UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D. C. 20549

                                    FORM 10-K

(Mark One)

         X      ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
                   SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

                For the fiscal year ended    December 31, 1996

                                          OR

       _____    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                   SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

                For the Transition period from __________  to   _________

                         Commission file number 0-11176

                               NTS-PROPERTIES III
             (Exact name of registrant as specified in its charter)

              Georgia                                   61-1017240
  (State or other jurisdiction of                    (I.R.S. Employer
  incorporation or organization)                    Identification No.)



   10172 Linn Station Road
   Louisville, Kentucky 40223                             40223
  (Address of principal executive                      (Zip Code)
  offices)

Registrant's telephone number, including area code:     (502) 426-4800
                                                        

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

                                      None

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

                          Limited Partnership Interests
                                (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 (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of 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. [X]

Exhibit Index: See Page 36

Total Pages: 39


<PAGE>



                                TABLE OF CONTENTS


                                                                       Pages

                                     PART I

Items 1 and 2     Business and Properties                               3-10
Item 3            Legal Proceedings                                       10
Item 4            Submission of Matters to a Vote
                    of Security Holders                                   10


                                          PART II

Item 5            Market for the Registrant's Limited Partnership
                    Interests and Related Partner Matters                 11
Item 6            Selected Financial Data                                 12
Item 7            Management's Discussion and Analysis of
                    Financial Condition and Results of
                    Operations                                         13-20
Item 8            Financial Statements and Supplementary
                    Data                                               21-31
Item 9            Changes in and Disagreements with
                    Accountants on Accounting and
                    Financial Disclosure                                  32


                                         PART III

Item 10           Directors and Executive Officers of
                    the Registrant                                     32-33
Item 11           Management Remuneration and Transactions                33
Item 12           Security Ownership of Certain Beneficial
                    Owners and Management                                 34
Item 13           Certain Relationships and Related
                    Transactions                                       34-35


                                          PART IV

Item 14           Exhibits, Financial Statement Schedules
                    and Reports on Form 8-K                            36-38


Signatures                                                                39



                                      - 2 -

<PAGE>



                                     PART I

Items 1. and 2.  Business and Properties

General
-------

Some of the statements  included in Items 1 and 2, Business and Properties,  may
be considered to be "forward-looking statements" since such statements relate to
matters  which  have  not  yet  occurred.  For  example,  phrases  such  as "the
Partnership  anticipates",  "believes" or "expects" indicate that it is possible
that the event  anticipated,  believed  or expected  may not occur.  Should such
event not occur,  then the result which the  Partnership  expected  also may not
occur or occur in a different manner, which may be more or less favorable to the
Partnership.  The  Partnership  does not undertake any  obligations  to publicly
release the result of any revisions to these forward  -looking  statements  that
may be made to reflect any future events or circumstances.

NTS-Properties III (the "Partnership") is a limited partnership  organized under
the laws of the state of  Georgia  on June 24,  1982.  The  general  partner  is
NTS-Properties  Associates,  a Georgia limited  partnership.  As of December 31,
1996, the Partnership owned the following properties:

        -  Peachtree  Corporate  Center,  a  business  park  with  approximately
           192,000 net  rentable  square feet located in  Norcross,  Georgia,  a
           suburb of Atlanta. Acquired complete on January 26, 1983.

        -  Plainview Plaza II, an office complex with approximately  113,000 net
           rentable square feet located in Jeffersontown,  Kentucky, a suburb of
           Louisville. Acquired complete on January 26, 1983.

        -  Plainview  Triad North, an office complex with  approximately  89,000
           net rentable square feet located in Jeffersontown, Kentucky.
           Acquired complete on February 15, 1983.

The  Partnership has a fee title interest in the above  properties.  The General
Partner  believes that the  Partnership's  properties are adequately  covered by
insurance.

Plainview Plaza II is encumbered by a permanent mortgage payable to an insurance
company.  The  outstanding  balance at  December  31, 1996 was  $2,359,637.  The
mortgage is payable in monthly installments of $32,335 which includes principal,
interest and property taxes.  The mortgage bears a fixed interest rate of 9.125%
and is due November 1, 1998. The outstanding principal balance at maturity based
on the current rate of amortization will be $2,140,539.

The  Partnership's  properties  are  encumbered  by a  mortgage  payable  to  an
insurance  company.  The loan is secured by a first mortgage on Plainview  Triad
North and Peachtree Corporate Center with a second mortgage behind the holder of
the  permanent  mortgage  on  Plainview  Plaza II.  The  outstanding  balance at
December  31,  1996  was   $4,500,000.   The  mortgage  is  payable  in  monthly
installments of $26,025  (interest  only).  As part of the loan  agreement,  the
Partnership  was required to place in escrow  $6,500 each month during the first
five loan years  (loan  obtained  May 1991).  The Funds will be  released as the
heating,  ventilating and air conditioning ("HVAC") system and asphalt paving at
Peachtree Corporate Center are replaced.  The mortgage bears a variable interest
rate which adjusts  quarterly to 60 basis points over the 10-year  treasury bill
rate.  At no time during the first five loan years did the rate exceed 11.65% or
fall below 7.65% per annum.  After the fifth loan year,  no interest  rate floor
and/or  ceiling  applies.  The  current  rate at  December  31,  1996 was 7.33%.
Effective  January 1, 1997,  the  interest  rate  adjusted to 6.94%.  The unpaid
balance of the loan is due June 1, 2001.  The mortgage was closed to  prepayment
for the first year.

                                      - 3 -

<PAGE>



Items 1. and 2.  Business and Properties - Continued

General - Continued
-------------------

Beginning the second year through the end of year five,  prepayment  was allowed
based  on a 2%  penalty  on the  outstanding  balance.  Starting  year  six,  no
prepayment penalty will be charged.

Currently,  the  Partnership's  plans for  renovations  and other major  capital
expenditures   include   tenant  finish   improvements   as  required  by  lease
negotiations at the Partnership's  properties.  Changes to current tenant finish
improvements are a typical part of any lease negotiation. Improvements generally
include a revision to the current floor plan to  accommodate  a tenant's  needs,
new  carpeting  and paint  and/or  wallcovering.  The  extent  and cost of these
improvements   are  determined  by  the  size  of  the  space  and  whether  the
improvements are for a new tenant or incurred because of a lease renewal. Tenant
finish  improvements  will be funded by cash flow from  operations  and/or  cash
reserves.  As of December 31, 1996, the Partnership had no material  commitments
for tenant finish improvements.

Subsequent  to  December  31,  1996,  the  Partnership   made  a  commitment  of
approximately $170,000 for tenant finish improvements at Plainview Plaza II as a
result of a lease  renewal  with NTS  Development  Company,  an affiliate of the
General  Partner.  The renewal  extends the lease for five years,  through March
2002,  and is at a rate of $13.75 per square foot for 20,368  square  feet.  The
project is expected to be completed during the first half of 1997. The source of
funds for this project is expected to be cash flow from  operations  and/or cash
reserves.

Subsequent  to December  31, 1996,  the  Partnership  also made a commitment  of
approximately  $31,000 for tenant finish improvements at Plainview Plaza II as a
result of a lease renewal and  expansion  with a current  tenant.  The expansion
increases the tenant's current leased space by  approximately  3,200 square feet
and the renewal extends the lease for three and one-half  years.  The project is
expected to be completed  during the first quarter of 1997.  The source of funds
for this  project  is  expected  to be cash flow  from  operations  and/or  cash
reserves.

The  Partnership's  plans for renovations  and other major capital  expenditures
also include the replacement of the HVAC system at Peachtree  Corporate  Center.
The HVAC system at Peachtree  Corporate Center is designed in such a manner that
each suite's system is separate in structure;  therefore,  individual  units are
replaced only as needed.  Effective  July 1995, new leases and lease renewals at
Peachtree  Corporate  Center require the tenant to maintain and replace the HVAC
system in the leased space beginning one year from the date of occupancy.  As of
December 31,  1996,  approximately  43% of the center's  tenants were subject to
this lease  provision.  Through  May 1996 the  Partnership  was  escrowing  cash
monthly to fund the HVAC system  replacements  at  Peachtree  Corporate  Center.
During 1996, $171,261 was released from the escrow account.  (See the discussion
regarding  the repair  escrow on page 3.) The  balance in the escrow  account at
December 31, 1996 was $277,851.

At Plainview Plaza II, the Partnership's renovation plans include the remodeling
of common area lobbies. The project is to include an upgrade of current restroom
facilities,   improvement  of  handicap  restroom  facilities,  new  carpet  and
wallcoverings.  The project is anticipated  to cost  approximately  $315,000.  A
portion of this  project was  completed  during the first and second  quarter of
1995 at a cost of approximately  $93,000.  The remaining cost of this project is
expected  to be funded  from  cash  reserves  and cash  flows  from  operations.
Subsequent to December 31, 1996, the  Partnership  made  commitments of $222,000
for the remaining renovations.



                                      - 4 -

<PAGE>



Item 1. and 2. Business and Properties - Continued

General  - Continued
--------------------

At Plainview Plaza II, the  Partnership  also expects to complete the renovation
of the exterior of the property  during 1997. The renovation is designed to make
the property more  competitive and enhance its value. The project is anticipated
to cost approximately $900,000. As of December 31, 1996,  approximately $555,000
of the  total  project  cost has  been  incurred.  The  General  Partner  of the
Partnership  anticipates  that the project will be funded with a combination  of
debt financing, cash reserves and cash flow from operating activities.

The  Partnership  had no other material  commitments for renovations and capital
improvements at December 31, 1996 than those previously discussed.

The lease for Aetna Life Insurance  Company,  the largest tenant of Triad North,
occupying nearly 65% of the building, expires in 1997. Aetna accounts for nearly
22% of the  NTS-Properties  III total  revenue.  Aetna has  requested a one year
extension on its leased space. It is the judgement of the General Partner of the
Partnership,  considering the publicity about Aetna's  downsizing,  that the one
year  extension will be all that can be anticipated at this time. If correct and
if Aetna vacates the property,  there will likely be a protracted period for the
property  to become  fully  leased  again and  substantial  funds will likely be
needed for leasing expenses, especially tenant finish improvements.

The  Partnership  is engaged  solely in the  business  of owning  and  operating
commercial  real estate.  A  presentation  of  information  concerning  industry
segments is not applicable.

The current  business of the Partnership is consistent with the original purpose
of the  Partnership  which was to acquire,  own and operate  Plainview Plaza II,
Peachtree   Corporate  Center  and  Plainview  Triad  North.  The  Partnership's
properties are in a condition suitable for their intended use.

The Partnership  intends to hold the Properties until such time as sale or other
disposition   appears  to  be   advantageous   with  a  view  to  achieving  the
Partnership's  investment objectives or it appears that such objectives will not
be met. In deciding  whether to sell a Property,  the Partnership  will consider
factors such as potential capital appreciation, cash flow and Federal income tax
considerations,  including  possible  adverse Federal income tax consequences to
the  Limited  Partners.  The General  Partner of the  Partnership  is  currently
exploring  the  marketability  of  certain  of its  properties  and  has not yet
determined  if any of the  properties  might be sold in the next 12  months  and
there are no contracts for sale under negotiation at the present time.

