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# UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

# FORM 10-Q

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

For the quarterly
period ended September 30, 2005

NTS REALTY HOLDINGS
LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)

Delaware
(State of incorporation or organization)

001-32389
(Commission File No.)

41-2111139
(I.R.S. Employer Identification No.)

10172 Linn Station RoadLouisville, Kentucky 40223
(Address of principal executive offices)

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

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes|X|      No[  ]

Indicate by check mark whether
registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes[  ]      No|X|

As of November 10, 2005, there were
11,381,608 limited partnership units outstanding.

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# NTS REALTY HOLDINGS
LIMITED PARTNERSHIP

# FORM 10-Q

# TABLE OF CONTENTS

|PART I - FINANCIAL INFORMATION                                                                 |   
|---------------------------------------------------------------------------------------------- | --
|ITEM 1 - FINANCIAL STATEMENTS                                                                  | 4 
|Balance Sheets as of September 30, 2005 and December 31, 2004                                  | 4 
|Statement of Partners' Equity as of September 30, 2005                                         | 4 
|Statements of Operations for the Three and Nine Months Ended September 30, 2005                | 5 
|Statements of Operations for the Three Months Ended September 30, 2004                         | 6 
|Statements of Operations for the Nine Months Ended September 30, 2004                          | 7 
|Statement of Cash Flows for the Nine Months Ended September 30, 2005                           | 8 
|Statements of Cash Flows for the Nine Months Ended September 30, 2004                          | 9 
|Notes to Financial Statements                                                                  | 10
|ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 36
|ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            | 45
|ITEM 4 - CONTROLS AND PROCEDURES                                                               | 45
|                                                                                               |   
|PART II - OTHER INFORMATION                                                                    |   
|ITEM 1 - LEGAL PROCEEDINGS                                                                     | 46
|ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                           | 47
|ITEM 3 - DEFAULTS UPON SENIOR SECURITIES                                                       | 47
|ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   | 47
|ITEM 5 - OTHER INFORMATION                                                                     | 47
|ITEM 6 - EXHIBITS                                                                              | 47
|SIGNATURES                                                                                     | 48

2

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# INFORMATION REGARDING
FORWARD-LOOKING STATEMENTS

Some
of the statements included in this quarterly report on Form 10-Q, particularly those
included in Part I, Item 2  Managements Discussion and Analysis of Financial
Condition and Results of Operations (MD&A), may be considered
forward-looking statements because the statements relate to matters which have
not yet occurred. For example, phrases such as we anticipate,
believe or expect indicate that it is possible that the event
anticipated, believed or expected may not occur. If these events do not occur, the result
which we expected also may, or may not, occur in a different manner, which may be more or
less favorable to us. We do not undertake any obligation to update these forward-looking
statements.

Any
forward-looking statements included in MD&A, or elsewhere in this report, reflect our
managing general partners best judgment based on known factors, but 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 described in our filings with the Securities and Exchange Commission,
particularly our registration statement on Form S-4, which became effective on October 27,
2004. Any forward-looking information provided by us pursuant to the safe harbor
established by the Private Securities Litigation Reform Act of 1995 should be evaluated in
the context of these factors.

3

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# PART I  FINANCIAL INFORMATION
ITEM 1  FINANCIAL STATEMENTS

NTS REALTY HOLDINGS LIMITED PARTNERSHIPBalance Sheets as of September 30, 2005 and December 31, 2004

|                                                                 | (Unaudited) |  |   |            
|---------------------------------------------------------------- | ----------- |  | - | -----------
|
|
|ASSETS:                                                          |             |  |   |            
|Cash and equivalents                                             |             |  | $ | 1,972,458  
|Cash and equivalents - restricted                                |             |  |   | 2,076,509  
|Accounts receivable, net of allowance for doubtful accounts of   |             | 
|$307,135 at September 30, 2005 and $125,485 at December 31, 2004 |             |  |   | 2,153,189  
|Investment in and notes receivable from joint venture            |             |  |   | 9,025,198  
|Land, buildings and amenities, net                               |             |  |   | 147,545,811
|Long-lived assets held for sale                                  |             |  |   | 25,012,877 
|Other assets                                                     |             |  |   | 5,627,276  
|                                                                 |             |  |   |            
|Total assets                                                     |             |  | $ | 193,413,318
|                                                                 |             |  |   |            
|LIABILITIES:                                                     |             | 
|Mortgages and notes payable                                      |             |  | $ | 140,804,902
|Accounts payable and accrued expenses                            |             |  |   | 2,861,600  
|Accounts payable and accrued expenses - affiliate                |             |  |   | 477,604    
|Security deposits                                                |             |  |   | 803,920    
|Long-lived liabilities held for sale                             |             |  |   | 454,616    
|Other liabilities                                                |             |  |   | 3,703,109  
|                                                                 |             |  |   |            
|Total liabilities                                                |             |  |   | 149,105,751
|                                                                 |             | 
|COMMITMENTS AND CONTINGENCIES (NOTE 11)                          |             | 
|                                                                 |             | 
|PARTNERS' EQUITY                                                 |             |  |   | 44,307,567 
|                                                                 |             |  |   |            
|Total liabilities and partners' equity                           |             |  | $ | 193,413,318
|                                                                 |             |  |   |            

NTS REALTY HOLDINGS LIMITED PARTNERSHIPStatement of Partners Equity as of September 30, 2005(Unaudited)

|                                      | General
Partner
Interests |  | Limited
Partners
Interests |         | General
Partner |  | Limited
Partners |  | Total |          
|------------------------------------- | ------------------------- |  | -------------------------- | ------- | --------------- |  | ---------------- |  | ----- | ---------
|PARTNERS' EQUITY:                     |                           |  |                            |         |                 |  |                  |  |       |          
|Initial equity                        |                           |  |                            | 714,491 |                 |  | 10,667,117       |  | $     | 3,131,381
|Net loss prior year                   |                           |  |                            | --      |                 |  | --               |  |       | (23,433  
|Net loss current year                 |                           |  |                            | --      |                 |  | --               |  |       | (112,149 
|Cash  distributions  declared to date |                           |  |                            | --      |                 |  | --               |  |       | (214,348 
|                                      |                           |  |                            |         |                 |  |                  |  |       |          
|Balances on September 30, 2005        |                           |  |                            | 714,491 |                 |  | 10,667,117       |  | $     | 2,781,451
|                                      |                           |  |                            |         |                 |  |                  |  |       |          

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

4

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NTS REALTY HOLDINGS LIMITED PARTNERSHIPStatements of Operations for the Three and Nine Months Ended September 30, 2005(Unaudited)

|                                                              | Three Months
Ended
September 30, 2005 |  | Nine Months
Ended
September 30, 2005 |           
|------------------------------------------------------------- | ------------------------------------- |  | ------------------------------------ | ----------
|REVENUE:                                                      |                                       |  |                                      |           
|Rental income                                                 |                                       |  | $                                    | 6,947,613 
|Tenant reimbursements                                         |                                       |  |                                      | 561,798   
|                                                              |                                       |  |                                      |           
|Total revenue                                                 |                                       |  |                                      | 7,509,411 
|                                                              |                                       | 
|EXPENSES:                                                     |                                       | 
|Operating expenses                                            |                                       |  |                                      | 1,872,503 
|Operating expenses - affiliated                               |                                       |  |                                      | 804,991   
|Management fees                                               |                                       |  |                                      | 356,363   
|Real estate taxes                                             |                                       |  |                                      | 472,136   
|Professional and administrative expenses                      |                                       |  |                                      | 647,312   
|Professional and administrative expenses - affiliated         |                                       |  |                                      | 346,258   
|Depreciation and amortization                                 |                                       |  |                                      | 1,911,880 
|                                                              |                                       |  |                                      |           
|Total operating expenses                                      |                                       |  |                                      | 6,411,443 
|                                                              |                                       |  |                                      |           
|                                                              |                                       | 
|OPERATING INCOME                                              |                                       |  |                                      | 1,097,968 
|                                                              |                                       | 
|Interest and other income                                     |                                       |  |                                      | 116,942   
|Interest expense                                              |                                       |  |                                      | (1,831,397
|Loss on disposal of assets                                    |                                       |  |                                      | (222,149  
|                                                              |                                       |  |                                      |           
|LOSS FROM CONTINUING OPERATIONS                               |                                       |  |                                      | (838,636  
|Discontinued operations, net                                  |                                       |  |                                      | 114,268   
|                                                              |                                       |  |                                      |           
|NET LOSS                                                      |                                       |  | $                                    | (724,368  
|                                                              |                                       |  |                                      |           
|Loss from continuing operations allocated to limited partners |                                       |  | $                                    | (785,990  
|Discontinued operations, net allocated to limited partners    |                                       |  |                                      | 107,095   
|                                                              |                                       |  |                                      |           
|NET LOSS ALLOCATED TO LIMITED PARTNERS                        |                                       |  | $                                    | (678,895  
|                                                              |                                       |  |                                      |           
|Loss from continuing operations per limited partnership unit  |                                       |  | $                                    | (0.07     
|Discontinued operations, net per limited partnership unit     |                                       |  |                                      | 0.01      
|                                                              |                                       |  |                                      |           
|NET LOSS PER LIMITED PARTNERSHIP UNIT                         |                                       |  | $                                    | (0.06     
|                                                              |                                       |  |                                      |           
|Number of limited partnership units                           |                                       |  |                                      | 10,667,117
|                                                              |                                       |  |                                      |           

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

5

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NTS REALTY HOLDINGS LIMITED PARTNERSHIP PREDECESSORSStatements of Operations for the Three Months Ended September 30, 2004(Unaudited)

|                                | Three Months Ended September 30, 2004
|------------------------------- | -------------------------------------
|
|REVENUE:                        |                                      
|Rental income                   |                                      
|Tenant reimbursements           |                                      
|                                |                                      
|Total revenue                   |                                      
|                                |                                      
|EXPENSES:                       |                                      
|Operating expenses              |                                      
|Operating expenses - affiliated |                                      
|Management fees                 |                                      
|Real estate taxes               |                                      
|Professional and administrative |                                      
|expenses                        |                                      
|Professional and administrative |                                      
|expenses - affiliated           |                                      
|Depreciation and amortization   |                                      
|                                |                                      
|Total operating expenses        |                                      
|                                |                                      
|                                |                                      
|OPERATING INCOME (LOSS)         |                                      
|                                |                                      
|Interest and other income       |                                      
|Interest expense                |                                      
|Loss on disposal of assets      |                                      
|Income from investment in joint |                                      
|ventures                        |                                      
|                                |                                      
|Income (loss) before minority   |                                      
|interest                        |                                      
|                                |                                      
|Minority interest               |                                      
|                                |                                      
|Income (loss) from continuing   |                                      
|operations                      |                                      
|Discontinued operations, net    |                                      
|                                |                                      
|NET INCOME (LOSS)               |                                      
|                                |                                      
|Income (loss) from continuing   |                                      
|operations allocated to         |                                      
|limited partners                |                                      
|Discontinued operations, net    |                                      
|allocated to limited partners   |                                      
|                                |                                      
|NET INCOME (LOSS) ALLOCATED TO  |                                      
|LIMITED PARTNERS                |                                      
|                                |                                      
|Income (loss) from continuing   |                                      
|operations per limited          |                                      
|partnership unit                |                                      
|Discontinued operations, net    |                                      
|per limited partnership unit    |                                      
|                                |                                      
|NET INCOME (LOSS) PER LIMITED   |                                      
|PARTNERSHIP UNIT                |                                      
|                                |                                      
|Weighted average number of      |                                      
|limited partnership units       |                                      
|                                |                                      

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

6

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NTS REALTY HOLDINGS LIMITED PARTNERSHIP PREDECESSORSStatements of Operations for the Nine Months Ended September 30, 2004(Unaudited)

|                                | Nine Months Ended September 30, 2004
|------------------------------- | ------------------------------------
|
|REVENUE:                        |                                     
|Rental income                   |                                     
|Tenant reimbursements           |                                     
|                                |                                     
|Total revenue                   |                                     
|                                |                                     
|                                |                                     
|EXPENSES:                       |                                     
|Operating expenses              |                                     
|Operating expenses affiliated   |                                     
|Management fees                 |                                     
|Real estate taxes               |                                     
|Professional and administrative |                                     
|expenses                        |                                     
|Professional and administrative |                                     
|expenses - affiliated           |                                     
|Depreciation and amortization   |                                     
|                                |                                     
|Total operating expenses        |                                     
|                                |                                     
|                                |                                     
|OPERATING INCOME (LOSS)         |                                     
|                                |                                     
|Interest and other income       |                                     
|Interest expense                |                                     
|Loss on disposal of assets      |                                     
|Income from investment in joint |                                     
|ventures                        |                                     
|                                |                                     
|Income (loss) before minority   |                                     
|interest                        |                                     
|Minority interest               |                                     
|                                |                                     
|Income (loss) from continuing   |                                     
|operations                      |                                     
|Discontinued operations, net    |                                     
|                                |                                     
|NET INCOME (LOSS)               |                                     
|                                |                                     
|Income (loss) from continuing   |                                     
|operations allocated to         |                                     
|limited partners                |                                     
|Discontinued operations, net    |                                     
|allocated to limited partners   |                                     
|                                |                                     
|NET INCOME (LOSS) ALLOCATED TO  |                                     
|LIMITED PARTNERS                |                                     
|                                |                                     
|Income (loss) from continuing   |                                     
|operations per limited          |                                     
|partnership unit                |                                     
|Discontinued operations, net    |                                     
|per limited partnership unit    |                                     
|                                |                                     
|NET INCOME (LOSS) PER LIMITED   |                                     
|PARTNERSHIP UNIT                |                                     
|                                |                                     
|Weighted average number of      |                                     
|limited partnership units       |                                     
|                                |                                     

