<PAGE>   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   September 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 [ ]


<PAGE>   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 September 30, 1999 and
                December 31, 1998                                            3

                Statements of Operations for the Three and Nine
                Months Ended September 30, 1999 and 1998                     4

                Statements of Partners' Equity for the
                Nine Months Ended September 30, 1999 and
                Year Ended December 31, 1998                                 5

                Statements of Cash Flows for the Nine
                Months Ended September 30, 1999 and 1998                     6

                Notes to Financial Statements                             7-12

     Item 2  -  Management's Discussion and Analysis of
                Financial Condition and Results of Operations            13-18

PART II:  OTHER INFORMATION                                                 19




                                       2
<PAGE>   3
               JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
                      (A MASSACHUSETTS LIMITED PARTNERSHIP)

                          PART I: FINANCIAL INFORMATION

                          ITEM 1: FINANCIAL STATEMENTS

                                 BALANCE SHEETS
                                   (UNAUDITED)


                                                   SEPTEMBER 30,    DECEMBER 31,
                                                       1999             1998
                                                   -------------    ------------

Cash and cash equivalents                           $4,903,260      $ 2,055,017
Restricted cash                                             --           63,879
Other assets                                                --           77,433

Property held for sale                                      --       18,829,684
                                                    ----------      -----------

        Total assets                                $4,903,260      $21,026,013
                                                    ==========      ===========

                        LIABILITIES AND PARTNERS' EQUITY

Liabilities:

Accounts payable and accrued expenses               $  169,300      $   309,631
Accounts payable to affiliates                         552,525          316,299
                                                    ----------      -----------
        Total liabilities                              721,825          625,930

Partners' equity/(deficit):

   General Partners' deficit                          (236,761)        (253,231)
   Limited Partners' equity                          4,418,196       20,653,314
                                                    ----------      -----------

        Total partners' equity                       4,181,435       20,400,083
                                                    ----------      -----------

        Total liabilities and partners' equity      $4,903,260      $21,026,013
                                                    ==========      ===========





                        See Notes to Financial Statements


                                       3
<PAGE>   4

               JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
                      (A MASSACHUSETTS LIMITED PARTNERSHIP)

                            STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED                   NINE MONTHS ENDED
                                                        SEPTEMBER 30,                       SEPTEMBER 30,
                                                    1999             1998              1999              1998
                                                 ---------         --------         ----------        ----------
<S>                                              <C>               <C>              <C>               <C>
Income:

      Rental income                              $  33,352         $635,133         $  886,422        $1,908,452
      Interest income                               85,795           22,715            197,375            72,475
      Gain (loss) on sale of property             (357,150)              --          1,320,278                --
                                                 ---------         --------         ----------        ----------

        Total income                              (238,003)         657,848          2,404,075         1,980,927

Expenses:

      Depreciation                                      --           57,484                 --           372,850
      General and administrative expenses          150,978          110,698            526,294           349,854
      Property operating expenses                   26,532          132,858            136,413           251,488
      Amortization of deferred expenses                 --           18,986                 --            64,380
      Management fee                                (2,403)          14,517             14,738            48,285
                                                 ---------         --------         ----------        ----------

        Total expenses                             175,467          334,543            677,445         1,086,587
                                                 ---------         --------         ----------        ----------

        Net income/(loss)                        ($413,470)        $323,305         $1,726,630        $  894,070
                                                 =========         ========         ==========        ==========

Allocation of net income/(loss):

      General Partner                            $  (4,135)        $  3,233         $   17,266        $    8,941
      John Hancock Limited Partner                 (48,770)          (2,945)           180,286           (16,927)
      Investors                                   (360,565)         323,017          1,529,078           902,056
                                                 ---------         --------         ----------        ----------
                                                 $(413,470)        $323,305         $1,726,630        $  894,070
                                                 =========         ========         ==========        ==========
Net income/(loss) per Unit                       $   (3.94)        $   3.52         $    16.68        $     9.84
                                                 =========         ========         ==========        ==========
</TABLE>



