-----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, THLdaACcVda+3S9P8nKUPUsgkaOCEP0T3P2Dx1nLxUSjZnpvthtOSHsKEjZ8uuE+ 3xb4JtdjS6EIJY+t7/uTBQ== 0000950135-99-004021.txt : 19990816 0000950135-99-004021.hdr.sgml : 19990816 ACCESSION NUMBER: 0000950135-99-004021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANCOCK JOHN REALTY INCOME FUND LTD PARTNERSHIP CENTRAL INDEX KEY: 0000795196 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [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: 99687803 BUSINESS ADDRESS: STREET 1: 200 CLARENDON ST CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 8007225457 10-Q 1 JOHN HANCOCK REALTY TRUST 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, 1999 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, 1999 and December 31, 1998 3 Statements of Operations for the Three and Six Months Ended June 30, 1999 and 1998 4 Statements of Partners' Equity for the Six Months Ended June 30, 1999 and Year Ended December 31, 1998 5 Statements of Cash Flows for the Six Months Ended June 30, 1999 and 1998 6 Notes to Financial Statements 7-13 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 14-20 PART II: OTHER INFORMATION 21
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, 1999 1998 ---- ---- Cash and cash equivalents $ 3,021,057 $ 2,055,017 Restricted cash 7,955 63,879 Other assets 66,620 77,433 Property held for sale 9,087,371 18,829,684 ----------- ---------- Total assets $12,183,003 $21,026,013 =========== =========== LIABILITIES AND PARTNERS' EQUITY Liabilities: Accounts payable and accrued expenses $ 220,523 $ 309,631 Accounts payable to affiliates 494,050 316,299 ------------- -------------- Total liabilities 714,573 625,930 Partners' equity/(deficit): General Partners' deficit (232,626) (253,231) Limited Partners' equity 11,701,056 20,653,314 ------------ ------------ Total partners' equity 11,468,430 20,400,083 ------------- ------------ Total liabilities and partners' equity $12,183,003 $21,026,013 =========== ===========
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, 1999 1998 1999 1998 ---- ---- ---- ---- Income: Rental income $ 290,537 $ 637,264 $ 853,070 $1,273,319 Interest income 70,723 23,693 111,580 49,760 Realized gain on sales -- -- 1,677,428 -- ---------- ---------- ---------- ---------- Total income 361,260 660,957 2,642,078 1,323,079 Expenses: Depreciation -- 157,901 -- 315,366 General and administrative expenses 120,626 145,424 375,316 216,996 Property operating expenses 34,090 79,270 109,881 140,790 Amortization of deferred expenses -- 25,451 -- 45,394 Management fee 7,229 15,705 16,781 33,768 ---------- ---------- ---------- ---------- Total expenses 161,945 423,751 501,978 752,314 ---------- ---------- ---------- ---------- Net income/(loss) $ 199,315 $ 237,206 $2,140,100 $ 570,765 ========== ========== ========== ========== Allocation of net income/(loss): General Partner $ 1,993 $ 2,373 $ 21,401 $ 5,708 John Hancock Limited Partner -- ( 6,991) 229,056 ( 13,982) Investors 197,322 241,824 1,889,643 579,039 ---------- ---------- ---------- ---------- $ 199,315 $ 237,206 $2,140,100 $ 570,765 ========== ========== ========== ========== Net income/(loss) per Unit $ 2.15 $ 2.64 $ 20.62 $ 6.32 ========== ========== ========== ==========
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, 1999 AND YEAR ENDED DECEMBER 31, 1998
GENERAL LIMITED PARTNER PARTNERS TOTAL ------- -------- ----- Partners' equity/(deficit) at January 1, 1998 (91,647 Units outstanding) ($ 245,328) $ 21,596,904 $ 21,351,576 Less: Cash distributions (18,405) (1,983,240) (2,001,645) Add: Net income 10,502 1,039,650 1,050,152 Partners' equity/(deficit) at December 31, 1998 (91,647 Units outstanding) (253,231) 20,653,314 20,400,083 Less: Cash distributions (796) (11,070,957) (11,071,753) Add: Net income 21,401 2,118,699 2,140,100 -------- ------------ ----------- Partners' equity/(deficit) at June 30, 1999 (91,647 Units outstanding) ($232,626) $ 11,701,056 $ 11,468,430 ======== ============ ============
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, 1999 1998 ---- ---- Operating activities: Net income/(loss) $ 2,140,100 $ 570,765 Adjustments to reconcile net income/(loss) to net cash provided by operating activities: Depreciation -- 315,366 Amortization of deferred expenses -- 45,394 Gain on sale of properties (1,677,428) -- ------------ ------------ 462,672 931,525 Changes in operating assets and liabilities: Decrease/(increase) in restricted cash 55,924 (1,000) Decrease/(increase) in other assets 10,813 (135,000) Increase/(decrease) in accounts payable and accrued expenses (89,108) 104,985 Increase in accounts payable to affiliates 177,751 80,654 ------------ ------------ Net cash provided by operating activities 618,052 981,164 Investing activities: Proceeds from sales of properties 11,436,275 Increase in deferred expenses (16,534) (69,911) ------------ ------------ Net cash provided by (used in) investing activities 11,419,741 (69,911) Financing activities: Cash distributed to Partners (11,071,753) ( 1,007,191) ------------ ------------ Net cash used in financing activities (11,071,753) ( 1,007,191) ------------ ------------ Net increase (decrease) in cash and cash equivalents 966,040 (95,938) Cash and cash equivalents at beginning of year 2,055,017 2,502,844 ------------ ------------ Cash and cash equivalents at end of period $ 3,021,057 $ 2,406,906 ============ ============
