** **

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

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**Form 10-Q**

**(MarkOne)**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**For the quarterly periodended March 31, 2006**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe transition period from                                    to                                     **

**Commissionfile number 0-12138               **

**New England Realty Associates Limited Partnership**

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

 

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

Not Applicable(Former Name, Former Address and Former Fiscal Year, if Changed Since LastReport)

Indicate by check xwhether the registrant: (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes o   No x

 

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**INDEX**
|                | ** ** | **PART I  — FINANCIAL INFORMATION**                                                                                                         | ** ** | ** ** | ** ** |
|----------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|
| Item 1.   |       | Financial  Statements                                                                                                                                 |       |       |       |
|           |       | Consolidated  Balance Sheets as of March 31, 2006 (unaudited) and December 31,  2005 (audited)                                              |       |       |       |
|           |       | Consolidated Statements of Income for the Three Months  Ended March 31, 2006 and March 31, 2005 (all unaudited)                             |       |       |       |
|           |       | Consolidated Statement of Changes in Partners’ Capital  for the Three Months Ended March 31, 2006 and March 31, 2005, (all  unaudited) |       |       |       |
|           |       | Consolidated Statements of Cash Flows for the Three  Months Ended March 31, 2006 and March 31, 2005 (all unaudited)                         |       |       |       |
|           |       | Notes to 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. FinancialStatements

The accompanyingunaudited consolidated balance sheets, statements of income, changes inpartners’ capital, and cash flows and related notes thereto, have been preparedin accordance with generally accepted accounting principles in the UnitedStates of America (“GAAP”) for interim financial information and in conjunctionwith the rules and regulations of the Securities and Exchange Commission (“SEC”).Accordingly, they do not include all of the disclosures required by GAAP forcomplete financial statements. The financial statements reflect all adjustmentsconsisting only of normal, recurring adjustments, which are in the opinion ofmanagement, necessary for a fair presentation for the interim periods.

The aforementionedfinancial statements should be read in conjunction with the notes to theaforementioned financial statements and Management’s Discussion and Analysis ofFinancial Condition and Results of Operations and the financial statements andnotes thereto included in New England Realty Associates L.P.’s Annual Report onForm 10-K for the fiscal year ended December 31, 2005.

The results of operationsfor the three month period ended March 31, 2006 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**
| ** **                                       | ** ** | **March 31,  2006  (Unaudited)** | ** **  | **December 31,  2005  (Audited)** | ** ** |
|--------------------------------------------------|------------|---------------------------------------|-------------|----------------------------------------|------------|
| **ASSETS**                                       |       |                                  |        |                                   |       |
| Rental  Properties                               |       | $                                     | 101,008,203 |                                   | $          | 102,209,561 |   |
| Cash and Cash  Equivalents                       |       | 12,002,561                            |        | 12,049,392                             |       |
| Rents Receivable                                 |       | 540,256                               |        | 480,118                                |       |
| Real Estate Tax  Escrows                         |       | 793,670                               |        | 758,820                                |       |
| Prepaid Expenses  and Other Assets               |       | 2,672,890                             |        | 2,649,595                              |       |
| Investment in  Partnerships                      |       | 16,392,652                            |        | 16,337,832                             |       |
| Financing and  Leasing Fees                      |       | 543,723                               |        | 568,622                                |       |
|                                             |       |                                  |        |                                   |       |
| **Total Assets**                                 |       | $                                     | 133,953,955 |                                   | $          | 135,053,940 |   |
|                                             |       |                                  |        |                                   |       |
| **LIABILITIES AND PARTNERS’  CAPITAL**      |       |                                  |        |                                   |       |
| Mortgage Notes  Payable                          |       | $                                     | 115,389,371 |                                   | $          | 115,585,241 |   |
| Accounts Payable  and Accrued Expenses           |       | 1,340,577                             |        | 1,443,461                              |       |
| Advance Rental  Payments and Security Deposits   |       | 2,911,032                             |        | 2,943,219                              |       |
|                                             |       |                                  |        |                                   |       |
| **Total Liabilities**                            | ** ** | 119,640,980                           |        | 119,971,921                            |       |
|                                             |       |                                  |        |                                   |       |
| Commitments and  Contingent Liabilities (Note 9) |       |                                  |        |                                   |       |
|                                             |       |                                  |        |                                   |       |
| Partners’ Capital                           |       |                                  |        |                                   |       |
| 173,252 units  outstanding in 2006 and 2005      |       | 14,312,975                            |        | 15,082,019                             |       |
|                                             |       |                                  |        |                                   |       |
| **Total Liabilities and Partners’ Capital** | ** ** | $                                     | 133,953,955 |                                   | $          | 135,053,940 |   |

See notes to consolidatedfinancial statements.

3

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**NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF INCOME**
| ** **                                                | ** ** | **Three Months Ended  March 31,  (Unaudited)** | ** ** |
|-----------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                | ** ** | **2006**                                                      | ** ** | **2005** | ** ** |
| Revenue                                                   |       |                                                          |       |   |   |
| Rental income                                             | ** ** | $                                                             | 7,967,592  | ** ** | $ | 7,797,298 | ** ** |
| Laundry and sundry income                                 |       | 124,031                                                       |       | 116,112 |   |
|                                                      |       | 8,091,623                                                     |       | 7,913,410 |   |
| Expenses                                                  |       |                                                          |       |   |   |
|                                                      |       |                                                          |       |   |   |
| Administrative                                            |       | 351,652                                                       |       | 339,791 |   |
| Depreciation and amortization                             |       | 1,649,043                                                     |       | 1,519,491 |   |
| Interest                                                  |       | 1,916,124                                                     |       | 1,937,475 |   |
| Management fees                                           |       | 321,660                                                       |       | 315,708 |   |
| Operating                                                 |       | 1,291,634                                                     |       | 1,411,457 |   |
| Renting                                                   |       | 55,866                                                        |       | 102,852 |   |
| Repairs and maintenance                                   |       | 1,030,728                                                     |       | 1,014,471 |   |
| Taxes and insurance                                       |       | 871,329                                                       |       | 904,150 |   |
|                                                      |       | 7,488,036                                                     |       | 7,545,395 |   |
|                                                      |       |                                                          |       |   |   |
| Income Before  Other Income and Discontinued Operations   |       | 603,587                                                       |       | 368,015 |   |
|                                                      |       |                                                          |       |   |   |
| Other Income (Loss)                                       |       |                                                          |       |   |   |
| Interest income                                           |       | 93,478                                                        |       | 38,327 |   |
| (Loss) from investment in joint ventures                  |       | (245,180                                                      | )          | (41,624 | ) |
|                                                      |       | (151,702                                                      | )          | (3,297 | ) |
|                                                      |       |                                                          |       |   |   |
| Income from  Continuing Operations                        | ** ** | $                                                             | 451,885    | ** ** | $ | 364,718 | ** ** |
|                                                      |       |                                                          |       |   |   |
| Discontinued Operations                                   |       |                                                          |       |   |   |
| Income (loss) from discontinued operations                |       | (10,125                                                       | )          | 3,501 |   |
| Gain on sale of real estate from discontinued  operations |       | —                                                        |       | 5,811,584 |   |
|                                                      |       | (10,125                                                       | )          | 5,815,085 |   |
|                                                      |       |                                                          |       |   |   |
| Net Income                                                | ** ** | $                                                             | 441,760    | ** ** | $ | 6,179,803 | ** ** |
|                                                      |       |                                                          |       |   |   |
| Income per Unit                                           |       |                                                          |       |   |   |
| Income before discontinued operations                     | ** ** | $                                                             | 2.61       | ** ** | $ | 2.10 | ** ** |
| Income (loss) from discontinued operations                |       | (.06                                                          | )          | 33.56 |   |
|                                                      |       |                                                          |       |   |   |
| Net Income per  Unit                                      | ** ** | $                                                             | 2.55       | ** ** | $ | 35.66 | ** ** |
|                                                      |       |                                                          |       |   |   |
| Weighted Average Number  of Units Outstanding             |       | 173,252                                                       |       | 173,252 |   |

 

See notes toconsolidated financial statements.

4

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#  

# **NEWENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIESCONSOLIDATED STATEMENT OF CHANGES IN PARTNERS’ CAPITAL**

**(UNAUDITED**)
| ** **                                                                       | ** ** | **Limited**      | ** ** | ** **       | ** ** | ** **               | ** ** |
|----------------------------------------------------------------------------------|------------|------------------|------------|------------------|------------|--------------------------|------------|
| ** **                                                                       | ** ** | **Class A** | ** ** | **Class B** | ** ** | **General  Partnership** | ** ** | **Total** | ** ** |
| Balance,  January 1, 2005                                                   |       | $                | 8,372,714  |             | $          | 1,991,972                |       | $ | 104,870 |   | $ | 10,469,556 |   |
|                                                                             |       |             |       |             |       |                     |       |   |   |
| Distribution to  Partners                                                        |       | (968,643         | )          | (230,053         | )          | (12,108                  | )          | (1,210,805 | ) |
|                                                                             |       |             |       |             |       |                     |       |   |   |
| Net Income                                                                       |       | 4,943,842        |       | 1,174,163        |       | 61,798                   |       | 6,179,803 |   |
|                                                                             |       |             |       |             |       |                     |       |   |   |
| Balance, March 31,  2005                                                    |       | $                | 12,347,913 |             | $          | 2,936,082                |       | $ | 154,560 |   | $ | 15,438,555 |   |
|                                                                             |       |             |       |             |       |                     |       |   |   |
| Units authorized and  Issued, net of 6,973 Treasury Units at March 31, 2005 |       | 138,602          |       | 32,918           |       | 1,732                    |       | 173,252 |   |
|                                                                             |       |             |       |             |       |                     |       |   |   |
| Balance,  January 1, 2006                                                   |       | $                | 12,062,684 |             | $          | 2,868,340                |       | $ | 150,995 |   | $ | 15,082,019 |   |
|                                                                             |       |             |       |             |       |                     |       |   |   |
| Distribution to  Partners                                                        |       | (968,643         | )          | (230,053         | )          | (12,108                  | )          | (1,210,804 | ) |
|                                                                             |       |             |       |             |       |                     |       |   |   |
| Net Income                                                                       |       | 353,408          |       | 83,934           |       | 4,418                    |       | 441,760 |   |
|                                                                             |       |             |       |             |       |                     |       |   |   |
| Balance, March 31,  2006                                                    |       | $                | 11,447,449 |             | $          | 2,722,221                |       | $ | 143,305 |   | $ | 14,312,975 |   |
|                                                                             |       |             |       |             |       |                     |       |   |   |
| Units authorized and Issued, net of 6,973 Treasury Units at  March 31, 2006 |       | 138,602          |       | 32,918           |       | 1,732                    |       | 173,252 |   |

