** **

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

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**Form 10-Q**
| **(Mark One)**                                   | ** ** | ** **                                                                                              |
|--------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|
| **x**                                            | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**  |
| **For the quarterly period ended June 30, 2006** |
| ** OR **                               |
| **o**                                            | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**Forthe transition period from                         to                          **

**Commissionfile number 0-12138**

**NewEngland Realty Associates Limited Partnership**

(Exact name of registrantas specified in its charter)

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

 

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

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

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

 

 

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**INDEX**
|                | ** ** | **PART I  — FINANCIAL INFORMATION**                                                                                                                            | ** ** | ** ** |
|----------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
|           |       |                                                                                                                                                                     |       |       |
| Item 1.   |       | Financial  Statements                                                                                                                                                    |       |       |
|           |       |                                                                                                                                                                     |       |       |
|           |       | Consolidated  Balance Sheets as of June 30, 2006 (unaudited) and December 31,  2005 (audited)                                                                  |       |       |
|           |       |                                                                                                                                                                     |       |       |
|           |       | Consolidated Statements of Income for the Three Months  Ended June 30, 2006 and June 30, 2005, and the Six Months Ended June 30, 2006  and June 30, 2005 (all unaudited) |       |       |
|           |       |                                                                                                                                                                     |       |       |
|           |       | Consolidated Statement of Changes in Partners’ Capital  for the Six Months Ended June 30, 2006 and June 30, 2005, (all unaudited)                                   |       |       |
|           |       |                                                                                                                                                                     |       |       |
|           |       | Consolidated Statements of Cash Flows for the Six  Months Ended June 30, 2006 and June 30, 2005 (all unaudited)                                                          |       |       |
|           |       |                                                                                                                                                                     |       |       |
|           |       | Notes to Financial Statements                                                                                                                                            |       |       |
|           |       |                                                                                                                                                                     |       |       |
| Item 2.   |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                                                                              |       |       |
|           |       |                                                                                                                                                                     |       |       |
| Item 3.   |       | Quantitative and Qualitative Disclosures About Market  Risk                                                                                                              |       |       |
|           |       |                                                                                                                                                                     |       |       |
| Item 4.   |       | Controls  and Procedures                                                                                                                                                 |       |       |
|           |       |                                                                                                                                                                     |       |       |
|           | ** ** | **PART II  — OTHER INFORMATION**                                                                                                                               | ** ** | ** ** |
|           | ** ** | ** **                                                                                                                                                               | ** ** | ** ** |
| Item 1.   |       | Legal  Proceedings                                                                                                                                                       |       |       |
|           |       |                                                                                                                                                                     |       |       |
| Item 2.   |       | Changes in Securities and Use of Proceeds                                                                                                                                |       |       |
|           |       |                                                                                                                                                                     |       |       |
| Item 3.   |       | Defaults Upon Senior Securities                                                                                                                                          |       |       |
|           |       |                                                                                                                                                                     |       |       |
| Item 4.   |       | Submission of Matters to a Vote of Security Holders                                                                                                                      |       |       |
|           |       |                                                                                                                                                                     |       |       |
| Item 5.   |       | Other  Information                                                                                                                                                       |       |       |
|           |       |                                                                                                                                                                     |       |       |
| Item 6.   |       | Exhibits and Reports on Form 8-K                                                                                                                                    |       |       |
|           |       |                                                                                                                                                                     |       |       |
| **SIGNATURES** |       |                                                                                                                                                                     |

 

2

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**NEW ENGLAND REALTY ASSOCIATES,L.P.**

**PART 1 —FINANCIAL INFORMATION**

**Item 1. Financial Statements**

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

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

The results of operationsfor the six month period ended June 30, 2006 are not necessarilyindicative of the results to be expected for the entire fiscal year or anyother period.

3

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**NEW ENGLAND REALTY ASSOCIATESLIMITED PARTNERSHIP AND SUBSIDIARIES**

**CONSOLIDATEDBALANCE SHEETS**
| ** **                                        | ** ** | **June 30,  2006  (Unaudited)** | ** **  | **December 31,  2005  (Audited)** | ** ** |
|---------------------------------------------------|------------|--------------------------------------|-------------|----------------------------------------|------------|
| **ASSETS**                                        | ** ** | ** **                           | ** **  | ** **                             | ** ** |
| Rental Properties                                 |       | $                                    | 100,046,363 |                                   | $          | 102,209,561 |   |
| Cash and Cash  Equivalents                        |       | 11,724,433                           |        | 12,049,392                             |       |
| Rents Receivable                                  |       | 602,193                              |        | 480,118                                |       |
| Real Estate Tax Escrows                           |       | 809,510                              |        | 758,820                                |       |
| Prepaid Expenses and  Other Assets                |       | 2,829,474                            |        | 2,649,595                              |       |
| Investment in  Partnerships                       |       | 16,669,761                           |        | 16,337,832                             |       |
| Financing and Leasing  Fees                       |       | 518,824                              |        | 568,622                                |       |
|                                              |       |                                 |        |                                   |       |
| **Total  Assets**                                 |       | $                                    | 133,200,558 |                                   | $          | 135,053,940 |   |
|                                              |       |                                 |        |                                   |       |
| **LIABILITIES AND PARTNERS’  CAPITAL**       | ** ** | ** **                           | ** **  | ** **                             | ** ** |
| Mortgage Notes Payable                            |       | $                                    | 115,158,594 |                                   | $          | 115,585,241 |   |
| Accounts Payable and  Accrued Expenses            |       | 1,317,598                            |        | 1,443,461                              |       |
| Advance Rental Payments  and Security Deposits    |       | 3,038,385                            |        | 2,943,219                              |       |
|                                              |       |                                 |        |                                   |       |
| **Total  Liabilities**                            |       | 119,514,577                          |        | 119,971,921                            |       |
|                                              |       |                                 |        |                                   |       |
| Commitments and  Contingent Liabilities (Note 9)  |       |                                 |        |                                   |       |
|                                              |       |                                 |        |                                   |       |
| Partners’ Capital                            |       |                                 |        |                                   |       |
| 173,252 units  outstanding in 2006 and 2005       |       | 13,685,981                           |        | 15,082,019                             |       |
|                                              |       |                                 |        |                                   |       |
| **Total Liabilities and Partners’  Capital** |       | $                                    | 133,200,558 |                                   | $          | 135,053,940 |   |

See notes to consolidatedfinancial statements.

4

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**NEW ENGLAND REALTY ASSOCIATESLIMITED PARTNERSHIP AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF INCOME**

**(UNAUDITED)**
| ** **                                                       | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                       | ** ** | **2006**                                        | ** ** | **2005**                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| Revenue                                                          |       |                                            |       |                                          |       |   |   |   |   |
| Rental income                                                    |       | $                                               | 7,847,066  |                                          | $          | 7,812,890 |   | $ | 15,814,658 |   | $ | 15,610,188 |   |
| Laundry and sundry income                                        |       | 107,470                                         |       | 87,944                                        |       | 231,501 |   | 204,056 |   |
|                                                             |       | 7,954,536                                       |       | 7,900,834                                     |       | 16,046,159 |   | 15,814,244 |   |
| Expense                                                          |       |                                            |       |                                          |       |   |   |   |   |
| Administrative                                                   |       | 323,642                                         |       | 319,527                                       |       | 675,294 |   | 659,318 |   |
| Depreciation and amortization                                    |       | 1,708,891                                       |       | 1,583,964                                     |       | 3,357,934 |   | 3,103,455 |   |
| Interest                                                         |       | 1,930,677                                       |       | 1,944,407                                     |       | 3,846,801 |   | 3,881,882 |   |
| Management fees                                                  |       | 325,368                                         |       | 325,036                                       |       | 647,028 |   | 640,744 |   |
| Operating                                                        |       | 864,906                                         |       | 766,167                                       |       | 2,156,540 |   | 2,177,624 |   |
| Renting                                                          |       | 138,240                                         |       | 154,917                                       |       | 194,106 |   | 257,769 |   |
| Repairs and maintenance                                          |       | 1,432,409                                       |       | 1,275,341                                     |       | 2,463,137 |   | 2,289,812 |   |
| Taxes and insurance                                              |       | 883,001                                         |       | 925,741                                       |       | 1,754,330 |   | 1,829,891 |   |
|                                                             |       | 7,607,134                                       |       | 7,295,100                                     |       | 15,095,170 |   | 14,840,495 |   |
|                                                             |       |                                            |       |                                          |       |   |   |   |   |
| Income Before  Other Income                                      |       | 347,402                                         |       | 605,734                                       |       | 950,989 |   | 973,749 |   |
|                                                             |       |                                            |       |                                          |       |   |   |   |   |
| Other Income  (Loss)                                             |       |                                            |       |                                          |       |   |   |   |   |
| Interest income                                                  |       | 109,299                                         |       | 59,581                                        |       | 202,777 |   | 97,908 |   |
| Income (Loss) from investment in joint ventures                  |       | 127,109                                         |       | 709,106                                       |       | (118,071 | ) | 667,482 |   |
|                                                             |       | 236,408                                         |       | 768,687                                       |       | 84,706 |   | 765,390 |   |
|                                                             |       |                                            |       |                                          |       |   |   |   |   |
| Income from  Continuing Operations                               |       | 583,810                                         |       | 1,374,421                                     |       | 1,035,695 |   | 1,739,139 |   |
|                                                             |       |                                            |       |                                          |       |   |   |   |   |
| Discontinued  Operations                                         |       |                                            |       |                                          |       |   |   |   |   |
| Income (Loss) from discontinued operations                       |       | —                                          |       | 882                                           |       | (10,125 | ) | 4,383 |   |
| Gain (Loss) on sale of real estate from discontinued  operations |       | —                                          |       | (41,221                                       | )          | — |   | 5,770,363 |   |
|                                                             |       | —                                          |       | (40,339                                       | )          | (10,125 | ) | 5,774,746 |   |
|                                                             |       |                                            |       |                                          |       |   |   |   |   |
| Net Income                                                       |       | $                                               | 583,810    |                                          | $          | 1,334,082 |   | $ | 1,025,570 |   | $ | 7,513,885 |   |
|                                                             |       |                                            |       |                                          |       |   |   |   |   |
| Income per Unit                                                  |       |                                            |       |                                          |       |   |   |   |   |
| Income before discontinued operations                            |       | 3.37                                            |       | 7.93                                          |       | 5.98 |   | 10.04 |   |
| Income (Loss) from discontinued operations                       |       | —                                          |       | (.23                                          | )          | (.06 | ) | 33.33 |   |
|                                                             |       | 3.37                                            |       | 7.70                                          |       | 5.92 |   | 43.37 |   |
|                                                             |       |                                            |       |                                          |       |   |   |   |   |
| Net Income per  Unit                                             |       | $                                               | 3.37       |                                          | $          | 7.70 |   | $ | 5.92 |   | $ | 43.37 |   |
|                                                             |       |                                            |       |                                          |       |   |   |   |   |
| Weighted Average Number  of Units Outstanding                    |       | 173,252                                         |       | 173,252                                       |       | 173,252 |   | 173,252 |   |

 

See notes to consolidated financial statements.

