**SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON,D.C. 20549**

 

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**Form 10-Q**

 

**(Mark One)**

 
| **ý**                                                  | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**  |
|-------------------------------------------------------------|----------------------------------------------------------------------------------------------------------|
| ** **                                                  |
| **For the  quarterly period ended September 30, 2005** |
| ** **                                                  |
| **OR**                                                      |
| ** **                                                  |
| **o**                                                       | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
|                                                             |                                                                                                          |  |

 

**For thetransition period from                    to**

 

**Commissionfile number 0-12138**

 

**New England Realty AssociatesLimited Partnership**

(Exact name of registrant asspecified in its charter)

 
| **Massachusetts**                                                | ** ** | **04-2619298**                         |
|------------------------------------------------------------------|------------|----------------------------------------|
| (State or  other jurisdiction of  incorporation or organization) | ** ** | (I.R.S.  employer  identification no.) |
| ** **                                                       | ** ** | ** **                             |
| **39  Brighton Avenue, Allston,  Massachusetts**                 | ** ** | **02134**                              |
| (Address of  principal executive offices)                        | ** ** | (Zip code)                             |

 

Registrant’s telephone number,including area code: **(617) 783-0039**

 

**NotApplicable**

(Former Name, Former Addressand Former Fiscal Year, if Changed Since Last Report)

 

Indicate bycheck ý whether theregistrant: (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes ý   No o

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act).

 
|   | Yes | o | No | ý |
|--------|-----|---|----|--------|

 

 

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**INDEX**

 
| **PART I – FINANCIAL INFORMATION** |                                                                                                                                                                                                               |
|----------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                         |                                                                                                                                                                                                               |   |
| Item 1.                                      | Financial Statements                                                                                                                                                                                               |   |
|                                         |                                                                                                                                                                                                               |   |
|                                         | Consolidated Balance Sheets as of September 30, 2005 (unaudited)  and December 31, 2004 (audited)                                                                                                        |   |
|                                         |                                                                                                                                                                                                               |   |
|                                         | Consolidated Statements of Income for the  Three Months Ended September 30, 2005 and September 30, 2004, and  the Nine Months Ended September 30, 2005 and September 30, 2004  (all unaudited) |   |
|                                         |                                                                                                                                                                                                               |   |
|                                         | Consolidated Statement of Changes in Partners’ Capital for the Nine  Months Ended September 30, 2005 and September 30, 2004 (all  unaudited)                                                        |   |
|                                         |                                                                                                                                                                                                               |   |
|                                         | Consolidated Statements of Cash Flows for the Nine Months Ended September 30,  2005 and September 30, 2004 (all unaudited)                                                                               |   |
|                                         |                                                                                                                                                                                                               |   |
|                                         | Unaudited Notes to Consolidated Financial Statements                                                                                                                                                               |   |
|                                         |                                                                                                                                                                                                               |   |
| Item 2.                                      | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                                                                                                                        |   |
|                                         |                                                                                                                                                                                                               |   |
| Item 3.                                      | Quantitative and Qualitative Disclosures  About Market Risk                                                                                                                                                        |   |
|                                         |                                                                                                                                                                                                               |   |
| Item 4.                                      | Controls and Procedures                                                                                                                                                                                            |   |
|                                         |                                                                                                                                                                                                               |   |
| **PART II – OTHER INFORMATION**    |                                                                                                                                                                                                               |
|                                         |                                                                                                                                                                                                               |   |
| Item 1.                                      | Legal Proceedings                                                                                                                                                                                                  |   |
|                                         |                                                                                                                                                                                                               |   |
| Item 2.                                      | Changes in Securities and Use of Proceeds                                                                                                                                                                          |   |
|                                         |                                                                                                                                                                                                               |   |
| Item 3.                                      | Defaults Upon Senior Securities                                                                                                                                                                                    |   |
|                                         |                                                                                                                                                                                                               |   |
| Item 4.                                      | Submission of Matters to a Vote of Security  Holders                                                                                                                                                               |   |
|                                         |                                                                                                                                                                                                               |   |
| Item 5.                                      | Other Information                                                                                                                                                                                                  |   |
|                                         |                                                                                                                                                                                                               |   |
| Item 6.                                      | Exhibits and Reports on Form 8-K                                                                                                                                                                              |   |
|                                         |                                                                                                                                                                                                               |   |
| **SIGNATURES**                               |                                                                                                                                                                                                               |

 

2

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**NEWENGLAND REALTY ASSOCIATES, L.P.**

 

**PART 1 – FINANCIAL INFORMATION**

 

Item 1.  Financial Statements

 

The accompanying unauditedconsolidated balance sheets, statements of income, changes in partners’capital, and cash flows and related notes thereto, have been prepared inaccordance with generally accepted accounting principles in the United Statesof America (“GAAP”) for interim financial information and in conjunction withthe rules and regulations of the Securities and Exchange Commission (“SEC”).  Accordingly, they do not include all of thedisclosures required by GAAP for complete financial statements.  The financial statements reflect alladjustments consisting only of normal, recurring adjustments, which are in theopinion of management, necessary for a fair presentation for the interimperiods.

 

The aforementioned financialstatements should be read in conjunction with the notes to the aforementionedfinancial statements and Management’s Discussion and Analysis of FinancialCondition and Results of Operations and the financial statements and notesthereto included in New England Realty Associates L.P.’s Annual Report on Form 10-Kfor the fiscal year ended December 31, 2004.

 

The results of operationsfor the nine month period ended September 30, 2005 are not necessarilyindicative of the results to be expected for the entire fiscal year or anyother period.

 

**NEWENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES**

 

**CONSOLIDATED BALANCE SHEETS**

 
| ** **                                        | ** ** | **September 30,  2005** | ** **  | **December 31,  2004** | ** ** |
|---------------------------------------------------|------------|------------------------------|-------------|-----------------------------|------------|
| ** **                                        | ** ** | **(Unaudited)**              | ** **  | **(Audited)**               | ** ** |
| **ASSETS**                                        |       |                         |        |                        |       |
| Rental  Properties                                |       | $                            | 103,355,841 |                        | $          | 105,884,559 |   |
| Rental  Properties Held for Sale                  |       | —                       |        | 406,805                     |       |
| Cash and  Cash Equivalents                        |       | 11,544,410                   |        | 9,862,810                   |       |
| Rents  Receivable                                 |       | 572,574                      |        | 586,983                     |       |
| Real Estate  Tax Escrows                          |       | 707,916                      |        | 736,608                     |       |
| Prepaid  Expenses and Other Assets                |       | 2,913,488                    |        | 2,625,798                   |       |
| Investment  in Partnerships                       |       | 16,250,163                   |        | 10,233,188                  |       |
| Financing  and Leasing Fees                       |       | 593,921                      |        | 640,542                     |       |
|                                              |       |                         |        |                        |       |
| **Total  Assets**                                 |       | $                            | 135,938,313 |                        | $          | 130,977,293 |   |
|                                              |       |                         |        |                        |       |
| **LIABILITIES  AND PARTNERS’ CAPITAL**       |       |                         |        |                        |       |
| Mortgage  Notes Payable                           |       | $                            | 115,770,231 |                        | $          | 115,615,800 |   |
| Accounts  Payable and Accrued Expenses            |       | 1,421,027                    |        | 1,505,390                   |       |
| Advance  Rental Payments and Security Deposits    |       | 3,022,415                    |        | 3,386,547                   |       |
|                                              |       |                         |        |                        |       |
| **Total  Liabilities**                            |       | 120,213,673                  |        | 120,507,737                 |       |
|                                              |       |                         |        |                        |       |
| Commitments  and Contingent Liabilities (Note 9)  |       |                         |        |                        |       |
|                                              |       |                         |        |                        |       |
| Partners’  Capital                           |       |                         |        |                        |       |
| 173,252  units outstanding in 2005 and 2004       |       | 15,724,640                   |        | 10,469,556                  |       |
|                                              |       |                         |        |                        |       |
| **Total  Liabilities and Partners’ Capital** |       | $                            | 135,938,313 |                        | $          | 130,977,293 |   |

 

See notes to consolidatedfinancial statements.

 

3

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**NEWENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF INCOME**

**(UNAUDITED)**

 
| ** **                                                | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-----------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                | ** ** | **2005**                                   | ** ** | **2004**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenue                                                   | ** ** | ** **                                 | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Rental  income                                            |       | $                                          | 7,836,797  |                                      | $          | 7,541,132 |   | $ | 23,446,985 |   | $ | 22,786,701 |   |
| Laundry and  sundry income                                |       | 105,951                                    |       | 94,201                                    |       | 310,007 |   | 255,125 |   |
|                                                      |       | 7,942,748                                  |       | 7,635,333                                 |       | 23,756,992 |   | 23,041,826 |   |
| Expense                                                   |       |                                       |       |                                      |       |   |   |   |   |
| Administrative                                            |       | 307,881                                    |       | 322,532                                   |       | 967,199 |   | 966,689 |   |
| Depreciation  and amortization                            |       | 1,642,148                                  |       | 1,551,431                                 |       | 4,745,603 |   | 4,452,078 |   |
| Interest                                                  |       | 1,960,195                                  |       | 1,965,489                                 |       | 5,842,077 |   | 5,886,669 |   |
| Management  fees                                          |       | 315,741                                    |       | 311,238                                   |       | 956,485 |   | 940,694 |   |
| Operating                                                 |       | 692,382                                    |       | 669,136                                   |       | 2,870,006 |   | 2,443,804 |   |
| Renting                                                   |       | 190,651                                    |       | 272,372                                   |       | 448,420 |   | 507,738 |   |
| Repairs and  maintenance                                  |       | 1,371,378                                  |       | 1,438,459                                 |       | 3,661,190 |   | 3,687,770 |   |
| Taxes and  insurance                                      |       | 861,060                                    |       | 804,807                                   |       | 2,690,951 |   | 2,546,586 |   |
|                                                      |       | 7,341,436                                  |       | 7,335,464                                 |       | 22,181,931 |   | 21,432,028 |   |
|                                                      |       |                                       |       |                                      |       |   |   |   |   |
| Income  Before Other Income                               |       | 601,312                                    |       | 299,869                                   |       | 1,575,061 |   | 1,609,798 |   |
|                                                      |       |                                       |       |                                      |       |   |   |   |   |
| Other Income  (Loss)                                      |       |                                       |       |                                      |       |   |   |   |   |
| Interest  income                                          |       | 58,907                                     |       | 52,140                                    |       | 156,815 |   | 186,863 |   |
| Income  (Loss) from investment in joint ventures          |       | 521,993                                    |       | (160,706                                  | )          | 1,189,475 |   | (233,758 | ) |
|                                                      |       | 580,900                                    |       | (108,566                                  | )          | 1,346,290 |   | (46,895 | ) |
|                                                      |       |                                       |       |                                      |       |   |   |   |   |
| Income from  Continuing Operations                        |       | 1,182,212                                  |       | 191,303                                   |       | 2,921,351 |   | 1,562,903 |   |
|                                                      |       |                                       |       |                                      |       |   |   |   |   |
| Discontinued  Operations                                  |       |                                       |       |                                      |       |   |   |   |   |
| Income from  discontinued operations                      |       | 1,727                                      |       | 18,708                                    |       | 6,111 |   | 66,134 |   |
| Gain on sale  of real estate from discontinued operations |       | 189,670                                    |       | —                                    |       | 5,960,033 |   | — |   |
|                                                      |       | 191,397                                    |       | 18,708                                    |       | 5,966,144 |   | 66,134 |   |
|                                                      |       |                                       |       |                                      |       |   |   |   |   |
| Net Income                                                |       | $                                          | 1,373,609  |                                      | $          | 210,011 |   | $ | 8,887,495 |   | $ | 1,629,037 |   |
|                                                      |       |                                       |       |                                      |       |   |   |   |   |
| Income per  Unit                                          |       |                                       |       |                                      |       |   |   |   |   |
| Income  before discontinued operations                    |       | 6.82                                       |       | 1.10                                      |       | 16.86 |   | 9.02 |   |
| Income from  discontinued operations                      |       | 1.11                                       |       | 0.11                                      |       | 34.44 |   | 0.38 |   |
|                                                      |       | 7.93                                       |       | 1.21                                      |       | 51.30 |   | 9.40 | ** ** |
| ** **                                                | ** ** | ** **                                 | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net Income  per Unit                                      |       | $                                          | 7.93       |                                      | $          | 1.21 |   | $ | 51.30 |   | $ | 9.40 |   |
|                                                      |       |                                       |       |                                      |       |   |   |   |   |
| Weighted  Average Number of Units Outstanding             |       | 173,252                                    |       | 173,252                                   |       | 173,252 |   | 173,252 |   |

 

See notes to consolidatedfinancial statements.

