<PAGE>







                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D. C. 20549

                                    FORM 10-Q

(Mark one)

[x]      QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
         OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended           September 30, 1997
                               


                                       OR

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

For the transition period from _________ to _______

                         Commission File Number 0-11176

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

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

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

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

                                 Not Applicable
               Former name, former address and former fiscal year,
                          if changed since last report

Indicate by check mark whether the registrant (l) 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,  and (2) has been subject to such filing  requirements
for the past 90 days.

                                               YES  X         NO

Exhibit Index: See page 16
Total Pages: 17





<PAGE>



                                TABLE OF CONTENTS


                                                                    Pages

                                     PART I

Item 1.     Financial Statements

            Balance Sheets and Statement of Partners' Equity
              as of September 30, 1997 and December 31, 1996            3

            Statements of Operations
              For the three months and nine months ended
              September 30, 1997 and 1996                               4

            Statements of Cash Flows
              For the three months and nine months ended
              September 30, 1997 and 1996                               5

            Notes To Financial Statements                             6-8

Item 2.     Management's Discussion and Analysis of Financial
              Condition and Results of Operations                    9-15


                                     PART II

1.     Legal Proceedings                                               16
2.     Changes in Securities                                           16
3.     Defaults upon Senior Securities                                 16
4.     Submission of Matters to a Vote of Security Holders             16
5.     Other Information                                               16
6.     Exhibits and Reports on Form 8-K                                16

Signatures                                                             17



                                      - 2 -

<PAGE>



PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements
<TABLE>

                               NTS-PROPERTIES III

                BALANCE SHEETS AND STATEMENT OF PARTNERS' EQUITY

<CAPTION>


                                                       As of             As of
                                                 September 30,1997 December 31, 1996*
                                                 ----------------- -----------------
ASSETS

<S>                                                  <C>             <C>        
Cash and equivalents                                 $   538,748     $   661,383
Cash and equivalents - restricted                        322,814         311,390
Investment securities                                    102,515              --
Accounts receivable, net of allowance
 for doubtful accounts of $41,668 (1997)
 and $81,980 (1996)                                      212,144         198,970
Land, buildings and amenities, net                     9,672,838       8,850,783
Construction in progress                                      --         577,233
Other assets                                             352,314         376,127
                                                     -----------     -----------

  Total assets                                       $11,201,373     $10,975,886
                                                     ===========     ===========

LIABILITIES AND PARTNERS' EQUITY

Mortgages payable                                    $ 6,774,395     $ 6,859,637
Accounts payable - operations                             97,440          97,702
Accounts payable - construction                          152,985          54,070
Security deposits                                         82,037          92,934
Other liabilities                                        123,137          11,415
                                                     -----------     -----------

                                                       7,229,994       7,115,758
Commitments and Contingencies

Partners' equity                                       3,971,379       3,860,128
                                                     -----------     -----------

                                                     $11,201,373     $10,975,886
                                                     ===========     ===========

</TABLE>
<TABLE>
<CAPTION>


                                          Limited         General
                                         Partners         Partner          Total
                                         --------         -------          -----
<S>                                    <C>             <C>             <C>         
PARTNERS' EQUITY
Initial equity                         $ 15,600,000    $  8,039,710    $ 23,639,710
Adjustment to historical basis                   --      (5,455,030)     (5,455,030)
                                       ------------    ------------    ------------

                                         15,600,000       2,584,680      18,184,680
Net loss - prior years                     (164,405)     (2,290,485)     (2,454,890)
Net income (loss) - current year            196,710         (80,052)        116,658
Cash distributions declared to
 date                                   (11,349,844)       (206,985)    (11,556,829)
Repurchase of limited partnership
 units                                     (318,240)             --        (318,240)
                                       ------------    ------------    ------------

Balances at September 30, 1997         $  3,964,221    $      7,158    $  3,971,379
                                       ============    ============    ============
</TABLE>

*Reference is made to the audited financial statements in the Form 10-K as filed
with the Commission on March 27, 1997.