5

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

**(UNAUDITED**)
| ** **                                                                 | ** ** | **Limited**      | ** ** | ** **       | ** ** | ** **               | ** ** |
|----------------------------------------------------------------------------|------------|------------------|------------|------------------|------------|--------------------------|------------|
| ** **                                                                 | ** ** | **Class A** | ** ** | **Class B** | ** ** | **General  Partnership** | ** ** | **Total** | ** ** |
| Balance,  January 1, 2005                                             |       | $                | 8,372,714  |             | $          | 1,991,972                |       | $ | 104,870 |   | $ | 10,469,556 |   |
|                                                                       |       |             |       |             |       |                     |       |   |   |
| Distribution to  Partners                                                  |       | (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 |   |
|                                                                       |       |             |       |             |       |                     |       |   |   |
| Balance,  January 1, 2006                                             |       | $                | 12,062,684 |             | $          | 2,868,340                |       | $ | 150,995 |   | $ | 15,082,019 |   |
|                                                                       |       |             |       |             |       |                     |       |   |   |
| Distribution to  Partners                                                  |       | (1,937,286       | )          | (460,106         | )          | (24,216                  | )          | (2,421,608 | ) |
|                                                                       |       |             |       |             |       |                     |       |   |   |
| Net Income                                                                 |       | 820,456          |       | 194,858          |       | 10,256                   |       | 1,025,570 |   |
|                                                                       |       |             |       |             |       |                     |       |   |   |
| Balance, June  30, 2006                                                    |       | $                | 10,945,854 |             | $          | 2,603,092                |       | $ | 137,035 |   | $ | 13,685,981 |   |
|                                                                       |       |             |       |             |       |                     |       |   |   |
| Units authorized and  Issued, net of 6,973 Treasury Units at June 30, 2006 |       | 138,602          |       | 32,918           |       | 1,732                    |       | 173,252 |   |

 

See notes toconsolidated financial statements

6

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**NEWENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(UNAUDITED)**
| ** **                                                                         | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                         | ** ** | **2006**                                      | ** ** | **2005** | ** ** |
| Cash Flows from  Operating Activities                                              |       |                                          |       |   |   |
| Net income                                                                         |       | $                                             | 1,025,570  |   | $ | 7,513,885 |   |
|                                                                               |       |                                          |       |   |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                                          |       |   |   |
| Depreciation and amortization                                                      |       | 3,357,934                                     |       | 3,122,360 |   |
| (Income) Loss from investments in joint venture                                    |       | 118,071                                       |       | (667,482 | ) |
| (Gain) on sale of rental properties                                                |       | —                                        |       | (5,770,363 | ) |
| Change in  operating assets and liabilities                                        |       |                                          |       |   |   |
| (Increase) Decrease in rents receivable                                            |       | (122,075                                      | )          | 5,566 |   |
| (Increase) in financing and leasing fees                                           |       | —                                        |       | (44,854 | ) |
| (Decrease) in accounts payable and accrued expense                                 |       | (125,863                                      | )          | (85,264 | ) |
| (Increase) in real estate tax escrow                                               |       | (50,690                                       | )          | 3,288 |   |
| (Increase) Decrease in prepaid expenses and other  assets                          |       | (187,557                                      | )          | (184,459 | ) |
| Increase (Decrease) in advance rental payments and  security deposits              |       | 95,166                                        |       | (4,894 | ) |
|                                                                               |       |                                          |       |   |   |
| Total  Adjustments                                                                 |       | 3,084,986                                     |       | (3,626,102 | ) |
|                                                                               |       |                                          |       |   |   |
| Net cash  provided by operating activities                                         |       | 4,110,556                                     |       | 3,887,783 |   |
|                                                                               |       |                                          |       |   |   |
| Cash Flows (used  in) provided by Investing Activities                             |       |                                          |       |   |   |
| (Investment in) joint venture                                                      |       | (450,000                                      | )          | (4,252,500 | ) |
| Purchase and improvement of rental properties                                      |       | (1,137,260                                    | )          | (1,357,627 | ) |
| Net proceeds from the sale of rental properties                                    |       | —                                        |       | 6,169,417 |   |
|                                                                               |       |                                          |       |   |   |
| Net cash (used  in) provided by investing activities                               |       | (1,587,260                                    | )          | 559,290 |   |
|                                                                               |       |                                          |       |   |   |
| Cash Flows (used  in) provided by Financing Activities                             |       |                                          |       |   |   |
| Proceeds of mortgage notes payable                                                 |       | —                                        |       | 2,000,000 |   |
| Principal payments of mortgage notes payable                                       |       | (426,647                                      | )          | (1,664,032 | ) |
| Distributions to partners                                                          |       | (2,421,608                                    | )          | (2,421,607 | ) |
|                                                                               |       |                                          |       |   |   |
| Net cash (used  in) financing activities                                           |       | (2,848,255                                    | )          | (2,085,639 | ) |
|                                                                               |       |                                          |       |   |   |
| Net (Decrease)  Increase in Cash and Cash Equivalents                              |       | (324,959                                      | )          | 2,361,434 |   |
| Cash and Cash  Equivalents, at beginning of period                                 |       | 12,049,392                                    |       | 9,862,810 |   |
|                                                                               |       |                                          |       |   |   |
| Cash and Cash  Equivalents, at end of period                                       |       | $                                             | 11,724,433 |   | $ | 12,244,244 |   |

 

See notes toconsolidated financial statements.

7

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**NEWENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

**JUNE30, 2006**

**NOTE 1. SIGNIFICANT ACCOUNTING POLICIES**

*Lineof Business:*   NewEngland Realty Associates Limited Partnership (“NERA” or the “Partnership”) wasorganized in Massachusetts during 1977. NERA and its subsidiaries own andoperate various residential apartment buildings, condominium units andcommercial properties located in Massachusetts and New Hampshire. NERA has alsomade investments in other real estate partnerships and has participated inother real estate-related activities, primarily located in Massachusetts.In connection with the mortgages referred to in Note 5, a substantialnumber of NERA’s properties are owned by separate subsidiaries without anychange 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 six limited liabilitycompanies (the “Investment Properties”) in which the Partnership has a 50%ownership interest. The consolidated group is referred to as the “Partnerships.”Minority interests are not recorded, since they are insignificant. Allsignificant intercompany accounts and transactions are eliminated inconsolidation. The Partnership accounts for its investment in the above-mentionedlimited liability companies using the equity method of consolidation. (SeeNote 14 for information on the Investment Properties).

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

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

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

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

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

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

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

8

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

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

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

*Concentrationof Credit Risks and Financial Instruments:*   The Partnership’s properties arelocated in New England, and the Partnership is subject to the general economicrisks related thereto. No single tenant accounted for more than 5% of thePartnership’s revenues in 2006 or 2005. The Partnership makes its temporarycash investments with high-credit-quality financial institutions. At June30, 2006, substantially all of the Partnership’s cash and cash equivalents wereheld in interest-bearing accounts at financial institutions, earninginterest at rates from 2.10% to 5.10%. At June 30, 2006 and December 31, 2005, approximately $12,000,000 ofcash and cash equivalents, and cash included in prepaid expenses and otherasserts exceeded federally insured amounts.

*Advertising Expense:*   Advertising is expensed as incurred. Advertisingexpense was $43,942 and $68,991 for the six months ended June 30, 2006 and2005, respectively.

*Discontinued Operations and Rental Property Held forSale:*   Whenassets are identified by management as held for sale, the Partnershipdiscontinues depreciating the assets and estimates the sales price, net ofselling costs, of such assets. If, in management’s opinion, the net sales priceof the assets which have been identified as held for sale is less than the netbook of the assets, a valuation allowance is established. Properties identifiedas held for sale and/or sold are presented in discontinued operations for allperiods presented.

If circumstances arise that previously were consideredunlikely and, as a result, the Partnership decides not to sell a propertypreviously classified as held for sale, the property is reclassified as heldand used. A property that is reclassified is measured and recorded individuallyat the lower of (a) its carrying amount before the property was classifiedas held for sale, adjusted for any depreciation (amortization) expense thatwould have been recognized that the property been continuously classified asheld and used, or (b) the fair value at the date of the subsequentdecision not to sell.

*InterestCapitalized:*   The Company follows the policy ofcapitalizing interest as a component of the cost of rental property when thetime of construction exceeds one year. During the six months ended June 30,2006 and the year ended December 31, 2005, there was no capitalized interest.

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

**NOTE 2. RENTAL PROPERTIES**

As of June 30, 2006, the Partnership and itsSubsidiary Partnerships owned 2,378 residential apartment units in 22residential and mixed-use complexes (collectively, the “Apartment Complexes”).The Partnership also owns 24 condominium units in 2 residential condominiumcomplexes, all of which are leased to residential tenants (collectivelyreferred to as the “Condominium Units”). The Apartment Complexes andCondominium Units are located primarily in the metropolitan Boston area ofMassachusetts.

Additionally, as of June 30, 2006, the SubsidiaryPartnerships owned commercial shopping centers in Framingham, Massachusetts andmixed-use properties in Boston, Brockton and Newton, Massachusetts. Theseproperties are referred to collectively as the “Commercial Properties.”

9

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Additionally, as of June 30, 2006, the Partnershipowned a 50% ownership interest in six residential and mixed use complexes (the “InvestmentProperties”) with a total of 547 units, accounted for using the equity methodof consolidation. See Note 14 for summary information on theseinvestments.

