-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fsy5tkIrcQkQFwsQ54djV3WNdMjLocH+a0OB9dkksMD23HY5f513a9hQUtH2/JFK Sn6hruxJ/yVdwRtrVlFpWw== /in/edgar/work/20000814/0000950135-00-004004/0000950135-00-004004.txt : 20000921 0000950135-00-004004.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950135-00-004004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANCOCK JOHN REALTY INCOME FUND LTD PARTNERSHIP CENTRAL INDEX KEY: 0000795196 STANDARD INDUSTRIAL CLASSIFICATION: [6500 ] IRS NUMBER: 042921566 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-15680 FILM NUMBER: 697669 BUSINESS ADDRESS: STREET 1: 200 CLARENDON ST CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 8007225457 10-Q 1 e10-q.txt JOHN HANCOCK REALTY INCOME FUND L.P. 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED June 30, 2000 ------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM N/A -------------------------------------------------- COMMISSION FILE NUMBER 0-15680 ---------------------------------------------------------- JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP - -------------------------------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Massachusetts 04-2921566 - ------------------------------- ------------------------------------ (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 200 Clarendon Street, Boston, MA 02116 - -------------------------------------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (800) 722-5457 - -------------------------------------------------------------------------------- REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: N/A - -------------------------------------------------------------------------------- (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. Yes [X] No [ ] 2 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A MASSACHUSETTS LIMITED PARTNERSHIP) INDEX PART I: FINANCIAL INFORMATION PAGE Item 1 - Financial Statements: Balance Sheets at June 30, 2000 and December 31, 1999 3 Statements of Operations for the [OBJECT OMITTED] and Six Months Ended June 30, 2000 and 1999 4 Statements of Partners' Equity for the Six Months Ended June 30, 2000 and Year Ended December 31, 1999 5 Statements of Cash Flows for the Six Months Ended June 30, 2000 and 1999 6 Notes to Financial Statements 7-11 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 12-15 PART II: OTHER INFORMATION 16 2 3 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A MASSACHUSETTS LIMITED PARTNERSHIP) PART I: FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS BALANCE SHEETS (UNAUDITED) ASSETS JUNE 30, DECEMBER 31, 2000 1999 ---------- ----------- Cash and cash equivalents $1,939,993 $2,476,260 ---------- ---------- Total assets $1,939,993 $2,476,260 ========== ========== LIABILITIES AND PARTNERS' EQUITY Liabilities: Accounts payable and accrued expenses $ 62,602 $ 266,759 Accounts payable to affiliates 301,388 480,542 ---------- ---------- Total liabilities 363,990 747,301 Partners' equity/(deficit): General Partners' deficit (241,521) (239,991) Limited Partners' equity 1,817,524 1,968,950 ---------- ---------- Total partners' equity 1,576,003 1,728,959 ---------- ---------- Total liabilities and partners' equity $1,939,993 $2,476,260 ========== ========== See Notes to Financial Statements 3 4 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A MASSACHUSETTS LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 2000 1999 2000 1999 -------- -------- --------- ---------- Income: Rental income $ -- $290,537 $ -- $ 853,070 Interest income 30,523 70,723 64,582 111,580 Realized gain on sales -- -- -- 1,677,428 -------- -------- --------- ---------- Total income 30,523 361,260 64,582 2,642,078 Expenses: General and administrative expenses 128,960 120,626 216,863 375,316 Property operating expenses -- 34,090 675 109,881 Management fee 7,229 -- 16,781 -------- -------- --------- ---------- Total expenses 128,960 161,945 217,538 501,978 -------- -------- --------- ---------- Net income/(loss) $(98,437) $199,315 $(152,956) $2,140,100 ======== ======== ========= ========== Allocation of net income/(loss): General Partner $ (984) $ 1,993 $ (1,530) $ 21,401 John Hancock Limited Partner -- -- -- 229,056 Investors (97,453) 197,322 (151,426) 1,889,643 -------- -------- --------- ---------- $ 98,437 $199,315 $(152,956) $2,140,100 ======== ======== ========= ========== Net income/(loss) per Unit $ (1.06) $ 2.15 $ (1.65) $ 20.62 ======== ======== ========= ==========
See Notes to Financial Statements 4 5 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A MASSACHUSETTS LIMITED PARTNERSHIP) STATEMENTS OF PARTNERS' EQUITY (UNAUDITED) SIX MONTHS ENDED JUNE 30, 2000 AND YEAR ENDED DECEMBER 31, 1999
GENERAL LIMITED PARTNER PARTNERS TOTAL --------- ------------ ------------ Partners' equity/(deficit) at January 1, 1999 (91,647 Units outstanding) $(253,231) $ 20,653,314 $ 20,400,083 Less: Cash distributions (795) (20,073,849) (20,074,644) Add: Net income 14,035 1,389,485 1,403,520 --------- ------------ ------------ Partners' equity/(deficit) at December 31, 1999 (91,647 Units outstanding) (239,991) 1,968,950 1,728,959 Less: Cash distributions -- -- -- Add: Net loss (1,530) (151,426) (152,956) --------- ------------ ------------ Partners' equity/(deficit) at June 30, 2000 (91,647 Units outstanding) $(241,521) $ 1,817,524 $ 1,576,003 ========= ============ ============