 

See notes toconsolidated financial statements

5

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**NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS**
| ** **                                                                         | ** ** | **Three Months Ended  March 31,  (Unaudited)** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                         | ** ** | **2006**                                                      | ** ** | **2005** | ** ** |
| Cash Flows from  Operating Activities                                              |       |                                                          |       |   |   |
| Net income                                                                         | ** ** | $                                                             | 441,760    | ** ** | $ | 6,179,804 | ** ** |
|                                                                               |       |                                                          |       |   |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                                                          |       |   |   |
| Depreciation and amortization                                                      |       | 1,649,042                                                     |       | 1,538,396 |   |
| Loss from investments in joint venture                                             |       | 245,180                                                       |       | 41,624 |   |
| (Gain) on sale of rental properties                                                |       | —                                                        |       | (5,811,584 | ) |
| Change in operating  assets and liabilities                                        |       |                                                          |       |   |   |
| (Increase) Decrease in rents receivable                                            |       | (60,138                                                       | )          | 90,386 |   |
| (Increase) in financing and leasing fees                                           |       | —                                                        |       | (29,855 | ) |
| (Decrease) in accounts payable and accrued expense                                 |       | (102,884                                                      | )          | (66,294 | ) |
| (Increase) in real estate tax escrow                                               |       | (34,850                                                       | )          | 32,289 |   |
| (Increase) Decrease in prepaid expenses and other  assets                          |       | (27,134                                                       | )          | 96,776 |   |
| (Decrease) in advance rental payments and security  deposits                       |       | (32,187                                                       | )          | (122,108 | ) |
|                                                                               |       |                                                          |       |   |   |
| Total  Adjustments                                                                 |       | 1,637,029                                                     |       | (4,230,370 | ) |
|                                                                               |       |                                                          |       |   |   |
| Net cash  provided by operating activities                                         |       | 2,078,789                                                     |       | 1,949,434 |   |
|                                                                               |       |                                                          |       |   |   |
| Cash Flows (used in)  provided by Investing Activities                             |       |                                                          |       |   |   |
| (Investment in) joint venture                                                      |       | (300,000                                                      | )          | (4,252,500 | ) |
| Purchase and improvement of rental properties                                      |       | (418,946                                                      | )          | (554,362 | ) |
| Net proceeds from the sale of rental properties                                    |       | —                                                        |       | 6,175,481 |   |
|                                                                               |       |                                                          |       |   |   |
| Net cash (used  in) provided by investing activities                               |       | (718,946                                                      | )          | 1,368,619 |   |
|                                                                               |       |                                                          |       |   |   |
| Cash Flows used in  (provided by) Financing Activities                             |       |                                                          |       |   |   |
| Proceeds of mortgage notes payable                                                 |       | —                                                        |       | 2,000,000 |   |
| Principal payments of mortgage notes payable                                       |       | (195,870                                                      | )          | (1,482,173 | ) |
| Distributions to partners                                                          |       | (1,210,804                                                    | )          | (1,210,803 | ) |
|                                                                               |       |                                                          |       |   |   |
| Net cash (used  in) financing activities                                           |       | (1,406,674                                                    | )          | (692,976 | ) |
|                                                                               |       |                                                          |       |   |   |
| Net (Decrease)  Increase in Cash and Cash Equivalents                              |       | (46,831                                                       | )          | 2,625,077 |   |
| Cash and Cash  Equivalents, at beginning of period                                 |       | 12,049,392                                                    |       | 9,862,810 |   |
|                                                                               |       |                                                          |       |   |   |
| Cash and Cash  Equivalents, at end of period                                       | ** ** | $                                                             | 12,002,561 | ** ** | $ | 12,487,887 | ** ** |

 

See notes toconsolidated financial statements.

6

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**NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006**

**NOTE 1. SIGNIFICANT ACCOUNTING POLICIES**

*Lineof Business:*   New England RealtyAssociates Limited Partnership (“NERA” or the “Partnership”) was organized inMassachusetts during 1977. NERA and its subsidiaries own and operate variousresidential apartment buildings, condominium units and commercial propertieslocated in Massachusetts and New Hampshire. NERA has also made investments inother real estate partnerships and has participated in other real estate-relatedactivities, primarily located in Massachusetts. In connection with themortgages referred to in Note 5, a substantial number of NERA’s propertiesare owned by separate subsidiaries without any change in the historical costbasis.

*Principlesof Consolidation:*   The consolidated financialstatements include the accounts of NERA and its subsidiaries. NERA has a 99.67%to 100% ownership interest in each subsidiary except for six limited liabilitycompanies (the “Investment Properties”) in which the Partnership has a 50%ownership interest. The consolidated group is referred to as the “Partnerships.”Minority interests are not recorded, since they are insignificant. Allsignificant intercompany accounts and transactions are eliminated inconsolidation. The Partnership accounts for its investment in the above-mentionedlimited liability companies using the equity method of consolidation. (SeeNote 14 for information on the Investment Properties).

*AccountingEstimates:*   The preparation of the financialstatements, in conformity with accounting principles generally accepted in theUnited State of America, requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosures ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reported period.Accordingly, actual results could differ from those estimates.

*RevenueRecognition:*   Rental income from residential andcommercial properties is recognized over the term of the related lease. Amounts60 days in arrears are charged against income. Certain leases of thecommercial properties provide for increasing stepped minimum rents, which areaccounted for on a straight-line basis over the term of the lease.

*RentalProperties:*   Rental properties are stated at costless accumulated depreciation. Maintenance and repairs are charged to expenseas incurred; improvements and additions are capitalized. When assets areretired or otherwise disposed of, the cost of the asset and related accumulateddepreciation is eliminated from the accounts, and any gain or loss on suchdisposition is included in income. Fully depreciated assets are removed fromthe accounts. Rental properties are depreciated by both straight-line andaccelerated methods over their estimated 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.

*Financingand Leasing Fees:*   Financing fees are capitalizedand amortized, using the interest method, over the life of the relatedmortgages. Leasing fees are capitalized and amortized on a straight-line basisover the life of the related lease. Unamortized balances are expensed when thecorresponding fee is no longer applicable.

*IncomeTaxes:*   The financial statements have beenprepared under the basis that NERA and its subsidiaries are entitled to taxtreatment as partnerships. Accordingly, no provision for income taxes has beenrecorded.

*CashEquivalents:*   The Partnership considers cashequivalents to be all highly liquid instruments purchased with a maturity ofthree months or less.

*SegmentReporting:*   Operating segments are revenue-producingcomponents of the Partnership for which separate financial information isproduced internally for management. Under the definition, NERA operated, forall periods presented, as one segment.

*ComprehensiveIncome:*   Comprehensive income is defined aschanges in partners’ equity, exclusive of transactions with owners (such ascapital contributions and dividends). NERA did not have any comprehensiveincome items in 2006 or 2005 other than net income as reported.

*IncomePer Unit:*   Net income per unit has beencalculated based upon the weighted average number of units outstanding duringeach year presented. The Partnership has no dilutive units and, therefore,basic net income is the same as diluted net income per unit (see Note 7).

7

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*Concentrationof Credit Risks and Financial Instruments:*   ThePartnership’s properties are located in New England, and the Partnership issubject to the general economic risks related thereto. No single tenantaccounted for more than 5% of the Partnership’s revenues in 2006 or 2005. ThePartnership makes its temporary cash investments with high-credit-qualityfinancial institutions. At March 31, 2006, substantially all of thePartnership’s cash and cash equivalents were held in interest-bearingaccounts at financial institutions, earning interest at rates from 1.34% to4.7%. At March 31, 2006 and December 31, 2005, respectively,approximately $12,000,000 of cash and cash equivalents exceeded federallyinsured amounts.

*Advertising Expense:*   Advertising isexpensed as incurred. Advertising expense was $16,393 and $46,515 for the threemonths ended March 31, 2006 and 2005, respectively.

*Discontinued Operations and Rental Property Held forSale:*   When assets are identified by management as held forsale, the Partnership discontinues depreciating the assets and estimates thesales price, net of selling costs, of such assets. If, in management’s opinion,the net sales price of the assets which have been identified as held for saleis less than the net book of the assets, a valuation allowance is established.Properties identified as held for sale and/or sold are presented indiscontinued 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 is reclassified is measured and recorded individuallyat the lower of (a) its carrying amount before the property was classifiedas held for sale, adjusted for any depreciation (amortization) expense thatwould have been recognized that the property been continuously classified asheld and used, or (b) the fair value at the date of the subsequentdecision not to sell.

*InterestCapitalized:*   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 three months ended March 31,2006 and the year ended December 31, 2005, there was no capitalizedinterest.

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

**NOTE 2. RENTAL PROPERTIES**

As of March 31, 2006, 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 2 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 metropolitan Boston area ofMassachusetts.

Additionally, as of March 31, 2006, theSubsidiary Partnerships owned commercial shopping centers in Framingham,Massachusetts and mixed-use properties in Boston, Brockton and Newton,Massachusetts. These properties are referred to collectively as the “CommercialProperties.”

Additionally, as of March 31, 2006, thePartnership owned a 50% ownership interest in six residential and mixed usecomplexes (the “Investment Properties”) with a total of 588 units, accountedfor using the equity method of consolidation. See Note 14 for summaryinformation on these investments.

On June 30, 2003, the Partnership purchased fivecondominium units from a group of investors who are also affiliated with thePartnership. The total purchase price for the five units was $2,421,286,including closing costs. The Partnership obtained a $1,600,000 mortgage onthese condominiums. This mortgage is due in August 2006, and thePartnership plans to refinance or request an extension of this payment due datefrom the bank. The majority owner of the General Partner has agreed toindemnify the Partnership for any losses incurred from the sale of any of theseunits through the new or extended maturity date of the mortgage. See Note 3 fora discussion of certain related parties associated with this acquisition.

