**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

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**Form 10-Q**

 

**(Mark One)**

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

 

**For the transition period from                     to                     **

 

**Commission file number 0-12138                   **

 

**NewEngland Realty Associates Limited Partnership**

(Exact name of registrant as specified in its charter)

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

 

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

 

**NotApplicable**

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

 

Indicate bycheck ý whether theregistrant: (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes o  Noý

 

 

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**INDEX**

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

 

2

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**NEW ENGLAND REALTYASSOCIATES, L.P.**

 

**PART 1 – FINANCIAL INFORMATION**

 

Item 1.  Financial Statements

 

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

 

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

 

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

 

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

 

**CONSOLIDATED BALANCE SHEETS**

 
| ** **                                       | ** ** | **June 30,  2005** | ** **  | **December 31,  2004** | ** ** |
|--------------------------------------------------|------------|-------------------------|-------------|-----------------------------|------------|
| ** **                                       | ** ** | **(Unaudited)**         | ** **  | **(Audited)**               | ** ** |
| **ASSETS**                                       |       |                    |        |                        |       |
| Rental Properties                                |       | $                       | 104,201,928 |                        | $          | 105,884,559 |   |
| Rental Properties Held for Sale                  |       | —                  |        | 406,805                     |       |
| Cash and Cash Equivalents                        |       | 12,224,244              |        | 9,862,810                   |       |
| Rents Receivable                                 |       | 581,417                 |        | 586,983                     |       |
| Real Estate Tax Escrows                          |       | 733,320                 |        | 736,608                     |       |
| Prepaid Expenses and Other Assets                |       | 2,801,483               |        | 2,625,798                   |       |
| Investment in Partnerships                       |       | 15,153,170              |        | 10,233,188                  |       |
| Financing and Leasing Fees                       |       | 619,819                 |        | 640,542                     |       |
|                                             |       |                    |        |                        |       |
| **Total Assets**                                 |       | $                       | 136,315,381 |                        | $          | 130,977,293 |   |
|                                             |       |                    |        |                        |       |
| **LIABILITIES AND PARTNERS’ CAPITAL**       |       |                    |        |                        |       |
| Mortgage Notes Payable                           |       | $                       | 115,951,768 |                        | $          | 115,615,800 |   |
| Accounts Payable and Accrued Expenses            |       | 1,420,127               |        | 1,505,390                   |       |
| Advance Rental Payments and Security  Deposits   |       | 3,381,653               |        | 3,386,547                   |       |
|                                             |       |                    |        |                        |       |
| **Total Liabilities**                            |       | 120,753,548             |        | 120,507,737                 |       |
|                                             |       |                    |        |                        |       |
| Commitments and Contingent Liabilities  (Note 9) |       |                    |        |                        |       |
|                                             |       |                    |        |                        |       |
| Partners’ Capital                           |       |                    |        |                        |       |
| 173,252 units outstanding in 2005 and 2004       |       | 15,561,833              |        | 10,469,556                  |       |
|                                             |       |                    |        |                        |       |
| **Total Liabilities and Partners’ Capital** |       | $                       | 136,315,381 |                        | $          | 130,977,293 |   |

 

See notes to consolidated financial statements.

 

3

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**NEWENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF INCOME**

**(UNAUDITED)**

 
| ** **                                                       | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------------------------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                                                       | ** ** | **2005**                              | ** ** | **2004**                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenue                                                          | ** ** | ** **                            | ** ** | ** **                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Rental income                                                    | ** ** | $                                     | 7,812,890  |                                | $          | 7,602,850 |   | $ | 15,610,188 |   | $ | 15,245,568 | ** ** |
| Laundry and sundry income                                        |       | 87,944                                |       | 79,474                              |       | 204,056 |   | 160,924 |   |
|                                                             |       | 7,900,834                             |       | 7,682,324                           |       | 15,814,244 |   | 15,406,492 |   |
| Expense                                                          |       |                                  |       |                                |       |   |   |   |   |
| Administrative                                                   |       | 319,527                               |       | 317,766                             |       | 659,318 |   | 644,157 |   |
| Depreciation and amortization                                    |       | 1,583,964                             |       | 1,438,050                           |       | 3,103,455 |   | 2,901,674 |   |
| Interest                                                         |       | 1,944,407                             |       | 1,946,406                           |       | 3,881,882 |   | 3,921,181 |   |
| Management fees                                                  |       | 325,036                               |       | 315,302                             |       | 640,744 |   | 629,456 |   |
| Operating                                                        |       | 766,167                               |       | 694,780                             |       | 2,177,624 |   | 1,774,668 |   |
| Renting                                                          |       | 154,917                               |       | 130,966                             |       | 257,769 |   | 235,365 |   |
| Repairs and maintenance                                          |       | 1,275,341                             |       | 1,188,856                           |       | 2,289,812 |   | 2,249,421 |   |
| Taxes and insurance                                              |       | 925,741                               |       | 869,588                             |       | 1,829,891 |   | 1,741,779 |   |
|                                                             |       | 7,295,100                             |       | 6,901,714                           |       | 14,840,495 |   | 14,097,701 |   |
|                                                             |       |                                  |       |                                |       |   |   |   |   |
| Income Before Other Income                                       |       | 605,734                               |       | 780,610                             |       | 973,749 |   | 1,308,791 |   |
|                                                             |       |                                  |       |                                |       |   |   |   |   |
| Other Income (Loss)                                              |       |                                  |       |                                |       |   |   |   |   |
| Interest income                                                  |       | 59,581                                |       | 64,556                              |       | 97,908 |   | 134,723 |   |
| Income (Loss) from investment in joint  ventures                 |       | 709,106                               |       | (41,022                             | )          | 667,482 |   | (73,052 | ) |
|                                                             |       | 768,687                               |       | 23,534                              |       | 765,390 |   | 61,671 |   |
|                                                             |       |                                  |       |                                |       |   |   |   |   |
| Income from Continuing Operations                                |       | 1,374,421                             |       | 804,144                             |       | 1,739,139 |   | 1,370,462 |   |
|                                                             |       |                                  |       |                                |       |   |   |   |   |
| Discontinued Operations                                          |       |                                  |       |                                |       |   |   |   |   |
| Income from discontinued operations                              |       | 882                                   |       | 32,263                              |       | 4,383 |   | 48,564 |   |
| Gain (Loss) on sale of real estate from  discontinued operations |       | (41,221                               | )          | —                              |       | 5,770,363 |   | — |   |
|                                                             |       | (40,339                               | )          | 32,263                              |       | 5,774,746 |   | 48,564 |   |
|                                                             |       |                                  |       |                                |       |   |   |   |   |
| Net Income                                                       | ** ** | $                                     | 1,334,082  |                                | $          | 836,407 |   | $ | 7,513,885 |   | $ | 1,419,026 | ** ** |
|                                                             |       |                                  |       |                                |       |   |   |   |   |
| Income per Unit                                                  |       |                                  |       |                                |       |   |   |   |   |
| Income before discontinued operations                            |       | 7.93                                  |       | 4.64                                |       | 10.04 |   | 7.91 |   |
| Income (Loss) from discontinued operations                       |       | (.23                                  | )          | .19                                 |       | 33.33 |   | .28 |   |
|                                                             |       | 7.70                                  |       | 4.83                                |       | 43.37 |   | 8.19 |   |
|                                                             |       |                                  |       |                                |       |   |   |   |   |
| Net Income per Unit                                              | ** ** | $                                     | 7.70       |                                | $          | 4.83 |   | $ | 43.37 |   | $ | 8.19 | ** ** |
|                                                             |       |                                  |       |                                |       |   |   |   |   |
| Weighted Average Number of Units  Outstanding                    |       | 173,252                               |       | 173,252                             |       | 173,252 |   | 173,252 |   |

 

See notes to consolidated financialstatements.

 

4

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**NEW ENGLAND REALTY ASSOCIATES LIMITEDPARTNERSHIP AND SUBSIDIARIESCONSOLIDATED STATEMENTOF CHANGES IN PARTNERS’ CAPITAL**

 

**(UNAUDITED)**

 
| ** **                                                                      | ** ** | **Limited**      | ** ** | **General**      | ** ** | ** **      | ** ** |
|---------------------------------------------------------------------------------|------------|------------------|------------|------------------|------------|-----------------|------------|
| ** **                                                                      | ** ** | **Class A** | ** ** | **Class B** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Balance, January 1, 2004                                                   |       | $                | 10,846,650 |             | $          | 2,579,532       |       | $ | 135,795 |   | $ | 13,561,977 |   |
|                                                                            |       |             |       |             |       |            |       |   |   |
| Distribution to Partners                                                        |       | (1,826,954       | )          | (433,901         | )          | (22,837         | )          | (2,283,692 | ) |
|                                                                            |       |             |       |             |       |            |       |   |   |
| Net Income                                                                      |       | 1,135,221        |       | 269,615          |       | 14,190          |       | 1,419,026 |   |
|                                                                            |       |             |       |             |       |            |       |   |   |
| Balance, June 30, 2004                                                     |       | $                | 10,154,917 |             | $          | 2,415,246       |       | $ | 127,148 |   | $ | 12,697,311 |   |
|                                                                            |       |             |       |             |       |            |       |   |   |
| Units authorized and Issued, net of 6,973  Treasury Units at June 30, 2004 |       | 138,602          |       | 32,918           |       | 1,732           |       | 173,252 |   |
|                                                                            |       |             |       |             |       |            |       |   |   |
| Balance, January 1, 2005                                                   |       | $                | 8,372,714  |             | $          | 1,991,972       |       | $ | 104,870 |   | $ | 10,469,556 |   |
|                                                                            |       |             |       |             |       |            |       |   |   |
| Distribution to Partners                                                        |       | (1,937,286       | )          | (460,106         | )          | (24,216         | )          | (2,421,608 | ) |
|                                                                            |       |             |       |             |       |            |       |   |   |
| Net Income                                                                      |       | 6,011,109        |       | 1,427,638        |       | 75,138          |       | 7,513,885 |   |
|                                                                            |       |             |       |             |       |            |       |   |   |
| Balance, June 30, 2005                                                     |       | $                | 12,446,537 |             | $          | 2,959,504       |       | $ | 155,792 |   | $ | 15,561,833 |   |
|                                                                            |       |             |       |             |       |            |       |   |   |
| Units authorized and Issued, net of 6,973  Treasury Units at June 30, 2005 |       | 138,602          |       | 32,918           |       | 1,732           |       | 173,252 |   |

 

See notes to consolidated financialstatements

 