See Notes to Financial Statements 5 6 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A MASSACHUSETTS LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2000 1999 ---------- ------------ Operating activities: Net income/(loss) $ (152,956) $ 2,140,100 Adjustments to reconcile net income/(loss) to net cash provided by operating activities: Depreciation -- -- Amortization of deferred expenses -- -- Gain on sale of properties -- (1,677,428) ---------- ------------ (152,956) 462,672 Changes in operating assets and liabilities: Decrease/(increase) in restricted cash -- 55,924 Decrease/(increase) in other assets -- 10,813 Increase/(decrease) in accounts payable and accrued expenses (204,157) (89,108) Increase/(decrease) in accounts payable to affiliates (179,154) 177,751 ---------- ------------ Net cash provided by (used in ) operating activities (536,267) 618,052 Investing activities: Proceeds from sales of properties -- 11,436,275 Increase in deferred expenses -- (16,534) ---------- ------------ Net cash provided by investing activities -- 11,419,741 Financing activities: Cash distributed to Partners -- (11,071,753) ---------- ------------ Net cash used in financing activities -- (11,071,753) ---------- ------------ Net increase (decrease) in cash and cash equivalents (536,267) 966,040 Cash and cash equivalents at beginning of year 2,476,260 2,055,017 ---------- ------------ Cash and cash equivalents at end of period $1,939,993 $ 3,021,057 ========== ============
See Notes to Financial Statements 6 7 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A MASSACHUSETTS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION OF PARTNERSHIP --------------------------- John Hancock Realty Income Fund Limited Partnership (the "Partnership") was formed under the Massachusetts Uniform Limited Partnership Act on June 12, 1986. As of June 30, 2000, the Partnership consisted of John Hancock Realty Equities, Inc. (the "General Partner"), a wholly-owned, indirect subsidiary of John Hancock Life Insurance Company; John Hancock Realty Funding, Inc. (the "John Hancock Limited Partner"); and 3,611 Investor Limited Partners (the "Investors"), owning 91,647 Units of Investor Limited Partnership Interests (the "Units"). The John Hancock Limited Partner and the Investors are collectively referred to as the Limited Partners. The initial capital of the Partnership was $2,000, representing capital contributions of $1,000 from the General Partner and $1,000 from the John Hancock Limited Partner. The Amended Agreement of Limited Partnership of the Partnership (the "Partnership Agreement") authorized the issuance of up to 100,000 Units of Limited Partnership Interests at $500 per unit. During the offering period, which terminated on September 9, 1987, 91,647 Units were sold and the John Hancock Limited Partner made additional capital contributions of $7,330,760. There have been no changes in the number of Units outstanding subsequent to the termination of the offering period. The Partnership is engaged in the business of acquiring, improving, holding for investment and disposing of existing, income-producing, commercial and industrial properties on an all-cash basis, free and clear of mortgage indebtedness. Although the Partnership's properties were acquired and are held free and clear of mortgage indebtedness, the Partnership may incur mortgage indebtedness on its properties under certain circumstances, as specified in the Partnership Agreement. The latest date on which the Partnership is due to terminate is December 31, 2016, unless it is sooner terminated in accordance with the terms of the Partnership Agreement. It is expected that in the ordinary course of the Partnership's business, the properties of the Partnership will be disposed of, and the Partnership terminated, before December 31, 2016. As initially stated in its Prospectus, it was expected that the Partnership would be dissolved upon the sale of its last remaining property, which at that time was expected to be within seven to ten years following the date such property was acquired by the Partnership. During 1999, the Partnership sold the last four properties in its portfolio resulting in the termination of the operations of the partnership. The Partnership will be dissolved in accordance with the terms of the Partnership Agreement, as soon as reasonably practicable. 2. SIGNIFICANT ACCOUNTING POLICIES ------------------------------- The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six-month period ended June 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. For further information, refer to the financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1999. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates. Cash equivalents are highly liquid investments with maturities of three months or less when purchased. These investments are recorded at cost plus accrued interest, which approximates market value. Restricted cash represents funds restricted for tenant security deposits and other escrows. 