Plainview Plaza II
------------------

Except as indicated in the table below,  base annual  rents,  which  include the
cost of utilities,  currently  range from $11.88 to $15.85 per square foot.  The
average base annual rental as of December 31, 1996 was approximately  $13.53 per
square  foot.  Office space is  ordinarily  leased for between one to five years
with the majority of current leases  providing for five year terms (1).  Current
leases terminate  between 1997 and 2005. One lease provides for three,  one-year
renewal  options at a rate which is negotiated  between  lessor and lessee.  All
leases  provide for tenants to  contribute  toward the payment of  increases  in
common area maintenance expenses, insurance, utilities and real estate taxes. As
of December 31, 1996,  there were 12 tenants  leasing  office space  aggregating
approximately  101,000  square  feet of  rentable  area.  The tenants who occupy
Plainview Plaza II are

(1)     Excluding  the Kroger  Company  lease.  The current  lease term is for a
        period of eight  years and four  months.  The Kroger  Company has been a
        tenant of Plainview Plaza II since 1979.

                                      - 5 -

<PAGE>



Items 1. and 2. Business and Properties - Continued

Plainview Plaza II - Continued
------------------------------

professional      service-oriented       organizations.       The      principal
occupations/professions  practiced include real estate,  architecture, a payroll
processing  center and  management  offices for a regional  grocery  chain.  Two
tenants lease more than 10% of Plainview  Plaza II's rentable  area:  The Kroger
Company (47.2%) and NTS Development Company, an affiliate of the general partner
(20.5%). The lease terms between the Partnership and between the Partnership and
NTS Development Company are on terms no less favorable than those which could be
obtained from an unaffiliated  third party.  The occupancy levels as of December
31 were 89%(1996), 82% (1995), 88% (1994), 83% (1993) and 83% (1992).

The following table contains approximate data concerning the leases in effect on
December 31, 1996.


Major Tenants:

                                                     Current Base
                                  Sq. Ft. and       Annual Rental
                                    % of Net       and % of Gross
                      Year of       Rentable         Base Annual        Renewal
      Name          Expiration        Area             Rental           Options
      ----          ----------        ----             ------           -------

The Kroger Company     2005      53,435 (47.2%)  $555,096 (47.1%)(1)      None
NTS Development
 Company               1997(2)   23,160 (20.5%)  $312,660 (26.5%)         None


(1)    The Kroger Company lease provides that they pay their own electricity and
       cleaning costs and thus the base rent is below $11.88 per square foot.
(2)    Subsequent to December 31, 1996,  the NTS  Development  Company lease was
       extended for five years,  through March 2002,  and is at a rate of $13.75
       per square foot for 20,368 square feet.

Other Tenants:

                                                Current Base
                             Sq. Ft. and        Annual Rental
                               % of Net         and % of Gross
      No. of      Year of      Rentable          Base Annual          Renewal
      Tenants   Expiration       Area               Rental            Options
      -------   ----------  --------------   -------------------   ----------
         6         1997     11,652 (10.3%)   $127,008 (10.7%)(3)   None
         1         1998      3,771 ( 3.3%)   $ 45,816 ( 3.9%)      None
         1         1999      1,154 ( 1.0%)   $ 17,808 ( 1.5%)      None
         1         2000      5,145 ( 4.5%)   $ 81,564 ( 6.9%)      3 One-Year
         None      2001           --                --                --
         1         2002      2,689 ( 2.4%)   $ 38,988 ( 3.3%)      None


(3)    Included is a 2,950 square foot tenant  whose base rent is below  $11.88.
       The tenant  currently  pays $6.78 per square  foot as a result of a lease
       renegotiation.

Plainview Triad North
---------------------

Base annual rentals,  which include the cost of utilities,  currently range from
$10.93 to $15.56 per square  foot.  The average  base rental as of December  31,
1996 was approximately $12.10 per square foot. Office space is ordinarily leased
for one to six years with the majority of current leases  providing for six year
terms.  Current leases  terminate  between 1997 and 2001. All leases provide for
tenants to contribute toward the payment of increases in common area maintenance
expenses,  insurance,  utilities and real estate taxes. As of December 31, 1996,
there were 9 tenants  leasing  office  space  aggregating  approximately  81,200
square feet of rentable area.

                                      - 6 -

<PAGE>



Items 1. and 2. Business and Properties - Continued

Plainview Triad North - Continued
---------------------------------

The tenants who occupy Plainview Triad North are professional  service- oriented
organizations.   The   principal   occupations/professions   practiced   include
insurance,  healthcare  and sales.  One tenant leases more than 10% of Plainview
Triad North's rentable area: Aetna Life Insurance Company (64.6%). The occupancy
levels at the office building as of December 31 were 91% (1996), 93% (1995), 95%
(1994), 91% (1993) and 85% (1992).

The following table contains approximate data concerning the leases in effect on
December 31, 1996:

Major Tenant:
                                                     Current Base
                                    Sq. Ft. and      Annual Rental
                                     % of Net       and % of Gross
                       Year of       Rentable         Base Annual       Renewal
       Name          Expiration        Area             Rental          Options
       ----          ----------        ----             ------          -------

Aetna Life
 Insurance Company      1997      57,848 (64.6%)   $683,400 (70.1%)   None

Other Tenants:
                                                Current Base
                               Sq. Ft. and      Annual Rental
                                 % of Net      and % of Gross
       No. of    Year of        Rentable         Base Annual           Renewal
      Tenants   Expiration         Area             Rental             Options
      -------   ----------   --------------    ---------------       ---------
         4         1997      14,846 (16.5%)   $178,046 (18.2%)       None
         2         1998       5,760 ( 6.4%)   $ 73,767 ( 7.6%)       None
         1         1999       1,088 ( 1.2%)   $ 13,800 ( 1.4%)
       None        2000            --             --                   --
         1         2001       1,670 ( 1.9%)   $ 25,992 ( 2.7%)       None

Peachtree Corporate Center
--------------------------

Base annual rentals,  which exclude the cost of utilities,  currently range from
$7.17 to $12.48 per square foot for office space, $3.71 to $6.72 per square foot
for warehouse space and $3.41 per square foot for mezzanine  storage space.  The
average  base annual  rental for all space  leased as of  December  31, 1996 was
$6.27 per square foot.  Office,  warehouse  and/or  mezzanine  storage  space is
ordinarily  leased for  between  one and six years with the  majority of current
leases providing for three year terms. Current leases terminate between 1997 and
2001.  All leases  provide  for  tenants  to  contribute  toward the  payment of
increases in common area maintenance expenses,  insurance and real estate taxes.
As of December 31, 1996,  there were 48 tenants  leasing  office,  warehouse and
storage space aggregating approximately 160,200(1) square feet of rentable area,
none of which leased more than 10% of the business  park's  rentable  area.  The
tenants who occupy Peachtree Corporate Center are professional  service-oriented
organizations.   The   principal   occupations/professions   practiced   include
sales-related services. The occupancy levels at the business park as of December
31 were 85% (1996), 89% (1995), 80% (1994), 82% (1993) and 75% (1992).



(1)   Excludes approximately 3,300 square feet which is occupied by the business
      park's property management and leasing staff.









                                      - 7 -

<PAGE>




Items 1. and 2. Business and Properties - Continued

Peachtree Corporate Center - Continued
--------------------------------------

The following table contains approximate data concerning the leases in effect on
December 31, 1996:
                                                   Current Base
                                Sq. Ft. and       Annual Rental
                                  % of Net       and % of Gross
      No. of     Year of         Rentable          Base Annual           Renewal
      Tenants   Expiration         Area (1)          Rental              Options
      -------  -----------    --------------    ----------------       ---------

        12         1997       33,250 (17.3%)    $187,584 (18.6%)       None
        18         1998       43,074 (22.2%)    $266,280 (26.8%)       None
        13         1999       59,102 (30.8%)    $353,904 (35.2%)       None
         4         2000       25,511 (13.3%)    $184,392 (18.4%)       None
         1         2001        2,100  (1.1%)    $ 12,768  (1.3%)       None


(1)   Rentable area includes only ground floor square feet (office and warehouse
      space).

Additional operating data regarding the Partnership's properties is furnished in
the following table.

                                                                     Peachtree
                           Plainview           Plainview             Corporate
                            Plaza II          Triad North              Center
                            --------          -----------              ------
Federal tax basis        $ 7,967,237          $ 6,976,428          $ 9,553,955

Realty tax rate               .01120               .01120               .03595

Annual realty taxes      $    63,248          $    49,245           $  103,732

Depreciation for book purposes is computed using the  straight-line  method over
the  estimated  useful  lives of the  assets  which  are 5 - 30  years  for land
improvements, 30 years for buildings, 5 - 30 years for building improvements and
3 - 30  years  for  amenities.  The  estimated  realty  taxes  on  the  exterior
renovation at Plainview Plaza II is approximately  $9,000.  The estimated realty
taxes on all other planned renovations, primarily tenant improvements, would not
be material.

See Management's Discussion and Analysis of Financial Condition and Results
of Operations (Item 7.) for explanations regarding the fluctuations of
income and occupancy at the Partnership's properties.

Competition
-----------

The  Partnership's  properties are subject to competition  from similar types of
properties  (including,  in  certain  areas,  properties  owned  or  managed  by
affiliates of the General  Partner) in the  respective  vicinities in which they
are located. Such competition is generally for the retention of existing tenants
or  for  new  tenants  when  vacancies  occur.  The  Partnership  maintains  the
suitability  and  competitiveness  of its  properties  primarily on the basis of
effective  rents and service  provided to  tenants.  Competition  is expected to
increase in the future as a result of the construction of additional properties.
As of December 31,  1996,  there are no  properties  under  construction  in the
respective  vicinities in which the properties are located.  The Partnership has
not  commissioned  a formal  market  analysis of  competitive  conditions in any
market  in which it owns  properties,  but  relies  upon  the  market  condition
knowledge of the employees of NTS  Development  Company who manage and supervise
leasing for each property.


                                      - 8 -

<PAGE>



Management of Properties
------------------------

NTS Development Company, an affiliate of NTS Properties Associates,  the general
partner  of  the  Partnership,  directs  the  management  of  the  Partnership's
properties  pursuant  to a  written  agreement.  NTS  Development  Company  is a
wholly-owned subsidiary of NTS Corporation.  Mr. J. D. Nichols has a controlling
interest  in  NTS  Corporation  and  is a  general  partner  of  NTS  Properties
Associates.  Under  the  agreement,  the  Property  Manager  establishes  rental
policies and rates and directs the marketing activity of leasing  personnel.  It
also  coordinates the purchase of equipment and supplies,  maintenance  activity
and the selection of all vendors,  suppliers  and  independent  contractors.  As
compensation for its services,  the Property  Manager received  $158,463 for the
year ended  December 31, 1996. The fee is equal to 5% of gross revenues from the
Partnership's properties.

In addition,  the management  agreement requires the Partnership to purchase all
insurance relating to the managed  properties,  to pay the direct  out-of-pocket
expenses  of the  Property  Manager  in  connection  with the  operation  of the
properties,  including the cost of goods and materials used for and on behalf of
the  Partnership,  and to  reimburse  the  Property  Manager  for the  salaries,
commissions,  fringe  benefits,  and  related  employment  expenses  of  on-site
personnel.

The term of the Management  Agreement  between NTS  Development  Company and the
Partnership was for an initial term of five years, and thereafter for succeeding
one-year periods,  unless canceled.  The Agreement is subject to cancellation by
either  party upon sixty days  written  notice.  As of December  31,  1996,  the
Management Agreement is still in effect.

