NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

(MARK ONE)

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

OR

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

FOR THE TRANSITION PERIOD FROM ______________ TO ______________

COMMISSION FILE NUMBER 0-12138
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NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)

MASSACHUSETTS 04-2619298
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)

39 BRIGHTON AVE., ALLSTON, MASSACHUSETTS 02134
(Address of principal executive offices) (Zip code)

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

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

NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
None None

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

CLASS A DEPOSITARY RECEIPTS
LIMITED PARTNERSHIP UNITS (Title of class)
(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 /X/ No / /

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. / /

As of March 22, 2002, the aggregate market value of traded securities held
by non-affiliates of the registrant was $43,258,350, based on the average bid
and asked price of such traded securities on such date.

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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 the termination date for an additional forty
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. Each
Class A Unit is exchangeable for ten publicly traded depositary receipts
("Receipts"). 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, Connecticut 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".

In November 2001, the Partnership, together with two other investors,
including Harold Brown, the majority shareholder, Director and Treasurer of the
General Partner, formed a new Subsidiary Partnership, a limited liability
company (the "Investment LLC"). The Investment LLC purchased a 40-unit apartment
building in Cambridge, Massachusetts (the "Investment Property"). The
Partnership owns a 50% interest in the Investment LLC. See "Item 1.
Business--Recent Developments". 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".

Except for the Investment LLC, the Partnership owns between a 99.67% to 100%
interest in each of the Subsidiary Partnerships. Of those Subsidiary
Partnerships not wholly owned by the Partnership, again 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.

1

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 Company, Inc. (the "Hamilton Company")
to perform general management functions for the Partnership's properties in
exchange for management fees. The Hamilton Company is wholly owned by Harold
Brown and employs Ronald Brown and Harold Brown. The Partnership and its
Subsidiary Partnerships currently employ 75 individuals who are primarily
involved in the supervision and maintenance of specific properties. The General
Partner has no employees.

As of March 1, 2002, the Partnership and its Subsidiary Partnerships owned
2,123 residential apartment units in 20 residential and mixed-use complexes
(collectively, the "Apartment Complexes"). The Partnership also owns 19
condominium units from a residential condominium complex and one condominium
unit in a separate 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 March 1, 2002, the Subsidiary Partnerships owned
commercial shopping centers in East Hampton, Connecticut and 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 Investment LLC. See "Item 13.
Certain Relationships and Related Transactions."

In general, the Properties face no unusual competition. 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.

In the opinion of the General Partner, the Properties are adequately covered
by insurance.

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.

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 which 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.

2

RECENT DEVELOPMENTS

In March 2002, the Partnership signed a purchase and sales agreement to
acquire a 69-unit residential apartment complex located in Norwood,
Massachusetts. If this transaction closes, the Partnership will assume a first
mortgage of $3,800,000 with an interest rate of 7.08% amortizing over 25 years,
with a maturity in 2007 requiring a final "balloon" payment of approximately
$3,468,000. The seller will lend the Partnership $1,750,000 at a rate of 6%, for
a term of 5 years or a shorter period if the first mortgage is refinanced, and
the Partnership will pay only accrued interest during the term of this loan. The
balance of $1,650,000 will be funded from the Partnership's cash reserves. The
completion of this transaction is dependent on the assumption of the first
mortgage and receipt of acceptable inspections and other due diligence reports.

On November 8, 2001, the Investment LLC, in which the Partnership holds a
50% membership interest, purchased a 40-unit residential property in Cambridge,
Massachusetts. The other 50% membership interest in this limited liability
company is owned by Harold Brown and the President of the Hamilton Company. The
total purchase price was $11,265,000. The Partnership contributed $8,265,000 in
capital to the Investment LLC and the other members contributed $3,000,000
total, all of which capital contributions were used to acquire the property. A
mortgage of approximately $8,000,000 was taken out on this property on
December 27, 2001, and funds in excess of the required equity have been returned
to the members in proportion to their membership interest so their respective
capital contribution are currently proportionate to their membership interest.
Further, 8% interest per annum was paid to the Partnership on the funds advanced
for the benefit of the other members described above. This transaction was
approved by the Partnership's advisory committee prior to its consummation.

In April 2001, the Partnership obtained a line of credit in the amount of
$12,000,000 secured by the property at 62 Boylston Street which is renewable
annually through April 2006. The Partnership has not drawn on the line and has
informed the lender that it will not renew the line of credit in April 2002.

In March 2001, the Partnership paid a dividend of $6.10 per Unit ($0.61 per
Receipt) and a special dividend of $5.00 per Unit ($0.50 per Receipt) for a
total payment of $1,919,989. In September 2001, the Partnership paid a dividend
of $6.60 per Unit ($0.66 per Receipt) for a total payment of $1,141,615. Thus,
aggregate dividends of $3,061,604 were paid in 2001, compared with total
dividends of $2,542,688 paid in 2000.

During 2001, the Partnership and its Subsidiary Partnerships completed
improvements to certain of the Properties at a total cost of approximately
$2,803,000. 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, Redwood Hills and Westgate Woburn, for total costs of
approximately $1,533,000, $235,000 and $170,000, 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.

3

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. See "Item 10. Directors and Executive Officers of the
Registrant."

ITEM 2. PROPERTIES

As of March 1, 2002, 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 20 Apartment Complexes, the number
and type of units in each complex, the range of rents and vacancies as of
March 1, 2002, the principal amount outstanding under any mortgages as of
December 31, 2001, the fixed interest rates applicable to such mortgages and the
maturity dates of such mortgages.