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

7

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NTS REALTY HOLDINGS LIMITED PARTNERSHIPStatement of Cash Flows for the Nine Months Ended September 30, 2005(Unaudited)

|                                                                                | Nine Months
Ended
September 30, 2005
|------------------------------------------------------------------------------- | ------------------------------------
|OPERATING ACTIVITIES:                                                           |                                     
|Net loss                                                                        |                                     
|Adjustments to reconcile net loss to net cash provided by operating activities: |                                     
|Loss on disposal of assets                                                      |                                     
|Depreciation and amortization                                                   |                                     
|Write-off of loan costs                                                         |                                     
|Changes in assets and liabilities:                                              |                                     
|Cash and equivalents - restricted                                               |                                     
|Accounts receivable                                                             |                                     
|Other assets                                                                    |                                     
|Accounts payable and accrued expenses                                           |                                     
|Accounts payable and accrued expenses - affiliate                               |                                     
|Distributions declared payable                                                  |                                     
|Security deposits                                                               |                                     
|Other liabilities                                                               |                                     
|                                                                                |                                     
|Net cash provided by operating activities                                       |                                     
|                                                                                |                                     
|INVESTING ACTIVITIES:                                                           |                                     
|Additions to land, buildings and amenities                                      |                                     
|Acquisition of The Lakes Apartments                                             |                                     
|Investment in and note receivable from joint venture                            |                                     
|Cash and equivalents - restricted                                               |                                     
|                                                                                |                                     
|Net cash used in investing activities                                           |                                     
|                                                                                |                                     
|FINANCING ACTIVITIES:                                                           |                                     
|Proceeds from mortgages and notes payable                                       |                                     
|Principal payments on mortgages and notes payable                               |                                     
|Repayment of notes payable                                                      |                                     
|Proceeds from revolving note payable, net                                       |                                     
|Additions to loan costs                                                         |                                     
|Cash distributions                                                              |                                     
|                                                                                |                                     
|Net cash provided by financing activities                                       |                                     
|                                                                                |                                     
|NET DECREASE IN CASH AND EQUIVALENTS                                            |                                     
|                                                                                |                                     
|CASH AND EQUIVALENTS, beginning of period                                       |                                     
|                                                                                |                                     
|CASH AND EQUIVALENTS, end of period                                             |                                     
|                                                                                |                                     

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

8

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NTS REALTY HOLDINGS LIMITED PARTNERSHIP PREDECESSORSStatements of Cash Flows for the Nine Months Ended September 30, 2004(Unaudited)

|                                    | Nine Months Ended September 30, 2004
|----------------------------------- | ------------------------------------
|
|OPERATING ACTIVITIES:               |                                     
|Net income (loss)                   |                                     
|Adjustments to  reconcile  net      |                                     
|income (loss) to net cash provided  |                                     
|by operating activities:            |                                     
|Provision for doubtful accounts     |                                     
|Write-off of uncollectible accounts |                                     
|receivable                          |                                     
|Loss on disposal of assets          |                                     
|Depreciation and amortization       |                                     
|Income from investment in           |                                     
|joint ventures                      |                                     
|Minority interest (loss) income     |                                     
|Changes in assets and liabilities:  |                                     
|Cash and equivalents - restricted   |                                     
|Accounts receivable                 |                                     
|Other assets                        |                                     
|Accounts payable and accrued        |                                     
|expenses                            |                                     
|Security deposits                   |                                     
|Other liabilities                   |                                     
|                                    |                                     
|Net cash provided by operating      |                                     
|activities                          |                                     
|                                    |                                     
|INVESTING ACTIVITIES:               |                                     
|Additions to land, buildings and    |                                     
|amenities                           |                                     
|Investments in and advances from    |                                     
|joint ventures                      |                                     
|Minority interest                   |                                     
|                                    |                                     
|Net cash (used in) provided by      |                                     
|investing activities                |                                     
|                                    |                                     
|FINANCING ACTIVITIES:               |                                     
|Proceeds from mortgages and         |                                     
|notes payable                       |                                     
|Principal payments on mortgages     |                                     
|and notes payable                   |                                     
|Cash distributions                  |                                     
|Cash contributions                  |                                     
|Additions to loan costs             |                                     
|                                    |                                     
|Net cash used in financing          |                                     
|activities                          |                                     
|                                    |                                     
|NET INCREASE (DECREASE)             |                                     
|IN CASH AND EQUIVALENTS             |                                     
|                                    |                                     
|CASH AND EQUIVALENTS,               |                                     
|beginning of period                 |                                     
|                                    |                                     
|CASH AND EQUIVALENTS,               |                                     
|end of period                       |                                     
|                                    |                                     

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

9

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NTS REALTY HOLDINGS LIMITED PARTNERSHIPNotes to Financial Statements(Unaudited)

The
unaudited financial statements included herein should be read in conjunction with NTS
Realty Holdings Limited Partnerships (NTS Realty) 2004 annual report on
Form 10-K as filed with the Securities and Exchange Commission on March 31, 2005. In the
opinion of our managing 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 and nine months ended September 30, 2005 and 2004. The
results of operations for the interim periods are not necessarily indicative of the
results that may be expected for the full year or any other interim period. As used in
this quarterly report on Form 10-Q the terms we, us or
our, as the context requires, may refer to NTS Realty or its interests in its
properties.

# Note 1  Summary of
Significant Accounting Policies

Organization
and Distribution Policy

NTS
Realty was organized in Delaware during 2003. Our registration statement on Form S-4 was
made effective by the Securities and Exchange Commission (SEC) on October 27,
2004 with respect to a proposed merger of NTS-Properties III; NTS-Properties IV;
NTS-Properties V, a Maryland limited partnership; NTS-Properties VI, a Maryland limited
partnership; and NTS-Properties VII, Ltd. (the Partnerships) registered under
the Securities Exchange Act of 1934, along with other real estate entities affiliated with
their general partners, specifically Blankenbaker Business Center 1A and the NTS Private
Groups assets and liabilities. Certain litigation as described in Note  11
Commitments and Contingencies was settled in connection with the merger. The merger was
completed on December 28, 2004 after a majority of the outstanding limited partnership
interests of each Partnership were voted in favor of the merger. As a result of the
merger, the Partnerships and Blankenbaker Business Center 1A ceased to exist by operation
of law. Concurrent with the merger, ORIG, LLC, a Kentucky limited liability company
(ORIG), affiliated with the Partnerships general partners, contributed
substantially all of its assets and liabilities to NTS Realty, including the NTS Private
Group properties. We accounted for the merger using the purchase method. All purchase
price allocations are final.

The
Partnerships, NTS Private Group and Blankenbaker Business Center 1A are referred to as NTS
Realtys Predecessors (the Predecessors). NTS Realty did not have
significant operations until the merger on December 28, 2004. All operations prior to that
are for the Predecessors and are reflected as such in the accompanying Statements of
Operations. The Predecessors operating results were substantially complete as of
December 27, 2004 for the calendar year ended December 31, 2004.

In
connection with the merger, we issued 11,381,608 limited partnership units to the former
limited and general partners of the Partnerships and to ORIG. We refinanced approximately
$94.0 million of debt on the properties contributed by the Partnerships and ORIG with
approximately $119.0 million of new debt. Acquisition of the new debt required us to pay
yield maintenance premiums on the refinanced debt, which totaled approximately $5.8
million.

We
are in the business of developing, constructing, owning and operating multifamily
properties, commercial and retail real estate and land leases. From time to time, we may
make investments in joint ventures consistent with those activities described in our
partnership agreement. Following the merger and contribution and as of September 30, 2005,
we own thirty-three properties, comprised of ten multifamily properties; nineteen office
and business centers; three retail properties; and one ground lease. The properties are
located in and around Louisville (22) and Lexington (3), Kentucky; Orlando (2) and Fort
Lauderdale (3), Florida; Indianapolis (2), Indiana and Atlanta (1), Georgia. Our office
and business centers aggregate approximately 1.7 million square feet. We own multifamily
properties containing approximately 1,570 units and retail properties containing
approximately 210,000 square feet of space, as well as one ground lease associated with a
120-space parking lot attached to one of our properties.

The
consolidated financial statements of NTS-Properties V and NTS-Properties VI include the
accounts of all wholly-owned properties and majority-owned joint ventures. Intercompany
transactions and balances have been eliminated.

10

---

We
pay distributions if and when authorized by our managing general partner. We are required
to pay distributions on a quarterly basis, commencing in the first quarter of 2005, equal
to sixty-five percent (65%) of our net cash flow from operations as this term
is defined in regulations promulgated by the Treasury Department under the Internal
Revenue Code of 1986, as amended; provided that if a law is enacted or existing law is
modified or interpreted in a manner that subjects us to taxation as a corporation or
otherwise subjects us to entity level taxation for federal, state or local income tax
purposes, we will adjust the amount distributed to reflect our obligation to pay tax. Any
distribution other than a distribution with respect to the final quarter of a calendar
year shall be made no later than forty-five (45) days after the last day of such quarter
based on our estimate of net cash flow from operations for the year. Any
distribution with respect to the final quarter of a calendar year shall be made no later
than ninety (90) days after the last day of such quarter based on actual net cash
flow from operations for the year, adjusted for any excess or insufficient
distributions made with respect to the first three quarters of the calendar year.

Net
cash flow from operations may be reduced by the amount of reserves as determined by
us each quarter. NTS Realty Capital will establish these reserves for, among other things,
working capital or capital improvement needs. Therefore, there is no assurance that we
will have net cash flow from operations from which to pay distributions in the
future. For example, our partnership agreement permits our managing general partner to
reinvest sales or refinancing proceeds in new and existing properties or to create
reserves to fund future capital expenditures. Because net cash flow from
operations is calculated after reinvesting sales or refinancing proceeds or
establishing reserves, we may not have any net cash flow from operations from
which to pay distributions.

We
paid quarterly distributions of $0.10 per unit to limited partners on May 13, 2005, July
15, 2005 and October 14, 2005.

# Note 2  Use of
Estimates and Reclassifications in the Preparation of Financial Statements

The
preparation of financial statements in accordance with U.S. generally accepted accounting
principles requires us 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.

Certain
reclassifications have been made to the September 30, 2004 and December 31, 2004 financial
statements to conform to the September 30, 2005 classifications. These reclassifications
have no effect on previously reported operations.

# Note 3 
Concentration of Credit Risk

We
own and operate multifamily, commercial and retail properties and a land lease in
Louisville and Lexington, Kentucky, Fort Lauderdale and Orlando, Florida, Indianapolis,
Indiana and Atlanta, Georgia.

Our
financial instruments that are exposed to concentrations of credit risk consist of cash
and equivalents. We maintain our cash accounts primarily with banks located in Kentucky.
The total cash balances are insured by the FDIC up to $100,000 per bank account. We may at
times, in certain accounts, have deposits in excess of $100,000.

# Note 4  Cash and
Equivalents

Cash
and equivalents include cash on hand and short-term, highly liquid investments with
initial maturities of three months or less. We have a cash management program which
provides for the overnight investment of excess cash balances. Under an agreement with a
bank, excess cash is invested in a mutual fund for U.S. government and agency securities
each night.

# Note 5  Cash and
Equivalents  Restricted

Cash
and equivalents  restricted represents cash on hand and short-term, highly liquid
investments with initial maturities of three months or less which have been escrowed with
certain mortgage companies and banks for property taxes, insurance and tenant improvements
in accordance with certain loan and lease agreements and certain security deposits.

11

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# Note 6  Property
and Depreciation

Land,
buildings and amenities are stated at cost. Costs directly associated with the
acquisition, development and construction of a project are capitalized. Depreciation is
computed using the straight-line method over the estimated useful lives of the assets
which are 5-30 years for land improvements, 7-30 years for buildings and improvements and
5-30 years for amenities. Tenant improvements are generally depreciated over the life of
the current term of the respective tenant lease.

Depreciation
expense for the three and nine months ended September 30, 2005 and 2004 was as follows:

|                                | (Unaudited) | 
|------------------------------- | ----------- | 
|
|
|NTS Realty                      |             | 
|                                |             | 
|NTS-Properties III              |             | 
|NTS-Properties IV               |             | 
|NTS-Properties V                |             | 
|NTS-Properties VI               |             | 
|NTS-Properties VII              |             | 
|NTS Private Group               |             | 
|Blankenbaker Business Center 1A |             | 

Depreciation expense
included in discontinued operations was $185,717 and $240,610, for the three months ended
September 30, 2005 and 2004, respectively.

|                                | (Unaudited) | 
|------------------------------- | ----------- | 
|
|
|NTS Realty                      |             | 
|                                |             | 
|NTS-Properties III              |             | 
|NTS-Properties IV               |             | 
|NTS-Properties V                |             | 
|NTS-Properties VI               |             | 
|NTS-Properties VII              |             | 
|NTS Private Group               |             | 
|Blankenbaker Business Center 1A |             | 

Depreciation
expense included in discontinued operations was $555,877 and $717,526 for the nine months
ended September 30, 2005 and 2004, respectively.

Statement
of Financial Accounting Standards (SFAS) No. 144 Accounting for the Impairment or Disposal
of Long-Lived Assets, specifies circumstances in which certain long-lived assets
must be reviewed for impairment. If the carrying amount of an asset exceeds the sum of its
expected future cash flows, the assets carrying value must be written down to fair
value. In determining the value of an investment property and whether the investment
property is impaired, management considers several factors such as projected rental and
vacancy rates, property operating expenses, capital expenditures and interest rates. The
capitalization rate used to determine property valuation is based on the market in which
the investment property is located, length of leases, tenant financial strength, the
economy in general, demographics, environment, property location, visibility, age and
physical condition among others. All of these factors are considered by management in
determining the value of any particular investment property. The value of any particular
investment property is sensitive to the actual results of any of these factors, either
individually or taken as a whole. If the actual results differ from managements
judgment, the valuation could be negatively or positively affected. Application of this
standard during the nine months ended September 30, 2005 and 2004 did not result in an
impairment loss.