See Note 3 for a description of the sale of Middlesexto the majority shareholder of the management company.

8

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Rental properties consist of the following:
| ** **                           | ** ** | **March 31, 2006** | ** **  | **December 31, 2005** | ** ** | **Useful Life** | ** ** |
|--------------------------------------|------------|------------------------------|-------------|---------------------------------|------------|----------------------|------------|
| Land,  improvements and parking lots |       | $                            | 23,187,429  |                            | $          | 23,187,429           |       | 10-31 years |   |
| Buildings and  improvements          |       | 105,459,499                  |        | 105,416,158                     |       | 15-31 years          |       |
| Kitchen cabinets                     |       | 3,903,413                    |        | 3,821,968                       |       | 5-10 years           |       |
| Carpets                              |       | 3,297,218                    |        | 3,179,205                       |       | 5-10 years           |       |
| Air conditioning                     |       | 738,054                      |        | 734,154                         |       | 7-10 years           |       |
| Laundry  equipment                   |       | 182,855                      |        | 182,855                         |       | 5-7 years            |       |
| Elevators                            |       | 735,014                      |        | 725,882                         |       | 20 years             |       |
| Swimming pools                       |       | 142,428                      |        | 142,428                         |       | 10 years             |       |
| Equipment                            |       | 1,627,700                    |        | 1,489,966                       |       | 5-7 years            |       |
| Motor vehicles                       |       | 119,076                      |        | 119,076                         |       | 5 years              |       |
| Fences                               |       | 265,209                      |        | 265,209                         |       | 5-10 years           |       |
| Furniture and  fixtures              |       | 4,291,402                    |        | 4,279,508                       |       | 5-7 years            |       |
| Smoke alarms                         |       | 132,222                      |        | 118,734                         |       | 5-7 years            |       |
|                                 |       |                         |        |                            |       |                 |       |
|                                 |       | 144,081,519                  |        | 143,662,572                     |       |                 |       |
| Less accumulated  depreciation       |       | 43,073,316                   |        | 41,453,011                      |       |                 |       |
|                                 |       | $                            | 101,008,203 |                            | $          | 102,209,561          |       |   |   |

 

**NOTE3. RELATED PARTY TRANSACTIONS**

The Partnership’s 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 $321,660 and $318,350 for the three months ended March 31, 2006and 2005, 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 three months ended March 31,2006 and 2005, approximately $83,000 and $194,000, respectively, was charged toNERA for legal, construction, maintenance, rental and architectural servicesand supervision of capital improvements. Of the 2006 expenses referred toabove, approximately $42,000 consisted of repairs and maintenance and $35,000of administrative expense. Approximately $6,000 of expenses for construction,architectural services and supervision of capital projects was capitalized inrental properties.

Additionally in 2006, the Hamilton Company receivedapproximately $207,000 from the Investment Properties of which approximately$73,000 was the management fee, $11,000 was for construction supervision andarchitectural fees, and $112,000 was for maintenance services. As more fullydescribed in Note 14, an entity partially owned by the majority shareholder ofthe General Partner is the sales agent for certain condominium sales receivingapproximately $19,000 of commissions through March 31, 2006.

On January 1, 2004, NERA’S employees weretransferred to the management company’s payroll. The Partnership reimburses themanagement company for the payroll and related expenses of the employeesdirectly employed by the NERA properties. Total reimbursement was approximately$469,000 for the three months ended March 31, 2006.

In 1996, prior to becoming an employee and Presidentof the management company, the current President of the management companyperformed asset management consulting services to the Partnership. Thisindividual continues to perform this service and to receive an asset managementfee from the Partnership, receiving $12,500 during the three months ended March 31,2006, and $50,000 per year ended December 31, 2005.

The Partnership has invested in six limited liabilitycompanies to purchase six residential apartment complexes (the “InvestmentProperties”). The Partnership owns 50% of each entity, the majority shareholderof the General

9

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Partner owns between 43.2% and 47.5% and the Presidentof Hamilton owns between 2.5% and 4.5%, and five other management employees ofHamilton own collectively between 0% and 2.3% respectively. See Note 14for a description of the properties and their operations.

On June 30, 2003, the Partnership purchased fivecondominium units in a 42-unit building located in Brookline,Massachusetts. These were purchased from Harvard 45 Associates LLC (“Harvard 45”)which is owned 70% by the 75% shareholder and treasurer of the General Partner,and 5% by the President of Hamilton. The total purchase price for thesecondominiums was approximately $2,416,000 and was approved both by thePartnership’s Advisory Committee of the General Partner. Harvard 45 realized again of approximately $648,000 from these sales. Harvard 45 also sold 16 unitsto unrelated parties; the prices for all 21 units sold were comparable. Themajority shareholder of the general partner has guaranteed the $1,600,000mortgage for these five units. The mortgage becomes due in August 2006.

The above 42-unit condominium building ismanaged by an entity wholly owned by the 25% shareholder and President of theGeneral Partner. That entity will receive annual management fees from the fiveunits of approximately $1,500, and Hamilton will reduce its management fees toapproximately 2%, so that the total management fee will not exceed the 4%allowed by the Partnership’s Partnership Agreement.

In March 2005, the Partnership sold the MiddlesexApartments to an entity wholly owned by the majority shareholder of the GeneralPartner. 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. Althoughthe buyer is assuming the costs and economic risks of converting and sellingthe condominium units, if the net gains from the sale of these units exceed$500,000, the excess will be split equally between the buyer and thePartnership. The buyer estimates that the gain from the sale of these unitswill exceed $500,000 and an additional profit of $189,670 was recognized at December 31,2005.

**NOTE 4. OTHERASSETS**

Included in prepaid expenses and other assets at March 31,2006 and December 31, 2005 is approximately $350,000 and $313,000,respectively, held in escrow to fund future capital improvements.

Financing and leasing fees of $543,723 and $568,622are net of accumulated amortization of $468,316 and $443,417 at March 31,2006 and December 31, 2005, respectively.

**NOTE 5. MORTGAGENOTES PAYABLE**

At March 31, 2006 and December 31, 2005, themortgages payable consisted of various loans, all of which were secured byfirst mortgages on properties referred to in Note 2. At March 31,2006, 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 mortgages aresubject to prepayment penalties. At March 31, 2006, the weighted averageinterest rate on the above mortgages was 6.64%. The effective rate of 6.73%includes the amortization expense of deferred financing costs. See Note 12for fair value information.

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

Approximate annualmaturities at March 31, 2006 are as follows:

| 2006- current  maturities |   | $          | 2,582,000   |   |
|---------------------------|--------|------------|-------------|--------|
| 2007                      |   | 1,093,000  |        |
| 2008                      |   | 5,712,000  |        |
| 2009                      |   | 11,497,000 |        |
| 2010                      |   | 33,433,000 |        |
| Thereafter                |   | 61,072,000 |        |
|                      |   | $          | 115,389,000 |   |

 

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In January 2005, the Partnership obtained amortgage on the Courtyard at Westgate for $2,000,000 at an interest rate of5.25%. These funds were added to cash reserves. The loan requires interest-onlypayments through December 2014, when the entire balance is due.

**NOTE 6. ADVANCERENTAL PAYMENTS AND SECURITY DEPOSITS**

The Partnership’s residential lease agreements mayrequire tenants to maintain a one-month advance rental payment and/or asecurity deposit. Amounts received for prepaid rents of approximately$1,584,000 are included in cash and cash equivalents; security deposits ofapproximately $1,059,000 are included with other assets.

**NOTE 7.  PARTNERS’ CAPITAL**

The Partnership has two classes of Limited Partners (Class Aand B) and one category of General Partner. Under the terms of the PartnershipAgreement, Class B Units and General Partnership Units must represent 19%and 1%, respectively, of the total units outstanding. All classes have equalprofit sharing and distribution rights, in proportion to their ownershipinterests.

In February 2006, the Partnership approved aquarterly distribution of $7.00 per unit ($.70 per receipt) payable on March 31,2006.

The Partnership paid quarterly distributions of $7.00per unit ($.70 per receipt) in March, June, September and December 31,2005 for a total distribution of $28.00 per unit ($2.80 per receipt).

The Partnershiphas entered into a deposit agreement with an agent to facilitate public tradingof limited partners’ interests in Class A Units. Under the terms of thisagreement, the holders of Class A Units have the right to exchange each Class AUnit for 10 Depositary Receipts. The following is information per DepositaryReceipt:

|                                                                  | ** ** | **Three months ended  March 31,** | ** ** |
|------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                       | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| Income per  Depositary Receipt before Discontinued Operations    |       | $                                                | 0.26       |   | $ | 0.21 |   |
| Income (loss)  from Discontinued Operations                      |       | (0.01                                            | )          | 3.35 |   |
| Net Income per  Depositary Receipt after Discontinued Operations |       | $                                                | 0.25       |   | $ | 3.56 |   |
| Distributions per  Depositary Receipt                            |       | $                                                | .70        |   | $ | 0.70 |   |

 

**NOTE 8.  TREASURYUNITS**

Treasury units at March 31,2006 are as follows:

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

 

11

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** **

**NOTE 9. COMMITMENTSAND 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.

**NOTE 10. RENTALINCOME**

During the threemonths ended March 31, 2006, approximately 94% of rental income wasrelated to residential apartments and condominium units with leases of one yearor less. The remaining 6% was related to commercial properties, which haveminimum future annual rental income on noncancellable operating leases at March 31,2006 as follows:

|            | ** ** | **Commercial  Property  Leases** | ** ** |
|------------|------------|----------------------------------|------------|
| 2007       |       | $                                | 1,724,000  |   |
| 2008       |       | 1,673,000                        |       |
| 2009       |       | 1,599,000                        |       |
| 2010       |       | 1,267,000                        |       |
| 2011       |       | 984,000                          |       |
| Thereafter |       | 3,713,000                        |       |
|       |       | $                                | 10,960,000 |   |

 

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$90,000 for the three months ended March 31, 2006 and $394,000 for theyear ended December 31, 2005, respectively.

