NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP - Annual Report: 2003 (Form 10-K)

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TABLE OF CONTENTS

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Form 10-K

(Mark One)

For the fiscal year ended December 31, 2003

OR

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)

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

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

Class A
Limited Partnership Units
(Title of class)

        Indicate by check mark 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 ý  No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o  No ý

        The aggregate market value of the registrant's securities held by non-affiliates of the registrant was $64,784,650 based on the final sales price on the last business day of the registrant's most recently completed second quarter.

        (For this computation, the Registrant has excluded the market value of all Depositary Receipts reported as beneficially owned by executive officers and directors of the General Partner of the Registrant; such exclusion shall not be deemed to constitute an admission that any such person is an affiliate of the Registrant.)

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP

TABLE OF CONTENTS

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PART I

ITEM 1.    BUSINESS

General

        New England Realty Associates Limited Partnership ("NERA" or the "Partnership"), a Massachusetts Limited Partnership, was formed on August 12, 1977 as the successor to five real estate limited partnerships (collectively, the "Colonial Partnerships"), which filed for protection under Chapter XII of the Federal Bankruptcy Act in September 1974. The bankruptcy proceedings were terminated in late 1984. While the Partnership terminates on December 31, 2017, the General Partner may extend, at its sole discretion, the termination date for an additional 40 years.

        The authorized capital of the Partnership is represented by three classes of partnership units ("Units"). There are two categories of limited partnership interests ("Class A Units" and "Class B Units") and one category of general partnership interests (the "General Partnership Units"). The Class A Units were issued to creditors and limited partners of the Colonial Partnerships and have been registered under Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Each Class A Unit is exchangeable for 10 publicly traded depositary receipts ("Receipts"), which are currently listed on the American Stock Exchange and are registered under Section 12(b) of the Exchange Act. The Class B Units were issued to the original general partners of the Partnership. The General Partnership Units are held by the current general partner of the Partnership, NewReal, Inc. (the "General Partner"). The Class A Units represent an 80% ownership interest, the Class B Units represent a 19% ownership interest, and the General Partnership Units represent a 1% ownership interest.

        The Partnership is engaged in the business of acquiring, developing, holding for investment, operating and selling real estate. The Partnership, directly or through 23 subsidiary limited partnerships or limited liability companies, owns and operates various residential apartment buildings, condominium units and commercial properties located in Massachusetts and New Hampshire. As used herein, the Partnership's subsidiary limited partnerships and limited liability companies are each referred to as a "Subsidiary Partnership" and are collectively referred to as the "Subsidiary Partnerships."

        The Partnership owns between a 99.67% and 100% interest in each of the Subsidiary Partnerships, except that it owns a 50% interest in one of the Subsidiary Partnerships, a limited liability company (the "Investment LLC") that owns a 40-unit apartment building in Cambridge, Massachusetts (the "Investment Property"). The Partnership's interest in the Investment LLC is accounted for on the equity method of consolidation in the Consolidated Financial Statements. See Note 1 to the Consolidated Financial Statements—"Principles of Consolidation." Of those Subsidiary Partnerships not wholly owned by the Partnership, except for the Investment LLC, the remaining ownership interest is held by an unaffiliated third party. In each such case, the third party has entered into a lease agreement with the Partnership, pursuant to which any benefit derived from its ownership interest in the applicable Subsidiary Partnerships will be returned to the Partnership.

        The long-term goals of the Partnership are to manage, rent and improve its properties and to acquire additional properties with income and capital appreciation potential as suitable opportunities arise. When appropriate, the Partnership may sell or refinance selected properties with low debt-to-equity ratios. Proceeds from any such sales or refinancings will be reinvested in acquisitions of other properties, distributed to the partners, or used for operating expenses or reserves, as determined by the General Partner.

Operations of the Partnership

        The Partnership is managed by the General Partner, NewReal, Inc., a Massachusetts corporation wholly-owned by Harold Brown and Ronald Brown. The General Partner has engaged The Hamilton

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Company, Inc. (the "Hamilton Company" or "Hamilton") to perform general management functions for the Partnership's properties in exchange for management fees. The Hamilton Company is wholly owned by and employs Harold Brown. The Partnership and its Subsidiary Partnerships currently employ 56 individuals who are primarily involved in the supervision and maintenance of specific properties. The General Partner has no employees.

        As of February 25, 2004, the Partnership and its Subsidiary Partnerships owned 2,376 residential apartment units in 21 residential and mixed-use complexes (collectively, the "Apartment Complexes"). The Partnership also owns 24 condominium units in a residential condominium complex, all of which are leased to residential tenants (collectively referred to as the "Condominium Units"). Further, the Partnership owns a 50% interest in the Investment Property through its membership in the Investment LLC. The Apartment Complexes, the Condominium Units and the Investment Property are located primarily in the greater metropolitan Boston, Massachusetts area.

        Additionally, as of February 25, 2004, the Subsidiary Partnerships owned a commercial shopping center in Framingham, Massachusetts and commercial space in mixed-use buildings in Boston, Brockton and Newton, Massachusetts. These properties are referred to collectively as the "Commercial Properties." See Note 2 to the Consolidated Financial Statements included as a part of this Form 10-K.

        The Apartment Complexes, Investment Property, Condominium Units and Commercial Properties are referred to collectively as the "Properties."

        Harold Brown and, in certain cases, Ronald Brown, own or have owned interests in certain of the Properties and the Subsidiary Partnerships. See "Item 13. Certain Relationships and Related Transactions."

        The leasing of real estate is highly competitive. The Apartment Complexes, Condominium Units and the Investment Property must compete for tenants with other residential apartments and condominium units in the areas in which they are located. The Commercial Properties must compete for commercial tenants with other shopping malls and office buildings in the areas in which they are located. Thus, the level of competition at each Property depends on how many other similarly-situated properties are in its vicinity. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Factors that May Affect Future Results."

        The Second Amended and Restated Contract of Limited Partnership of the Partnership (the "Partnership Agreement") authorizes the General Partner to acquire real estate and real estate related investments from or in participation with either or both of Harold Brown and Ronald Brown, or their affiliates, upon the satisfaction of certain terms and conditions, including the approval of the Partnership's Advisory Committee and limitations on the price paid by the Partnership for such investments. The Partnership Agreement also permits the Partnership's limited partners and the General Partner to make loans to the Partnership, subject to certain limitations on the rate of interest that may be charged to the Partnership. Except for the foregoing, the Partnership does not have any policies prohibiting any limited partner, General Partner or any other person from having any direct or indirect pecuniary interest in any investment to be acquired or disposed of by the Partnership or in any transaction to which the Partnership is a party or has an interest in or from engaging, for their own account, in business activities of the types conducted or to be conducted by the Partnership. The General Partner is not limited in the number or amount of mortgages which may be placed on any Property, nor is there a policy limiting the percentage of Partnership assets which may be invested in any specific Property.

Industry Segments

        The Partnership operates in only one industry segment—real estate, with all of its properties located in the Greater Boston, Massachusetts area. The Partnership does not have any foreign

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operations and its business is not seasonal. Please see our financial statements attached hereto and incorporated by reference herein for financial information relating to our industry segment.

Recent Developments

        As more fully described below, the Partnership purchased a 184-unit apartment complex and five condominium units in 2003. There were no property sales in 2003.