7 8 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A MASSACHUSETTS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ------------------------------------------- Property held for sale is recorded at the lower of its carrying amount, at the time the property is listed for sale, or its fair value, less cost to sell. Carrying amount includes the property's cost, as described below, less accumulated depreciation thereon and less any property write-downs for impairment in value and plus any related unamortized deferred expenses. Investments in property are recorded at cost less any property write-downs for permanent impairment in values. Cost includes the initial purchase price of the property plus acquisition and legal fees, other miscellaneous acquisition costs, and the cost of significant improvements. The Partnership measures impairment in value in accordance with Financial Accounting Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of" ("Statement 121"). Statement 121 requires impairment losses to be recorded on long-lived assets used in operations where indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. Depreciation has been provided on a straight-line basis over the estimated useful lives of the various assets: thirty years for the buildings and five years for related improvements. Maintenance and repairs are charged to operations as incurred. Deferred expenses relating to tenant improvements and lease commissions are amortized on a straight-line basis over the terms of the leases to which they relate. 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 four and one-half years, the then estimated remaining life of the Partnership. The net income per Unit for the periods hereof are computed by dividing the Investors' share of net income by the number of Units outstanding at the end of such periods. No provision for income taxes has been made in the financial statements as such taxes are the responsibility of the individual partners and not of the Partnership. 3. THE PARTNERSHIP AGREEMENT ------------------------- Distributable Cash from Operations (defined in the Partnership Agreement) is distributed 99% to the Limited Partners and 1% to the General Partner. The Limited Partners' share of Distributable Cash from Operations is distributed as follows: first, to the Investors until they receive a 7% non-cumulative, non-compounded annual cash return on their Invested Capital (defined in the Partnership Agreement); second, to the John Hancock Limited Partner until it receives a 7% non-cumulative, non-compounded annual cash return on its Invested Capital; and third, to the Investors and the John Hancock Limited Partner in proportion to their respective Capital Contributions (defined in the Partnership Agreement). However, any Distributable Cash from Operations which is available as a result of the reduction of working capital reserves funded by Capital Contributions of the Investors will be distributed 100% to the Investors. Cash from Sales or Financings (defined in the Partnership Agreement) is first used to pay all debts and liabilities of the Partnership then due and is then used to fund any reserves for contingent liabilities. Cash from Sales or Financings is then distributed as follows: first, to the Limited Partners until they receive an amount equal to their Invested Capital with the distribution being made between the Investors and the John Hancock Limited Partner in proportion to their respective Capital Contributions; second, to the Investors until they have received, with respect to all previous distributions during the year, their Cumulative Return on Investment (defined in the Partnership Agreement); third, to the John Hancock Limited Partner until it has received, with respect to all previous distributions during the year, its Cumulative Return on Investment; fourth, to the General Partner to pay any Subordinated Disposition Fees (defined in the Partnership Agreement); and fifth, 99% to the Limited Partners and 1% to the General Partner, with the distribution being made between the Investors and the John Hancock Limited Partner in proportion to their respective Capital Contributions. 8 9 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A MASSACHUSETTS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 3. THE PARTNERSHIP AGREEMENT (CONTINUED) ------------------------------------- Cash from the sale of the last of the Partnership's properties is to be distributed in the same manner as Cash from Sales or Financings, except that before any other distribution is made to the Partners, each Partner shall first receive from such cash, an amount equal to the then positive balance, if any, in such Partner's Capital Account after crediting or charging to such account the profits or losses for tax purposes from such sale. To the extent, if any, that a Partner is entitled to receive a distribution of cash based upon a positive balance in its capital account prior to such distribution, such distribution will be credited against the amount of such cash the Partner would have been entitled to receive based upon the manner of distribution of Cash from Sales or Financings, as specified in the previous paragraph. Profits from the normal operations of the Partnership for each fiscal year are allocated to the Limited Partners and General Partner in the same amounts as Distributable Cash from Operations for that year. If such profits are less than Distributable Cash from Operations for any year, they are allocated in proportion to the amounts of Distributable Cash from Operations for that year. If such profits are greater than Distributable Cash from Operations for any year, they are allocated 99% to the Limited Partners and 1% to the General Partner, with the allocation made between the John Hancock Limited Partner and the Investors in proportion to their respective Capital Contributions. Losses from the normal operations of the Partnership are allocated 99% to the Limited Partners and 1% to the General Partner, with the allocation made between the John Hancock Limited Partner and the Investors in proportion to their respective Capital Contributions. Depreciation deductions are allocated 1% to the General Partner and 99% to the Investors, and not to the John Hancock Limited Partner. Profits