<PAGE> 1
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, 1999
------------------------------------------------------
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
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COMMISSION FILE NUMBER 0-17664
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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 19 - 23
Page 1 of 24
<PAGE> 2
TABLE OF CONTENTS
PART I
Item 1 Business 3
Item 2 Properties 6
Item 3 Legal Proceedings 6
Item 4 Submission of Matters to a Vote
of Security Holders 7
PART II
Item 5 Market for the Partnership's Securities and Related
Security Holder Matters 7
Item 6 Selected Financial Data 9
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 8 Financial Statements and Supplementary Data 14
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 14
PART III
Item 10 Directors and Executive Officers of the Registrant 15
Item 11 Executive Compensation 17
Item 12 Security Ownership of Certain Beneficial Owners
and Management 17
Item 13 Certain Relationships and Related Transactions 17
PART IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K 19
Signatures 24
2
<PAGE> 3
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, 1999, 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 4,047 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.
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.
3
<PAGE> 4
ITEM 1 - BUSINESS (CONTINUED)
On July 15, 1988, the Partnership acquired Park Square Shopping Center, a
137,108 square foot community shopping center located in Brooklyn Park,
Minnesota. Over the past few 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 2000
and, therefore, no increase in market rental rates is anticipated. During 1999,
the General Partner secured a lease renewal with one tenant occupying 1% of the
property, and during 2000 three leases, representing approximately 3% of the
property, are scheduled to expire. The General Partner will continue to offer
aggressive rental packages in an effort to maintain and improve occupancy at the
property.
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.
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 99,782 square foot, 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, 1999, 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 leased to 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, 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. Subsequently,
Hoffman-LaRoche vacated and subleased the space. Hoffman-LaRoche has informed
the General Partner that it intends to 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 continue to improve. 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 given 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 2000. The General Partner is actively
marketing the property and is offering competitive leasing packages in an effort
to secure prospective tenants for the building.
On July 31, 1989, the Partnership acquired the Miami International Distribution
Center ("MIDC"), a 215,019 square foot 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 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. Although, the
demand for warehouse space close to the airport is strong, new facilities
continue to become available creating more space for tenants. During the third
quarter of 1998 the General Partner secured a new tenant to take occupancy of
approximately 29,000 square feet, or 13% of the property for a five year term
beginning October 1, 1998. This lease brought occupancy at MIDC to 100%. Due to
the securing of this lease at the property, the General Partner listed MIDC for
sale during April 1999. On August 9, 1999, the Partnership sold the Miami
International Distribution Center to a non-affiliated buyer and received net
sales proceeds of $10,693,103. During November 1999, the Partnership distributed
$10,676,769 of the net sales proceeds, of which $9,885,898 was distributed to
the Investors and $790,871 was distributed to the John Hancock Limited Partner.
The Partnership retained $16,334 in working capital reserves, as permitted by
the Partnership Agreement.
4
<PAGE> 5
ITEM 1 - BUSINESS (CONTINUED)
On March 10, 1988, the Partnership made a participating mortgage loan to 205
Newbury Associates, a non-affiliated borrower, secured by a first mortgage on
205 Newbury Street, a 7,029 square foot office and retail property located in
Boston, Massachusetts. The loan required the borrower to pay the Partnership on
a monthly basis interest only at a fixed interest rate of 9.5% per annum with
the entire principal balance due on April 1, 1998. In addition to these amounts,
the borrower was 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. On April 1, 1998, the loan matured and the
borrower repaid the entire outstanding principal balance of the loan in the
amount of $1,700,000. The Net Appreciated Value of the property was not
sufficient to provide the Partnership with any additional amounts. On May 15,
1998, the Partnership distributed $1,685,806 of the repayment proceeds, of which
$1,560,931 was distributed to the Investors and $124,875 was distributed to the
John Hancock Limited Partner. The Partnership retained $14,194 in working
capital reserves.
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 below.
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.
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.
5
<PAGE> 6
ITEM 2 - PROPERTIES
As of December 31, 1999, 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 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, 1999 was
88%. At December 31, 1999, Park Square's occupancy was 88%.
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.
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, 1999, 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, 1999 was 100%. At December 31, 1999 Quince Orchard's occupancy was
100%. The current tenant has exercised its right to terminate the lease in June
2000.
The foregoing investments of the Partnership are further described in Item 7 of
this Report and Notes 5 and 7 to the Financial Statements included in Item 8 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.
On March 18, 1997, the court certified a class of investors who were original
purchasers in the Partnership.
6
<PAGE> 7
ITEM 3 - LEGAL PROCEEDINGS (CONTINUED)
The Partnership and the other defendants have answered the complaint, denying
the material allegations and raising numerous affirmative defenses. Discovery
was conducted, and the Partnership and other defendants have produced documents
relating to the plaintiffs' claims. The court ruled on statute of limitations
defenses as to certain claims and ordered a hearing as to statute of limitations
defenses as to other claims. The parties commenced settlement discussions, which
resulted in a settlement agreement that was preliminarily approved by the court
on November 10, 1999 and finally approved by the court on December 22, 1999.
Under the terms of the settlement, the defendants guaranteed certain minimum
returns to class members on their investments and paid fees and expenses for
class counsel in an amount determined by the court to be $1.5 million. Payment
under the settlement agreement will have no financial impact on the Partnership.
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 the Partnership and RIF as
defendants. As a result of the defendants' demurrer (motion to dismiss), in May
1998 plaintiff's additional claims for tortious interference with prospective
economic advantage and intentional interference with contract, were dismissed.
In addition, as a result of a motion for summary judgment, in August 1998, the
court dismissed all claims involving the Partnership, leaving only the breach of
contract and breach of fiduciary duty claims involving RIF. On the eve of trial,
plaintiffs dismissed without prejudice those claims not previously dismissed by
the court, and subsequently filed a notice of appeal from the dismissal of the
claims that the court had dismissed on motion. The Partnership has commenced its
own action against the plaintiff seeking the court's declaration that the claims
that remained on the eve of trial are without merit and seeking to bar the
plaintiff from attempting to assert those claims at a later date. The parties
commenced settlement discussions which resulted in a settlement agreement on
February 18, 2000 terminating all litigation between the parties. The settlement
will not have a material adverse impact on the Partnership's financial position.
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 1999.
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.
7
<PAGE> 8
ITEM 5 - MARKET FOR THE PARTNERSHIP'S SECURITIES AND RELATED SECURITY HOLDER
MATTERS (CONTINUED)
(b) NUMBER OF SECURITY HOLDERS
<TABLE>
<CAPTION>
Number of
Record holders Number of Units
as of outstanding as of
Title of Class December 31, 1999 December 31, 1999
-------------- ----------------- -----------------
<S> <C> <C>
Assignee Units 4,047 2,601,552
</TABLE>
(c) DIVIDEND HISTORY AND RESTRICTIONS
During the fiscal year ended December 31, 1999, the Partnership distributed cash
in the aggregate amount of $13,301,889 to the Partners. Of this amount
$2,625,120 was generated from Distributable Cash from Operations (defined in the
Partnership Agreement), and $10,676,769 was generated from Distributable Cash
from Sales, Financings or Repayments (defined in the Partnership Agreement).
During the fiscal year ended December 31, 1998, the Partnership distributed cash
in the aggregate amount of $4,312,723 to the Partners. Of this amount $2,626,917
was generated from Distributable Cash from Operations (defined in the
Partnership Agreement), and $1,685,806 was generated from Distributable Cash
from Sales, Financings or Repayments (defined in the Partnership Agreement).
The following table reflects cash distributions made during the two-year period
ended December 31, 1999:
<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 13, 1998 $ 656,958 $ 6,570 $ -- $ 650,388 $ 0.25
May 15, 1998 * 2,342,765 6,570 124,875 2,211,319 0.85
August 14, 1998 656,958 6,570 -- 650,388 0.25
November 13, 1998 656,042 5,654 -- 650,388 0.25
February 12, 1999 656,258 5,870 -- 650,388 0.25
May 14, 1999 656,958 6,570 -- 650,388 0.25
August 13, 1999 656,958 6,570 -- 650,388 0.25
November 15, 1999 * 11,331,715 4,557 790,872 10,536,286 4.05
</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 1999 and 1998 represent a 6.4% and 6.3%
return, respectively, on Investors' Invested Capital. The General Partner
anticipates that the Partnership will make distributions of Cash from Operations
in 2000 comparable to those made in 1999 and 1998. Distributions of
Distributable Cash from Sales, Financings or Repayments in 2000 will be
dependent upon the occurrence of sales of Partnership real properties. There can
be no assurances that any properties will be sold or how much cash from such
sales 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.