 

4

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**NEWENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIESCONSOLIDATED STATEMENTOF CHANGES IN PARTNERS’ CAPITAL**

 

**(UNAUDITED)**

 
| ** **                                                                           | ** ** | **Limited**      | ** ** | **General**      | ** ** | ** **      | ** ** |
|--------------------------------------------------------------------------------------|------------|------------------|------------|------------------|------------|-----------------|------------|
| ** **                                                                           | ** ** | **Class A** | ** ** | **Class B** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Balance, January 1,  2004                                                       |       | $                | 10,846,650 |             | $          | 2,579,532       |       | $ | 135,795 |   | $ | 13,561,977 |   |
|                                                                                 |       |             |       |             |       |            |       |   |   |
| Distribution  to Partners                                                            |       | (2,795,597       | )          | (663,954         | )          | (34,945         | )          | (3,494,496 | ) |
|                                                                                 |       |             |       |             |       |            |       |   |   |
| Net Income                                                                           |       | 1,303,230        |       | 309,517          |       | 16,290          |       | 1,629,037 |   |
|                                                                                 |       |             |       |             |       |            |       |   |   |
| Balance, September 30,  2004                                                    |       | $                | 9,354,283  |             | $          | 2,225,095       |       | $ | 117,140 |   | $ | 11,696,518 |   |
|                                                                                 |       |             |       |             |       |            |       |   |   |
| Units  authorized and Issued, net of 6,973 Treasury Units at September 30, 2004 |       | 138,602          |       | 32,918           |       | 1,732           |       | 173,252 |   |
|                                                                                 |       |             |       |             |       |            |       |   |   |
| Balance, January 1,  2005                                                       |       | $                | 8,372,714  |             | $          | 1,991,972       |       | $ | 104,870 |   | $ | 10,469,556 |   |
|                                                                                 |       |             |       |             |       |            |       |   |   |
| Distribution  to Partners                                                            |       | (2,905,929       | )          | (690,158         | )          | (36,324         | )          | (3,632,411 | ) |
|                                                                                 |       |             |       |             |       |            |       |   |   |
| Net Income                                                                           |       | 7,109,996        |       | 1,688,624        |       | 88,875          |       | 8,887,495 |   |
|                                                                                 |       |             |       |             |       |            |       |   |   |
| Balance, September 30,  2005                                                    |       | $                | 12,576,781 |             | $          | 2,990,438       |       | $ | 157,421 |   | $ | 15,724,640 |   |
|                                                                                 |       |             |       |             |       |            |       |   |   |
| Units  authorized and Issued, net of 6,973 Treasury Units at September 30, 2005 |       | 138,602          |       | 32,918           |       | 1,732           |       | 173,252 |   |

 

See notes to consolidatedfinancial statements.

 

5

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**NEWENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES****CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

 
| ** **                                                                         | ** ** | **Nine Months Ended  September 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                         | ** ** | **2005**                                  | ** ** | **2004** | ** ** |
| Cash Flows  from Operating Activities                                              |       |                                      |       |   |   |
| Net income                                                                         |       | $                                         | 8,887,495  |   | $ | 1,629,037 |   |
|                                                                               |       |                                      |       |   |   |
| Adjustments  to reconcile net income to net cash provided by operating activities: |       |                                      |       |   |   |
| Depreciation  and amortization                                                     |       | 4,764,508                                 |       | 4,481,480 |   |
| (Income)  loss from investments in joint venture/partnership                       |       | (1,189,475                                | )          | 233,758 |   |
| (Income) on  sale of rental properties                                             |       | (5,770,363                                | )          | — |   |
| Change in  operating assets and liabilities                                        |       |                                      |       |   |   |
| (Increase)  decrease in rents receivable                                           |       | 14,409                                    |       | (43,498 | ) |
| (Increase)  in financing and leasing fees                                          |       | (44,854                                   | )          | — |   |
| Increase  (decrease) in accounts payable and accrued expense                       |       | (84,363                                   | )          | (14,142 | ) |
| (Increase)  decrease in real estate tax escrow                                     |       | 28,692                                    |       | (50,406 | ) |
| (Increase)  decrease in prepaid expenses and other assets                          |       | (301,601                                  | )          | 13,148 |   |
| Increase  (decrease) in advance rental payments and security deposits              |       | (364,132                                  | )          | 23,902 |   |
|                                                                               |       |                                      |       |   |   |
| Total  Adjustments                                                                 |       | (2,947,179                                | )          | 4,644,241 |   |
|                                                                               |       |                                      |       |   |   |
| Net cash  provided by operating activities                                         |       | 5,940,316                                 |       | 6,273,278 |   |
|                                                                               |       |                                      |       |   |   |
| Cash Flows  Used in Investing Activities                                           |       |                                      |       |   |   |
| Purchase and  improvement of rental properties                                     |       | (2,122,653                                | )          | (6,860,178 | ) |
| (Investment)  in partnerships                                                      |       | (4,827,500                                | )          | (13,065,750 | ) |
| Net proceeds  from the sale of rental properties                                   |       | 6,169,417                                 |       | — |   |
|                                                                               |       |                                      |       |   |   |
| Net cash  provided by (used in) investing activities                               |       | (780,736                                  | )          | (19,925,928 | ) |
|                                                                               |       |                                      |       |   |   |
| Cash Flows  Used in Financing Activities                                           |       |                                      |       |   |   |
| Proceeds of  mortgage notes payable                                                |       | 2,000,000                                 |       | — |   |
| Principal  payments of mortgage notes payable                                      |       | (1,845,569                                | )          | (535,638 | ) |
| Distribution  to partners                                                          |       | (3,632,411                                | )          | (3,494,496 | ) |
|                                                                               |       |                                      |       |   |   |
| Net cash  (used in) financing activities                                           |       | (3,477,980                                | )          | (4,030,134 | ) |
|                                                                               |       |                                      |       |   |   |
| Net Increase  (Decrease) in Cash and Cash Equivalents                              |       | 1,681,600                                 |       | (17,682,784 | ) |
| Cash and  Cash Equivalents, at beginning of period                                 |       | 9,862,810                                 |       | 24,362,328 |   |
|                                                                               |       |                                      |       |   |   |
| Cash and  Cash Equivalents, at end of period                                       |       | $                                         | 11,544,410 |   | $ | 6,679,544 |   |

 

See notes to consolidatedfinancial statements.

 

6

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**NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIPAND SUBSIDIARIESNOTES TO CONSOLIDATEDFINANCIAL STATEMENTSSEPTEMBER 30, 2005**

 

**NOTE1.    SIGNIFICANT ACCOUNTING POLICIES**

 

*Line of Business:*  NewEngland Realty Associates Limited Partnership (“NERA” or the “Partnership”) wasorganized in Massachusetts during 1977. NERA and its subsidiaries own andoperate various residential apartment buildings, condominium units andcommercial properties located in Massachusetts and New Hampshire. NERA has alsomade investments in other real estate partnerships and has participated inother real estate-related activities, primarily located in Massachusetts. Inconnection with the mortgages referred to in Note 5, a substantial numberof NERA’s properties are owned by separate subsidiaries without any change inthe historical cost basis.

 

*Principles of Consolidation:*  Theconsolidated financial statements include the accounts of NERA and itssubsidiaries. NERA has a 99.67% to 100% ownership interest in each subsidiaryexcept for five limited liability companies (the “Investment Properties”) inwhich the Partnership has a 50% ownership interest. The consolidated group isreferred to as the “Partnerships.” Minority interests are not recorded, sincethey are insignificant. All significant intercompany accounts and transactionsare eliminated in consolidation. The Partnership accounts for its investment inthe above-mentioned limited liability companies using the equity method ofconsolidation. (See Note 14 for information on the Investment Properties).

 

*Accounting Estimates:*  Thepreparation of the financial statements, in conformity with accountingprinciples generally accepted in the United State of America, requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosures of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenuesand expenses during the reported period. Accordingly, actual results could differfrom those estimates.

 

*Revenue Recognition:*  Rentalincome from residential and commercial properties is recognized over the termof the related lease. Amounts 60 days in arrears are charged againstincome. Certain leases of the commercial properties provide for increasingstepped minimum rents, which are accounted for on a straight-line basis overthe term of the lease.

 

*Rental Properties:*  Rentalproperties are stated at cost less accumulated depreciation. Maintenance andrepairs are charged to expense as incurred; improvements and additions arecapitalized. When assets are retired or otherwise disposed of, the cost of theasset and related accumulated depreciation is eliminated from the accounts, andany gain or loss on such disposition is included in income. Fully depreciatedassets are removed from the accounts. Rental properties are depreciated on a straight-line basis over theirestimated useful lives.

 

In the event that facts and circumstances indicatethat the carrying value of a rental property may be impaired, an analysis ofrecoverability is prepared. The estimated future undiscounted cash flows arecompared to the assets carrying value to determine if a write-down to fairvalue is required.

 

*Financing and Leasing Fees:*  Financingfees are capitalized and amortized, using the interest method, over the life ofthe related mortgages. Leasing fees are capitalized and amortized on astraight-line basis over the life of the related lease.  Unamortized balances are expensed when thecorresponding fee is no longer applicable.

 

*Income Taxes:*  Thefinancial statements have been prepared under the basis that NERA and itssubsidiaries are entitled to tax treatment as partnerships. Accordingly, noprovision for income taxes has been recorded.

 

*Cash Equivalents:*  ThePartnership considers cash equivalents to be all highly liquid instrumentspurchased with a maturity of three months or less.

 

*Segment Reporting:*  Operatingsegments are revenue-producing components of the Partnership for which separatefinancial information is produced internally for management. Under thedefinition, NERA operated, for all periods presented, as one segment.

 

*Comprehensive Income:*  Comprehensiveincome is defined as changes in partners’ equity, exclusive of transactionswith owners (such as capital contributions and dividends). NERA did not haveany comprehensive income items in 2005 or 2004 other than net income asreported.

 

7

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*Income Per Unit:*  Netincome per unit has been calculated based upon the weighted average number ofunits outstanding during each year presented. The Partnership has no dilutiveunits and, therefore, basic net income is the same as diluted net income perunit (see Note 7).

 

*Concentration of Credit Risks and FinancialInstruments:*  The Partnerships’ properties arelocated in New England, and the Partnerships are subject to the generaleconomic risks related thereto.  No single tenant accounted for more than5% of the Partnerships’ revenues in 2005 or 2004.  The Partnerships maketheir temporary cash investments with high-credit-quality financialinstitutions.  At September 30, 2005, substantially all of thePartnerships’ cash and cash equivalents were held in interest-bearing accountsat financial institutions, earning interest at rates from .40% to 3.43%. At September 30, 2005 and December 31, 2004 approximately $12,000,000and $9,000,000 of cash and cash equivalents exceeded federally insured amounts.

 

*Advertising Expense:*  Advertisingis expensed as incurred. Advertising expense was $101,497 and $162,288 for thenine months ended September 30, 2005 and 2004, respectively.

 

*Discontinued Operations and Rental Property Heldfor Sale:*When assets are identified by management as heldfor sale, the Partnership discontinues depreciating the assets and estimatesthe sales price, net of selling costs, of such assets.  If, in management’s opinion, the net salesprice of the assets which have been identified as held for sale is less thanthe net book of the assets, a valuation allowance is established.  Properties identified as held for sale and/orsold are presented in discontinued operations for all periods presented.

 

If circumstances arise that previously were consideredunlikely and, as a result, the Partnership decides not to sell a propertypreviously classified as held for sale, the property is reclassified as heldand used.  A property that isreclassified is measured and recorded individually at the lower of (a) itscarrying amount before the property was classified as held for sale, adjustedfor any depreciation (amortization) expense that would have been recognizedthat the property been continuously classified as held and used, or (b) thefair value at the date of the subsequent decision not to sell.

 

*Interest Capitalized:*  The Company follows the policy ofcapitalizing interest as a component of the cost of rental property when thetime of construction exceeds one year. During the year ended December 31, 2004, the Company capitalizedinterest of approximately $125,000.

 

*Reclassifications:*  Certainreclassifications have been made to prior period amounts in order to conformwith current period presentation.

 

**NOTE2.    RENTAL PROPERTIES**

 

As of September 30, 2005, the Partnership and itsSubsidiary Partnerships owned 2,378 residential apartment units in 22residential and mixed-use complexes (collectively, the “Apartment Complexes”). The Partnership also owns 24 condominium units in two residential condominiumcomplexes, all of which are leased to residential tenants (collectivelyreferred to as the “Condominium Units”).  The Apartment Complexes andCondominium Units are located primarily in the greater metropolitan Boston,Massachusetts area.

 

Additionally,as of September 30, 2005, the Subsidiary Partnerships owned commercialshopping centers in Framingham, Massachusetts and mixed-use properties inBoston, Brockton and Newton, Massachusetts.  These properties are referredto collectively as the “Commercial Properties.”

 

In March 2005,the Partnership sold the Middlesex Apartments to an entity wholly owned by themajority shareholder of the General Partner. The selling price was $6,500,000 which resulted in a capital gain forthe Partnership of approximately $5,800,000 and an increase in the Partnership’scash reserves by approximately $4,800,000 after payment of the existing$1,300,000 mortgage, prepayment penalties and other selling expenses. The buyeris selling the property as condominium units. An entity 31% owned by themajority shareholder of the General Partner and 5% owned by the President ofthe management company is the sales agent and will receive a variablecommission of 3% to 5% on each sale. Total commissions were $138,000 for the nine months ended September 30,2005.  Although the buyer is assuming thecosts and economic risks of converting and selling the condominium units, ifthe net gains from the sale of these units exceed $500,000, the excess will besplit equally between the buyer and the Partnership. The buyer estimates thatthe gain from the sale of these units will exceed $500,000 and a profit of$189,670 through September 2005 is included in gain on sale.

 

In September 2004, the Partnership completed theconstruction of twenty residential units at the Westgate Apartments in Woburn,Massachusetts. The total cost of these twenty units was approximately$5,100,000 and is included in buildings and improvements above.  In January 2005, the Partnershipobtained a $2,000,000 mortgage on this property.