Conflict of Interest
--------------------

Because the  principals of the general  partner and/or its affiliates own and/or
operate real estate  properties  other than those owned by the Partnership  that
are or could be in  competition  with the  Partnership,  potential  conflicts of
interest  exist.  Because the  Partnership  was organized and is operated by the
General  Partner,   these  conflicts  are  not  resolved  through  arm's  length
negotiations  but through the exercise of the General  Partner's  good  judgment
consistent  with its fiduciary  responsibility  to the Limited  Partners and the
Partnership's  investment  objectives  and  policies.  The  General  Partner  is
accountable  to the  Limited  Partners  as a  fiduciary  and  consequently  must
exercise  good faith and  integrity in handling  the  Partnership's  affairs.  A
provision has been made in the  Partnership  Agreement that the General  Partner
will not be liable to the Partnership except for acts or omissions  performed or
omitted  fraudulently  in  bad  faith  or  with  negligence.  In  addition,  the
Partnership  Agreement  provides for  indemnification  by the Partnership of the
General Partner for liability  resulting from errors in judgment or certain acts
or omissions. With respect to these potential conflicts of interest, the general
partner and its affiliates retain a free right to compete with the Partnership's
properties  including the right to develop  competing  properties now and in the
future,  in addition to those existing  properties which may compete directly or
indirectly.

NTS Development  Company,  the Property  Manager and an affiliate of the general
partner,  acts in a similar capacity for other  affiliated  entities in the same
geographic  region where the Partnership has property  interests.  The agreement
with the Property  Manager is on terms no less favorable to the Partnership than
those  which could be  obtained  from a third party for similar  services in the
same  geographical  region in which the properties are located.  The contract is
terminable by either party without penalty upon 60 days written notice.




                                      - 9 -

<PAGE>



Items 1 and 2 Business and Properties - Continued

Conflict of Interest - Continued
--------------------------------

There are no other  agreements or  relationships  between the  Partnership,  the
General Partner and its affiliates other than those previously described.

Employees
---------

The  Partnership  has no  employees;  however,  employees of an affiliate of the
general  partner are  available  to perform  services for the  Partnership.  The
Partnership  reimburses  this  affiliate for the actual costs of providing  such
services.


Item 3.  Legal Proceedings

None.

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

None.











































                                     - 10 -

<PAGE>



                                     PART II

Item 5.      Market for Registrant's Limited Partnership Interests and Related
             Partner Matters

The Partnership had 1,079 limited  partners as of February 27, 1997. There is no
established  trading market for the limited  partnership  interests,  nor is one
likely to develop.

Cash distributions and allocations of net income (loss) are made as described in
Note 1C to the Partnership's  1996 financial  statements.  Annual  distributions
totalling  $7.50  (1996),  $10.00  (1995) and $2.50 (1994) were paid per limited
partnership unit.  Quarterly  distributions are determined based on current cash
balances, cash flow being generated by operations and required cash reserves, as
determined by the general partner, for future leasing costs, tenant finish costs
and capital improvements. Distributions were paid quarterly as follows:


                               1996                  1995                 1994
                             --------              -------               ------

First quarter                 $  2.50              $  2.50              $  --
Second quarter                   2.50                 2.50                 --
Third quarter                    2.50                 2.50                 --
Fourth quarter                   --                   2.50                 2.50
                              -------              -------               ------

                             $   7.50              $ 10.00              $  2.50
                              =======              =======               ======

The table below  presents  that portion of the  distributions  that  represent a
return of capital on a Generally  Accepted  Accounting  Principle  basis for the
years ended  December  31,  1996,  1995 and 1994.  The  General  Partner did not
receive a  distribution  during these years.  Distributions  were funded by cash
flow derived from operating activities.



                            Net Income              Cash
                             (Loss)             Distributions        Return of
                            Allocated             Declared            Capital
                            ---------             --------            -------

Limited Partners:
       1996                 $ 284,097            $ 108,018          $   --
       1995                   (86,496)             154,125            154,125
       1994                   (97,062)              39,000             39,000




                                     - 11 -

<PAGE>

<TABLE>


Item 6.  Selected Financial Data

For the years ended December 31, 1996, 1995, 1994, 1993 and 1992.

<CAPTION>

                                            1996            1995            1994            1993            1992
                                        -----------     ------------    ------------    ------------    ------------

<S>                                     <C>             <C>             <C>             <C>             <C>         
Total revenues                          $  3,265,631    $  3,073,103    $  2,960,275    $  2,830,574    $  2,739,725

Total expenses                            (3,076,384)     (3,262,493)     (3,157,866)     (3,149,056)     (3,175,135)
                                        ------------    ------------    ------------    ------------    ------------

Net income (loss)                       $    189,247    $   (189,390)   $   (197,591)   $   (318,482)   $   (435,410)
                                        ============    ============    ============    ============    ============

Net income(loss)
allocated to:
 General partner                        $    (94,850)   $   (102,894)   $   (100,529)   $   (103,802)   $   (105,100)
 Limited partners                       $    284,097    $    (86,496)   $    (97,062)   $   (214,680)   $   (330,310)

Net income (loss) per
limited partnership unit                $      19.70    $      (5.58)   $      (6.22)   $     (13.76)   $     (21.17)

Weighted average number
 of limited partnership
 units                                        14,418          15,495          15,600          15,600          15,600

Cumulative net income
 (loss) allocated to:
  General partner                       $ (2,290,485)   $ (2,195,635)   $ (2,092,741)   $ (1,992,212)   $ (1,888,410)
  Limited partners                      $   (164,405)   $   (448,502)   $   (362,006)   $   (264,944)   $    (50,264)

Cumulative taxable income
 (loss) allocated to:
  General partner                       $ (2,845,410)   $ (2,696,785)   $ (2,545,416)   $ (2,390,433)   $ (2,232,893)
  Limited partners                      $   (682,815)   $   (928,736)   $   (926,612)   $   (719,138)   $   (503,072)

Distributions declared:
 General partner                        $       --      $       --      $       --      $       --      $       --
 Limited partners                       $    108,018    $    154,125    $     39,000    $       --      $    234,000

Cumulative distributions
 declared:
  General partner                       $    206,985    $    206,985    $    206,985    $    206,985    $    206,985
  Limited partner                       $ 11,349,845    $ 11,241,827    $ 11,087,702    $ 11,048,702    $ 11,048,702

At year end:
 Land, buildings and
  amenities, net                        $  8,850,783    $  9,585,286    $ 10,242,936    $ 10,783,103    $ 11,530,785

Total assets                            $ 10,975,886    $ 11,120,854    $ 11,862,286    $ 12,011,140    $ 12,391,021

Mortgages Payable                       $  6,859,637    $  6,964,619    $  7,060,749    $  7,148,009    $  7,227,933

</TABLE>

The  above  selected  financial  data  should  be read in  conjunction  with the
financial  statements  and related notes  appearing  elsewhere in this Form 10-K
report.


                                     - 12 -

<PAGE>



Item 7.      Management's Discussion and Analysis of Financial Condition and
             Results of Operations

Results of Operations
---------------------

The occupancy levels at the  Partnership's  properties as of December 31 were as
follows:


                                  1996             1995               1994
                                  ----             ----               ----

Plainview Plaza II                 89%              82%                88%

Plainview Triad North              91%              93%                95%

Peachtree Corporate Center         85%              89%                80%

The rental and other income  generated by the  Partnership's  properties for the
years ended December 31 were as follows:



                                 1996               1995               1994
                                 ----               ----               ----

Plainview Plaza II            $1,091,826         $1,098,934         $1,061,476

Plainview Triad North         $1,017,816         $  953,799         $  935,643

Peachtree Corporate Center    $1,108,933         $  986,828         $  939,859

Plainview Plaza II's year-ending  occupancy  increased 7% from 1995 to 1996 as a
result of four new leases  totalling  approximately  9,200 square feet.  Of this
total, approximately 5,400 square feet represents an expansion and lease renewal
by the Kroger Company, a major tenant at Plainview Plaza II. The renewal extends
the lease to January 31, 2005. Average occupancy at Plainview Plaza II decreased
from 85% in 1995 to 84% in 1996.  The  decrease  in rental  and other  income at
Plainview Plaza II from 1995 to 1996 is due to the decrease in average occupancy
during the year.

The 6% decrease in year-ending occupancy from 1994 to 1995 at Plainview Plaza II
can be attributed to five tenants, who had occupied  approximately 10,900 square
feet,  vacating at the end of the lease terms.  Partially  offsetting the tenant
move-outs is one new lease  totalling  approximately  3,800 square feet. The new
tenant took occupancy in June of 1995.  Average occupancy  increased from 83% in
1994 to 85% in 1995. The increase in rental and other income at Plainview  Plaza
II from 1994 to 1995 can be  attributed  to the  increase  in average  occupancy
during the year.

Plainview Triad North's year-ending  occupancy decreased 2% from 1995 to 1996 as
a result of the  move-out of one tenant  (occupied  approximately  3,400  square
feet) at the end of the lease term.  Partially  offsetting the move-out is a new
lease totalling  approximately  1,100 square feet.  Average occupancy  decreased
from 94% in 1995 to 93% in 1996.  Rental and other income increased from 1995 to
1996 due to an increase in rental rates for lease renewals and a decrease in the
provision for doubtful accounts.







                                     - 13 -

<PAGE>



Results of Operations - Continued
---------------------------------

Plainview Triad North's year-ending  occupancy decreased 2% from 1994 to 1995 as
a result of  move-outs by three  tenants  (occupied  approximately  2,900 square
feet) and the downsizing (3,900 square feet) of one tenant. Partially offsetting
the tenant move-outs and downsizing is a new lease totalling approximately 4,900
square feet. Average occupancy increased from 92% in 1994 to 94% in 1995. Rental
and other  income  increased  from 1994 to 1995 at  Plainview  Triad  North as a
result of the increase in average occupancy during the year.

Peachtree  Corporate Center's  year-ending  occupancy  decreased 4% from 1995 to
1996 as a result of  move-outs  by 10  tenants  who had  occupied  approximately
27,100  square  feet and the  downsizing  of one  tenant by 1,200  square  feet.
Approximately  12,400 square feet of the total move-outs  represent four tenants
who vacated and ceased making  rental  payments in breach of the lease terms due
principally to bankruptcy.  There was no accrued  income  associated  with these
leases.  Approximately  14,700 square feet of the total move-outs are the result
of six tenants who  vacated at the end of the lease term.  Partially  offsetting
the move-outs and downsizing are seven new leases totalling approximately 21,000
square feet, of which approximately  6,000 square feet represents  expansions by
two current tenants.  Average occupancy at Peachtree  Corporate Center increased
from 89% in 1995 to 93% in 1996. Rental and other income at Peachtree  Corporate
Center  increased  from  1995 to 1996 as a  result  of an  increase  in  average
occupancy and a decrease in the provision for doubtful accounts.

Peachtree  Corporate Center's  year-ending  occupancy  increased 9% from 1994 to
1995 due to 19 new leases  totalling  approximately  44,000 square feet. Of this
total,  approximately  11,000 square feet represents  expansions by five current
tenants.  Partially  offsetting the new leases are 10 tenant move-outs totalling
approximately 27,000 square feet. Approximately 15,600 square feet of this total
represents  five tenants who vacated and ceased making rental payments in breach
of the lease terms due to  bankruptcies.  Accrued income  associated  with these
leases of approximately $11,000 was written off as uncollectible.  The remaining
11,400 square feet  represents  five tenants who vacated at the end of the lease
terms.  Average  occupancy at Peachtree  Corporate  Center increased from 84% in
1994 to 89% in 1995.

The increase in rental and other income at Peachtree  Corporate Center from 1994
to 1995 is due to an  increase  in  average  occupancy  during  1995.  Peachtree
Corporate  Center  receives  rental income from the leasing of both office space
and warehouse  space.  Office space rents for  approximately  $8.00 to $9.00 per
square  foot  compared to $3.50 to $4.50 per square  foot for  warehouse  space.
Rental and other income also  increased  from 1994 to 1995 because  office space
occupied (at a correspondingly  higher rental rate) as a percentage of the total
square feet occupied has increased in 1995 as compared to 1994.  The increase in
rental and other income is partially  offset by an increase in the provision for
doubtful accounts.

