Annual Report (Form 10-K), fiscal year 1994

Item 1 - Business
The Registrant, John Hancock Realty Income Fund Limited Partnership (the "Partnership"), is a limited partnership organized on June 12, 1986 under the provisions of the Massachusetts Uniform Limited Partnership Act. As of December 31, 1994, the partners in the Partnership consisted of John Hancock Realty Equities, Inc. (the "General Partner"), John Hancock Realty Funding, Inc. (the "John Hancock Limited Partner"), and 4,201 Investor Limited Partners (the "Investors") owning 91,647 Units of Investor Limited Partnership Interests (the "Units"). The John Hancock Limited Partner and the Investors are collectively referred to as the Limited Partners. The initial capital of the Partnership was $2,000 representing capital contributions of $1,000 from the General Partner and $1,000 from the John Hancock Limited Partner. During the offering period, the John Hancock Limited Partner made additional capital contributions of $7,330,760. There were no changes in the number of Units outstanding subsequent to the termination of the offering period. The Amended Agreement of Limited Partnership of the Partnership (the "Partnership Agreement") authorized the sale of up to 100,000 Units of Investor Limited Partnership Interests at $500 per Unit.
The Units were offered and sold to the public during the period from September 9, 1986 to September 9, 1987, pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933. The Partnership sold the Units for $500 per Unit. No established public market exists on which the Units may be traded.
The Partnership is engaged in the business of acquiring, improving, operating, holding for investment and disposing of existing, income-producing, commercial and industrial properties on an all-cash basis, free and clear of mortgage indebtedness. Although the Partnership's properties were acquired and are held free and clear of mortgage indebtedness, the Partnership may incur mortgage indebtedness on its properties under certain circumstances, as described in the Partnership Agreement. The Partnership's principal objectives are to:
(1) preserve the capital investment of the Limited Partners;
(2) provide quarterly distributions of cash from operations on a partially tax-deferred basis;
(3) protect the Limited Partners' investment against inflation; and
(4) obtain long-term appreciation in the market value of its properties.
The latest date on which the Partnership is due to terminate is December 31, 2016, unless it is sooner terminated in accordance with the terms of the Partnership Agreement. It is expected that in the ordinary course of the Partnership's business, the properties of the Partnership will be disposed of, and the Partnership terminated, before December 31, 2016.
Item 1 - Business (continued)
The Partnership's equity real estate investments are subject to various risk factors. Although the risks of equity investing are reduced when properties are acquired on an unleveraged basis, the major risk of owning income-producing properties is the possibility that the properties will not generate income sufficient to meet operating expenses and to fund adequate reserves for repair, replacements and contingencies. The income from properties may be affected by many factors, including: i) adverse changes in general economic conditions and local conditions, such as competitive over-building, a decrease in employment, or adverse changes in real estate zoning laws, which may reduce the desirability of real estate in the area or ii) other circumstances over which the Partnership may have little or no control, such as fires, earthquakes and floods. To the extent that the Partnership's properties are leased in any substantial portion to a specific retail, industrial or office tenant, the financial failure of any such major tenant, resulting in the termination of the tenant's lease or non-payment of rentals due, would likely cause at least a temporary reduction in cash flow from any such property and might result in a decrease in the market value of that property.
On October 24, 1986, the Partnership acquired 1300 North Dutton Avenue, an office/industrial facility located in Santa Rosa, California. During May 1994, the tenant occupying the property notified the Partnership that it would not be renewing its lease, which expired on January 31, 1995. The General Partner has been offering aggressive rental packages in order to secure a new tenant for this property. Market conditions in Santa Rosa for office/industrial space have declined since the Partnership acquired the 1300 North Dutton Avenue property. Currently, market conditions for office/industrial property in Santa Rosa remain competitive.
On February 17, 1987, the Partnership acquired the Marlboro Square Shopping Center, a neighborhood shopping center located in Marlboro, Massachusetts. Market conditions in Marlboro have weakened since the Partnership acquired the property and have remained depressed. An excess of supply over demand for retail rental space has resulted in continued high vacancy rates and competitive pricing for leasing space in the area in which Marlboro Square is located. In addition, a proposed new retail development within close proximity to Marlboro Square is scheduled for completion during Spring 1996. As a result, the General Partner anticipates that absorption of existing retail space will remain sluggish during 1995 in the area in which Marlboro Square is located. The General Partner will continue to offer competitive lease rates and concessions at Marlboro Square in an effort to lease the remaining vacant space at the property.
On November 20, 1987, the Partnership acquired the Crossroads Square Shopping Center, a neighborhood shopping center located in Jacksonville, Florida. Real estate market conditions for retail properties in Jacksonville have declined since the Partnership acquired the property due to over-building and slow economic growth which have caused declines in occupancy and rental rates. However, occupancy levels and rental rates stabilized during 1993 and increased duing 1994. As a result, the General Partner anticipates favorable retail market conditions in Jacksonville and the property during 1995.
Item 1 - Business (continued)
On December 22, 1987, the Partnership acquired the Carnegie Center, a multi-tenant office/industrial facility located in Cincinnati, Ohio. Since the Partnership acquired the Carnegie Center, the Cincinnati industrial real estate market has experienced an oversupply of office\industrial rental space, which has resulted in a decline in rental rates and an increase in vacancy rates. The Carnegie Center property experienced a significant decrease in average occupancy during 1994. A tenant that had occupied approximately 45% of the space at the property did not renew its leases and vacated its space during 1994. As a result, at December 31, 1994, the occupancy at the Carnegie Center was 35%. During the first quarter of 1995, a new tenant executed a lease for 14,375 square feet of space, or 11% of the property, for a three year term which commenced in March 1995. The General Partner anticipates that market conditions in Cincinnati will remain competitive during 1995 and, therefore, it will continue to offer competitive rental rates and concession packages in an effort to increase occupancy at Carnegie Center.
On February 25, 1988, the Partnership acquired the Warner Plaza Shopping Center, a neighborhood shopping center located in Chandler, Arizona. The Partnership acquired Warner Plaza exclusive of areas owned by a non- affiliate of the Partnership which were occupied by a supermarket, two branch offices of local banks and a restaurant. During the fourth quarter of 1992, the supermarket tenant vacated its space. During 1994, the non- affiliated owner of that space secured two replacement tenants for the space. This vacancy of this space did not have a significant negative impact on the Partnership's operations. Although real estate market conditions have declined in Chandler as compared to when the Partnership acquired the property, population, employment and retail sales have increased in recent years. These factors indicate a positive future outlook for retail markets in Chandler and for Warner Plaza.
On September 13, 1988, the Partnership completed its investment portfolio with the acquisition of the J.C. Penney Credit Operations Center, an office/service center located in Albuquerque, New Mexico. The property is 100% leased to J.C. Penney under a lease that was scheduled to expire during 1996. However, during the first quarter of 1995, the General Partner, on behalf of the Partnership, negotiated an extension of the lease through 2006. The tenant has been granted an option to terminate the lease during the year 2001 upon the payment of $710,325. The General Partner anticipates stable income performance from this property during 1995.
