FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the Fiscal Year Ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from N/A
Commission file number 0-17664
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)
Registrant's telephone number, including area code: (800) 722-5457
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: Units of
Investor Limited Partnership Interest
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by
reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to
the date of filing. (See definition of affiliate in Rule 405.) Not
applicable, since the securities are non-voting
NOTE: If a determination as to whether a particular person or entity is an
affiliate cannot be made without involving unreasonable effort and expense,
the aggregate market value of the common stock held by non-affiliates may
be calculated on the basis of assumptions reasonable under the
circumstances, provided that the assumptions are set forth in this Form.
Exhibit Index on Pages 32 - 37
Page 1 of 37
<PAGE>
TABLE OF CONTENTS
PART I
Item 1 Business 3
Item 2 Properties 8
Item 3 Legal Proceedings 9
Item 4 Submission of Matters to a Vote
of Security Holders 10
PART II
Item 5 Market for the Partnership's Securities and Related
Security Holder Matters 11
Item 6 Selected Financial Data 13
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 8 Financial Statements and Supplementary Data 25
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 25
PART III
Item 10 Directors and Executive Officers of the Registrant 25
Item 11 Executive Compensation 28
Item 12 Security Ownership of Certain Beneficial Owners
and Management 28
Item 13 Certain Relationships and Related Transactions 28
PART IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K 32
Signatures 38
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,
1997, 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 4,507 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
<PAGE>
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.
Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real property may become liable for the costs of
removal or remediation of certain hazardous substances released on or in
its property. Such laws often impose such liability without regard to
whether the owner or operator knew of, or was responsible for, the release
of such hazardous substances. If any such substances were found in or on
any property owned by the Partnership, the Partnership could be exposed to
liability and be required to incur substantial remediation costs. The
presence of such substances or the failure to undertake proper remediation
could adversely affect the ability to finance, refinance or dispose of such
property.
The Partnership's mortgage loan investment is subject to the risk of
default by the borrower, 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 all 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 25% of the
Net Appreciated Value of the property (defined in the Contingent Interest
Agreement) upon its sale or refinancing.
4
<PAGE>
Item 1 - Business (continued)
Contingent interest payments, which are 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 minimum required debt service
payments. Although contingent interest payments were received during the
years ended December 31, 1997 and 1996, the amounts of such payments were
immaterial.
During the third quarter of 1997, the General Partner had the property
securing the Partnership's mortgage loan to 205 Newbury Associates
independently appraised. Based upon the appraiser's investigation and
analysis, the property's market value was estimated to be approximately
$1,800,000, which is less than the amount required for participation in the
Net Appreciated Value. Therefore, the Partnership will not receive any
payments in excess of the outstanding principal balance of the mortgage
loan and all accrued but unpaid interest, upon the loans maturity.
The General Partner understands that 205 Newbury Associates has received a
mortgage commitment and believes that the outstanding principal balance of
the loan and all accrued but unpaid interest will be paid on April 1, 1998.
However, should there be an unfavorable change in the financial status of
the borrower, there could be a materially adverse effect on the carrying
value of the mortgage loan.
On July 15, 1988, the Partnership acquired Park Square Shopping Center, a
community shopping center located in Brooklyn Park, Minnesota. Over the
past few of years, the Minneapolis-St. Paul area, which includes Brooklyn
Park, has experienced tremendous population growth, fueling an increase in
development across all property types. As a result, the supply of new
retail properties has outpaced the demand for such space causing an
increase in vacancy rates and, therefore, an increase in competition for
tenants. This trend is projected to continue for some time. In addition,
the Minnesota market, as a whole, has high occupancy costs primarily
resulting from one of the highest real estate tax rates in the nation.
Given these conditions, the General Partner expects market conditions in
Brooklyn Park to remain competitive during 1998 and, therefore, no increase
in market rental rates is anticipated.
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"). 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 sold a
49.5% interest in the Affiliated Joint Venture to Income Fund-III. The
Partnership has since held a 50% interest in the Affiliated Joint Venture.
5
<PAGE>
Item 1 - Business (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 a three-story office building
and related land and improvements located in Gaithersburg, Maryland (the
"Quince Orchard Corporate Center"). 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 December 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.
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 its seventy-sixth month of the lease, or
June 2000, and, two, to extend the term of the lease for an additional five-
year period. During the first quarter of 1998, Hoffman-LaRoche, Inc.
received approval from the Federal Trade Commission to acquire Boehringer
Mannheim Pharmaceuticals, Inc. As a result, Hoffman-LaRoche has indicated
that it will terminate operations at the Quince Orchard Corporate Center
and exercise its right to terminate the lease in June 2000.
Real estate conditions in the Washington D.C. area for office space similar
to the Quince Orchard Corporate Center have improved recently. The supply
of such office space has been unable to keep pace with the demand,
resulting in a slight increase in market rents. Further, this condition
has give rise to new development in the area. The General Partner does not
anticipate that this new development will negatively impact the market and,
therefore, expects market conditions to remain favorable through 1998.
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 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 which the General Partner did not accept. The General Partner
continues to negotiate 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 Miami International Airport is the leading U.S. airport for
international cargo. MIDC's proximity to the airport makes it a desirable
facility for those companies dealing in international trade. The demand
for warehouse space close to the airport is strong, however, new warehouse
facilities continue to come on-line creating more competition for tenants.
The General Partner continues its efforts to lease the remaining vacant
space at the property and believes that the Miami Airport Authority's
desire to acquire MIDC has hampered its ability to do so.
6
<PAGE>
Item 1 - Business (continued)
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 was 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%. During the term of
the loan, the loan was amended to require GCC to pay amounts toward the
outstanding principal balance and the loan's original maturity date of July
1, 1996 was extended until January 1, 1997. On January 9, 1997, GCC paid
the entire outstanding principal balance and all accrued but unpaid
interest then due. The proceeds from the repayment of the entire original
principal balance of $5,500,000 were distributed to the Limited Partners in
the manner described below.
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 declined
subsequent to the Partnership purchasing the Fulton Business Park.
However, beginning in late 1993 vacancies in the Atlanta industrial real
estate market declined and rental rates increased. With the gradual
improvement in market conditions, Fulton Business Park sustained a
stabilized occupancy rate and improved its income and cash flow
performance. Given these market conditions and the income performance of
the property, the General Partner listed the Fulton Business Park for sale
during May 1996. On December 2, 1996, the Partnership sold the Fulton
Business Park property to a non-affiliated buyer and received net sales
proceeds of $3,313,190. The distribution of the proceeds of this sale is
described in the following paragraph.
The Partnership received an aggregate amount of $8,813,190 from the net
sales proceeds from the Fulton Business Park ($3,313,190) and from
cumulative repayments on the GCC mortgage loan ($5,500,000). During
February 1997, the Partnership distributed $8,794,287, of which $8,142,858
was distributed to the Investors and $651,429 was distributed to the John
Hancock Limited Partner. The Partnership retained $18,903 in working
capital reserves, as permitted by the Partnership Agreement.
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 and received net sales proceeds of $1,605,675. Of
this amount, during 1993 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.
7
<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, 1997, 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, 1997
was 87%.
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 sold a 49.5% interest in
the Affiliated Joint Venture to Income Fund-III. The Partnership has since
held a 50% interest in the Affiliated Joint Venture since the second
quarter of 1989.
8
<PAGE>
Item 2 - Properties (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 that owns and operates the Quince Orchard Corporate
Center, a three-story office building and related land and improvements
located in Gaithersburg, Maryland. The partnership agreement of QOCC-1
Associates provides that the Affiliated Joint Venture contribute 95% of any
required additional capital contributions. Of the cumulative total
invested capital in QOCC-1 Associates at December 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.
The average occupancy for the Quince Orchard Corporate Center for the year
ended December 31, 1997 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, 1997 was 87%.
As of December 31, 1997, the Partnership held the following mortgage loan
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.
The principal balance of this loan and all accrued but unpaid interest is
due on April 1, 1998.
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.
9
<PAGE>
Item 3 - Legal Proceedings (continued)
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.