12

---

# Note 7  Investment in
and Notes Receivable from Joint Venture

On
September 12, 2005, we entered into a joint venture investment with an unaffiliated third
party investor to acquire an approximately $16 million mortgage loan secured by real property and improvements.
We contributed $200,000 as capital and hold a 45% interest in the joint venture,
which we account for using the equity method. We loaned the joint venture $1.8 million on
a note receivable with an interest rate of 8%, which is due on December 31, 2011, with
interest payable on each December 31. We also loaned the joint venture approximately $7.0
million on a $7.2 million note receivable due on September 30, 2006, and bearing interest
monthly, of LIBOR plus 1.75%. This investment in and notes receivable from the joint
venture were funded with borrowings on our revolving note payable to a bank.

The
unaffiliated third party investor contributed $400,000 as capital and holds a 55% interest
in the joint venture. The investor also loaned the joint venture $3.6 million on a note
receivable with an interest rate of 8%, which is due on December 31, 2011. The principal repayments on the $1.8
million and $3.6 million notes are subordinated to the repayment of
the balance due on the $7.2 million note.

13

---

# Note 8  Mortgages
and Notes Payable

Mortgages
and notes payable consist of the following:

|                                                                              | (Unaudited) |  |  
|----------------------------------------------------------------------------- | ----------- |  | -
|
|Note payable to a bank with  interest  payable in monthly  installments,      |             |  |  
|at a variable rate based on LIBOR  one-month  rate plus 1.75%,  due June      |             | 
|28, 2005.  The note was paid in March 2005, as discussed below.               |             |  | $
|                                                                              |             | 
|Mortgage  payable  to an  insurance  company  in  monthly  installments,      |             | 
|bearing  interest  at 5.07%,  maturing  on March 15, 2015,  secured  by       |             | 
|certain land and buildings, with a carrying value of $27,920,493.             |             |  |  
|                                                                              |             | 
|Mortgage payable to a bank in monthly installments,  bearing interest at      |             | 
|a variable  rate based on LIBOR  one-month  rate plus 2.50%, currently        |             |  |  
|6.193%,  due  January 1, 2008,  secured by certain  land and  buildings,      |             | 
|with a carrying  value of $16,859,618. The mortgage is guaranteed             |             |  |  
|by Mr. Nichols (75%) and Mr. Lavin (25%).                                     |             |  |  
|                                                                              |             | 
|Mortgage  payable  to an  insurance  company  in  monthly  installments,      |             | 
|bearing  interest  at 5.98%,  maturing  January 15, 2015,  secured  by        |             | 
|certain land and buildings, with a carrying value of $73,246,646.             |             |  |  
|                                                                              |             | 
|Revolving  note  payable  to a bank with  interest  payable  in  monthly      |             | 
|installments,  at a variable rate based on LIBOR plus 1.75%, currently 5.61%, |             | 
|due August 24, 2006.                                                          |             |  |  
|                                                                              |             | 
|Mortgage payable to a bank in monthly installments,  bearing interest at      |             | 
|9.00%,  maturing August 1, 2010, secured by certain land and a building,      |             | 
|with a carrying value of $2,953,598.                                          |             |  |  
|                                                                              |             | 
|Mortgage  payable  to an  insurance  company  in  monthly  installments,      |             | 
|bearing  interest  at 8.45%,  maturing  November 1, 2015,  secured  by        |             | 
|certain land and a building, with a carrying value of $2,569,249.             |             |  |  
|                                                                              |             | 
|Mortgage  payable  to an  insurance  company  in  monthly  installments,      |             | 
|bearing  interest  at 8.375%,  maturing  December 1, 2010,  secured by        |             | 
|certain  land,  buildings  and  amenities,  with  a  carrying  value  of      |             | 
|$2,814,313.                                                                   |             |  |  
|                                                                              |             | 
|Note  payable  to a finance  company in  monthly  installments,  bearing      |             | 
|interest at 8.50%,  due July 15, 2006,  secured by  equipment.  The note      |             | 
|was paid in full in January 2005.                                             |             |  |  
|                                                                              |             |  |  
|                                                                              |             |  | $
|                                                                              |             |  |  

Based on
the borrowing rates currently available to us for loans with similar terms and average
maturities, the fair value of long-term debt on September 30, 2005 was approximately
$134,301,000.

The
note payable to a bank was paid from the proceeds of a $30 million mortgage payable to an
insurance company in March 2005. The mortgage payable bears interest at a fixed rate of
5.07%, maturing on March 15, 2015, and is secured by certain land and buildings, with a
carrying value of $27,920,493.

Our
mortgages may be prepaid but are generally subject to a yield-maintenance premium.

# Note 9  Accounts
Payable and Accrued Expenses  Affiliate

Accounts
payable and accrued expenses  affiliate includes amounts owed to NTS Development
Company for reimbursement of salary and overhead expenses.

14

---

# Note 10  Related
Party Transactions

NTS
Realty

NTS
Realtys properties are managed under an agreement with NTS Development Company
(NTS Devco), an affiliate of NTS Realtys general partners. NTS Devco is
paid a management fee pursuant to the terms of an agreement entered into with NTS Realty.
NTS Devco is also reimbursed its actual costs for services rendered to NTS Realty.

We
were charged the following amounts pursuant to an agreement with NTS Devco for the three
and nine months ended September 30, 2005. These charges include items which have been
expensed as operating expenses  affiliated or professional and administrative
expenses  affiliated and items which have been capitalized as other assets or as
land, buildings and amenities.

|                                                      | (Unaudited) |  | (Unaudited) |          
|----------------------------------------------------- | ----------- |  | ----------- | ---------
|
|Property management fees                              |             |  | $           | 426,693  
|                                                      |             |  |             |          
|Property management                                   |             |  |             | 638,515  
|Leasing                                               |             |  |             | 54,984   
|Administrative - operating                            |             |  |             | 291,353  
|Other                                                 |             |  |             | 26,967   
|                                                      |             |  |             |          
|Total operating expenses - affiliated                 |             |  |             | 1,011,819
|                                                      |             |  |             |          
|Professional and administrative expenses - affiliated |             |  |             | 346,258  
|                                                      |             |  |             |          
|Related party transactions capitalized                |             |  |             | --       
|                                                      |             |  |             |          
|Total related party transactions                      |             |  | $           | 1,784,770
|                                                      |             |  |             |          

During
the three and nine months ended September 30, 2005, we were charged $15,214 and $45,643,
respectively, for property maintenance fees from affiliates of NTS Devco.

NTS
Devco leased 20,368 square feet in NTS Center, at a rental rate of $14.50 per square foot.
We received rental payments of approximately $222,000 from NTS Devco during the nine
months ended September 30, 2005.

NTS
Devco leased 1,604 square feet in Commonwealth Business Center Phase I, at a rental rate
of $5.50 per square foot. We received rental payments of approximately $7,000 from NTS
Devco during the nine months ended September 30, 2005.

15

---

NTS-Properties
III

Prior
to the merger and pursuant to an agreement with NTS-Properties III (NTS-III),
NTS Devco, an affiliate of NTS-IIIs general partner, received property management
fees on a monthly basis. The fees were paid in an amount equal to 5% of the gross receipts
from our properties. Also pursuant to an agreement, NTS Devco received a repair and
maintenance fee equal to 5.9% of costs incurred which related to capital improvements.
These repair and maintenance fees were capitalized as part of land, buildings and
amenities.

NTS-III
was charged the following amounts pursuant to an agreement with NTS Devco for the three
and nine months ended September 30, 2004. These charges included items which were expensed
as operating expenses  affiliated or professional and administrative expenses 
affiliated and items which were capitalized as other assets or as land, buildings and
amenities.

|                                                      | (Unaudited) |  | (Unaudited) |        
|----------------------------------------------------- | ----------- |  | ----------- | -------
|
|Property management fees                              |             |  | $           | 46,060 
|                                                      |             |  |             |        
|Property management                                   |             |  |             | 50,799 
|Leasing                                               |             |  |             | 8,498  
|Administrative - operating                            |             |  |             | 16,732 
|Other                                                 |             |  |             | 2,628  
|                                                      |             |  |             |        
|Total operating expenses - affiliated                 |             |  |             | 78,657 
|                                                      |             |  |             |        
|Professional and administrative expenses - affiliated |             |  |             | 41,393 
|                                                      |             |  |             |        
|Repairs and maintenance                               |             |  |             | 1,705  
|Leasing commissions                                   |             |  |             | --     
|                                                      |             |  |             |        
|Related party transactions capitalized                |             |  |             | 1,705  
|                                                      |             |  |             |        
|Total related party transactions                      |             |  | $           | 167,815
|                                                      |             |  |             |        

During
the three and nine months ended September 30, 2004, NTS-III was charged $1,828 and $5,485,
respectively, for property maintenance fees from an affiliate of NTS Devco.

NTS
Devco leased 20,368 square feet in NTS Center at a rental rate of $14.50 per square foot.
NTS-III received rental payments of approximately $222,000, or 9%, of their total rental
income, from NTS Devco during the nine months ended September 30, 2004.

16

---

NTS-Properties
IV

Prior
to the merger and pursuant to an agreement with NTS-Properties IV (NTS-IV),
NTS Devco, an affiliate of NTS-IVs general partner, received property management
fees on a monthly basis. The fees were paid in an amount equal to 5% of the gross receipts
from the multifamily property and 6% of the gross receipts from the commercial properties.
Also pursuant to an agreement, NTS Devco received a repair and maintenance fee equal to
5.9% of costs incurred which related to capital improvements. These repair and maintenance
fees were capitalized as part of land, buildings and amenities.

NTS-IV
was charged the following amounts pursuant to an agreement with NTS Devco for the three
and nine months ended September 30, 2004. These charges included items which were expensed
as operating expenses  affiliated or professional and administrative expenses 
affiliated and items which were capitalized as other assets or as land, buildings and
amenities.

|                                                      | (Unaudited) |  | (Unaudited) |        
|----------------------------------------------------- | ----------- |  | ----------- | -------
|
|Property management fees                              |             |  | $           | 30,546 
|                                                      |             |  |             |        
|Property management                                   |             |  |             | 73,137 
|Leasing                                               |             |  |             | 11,969 
|Administrative - operating                            |             |  |             | 25,821 
|Other                                                 |             |  |             | 2,747  
|                                                      |             |  |             |        
|Total operating expenses - affiliated                 |             |  |             | 113,674
|                                                      |             |  |             |        
|Professional and administrative expenses - affiliated |             |  |             | 45,547 
|                                                      |             |  |             |        
|Repairs and maintenance                               |             |  |             | 1,899  
|Leasing commissions                                   |             |  |             | --     
|                                                      |             |  |             |        
|Related party transactions capitalized                |             |  |             | 1,899  
|                                                      |             |  |             |        
|Total related party transactions                      |             |  | $           | 191,666
|                                                      |             |  |             |        

NTS
Devco leased 1,604 square feet in Commonwealth Business Center Phase I at a rental rate of
$5.50 per square foot. NTS-IV received rental payments of approximately $7,000 from NTS
Devco during the nine months ended September 30, 2004.

17

---

NTS-Properties
V

Prior
to the merger and pursuant to an agreement with NTS-Properties V (NTS-V), NTS
Devco, an affiliate of NTS-Vs general partner, received property management fees on
a monthly basis. The fees were paid in an amount equal to 5% of the gross receipts from
the multifamily property and 6% of the gross receipts from the commercial properties. Also
pursuant to an agreement, NTS Devco received a repair and maintenance fee equal to 5.9% of
costs incurred which related to capital improvements. These repair and maintenance fees
were capitalized as part of land, buildings and amenities.

NTS-V
was charged the following amounts pursuant to an agreement with NTS Devco for the three
and nine months ended September 30, 2004. These charges included items which were expensed
as operating expenses  affiliated or professional and administrative expenses 
affiliated and items which were capitalized as other assets or as land, buildings and
amenities.

|                                                      | (Unaudited) |  | (Unaudited) |        
|----------------------------------------------------- | ----------- |  | ----------- | -------
|
|Property management fees                              |             |  | $           | 67,696 
|                                                      |             |  |             |        
|Property management                                   |             |  |             | 108,228
|Leasing                                               |             |  |             | 11,410 
|Administrative - operating                            |             |  |             | 31,546 
|Other                                                 |             |  |             | 2,149  
|                                                      |             |  |             |        
|Total operating expenses - affiliated                 |             |  |             | 153,333
|                                                      |             |  |             |        
|Professional and administrative expenses - affiliated |             |  |             | 57,950 
|                                                      |             |  |             |        
|Repairs and maintenance                               |             |  |             | 5,823  
|Leasing commissions                                   |             |  |             | 379    
|                                                      |             |  |             |        
|Related party transactions capitalized                |             |  |             | 6,202  
|                                                      |             |  |             |        
|Total related party transactions                      |             |  | $           | 285,181
|                                                      |             |  |             |        

18

---

NTS-Properties
VI

Prior
to the merger and pursuant to an agreement with NTS-Properties VI (NTS-VI),
NTS Devco, an affiliate of NTS-VIs general partner, received property management
fees on a monthly basis. The fees were equal to 5% and 6% of the gross revenues from the
multifamily properties and the commercial property, respectively. Also pursuant to an
agreement, NTS Devco received a repair and maintenance fee equal to 5.9% of costs incurred
which related to capital improvements and major repair and renovation projects. These
repair and maintenance fees were capitalized as part of land, buildings and amenities.