Rents receivable are net of allowances for doubtfulaccounts of $340,455 and $284,005 at March 31, 2006 and December 31,2005, respectively. Included in rents receivable is approximately $394,000resulting from recognizing rental income from non-cancelable commercial leaseswith future rental increases on a straight-line basis. The majority of thisamount is for a long-term lease with Staples at Staples Plaza in Framingham,Massachusetts.

**NOTE 11. CASH FLOWINFORMATION**

During the three months ended March 31, 2006 and2005, cash paid for interest was $1,916,176 and $1,947,076 respectively.

**NOTE 12. FAIRVALUE OF FINANCIAL INSTRUMENTS**

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

·     For cash and cash equivalents, otherassets, investment in partnerships, accounts payable, advance rents andsecurity deposits: fair value approximates the carrying value of such assetsand liabilities.

12

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·     For mortgage notes payable: fair value isgenerally based on estimated future cash flows, which are discounted using thequoted market rate from an independent source for similar obligations. Refer tothe table below for the carrying amount and estimated fair value of suchinstruments.

|                            | ** ** | **Carrying  Amount** | ** **  | **Estimated  Fair Value** | ** ** |
|----------------------------|------------|----------------------|-------------|--------------------------------|------------|
| Mortgage Notes Payable     |       |                 |        |                           |       |
| At March 31, 2006     |       | $                    | 115,389,371 |                           | $          | 116,800,166 |   |
| At  December 31, 2005 |       | $                    | 115,585,241 |                           | $          | 119,817,130 |   |

 

Disclosure about fair value of financial instrumentsis based on pertinent information available to management as of  March 31, 2006 and December 31,2005. 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 31,2005 and current estimates of fair value may differ significantly from theamounts presented herein.

**NOTE 13. TAXABLEINCOME 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 $200,000 greater than statement income for the quarter ended March 31,2006 and approximately $13,000 less than statement income for the year ended December 31,2005. The cumulative tax basis of the Partnership’s real estate at March 31,2006 is approximately $625,000 greater than the statement basis. ThePartnership’s tax basis in its joint venture investments is approximately$400,000 less than statement basis. The depreciation rules that generatedsubstantial deductions in 2004 and 2003 expired in 2004, accordingly taxableincome in future years is expected to increase.

**NOTE 14—INVESTMENTIN PARTNERSHIPS**

Since November 2001, the Partnership has investedin six limited partnerships, each of which has invested primarily inresidential apartment complexes. The Partnership has a 50% ownership interestin each investment. The other investors are Harold Brown, and the President andfive other employees of the management company. Harold Brown’s ownershipinterest is between 43.2% and 47.5%, with the balance of 6.8% and 2.5% owned byothers. A description of each investment is as follows:

On March 7, 2005, the Partnership invested$2,000,000 for a 50% ownership interest in a building comprising 49 apartments,one commercial space and a 50-car surface parking lot located in Boston,Massachusetts. The purchase price was $14,300,000, and a $10,750,000 30-monthmortgage with a floating interest rate (6.88%) of 2% over the 30 day LiborIndex (4.88% at March 31, 2006) was obtained to finance this acquisition. ThePartnership plans to operate the building and initiate development of theparking lot. The plan may also include disposition of selected units, ascondominiums in order to reduce the above mentioned mortgage. Any profits fromthe condominium sales will be taxed at ordinary rates. Mr. Brown hasguaranteed 25% of this mortgage until such time as $2,687,500 of principal hasbeen paid. The Partnership and the other investor have, in turn agreed toindemnify Mr. Brown for their proportional share of any

13

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losses incurred by this guarantee. This investment isreferred to as Essex Street.

On March 2, 2005, the Partnership invested$2,352,000 for a 50% ownership interest in a 176-unit apartment complexwith an additional small commercial building located in Quincy, Massachusetts.The purchase price was $23,750,000, and a $19,200,000 30-month mortgagewith a floating interest rate (6.88%) of 2% over the 30 day Libor Index (4.88%at March 31, 2006) was obtained to finance this acquisition. ThePartnership plans to sell the majority of units as condominiums and retain 40to 50 units for long-term investment. The proceeds from the condominium saleswill primarily be used to reduce the above-mentioned mortgage. Harold Brown hasguaranteed 30% of this mortgage until such time as $9,950,000 of principal hasbeen paid. The Partnership and the other investor have, in turn agreed toindemnify Mr. Brown their proportionate share of any losses incurred bythis guarantee. As of March 31, 2006, 91 units have been sold, and 7 unitshave a signed purchase and sales agreement. Gains from the sales of units(approximately $54,000 per unit) will be taxed at ordinary income rates. Thisinvestment is referred to as 1025 Hamilton.

On October 3, 2005, the Partnership invested$2,500,000 for a 50% ownership interest in a 168-unit apartment complexin Quincy, Massachusetts. The purchase price was $30,875,000 and a $26,165,12730-month mortgage with a floating interest rate (6.88%)of 2% over the 30day Libor Index (4.88% at March 31, 2006) was obtained to finance thisacquisition. The Partnership plans to sell the majority of units as condominiumand retain 48 units for long-term investment. The proceeds from the condominiumsales are primarily to be used to reduce the above-mentioned mortgage. Gains fromthe sales of units will be taxed at ordinary income rates (approximately$60,000 per unit). As of March 31, 2006, 13 units have been sold and anadditional 13 units have a signed purchase and sales agreement. This investmentis referred to as Hamilton Bay.

In September 2004, the Partnership investedapproximately $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, the Partnership obtained a mortgage on theproperty in the amount of $8,025,000 and returned $3,775,000 to the Partnership.The Partnership is in the process of making the units condominiums forpotential future sales, however, no units have been sold to date. Thisinvestment is referred to as Hamilton Minuteman.

In August 2004, the Partnership invested$8,000,000 for a 50% ownership interest in a 280-unit apartment complexlocated in Watertown, Massachusetts. The total purchase price was $56,000,000.The Partnership plans to sell, over time, three buildings with a total of 137units as condominiums commencing in January 2005. As of March 31,2006, 69 units have been sold and an additional eight units were undercontract. Gains from these sales will be taxed as ordinary income(approximately $59,000 per unit.)  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 sales agentand will receive a variable commission on each sale of 3% to 5%. Thisinvestment is referred to as Hamilton Place.

In 2005, Hamilton Place, Watertown, MA obtained a new10 year mortgage on the three buildings to be retained for $16,825,000 interestonly at 5.18% for 3 years and amortizing on a 30 year schedule for theremaining 7 years when the balance is due. The net proceeds after fundingescrow accounts and closing costs on the new mortgage were approximately$16,700,000, which were used to reduce the existing mortgage. Hamilton Placepaid a  fee of approximately $400,000 inconnection with this early extinguishment of debt.

In November 2001, the Partnership formed alimited liability company to purchase a 40-unit apartment building inCambridge, Massachusetts. This property has a 12-year mortgage, which isamortized on a 30-year schedule, with a final payment of approximately$6,000,000 in 2014. As of March 31, 2006, there were no unit sales. ThePartnership is a 50% owner in this investment and is referred to as FranklinStreet.

Commencing in 2005, the mortgages on Hamilton Placeand Hamilton Minuteman require minimum principal payments (“CurtailmentPayments”) and additional investment by the Partnership will be required if theproceeds from sales cannot provide for these payments.

As required by the lender for the 2004 and 2005acquisitions, the Treasurer of the General Partner has provided a limitedrepayment guarantee equal to twenty percent (20%) of the outstanding balance,reducing to zero percent (0%) upon the completion of the Curtailment Payments. Inthe event that he is obligated to make payments to the lender as a result ofthis guaranty, the Partnership and other investors have, in turn, agreed toindemnify him for their proportionate share of any such payments.

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** **

**Summary financialinformation for the three months ended March 31, 2006 (unaudited)**
| ** **                                                           | ** ** | **Franklin  Street** | ** ** | **Hamilton  Place** | ** ** | **Hamilton  Place** | ** ** | **Hamilton  Minuteman** | ** ** | **Essex 81** | ** ** | **1025  Hamilton** | ** ** | **Hamilton  Bay** | ** ** | ** **  | ** ** |
|----------------------------------------------------------------------|------------|----------------------|------------|---------------------|------------|---------------------|------------|-------------------------|------------|-------------------|------------|--------------------|------------|-------------------|------------|-------------|------------|
| **Acquisition Date**                                            | ** ** | **November  2001**   | ** ** | **August  2004**    | ** ** | **August  2004**    | ** ** | **August  2004**        | ** ** | **March  2005**   | ** ** | **March  2005**    | ** ** | **October  2005** | ** ** | **Total**   | ** ** |
| Property assets — net                                           |       | 9,893,274            |       | 27,200,000          |       | 13,822,494          |       | 9,259,909               |       | 14,175,975        |       | 11,390,302         |       | 28,793,802        |       | 114,535,756 |       |
| Mortgages payable                                                    |       | 7,794,113            |       | 16,825,000          |       | 8,237,677           |       | 7,879,510               |       | 10,750,000        |       | 7,864,340          |       | 23,775,924        |       | 83,126,564  |       |
| Total Equity                                                         |       | 2,007,648            |       | 14,047,811          |       | 2,891,541           |       | 1,659,456               |       | 3,459,258         |       | 4,197,222          |       | 4,522,369         |       | 32,785,305  |       |
| NERA — 50% equity                                               |       | 1,003,824            |       | 7,023,905           |       | 1,445,771           |       | 829,728                 |       | 1,729,629         |       | 2,098,611          |       | 2,261,184         |       | 16,392,652  |       |
| Summary income  statement:                                           |       |                 |       |                |       |                |       |                    |       |              |       |               |       |              |       |        |       |
| Rental income                                                        |       | 253,398              |       | 606,322             |       | 180,974             |       | 174,759                 |       | 341,230           |       | 238,536            |       | 489,274           |       | 2,284,493   |       |
| Operating expenses                                                   |       | 64,878               |       | 224,589             |       | 160,155             |       | 62,233                  |       | 139,081           |       | 301,712            |       | 475,452           |       | 1,428,100   |       |
| Management fees                                                      |       | 10,141               |       | 24,102              |       | 1,917               |       | 7,028                   |       | 13,921            |       | 2,981              |       | 12,450            |       | 72,540      |       |
| Interest expense                                                     |       | 135,615              |       | 218,780             |       | 145,924             |       | 134,077                 |       | 181,684           |       | 149,574            |       | 427,956           |       | 1,393,610   |       |
| Depreciation &  amortization                                |       | 88,910               |       | 366,859             |       | 121,879             |       | 132,630                 |       | 109,849           |       | 140,046            |       | 273,535           |       | 1,233,708   |       |
| Financing expense                                                    |       | —               |       | —              |       | —              |       | —                  |       | —            |       | —             |       | —            |       | —      |       |
| Gain on sale of  condominiums                                        |       | —               |       | —              |       | 144,962             |       | —                  |       | —            |       | 427,133            |       | 781,011           |       | 1,353,106   |       |
| Net profit (loss)                                                    |       | (46,146              | )          | (228,008            | )          | (103,939            | )          | (161,209                | )          | (103,305          | )          | 71,356             |       | 80,892            |       | (490,359    | )          |
| NERA — 50%                                                      |       | (23,073              | )          | (114,004            | )          | (51,969             | )          | (80,605                 | )          | (51,653           | )          | 35,678             |       | 40,446            |       | (245,180    | )          |
| Total units/  condominiums                                           |       | 40                   |       | 146                 |       | 137                 |       | 42                      |       | 49                |       | 176                |       | 168               |       | 758         |       |
| Units to be retained                                                 |       | 40                   |       | 146                 |       | 0                   |       | 42                      |       | 49                |       | 49                 |       | 48                |       | 374         |       |
| Units to be sold                                                     |       | 0                    |       | 0                   |       | 137                 |       | 0                       |       | 0                 |       | 127                |       | 120               |       | 384         |       |
| Units sold through April 24,  2006                              |       | 0                    |       | 0                   |       | 69                  |       | 0                       |       | 0                 |       | 91                 |       | 13                |       | 173         |       |
| Balance of unsold units                                              |       | 0                    |       | 0                   |       | 68                  |       | 0                       |       | 0                 |       | 36                 |       | 107               |       | 211         |       |
| Unsold units with deposits for future sale as of April 24, 2006 |       | 0                    |       | 0                   |       | 8                   |       | 0                       |       | 0                 |       | 7                  |       | 13                |       | 28          |       |

