<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                                          0-17664

             JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP

             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

              Massachusetts                           04-2969061
   (STATE OR OTHER JURISDICTION OF          (I.R.S. EMPLOYER IDENTIFICATION NO.)
   INCORPORATION OR ORGANIZATION)

                     200 Clarendon Street, Boston, MA 02116

                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
                                   (ZIP CODE)

                                 (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-II LIMITED PARTNERSHIP
                      (A MASSACHUSETTS LIMITED PARTNERSHIP)

                                      INDEX

<TABLE>
<CAPTION>

PART I:       FINANCIAL INFORMATION                                                 PAGE
<S>                                                                             <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                          7-14

              Item 2     -   Management's Discussion and Analysis of
                             Financial Condition and Results of Operations         15-20

PART II:      OTHER INFORMATION                                                       21

</TABLE>

                                       2
<PAGE>   3
             JOHN HANCOCK REALTY INCOME FUND-II 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                               $  3,213,890          $  3,261,458
Restricted cash                                              122,978               122,222
Other assets                                                 136,769                56,769

Deferred expenses, net of accumulated
     amortization of $1,152,628 in 1999 and
     $1,400,374 in 1998                                      463,320               732,094

Property held for sale                                     5,408,524                    --

Investment in joint venture                                6,947,158             6,971,992

Investment in property:

     Land                                                  2,410,000             5,040,000
     Buildings and improvements                           10,476,229            14,218,208
                                                        ------------          ------------
                                                          12,886,229            19,258,208
     Less: accumulated depreciation                        3,822,773             4,822,969
                                                        ------------          ------------
                                                           9,063,456            14,435,239
                                                        ------------          ------------

         Total assets                                   $ 25,356,095          $ 25,579,774
                                                        ============          ============


        LIABILITIES AND PARTNERS' EQUITY

Accounts payable and accrued expenses                   $    249,729          $    171,824
Accounts payable to affiliates                               256,169               211,644
                                                        ------------          ------------
         Total liabilities                                   505,898               383,468

Partners' equity/(deficit):

     General Partners' deficit                              (188,750)             (185,981)
     Limited Partners' equity                             25,038,947            25,382,287
                                                        ------------          ------------

         Total partners' equity                           24,850,197            25,196,306
                                                        ------------          ------------

         Total liabilities and partners' equity         $ 25,356,095          $ 25,579,774
                                                        ============          ============
</TABLE>


                        See Notes to Financial Statements


                                       3
<PAGE>   4
             JOHN HANCOCK REALTY INCOME FUND-II 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
                                                 ----------         ----------         ----------         ----------
<S>                                              <C>                <C>                <C>                <C>
Income:
     Rental income                               $  566,070         $  537,824         $1,150,789         $1,071,543
     Income from joint venture                      224,202            200,849            425,603            391,971
     Interest income                                 35,504             56,490             73,883            141,575
                                                 ----------         ----------         ----------         ----------
         Total income                               825,776            795,163          1,650,275          1,605,089

Expenses:

     Depreciation                                    87,302            118,483            205,784            236,965
     Property operating expenses                     98,681             96,539            225,029            187,213
     General and administrative expenses             70,650            163,358            158,512            219,121
     Amortization of deferred expenses               36,662             53,525             93,843            108,867
                                                 ----------         ----------         ----------         ----------

         Total expenses                             293,295            431,905            683,168            752,166
                                                 ----------         ----------         ----------         ----------

         Net income                              $  532,481         $  363,258         $  967,107         $  852,923
                                                 ==========         ==========         ==========         ==========
Allocation of net income:

     General Partner                             $    5,325         $    3,632         $    9,671         $    8,529
     John Hancock Limited Partner                        --                 --                 --                 --
     Investors                                      527,156            359,626            957,436            844,394
                                                 ----------         ----------         ----------         ----------
                                                 $  532,481         $  363,258         $  967,107         $  852,923
                                                 ==========         ==========         ==========         ==========
Net income per Unit                              $     0.20         $     0.13         $     0.37         $     0.32
                                                 ==========         ==========         ==========         ==========
</TABLE>


                        See Notes to Financial Statements


                                       4
<PAGE>   5
             JOHN HANCOCK REALTY INCOME FUND-II 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
    (2,601,552 Units outstanding)                       ($   175,225)         $ 28,223,477          $ 28,048,252
Less: Cash distributions                                     (25,364)           (4,287,359)           (4,312,723)
Add: Net income                                               14,608             1,446,169             1,460,777
                                                        ------------          ------------          ------------

Partner's equity/(deficit) at December 31, 1998             (185,981)           25,382,287            25,196,306
   (2,601,552 Units outstanding)

Less: Cash distributions                                     (12,440)           (1,300,776)           (1,313,216)

Add: Net income                                                9,671               957,436               967,107
                                                        ------------          ------------          ------------

Partners' equity/(deficit) at June 30, 1999
   (2,601,552 Units outstanding)                        ($   188,750)         $ 25,038,947          $ 24,850,197
                                                        ============          ============          ============
</TABLE>


                        See Notes to Financial Statements



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

                            STATEMENTS OF CASH FLOWS

                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                            SIX MONTHS ENDED
                                                                                                JUNE 30,
                                                                                      1999                   1998
                                                                                   -----------          -----------
<S>                                                                                <C>                  <C>
Operating activities:
     Net income                                                                    $   967,107          $   852,923
     Adjustments to reconcile net income to net cash provided by operating
     activities:

         Depreciation                                                                  205,784              236,965
         Amortization of deferred expenses                                              93,843              108,867
         Cash distributions over equity in
           income from joint venture                                                    24,834              152,758
                                                                                   -----------          -----------
                                                                                     1,291,568            1,351,513
     Changes in operating assets and liabilities:

         Decrease/(increase) in restricted cash                                           (756)                  --
         Decrease/(increase) in other assets                                           (80,000)              14,736
         Increase/(decrease) in accounts payable
           and accrued expenses                                                         77,904              129,771
         Increase in accounts payable to
           affiliates                                                                   44,526               68,784
                                                                                   -----------          -----------
              Net cash provided by operating activities                              1,333,242            1,564,804

Investing activities:
     Principal payments on real estate loans                                                --            1,700,000
     Increase in deferred expenses                                                     (67,594)              (1,815)
                                                                                   -----------          -----------
              Net cash provided by (used in) investing activities                      (67,594)           1,698,185

Financing activities:
     Cash distributed to Partners                                                   (1,313,216)          (2,999,724)
                                                                                   -----------          -----------
              Net cash used in financing activities                                 (1,313,216)          (2,999,724)
                                                                                   -----------          -----------
              Net increase/(decrease) in cash and cash
                equivalents                                                            (47,568)             263,265
              Cash and cash equivalents at beginning
                of year                                                              3,261,458            3,393,737
                                                                                   -----------          -----------
              Cash and cash equivalents at end
                of period                                                          $ 3,213,890          $ 3,657,002
                                                                                   ===========          ===========
</TABLE>

                        See Notes to Financial Statements


                                       6
<PAGE>   7
             JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
                      (A MASSACHUSETTS LIMITED PARTNERSHIP)

                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.     ORGANIZATION OF PARTNERSHIP

         John Hancock Realty Income Fund-II Limited Partnership (the
         "Partnership") was formed under the Massachusetts Uniform Limited
         Partnership Act on June 30, 1987. As of June 30, 1999, the partners in
         the Partnership consisted of John Hancock Realty Equities, Inc. (the
         "General Partner"), a wholly-owned, indirect subsidiary of John Hancock
         Mutual Life Insurance Company; John Hancock Realty Funding, Inc. (the
         "John Hancock Limited Partner"); John Hancock Income Fund-II Assignor,
         Inc. (the "Assignor Limited Partner"); and 4,113 Unitholders (the
         "Investors"). The Assignor Limited Partner holds 2,601,552 Assignee
         Units (the "Units"), representing economic and certain other rights
         attributable to Investor Limited Partnership Interests in the
         Partnership, for the benefit of the Investors. The John Hancock Limited
         Partner, the Assignor Limited Partner and the Investors are
         collectively referred to as the Limited Partners. The General Partner
         and the Limited Partners are collectively referred to as the Partners.
         The initial capital of the Partnership was $2,000, representing capital
         contributions of $1,000 by the General Partner and $1,000 from the John
         Hancock Limited Partner. The Amended Agreement of Limited Partnership
         of the Partnership (the "Partnership Agreement") authorized the
         issuance of up to 5,000,000 Assignee Units at $20 per Unit. During the
         offering period, which terminated on January 2, 1989, 2,601,552 Units
         were sold and the John Hancock Limited Partner made additional capital
         contributions of $4,161,483. There were no changes in the number of
         Units outstanding subsequent to the termination of the offering period.

         The Partnership is engaged solely in the business of (i) acquiring,
         improving, holding for investment and disposing of existing
         income-producing retail, industrial and office properties on an
         all-cash basis, free and clear of mortgage indebtedness, and (ii)
         making mortgage loans consisting of conventional first mortgage loans
         and participating mortgage loans secured by income-producing retail,
         industrial and office properties. Although the Partnership's properties
         were acquired and are held free and clear of mortgage indebtedness, the
         Partnership may incur mortgage indebtedness on its properties under
         certain circumstances as specified in the Partnership Agreement.

         The latest date on which the Partnership is due to terminate is
         December 31, 2017, unless it is sooner terminated in accordance with
         the terms of the Partnership Agreement. It is expected that, in the
         ordinary course of the Partnership's business, the investments of the
         Partnership will be disposed of, and the Partnership terminated, before
         December 31, 2017.

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 for 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 representation 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.

                                       7
<PAGE>   8
             JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
                      (A MASSACHUSETTS LIMITED PARTNERSHIP)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

2.     SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         Property held for sale is recorded at the lower of its carrying amount,
         at the time the property is listed for sale, or its fair value, less
         cost to sell. Carrying amount includes the property's cost, as
         described below, less accumulated depreciation thereon and less any
         property write-downs for impairment in value and plus any related
         unamortized deferred expenses.

         Investments in property are recorded at cost less any property
         write-downs for impairment in value. Cost includes the initial purchase
         price of the property plus acquisition and legal fees, other
         miscellaneous acquisition costs and the cost of significant
         improvements.

         Depreciation has been provided on a straight-line basis over the
         estimated useful lives of the various assets: thirty years for the
         buildings and five years for related improvements. Maintenance and
         repairs are charged to operations as incurred.

         The Partnership measures impairment in value in accordance with
         Financial Accounting Standards Board Statement No. 121, "Accounting for
         the Impairment of Long-Lived Assets to Be Disposed Of" ("Statement
         121"). Statement 121 requires impairment losses to be recorded on
         long-lived assets used in operations where indicators of impairment are
         present and the undiscounted cash flows estimated to be generated by
         those assets are less than the assets' carrying amounts.

         Investment in joint venture is recorded using the equity method.