In cases of tenants who cease making rental  payments or abandon the premises in
breach of their lease,  the Partnership  pursues  collection  through the use of
collection  agencies or other remedies  available by law when practical.  In the
case  of  tenants  who  vacated  Peachtree  Corporate  Center  as  a  result  of
bankruptcy,  the  Partnership  has taken legal action when it was thought  there
could be a possible  collection.  There have been no significant funds recovered
as a result of these  actions  during 1996.  Approximately  $5,500 was recovered
during 1995. As of December 31, 1996, there were no on-going cases.

Current  and  projected  future  occupancy  levels are  considered  adequate  to
continue the operation of the Partnership's  properties without the need for any
additional  financing.  See  the  discussion  below  regarding  the  Aetna  Life
Insurance Company lease at Plainview Triad North.

                                     - 14 -

<PAGE>



Results of Operations - Continued
---------------------------------

Interest  and other  income  includes  interest  income  earned from  short-term
investments  made by the Partnership  with cash reserves and from funds escrowed
for the replacement of the heating,  ventilating and air  conditioning  ("HVAC")
system and  asphalt  paving at  Peachtree  Corporate  Center.  The  increase  in
interest income in 1996 as compared to 1995 and in 1995 as compared to 1994 is a
result of an increase in interest  earned on the Escrow Funds and an increase in
cash reserves available for investment.

Operating  expenses  increased  from  1995  to  1996 as a  result  of  increased
janitorial  costs and increased HVAC repair and  replacement  costs at Plainview
Plaza II and  Plainview  Triad North and  increased  utility  costs at Plainview
Plaza II. The increase in operating  expenses  during 1996 at Plainview Plaza II
and  Plainview  Triad  North  can  also  be  attributed  to an  upgrade  of each
building's  security system.  Operating  expenses at Peachtree  Corporate Center
remained fairly constant during the year.

Operating  expenses  decreased  from 1994 to 1995 as a result of decreased  snow
removal costs at Plainview Plaza II and Plainview Triad North, decreased utility
costs at Triad North,  and decreased  repair and maintenance  costs at Peachtree
Corporate Center.  Partially  offsetting the decrease in operating expenses from
1994 to 1995 is an increase in landscape replacement costs and exterior building
repairs at Peachtree Corporate Center.

The decrease in operating expenses - affiliated from 1995 to 1996 is a result of
decreased property management costs at all of the Partnership's properties and a
decrease  in leasing  costs at  Peachtree  Corporate  Center.  The  decrease  is
partially  offset by an increase in leasing  costs at Plainview  Triad North and
Plainview  Plaza II.  Operating  expenses  affiliated are expenses  incurred for
services performed by employees of NTS Development  Company, an affiliate of the
General Partner.

The increase in operating expenses - affiliated from 1994 to 1995 is a result of
increased property management costs at all of the Partnership's properties.

The 1995  write-off  of  unamortized  building  and tenant  improvements  can be
attributed to Peachtree Corporate Center (tenant and building  improvements) and
Plainview   Plaza  II  (building   improvements).   Changes  to  current  tenant
improvements are a typical part of any lease negotiation. Improvements generally
include a revision to the current floor plan to  accommodate  a tenant's  needs,
new  carpeting  and  paint  and/or  wallcovering.   In  order  to  complete  the
renovation,  it is sometimes  necessary to replace  improvements  which have not
been fully  depreciated.  This  results in a  write-off  of  unamortized  tenant
improvements.  The write-off of unamortized  building  improvements at Peachtree
Corporate Center is the result of exterior building  renovations.  The write-off
of unamortized  building  improvements  at Plainview Plaza II is the result of a
common  area lobby  renovation.  The  renovation  included an upgrade of current
restroom facilities, new carpet and wallcoverings.  The write-off represents the
cost of previous renovations which had not been fully depreciated.

The 1994  write-off of  unamortized  tenant  improvements  can be  attributed to
Peachtree Corporate Center and Plainview Triad North.

The  decrease in interest  expense from 1995 to 1996 is due to the fact that the
interest rate on the $4,500,000  mortgage  payable was lower in 1996 compared to
1995.  The  interest  rate was  8.41%  January  to March  1995,  7.76%  April to
September  1995, and 7.65% October to December 1995 versus 7.65% January to June
1996,  7.46% July to September  1996,  and 7.33% October to December  1996.  The
interest rate on this note adjusts quarterly to 60 basis points over the 10-year
treasury bill rate. The decrease in interest


                                     - 15 -

<PAGE>



Results of Operations - Continued
---------------------------------

expense is also due to a decrease in interest expense on the $2,359,637 mortgage
payable as a result of  continued  principal  payments.  See the  Liquidity  and
Capital  Resources  section of this item for details regarding the Partnership's
debt.

Interest expense remained fairly constant from 1994 to 1995.

Management  fees are  calculated as a percentage of cash  collections;  however,
revenue  for  reporting  purposes  is on the  accrual  basis.  As a result,  the
fluctuations  of revenues  between  years will differ from the  fluctuations  of
management fee expense.

The decrease in real estate taxes from 1995 to 1996 is a result of a decrease in
the tax rates at all of the Partnership's properties. Real estate taxes remained
fairly constant from 1994 to 1995.

The increase in professional  and  administrative  expenses from 1995 to 1996 is
due  primarily  to an  increase  in  outside  legal  fees  which  relate  to the
Partnership's  Interest Repurchase Program and an increase in outside accounting
fees.

Professional and  administrative  expenses remained fairly constant from 1994 to
1995.

The change in professional and administrative expenses - affiliated from 1995 to
1996 and from 1994 to 1995 was not significant.  Professional and administrative
expenses - affiliated are expenses incurred for services  performed by employees
of NTS Development Company, an affiliate of the General Partner.

The decrease in depreciation  and  amortization  from 1995 to 1996 is due to the
fact  that a  portion  of the  Partnership's  assets  (primarily  tenant  finish
improvements)   have  become  fully   depreciated   since   December  31,  1995.
Depreciation  is computed  using the  straight-line  method  over the  estimated
useful  lives of the  assets  which are 5 - 30 years for land  improvements,  30
years for buildings, 5 - 30 years for building improvements and 3 - 30 years for
amenities.  The aggregate cost of the  Partnership's  properties for Federal tax
purposes is approximately $24,500,000.

Depreciation and  amortization  increased from 1994 to 1995 due to approximately
$564,000 of new assets  (principally  tenant  improvements and lobby renovation)
being  placed  in  service.  This  is  partially  offset  by a  portion  of  the
Partnership's assets having become fully depreciated.

Liquidity and Capital Resources
-------------------------------

The  Partnership had cash flow from  operations of $947,953  (1996),  $1,055,054
(1995),and $789,379 (1994).  These funds, in conjunction with cash on hand, were
used  to  make a .75%  (annualized)  distribution  of  $108,018  in  1996,  a 1%
(annualized)   distribution  of  $154,125  in  1995  and  a  .25%   (annualized)
distribution of $39,000 in 1994. The annualized  distribution rate is calculated
as a percent of the initial equity.  The limited partners received 100% of these
distributions.  The Partnership did not make a cash distribution during the nine
months ended  September  30, 1994.  The  Partnership  determined it necessary to
temporarily  suspend cash distributions  until adequate cash reserves for future
leasing costs,  tenant finish and other capital  improvements  were established,
and sufficient cash was being  generated from operations  which, in management's
opinion,  warranted  a  cash  distribution.  The  Partnership  has  indefinitely
interrupted  distributions  starting  December 31, 1996. See below for a further
discussion.  Cash reserves  (which are  unrestricted  cash and  equivalents  and
investment securities as shown on the Partnership's balance

                                     - 16 -

<PAGE>



Liquidity and Capital Resources - Continued
-------------------------------------------

sheet as of December 31) were $661,383,  $729,939,  and $734,203 at December 31,
1996, 1995 and 1994, respectively.

As of December 31, 1996 the Partnership  had a mortgage  payable to an insurance
company in the amount of $4,500,000. The mortgage bears a variable interest rate
which adjusts  quarterly to 60 basis points over the 10-year treasury bill rate.
At no time  during the first five loan years  (loan  obtained  May 1991) did the
rate exceed 11.65 % or fall below 7.65% per annum. After the fifth loan year, no
interest  rate floor and/or  ceiling  applies.  The current rate at December 31,
1996 was 7.33%.  Effective January 1, 1997, the interest rate adjusted to 6.94%.
The loan is secured by a first  mortgage on Plainview  Triad North and Peachtree
Corporate  Center  with a second  position  behind the  holder of the  permanent
mortgage on  Plainview  Plaza II. The unpaid  balance of the loan is due June 1,
2001.

As of December  31,  1996,  the  Partnership  also had a mortgage  payable to an
insurance  company  in the  amount of  $2,359,637.  The  mortgage  bears a fixed
interest rate of 9.125% and is due November 1, 1998. The outstanding  balance at
maturity based on the current rate of amortization will be $2,140,539.

As  previously  discussed  in the  Partnership's  Form  10-K for the year  ended
December 31, 1995,  the General  Partner of the  Partnership  was  exploring the
possibility  of  refinancing  the  current  mortgages  payable  encumbering  the
Partnership's  properties. As a result of an increase in current interest rates,
the Partnership has suspended inquiries into alternative financings.

The  primary  source of future  liquidity  and  distributions  is expected to be
derived from cash generated by the Partnership's  properties after adequate cash
reserves are established for future leasing and tenant finish costs.

The  majority  of  the  Partnership's   cash  flow  is  derived  from  operating
activities.  Cash  flows used in  investing  activities  are for  tenant  finish
improvements and other capital additions and are funded by operating activities.
Changes  to  current  tenant  improvements  are a  typical  part  of  any  lease
negotiation. Improvements generally include a revision to the current floor plan
to accommodate a tenant's  needs,  new carpeting and paint and/or  wallcovering.
The  extent and cost of these  improvements  are  determined  by the size of the
space and whether the improvements are for a new tenant or incurred because of a
lease renewal.  Cash flows used in investing  activities also include cash which
is being  escrowed for the  replacement of the HVAC system and asphalt paving at
Peachtree  Corporate Center and purchases of investment  securities.  As part of
its cash management  activities,  the Partnership has purchased  Certificates of
Deposit or securities issued by the U.S.  Government with initial  maturities of
greater  than  three  months to  improve  the  return on its  excess  cash.  The
Partnership held the securities until maturity. Cash flows provided by investing
activities  are from the  release of the escrow  funds  mentioned  above and the
maturity  of  investment  securities.  Cash flows used in  financing  activities
include cash  distributions,  principal  payments on the $2.4  million  mortgage
payable and repurchases of limited  partnership  Units. The Partnership does not
expect any material changes in the mix and relative cost of capital resources.

In the next 12 months,  the General Partner expects a demand on future liquidity
as a result of 114,710  square feet in leases  expiring  during 1997  (Plainview
Plaza II - 11,652  square feet,  Plainview  Triad North - 70,078 square feet and
Peachtree  Corporate  Center - 32,980 square  feet).  The majority of the square
feet in leases  which  expire  in 1997  relate to a single  tenant  (Aetna  Life
Insurance  Company)  at  Plainview  Triad  North.  See  below  for a  discussion
regarding the lease for this tenant. At this time, the future leasing and tenant
finish  costs which will be  required to renew the current  leases or obtain new
tenants are unknown. It is anticipated

                                     - 17 -

<PAGE>



Liquidity and Capital Resources - Continued
-------------------------------------------

that the cash flow from  operations and cash reserves will be sufficient to meet
the needs of the  Partnership.  As of December 31, 1996, the  Partnership had no
material commitments for tenant finish improvements.