On June 30, 2003, the Partnership purchased fivecondominium units from a group of investors who are also affiliated with thePartnership. The total purchase price for the five units was $2,421,286,including closing costs. The Partnership obtained a $1,600,000 mortgage onthese condominiums. This mortgage is due in August 2006.  The Partnership has requested an extension ofthis payment date to August 2008 and anticpates approval from the bank. Themajority owner of the General Partner has agreed to indemnify the Partnershipfor any losses incurred from the sale of any of these units through the new orextended maturity date of the mortgage. See Note 3 for a discussion of certainrelated parties associated with this acquisition.

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

Rental properties consist of the following:
| ** **                           | ** ** | **June 30, 2006** | ** **  | **December 31, 2005** | ** ** | **Useful Life** | ** ** |
|--------------------------------------|------------|-----------------------------|-------------|---------------------------------|------------|----------------------|------------|
| Land,  improvements and parking lots |       | $                           | 23,192,129  |                            | $          | 23,187,429           |       | 10-31 years |   |
| Buildings and  improvements          |       | 105,540,856                 |        | 105,416,158                     |       | 15-31 years          |       |
| Kitchen cabinets                     |       | 4,147,482                   |        | 3,821,968                       |       | 5-10 years           |       |
| Carpets                              |       | 3,488,319                   |        | 3,179,205                       |       | 5-10 years           |       |
| Laundry  equipment                   |       | 187,632                     |        | 182,855                         |       | 5-7 years            |       |
| Elevators                            |       | 735,365                     |        | 725,882                         |       | 20 years             |       |
| Swimming pools                       |       | 147,082                     |        | 142,428                         |       | 10 years             |       |
| Equipment                            |       | 1,672,404                   |        | 1,489,966                       |       | 5-7 years            |       |
| Motor vehicles                       |       | 119,076                     |        | 119,076                         |       | 5 years              |       |
| Fences                               |       | 269,659                     |        | 265,209                         |       | 5-10 years           |       |
| Furniture and  fixtures              |       | 4,372,034                   |        | 4,279,508                       |       | 5-7 years            |       |
| Smoke alarms                         |       | 160,222                     |        | 118,734                         |       | 5-7 years            |       |
|                                 |       | 144,799,832                 |        | 143,662,572                     |       |                 |       |
| Less accumulated  depreciation       |       | 44,753,469                  |        | 41,453,011                      |       |                 |       |
|                                 |       | $                           | 100,046,363 |                            | $          | 102,209,561          |       |   |   |

 

**NOTE 3. RELATED PARTY TRANSACTIONS**

The Partnership’s properties are managed by an entitythat is owned by the majority shareholder of the General Partner. Themanagement fee is equal to 4% of rental revenue and laundry income. Total feespaid were approximately $647,000 and $643,000 for the six months ended June 30,2006 and 2005, respectively.

The Partnership Agreement permits the General Partneror management company to charge the costs of professional services (such ascounsel, accountants and contractors) to NERA. In the six months ended June 30,2006 and 2005, approximately $165,000 and $295,000, respectively, was chargedto NERA for legal, construction, maintenance, rental and architectural servicesand supervision of capital improvements. Of the 2006 expenses referred toabove, approximately $78,000 consisted of repairs and maintenance and $76,000of administrative expense. Approximately $11,000 of expenses for construction,architectural services and supervision of capital projects was capitalized inrental properties.

Additionally in 2006, the Hamilton Company receivedapproximately $634,000 from the Investment Properties of which approximately $139,000was the management fee, $220,000 for construction costs, $18,000 was forconstruction supervision and architectural fees, $250,000 was for maintenanceservices and $7,000 was for administrative services.  The Hamilton Company legal department acts asclosing attorney on certain condo sales receiving approximately $50,000.  As more fully described in Note 14, an entitypartially owned by the majority shareholder of the General Partner is the salesagent for certain condominium sales receiving approximately $118,000 ofcommissions through June 30, 2006.

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On January 1, 2004, all employees weretransferred to the management company’s payroll. The Partnership reimburses themanagement company for the payroll and related expenses of the employeesdirectly employed by the properties. Total reimbursement was approximately$1,333,000 for the six months ended June 30, 2006.

In 1996, prior to becoming an employee and Presidentof the management company, the current President of the management companyperformed asset management consulting services to the Partnership. Thisindividual continues to perform this service and to receive an asset managementfee from the Partnership, receiving $25,000 during the six months ended June30, 2006, and $50,000 for the year ended December 31, 2005.

The Partnership has invested in six limited liabilitycompanies to purchase six residential apartment complexes (the “InvestmentProperties”). The Partnership owns 50% of each entity, the majority shareholderof the General Partner owns between 43.2% and 47.5% and the President ofHamilton owns between 2.5% and 4.5%, and five other management employees ofHamilton own collectively between 0% and 2.3% respectively. See Note 14for a description of the properties and their operations.

On June 30, 2003, the Partnership purchased fivecondominium units in a 42-unit building located in Brookline,Massachusetts. These were purchased from Harvard 45 Associates LLC (“Harvard 45”)which is owned 70% by the 75% shareholder and treasurer of the General Partner,and 5% by the President of Hamilton. The total purchase price for thesecondominiums was approximately $2,416,000 and was approved both by thePartnership’s Advisory Committee and the General Partner. Harvard 45 realized again of approximately $648,000 from these sales. Harvard 45 also sold 16 unitsto unrelated parties; the prices for all 21 units sold were comparable. Themajority shareholder of the general partner has guaranteed the $1,600,000mortgage for these five units. The mortgage becomes due in August 2006,however the Partnership has requested an extension of this payment date toAugust 2008 and anticipates approval from the bank.

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

In March 2005, the Partnership sold the MiddlesexApartments to an entity wholly owned by the majority shareholder of the GeneralPartner. The selling price was $6,500,000 which resulted in a capital gain forthe Partnership of approximately $5,800,000 and an increase in the Partnership’scash reserves of approximately $4,800,000 after payment off 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 paid to date are$138,000. Although the buyer is assuming the costs and economic risks ofconverting and selling the condominium units, if the net gains from the sale ofthese units exceed $500,000, the excess will be split equally between the buyerand the Partnership. The buyer estimates that the gain from the sale of theseunits will exceed $500,000 and an additional profit of $189,670 was recognizedat December 31, 2005.

**NOTE 4. OTHERASSETS**

Included in prepaid expenses and other assets at June30, 2006 and December 31, 2005 is approximately $381,000 and $313,000,respectively, held in escrow to fund future capital improvements.

Financing and leasing fees of $518,824 and $568,622are net of accumulated amortization of $493,216 and $443,417 at June 30, 2006and December 31, 2005, respectively.

**NOTE 5. MORTGAGENOTES PAYABLE**

At June 30, 2006 and December 31, 2005, themortgages payable consisted of various loans, all of which were secured byfirst mortgages on properties referred to in Note 2. At June 30, 2006, thefixed interest rates on these 

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loans ranged from 4.84%to 8.46%, payable in monthly installments aggregating approximately $704,000,including interest, to various dates through 2016. The majority of themortgages are subject to prepayment penalties. At June 30, 2006, the weightedaverage interest rate on the above mortgages was 6.63%. The effective rate of6.72% includes the amortization expense of deferred financing costs. SeeNote 12 for fair value information.

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

Approximate annualmaturities at June 30, 2006 are as follows:

| 2007- current  maturities |   | $          | 2,618,000   |   |
|---------------------------|--------|------------|-------------|--------|
| 2008                      |   | 1,131,000  |        |
| 2009                      |   | 5,707,000  |        |
| 2010                      |   | 11,470,000 |        |
| 2011                      |   | 33,448,000 |        |
| Thereafter                |   | 60,784,000 |        |
|                      |   | $          | 115,158,000 |   |

 

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

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

The Partnership’s residential lease agreements mayrequire tenants to maintain a one-month advance rental payment and/or asecurity deposit. Amounts received for prepaid rents of approximately$1,594,000 are included in cash and cash equivalents; security deposits ofapproximately $1,111,000 are included with other assets.

**NOTE 7.  PARTNERS’ CAPITAL**

The Partnership has two classes of Limited Partners(Class A and 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. All classeshave equal profit sharing and distribution rights, in proportion to theirownership interests.

In 2006, the Partnership approved quarterlydistributions of $7.00 per unit ($.70 per receipt) payable on March 31, June30, and September 30, 2006.

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

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

|                                                                  | ** ** | **Six months ended  June 30,** | ** ** |
|------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                       | ** ** | **2006**                                      | ** ** | **2005** | ** ** |
| Income per  Depositary Receipt before Discontinued Operations    |       | $                                             | .60        |   | $ | 1.00 |   |
| Income (loss)  from Discontinued Operations                      |       | (.01                                          | )          | 3.33 |   |
| Net Income per  Depositary Receipt after Discontinued Operations |       | $                                             | .59        |   | $ | 4.33 |   |
| Distributions per  Depositary Receipt                            |       | $                                             | 1.40       |   | $ | 1.40 |   |

 

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*** ***

**NOTE 8. TREASURY UNITS**

Treasury units atJune 30, 2006 are as follows:

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

 

**NOTE 9.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.

**NOTE 10. RENTALINCOME**

During the sixmonths ended June 30, 2006, approximately 93% of rental income was related toresidential apartments and condominium units with leases of one year or less.The remaining 7% was related to commercial properties, which have minimumfuture annual rental income on noncancellable operating leases at June 30, 2006as follows:

|            | ** ** | **Commercial  Property  Leases** | ** ** |
|------------|------------|----------------------------------|------------|
| 2007       |       | $                                | 1,803,000  |   |
| 2008       |       | 1,697,000                        |       |
| 2009       |       | 1,597,000                        |       |
| 2010       |       | 1,214,000                        |       |
| 2011       |       | 938,000                          |       |
| Thereafter |       | 3,484,000                        |       |
|       |       | $                                | 10,733,000 |   |

 

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$201,000 for the six months ended June 30, 2006 and $394,000 for the year endedDecember 31, 2005, respectively.