                                      - 3 -

<PAGE>


<TABLE>



                               NTS-PROPERTIES III

                            STATEMENTS OF OPERATIONS

<CAPTION>


                                         Three Months Ended        Nine Months Ended
                                            September 30,            September  30,
                                            -------------            --------------


                                         1997          1996        1997         1996
                                        ------        ------      ------        -----
<S>                                  <C>           <C>          <C>          <C>       
REVENUES:
  Rental income, net of provision
  for doubtful accounts of $22,570
   (1997) and $36,974 (1996)         $  790,256    $  730,495   $2,305,780   $2,156,906
  Rental income - affiliated             70,388        78,165      211,016      236,334
  Interest and other income               9,277        15,521       28,344       38,835
                                     ----------    ----------   ----------   ----------

                                        869,921       824,181    2,545,140    2,432,075

EXPENSES:
  Operating expenses                    216,559       179,982      571,139      536,265
  Operating expenses - affiliated       118,008        70,934      330,272      239,183
 Write-off unamortized building
   improvements                          69,912            --       69,912           --
  Interest expense                      131,640       138,778      398,091      421,586
  Management fees                        42,221        39,278      126,572      116,964
  Real estate taxes                      49,651        51,485      155,369      159,070
  Professional and administrative
     expenses                            15,031        14,708       45,819       47,691
  Professional and administrative
     expenses - affiliated               33,610        36,579      103,028      110,744
  Depreciation and amortization         209,322       215,176      628,280      700,991
                                     ----------    ----------   ----------   ----------

                                        885,954       746,920    2,428,482    2,332,494
                                     ----------    ----------   ----------   ----------

Net income (loss)                    $  (16,033)   $   77,261   $  116,658   $   99,581
                                     ==========    ==========   ==========   ==========


Net income allocated to the
 limited partners                    $   17,005    $  100,673   $  196,710   $  171,143
                                     ==========    ==========   ==========   ==========

Net income per limited                                                       
 partnership unit                    $     1.21    $     7.04   $    13.98   $    11.79
                                     ==========    ==========   ==========   ==========
                      

Weighted average number of units         14,070        14,296       14,073       14,521
                                     ==========    ==========   ==========   ==========

</TABLE>



                                      - 4 -

<PAGE>

<TABLE>


                               NTS-PROPERTIES III

                            STATEMENTS OF CASH FLOWS
<CAPTION>



                                                Three Months Ended       Nine Months Ended
                                                   September 30,            September 30,
                                                   -------------            -------------

                                              1997          1996         1997         1996
                                             ------        ------       ------       ------
<S>                                         <C>          <C>          <C>          <C>  
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                           $ (16,033)   $  77,261    $ 116,658    $  99,581
Adjustments to reconcile net income
 (loss)to net cash provided by
 operating activities:
      Accrued interest on investment
     securities                                   (54)        (640)         (54)      (2,123)
      Provision for doubtful accounts           8,017       18,636       22,570       36,974
      Write-off unamortized building
     improvements                              69,912           --       69,912           --
      Depreciation and amortization           209,322      215,176      628,280      700,991
      Changes in assets and liabilities:
        Cash and equivalents - restricted     (15,615)     (15,615)     (45,679)     (46,845)
        Accounts receivable                       833      (25,485)     (35,746)     (78,535)
        Other assets                            5,856     (174,973)      10,051     (184,184)
        Accounts payable - operations          18,096      181,934         (262)     186,195
        Security deposits                      (9,057)      (1,710)     (10,897)      (2,371)
        Other liabilities                       7,576          384      111,725      106,063
                                            ---------    ---------    ---------    ---------

Net cash provided by operating
   activities                                 278,853      274,968      866,558      815,746
                                            ---------    ---------    ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings, amenities
  and construction in progress               (255,064)    (173,652)    (830,338)    (221,221)
Increase in cash and equivalents -
   restricted                                  (2,975)     (17,063)      (8,701)     (63,389)
Decrease in cash and equivalents
 restricted                                    15,789           --       15,789           --
Purchase of investment securities            (102,461)    (216,257)    (102,461)    (855,999)
Maturity of investment securities                  --      479,742           --      581,395
                                            ---------    ---------    ---------    ---------