        On June 30, 2003, the Partnership purchased five condominium units from a group of investors who are also affiliated with the Partnership. The total purchase price for the five units was $2,421,286 including closing costs. The Partnership obtained a $1,600,000 mortgage on these condominiums. See Notes 3 and 5 to the Consolidated Financial Statements for a discussion of certain related parties associated with this acquisition and its financing. The majority owner of the General Partner has agreed to indemnify the Partnership for any losses incurred from the sale of any of these units within a three-year period from acquisition.

        On April 25, 2003, the Partnership acquired a 184-unit residential property located at 9 School Street in Framingham, Massachusetts for a total purchase price of approximately $23,368,000. The Partnership obtained a mortgage of $17,000,000. The balance of the purchase was funded from cash reserves. See Note 5 to the Consolidated Financial Statements for a further discussion of this mortgage.

        As more fully described in Note 5 to the Consolidated Financial Statements, the Partnership obtained $18,600,000 of new mortgages to finance the 2003 acquisitions and obtained four new mortgages, totaling $26,750,000, on previously mortgaged property with remaining balances of approximately $11,526,000. This increased cash reserves by approximately $13,000,000.

        In 2003, the Partnership paid a distribution of $29.40 per Unit ($2.94 per Receipt) for a total payment of $5,085,377. In 2002, the Partnership paid a distribution of $25.60 per Unit ($2.56 per Receipt) for a total payment of $4,428,083. Additionally, in February 2004, the Partnership declared a $6.60 per Unit distribution ($0.66 per Receipt) payable on March 31, 2004.

        Additionally during 2003, the Partnership and its Subsidiary Partnerships completed improvements to certain of the Properties at a total cost of approximately $3,135,000. These improvements were funded from cash reserves and, to some extent, escrow accounts established in connection with the financing or refinancing of the applicable Properties. These sources have been adequate to fully fund improvements. The most significant improvements were made at 62 Boylston Street, 1144 Commonwealth Avenue, Hamilton Oaks, Westside Colonial and Westgate Apartments, at a cost of approximately $410,000, $205,000, $260,000, $173,000 and $495,000, respectively. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources."

Advisory Committee

        The Partnership has an advisory committee composed of three limited partners who are not general partners or affiliates of the Partnership. The Advisory Committee meets with the General Partner to review the progress of the Partnership, assist the General Partner with policy formation, review the appropriateness, timing and amount of proposed distributions, approve or reject proposed acquisitions and investments with affiliates and advise the General Partner on various other Partnership affairs. The Advisory Committee has no binding power except that it must approve certain investments and acquisitions by the Partnership from or with affiliates of the Partnership.

        Two members of the Advisory Committee were elected directors of the General Partner and appointed members of the General Partner's Audit Committee on March 11, 2002, and the third member was elected a director of the General Partner and appointed a member of the General

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Partner's Audit Committee on January 2, 2003. See "Item 10. Directors and Executive Officers of the Registrant."

Available Information

        Investor information for the Partnership can be found on its website at www.thehamiltoncompany.com/InvestorRelations.htm. Via its site, the Partnership makes available, free of charge, its annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K filed during 2003. Documents are posted on the site as soon as reasonably practicable after the Partnership electronically files or furnishes such materials to the Securities and Exchange Commission. In addition, the website includes the charter of the Audit Committee of the Board of Directors, and the Partnership's Code of Business Conduct and Ethics applicable to all employees, officers and directors. These documents may be obtained from the website, free of charge. Any security holder also may obtain hard copies of these documents, free of charge, by sending a request in writing to: Director of Investor Relations, New England Realty Associates Limited Partnership, 39 Brighton Avenue, Allston, MA 02134.

ITEM 2.    THE PROPERTIES

        The Partnership and its Subsidiary Partnerships own the Apartment Complexes, the Condominium Units and the Commercial Properties. In addition, the Partnership owns a 50% interest in the Investment LLC, which owns the Investment Property.

        See also "Item 13. Certain Relationships and Related Transactions" for information concerning affiliated transactions.

Apartment Complexes

        The table below lists the location of the 22 Apartment Complexes, the number and type of units in each complex, the range of rents and vacancies as of February 25, 2004, the principal amount outstanding under any mortgages as of December 31, 2003, the fixed interest rates applicable to such mortgages and the maturity dates of such mortgages.

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        See Note 5 to the Consolidated Financial Statements included as part of this Form 10-K for information relating to the mortgages payable of the Partnership and its Subsidiary Partnerships.

Condominium Units

        The Partnership owns and leases to residential tenants 24 Condominium Units in the greater Boston, Massachusetts area.

        The table below lists the location of the 24 Condominium Units, the type of units, the range of rents received by the Partnership for such units and the number of vacancies as of February 25, 2004.

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Commercial Properties

        BOYLSTON DOWNTOWN LP.    In 1995, this Subsidiary Partnership acquired the Boylston Downtown property in Boston, Massachusetts ("Boylston"). This mixed-use property includes 17,218 square feet of rentable commercial space. As of February 25, 2004, the commercial space had a 0% vacancy rate, and the average gross rent per square foot was $20.55. The Partnership also rents roof space for a cellular phone antenna at an average rent of approximately $19,000 per year through July, 2006. For mortgage balance, interest rate and maturity date information, see "Apartment Complexes," above.

        HAMILTON OAKS ASSOCIATES, LLC.    The Hamilton Oaks Apartment complex, acquired by the Partnership in December 1999 through Hamilton Oaks Associates, LLC, includes 6,075 square feet of rentable commercial space, occupied by a daycare center. As of February 25, 2004, the commercial space was fully occupied, and the average rent per square foot was $15.38. The Partnership also rents roof space for a cellular phone antenna at an average rent of approximately $25,000 per year through November, 2005. For mortgage balance, interest rate and maturity date information, see "Apartment Complexes," above.

        LINHART LP.    In 1995, the Partnership acquired the Linhart property in Newton, Massachusetts ("Linhart"). This mixed-use property includes 21,555 square feet of rentable commercial space. As of February 25, 2004, the commercial space had a 0% vacancy rate, and the average gross rent per square foot was $21.83. For mortgage balance, interest rate and maturity date information, see "Apartment Complexes," above.

        140 NORTH BEACON LP.    In 1995, this Subsidiary Partnership acquired the North Beacon property in Boston, Massachusetts ("North Beacon"). This mixed-use property includes 1,000 square feet of rentable commercial space. The property was fully rented as of February 25, 2004, and the average rent per square foot as of that date was $23.90. For mortgage balance, interest rate and maturity date information, see "Apartment Complexes," above.

        STAPLES PLAZA.    In 1999, the Partnership acquired the Staples Plaza shopping center in Framingham, Massachusetts ("Staples Plaza"). The shopping center consists of 39,600 square feet of rentable commercial space. The Partnership assumed a mortgage in the amount of $5,267,949, which carries a fixed interest rate of 8.00% and matures in the year 2016. As of December 31, 2003, the mortgage had an outstanding balance of $4,464,789. As of February 25, 2004, Staples Plaza was fully occupied, and the average net rent per square foot was $20.13.

Investment Property

        345 FRANKLIN, LLC.    In November 2001, the Partnership acquired, through this LLC, a 50% interest in a 40-unit apartment building in Cambridge, Massachusetts summarized as follows:

        This property has a 12-year mortgage, which is amortized on a 30-year schedule, with a final payment of approximately $6,000,000 in 2014.

