanticipated leasing costs or unanticipated capital
expenditures. If any or all of these events were to occur, to the extent
that the working capital reserve would be insufficient to satisfy the cash
requirements of the Partnership, it is anticipated that additional funds
would be obtained through a reduction of cash distributions to Investors,
bank loans, short-term loans from the General Partner or its Affiliates, or
the sale or financing of Partnership investments.
The mortgage loan to GCC as extended and made in the original amount of
$5,500,000 came due on January 1, 1997. On January 9, 1997, GCC paid the
entire outstanding principal balance and all accrued but unpaid interest
then due. On February 14, 1997, the repayment proceeds were distributed to
the Investors and the John Hancock Limited Partner, in accordance with the
terms of the Partnership Agreement.
The Partnership incurred $20,000 of leasing costs at the Park Square
Shopping Center property during the three months ended March 31, 1997. The
General Partner anticipates that the Partnership will incur an aggregate of
approximately $98,000 of additional leasing costs at the Park Square
Shopping Center and Miami International Distribution Center properties
during the remainder of 1997. The current balance in the working capital
reserve should be sufficient to pay such costs.
19
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liquidity and Capital Resources (continued)
- - -------------------------------
The General Partner anticipates that the Partnership will incur non-
recurring repair and maintenance expenses in the aggregate amount of
approximately $38,000 at the Park Square Shopping Center and Miami
International Distribution Center properties during the remainder of 1997.
These expenses will be funded from the operations of the Partnership's
properties and are not expected to have a significant impact on the
Partnership's liquidity.
The Partnership has incurred approximately $183,000 in legal expenses in
connection with the class action lawsuit (see Part II, Item 1 of this
Report). Of this amount, approximately $110,000 relates to the
Partnership's own defense and approximately $73,000 relates to the
indemnification of the General Partner and its Affiliates for their
defense. These expenses are funded from the operations of the Partnership.
At the present time, the General Partner cannot estimate the aggregate
amount of legal expenses and indemnification claims to be incurred and
their impact on the Partnership's future operations. Liquidity would,
however, be materially adversely affected by a significant increase in such
legal expenses and related indemnification costs. If such increases were
to occur, to the extent that cash from operations and the working capital
reserve would be insufficient to satisfy the cash requirements of the
Partnership, it is anticipated that additional funds would be obtained
through a reduction of cash distributions to investors, bank loans, short-
term loans from the General Partner or its Affiliates, or the sale or
financing of Partnership properties.
Cash in the aggregate amount of $9,556,357 was distributed to the Partners
during the first quarter of 1997. Of this amount, $762,071 was generated
from Distributable Cash from Operations (defined in the Partnership
Agreement), and $8,794,287 was generated from Distributable Cash from
Sales, Financings or Repayments (defined in the Partnership Agreement).
These amounts were distributed in accordance with the Partnership Agreement
and were allocated as follows:
From Distributable
From Distributable Cash From Sales
Cash From Financings, or
Operations Repayments
---------- ----------
Investors $754,450 $8,142,858
John Hancock Limited Partner - 652,428
General Partner 7,621 -
-------- ----------
Total $762,071 $8,795,286
======== ==========
The amount distributed to the Investors from Distributable Cash from
Operations represented a 6% annualized return to all Investors of record at
December 31, 1996. The General Partner anticipates that the Partnership
will be able to make comparable cash distributions from Distributable Cash
from Operations during the remaining three quarters of 1997.
20
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liquidity and Capital Resources (continued)
- - -------------------------------
The following table summarizes the leasing activity and occupancy status at
the Partnership's remaining equity investments during the three months
ended March 31, 1997 and scheduled leasing activity for each investment
during the remainder of 1997:
Miami International Park Square Quince Orchard
Distribution Ctr. Shopping Ctr. Corporate Ctr.
----------------- ------------- --------------
Square Footage 215,019 137,108 99,782
Occupancy January 1, 1997 87% 84% 100%
New Leases 0% 4% 0%
Lease Renewals 0% 0% 0%
Leases Expired 0% 0% 0%
Occupancy March 31, 1997 87% 88% 100%
==== ==== ====
Leases Scheduled to Expire,
Balance of 1997 0% 1% 0%
==== ==== ====
Leases Scheduled to Commence,
Balance of 1997 0% 0% 0%
==== ==== ====
A former tenant at the Miami International Distribution Center that had
occupied approximately 70,000 square feet, or 33% of the property, had 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 brought an action
against the former tenant to obtain full collection of all delinquent
amounts and other amounts due under the lease agreement in the aggregate
amount of approximately $550,000. During January 1997, the Partnership
reached a settlement agreement with the former tenant whereby the
Partnership agreed to dismiss the action in exchange for the sum of
$114,000. Of the settlement amount, the former tenant i) received a
$24,143 credit against the settlement amount, which credit represents the
former tenant's security deposit held by the Partnership, ii) was required
to make a one-time payment of $50,000 to the Partnership, and iii) is
required to make monthly payments in the amount of $2,000 until the sum of
$39,857 is paid to the Partnership.
