<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           June 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 15
Total Pages: 16





<PAGE>



                                TABLE OF CONTENTS


                                                                      Pages

                                     PART I

Item 1.     Financial Statements

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

            Statements of Operations
              For the three months and six months ended
               June 30, 1997 and 1996                                     4

            Statements of Cash Flows
              For the three months and six months ended
               June 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                      9-14


                                     PART II

1.     Legal Proceedings                                                 15
2.     Changes in Securities                                             15
3.     Defaults upon Senior Securities                                   15
4.     Submission of Matters to a Vote of Security Holders               15
5.     Other Information                                                 15
6.     Exhibits and Reports on Form 8-K                                  15

Signatures                                                               16



                                      - 2 -

<PAGE>


<TABLE>

PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements

                               NTS-PROPERTIES III

                BALANCE SHEETS AND STATEMENT OF PARTNERS' EQUITY
<CAPTION>


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

<S>                                                  <C>             <C>        
Cash and equivalents                                 $   633,668     $   661,383
Cash and equivalents - restricted                        320,013         311,390
Accounts receivable, net of allowance
 for doubtful accounts of $96,532 (1997)
 and $81,980 (1996)                                      220,995         198,970
Land, buildings and amenities, net                     8,654,464       8,850,783
Construction in progress                               1,054,774         577,233
Other assets                                             363,292         376,127
                                                     -----------     -----------

  Total assets                                       $11,247,206     $10,975,886
                                                     ===========     ===========

LIABILITIES AND PARTNERS' EQUITY

Mortgages payable                                    $ 6,803,457     $ 6,859,637
Accounts payable - operations                             79,344          97,702
Accounts payable - construction                          170,335          54,070
Security deposits                                         91,094          92,934
Other liabilities                                        115,564          11,415
                                                     -----------     -----------

                                                       7,259,794       7,115,758
Commitments and Contingencies

Partners' equity                                       3,987,412       3,860,128
                                                     -----------     -----------

                                                     $11,247,206     $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         179,706         (47,015)        132,691
Cash distributions declared to
 date                                (11,349,844)       (206,985)    (11,556,829)
Repurchase of limited partnership
 units                                  (318,240)             --        (318,240)
                                    ------------    ------------    ------------

Balances at June 30, 1997           $  3,947,217    $     40,195    $  3,987,412
                                    ============    ============    ============
</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         Six Months Ended
                                              June 30,                 June 30,
                                              --------                 --------

                                        1997         1996         1997         1996
                                     ----------   ----------   ----------   ----------
<S>                                  <C>          <C>          <C>          <C>       
REVENUES:
  Rental income, net of provision
  for doubtful accounts of $14,552
   (1997) and $18,338 (1996)         $  766,511   $  713,211   $1,515,552   $1,426,411
  Rental income - affiliated             68,742       78,165      140,600      158,169
  Interest and other income               7,096       12,449       19,068       23,315
                                     ----------   ----------   ----------   ----------

                                        842,349      803,825    1,675,220    1,607,895

EXPENSES:
  Operating expenses                    174,640      169,408      354,580      356,285
  Operating expenses - affiliated       108,128       82,679      212,264      168,248
  Interest expense                      134,431      140,906      266,451      282,808
  Management fees                        42,072       41,950       84,352       77,686
  Real estate taxes                      52,921       53,793      105,719      107,585
  Professional and administrative
     expenses                            17,509       14,552       30,789       32,983
  Professional and administrative
     expenses - affiliated               34,805       35,228       69,417       74,165
  Depreciation and amortization         210,396      228,820      418,957      485,816
                                     ----------   ----------   ----------   ----------

                                        774,902      767,336    1,542,529    1,585,576
                                     ----------   ----------   ----------   ----------

Net income                           $   67,447   $   36,489   $  132,691   $   22,319
                                     ==========   ==========   ==========   ==========

Net income allocated to the
 limited partners                    $   90,943   $   60,089   $  179,706   $   70,470
                                     ==========   ==========   ==========   ==========

Net income per limited
 partnership unit                    $     6.46   $     4.13   $    12.77   $     4.82
                                     ==========   ==========   ==========   ==========