NTS-VI
was charged the following amounts pursuant to an agreement with NTS Devco for the three
and nine months ended September 30, 2004. These charges included items which were expensed
as operating expenses  affiliated or professional and administrative expenses 
affiliated and items which were capitalized as other assets or as land, buildings and
amenities.

|                                                      | (Unaudited) |  | (Unaudited) |        
|----------------------------------------------------- | ----------- |  | ----------- | -------
|
|Property management fees                              |             |  | $           | 139,907
|                                                      |             |  |             |        
|Property management                                   |             |  |             | 260,671
|Leasing                                               |             |  |             | 35,463 
|Administrative - operating                            |             |  |             | 92,369 
|Other                                                 |             |  |             | 10,911 
|                                                      |             |  |             |        
|Total operating expenses - affiliated                 |             |  |             | 399,414
|                                                      |             |  |             |        
|Professional and administrative expenses - affiliated |             |  |             | 115,560
|                                                      |             |  |             |        
|Repairs and maintenance                               |             |  |             | 1,007  
|Leasing commissions                                   |             |  |             | 6,452  
|                                                      |             |  |             |        
|Related party transactions capitalized                |             |  |             | 7,459  
|                                                      |             |  |             |        
|Total related party transactions                      |             |  | $           | 662,340
|                                                      |             |  |             |        

During
the three and nine months ended September 30, 2004, NTS-VI was charged $9,696 and $23,709,
respectively, for property maintenance fees from an affiliate of NTS Devco.

19

---

NTS-Properties
VII

Prior
to the merger and pursuant to an agreement with NTS-Properties VII (NTS-VII),
NTS Devco, an affiliate of NTS-VIIs general partner, received property management
fees on a monthly basis. The fees were equal to 5% of the gross revenues from our
multifamily properties. Also pursuant to an agreement, NTS Devco received a repair and
maintenance fee equal to 5.9% of costs incurred which related to capital improvements and
major repair and renovation projects. These repair and maintenance fees were capitalized
as part of land, buildings and amenities.

NTS-VII
was charged the following amounts pursuant to an agreement with NTS Devco for the three
and nine months ended September 30, 2004. These charges included items which were expensed
as operating expenses  affiliated or professional and administrative expenses 
affiliated and items which were capitalized as other assets or as land, buildings and
amenities.

|                                                      | (Unaudited) |  | (Unaudited) |        
|----------------------------------------------------- | ----------- |  | ----------- | -------
|
|Property management fees                              |             |  | $           | 19,917 
|                                                      |             |  |             |        
|Property management                                   |             |  |             | 41,615 
|Leasing                                               |             |  |             | 6,674  
|Administrative - operating                            |             |  |             | 21,072 
|Other                                                 |             |  |             | 917    
|                                                      |             |  |             |        
|Total operating expenses - affiliated                 |             |  |             | 70,278 
|                                                      |             |  |             |        
|Professional and administrative expenses - affiliated |             |  |             | 37,489 
|                                                      |             |  |             |        
|Related party transactions capitalized                |             |  |             | --     
|                                                      |             |  |             |        
|Total related party transactions                      |             |  | $           | 127,684
|                                                      |             |  |             |        

20

---

NTS
Private Group

Prior
to the merger, NTS Devco, an affiliate of NTS Private Group (the Group),
received property management fees on a monthly basis. The fees were equal to 6% of the
gross revenues from commercial and retail properties and $100 monthly for each commercial
land lease. Also pursuant to an agreement, NTS Devco received a repair and maintenance fee
equal to 5% of costs incurred which related to capital improvements and major repair and
renovation projects. These repair and maintenance fees were capitalized as part of land,
buildings and amenities.

The
Group was charged the following amounts by NTS Devco for the three and nine months ended
September 30, 2004. These charges included items which were expensed as operating expenses
 affiliated and items which were capitalized as other assets or as land, buildings
and amenities.

|                                                      | (Unaudited) |  | (Unaudited) |        
|----------------------------------------------------- | ----------- |  | ----------- | -------
|
|Property management fees                              |             |  | $           | 138,443
|                                                      |             |  |             |        
|Property management                                   |             |  |             | 113,983
|Leasing                                               |             |  |             | 13,520 
|Administrative - operating                            |             |  |             | 43,049 
|Other                                                 |             |  |             | 4,857  
|                                                      |             |  |             |        
|Total operating expenses - affiliated                 |             |  |             | 175,409
|                                                      |             |  |             |        
|Professional and administrative expenses - affiliated |             |  |             | --     
|                                                      |             |  |             |        
|Repairs and maintenance                               |             |  |             | 29,521 
|Leasing commissions                                   |             |  |             | 10,702 
|                                                      |             |  |             |        
|Related party transactions capitalized                |             |  |             | 40,223 
|                                                      |             |  |             |        
|Total related party transactions                      |             |  | $           | 354,075
|                                                      |             |  |             |        

During
the three and nine months ended September 30, 2004, the Group was charged $8,452 and
$25,356, respectively, for property maintenance fees from affiliates of NTS Devco.

21

---

Blankenbaker
Business Center 1A

Prior
to the merger and pursuant to an agreement with the partnerships which formed Blankenbaker
Business Center 1A, NTS Devco, an affiliate of the general partners of the partnerships,
received a property management fee on a monthly basis. The fee was equal to 6% of the
gross revenues. Also permitted by an agreement, NTS Devco received a repair and
maintenance fee equal to 5.9% of costs incurred which related to capital improvements.
These repair and maintenance fees were capitalized as part of land, buildings and
amenities.

Blankenbaker
Business Center 1A was charged the following amounts pursuant to an agreement with NTS
Devco for the three and nine months ended September 30, 2004. These charges included items
which were expensed as operating expenses  affiliated and items which were
capitalized as other assets or as land, buildings and amenities.

|                                                      | (Unaudited) |  | (Unaudited) |       
|----------------------------------------------------- | ----------- |  | ----------- | ------
|
|Property management fees                              |             |  | $           | 14,236
|                                                      |             |  |             |       
|Property management                                   |             |  |             | 7,763 
|Leasing                                               |             |  |             | --    
|Administrative - operating                            |             |  |             | 3,057 
|Other                                                 |             |  |             | 260   
|                                                      |             |  |             |       
|Total operating expenses - affiliated                 |             |  |             | 11,080
|                                                      |             |  |             |       
|Professional and administrative expenses - affiliated |             |  |             | --    
|                                                      |             |  |             |       
|Related party transactions capitalized                |             |  |             | --    
|                                                      |             |  |             |       
|Total related party transactions                      |             |  | $           | 25,316
|                                                      |             |  |             |       

During
the three and nine months ended September 30, 2004, we were charged an immaterial fee for
property maintenance fees from an affiliate of NTS Devco.

22

---

# Note 11 
Commitments and Contingencies

We,
as an owner of real estate, are subject to various environmental laws of federal, state
and local governments. Our compliance with existing laws has not had a material adverse
effect on our financial condition and results of operations. However, we cannot predict
the impact of new or changed laws or regulations on our current properties or on
properties that we may acquire in the future.

Litigation

On
May 6, 2004, the Superior Court of the State of California for the County of Contra Costa
granted its final approval of the settlement agreement jointly filed by the general
partners (the Former General Partners) of the Partnerships, along with certain
of their affiliates, with the class of plaintiffs in the action originally captioned
Buchanan, et al. v. NTS-Properties Associates, et al. (Case No. C 01-05090) (the
California Litigation) on December 5, 2003. At the final hearing, class
members were given the opportunity to object to the final approval of the settlement
agreement, the entry of a final judgment dismissing with prejudice the California
Litigation, or an application of an award for attorneys fees and expenses to
plaintiffs counsel. The Superior Courts order provided, among other things,
that: (1) the settlement agreement, and all transactions contemplated thereby, including
the merger of the Partnerships into us, were fair, reasonable and adequate, and in the
best interests of the class of plaintiffs; (2) the plaintiffs complaint and each and
every cause of action and claim set forth therein is dismissed with prejudice; and (3)
each class member who did not request to be excluded from the settlement released all
known and unknown claims against the defendants, including those claims being pursued in a
competing class action in Kentucky, which is discussed in further detail below.

On
June 11, 2004, several class members who objected to the settlement agreement but whose
objections were overruled by the Superior Court, filed an appeal in the Court of Appeal of
the State of California, First Appellate District. On July 28, 2005, the Court of Appeal
issued its decision affirming the Superior Courts approval of the settlement, and
rejecting the objectors arguments. On October 5, 2005, the Court of Appeal of the
State of California, First Appellate District entered a Remittitur Order stating that the
time for appeal had expired and that the judgment of the Appellate Court was final. This
effectively concludes the litigation. The matter was then sent back to the Superior Court
of the State of California for the County of Contra Costa in order to conduct ministerial
proceedings (if any) to effectuate the settlement.

On
February 27, 2003, two individuals filed a class and derivative action in the Circuit
Court of Jefferson County, Kentucky captioned Bohm, et al. v. J.D. Nichols, et al. (Case
No. 03-CI-01740) (the Kentucky Litigation) against certain of the Former
General Partners and several individuals and entities affiliated with us. The complaint
was amended to include the general partner of NTS-Properties III and the general partner
of NTS-Properties Plus Ltd. The plaintiffs are seeking, among other things, compensatory
and punitive damages in an unspecified amount, an accounting, a declaratory judgment and
injunctive relief.

On
March 2, 2004, the Former General Partners filed a motion to dismiss the Kentucky
Litigation. After the motion to dismiss was briefed, the settlement agreement in the
California Litigation (discussed above) received final court approval. The
Circuit Court of Jefferson County, Kentucky, instructed the plaintiffs in the Kentucky
Litigation to file an amended complaint in light of the approved settlement of the
California Litigation. The plaintiffs six opt-outs from the California Litigation
filed a corrected second amended complaint on August 11, 2004.

On
February 9, 2005, the Circuit Court instructed the defendants to file a responsive
pleading only as to direct claims asserted by the plaintiffs in the Corrected Second
Amended Complaint. On March 9, 2005, the Former General Partners, along with the other
defendants, filed motions to dismiss the corrected second amended complaint.

On
July 7, 2005, two of the plaintiffs in the Kentucky Litigation voluntarily dismissed their
claims against the defendants. The Former General Partners believe that these dismissals
affect the value and scope of plaintiffs claims. Accordingly, defendants remanded
the hearing on the motion to dismiss originally scheduled for July 15, 2005, in order to
properly advise the Court of the effect of the voluntary dismissals. A hearing on the
motion to dismiss has been rescheduled for January 30, 2006.

23

---

Our
legal counsel and we believe that the litigation pending in Kentucky is without merit, and
therefore, are continuing to vigorously defend against it. No amounts have been accrued
for the settlement of this action in our financial statements.

We
do not believe there is any other litigation threatened against us other than routine
litigation arising out of the ordinary course of business, some of which is expected to be
covered by insurance, none of which is expected to have a material effect on our financial
position or results of operations.

Hurricane
Wilma

On
October 23, 2005, Hurricane Wilma (the Hurricane) struck the peninsula of Florida. Our properties in Ft.
Lauderdale, Florida were damaged by this storm. The commercial properties involved are the
Lakeshore Business Center Phases I, II and III. While these properties are covered by
insurance, the deductible for hurricane damage is two percent (2%) of the insured value.
For Lakeshore Business Center Phases I, II and III, these amounts are approximately
$190,000, $185,000 and $84,000, respectively. At this time we are working to determine the
extent of the damage to our properties and the cost to repair. The cost to repair could
exceed each of our deductibles totaling approximately $459,000.

We
also have business interruption insurance coverage for our properties in an amount
equivalent to the rent for one year. At this time, we are not certain when full utility
service will be restored. Once full utility service is restored, there may be an extended time period before
storm damage can be identified and repaired. Although we generally require our tenants to maintain business
interruption insurance to cover such occurrences, the Hurricane may have an unknown impact on our tenants ability
to pay rent and our ability to collect those rents due us.

We
have not made any provision or accrual in our financial statements as of and for the
periods ended September 30, 2005 related to the Hurricane damages, losses or
uncollectible amounts.

24

---

# Note 12  Segment
Reporting

Our
reportable operating segments include  Multifamily, Commercial, Retail and Land Real
Estate Operations. The following unaudited financial information of the operating segments
has been prepared using a management approach, which is consistent with the basis and
manner in which our management internally disaggregates financial information for the
purpose of assisting in making internal operating decisions. We evaluate performance based
on stand-alone operating segment net income or loss. Expenses at the Partnership level are
represented in the non-segment column.

NTS
Realty

|                                     | (Unaudited) | 
|------------------------------------ | ----------- | 
|
|
|Rental income                        |             | 
|Tenant reimbursements                |             | 
|                                     |             | 
|Total revenue                        |             | 
|                                     |             | 
|Operating expenses and               |             | 
|operating expenses - affiliated      |             | 
|Management fees                      |             | 
|Real estate taxes                    |             | 
|Professional and administrative      |             | 
|expenses and professional and        |             | 
|administrative expenses - affiliated |             | 
|Depreciation and amortization        |             | 
|                                     |             | 
|Total operating expenses             |             | 
|                                     |             | 
|                                     |             | 
|Operating income (loss)              |             | 
|                                     |             | 
|Interest and other income            |             | 
|Interest expense                     |             | 
|Loss on disposal of assets           |             | 
|                                     |             | 
|(Loss) income from continuing        |             | 
|operations                           |             | 
|Discontinued operations, net         |             | 
|                                     |             | 
|Net (loss) income                    |             | 
|                                     |             | 

25

---

|                                     | (Unaudited) | 
|------------------------------------ | ----------- | 
|
|
|Rental income                        |             | 
|Tenant reimbursements                |             | 
|                                     |             | 
|Total revenue                        |             | 
|                                     |             | 
|Operating expenses and               |             | 
|operating expenses - affiliated      |             | 
|Management fees                      |             | 
|Real estate taxes                    |             | 
|Professional and administrative      |             | 
|expenses and professional and        |             | 
|administrative expenses - affiliated |             | 
|Depreciation and amortization        |             | 
|                                     |             | 
|Total operating expenses             |             | 
|                                     |             | 
|                                     |             | 
|Operating income (loss)              |             | 
|                                     |             | 
|Interest and other income            |             | 
|Interest expense                     |             | 
|Loss on disposal of assets           |             | 
|                                     |             | 
|(Loss) income from continuing        |             | 
|operations                           |             | 
|Discontinued operations, net         |             | 
|                                     |             | 
|Net income (loss)                    |             | 
|                                     |             | 

NTS-Properties
III

NTS-IIIs
reportable operating segments included only one segment  Commercial Real Estate
Operations.