Within the power accorded to the General Partner under the terms of the Partnership Agreement, the General Partner contracted, effective as of January 1, 1992, with Hancock Realty Investors Incorporated ("HRI"), a wholly-owned, indirect subsidiary of John Hancock Mutual Life Insurance Company ("John Hancock"), to assist the General Partner in the performance of its management duties as enumerated in the Partnership Agreement. Effective May 28, 1993, HRI subcontracted with John Hancock to assist HRI in the performance of its duties as enumerated in the January 1, 1992 contract. The Partnership has not incurred any additional costs or expenses as a result of these agreements. The General Partner is further described in Item 10 ("Directors and Executive Officers of the Partnership") of this Report.
Industry segment information has not been provided since the Partnership is engaged in only one industry segment.
Item 2



Item 2 - Properties
As of December 31, 1994, the Partnership held the following properties in its portfolio:
1300 North Dutton Avenue Office Complex --------------------------------------- On October 24, 1986, the Partnership purchased the 1300 North Dutton Avenue office building ("1300 North Dutton Avenue"), located in Santa Rosa, California, from a non-affiliated seller. The property consists of one building with 24,120 rentable square feet of office space. The building and two adjacent buildings comprise "Park Campus", an association which in common owns a 5.9 acre parcel with landscaping and parking serving all three buildings. 1300 North Dutton Avenue's allocation of interest in Park Campus is approximately 32% and includes the exclusive right to use 95 parking spaces.
At December 31, 1994, the building was 100% leased to North American Mortgage Company ("NAMC") under a lease agreement which expired on January 31, 1995. During May 1994, NAMC notified the Partnership that it would not be renewing its lease upon its expiration. The General Partner has been actively seeking a replacement tenant for the property.
Marlboro Square Shopping Center ------------------------------- On February 17, 1987, the Partnership purchased the Marlboro Square Shopping Center ("Marlboro Square"), located in Marlboro, Massachusetts, from a non-affiliated seller. The property consists of two freestanding buildings. One of the buildings contains 39,150 rentable square feet, and the other building contains 3,000 rentable square feet, for a total of 42,150 rentable square feet of space.
For the year ended December 31, 1994, the average occupancy of Marlboro Square was 81%.
Crossroads Square Shopping Center --------------------------------- On November 20, 1987, the Partnership purchased the Crossroads Square Shopping Center ("Crossroads Square"), located in Jacksonville, Florida, from a non-affiliated seller. Crossroads Square contains 174,196 rentable square feet of space with a total land area in excess of 18.5 acres.
For the year ended December 31, 1994, the average occupancy of Crossroads Square was 94%.
Carnegie Center Office/Warehouse -------------------------------- On December 22, 1987, the Partnership purchased Carnegie Center, located in Cincinnati, Ohio, from a non-affiliated seller. The property consists of two buildings containing an aggregate of 128,059 rentable square feet with a total land area of approximately 7.8 acres.
For the year ended December 31, 1994, the average occupancy of Carnegie Center was 65%. However, actual occupancy at December 31, 1994 was 35%, due to the fact that a tenant that had occupied 45% of the property vacated its space upon expiration of its leases in 1994.
Item 2 - Properties (continued)
Warner Plaza Shopping Center ---------------------------- On February 25, 1988, the Partnership purchased 92,848 rentable square feet of the Warner Plaza Shopping Center ("Warner Plaza") (which consists of a total of 148,410 rentable square feet), located in Chandler, Arizona, from a non-affiliated seller.
For the year ended December 31, 1994, average occupancy, for the portion of Warner Plaza which is owned by the Partnership, was 97%.
J.C. Penney Credit Operations Center ------------------------------------ On September 13, 1988, the Partnership purchased the J.C. Penney Credit Operations Center, located in Albuquerque, New Mexico, from a non-affiliated seller. The property, constructed in 1981, consists of one building with 69,300 square feet of rentable office space.
The property is 100% leased to J.C. Penney Company, Inc. under a fifteen year lease which was scheduled to expire in June 1996. During the first quarter of 1994, the General Partner negotiated a lease extension with this tenant through June 2006.
The foregoing properties are described more fully in Items 1, 2 and 7 and Note 4 to the Financial Statements included in Item 8 of this Report.
Item 3

Item 3 - Legal Proceedings
There are no 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 4

Item 4 - Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders of the Partnership during the fourth quarter of 1994.
Part II
Item 5

Item 5 - Market for the Partnership's Securities and Related Security Holder Matters
(a) Market Information
The Partnership's outstanding securities consist of 91,647 Units originally sold for $500 per Unit. The Units were offered and sold to the public during the period from September 9, 1986 to September 9, 1987. No established public market exists on which the Units may be traded. Consequently, holders of Units may not be able to liquidate their investments in the event of an emergency, or for any other reason. Additionally, the assignment or other transfer of Units would be subject to compliance with the minimum investment and suitability standards imposed by the Partnership or by applicable law, including state "Blue Sky" laws.
Item 5 - Market for the Partnership's Securities and Related Security Holder Matters (continued)
(b) Number of Security Holders Number of Number of Units record holders as of outstanding as of Title of Class December 31, 1994 December 31, 1994 -------------- ----------------- ---------------- Units of Investor Limited Partnership Interests 4,201 91,647
(c) Dividend History and Restrictions
During the fiscal years ended December 31, 1994 and 1993, the Partnership distributed cash in the aggregate amount of $2,314,318 and $2,661,465, respectively, from Distributable Cash from Operations. These amounts were allocated 1% to the General Partner and 99% to the Limited Partners, in accordance with the terms of the Partnership Agreement.
The following table reflects cash distributions made during 1993 and 1994:
During 1993, a substantial portion of the Partnership's working capital reserves was used to fund leasing costs incurred at the Crossroads Square, Warner Plaza, Carnegie Center and Marlboro Square properties. Given this use of working capital reserves in 1993 as well as the projected level of future leasing costs and capital expenditures expected to be incurred at the Partnership's properties, the General Partner reduced cash distributions to Investors commencing with the November 15, 1993 distribution, from an annualized rate of 6% to an annualized rate of 5%, in order to replenish working capital reserves and satisfy the Partnership's general liquidity requirements. Cash distributions during the year ended December 31, 1994 continued to reflect this 5% annualized rate. The General Partner anticipates that the Partnership will make cash distributions in 1995 in an amount comparable to that distributed in 1994. For a further discussion on the financial condition and results of operations of the Partnership see Item 7 of this Report.
Item 6

Item 6 - Selected Financial Data
The following table sets forth selected financial information regarding the Partnership's financial position and operating results for the five year period ended December 31, 1994. This information should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Financial Statements and Notes thereto, which are included in Items 7 and 8, respectively, of this Report.
