SECURITIES AND EXCHANGE COMMISSION
                                 WASHINGTON, DC 20549

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

                                       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  September 30, 1997 OR

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

For the transition period from ____________________ to ______________________

                         Commission file number 0-12138

New England Realty Associates Limited Partnership
(Exact Name of Registrant as Specified in Its Charter)

Massachusetts                                                     04-2619298
(State or Other Jurisdiction of Incorporation                 (I.R.S. Employer
 or Organization)                                            Identification No.)

39 Brighton Avenue, Allston, Massachusetts                          02134
(Address of Principal Executive Offices)                          (Zip Code)

Registrant's Telephone Number, Including Area Code              (617) 783-0039

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

      Indicate by check X whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
<PAGE>

                                      INDEX

                         PART I - FINANCIAL INFORMATION

                                                                        Page No.

Item 1.     Financial Statements.

            Balance Sheets - September 30, 1997
            and September 30, 1996                                         3

            Statements of Operations - Nine Months 
            Ended September 30, 1997
            and September 30, 1996                                         4

            Statements of Cash Flows - Nine Months
            Ended September 30, 1997 and
            September 30, 1996                                             5

            Notes to Financial Statements                                  8

Item 2.     Management's Discussion and Analysis of
            Financial Condition and Results of
            Operations                                                    16

                           PART II - OTHER INFORMATION

SIGNATURES                                                                21

<PAGE>


NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                         September 30,      December 31,
                                                             1997               1996
                                                         (Unaudited)
                                                         ------------      ------------

ASSETS
<S>                                                      <C>               <C>         
Rental Properties                                        $ 51,679,328      $ 52,293,981
Cash and Cash Equivalents                                   1,707,922         1,830,605
Short-term Investments                                             --            51,528
Rents Receivable                                              564,647           688,245
Real Estate Tax Escrows                                       544,966           503,234
Prepaid Expenses and Other Assets                           1,673,409         1,696,237
Investment in Joint Venture                                    78,843            93,734
Financing and Leasing Fees                                  1,378,630         1,631,375
                                                         ------------      ------------

 TOTAL ASSETS                                            $ 57,627,745      $ 58,788,939
                                                         ============      ============

LIABILITIES AND PARTNERS' CAPITAL

Mortgages Payable                                        $ 52,106,992      $ 52,538,499
Accounts Payable and Accrued
  Expenses                                                    720,273           684,626
Advance Rental Payments and Security
  Deposits                                                  1,763,022         1,667,316
                                                         ------------      ------------

  Total Liabilities                                        54,590,287        54,890,441

Commitments and Contingent Liabilities (Note 9)

Partners' Capital:
  173,252 units outstanding in 1997
  and 175,163 in 1996                                       3,037,458         3,898,498
                                                         ------------      ------------

TOTAL LIABILITIES AND PARTNERS' CAPITAL                  $ 57,627,745      $ 58,788,939
                                                         ============      ============
</TABLE>

See notes to consolidated financial statements.


                                       3
<PAGE>

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                     Three Months Ended            Nine Months Ended
                                       September 30,                   September 30,
                                   1997           1996           1997             1996
                                       (Unaudited)                     (Unaudited)
                                --------------------------      ---------------------------

<S>                             <C>            <C>              <C>             <C>        
Revenues:
Rental income                   $ 4,425,032    $ 4,056,357      $12,863,526     $12,370,471
Laundry & sundry income              44,472         45,373          137,915         154,394
                                -----------    -----------      -----------     -----------
                                  4,469,504      4,101,730       13,001,441      12,524,865
                                -----------    -----------      -----------     -----------
Expenses:
Administrative                      265,692        232,979          790,225         632,764
 Depreciation and
  amortization                      834,621        697,471        2,419,438       2,071,258
 Interest                         1,160,303      1,162,115        3,489,481       3,541,724
 Management fees                    186,645        171,193          552,745         524,214
 Operating                          422,569        356,004        1,469,243       1,417,133
 Renting                             77,099        108,365          152,115         170,574
 Repairs & maintenance              770,895        687,992        1,982,282       1,920,601
 Taxes & insurance                  458,317        437,867        1,390,661       1,362,418
                                -----------    -----------      -----------     -----------
                                  4,176,141      3,853,986       12,246,190      11,640,686
                                -----------    -----------      -----------     -----------

Income from
 Operations                         293,363        247,744          755,251         884,179
                                -----------    -----------      -----------     -----------

