** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**Washington,D.C. 20549

**FORM 10-Q**

 

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

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**For the quarterly periodended June 30, 2006**

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**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) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.**Yes**   x      **No**   o

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer andlarge accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer   o          Accelerated filer   o              Non-accelerated filer   x

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).**Yes**   o      **No**   x

As of August 7, 2006, there were 11,381,608 of theregistrant’s limited partnership units outstanding.

 

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**NTSREALTY HOLDINGS LIMITED PARTNERSHIP**

**FORM 10-Q**

**TABLE OF CONTENTS**
| **PART I — FINANCIAL  INFORMATION**                                                                   |   |   |   |
|------------------------------------------------------------------------------------------------------------|--------|--------|--------|
| ** **                                                                                                 |   |   |   |
| Item  1 — Financial Statements                                                                        |   |   |   |
| Balance Sheets  as of June 30, 2006 and December 31, 2005                                                  |   |   |   |
| Statement of  Partners’ Equity as of June 30, 2006                                                    |   |   |   |
| Statements of  Operations for the Three and Six Months Ended June 30, 2006 and 2005                        |   |   |   |
| Statements of  Cash Flows for the Six Months Ended June 30, 2006 and 2005                                  |   |   |   |
| Notes to Financial  Statements                                                                             |   |   |   |
| Item 2 —  Management’s Discussion and Analysis of Financial Condition and Results of  Operations |   |   |   |
| Item 3 — Quantitative and Qualitative  Disclosures About Market Risk                                  |   |   |   |
| Item 4 — Controls and  Procedures                                                                     |   |   |   |
|                                                                                                       |   |   |   |
| **PART II — OTHER  INFORMATION**                                                                      |   |   |   |
| ** **                                                                                                 |   |   |   |
| Item 1 — Legal Proceedings                                                                            |   |   |   |
| Item 1A — Risk Factors                                                                                |   |   |   |
| Item 2 —  Unregistered Sales of Equity Securities and Use of Proceeds                                 |   |   |   |
| Item 3 —  Defaults Upon Senior Securities                                                             |   |   |   |
| Item 4 —  Submission of Matters to a Vote of Security Holders                                         |   |   |   |
| Item 5 — Other Information                                                                            |   |   |   |
| Item 6 — Exhibits                                                                                     |   |   |   |
| SIGNATURES                                                                                                 |   |   |   |

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**INFORMATION REGARDINGFORWARD-LOOKING STATEMENTS**

Some of the statements included in this quarterlyreport on Form 10-Q, particularly those included in Part I, Item 2 — Management’sDiscussion and Analysis of Financial Condition and Results of Operations (“MD&A”),may be considered “forward-looking statements” because the statements relate tomatters which have not yet occurred.  Forexample, phrases such as “we anticipate,” “believe” or “expect” indicate thatit is possible that the event anticipated, believed or expected may notoccur.  If these events do not occur, theresult 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-lookingstatements.

Any forward-looking statements included in MD&A,or elsewhere in this report, reflect our managing general partner’s bestjudgment based on known factors, but involve risks and uncertainties.  Actual results could differ materially fromthose anticipated in any forward-looking statements as a result of a number offactors, including but not limited to those described in our filings with theSecurities and Exchange Commission, particularly our most recent annual reporton Form 10-K, which was filed on April 3, 2006. Any forward-looking information provided by us pursuant to the safeharbor established by the Private Securities Litigation Reform Act of 1995should be evaluated in the context of these factors.

 

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# **PART I — FINANCIAL INFORMATION**

## **Item1 — Financial Statements**

**NTS REALTY HOLDINGSLIMITED PARTNERSHIP**Balance SheetsasofJune 30, 2006 and December 31, 2005
| ** **                                                                                                                   | ** ** | **(Unaudited)**             | ** **  | ** **                      | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|-------------|---------------------------------|------------|
| ** **                                                                                                                   | ** ** | **June 30, 2006** | ** **  | **December 31, 2005** | ** ** |
| **ASSETS:**                                                                                                                  | ** ** | ** **                  | ** **  | ** **                      | ** ** |
| Cash and  equivalents                                                                                                        |       | $                           | 344,372     |                            | $          | 5,409,318 |   |
| Cash and  equivalents — restricted                                                                                      |       | 546,900                     |        | 1,260,937                       |       |
| Accounts  receivable, net of allowance for doubtful accounts of $290,675 at June 30,  2006 and $342,002 at December 31, 2005 |       | 2,232,386                   |        | 2,091,285                       |       |
| Land, buildings  and amenities, net                                                                                          |       | 305,713,837                 |        | 143,544,705                     |       |
| Long-lived  assets held for sale                                                                                             |       | —                      |        | 27,912,717                      |       |
| Other assets                                                                                                                 |       | 5,284,069                   |        | 7,589,861                       |       |
|                                                                                                                         |       |                        |        |                            |       |
| **Total  assets**                                                                                                            |       | $                           | 314,121,564 |                            | $          | 187,808,823 |   |
|                                                                                                                         |       |                        |        |                            |       |
| **LIABILITIES:**                                                                                                             |       |                        |        |                            |       |
| Mortgages and  notes payable                                                                                                 |       | $                           | 219,392,979 |                            | $          | 138,012,832 |   |
| Accounts payable  and accrued expenses                                                                                       |       | 2,442,648                   |        | 2,801,960                       |       |
| Accounts payable  and accrued expenses due to affiliate                                                                      |       | 787,223                     |        | 373,138                         |       |
| Distributions  payable                                                                                                       |       | 1,138,161                   |        | 2,276,321                       |       |
| Security  deposits                                                                                                           |       | 1,072,502                   |        | 776,144                         |       |
| Long-lived  liabilities held for sale                                                                                        |       | —                      |        | 274,975                         |       |
| Other  liabilities                                                                                                           |       | 3,212,379                   |        | 1,243,258                       |       |
|                                                                                                                         |       |                        |        |                            |       |
| **Total  liabilities**                                                                                                       |       | 228,045,892                 |        | 145,758,628                     |       |
|                                                                                                                         |       |                        |        |                            |       |
| COMMITMENTS AND  CONTINGENCIES (NOTE 11)                                                                                     |       |                        |        |                            |       |
|                                                                                                                         |       |                        |        |                            |       |
| **PARTNERS’ EQUITY**                                                                                                    |       | 86,075,672                  |        | 42,050,195                      |       |
|                                                                                                                         |       |                        |        |                            |       |
| **Total liabilities and partners’  equity**                                                                             |       | $                           | 314,121,564 |                            | $          | 187,808,823 |   |

 

**NTSREALTY HOLDINGS LIMITED PARTNERSHIP**Statement of Partners’ Equity as of June 30, 2006(Unaudited)

 
| ** **                           | ** ** | **General  Partner  Interests** | ** ** | **Limited  Partners  Interests** | ** ** | **General  Partner** | ** ** | **Limited  Partners** | ** ** | **Total**  | ** ** |
|--------------------------------------|------------|---------------------------------|------------|----------------------------------|------------|----------------------|------------|-----------------------|------------|------------|------------|
| **PARTNERS’ EQUITY:**           |       |                            |       |                             |       |                 |       |                  |       |       |       |
| Initial equity                       |       | 714,491                         |       | 10,667,117                       |       | $                    | 3,131,381  |                  | $          | 46,750,444 |       | $ | 49,881,825 |   |
| Net loss prior year                  |       | —                          |       | —                           |       | (134,392             | )          | (2,006,434            | )          | (2,140,826 | )          |
| Net income current year              |       | —                          |       | —                           |       | 2,906,638            |       | 43,395,160            |       | 46,301,798 |       |
| Cash distributions  declared to date |       | —                          |       | —                           |       | (500,144             | )          | (7,466,981            | )          | (7,967,125 | )          |
| Balances on June 30, 2006            |       | 714,491                         |       | 10,667,117                       |       | $                    | 5,403,483  |                  | $          | 80,672,189 |       | $ | 86,075,672 |   |

 

The accompanyingnotes to financial statements are an integral part of these statements.

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**NTSREALTY HOLDINGS LIMITED PARTNERSHIP**Statements of Operations for the Three and Six Months EndedJune 30, 2006 and 2005(Unaudited)

 
| ** **                                                             | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                             | ** ** | **2006**                                        | ** ** | **2005**                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| **REVENUE:**                                                           | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Rental income                                                          |       | $                                               | 11,158,069 |                                          | $          | 6,736,558 |   | $ | 19,995,589 |   | $ | 13,283,690 |   |
| Tenant reimbursements                                                  |       | 554,707                                         |       | 505,066                                       |       | 1,050,006 |   | 1,011,376 |   |
|                                                                   |       |                                            |       |                                          |       |   |   |   |   |
| **Total revenue**                                                      |       | 11,712,776                                      |       | 7,241,624                                     |       | 21,045,595 |   | 14,295,066 |   |
|                                                                   |       |                                            |       |                                          |       |   |   |   |   |
| **EXPENSES:**                                                          | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Operating expenses                                                     |       | 2,397,860                                       |       | 1,511,123                                     |       | 4,094,544 |   | 2,969,953 |   |
| Operating expenses reimbursed to affiliate                             |       | 1,321,380                                       |       | 757,518                                       |       | 2,369,108 |   | 1,505,895 |   |
| Management fees                                                        |       | 583,948                                         |       | 340,006                                       |       | 1,063,409 |   | 652,417 |   |
| Property taxes and insurance                                           |       | 1,297,513                                       |       | 681,351                                       |       | 2,252,897 |   | 1,322,048 |   |
| Professional and administrative expenses                               |       | 384,017                                         |       | 740,361                                       |       | 963,552 |   | 1,433,413 |   |
| Professional and administrative expenses reimbursed  to affiliate      |       | 402,491                                         |       | 344,296                                       |       | 808,376 |   | 696,582 |   |
| Depreciation and amortization                                          |       | 4,183,484                                       |       | 1,806,951                                     |       | 7,074,505 |   | 3,631,730 |   |
|                                                                   |       |                                            |       |                                          |       |   |   |   |   |
| **Total operating expenses**                                           |       | 10,570,693                                      |       | 6,181,606                                     |       | 18,626,391 |   | 12,212,038 |   |
|                                                                   |       |                                            |       |                                          |       |   |   |   |   |
| **OPERATING  INCOME**                                                  |       | 1,142,083                                       |       | 1,060,018                                     |       | 2,419,204 |   | 2,083,028 |   |
|                                                                   |       |                                            |       |                                          |       |   |   |   |   |
| Interest and  other income                                             |       | 43,234                                          |       | 117,109                                       |       | 137,729 |   | 158,008 |   |
| Interest expense                                                       |       | (3,579,065                                      | )          | (1,742,490                                    | )          | (6,101,249 | ) | (3,384,182 | ) |
| Loss on disposal  of assets                                            |       | (32,560                                         | )          | (118,559                                      | )          | (130,230 | ) | (133,752 | ) |
|                                                                   |       |                                            |       |                                          |       |   |   |   |   |
| **LOSS  FROM CONTINUING OPERATIONS**                                   |       | (2,426,308                                      | )          | (683,922                                      | )          | (3,674,546 | ) | (1,276,898 | ) |
| Discontinued  operations, net                                          |       | (33,266                                         | )          | 110,069                                       |       | 25,858 |   | 214,771 |   |
| Gain on sale of  discontinued operations                               |       | 1,679,143                                       |       | —                                        |       | 49,950,486 |   | — |   |
|                                                                   |       |                                            |       |                                          |       |   |   |   |   |
| **NET  (LOSS) INCOME**                                                 |       | $                                               | (780,431   | )                                             | $          | (573,853 | ) | $ | 46,301,798 |   | $ | (1,062,127 | ) |
|                                                                   |       |                                            |       |                                          |       |   |   |   |   |
| **Loss  from continuing operations allocated to limited partners**     |       | $                                               | (2,273,994 | )                                             | $          | (640,988 | ) | $ | (3,443,873 | ) | $ | (1,196,740 | ) |
| Discontinued  operations, net allocated to limited partners            |       | (31,178                                         | )          | 103,159                                       |       | 24,235 |   | 201,289 |   |
| Gain on sale of  discontinued operations allocated to limited partners |       | 1,573,733                                       |       | —                                        |       | 46,814,798 |   | — |   |
| ** **                                                             | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| **NET  (LOSS) INCOME ALLOCATED TO LIMITED PARTNERS**                   |       | $                                               | (731,439   | )                                             | $          | (537,829 | ) | $ | 43,395,160 |   | $ | (995,451 | ) |
|                                                                   |       |                                            |       |                                          |       |   |   |   |   |
| **Loss  from continuing operations per limited partnership unit**      |       | $                                               | (0.21      | )                                             | $          | (0.06 | ) | $ | (0.32 | ) | $ | (0.11 | ) |
| Discontinued  operations, net per limited partnership unit             |       | —                                          |       | 0.01                                          |       | — |   | 0.02 |   |
| Gain on sale of  discontinued operations per limited partnership unit  |       | 0.14                                            |       | —                                        |       | 4.39 |   | — |   |
|                                                                   |       |                                            |       |                                          |       |   |   |   |   |
| **NET  (LOSS) INCOME PER LIMITED PARTNERSHIP UNIT**                    |       | $                                               | (0.07      | )                                             | $          | (0.05 | ) | $ | 4.07 |   | $ | (0.09 | ) |
|                                                                   |       |                                            |       |                                          |       |   |   |   |   |
| **Number of limited partnership  interests**                           |       | 10,667,117                                      |       | 10,667,117                                    |       | 10,667,117 |   | 10,667,117 |   |

 