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, 1999, 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"); and 3,654 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. 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, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. 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, 1998. 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. 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. 7 8 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. PROPERTY HELD FOR SALE During 1998, the Marlboro Square Shopping Center, Crossroads Square Shopping Center, Carnegie Center Office/Warehouse and Warner Plaza Shopping Center were listed for sale. Accordingly, these properties are classified as "Property Held for Sale" as appropriate on the Balance Sheets at June 30, 1999 and December 31, 1998 at their carrying values, which are not in excess of their estimated fair values, less selling costs. Property held for sale consists of commercial real estate as follows:
June 30, 1999 December 31, 1998 ------------- ----------------- Marlboro Square Shopping Center $ -- $ 989,981 Crossroads Square Shopping Center 9,087,371 9,070,837 Carnegie Center Office/Warehouse -- 3,763,285 Warner Plaza Shopping Center -- 5,005,581 ----------- ----------- Total $ 9,087,371 $18,829,684 =========== ===========
On January 7, 1999, the Partnership sold the Carnegie Center to a non-affiliated buyer for a net sales price of $4,096,441, after deductions for commissions and selling expenses incurred in connection with the sale of the property. This transaction resulted in a non-recurring gain of $333,156, representing the difference between the net sales price and the property's carrying value of $3,763,285. On March 17, 1999, the Partnership sold the Marlboro Square Shopping Center to a non-affiliated buyer for a net sales price of $1,131,999, after deductions for commissions and selling expenses incurred in connection with the sale of the property. This transaction resulted in a non-recurring gain of $142,018, representing the difference between the net sales price and the property's carrying value of $989,981. On March 18, 1999, the Partnership sold the Warner Plaza Shopping Center to a non-affiliated buyer for a net sales price of $6,207,835, after deductions for commissions and selling expenses incurred in connection with the sale of the property. This transaction resulted in a non-recurring gain of $1,202,254, representing the difference between the net sales price and the property's carrying value of $5,005,581. On July 13, 1999, the Partnership sold the Crossroads Square Shopping Center 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. This transaction resulted in a non-recurring loss of $353,951, representing the difference between the net sales price and the property's carrying value of $9,087,371. 10 11 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 5. 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, 1999 1998 ---- ---- Reimbursement for operating expenses $ 83,309 $60,812 Partnership management fee expense 16,781 34,258 -------- -------- $100,090 $95,070 ======== =======
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 7. Accordingly, included in the Statements of Operations for the six months ended June 30, 1999 and 1998 is $129,764 and $58,302, respectively, representing the Partnership's share of costs incurred by the General Partner and its Affiliates relating to such legal proceedings. Through June 30, 1999, the Partnership has accrued a total of $393,980 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. 6. 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, 1999 1998 ---- ---- Net income per Statements of Operations $2,140,100 $570,765 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) (49,078) Excess of tax amortization over book amortization (258,379) 20,044 Net income for federal income tax purposes ($7,305,213) $541,731 =========== ========