   Net cash provided by (used in)
    investing activities                     (344,711)      72,770     (925,711)    (559,214)
                                            ---------    ---------    ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgages
  payable                                     (29,062)     (26,537)     (85,242)     (77,835)
Cash distributions                                 --      (36,213)          --     (109,767)
Repurchase of limited partnership
  units                                            --      (69,680)      (5,408)    (145,600)
Increase (decrease) in cash and
 equivalents - restricted                          --       69,680       27,168      (98,100)
                                            ---------    ---------    ---------    ---------

   Net cash used in financing activities      (29,062)     (62,750)     (63,482)    (431,302)
                                            ---------    ---------    ---------    ---------

  Net increase (decrease) in cash and
   equivalents                                (94,920)     284,988     (122,635)    (174,770)

CASH AND EQUIVALENTS, beginning of
   period                                     633,668      167,126      661,383      626,884
                                            ---------    ---------    ---------    ---------

CASH AND EQUIVALENTS, end of period         $ 538,748    $ 452,114    $ 538,748    $ 452,114
                                            =========    =========    =========    =========

Interest paid on a cash basis               $ 132,915    $ 139,491    $ 400,503    $ 423,097
                                            =========    =========    =========    =========

</TABLE>


                                      - 5 -

<PAGE>



                               NTS-PROPERTIES III

                          NOTES TO FINANCIAL STATEMENTS



  The financial  statements  included herein should be read in conjunction  with
  the  Partnership's  1996 Annual Report. In the opinion of the general partner,
  all adjustments (consisting only of normal recurring accruals) necessary for a
  fair presentation have been made to the accompanying  financial statements for
  the three months and nine months ended September 30, 1997 and 1996.

  1. 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.

  2. 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 at
     Peachtree  Corporate Center is replaced,  2) funds which have been escrowed
     with a  mortgage  company  for  Plainview  Plaza  II's  property  taxes  in
     accordance  with the loan agreement and 3) funds which the  Partnership has
     reserved for the repurchase of limited partnership Units (1996 only).

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

     Pursuant  to  Section  16.4  of  the  Partnership's  Amended  and  Restated
     Agreement of Limited Partnership,  the Partnership  established an Interest
     Repurchase  Reserve.  Through  September  30,  1997,  the  Partnership  has
     repurchased  a total of 1,530  Units for  $318,240.  Repurchased  Units are
     retired by the Partnership,  thus increasing the share of ownership of each
     remaining  investor.  On  December  17, 1996 the  Partnership  indefinitely
     suspended the Interest Repurchase Program.

  4. 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  1996  and  1997,  the  Partnership  sold  no  investment
     securities.  As of December 31, 1996,  the  Partnership  held no investment
     securities.  The following  provides details regarding the investments held
     at September 30, 1997.




                                   Amortized        Maturity        Value at
                 Type                 Cost            Date          Maturity
                 ----                 ----            ----          --------

        Certificate of Deposit     $ 102,515        12/31/97       $ 103,844
                                    ========                        ========







                                      - 6 -

<PAGE>


 5. Mortgages Payables
    ------------------



                                             September 30,      December 31,
                                                  1997             1996
                                                  ----             ----
    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 September 30, 1997 is 7.05%       $ 4,500,000       $ 4,500,000

    Mortgage payable to an insurance  
    company bearing  interest at 9.125%,  
    maturing November 1, 1998, secured
    by land and building                        2,274,395         2,359,637
                                              -----------        ----------
                                              $ 6,774,395       $ 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 $6,963,000.

    Effective  October 1, 1997,  the interest rate on the  $4,500,000  mortgage
    payable adjusted to 6.68%.