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

6

CONDOMINIUM UNITS

The Partnership owns and leases to residential tenants 20 Condominium Units
in the greater Boston, Massachusetts area. Prior to its conversion into
condominium units, one of the properties, Chateaux Westgate, was owned by Harold
Brown.

The table below lists the location of the Condominium Units, the number of
units in each complex, the number and type of units owned by the Partnership in
each complex, the range of rents received by the Partnership for such units, and
the number of vacancies as of March 1, 2002. No Condominium Unit is subject to
an existing mortgage.

COMMERCIAL PROPERTIES

EAST HAMPTON MALL LP. In 1984, the Partnership acquired the East Hampton
Mall in East Hampton, Connecticut (the "East Hampton Mall"). The shopping center
is set on 4.25 acres of land and consists of 52,500 square feet of rentable
space, rented primarily to commercial retail establishments. During 1995, the
Subsidiary Partnership which owns this property obtained a mortgage in the
amount of $1,435,000 which carries a fixed interest rate of 8.375% and matures
in the year 2005. As of December 31, 2001, the mortgage had an outstanding
balance of $1,295,749. As of March 1, 2002, the shopping center had a vacancy
rate of 0%, and the average rent per square foot was $6.19.

LINHART LP. During 1995, the Partnership acquired the Linhart property in
Newton, Massachusetts ("Linhart"). This mixed-use property includes 21,200
square feet of rentable commercial space. As of March 1, 2002, the commercial
space had a 0% vacancy rate, and the average gross rent per square foot was
$19.89.

BOYLSTON DOWNTOWN LP. During 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
March 1, 2002, the commercial space had a 0% vacancy rate, and the average gross
rent per square foot was $22.42. The Partnership also rents roof space for a
cellular phone antenna at an average rent of approximately $19,000 per year
through July, 2006.

140 NORTH BEACON LP. During 1995, this Subsidiary Partnership acquired the
North Beacon property in Boston, Massachusetts ("North Beacon"). This mixed-use
property includes 1,000 square feet of commercial rentable space, which was
fully rented as of March 1, 2002. The average rent per square foot as of that
date was $17.92.

STAPLES PLAZA. In May 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 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, 2001, the mortgage had a

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outstanding balance of $4,845,814. As of March 1, 2002 Staples Plaza was fully
occupied, and the average net rent per square foot was $19.81.

HAMILTON OAKS ASSOCIATES, LLC. The Oaks Apartments complex acquired by the
Partnership in December 1999 through Hamilton Oaks Associates, LLC includes
6,075 square feet of rentable space, occupied by a daycare center. As of
March 1, 2002, the commercial space was fully occupied, and the average rent per
square foot was 10.83. The Partnership also rents roof space for a cellular
phone antenna at an average rent of approximately $25,000 per year through
November, 2005.

INVESTMENT PROPERTY

345 FRANKLIN LLC. In November, 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 2004.

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

In July 2001, the Partnership reached an agreement in principle to settle
certain claims of national origin and familial status discrimination brought by
two adult tenants and their minor children. See the Partnership's Form 10-Q for
the second fiscal quarter of 2001, filed on August 14, 2001. The settlement of
this matter was finalized on March 12, 2002.

Neither the Partnership nor any of the Subsidiary Partnerships are presently
subject to any material litigation, nor to management's knowledge is any
litigation presently threatened against them. The Partnership and Subsidiary
Partnerships are occasionally subject to routine legal and administrative
proceedings, and the legal and other expenses related to these proceedings are
either covered by insurance or paid out of cash reserves.

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, 2001.

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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
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 2001, the high and low bid quotations for the Receipts were $34.60 and
$17.25, respectively. The table below sets forth the high and low bids for each
quarter of 2001 and 2000:

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. The Partnership has
made annual distributions to its Partners since 1978. In each of 2001 and 2000,
the Partnership made total distributions of $17.70 and $14.70 per Unit,
respectively ($1.77 and $1.47 per Receipt, respectively). The total value of the
distribution in 2001 was $3,061,604, and the total value for 2000 was
$2,542,688. In February 2002, the Partnership voted to change its dividend
policy from semi-annually to quarterly, and declared a quarterly dividend of
$6.40 per Unit ($0.64 per Receipt) payable on March 31, 2002.

In 2001 and 2000, taxable income excluding capital gains was approximately
$500,000 and $900,000 respectively, greater than comparable statement income.

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 23 of this
Form 10-K.

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

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2001 AND 2000

The Partnership and its Subsidiary Partnerships earned income from
operations of approximately $5,998,000 during the year ended December 31, 2001,
compared to approximately $4,400,000 during the year ended December 31, 2000, an
increase of approximately $1,598,000 (36%). The primary factor contributing to
the increase was increased rental income resulting from continued strength in
the residential real estate market in 2001.

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An analysis of the rental activity, exclusive of the property acquired in
November 2001, is as follows:

Rental income for the year ended December 31, 2001 was approximately
$27,767,000, compared to approximately $25,583,000 for the year ended
December 31, 2000, an increase of approximately $2,184,000 (9%). The Partnership
completed significant improvements at some of the larger residential properties,
including the Westgate Apartments, 62 Boylston Street and 1144 Commonwealth
Avenue, resulting in the ability to charge higher rates at these properties.
Income from the Partnership's residential properties represents approximately
91% of rental income for the year ended December 31, 2001, up from approximately
87% for the year ended December 31, 2000.