A demand on future liquidity is anticipated as the renovation of the exterior of
the NTS Plainview Plaza II property is completed  during 1997. The renovation is
designed to make the  property  more  competitive  and  enhance  its value.  The
project is anticipated to cost approximately  $900,000. As of December 31, 1996,
approximately  $555,000 of the total project cost has been incurred. The General
Partner  of the  Partnership  anticipates  the  project  will be  funded  with a
combination  of debt  financing,  cash  reserves  and cash flow  from  operating
activities.

The General Partner also anticipates a demand on future liquidity as a result of
the Partnership's  plan to complete the renovation of the common area lobbies at
Plainview  Plaza II during 1997. The project is to include an upgrade of current
restroom facilities, improvement of handicap restroom facilities, new carpet and
wallcoverings.  The project is anticipated  to cost  approximately  $315,000.  A
portion of this project was  completed  during the first and second  quarters of
1995 at a cost of approximately  $93,000.  The remaining cost of this project is
expected  to be  funded  from  cash  reserves  and cash  flow  from  operations.
Subsequent to December 31, 1996, the  Partnership  made  commitments of $222,000
for the remaining renovations.

During 1995, the Partnership  established an Interest  Repurchase Reserve in the
amount of $156,000  pursuant to Section  16.4 of the  Partnership's  Amended and
Restated Agreement of Limited Partnership. With these funds, the Partnership was
able to  repurchase  750 Units at a price of $208 per  Unit.  During  1996,  the
Partnership  elected to fund an additional  $243,700 to its Interest  Repurchase
Reserve  ($100,000  on  January  3 and  $143,700  on May 24).  With  these  1996
fundings,  the Partnership  will be able to repurchase an additional 1,170 Units
at a price of $208 per Unit.  As of  December  31,  1996,  the  Partnership  had
repurchased  a total  of 1,504  units.  Repurchased  Units  are  retired  by the
Partnership,  thus increasing the share of ownership of each remaining investor.
The Interest  Repurchase  Reserve was funded from cash reserves.  As of December
17, 1996, the repurchase of limited  partnership Units was suspended.  See below
for further discussion.

The lease for Aetna Life Insurance  Company,  the largest tenant of Triad North,
occupying nearly 65% of the building, expires in 1997. Aetna accounts for nearly
22% of the NTS  Properties  III total  revenue.  Aetna has  requested a one year
extension on its leased space.  Any costs associated with this renewal would not
be significant.  It is the judgement of the General Partner of the  Partnership,
considering the publicity about Aetna's downsizing,  that the one year extension
will be all  that can be  anticipated  at this  time.  If  correct  and if Aetna
vacates the property,  there will likely be a protracted period for the property
to become  fully leased  again and  substantial  funds will likely be needed for
leasing expenses, especially tenant finish improvements.

Accordingly,  to conserve funds in anticipation of the loss of Aetna, repurchase
of  Limited  Partnership  Units  has  been  indefinitely  interrupted  effective
December 17, 1996. In addition,  distributions  were suspended starting December
31, 1996.

Subsequent  to  December  31,  1996,  the  Partnership   made  a  commitment  of
approximately $170,000 for tenant finish improvements at Plainview Plaza II as a
result of the lease renewal with NTS  Development  Company,  an affiliate of the
General  Partner.  The renewal  extends the lease for five years,  through March
2002, and is at a rate of $13.75 per square foot for 20,368



                                     - 18 -

<PAGE>



Liquidity and Capital Resources - Continued
-------------------------------------------

square feet.  The project is expected to be  completed  during the first half of
1997.  The  source of funds for this  project is  expected  to be cash flow from
operations and/or cash reserves.

Subsequent  to  December  31,  1996,  the  Partnership   made  a  commitment  of
approximately  $31,000 for tenant finish improvements at Plainview Plaza II as a
result of a lease renewal and  expansion  with a current  tenant.  The expansion
increases the tenant's current leased space by  approximately  3,200 square feet
and the renewal extends the lease for three and one-half  years.  The project is
expected to be completed  during the first quarter of 1997.  The source of funds
for this  project  is  expected  to be cash flow  from  operations  and/or  cash
reserves.

The  Partnership  had no other material  commitments  for renovations or capital
improvements as of December 31, 1996.

The table below  presents  that portion of the  distributions  that  represent a
return of capital on a Generally  Accepted  Accounting  Principle  basis for the
years ended  December  31,  1996,  1995 and 1994.  The  General  Partner did not
receive a  distribution  during these years.  Distributions  were funded by cash
flow derived from operating activities.


                          Net Income                Cash
                            (Loss)              Distributions         Return of
                          Allocated               Declared             Capital
                          ---------               --------             -------

Limited Partners:
       1996               $ 284,097               $ 108,018          $   --
       1995                 (86,496)                154,125            154,125
       1994                 (97,062)                 39,000             39,000

The following  describes the efforts being taken by the  Partnership to increase
the occupancy levels at the  Partnership's  properties.  At Peachtree  Corporate
Center in Norcross,  Georgia,  the  Partnership has an on-site leasing agent, an
employee of NTS Development  Company (an affiliate of the general partner),  who
makes calls to potential tenants, negotiates lease renewals with current tenants
and manages local  advertising with the assistance of NTS Development  Company's
marketing staff. The leasing and renewal negotiations for Plainview Plaza II and
Plainview  Triad  North  are  handled  by  leasing  agents,   employees  of  NTS
Development  Company,  located in Louisville,  Kentucky.  The leasing agents are
located in the same city as both commercial properties.  All advertising for the
Louisville properties is also coordinated by NTS Development Company's marketing
staff located in Louisville, Kentucky.

Leases at all the  Partnership's  properties  provide for tenants to  contribute
toward the payment of increases in common area maintenance expenses,  insurance,
utilities  and real  estate  taxes.  This lease  provision  should  protect  the
Partnership's operations from the impact of inflation and changing prices.

Some of the statements included in Item 7, Management's  Discussion and Analysis
of  Financial  Condition  and Results of  Operations,  may be  considered  to be
"forward-looking  statements" since such statements relate to matters which have
not yet occurred.  For example,  phrases such as "the Partnership  anticipates",
"believes" or "expects" indicate that it is possible that the event anticipated,
believed or expected may not occur. Should such event not occur, then the result
which  the  Partnership  expected  also may not  occur  or occur in a  different
manner, which may be more or less favorable to the Partnership.  The Partnership
does not  undertake  any  obligations  to  publicly  release  the  result of any
revisions to these forward  -looking  statements that may be made to reflect any
future events or circumstances.

                                     - 19 -

<PAGE>



Liquidity and Capital Resources - Continued
-------------------------------------------

Any forward-looking statements included in Managements's Discussion and Analysis
of Financial  Condition and Results of Operations,  or elsewhere in this report,
which reflect  management's best judgement based on factors known, involve risks
and uncertainties. Actual results could differ materially from those anticipated
in any forward-looking  statements as a result of a number of factors, including
but not  limited  to those  discussed  below.  Any  forward-looking  information
provided by the  Partnership  pursuant to the safe harbor  established by recent
securities legislation should be evaluated in the context of these factors.

The Partnership's principal activity is the leasing and management of commercial
office buildings and a business center. If a major commercial tenant defaults on
its  lease,  the  Partnership's  ability  to make  payments  due  under its debt
agreements,  payment of operating costs and other partnership  expenses would be
directly  impacted.  A lessee's  ability to make  payments  are subject to risks
generally  associated with real estate,  many of which are beyond the control of
the Partnership,  including general or local economic  conditions,  competition,
interest rates, real estate tax rates, other operating expenses and acts of God.

A portion of the  Partnership's  debt  service  is based on a variable  interest
rate.  Any  fluctuations  in the  interest  rate are beyond  the  control of the
Partnership.  These  variances  could,  for  example,  impact the  Partnership's
projected cash and cash requirements as well as its ability to pay distributions
to the limited partners.






































                                     - 20 -

<PAGE>




Item 8.  Financial Statements and Supplementary Data



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To NTS-Properties III:

We have  audited  the  accompanying  balance  sheets of  NTS-Properties  III, (a
Georgia  limited  partnership) as of December 31, 1996 and 1995, and the related
statements of operations,  partners' equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial  statements and the
schedules  referred  to  below  are  the  responsibility  of  the  Partnership's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements and schedules based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  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 financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position of  NTS-Properties  III as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended  December 31, 1996 in conformity
with generally accepted accounting principles.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
financial statements taken as a whole. The schedules included on pages 37 and 38
are  presented  for  purposes of  complying  with the  Securities  and  Exchange
Commission's  rules  and  are  not  a  required  part  of  the  basic  financial
statements.  These  schedules  have been  subjected to the  auditing  procedures
applied in the audits of the basic  financial  statements  and, in our  opinion,
fairly state in all  material  respects the  financial  data  required to be set
forth therein in relation to the basic financial statements taken as a whole.






                                              ARTHUR ANDERSEN LLP


Louisville, Kentucky
<TABLE>
February 25, 1997


                                     - 21 -

<PAGE>



                               NTS-PROPERTIES III

                                 BALANCE SHEETS

                        AS OF DECEMBER 31, 1996 AND 1995



<CAPTION>


                                                         1996           1995
                                                     ------------    -----------

ASSETS

<S>                                                  <C>             <C>        
Cash and equivalents                                 $   661,383     $   626,884
Cash and equivalents - restricted                        311,390         387,796
Investment securities                                       --           103,055
Accounts receivable, net of allowance
 for doubtful accounts of $81,980 (1996)
 and $90,332 (1995)                                      198,970         176,811
Land, buildings and amenities, net                     8,850,783       9,585,286
Construction in progress                                 577,233            --
Other assets                                             376,127         241,022
                                                     -----------     -----------

  Total assets                                       $10,975,886     $11,120,854
                                                     ===========     ===========

LIABILITIES AND PARTNERS' EQUITY

Mortgages payable                                    $ 6,859,637     $ 6,964,619
Accounts payable - operations                             97,702          72,807
Accounts payable - construction                           54,070           1,907
Distributions payable                                       --            37,125
Security deposits                                         92,934          95,494
Other liabilities                                         11,415          13,171
                                                     -----------     -----------

                                                       7,115,758       7,185,123

Commitments and Contingencies

Partners' equity                                       3,860,128       3,935,731
                                                     -----------     -----------

                                                     $10,975,886     $11,120,854
                                                     ===========     ===========
</TABLE>

The  accompanying  notes to financial  statements  are an integral part of these
statements.

