<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                               -------------------

                                    FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1999
                           Commission File No. 0-14052

                               -------------------

                    NEW ENGLAND LIFE PENSION PROPERTIES III;
                        A REAL ESTATE LIMITED PARTNERSHIP
             (Exact name of registrant as specified in its charter)

     Massachusetts                                               04-2847256
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

   225 Franklin Street
  Boston, Massachusetts                                             02110
(Address of principal executive offices)                          (Zip Code)

               Registrant's telephone number, including area code:
                                 (617) 261-9000

           Securities registered pursuant to Section 12(b) of the Act:
                                      None

           Securities registered pursuant to Section 12(g) of the Act:
                      Units of Limited Partnership Interest

                                (Title of Class)

      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 |_|

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. |X|

      No voting stock is held by nonaffiliates of the Registrant.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None

                                       1
<PAGE>

                                     PART I

Item 1. Business.

      New England Life Pension Properties III; A Real Estate Limited Partnership
(the "Partnership") was organized under the Uniform Limited Partnership Act of
the Commonwealth of Massachusetts on November 1, 1984, to invest primarily in
newly constructed and existing income-producing real properties.

      The Partnership was initially capitalized with contributions of $2,000 in
the aggregate from Copley Properties Company III, Inc. (the "Managing General
Partner") and ACOP Associates Limited Partnership (the "Associate General
Partner") (collectively, the "General Partners") and $10,000 from Copley Real
Estate Advisors, Inc. (the "Initial Limited Partner"). The Partnership filed a
Registration Statement on Form S-11 (the "Registration Statement") with the
Securities and Exchange Commission on November 15, 1984, with respect to a
public offering of 50,000 units of limited partnership interest at a purchase
price of $1,000 per unit (the "Units") with an option to sell up to an
additional 25,000 Units (an aggregate of $75,000,000). The Registration
Statement was declared effective on January 25, 1985.

      The first sale of Units occurred on July 15, 1985, at which time the
Initial Limited Partner withdrew its contribution from the Partnership.
Investors were admitted to the Partnership thereafter at monthly closings; the
offering terminated and the last group of initial investors was admitted to the
Partnership on December 19, 1985. A total of 68,414 Units had been sold, a total
of 11,437 investors had been admitted as limited partners (the "Limited
Partners") and a total of $67,748,960 had been contributed to the capital of the
Partnership. The remaining 6,586 Units were de-registered on February 18, 1986.

      The Partnership has no employees. Services are performed for the
Partnership by the Managing General Partner and affiliates of the Managing
General Partner.

         As of December 31, 1999, the Partnership held in the real property
investment described below. Additionally, the Partnership sold eight other real
estate investments between 1987 and 1998. The principal terms of these sales are
set forth in the following table:

<TABLE>
<CAPTION>
    Investment         Month/Year of Sale        Net Sale Proceeds         Distribution/Unit(1)        Distribution
                                                                                                       Month/Year
<S>                             <C>                   <C>                        <C>                      <C>
Investment Four                 12/87                 $15,771,830                 $17.86                   1/88
Investment Five                  9/88                  $3,002,643                 $36.00                  10/88
Investment Six                   3/89                 $10,943,495                $150.00                   4/89
Investment Seven                 2/92                  $7,724,589                $102.00                   4/92
Investment Eight(2)             12/92                 $11,600,183                $170.00                   1/93
Investment Nine                 12/93                  $2,161,552                 $31.00                   1/94
Investment Ten                   8/98                 $16,985,000                $248.00                   8/98
Investment Eleven                3/99                  $2,639,445                 $37.12                   4/99
</TABLE>

      In the opinion of the Managing General Partner, the properties are
adequately covered by insurance.

----------
(1) In October 1996, October 1998 and October 1999, additional distributions of
$7.60, $6.00 and $10.82 per Unit, respectively, were made, representing proceeds
from several prior sales which were being held in working capital reserves.
(2)These sale proceeds represent the proceeds received by the Partnership when
two mortgage loans made by the Partnership were paid off and the investment was
liquidated.


                                       2


<PAGE>

      A. Light Industrial Facility in Hayward, California ("North Cabot
Industrial Park").

      The Partnership owned a 3.8-acre parcel of land in Hayward, California,
which it acquired in 1985 for $786,130 and leased back to the seller. In
addition, the Partnership also made a loan to the ground lessee in the amount of
$2,663,870. Two single-story research and development buildings containing an
aggregate of approximately 51,089 square feet of space are situated on the land.
These buildings were 92% leased at the time of sale, discussed below.

      The Partnership entered into a ground lease with the seller which had a
term of 60 years. On November 15, 1994, the Partnership obtained fee simple
title to this property because the ground lessee defaulted on its obligations.

      The North Cabot Industrial Park was sold on March 18, 1999, and the
Partnership received net proceeds totaling $2,639,445. On April 29, 1999 the
Partnership made a capital distribution of $2,539,528 ($37.12 per Limited
Partnership Unit) from the proceeds of the sale.

      B. Research and Development/Office Buildings in Frederick, Maryland ("270
Technology Park").

      In August, 1987, the Partnership exercised its option to purchase for
$247,650 an 8.288-acre parcel of land in 270 Technology Park, Frederick,
Maryland. Situated on the land are three single-story research and
development/office buildings containing an aggregate of 86,169 square feet of
space. The Partnership simultaneously leased the land back to the seller for a
term of 60 years. The ground lease provided for a fixed annual rent of $26,003
plus additional rent equal to 50% of gross revenues from the rental of the
buildings in excess of a base amount. Upon exercising its option, the
Partnership also made a non-recourse mortgage loan to the ground lessee of
$5,712,350.

      On January 1, 1988, the Partnership converted this investment to a joint
venture in which it has a 50% interest. The Partnership contributed the land and
funds to retire the mortgage debt. In addition, the Partnership contributed an
additional $260,000 of capital. The Partnership is entitled to receive a 10.5%
per annum preferred return on its invested capital payable currently, and 50% of
remaining cash flow and of sale and refinancing proceeds after return of its
equity. The preferred return may accrue if sufficient cash flow is not available
therefor. Effective January 1, 1998, ownership of the joint venture was
restructured to give the Partnership full control over the business of the joint
venture.

      As of December 31, 1999, the buildings were 98% leased.



                                       3


<PAGE>

Item 2. Properties.

      The following table sets forth the annual realty taxes for the
Partnership's last remaining property and information regarding tenants who
occupy 10% or more of gross leasable area (GLA) in the Partnership's properties:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                                                                                                     Annual
                                 Estimated       Number of                                          Contract
                                   2000       Tenants with 10%    Name(s) of      Square Feet of      Rent            Lease
             Property           Realty Taxes   or More of GLA      Tenant(s)       Each Tenant    Per Square Foot   Expiration
---------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>               <C>         <C>                   <C>            <C>           <C>
R&D Buildings in Frederick, MD    $77,756           4              Sac-Tec            15,000         $13.25         March, 2000
                                                                Abbie Business        13,209         $10.76         August, 2001
                                                                   School
                                                                   Bechtel            15,591         $10.76         May, 2001
                                                                Horizon Cellular      10,111         $12.13        October, 2001
                                                                  Telephone
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------


                                  Renewal             Line of Business
             Property             Options           of Principal Tenants
--------------------------------------------------------------------------------
<S>                             <C>                 <C>
R&D Buildings in Frederick, MD  Two 3 Year Options         Defense
                                Two 5 Year Options    Business School

                                      None           Engineering/Design
                                Two 5 Year Options  Cellular Communications

--------------------------------------------------------------------------------
</TABLE>



                                       4


<PAGE>

      The following table sets forth for each of the last five years the gross
leasable area, occupancy rates, rental revenue, and net effective rent for the
Partnership's last remaining property:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
                                  Gross Leasable   Year-End      Rental      Net Effective
             PROPERTY                 Area         Occupancy    Revenue     Rent($/sf/yr)*
                                                               Recognized
------------------------------------------------------------------------------------------

<S>                                  <C>              <C>      <C>               <C>
R&D Buildings in Frederick, MD
                  1995               86,169           98%       $968,980        $11.56
                  1996               86,169           98%       $976,011        $11.56
                  1997               86,169           98%       $924,087        $11.95
                  1998               86,169           95%       $988,950        $11.62
                  1999               86,169           98%     $1,105,848        $13.20
------------------------------------------------------------------------------------------
</TABLE>

* Net effective rent calculation is based on average occupancy during the
respective year.
                                            5


<PAGE>

      Following is a schedule of lease expirations for each of the next ten
years for the Partnership's last remaining property:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
                               TENANT AGING REPORT
------------------------------------------------------------------------------------------
                  Property          # of Lease     Total       Total      Percentage of
                                    Expirations    Square      Annual     Gross Annual
                                                   Feet        Rental       Rental*
------------------------------------------------------------------------------------------
<S>                                      <C>       <C>         <C>            <C>
R&D Buildings in Frederick, MD
                    2000                 1         15,000      $198,750       23.3%
                    2001                 7         43,624      $489,092       57.4%
                    2002                 1          2,256       $28,200       3.3%
                    2003                 1          8,511      $100,345       11.8%
                    2004                 0              0            $0        0%
                    2005                 1          2,555        35,540       4.2%
                    2006                 0              0            $0        0%
                    2007                 0              0            $0        0%
                    2008                 0              0            $0        0%
                    2009                 0              0            $0        0%
------------------------------------------------------------------------------------------
</TABLE>

* Does not include expenses paid by tenants.
                                              6


<PAGE>

      The following information sets forth for the Partnership's last remaining
property the: (i) federal tax basis, (ii) rate of depreciation, (iii) method of
depreciation, (iv) life claimed and (v) accumulated depreciation, with respect
to each property or component thereof for purposes of depreciation:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
                                                            Rate of                Life      Accumulated
             Entity / Property                Tax Basis   Depreciation   Method  in years    Depreciation

---------------------------------------------------------------------------------------------------------

<S>                                          <C>             <C>           <C>      <C>     <C>
Research and Development/Office Buildings
Frederick, Maryland.
------------------------------------------
Buildings                                    $ 6,080,008     3.18%         SL       31.5     $2,280,373
Improvements                                     428,505     2.56%         SL        39          43,983
                                                 -------                                         ------
Total Depreciable Assets                      $6,508,513                                    $ 2,324,356

Total Depreciable Assets                      $6,508,513                                     $3,324,356
                                              ==========                                     ==========
---------------------------------------------------------------------------------------------------------
</TABLE>

SL= Straight Line

                                            7

<PAGE>

      Following is information regarding the competitive market conditions for
the Partnership's last remaining property. This information has been gathered
from sources deemed reliable. However, the Partnership has not independently
verified the information and, as such, cannot guarantee its accuracy or
completeness:

R&D/Office Buildings in Frederick, MD

The Frederick R&D market contains approximately 5 million square feet of office
and r&d space with a vacancy hovering around 9%. The more competitive and
narrower submarket for 270 Technology Park includes approximately 40 buildings
in 2.3 million square feet with a reported vacancy of 11%. Current market rents
range from $9.50 to $11.25 per square foot NNN for R&D and $10.00 to $13.30 per
square foot NNN for office deals. This represents a 5-7% increase over levels
one year ago primarily due to the strong absorption of space and land for build
to suit projects.

By far the project which has had the most significant impact on our asset is the
Bechtel 400-500,000 square feet build to suit, as Bechtel vacated over 35,000
square feet in MORF III & MORF VI. Other build to suit projects under
development include MCI (50,000 square feet at 270 Technology Park) and First
Nationwide (35,000 square feet at MIE).

Item 3. Legal Proceedings.

      The Partnership is not a party to, nor are any of its properties subject
to, any material pending legal proceedings. A Joint Venture in which the
partnership holds an interest has received judgements against two former tenants
for defaults under leases. See Item 1.C.

Item 4. Submission of Matters to a Vote of Security Holders.

      No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Annual Report on Form 10-K.

                                     PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

      There is no active market for the Units. Trading in the Units is sporadic
and occurs solely through private transactions.

      As of December 31, 1999, there were 10,412 holders of Units.

                                      8

<PAGE>

      The Partnership's Amended and Restated Agreement of Limited Partnership
dated July 15, 1985, as amended to date (the "Partnership Agreement"), requires
that any Distributable Cash (as defined therein) be distributed quarterly to the
partners in specified proportions and priorities. There are no restrictions on
the Partnership's present or future ability to make distributions of
Distributable Cash. For the year ended December 31, 1999, cash distributions
paid in 1999 or distributed after year-end with respect to 1999 to the Limited
Partners as a group totaled $4,664,467, including $2,539,528 ($37.12 per Limited
Partnership Unit) from the proceeds of a property sale and $740,239 ($10.82 per
Limited Partnership Unit) from reserves established from the proceeds of
previous sales. Cash distributions exceeded net income in 1999 and, therefore,
resulted in a reduction of partners' capital. Reference is made to the
Partnership's Statement of Partners' Capital (Deficit) and Statement of Cash
Flows in Item 8 hereof.

Item 6. Selected Financial Data.