Weighted average number of units         14,074       14,536       14,074       14,634
                                     ==========   ==========   ==========   ==========
</TABLE>




                                      - 4 -

<PAGE>

<TABLE>


                               NTS-PROPERTIES III

                            STATEMENTS OF CASH FLOWS
<CAPTION>



                                               Three Months Ended         Six Months Ended
                                                    June 30,                  June 30,
                                                    --------                  --------

                                               1997         1996         1997         1996
                                            ---------    ---------    ---------    --------- 
<S>                                         <C>          <C>          <C>          <C>  
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                  $  67,447    $  36,489    $ 132,691    $  22,319
Adjustments to reconcile net income
 to net cash provided by operating
 activities:
      Accrued interest on investment
     securities                                    --       (2,885)          --       (1,483)
      Provision for doubtful accounts           9,912        6,380       14,552       18,338
      Depreciation and amortization           210,396      228,820      418,957      485,816
      Changes in assets and liabilities:
        Cash and equivalents - restricted     (15,615)     (15,615)     (30,064)     (31,230)
        Accounts receivable                   (30,900)      29,097      (36,577)     (53,050)
        Other assets                           16,933        9,870        2,593       (9,211)
        Accounts payable - operations         (29,024)     (39,990)     (18,358)       4,261
        Security deposits                         759          (95)      (1,840)        (661)
        Other liabilities                      48,573       37,090      104,149      105,679
                                            ---------    ---------    ---------    ---------

Net cash provided by operating
   activities                                 278,481      289,161      586,103      540,778
                                            ---------    ---------    ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings, amenities
  and construction in progress               (382,451)     (37,995)    (573,671)     (47,569)
Increase in cash and equivalents -
   restricted                                  (2,914)     (23,363)      (5,727)     (46,406)
Purchase of investment securities                  --     (639,742)
Maturity of investment securities                  --           --           --      101,653
                                            ---------    ---------    ---------    ---------
                                                                                    
   Net cash used in investing
    activities                               (385,365)    (701,100)    (579,398)    (632,064)
                                            ---------    ---------    ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgages
  payable                                     (28,409)     (25,940)     (56,180)     (51,298)
Cash distributions                                 --      (36,429)          --      (73,554)
Repurchase of limited partnership
  units                                            --      (18,096)      (5,408)     (75,920)
Decrease in cash and equivalents -
 restricted                                        --     (125,604)      27,168     (167,780)
                                            ---------    ---------    ---------    ---------

   Net cash used in financing activities      (28,409)    (206,069)     (34,420)    (368,552)
                                            ---------    ---------    ---------    ---------

  Net decrease in cash and equivalents       (135,293)    (618,008)     (27,715)    (459,838)

CASH AND EQUIVALENTS, beginning of
   period                                     768,961      785,054      661,383      626,884
                                            ---------    ---------    ---------    ---------

CASH AND EQUIVALENTS, end of period         $ 633,668    $ 167,046    $ 633,668    $ 167,046
                                            =========    =========    =========    =========

Interest paid on a cash basis               $ 134,431    $ 141,511    $ 267,588    $ 283,606
                                            =========    =========    =========    =========
</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 six months ended June 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 June 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
   June 30, 1997 and December  31,  1996,  the  Partnership  held no  investment
   securities.



               (Notes to financial statements continued next page)


                                      - 6 -

<PAGE>


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


                                                June 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 June 30, 1997 is 7.39%             $ 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                         2,303,457         2,359,637
                                              -----------        ----------
                                              $ 6,803,457       $ 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 $7,037,000.

   Effective July 1, 1997, the interest rate on the $4,500,000  mortgage payable
   adjusted to 7.05%.

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

   Property management fees of $84,352 and $77,686 for the six months ended June
   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 $38,338 and $3,580
   as a repair and maintenance fee during the six months ended June 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 six
   months ended June 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                 $127,538   $ 65,553
                     Administrative            86,355     89,792
                     Property manager          81,288    102,593
                     Other                     16,167      4,846
                                             --------   --------

                                             $311,348   $262,784
                                             ========   ========



                                      - 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  received  approximately  $141,000 in
     rental  payments from NTS  Development  Company during the six months ended
     June 30, 1997. As a result of the lease renewal, the Partnership has made a
     commitment for  approximately  $170,000 of tenant finish  improvements,  of
     which approximately $151,000 has been incurred as of June 30, 1997.