(b) The actual ordinary tax income per Unit has not been presented because the actual ordinary tax income/(loss) is allocated between tax-exempt and tax-paying entities based upon the respective number of Units held by each group at December 31, 1994, 1993, 1992, 1991 and 1990. The ordinary tax income per Unit as presented was computed by dividing the Investors' share of ordinary tax income by the number of Units outstanding at December 31, 1994, 1993, 1992, 1991 and 1990, respectively.
Item 7

Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Liquidity and Capital Resources (continued) ------------------------------- During the second quarter of 1994, a tenant occupying 45% of the Carnegie Center property notified the Partnership of its intention not to renew its leases. This tenant had leased 10% of the property on a month-to-month basis, which it terminated during May 1994, and had leased 35% of the property under leases which expired in September 1994. A new tenant has executed a lease for 14,375 square feet of space, or 11% of the property, for a three year term which commenced in March 1995. The Partnership will incur approximately $76,000 in leasing costs during 1995 in connection with this lease. The General Partner is actively seeking additional replacement tenants for the remaining vacant space. Should additional replacement tenants not be located to take occupancy in the near future, the Partnership's liquidity will be materially adversely affected. Rental rates and concessions are priced competitively in order to secure new tenants for the property. For the years ended December 31, 1994 and 1993, the leases held by this former tenant represented 9% and 11%, respectively, of the rental income earned by the Partnership.
The tenant that leases all of the rentable space at the 1300 North Dutton Avenue property notified the Partnership during May 1994 that it would not renew its lease, which expired on January 31, 1995. The General Partner has been actively seeking a replacement tenant for the property. However, should a replacement tenant not be located to take occupancy of the property before the fourth quarter of 1995, the Partnership's liquidity may be adversely affected. For the year ended December 31, 1994 and 1993, the 1300 North Dutton Avenue property generated approximately 11% and 10%, respectively, of the rental income earned by the Partnership.
The former anchor tenant at Warner Plaza discontinued operations at the property and vacated its space during the fourth quarter of 1992. The premises which this tenant occupied is owned by a non-affiliate of the Partnership. During 1994, the non-affiliated owner secured two replacement tenants for this space. One of these tenants took occupancy in April 1994 and the other took occupancy in May 1994. The vacancy of this space did not have a significant negative impact on the Partnership's operations.
During the years ended December 31, 1994 and 1993, approximately $86,000 and $93,000, respectively, of cash from operations was used to fund non- recurring maintenance and repair costs incurred at the Partnership's properties. The General Partner estimates that the Partnership will incur approximately $117,000 of non-recurring maintenance and repair costs at its properties during 1995. These costs 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.
Cash in the amount of $2,314,318 generated from the Partnership's operations was distributed to the General Partner and the Limited Partners during 1994. The General Partner anticipates that the Partnership will make comparable distributions during 1995. Cash distributions to the General and Limited Partners are further described in Item 5(c) of this Report.
Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Liquidity and Capital Resources (continued) ------------------------------- During the second quarter of 1994, the General Partner had the Crossroads Square property independently appraised. Based upon the appraiser's investigation and analysis, the property's market value was estimated to be approximately $10,550,000 as compared to the Partnership's cumulative investment in the property of approximately $14,567,000. The net book value of the Crossroads Square property of $9,978,881 at December 31, 1994 was evaluated in comparison to its recent independent appraisal and, based upon such evaluation, the General Partner determined that no permanent impairment in value exists and that a write-down in value was not required as of December 31, 1994.
During the third quarter of 1994, the General Partner had the Warner Plaza property independently appraised. Based upon the appraiser's investigation and analysis, the property's market value was estimated to be approximately $5,600,000 as compared to the Partnership's cumulative investment in the property of approximately $7,900,000. The net book value of the Warner Plaza property of $5,431,656 at December 31, 1994 was evaluated in comparison to its recent independent appraisal and, based upon such evaluation, the General Partner determined that no permanent impairment in value exists and that a write-down in value was not required as of December 31, 1994.
The decrease in value of these properties relative to their respective costs of acquisition reflects the fact that the real estate markets in which these properties are located have weakened since the time of the Partnership's acquisition of these properties.
The General Partner evaluated the carrying value of the Carnegie Center property during the third quarter of 1994 by comparing it to future undiscounted cash flows and a recent internal appraisal in order to determine whether a permanent impairment in value existed. Based on such evaluation, the General Partner determined that a write-down of $512,000 was required at that time to reflect the estimated permanent impairment in the value of the Carnegie Center property. Lower rental rates and weak absorption for available office/industrial properties in Cincinnati, Ohio, in general, have resulted in a decline in this property's market value. The net book value of the Carnegie Center property of $5,227,178 at December 31, 1994 was evaluated in comparison to the estimated future cash flows and a recent internal appraisal and, based upon such evaluation, the General Partner determined that no further permanent impairment in value exists and, therefore, an additional write-down in value was not required as of December 31, 1994.
The General Partner also evaluated the carrying value of each of the Partnership's other properties as of December 31, 1994 by comparing it to the future undiscounted cash flows and the most recent independent or internal appraisals. Based on such evaluations, the General Partner determined that no permanent impairment in values exist with respect to these properties and no additional write-downs were recorded as of December 31, 1994. 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.
Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Results of Operations --------------------- Net income for the year ended December 31, 1994 was $1,497,221 as compared to $1,684,608 in 1993 and $1,095,594 in 1992. Included in the results for 1994 and 1992 are property write-downs of $512,000 and $719,000, respectively. No write-downs in value were recorded during 1993.
Average occupancy for the Partnership's properties was as follows:
Rental income for the year ended December 31, 1994 increased by $99,381, or 3%, as compared to 1993 and decreased by $29,631, or 1%, as compared to 1992. During 1994 the Crossroads Square Shopping Center and 1300 North Dutton Avenue properties generated increased rental income, however, these increases were offset by a decrease in rental income at the Carnegie Center property. Rental income from the Crossroads Square property increased in 1994 as compared to both 1993 and 1992 due to an increase in occupancy. Rental income at the 1300 North Dutton Avenue property increased during 1994 as compared to 1993 and 1992 due to an increase in the sole tenant's rental rate which became effective during February 1994, in accordance with the terms of its lease. These increases in rental income were offset by decreases in rental income at the Carnegie Center property during 1994 as compared to both 1993 and 1992 due to decreases in average occupancy. Rental income from the Marlboro Square property decreased slightly in 1994 as compared to 1993 due to a decrease in occupancy, and increased as compared to 1992 due to an increase in occupancy. Rental income from the Warner Plaza and J.C. Penney properties were consistent between periods.
Interest income for the year ended December 31, 1994 increased by $39,425, or 55%, and $23,012, or 26%, as compared to 1993 and 1992, respectively. These increases are primarily due to an increase in the Partnership's working capital reserves and interest rates earned on such reserves during 1994.
Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Results of Operations (continued) --------------------- Property operating expenses for the year ended December 31, 1994 decreased by $98,197, or 24%, as compared to 1993, and by $104,013, or 25%, as compared to 1992. The decrease in 1994 as compared to 1993 and 1992 is primarily due to decreases in property operating expenses at the Crossroads Square, 1300 North Dutton Avenue and Warner Plaza properties. Property operating expenses decreased at the Crossroads Square property in 1994 as compared to 1993 and 1992 primarily due to an increase in the average occupancy at the property and, therefore, an increase in tenant reimbursements for such expenses. The tenant occupying the 1300 North Dutton Avenue property notified the Partnership in May 1994 that it would not renew its lease upon its expiration date of January 31, 1995 and proceeded to vacate its space during 1994. As a result, only minor routine maintenance expenses were incurred subsequent to the tenant vacating the space, resulting in a decrease in property operating expenses. In addition, property operating expenses decreased in 1994 and 1993 as compared to 1992 as a result of costs of approximately $72,000 incurred in 1992 to replace the roof at the 1300 North Dutton Avenue property. Warner Plaza's property operating expenses decreased in 1994 as compared to both 1993 and 1992 primarily due to a decline in real estate taxes paid on the property as a result of the applicable taxing authority reducing the assessed value of the property. These decreases were partially offset by an increase in property operating expenses at the Carnegie Center property. Property operating expenses increased at the Carnegie Center property in 1994 as compared to 1993 and 1992 primarily due to a decrease in average occupancy at the property and, therefore, a decrease in tenant reimbursements for such expenses. Also, property operating expenses increased at Carnegie Center due to an increase in maintenance and repair expenses incurred to maintain the property's competitive position in the market. These increases in property operating expenses at Carnegie Center were partially offset by a decrease in real estate taxes in 1994 due to a successful appeal of the assessed value of the property for real estate tax purposes.
General and administrative expenses in 1994 decreased by $12,864, or 6%, as compared to 1993, and by $16,366, or 7%, as compared to 1992. The decrease in 1994 as compared to 1993 was primarily due to a decrease in legal fees incurred in connection with Securities and Exchange Commission reporting requirements. The decrease in 1994 as compared to 1992 was primarily due to decreases in audit fees and computer costs.
Amortization of deferred expenses in 1994 decreased by $64,353, or 30%, as compared to 1993, and by $35,382, or 19%, as compared to 1992. This reduction in 1994 from both 1993 and 1992 was primarily due to the full amortization of a significant portion of such expenses relating to leasing costs incurred at the Carnegie Center property and the inclusion in amortization for 1993 of a non-recurring $17,903 write-off of unamortized leasehold expenses relating to tenants who vacated their space at this property prior to their lease termination dates. The decreases in amortization was partially offset by an increase in the amortization of deferred expenses relating to leasing costs incurred at the Crossroads Square property and by the Partnership's reduction during the third quarter of 1993 in the amortization period for its deferred acquisition costs from thirty years, the estimated useful life of the buildings owned by the Partnership, to four and one-half years, the then estimated remaining life of the Partnership.
Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Results of Operations (continued) --------------------- As referred to above, during 1994, the General Partner determined that the value of the Carnegie Center property had been permanently impaired. As a result, the carrying value of the property was reduced by $512,000 and this amount was charged directly to operations. During 1992, the carrying value of the Marlboro Square property was reduced by $719,000. No property write- downs were recorded during 1993.
Management fee expense paid to the General Partner during the year ended December 31, 1994 decreased by $5,162, or 6%, as compared to 1993, and by $20,915, or 20%, as compared to 1992. These decreases are due to the decline in Cash from Operations (as defined in the Partnership Agreement). Cash from Operations decreased during 1994 as compared to both 1993 and 1992 as a result of an increase in the amount of funds from the Partnership's operations used to replenish working capital reserves during 1994.
The General Partner believes that inflation has had no significant impact on the Partnership's operations during the last three fiscal years, and the General Partner anticipates that inflation will not have a significant impact during 1995.
Item 7 - 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 for the five years ended December 31, 1994, which are calculated in accordance with Section 17 of the Partnership Agreement:
(a) Net cash provided by operating activities, net change in operating assets and liabilities, and cash provided by operations are as calculated in the Statements of Cash Flows included in Item 8


Item 8 - Financial Statements and Supplementary Data
The response to this Item appears beginning on page of this Report.
Item 9

Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
No events requiring disclosure under this Item have occurred.
Part III
Item 10



Item 10 - Directors and Executive Officers of the Partnership
(a-b) Identification of Directors and Executive Officers
By virtue of its organization as a limited partnership, the Partnership has no directors or executive officers. As indicated in Item 1 of this Report, the General Partner of the Partnership is John Hancock Realty Equities, Inc., a Delaware corporation. Pursuant to the terms of the Partnership Agreement, the General Partner is solely responsible for the management of the Partnership's business. The names and ages of the directors and executive officers of the General Partner are as follows:
Name Title Age ---- ----- ---
William M. Fitzgerald President and Director 51 Malcolm G. Pittman, III Director 43 Susan M. Shephard Director 42 Richard E. Frank Treasurer (Chief Accounting Officer) 33
Item 10 - Directors and Executive Officers of the Partnership (continued)
(c) Identification of certain significant persons
The General Partner is responsible for the identification, analysis, purchase, operation, and disposal of specific Partnership real estate investments. The General Partner has established a Real Estate Investment Committee utilizing senior real estate personnel of John Hancock and its Affiliates to review each proposed investment. The members of the Real Estate Investment Committee are designated each year at the annual meeting of the Board of Directors of John Hancock Realty Equities, Inc. The current members of the committee are as follows:
Name Title Age ---- ----- ---
Edward P. Dowd Senior Vice President of 52 John Hancock's Real Estate Investment Group
Kevin McGuire Vice President of John Hancock's 48 Real Estate Investment Group, President of John Hancock Realty Services Corp. and subsidiaries
(d) Family relationships
There exist no family relationships among any of the foregoing directors or officers of the General Partner.
(e) Business experience
William M. Fitzgerald (age 51) joined John Hancock in 1968. He has been President and a Director of the General Partner, and a Senior Investment Officer of John Hancock, since June 1993 and a Managing Director of Hancock Realty Investors Incorporated since November 1991. His term as a Director of the General Partner expires in May 1995. From 1987 to 1991, Mr. Fitzgerald was a Senior Vice President of John Hancock Properties, Inc. Prior to that time, he held a number of positions including Senior Real Estate Management Officer and Real Estate Management Officer of John Hancock. He holds an M.B.A. from Boston University and a B.A. from Boston College.
Malcolm G. Pittman III (age 43) joined John Hancock in 1986 as an Assistant Counsel. He has been a Director of the General Partner since November 1991. His term as a Director of the General Partner expires in May 1995. Mr. Pittman has been Counsel of John Hancock's Mortgage and Real Estate Law Division since 1993. From 1989 to 1993, he was an Associate Counsel of John Hancock. He holds a J.D. from Yale Law School and a B.A. from Oberlin College.
