SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2004

OR

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

For the transition period from to

Commission file number 0-12138

New England Realty Associates Limited Partnership

(Exact Name of Registrant as Specified in Its Charter)

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

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

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

Not Applicable

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

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

INDEX

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements.

	Consolidated Balance Sheets as of June 30, 2004 (unaudited) and December 31, 2003 (audited)

	Consolidated Statements of Income for the Three Months Ended June 30, 2004 and June 30, 2003, and the Six Months Ended June 30, 2004 and June 30, 2003 (all unaudited)

	Consolidated Statement of Changes in Partners’ Capital for the Six Months Ended June 30, 2004 and June 30, 2003 (all unaudited)

	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and June 30, 2003 (all unaudited)

	Notes to Financial Statements

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk

Item 4.	Controls and Procedures

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings

Item 2.	Changes in Securities and Use of Proceeds

Item 3.	Defaults Upon Senior Securities

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

Item 5.	Other Information

Item 6.	Exhibits and Reports on Form 8-K

SIGNATURES

NEW ENGLAND REALTY ASSOCIATES, L.P.

PART I – FINANCIAL INFORMATION

Item I. Financial Statements

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

The aforementioned financial statements should be read in conjunction with the notes to the aforementioned financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included in New England Realty Associates L.P.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003.

The results of operations for the six month periods ended June 30, 2004 are not necessarily indicative of the results to be expected for the entire fiscal year or any other period.

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	June 30, 2004		December 31, 2003
	(Unaudited)
Assets
Rental Properties	$	105,676,629	$	104,192,876
Cash and Cash Equivalents	22,024,552		24,362,328
Rents Receivable	609,478		550,772
Real Estate Tax Escrows	685,690		667,949
Prepaid Expenses and Other Assets	2,743,548		2,649,617
Investment in Joint Venture	1,242,331		1,315,383
Financing and Leasing Fees	672,835		725,371

Total Assets	$	133,655,063	$	134,464,296

Liabilities and Partners’ Capital
Mortgage Notes Payable	$	115,555,219	$	115,911,209
Accounts Payable and Accrued Expenses	1,762,754		1,620,023
Advance Rental Payments and Security Deposits	3,639,779		3,371,087

Total Liabilities	120,957,752		120,902,319

Commitments and Contingent Liabilities (Notes 2, 9 and 15)

Partners’ Capital 173,252 units outstanding in 2004 and 2003	12,697,311		13,561,977

Total Liabilities and Partners’ Capital	$	133,655,063	$	134,464,296

See notes to consolidated financial statements.

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Revenue
Rental income	$	7,708,025		$	7,773,317		$	15,453,837		$	15,234,609
Laundry and sundry income	79,474			80,266			160,924			151,066
	7,787,499			7,853,583			15,614,761			15,385,675
Expense
Administrative	323,195			356,740			653,081			720,556
Depreciation and amortization	1,447,281			1,261,480			2,921,669			2,374,343
Interest	1,974,141			1,839,294			3,977,036			3,498,461
Management fees	319,479			324,020			637,940			620,358
Operating	700,339			628,211			1,792,480			1,619,027
Renting	130,966			142,356			240,164			205,321
Repairs and maintenance	1,199,646			1,045,828			2,272,653			1,858,939
Taxes and insurance	879,579			858,913			1,762,383			1,654,122
	6,974,626			6,456,842			14,257,406			12,551,127

Income Before Other Income	812,873			1,396,741			1,357,355			2,834,548

Other Income (Loss)
Interest income	64,556			43,500			134,723			99,028
(Loss) from investment in joint venture	(41,022		)	(25,361		)	(73,052		)	(46,038		)
	23,534			18,139			61,671			52,990

Net Income	$	836,407		$	1,414,880		$	1,419,026		$	2,887,538

Net Income per Unit	$	4.83		$	8.17		$	8.19		$	16.67

Weighted Average Number of Units Outstanding	173,252			173,252			173,252			173,252

See notes to consolidated financial statements.

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS’ CAPITAL

(UNAUDITED)

	Limited						General Partnership			Total
	Class A			Class B
Balance, January 1, 2003	$	12,699,650		$	3,019,620		$	158,956		$	15,878,226

Distribution to Partners	(2,241,717		)	(532,408		)	(28,021		)	(2,802,146		)

Net Income	2,310,030			548,632			28,876			2,887,538

Balance, June 30, 2003	$	12,767,963		$	3,035,844		$	159,811		$	15,963,618

Units authorized and Issued, net of 6,973 Treasury Units at June 30, 2003	138,602			32,918			1,732			173,252

Balance, January 1, 2004	$	10,846,650		$	2,579,532		$	135,795		$	13,561,977

Distribution to Partners	(1,826,954		)	(433,901		)	(22,837		)	(2,283,692		)

Net Income	1,135,221			269,615			14,190			1,419,026

Balance, June 30, 2004	$	10,154,917		$	2,415,246		$	127,148		$	12,697,311

Units authorized and Issued, net of 6,973 Treasury Units at June 30, 2004	138,602			32,918			1,732			173,252

See notes to consolidated financial statements

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended June 30,
	2004			2003
Cash Flows from Operating Activities
Net income	$	1,419,026		$	2,887,538

Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	2,921,669			2,374,343
Loss from investments in joint venture	73,052			46,038
Change in operating assets and liabilities
(Increase) in rents receivable	(58,706		)	(155,188		)
(Increase) in financing and leasing fees	—			(47,373		)
Increase (Decrease) in accounts payable and accrued expense	142,730			(262,406		)
(Increase) in real estate tax escrow	(17,741		)	(145,419		)
(Increase) in prepaid expenses and other assets	(102,966		)	(652,765		)
Increase in advance rental payments and security deposits	268,693			346,545

Total Adjustments	3,226,731			1,503,775

Net cash provided by operating activities	4,645,757			4,391,313

Cash Flows (used in) investing activities
Distribution from joint venture	—			35,000
Purchase and improvement of rental properties	(4,343,851		)	(9,950,160		)

Net cash (used in) investing activities	(4,343,851		)	(9,915,160		)

Cash Flows (used in) financing activities
Principal payments of mortgages payable	(355,990		)	(448,110		)
Distributions to partners	(2,283,692		)	(2,802,146		)

Net cash (used in) financing activities	(2,639,682		)	(3,250,256		)

Net Decrease in Cash and Cash Equivalents	(2,337,776		)	(8,774,103		)
Cash and Cash Equivalents, at beginning of period	24,362,328			18,974,446

Cash and Cash Equivalents, at end of period	$	22,024,552		$	10,200,343

See notes to consolidated financial statements.

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2004

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 and New Hampshire. NERA has also made investments in other real estate partnerships and has participated in other real estate-related activities, primarily located in Massachusetts. In connection with the mortgages referred to in Note 5, a substantial number of NERA’s properties are owned by separate subsidiaries without any change in the historical cost basis.

Principles of Consolidation: The consolidated financial statements include the accounts of NERA and its subsidiaries. NERA has a 99.67% to 100% ownership interest in each subsidiary except for the limited liability company formed in November 2001, in which the Partnership has a 50% ownership interest. The consolidated group is referred to as the “Partnerships.” Minority interests are not recorded, since they are insignificant. All significant intercompany accounts and transactions are eliminated in consolidation. The Partnership accounts for its investment in the above-mentioned limited liability company using the equity method.

Accounting Estimates: The preparation of the financial statements, in conformity with accounting principles generally accepted in the United State of America, requires 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: Rental income from residential and commercial properties is recognized over the term of the related lease. Amounts 60 days in arrears are charged against income. 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. Fully depreciated assets are removed from the accounts. Rental properties are depreciated on a straight-line basis over their estimated useful lives.

In the event that facts and circumstances indicate that the carrying value of a rental property may be impaired, an analysis of recoverability is prepared. The estimated future undiscounted cash flows are compared to the asset’s carrying value to determine if a write-down to fair value is required.

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. Unamortized balances are expensed when the corresponding fee is no longer applicable.

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 has been recorded.

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

Segment Reporting: Operating segments are revenue-producing components of the Partnership for which separate financial information is produced internally for management. Under the definition, NERA operated, for all periods presented, as one segment.

Comprehensive Income: Comprehensive income is defined as changes in partners’ equity, exclusive of transactions with owners (such as capital contributions and dividends). NERA did not have any comprehensive income items in 2004 or 2003 other than net income as reported.

Income Per Unit: Net income per unit has been calculated based on the weighted average number of units outstanding during each year presented. The Partnership has no dilutive units and, therefore, basic net income is the same as diluted net income per unit (see Note 7).

Concentration of Credit Risks and Financial Instruments: The Partnerships’ properties 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 2004 or 2003. The Partnerships make their temporary cash investments with high-credit-quality financial institutions. At June 30, 2004, substantially all of the Partnerships’ cash and cash equivalents were held in interest-bearing accounts at financial institutions, earning interest at rates from 0.84% to 1.34%. At June 30, 2004 and December 31, 2003, approximately $22,000,000 and $24,000,000 of cash and cash equivalents exceeded federally insured amounts.

Advertising Expense: Advertising is expensed as incurred. Advertising expense was $107,096 and $69,194 for the six months ended June 30, 2004 and 2003, respectively.

Reclassifications: Certain reclassifications have been made to prior period amounts in order to conform to current period presentation.

NOTE 2—RENTAL PROPERTIES

As of June 30, 2004, the Partnership and its Subsidiary Partnerships owned 2,376 residential apartment units in residential and mixed-use complexes (collectively, the “Apartment Complexes”). The Partnership also owns 24 condominium units in two residential condominium complexes, all of which are leased to residential tenants (collectively referred to as the “Condominium Units”). The Apartment Complexes and Condominium Units are located primarily in the greater metropolitan Boston, Massachusetts area.

Additionally, as of June 30, 2004, the Subsidiary Partnerships owned a commercial shopping center in Framingham, Massachusetts and mixed-use properties in Boston, Brockton and Newton, Massachusetts. These properties are referred to collectively as the “Commercial Properties.”

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 for a discussion of certain related parties associated with this acquisition. 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.

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 with an interest rate of 5.47%. The balance of the purchase 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 paid prior to maturity.

