<PAGE>   1

                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

(Mark One)

[X]           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED   SEPTEMBER 30, 1998
                               -------------------------------------------------

                                       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


                                      INDEX


PART I:  FINANCIAL INFORMATION                                              PAGE

         Item 1 -    Financial Statements:

                     Balance Sheets at September 30, 1998 and
                     December 31, 1997                                        3

                     Statements of Operations for the Three and Nine
                     Months Ended September 30, 1998 and 1997                 4

                     Statements of Partners' Equity for the
                     Nine Months Ended September 30, 1998 and

                     Year Ended December 31, 1997                             5

                     Statements of Cash Flows for the Nine

                     Months Ended September 30, 1998 and 1997                 6

                     Notes To Financial Statements                         7-14

         Item 2 -    Management's Discussion and Analysis of
                     Financial Condition and Results of Operations        15-19

PART II: OTHER INFORMATION                                                   20


                                       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>
                                                               SEPTEMBER 30,        DECEMBER 31,
                                                                   1998                 1997
                                                                   ----                 ----
<S>                                                            <C>                 <C>         
Cash and cash equivalents                                      $  3,592,621        $  3,393,737
Restricted cash                                                      96,043             100,987
Other assets                                                        110,066              84,802

Deferred expenses, net of accumulated
 amortization of $1,344,298 in 1998 and
      $1,181,419 in 1997                                            707,784             847,637

Real estate loans                                                         -           1,700,000

Investment in joint venture                                       7,142,399           7,284,761

Investment in property:
 Land                                                             5,040,000           5,040,000
 Buildings and improvements                                      14,218,208          14,218,208
                                                               ------------        ------------
                                                                 19,258,208          19,258,208
      Less: accumulated depreciation                              4,704,489           4,349,042
                                                               ------------        ------------
                                                                 14,553,719          14,909,166
                                                               ------------        ------------

       Total assets                                            $ 26,202,632        $ 28,321,090
                                                               ============        ============


                        LIABILITIES AND PARTNERS' EQUITY

Accounts payable and accrued expenses                          $    396,246        $    146,933
Accounts payable to affiliates                                      196,116             125,905
                                                               ------------        ------------
       Total liabilities                                            592,362             272,838

Partners' equity/(deficit):

 General Partners' deficit                                         (182,748)           (175,225)
 Limited Partners' equity                                        25,793,018          28,223,477
                                                               ------------        ------------

       Total partners' equity                                    25,610,270          28,048,252
                                                               ------------        ------------

       Total liabilities and partners' equity                  $ 26,202,632        $ 28,321,090
                                                               ============        ============
</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                NINE MONTHS ENDED
                                                      SEPTEMBER 30,                    SEPTEMBER 30,
                                                  1998             1997            1998              1997
                                                  ----             ----            ----              ----
<S>                                             <C>            <C>              <C>              <C>       
Income:

      Rental income                             $515,022       $  569,252       $1,586,565       $1,628,076
      Income from joint venture                  187,450          184,353          579,421          559,063
      Interest income                             47,378           84,190          188,953          310,926
                                                --------       ----------       ----------       ----------

           Total income                          749,850          837,795        2,354,939        2,498,065

Expenses:

      Depreciation                               118,482          118,482          355,447          355,447
      Property operating expenses                 86,129           77,454          273,342          270,230
      General and administrative expenses        125,452           48,991          344,573          226,352
      Amortization of deferred expenses           54,012           56,140          162,879          169,895
                                                --------       ----------       ----------       ----------

           Total expenses                        384,075          301,067        1,136,241        1,021,924
                                                --------       ----------       ----------       ----------

           Net income                           $365,775       $  536,728       $1,218,698       $1,476,141
                                                ========       ==========       ==========       ==========

Allocation of net income:

      General Partner                           $  3,658       $    5,367       $   12,187       $   14,761
      John Hancock Limited Partner                     -                -                -                -
      Investors                                  362,117          531,361        1,206,511        1,461,380
                                                --------       ----------       ----------       ----------
                                                $365,775       $  536,728       $1,218,698       $1,476,141
                                                ========       ==========       ==========       ==========

Net income per Unit                             $   0.14       $     0.20       $     0.46       $     0.56
                                                ========       ==========       ==========       ==========
</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)

                    NINE MONTHS ENDED SEPTEMBER 30, 1998 AND
                          YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>

                                                         GENERAL            LIMITED
                                                         PARTNER            PARTNERS              TOTAL
                                                         -------            --------              -----
<S>                                                   <C>                 <C>                 <C>         
Partners' equity/(deficit) at January 1, 1997
    (2,601,552 Units outstanding)                     ($   166,057)       $ 37,925,372        $ 37,759,315