Susan M. Shephard (age 42) joined John Hancock in 1985 as an Attorney. She has been a Director of the General Partner since November 1991. Her term as a Director of the General Partner expires in May 1995. Ms. Shephard has been a Mortgage Investment Officer of John Hancock since 1991. From 1988 to 1991, she was an Associate Counsel of John Hancock and from 1987 to 1988, she was an Assistant Counsel of John Hancock. She holds a J.D. from Georgetown University Law Center and a B.A. from the University of Rhode Island.
Item 10 - Directors and Executive Officers of the Partnership (continued)
(e) Business experience (continued)
Richard E. Frank (age 33) joined John Hancock in 1983. He has been Treasurer of the General Partner and a Senior Financial Administrator of John Hancock since June 1993. From 1991 to 1993, Mr. Frank was an Associate of Hancock Realty Investors Incorporated; from 1990 to 1991, he held the position of Assistant Treasurer of John Hancock Realty Services Corp.; and from 1987 to 1990, he was a Senior Accountant of John Hancock Realty Services Corp. He holds a B.S. from Stonehill College.
Edward P. Dowd (age 52) joined John Hancock in 1970. He has been a Director of Hancock Realty Investors, Incorporated since 1991, and a Director of John Hancock Realty Services Corp. and subsidiaries and John Hancock Property Investors Corp. since 1987. Mr. Dowd has been a Senior Vice President of John Hancock since 1991. From 1989 to 1990, he was a Vice President of John Hancock and from 1986 to 1989, he was a Second Vice President of John Hancock. Prior to that time, he held a number of positions including Senior Real Estate Investment Officer and Real Estate Investment Officer of John Hancock. From July 1982 to May 1986, Mr. Dowd was President of the General Partner. He holds an A.B. from Boston College.
Kevin McGuire (age 48) joined John Hancock in 1968. He has been a Vice President of John Hancock since June 1993 and President of John Hancock Realty Services Corp. and subsidiaries since July 1993. He has been a Managing Director and a Director of Hancock Realty Investors Incorporated since 1991, and a Director of John Hancock Property Investors Corp. since 1987. Mr. McGuire served as an interim basis President of the General Partner from May 1991 to November 1991 and was President of John Hancock Properties, Inc. from 1987 to 1991. Prior to that time, he held a number of positions including Second Vice President, Senior Real Estate Investment Officer and Real Estate Investment Officer of John Hancock. He holds an M.B.A. from Babson College and a B.A. from Boston College.
(f) Involvement in certain legal proceedings
None
Compliance with Section 16(a) of the Exchange Act
Under Section 16(a) of the Securities Exchange Act of 1934, as amended, the General Partner's directors and executive officers, as well as any person holding more than ten percent of the Units, are required to report their initial ownership of Units and any subsequent change in such ownership to the Securities and Exchange Commission and the Partnership (such requirements hereinafter referred to as "Section 16(a) filing requirements"). Specific time deadlines for Section 16(a) filing requirements have been established.
To the Partnership's knowledge, no officer or director of the General Partner has or had an ownership interest in the Partnership at any time during the 1994 fiscal year or as of the date hereof. In addition, the Massachusetts State Teachers and Employees Retirement System, the greater than ten percent holder of the Units, informed the Partnership that it was not required to file any reports relating to Section 16(a) filing requirements during the 1994 fiscal year.
Item 11

Item 11 - Executive Compensation
None of the officers or directors of the General Partner or any of the Real Estate Investment Committee members referred to in Item 10(c) receive any current or proposed direct remuneration in their capacities as officers, directors or Real Estate Investment Committee members, pursuant to any standard arrangements or otherwise, from the Partnership nor is any such remuneration currently proposed. In addition, the Partnership has not given and does not propose to give any options, warrants or rights, including stock appreciation rights, to any such persons in such capacities. No long-term incentive plan exists with any such persons in such capacities and no remuneration plan or arrangement exists with any such persons resulting from resignation, retirement or any other termination. Therefore, tables relating to these topics have been omitted.
For its activities occurring during the offering period, which terminated on September 9, 1987, the General Partner and/or its Affiliates, as defined in the Partnership Agreement, received certain acquisition fees and reimbursement for certain organizational, offering and acquisition expenses, in accordance with the terms of the Partnership Agreement.
In accordance with the terms of the Partnership Agreement, the General Partner and/or its Affiliates are entitled to the following types of compensation, fees, profits/(losses), expense reimbursements and distributions:
The General Partner is entitled to receive a Partnership Management Fee, as defined in the Partnership Agreement, for managing the normal operations of the Partnership in an amount equal to 3.5% of Cash Flow from Operations. The General Partner was paid a Partnership Management Fee totaling $83,939, $89,101 and $104,854 during the years ended December 31, 1994, 1993 and 1992, respectively.
An Affiliate of the General Partner is entitled to receive a Property Management Fee, as defined in the Partnership Agreement, for providing property management services to the Partnership's properties. The Partnership is obligated to pay a fee equal to the amount customarily charged in arms-length transactions by other entities rendering services in an area where the Partnership's properties are located, but in no event may such fees exceed 6% of the gross receipts of any property under management. To date, no Affiliate of the General Partner has provided property management services to the Partnership's properties, therefore, the Partnership did not pay any such fees during the years ended December 31, 1994, 1993 and 1992.
The General Partner and its Affiliates are entitled to receive reimbursement for expenses relating to the administrative services necessary to the prudent operation of the Partnership, such as legal, accounting, computer, transfer agent and other services. The amounts charged to the Partnership for such administrative services may not exceed the lesser of the General Partner's or such Affiliates' costs or 90% of those which the Partnership would be required to pay to independent parties for comparable services in the same or comparable geographic locations. The Partnership reimbursed the General Partner for $118,293, $133,054 and $130,071 of such expenses during the years ended December 31, 1994, 1993 and 1992, respectively.
Item 11 - Executive Compensation (continued)
Upon disposition of any property, the General Partner is entitled to a Subordinated Disposition Fee, as defined in the Partnership Agreement, in the amount of 3% of the sales price of each property sold. However, no such Subordinated Disposition Fees may be paid to the General Partner unless and until the Investors and the John Hancock Limited Partner have received a return of their total Invested Capital, as defined in the Partnership Agreement, plus the Cumulative Return on Investment, as defined in the Partnership Agreement, of 12% per annum for all fiscal years ended prior to the date of payment. Such Subordinated Disposition Fees may not exceed 50% of the competitive real estate commission in the area where the property is located or, together with any other brokerage commission payable to or by any other person, exceed 6% of the contract sales price of such property. The Partnership did not consummate the sale of any properties during 1992, 1993 or 1994. Accordingly, the Partnership did not pay any such fees to the General Partner during the years ended December 31, 1994, 1993 and 1992.
A share of the Partnership's Distributable Cash from Operations, as defined in the Partnership Agreement, may be distributed to the General Partner and the John Hancock Limited Partner. Distributable Cash from Operations is distributable 1% to the General Partner and the remaining 99% among the Investors, the General Partner and the John Hancock Limited Partner, in accordance with Section 8 of the Partnership Agreement (as described more fully in Note 3 to the Financial Statements included in Item 8 of this Report). The General Partner's Share of Distributable Cash from Operations was $23,143, $25,458 and $27,772 for the years ended December 31, 1994, 1993 and 1992, respectively. In accordance with the Partnership Agreement, the John Hancock Limited Partner was not entitled to receive any such distributions during the 1994, 1993 and 1992 fiscal years.