     During the six months ended June 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  received  approximately  $158,000 in rental payments
     from NTS Development Company during the six months ended June 30, 1996.


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

     Certain  reclassifications  have been made to the June 30,  1996  financial
     statements  to  confrom  with  the  June  30,  1997  classification.  These
     reclasifications have no effect on previously reported operations.

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 $158,000.

     One tenant at Plainview  Triad North  occupies  nearly 65% of the building.
     During the second  quarter of 1997,  the tenant's  lease was extended  from
     August 1997 to August 1998.  There were no tenant finish  improvements as a
     result of this  renewal.  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.


                                      - 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 June 30 were as
follows:


                                                     1997            1996
                                                     ----            ----
Plainview Plaza II                                   89%             82%

Plainview Triad North                                91%             93%

Peachtree Corporate Center                           87%             96%

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


                                   Three Months Ended    Six Months Ended
                                        June 30,             June 30,
                                       ----------            --------
                                    1997       1996      1997        1996
                                   ------     ------    -------     ------
Plainview Plaza II               $ 314,798  $ 262,761  $ 607,412  $ 535,084

Plainview Triad North            $ 247,457  $ 259,535  $ 512,372  $ 499,859

Peachtree Corporate Center       $ 271,369  $ 269,689  $ 537,950  $ 552,170


The 7% increase in  occupancy  from June 30, 1996 to June 30, 1997 at  Plainview
Plaza II can be attributed  to four new leases  totalling  approximately  12,000
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.  (See
below for a discussion of the lease renewal signed by NTS Development Company in
1997.) Average occupancy increased from 82% in 1996 to 89% in 1997 for the three
months  ended  June 30 and  from  82% in 1996 to 88% in 1997  for the six  month
period.  The increase in rental and other  income at Plainview  Plaza II for the
three  months and six months ended June 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 2% from June 30, 1996 to June 30,
1997 as a result of a move-out by one tenant  (occupied a total of approximately
3,300 square feet) at the end of the lease term. Partially offsetting the tenant
move-out are two new leases totalling  approximately  1,700 square feet. Average
occupancy  decreased  from 93% in 1996 to 91% in 1997 for the three months ended
June 30,  and from 93% in 1996 to 92% in 1997 for the six month  period.  Rental
and other income at  Plainview  Triad North  increased  for the six months ended
June 30,  1997 as  compared  to the same  period in 1996 due to an  increase  in
rental rates for lease renewals partially offset by an increase in the provision
for doubtful



                                      - 9 -

<PAGE>



Results of Opertions - Continued
--------------------------------

accounts.  Rental and other income at Plainview  Triad North  decreased  for the
three month period due to the decrease in average  occupancy  and an increase in
the provision for doubtful accounts.

Peachtree  Corporate Center's occupancy  decreased 9% from June 30, 1996 to June
30, 1997 due to move-outs by 13 tenants who had  occupied  approximately  32,300
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  18,200 square feet of the total  move-outs are the
result of seven tenants  (occupied a total of approximately  15,000 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 six new
leases totalling  approximately 14,700 square feet, of which approximately 5,900
square feet represents  expansions by two current tenants.  Average occupancy at
Peachtree  Corporate  Center  decreased  from 94% in 1996 to 86% in 1997 for the
three months ended June 30 and from 93% in 1996 to 85% in 1997 for the six month
period.  Rental and other income at Peachtree Corporate Center decreased for the
six  months  ended June 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 increased at Peachtree
Corporate  Center for the three  months  ended June 30,  1997 as compared to the
same period in 1996  despite a decrease in average  occupancy.  The  increase in
income is due  primarily to 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.  Partially  offsetting the increase in
rental and other  income for the three month  period is an increase in provision
for doubtful accounts and the decrease in average occupancy.

As of June 30,  1997,  Peachtree  Corporate  Center  has  3,000  square  feet of
additioal  space  leased to an existing  tenant.  The tenant is expected to take
occupancy  during the third quarter of 1997.  With this new lease,  the business
center's occupancy should improve to 89%. There are no material  commitments for
tenant improvements associated with this lease.