26

---

NTS-Properties
IV

NTS-IVs
reportable operating segments included  Multifamily and Commercial Real Estate
Operations. The multifamily operations represented NTS-IVs ownership and operating
results relative to a multifamily community known as The Willows of Plainview Phase I. The
commercial operations represented NTS-IVs ownership and operating results relative
to suburban commercial office space known as Commonwealth Business Center Phase I and
Plainview Point Office Center Phases I and II.

The
following unaudited financial information of the operating segments was prepared using a
management approach, which was consistent with the basis and manner in which NTS-IVs
management internally disaggregated financial information for the purposes of assisting in
making internal operating decisions. NTS-IVs management evaluated performance based
on stand-alone operating segment net income or loss. Professional and administrative
expenses, depreciation and amortization, interest and other income, interest expense and
joint venture income or loss incurred at the Partnership level were not allocated to the
operating segments.

|                                                       | (Unaudited) | 
|------------------------------------------------------ | ----------- | 
|
|
|Rental income                                          |             | 
|Tenant reimbursements                                  |             | 
|                                                       |             | 
|Total revenue                                          |             | 
|                                                       |             | 
|Operating expenses and operating expenses - affiliated |             | 
|Management fees                                        |             | 
|Real estate taxes                                      |             | 
|Depreciation and amortization                          |             | 
|                                                       |             | 
|Total operating expenses                               |             | 
|                                                       |             | 
|                                                       |             | 
|Operating income                                       |             | 
|                                                       |             | 
|Interest and other income                              |             | 
|Interest expense                                       |             | 
|Loss on disposal of assets                             |             | 
|                                                       |             | 
|Net (loss) income                                      |             | 
|                                                       |             | 

27

---

|                                                       | (Unaudited) | 
|------------------------------------------------------ | ----------- | 
|
|
|Rental income                                          |             | 
|Tenant reimbursements                                  |             | 
|                                                       |             | 
|Total revenue                                          |             | 
|                                                       |             | 
|Operating expenses and operating expenses - affiliated |             | 
|Management fees                                        |             | 
|Real estate taxes                                      |             | 
|Depreciation and amortization                          |             | 
|                                                       |             | 
|Total operating expenses                               |             | 
|                                                       |             | 
|                                                       |             | 
|Operating income                                       |             | 
|                                                       |             | 
|Interest and other income                              |             | 
|Interest expense                                       |             | 
|Loss on disposal of assets                             |             | 
|                                                       |             | 
|Net income                                             |             | 
|                                                       |             | 

A
reconciliation of the totals reported for the operating segments to the applicable line
items in the financial statements is necessary given amounts recorded at the Partnership
level and not allocated to the operating properties for internal reporting purposes:

|                                                      | (Unaudited) | 
|----------------------------------------------------- | ----------- | 
|
|DEPRECIATION AND AMORTIZATION                         |             | 
|Depreciation and amortization for reportable segments |             | 
|Depreciation and amortization for Partnership         |             | 
|                                                      |             | 
|Total depreciation and amortization                   |             | 
|                                                      |             | 
|INTEREST AND OTHER INCOME                             |             | 
|Interest and other income for reportable segments     |             | 
|Interest and other income for Partnership             |             | 
|                                                      |             | 
|Total interest and other income                       |             | 
|                                                      |             | 
|NET INCOME (LOSS)                                     |             | 
|Net income for reportable segments                    |             | 
|Net loss for Partnership (1)                          |             | 
|                                                      |             | 
|Total net loss                                        |             | 
|                                                      |             | 

|1) | The Partnership net loss was primarily composed of professional and
          administrative costs born by the Partnership and also includes any joint venture
          income or loss recorded at the Partnership level and not allocated to the
          operating segments. The professional and administrative costs include the tax
          and public company reporting and compliance costs associated with a public
          limited partnership.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

28

---

NTS-Properties
V

NTS-Vs
reportable operating segments included  Multifamily and Commercial Real Estate
Operations. The multifamily operations represented NTS-Vs ownership and operating
results relative to a multifamily community known as The Willows of Plainview Phase II.
The commercial operations represented NTS-Vs ownership and operating results
relative to suburban commercial office space known as Commonwealth Business Center Phase
II and Lakeshore Business Center Phases I, II and III.

The
following unaudited financial information of the operating segments was prepared using a
management approach, which was consistent with the basis and manner in which NTS-Vs
management internally disaggregated financial information for the purposes of assisting in
making internal operating decisions. NTS-Vs management evaluated performance based
on stand-alone operating segment net income or loss. Professional and administrative
expenses, depreciation and amortization, interest and other income, interest expense and
minority interest income or loss recorded at the Partnership level were not allocated to
the operating segments.

|                                                       | (Unaudited) | 
|------------------------------------------------------ | ----------- | 
|
|
|Rental income                                          |             | 
|Tenant reimbursements                                  |             | 
|                                                       |             | 
|Total revenue                                          |             | 
|                                                       |             | 
|Operating expenses and operating expenses - affiliated |             | 
|Management fees                                        |             | 
|Real estate taxes                                      |             | 
|Depreciation and amortization                          |             | 
|                                                       |             | 
|Total operating expenses                               |             | 
|                                                       |             | 
|                                                       |             | 
|Operating income                                       |             | 
|                                                       |             | 
|Interest and other income                              |             | 
|Interest expense                                       |             | 
|Loss on disposal of assets                             |             | 
|                                                       |             | 
|Net loss                                               |             | 
|                                                       |             | 

|                                                       | (Unaudited) | 
|------------------------------------------------------ | ----------- | 
|
|
|Rental income                                          |             | 
|Tenant reimbursements                                  |             | 
|                                                       |             | 
|Total revenue                                          |             | 
|                                                       |             | 
|Operating expenses and operating expenses - affiliated |             | 
|Management fees                                        |             | 
|Real estate taxes                                      |             | 
|Depreciation and amortization                          |             | 
|                                                       |             | 
|Total operating expenses                               |             | 
|                                                       |             | 
|                                                       |             | 
|Operating income                                       |             | 
|                                                       |             | 
|Interest and other income                              |             | 
|Interest expense                                       |             | 
|Loss on disposal of assets                             |             | 
|                                                       |             | 
|Net loss                                               |             | 
|                                                       |             | 

29

---

A
reconciliation of the totals reported for the operating segments to the applicable line
items in the financial statements is necessary given amounts recorded at the Partnership
level and not allocated to the operating properties for internal reporting purposes:

|                                                      | (Unaudited) | 
|----------------------------------------------------- | ----------- | 
|
|DEPRECIATION AND AMORTIZATION                         |             | 
|Depreciation and amortization for reportable segments |             | 
|Depreciation and amortization for Partnership         |             | 
|                                                      |             | 
|Total depreciation and amortization                   |             | 
|                                                      |             | 
|INTEREST AND OTHER INCOME                             |             | 
|Interest and other income for reportable segments     |             | 
|Interest and other income for Partnership             |             | 
|                                                      |             | 
|Total interest and other income                       |             | 
|                                                      |             | 
|INTEREST EXPENSE                                      |             | 
|Interest expense for reportable segments              |             | 
|Interest expense for Partnership                      |             | 
|                                                      |             | 
|Total interest expense                                |             | 
|                                                      |             | 
|NET INCOME (LOSS)                                     |             | 
|Net loss for reportable segments                      |             | 
|Net loss for Partnership (1)                          |             | 
|Minority interest                                     |             | 
|                                                      |             | 
|Total net loss                                        |             | 
|                                                      |             | 

|1) | The Partnership net loss was primarily composed of professional and
          administrative costs born by the Partnership as well as interest and other
          income, depreciation, interest expense and minority interest recorded at the
          Partnership level and not allocated to the operating segments. The professional
          and administrative costs include the tax and public company reporting and
          compliance costs associated with a public limited partnership.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

30

---

NTS-Properties
VI

NTS-VIs
reportable operating segments included  Multifamily and Commercial Real Estate
Operations. The multifamily operations represented NTS-VIs ownership and operating
results relative to the multifamily communities known as Willow Lake Apartments, Park
Place Apartments Phases I and III, Sabal Park Apartments and Golf Brook Apartments. The
commercial operations represented NTS-VIs ownership and operating results relative
to suburban commercial office space known as Plainview Point Office Center Phase III.

The
following unaudited financial information of the operating segments was prepared using a
management approach, which was consistent with the basis and manner in which NTS-VIs
management internally disaggregated financial information for the purposes of assisting in
making internal operating decisions. NTS-VIs management evaluated performance based
on stand-alone operating segment net income or loss. Professional and administrative
expenses, depreciation and amortization, interest and other income, interest expense and
minority interest income or loss recorded at the Partnership level were not allocated to
the operating segments.

|                                                       | (Unaudited) | 
|------------------------------------------------------ | ----------- | 
|
|
|Rental income                                          |             | 
|Tenant reimbursements                                  |             | 
|                                                       |             | 
|Total revenue                                          |             | 
|                                                       |             | 
|Operating expenses and operating expenses - affiliated |             | 
|Management fees                                        |             | 
|Real estate taxes                                      |             | 
|Depreciation and amortization                          |             | 
|                                                       |             | 
|Total operating expenses                               |             | 
|                                                       |             | 
|                                                       |             | 
|Operating income                                       |             | 
|                                                       |             | 
|Interest and other income                              |             | 
|Interest expense                                       |             | 
|Loss on disposal of assets                             |             | 
|                                                       |             | 
|(Loss) income from continuing operations               |             | 
|Discontinued operations, net                           |             | 
|                                                       |             | 
|Net income                                             |             | 
|                                                       |             | 

|                                                       | (Unaudited) | 
|------------------------------------------------------ | ----------- | 
|
|
|Rental income                                          |             | 
|Tenant reimbursements                                  |             | 
|                                                       |             | 
|Total revenue                                          |             | 
|                                                       |             | 
|Operating expenses and operating expenses - affiliated |             | 
|Management fees                                        |             | 
|Real estate taxes                                      |             | 
|Depreciation and amortization                          |             | 
|                                                       |             | 
|Total operating expenses                               |             | 
|                                                       |             | 
|                                                       |             | 
|Operating income                                       |             | 
|                                                       |             | 
|Interest and other income                              |             | 
|Interest expense                                       |             | 
|Loss on disposal of assets                             |             | 
|                                                       |             | 
|(Loss) income from continuing operations               |             | 
|Discontinued operations, net                           |             | 
|                                                       |             | 
|Net income                                             |             | 
|                                                       |             | 

31

---

A
reconciliation of the totals reported for the operating segments to the applicable line
items in the financial statements is necessary given amounts recorded at the Partnership
level and not allocated to the operating properties for internal reporting purposes:

|                                                                                    | (Unaudited) | 
|----------------------------------------------------------------------------------- | ----------- | 
|
|DEPRECIATION AND AMORTIZATION                                                       |             | 
|Depreciation and  amortization  for reportable  segments from continuing operations |             | 
|Depreciation and amortization for Partnership                                       |             | 
|                                                                                    |             | 
|Total depreciation and amortization                                                 |             | 
|                                                                                    |             | 
|INTEREST AND OTHER INCOME                                                           |             | 
|Interest  and other  income  for  reportable  segments  from  continuing operations |             | 
|Interest and other income for Partnership                                           |             | 
|                                                                                    |             | 
|Total interest and other income                                                     |             | 
|                                                                                    |             | 
|INTEREST EXPENSE                                                                    |             | 
|Interest expense for reportable segments from continuing operations                 |             | 
|Interest expense for Partnership                                                    |             | 
|                                                                                    |             | 
|Total interest expense                                                              |             | 
|                                                                                    |             | 
|NET INCOME (LOSS)                                                                   |             | 
|Loss for reportable segments from continuing operations                             |             | 
|Net loss for Partnership (1)                                                        |             | 
|Minority interest                                                                   |             | 
|Discontinued operations, net                                                        |             | 
|                                                                                    |             | 
|Total net loss                                                                      |             | 
|                                                                                    |             | 

|1) | The Partnerships net loss was primarily composed of professional and
          administrative costs born by the Partnership and also includes interest expense,
          depreciation and minority interest recorded at the Partnership level and not
          allocated to the operating segments. The professional and administrative costs
          include the tax and public company reporting and compliance costs associated
          with a public limited partnership.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NTS-Properties
VII

NTS-VIIs
reportable operating segments included only one segment  Multifamily Operations.

32

---

NTS
Private Group

The
Groups reportable operating segments included  Land, Retail and Commercial
Real Estate Operations. The retail operations represented the Groups ownership and
operating results relative to Springs Station, Bed, Bath & Beyond and Outlets Mall
properties located in Louisville, Kentucky. The commercial operations represented the
Groups ownership and operating results relative to suburban commercial office space
located in Louisville, Kentucky. The land operations represented the Groups
ownership and operating results relative to a ground lease located in Louisville,
Kentucky.