         Fees paid to the General Partner for the acquisition of joint venture
         and mortgage loan investments have been deferred and are being
         amortized over the life of the investments to which they apply. During
         1993, the Partnership reduced the period over which its remaining
         deferred acquisition fees are amortized from thirty years, the
         estimated useful life of the buildings owned by the Partnership, to
         eight and one-half years, the then estimated remaining life of the
         Partnership. Capitalized tenant improvements and lease commissions are
         being amortized on a straight-line basis over the terms of the leases
         to which they relate.

         The net income per Unit for the periods hereof was calculated by
         dividing the Investors' share of net income by the number of Units
         outstanding at the end of such period.

         No provision for income taxes has been made in the Financial Statements
         since such taxes are the responsibility of the individual Partners and
         Investors and not of the Partnership.

3.     THE PARTNERSHIP AGREEMENT

         Distributable Cash from Operations (defined in the Partnership
         Agreement) is distributed 1% to the General Partner and the remaining
         99% in the following order of priority: first, to the Investors until
         they receive a 7% non-cumulative, non-compounded annual cash return on
         their Invested Capital (defined in the Partnership Agreement); second,
         to the General Partner to pay the Subordinated Allocation (defined in
         the Partnership Agreement) equal to 3 1/2% of Distributable Cash from
         Operations for managing the Partnership's activities; third, to the
         John Hancock Limited Partner until it receives a 7% non-cumulative,
         non-compounded annual cash return on its Invested Capital; fourth, to
         the Investors and the John Hancock Limited Partner in proportion to
         their respective Capital Contributions (defined in the Partnership
         Agreement), until they have received a 10% non-cumulative,
         non-compounded annual cash return on their Invested Capital; fifth, to
         the General Partner to pay the Incentive Allocation (defined in the
         Partnership Agreement) equal to 2 1/2% of Distributable Cash from
         Operations; and sixth, to the Investors and the John Hancock Limited
         Partner in proportion to their respective Capital Contributions. Any
         Distributable Cash from Operations which is available as a result of a
         reduction of working capital reserves funded by Capital Contributions
         of the Investors, will be distributed 100% to the Investors.


                                       8
<PAGE>   9
             JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
                      (A MASSACHUSETTS LIMITED PARTNERSHIP)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

3.     THE PARTNERSHIP AGREEMENT (CONTINUED)

         Cash from a Sale, Financing or Repayment (defined in the Partnership
         Agreement) of a Partnership Investment, is first used to pay all debts
         and liabilities of the Partnership then due and then to fund any
         reserves for contingent liabilities. Cash from Sales, Financings or
         Repayments is then distributed and paid in the following order of
         priority: first, to the Investors and the John Hancock Limited Partner,
         with the distribution made between the Investors and the John Hancock
         Limited Partner in proportion to their respective Capital
         Contributions, until the Investors and the John Hancock Limited Partner
         have received an amount equal to their Invested Capital; second, to the
         Investors until they have received, after giving effect to all previous
         distributions of Distributable Cash from Operations and any previous
         distributions of Cash from Sales, Financings or Repayments after the
         return of their Invested Capital, the Cumulative Return on Investment
         (defined in the Partnership Agreement); third, to the John Hancock
         Limited Partner until it has received, after giving effect to all
         previous distributions of Distributable Cash from Operations and any
         previous distributions of Cash from Sales, Financings or Repayments
         after the return of its Invested Capital, the Cumulative Return on
         Investment; fourth, to the General Partner to pay any Subordinated
         Disposition Fees then payable pursuant to Section 6.4(c) of the
         Partnership Agreement; and fifth, 99% to the Investors and the John
         Hancock Limited Partner and 1% to the General Partner, with the
         distribution made between the Investors and the John Hancock Limited
         Partner in proportion to their respective Capital Contributions.

         Cash from the sale or repayment of the last of the Partnership's
         properties or mortgage loans is distributed in the same manner as Cash
         from Sales, Financings or Repayments, except that before any other
         distribution is made to the Partners, each Partner shall first receive
         from such cash, an amount equal to the then positive balance, if any,
         in such Partner's Capital Account after crediting or charging to such
         account the profits or losses for tax purposes from such sale. To the
         extent, if any, that a Partner is entitled to receive a distribution of
         cash based upon a positive balance in its capital account prior to such
         distribution, such distribution will be credited against the amount of
         such cash the Partner would have been entitled to receive based upon
         the manner of distribution of Cash from Sales, Financings or
         Repayments, as specified in the previous paragraph.

         Profits for tax purposes from the normal operations of the Partnership
         for each fiscal year are allocated to the Partners in the same amounts
         as Distributable Cash from Operations for that year. If such profits
         are less than Distributable Cash from Operations for any year, then
         they are allocated in proportion to the amounts of Distributable Cash
         from Operations allocated for that year. If such profits are greater
         than Distributable Cash from Operations for any year, they are
         allocated 1% to the General Partner and 99% to the John Hancock Limited
         Partner and the Investors, with the allocation made between the John
         Hancock Limited Partner and the Investors in proportion to their
         respective Capital Contributions. Losses for tax purposes from the
         normal operations of the Partnership are allocated 1% to the General
         Partner and 99% to the John Hancock Limited Partner and the Investors,
         with the allocation made between the John Hancock Limited Partner and
         the Investors in proportion to their respective Capital Contributions.

         Profits and Losses from Sales, Financings or Repayments are generally
         allocated 99% to the Limited Partners and 1% to the General Partners.

         Neither the General Partner nor any Affiliate (as defined in the
         Partnership Agreement) of the General Partner shall be liable,
         responsible or accountable in damages to any of the Partners or the
         Partnership for any act or omission of the General Partner or such
         affiliate in good faith on behalf of the Partnership within the scope
         of the authority granted to the General Partner by the Partnership
         Agreement and in the best interest of the Partnership, except for acts
         or omissions constituting fraud, negligence, misconduct or breach of
         fiduciary duty.