Less: Cash distributions                                   (27,855)        (11,551,932)        (11,579,787)

Add:  Net income                                            18,687           1,850,037           1,868,724
                                                      ------------        ------------        ------------

Partner's equity/(deficit) at December 31, 1997           (175,225)         28,223,477          28,048,252
   (2,601,552 Units outstanding)

Less: Cash distributions                                   (19,710)         (3,636,970)         (3,656,680)

Add:  Net income                                            12,187             120,511           1,218,698
                                                      ------------        ------------        ------------

Partners' equity/(deficit) at September 1998
   (2,601,552 Units outstanding)                      ($   182,748)       $ 25,793,018        $ 25,610,270
                                                      ============        ============        ============
</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>

                                                                                          NINE MONTHS ENDED
                                                                                            SEPTEMBER 30,
                                                                                      1998               1997
                                                                                      ----               ----
<S>                                                                               <C>                <C>         
Operating activities:
      Net income                                                                  $ 1,218,698        $  1,476,141

      Adjustments to reconcile net income to 
      net cash provided by operating activities:

           Depreciation                                                               355,447             355,447
           Amortization of deferred expenses                                          162,879             169,895
           Cash distributions over equity in
             income from joint venture                                                142,362             172,562
                                                                                  -----------        ------------
                                                                                    1,879,386           2,174,045

      Changes in operating assets and liabilities:
           Decrease in restricted cash                                                  4,944              10,661
           (Increase) in other assets                                                 (25,264)            (41,353)
           Increase/(decrease) in accounts payable
             and accrued expenses                                                     249,313              56,795
           Increase in accounts payable to
             affiliates                                                                70,211              22,812
                                                                                  -----------        ------------
                Net cash provided by operating activities                           2,178,590           2,222,860

Investing activities:
      Principal payments on real estate loans                                       1,700,000           3,545,361
      Increase in deferred expenses                                                   (23,026)            (34,444)
                                                                                  -----------        ------------
                Net cash provided by investing activities                           1,676,974           3,510,917

Financing activities:
      Cash distributed to Partners                                                 (3,656,680)        (10,922,829)
                                                                                  -----------        ------------

                Net cash used in financing activities                              (3,656,680)        (10,922,829)
                                                                                  -----------        ------------

                Net (increase)/decrease in cash and cash
                  equivalents                                                         198,884          (5,189,052)

                Cash and cash equivalents at beginning
                  of year                                                           3,393,737           8,669,990
                                                                                  -----------        ------------

                Cash and cash equivalents at end
                  of period                                                       $ 3,592,621        $  3,480,938
                                                                                  ===========        ============
</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 September 30, 1987. As of September 30, 1998, 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 4,221 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 nine-month period ended
           September 30, 1998 are not necessarily indicative of the results that
           may be expected for the year ending December 31, 1998. 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, 1997.

           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.


                                       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)

           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.

           Real estate loans are recorded at amortized cost unless the General
           Partner determines that in economic substance the loan represents an
           investment in property or joint venture. In such instances, these
           investments are accounted for using the equity method.

           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 nine months ended
           September 30, 1998 and 1997 and to which the General Partner or its
           affiliates are entitled to reimbursement from the Partnership were
           $81,222 and $175,485, 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 nine months ended September 30, 1998 and 1997 are $72,398 and
           $40,759, respectively, representing the Partnership's share of costs
           incurred by the General Partner and its Affiliates relating to the
           class action complaint. Through September 30, 1998, the Partnership
           has accrued a total of $167,965 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:

                                                    September 30,   December 31,
                                                        1998            1997
                                                        ----            ----

          Park Square Shopping Center                $12,886,230    $12,886,230
          Miami International Distribution Center      6,371,978      6,371,978
                                                     -----------    -----------
                                                     $19,258,208    $19,258,208
                                                     ===========    ===========


                                       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)

           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: i) 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, the Partnership has
           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.

           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 March 31, 1997, 97.55% has been
           contributed by the Affiliated Joint Venture. The Affiliated Joint
           Venture continues to hold a 75% interest in QOCC-1 Associates.