 

8

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Rentalproperties consist of the following:

 
| ** **                          | ** ** | **September 30, 2005** | ** **  | **December 31, 2004** | ** ** | **Useful Life** | ** ** |
|-------------------------------------|------------|-----------------------------|-------------|----------------------------|------------|-----------------|------------|
| Land, improvements and parking lots |       | $                           | 23,178,089  |                       | $          | 23,168,229      |       | 10-31 years |   |
| Buildings and improvements          |       | 105,870,698                 |        | 105,631,294                |       | 15-31 years     |       |
| Kitchen cabinets                    |       | 4,104,176                   |        | 3,371,139                  |       | 5-10 years      |       |
| Carpets                             |       | 3,482,048                   |        | 2,895,045                  |       | 5-10 years      |       |
| Air conditioning                    |       | 812,937                     |        | 737,030                    |       | 7-10 years      |       |
| Laundry equipment                   |       | 197,243                     |        | 185,254                    |       | 5-7 years       |       |
| Elevators                           |       | 709,243                     |        | 560,838                    |       | 20 years        |       |
| Swimming pools                      |       | 142,428                     |        | 142,429                    |       | 10 years        |       |
| Equipment                           |       | 1,652,731                   |        | 1,504,555                  |       | 5-7 years       |       |
| Motor vehicles                      |       | 126,483                     |        | 126,483                    |       | 5 years         |       |
| Fences                              |       | 269,031                     |        | 244,869                    |       | 5-10 years      |       |
| Furniture and fixtures              |       | 4,422,629                   |        | 4,236,547                  |       | 5-7 years       |       |
| Smoke alarms                        |       | 130,602                     |        | 116,496                    |       | 5-7 years       |       |
| Construction in progress            |       | —                      |        | 17,692                     |       | —          |       |
|                                |       |                        |        |                       |       |            |       |
|                                |       | 145,098,338                 |        | 142,937,900                |       |            |       |
| Less accumulated depreciation       |       | (41,742,497                 | )           | (37,053,341                | )          |            |       |
|                                |       |                        |        |                       |       |            |       |
|                                |       | $                           | 103,355,841 |                       | $          | 105,884,559     |       |   |   |

 

Additionally, as of September 30, 2005, thePartnership owned a 50% ownership interest in five residential and condominiumcomplexes (the Investment Properties). See Note 14 to the consolidated financial statements for additionalinformation on these investments.

 

**NOTE3.    RELATED PARTY TRANSACTIONS**

 

The Partnerships’ properties are managed by an entitythat is owned by the majority shareholder of the General Partner. Themanagement fee is equal to 4% of rental revenue and laundry income. Total feespaid were approximately $959,000 and $953,000 for the nine months ended September 30,2005 and 2004, respectively.

 

The Partnership Agreement permits the General Partneror management company to charge the costs of professional services (such ascounsel, accountants and contractors) to NERA. In the nine months ended September 30,2005 and 2004, approximately $363,000 and $3,980,000 respectively, was chargedto NERA for legal, construction, maintenance, rental and architectural servicesand supervision of capital improvements. Of the 2005 expenses referred toabove, approximately $180,000 consisted of repairs and maintenance and $97,000of administrative expense; approximately $68,000 of construction, architecturalservices and supervision of capital projects was capitalized in rental propertiesand approximately $18,000 for rental commissions.  Of the 2004 expenses referred to above,approximately $100,000 consisted of repairs and maintenance and $81,000 ofadministrative expense; approximately $2,355,000 of construction, architecturalservices and supervision of capital projects was capitalized in rentalproperties. Additionally in each of the quarters ended September 30, 2005and 2004, the Partnership paid to the management company $20,000 for in-houseaccounting services. Included in accounts payable and accrued expenses at September 30,2005 and December 31, 2004 is $332,811 and $147,195, respectively, due tothe management company. The Partnership Agreement entitles the General Partneror the management company to receive certain commissions upon the sale ofPartnership property only to the extent that total commissions do not exceed3%. No commissions were paid during the year ended December 31, 2004 andthrough September 30, 2005.

 

The Hamilton Company also received fees of approximately$597,000 from the Investment Properties of which approximately $196,000 was themanagement fee and $346,000 for construction, construction supervision andarchitectural fees and $55,000 for other services.  Additionally, as more fully described in Note2 and 14, an entity partially owned by the majority shareholder of the GeneralPartner is the sales agent for certain condominium sales receivingapproximately $556,000 of commissions through September 30, 2005.

 

9

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On January 1, 2004, NERA’S employeeswere transferred to the management company’s payroll.  The Partnership and Investment Propertiesreimbursed the management company for the payroll and related expenses of theemployees directly employed by the NERA properties.  Total reimbursement was approximately$1,538,000 for the nine months ended September 30, 2005.

 

In 1996, prior to becoming an employee and Presidentof the management company, the current President performed asset managementconsulting services to the Partnership. This individual continues to performthis service and to receive an asset management fee from the Partnership,receiving $37,500 for the nine months ended September 30, 2005 and $50,000for the year ended December 31, 2004.

 

The Partnership has invested in five limited liabilitycompanies to purchase five residential apartment complexes (the “InvestmentProperties”).  The Partnership owns 50%of each entity and the majority shareholder of the General Partner owns 471⁄2%and the President of Hamilton owns 21⁄2% respectively.  See Note 14 for a description of theproperties and their operations and Note 17 for an additional investment madein October 2005.

 

The Partnership owns 5 condominiums in a 42-unitcondominium building managed by an entity wholly owned by the 25% shareholderand President of the General Partner.  That entity will receive annualmanagement fees from the five units of approximately $1,500, and Hamilton willreduce its management fees to approximately 2%, so that the total managementfee will not exceed the 4% allowed by the Partnership’s Partnership Agreement.

 

In March 2005, the Partnership sold the MiddlesexApartments to the majority shareholder of the General Partner.  See Note 2 for the description of the transaction.

 

**NOTE4.    OTHER ASSETS**

 

Included in prepaid expenses and other assets at September 30,2005 and December 31, 2004 is approximately $526,000 and $536,000,respectively, held in escrow to fund future capital improvements.

 

Financing and leasing fees of $593,921 and $640,542are net of accumulated amortization of $438,394 and $371,604 at September 30,2005 and December 31, 2004, respectively.

 

**NOTE5.    MORTGAGE NOTES PAYABLE**

 

At September 30, 2005 and December 31, 2004,the mortgages payable consisted of various loans, all of which were secured byfirst mortgages on properties referred to in Note 2.  At September 30,2005, the fixed interest rates on these loans ranged from 4.84% to 8.46%,payable in monthly installments aggregating approximately $704,000, includinginterest, to various dates through 2016.  The majority of the mortgagesare subject to prepayment penalties.  At September 30, 2005, theweighted average interest rate on the above mortgages was 5.89%.  The effective rate of approximately 7%includes the amortization expense of deferred financing costs.  See Note 12 for fair value information.

 

The Partnerships have pledged tenant leases asadditional collateral for certain of these loans.

 

Approximate annual maturities at September 30,2005 are as follows:

 
| 2006-  current maturities |   | $          | 2,442,000   |   |
|---------------------------|--------|------------|-------------|--------|
| 2007                      |   | 1,036,000  |        |
| 2008                      |   | 1,161,000  |        |
| 2009                      |   | 5,712,000  |        |
| 2010                      |   | 41,796,000 |        |
| Thereafter                |   | 63,623,000 |        |
|                      |   |       |        |
|                      |   | $          | 115,770,000 |   |

 

In January 2005, thePartnership obtained a mortgage on the Courtyard at Westgate for $2,000,000 atan interest rate of 5.25%.   These fundswere added to cash reserves. The loan requires interest-only payments through December 2014,when the entire balance is due.

 

On December 1, 2004,the Partnership refinanced the Dean Street Associates, LLC with outstandingbalances totaling approximately $5,237,000 with interest rate of 7.08% thatwould mature in 2008.  The new mortgageis $5,650,000 with an interest rate of 5.13%. The new loan requires interestonly payment until 2007 and interest and principal payments amounting to

 

10

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$30,781 monthly until November 2014.  The remaining balance of approximately$5,025,000 becomes due in December 2014. The Partnership recorded a losson the early extinguishment of debt of approximately $411,000 because ofprepayment penalties of $387,000 and the write-off of deferred financing feesof approximately $24,000.

 

**NOTE6.    ADVANCE RENTAL PAYMENTS AND SECURITY DEPOSITS**

 

The lease agreements requirethe majority of tenants to maintain a one-month advance rental payment plussecurity deposits.  Amounts received for prepaid rents of approximately$1,704,000 are included in cash and cash equivalents and security deposits ofapproximately $1,000,000 are included with other assets.

 

**NOTE7.    PARTNERS’ CAPITAL**

 

The Partnership has two classes of Limited Partners (Class Aand B) and one category of General Partner.  Under the terms of thePartnership Agreement, Class B Units and General Partnership Units mustrepresent 19% and 1%, respectively, of the total units outstanding.  Allclasses have equal profit sharing and distribution rights, in proportion totheir ownership interests.

 

The Partnership has paid quarterly dividends of $7.00per unit ($.70 per receipt) in March, June and September, 2005 and willpay the same dividend on December 31, 2005.

 

In 2004, the Partnership paid a quarterly distribution$6.60 per unit ($.66 per receipt) on March 31, 2004, and June 30,2004.  On September 30, 2004 and December 31,2004, the Partnership paid a quarterly distribution of $7.00 per unit ($0.70per receipt) for a total distribution of $27.20 for 2004.

 

The Partnership has entered into a deposit agreementwith an agent to facilitate public trading of limited partners’ interests in Class Aunits.  Under the terms of this agreement, the holders of Class Aunits have the right to exchange each Class A unit for 10 depositaryreceipts.  The following is information per depositary receipt:

 
| ** **                                                       | ** ** | **Nine months ended September 30,** | ** ** |
|------------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                       | ** ** | **2005**                                 | ** ** | **2004** | ** ** |
| Income per  Depositary Receipt before Discontinued Operations    |       | $                                        | 1.69       |   | $ | .90 |   |
| Income from  Discontinued Operations                             |       | 3.44                                     |       | .04 |   |
| Net Income  per Depositary Receipt after Discontinued Operations |       | $                                        | 5.13       |   | $ | .94 |   |

 

**NOTE8.    TREASURY UNITS**

 

Treasury units at September 30, 2005 are asfollows:

 
| Class A        |   | 5,681 |   |
|---------------------|--------|-------|--------|
| Class B        |   | 1,228 |   |
| General Partnership |   | 64    |   |
|                |   | 6,973 |   |

 

**NOTE9.    COMMITMENTS AND CONTINGENCIES**

 

From time to time, the Partnerships are involved invarious ordinary routine litigation incidental to their business. ThePartnership either has insurance coverage or has provided for any uninsuredclaims which, in the aggregate, are not significant. The Partnerships are notinvolved in any material pending legal proceedings.

 

11

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**NOTE10.    RENTAL INCOME**

 

During the nine months ended September 30, 2005,approximately 93% of rental income was related to residential apartments andcondominium units with leases of one year or less.  The remaining 7% wasrelated to commercial properties, which have minimum future rental income onnoncancellable operating leases as follows:

 
| ** ** | ** ** | **Commercial  Property  Leases** | ** ** |
|------------|------------|----------------------------------|------------|
| 2006       |       | $                                | 1,671,000  |   |
| 2007       |       | 1,638,000                        |       |
| 2008       |       | 1,589,000                        |       |
| 2009       |       | 1,431,000                        |       |
| 2010       |       | 1,057,000                        |       |
| Thereafter |       | 4,156,000                        |       |
|       |       |                             |       |
|       |       | $                                | 11,542,000 |   |

 

The aggregate minimum future rental income does notinclude contingent rentals that may be received under various leases inconnection with percentage rents, common area charges and real estate taxes.Aggregate contingent rentals from continuing operations were approximately$291,000 for the nine months ended September 30, 2005 and $364,000 for theyear ended December 31, 2004. 

 

Rents receivable are net of allowances for doubtfulaccounts of $462,151 and $276,046 at September 30, 2005 and December 31,2004, respectively. Included in rents receivable is approximately $387,000resulting from recognizing rental income from non-cancelable commercial leaseswith future rental increases on a straight-line basis.  The majority ofthis amount is for a long-term lease with Staples at Staples Plaza inFramingham, Massachusetts.

 

**NOTE11.    CASH FLOW INFORMATION**

 

During the nine months ended September 30, 2005and 2004, cash paid for interest was $5,851,573 and $5,940,982 respectively.

 

**NOTE12.    FAIR VALUE OF FINANCIAL INSTRUMENTS**

 

The following methods and assumptions were used by thePartnership in estimating the fair value of its financial instruments:

 

•      For cash andcash equivalents, other assets, investment in partnerships, accounts payable,advance rents and security deposits: fair value approximates the carrying valueof such assets and liabilities.

 

•      For mortgagenotes payable: fair value is generally based on estimated future cash flows,which are discounted using the quoted market rate from an independent sourcefor similar obligations. Refer to the table below for the carrying amount andestimated fair value of such instruments.

 
| ** **                  | ** ** | **Carrying  Amount** | ** **  | **Estimated  Fair Value** | ** ** |
|-----------------------------|------------|----------------------|-------------|---------------------------|------------|
| Mortgage Notes Payable      |       |                 |        |                      |       |
| At September 30,  2005 |       | $                    | 115,770,231 |                      | $          | 120,602,330 |   |
| At December 31,  2004  |       | $                    | 115,615,800 |                      | $          | 122,123,808 |   |

 

Disclosure about fair value of financial instrumentsis based on pertinent information available to management as of September 30,2005 and December 31, 2004. Although management is not aware of any factors that would significantlyaffect the fair value amounts, such amounts have not been comprehensivelyrevalued for purposes of these financial statements since December 31,2004 and current estimates of fair value may differ significantly from theamounts presented herein.