and Losses from Sales or Financings are generally allocated 99% to the Limited Partners and 1% to the General Partners. In connection with the sale of the last of the Partnership's properties, and therefore the dissolution of the Partnership, profits will be allocated to any Partners having a deficit balance in their Capital Account in an amount equal to the deficit balance. Any remaining profits will be allocated in the same order as cash from the sale would be distributed. Neither the General Partner nor any Affiliate (as defined in the Partnership Agreement) of the General Partner shall be liable, responsible or accountable in damages to any of the Partners or the Partnership for any act or omission of the General Partner in good faith on behalf of the Partnership within the scope of the authority granted to the General Partner by the Partnership Agreement and in the best interest of the Partnership, except for acts or omissions constituting fraud, negligence, misconduct or breach of fiduciary duty. The General Partner and its Affiliates performing services on behalf of the Partnership shall be entitled to indemnity from the Partnership for any loss, damage, or claim by reason of any act performed or omitted to be performed by the General Partner in good faith on behalf of the Partnership and in a manner within the scope of the authority granted to the General Partner by the Partnership Agreement and in the best interest of the Partnership, except that they shall not be entitled to be indemnified in respect of any loss, damage, or claim incurred by reason of fraud, negligence, misconduct, or breach of fiduciary duty. Any indemnity shall be provided out of and to the extent of Partnership assets only. The Partnership shall not advance any funds to the General Partner or its Affiliates for legal expenses and other costs incurred as a result of any legal action initiated against the General Partner or its Affiliates by a Limited Partner in the Partnership, except under certain specified circumstances. 9 10 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A MASSACHUSETTS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 4. TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES ---------------------------------------------------- Fees and expenses incurred or paid by the General Partner or its Affiliates on behalf of the Partnership and to which the General Partner or its Affiliates are entitled to reimbursement from the Partnership were as follows: Six Months Ended June 30, 2000 1999 ------- -------- Reimbursement for operating expenses $29,285 $ 83,309 Partnership management fee expense -- 16,781 ------- -------- $29,285 $100,090 ======= ======== These expenses are included in expenses on the Statements of Operations. The Partnership provides indemnification to the General Partner and its Affiliates for any acts or omissions of the General Partner in good faith on behalf of the Partnership, except for acts or omissions constituting fraud, negligence, misconduct or breach of fiduciary duty. The General Partner believes that this indemnification applies to the legal proceedings described in Note 6. Accordingly, included in the Statements of Operations for the six months ended June 30, 2000 and 1999 is $0 and $129,764, respectively, representing the Partnership's share of costs incurred by the General Partner and its Affiliates relating to such legal proceedings. Through June 30, 2000, the Partnership has accrued a total of $534,861 as its share of the costs incurred by the General Partner and its Affiliates resulting from these matters. Accounts payable to affiliates represents amounts due to the General Partner or its Affiliates for various services provided to the Partnership, including amounts to indemnify the General Partner or its Affiliates for claims incurred by them in connection with their actions as General Partner of the Partnership. All amounts accrued by the Partnership to indemnify the General Partner or its Affiliates for legal fees incurred by them shall not be paid unless or until all conditions set forth in the Partnership Agreement for such payment have been fulfilled. The General Partner serves in a similar capacity for two other affiliated real estate limited partnerships. 5. FEDERAL INCOME TAXES -------------------- A reconciliation of the net income reported on the Statements of Operations to the net income reported for federal income tax purposes is as follows:
Six Months Ended June 30, 2000 1999 --------- ----------- Net income per Statements of Operations $(152,956) $ 2,140,100 Add/(deduct): Excess of book gain over tax gain on disposition of assets -- (9,179,942) Excess of tax depreciation over book depreciation -- (6,992) Excess of tax amortization over book amortization -- (258,379) --------- ----------- Net income for federal income tax purposes $(152,956) $(7,305,213) ========= ===========