                                       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)

           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 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                                        September 30, 1998    December 31, 1997
            -----------                                        ------------------    -----------------
<S>                                                                 <C>                  <C>     
         $35,072 acquisition fee for 205 Newbury St                                    
         loan.  This amount is amortized                                               
         over the term of the loan                                  $      -             $    948
                                                                                       
         $152,880 acquisition fee for investment in                                    
         the Affiliated Joint Venture.  This amount                                    
         is amortized over a period of 31.5 years                    105,761              109,402
                                                                                       
         $1,203,097 acquisition fees paid to the                                       
         General Partner. Prior to September 30, 1993, this                            
         amount was amortized over a period of 30 years                                
         Subsequent to September 30, 1993, the unamortized                             
         balance is amortized over a period of 8.5 years             394,076              485,015
                                                                                       
         $146,277 of tenant improvements.  These amounts                               
         are amortized over the terms of the leases                                    
         to which they relate                                         18,986               33,788
                                                                                       
         $514,756 of lease commissions.  These amounts                                 
         are amortized over the terms of the leases                                    
         to which they relate                                        188,961              218,484
                                                                    --------             --------
                                                                    $707,784             $847,637
                                                                    ========             ========
</TABLE>


                                       12


<PAGE>   13


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

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

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>
                                                                  Nine Months Ended September 30,
                                                                      1998             1997
                                                                      ----             ----

<S>                                                                <C>              <C>       
            Net income per Statements of Operations                $1,218,698       $1,476,141

            Add/(deduct):        Excess of book depreciation
                                 over tax depreciation                 57,415           57,865
                                 Excess of book amortization
                                   over tax amortization               55,377           58,907
                                 Other income and expense                              (12,755)
                                                                   ----------       ----------

            Net income for federal income tax purposes             $1,331,490       $1,580,158
                                                                   ==========       ==========
</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 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 $420,000 in legal expenses
           in connection with the class action lawsuit (see Part I, Item 3 of
           this Report). Of this amount, approximately $252,000 relates to the
           Partnership's own defense and approximately $168,000 relates to the
           indemnification of the General Partner and its Affiliates for their
           defense. These expenses are funded from the operations of the
           Partnership.

           At the present time, the General Partner can not estimate the
           aggregate amount of legal expenses and 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.


                                       13


<PAGE>   14


             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 General Partner and John Hancock Mutual Life Insurance Company, the General
Partner's ultimate parent (together, "John Hancock") along with the Partnership,
have developed a plan to modify or replace significant portions of the
Partnership's computer information and automated technologies so that its
systems will function properly with respect to the dates in the year 2000 and
thereafter. The Partnership presently believes that with modifications to
existing systems and conversions to new technologies, the year 2000 will not
pose significant operational problems for its computer systems. However, if
certain modifications and conversions are not made, or are not completed timely,
the year 2000 issue could have an adverse impact on the operations of the
Partnership.

John Hancock as early as 1994 had begun assessing, modifying and converting the
software related to its significant systems and has initiated formal
communications with its significant business partners and customers to determine
the extent to which John Hancock's interface systems are vulnerable to those
third parties' failure to remediate their own year 2000 issues. While John
Hancock is developing alternative third party processing arrangements as it
deems appropriate, there is no guarantee that the systems of other companies on
which the Partnership's systems rely will be converted timely or will not have
an adverse effect on the Partnership's systems.

The Partnership expects the project to be substantially complete by early 1999.
This completion target was derived utilizing numerous assumptions of future
events, including availability of certain resources and other factors. However,
there can be no guarantee that this completion target will be achieved.

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, distributions to the General Partner and to Investors, the
possible effects of tenants vacating space at Partnership properties, the
absorption of existing retail space in certain geographical areas, and the
impact of inflation.

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

Readers are cautioned not to place undue reliance on forward-looking statements,
which reflect the General Partner's analysis only as of the date hereof. The
Partnership assumes no obligation to update forward-looking statements. See also
the Partnership's reports to be filed from time to time with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended.


                                       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 (CONTINUED)

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 1998 the Partnership had $3,592,621 in cash and cash
equivalents, $96,043 in restricted cash.

The Partnership has a working capital reserve with a current balance of
approximately 6.2% 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 mortgage loan to 205 Newbury Associates matured on April 1, 1998 at which
time the borrower repaid the entire outstanding principal balance in the amount
of $1,700,000. On May 15, 1998, the Partnership distributed $1,685,806 of the
repayment proceeds, of which $1,560,931 was distributed to the Investors and
$124,875 was distributed to the John Hancock Limited Partner. The Partnership
retained $14,194 in working capital reserves.

The Partnership incurred $23,026 of leasing costs at the Park Square Shopping
Center during the nine months ended September 30, 1998. The General Partner
anticipates that the Partnership will incur an aggregate of approximately
$152,000 of leasing costs at the Park Square Shopping Center and Miami
International Distribution Center properties during the remainder of 1998. The
current balance in the working capital reserve should be sufficient to pay such
costs.