 

12

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**NOTE13.    TAXABLE INCOME AND TAX BASIS**

 

Taxable income reportable by the Partnership andincludable in its partner’s tax returns is different than financial statementincome because of accelerated depreciation, different tax lives, and timingdifferences related to prepaid rents and allowances.  Taxable income isapproximately $396,000 greater than statement income for the nine months ended September 30,2005 and approximately $1,400,000 less than statement income for the year endedDecember 31, 2004.  The cumulative tax basis of the Partnership’sreal estate at September 30, 2005 is approximately $278,000 less than thestatement basis. The depreciation rules that generated substantialdeductions in 2004 and 2003 expired in 2004, accordingly taxable income infuture years is expected to increase.

 

**NOTE14—INVESTMENT IN PARTNERSHIPS**

 

Since November 2001,the Partnership has invested in five limited partnerships, each of which hasinvested primarily in residential apartment complexes.  The Partnership has a 50% ownership interestin each investment.  The other investorsare Harold Brown and the President of the management company, who have a 47.5%and 2.5% ownership interest respectively. A description of each investment is as follows:

 

On March 7,2005, the Partnership invested $1,800,000 for a 50% ownership interest in abuilding comprising 49 apartments, one commercial space and a 50-car surfaceparking lot located in Boston, Massachusetts. The purchase price was$14,300,000, and a $10,750,000 30-month mortgage with a floating interest rateof 2% over the 30 day Libor Index (3.86% at September 30, 2005) wasobtained to finance this acquisition. The Partnership plans to operate the building and initiate developmentof the parking lot. The plan may also include disposition of selected units, ascondominiums in order to reduce the above mentioned mortgage.  Any profits from the condominium sales willbe taxed at ordinary rates.  Mr. Brownhas guaranteed 25% of this mortgage until such time as $2,687,500 of principalhas been paid.  The Partnership and theother investor have, in turn agreed to indemnify Mr. Brown for their proportionalshare of any losses incurred by this guarantee. This investment is referred to as Essex Street.

 

On March 2,2005, the Partnership invested $2,300,000 for a 50% ownership interest in a 176-unitapartment complex with an additional small commercial building located inQuincy, Massachusetts. The purchase price was $23,750,000, and a $19,200,000 30-monthmortgage with a floating interest rate of 2% over the 30 day Libor Index (3.86%at September 30, 2005) was obtained to finance this acquisition.  The Partnership plans to sell the majority ofunits as condominiums and retain 40 to 50 units for long-term investment.  The proceeds from the condominium sales willprimarily be used to reduce the above-mentioned mortgage.  It is estimated that it will take longer thanone year to sell these units. Harold Brown has guaranteed 30% of this mortgageuntil such time as $5,760,000 of principal has been paid.  The Partnership and the other investor have,in turn agreed to indemnify Mr. Brown their proportionate share of anylosses incurred by this guarantee.  As ofSeptember 30, 2005, 59 units have been sold, and 20 units have a signedpurchase and sales agreement.  Gains fromthe sales of units (currently estimated to average $60,000 per condominium)will be taxed at ordinary income rates. This investment is referred to as 1025 Hamilton.

 

In September 2004, the Partnershipinvested approximately $5,075,000 for a 50% ownership interest in a 42-unitapartment complex located in Lexington, Massachusetts. The purchase price was$10,100,000.  In October 2004, thePartnership obtained a mortgage on the property in the amount of $8,025,000 andreturned $3,775,000 to the Partnership. This investment is referred to as Hamilton Minuteman.

 

In August 2004,the Partnership invested $8,000,000 for a 50% ownership interest in a 280-unitapartment complex located in Watertown, Massachusetts.  The total purchase price was $56,000,000. ThePartnership plans to sell, over time, three buildings with a total of 136 unitsas condominiums commencing in January 2005. As of September 30, 2005,54 units have been sold and an additional 14 units are under contract. Themajority of the sales proceeds will be used to reduce the mortgage. An entitypartially owned by the majority shareholder of the General Partner and thePresident of the management company, 31% and 5% respectively, is the salesagent and will receive a variable commission on each sale of 3% to 5%.  Approximately $418,000 of commissions waspaid through September 30, 2005. This investment is referred to asHamilton Place.

 

On February 10, 2005, Hamilton Place,Watertown, MA obtained a new 10 year mortgage on the three buildings to beretained for $16,825,000 interest only at 5.18% for 3 years and amortizes on a30 year schedule for the remaining 7 years when the balance is due.  The net proceeds after funding escrowaccounts and closing costs on the new mortgage was approximately $16,700,000,which was used to reduce the existing mortgage. Hamilton Place paid anapproximate $400,000 penalty to be able to obtain the new financing.

 

In November 2001,the Partnership formed a limited liability company to purchase a 40-unitapartment building in Cambridge, Massachusetts. This property has a 12-yearmortgage, which is amortized on a 30-year schedule, with a final payment ofapproximately $6,000,000 in 2014. The Partnership is a 50% owner in thisinvestment and is referred to as Franklin Street.

 

13

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Commencing in2005, the mortgages on Hamilton Place and Hamilton Minuteman require minimumprincipal payments (“Curtailment Payments”) and additional investment by thePartnership will be required if the proceeds from sales cannot provide forthese payments.

 

As required bythe lender for the 2004 acquisitions, the Treasurer of the General Partner hasprovided a limited repayment guarantee equal to twenty percent (20%) of theoutstanding balance, reducing to zero percent (0%) upon the completion of theCurtailment Payments.  In the event thathe is obligated to make payments to the lender as a result of this guaranty,the Partnership and other investors have, in turn, agreed to indemnify him fortheir proportionate share of any such payments.

 

**Summary financial information for the ninemonths ended September 30, 2005 (unaudited)**

 
| ** **                                                                | ** ** | ** **           | ** ** | ** **          | ** ** | **Hamilton  Place**    | ** ** | ** **              | ** ** | ** **      | ** ** | ** **         | ** ** | ** ** | ** ** |
|---------------------------------------------------------------------------|------------|----------------------|------------|---------------------|------------|------------------------|------------|-------------------------|------------|-----------------|------------|--------------------|------------|------------|------------|
| ** **                                                                | ** ** | **Franklin  Street** | ** ** | **Hamilton  Place** | ** ** | **(for  sale  units)** | ** ** | **Hamilton  Minuteman** | ** ** | **Essex  81**   | ** ** | **1025  Hamilton** | ** ** | ** ** | ** ** |
| **Acquisition Date**                                                      | ** ** | **November  2001**   | ** ** | **August  2004**    | ** ** | **August  2004**       | ** ** | **September  2004**     | ** ** | **March  2005** | ** ** | **March  2005**    | ** ** | **Total**  | ** ** |
| Property assets – net                                                |       | $                    | 10,050,712 |                | $          | 27,980,003             |       | $                       | 16,622,055 |            | $          | 9,516,772          |       | $          | 14,023,201 |   | $ | 15,391,064 |   | $ | 93,583,807 |   |
| Mortgages payable                                                         |       | 7,848,115            |       | 16,825,000          |       | 11,590,097             |       | 7,823,994               |       | 10,750,000      |       | 8,663,653          |       | 63,500,859 |       |
| Total Equity                                                              |       | 2,113,728            |       | 13,984,056          |       | 2,563,142              |       | 1,963,132               |       | 3,755,012       |       | 7,121,256          |       | 31,500,326 |       |
| NERA – 50% equity                                                    |       | 1,056,864            |       | 6,992,028           |       | 1,281,571              |       | 981,566                 |       | 1,877,506       |       | 3,560,628          |       | 15,750,163 |       |
|                                                                      |       |                 |       |                |       |                   |       |                    |       |            |       |               |       |       |       |
| Summary income statement:                                                 |       |                 |       |                |       |                   |       |                    |       |            |       |               |       |       |       |
| Rental income                                                             |       | 731,582              |       | 1,733,261           |       | 998,511                |       | 511,881                 |       | 682,377         |       | 1,033,858          |       | 5,691,470  |       |
| Operating expenses                                                        |       | 237,860              |       | 1,111,228           |       | 664,882                |       | 169,194                 |       | 288,226         |       | 754,429            |       | 3,225,819  |       |
| Management fees                                                           |       | 29,377               |       | 71,559              |       | 15,096                 |       | 20,299                  |       | 30,968          |       | 26,892             |       | 194,191    |       |
| Interest expense                                                          |       | 410,930              |       | 817,702             |       | 530,240                |       | 307,177                 |       | 336,870         |       | 468,915            |       | 2,871,834  |       |
| Depreciation & amortization                                      |       | 268,529              |       | 1,088,685           |       | 627,310                |       | 394,763                 |       | 271,302         |       | 526,116            |       | 3,176,705  |       |
| Financing expense                                                         |       | —               |       | 404,881             |       | —                 |       | —                  |       | —          |       | —             |       | 404,881    |       |
| Gain on sale of condominiums                                              |       | —               |       | —              |       | 3,402,160              |       | —                  |       | —          |       | 3,158,749          |       | 6,560,909  |       |
|                                                                      |       |                 |       |                |       |                   |       |                    |       |            |       |               |       |       |       |
| Net profit (loss)                                                         |       | (215,114             | )          | (1,760,794          | )          | 2,563,143              |       | (379,552                | )          | (244,989        | )          | 2,416,255          |       | 2,378,949  |       |
| NERA – 50%                                                           |       | $                    | (107,557   | )                   | $          | (880,397               | )          | $                       | 1,281,572  |            | $          | (189,776           | )          | $          | (122,495   | ) | $ | 1,208,128 |   | $ | 1,189,475 |   |
|                                                                      |       |                 |       |                |       |                   |       |                    |       |            |       |               |       |       |       |
| Total units/ condominiums                                                 |       | 40                   |       | 144                 |       | 136                    |       | 42                      |       | 49              |       | 176                |       | 587        |       |
| Units to be retained                                                      |       | 40                   |       | 144                 |       | 0                      |       | 42                      |       | 49              |       | 46                 |       | 321        |       |
| Units to be sold                                                          |       | 0                    |       | 0                   |       | 136                    |       | 0                       |       | 0               |       | 130                |       | 266        |       |
| Units sold through September 30, 2005                                |       | 0                    |       | 0                   |       | 54                     |       | 0                       |       | 0               |       | 59                 |       | 113        |       |
| Balance of unsold units                                                   |       | 0                    |       | 0                   |       | 82                     |       | 0                       |       | 0               |       | 71                 |       | 153        |       |
| Unsold units with deposits for future sale as of September 30,  2005 |       | 0                    |       | 0                   |       | 14                     |       | 0                       |       | 0               |       | 20                 |       | 34         |       |

 

Additionally, the company invested $500,000in August 2005 for a 50% equity interest in a partnership which purchaseda 168-unit residential building located on Quincy Shore Drive in Quincy, MA on October 3,2005.  (See Note 17).

 

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**NOTE15.    NEW ACCOUNTING PRONOUNCEMENTS**

 

SFASNo. 153, *Accounting for Non-monetary Transactions*

 

In December 2004, the FASB issued SFAS No. 153,“*Accounting for Non-monetary Transactions*”(“SFAS 153”).  SFAS 153 requiresnon-monetary exchanges to be accounted for at fair value, recognizing any gainor loss, if the transactions meet a commercial-substance criterion and fairvalue is determinable.  SFAS No. 153is effective for non-monetary transactions occurring in fiscal years beginningafter June 15, 2005.  The Companybelieves that the implementation of this standard will not have a materialeffect on the Company’s consolidated financial position or results ofoperations.

 

The Partnership adopted the Financial AccountingStandards Board’s (FASB) Statement of Financial Accounting Standard 144 (“FAS 144”),“Accounting for the Impairment or Disposal of Long-lived Assets” on January 1,2002. FAS 144 supersedes FAS 121, “Accounting for the Impairment ofLong-Lived Assets and for Long-Lived Assets to Be Disposed Of.” The primaryobjectives of FAS 144 are to develop one accounting model, based on theframework established in FAS 121, for long-lived assets to be disposed ofby sale, and to address significant implementation issues regarding impairmentof long-lived assets held for use. FAS 144 requires separate presentationof discontinued operations for an operating property sold or considered heldfor sale for years beginning on January 1, 2002. In accordance withFAS 144, the Partnership classifies real estate assets as held for sale inthe period in which all of the following criteria are met: (a) management,having the authority to approve the action, commits to a plan to sell theasset; (b) the asset is available for immediate sale in its presentcondition subject only to terms that are usual and customary for sales of suchassets; (c) an active program to locate a buyer and other actions requiredto complete the plan to sell the asset have been initiated; (d) the sale ofthe asset is probable and the transfer of the asset is expected to qualify forrecognition as a completed sale within one year; (e) the asset is beingactively marketed for sale at a price that is reasonable in relation to itscurrent fair value; and (f) actions required to complete the plan indicatethat it is unlikely that significant changes to the plan will be made or thatthe plan will be withdrawn.