11 12 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 7. 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. The Partnership and the other defendants have answered the complaint, denying the material allegations and raising numerous affirmative defenses. Discovery has commenced, and the Partnership and other defendants have produced documents relating to the plaintiff's claims. No depositions are scheduled. The court has heard the defendants' motion to dismiss certain claims on grounds of the expiration of the statues of limitations and has stated it intends to hold a further hearing on that matter to determine whether the case can be resolved by the disposition of certain claims. The Partnership and the other defendants intend to move to decertify the class and for summary judgment dismissing the breach of contract claims. 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. In 1998, the plaintiff amended the complaint to name the Partnership and RIF-II as defendants. As a result of the defendants' demurrer (motion to dismiss), in May 1998 plaintiff's additional claims for tortuous 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 RIF-II, leaving only the breach of contract and breach of fiduciary duty claims involving the Partnership. 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 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 $928,000 in legal expenses in connection with these legal proceedings. Of this amount, approximately $534,000 relates to the Partnership's own defense and approximately $394,000 relates to the indemnification of the General Partner and its Affiliates for their defense. These expenses are funded from the operations of the Partnership. 12 13 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 7. CONTINGENCIES (CONTINUED) At the present time, the General Partner cannot estimate the aggregate amount of legal expenses and indemnification claims to be incurred and their impact on the Partnership's Financial Statements, taken as a whole. Accordingly, no provision for any liability which could result from the eventual outcome of these matters has been made in the accompanying financial statements. However, while it is still too early to estimate potential damages, they could possibly be material. 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 currently estimates that to remediate the contamination will 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. 13 14 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 along with the General Partner is participating in the Year 2000 remediation project of the General Partner's ultimate parent, John Hancock Mutual Life Insurance Company (John Hancock). John Hancock and the Partnership are executing plans to address the impact of the Year 2000 issues that result from computer programs being written using two digits to reflect the year rather than four to define the applicable year and century. Historically, the first two digits were hardcoded to save memory. Many of the Partnership's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in an information technology (IT) system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, cause settlements of trades to fail, lead to incomplete or inaccurate accounting, recording or processing trades in securities, or engage in similar normal business activities. In addition, non-IT systems including, but not limited to, security alarms, elevators and telephones are subject to malfunction due to their dependence on embedded technology such as microcontrollers for proper operation. As described, the Year 2000 project presents a number of challenges for financial institutions since the correction of Year 2000 issues in IT and non-IT systems will be complex and costly for the entire industry. John Hancock began to address the Year 2000 project as early as 1994. John Hancock's plan to address the Year 2000 Project includes an awareness campaign, an assessment period, a renovation stage, validation work and an implementation of solutions. The continuous awareness campaign serves several purposes: defining the problem, gaining executive level support and sponsorship, establishing a team and overall strategy, and assessing existing information system management resources. Additionally, the awareness campaign establishes an education process to ensure that all employees are aware of the Year 2000 issue and knowledgeable of their role in securing solutions. The assessment phase, which was completed for both IT and non-IT systems as of April 1998, included the identification, inventory, analysis, and prioritization of IT and non-IT systems and processes to determine their conversion or replacement. Those systems, which in the event of a Year 2000 failure would have the greatest impact on operations, were deemed to be mission critical and prioritized accordingly. The systems which in the event of a Year 2000 failure would cause minimal disruption to operations were classified as non-mission critical. The renovation stage reflects the conversion, validation, replacement, or elimination of selected platforms, applications, databases and utilities, including the modification of applicable interfaces. Additionally, the renovation stage includes performance, functionality, and regression testing and implementation. The renovation phase for mission critical systems has been completed. Similarly, most of the non-mission critical systems have been renovated and the remaining systems are expected to be renovated by the third quarter of 1999. The validation phase consists of the compliance testing of renovated systems. The validation phase for mission critical systems has been completed. Similarly, the majority of non-mission critical systems have been validated and the remaining systems are expected to be validated by the third quarter of 1999. Testing facilities will be used through the remainder of 1999 to perform special functional testing. Special functional testing includes testing, as required, with material third parties and industry groups and to perform reviews of "dry runs" of year-end activities. 