A share of Cash from Sales or Financings, as defined in the Partnership Agreement, is distributed to the General Partner and the John Hancock Limited Partner is distributable in accordance with Section 8 of the Partnership Agreement (as described more fully in Note 3 to the Financial Statements included in Item 8 of this Report). In accordance with the terms of the Partnership Agreement, the General Partner and the John Hancock Limited Partner were not entitled to receive any such distributions during the years ended December 31, 1994, 1993 and 1992.
A share of the Partnership's profits or losses for tax purposes, as defined in the Partnership Agreement, is allocable to the General Partner and the John Hancock Limited Partner. Such allocation generally approximates, insofar as practicable, their percentage share of Distributable Cash from Operations and of Cash from Sales or Financings. The General Partner is generally allocated 1% of the Partnership's losses for tax purposes, while the John Hancock Limited Partner is allocated tax losses associated with the Partnership's sales commissions funded by the John Hancock Limited Partner's Capital Contributions. The General Partner's share of such profits and losses were profits of $21,281, $18,263 and $20,425 during the years ended December 31, 1994, 1993 and 1992, respectively. The John Hancock Limited Partner's share of such profits or losses were losses of $56,684 in each of the three years ended December 31, 1994.
Item 11 - Executive Compensation (continued)
The following table reflects compensation, fees, profits/(losses), expense reimbursements or distributions from the Partnership to the General Partner and/or its Affiliates:
Compensation Committee Interlocks and Insider Participation:
The Partnership did not have a Compensation Committee in 1994 and does not currently have such a committee. During the 1994 fiscal year, no current or former officer or employee of the General Partner or its Affiliates participated in deliberations regarding the General Partner's compensation as it relates to the Partnership.
Item 12

Item 12 - Security Ownership of Certain Beneficial Owners and Management
(a) Security ownership of certain beneficial owners
No person or group, including the General Partner, is known by the General Partner to own beneficially more than 5% of the Partnership's 91,647 outstanding Units as of December 31, 1994, except as follows:
Item 12 - Security Ownership of Certain Beneficial Owners and Management (continued)
(b) Security ownership of management
By virtue of its organization as a Limited Partnership, the Partnership has no officers or directors. Neither the General Partner nor any officer or director of the General Partner possesses the right to acquire a beneficial ownership of Units.
(c) Changes in control
The Partnership does not know of any arrangements the operations of which may at a subsequent date result in a change of control of the Partnership.
Item 13

Item 13 - Certain Relationships and Related Transactions
See Note 5 of the Notes to the Financial Statements included in Item 8 of this Report for a description of certain transactions and related amounts paid by the Partnership to the General Partner and its Affiliates during 1994, 1993 and 1992.
Part IV
Item 14

Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) and (2) - Listed on Index to Financial Statements and Financial Statement Schedules.
(3) - Listing of Exhibits
Exhibit Number Page Number or Under Incorporation by Regulation S-K Description Reference
4 Instruments defining the rights of security holders
4.1 Amended Agreement of Limited Exhibit A to the Partnership* final Prospectus dated September 4, 1986, filed under the Partnership's Form S-11 Registration Statement (File 33-6451)
4.2 The Seventeenth Amendment and Exhibit 4.2 to the Restatement of Certificate of Partnership's Limited Partnership filed with Report on the Massachusetts Secretary of Form 10-K dated State on September 15, 1987* December 31, 1987 (File 0-15680)
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K (continued)
10 Material contracts and other documents
10.1 Form of Escrow Agreement* Exhibit 10.1 to the Partnership's Form S-11 Registration Statement (File 33-6451)
10.2 Letter from John Hancock Exhibit 10.1 to Subsidiaries, Inc. containing the Partnership's undertaking as to the net Form S-11 worth of the General Partner* Registration Statement (File 33-6451)
10.3 Documents relating to 1300 North Dutton Avenue
(a) Agreement of Purchase and Sale Exhibit 10.3(a) to dated September 30, 1986, and the Post-Effective First Amendment to Agreement of Amendment No. 1 to Purchase and Sale dated the Partnership's October 22, 1986, between Form S-11 Park Campus Associates and Registration John Hancock Realty Income Fund Statement Limited Partnership* (File 33-6451)
(b) Lease dated June 12, 1986, and Exhibit 10.3(b) to First Amendment to Lease dated the Post-Effective June 12, 1986, between Amendment No. 1 to Park Campus Associates and the Partnership's Mag Media Ltd.* Form S-11 Registration Statement (File 33-6451)
(c) Amended and Restated Statements Exhibit 10.3(c) to of Development Policy and the Post-Effective Declarations of Restrictions of Amendment No. 1 to Santa Rosa Business Park dated the Partnership's June 5, 1986* Form S-11 Registration Statement (File 33-6451)
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K (continued)
(d) Declaration of Covenants, Exhibit 10.3(d) to Conditions and Restrictions of the Post-Effective Park Campus dated October 2, Amendment No. 1 to 1986* the Partnership's Form S-11 Registration Statement (File 33-6451)
10.4 Documents relating to Marlboro Square Shopping Center
(a) Agreement of Purchase and Sale Exhibit 10.4(a) to dated January 17, 1987, between the Post-Effective Marlborough GLR Realty Trust Amendment No. 2 to and John Hancock Realty Equities, the Partnership's Inc.* Form S-11 Registration Statement (File 33-6451)
10.5 Documents relating to Crossroads Square Shopping Center
(a) Agreement of Purchase and Sale Exhibit 1 to the dated November 20, 1987, between Partnership's Crossroads Square Limited Report on Partnership and John Hancock Form 8-K dated Realty Income Fund Limited December 8, 1987 Partnership* (File 0-15680)
(b) Limited Warranty Deed dated Exhibit 2 to the November 20, 1987, relating Partnership's to Crossroads Square Shopping Report on Center* Form 8-K dated December 8, 1987 (File 0-15680)
(c) Master Lease Agreement Exhibit 3 to the dated November 18, 1987, Partnership's relating to Crossroads Square Report on Shopping Center* Form 8-K dated December 8, 1987 (File 0-15680)
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K (continued)
10.6 Documents relating to Carnegie Center Office/Warehouse
(a) Agreement of Purchase and Sale Exhibit 1 to the between Carnegie Properties Partnership's Partnership, Carnegie Properties Report on Partnership II and John Hancock Form 8-K dated Realty Income Fund Limited January 22, 1988 Partnership* (File 0-15680)
(b) General Warranty Deed dated Exhibit 2 to the December 22, 1987, between Partnership's Carnegie Properties Partnership Report on and John Hancock Realty Income Form 8-K dated Fund Limited Partnership* January 22, 1988 (File 0-15680)
(c) General Warranty Deed dated Exhibit 3 to the December 22, 1987, between Partnership's Carnegie Properties Partnership Report on II and John Hancock Realty Income Form 8-K dated Fund Limited Partnership* January 22, 1988 (File 0-15680)
10.7 Documents relating to Warner Plaza Shopping Center
(a) Agreement of Purchase and Sale Exhibit 1 to the between First Republic bank Partnership's Dallas, N.A., and John Hancock Report on Realty Income Fund Limited Form 8-K dated Partnership* March 17, 1988 (File 0-15680)
(b) Special Warranty Deed dated Exhibit 2 to the February 24, 1988, between Partnership's First Republic bank, Dallas, Report on N.A., and John Hancock Form 8-K dated Realty Income Fund Limited March 17, 1988 Partnership* (File 0-15680)
10.8 Documents relating to J.C. Penney Credit Operations Center
(a) Agreement of Purchase and Sale Exhibit 1 to the between Noro-Rocky Mountains Partnership's B.V., a Netherlands Corporation, Report on and John Hancock Realty Income Form 8-K dated Fund Limited Partnership* November 17, 1988 (File 0-15680)