Rents receivable are net of allowances for doubtfulaccounts of $474,042 and $284,005 at June 30, 2006 and December 31, 2005,respectively. Included in rents receivable is approximately $448,000 resultingfrom recognizing rental income from non-cancelable commercial leases withfuture rental increases on a straight-line basis. The majority of this amountis for a long-term lease with Staples at Staples Plaza in Framingham,Massachusetts.

**NOTE 11. CASH FLOWINFORMATION**

During the six months ended June 30, 2006 and 2005,cash paid for interest was $3,846,732 and $3,891,708 respectively.

**NOTE 12. FAIRVALUE OF FINANCIAL INSTRUMENTS**

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

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

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

|                            | ** ** | **Carrying  Amount** | ** **  | **Estimated  Fair Value** | ** ** |
|----------------------------|------------|----------------------|-------------|--------------------------------|------------|
| Mortgage Notes Payable     |       |                 |        |                           |       |
| At June 30, 2006           |       | $                    | 115,158,594 |                           | $          | 114,615,808 |   |
| At December 31,  2005 |       | $                    | 115,585,241 |                           | $          | 119,817,130 |   |

 

Disclosure about fair value of financial instrumentsis based on pertinent information available to management as of  June 30, 2006 and December 31, 2005.Although management is not aware of any factors that would significantly affectthe fair value amounts, such amounts have not been comprehensively revalued forpurposes of these financial statements since December 31, 2005 and currentestimates of fair value may differ significantly from the amounts presentedherein.

**NOTE 13. TAXABLEINCOME AND TAX BASIS**

Taxable income reportable by the Partnership andincludable in its partner’s tax returns is different than financial statementincome because of accelerated depreciation, different tax lives, and timingdifferences related to prepaid rents and allowances. Taxable income isapproximately $435,000 greater than statement income for the quarter ended June30, 2006 and approximately $13,000 less than statement income for the yearended December 31, 2005. The cumulative tax basis of the Partnership’sreal estate at June 30, 2006 is approximately $825,000 greater than thestatement basis. The Partnership’s tax basis in its joint venture investments isapproximately $380,000 less than statement basis. The depreciationrules that generated substantial deductions in 2004 and 2003 expired in2004, accordingly taxable income in future years is expected to increase.

**NOTE 14—INVESTMENTIN PARTNERSHIPS**

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

On March 7, 2005, the Partnership invested$2,000,000 for a 50% ownership interest in a building comprising 49 apartments,one commercial space and a 50-car surface parking lot located in Boston,Massachusetts. The purchase price was $14,300,000, and a $10,750,000 30-monthmortgage with a floating interest rate (7.27%) of 2% over the 30 day LiborIndex (5.27% at June 30, 2006) was obtained to finance this acquisition. ThePartnership plans to operate the building and initiate development of theparking lot. The plan may also include disposition of selected units, ascondominiums in order to reduce the above mentioned mortgage. Any profits fromthe condominium sales will be taxed at ordinary rates. Mr. Brown hasguaranteed 25% of this mortgage until such time as $2,687,500 of principal has beenpaid. The Partnership and the other investor have, in turn agreed to indemnifyMr. Brown for their proportional share of any losses incurred by thisguarantee. This investment is referred to as Essex Street.

On March 2, 2005,the Partnership invested $2,352,000 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 (7.27%) of 2% over the 30 day LiborIndex (5.27% at June 30, 2006) was obtained to finance this acquisition. ThePartnership plans to sell the majority of units as condominiums and retain 40to 50 units for long-term investment. The proceeds from the condominium saleswill primarily be used to reduce the above-mentioned mortgage. Harold Brown hasguaranteed 30% of this mortgage until such time as $9,950,000 of principal hasbeen paid. The Partnership and the other 

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investors have, in turnagreed to indemnify Mr. Brown their proportionate share of any lossesincurred by this guarantee. As of July 24, 2006, 101 units have been sold, and3 units have a signed purchase and sales agreement. Gains from the sales ofunits (approximately $55,000 per unit) will be taxed at ordinary income rates.This investment is referred to as 1025 Hamilton.

On October 3, 2005,the Partnership invested $2,500,000 for a 50% ownership interest in a 168-unitapartment complex in Quincy, Massachusetts. The purchase price was $30,875,000and a $26,165,127 30-month mortgage with a floating interest rate (7.27%)of 2% over the 30 day Libor Index (5.27% at June 30, 2006) was obtained tofinance this acquisition. The Partnership plans to sell the majority of unitsas condominium and retain 48 units for long-term investment. The proceeds fromthe condominium sales are primarily to be used to reduce the above-mentionedmortgage. Gains from the sales of units will be taxed at ordinary income rates(approximately $51,000 per unit). As of July 24, 2006, 30 units have been soldand an additional 14 units have a signed purchase and sales agreement. Thisinvestment is referred to as Hamilton Bay.

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 obtaineda mortgage on the property in the amount of $8,025,000 and returned $3,775,000to the Partnership. The Partnership is in the process of making the unitscondominiums for potential future sales, however, no units have been sold todate. This investment is referred to as Hamilton Minuteman.

In August 2004, thePartnership invested $8,000,000 for a 50% ownership interest in a 280-unitapartment complex located in Watertown, Massachusetts. The total purchase pricewas $56,000,000. The Partnership plans to sell, over time, three buildings witha total of 137 units as condominiums commencing in January 2005. As ofJuly 24, 2006, 80 units have been sold and an additional 9 units were undercontract. Gains from these sales will be taxed as ordinary income(approximately $60,000 per unit.)  Themajority of the sales proceeds will be used to reduce the mortgage. An entitypartially owned by the majority shareholder of the General Partner and thePresident of the management company, 31% and 5% respectively, is the salesagent and will receive a variable commission on each sale of 3% to 5%. Thisinvestment is referred to as Hamilton Place.

In 2005, Hamilton Place,Watertown, MA obtained a new 10 year mortgage on the three buildings to beretained for $16,825,000 interest only at 5.18% for 3 years and amortizing on a30 year schedule for the remaining 7 years when the balance is due. Thenet proceeds after funding escrow accounts and closing costs on the newmortgage were approximately $16,700,000, which were used to reduce the existingmortgage. Hamilton Place paid a  fee ofapproximately $400,000 in connection with this early extinguishment of debt.

In November 2001,the Partnership formed a limited liability company to purchase a 40-unitapartment building in Cambridge, Massachusetts. This property has a 12-yearmortgage, which is amortized on a 30-year schedule, with a final paymentof approximately $6,000,000 in 2014.  ThePartnership is a 50% owner in this investment and is referred to as FranklinStreet.

Commencing in 2005, themortgages on Hamilton Place and Hamilton Minuteman require minimum principalpayments (“Curtailment Payments”) and additional investment by the Partnershipwill be required if the proceeds from sales cannot provide for these payments.

As required by the lenderfor the 2004 and 2005 acquisitions, the Treasurer of the General Partner hasprovided a limited repayment guaranty equal to fifty percent (50%) of theoutstanding balance, reducing to zero percent (0%) upon the completion of theCurtailment Payments. In the event that he is obligated to make payments to thelender as a result of this guaranty, the Partnership and other investors have,in turn, agreed to indemnify him for their proportionate share of any suchpayments.

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**Summaryfinancial information for the six months ended June 30, 2006 (unaudited)**
| ** **                                                     | ** ** | **Franklin  Street** | ** ** | **Hamilton  Place** | ** ** | **Hamilton  Place** | ** ** | **Hamilton  Minuteman** | ** ** | **Essex 81** | ** ** | **1025  Hamilton** | ** ** | **Hamilton  Bay** | ** ** | ** **  | ** ** |
|----------------------------------------------------------------|------------|----------------------|------------|---------------------|------------|---------------------|------------|-------------------------|------------|-------------------|------------|--------------------|------------|-------------------|------------|-------------|------------|
| **Acquisition Date**                                      | ** ** | **November  2001**   | ** ** | **August  2004**    | ** ** | **August  2004**    | ** ** | **August  2004**        | ** ** | **March  2005**   | ** ** | **March  2005**    | ** ** | **October  2005** | ** ** | **Total**   | ** ** |
| Property assets — net                                     |       | 9,755,050            |       | 27,264,561          |       | 11,401,079          |       | 9,294,299               |       | 14,080,371        |       | 10,323,716         |       | 25,897,805        |       | 108,016,880 |       |
| Mortgages payable                                              |       | 7,766,406            |       | 16,825,000          |       | 5,561,149           |       | 7,941,811               |       | 10,750,000        |       | 6,143,719          |       | 20,519,625        |       | 75,507,710  |       |
| Total Equity                                                   |       | 1,952,448            |       | 13,696,054          |       | 3,324,080           |       | 1,496,964               |       | 3,416,402         |       | 4,520,024          |       | 4,933,550         |       | 33,339,522  |       |
| NERA — 50% equity                                         |       | 976,224              |       | 6,848,027           |       | 1,662,040           |       | 748,482                 |       | 1,708,201         |       | 2,260,012          |       | 2,466,775         |       | 16,669,761  |       |
| Summary income  statement:                                     |       |                 |       |                |       |                |       |                    |       |              |       |               |       |              |       |        |       |
| Rental income                                                  |       | 502,952              |       | 1,187,111           |       | 342,133             |       | 349,687                 |       | 725,806           |       | 461,296            |       | 939,661           |       | 4,508,646   |       |
| Operating expenses                                             |       | 133,860              |       | 536,632             |       | 321,291             |       | 107,184                 |       | 245,308           |       | 509,113            |       | 861,809           |       | 2,715,197   |       |
| Management fees                                                |       | 20,431               |       | 47,097              |       | 3,264               |       | 14,207                  |       | 27,212            |       | 7,030              |       | 19,308            |       | 138,549     |       |
| Interest expense                                               |       | 270,781              |       | 439,966             |       | 278,813             |       | 276,339                 |       | 378,092           |       | 278,599            |       | 841,022           |       | 2,763,612   |       |
| Depreciation &  amortization                          |       | 178,159              |       | 743,181             |       | 243,757             |       | 275,658                 |       | 221,354           |       | 270,131            |       | 603,042           |       | 2,535,282   |       |
| Financing expense                                              |       | —               |       | —              |       | —              |       | —                  |       | —            |       | —             |       | —            |       | —      |       |
| Gain on sale of  condominiums                                  |       | —               |       | —              |       | 833,591             |       | —                  |       | —            |       | 997,735            |       | 1,518,793         |       | 3,350,119   |       |
| Net profit (loss)                                              |       | (101,346             | )          | (579,765            | )          | 328,599             |       | (323,701                | )          | (146,160          | )          | 394,158            |       | 192,073           |       | (236,142    | )          |
| NERA — 50%                                                |       | (50,673              | )          | (289,882            | )          | 164,299             |       | (161,850                | )          | (73,080           | )          | 197,079            |       | 96,036            |       | (118,071    | )          |
| Total units/  condominiums                                     |       | 40                   |       | 146                 |       | 137                 |       | 42                      |       | 49                |       | 176                |       | 168               |       | 758         |       |
| Units to be retained                                           |       | 40                   |       | 146                 |       | 0                   |       | 42                      |       | 49                |       | 49                 |       | 48                |       | 374         |       |
| Units to be sold                                               |       | 0                    |       | 0                   |       | 137                 |       | 0                       |       | 0                 |       | 127                |       | 120               |       | 384         |       |
| Units sold through July  24, 2006                              |       | 0                    |       | 0                   |       | 80                  |       | 0                       |       | 0                 |       | 101                |       | 30                |       | 211         |       |
| Balance of unsold units                                        |       | 0                    |       | 0                   |       | 57                  |       | 0                       |       | 0                 |       | 26                 |       | 90                |       | 173         |       |
| Unsold units with deposits for future sale as of July 24, 2006 |       | 0                    |       | 0                   |       | 9                   |       | 0                       |       | 0                 |       | 3                  |       | 14                |       | 21          |       |