21
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liquidity and Capital Resources (continued)
- - -------------------------------
The General Partner subsequently secured two replacement tenants for this
space at MIDC. However, one of these tenants, leasing approximately 28,000
square feet, or 13% of the property, and whose lease was scheduled to expire
in September 2004, vacated its space and had been delinquent in its rental
payments and expense reimbursements due since November 1994. The General
Partner filed a complaint against this tenant demanding payment for
delinquent rental amounts as well as all future obligations due under the
lease agreement. The Partnership received a final judgment in the amount of
approximately $2,010,000 on January 31, 1996. Subsequent to receiving this
judgment, the tenant's owner declared personal bankruptcy in a U.S.
bankruptcy court in Florida. In March 1997, the Partnership received
$10,000 from the bankruptcy court as final settlement of the Partnership's
claim. This amount was ordered to be paid as follows: i) $5,000 upon the
bankruptcy court approving the settlement and ii) $5,000 thirty days after
the approval of the settlement. As of the date hereof, the Partnership has
received the full settlement amount. The General Partner continues to seek
a replacement tenant 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.
During May 1996, the Miami Airport Authority made an offer to purchase this
property at an amount in excess of its carrying value. The General Partner
is currently negotiating with the Miami Airport Authority towards a mutually
acceptable 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
General Partner believes that the Miami Airport Authority's desire to
acquire the Miami International Distribution Center has hampered its ability
to lease the available space at the property.
The Brooklyn Park, Minnesota 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 the remainder 1997 and, therefore, no increase in market rental
rates is anticipated. 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.
22
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liquidity and Capital Resources (continued)
- - -------------------------------
205 Newbury Associates remained current on its minimum required debt
service payments as of March 31, 1997 and as of the date hereof. 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 loan
will not be repaid. However, should 205 Newbury Associates fail to make
the minimum required debt service payments, there would be a material
adverse effect on the Partnership's liquidity and on the carrying value of
the mortgage loan. In addition, should there be an unfavorable change in
the financial status of the borrower, there could be a material adverse
effect on the carrying value of the mortgage loan. The General Partner
will continue to monitor the operations of the property and the financial
condition of the borrower.
The General Partner evaluated the carrying value of each of the
Partnership's properties and its joint venture investment as of December
31, 1996 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, 1996.
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 property valuations, using
internal or independent appraisals, in order to determine whether a
permanent impairment in value exists on any of the Partnership's
properties.
Results of Operations
- - ---------------------
Net income for the three months ended March 31, 1997 was $497,150, as
compared to net income of $600,486 for the same period in 1996. This
decrease in net income of approximately 17% is primarily due to the
repayment of the GCC mortgage loan in January 1997 and the sale of the
Fulton Business Park in December 1996.
Average occupancy for the Partnership's equity real estate investments was
as follows:
Three Months Ended March 31,
1997 1996
---- ----
Miami International Distribution Center 87% 87%
Park Square Shopping Center 86% 86%
Quince Orchard Corporate Center
(Affiliated Joint Venture) 100% 100%
23
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results of Operations (continued)
- - ---------------------
Rental income for the three months ended March 31, 1997 decreased by
$67,501, or 11%, as compared to the same period in 1996. This decrease is
primarily due to the sale of the Fulton Business Park. Excluding the
rental income generated by the Fulton Business Park, rental income
increased by 7% between periods. Rental income at the Miami International
Distribution Center increased by 15% between periods primarily due to the
collection of past due rent from a former tenant at the property. The Park
Square Shopping Center's rental income was consistent between periods.
Interest income for the three months ended March 31, 1997 decreased by
$75,201, or 34%, as compared to the same period in 1996. This decrease was
primarily due to a decline in the interest earned on the GCC mortgage loan
due to its repayment on January 9, 1997. This decrease was partially
offset by the interest earned on the net sales proceeds received from the
sale of the Fulton Business Park property and the proceeds from the
repayment of the GCC mortgage loan. The Partnership distributed such
amounts in February 1997.
Depreciation expense for the three months ended March 31, 1997 decreased by
$38,475, or 25%, as compared to the same period 1996. This decrease is due
to the sale of the Fulton Business Park.
The Partnership's share of property operating expenses for the three months
ended March 31, 1997 decreased by $33,871, or 27%, as compared to the same
period in 1996. This decrease is primarily due to the sale of the Fulton
Business Park. Excluding the Partnership's share of property operating
expenses incurred at the Fulton Business Park during 1996, the Partnership
share of property operating expenses decreased by 9% between periods. The
Partnership's share of property operating expenses at the Miami
International Distribution Center decreased by 8% between periods primarily
due to non-recurring repair and maintenance expenses incurred at the
property during the period in 1996 which was partially offset by legal
costs incurred during 1997 related to the collection of past due rents from
certain former tenants at the property. The Partnership's share of
property operating expenses at the Park Square Shopping Center was
consistent between periods.