5

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

 
| ** **                                                                         | ** ** | **Six Months Ended  June 30,  (Unaudited)** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                         | ** ** | **2005**                                         | ** ** | **2004** | ** ** |
| Cash Flows from Operating Activities                                               |       |                                             |       |   |   |
| Net income                                                                         | ** ** | $                                                | 7,513,885  |   | $ | 1,419,026 |   |
|                                                                               |       |                                             |       |   |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |       |                                             |       |   |   |
| Depreciation and amortization                                                      |       | 3,122,360                                        |       | 2,921,669 |   |
| (Income) loss from investments in joint  venture                                   |       | (667,482                                         | )          | 73,052 |   |
| (Income) on sale of rental properties                                              |       | (5,770,363                                       | )          | — |   |
| Change in operating assets and liabilities                                         |       |                                             |       |   |   |
| (Increase) decrease in rents receivable                                            |       | 5,566                                            |       | (58,706 | ) |
| (Increase) in financing and leasing fees                                           |       | (44,854                                          | )          | — |   |
| Increase in accounts payable and accrued  expense                                  |       | (85,264                                          | )          | 142,730 |   |
| (Increase) decrease in real estate tax  escrow                                     |       | 3,288                                            |       | (17,741 | ) |
| Increase (Decrease) in prepaid expenses and  other assets                          |       | (184,459                                         | )          | (102,966 | ) |
| (Decrease) in advance rental payments and  security deposits                       |       | (4,894                                           | )          | 268,693 |   |
|                                                                               |       |                                             |       |   |   |
| Total Adjustments                                                                  |       | (3,626,102                                       | )          | 3,226,731 |   |
|                                                                               |       |                                             |       |   |   |
| Net cash provided by operating activities                                          |       | 3,887,783                                        |       | 4,645,757 |   |
|                                                                               |       |                                             |       |   |   |
| Cash Flows Used in Investing Activities                                            |       |                                             |       |   |   |
| (Investment in) partnerships                                                       |       | (4,252,500                                       | )          | — |   |
| Purchase and improvement of rental  properties                                     |       | (1,357,627                                       | )          | (4,343,851 | ) |
| Net proceeds from the sale of rental properties                                    |       | 6,169,417                                        |       | — |   |
|                                                                               |       |                                             |       |   |   |
| Net cash provided by (used in) investing  activities                               |       | 559,290                                          |       | (4,343,851 | ) |
|                                                                               |       |                                             |       |   |   |
| Cash Flows Used in Financing Activities                                            |       |                                             |       |   |   |
| Proceeds of mortgage notes payable                                                 |       | 2,000,000                                        |       | — |   |
| Principal payments of mortgage notes  payable                                      |       | (1,664,032                                       | )          | (355,990 | ) |
| Distribution to partners                                                           |       | (2,421,607                                       | )          | (2,283,692 | ) |
|                                                                               |       |                                             |       |   |   |
| Net cash (used in) financing activities                                            |       | (2,085,639                                       | )          | (2,639,682 | ) |
|                                                                               |       |                                             |       |   |   |
| Net Increase (Decrease) in Cash and Cash  Equivalents                              |       | 2,361,434                                        |       | (2,337,776 | ) |
| Cash and Cash Equivalents, at beginning of  period                                 |       | 9,862,810                                        |       | 24,362,328 |   |
|                                                                               |       |                                             |       |   |   |
| Cash and Cash Equivalents, at end of period                                        | ** ** | $                                                | 12,224,244 |   | $ | 22,024,552 |   |

 

See notes to consolidated financialstatements.

 

6

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**NEWENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIESNOTES TO CONSOLIDATEDFINANCIAL STATEMENTS****JUNE 30, 2005**

 

**NOTE1.    SIGNIFICANT ACCOUNTING POLICIES**

 

*Line ofBusiness:*  New England Realty Associates LimitedPartnership (“NERA” or the “Partnership”) was organized in Massachusetts during1977. NERA and its subsidiaries own and operate various residential apartmentbuildings, condominium units and commercial properties located in Massachusettsand New Hampshire. NERA has also made investments in other real estatepartnerships and has participated in other real estate-related activities,primarily located in Massachusetts. In connection with the mortgages referredto in Note 5, a substantial number of NERA’s properties are owned by separatesubsidiaries without any change in the historical cost basis.

 

*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 three limitedliability companies (the “Investment Properties”) in which the Partnership hasa 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 theabove-mentioned limited liability companies using the equity method ofconsolidation. (See Note 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 aredepreciated on a straight-line basis over their estimated useful lives.

 

In the event that factsand circumstances indicate that the carrying value of a rental property may beimpaired, an analysis of recoverability is prepared. The estimated futureundiscounted cash flows are compared to the assets carrying value to determineif a write-down to fair value 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 the corresponding fee is nolonger applicable.

 

*IncomeTaxes:*  The financial statements have been preparedunder the basis that NERA and its subsidiaries are entitled to tax treatment aspartnerships. Accordingly, no provision for income taxes has been recorded.

 

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

 

*SegmentReporting:*  Operating segments arerevenue-producing components of the Partnership for which separate financial informationis produced internally for management. Under the definition, NERA operated, forall periods presented, as one segment.

 

*ComprehensiveIncome:*  Comprehensive income is defined as changesin partners’ equity, exclusive of transactions with owners (such as capitalcontributions and dividends). NERA did not have any comprehensive income itemsin 2005 or 2004 other than net income as reported.

 

7

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*IncomePer Unit:*  Net income per unit has been calculatedbased upon the weighted average number of units outstanding during each yearpresented. The Partnership has no dilutive units and, therefore, basic netincome is the same as diluted net income per unit (see Note 7).

 

*Concentrationof Credit Risks and Financial Instruments:*  ThePartnerships’ properties are located in New England, and the Partnerships aresubject to the general economic risks related thereto.  No single tenantaccounted for more than 5% of the Partnerships’ revenues in 2005 or 2004. The Partnerships make their temporary cash investments with high-credit-qualityfinancial institutions.  At June 30, 2005, substantially all of thePartnerships’ cash and cash equivalents were held in interest-bearing accountsat financial institutions, earning interest at rates from 1.34% to 2.4%. At June 30, 2005 and December 31, 2004 approximately $13,000,000 and$9,000,000 of cash and cash equivalents exceeded federally insured amounts.

 

*AdvertisingExpense:*  Advertising is expensed as incurred.Advertising expense was $68,991and $107,096 for the six months ended June 30,2005 and 2004, respectively.

 

*DiscontinuedOperations and Rental Property Held for Sale:*When assets areidentified by management as held for sale, the Partnership discontinuesdepreciating the assets and estimates the sales price, net of selling costs, ofsuch assets.  If, in management’sopinion, the net sales price of the assets which have been identified as heldfor sale is less than the net book of the assets, a valuation allowance is established.  Properties identified as held for sale and/orsold are presented in discontinued operations for all periods presented.

 

If circumstances arisethat previously were considered unlikely and, as a result, the Partnershipdecides not to sell a property previously classified as held for sale, theproperty is reclassified as held and used. A property that is reclassified is measured and recorded individually atthe lower of (a) its carrying amount before the property was classified asheld for sale, adjusted for any depreciation (amortization) expense that wouldhave been recognized that the property been continuously classified as held andused, or (b) the fair value at the date of the subsequent decision not tosell.

 

*InterestCapitalized:*  The Companyfollows the policy of capitalizing interest as a component of the cost ofrental property when the time of construction exceeds one year.  During the year ended December 31, 2004,the Company capitalized interest of approximately $125,000.

 

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

 

**NOTE2.    RENTAL PROPERTIES**

 

As of June 30, 2005,the Partnership and its Subsidiary Partnerships owned 2,378 residential apartmentunits in 22 residential and mixed-use complexes (collectively, the “ApartmentComplexes”).  The Partnership also owns 24 condominium units in tworesidential condominium complexes, all of which are leased to residentialtenants (collectively referred to as the “Condominium Units”).  TheApartment Complexes and Condominium Units are located primarily in the greatermetropolitan Boston, Massachusetts area.

 

Additionally,as of June 30, 2005, the Subsidiary Partnerships owned commercial shoppingcenters in Framingham, Massachusetts and mixed-use properties in Boston,Brockton and Newton, Massachusetts.  These properties are referred tocollectively as the “Commercial Properties.”

 

In March 2005,the Partnership sold the Middlesex Apartments to an entity wholly owned by themajority shareholder of the General Partner. The selling price was $6,500,000 which resulted in a capital gain forthe Partnership of approximately $5,800,000 and an increase in the Partnership’scash reserves by approximately $4,800,000 after payment of the existing$1,300,000 mortgage, prepayment penalties and other selling expenses. The buyeris selling the property as condominium units. An entity 31% owned by themajority shareholder of the General Partner and 5% owned by the President ofthe management company is the sales agent and will receive a variablecommission of 3% to 5% on each sale. Total commissions were $92,000 for the six months ended June 30,2005.  Although the buyer is assuming thecosts and economic risks of converting and selling the condominium units, ifthe net gains from the sale of these units exceed $500,000, the excess will besplit equally between the buyer and the Partnership.

 

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

 

8

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Rentalproperties consist of the following:

 
| ** **                          | ** ** | **June 30, 2005** | ** **  | **December 31, 2004** | ** ** | **Useful Life** | ** ** |
|-------------------------------------|------------|------------------------|-------------|----------------------------|------------|-----------------|------------|
| Land, improvements and parking lots |       | $                      | 23,170,689  |                       | $          | 23,168,229      |       | 10-31 years |   |
| Buildings and improvements          |       | 105,795,796            |        | 105,631,294                |       | 15-31 years     |       |
| Kitchen cabinets                    |       | 3,853,308              |        | 3,371,139                  |       | 5-10 years      |       |
| Carpets                             |       | 3,247,378              |        | 2,895,045                  |       | 5-10 years      |       |
| Air conditioning                    |       | 778,508                |        | 737,030                    |       | 7-10 years      |       |
| Laundry equipment                   |       | 194,481                |        | 185,254                    |       | 5-7 years       |       |
| Elevators                           |       | 668,519                |        | 560,838                    |       | 20 years        |       |
| Swimming pools                      |       | 142,428                |        | 142,429                    |       | 10 years        |       |
| Equipment                           |       | 1,557,281              |        | 1,504,555                  |       | 5-7 years       |       |
| Motor vehicles                      |       | 126,483                |        | 126,483                    |       | 5 years         |       |
| Fences                              |       | 269,031                |        | 244,869                    |       | 5-10 years      |       |
| Furniture and fixtures              |       | 4,390,795              |        | 4,236,547                  |       | 5-7 years       |       |
| Smoke alarms                        |       | 120,423                |        | 116,496                    |       | 5-7 years       |       |
| Construction in progress            |       | 18,192                 |        | 17,692                     |       | —          |       |
|                                |       |                   |        |                       |       |            |       |
|                                |       | 144,333,312            |        | 142,937,900                |       |            |       |
| Less accumulated depreciation       |       | 40,131,384             |        | 37,053,341                 |       |            |       |
|                                |       |                   |        |                       |       |            |       |
|                                |       | $                      | 104,201,928 |                       | $          | 105,884,559     |       |   |   |

 

Additionally, as of June 30, 2005, thePartnership owned a 50% ownership interest in five residential and condominiumcomplexes (the Investment Properties) with a total of 562 units.  See Note 14 to the consolidated financialstatements for additional information on these investments.