 

**Summaryfinancial information for the three months ended June 30, 2006 (unaudited)**
| ** **                            | ** ** | **Franklin  Street** | ** ** | **Hamilton  Place** | ** ** | **Hamilton  Place** | ** ** | **Hamilton  Minuteman** | ** ** | **Essex 81** | ** ** | **1025  Hamilton** | ** ** | **Hamilton  Bay** | ** ** | **Total** | ** ** |
|---------------------------------------|------------|----------------------|------------|---------------------|------------|---------------------|------------|-------------------------|------------|-------------------|------------|--------------------|------------|-------------------|------------|-----------|------------|
| Summary income  statement:            |       |                 |       |                |       |                |       |                    |       |              |       |               |       |              |       |      |       |
| Rental income                         |       | 249,554              |       | 580,789             |       | 161,159             |       | 174,928                 |       | 384,576           |       | 222,760            |       | 450,387           |       | 2,224,153 |       |
| Operating expenses                    |       | 68,982               |       | 312,043             |       | 161,136             |       | 44,951                  |       | 106,227           |       | 207,401            |       | 386,357           |       | 1,287,097 |       |
| Management fees                       |       | 10,290               |       | 22,995              |       | 1,347               |       | 7,179                   |       | 13,291            |       | 4,049              |       | 6,858             |       | 66,009    |       |
| Interest expense                      |       | 135,166              |       | 221,186             |       | 132,889             |       | 142,262                 |       | 196,408           |       | 129,025            |       | 413,066           |       | 1,370,002 |       |
| Depreciation &  amortization |       | 89,249               |       | 376,322             |       | 121,878             |       | 143,028                 |       | 111,505           |       | 130,085            |       | 329,507           |       | 1,310,574 |       |
| Financing expense                     |       | —               |       | —              |       | —              |       | —                  |       | —            |       | —             |       | —            |       | —    |       |
| Gain on sale of  condominiums         |       | —               |       | —              |       | 688,629             |       | —                  |       | —            |       | 570,602            |       | 737,782           |       | 1,997,013 |       |
| Net profit (loss)                     |       | (55,200              | )          | (351,757            | )          | 432,538             |       | (162,492                | )          | (42,855           | )          | 322,802            |       | 111,181           |       | 254,217   |       |
| NERA — 50%                       |       | (27,600              | )          | (175,878            | )          | 216,268             |       | (81,245                 | )          | (21,427           | )          | 161,401            |       | 55,590            |       | 127,109   |       |

 

**Future annual mortgage maturities at June 30, 2006 areas follows:**
| ** **        | ** ** | **Franklin  Street** | ** ** | **Hamilton  Place** | ** ** | **Hamilton  Place** | ** ** | **Hamilton  Minuteman** | ** ** | **Essex 81** | ** ** | **1025  Hamilton** | ** ** | **Hamilton  Bay** | ** ** | **Total**  | ** ** |
|-------------------|------------|----------------------|------------|---------------------|------------|---------------------|------------|-------------------------|------------|-------------------|------------|--------------------|------------|-------------------|------------|------------|------------|
| **Period Ended:** | ** ** | ** **           | ** ** | ** **          | ** ** | ** **          | ** ** | ** **              | ** ** | ** **        | ** ** | ** **         | ** ** | ** **        | ** ** | ** ** | ** ** |
| June 30, 2007     |       | 115,054              |       | —              |       | 5,561,149           |       | 340,000                 |       | 10,750,000        |       | —             |       | 11,537,125        |       | 28,303,328 |       |
| June 30, 2008     |       | 123,249              |       | 58,910              |       | —              |       | 7,601,811               |       | —            |       | 6,143,719          |       | 8,982,500         |       | 22,910,189 |       |
| June 30, 2009     |       | 132,027              |       | 243,373             |       | —              |       | —                  |       | —            |       | —             |       | —            |       | 375,400    |       |
| June 30, 2010     |       | 141,430              |       | 256,315             |       | —              |       | —                  |       | —            |       | —             |       | —            |       | 397,746    |       |
| June 30, 2011     |       | 151,504              |       | 269,912             |       | —              |       | —                  |       | —            |       | —             |       | —            |       | 421,416    |       |
| Thereafter        |       | 7,103,145            |       | 15,996,489          |       | —              |       | —                  |       | —            |       | —             |       | —            |       | 23,099,634 |       |
|              |       | 7,766,408            |       | 16,825,000          |       | 5,561,149           |       | 7,941,811               |       | 10,750,000        |       | 6,143,719          |       | 20,519,625        |       | 75,507,712 |       |

 

Interest rates, the majority of which are variable,range from 5.18% to 7.27% at June 30, 2006.

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**NOTE 15. NEWACCOUNTING PRONOUNCEMENTS**

**Recent AccountingPronouncements**

In May 2005, the FASB issued FASB StatementNo. 154, “Accounting Changes and Error Corrections,” a replacement of APBOpinion No. 20, “Accounting Changes”, and FASB Statement No. 3, “ReportingAccounting Changes in Interim Financial Statements.” FASB StatementNo. 154 changes the requirement for the accounting for and reporting of achange in accounting principle. This Statement applies to all voluntary changesin accounting principle. It also applies to changes required by an accountingpronouncement in the unusual instance that the pronouncement does not includespecific transition provisions. When a pronouncement includes specifictransition provisions, those provisions should be followed. FASB StatementNo. 154 is effective for accounting changes and corrections of errors madein fiscal years beginning after December 15, 2005.

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

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

**NOTE 16.DISCONTINUED OPERATIONS and SALES of REAL ESTATE**

The followingtables summarize income from discontinued operations and the related realizedgain on sale of rental property for the six months ended June 30, 2006 and2005:

|                                            | ** ** | **Six Months Ended  June 30** | ** ** |
|--------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                 | ** ** | **2006**                                     | ** ** | **2005** | ** ** |
|                                       |       |                                         |       |   |   |
| Total Revenues                             |       | $                                            | 0          |   | $ | 79,326 |   |
| Operating and other  expenses              |       | 10,125                                       |       | 56,037 |   |
| Depreciation and  amortization             |       | 0                                            |       | 18,906 |   |
|                                       |       | 10,125                                       |       | 74,943 |   |
| Income (loss) from discontinued operations |       | $                                            | (10,125    | ) | $ | 4,383 |   |

 

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

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Item 2 — MANAGEMENTSDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

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

While the national economy has largely recovered fromthe recession of the late 1990s and early 2000s, Massachusetts’ local economycontinues to lag behind. Job growth remains slow. Vacancy rates for downtownoffice space have improved from nearly 20%, and similar vacancy rates are seento begin improving in suburban areas. In the face of these economic realitieshowever, the Partnership has kept its residential vacancy rate below the 5-6%local industry average. Rental revenue has increased slightly at the majorityof properties.  Operating expenses havealso increased, primarily repairs and maintenance expenses, due to thePartnership’s efforts to maintain strong occupancy levels. A relatively softresidential housing market continues to be a direct competitor of the rentalhousing market.

The Partnership expects these conditions to continuethroughout 2006. Revenue gains are expected to be modest and operating expensesare expected to stabilize, however utility and heating costs may increasesubstantially. Competition continues to be strong; however rental commissionsand advertising costs have decreased due to a drop in tenant turnover. It ispresently unclear whether future earnings from operations will accelerate inthe near term. Lastly, tax reform allowed the Partnership to acceleratedepreciation on improvements in 2003 and 2004. These tax incentives expired in2004. Therefore, we expect income taxable to partners to increase in 2006 andto be more in line with the Partnership’s financial statement net income.

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

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

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

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Hamilton accounted for approximately 3% of the repairand maintenance expenses paid for by the Partnership in the six months endedJune 30, 2006 and 4% for the year ended December 31, 2005. Of the fundspaid to Hamilton for this purpose, the great majority was to cover the cost ofservices provided by the Hamilton maintenance department, including plumbing,electrical, carpentry services, and snow removal for those properties close toHamilton’s headquarters. However, several of the larger Partnership propertieshave their own maintenance staff and use minimal Hamilton service. Further,those properties that do not have their own maintenance staff but are locatedmore than a reasonable distance from Hamilton’s headquarters in Allston,Massachusetts are generally serviced by local, independent companies.

Hamilton’s legal department handles most of thePartnership’s eviction and collection matters. Additionally, it prepares mostlong-term commercial lease agreements and represents the Partnership inselected purchase and sale transactions. Overall, Hamilton providedapproximately 72% of the legal services paid for by the Partnership during thesix months ended June 30, 2006 and approximately 70% for the year endedDecember 31, 2005.