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

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**NTSREALTY HOLDINGS LIMITED PARTNERSHIP**Statements of Cash Flows for the Six Months Ended June 30,2006 and 2005(Unaudited)

 
| ** **                                                                                | ** ** | **2006**     | ** **  | **2005**    | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------|-------------|-------------|------------|
| **OPERATING  ACTIVITIES:**                                                                | ** ** | ** **   | ** **  | ** **  | ** ** |
| **Net income (loss)**                                                                     |       | $            | 46,301,798  |        | $          | (1,062,127 | ) |
| Adjustments to reconcile net income (loss) to net  cash provided by operating activities: |       |         |        |        |       |
| Gain from sale of discontinued assets                                                     |       | (49,950,486  | )           | —      |       |
| Loss on disposal of assets                                                                |       | 130,230      |        | 157,485     |       |
| Depreciation and amortization                                                             |       | 7,614,988    |        | 4,630,055   |       |
| Write-off of loan costs                                                                   |       | —       |        | 113,102     |       |
| **Changes in assets and liabilities:**                                                    | ** ** | ** **   | ** **  | ** **  | ** ** |
| Cash and equivalents — restricted                                                    |       | (160,042     | )           | (1,353,693  | )          |
| Accounts receivable                                                                       |       | (6,275       | )           | (406,666    | )          |
| Other assets                                                                              |       | (542,964     | )           | (1,471,421  | )          |
| Accounts payable and accrued expenses                                                     |       | (359,312     | )           | (493,360    | )          |
| Accounts payable and accrued expenses due to  affiliate                                   |       | 414,085      |        | 262,343     |       |
| Distributions declared payable                                                            |       | (1,138,160   | )           | (1,138,161  | )          |
| Security deposits                                                                         |       | 160,608      |        | 218,740     |       |
| Other liabilities                                                                         |       | 691,735      |        | 2,680,374   |       |
|                                                                                      |       |         |        |        |       |
| **Net cash provided by operating activities**                                             |       | 3,156,205    |        | 2,136,671   |       |
|                                                                                      |       |         |        |        |       |
| **INVESTING  ACTIVITIES:**                                                                | ** ** | ** **   | ** **  | ** **  | ** ** |
| Additions to land, buildings and amenities                                                |       | (2,200,621   | )           | (2,988,139  | )          |
| Proceeds from sale of discontinued operations                                             |       | 77,483,821   |        | —      |       |
| Acquisitions                                                                              |       | (131,111,503 | )           | —      |       |
| Cash and equivalents — restricted                                                    |       | 874,079      |        | (2,000,000  | )          |
|                                                                                      |       |         |        |        |       |
| **Net cash used in investing activities**                                                 |       | (54,954,224  | )           | (4,988,139  | )          |
|                                                                                      |       |         |        |        |       |
| **FINANCING  ACTIVITIES:**                                                                | ** ** | ** **   | ** **  | ** **  | ** ** |
| Proceeds from mortgages and notes payable                                                 |       | 42,500,000   |        | 30,000,000  |       |
| Proceeds from revolving note payable                                                      |       | 36,565,552   |        | —      |       |
| Principal payments on mortgages and notes payable                                         |       | (31,063,387  | )           | (813,978    | )          |
| Payoff of note payable                                                                    |       | —       |        | (14,712     | )          |
| Payoff of revolving note payable                                                          |       | —       |        | (14,971,350 | )          |
| Additions to loan costs                                                                   |       | (130,932     | )           | (63,574     | )          |
| Cash distributions.                                                                       |       | (1,138,160   | )           | (1,138,161  | )          |
|                                                                                      |       |         |        |        |       |
| **Net cash provided by financing activities**                                             |       | 46,733,073   |        | 12,998,225  |       |
|                                                                                      |       |         |        |        |       |
| **NET  (DECREASE) INCREASE IN CASH AND EQUIVALENTS**                                      |       | (5,064,946   | )           | 10,146,757  |       |
|                                                                                      |       |         |        |        |       |
| **CASH  AND EQUIVALENTS, beginning of period**                                            |       | 5,409,318    |        | 2,573,855   |       |
|                                                                                      |       |         |        |        |       |
| **CASH  AND EQUIVALENTS, end of period**                                                  |       | $            | 344,372     |        | $          | 12,720,612 |   |
| ** **                                                                                | ** ** | ** **   | ** **  | ** **  | ** ** |
| **NON-CASH  INVESTING AND FINANCING ACTIVITIES:**                                         | ** ** | ** **   | ** **  | ** **  | ** ** |
| Acquisitions of land, buildings and amenities by  debt assumption                         |       | $            | (33,377,982 | )           | $          | — |   |
| Mortgage payable  assumed in acquisition                                                  |       | $            | 33,377,982  |        | $          | — |   |

 

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

 

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**NTS REALTY HOLDINGS LIMITED PARTNERSHIPN**otes toFinancial Statements(Unaudited)

The unauditedfinancial statements included herein should be read in conjunction with NTSRealty Holdings Limited Partnership’s (“NTS Realty”) 2005 annual report on Form10-K as filed with the Securities and Exchange Commission on April 3,2006.  In the opinion of our managinggeneral partner, all adjustments, consisting only of normal recurring accruals,necessary for a fair presentation have been made to the accompanying financialstatements for the three and six months ended June 30, 2006 and 2005.  The results of operations for the interimperiods are not necessarily indicative of the results that may be expected forthe 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 itsproperties.

**Note 1 — Summary of Significant AccountingPolicies**

***Organization andDistribution Policy***

We are in the businessof developing, constructing, owning and operating multifamily properties,commercial and retail real estate and land leases.  At June 30, 2006, we owned twenty-nineproperties, comprised of nine multifamily properties; sixteen office andbusiness centers; three retail properties; and one ground lease.  The properties are located in and aroundLouisville (17) and Lexington (1), Kentucky; Fort Lauderdale (3), Florida;Indianapolis (4), Indiana; Nashville (2), Tennessee; Richmond (1), Virginia;and Atlanta (1), Georgia.  Our office andbusiness centers aggregate approximately 1.5 million square feet.  We own multifamily properties containingapproximately 2,540 units and retail properties containing approximately210,000 square feet of space, as well as one ground lease associated with a120-space parking lot attached to one of our properties.

We paydistributions if and when authorized by our managing general partner.  We are required to pay distributions on aquarterly basis, equal to sixty-five percent (65%) of our “net cash flow fromoperations” as this term is defined in regulations promulgated by the TreasuryDepartment under the Internal Revenue Code of 1986, as amended; provided thatif a law is enacted or existing law is modified or interpreted in a manner thatsubjects us to taxation as a corporation or otherwise subjects us to entitylevel taxation for federal, state or local income tax purposes, we will adjustthe amount distributed to reflect our obligation to pay tax.  Any distribution other than a distributionwith respect to the final quarter of a calendar year shall be made no laterthan forty-five (45) days after the last day of such quarter based on ourestimate of “net cash flow from operations” for the year.  Any distribution with respect to the finalquarter of a calendar year shall be made no later than ninety (90) days afterthe last day of such quarter based on actual “net cash flow from operations”for the year, adjusted for any excess or insufficient distributions made withrespect to the first three quarters of the calendar year.

“Net cash flowfrom operations” may be reduced by the amount of reserves as determined by useach quarter.  NTS Realty Capital willestablish these reserves for, among other things, working capital or capitalimprovement needs.  Therefore, there isno assurance that we will have “net cash flow from operations” from which topay distributions in the future.  Forexample, our partnership agreement permits our managing general partner toreinvest sales or refinancing proceeds in new and existing properties or tocreate reserves to fund future capital expenditures.  Because “net cash flow from operations” iscalculated after reinvesting sales or refinancing proceeds or establishingreserves, we may not have any “net cash flow from operations” from which to paydistributions.

We paid quarterlydistributions of $0.10 per unit to limited partners on April 14, 2006 and July14, 2006.

**Note 2 — Use of Estimates and Reclassificationsin the Preparation of Financial Statements**

The preparation offinancial statements in accordance with U.S. generally accepted accountingprinciples requires us to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assetsand liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period.  Actual results could differ from thoseestimates.

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Certainreclassifications have been made to the June 30, 2005 and December 31, 2005financial statements to conform to the June 30, 2006 classifications.  These reclassifications have no effect onpreviously reported operating results or partners’ equity.

**Note 3 — Real Estate Transactions**

***Acquisitions***

During the sixmonths ended June 30, 2006 and the year ended December 31, 2005, we made thefollowing property acquisitions:
| **Property**                         | ** ** | **Our Ownership** | **Date of Purchase** | ** ** | **Purchase Price** | ** ** |
|--------------------------------------|------------|------------------------|--------------------------------|------------|-------------------------|------------|
| The Lakes  Apartments                |       | 100%                   | August 26, 2005                |       | $                       | 15,975,000 |   |
| The Grove at  Richland Apartments    |       | 100%                   | February 3, 2006               |       | 45,757,500              |       |
| The Grove at  Swift Creek Apartments |       | 100%                   | February 3, 2006               |       | 27,200,000              |       |
| The Grove at  Whitworth Apartments   |       | 100%                   | February 3, 2006               |       | 44,254,500              |       |
| Castle Creek  Apartments             |       | 100%                   | March 23, 2006                 |       | 27,000,000              |       |
| Lake Clearwater Apartments           |       | 100%                   | March 23, 2006                 |       | 23,000,001              |       |
|                                      |            |                        |                                |            |                         |            |  |

 

On August 24,2005, we closed on a $20.0 million line of credit from PNC Bank, NationalAssociation.  We used a portion of theproceeds from the line of credit to pay the purchase price for The LakesApartments, pending permanent financing. On March 23, 2006, the line of credit was increased to $24.0 million toassist in future acquisitions and other working capital needs.

On August 26,2005, we purchased The Lakes Apartments, a 230-unit luxury multifamily property,located adjacent to Willow Lake Apartments in Indianapolis, Indiana.

On November 1,2005, we announced that we entered into two agreements to purchase twomultifamily properties located in Nashville, Tennessee, and one multifamilyproperty located in Richmond, Virginia, from an unaffiliated Delaware limitedpartnership.  We agreed to pay anaggregate of approximately $117.2 million for the properties.  The properties in Nashville consist ofapartment complexes with 292 units and 301 units, respectively, while theRichmond property has 240 units.

On February 3,2006, we closed on our two agreements to purchase two multifamily propertieslocated in Nashville, Tennessee, and one multifamily property in Richmond,Virginia, for a purchase price totaling approximately $117.2 million (a portionof which was satisfied by the assumption of a mortgage loan with an outstandingbalance of approximately $33.4 million). The Tennessee properties are commonly known as The Grove at Richland andThe Grove at Whitworth, while the Virginia property is commonly known as TheGrove at Swift Creek.

On February 7,2006, we announced that we entered into an agreement to purchase twomultifamily properties located in Indianapolis, Indiana.  These properties are commonly known as CastleCreek Apartments and Lake Clearwater Apartments.  Castle Creek has 276 units and LakeClearwater has 216 units.  Subject to theterms and conditions of the agreement, we agreed to pay a purchase pricetotaling approximately $50.0 million.

On March 23, 2006,we closed on our agreement to purchase Castle Creek Apartments and LakeClearwater Apartments located in Indianapolis, Indiana, using a bank loan ofapproximately $42.5 million, guaranteed by the partnership, and an advance onour line of credit for the balance.

8

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The acquisitionswere accounted for using the purchase method of accounting in accordance withStatement of Financial Accounting Standards (“SFAS”) No. 141 “BusinessCombinations.”  The assets andliabilities purchased were recorded at their fair market value at the date ofthe acquisition.  We allocated thepurchase price for each of the properties to net tangible and identifiedintangible assets acquired based on fair values (including land, buildings,tenant improvements, acquired above and below market leases and the originationcost of acquired in-place leases) and acquired liabilities.  For the 2006 acquisitions listed above, werecorded land, buildings and amenities of approximately $166.7 million.  We also recorded approximately $200,000 insecurity deposits and approximately $541,000 in prepaid liabilities and accruedproperty taxes.  We recorded anintangible asset for the acquired in-place leases of approximately $657,000,which is included in other assets.  Thiswill be amortized over a period of one year, which approximates the weightedaverage lease lives.  Amortization ofapproximately $164,000 and $215,000 was included in our amortization expensefor the three and six months ended June 30, 2006, respectively.  No above or below market leases or customerrelationship intangibles exist.  At thedate of the acquisitions, the carrying value of mortgages and other liabilitiesapproximated fair market value.  Weretained an independent appraiser to assess fair value based on estimated cashflow projections that utilize discount and capitalization rates deemedappropriate and available market information.

***Pro FormaInformation***

The followingtable presents our unaudited pro forma results of operations and per unitamounts as if we had consummated our 2006 and 2005 acquisitions as of thebeginning of each period presented.
| ** **                                                     | ** ** | **(Unaudited)**                                 | ** ** | **(Unaudited)**                               | ** ** |
|----------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                     | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
| ** **                                                     | ** ** | **2006**                                        | ** ** | **2005**                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| Revenues                                                       |       | $                                               | 11,712,776 |                                          | $          | 11,382,587 |   | $ | 22,946,302 |   | $ | 22,535,187 |   |
| Expenses and  other income, net                                |       | 14,139,084                                      |       | 13,679,993                                    |       | 27,592,804 |   | 26,849,569 |   |
|                                                           |       |                                            |       |                                          |       |   |   |   |   |
| Loss from  continuing operations                               |       | $                                               | (2,426,308 | )                                             | $          | (2,297,406 | ) | $ | (4,646,502 | ) | $ | (4,314,382 | ) |
|                                                           |       |                                            |       |                                          |       |   |   |   |   |
| Net (loss)  income                                             |       | $                                               | (780,431   | )                                             | $          | (2,187,337 | ) | $ | 45,329,842 |   | $ | (4,099,611 | ) |
|                                                           |       |                                            |       |                                          |       |   |   |   |   |
| Loss from  continuing operations allocated to limited partners |       | $                                               | (2,273,994 | )                                             | $          | (2,153,184 | ) | $ | (4,354,814 | ) | $ | (4,043,543 | ) |
|                                                           |       |                                            |       |                                          |       |   |   |   |   |
| Net (loss)  income allocated to limited partners               |       | $                                               | (731,439   | )                                             | $          | (2,050,025 | ) | $ | 42,484,219 |   | $ | (3,842,254 | ) |
|                                                           |       |                                            |       |                                          |       |   |   |   |   |
| Loss from  continuing operations per limited partnership unit  |       | $                                               | (0.21      | )                                             | $          | (0.20 | ) | $ | (0.41 | ) | $ | (0.38 | ) |
|                                                           |       |                                            |       |                                          |       |   |   |   |   |
| Net (loss)  income per limited partnership unit                |       | $                                               | (0.07      | )                                             | $          | (0.19 | ) | $ | 3.98 |   | $ | (0.36 | ) |
| ** **                                                     | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Number of limited  partnership interests                       |       | 10,667,117                                      |       | 10,667,117                                    |       | 10,667,117 |   | 10,667,117 |   |

*** ***

***Dispositions***

On February 2,2006, we closed on our agreements to sell Golf Brook Apartments and Sabal ParkApartments, our multifamily properties located in Orlando, Florida, to anunaffiliated Florida corporation for a sale price of approximately $71.5million, resulting in a gain of approximately $48.3 million.