In 2000, the Partnership acquired the 44-unit Brookside Apartments complex
and sold the Timpany Plaza Shopping Center and Lewiston Mall Shopping Center,
which have a combined total of approximately 366,000 square feet. While these
transactions, taken together, produced a decrease in rental income of
approximately $646,000 in 2001, this was more than offset by a decrease in
operating expenses of approximately $845,000, for a net increase in income of
approximately $199,000. In addition, in 2001 the Partnership realized
approximately $50,000 of income from the investment property purchased in
November 2001.

Expenses for the year ended December 31, 2001 were approximately
$22,022,000, compared to approximately $21,434,000 for the year ended
December 31, 2000, an increase of approximately $588,000 (3%). Administrative
expenses increased approximately $136,000 (11%) due to an increase in salaries
and wages. Repairs and maintenance expenses increased approximately $415,000
(14%) due to an increase in the salaries for the maintenance staff as well as
significant refurbishing at the residential properties. Operating expenses
increased approximately $126,000 (5%) largely as a result of an increase in the
cost of snow removal and utilities due to a colder and snowier winter during the
first quarter of 2001 compared to 2000. Interest expense increased approximately
$69,000 (1%) due to a higher level of debt. Management fees increased
approximately $66,000 (6%) due to increases in rental income.

Depreciation and amortization expense decreased approximately $190,000 (4%)
largely due to the sale of the two commercial properties in 2000. The aggregate
book value of the properties sold was

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approximately $7,000,000. Renting expenses decreased approximately $6,000 (3%)
due to lower rental commissions.

Interest income was approximately $605,000 for the year ended December 31,
2001, compared to approximately $425,000 for the year ended December 30, 2000,
an increase of approximately $180,000 (42%). This increase was a result of the
higher average cash balance available for investment in 2001, although declining
interest rates offset the increase to some extent.

Included in other income for the year ended December 31, 2000 is a gain of
approximately $660,000 on the sale of the Lewiston Mall Shopping Center and a
gain of approximately $1,870,000 on the sale of the Timpany Plaza Shopping
Center. There were no sales in 2001.

As a result of the changes discussed above, net income for the year ended
December 31, 2001 was approximately $6,647,000, compared to approximately
$5,801,000 for the year ended December 31, 2000, an increase of approximately
$846,000 (15%).

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2000 AND 1999

New England Realty Associates Limited Partnership and its Subsidiary
Partnerships earned income from operations of $4,399,696 during the year ended
December 31, 2000, compared to $2,871,604 during the year ended December 31,
1999, an increase of $1,528,092.

The rental activity is summarized as follows:

Rental income for the year ended December 31, 2000 was approximately
$25,583,000 compared to approximately $20,099,000 for the year ended
December 31, 1999, an increase of approximately $5,484,000 (27%). This increase
in rental income is primarily from the residential properties. Residential
rental rates increased approximately 12% during 2000, occupancy levels have
remained stable. The Partnership acquired two residential complexes in
December 1999 resulting in a full year's rental income in 2000, an increase from
these properties of approximately $4,124,000. In addition to the acquisitions in
December 1999, the Partnership acquired the Brookside Apartments in
October 2000. This complex consists of 44 residential units located in Woburn,
Massachusetts. Its rental

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income was approximately $100,000 in 2000. The purchase price of $3,800,000 was
originally funded from cash reserves. In December 2000, the Partnership obtained
a mortgage on the Brookside Apartments in the amount of $2,000,000. In
November 2000, the Partnership sold the Timpany Plaza Shopping Center in
Gardner, Massachusetts. The property consisted of 184,600 square feet of
commercial space and was sold for $5,000,000. In June 2000, the Partnership sold
the Lewiston Mall Shopping Center, located in Lewiston, Maine. This mall
consisted of 181,000 square feet of commercial space and was sold for
$5,100,000.

As a result of these sales, rental income from the commercial properties
decreased approximately $680,000. This was substantially offset by an increase
of approximately $470,000 from the full year's rental income at the Staples
Plaza shopping center purchased in May 1999. Rental rates and occupancy levels
at the remaining commercial properties remain stable.

Expenses for the year ended December 31, 2000 were approximately $21,434,000
compared to approximately $17,407,000 for the year ended December 31, 1999, an
increase of approximately $4,027,000, including approximately $3,301,000 at the
acquired properties. Depreciation and amortization expense increased to
approximately $4,497,000 for the year ended December 31, 2000 from approximately
$3,574,000 for the year ended December 31, 1999, an increase of approximately
$923,000. This increase reflects significant improvements made to the
Partnership properties in 2000 as well as a full year of depreciation on the
properties acquired by the Partnership in the latter part of 1999. The
acquisitions made in 1999 represent approximately $658,000 of this increase.
Management fees increased to approximately $1,090,000 for the year ended
December 31, 2000 from approximately $845,000 for the year ended December 31,
1999, an increase of approximately $245,000. This increase is due to the
increase in rental income as discussed above. Interest expense increased to
approximately $6,456,000 for the year ended December 31, 2000 from approximately
$4,946,000 for the year ended December 31, 1999, an increase of approximately
$1,510,000. Approximately $1,210,000 of the increase is attributable to a full
year's interest on properties purchased in December 1999 and the remaining
approximately $300,000 is attributable to the net increase in other mortgages.
Taxes and insurance increased to approximately $2,529,000 for the year ended
December 31, 2000 from approximately $2,089,000 for the year ended December 31,
1999, an increase of approximately $440,000. The newly acquired properties
represent approximately $271,000 of this increase. Real estate taxes increased
at the existing properties, specifically at 62 Boylston Street and 140 North
Beacon Street, totaling approximately $90,000. Insurance expenses also increased
due to higher premiums. Administrative expenses increased to approximately
$1,230,000 for the year ended December 31, 2000 from approximately $1,169,000
for the period ended December 31, 1999, an increase of approximately $61,000.
The newly acquired properties represent most of this increase.