<TABLE>
<CAPTION>
                     For Year      For Year     For Year      For Year      For Year
                      Ended         Ended        Ended         Ended         Ended
                     or as of      or as of     or as of      or as of      or as of
                     12/31/99      12/31/98     12/31/97      12/31/96      12/31/95
                     --------      --------     --------      --------      --------

<S>               <C>           <C>           <C>           <C>           <C>
Revenues          $ 2,756,215   $ 8,472,836   $ 1,942,159   $ 1,961,564   $ 1,912,590
Net Income        $ 1,715,845   $ 7,526,363   $ 1,310,288   $ 1,313,894   $ 1,287,403

Net Income
per Limited
Partnership
Unit              $     24.83   $    108.91   $     18.96   $     19.01   $     18.63

Total Assets      $ 6,243,521   $ 9,306,143   $20,946,631   $21,459,173   $22,871,014

Total Cash
Distributions
per Limited
Partnership
Unit, including
amounts
distributed
after year end
with respect to
such year         $     68.18   $    275.92   $     26.72   $     39.91   $     24.64
                  -----------   -----------   -----------   -----------   -----------
</TABLE>

See financial statements for description of significant transactions.

                                      9

<PAGE>

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of
Operations

Liquidity and Capital Resources

      The Partnership completed its offering of units of limited partnership
interest in December 1985 and a total of 68,414 units were sold. The Partnership
received proceeds of $61,950,285, net of selling commissions and other offering
costs, which were invested in real estate, used to pay related acquisition
costs, or retained as working capital reserves. The Partnership made the real
estate investments described in Item 1 herein, six of which were sold prior to
1994 and one of which was sold in each of 1998 and 1999. As a result of the
sales and similar transactions, capital of $55,853,190 ($816.40 per Limited
Partnership Unit) has been returned to the limited partners through December 31,
1999.

      On March 18, 1999, the North Cabot Industrial Park investment was sold to
an unaffiliated third party (the "Buyer") for gross proceeds of $2,800,000. The
Partnership received net proceeds of $2,639,445, after closing costs and
recognized a gain of $1,509,931 ($21.85 per Limited Partnership Unit). On April
29, 1999, the Partnership made a capital distribution of $2,539,528 ($37.12 per
Limited Partnership Unit) from the proceeds of the sale. This distribution
reduced the adjusted capital contribution to $194.42 per Limited Partnership
Unit.

      On October 28, 1999, the Partnership made a special capital distribution
from prior sale proceeds held in reserves in the amount of $740,239 ($10.82 per
Limited Partnership Unit). This distribution further reduced the adjusted
capital contribution to $183.60 per Limited Partnership Unit.

      At December 31, 1999, the Partnership had $324,989 in cash and cash
equivalents, of which $136,828 was used for operating cash distributions to
partners on January 27, 2000; the remainder is being retained as working capital
reserves. The source of future liquidity and cash distributions to partners will
primarily be cash generated by the Partnership's real estate and invested cash
and cash equivalents. Distributions of cash from operations for the first,
second, third and fourth quarters of 1999 were made at the annualized rate of
4.25% on the adjusted capital contribution of $231.54, the weighted average
adjusted capital contribution of $205.97 per Limited Partnership Unit, the
weighted average adjusted capital contribution of $194.42 per Limited
Partnership Unit and the weighted average adjusted capital contribution of
$186.78 per Limited Partnership Unit, respectively. Distributions of cash from
operations relating to the first and second quarters of 1998 were made at an
annualized rate of 5.5% on the adjusted capital contribution of $485.54 per
Limited Partnership Unit. Distributions of cash from operations relating to the
third and fourth quarters of 1998 were made at an annualized rate of 5.5% on the
weighted average adjusted capital contribution per Limited Partnership Unit of
$389.10 and $233.41, respectively. The distribution rate was lower in 1999
primarily due to the sale of investments in 1998 and 1999 and the consequent
reduction in cash flow.

      The carrying value of real estate investments in the financial statements
at December 31, 1999 is at depreciated cost, or if the investment's carrying
value is determined not to be recoverable through expected undiscounted future
cash flows, the carrying value is reduced to estimated fair market value. The
fair market value of such investments is further reduced by the estimated cost
of sale for properties held for sale. Carrying value may be greater or less than
current appraised value. At December 31, 1999, the appraised value of the
remaining real estate investment exceeded its related carrying value by
approximately $1,300,000. The current appraised value of real estate investments
has been determined by the Managing General Partner and is generally based on a
combination of traditional appraisal approaches performed by AEW Real Estate
Advisors, Inc. ("AEW") and independent appraisers. Because of the subjectivity
inherent in the valuation process, the current appraised value may differ
significantly from that which could be realized if the real estate were actually
offered for sale in the marketplace.

                                       10
<PAGE>

Results of Operations

      Form of Real Estate Investments

      Effective November 15, 1994, North Cabot Industrial Park was converted to
a wholly-owned property; it was previously structured as a ground lease with a
mortgage loan to the ground lessee. The North Cabot Industrial Park was sold in
March 1999. Effective January 1, 1998, 270 Technology Park was converted to a
wholly-owned property; it was previously structured as a joint venture with a
real estate management/development firm. The Bayberry Apartments investment,
which was sold in August 1998, was structured as a joint venture with a real
estate management/development firm.

      Operating Factors

      The North Cabot Industrial Park was sold on March 18, 1999, and the
Partnership recognized a gain of $1,509,931. Occupancy at North Cabot Industrial
Park was 92% at the time of the sale and at December 31, 1998. At December 31,
1997 occupancy was 100%.

      The Bayberry Apartments was sold on August 7, 1998, and the Partnership
recognized a gain of $5,881,800. At the time of the sale, the Bayberry
Apartments was 95% leased compared to 93% at December 31, 1997.

      Occupancy at 270 Technology Park was 98% at December 31, 1999 compared to
95% and 98% at December 31, 1998 and 1997, respectively.

      Investment Results

1999 Compared to 1998

      Interest on cash equivalents and short-term investments decreased
approximately $87,000 or 52% primarily due to lower average investment balances
in 1999 as a result of the sale of Bayberry Apartments in August 1998 and the
sale of North Cabot Industrial Park in March 1999.

      Real estate operating results were $504,297 and $1,321,142 in 1999 and
1998, respectively. The decrease of approximately $817,000 is primarily due to
no joint venture earnings as a result of the sale of Bayberry Apartments in
August 1998 and lower property operating results as a result of the North Cabot
Industrial Park sale in March 1999. At 270 Technology Park, operating results
increased, as a result of higher rental rates and an increase in recovery
income. Partially offsetting these increases are higher bad debt expense and the
subsequent legal costs associated with resolving the tenant issue.

      Cash from operations decreased by approximately $1,088,000 between 1999
and 1998. The decrease is primarily due to the decrease in operating activity as
a result of the sales discussed above.

      1998 Compared to 1997

      Interest on cash equivalents and short-term investments increased $45,000
or 36% primarily due to higher average investment balances in 1998 as a result
of the receipt of the Bayberry Apartments sales proceeds.

                                   11

<PAGE>

      Real estate operating results were $1,321,142 and $1,608,252 in 1998 and
1997, respectively. The decrease of approximately $287,000 is primarily due to
lower joint venture earnings due to the sale of Bayberry Apartments in August
1998. At North Cabot Industrial Park, 1998 operations improved due to increased
tenant reimbursements as well as lower operating costs due to decreases in
professional fees and repairs and maintenance expenses. At 270 Technology Park,
operating results increased, consistent with an increase in occupancy and
expense reimbursements from tenants. Partially offsetting these increases are
higher utility and repairs and maintenance expenses.

      Cash from operations decreased by approximately $423,000 between 1997 and
1998. The decrease is primarily due to decreases in working capital and a
decrease in distributions from joint ventures due to the sale of Bayberry
Apartments and the conversion of 270 Technology Park to a wholly-owned property.

      Portfolio Expenses

      The Partnership management fee is 9% of distributable cash flow from
operations after any increase or decrease in working capital reserves as
determined by the Managing General Partner. General and administrative expenses
primarily consist of real estate appraisal, printing, legal, accounting and
investor servicing fees.

         1999 Compared to 1998

      The Partnership management fee decreased approximately $11,500 due to less
operational cash available for distribution as a result of the sale of Bayberry
Apartments in 1998 and North Cabot Industrial Park in 1999. General and
administrative expenses increased by approximately $37,000 or 18% between the
respective years primarily due to increases in state taxes, accounting fees and
investor servicing fees due to sales.

      1998 Compared to 1997

      The Partnership management fee decreased approximately $33,000 due to less
operational cash available for distribution as a result of the sale of Bayberry
Apartments on August 7, 1998. General and administrative expenses decreased by
approximately $34,000 or 14% between the respective years primarily due to
decreased investor servicing fees and accounting fees.

      Inflation

      By their nature, real estate investments tend not to be adversely affected
by inflation. Inflation may result in appreciation in the value of the real
estate investments over time, if rental rates and replacement costs increase.
Declines in real property values during the period of Partnership operations,
due to market and economic conditions, have overshadowed the overall positive
effect inflation may have on the value of the Partnership's investments.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

      The Partnership was not party to derivative financial instruments or
derivative commodity instruments at or during the year ended December 31, 1999.
The Partnership's only other financial instruments (as defined by Financial
Accounting Standards Board Statement No. 107) are its cash and cash equivalents
for which cost approximates market value.

Item 8. Financial Statements and Supplementary Data.

                                   12

<PAGE>

      The independent auditor's reports, financial statements and financial
statement schedule listed in the accompanying index are filed as part of this
report. See Index to the Financial Statements and Financial Statement Schedules
on page 19.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

      The Partnership has had no disagreements with its accountants on any
matters of accounting principles or practices or financial statement disclosure.

                                     13

<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

      (a) and (b) Identification of Directors and Executive Officers.

      The following table sets forth the names of the directors and executive
officers of the Managing General Partner and the age and position held by each
of them as of December 31, 1999.

<TABLE>
<CAPTION>
Name                   Position(s) with the Managing General Partner              Age
----                   ---------------------------------------------              ---

<S>                    <C>                                                          <C>
Alison Husid Cutler    President, Chief Executive Officer and Director              37
Pamela J. Herbst       Vice President and Director                                  44
J. Grant Monahon       Vice President and Director                                  54
James J. Finnegan      Vice President                                               39
Karin J. Lagerlund     Treasurer and Principal Financial and Accounting Officer     35
</TABLE>

      (c)   Identification of Certain Significant Employees.

            None.

      (d)   Family Relationships.

            None.

      (e)   Business Experience.

      The Managing General Partner was incorporated in Massachusetts on November
1, 1984. The background and experience of the executive officers and directors
of the Managing General Partner are as follows:

      Alison Husid Cutler is a Portfolio Manager in AEW Institutional Real
Estate Services, with responsibility for several real estate equity portfolios
representing approximately $800 million in client capital. She has over 12 years
of experience in real estate finance and investment management. Ms. Cutler
joined the predecessor of AEW Capital Management, L.P. ("AEW Capital
Management") in 1987 as Controller for a portfolio management team responsible
for the acquisition, management, restructuring and disposition of client assets
in New England and the western U.S. She later served as Asset Manager for a
portfolio of assets in Arizona and the West Coast. Prior to joining AEW, Ms.
Cutler worked for several years as a Senior Auditor with Peat Marwick, Main &
Co. She is a Certified Public Accountant and a graduate of the University of
Massachusetts (B.A.).

      Pamela J. Herbst directs AEW Capital Management L.P.'s ("AEW Capital
Management") Institutional Real Estate Services, with oversight responsibility
for direct equity investing and the asset and portfolio management of existing
core and core-plus commingled funds and separate accounts. Ms. Herbst is a
member of AEW Capital Management's Investment Policy Group and Management
Committee. She came to AEW Capital Management in December 1996 as a result of
the firm's merger with Copley Real Estate Advisors, Inc., where she held various
senior level positions in asset and

                                     14


<PAGE>

portfolio management, acquisitions, and corporate operations since 1982. Ms.
Herbst is a graduate of the University of Massachusetts (B.A.) and Boston
University (M.B.A.).

      J. Grant Monahon is AEW Capital Management's Chief Operating Officer and a
member of the firm's Management Committee and Investment Policy Group. He has
over 25 years of experience in real estate law and investments. Prior to joining
the predecessor of AEW Capital Management in 1987, Mr. Monahon was a partner
with a major Boston law firm. As the head of that firm's real estate finance
department, he represented a wide variety of institutional clients, both
domestic and international, in complex equity and debt transactions. He is the
former Chairman of the General Counsel section of the National Association of
Real Estate Investment Managers. Mr. Monahon is a graduate of Dartmouth College
(B.A.) and Georgetown University Law Center (J.D.).

      James J. Finnegan is the General Counsel of AEW Capital Management. Mr.
Finnegan served as Vice President and Assistant General Counsel of Aldrich,
Eastman & Waltch, L.P., a predecessor to AEW Capital Management. Mr. Finnegan
has over ten years of experience in real estate law, including seven years of
experience in private practice with major New York City and Boston law firms.
Mr. Finnegan also serves as AEW's securities and regulatory compliance officer.
Mr. Finnegan is a graduate of the University of Vermont (B.A.) and Fordham
University School of Law (J.D.).

      Karin J. Lagerlund directs the Institutional Real Estate Services
Portfolio Accounting Group at AEW Capital Management, overseeing portfolio
accounting, performance measurement and client financial reporting for AEW's
private equity investment portfolios. Ms. Lagerlund is a Certified Public
Accountant and has over ten years experience in real estate consulting and
accounting. Prior to joining AEW Capital Management in 1994, she was an Audit
Manager at EY/Kenneth Leventhal LLP. Ms. Lagerlund is a graduate of Washington
State University (B.A.).

(f)   Involvement in Certain Legal Proceedings.