On March 6, 2006,we announced that we entered into an agreement to sell Commonwealth BusinessCenter Phases I and II, two of our business centers located in JeffersonCounty, Kentucky, to an unaffiliated Kentucky limited liability company for$7.1 million.

On May 18, 2006,we closed on our agreement to sell Commonwealth Business Center Phases I andII, two of our business centers located in Jefferson County, Kentucky, to anunaffiliated Kentucky limited liability company for a sale price of $7.1million, resulting in a gain of approximately $1.7 million.

9

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During the sixmonths ended June 30, 2006, we made the following property dispositions:
| **Property**                           | ** ** | **Our Ownership** | **Date of Sale** | ** ** | **Sale Price** | ** ** |
|----------------------------------------|------------|------------------------|----------------------------|------------|---------------------|------------|
| Golf Brook  Apartments                 |       | 100%                   | February  2, 2006          |       | $                   | 43,153,500 |   |
| Sabal Park  Apartments                 |       | 100%                   | February  2, 2006          |       | 28,350,000          |       |
| Commonwealth  Business Center Phase I  |       | 100%                   | May  18, 2006              |       | 4,331,000           |       |
| Commonwealth Business  Center Phase II |       | 100%                   | May 18, 2006               |       | 2,769,000           |       |
|                                        |            |                        |                            |            |                     |            |  |

 

We have presentedseparately as discontinued operations in all periods the results of operationsfor Golf Brook Apartments, Sabal Park Apartments and Commonwealth Business CenterPhases I and II.  The assets andliabilities held for sale have been separately identified on our balance sheetat December 31, 2005.

The components ofdiscontinued operations are outlined below and include the results ofoperations for the respective periods in which we owned such assets during thethree and six months ended June 30, 2006 and 2005.
| ** **                                                         | ** ** | **(Unaudited)**                                 | ** ** | **(Unaudited)**                               | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                         | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
| ** **                                                         | ** ** | **2006**                                        | ** ** | **2005**                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| **REVENUE:**                                                       | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Rental income                                                      |       | $                                               | 16,643     |                                          | $          | 1,517,901 |   | $ | 665,882 |   | $ | 3,015,544 |   |
| Tenant reimbursements                                              |       | 24,138                                          |       | 42,235                                        |       | 69,799 |   | 75,045 |   |
|                                                               |       |                                            |       |                                          |       |   |   |   |   |
| **Total revenue**                                                  |       | 40,781                                          |       | 1,560,136                                     |       | 735,681 |   | 3,090,589 |   |
|                                                               |       |                                            |       |                                          |       |   |   |   |   |
| **EXPENSES:**                                                      | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Operating expenses and operating expenses reimbursed  to affiliate |       | 36,014                                          |       | 682,506                                       |       | 422,458 |   | 1,344,434 |   |
| Management fees                                                    |       | 6,733                                           |       | 83,782                                        |       | 37,047 |   | 160,845 |   |
| Property taxes and insurance                                       |       | 16,559                                          |       | 170,894                                       |       | 112,301 |   | 343,601 |   |
| Depreciation and amortization                                      |       | 2,756                                           |       | 322,113                                       |       | 51,438 |   | 639,798 |   |
|                                                               |       |                                            |       |                                          |       |   |   |   |   |
| **Total expenses**                                                 |       | 62,062                                          |       | 1,259,295                                     |       | 623,244 |   | 2,488,678 |   |
|                                                               |       |                                            |       |                                          |       |   |   |   |   |
| **DISCONTINUED  OPERATING (LOSS) INCOME**                          |       | (21,281                                         | )          | 300,841                                       |       | 112,437 |   | 601,911 |   |
|                                                               |       |                                            |       |                                          |       |   |   |   |   |
| Interest and  other income                                         |       | 800                                             |       | 2,152                                         |       | 1,865 |   | 5,477 |   |
| Interest expense                                                   |       | (12,785                                         | )          | (183,314                                      | )          | (88,444 | ) | (368,884 | ) |
| Loss on disposal  of assets                                        |       | —                                          |       | (9,610                                        | )          | — |   | (23,733 | ) |
| ** **                                                         | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Discontinued  operations, net**                                  |       | $                                               | (33,266    | )                                             | $          | 110,069 |   | $ | 25,858 |   | $ | 214,771 |   |
|                                                               |       |                                            |       |                                          |       |   |   |   |   |
| **Gain on sale of discontinued  operations**                       |       | $                                               | 1,679,143  |                                          | $          | — |   | $ | 49,950,486 |   | $ | — |   |

 

The components oflong-lived assets held for sale consisted primarily of land, buildings andamenities for the properties being sold. The components of long-lived liabilities held for sale included theaccrued property tax liabilities and security deposit liabilities for theproperties being sold.

**Note 4 — Concentration of Credit Risk**

We own and operatemultifamily properties, commercial and retail real estate and a land lease inLouisville and Lexington, Kentucky, Fort Lauderdale, Florida, Indianapolis,Indiana, Nashville, Tennessee, Richmond, Virginia and Atlanta, Georgia.

Our financialinstruments that are exposed to concentrations of credit risk consist of cashand equivalents.  We maintain our cashaccounts primarily with banks located in Kentucky.  The total cash balances are insured by theFDIC up to $100,000 per bank account.  Wemay at times, in certain accounts, have deposits in excess of $100,000.

10

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** **

**Note 5 — Cash and Equivalents**

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

**Note 6 — Cash and Equivalents - Restricted**

Cash andequivalents - restricted represents cash on hand and short-term, highly liquidinvestments with initial maturities of three months or less which have beenescrowed with certain mortgage companies and banks for property taxes,insurance and tenant improvements in accordance with certain loan and leaseagreements and certain security deposits.

**Note 7 — Property and Depreciation**

Land, buildingsand amenities are stated at cost.  Costsdirectly associated with the acquisition, development and construction of aproject are capitalized.  Depreciation iscomputed using the straight-line method over the estimated useful lives of theassets which are 5-30 years for land improvements, 7-30 years for buildings andimprovements and 5-30 years for amenities. Tenant improvements are generally depreciated over the life of theinitial or renewal term of the respective tenant lease.  Depreciation expense for the three monthsended June 30, 2006 and 2005 was approximately $3,884,000 and $1,482,000,respectively.  Depreciation expense forthe six months ended June 30, 2006 and 2005 was approximately $6,592,000 and$2,976,000, respectively.

SFAS No. 144 “Accountingfor the Impairment or Disposal of Long-Lived Assets,” specifies circumstancesin which certain long-lived assets must be reviewed for impairment.  If the carrying amount of an asset exceedsthe sum of its expected future cash flows, the asset’s carrying value must bewritten down to fair value.  Indetermining the value of an investment property and whether the investmentproperty is impaired, management considers several factors such as projectedrental and vacancy rates, property operating expenses, capital expenditures andinterest rates.  The capitalization rateused to determine property valuation is based on the market in which theinvestment 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 bymanagement in determining the value of any particular investment property.  The value of any particular investment propertyis sensitive to the actual results of any of these factors, either individuallyor taken as a whole.  If the actualresults differ from management’s judgment, the valuation could be negatively orpositively affected.  Application of thisstandard during the three and six months ended June 30, 2006 and 2005 did notresult in an impairment loss.

11

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** **

**Note 8 — Mortgages and Notes Payable**

Mortgages andnotes payable consist of the following:
| ** **                                                                                                                                                                                                                                                                                                                    | ** ** | **(Unaudited)**             | ** **  | ** **                      | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|-------------|---------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                    | ** ** | **June 30, 2006** | ** **  | **December 31, 2005** | ** ** |
| 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 $28,319,272                                                                                                                       |       | $                           | 29,229,679  |                            | $          | 29,543,665 |   |
|                                                                                                                                                                                                                                                                                                                          |       |                        |        |                            |       |
| Mortgage payable  to a bank in monthly installments, bearing interest at a variable rate based  on LIBOR one-month rate plus 2.50%, currently 7.609%, due January 1, 2008,  secured by certain land and buildings, with a carrying value of $17,030,731.  The mortgage is guaranteed by Mr. Nichols (75%) and Mr. Lavin (25%) |       | 13,626,000                  |        | 13,758,000                      |       |
|                                                                                                                                                                                                                                                                                                                          |       |                        |        |                            |       |
| 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 $164,259,313                                                                                                                       |       | 73,673,784                  |        | 74,154,709                      |       |
|                                                                                                                                                                                                                                                                                                                          |       |                        |        |                            |       |
| Mortgage payable  to an insurance company in monthly installments, bearing interest at 5.35%,  maturing January 15, 2015, secured by certain land and buildings, with a  carrying value of $164,259,313                                                                                                                       |       | 33,226,662                  |        | —                          |       |
|                                                                                                                                                                                                                                                                                                                          |       |                        |        |                            |       |
| Revolving note  payable to a bank for $24.0 million, with interest payable in monthly  installments, unsecured, at a variable rate based on LIBOR plus 1.75%,  currently 7.096%, due August 24, 2006                                                                                                                          |       | 13,875,495                  |        | —                          |       |
|                                                                                                                                                                                                                                                                                                                          |       |                        |        |                            |       |
| 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  $2,882,085                                                                                                                                        |       | 2,674,746                   |        | 2,720,522                       |       |
|                                                                                                                                                                                                                                                                                                                          |       |                        |        |                            |       |
| 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 $2,450,885                                                                                                                        |       | 2,824,367                   |        | 2,920,614                       |       |
|                                                                                                                                                                                                                                                                                                                          |       |                        |        |                            |       |
| 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 $2,677,749                                                                                                             |       | 2,767,276                   |        | 2,815,322                       |       |
|                                                                                                                                                                                                                                                                                                                          |       |                        |        |                            |       |
| Mortgage payable  to a bank in monthly installments, bearing interest at 5.11%, maturing  December 1, 2014, secured by certain land and buildings, with a carrying  value of $15,183,647                                                                                                                                      |       | 12,017,073                  |        | 12,100,000                      |       |
|                                                                                                                                                                                                                                                                                                                          |       |                        |        |                            |       |
| Note payable to  a bank, with interest payable in monthly installments, bearing interest at  LIBOR plus 2.50%, currently 7.85%, maturing October 1, 2006                                                                                                                                                                      |       | 35,477,897                  |        | —                          |       |
|                                                                                                                                                                                                                                                                                                                          |       |                        |        |                            |       |
| ** **                                                                                                                                                                                                                                                                                                                    |       | $                           | 219,392,979 |                            | $          | 138,012,832 |   |

 

Based on theborrowing rates currently available to us for loans with similar terms andaverage maturities, the fair value of long-term debt on June 30, 2006 wasapproximately $199.8 million.

Our mortgages maybe prepaid but are generally subject to a yield-maintenance premium.  Certain mortgages and notes payable containcovenants and requirements that we maintain specified debt limits and ratiosrelated to our debt balances and property values.  We complied with all covenants andrequirements at June 30, 2006.  We intendto renew or refinance our notes payable coming due in the next twelve months.

**Note 9 — Accounts Payable and Accrued ExpensesDue to Affiliate**

Accounts payableand accrued expenses due to affiliate includes amounts owed to NTS DevelopmentCompany for reimbursement of employee costs and overhead expenses and fees forservices rendered as provided for in our management agreement.

12

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** **

**Note 10 — Related Party Transactions**

On April 11, 2006,pursuant to the terms of the settlement agreement with respect to the classaction litigation involving the Partnerships, the independent directors of ourmanaging general partner approved an amended and restated management agreementwith NTS Development Company, an affiliate of NTS Realty’s generalpartner.  The independent directorsengaged a nationally recognized real estate expert to assist them in theirreview of the management agreement entered into as of December 28, 2004.  The amended and restated management agreementbecame effective as of December 29, 2005.

Pursuant to theagreement with us, NTS Development Company receives property management feesand repair and maintenance fees.  Theproperty management fees are paid in an amount equal to 5% of the grosscollected revenue from our properties. The construction supervision fees are paid in an amount equal to 5% ofthe costs incurred which relate to capital improvements.  These construction supervision fees arecapitalized as part of land, buildings and amenities.  Also pursuant to the agreement, NTSDevelopment Company receives commercial leasing fees equal to 4% of the grossrental amount for new leases and 2% of the gross rental amount for new leasesin which a broker is used and for renewals or extensions.  NTS Development Company is reimbursed itsactual costs for services rendered to NTS Realty.

Employee costs areallocated amongst NTS Realty, other affiliates of our managing general partnerand for the benefit of third parties, so that a full time employee can beshared by multiple entities.  Eachemployee’s services which are dedicated to a particular entity’s operations areallocated as a percentage of each employee’s costs to that entity.  We only reimburse charges from NTSDevelopment Company for actual costs of employee services incurred for ourbenefit.