The
following unaudited financial information of the operating segments was prepared using a
management approach, which was consistent with the basis and manner in which the
Groups management internally disaggregated financial information to assist in making
internal operating decisions. The Groups management evaluated performance based on
stand-alone operating segment net income or loss.

|                                          | (Unaudited) | 
|----------------------------------------- | ----------- | 
|
|
|Rental income                             |             | 
|Tenant reimbursements                     |             | 
|                                          |             | 
|Total revenue                             |             | 
|                                          |             | 
|Operating expenses and operating expenses |             | 
|- affiliated                              |             | 
|Management fees                           |             | 
|Real estate taxes                         |             | 
|Professional and administrative expenses  |             | 
|Depreciation and amortization             |             | 
|                                          |             | 
|Total operating expenses                  |             | 
|                                          |             | 
|                                          |             | 
|Operating income                          |             | 
|                                          |             | 
|Interest and other income                 |             | 
|Interest expense                          |             | 
|                                          |             | 
|Income from continuing operations         |             | 
|Discontinued operations, net              |             | 
|                                          |             | 
|Net income                                |             | 
|                                          |             | 

33

---

|                                          | (Unaudited) | 
|----------------------------------------- | ----------- | 
|
|
|Rental income                             |             | 
|Tenant reimbursements                     |             | 
|                                          |             | 
|Total revenue                             |             | 
|                                          |             | 
|Operating expenses and operating expenses |             | 
|- affiliated                              |             | 
|Management fees                           |             | 
|Real estate taxes                         |             | 
|Professional and administrative expenses  |             | 
|Depreciation and amortization             |             | 
|                                          |             | 
|Total operating expenses                  |             | 
|                                          |             | 
|                                          |             | 
|Operating income                          |             | 
|                                          |             | 
|Interest and other income                 |             | 
|Interest expense                          |             | 
|Loss of disposal of assets                |             | 
|                                          |             | 
|Income from continuing operations         |             | 
|Discontinued operations, net              |             | 
|                                          |             | 
|Net income                                |             | 
|                                          |             | 

Blankenbaker
Business Center 1A

Blankenbaker
Business Center 1As reportable operating segments included only one segment 
Commercial Real Estate Operations.

# Note 13  Real
Estate Transactions

During
the three and nine months ended September 30, 2005, we had a property acquisition
summarized as follows:

|Property             | Our Ownership | Date            | Purchase Price
|-------------------- | ------------- | --------------- | --------------
|The Lakes Apartments | 100%          | August 26, 2005 | $15,975,000   

On
August 29, 2005, we announced that on August 26, 2005, we closed on our Agreement of Sale
with Great Lakes Property Group Trust to purchase The Lakes Apartments, located adjacent
to Willow Lake Apartments, in Indianapolis, Indiana. The Lakes is a 230-unit luxury
multifamily property which includes amenities such as a fitness center, car wash,
swimming pool and a lighted tennis court.

The
acquisition was accounted for using the purchase method of accounting in accordance with
SFAS No. 141 Business Combinations. The assets and
liabilities purchased were recorded at their fair market value at the date of the
acquisition. We allocated the purchase price for the property to net tangible and
identified intangible assets acquired based on fair values (including land, buildings,
tenant improvements, acquired above and below market leases and the origination cost of
acquired in-place leases) and acquired liabilities. No customer relationship intangibles
exist. At the date of the acquisition, the carrying value of mortgages and other
liabilities approximated fair market value. We retained an independent appraiser to assess
fair value based on estimated cash flow projections that utilize discount and
capitalizations rates deemed appropriate and available market information.

On
September 13, 2005, we announced that we entered into an agreement to sell one of our
office buildings located in Jefferson County, Kentucky to an unaffiliated local non-profit
corporation for $5.6 million.

On
September 30, 2005, we entered into separate agreements to sell Golf Brook Apartments and
Sabal Park Apartments, our multifamily properties located in Orlando, Florida, to an
unaffiliated Florida corporation. We are scheduled to receive an aggregate purchase price
of approximately $71.5 million for the properties at closing.

34

---

We
anticipate the transactions to sell the office building and multifamily properties to take
place in the fourth quarter of 2005 and the first quarter of 2006, respectively.

We
have presented separately as discontinued operations in all periods the results of
operations for the properties being sold. The assets and liabilities held for sale have
been separately identified on our balance sheets at September 30, 2005 and December 31,
2004.

The
components of discontinued operations are outlined below and include the results of
operations for the respective periods in which we owned such assets during the three and
nine months ended September 30, 2005 and 2004.

|                                         | (Unaudited) |  | (Unaudited) |          
|---------------------------------------- | ----------- |  | ----------- | ---------
|
|
|REVENUE:                                 |             |  |             |          
|Rental income                            |             |  | $           | 1,399,898
|Tenant reimbursements                    |             |  |             | 610      
|                                         |             |  |             |          
|Total revenue                            |             |  |             | 1,400,508
|                                         |             | 
|EXPENSES:                                |             | 
|Operating expenses and operating         |             | 
|expenses -  affiliated                   |             |  |             | 662,665  
|Management fees                          |             |  |             | 70,330   
|Real estate taxes                        |             |  |             | 110,430  
|Professional and administrative expenses |             |  |             | --       
|Depreciation and amortization            |             |  |             | 258,089  
|                                         |             |  |             |          
|Total expenses                           |             |  |             | 1,101,514
|                                         |             |  |             |          
|                                         |             | 
|DISCONTINUED OPERATING INCOME            |             |  |             | 298,994  
|                                         |             | 
|Interest and other income                |             |  |             | 2,796    
|Interest expense                         |             |  |             | (169,638 
|Loss on disposal of assets               |             |  |             | (17,884  
|                                         |             |  |             |          
|DISCONTINUED OPERATIONS, NET             |             |  | $           | 114,268  
|                                         |             |  |             |          

The
components of long-lived assets held for sale consist primarily of land, buildings and
amenities for the properties being sold. The components of long-lived liabilities held for
sale include the accrued property tax liabilities and security deposit liabilities for the
properties being sold.

# Note 14 
Subsequent Event

On
November 1, 2005, we announced that we entered into two agreements to purchase two
multifamily properties located in Nashville, Tennessee and one multifamily property
located in Chesterfield County, Virginia from an unaffiliated Delaware limited
partnership. Subject to the terms and conditions of the Agreements, we have agreed to pay
approximately $117.25 million for the properties.

35

---

# ITEM 2 
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For
the Managements Discussion and Analysis of Financial Condition and Results of
Operations (MD&A), financial information for the three and nine months
ended September 30, 2004 was treated as if the Partnerships, ORIG and the NTS Private
Group were combined on a historical basis.

The
following discussion should be read in conjunction with the financial statements and
historical financial statements appearing in Item 1 and the cautionary statements below.
This discussion treats our statements of operations and cash flow information for the
three and nine months ended September 30, 2004 as if it were combined with our
predecessors.

# Critical Accounting
Policies

General

A
critical accounting policy is one that would materially affect our operations or financial
condition, and requires management to make estimates or judgments in certain
circumstances. These judgments often result from the need to make estimates about the
effect of matters that are inherently uncertain. Critical accounting policies discussed in
this section are not to be confused with accounting principles and methods disclosed in
accordance with U.S. generally accepted accounting principles (GAAP). GAAP
requires information in financial statements about accounting principles, methods used and
disclosures pertaining to significant estimates. The following disclosure discusses
judgments known to management pertaining to trends, events or uncertainties known which
were taken into consideration upon the application of those policies and the likelihood
that materially different amounts would be reported upon taking into consideration
different conditions and assumptions.

Distribution
Policy

We
pay distributions if and when authorized by our managing general partner. We are required
to pay distributions on a quarterly basis, commencing in the first quarter of 2005, equal
to sixty-five percent (65%) of our net cash flow from operations as this term
is defined in regulations promulgated by the Treasury Department under the Internal
Revenue Code of 1986, as amended; provided that if a law is enacted or existing law is
modified or interpreted in a manner that subjects us to taxation as a corporation or
otherwise subjects us to entity level taxation for federal, state or local income tax
purposes, we will adjust the amount distributed to reflect our obligation to pay tax. Any
distribution other than a distribution with respect to the final quarter of a calendar
year shall be made no later than forty-five (45) days after the last day of such quarter
based on our estimate of net cash flow from operations for the year. Any
distribution with respect to the final quarter of a calendar year shall be made no later
than ninety (90) days after the last day of such quarter based on actual net cash
flow from operations for the year, adjusted for any excess or insufficient
distributions made with respect to the first three quarters of the calendar year.

Net
cash flow from operations may be reduced by the amount of reserves as determined by
us each quarter. NTS Realty Capital will establish these reserves for, among other things,
working capital or capital improvement needs. Therefore, there is no assurance that we
will have net cash flow from operations from which to pay distributions in the
future. For example, our partnership agreement permits our managing general partner to
reinvest sales or refinancing proceeds in new and existing properties or to create
reserves to fund future capital expenditures. Because net cash flow from
operations is calculated after reinvesting sales or refinancing proceeds or
establishing reserves, we may not have any net cash flow from operations from
which to pay distributions.

36

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Impairment
and Valuation

Statement
of Financial Accounting Standards (SFAS) No. 144 Accounting for the
Impairment or Disposal of Long-Lived Assets, specifies circumstances in which
certain long-lived assets must be reviewed for impairment. If this review indicates that
the carrying amount of an asset exceeds the sum of its expected future cash flows, the
assets carrying value must be written down to fair value. In determining the value
of an investment property and whether the investment property is impaired, management
considers several factors such as projected rental and vacancy rates, property operating
expenses, capital expenditures and interest rates. The capitalization rate used to
determine property valuation is based on among others, the market in which the investment
property is located, length of leases, tenant financial strength, the economy in general,
demographics, environment, property location, visibility, age and physical condition. All
of these factors are considered by management in determining the value of any particular
investment property. The value of any particular investment property is sensitive to the
actual results of any of these factors, either individually or taken as a whole. If the
actual results differ from managements judgment, the valuation could be negatively
or positively affected.

The
merger was accounted for using the purchase method of accounting in accordance with SFAS
No. 141 Business Combinations. NTS Realty was treated as the purchasing
entity. The portion of each partnerships assets and liabilities acquired from
unaffiliated third parties was adjusted to reflect its fair market value. That portion
owned by affiliates of the general partners of the Partnerships was reflected at
historical cost. The assets and liabilities contributed by NTS Private Group were adjusted
to reflect their fair market value, except for that portion owned by Mr. Nichols, which
was reflected at historical cost due to his common control over the contributing entities.

In
accordance with SFAS No. 141, we have allocated the purchase price of each acquired
investment property among land, buildings and improvements, other intangibles, including
acquired above market leases, acquired below market leases and acquired in place lease
origination cost, which is the market cost avoidance of executing the acquired leases.
Allocation of the purchase price is an area that requires complex judgments and
significant estimates. We used the information contained in a third party appraisal as the
primary basis for allocating the purchase price between land and buildings. A pro rata
portion of the purchase price was allocated to the value of avoiding a lease-up period for
acquired in-place leases. The value of in-place leases is amortized to expense over the
remaining current term of the respective leases. A portion of the purchase price was
allocated to the estimated lease origination cost based on estimated lease execution costs
for similar leases and considered various factors including geographic location and size
of leased space. We then evaluated acquired leases based upon current market rates at the
acquisition date and various other factors including geographic location, size and the
location of leased space within the property, tenant profile and the credit risk of the
tenant in determining whether the acquired lease is above or below market. After acquired
leases were determined to be at, above or below market, we allocated a pro rata portion of
the purchase price to any acquired above or below market lease based upon the present
value of the difference between the contractual lease rate and the estimated market rate.
We also consider an allocation of purchase price to in-place leases that have a customer
relationship intangible value. The characteristics we consider in allocating these values
include the nature and extent of existing business relationships with the tenant, growth
prospects for developing new business with the tenant and the tenants credit quality
and expectations of lease renewals. We currently do not have any tenants with whom we have
developed a relationship that we believe has any current intangible value.

37

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Recognition
of Rental Income

Under
GAAP, we are required to recognize rental income based on the effective monthly rent for
each lease. The effective monthly rent is equal to the average monthly rent during the
term of the lease, not the stated rent for any particular month. The process, known as
straight-lining or stepping rent generally has the effect of
increasing rental revenues during the early phases of a lease and decreasing rental
revenues in the latter phases of a lease. Due to the impact of
straight-lining, on a historical combining basis, rental income from
continuing operations exceeded the cash collected for rent by approximately $102,000 and
$519,000, respectively for the three and nine months ended September 30, 2005. If rental
income calculated on a straight-line basis exceeds the cash rent due under the lease, the
difference is recorded as an increase in deferred rent receivable and included as a
component of accounts receivable on the relevant balance sheet. If the cash rent due under
the lease exceeds rental income calculated on a straight-line basis, the difference is
recorded as a decrease in deferred rent receivable and is recorded as a decrease of
accounts receivable on the relevant balance sheet. We defer recognition of contingent
rental income, such as percentage or excess rent, until the specified target that triggers
the contingent rental income is achieved. We periodically review the collectability of
outstanding receivables. Allowances are generally taken for tenants with outstanding
balances due for a period greater than ninety days and tenants with outstanding balances
due for a period less than ninety days but that we believe are potentially uncollectible.

Recognition
of Lease Termination Income

We
recognize lease termination income upon receipt of the income. We accrue lease termination
income if there is a signed termination agreement, all of the conditions of the agreement
have been met and the tenant is no longer occupying the property.

Cost
Capitalization and Depreciation Policies

We
review all expenditures and capitalize any item exceeding $1,000 deemed to be an upgrade
or a tenant improvement with an expected useful life greater than one year. Land,
buildings and amenities are stated at cost. Depreciation expense is computed using the
straight-line method over the estimated useful lives of the assets. Buildings and
improvements have estimated useful lives between 5-30 years, land improvements have
estimated useful lives between 7-30 years and amenities have estimated useful lives
between 5-30 years. Acquired above and below market leases are amortized on a
straight-line basis over the life of the related leases as an adjustment to rental income.
Acquired in place lease origination cost is amortized over the life of the lease as a
component of amortization expense.