      None.

Item 11. Executive Compensation.

      Under the Partnership Agreement, the General Partners and their affiliates
are entitled to receive various fees, commissions, cash distributions,
allocations of taxable income or loss and expense reimbursements from the
Partnership. See Note 1, Note 2 and Note 6 of Notes to Financial Statements.

                                   15


<PAGE>

      The following table sets forth the amounts of the fees and cash
distributions and reimbursements for out-of-pocket expenses which the
Partnership paid to or accrued for the account of the General Partners and their
affiliates for the year ended December 31, 1999. Cash distributions to General
Partners include amounts distributed after year end with respect to 1999.

                                                                      Amount of
                                                                    Compensation
                                                                        and
Receiving Entity                     Type of Compensation          Reimbursement
----------------                     --------------------          -------------

AEW Real Estate Advisors, Inc.       Management Fees and
                                     Reimbursement of Expenses         $ 150,332

General Partners                     Share of Distributable Cash          13,986

New England Securities Corporation   Servicing Fees and                   21,172
                                     Reimbursement of Expenses            ------

                                     TOTAL                             $ 185,493
                                                                       =========

      For the year ended December 31, 1999, the Partnership allocated $3,130 of
taxable income to the General Partners. See Note 1 of Notes to Financial
Statements for additional information about transactions between the Partnership
and the General Partners and their affiliates.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

(a) Security Ownership of Certain Beneficial Owners

      No person or group is known by the Partnership to be the beneficial owner
of more than 5% of the outstanding Units at December 31, 1999. Under the
Partnership Agreement, the voting rights of the Limited Partners are limited
and, in some circumstances, are subject to the prior receipt of certain opinions
of counsel or judicial decisions.

      Except as expressly provided in the Partnership Agreement, the right to
manage the business of the Partnership is vested exclusively in the Managing
General Partner.

(b) Security Ownership of Management.

      An affiliate of the Managing General Partner of the Partnership owned 803
Units as of December 31, 1999.

(c) Changes in Control.

      There exists no arrangement known to the Partnership the operation of
which may at a subsequent date result in a change in control of the Partnership.

Item 13. Certain Relationships and Related Transactions.

                                      16


<PAGE>

      The Partnership has no relationships or transactions to report other than
as reported in Item 11, above.

                                     PART IV

Item 14. Exhibits, Financial Statements, and Reports on Form 8-K.

      (a) The following documents are filed as part of this report:

            (1) Financial Statements--The Financial Statements listed on the
accompanying Index to Financial Statements and Schedule, Financial Statements
Index No. 2 and Financial Statements are filed as part of this Annual Report.

            (2) Financial Statement Schedule--The Financial Statement Schedule
listed on the accompanying Index to Financial Statements and Schedule is filed
as part of this Annual Report.

            (3) Exhibits--The Exhibits listed in the accompanying Exhibit Index
are filed as a part of this Annual Report and incorporated in this Annual Report
as set forth in said Index.

      (b)   Reports on Form 8-K/A. The partnership filed one Current Report on
            Form 8-K/A dated December 7, 1999 reporting on Items No. 2
            (Acquisition or Disposition of Assets) and No. 7 (Financial
            Statements and Exhibits), relating in both cases to the March 18,
            1999 sale of North Cabot Industrial Park.

                                     17


<PAGE>

                    New England Life Pension Properties III;

                       A Real Estate Limited Partnership

                              Financial Statements

                                 * * * * * * *

                                December 31, 1999












                                      18


<PAGE>

                    NEW ENGLAND LIFE PENSION PROPERTIES III;
                        A REAL ESTATE LIMITED PARTNERSHIP

                   INDEX TO FINANCIAL STATEMENTS AND SCHEDULE

Report of Independent Accountants

Financial Statements:

      Balance Sheets - December 31, 1999 and 1998

      Statements of Operations - Years ended December 31, 1999, 1998 and 1997

      Statement of Partners' Capital (Deficit) - Years ended December 31, 1999,
      1998 and 1997

      Statements of Cash Flows - Years ended December 31, 1999, 1998 and 1997

      Notes to Financial Statements

Financial Statement Schedule:

      Schedule III - Real Estate and Accumulated Depreciation at December 31,
      1999

        All other schedules are omitted because they are not applicable.


                                    19


<PAGE>

Report of Independent Accountants

To the Partners of New England Life Pension Properties III; A Real Estate
Limited Partnership:

In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of New England
Life Pension Properties III; A Real Estate Limited Partnership (the
"Partnership") at December 31, 1999 and 1998, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1999 in conformity with accounting principles generally accepted in the United
States. In addition, in our opinion, the financial statement schedule listed in
the accompanying index presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
financial statements. These financial statements and the financial statement
schedule are the responsibility of Copley Properties Company III, Inc., the
Managing General Partner of the Partnership (the "Managing General Partner");
our responsibility is to express an opinion on these financial statements and
the financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States, which 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, assessing the
accounting principles used and significant estimates made by the Managing
General Partner, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.


/s/ PricewaterhouseCoopers LLP
------------------------------------
Boston, Massachusetts
March 21, 2000


                                     20


<PAGE>

NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP

BALANCE SHEETS
                                                           December 31,
                                                     ---------------------------
                                                         1999           1998
                                                     ------------   ------------

Assets

Real estate investments:
   Property, net                                     $  5,918,532   $  6,156,334
   Property held for disposition, net                          --      1,197,305
                                                     ------------   ------------

                                                        5,918,532      7,353,639
Cash and cash equivalents                                 324,989      1,952,504
                                                     ------------   ------------

                                                     $  6,243,521   $  9,306,143
                                                     ============   ============

Liabilities and Partners' Capital

Accounts payable                                     $     81,339   $     87,947
Accrued management fee                                     13,532         21,939
                                                     ------------   ------------
Total liabilities                                          94,871        109,886
                                                     ------------   ------------

Partners' capital:
    Limited partners ($183.60 and $231.54 per
      unit, respectively; 75,000 units authorized,
      68,414 units issued and outstanding)              6,146,119      9,196,048
    General partners                                        2,531            209
                                                     ------------   ------------
Total partners' capital                                 6,148,650      9,196,257
                                                     ------------   ------------

                                                     $  6,243,521   $  9,306,143
                                                     ============   ============

                (See accompanying notes to financial statements)


                                     21


<PAGE>

NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                          Year ended December 31,
                                              --------------------------------------------
                                                    1999           1998            1997
                                              ------------    ------------    ------------

<S>                                           <C>             <C>             <C>
Investment Activity

Property rentals                              $  1,165,510    $  1,294,563    $    267,791
Property operating expenses                       (424,157)       (295,874)        (79,665)
Depreciation and amortization                     (237,056)       (293,460)       (121,979)
                                              ------------    ------------    ------------
                                                   504,297         705,229          66,147

Joint venture earnings                                  --         619,051       1,551,569
Amortization                                            --          (3,138)         (9,464)
                                              ------------    ------------    ------------

   Total real estate operations                    504,297       1,321,142       1,608,252

Gain on sale of investment in joint venture             --       6,391,800
Gain on sale of property                         1,509,931              --              --
                                              ------------    ------------    ------------

 Total real estate activity                      2,014,228       7,712,942       1,608,252

Interest on cash equivalents
 and short-term investments                         80,774         167,422         122,799
                                              ------------    ------------    ------------

   Total investment activity                     2,095,002       7,880,364       1,731,051
                                              ------------    ------------    ------------

Portfolio Expenses

General and administrative                         240,825         204,187         238,143
Management fee                                     138,332         149,814         182,620
                                              ------------    ------------    ------------
                                                   379,157         354,001         420,763
                                              ------------    ------------    ------------

Net Income                                    $  1,715,845    $  7,526,363    $  1,310,288
                                              ============    ============    ============

Net income per limited
 partnership unit                             $      24.83    $     108.91    $      18.96
                                              ============    ============    ============

Cash distributions per limited
 partnership unit                             $      69.41    $     279.39    $      26.74
                                              ============    ============    ============

Number of limited partnership units
 outstanding during the year                        68,414          68,414          68,414
                                              ============    ============    ============
</TABLE>

                (See accompanying notes to financial statements)


                                     22


<PAGE>

NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                               Year ended December 31,
                                                   --------------------------------------------
                                                       1999            1998            1997
                                                   ------------    ------------    ------------
<S>                                                <C>             <C>             <C>
Cash flows from operating activities:
 Net income                                        $  1,715,845    $  7,526,363    $  1,310,288
  Adjustments to reconcile net income to net
   cash provided by operating activities:
     Depreciation and amortization                      237,056         296,598         131,443
     Equity in joint venture net income                      --        (619,051)     (1,551,569)
     Cash distributions from joint ventures                  --       1,148,092       2,120,676
     Gain on sale of investment in joint venture             --      (6,391,800)             --
     Gain on sale of property                        (1,509,931)             --              --
     Increase in investment income
       receivable                                            --          15,711           1,278
     Increase in property deferred leasing costs        (38,266)        (78,894)        (14,794)
     Increase (decrease) in property
       working capital                                  120,538        (263,595)         (1,365)
     Increase (decrease) in liabilities                 (15,015)        (35,117)         25,039
                                                   ------------    ------------    ------------
       Net cash provided by operating activities        510,227       1,598,307       2,020,996
                                                   ------------    ------------    ------------

Cash flows from investing activities:
 Net proceeds from sale of real estate                2,639,445      16,985,000              --
 Capital expenditures on owned property                 (13,735)        (75,438)        (10,327)
 Decrease in short-term
  investments, net                                           --         931,125         221,552
                                                   ------------    ------------    ------------
        Net cash provided by investing
        activities                                    2,625,710      17,840,687         211,225
                                                   ------------    ------------    ------------

Cash flows from financing activity:
 Distributions to partners                           (4,763,452)    (19,131,734)     (1,847,869)
                                                   ------------    ------------    ------------
        Net cash used in financing activity          (4,763,452)    (19,131,734)     (1,847,869)
                                                   ------------    ------------    ------------

 Net increase (decrease) in cash
  and cash equivalents                               (1,627,515)        307,260         384,352

Cash and cash equivalents:
 Beginning of year                                    1,952,504       1,645,244       1,260,892
                                                   ------------    ------------    ------------

 End of year                                       $    324,989       1,952,504    $  1,645,244
                                                   ============    ============    ============
</TABLE>

Supplemental disclosure of non-cash transaction:

Effective January 1, 1998, the Partnership's joint venture investment in 270
Technology Park was converted to a wholly-owned property. The carrying value of
this investment at conversion was $6,162,959.

                (See accompanying notes to financial statements)


                                     23


<PAGE>

NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP

STATEMENT OF PARTNERS' CAPITAL (DEFICIT)

<TABLE>
<CAPTION>
                                                                Year ended December 31,
                              --------------------------------------------------------------------------------------------
                                          1999                            1998                            1997
                                      ------------                    ------------                    ------------
                                 General        Limited         General         Limited         General         Limited
                                Partners        Partners        Partners        Partners        Partners        Partners
                              ------------    ------------    ------------    ------------    ------------    ------------
<S>                           <C>             <C>             <C>             <C>             <C>             <C>
Balance at beginning
   of year                    $        209    $  9,196,048    $    (57,510)   $ 20,859,138    $    (52,135)   $ 21,391,344

Cash distributions                 (14,836)     (4,748,616)        (17,545)    (19,114,189)        (18,478)     (1,829,391)

Net income                          17,158       1,698,687          75,264       7,451,099          13,103       1,297,185
                              ------------    ------------    ------------    ------------    ------------    ------------

Balance at end
   of year                    $      2,531    $  6,146,119    $        209    $  9,196,048    $    (57,510)   $ 20,859,138
                              ============    ============    ============    ============    ============    ============
</TABLE>

                (See accompanying notes to financial statements)


                                      24


<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND BUSINESS

      General

      New England Life Pension Properties III; A Real Estate Limited Partnership
(the "Partnership") is a Massachusetts limited partnership organized for the
purpose of investing primarily in newly constructed and existing
income-producing real properties. It primarily serves as an investment for
qualified pension and profit sharing plans and other entities intended to be
exempt from federal income tax. The Partnership commenced operations in July
1985, and acquired the investment it currently owns prior to the end of 1988.
The Partnership intended to dispose of its investments within twelve years of
their acquisition, and then liquidate; however, the Managing General Partner
extended the holding period, having determined it to be in the best interest of
the limited partners.

      The Managing General Partner of the Partnership is Copley Properties
Company III, Inc., a wholly-owned subsidiary of AEW Real Estate Advisors, Inc.
("AEW"), formerly known as Copley Real Estate Advisors, Inc. ("Copley"). The
associate general partner is ACOP Associates Limited Partnership, a
Massachusetts limited partnership. Subject to the Managing General Partner's
overall authority, the business of the Partnership is managed by AEW pursuant to
an advisory contract.

      On December 10, 1996, Copley's parent, New England Investment Companies,
Limited Partnership ("NEIC"), a publicly traded master limited partnership,
acquired certain assets subject to then existing liabilities from Aldrich,
Eastman & Waltch, Inc. and its affiliates and principals (collectively, "the AEW
Operations"). Simultaneously, a new entity, AEW Capital Management, L.P. was
formed, into which NEIC contributed its interest in Copley and its affiliates.
As a result, the AEW Operations were combined with Copley to form the business
operations of AEW Capital Management, L.P. At year end 1997, NEIC completed a
restructuring plan under which it contributed all of its operations to a newly
formed private partnership, NEIC Operating Partnership, L.P., in exchange for a
general partnership interest in the newly formed entity. Accordingly, at
December 31, 1997, AEW Capital Management, L.P. is wholly owned by NEIC
Operating Partnership, L.P. AEW is a subsidiary of AEW Capital Management, L.P.
Effective April 1, 1998, NEIC changed its name to Nvest, L.P. and NEIC Operating
Partnership, L.P. changed its name to Nvest Companies, L.P.