                                     - 22 -

<PAGE>
<TABLE>



                               NTS-PROPERTIES III

                            STATEMENTS OF OPERATIONS

              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


<CAPTION>

                                                     1996                  1995                   1994
                                                 -----------           -----------            -----------
<S>                                              <C>                   <C>                    <C>
Revenues:
 Rental income, net of provision for
  doubtful accounts of $53,043 (1996),
  $68,680 (1995), $-0- (1994)                    $ 2,898,415           $ 2,717,965            $ 2,617,879
 Rental income - affiliated                          314,499               312,660                314,750
 Interest and other income                            52,717                42,478                 27,646
                                                 -----------           -----------            -----------

                                                   3,265,631             3,073,103              2,960,275
Expenses:
 Operating expenses                                  709,309               673,969                684,043
 Operating expenses - affiliated                     313,956               337,133                308,897
 Write-off of unamortized building and
  tenant improvements                                   --                  56,693                 11,572
 Interest Expenses                                   558,878               583,034                589,200
 Management fees                                     158,463               161,638                148,186
 Real estate taxes                                   210,797               216,225                217,257
 Professional and administrative
  expenses                                            64,251                56,384                 51,709
 Professional and administrative
  expenses - affiliated                              145,814               141,552                138,500
 Depreciation and amortization                       914,916             1,035,865              1,008,502
                                                 -----------           -----------            -----------

                                                   3,076,384             3,262,493              3,157,866
                                                 -----------           -----------            -----------

         
Net income (loss)                                $   189,247           $  (189,390)           $  (197,591)
                                                 ===========           ===========            ===========

Net income (loss) allocated to the
limited partners                                 $   284,097           $   (86,496)           $   (97,062)
                                                 ===========           ===========            ===========

Net income (loss) per limited partnership
 unit                                            $     19.70           $     (5.58)           $     (6.22)
                                                 ===========           ===========            ===========

Weighted average number of limited
 partnership units                                    14,418                15,495                 15,600
                                                 ===========           ===========            ===========


The  accompanying  notes to financial  statements  are an integral part of these
statements.
</TABLE>


                                     - 23 -

<PAGE>

<TABLE>


                               NTS-PROPERTIES III

                         STATEMENTS OF PARTNERS' EQUITY

              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<CAPTION>


                                              Limited                 General
                                              Partners                Partners                 Total
                                              --------                --------                 -----
<S>                  <C> <C>                <C>                     <C>                     <C>        
Balances at December 31, 1993               $ 4,286,354             $   385,483             $ 4,671,837

 Net loss                                       (97,062)               (100,529)               (197,591)

 Distributions declared                         (39,000)                   --                   (39,000)
                                            -----------             -----------             -----------

Balances at December 31, 1994                 4,150,292                 284,954               4,435,246

 Net loss                                       (86,496)               (102,894)               (189,390)

 Distributions declared                        (154,125)                   --                  (154,125)

 Repurchase of limited partnership
  units                                        (156,000)                   --                  (156,000)
                                            -----------             -----------             -----------

Balance at December 31, 1995                  3,753,671                 182,060               3,935,731

 Net income(loss)                               284,097                 (94,850)                189,247

 Distributions declared                        (108,018)                   --                  (108,018)

 Repurchase of limited partnership
  units                                        (156,832)                   --                  (156,832)
                                            -----------             -----------             -----------
Balances at December 31, 1996               $ 3,772,918             $    87,210             $ 3,860,128
                                            ===========             ===========             ===========

</TABLE>

The  accompanying  notes to financial  statements  are an integral part of these
statements.
























                                     - 24 -

<PAGE>

<TABLE>


                               NTS PROPERTIES III

                            STATEMENTS OF CASH FLOWS

              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>


                                                           1996                  1995                 1994
                                                       ------------          ------------          -----------
<S>                                                    <C>                   <C>                   <C>
CASH FLOWS FROM (USED FOR) OPERATING
ACTIVITIES
Net income (loss)                                      $   189,247           $  (189,390)          $  (197,591)
Adjustments to reconcile net income(loss) to
 net cash provided by operating activities:
  Provision for doubtful accounts                           53,043                68,680                  --
  Accrued interest on investment securities                  1,402                (1,402)                 --
  Write-off of unamortized building and tenant
   improvements                                               --                  56,693                11,572
  Depreciation and amortization                            914,916             1,035,865             1,008,502
  Change in assets and liabilities:
   Cash and equivalents - restricted                          (446)               (5,925)                 --
   Accounts receivable                                     (75,202)               93,986               (27,490)
   Other assets                                           (155,587)               (9,460)               (7,141)
   Accounts payable - operations                            24,895                (2,427)                5,604
   Security deposits                                        (2,560)               11,450                (7,053)
   Other liabilities                                        (1,755)               (3,016)                2,976
                                                       -----------           -----------           -----------

  Net cash provided by operating activities                947,953             1,055,054               789,379
                                                       -----------           -----------           -----------

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings, amenities and
 construction in progress                                 (685,003)             (564,612)             (320,018)
Decrease (increase) in cash equivalents-
 restricted                                                104,020               (88,248)              (92,123)
Purchase of investment securities                         (855,999)             (401,461)                 --
Maturity of investment securities                          957,652               299,808                  --
                                                       -----------           -----------           -----------

  Net cash used in investing activities                   (479,330)             (754,513)             (412,141)
                                                       -----------           -----------           -----------

CASH FLOWS FROM FINANCING ACTIVITIES
Cash distributions                                        (145,142)             (156,000)                 --
Principal payments on mortgage payable                    (104,982)              (95,860)              (87,530)
Repurchase of limited partnership units                   (156,832)             (156,000)                 --
Increase in cash and equivalent-restricted                 (27,168)                 --                    --
                                                       -----------           -----------           -----------

  Net cash used in financing activities                   (434,124)             (407,860)              (87,530)
                                                       -----------           -----------           -----------

  Net increase (decrease) in cash and
   equivalents                                              34,499              (107,319)              289,708

CASH AND EQUIVALENTS, beginning of period                  626,884               734,203               444,495
                                                       -----------           -----------           -----------

CASH AND EQUIVALENTS, end of period                    $   661,383           $   626,884           $   734,203
                                                       ===========           ===========           ===========

Interest paid on a cash basis                          $   560,389           $   585,825           $   587,803
                                                       ===========           ===========           ===========
</TABLE>

The  accompanying  notes to financial  statements  are an integral part of these
statements.

                                     - 25 -

<PAGE>




                               NTS-PROPERTIES III

                          NOTES TO FINANCIAL STATEMENTS

              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


1.     Significant Accounting Policies
       -------------------------------

       A)    Organization
             ------------

             NTS-Properties  III (the  "Partnership")  is a limited  partnership
             organized  under the laws of the State of Georgia on June 24, 1982.
             The general partner is NTS-Properties Associates, a Georgia limited
             partnership.  The  Partnership  is in the  business  of owning  and
             operating commercial real estate.

       B)    Properties
             ----------

             The Partnership owns and operates the following properties:

             -  Peachtree  Corporate Center, a business park with  approximately
                192,000 net rentable square feet located in Norcross, Georgia, a
                suburb of Atlanta.

             -  Plainview Plaza II, an office complex with approximately 113,000
                net rentable square feet located in Jeffersontown,  Kentucky,  a
                suburb of Louisville.

             -  Plainview  Triad North,  an office  complex  with  approximately
                89,000  net  rentable  square  feet  located  in  Jeffersontown,
                Kentucky.

       C)    Allocation of Net Income (Loss) and Cash Distributions
             ------------------------------------------------------

             Net Cash Receipts, as defined in the partnership agreement, will be
             distributed,  to the extent made available, to the limited partners
             in an amount  equal to the greater of 10% per year,  noncumulative,
             of their invested  capital or their pro rata share of such Net Cash
             Receipts, as defined in the partnership  agreement.  The balance of
             the Net Cash  Receipts,  as defined in the  partnership  agreement,
             would be available for  distribution  to the general  partner until
             the  general  partner has  received  its pro rata share of such Net
             Cash Receipts.  At such time as the limited  partners have received
             cash distributions  equal to their original capital  contributions,
             cash flow would be distributed 52% to the limited  partners and 48%
             to the general  partner.  In general,  operating  income and losses
             (exclusive of  depreciation)  are allocated to the limited partners
             and  the  general   partner  in  proportion  to  their   respective
             distributions  of cash. In no event,  however,  will the portion of
             any item of Partnership  income,  gain,  loss,  deduction or credit
             allocated to the general partner be less than 1%. Starting December
             31,   1996,   the   Partnership   has   indefinitely    interrupted
             distributions.

             Depreciation   of  the  assets  acquired  on  the  date  operations
             commenced  is  allocated  directly to the limited  partners and the
             general  partner  based  upon  their  respective  tax  basis in the
             property. Depreciation of assets subsequently acquired is allocated
             based on the  limited  partners'  interests  of 65% and the general
             partner's  interest  of  35%.  In the  accompanying  Statements  of
             Operations,  net income  (loss) was  allocated  99% to the  limited
             partners  and 1% to the  general  partner  net  of the  effects  of
             depreciation   on  contributed   assets  in  accordance   with  the
             Partnership Agreement.

                                     - 26 -

<PAGE>



1. Significant Accounting Policies - Continued
   -------------------------------------------


       D)    Tax Status

             The  Partnership  has received a ruling from the  Internal  Revenue
             Service  stating that the  Partnership  is  classified as a limited
             partnership   for  federal  income  tax  purposes.   As  such,  the
             Partnership makes no provision for income taxes. The taxable income
             or loss is passed through to the holders of interests for inclusion
             on their individual income tax returns.

             The  reconciliation  of net income (loss) for  financial  statement
             purposes and for income tax reporting is as follows:


                                               1996         1995         1994
                                            ---------    ---------    ---------

               Net income (loss)            $ 189,247    $(189,390)   $(197,591)
               Items handled differently
               for tax purposes:
                 Depreciation                (111,830)     (10,224)     (34,225)
                 Write-off of unamortized
                  building and tenant
                  improvements                (22,864)     (90,300)    (158,028)
                 Rental income                 47,180       99,696       50,565
                 Allowance for doubtful
                  accounts                     (8,352)      36,505      (23,376)
                 Other                          3,915          219          198
                                             ---------    ---------    ---------

               Taxable income(loss)         $  97,296    $(153,494)   $(362,457)
                                            =========    =========    =========

       E)    Use of Estimates in the Preparation of Financial Statements
             -----------------------------------------------------------

             The   preparation  of  financial   statements  in  conformity  with
             generally accepted  accounting  principles  requires  management to
             make estimates and assumptions  that affect the reported amounts of
             assets and  liabilities  and  disclosure of  contingent  assets and
             liabilities  at  the  date  of the  financial  statements  and  the
             reported  amounts of revenues  and  expenses  during the  reporting
             period. Actual results could differ from those estimates.

       F)    Cash and Equivalents - Restricted
             ---------------------------------

             Cash and  equivalents - restricted  represent  1)escrow funds which
             are to be released as the heating, ventilating and air conditioning
             ("HVAC")  system and asphalt paving at Peachtree  Corporate  Center
             are  replaced,  2) funds which have been  escrowed  with a mortgage
             company for NTS Plainview  Plaza II's property  taxes in accordance
             with the loan  agreements  and 3) funds which the  Partnership  has
             reserved  for  the  repurchase  of  limited  partnership  Units  as
             discussed in Note 3.

       G)    Investment Securities
             ---------------------

             Investment  securities  represent  investments in  Certificates  of
             Deposit or securities  issued by the U. S.  Government with initial
             maturities  of  greater  than three  months.  The  investments  are
             carried at cost which  approximates  market value.  The Partnership
             intends to hold the  securities  until  maturity.  During  1995 and
             1996, the Partnership sold no investment securities. As of December
             31, 1996, the Partnership held no investment securities.







                                     - 27 -

<PAGE>



1. Significant Accounting Policies - Continued
   -------------------------------------------

       G)    Investment Securities - Continued
             ---------------------------------

             The following  provides  details  regarding the investments held at
             December 31, 1995:
                                          Amortized    Maturity    Value At
                         Type               Cost         Date      Maturity
                         ----               ----         ----      --------

             Certificate of Deposit       $103,055     01/05/96    $103,140
                                           =======                  =======


             The  Partnership   held  no  investment   securities  with  initial
             maturities greater than three months during 1994.

       H)    Basis of Property and Depreciation
             ----------------------------------

             Land, buildings and amenities are stated at cost to the Partnership
             as determined by the historical cost of the property to the general
             partner for its interest and by the purchase  price of the property
             to  the   Partnership   for  the   limited   partners'   interests.
             Depreciation  is computed using the  straight-line  method over the
             estimated  useful lives of the assets which are 5-30 years for land
             improvements,  5-30 years for buildings and improvements and 3 - 30
             years for amenities.