We were chargedthe following amounts pursuant to an agreement with NTS Development Company forthe three and six months ended June 30, 2006 and 2005.  These charges include items which have beenexpensed as operating expenses reimbursed to affiliate or professional andadministrative expenses reimbursed to affiliate and items which have beencapitalized as other assets or as land, buildings and amenities.  Certain of these items are included in ourresults of discontinued operations.
| ** **                                                        | ** ** | **(Unaudited)**                                                       | ** ** |
|-------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                        | ** ** | **For the Three Months Ended June 30,** | ** ** |
| ** **                                                        | ** ** | **2006**                                                              | ** ** | **2005** | ** ** |
| Property  management fees                                         | ** ** | $                                                                     | 590,681    |   | $ | 423,788 |   |
|                                                              |       |                                                                  |       |   |   |
| Operating  expenses reimbursement - Property                      |       | 807,103                                                               |       | 611,088 |   |
| Operating  expenses reimbursement - Multifamily Leasing           |       | 102,090                                                               |       | 50,422 |   |
| Operating  expenses reimbursement - Administrative                |       | 409,698                                                               |       | 300,117 |   |
| Operating  expenses reimbursement - Other                         |       | 28,982                                                                |       | 28,277 |   |
|                                                              |       |                                                                  |       |   |   |
| Total operating expenses reimbursed to affiliate                  |       | 1,347,873                                                             |       | 989,904 |   |
|                                                              |       |                                                                  |       |   |   |
| Professional and  administrative expenses reimbursed to affiliate |       | 402,491                                                               |       | 344,296 |   |
|                                                              |       |                                                                  |       |   |   |
| Construction  supervision fees                                    |       | 40,117                                                                |       | — |   |
| Commercial  leasing fees                                          |       | 62,665                                                                |       | — |   |
|                                                              |       |                                                                  |       |   |   |
| **Total  related party transactions**                             |       | $                                                                     | 2,443,827  |   | $ | 1,757,988 |   |

 

13

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| ** **                                                        | ** ** | **(Unaudited)**                                                     | ** ** |
|-------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                                                        | ** ** | **For the Six Months Ended June 30,** | ** ** |
| ** **                                                        | ** ** | **2006**                                                            | ** ** | **2005** | ** ** |
| Property  management fees                                         | ** ** | $                                                                   | 1,100,456  |   | $ | 813,262 |   |
|                                                              |       |                                                                |       |   |   |
| Operating  expenses reimbursement - Property                      |       | 1,643,289                                                           |       | 1,222,940 |   |
| Operating  expenses reimbursement - Multifamily Leasing           |       | 200,378                                                             |       | 101,212 |   |
| Operating  expenses reimbursement - Administrative                |       | 773,631                                                             |       | 596,900 |   |
| Operating expenses  reimbursement - Other                         |       | 54,312                                                              |       | 49,243 |   |
|                                                              |       |                                                                |       |   |   |
| Total operating expenses reimbursed to affiliate                  |       | 2,671,610                                                           |       | 1,970,295 |   |
|                                                              |       |                                                                |       |   |   |
| Professional and  administrative expenses reimbursed to affiliate |       | 808,376                                                             |       | 696,582 |   |
|                                                              |       |                                                                |       |   |   |
| Construction  supervision fees                                    |       | 105,573                                                             |       | — |   |
| Commercial  leasing fees                                          |       | 145,315                                                             |       | — |   |
|                                                              |       |                                                                |       |   |   |
| **Total  related party transactions**                             |       | $                                                                   | 4,831,330  |   | $ | 3,480,139 |   |

 

Property, leasing,administrative and other operating expenses reimbursed include employee costscharged to us by NTS Development Company and other actual costs incurred by NTSDevelopment Company on our behalf, which were reimbursed by us.

During the threemonths ended June 30, 2006 and 2005, we were charged approximately $16,000 and$15,000, respectively, for property maintenance fees from affiliates of NTSDevelopment Company.  During the sixmonths ended June 30, 2006 and 2005, we were charged approximately $40,000 and$30,000, respectively, for property maintenance fees from affiliates of NTSDevelopment Company.

NTS DevelopmentCompany leased 20,368 square feet in NTS Center at a rental rate of $14.50 persquare foot.  We received rental paymentsfrom NTS Development Company of approximately $74,000 during each of the threemonths ended June 30, 2006 and 2005 and $148,000 during each of the six monthsended June 30, 2006 and 2005.  Theaverage per square foot rental rate for similar space in NTS Center as of June30, 2006 was $14.20 per square foot.

NTS DevelopmentCompany leased 1,604 square feet in Commonwealth Business Center Phase I at arental rate of $5.50 per square foot.  Wereceived rental payments of approximately $1,000 and $4,000 from NTSDevelopment Company during the three and six months ended June 30, 2006,respectively.  We received rentalpayments of approximately $2,000 and $4,000 from NTS Development Company duringthe three and six months ended June 30, 2005, respectively.  The average per square foot rental rate forsimilar space as of June 30, 2006 was $5.50 per square foot.  Commonwealth Business Center Phase I was soldMay 18, 2006.

Pursuant to theamended and restated management agreement with us, NTS Development Companyreceived a disposition fee equal to 1% of the sale price of Golf BrookApartments and Sabal Park Apartments and 3% of the sale price of Commonwealth BusinessCenter Phases I and II.  The total feeswere $715,035 and $213,000, respectively, which is included in gain on sale ofdiscontinued operations on our statement of operations.

**Note 11 — Commitments and Contingencies**

We, as an owner ofreal estate, are subject to various environmental laws of federal, state andlocal governments.  Our compliance withexisting laws has not had a material adverse effect on our financial conditionand results of operations.  However, wecannot predict the impact of new or changed laws or regulations on our currentproperties or on properties that we may acquire in the future.

14

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*** ***

***Litigation***

On May 6, 2004,the Superior Court of the State of California for the County of Contra Costagranted its final approval of the settlement agreement jointly filed by thegeneral partners (the “Former General Partners”) of the Partnerships, alongwith certain of their affiliates, with the class of plaintiffs in the actionoriginally 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 weregiven the opportunity to object to the final approval of the settlementagreement, the entry of a final judgment dismissing with prejudice theCalifornia Litigation, or an application of an award for attorneys’ fees andexpenses to plaintiffs’ counsel.  TheSuperior Court’s order provided, among other things, that: (1) the settlementagreement, and all transactions contemplated thereby, including the merger ofthe Partnerships into us, were fair, reasonable and adequate, and in the bestinterests of the class of plaintiffs; (2) the plaintiffs’ complaint and eachand 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 thesettlement 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 whoseobjections were overruled by the Superior Court, filed an appeal in the Courtof Appeal of the State of California, First Appellate District.  On July 28, 2005, the Court of Appeal issuedits decision affirming the Superior Court’s approval of the settlement, andrejecting the objectors’ arguments.  OnOctober 5, 2005, the Court of Appeal of the State of California, FirstAppellate District entered a Remittitur Order stating that the time for appealhad expired and that the judgment of the Appellate Court was final.  This effectively concludes thelitigation.  The matter was then sentback to the Superior Court of the State of California for the County of ContraCosta in order to conduct proceedings to effectuate the settlement.

On February 27,2003, two individuals filed a class and derivative action in the Circuit Courtof Jefferson County, Kentucky captioned Bohm, et al. v. J.D. Nichols, et al.(Case No. 03-CI-01740) (the “Kentucky Litigation”) against certain of theFormer General Partners and several individuals and entities affiliated withus.  The complaint was amended to includethe general partner of NTS-Properties III and the general partner of NTS-PropertiesPlus 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 KentuckyLitigation.  After the motion to dismisswas briefed, the settlement agreement in the California Litigation (discussedabove) received final court approval. The Circuit Court of Jefferson County, Kentucky, instructed theplaintiffs in the Kentucky Litigation to file an amended complaint in light ofthe approved settlement of the California Litigation.  The plaintiffs’ six opt-outs from theCalifornia 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 pleadingonly as to direct claims asserted by the plaintiffs in the Corrected SecondAmended Complaint.  On March 9, 2005, theFormer General Partners, along with the other defendants, filed motions todismiss the “corrected” second amended complaint.

On July 7, 2005,two of the plaintiffs in the Kentucky Litigation voluntarily dismissed theirclaims against the defendants.  TheFormer General Partners believe that these dismissals affect the value andscope of plaintiffs’ claims. Accordingly, defendants remanded the hearing on the motion to dismissoriginally scheduled for July 15, 2005, in order to properly advise the Courtof the effect of the voluntary dismissals. A hearing on the motion to dismiss has been rescheduled for September29, 2006.

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

15

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

**Note 12 — Segment Reporting**

Our reportableoperating segments include — Land, Retail, Commercial and Multifamily RealEstate Operations.  The followingunaudited financial information of the operating segments has been preparedusing a management approach, which is consistent with the basis and manner inwhich our management internally disaggregates financial information for thepurpose of assisting in making internal operating decisions.  We evaluate performance based on stand-aloneoperating segment net income or loss. Expenses at the Partnership level are represented in the nonsegmentcolumn.
| ** **                                                                                                      | ** ** | **(Unaudited)**                                               | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                                                      | ** ** | **Three Months Ended June 30, 2006** | ** ** |
| ** **                                                                                                      | ** ** | **Land**                                                      | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Nonsegment** | ** ** | **Total** | ** ** |
| Rental income                                                                                                   |       | $                                                             | 9,042      |   | $ | 341,818 |   | $ | 3,845,457 |   | $ | 7,035,550 |   | $ | (73,798 | ) | $ | 11,158,069 |   |
| Tenant  reimbursements                                                                                          |       | —                                                        |       | 20,366 |   | 534,341 |   | — |   | — |   | 554,707 |   |
|                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| **Total revenue**                                                                                               |       | 9,042                                                         |       | 362,184 |   | 4,379,798 |   | 7,035,550 |   | (73,798 | ) | 11,712,776 |   |
|                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| Operating  expenses and operating expenses reimbursed to affiliate                                              |       | 136                                                           |       | 33,195 |   | 1,307,985 |   | 2,377,924 |   | — |   | 3,719,240 |   |
| Management fees                                                                                                 |       | 451                                                           |       | 18,048 |   | 209,573 |   | 355,876 |   | — |   | 583,948 |   |
| Property taxes  and insurance                                                                                   |       | 414                                                           |       | 10,005 |   | 387,675 |   | 866,344 |   | 33,075 |   | 1,297,513 |   |
| Professional and  administrative expenses and professional and administrative expenses  reimbursed to affiliate |       | —                                                        |       | — |   | — |   | — |   | 786,508 |   | 786,508 |   |
| Depreciation and  amortization                                                                                  |       | 652                                                           |       | 73,797 |   | 1,090,477 |   | 3,018,558 |   | — |   | 4,183,484 |   |
|                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| **Total operating expenses**                                                                                    |       | 1,653                                                         |       | 135,045 |   | 2,995,710 |   | 6,618,702 |   | 819,583 |   | 10,570,693 |   |
|                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| **Operating  income (loss)**                                                                                    |       | 7,389                                                         |       | 227,139 |   | 1,384,088 |   | 416,848 |   | (893,381 | ) | 1,142,083 |   |
|                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| Interest and other  income                                                                                      |       | —                                                        |       | 6,572 |   | 6,262 |   | 5,400 |   | 25,000 |   | 43,234 |   |
| Interest expense                                                                                                |       | —                                                        |       | (97,574 | ) | (957,721 | ) | (2,276,613 | ) | (247,157 | ) | (3,579,065 | ) |
| Loss on disposal  of assets                                                                                     |       | —                                                        |       | — |   | (16,205 | ) | (16,355 | ) | — |   | (32,560 | ) |
|                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| **Income  (loss) from continuing operations**                                                                   |       | 7,389                                                         |       | 136,137 |   | 416,424 |   | (1,870,720 | ) | (1,115,538 | ) | (2,426,308 | ) |
| Discontinued  operations, net                                                                                   |       | —                                                        |       | — |   | (34,501 | ) | 1,235 |   | — |   | (33,266 | ) |
| Gain on sale of  discontinued operations                                                                        |       | —                                                        |       | — |   | 1,679,143 |   | — |   | — |   | 1,679,143 |   |
| ** **                                                                                                      | ** ** | ** **                                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net income (loss)**                                                                                           |       | $                                                             | 7,389      |   | $ | 136,137 |   | $ | 2,061,066 |   | $ | (1,869,485 | ) | $ | (1,115,538 | ) | $ | (780,431 | ) |

 

16

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| ** **                                                                                                      | ** ** | **(Unaudited)**                                               | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                                                      | ** ** | **Three Months Ended June 30, 2005** | ** ** |
| ** **                                                                                                      | ** ** | **Land**                                                      | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Nonsegment** | ** ** | **Total** | ** ** |
| Rental income                                                                                                   |       | $                                                             | 9,042      |   | $ | 341,392 |   | $ | 4,140,836 |   | $ | 2,321,261 |   | $ | (75,973 | ) | $ | 6,736,558 |   |
| Tenant  reimbursements                                                                                          |       | —                                                        |       | 24,225 |   | 480,841 |   | — |   | — |   | 505,066 |   |
|                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| **Total revenue**                                                                                               |       | 9,042                                                         |       | 365,617 |   | 4,621,677 |   | 2,321,261 |   | (75,973 | ) | 7,241,624 |   |
|                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| Operating  expenses and operating expenses reimbursed to affiliate                                              |       | 135                                                           |       | 27,446 |   | 1,233,227 |   | 1,007,833 |   | — |   | 2,268,641 |   |
| Management fees                                                                                                 |       | —                                                        |       | 11,216 |   | 215,163 |   | 113,627 |   | — |   | 340,006 |   |
| Property taxes  and insurance                                                                                   |       | 403                                                           |       | 9,594 |   | 365,706 |   | 260,067 |   | 45,581 |   | 681,351 |   |
| Professional and  administrative expenses and professional and administrative expenses  reimbursed to affiliate |       | —                                                        |       | — |   | — |   | — |   | 1,084,657 |   | 1,084,657 |   |
| Depreciation and  amortization                                                                                  |       | 652                                                           |       | 68,016 |   | 1,144,501 |   | 593,782 |   | — |   | 1,806,951 |   |
|                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| **Total operating expenses**                                                                                    |       | 1,190                                                         |       | 116,272 |   | 2,958,597 |   | 1,975,309 |   | 1,130,238 |   | 6,181,606 |   |
|                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| **Operating  income (loss)**                                                                                    |       | 7,852                                                         |       | 249,345 |   | 1,663,080 |   | 345,952 |   | (1,206,211 | ) | 1,060,018 |   |
|                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| Interest and  other income                                                                                      |       | —                                                        |       | 37 |   | 20,676 |   | 1,029 |   | 95,367 |   | 117,109 |   |
| Interest expense                                                                                                |       | —                                                        |       | (96,803 | ) | (858,508 | ) | (405,232 | ) | (381,947 | ) | (1,742,490 | ) |
| Loss on disposal  of assets                                                                                     |       | —                                                        |       | — |   | (52,579 | ) | (65,980 | ) | — |   | (118,559 | ) |
|                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| **Income  (loss) from continuing operations**                                                                   |       | 7,852                                                         |       | 152,579 |   | 772,669 |   | (124,231 | ) | (1,492,791 | ) | (683,922 | ) |
| Discontinued  operations, net                                                                                   |       | —                                                        |       | — |   | 40,815 |   | 69,254 |   | — |   | 110,069 |   |
| ** **                                                                                                      | ** ** | ** **                                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net income (loss)**                                                                                           |       | $                                                             | 7,852      |   | 152,579 |   | $ | 813,484 |   | $ | (54,977 | ) | $ | (1,492,791 | ) | $ | (573,853 | ) |
|                                                                                                                 |            |                                                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

