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        March 31, 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 March 31, 1997 and December 31, 1996                 3

            Statements of Operations
              For the three months ended March 31, 1997 and 1996         4

            Statements of Cash Flows
              For the three months ended March 31, 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>



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

                               NTS-PROPERTIES III

                BALANCE SHEETS AND STATEMENT OF PARTNERS' EQUITY

<CAPTION>

                                                  As of              As of
                                              March 31, 1997  December 31, 1996*
                                             ---------------  ------------------
<S>                                             <C>               <C>        
ASSETS
Cash and equivalents                            $   768,961       $   661,383
Cash and equivalents - restricted                   301,484           311,390
Accounts receivable, net of allowance
 for doubtful accounts of $86,619 (1997)
 and $81,980 (1996)                                 200,007           198,970
Land, buildings and amenities, net                8,647,340         8,850,783
Construction in progress                            933,781           577,233
Other assets                                        385,348           376,127
                                                -----------       -----------

  Total assets                                  $11,236,921       $10,975,886
                                                ===========       ===========

LIABILITIES AND PARTNERS' EQUITY

Mortgages payable                               $ 6,831,866       $ 6,859,637
Accounts payable - operations                       108,368            97,702
Accounts payable - construction                     219,400            54,070
Security deposits                                    90,335            92,934
Other liabilities                                    66,987            11,415
                                                -----------       -----------

                                                  7,316,956         7,115,758
Commitments and Contingencies

Partners' equity                                  3,919,965         3,860,128
                                                -----------       -----------

                                                $11,236,921       $10,975,886
                                                ===========       ===========


</TABLE>

<TABLE>
<CAPTION>

                                     Limited         General
                                     Partners        Partner          Total
                                     --------        -------          -----
PARTNERS' EQUITY
<S>                               <C>             <C>             <C>         
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        88,767         (23,523)         65,244
Cash distributions declared to
 date                              (11,349,844)       (206,985)    (11,556,829)
Repurchase of limited partnership
 units                                (318,240)           --          (318,240)
                                  ------------    ------------    ------------

Balances at March 31, 1997        $  3,856,278    $     63,687    $  3,919,965
                                  ============    ============    ============
</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
                                                               March 31,
                                                          ------------------

                                                         1997            1996
                                                      ----------      ----------
<S>                                                   <C>             <C>
Revenues:
 Rental income, net of provision for
  doubtful accounts of $4,640 (1997)
  and $11,958 (1996)                                  $ 749,016       $ 713,201
 Rental income - affiliated                              71,883          80,004
 Interest and other income                               11,971          10,867
                                                      ---------       ---------

                                                        832,870         804,072
Expenses:
 Operating expenses                                     179,939         186,877
 Operating expenses - affiliated                        104,135          85,569
 Interest expense                                       132,020         141,902
 Management fees                                         42,279          35,736
 Real estate taxes                                       52,798          53,793
 Professional and administrative
  expenses                                               13,280          18,431
 Professional and administrative
  expenses - affiliated                                  34,612          38,937
 Depreciation and amortization                          208,563         256,997
                                                      ---------       ---------

                                                        767,626         818,242
                                                      ---------       ---------

Net income (loss)                                     $  65,244       $ (14,170)
                                                      =========       =========

Net income allocated to the
 limited partners                                     $  88,767       $  10,381
                                                      =========       =========

Net income per limited
 partnership unit                                     $    6.30       $     .70
                                                      =========       =========


Weighted average number of limited
 partnership units                                       14,079          14,733
                                                      =========       =========
</TABLE>



                                      - 4 -

<PAGE>


<TABLE>

                               NTS-PROPERTIES III

                            STATEMENTS OF CASH FLOWS


<CAPTION>

                                                          Three Months Ended
                                                                March 31,
                                                          -------------------
                                                          1997           1996
                                                        ---------     ----------
<S>                                                     <C>           <C>      
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                                       $  65,244     $ (14,170)
Adjustments to reconcile net income (loss)
 to net cash provided by operating activities:
  Accrued interest on investment securities                  --           1,402
  Provision for doubtful accounts                           4,640        11,958
  Depreciation and amortization                           208,563       256,997
  Change in assets and liabilities:
   Cash and equivalents - restricted                      (14,449)      (15,615)
   Accounts receivable                                     (5,675)      (82,147)
   Other assets                                           (14,340)      (19,082)
   Accounts payable - operations                           10,666        44,251
   Security deposits                                       (2,599)         (566)
   Other liabilities                                       55,572        68,589
                                                        ---------     ---------