Operating expenses increased to approximately $2,435,000 for the year ended
December 31, 2000 from approximately $1,883,000 for the year ended December 31,
1999, an increase of approximately $552,000. The newly acquired properties
represent approximately $400,000 of this increase. Operating expenses increased
at the existing properties substantially due to the increase in the cost of oil.
Renting expenses decreased to approximately $179,000 for the year ended
December 31, 2000 from approximately $303,000 for the year ended December 31,
1999, a decrease of approximately $124,000. Due to the strong rental market in
the greater Boston area, advertising has dropped significantly.

The Partnership refinanced 11 properties during 2000. As a result of these
refinancings, the Partnership recorded an extraordinary charge of approximately
$1,592,000 which includes mortgage prepayment penalties of approximately
$1,255,000 and the expensing of related deferred financing costs of
approximately $337,000.

Interest income was approximately $425,000 for the year ended December 31,
2000 compared to approximately $361,000 for the year ended December 31, 1999, an
increase of approximately $64,000.

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This increase is due to an increase in the average cash balance available for
investment in 2000 partially offset by declining interest rates.

Included in other income for the year ended December 31, 2000 is a gain of
approximately $660,000 on the sale of the Lewiston Mall Shopping Center, and a
gain of approximately $1,870,000 on the sale of the Timpany Plaza Shopping
Center. Included in other income for the year ended December 31, 1999, is a gain
of approximately $128,000 on the sale of a condominium and a gain of
approximately $672,000 on the sale of the Willard Street Apartments, a total of
$800,000. Also included in other income for the year ended December 31, 1999 is
a loss of approximately $418,000 in the value of the Partnership's short-term
investments. This change in value is due to fluctuations in interest rates.

As a result of the changes discussed above, net income for the year ended
December 31, 2000, was approximately $5,801,000 compared to approximately
$3,649,000 for the year ended December 31, 1999, an increase of approximately
$2,152,000.

LIQUIDITY AND CAPITAL RESOURCES

The Partnership's principal source of cash during 2001 was the collection of
rents; its principal sources of cash during 2000 were the collection of rents,
the sale of real estate and the refinancing of Partnership properties. The
majority of cash and cash equivalents of $16,690,943 at December 30, 2001 and
$14,478,972 at December 31, 2000 was held in interest-bearing accounts at
creditworthy financial institutions. This increase of $2,211,971 is summarized
as follows:

The increase in cash provided by operating activities is primarily due to
the increase in operating income before depreciation expense. The increase in
cash used in investment activities is primarily due to the purchase and
improvement of rental and investment properties, offset by the proceeds from the
sale of commercial properties in 2000. The cash used in financing activities in
2001 is primarily due to the dividend distributions and mortgage debt payments.
The cash provided by financing activities in 2000 is primarily due to the
proceeds from refinancing mortgages, reduced by dividend distributions and
mortgage debt payments. The Partnership has liquidated all of its short-term
investments (not including cash equivalents, as defined in Note 1 to the
Consolidated Financial Statements).

On November 8, 2001, a newly formed limited liability company in which the
Partnership has a 50% ownership interest acquired a 40-unit residential property
in Cambridge, Massachusetts. The remaining 50% ownership interest in this
limited liability company is owned by Harold Brown and the President of The
Hamilton Company. The total purchase price was $11,265,000. At closing, the
Partnership paid $8,265,000, and the other owners paid $3,000,000. A mortgage of
approximately $8,000,000 has since been obtained, and the funds in excess of the
required equity have been returned to the partners so that their capital
contributions are proportionate to their respective ownership interests.

In April 2001, the Partnership obtained a one-year line of credit in the
amount of $12,000,000, secured by the property located at 62 Boylston Street;
the line of credit is renewable annually. As of

13

December 31, 2001, the Partnership has not drawn on the line. The Partnership
has informed the lender that a renewal of this line of credit, effective for
April 2002, will not be requested.

The Partnership distributed dividends totaling $17.70 per Unit in 2001 and
$14.70 per Unit in 2000. In February 2002, the Partnership voted to change its
dividend policy from a semi-annual to a quarterly distribution and declared a
quarterly dividend of $6.40 per Unit, payable on March 31, 2002.

On November 20, 2000, the Partnership sold the Timpany Plaza Shopping Center
for $5,000,000. The mortgage of approximately $3,300,000 was paid off, and the
net cash received by the Partnership, after closing costs and operating
adjustments, was approximately $1,459,000. Rental income from the property was
approximately $438,000 for the year ended December 31, 2000.

In October 2000, the Partnership acquired the Brookside Apartments located
in Woburn, Massachusetts. The purchase price of $3,800,000 was originally funded
from cash reserves. In December 2000, the Partnership obtained a mortgage of
$2,000,000 on the property. The mortgage provides that during its term only
interest, earned at a rate of 7.625% per year, shall be repaid. At maturity in
2011, the entire principal balance will be due.

On June 28, 2000, the Partnership sold the Lewiston Mall Shopping Center for
$5,100,000. The mortgage of approximately $2,900,000 was paid off, and the net
cash received by the Partnership, after closing costs and operating adjustments,
was approximately $1,942,000. Rental income from the property was approximately
$600,000 for the year ended December 31, 2000.