                                       9
<PAGE>   10
             JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
                      (A MASSACHUSETTS LIMITED PARTNERSHIP)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

3.     THE PARTNERSHIP AGREEMENT (CONTINUED)

         The General Partner and its Affiliates performing services on behalf of
         the Partnership shall be entitled to indemnity from the Partnership for
         any loss, damage, or claim by reason of any act performed or omitted to
         be performed by the General Partner or such Affiliates in good faith on
         behalf of the Partnership and in a manner within the scope of the
         authority granted to the General Partner by the Partnership Agreement
         and in the best interest of the Partnership, except that they shall not
         be entitled to be indemnified in respect of any loss, damage, or claim
         incurred by reason of fraud, negligence, misconduct, or breach of
         fiduciary duty. Any indemnity shall be provided out of and to the
         extent of Partnership assets only. The Partnership shall not advance
         any funds to the General Partner or its Affiliates for legal expenses
         and other costs incurred as a result of any legal action initiated
         against the General Partner or its Affiliates by a Limited Partner in
         the Partnership, except under certain specified circumstances.

4.     TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES

         Fees and expenses incurred and/or paid by the General Partner or its
         Affiliates on behalf of the Partnership during the six months ended
         June 30, 1999 and 1998 and to which the General Partner or its
         affiliates are entitled to reimbursement from the Partnership were
         $62,695 and $56,730, respectively. These expenses are included in
         expenses on the Statements of Operations.

         The Partnership provides indemnification to the General Partner and its
         Affiliates for any acts or omissions of the General Partner or an
         Affiliate in good faith on behalf of the Partnership, except for acts
         or omissions constituting fraud, negligence, misconduct or breach of
         fiduciary duty. The General Partner believes that this indemnification
         applies to the class action complaint described in Note 10.
         Accordingly, included in the Statements of Operations for the six
         months ended June 30, 1999 and 1998 are $15,163 and $39,896,
         respectively, representing the Partnership's share of costs incurred by
         the General Partner and its Affiliates relating to the class action
         complaint. Through June 30, 1999, the Partnership has accrued a total
         of $193,474 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
         with respect to the Partnership. All amounts accrued by the Partnership
         to indemnify the General Partner or its Affiliates for legal fees
         incurred by them, shall not be paid unless or until all conditions set
         forth in the Partnership Agreement for such payment have been
         fulfilled.

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

5.     INVESTMENT IN PROPERTY

         Investment in property at cost consists of managed, fully-operating,
commercial real estate as follows:
<TABLE>
<CAPTION>
                                                           June 30,            December 31,
                                                             1999                1998
<S>                                                       <C>                 <C>
          Park Square Shopping Center                     $12,886,230         $12,886,230
          Miami International Distribution Center                  --           6,371,978
                                                          -----------         -----------
                                                          $12,886,230         $19,258,208
                                                          ===========         ===========
</TABLE>

         During April 1999, the Miami International Distribution Center was
         listed for sale. Accordingly, this property is classified as "Property
         Held for Sale" on the Balance Sheet at June 30, 1999 at is carrying
         value, which is not in excess of its estimated fair value, less selling
         costs.


                                       10
<PAGE>   11
             JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
                      (A MASSACHUSETTS LIMITED PARTNERSHIP)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

5.     INVESTMENT IN PROPERTY (CONTINUED)

         On August 9, 1999, the Partnership sold the Miami International
         Distribution Center to a non-affiliated buyer for a net sales price of
         approximately $10,720,000 after deductions for commissions and selling
         expenses incurred in connection with the sale of the property.

         The real estate market is cyclical in nature and is materially affected
         by general economic trends and economic conditions in the market where
         a property is located. As a result, determination of real estate values
         involves subjective judgments. These judgments are based on current
         market conditions and assumptions related to future market conditions.
         These assumptions involve, among other things, the availability of
         capital, occupancy rates, rental rates, interest rates and inflation
         rates. Amounts ultimately realized from each property may vary
         significantly from the values presented and the differences could be
         material. Actual market values of real estate can be determined only by
         negotiation between the parties in a sales transaction.

         The Partnership leases its properties to non-affiliated tenants
         primarily under long-term operating leases.

6.     REAL ESTATE LOANS

         On March 10, 1988, the Partnership made a $1,700,000 participating
         non-recourse mortgage loan to a non-affiliated borrower, secured by a
         first mortgage on commercial real estate known as 205 Newbury Street,
         located in Boston, Massachusetts. Under the terms of the loan
         agreement, the borrower was obligated to pay interest only monthly at
         an annual rate of 9.5% with the entire outstanding principal balance of
         the loan due on April 1, 1998. In addition to these amounts the
         borrower was obligated to pay the Partnership 25% of the net cash flow
         derived from the operations of the property during the term of the loan
         and 25% of the Net Appreciated Value of the property (defined in the
         Contingent Interest Agreement) upon its sale, refinancing or mortgage
         maturity date.

         Contingent interest payments, based on the net cash flow from the
         property, were not received from 1990 through 1995 because the property
         did not generate any cash flow in excess of the required minimum debt
         service payments. From 1996 until the loan matured, the Partnership
         received contingent interest payments, the sum of which is not
         material.

         On April 1, 1998, the loan matured and the borrower repaid the entire
         outstanding principal balance of the loan. At that time, the Net
         Appreciated Value of the property was not sufficient to provide the
         Partnership with any additional amounts.