14 15 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) IMPACT OF YEAR 2000 (CONTINUED) Finally, the implementation phase involves the actual implementation of converted or replaced platforms, applications, databases, utilities, interfaces, and contingency planning. Mission critical systems and most non-mission critical systems have been implemented. The few remaining non-mission critical systems are expected to be implemented by the third quarter of 1999. John Hancock and the Partnership face the risk that one or more of our business partners or customers with whom we have a material relationship will not be able to interact with our systems due to third party's failures to resolve its own Year 2000 issues, including those associated with its own external relationships. We have completed an inventory of third party relationships and prioritized each third party relationship based upon the potential business impact, available alternatives and cost of substitution. In the case of mission-critical business partners such as banks, financial intermediaries such as stock exchanges, mutual fund companies and recordkeepers, IT vendors, telecommunications providers and other utilities, and financial market data providers, trading counterparties, depositaries, clearing agencies and clearing houses, we are engaged in discussions with third parties and are obtaining detailed information as to those parties' Year 2000 plans and state of readiness. Scheduled testing of material relationships with third parties is underway. It is anticipated that testing with material business partners will continue through much of 1999. However, there is no guarantee that the systems of other companies, upon which our systems rely, will be timely converted or that a failure to convert by another company, or a conversion that is incompatible with our systems would not have a material adverse effect on us. If John Hancock's, or the Partnership's, Year 2000 issues were unresolved potential consequences would include, among other possibilities, the inability to accurately and timely process claims, update customers' accounts, process financial transactions, bill customers, assess exposure to risks, determine liquidity requirements or report accurate data to management, customers, regulators and others, as well as business interruptions or shutdowns, including, in the case of third party financial intermediaries such as stock exchanges and clearing agents, failed trade settlements, inability to trade in certain markets and disruption of funding flows; financial losses; reputational harm; increased scrutiny by regulators; and litigation related to Year 2000 issues. John Hancock is attempting to limit the potential impact of the Year 2000 by monitoring the progress of its own Year 2000 project and those of its material business partners and by developing contingency plans. However, John Hancock cannot guarantee a resolution for all Year 2000 issues. Any critical unresolved Year 2000 issues, however, could have a material adverse effect on the John Hancock's and the Partnership's results of operations, liquidity or financial condition or net income. John Hancock's contingency planning initiative related to the Year 2000 project is underway. The plan is addressing John Hancock's readiness as well as that of material business partners on whom John Hancock and the Partnership depend. John Hancock's contingency plans are being designed to keep each subsidiary's operations functioning in the event of a failure or delay due to the Year 2000 record format and date calculation changes. Contingency plans are being constructed based on the foundation of extensive business resumption plans that John Hancock has maintained and updated periodically, which outline responses to situations that may affect critical business functions. These plans also provide emergency operations guidance, which defines a documented order of actions to respond to problems. These extensive business resumption plans are being enhanced to cover Year 2000 situations. 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. 