             Statement  of  Financial   Accounting  Standards  (SFAS)  No.  121,
             Accounting  for the  Impairment of Long-Lived  Assets and for Long-
             Lived Assets to be Disposed Of,  specifies  circumstances  in which
             certain long-lived assets must be reviewed for impairment.  If such
             review  indicates that the carrying  amount of an asset exceeds the
             sum of its expected future cash flows,  the asset's  carrying value
             must be written down to fair value.  Application  of this  standard
             during  the year  ended  December  31,  1996 did not  result  in an
             impairment loss.

       I)    Rental Income and Deferred Leasing Commissions
             ----------------------------------------------

             Certain of the  Partnership's  lease  agreements  are structured to
             include scheduled and specified rent increases over the lease term.
             For financial reporting  purposes,  the income from these leases is
             being  recognized  on a  straight-line  basis over the lease  term.
             Accrued income  connected with these leases is included in accounts
             receivable  and totalled  $61,465 and $110,401 at December 31, 1996
             and 1995, respectively.  All commissions paid to leasing agents are
             deferred and  amortized on a  straight-line  basis over the term of
             the lease to which they apply.

       J)    Advertising
             -----------

             The  Partnership  expenses   advertising-type  costs  as  incurred.
             Advertising  expense was immaterial to the  Partnership  during the
             years ended December 31, 1996, 1995 and 1994.

       K)    Statements of Cash Flows
             ------------------------

             For purposes of reporting cash flows, cash and equivalents  include
             cash on hand and short-term, highly liquid investments with initial
             maturities of three months or less.






                                     - 28 -

<PAGE>



1.     Significant Accounting Policies - Continued
       -------------------------------------------

       L)    Reclassifications of 1995 and 1994 Financial Statements
             -------------------------------------------------------

             Certain  reclassifications  have been made to the December 31, 1995
             and 1994  financial  statements  to conform with  December 31, 1996
             classifications.   These   reclassifications   have  no  effect  on
             previously reported operations.


2.     Concentration of Credit Risk
       ----------------------------

       NTS-Properties  III is a  limited  partnership  which  owns and  operates
       commercial  properties  in Norcross,  Georgia,  a suburb of Atlanta,  and
       Jeffersontown, Kentucky, a suburb of Louisville. Substantially all of the
       Partnership's  tenants are local  businesses or are businesses which have
       operations in the location in which they lease space.


3.     Interest Repurchase Reserve
       ---------------------------

       On October 3, 1995, the  Partnership  established an Interest  Repurchase
       Reserve  in the  amount  of  $156,000  pursuant  to  Section  16.4 of the
       Partnership's  Amended and  Restated  Agreement  of Limited  Partnership.
       Under  Section  16.4,  limited  partners may request the  Partnership  to
       repurchase their respective  interests  (Units) in the Partnership.  With
       this funding, the Partnership was able to repurchase 750 Units at a price
       of $208 per Unit. The  Partnership  notified the limited  partners of the
       establishment of the Interest  Repurchase  Reserve and the opportunity to
       request that the Partnership  repurchase  Units at the established  price
       pursuant to a letter dated October 3, 1995.

       During 1996, the  Partnership  elected to fund an additional  $243,700 to
       its Interest Repurchase Reserve ($100,00 on January 3 and $143,700 on May
       24). With these 1996 fundings, the Partnership will be able to repurchase
       an additional  1,170 Units at a price of $208 per Unit.  Through December
       31, 1996,  the  Partnership  had  repurchased  a total of 1,504 units for
       $312,832.

       Repurchased  Units are retired by the  Partnership,  thus  increasing the
       share of ownership of each remaining  investor.  The Interest  Repurchase
       Reserve  was  funded  from  cash  reserves.  On  December  17,  1996  the
       Partnership has indefinitely suspended the Interest Repurchase Program.

4.     Land, Buildings and Amenities
       -----------------------------

       The  following   schedule  provides  an  analysis  of  the  Partnership's
       investment in property held for lease as of December 31:


                                               1996          1995
                                           -----------   -----------

           Land and improvements           $ 4,446,084   $ 4,411,387
           Buildings and improvements       19,347,515    19,296,603
           Amenities                           126,788       124,041
                                           -----------   -----------

                                            23,920,387    23,832,031

           Less accumulated depreciation    15,069,604    14,246,745
                                           -----------   -----------

                                           $ 8,850,783   $ 9,585,286
                                           ===========   ===========



                                     - 29 -

<PAGE>



5.     Mortgages Payable
       -----------------

       Mortgages payable as of December 31 consist of the following:


                                                     1996           1995
                                                 -----------    -----------
       Mortgage payable to an insurance  
       company bearing  interest at 9.125%,  
       maturing November 1, 1998, secured
       by land and building                      $ 2,359,637    $ 2,464,619

       Mortgage payable to an insurance
       company maturing June 1, 2001,
       secured by land and buildings, 
       bearing a variable interest rate 
       based on the 10-year treasury bill 
       rate plus 60 basis points. The rate 
       is adjusted quarterly.  The current 
       rate at December 31, 1996
       is 7.33%                                    4,500,000      4,500,000
                                                  ----------     ----------
                                                 $ 6,859,637    $ 6,964,619
                                                  ==========     ==========

       The $2,359,637  mortgage is payable in monthly  installments  of $32,335,
       which  includes   principal,   interest  and  property  tax  escrow.  The
       $4,500,000  mortgage  is  payable  in  monthly  installments  of  $26,025
       (interest only). Scheduled maturities of debt are as follows:

                For the Years Ended December 31,        Amount
                --------------------------------     ------------

                               1997                  $   114,973
                               1998                    2,244,664
                               1999                        --
                               2000                        --
                               2001                    4,500,000
                                                     -----------

                                                     $ 6,859,637
                                                     ===========

       Based on the borrowing rates  currently  available to the Partnership for
       mortgages  with similar terms and average  maturities,  the fair value of
       long-term debt is approximately $7,249,000.

       Effective  January 1, 1997, the interest rate on the $4,500,000  mortgage
       payable adjusted to 6.94%.

6.     Rental Income Under Operating Leases
       ------------------------------------

       The  following  is  a  schedule  of  minimum   future  rental  income  on
       noncancellable operating leases as of December 31, 1996:

             For the Years Ended December 31,             Amount
             --------------------------------          -----------

                             1997                      $ 2,293,568
                             1998                        1,457,302
                             1999                        1,017,026
                             2000                          693,416
                             2001                          559,207
                         Thereafter                      1,697,975
                                                       -----------
                                                       $ 7,718,494
                                                       ===========
                                                       



                                     - 30 -

<PAGE>



7.     Related Party Transactions
       --------------------------

       Property management fees of $158,463 (1996), $161,638 (1995) and $148,186
       (1994) were paid to NTS Development  Company, an affiliate of the general
       partner, pursuant to an agreement with the Partnership.  The fee is equal
       to 5% of gross revenues from the Partnership's properties. Also permitted
       by an  agreement  with the  Partnership,  NTS  Development  Company  will
       receive a repair  and  maintenance  fee  equal to 5.9% of costs  incurred
       which  relate to  capital  improvements.  The  Partnership  has  incurred
       $41,001  and  $25,498  as a repair and  maintenance  fee during the years
       ended December 31, 1996 and 1995, respectively,  and has capitalized this
       cost as a part of land,  buildings  and  amenities.  As  permitted  by an
       agreement,  the Partnership  also was charged the following  amounts from
       NTS  Development  Company for the years ended December 31, 1996, 1995 and
       1994.  These charges  include items which have been expensed as operating
       expenses  affiliated  or  professional  and  administrative   expenses  -
       affiliated  and items which have been  capitalized  as other assets or as
       land, buildings and amenities.


                                    1996       1995       1994
                                  --------   --------   --------

               Leasing            $144,372   $124,826   $134,561
               Administrative      175,414    172,070    168,003
               Property manager    182,750    214,574    178,648
               Other                21,515      7,838     14,767
                                  --------   --------   --------

                                  $524,051   $519,308   $495,979
                                  ========   ========   ========


       During the years ended December 31, 1996,  1995 and 1994, NTS Development
       Company leased approximately 23,000 square feet of the available space in
       the Plainview  Plaza II property at a base rent of  approximately  $13.50
       per square foot. The Partnership has received  approximately  $315,000 in
       rental payments from NTS Development  Company during 1996, 1995 and 1994.
       Subsequent to December 31, 1996,  the NTS  Development  Company lease was
       extended  for five  years to March  2002 at a rental  rate of $13.75  for
       20,368 square feet. As a result of the lease renewal, the Partnership has
       made  a  commitment   for   approximately   $170,000  of  tenant   finish
       improvements.

8.     Commitments and Contingencies
       -----------------------------

       At Plainview Plaza II, the Partnership expects to complete the renovation
       of the exterior of the property during 1997. The remaining commitment for
       this project is approximately $345,000.

       In addition to the commitment discussed in Note 7, subsequent to December
       31, 1996 the Partnership made a commitment of approximately  $222,000 for
       the remaining  renovation  to the common area lobbies at Plainview  Plaza
       II.

       The lease for a major tenant at Plainview  Triad North  (occupies  nearly
       65% of the  building)  expires  in 1997.  The  Partnership  is  currently
       negotiating  a one year  renewal  with the tenant at their  request.  Any
       costs  associated  with this  renewal  would not be  significant.  In the
       opinion of the general partner of the Partnership, the one year extension
       will be all that can be  anticipated.  If  correct  and the  tenant  does
       vacate,  there will  likely be a  protracted  period for the  property to
       become fully leased again and substantial funds will likely be needed for
       future leasing and tenant finish costs.


                                     - 31 -

<PAGE>



Item 9.      Changes in and Disagreements with Accountants on Accounting and
             Financial Disclosure


N/A


                                    PART III

Item 10. Directors and Executive Officers of the Registrant

Because the Partnership is a limited  partnership and not a corporation,  it has
no  directors  or  officers  as  such.  Management  of  the  Partnership  is the
responsibility   of  the  general  partner,   NTS-Properties   Associates.   The
Partnership has entered into a management contract with NTS Development Company,
an affiliate of the general partner, to provide property management services.

The general partners of NTS-Properties Associates are as follows:

J. D. Nichols
-------------

Mr.  Nichols  (age  55)  is  the  managing  general  partner  of  NTS-Properties
Associates and is Chairman of the Board of NTS Corporation  (since 1985) and NTS
Development Company (since 1977).

L. C. Aroh
----------

Mr. Aroh (age 65) has been an  independent  real estate  developer  for the past
nine  years.  He is a partner in a number of real estate  developments  with the
principals of NTS Development Company.

NTS Capital Corporation
-----------------------

NTS Capital Corporation (formerly NTS Corporation) is a Kentucky corporation
formed in October 1979.  J. D. Nichols is Chairman of the Board and the sole
director of NTS Capital Corporation.

Alliance Realty Corporation
---------------------------

Alliance Realty Corporation was formed in September 1982, and is a wholly-
owned subsidiary of SN Alliance, Inc.  SN Alliance, Inc. is also the parent
corporation of Stifel, Nicolas & Company, Inc. which acted as the Dealer
Manager in connection with the offering for the interests.

Gary D. Adams
-------------

Mr. Adams (age 50) is Senior Vice President of NTS Development Company.
Since joining the NTS organization in May 1977, Mr. Adams has been involved
in the development, construction and management of properties in the
southeast region.

A. Toni Rizzo
-------------

Mr.  Rizzo (age 49) joined  Abel  Construction  during  1995 as the  Director of
Business  Development.  From  1985 to 1995,  Mr.  Rizzo  was an  officer  of the
Huntington Group and prior to 1985 was an employee of NTS Development Company.