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        See "Item 13. Certain Relationships and Related Transactions" concerning current and former ownership interests held by related parties in certain of the above properties.

ITEM 3.    LEGAL PROCEEDINGS

        The Partnership, the Subsidiary Partnerships and their properties are not presently subject to any material litigation, and, to management's knowledge, there is not any material litigation presently threatened against them. The Partnership and Subsidiary Partnerships are occasionally subject to ordinary routine legal and administrative proceedings incident to the ownership of residential and commercial real estate. Some of the legal and other expenses related to these proceedings are covered by insurance, and none of these costs and expenses are expected to have a material adverse effect on the Consolidated Financial Statements of the Partnership.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matters were submitted to a vote of the limited partners of the Partnership during the fourth quarter of the year ended December 31, 2003.

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        Each Class A Unit is exchangeable, through Equiserve LP, the Partnership's Depositary Agent, for ten Depositary Receipts ("Receipts"). The Receipts are listed and publicly traded on the American Stock Exchange under the symbol "NEN". Prior to December 13, 2002, the Receipts were listed and publicly traded on NASDAQ under the symbol "NEWRZ". There has never been an established trading market for the Class B Units or General Partnership Units.

        In 2003, the high and low bid quotations for the Receipts were $60.90 and $41.50, respectively. The table below sets forth the high and low bids for each quarter of 2003 and 2002 and the distributions paid on the Partnership's depositary receipts:

        On March 5, 2004, the closing price on the American Stock Exchange for a depositary receipt was $58.00. These quotations reflect inter-dealer bids without retail markup, markdown, or commission and do not necessarily represent actual transactions.

        Any portion of the Partnership's cash, which the General Partner deems not necessary for cash reserves, is distributed to the Partners, and distributions are made on a quarterly basis. The Partnership has made annual distributions to its Partners since 1978. In 2003 and 2002, the Partnership made total distributions of $29.40 and $25.60 per Unit, respectively ($2.94 and $2.56 per Receipt, respectively). The total value of the distribution in 2003 was $5,085,377. Total value for 2002 was $4,428,083. In February 2004, the Partnership declared a quarterly distribution of $6.60 per Unit ($0.66 per Receipt) payable on March 31, 2004.

        Taxable income reportable by the Partnership and includable in its partner's tax returns is different than financial statement income because of accelerated depreciation, different tax lives, and timing differences related to prepaid rents and allowances. Taxable income is approximately $700,000 less than statement income for the year ended December 31, 2003 and approximately $50,000 greater than statement income for the year ended December 31, 2002. The cumulative tax basis of the Partnership's real estate at December 31, 2003 is approximately $1,300,000 greater than the statement basis. The lower taxable income in 2003 was substantially due to temporary accelerated depreciation regulations due to expire in 2004. Management does not expect this benefit to be as significant in 2004. Taxable income may exceed financial statement income in future years.

        There are no equity compensation plans or arrangements for the Registrant's securities. The Partnership has not sold or issued any non-registered equity securities during the past three years.

        See "Item 12. Security Ownership of Certain Beneficial Owners and Management" for certain information relating to the number of holders of each class of Units.

ITEM 6.    SELECTED FINANCIAL DATA

        The information required by this Item is included on page 32 of this Form 10-K.

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion should be read in conjunction with the financial statements and notes thereof appearing elsewhere in this Report. This Report, on Form 10-K, contains forward-looking statements within the meaning of the securities laws. Actual results or developments could differ materially from those projected in such statements as a result of certain factors set forth in the section below entitled "Factors That May Affect Future Results" and elsewhere in this Report.

        As a result of the economic climate since 2001, there has been a softening of the entire rental market where the Partnership operates. The softening resulted in industry wide declines in occupancy and revenue and increases in occupancy costs. While the Partnership was not immune to the overall market forces, it believes its active management, planned capital spending of prior years and response to competitive market forces reflect no decline in total same property rents and higher than industry standard occupancy. Increased marketing and turnover costs are reflected in the operations of the portfolio. Management believes that in the long run, the properties' "curb appeal" and competitive position in the marketplace will result in higher revenue and stabilized operating costs. Management believes that 2004 will require continuing additional operational costs to sustain high occupancy levels. However, management actively uses its purchasing power to mitigate utility cost increases, turnover costs, waste disposal costs and increases in insurance premiums while also pursuing aggressive tax abatement processes. While future results may be negatively impacted by the economy, management also believes the acquisition of 9 School Street will offset some of the negative trends.

        The Partnership has retained The Hamilton Company ("Hamilton") to manage and administer the Partnership's properties. Hamilton is a full-service real estate management company, which has legal, construction, maintenance, architectural and administrative departments. The Partnership's properties represent approximately 33% of the total properties and 67% of the residential properties managed by Hamilton. Substantially all of the other properties managed by Hamilton are owned—wholly or partially, directly or indirectly—by Harold Brown. The Partnership's Second Amended and Restated Contract of Limited Partnership (the "Partnership Agreement") expressly provides that the general partner may employ a management company to manage the properties and that such management company may be paid a fee of 4% of rental receipts for administrative and management services (the "Management Fee"). The Partnership annually pays Hamilton the full Management Fee, in monthly installments.

        Mr. Brown, his brother Ronald Brown and the President of Hamilton, Carl Valeri, collectively own approximately 19.6% of the Partnership's depositary receipts—representing Class A Units—(including depositary receipts held by trusts for the benefit of such persons' family members). Harold Brown also owns 75% of the Partnership's Class B Units, 75% of the capital stock of NewReal, Inc. ("NewReal"), the Partnership's sole general partner, and all of the outstanding capital stock of Hamilton. Ronald Brown owns 25% of the Partnership's Class B Units and 25% of NewReal's capital stock. In addition, Ronald Brown is the President and director of NewReal, and Harold Brown is NewReal's Treasurer and also a director. Three of NewReal's other directors, Thomas Raffoul, Conrad DiGregorio and Edward Sarkesian own immaterial amounts of the Partnership's Class A Units.

        Beyond the Management Fee, the Partnership Agreement further provides for the employment of outside professionals to provide services to the Partnership and allows NewReal to charge the Partnership for the cost of employing professionals to assist with the administration of the Partnership's properties. In addition to the Management Fee, from time to time the Partnership pays Hamilton for repair and maintenance services, legal services, construction services and accounting services. The costs charged by Hamilton for these services are at the same hourly rate charged to all entities managed by Hamilton, and management believes such rates are competitive in the marketplace.

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        Approximately 6% and 7% of the repair and maintenance expenses paid by the Partnership in 2003 and 2002, respectively, was paid to Hamilton. Of the funds paid to Hamilton for this purpose, the great majority was to cover the cost of services provided by the Hamilton maintenance department, including plumbing, electrical and carpentry services, snow removal and the use of equipment such as fork lifts. However, several of the larger Partnership properties have their own maintenance staff. Further, properties that do not have their own maintenance staff but are located more 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 the Partnership's eviction and collection matters. Additionally, it prepares most long-term commercial lease agreements and represents the Partnership in selected purchase and sale transactions. Overall, Hamilton provided approximately 75% of the legal services paid for by the Partnership in 2003 and approximately 62% of such services during 2002.