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 six months ended June
30, 1997 or 1996. As of June 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 six months  ended June 30, 1997 as compared to the same period
in 1996 is the result of a decrease in cash reserves available for investment.

Operating  expenses remained fairly constant for the three months and six months
ended June 30, 1997 as compared to the same periods in 1996.

The  increase in operating  expenses -  affiliated  for the three months and six
months  ended June 30, 1997 as compared to the same  periods in 1996 is a result
of increased leasing costs at Peachtree Corporate Center and Plainview Triad

                                     - 10 -

<PAGE>




Results of Opertions - Continued
--------------------------------

North.  The increase in leasing  costs at  Plainview  Traid North is primarily a
result of the Aetna Life Insurance  Company lease situation as discussed  below.
The  increase  in both  periods is  partially  offset by a decrease  in property
management  costs and leasing costs at 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 decrease in interest  expense for the three months and six months ended June
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% January to March 1997 and 7.39% April to June
1997  compared to 7.65%  January to June 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 six month  periods is also
due to a decrease in interest  expense on the $2,303,457  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 farily
constant  for the three months and six months ended June 30, 1997 as compared to
the same periods in 1996.

Professional and administrative expenses - affiliated have decreased for the six
months ended June 30, 1997 as compared to the same period in 1996 as a result of
a decrease  in salary  costs.  The  change in  professional  and  administrative
expenses  -  affiliated  for  the  three  month  period  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  expense for the three months and
six months  ended June 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 June 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.

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

The  Partnership  had cash flow from  operations of $586,103 (1997) and $540,778
(1996) for the six months  ended June 30. The 1996 funds,  in  conjunction  with
cash on hand,  were used to make a 1%  (annualized)  distribution  of $72,640 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  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 June 30) were  $633,668  and  $809,673  at June 30,  1997 and  1996,
respectively.





                                     - 11 -

<PAGE>



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

As of June 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 June 30,  1997 was  7.39%.  Effective  July 1,  1997,  the
interest  rate  adjusted  to 7.05%.  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 June 30, 1997, the Partnership also had a mortgage payable to an insurance
company in the amount of $2,303,457. 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.  Cash flows used in investing  activities in 1996 also include
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  has held the
securities until maturity.  Cash flows provided by investing  activities in 1996
are from the  maturity of  investment  securities.  Cash flows used in financing
activities  include principal  payments on the $2.3 million mortgage payable and
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  investing
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 59,128  square feet in leases  expiring from July 1, 1997 to June
30, 1998 (Plainview Plaza II - 11,652 square feet, Plainview Triad North - 9,736
square feet and Peachtree  Corporate Center - 37,740 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.

As of June 30, 1997, the Partnership has a commitment for 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  square  feet.  As of June  30,  1997,
approximately  $151,000 of the costs have been incurred. The project is expected
to be completed  during the third quarter of 1997.  The source of funds for this
project is expected to be cash flow from operations and/or cash reserves.

                                     - 12 -

<PAGE>



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

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 June 30, 1997,
approximately  $742,000 of the total project cost has been incurred. The General
Partner  of the  Partnership  anticipates  the  project  will be  funded  with a
combination of cash reserves and cash flow from operating activities.

Pursuant to Section 16.4 of the Partnership's  Amended and Restated Agreement of
Limited Partnership, the Partnership established an Interest Repurchase Reserve.
Through June 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.  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 does vacate 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,  the
repurchase  of  Limited  Partnership  Units  has been  indefinitely  interrupted
effective December 17, 1996. In addition,  distributions were suspended starting
December 31, 1996.

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

The table below  presents  that portion of the  distributions  that  represent a
return of capital on a Generally Accepted Accounting Principle basis for the six
months  ended June 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              $ 179,706          $   --            $   --
       1996              $  70,470          $ 72,640          $ 2,170


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

                                     - 13 -

<PAGE>



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

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



















                                     - 14 -

<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

                There  were no reports  on Form 8-K for the three  months  ended
                June 30, 1997.



                                     - 15 -

<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:    August 11, 1997



                                     - 16 -

<PAGE>