      Prior to August 30, 1996, New England Mutual Life Insurance Company ("The
New England") was NEIC's principal unit holder and owner of all the outstanding
stock of NEIC's general partner. On August 30, 1996, The New England merged with
and into Metropolitan Life Insurance Company ("Met Life"). Met Life is the
surviving entity and, therefore, through a wholly-owned subsidiary, became the
owner of the units of partnership interest previously owned by The New England
and of the stock of NEIC's general partner.

      At both December 31, 1999 and 1998, an affiliate of the Managing General
Partner owned 803 units of limited partnership interest, which were repurchased
from certain qualified plans within specified annual limitations provided for in
the Partnership Agreement.

      Management

      AEW, as advisor, is entitled to receive stipulated fees from the
Partnership in consideration of services performed in connection with the
management of the Partnership and the acquisition and disposition of Partnership
investments in real property. Partnership management fees are 9% of
distributable cash flow from operations, as defined, before deducting such fees.
AEW is also reimbursed for expenses incurred in connection with administering
the Partnership ($12,000 in 1999, $12,000 in 1998, and $13,000 in 1997).
Acquisition fees paid were based on 2% of the gross proceeds from the offering.
Disposition fees are limited to the lesser of 3% of the selling price of
property, or 50% of the standard real estate commission customarily

                                   25


<PAGE>

charged by an independent real estate broker. Payment of disposition fees is
subject to the prior receipt by the limited partners of their capital
contributions plus a stipulated return thereon. See further discussion in Note
2.

      New England Securities Corporation, an indirect subsidiary of Met Life, is
engaged by the Partnership to act as its unit holder servicing agent. Fees and
out-of-pocket expenses for such services totaled $21,172, $19,489 and $18,315 in
1999, 1998 and 1997, respectively.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Accounting Estimates

      The preparation of financial statements in conformity with generally
accepted accounting principles requires the Managing General Partner to make
estimates affecting the reported amounts of assets and liabilities, and of
revenues and expenses. In the Partnership's business, certain estimates require
an assessment of factors not within management's control, such as the ability of
tenants to perform under long-term leases and the ability of the properties to
sustain their occupancies in changing markets. Actual results, therefore, could
differ from those estimates.

      Real Estate Joint Ventures

      Investments in joint ventures, which are in substance real estate
investments, are stated at cost plus (minus) equity in undistributed joint
venture income (losses). Allocations of joint venture income (losses) were made
to the Partnership's venture partners as long as they had substantial economic
equity in the project. Economic equity is measured by the excess of the
appraised value of the property over the Partnership's total cash investment
plus accrued preferential returns thereon. Currently, the Partnership records an
amount equal to 100% of the operating results of the property, after the
elimination of all inter-entity transactions. Joint ventures are consolidated
with the accounts of the Partnership if, and when, the venture partner no longer
shares in the control of the business.

      Property

      Property includes land and buildings and improvements, which are stated at
cost less accumulated depreciation, and other operating net assets
(liabilities). The Partnership's initial carrying value of a property previously
subject to a ground lease/mortgage loan arrangement equals the Partnership's
carrying value of the predecessor investment on the conversion date.

      Capitalized Costs, Depreciation and Amortization

      Maintenance and repair costs are expensed as incurred; significant
improvements and renewals are capitalized. Depreciation is computed using the
straight-line method based on estimated useful lives of the buildings and
improvements.

      Acquisition fees have been capitalized as part of the cost of real estate
investments. Amounts not related to land are being amortized using the
straight-line method over the estimated useful lives of the underlying real
property.

      Leases

      Leases are accounted for as operating leases. Leasing commissions are
amortized over the terms of the respective leases. Rental income is being
recognized on a straight-line basis over the respective lease terms.


                                    26


<PAGE>

      Realizability of Real Estate Investments

      The Partnership considers a real estate investment, other than a mortgage
loan, to be impaired when it determines the carrying value of the investment is
not recoverable through expected undiscounted cash flows generated from the
operations and disposal of the property. The impairment loss is based on the
excess of the investments' carrying value over its estimated fair market value.
For investments being held for sale, the impairment loss also includes estimated
costs of sale. Property held for sale is not depreciated during the holding
period. Investments are considered to be held for disposition at the time
management commits the Partnership to a plan to dispose of the investment.

      Cash Equivalents

      Cash equivalents are stated at cost, plus accrued interest. The
Partnership considers all highly liquid investments purchased with a maturity of
ninety days or less to be cash equivalents; otherwise, they are classified as
short-term investments.

      Deferred Disposition Fees

      According to the terms of the advisory contract, AEW is entitled to
disposition fees related to sales of real estate investments. Payment of these
fees, however, is contingent upon the limited partners' first receiving their
capital, plus stipulated returns thereon. In light of the current value of the
Partnership's remaining investment and the expectations for improvement over the
Partnership's investment horizon, the Managing General Partner has determined
that the likelihood of payment of these fees is remote. Accordingly, no
disposition fees have been accrued in conjunction with the sale of the
Partnership's investments.

      Income Taxes

      A partnership is not liable for income taxes and, therefore, no provision
for income taxes is made in the financial statements of the Partnership. A
proportionate share of the Partnership's income is reportable on each partner's
tax return.

      Per Unit Computations

      Per unit computations are based on the number of units of limited
partnership interest outstanding during the year. The actual per unit amount
will vary by partner depending on the date of admission to, or withdrawal from,
the Partnership.


                                   27


<PAGE>

      Segment Data

      Effective January 1, 1998, the Partnership adopted Financial Accounting
Standards Board Statement No. 131, "Disclosure about Segments on an Enterprise
and Related Information" (FAS 131). Based on the criteria established in FAS
131, the Managing General Partner has determined that the Partnership operates
in one operating segment: investing in real estate properties which are
domiciled in the United States of America.

NOTE 3 - REAL ESTATE JOINT VENTURES

      The Partnership invested in two real estate joint ventures, each of which
was organized as a general partnership with a real estate management/development
firm. It made capital contributions to the ventures, which were subject to
preferential cash distributions at a specified rate and to priority
distributions with respect to sale or refinancing proceeds. The joint venture
agreements provided for the funding of cash flow deficits by the venture
partners in proportion to ownership interests, and for the dilution of ownership
share in the event a venture partner did not contribute proportionately.

      The respective real estate management/development firms were responsible
for day-to-day development and operating activities, although overall authority
and responsibility for the businesses was shared by the venturers. The real
estate management/development firm, or its affiliates, also provided various
services to the respective joint venture for a fee.

      270 Technology Park

      Effective January 1, 1988, one of the Partnership's ground lease/mortgage
loan investments was converted to a 50% ownership interest in a joint venture
with an affiliate of Manekin Corporation. The venture owns and operates three
research and development/office buildings in Frederick, Maryland. The
Partnership was credited with a capital contribution of $5,960,000, an amount
equal to the cost of the land plus the then outstanding principal on the
mortgage loan. In addition, during 1988, the Partnership contributed cash of
$260,000. The preferential return rate on the capital contributed is 10.50% per
annum. Effective January 1, 1998, ownership of the joint venture was
restructured to give the Partnership full control over the business of the joint
venture. (See Note 4).

      Bayberry Apartments

      On April 4, 1988, the Partnership entered into a joint venture with an
affiliate of Bozzuto and Associates to construct and operate a garden apartment
community in Gaithersburg, Maryland. The Partnership had a 65% ownership
interest and committed to a maximum capital contribution of $14,350,000, and a
maximum deficit contribution (characterized as junior capital) of $230,000. The
preferential return rate was 10.25% per annum on the capital contributed and the
greater of the prime rate plus 2% or 10.25% on the deficit contribution. At
December 31, 1997 the Partnership had contributed $14,349,983 of its capital
commitment, plus $225,957 as a prorata deficit contribution. Sixty-five percent
of the Partnership's capital contribution was characterized as "senior" capital.
If senior capital was prepaid, the Partnership was entitled to a special
distribution intended to preserve the preferential return yield on senior
capital through the ninth anniversary of the venture. No senior capital had been
prepaid as of the date of sale of the property discussed below.

      On August 7, 1998 the joint venture sold its property to an institutional
buyer which is unaffiliated with the Partnership. The gross sale price was
$17,000,000. The Partnership received its share of the net proceeds totaling
$16,985,000. The Partnership recognized a gain of $6,391,800 ($92.49 per Limited
Partnership Unit). On August 26, 1998, the Partnership made a capital
distribution to the limited partners of $16,966,672 ($248 per Limited
Partnership Unit) from the proceeds of the sale.


                                   28


<PAGE>

Summarized Financial Information

      The following summarized financial information is presented in the
aggregate for the joint ventures:

                              Results of Operations

                                            Year ended December 31,
                                  ------------------------------------------
                                      1999           1998           1997
                                  ------------   ------------   ------------
Revenue
  Rental income                   $         --   $  1,444,678   $  3,204,670
  Other income                              --          3,862         36,252
                                  ------------   ------------   ------------
                                            --      1,448,540      3,240,922
                                  ------------   ------------   ------------

Expenses
  Operating expenses                        --        650,935      1,126,065
  Depreciation and amortization             --        198,187        563,288
                                  ------------   ------------   ------------
                                            --        849,122      1,689,353
                                  ------------   ------------   ------------
Net income                        $         --   $    599,418   $  1,551,569
                                  ============   ============   ============

      Liabilities and expenses exclude amounts owed and attributable to the
Partnership on behalf of its various financing arrangements with the joint
ventures.

      Effective January 1, 1998, the 270 Technology Park joint venture was
converted to a wholly-owned property. Accordingly, the 1998 amounts relate only
to the Bayberry joint venture.


                                   29


<PAGE>
NOTE 4 - PROPERTY

      270 Technology Park

      Effective January 1, 1998, the management and control of the business and
affairs of the 270 Technology Park joint venture, including the sale of the
property, is vested soley in the Partnership through its 98% general partner
interest in the joint venture. Accordingly, as of January 1, 1998, the
investment has been accounted for as a wholly-owned property. The remaining 2%
general partner interest is owned by NELLP III/MORF III Associates Limited
Partnership, an entity in which the Partnership owns a 50% interest. The
carrying value of the joint venture investment at conversion ($6,162,959) was
allocated to land, building and improvements, and other net operating assets.

      The building is being depreciated over 30 years, beginning January 1,
1998.

      North Cabot Industrial Park (formerly Marathon/Hayward)

      In September 1985, the Partnership acquired land in Hayward, California,
for $786,130 and leased it back to the seller. The Partnership also made a
nonrecourse permanent mortgage loan of $2,663,870 to the ground lessee to
finance the two research and development buildings.

      On November 15, 1994, the Partnership restructured this ground
lease/mortgage loan investment into a wholly-owned property, due to the
inability of the ground lessee/mortgagee to meet its financial obligations. The
Partnership received $85,000 in settlement of the guaranty provided by
principals of the ground lessee. The Partnership obtained title to the
improvements on the land, and to certain other operating assets in full
satisfaction of the related mortgage loan and obligations under the ground
lease, and in consideration of the assumption by the Partnership of certain
operating liabilities. The carrying value of the ground lease/mortgage loan
investment as of the date of restructuring was allocated to land, buildings and
net operating assets.

      The buildings and improvements (two industrial buildings in Hayward,
California) were being depreciated over 25 years beginning November 15, 1994.

      On March 18, 1999, the North Cabot Industrial Park investment was sold to
an unaffiliated third party (the "Buyer") for gross proceeds of $2,800,000. The
Partnership received net proceeds of $2,639,445 and recognized a gain of
$1,509,931 ($21.85 per Limited Partnership Unit). On April 29, 1999, the
Partnership made a capital distribution of $2,539,528 ($37.12 per Limited
Partnership Unit) from the proceeds of the sale.

      The following is summary of the Partnership's investment in property (one
at December 31, 1999; and two at December 31, 1998):

                                                           December 31,
                                                        1999            1998
                                                   ------------    ------------
       Land                                        $    215,404    $    215,404
       Buildings and improvements                     5,667,126       5,653,391
       Accumulated depreciation and amortization       (343,490)       (156,156)
       Net operating assets                             379,492         443,695
       Property held for disposition                         --       1,197,305
                                                   ------------    ------------
                                                   $  5,918,532    $  7,353,639
                                                   ============    ============

      During 1998, the Partnership, recognized $105,653 in net income from
North Cabot Industrial Park, which was held for disposition at December 31,
1998.

      The minimum future rentals under non-cancelable operating leases are:
$797,677 in 2000; $461,515 in 2001; $160,290 in 2002; $105,327 in 2003 and
$39,391 in 2004.