 

**Future annualmortgage maturities at March 31, 2006 are as follows:**
| ** **           | ** ** | **Franklin  Street** | ** ** | **Hamilton  Place** | ** ** | **Hamilton  Place** | ** ** | **Hamilton  Minuteman** | ** ** | **Essex 81** | ** ** | **1025  Hamilton** | ** ** | **Hamilton  Bay** | ** ** | **Total**  | ** ** |
|----------------------|------------|----------------------|------------|---------------------|------------|---------------------|------------|-------------------------|------------|-------------------|------------|--------------------|------------|-------------------|------------|------------|------------|
| **Year Ended:** | ** ** | ** **           | ** ** | ** **          | ** ** | ** **          | ** ** | ** **              | ** ** | ** **        | ** ** | ** **         | ** ** | ** **        | ** ** | ** ** | ** ** |
| March 31, 2007  |       | 113,742              |       | —              |       | —              |       | 2,025,000               |       | 10,750,000        |       | —             |       | 17,545,925        |       | 30,434,667 |       |
| March 31, 2008  |       | 121,843              |       | 19,552              |       | 8,237,676           |       | 3,000,000               |       | —            |       | 7,864,340          |       | 6,230,000         |       | 25,473,411 |       |
| March 31, 2009  |       | 130,522              |       | 241,315             |       | —              |       | 2,854,510               |       | —            |       | —             |       | —            |       | 3,226,347  |       |
| March 31, 2010  |       | 139,818              |       | 254,117             |       | —              |       | —                  |       | —            |       | —             |       | —            |       | 393,935    |       |
| March 31, 2011  |       | 149,776              |       | 267,597             |       | —              |       | —                  |       | —            |       | —             |       | —            |       | 417,373    |       |
| Thereafter           |       | 7,138,412            |       | 16,042,419          |       | —              |       | —                  |       | —            |       | —             |       | —            |       | 23,180,831 |       |
|                 |       | 7,794,113            |       | 16,825,000          |       | 8,237,676           |       | 7,879,510               |       | 10,750,000        |       | 7,864,340          |       | 23,775,925        |       | 83,126,564 |       |

 

Interest rates, the majority of which are variable,range from 5.18% to 6.91% at March 31, 2006.

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**NOTE 15. NEWACCOUNTING PRONOUNCEMENTS**

**Recent AccountingPronouncements**

In May 2005, the FASB issued FASB Statement No. 154,“Accounting Changes and Error Corrections,” a replacement of APB Opinion No. 20,“Accounting Changes”, and FASB Statement No. 3, “Reporting AccountingChanges in Interim Financial Statements.” FASB Statement No. 154 changesthe requirement for the accounting for and reporting of a change in accountingprinciple. This Statement applies to all voluntary changes in accounting principle.It also applies to changes required by an accounting pronouncement in theunusual instance that the pronouncement does not include specific transitionprovisions. When a pronouncement includes specific transition provisions, thoseprovisions should be followed. FASB Statement No. 154 is effective foraccounting changes and corrections of errors made in fiscal years beginningafter December 15, 2005.

In March 2005, the Financial Accounting StandardsBoard (FASB or the “Board”) issued final guidance that clarifies how companiesshould account for “conditional” asset retirement obligations (“AROs”). FASBInterpretation No. 47 “Accounting for Conditional Asset RetirementObligations” (FIN 47 or the “Interpretation”), deals with obligations toperform asset retirement activities in which the timing and (or) method ofsettlement are conditional on a future event (e.g., legal requirementssurrounding asbestos handling and disposal that are triggered by demolishing orrenovating a facility). The new guidance will likely require many companies torecognize liabilities for these obligations. In implementing the new guidance,which must be adopted by calendar year enterprises by December 31, 2005, acompany will need to identify its conditional AROs and determine whether it canreasonably estimate the fair value of each obligation. If the company canreasonably estimate the fair value of an obligation, it will need to recognizea liability for that obligation based on its current present value. Thisliability would then accrete to the ultimate liability over the service period(adjusted periodically for changes in estimates). We have reviewed tangiblelong-lived assets and other agreements for associated AROs in accordance withthis Interpretation and have concluded that we do not have any material AROsthat would require recognition as a liability or disclosure in our financialstatements at December 31, 2005.

In June 2005, the FASB ratified the consensusreached by the Emerging Issues Task Force (“EITF”) regarding EITF 04-05, “Investor’sAccounting for an Investment in a Limited Partnership When the Investor is theSole General Partner and the Limited Partners Have Certain Rights.” Theconclusion provides a framework for addressing the question of when a sole generalpartner, as defined in EITF 04-05, should consolidate a limitedpartnership. The EITF has concluded that the general partner of a limitedpartnership should consolidate a limited partnership, unless the limitedpartners have either (a) the substantive ability to dissolve the limitedpartnership or otherwise remove the general partner without cause, or (b) substantiveparticipating rights. In addition, the EITF concluded that the guidance shouldbe expanded to include all limited partnerships, including those with multiplegeneral partners. We will adopt EITF 04-05 as of January 1, 2006. Wehave assessed our investments in unconsolidated real estate joint ventures andhave determined that EITF 04-05 will not have an impact on our financialcondition or results of operations.

**NOTE 16. DISCONTINUEDOPERATIONS and SALES of REAL ESTATE**

The followingtables summarize income from discontinued operations and the related realizedgain on sale of rental property for the three months ended March 31, 2006and 2005:

|                                             | ** ** | **Three Months Ended  March 31** | ** ** |
|---------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                  | ** ** | **2006**                                        | ** ** | **2005** | ** ** |
|                                        |       |                                            |       |   |   |
| Total Revenues                              |       | $                                               | —     |   | $ | 78,256 |   |
| Operating and  other expenses               |       | 10,125                                          |       | 55,849 |   |
| Depreciation and  amortization              |       | —                                          |       | 18,906 |   |
|                                        |       | 10,125                                          |       | 74,755 |   |
| Income (loss)  from discontinued operations |       | (10,125                                         | )          | 3,501 |   |
| Gain on sale of  discontinued operations    |       | —                                          |       | 5,811,584 |   |
|                                        |       | $                                               | (10,125    | ) | $ | 5,815,085 |   |

 

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** **

**Item 2 — MANAGEMENTS DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION**

The following discussion should be read in conjunctionwith the financial statements and notes thereof appearing elsewhere in thisReport. This Report, on Form 10-Q, contains forward-lookingstatements within the meaning of the securities law. Actual results ordevelopments could differ materially from those projected in such statements asa result of certain factors set forth in the section below entitled “FactorsThat May Affect Future Results” and elsewhere in this Report.

While the national economy has largely recovered fromthe recession of the late 1990s and early 2000s, Massachusetts’ local economycontinues to lag behind. Job growth remains slow. Vacancy rates for downtownoffice space have improved from nearly 20%, and similar vacancy rates are seento 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. Rental revenue has increased at the majority ofproperties and operating expenses have decreased due to (i) a milderwinter in 2006 and (ii) lower tenant turnover. However, new housingproduct and a significant increase in resale inventories in the residentialmarket and low mortgage interest rates continue to be direct competitors of therental housing market.

The Partnership expects these conditions to continuethroughout 2006. Revenue gains are expected to be modest and operating expensesare expected to remain stable. Competition continues to be strong; howeverrental commissions and advertising costs have decreased due to a drop in tenantturnover. It is presently unclear whether future earnings from operations willaccelerate in the near term. Lastly, tax reform allowed the Partnership toaccelerate depreciation on improvements and acquisitions over the past twoyears reducing taxable income. These tax incentives expired in 2004. Therefore,we expect income taxable to partners to increase in 2006 and to be more in linewith the Partnership’s financial statement net income.