 6. Related Party Transactions
    --------------------------

    Property  management fees of $126,572 and $116,964 for the nine months ended
    September  30,  1997 and 1996,  respectively,  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,  NTS Development
    Company  will  receive a repair and  maintenance  fee equal to 5.9% of costs
    incurred  which relate to capital  improvements.  The  Partnership  incurred
    $52,486 and $32,732 as a repair and  maintenance  fee during the nine months
    ended September 30, 1997 and 1996,  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 nine months ended  September 30, 1997 and 1996.
    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,  land,  buildings  and
    amenities, or construction in progress. These charges were as follows:

                                            1997                  1996
                                          --------              --------

        Leasing                          $ 209,389             $ 117,283
        Administrative                     127,012               132,724
        Property manager                   126,476               141,171
        Other                               23,701                12,827
                                          --------              --------

                                         $ 486,578             $ 404,005
                                          ========              ========




                                      - 7 -

<PAGE>



6.   Related Party Transactions - Continued
     --------------------------------------

     During January 1997, NTS  Development  Company leased 23,160 square feet of
     the  available  space in  Plainview  Plaza II at a based rent of $13.50 per
     square foot.  Effective February 1, 1997, 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. The Partnership has received  approximately $211,000 in
     rental payments from NTS  Development  Company during the nine months ended
     September 30, 1997.

     During the nine months ended  September 30, 1996, NTS  Development  Company
     leased 23,160 square feet in Plainview  Plaza II at base rent of $13.50 per
     square foot. The Partnership has received  approximately $236,000 in rental
     payments  from  NTS  Development  Company  during  the  nine  months  ended
     September 30, 1996.


7.   Reclassification of 1996 Financial Statements
     ---------------------------------------------

     Certain  reclassifications  have  been  made  to  the  September  30,  1996
     financial   statements   to   conform   with   the   September   30,   1997
     classifications.  These  reclassifications  have no  effect  on  previously
     reported operations.

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

     One tenant at Plainview  Triad North  occupies  nearly 65% of the building.
     During the third quarter of 1997, the Partnership  received notice that the
     tenant will vacate the property at the end of the lease term,  August 1998.
     As a result,  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  those  needed  to  refinish  space  for new
     tenants. At this time, the amount of such expenses are unknown.

     As of  September  30,  1997,  the  Partnership  had  commitments  totalling
     approximately  $120,000  for  sidewalk  improvements  and  landscaping  and
     exterior  building   renovations  at  Plainview  Plaza  II.  Subsequent  to
     September   30,  1997,   the   Partnership   made   commitments   totalling
     approximately  $200,000  for  parking  lot  resurfacing  and site  lighting
     upgrades at Plainview Plaza II.




                                      - 8 -

<PAGE>



Item 2.  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 September 30 were as
follows:


                                              1997                   1996
                                              ----                   ----
    Plainview Plaza II                         89%                    84%

    Plainview Triad North                      86%                    94%

    Peachtree Corporate Center                 89%                    96%

The rental and other income  generated by the  Partnership's  properties for the
three months and nine months ended September 30 were as follows:


                               Three Months Ended       Nine Months Ended
                                  September 30,            September 30,
                                  -------------            -------------

                                1997        1996         1997         1996
                               ------      ------       ------        -----
Plainview Plaza II            $ 316,746   $ 268,187   $ 924,158    $ 803,270

Plainview Triad North         $ 268,945   $ 266,381   $ 781,317    $ 766,240

Peachtree Corporate Center    $ 275,218   $ 276,708   $ 813,168    $ 828,878


The 5% increase in occupancy  from  September  30, 1996 to September 30, 1997 at
Plainview Plaza II can be attributed to three new leases totalling approximately
9,300 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.  Also  included in
the new leases is an  approximately  3,200  square feet  expansion  by a current
tenant.  The new leases are  partially  offset by a decrease  in square  footage
(approximately  2,800 square feet) by NTS Development  Company,  an affiliate of
the General Partner.  NTS Development  Company  consolidated its leased space so
that the Partnership could accommodate an expansion by a current tenant. Average
occupancy  increased  from 83% in 1996 to 89% in 1997 for the three months ended
September 30 and from 82% in 1996 to 88% in 1997 for the nine month period.  The
increase in rental and other income at  Plainview  Plaza II for the three months
and nine months ended September 30, 1997 as compared to the same periods in 1996
can be attributed to the increase in average  occupancy during the periods along
with increased rental rates for lease renewals.