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

        The Partnership requires that three bids be obtained for construction contracts in excess of $5,000. Hamilton may be one of the three bidders on a particular project and may be awarded the contract if its bid and its ability to successfully complete the project are deemed appropriate. For contracts that are not awarded to Hamilton, Hamilton charges the Partnership a construction supervision fee equal to 5% of the contract amount. Hamilton's architectural department also provides services to the Partnership on an as-needed basis. In 2003 and 2002, Hamilton provided all of the construction supervision services and architectural services paid for by the Partnership.

        Prior to 1991, the Partnership employed an outside, unaffiliated company to perform its bookkeeping and accounting functions. Since that time, such services have been provided by Hamilton's accounting staff, which consists of approximately ten people. Hamilton currently charges the Partnership $80,000 per year for bookkeeping and accounting services.

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

        The preparation of consolidated financial statements, in accordance with accounting principles generally accepted in the United States of America, requires the Partnership to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. The Partnership regularly and continually evaluates its estimates, including those related to acquiring, developing and assessing the carrying values of its real estate properties and its investments in and advances to joint ventures. The Partnership bases its estimates on historical experience, current market conditions and on various other assumptions that are believed to be reasonable under the circumstances. See Note 1 to the Consolidated Financial Statements, Principles of Consolidation.

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

        Real Estate and Depreciation: Real estate assets are stated at the lower of cost or fair value, less accumulated depreciation. Costs related to the acquisition, development, construction and improvement of properties are capitalized, including interest, internal wages and benefits, real estate taxes and

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insurance. Capitalization usually begins with commencement of development activity and ends when the property is ready for leasing. Replacements and improvements—such as HVAC equipment, structural replacements, windows, appliances, flooring, carpeting, kitchen/bath replacements and renovations—are capitalized and depreciated over their estimated useful lives as follows:

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Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets. In assessing estimated useful lives, the Partnership makes assumptions based on historical experience acquired from both within and outside the Partnership. These assumptions have a direct impact on the Partnership's net income.



•

Ordinary repairs and maintenance, such as unit cleaning and painting and appliance repairs, are expensed.

        If there is an event or change in circumstances that indicates an impairment in the value of a property, the Partnership's policy is to assess the impairment by making a comparison of the current and projected operating cash flows of the property over its remaining useful life, on an undiscounted basis, to the carrying amount of the property. If the carrying value is in excess of the estimated projected operating cash flows of the property, the Partnership would recognize an impairment loss equivalent to the amount required to adjust the carrying amount to its estimated fair value. The Partnership has not recognized an impairment loss since 1995.

        With respect to investments in and advances to joint ventures, the Partnership looks to the underlying properties to assess performance and the recoverability of carrying amounts for those investments in a manner similar to direct investments in real estate properties. An impairment charge is recorded if the carrying value of the investment exceeds its fair value.

Legal Contingencies

        The Partnership is subject to various legal proceedings and claims that arise, from time to time, in the ordinary 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 the loss is recorded in the financial statements. Both the amount of the loss and the point at which its occurrence is considered likely can be difficult to determine.

RESULTS OF OPERATIONS

Years ended December 31, 2003 and December 31, 2002

        The Partnership and its Subsidiary Partnerships earned income before other income and loss and discontinued operations of $4,206,137 during the year ended December 31, 2003, compared to $6,541,199 for the year ended December 31, 2002, a decrease of $2,335,062 (36%). This decrease in operating income before other income and discontinued operations is largely due to an increase in operating expenses of approximately $4,000,000 (17%) offset by an increase in rental income of approximately $1,800,000 (6%). As more fully described below, both increases are substantially due to acquisitions in 2003. Due to a softening residential rental market, rental income at some of the properties declined during the year ended December 31, 2003 offset by increases at other properties while expenses increased at all properties.

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        The rental activity is summarized as follows:

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        Year Ended December 31, 2003 Compared to Year Ended December 31 2002:

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        The following is a comparative schedule of the changes in revenue from rental operations excluding the 2003 acquisitions:

        Rental income from continuing operations for the year ended December 31, 2003 was approximately $30,780,000, compared to approximately $29,000,000 for the year ended December 31, 2002, an increase of approximately $1,780,000 (6%). The increase is largely due to two acquisitions made by the Partnership. In April 2003, the Partnership acquired a 184-unit residential property located at 9 School Street in Framingham, Massachusetts (referred to as "School Street"). On June 30, 2003, the Partnership acquired five condominium units in Brookline, Massachusetts. Rental income from School Street for the year ended December 31, 2003 was approximately $1,539,000 and rental income from the five condos purchased in June was approximately $68,000. Total rental income at the other Partnership properties increased approximately $202,000 (0.6%). This minimal increase is reflective of the softening real estate market.

        Expenses from continuing operations for the year ended December 31, 2003 were approximately $27,000,000, compared to approximately $23,000,000 for the year ended December 31, 2002, an increase of approximately $4,000,000 (17%). Expenses related to the aforementioned acquisitions represent approximately $2,100,000 of this increase. Unrelated to these acquisitions, there was an increase in expenses of approximately $2,100,000. The most significant components of this increase, excluding the acquired properties, were an increase in repairs and maintenance expenses of approximately $768,000 (22%) including cleaning and repainting of vacant apartments; increased renting expenses of approximately $224,000 (63%) due to increased advertising expenses as well as rental commissions paid by the Partnership; increases in other operating expenses of approximately $443,000 (18%) due to increases in utility costs; and increases in taxes and insurance of approximately $276,000 (9%) due to increases in the real estate taxes based upon higher property valuations and increased insurance premiums. Additionally, total interest expense increased approximately $928,000, which includes approximately $681,000 of interest expense for the financing of the 2003 acquisitions and the balance is for a full year of interest at the 2002 acquisition and the 2003 refinancings. Total depreciation increased approximately $922,000 (21%) of which approximately $836,000 relates to the acquired properties and the balance is from continuing capital improvements at other properties.

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        The Partnership has a 50% ownership interest in a limited liability company that owns a 40-unit residential property in Cambridge, Massachusetts (the "Cambridge Investment"). For the year ended December 31, 2003, the Partnership's share of loss on this investment is $119,887 due to rental concessions, a decrease in rental rates, an increase in rental commissions and an increase in repairs and maintenance expenses due to tenant turnover. There were no vacancies as of February 25, 2004.

        Interest income was approximately $202,000 for the year ended December 31, 2003, compared to approximately $276,000 for the year ended December 31, 2002, a decrease of approximately $74,000 (27%). This decrease is due to a decline in interest rates in 2003.

        On August 1, 2003, the Partnership refinanced four mortgages with outstanding balances totaling approximately $11,526,000. The Partnership recorded a loss on the early extinguishment of debt of $1,435,028 due to prepayment penalties of approximately $1,355,000 and the write-off of the deferred financing fees of approximately $80,000 on the mortgages paid.

        For the year ended December 31, 2002, the Partnership had income from discontinued operations of approximately $60,000, which represents the net income from the East Hampton Mall, sold in December 2002. Rental income at this property was approximately $470,000.

        Included in discontinued operations for the year ended December 31, 2002 is a gain of approximately $916,000 on the sale of East Hampton Mall and a gain of approximately $93,000 on the sale of the condominium unit in Brockton, Massachusetts. There were no sales in 2003.

        During the year ended December 31, 2003, the Partnership recorded a non-cash charge of approximately $77,000 due to the write-off of air conditioning and heating equipment replaced at 62 Boylston Street.