In addition to the Brookside mortgage discussed above, the Partnership
refinanced 11 of the Partnership properties and obtained a mortgage on a
previously debt-free property during 2000. The total of these 12 mortgages is
approximately $31,650,000, while the total of the mortgages on the 11 refinanced
properties prior to such refinancings was approximately $23,800,000. After
prepayment penalties of approximately $1,255,000, the net proceeds from these 11
refinancings were approximately $6,600,000. No new mortgages were undertaken in
2001 except for the mortgage on the 40-unit residential property in Cambridge,
Massachusetts, discussed above.

During 2001, the Partnership and its Subsidiary Partnerships completed
certain improvements to their properties at a total cost of approximately
$2,803,000. The most significant improvements were made at the following
properties: approximately $1,533,000 at 62 Boylston Street in Boston,
Massachusetts; approximately $235,000 at Redwood Hills Apartments in Worcester,
Massachusetts; approximately $170,000 at Westgate Apartments in Woburn,
Massachusetts; approximately $88,000 at the Hamilton Oaks Apartments in
Brockton, Massachusetts; approximately $76,000 at the North Beacon Apartments in
Brighton, Massachusetts; and approximately $58,000 at Westside Colonial
Apartments in Brockton, Massachusetts.

In addition to the improvements made in 2001, the Partnership and its
Subsidiary Partnerships plan to invest approximately $3,589,000 in capital
improvements during 2002; approximately $1,821,000 of this amount is designated
for 62 Boylston Street. These improvements will be funded from escrow accounts
established in connection with the refinancing of the applicable properties, as
well as from the Partnership's cash reserves.

Further, the Partnership intends to construct 20 additional residential
units at the Westgate Apartments in Woburn, Massachusetts. Presently, the
Partnership is awaiting final zoning board approval. The total cost is estimated
to be $3,500,000, which will initially be funded from cash reserves.

In March 2002, the Partnership signed a purchase and sales agreement to
acquire a 69-unit residential apartment complex located in Norwood,
Massachusetts for $7,200,000. The Partnership will assume a first mortgage of
$3,800,000 with an interest rate of 7.08%; the mortgage will be amortized over
25 years and will mature in 2007, with a final "balloon" payment of
approximately $3,468,000 required. The seller will lend the Partnership
$1,750,000 at a rate of 6%, interest only, for a term of 5 years or a shorter
period if the first mortgage is refinanced. The balance of $1,650,000 will be
funded from the Partnership's cash reserves. The completion of this transaction
is dependent on the assumption of the first mortgage and receipt of acceptable
inspections and other due diligence reports.

14

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 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 2002 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
and market conditions, which are beyond the Partnership's control.

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

- The Partnership may fail to identify, acquire, construct or develop
additional properties; may develop properties that do not produce a
desired yield on invested capital; 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, although management is not aware
of any material environmental liabilities at this time.

- 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 softened
during the fourth quarter of 2001, and the Partnership anticipates the climate
will remain the same in 2002. This may result in increases in vacancy rates
and/or a reduction in some rents. Despite this change in the market, the
Partnership does not foresee a significant effect on its cash flow. 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
and planned improvements to its properties.

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

15

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.

NEWLY ISSUED ACCOUNTING STANDARDS

On June 29, 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 141, "Business Combinations," and No. 142, "Goodwill and Other
Intangible Assets." The provisions of SFAS No. 141 apply to all business
combinations initiated after June 30, 2001. SFAS No. 142 becomes effective
beginning January 1, 2002. The Partnership does not anticipate that these
standards will have a material adverse effect on its liquidity, financial
position or results of operations.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment of Disposal of Long-Lived Assets," which addresses financial
accounting and reporting for the impairment of disposal of long-lived assets.
This standard harmonizes the accounting for impaired assets and resolves some of
the implementation issues as originally described in SFAS No. 121. The new
standard becomes effective for the year ending December 31, 2002. NERA does not
expect this pronouncement will have a material impact on the Partnership's
liquidity, financial position or results of operations.

INFLATION

We believe that inflation has not been a material factor in historic
operations. The majority of NERA's tenants are residential tenants and do not
pay additional rents based on increases in operating expenses. Future unusual
inflation that increases NERA's operating expenses may not be recoverable
through increased rents.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Partnership and its Subsidiary Partnerships collectively have
approximately $79,613,000 in long-term debt, all of which earns interest at
fixed rates. Accordingly, the fair value of these debt instruments is affected
by changes in the market interest rates. For information regarding the fair
values 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-15
of this Form 10-K and are indexed herein under Item 14(a)(1).

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

None.

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

16

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.

From October 1992 until 1996, the General Partner engaged the Hamilton
Partnership as the management company to manage the Partnership's and its
Subsidiary Partnerships' properties. 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 2001.

Because the General Partner has engaged the Hamilton Company as the manager
for the Properties, the General Partner has no employees.

The directors of the General Partner are Ronald Brown, Harold Brown,
Guilliaem Aertsen, 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.

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 created an Audit Committee
consisting of three members, its first and only committee, 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.

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 ownership changes and 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 2001 fiscal year, all filing
requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with, except that Harold Brown inadvertently did
not file a Form 4 with the SEC in connection with his purchase of 1,900 Receipts
on December 7, 2001, but Mr. Brown did report that purchase on a Form 5 filed on
February 14, 2002.