15 16 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) FORWARD-LOOKING STATEMENTS (CONTINUED) Forward-looking statements involve numerous known and unknown risks and uncertainties, and they are not guarantees of future performance. The following factors, among others, could cause actual results or performance of the Partnership and future events to differ materially from those expressed or implied in the forward-looking statements: general economic and business conditions; any and all general risks of real estate ownership, including without limitation adverse changes in general economic conditions and adverse local conditions, the fluctuation of rental income from properties, changes in property taxes, utility costs or maintenance costs and insurance, fluctuations of real estate values, competition for tenants, uncertainties about whether real estate sales under contract will close; the ability of the Partnership to sell its properties; and other factors detailed from time to time in the filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect the General Partner's analysis only as of the date hereof. The Partnership assumes no obligation to update forward-looking statements. See also the Partnership's reports to be filed from time to time with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended. LIQUIDITY AND CAPITAL RESOURCES 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 June 30, 1999, the Partnership had only one property remaining in its portfolio, Crossroads Square Shopping Center, which was subsequently sold on July 13, 1999. The sale of this last remaining property results in the termination of the operations of the Partnership, and the Partnership will be dissolved, in accordance with the terms of the Partnership Agreement. 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. Such final distribution, if any, will result in the liquidation and termination of the Partnership. At the time of such final distribution, the outstanding Units will be canceled 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 S.E.C. At June 30, 1999, the Partnership had $3,021,057 in cash and cash equivalents and $7,955 in restricted cash. The Partnership has established a working capital reserve with a current balance of approximately 5% of the Investors' Invested Capital (defined in the Partnership Agreement). The General Partner anticipates that such amount should be sufficient to satisfy the Partnership's general liquidity requirements as the Partnership's business is would 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. During the six months ended June 30, 1999, cash from working capital reserves was used for the payment of leasing costs in the amount of $16,534 incurred at the Crossroads Square property. The General Partner estimates that the Partnership will incur approximately $9,000 of additional leasing costs during the remainder of 1999. The General Partner anticipates that the current balance in the working capital reserve will be sufficient to pay such costs. During the six months ended June 30, 1999, approximately $6,886 of cash from operations was used to fund non-recurring maintenance and repair expenses incurred at the Partnership's properties. The General Partner estimates that the Partnership will not incur additional non-recurring repair and maintenance expenses during the remainder of 1999. Any additional expenses that may be incurred will be funded from the working capital reserves and are not expected to have a significant impact on the Partnership's liquidity. 16 17 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 (CONTINUED) Cash in the amount of $11,071,753 was distributed to the General Partner and Investors during the six months ended June 30, 1999. This amount was $756 less than expected due to an adjustment for the third quarter of 1998. Of this amount, $494,613 was from Distributable Cash from Operations for the quarter ended December 31, 1998 and $10,577,140 was from Distributable Cash from Sales during the six months ended June 30, 1999. Because the Partnership held only a single property a June 30, 1999, which was sold during July, the General Partner has determined that it will be 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, for at least the two remaining quarters of 1999, no cash distributions with respect to Distributable Cash from Operations will be made to Investors. The Partnership has incurred approximately $459,000 in legal expenses in connection with the class action lawsuit (see Part II, Item 1 of this Report). Of this amount, approximately $277,000 relates to the Partnership's own defense and approximately $182,000 relates to the indemnification of the General Partner and its Affiliates for their defense. These expenses are funded from the operations of the Partnership. In addition, the Partnership incurred approximately $469,000 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. Of this amount, approximately $257,000 relates to the Partnership's own defense and approximately $212,000 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 liquidity. 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 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. The following table summarizes the leasing activity and occupancy status at the Partnership's last remaining property during the six months ended June 30, 1999:
CROSSROADS SQ. SHOPPING CTR. Square Feet 174,196 Occupancy at January 1, 1999 95% New Leases 1% Lease Renewals 0% Leases Expired 0% Occupancy at June 30, 1999 96% Leases Scheduled to Expire, Balance of 1999 4% Leases Scheduled to Commence, Balance of 1999 0%
17 18 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 (CONTINUED) The General Partner listed the Crossroads Square for sale during August 1998 based upon the existing real estate market conditions in the Jacksonville, Florida area, where the Crossroads Square is located and the property's projected income performance. Subsequent to listing Crossroads Square for sale, the General Partner became aware that the property 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 currently estimates that to remediate the contamination would cost approximately $450,000. The General Partner has subsequently sold the property to a non-affiliated buyer on July 13, 1999. The General Partner evaluated the carrying value of each of the Partnership's properties as of December 31, 1998 by comparing such value to the respective property's future undiscounted cash flows and the then most recent independent or internal appraisal. No permanent impairment in value existed with respect to the Partnership's properties as of December 31, 1998 and, therefore, no write-downs were recorded. RESULTS OF OPERATIONS The Partnership generated net income of $2,140,100 for the six months ended June 30, 1999 as compared to net income of $570,765 for the same period in 1998. This increase is the result of the inclusion of a non-recurring gain of $1,677,428 from the sales of the Carnegie Center, Marlboro Square and Warner Plaza properties during the first quarter of 1999. Excluding the results of this gain, net income for the six months ended June 30, 1999 decreased by $108,093, or 19%, as compared to the prior year. This is due primarily to the sales of these three buildings during 1999. Average occupancy for the Partnership's remaining property was as follows:
Six Months Ended June 30, 1999 1998 ---- ---- Crossroads Square Shopping Center 95% 95%
Rental income for the six months ended June 30, 1999, decreased by $420,249, or 33%, as compared to the same period in 1998. This decrease is primarily due to the sales of the Marlboro Square, Carnegie Center and Warner Plaza properties. Rental income at the Crossroads Square property was consistent between periods. Interest income for the six months ended June 30, 1999 increased by $61,820, or 124%, as compared to the same period in 1998. This increase was primarily due to an increase in the balance of the Partnership's working capital reserves. The Partnership's working capital reserves increased because the Partnership received net sales proceeds from the sales of the Carnegie Center, Marlboro Square and Warner Plaza properties. Depreciation expense for the six months ended June 30, 1999 decreased by $315,366, or 100%, as compared to the same period in 1998. This decrease is due to the reclassification of the Carnegie Center, Marlboro Square, Warner Plaza and Crossroads Square properties as "Property Held for Sale" during the third quarter of 1998. Accordingly, no depreciation has been recorded on these properties since that time at which they were listed for sale. The Partnership's share of property operating expenses for the six months ended June 30, 1999 decreased by $30,909, or 22%, as compared to the same period in 1998. This decrease is primarily due to the sales of the Carnegie Center, Marlboro Square and Warner Plaza properties. Property operating expenses at the Crossroads Square property were consistent between periods. 18 19 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 (CONTINUED) General and administrative expenses for the six months ended June 30, 1999 increased by $158,324 or 73%, as compared to the same period during 1998. This increase is primarily due to an increase in legal fees incurred by the Partnership in connection with the legal proceedings described in Item 1 of Part II of this Report. Excluding such legal fees, general and administrative expenses were consistent between periods. Amortization of deferred expenses for the six months ended June 30, 1999 decreased by $45,394, or 100%, as compared to the same period in 1998. This decrease is due to reclassifying deferred expenses to "Property Held for Sale" and accordingly, no longer amortizing such amounts. Management fee expense, which is equal to 3.5% of Cash from Operations, decreased by $16,987, or 50%, for the six months ended June 30, 1999 as compared to the same period in 1998. This decrease is due to a decline in Cash from Operations between periods primarily resulting from the three sales that took place during the period. The General Partner believes that inflation has had no significant impact on the Partnership's operations during the six months ended June 30, 1999, and the General Partner anticipates that inflation will not have a significant impact during the remainder of 1999. 