                        See Notes to Financial Statements


                                       4
<PAGE>   5
               JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
                      (A MASSACHUSETTS LIMITED PARTNERSHIP)

                         STATEMENTS OF PARTNERS' EQUITY
                                   (UNAUDITED)


                    NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
                          YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
                                                            GENERAL              LIMITED
                                                            PARTNER             PARTNERS                TOTAL
                                                           ---------          ------------          ------------

<S>                                                        <C>                <C>                   <C>
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)          (17,944,482)          (17,945,278)

Add:  Net income                                              17,266             1,709,364             1,726,630
                                                           ---------          ------------          ------------

Partners' equity/(deficit) at September 30, 1999
   (91,647 Units outstanding)                              $(236,761)         $  4,418,196          $  4,181,435
                                                           =========          ============          ============
</TABLE>





                        See Notes to Financial Statements

                                       5
<PAGE>   6
               JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
                      (A MASSACHUSETTS LIMITED PARTNERSHIP)

                            STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                             NINE MONTHS ENDED
                                                                               SEPTEMBER 30,
                                                                           1999             1998
                                                                       ------------      -----------

<S>                                                                    <C>               <C>
Operating activities:

   Net income/(loss)                                                   $  1,726,630      $   894,070

   Adjustments to reconcile net income/(loss) to net
   cash provided by operating activities:

       Depreciation                                                              --          372,850
       Amortization of deferred expenses                                         --           64,380
       Gain on sale of property                                          (1,320,277)              --
                                                                       ------------      -----------

                                                                            406,353        1,331,300
   Changes in operating assets and liabilities:
       Decrease/(increase) in restricted cash                                63,879           (1,000)
       Decrease/(increase) in other assets                                   77,433         (164,105)
       Increase/(decrease) in accounts payable and accrued
           expenses                                                        (140,331)         165,062
       Increase in accounts payable to affiliates                           236,226           64,062
                                                                       ------------      -----------

             Net cash provided by operating activities                      643,560        1,395,319

Investing activities:

   Proceeds from sales of properties                                     20,172,395               --
   Increase in deferred expenses                                            (22,434)        (103,502)
                                                                       ------------      -----------

             Net cash provided by (used in) investing activities         20,149,961         (103,502)

Financing activities:

   Cash distributed to Partners                                         (17,945,278)      (1,504,586)
                                                                       ------------      -----------

             Net cash used in financing activities                      (17,945,278)      (1,504,586)
                                                                       ------------      -----------

             Net increase (decrease) in cash
                 and cash equivalents                                     2,848,213         (212,769)

             Cash and cash equivalents at
                 beginning of year                                        2,055,017        2,502,844
                                                                       ------------      -----------

             Cash and cash equivalents at
                 end of period                                         $  4,903,260      $ 2,290,075
                                                                       ============      ===========
</TABLE>


                        See Notes to Financial Statements

                                       6
<PAGE>   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 September 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 3,619 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 nine-month period ended September 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 any accumulated depreciation thereon
           and less any property write-downs for impairment in value and plus
           any related unamortized deferred expenses.




                                       7
<PAGE>   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
<PAGE>   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
<PAGE>   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 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:

                                                            December 31, 1998
                                                            -----------------

                Marlboro Square Shopping Center                 $   989,981
                Crossroads Square Shopping Center                 9,070,837
                Carnegie Center Office/Warehouse                  3,763,285
                Warner Plaza Shopping Center                      5,005,581
                                                                -----------

                               Total                            $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.

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:

                                                             Nine Months Ended
                                                               September 30,
                                                             1999         1998
                                                           --------     --------
                Reimbursement for operating expenses       $102,692     $ 80,373
                Partnership management fee expense           14,738       48,285
                                                           --------     --------

                                                           $117,430     $128,658
                                                           ========     ========

           These expenses are included in expenses on the Statements of
           Operations.