  Net cash provided by operating activities               307,622       251,617
                                                        ---------     ---------

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings, amenities and
 construction in progress                                (191,220)       (9,573)
Increase in cash and equivalents - restricted              (2,813)      (23,044)
Maturities of investment securities                          --         101,653
                                                        ---------     ---------

  Net cash (used in) provided by investing
   activities                                            (194,033)       69,036
                                                        ---------     ---------

CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage payable                    (27,771)      (25,358)
Cash distributions                                           --         (37,125)
Repurchase of limited partnership units                    (5,408)      (57,824)
Increase in cash and equivalents - restricted                --         (17,176)
Decrease in cash and equivalents - restricted              27,168          --
                                                        ---------     ---------

  Net cash used in financing activities                    (6,011)     (137,483)
                                                        ---------     ---------

  Net increase in cash and equivalents                    107,578       183,170

CASH AND EQUIVALENTS, beginning of period                 661,383       626,884
                                                        ---------     ---------

CASH AND EQUIVALENTS, end of period                     $ 768,961     $ 810,054
                                                        =========     =========

Interest paid on a cash basis                           $ 133,157     $ 142,095
                                                        =========     =========
</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 (only consisting of normal recurring  accruals) necessary for a fair
presentation  have been made to the  accompanying  financial  statements for the
three months ended March 31, 1997 and 1996.

1.   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).

2.   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 March 31, 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.

3.   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 March 31, 1997 and December 31,  1996,  the  Partnership
     held no investment securities.

4.   Mortgages Payable
     -----------------

     Mortgages payable consist of the following:


                                                  March 31,         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 March 31, 1997 is 6.94%              $ 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                           2,331,866        2,359,637
                                                   ----------       ----------
                                                  $ 6,831,866      $ 6,859,637
                                                   ==========       ==========

                                      -6-
<PAGE>

4.   Mortgages Payables - Continued
     ------------------------------

     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 $7,110,000.

     Effective  April 1, 1997,  the  interest  rate on the  $4,500,000  mortgage
     payable adjusted to 7.39%.

5.   Related Party Transactions
     --------------------------

     Property  management fees of $42,279 and $35,736 for the three months ended
     March  31,  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
     $19,833 and $1,416 as a repair and  maintenance fee during the three months
     ended March 31, 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 three months ended March 31, 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                    $  64,603            $  33,375
          Administrative                43,081               47,163
          Property manager              38,160               51,764
          Other                          9,360                1,833
                                      --------             --------

                                     $ 155,204            $ 134,135
                                      ========             ========

     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  $72,000 in
     rental payments from NTS Development  Company during the three months ended
     March 31, 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 $36,000 has been incurred as of March 31, 1997.

     During the three  months  ended March 31,  1996,  NTS  Development  Company
     leased  23,160  square feet in Plainview  Plaza II at a base rent of $13.50
     per square foot. The Partnership received  approximately  $80,000 in rental
     payments from NTS  Development  Company during the three months ended March
     31, 1996.








                                      - 7 -

<PAGE>



6.   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  $273,000.  The  Partnership  also  has  a
     commitment of  approximately  $222,000 for the remaining  renovation to the
     common area lobbies at Plainview Plaza II.  Approximately  $198,000 of this
     commitment has been incurred as of March 31, 1997.

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


                                      - 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 March 31 were as
follows:


                                             1997                   1996
                                            ------                 ------
     Plainview Plaza II                       86%                    82%
     Plainview Triad North                    91%                    93%
     Peachtree Corporate Center               83%                    93%

The rental and other income  generated by the  Partnership's  properties for the
three months ended March 31 were as follows:


                                             1997                   1996
                                            ------                 ------
     Plainview Plaza II                   $ 292,614              $ 272,322
     Plainview Triad North                $ 264,915              $ 240,325
     Peachtree Corporate Center           $ 266,581              $ 282,482

The 4% increase in occupancy  from March 31, 1996 to March 31, 1997 at Plainview
Plaza II can be attributed  to three new leases  totalling  approximately  8,800
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. 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
accomodate 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 81% in 1996 to 87% in 1997.  The  increase  in rental  and other
income  at  Plainview  Plaza II for the three  months  ended  March 31,  1997 as
compared to the same period in 1996 can be attributed to the increase in average
occupancy during the period.
As of March 31, 1997,  Plainview Plaza II had approximately 3,200 square feet of
additional  space  leased to a current  tenant.  The tenant is  expected to take
occupancy  during the second  quarter  of 1997.  With this new lease,  Plainview
Plaza II's occupancy should improve to 89%.