 Other income (loss):
   Interest income                   37,685         36,594          98,901          124,938
   Income (loss) from
    investment in
    partnership and
    joint venture                    (7,112)         5,531          (13,293)         17,066
                                -----------    -----------      -----------     -----------
                                     30,573         42,125           85,608         142,004
                                -----------    -----------      -----------     -----------
Net Income                     $    323,936   $    289,869    $     840,859     $ 1,026,183
                               ============   ============    =============     ===========

Net Income
  per Unit                     $       1.86   $       1.64    $        4.83     $      5.80
                               ============   ============    =============     ===========
Weighted Average Number
  of Units Outstanding              173,635        176,475          174,093         176,925
                               ============   ============    =============     ===========
</TABLE>

See notes to Consolidated financial statements.


                                       4
<PAGE>

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                           Nine Months Ended
                                                             September 30,
                                                             (Unaudited)
                                                         1997           1996
                                                    -----------     -----------
Cash Flows from Operating Activities:
Net income                                          $   840,859     $ 1,026,183
                                                    -----------     -----------

Adjustments to reconcile net income to
 net cash provided by (used in)
 operating activities:
   Depreciation and amortization                      2,419,438       2,071,258
   (Income) Loss from investments in
    partnerships and joint venture                       13,293         (17,066)
   (Increase) Decrease in rents
    receivable                                          123,598         (34,635)
   (Increase) in financing and
    leasing fees                                        (15,022)        (35,680)
    Increase (Decrease) in accounts
    payable and accrued expenses                         35,647        (152,898)
   (Increase) Decrease in real estate
    tax escrows                                         (41,732)         54,042
    Decrease in prepaid expenses
    and other assets                                     22,828          81,546
   Increase in advance rental payments
    and security deposits                                95,706          24,804
                                                    -----------     -----------
   Total Adjustments                                  2,653,756       1,991,371
                                                    -----------     -----------
   Net cash provided by
    operating activities                              3,494,615       3,017,554
                                                    -----------     -----------
Cash Flows from Investing Activities:
  Distribution from joint venture                         1,598          37,671
  Payment for purchase and improvement
   of rental properties                              (1,537,018)     (1,501,987)
  Maturity of short-term investments                     51,528              --
  Purchase of short-term investments                         --          (1,997)
                                                    -----------     -----------
Net cash (used in)
    investing activities                             (1,483,892)     (1,466,313)
                                                    -----------     -----------

See notes to consolidated financial statements.


                                       5
<PAGE>

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                        Nine Months Ended 
                                                           September 30,
                                                           (Unaudited)
                                                        1997            1996
                                                   -----------      -----------
Cash Flows from Financing Activities:
Principal payments and early
 repayment of mortgages payable                       (431,507)        (395,806)
 Distributions to partners                          (1,527,813)      (1,199,257)
(Payments on) stock buyback                           (174,086)         (47,252)
                                                   -----------      -----------

    Net cash (used in) financing
     activities                                     (2,133,406)      (1,642,815)
                                                   -----------      -----------

Net (Decrease) in Cash and Cash
  Equivalents                                         (122,683)         (91,574)
Cash and Cash Equivalents, Beginning                 1,830,605        2,706,124
                                                   -----------      -----------
Cash and Cash Equivalents, Ending                  $ 1,707,922      $ 2,614,550
                                                   ===========      ===========

See notes to consolidated financial statements.


                                       6
<PAGE>

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL

(Unaudited)
                                                Partners' Capital
                               -------------------------------------------------
                                          Limited        General
                               -----------------------   --------               
                                 Class A       Class B    Class C      Total
                               -----------   ---------   --------   -----------

Balance, January 1, 1996       $ 3,455,787   $ 824,206   $ 43,409   $ 4,323,402

Unit Buyback                       (47,252)         --         --       (47,252)

Distributions to
 Partners                         (959,806)   (227,954)   (11,997)   (1,199,757)

Net Income                         820,946     194,975     10,262     1,026,183

                               -----------   ---------   --------   -----------
Balance, Sept. 30, 1996        $ 3,269,675   $ 791,227   $ 41,674   $ 4,102,576
                               ===========   =========   ========   ===========

Units authorized and
 issued, net of 3,073
 Treasury Units, at
 September 30, 1996                141,022      33,659      1,771       176,452
                                   =======      ======      =====       =======

Balance, January 1, 1997       $ 3,115,865   $ 743,473   $ 39,160   $ 3,898,498

Unit Buyback                      (139,269)    (33,076)    (1,741)     (174,086)

Distributions to
 Partners                       (1,222,250)   (290,284)   (15,279)   (1,527,813)

Net Income                         672,687     159,763      8,409       840,859
                               -----------   ---------   --------   -----------

Balance, Sept. 30, 1997        $ 2,427,033   $ 579,876   $ 30,549   $ 3,037,458
                               ===========   =========   ========   ===========


Units authorized and
 issued, net of 6,973
 Treasury Units at
 September 30, 1997                138,499      33,014      1,739       173,252
                                   =======      ======      =====       =======

See notes to consolidated financial statements.