                                       10
<PAGE>   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 (CONTINUED)

           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 nine months ended September
           30, 1999 and 1998 is $170,899 and $72,398, respectively, representing
           the Partnership's share of costs incurred by the General Partner and
           its Affiliates relating to such legal proceedings. Through September
           30, 1999, the Partnership has accrued a total of $435,115 as its
           share of the costs incurred by the General Partner and its Affiliates
           resulting from this matter.

           Accounts payable to affiliates represents amounts due to the General
           Partner or its Affiliates for various services provided to the
           Partnership, including amounts to indemnify the General Partner or
           its Affiliates for claims incurred by them in connection with their
           actions as General Partner of the Partnership. All amounts accrued by
           the Partnership to indemnify the General Partner or its Affiliates
           for legal fees incurred by them shall not be paid unless or until all
           conditions set forth in the Partnership Agreement for such payment
           have been fulfilled.

           The General Partner serves in a similar capacity for two other
           affiliated real estate limited partnerships.

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:

<TABLE>
<CAPTION>
                                                                            Nine Months Ended
                                                                              September 30,
                                                                          1999            1998
                                                                      ------------      ---------
                <S>                                                   <C>               <C>
                Net income per Statements of Operations               $  1,726,630      $ 894,070
                Add/(deduct):
                               Excess tax loss over book loss
                                 on disposition of assets              (11,492,810)            --
                               Excess of tax depreciation
                                 over book depreciation                   (258,379)      (288,764)
                               Excess of tax amortization
                                 over book amortization                     (6,945)        25,849
                                                                      ------------      ---------
                Net income for federal income tax purposes            $(10,031,504)     $ 631,155
                                                                      ============      =========
</TABLE>

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 answered the complaint,
           denying the material allegations and raising numerous affirmative
           defenses. Discovery was conducted, and the Partnership and other
           defendants produced documents relating to the plaintiffs claims.  The
           court ruled on statute of limitations defenses as to certain claims
           and ordered a hearing as to statute of limitations defenses as to
           other claims. The parties commenced settlement discussions, which
           resulted in a settlement agreement which was preliminarily approved
           by the court on November 10, 1999. The settlement is subject to final
           court approval at a hearing scheduled for December 22, 1999. Under
           the terms of the settlement, the defendants will guarantee certain
           minimum returns to class members on their investments and will pay
           fees and expenses for class counsel in an amount to be determined by
           the court up to $1.5 million.




                                       11
<PAGE>   12
               JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
                      (A MASSACHUSETTS LIMITED PARTNERSHIP)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

7.         CONTINGENCIES (CONTINUED)

           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 defendant's 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. Discovery is nearing an end in
           that action and trial is scheduled for January 18, 2000.

           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 $1,015,000
           in legal expenses in connection with these legal proceedings. Of this
           amount, approximately $580,000 relates to the Partnership's own
           defense and approximately $435,000 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 can not 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 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.




                                       12
<PAGE>   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

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 Part I of this Report.

During the quarter ended September 30, 1999, the Partnership sold the last
property in its portfolio. (See "Liquidity and Capital Resources," below.)

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
have deployed and are executing a plan 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 identifications, 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 our 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 and non-mission
critical systems has been completed.

The validation phase consists of the compliance testing of renovated systems.
The validation phase for mission critical and non-mission critical systems has
been completed. John Hancock will use its testing facilities 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 performing reviews of "dry run" of year-end activities.

Finally, the implementation phase involves the actual implementation of
converted or replaced platforms, applications, databases, utilities, interfaces,
and contingency planning. All mission critical systems and non-mission critical
systems have been implemented.




                                       13
<PAGE>   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)

IMPACT OF YEAR 2000 (CONTINUED)

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 exchanges), mutual fund companies and recordkeepers, IT vendors,
telecommunications providers and other utilities, financial market data
providers, trading counterparties, depositaries, clearing agencies and clearing
houses, we are engaged in discussions with these third parties, and have
obtained detailed information as to those parties' Year 2000 plans and state of
readiness. Scheduled testing of material relationships with third parties is
completed. Testing with other business partners will continue through the
year-end, where appropriate. However, there is no guarantee that the system 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 that we will be able to resolve all of its 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.