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

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

The Partnership requires that three bids be obtainedfor construction contracts in excess of $5,000. Hamilton may be one of thethree bidders on a particular project and may be awarded the contract if itsbid and its ability to successfully complete the project are deemedappropriate. For contracts that are not awarded to Hamilton, Hamilton chargesthe Partnership a construction supervision fee equal to 5% of the contractamount. Hamilton’s architectural department also provides services to thePartnership on an as-needed basis. During the six months ended June 30, 2006,Hamilton provided the Partnership approximately $10,000 in construction andarchitectural services, compared to $109,000 for the year endedDecember 31, 2005.

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

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

**CRITICALACCOUNTING POLICIES AND ESTIMATES**

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

Revenue Recognition: Revenues from rental propertiesare recognized when due from tenants. Residential leases are generally forterms of one year and commercial leases are generally for five to ten years,with renewal 

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options at increasedrents. Significant commercial leases with stepped increases over the term ofthe lease are recorded on the straight-line basis.

Real Estate and Depreciation: Real estate assets arestated at the lower of cost or fair value, less accumulated depreciation. Costsrelated to the acquisition, development, construction and improvement of propertiesare capitalized, including interest, internal wages and benefits, real estatetaxes and insurance. Capitalization usually begins with commencement ofdevelopment activity and ends when the property is ready for leasing.Replacements and improvements— such as HVAC equipment, structural replacements,windows, appliances, flooring, carpeting and kitchen/bath replacements andrenovations — are capitalized and depreciated over their estimated useful livesas follows:

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

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

If there is an event or change in circumstances thatindicates an impairment in the value of a property, the Partnership’s policy isto assess the impairment by making a comparison of the current and projectedoperating cash flows of the property over its remaining useful life, on anundiscounted basis, to the carrying amount of the property. If the carrying valueis 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. ThePartnership has not recognized an impairment loss since 1995.

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

Investments in Partnerships:  The Partnership accounts for its 50%ownership in the Investment Properties under the equity method of accounting,as it exercises significant influence over, but does not control theseentities. These investments are recorded initially at cost, as Investments inPartnerships, and subsequently adjusted for the Partnership’s share inearnings, cash contributions and distributions. Under the equity method ofaccounting, our net equity is reflected on the consolidated balance sheets, andour share of net income or loss from the Partnership is included on theconsolidated statements of income.

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

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

**RESULTS OFOPERATIONS**

Comparison of the three months ended June 30, 2006 tothe three months ended June 30, 2005 (as adjusted for discontinued operations).

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**The Partnership and its SubsidiaryPartnerships earned income before other income and discontinued operations ofapproximately $584,000 during the three months ended June 30, 2006 compared toapproximately $1,374,000 for the three months ended June 30, 2005, a decreaseof $790,000 (57%).**

The rentalactivity is summarized as follows:
| ** **         | ** ** | **Occupancy Date** | ** ** |
|--------------------|------------|-------------------------|------------|
| ** **         | ** ** | **July 24,  2006** | ** ** | **April 24,  2006** | ** ** | **August 2,  2005** | ** ** |
|               |       |                    |       |   |   |   |   |
| Residential        |       |                    |       |   |   |   |   |
| Units              |       | 2,402                   |       | 2,402 |   | 2,402 |   |
| Vacancies          |       | 42                      |       | 30 |   | 58 |   |
| Vacancy rate       |       | 1.7                     | %          | 1.2 | % | 2.4 | % |
| Commercial         |       |                    |       |   |   |   |   |
| Total square  feet |       | 84,998                  |       | 84,998 |   | 85,275 |   |
| Vacancy            |       | 6,075                   |       | 6,075 |   | 0 |   |
| Vacancy rate       |       | 7.1                     | %          | 7.1 | % | 0 | % |

 
| ** **             | ** ** | **Rental Income (in thousands)  Three Months Ended June 30,** | ** ** |
|------------------------|------------|--------------------------------------------------------------------------------------------------|------------|
| ** **             | ** ** | **2006**                                                                                         | ** ** | **2005** | ** ** |
| ** **             | ** ** | **Total  Operations**                                                                            | ** ** | **Continuing  Operations** | ** ** | **Total  Operations** | ** ** | **Continuing  Operations** | ** ** |
| Total rents            |       | $                                                                                                | 7,847      |   | $ | 7,847 |   | $ | 7,814 |   | $ | 7,813 |   |
| Residential percentage |       | 93                                                                                               | %          | 93 | % | 93 | % | 93 | % |
| Commercial percentage  |       | 7                                                                                                | %          | 7 | % | 7 | % | 7 | % |
| Contingent rentals     |       | $                                                                                                | 111        |   | $ | 111 |   | $ | 93 |   | $ | 93 |   |

 

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***Three Months Ended June 30, 2006Compared to Three Months Ended June 30, 2005***
| ** **                                                          | ** ** | **June 30,  2006** | ** ** | **June 30,  2005** | ** ** | **Dollar  Change** | ** ** | **Percent  Change** | ** ** |
|---------------------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|--------------------|------------|---------------------|------------|
| ** **                                                          | ** ** | ** **              | ** ** | ** **              | ** ** | ** **         | ** ** | ** **          | ** ** |
| Revenues:                                                           |       |                    |       |                    |       |               |       |                |       |
| Rental income                                                       |       | $                       | 7,847,066  |                    | $          | 7,812,890          |       | $                   | 34,176     |   | 0.4 | % |
| Laundry and sundry income                                           |       | 107,470                 |       | 87,944                  |       | 19,526             |       | 22.2                | %          |
|                                                                |       | 7,954,536               |       | 7,900,834               |       | 53,702             |       | 0.6                 | %          |
| Expenses:                                                           |       |                    |       |                    |       |               |       |                |       |
| Administrative                                                      |       | 323,642                 |       | 319,527                 |       | 4,115              |       | 1.2                 | %          |
| Depreciation and amortization                                       |       | 1,708,891               |       | 1,583,964               |       | 124,927            |       | 7.9                 | %          |
| Interest                                                            |       | 1,930,677               |       | 1,944,407               |       | (13,730            | )          | (0.7                | )%         |
| Management fees                                                     |       | 325,368                 |       | 325,036                 |       | 332                |       | 0.1                 | %          |
| Operating                                                           |       | 864,906                 |       | 766,167                 |       | 98,739             |       | 12.9                | %          |
| Renting                                                             |       | 138,240                 |       | 154,917                 |       | (16,677            | )          | (10.8               | )%         |
| Repairs and maintenance                                             |       | 1,432,409               |       | 1,275,341               |       | 157,068            |       | 12.3                | %          |
| Taxes and insurance                                                 |       | 883,001                 |       | 925,741                 |       | (42,740            | )          | (4.6                | )%         |
|                                                                |       | 7,607,134               |       | 7,295,100               |       | 312,034            |       | 4.3                 | %          |
|                                                                |       |                    |       |                    |       |               |       |                |       |
| Income  Before Other Income and Discontinued Operations             |       | 347,402                 |       | 605,734                 |       | (258,332           | )          | (42.6               | )%         |
|                                                                |       |                    |       |                    |       |               |       |                |       |
| Other  Income (Loss)                                                |       |                    |       |                    |       |               |       |                |       |
| Interest income                                                     |       | 109,299                 |       | 59,581                  |       | 49,718             |       | 83.4                | %          |
| (Loss) from investment in joint ventures                            |       | 127,109                 |       | 709,106                 |       | (581,997           | )          | (82.0               | )%         |
|                                                                |       | 236,408                 |       | 768,687                 |       | (532,279           | )          | (69.2               | )%         |
| Income from Continuing Operations                                   |       | 583,810                 |       | 1,374,421               |       | (790,611           | )          | (57.5               | )%         |
|                                                                |       |                    |       |                    |       |               |       |                |       |
| Discontinued  Operations:                                           |       |                    |       |                    |       |               |       |                |       |
| Income (loss) from discontinued operations                          |       | —                  |       | 882                     |       | (882               | )          | (100.0              | )%         |
| Gain (loss) on the sale of real estate from discontinued operations |       | —                  |       | (41,221                 | )          | 41,221             |       | 100.0               | %          |
|                                                                |       | —                  |       | (40,339                 | )          | 40,339             |       | 100.0               | %          |
| Net Income                                                          |       | $                       | 583,810    |                    | $          | 1,334,082          |       | $                   | (750,272   | ) | (56.2 | )% |

 

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Rental income for the three months ended June 30, 2006was approximately $7,847,000 compared to approximately $7,813,000 for the threemonths ended June, 2005, an increase of approximately $34,000 (.4%). Theproperties with the most significant increases include 62 Boylston Street withan increase of approximately $75,000; Worcester Road with an increase ofapproximately $22,000; Hamilton Oaks with an increase of approximately $28,000;and 1144 Commonwealth Avenue with an increase of approximately $11,000.  Properties with rental income decreasesinclude Executive Apartments with a decrease of approximately $14,000, DeanStreet with a decrease of approximately $13,000,  School Street with a decrease ofapproximately $12,000 and Coach Estates with a decrease of approximately$10,000.  Rental income at thePartnership’s other properties remained relatively stable.

Total expenses for the three months ended June 30,2006 were approximately $7,607,000 compared to approximately $7,295,000 for thethree months ended June 30, 2005, an increase of approximately $312,000 (4.3%).The most significant increase was in repairs and maintenance of approximately$157,000 (12.3%) due to continued efforts to maintain occupancy levels.  Operating expenses increased approximately$99,000 (12.9%) due to increased utility and eviction costs.  Depreciation and amortization expenseincreased approximately $125,000 (7.9%) due to continued capital improvementsto Partnership properties. These increases are offset by a decrease in taxesand insurance of approximately $43,000 (4.6%) due to decreases in real estatetaxes and insurance premiums and a decease in renting expenses of approximately$17,000 due to a decrease in rental commissions.