 

**NOTE3.    RELATED PARTY TRANSACTIONS**

 

The Partnerships’ properties are managed by an entitythat is owned by the majority shareholder of the General Partner. Themanagement fee is equal to 4% of rental revenue and laundry income. Total feespaid were approximately $643,000 and $638,000 for the six months ended June 30,2005 and 2004, respectively.

 

The Partnership Agreement permits the General Partneror management company to charge the costs of professional services (such ascounsel, accountants and contractors) to NERA. In the six months ended June 30,2005 and 2004, approximately $295,000 and $2,537,000 respectively, was chargedto NERA for legal, construction, maintenance, rental and architectural servicesand supervision of capital improvements. Of the 2005 expenses referred toabove, approximately $151,000 consisted of repairs and maintenance and $65,000of administrative expense; approximately $61,000 of construction, architecturalservices and supervision of capital projects was capitalized in rentalproperties and approximately $18,000 for rental commissions.  Of the 2004 expenses referred to above,approximately $100,000 consisted of repairs and maintenance and $81,000 ofadministrative expense; approximately $2,355,000 of construction, architecturalservices and supervision of capital projects was capitalized in rentalproperties. Additionally in each of the quarters ended June 30, 2005 and2004, the Partnership paid to the management company $20,000 for in-houseaccounting services. Included in accounts payable and accrued expenses at June 30,2005 and December 31, 2004 is $136,966 and $147,195, respectively, due tothe management company. The Partnership Agreement entitles the General Partneror the management company to receive certain commissions upon the sale ofPartnership property only to the extent that total commissions do not exceed3%. No commissions were paid during the year ended December 31, 2004 andthrough June 30, 2005.

 

The Hamilton Company also received fees ofapproximately $383,000 from the Investment Properties of which approximately$153,000 was the management fee and $188,000 for construction, constructionsupervision and architectural fees and $15,000 for other services.  Additionally, as more fully described in Note2 and 14, an entity partially owned by the majority shareholder of the GeneralPartner is the sales agent for certain condominium sales receivingapproximately $372,000 of commissions through June 30, 2005.

 

9

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On January 1, 2004, NERA’S employeeswere transferred to the management company’s payroll.  The Partnership and Investment Propertiesreimbursed the management company for the payroll and related expenses of theemployees directly employed by the NERA properties.  Total reimbursement was approximately$1,161,000 for the three months ended June 30, 2005.

 

In 1996, prior to becoming an employee and Presidentof the management company, the current President performed asset managementconsulting services to the Partnership. This individual continues to performthis service and to receive an asset management fee from the Partnership,receiving $25,000 for the six months ended June 30, 2005 and $50,000 for theyear ended December 31, 2004.

 

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

 

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

 

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

 

**NOTE4.    OTHER ASSETS**

 

Included in prepaid expenses and other assets at June 30,2005 and December 31, 2004 is approximately $490,000 and $536,000,respectively, held in escrow to fund future capital improvements.

 

Financing and leasing fees of $619,819 and $640,542are net of accumulated amortization of $412,497 and $371,604 at June 30,2005 and December 31, 2004, respectively.

 

**NOTE5.    MORTGAGE NOTES PAYABLE**

 

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

 

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

 

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

 
| 2006-  current maturities |   | $          | 777,000     | ** ** |
|---------------------------|--------|------------|-------------|------------|
| 2007                      |   | 2,618,000  |        |
| 2008                      |   | 1,131,000  |        |
| 2009                      |   | 5,707,000  |        |
| 2010                      |   | 11,470,000 |        |
| Thereafter                |   | 94,248,000 |        |
|                      |   |       |        |
|                      |   | $          | 115,951,000 |       |

 

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

 

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

 

10

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

 

**NOTE 6.    ADVANCE RENTAL PAYMENTS AND SECURITYDEPOSITS**

 

The lease agreements requirethe majority of tenants to maintain a one-month advance rental payment plussecurity deposits.  Amounts received for prepaid rents of approximately$1,911,000 are included in cash and cash equivalents and security deposits ofapproximately $1,158,000 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 thePartnership Agreement, Class B Units and General Partnership Units mustrepresent 19% and 1%, respectively, of the total units outstanding.  Allclasses have equal profit sharing and distribution rights, in proportion totheir ownership interests.

 

In February 2005, the Partnership approved aquarterly distribution of $7.00 per unit ($.70 per receipt) payable on March 31,2005.  In addition, in August 2005,the Partnership approved a quarterly distribution of $7.00 per unit ($.70 perreceipt) payable on September 30, 2005.

 

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

 

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

 
| ** **                                                       | ** ** | **Six months ended June 30,** | ** ** |
|------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                       | ** ** | **2005**                           | ** ** | **2004** | ** ** |
| Income per Depositary Receipt before  Discontinued Operations    |       | $                                  | 1.00       |   | $ | .79 |   |
| Income from Discontinued Operations                              |       | 3.33                               |       | .03 |   |
| Net Income per Depositary Receipt after  Discontinued Operations |       | $                                  | 4.33       |   | $ | .82 |   |

 

**NOTE8.    TREASURY UNITS**

 

Treasury units at June 30, 2005 are as follows:

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

 

**NOTE9.    COMMITMENTS AND CONTINGENCIES**

 

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

 

11

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**NOTE10.    RENTAL INCOME**

 

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

 
| ** ** | ** ** | **Commercial  Property  Leases** | ** ** |
|------------|------------|----------------------------------|------------|
| 2006       |       | $                                | 1,664,000  |   |
| 2007       |       | 1,643,000                        |       |
| 2008       |       | 1,584,000                        |       |
| 2009       |       | 1,515,000                        |       |
| 2010       |       | 1,239,000                        |       |
| Thereafter |       | 4,389,000                        |       |
|       |       |                             |       |
|       |       | $                                | 12,034,000 |   |

 

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$188,000 for the six months ended June 30, 2005 and $364,000 for the yearended December 31, 2004, respectively.

 

Rents receivable are net of allowances for doubtfulaccounts of $401,989 and $276,046 at June 30, 2005 and December 31,2004, respectively. Included in rents receivable is approximately $395,000resulting from recognizing rental income from non-cancelable commercial leaseswith future rental increases on a straight-line basis.  The majority ofthis amount is for a long-term lease with Staples at Staples Plaza inFramingham, Massachusetts.

 

**NOTE11.    CASH FLOW INFORMATION**

 

During the six months ended June 30, 2005 and2004, cash paid for interest was $3,891,708 and $3,952,000 respectively. The2004 amount is net of capitalization of construction period interest ofapproximately $40,000 for the construction of Courtyard at Westgate in Woburn,MA.

 

**NOTE12.    FAIR VALUE OF FINANCIAL INSTRUMENTS**

 

The following methods andassumptions were used by the Partnership in estimating the fair value of itsfinancial instruments:

 

•      Forcash and cash equivalents, other assets, investment in partnerships, accountspayable, advance rents and security deposits: fair value approximates thecarrying value of such assets and liabilities.

 

•      Formortgage notes payable: fair value is generally based on estimated future cashflows, which are discounted using the quoted market rate from an independentsource for similar obligations. Refer to the table below for the carryingamount and estimated fair value of such instruments.

 
| ** **                | ** ** | **Carrying  Amount** | ** **  | **Estimated  Fair Value** | ** ** |
|---------------------------|------------|----------------------|-------------|---------------------------|------------|
| Mortgage Notes Payable    |       |                 |        |                      |       |
| At June 30, 2005     |       | $                    | 115,951,768 |                      | $          | 123,555,654 |   |
| At December 31, 2004 |       | $                    | 115,615,800 |                      | $          | 122,123,808 |   |

 

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

 

**NOTE13.    TAXABLE INCOME AND TAX BASIS**

 

Taxable income reportable by the Partnership andincludable in its partner’s tax returns is different than financial statementincome because of accelerated depreciation, different tax lives, and timingdifferences related to prepaid rents and allowances.  Taxable income isapproximately $263,000 greater than statement income for the six months ended June 30,2005 and approximately $1,400,000 less than statement income for the year endedDecember 31, 2004.  The cumulative tax basis of the Partnership’sreal estate at June 30, 2005 is approximately $145,000 less than thestatement basis. The depreciation rules that generated substantialdeductions in 2004 and 2003 expired in 2004, accordingly taxable income infuture years is expected to increase.

 

**NOTE14—INVESTMENT IN PARTNERSHIPS**

 

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

 

On March 7,2005, the Partnership invested $1,800,000 for a 50% ownership interest in abuilding comprising 49 apartments, one commercial space and a 50-car surfaceparking lot located in Boston, Massachusetts. The purchase price was$14,300,000, and a $10,750,000 30-month mortgage with a floating interest rateof 2% over the 30 day Libor Index (5.34% at June 30, 2005) was obtained tofinance 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 from the condominium sales willbe taxed at ordinary rates.  Mr. Brownhas guaranteed 25% of this mortgage until such time as $2,687,500 of principalhas been paid.  The Partnership and theother investor have, in turn agreed to indemnify Mr. Brown for theirproportional share of any losses incurred by this guarantee.  This investment is referred to as EssexStreet.

 

On March 2,2005, the Partnership invested $2,300,000 for a 50% ownership interest in a 176-unitapartment complex with an additional small commercial building located inQuincy, Massachusetts. The purchase price was $23,750,000, and a $19,200,000 30-monthmortgage with a floating interest rate of 2% over the 30 day Libor Index (5.34%at June 30, 2005) was obtained to finance this acquisition.  The Partnership plans to sell the majority ofunits as condominiums and retain 40 to 50 units for long-term investment.  The proceeds from the condominium sales willprimarily be used to reduce the above-mentioned mortgage.  It is estimated that it will take longer thanone year to sell these units. Harold Brown has guaranteed 30% of this mortgageuntil such time as $5,760,000 of principal has been paid.  The Partnership and other investor have, inturn agreed to indemnify Mr. Brown their proportionate share of any lossesincurred by this guarantee.  As of August 2,2005, 40 units have been sold, and 20 units have a signed purchase and salesagreement.  Gains from the sales of units(currently estimated to average $60,000 per condominium) will be taxed atordinary income rates.  This investment isreferred to as 1025 Hamilton.