The Partnership incurred approximately $12,000 of non-recurring repair and
maintenance expenses during the six months ended September 30, 1998. The General
Partner anticipates that the Partnership will incur approximately $84,000 of
non-recurring repair and maintenance expenses at the Park Square Shopping Center
and Miami International Distribution Center properties during the remainder of
1998. 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 $420,000 in legal expenses in
connection with the class action lawsuit (see Part II, Item 1 of this Report).
Of this amount, approximately $252,000 relates to the Partnership's own defense
and approximately $168,000 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.

Cash in the aggregate amount of $3,656,680 was distributed to the Partners
during the nine months ended September 30, 1998. Of this amount, $1,970,873 was
generated from Distributable Cash from Operations (defined in the Partnership
Agreement), and $1,685,807 was generated from Distributable Cash from Sales,
Financings or Repayments (defined in the Partnership Agreement). These amounts
were distributed in accordance with the Partnership Agreement and were allocated
as follows:

                                                   From Distributable
                               From Distributable   Cash From Sales
                                   Cash From         Financings, or
                                   Operations          Repayments
                                   ----------          ----------
Investors                          $1,951,164          $1,560,932
John Hancock Limited Partner                -             124,875
General Partner                        19,709                   -
                                   ----------          ----------
           Total                   $1,970,873          $1,685,807
                                   ==========          ==========
                                                 


                                       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)

LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

The amount distributed to the Investors from Distributable Cash from Operations
during the nine months ended September 30, 1998 represented an annualized return
on Investors' Invested Capital of approximately 6.25%. The Partnership will make
a distribution from Distributable Cash from Operations during the fourth quarter
of 1998 comparable to those made during the first three quarters of 1998.

The following table summarizes the leasing activity and occupancy status at the
Partnership's remaining equity investments during the nine months ended
September 30, 1998 and scheduled leasing activity for each investment during the
remainder of 1998:
<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, 1998                   87%               88%             100%

New Leases                                   0%                0%               0%

Lease Renewals                               0%               20%               0%

Leases Expired                               0%                0%               0%

Occupancy September 30, 1998                87%               88%             100%

Leases Scheduled to Expire,
   Balance of 1998                           0%                0%               0%

Leases Scheduled to Commence,
   Balance of 1998                          13%                0%               0%
</TABLE>

At September 30, 1998, the Miami International Distribution Building was 87%
occupied. During the third quarter of 1998, the General Partner secured a new
tenant to take occupancy of approximately 29,000 square feet, or 13% of the
property. This new tenant's lease is for a five-year term beginning on October
1, 1998. Approximately $75,000 of leasing costs will be incurred in connection
with this new lease.

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 General Partner has
continued efforts to negotiate with the Miami Airport Authority towards a
mutually acceptable sale of the property. 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
believes that the Miami Airport Authority's desire to acquire the Miami
International Distribution Center i) delayed the General Partner in locating a
new tenant for the vacant space at the property and ii) has negatively impacted
the General Partner's ability to consider listing the property for sale.

The Brooklyn Park, Minnesota real estate market, where the Park Square Shopping
Center is located, has experienced increasing vacancy rates with the continued
development of new retail space. This condition has made it increasingly
difficult for property owners to secure new tenants for their locations. The
General Partner expects market conditions in Brooklyn Park to remain competitive
for at least the remainder 1998. Therefore, no increase in market rental rates
is anticipated.

During the first nine months of 1998, the General Partner secured lease renewals
with 10 tenants that occupy an aggregate of 26,722 square feet, or 20%, of the
Park Square Shopping Center. The General Partner will continue to offer
aggressive rental packages in an effort to retain existing tenants as well as to
secure new tenants for the vacant space at the property.


                                       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)

LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

The Quince Orchard Corporate Center is occupied by 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. As a
result, Hoffman-LaRoche has informed the General Partner that it intends to
terminate operations at the Quince Orchard Corporate Center and 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 have improved recently. The supply of such
office space has been unable to keep pace with the demand, resulting in a slight
increase in market rents. Although this condition gives 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 believes market conditions are
likely to remain favorable through 1998.

The General Partner evaluated the carrying value of each of the Partnership's
properties and its joint venture investment as of December 31, 1997 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. In addition, the General Partner
evaluated the status of its mortgage investment and its ultimate collectability
as of December 31, 1997. 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 property valuations, using internal
or independent appraisals, in order to determine whether a permanent impairment
in value exists on any of the Partnership's properties.

RESULTS OF OPERATIONS

Net income for the nine months ended September 30, 1998 was $1,218,698, as
compared to net income of $1,476,141 for the same period in 1997. This decrease
of $257,443, or 17%, is primarily due to a decrease in interest income and an
increase in general and administrative expenses.