8
<PAGE> 9
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, 1999. 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,
1999 1998 1997 1996 1995
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Rental income $ 1,849,088 $ 2,118,686 $ 2,160,549 $ 2,505,925 $ 2,447,532
Income from joint venture 730,711 716,157 704,292 701,988 755,198
Interest income 303,698 226,635 395,621 877,475 879,508
Net income 6,922,601 1,460,777 1,868,724 1,602,127 2,414,024
Net income per Unit (b) 2.56 0.56 0.71 0.63 0.92
Ordinary tax income (a) 6,903,459 1,737,938 1,804,532 1,457,094 2,515,024
Ordinary tax income per Unit (b) 2.54 0.66 0.69 0.58 0.96
Cash distributions per Unit from
operations 1.00 1.00 1.06 1.16 0.96
Distributable Cash from Sales,
Financings or Repayments 10,676,769 1,685,806 5,478,869 3,315,418 --
Cash distribution per Unit from
Sales, Financings or Repayments 3.80 0.60 1.95 1.18 --
Cash and cash equivalents at
December 31 2,951,442 3,261,458 3,393,737 8,669,990 3,520,394
Total assets at December 31 19,055,403 25,579,774 28,321,090 38,131,131 39,349,380
</TABLE>
(a) The ordinary tax income for the Partnership was allocated as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997 1996 1995
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
General Partner $ 64,265 $ 17,379 $ 18,045 $ 14,571 $ 25,150
John Hancock Limited Partner 229,597 -- -- (70,487) --
Investors 6,609,597 1,720,559 1,786,487 1,513,010 2,489,874
----------- ----------- ----------- ------------ -----------
Total $ 6,903,459 $ 1,737,938 $ 1,804,532 $ 1,457,094 $ 2,515,024
=========== =========== =========== ============ ===========
</TABLE>
(b) The ordinary tax income per Unit as presented for 1999, 1998, 1997,
1996 and 1995 was computed by dividing the Investors' share of ordinary
tax income by the number of Units outstanding during the year. 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, 1999, 1998, 1997, 1996 and 1995.
9
<PAGE> 10
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, 7 and 8 to the Financial Statements included in Item 8 of this
Report.
IMPACT OF YEAR 2000
The Partnership participated in the Year 2000 remediation project of its parent,
John Hancock Life Insurance Company (John Hancock). By late 1999, John Hancock
and the Partnership completed their Year 2000 readiness plan to address issues
that could result from computer programs written using two digits to define the
applicable year rather than four to define the applicable year and century. As a
result, John Hancock and the Partnership were prepared for the transition to the
Year 2000 and did not experience any significant Year 2000 problems with respect
to mission critical information technology ("IT") or non-IT systems,
applications or infrastructure. During the date rollover to the year 2000, John
Hancock and the Partnership implemented and monitored their millennium rollover
plan and conducted business as usual on Monday, January 3, 2000.
Since January 3, 2000, the information systems, including mission critical
systems, which in the event of a Year 2000 failure would have the greatest
impact on operations, have functioned properly. In addition, neither John
Hancock nor the Partnership experienced any significant Year 2000 issues related
to interactions with material business partners. No disruptions have occurred
which impact John Hancock or the Partnership's ability to process claims, update
customer accounts, process financial transactions, report accurate data to
management and no business interruptions due to Year 2000 issues have been
experienced. While John Hancock and the Partnership continue to monitor their
systems, and those of material business partners, closely to ensure that no
unexpected Year 2000 issues develop, neither John Hancock nor the Partnership
have reason, as of the date of this Report, to expect any such issues.
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, impact of the
year 2000 on computer systems and the impact of inflation.
Forward-looking statements involve numerous known and unknown risks and
uncertainties, and they are not guarantees of future performance. The following
factors, among others, could cause actual results or performance of the
Partnership and future events to differ materially from those expressed or
implied in the forward-looking statements: general economic and business
conditions; any and all general risks of real estate ownership, including
without limitation adverse changes in general economic conditions and adverse
local conditions, the fluctuation of rental income from properties, changes in
property taxes, utility costs or maintenance costs and insurance, fluctuations
of real estate values, competition for tenants, uncertainties about whether real
estate sales under contract will close; the ability of the Partnership to sell
its properties; and other factors detailed from time to time in the filings with
the Securities and Exchange Commission.
Readers are cautioned not to place undue reliance on forward-looking statements,
which reflect the General Partner's analysis only as of the date hereof. The
Partnership assumes no obligation to update forward-looking statements. See also
the Partnership's reports to be filed from time to time with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended.
10
<PAGE> 11
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Partnership had $2,951,442 in cash and cash
equivalents and $119,891 in restricted cash.
The Partnership has a working capital reserve with a balance of approximately
$2,300,000. 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 Partnership incurred $67,594 of leasing costs at the Park Square Shopping
Center and Miami International Distribution Center during 1999. The General
Partner anticipates that the Partnership will incur approximately $86,000 of
leasing costs at the Park Square Shopping Center during 2000. The current
balance in the working capital reserve should be sufficient to pay such costs.
The Partnership incurred approximately $51,504 of non-recurring repair and
maintenance expenses at the Park Square Shopping Center during 1999. The General
Partner anticipates that the Partnership will incur approximately $11,000 of
non-recurring repair and maintenance expenses at the Park Square Shopping Center
during 2000. These expenses will be funded from the operations of the property
and are not expected to have a significant impact on the Partnership's
liquidity.
As of the date of this Report, the Partnership has incurred a total of
approximately $525,000 in legal expenses in connection with the class action
lawsuit (see Part I, Item 3 of this Report). Of this amount, approximately
$315,000 relates to the Partnership's own defense and approximately $210,000
relates to the indemnification of the General Partner and its Affiliates for
their defense.
In addition, the Partnership incurred approximately $105,000 in legal expenses
in connection with the lawsuit filed in the Superior Court of the State of
California for the County of Los Angeles by an investor in the Partnership (see
Part I, Item 3 of this Report). Of this amount, approximately $70,000 relates to
the Partnership's own defense and approximately $35,000 relates to the
indemnification of the General Partner and its Affiliates for their defense.
These expenses are funded from the operations of the Partnership.
At the present time, the General Partner cannot estimate the aggregate amount of
legal expenses and indemnification claims to be incurred and their impact on the
Partnership's future operations. Liquidity would, however, be materially
adversely affected by a significant increase in such legal expenses and related
indemnification costs. If such increases were to occur, to the extent that cash
from operations and the working capital reserve would be insufficient to satisfy
the cash requirements of the Partnership, it is anticipated that additional
funds would be obtained through a reduction of cash distributions to Investors,
bank loans, short-term loans from the General Partner or its Affiliates, or the
sale or financing of Partnership investments.
Cash in the amount of $13,301,889 was distributed to the Partners during 1999.
Of this amount $2,625,120 was generated from Distributable Cash from Operations
(defined in the Partnership Agreement), and $10,676,769 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:
<TABLE>
<CAPTION>
From Distributable
From Distributable Cash From Sales,
Cash From Financings or
Operations Repayments
------------------ ------------------
<S> <C> <C>
Investors $2,601,552 $ 9,885,898
John Hancock Limited Partner -- 790,871
General Partner 23,568 --
---------- -----------
Total $2,625,120 $10,676,769
========== ===========
</TABLE>
11
<PAGE> 12
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 1999 represents a 6.4% annualized return on Investors' Invested Capital.
The General Partner anticipates that the Partnership will make distributions
from Distributable Cash from Operations in 2000 comparable to those made during
1999. Distributions of Distributable Cash from Sales, Financings or Repayments
in 2000 will be dependent upon the occurrence of sales of Partnership real
properties. There can be no assurances that any properties will be sold or how
much cash from such sales will be distributable to the Limited Partners, if any.
The following table summarizes the leasing activity and occupancy status at the
Partnership's remaining equity investments during 1999 and scheduled leasing
activity for each investment during 2000:
<TABLE>
<CAPTION>
PARK SQUARE QUINCE ORCHARD
SHOPPING CTR. CORPORATE CTR.