7.     INVESTMENT IN JOINT VENTURE

         On December 28, 1988, the Partnership acquired a 99.5% interest in JH
         Quince Orchard Partners (the "Affiliated Joint Venture"), a joint
         venture between the Partnership and John Hancock Realty Income Fund-III
         Limited Partnership ("Income Fund-III"). The Partnership had an initial
         99.5% interest and Income Fund-III had an initial 0.5% interest in the
         Affiliated Joint Venture. Pursuant to the partnership agreement of the
         Affiliated Joint Venture, Income Fund-III had the option, exercisable
         prior to December 31, 1990, to increase its investment and interest in
         the Affiliated Joint Venture to 50%. During the second quarter of 1989,
         Income Fund-III exercised its option and the Partnership sold a 49.5%
         interest in the Affiliated Joint Venture to Income Fund-III. The
         Partnership has held a 50% interest in the Affiliated Joint Venture
         since the second quarter of 1989.


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

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

7.     INVESTMENT IN JOINT VENTURE (CONTINUED)

         On December 28, 1988, the Affiliated Joint Venture contributed 98% of
         the invested capital of, and acquired a 75% interest in, QOCC-1
         Associates, an existing partnership which owns and operates the Quince
         Orchard Corporate Center, a three-story office building and related
         land and improvements located in Gaithersburg, Maryland. The
         partnership agreement of QOCC-1 Associates provides that the Affiliated
         Joint Venture shall contribute 95% of any required additional capital
         contributions. Of the cumulative total invested capital in QOCC-1
         Associates at June 30, 1999, 97.55% has been contributed by the
         Affiliated Joint Venture. The Affiliated Joint Venture continues to
         hold a 75% interest in QOCC-1 Associates.

         Net cash flow from QOCC-1 Associates is distributed in the following
         order of priority: first, to the payment of all debts and liabilities
         of QOCC-1 Associates and to fund reserves deemed reasonably necessary;
         second, to the partners in proportion to their respective invested
         capital until each has received a 9% return on invested capital; third,
         the balance, if any, to the partners in proportion to their interests.
         Prior to 1996, QOCC-1 Associates had not provided the partners with a
         return in excess of 9% on their invested capital. During 1998, 1997 and
         1996, the partners received returns on invested capital of
         approximately 12%.

         Income and gains of QOCC-1 Associates, other than the gains allocated
         arising from a sale other similar event with respect to the Quince
         Orchard Corporate Center, are allocated in the following order of
         priority: i) to the partners who are entitled to receive a distribution
         of net cash flow, pro rata in the same order and amounts as such
         distributions are made and ii) the balance, if any, to the partners,
         pro rata in accordance with their interests.

8.     DEFERRED EXPENSES

         Deferred expenses consist of the following:
<TABLE>
<CAPTION>
                                                                   Unamortized      Unamortized
                                                                   Balance at       Balance at
                        Description                               June 30, 1999   December 31, 1998
                        -----------                               -------------   -----------------
<S>                                                               <C>              <C>
          $152,880 acquisition fee for investment in
          the Affiliated Joint Venture.  This amount
          is amortized over a period of 31.5 years                  102,122          104,549

          $1,203,097 acquisition fees paid to the
          General Partner Prior to June 30, 1993, this
          amount was amortized over a period of 30 years
          Subsequent to June 30, 1993, the unamortized
          balance is amortized over a period of 8.5 years           303,134          363,761

          $112,217 of tenant improvements.  These amounts
          are amortized over the terms of the leases
          to which they relate                                        5,770           38,235

          $147,754 of lease commissions.  These amounts
          are amortized over the terms of the leases
          to which they relate                                       52,294          225,549
                                                                   --------         --------
                                                                   $463,320         $732,094
                                                                   ========         ========
</TABLE>



                                       12
<PAGE>   13
             JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
                      (A MASSACHUSETTS LIMITED PARTNERSHIP)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

00

9.     FEDERAL INCOME TAXES

         A reconciliation of the net income reported in the Statements of
         Operations to the net income reported for federal income tax purposes
         is as follows:
<TABLE>
<CAPTION>
                                                                Six Months Ended June 30,
                                                                   1999               1998
                                                                ----------         ----------
<S>                                                             <C>                <C>
          Net income per Statements of Operations               $  967,107         $  852,923

          Add/(deduct): Excess of book depreciation
                              over tax depreciation                  9,726             38,276
                        Excess of book amortization
                              over tax amortization                 31,246             40,370
                        Other income and expense                        --              7,694
                                                                ----------         ----------
          Net income for federal income tax purposes            $1,008,079         $  939,263
                                                                ==========         ==========
</TABLE>

10.    CONTINGENCIES

         In February 1996, a putative class action complaint was filed in the
         Superior Court in Essex County, New Jersey by a single investor in the
         Partnership. The complaint named as defendants the Partnership, the
         General Partner, certain other Affiliates of the General Partner, two
         limited partnerships affiliated with the Partnership, and certain
         unnamed officers, directors, employees and agents of the named
         defendants. The plaintiff sought unspecified damages stemming from
         alleged misrepresentations and omissions in the marketing and offering
         materials associated with the Partnership and two limited partnerships
         affiliated with the Partnership. On March 18, 1997, the court certified
         a class of investors who were original purchasers in the Partnership.

         The Partnership and the other defendants 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 Partnership provides indemnification to the General Partner and its
         Affiliates for acts or omissions of the General Partner in good faith
         on behalf of the Partnership, except for acts or omissions constituting
         fraud, negligence, misconduct or breach of fiduciary duty. The General
         Partner believes that this indemnification applies to the class action
         complaint described above.

         The Partnership has incurred approximately $489,000 in legal expenses
         in connection with the class action lawsuit (see Part II, Item 1 of
         this Report). Of this amount, approximately $296,000 relates to the
         Partnership's own defense and approximately $193,000 relates to the
         indemnification of the General Partner and its Affiliates for their
         defense. These expenses are funded from the operations of the
         Partnership.



