<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                               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
                                                       ---          ---

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





                                      INDEX



<TABLE>
<CAPTION>
PART I:         FINANCIAL INFORMATION                                                                            PAGE

<S>                   <C>                                                                                     <C>
  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
</TABLE>



                                       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)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                      JUNE 30,                 DECEMBER 31,
                                                                                        1999                       1998
                                                                                        ----                       ----
<S>                                                                                  <C>                       <C>
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
                                                                                      ===========               ===========
</TABLE>

                        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          SIX MONTHS ENDED
                                                        JUNE 30,                    JUNE 30,
                                                 1999           1998          1999           1998
                                                 ----           ----          ----           ----
Income:
<S>                                          <C>            <C>            <C>            <C>
     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
                                             ==========     ==========     ==========     ==========
</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)

                       SIX MONTHS ENDED JUNE 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)              (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
                                                                       ========              ============     ============
</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>
                                                                                           SIX MONTHS ENDED
                                                                                                JUNE 30,
                                                                                         1999               1998
                                                                                         ----               ----
Operating activities:
<S>                                                                                 <C>               <C>
   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
                                                                                    ============      ============
</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 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
<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 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:

<TABLE>
<CAPTION>
                                    June 30, 1999     December 31, 1998
                                    -------------     -----------------
<S>                                   <C>             <C>
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
                                      ===========     ===========
</TABLE>

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
<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

         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:

<TABLE>
                                                                                               Six Months Ended
                                                                                                   June 30,
                                                                                      1999                           1998
                                                                                      ----                           ----
<S>                                                                                <C>                              <C>
              Reimbursement for operating expenses                                 $  83,309                        $60,812
              Partnership management fee expense                                      16,781                         34,258
                                                                                    --------                       --------
                                                                                    $100,090                        $95,070
                                                                                    ========                        =======
</TABLE>

         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:

<TABLE>
<CAPTION>
                                                                                               Six Months Ended
                                                                                                   June 30,
                                                                                      1999                           1998
                                                                                      ----                           ----
<S>                                                                                <C>                             <C>
              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
                                                                                   ===========                     ========
</TABLE>




                                       11
<PAGE>   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
<PAGE>   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
<PAGE>   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
<PAGE>   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
<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)

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
<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)

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:

<TABLE>
<CAPTION>
                                                                                          CROSSROADS SQ.
                                                                                           SHOPPING CTR.
<S>                                                                                        <C>
                             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%
</TABLE>



                                       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)

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:

<TABLE>
<CAPTION>
                                                                                                      Six Months Ended
                                                                                                          June 30,
                                                                                                  1999              1998
                                                                                                  ----              ----
<S>                                                                                                <C>               <C>
           Crossroads Square Shopping Center                                                       95%               95%
</TABLE>

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
<PAGE>   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:

<TABLE>
<CAPTION>
                                                           Six Months Ended
                                                               June 30,
                                                          1999          1998
                                                          ----          ----
<S>                                                    <C>            <C>
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
                                                       =========     =========
</TABLE>


         (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
<PAGE>   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:

<TABLE>
<CAPTION>
                                                              Distributable Cash
                                                              From Sales or Financings
                                                              ------------------------

<S>                                                           <C>
                           Investors                               $6,873,525
                           John Hancock Limited Partner                     -
                           General Partner                                  -
                                                                   -----------
                           Total                                   $6,873,525
                                                                   ==========
</TABLE>

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
<PAGE>   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
<PAGE>   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
<PAGE>   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