The Partnership has retained The Hamilton Company (“Hamilton”)to manage and administer the Partnership’s properties. Hamilton is afull-service real estate management company, which has legal, construction,maintenance, architectural, accounting and administrative departments. ThePartnership’s properties represent approximately 40% of the total propertiesand 70% of the residential properties managed by Hamilton. Substantially all ofthe other properties managed by Hamilton are owned - wholly or partially,directly or indirectly - by Harold Brown. The Partnership’s Second Amended andRestated Contract of Limited Partnership (the “Partnership Agreement”)expressly provides that the general partner may employ a management company tomanage the properties, and that such management company may be paid a fee of 4%of rental receipts for administrative and management services (the “ManagementFee”). The Partnership annually pays Hamilton the full Management Fee, inmonthly installments.

Harold Brown, his brother Ronald Brown and thePresident of Hamilton, Carl Valeri, collectively own approximately 22.2% of thedepositary receipts representing the Partnership Class A Units (includingdepositary receipts held by trusts for the benefit of such persons’ familymembers). Harold Brown also owns 75% of the Partnership’s Class B Units,75% of the capital stock of NewReal, Inc. (“NewReal”), the Partnership’ssole general partner, and all of the outstanding stock of Hamilton. RonaldBrown also owns 25% of the Partnership’s Class B Units and 25% of NewReal’scapital stock. In addition, Ronald Brown is the President and director ofNewReal and Harold Brown is NewReal’s Treasurer and also a director. Three ofNewReal’s other directors Thomas Raffoul, Conrad DiGregorio, and EdwardSarkesian also own immaterial amounts of the Partnership’s Class A Unitsor receipts.

Beyond the Management Fee, the Partnership Agreementfurther provides for the employment of outside professionals to provideservices to the Partnership and allows NewReal to charge the Partnership forthe cost of employing professionals to assist with the administration of thePartnership’s properties. In addition to the Management Fee, from time to timethe Partnership pays Hamilton for repairs and maintenance services, legalservices, construction services and accounting services. The costs charged byHamilton for these services are at the same hourly rate charged to all entitiesmanaged by Hamilton, and management believes such rates are competitive in themarketplace.

Hamilton accounted for approximately 4% of the repairand maintenance expense paid for by the Partnership in the three months ended March 31,2006 and the year ended December 31, 2005. Of the funds paid to Hamiltonfor this purpose, the great majority was to cover the cost of services providedby the Hamilton maintenance department, including plumbing, electrical,carpentry services, and snow removal for those properties close to Hamilton’sheadquarters. However, several of the larger Partnership properties have theirown maintenance staff. Further,

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those properties that do not have their ownmaintenance staff but are located more than a reasonable distance from Hamilton’sheadquarters in Allston, Massachusetts are generally serviced by local,independent companies.

Hamilton’s legal department handles most of thePartnership’s eviction and collection matters. Additionally, it prepares mostlong-term commercial lease agreements and represents the Partnership inselected purchase and sale transactions. Overall, Hamilton providedapproximately 74% of the legal services paid for by the Partnership during thethree months ended March 31, 2006 and approximately 70% for the year endedDecember 31, 2005.

Additionally, as described in Note 3 to theConsolidated Financial Statements, the Hamilton Company received similar feesfrom the Investment Properties.

R. Brown Partners, which is owned by Ronald Brown,manages five condominium units located in Brookline, Massachusetts. That entitywill receive annual management fees from the five units of approximately$1,500, and Hamilton will reduce its management fees to approximately 2%, sothat the total management fee will not exceed the 4% allowed by the Partnership’sPartnership Agreement.

The Partnership requires that three bids be obtainedfor construction contracts in excess of $5,000. Hamilton may be one of thethree bidders on a particular project and may be awarded the contract if itsbid and its ability to successfully complete the project are deemed appropriate.For contracts that are not awarded to Hamilton, Hamilton charges thePartnership a construction supervision fee equal to 5% of the contract amount. Hamilton’sarchitectural department also provides services to the Partnership on anas-needed basis. During the three months ended March 31, 2006, Hamiltonprovided the Partnership approximately $6,000 in construction and architecturalservices, compared to $109,000 for the year ended December 31, 2005.

Prior to 1991, the Partnership employed an outside,unaffiliated company to perform its bookkeeping and accounting functions. Sincethat time, such services have been provided by the accounting staff at Hamiltonwhich consists of approximately twelve people. Hamilton currently charges thePartnership $80,000 ($20,000 per quarter) per year for bookkeeping andaccounting services.

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

**CRITICALACCOUNTING POLICIES AND ESTIMATES**

The preparation of consolidated financial statements,in accordance with accounting principles generally accepted in the UnitedStates of America, requires the Partnership to make estimates and judgments thataffect the reported amounts of assets, liabilities, revenues and expenses andrelated disclosures of contingent assets and liabilities. The Partnershipregularly and continually evaluates its estimates, including those related toacquiring, developing and assessing the carrying values of its real estateproperties and its investments in 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 effectscannot be determined with certainty, the determination of estimates requiresthe exercise of judgment. The Partnership’s critical accounting policies arethose which require assumptions to be made about such matters that are highlyuncertain. Different estimates could have a material effect on the Partnership’sfinancial results. Judgments and uncertainties affecting the application ofthese policies and estimates may result in materially different amounts beingreported under different conditions and circumstances. See Note 1 to theConsolidated Financial Statements, Principles of Consolidation.

Revenue Recognition: Revenues from rental propertiesare recognized when due from tenants. Residential leases are generally forterms of one year and commercial leases are generally for five to ten years,with renewal options at increased rents. Significant commercial leases withstepped increases over the term of the lease are recorded on the straight-linebasis.

Real Estate and Depreciation: Real estate assets arestated at the lower of cost or fair value, less accumulated depreciation. Costsrelated to the acquisition, development, construction and improvement ofproperties are capitalized, including interest, internal wages and benefits,real estate taxes and insurance. Capitalization usually begins withcommencement of development activity and ends when the property is ready forleasing. Replacements and improvements— such as HVAC equipment, structuralreplacements, windows, appliances, flooring, carpeting and kitchen/bathreplacements and renovations — are capitalized and depreciated over theirestimated useful lives as follows:

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·                  Depreciationis computed on a straight-line basis over the estimated useful lives of therelated assets. In assessing estimated useful lives, the Partnership makesassumptions based on historical experience acquired from both within andoutside the Partnership. These assumptions have a direct impact on thePartnership’s net income.

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

If there is an event or change in circumstances thatindicates an impairment in the value of a property, the Partnership’s policy isto assess the impairment by making a comparison of the current and projectedoperating cash flows of the property over its remaining useful life, on anundiscounted basis, to the carrying amount of the property. If the carryingvalue is in excess of the estimated projected operating cash flows of theproperty, the Partnership would recognize an impairment loss equivalent to theamount required to adjust the carrying amount to its estimated fair value. ThePartnership has not recognized an impairment 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 sales price of the assets which have beenidentified as held for sale is less than the net book value of the assets, avaluation allowance is established. Properties identified as held for saleand/or sold 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 at cost, as Investments inPartnerships, and subsequently adjusted for the Partnership’s share inearnings, cash contributions and distributions. Under the equity method of accounting,our net equity is reflected on the consolidated balance sheets, and our shareof net income or loss from the Partnership is included on the consolidatedstatements of income.

With respect to investments in and advances to theInvestment Properties, the Partnership looks to the underlying properties toassess performance and the recoverability of carrying amounts for thoseinvestments in a manner similar to direct investments in real estate properties.An impairment charge is recorded if the carrying value of the investmentexceeds its fair value.

Legal Proceedings: The Partnership is subject tovarious legal proceedings and claims that arise, from time to time, in theordinary course of business. These matters are frequently covered by insurance.If it is determined that a loss is likely to occur, the estimated amount of theloss is recorded in the financial statements. Both the amount of the loss andthe point at which its occurrence is considered likely can be difficult todetermine.

**RESULTS OF OPERATIONS**

Comparison of the three months ended March 31,2006 to the three months ended March 31, 2005 (as adjusted fordiscontinued operations)

**The Partnership and its SubsidiaryPartnerships earned income before other income and discontinued operations of$603,587 during the three months ended March 31, 2006 compared to $368,015for the three months ended March 31, 2005, an increase of $235,572 (64%).**

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** **

The rentalactivity is summarized as follows:
| ** **        | ** ** | **Occupancy Date**  | ** ** |
|-------------------|------------|--------------------------|------------|
| ** **        | ** ** | **April 24,  2006** | ** ** | **February 25,  2006** | ** ** | **May 9,  2005** | ** ** |
|              |       |                     |       |   |   |   |   |
| Residential       |       |                     |       |   |   |   |   |
| Units             |       | 2,402                    |       | 2,402 |   | 2,402 |   |
| Vacancies         |       | 30                       |       | 23 |   | 32 |   |
| Vacancy rate      |       | 1.2                      | %          | 1.0 | % | 1.4 | % |
| Commercial        |       |                     |       |   |   |   |   |
| Total square feet |       | 84,998                   |       | 84,998 |   | 85,275 |   |
| Vacancy           |       | 6,075                    |       | 0 |   | 0 |   |
| Vacancy rate      |       | 7.1                      | %          | 0 | % | 0 | % |

 
| ** **              | ** ** | **Rental Income (in thousands)  Three Months Ended March 31,** | ** ** |
|-------------------------|------------|---------------------------------------------------------------------------------------------------|------------|
| ** **              | ** ** | **2006**                                                                                          | ** ** | **2005** | ** ** |
| ** **              | ** ** | **Total  Operations**                                                                             | ** ** | **Continuing  Operations** | ** ** | **Total  Operations** | ** ** | **Continuing  Operations** | ** ** |
| Total rents             |       | $                                                                                                 | 7,968      |   | $ | 7,968 |   | $ | 7,882 |   | $ | 7,797 |   |
| Residential  percentage |       | 93.5                                                                                              | %          | 93.5 | % | 93 | % | 93 | % |
| Commercial  percentage  |       | 6.5                                                                                               | %          | 6.5 | % | 7 | % | 7 | % |
| Contingent rentals      |       | $                                                                                                 | 90         |   | $ | 90 |   | $ | 103 |   | $ | 103 |   |

 