Plainview Triad North's occupancy  decreased 2% from March 31, 1996 to March 31,
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  increased  from 93% in 1996 to 94% in 1997.  Rental and other  income
increased  for the three  months  ended  March 31,  1997 as compared to the same
period in 1996 due to the increase in average  occupancy,  an increase in rental
rates for lease renewals and an increase in pass through expense reimbursements.
Leases at Plainview  Triad North  provide for tenants to  contribute  toward the
payment of increases in common area maintenance expenses,  insurance,  utilities
and real estate taxes.


                                      - 8 -

<PAGE>



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

Peachtree  Corporate  Center's  occupancy  decreased  10% from March 31, 1996 to
March 31, 1997 due to  move-outs  by 11 tenants who had  occupied  approximately
28,400 square feet.  Approximately  12,400 square feet of this total  represents
four  tenants  who vacated and ceased  making  rental  payments in breach of the
lease  terms  due  principally  to  bankruptcy.  There  was  no  accrued  income
associated  with these  leases.  The  remaining  16,000 square feet of the total
move-outs  are the  result of six  tenants  (occupied  a total of  approximately
12,800  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 four new leases  totalling  approximately  9,900 square feet,  of
which  approximately  5,600  square feet  represents  expansions  by two current
tenants.  Average occupancy at Peachtree  Corporate Center decreased from 92% in
1996 to 84% in 1997.  Rental  and other  income at  Peachtree  Corporate  Center
decreased  for the three  months  ended  March 31,  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.

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  ended March 31, 1997 or
1996. As of March 31, 1997, there were no on-going cases.

As of March 31,  1997,  Peachtree  Corporate  Center  has 6,200  square  feet of
additional  space  leased to two new  tenants.  The tenants are expected to take
occupancy during the second quarter of 1997. With these new leases, the business
center's occupancy should improve to 87%. There are no material  commitments for
tenant improvements associated with either lease.

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 and
asphalt paving at Peachtree  Corporate Center.  The change in interest and other
income for the three  months ended March 31, 1997 as compared to the same period
in 1996 was not significant.

Operating  expenses  decreased  for the three  months  ended  March 31,  1997 as
compared  to the  same  period  in  1996  as a  result  of  decreased  landscape
replacement  costs and exterior  building repairs at Peachtree  Corporate Center
and decreased HVAC repair and replacement costs at Plainview Plaza II. Partially
offsetting the decrease in operating  expenses  during the three month period is
an  increase  in  utility  costs due to an  increase  in  average  occupancy  at
Plainview Plaza II.  Operating  expenses  remained fairly constant for the three
month period at Plainview Triad North.

The increase in operating  expenses-affiliated  for the three months ended March
31,  1997 as  compared  to the same period in 1996 is a result of an increase in
leasing  costs at Peachtree  Corporate  Center and  Plainview  Triad North.  The
increase is partially  offset by a decrease in property  management costs at all
of the Partnership properties and decreased 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.

                                      -10-

<PAGE>



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

Interest  expense has  decreased  for the three  months  ended March 31, 1997 as
compared to the same period in 1996 due to a decrease  in the  interest  rate on
the Partnership's  $4,500,000  mortgage payable - 6.94% (1997) compared to 7.65%
(1996). The interest rate on this note adjusts quarterly to 60 basis points over
the 10-year treasury bill rate. 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 for the three  months ended March 31, 1997 as compared to the
same period in 1996 remained fairly constant.

Professional  and  administrative  expenses have  decreased for the three months
ended March 31, 1997 as compared to the same period in 1996 due to a decrease in
outside legal fees related to the  Partnership's  Interest  Repurchase  Program.
Professional  and  administrative  expenses - affiliated  have decreased for the
three  months  ended  March 31, 1997 as compared to the same period in 1996 as a
result of a decrease in salary costs.

The  decrease in  depreciation  and  amortization  expenses for the three months
ended  March 31,  1997 as compared to the same period in 1996 is the result of a
portion of the  Partnership's  assets  (primarily  tenant  finish  improvements)
becoming fully depreciated since March 31, 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 $307,622 (1997) and $251,617
(1996) for the three months ended March 31. The 1996 funds, in conjunction  with
cash on hand,  were used to make a 1%  (annualized)  distribution  of $36,430 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 further  discussion.  Cash reserves (which are  unrestricted
cash and equivalents as shown on the Partnership's balance sheet as of March 31)
were $768,961 and $810,054 at March 31, 1997 and 1996, respectively.