Rental properties consist of the following:

	JUNE 30, 2004		DECEMBER 31, 2003		USEFUL LIFE
Land, improvements, and parking lots	$	23,051,665	$	22,992,176	10-31	years
Buildings and improvements	101,937,741		101,538,576		15-31	years
Kitchen cabinets	3,246,811		2,403,447		5-10	years
Carpets	2,648,422		2,292,225		5-10	years
Air conditioning	707,150		691,408		7-10	years
Laundry equipment	84,495		79,580		5-7	years
Elevators	426,929		328,097		20	years
Swimming pools	143,353		98,105		10	years
Equipment	1,536,188		1,348,725		5-7	years
Motor vehicles	126,236		126,236		5	years
Fences	217,548		127,276		5-10	years
Furniture and fixtures	3,794,210		3,566,543		5-7	years
Smoke alarms	102,886		88,157		5-7	years
Construction in progress	3,556,728		1,555,960		—
	141,580,362		137,236,511
Less accumulated depreciation	35,903,733		33,043,635
	$	105,676,629	$	104,192,876

At June 30, 2004, construction in progress consists of $3,556,728 at Westgate Apartments LLC for design, approvals, site work, and the commencement of construction of 20 additional residential units. Estimated total costs will exceed $4,000,000, with construction scheduled to be completed in September or October of 2004.

NOTE 3—RELATED PARTY TRANSACTIONS

The Partnerships’ properties are managed by an entity that 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 approximately $638,000 and $620,000 for the six months ended June 30, 2004 and 2003, respectively.

The Partnership Agreement permits the General Partner or management company to charge the costs of professional services (such as counsel, accountants and contractors) to NERA. During the six months ended June 30, 2004 and 2003, approximately $2,537,000 and $316,000 was charged to NERA for legal, construction, maintenance, rental and architectural services and supervision of capital improvements. Of the 2004 expenses referred to above, approximately $100,000 consisted of repairs and maintenance and $81,000 of administrative expense; approximately $2,355,000 of construction, architectural services and supervision of capital projects was capitalized in rental properties. Of the 2003 expenses referred to above, approximately $135,000 consisted of repairs and maintenance and $122,000 of administrative expense; approximately $59,000 of construction, architectural services and supervision of capital projects was capitalized in rental properties. Additionally in each of the six months ended June 30, 2004 and 2003 the Partnership paid to the management company $40,000, for in-house accounting services, which were previously provided by an outside company. Included in accounts payable and accrued expenses at June 30, 2004 and December 31, 2003 is $593,705 and $455,299 due to the management company. The Partnership Agreement entitles the General Partner or the management company to receive certain commissions upon the sale of Partnership property only to the extent that total commissions do not exceed 3%.

No commissions were paid during the year ended December 31, 2003 and through June 30, 2004.

On January 1, 2004, NERA’s employees were transferred to the management company’s payroll. The Partnership reimburses the management company for the payroll and related expenses of the employees working directly on NERA properties. Total reimbursement was approximately $600,000 for the six months ended June 30, 2004.

In 1996, prior to becoming an employee and President of the management company, the current President performed asset management consulting services to the Partnership. This individual continues to perform this service and to receive an asset management fee from the Partnership, receiving $25,000 for the six months ended June 30, 2004 and $50,000 for the year ended December 31, 2003.

On November 8, 2001, the Partnership, the majority shareholder of the General Partner and the President of the management company formed a limited liability company to purchase a 40-unit apartment building in Cambridge, Massachusetts. The ownership percentages are 50%, 47½ % and 2½ %, respectively.

On June 30, 2003, the Partnership purchased five condominium units in a 42-unit building located in Brookline, Massachusetts. These were purchased from Harvard 45 Associates LLC (“Harvard 45”) which is owned 70% by the 75% shareholder and treasurer of the General Partner, and 5% by the President of Hamilton. The total purchase price for these condominiums was approximately $2,416,000 and was approved both by the Partnership’s Advisory Committee and the Audit Committee of the General Partner. Harvard 45 realized a gain of approximately $648,000 from these sales. Harvard 45 also sold 16 units to unrelated parties; the prices for all of the 21 units sold are comparable. See Note 5 for a description of the guarantee given on a $1,600,000 mortgage on these five units.

The above 42-unit condominium building is managed by an entity wholly owned by the 25% shareholder and President of the General Partner. 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 the Partnership’s Partnership Agreement.

NOTE 4—OTHER ASSETS

Included in prepaid expenses and other assets at June 30, 2004 and December 31, 2003 is approximately $494,000 and $653,000, respectively, held in escrow to fund future capital improvements.

Financing and leasing fees of $672,835 and $725,371 are net of accumulated amortization of $338,640 and $286,104 at June 30, 2004 and December 31, 2003, respectively.

NOTE 5—MORTGAGES NOTES PAYABLE

At June 30, 2004 and December 31, 2003, the mortgages payable consisted of various loans, all of which were secured by first mortgages on properties referred to in Note 2. At June 30, 2004, the fixed interest rates on these loans ranged from 4.84% to 8.46%, payable in monthly installments aggregating approximately $732,000, including interest, to various dates through 2016. The majority of the mortgages are subject to prepayment penalties. At December 31, 2003, the weighted average effective interest rate on the above mortgages was 6.86%. The effective rate includes the amortization expense of deferred financing costs. The weighted average of the fixed debt interest rate was 6.78%. See Note 12 for fair value information.