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K (continued)
(b) Warranty and Guaranty dated Exhibit 2 to the August 18, 1988, between Partnership's Noro-Rocky Mountains Report on B.V., a Netherlands Corporation, Form 8-K dated and John Hancock Realty Income November 17, 1988 Fund Limited Partnership* (File 0-15680)
10.9 Documents relating to Management Agreement
(a) Management Agreement dated Exhibit 10.9(a) to the January 1, 1992, between Partnership's Report on Hancock Realty Investors Form 10-K dated Incorporated and John Hancock December 31, 1992 Realty Equities, Inc.* (File 0-15680)
(b) Agreement Concerning Subcontracting Exhibit 10.9(b) to the of Management Services Pertaining to Partnership's Report on John Hancock Realty Income Fund Form 10-K dated Limited Partnership dated May 28, 1993 December 31, 1993 between John Hancock Realty Equities, (File 0-15680) Inc., Hancock Realty Investors, Incorporated and John Hancock Mutual Life Insurance Company*
10.10 Documents relating to Executive Compensation Plans and Arrangements
(a) Amended Agreement of Exhibit A to the Limited Partnership* Final Prospectus dated September 4, 1986, filed under the Partnership's Form S-11 Registration Statement (File 33-6451)
(b) No reports on Form 8-K were filed during the quarter ended December 31, 1994.
(c) Exhibits - See Item 14 (a) (3) of this Report.
(d) Financial Statement Schedules - The response to this portion of Item 14 is submitted as a separate section of this Report commencing on Page.
------------------------------------ +Filed herewith *Incorporated by reference
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 31th day of March, 1995.
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
By: John Hancock Realty Equities, Inc. General Partner
By: WILLIAM M. FITZGERALD ------------------------------- William M. Fitzgerald, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 31th day of March, 1995.
Signatures Title ---------- -----
President (Principal Executive Officer) and Director of John Hancock Realty Equities, Inc. (General Partner of WILLIAM M. FITZGERALD Registrant) ---------------------- William M. Fitzgerald
Treasurer (Chief Accounting Officer) of John Hancock Realty Equities, Inc. RICHARD E. FRANK (General Partner of Registrant) ---------------------- Richard E. Frank
Director of John Hancock Realty Equities, Inc. (General Partner of MALCOLM G. PITTMAN, III Registrant) ---------------------- Malcolm G. Pittman, III
Director of John Hancock Realty Equities, Inc. (General Partner of SUSAN M. SHEPHARD Registrant) ---------------------- Susan M. Shephard
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14 (a) (1) AND (2), (c) AND (d)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1994
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP
BOSTON, MASSACHUSETTS
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A Massachusetts Limited Partnership)
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
(ITEMS 8 AND 14(a)(1) AND (2))
1. Financial Statements: Page
Report of Independent Auditors
Balance Sheets at December 31, 1994 and 1993
Statements of Operations for the Years Ended December 31, 1994, 1993 and 1992
Statements of Partners' Equity for the Years Ended December 31, 1994, 1993 and 1992
Statements of Cash Flows for the Years Ended December 31, 1994, 1993 and 1992
Notes to Financial Statements
2. Financial Statement Schedules:
Schedule III: Real Estate and Accumulated Depreciation
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted.
Report of Independent Auditors
To the Partners John Hancock Realty Income Fund Limited Partnership
We have audited the accompanying balance sheets of John Hancock Realty Income Fund Limited Partnership as of December 31, 1994 and 1993, and the related statements of operations, partners' equity and cash flows for each of the three years in the period ended December 31, 1994. Our audits also included the financial statement schedule listed in the index at Item 14(a). These financial statements and schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of John Hancock Realty Income Fund Limited Partnership at December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
ERNST & YOUNG LLP
February 3, 1995, except for Note 8, as to which the date is February 15, 1995
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A Massachusetts Limited Partnership)
BALANCE SHEETS
ASSETS December 31, 1994 1993 ---- ---- Current assets: Cash and cash equivalents $3,124,999 $2,359,803 Restricted cash 22,457 18,808 Other current assets 68,354 74,365 ---------- ---------- Total current assets 3,215,810 2,452,976
Investment in property: Land 8,934,077 8,959,677 Buildings and improvements 29,174,904 29,661,304 ---------- ---------- 38,108,981 38,620,981 Less: accumulated depreciation (7,453,459) (6,485,966) ---------- ---------- 30,655,522 32,135,015
Long-term restricted cash 22,166 20,965
Deferred expenses, net of accumulated amortization of $673,932 in 1994 and $525,002 in 1993 431,741 541,751 ---------- ---------- Total assets $34,325,239 $35,150,707 =========== ===========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities: Accounts payable and accrued expenses $251,976 $257,184 Accounts payable to affiliates 47,965 51,128 ---------- ---------- Total current liabilities 299,941 308,312
Partners' equity/(deficit): General Partner (193,008) (184,837) Limited Partners 34,218,306 35,027,232 ---------- ---------- Total partners' equity 34,025,298 34,842,395 ---------- ---------- Total liabilities and partners' equity $34,325,239 $35,150,707 =========== ===========
See Notes to Financial Statements
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A Massachusetts Limited Partnership)
STATEMENTS OF OPERATIONS
See Notes to Financial Statements
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A Massachusetts Limited Partnership)
STATEMENTS OF PARTNERS' EQUITY Years Ended December 31, 1994, 1993 and 1992
See Notes to Financial Statements
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A Massachusetts Limited Partnership)
STATEMENTS OF CASH FLOWS
Continued on Next Page
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A Massachusetts Limited Partnership)
STATEMENTS OF CASH FLOWS (Continued)
See Notes to Financial Statements
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Organization of Partnership --------------------------- John Hancock Realty Income Fund Limited Partnership (the "Partnership") was formed under the Massachusetts Uniform Limited Partnership Act on June 12, 1986. As of December 31, 1994, the Partnership consisted of John Hancock Realty Equities, Inc. (the "General Partner"), a wholly-owned, indirect subsidiary of John Hancock Mutual Life Insurance Company; John Hancock Realty Funding, Inc. (the "John Hancock Limited Partner"); and 4,201 Investor Limited Partners (the "Investors"), owning 91,647 Units of Investor Limited Partnership Interests (the "Units"). The John Hancock Limited Partner and the Investors are collectively referred to as the Limited Partners. The initial capital of the Partnership was $2,000, representing capital contributions of $1,000 from the General Partner and $1,000 from the John Hancock Limited Partner. The Amended Agreement of Limited Partnership of the Partnership (the "Partnership Agreement") authorized the issuance of up to 100,000 Units of Limited Partnership Interests at $500 per unit. During the offering period, which terminated on September 9, 1987, 91,647 Units were sold and the John Hancock Limited Partner made additional capital contributions of $7,330,760. There have been no changes in the number of Units outstanding subsequent to the termination of the offering period. The Partnership is engaged in the business of acquiring, improving, operating, holding for investment and disposing of existing, income- producing, commercial and industrial properties on an all-cash basis, free and clear of mortgage indebtedness. Although the Partnership's properties were acquired and are held free and clear of mortgage indebtedness, the Partnership may incur mortgage indebtedness on its properties under certain circumstances, as described in the Partnership Agreement.