                                       7
<PAGE>

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--SIGNIFICANT ACCOUNTING POLICIES

Line of Business: New England Realty Associates Limited Partnership ("NERA" or
the "Partnership") was organized in Massachusetts during 1977. NERA and its
subsidiaries own and operate various residential apartment buildings,
condominium units, and commercial properties located in Massachusetts,
Connecticut, New Hampshire, and Maine. NERA has an investment in a real estate
partnership and a joint venture. In connection with the mortgages referred to in
Note 5, a substantial number of NERA's properties were restructured into
separate subsidiary limited partnerships. The financial statements for prior
periods are unchanged.

Principles of Consolidation: The consolidated financial statements include the
accounts of NERA and its subsidiary limited partnerships. NERA has a 99.67%
ownership interest in each of such subsidiary limited partnerships. The
consolidated group is referred to as the "Partnerships." Minority interests are
not recorded since they are insignificant. All significant intercompany accounts
and transactions are eliminated in consolidation. The Partnership accounts for
its investment in the joint venture on the equity method.

Accounting Estimates: The preparation of the financial statements is in
accordance with generally accepted accounting principles (GAAP) requiring
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Accordingly, actual results could differ
from those estimates.

Revenue Recognition: Certain leases of the commercial properties provide for
increasing stepped minimum rents, which are accounted for on a straight-line
basis over the term of the lease.

Rental Properties: Rental properties are stated at cost less accumulated
depreciation. Maintenance and repairs are charged to expense as incurred;
improvements and additions are capitalized. When assets are retired or otherwise
disposed of, the cost of the asset and related accumulated depreciation is
eliminated from the accounts, and any gain or loss on such disposition is
included in income. Rental properties are depreciated on the straight-line
method over their estimated useful lives. In the event that facts and
circumstances indicate that the carrying value of rental properties may be
impaired, an analysis of recoverability is performed. The estimated future
undiscounted cash flows are compared to the asset's carrying value to determine
if a write-down to fair value or discounted cash flow value is required. This
policy was adopted in 1995. Previously, impairment was considered on a
case-by-case basis.

Financing and Leasing Fees: Financing fees are capitalized and amortized, using
the interest method, over the life of the related mortgages. Leasing fees are
capitalized and amortized on a straight-line basis over the life of the related
lease.


                                       8
<PAGE>

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Income Taxes: The financial statements have been prepared under the basis that
NERA and its subsidiaries are entitled to tax treatment as partnerships.
Accordingly, no provision for income taxes on income has been recorded.

Cash Equivalents: The Partnerships consider cash equivalents to be all highly
liquid instruments purchased with a maturity of three months or less.

Short-term Investments: The Partnerships consider short-term investments to be
any bank certificates of deposit, Treasury obligations, or commercial paper with
initial maturities between three and twelve months. These investments are
considered to be trading account securities and are carried at fair value.

Concentration of Credit Risks and Financial Instruments: The Partnerships'
tenants are located in New England, and the Partnerships are subject to the
general economic risks related thereto. No single tenant accounted for more than
5% of the Partnerships' revenues in 1997, 1996, or 1995. The Partnerships make
their temporary cash investments with high credit quality financial institutions
or purchase money market accounts invested in U.S. Government securities. At
September 30, 1997, approximately $1,544,000 of cash and cash equivalents
exceeded federally insured amounts of which approximately $1,400,000 was held in
a money market fund invested in U.S. Government securities.