        As a result of the changes discussed above, net income for the year ended December 31, 2003 was approximately $2,769,000, compared to approximately $7,825,000 for the year ended December 31, 2002, a decrease of approximately $5,056,000 (65%).

Years Ended December 31, 2002 and 2001

        The Partnership and its Subsidiary Partnerships earned income before other income and discontinued operations of approximately $6,541,199 during the year ended December 31, 2002, compared to approximately $5,880,000 during the year ended December 31, 2001, an increase of approximately $661,575 (11%). This increase is largely due to an increase in rental income of $1,736,339 (6%), offset by an increase in operating expenses of $1,094,831 (5%).

        The rental activity is summarized as follows:

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        Rental income from continuing operations for the year ended December 31, 2002 was approximately $29,000,000, compared to approximately $24,264,000 for the year ended December 31, 2001, an increase of approximately $1,736,000 (6%). This increase is due in large part to the acquisition of a 69-unit residential apartment complex located on Dean Street in Norwood, Massachusetts (referred to as "Dean Street"). The Dean Street property was acquired in June 2002, and the rental income for 2002 was approximately $480,000. In addition to the acquisition of Dean Street, the Partnership completed significant improvements at 1144 Commonwealth Avenue and 62 Boylston Street, both of which resulted in higher rental rates and increased occupancy rates in 2002 compared to 2001. Income from the Partnership's residential properties represent 91% of rental income for the years ended December 31, 2002 and 2001.

        In 2002, the Partnership sold the East Hampton Mall in East Hampton, Connecticut and a condominium unit located in Brockton, Massachusetts. In 2002, rental income from the East Hampton Mall was approximately $470,000, and income from operations was approximately $60,000. Rental income from the condominium was approximately $5,000 and income from operations was approximately $500. In 2001, the combined income from operations for these disposed properties was approximately $121,000. The operations of these properties are included in discontinued operations for all years presented.

        Expenses from continuing operations for the year ended December 31, 2002 were approximately $23,000,000, compared to approximately $21,600,000 for the year ended December 31, 2001, an increase of approximately $1,400,000 (6%). Expenses related to the Dean Street acquisition represent approximately $494,000 of this increase. Unrelated to the acquisition of Dean Street, there was an increase in operating expenses of approximately $506,000 (3%). With the exception of a few of the larger properties, the rental market weakened in 2002, resulting in higher tenant turnover and an increase in vacancies. In an effort to sustain occupancy levels, the Partnership assumed responsibility for paying rental commissions to unaffiliated parties, which had previously been paid by tenants. As a result, renting expenses increased approximately $184,000 (106%) in 2002, compared to 2001. Excluding Dean Street, taxes and insurance increased approximately $487,000 (19%) due to increases in real estate taxes from reassessments and increased insurance premiums.

        The Partnership has a 50% ownership interest in a limited liability company that owns a 40-unit residential property in Cambridge, Massachusetts. For the year ended December 31, 2002, the Partnership's share of loss on this investment was $61,787. This investment was made in November 2001, so the income for 2001 was minimal. There are no vacancies at the property at March 6, 2003.

        Interest income was approximately $277,000 for the year ended December 31, 2002, compared to approximately $605,000 for the year ended December 31, 2001, a decrease of approximately $328,000 (54%). This decrease is due to a decline in interest rates in 2002.

        Included in discontinued operations for the year ended December 31, 2002 is a gain of approximately $916,000 on the sale of the East Hampton Mall and a gain of approximately $93,000 on the sale of the condominium unit in Brockton, Massachusetts. There were no sales in 2001.

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        As a result of the changes discussed above, net income for the year ended December 31, 2002 was approximately $7,825,000, compared to approximately $6,647,000 for the year ended December 31, 2001, an increase of approximately $1,178,000 (18%).

LIQUIDITY AND CAPITAL RESOURCES

        The Partnership's principal sources of cash during 2003 and 2002 were the collection of rents, the refinancing of Partnership properties and the sales of two Partnership properties during 2002. The majority of cash and cash equivalents of $24,362,328 at December 31, 2003 and $18,974,446 at December 31, 2002 was held in interest-bearing accounts at creditworthy financial institutions.

        This increase in cash and cash equivalents of $5,387,882 at December 31, 2003 is summarized as follows:

        The decrease in cash provided by operating activities is primarily due to the decrease in operating income before depreciation expense. The increase in cash used in investing activities is primarily due to the acquisition of the two properties in 2003—utilizing cash reserves in excess of $7,000,000—plus additional improvements to rental properties of approximately $3,100,000. The increase in cash provided by financing activities is due to the refinancing of four Partnership properties in August 2003.

        On August 1, 2003, the Partnership refinanced four mortgage loans with a total outstanding balance of approximately $11,526,000, with interest rates ranging from 8.38% to 8.75%. All of these loans were scheduled to mature in 2005. The Partnership borrowed a total of $26,750,000, with interest rates ranging from 4.84% to 5.30%. The new loans are represented by 10-year notes with interest-only payments during their entire terms. The total monthly payment on the old loans was approximately $101,000, including principal of approximately $20,000. The total monthly payment on the new loans is approximately $109,000, resulting in an increase in annual payments of approximately $96,000. Annual interest expense will increase approximately $340,000 due to the increased debt. The Partnership's cash reserves have increased approximately $13,000,000 as a result of these financings. See Note 5 to the Consolidated Financial Statements for a schedule of the mortgage debt maturities.

        On June 30, 2003, the Partnership purchased five condominium units from a group of investors who are affiliated with the Partnership. In the event any of these units are sold during the three-year period commencing on the date of acquisition and the sale price is less than the price paid by the Partnership for such units, Harold Brown has agreed to indemnify the Partnership for the difference. The total purchase price for the five units was $2,421,286 including closing costs. This acquisition was funded from cash reserves. In August 2003, the Partnership obtained a $1,600,000 mortgage loan for three years, with interest-only payments at 5.25% and no prepayment penalties, secured by these five condominium units.

        On April 25, 2003, the Partnership acquired a 184-unit residential property located at 9 School Street in Framingham, Massachusetts for a total purchase price of $23,368,000. The Partnership obtained a mortgage of $17,000,000 with an interest rate of 5.47%. The balance of approximately $6,368,000 was funded from cash reserves. The mortgage has a 10-year term and is amortized over 30 years, with interest only payments for the first three years. There is a significant prepayment penalty if the mortgage is prepaid prior to its 10-year maturity.

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        On June 17, 2002, the Partnership purchased a 69-unit residential apartment complex located in Norwood, Massachusetts for $7,200,000. The Partnership assumed a first mortgage of approximately $3,650,000 with payments of $25,271 per month, including interest at 7.08%, and a final payment of approximately $3,300,000 in February 2008. The seller financed $1,726,898 at an interest rate of 6%, with interest-only payments for five years. This loan is collateralized by a mortgage on 19 condominium units owned by the Partnership. The balance of approximately $1,800,000 was funded from cash reserves.

        In June 2002, the Partnership sold a condominium unit located in Brockton, Massachusetts for $113,000. The net gain on the sale was $92,778 after deducting basis, a 3% commission to the management company (see Note 3 to the Consolidated Financial Statements) and other expenses of the sale. The net cash flow to the Partnership was $104,494.