                                       13
<PAGE>   14
             JOHN HANCOCK REALTY INCOME FUND-II LIMITED PARTNERSHIP
                      (A MASSACHUSETTS LIMITED PARTNERSHIP)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

10.      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 the Partnership. The complaint named the General Partner as
         a defendant.

         The plaintiff sought unspecified damages which allegedly arose from the
         General Partner's refusal to provide, without reasonable precautions on
         plaintiff's use of, a list of investors in the Partnership and in John
         Hancock Realty Income Fund Limited Partnership ("RIF"), a limited
         partnership affiliated with the Partnership. Plaintiff alleges that the
         General Partner's refusal unconditionally to provide a list was a
         breach of contract and a breach of the General Partner's fiduciary
         duty.

         In 1998, the plaintiff amended the complaint to name the Partnership
         and RIF as defendants. As a result of the defendants' demurrer (motion
         to dismiss), in May 1998 plaintiff's additional claims for 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 the Partnership, leaving only the breach of contract
         and breach of fiduciary duty claims involving RIF. On the eve of trial,
         plaintiffs dismissed without prejudice those claims not previously
         dismissed by the court, and subsequently filed a notice of appeal from
         the dismissal of the claims that the court had dismissed on motion.

         The Partnership has incurred approximately $105,000 in legal expenses
         in connection with the above described lawsuit (see Part II, Item 1 of
         this Report). Of this amount, approximately $70,000 relates to the
         Partnership's own defense and approximately $35,000 relates to the
         indemnification of the General Partner and its Affiliates for their
         defense. These expenses were funded from the operations of the
         Partnership.

         At the present time, the General Partner can not estimate the aggregate
         amount of legal expenses and potential indemnification claims to be
         incurred and their impact on the Partnership's Financial Statements,
         taken as a whole. Accordingly, no provision for any liability that
         could result from the eventual outcome of these matters has been made
         in the accompanying financial statements. However, while it is still
         too early to estimate potential damages, they could possibly be
         material.


                                       14
<PAGE>   15
             JOHN HANCOCK REALTY INCOME FUND-II 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 October 2, 1987 to January 2, 1989, the
Partnership sold 2,601,552 Units representing gross proceeds (exclusive of the
John Hancock Limited Partners' contribution, which was used to pay sales
commissions) of $52,031,040. The proceeds of the offering were used to acquire
investments, fund reserves, and pay acquisition fees and organizational and
offering expenses. These investments are described more fully in Notes 5, 6 and
7 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.

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.



                                       15
<PAGE>   16
             JOHN HANCOCK REALTY INCOME FUND-II 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 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 sale of
Partnership properties, repayment of mortgage loans, actions that would be taken
in the event of lack of liquidity, unanticipated leasing costs, repair and
maintenance expenses, litigation expenses and indemnification claims,
distributions to the General Partner and to Investors, the possible effects of
tenants vacating space at Partnership properties, the absorption of existing
retail space in certain geographical areas, and the impact of inflation.

Forward-looking statements involve numerous known and unknown risks and
uncertainties, and they are not guarantees of future performance. The following
factors, among others, could cause actual results or performance of the
Partnership and future events to differ materially from those expressed or
implied in the forward-looking statements: general economic and business
conditions; any and all general risks of real estate ownership, including
without limitation adverse changes in general economic conditions and adverse
local conditions, the fluctuation of rental income from properties, changes in
property taxes, utility costs or maintenance costs and insurance, fluctuations
of real estate values, competition for tenants, uncertainties about whether real
estate sales under contract will close; the ability of the Partnership to sell
its properties; and other factors detailed from time to time in the filings with
the Securities and Exchange Commission.



                                       16
<PAGE>   17
             JOHN HANCOCK REALTY INCOME FUND-II 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

At June 30, 1999 the Partnership had $3,213,890 in cash and cash equivalents,
$122,978 in restricted cash.

The Partnership has a working capital reserve with a current balance of
approximately $2.3 million, which represents approximately 5.6% 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. The Partnership's liquidity would,
however, be materially adversely affected if there were a significant reduction
in revenues or significant unanticipated operating costs (including but not
limited to litigation expenses), unanticipated leasing costs or unanticipated
capital expenditures. If any or all of these events were to occur, to the extent
that the working capital reserve would be insufficient to satisfy the cash
requirements of the Partnership, it is anticipated that additional funds would
be obtained through a reduction of cash distributions to Investors, bank loans,
short-term loans from the General Partner or its Affiliates, or the sale or
financing of Partnership investments.

The Partnership incurred $67,594 of leasing costs at the Miami International
Distribution Center and the Park Square Shopping Center during the six months
ended June 30, 1999. The General Partner anticipates that the Partnership will
incur an aggregate of approximately $100,000 of leasing costs at these two
properties during the remainder of 1999. The current balance in the working
capital reserve should be sufficient to pay such costs.

The General Partner anticipates that the Partnership will incur approximately
$61,000 of non-recurring repair and maintenance expenses at the Park Square
Shopping Center and Miami International Distribution Center properties during
the remainder of 1999. These expenses will be funded from the operations of the
Partnership's properties and are not expected to have a significant impact on
the Partnership's liquidity.

The Partnership has incurred approximately $489,000 in legal expenses in
connection with the class action lawsuit (see Part II, Item 1 of this Report).
Of this amount, approximately $203,000 relates to the Partnership's own defense
and approximately $135,000 relates to the indemnification of the General Partner
and its Affiliates for their defense.