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, the
Administrative Fee and the Commission are paid to the management company,
Hamilton Company. See "Item 10. Directors and Executive Officers of the
Registrant." The total Management Fee charged by The Hamilton Company during
2001 was approximately $1,156,000. In 2001, the Partnership and its Subsidiary
Partnerships also paid Administrative Fees to The Hamilton Company of
approximately $643,000 inclusive of construction supervision and architectural
fees of $196,000, repairs and maintenance service fees of $194,000, legal fees
of $191,000, and rental fees and miscellaneous charges of $62,000. In

18

addition, during 2001 the Partnership paid The Hamilton Company $80,000 for
certain accounting services, which were provided by an outside company prior to
1993, and approximately $3,000 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.

The management services provided by The Hamilton Company 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 The
Hamilton Company to provide asset management services to the Partnership, for
which the Partnership paid approximately $50,000 in 2001.

Members of the Partnership's Advisory Committee and Ronald Brown and Harold
Brown receive $400 for each committee meeting attended. The Advisory Committee
held 6 meetings during 2001.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As of March 19, 2002, 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 19, 2002, pursuant to the Deposit
Agreement, EquiServe was serving as the record holder of the Class A Units with
respect to which 1,173,089 Depositary Receipts had been issued to 1,196 holders.
As of March 19, 2002, there were issued and outstanding 24,285 Class A Units
(not including the Depositary Receipts) held by 1,107 limited partners, 33,015
Class B Units and 1,738 General Partnership Units held by the persons listed
below.

The following table sets forth certain information regarding each class of
Partnership Units beneficially owned as of March 19, 2002 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.

19

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

(1) 80,371 Depositary Receipts are held of record by Harold Brown and 98,394
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 17,877 Class A Units (approximately
12.6% of the outstanding Class A Units) and the Trust may be deemed to
beneficially own approximately 9,839 Class A Units (approximately 7.0% 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. Luci Daley
Vincent 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 98,394

20

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 and Raffoul, as indicated in the table.

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

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, 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 May 14, 2001, the Partnership approved a
Trading Plan of Harold Brown, providing for the purchase of up to 20,000
Depositary Receipts of the Partnership as such become available during the
period from May 14, 2001 through May 13, 2002. Mr. Brown amended and restated
this Trading Plan on November 19, 2001 to increase the number of Depositary
Receipts which were to be purchased pursuant thereto from 20,000 to 50,000,
expanding the date through which purchases could be made to September 30, 2002,
and to provide that purchases under his Trading Plan were to be made only if the
price per Depositary Receipt was $45.00 or less.

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 The Hamilton Company. 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. For further
details, see "Item 1. Business--Recent Developments."

Chateaux Westgate, the condominium complex in which the Partnership owns 1
residential unit, was owned by Harold Brown prior to its conversion into a
condominium complex. In addition, certain Subsidiary Partnerships purchased
certain properties in 1995 from entities in which Harold Brown had substantial
equity interests. In each case, the General Partner believes that the
Partnership and its Subsidiary Partnerships acquired the condominium unit and
the other properties purchased in 1995 at prices not in excess of fair market
value.

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.
Interest on the loan was $20,000 and $2,083 in 2000 and 1999 respectively.

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.

21

ITEM 14. 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, 2001 and 2000

Consolidated Statements of Income for the years ended December 31,
2001, 2000 and 1999

Consolidated Statements of Changes in Partners' Capital for the years
ended December 31, 2001, 2000 and 1999

Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999

Notes to 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.

(b) Report on Form 8-K filed on July 12, 2001 (reporting only as to Item 5,
"Other Events").

22

SELECTED FINANCIAL INFORMATION

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 effect future operations. The above tables may
not be indicative of future results.

23

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, 2001 and 2000, 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, 2001. 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 financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the 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 its Subsidiary Partnerships at
December 31, 2001 and 2000 and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States of
America.

/s/ MILLER WACHMAN LLP
Certified Public Accountants

Boston, Massachusetts
February 22, 2002

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

See notes to consolidated financial statements.

F-2

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL

See notes to consolidated financial statements.

F-3

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

See notes to consolidated financial statements.

F-4

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES

LINE OF BUSINESS. New England Realty Associates Limited Partnership ("NERA"
or the "Partnership") was organized in Massachusetts during 1977. NERA and its
subsidiaries own and operate various residential apartment buildings,
condominium units and commercial properties located in Massachusetts,
Connecticut 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% 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 its fifty-percent owned Investment limited liability company using
the equity method.

ACCOUNTING ESTIMATES. The preparation of financial statements, in
conformity with accounting principles generally accepted in the United States 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. Rental properties are depreciated on the straight-line
method over their estimated useful lives. In the event that facts and
circumstances indicate that the carrying value of rental properties may be
impaired, an analysis of recoverability is performed. The estimated future
undiscounted cash flows are compared to the asset's carrying value to determine
if a write-down to fair value or discounted cash flow value is required.

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.

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

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

F-5

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 a single 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 2001, 2000 or 1999, other than net income as reported.

INCOME PER UNIT. Net income per unit has been calculated based upon the
weighted average number of units outstanding during each year presented. The
Partnership has no dilutive units and, therefore, basic net income per unit is
the same as deducted net income per unit.

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 2001, 2000 or 1999. The Partnerships make
their temporary cash investments with high-credit-quality financial institutions
or purchase money market accounts invested in U.S. Government securities or
mutual funds invested in government bonds. At December 31, 2001, substantially
all of the Partnerships' cash and cash equivalents were held in interest-bearing
accounts at financial institutions, earning interest at rates from 1.32 to
1.99 percent. At December 31, 2001 and 2000, approximately $16,000,000 and
$14,000,000 of cash and cash equivalents exceeded federally insured amounts.