 

The Partnership’s adoption of FAS 144 resultedin: (i) the net operating results of properties held for sale at December 31,2004 and sold during 2002 being presented as income from discontinuedoperations for all periods presented and (ii) the gain on the sale ofoperating properties sold, net of sale costs, being presented as income fromdiscontinued operations for the year 2002. Implementation of FAS 144 willimpact how information is classified on the income statement but will have noeffect on net income (see Note 17).

 

EIFT 03-13,*Applying the Conditions in Paragraph 42 of FASBStatement No. 144, “Accounting for the Impairment or Disposal ofLong-Lived Assets,” in Determining Whether to Report Discontinued Operations*

 

At itsSeptember 2004 meeting, the Task Force reached the following conclusions:

 

•      A reassessmentperiod is necessary in evaluating whether a disposal meets the criteria fordiscounted operations reporting; the reassessment period should include thepoint at which the component initially meets the criteria to be classified asheld for sale through one year after the component’s disposal date.  However, the Task Force concluded that thereassessment will be required only when significant changes in events orcircumstances make it likely that the criteria in paragraph 42 of SFAS 144will, or will no longer, be met after the disposal date.

•      There is apresumption that the continued sale of a commodity in an active market shouldbe considered a migration of customers.

•      For the purposeof determining whether operations and cash flows are eliminated, thedetermination will be limited to evaluating gross cash inflows (revenues) andoutflows (costs) versus evaluating other operating measures such as grossprofit or net income.

•      The retentionof risks associated with the ongoing operations of the disposed component orthe ability to obtain benefits associated with the ongoing operations of thedisposed component should be considered in evaluating whether the entity hasthe ability to influence the operating and/or financial policies of thedisposed component.

 

As a result, factors (b) and (c) wereeliminated from paragraph 9 of the draft abstract.

 

15

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The Task Force affirmed the consensus aspreviously exposed with the following modifications/clarifications:

 

•      The period forassessing whether a component has met the criteria for discontinued operationscould extend beyond one year if events or circumstances beyond an entity’scontrol extend the period required to eliminate direct cash flows of thedisposed component or eliminate significant continuing involvement in theongoing operations of the disposed component provided that the entity (1) takesactions necessary to respond to those situations, and (2) expects toeliminate the direct cash flows and the significant continuinginvolvement.  The extension of theassessment period is only for determining whether a component has met thecriteria for discontinued operations, and is not an extension of the assessmentperiod for the held-for-sale classification of the component.

 

In January 2003, the FASB issued FIN 46, whichprovides guidance on how to identify a variable interest entity (VIE) anddetermine when the assets, liabilities, noncontrolling interests, and resultsof operations of a VIE are to be included in an entity’s consolidated financialstatements. A VIE exists when either the total equity investment at risk is notsufficient to permit the entity to finance its activities by itself, or theequity investors lack one of three characteristics associated with owning acontrolling financial interest. In December 2003, the FASB reissued FIN 46with certain modifications and clarifications. Application of this guidance waseffective for interests in certain VIEs commonly referred to as special-purposeentities (SPEs) as of December 31, 2003. Application for all other typesof entities is required for periods ending after March 15, 2004, unlesspreviously applied. The Partnership does not believe that the application ofFIN 46, if required, will have a material impact on its financial position,results of operations, or liquidity.

 

**NOTE16.    DISCONTINUED OPERATIONS and SALES of REAL ESTATE**

 

Thefollowing tables summarize income from discontinued operations and the relatedrealized gain on sale of rental property for the nine months ended September 30,2005 and 2004.

 
| ** **                          | ** ** | **Nine Months Ended  September 30** | ** ** |
|-------------------------------------|------------|------------------------------------------|------------|
| ** **                          | ** ** | **2005**                                 | ** ** | **2004** | ** ** |
|                                |       |                                     |       |   |   |
| Total Revenues                      |       | $                                        | 79,426     |   | $ | 307,679 |   |
|                                |       |                                     |       |   |   |
| Operating and other expenses        |       | 54,409                                   |       | 212,143 |   |
| Depreciation and amortization       |       | 18,906                                   |       | 29,402 |   |
|                                |       | 73,315                                   |       | 241,545 |   |
|                                |       |                                     |       |   |   |
| Income from discontinued operations |       | $                                        | 6,111      |   | $ | 66,134 |   |

 

ThePartnership realized a gain on the sale of the property of approximately$5,960,033 during the nine months ended September 30, 2005.

 

**NOTE 17. SUBSEQUENT EVENTS**

 

In August 2005, the Partnership invested$500,000 and in October an additional $2,000,000 for a 50% ownership interestin a 168-unit residential apartment complex located on Quincy Shore Drive inQuincy, Massachusetts.  The purchaseprice was $30,875,000, and a $27,450,000, thirty month mortgage with a floatinginterest rate of 2.1% over the 30 day Libor Index was obtained to finance thisacquisition.  The Partnership plans tosell the majority of units as condominiums and retain approximately 45 unitsfor long-term investment.  The proceedsfrom the condominium sales will primarily be used to reduce the above mentionedmortgage.  The Partnership is required toreduce the mortgage by no less than $18,457,500 by June 3, 2007, and by$24,697,500 by August 3, 2008.  Thisinvestment is referred to as Hamilton Bay, LLC.

 

On October 27, 2005, the Partnership increasedthe mortgage on Hamilton 1025 and distributed $1,950,000 to the Partnership.

 

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Item 2 — MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATION

 

The following discussion should be read inconjunction with the financial statements and notes thereof appearing elsewherein this Report.  This Report, on Form 10-Q,contains forward-looking statements within the meaning of the securitieslaw.  Actual results or developmentscould differ materially from those projected in such statements as a result ofcertain factors set forth in the section below entitled “Factors That May AffectFuture Results” and elsewhere in this Report.

 

While the national economy has largelyrecovered from the recession of the late 1990s and early 2000s, Massachusetts’local economy continues to lag behind. Job growth remains slow.  Vacancyrates for downtown office space have improved from nearly 20%, and similarvacancy rates are seen to begin improving in suburban areas.  In the face of these economic realitieshowever, the Partnership has kept its residential vacancy rate below the 5-6%local industry average.  However, doingso has resulted in slow revenue growth due to various incentives for newrentals.  Additionally, new housingproduct in the residential market and low mortgage interest rates thatattracted first-time buyers continue to be direct competitors of the rentalhousing market resulting in higher turnover expenses and unit renovationcosts.  Finally, an abnormally coldwinter, historically high snowfall, steadily increasing utility costs andincreases in other operating expenses outpaced any modest increases in rentalrevenue that the Partnership’s properties have experienced to date.  

 

The Partnership expects these conditions tocontinue throughout 2005.  Revenue gainsare expected to be modest while increases in non-controllable operatingexpenses are expected to continue. Competition continues to be strong; however the payment of rentalcommissions to encourage leaseup has begun to abate.  As a result, it is presently unclear whetherfuture earnings from operations will accelerate in the near term.  Lastly, tax reform allowed the Partnership toaccelerate depreciation on improvements and acquisitions over the past twoyears reducing taxable income.  These taxincentives expired in 2004.  Therefore,we expect income taxable to partners to increase in 2005 and to be more in linewith the Partnership’s financial statement net income, which will besubstantially higher due to property sales.

 

The Partnership has retained The HamiltonCompany (“Hamilton”) to manage and administer the Partnership’sproperties.  Hamilton is a full-servicereal estate management company, which has legal, construction, maintenance,architectural, accounting and administrative departments.  The Partnership’s properties representapproximately 40% of the total properties and 70% of the residential propertiesmanaged by Hamilton.  Substantially allof the other properties managed by Hamilton are owned - wholly or partially,directly or indirectly - by Harold Brown. The Partnership’s Second Amended and Restated Contract of LimitedPartnership (the “Partnership Agreement”) expressly provides that the generalpartner may employ a management company to manage the properties, and that suchmanagement company may be paid a fee of 4% of rental receipts for administrativeand management services (the “Management Fee”). The Partnership annually pays Hamilton the full Management Fee, inmonthly installments.

 

Harold Brown, his brother Ronald Brown andthe President of Hamilton, Carl Valeri, collectively own approximately 21.9% ofthe depositary receipts representing the Partnership Class A Units(including depositary receipts held by trusts for the benefit of such persons’family members).  Harold Brown also owns75% of the Partnership’s Class B Units, 75% of the capital stock ofNewReal, Inc. (“NewReal”), the Partnership’s sole general partner, and allof the outstanding stock of Hamilton.

 

17

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Ronald Brown also owns 25% of the Partnership’s Class B Units and25% of NewReal’s capital stock.  Inaddition, Ronald Brown is the President and director of NewReal and HaroldBrown is NewReal’s Treasurer and also a director.  Three of NewReal’s other directors ThomasRaffoul, Conrad DiGregorio, and Edward Sarkesian also own immaterial amounts ofthe Partnership’s Class A Units or receipts.

 

Beyond the Management Fee, the PartnershipAgreement further provides for the employment of outside professionals toprovide services to the Partnership and allows NewReal to charge thePartnership for the cost of employing professionals to assist with theadministration of the Partnership’s properties. In addition to the Management Fee, from time to time the Partnershippays Hamilton for repairs and maintenance services, legal services,construction services and accounting services. The costs charged by Hamilton for these services are at the same hourlyrate charged to all entities managed by Hamilton, and management believes suchrates are competitive in the marketplace.

 

Hamilton accounted for approximately 4% and5% of the repair and maintenance expense paid for by the Partnership in thenine months ended September 30, 2005 and the year ended December 31,2004, respectively.  Of the funds paid toHamilton for this purpose, the great majority was to cover the cost of servicesprovided by the Hamilton maintenance department, including plumbing,electrical, carpentry services, and snow removal for those properties close toHamilton’s headquarters.  However,several of the larger Partnership properties have their own maintenancestaff.  Further, those properties that donot have their own maintenance staff but are located more than a reasonabledistance from Hamilton’s headquarters in Allston, Massachusetts are generallyserviced by local, independent companies.

 

Hamilton’s legal department handles most ofthe Partnership’s eviction and collection matters.  Additionally, it prepares most long-termcommercial lease agreements and represents the Partnership in selected purchaseand sale transactions.  Overall, Hamiltonprovided approximately 63% of the legal services paid for by the Partnershipduring the nine months ended September 30, 2005 and approximately 81% forthe year ended December 31, 2004.

 

R. Brown Partners, which is owned by RonaldBrown, manages five condominium units located in Brookline, Massachusetts.  That entity will receive annual managementfees from the five units of approximately $1,500, and Hamilton will reduce itsmanagement fees to approximately 2%, so that the total management fee will notexceed the 4% allowed by the Partnership’s Partnership Agreement.  Additionally, as described in Note 3, theHamilton Company received $597,000 in fees from the investment properties.

 

The Partnership requires that three bids beobtained for construction contracts in excess of $5,000.  Hamilton may be one of the three bidders on aparticular project and may be awarded the contract if its bid and its abilityto successfully complete the project are deemed appropriate.  For contracts that are not awarded toHamilton, Hamilton charges the Partnership a construction supervision fee equalto 5% of the contract amount.  Hamilton’sarchitectural department also provides services to the Partnership on anas-needed basis.  In 2005, Hamilton providedthe Partnership approximately $68,000 in construction and architecturalservices.  In 2004, Hamilton providedconstruction and architectural services paid for by the Partnership totaling$3,781,000 including approximately $3,500,000 for the construction of 20additional residential units at Westgate Apartments in Woburn, Massachusetts.

 

18

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Prior to 1991, the Partnership employed anoutside, unaffiliated company to perform its bookkeeping and accountingfunctions.  Since that time, suchservices have been provided by the accounting staff at Hamilton which consistsof approximately twelve people.  Hamiltoncurrently charges the Partnership $80,000 ($20,000 per quarter) per year forbookkeeping and accounting services.

 

For more information on related partytransactions, see Note 3 to the Consolidated Financial Statements.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

The preparation of consolidated financialstatements, in accordance with accounting principles generally accepted in theUnited States of America, requires the Partnership to make estimates andjudgments that affect the reported amounts of assets, liabilities, revenues andexpenses and related disclosures of contingent assets and liabilities.  The Partnership regularly and continuallyevaluates its estimates, including those related to acquiring, developing andassessing the carrying values of its real estate properties and its investmentsin and advances to joint ventures.  ThePartnership bases its estimates on historical experience, current marketconditions, and on various other assumptions that are believed to be reasonableunder the circumstances.  However,because future events and their effects cannot be determined with certainty,the determination of estimates requires the exercise of judgment.  The Partnership’s critical accountingpolicies are those which require assumptions to be made about such matters thatare highly uncertain.  Differentestimates could have a material effect on the Partnership’s financialresults.  Judgments and uncertaintiesaffecting the application of these policies and estimates may result inmaterially different amounts being reported under different conditions andcircumstances.  See Note 1 to theConsolidated Financial Statements, Principles of Consolidation.

 

Revenue Recognition: Revenues from rentalproperties are recognized when due from tenants.  Residential leases are generally for terms ofone year and commercial leases are generally for five to ten years, withrenewal options at increased rents. Significant commercial leases with stepped increases over the term ofthe lease are recorded on the straight-line basis.