10 11 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A MASSACHUSETTS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 6. CONTINGENCIES ------------- In February 1996, a putative class action complaint was filed in the Superior Court in Essex County, New Jersey by a single investor in a limited partnership affiliated with the Partnership. The complaint named as defendants the Partnership, the General Partner, certain other Affiliates of the General Partner, and certain unnamed officers, directors, employees and agents of the named defendants. The plaintiff sought unspecified damages stemming from alleged misrepresentations and omissions in the marketing and offering materials associated with the Partnership and two limited partnerships affiliated with the Partnership. On March 18, 1997, the court certified a class of investors who were original purchasers in the Partnership. A settlement agreement was 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 have 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 John Hancock Realty Income Fund-II Limited Partnership ("RIF-II"), a limited partnership affiliated with the Partnership. The complaint named the General Partner as a defendant. The plaintiff sought unspecified damages that allegedly arose from the General Partner's refusal to provide, without reasonable precautions on plaintiffs use of, a list of investors in the Partnership and in RIF-II. Plaintiff alleges that the General Partner's refusal unconditionally to provide a list was a breach of contract and a breach of the General Partner's' fiduciary duty. A settlement agreement was reached 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 provides indemnification to the General Partner and its Affiliates for acts or omissions of the General Partner in good faith on behalf of the Partnership, except for acts or omissions constituting fraud, negligence, misconduct or breach of fiduciary duty. The General Partner believes that this indemnification applies to the class action complaint described above. The Partnership has incurred an aggregate of approximately $1,432,577 in legal expenses in connection with these legal proceedings. Of this amount, approximately $897,716 relates to the Partnership's own defense and approximately $534,861 relates to the indemnification of the General Partner and its Affiliates for their defense. These expenses are funded from the operations of the Partnership. During August 1998, the General Partner became aware that the Crossroads Square Shopping Center was environmentally contaminated with certain hazardous materials. The General Partner then sought to determine the scope of the contamination and to determine the impact on the future operating costs, repair and maintenance expenses and market value of the property. The General Partner estimated that to remediate the contamination would cost approximately $450,000. The Partnership sold the property on July 13, 1999 to a non-affiliated buyer for a net sales price of $8,733,420 after deductions for commissions and selling expenses incurred in connection with the sale of the property. The sale was not contingent upon the environmental issues, the costs of which were factored into the purchase price by the buyer. The General Partner has no reason to believe, as of the date of this report, that the Partnership will be held responsible for any further environmental costs associated with this property. No assurances can be given that no environmental liabilities will arise in the future. 11 12 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------------------------------------------------------------------------------- OF OPERATIONS - ------------- GENERAL - ------- During the offering period from September 9, 1986 to September 9, 1987, the Partnership sold 91,647 Units representing gross proceeds (exclusive of the John Hancock Limited Partner's contribution which was used to pay sales commissions, acquisition fees and organizational and offering expenses) of $45,823,500. The proceeds of the offering were used to acquire investment properties and fund reserves. The Partnership's properties are described more fully in Note 4 to the Financial Statements included in Item 1 of 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, as of the date of this report neither John Hancock nor the Partnership have reason 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 winding up of the Partnership's business, actions that would be taken in the event of lack of liquidity, unanticipated leasing costs, repair and maintenance expenses, litigation expenses and indemnification claims, distributions to the General Partner and to Investors, the possible effects of tenants vacating space at Partnership properties, the absorption of existing retail space in certain geographical areas, and the impact of inflation. 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. 12 13 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A MASSACHUSETTS LIMITED PARTNERSHIP) ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------------------------------------------------------------------------------- OF OPERATIONS (CONTINUED) - ------------------------- LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- 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. The Partnership sold the last property in its portfolio, Crossroads Square Shopping Center, on July 13, 1999. The sale of this last remaining property resulted in the termination of the operations of the Partnership, and the Partnership will be dissolved, in accordance with the terms of the Partnership Agreement, as soon as reasonable practicable. At such time as all liabilities with respect to the Partnership are resolved, the General Partner will make a final distribution of net assets to the Limited Partners, as soon as practicable. No assurances can be given as to whether any distribution can be made after all liabilities of the Partnership are resolved. Such final distribution, if any, will result in the liquidation and termination of the Partnership. At such time of such final distribution, the outstanding Units will be cancelled, and, in accordance with federal securities laws, they will be de-registered with the Securities and Exchange Commission, after which time the Partnership will no longer be required to file periodic reports with the Commission. At June 30, 2000, the Partnership had $1,939,993 in cash and cash equivalents. The Partnership's working capital reserve has a current balance of approximately $1,576,000. The General Partner anticipates that such amount should be sufficient to satisfy the Partnership's general liquidity requirements as the Partnership's business is wound down. Liquidity would, however, be materially adversely affected by significant unanticipated operating and liquidation costs (including but not limited to litigation expenses). 