In September 1997, a complaint for damages was filed in the Superior Court
of the State of California for the County of Los Angeles by an investor in
the Partnership. The complaint named the General Partner as a defendant.
The plaintiff sought unspecified damages which allegedly arose from the
General Partner's refusal to provide, without reasonable precautions on
plaintiff's use of, a list of investors in the Partnership and in John
Hancock Realty Income Fund Limited Partnership ("RIF"), a limited
partnership affiliated with the Partnership. Plaintiff alleges that the
General Partner's refusal unconditionally to provide a list was a breach of
contract and a breach of the General Partner's fiduciary duty.
In 1998, the plaintiff amended the complaint to name RIF and the
Partnership as defendants. The defendants have filed demurrer motions,
asking that the complaint be dismissed at law. These motions are under
consideration.
There can be no assurances given as to the timing, costs or outcome of
these legal proceedings.
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 1997.
10
<PAGE>
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.
(b) Number of Security Holders
Number of
Record holders Number of Units
as of outstanding as of
Title of Class December 31, 1997 December 31, 1997
-------------- ----------------- -----------------
Assignee Units 4,507 2,601,552
(c) Dividend History and Restrictions
During the fiscal year ended December 31, 1997, the Partnership distributed
cash in the aggregate amount of $11,579,787 to the Partners. Of this
amount $2,785,500 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). During the fiscal year ended December 31, 1996,
the Partnership distributed cash in the amount of $2,916,891 from
Distributable Cash from Operations. These amounts were distributed in
accordance with the Partnership Agreement.
11
<PAGE>
Item 5 - Market for the Partnership's Securities and Related Security
Holder Matters (continued)
(c) Dividend History and Restrictions (continued)
The following table reflects cash distributions made during the two year
period ended December 31, 1997:
<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, 1996 $630,678 $6,306 $- $624,372 $0.24
May 15, 1996 762,071 7,621 - 754,450 0.29
August 15, 1996 762,071 7,621 - 754,450 0.29
November 15, 1996 762,071 7,621 - 754,450 0.29
February 14, 1997 * 9,556,358 7,621 651,429 8,897,308 3.42
May 15, 1997 709,513 7,094 - 702,419 0.27
August 15, 1997 656,958 6,570 - 650,388 0.25
November 14, 1997 656,958 6,570 - 650,388 0.25
</TABLE>
* Includes Distributable Cash from Sales, Financing or Repayments.
The source of future distributions from Cash from Operations is dependent
upon cash generated by the Partnership's investments and the use of working
capital reserves for leasing costs and capital expenditures. Distributable
Cash from Operations during the years ended 1997 and 1996 represent a 6%
return on Investors' Invested Capital. The General Partner anticipates
that the Partnership will make distributions of Cash from Operations in
1998 comparable to those made in 1997 and 1996. Distributions of
Distributable Cash from Sales, Financings or Repayments in 1998 will be
dependent upon the occurrence of sales of Partnership real properties and
the repayment of the outstanding mortgage loan to 205 Newbury Associates.
There can be no assurances that any properties will be sold, that the
mortgage loan to 205 Newbury Associates will be repaid, or how much cash
will be distributable to the Limited Partners, if any. For a further
discussion of the financial condition and results of operations of the
Partnership see Item 7 of this Report.
12
<PAGE>
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, 1997. 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,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Rental income $2,160,549 $2,505,925 $2,447,532 $2,170,416 $2,296,571
Income from joint venture 704,292 701,988 755,198 541,188 221,738
Interest income 395,621 877,475 879,508 843,631 872,180
Net income 1,868,724 1,602,127 2,414,024 1,985,107 1,935,917
Net income per Unit (b) 0.71 0.63 0.92 0.76 0.74
Ordinary tax income (a) 1,804,532 1,457,094 2,515,024 2,025,648 2,072,792
Ordinary tax income per Unit (b) 0.69 0.58 0.96 0.77 0.79
Cash distributions per Unit from
operations 1.06 1.16 0.96 0.96 1.07
Distributable Cash from Sales,
Financings or Repayments 5,478,869 3,315,418 - - -
Cash distribution per Unit from
Sales, Financings or Repayments 1.95 1.18 - - 0.56
Cash and cash equivalents at
December 31 3,393,737 8,669,990 3,520,394 2,561,288 3,742,273
Total assets at December 31 28,321,090 38,131,131 39,349,380 39,413,410 40,559,574
</TABLE>
(a) The ordinary tax income for the Partnership was allocated as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
General Partner $18,045 $14,571 $25,150 $20,256 $20,728
John Hancock Limited Partner - (70,487) - - -
Investors 1,786,487 1,513,010 2,489,874 2,005,392 2,052,064
---------- ---------- ---------- ---------- ----------
Total $1,804,532 $1,457,094 $2,515,024 $2,025,648 $2,072,792
========== ========== ========== ========== ==========
</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, 1997, 1996, 1995, 1994 and 1993. The ordinary
tax income per Unit as presented for 1997, 1996, 1995, 1994 and 1993
was computed by dividing the Investors' share of ordinary tax income
by the number of Units outstanding during the year.
13
<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.
Impact of Year 2000
- -------------------
The General Partner and John Hancock Mutual Life Insurance Company, the
General Partner's ultimate parent (together, John Hancock) along with the
Partnership, have developed a plan to modify or replace significant
portions of the Partnership's computer information and automated
technologies so that its systems will function properly with respect to the
dates in the year 2000 and thereafter. The Partnership presently believes
that with modifications to existing systems and conversions to new
technologies, the year 2000 will not pose significant operational problems
for its computer systems. However, if certain modifications and
conversions are not made, or are not completed timely, the year 2000 issue
could have an adverse impact on the operations of the Partnership.
John Hancock as early as 1994 had begun assessing, modifying and converting
the software related to its significant systems and has initiated formal
communications with its significant business partners and customers to
determine the extent to which John Hancock's interface systems are
vulnerable to those third parties' failure to remediate their own year 2000
issues. While John Hancock is developing alternative third party
processing arrangements as it deems appropriate, there is no guarantee that
the systems of other companies on which the Partnership's systems rely will
be converted timely or will not have an adverse effect on the Partnership's
systems.
The Partnership expects the project to be substantially complete by early
1999. This completion target was derived utilizing numerous assumptions of
future events, including availability of certain resources and other
factors. However, there can be no guarantee that this completion target
will be achieved.
Forward-looking Statements
- --------------------------
In addition to historical information, certain statements contained herein
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Those statements appear in a number of
places in this Report and include statements regarding the intent, belief
or expectations of the General Partner with respect to, among other things,
the prospective sale of Partnership properties, repayment of mortgage
loans, actions that would be taken in the event of lack of liquidity,
unanticipated leasing costs, repair and maintenance expenses, distributions
to the General Partner and to Investors, the possible effects of tenants
vacating space at Partnership properties, the absorption of existing retail
space in certain geographical areas, and the impact of inflation.
14
<PAGE>
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Forward-looking Statements (continued)
- --------------------------
Forward-looking statements involve numerous known and unknown risks and
uncertainties, and they are not guarantees of future performance. The
following factors, among others, could cause actual results or performance
of the Partnership and future events to differ materially from those
expressed or implied in the forward-looking statements: general economic
and business conditions; any and all general risks of real estate
ownership, including without limitation adverse changes in general economic
conditions and adverse local conditions, the fluctuation of rental income
from properties, changes in property taxes, utility costs or maintenance
costs and insurance, fluctuations of real estate values, competition for
tenants, uncertainties about whether real estate sales under contract will
close; the ability of the Partnership to sell its properties; and other
factors detailed from time to time in the filings with the Securities and
Exchange Commission.
Readers are cautioned not to place undue reliance on forward-looking
statements, which reflect the General Partner's analysis only as of the
date hereof. The Partnership assumes no obligation to update forward-
looking statements. See also the Partnership's reports to be filed from
time to time with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended.