 

Real Estate and Depreciation: Real estateassets are stated at the lower of cost or fair value, less accumulateddepreciation.  Costs related to theacquisition, development, construction and improvement of properties arecapitalized, including interest, internal wages and benefits, real estate taxesand insurance.  Capitalization usuallybegins with commencement of development activity and ends when the property isready for leasing.  Replacements andimprovements— such as HVAC equipment, structural replacements, windows,appliances, flooring, carpeting and kitchen/bath replacements and renovations —are capitalized and depreciated over their estimated useful lives as follows:

 

•      Depreciationis computed on a straight-line basis over the estimated useful lives of therelated assets.  In assessing estimateduseful lives, the Partnership makes assumptions based on historical experienceacquired from both within and outside the Partnership.  These assumptions have a direct impact on thePartnership’s net income.

 

19

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•      Ordinaryrepairs and maintenance, such as unit cleaning and painting and appliancerepairs, are expensed.

 

If there is an event or change incircumstances that indicates an impairment in the value of a property, thePartnership’s policy is to assess the impairment by making a comparison of thecurrent and projected operating cash flows of the property over its remaininguseful life, on an undiscounted basis, to the carrying amount of theproperty.  If the carrying value is inexcess of the estimated projected operating cash flows of the property, thePartnership would recognize an impairment loss equivalent to the amountrequired to adjust the carrying amount to its estimated fair value.  The Partnership has not recognized animpairment loss since 1995.

 

Rental Property Held for Sale and DiscontinuedOperations:  When assets are identifiedby management as held for sale, the Partnership discontinues depreciating theassets and estimates the sales price, net of selling costs, of such assets.  If, in management’s opinion, the net salesprice of the assets which have been identified as held for sale is less thanthe net book value of the assets, a valuation allowance is established.  Properties identified as held for sale and/orsold are presented in discontinued operations for all periods presented.

 

Investments in Partnerships:  The Partnership accounts for its 50%ownership in the Investment Properties under the equity method of accounting,as it exercises significant influence over, but does not control these entities.  These investments are recorded initially atcost, as Investments in Partnerships, and subsequently adjusted for thePartnership’s share in earnings, cash contributions and distributions.  Under the equity method of accounting, ournet equity is reflected on the consolidated balance sheets, and our share ofnet income or loss from the Partnership is included on the consolidatedstatements of income.

 

With respect to investments in and advancesto the Investment Properties, the Partnership looks to the underlyingproperties to assess performance and the recoverability of carrying amounts forthose investments in a manner similar to direct investments in real estateproperties.  An impairment charge isrecorded if the carrying value of the investment exceeds its fair value.

 

Legal Proceedings: The Partnership is subjectto various legal proceedings and claims that arise, from time to time, in theordinary course of business.  Thesematters are frequently covered by insurance. If it is determined that a loss is likely to occur, the estimated amountof the loss is recorded in the financial statements.  Both the amount of the loss and the point atwhich its occurrence is considered likely can be difficult to determine.

 

RESULTS OF OPERATIONS

 

**Comparison of the three months ended September 30,2005 to the three months ended September 30, 2004 (as adjusted fordiscontinued operations)**

 

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The Partnership and its SubsidiaryPartnerships earned income before other income and discontinued operations of$601,312 during the three months ended September 30, 2005 compared to$299,869 for the three months ended September 30, 2004, an increase of$301,443 (100%).

 

The rental activity is summarized as follows:

 
| ** **         | ** ** | **Occupancy Date**         | ** ** |
|--------------------|------------|----------------------------|------------|
| ** **         | ** ** | **November 8,  2005** | ** ** | **August 2,  2005** | ** ** | **November 8,  2004** | ** ** |
|               |       |                       |       |   |   |   |   |
| Residential        |       |                       |       |   |   |   |   |
| Units              |       | 2,402                      |       | 2,402 |   | 2,420 |   |
| Vacancies          |       | 34                         |       | 58 |   | 95 |   |
| Vacancy rate       |       | 1.4                        | %          | 2.4 | % | 3.9 | % |
| Commercial         |       |                       |       |   |   |   |   |
| Total square  feet |       | 85,275                     |       | 85,275 |   | 85,275 |   |
| Vacancy            |       | 0                          |       | 0 |   | 850 |   |
| Vacancy rate       |       | 0                          | %          | 0 | % | 1 | % |

 
| ** **             | ** ** | **Rental Income (in thousands)  Three Months Ended September 30,** | ** ** |
|------------------------|------------|-------------------------------------------------------------------------|------------|
| ** **             | ** ** | **2005**                                                                | ** ** | **2004** | ** ** |
| ** **             | ** ** | **Total  Operations**                                                   | ** ** | **Continuing  Operations** | ** ** | **Total  Operations** | ** ** | **Continuing  Operations** | ** ** |
| Total rents            |       | $                                                                       | 7,837      |   | $ | 7,837 |   | $ | 7,640 |   | $ | 7,541 |   |
| Residential percentage |       | 93                                                                      | %          | 93 | % | 93 | % | 93 | % |
| Commercial percentage  |       | 7                                                                       | %          | 7 | % | 7 | % | 7 | % |
| Contingent rentals     |       | $                                                                       | 103        |   | $ | 103 |   | $ | 90 |   | $ | 90 |   |

 

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***ThreeMonths Ended September 30, 2005 Compared to Three Months Ended September 30,2004***

 
| ** **                                                          | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** | **Dollar  Change** | ** ** | **Percent  Change** | ** ** |
|---------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|--------------------|------------|---------------------|------------|
| ** **                                                          | ** ** | ** **                   | ** ** | ** **                   | ** ** | ** **         | ** ** | ** **          | ** ** |
| Revenues:                                                           |       |                         |       |                         |       |               |       |                |       |
| Rental income                                                       |       | $                            | 7,836,797  |                         | $          | 7,541,132          |       | $                   | 295,665    |   | 3.9 | % |
| Laundry and sundry income                                           |       | 105,951                      |       | 94,201                       |       | 11,750             |       | 12.5                | %          |
|                                                                |       | 7,942,748                    |       | 7,635,333                    |       | 307,415            |       | 4.0                 | %          |
|                                                                |       |                         |       |                         |       |               |       |                |       |
| Expenses:                                                           |       |                         |       |                         |       |               |       |                |       |
| Administrative                                                      |       | 307,881                      |       | 322,532                      |       | (14,651            | )          | (4.5                | )%         |
| Depreciation and amortization                                       |       | 1,642,148                    |       | 1,551,431                    |       | 90,717             |       | 5.8                 | %          |
| Interest                                                            |       | 1,960,195                    |       | 1,965,489                    |       | (5,294             | )          | (0.3                | )%         |
| Management fees                                                     |       | 315,741                      |       | 311,238                      |       | 4,503              |       | 1.4                 | %          |
| Operating                                                           |       | 692,382                      |       | 669,136                      |       | 23,246             |       | 3.5                 | %          |
| Renting                                                             |       | 190,651                      |       | 272,372                      |       | (81,721            | )          | (30.0               | )%         |
| Repairs and maintenance                                             |       | 1,371,378                    |       | 1,438,459                    |       | (67,081            | )          | (4.7                | )%         |
| Taxes and insurance                                                 |       | 861,060                      |       | 804,807                      |       | 56,253             |       | 7.0                 | %          |
|                                                                |       | 7,341,436                    |       | 7,335,464                    |       | 5,972              |       | 0.1                 | %          |
|                                                                |       |                         |       |                         |       |               |       |                |       |
| Income before other income                                          |       | 601,312                      |       | 299,869                      |       | 301,443            |       | 100.5               | %          |
|                                                                |       |                         |       |                         |       |               |       |                |       |
| Other Income (Loss)                                                 |       |                         |       |                         |       |               |       |                |       |
| Interest income                                                     |       | 58,907                       |       | 52,140                       |       | 6,767              |       | 13.0                | %          |
| Income (Loss) from investment in partnerships                       |       | 521,993                      |       | (160,706                     | )          | 682,699            |       | 424.8               | %          |
|                                                                |       | 580,900                      |       | (108,566                     | )          | 689,466            |       | 635.1               | %          |
| Income from continuing operations                                   |       | 1,182,212                    |       | 191,303                      |       | 990,909            |       | 518.0               | %          |
|                                                                |       |                         |       |                         |       |               |       |                |       |
| Discontinued Operations:                                            |       |                         |       |                         |       |               |       |                |       |
| Income from discontinued operations                                 |       | 1,727                        |       | 18,708                       |       | (16,981            | )          | (90.8               | )%         |
| Gain (loss) on the sale of real estate from discontinued operations |       | 189,670                      |       | —                       |       | 189,670            |       | 100.0               | %          |
|                                                                |       | 191,397                      |       | 18,708                       |       | 172,689            |       | 923.2               | %          |
| Net Income                                                          |       | $                            | 1,373,609  |                         | $          | 210,011            |       | $                   | 1,163,598  |   | 554.1 | % |

 

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The following is a comparative schedule forthe three months ended September 30, 2005 and 2004 of the changes inrevenue and expenses from rental operations excluding the 2004 acquisitions.

 
| ** **                     | ** ** | **Total  Partnership  2005** | ** ** | **Less  Acquired  Properties** | ** ** | **Same  Properties  in 2005** | ** ** | **Same  Properties  in 2004*** | ** ** | **Dollar  Change** | ** ** | **Percent  Change** | ** ** |
|--------------------------------|------------|------------------------------|------------|--------------------------------|------------|-------------------------------|------------|--------------------------------|------------|--------------------|------------|---------------------|------------|
| Revenues:                      | ** ** | ** **                   | ** ** | ** **                     | ** ** | ** **                    | ** ** | ** **                     | ** ** | ** **         | ** ** | ** **          | ** ** |
| Rental  income                 |       | $                            | 7,836,797  |                           | $          | 87,680                        |       | $                              | 7,749,117  |               | $          | 7,541,132           |       | $ | 207,985 |   | 2.8 | % |
| Laundry and  sundry income     |       | 105,951                      |       | —                         |       | 105,951                       |       | 94,201                         |       | 11,750             |       | 12.5                | %          |
|                           |       | 7,942,748                    |       | 87,680                         |       | 7,855,068                     |       | 7,635,333                      |       | 219,735            |       | 2.9                 | %          |
| Expenses                       |       |                         |       |                           |       |                          |       |                           |       |               |       |                |       |
| Administrative                 |       | 307,881                      |       | —                         |       | 307,881                       |       | 322,532                        |       | (14,651            | )          | (4.5                | )%         |
| Depreciation  and amortization |       | 1,642,148                    |       | 61,564                         |       | 1,580,584                     |       | 1,551,431                      |       | 29,153             |       | 1.9                 | %          |
| Interest                       |       | 1,960,195                    |       | 26,834                         |       | 1,933,361                     |       | 1,965,489                      |       | (32,128            | )          | (1.6                | )%         |
| Management  fees               |       | 315,741                      |       | 3,422                          |       | 312,319                       |       | 311,238                        |       | 1,081              |       | 0.3                 | %          |
| Operating                      |       | 692,382                      |       | 2,055                          |       | 690,327                       |       | 669,136                        |       | 21,191             |       | 3.2                 | %          |
| Renting                        |       | 190,651                      |       | 646                            |       | 190,005                       |       | 272,372                        |       | (82,367            | )          | (30.2               | )%         |
| Repairs and  maintenance       |       | 1,371,378                    |       | 1,018                          |       | 1,370,360                     |       | 1,438,459                      |       | (68,099            | )          | (4.7                | )%         |
| Taxes and  insurance           |       | 861,060                      |       | 13,142                         |       | 847,918                       |       | 804,807                        |       | 43,111             |       | 5.4                 | %          |
|                           |       | 7,341,436                    |       | 108,681                        |       | 7,232,755                     |       | 7,335,464                      |       | (102,709           | )          | (1.4                | )%         |
|                           |       |                         |       |                           |       |                          |       |                           |       |               |       |                |       |
| Income  before other income    |       | 601,312                      |       | (21,001                        | )          | 622,313                       |       | 299,869                        |       | 322,444            |       | 107.5               | %          |
|                                |            |                              |            |                                |            |                               |            |                                |            |                    |            |                     |            |  |  |  |  |  |

 

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* Discontinued operations are excluded in thequarter-to-quarter comparison.

 

Rental income from continuing operations forthe three months ended September 30, 2005 was approximately $7,837,000compared to approximately $7,541,000 for the three months ended September 30,2004, an increase of approximately $296,000 (4%).  This increase was due to rental revenue ofapproximately $88,000 from the newly completed units at Courtyard at Westgate,an increase of approximately $53,000 at 62 Boylston Street, an increase ofapproximately $31,000 at the Westgate Apartments, an increase of approximately$24,000 at Hamilton Oaks, and an increase of approximately $21,000 at NorthBeacon Street Apartments.  There wereinsignificant changes at other properties.

 

Total expenses from continuing operations forthe three months ended September 30, 2005 were approximately $7,341,000compared to approximately $7,335,000 for the three months ended September 30,2004, an increase of approximately $6,000. Although the total increase inexpenses is not significant, there were significant changes in many types ofexpenses.  The significant increasesincluded operating expenses of approximately $23,000 (3%), taxes and insuranceof approximately $56,000 (7%) and depreciation and amortization expenses ofapproximately $91,000 (6%).  The increasein operating expense is due to increased security costs, increases in taxes andinsurance are due to increases in real estate taxes and the increase indepreciation and amortization is due to ongoing capital improvements at thePartnership properties.  These increasesare offset by decreases

 

23

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in repairs and maintence expenses of approximately $67,000 (5%),renting expenses of approximately $82,000 (30%), and administrative expenses ofapproximately $15,000 (5%).  The decreasein both repairs and maintenance as well as renting expenses is due primarily toimproved occupancy levels and lower tenant turnover.  Advertising and rental commissions havedecreased due to a stronger rental market.