Plainview  Triad  North's  occupancy  decreased  8% from  September  30, 1996 to
September 30, 1997 as a result of two tenant move-outs  totalling  approximately
8,300 square feet. Of this total,  approximately  4,900 square feet represents a
tenant that vacated  prior to the end of the lease term but is continuing to pay
rent through the end of the lease term (May 1998).  The remaining  approximately
3,400 square feet represents a tenant that vacated at the end of the lease term.






                                      - 9 -

<PAGE>



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

Partially  offsetting the tenant  move-outs is one expansion  lease by a current
tenant totalling approximately 700 square feet. Average occupancy decreased from
95% in 1996 to 89% in 1997 for the three months ended September 30, and from 94%
in 1996 to 91% in 1997 for the nine month  period.  Rental  and other  income at
Plainview  Triad North  increased  for the three  months and nine  months  ended
September 30, 1997 as compared to the same periods in 1996 due to an increase in
rental rates for lease renewals partially offset by an increase in the provision
for doubtful accounts and a decrease in average occupancy.

Peachtree  Corporate Center's occupancy  decreased 7% from September 30, 1996 to
September 30, 1997 due to move-outs by 12 tenants who had occupied approximately
31,200 square feet.  Approximately  14,200 square feet of this total  represents
five  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.  The  remaining  17,000 square feet of the total
move-outs  are the result of seven  tenants  (occupied a total of  approximately
13,800  square  feet) who  vacated  at the end of the lease  term and one tenant
(3,200 square feet) who exercised a termination option. Partially offsetting the
move-outs are seven new leases  totalling  approximately  17,600 square feet, of
which  approximately  9,000 square feet  represents  expansions by three current
tenants.  Average occupancy at Peachtree  Corporate Center decreased from 96% in
1996 to 89% in 1997 for the three months ended September 30 and from 94% in 1996
to 86% in 1997 for the nine month  period.  Rental and other income at Peachtree
Corporate  Center  decreased  for the nine months  ended  September  30, 1997 as
compared  to the  same  period  in 1996 as a result  of a  decrease  in  average
occupancy partially offset by a decrease in the provision for doubtful accounts.
Rental and other income remained fairly constant at Peachtree  Corporate  Center
for the three months ended  September 30, 1997 as compared to the same period in
1996  despite a decrease  in average  occupancy  as a result of an  increase  in
common  area  expense  reimbursements.  Tenants at  Peachtree  Corporate  Center
reimburse  the  Partnership  for  common  area  expenses  as part  of the  lease
agreements.

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  the three  months and nine  months  ended
September  30, 1997 or 1996.  As of September  30, 1997,  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.

Interest and other income includes  interest income earned from investments made
by  the  Partnership  with  cash  reserves  and  from  funds  escrowed  for  the
replacement of the heating,  ventilating and air conditioning ("HVAC") system at
Peachtree  Corporate  Center.  The decrease in interest and other income for the
three  months and nine months ended  September  30, 1997 as compared to the same
period in 1996 is the  result  of a  decrease  in cash  reserves  available  for
investment.

The increase in operating  expenses for the nine months ended September 30, 1997
as  compared  to  the  same  period  in  1996  is  due  primarily  to  increased
landscaping,  snow removal and  advertising  costs at Plainview  Triad North and
Plainview Plaza II. The increase is also due to an increase in vacant  utilities
due to a decrease  in average  occupancy  at  Peachtree  Corporate  Center.  The
increase in





                                     - 10 -

<PAGE>



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

operating  expenses for the three months ended September 30, 1997 as compared to
the same period in 1996 is due primarily to an increase in landscaping  expenses
at all of the  Partnership's  properties  and an  increase  in  advertising  and
building maintenance costs at Plainview Plaza II and Plainview Triad North.