John Hancock's contingency planning initiative related to the Year 2000 project
is underway. The contingency plans address John Hancock's and the Partnership's
readiness as well as that of material business partners on whom we 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 were 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. Contingency planning also includes specific plans,
staffing, and timelines to carry out proactive assessments and monitoring of
equipment and systems on the actual date rollover to Year 2000. John Hancock's
millennium rollover plans have been drafted and will continue to be updated
through year-end.

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 sale of Partnership
properties, the dissolution and liquidation of the Partnership, actions that
would be taken in the event of lack of liquidity, litigation expenses and
indemnification claims, distributions to the General Partner and to Investors,
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, and other factors detailed from time to time in the filings
with the Securities and Exchange Commission.




                                       14
<PAGE>   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)

FORWARD-LOOKING STATEMENTS (CONTINUED)

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. During the quarter ended September 30,
1999, 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. 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. 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 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 September 30, 1999, the Partnership had $4,903,260 in cash and cash
equivalents.

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 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.

During the nine months ended September 30, 1999, cash from working capital
reserves was used for the payment of leasing costs in the amount of $22,434
incurred primarily at the Crossroads Square property. The General Partner
estimates that the Partnership will not incur any additional leasing costs
during the remainder of 1999.

During the nine months ended September 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 any 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.

Cash in the amount $17,945,278 was distributed to the General Partner and the
Limited Partners during the nine months ended September 30, 1999. The 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 $17,450,665 was from Distributable Cash from
Sales during the nine months ended September 30, 1999. As a result of the
disposition by the Partnership of all four of its remaining properties during
1999, the General Partner 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, for at
least the remaining quarter of 1999, no cash distribution with respect to
Distributable Cash from Operations will be made to Investors.




                                       15
<PAGE>   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)

LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

The Partnership has incurred approximately $481,000 in legal expenses in
connection with the class action lawsuit (see Part II, Item 1 of this Report).
Of this amount, approximately $290,000 relates to the Partnership's own defense
and approximately $191,000 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 $534,000 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 $290,000 relates
to the Partnership's own defense and approximately $244,000 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 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 values existed with respect to
the Partnership's properties as of December 31, 1998 and, therefore, no
write-downs were recorded. As of September 30, 1999, all four of the
Partnership's properties have been sold.

RESULTS OF OPERATIONS

The Partnership generated net income of $1,726,630 for the nine months ended
September 30, 1999 as compared to net income of $894,070 for the same period in
1998. This increase is the result of the inclusion of a net non-recurring gain
of $1,320,278 from the sales of the Carnegie Center, Marlboro Square, Warner
Plaza and Crossroads Square properties during 1999. Excluding the results of
this gain, net income for the nine months ended September 30, 1999 decreased by
$487,718, or 55%, as compared to the prior year. This decrease is primarily due
to the sales of these four buildings during 1999.

Rental income for the nine months ended September 30, 1999, decreased by
$1,022,030, or 54%, as compared to the same period in 1998. This decrease is
primarily due to the sales of the Carnegie Center, Marlboro Square, Warner Plaza
and Crossroads Square properties during 1999.

Interest income for the nine months ended September 30, 1999 increased by
$124,900, or 172%, 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, which increased because the Partnership retained a portion of the net
sales proceeds from the sales of the Carnegie Center, Marlboro Square and Warner
Plaza Properties.

Depreciation expense for the nine months ended September 30, 1999 decreased by
$372,850, or 100%, as compared to the same period in 1998. This decrease is due
to the reclassification of the Crossroads Square, Warner Plaza, Carnegie Center
and Marlboro Square properties as "Property Held for Sale" during the third
quarter of 1998. Accordingly, no depreciation has been recorded on these
properties since the time that they were listed for sale.