Liquidity and Capital Resources
- -------------------------------
At December 31, 1997, the Partnership had $3,393,737 in cash and cash
equivalents and $100,987 in restricted cash. The Partnership's cash and
cash equivalents decreased by $5,276,253 from December 31, 1996 primarily
due to the distribution on February 14, 1997 of the 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 6% 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.
15
<PAGE>
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liquidity and Capital Resources (continued)
- -------------------------------
During 1997, cash in the aggregate amount of $38,799 was used for the
payment of leasing costs incurred at the Park Square Shopping Center
property. The General Partner anticipates that the Partnership will incur
an aggregate of approximately $154,000 in leasing costs at the Park Square
Shopping Center and Miami International Distribution Center properties
during 1998. The current balance in the working capital reserve should be
sufficient to pay such leasing costs.
During 1997, approximately $1,100 of cash generated from the Partnership's
operations was used to fund non-recurring repair and maintenance expenses
incurred at the Park Square Shopping Center property. The General Partner
anticipates that the Partnership will incur non-recurring repair and
maintenance expenses in the aggregate amount of approximately $96,000 at
the Miami International Distribution Center and Park Square Shopping Center
properties during 1998. These additional expenses should be able to 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 $239,000 in legal expenses in
connection with the class action lawsuit (see Part I, Item 3 of this
Report). Of this amount, approximately $143,000 relates to the
Partnership's own defense and approximately $96,000 relates to the
indemnification of the General Partner and its Affiliates for their
defense. 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 investments.
Cash in the amount of $11,579,787 was distributed to the Partners during
1997. Of this amount $2,785,500 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 Partnership Agreement and were allocated as follows:
From Distributable
From Distributable Cash From Sales
Cash From Financings, or
Operations Repayments
---------- ----------
Investors $2,757,645 $8,142,858
John Hancock Limited Partner - 651,429
General Partner 27,855 -
---------- ----------
Total $2,785,500 $8,794,287
========== ==========
16
<PAGE>
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liquidity and Capital Resources (continued)
- -------------------------------
The amount distributed to the Investors from Distributable Cash from
Operations during 1997 represents a 6% annualized return on Investors'
Invested Capital. The General Partner anticipates that the Partnership
will make distributions from Distributable Cash from Operations in 1998
comparable to those made during 1997.
The following table summarizes the leasing activity and occupancy status at
the Partnership's remaining equity investments during 1997 and scheduled
leasing activity for each investment during 1998:
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% 5% 0%
Lease Renewals 0% 1% 0%
Leases Expired 0% 1% 0%
Occupancy December 31, 1997 87% 88% 100%
=== === ====
Leases Scheduled to Expire
During 1998 0% 18% 0%
=== === ====
Leases Scheduled to Commence
During 1998 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 and cancel its lease 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 through
October 1998 until the sum of $39,857 is paid to the Partnership. As of the
date hereof, the former tenant is current with its required payments.
17
<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 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 a
final settlement of its claim from the bankruptcy court in the amount of
$10,000. This amount was received during the second quarter of 1997. 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
continues to negotiate 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, where the Park Square
Shopping Center is located, continues to experience increasing vacancy
rates as the development of new retail space continues. This condition has
made it increasingly difficult for property owners to secure new tenants
for their locations. The General Partner expects market conditions in
Brooklyn Park to remain competitive during 1998 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.
205 Newbury Associates remained current on its minimum required debt
service payments as of December 31, 1997 and as of the date hereof. The
outstanding principal balance of this loan, in the amount of $1,700,000, is
due April 1, 1998. The General Partner understands that 205 Newbury
Associates has received a mortgage commitment and believes that the
outstanding principal balance of the loan and all accrued but unpaid
interest will be paid on April 1, 1998. However, should there be an
unfavorable change in the financial status of the borrower, there could be
a materially adverse effect on the carrying value of the mortgage loan.
18
<PAGE>
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liquidity and Capital Resources (continued)
- -------------------------------
During the third quarter of 1997, the General Partner had the property
securing the Partnership's mortgage loan to 205 Newbury Associates
independently appraised. Based upon the appraiser's investigation and
analysis, the building's market value was estimated to be approximately
$1,800,000. The $1,700,000 principal balance of the mortgage loan was
evaluated in comparison to the independent appraisal. Based upon such
evaluation, the General Partner determined that it is likely that the
property will generate sufficient cash flow to enable the borrower to pay
the minimum required monthly debt service payments and that the residual
value of the property should enable the borrower to repay the principal
balance of the loan upon maturity. Accordingly, no impairment in value
existed and a write-down in value was not required.
During the third quarter of 1997, the General Partner had the Quince
Orchard Corporate Center property independently appraised. Based upon the
appraiser's investigation and analysis, the property's market value was
estimated to be approximately $14,600,000 and the value of the
Partnership's investment in the Affiliated Joint Venture was estimated to
be approximately $7,125,000. The carrying value of the Partnership's
Affiliated Joint Venture investment of approximately $7,285,000 was
evaluated in comparison to the property's estimated future undiscounted
cash flows and the independent appraisal. Based on such evaluation, the
General Partner determined that the Partnership's share of the property's
estimated future undiscounted cash flows are expected to exceed its
carrying value and, therefore, a write-down in value was not required. The
Partnership's cumulative investment in the Affiliated Joint Venture is
approximately $8,697,000.
The General Partner evaluated the carrying value of each of the
Partnership's other properties as of December 31, 1997 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 impairment in values existed. Based upon such evaluations, the
General Partner determined that no 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 assist in its evaluation of whether an impairment in value exists on any
of the Partnership's investments.
Results of Operations
- ---------------------
Average occupancy for the Partnership's equity real estate investments was
as follows:
Years Ended December 31,
1997 1996 1995
---- ---- ----
Park Square Shopping Center 87% 85% 85%
Miami International Distribution Center 87% 87% 87%
Quince Orchard Corporate Center
(Affiliated Joint Venture) 100% 100% 100%
Fulton Business Park N/A N/A 87%
19
<PAGE>
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results of Operations (continued)
- ---------------------
1997 compared with 1996
Net income for the year ended December 31, 1997 was $1,868,724, as compared
to net income of $1,602,127 in 1996. Included in the results for 1996 are
non-recurring losses and write-offs in the aggregate amount of $683,744
which resulted from the sale of the Fulton Business Park property in
December 1996. In addition, included in the results for 1996 is
approximately $617,000 of income from the operations of the Fulton Business
Park and interest from the GCC mortgage loan, which was repaid in full in
January 1997. Excluding these amounts, the Partnership's net income
increased by 12% during 1997 as compared to 1996 primarily due to an
increase in net income earned at the Park Square Shopping Center and the
collection of past due rents from two former tenants at the Miami
International Distribution Center.
Rental income for the year ended December 31, 1997 decreased by $345,376,
or 14%, as compared to 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 slightly between periods.
Rental income increased by 8% at the Miami International Distribution
Center primarily due to the collection of past due rent from two former
tenants at the property. Rental income at the Park Square property was
consistent between periods.
Interest income for the year ended December 31, 1997 decreased by $481,854,
or 55%, as compared to 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.
Depreciation expense for the year ended December 31, 1997 decreased by
$141,073, or 23%, as compared to 1996 due to the sale of the Fulton
Business Park.
The Partnership's share of property operating expenses for the year ended
December 31, 1997 decreased by $305,978, or 47%, as compared to 1996.
Included in the Partnership's share of property operating expenses for 1996
was approximately $172,000 relating to the operations of the Fulton
Business Park, which included a $122,403 write-off of unamortized leasing
costs resulting from its sale. Excluding the Partnership's share of
property operating expenses relating to the Fulton Business Park, property
operating expenses decreased by 28% between periods due to decreases in the
Partnership's share of such expenses at the Miami International
Distribution Center and Park Square Shopping Center properties.
20
<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 decreased by 27% during 1997 as compared
to 1996 primarily due to a decrease in legal costs related to the
collection of past due rent from two former tenants at the property. In
addition, approximately $10,000 of non-recurring repairs was incurred at
the property during 1996.