In addition, the Partnership incurred approximately $105,000 in legal expenses
in connection with the lawsuit filed in the Superior Court of the State of
California for the County of Los Angeles by an investor in the Partnership (see
Part II, Item 1 of this Report). Of this amount, approximately $70,000 relates
to the Partnership's own defense and approximately $35,000 relates to the
indemnification of the General Partner and its Affiliates for their defense.
These expenses are funded from the operations of the Partnership.

At the present time, the General Partner cannot estimate the aggregate amount of
legal expenses and indemnification claims to be incurred and their impact on the
Partnership's future operations. Liquidity would, however, be materially
adversely affected by a significant increase in such legal expenses and related
indemnification costs. If such increases were to occur, to the extent that cash
from operations and the working capital reserve would be insufficient to satisfy
the cash requirements of the Partnership, it is anticipated that additional
funds would be obtained through a reduction of cash distributions to investors,
bank loans, short-term loans from the General Partner or its Affiliates, or the
sale or financing of Partnership properties.



                                       17
<PAGE>   18
             JOHN HANCOCK REALTY INCOME FUND-II 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 $1,313,216 generated from the Partnership's operations,
was distributed to the General Partner and Investors during the six months ended
June 30, 1999. These amounts were distributed in accordance with the Partnership
Agreement. The amount distributed to the Investors from Distributable Cash from
Operations during the six months ended June 30, 1999 represented an annualized
return of 6.25% on remaining Investors' Invested Capital. The General Partner
anticipates that the Partnership's Distributable Cash from Operations during the
remainder of 1999 will be reduced by the effect of the sale of the Miami
International Distribution Center (described below) which took place on August
9, 1999.

The following table summarizes the leasing activity and occupancy status at the
Partnership's remaining equity investments during the six months ended June 30,
1999 and scheduled leasing activity for each investment during the remainder of
1999:
<TABLE>
<CAPTION>
                                MIAMI INTERNATIONAL    PARK SQUARE     QUINCE ORCHARD
                                 DISTRIBUTION CTR.    SHOPPING CTR.    CORPORATE CTR.
                                 -----------------    -------------    --------------
<S>                              <C>                 <C>               <C>
Square Footage                        215,019          137,108           99,782

Occupancy January 1, 1999                 100%              88%             100%

New Leases                                  0%               0%               0%

Lease Renewals                              0%               0%               0%

Leases Expired                              0%               0%               0%

Occupancy June 30, 1999                   100%              88%             100%

Leases Scheduled to Expire,
   Balance of 1999                         44%               6%               0%

Leases Scheduled to Commence,
   Balance of 1999                         44%               1%               0%
</TABLE>

The Miami International Distribution Center is located in an area that the Miami
Airport Authority has targeted for future expansion of the airport. During May
1996, the Miami Airport Authority made an offer to purchase this property at an
amount in excess of its carrying value. Since that time, the Miami Airport
Authority has continued to show interest in possibly acquiring the property. The
General Partner has continued its efforts to negotiate with the Miami Airport
Authority to agree on a mutually acceptable sale of the property. The Miami
Airport Authority has not made recent contact with the General Partner regarding
this matter. It is possible that, under certain circumstances, the Miami Airport
Authority could obtain this property through its powers of eminent domain,
although at this time no such plans have been announced or otherwise
communicated to the General Partner. The General Partner has subsequently sold
the property to a non-affiliated buyer on August 9, 1999.

The Brooklyn Park, Minnesota real estate market, where the Park Square Shopping
Center is located, continues to experience increasing demand for tenants as the
development of more retail space continues. The General Partner expects market
conditions in Brooklyn Park to remain competitive during the remainder 1999 and,
therefore, no increase in market rental rates is anticipated.



                                       18
<PAGE>   19
             JOHN HANCOCK REALTY INCOME FUND-II 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 Quince Orchard Corporate Center is leased to Boehringer Mannheim
Pharmaceuticals, Inc. under a ten-year lease which expires in February 2004. The
tenant has two options under the lease agreement, one, to terminate the lease at
the end of its seventy-sixth month of the lease, or June 2000, and, two, to
extend the term of the lease for an additional five- year period. During the
first quarter of 1998, Hoffman-LaRoche, Inc. received approval from the Federal
Trade Commission to acquire Boehringer Mannheim Pharmaceuticals, Inc.
Subsequently, Hoffman-LaRoche vacated and subleased the space. Hoffman-LaRoche
has informed the General Partner that it intends to exercise its right to
terminate the lease in June 2000.

Real estate conditions in the Washington D.C. area for office space similar to
the Quince Orchard Corporate Center continue to improve. The supply of such
office space has been unable to keep pace with the demand, resulting in a slight
increase in market rents. Further, this condition has given rise to new real
estate development in the area. The General Partner does not anticipate that
this new development will negatively impact the market and therefore expects
market conditions to remain favorable through 1999.

The General Partner evaluated the carrying value of each of the Partnership's
properties and its joint venture investment as of December 31, 1998 by comparing
each such carrying value to the related property's future undiscounted cash
flows and the then most recent internal appraisal in order to determine whether
any permanent impairment in values existed. Based upon such evaluations, the
General Partner determined that no permanent impairment in values existed and,
therefore, no write-downs were recorded.

The General Partner will continue to conduct periodic property and investment
valuations, using internal or independent appraisals, in order to assist in its
evaluation of whether a permanent impairment in value exists on any of the
Partnership's investments.

RESULTS OF OPERATIONS

Net income for the six months ended June 30, 1999 was $967,107, as compared to
net income of $852,923 for the same period in 1998, representing an increase of
$114,184, or 13%. This increase is primarily due to an increase in rental
income, a decrease in depreciation and amortization expenses and a decrease in
general and administrative expenses.