The Partnership's share of property operating expenses for the nine months ended
September 30, 1999 decreased by $115,075, or 46%, as compared to the same period
in 1998. This decrease is primarily due to the sales of the Carnegie Center,
Marlboro Square, Warner Plaza and Crossroads Square properties.

General and administrative expenses for the nine months ended September 30, 1999
increased by $176,440, or 50%, 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.




                                       16
<PAGE>   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)

RESULTS OF OPERATIONS (CONTINUED)

Amortization of deferred expenses for the nine months ended September 30, 1999
decreased by $64,380, 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 (as
defined in the Partnership Agreement), decreased by $33,547, or 69%, for the
nine months ended September 30, 1999 as compared to the same period in 1998.
This decrease was due to a decline in Cash from Operations between periods
primarily resulting from the sale of the four properties in the Partnership
during the nine-month period in 1999.

The General Partner believes that inflation has had no significant impact on the
Partnership's operations during the nine months ended September 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:

                                                          Nine Months Ended
                                                            September 30,
                                                         1999           1998
                                                      ---------      ----------
Net cash provided by operating activities (a)         $ 643,560      $1,395,319
Net change in operating assets and liabilities (a)     (237,207)        (64,019)
                                                      ---------      ----------
Cash provided by operations (a)                         406,353       1,331,300
Increase in working capital reserves                   (406,353)             --
Add:  Accrual basis Partnership
      management fee                                     14,738          48,285
                                                      ---------      ----------
Cash from operations (b)                                 14,738       1,379,585
Decrease in working capital reserves                         --         161,195
Less: Accrual basis Partnership
      management fee                                    (14,738)        (48,285)
                                                      ---------      ----------
Distributable cash from operations (b)                $       0      $1,492,495
                                                      =========      ==========

Allocation to General Partner                         $      --      $   13,313
Allocation to John Hancock Limited Partner                   --              --
Allocation to Investors                                      --       1,479,182
                                                      ---------      ----------
Distributable cash from operations (b)                $      --      $1,479,495
                                                      =========      ==========

    (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.




                                       17
<PAGE>   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)

CASH FLOW (CONTINUED)

During the fourth quarter of 1999, the Partnership expects to make a cash
distribution in the amount of $2,129,367 to all investors of record at November
15, 1999, representing a portion of cash previously withheld from net sales
proceeds of several properties. This amount will be distributed in accordance
with the Partnership Agreement and will be allocated as follows:

                                                          Distributable Cash
                                                       From Sales or Financings
                                                       ------------------------

         Investors                                            $1,924,587
         John Hancock Limited Partner                            204,780
         General Partner                                              --
                                                              ----------
         Total                                                $2,129,367
                                                              ==========


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 investors, net
cash provided by the Partnership's normal operations in order to fund cash
reserves for contingencies. Accordingly, for at least the remaining quarter of
1999, 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. Such final distribution, if any, will result in
the liquidation and termination of the Partnership.




                                       18
<PAGE>   19

               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 Partnership and the other defendants answered the complaint,
            denying the material allegations and raising numerous affirmative
            defenses. Discovery was conducted, and the Partnership and other
            defendants produced documents relating to the plaintiff's claims.
            The court ruled on statute of limitations defenses as to certain
            claims and ordered a hearing as to statute of limitations defenses
            as to other claims. The parties commenced settlement discussions,
            which resulted in a settlement agreement which was preliminarily
            approved by the court on November 10, 1999. The settlement is
            subject to final court approval at a hearing scheduled for December
            22, 1999. Under the terms of the settlement, the defendants will
            guarantee certain minimum returns to class members on their
            investments and will pay fees and expenses for class counsel in an
            amount to be determined by the court up to $1.5 million.

            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 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. Discovery is nearing an end in
            that action and trial is scheduled for January 18, 2000.

            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.




                                       19
<PAGE>   20

               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 third quarter of 1999.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

        There were no defaults upon senior securities during the third 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 third 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) A Report on Form 8-K was filed during the third quarter of 1999.




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<PAGE>   21

               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 15th day of November, 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)



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