The Partnerships have pledged tenant leases as additional collateral for certain of these loans. Approximate annual maturities at June 30, 2004 are as follows:

2005- current maturities	$	749,000
2006	823,000
2007	4,434,000
2008	4,421,000
2009	5,627,000
Thereafter	99,501,000
	$	115,555,000

On August 1, 2003, the Partnership refinanced four mortgage loans with outstanding balances totaling approximately $11,526,000 and interest rates that ranged from 8.38% to 8.75%. These four mortgages were scheduled to mature in 2005, with final payments totaling approximately $11,000,000 due in 2005. The total of the four new mortgage loans is $26,750,000, with interest rates from 4.84% to 5.30%. These new loans require interest payments for 10 years, when the entire $26,750,000 becomes due. The total monthly payments on the old loans were approximately $101,000 including principal of approximately $20,000. The total monthly interest payments on the new mortgages are approximately $109,000, resulting in an increased monthly payment for these four properties of $8,000 or $96,000 per year. Annual interest expense increased approximately $340,000 due to the increased debt. The new mortgages also contain substantial prepayment penalties if paid before maturity. The Partnership’s cash reserves were increased approximately $13,000,000 as a result of these refinancings.

The Partnership recorded a loss in the third quarter of 2003 on the early extinguishment of debt of approximately $1,435,000 because of prepayment penalties of approximately $1,355,000, and the write-off of deferred financing fees of approximately $80,000. Deferred financing fees on the new mortgages, of approximately $132,000 will be amortized over their 10-year term.

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 the five condominium units acquired by the Partnership in June 2003. Total origination and closing costs of approximately $18,000 will be amortized over three years. The majority owner of the General Partner has guaranteed to the bank 50% of the outstanding mortgage.

NOTE 6—ADVANCE RENTAL PAYMENTS AND SECURITY DEPOSITS

The lease agreements require the majority of tenants to maintain a one-month advance rental payment plus security deposits. Amounts received for prepaid rents of approximately $2,100,000 are included with cash and cash equivalents and security deposits of approximately $1,100,000 are included with other assets.

NOTE 7—PARTNERS’ CAPITAL

The Partnership has two classes of Limited Partners (Class A and B) and one category of General Partner. Under the terms of 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.

In February 2003, the Partnership voted to increase the quarterly distribution to $6.60 per unit and pay an additional one-time distribution of $3.00 per unit for a total distribution of $9.60 per unit payable on March 31, 2003. Additionally, the Partnership paid quarterly distributions of $6.60 per unit on June 30, September 30 and December 31, for a total distribution of $29.40 for 2003.

In February 2004, the Partnership voted to pay a quarterly distribution $6.60 per unit payable on March 31, 2004, and June 30, 2004. In August 2004 the Partnership voted to pay a quarterly distribution of $7.00 ($0.70 per receipt) on September 30, 2004.

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 per depositary receipt:

	Six months ended June 30,
	2004		2003

Net income per depositary receipt	$	0.82	$	1.67

NOTE 8—TREASURY UNITS

Treasury units at June 30, 2004 are as follows:

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

NOTE 9—COMMITMENTS AND CONTINGENCIES

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

NOTE 10—RENTAL INCOME

During the three months ended June 30, 2004, approximately 93% of rental income was related to residential apartments and condominium units with leases of one year or less. The remaining 7% was related to commercial properties, which have minimum future rental income on non-cancelable operating leases as follows:

	Commercial Property Leases

2005	$	1,722,000
2006	1,240,000
2007	1,250,000
2008	1,191,000
2009	1,115,000
Thereafter	5,000,000
	$	11,518,000

The aggregate minimum future rental income does not include contingent rentals that may be received under various leases in connection with percentage rents, common area charges and real estate taxes. Aggregate contingent rentals were approximately $185,000 for the six months ended June 30, 2004 and $382,000 for the year ended December 31, 2003, respectively.

Rents receivable are net of allowances for doubtful accounts of $378,832 and $221,942 at June 30, 2004 and December 31, 2003, respectively. Included in rents receivable is approximately $371,000 resulting from recognizing rental income from non-cancelable commercial leases with future rental increases on a straight-line basis. The majority of this amount is for a long-term lease with Staples at Staples Plaza in Framingham, Massachusetts.

NOTE 11—CASH FLOW INFORMATION

During the six months ended June 30, 2004 and 2003, cash paid for interest was approximately $3,952,000 and $3,454,000 respectively.

NOTE 12—FAIR VALUE OF FINANCIAL INSTRUMENTS

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

• Cash and cash equivalents, other assets, investment in partnerships, accounts payable, and advance rents and security deposits: fair value approximates the carrying value of such assets and liabilities.

• Mortgage notes payable: fair value is generally based on estimated future cash flows which are discounted using the quoted market rate for an independent source of similar obligations. Refer to the table below for the carrying amount and estimated fair value of such instruments.

	Carrying Amount		Estimated Fair Value
Mortgage notes payable
At June 30, 2004	$	115,555,219	$	119,039,064
At December 31, 2003	115,911,209		121,997,197

Disclosure about fair value of financial instruments is based on pertinent information available to management as of June 30, 2004 and December 31, 2003. Although management is not aware of any factors that would significantly affect the fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since June 30, 2004 and current estimates of fair value may differ significantly from the amounts presented herein.

NOTE 13—TAXABLE INCOME AND TAX BASIS

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 $600,000 less than statement income for the six months ended June 30, 2004 and approximately $700,000 less than statement income for the year ended December 31, 2003. The cumulative tax basis of the Partnership’s real estate at June 30, 2004 is approximately $743,000 greater than the statement basis.

NOTE 14—NEW ACCOUNTING PRONOUNCEMENTS

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

The Partnership’s adoption of FAS 144 resulted in: (i) the net operating results of properties sold during 2002 being presented as income from discontinued operations for all periods presented and (ii) the gain on the sale of operating properties sold, net of sale costs, being presented as income from discontinued operations for the year 2002. Implementation of FAS 144 will impact how information is classified on the income statement but will have no effect on net income.