ADVERTISING EXPENSE. Advertising is expensed as incurred. Advertising
expense was $72,318, $73,928 and $87,777 in 2001, 2000 and 1999, respectively.

NOTE 2. RENTAL PROPERTIES

Rental properties consist of the following:

F-6

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2. RENTAL PROPERTIES (CONTINUED)

Real estate and accumulated depreciation as of December 31, 2001 is:

F-7

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2. RENTAL PROPERTIES (CONTINUED)

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

(1) The initial cost to the Partnerships represents both the balance of
mortgages assumed in September 1977, including subsequent adjustments to
such amounts, and subsequent acquisitions at cost.

(2) Net of retirements, which are not significant.

(3) In 2001, rental properties were depreciated over the following estimated
useful lives:

F-8

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2. RENTAL PROPERTIES (CONTINUED)

A reconciliation of rental properties and accumulated depreciation is as
follows:

NOTE 3. RELATED PARTY TRANSACTIONS

The Partnerships' properties are managed by an entity which is owned by the
majority shareholder of the General Partner. The management fee is equal to 4%
of rental revenue and laundry income. Total fees paid were $1,155,521,
$1,076,807 and $819,929 in 2001, 2000 and 1999, respectively. Security deposits
are held in escrow by the management company (see Note 6). The management
company also receives a mortgage servicing fee equal to an annual rate of 1/2%
of the monthly outstanding balance of mortgages receivable resulting from the
sale of property. There was a mortgage servicing fee of $122 and $325 paid in
2000 and 1999.

The Partnership Agreement also permits the General Partner or management
company to charge the costs of professional services (such as counsel,
accountants and contractors) to NERA. In 2001, 2000 and 1999, approximately
$643,000, $656,000 and $939,000 was charged to NERA for legal, construction,
maintenance, rental and architectural services and supervision of capital
improvements. Approximately $196,000, $275,000 and $505,000 was capitalized in
2001, 2000 and 1999 in rental properties. Included in the 2001 expenses referred
to above, approximately $194,000 is recorded in repairs and maintenance,
$191,000 in administrative expense, and $62,000 in renting expense. Included in
the 2000 expenses referred to above, approximately $138,000 is recorded in
repairs and maintenance, $199,000 in administrative expense, and $44,000 in
renting expense. Included in the 1999 expenses referred to above, approximately
$192,000 is recorded in repairs and maintenance, $215,000 in

F-9

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3. RELATED PARTY TRANSACTIONS (CONTINUED)
administrative expense, and $27,000 in renting expense. Additionally in 2001,
2000 and 1999, the Partnership paid to the management company $80,000, $74,700
and $65,000, respectively, for in-house accounting services, which were
previously provided by an outside company. Included in accounts payable and
accrued expenses at December 31, 2001 and 2000 is $155,206 and $138,753 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%. In connection with the sale of the Lewiston Mall Shopping Center in 2000,
the Partnership paid a commission of $153,000 to the management company.

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 $50,000, $42,500
and $32,650 in 2001, 2000 and 1999, respectively.

Included in prepaid expenses and other assets were amounts due from related
parties of $1,038,081, $1,036,639, and $937,157 at December 31, 2001, 2000 and
1999, respectively, representing Massachusetts tenant security deposits which
are held for the Partnerships by another entity also owned by one of the
shareholders of the General Partner (see Note 6).

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%, 47 1/2% and 2 1/2%,
respectively. As part of this transaction, the Partnership advanced funds in
excess of its 50% interest and received interest income on this excess, at 8%.
This interest income totaled $30,003 in 2001.

On December 22, 1999, the Partnership borrowed $750,000 from the majority
shareholder of the General Partner. This amount was paid directly to the seller
of the Hamilton Oaks Apartments in Brockton, Massachusetts (see Note 2). This
unsecured 10% note was due on December 22, 2001 or could be prepaid without
penalty. On April 6, 2000, this note was paid in full. Interest expense on this
note was $20,000 and $2,083 for the period ending December 31, 2000 and 1999,
respectively.

NOTE 4. OTHER ASSETS

Included in prepaid expenses and other assets at December 31, 2001 and 2000
is approximately $552,311 and $349,000, respectively, held in escrow to pay
future capital improvements.

Financing and leasing fees of $816,414 and $879,247 are net of accumulated
amortization of $1,157,600 and $983,363 in 2001 and 2000, respectively.

NOTE 5. MORTGAGES PAYABLE AND EXTRAORDINARY ITEM

At December 31, 2001 and 2000, the mortgages payable consisted of various
loans, all of which were secured by first mortgages on properties referred to in
Note 2. At December 31, 2001, the interest rate on these loans ranged from 6.52%
to 8.78%, payable in monthly installments aggregating approximately $600,000,
including interest, to various dates through 2016. Although the majority of
loans mature within ten years, they are being amortized on a basis between 25
and 27.5 years. The majority of the mortgages are subject to prepayment
penalties. See Note 12 for fair value information.

F-10

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5. MORTGAGES PAYABLE AND EXTRAORDINARY ITEM (CONTINUED)
The Partnerships have pledged tenant leases as additional collateral for
certain of these mortgages.