                                     30


<PAGE>

NOTE 5 - INCOME TAXES

      The Partnership's income (loss) for federal income tax purposes differs
from that reported in the accompanying statement of operations as follows:

                                              Year ended December 31,
                                   --------------------------------------------
                                           1999            1998            1997
                                   ------------    ------------    ------------
Net income per financial
   statements                      $  1,715,845    $  7,526,363    $  1,310,288
Timing differences:
   Joint venture earnings               111,931         (14,989)       (154,870)
   Depreciation and amortization         (4,827)         31,269          85,777
   Expenses                                  --           3,139           3,188
   Gain (loss) on Sale                 (194,020)      3,938,614              --
                                   ------------    ------------    ------------
Taxable income                     $  1,628,929    $ 11,484,396    $  1,244,383
                                   ============    ============    ============

NOTE 6 - PARTNERS' CAPITAL

      Allocation of net income (losses) from operations and distributions of
distributable cash from operations, as defined, are in the ratio of 99% to the
limited partners and 1% to the general partners. Cash distributions are made
quarterly.

      Net sale proceeds and financing proceeds are allocated first to limited
partners to the extent of their contributed capital plus a stipulated return
thereon, as defined, second to pay disposition fees, and then 85% to the limited
partners and 15% to the general partners. As a result of returns of capital from
sale transactions, the adjusted capital contribution per Limited Partnership
Unit was reduced from $1,000 to $982.14 during 1987, to $946.14 during 1988, to
$796.14 during 1989, to $694.14 during 1992, to $524.14 during 1993, to $493.14
during 1994, to $485.54 during 1996 to $231.54 during 1998 and to $183.60 during
1999. No capital distributions have been made to the general partners. Income
from sales will be allocated in proportion to the distribution of related
proceeds, provided that the general partners are allocated at least 1%. Income
or losses from sales, if there are no residual proceeds after the repayment of
the related debt, will be allocated 99% to the limited partners and 1% to the
general partners.


NOTE 7 - SUBSEOUENT EVENT

      Distributions of cash from operations relating to the quarter ended
December 31, 1999 were made on January 27, 2000 in the aggregate amount of
$136,828 ($1.98 per Limited Partnership Unit).


                                    31



<PAGE>

                     NEW ENGLAND LIFE PENSION PROPERTIES III

                        A REAL ESTATE LIMITED PARTNERSHIP

                                  SCHEDULE III
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                                DECEMBER 31,1999

<TABLE>
<CAPTION>
                                             Initial Cost to                  Costs Capitalized
                                             the Partnership              Subsequent to Acquisition
                                      ------------------------------   --------------------------------

                                                Buildings &    Other   Carrying     Additions
Description                           Land     Improvements    (Net)    Costs    (Dispositions)   Other
-----------                           ----     ------------    -----    -----    --------------   -----

<S>                                 <C>        <C>          <C>            <C>      <C>           <C>
North Cabot Industrial Park
Converted to wholly-owned 11/14/94
An R & D building (51,089 sq. ft)
On 3.8 acres of land in             $347,772           $0         $0       $0       $1,052,749    $42,859
Hayward, California (See Note A)

270 Technology Park
Converted to wholly-owned 1/1/98    $215,404   $5,620,041   $327,514       $0          $78,263    $58,909
Park. Owner of three R&D
buildings (86,169 square feet)
situated on 8.3 acres of land
in Frederick, Maryland.

                                    -----------------------------------------------------------------------
  Total Wholly-Owned                $563,176   $5,620,041   $327,514       $0       $1,131,012   $101,768
                                    =======================================================================

<CAPTION>
                                                               Gross amount at which
                                                            Carried at Close of Period
                                     ----------------------------------------------------------------------
                                                                       Investment                                Accumulated
                                               Buildings &              Valuation                                 Depreciation
Description                          Land     Improvements     Other   Allowances   Dispositions      Total      & Amortization
-----------                          ----     ------------     -----   ----------   ------------      -----      --------------

<S>                                 <C>        <C>          <C>           <C>        <C>           <C>            <C>
North Cabot Industrial Park
Converted to wholly-owned 11/14/94
An R & D building (51,089 sq. ft)
On 3.8 acres of land in             $347,772   $1,052,749    $42,859      $0         ($1,443,380)           $0           N/A
Hayward, California (See Note A)

270 Technology Park
Converted to wholly-owned 1/1/98    $215,404   $5,698,304   $386,423      $0                  $0    $6,300,131     ($381,599)
Park. Owner of three R&D
buildings (86,169 square feet)
situated on 8.3 acres of land
in Frederick, Maryland.

                                    -----------------------------------------------------------------------------------------
  Total Wholly-Owned                $563,176   $6,751,053   $429,282      $0         ($1,443,380)   $6,300,131     ($381,599)
                                    =========================================================================================

<CAPTION>




                                      Date of         Date      Depreciable
Description                          Construction    Acquired      Life
-----------                          ------------    --------      ----

<S>                                    <C>           <C>          <C>
North Cabot Industrial Park
Converted to wholly-owned 11/14/94
An R & D building (51,089 sq. ft)
On 3.8 acres of land in                Completed      3/20/89     25 Years
Hayward, California (See Note A)

270 Technology Park
Converted to wholly-owned 1/1/98       Completed     08/27/1997   30 years
Park. Owner of three R&D
buildings (86,169 square feet)
situated on 8.3 acres of land
in Frederick, Maryland.


  Total Wholly-Owned

</TABLE>


                                       32


<PAGE>

                    NEW ENGLAND LIFE PENSION PROPERTIES III

                             NOTE A TO SCHEDULE III

<TABLE>
<CAPTION>
                                                                              1997                1997
                                         COST            CONVERSION TO     INVESTMENT         INCREASE IN            1997 CHANGE
                                         AS OF           WHOLLY-OWNED          IN               DEFERRED             IN PROPERTY
               DESCRIPTION             12/31/96            PROPERTY         PROPERTY          LEASING COSTS         WORKING CAPITAL
-----------------------------------  -----------------------------------------------------------------------------------------------
<S>                                   <C>                                    <C>                 <C>                    <C>
       North Cabot Industrial Park    $1,404,471                             $10,327             $14,794                ($14,248)
                                      ==========                             =======             =======                ========

<CAPTION>
                                                                              1998                1998
                                         COST            CONVERSION TO     INVESTMENT         INCREASE IN            1998 CHANGE
                                         AS OF           WHOLLY-OWNED          IN               DEFERRED             IN PROPERTY
               DESCRIPTION             12/31/97            PROPERTY         PROPERTY          LEASING COSTS         WORKING CAPITAL
-----------------------------------  -----------------------------------------------------------------------------------------------
<S>                                   <C>                <C>                 <C>                 <C>                     <C>
      North Cabot Industrial Park     $1,415,344                             $10,910             $31,921                 $41,381

       270 Technology Park                     0          6,162,959           64,528              46,973                  38,030
------------------------------------------------------------------------------------------------------------------------------------
                                      $1,415,344         $6,162,959          $75,438             $78,894                 $79,411
====================================================================================================================================

<CAPTION>
                                                                              1999                1999
                                         COST            CONVERSION TO     INVESTMENT         INCREASE IN            1999 CHANGE
                                         AS OF           WHOLLY-OWNED          IN               DEFERRED             IN PROPERTY
               DESCRIPTION             12/31/98            PROPERTY         PROPERTY          LEASING COSTS         WORKING CAPITAL
-----------------------------------  -----------------------------------------------------------------------------------------------
<S>                                   <C>                        <C>         <C>                 <C>                   <C>
     North Cabot Industrial Park      $1,499,556                                  $0                  $0                ($56,176)

       270 Technology Park             6,312,490                              13,735              38,266                 (64,360)
------------------------------------------------------------------------------------------------------------------------------------
                                       7,812,046                 $0          $13,735             $38,266               ($120,536)
====================================================================================================================================
</TABLE>


<TABLE>
<CAPTION>
                                                                             ACCUMULATED                 1997
                                                             COST           AMORTIZATION &        T.I. AMORTIZATION &
                                       DISPOSAL OF        BALANCE AT         DEPRECIATION            DEPRECIATION
               DESCRIPTION                ASSET            12/31/97         AS OF 12/31/96              EXPENSE
-----------------------------------  -----------------------------------------------------------------------------------
<S>                                                         <C>                  <C>                    <C>
       North Cabot Industrial Park                          $1,415,344           $138,503               $106,365
                                                            ==========           ========               ========

<CAPTION>
                                                                             ACCUMULATED                 1998
                                                             COST           AMORTIZATION &        T.I. AMORTIZATION &
                                       DISPOSAL OF        BALANCE AT         DEPRECIATION            DEPRECIATION
               DESCRIPTION                ASSET            12/31/98         AS OF 12/31/97              EXPENSE
-----------------------------------  -----------------------------------------------------------------------------------
<S>                                                      <C>                   <C>                      <C>
      North Cabot Industrial Park                        $1,499,556            $244,868                  $57,383

       270 Technology Park                                6,312,490                   0                  187,336
------------------------------------------------------------------------------------------------------------------------
                                                         $7,812,046            $244,868                 $244,719
========================================================================================================================

<CAPTION>
                                                                             ACCUMULATED                 1999
                                                             COST           AMORTIZATION &        T.I. AMORTIZATION &
                                       DISPOSAL OF        BALANCE AT         DEPRECIATION            DEPRECIATION
               DESCRIPTION                ASSET            12/31/99         AS OF 12/31/98              EXPENSE
-----------------------------------  -----------------------------------------------------------------------------------
<S>                                                      <C>                   <C>                      <C>
     North Cabot Industrial Park      ($1,443,380)               $0            $302,251                   $8,333

       270 Technology Park                                6,300,131             156,156                  225,443
------------------------------------------------------------------------------------------------------------------------
                                                         $6,300,131            $458,407                 $233,776
========================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                              ACCUMULATED
                                              AMORTIZATION &                             12/31/97
                                              DEPRECIATION          DISPOSAL OF          PROPERTY
               DESCRIPTION                   AS OF 12/31/97            ASSET                NET
-----------------------------------  -------------------------------------------------------------
<S>                                             <C>                                     <C>
       North Cabot Industrial Park              $244,868                                $1,170,476
                                                ========                                ==========

<CAPTION>
                                              ACCUMULATED
                                              AMORTIZATION &                             12/31/98
                                              DEPRECIATION          DISPOSAL OF          PROPERTY
               DESCRIPTION                   AS OF 12/31/98            ASSET                NET
-----------------------------------  -------------------------------------------------------------
<S>                                             <C>                                     <C>
      North Cabot Industrial Park               $302,251                                $1,197,305

       270 Technology Park                       156,156                                 6,156,334
--------------------------------------------------------------------------------------------------
                                                $458,407                                $7,353,639
==================================================================================================

<CAPTION>
                                              ACCUMULATED
                                              AMORTIZATION &           1999              12/31/99
                                              DEPRECIATION          DISPOSAL OF          PROPERTY
               DESCRIPTION                   AS OF 12/31/99            ASSET                NET
-----------------------------------  -------------------------------------------------------------
<S>                                             <C>                 <C>                 <C>
     North Cabot Industrial Park                $310,584            ($310,584)                  $0

       270 Technology Park                       381,599                                 5,918,532
--------------------------------------------------------------------------------------------------
                                                $692,183                                $5,918,532
==================================================================================================
</TABLE>


                                               33


<PAGE>
                    NEW ENGLAND LIFE PENSION PROPERTIES III

                             NOTE B TO SCHEDULE III

<TABLE>
<CAPTION>


                                                               BALANCE                   1996
                                         PERCENT OF             AS OF                 INVESTMENT          1996 EQUITY IN
             DESCRIPTION                  OWNERSHIP           12/31/95               IN PROPERTY           INCOME (LOSS)
---------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>             <C>                              <C>             <C>
         270 Technology Park                 50%              $6,327,493                      $0                $619,367

         Bayberry Associates                 65%              11,788,509                       0                 967,882
                                                             -----------              ----------              ----------
                                                             $18,116,002                      $0              $1,587,249
                                                             ===========              ==========              ==========

<CAPTION>


                                                               BALANCE                   1997
                                         PERCENT OF             AS OF                 INVESTMENT          1997 EQUITY IN
             DESCRIPTION                  OWNERSHIP           12/31/96               IN PROPERTY           INCOME (LOSS)
---------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>             <C>                              <C>             <C>
         270 Technology Park                 50%              $6,402,272                      $0                $531,484

         Bayberry Associates                 65%              11,360,375                       0               1,020,085
                                                             -----------              ----------              ----------
                                                             $17,762,647                      $0              $1,551,569
                                                             ===========              ==========              ==========

<CAPTION>


                                                               BALANCE                   1998
                                         PERCENT OF             AS OF                 INVESTMENT          1998 EQUITY IN
             DESCRIPTION                  OWNERSHIP           12/31/97               IN PROPERTY           INCOME (LOSS)
---------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>             <C>                              <C>             <C>
         270 Technology Park                 50%              $6,162,959                      $0                      $0

         Bayberry Associates                 65%              11,021,116                       0                 619,051
------------------------------------------------------------------------------------------------------------------------
                                                             $17,184,075                      $0                $619,051
========================================================================================================================
<CAPTION>
                                                             1996
                                       1996 CASH         AMORTIZATION
                                        RECEIVED               OF              CONVERSION TO                              BALANCE
                                          FROM            ACQUISITION          WHOLLY-OWNED         DISPOSALS              AS OF
             DESCRIPTION             JOINT VENTURES           FEES             PROPERTY                                   12/31/96
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                 <C>                           <C>              <C>          <C>
         270 Technology Park              ($541,400)        ($3,188)                      $0               $0            $6,402,272