17

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| ** **                                                                                                      | ** ** | **(Unaudited)**                                             | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                                                                      | ** ** | **Six Months Ended June 30, 2006** | ** ** |
| ** **                                                                                                      | ** ** | **Land**                                                    | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Nonsegment** | ** ** | **Total** | ** ** |
| Rental income                                                                                                   |       | $                                                           | 18,085     |   | $ | 687,900 |   | $ | 7,691,950 |   | $ | 11,741,235 |   | $ | (143,581 | ) | $ | 19,995,589 |   |
| Tenant  reimbursements                                                                                          |       | —                                                      |       | 40,149 |   | 1,009,857 |   | — |   | — |   | 1,050,006 |   |
|                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| **Total revenue**                                                                                               |       | 18,085                                                      |       | 728,049 |   | 8,701,807 |   | 11,741,235 |   | (143,581 | ) | 21,045,595 |   |
|                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Operating  expenses and operating expenses reimbursed to affiliate                                              |       | 270                                                         |       | 65,037 |   | 2,591,082 |   | 3,807,263 |   | — |   | 6,463,652 |   |
| Management fees                                                                                                 |       | 904                                                         |       | 37,016 |   | 422,147 |   | 603,342 |   | — |   | 1,063,409 |   |
| Property taxes  and insurance                                                                                   |       | 829                                                         |       | 20,303 |   | 767,445 |   | 1,395,524 |   | 68,796 |   | 2,252,897 |   |
| Professional and  administrative expenses and professional and administrative expenses  reimbursed to affiliate |       | —                                                      |       | — |   | — |   | — |   | 1,771,928 |   | 1,771,928 |   |
| Depreciation and  amortization                                                                                  |       | 1,304                                                       |       | 145,258 |   | 2,172,126 |   | 4,755,817 |   | — |   | 7,074,505 |   |
|                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| **Total operating expenses**                                                                                    |       | 3,307                                                       |       | 267,614 |   | 5,952,800 |   | 10,561,946 |   | 1,840,724 |   | 18,626,391 |   |
|                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| **Operating  income (loss)**                                                                                    |       | 14,778                                                      |       | 460,435 |   | 2,749,007 |   | 1,179,289 |   | (1,984,305 | ) | 2,419,204 |   |
|                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Interest and  other income                                                                                      |       | —                                                      |       | 6,572 |   | 64,340 |   | 12,080 |   | 54,737 |   | 137,729 |   |
| Interest expense                                                                                                |       | —                                                      |       | (196,664 | ) | (1,905,523 | ) | (3,475,363 | ) | (523,699 | ) | (6,101,249 | ) |
| Loss on disposal  of assets                                                                                     |       | —                                                      |       | — |   | (51,682 | ) | (78,548 | ) | — |   | (130,230 | ) |
|                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| **Income  (loss) from continuing operations**                                                                   |       | 14,778                                                      |       | 270,343 |   | 856,142 |   | (2,362,542 | ) | (2,453,267 | ) | (3,674,546 | ) |
| Discontinued  operations, net                                                                                   |       | —                                                      |       | — |   | 16,091 |   | 9,767 |   | — |   | 25,858 |   |
| Gain on sale of  discontinued operations                                                                        |       | —                                                      |       | — |   | 1,679,143 |   | 48,271,343 |   | — |   | 49,950,486 |   |
| ** **                                                                                                      | ** ** | ** **                                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net income (loss)**                                                                                           |       | $                                                           | 14,778     |   | $ | 270,343 |   | $ | 2,551,376 |   | $ | 45,918,568 |   | $ | (2,453,267 | ) | $ | 46,301,798 |   |

** **

 

18

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| ** **                                                                                                      | ** ** | **(Unaudited)**                                             | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                                                                      | ** ** | **Six Months Ended June 30, 2005** | ** ** |
| ** **                                                                                                      | ** ** | **Land**                                                    | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Nonsegment** | ** ** | **Total** | ** ** |
| Rental income                                                                                                   |       | $                                                           | 18,085     |   | $ | 682,785 |   | $ | 8,178,345 |   | $ | 4,569,602 |   | $ | (165,127 | ) | $ | 13,283,690 |   |
| Tenant reimbursements                                                                                           |       | —                                                      |       | 37,438 |   | 973,938 |   | — |   | — |   | 1,011,376 |   |
|                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| **Total  revenue**                                                                                              |       | 18,085                                                      |       | 720,223 |   | 9,152,283 |   | 4,569,602 |   | (165,127 | ) | 14,295,066 |   |
|                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Operating expenses and  operating expenses reimbursed to affiliate                                              |       | 270                                                         |       | 56,848 |   | 2,490,765 |   | 1,927,965 |   | — |   | 4,475,848 |   |
| Management fees                                                                                                 |       | —                                                      |       | 24,667 |   | 401,605 |   | 226,145 |   | — |   | 652,417 |   |
| Property taxes and  insurance                                                                                   |       | 807                                                         |       | 18,729 |   | 737,918 |   | 473,431 |   | 91,163 |   | 1,322,048 |   |
| Professional and  administrative expenses and professional and administrative expenses  reimbursed to affiliate |       | —                                                      |       | — |   | — |   | — |   | 2,129,995 |   | 2,129,995 |   |
| Depreciation and  amortization                                                                                  |       | 1,304                                                       |       | 142,844 |   | 2,299,277 |   | 1,188,305 |   | — |   | 3,631,730 |   |
|                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| **Total  operating expenses**                                                                                   |       | 2,381                                                       |       | 243,088 |   | 5,929,565 |   | 3,815,846 |   | 2,221,158 |   | 12,212,038 |   |
|                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| **Operating income (loss)**                                                                                     |       | 15,704                                                      |       | 477,135 |   | 3,222,718 |   | 753,756 |   | (2,386,285 | ) | 2,083,028 |   |
|                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Interest and other  income                                                                                      |       | —                                                      |       | 49 |   | 35,617 |   | 2,407 |   | 119,935 |   | 158,008 |   |
| Interest expense                                                                                                |       | —                                                      |       | (188,054 | ) | (1,696,440 | ) | (815,918 | ) | (683,770 | ) | (3,384,182 | ) |
| Loss on disposal of  assets                                                                                     |       | —                                                      |       | — |   | (60,014 | ) | (73,738 | ) | — |   | (133,752 | ) |
|                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| **Income (loss) from continuing  operations**                                                                   |       | 15,704                                                      |       | 289,130 |   | 1,501,881 |   | (133,493 | ) | (2,950,120 | ) | (1,276,898 | ) |
| Discontinued  operations, net                                                                                   |       | —                                                      |       | — |   | 22,735 |   | 192,036 |   | — |   | 214,771 |   |
| ** **                                                                                                      | ** ** | ** **                                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net income (loss)**                                                                                           |       | $                                                           | 15,704     |   | 289,130 |   | $ | 1,524,616 |   | $ | 58,543 |   | $ | (2,950,120 | ) | $ | (1,062,127 | ) |
|                                                                                                                 |            |                                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

## **Item2 — Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

Management’sDiscussion and Analysis of Financial Condition and Results of Operations shouldbe read in conjunction with the financial statements in Item 1 and thecautionary statements below.

**Critical Accounting Policies**

***General***

A criticalaccounting policy is one that would materially affect our operations orfinancial condition, and requires management to make estimates or judgments incertain circumstances.  These judgmentsoften result from the need to make estimates about the effect of matters thatare inherently uncertain.  Criticalaccounting policies discussed in this section are not to be confused withaccounting principles and methods disclosed in accordance with U.S. generallyaccepted accounting principles (“GAAP”). GAAP requires information in financial statements about accountingprinciples, methods used and disclosures pertaining to significantestimates.  The following disclosurediscusses judgments known to management pertaining to trends, events oruncertainties known which were taken into consideration upon the application ofthose policies and the likelihood that materially different amounts would bereported upon taking into consideration different conditions and assumptions.

***Impairment and Valuation***

Statement ofFinancial Accounting Standards (“SFAS”) No. 144 “Accounting for the Impairmentor Disposal of Long-Lived Assets,” specifies circumstances in which certainlong-lived assets must be reviewed for impairment.  If this review indicates that the carryingamount of an asset exceeds the sum of its expected future cash flows, the asset’scarrying value must be written down to fair value.  In determining the value of an investmentproperty and whether the investment property is impaired, management considersseveral factors such as projected 

19

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rental and vacancy rates, property operating expenses, capitalexpenditures, interest rates and recent appraisals when available.  The capitalization rate used to determineproperty valuation is based on among others, the market in which the investmentproperty is located, length of leases, tenant financial strength, the economyin general, demographics, environment, property location, visibility, age andphysical condition.  All of these factorsare considered by management in determining the value of any particularinvestment property.  The value of anyparticular investment property is sensitive to the actual results of any ofthese factors, either individually or taken as a whole.  If the actual results differ from management’sjudgment, the valuation could be negatively or positively affected.

Our propertyacquisitions were accounted for using the purchase method of accounting inaccordance with SFAS No. 141 “Business Combinations.”  Each property’s assets and liabilitiesacquired from unaffiliated third parties was adjusted to reflect its fairmarket value.  In accordance with SFASNo. 141, we have allocated the purchase price of each acquired investmentproperty among land, buildings and improvements, other intangibles, includingacquired above market leases, acquired below market leases and acquiredin-place lease origination cost which is the market cost avoidance of executingthe acquired leases.  Allocation of thepurchase price is an area that requires complex judgments and significantestimates.  We used the informationcontained in a third-party appraisal as the primary basis for allocating thepurchase price between land and buildings. A pro rata portion of the purchase price was allocated to the value ofavoiding a lease-up period for acquired in-place leases.  The value of in-place leases is amortized toexpense over the remaining initial term of the respective leases.  A portion of the purchase price was allocatedto the estimated lease origination cost based on estimated lease executioncosts for similar leases and considered various factors including geographiclocation and size of leased space.  Wethen evaluated acquired leases based upon current market rates at theacquisition date and various other factors including geographic location, sizeand the location of leased space within the property, tenant profile and thecredit risk of the tenant in determining whether the acquired lease is above orbelow market.  After acquired leases weredetermined to be at, above or below market, we allocated a pro rata portion ofthe purchase price to any acquired above or below market lease based upon thepresent value of the difference between the contractual lease rate and theestimated market rate.  We also consideran allocation of purchase price to in-place leases that have a customerrelationship intangible value.  Thecharacteristics we consider in allocating these values include the nature andextent of existing business relationships with the tenant, growth prospects fordeveloping new business with the tenant and the tenant’s credit quality andexpectations of lease renewals.  We didnot have any tenants with whom we have identified a developed relationship thatwe believe had any intangible value.

***Recognition ofRental Income***

Under GAAP, we are required to recognize rental income based on theeffective monthly rent for each lease. The effective monthly rent is equal to the average monthly rent duringthe term of the lease, not the stated rent for any particular month.  The process, known as “straight-lining” or “stepping”rent, has the effect of increasing rental revenues during the early phases of alease and decreasing rental revenues in the latter phases of a lease if thestated rent progressively increases over the term of the lease.  Due to the impact of “straight-lining,”rental income exceeded the cash collected for rent by approximately $27,000 and$21,000 for the three and six months ended June 30, 2006, respectively.  Rental income exceeded the cash collected forrent by approximately $78,000 and $366,000, for the three and six months endedJune 30, 2005, respectively.  If rentalincome calculated on a straight-line basis exceeds the cash rent due under thelease, the difference is recorded as an increase in deferred rent receivableand included as a component of accounts receivable on the relevant balancesheet.  If the cash rent due under thelease exceeds rental income calculated on a straight-line basis, the differenceis recorded as a decrease in deferred rent receivable and is recorded as adecrease of accounts receivable on the relevant balance sheet.  We defer recognition of contingent rentalincome, such as percentage or excess rent, until the breakpoint that triggersthe contingent rental income is achieved. We periodically review the collectability of outstanding receivables.  Allowances are generally taken for tenantswith outstanding balances due for a period greater than ninety days and tenantswith outstanding balances due for a period less than ninety days but that webelieve are potentially uncollectible.

20

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*** ***

***Recognition ofLease Termination Income***

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

***CostCapitalization and Depreciation Policies***

We review allexpenditures and capitalize any item exceeding $2,500 deemed to be an upgradeor a tenant improvement with an expected useful life greater than oneyear.  Land, buildings and amenities arestated at cost.  Depreciation expense iscomputed using the straight-line method over the estimated useful lives of theassets.  Buildings and improvements haveestimated useful lives between 7-30 years, land improvements have estimateduseful lives between 5-30 years and amenities have estimated useful livesbetween 5-30 years.  Acquired above andbelow market leases are amortized on a straight-line basis over the life of therelated leases as an adjustment to rental income.  Acquired in-place lease origination cost isamortized over the life of the lease as a component of amortization expense.