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, or short-term loans from the General Partner or its Affiliates. There was no cash distribution to the Investors and General Partner during the six months ended June 30, 2000. As a result of the disposition by the Partnership of all of its remaining properties during 1999, the General Partner has determined that it was in the best interests of the Partnership to retain, rather than distribute to Investors, net cash provided by the Partnership's normal operations in order to fund cash reserves for contingencies, as is permitted by the Partnership Agreement. Accordingly, no cash distributions will be made to Investors until the final distribution, if any, as discussed above. The Partnership has incurred approximately $532,173 in legal expenses in connection with the class action lawsuit (see Part II, Item 1 of this Report). Of this amount, approximately $322,075 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 addition, the Partnership incurred approximately $900,404 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. Of this amount, approximately $575,641 relates to the Partnership's own defense and approximately $324,763 relates to the indemnification of the General Partner and its Affiliates for their defense. These expenses are funded from the operations of the Partnership. 13 14 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A MASSACHUSETTS LIMITED PARTNERSHIP) ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------------------------------------------------------------------------------- OF OPERATIONS (CONTINUED) - ------------------------- RESULTS OF OPERATIONS - --------------------- The Partnership generated a net loss of $152,956 for the six months ended June 30, 2000 as compared to net income of $2,140,100 for the same period in 1999. Included in the results for the six months ended June 30, 1999 is a net non-recurring gain of $1,667,428 resulting from the sales of the Carnegie Center, Marlboro Square and Warner Plaza properties. Excluding the results of this gain, net income decreased by $625,628, or 133%, for the six months ended June 30, 2000 as compared to the prior period. This decrease is due to the sales of these three properties and the Crossroads Square Shopping Center during 1999. Rental income for the six months ended June 30, 2000, decreased by $853,070, or 100%, as compared to the same period in 1999. This decrease is due to the sales of the Marlboro Square, Carnegie Center, Warner Plaza and Crossroads Square properties during 1999. Interest income for the six months ended June 30, 2000 decreased by $46,998, or 42%, as compared to the same period in 1999. This decrease was primarily due to a decrease in the balance of the Partnership's working capital reserves. The Partnership's working capital reserves have decreased as a result of the sales of the Partnership's properties and a need for fewer reserves as the Partnership is liquidated. The Partnership's share of property operating expenses for the six months ended June 30, 2000 decreased by $109,206 or 99%, as compared to the same period in 1999. This decrease is due to the sales of the Carnegie Center, Marlboro Square, Warner Plaza and Crossroads Square properties during 1999. General and administrative expenses for the six months ended June 30, 2000 decreased by $158,453, or 42%, as compared to the same period during 1999. This decrease is primarily due to a decrease in legal fees incurred by the Partnership in connection with the legal proceedings described in Item 1 of Part II of this Report and to a decrease in the time required by the General Partner in managing the activities of the Partnership resulting from the sales of the four remaining properties during 1999. Management fee expense, which is equal to 3.5% of Cash from Operations (as defined in the Partnership Agreement), decreased by $16,781, or 100%, for the six months ended June 30, 2000 as compared to the same period in 1999. This decrease is due to a decline in Cash from Operations between periods primarily resulting from the sales of the last four properties in the portfolio during 1999. The General Partner believes that inflation has had no significant impact on the Partnership's operations during the six months ended June 30, 2000, and the General Partner anticipates that inflation will not have a significant impact during the remainder of 2000. 