 

In September 2004,the Partnership invested approximately $5,075,000 for a 50% ownership interestin a 42-unit apartment complex located in Lexington, Massachusetts. Thepurchase price was $10,100,000.  In October 2004,the Partnership obtained a mortgage on the property in the amount of $8,025,000and returned $3,775,000 to the Partnership. This investment is referred to as Hamilton Minuteman.

 

In August 2004,the Partnership invested $8,000,000 for a 50% ownership interest in a 280-unitapartment complex located in Watertown, Massachusetts.  The total purchase price was$56,000,000.  This investment is referredto as Hamilton Place.

 

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

 

13

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**Summaryfinancial information for the six months ended June 30, 2005 (unaudited)**

 
| ** **                                                            | ** ** | ** **           | ** ** | ** **          | ** ** | **Hamilton  Place**   | ** ** | ** **              | ** ** | ** **      | ** ** | ** **         | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------|------------|----------------------|------------|---------------------|------------|-----------------------|------------|-------------------------|------------|-----------------|------------|--------------------|------------|------------|------------|
| ** **                                                            | ** ** | **Franklin  Street** | ** ** | **Hamilton  Place** | ** ** | **(for sale  units)** | ** ** | **Hamilton  Minuteman** | ** ** | **Essex  81**   | ** ** | **1025  Hamilton** | ** ** | ** ** | ** ** |
| **Acquisition Date**                                                  | ** ** | **November  2001**   | ** ** | **August  2004**    | ** ** | **August  2004**      | ** ** | **September  2004**     | ** ** | **March  2005** | ** ** | **March  2005**    | ** ** | **Total**  | ** ** |
| Property assets –  net                                           |       | $                    | 10,127,699 |                | $          | 28,255,727            |       | $                       | 20,211,608 |            | $          | 9,655,436          |       | $          | 14,108,387 |   | $ | 18,512,428 |   | $ | 100,871,285 |   |
| Mortgages payable                                                     |       | 7,874,428            |       | 16,825,000          |       | 16,137,002            |       | 7,717,360               |       | 10,750,000      |       | 12,721,385         |       | 72,025,175 |       |
| Total Equity                                                          |       | 2,204,190            |       | 14,218,052          |       | 1,801,405             |       | 2,086,274               |       | 3,856,675       |       | 6,139,744          |       | 30,306,340 |       |
| NERA – 50% equity                                                |       | 1,102,095            |       | 7,109,026           |       | 900,703               |       | 1,043,137               |       | 1,928,337       |       | 3,069,872          |       | 15,153,170 |       |
|                                                                  |       |                 |       |                |       |                  |       |                    |       |            |       |               |       |       |       |
| Summary income  statement:                                            |       |                 |       |                |       |                  |       |                    |       |            |       |               |       |       |       |
| Rental income                                                         |       | 488,906              |       | 1,161,246           |       | 738,139               |       | 331,975                 |       | 355,930         |       | 656,898            |       | 3,733,094  |       |
| Operating  expenses                                                   |       | 142,042              |       | 771,200             |       | 423,673               |       | 119,798                 |       | 146,580         |       | 402,617            |       | 2,005,910  |       |
| Management fees                                                       |       | 18,485               |       | 47,825              |       | 11,905                |       | 13,260                  |       | 17,226          |       | 20,794             |       | 129,495    |       |
| Interest expense                                                      |       | 274,435              |       | 594,243             |       | 317,728               |       | 193,503                 |       | 179,023         |       | 319,482            |       | 1,878,414  |       |
| Depreciation &  amortization                                 |       | 178,598              |       | 719,897             |       | 461,397               |       | 261,824                 |       | 156,427         |       | 330,855            |       | 2,108,998  |       |
| Financing expense                                                     |       | —               |       | 404,881             |       | —                |       | —                  |       | —          |       | —             |       | 404,881    |       |
| Gain on sale of  condominiums                                         |       | —               |       | —              |       | 2,277,970             |       | —                  |       | —          |       | 1,851,598          |       | 4,129,568  |       |
|                                                                  |       |                 |       |                |       |                  |       |                    |       |            |       |               |       |       |       |
| Net profit (loss)                                                     |       | (124,654             |       | (1,376,800          | )          | 1,801,406             |       | (256,410                | )          | (143,326        | )          | 1,434,748          |       | 1,334,964  |       |
| NERA – 50%                                                       |       | $                    | (62,327    | )                   | $          | (688,400              | )          | $                       | 900,703    |            | $          | (128,205           | )          | $          | (71,663    | ) | $ | 717,374 |   | $ | 667,482 |   |
|                                                                  |       |                 |       |                |       |                  |       |                    |       |            |       |               |       |       |       |
| Total units/  condominiums                                            |       | 40                   |       | 144                 |       | 136                   |       | 42                      |       | 49              |       | 176                |       | 587        |       |
| Units to be  retained                                                 |       | 40                   |       | 144                 |       | 0                     |       | 42                      |       | 49              |       | 46                 |       | 321        |       |
| Units to be sold                                                      |       | 0                    |       | 0                   |       | 136                   |       | 0                       |       | 0               |       | 130                |       | 266        |       |
| Units sold  through August 2, 2005                               |       | 0                    |       | 0                   |       | 40                    |       | 0                       |       | 0               |       | 40                 |       | 80         |       |
| Balance of unsold  units                                              |       | 0                    |       | 0                   |       | 96                    |       | 0                       |       | 0               |       | 90                 |       | 186        |       |
| Unsold units with  deposits for future sale as of August 2, 2005 |       | 0                    |       | 0                   |       | 13                    |       | 0                       |       | 0               |       | 20                 |       | 33         |       |

 

14

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Hamilton Placeis planning to sell, over time, three buildings with a total of 136 units ascondominiums commencing in January 2005. Hamilton Minuteman may also, from time to time, sell units.  Minuteman is not being marketed at thistime.  The majority of the proceeds fromthese sales will be used to reduce their mortgages.  Commencing in 2005, these mortgages requireminimum principal payments (“Curtailment Payments”) and additional investmentby the Partnership will be required if the proceeds from sales cannot providefor these payments. As of August 2, 2005, 40 units have been sold and anadditional 13 units are under contract at Hamilton Place. An entity partially ownedby the majority shareholder of the General Partner and the President of themanagement company, 31% and 5% respectively, is the sales agent and willreceive a variable commission on each sale of 3% to 5%.  Approximately $280,000 of commissions was paidthrough June 30, 2005.

 

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

 

On February 10,2005, Hamilton Place, Watertown, MA obtained a new 10 year mortgage on thethree buildings to be retained for $16,825,000 interest only at 5.18% for 3years and amortizes on a 30 year schedule for the remaining 7 years whenthe balance is due.  The net proceedsafter funding escrow accounts and closing costs on the new mortgage wasapproximately $16,700,000, which was used to reduce the existing mortgage.Hamilton Place paid an approximate $400,000 penalty to be able to obtain the newfinancing.

 

**NOTE15.    NEW ACCOUNTING PRONOUNCEMENTS**

 

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

 

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

 

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

 

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

 

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

 

15

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

 

•      Areassessment period is necessary in evaluating whether a disposal meets thecriteria for discounted operations reporting; the reassessment period shouldinclude the point at which the component initially meets the criteria to beclassified as held for sale through one year after the component’s disposaldate.  However, the Task Force concludedthat the reassessment will be required only when significant changes in eventsor circumstances make it likely that the criteria in paragraph 42 of SFAS 144will, or will no longer, be met after the disposal date.

•      Thereis a presumption that the continued sale of a commodity in an active marketshould be considered a migration of customers.

•      Forthe purpose of determining whether operations and cash flows are eliminated,the determination will be limited to evaluating gross cash inflows (revenues)and outflows (costs) versus evaluating other operating measures such as grossprofit or net income.

•      Theretention of risks associated with the ongoing operations of the disposedcomponent or the ability to obtain benefits associated with the ongoingoperations of the disposed component should be considered in evaluating whetherthe entity has the ability to influence the operating and/or financial policiesof the disposed component.

 

As a result,factors (b) and (c) were eliminated from paragraph 9 of the draftabstract.

 

The Task Forceaffirmed the consensus as previously exposed with the followingmodifications/clarifications:

 

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

 

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

 

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

 

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

 
| ** **                          | ** ** | **Six Months Ended  June 30** | ** ** |
|-------------------------------------|------------|------------------------------------|------------|
| ** **                          | ** ** | **2005**                           | ** ** | **2004** | ** ** |
|                                |       |                               |       |   |   |   |   |
| Total Revenues                      |       | $                                  | 79,326     |   | $ | 208,269 |   |
|                                |       |                               |       |   |   |
| Operating and other expenses        |       | 56,037                             |       | 139,710 |   |
| Depreciation and amortization       |       | 18,906                             |       | 19,995 |   |
|                                |       | 74,943                             |       | 159,705 |   |
|                                |       |                               |       |   |   |
| Income from discontinued operations |       | $                                  | 4,383      |   | $ | 48,564 |   |

 

ThePartnership realized a gain on the sale of the rental property of approximately$5,770,000 during the six months ended June 30, 2005.

 

16

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

 

The followingdiscussion should be read in conjunction with the financial statements andnotes thereof appearing elsewhere in this Report.  This Report, on Form 10-Q, containsforward-looking statements within the meaning of the securities law.  Actual results or developments could differmaterially from those projected in such statements as a result of certainfactors set forth in the section below entitled “Factors That May Affect FutureResults” and elsewhere in this Report.

 

While thenational economy has largely recovered from the recession of the late 1990s and2000s, Massachusetts’ local economy continues to lag behind.  Job growth remains slow.  Vacancy rates for downtown office space haveimproved from nearly 20%, and similar vacancy rates are seen to begin improvingin suburban areas.  In the face of theseeconomic realties however, the Partnership has kept its residential vacancyrate below the 5% local industry average. However, doing so has resulted in slow revenue growth due to various incentivesfor new rentals.  Additionally, newhousing product in the residential market and low mortgage interest rates thatattracted first-time buyers continue to be direct competitors of the rentalhousing market resulting in higher turnover expenses and unit renovation costs. Finally, an abnormally cold winter, historicallyhigh snowfall, steadily increasing utility costs and increases in other operatingexpenses outpaced any modest increases in rental revenue that the Partnership’sproperties have experienced to date.  