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, 1999 1998 ---- ---- Net cash provided by operating activities (a) $ 618,052 $ 981,164 Net change in operating assets and liabilities (a) (155,380) ( 49,639) --------- --------- Cash provided by operations (a) 462,672 931,525 Increase in working capital reserves (462,672) Add: Accrual basis Partnership management fee 16,781 33,768 --------- --------- Cash from operations (b) 16,781 965,293 Decrease in working capital reserves -- 63,912 Less: Accrual basis Partnership management fee ( 16,781) ( 33,768) --------- --------- Distributable cash from operations (b) $ 0 $ 995,437 ========= ========= Allocation to General Partner $ -- $ 9,315 Allocation to John Hancock Limited Partner -- -- Allocation to Investors -- 986,122 --------- --------- Distributable cash from operations (b) $ -- $ 995,437 ========= =========
(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. 19 20 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 (CONTINUED) During the third quarter of 1999, the Partnership expects to make a cash distribution in the amount of $6,873,525 to all Investors of record at July 31, 1999, representing a portion of the cash from the sale of Crossroads Shopping Center, which was sold by the Partnership on July 13, 1999. These amounts will be distributed in accordance with the Partnership Agreement and will be allocated as follows:
Distributable Cash From Sales or Financings ------------------------ Investors $6,873,525 John Hancock Limited Partner - General Partner - ----------- Total $6,873,525 ==========
The remainder has been retained to increase working capital reserves. The source of future cash distributions is dependent upon the use of 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 investors, net cash provided by the Partnership's normal operations in order to fund cash reserves for contingencies. Accordingly, for at least the remaining quarters of 1999, no cash distributions with respect to Distributable Cash from Operations will be made to Investors. 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. Such final distribution, if any, will result in the liquidation and termination of the Partnership. 20 21 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. The certification order should not be construed as suggesting that any member of the class is entitled to recover, or will recover, any amount in the action. The Partnership and the other defendants have answered the complaint, denying the material allegations and raising numerous affirmative defenses. Discovery has commenced, and the Partnership and other defendants have produced documents relating to the plaintiff's claims. No depositions are scheduled. The court has heard the defendants' motion to dismiss certain claims on grounds of the expiration of the statutes of limitations and has stated it intends to hold a further hearing on that matter to determine whether the case can be resolved by the disposition of certain claims. The Partnership and the other defendants intend to move to decertify the class and for summary judgment dismissing the breach of contract claims. The General Partner believes the allegations are totally without merit and intends to vigorously contest the action. In September 1997, a complaint for damages was filed in the Superior Court of the State of California for the County of Los Angeles by an investor in 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. In 1998, the plaintiff amended the complaint to name the Partnership and RIF-II 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 RIF-II, leaving only the breach of contract and breach of fiduciary duty claims involving the Partnership. 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. There can be no assurances given as to the timing, costs or outcome of this legal proceeding. 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. 21 22 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) PART II: OTHER INFORMATION (CONTINUED) ITEM 2. CHANGES IN SECURITIES There were no changes in securities during the second quarter of 1999. ITEM 3. DEFAULTS UPON SENIOR SECURITIES There were no defaults upon senior securities during the second quarter of 1999. 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 1999 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 1999. 22 23 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 13th day of August, 1999. 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) 23 EX-27 2 FINANCIAL DATA SCHEDULE
5 0000795196 JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP U.S. DOLLARS 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 1 3,029,012 0 66,620 0 0 3,095,632 0 0 12,183,003 714,573 0 0 0 0 11,468,430 12,183,003 0 2,642,078 0 501,978 0 0 0 2,140,100 0 2,140,100 0 0 0 2,140,100 20.62 20.62
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