The  increase in operating  expenses - affiliated  for the three months and nine
months  ended  September  30,  1997 as  compared to the same period in 1996 is a
result of increased  leasing costs at Peachtree  Corporate  Center and Plainview
Triad North. The increase in leasing costs at Plainview Triad North is primarily
a result of the Aetna Life Insurance Company lease situation as discussed below.
The increase in operating expenses  affiliated is partially offset by a decrease
in property  management costs at Peachtree Corporate Center and leasing costs at
Plainview  Plaza II. The  increase in operating  expenses -  affiliated  for the
three  month  period  is also  due to  increased  property  management  costs at
Plainview Plaza II and Plainview Triad North. Operating  expenses-affiliated are
expenses  incurred  for  services  performed  by  employees  of NTS  Development
Company, an affiliate of the General Partner.

The 1997 write-off of  unamortized  building  improvements  is the result of the
renovations of common area lobbies,  corridors and restrooms at Plainview  Plaza
II. The write-off represents the cost of previous renovations which had not been
fully depreciated.

The  decrease in interest  expense  for the three  months and nine months  ended
September  30, 1997 as  compared to the same  periods in 1996 is due to the fact
that the  interest  rate on the  $4,500,000  mortgage  payable was lower in 1997
compared to 1996. The interest rate was 6.94% from January to March 1997,  7.39%
from April to June 1997 and 7.05% from July to September  1997 compared to 7.65%
from  January to June 1996 and 7.46% from July to September  1996.  The interest
rate on this note adjusts quarterly to 60 basis points over the 10-year treasury
bill rate.  The decrease in interest  expense for the three month and nine month
periods is also due to a decrease in interest expense on the $2,274,395 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.

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  periods will differ from the  fluctuations of
management fee expense.

Real estate taxes and professional and  administrative  expenses remained fairly
constant  for the three  months and nine  months  ended  September  30,  1997 as
compared to the same periods in 1996.

Professional  and  administrative  expenses - affiliated  have decreased for the
three and nine months ended  September  30, 1997 as compared to the same periods
in  1996  as  a  result  of  a  decrease  in  salary  costs.   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  expense for the three months and
nine months ended  September 30, 1997 as compared to the same periods in 1996 is
the result of a portion of the  Partnership's  assets  (primarily  tenant finish
improvements) becoming fully depreciated since September 30, 1996.  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.



                                     - 11 -

<PAGE>




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

The  Partnership  had cash flow from  operations of $866,558 (1997) and $815,746
(1996) for the nine months ended  September 30. The 1996 funds,  in  conjunction
with cash on hand, were used to make a 1% (annualized)  distribution of $108,018
in 1996.  The  annualized  distribution  rate is  calculated as a percent of the
initial equity. The limited partners received 100% of these  distributions.  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  sheet as of September  30) were  $641,263 and $831,896 at September 30,
1997 and 1996, respectively.

As of September 30, 1997, 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.
The current rate at September 30, 1997 was 7.05%. Effective October 1, 1997, the
interest  rate  adjusted  to 6.68%.  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 September  30, 1997,  the  Partnership  also had a mortgage  payable to an
insurance  company  in the  amount of  $2,274,395.  The  mortgage  bears a fixed
interest  rate of 9.125%,  is due  November 1, 1998 and is secured by  Plainview
Plaza II. The  outstanding  balance at  maturity  based on the  current  rate of
amortization will be $2,140,539.

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
and cash reserves.  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 at Peachtree
Corporate Center and the purchase 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  greater than
three months to improve the return on its cash reserves. The Partnership intends
to hold  the  securities  until  maturity.  Cash  flows  provided  by  investing
activities  in 1996 are from the maturity of investment  securities.  Cash flows
provided  by  investing  activities  in 1997 are from the  release of the escrow
funds mentioned above. Cash flows used in financing activities include principal
payments on the $2.3  million  mortgage  payable and the  repurchase  of limited
partnership Units. Cash flows used in financing activities in 1996 also included
cash  distributions and increases in cash reserved for the repurchase of limited
partnership  Units. Cash flows provided by financing  activities  represents the
utilization  of  cash  which  has  been  reserved  by the  Partnership  for  the
repurchase 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 123,849  square feet in leases  expiring  from October 1, 1997 to
September 30, 1998 (Plainview Plaza II - 14,481 square feet, Plainview Triad



                                     - 12 -

<PAGE>




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

North - 70,078  square feet  (includes  Aetna Life  Insurance  - see  discussion
below) and Peachtree  Corporate  Center - 39,290 square feet). 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  that the
cash flow from operations and cash reserves will be sufficient to meet the needs
of the Partnership.