 

ThePartnership expects these conditions to continue throughout 2005.  Revenue is expected to remain flat whileincreases in operating expenses are expected to continue.  Competition continues to be strong; and the paymentof rental commissions to encourage leaseup has not abated versus previousyears.  As a result, the Partnership’sfuture earnings may be negatively impacted. Lastly, tax reform allowed the Partnership to accelerate depreciation onimprovements and acquisitions over the past two years reducing taxable income.  These tax incentives expired in 2004.  Therefore, we expect income taxable topartners to increase in 2005 and to be more in line with the Partnership’sfinancial statement net income, which will be substantially higher due toproperty sales.

 

ThePartnership has retained The Hamilton Company (“Hamilton”) to manage andadminister the Partnership’s properties. Hamilton is a full-service real estate management company, which haslegal, construction, maintenance, architectural, accounting and administrativedepartments.  The Partnership’sproperties represent approximately 40% of the total properties and 70% of theresidential properties managed by Hamilton. Substantially all of the other properties managed by Hamilton are owned- wholly or partially, directly or indirectly - by Harold Brown.  The Partnership’s Second Amended and RestatedContract of Limited Partnership (the “Partnership Agreement”) expresslyprovides that the general partner may employ a management company to manage theproperties, and that such management company may be paid a fee of 4% of rentalreceipts for administrative and management services (the “Management Fee”).  The Partnership annually pays Hamilton thefull Management Fee, in monthly installments.

 

Mr. Brown, hisbrother Ronald Brown and the President of Hamilton, Carl Valeri, collectivelyown approximately 20.5 % of the depositary receipts representing thePartnership Class A Units (including depositary receipts held by trusts for thebenefit of such persons’ family members). Harold Brown also owns 75% of the Partnership’s Class B Units, 75% ofthe capital stock of NewReal, Inc. (“NewReal”), the Partnership’s sole generalpartner, and all of the outstanding stock of Hamilton.

 

17

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Ronald Brown also owns 25% ofthe Partnership’s Class B Units and 25% of NewReal’s capital stock.  In addition, Ronald Brown is the Presidentand director of NewReal and Harold Brown is NewReal’s Treasurer and also adirector.  Three of NewReal’s otherdirectors Thomas Raffoul, Conrad DiGregorio, and Edward Sarkesian also ownimmaterial amounts of the Partnership’s Class A Units.

 

Beyond theManagement Fee, the Partnership Agreement further provides for the employmentof outside professionals to provide services to the Partnership and allowsNewReal to charge the Partnership for the cost of employing professionals toassist with the administration of the Partnership’s properties.  In addition to the Management Fee, from timeto time the Partnership pays Hamilton for repairs and maintenance services,legal services, construction services and accounting services.  The costs charged by Hamilton for theseservices are at the same hourly rate charged to all entities managed byHamilton, and management believes such rates are competitive in themarketplace.

 

Hamiltonaccounted for approximately 5.7% and 5% of the repair and maintenance expensepaid for by the Partnership in the six months ended June 30, 2005 and the yearended December 31, 2004, respectively. Of the funds paid to Hamilton for this purpose, the great majority wasto cover the cost of services provided by the Hamilton maintenance department,including plumbing, electrical, carpentry services, and snow removal.  However, several of the larger Partnershipproperties have their own maintenance staff. Further, those properties that do not have their own maintenance staffbut are located more than a reasonable distance from Hamilton’s headquarters inAllston, Massachusetts are generally serviced by local, independent companies.

 

Hamilton’slegal department handles most of the Partnership’s eviction and collectionmatters.  Additionally, it prepares mostlong-term commercial lease agreements and represents the Partnership inselected purchase and sale transactions. Overall, Hamilton provided approximately 62% of the legal services paidfor by the Partnership during the six months ended June 30, 2005 andapproximately 81% for the year ended December 31, 2004.

 

R. BrownPartners, which is owned by Ronald Brown, manages 5 condominium units locatedin 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.

 

ThePartnership requires that three bids be obtained for construction contracts inexcess of $5,000.  Hamilton may be one ofthe three bidders on a particular project and may be awarded the contract ifits bid and its ability to successfully complete the project are deemedappropriate.  For contracts that are notawarded to Hamilton, Hamilton charges the Partnership a constructionsupervision fee equal to 5% of the contract amount.  Hamilton’s architectural department alsoprovides services to the Partnership on an as-needed basis.  In 2005, Hamilton provided the Partnershipapproximately $61,000 in construction and architectural services.  In 2004, Hamilton provided construction andarchitectural services paid for by the Partnership totaling $3,781,000 includingapproximately $3,500,000 for the construction of 20 additional residentialunits at Westgate Apartments in Woburn, Massachusetts.

 

18

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

 

For moreinformation on related party transactions, see Note 3 to the ConsolidatedFinancial Statements.

 

CRITICAL ACCOUNTING POLICIESAND ESTIMATES

 

Thepreparation of consolidated financial statements, in accordance with accountingprinciples generally accepted in the United States of America, requires thePartnership to make estimates and judgments that affect the reported amounts ofassets, liabilities, revenues and expenses and related disclosures ofcontingent assets and liabilities.  ThePartnership regularly and continually evaluates its estimates, including thoserelated to acquiring, developing and assessing the carrying values of its realestate properties and its investments in and advances to joint ventures.  The Partnership bases its estimates onhistorical experience, current market conditions, and on various otherassumptions that are believed to be reasonable under the circumstances.  However, because future events and theireffects cannot be determined with certainty, the determination of estimatesrequires the exercise of judgment.  ThePartnership’s critical accounting policies are those which require assumptionsto be made about such matters that are highly uncertain.  Different estimates could have a materialeffect on the Partnership’s financial results. Judgments and uncertainties affecting the application of these policiesand estimates may result in materially different amounts being reported underdifferent conditions and circumstances. See Note 1 to the Consolidated Financial Statements, Principles ofConsolidation.

 

RevenueRecognition: Revenues from rental property are recognized when due fromtenants.  Residential leases aregenerally for terms of one year and commercial leases are generally for five toten years, with renewal options at increased rents.  Significant commercial leases with steppedincreases over the term of the lease are recorded on the straight-line basis.

 

Real Estateand Depreciation: Real estate assets are stated 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 with commencement of development activityand ends when the property is ready for leasing.  Replacements and improvements— such as HVACequipment, structural replacements, windows, appliances, flooring, carpetingand kitchen/bath replacements and renovations — are capitalized and depreciatedover their estimated useful lives as follows:

 

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

 

19

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

 

If there is anevent or change in circumstances that indicates an impairment in the value of aproperty, the Partnership’s policy is to assess the impairment by making acomparison of the current and projected operating cash flows of the propertyover its remaining useful life, on an undiscounted basis, to the carryingamount of the property.  If the carryingvalue is in excess of the estimated projected operating cash flows of the property,the Partnership would recognize an impairment loss equivalent to the amountrequired to adjust the carrying amount to its estimated fair value.  The Partnership has not recognized animpairment loss since 1995.

 

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

 

Investments inPartnerships:  The Partnership accountsfor its 50% owned Investment Properties under the equity method of accounting,as it exercises significant influence over, but does not control theseentities.  These investments are recordedinitially at cost, as Investments in Partnerships, and subsequently adjustedfor equity in earnings, cash contributions and distributions.  Under the equity method of accounting, ournet equity is reflected on the consolidated balance sheets, and our share ofnet income or loss from the Partnership is included on the consolidatedstatements of income.

 

With respectto investments in and advances to the Investment Properties, the Partnershiplooks to the underlying properties to assess performance and the recoverabilityof carrying amounts for those investments in a manner similar to directinvestments in real estate properties. An impairment charge is recorded if the carrying value of the investmentexceeds its fair value.

 

LegalProceedings: The Partnership is subject to various legal proceedings and claimsthat arise, from time to time, in the ordinary course of business.  These matters are frequently covered byinsurance.  If it is determined that aloss is likely to occur, the estimated amount of the loss is recorded in thefinancial statements.  Both the amount ofthe loss and the point at which its occurrence is considered likely can bedifficult to determine.

 

RESULTS OF OPERATIONS

 

**Comparisonof the three months ended June 30, 2005 to the three months ended June 30, 2004(as adjusted for discontinued operations)**

 

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#### The Partnership and itsSubsidiary Partnerships earned income before other income and discontinuedoperations of $605,734 during the three months ended June 30, 2005 compared to$780,610 for the three months ended June30, 2004, a decrease of $174,876 (22%).

 

The rental activity issummarized as follows:

 
| ** **        | ** ** | **Occupancy Date**  | ** ** |
|-------------------|------------|---------------------|------------|
| ** **        | ** ** | **August 2,  2005** | ** ** | **May 9,  2005** | ** ** | **August 4,  2004** | ** ** |
|              |       | ** **          | ** ** | ** ** | ** ** | ** ** |   |
| Residential       |       |                |       |   |   |   |   |
| Units             |       | 2,402               |       | 2,402 |   | 2,400 |   |
| Vacancies         |       | 58                  |       | 32 |   | 99 |   |
| Vacancy rate      |       | 2.4                 | %          | 1.4 | % | 4.1 | % |
| Commercial        |       |                |       |   |   |   |   |
| Total square feet |       | 85,275              |       | 85,275 |   | 85,275 |   |
| Vacancy           |       | 0                   |       | 0 |   | 4,700 |   |
| Vacancy rate      |       | 0                   | %          | 0 | % | 5.5 | % |

 
| ** **             | ** ** | **Rental Income (in thousands)  Three Months Ended June 30,** | ** ** |
|------------------------|------------|---------------------------------------------------------------|------------|
| ** **             | ** ** | **2005**                                                      | ** ** | **2004** | ** ** |
|                   |       | **Total  Operations**                                         | ** ** | **Continuing  Operations** | ** ** | **Total  Operations** | ** ** | **Continuing  Operations** |   |
| Total rents            |       | $                                                             | 7,814      |   | $ | 7,813 |   | $ | 7,708 |   | $ | 7,603 |   |
| Residential percentage |       | 93                                                            | %          | 93 | % | 93 | % | 93 | % |
| Commercial percentage  |       | 7                                                             | %          | 7 | % | 7 | % | 7 | % |
| Contingent rentals     |       | $                                                             | 93         |   | $ | 93 |   | $ | 89 |   | $ | 89 |   |

 