NOTE 2--RENTAL PROPERTIES

Rental properties consist of the following:

                                   September 30,    December 31,       Useful
                                       1997            1996             Life 
                                   ------------     -----------      -----------

Land                                $ 9,710,733     $ 9,710,733               --
Buildings                            43,627,173      43,622,868      25-31 years
Building improvements                11,457,741      10,648,403      15-31 years
Kitchen cabinets                      1,203,107         940,870       5-10 years
Carpets                               1,184,552         977,574       5-10 years
Air conditioning                        254,911         233,995       7-10 years
Land improvements                       605,059         599,909      10-31 years
Laundry equipment                        51,282          45,248        5-7 years
Elevators                                45,592          16,842         20 years
Swimming pools                           42,450          42,450         10 years
Equipment                               430,823         311,809        5-7 years
Motor vehicles                           65,926          49,852          5 years
Fences                                   20,785          20,785       5-10 years
Furniture and fixtures                  257,019         201,638        5-7 years
Smoke alarms                              9,064           6,224        5-7 years
                                    -----------     ------------
                                     68,966,217      67,429,200
Less accumulated
  depreciation                       17,286,889      15,135,219
                                    -----------     -----------
                                    $51,679,328     $52,293,981
                                    ===========     ===========


                                       9
<PAGE>

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2--RENTAL PROPERTIES (CONTINUED)

On December 11, 1996, the Partnership acquired a residential complex containing
36 apartment units in Lowell, Massachusetts for a purchase price of
approximately $790,000. The purchase was paid from the Partnership's cash
reserves and is unencumbered.

NOTE 3--RELATED PARTY TRANSACTIONS

The Partnerships' properties are managed by an entity which is owned by the
majority shareholder of the General Partner. The management fee is equal to 4%
of rental revenue and laundry income. Total fees paid were $552,745, and
$524,214 for the nine months ended September 30, 1997 and 1996, respectively.
Security deposits are held in escrow by the management company (see Note 6). The
management company also receives a mortgage servicing fee equal to an annual
rate of 1/2% of the monthly outstanding balance of mortgages receivable
resulting from the sale of property. There were no mortgage servicing fees paid
in 1997 and 1996.

The Partnership Agreement also permits the General Partner or a management
company to charge the costs of professional services (such as counsel,
accountants, and contractors) to NERA. During the nine months ended Septemmber
30, 1997 and 1996 approximately $330,000 and $221,000 was charged to NERA for
legal, maintenance, architectural services and supervision of capital
improvements. Approximately $110,000, and $57,000 was capitalized during the
nine months ended September 30, 1997 and 1996, in leasehold improvements and the
balance was included in administrative expense and repairs and maintenance
expenses. In addition, the Partnership paid to the management company $37,500
and $30,000 in each of the nine months ended September 30, 1997 and 1996 for
accounting services previously provided by an outside company.

The Partnership Agreement entitles the General Partner or a management company
to receive certain commissions upon the sale of Partnership property only to the
extent that total commissions do not exceed 3%. No such commissions were paid in
1997 or 1996.

In 1997 and 1996, an unrelated individual that performed asset management
consulting services to NERA and the management company was appointed President
of the management company. This individual continues to receive asset management
fees from NERA. NERA has recorded consulting fees of $36,000 during the nine
months ended September 30, 1997, and $28,800 during the year ended December 31,
1996.

Included in prepaid expenses and other assets were amounts due from related
parties of $498,756 at September 30, 1997 and $416,317 at December 31, 1996
representing Massachusetts tenant security and prepaid rent deposits, which are
held for the Partnerships by another entity also owned by one of the
shareholders of the General Partner (see Note 6).


                                       10
<PAGE>

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3--RELATED PARTY TRANSACTIONS (CONTINUED)

Also included in prepaid expenses and other assets is an insurance reserve
account funded by the Partnerships and held by the management company. The
insurance reserve includes funds from other properties which are also owned by
the related parties. The balance in the reserve was $154,096 at September 30,
1997 and $82,856 at December 31, 1996.

See Note 10 for rental arrangements with the Timpany Plaza joint venture.

As described in Note 4, the Partnership has interests in certain entities in
which the majority shareholder of the General Partner is also involved.

NOTE 4--OTHER ASSETS

The short-term investment $51,528 at December 31, 1996, is carried at cost,
which approximates fair value. Such investment is a 5.07% certificate of deposit
at Citizens Bank which matured in February 1997.

Included in prepaid expenses and other assets at September 30, 1997 and December
31, 1996 is approximately $427,000 and $669,000 held in escrow to pay future
capital improvements. Additional escrow payments of approximately $34,000 are
paid monthly. As the improvements are made, funds are used from these escrow
accounts.

The carrying value of the Partnership's 50% interest in the Timpany Plaza joint
venture, at equity, is $78,843 and $93,734 at September 30, 1997 and December
31, 1996 respectively.