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***Three Months Ended March 31,2006 Compared to Three Months Ended March 31, 2005***
| ** **                                                                 | ** ** | **March 31,  2006** | ** ** | **March 31,  2005** | ** ** | **Dollar  Change** | ** ** | **Percent  Change** | ** ** |
|----------------------------------------------------------------------------|------------|--------------------------|------------|--------------------------|------------|--------------------|------------|---------------------|------------|
| ** **                                                                 | ** ** | ** **               | ** ** | ** **               | ** ** | ** **         | ** ** | ** **          | ** ** |
| Revenues:                                                                  |       |                     |       |                     |       |               |       |                |       |
| Rental income                                                              |       | $                        | 7,967,592  |                     | $          | 7,797,298          |       | $                   | 170,294    |   | 2.2 | % |
| Laundry and sundry income                                                  |       | 124,031                  |       | 116,112                  |       | 7,919              |       | 6.8                 | %          |
|                                                                       |       | 8,091,623                |       | 7,913,410                |       | 178,213            |       | 2.3                 | %          |
| Expenses:                                                                  |       |                     |       |                     |       |               |       |                |       |
| Administrative                                                             |       | 351,652                  |       | 339,791                  |       | 11,861             |       | 3.5                 | %          |
| Depreciation and amortization                                              |       | 1,649,043                |       | 1,519,491                |       | 129,552            |       | 8.5                 | %          |
| Interest                                                                   |       | 1,916,124                |       | 1,937,475                |       | (21,351            | )          | (1.1                | %)         |
| Management fees                                                            |       | 321,660                  |       | 315,708                  |       | 5,952              |       | 1.9                 | %          |
| Operating                                                                  |       | 1,291,634                |       | 1,411,457                |       | (119,823           | )          | (8.5                | %)         |
| Renting                                                                    |       | 55,866                   |       | 102,852                  |       | (46,986            | )          | (45.7               | %)         |
| Repairs and maintenance                                                    |       | 1,030,728                |       | 1,014,471                |       | 16,257             |       | 1.6                 | %          |
| Taxes and insurance                                                        |       | 871,329                  |       | 904,150                  |       | (32,821            | )          | (3.6                | %)         |
|                                                                       |       | 7,488,036                |       | 7,545,395                |       | (57,359            | )          | (.80                | %)         |
|                                                                       |       |                     |       |                     |       |               |       |                |       |
| Income Before Other Income and Discontinued Operations                     |       | 603,587                  |       | 368,015                  |       | 235,572            |       | 64.0                | %          |
|                                                                       |       |                     |       |                     |       |               |       |                |       |
| Other  Income (Loss)                                                       |       |                     |       |                     |       |               |       |                |       |
| Interest income                                                            |       | 93,478                   |       | 38,327                   |       | 55,151             |       | 143.9               | %          |
| (Loss) from investment in  joint ventures                                  |       | (245,180                 | )          | (41,624                  | )          | (203,556           | )          | (489.0              | %)         |
|                                                                       |       | (151,702                 | )          | (3,297                   | )          | (148,405           | )          | (4501.2             | %)         |
| Income from Continuing  Operations                                         |       | 451,885                  |       | 364,718                  |       | 87,167             |       | 23.9                | %          |
|                                                                       |       |                     |       |                     |       |               |       |                |       |
| Discontinued  Operations:                                                  |       |                     |       |                     |       |               |       |                |       |
| Income (loss) from  discontinued operations                                |       | (10,125                  | )          | 3,501                    |       | (13,626            | )          | (389.2              | %)         |
| Gain on the sale of real  estate from  discontinued  operations  |       | —                   |       | 5,811,584                |       | (5,811,584         | )          | (100.0              | %)         |
|                                                                       |       | (10,125                  | )          | 5,815,085                |       | (5,825,210         | )          | (100.2              | %)         |
| Net  Income                                                                |       | $                        | 441,760    |                     | $          | 6,179,803          |       | $                   | (5,738,043 | ) | (92.86 | %) |

 

Rental income for the three months ended March 31,2006 was approximately $7,968,000 compared to approximately $7,797,000 for thethree months ended March 31, 2005, an increase of approximately $170,000(2.2%). The properties with the most significant increases include 62 BoylstonStreet with an increase of approximately $63,000; School Street with anincrease of approximately $19,000; Hamilton Oaks with an increase ofapproximately $18,000; and 1144 Commonwealth Avenue with an increase ofapproximately $12,000. The majority of the Partnership’s other propertiesexperienced minimal rental income increases. The Middlesex Apartments sold in March 2005collected rental income of approximately $79,000 during the three months ended March 2005.

Total expenses for the three months ended March 31,2006 were approximately $7,488,000 compared to approximately $7,545,000 for thethree months ended March 31, 2005, a decrease of approximately $57,000.The most significant decreases were in renting expenses of approximately$47,000 (46%) due to improved occupancy and a decrease in the costs associatedwith advertising and rental commissions. Operating expenses decreasedapproximately $120,000 due to the lack of snow in the winter of 2006 comparedto 2005. Taxes and insurance decreased approximately $33,000 due to decreasesin insurance premiums. These decreases are offset by an increase indepreciation and amortization expense of approximately $130,000(8.5%) due tocontinued capital improvements to Partnership properties; an increase inrepairs and maintenance expense of approximately $16,000 (1.6%) due tocontinued repairs to Partnership properties; and an increase in administrativeexpense of approximately $12,000 (3.5%) due to an increase in professionalfees.

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At March 31,2006, the Partnership has a 50% ownership interest in six different investmentproperties. The net loss on these investments is $245,180 for the three monthsended March 31, 2006 compared to a loss of $41,624 for the three monthsended March 30, 2005 an increase of $203,556. This increase in loss on theinvestment properties is due to vacancies at the properties while preparingthem for resale, an increase in depreciation and amortization expense due tocapital improvements, and professional fees associated with converting theproperties into condominium units. See Note 14 to the Consolidated FinancialStatements for financial information of these investment properties. Thesummaries are as follows:

**Franklin Street, Cambridge,Massachusetts**

The Partnership invested in a 40-unit propertyin 2001. The Partnership’s share of loss on this investment is  $23,073 and $21,865 for the three monthsended March 31, 2006 and 2005, respectively. There were no vacant units atApril 24, 2006.

**Hamilton Place, Watertown,Massachusetts**

The Partnership invested in 283 units in six buildingsin August 2004. The Partnership plans to sell 137 of the units ascondominiums located in three buildings. At April 24, 2006, 69 units havebeen sold and eight additional units have reservation agreements. ThePartnership’s share of loss for the three months ended March 31, 2006 was$165,973 which includes a gain of $144,962 on the sale of condominium units. ThePartnership’s share of income for the three months ended March 31, 2005was $85,451. There were 13 units vacant at April 24, 2006.

**Hamilton Minuteman, Lexington,Massachusetts**

The Partnership invested in a 42-unitresidential complex in September 2004. The Partnership is planning to sellthis property as condominiums and is in the process of obtaining necessarypermits and approvals. The Partnership’s share of loss on this investment was$80,605 and $67,672 for the three months ended March 31, 2006 and 2005,respectively. The increase in loss is due to the fees associated with preparingthe building as condominium units and ultimately ready for resale. ThePartnership is negotiating with the Town of Lexington regarding an affordablehousing component for the conversion to condominiums. It expects approval inthe third quarter of 2006. Thereafter the units will be marketed for sale. Thelender has extended the principal curtailment pay-downs pending this approval.There is one vacant unit at April 24, 2006.

**Essex 81, Boston, Massachusetts**

The Partnership invested in this property in March 2005.The property consists of 49 residential units, one commercial space, and a 50car surface parking lot. The Partnership’s share of loss on this investment is$51,653 and $12,175 for the three months ended March 31, 2006 and 2005respectively. There are no vacant units at April 24, 2006.

**1025 Hamilton, Quincy,Massachusetts**

The Partnership invested in a 176-unit propertyin March 2005. The Partnership plans to sell 127 units as condominiums. Asof April 24, 2006, 91 units have been sold, and seven units have beenreserved. The Partnership’s share of income on this investment for the threemonths ended March 31, 2006 is $35,678 which includes a gain on unit salesof $427,133. The Partnership’s share of loss on this investment for the three monthended March 31, 2005 was $25,363. There are 20 vacant units at April 24,2006.

**Hamilton Bay, Quincy, Massachusetts**

The Partnership invested $2,500,000 in a 168 unitapartment complex in Quincy, Massachusetts in October 2005. The purchaseprice was $30,875,000 and a $26,165,127 30-month mortgage with a floatinginterest rate (6.88%) of 2% over the 30 day Libor Index (4.88% at March 31,2006) was obtained to finance this acquisition. The Partnership plans to sellthe majority of units as condominiums and retain 48 units for long-terminvestment. The proceeds from the condominium sales will be used primarily toreduce the above-mentioned mortgage. Gains from the sales of units will betaxed at ordinary income rates. As of March 31, 2006, 13 units have beensold and an additional 13 units have a signed purchase and sales agreement. Thereare 24 vacant units at April 24, 2006.

On March 22, 2005, the Partnership sold theMiddlesex Apartments located in Newton, Massachusetts. The selling price was$6,500,000. The loss on discontinued operation for the three months ended March 31,2006 was $10,125 which represents state taxes paid. The operating profit forthe three months ended March 31, 2005 was

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$3,501 and the gain of $5,811,584, net of mortgageprepayment penalties of approximately $382,000 and selling expenses, areincluded in income from discontinued operations.  See Note 3 to the Consolidated FinancialStatements.

Interest income was approximately $93,000 for thethree months ended March 31, 2006 compared to approximately $38,000 forthe three months ended March 31, 2005, an increase of approximately$55,000 (145%). This increase reflects an increase in interest rates.

As a result of the changes discussed above, net incomefor the three months ended March 31, 2006 was $441,760 compared to$6,179,803 for the three months ended March 31, 2005, a decrease of$5,738,043 (92.8%).

**LIQUIDITY ANDCAPITAL RESOURCES**

The Partnership’s principal sources of cash during2006 and 2005 were the collection of rents, sale of a Partnership property andthe refinancing of a Partnership property in 2005.

The majority of cash and cash equivalents of$12,002,561 at March 31, 2006 and $12,049,392 at

December 31, 2005 were held in interest bearingaccounts at creditworthy financial institutions.