In April 2002, the FASB issued FAS 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FAS Statement No. 13, and Technical Corrections.” FAS 145 eliminates extraordinary accounting treatment for or loss on debt extinguishment and amends other existing authoritative pronouncements; it makes various technical corrections, clarifies meanings, and describes their applicability under changed conditions. The provisions of FAS 145 became effective for the Partnership beginning in 2003. However, early application of FAS 145 was encouraged, and the Partnership adopted FAS 145 in 2002. Debt extinguishments reported as extraordinary items prior to scheduled or early adoptions of FAS 145 would be reclassified in most cases following adoption.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies the accounting guidance on (1) derivative instruments (including certain derivative instruments embedded in other contracts) and (2) hedging activities that fall within the scope of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 149 also amends certain other existing pronouncements, which will result in more consistent reporting of contracts that are derivatives in their entirety or that contain embedded derivatives that warrant separate accounting. SFAS No. 149 is effective (1) for contracts entered into or modified after June 30, 2003, with certain exceptions, and (2) for hedging relationships designated after June 30, 2003. The guidance is to be applied prospectively. The Partnership does not expect the adoption of SFAS No. 149, if required, to have a material impact on the Partnership’s financial position or results of operations or cash flows.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” SFAS No. 150 establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. In accordance with the standard, financial instruments that embody obligations for the issuer require classification as liabilities. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise shall be effective at the beginning of the first interim period beginning after September 15, 2003. The Partnership does not expect the adoption of SFAS No. 150, if required, to have a material impact on the Partnership’s financial position or results of operations or cash flows.

In January 2003, the FASB issued FIN No. 46, which provides guidance on how to identify a variable interest entity (VIE) and determine when the assets, liabilities, noncontrolling interests, and results of operations of a VIE are to be included in an entity’s consolidated financial statements. A VIE exists when either the total equity investment at risk is not sufficient to permit the entity to finance its activities by itself, or the equity investors lack one of three characteristics associated with owning a controlling financial interest. In December 2003, the FASB reissued FIN No. 46 with certain modifications and clarifications. Application of this guidance was effective for interests in certain VIEs commonly referred to as special-purpose entities (SPEs) as of December 31, 2003. Application for all other types of entities is required for periods ending after March 15, 2004, unless previously applied. The Partnership does not believe that the application of FIN No. 46, if required, will have a material impact on its financial position, results of operations, or liquidity.

NOTE 15—SUBSEQUENT EVENTS

In July 2004, the General Partner extended the termination date of the Partnership until 2057, an additional 40 years, as allowed in the Partnership agreement.

In July and August 2004, The Partnership committed to invest approximately $10,000,000 for a 50% ownership in each of two new joint ventures more fully described below. The other 50% ownership in the joint ventures will be owned in the same manner as The Partnership’s November 2001 acquisition in Cambridge, Massachusetts more fully described in Note 3 to this financial statement.

The first joint venture is to purchase a 280 unit apartment complex located in Watertown, Massachusetts for $56,000,000. The investors are to invest approximately $16,000,000 and obtain a mortgage for the balance of the purchase and to finance improvements of approximately $3,000,000.

The second joint venture is to purchase a 42 unit apartment complex in Lexington, Massachusetts for $10,200,000. The investors will invest between $3,000,000 to $4,000,000 and the balance will be financed.

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

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-Q, contains forward-looking statements within the meaning of the securities law. 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.

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, accounting 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.

Harold Brown, his brother Ronald Brown and the President of Hamilton, Carl Valeri, collectively own approximately 20% of the depositary receipts representing the Partnership Class A Units (including depositary receipts held by trusts for the benefit for 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 stock of Hamilton. Ronald Brown also 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, also 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 repairs 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.

Hamilton accounted for approximately 4% and 6% of the repair and maintenance expense paid for by the Partnership in the six months ended June 30, 2004 and the year ended December 31, 2003, respectively. 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, those 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 77% of the legal services paid for by the Partnership during the six months ended June 30, 2004 and approximately 66% for the year ended December 31, 2003.

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. The architectural department at Hamilton also provides services to the Partnership on an as-needed basis. In 2004 and 2003, Hamilton provided the majority of the construction 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 ($20,000 per quarter) 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 property are recognized when due from tenants.

Residential leases are generally for terms of one year or less, 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, as appropriate, 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 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 and kitchen/bath replacements and renovations are capitalized and depreciated over their estimated useful lives as follows:

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, we 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

Comparison of the three months ended June 30, 2004 to the three months ended June 30, 2003

The Partnership and its Subsidiary Partnerships earned income before other income of $812,873 during the three months ended June 30, 2004 compared to $1,396,741 for the three months ended June 30, 2003, a decrease of $583,868(42%). As more fully described in the schedules below, this decrease in operating income is largely due to an increase in operating expenses and increases in vacancy rates. Due to the softening residential rental market, rental income at many of the properties decreased in the three months ended June 30, 2004 and expenses continued to increase.