------------- --------------
<S> <C> <C>
Square Footage 137,108 99,782
Occupancy January 1, 1999 88% 100%
======== ======
New Leases 0% 0%
Lease Renewals 1% 0%
Leases Expired (1%) 0%
Occupancy December 31, 1999 88% 100%
======== ======
Leases Scheduled to Expire During 2000 3% 100%
======== ======
Leases Scheduled to Commence During 2000 0% 0%
======== ======
</TABLE>
At December 31, 1999, the Park Square Shopping Center's occupancy was 88%.
During 1999, the General Partner secured lease renewals with one tenant that
occupies 1,480 square feet, or 1%, of the Park Square Shopping Center. During
2000, three tenant's leases, representing approximately 3% of the property, are
scheduled to expire.
The Brooklyn Park, Minnesota real estate market, where the Park Square Shopping
Center is located, continues to experience increasing demand for tenants as the
development of more retail space continues. The General Partner expects market
conditions in Brooklyn Park to remain competitive during 2000 and, therefore, no
increase in market rental rates is anticipated.
The Quince Orchard Corporate Center is leased to Boehringer Mannheim
Pharmaceuticals, Inc. under a ten-year lease that 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.
Subsequently, Hoffman-LaRoche vacated and subleased the space. Hoffman-LaRoche
has informed the General Partner that it intends to 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 continue to improve. 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 given 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 2000.
The General Partner evaluated the carrying value of each of the Partnership's
properties and its joint venture investment as of December 31, 1999 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
an impairment in values existed. Based upon such evaluations, the General
Partner determined that no impairment in value existed and, therefore, no
write-downs were recorded.
12
<PAGE> 13
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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:
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Park Square Shopping Center 88% 88% 87%
Miami International Distribution Center N/A 90% 87%
Quince Orchard Corporate Center (Affiliated Joint Venture) 100% 100% 100%
</TABLE>
1999 COMPARED WITH 1998
Net income for the year ended December 31, 1999 was $6,922,601, as compared to
net income of $1,460,777 in 1998. Included in the results for 1999 is a
non-recurring gain in the amount of $5,284,579 which resulted from the sale of
the Miami International Distribution Center (MIDC) property in August 1999.
Excluding this amount, the Partnership's net income increased by 12% during 1999
as compared to 1998 primarily due to a decrease in general and administrative
expenses, an increase in interest income and a decrease in depreciation expense
and amortization of deferred expenses.
Rental income for the year ended December 31, 1999 decreased by $269,598, or
13%, as compared to 1998. This decrease is primarily due to the sale of the
Miami International Distribution Center. Excluding the rental income generated
by Miami International Distribution Center, rental income increased slightly
between periods. Rental income increased by 5% at the Park Square Shopping
Center primarily due to slightly higher average monthly rent received during
1999.
Interest income for the year ended December 31, 1999 increased by $77,063, or
34%, as compared to 1998. This increase was primarily due to an increase in
working capital reserves during the third quarter of 1999 as a result of the net
sales proceeds received from the sale of Miami International Distribution Center
in August 1999 that were distributed to Investors in November 1999.
Depreciation expense for the year ended December 31, 1999 decreased by $93,536,
or 20%, as compared to 1998 due to the sale of the Miami International
Distribution Center.
General and administrative expenses for the year ended December 31, 1999
decreased by $233,296, or 42%, as compared to 1998 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 Miami International Distribution
Center. In addition, the Partnership's share of legal expenses relating to the
class action complaint decreased slightly between years and the Partnership did
not incur legal fees during 1999 in connection with the other lawsuit referred
to in Part I Item 3.
Amortization of deferred expenses for the year ended December 31, 1999 decreased
by $53,459, or 24%, as compared to the same period in 1998. This decrease is
primarily due to the sale of the Miami International Business Center.
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
2000.
1998 COMPARED WITH 1997
Net income for the year ended December 31, 1998 was $1,460,777, as compared to
net income $1,868,724 in 1997. This decrease of $407,947, or 22%, is primarily
due to a decrease in interest income and an increase in general and
administrative expenses.
13
<PAGE> 14
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
1998 COMPARED WITH 1997 (CONTINUED)
Interest income during 1998 decreased by $168,986, or 43%, as compared to 1997.
Interest decreased primarily due to the repayment of the 205 Newbury Associates
mortgage loan on April 1, 1998 and to a decline in the interest earned on the
net sales/repayment proceeds from the Fulton Business Park property (sold in
December 1996) and the General Camera mortgage loan (repaid in January 1997).
The Partnership distributed such amounts in February 1997.
General and administrative expenses for the year ended December 31, 1998
increased by $203,524, or 59%, primarily due to higher legal fees incurred by
the Partnership in connection with the legal proceedings described in Item 3 of
Part I of this Report. Excluding the increase in legal fees, general and
administrative expenses were consistent between periods.
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,
1999 1998 1997 1996 1995
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities (a) $2,366,364 $ 2,583,856 $ 2,796,972 $ 3,560,858 $ 3,361,696
Net change in operating assets and
liabilities (a) 93,904 (117,428) 60,393 (112,004) (7,724)
---------- ----------- ----------- ----------- -----------
Net cash provided by operations (a) 2,460,268 2,466,428 2,857,365 3,448,854 3,353,972
Increase in working capital reserves -- -- (176,978) (400,571) (831,254)
---------- ----------- ----------- ----------- -----------
Cash from operations (b) 2,460,268 2,466,428 2,680,387 3,048,283 2,522,718
Decrease in working capital reserves 61,825 159,788 -- -- --
---------- ----------- ----------- ----------- -----------
Distributable cash from operations (b) $2,522,093 $ 2,626,216 $ 2,680,387 $ 3,048,283 $ 2,522,718
========== =========== =========== =========== ===========
Allocation to General Partner $ 24,603 $ 24,664 $ 26,804 $ 30,483 $ 25,228
Allocation to Investors 2,497,490 2,601,552 2,653,583 3,017,800 2,497,490
Allocation to John Hancock Limited Partner -- -- -- -- --
---------- ----------- ----------- ----------- -----------
$2,522,093 $ 2,626,216 $ 2,680,387 $ 3,048,283 $ 2,522,718
========== =========== =========== =========== ===========
</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.
During February 2000, the Partnership made a cash distribution in the aggregate
amount of $553,232 to the General Partner and the Investors. The distribution
was based on Distributable Cash from Operations for the year ended December 31,
1999, less amounts previously distributed during 1999. These amounts were
distributed in accordance with the Partnership Agreement and represented a 6.3%
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 2000 comparable to those
made during 1999.
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, 1999 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.
14
<PAGE> 15
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 at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Name Title Age
---- ----- ---
<S> <C> <C>
John M. Garrison President and Director 49
Malcolm G. Pittman, III Director 48
Susan M. Shephard Director 47
Virginia H. Lomasney Treasurer (Chief Accounting Officer) 38
</TABLE>
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:
<TABLE>
<CAPTION>
Name Title Age
---- ----- ---
<S> <C> <C>
Edward P. Dowd Senior Vice President of 57
John Hancock's Real Estate
Investment Group
John M. Garrison Senior Investment Officer of John 49
Hancock's Real Estate Investment Group,
President of John Hancock Realty
Equities Inc.,
John M. Nagle Senior Investment Officer of 49
John Hancock's Real Estate
Investment Group, Vice
President of John Hancock Realty
Equities, Inc.
</TABLE>
(d) FAMILY RELATIONSHIPS
There exist no family relationships among any of the foregoing directors or
officers of the General Partner.
(e) BUSINESS EXPERIENCE
John M. Garrison (age 49) joined John Hancock in 1995 as an Investment Officer.
He has been President and a Director of the General Partner, Hancock Realty
Investors Incorporated and John Hancock Property Investors Corp. since July
1999. His term as Director of the General Partner expires in May 2000. Mr.
Garrison has been a Senior Investment Officer of John Hancock since November
1999. Prior to joining John Hancock, he held a number of positions with the
Metropolitan Life Real Estate Investment Group. He holds an M.B.A. from Yale
University and a B.A. from Hamilton College.