 

At September 30, 2005, the Partnershiphas a 50% ownership interest in five different investment properties.  See Note 14 for financial information ofthese investment properties.  Thesummaries are as follows:

 

Franklin Street, Cambridge, Massachusetts

 

The Partnership invested in a 40-unitproperty in 2001.  The Partnership’sshare of loss on this investment for the three months ended September 30,2005 was $45,230 compared to $48,536 for the three months ended September 30,2004.  The loss for the nine months endedSeptember 30, 2005 was $107,557 compared to $121,588 for the nine monthsended September 30, 2004.  There aretwo units vacant at September 30, 2005.

 

Hamilton Place, Watertown, Massachusetts

 

The Partnership invested in 280 units in sixbuildings in August 2004.  ThePartnership plans to sell 136 of the units as condominiums located in threebuildings.  At September 30, 2005,54 units have been sold and 14 additional units have reservationagreements.  The Partnership’s share ofincome for the three months ended September 30, 2005 was $188,871.  The Partnership’s share of income for the ninemonths ended September 30, 2005 was $401,175 which includes a gain on thesale of 54 units of $1,701,080.  Therewere 14 units vacant at September 30, 2005.

 

Hamilton Minuteman, Lexington, Massachusetts

 

The Partnership invested in a 42-unitresidential complex in September 2004. The Partnership may market this property as condominiums in the futurehowever it is not being marketed at this time. The Partnership’s share of loss on this investment was $61,571 and$189,776 for the three and nine months ended September 30, 2005,respectively.  There is one vacant unitat September 30, 2005.

 

Essex 81, Boston, Massachusetts

 

The Partnership invested in this property in March 2005.  The property consists of 49 residentialunits, one commercial space, and a 50 car surface parking lot.  The Partnership’s share of loss on thisinvestment is $50,832 and $122,495 for the three and nine months ended September 30,2005 respectively.  There are no unitsvacant at September 30, 2005.

 

1025 Hamilton, Quincy, Massachusetts

 

The Partnership invested in a 176-unitproperty in March 2005.  ThePartnership plans to sell 130 units as condominiums.  As of September 30, 2005, 59 units havebeen sold, and 20 units have been reserved. The Partnership’s share of income on this investment is $490,755 and$1,208,128 for the three and nine months ended September 30, 2005respectively.  This income includes thegain on the sale of 59 units of $3,158,749.

 

24

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On March 22, 2005, the Partnership soldthe Middlesex Apartments located in Newton, Massachusetts.  The selling price was $6,500,000.  The operating profit for the nine monthsended September 30, 2005 of $6,111 and the gain of $5,960,033, net ofmortgage prepayment penalties of approximately $382,000 and selling expenses,are included in income from discontinued operations.  See Note 2 to the Consolidated FinancialStatements.

 

Interest income was approximately $59,000 forthe three months ended September 30, 2005 compared to approximately$52,000 for the three months ended September 30, 2004 an increase ofapproximately $7,000 (13%).  Thisincrease reflects an increase in interest rates. 

 

As a result of the changes discussed above,net income for the three months ended September 30, 2005 was $1,373,609compared to $210,011 for the three months ended September 30, 2004, anincrease of $1,163,598 (554%).

 

**Comparison of the nine months ended September 30,2005 to the nine months ended September 30, 2004**

 

The Partnership and its SubsidiaryPartnerships earned income before other income of $1,575,061 for the ninemonths ended September 30, 2005 compared to $1,609,798 for the nine monthsended September 30, 2004, a decrease of $34,737 (2.1%).  The following is a summary of the Partnership’srental income for the nine months ended September 30, 2005 and 2004.  As more fully described in the schedulesbelow, this decrease in net income is primarily due to an increase in operatingexpenses including significant depreciation, operating expenses, and taxes andinsurance expense.

 

25

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***NineMonths Ended September 30, 2005 Compared to Nine Months Ended September 30,2004***

 
| ** **                                                     | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** | **Dollar  Change** | ** ** | **Percent  Change** | ** ** |
|----------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|--------------------|------------|---------------------|------------|
| ** **                                                     | ** ** | ** **                   | ** ** | ** **                   | ** ** | ** **         | ** ** | ** **          | ** ** |
| Revenues:                                                      |       |                         |       |                         |       |               |       |                |       |
| Rental income                                                  |       | $                            | 23,446,985 |                         | 22,786,701 |               | $          | 660,284             |       | 2.9 | % |
| Laundry and sundry income                                      |       | 310,007                      |       | 255,125                      |       | 54,882             |       | 21.5                | %          |
|                                                           |       | 23,756,992                   |       | 23,041,826                   |       | 715,166            |       | 3.1                 | %          |
|                                                           |       |                         |       |                         |       |               |       |                |       |
| Expenses:                                                      |       |                         |       |                         |       |               |       |                |       |
| Administrative                                                 |       | 967,199                      |       | 966,689                      |       | 510                |       | 0.1                 | %          |
| Depreciation and amortization                                  |       | 4,745,603                    |       | 4,452,078                    |       | 293,525            |       | 6.6                 | %          |
| Interest                                                       |       | 5,842,077                    |       | 5,886,669                    |       | (44,592            | )          | (0.8                | )%         |
| Management fees                                                |       | 956,485                      |       | 940,694                      |       | 15,791             |       | 1.7                 | %          |
| Operating                                                      |       | 2,870,006                    |       | 2,443,804                    |       | 426,202            |       | 17.4                | %          |
| Renting                                                        |       | 448,420                      |       | 507,738                      |       | (59,318            | )          | (11.7               | )%         |
| Repairs and maintenance                                        |       | 3,661,190                    |       | 3,687,770                    |       | (26,580            | )          | (0.7                | )%         |
| Taxes and insurance                                            |       | 2,690,951                    |       | 2,546,586                    |       | 144,365            |       | 5.7                 | %          |
|                                                           |       | 22,181,931                   |       | 21,432,028                   |       | 749,903            |       | 3.5                 | %          |
|                                                           |       |                         |       |                         |       |               |       |                |       |
| Income before other income                                     |       | 1,575,061                    |       | 1,609,798                    |       | (34,737            | )          | (2.2                | )%         |
|                                                           |       |                         |       |                         |       |               |       |                |       |
| Other Income (Loss)                                            |       |                         |       |                         |       |               |       |                |       |
| Interest income                                                |       | 156,815                      |       | 186,863                      |       | (30,048            | )          | (16.1               | )%         |
| (Loss) from investment in partnerships                         |       | 1,189,475                    |       | (233,758                     | )          | 1,423,233          |       | 608.8               | %          |
|                                                           |       | 1,346,290                    |       | (46,895                      | )          | 1,393,185          |       | 2,970.1             | %          |
| Income from continuing operations                              |       | 2,921,351                    |       | 1,562,903                    |       | 1,358,448          |       | 86.9                | %          |
|                                                           |       |                         |       |                         |       |               |       |                |       |
| Discontinued Operations:                                       |       |                         |       |                         |       |               |       |                |       |
| Income from discontinued operations                            |       | 6,111                        |       | 66,134                       |       | (60,023            | )          | (90.8               | )%         |
| Gain on the sale of real estate  from  discontinued operations |       | 5,960,033                    |       | —                       |       | 5,960,033          |       | 100.0               | %          |
|                                                           |       | 5,966,144                    |       | 66,134                       |       | 5,900,010          |       | (8,921.3            | )%         |
| Net Income                                                     |       | $                            | 8,887,495  |                         | $          | 1,629,037          |       | $                   | 7,258,458  |   | 445.6 | % |
|                                                                |            |                              |            |                              |            |                    |            |                     |            |  |  |  |

 

26

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| ** **                     | ** ** | **Total  Partnership  2005** | ** ** | **Less  Acquired  Properties** | ** ** | **Same  Properties  in 2005** | ** ** | **Same  Properties  in 2004*** | ** ** | **Dollar  Change** | ** ** | **Percent  Change** | ** ** |
|--------------------------------|------------|------------------------------|------------|--------------------------------|------------|-------------------------------|------------|--------------------------------|------------|--------------------|------------|---------------------|------------|
| ** **                     | ** ** | ** **                   | ** ** | ** **                     | ** ** | ** **                    | ** ** | ** **                     | ** ** | ** **         | ** ** | ** **          | ** ** |
| Revenues:                      |       |                         |       |                           |       |                          |       |                           |       |               |       |                |       |
| Rental  income                 |       | $                            | 23,446,985 |                           | $          | 258,110                       |       | $                              | 23,188,875 |               | $          | 22,786,701          |       | $ | 402,174 |   | 1.8 | % |
| Laundry and  sundry income     |       | 310,007                      |       | —                         |       | 310,007                       |       | 255,125                        |       | 54,882             |       | 21.5                | %          |
|                           |       | 23,756,992                   |       | 258,110                        |       | 23,498,882                    |       | 23,041,826                     |       | 457,056            |       | 2.0                 | %          |
|                           |       |                         |       |                           |       |                          |       |                           |       |               |       |                |       |
| Expenses                       |       |                         |       |                           |       |                          |       |                           |       |               |       |                |       |
| Administrative                 |       | 967,199                      |       | —                         |       | 967,199                       |       | 966,689                        |       | 510                |       | 0.1                 | %          |
| Depreciation  and amortization |       | 4,745,603                    |       | 184,213                        |       | 4,561,390                     |       | 4,452,078                      |       | 109,312            |       | 2.5                 | %          |
| Interest                       |       | 5,842,077                    |       | 79,042                         |       | 5,763,035                     |       | 5,886,669                      |       | (123,634           | )          | (2.1                | )%         |
| Management  fees               |       | 956,485                      |       | 10,086                         |       | 946,399                       |       | 940,694                        |       | 5,705              |       | 0.6                 | %          |
| Operating                      |       | 2,870,006                    |       | 11,790                         |       | 2,858,216                     |       | 2,443,804                      |       | 414,412            |       | 17.0                | %          |
| Renting                        |       | 448,420                      |       | 2,031                          |       | 446,389                       |       | 507,738                        |       | (61,349            | )          | (12.1               | )%         |
| Repairs and  maintenance       |       | 3,661,190                    |       | 6,586                          |       | 3,654,604                     |       | 3,687,770                      |       | (33,166            | )          | (0.9                | )%         |
| Taxes and  insurance           |       | 2,690,951                    |       | 31,846                         |       | 2,659,105                     |       | 2,546,586                      |       | 112,519            |       | 4.4                 | %          |
|                           |       | 22,181,931                   |       | 325,594                        |       | 21,856,337                    |       | 21,432,028                     |       | 424,309            |       | 2.0                 | %          |
|                           |       |                         |       |                           |       |                          |       |                           |       |               |       |                |       |
| Income  before other income    |       | $                            | 1,575,061  |                           | $          | (67,484                       | )          | $                              | 1,642,545  |               | 1,609,798  |                | 32,747     |   | 2.0 | % |
|                                |            |                              |            |                                |            |                               |            |                                |            |                    |            |                     |            |  |  |  |  |  |

 

----

*Discontinued operations are excluded in thequarter-to-quarter comparison.

 

Rental incomefrom continuing operations for the nine months ended September 30, 2005was approximately $23,447,000 compared to approximately $22,787,000 for thenine months ended September 30, 2004, an increase of approximately$660,000 (3%).  This increase is dueprimarily to the 20 additional units at Courtyard at Westgate which represents$258,000 of this increase.  Otherproperties with rental income increases include 62 Boylston Street in theamount of approximately $125,000, Westside Colonial of approximately $51,000,School Street of approximately $46,000, Redwood Hills of approximately $30,000and the existing apartments at Westgate Woburn of approximately $70,000.  There were insignificant increases at otherproperties.

 

27

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Total expenses from continuing operations forthe nine months ended September 30, 2005 were approximately $22,182,000compared to approximately $21,432,000 for the nine months ended September 30,2004, an increase of approximately $750,000 (3.5%).  As indicated in the schedule above,approximately $326,000 of this increase represents the property constructed in2004.  Other comparable increases includeoperating expenses of $414,000 (17%), depreciation and amortization expense ofapproximately $109,000 (2.4%) and taxes and insurance of approximately $113,000(4.4%).  An explanation of theseincreases is discussed above.

 

Interest income was approximately $157,000for the nine month ended September 30, 2005, compared to approximately$187,000 for the nine months ended September 30, 2004, a decrease ofapproximately $30,000.  This decrease isdue primarily to a decrease in cash available for investment.

 

As discussed previously, the Partnership hasa 50% ownership interest in five investment properties.  The net income from these investments isapproximately $1,189,000 for the nine months ended September 30, 2005compared to a loss of approximately $234,000. The income for the nine months ended September 30, 2005 includesthe Partnerships portion of the gain of approximately $3,280,455 on the sale ofunits at two of the properties.

 

Income from discontinued operations for thenine months ended September 30, 2005, includes a gain of approximately$5,960,033 on the sale of the Middlesex Apartments in Brookline, Massachusetts.

 

As a result of the changes discussed above,net income for the nine months ended September 30, 2005 was $8,887,495compared to $1,629,037 for the nine months ended September 30, 2004, anincrease of $7,258,458.