The Partnership's share of property operating expenses at the Park Square
Shopping Center property decreased by 31% during 1997 as compared to 1996.
Approximately $1,000 and $37,000 of non-recurring maintenance and repair
expenses were incurred at the property during 1997 and 1996, respectively.
Excluding these amounts, the Partnership's share of property operating
expenses decreased by 18% primarily due to lower real estate taxes. Real
estate taxes decreased between periods primarily due to a successful appeal
of the property's assessed value which resulted in a refund of prior year's
taxes as well as a reduction in current year's taxes. This decrease was
partially offset by an increase in snow removal costs and certain non-
recurring repairs incurred at the property during 1997.
General and administrative expenses for the year ended December 31, 1997
decreased by $28,673, or 8%, as compared to 1996 primarily due to a
decrease in the time required of the General Partner in managing the
activities of the Partnership resulting from the sale of the Fulton
Business Park and the repayment of the GCC mortgage loan. In addition, the
Partnership's share of legal expenses relating to the class action
complaint decreased slightly between years.
Amortization of deferred expenses for the year ended December 31, 1997
decreased by $54,458, or 19%, 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. This decrease was partially offset by an
increase in amortization of additional deferred expenses relating to
leasing costs incurred at the Park Square Shopping Center property during
1997 and 1996.
21
<PAGE>
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results of Operations (continued)
- ---------------------
1996 compared with 1995
Net income for the year ended December 31, 1996 was $1,602,127, as compared
to net income of $2,414,024 in 1995. Included in the results for 1996 were
non-recurring losses and write-offs in the aggregate amount of $683,744
which resulted from the sale of the Fulton Business Park property in
December 1996. Excluding these amounts, the Partnership's net income
decreased by 5% during 1996 as compared to 1995. This decrease is
primarily due to a decline in the net income generated by the Park Square
Shopping Center, a decline in the amount of income allocated to the
Partnership from its joint venture investment and an increase in general
and administrative expenses. The impact of these declines was partially
offset by increases in the performance of the Miami International
Distribution Center and Fulton Business Park properties.
The Partnership's allocation of income from the Affiliated Joint Venture
for the year ended December 31, 1996 decreased by $53,210, or 7%, as
compared to 1995. This decrease was due to the manner in which the
partnership agreement of QOCC-1 Associates allocates income to its partners
(see the third paragraph of Item 8 , Note 7 of this Report ).
The Partnership's share of property operating expenses for the year ended
December 31, 1996 increased by $115,312, or 21%, as compared to the same
period in 1995. Included in the amount for 1996 was a $122,403 write-off
of unamortized lease acquisition costs resulting from the sale of the
Fulton Business Park. Excluding this amount, the Partnership's share of
property operating expenses was consistent between years, which resulted
from a decrease in the Partnership's share of property operating expenses
at the Miami International Distribution Center and Fulton Business Park
being offset by an increase in the Partnership's share of property
operating expenses at the Park Square Shopping Center.
The Partnership's share of property operating expenses at the Miami
International Distribution Center decreased by 10% during 1996 as compared
to 1995. The property incurred approximately $10,000 and $84,000 of non-
recurring maintenance and repair expenses during 1996 and 1995,
respectively. Excluding these amounts, property operating expenses
increased by 23% between periods primarily due to legal costs incurred
during 1996 in connection with the collection of past due rents from
certain former tenants at the property.
The Partnership's share of property operating expenses at the Fulton
Business Park increased by 212% during 1996 as compared to 1995. As stated
above, the Partnership wrote-off $122,403 of unamortized lease acquisition
costs upon the sale of the property. In addition, the property incurred
approximately $3,000 and $24,000 of non-recurring maintenance and repair
expenses during 1996 and 1995, respectively. Excluding such amounts, the
Partnership's share of property operating expenses for 1996 decreased by
71% primarily due to the fact that refunds of portions of prior years' real
estate taxes are included in the 1996 results.
22
<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 Park Square
Shopping Center increased by 50% during 1996 as compared to 1995. The
property incurred approximately $37,000 of non-recurring maintenance and
repair expenses during 1996. Excluding this amount, the Partnership's
share of property operating expenses increased by 25% between periods.
This increase was primarily due to an error in the calculation of the
anchor tenant's share of expense reimbursements. Over the past several
years, the Partnership had over billed this tenant for its share of
operating expenses incurred at the property. Accordingly, an adjustment to
this tenant's share of property operating expenses, retroactive to 1991,
was made during 1996.
General and administrative expenses for the year ended December 31, 1996
increased by $143,843, or 62%, primarily due to legal fees incurred by the
Partnership in connection with the class action complaint filed against the
Partnership during February 1996. (For further information regarding the
class action complaint, see Part I, Item 3-Legal Proceedings). Excluding
this amount, general and administrative expenses increased by 8% between
periods primarily due to an increase in the time required to be expended by
the General Partner in connection with actions taken to sell the Fulton
Business Park.
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 1998.
23
<PAGE>
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Cash Flow
- ---------
The following table provides the calculations of Cash from Operations and
Distributable Cash from Operations which are calculated in accordance with
Section 17 of the Partnership Agreement:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities (a) $2,796,972 $3,560,858 $3,361,696 $2,224,822 $3,695,258
Net change in operating assets and
liabilities (a) 60,393 (112,004) (7,724) 645,878 (724,719)
---------- --------- ---------- ---------- ----------
Net cash provided by operations (a) 2,857,365 3,448,854 3,353,972 2,870,700 2,970,539
Increase in working capital reserves (176,978) (400,571) (831,254) (347,986) (316,431)
---------- --------- ---------- ---------- ----------
Cash from operations (b) 2,680,387 3,048,283 2,522,718 2,522,714 2,654,108
Decrease in working capital reserves - - - - -
---------- --------- ---------- ---------- ----------
Distributable cash from operations (b) $2,680,387 $3,048,283 $2,522,718 $2,522,714 $2,654,108
========== ========== ========== ========== ==========
Allocation to General Partner $26,804 $30,483 $25,228 $25,224 $26,541
Allocation to Investors 2,653,583 3,017,800 2,497,490 2,497,490 2,627,567
Allocation to John Hancock Limited
Partner - - - - -
---------- --------- ---------- ---------- ----------
$2,680,387 $3,048,283 $2,522,718 $2,522,714 $2,654,108
========== ========== ========== ========== ==========
</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.
On February 14, 1998, the Partnership made a cash distribution in the
aggregate amount of $656,958 to the General Partner and the Investors. The
distribution was based on Distributable Cash from Operations for the year
ended December 31, 1997, less amounts previously distributed. These
amounts were distributed in accordance with the Partnership Agreement and
represented a 6% annualized return on Investors' Invested Capital. The
General Partner anticipates that the Partnership will be able to make cash
distributions with respect to Distributable Cash from Operations during
1998 comparable to those made during 1997.
24
<PAGE>
Item 8 - Financial Statements and Supplementary Data
The response to this Item appears beginning on page F-1 of this Report.
The financial statements of QOCC-1 Associates, an investee of the
Registrant as of and for the year ended December 31, 1997 are also
supplied.
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 Registrant
(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 54
Malcolm G. Pittman, III Director 46
Susan M. Shephard Director 45
Richard E. Frank Treasurer (Chief Accounting Officer) 36
The term of office and other positions held by the persons listed above
appear in paragraph (e) below.
(c) Identification of certain significant persons
The General Partner is responsible for the identification, analysis,
purchase, operation, and disposal of specific Partnership real estate 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:
25
<PAGE>
Item 10 - Directors and Executive Officers of the Registrant (continued)
(c) Identification of certain significant persons (continued)
Name Title Age
---- ----- ---
Edward P. Dowd Senior Vice President of 55
John Hancock's Real Estate
Investment Group
Kevin McGuire Vice President of John Hancock's 51
Real Estate Investment Group,
President of John Hancock Realty
Services Corp. and subsidiaries
Stephen Kindl Senior Investment Officer of 40
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 54) 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 1998. 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 an A.B. from Boston
College.
Malcolm G. Pittman III (age 46) 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 1998.