         Bayberry Associates             (1,389,740)         (6,276)                       0                0            11,360,375
                                        -----------         -------             ------------     ------------           -----------
                                        ($1,931,140)        ($9,464)                      $0               $0           $17,762,647
                                        ===========         =======             ============     ============           ===========

<CAPTION>
                                                             1997
                                       1997 CASH         AMORTIZATION
                                        RECEIVED               OF              CONVERSION TO                              BALANCE
                                          FROM            ACQUISITION          WHOLLY-OWNED         DISPOSALS              AS OF
             DESCRIPTION             JOINT VENTURES           FEES             PROPERTY                                   12/31/97
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>                <C>                           <C>              <C>          <C>
         270 Technology Park              ($767,609)        ($3,188)                      $0               $0            $6,162,959

         Bayberry Associates             (1,353,067)         (6,277)                       0                0            11,021,116
                                        -----------         -------             ------------     ------------           -----------
                                        ($2,120,676)        ($9,465)                      $0               $0           $17,184,075
                                        ===========         =======             ============     ============           ===========
<CAPTION>
                                                             1998
                                       1998 CASH         AMORTIZATION
                                        RECEIVED               OF              CONVERSION TO          1998                BALANCE
                                          FROM            ACQUISITION          WHOLLY-OWNED         DISPOSALS              AS OF
             DESCRIPTION             JOINT VENTURES           FEES             PROPERTY                                   12/31/98
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                 <C>                  <C>             <C>                            <C>
         270 Technology Park                      $0             $0              ($6,162,959)              $0                    $0

         Bayberry Associates             (1,043,829)         (3,138)                       0      (10,593,200)                   (0)
-----------------------------------------------------------------------------------------------------------------------------------
                                        ($1,043,829)        ($3,138)             ($6,162,959)    ($10,593,200)                  ($0)
===================================================================================================================================
</TABLE>
                                      34


<PAGE>

                              FINANCIAL STATEMENTS

                                   INDEX NO. 2

              Independent Auditor's Report and Financial Statements

                             of Bayberry Associates

Independent Auditor Report of Reznick Fedder and Silverman

Balance Sheets - August 6, 1998 and December 31, 1997

Statements of Operations - For the Period ended January 1, 1998 through August
 6, 1998 and For the Years ended December 31, 1997 and 1996

Statements of Partners' Equity - For the Period ended January 1, 1998 through
 August 6, 1998 and For the Years ended December 31, 1997 and 1996

Statements of Cash Flows - For the Period ended January 1, 1998 through August
 6, 1998 and For the Years ended December 31, 1997 and 1996

Notes to Financial Statements



                                      35

<PAGE>

                            FINANCIAL STATEMENTS AND

                          INDEPENDENT AUDITORS' REPORT

                               BAYBERRY ASSOCIATES

                      AUGUST 6, 1998 AND DECEMBER 31, 1997







                                     36


<PAGE>

                               Bayberry Associates

                                TABLE OF CONTENTS


INDEPENDENT AUDITORS' REPORT

FINANCIAL STATEMENTS

     BALANCE SHEETS

     STATEMENTS OF OPERATIONS

     STATEMENTS OF PARTNERS' EQUITY

     STATEMENTS OF CASH FLOWS

     NOTES TO FINANCIAL STATEMENTS







                                           37


<PAGE>

                                     [LOGO]
                           Reznick Fedder & Silverman
            Certified Public Accountants o A Professional Corporation

Two Hopkins Plaza o Suite 2100 o Baltimore, Maryland 21201-2911 o Phone (410)
783-4900 o Fax (410) 727-0460

                          INDEPENDENT AUDITORS' REPORT

To the Partners
Bayberry Associates

      We have audited the accompanying balance sheets of Bayberry Associates as
of August 6, 1998 and December 31, 1997, and the related statements of
operations, partners' equity and cash flows for the period January 1, 1998
through August 6, 1998, and for the two years ended December 31, 1997 and 1996.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements 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 Bayberry Associates as of
August 6, 1998 and December 31, 1997 and 1996, and the results of its
operations, the changes in partners' equity and its cash flows for the period
January 1, 1998 through August 6, 1998, and for the two years ended December 31,
1997 and 1996, in conformity with generally accepted accounting principles.


                                            /s/ Resnick Fedder & Silverman

Baltimore, Maryland
January 5, 1999


<TABLE>
<S>                      <C>                       <C>                    <C>
4520 East West Highway     212 S. Tryon Street      745 Atlantic Avenue   Two Premier Plaza, Suite 500
      Suite 300                Suite 1180               Suite 800           5605 Glenridge Drive
Bethesda, MD 20814-3319  Charlotte, NC 28281-8100  Boston, MA 02111-2735   Atlanta, GA 31150-1298
  Phone (301) 652-9100     Phone (704) 332-9100     Phone(617)423-5855      Phone (770) 844-0644
</TABLE>




                                             38

<PAGE>

                               Bayberry Associates

                                 BALANCE SHEETS

                      August 6, 1998 and December 31, 1997
<TABLE>
<CAPTION>
                                                                1998          1997
                                                            -----------   -----------
<S>                                                         <C>           <C>
                                      ASSETS

INVESTMENT IN REAL ESTATE
  Land                                                      $ 3,754,558   $ 3,754,558
  Building and improvements                                   8,503,711     8,503,711
  Personal property                                             778,494       778,494
                                                            -----------   -----------

                                                             13,036,763    13,036,763
  Less accumulated depreciation                               3,991,404     3,788,765
                                                            -----------   -----------

                                                              9,045,359     9,247,998

OTHER ASSETS
  Cash                                                               --       149,528
  Tenants' security deposits                                         --        27,006
  Tenants' accounts receivable                                       --        21,306
  Prepaid expenses                                              194,125       112,238
                                                            -----------   -----------

                                                            $ 9,239,484   $ 9,558,076
                                                            ===========   ===========

                        LIABILITIES AND PARTNERS' EQUITY

LIABILITIES
  Accounts payable and accrued expenses                     $    57,203   $    22,936
  Deferred rental income                                        120,307        12,304
  Accrued preferred return                                    2,891,573     2,846,924
  Accrued guaranteed payments                                 1,557,000     1,532,960
  Tenants' security deposits                                     30,479        27,006
  Due to affiliates                                                  --         8,830
                                                            -----------   -----------

                                                              4,656,562     4,450,960

PARTNERS' EQUITY                                              4,582,922     5,107,116
                                                            -----------   -----------

                                                            $ 9,239,484   $ 9,558,076
                                                            ===========   ===========
</TABLE>
                        See notes to financial statements


                                      39





<PAGE>

                               Bayberry Associates

                            STATEMENTS OF OPERATIONS

          For the period January 1, 1998 through August 6, 1998 and the
                     years ended December 31, 1997 and 1996

                                           1998           1997           1996
                                      ------------   ------------   ------------

Revenue
  Rent                                $  1,382,056   $  2,221,106   $  2,168,867
  Other lease related income                62,680         59,477         59,355
  Interest                                   3,863          4,500          4,148
                                      ------------   ------------   ------------

                                         1,448,599      2,285,083      2,232,370
                                      ------------   ------------   ------------

Expenses
  Furnished apartment expense                   57         14,080         17,384
  Advertising and promotion                 28,521         45,076         52,631
  Salaries                                 170,087        218,230        203,722
  Administrative                            47,757         54,985         49,218
  Management fee                            50,288         79,485         77,525
  Maintenance                              139,551        169,586        158,702
  Utilities                                 39,298         53,926         72,901
  Real estate taxes                        124,645        213,150        190,670
  Insurance                                 10,040         18,084         20,338
  Dues and fees                             41,113         57,802         46,305
  Depreciation                             202,612        340,594        375,092
  Guaranteed payments                      410,197        671,616        651,048
                                      ------------   ------------   ------------

                                         1,264,166      1,936,614      1,915,536
                                      ------------   ------------   ------------

                  EXCESS OF REVENUE
                   OVER EXPENSES      $    184,433   $    348,469   $    316,834
                                      ============   ============   ============

                        See notes to financial statements


                                      40





<PAGE>

                               Bayberry Associates

                         STATEMENTS OF PARTNERS' EQUITY

          For the period January 1, 1998 through August 6, 1998 and the
                     years ended December 31, 1997 and 1996

<TABLE>
<CAPTION>
                                                      Christopher
                                                       Bozzuto        New England
                                                       Limited       Life Pension
                                                      Partnership    Properties III       Total
                                                      ------------    ------------    ------------
<S>                                                   <C>             <C>             <C>
Partners' equity (deficit), December 31, 1995         $   (345,536)   $  7,243,238    $  6,897,702

Distributions                                              (24,136)     (1,184,953)     (1,209,089)

Excess of revenue over expenses                             24,136         292,698         316,834
                                                      ------------    ------------    ------------

Partners' equity (deficit), December 31, 1996             (345,536)      6,350,983       6,005,447

Distributions                                              (26,730)     (1,220,070)     (1,246,800)

Excess of revenue over expenses                             26,730         321,739         348,469
                                                      ------------    ------------    ------------

Partners' equity (deficit), December 31, 1997             (345,536)      5,452,652       5,107,116

Contributions                                              169,881              --         169,881

Distributions                                              (16,899)       (861,609)       (878,508)

Excess of revenue over expenses                             16,899         167,534         184,433
                                                      ------------    ------------    ------------

Partners' equity (deficit), August 6, 1998            $   (175,655)   $  4,758,577    $  4,582,922
                                                      ============    ============    ============
</TABLE>

                        See notes to financial statements


                                      41





<PAGE>

                               Bayberry Associates

                            STATEMENTS OF CASH FLOWS

          For the period January 1, 1998 through August 6, 1998 and the
                     years ended December 31, 1997 and 1996

<TABLE>
<CAPTION>
                                                                  1998            1997            1996
                                                             ------------    ------------    ------------

Cash flow from operating activities
<S>                                                          <C>             <C>             <C>
  Excess of revenue over expenses                            $    184,433    $    348,469    $    316,834
  Adjustments to reconcile excess of revenue over expenses
  to net cash provided by operating activities
     Depreciation                                                 202,612         340,594         375,092
     Changes in assets and liabilities
      Decrease (increase) in tenants' accounts receivable          21,306         (13,853)            (42)
      (Increase) decrease in prepaid expenses                     (81,887)          7,315         (13,882)
      Increase (decrease) in accounts payable                      34,293           5,187         (36,066)
      Increase (decrease) in deferred rental income               108,003            (655)       (103,044)
      Increase in accrued guaranteed payments                      83,499         197,781         192,524
      (Decrease) increase in due to affiliate                      (8,830)          2,710         (25,211)
      Net security deposits received (paid)                        30,479             937            (373)
                                                             ------------    ------------    ------------

         Net cash provided by operating activities                573,908         888,485         705,832
                                                             ------------    ------------    ------------

Cash flows from financing activities
  Distributions to general partner                               (723,436)       (879,495)       (851,543)
                                                             ------------    ------------    ------------

         Net cash used in financing activities                   (723,436)       (879,495)       (851,543)
                                                             ------------    ------------    ------------

         NET (DECREASE) INCREASE IN CASH                         (149,528)          8,990        (145,711)

Cash, beginning                                                   149,528         140,538         286,249
                                                             ------------    ------------    ------------

Cash, ending                                                 $         --    $    149,528    $    140,538
                                                             ============    ============    ============

Supplemental disclosure of cash flow information
  Cash paid during the year for guaranteed payments          $    326,698    $    473,835    $    458,524
                                                             ============    ============    ============
</TABLE>

Supplemental disclosure of non-cash activities During 1998, $110,422 of accrued
preferred return and $59,459 of accrued guaranteed payments was converted to
capital.

                        See notes to financial statements


                                      42
<PAGE>

                               Bayberry Associates

                          NOTES TO FINANCIAL STATEMENTS

                      August 6, 1998 and December 31, 1997

NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Bayberry Associates (the Partnership) was formed as a general partnership
      under the laws of the State of Maryland on April 4, 1988, for the purpose
      of constructing, owning and operating a rental housing project. The
      project consists of 230 units located in Montgomery County, Maryland, and
      is operating as Bayberry Apartments. On August 6, 1998, New England Life
      Pension Properties III (NELP) sold their entire interest in the
      Partnership and Christopher Bozzuto Limited Partnership (CBLP) sold 34% of
      their 35% interest in the Partnership and distributed the remaining 1% to
      an affiliate. Prior to such sale, all leases between the Partnership and
      tenants of the property were operating leases.

Use of Estimates

      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 could differ from those
      estimates.

Investment in Real Estate

      Investment in real estate is carried at cost. Depreciation is provided for
      in amounts sufficient to relate the cost of depreciable assets to
      operations over their estimated service lives using accelerated methods.

Rental Income

      Rental income is recognized as rentals become due. Rental payments
      received in advance are deferred until earned.

Income Taxes

      No provision or benefit for income taxes has been included in these
      financial statements since taxable income or loss passes through to, and
      is reportable by, the partners individually.


                                      43
<PAGE>

                               Bayberry Associates

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                      August 6, 1998 and December 31, 1997

NOTE B - SALE OF PARTNERSHIP INTEREST

      At the close of business on August 6, 1998, NELP sold their entire
      interest in the Partnership and CBLP sold 34% of their 35% interest in the
      Partnership and distributed the remaining 1% to an affiliate. The contract
      sales price for this transaction was $17,000,000. Property and equipment
      transferred had a net book value of $9,045,359. In addition, assets
      totaling $194,125 and liabilities totaling $207,989 which includes tenant
      security deposits of $30,479 were transferred in the sale to the new
      partners. The additional liabilities of $4,448,573 were assumed by the
      selling partners.