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***Three Months Ended June 30,2005 Compared to Three Months Ended June 30, 2004***

 
| ** **                                                                  | ** ** | **June 30,  2005** | ** ** | **June 30,  2004** | ** ** | **Dollar  Change** | ** ** | **Percent  Change** | ** ** |
|-----------------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|
| ** **                                                                  | ** ** | ** **         | ** ** | ** **         | ** ** | ** **         | ** ** | ** **          | ** ** |
| Revenues:                                                                   |       |               |       |               |       |               |       |                |       |
| Rental income                                                               |       | $                  | 7,812,890  |               | $          | 7,602,850          |       | $                   | 210,040    |   | 2.7 | % |
| Laundry and sundry income                                                   |       | 87,944             |       | 79,474             |       | 8,470              |       | 10.6                | %          |
|                                                                        |       | 7,900,834          |       | 7,682,324          |       | 218,510            |       | 2.8                 | %          |
|                                                                        |       |               |       |               |       |               |       |                |       |
| Expenses:                                                                   |       |               |       |               |       |               |       |                |       |
| Administrative                                                              |       | 319,527            |       | 317,766            |       | 1,761              |       | .5                  | %          |
| Depreciation and amortization                                               |       | 1,583,964          |       | 1,438,050          |       | 145,914            |       | 10.1                | %          |
| Interest                                                                    |       | 1,944,407          |       | 1,946,406          |       | (1,999             | )          | -0.1                | %          |
| Management fees                                                             |       | 325,036            |       | 315,302            |       | 9,734              |       | 3.0                 | %          |
| Operating                                                                   |       | 766,167            |       | 694,780            |       | 71,387             |       | 10.3                | %          |
| Renting                                                                     |       | 154,917            |       | 130,966            |       | 23,951             |       | 18.3                | %          |
| Repairs and maintenance                                                     |       | 1,275,341          |       | 1,188,856          |       | 86,485             |       | 7.3                 | %          |
| Taxes and insurance                                                         |       | 925,741            |       | 869,588            |       | 56,153             |       | 6.4                 | %          |
|                                                                        |       | 7,295,100          |       | 6,901,714          |       | 393,386            |       | 5.7                 | %          |
|                                                                        |       |               |       |               |       |               |       |                |       |
| Income before other income                                                  |       | 605,734            |       | 780,610            |       | (174,876           | )          | -22.4               | %          |
|                                                                        |       |               |       |               |       |               |       |                |       |
| Other Income (Loss)                                                         |       |               |       |               |       |               |       |                |       |
| Interest income                                                             |       | 59,581             |       | 64,556             |       | (4,975             | )          | -7.7                | %          |
| Income (Loss) from investment  in partnerships                              |       | 709,106            |       | (41,022            | )          | 750,128            |       | 1,828.6             | %          |
|                                                                        |       | 768,687            |       | 23,534             |       | 745,153            |       | 3,166.3             | %          |
| Income from continuing  operations                                          |       | 1,374,421          |       | 804,144            |       | 570,277            |       | 70.92               | %          |
|                                                                        |       |               |       |               |       |               |       |                |       |
| Discontinued Operations:                                                    |       |               |       |               |       |               |       |                |       |
| Income from discontinued  operations                                        |       | 882                |       | 32,263             |       | (31,381            | )          | -97.27              | %          |
| Gain (loss) on the sale of real  estate from  discontinued  operations |       | (41,221            | )          | —             |       | (41,221            | )          | 100.0               | %          |
|                                                                        |       | (40,339            | )          | 32,263             |       | 72,602             |       | 225.0               | %          |
| Net Income                                                                  |       | $                  | 1,334,082  |               | $          | 836,407            |       | $                   | 497,675    |   | 59.5 | % |

 

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The followingis a comparative schedule for the three months ended June 30, 2005 and 2004 ofthe changes in revenue from rental operations excluding the 2004 acquisitions.

 
| ** **                    | ** ** | **Total  Partnership  2005** | ** ** | **Less  Acquired  Properties** | ** ** | **Same  Properties  in 2005** | ** ** | **Same  Properties  in 2004*** | ** ** | **Dollar  Change** | ** ** | **Percent  Change** | ** ** |
|-------------------------------|------------|------------------------------|------------|--------------------------------|------------|-------------------------------|------------|--------------------------------|------------|--------------------|------------|---------------------|------------|
| Revenues:                     | ** ** | ** **                   | ** ** | ** **                     | ** ** | ** **                    | ** ** | ** **                     | ** ** | ** **         | ** ** | ** **          | ** ** |
| Rental income                 |       | $                            | 7,812,890  |                           | $          | 86,081                        |       | $                              | 7,726,809  |               | $          | 7,602,850           |       | $ | 123,959 |   | 1.6 | % |
| Laundry and sundry income     |       | 87,944                       |       | —                         |       | 87,944                        |       | 79,474                         |       | 8,470              |       | 10.6                | %          |
|                          |       | 7,900,834                    |       | 86,081                         |       | 7,814,753                     |       | 7,682,324                      |       | 132,429            |       | 1.7                 | %          |
| Expenses                      |       |                         |       |                           |       |                          |       |                           |       |               |       |                |       |
| Administrative                |       | 319,527                      |       | —                         |       | 319,527                       |       | 317,766                        |       | 1,761              |       | 0.5                 | %          |
| Depreciation and amortization |       | 1,583,964                    |       | 61,870                         |       | 1,522,094                     |       | 1,447,263                      |       | 74,831             |       | 5.2                 | %          |
| Interest                      |       | 1,944,407                    |       | 26,542                         |       | 1,917,865                     |       | 1,946,406                      |       | (28,541            | )          | 1.4                 | %          |
| Management fees               |       | 325,036                      |       | 3,349                          |       | 321,687                       |       | 315,302                        |       | 6,385              |       | 2.0                 | %          |
| Operating                     |       | 766,167                      |       | 2,509                          |       | 763,658                       |       | 694,780                        |       | 68,878             |       | 9.9                 | %          |
| Renting                       |       | 154,917                      |       | 981                            |       | 153,936                       |       | 130,966                        |       | 22,970             |       | 17.5                | %          |
| Repairs and maintenance       |       | 1,275,341                    |       | 4,223                          |       | 1,271,118                     |       | 1,188,856                      |       | 82,262             |       | 6.9                 | %          |
| Taxes and insurance           |       | 925,741                      |       | 8,676                          |       | 917,065                       |       | 869,588                        |       | 47,477             |       | 5.5                 | %          |
|                          |       | 7,295,100                    |       | 108,150                        |       | 7,186,950                     |       | 6,910,927                      |       | 276,023            |       | 4.0                 | %          |
|                          |       |                         |       |                           |       |                          |       |                           |       |               |       |                |       |
| Income before other income    |       | 605,734                      |       | (22,069                        | )          | 627,803                       |       | 771,397                        |       | (143,594           | )          | -18.6               | %          |
|                               |            |                              |            |                                |            |                               |            |                                |            |                    |            |                     |            |  |  |  |  |  |

 

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* Discontinuedoperations are excluded in the quarter-to-quarter comparison.

 

Rental incomefrom continuing operations for the three months ended June 30, 2005 wasapproximately $7,813,000 compared to approximately $7,603,000 for the threemonths ended June 30, 2004, an increase of approximately $210,000 (3%). Thisincrease was due to rental revenue of approximately $86,000 from the newlycompleted units at Courtyard at Westgate, an increase of approximately $44,000at 62 Boylston Street, an increase of approximately $20,000 at the WestgateApartments and an increase of approximately $16,000 at School Street. Therewere insignificant changes at other properties.

 

Total expensesfrom continuing operations for the three months ended June 30, 2005 wereapproximately $7,295,000 compared to approximately $6,902,000 for the threemonths ended June 30, 2004, an increase of approximately $393,000 (5.7%). Themost significant increases were in operating expenses of approximately $71,000(10%), repairs and maintenance expenses of approximately $86,000 (7.2%) rentingexpenses of approximately $24,000 (18%), taxes and insurance of approximately$56,000 (6.4%) and depreciation and amortization expenses of approximately$146,000 (10%).  The increase inoperating expense is due to the cost for snow removal due to the snowy winterof 2005, and an increase in utility costs due to the cold winter of 2005.  The increase in renting expenses is due to anincrease in rental commissions. The increase in taxes and insurance is due

 

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to increases in real estatetaxes. The increase in repairs and maintenance expense is due to therefurbishment of apartments units in an effort to stay competitive in themarket.

 

At June 30,2005, the Partnership has a 50% ownership interest in five different investmentproperties.  See Note 14 for summaryfinancial information of these investment properties.  The details are as follows:

 

Franklin Street, Cambridge,Massachusetts

 

ThePartnership invested in a 40-unit property in 2001.  The Partnership’s share of loss on thisinvestment for the three months ended June 30, 2005 was $40,462 compared to$41,022 for the three months ended June 30, 2004.  The loss for the six months ended June 30,2005 was $62,327 compared to $73,052 for the six months ended June 30,2004.  There are 3 units vacant at August2, 2005.

 

Hamilton Place, Watertown,Massachusetts

 

ThePartnership invested in 280 units in six buildings in August 2004.  The Partnership plans to sell 136 of theunits as condominiums located in three buildings.  At June 30, 2005, 40 units have been sold and13 additional units have reservation agreements.  The Partnerships share of income for thethree months ended June 30, 2005 was $93,853. The Partnerships share of income for the six months ended June 30, 2005was $212,304 which includes a gain on the sale of 40 units of $1,138,985.  There was one unit vacant at August 2, 2005.

 

Hamilton Minuteman, Lexington,Massachusetts

 

The Partnershipinvested in a 42-unit residential complex in September 2004.  The Partnership may market this property ascondominiums in the future however it is not being marketed at this time.  The Partnership’s share of loss on thisinvestment was $60,533 and $128,205 for the three and six months ended June 30,2005, respectively.  There are 0 vacantunits at August 2, 2005.

 

Essex 81, Boston, Massachusetts

 

ThePartnership invested in this property in March 2005.  The property consists of 49 residential units,one commercial space, and a 50 car surface parking lot.  The Partnerships share of loss on thisinvestment is $59,488 and $71,662 for the three and six months ended June 30,2005 respectively.  There are 5 unitsvacant at August 2, 2005.

 

1025 Hamilton, Quincy,Massachusetts

 

ThePartnership invested in a 176-unit property in March 2005.  The Partnership plans to sell 130 units ascondominiums.  As of August 2, 2005, 40units have been sold, and 20 units have been reserved.  The Partnerships share of income on thisinvestment is $742,735 and $717,372 for the three and six months ended June 30,2005 respectively.  This income includesthe gain on the sale of 40 units of $925,799.

 

24

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On March 22,2005, the Partnership sold the Middlesex Apartments located in Newton,Massachusetts.  The selling price was$6,500,000.  The operating profit for thesix months ended June 30, 2005 of $4,383 and the gain of $5,770,363, net ofmortgage prepayment penalties of approximately $382,000 and selling expenses,are included in income from discontinued operations.  See Note 2 to the Consolidated FinancialStatements.