Mr. Pittman has been a Counsel of John Hancock's Real Estate Law Division
since 1993. From 1989 to 1993, he was an Associate Counsel of John
Hancock. He holds a J.D. from Yale Law School and a B.A. from Oberlin
College.
Susan M. Shephard (age 45) 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 1998. 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.
26
<PAGE>
Item 10 - Directors and Executive Officers of the Registrant (continued)
(e) Business experience (continued)
Richard E. Frank (age 36) joined John Hancock in 1983. He has been
Treasurer of the General Partner since June 1993. Mr. Frank has been an
Associate Investment Officer of John Hancock since January 1995. From 1993
to 1995, he was a Senior Financial Administrator of John Hancock; from 1991
to 1993, he was an Associate of Hancock Realty Investors, Incorporated;
from 1990 to 1991 he held the position of Assistant Treasurer of John
Hancock Realty Services Corp. He holds a B.S. from Stonehill College.
Edward P. Dowd (age 55) 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 51) 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 an A.B. from Boston College.
Stephen Kindl (age 40) joined John Hancock in 1995 as a Senior Real Estate
Investment Officer. Prior to joining John Hancock, he held a number of
positions with Aetna Real Estate Investment, Inc., including Managing
Director and Director. He holds an M.B.A. from the University of Hartford
and a B.S. from the University of Connecticut
(f) Involvement in certain legal proceedings
None
Compliance with Section 16(a) of the Exchange Act
Under Section 16(a) of the Securities Exchange Act of 1934, as amended, the
General Partner's directors and executive officers, as well as any person
holding more than ten percent of the Units, are required to report their
initial ownership 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.
27
<PAGE>
Item 11 - Executive Compensation
None of the officers or directors of the General Partner or any of the Real
Estate Investment Committee members referred to in Item 10(c) receive any
current or proposed direct remuneration from the Partnership in their
capacities as officers, directors or Real Estate Investment Committee
members, pursuant to any standard arrangements or otherwise, nor is any
such remuneration currently proposed. In addition, the Partnership has not
given and does not propose to give any options, warrants or rights,
including stock appreciation rights to any such persons in such capacities.
No long-term incentive plan exists with any such persons in such capacities
and no remuneration plan or arrangement exists with any such persons
resulting from resignation, retirement or any other termination.
Therefore, tables relating to these topics have been omitted.
Compensation Committee Interlocks and Insider Participation:
The Partnership did not have a Compensation Committee in 1997 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 1997
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, 1997.
(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.
(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, 1997, 1996 and 1995.
In accordance with the terms of the Partnership Agreement, the General
Partner and its Affiliates are entitled to the following types of
compensation, fees, profits/(losses), expense reimbursements and
distributions:
28
<PAGE>
Item 13 - Certain Relationships and Related Transactions (continued)
An Affiliate of the General Partner may receive a Property Management Fee
for providing property management services for Partnership properties. In
such circumstances, 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, 1997, 1996 and 1995.
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,
1997, 1996 and 1995.
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 $205,824,
$160,863 and $135,632 of such expenses during the years ended December 31,
1997, 1996 and 1995, respectively.
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, 1997, 1996 and 1995.
29
<PAGE>
Item 13 - Certain Relationships and Related Transactions (continued)
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 $26,804, $30,483 and $25,228 for the years ended
December 31, 1997, 1996 and 1995, respectively. The John Hancock Limited
Partner was not entitled to receive any such distributions during 1997,
1996 and 1995.
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). The John Hancock Limited Partner's share of Cash
from Sales, Financings or Repayments was $405,842, $245,587 and $0 during
the years ended December 31, 1997, 1996 and 1995, respectively. In
accordance with the Partnership Agreement, the General Partner was not
entitled to receive any such distributions during 1997, 1996 and 1995.
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 $18,045, $14,571 and $25,150 during the
years ended December 31, 1997, 1996 and 1995, respectively. The John
Hancock Limited Partner's share of such Profits and Losses were losses of
$0, $70,487, and $0 during the years ended December 31, 1997, 1996, and
1995, respectively.
30
<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,
1997:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Reimbursement for Operating
Expenses $205,824 $160,863 $135,632
General Partner Share of Distributable
Cash from Operations 26,804 30,483 25,228
John Hancock Limited Partner's share of
Cash from Sales, Financings or Repayments 405,842 245,587 -
General Partner Share of Profits/
(Losses) for tax purposes 18,045 14,571 25,150
</TABLE>
The Partnership provides indemnification to the General Partner and its
Affiliates (defined in the Partnership Agreement) for acts or omissions of
the General Partner or its Affiliates performed in good faith on behalf of
the Partnership, subject to certain specified exceptions, as described in
the following paragraph.
The 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.
The General Partner believes that this indemnification applies to costs
incurred in the class action complaint described in Item 3 of Part I of
this Report. Accordingly, the Partnership indemnified the General Partner
and its Affiliates for costs of $54,092, $41,475 and $0, relating to the
class action complaint in the years ended December 31, 1997, 1996 and 1995.
31
<PAGE>
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)
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)
32
<PAGE>
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
(continued)
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)
(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)
33
<PAGE>
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
(continued)
(b) Purchase and Sale Agreement Exhibit 1 to the
between John Hancock Realty Partnership's Report
Income Fund-II Limited Partnership on Form 8-K dated
and FR Acquisitions, Inc. December 2, 1996
dated December 2, 1996* (File 0-17664)
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*
(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)
34
<PAGE>
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
(continued)
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*
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 8-K
Realty Income Fund-II Limited dated June 30, 1989
Partnership.* (File 33-15630)
(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*
35
<PAGE>
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
(continued)
(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 Form 8-K
Hancock Realty Equities dated June 30, 1989
Incorporated.* (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)
(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)
36
<PAGE>
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
(continued)
(b) No reports on Form 8-K were filed during the quarter ended December
31, 1997.
(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-51.
+Filed herewith
*Incorporated by reference
37
<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
31st day of March, 1998.
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 31st day of March, 1998.
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
38
<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, 1997
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
BOSTON, MASSACHUSETTS
<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) (a) Financial Statements of the Registrant Page
Report of Independent Auditors F-3
Balance Sheets at December 31, 1997 and 1996 F-4
Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995 F-5
Statements of Partners' Equity for the Years Ended
December 31, 1997, 1996 and 1995 F-6
Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 F-7
Notes to Financial Statements F-8
(b) Financial Statements of the Investee
Report of Independent Auditors F-23
Balance Sheet at December 31, 1997 F-24
Statement of Operations for the Year
Ended December 31, 1997 F-25
Statement of Partners' Equity for the
Year Ended December 31, 1997 F-26
Statement of Cash Flows for the Year
Ended December 31, 1997 F-27
Notes to Financial Statements F-28
Report of Independent Auditors F-33
Balance Sheet at December 31, 1996 F-34
Statement of Operations for the Year
Ended December 31, 1996 F-35
Statement of Partners' Equity for the
Year Ended December 31, 1996 F-36
Statement of Cash Flows for the Year
Ended December 31, 1996 F-37
Notes to Financial Statements F-38
Report of Independent Auditors F-43
Balance Sheet at December 31, 1995 F-44
Statement of Operations for the Year
Ended December 31, 1995 F-45
Statement of Partners' Equity for the
Year Ended December 31, 1995 F-46
Statement of Cash Flows for the Year
Ended December 31, 1995 F-47
Notes to Financial Statements F-48
(2) Financial Statement Schedules
Schedule III: Real Estate and Accumulated Depreciation F-51
Schedule IV: Mortgage Loans on Real Estate F-54
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 (the "Partnership") as of December 31,
1997 and 1996, and the related statements of operations, partners' equity
and cash flows for each of the three years in the period ended December 31,
1997. Our audits also included the financial statement schedules listed in
the index at Item 14(a). These financial statements and schedules are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and schedules based on our
audits. The financial statements of QOCC-1 Associates (a limited
partnership in which JH Quince Orchard Partners, a joint venture in which
the Partnership has a 50% interest, has a 75% interest) have been audited
by other auditors whose reports have been furnished to us; insofar as our
opinion on the financial statements relates to data included for QOCC-1
Associates, it is based solely on their reports.