        In December 2002, the Partnership sold the East Hampton Mall located in East Hampton, Connecticut for $3,025,000. The net gain on the sale was $916,524 after deducting basis, mortgage prepayment penalties, a 3% commission to the management company (see Note 3 to the Consolidated Financial Statements) and other expenses of the sale. The net cash to the Partnership was $1,414,661 after payment of the existing mortgage and selling expenses. For the year ended December 31, 2002 this property contributed less than 2% of rental income and less than 1% of cash flow from operations.

        In February 2002, the Partnership voted to change its distribution policy from a semi-annual to a quarterly distribution and declared a quarterly distribution of $6.40 per Unit ($0.64 per depositary receipt). The distribution was payable on March 31, June 30, September 30, and December 31, 2002 and totaled $25.60 ($2.56 per depositary receipt) for 2002.

        In February 2003, the Partnership voted to increase the quarterly distribution to $6.60 per unit ($0.66 per depositary receipt) and pay an additional one-time distribution of $3.00 per unit ($0.30 per depositary receipt) for a total distribution of $9.60 per unit ($0.96 per depositary receipt) payable on March 31, 2003. The Partnership paid a quarterly distribution of $6.60 per unit ($0.66 per depositary receipt) on June 30, September 30, 2003, and December 31, 2003. Total distribution for 2003 was $29.40 per unit ($2.94 per receipt).

        During the year ended December 31, 2003, the Partnership and its Subsidiary Partnerships completed certain improvements to their properties at a total cost of approximately $3,135,000. The most significant improvements were made at the following properties: $410,000 at 62 Boylston Street in Boston, Massachusetts; $205,000 at 1144 Commonwealth Avenue in Allston, Massachusetts; $363,000 at 9 School Street in Framingham, Massachusetts; $260,000 at Hamilton Oaks Apartments in Brockton, Massachusetts; $495,000 at Westgate Woburn Apartments in Woburn, Massachusetts; and $173,000 at Westside Colonial in Brockton, Massachusetts. All such improvements were funded from the Partnership's cash reserves and escrow accounts established in connection with the refinancing of applicable properties.

        In addition to the improvements made in 2003, the Partnership and its Subsidiary Partnerships plan to invest an additional $2,779,000 in capital improvements during 2004, the majority of which will be spent at 62 Boylston Street, Hamilton Oaks, 1144 Commonwealth Avenue, Redwood Hills, Westside Colonial, Hamilton Oaks and Westgate Woburn. These improvements will be funded from escrow accounts established in connection with the refinancing of applicable properties, as well as from the Partnership's cash reserves.

        The Partnership is constructing 20 additional residential units at a cost of approximately $4,000,000, at the Westgate Apartments in Woburn, Massachusetts, available for occupancy in the fall of 2004. The construction costs incurred to date, of approximately $1,556,000, have been capitalized as construction in progress. This construction will initially be funded from cash reserves.

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        The Partnership anticipates that cash from operations and interest-bearing investments will be sufficient to fund its current operations and 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, increases or decreases in rental income or expenses, or the loss of significant tenants

FACTORS THAT MAY AFFECT FUTURE RESULTS

Forward-Looking Statements

        Certain information contained herein includes forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Liquidation Reform Act of 1995 (the "Act"). While forward-looking statements reflect management's good faith belief when those statements are made, caution should be exercised in interpreting and relying on such forward-looking statements, the realization of which may be impacted by known and unknown risks and uncertainties, events that may occur subsequent to the forward-looking statements, and other factors which may be beyond the Partnership's control and which can materially affect the Partnership's actual results, performance or achievements for 2003 and beyond.

        Along with risks detailed from time to time in the Partnership's filings with the Securities and Exchange Commission, some factors that could cause the Partnership's actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include but are not limited to the following:

•

The Partnership depends on the real estate markets where its properties are located, and these markets may be adversely affected by local economic market conditions, which are beyond the Partnership's control.



•

The Partnership is subject to the general economic risks affecting the real estate industry, such as dependence on tenants' financial condition and the need to enter into new leases or renew leases on terms favorable to tenants in order to generate rental revenues. The Partnership is also impacted by changing economic conditions making alternative housing arrangements more or less attractive to the Partnership's tenants, such as the interest rates on single-family home mortgages and the availability and purchase price of single-family homes in the greater Boston metropolitan area.



•

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



•

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



•

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



•

Given the nature of the real estate business, the Partnership is subject to potential environmental liabilities. These include environmental contamination in the soil at the Partnership's or neighboring real estate, whether caused by the Partnership, previous owners of the subject property or neighbors of the subject property, and the presence of hazardous materials 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 commercial properties is increasingly costly and difficult to obtain. In addition, insurance carriers have excluded certain specific items from standard insurance policies, which have resulted in increased risk exposure for the Partnership. These

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include insurance coverage for acts of terrorism and war, and coverage for mold and other environmental conditions. Coverage for these items is either unavailable or prohibitively expensive.

•

Market interest rates could adversely affect market prices for Class A Partnership Units and depositary receipts as well as performance and cash flow.

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

        The residential real estate market in the Greater Boston area has softened, and the Partnership anticipates the climate will remain the same in the foreseeable future. This may result in increases in vacancy rates and/or a reduction in some rents. The Partnership believes its present cash reserves as well as anticipated rental revenue will be sufficient to fund its current operations, finance current planned improvements to its properties, and continue dividend payments in the foreseeable future.

        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 the Partnership's cash reserves are insufficient to repay existing mortgages or if the Partnership needs additional funds for future acquisitions.

Contractural Obligations

        Please see Note 5 to the Consolidated Financial Statements for a description of mortgage notes payable. The Partnerships has no other contractural obligation to be disclosed.

Off-Balance Sheet Arrangements

        None

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        As of December 31, 2003, the Partnership and its Subsidiary Partnerships collectively have approximately $115,911,000 in long-term debt, all of which pays interest at fixed rates. Accordingly, the fair value of these debt instruments is affected by changes in market interest rates. For information regarding the fair value and maturity dates of these debt obligations, see Notes 5 and 12 to the Consolidated Financial Statements.

        For additional disclosure about market risk, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Factors That May Affect Future Results."

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The financial statements of the Partnership appear on pages F-1 through F-21 of this Form 10-K and are indexed herein under Item 15(a)(1).

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        None.

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ITEM 9A.    CONTROLS AND PROCEDURES

        The General Partner of the Partnership has, within 90 days of the filing date of this annual report, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-14(C) and 15d-14(C) under the Securities and Exchange Act of 1934, as amended) and has determined that such disclosure controls and procedures are adequate. There have been no significant changes in internal controls or in other factors that could significantly affect our internal controls since the date of evaluation. We do not believe any significant deficiencies or material weaknesses exist in our internal controls. Accordingly, no corrective actions have been taken. We continue to review and document our disclosure controls and procedures, including our internal controls over financial reporting, and may, from time to time, make changes aimed at enhancing their effectiveness and to ensure our systems evolve with our business.

PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        The General Partner is a Massachusetts corporation wholly owned by Harold Brown and Ronald Brown, who are brothers. Harold Brown and Ronald Brown were individual general partners of the Partnership until May 1984, when NewReal, Inc. replaced them as the sole General Partner of the Partnership. The General Partner is responsible for making all decisions and taking all action deemed by it necessary or appropriate to conduct the business of the Partnership. The General Partner has no employees.