The rental activity is summarized as follows:

	Occupancy Date
	August 4, 2004		May 3, 2004		February 25, 2004		August 11, 2003

Residential
Units	2,400		2,400		2,400		2,395
Vacancies	99		72		37		70
Vacancy rate	4.1	%	3.0	%	1.5	%	2.9	%

Commercial
Total square feet	85,275		85,275		85,275		85,275
Vacancy	4,700		4,700		0		0
Vacancy rate	5.5	%	5.5	%	0	%	0	%

	Rental Income (in thousands) Three Months Ended June 30,
	2004			2003
Total rents	$	7,708		$	7,773
Residential percentage	93		%	93		%
Commercial percentage	7		%	7		%
Contingent rentals	$	89		$	90

Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003

	June 30,						Dollar Change			Percent Change
	2004			2003			Dollar Change			Percent Change

Revenues:
Rental income	$	7,708,025		$	7,773,317		$	(65,292	)	-0.8	%
Laundry and sundry income	79,474			80,266			(792		)	-1.0	%
	7,787,499			7,853,583			(66,084		)	-0.8	%

Expenses:
Administrative	323,195			356,740			(33,545		)	-9.4	%
Depreciation and amortization	1,447,281			1,261,480			185,801			14.7	%
Interest	1,974,141			1,839,294			134,847			7.3	%
Management fees	319,479			324,020			(4,541		)	-1.4	%
Operating	700,339			628,211			72,128			11.5	%
Renting	130,966			142,356			(11,390		)	-8.0	%
Repairs and maintenance	1,199,646			1,045,828			153,818			14.7	%
Taxes and insurance	879,579			858,913			20,666			2.4	%
	6,974,626			6,456,842			517,784			8.0	%

Income before other income	812,873			1,396,741			(583,868		)	-41.8	%

Other Income
Interest income	64,556			43,500			21,056			48.4	%
Income (loss) from investment in joint venture	(41,022		)	(25,361		)	(15,661		)	61.8	%
	23,534			18,139			5,395			29.7	%

Net Income	836,407			1,414,880			(578,473		)	-40.9	%

The following is a comparative schedule for the three months ended June 30, 2004 and 2003 of the changes in revenue from rental operations excluding the 2003 acquisitions to the dates of acquisition.

	Total Partnership 2004		Less Acquired Properties			Same Properties in 2004		Same Properties in 2003		Dollar Change			Percent Change
Revenues:
Rental income	$	7,708,025	$	219,345		$	7,488,680	$	7,773,317	$	(284,637	)	-3.7	%
Laundry and sundry income	79,474		3,580			75,894		80,266		(4,372		)	-5.4	%
	7,787,499		222,925			7,564,574		7,853,583		(289,009		)	-3.7	%

Expenses:
Administrative	323,195		3,903			319,292		356,740		(37,448		)	-10.5	%
Depreciation and amortization	1,447,281		110,207			1,337,074		1,261,480		75,594			6.0	%
Interest	1,974,141		99,170			1,874,971		1,839,294		35,677			1.9	%
Management fees	319,479		8,175			311,304		324,020		(12,716		)	-3.9	%
Operating	700,339		21,779			678,560		628,211		50,349			8.0	%
Renting	130,966		4,042			126,924		142,356		(15,432		)	-10.8	%
Repairs and maintenance	1,199,646		33,676			1,165,970		1,045,828		120,142			11.5	%
Taxes and insurance	879,579		21,296			858,283		858,913		(630		)	-0.1	%
	6,974,626		302,248			6,672,378		6,456,842		215,536			3.3	%

Income before other income	812,873		(79,323		)	892,196		1,396,741		(504,545		)	-36.1	%

Rental income for the three months ended June 30, 2004 was approximately $7,708,000 compared to approximately $7,773,000 for the three months ended June 30, 2003, a decrease of approximately $65,000(.8%). The properties with the most significant decreases were Westgate Woburn, a decrease of approximately $100,000; Redwood Hills, a decrease of approximately $40,000; and decreases of approximately $ 30,000 each at 1144 Commonwealth Avenue and Hamilton Oaks. There were smaller decreases at most other properties. The decrease in rental income is due to increased vacancies, rental concessions and some reductions in rents for new leases. The reductions were offset by the rental income at the properties acquired in 2003.

Total expenses for the three months ended June 30, 2004 were approximately $6,975,000 compared to approximately $6,457,000 for the three months ended June 30, 2003, an increase of approximately $518,000(8%). As disclosed in the schedule above, certain increases are the result of the acquisitions in 2003. Repairs and maintenance expenses increased approximately $154,000(15%) due to ongoing refurbishment, repair and clean up of rental units in an effort to reduce vacancies. Operating expenses increased approximately $72,000(11%) due to increased heat and other utilities. Taxes and insurance increased approximately $21,000(2%) due to increased taxes and insurance premiums. Renting expenses decreased approximately $11,000(8%) due to decreases rental commissions. Administrative expenses decreased approximately $34,000 (9%) primarily due to a reduction in professional fees. Total depreciation and amortization increased approximately $186,000(15%) primarily due to the significant acquisitions made in 2003 and continuing improvements.

The Partnership has a 50% ownership interest in a limited liability Partnership that owns a 40 unit residential property in Cambridge, Massachusetts. For the three months ended June 30,

2004, the Partnership’s share of loss on this investment is $41,022 compared to a loss of $25,361 for the three months ended June 30, 2003, an increase of $15,661(62%). This is due to vacancies and decreased rents on some new leases. There was one unit vacant at August 4, 2004.

Interest income was approximately $64,556 for the three months ended June 30, 2004 compared to $43,500 for the three months ended June 30, 2003 an increased $21,056 (48%). This is due primarily due to an increase in the cash available for investment and some increases in rates earned. Total interest expense increased approximately $135,000 due to the increased mortgage debt.