15
<PAGE> 16
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
(e) BUSINESS EXPERIENCE (CONTINUED)
Malcolm G. Pittman III (age 48) 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 2000. 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 47) 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 2000. 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.
Virginia H. Lomasney (age 38) joined John Hancock in 1983. She was appointed
Treasurer of the General Partner effective March 25, 1999. Ms. Lomasney has been
an Associate Investment Officer of John Hancock since 1993. She holds an M.B.A.
from Bentley College and a B.S. from Boston University.
Edward P. Dowd (age 57) 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.
John M. Nagle (age 49) joined John Hancock in 1979. He has been Vice President
of the General Partner, John Hancock Realty Services Corp. and Hancock Realty
Investors Incorporated since July 1999. Mr. Nagle has been a Senior Investment
Officer of John Hancock since 1987. From 1991 through 1993 he was Vice President
of Hancock Realty Investors Incorporated. He holds an M.B.A. and a B.B.A. from
the University of Massachusetts at Amherst.
(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.
16
<PAGE> 17
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 1999 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 1999 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, 1999.
(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, 1999, 1998 and 1997.
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:
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, 1999, 1998 and 1997.
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, 1999, 1998 and 1997.
17
<PAGE> 18
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED)
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
$130,140, $228,796 and $205,824 of such expenses during the years ended December
31, 1999, 1998 and 1997, 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, 1999, 1998 and 1997.
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 $24,603,
$24,664 and $26,804 for the years ended December 31, 1999, 1998 and 1997,
respectively. The John Hancock Limited Partner was not entitled to receive any
such distributions during 1999, 1998 and 1997.
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
$790,872, $124,875 and $405,842 during the years ended December 31, 1999, 1998
and 1997, respectively. In accordance with the Partnership Agreement, the
General Partner was not entitled to receive any such distributions during 1999,
1998 and 1997.
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 $64,265, $17,379 and $18,045
during the years ended December 31, 1999, 1998 and 1997, respectively. The John
Hancock Limited Partner's share of such Profits and Losses were profits of
$229,597, $0 and $0 during the years ended December 31, 1999, 1998, and 1997,
respectively.
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, 1999:
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Reimbursement for Operating
Expenses $130,140 $228,796 $205,824
General Partner Share of Distributable
Cash from Operations 24,603 24,664 26,804
John Hancock Limited Partner's share of
Cash from Sales, Financings or Repayments 790,872 124,875 405,842
General Partner Share of Profits/
(Losses) for tax purposes 64,265 17,379 18,045
John Hancock Limited Partner's Share
of Profits/(Losses) for tax purposes 229,597 -- --
</TABLE>
18
<PAGE> 19
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED)
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 legal proceedings described in Item 3 of Part I of this Report.
Accordingly, the Partnership indemnified the General Partner and its Affiliates
for costs of $31,787, $117,884 and $54,092 relating to such legal proceedings in
the years ended December 31, 1999, 1998 and 1997, respectively.
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
<TABLE>
<CAPTION>
PAGE NUMBER
OR EXHIBIT PAGE NUMBER OR
NUMBER UNDER INCORPORATION BY
REGULATION S-K DESCRIPTION REFERENCE
-------------- ----------- ----------------
<S> <C> <C>
4 Instruments defining the rights of security holders
4.1 Amended Agreement of Exhibit A to the Prospectus
Limited Partnership* 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 Prospectus
Signature Page and Power of filed under the Partnership's
Attorney whereby a subscriber Form S-11 Registration
agrees to purchase Units and Statement
adopts the provisions of the (File 33-15630)
Amended Agreement of Limited Partnership*
4.3 Copy of Certificate of Exhibit 4.3 to the Partnership's
Limited Partnership filed Form S-11 Registration
with the Massachusetts Secretary Statement
of State on June 30, 1987* (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)
</TABLE>
19
<PAGE> 20
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
<TABLE>
<S> <C> <C>
10 Material contracts and other documents
10.1 Form of Escrow Agreement* Exhibit 10.1 to the
Partnership's Form S-11
Registration Statement
(File 33-15630)
10.2 Letter from John Hancock Exhibit 10.2 to the
Subsidiaries, Inc. containing Partnership's Form S-11
undertaking as to the net Registration Statement
worth of the General Partner* (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 Form 10-K
Partnership and Trustees of dated December 31, 1987
205 Newbury Associates* (File 33-15630)
10.4 Documents relating to Park Square Shopping Center
(a) Agreement of Purchase and Sale Exhibit 10.4(a) to the
dated April 11, 1988, between Partnership's Post-Effective
Carolyn M. Johnson, as Amendment No. 2 to
Personal Representative of the Form S-11 Registration Statement
Estate of Curtis O. Johnson and (File 33-15630)
John Hancock Realty Equities, Inc. *
(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 the
Sale dated August 10, 1988, Partnership's Post Effective
between Fulton Business Park Amendment No. 3 to
Associates and John Hancock Form S-11 Registration Statement
Realty Equities, Inc.* (File 33-15630)
(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)
</TABLE>
20
<PAGE> 21
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
<TABLE>
<S> <C> <C>
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 Partnerships
General Partnership and Report on Form 10-K
John Hancock Realty Income dated December 31, 1991
Fund-II Limited Partnership * (File 0-17664)
(f) Agreement of Purchase and Sale Exhibit 1 to the
dated November 17, 1992 Partnership's
between John Hancock Realty Report on Form 8-K
Income Fund-II and Century dated December 10, 1992
National Insurance Company * (File 0-17664)
10.7 Documents relating to JH Quince Orchard Partners
(a) Amended and Restated Partnership Exhibit 10.7(a) to the
Agreement dated December 28, Partnership's Report
1988, for QOCC-1 Associates among on Form 10-K dated
JH Quince Orchard Partners and December 31, 1990
Quad Properties Inc.* (File 33-15630)
(b) Amended and Restated Declaration Exhibit 10.7(b) to the
of Protective Covenants, Partnership's Report
Conditions and Restrictions of on Form 10-K dated
Quince Orchard Corporate Park December 31, 1990
dated December 27, 1988* (File 33-15630)
</TABLE>
21
<PAGE> 22
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
<TABLE>
<S> <C> <C>
(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*
(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 Realty Form 10-K dated
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)
</TABLE>
22
<PAGE> 23
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
<TABLE>
<S> <C> <C>
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 Incorporated Form 10-K dated
and John Hancock Realty Equities, Inc.* December 31, 1992
(File 0-17664)
(b) Agreement Concerning Subcontracting Exhibit 10.10(b) to the
of Management Services Pertaining to Partnership's Report on
John Hancock Realty Income Fund-II Form 10-K dated
Limited Partnership dated May 28, 1993 December 31, 1993
between John Hancock Realty Equities, (File 0-17664)
Inc., Hancock Realty Investors, Inc. and
John Hancock Mutual Life Insurance Company*
10.11 Documents relating to Executive
Compensation Plans and Arrangements
(a) Amended Agreement of Limited Partnership * Exhibit A to the Prospectus filed
under the Partnership's Amendment
No. 1 to Form S-11 Registration
Statement (File 33-15630)
</TABLE>
(b) No reports on Form 8-K were filed during the quarter ended December 31,
1999.
(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-47.
- ----------
+Filed herewith
*Incorporated by reference
23
<PAGE> 24
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 30th day of March,
2000.
JOHN HANCOCK REALTY INCOME FUND-II
LIMITED PARTNERSHIP
By: John Hancock Realty Equities, Inc.
General Partner
By: /s/ John M. Garrison
----------------------------------
John M. Garrison, 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 30th day of March, 2000.
Signatures Title
---------- -----
/s/ John M. Garrison President (Principal Executive Officer) and
- --------------------------- Director of John Hancock Realty Equities,
John M. Garrison Inc. (General Partner of Registrant)
/s/ Virginia H. Lomasney Treasurer (Chief Accounting Officer)
- --------------------------- of John Hancock Realty Equities, Inc.