Approximate annual maturities are as follows:

2002--current maturities.................................... $ 816,000
2003........................................................ 881,000
2004........................................................ 949,000
2005........................................................ 13,066,000
2006........................................................ 770,000
Thereafter.................................................. 63,131,000
-----------
$79,613,000
===========

During 2000, eleven of the Partnerships' mortgages were refinanced and two
new mortgages were incurred on previously debt-free property. The total of the
13 new mortgages is approximately $33,650,000; the repaid mortgages totaled
approximately $24,000,000. The new mortgages mature in 2010 and 2011 and require
interest only, at rates from 7.63% to 8.46%. The repaid mortgages had interest
rates ranging from 8.25% to 9.25% and were to mature in 2005. As a result of
this new financing, the Partnership has recorded an extraordinary charge in 2000
of approximately $1,592,000, inclusive of prepayment penalties of $1,255,000 and
the expensing of previously deferred financing costs of $337,000. New deferred
financing fees of approximately $369,000 will be amortized over the 10-year
maturities of the new mortgages, using the interest rate method.

In April 2001, the Partnership obtained a one-year line of credit in the
amount of $12,000,000, secured by the property located at 62 Boylston Street. At
December 31, 2001, the Partnership had not drawn on the line. If the Partnership
draws on this line, the existing mortgage of approximately $7,300,000 will be
paid in full from cash reserves. The Partnership informed the lender that a
renewal of this line of credit, effective for April 2002, will not be requested.

NOTE 6. ADVANCE RENTAL PAYMENTS AND SECURITY DEPOSITS

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

NOTE 7. PARTNERS' CAPITAL

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

The Partnership declared distributions of $17.70 per unit in 2001, $14.70
per unit in 2000 and $13.20 per unit in 1999. The 1999 distribution included a
special dividend of $3.50 per unit paid in March 1999. The 2000 distribution
included a special dividend of $4.00 per unit, paid in March 2000. In
February 2002, the Partnership voted to change its dividend policy from
semi-annual to quarterly and declared a quarterly dividend of $6.40 per unit,
payable on March 31, 2002.

F-11

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7. PARTNERS' CAPITAL (CONTINUED)
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 10 Depositary Receipts. The following is
information on the net income per Depositary Receipt:

NOTE 8. TREASURY UNITS

Treasury units at December 31, 2001 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 Partnerships are not involved in
any material pending legal proceedings.

The Partnership has committed, subject to final approvals, to construct 20
additional residential units at the Westgate Apartments in Woburn,
Massachusetts. The total cost of these units will be approximately $3,500,000,
to be funded from cash reserves.

F-12

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10. RENTAL INCOME

In 2001, approximately 91% of rental income was related to residential
apartments and condominium units with leases of one year or less. The remaining
9% was related to commercial properties which have minimum future rental income
on noncancellable operating leases as follows:

The aggregate minimum future rental income does not include contingent
rentals which may be received under various leases in connection with percentage
rents, common area charges and real estate taxes. Aggregate contingent rentals
were approximately $461,000, $1,039,000 and $933,000 for the years ended
December 31, 2001, 2000 and 1999, respectively.

Rents receivable are net of allowances for doubtful accounts of $77,752,
$249,332 and $149,386 at December 31, 2001, 2000 and 1999, respectively.

NOTE 11. CASH FLOW INFORMATION

During the year ended December 31, 2001, 2000 and 1999, cash paid for
interest was $6,450,342, $6,351,413, and $4,862,468, 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 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.

NOTE 13. TAXABLE INCOME AND TAX BASIS

Taxable income reportable by the Partners is different than financial
statement income because of accelerated depreciation, different tax lives, and
timing differences related to prepaid rents and

F-13

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 13. TAXABLE INCOME AND TAX BASIS (CONTINUED)
allowances. Taxable income is approximately $500,000 greater than statement
income because of depreciation differences, non-deductible allowances and an
increase in tenants' prepaid rental deposits. The cumulative tax basis of the
Partnership's real estate at December 31, 2001 is approximately $1,900,000
greater than the statement basis.

NOTE 14. SUBSEQUENT EVENT

In March 2002, the Partnership signed a purchase and sale agreement to
acquire a 69-unit residential apartment complex located in Norwood,
Massachusetts for $7,200,000. The Partnership will assume a first mortgage of
approximately $3,800,000 with an interest rate of 7.08%, amortizing over
25 years and maturing in 2007. The seller is financing $1,750,000 at a rate of
6%, interest only, for 5 years. The balance of $1,650,000 will be funded from
cash reserves. The completion of this transaction is dependent on the assumption
of the first mortgage and receipt of acceptable inspections and other due
diligence reports.

F-14

NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 15. QUARTERLY FINANCIAL DATA (UNAUDITED)

F-15

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

NEW ENGLAND REALTY ASSOCIATES LIMITED
PARTNERSHIP

By: /s/ NEWREAL, INC.
-----------------------------------------
Its General Partner

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

Dated: March 29, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

S-1

EXHIBIT INDEX

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

(1) Incorporated by reference to Exhibit A to the Partnership's Statement
Furnished in Connection with the Solicitation of Consents filed under the
Securities Exchange Act of 1934 on October 14, 1986.

(2) Incorporated herein by reference to Exhibit A to Exhibit 2(b) to the
Partnership's Registration Statement on Form 8-A, filed under the Securities
Exchange Act of 1934 on August 17, 1987.

(3) Incorporated herein by reference to Exhibit 2(b) to the Partnership's
Registration Statement on Form 8-A, filed under the Securities Exchange Act
of 1934 on August 17, 1987.

(4) Incorporated by reference to Exhibit 2.1 to the Partnership's Current Report
on Form 8-K dated June 30, 1995.

(5) Incorporated by reference to Note 2 to Financial Statements included as part
of this Form 10-K.

S-2