This decrease of$46,831 for the three months ended March 31, 2006 is summarized asfollows:

|                                                       | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                            | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| Cash provided by  operating activities                |       | $                                                | 2,078,790  |   | $ | 1,949,434 |   |
| Cash provided by  (used in) investing activities      |       | (718,947                                         | )          | 1,368,619 |   |
| Cash provided by  (used in) financing activities      |       | (195,870                                         | )          | 517,827 |   |
| Distributions  paid                                   |       | (1,210,804                                       | )          | (1,210,803 | ) |
| Net increase (decrease)  in cash and cash equivalents |       | $                                                | (46,831    | ) | $ | 2,625,077 |   |

 

The cash provided by operating activities is primarilydue to the net income plus depreciation expense as well as a non cash loss onthe investment in joint venture. The increase in cash used in investingactivities is due to the following  (i) thesale in March 2005 of a Partnership property resulting in proceeds ofapproximately $6,000,000 in 2005 and  (ii) continuedcapital improvements to Partnership properties in 2006. The increase in cashused in financing activities is due to the refinancing of a Partnershipproperty in 2005 resulting in an increase in cash of $2,000,000 in 2005.

During the three months ended March 31, 2006 thePartnership invested an additional $300,000 in the investment properties. Asdiscussed in Notes 14 to the Consolidated Financial Statements, the lenderrequires minimum principal payments as units are sold. The principal pay downsdue to unit sales as well as the continued capital improvements to theinvestment properties during the three months ended March 31, 2006 resultedin the need for an additional cash investment by the Partnership. See Note 14of the Consolidated Financial Statements for additional information on theinvestments and the related loss on these investments.

The Partnership paid a quarterly distribution of $7.00per unit ($0.70 per depositary receipts) on March 31, 2006 for a totaldistribution of $ 1,210,804.  Managementanticipates that similar distributions will continue to be made during 2006.

As discussed in Note 3 to the Consolidated Financials Statements,the Partnership purchased five condominiums in a 42-unit building locatedin Brookline, Massachusetts. In connection with the acquisition, thePartnership obtained a mortgage of $1,600,000 due in August 2006. ThePartnership plans to refinance this mortgage or request an extension.

During the three months ended March 31, 2006, thePartnership and its Subsidiary Partnerships completed certain improvements totheir properties at a total cost of approximately $419,000. The mostsignificant

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improvements were made at the following properties:approximately $104,000 at Westside Colonial in Brockton, Massachusetts;approximately $40,000 at Hamilton Oaks in Brockton, Massachusetts;approximately $34,000 at  School Streetin Framingham, Massachusetts; and approximately $30,000 at 62 Boylston Streetin Boston,  Massachusetts. All suchimprovements were funded from the Partnership’s cash reserves and escrowaccounts established in connection with the financing of applicable properties.

In addition to the improvements made to date in 2006,the Partnership and its Subsidiary Partnerships plan to invest approximately$1,570,000 in capital improvements during the balance of 2006, the majority ofwhich will be spent at 1144 Commonwealth Avenue, Westside Colonial, 62Boylston, and Westgate Woburn. These improvements will be funded from escrowaccounts established in connection with the financing of applicable properties,as well as from the Partnership’s cash.

As of March 31, 2006, the Partnership had a 50%ownership in six joint ventures, all of which have mortgage indebtedness. We donot have control of these partnerships and therefore we account for them usingthe equity method of consolidation. At March 31, 2006, our proportionateshare of the non-recourse debt related to these investments was equal toapproximately $41,500,000. See Note 14 to the Consolidated Financial Statementsfor  details of the investment propertiesincluding results of operations, equity and units sales.

The Partnership anticipates that cash from operationsand interest-bearing investments will be sufficient to fund its currentoperations, finance current improvements to its properties and meet bankobligations on current mortgages. 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.

**ContractualObligations**

Please see Note 5 to the Consolidated FinancialStatements for a description of mortgage notes payable. The Partnerships haveno other contractual obligation to be disclosed.

**Factors That May AffectFuture 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 reflect management’s good faith beliefs whenthose statements are made, caution should be exercised in interpreting andrelying on such forward looking statements, the realization of which may beimpacted by known and unknown risks and uncertainties, events that may occursubsequent to the forward-looking statements, and other factors which may bebeyond the Partnership’s control and which can materially affect thePartnership’s actual results, performance or achievements for 2006 and beyond.

Along with risks detailed from time to time in thePartnership’s filings with the Securities and Exchange Commission, some factorsthat could cause the Partnership’s actual results, performance or achievementsto differ materially from those expressed or implied by forward-lookingstatements include but are not limited to the following:

The Partnership depends on the real estate marketswhere its properties are located, primarily in Eastern Massachusetts and thesemarkets may be adversely affected by local economic market conditions, whichare beyond the Partnership’s control.

The Partnership is subject to the general economicrisks 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. ThePartnership is also impacted by changing economic conditions making alternativehousing arrangements more or less attractive to the Partnership’s tenants, suchas the interest rates on single family home mortgages and the availability andpurchase price of single-family homes in the Greater Boston metropolitan area.

The Partnership is subject to significant expendituresassociated with each investment, such as debt service payments, real estatetaxes, insurance and maintenance costs, which are generally not reduced when circumstancescause a reduction in revenues from a property.

The Partnership is subject to increases in heating andutility costs that may arise as a result of economic and market conditions andfluctuations in seasonal weather conditions.

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Civil disturbances, earthquakes and other naturaldisasters may result in uninsured or underinsured loses.

Actual or threatened terrorist attacks may adverselyaffect our ability to generate revenues and the value of our properties.

Financing or refinancing of Partnership properties maynot be available to the extent necessary or desirable, or may not be availableon favorable terms.

The Partnership properties face competition fromsimilar properties in the same market. This competition may affect thePartnership’s ability to attract and retain tenants and may reduce the rentsthat can be charged.

Given the nature of the real estate business, thePartnership is subject to potential environmental liabilities. These includeenvironmental contamination in the soil at the Partnership’s or neighboringreal estate, whether caused by the Partnership, previous owners of the subjectproperty or neighbors of the subject property, and the presence of hazardousmaterials in the Partnership’s buildings, such as asbestos, mold and radon gas.Management is not aware of any material environmental liabilities at this time.

Insurance coverage for and relating to commercialproperties is increasingly costly and difficult to obtain. In addition,insurance carriers have excluded certain specific items from standard insurancepolicies, which have resulted in increased risk exposure for the Partnership. Theseinclude insurance coverage for acts of terrorism and war, and coverage for moldand other environmental conditions. Coverage for these items is eitherunavailable, or prohibitively expensive.

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

Changes in the tax laws and regulations may affect theincome taxable to owners of the Partnership. These changes may affect theafter-tax value of future distributions.

The Partnership may fail to identify, acquire,construct, or develop additional properties; may develop or acquire propertiesthat do not produce a desired or expected yield on invested capital; may beunable to sell poorly-performing or otherwise undesirable properties quickly;or may fail to effectively integrate acquisitions of properties or portfoliosof properties.

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

Competition for acquisitions may result in increasedprices for properties.

The sale of condominium units may not generate enoughnet proceeds to pay the minimum curtailment payments required at the InvestmentProperties. The Partnership may be required to fund any deficiencies.

Any weakness identified in the Partnership’s internalcontrols as part of the evaluation being undertaken by the Company and itsindependent 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 of 2002 mayrequire additional personnel or system changes.

The foregoing factors should not be construed asexhaustive or as an admission regarding the adequacy of disclosures made by thePartnership prior to the date hereof or the effectiveness of said Act. ThePartnership expressly disclaims any obligation to publicly update or revise anyforward-looking statement, whether as a result of new information, futureevents or otherwise.

The residential real estate market in the GreaterBoston area continues to be competitive and the Partnership anticipates theclimate will remain the same in the foreseeable future. This may result inincreases in vacancy rates and/or a reduction in rents. The Partnershipbelieves its present cash reserves as well as anticipated rental revenue willbe sufficient to fund its current operations, and to finance current plannedimprovements to its properties and continue dividend payments in theforeseeable future.

Since the Partnership’s long-term goals include theacquisition of additional properties, a portion of the proceeds from therefinancing and sale of properties is reserved for this purpose. ThePartnership will consider

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refinancing existing properties if the Partnership’scash reserves are insufficient to repay existing mortgages or if thePartnership needs additional funds for future acquisitions.

**Item 3 —QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISK**

As of March 31, 2006, the Partnership and itssubsidiary Partnerships collectively have approximately $115,400,000 inlong-term debt, all of which have fixed interest rates. Accordingly, the fairvalue of these debt instruments is affected by changes in market interest rates.For information regarding the fair value and maturity dates of these debtobligations, see Notes 5 and 12 to the Consolidated Financial Statements.

For additional disclosures about market risk, see “Item2 — Management’s Discussion and Analysis of Financial Condition and Results ofOperations — 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) underthe Securities Exchange Act of 1934, as amended) and have determined that suchdisclosure controls and procedures are adequate. There have been no significantchanges in internal controls or in other factors that could significantlyaffect our internal controls since the date of evaluation. We do not believeany significant deficiencies or material weaknesses exist in our internalcontrols. Accordingly, no corrective actions have been taken. We continue toreview and document our disclosure controls and procedures, including ourinternal controls over financial reporting, and may from time to time, makechanges aimed at enhancing their effectiveness and to ensure our systems evolvewith our business.

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**PART II - OTHER INFORMATION**

**Item 1.**                            Legal Proceedings

None.

**Item 2.**                            Unregistered Sale of Equity Securities and Use ofProceeds

None.

**Item 3.**                            Defaults Upon Senior Securities

None.

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

None.

**Item 5.**                            Other Information

None.

**Item 6.**                            Exhibits

(a)             Seethe exhibit index below.

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**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
| Date:   May 10, 2006 |                                                                                                                   |                    |
|--------------------------------|------------------------------------------------------------------------------------------------------------------------|-------------------------|
|                           |                                                                                                                   |                    |
|                           |                                                                                                                   |                    |
|                           | 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 Acounting Officer |

 

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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). |       |

 

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