The Partnership owns a 10% ownership interest in a real estate limited
partnership which is accounted for by the equity method and reduced to a
carrying value of zero. The loss in excess of cost in this limited partnership
has not been recorded as the Partnership is not liable for such amounts. In
1996, $18,360 was recorded in other income for the amount received from the
disposition of limited partnership investment that had previously been reduced
to a carrying value of zero.

The majority shareholder of the General Partner is also the majority owner of
this real estate limited partnership. There can be no assurance that any of
NERA's partnership investments will be realizable in the future in excess of
their carrying value.

NOTE 5--MORTGAGES PAYABLE

At September 30, 1997 and December 31, 1996, the mortgages payable consisted of
various loans, substantially all of which were secured by first mortgages on
properties referred to in Note 2, with interest ranging from 8.25% to 10.99%
payable in monthly installments currently aggregating approximately $431,000
including interest, to various dates through 2005. Although the loans mature
within ten years, they are being amortized on a basis between 25 and 27.5 years.
The carrying amounts of the Partnerships' mortgage payable approximate their
fair value.


                                       11
<PAGE>

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5--MORTGAGES PAYABLE (CONTINUED)

The Partnerships have pledged tenant leases as additional collateral for certain
of these mortgages.

Approximate annual maturities are as follows:

                   1998 - current maturities     $   620,688
                   1999                              676,834
                   2000                            7,337,726
                   2001                              727,098
                   2002                              791,062
                   Thereafter                     41,953,584
                                                 -----------
                                                 $52,106,992
                                                 ===========

NOTE 6--ADVANCE RENTAL PAYMENTS AND SECURITY DEPOSITS

The lease agreements for certain properties require tenants to maintain a
one-month advance rental payment plus security deposits. The funds are held in
escrow by another entity owned by the majority shareholder of the General
Partner (see Note 3).

NOTE 7--PARTNERS' CAPITAL

The Partnership has two categories of limited partners (Class A and B) and one
category of General Partner (General Partner). Under the terms of the
Partnership Agreement, Class B units and General Partnership units must
represent 19% and 1% respectively of the total units outstanding. All classes
have equal profit-sharing and distribution rights in proportion to their
ownership interests.

The Partnership declared distributions of $3.90 during the first and third
quarters of 1997 and a special distribution of $1.00 per unit during the first
quarter of 1997. Total distributions for 1997 were $8.80 per unit.

The Partnership has entered into a deposit agreement with an agent to facilitate
public trading of limited partners' interests in Class A units.

Under the terms of this agreement, the holders of Class A units have the right
to exchange each Class A unit for ten Depositary Receipts. The following is
information on the net income per Depositary Receipt:

                                                         Nine Months Ended 
                                                            September 30,
                                                           1997      1996
                                                           ----      ----
    Net Income per Depositary Receipt                     $  .48    $ .58 
                                                          ======    =====


                                       12
<PAGE>

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8--CAPITAL UNIT REPURCHASE PLAN

During the second quarter of 1996, the Partnership announced a plan to
repurchase up to $500,000 of its Depositary Receipts from existing holders of
securities. The repurchase of Depositary Receipts may take place over a period
of a year or more. The purchase price would be equal to the price at which such
securities are traded on the Nasdaq Stock Market at the time of the repurchase.
In January 1997, the Partnership repurchased 6,048 depositary receipts for a
total cost of $53,586 and repurchased Class B and General Partnership units for
a total cost of $13,397. In April 1997, the Partnership repurchased 3600
depositary receipts for a total cost of $30,600 and repurchased Class B and
General Partnership units for a total cost of $7,650. In August 1997, the
Partnership repurchased 5,640 depositary receipts for a total cost of $54,990
and repurchased Class B and General Partnership units for a total cost of
$13,748. During the third and fourth quarters of 1996, the Partnership
repurchased 15,915 depositary receipts for a total cost of $110,060 and
repurchased Class B and General Partnership units for a total cost of $27,517.
The Class B and General Partnership units were repurchased to maintain the
required ownership percentage (See Note 7).

Treasury units at September 30, 1997 are as follows:

         Class A             5,681
         Class B             1,229
         General Partner        63
                            ------
                             6,973
                            ======

NOTE 9--COMMITMENTS AND CONTINGENCIES

From time to time, the Partnerships are involved in various ordinary routine
litigation incidental to their business. The Partnerships are not involved in
any material pending legal proceedings.