 

Interestincome was approximately $60,000 for the three months ended June 30, 2005compared to approximately $65,000 for the three months ended June 30, 2004 anincrease of approximately $5,000 (7.7%). This is due primarily due to a decrease in the cash available forinvestment.

 

As a result ofthe changes discussed above, net income for the three months ended June 30,2005 was $1,334,082 compared to $836,407 for the three months ended June 30,2004, and increase of $497,675 (59.5%).

 

**Comparisonof the six months ended June 30, 2005 to the six months ended June 30, 2004**

 

ThePartnership and its Subsidiary Partnerships earned income before other incomeof $973,749 for the six months ended June 30, 2005 compared to $1,308,791 forthe six months ended June 30, 2004, a decrease of $335,042 (25.6%).  The following is a summary of the Partnership’srental income for the six months ended June 30, 2005 and 2004.  As more fully described in the schedulesbelow, this decrease is primarily due to an increase in operating expensesincluding significant depreciation, repairs and maintenance, and interestexpense.

 

25

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***Six Months Ended June 30, 2005Compared to Six Months Ended June 30, 2004***

 
| ** **                                                                  | ** ** | **June 30,  2005** | ** ** | **June 30,  2004** | ** ** | **Dollar  Change** | ** ** | **Percent  Change** | ** ** |
|-----------------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|
| ** **                                                                  | ** ** | ** **         | ** ** | ** **         | ** ** | ** **         | ** ** | ** **          | ** ** |
| Revenues:                                                                   |       |               |       |               |       |               |       |                |       |
| Rental income                                                               |       | $                  | 15,610,188 |               | $          | 15,245,568         |       | $                   | 364,620    |   | 2.3 | % |
| Laundry and sundry income                                                   |       | 204,056            |       | 160,924            |       | 43,132             |       | 26.8                | %          |
|                                                                        |       | 15,814,244         |       | 15,406,492         |       | 407,752            |       | 2.6                 | %          |
|                                                                        |       |               |       |               |       |               |       |                |       |
| Expenses:                                                                   |       |               |       |               |       |               |       |                |       |
| Administrative                                                              |       | 659,318            |       | 644,157            |       | 15,161             |       | 2.4                 | %          |
| Depreciation and amortization                                               |       | 3,103,455          |       | 2,901,674          |       | 201,781            |       | 6.9                 | %          |
| Interest                                                                    |       | 3,881,882          |       | 3,921,181          |       | (39,299            | )          | (1.0                | )%         |
| Management fees                                                             |       | 640,744            |       | 629,456            |       | 11,288             |       | 1.8                 | %          |
| Operating                                                                   |       | 2,177,624          |       | 1,774,668          |       | 402,956            |       | 22.7                | %          |
| Renting                                                                     |       | 257,769            |       | 235,365            |       | 22,404             |       | 9.5                 | %          |
| Repairs and maintenance                                                     |       | 2,289,812          |       | 2,249,421          |       | 40,391             |       | 1.8                 | %          |
| Taxes and insurance                                                         |       | 1,829,891          |       | 1,741,779          |       | 88,112             |       | 5                   | %          |
|                                                                        |       | 14,840,495         |       | 14,097,701         |       | 742,794            |       | 5.3                 | %          |
|                                                                        |       |               |       |               |       |               |       |                |       |
| Income before other income                                                  |       | 973,749            |       | 1,308,791          |       | (335,042           | )          | -25.6               | %          |
|                                                                        |       |               |       |               |       |               |       |                |       |
| Other Income (Loss)                                                         |       |               |       |               |       |               |       |                |       |
| Interest income                                                             |       | 97,908             |       | 134,723            |       | (36,815            | )          | (27.3               | )%         |
| (Loss) from investment in  partnerships                                     |       | 667,482            |       | (73,052            | )          | 740,534            |       | 1,013.7             | %          |
|                                                                        |       | 765,390            |       | 61,671             |       | 703,719            |       | 1,141               | %          |
| Income from continuing  operations                                          |       | 1,739,139          |       | 1,370,462          |       | 368,677            |       | 27                  | %          |
|                                                                        |       |               |       |               |       |               |       |                |       |
| Discontinued Operations:                                                    |       |               |       |               |       |               |       |                |       |
| Income from discontinued  operations                                        |       | 4,383              |       | 48,564             |       | (44,181            | )          | 91                  | %          |
| Gain (loss) on the sale of real  estate from  discontinued  operations |       | 5,770,363          |       | —             |       | 5,770,363          |       | 100.0               | %          |
|                                                                        |       | 5,774,746          |       | 48,564             |       | 5,726,182          |       |                |       |
| Net Income                                                                  |       | $                  | 7,513,885  |               | $          | 1,419,026          |       | $                   | 6,094,859  |   | 429.5 | % |

 

26

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| ** **                    | ** ** | **Partnership  2005** | ** ** | **Acquired  Properties** | ** ** | **Properties  in 2005** | ** ** | **Properties  in 2004*** | ** ** | **Dollar  Change** | ** ** | **Percent  Change** | ** ** |
|-------------------------------|------------|-----------------------|------------|--------------------------|------------|-------------------------|------------|--------------------------|------------|--------------------|------------|---------------------|------------|
| ** **                    | ** ** | ** **            | ** ** | ** **               | ** ** | ** **              | ** ** | ** **               | ** ** | ** **         | ** ** | ** **          | ** ** |
| Revenues:                     |       |                  |       |                     |       |                    |       |                     |       |               |       |                |       |
| Rental income                 |       | $                     | 15,610,188 |                     | $          | 170,430                 |       | $                        | 15,439,758 |               | $          | 15,245,568          |       | $ | 194,190 |   | 1.3 | % |
| Laundry and sundry income     |       | 204,056               |       | —                   |       | 204,056                 |       | 160,924                  |       | 43,132             |       | 26.8                | %          |
|                          |       | 15,814,244            |       | 170,430                  |       | 15,643,814              |       | 15,406,492               |       | 237,322            |       | 1.5                 | %          |
|                          |       |                  |       |                     |       |                    |       |                     |       |               |       |                |       |
| Expenses                      |       |                  |       |                     |       |                    |       |                     |       |               |       |                |       |
| Administrative                |       | 659,318               |       | —                   |       | 659,318                 |       | 644,157                  |       | 15,161             |       | 2.3                 | %          |
| Depreciation and amortization |       | 3,103,455             |       | 122,649                  |       | 2,980,806               |       | 2,901,674                |       | 79,132             |       | 2.7                 | %          |
| Interest                      |       | 3,881,882             |       | 52,208                   |       | 3,829,674               |       | 3,921,181                |       | (91,507            | )          | -2.3                | %          |
| Management fees               |       | 640,744               |       | 6,664                    |       | 634,080                 |       | 629,456                  |       | 4,624              |       | 0.7                 | %          |
| Operating                     |       | 2,177,624             |       | 9,735                    |       | 2,167,889               |       | 1,774,668                |       | 393,221            |       | 22.1                | %          |
| Renting                       |       | 257,769               |       | 1,385                    |       | 256,384                 |       | 235,365                  |       | 21,019             |       | 8.9                 | %          |
| Repairs and maintenance       |       | 2,289,812             |       | 5,568                    |       | 2,284,244               |       | 2,249,421                |       | 34,823             |       | 1.5                 | %          |
| Taxes and insurance           |       | 1,829,891             |       | 18,704                   |       | 1,811,187               |       | 1,741,779                |       | 69,408             |       | 4.0                 | %          |
|                          |       | 14,840,495            |       | 216,913                  |       | 14,623,582              |       | 14,097,701               |       | 525,881            |       | 3.7                 | %          |
|                          |       |                  |       |                     |       |                    |       |                     |       |               |       |                |       |
| Income before other income    |       | 973,749               |       | (46,483                  | )          | 1,020,232               |       | 1,308,791                |       | (288,559           | )          | -22.0               | %          |
|                               |            |                       |            |                          |            |                         |            |                          |            |                    |            |                     |            |  |  |  |  |  |

 

----

*Discontinuedoperations are excluded in the quarter-to-quarter comparison.

 

Rental income fromcontinuing operations for the six months ended June 30, 2005 was approximately$15,610,000 compared to approximately $15,246,000 for the six months ended June30, 2004, an increase of approximately $364,000 (2%).  This increase is due primarily to the 20additional units at Courtyard at Westgate which represents $171,000 of thisincrease.  Other properties with rentalincome increases include 62 Boylston Street in the amount of approximately$71,000, School Street of approximately $36,000 and the existing apartments atWestgate Woburn of approximately $39,000. There were insignificant increases at other properties.

 

Total expensesfrom continuing operations for the six months ended June 30, 2005 wereapproximately $14,840,000 compared to approximately $14,098,000 for the sixmonths ended June 30, 2004, an increase of approximately $742,000 (5.3%).  As indicated in the schedule above, 

 

27

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approximately $217,000 of thisincrease represents the property constructed in 2004.  Other comparable increases include operatingexpenses of $393,000 (22%), depreciation and amortization expense ofapproximately $79,000 (2.7%) and taxes and insurance of approximately $69,000(4.0%).  An explanation of theseincreases is discussed above.

 

Interestincome was approximately $98,000 for the six month ended June 30, 2005,compared to approximately $135,000 for the six months ended June 30, 2004, adecrease of approximately $37,000.  Thisdecrease is due primarily to a decrease in cash available for investment.

 

As discussedpreviously, the Partnership has a 50% ownership interest in five investmentproperties.  The net income from theseinvestments is approximately $668,000 for the six month ended June 30, 2005compared to a loss of approximately $73,000. The income for the six months ended June 30, 2005 includes thePartnerships portion of the gain of approximately $2,100,000 on the sale ofunits at two of the properties.

 

Income fromdiscontinued operations for the six months ended June 30, 2005, includes a gainof approximately $5,800,000 on the sale of the Middlesex Apartments inBrookline, Massachusetts.

 

As a result ofthe changes discussed above, net income for the six months ended June 30, 2005was $7,513,885 compared to $1,419,026 for the six months ended June 30, 2004,an increase of $6,094,859.

 

LIQUIDITY AND CAPITAL RESOURCES

 

ThePartnership’s principal source of cash during 2005 and 2004 was the collectionof rents, sale of a Partnership property and the refinancing of a Partnershipproperty in 2005.

 

The majorityof cash and cash equivalents of $12,224,244 at June 30, 2005 and $9,862,810 atDecember 31, 2004 were held in interest bearing accounts at creditworthyfinancial institutions.