24
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results of Operations (continued)
- - ---------------------
General and administrative expenses for the quarter ended March 31, 1997
increased by $57,597, or 106%, primarily due to legal fees incurred by the
Partnership in connection with the class action complaint (see Part II,
Item 1 of this Report). Excluding such legal fees, general and
administrative expenses were consistent between periods. At the present
time, the General Partner cannot estimate the aggregate legal fees and
indemnification claims to be incurred with respect to the class action
lawsuit and their impact on the Partnership's future operations.
Operations would, however, be materially adversely affected by a
significant increase in such legal expenses and related indemnification
costs. If such increases were to occur, to the extent that cash from
operations and the working capital reserve would be insufficient to satisfy
the cash requirements of the Partnership, it is anticipated that additional
funds would be obtained through a reduction of cash distributions to
Investors, bank loans, short-term loans from the General Partner or its
Affiliates, or the sale or financing of Partnership properties.
Amortization of deferred expenses for the three months ended March 31, 1997
decreased by $17,596, or 24%, as compared to the same period in 1996. This
decrease is primarily due to the sale of the Fulton Business Park and the
repayment of the GCC mortgage loan and the absence of amortization of their
related deferred expenses.
The General Partner believes that inflation has had no significant impact
on the Partnership's operations during the three months ended March 31,
1997, and the General Partner anticipates that inflation will not have a
significant impact during the remainder of 1997.
25
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Cash Flow
- - ---------
The following table provides the calculations of Cash from Operations and
Distributable Cash from Operations which are calculated in accordance with
Section 17 of the Partnership Agreement:
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
---- ----
<S> <C> <C>
Net cash provided by operating activities (a) $744,747 $1,039,241
Net change in operating assets and liabilities (a) (19,216) (115,578)
-------- ----------
Net cash provided by operations (a) 725,531 923,663
Increase in working capital reserves (16,017) (161,593)
-------- ----------
Cash from operations (b) 709,514 762,070
Decrease in working capital reserves - -
-------- ----------
Distributable cash from operations (b) $709,514 $762,070
======== ========
Allocation to General Partner $7,095 $7,620
Allocation to Investors 702,419 754,450
Allocation to John Hancock Limited Partner - -
-------- ----------
$709,514 $762,070
======== ========
</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 1 of this Report.
(b) As defined in the Partnership Agreement. Distributable Cash
from Operations should not be considered as an alternative
to net income (i.e. not an indicator of performance) or to
reflect cash flows or availability of discretionary funds.
During the second quarter of 1997, the Partnership will make a cash
distribution in the amount of $624,372 to the Investors, representing a 6%
annualized return to all Investors of record at March 31, 1997, based on
Distributable Cash from Operations for the quarter then ended.
The source of future cash distributions is dependent upon cash generated by
the Partnership's properties and the use of working capital reserves. The
General Partner currently anticipates that the Partnership's Distributable
Cash from Operations during each of the remaining three quarters of 1997
will be comparable to that generated during the first quarter of 1997.
26
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
In February 1996, a putative class action complaint was filed in
the Superior Court in Essex County, New Jersey by a single
investor in the Partnership. The complaint named as defendants
the Partnership, the General Partner, certain other Affiliates of
the General Partner, and certain unnamed officers, directors,
employees and agents of the named defendants.
The plaintiff sought unspecified damages stemming from alleged
misrepresentations and omissions in the marketing and offering
materials associated with the Partnership and two limited
partnerships affiliated with the Partnership. The complaint
alleged, among other things, that the marketing materials for the
Partnership and the affiliated limited partnerships did not
contain adequate risk disclosures.
On March 18, 1997, the court certified a class of investors who
were original purchasers in the Partnership. The certification
order should not be construed as suggesting that any member of
the class is entitled to recover, or will recover, any amount in
the action.
The General Partner believes the allegations are totally without
merit and will continue to 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 2. Changes in Securities
There were no changes in securities during the first quarter of
1997.
Item 3. Defaults upon Senior Securities
There were no defaults upon senior securities during the first
quarter of 1997.
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 first quarter of 1997.
Item 5. Other information
Item 6. Exhibits and Reports on form 8-K
(a) There are no exhibits to this report
(b) There were no Reports on Form 8-K filed during the first
quarter of 1997.
27
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 15th day of May, 1997.
John Hancock Realty Income Fund-II
Limited Partnership
By: John Hancock Realty Equities, Inc.,
General Partner
By: WILLIAM M. FITZGERALD
-------------------------------
William M. Fitzgerald, President
By: RICHARD E. FRANK
-------------------------------
Richard E. Frank, Treasurer
(Chief Accounting Officer)
28
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000818257
<NAME> JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,483,293
<SECURITIES> 0
<RECEIVABLES> 227,895
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,711,188
<PP&E> 19,258,208
<DEPRECIATION> 3,993,597
<TOTAL-ASSETS> 29,194,213
<CURRENT-LIABILITIES> 494,105
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 28,700,108
<TOTAL-LIABILITY-AND-EQUITY> 29,194,213
<SALES> 0
<TOTAL-REVENUES> 874,272
<CGS> 0
<TOTAL-COSTS> 204,080
<OTHER-EXPENSES> 173,042
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 497,150
<INCOME-TAX> 0
<INCOME-CONTINUING> 497,150
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 497,150
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