NOTE C - RELATED PARTY TRANSACTIONS

      Management Fee

      The Partnership is required to pay a management fee to Bozzuto Management
      Company, an affiliate of Christopher Bozzuto Limited Partnership, a
      general partner, in an amount equal to 3.5% of gross receipts collected.
      Management fees of $50,288 and $79,485, $77,525, were expensed in 1998,
      1997 and 1996, respectively. At December 31, 1997, $8,830 remained unpaid.

      Expenses Incurred and Reimbursed to Affiliates

      The Partnership reimburses payroll and other costs incurred by Bozzuto &
      Associates, Inc. and Subsidiaries, affiliates of Christopher Bozzuto
      Limited Partnership, a general partner, for various administrative and
      operating costs relating to the project. During 1998, 1997 and 1996,
      $186,272, $236,313, and $224,059, were incurred and paid, respectively.

NOTE D - PARTNERS' EQUITY

      The acquisition and development of the project was funded by capital
      contributions from NELP, a general partner, in the cumulative amount of
      $14,350,000, which consisted of senior and junior capital of $9,327,500
      and $5,022,500, respectively. The Partnership agreement provides for both
      a "Senior and Junior Priority Return," on the outstanding capital, on a
      monthly basis, which is calculated at the rate of 10.25% per annum on the
      outstanding capital. The Priority Returns are payable monthly from
      Operating Cash Flow as defined in the Partnership agreement, however, (a)
      to the extent the full amount of the Senior Priority Return cannot be made
      from such sources on a monthly basis, an amount thereof equal to a 10.25%
      per annum cumulative return on the Senior Invested Capital may accrue, and
      such accruals shall bear interest at the rate of 10.25%


                                      44
<PAGE>

                               Bayberry Associates

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                      August 6, 1998 and December 31, 1997

NOTE D - PARTNERS' EQUITY (Continued)

      per annum compounded monthly and (b) to the extent the full amount of the
      Junior Priority Return cannot be made from such sources on a monthly
      basis, the amount of the Junior Priority Return may accrue and such
      accruals shall bear interest at the rate of 10.25% per annum compounded
      monthly. To the extent the Senior Priority Return is required to be paid
      currently (and may not be accrued), it will be funded, if necessary, out
      of the proceeds of Deficit Contributions and Default Capital
      Contributions. These Deficit Contributions and Default Capital
      Contributions accrue a return (Deficit Preferred Return) equal to the
      greater of NationsBank's prime rate plus 2% (10.25% at August 6, 1998) or
      10.25% per annum. As of August 6, 1998 and December 31, 1997, NELP and
      Christopher Bozzuto Limited Partnership had made deficit capital
      contributions in the amounts of $225,956 and $122,500, respectively.

      At August 6, 1998 and December31, 1997, the accrued Junior Priority Return
      (including accrued interest of $1,622,839 and $1,372,467, respectively)
      due totaled $4,210,068 and $4,011,869. The Senior Priority Return was paid
      in full on an annual basis. The accrued Deficit Preferred Return payable
      to NELP and CBLP at August 6, 1998, was $238,505 and $- 0 -, respectively,
      and at December 31, 1997, was $215,034 and $152,981, respectively. On
      August 6, 1998, the accrued deficit preferred return payable to CBLP in
      the amount of $169,881 was converted to capital. Effective August 7, 1998,
      the Partnership is no longer subject to this agreement.

      Subsequent to the financial statement date and in connection with the
      August 6, 1998, sale of its partnership interest, NELP received
      $16,986,136 out of the sales proceeds and applied it to the repayment of
      the following accounts:

               Accrued preferred return                   $  2,653,068
               Accrued guaranteed payments                   1,557,000
               Deficit capital contributions                   225,956
               Deficit preferred return payable                238,505
               Return of initial capital contribution       12,311,607
                                                          ------------

                                                          $ 16,986,136
                                                          ============

Additionally, the Partnership distributed the remaining operating proceeds in
the amount of $115,821 to NELP.


                                      45
<PAGE>

                               Bayberry Associates

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                      August 6, 1998 and December 31, 1997

NOTE E - RECONCILIATION OF FINANCIAL STATEMENTS TO TAX RETURN

      The following is a reconciliation of the excess of revenue over expenses
      and partners' equity per the financial statements to the tax basis excess
      of revenue over expenses and partners' equity for the period January 1,
      1998 through August 6, 1998, and the years ended December 31, 1997 and
      1996.

<TABLE>
<CAPTION>
                                                    1998            1997            1996
                                               ------------    ------------    ------------

<S>                                            <C>             <C>             <C>
Excess of revenue over expenses
 (financial statement basis)                   $    184,433    $    348,469    $    316,834
Deferred rental income                              (12,304)           (655)       (103,044)
Real estate tax deduction under IRS
 Code Section 461                                   102,905           5,965         (14,787)
                                               ------------    ------------    ------------

     Tax basis                                 $    275,034    $    353,779    $    199,003
                                               ============    ============    ============

Partners' equity (financial statement basis)   $  4,582,922    $  5,107,116    $  6,005,447
Deferred rental income                                   --          12,304          12,959
Real estate tax deduction under IRS Code
 Section 461                                                       (103,871)       (109,836)
Net adjustment for technical termination         (4,582,922)             --              --
                                               ------------    ------------    ------------

  Tax basis                                    $         --    $  5,015,549    $  5,908,570
                                               ============    ============    ============
</TABLE>


                                      46
<PAGE>

                              FINANCIAL STATEMENTS
                                   INDEX NO. 3

              Independent Auditor's Report and Financial Statements

                             of MORF Associates III

              (referred to elsewhere herein as 270 Technology Park)

Independent Auditor's Report of Wolpoff and Company, LLP

Balance Sheet - December 31, 1997 and 1996

Statement of Income - For the Years ended
 December 31, 1997, 1996 and 1995

Statement of Partners' Capital - For the Years ended
 December 31, 1997, 1996 and 1995

Statement of Cash Flows - For the Years ended
 December 31, 1997, 1996 and 1995

Notes to Financial Statements

                                           47

<PAGE>

                               MORF ASSOCIATES III
                        (A MARYLAND GENERAL PARTNERSHIP)

                                FINANCIAL REPORT

                                DECEMBER 31, 1997







                                       48
<PAGE>

                               MORF ASSOCIATES III
                        (A MARYLAND GENERAL PARTNERSHIP)

                                    CONTENTS

                                DECEMBER 31, 1997

INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

  Balance Sheet

  Statement of Income

  Statement of Partners Capital

  Statement of Cash Flows

  Notes to Financial Statements

INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTARY INFORMATION

SUPPLEMENTARY INFORMATION

  Schedule of Partners' Capital

  Schedule of Changes in Partners' Capital - Income Tax Basis




                                        49
<PAGE>

                     [LETTERHEAD OF WOLPOFF & COMPANY,LLP]

To the Partners
MORF Associates III
 (A Maryland General Partnership)
Columbia, Maryland

              INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS

We have audited the balance sheet of MORF Associates III (A Maryland General
Partnership) as of December 31, 1997 and 1996, and the related statements of
income, partners' capital, and cash flows for each of the three years ended
December 31, 1997, 1996, and 1995. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements 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 MORF Associates III (A Maryland
General Partnership) as of December 31, 1997 and 1996, and the results of its
operations and cash flows for each of the three years ended December 31, 1997,
1996, and 1995, in conformity with generally accepted accounting principles.


                             /s/ Wolpoff & Company, LLP

                             WOLPOFF & COMPANY, LLP

Baltimore, Maryland
January 8,1998




                                      50
<PAGE>

                               MORF ASSOCIATES III

                        (A MARYLAND GENERAL PARTNERSHIP)

                                  BALANCE SHEET

                                     ASSETS

                                                           December 31,
                                                   ----------------------------
                                                        1997            1996
                                                   ------------    ------------
PROPERTY, AT COST - Note 1
   Buildings and Improvements                      $  6,461,425    $  6,505,771
   Land                                                 247,652         247,652
   Deferred Leasing Costs                               150,685         348,150
                                                   ------------    ------------
                                                      6,859,762       7,101,573
   Less Accumulated Depreciation and Amortization     1,321,539       1,364,270
                                                   ------------    ------------

      PROPERTY, NET                                   5,538,223       5,737,303
                                                   ------------    ------------

OTHER ASSETS
   Cash and Cash Equivalents - Note 1                   104,265         166,474
                                                   ------------    ------------

   Receivable From Tenants                               79,133          90,782
   Deferred Rent Receivable - Note 1                    119,406         144,262
   Less Allowance for Doubtful Accounts                 (14,000)        (50,000)
                                                   ------------    ------------
                                                        184,539         185,044
                                                   ------------    ------------

   Prepaid Expenses                                      40,598          11,944
                                                   ------------    ------------

      TOTAL OTHER ASSETS                                329,402         363,462
                                                   ------------    ------------

                                                   $  5,867,625    $  6,100,765
                                                   ============    ============

                        LIABILITIES AND PARTNERS' CAPITAL

LIABILITIES
   Accounts Payable and Accrued Expenses            $     10,419    $      8,022
   Tenant Security Deposits                               44,205          43,617
                                                    ------------    ------------

      TOTAL LIABILITIES                                   54,624          51,639

PARTNERS' CAPITAL - Note 2                             5,813,001       6,049,126
                                                    ------------    ------------

                                                    $  5,867,625    $  6,100,765
                                                    ============    ============

----------
The notes to financial statements are an integral part of this statement.


                                      51
<PAGE>

                               MORF ASSOCIATES III
                        (A MARYLAND GENERAL PARTNERSHIP)

                               STATEMENT OF INCOME

<TABLE>
<CAPTION>
                                                            Year Ended December 31,
                                                   --------------------------------------------
                                                       1997            1996            1995
                                                   ------------    ------------    ------------

<S>                                                <C>             <C>             <C>
REVENUE
  Gross Rent Potential - Notes 1 and 5             $    921,387    $    884,222    $    876,371
  Less Vacancies                                         96,279          42,955          22,445
                                                   ------------    ------------    ------------
   Net Rental Income                                    825,108         841,267         853,926
  Expense Reimbursements From Tenants                    98,979         134,744         115,054
  Other Income                                           31,752           3,489           2,592
                                                   ------------    ------------    ------------

       TOTAL REVENUE                                    955,839         979,500         971,572
                                                   ------------    ------------    ------------

OPERATING EXPENSES
  Property Taxes                                         75,769          64,048          70,700
  Building and Grounds Maintenance                       45,579          48,679          32,535
  Utilities                                              15,444          21,120          12,049
  Management Fees - Note 3                               27,096          29,445          25,718
  General and Administrative                             17,758           9,779          10,161
  Insurance                                               4,925           5,560           5,796
  Bad Debt Expense                                       15,090          17,268          25,000
                                                   ------------    ------------    ------------

   TOTAL OPERATING EXPENSES                             201,661         195,899         181,959
                                                   ------------    ------------    ------------

NET OPERATING INCOME                                    754,178         783,601         789,613
                                                   ------------    ------------    ------------

ADJUSTMENTS TO ARRIVE AT NET INCOME
  Depreciation and Amortization                        (166,844)       (164,234)       (165,592)
  Abandonment of Tenant Improvements - Note 1           (55,850)            -0-             -0-
                                                   ------------    ------------    ------------
                                                       (222,694)       (164,234)       (165,592)
                                                   ------------    ------------    ------------

NET INCOME - Note 4                                $    531,484    $    619,367    $    624,021
                                                   ============    ============    ============
</TABLE>

----------
The notes to financial statements are an integral part of this statement.


                                      52
<PAGE>

                               MORF ASSOCIATES III
                        (A MARYLAND GENERAL PARTNERSHIP)

                         STATEMENT OF PARTNERS' CAPITAL

                                             Year Ended December 31,
                                   --------------------------------------------
                                        1997            1996            1995
                                   ------------    ------------    ------------
CAPITAL CONTRIBUTIONS              $  6,220,001    $  6,220,001     $ 6,220,001

CAPITAL PLACEMENT FEE - Note 1          (50,515)        (50,515)        (50,515)
                                   ------------    ------------    ------------
                                      6,169,486       6,169,486       6,169,486
                                   ------------    ------------    ------------

ACCUMULATED INCOME
  Prior Years                         5,483,632       4,864,265       4,240,244
  Current Year                          531,484         619,367         624,021
                                   ------------    ------------    ------------
                                      6,015,116       5,483,632       4,864,265
                                   ------------    ------------    ------------

DISTRIBUTIONS - Note 2
  Prior Years                        (5,603,992)     (5,062,591)     (4,363,915)
  Current Year                         (767,609)       (541,401)       (698,676)
                                   ------------    ------------    ------------
                                     (6,371,601)     (5,603,992)     (5,062,591)
                                   ------------    ------------    ------------

TOTAL PARTNERS' CAPITAL            $  5,813,001     S 6,049,126    $  5,971,160
                                   ============    ============    ============

----------
The notes to financial statements are an integral part of this statement.