Virginia H. Lomasney (General Partner of Registrant)
/s/ Malcolm G. Pittman, III Director of John Hancock Realty Equities,
- --------------------------- Inc. (General Partner of Registrant)
Malcolm G. Pittman, III
/s/ Susan M. Shephard Director of John Hancock Realty Equities,
- --------------------------- Inc. (General Partner of Registrant)
Susan M. Shephard
24
<PAGE> 25
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) AND (2), (c) AND (d)
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
BOSTON, MASSACHUSETTS
F-1
<PAGE> 26
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))
<TABLE>
<CAPTION>
(1) (a) Financial Statements of the Registrant PAGE
----
<S> <C>
Report of Independent Auditors F-3
Balance Sheets at December 31, 1999 and 1998 F-4
Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997 F-5
Statements of Partners' Equity for the Years Ended
December 31, 1999, 1998 and 1997 F-6
Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 F-7
Notes to Financial Statements F-8
(b) Financial Statements of the Investee
Report of Independent Auditors F-19
Balance Sheet at December 31, 1999 F-20
Statement of Operations for the Year Ended December 31, 1999 F-21
Statement of Partners' Equity for the Year Ended December 31, 1999 F-22
Statement of Cash Flows for the Year Ended December 31, 1999 F-23
Notes to Financial Statements F-24
Report of Independent Auditors F-29
Balance Sheet at December 31, 1998 F-30
Statement of Operations for the Year Ended December 31, 1998 F-31
Statement of Partners' Equity for the Year Ended December 31, 1998 F-32
Statement of Cash Flows for the Year Ended December 31, 1998 F-33
Notes to Financial Statements F-34
Report of Independent Auditors F-39
Balance Sheet at December 31, 1997 F-40
Statement of Operations for the Year Ended December 31, 1997 F-41
Statement of Partners' Equity for the Year Ended December 31, 1997 F-42
Statement of Cash Flows for the Year Ended December 31, 1997 F-43
Notes to Financial Statements F-44
(2) Financial Statement Schedules
Schedule III: Real Estate and Accumulated Depreciation S-1
Schedule IV: Mortgage Loans on Real Estate S-2
</TABLE>
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> 27
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, 1999 and
1998, and the related statements of operations, partners' equity and cash flows
for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
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 7, 2000, except for
Note 10, as to which the
date is February 18, 2000
F-3
<PAGE> 28
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 2,951,442 $ 3,261,458
Restricted cash 119,891 122,222
Other assets 7,921 56,769
Deferred expenses, net of accumulated
amortization of $1,224,279 in 1999
and $1,400,374 in 1998 391,668 732,094
Investment in joint venture 6,695,633 6,971,992
Investment in property:
Land 2,410,000 5,040,000
Buildings and improvements 10,476,229 14,218,208
------------ ------------
12,886,229 19,258,208
Less: accumulated depreciation 3,997,381 4,822,969
------------ ------------
8,888,848 14,435,239
------------ ------------
Total assets $ 19,055,403 $ 25,579,774
============ ============
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses $ 81,873 $ 171,824
Accounts payable to affiliates 156,512 211,644
------------ ------------
Total liabilities 238,385 383,468
Commitments and contingencies
Partners' equity/(deficit):
General Partner's deficit (145,091) (185,981)
Limited Partners' equity 18,962,109 25,382,287
------------ ------------
Total partners' equity 18,817,018 25,196,306
------------ ------------
Total liabilities and partners' equity $ 19,055,403 $ 25,579,774
============ ============
</TABLE>
See Notes to Financial Statements
F-4
<PAGE> 29
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Income:
Rental income $1,849,088 $2,118,686 $2,160,549
Income from joint venture 730,711 716,157 704,292
Interest income 303,698 226,635 395,621
Gain on sale of property 5,284,579 -- --
---------- ---------- ----------
Total income 8,168,076 3,061,478 3,260,462
Expenses:
Depreciation 380,391 473,927 473,927
Property operating expenses 382,703 357,638 345,947
General and administrative expenses 316,885 550,181 346,657
Amortization of deferred expenses 165,496 218,955 225,207
---------- ---------- ----------
Total expenses 1,245,475 1,600,701 1,391,738
---------- ---------- ----------
Net income $6,922,601 $1,460,777 $1,868,724
========== ========== ==========
Allocation of net income:
General Partner $ 64,457 $ 14,608 $ 18,687
John Hancock Limited Partner 196,372 -- --
Investors 6,661,772 1,446,169 1,850,037
---------- ---------- ----------
$6,922,601 $1,460,777 $1,868,724
========== ========== ==========
Net income per Unit $ 2.56 $ 0.56 $ 0.71
========== ========== ==========
</TABLE>
See Notes to Financial Statements
F-5
<PAGE> 30
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
--------- ------------ ------------
<S> <C> <C> <C>
Partners' equity/(deficit) at January 1, 1997
(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
Less: Cash Distributions (25,364) (4,287,359) (4,312,723)
Add: Net Income 14,608 1,446,169 1,460,777
--------- ------------ ------------
Partners' equity/(deficit) at December 31, 1998
(2,601,552 Units outstanding) (185,981) 25,382,287 25,196,306
Less: Cash Distributions (23,567) (13,278,322) (13,301,889)
Add: Net Income 64,457 6,858,144 6,922,601
--------- ------------ ------------
Partners' equity/(deficit) at December 31, 1999
(2,601,552 Units outstanding) ($145,091) $ 18,962,109 $ 18,817,018
========= ============ ============
</TABLE>
See Notes to Financial Statements
F-6
<PAGE> 31
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
------------ ----------- ------------
<S> <C> <C> <C>
Operating activities:
Net income $ 6,922,601 $ 1,460,777 $ 1,868,724
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 380,391 473,927 473,927
Amortization of deferred expenses 165,496 218,955 225,207
Gain on sale of property (5,284,579) -- --
Cash distributions over/(under) equity
in income from joint venture 276,359 312,769 289,507
------------ ----------- ------------
2,460,268 2,466,428 2,857,365
Changes in operating assets and liabilities:
Decrease/(increase) in restricted cash 2,331 (21,235) 10,625
Decrease/(increase) in other assets 48,848 28,033 27,960
(Decrease)/increase in accounts payable
and accrued expenses (89,951) 24,891 (135,892)
Increase (decrease) in accounts payable to
affiliates (55,132) 85,739 36,914
------------ ----------- ------------
Net cash provided by operating activities 2,366,364 2,583,856 2,796,972
Investing activities:
Principal payments on real estate loans -- 1,700,000 3,545,361
Proceeds from sale of property 10,693,103 -- --
Increase in deferred expenses and other assets (67,594) (103,412) (38,799)
------------ ----------- ------------
Net cash provided by investing
activities 10,625,509 1,596,588 3,506,562
Financing activities:
Cash distributed to Partners (13,301,889) (4,312,723) (11,579,787)
------------ ----------- ------------
Net cash used in financing activities (13,301,889) (4,312,723) (11,579,787)
------------ ----------- ------------
Net increase/(decrease) in cash
and cash equivalents (310,016) (132,279) (5,276,253)
Cash and cash equivalents at beginning
of year 3,261,458 3,393,737 8,669,990
------------ ----------- ------------
Cash and cash equivalents at end
of year $ 2,951,442 $ 3,261,458 $ 3,393,737
============ =========== ============
</TABLE>
See Notes to Financial Statements
F-7
<PAGE> 32
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, 1999, 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 4,047 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.
As initially stated in its Prospectus, it was expected that the
Partnership would be dissolved upon the sale of its last remaining
property, which at that time was expected to be within seven to ten
years following the date such property was acquired by the Partnership.
As of December 31, 1999, the Partnership has two properties remaining
in its portfolio. The Partnership intends to list both of these
properties for sale during 2000. Upon the sale of the last remaining
property, the operations of the Partnership will terminate, and the
Partnership will be dissolved, in accordance with the terms of the
Partnership Agreement, as soon as reasonable practicable.
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 original 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.
F-8
<PAGE> 33
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property held for sale is recorded at the lower of its carrying amount,
at the time the property is listed for sale, or its fair value, less
cost to sell. Carrying amount includes the property's cost, as
described below, less accumulated depreciation thereon and less any
property write-downs for impairment in value and plus any related
unamortized deferred expenses.
Investments in property are recorded at cost less any property
write-downs for impairment in value. Cost includes the initial purchase
price of the property plus 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. Property held for sale
is not depreciated.
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.
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.
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.
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
F-9
<PAGE> 34
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. THE PARTNERSHIP AGREEMENT (CONTINUED)
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.