 

LIQUIDITY AND CAPITAL RESOURCES

 

The Partnership’s principal sources of cashduring 2005 and 2004 were the collection of rents, sale of a Partnershipproperty and the refinancing of a Partnership property in 2005.

 

The majority of cash and cash equivalents of$11,544,410 at September 30, 2005 and $9,862,810 at December 31, 2004were held in interest bearing accounts at creditworthy financial institutions.

 

This increase of $1,681,600 for the ninemonths ended September 30, 2005 is summarized as follows:

 
| ** **                                            | ** ** | **Nine Months Ended September 30,** | ** ** |
|-------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                            | ** ** | **2005**                                 | ** ** | **2004** | ** ** |
| Cash provided by operating activities                 |       | $                                        | 5,940,316  |   | $ | 6,273,278 |   |
| Cash provided by (used in) investing  activities      |       | (780,736                                 | )          | (19,925,928 | ) |
| Cash provided by (used in) financing  activities      |       | 154,431                                  |       | (535,638 | ) |
| Dividends paid                                        |       | (3,632,411                               | )          | (3,494,496 | ) |
| Net increase (decrease) in cash and cash  equivalents |       | $                                        | 1,681,600  |   | $ | (17,682,784 | ) |

 

28

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The cash provided by operating activities isprimarily due to the net income plus depreciation expense.  The increase in cash provided by investingactivities is due to the sale of a Partnership property in March 2005,offset by investments made by the Partnership during the nine months ended September 30,2005.  The increase in cash provided byfinancing activities is due to the refinancing of a Partnership property in January 2005.

 

As discussed previously, the Partnershipinvested approximately $4,852,000 for a 50% ownership interest in threepartnerships during the nine months ended September 30, 2005.  See above for a discussion of the investmentsand the related net income on these investments.

 

The Partnership paid a quarterly distributionof $7.00 per unit ($0.70 per depositary receipts) on March 31, 2005, June 30,2005 and September 30, 2005.  Thetotal distributions paid during the nine months ended September 30, 2005were $3,632,411, compared to $3,494,496 for the nine months ended September 30,2004.

 

During the nine months ended September 30,2005, the Partnership and its Subsidiary Partnerships completed certainimprovements to their properties at a total cost of approximately$2,123,000.  The most significantimprovements were made at the following properties: approximately $375,000 atWestgate in Woburn, Massachusetts; approximately $183,000 at 62 BoylstonStreet, Boston, Massachusetts; approximately $152,000 at Westside Colonial inBrockton, Massachusetts; approximately $189,000 at Hamilton Oaks in Brockton,Massachusetts; approximately $167,000 at School Street in Framingham,Massachusetts; and approximately $113,000 at 1144 Commonwealth Avenue inBrighton, Massachusetts.  All suchimprovements were funded from the Partnership’s cash reserves and escrowaccounts established in connection with the financing of applicable properties.

 

In addition tothe improvements made to date in 2005, the Partnership and its SubsidiaryPartnerships plan to invest approximately $585,000 in capital improvementsduring the balance of 2005, the majority of which will be spent at 1144Commonwealth Avenue, Westside Colonial, 62 Boylston, River Drive, and RedwoodHills.  These improvements will be fundedfrom escrow accounts established in connection with the financing of applicableproperties, as well as from the Partnership’s cash.

 

The Partnership anticipates that cash fromoperations and interest-bearing investments will be sufficient to fund itscurrent operations and to finance current improvements to its properties.  The Partnership’s net income and cash flowmay fluctuate dramatically from year to year as a result of the sale ofproperties, mortgage financings, unanticipated increases in expenses, or theloss of significant tenants.

 

Off-Balance Sheet Arrangements – Joint Venture Indebtedness

 

As of September 30, 2005, thePartnership had a 50% ownership in five joint ventures, all of which havemortgage indebtedness.  We do not havecontrol of these partnerships and therefore we account for them using theequity method of consolidation.  At September 30,2005 our proportionate share of the non-recourse debt related to theseinvestments was equal to approximately $31,750,000.  See Note 14 to the consolidated financialstatements.

 

Contractual Obligations

 

Please seeNote 5 to the Consolidated Financial Statements for a description of mortgagenotes payable. The Partnerships have no other contractural obligation to bedisclosed.

 

29

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Factors That May Affect Future Results

 

Certain information contained herein includesforward-looking statements, which are made pursuant to the safe harborprovisions of the Private Securities Liquidation Reform Act of 1995 (the “Act”).  While forward looking statements reflectmanagement’s good faith beliefs when those statements are made, caution shouldbe exercised in interpreting and relying on such forward looking statements,the realization of which may be impacted by known and unknown risks anduncertainties, events that may occur subsequent to the forward-lookingstatements, and other factors which may be beyond the Partnership’s control andwhich can materially affect the Partnership’s actual results, performance orachievements for 2005 and beyond.

 

Along with risks detailed from time to timein the Partnership’s filings with the Securities and Exchange Commission, somefactors that could cause the Partnership’s actual results, performance orachievements to differ materially from those expressed or implied byforward-looking statements include but are not limited to the following:

 

The Partnership depends on the real estatemarkets where its properties are located, primarily in Eastern Massachusettsand these markets may be adversely affected by local economic marketconditions, which are beyond the Partnership’s control.

 

The Partnership is subject to the generaleconomic risks affecting the real estate industry, such as dependence on tenant’sfinancial condition and the need to enter into new leases or renew leases onterms favorable to tenants in order to generate rental revenues.  The Partnership is also impacted by changingeconomic conditions making alternative housing arrangements more or less attractiveto the Partnership’s tenants, such as the interest rates on single family homemortgages and the availability and purchase price of single-family homes in theGreater Boston metropolitan area.

 

The Partnership is subject to significantexpenditures associated with each investment, such as debt service payments,real estate taxes, insurance and maintenance costs, which are generally notreduced when circumstances cause a reduction in revenues from a property.

 

The Partnership is subject to increases inheating and utility costs that may arise as a result of economic and marketconditions and fluctuations in seasonal weather conditions.

 

Civil disturbances, earthquakes and othernatural disasters may result in uninsured or underinsured loses.

 

Actual or threatened terrorist attacks mayadversely affect our ability to generate revenues and the value of ourproperties.

 

Financing or refinancing of Partnershipproperties may not be available to the extent necessary or desirable, or maynot be available on favorable terms

 

30

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The Partnership properties face competitionfrom similar properties in the same market. This competition may affect the Partnership’s ability to attract andretain tenants and may reduce the rents that can be charged.

 

Given the nature of the real estate business,the Partnership is subject to potential environmental liabilities.  These include environmental contamination inthe soil at the Partnership’s or neighboring real estate, whether caused by thePartnership, previous owners of the subject property or neighbors of thesubject property, and the presence of hazardous materials in the Partnership’sbuildings, such as asbestos, mold and radon gas.  Management is not aware of any materialenvironmental liabilities at this time.

 

Insurance coverage for and relating tocommercial properties is increasingly costly and difficult to obtain.  In addition, insurance carriers have excludedcertain specific items from standard insurance policies, which have resulted inincreased risk exposure for the Partnership. These include insurance coverage for acts of terrorism and war, andcoverage for mold and other environmental conditions.  Coverage for these items is eitherunavailable, or prohibitively expensive.

 

Market interest rates could adversely affectthe market prices for Class A Partnership Units and Depositary Receipts aswell as performance and cash flow.

 

Changes in the tax laws and regulations mayaffect the income taxable to owners of the Partnership.  These changes may affect the after-tax valueof future distributions.

 

The Partnership may fail to identify,acquire, construct, or develop additional properties; may develop or acquireproperties that do not produce a desired or expected yield on invested capital;may be unable to sell poorly-performing or otherwise undesirable propertiesquickly; or may fail to effectively integrate acquisitions of properties orportfolios of properties.

 

Risks associated with the use of debt to fundacquisitions and developments.

 

Competition for acquisitions may result inincreased prices for properties.

 

The sale of condominium units may notgenerate enough net proceeds to pay the minimum curtailment payments requiredat Hamilton Place and Hamilton Minuteman. The Partnership may be required to fund any deficiencies.

 

Any weakness identified in the Partnership’sinternal controls as part of the evaluation being undertaken by the Company andits independent public accountants pursuant to Section 404 of theSarbanes-Oxley Act of 2002 could have an adverse effect on the Company’sbusiness.

 

Ongoing compliance with Sarbanes-Oxley Act of2002 may require additional personnel or system changes.

 

The foregoing factors should not be construedas exhaustive or as an admission regarding the

 

31

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adequacy of disclosures made by the Partnership prior to the datehereof or the effectiveness of said Act. The Partnership expressly disclaims any obligation to publicly update orrevise any forward-looking statement, whether as a result of new information,future events or otherwise.

 

The residential real estate market in theGreater Boston area continues to be competitive and the Partnership anticipatesthe climate will remain the same in the foreseeable future.  This may result in increases in vacancy ratesand/or a reduction in rents. The Partnership believes its present cash reservesas well as anticipated rental revenue will be sufficient to fund its currentoperations, and to finance current planned improvements to its properties andcontinue dividend payments in the foreseeable future.

 

Since the Partnership’s long-term goalsinclude the acquisition of additional properties, a portion of the proceedsfrom the refinancing and sale of properties is reserved for this purpose.  The Partnership will consider refinancingexisting properties if the Partnership’s cash reserves are insufficient torepay existing mortgages or if the Partnership needs additional funds forfuture

acquisitions.

 

Item 3 –QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As of September 30, 2005, thePartnership and its subsidiary Partnerships collectively have approximately$115,770,000 in long-term debt, all of which have fixed interest rates.  Accordingly, the fair value of these debt instrumentsis affected by changes in market interest rates.  For information regarding the fair value andmaturity dates of these debt obligations, see Notes 5 and 12 to theConsolidated Financial Statements.

 

For additional disclosures about market risk,see “Item 2 – Management’s Discussion and Analysis of Financial Condition andResults of Operations – Factors that May Affect Future Results.”

 

Item 4—CONTROLS AND PROCEDURES

 

Our principal executive officer and principalfinancial officer have within 90 days of the filing date of this quarterlyreport, evaluated the effectiveness of our disclosure controls and procedures(as defined in Rule 13a-15(e) and Rule 15d-15(e) under theSecurities Exchange Act of 1934, as amended) and have determined that such disclosurecontrols and procedures are adequate. There have been no significant changes in internal controls or in otherfactors that could significantly affect our internal controls since the date ofevaluation.  We do not believe anysignificant deficiencies or material weaknesses exist in our internalcontrols.  Accordingly, no correctiveactions have been taken. We continue to review and document our disclosurecontrols and procedures, including our internal controls over financialreporting, and may from time to time, make changes aimed at enhancing theireffectiveness and to ensure our systems evolve with our business.

 

32

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PART II - OTHERINFORMATION

 

Item 1.    Legal Proceedings

 

None.

 

Item 2.    UnregisteredSale of Equity Securities and Use of Proceeds

 

None.

 

Item 3.    DefaultsUpon Senior Securities

 

None.

 

Item 4.    Submissionof Matters to a Vote of Security Holders

 

None.

 

Item 5.    Other Information

 

None.

 

Item 6.    Exhibits

 

(a)             See the exhibit index below.

 

33

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SIGNATURES

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.

 

 
| Date:    November  14, 2005 |                                                |
|-------------------------------------------------|-----------------------------------------------------|
|                                            |                                                |
|                                            | NEW ENGLAND REALTY  ASSOCIATES  LIMITED PARTNERSHIP |
|                                            |                                                |
|                                            | By:                                                 | NEWREAL, INC., |   |
|                                            |                                                | its General Partner* |
|                                            |                                                |
|                                            |                                                |
|                                            | By:                                                 | /s/ Ronald Brown |   |
|                                            |                                                | Ronald Brown, President |
|                                            |                                                |
|                                            |                                                |
|                                                 |
|                                            | *                                                   | Functional equivalent of  Chief Executive Officer, Principal Financial Officer and Principal Accounting  Officer |
|                                                 |                                                     |  |  |  |  |  |

 

34

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**EXHIBIT INDEX**

 
| **Exhibit  No.** | ** ** | **Description of Exhibit**                                                                                                                                                                                                                  |
|------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **       | ** ** | ** **                                                                                                                                                                                                                                  |
| (31.1)           |       | Certification pursuant to Section 302  of the Sarbanes-Oxley Act of 2002 of Ronald Brown, Principal Executive  Officer of the Partnership (President and a Director of NewReal, Inc.,  sole General Partner of the Partnership)   |
|             |       |                                                                                                                                                                                                                                        |
| (31.2)           |       | Certification pursuant to Section 302  of the Sarbanes-Oxley Act of 2002 of Harold Brown, Principal Financial  Officer of the Partnership (Treasurer and a Director of NewReal, Inc.,  sole General Partner of the Partnership)   |
|             |       |                                                                                                                                                                                                                                        |
| (32.1)           |       | Certification Pursuant to Section 906  of the Sarbanes-Oxley Act of 2002, of Ronald Brown, Principal Executive  Officer of the Partnership (President and a Director of NewReal, Inc.,  sole General Partner of the Partnership). |
|             |       |                                                                                                                                                                                                                                        |
| (32.2)           |       | Certification Pursuant to Section 906  of the Sarbanes-Oxley Act of 2002, of Harold Brown, Principal Financial  Officer of the Partnership (Treasurer and a Director of NewReal, Inc.,  sole General Partner of the Partnership). |

 

35

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