# Results of Operations

This
section describes our results of operations for the three and nine months ended September
30, 2004 as if it were combined with our Predecessors operations without adjustment.
As of September 30, 2005, we owned nineteen office and business centers, ten multifamily
properties, three retail properties and one ground lease. We generate substantially all of
our operating income from property operations.

Net
loss from continuing operations for the three months ended September 30, 2005 and 2004 was
$(838,636) and $(755,719), respectively. The increase in net loss from continuing
operations is primarily due to increased loss on disposal of assets, interest expense and
total operating expenses, partially offset by increased revenues and interest and other
income.

Net
loss from continuing operations for the nine months ended September 30, 2005 and 2004 was
$(2,357,322) and $(2,381,924), respectively. The decrease in net loss from continuing
operations is primarily due to increased revenues and interest and other income, partially
offset by increased total operating expenses, interest expense and loss on disposal of
assets.

38

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Occupancy
levels at our continuing properties by segment as of September 30, 2005 and 2004 were as
follows:

|            | September 30, 2005 |  | September 30, 2004 |      
|----------- | ------------------ |  | ------------------ | -----
|Commercial  |                    |  |                    | 80.0%
|Multifamily |                    |  |                    | 91.1%
|Retail      |                    |  |                    | 99.5%
|Land        |                    |  |                    | N/A  

We
believe the changes in occupancy on September 30 from year to year are temporary effects
of each propertys specific mix of lease maturities and are not indicative of any
known trend or uncertainty.

The
average occupancy levels at our continuing properties by segment for the three and nine
months ended September 30, 2005 and 2004 were as follows:

|            | Three Months Ended |  | Nine Months Ended
|----------- | ------------------ |  | -----------------
|
|Commercial  |                    |  |                  
|Multifamily |                    |  |                  
|Retail      |                    |  |                  
|Land        |                    |  |                  

We
believe the changes in average occupancy from period to period are temporary effects of
each propertys specific mix of lease maturities and are not indicative of any known
trend or uncertainty.

The
leasing and renewal negotiations for our commercial properties are primarily handled by
leasing agents that are employees of NTS Development Company. All advertising for the
commercial properties is coordinated by NTS Development Companys marketing staff
located in Louisville, Kentucky.

In
an effort to continue to improve occupancy at our multifamily properties, we have on-site
leasing staff, who are employees of NTS Development Company, at each of the multifamily
properties. The staff handles all on-site visits from potential tenants, coordinates local
advertising with NTS Development Companys marketing staff, makes visits to local
companies to promote fully furnished apartments, and negotiates lease renewals with
current residents.

The
following discussion relating to changes in our results of operations includes only
material line items within our Statements of Operations or line items for which there was
a material change between the three and nine months ended September 30, 2005 and 2004.

Rental
Income and Tenant Reimbursements

Rental
income and tenant reimbursements from continuing operations for the three months ended
September 30, 2005 and 2004 were approximately $7,509,000 and $7,007,000, respectively.
The increase of $502,000, or 7%, was primarily the result of increased average occupancy
at our multifamily segment, as well as decreased free rent at our commercial segment.
Approximately $202,000 of the increase is also due to the acquisition of The Lakes
Apartments in August 2005.

Rental
income and tenant reimbursements from continuing operations for the nine months ended
September 30, 2005 and 2004 were approximately $21,838,000 and $20,902,000, respectively.
The increase of $936,000, or 4%, was primarily the result of increased average occupancy
at our multifamily segment, as well as decreased free rent at our commercial segment.
Approximately $202,000 of the increase is also due to the acquisition of The Lakes
Apartments in August 2005.

Quarter-ending
occupancy percentages represent occupancy only on a specific date; therefore, the above
analysis considers average occupancy percentages, which are more representative of the
period-to-period results.

39

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Operating
Expenses and Operating Expenses  Affiliated

Operating
expenses from continuing operations for the three months ended September 30, 2005 and 2004
were approximately $1,873,000 and $1,718,000, respectively. The increase of $155,000, or
9%, was primarily a result of overall increased operating expenses at The Lakes Apartments
due to their acquisition in August 2005. The increase is also due to increased landscaping
expenses, bad debt expense and repairs and maintenance expenses at our multifamily
segment.

Operating
expenses from continuing operations for the nine months ended September 30, 2005 and 2004
were approximately $5,217,000 and $4,950,000, respectively. The increase of $267,000, or
5%, was primarily due to our multifamily and commercial segments. The multifamily segment
increase was primarily due to increased repairs and maintenance expenses and landscaping
expenses at our multifamily segment, as well as overall increased operating expenses due
to the acquisition of The Lakes Apartments in August 2005. The increase is also due to
increased bad debt expense at our commercial segment. The increase is partially offset by
decreased tax consulting fees at Willow Lake Apartments for our multifamily segment and
decreased bad debt expense at Outlets Mall for our retail segment.

Operating
expenses - affiliated from continuing operations for the three months ended September 30,
2005 and 2004 were approximately $805,000 and $822,000, respectively. The decrease of
$17,000, or 2%, was not a significant change and is not indicative of any known trend or
uncertainty. There were no offsetting material changes.

Operating
expenses - affiliated from continuing operations for the nine months ended September 30,
2005 and 2004 were approximately $2,372,000 and $2,536,000, respectively. The decrease of
$164,000, or 6%, was primarily due to a decrease in personnel costs at our commercial
segment.

Operating
expenses  affiliated are for the services performed by employees of NTS Development
Company, an affiliate of our general partners. These employee services include property
management, leasing, maintenance, security and other services necessary to manage and
operate our business.

Management
Fees

Management
fees from continuing operations for the three months ended September 30, 2005 and 2004
were approximately $356,000 and $384,000, respectively. Management fees from continuing
operations for the nine months ended September 30, 2005 and 2004 were approximately
$1,010,000 and $1,149,000, respectively. The decreases of $28,000, or 7%, and $139,000, or
12%, respectively, were primarily the result of a change in the management fee calculation
pursuant to the terms of our agreement with NTS Development Company.

Real
Estate Taxes

Real
estate taxes from continuing operations for the three months ended September 30, 2005 were
approximately $472,000 and $517,000, respectively. The decrease of $45,000, or 9%, was
primarily due to our commercial segment as a result of reduced tax assessments at
Lakeshore Business Center Phases I, II and III and Atrium Center. The decrease is
partially offset by our multifamily segment as a result of the acquisition of The Lakes
Apartments, as well as reduced periodic expense in 2004 due to adjustments to the accrued
tax liability for the reduction of the tax assessments at Willow Lake Apartments.

Real
estate taxes from continuing operations for the nine months ended September 30, 2005 were
approximately $1,395,000 and $1,202,000, respectively. The increase of $193,000, or 16%,
was primarily due to our multifamily segment as a result of reduced periodic expense in
2004 due to adjustments to the accrued tax liability for the reduction of the tax
assessments at Willow Lake Apartments, as well as the acquisition of The Lakes Apartments.
The increase is partially offset by our commercial segment as a result of reduced tax
assessments at Lakeshore Business Center Phases I, II and III and Atrium Center.

40

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Professional
and Administrative Expenses and Professional and Administrative Expenses  Affiliated

Professional
and administrative expenses from continuing operations for the three months ended
September 30, 2005 and 2004 were approximately $647,000 and $631,000, respectively. The
increase of $16,000, or 3%, was not significant and is not indicative of any known trend
or uncertainty. There were no offsetting material changes.

Professional
and administrative expenses from continuing operations for the nine months ended September
30, 2005 and 2004 were approximately $2,172,000 and $2,425,000, respectively. The decrease
of $253,000, or 10%, was primarily due to decreased legal and professional fees related to
the merger and the class action litigation, partially offset by our increased
administrative expenses. Professional and administrative expenses for the nine months
ended September 30, 2005 included approximately $142,000 and $735,000 in merger and
litigation expenses, respectively. Professional and administrative expenses for the nine
months ended September 30, 2004 included approximately $1,412,000 and $602,000 in merger
and litigation expenses, respectively.

Professional
and administrative expenses  affiliated from continuing operations for the three
months ended September 30, 2005 and 2004 were approximately $346,000 and $298,000,
respectively. Professional and administrative expenses  affiliated from continuing
operations for the nine months ended September 30, 2005 and 2004 were approximately
$1,043,000 and $836,000, respectively. The increases of $48,000, or 16%, and $207,000, or
25%, were primarily due to increased personnel costs.

Professional
and administrative expenses  affiliated are for the services performed by employees
of NTS Development Company, an affiliate of our general partners. These employee services
include legal, financial and other services necessary to manage and operate our business.

Professional
and administrative expenses  affiliated consisted of the following:

|                   | Three Months Ended |  | Nine Months Ended |        
|------------------ | ------------------ |  | ----------------- | -------
|
|Finance            |                    |  | $                 | 89,000 
|Accounting         |                    |  |                   | 159,000
|Investor Relations |                    |  |                   | 51,000 
|Human Resources    |                    |  |                   | 4,000  
|Overhead           |                    |  |                   | 43,000 
|                   |                    |  |                   |        
|Total              |                    |  | $                 | 346,000
|                   |                    |  |                   |        

Depreciation
and Amortization

Depreciation
and amortization expenses from continuing operations for the three months ended September
30, 2005 and 2004 were approximately $1,912,000 and $1,815,000, respectively. Depreciation
and amortization expenses from continuing operations for the nine months ended September
30, 2005 and 2004 were approximately $5,667,000 and $5,410,000, respectively. The
increases of $97,000, or 5%, and $257,000, or 5%, respectively, were primarily due to the
amortization of intangible assets, partially offset by the revision of our fixed asset
lives subsequent to our acquisition of them.

Interest
Expense

Interest
expense from continuing operations for the three months ended September 30, 2005 and 2004
was approximately $1,831,000 and $1,624,000, respectively. Interest expense from
continuing operations for the nine months ended September 30, 2005 and 2004 was
approximately $5,243,000 and $4,936,000, respectively. The increases of $207,000, or 13%,
and $307,000, or 6%, respectively, were primarily due to additional loan proceeds obtained
in December 2004, March 2005 and August 2005. The increases were partially offset by
lowered interest rates due to refinancing approximately $94.0 million of debt.

41

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Loss
on Disposal of Assets

The
loss on disposal of assets from continuing operations for the three and nine months ended
September 30, 2005 and 2004 can be attributed to assets that were not fully depreciated at the time
of replacement, spread amongst the majority of our properties. These replacements include
heating and air conditioning units, common area renovations, stairwell upgrades, access
control upgrades, roof replacements, lighting upgrades and fire sprinkler replacements,
among others.

Discontinued
Operations

Discontinued
operations, net were approximately $114,000 and $571,000 for the three and nine months
ended September 30, 2005, respectively, as compared to approximately $258,000 and $785,000
for the three and nine months ended September 30, 2004, respectively. The $144,000 and
$214,000 decreases are primarily due to decreased revenues at our commercial segment due
to a tenant vacating the entire building. The decreases are also due to increased interest
expense and loss on disposal of assets at our multifamily segment.

# Liquidity and Capital
Resources

Our
most liquid asset is our cash and equivalents, which consist of cash and short-term
investments, but do not include any restricted cash. Operating income generated by the
properties will be the primary source from which we generate cash. Other sources of cash
include the proceeds from mortgage loans and notes payable. Our main uses of cash will
relate to capital expenditures, required payments of mortgages and notes payable,
distributions and property taxes.

|                                                | Nine Months Ended | 
|----------------------------------------------- | ----------------- | 
|
|Operating activities                            |                   | 
|Investing activities                            |                   | 
|Financing activities                            |                   | 
|                                                |                   | 
|Net (decrease) increase in cash and equivalents |                   | 
|                                                |                   | 

Cash
Flow from Operating Activities

Net
cash provided by operating activities decreased from approximately $7,449,000 to
$6,835,000 for the nine months ended September 30, 2004 and 2005, respectively. The
decrease was primarily a result of cash used to pay accounts payable.

Cash
Flow from Investing Activities

Net
cash used in investing activities increased from approximately $1,896,000 to $32,687,000
for the nine months ended September 30, 2004 and 2005, respectively. The increase was
primarily due to the acquisition of The Lakes Apartments as well as increased capital
expenditures, which included tenant, vacant suite and common area improvements at our
commercial segment, roof replacements at our multifamily, retail and commercial segments
and HVAC replacements and access control system upgrades at our commercial and multifamily
segments. The increase is also due to the cash used to fund our joint venture investment
and notes receivable.

Cash
Flow from Financing Activities

For
the nine months ended September 30, 2004, we used approximately $4,861,000 in net cash
from financing activities. Net cash provided by financing activities was approximately
$25,250,000 for the nine months ended September 30, 2005. The change was primarily the
result of $44,000,000 in loan proceeds obtained during 2005. The increase is partially
offset by the payoff of the note payable of approximately $15,000,000.

42

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Future
Liquidity

Our
future liquidity depends significantly on our properties occupancy remaining at a
level which provides for debt payments and adequate working capital, currently and in the
future. If occupancy were to fall below that level and remain at or below that level for a
significant period of time, our ability to make payments due under our debt agreements and
to continue paying daily operational costs would be greatly impaired. In the next twelve
months, we intend to operate the properties in a similar manner to their operation in
recent years. Cash reserves which consist of unrestricted cash as shown on our balance
sheet were approximately $1,972,000 on September 30, 2005. As part of the merger, we
refinanced approximately $94.0 million of debt with approximately $119.0 million of new
debt. The refinancing, among other things, lowered interest rates and extended the
amortization schedules. The refinancing of this debt allowed us to generate cash flow to
pay capital expenditures, principal and interest expenses from mortgages and notes
payable, deferred fees and expenses to NTS Development Company and quarterly distributions
to our limited partners pursuant to our distribution policy.