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-10
<PAGE> 35
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, 1999, 1998 and 1997 and to which the General Partner or
its affiliates are entitled to reimbursement from the Partnership were
$130,140, $228,796 and $205,824, 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, 1999, 1998 and
1997 the Partnership incurred $31,787, $117,884 and $54,092,
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.
The General Partner also believes that this indemnification applies to
the complaint filed in the Superior Court of California for County of
Los Angeles described in Note 10. Accordingly the Partnership incurred
and paid $35,138 for the year ended December 31, 1998, which amount is
included in the Statements of Operations, and represents the
Partnership's share of costs incurred by the General Partner and its
Affiliates relating to this 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:
<TABLE>
<CAPTION>
December 31,
1999 1998
---- ----
<S> <C> <C>
Park Square Shopping Center $12,886,229 $12,886,229
Miami International Distribution Center -- 6,371,979
----------- -----------
$12,886,229 $19,258,208
=========== ===========
</TABLE>
The real estate market is cyclical in nature and is materially affected
by general economic trends and economic conditions in the market where
a property is located. As a result, determination of real estate values
involves subjective judgments. These judgments are based on current
market conditions and assumptions related to future market conditions.
These assumptions involve, among other things, the availability of
capital, occupancy rates, rental rates, interest rates and inflation
rates. Amounts ultimately realized from each property may vary
significantly from the values presented and the differences could be
material. Actual market values of real estate can be determined only by
negotiation between the parties in a sales transaction.
The Partnership leases its properties to non-affiliated tenants
primarily under long-term operating leases.
F-11
<PAGE> 36
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENT IN PROPERTY (CONTINUED)
At December 31, 1999, future minimum rentals on non-cancelable leases
relating to the Park Square Shopping Center were as follows:
<TABLE>
<S> <C>
2000 $1,066,705
2001 1,013,191
2002 918,124
2003 693,914
2004 372,899
Thereafter 874,033
----------
$4,938,866
==========
</TABLE>
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 was obligated to pay: i) interest only monthly
at an annual rate of 9.5% with the entire outstanding principal balance
of the loan due on April 1, 1998. In addition to these amounts the
borrower was 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. From 1996, the Partnership has received contingent
interest payments, the sum of which is not material.
On April 1, 1998, the loan matured and the borrower repaid the entire
outstanding principal balance of the loan. At that time, the Net
Appreciated Value of the property was not sufficient to provide the
Partnership with any additional amounts.
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.
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.
F-12
<PAGE> 37
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. REAL ESTATE LOANS (CONTINUED)
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.
7. INVESTMENT IN JOINT VENTURE
On December 28, 1988, the Partnership acquired a 99.5% interest in JH
Quince Orchard Partners (the "Affiliated Joint Venture"), a joint
venture between the Partnership and John Hancock Realty Income Fund-III
Limited Partnership ("Income Fund-III"). The Partnership had an initial
99.5% interest and Income Fund-III had an initial 0.5% interest in the
Affiliated Joint Venture. Pursuant to the partnership agreement of the
Affiliated Joint Venture, Income Fund-III had the option, exercisable
prior to December 31, 1990, to increase its investment and interest in
the Affiliated Joint Venture to 50%. During the second quarter of 1989,
Income Fund-III exercised its option and the Partnership sold a 49.5%
interest in the Affiliated Joint Venture to Income Fund-III. The
Partnership has held a 50% interest in the Affiliated Joint Venture
since the second quarter of 1989.
On December 28, 1988, the Affiliated Joint Venture contributed 98% of
the invested capital of, and acquired a 75% interest in, QOCC-1
Associates, an existing partnership which owns and operates the Quince
Orchard Corporate Center, a three-story office building and related
land and improvements located in Gaithersburg, Maryland. 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, 1998, 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 1999, 1998 and
1997, the partners received returns on invested capital of
approximately 12%.
Summarized financial information for QOCC-1 Associates is as follows:
<TABLE>
<CAPTION>
Financial Position at
December 31,
1999 1998
----------- -----------
<S> <C> <C>
Current assets $ 551,822 $ 535,140
Deferred expenses, net 1,181,080 1,280,719
Other assets 1,030,291 1,330,111
Investment in property, net 11,216,608 11,590,339
----------- -----------
Total assets $13,979,801 $14,736,309
=========== ===========
Current liabilities $ 317,737 $ 484,303
Partners' equity 13,662,064 14,252,006
----------- -----------
Total liabilities and equity $13,979,801 $14,736,309
=========== ===========
</TABLE>
F-13
<PAGE> 38
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INVESTMENT IN JOINT VENTURE (CONTINUED)
<TABLE>
<CAPTION>
Results of Operations
Years Ended December 31,
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Total income $2,791,306 $2,788,939 $2,761,035
Total expenses 1,178,230 1,198,608 1,212,058
---------- ---------- ----------
Net income $1,613,076 $1,590,331 $1,548,977
========== ========== ==========
</TABLE>
The Affiliated Joint Venture's share of QOCC-1 Associates' partners'
equity was $13,456,393 and $14,009,111 at December 31, 1999 and 1998,
respectively. The Affiliated Joint Venture's share of QOCC-1
Associates' net income was $1,461,422, $1,432,312 and $1,408,588 for
the years ended December 31, 1999, 1998 and 1997, 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 1999 1998
----------- ---- ----
<S> <C> <C>
$152,880 acquisition fee for investment in
the Affiliated Joint Venture. This amount
is amortized over a period of 31.5 years. $ 99,696 $104,549
$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. 242,508 363,761
$112,217 of tenant improvements. These amounts
are amortized over the terms of the leases
to which they relate. 5,224 38,235
$147,754 of lease commissions. These amounts
are amortized over the terms of the leases
to which they relate. 44,241 225,549
-------- --------
$391,669 $732,094
======== ========
</TABLE>
F-14
<PAGE> 39
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,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income per Statements of Operations $ 6,922,601 $1,460,777 $ 1,868,724
Add/(deduct): Excess of tax loss over book
loss on disposition of assets (89,552) -- --
Excess of book depreciation
over tax depreciation 18,435 77,588 76,564
Excess of book amortization
over tax amortization 62,596 73,549 78,124
Other income and expense (10,621) 126,024 (218,880)
----------- ---------- -----------
Net income for federal income tax purposes $ 6,903,459 $1,737,938 $ 1,804,532
=========== ========== ===========
</TABLE>
10. CONTINGENCIES
In February 1996, a putative class action complaint was filed in the
Superior Court in Essex County, New Jersey by a single investor in the
Partnership. The complaint named as defendants the Partnership, the
General Partner, certain other Affiliates of the General Partner, two
limited partnerships affiliated with the Partnership, and certain
unnamed officers, directors, employees and agents of the named
defendants. The plaintiff sought unspecified damages stemming from
alleged misrepresentations and omissions in the marketing and offering
materials associated with the Partnership and two limited partnerships
affiliated with the Partnership. On March 18, 1997, the court certified
a class of investors who were original purchasers in the Partnership.
The Partnership and the other defendants answered the complaint,
denying the material allegations and raising numerous affirmative
defenses. Discovery was conducted, and the Partnership and other
defendants produced documents relating to the plaintiff's claims. The
court ruled on statute of limitations defenses as to certain claims and
ordered a hearing as to statute of limitations defenses as to other
claims. The parties commenced settlement discussions, which resulted in
a settlement agreement that was preliminarily approved by the court on
November 10, 1999 and finally approved by the court on December 22,
1999. Under the terms of the settlement, the defendants have guaranteed
certain minimum returns to class members on their investments and have
paid fees and expenses for class counsel in an amount determined by the
court to be $1.5 million. These terms of the settlement will have no
financial impact on the Partnership.
F-15
<PAGE> 40
JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. CONTINGENCIES (CONTINUED)
The Partnership provides indemnification to the General Partner and its
Affiliates for acts or omissions of the General Partner in good faith
on behalf of the Partnership, except for acts or omissions constituting
fraud, negligence, misconduct or breach of fiduciary duty. The General
Partner believes that this indemnification applies to the class action
complaint described above.
The Partnership has incurred approximately $525,246 in legal expenses
in connection with the class action lawsuit (see Part I, Item 3 of this
Report). Of this amount, approximately $315,147 relates to the
Partnership's own defense and approximately $210,098 relates to the
indemnification of the General Partner and its Affiliates for their
defense. These expenses are funded from the operations of the
Partnership.