14 15 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A MASSACHUSETTS LIMITED PARTNERSHIP) ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------------------------------------------------------------------------------- OF OPERATIONS (CONTINUED) - ------------------------- 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: Six Months Ended June 30, 2000 1999 --------- --------- Net cash provided by operating activities (a) $(536,267) $ 618,052 Net change in operating assets and liabilities (a) 383,311 (155,380) --------- --------- Cash provided by operations (a) (152,956) 462,672 Increase in working capital reserves -- (462,672) Add: Accrual basis Partnership management fee -- 16,781 --------- --------- Cash from operations (b) (152,956) 16,781 Decrease in working capital reserves 152,956 -- Less: Accrual basis Partnership management fee -- (16,781) --------- --------- Distributable cash from operations (b) $ 0 $ 0 ========= ========= Allocation to General Partner $ -- $ -- Allocation to John Hancock Limited Partner -- -- Allocation to Investors -- -- --------- --------- Distributable cash from operations (b) $ -- $ -- ========= ========= (a) Net cash provided by operating activities, net change in operating assets and liabilities, and cash provided by operations are as calculated in the Statements of Cash Flows included in Item 1 of this Report. (b) As defined in the Partnership Agreement. Distributable Cash from Operations should not be considered as an alternative to net income (i.e. not an indicator of performance) or to reflect cash flows or availability of discretionary funds. The amount of future cash distributions will be dependent upon the need to draw down working capital reserves. As of the date of this report, all of the properties in the Partnership have been sold. In order to adequately provide for all future contingencies, the General Partner has determined (as permitted by the Partnership Agreement) to retain rather than distribute to the Limited Partners, net cash provided by the Partnership's normal operations in order to fund cash reserves for contingencies. Accordingly, no cash distributions with respect to Distributable Cash from Operations will be made to the Limited Partners. At such time as all liabilities with respect to the Partnership are resolved, the General Partner will make a final distribution of net assets to the Limited Partners, in accordance with the terms of the Partnership Agreement. No assurances can be given as to whether any distribution can be made after all liabilities of the Partnership are resolved. Such final distribution, if any, will result in the liquidation and termination of the Partnership. 15 16 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A MASSACHUSETTS LIMITED PARTNERSHIP) PART II: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In February 1996, a putative class action complaint was filed in the Superior Court in Essex County, New Jersey by a single investor in a limited partnership affiliated with the Partnership. The complaint named as defendants the Partnership, the General Partner, certain other affiliates of the General Partner, and certain unnamed officers, directors, employees and agents of the named defendants. The plaintiff sought unspecified damages stemming from alleged misrepresentations and omissions in the marketing and offering materials associated with the Partnership and two limited partnerships affiliated with the Partnership. The complaint alleged, among other things, that the marketing materials for the Partnership and the affiliated limited partnerships did not contain adequate risk disclosures. On March 18, 1997, the court certified a class of investors who were original purchasers in the Partnership. A settlement agreement was 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 to 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 In September 1997, a complaint for damages was filed in the Superior Court of the State of California for the County of Los Angeles by an investor in John Hancock Realty Income Fund-II Limited Partnership ("RIF-II"), a limited partnership affiliated with the Partnership. The complaint named the General Partner as a defendant. The plaintiff sought unspecified damages that allegedly arose from the General Partner's refusal to provide, without reasonable precautions on plaintiff's use of, a list of investors in the Partnership and in RIF-II. Plaintiff alleges that the General Partner's refusal unconditionally to provide a list was a breach of contract and a breach of the General Partner's fiduciary duty. A settlement agreement was reached 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 2. CHANGES IN SECURITIES There were no changes in securities during the second quarter of 2000 ITEM 3. DEFAULTS UPON SENIOR SECURITIES There were no defaults upon senior securities during the second quarter of 2000. 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 second quarter of 2000. ITEM 5. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) There are no exhibits to this report. (b) There were no Reports on Form 8-K filed during the second quarter of 2000. 16 17 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A MASSACHUSETTS LIMITED PARTNERSHIP) SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 14th day of August, 2000. John Hancock Realty Income Fund Limited Partnership By: John Hancock Realty Equities, Inc., General Partner By: /s/ John M. Garrison ---------------------------------- John M. Garrison, President By: /s/ Virginia H. Lomasney ---------------------------------- Virginia H. Lomasney, Treasurer (Chief Accounting Officer) 17 EX-27 2 ex27.txt FINANCIAL DATA SCHEDULE
5 0000795196 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP U.S. DOLLARS 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 1 1,939,993 0 0 0 0 1,939,993 0 0 1,939,993 363,990 0 0 0 0 1,576,003 1,939,993 0 64,582 0 217,538 0 0 0 (152,956) 0 (152,956) 0 0 0 (152,956) (1.65) (1.65)
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