We
made quarterly distributions of $0.10 per unit to our limited partners on May 13,
2005, July 15, 2005 and October 14, 2005.

We
expect to incur capital expenditures of approximately $6.3 million during the next twelve
months primarily for tenant origination costs necessary to continue leasing our
properties. This discussion of future liquidity details our material commitments.

Joint
Venture Investment

On
September 12, 2005, we entered into a joint venture investment with an unaffiliated third
party investor to acquire an approximately $16 million mortgage loan secured by real property and improvements.
We contributed $200,000 as capital and hold a 45% interest in the joint venture,
which we account for using the equity method. We loaned the joint venture $1.8 million on
a note receivable with an interest rate of 8%, which is due on December 31, 2011, with
interest payable on each December 31. We also loaned the joint venture approximately $7.0
million on a $7.2 million note receivable due on September 30, 2006, and bearing interest
monthly, of LIBOR plus 1.75%. This investment in and notes receivable from the joint
venture were funded with borrowings on our revolving note payable to a bank.

The
unaffiliated third party investor contributed $400,000 as capital and holds a 55% interest
in the joint venture. The investor also loaned the joint venture $3.6 million on a note
receivable with an interest rate of 8%, which is due on December 31, 2011. The principal repayments on the $1.8
million and $3.6 million notes are subordinated to the repayment of the balance due on the $7.2 million note.

Property
Transactions

On
August 29, 2005, we announced that on August 26, 2005, we closed on our Agreement of Sale
with Great Lakes Property Group Trust to purchase The Lakes Apartments, located adjacent
to Willow Lake Apartments, in Indianapolis, Indiana. The Lakes is a 230-unit luxury
multifamily property which includes amenities such as a fitness center, car wash,
swimming pool and a lighted tennis court.

We
also announced that on August 24, 2005, we closed on a $20.0 million line of credit from
PNC Bank, National Association. We used a portion of the proceeds from the line of credit
to pay the purchase price for The Lakes Apartments pending permanent financing. We intend
to use proceeds from the line of credit to assist in future acquisitions and other working
capital needs.

On
September 13, 2005, we announced that we entered into an agreement to sell one of our
office buildings located in Jefferson County, Kentucky to an unaffiliated local non-profit
corporation for $5.6 million.

On
September 30, 2005, we announced that we entered into separate agreements to sell
Golf Brook Apartments and Sabal Park Apartments, our multifamily properties located in
Orlando, Florida, to an unaffiliated Florida corporation. We are scheduled to receive an
aggregate purchase price of approximately $71.5 million for the properties at closing.

43

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We
anticipate the transactions to sell the office building and multifamily properties to take
place in the fourth quarter of 2005 and the first quarter of 2006, respectively.

On
November 1, 2005, we announced that we entered into two agreements to purchase two
multifamily properties located in Nashville, Tennessee and one multifamily property
located in Chesterfield County, Virginia from an unaffiliated Delaware limited
partnership. Subject to the terms and conditions of the Agreements, we have agreed to pay
approximately $117.25 million for the properties.

The
properties in Nashville consist of apartment complexes with 292 units and 301 units,
respectively, while the Richmond property has 240 units. We anticipate the transaction to
purchase these properties to take place in the first quarter of 2006.

We
anticipate using substantially all of the proceeds from the sale of our office building
and two multifamily properties for reinvestment in the three multifamily properties we
have agreed to purchase. Additional financing will be required to purchase the three
multifamily properties. There are significant and potentially material financial risks
associated with our ability to execute these transactions. The sale and reinvestment are
expected to qualify for the like-kind exchange investment rules pursuant to
Section 1031 of the Internal Revenue Code. We expect this to minimize any taxable gain to
our unit holders as a result of the sale and reinvestment transactions.

We
have presented separately as discontinued operations in all periods the results of
operations for our properties being sold.

The
components of discontinued operations are outlined below and include the results of
operations for the respective periods in which we owned such assets during the three and
nine months ended September 30, 2005 and 2004.

|                                         | Three Months Ended September 30, |  | Nine Months Ended September 30, |          
|---------------------------------------- | -------------------------------- |  | ------------------------------- | ---------
|
|REVENUE:                                 |                                  |  |                                 |          
|Rental income                            |                                  |  | $                               | 1,399,898
|Tenant reimbursements                    |                                  |  |                                 | 610      
|                                         |                                  |  |                                 |          
|Total revenue                            |                                  |  |                                 | 1,400,508
|                                         |                                  | 
|EXPENSES:                                |                                  | 
|Operating expenses and operating         |                                  | 
|expenses -  affiliated                   |                                  |  |                                 | 662,665  
|Management fees                          |                                  |  |                                 | 70,330   
|Real estate taxes                        |                                  |  |                                 | 110,430  
|Professional and administrative expenses |                                  |  |                                 | --       
|Depreciation and amortization            |                                  |  |                                 | 258,089  
|                                         |                                  |  |                                 |          
|Total expenses                           |                                  |  |                                 | 1,101,514
|                                         |                                  |  |                                 |          
|                                         |                                  | 
|DISCONTINUED OPERATING INCOME            |                                  |  |                                 | 298,994  
|                                         |                                  | 
|Interest and other income                |                                  |  |                                 | 2,796    
|Interest expense                         |                                  |  |                                 | (169,638 
|Loss on disposal of assets               |                                  |  |                                 | (17,884  
|                                         |                                  |  |                                 |          
|DISCONTINUED OPERATIONS, NET             |                                  |  | $                               | 114,268  
|                                         |                                  |  |                                 |          

44

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Hurricane
Wilma

On
October 23, 2005, Hurricane Wilma (the Hurricane) struck the peninsula of Florida. Our properties in Ft.
Lauderdale, Florida were damaged by this storm. The commercial properties involved are the
Lakeshore Business Center Phases I, II and III. While these properties are covered by
insurance, the deductible for hurricane damage is two percent (2%) of the insured value.
For Lakeshore Business Center Phases I, II and III, these amounts are approximately
$190,000, $185,000 and $84,000, respectively. At this time we are working to determine the
extent of the damage to our properties and the cost to repair. The cost to repair could
exceed each of our deductibles totaling approximately $459,000.

We
also have business interruption insurance coverage for our properties in an amount
equivalent to the rent for one year. At this time, we are not certain when full utility
service will be restored. Once full utility service is restored, there may be an extended time period before
storm damage can be identified and repaired. Although we generally require our tenants to maintain business
interruption insurance to cover such occurrences, the Hurricane may have an unknown impact on our tenants ability
to pay rent and our ability to collect those rents due us.

We
have not made any provision or accrual in our financial statements as of and for the
periods ended September 30, 2005 related to the Hurricane damages, losses or
uncollectible amounts. While our exposure to loss relative to physical damage to our
buildings is likely limited to our deductible of approximately $459,000, it is unknown
what financial impact the event will have on our ability to collect current and future
amounts due us under our lease agreements with tenants at the affected properties; our
ability to renew or induce new tenants to lease space at these properties; or what
additional costs or expenditures may be necessary to return our property to its former
level of operation.

# Website Information

Our
website address is www.ntsdevelopment.com. Our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) of the Securities Exchange Act are available and may
be accessed free of charge through the About NTS section of our website as
soon as reasonably practicable after we electronically file this material with, or furnish
it to, the SEC. Our website and the information contained therein or connected thereto are
not incorporated into this Quarterly Report on Form 10-Q.

# ITEM 3 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our
primary market risk exposure with regard to financial instruments is expected to be our
exposure to changes in interest rates. We refinanced substantially all of our debt
acquired at the time of our merger with instruments which bear interest at a fixed rate
with the exception of approximately $28 million at variable rates. We anticipate that a
hypothetical 100 basis point increase in interest rates would result in an approximate
$6,500,000 decrease in the fair value of our fixed rate debt while increasing interest
expense on our variable rate debt by approximately $282,000 annually.

# ITEM 4  CONTROLS
AND PROCEDURES

Our
managing general partner established disclosure controls and procedures to ensure that our
material information is made known to the officers of our managing general partner who
certify our financial reports, to our management and to the board of directors of our
managing partner.

As
of September 30, 2005, our managing general partners Chief Executive Officer and
Chief Financial Officer have concluded that our disclosure controls and procedures are
effective to ensure that the information required to be disclosed by us in the reports
that we file or submit under Securities and Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in SEC rules and forms.

45

---

# PART II  OTHER
INFORMATION

# ITEM 1  LEGAL
PROCEEDINGS

On
May 6, 2004, the Superior Court of the State of California for the County of Contra Costa
granted its final approval of the settlement agreement jointly filed by the general
partners (the Former General Partners) of the Partnerships, along with certain
of their affiliates, with the class of plaintiffs in the action originally captioned
Buchanan, et al. v. NTS-Properties Associates, et al. (Case No. C 01-05090) (the
California Litigation) on December 5, 2003. At the final hearing, class
members were given the opportunity to object to the final approval of the settlement
agreement, the entry of a final judgment dismissing with prejudice the California
Litigation, or an application of an award for attorneys fees and expenses to
plaintiffs counsel. The Superior Courts order provided, among other things,
that: (1) the settlement agreement, and all transactions contemplated thereby, including
the merger of the Partnerships into us, were fair, reasonable and adequate, and in the
best interests of the class of plaintiffs; (2) the plaintiffs complaint and each and
every cause of action and claim set forth therein is dismissed with prejudice; and (3)
each class member who did not request to be excluded from the settlement released all
known and unknown claims against the defendants, including those claims being pursued in a
competing class action in Kentucky, which is discussed in further detail below.

On
June 11, 2004, several class members who objected to the settlement agreement but whose
objections were overruled by the Superior Court, filed an appeal in the Court of Appeal of
the State of California, First Appellate District. On July 28, 2005, the Court of Appeal
issued its decision affirming the Superior Courts approval of the settlement, and
rejecting the objectors arguments. On October 5, 2005, the Court of Appeal of the
State of California, First Appellate District entered a Remittitur Order stating that the
time for appeal had expired and that the judgment of the Appellate Court was final. This
effectively concludes the litigation. The matter was then sent back to the Superior Court
of the State of California for the County of Contra Costa in order to conduct ministerial
proceedings (if any) to effectuate the settlement.

On
February 27, 2003, two individuals filed a class and derivative action in the Circuit
Court of Jefferson County, Kentucky captioned Bohm, et al. v. J.D. Nichols, et al. (Case
No. 03-CI-01740) (the Kentucky Litigation) against certain of the Former
General Partners and several individuals and entities affiliated with us.  The
complaint was amended to include the general partner of NTS-Properties III and the general
partner of NTS-Properties Plus Ltd. The plaintiffs are seeking, among other things,
compensatory and punitive damages in an unspecified amount, an accounting, a declaratory
judgment and injunctive relief.

On
March 2, 2004, the Former General Partners filed a motion to dismiss the Kentucky
Litigation. After the motion to dismiss was briefed, the settlement agreement in the
California Litigation (discussed above) received final court approval. The
Circuit Court of Jefferson County, Kentucky, instructed the plaintiffs in the Kentucky
Litigation to file an amended complaint in light of the approved settlement of the
California Litigation. The plaintiffs six opt-outs from the California Litigation
filed a corrected second amended complaint on August 11, 2004.

On
February 9, 2005, the Circuit Court instructed the defendants to file a responsive
pleading only as to direct claims asserted by the plaintiffs in the Corrected Second
Amended Complaint. On March 9, 2005, the Former General Partners, along with the other
defendants, filed motions to dismiss the corrected second amended complaint.

On
July 7, 2005, two of the plaintiffs in the Kentucky Litigation voluntarily dismissed their
claims against the defendants. The Former General Partners believe that these dismissals
affect the value and scope of plaintiffs claims. Accordingly, defendants remanded
the hearing on the motion to dismiss originally scheduled for July 15, 2005, in order to
properly advise the Court of the effect of the voluntary dismissals. A hearing on the
motion to dismiss has been rescheduled for January 30, 2006.

Our
legal counsel and we believe that the litigation pending in Kentucky is without merit, and
therefore, are continuing to vigorously defend against it. No amounts have been accrued
for the settlement of this action in our financial statements.

46

---

ITEM 2  UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.

ITEM 3  DEFAULTS
UPON SENIOR SECURITIES
None.

ITEM 4  SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.

ITEM 5  OTHER
INFORMATION 
Not Applicable.

ITEM 6  EXHIBITS

|Exhibit No. | 
|----------- | 
|2.01        | 
|            | 
|2.02        | 
|            | 
|3.01        | 
|            | 
|3.02        | 
|            | 
|3.03        | 
|            | 
|3.04        | 
|            | 
|10.01       | 
|            | 
|10.02       | 
|            | 
|14.01       | 
|            | 
|31.1        | 
|            | 
|31.2        | 
|            | 
|32.1        | 
|            | 
|32.2        | 
|            | 
|99.1        | 
|            | 
|99.2        | 
|            | 
|            | 
|            | 
|(1)         | 
|(2)         | 
|(3)         | 
|(4)         | 
|(5)         | 
|(6)         | 
|(7)         | 
|(8)         | 

47

---

# SIGNATURES

Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.

| |  | NTS REALTY HOLDINGS LIMITED PARTNERSHIP                                                                                                                                                                                                                                                                                                                
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | By:     NTS Realty Capital, Inc.
                   Its:     Managing General Partner
                   By:    /s/ Brian F. Lavin
                            
                            Brian F. Lavin
                            Its:     President and Chief Executive Officer
                            Date: November 14, 2005

48