The latest date on which the Partnership is due to terminate is December 31, 2016, unless it is sooner terminated in accordance with the terms of the Partnership Agreement. It is expected that in the ordinary course of the Partnership's business, the properties of the Partnership will be disposed of, and the Partnership terminated, before December 31, 2016.
2. Significant Accounting Policies ------------------------------- The Partnership maintains its accounting records and recognizes rental revenue on the accrual basis.
Cash equivalents are highly liquid investments with maturities of three months or less when purchased. These investments are recorded at cost plus accrued interest, which approximates market value. Restricted cash represents funds restricted for tenant security deposits and other escrows, and has been designated as short or long- term based upon the term of the related lease agreement.
Investments in property are recorded at cost less any property write- downs for permanent impairment in values. Cost includes the initial purchase price of the property plus acquisition and legal fees, other miscellaneous acquisition costs, and the cost of significant improvements.
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
2. Significant Accounting Policies (continued) ------------------------------- Depreciation has been provided on a straight-line basis over the estimated useful lives of the various assets: thirty years for the buildings and five years for related improvements. Maintenance and repairs are charged to operations as incurred.
Deferred expenses relating to tenant improvements and lease commissions are amortized on a straight-line basis over the various lease terms. During 1993, the Partnership reduced the period over which its remaining deferred acquisition fees are amortized from thirty years, the estimated useful life of the buildings owned by the Partnership, to four and one-half years, the then estimated remaining life of the Partnership.
The net income per Unit for each year is computed by dividing the Investors' share of net income by the number of Units outstanding at the end of each year.
No provision for income taxes has been made in the financial statements since such taxes are the responsibility of the individual partners and not of the Partnership.
Certain 1993 and 1992 amounts have been reclassified to be consistent with the 1994 presentation.
3. The Partnership Agreement ------------------------- Distributable Cash from Operations, as defined in the Partnership Agreement, is distributed 99% to the Limited Partners and 1% to the General Partner. The Limited Partners' share of Distributable Cash from Operations is distributed as follows: first, to the Investors until they receive a 7% non-cumulative, non-compounded annual cash return on their Invested Capital, as defined in the Partnership Agreement; second, to the John Hancock Limited Partner until it receives a 7% non-cumulative, non-compounded annual cash return on its Invested Capital; and third, to the Investors and the John Hancock Limited Partner in proportion to their respective Capital Contributions, as defined in the Partnership Agreement. However, any Distributable Cash from Operations which is available as a result of the reduction of working capital reserves funded by Capital Contributions of the Investors will be distributed 100% to the Investors.
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
3. The Partnership Agreement (continued) ------------------------- Profits for tax purposes from the normal operations of the Partnership for each fiscal year are allocated to the Limited Partners and General Partner in the same amounts as Distributable Cash from Operations for that year. If such profits are less than Distributable Cash from Operations for any year, they are allocated in proportion to the amounts of Distributable Cash from Operations for that year. If such profits are greater than Distributable Cash from Operations for any year, they are allocated 99% to the Limited Partners and 1% to the General Partner, with the allocation made between the John Hancock Limited Partner and the Investors in proportion to their respective Capital Contributions. Losses for tax purposes from the normal operations of the Partnership are allocated 99% to the Limited Partners and 1% to the General Partner, with the allocation made between the John Hancock Limited Partner and the Investors in proportion to their respective Capital Contributions. However, tax deductions arising from the Initial Expenses, as defined in the Partnership Agreement, which are paid by the Partnership from the Capital Contributions made by the John Hancock Limited Partner and all other tax aspects of the Partnership's payment of the Initial Expenses, as defined in the Partnership Agreement, are allocated 1% to the General Partner and 99% to the John Hancock Limited Partner, and not to the Investors. Depreciation deductions are allocated 1% to the General Partner and 99% to the Investors, and not to the John Hancock Limited Partner.
4. Investment in Property ---------------------- Investment in property at cost and reduced by write-downs consists of managed, fully-operating, commercial real estate as follows:
The net realizable value of a real estate investment held for long- term investment purposes is measured by the recoverability of the investment through expected future cash flows on an undiscounted basis, which may exceed the properties current market value.
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
4. Investment in Property (continued) ---------------------- During the year ended December 31, 1994, the Partnership reduced the carrying value of the Carnegie Center property by $512,000. During the year ended December 31, 1992, the Partnership reduced the carrying value of the Marlboro Square Shopping Center by $719,000.
The Partnership leases its properties to non-affiliated tenants under primarily long-term operating leases.
At December 31, 1994, future minimum rentals on non-cancelable leases relating to the above properties were as follows:
1995 $2,848,154 1996 2,248,791 1997 1,717,551 1998 1,580,574 1999 1,379,551 Thereafter 9,481,311 ----------- Total $19,255,932 ===========
5. Transactions with the General Partner and Affiliates ---------------------------------------------------- Fees and expenses incurred or paid by the General Partner or its affiliates during the three years ended December 31, 1994, and to which the General Partner or its affiliates are entitled to reimbursement from the Partnership were as follows:
These expenses are included in expenses on the Statements of Operations.
Accounts payable to affiliates represents amounts due to the General Partner and its affiliates for various services provided to the Partnership.
The General Partner currently serves in a similar capacity for three other affiliated real estate limited partnerships.
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
6. Deferred Expenses ----------------- Deferred expenses consist of the following:
JOHN HANCOCK REALTY INCOME FUND LIMITED PARTNERSHIP (A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
7. 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:
8. Subsequent Event ---------------- On February 15, 1995, the Partnership made a cash distribution of $572,793, representing a 5% annualized return to all Investors of record at December 31, 1994, based on the Distributable Cash from Operations for the quarter then ended.