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
and the reports of other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the reports of other auditors, 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, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic financial statements
taken as a whole, present fairly, in all material respects, the information
set forth therein.
ERNST & YOUNG LLP
Boston, Massachusetts
February 13, 1998
F-3
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
BALANCE SHEETS
ASSETS
December 31,
1997 1996
---- ----
Cash and cash equivalents $3,393,737 $8,669,990
Restricted cash 100,987 111,612
Other assets 84,802 112,762
Deferred expenses, net of accumulated
amortization of $1,181,419 in 1997
and $1,086,688 in 1996 847,637 1,034,045
Real estate loans 1,700,000 5,245,361
Investment in joint venture 7,284,761 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 4,349,042 3,875,115
----------- -----------
14,909,166 15,383,093
----------- -----------
Total assets $28,321,090 $38,131,131
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses $146,933 $282,825
Accounts payable to affiliates 125,905 88,991
----------- -----------
Total liabilities 272,838 371,816
Partners' equity/(deficit):
General Partner's deficit (175,225) (166,057)
Limited Partners' equity 28,223,477 37,925,372
----------- -----------
Total partners' equity 28,048,252 37,759,315
----------- -----------
Total liabilities and partners'
equity $28,321,090 $38,131,131
=========== ===========
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,
1997 1996 1995
---- ---- ----
Income:
Rental income $2,160,549 $2,505,925 $2,447,532
Income from joint venture 704,292 701,988 755,198
Interest income 395,621 877,475 879,508
---------- ---------- ----------
Total income 3,260,462 4,085,388 4,082,238
Expenses:
Depreciation 473,927 615,000 627,886
Property operating expenses 345,947 651,925 536,613
General and administrative
expenses 346,657 375,330 231,487
Amortization of deferred expenses 225,207 279,665 272,228
Loss on sale of property - 561,341 -
---------- ---------- ----------
Total expenses 1,391,738 2,483,261 1,668,214
---------- ---------- ----------
Net income $1,868,724 $1,602,127 $2,414,024
========== ========== ==========
Allocation of net income:
General Partner $18,687 $16,021 $24,140
John Hancock Limited Partner - (41,165) -
Investors 1,850,037 1,627,271 2,389,884
---------- ---------- ----------
$1,868,724 $1,602,127 $2,414,024
========== ========== ==========
Net income per Unit $0.71 $0.63 $0.92
========== ========== ==========
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, 1996, 1995 and 1994
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Partners' equity/(deficit) at January 1, 1995
(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
--------- ----------- -----------
Partners' equity/(deficit) at December 31, 1995
(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
--------- ----------- -----------
Partners' equity/(deficit) at December 31, 1996
(2,601,552 Units outstanding) (166,057) 37,925,372 37,759,315
Less: Cash Distributions (27,855) (11,551,932) (11,579,787)
Add: Net Income 18,687 1,850,037 1,868,724
--------- ----------- -----------
Partners' equity/(deficit) at December 31, 1997
(2,601,552 Units outstanding) ($175,225) $28,223,477 $28,048,252
========= =========== ===========
</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,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net income $1,868,724 $1,602,127 $2,414,024
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 473,927 615,000 627,886
Amortization of deferred expenses 225,207 279,665 272,228
Loss on sale of property - 561,341 -
Write-off of unamortized leasing costs
due to sale - 122,403 -
Cash distributions over/(under) equity
in income from joint venture 289,507 268,318 39,834
---------- ---------- ----------
2,857,365 3,448,854 3,353,972
Changes in operating assets and liabilities:
Decrease/(increase) in restricted cash 10,625 20,655 (21,496)
Decrease/(increase) in other assets 27,960 (5,166) (15,444)
(Decrease)/increase in accounts payable
and accrued expenses (135,892) 43,259 39,142
Increase in accounts payable to
affiliates 36,914 53,256 5,522
---------- ---------- ----------
Net cash provided by operating activities 2,796,972 3,560,858 3,361,696
Investing activities:
Principal payments on real estate loans 3,545,361 1,311,798 317,380
Proceeds from sale of property - 3,313,190 -
Increase in deferred expenses and other assets (38,799) (119,359) (197,252)
---------- ---------- ----------
Net cash provided by investing
activities 3,506,562 4,505,629 120,128
Financing activities:
Cash distributed to Partners (11,579,787) (2,916,891) (2,522,718)
---------- ---------- ----------
Net cash used in financing activities (11,579,787) (2,916,891) (2,522,718)
---------- ---------- ----------
Net increase/(decrease) in cash
and cash equivalents (5,276,253) 5,149,596 959,106
Cash and cash equivalents at beginning
of year 8,669,990 3,520,394 2,561,288
---------- ---------- ----------
Cash and cash equivalents at end
of year $3,393,737 $8,669,990 $3,520,394
========== ========== ==========
</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, 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
4,507 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.
F-8
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
2. Significant Accounting Policies
-------------------------------
The Partnership maintains its accounting records and recognizes rental
income on the accrual basis.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results may differ
from those estimates.
Cash equivalents are highly liquid investments with 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 cost. 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.
The Partnership measures impairment in value in accordance with
Financial Accounting Standards Board Statement No. 121, "Accounting
for the Impairment of Long-Lived Assets to Be Disposed Of" ("Statement
121"). Statement 121 requires impairment losses to be recorded on
long-lived assets used in operations where indicators of impairment
are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amounts.
Investment in joint venture is recorded using the equity method.
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)
-------------------------------
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.
No provision for income taxes has been made in the Financial
Statements since such taxes are the responsibility of the individual
Partners 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.
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 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.
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.
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.
F-12
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
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, 1997, 1996 and 1995 and to which the General Partner or
its affiliates are entitled to reimbursement from the Partnership were
$205,824, $160,863 and $135,632, 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 an
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, during the three years ended December 31, 1997,
1996 and 1995 the Partnership incurred $54,092, $41,475 and $0,
respectively, which amounts are included in the Statements of
Operations, and represent the Partnership's share of costs incurred by
the General Partner and its Affiliates relating to the class action
complaint.
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 with respect to 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.
5. Investment in Property
----------------------
Investment in property at cost consists of managed, fully-operating,
commercial real estate as follows:
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
=========== ===========
F-13
<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, 1997, future minimum rentals on non-cancelable leases
relating to the above properties were as follows:
1998 $1,953,224
1999 1,753,061
2000 1,282,442
2001 1,092,147
2002 779,764
Thereafter 3,045,524
----------
$9,906,162
==========
F-14
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
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 25% of
the Net Appreciated Value of the property (defined in the Contingent
Interest Agreement) upon its sale, refinancing or mortgage maturity
date. 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 years ended December 31,
1997 and 1996, the Partnership received contingent interest payments,
the sum of which were not material. Based upon an external appraisal
of the property, the General Partner does not believe that the Net
Appreciated Value of the property will be sufficient to provide the
Partnership with any additional amounts from the mortgage loan upon
its maturity.
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 was 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.
F-15
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
6. Real Estate Loans (continued)
-----------------
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.
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.
F-16
<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. Of the cumulative total invested capital in QOCC-
1 Associates at December 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 1997 and 1996, the partners received returns on invested
capital of approximately 12%.
Summarized financial information for QOCC-1 Associates is as follows:
Financial Position at
December 31,
1997 1996
---- ----
Current assets $148,840 $152,573
Deferred expenses, net 1,530,759 1,835,645
Other assets 1,544,230 1,724,493
Investment in property, net 11,951,074 12,304,945
----------- -----------
Total assets $15,174,903 $16,017,656
=========== ===========
Current liabilities $251,928 $476,658
Partners' equity 14,922,975 15,540,998
----------- -----------
Total liabilities and equity $15,174,903 $16,017,656
=========== ===========
F-17
<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,
1997 1996 1995
---- ---- ----
Total income $2,761,035 $2,754,712 $2,719,151
Total expenses 1,212,058 1,220,531 1,180,460
---------- ---------- ----------
Net income $1,548,977 $1,534,181 $1,538,691
========== ========== ==========
The Affiliated Joint Venture's share of QOCC-1 Associates' partners'
equity was $14,634,651 and $15,213,661 at December 31, 1997 and 1996,
respectively. The Affiliated Joint Venture's share of QOCC-1
Associates' net income was $1,408,588, $1,403,992 and $1,510,397 for
the years ended December 31, 1997, 1996 and 1995, respectively. As
noted above, the Partnership has a 50% interest in the Affiliated
Joint Venture.