**Results of Operations**

At June 30, 2006,we owned twenty-nine properties, comprised of nine multifamily properties,sixteen office and business centers, three retail properties and one groundlease.  We generate substantially all ofour operating income from property operations.

Net loss fromcontinuing operations for the three months ended June 30, 2006 and 2005 wasapproximately $(2,426,000) and $(684,000) respectively.  Net loss from continuing operations for thesix months ended June 30, 2006 and 2005 was approximately $(3,675,000) and$(1,277,000) respectively.  The increasesin net loss were primarily due to the acquisitions of The Grove at RichlandApartments, The Grove at Swift Creek Apartments, The Grove at WhitworthApartments, Castle Creek Apartments and Lake Clearwater Apartments and theAugust 2005 acquisition of The Lakes Apartments.  These acquisitions resulted in increasedoperating expenses as well as increased interest expense in relation to loansobtained in 2006.  Rental incomeincreased from the period June 30, 2005 to the period ended June 30, 2006,primarily as the result of these acquisitions.

21

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The followingtables include certain selected summarized operating data for the three and sixmonths ended June 30, 2006 and 2005. This data should be read in conjunction with our financial statements,including the notes attached hereto.

 
| ** **                                                         | ** ** | **(Unaudited)**                                               | ** ** |
|--------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **Three Months Ended June 30, 2006** | ** ** |
| ** **                                                         | ** ** | **Land**                                                      | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Nonsegment** | ** ** | **Total** | ** ** |
| Total revenues                                                     |       | $                                                             | 9,042      |   | $ | 362,184 |   | $ | 4,379,798 |   | $ | 7,035,550 |   | $ | (73,798 | ) | $ | 11,712,776 |   |
| Operating  expenses and operating expenses reimbursed to affiliate |       | 136                                                           |       | 33,195 |   | 1,307,985 |   | 2,377,924 |   | — |   | 3,719,240 |   |
| Depreciation and  amortization                                     |       | 652                                                           |       | 73,797 |   | 1,090,477 |   | 3,018,558 |   | — |   | 4,183,484 |   |
| Total interest  expense                                            |       | —                                                        |       | 97,574 |   | 957,721 |   | 2,276,613 |   | 247,157 |   | 3,579,065 |   |
| Net income  (loss)                                                 |       | 7,389                                                         |       | 136,137 |   | 2,061,066 |   | (1,869,485 | ) | (1,115,538 | ) | (780,431 | ) |
|                                                                    |            |                                                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                         | ** ** | **(Unaudited)**                                               | ** ** |
|--------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **Three Months Ended June 30, 2005** | ** ** |
| ** **                                                         | ** ** | **Land**                                                      | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Nonsegment** | ** ** | **Total** | ** ** |
| Total revenues                                                     |       | $                                                             | 9,042      |   | $ | 365,617 |   | $ | 4,621,677 |   | $ | 2,321,261 |   | $ | (75,973 | ) | $ | 7,241,624 |   |
| Operating  expenses and operating expenses reimbursed to affiliate |       | 135                                                           |       | 27,446 |   | 1,233,227 |   | 1,007,833 |   | — |   | 2,268,641 |   |
| Depreciation and  amortization                                     |       | 652                                                           |       | 68,016 |   | 1,144,501 |   | 593,782 |   | — |   | 1,806,951 |   |
| Total interest  expense                                            |       | —                                                        |       | 96,803 |   | 858,508 |   | 405,232 |   | 381,947 |   | 1,742,490 |   |
| Net income  (loss)                                                 |       | 7,852                                                         |       | 152,579 |   | 813,484 |   | (54,977 | ) | (1,492,791 | ) | (573,853 | ) |
|                                                                    |            |                                                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                         | ** ** | **(Unaudited)**                                             | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **Six Months Ended June 30, 2006** | ** ** |
| ** **                                                         | ** ** | **Land**                                                    | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Nonsegment** | ** ** | **Total** | ** ** |
| Total revenues                                                     |       | $                                                           | 18,085     |   | $ | 728,049 |   | $ | 8,701,807 |   | $ | 11,741,235 |   | $ | (143,581 | ) | $ | 21,045,595 |   |
| Operating  expenses and operating expenses reimbursed to affiliate |       | 270                                                         |       | 65,037 |   | 2,591,082 |   | 3,807,263 |   | — |   | 6,463,652 |   |
| Depreciation and  amortization                                     |       | 1,304                                                       |       | 145,258 |   | 2,172,126 |   | 4,755,817 |   | — |   | 7,074,505 |   |
| Total interest  expense                                            |       | —                                                      |       | 196,664 |   | 1,905,523 |   | 3,475,363 |   | 523,699 |   | 6,101,249 |   |
| Net income  (loss)                                                 |       | 14,778                                                      |       | 270,343 |   | 2,551,376 |   | 45,918,568 |   | (2,453,267 | ) | 46,301,798 |   |
|                                                                    |            |                                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                         | ** ** | **(Unaudited)**                                             | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **Six Months Ended June 30, 2005** | ** ** |
| ** **                                                         | ** ** | **Land**                                                    | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Nonsegment** | ** ** | **Total** | ** ** |
| Total revenues                                                     |       | $                                                           | 18,085     |   | $ | 720,223 |   | $ | 9,152,283 |   | $ | 4,569,602 |   | $ | (165,127 | ) | $ | 14,295,066 |   |
| Operating  expenses and operating expenses reimbursed to affiliate |       | 270                                                         |       | 56,848 |   | 2,490,765 |   | 1,927,965 |   | — |   | 4,475,848 |   |
| Depreciation and  amortization                                     |       | 1,304                                                       |       | 142,844 |   | 2,299,277 |   | 1,188,305 |   | — |   | 3,631,730 |   |
| Total interest  expense                                            |       | —                                                      |       | 188,054 |   | 1,696,440 |   | 815,918 |   | 683,770 |   | 3,384,182 |   |
| Net income (loss)                                                  |       | 15,704                                                      |       | 289,130 |   | 1,524,616 |   | 58,543 |   | (2,950,120 | ) | (1,062,127 | ) |
|                                                                    |            |                                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Occupancy levelsat our continuing properties by segment as of June 30, 2006 and 2005 were asfollows:
| ** **  | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------|------------|----------|------------|----------|------------|
| Commercial  |       | 77.1     | %          | 85.3     | %          |
| Multifamily |       | 94.6     | %          | 90.3     | %          |
| Retail      |       | 99.4     | %          | 100.0    | %          |
| Land        |       | N/A      |       | N/A      |       |

 

We believe thechanges in occupancy on June 30 from year to year are temporary effects of eachproperty’s specific mix of lease maturities and are not indicative of any knowntrend or uncertainty.

22

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The averageoccupancy levels at our continuing properties by segment for the three and sixmonths ended June 30, 2006 and 2005 were as follows:
| ** **  | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **  | ** ** | **2006**                                            | ** ** | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| Commercial  |       | 77.3%                                     |       | 85.2%                                   |       | 77.4%   |   | 85.3%   |   |
| Multifamily |       | 94.7%                                     |       | 88.7%                                   |       | 94.1%   |   | 86.5%   |   |
| Retail      |       | 99.6%                                     |       | 100.0%                                  |       | 99.8%   |   | 100.0%   |   |
| Land        |       | N/A                                       |       | N/A                                     |       | N/A   |   | N/A   |   |

 

We believe thechanges in average occupancy from period to period are temporary effects ofeach property’s specific mix of lease maturities and are not indicative of anyknown trend or uncertainty.

The leasing andrenewal negotiations for our commercial properties are primarily handled byleasing agents that are employees of NTS Development Company.  All advertising for the commercial propertiesis coordinated by NTS Development Company’s marketing staff located inLouisville, Kentucky.

In an effort tocontinue to improve occupancy at our multifamily properties, we have on-siteleasing staff, who are employees of NTS Development Company, at each of themultifamily properties.  The staffhandles all on-site visits from potential tenants, coordinates localadvertising with NTS Development Company’s marketing staff, makes visits tolocal companies to promote fully furnished apartments, and negotiates leaserenewals with current residents.

The followingdiscussion relating to changes in our results of operations includes onlymaterial line items within our Statements of Operations or line items for whichthere was a material change between the three and six months ended June 30,2006 and 2005.

***Rental Income andTenant Reimbursements***

Rental income andtenant reimbursements from continuing operations for the three months endedJune 30, 2006 and 2005 were approximately $11,713,000 and $7,242,000,respectively.  Rental income and tenantreimbursements from continuing operations for the six months ended June 30,2006 and 2005 were approximately $21,046,000 and $14,295,000, respectively.  The increases of $4,471,000, or 62%, and$6,751,000, or 47%, respectively, were primarily the result of acquiring TheGrove at Richland Apartments, The Grove at Swift Creek Apartments and The Groveat Whitworth Apartments (February 2006), Castle Creek Apartments and LakeClearwater Apartments (March 2006) and The Lakes Apartments  (August 2005).

***Operating Expensesand Operating Expenses Reimbursed to Affiliate***

Operating expensesfrom continuing operations for the three months ended June 30, 2006 and 2005were approximately $2,398,000 and $1,511,000, respectively.  Operating expenses from continuing operationsfor the six months ended June 30, 2006 and 2005 were approximately $4,095,000and $2,970,000, respectively.  Theincreases of $887,000, or 59%, and $1,125,000, or 38%, respectively, wereprimarily due to the 2006 acquisitions of The Grove at Richland Apartments, TheGrove at Swift Creek Apartments, The Grove at Whitworth Apartments, CastleCreek Apartments and Lake Clearwater Apartments and the August 2005 acquisitionof The Lakes Apartments.

Operating expensesreimbursed to affiliate are for the services performed by employees of NTSDevelopment Company, an affiliate of our general partners.  These employee services include propertymanagement, leasing, maintenance, security and other services necessary tomanage and operate our business.

23

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Operating expensesreimbursed to affiliate from continuing operations for the three months endedJune 30, 2006 and 2005 were approximately $1,321,000 and $758,000,respectively.  Operating expenses reimbursedto affiliate from continuing operations for the six months ended June 30, 2006and 2005 were approximately $2,369,000 and $1,506,000, respectively.  The increases of $563,000, or 74%, and$863,000, or 57%, respectively, were primarily due to acquiring the fiveapartments in 2006 (The Grove at Richland Apartments, The Grove at Swift CreekApartments, The Grove at Whitworth Apartments, Castle Creek Apartments and LakeClearwater Apartments) and the one apartment in August 2005 (The LakesApartments).

***Management Fees***

Management feesfrom continuing operations for the three months ended June 30, 2006 and 2005were approximately $584,000 and $340,000, respectively.  Management fees from continuing operationsfor the six months ended June 30, 2006 and 2005 were approximately $1,063,000and $652,000, respectively.  Theincreases of $244,000, or 72%, and $411,000, or 63%, respectively, wereprimarily due to the 2006 acquisitions of The Grove at Richland Apartments, TheGrove at Swift Creek Apartments, The Grove at Whitworth Apartments, CastleCreek Apartments and Lake Clearwater Apartments and the August 2005 acquisitionof The Lakes Apartments.

Pursuant to ouramended and restated management agreement, NTS Development Company receivesproperty management fees equal to 5% of the gross collected revenue from ourproperties.  Management fees arecalculated as a percentage of cash collections, however, for revenue reportingpurposes are recorded on the accrual basis. As a result, the fluctuations in revenue between years will differ fromthe fluctuations of management fee expense.

***Property Taxes andInsurance***

Property taxes andinsurance from continuing operations for the three months ended June 30, 2006and 2005 were approximately $1,298,000 and $681,000, respectively.  Property taxes and insurance from continuingoperations for the six months ended June 30, 2006 and 2005 were approximately$2,253,000 and $1,322,000, respectively. The increases of $617,000, or 91%, and $931,000, or 70%, respectively,were primarily due to the February 2006 acquisitions of The Grove at RichlandApartments, The Grove at Swift Creek Apartments and The Grove at WhitworthApartments, the March 2006 acquisitions of Castle Creek Apartments and LakeClearwater Apartments and the August 2005 acquisition of The Lakes Apartments.

***Professionaland Administrative Expenses and Professional and Administrative ExpensesReimbursed to Affiliate***

Professional andadministrative expenses from continuing operations for the three months endedJune 30, 2006 and 2005 were approximately $384,000 and $740,000,respectively.  Professional andadministrative expenses from continuing operations for the six months endedJune 30, 2006 and 2005 were approximately $964,000 and $1,433,000,respectively.  The decreases of $356,000,or 48%, and $469,000, or 33%, respectively, were primarily due to decreasedlegal and professional fees in relation to the merger and the class actionlitigation.  Professional andadministrative expenses for the six months ended June 30, 2006 includedapproximately $0 and $122,000 in merger and litigation expenses,respectively.  Professional andadministrative expenses for the six months ended June 30, 2005 includedapproximately $141,000 and $510,000 in merger and litigation expenses, respectively.

Professional andadministrative expenses reimbursed to affiliate from continuing operations forthe three months ended June 30, 2006 and 2005 were approximately $402,000 and$344,000, respectively.  Professional andadministrative expenses reimbursed to affiliate from continuing operations forthe six months ended June 30, 2006 and 2005 were approximately $808,000 and$697,000, respectively.  The increases of$58,000, or 17%, and $111,000, or 16%, respectively, were primarily due toincreased personnel costs, which were a result of our property acquisitions.

Professional andadministrative expenses reimbursed to affiliate are for the services performedby employees of NTS Development Company, an affiliate of our generalpartners.  These employee servicesinclude legal, financial and other services necessary to manage and operate ourbusiness.