Pursuant to Section 16.4 of the Partnership's  Amended and Restated Agreement of
Limited Partnership, the Partnership established an Interest Repurchase Reserve.
Through  September 30, 1997, the  Partnership  has  repurchased a total of 1,530
Units for  $318,240.  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 indefinitely  suspended.  See below
for further discussion.

The lease for Aetna Life  Insurance  Company,  the largest  tenant of  Plainview
Triad North,  occupying  nearly 65% of the  building,  was  extended  during the
second  quarter of 1997 from  August 1997 to August  1998.  There were no tenant
finish  improvements as a result of this renewal.  Aetna accounts for nearly 21%
of  the  NTS-Properties  III  total  revenue.  During  the  third  quarter,  the
Partnership  received  notice that Aetna will vacate the  property at the end of
the extended lease term. As a result,  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 those needed to refinish space for new
tenants. As this time, the amount of such expenses are unknown.  The Partnership
is actively seeking new tenants for this space.

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

As  of  September  30,  1997,  the   Partnership   had   commitments   totalling
approximately  $120,000 for sidewalk  improvements  and landscaping and exterior
building  renovations at Plainview  Plaza II.  Subsequent to September 30, 1997,
the Partnership made commitments  totalling  approximately  $200,000 for parking
lot  resurfacing  and site lighting  upgrades at Plainview  Plaza II. During the
fourth quarter of 1997, the Partnership also anticipates  additional  demands on
cash  reserves  as  the  exterior  renovation  of  the  property  is  completed.
Currently,  the remaining project costs are estimated at approximately $100,000.
The most  significant  item included in this amount is building signage which is
projected to cost approximately  $65,000.  All of these projects are part of the
Partnership's  continued  effort to make the  Plainview  Plaza II property  more
competitive  and  enhance  its  value.  These  projects  will be  funded  with a
combination of cash reserves and cash flow from operating activities.

In the fourth quarter of 1997, the Partnership also anticipates a demand on cash
reserves  of  approximately  $90,000 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 square feet.

The  Partnership  had no other material  commitments  for renovations or capital
improvements at September 30, 1997.







                                     - 13 -

<PAGE>




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

The table below  presents  that portion of the  distributions  that  represent a
return of capital on a Generally  Accepted  Accounting  Principle  basis for the
nine  months  ended  September  30, 1997 and 1996.  The General  Partner did not
receive a distribution  during these periods.  Distributions were funded by cash
flow derived from operating activities.



                                                   Cash
                           Net Income          Distributions       Return of
                           Allocated             Declared           Capital
                           ---------             --------           -------

Limited Partners:
       1997                 $ 196,710            $   --             $   --
       1996                 $ 171,143            $108,018           $   --


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 2, Management's  Discussion and Analysis
of Financial Condition and Results of Operations,  and elsewhere in this report,
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.

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 payment of other partnership expenses


                                     - 14 -

<PAGE>



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

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  flows  and  cash  requirements  as well as its  ability  to pay
distributions to the limited partners.




















                                     - 15 -

<PAGE>



PART II.  OTHER INFORMATION


     1.   Legal Proceedings

          None

     2.   Changes in Securities

          None

     3.   Defaults upon Senior Securities

          None

     4.   Submission of Matters to a Vote of Security Holders

          None

     5.   Other Information

          None

     6.   Exhibits and Reports on Form 8-K

          (a)   Exhibits

                Exhibit 27. Financial Data Schedule

          (b)   Reports on Form 8-K

                Form  8-K was  filed  September  3,  1997  to  report  that  the
                Partnership has received  notice that Aetna Life Insurance,  the
                largest tenant at Plainview Triad North,  will vacate at the end
                of the lease term (August 1998).











                                     - 16 -

<PAGE>



                                   SIGNATURES


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


                                                 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:    November 12, 1997



                                     - 17 -