At June 30, 2006,the Partnership has a 50% ownership interest in six different investmentproperties. The net income on these investments is $127,109 for the threemonths ended June 30, 2006 compared to income of  $709,106 for the three months endedJune 30, 2005, a decrease of $581,997. This decrease in income from the investment properties is dueto vacancies at the properties while preparing them for resale, an increase indepreciation and amortization expense due to capital improvements, andprofessional fees associated with converting the properties into condominiumunits. See Note 14 to the Consolidated Financial Statements for financialinformation of these investment properties. The summaries are as follows:

**Franklin Street, Cambridge,Massachusetts**

The Partnership invested in a 40-unit propertyin 2001. The Partnership’s share of loss on this investment is $27,600 and$40,462 for the three months ended June 30, 2006 and 2005, respectively.  The Partnership’s share of loss on thisinvestment is $50,673 and $62,327 for the six months ended June 30, 2006 and2005, respectively.  There were 2 vacantunits at July 24, 2006.

**Hamilton Place, Watertown,Massachusetts**

The Partnership invested in 283 units in six buildingsin August 2004. The Partnership plans to sell 137 of the units ascondominiums located in three buildings. At July 24, 2006, 80 units have been sold and 9 additional units havereservation agreements. The Partnership’s share of loss on the investment heldas a rental property is approximately $290,000 and $688,000 for the six monthsended June 30, 2006 and 2005 respectively, and a loss of approximately $176,000for the three months ended June 30, 2006 compared to income of approximately$94,000 for the three months ended June 30, 2005.  The Partnership’s share of income on thebuildings with units held for sale is approximately $164,000 and $901,000 forthe six months ended June 30, 2006 and 2005 respectively   The Partnership’s share of income for thesix months ended June 30, 2006 includes a gain on unit sales of approximately $417,000 and $ 1,139,000 for the six months ended June 30, 2005.  There were 9 units vacant at July 24, 2006.

**Hamilton Minuteman, Lexington,Massachusetts**

The Partnership invested in a 42-unitresidential complex in September 2004. The Partnership is planning to sellthis property as condominiums and is in the process of obtaining necessarypermits and approvals. The Partnership’s share of loss on this investment is$81,246 and $60,533 for the three months ended June 30, 2006 and 2005,respectively. The Partnership’s share of loss for the six months ended June 30,2006 is $161,850 compared to $128,205 for the six months ended June 30,2005.  The increase in loss is due to thefees associated with preparing the building as condominium units and ultimatelyready for resale. The Partnership is negotiating with the Town of Lexingtonregarding an affordable housing component for the conversion to condominiums.It expects approval in 

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the third quarter of2006. Thereafter the units will be marketed for sale. The lender has extendedthe principal curtailment pay-downs pending this approval. There is one vacantunit at July 24, 2006.

**Essex 81, Boston, Massachusetts**

The Partnership invested in this property inMarch 2005. The property consists of 49 residential units, one commercialspace, and a 50 car surface parking lot. The Partnership’s share of loss onthis investment is $21,427 and $59,488 for the three months ended June 30, 2006and 2005, respectively. The Partnership’s share of loss on this investment is$73,080 and $71,662 for the six months ended June 30, 2006 and 2005respectively.  There is one vacant unitat July 24, 2006.

**1025 Hamilton, Quincy,Massachusetts**

The Partnership invested in a 176-unit propertyin March 2005. The Partnership plans to sell 127 units ascondominiums.  As of July 24, 2006, 101units have been sold, and 3 units have been reserved. The Partnership’s shareof income is $161,401 and $742,735 for the three months ended June 30, 2006 and2005 respectively.  The Partnership’sshare of income is $197,079 and $717,372 for the six months ended June 30, 2006and 2005 respectively.  The Partnership’sshare of income includes gains on unit sales of $498,868 and $925,799 for the six months ended June 30, 2006 and 2005,respectively. There are 4 vacant units at July 24, 2006.

**Hamilton Bay, Quincy, Massachusetts**

The Partnership invested $2,500,000 in a 168 unitapartment complex in Quincy, Massachusetts in October 2005. The purchaseprice was $30,875,000 and a $26,165,127 30-month mortgage with a floatinginterest rate (7.27%) of 2% over the 30 day Libor Index (5.27% at June 30,2006) was obtained to finance this acquisition. The Partnership plans to sellthe majority of units as condominiums and retain 48 units for long-terminvestment. The proceeds from the condominium sales will be used primarily toreduce the above-mentioned mortgage. Gains from the sales of units will betaxed at ordinary income rates. The Partnership’s share of income on thisinvestment is $55,590 and $96,036 for the three and six months ended June 30,2006, respectively.  The Partnership’sshare of income includes a gain on the sale of units of $368,891 and $759,397for the three and six months ended June 30, 2006 respectively. As of July 24,2006, 30 units have been sold and an additional 14 units have a signed purchaseand sales agreement. There are 11 vacant units at July 24, 2006.

Interest income was approximately $109,000 for thethree months ended June 30, 2006 compared to approximately $60,000 for thethree months ended June 30, 2005, an increase of approximately $49,000 (82%).This increase reflects an increase in interest rates.

As a result of the changes discussed above, net incomefor the three months ended June 30, 2006 was $583,810 compared to $1,334,082for the three months ended June 30, 2005, a decrease of $750,272 (56%).

**Comparison of the six monthsended June 30, 2006 to the six months ended June 30, 2005**

The Partnershipand its Subsidiary Partnerships earned income before other income of $950,989for the six months ended June 30, 2006 compared to $973,749 for the six monthsended June 30, 2005, a decrease of $22,760 (2.3%).  The following is a summary of the Partnership’srental income for the six months ended June 30, 2006 and 2005.  As more fully described in the schedulesbelow, the decrease in income from operations is due to an increase in rentalincome, and a decrease in operating expenses including renting expenses andtaxes and insurance.  These are offset byan increase in depreciation and repairs and maintenance expenses.

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***Six Months Ended June 30, 2006Compared to Six Months Ended June 30, 2005***
| ** **                                                    | ** ** | **June 30,  2006** | ** ** | **June 30,  2005** | ** ** | **Dollar  Change** | ** ** | **Percent  Change** | ** ** |
|---------------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|--------------------|------------|---------------------|------------|
| ** **                                                    | ** ** | ** **              | ** ** | ** **              | ** ** | ** **         | ** ** | ** **          | ** ** |
| Revenues:                                                     |       |                    |       |                    |       |               |       |                |       |
| Rental income                                                 |       | $                       | 15,814,658 |                    | $          | 15,610,188         |       | $                   | 204,470    |   | 1.3 | % |
| Laundry and sundry income                                     |       | 231,501                 |       | 204,056                 |       | 27,445             |       | 13.4                | %          |
|                                                          |       | 16,046,159              |       | 15,814,244              |       | 231,915            |       | 1.5                 | %          |
|                                                          |       |                    |       |                    |       |               |       |                |       |
| Expenses:                                                     |       |                    |       |                    |       |               |       |                |       |
| Administrative                                                |       | 675,294                 |       | 659,318                 |       | 15,976             |       | 2.4                 | %          |
| Depreciation and amortization                                 |       | 3,357,934               |       | 3,103,455               |       | 254,479            |       | 8.2                 | %          |
| Interest                                                      |       | 3,846,801               |       | 3,881,882               |       | (35,081            | )          | (0.9                | )%         |
| Management fees                                               |       | 647,028                 |       | 640,744                 |       | 6,284              |       | 1.0                 | %          |
| Operating                                                     |       | 2,156,540               |       | 2,177,624               |       | (21,084            | )          | (1.0                | )%         |
| Renting                                                       |       | 194,106                 |       | 257,769                 |       | (63,663            | )          | (24.7               | )%         |
| Repairs and maintenance                                       |       | 2,463,137               |       | 2,289,812               |       | 173,325            |       | 7.6                 | %          |
| Taxes and insurance                                           |       | 1,754,330               |       | 1,829,891               |       | (75,561            | )          | (4.1                | )%         |
|                                                          |       | 15,095,170              |       | 14,840,495              |       | 254,675            |       | 1.7                 | %          |
|                                                          |       |                    |       |                    |       |               |       |                |       |
| Income before other income                                    |       | 950,989                 |       | 973,749                 |       | (22,760            | )          | (2.3                | )%         |
|                                                          |       |                    |       |                    |       |               |       |                |       |
| Other Income (Loss)                                           |       |                    |       |                    |       |               |       |                |       |
| Interest income                                               |       | 202,777                 |       | 97,908                  |       | 104,869            |       | 107.1               | %          |
| (Loss) from investment in  partnerships                       |       | (118,071                | )          | 667,482                 |       | (785,553           | )          | (117.7              | )%         |
|                                                          |       | 84,706                  |       | 765,390                 |       | (680,684           | )          | (88.9               | )%         |
| Income from continuing  operations                            |       | 1,035,695               |       | 1,739,139               |       | (703,444           | )          | (40.4               | )%         |
|                                                          |       |                    |       |                    |       |               |       |                |       |
| Discontinued Operations:                                      |       |                    |       |                    |       |               |       |                |       |
| Income (loss) from discontinued  operations                   |       | (10,125                 | )          | 4,383                   |       | (14,508            | )          | (331.0              | )%         |
| Gain on the sale of real  estate from discontinued operations |       | —                  |       | 5,770,363               |       | (5,770,363         | )          | (100.0              | )%         |
|                                                          |       | (10,125                 | )          | 5,774,746               |       | (5,784,871         | )          | (100.2              | )%         |
| Net  Income                                                   |       | $                       | 1,025,570  |                    | $          | 7,513,885          |       | $                   | (6,488,315 | ) | (86.4 | )% |

 

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Rental income from continuing operations for the sixmonths ended June 30, 2006 was approximately $15,815,000 compared toapproximately $15,610,000 for the six months ended June 30, 2005, an increaseof approximately $205,000 (1.3%).  Theproperties with the most significant rental income increases include 62Boylston Street in the amount of approximately $142,000, Westgate Apartments ofapproximately $70,000, Hamilton Oaks of approximately $52,000 and 1144Commonwealth Avenue of approximately $25,000. There were insignificantincreases and/or decreases at other properties. The Middlesex Apartments sold in March 2005 collected rental income ofapproximately $79,000 in 2005.

Total expensesfrom continuing operations for the six months ended June 30, 2006 wereapproximately $15,095,000 compared to approximately $14,840,000 for the sixmonths ended June 30, 2005, an increase of approximately $255,000 (1.7%).  The most significant increases were in depreciationand amortization of approximately $254,000 and repairs and maintenance expensesof approximately $173,000.  ThePartnership also had decreases in expenses such as renting expenses whichdecreased approximately $64,000 (25%) due to decreases in advertising andrental commissions and taxes and insurance of approximately $ 76,000 (4%) dueto decreases in real estate  taxes andinsurance premiums.  As previouslydiscussed, the Partnership continues to make improvements to properties in aneffort to maintain occupancy levels.