Average occupancy for the Partnership's equity real estate investments was as
follows:
<TABLE>
<CAPTION>
                                                                           Six Months Ended June 30,
                                                                            1999           1998
                                                                            ----           ----
<S>                                                                        <C>           <C>
          Miami International Distribution Center                            100%          87%
          Park Square Shopping Center                                         88%          86%
          Quince Orchard Corporate Center (Affiliated Joint Venture)         100%         100%
</TABLE>

Rental income for the six months ended June 30, 1999 increased by $79,246, or
7%, as compared to the same period during 1998 primarily due to higher average
occupancy at the Miami International Distribution Center as a result of a 29,000
square foot tenant secured in October 1998, which increased the property's
occupancy rate from 87% to 100%. Rental income at the Partnership's other
properties was consistent between periods.

Interest income for the six months ended June 30, 1999 decreased by $67,692, or
48%, as compared to the same period in 1998. This decrease was primarily due to
the repayment of the 205 Newbury Associates mortgage loan, which was repaid in
its entirety on April 1, 1998.

Depreciation expense for the six months ended June 30, 1999 decreased by
$31,184, or 13%, as compared to the same period in 1998. This decrease is due to
the reclassification of the Miami International Distribution Center property as
"Property Held for Sale" during the quarter. Accordingly, no depreciation has
been recorded since the April 1999.

Property operating expenses for the six months ended June 30, 1999 increased by
$37,816, or 20%, as compared to the same period in 1998. This increase was
primarily due to approximately $10,000 of non-recurring maintenance and repair
expenses and $13,000 of incentive property management fees paid at the Park
Square Shopping Center.



                                       19
<PAGE>   20
             JOHN HANCOCK REALTY INCOME FUND-II 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
decreased by $60,609, or 28%, primarily due to a decrease in legal fees incurred
by the Partnership in connection with the legal proceedings described in Item 1
of Part II of this Report. 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 $15,024, or 14%, due to the reclassifying of deferred expenses for
the Miami International Distribution Center to "Property Held for Sale" and,
accordingly, no longer amortizing such amounts for this property.

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)              $ 1,333,242          $ 1,564,804
Net change in operating assets and liabilities (a)             (41,674)            (213,291)
                                                           -----------          -----------
Net cash provided by operations (a)                          1,291,568            1,351,513
Increase in working capital reserves                                --              (37,598)
                                                           -----------          -----------
Cash from operations (b)                                     1,291,568            1,313,915
Decrease in working capital reserves                            21,648                   --
                                                           -----------          -----------
Distributable cash from operations (b)                     $ 1,313,216          $ 1,313,915
                                                           ===========          ===========

Allocation to General Partner                              $    12,440          $    13,139
Allocation to Investors                                      1,300,776            1,300,776
Allocation to John Hancock Limited Partner                          --                   --
                                                           -----------          -----------
                                                           $ 1,313,216          $ 1,313,915
                                                           ===========          ===========
</TABLE>

       (a)    Net cash provided by operating activities, net change in operating
              assets and liabilities, and net cash provided by operations are as
              calculated in the Statements of Cash Flows included in Item 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.

During the third quarter of 1999, the Partnership will make a distribution of
Distributable Cash from Operations to the General Partner and Investors in the
amount of $656,958. This amount represents a 6.25% annualized return on
remaining Investors Invested Capital (as defined in the Partnership Agreement).
This amount is allocated 1% to the General Partner and 99% to the Investors, in
accordance with the Partnership Agreement.

The source of future cash distributions from operations is dependent upon cash
generated by the Partnership's properties and the use of working capital
reserves. The General Partner currently anticipates that the Partnership's
Distributable Cash from Operations during each of the remaining two quarters of
1999 will be reduced by the effect of the sale of the Miami International
Distribution Center that occurred on August 9, 1999.


                                       20
<PAGE>   21
             JOHN HANCOCK REALTY INCOME FUND-II 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
           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 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.

           The General Partner believes the allegations are totally without
           merit and will continue 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 the Partnership. The complaint named the General Partner
           as a defendant.

           The plaintiff sought unspecified damages which allegedly arose from
           the General Partner's refusal to provide, without reasonable
           precautions on plaintiff's use of, a list of investors in the
           Partnership and in John Hancock Realty Income Fund Limited
           Partnership ("RIF"), a limited partnership affiliated with the
           Partnership. Plaintiff alleges that the General Partner's refusal
           unconditionally to provide a list was a breach of contract and a
           breach of the General Partner's fiduciary duty.

           In 1998, the plaintiff amended the complaint to name the Partnership
           and RIF as defendants. As a result of the defendant's demurer (motion
           to dismiss), in May 1998 plaintiff's additional claims for tortious
           interference with prospective economic advantage and intentional
           interference with contract, were dismissed. In addition, as a result
           of a motion for summary judgment, in August 1998, the court dismissed
           all claims involving the Partnership, leaving only the breach of
           contract and breach of fiduciary duty claims involving RIF. On the
           eve of trail, 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-II 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

           No matters were 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
             JOHN HANCOCK REALTY INCOME FUND-II 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 13th day of August, 1999.

                                     John Hancock Realty Income Fund-II
                                     Limited Partnership

                                     By:  John Hancock Realty Equities, Inc.,
                                          General Partner

                                          By: /s/ John M. Garrison
                                              ---------------------------------
                                              John M. Garrison, President

                                          By: /s/ Virginia H. Lomasney
                                              ---------------------------------
                                              Virginia H. Lomasney, Treasurer
                                              (Chief Accounting Officer)