Average occupancy for the Partnership's equity real estate investments was as
follows:
<TABLE>
<CAPTION>
                                                                Nine Months Ended September 30,
                                                                    1998              1997
                                                                    ----              ----
<S>                                                                  <C>               <C>
    Miami International Distribution Center                          87%               87%
    Park Square Shopping Center                                      88%               86%
    Quince Orchard Corporate Center (Affiliated Joint Venture)      100%              100%
</TABLE>

Interest income for the nine months ended September 30, 1998 decreased by
$121,973, or 39%, as compared to the same period in 1997. Interest decreased
primarily due to the repayment of the 205 Newbury Associates mortgage loan on
April 1, 1998 and to a decline in the interest earned on the net sales/repayment
proceeds from the Fulton Business Park property (sold in December 1996) and the
General Camera mortgage loan (repaid in January 1997). The Partnership
distributed such amounts in February 1997.

General and administrative expenses for the nine months ended September 30, 1998
increased by $118,221, or 52%, primarily due to higher legal fees incurred by
the Partnership in connection with the class action complaint (see Part II, Item
1 of this Report). Excluding such legal fees, general and administrative
expenses were consistent between periods.

The General Partner believes that inflation has had no significant impact on the
Partnership's operations during the nine months ended September 30, 1998, and
the General Partner anticipates that inflation will not have a significant
impact during the remainder of 1998.


                                       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)

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>
                                                        Nine Months Ended September 30,
                                                            1998              1997
                                                            ----              ----
<S>                                                     <C>               <C>        
Net cash provided by operating activities (a)           $ 2,178,590       $ 2,222,860
Net change in operating assets and liabilities (a)         (299,204)          (48,815)
                                                        -----------       -----------
Net cash provided by operations (a)                       1,879,386         2,174,045
Increase in working capital reserves                             _-          (150,616)
                                                        -----------       -----------
Cash from operations (b)                                  1,879,386         2,023,429
Decrease in working capital reserves                         90,572                 -
                                                        -----------       -----------
Distributable cash from operations (b)                  $ 1,969,958       $ 2,023,429
                                                        ===========       ===========

Allocation to General Partner                           $    18,794       $    20,234
Allocation to Investors                                   1,951,164         2,023,429
Allocation to John Hancock Limited Partner                        -                 -
                                                        -----------       -----------
                                                        $ 1,969,958       $ 2,023,429
                                                        ===========       ===========
</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 fourth quarter of 1998, the Partnership will make a distribution of
Distributable Cash from Operations to the Investors in the amount of $650,388.
This amount represents a 6.37% annualized return on Investors remaining Invested
Capital.

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 the remaining fourth quarter of 1998
will be comparable to that generated during the first three quarters of 1998.


                                       18


<PAGE>   19

             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 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 RIF and the
             Partnership as defendants. The defendants filed demurrer motions,
             asking that the complaint be dismissed at law. These motions were
             under consideration during the first quarter of 1998.

             Although the court dismissed the complaint against the Partnership
             during the second quarter of 1998, the plaintiff subsequently
             amended its complaint, again naming the Partnership as a defendant.
             On August 12, 1998, the court granted the Partnership's motion for
             summary adjudication of the issues against plaintiff. The court
             ruled that the plaintiff could not prevail upon its claims since it
             was not an investor of the Partnership. The Partnership intends to
             move for a judgment dismissing it from the case.

             There are no other material pending legal proceedings, other than
             ordinary routine litigation incidental to the business of the
             Partnership, to which the Partnership is a party or to which any of
             its properties is subject.

ITEM 2.      CHANGES IN SECURITIES
             There were no changes in securities during the third quarter of
1998.

ITEM 3.      DEFAULTS UPON SENIOR SECURITIES
             There were no defaults upon senior securities during the third
             quarter of 1998.

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 third quarter of 1998.

ITEM 5.      OTHER INFORMATION

ITEM 6.      EXHIBITS AND REPORTS ON FORM 8-K
             (a) Exhibit 27-Financial Data Schedule
             (b) There were no Reports on Form 8-K filed during the third
                 quarter of 1998.


                                       19


<PAGE>   20


             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 November, 1998.

                                    John Hancock Realty Income Fund-II
                                    Limited Partnership

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

                                        By:  /s/ William M. Fitzgerald    
                                            --------------------------------- 
                                             William M. Fitzgerald, President

                                        By:  /s/ Richard E. Frank               
                                            --------------------------------- 
                                             Richard E. Frank, Treasurer
                                             (Chief Accounting Officer)