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 the Partnership
and RIF as defendants. As a result of the defendants' demurrer (motion
to dismiss), in May 1998 plaintiff's additional claims for tortious
interference with prospective economic advantage and intentional
interference with contract were dismissed. In addition, as a result of
a motion for summary judgment, in August 1998, the court dismissed all
claims involving the Partnership, leaving only the breach of contract
and breach of fiduciary duty claims involving RIF. On the eve of trial,
plaintiffs dismissed without prejudice those claims not previously
dismissed by the court, and subsequently filed a notice of appeal from
the dismissal of the claims that the court had dismissed on motion. The
Partnership has commenced its own action against the plaintiff seeking
the court's declaration that the claims that remained on the eve of
trial are without merit and seeking to bar the plaintiff from
attempting to assert those claims at a later date. The parties
commenced settlement discussions, which resulted in a settlement
agreement on February 18, 2000 terminating all litigation between the
parties. The settlement will not have a material adverse impact on the
Partnership's financial position.
The Partnership has incurred approximately $105,000 in legal expenses
in connection with the above described lawsuit (see Part I, Item 3 of
this Report). Of this amount, approximately $70,000 relates to the
Partnership's own defense and approximately $35,000 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 that 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
During February 2000, the Partnership made a cash distribution to the
Investors from Distributable Cash from Operations in the amount of
$546,326.
F-16
<PAGE> 41
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
QOCC-1 ASSOCIATES
DECEMBER 31, 1999
F-17
<PAGE> 42
QOCC-1 Associates
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INDEPENDENT AUDITORS' REPORT F-19
FINANCIAL STATEMENTS
BALANCE SHEET F-20
STATEMENT OF INCOME F-21
STATEMENT OF PARTNERS' EQUITY F-22
STATEMENT OF CASH FLOWS F-23
NOTES TO FINANCIAL STATEMENTS F-24
</TABLE>
F-18
<PAGE> 43
INDEPENDENT AUDITORS' REPORT
To the Partners
QOCC-1 Associates
We have audited the accompanying balance sheet of QOCC-1 Associates as
of December 31, 1999, 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, 1999, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
Bethesda, Maryland
January 10, 2000
F-19
<PAGE> 44
QOCC-1 Associates
BALANCE SHEET
December 31, 1999
<TABLE>
<S> <C>
ASSETS
RENTAL PROPERTY
Land $ 3,670,000
Land improvements 35,425
Building 11,461,343
Building improvements 92,888
-----------
15,259,656
Less accumulated depreciation 4,043,048
-----------
11,216,608
-----------
OTHER ASSETS
Cash and cash equivalents 551,822
Prepaid taxes and insurance 108,835
Prepaid leasing commissions 43,162
Deferred rent concessions 1,181,080
Leasing costs, less accumulated amortization of $1,275,071 878,294
-----------
2,763,193
-----------
$13,979,801
===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 74,454
Security deposit 243,283
-----------
317,737
COMMITMENT --
PARTNERS' EQUITY 13,662,064
-----------
$13,979,801
===========
</TABLE>
F-20
<PAGE> 45
QOCC-1 Associates
STATEMENT OF INCOME
Year ended December 31, 1999
<TABLE>
<S> <C> <C>
Revenue
Rental income - base $ 2,691,797
Rental income - reimbursements 77,381
Interest income 22,128
------------
Total revenue 2,791,306
Expenses
Accounting and legal $ 11,270
Advertising 1,381
Bank fees 2,187
Commissions 86,320
Depreciation and amortization 592,397
Dues 1,239
Insurance 6,603
Management fees 54,308
Personnel services 63,200
Repairs and maintenance 142,770
Supplies 2,236
Taxes 212,735
Travel 22
Utilities 1,562
----------
Total expenses 1,178,230
------------
NET INCOME $ 1,613,076
============
</TABLE>
F-21
<PAGE> 46
QOCC-1 Associates
STATEMENT OF PARTNERS' EQUITY
Year ended December 31, 1999
<TABLE>
<CAPTION>
Equity at Equity at
January 1, Net December 31,
1999 income Distributions 1999
---- ------ ------------- ----
<S> <C> <C> <C> <C>
JH Quince Orchard Partners $ 14,009,111 $ 1,461,422 $ (2,014,140) $ 13,456,393
Quad Properties, Inc. 242,895 151,654 (188,878) 205,671
------------ ------------ ------------ ------------
$ 14,252,006 $ 1,613,076 $ (2,203,018) $ 13,662,064
============ ============ ============ ============
</TABLE>
F-22
<PAGE> 47
QOCC-1 Associates
STATEMENT OF CASH FLOWS
Year ended December 31, 1999
<TABLE>
<S> <C>
Cash flows from operating activities
Net income $ 1,613,076
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 592,397
Increase in prepaid taxes and insurance (5,166)
Decrease in prepaid leasing commissions 86,320
Decrease in deferred rent concessions 99,639
Increase in accounts payable and accrued expenses 57,648
Increase in security deposit liability 11,326
Decrease in advanced rent (235,540)
-----------
Net cash provided by operating activities 2,219,700
-----------
Cash flows from financing activities
Distributions to partners (2,203,018)
-----------
Net cash used in financing activities (2,203,018)
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 16,682
Cash and cash equivalents, beginning 535,140
-----------
Cash and cash equivalents, end $ 551,822
===========
</TABLE>
F-23
<PAGE> 48
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 101,114 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.
Specifically, management reviews the carrying value of rental property using
estimated future cash flows, including estimates from disposition, whenever an
event or change in circumstance might indicate that the asset value may not be
recoverable. Because of the inherent uncertainties in estimating future cash
flows, it is at least reasonably possible that the estimates used will change
within the near term.
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.
F-24
<PAGE> 49
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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 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, which is June 2000, by notifying the landlord as outlined
in the lease agreement. During 1999, the tenant notified the partnership
that it will terminate the lease at June 2000. Management of the property
has hired a leasing agent who is actively marketing the property. Rental
income consists of fixed base rent plus a fixed annual increase and variable
lease reimbursement escalation, calculated annually.
F-25
<PAGE> 50
NOTE C - RELATED PARTY TRANSACTION
During 1999, the partnership incurred charges of approximately $117,882 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.
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, 1999, the uninsured portion of the cash balances held
at the banks was $143,283.