 

This increaseof $2,361,434 for the six months ended June 30, 2005 is summarized as follows:

 
| ** **                                            | ** ** | **Six Months Ended June 30,** | ** ** |
|-------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                            | ** ** | **2005**                      | ** ** | **2004** | ** ** |
| Cash provided by operating activities                 |       | $                             | 3,887,783  |   | $ | 4,645,757 |   |
| Cash provided by (used in) investing activities       |       | 559,290                       |       | (4,343,851 | ) |
| Cash provided by (used in) financing activities       |       | 335,968                       |       | (355,990 | ) |
| Dividends paid                                        |       | (2,421,607                    | )          | (2,283,692 | ) |
| Net increase (decrease) in cash and cash  equivalents |       | $                             | 2,361,434  |   | $ | (2,337,776 | ) |

 

28

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The cashprovided by operating activities is primarily due to the net income plusdepreciation expense.  The increase incash provided by investing activities is due to the sale of a Partnershipproperty in March 2005, offset by investments made by the Partnership duringthe six month ended June 30, 2005.  Theincrease in cash provided by financing activities is due to the refinancing ofa Partnership property in January 2005.

 

As discussedpreviously, the Partnership invested approximately $4,253,000 for a 50%ownership interest in two partnerships during the six month ended June 30,2005.  See above for a discussion of theinvestments and the related net income on these investments.

 

ThePartnership paid a quarterly distribution of $7.00 per unit ($0.70 perdepositary receipts) on March 31, 2005 and June 30, 2005.  The total distributions paid during the sixmonths ended June 30, 2005 were $2,421,607, compared to$2,283,692 for the sixmonths ended June 30, 2004.

 

During the sixmonths ended June 30, 2005, the Partnership and its Subsidiary Partnerships completedcertain improvements to their properties at a total cost of approximately$1,358,000.  The most significantimprovements were made at the following properties: approximately $265,000 at Westgatein Woburn, Massachusetts; approximately $122,000 at 62 Boylston Street, Boston,Massachusetts; approximately $98,000 at Westside Colonial in Brockton,Massachusetts; approximately $111,000 at Hamilton Oaks in Brockton,Massachusetts; approximately $88,000 at School Street in Framingham,Massachusetts; and approximately $96,000 at 1144 Commonwealth Avenue inBrighton, Massachusetts.  All suchimprovements were funded from the Partnership’s cash reserves and escrowaccounts established in connection with the refinancing of applicableproperties.

 

In addition to theimprovements made to date in 2005, the Partnership and its SubsidiaryPartnerships plan to invest approximately $950,000 in capital improvementsduring the balance of 2005, the majority of which will be spent at 1144Commonwealth Avenue, Westside Colonial, 62 Boylston, Hamilton Oaks, and RedwoodHills.  These improvements will be fundedfrom escrow accounts established in connection with the refinancing ofapplicable properties, as well as from the Partnership’s cash.

 

ThePartnership anticipates that cash from operations and interest-bearinginvestments will be sufficient to fund its current operations and to financecurrent improvements to its properties. The Partnership’s net income and cash flow may fluctuate dramaticallyfrom year to year as a result of the sale of properties, mortgage financings,unanticipated increases in expenses, or the loss of significant tenants.

 

Off-Balance Sheet Arrangements –Joint Venture Indebtedness

 

As of June 30,2005, the Partnership had a 50% ownership in five joint ventures, all of whichhave mortgage indebtedness.  We do nothave control of these partnerships and therefore we account for them using theequity method of consolidation.  At June30, 2005 our proportionate share of the non-recourse debt related to theseinvestments was equal to approximately $36,013,000.  See Note 14, to the consolidated financialstatements.

 

29

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Factors That May Affect FutureResults

 

Certaininformation contained herein includes forward-looking statements, which aremade pursuant to the safe harbor provisions of the Private SecuritiesLiquidation Reform Act of 1995 (the “Act”). While forward looking statements reflect management’s good faith beliefswhen those 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 the Partnership’sactual results, performance or achievements for 2005 and beyond.

 

Along withrisks detailed from time to time in the Partnership’s filings with theSecurities and Exchange Commission, some factors that could cause thePartnership’s actual results, performance or achievements to differ materiallyfrom those expressed or implied by forward-looking statements include but arenot limited to the following:

 

ThePartnership depends on the real estate markets where its properties arelocated, primarily in Eastern Massachusetts and these markets may be adverselyaffected by local economic market conditions, which are beyond the Partnership’scontrol.

 

ThePartnership is subject to the general economic risks affecting the real estateindustry, such as dependence on tenant’s financial condition and the need toenter into new leases or renew leases on terms favorable to tenants in order togenerate 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.

 

ThePartnership is subject to significant expenditures associated with eachinvestment, such as debt service payments, real estate taxes, insurance andmaintenance costs, which are generally not reduced when circumstances cause areduction in revenues from a property.

 

ThePartnership is subject to increases in heating and utility costs that my ariseas a result of economic and market conditions and fluctuations in seasonalweather conditions.

 

Civildisturbances, earthquakes and other natural disasters may result in uninsuredor underinsured loses.

 

Actual orthreatened terrorist attacks may adversely affect our ability to generaterevenues and the value of our properties.

 

Financing orrefinancing of Partnership properties may not be available to the extentnecessary or desirable, or may not be available on favorable terms

 

30

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ThePartnership properties face competition from similar properties in the samemarket.  This competition may affect thePartnership’s ability to attract and retain tenants and may reduce the rentsthat can be charged

 

Given thenature of the real estate business, the Partnership is subject to potentialenvironmental 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 radongas.  Management is not aware of anymaterial environmental liabilities at this time.

 

Insurancecoverage for and relating to commercial properties is increasingly costly anddifficult to obtain.  In addition,insurance carriers have excluded certain specific items from standard insurancepolicies, which have resulted in increased risk exposure for thePartnership.  These include insurancecoverage for acts of terrorism and war, and coverage for mold and otherenvironmental conditions.  Coverage forthese items is either unavailable, or prohibitively expensive.

 

Marketinterest rates could adversely affect the market prices for Class A PartnershipUnits and Depositary Receipts as well as performance and cash flow.

 

Changes in thetax laws and regulations may affect the income taxable to owners of thePartnership.  These changes may affectthe after-tax value of future distributions.

 

ThePartnership may fail to identify, acquire, construct, or develop additionalproperties; may develop or acquire properties that do not produce a desired orexpected yield on invested capital; may be unable to sell poorly-performing orotherwise undesirable properties quickly; or may fail to effectively integrateacquisitions of properties or portfolios of properties.

 

Risksassociated with the use of debt to fund acquisitions and developments.

 

Competitionfor acquisitions may result in increased prices for properties.

 

The sale ofcondominium units may not generate enough net proceeds to pay the minimumcurtailment payments required at Hamilton Place and Hamilton Minuteman.  The Partnership may be required to fund anydeficiencies.

 

Any weaknessidentified in the Partnership’s internal controls as part of the evaluationbeing undertaken by the Company and its independent public accountants pursuantto Section 404 of the Sarbanes-Oxley Act of 2002 could have an adverse effecton the Company’s business.

 

Ongoingcompliance with Sarbanes-Oxley Act of 2002 may require additional personnel orsystem changes.

 

The foregoingfactors should not be construed as exhaustive or as an admission regarding the

 

31

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adequacy of disclosures made bythe Partnership prior to the date hereof or the effectiveness of said Act.  The Partnership expressly disclaims anyobligation to publicly update or revise any forward-looking statement, whetheras a result of new information, future events or otherwise.

 

Theresidential real estate market in the Greater Boston area has softened and thePartnership anticipates the climate will remain the same in the foreseeablefuture.  This may result in increases invacancy rates and or/a reduction in rents. The Partnership believes its presentcash reserves as well as anticipated rental revenue will be sufficient to fundits current operations, and to finance current planned improvements to itsproperties and continue dividend payments in the foreseeable future.

 

Since thePartnership’s long-term goals include the acquisition of additional properties,a portion of the proceeds from the refinancing and sale of properties isreserved for this purpose.  The Partnershipwill consider refinancing existing properties if the Partnership’s cashreserves are insufficient to repay existing mortgages or if the Partnershipneeds additional funds for future

acquisitions.

 

Item 3 –QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As of June 30,2005, the Partnership and its subsidiary Partnerships collectively have approximately$115,950,000 in long-term debt, all of which have fixed interest rates.  Accordingly, the fair value of these debtinstruments is affected by changes in market interest rates.  For information regarding the fair value andmaturity dates of these debt obligations, see Notes 5 and 12 to theConsolidated Financial Statements.

 

For additionaldisclosures about market risk, see “Item 2 – Management’s Discussion andAnalysis of Financial Condition and Results of Operations – Factors that MayAffect Future Results.”

 

Item4—CONTROLS AND PROCEDURES

 

Our principalexecutive officer and principal financial officer have within 90 days of thefiling date of this quarterly report, evaluated the effectiveness of ourdisclosure controls and procedures (as defined in Rule 13a-14(c) and 15d-14(c)under the Securities and Exchange Act of 1934, as amended) and have determinedthat such disclosure controls and procedures are adequate.  There have been no significant changes ininternal controls or in other factors that could significantly affect ourinternal controls since the date of evaluation. We do not believe any significant deficiencies or material weaknessesexist in our internal controls.  Accordingly,no corrective actions have been taken. We continue to review and document ourdisclosure controls and procedures, including our internal controls overfinancial reporting, and may from time to time, make changes aimed at enhancingtheir effectiveness and to ensure our systems evolve with our business.

 

32

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PARTII - OTHER INFORMATION

 

Item 1.    Legal Proceedings

 

None.

 

Item 2.    UnregisteredSale of Equity Securities and Use of Proceeds

 

None.

 

Item 3.    DefaultsUpon Senior Securities

 

None.

 

Item 4.    Submissionof Matters to a Vote of Security Holders

 

None.

 

Item 5.    Other Information

 

None.

 

Item 6.    Exhibits

 

(a)           Seethe exhibit index below.

 

33

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SIGNATURES

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
| Date:    August 15,  2005 |                                                |
|----------------------------------------------------|-----------------------------------------------------|
|                                               |                                                |
|                                               | NEW  ENGLAND REALTY ASSOCIATES  LIMITED PARTNERSHIP |
|                                               |                                                |
|                                               | By:                                                 | NEWREAL,  INC., |
|                                               |                                                | its  General Partner* |
|                                               |                                                |
|                                               |                                                |
|                                               | By:                                                 | /s/ Ronald Brown |   |
|                                               |                                                | Ronald  Brown, President |
|                                               |                                                |
|                                               |                                                |
|                                               |
|                                               | *                                                   | Functional  equivalent of Chief Executive Officer, Principal Financial Officer and  Principal Accounting Officer |
|                                                    |                                                     |  |  |  |  |

 

34

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**EXHIBIT INDEX**

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

 

35

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