                                       13
<PAGE>

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10--RENTAL INCOME

During the nine months ended September 30, 1997, approximately 85% of rental
income is related to residential apartments and condominium units with leases of
one year or less. The remaining 15% is related to commercial properties which
have minimum future rental income on noncancellable operating leases as follows:

             Commercial
              Property
               Leases              Land Leases           Total

1998         $1,486,844           $  146,667           $1,633,511
1999          1,133,955              146,667            1,280,622
2000            908,244              146,667            1,054,911
2001            630,466              146,667              777,133
2002            411,845              146,667              558,512
Thereafter    1,146,115              990,002            2,136,117
             ----------           ----------          -----------
             $5,717,469           $1,723,337           $7,440,806
             ==========           ==========          ===========

In August 1988, the Partnership entered into a land lease agreement with an
existing tenant of the Timpany Plaza Shopping Center in Gardner, Massachusetts.
As part of this lease, the tenant, at its cost, demolished approximately
one-third of the mall and replaced it with a new store of comparable size. The
minimum fixed term of this lease is for 20 years, which commenced with the
opening of the new store in December 1989.

The minimum annual rents are $110,000 per year for the first five years,
increasing each subsequent five-year period, with the average being $137,500 per
year for the minimum twenty-year term. Included in rents receivable at September
30, 1997 and December 1996 is $168,625 and $163,000 respectively, representing
the deferred rental income from this lease. There are also contingent rents
based upon sales volume, common area maintenance, and other charges. This lease
also provides for six extension periods of five years each at increased rents.
The minimum rents pertaining to this agreement are reflected in the foregoing
table.

The ownership of this building addition transfers to the Partnership at the
termination of the lease. Accordingly, the Partnership included in property
assets approximately $1,400,000 of book value of the demolished building
allocable to the Partnership leasehold interest and is depreciating this amount
on a straight-line basis over a twenty-year period.

Concurrently, the Partnership entered into a joint venture with this same tenant
relating to the space formerly leased by the tenant. Under this arrangement, the
two parties have agreed to relet the space and divide the net income or loss
after paying to the Partnership an annual minimum rent of $84,546. The
Partnership's share of the loss was approximately $13,000 for the nine months
ended September 30, 1997 compared to income of approximately $17,000 for the
nine months ended September 30, 1996.


                                       14
<PAGE>

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10--RENTAL INCOME (CONTINUED)

The aggregate minimum future rental income does not include contingent rentals
which may be received under various leases in connection with percentage rents,
common area charges, and real estate taxes. Aggregate contingent rentals were
approximately $751,831, and $722,108 for the nine months ended September 30,
1997 and 1996 respectively.

NOTE 11--CASH FLOW INFORMATION

During the nine months ended September 30, 1997 and 1996, cash paid for interest
on debt was $3,451,694 and $3,487,392 respectively.

NOTE 12--FAIR VALUE OF FINANCIAL INSTRUMENTS

The Partnership considers the fair value of its financial instruments to
approximate their carrying values because conditions pertaining to the historic
carrying values approximate those in the current market.


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<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operation

Results of Operations

Income from operations for the third quarter of 1997 was approximately $293,000,
compared to approximately $248,000 for the same period in 1996, an increase of
approximately $45,000. For the nine months ended September 30, 1997, income from
operations was approximately $755,000 compared to approximately $884,000 for the
same period in 1997, a decrease of approximately $129,000. Net cash provided by
operations during the nine months ended September 30, 1997 was approximately
$3,495,000 compared to approximately $3,018,000 during the same period in 1996,
an increase of approximately $477,000. This increase in cash provided from
operations is the result of a decrease in rents receivable; and an increase in
advance rental payments and security deposits related to a higher occupancy
level at the Partnerships residential properties.

Rental income during the third quarter of 1997 was approximately $4,425,000
compared with approximately $4,056,000, for the same period in 1996, an increase
of approximately $369,000. For the nine months ended September 30, 1997, rental
income was approximately $12,864,000 compared with approximately $12,370,000 for
the same period in 1996, an increase of approximately $494,000. The increase in
rental income both for the quarter as well as the nine months ended September
30, 1997 is due to the collection of $118,000 in July 1997 of rent, which
relates to a prior year, from a tenant who filed for bankruptcy in 1996. In
addition, the acquisition of Highland Street property represents approximately
$52,000 of the increase in the third quarter of 1997 and approximately $160,000
of the increase in rental income for the nine months ended September 30, 1997.
The Partnership has also seen an increase in rental income from the residential
properties due to a strong rental market and increasing rental rates. Rental
income at the commercial properties has decreased slightly due to the vacancy
level and reduced rental rates at the Timpany Plaza Shopping Center, offset by a
lower vacancy rate at the Lewiston Mall Shopping Center.