F-26
<PAGE> 51
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
QOCC-1 ASSOCIATES
DECEMBER 31, 1998
F-27
<PAGE> 52
QOCC-1 ASSOCIATES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INDEPENDENT AUDITORS' REPORT F-29
FINANCIAL STATEMENTS
BALANCE SHEET F-30
STATEMENT OF INCOME F-31
STATEMENT OF PARTNERS' EQUITY F-32
STATEMENT OF CASH FLOWS F-33
NOTES TO FINANCIAL STATEMENTS F-34
</TABLE>
F-28
<PAGE> 53
INDEPENDENT AUDITORS' REPORT
To the Partners
QOCC-1 Associates
We have audited the accompanying balance sheet of QOCC-1 Associates as
of December 31, 1998, 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, 1998, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
Bethesda, Maryland
January 11, 1999
F-29
<PAGE> 54
QOCC-1 Associates
BALANCE SHEET
December 31, 1998
<TABLE>
<S> <C>
ASSETS
RENTAL PROPERTY
Land $ 3,670,000
Land improvements 35,425
Building 11,461,343
Building improvements 92,888
-----------
15,259,656
Less accumulated depreciation 3,669,317
-----------
11,590,339
-----------
OTHER ASSETS
Cash and cash equivalents 535,140
Prepaid taxes and insurance 103,669
Prepaid leasing commissions 129,482
Deferred rent concessions 1,280,719
Leasing costs, less accumulated amortization of $1,056,405 1,096,960
-----------
3,145,970
-----------
$14,736,309
===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 16,806
Security deposit 231,957
Advanced rent 235,540
-----------
484,303
-----------
COMMITMENT --
PARTNERS' EQUITY 14,252,006
-----------
$14,736,309
===========
</TABLE>
See notes to financial statements
F-30
<PAGE> 55
QOCC-1 Associates
STATEMENT OF INCOME
Year ended December 31, 1998
<TABLE>
<S> <C> <C>
Revenue
Rental income-base $ 2,691,797
Rental income-reimbursements 83,409
Interest income 13,733
--------------
Total revenue 2,788,939
Expenses
Accounting $ 8,565
Miscellaneous 1,537
Commissions 86,320
Depreciation and amortization 592,307
Insurance 5,749
Management fees 52,983
Personnel services 66,152
Repairs and maintenance 173,209
Supplies 2,836
Taxes 205,711
Utilities 3,239
-----------
Total expenses 1,198,608
--------------
NET INCOME $ 1,590,331
==============
</TABLE>
See notes to financial statements
F-31
<PAGE> 56
QOCC-1 Associates
STATEMENT OF PARTNERS' EQUITY
Year ended December 31, 1998
<TABLE>
<CAPTION>
Equity at Equity at
January Net December
1, 1998 Income Distributions 31, 1998
------- ------ ------------- --------
<S> <C> <C> <C> <C>
JH Quince Orchard Partners $ 14,634,651 $ 1,432,312 $ (2,057,852) $ 14,009,111
Quad Properties, Inc. 288,324 158,019 (203,448) 242,895
------------ ------------ ------------ ------------
$ 14,922,975 $ 1,590,331 $ (2,261,300) $ 14,252,006
============ ============ ============ ============
</TABLE>
See notes to financial statements
F-32
<PAGE> 57
QOCC-1 Associates
STATEMENT OF PARTNERS' EQUITY
Year ended December 31, 1998
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities
Net income $ 1,590,331
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 592,307
Increase in prepaid taxes and insurance (3,669)
Decrease in prepaid leasing commissions 86,320
Decrease in deferred rent concessions 31,555
Increase in leasing costs (584)
Decrease in accounts payable and accrued expenses (3,168)
Increase in advanced rent 235,540
-----------
Net cash provided by operating activities 2,528,632
-----------
Cash flows from investing activities
Investment in rental property (12,990)
-----------
Net cash used in investing activities (12,990)
-----------
Cash flows from financing activities
Distributions to partners (2,261,300)
-----------
Net cash used in financing activities (2,261,300)
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 254,342
Cash and cash equivalents, beginning 280,798
-----------
Cash and cash equivalents, end $ 535,140
===========
</TABLE>
See notes to financial statements
F-33
<PAGE> 58
QOCC-1 Associates
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
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-34
<PAGE> 59
QOCC-1 Associates
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
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:
<TABLE>
<S> <C>
Year ending December 31,
1999 $ 2,791,436
2000 2,861,222
2001 2,932,752
2002 3,006,071
2003 3,081,223
Thereafter 515,633
-----------------
$ 15,188,337
=================
</TABLE>
F-35
<PAGE> 60
QOCC-1 Associates
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE C - RELATED PARTY TRANSACTION
During 1998, the partnership incurred charges of approximately $121,827 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, 1998, the uninsured portion of the cash balances
held at the banks was $131,957.
F-36
<PAGE> 61
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
QOCC-1 ASSOCIATES
DECEMBER 31, 1997
F-37
<PAGE> 62
QOCC-1 ASSOCIATES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INDEPENDENT AUDITORS' REPORT F-39
FINANCIAL STATEMENTS
BALANCE SHEET F-40
STATEMENT OF INCOME F-41
STATEMENT OF PARTNERS' EQUITY F-42
STATEMENT OF CASH FLOWS F-43
NOTES TO FINANCIAL STATEMENTS F-44
</TABLE>
F-38
<PAGE> 63
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.
Bethesda, Maryland
January 8, 1998
F-39
<PAGE> 64
QOCC-1 Associates
BALANCE SHEET
December 31, 1997
ASSETS
<TABLE>
<S> <C>
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 $837,831 1,314,956
-----------
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
===========
</TABLE>
See notes to financial statements
F-40
<PAGE> 65
QOCC-1 Associates
STATEMENT OF INCOME
Year ended December 31, 1997
<TABLE>
<S> <C> <C>
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
==========
</TABLE>
See notes to financial statements
F-41
<PAGE> 66
QOCC-1 Associates
STATEMENT OF PARTNERS' EQUITY
Year ended December 31, 1997
<TABLE>
<CAPTION>
Equity at January Net Equity at December
1, 1997 income Distributions 31, 1997
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
JH Quince Orchard
Partners $15,213,661 $ 1,408,588 $ (1,987,598) $14,634,651
Quad Properties, Inc. 327,337 140,389 (179,402) 288,324
----------- ----------- ------------ -----------
$15,540,998 $ 1,548,977 $ (2,167,000) $14,922,975
=========== =========== ============ ===========
</TABLE>
See notes to financial statements
F-42
<PAGE> 67
QOCC-1 Associates
STATEMENT OF CASH FLOWS
Year ended December 31, 1997
<TABLE>
<S> <C>
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
===========
</TABLE>
See notes to financial statements
F-43
<PAGE> 68
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-44
<PAGE> 69
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:
<TABLE>
<CAPTION>
<S> <C>
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
==========
</TABLE>
F-45
<PAGE> 70
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-46
<PAGE> 71
JOHN HANCOCK REALTY INCOME FUND - II LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Costs Capitalized
Initial Costs to Subsequent to Gross Amount
Partnership Acquisition At Which Carried at Close of Period
----------- ----------- -----------------------------------
Buildings Buildings
and and
Description Encumbrances Land Improvements Improvements Land Improvements Total (1)
- ----------- ------------ ---- ------------ ------------ ---- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Park Square Shopping Center
Brooklyn Park, MN -- $2,410,000 $10,419,611 $56,619 $2,410,000 $10,476,229 $12,886,229
</TABLE>
<TABLE>
<CAPTION>
Life on Which
Depreciation in
Latest Statement
Accumulated Date of Date of Operations
Description Depreciation (4) Construction Acquired is Computed
- ----------- ---------------- ------------ -------- -----------
<S> <C> <C> <C> <C>
Park Square Shopping Center
Brooklyn Park, MN $3,997,381 1988 7/15/88 30 Years (2)
5 years (3)
</TABLE>
1) The Partnership's properties' aggregate cost for federal income tax
purposes at December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Property Amount
-------- ------
<S> <C>
Park Square Shopping Center $12,998,333
</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
4) Reconciliation of Real Estate and Accumulated Depreciation
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Investment in Real Estate
Balance at beginning of year $ 19,258,208 $19,258,208 $19,258,208
Dispositions (6,371,979) -- --
Improvements -- -- --
------------ ----------- -----------
$ 12,886,229 $19,258,208 $19,258,208
============ =========== ===========
Accumulated Depreciation
Balance at beginning of year $ 4,822,969 $ 4,349,042 $ 3,875,115
Additions charged to costs and expenses 380,391 473,927 473,927
Dispositions (1,205,979) -- --
------------ ----------- -----------
Balance at end of year $ 3,997,381 $ 4,822,969 $ 4,349,042
============ =========== ===========
</TABLE>
S-1
<PAGE> 72
JOHN HANCOCK REALTY INCOME FUND - II LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Principal Amount
of Loans Subject
Final Maturity Periodic Face Amount Carrying Amount To Delinquent
Description Interest Rate Date Payment Terms Prior Liens of Mortgages of Mortgages Principal or Interest
- ----------- ------------- -------------- ------------- ----------- ------------ ------------ ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
There are no mortgage loans outstanding as of December 31, 1999.
INVESTMENT IN MORTGAGE LOANS
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ -- $1,700,000 $5,245,361
New mortgage loans -- -- --
Collection of principal -- 1,700,000 3,545,361
Foreclosures -- -- --
------- ---------- ----------
Balance at end of year $ -- $ -- $1,700,000
======= ========== ==========
</TABLE>
S-2
<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-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,071,333
<SECURITIES> 0
<RECEIVABLES> 7,921
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,079,254
<PP&E> 12,886,229
<DEPRECIATION> 3,997,381
<TOTAL-ASSETS> 19,055,403
<CURRENT-LIABILITIES> 238,385
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 18,817,018
<TOTAL-LIABILITY-AND-EQUITY> 19,055,403
<SALES> 0
<TOTAL-REVENUES> 8,168,076
<CGS> 0
<TOTAL-COSTS> 699,588
<OTHER-EXPENSES> 545,887
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,922,601
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,922,601
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,922,601
<EPS-BASIC> 2.56
<EPS-DILUTED> 2.56
</TABLE>