As a result of the changes discussed above, net income for the three months ended June 30, 2004 was $836,407 compared to $1,414,880 for the three months ended June 30, 2003, a decrease of $578,473 (41%).

Comparison of the six months ended June 30, 2004 to the six months ended June 30, 2003

The Partnership and its Subsidiary Partnerships earned income before other income of $1,357,355 for the six months ended June 30, 2004 compared to $2,834,548 for the six months ended June 30, 2003 a decrease of $1,477,193(52%). The following is a summary of the Partnership’s rental income for the six months ended June 30, 2004 and 2003. As more fully described in the schedules below, this decrease is primarily due to increased vacancies and increases in operating expenses including significant depreciation and interest expense.

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

	June 30,						Dollar Change			Percent Change
	2004			2003			Dollar Change			Percent Change

Revenues:
Rental income	$	15,453,837		$	15,234,609		$	219,228		1.4	%
Laundry and sundry income	160,924			151,066			9,858			6.5	%
	15,614,761			15,385,675			229,086			1.5	%

Expenses
Administrative	653,081			720,555			(67,474		)	-9.4	%
Depreciation and amortization	2,921,669			2,374,343			547,326			23.1	%
Interest	3,977,036			3,498,462			478,574			13.7	%
Management fees	637,940			620,358			17,582			2.8	%
Operating	1,792,480			1,619,028			173,452			10.7	%
Renting	240,164			205,321			34,843			17.0	%
Repairs and maintenance	2,272,653			1,858,939			413,714			22.3	%
Taxes and insurance	1,762,383			1,654,121			108,262			6.5	%
	14,257,406			12,551,127			1,706,279			13.6	%

Income before other income	1,357,355			2,834,548			(1,477,193		)	-52.1	%

Other Income (Loss)
Interest income	134,723			99,028			35,695			36.0	%
Income (loss) from investment in joint venture	(73,052		)	(46,038		)	(27,014		)	58.7	%
	61,671			52,990			8,681			16.4	%

Net Income	1,419,026			2,887,538			(1,468,512		)	-50.9	%

The following is a comparative schedule for the six months ended June 30, 2004 and 2003 of the changes in revenue from rental operations excluding the 2003 acquisitions to the dates of acquisition.

	Total Partnership 2004		Less Acquired Properties			Same Properties in 2004		Same Properties in 2003		Dollar Change			Percent Change
Revenues:
Rental income	$	15,453,837	$	802,336		$	14,651,501	$	15,234,609	$	(583,108	)	-3.8	%
Laundry and sundry income	160,924		14,660			146,264		151,066		(4,802		)	-3.2	%
	15,614,761		816,996			14,797,765		15,385,675		(587,910		)	-3.8	%

Expenses
Administrative	653,081		18,371			634,710		720,555		(85,845		)	-11.9	%
Depreciation and amortization	2,921,669		437,599			2,484,070		2,374,343		109,727			4.6	%
Interest	3,977,036		356,971			3,620,065		3,498,462		121,603			3.5	%
Management fees	637,940		31,774			606,166		620,358		(14,192		)	-2.3	%
Operating	1,792,480		114,984			1,677,496		1,619,028		58,468			3.6	%
Renting	240,164		12,787			227,377		205,321		22,056			10.7	%
Repairs and maintenance	2,272,653		129,830			2,142,823		1,858,939		283,884			15.3	%
Taxes and insurance	1,762,383		85,721			1,676,662		1,654,121		22,541			1.4	%
	14,257,406		1,188,037			13,069,369		12,551,127		518,242			4.1	%

Income before other income	1,357,355		(371,041		)	1,728,396		2,834,548		(1,106,152		)	-39.0	%

Rental income for the six months ended June 30, 2004 was approximately $15,454,000 compared to approximately $15,235,000 for the six months ended June 30, 2003 an increase of approximately $219,000(1%). As indicated in the table above, the increase in rental income is due primarily to the acquisition of the School Street property in April 2003. Rental income at the Partnership’s existing properties actually decreased during the six months ended June 30, 2004 by $583,000(4%). The most significant decrease in rental income was at the Westgate Apartments in Woburn, Massachusetts with a decrease of approximately $230,000 (15%). This decrease is due to vacancies and rental credits given to new tenants in the ongoing effort to stay competitive in a relatively soft rental market at that location. Other significant decreases in rental income were at Redwood Hills of approximately $72,000(7%), at 1144 Commonwealth Avenue of approximately $57,000(4%), at Hamilton Oaks of approximately $48,000(3%), at Brookside of approximately $34,000 (12%), and at North Beacon of approximately $29,000(4%). Most other residential properties experienced smaller decreases in rental income. Additionally, bad debts increased approximately $89,000.

Total expenses for the six months ended June 30, 2004 were approximately $14,257,000 compared to approximately $12,551,000 for the six months ended June 30, 2003, an increase of approximately $1,706,000(14%). As indicated in the chart above, approximately $1,188,000 of this increase represents the property acquired in 2003. Other comparable increases include repairs and maintenance expenses of approximately $283,000(15%), interest expense of

approximately $122,000 (4%) and depreciation and amortization expense of approximately $110,000(5%). An explanation of these increases is discussed above.

LIQUIDITY AND CAPITAL RESOURCES

The Partnership’s principal source of cash during 2004 and 2003 was the collection of rents as well as the refinancing of Partnership properties during the third quarter of 2003.