Expenses for the third quarter of 1997 were approximately $4,176,000 compared to
approximately $3,854,000 for the same period in 1996, an increase of
approximately $322,000. This increase reflects an increase in administrative
expenses of approximately $33,000 due to an increase in staffing levels and
accompanying employee benefits. The Partnership does not anticipate continued
increases in staffing levels in the near


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<PAGE>

term. In addition, depreciation and amortization increased approximately
$138,000 due to the acquisition of the property at Highland Street during the
fourth quarter of 1996, as well as depreciation related to ongoing capital
improvements at the Partnership properties; the management fee increased
approximately $15,000 due to a higher level of rental income; operating expenses
increased approximately $67,000, of which approximately $7,000 represents
Highland Street, approximately $28,000 represents the utilities paid by the
Partnership for the vacant space at the Timpany Plaza, and the balance represent
an increase in utilities at the Partnership properties. Repairs and maintenance
expenses increased approximately $83,000 due to ongoing improvements at the
Partnership properties; taxes and insurance increased approximately $20,000, of
which approximately $5,000 represents the acquisition of Highland Street and the
balance represents an increase in real estate taxes. These increases are offset
by a decrease in renting expenses of approximately $31,000 due to a drop in
advertising expenditures as a result of a strong rental market.

Expenses for the first nine months of 1997 were approximately $12,246,000
compared with approximately $11,641,000 for the same period in 1996, an increase
of approximately $605,000. This represents an increase of approximately $157,000
in administrative expenses; an increase of approximately $348,000 in
depreciation and amortization; an increase of approximately $29,000 in the
management fee; an increase of approximately $52,000 in operating expenses; an
increase of approximately $61,000 in repairs and maintenance expenses; and an
increase of approximately $29,000 in taxes and insurance. The reason for these
increases are discussed in the preceding paragraph.

Interest income for the three months ended September 30, 1997 remained
relatively stable, $37,685 for the three months ended September 30, 1997 and
$36,594 for the three months ended September 30, 1996 an increase of $1,091.
Interest income for the nine months ended September 30, 1997 was $98,901,
compared to $124,938 for the same period in 1996, a decrease of $26,037. The
decrease in interest income for the nine months ended September 30, 1997 is due
to the receipt of $19,790 during the first quarter of 1996 from interest on the
funds held in escrow related to the properties acquired in 1995.

The Partnership is a partner in a joint venture with a tenant at the Timpany
Plaza Shopping Center in Gardner, Massachusetts. Under the terms of the
agreement, the parties have agreed to relet the space and divide the net income
or loss after paying to the Partnership an annual minimum rent of approximately
$84,000. The Partnership's investment in the Timpany Plaza joint venture
represents less than 1% of NERA's assets.


                                       17
<PAGE>

The Partnership's share of loss in the joint venture at the Timpany Plaza
Shopping Center was $7,112 for the third quarter of 1997 compared to income of
$5,531 for the third quarter of 1996, a fluctuation of $12,643. For the nine
months ended September 30, 1997, the Partnership's share of loss from the joint
venture at Timpany Plaza Shopping Center was $13,293 compared to income of
$17,066 for the same period in 1996, a fluctuation of approximately $30,359. The
rental income from the joint venture is down significantly due to lower rental
rates negotiated with the tenants as the result of the loss of a major tenant in
the Timpany Plaza Shopping Center. This decrease in rental income from the joint
venture is consistent with the decrease in rental income from the Timpany Plaza
Shopping Center.

As a result of the changes discussed above, net income for the three months
ended September 30, 1997 was $329,936 compared to $289,869 for the same period
in 1996, an increase of $40,067 and net income for the nine months ended
September 30, 1997 was $840,026 compared to $1,026,183 and decrease of $185,314.

Liquidity and Capital Resources

The Partnership's principal source of cash during 1997 and 1996 has been the
collection of rents. The majority of cash and cash equivalents of $1,707,922 at
September 30, 1997 and $1,830,605 at December 31, 1996 is invested in a U.S.
government money market account. Additionally, the Partnership purchased a short
term investment valued at $51,528 at December 31, 1996. This investment is a
certificate of deposit which matured in February 1997.