Interest income wasapproximately $203,000 for the six month ended June 30, 2006, compared toapproximately $98,000 for the six months ended June 30, 2005, an increase ofapproximately $105,000.  This increase isdue primarily to an increase in interest rates.

As discussedpreviously, the Partnership has a 50% ownership interest in six investmentproperties.  The net loss from theseinvestments is approximately $118,000 for the six months ended June 30, 2006compared to income of approximately $668,000 for the six months ended June 30,2005.  The Partnership’s share of incomeincludes a gain on the sale of units of $1,675,000 and $2,065,000 for the sixmonths ended June 30, 2006 and 2005, respectively.  (See Note 14 to the financial statements foradditional information.)

On March 22, 2005, the Partnership sold the MiddlesexApartments located in Newton, Massachusetts. The selling price was $6,500,000.The loss on discontinued operation for the six months ended June 30, 2006 was$10,125 which represents state taxes paid. The operating profit for the sixmonths ended June 30, 2005 was $4,383 and the gain of $5,770,363, net ofmortgage prepayment penalties of approximately $382,000 and selling expensesare included in income from discontinued operations.  See Note 3 to the Consolidated FinancialStatements.

As a result of the changes discussed above, net incomefor the six months ended June 30, 2006 was $1,025,570 compared to $7,513,885for the six months ended June 30, 2005, a decrease of $6,488,315.

**LIQUIDITY ANDCAPITAL RESOURCES**

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

The majority of cash and cash equivalents of$11,724,433 at June 30, 2006 and $12,049,392 at December 31, 2005 wereheld in interest bearing accounts at creditworthy financial institutions.

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This decrease of$324,959 for the six months ended June 30, 2006 is summarized as follows:

|                                                       | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                            | ** ** | **2006**                                      | ** ** | **2005** | ** ** |
| Cash provided by  operating activities                |       | $                                             | 4,110,556  |   | $ | 3,887,783 |   |
| Cash provided by  (used in) investing activities      |       | (1,587,260                                    | )          | 559,290 |   |
| Cash provided by  (used in) financing activities      |       | (426,647                                      | )          | 335,968 |   |
| Distributions paid                                    |       | (2,421,608                                    | )          | (2,421,607 | ) |
| Net increase (decrease)  in cash and cash equivalents |       | $                                             | (324,959   | ) | $ | 2,361,434 |   |

 

The cash provided by operating activities is primarilydue to the net income plus depreciation expense as well as a non cash loss onthe investment in joint venture. The decrease in cash provided by investingactivities is due to the following (i) the sale in March 2005 of a Partnership property resultingin proceeds of approximately $6,000,000 in 2005 and  (ii) continued capital improvements toPartnership properties in 2006. The increase in cash used in financingactivities is due to the refinancing of a Partnership property in 2005resulting in an increase in cash of $2,000,000 in 2005.

During the six months ended June 30, 2006 thePartnership invested an additional $450,000 in the Investment Properties. Asdiscussed in Notes 14 to the Consolidated Financial Statements, the lenderrequires minimum principal payments as units are sold. The principal pay downsdue to unit sales as well as the continued capital improvements to theinvestment properties during the six months ended June 30, 2006 resulted in theneed for an additional cash investment by the Partnership. See Note 14 of theConsolidated Financial Statements for additional information on the investmentsand the related loss on these investments.

The Partnership paid quarterly distributions of $7.00per unit ($0.70 per depositary receipts) in March and June, 2006 for a totaldistribution of $2,421,608.  Managementanticipates that similar quarterly distributions will continue to be madeduring 2006.

The portfolio encumbered by debt is comprised of 58%nonamoritizing (interest only) debt.The present level of distribution is 55% ofthe net income plus depreciation. Management continues to be comfortable with the percentages due to thelow debt to equity levels and pace of condominium sales. Management willcontinue to review this on a regular basis.

As discussed in Note 3 to the Consolidated FinancialsStatements, the Partnership purchased five condominiums in a 42-unitbuilding located in Brookline, Massachusetts. In connection with theacquisition, the Partnership obtained a mortgage of $1,600,000 due inAugust 2006. The Partnership has requested an extension of this paymentdate to August 2008 and anticipates approval from the bank.

During the six months ended June 30, 2006, thePartnership and its Subsidiary Partnerships completed certain improvements totheir properties at a total cost of approximately $1,137,000. The mostsignificant improvements were made at the following properties: approximately$186,000 at Hamilton Oaks in Brockton, Massachusetts; approximately $162,000 atWestgate Apartments in Woburn, Massachusetts; approximately $141,000 atWestside Colonial in Brockton, Massachusetts; and approximately $80,000 at 62Boylston Street in Boston, Massachusetts.  All such improvements were funded from the Partnership’s cash reservesand escrow accounts established in connection with the financing of applicableproperties.

In addition to the improvements made to date in 2006,the Partnership and its Subsidiary Partnerships plan to invest an additional$851,000 in capital improvements during the balance of 2006, the majority ofwhich will be spent at 1144 Commonwealth Avenue, Westside Colonial, 62Boylston, and North Beacon Street. These improvements will be funded fromescrow accounts established in connection with the financing of applicableproperties, as well as from the Partnership’s cash.

As of June 30, 2006, the Partnership had a 50%ownership in six joint ventures, all of which have mortgage indebtedness. We donot have control of these partnerships and therefore we account for them usingthe equity 

27

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method of consolidation.At June 30, 2006, our proportionate share of the limited recourse debt relatedto these investments was approximately $37,754,000. See Note 14 to theConsolidated Financial Statements for details of the investment propertiesincluding results of operations, equity and units sales.

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

**ContractualObligations**

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

**Factors ThatMay Affect Future Results**

Certain information contained herein includesforward-looking statements, which are made pursuant to the safe harborprovisions of the Private Securities Liquidation Reform Act of 1995 (the “Act”).While forward looking statements reflect management’s good faith beliefs whenthose statements are made, caution should be exercised in interpreting andrelying on such forward looking statements, the realization of which may beimpacted by known and unknown risks and uncertainties, events that may occursubsequent to the forward-looking statements, and other factors which may bebeyond the Partnership’s control and which can materially affect thePartnership’s actual results, performance or achievements for 2006 and beyond.

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

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

The Partnership is subject to the general economic risksaffecting the real estate industry, such as dependence on tenant’s financialcondition and the need to enter into new leases or renew leases on termsfavorable to tenants in order to generate rental revenues. The Partnership isalso impacted by changing economic conditions making alternative housingarrangements more or less attractive to the Partnership’s tenants, such as theinterest rates on single family home mortgages and the availability andpurchase price of single-family homes in the Greater Boston metropolitan area.

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

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

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

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

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

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

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

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

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

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

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

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

Competition for acquisitions may result in increasedprices for properties.

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

Any weakness identified in the Partnership’s internalcontrols as part of the evaluation being undertaken by the Company and itsindependent public accountants pursuant to Section 404 of the Sarbanes-OxleyAct of 2002 could have an adverse effect on the Company’s business.

Ongoing compliance with Sarbanes-Oxley Act of 2002 mayrequire additional personnel or system changes.

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

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

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

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**Item 3 —QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

As of June 30, 2006, the Partnership and itssubsidiary Partnerships collectively have approximately $115,000,000 inlong-term debt, all of which have fixed interest rates. Accordingly, the fairvalue of these debt instruments is affected by changes in market interestrates. For information regarding the fair value and maturity dates of thesedebt obligations, see Notes 5 and 12 to the Consolidated Financial Statements.

For additional disclosures about market risk, see “Item2 — Management’s Discussion and Analysis of Financial Condition and Results ofOperations — Factors that May Affect Future Results.”

**Item 4—CONTROLS AND PROCEDURES**

*DisclosureControls and Procedures*. The Partnership’s management, withthe participation of the Partnership’s chief executive officer and chieffinancial officer, has evaluated the effectiveness of the Partnership’sdisclosure controls and procedures (as such term is defined in Rules 13a-15(e)and 15d-15(e) under the Exchange Act) as of the end of the period covered bythis report. Based on such evaluation, the Partnership’s chief executiveofficer and chief financial officer have concluded that, as of the end of suchperiod, the Partnership’s disclosure controls and procedures are effective inrecording, processing, summarizing and reporting, on a timely basis,information required to be disclosed by the Partnership in the reports that itfiles or submits under the Exchange Act.

*InternalControl Over Financial Reporting*. There have not been anychanges in the Partnership’s internal control over financial reporting (as suchterm is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) duringthe fiscal quarter to which this report relates that have materially affected,or are reasonably likely to materially affect, the Partnership’s internalcontrol over financial reporting.

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** **

**PART II — OTHER INFORMATION**

**Item 1.**                            Legal Proceedings

None.

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

None.

**Item 3.**                            Defaults Upon Senior Securities

None.

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

None.

**Item 5.**                            Other Information

None.

**Item 6.**                            Exhibits

(a)             Seethe exhibit index below.

31

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**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
| Date:   August 9,  2006 |   |                                              |                                                         |
|----------------------------------------|--------|---------------------------------------------------|--------------------------------------------------------------|
|                                   |   |                                              |                                                         |
|                                   |   |                                              |                                                         |
|                                   |   | NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP |
|                                   |   |                                              |                                                         |
|                                   |   | By:                                               | NEWREAL, INC.,                                               |
|                                   |   |                                              | its General Partner*                                         |
|                                   |   |                                              |                                                         |
|                                   |   |                                              |                                                         |
|                                   |   | By:                                               | /s/ Ronald Brown                                             |
|                                   |   |                                              | Ronald Brown, President                                      |
|                                   |   |                                              |                                                         |
|                                   |   |                                              |                                                         |
|                                        |   | *                                                 | Functional equivalent of Chief Executive Officer,            |
|                                   |   |                                              | Principal Financial Officer and Principal Acounting  Officer |
|                                        |        |                                                   |                                                              |  |

 

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

 

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