8. Deferred Expenses
-----------------
Deferred expenses consist of the following:
<TABLE>
<CAPTION>
Unamortized Balance at December 31,
Description 1997 1996
----------- ---- ----
<S> <C> <C>
$35,072 acquisition fee for 205 Newbury St.
loan. This amount is amortized
over the term of the loan. $948 $4,739
$152,880 acquisition fee for investment in
the Affiliated Joint Venture. This amount
is amortized over a period of 31.5 years. 109,402 114,256
$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. 485,015 606,269
$146,277 of tenant improvements. These amounts
are amortized over the terms of the leases
to which they relate. 33,788 46,828
$491,730 of lease commissions. These amounts
are amortized over the terms of the leases
to which they relate. 218,484 261,953
-------- ----------
$847,637 $1,034,045
======== ==========
</TABLE>
F-18
<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,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net income per Statements of Operations $1,868,724 $1,602,127 $2,414,024
Add/(deduct): Excess of tax loss over book
loss on disposition of assets - (399,844) -
Excess of book depreciation
over tax depreciation 76,564 106,526 105,505
Excess of book amortization
over tax amortization 78,124 96,007 73,609
Other income and expense (218,880) 52,278 (78,114)
---------- ---------- ----------
Net income for federal income tax purposes $1,804,532 $1,457,094 $2,515,024
========== ========== ==========
</TABLE>
A reconciliation of the Partnership's properties' aggregate cost for
book and federal income tax purposes is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Aggregate cost, book purposes $19,258,208 $19,258,208 $24,396,994
Add/(deduct): Costs capitalized for federal income
tax purposes, cumulative 134,117 132,971 47,659
Tax cost adjustment subsequent
to selling period, cumulative (133,813) (133,813) (133,813)
---------- ---------- ----------
Aggregate cost, federal income tax purposes $19,258,512 $19,257,366 $24,310,840
========== ========== ==========
</TABLE>
F-19
<PAGE>
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
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.
The Partnership provides indemnification to the General Partner and
its Affiliates for acts or omissions of the General Partner in good
faith on behalf of the Partnership, except for acts or omissions
constituting fraud, negligence, misconduct or breach of fiduciary
duty. The General Partner believes that this indemnification applies
to the class action complaint described above.
The Partnership has incurred approximately $239,000 in legal expenses
in connection with the class action lawsuit (see Part I, Item 3 of
this Report). Of this amount, approximately $143,000 relates to the
Partnership's own defense and approximately $96,000 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 Financial Statements, taken as a
whole. Accordingly, no provision for any liability which could result
from the eventual outcome of these matters has been made in the
accompanying financial statements. However, while it is still too
early to estimate potential damages, they could possibly be material.
11. Subsequent Events
-----------------
On February 14, 1998, the Partnership made a cash distribution of
$650,388 representing a 6% annualized return to the Investors of record
at December 31, 1997, based on Distributable Cash from Operations for
the quarter then ended.
F-20
<PAGE>
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
QOCC-1 ASSOCIATES
DECEMBER 31, 1997
F-21
<PAGE>
QOCC-1 ASSOCIATES
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT F-23
FINANCIAL STATEMENTS
BALANCE SHEET F-24
STATEMENT OF INCOME F-25
STATEMENT OF PARTNERS' EQUITY F-26
STATEMENT OF CASH FLOWS F-27
NOTES TO FINANCIAL STATEMENTS F-28
F-22
<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, 1997, 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, 1997, 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 8, 1998
F-23
<PAGE>
QOCC-1 Associates
BALANCE SHEET
December 31, 1997
ASSETS
RENTAL PROPERTY
Land $ 3,670,000
Land improvements 35,425
Building 11,461,343
Building improvements 79,896
-----------
15,246,664
Less accumulated depreciation 3,295,590
-----------
11,951,074
OTHER ASSETS
Cash and cash equivalents 280,798
Prepaid taxes and insurance 99,999
Prepaid leasing commissions 215,803
Deferred rent concessions 1,312,273
Leasing costs, less accumulated amortization of 1,314,956
$837,831
------------
3,223,829
------------
$ 15,174,903
============
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 19,971
Security deposit 231,957
-----------
251,928
COMMITMENT -
PARTNERS' EQUITY 14,922,975
------------
$ 15,174,903
============
See notes to financial statements
F-24
<PAGE>
QOCC-1 Associates
STATEMENT OF INCOME
Year ended December 31, 1997
Revenue
Rental income - base $ 2,691,797
Rental income - reimbursements 67,665
Interest income 1,573
-----------
Total revenue 2,761,035
Expenses
Accounting $ 8,250
Miscellaneous 2,637
Commissions 86,320
Depreciation and amortization 589,198
Insurance 5,772
Management fees 51,691
Personnel services 73,941
Repairs and maintenance 188,130
Supplies 2,137
Taxes 197,519
Utilities 6,463
---------
Total expenses 1,212,058
-----------
NET INCOME $ 1,548,977
===========
See notes to financial statements
F-25
<PAGE>
QOCC-1 Associates
STATEMENT OF PARTNERS' EQUITY
Year ended December 31, 1997
Equity at Net Distributions Equity at
January income December
1, 1997 31, 1997
JH Quince Orchard $15,213,661 $ 1,408,588 $ (1,987,598) $ 14,634,651
Partners
Quad Properties, Inc. 327,337 140,389 (179,402) 288,324
---------- ----------- ------------ ----------
$15,540,998 $ 1,548,977 $ (2,167,000) $ 14,922,975
========== ========== ============ ==========
See notes to financial statements
F-26
<PAGE>
QOCC-1 Associates
STATEMENT OF CASH FLOWS
Year ended December 31, 1997
Cash flows from operating activities
Net income $ 1,548,977
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 589,198
Increase in prepaid taxes and insurance (3,904)
Decrease in accounts payable and accrued expenses (9,599)
Decrease in prepaid leasing commissions 86,319
Decrease in prepaid rent and security deposit (215,131)
Increase in deferred rent concessions (34,868)
-----------
Net cash provided by operating activities 1,960,992
-----------
Cash flows from investing activities
Investment in rental property (16,760)
-----------
Net cash used in investing activities (16,760)
----------
Cash flows from financing activities
Distributions to partners (2,167,000)
-----------
Net cash used in financing activities (2,167,000)
-----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (222,768)
Cash and cash equivalents, beginning 503,566
-----------
Cash and cash equivalents, end $ 280,798
===========
See notes to financial statements
F-27
<PAGE>
QOCC-1 Associates
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
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 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.
Rental Income
-------------
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.
F-28
<PAGE>
QOCC-1 Associates
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
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 76 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 plus a
fixed annual increase and variable lease reimbursement escalation,
calculated annually.
Future minimum base rental payments due under the noncancelable operating
lease are as follows:
Year ending
December 31,
1998 $ 2,723,352
1999 2,791,436
2000 2,861,222
2001 2,932,752
2002 3,006,071
Thereafter 3,596,856
-----------
$ 17,911,689
===========
F-29
<PAGE>
QOCC-1 Associates
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE C - RELATED PARTY TRANSACTION
During 1997, the partnership incurred charges of approximately $125,809
for management fees, personnel services and supplies 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, 1997, the uninsured portion of the cash
balances held at the banks was $131,957.