At September 30, 1997, the Partnership's cash and cash equivalents decreased
approximately $906,000 from September 30, 1996. This decrease represents the
acquisition of a residential complex consisting of 36 apartments in Lowell,
Massachusetts. The purchase price was $790,000 and was funded from cash
reserves.

In 1996, the Partnership announced a plan under which it may repurchase up to
$500,000 of its Depositary Receipts from existing holders of securities. The
repurchase plan may take place over a period of one year or more. The purchase
price will be equal to the price at which such securities are traded on the
Nasdaq Stock Market at the time of the repurchase. In 1997, the Partnership
repurchased 15,288 depositary receipts for a total purchase price of $139,268,
and purchased Class B and General Partnership units for a total cost of $34,818.
During the second and third quarters of 1996, the Partnership purchased 15,915
depositary receipts for a total cost of $110,060 and Class B and General
Partnership units for a total cost of $27,517. The Class B and General
Partnership units are purchased to maintain the required ownership percentages.


                                       18
<PAGE>

During the third quarter of 1997, the Partnership completed approximately
$632,000 of capital improvements to its properties. These improvements were
funded from escrow accounts previously established for this purpose and from
cash reserves. The most significant improvements were made at the Lincoln Street
apartments in Newton, Massachusetts for a total cost of approximately $221,000.
Significant improvements were also made at the apartments at 62 Boylston Street
in Boston, Massachusetts for a total cost of approximately $88,000, as well as
improvements of approximately $60,000 at the Courtyard on North Beacon;
approximately $59,000 at the Westgate Apartments in Woburn, Massachusetts;
approximately $38,000 at the Apartments at 1144 Commonwealth Avenue in Brighton,
Massachusetts; and approximately $26,000 the Redwood Hills apartments in
Worcester, Massachusetts.

In keeping with its five year capital improvement program and budgeted 1997
capital improvements, the Partnership and its Subsidiary partnerships plan to
invest an additional $600,000 in capital improvements in 1997, of which
approximately $510,000 is designated for residential properties and $90,000 is
designated for commercial properties. These improvements will be funded from
cash reserves and escrow accounts.

The Partnership anticipates that available cash and interest bearing
investments, collection of rents, and proceeds from the sale and refinancing of
Partnership properties will be sufficient to finance current improvements to its
properties. The Partnership's net income and cash flow may fluctuate
dramatically from year to year as a result of the sale of properties,
unanticipated increases in expenses, or a loss of a significant tenant.

Since the Partnership's long term goals include the acquisition of additional
properties, a portion of the proceeds from the refinancing and sale of
properties is reserved for this purpose. The Partnership will consider
refinancing existing properties if either insufficient funds exist from cash
reserves to repay existing mortgages or if funds required for future
acquisitions are not available.

The Partnership paid a distribution of $3.90 per Partnership unit ($0.39 per
depositary receipt) during the first and third quarters of 1997 and a special
distribution of $1.00 per unit during the first quarter of 1997. Total
distributions for 1997 were $8.80 per unit.


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<PAGE>

Factors that may affect future results

The discussion above contains information based on management's belief and
forward looking statements that involve a number of risks, uncertainties and
assumptions. There can be no assurances that actual results will not differ
materially as a result of various factors, including but not limited to the
following:

The Timpany Plaza Shopping Center in Gardner, Massachusetts is 47% vacant at
November 1, 1997. If the space remains unoccupied, the 1997 rental income will
be approximately $200,000 less than 1996. Should circumstances remain unchanged,
the Partnership may need to review the carrying value of this property for
impairment in accordance with the Statement of Financial Accounting Standards
No. 121 (Fas No. 121).

A major tenant of the shopping mall in Lewiston, Maine, which paid approximately
$240,000 in 1996, can terminate its lease with nine months notice effective
January 1, 1997. The Partnership is currently negotiating to obtain a long-term
lease. The Partnership, at this time, cannot make any assurances that the tenant
will renew its lease for this space.


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<PAGE>

                                   SIGNATURES

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


Date:      November 14, 1997

                                   NEW ENGLAND REALTY ASSOCIATES LIMITED
                                   PARTNERSHIP

                                   By: NEWREAL, INC.,
                                       its General Partner*


                                   By: /s/ Ronald Brown
                                       -------------------------------
                                       Ronald Brown, President


                                   * Functional equivalent of Chief
                                     Executive Officer, Principal
                                     Financial Officer and Principal
                                     Accounting Officer.


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