24

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Professional andadministrative expenses reimbursed to affiliate consisted of the following:
| ** **          | ** ** | **(Unaudited)**                                     | ** ** | **(Unaudited)**                                   | ** ** |
|---------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **          | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
| ** **          | ** ** | **2006**                                            | ** ** | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| Finance             |       | $                                                   | 103,000    |                                              | $          | 91,000 |   | $ | 211,000 |   | $ | 192,000 |   |
| Accounting          |       | 204,000                                             |       | 152,000                                           |       | 417,000 |   | 309,000 |   |
| Investor  Relations |       | 63,000                                              |       | 54,000                                            |       | 118,000 |   | 101,000 |   |
| Human Resources     |       | 5,000                                               |       | 3,000                                             |       | 9,000 |   | 7,000 |   |
| Overhead            |       | 27,000                                              |       | 44,000                                            |       | 53,000 |   | 88,000 |   |
|                |       |                                                |       |                                              |       |   |   |   |   |
| **Total**           |       | $                                                   | 402,000    |                                              | $          | 344,000 |   | $ | 808,000 |   | $ | 697,000 |   |

*** ***

***Depreciation andAmortization***

Depreciation andamortization expense from continuing operations for the three months ended June30, 2006 and 2005 was approximately $4,183,000 and $1,807,000,respectively.  Depreciation andamortization expense from continuing operations for the six months ended June30, 2006 and 2005 was approximately $7,075,000 and $3,632,000, respectively.  The increases of $2,376,000 and $3,443,000,respectively, were primarily due to the 2006 acquisitions of The Grove atRichland Apartments, The Grove at Swift Creek Apartments, The Grove atWhitworth Apartments, Castle Creek Apartments and Lake Clearwater Apartmentsand the August 2005 acquisition of The Lakes Apartments.

***Interest and OtherIncome***

Interest and otherincome for the three months ended June 30, 2006 and 2005 was approximately$43,000 and $117,000, respectively.  Thedecrease of $74,000, or 63%, was primarily the result of decreased interestearned on investments.

Interest and otherincome for the six months ended June 30, 2006 and 2005 was approximately$138,000 and $158,000, respectively.  Thedecrease of $20,000, or 13%, was primarily the result of decreased interest earnedon investments, which matured in the first quarter of 2006, partially offset bya forfeited deposit due to the cancellation of the sales agreement for theSears Office Building.

***Interest Expense***

Interest expensefrom continuing operations for the three months ended June 30, 2006 and 2005was approximately $3,579,000 and $1,742,000, respectively.  Interest expense from continuing operationsfor the six months ended June 30, 2006 and 2005 was approximately $6,101,000and $3,384,000, respectively.  The increasesof $1,837,000 and $2,717,000, respectively, were primarily due to additionalloan proceeds obtained in the third and fourth quarters of 2005 and the firstquarter of 2006.

***Losson Disposal of Assets***

The loss ondisposal of assets from continuing operations for the three and six monthsended June 30, 2006 and 2005 can be attributed to assets that were not fullydepreciated at the time of replacement, spread amongst the majority of ourproperties.  These replacements includeheating and air conditioning units, common area renovations, stairwellupgrades, access control upgrades, roof replacements, and tenant improvements,among others.

25

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*** ***

***DiscontinuedOperations***

Discontinuedoperations, net for the three months ended June 30, 2006 and 2005 were approximately$(33,000) and $110,000, respectively. Discontinued operations, net for the six months ended June 30, 2006 and2005 were approximately $26,000 and $215,000, respectively.  The decreases of $143,000 and $189,000,respectively, were primarily due to the sale of Golf Brook Apartments and SabalPark Apartments on February 2, 2006 and Commonwealth Business Center Phases Iand II on May 18, 2006.

***Gain on Sale ofDiscontinued Operations***

Gain on sale ofdiscontinued operations for the three months ended June 30, 2006 and 2005 wasapproximately $1,679,000 and $0, respectively. The increase was due to the sale of Commonwealth Business Center PhasesI and II on May 18, 2006.

Gain on sale ofdiscontinued operations for the six months ended June 30, 2006 and 2005 wasapproximately $49,950,000 and $0, respectively. The increase was due to the sale of Golf Brook Apartments and Sabal ParkApartments on February 2, 2006 and the sale of Commonwealth Business CenterPhases I and II on May 18, 2006.

**Liquidity and Capital Resources**

Our most liquidasset is our cash and equivalents, which consist of cash and short-terminvestments, but do not include any restricted cash.  Operating income generated by the propertieswill be the primary source from which we generate cash.  Other sources of cash include the proceedsfrom mortgage loans and notes payable. Our main uses of cash will relate to capital expenditures, requiredpayments of mortgages and notes payable, distributions and property taxes.
| ** **                                           | ** ** | **(Unaudited)**                                   | ** ** |
|------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                           | ** ** | **Six Months Ended June 30,** | ** ** |
| ** **                                           | ** ** | **2006**                                          | ** ** | **2005** | ** ** |
| Operating  activities                                |       | $                                                 | 3,156,205  |   | $ | 2,136,671 |   |
| Investing  activities                                |       | (54,954,224                                       | )          | (4,988,139 | ) |
| Financing  activities                                |       | 46,733,073                                        |       | 12,998,225 |   |
|                                                 |       |                                              |       |   |   |
| **Net  (decrease) increase in cash and equivalents** |       | $                                                 | (5,064,946 | ) | $ | 10,146,757 |   |

*** ***

***Cash Flow fromOperating Activities***

Net cash providedby operating activities increased from approximately $2,137,000 to $3,156,000for the six months ended June 30, 2005 and 2006, respectively.  The increase was primarily due to theoperations of The Grove at Richland Apartments, The Grove at Swift CreekApartments, The Grove at Whitworth Apartments, Castle Creek Apartments and LakeClearwater Apartments, acquired in 2006. The increase is partially offset by the discontinued operations of GolfBrook Apartments and Sabal Park Apartments sold in February 2006 andCommonwealth Business Center Phases I and II sold in May 2006.

***Cash Flow fromInvesting Activities***

Net cash used ininvesting activities increased from approximately $4,988,000 to $54,954,000 forthe six months ended June 30, 2005 and 2006, respectively.  The increase was primarily due to the 2006acquisitions of The Grove at Richland Apartments, The Grove at Swift CreekApartments, The Grove at Whitworth Apartments, Castle Creek Apartments and LakeClearwater Apartments.  The increase ispartially offset by the sale of Golf Brook Apartments and Sabal Park Apartmentsin February 2006 and Commonwealth Business Center Phases I and II in May 2006.

26

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*** ***

***Cash Flow fromFinancing Activities***

Net cash providedby financing activities increased from approximately $12,998,000 to $46,733,000for the six months ended June 30, 2005 and 2006, respectively.  The change was primarily the result of loanproceeds obtained in 2006 used to fund our apartment acquisitions.

***Future Liquidity***

Our futureliquidity depends significantly on our properties’ occupancy remaining at alevel which provides for debt payments and adequate working capital, currentlyand in the future.  If occupancy were tofall below that level and remain at or below that level for a significantperiod of time, our ability to make payments due under our debt agreements andto continue paying daily operational costs would be greatly impaired.  In the next twelve months, we intend tooperate the properties in a similar manner to their operation in recentyears.  Cash reserves which consist ofunrestricted cash as shown on our balance sheet were approximately $344,000 onJune 30, 2006.

On March 20, 2006,NTS Realty announced that the board of directors of its managing generalpartner, NTS Realty Capital, Inc., approved a quarterly distribution of $0.10per unit on NTS Realty’s limited partnership units.  The distribution was paid on April 14, 2006,to limited partners of record at the close of business on March 31, 2006.

On June 13, 2006,NTS Realty announced that the board of directors of its managing generalpartner, NTS Realty Capital, Inc., approved a quarterly distribution of $0.10per unit on NTS Realty’s limited partnership units.  The distribution was paid on July 14, 2006,to limited partners of record at the close of business on June 30, 2006.

We expect to incurcapital expenditures of approximately $7.9 million funded by borrowings on ourdebt during the next twelve months primarily for roof replacements and tenantorigination costs necessary to continue leasing our properties.  This discussion of future liquidity detailsour material commitments.  We anticipateseeking renewal or refinancing of our notes payable coming due in the nexttwelve months.

On April 11, 2006,pursuant to the terms of the settlement agreement with respect to the classaction litigation involving the Partnerships, the independent directors of ourmanaging general partner approved an amended and restated management agreement withNTS Development Company, an affiliate of NTS Realty’s general partner.  The independent directors engaged anationally recognized real estate expert to assist them in their review of theexisting management agreement.  Theamended and restated management agreement became effective as of December 29,2005.  The resulting disposition fee ofapproximately $928,000, construction supervision fees of approximately $106,000and commercial leasing fees of approximately $145,000 may reasonably beexpected to have a significant and material continuing impact on our futureliquidity.

***PropertyTransactions***

On August 24,2005, we closed on a $20.0 million line of credit from PNC Bank, NationalAssociation.  We used a portion of theproceeds from the line of credit to pay the purchase price for The LakesApartments pending permanent financing. On March 23, 2006, the line of credit was increased to $24.0 million toassist in future acquisitions and other working capital needs.

On August 26,2005, we purchased The Lakes Apartments, a 230-unit luxury multifamilyproperty, located adjacent to Willow Lake Apartments in Indianapolis, Indiana.

On November 1,2005, we announced that we entered into two agreements to purchase twomultifamily properties located in Nashville, Tennessee, and one multifamilyproperty located in Richmond, Virginia, from an unaffiliated Delaware limitedpartnership.  We agreed to payapproximately $117.2 million for the properties.  The properties in Nashville consist ofapartment complexes with 292 units and 301 units, respectively, while theRichmond property has 240 units.

27

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On February 2,2006, we closed on our agreements to sell Golf Brook Apartments and Sabal ParkApartments, our multifamily properties located in Orlando, Florida, to anunaffiliated Florida corporation for a sale price of approximately $71.5million, resulting in a significant gain.

On February 3,2006, we closed on our two agreements to purchase two multifamily propertieslocated in Nashville, Tennessee, and one multifamily property in Richmond,Virginia, for a purchase price totaling approximately $117.2 million (a portionof which was satisfied by the assumption of a mortgage loan with an outstandingbalance of approximately $33.4 million). The Tennessee properties are commonly known as The Grove at Richland andThe Grove at Whitworth, while the Virginia property is commonly known as TheGrove at Swift Creek.

On February 7,2006, we announced that we entered into an agreement to purchase twomultifamily properties located in Indianapolis, Indiana.  These properties are commonly known as CastleCreek Apartments and Lake Clearwater Apartments.  Castle Creek has 276 units and LakeClearwater has 216 units.  Subject to theterms and conditions of the agreement, we agreed to pay a purchase pricetotaling approximately $50.0 million.

On March 6, 2006,we announced that we entered into an agreement to sell Commonwealth BusinessCenter Phases I and II, two of our business centers located in JeffersonCounty, Kentucky, to an unaffiliated Kentucky limited liability company for$7.1 million.

On March 23, 2006,we closed on our agreement to purchase Castle Creek Apartments and LakeClearwater Apartments located in Indianapolis, Indiana, using a bank loan ofapproximately $42.5 million, guaranteed by the partnership, and an advance onour line of credit for the balance.

On May 18, 2006,we closed on our agreement to sell Commonwealth Business Center Phases I andII, two of our business centers located in Jefferson County, Kentucky, to anunaffiliated Kentucky limited liability company for $7.1 million.

28

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** **

**Contractual Obligations and CommercialCommitments**

The followingtable represents our obligations and commitments to make future payments as ofJune 30, 2006 under contracts, such as debt and lease agreements, and undercontingent commitments, such as debt guarantees.

 
| ** **                              | ** ** | **Payment Due by Period** | ** **  |
|-----------------------------------------|------------|------------------------------------------|-------------|
| ** **                              | ** ** | **Total**                                | ** **  | **Within  One Year** | ** ** | **One - Three  Years** | ** ** | **Three - Five  Years** | ** ** | **After Five  Years** | ** ** |
| **Contractual  Obligations**            | ** ** | ** **                               | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Mortgages and  notes payable            |       | $                                        | 219,392,979 |   | $ | 50,816,717 |   | $ | 19,237,707 |   | $ | 10,864,884 |   | $ | 138,473,671 |   |
| Capital lease  obligations              |       | —                                   |        | — |   | — |   | — |   | — |   |
| Operating  leases(1)                    |       | —                                   |        | — |   | — |   | — |   | — |   |
| Other long-term  obligations(2)         |       | —                                   |        | — |   | — |   | — |   | — |   |
|                                    |       |                                     |        |   |   |   |   |   |   |   |   |
| **Total  contractual cash obligations** |       | $                                        | 219,392,979 |   | $ | 50,816,717 |   | $ | 19,237,707 |   | $ | 10,864,884 |   | $ | 138,473,671 |   |

 

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(1)             Weare party to numerous small operating leases for office equipment such ascopiers, postage machines and fax machines, which represent an insignificantobligation.

(2)             Weare party to several annual maintenance agreements with vendors for such itemsas outdoor maintenance, pool service and security systems, which represent aninsignificant obligation.
| ** **                                | ** ** | **Total**              | ** ** | **Amount of Commitment Expiration Per Period** | ** ** |
|-------------------------------------------|------------|------------------------|------------|-------------------------------------------------------------------------|------------|
| ** **                                | ** ** | **Amounts  Committed** | ** ** | **Within  One Year**                                               | ** ** | **One - Three  Years** | ** ** | **Three - Five  Years** | ** ** | **After Five  Years** | ** ** |
| **Other  Commercial Commitments**         | ** ** | ** **             | ** ** | ** **                                                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Line of credit                            |       | $                      | —     |                                                                    | $          | — |   | $ | — |   | $ | — |   | $ | — |   |
| Standby letters  of credit and guarantees |       | —                 |       | —                                                                  |       | — |   | — |   | — |   |
| Other commercial  commitments(1)          |       | —                 |       | —                                                                  |       | — |   | — |   | — |   |
|                                      |       |                   |       |                                                                    |       |   |   |   |   |   |   |
| **Total  commercial commitments**         |       | $                      | —     |                                                                    | $          | — |   | $ | — |   | $ | — |   | $ | — |   |

 

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(1)             Wedo not, as a practice, enter into long-term purchase commitments forcommodities or services.  We may fromtime to time agree to “fee for service arrangements” which are for a term ofgreater than one year.