F-30
<PAGE>
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
QOCC-1 ASSOCIATES
DECEMBER 31, 1996
F-31
<PAGE>
QOCC-1
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT F-33
FINANCIAL STATEMENTS
BALANCE SHEET F-34
STATEMENT OF INCOME F-35
STATEMENT OF PARTNERS' EQUITY F-36
STATEMENT OF CASH FLOWS F-37
NOTES TO FINANCIAL STATEMENTS F-38
F-32
<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, 1996, 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, 1996, 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 8, 1997
F-33
<PAGE>
QOCC-1 Associates
BALANCE SHEET
December 31, 1996
ASSETS
RENTAL PROPERTY
Land $ 3,670,000
Land improvements 35,425
Building 11,461,343
Building improvements 63,136
-----------
15,229,904
Less accumulated depreciation 2,924,959
-----------
12,304,945
-----------
OTHER ASSETS
Cash and cash equivalents 503,566
Prepaid taxes and insurance 96,095
Prepaid leasing commissions 302,122
Deferred rent 1,277,405
Leasing costs, less accumulated
amortization
of $619,264 1,533,523
-----------
3,712,711
-----------
$ 16,017,656
===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Accounts payable and accrued $ 29,570
expenses
Prepaid rent and security deposit 447,088
-----------
476,658
COMMITMENT -
PARTNERS= EQUITY 15,540,998
-----------
$ 16,017,656
===========
See notes to financial statements
F-34
<PAGE>
QOCC-1 Associates
STATEMENT OF INCOME
Year ended December 31, 1996
Revenue
Rental income - base $ 2,691,797
Rental income - escalations 61,015
Interest income 1,900
---------
Total revenue 2,754,712
Expenses
Accounting $ 8,100
Advertising and promotion 1,271
Bad debts 576
Commissions 86,320
Depreciation and amortization 588,496
Insurance 5,503
Legal 1,371
Management fees 50,430
Personnel services 76,801
Repairs and maintenance 199,601
Supplies 2,145
Taxes 191,609
Travel 21
Utilities 8,287
Total expenses --------- 1,220,531
---------
NET INCOME $ 1,534,181
=========
See notes to financial statements
F-35
<PAGE>
QOCC-1 Associates
STATEMENT OF PARTNERS' EQUITY
Year ended December 31, 1996
Equity at Net Distri- Equity at
January income butions December
1, 1996 31, 1996
--------- --------- --------- --------
JH Quince Orchard $ 15,750,296 $ 1,403,992 $ (1,940,627) $ 15,213,661
Partners
Quad Properties, 361,521 130,189 (164,373) 327,337
Inc.
--------- --------- --------- ---------
$ 16,111,817 $ 1,534,181 $ (2,105,000) $ 15,540,998
========== ========== ========== ==========
See notes to financial statements
F-36
<PAGE>
QOCC-1 Associates
STATEMENT OF CASH FLOWS
Year ended December 31, 1996
Cash flows from operating activities
Net income $ 1,534,181
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 588,496
Decrease in accounts receivable - other 2,186
Increase in prepaid taxes and insurance (1,418)
Increase in accounts payable and accrued 10,005
expenses
Decrease in prepaid leasing commissions 86,320
Increase in prepaid rent and security deposit 910
Increase in deferred rent (99,671)
--------
Net cash provided by operating activities 2,121,009
--------
Cash flows from investing activities
Investment in rental property (30,514)
--------
Net cash used in investing activities (30,514)
--------
Cash flows from financing activities
Distributions to partners (2,105,000)
--------
Net cash used in financing activities (2,105,000)
--------
NET DECREASE IN CASH AND CASH EQUIVALENTS (14,505)
Cash and cash equivalents, beginning 518,071
--------
Cash and cash equivalents, end $ 503,566
========
See notes to financial statements
F-37
<PAGE>
QOCC-1 Associates
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
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.
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.
F-38
<PAGE>
QOCC-1 Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
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 76 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
------------ ----------
1997 $ 2,656,929
1998 2,723,352
1999 2,791,436
2000 2,861,222
2001 2,932,752
Thereaf 6,602,927
ter
----------
$ 20,568,618
==========
F-39
<PAGE>
QOCC-1 Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE C - RELATED PARTY TRANSACTION
During 1996, the partnership incurred charges of approximately $129,376
for management fees, personnel services and supplies 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, 1996, the uninsured portion of the cash
balances held at the banks was $303,566.
F-40
<PAGE>
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
QOCC-1 ASSOCIATES
DECEMBER 31, 1995
F-41
<PAGE>
QOCC-1 Associates
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT F-43
FINANCIAL STATEMENTS:
BALANCE SHEET F-44
STATEMENT OF INCOME F-45
STATEMENT OF PARTNERS' EQUITY F-46
STATEMENT OF CASH FLOWS F-47
NOTES TO FINANCIAL STATEMENTS F-48
F-42
<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
F-43
<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
F-44
<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
F-45
<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
F-46
<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
F-47
<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.
F-48
<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
===========
F-49
<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.
F-50
<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, 1997
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 ImprovementsTotal (2)
- ----------- ------------ ---- ------------ -------------------------- ---- ------------
<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
Miami International
Distribution Center
Miami, FL - 2,630,000 3,729,947 12,031 2,630,000 3,741,978 6,371,978
---- ---------- ----------- -------- ---------- ----------- -----------
Total - $5,040,000 $14,149,558 $68,650 $5,040,000 $14,218,208 $19,258,208
==== ========== ========== ======== ========== =========== ===========
</TABLE>
F-51
<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, 1997
Life on Which
Depreciation in
Latest Statement
Accumulated Date of Date of Operations
Description Depreciation (5) Construction Acquired is Computed
----------- ---------------- ------------ -------- -----------
<S> <C> <C> <C> <C>
Park Square
Shopping Center
Brooklyn Park, MN $3,298,962 1988 7/15/88 30 Years (2)
5 years (3)
Miami International
Distribution Center
Miami, FL 1,050,080 1977 7/31/89 30 Years (2)
---------- 5 Years (3)
Total $4,349,042
==========
1) The Partnership's properties' aggregate cost for federal income tax purposes at December 31,
1997 is as follows:
Property Amount
-------- -------
Park Square Shopping Center $12,798,217
Miami International Distribution Center 6,460,295
-----------
$19,258,512
===========
</TABLE>
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
F-52
<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, 1997
4) Reconciliation of Real Estate and Accumulated Depreciation
Years Ended December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Investment in Real Estate
Balance at beginning of year $19,258,208 $24,396,994 $24,396,994
Dispositions - (5,138,786) -
Improvements - - -
----------- ----------- -----------
$19,258,208 $19,258,208 $24,396,994
=========== =========== ===========
Accumulated Depreciation
Balance at beginning of year $3,875,115 $4,524,369 $3,896,483
Additions charged to costs and expenses 473,927 615,000 627,886
Dispositions - (1,264,254) -
----------- ----------- -----------
Balance at end of year $4,349,042 $3,875,115 $4,524,369
=========== =========== ===========
</TABLE>
F-53
<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, 1997
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
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
(1) Aggregate cost for federal income tax purposes is the same as for Financial Statement purposes.
</TABLE>
INVESTMENT IN MORTGAGE LOANS
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $5,245,361 $6,557,159 $6,874,539
New mortgage loans - - -
Collection of principal 3,545,361 1,311,798 317,380
Foreclosures - - -
--------- ---------- ----------
Balance at end of year $1,700,000 $5,245,361 $6,557,159
========= ========= =========
</TABLE>
F-54
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000818257
<NAME> JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,494,724
<SECURITIES> 0
<RECEIVABLES> 62,386
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,279,526
<PP&E> 19,258,208
<DEPRECIATION> 4,349,042
<TOTAL-ASSETS> 28,321,090
<CURRENT-LIABILITIES> 272,838
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 28,048,252
<TOTAL-LIABILITY-AND-EQUITY> 28,321,090
<SALES> 0
<TOTAL-REVENUES> 3,260,462
<CGS> 0
<TOTAL-COSTS> 692,604
<OTHER-EXPENSES> 699,134
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,868,724
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,868,724
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,868,724
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.71
</TABLE>