As of March 31, 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 March 31,  1997 was 6.94%.  Effective  April 1, 1997,  the
interest  rate  adjusted  to 7.39%.  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 March  31,  1997,  the  Partnership  also  had a  mortgage  payable  to an
insurance  company  in the  amount of  $2,331,866.  The  mortgage  bears a fixed
interest rate of 9.125% and is due November 1, 1998. The outstanding  balance at
maturity based on the current rate of amortization will be $2,140,539.




                                     - 11 -

<PAGE>



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

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

The  majority  of  the  Partnership's   cash  flow  is  derived  from  operating
activities.  Cash  flows used in  investing  activities  are for  tenant  finish
improvements and other capital additions and are funded by operating activities.
Changes  to  current  tenant  improvements  are a  typical  part  of  any  lease
negotiation. Improvements generally include a revision to the current floor plan
to accommodate a tenant's  needs,  new carpeting and paint and/or  wallcovering.
The  extent and cost of these  improvements  are  determined  by the size of the
space and whether the improvements are for a new tenant or incurred because of a
lease renewal.  Cash flows used in investing  activities also include cash which
is being  escrowed for the  replacement of the HVAC system and asphalt paving at
Peachtree Corporate Center. Cash flows provided by investing  activities in 1996
are from the maturity 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  excess  cash.  The  Partnership  has  held the
securities  until  maturity.  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 represent
decreases in cash reserved 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  127,126  square  feet in leases  expiring  from April 1, 1997 to
March 31, 1998 (Plainview Plaza II - 11,652 square feet, Plainview Triad North -
72,694 square feet and  Peachtree  Corporate  Center - 42,780 square feet).  The
majority  of the square feet in leases  which  expire in 1997 relate to a single
tenant (Aetna Life Insurance  Company) at Plainview Triad North. See below for a
discussion regarding the lease for this tenant. At this time, the future leasing
and tenant  finish  costs which will be required to renew the current  leases or
obtain  new  tenants  are  unknown.  It is  anticipated  that the cash flow from
operations  and  cash  reserves  will be  sufficient  to meet  the  needs of the
Partnership.

As of March 31,1997, 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 March  31,  1997,
approximately  $36,000 of the costs have been incurred.  The project is expected
to be  completed  during  the first  half of 1997.  The source of funds for this
project is expected to be cash flow from operations and/or cash reserves.

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 March 31, 1997,
approximately  $627,000 of the total project cost has been incurred. The General
Partner  of the  Partnership  anticipates  the  project  will be  funded  with a
combination  of debt  financing,  cash  reserves  and cash flow  from  operating
activities.



                                     - 12 -

<PAGE>




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

The General Partner also anticipates a demand on future liquidity as a result of
the Partnership's  plan to complete the renovation of the common area lobbies at
Plainview  Plaza II during 1997. The project is to include an upgrade of current
restroom facilities, improvement of handicap restroom facilities, new carpet and
wallcoverings.  The project is anticipated  to cost  approximately  $315,000.  A
portion of this project was  completed  during the first and second  quarters of
1995 at a cost of approximately  $93,000.  As of March 31, 1997, the Partnership
had commitments of $222,000 for the remaining renovations of which approximately
$198,000 has been incurred. The remaining cost of this project is expected to be
funded from cash reserves and cash flow from operations.

Pursuant to Section 16.4 of the Partnership's  Amended and Restated Agreement of
Limited Partnership, the Partnership established an Interest Repurchase Reserve.
Through March 31, 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 Triad North,
occupying nearly 65% of the building, expires in August 1997. Aetna accounts for
nearly 22% of the  NTS-Properties  III total revenue.  Aetna has requested a one
year extension on its leased space. Any costs associated with this renewal would
not  be  significant.  It is  the  judgement  of  the  General  Partner  of  the
Partnership,  considering the publicity about Aetna's  downsizing,  that the one
year  extension will be all that can be anticipated at this time. If correct and
if Aetna vacated the property,  there will likely be a protracted period for the
property  to become  fully  leased  again and  substantial  funds will likely be
needed for leasing expenses, especially tenant finish improvements.

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

The  Partnership  had no other material  commitments  for renovations or capital
improvements at March 31, 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
three months ended March 31, 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              $ 88,767          $   --          $   --
                1996              $ 10,381          $ 36,430        $ 26,049


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

                                     - 13 -


<PAGE>



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

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,  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 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
                March 31, 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:       May 12, 1997
      

                                     - 16 -

<PAGE>