                                      53
<PAGE>

                               MORF ASSOCIATES III
                        (A MARYLAND GENERAL PARTNERSHIP)

                             STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                                     --------------------------------------------
                                                         1997            1996            1995
                                                     ------------    ------------    ------------
<S>                                                  <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Income                                         $    531,484    $    619,367    $    624,021
                                                     ------------    ------------    ------------
  Adjustments to Reconcile Net Income to
   Net Cash Provided by Operating Activities:
    Depreciation and Amortization                         166,844         164,234         165,592
    Abandonment of Tenant Improvements                     55,850             -0-             -0-
    Change in Tenant Receivables, Net of Allowance            506          16,366         (74,654)
    Change in Prepaid Expenses                            (28,654)         (9,631)          1,542
    Change in Accounts Payable and Accrued Expenses         2,397           6,171          (7,600)
                                                     ------------    ------------    ------------
     Total Adjustments                                    196,943         177,140          84,880
                                                     ------------    ------------    ------------

      Net Cash Provided by Operating Activities           728,427         796,507         708,901
                                                     ------------    ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Increase in Tenant Security Deposits                       588           2,726          10,430
   Additions to Property                                  (21,441)        (76,617)        (79,117)
   Leasing Commissions                                     (2,174)        (35,066)        (41,300)
                                                     ------------    ------------    ------------

      Net Cash Used by Investing Activities               (23,027)       (108,957)       (109,987)
                                                     ------------    ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Distributions to Partners                             (767,609)       (541,401)       (698,676)
                                                     ------------    ------------    ------------

NET INCREASE (DECREASE)
   IN CASH AND CASH EQUIVALENTS                           (62,209)        146,149         (99,762)

CASH AND CASH EQUIVALENTS, BEGINNING                      166,474          20,325         120,087
                                                     ------------    ------------    ------------

CASH AND CASH EQUIVALENTS, ENDING                    $    104,265    $    166,474    $     20,325
                                                     ============    ============    ============
</TABLE>

----------
The notes to financial statements are an integral part of this statement.


                                      54
<PAGE>

                               MORF ASSOCIATES III
                        (A MARYLAND GENERAL PARTNERSHIP)

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 1997

Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Organization

      MORF Associates III (A Maryland General Partnership) (the Partnership) was
      formed on January 1, 1988, under the Maryland Uniform Partnership Act. The
      land and buildings were conveyed to the Partnership by M.O.R.F. III
      Associates Limited Partnership, a general partner. The buildings were in
      service and partially leased on the date conveyed.

      Cash and Cash Equivalents

      The Partnership considers all highly liquid debt instruments purchased
      with a maturity of 3 months or less to be cash equivalents.

      The majority of the Partnership's cash is held in financial institutions
      with insurance provided by the Federal Deposit Insurance Corporation
      (FDIC) up to $100,000. Periodically during the year, the balance may have
      exceeded the FDIC limitation.

      Rental Income

      Rental income for the major leases is being recognized on a straight-line
      basis over the terms of the leases. The excess of the rental income
      recognized over the amount stipulated in the lease is shown as deferred
      rent receivable.

      Property

      The Partnership owns and operates 3 office buildings in Frederick,
      Maryland, containing approximately 86,300 square feet of leasable area.

      In 1996, the Partnership adopted Statement of Financial Accounting
      Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived
      Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires
      that real estate assets be evaluated for impairment if impairment
      indicators are present. An impairment write-down to fair value would occur
      only if the estimated undiscounted cash flows from the asset were less
      than the carrying amount of the asset. At December 31, 1997, the
      Partnership does not hold any assets that meet the impairment criteria of
      SFAS No. 121.

      All property is recorded at cost. Information regarding the buildings is
      as follows:

<TABLE>
<CAPTION>
                                                               Occupancy at
                                               -------------------------------------------
                   Square
Building            Feet          Tenants       12/31/97        12/31/96        12/31/95
-------------   ------------  ------------   ------------    ------------    -------------
    <S>             <C>           <C>                 <C>             <C>             <C>
    C               45,800        Multiple            100%            100%            100%
    D               11,700        Multiple             86%             86%             88%
    E               28,800        Multiple            100%            100%            100%
                ----------                   ------------    ------------    ------------
                    86,300                             98%             98%             98%
                ==========                   ============    ============    ============
</TABLE>


                                      55
<PAGE>

                               MORF ASSOCIATES III

                        (A MARYLAND GENERAL PARTNERSHIP)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                                DECEMBER 31, 1997

Note 1 - (Cont.)

      During 1997, tenant improvements completed in prior years were demolished
      in order to build out the space for the new tenant. The loss on
      abandonment of tenant improvements is calculated as follows:

                Acquired Value                                  $ 65,787
                Accumulated Depreciation                          (9,937)
                                                                ---------

                Abandonment of Tenant Improvements              $ 55,850
                                                                =========

      Depreciation

      Building costs and tenant improvements are being depreciated using the
      straight-line method over the estimated useful lives of 50 years.

      Amortization Deferred leasing costs are being amortized over the lease
      periods.

      Income Taxes

      Partnerships, as such, are not subject to income taxes. The partners are
      required to report their respective share of partnership income or loss
      and other tax items on their respective income tax returns.

      Capital Placement Costs
      Costs incurred for arranging the Partnership's equity have been treated as
      a reduction of partners' capital.

      Use of Estimates
      The preparation of financial statements in conformity with generally
      accepted accounting principles requires management to make estimates and
      assumptions that affect certain reported amounts and disclosures.

Note 2 - PARTNERS' CAPITAL

      Capital Investment

      New England Life Pension Properties III (NELPP III) has invested equity of
      $6,220,000 in the Partnership. NELPP III is entitled to a cumulative
      priority return of 10.5% compounded monthly on its investment.

      During 1997, 1996, and 1995, NELPP III was paid $767,609, $541,401, and
      $698,676, respectively, under this agreement. As of December 31, 1997,
      1996, and 1995, unpaid priority returns amounted to $682,372, $732,013,
      and $560,857, respectively.

Note 3 - RELATED PARTY TRANSACTIONS

      Management Fees

      The Partnership has entered into an agreement with Manekin Corporation, an
      affiliated entity, to act as management agent for the property. The
      management agreement provides for fees equal to 3% of rent and tenant
      expense billings.


                                      56
<PAGE>

                               MORF ASSOCIATES III
                        (A MARYLAND GENERAL PARTNERSHIP)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                                DECEMBER 31, 1997

Note 3 - Leasing Commissions (Cont.)

      Leasing commissions of $2,174 and $35,961 were paid to Manekin Corporation
      during 1997 and 1995. No leasing commissions were paid to Manekin
      Corporation during 1996.

Note 4 - TAX ACCOUNTING

      Tax accounting differs from financial accounting as follows:

<TABLE>
<CAPTION>
                                             Current         Prior
                                              Year           Years           Total
                                        ------------    ------------    ------------
<S>                                         <C>           <C>             <C>
      Financial Statement Income            $531,484      $5,483,632      $6,015,116
      Additional Depreciation                (69,586)       (623,009)       (692,595)
      Deferred Rental
       Income Not Subject to Tax              24,856        (144,262)       (119,406)
      Prepaid Property Taxes                 (29,310)         (9,631)        (38,941)
      Allowance for Doubtful Accounts        (36,000)         41,500           5,500
                                        ------------    ------------    ------------

      Taxable Income                        $421,444      $4,748,230      $5,169,674
                                        ============    ============    ============
</TABLE>

Note 5 - LEASES

      The following is a schedule of future minimum lease payments to be
      received under noncancelable operating leases at December 31, 1997:

                     Year Ending December 31, 1998     $  710,292
                                              1999        528,045
                                              2000        315,774
                                              2001        199,350
                                                     ------------

                                                       $1,753,461
                                                     ============


                                      57
<PAGE>

To the Partners
MORF Associates III
 (A Maryland General Partnership)
Columbia, Maryland

            INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTARY INFORMATION

Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplementary
information contained on pages 10 and 11 is presented for purposes of additional
analysis and is not a required part of the basic financial statements. Such
information has not been subjected to the auditing procedures applied in the
audits of the basic financial statements, and accordingly, we express no opinion
on it.


                             /s/ Wolpoff & Company, LLP

                             WOLPOFF & COMPANY, LLP

Baltimore, Maryland
January 8, 1998


                                      58

<PAGE>

                               MORF ASSOCIATES III
                        (A MARYLAND GENERAL PARTNERSHIP)

                          SCHEDULE OF PARTNERS' CAPITAL

                          YEAR ENDED DECEMBER 31, 1997

                                          M.O.R.F. III
                          New England     Associates
                          Life Pension      Limited
                         Properties III   Partnership        Total
                         --------------   -----------     -----------

OWNERSHIP PERCENTAGE           50%             50%            100%
                          ===========     ===========     ===========

CAPITAL CONTRIBUTIONS     $ 6,220,000     $         1     $ 6,220,001

CAPITAL PLACEMENT FEE         (50,515)            -0-         (50,515)
                          -----------     -----------     -----------
                            6,169,485               1       6,169,486
                          -----------     -----------     -----------

ACCUMULATED INCOME
  Prior Years               5,348,632         135,000       5,483,632
  Current Year                531,484             -0-         531,484
                          -----------     -----------     -----------
                            5,880,116         135,000       6,015,116
                          -----------     -----------     -----------

DISTRIBUTIONS - Note 2
  Prior Years              (5,468,992)       (135,000)     (5,603,992)
  Current Year               (767,609)            -0-        (767,609)
                          -----------     -----------     -----------
                           (6,236,601)       (135,000)     (6,371,601)
                          -----------     -----------     -----------

TOTAL PARTNERS' CAPITAL   $ 5,813,000     $         1     $ 5,813,001
                          ===========     ===========     ===========

-----------
See Independent Auditor's Report on Supplementary Information.


                                      59
<PAGE>

                               MORF ASSOCIATES III
                        (A MARYLAND GENERAL PARTNERSHIP)

           SCHEDULE OF CHANGES IN PARTNERS' CAPITAL - INCOME TAX BASIS

                          YEAR ENDED DECEMBER 31, 1997

                                                M.O.R.F. III
                              New England        Associates
                              Life Pension        Limited
                             Properties III      Partnership          Total
                           ----------------  ------------------   --------------

OWNERSHIP PERCENTAGE              50%                 50%              100%
                             ============        ============      ============

CAPITAL CONTRIBUTIONS          $ 6,220000        $          1      $  6,220,001

CAPITAL PLACEMENT FEE             (50,515)                -0-           (50,515)
                             ------------        ------------      ------------
                                6,169,485                   1         6,169,486
                             ------------        ------------      ------------

ACCUMULATED INCOME
  Prior Years                   4,613,230             135,000         4,748,230
  Current Year                    421,444                 -0-           421,444
                             ------------        ------------      ------------
                                5,034,674             135,000         5,169,674
                             ------------        ------------      ------------

DISTRIBUTIONS - Note 2
  Prior Years                  (5,468,992)           (135,000)       (5,603,992)
  Current Year                   (767,609)                -0-          (767,609)
                             ------------        ------------      ------------
                               (6,236,601)           (135,000)       (6,371,601)
                             ------------        ------------      ------------

TOTAL PARTNERS' CAPITAL      $  4,967,558        $          1      $  4,967,559
                             ============        ============      ============

----------
See Independent Auditor's Report on Supplementary Information.


                                     60
<PAGE>
                                EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit                                                                  Page
Number                                                                   Number
-------                                                                  ------

<S>  <C>                                                               <C>
4.    Amended and Restated Agreement of Limited Partnership of
      New England Life Pension Properties III; A Real Estate Limited
      Partnership (filed as Exhibit 28A to Form 8-K dated July 15, 1985,
      as filed with the Commission on July 16, 1985).                       *

10A.  Form of Escrow Deposit Agreement among the Registrant, NEL
      Equity Services Corporation and The Bank of Boston (filed as
      Exhibit 10A to the Registrant's Registration Statement on Form
      S-11, file no. 2-94351 (the "Registration Statement").                *

10B.  Form of Advisory Contract between the Registrant and Copley Real
      Estate Advisors, Inc. (filed as Exhibit 10B to the Registration
      Statement).                                                           *

10DD  MORF Associates III General Partnership Agreement dated as of
      January 1, 1988 between M.O.R.F. III Associates Limited
      Partnership and the Registrant.                                       *

27.   Financial Data Schedule
</TABLE>

*Previously filed and incorporated herein by reference

                                     61
<PAGE>

                                   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.

                                      NEW ENGLAND LIFE PENSION PROPERTIES III;
                                      A REAL ESTATE LIMITED PARTNERSHIP


Date: March 29, 2000                  By: /s/ Alison Husid Cutler
                                          -----------------------
                                              Alison Husid Cutler
                                              President of the
                                              Managing General Partner

      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 and on the dates indicated.

         Signature                   Title                       Date
         ---------                   -----                       ----


                               President, Chief
/s/      Alison Husid Cutler   Executive Officer and
---------------------------    Director of the               March 29, 2000
         Alison Husid Cutler   Managing General Partner


/s/      Pamela J. Herbst      Vice President and
---------------------------    Director of the               March 29, 2000
         Pamela J. Herbst      Managing General Partner



/s/      J. Grant Monahon      Vice President and
---------------------------    Director of the               March 29, 2000
         J. Grant Monahon      Managing General Partner



/s/      James J. Finnegan     Vice President of the
---------------------------    Managing General Partner      March 29, 2000
         James J. Finnegan



/s/      Karin J. Lagerlund    Treasurer and Principal
---------------------------    Financial and Accounting
         Karin J. Lagerlund    Officer of the                March 29, 2000
                               Managing General Partner




                                     62