The Manager of the Partnership's properties is NTS Development Company, the
executive officers and/or directors of which are Messrs. J. D. Nichols,
Richard L. Good and John W. Hampton.



                                     - 32 -

<PAGE>



Item 10. Directors and Executive Officers of the Registrant - Continued

Richard L. Good
---------------

Mr. Good (age 57),  President and Chief  Operating  Officer of NTS  Corporation,
President  of  NTS  Development  Company  and  Chairman  of  the  Board  of  NTS
Securities, Inc., joined the Manager in January 1985. From 1981 through 1984, he
was Executive Vice President of Jacques-Miller, Inc., a real estate syndication,
property management and financial planning firm in Nashville, Tennessee.

John W. Hampton
---------------

Mr.  Hampton (age 47) is Senior Vice President of NTS  Development  Company with
responsibility  for all  accounting  operations.  Before  joining the Manager in
March 1991, Mr. Hampton was Vice President - Finance and Chief Financial Officer
of the  Sturgeon-Thornton-Marrett  Development  Company in  Louisville  for nine
years. Prior to that he was with Alexander Grant & Company CPA's. Mr. Hampton is
a Certified  Public  Accountant  and a graduate of the  University of Louisville
with a Bachelor of Science  degree in  Commerce.  He is a member of the American
Institute of CPA's and the Kentucky Society of CPA's.

Item 11.Management Remuneration and Transactions

The officers and/or directors of the corporate general partner receive no direct
remuneration in such  capacities.  The Partnership is required to pay a property
management  fee based on gross rentals to NTS  Development.  The  Partnership is
also required to pay to NTS Development  company a repair and maintenance fee on
costs related to specific  projects.  Also,  NTS  Development  Company  provides
certain  other  services  to  the  Partnership.  See  Note  7 to  the  financial
statements which sets forth  transactions  with NTS Development  Company for the
years ended December 31, 1996, 1995 and 1994.

The general partner is entitled to receive cash distributions and allocations of
profits  and losses from the  Partnership.  Generally,  the  general  partner is
entitled to a 10% noncumulative annual return on its capital  contributions from
the cash  income  of the  Partnership  (after  payment  of a like  amount to the
limited  partners).  At such time as the limited  partners  have  received  cash
distributions  from all sources equal to their original  capital  contributions,
cash flow will be  distributed  52% to limited  partners  and 48% to the general
partner.  In no event,  however,  will the  portion  of any item of  Partnership
income, gain, loss, deduction or credit allocated to the general partner be less
than 1%.





















                                     - 33 -

<PAGE>



Item 12.Security Ownership of Certain Beneficial Owners and Management


The general partner is NTS-Properties Associates, a Georgia limited partnership,
10172 Linn Station Road, Louisville, Kentucky 40223. The partners of the general
partner and their total respective interests in
NTS-Properties Associates are as follows:

       J. D. Nichols
       10172 Linn Station Road                     86.07%
       Louisville, Kentucky 40223

       L. C. Aroh
       10904 Old Bridge Place                       8.64%
       Louisville, Kentucky 40223

       Gary D. Adams
       3300 University Boulevard, Suite 150         1.26%
       Winter Park, Florida 32792

       A. Toni Rizzo
       515 Willowhurst Place                        1.26%
       Louisville, Kentucky 40223

       NTS Capital Corporation
       10172 Linn Station Road                      2.67%
       Louisville, Kentucky 40223

       Alliance Realty Corporation
       500 North Broadway                           0.10%
       St. Louis, Missouri 63102

Item 13.      Certain Relationships and Related Transactions

Property management fees of $158,463  (1996),$161,638 (1995) and $148,186 (1994)
were paid to NTS  Development  Company,  an  affiliate  of the general  partner,
pursuant to an agreement with the  Partnership.  The fee is equal to 5% of gross
revenues from the Partnership's properties.  Also permitted by an agreement with
the Partnership,  NTS Development  Company will receive a repair and maintenance
fee equal to 5.9% of costs  incurred which relate to capital  improvements.  The
Partnership  has incurred  $41,001 and $25,498 as a repair and  maintenance  fee
during  the  years  ended  December  31,  1996 and 1995,  respectively,  and has
capitalized this cost as a part of land,  buildings and amenities.  As permitted
by an agreement, the Partnership also was charged the following amounts from NTS
Development  Company for the years ended December 31, 1996, 1995 and 1994. These
charges  include  items  which  have  been  expensed  as  operating  expenses  -
affiliated or professional  and  administrative  expenses - affiliated and items
which have been capitalized as other assets or as land, buildings and amenities.


                             1996               1995              1994
                           --------           --------          ------

Leasing                    $144,372           $124,826          $134,561
Administrative              175,414            172,070           168,003
Property manager            182,750            214,574           178,648
Other                        21,515              7,838            14,767
                            -------            -------           -------

                           $524,051           $519,308          $495,979
                            =======            =======           =======


                                     - 34 -

<PAGE>



Item 13.  Certain Relationships and Related Transactions - Continued

During the years ended December 31, 1996, 1995 and 1994, NTS Development Company
leased  approximately 23,000 square feet of the available space in the Plainview
Plaza II property at a base rent of  approximately  $13.50 per square foot.  The
Partnership  has received  approximately  $315,000 in rental  payments  from NTS
Development Company during 1996, 1995 and 1994. Subsequent to December 31, 1996,
the NTS  Development  Company  lease was extended  five years to March 2002 at a
rental rate of $13.75 for 20,368 square feet. As a result of the lease  renewal,
the  Partnership  has made a  commitment  for  approximately  $170,000 of tenant
finish improvements.

There are no other reportable business  relationships  between the Partnership's
creditors,  customers,  and suppliers and officers of the Manager or the general
partner as of December 31, 1996.


















































                                     - 35 -

<PAGE>



                                     PART IV


Item 14.      Exhibits, Financial Statement Schedules, and Reports on Form 8-K

1.      Financial statements

        The financial  statements for the years ended  December 31, 1996,  1995,
        1994  together with the report of Arthur Andersen LLP dated February 25,
        1997,  appear in Item 8. The  following  financial  statement  schedules
        should be read in conjunction with such financial statements.

2.      Financial statement schedules

        Schedules:                                             Page No.

        III - Real Estate and Accumulated Depreciation          37-38

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

3.      Exhibits

        Exhibit No.                                          Page No.

         3.     Amended and Restated                            *
                Agreement and Certificate
                of Limited Partnership of
                NTS-Properties III

        10.     Management Agreement between                    *
                NTS Development Company and
                NTS-Properties III

        27.     Financial Data Schedule                      Included
                                                             herewith

        *       Incorporated by reference to documents filed with the Securities
                and  Exchange  Commission  in  connection  with  the  filing  of
                Registration Statements on Form S-11 on June 25, 1982 (effective
                October 13, 1982) under Commission File No. 2-78152.

4.      Reports on Form 8-K

        Form 8-K,  dated  December 17,  1996,  was filed to report in Item 5 the
        suspension of the Interest  Repurchase  Program  effective  December 17,
        1996 and the suspension of distributions starting December 31, 1996.



                                     - 36 -

<PAGE>
<TABLE>


                               NTS PROPERTIES III

             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                             AS OF DECEMBER 31, 1996


<CAPTION>


                                                                                       Peachtree
                                                    Plainview          Plainview       Corporate
                                                     Plaza II         Triad North        Center           Total
                                                     --------         -----------        ------           -----
<S>                                                 <C>              <C>              <C>              <C> 
Encumbrances                                            (A)              (B)              (B)

Initial cost to partnership:
  Land                                              $ 1,379,172      $ 1,217,886      $ 1,408,375      $ 4,005,433
  Buildings and improvements                          4,963,604        4,512,172        6,231,114       15,706,890

Cost capitalized subsequent to 
 acquisition:
  Improvements                                        1,061,331        1,246,370        1,900,363        4,208,064
  Carrying costs                                           --               --               --               --

Gross amount at which carried
 December 31, 1996 (C):
  Land                                              $ 1,478,820      $ 1,295,856      $ 1,671,407      $ 4,446,083
  Buildings and improvements                          5,925,287        5,680,572        7,868,445       19,474,304
                                                    -----------      -----------      -----------      -----------

  Total                                             $ 7,404,107      $ 6,976,428      $ 9,539,852      $23,920,387
                                                    ===========      ===========      ===========      ===========

Accumulated depreciation                            $ 4,793,369      $ 3,972,554      $ 6,303,681      $15,069,604
                                                    ===========      ===========      ===========      ===========

Date of construction                                    N/A              N/A              N/A

Date Acquired                                          01/83            02/83            01/83

Life at which depreciation in
 latest income statement is
 computed                                               (D)              (D)              (D)

<FN>

(A) First and second mortgage held by two insurance companies.

(B) First mortgage held by an insurance company.

(C) Aggregate cost of real estate for tax purposes is $24,497,619.

(D)  Depreciation is computed using the straight-line  method over the estimated
     useful lives of the assets which are 5 - 30 years for land improvements,  5
     - 30 years for buildings and improvements and 3 - 30 years for amenities.
</FN>
</TABLE>

                                     - 37 -

<PAGE>

<TABLE>


                               NTS-PROPERTIES III

             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>



                                                   Real            Accumulated
                                                  Estate           Depreciation
                                                  ------           ------------

<S>                                            <C>                 <C>         
Balances at December 31, 1993                  $ 23,548,627        $ 12,765,524

Additions during period:
 Improvements (a)                                   454,958                --
 Depreciation (b)                                      --               983,352

Deductions during period:
 Retirements                                       (309,262)           (297,489)
                                               ------------        ------------

Balances at December 31, 1994                    23,694,323          13,451,387

Additions during period:
 Improvements (a)                                   414,424                --
 Depreciation (b)                                      --             1,015,382

Deductions during period:
 Retirements                                       (276,716)           (220,024)
                                               ------------        ------------

Balances at December 31, 1995                    23,832,031          14,246,745

Additions during period:
 Improvements (a)                                   160,532                --
 Depreciation (b)                                      --               894,435

Deductions during period:
 Retirements                                        (72,176)            (71,576)
                                               ------------        ------------


Balances at December 31, 1996                  $ 23,920,387        $ 15,069,604
                                               ============        ============





<FN>

(a)  The  additions  to  improvements  on this  schedule  will  differ  from the
     additions to land, buildings, amenities and construction in progress on the
     Statements  of Cash Flows  primarily due to the fact that  construction  in
     progress is not included in the real estate balance above.

(b)  The additions  charged to  accumulated  depreciation  on this schedule will
     differ from the  depreciation  and  amortization  on the Statements of Cash
     Flows due to the amortization of loan costs.
</FN>
</TABLE>


                                     - 38 -

<PAGE>




                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  NTS-Properties III has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                     NTS-PROPERTIES III
                                        (Registrant)

                                     BY:   NTS-Properties Associates,
                                           General Partner
                                           BY: NTS Capital Corporation,
                                               General Partner


                                           /s/ John W. Hampton
                                               John W. Hampton
                                               Senior Vice President



Date:      March  24 , 1997


Pursuant to the  requirements  of the Securities and Exchange Act of 1934,  this
Form  10-K has been  signed  below by the  following  persons  on  behalf of the
registrant in their capacities and on the date indicated above.

              Signature                         Title
              ---------                         -----



/s/ J. D. Nichols                      General Partner of NTS-Properties
    J. D. Nichols                      Associates and Chairman of the Board and
                                       Sole Director of NTS Capital Corporation

/s/ Richard L. Good                    President of NTS Capital Corporation
    Richard L. Good


/s/ John W. Hampton                    Senior Vice President of NTS Capital
    John W. Hampton                    Corporation


The Partnership is a limited  partnership and no proxy material has been sent to
the limited partners.


















                                     - 39 -


<PAGE>