**Website Information**

Our websiteaddress is www.ntsdevelopment.com.  Ourannual reports on Form 10-K, quarterly reports on Form 10-Q, current reports onForm 8-K and amendments to those reports filed or furnished pursuant to Section13(a) of the Securities Exchange Act are available and may be accessed free ofcharge through the “About NTS” section of our website as soon as reasonablypracticable after we electronically file this material with, or furnish it to,the SEC.  Our website and the informationcontained therein or connected thereto are not incorporated into this QuarterlyReport on Form 10-Q.

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##  

## **Item3 — Quantitative and Qualitative Disclosures About Market Risk**

Our primary marketrisk exposure with regard to financial instruments is expected to be ourexposure to changes in interest rates. We refinanced substantially all of our debt acquired at the time of ourmerger with instruments, which bear interest at a fixed rate with the exceptionof approximately $63.0 million at variable rates.  We anticipate that a hypothetical 100 basispoint increase in interest rates would result in an approximate $8.1 milliondecrease in the fair value of our fixed rate debt while increasing interest expenseon our variable rate debt by approximately $630,000 annually.

## **Item4 — Controls and Procedures**

Our managinggeneral partner has established disclosure controls and procedures to ensurethat our material information is made known to the officers of our managinggeneral partner who certify our financial reports, to our management and to theboard of directors of our managing partner.

Our managinggeneral partner’s Chief Executive Officer and Chief Financial Officer haveevaluated our disclosure controls and procedures as of June 30, 2006.  Based on that evaluation, the Chief ExecutiveOfficer and Chief Financial Officer concluded that our disclosure controls andprocedures were effective as of June 30, 2006. There were no changes in our internal controls over financial reportingthat materially affected or were reasonably likely to materially affect ourinternal control over financial reporting during the three and six months endedJune 30, 2006.

 

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**PART II — OTHERINFORMATION**

**Item 1 — Legal Proceedings**

On May 6, 2004, the Superior Court of the State ofCalifornia for the County of Contra Costa granted its final approval of thesettlement agreement jointly filed by the general partners (the “Former GeneralPartners”) of the Partnerships, along with certain of their affiliates, withthe class of plaintiffs in the action originally captioned Buchanan, et al. v.NTS-Properties Associates, et al. (Case No. C01-05090) (the “CaliforniaLitigation”) on December 5, 2003.  At thefinal hearing, class members were given the opportunity to object to the finalapproval of the settlement agreement, the entry of a final judgment dismissingwith 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) thesettlement agreement, and all transactions contemplated thereby, including themerger of the Partnerships into us, were fair, reasonable and adequate, and inthe best interests of the class of plaintiffs; (2) the plaintiffs’ complaintand each and every cause of action and claim set forth therein is dismissedwith prejudice; and (3) each class member who did not request to be excluded fromthe 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 tothe settlement agreement but whose objections were overruled by the SuperiorCourt, filed an appeal in the Court of Appeal of the State of California, FirstAppellate District.  On July 28, 2005,the Court of Appeal issued its decision affirming the Superior Court’s approvalof the settlement, and rejecting the objectors’ arguments.  On October 5, 2005, the Court of Appeal ofthe State of California, First Appellate District entered a Remittitur Orderstating that the time for appeal had expired and that the judgment of theAppellate Court was final.  Thiseffectively concludes the litigation. The matter was then sent back to the Superior Court of the State ofCalifornia for the County of Contra Costa in order to conduct proceedings toeffectuate the settlement.

On February 27, 2003, two individuals filed a classand derivative action in the Circuit Court of Jefferson County, Kentuckycaptioned Bohm, et al. v. J.D. Nichols, et al. (Case No. 03-CI-01740) (the “KentuckyLitigation”) against certain of the Former General Partners and severalindividuals and entities affiliated with us. The complaint was amended to include the general partner ofNTS-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, adeclaratory judgment and injunctive relief.

On March 2, 2004, the Former General Partners filed amotion to dismiss the Kentucky Litigation. After the motion to dismiss was briefed, the settlement agreement in theCalifornia Litigation (discussed above) received final court approval.  The Circuit Court of Jefferson County,Kentucky, instructed the plaintiffs in the Kentucky Litigation to file anamended complaint in light of the approved settlement of the CaliforniaLitigation.  The plaintiffs’ six opt-outsfrom the California Litigation filed a corrected second amended complaint onAugust 11, 2004.

On February 9, 2005, the Circuit Court instructed thedefendants to file a responsive pleading only as to direct claims asserted bythe plaintiffs in the Corrected Second Amended Complaint.  On March 9, 2005, the Former GeneralPartners, along with the other defendants, filed motions to dismiss the “corrected”second amended complaint.

On July 7, 2005, two of the plaintiffs in the KentuckyLitigation voluntarily dismissed their claims against the defendants.  The Former General Partners believe thatthese dismissals affect the value and scope of plaintiffs’ claims.  Accordingly, defendants remanded the hearingon the motion to dismiss originally scheduled for July 15, 2005, in order toproperly advise the Court of the effect of the voluntary dismissals.  A hearing on the motion to dismiss has beenrescheduled for September 29, 2006.

Our legal counsel and we believe that the litigationpending in Kentucky is without merit, and therefore, are continuing tovigorously defend against it.  No amountshave been accrued for the settlement of this action in our financialstatements.

We do not believe there is any other litigationthreatened against us other than routine litigation arising out of the ordinarycourse of business, some of which is expected to be covered by insurance, noneof which is expected to have a material effect on our financial position orresults of operations.

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**Item 1A — Risk Factors**

There have not been material changes to our RiskFactors as disclosed in our most recent annual report on Form 10-K as filedwith the Securities and Exchange Commission on April 3, 2006.

**Item 2 — Unregistered Sales of EquitySecurities and Use of Proceeds**

On November 21,2005, we announced that Mr. J.D. Nichols, Chairman of NTS Realty Capital, Inc.,our managing general partner, adopted three pre-arranged trading plans topurchase our limited partnership units pursuant to Rule 10b5-1 under theSecurities Exchange Act of 1934, as amended. The plans authorize their administrator, PNC Investments, to purchaseour limited partnership units from time to time, through no later than October2006, on behalf of three entities controlled or established by Mr.Nichols.  Under the terms of the plans,Mr. Nichols has no discretion or control over the timing, effectuation or theamount of each purchase.  During thethree months ended June 30, 2006, the three entities controlled or establishedby Mr. Nichols purchased our limited partnership units as follows:
| **Period** | ** ** | **Total Number of  Units Purchased** | ** ** | **Average Price  Paid Per Unit** | ** ** | **Total Number of  Units Purchased as  Part of Publicly  Announced Plans  or Programs** | ** ** | **Maximum  Number (or  Approximate  Dollar Value) of Units  That May Yet Be  Purchased Under the  Plans or Programs** | ** ** |
|------------|------------|-----------------------------------------------------|------------|-------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| April 2006 |       | 10,850                                              |       | 7.12                                            |       | 10,850                                                                                                                          |       | (1                                                                                                                                                                           | )          |
|       |       |                                                |       |                                            |       |                                                                                                                            |       |                                                                                                                                                                         |       |
| May 2006   |       | 9,700                                               |       | 6.84                                            |       | 9,700                                                                                                                           |       | (1                                                                                                                                                                           | )          |
|       |       |                                                |       |                                            |       |                                                                                                                            |       |                                                                                                                                                                         |       |
| June 2006  |       | 5,000                                               |       | 7.03                                            |       | 5,000                                                                                                                           |       | (1                                                                                                                                                                           | )          |
|       |       |                                                |       |                                            |       |                                                                                                                            |       |                                                                                                                                                                         |       |
| Total      |       | 25,550                                              |       | 6.99                                            |       | 25,550                                                                                                                          |       | (1                                                                                                                                                                           | )          |

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(1)             Adescription of the maximum number of units that may be purchased under the tradingplans is included in thenarrative preceding this table.

**Item 3 — Defaults Upon SeniorSecurities**None.

**Item 4 — Submission of Matters to aVote of Security Holders**None.

**Item 5 — Other Information**None.

**Item 6 — Exhibits**
| Exhibit No. | ** ** | ** **                                                                                                                                                                                                                                                                             | ** ** | ** ** |
|-------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
|  2.01  |       | Agreement and Plan of  Merger by and among NTS Realty Holdings Limited Partnership, 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., dated February 3, 2004 |       | (3)        |
|  2.02  |       | Contribution Agreement  by and between NTS Realty Holdings Limited Partnership and ORIG, LLC, dated  February 3, 2004                                                                                                                                                                  |       | (3)        |
|  3.01  |       | Certificate of Limited  Partnership of NTS Realty Holdings Limited Partnership                                                                                                                                                                                                         |       | (1)        |
|  3.02  |       | Amended and Restated  Agreement of Limited Partnership of NTS Realty Holdings Limited Partnership,  dated as of December 29, 2005                                                                                                                                                      |       | (7)        |

 

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| Exhibit No. | ** ** | ** **                                                                                                                                                                                                      | ** ** | ** ** |
|-------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
|  3.03  |       | Certificate of Incorporation of NTS Realty Capital,  Inc.                                                                                                                                                       |       | (8)        |
|  3.04  |       | By-Laws of NTS Realty Capital, Inc.                                                                                                                                                                             |       | (2)        |
| 10.01       |       | Amended and Restated Management Agreement between  NTS Realty Holdings Limited Partnership and NTS Development Company, dated as  of December 29, 2005                                                          |       | (6)        |
| 10.02       |       | Form of Lease Agreement between NTS Realty Holdings  Limited Partnership and SHPS, Inc.                                                                                                                         |       | (4)        |
| 10.03       |       | Purchase and Sale Agreement between NTS Realty  Holdings Limited Partnership and Investors Capital Mortgage Group, Inc.,  dated September 30, 2005 (Golf Brook Apartments)                                      |       | (5)        |
| 10.04       |       | Purchase and Sale Agreement between NTS Realty  Holdings Limited Partnership and Investors Capital Mortgage Group, Inc.,  dated September 30, 2005 (Sabal Park Apartments)                                      |       | (5)        |
| 10.05       |       | Agreement for Purchase and Sale between Schaedle  Worthington Hyde Properties, L.P. and NTS Realty Holdings Limited  Partnership, dated November 1, 2005 (The Grove at Richland and The Grove at  Whitworth)    |       | (5)        |
| 10.06       |       | Agreement for Purchase and Sale between Schaedle  Worthington Hyde Properties, L.P. and NTS Realty Holdings Limited  Partnership, dated November 1, 2005 (The Grove at Swift Creek)                             |       | (5)        |
| 10.07       |       | Purchase and Sale  Agreement between AMLI at Castle Creek, L.P. and AMLI Residential  Properties, L.P. and NTS  Realty Holdings Limited Partnership,  dated February 7, 2006 (Castle Creek and Lake Clearwater) |       | (5)        |
| 10.08       |       | Unconditional and Continuing Guarantee by NTS Realty  Holdings Limited Partnership in favor of National City Bank, dated March 23,  2006                                                                        |       | (5)        |
| 14.01       |       | Code of Conduct and Ethics of NTS Realty Holdings  Limited Partnership, adopted as of December 28, 2004                                                                                                         |       | (4)        |
| 31.1   |       | Certification of Chief Executive Officer Pursuant to  Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended                                                                              |       | (9)        |
| 31.2   |       | Certification of Chief Financial Officer Pursuant to  Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended                                                                              |       | (9)        |
| 32.1   |       | Certification of Chief Executive Officer Pursuant to  U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of  2002                                                                        |       | (9)        |
| 32.2   |       | Certification of Chief Financial Officer Pursuant to  U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of  2002                                                                        |       | (9)        |
| 99.01       |       | Form of Lock-Up Agreement by and between NTS Realty  Holdings Limited Partnership and each of the executive officers of NTS Realty  Capital, Inc.                                                               |       | (1)        |
| 99.02       |       | Registration Statement on Form S-4/A (Amendment No.  5), as filed by the Registrant with the Securities and Exchange Commission on  October 27, 2004                                                            |       | (3)        |

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| (1) |   | Incorporated by reference to the Registrant’s  Registration Statement on Form S-4, as filed with the Securities and Exchange  Commission on February 4, 2004                              |
|-----|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Incorporated by reference to the Registrant’s  Registration Statement on Form S-4/A (Amendment No. 1), as filed with the  Securities and Exchange Commission on June 18, 2004             |
| (3) |   | Incorporated by reference to the Registrant’s  Registration Statement on Form S-4/A (Amendment No. 5), as filed with the  Securities and Exchange Commission on October 27, 2004          |
| (4) |   | Incorporated by reference to the Registrant’s Annual  Report on Form 10-K for the year ended December 31, 2004, as filed with the  Securities and Exchange Commission on March 31, 2005   |
| (5) |   | Incorporated by reference to the Registrant’s Annual  Report on Form 10-K for the year ended December 31, 2005, as filed with the  Securities and Exchange Commission on April 3, 2006    |
| (6) |   | Incorporated by reference to the Registrant’s  Current Report on Form 8-K, as filed with the Securities and Exchange  Commission on April 17, 2006                                        |
| (7) |   | Incorporated by reference to the Registrant’s  Information Statement on Form DEF 14C, as filed with the Securities and  Exchange Commission on May 9, 2006                                |
| (8) |   | Incorporated by reference to the Registrant’s  Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, as filed  with the Securities and Exchange Commission on May 12, 2006. |
| (9) |   | Filed herewith                                                                                                                                                                                 |

** **

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**SIGNATURES**

Pursuant to the requirements of the Securities ExchangeAct of 1934, as amended, the registrant has duly caused this report to besigned 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: | August 7, 2006 |   |
|   |                                        |   |   |   |   |   |
|   |                                        |   |   |   |   |   |
|   |                                        | By: |   | */s/ Gregory A. Wells* |
|   |                                        |   |   | Gregory A. Wells |
|   |                                        |   |   | Its: | Chief Financial Officer |   |
|   |                                        |   |   | Date: | August 7, 2006 |   |
|   |                                        |   |   |   |
|        |                                             |  |  |  |  |  |  |  |  |

 

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