        From October 1992 until 1996, the General Partner engaged the Hamilton Partnership as the management company to manage the properties of the Partnership and its Subsidiary Partnerships. The Hamilton Company, a Massachusetts corporation, was the 99% General Partner of Hamilton Partnership. During 1996, the Hamilton Partnership was dissolved and its successor and general partner assumed the management functions of the Hamilton Partnership. The Hamilton Company continues to manage the Properties. The Hamilton Company was purchased by Harold Brown in August 1993. Harold Brown also owned the corporation that was the 1% limited partner of The Hamilton Partnership. See "Item 11. Executive Compensation" for information concerning fees paid by the Partnership to The Hamilton Company during 2003.

        The directors of the General Partner are Ronald Brown, Harold Brown, Guilliaem Aertsen, IV, Conrad DiGregorio and Thomas Raffoul. Messrs. Aertsen, DiGregorio and Raffoul were elected directors on March 11, 2002, pursuant to a joint unanimous written consent of the only two shareholders and the only two directors (at that time) of the General Partner, Ronald Brown and Harold Brown. The directors of the General Partner hold office until their successors are duly elected and qualified. On January 2, 2003, Edward Sarkisian was elected as a director of the General Partner.

        Ronald Brown and Harold Brown hold all of the executive officer positions of the General Partner. The executive officers of the General Partner serve at the pleasure of the Board of Directors.

        On June 14, 2001, the Board of Directors of the General Partner created an Audit Committee, consisting of three members, and approved the charter of the Audit Committee. The Audit Committee was not filled until March 11, 2002, on which date Messrs. Aertsen, DiGregorio and Raffoul were appointed as its members. On January 2, 2003, the Audit Committee was expanded to four members, and Edward Sarkisian was added as a member. All four members of the Audit Commitee are independent directors. The Board of Directors of the General Partner has determined that Guilliaem Aertsen is an audit committee financial expert, as that term is defined in Item 401 of Securities and Exchange Commission Regulation S-K.

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        The following table sets forth the name and age of each director and officer of the General Partner and each such person's principal occupation and affiliation during the preceding five years.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

        Section 16(a) of the Securities Exchange Act of 1934 requires the Partnership's directors and executive officers, and persons who own more than 10% of a registered class of the Partnership's equity securities, to file with the Securities and Exchange Commission reports of changes in ownership of the Partnership. Officers, directors and greater-than-10% shareholders are required by SEC regulations to furnish the Partnership with copies of all Section 16(a) forms they file.

        Based solely on review of the copies of such reports furnished to the Partnership or written or oral representations that no reports were required, the Partnership believes that during the 2003 fiscal year, all filing requirements applicable to its officers, directors and greater-than-10% beneficial owners were complied with, except that Messrs. DiGregorio, Raffoul and Sarkisian inadvertently did not timely file

25

Form 3s with the SEC in connection with their ownership of Receipts upon becoming Directors of NewReal, Inc., the Partnership's General Partner, but each of them shall promptly report those purchases on Form 5s.

CODE OF ETHICS

        The Partnership, its General Partner and Hamilton, the Partership's management company, have adopted a Code of Business Conduct and Ethics, which constitutes a "code of ethics" as defined by the SEC and applies to executive officers as well as to all other employees. A copy of the Code of Business Conduct and Ethics is available in the "Investor Relations" section of the management company's website at www.thehamiltoncompany.com/InvestorRelations.htm. To the extent required by the rules of the SEC, the Partnership and its related entities will disclose amendments and waivers of the Code of Business Conduct and Ethics in the same place on the aforementioned website.

ITEM 11.    EXECUTIVE COMPENSATION

        Pursuant to the Partnership Agreement, the General Partner, or any management entity employed by the General Partner, is entitled to a management fee equal to 4% of the rental and other operating income from the Properties and a mortgage servicing fee equal to 0.5% of the unpaid principal balance of any debt instruments received, held and serviced by the Partnership (the "Management Fee"). The Partnership Agreement also authorizes the General Partner to charge to the Partnership its cost for employing professionals to assist with the administration of the Partnership Properties (the "Administrative Fee"). The Administrative Fee is not charged against the Management Fee. In addition, upon the sale or disposition of any Partnership Properties, the General Partner, or any management entity which is the effective cause of such sale, is entitled to a commission equal to 3% of the gross sale price (the "Commission"), provided that should any other broker be entitled to a commission in connection with the sale, the commission shall be the difference between 3% of the gross sale price and the amount to be paid to such broker.

        In accordance with the Partnership Agreement, the Management Fee, Administrative Fee and Commission are paid to the management company, The Hamilton Company ("Hamilton"). See "Item 10. Directors and Executive Officers of the Registrant." The total Management Fee charged by Hamilton during 2003 was approximately $1,255,000. The management services provided by Hamilton include but are no limited to: collecting rents and other income, approving, ordering and supervising all repairs and other decorations, terminating leases, evicting tenants, purchasing supplies and equipment, financing and refinancing properties, settling insurance claims, maintaining administrative offices and employing personnel. In addition, the Partnership employs the president of Hamilton to provide asset management services to the Partnership, for which the Partnership paid $50,000 in 2003.

        In 2003, the Partnership and its Subsidiary Partnerships also paid Administrative Fees to Hamilton of approximately $624,000 inclusive of construction supervision and architectural fees of $126,000, repairs and maintenance service fees of $268,000 and legal fees of $206,000. In addition, during 2003, the Partnership paid Hamilton $80,000 for certain accounting services, which were provided by an outside company prior to 1993, and approximately $868,000 for construction costs capitalized in rental properties. Additionally, the Administrative Fees included $24,000, which was paid by the Partnership to Ronald Brown for construction supervision services.

        There were no sales of Partnership properties in 2003. In 2002, the Partnership paid Hamilton $94,000 in Commissions related to sales of Partnership properties.

        Prior to the second quarter of 2002, members of the Partnership's Advisory Committee and Ronald Brown and Harold Brown each received $400 for each committee meeting attended; thereafter, they received $500 for each such meeting. The Advisory Committee held five meetings during 2003, and each of the persons indicated above received $2,500 in total for attendance at and participation in such meetings.

        Members of the Audit Committee of NewReal, Inc., the Partnership's General Partner, each received $500 per committee meeting attended during 2003. Four such meetings were held during that period.

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ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        As of March 5, 2004, except as listed below, the General Partner was not aware of any beneficial owner of more than 5% of the outstanding Class A Units or the Depositary Receipts, other than EquiServe LP ("EquiServe"), which, under the Deposit Agreement, as Depositary, is the record holder of the Class A Units exchanged for Depositary Receipts. As of March 5, 2004, pursuant to the Deposit Agreement, EquiServe was serving as the record holder of the Class A Units with respect to which 1,169,676 Depositary Receipts had been issued to 1,103 holders. As of March 5, 2004, there were issued and outstanding 21,410 Class A Units (not including the Depositary Receipts) held by 1,004 limited partners, and 33,015 Class B Units and 1,738 General Partnership Units held by the persons listed below. During 2003, 1,788 Class A Units were exchanged for 17,880 Depositary Receipts.

        The following table sets forth certain information regarding each class of Partnership Units beneficially owned as of March 5, 2004 by (i) each person known by the Company to beneficially own more than 5% of any class of Partnership Units, (ii) each director and officer of the General Partner and (iii) all directors and officers of the General Partner as a group. For purposes of this table, all Depositary Receipts are included as if they were converted back into Class A Units. The inclusion in the table below of any units deemed beneficially owned does not constitute an admission that the named persons are direct or indirect beneficial owners of such units. Unless otherwise indicated, each person listed below has sole voting and investment power with respect to the units listed.