The majority of cash and cash equivalents of $22,024,552 at June 30, 2004 and $24,362,328 at December 31, 2003 was held in interest bearing accounts at credit worthy financial institutions.

This decrease of $2,337,776 for the six months ended June 30, 2004 is summarized as follows:

	Six Months Ended June 30,
	2004			2003
Cash provided by operating activities	$	4,645,757		$	4,391,313
Cash (used in) investing activities	(4,343,851		)	(9,915,160		)
Cash (used in) other financing activities	(355,990		)	(448,110		)
Dividends paid	(2,283,692		)	(2,802,146		)
Net (decrease) in cash and cash equivalents	$	(2,337,776	)	$	(8,774,103	)

The cash provided by operating activities is primarily due to the net income plus depreciation expense. The decrease in cash used in investing activities is due to the School Street acquisition made in April 2003. The decrease in cash used in financing activities was due to the decrease in the principal payments of the mortgages refinanced in 2003 and a non-recurring special dividend paid in March 2003.

On August 1, 2003, the Partnership refinanced four mortgage loans with a total outstanding balance of approximately $11,526,000, earning interest at rates ranging from 8.38% to 8.75%. All of these loans matured 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 ten-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 loan 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 this refinancing. There are substantial prepayment penalties if paid before maturity.

On June 30, 2003, the Partnership purchased five condominium units from a group of investors who are also 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 ten-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 ten-year maturity.

In February 2004, the Partnership voted to pay a quarterly distribution of $6.60 ($0.66 per depositary receipts) per unit payable on March 31, 2004. The total distribution paid on March 31, 2004 was $1,142,077. Additionally, in April 2004 the Partnership voted to pay the same quarterly distribution on June 30, 2004. In August 2004, the Partnership voted to pay quarterly distribution on September 30, 2004 of $7.00 ($0.70 per receipt)

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 ($0.30 per depositary receipt) per unit for a total distribution of $9.60 per unit payable on March 31, 2003. The total distribution paid to the partners on March 31, 2003 was $1,660,531.

During the six months ended June 30, 2004, the Partnership and its Subsidiary Partnerships completed certain improvements to their properties at a total cost of approximately $2,343,000. The most significant improvements were made at the following properties: $410,526 at Westgate in Woburn, Massachusetts; $292,754 at 62 Boylston Street, Boston, Massachusetts; $242,501 at Westside Colonial in Brockton, Massachusetts; $224,157 at Hamilton Oaks in Brockton, Massachusetts; $153,914 at School Street in Framingham, Massachusetts; $146,196 at 1144 Commonwealth Avenue in Brighton, Massachusetts and $132,368 at Redwood Hills in Worcester, 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 to date in 2004, the Partnership and its Subsidiary Partnerships plan to invest approximately $400,000 in capital improvements during the balance of 2004, the majority of which will be spent at Middlesex and Redwood Hills. 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 reserve. An additional $500,000 will be needed to complete the Westgate addition.

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, unanticipated increases in expenses, or the loss of significant tenants.

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 $3,557,000, including approximately $1,558,000 in 2004, have been capitalized as construction in progress.

As more fully described in note 15 to the financial statements, the Partnership has committed to invest approximately $10,000,000 for 50% ownership in two new joint ventures purchasing 322 residential units in two apartment complexes.

Factors That May Affect Future Results

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 beliefs 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 2004 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 tenant’s 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 my 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.

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.

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

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 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 the 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 rents. The Partnership believes its present cash reserves as well as anticipated rental revenue will be sufficient to fund its current operations, and to 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.

Item 3 –QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of June 30, 2004, the Partnership and its subsidiary Partnerships collectively have approximately $115,555,000 in long-term debt, all of which have fixed interest 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 disclosures about market risk, see “Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Factors that May Affect Future Results.”

Item 4—CONTROLS AND PROCEDURES

Our principal executive officer and principal financial officer have within 90 days of the filing date of this quarterly report, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-14© and 15d-14© under the Securities and Exchange Act of 1934, as amended) and have 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 II - OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 2. Changes in Securities

None.

Item 3. Defaults Upon Senior Securities

None.

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

None.

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

(a) See the exhibit index below.

(b) 8-K filed on July 22, 2004, reporting on Item 5 (relating to the extension of the term of the Partnership through 2057).

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: August 13, 2004

	NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP

	By:			NEW REAL, INC.,
				its General Partner*

	By:		/s/ Ronald Brown
			Ronald Brown, President


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

EXHIBIT INDEX

Exhibit No.		Description of Exhibit

(31.1)		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Ronald Brown, Principal Executive Officer of the Partnership (President and a Director of NewReal, Inc., sole General Partner of the Partnership)

(31.2)		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Harold Brown, Principal Financial Officer of the Partnership (Treasurer and a Director of NewReal, Inc., sole General Partner of the Partnership)

(32.1)		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Ronald Brown, Principal Executive Officer of the Partnership (President and a Director of NewReal, Inc., sole General Partner of the Partnership).

(32.2)		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Harold Brown, Principal Financial Officer of the Partnership (Treasurer and a Director of NewReal, Inc., sole General Partner of the Partnership).

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP - Quarter Report: 2004 June (Form 10-Q)

NEW ENGLAND REALTY ASSOCIATES, L.P.

PART I – FINANCIAL INFORMATION

Item I. Financial Statements

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

RESULTS OF OPERATIONS