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(1)

As of March 5, 2004, 21,961 Depositary Receipts are held of record by Harold Brown, and 184,746 Depositary Receipts are held of record by the NERA 1994 Irrevocable Trust (the "Trust"), a grantor trust established by Harold Brown. The beneficiaries of the Trust are trusts for the benefit of children of Mr. Brown. During his lifetime, Mr. Brown is entitled to receive the income from the Trust and has the right to reacquire the Depositary Receipts held by the Trust provided that substitute assets are transferred to the Trust. Accordingly, Mr. Brown may be deemed to beneficially own the Depositary Receipts held by the Trust. Because a Depositary Receipt represents beneficial ownership of one-tenth of a Class A Unit, Harold Brown may be deemed to beneficially own approximately 20,671 Class A Units (approximately 14.9% of the outstanding Class A Units) and the Trust may be deemed to beneficially own approximately 18,475 Class A Units (approximately 8.9% of the outstanding Class A Units). Mr. Brown currently has no voting or investment power over the Depositary Receipts held by the Trust and disclaims beneficial ownership of such Depositary Receipts. Sally E. Michael and Robert Somma, as trustees of the Trust (the "Trustees"), share voting and investment power over the Depositary Receipts held by the Trust, subject to the provisions of the Trust, and thus may each be deemed to beneficially own the 184,746 Depositary Receipts held by the Trust. The Trustees have no pecuniary interest in the Depositary Receipts held by the Trust and disclaim beneficial ownership of such Depositary Receipts.

(2)

Consists of Class B Units held by the Trust. See Note (1) above. Harold Brown currently has no voting or investment power over the Class B Units held by the Trust and disclaims beneficial ownership of such Class B Units. The Trustees share voting and investment power over the Class B Units held by the Trust, subject to the provisions of the Trust, and thus may each be deemed to beneficially own the 24,761 Class B Units held by the Trust. The Trustees have no pecuniary interest in the Class B Units held by the Trust and disclaim beneficial ownership of such Class B Units.

(3)

Since Harold Brown and Ronald Brown are the controlling stockholders, executive officers and directors of NewReal, Inc., they may be deemed to beneficially own all 1,738 of the General Partnership Units held of record by NewReal, Inc.

(4)

Consists of 7,548 Depositary Receipts held of record jointly by Ronald Brown and his wife. Because a Depositary Receipt represents beneficial ownership of one-tenth of a Class A Unit, Ronald Brown may be deemed to beneficially own approximately 755 Class A Units.

(5)

Consists of the Class A Units described in Notes (1) and (4) above, plus those held by Messrs. DiGregorio, Raffoul and Sarkisian, as indicated in the table.

(6)

Includes the Class B Units described in Note (2) above.

(7)

These 400 Depositary Receipts are held by the Sarkisian Living Trust.

        On November 13, 2000, the Partnership adopted a Policy for Establishment of Rule 10b5-1 Trading Plans. Pursuant to this Policy, the Partnership authorized its officers, directors and certain employees,

28

shareholders and affiliates who are deemed "insiders" of the Partnership to adopt individual plans for trading the Partnership's securities ("Trading Plans") and established certain procedural requirements relating to the establishment, modification and termination of such Trading Plans. On November 19, 2003, the General Partner approved a Trading Plan for Harold Brown, providing for the purchase of up to 50,000 Depositary Receipts of the Partnership as such become available through September 30, 2004, at a price of $70.00 or less. This plan supersedes three previous plans which have expired.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        On November 8, 2001, a limited liability company in which the Partnership had a 50% membership interest purchased a 40-unit residential property in Cambridge, Massachusetts. The remaining membership interest in this entity is held by Harold Brown and the President of Hamilton. The Partnership originally advanced the majority of the funds used for such acquisition, but the excess of the amount it advanced beyond its proportionate capital contribution was repaid, with 8% interest, after the property was mortgaged.

        In 1999, Harold Brown loaned the Partnership $750,000 to purchase certain property, with interest at 10%. This loan was paid in full on April 6, 2000. In 2000 and 1999, interest on the loan was $20,000 and $2,083, respectively.

        On June 30, 2003, the Partnership purchased five condominium units from a group of investors who are also affiliated with the Partnership. The total purchase price for the five units was $2,421,286 including closing costs. The Partnership obtained a $1,600,000 mortgage on these condominiums. See Notes 3 and 5 to the Consolidated Financial Statements for a discussion of certain related parties associated with this acquisition and its financing. The majority owner of the General Partner has agreed to indemnify the Partnership for any losses incurred from the sale of any of these units for a three-year period from acquisition.

        See also "Item 2. Properties," "Item 10. Directors and Executive Officers of the Registrant" and "Item 11. Executive Compensation" for information regarding the fees paid to The Hamilton Company, an affiliate of the General Partner.

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ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES

INDEPENDENT PUBLIC ACCOUNTANTS

        Miller Wachman LLP has served as the Partnership's independent accountants since 1989 and has reported on its 2003 Consolidated Financial Statements. Aggregate fees for services rendered by Miller Wachman LLP for the years ended December 31, 2003 and 2002 were as follows:

        Audit services include fees for accounting and Sarbanes-Oxley consultation in 2003.

        The above professional fees were approved by the Audit Committee of the General Partner except that the pre-approval requirement is waived with respect to the provision of non-audit services if the "de minimus" provisions of the exchange are satisfied. These services may include audit services, audit related services, tax services and other services.

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PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)

1.     Financial Statements:

The following Financial Statements are included in this Form 10-K:

Independent Auditors' Report

Consolidated Balance Sheets at December 31, 2003 and 2002

Consolidated Statements of Income for the years ended December 31, 2003, 2002 and 2001

Consolidated Statements of Changes in Partners' Capital for the years ended December 31, 2003, 2002 and 2001

Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001

Notes to Consolidated Financial Statements

(a)

2.     Financial Statement Schedules:

All financial statement schedules are omitted because they are not applicable, or not required, or because the required information is included in the financial statements or notes thereto.

(a)

3.     Exhibits:

The exhibits filed as part of this Annual Report on Form 10-K are listed in the Exhibit Index included herewith.

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SELECTED FINANCIAL DATA

The Partnership may purchase and/or sell properties at any time.

The table below reflects the totals of property available for rental at each December 31,

See Item 7 for factors that may affect future operations. The above tables may not be indicative of future results.

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INDEPENDENT AUDITORS' REPORT

The Partners
New England Realty Associates Limited Partnership

        We have audited the accompanying consolidated balance sheets of New England Realty Associates Limited Partnership and Subsidiary Partnerships as of December 31, 2003 and 2002, and the related consolidated statements of income, changes in partners' capital, and cash flows for each of the years in the three-year period ended December 31, 2003. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements, based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of New England Realty Associates Limited Partnership and Subsidiary Partnerships at December 31, 2003 and 2002 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.

        As discussed in Note 16 to the consolidated financial statements, the Partnership adopted Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, on January 1, 2002.

/s/ MILLER WACHMAN LLP
Certified Public Accountants

Boston, Massachusetts
February 25, 2004

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements.

F-1

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME