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As Filed With The Securities and Exchange Commission On October 27, 2004

Registration No. 333-112467



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


AMENDMENT NO. 5
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933


NTS REALTY HOLDINGS LIMITED PARTNERSHIP
(Exact Name of Registrant As Specified In Its Charter)

Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
  6798
(Primary Standard Industrial
Classification Code Number)
  41-2111139
(I.R.S. Employer
Identification No.)

(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
10172 Linn Station Road
Louisville, Kentucky 40223
(502) 426-4800

(Name, address, including zip code, and telephone number, including area code, of agent for service)
Brian F. Lavin
Gregory A. Wells
10172 Linn Station Road
Louisville, Kentucky 40223
(502) 426-4800

With copies to:

Michael J. Choate, Esq.
Shefsky & Froelich Ltd.
444 North Michigan Avenue, Suite 2500
Chicago, Illinois 60611
(312) 527-4000


Approximate date of commencement of the proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.

        If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. o

        If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

        If this Form is a post effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o


CALCULATION OF REGISTRATION FEE


Title of each class of securities to be registered
  Amount to
be registered(1)

  Proposed maximum
offering price
per unit(2)

  Proposed maximum
aggregate
offering price

  Amount of
registration fee


Partnership Units   11,751,959(2)   $10.00   $117,519,590   $14,890

(1)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o), promulgated under the Securities Act of 1933, as amended.

(2)
Represents the maximum number of Partnership Units in NTS Realty Holdings Limited Partnership issuable upon completing the transactions described herein.


        THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.




The information in this joint consent solicitation statement/prospectus is not complete and may change. NTS Realty may not sell the securities described herein until the registration statement filed with the Securities and Exchange Commission is effective. This joint consent solicitation statement/prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state that prohibits the offer or sale of such securities.

JOINT CONSENT SOLICITATION STATEMENT/PROSPECTUS

October 27, 2004

NTS REALTY HOLDINGS LIMITED PARTNERSHIP

        This joint consent solicitation statement/prospectus is being provided by the general partners of the following partnerships to the respective holders of limited partnership interests in each of the following partnerships: (1) NTS-Properties III; (2) NTS-Properties IV; (3) NTS-Properties V, a Maryland limited partnership; (4) NTS-Properties VI, a Maryland limited partnership; and (5) NTS-Properties VII, Ltd.

        As part of a court approved settlement of class action litigation involving each of the partnerships, the general partner of your partnership is asking you to approve the merger of your partnership with NTS Realty Holdings Limited Partnership, a newly formed Delaware limited partnership. Concurrent with the merger, ORIG, LLC, an affiliate of your general partner, will contribute substantially all of its assets and all of its liabilities to us. The general partner of your partnership recommends that you approve the merger.

        Limited partners of each partnership holding limited partner interests at the close of business on October 25, 2004 are entitled to vote. The merger of the partnerships into us is subject to certain conditions including: (1) approval of limited partners holding in excess of fifty percent (50%) of the limited partner interests in each partnership and (2) listing of 11,751,959 limited partnership interests that we will issue in the merger on the American Stock Exchange. The Units will be issued to the partnerships based on their respective net asset values, which are based on the value of each partnership's real estate assets as determined by an independent appraiser. The Units allocated to the partnerships based on their net asset values will be divided by $10.00 and then allocated to the limited partners in accordance with the liquidation provisions of each partnership's limited partnership agreement. Upon the close of the merger, assuming the net asset values of the partnerships and ORIG as of June 30, 2004, each entity will receive the number of Units listed in the table below. As the entities continue to repay their mortgage and other indebtedness, however, the net asset values will continue to change until shortly before the closing of the merger. Therefore, at the time the limited partners are asked to vote "For" or "Against" the merger, the limited partners only will be given an estimate of the number of Units that ORIG, their partnerships and, ultimately, they will receive in the merger.

Partnership

  Affiliate Ownership in
Each Entity

  Net Asset Value
  Number of Units
Allocated to
the Entity

  Percentage of NTS Realty
Allocated to each entity

 
NTS-III   41.25 % $ 14,521,528   1,452,167   12.35 %
NTS-IV   44.39 % $ 17,756,775   1,775,780   15.11 %
NTS-V   47.72 % $ 15,593,618   1,559,294   13.27 %
NTS-VI   48.15 % $ 42,364,037   4,236,131   36.05 %
NTS-VII   40.98 % $ 10,231,148   1,023,091   8.71 %
ORIG   100.00 % $ 17,054,960   5,699,758   48.50 %

        ORIG will receive 1,705,496 Units in exchange for its contribution of assets and liabilities to us and 3,994,262 Units in exchange for its interests in the partnerships as a result of the merger.

        If the merger is approved, the general partners and their affiliates will own 57.18%, or 6,719,249, of the 11,751,959 Units we will issue in the merger and related transactions. Mr. J.D. Nichols will control all of these Units, except for up to 620,000 Units that plaintiffs' counsel may vote for up to two years after the merger is completed pursuant to the terms of the settlement agreement related to the class action litigation. No compensation will be paid to the general partners or their affiliates in connection with the merger. The properties we are acquiring from ORIG were purchased, or constructed, and improved by affiliates of our general partners at a total aggregate cost of approximately $55.5 million. The aggregate appraised value of these properties is approximately $63.1 million. ORIG, which is acquiring Units based on the $63.1 million appraised value as described above in exchange for these properties is receiving the benefit of this $7.6 million difference. By virtue of their respective ownership interests in the entities comprising the NTS Private Group, Mr. Nichols will receive the benefit from approximately $5.7 million of the aggregate difference and Mr. Brian Lavin will receive the benefit from approximately $1.9 million.

        There are material risks and potential disadvantages associated with the merger described in "Risk Factors" beginning on page 36. In particular, you should consider:

    The nature of your investment will change as a result of the merger. Rather than holding an interest in an entity that must distribute proceeds from property sales or refinancing of debt, you will own an interest in a partnership that may reinvest those proceeds in new or existing properties.

    The Partnership Units are likely to trade at prices below the estimated value of $10.00 that we selected for determining the number of Partnership Units to be issued.

    The real estate appraisals dated as of June 30, 2003, on which the net asset value of each entity is based, are opinions of value and do not reflect changes in value after that date and may not represent the true realizable value of the properties.

    Limited partners of NTS-III, IV and VII will not have the right to receive cash based on the appraised value of their interests.

    As of June 30, 2004, the partnerships have paid expenses associated with the merger of $1,850,679. Only a portion of these expenses will be reimbursed if the merger is not approved.

    On a combined historical basis, without giving effect to any of the benefits of the merger and refinancing of certain of our debt, we would have reported a net loss during the three years ended December 31, 2003, 2002 and 2001 of approximately $1.2 million, $368,000 and $462,000, respectively. There is no assurance that we will generate profits in the future.

    As part of the settlement of the class action litigation, the class of plaintiffs will release all claims against the general partners of the partnerships, ORIG, Messrs. Nichols, Lavin, Wells and Mitchell and Mrs. Nichols.

    Arthur Andersen LLP previously audited the partnerships' consolidated financial statements. Because Arthur Andersen has not reissued its reports and we are not able to obtain a consent from Arthur Andersen, we believe that it is unlikely that you would be able to recover damages from Arthur Andersen even if you have a basis for asserting a remedy against, or seeking recovery from, Arthur Andersen.


        This solicitation period during which you may vote expires at 5:00 p.m., eastern time on December 27, 2004, unless you are notified that it has been extended.

        We invite you to vote using the enclosed consent. Please sign, date and return the enclosed consent in the accompanying postage paid envelope. You may revoke your consent at any time.

        We mailed this joint consent solicitation statement/prospectus to limited partners on or about October 27, 2004.

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the merger or the securities to be issued or passed upon the accuracy or adequacy of this joint consent solicitation statement/prospectus. Any representation to the contrary is a criminal offense.

        The Attorney General of the State of New York has not passed on or endorsed the merits of the merger; any contrary representation is unlawful.

        The general partner of your partnership recommends that you vote for the merger. Counsel for the plaintiffs in the class action litigation supports the proposed settlement, which includes the merger. The court in which the class action litigation is pending approved the settlement as fair, reasonable and adequate and in the best interest of the class of plaintiffs.

        The joint consent/prospectus is accompanied by a copy of each partnership's Form 10-K for the year ended December 31, 2003.

        All questions and inquiries should be directed to your partnership, c/o Gemisys Corporation, 7103 South Revere Parkway, Centennial, CO 80112, Telephone: (800) 247-3863 Attention: Investor Services Department.



A WARNING ABOUT FORWARD LOOKING STATEMENTS

        This document contains forward looking statements that can be identified by our use of words like "expect," "may," "could," "intend," "project," "estimate" or "anticipate." These forward looking statements, implicitly or explicitly, include assumptions underlying the statements and other information with respect to our beliefs, plans, objectives, goals, expectations, estimates, intentions, financial condition, results of operations, future performance and business, including our expectation of, and estimates with respect to, revenues, expenses, earnings, return of and on equity, return on assets, asset quality and other financial data and performance ratios. Although we believe that the expectations reflected in our forward looking statements are reasonable, these statements involve risks and uncertainties which are subject to change based on various important factors, some of which are beyond our control. Important factors that would cause actual results to differ materially from our expectations are disclosed under "Risk Factors" and elsewhere in this joint consent/prospectus.

        If one or more of the factors affecting our forward looking information and statements proves incorrect, our actual results of operations, financial condition or prospects could differ materially from those expressed in, or implied by, the forward looking information and statements contained in this joint consent/prospectus.


WHO CAN HELP ANSWER YOUR QUESTIONS?

        If you have more questions about the merger or would like additional copies of this joint consent/prospectus or the supplement relating to your partnership(s), you should contact: Gemisys Corporation, 7103 South Revere Parkway, Centennial, CO 80112, Telephone: (800) 387-7454, Attention: Investor Services Department.

ii



TABLE OF CONTENTS

 
 
  Page
SUMMARY   1
  The Merger   1
  Partnership Units   3
  Settlement/Court Approval   6
  Risk Factors   6
  Reasons for the Merger and Recommendations   8
  Detriments of the Merger   9
  Alternatives to The Merger   10
  Reasons the General Partners Believe the Merger is Fair   12
  Fairness Opinion and Valuation   14
  Real Estate Appraisals   17
  Amendments to Partnership Agreements   18
  Terms of the Merger   18
  Indebtedness   20
  Voting   21
  Appraisal Rights in the Merger   22
  Expenses of the Merger   22
  Your Right to Investor Lists and to Communicate with Other Limited Partners   23
  Conflicts of Interest   23
  Distribution Policy   25
  Accounting Treatment   27
  Description of NTS Realty and the Partnerships   27
  Background and History of the Partnerships and ORIG   28
  Description of Litigation   31
  Unaudited Summary Pro Forma Consolidated Condensed Financial and Operating Data   32
  Selected Historical Combined Condensed Financial and Operating Data   33
  Comparison of Rights of Limited Partners of the Partnerships and Limited Partners of NTS Realty   34
  Material Federal Income Tax Consequences   35

RISK FACTORS

 

36
  Risks Relating to the Merger   36
  Risks Related to Our Business and Properties   41
  Tax Risks   46

THE MERGER

 

49
  General   49

DESCRIPTION OF THE LITIGATION

 

52
  Buchanan Litigation   52
  Bohm Litigation   53

BACKGROUND OF THE MERGER

 

54
  Chronology of the Merger   54
  Information about the Partnerships and ORIG   57
  Information About ORIG   60
  Benefits of, and Reasons for, the Merger   62
  Detriments of the Merger   64
  Prior Performance of Affiliates   64
       

iii



FAIRNESS

 

67
  General   67
  Material Factors Underlying Belief as to Fairness   67
  Comparison of Merger with Alternatives   69
  Liquidating the Partnerships   70
  Continuing the Partnerships   71
  Fairness in View of Conflicts of Interest   79
  Allocation of Units   80

FAIRNESS OPINIONS AND REAL ESTATE APPRAISALS

 

85
  Fairness Opinion   85
  Determination of Fairness—Allocation of Units Between the Partnerships and ORIG   87
  Determination of Fairness—Allocation of Units Between the General Partner and the Limited Partner of Each Partnership   88
  Determination of Fairness—Management Contract with NTS Development   89
  Real Estate Appraisals   91

MATERIAL FEDERAL INCOME TAX CONSEQUENCES

 

97
  General   97
  Opinions Of Counsel   97
  Certain Tax Differences Between the Ownership of Limited Partnership Interests in the Partnerships and Units   97
  Tax Treatment of the Merger   98
  Taxation of NTS Realty Subsequent To The Merger   102
  Taxation of Limited Partners   103
  Sale or Other Disposition of Property   106
  Potential Application of Section 183 of the Code   106
  Liquidation or Dissolution   106
  Uniformity of Units   107
  Considerations for Tax Exempt Limited Partners   107
  Considerations For Non-U.S. Limited Partners   107
  Information Returns and Audit Procedures   108
  NTS Development Company Settlement Payment   109

CONFLICTS OF INTEREST

 

110
  General Partners   110
  Substantial Benefits to General Partners and Their Affiliates   111

COMPARISON OF RIGHTS OF LIMITED PARTNERS OF THE PARTNERSHIPS AND LIMITED PARTNERS OF NTS REALTY

 

113

COMPENSATION AND FEES

 

121

COMPENSATION, REIMBURSEMENTS AND DISTRIBUTIONS TO THE GENERAL PARTNERS

 

124

SELECTED UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL AND OPERATING DATA

 

126

UNAUDITED SELECTED HISTORICAL COMBINED CONDENSED FINANCIAL AND OPERATING DATA

 

127

HISTORICAL COMBINED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

130
       

iv



MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE NTS PRIVATE GROUP

 

142

BUSINESS AND PROPERTIES

 

154
  Overview   154
  Business and Investment Objectives and Operating Strategies   154
  Competitive Advantages   155
  Distribution Policy   155
  Investment Policies   156
  Financing Policies   156
  Indebtedness   156
  Other Policies   159

POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

 

159
  Change in Policies   160
  Employees   160
  Environmental Matters   160
  Insurance   161
  Competition   162

THE PROPERTIES

 

162
  Occupancy Rates   165
  Lease Distribution   167
  Lease Expirations   167
  Historical Percentage Leased and Rental Rates   168
  Historical Lease Renewals   168
  Tenant Information   168
  Market Descriptions   169
  Joint Ventures   174
  Property Tax   175
  Sale of Properties   176

MANAGEMENT

 

176

RELATED PARTY TRANSACTIONS

 

180
  Transactions Relating to the Merger   180
  Tender Offers   181
  Distributions and Payments to the General Partners and their Affiliates   182
  Management Agreement with NTS Development   184
  Lease Arrangements   185

DESCRIPTION OF THE UNITS

 

186
  The Units   186
  Rights and Limitations of the Class Units   186
  Transfer Agent and Registrar   186
  Transfer of Units   186
  Unit Ownership   187

THE PARTNERSHIP AGREEMENT

 

187
  General   187
  Distribution Policy   189
  Taxation of Limited Partners   190
  Transfer of Units   190
       

v


  Amendment of Partnership Agreement   191
  Termination and Dissolution   191
  Liquidation and Distribution of Proceeds   191
  Withdrawal or Removal of the General Partners   192
  Transfer of Units Held By Our General Partners   192
  Transfer of Ownership Interests in NTS Realty Capital   192
  Meetings; Voting   192
  Status as Limited Partner   193
  Indemnification   193
  Books and Reports   193
  Right to Inspect Our Books and Records   193
  Appraisal Rights   193

UNITS ELIGIBLE FOR FUTURE SALE

 

194

VOTING PROCEDURES

 

194
  Distribution of Solicitation Material   194
  Required Vote and Other Conditions   195

EXPERTS

 

196

LEGAL MATTERS

 

197

INCORPORATION OF DOCUMENT BY REFERENCE

 

198

WHERE YOU CAN FIND MORE INFORMATION

 

198

vi



QUESTIONS AND ANSWERS ABOUT THE MERGER

Q:    What is the proposed merger that I am being asked to vote upon?

        A:    You are being asked to approve the merger of your partnership with NTS Realty. The merger is part of a court approved settlement negotiated and agreed to among your general partner, its affiliates and plaintiffs' counsel for the class action litigation. Your general partner and certain of its affiliates are defendants in this litigation which alleges, among other things, that your general partner breached certain duties owed to you. The settlement resulted from extensive negotiations under the administration of the court in which the Buchanan litigation (as defined herein) is pending. Plaintiffs' counsel believes the settlement is fair and reasonable to, and in the best interests of, the limited partners. In addition, on May 6, 2004, the court in which the Buchanan litigation is pending approved the settlement as fair, reasonable, adequate and in the best interests of the class of plaintiffs. Your partnership is one of five public partnerships sponsored by NTS Corporation that is proposing to merge with us. Concurrent with the merger, ORIG, an entity affiliated with your general partner, will contribute substantially all of its assets and all of its liabilities to us in exchange for Units on the same terms and conditions as those that are applicable to the partnerships.

        If the merger is approved by all of the partnerships, we will own nine multifamily properties, nineteen commercial or business centers, three retail properties and one ground lease. To be effective, the merger must be approved by all of the partnerships.

Q:    What will I receive if I vote yes and the merger is approved?

        A:    If the merger is approved and the other conditions are satisfied, we will issue Partnership Units for all of the outstanding partnership interests in each partnership. These Units will be distributed to the partners of the partnerships and ORIG based on relative net asset values. No cash payments will be made to any of the partnerships, ORIG or their respective partners or members.

Q:    Why is the merger being proposed?

        A:    Your general partner and Plaintiffs' counsel have negotiated a settlement of the class action litigation which, among other things, contemplates the merger. Your general partner believes that the merger is the best way for you and the other limited partners to achieve liquidity and to increase the value of your investment. We have applied to list the Partnership Units on the American Stock Exchange. We believe listing the Units will increase the liquidity of each limited partner's investment. We intend to begin paying distributions commencing at the end of the first full calendar quarter after the merger is completed. None of the partnerships is currently able to pay distributions.

Q:    How many Units will I receive if my partnership approves the merger?

        A:    The number of Units that will be issued to your partnership will be based on its net asset value. The net asset value of your partnership will be equal to the appraised value of its real estate assets (and the appraised value of real estate assets owned by any subsidiary partnerships or joint ventures), as determined by the independent appraiser, plus the book value of its other assets (excluding for these purposes straight-line rent receivables and prepaid leasing commissions) including the payment to be made by NTS Development Company as described herein, less any indebtedness and other liabilities, including any amounts paid to lenders to allow us to assume the entity's debt. The number of Units allocated to your partnership and each other entity, including ORIG, will be equal to its net asset value divided by $10.00, a value which we selected for purposes of allocating the Units. We estimated a per Unit value of $10.00. See "Fairness—Allocation of Units." As described further herein, the net asset value of each entity should not be viewed as a measure of the fair market value of the Units. The Units will then be allocated and issued among the general partner and limited partners of each partnership in accordance with the liquidation provisions contained in the partnership agreement

vii


for your partnership. For more information on the liquidation provisions for your partnership, please review the supplement for your particular partnership. As the partnerships continue to repay their mortgage and other indebtedness, however, the net asset values will continue to change until shortly before the closing of the merger. Therefore, at the time the limited partners vote "For" or "Against" the merger, the limited partners only will be given an estimate of the number of Units that their partnerships and, ultimately, they will receive in the merger.

        No fractional interests will be issued in the merger. Because the payment of cash in lieu of fractional interests could cause the recognition of taxable income in excess of the amount of cash paid, the number of Units to which you are entitled will be increased or decreased to the nearest whole Unit, and no cash will be paid for the fractional interests.

Q:    Does NTS Realty contemplate selling or refinancing its properties within a certain time period like my partnership estimated in its prospectus?

        A:    Each partnership's prospectus estimated that the partnership would sell or refinance its properties between the fourth and tenth year after completing the development of its properties. Although our managing general partner intends to consider all opportunities available to us that would enhance the development of our business or the return on our limited partners' investment, including the sale or refinancing of one or more of our properties, we do not contemplate selling or refinancing properties within any defined time period other than that we must terminate our operations by December 31, 2028. As previously indicated, we have applied to list our Units on the American Stock Exchange so that you may liquidate your Units at any time at the prevailing market rate.

Q:    Why is ORIG participating in the merger?

        A:    As part of the settlement of the class action litigation, affiliates of your general partner agreed to contribute substantially all of their real estate assets. These assets, along with indebtedness, will be contributed to ORIG by these other entities, all of whom are affiliated with your general partner, just prior to the merger and then contributed to us by ORIG for Units. We refer to these entities as the "NTS Private Group." For the four years ended December 31, 2003, 2002, 2001 and 2000, the NTS Private Group generated net income of approximately $1.2 million, $1.9 million, $1.4 million and $650,000 respectively. During the same periods, the partnerships incurred net losses. We believe these additional assets will allow us to generate additional cash flow with which to pay distributions to you.

Q:    Who can vote and what is required to approve the merger?

        A:    Limited partners at the close of business on the record date of October 25, 2004 are entitled to vote. The affirmative vote of limited partners holding interests in excess of fifty percent (50%) or more of the outstanding limited partnership interests of each partnership is required to approve the merger. Approval by the required vote of your partnership's limited partners will be binding on all of its partners, even those who vote against the merger. Affiliates of the general partners, including ORIG, currently own between 40.98% and 48.15% of limited partner interests in each partnership and intend to vote "For" the merger. See "Conflicts of Interest—Substantial Benefits to General Partners and their Affiliates" for more information on the percentage of limited partnership interests in each partnership that are owned by the general partners and their affiliates. If the merger is approved and completed, the general partners and their affiliates will own approximately 57.18% of our Units.

        After the merger, the management compensation paid by us will be on the same terms as the management compensation paid by each of the partnerships. Currently, each of the partnerships, except for NTS-III, is charged a management fee of 5% of gross revenues from residential properties and 6% of gross revenues from commercial properties. NTS-III is charged a management fee of 5% of the gross revenues generated by all of its properties, regardless of whether they are residential or

viii



commercial. For the first year of operations, we will be charged a management fee of 5% of gross revenues from properties acquired from NTS-III and 5% of gross revenues from residential properties and 6% of gross revenues from commercial properties acquired from NTS-IV through NTS-VII and ORIG. After the one-year term of the management agreement, the "independent directors" of our managing general partner, as determined under the standards promulgated by the American Stock Exchange, must review the terms of the management agreement and decide whether to renew the management agreement on the same terms and conditions or, if the independent directors determine that the terms are not consistent with other similar agreements for properties in our markets, negotiate a new management agreement. The independent directors will have the authority to retain a nationally recognized real estate expert to assist them in evaluating the management agreement.

Q:    How do I vote?

        A:    Simply check the "For" or "Against" box on the enclosed consent, sign and mail it in the enclosed return envelope by December 27, 2004. If you sign and send in your consent form and do not indicate how you want to vote, your consent will be counted as a vote "For" the merger. If you do not vote or you indicate on your consent form that you abstain, it will count as a vote "Against" the merger. Approval of the merger will effectively preclude other alternatives, such as liquidating your partnership or continuing as a stand alone entity.

Q:    In addition to this joint consent/prospectus, I received a supplement. What is the purpose of this document?

        A:    The purpose of this joint consent/prospectus is to describe the merger and to summarize the investment considerations generic to all of the partnerships. The purpose of the supplement is to describe the investment considerations specific to your partnership. The information in the supplement is material to your decision.

Q:    Who can help answer questions?

        A:    If you have more questions or would like additional copies of this joint consent/prospectus or the supplement relating to your partnership, you should contact our transfer agent as follows: Gemisys Corporation, 7103 South Revere Parkway, Centennial, CO 80112, Telephone: (800) 247-3863 Attention: Investor Services Department.

ix



SUMMARY

        This summary contains material information included elsewhere in this joint consent/prospectus. We have included page references in parentheses to direct you to a detailed description of the topics presented in this summary. To understand the merger, you should read carefully this entire joint consent/prospectus and the documents referred to herein, including the supplement for your partnership.

The Merger (p. 49)

        You are being asked to approve the merger of your partnership with NTS Realty Holdings Limited Partnership, referred to herein as "NTS Realty," "us" or "we." If the merger is approved, we will own thirty-two properties previously owned by the partnerships and ORIG, consisting of nineteen office buildings and business centers, nine multifamily properties, three retail properties and one ground lease. The properties are located in and around Louisville (22) and Lexington (3), Kentucky; Orlando (2) and Fort Lauderdale (3), Florida; Indianapolis (1), Indiana; and Norcross (1), Georgia. The office and business center properties aggregate 1.7 million square feet and the multifamily units contain an aggregate of approximately 1,350 units.

        NTS Realty Capital, Inc. and NTS Realty Partners, LLC will serve as our general partners. Our general partners are owned principally by Messrs. J.D. Nichols and Brian F. Lavin. Mr. Nichols is also an individual general partner of each existing general partner of the partnerships. Mr. Lavin is the president and chief executive officer of NTS Corporation. Our partnership agreement vests principal management discretion to NTS Realty Capital, which will be designated as our managing general partner. NTS Realty Capital will have a board of directors composed of five persons, Messrs. Nichols and Lavin and three individuals who will satisfy the criteria for "independent directors" promulgated by the American Stock Exchange. Our limited partners will have the power to elect these directors on an annual basis much like the shareholders of a corporation. Thus, our limited partners will have enhanced governance rights and protections compared to those rights and protections currently provided by the partnerships and their respective general partners. NTS Realty's board will also have an audit committee composed entirely of independent directors.

        The partnerships were formed between 1982 and 1987 to invest in fixed portfolios of commercial and residential properties. ORIG is a Kentucky limited liability company which was formed by Messrs. Nichols and Lavin in 1998 to purchase, with other affiliates, limited partnership interests in the partnerships either through tender offers or privately negotiated transactions. ORIG and its affiliates purchased and currently own the following limited partnership interests in the partnerships:

Partnership

  # of L. P. Interests
 
NTS-III   5,185 (1)
NTS-IV   10,703 (1)
NTS-V   14,566 (1)
NTS-VI   18,726 (1)
NTS-VII   226,306 (1)

(1)
The general partner of each partnership is recorded as owning five limited partner interests in its respective partnership which are not reflected in this chart because the general partners have never received any economic rights in connection with these interests and will receive no consideration in the merger with respect to these interests.

1


        The chart set forth below illustrates the relationship among our general partners, their affiliates and us, as well as the percentage of Units that each individual or entity will own if the merger is completed.

GRAPHIC


(1)
NTS Realty Capital will not own any Units immediately after the merger, but is included in this chart to illustrate its relationship with us as our managing general partner. NTS Realty Capital is wholly owned by Messrs. Nichols and Lavin.

(2)
NTS Realty Partners will own 6.44% of the Units if the merger is completed. These Units will be non-voting Units. Following the merger, NTS Realty Partners will be owned by the current owners of the general partners. Mr. Nichols currently controls each of the general partners.

(3)
Each of ORIG, Ocean Ridge Investments, Ltd. and BKK Financial, Inc. are entities that are wholly owned or controlled by Mr. Nichols or members of his immediate family.

(4)
NTS Development Company will not own any Units immediately after the merger, but is included in this chart to illustrate its relationship with us pursuant to the management agreement. NTS Development Company is wholly owned by Messrs. Nichols and Lavin. See "Related Party Transactions—Management Agreement with NTS Development."

(5)
Following the private entity restructuring, the NTS Private Group will receive a separate class of ORIG's membership interests in exchange for contributing the properties to ORIG. This separate class of interests will entitle the NTS Private Group to share proportionately the indirect ownership of the Units issued in respect of ORIG's contribution to us of the assets and liabilities acquired from the NTS Private Group. ORIG's original class of membership interests will continue to be owned by Mr. Nichols (1%), Mrs. Nichols (74%) and Mr. Lavin (25%). The entities comprising the NTS Private Group are: NTS/BBX Office, LLC, NTS Springs Office Ltd., NTS Springs Medical Office Center, Ltd., NTS Pickford, Ltd., NTS Atrium Center, NTS BBC I, NTS Breckinridge, Ltd., NTS Willow Lake Partners Limited Partnership, NTS Mall Limited Partnership, NTS Whetstone Limited Partnership, NTS Bluegrass Commonwealth Park and Mr. Nichols. Mr. Nichols and his immediate family will own approximately 73.5% of the separate class of ORIG's membership interests, while Mr. Lavin and certain unaffiliated individuals will own approximately 24.5% and 2.0%, respectively.

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Partnership Units (p. 60)

        If the merger is approved, the partnership interests in each partnership will be converted into Units based on the net asset value of each partnership. The partnership interests owned by ORIG and its affiliates will also be converted into Units in the merger. ORIG has entered into various agreements with other entities owned substantially by Mr. Nichols and his affiliates, referred to herein as the "NTS Private Group," through which these entities will contribute all or substantially all of their assets and liabilities to ORIG. These transactions, known as the "private entity restructuring," will not occur if the partnerships do not approve the merger. As a result of the private entity restructuring, ORIG will own twelve properties in their entirety, plus four additional properties in joint venture with certain of the partnerships. ORIG will contribute these assets and all of its liabilities to us for Units having a value equal to the appraised value of the contributed assets, as determined by the independent appraiser, and the value of any other assets contributed reduced by the liabilities assumed by us under the contribution agreement.

        Currently, ORIG is owned by Messrs. Nichols and Lavin and Mrs. Nichols. After the private entity restructuring is completed, the entities comprising the NTS Private Group will own a separate class of ORIG's membership interests which they will receive in exchange for the contribution of the NTS Private Group's properties. This separate class of membership interests in ORIG will entitle the NTS Private Group to receive the benefit of the Units that ORIG will receive when it contributes those properties to us. Mr. Nichols and members of his immediate family, as well as Mr. Lavin and certain unaffiliated individuals will own the separate class of ORIG's membership interests. Messrs. Nichols and Lavin and Mrs. Nichols will continue to own the original class of ORIG's membership interests.

        As part of the class action settlement, ORIG has agreed to admit a "qualified settlement trust" as a special member of ORIG. This special member interest is being created for the benefit of the class members in the Buchanan litigation who are former limited partners who sold their limited partnership interests to ORIG, its affiliates or the partnerships either as part of tender offers, other repurchase programs or otherwise. Under the terms of ORIG's operating agreement, all of the economic and other rights associated with up to 620,000 Units owned by ORIG will be designated for the benefit of the qualified settlement trust. ORIG will own the Units, but all of the rights associated with the Units will inure to the qualified settlement trust. Plaintiffs' counsel, or his designee, will have the right, acting as a representative of these former limited partners, to cause ORIG to vote these designated Units pursuant to his direction. The amount of Units was determined based on a $6.2 million settlement amount agreed upon by the general partners and plaintiffs' counsel. Therefore, if each Unit is estimated to be valued at $10.00, then the economic and other rights associated with 620,000 Units will be needed to satisfy the settlement amount. The final amount of the settlement, however, is based on the amount of valid claims filed by the former limited partners in the class of plaintiffs. If claims are not made for the full $6.2 million settlement amount, ORIG will designate the economic and other rights to fewer Units for the benefit of the qualified settlement trust to satisfy the claims. We refer to these designated Units as the "Class Units."

        Under the terms of the settlement agreement governing the qualified settlement trust, Mr. Nichols, his spouse and Mr. Lavin are jointly obligated, for a period of two years, to pay the qualified settlement trust, an amount equal to seventy-five percent (75%) of the distributions that ORIG receives in respect of the Units owned by ORIG which otherwise would have gone to Mr. Nichols, his spouse or Mr. Lavin, in exchange for the economic and other rights associated with the number of Class Units calculated under the formula described below. Each payment will result in the redesignation of rights associated with the number of Class Units equal to the amount of the distribution divided by 115% of the "fair market value" of the Units. As a result of each payment, the number of Class Units designated for the benefit of the qualified settlement trust will decrease until the economic and other rights associated with all of the Class Units are ultimately redesignated for the benefit of Mr. Nichols, his spouse and/or Mr. Lavin within two years of when we begin making distributions. If any Class Units

3



remain at the end of this two-year period, Mr. Nichols, his spouse and Mr. Lavin must make a final payment to the qualified settlement trust that is sufficient to redesignate any remaining Class Units. For these purposes, fair market value will be equal to the average closing price of the Units on the American Stock Exchange for the thirty-day period prior to the date of the redesignation.

        NTS Development Company, the property manager of all of the properties that we will acquire in the merger from the partnerships and ORIG, has agreed to pay $1.5 million in the aggregate to the partnerships as part of the settlement. See "Background of the Merger—Information About ORIG" for more information about this payment and the allocation of the payment among the partnerships.

        The general partners, with the consent of plaintiffs' counsel, retained Houlihan Lokey Howard & Zukin Financial Advisors, Inc., referred to herein as "Houlihan," an independent third party, to render an opinion regarding the fairness of: (1) the allocation of Units among the public partnerships and ORIG; (2) the allocation of Units between the general partner and the limited partners of each public partnership; and (3) the financial terms of the new management agreement between NTS Development Company and us, discussed in more detail herein. The general partners and ORIG, with the consent of plaintiffs' counsel, also retained CB Richard Ellis, Inc. referred to herein as "CBRE," an independent third party, to appraise the properties owned by each partnership and the NTS Private Group. As described in more detail herein, we used these appraisals in determining net asset value. Houlihan has rendered its opinion based on the net asset values determined as of September 30, 2003. As described in this joint consent/prospectus, the final net asset values will not be determined until shortly before closing. We do not expect that there will be a material difference between the allocation of the Units based on the net asset values determined as of September 30, 2003, and the allocation of Units based on the net asset values determined prior to closing. If we believe the difference may be material, we will ask each general partner to request an update of Houlihan's opinion.

        The table set forth below illustrates the number of Units that will be allocated to each partnership and each partnership's corresponding ownership percentage determined as of June 30, 2004.

 
  No. of Units to be
Issued in the Merger

  Ownership
Percentage

 
NTS-III   1,452,167   12.35 %
NTS-IV   1,775,780   15.11 %
NTS-V   1,559,294   13.27 %
NTS-VI   4,236,131   36.05 %
NTS-VII   1,023,091   8.71 %
ORIG   5,699,758 (1) 48.50 %

(1)
ORIG will receive 1,705,496 Units in exchange for its contribution of substantially all of its assets and all of its liabilities. In addition, ORIG will receive 3,994,262 Units in exchange for its interests in the partnerships. The 3,994,262 Units ORIG will receive in exchange for its partnership interests include the economic and other rights associated with up to 620,000 Units that will be designated under ORIG's operating agreement for the benefit of the qualified settlement trust upon completion of the merger.

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        The table below illustrates the number of interests that each of ORIG, Mr. Nichols, the applicable general partner and each other affiliate owns in each partnership before the merger and the number of Units each will own if the merger is completed.

 
  NTS-III
  NTS-IV
  NTS-V
  NTS-VI
  NTS-
VII

  NTS
REALTY

 
ORIG   4,602   10,377   11,934   18,293   218,772   5,699,758 (1)
Mr. Nichols   17           6,719,249 (2)
Mr. Lavin              
Mr. Wells              
Mr. Mitchell              
General Partner(3)   5 (4) 5 (4) 5 (4) 5 (4) 5 (4) 756,099 (4)
Aggregate Number of Interests   5,185   10,703   14,566   18,726   226,306   6,719,249  
Aggregate Percentage Ownership   41.25 % 44.39 % 47.72 % 48.15 % 40.98 % 57.18 %

(1)
ORIG will receive 3,994,262 Units in the merger of the partnerships into us and an additional 1,705,496 Units in exchange for the contribution of substantially all of its assets and liabilities, including up to 620,000 Units of which the economic and other rights associated with them will be designated under ORIG's operating agreement for the benefit of the qualified settlement trust upon completion of the merger. Although ORIG will own the designated Units after the merger, plaintiffs' counsel or his designee will have the right to vote the Units. Further, all distributions in respect of these designated Units will be made to the qualified settlement trust. These Units will be redesignated within two years of the merger to allow ORIG to vote the Units and other members of ORIG to receive distributions in respect of the Units. For more information on how the Units will be redesignated, see "Summary—Partnership Units." Currently, Mr. Nichols beneficially owns 75% of ORIG's membership interests and Mr. Lavin owns the remaining 25% of the membership interests.

(2)
As ORIG's manager, Mr. Nichols will have the right to vote all of ORIG's 5,699,758 Units, except for up to 620,000 Units that may be voted by plaintiffs' counsel for up to two years. In addition, Mr. Nichols will own beneficially the 756,099 Units that will be issued to NTS Realty Partners, as well as 263,392 Units that will be issued to him, his immediate family or entities controlled by them in exchange for their interests in the partnerships.

(3)
Represents the applicable general partner of each partnership.

(4)
Each general partner owns five limited partner interests in its partnership which are not reflected in this chart because the general partners have never received any economic rights in connection with these interests and will receive no consideration in the merger with respect to these interests. The general partners will receive Units in the merger pursuant to the distribution rights in the liquidation provisions of the partnership agreements. Pursuant to the terms of our partnership agreement, NTS Realty Partners, the holder of these Units, will not be entitled to vote them.

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        The table below identifies the general partner of each partnership:

Partnership

  General Partners(1)
NTS-III   NTS-Properties Associates
NTS-IV   NTS-Properties Associates IV
NTS-V   NTS-Properties Associates V
NTS-VI   NTS-Properties Associates VI
NTS-VII   NTS-Properties Associates VII

(1)
Each general partner's address and telephone number is: 10172 Linn Station Road, Louisville, Kentucky 40223; (502) 426-4800. Mr. Nichols controls each of the general partners.

Settlement/Court Approval (p. 52)

        A fairness hearing was held on May 6, 2004, at the Superior Court of the State of California, County of Contra Costa, California, 1020 Ward Street, Martinez, California 94553, the court in which the Buchanan litigation is pending, at which time class members were given the opportunity to appear before the court and object to any aspect of the settlement, including the merger. At the fairness hearing, the court approved the settlement, which includes the merger, as fair, reasonable, adequate and in the best interests of the class of plaintiffs. The settlement and releases remain subject to: (1) the mutual right of the class action plaintiffs, their counsel and the defendants to terminate the settlement if this joint consent/prospectus is not distributed to the limited partners of the partnerships prior to October 1, 2004 and (2) completing the merger by December 31, 2004.

Risk Factors (p. 36)

        The following is a summary of the material risks of the merger. These risks are more fully discussed beginning on page 36 in "Risk Factors." Among the risks, you should consider are:

    The nature of your investment will change as a result of merger. Rather than holding an interest in an entity that must distribute proceeds from property sales or refinancing of debt, you will own an interest in a partnership that may reinvest those proceeds in new or existing properties.

    The Partnership Units are likely to trade at prices below the estimated value of $10.00 that we selected for determining the number of Partnership Units to be issued.

    The net asset value of each partnership will be based substantially on third-party appraisals of the properties owned by each partnership and the NTS Private Group. These appraisals, which are dated as of June 1, 2003, are opinions of value as of a specified date, do not reflect any changes in value that may have occurred after June 1, 2003, are subject to certain assumptions and may not represent the true realizable value of these properties. In addition, the final net asset values cannot be determined until shortly before the closing of the merger. Therefore, at the time you are asked to vote "For" or "Against" the merger, you only will be given an estimate on the number of Units you will receive in the merger.

    If the merger is completed, the limited partners will have an investment in a larger entity, but will lose relative voting power. Following the merger, each individual limited partner, except affiliates of the general partners, will own a smaller percentage of the voting interests in us than he or she currently owns in the existing partnerships. Affiliates of the general partners, including ORIG, currently own between 41% and 48% of the limited partner interests in the partnerships. Although the limited partners will have one vote per unit, ORIG and its affiliates will own or control approximately 57.18% of the outstanding Units (including the Units voted by plaintiffs' counsel on behalf of the settlement trust and those Units owned by NTS Realty Partners that are not entitled to vote) and, thus, will be able to influence significantly the outcome of all

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      matters submitted to a vote of limited partners, including proposals to amend our partnership agreement.

    There is no assurance that we will have any net cash flow from operations from which to pay distributions. Our partnership agreement permits our managing general partner to reinvest sales or refinancing proceeds in new or existing properties or to create reserves to fund future capital expenditures. Because net cash flow from operations is calculated after reinvesting sales or refinancing proceeds or establishing reserves, we may not have any net cash flow from operations from which to pay distributions.

    On a combined historical basis, without giving effect to any of the benefits of the merger and a refinancing of certain debt that we will assume in the merger, we would have reported a net loss during the three years ended December 31, 2003, 2002 and 2001 of approximately $1.2 million, $368,000 and $462,000, respectively. There is no assurance that we will generate profits in the future.

    The number of Units that will be issued to your partnership will be based on its net asset value. As provided in the merger agreement, the general partner of each partnership will calculate the net asset value and the number of Units issued no more than ten days after the date that the general partner issues a joint press release or files a report on Form 8-K announcing receipt of the necessary consents from the limited partners of the partnerships to approve the merger. Your general partner cannot calculate how many Units you will receive prior to the Determination Date because the net asset value of each partnership will continue to change until the Determination Date primarily because each partnership and ORIG will continue to make regular payments on their respective mortgage debt and notes payable, thus increasing each entity's net asset value. Your general partner anticipates that the merger closing will take place within ten days of the date that the general partner of each partnership issues a joint press release or files a report on Form 8-K announcing receipt of the necessary consents from the limited partners of the partnerships to approve the merger.

    The general partners and their affiliates, including ORIG, negotiated the settlement of the class action litigation, including the structure of the merger. These parties will derive certain benefits from the merger and may have conflicting interests in recommending that you vote for the merger. For example, affiliates of the general partners will own 57.18% of the Units if the merger is completed. In addition, ORIG will contribute $49,631,129 of debt to us, including approximately $13.4 million of debt whose payment is personally guaranteed by Messrs. Nichols and Lavin. Further, NTS Development Company will continue to receive a fee for managing the properties we will acquire in the merger. For more information on the benefits from the merger that these parties may derive, see "Conflicts of Interest."

    Limited partners of NTS-III, IV and VII will not have the right to receive cash based on an appraisal of their interests in lieu of receiving Units.

    In accordance with the settlement of the class action litigation, which was approved on May 6, 2004 by the court in which the Buchanan litigation is pending, the limited partners of the partnerships and all other members of the plaintiffs class (other than those who opted out) will discharge, settle and release all claims, whether known or unknown, that have been, could have been or in the future might be asserted in the class action litigation or in any court or other proceeding by or on behalf of the limited partners, the partnerships an any member of the class of plaintiffs against the general partners of the partnerships, ORIG and the other defendants in each of the class action litigation matters. Therefore, the limited partners will not be able to bring a lawsuit against the general partners, ORIG and the other defendants in connection with the matters included in the release.

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    As of June 30, 2004, the partnerships have paid expenses associated with the merger of $1,850,679. Only a portion of these expenses will be reimbursed if the merger is not approved.

    Arthur Andersen LLP audited the partnerships' consolidated financial statements for the years ended December 31, 2001, and December 31, 2000. In June 2002, Arthur Andersen was convicted of a federal obstruction of justice charge and, subsequently, ceased its operations. Because Arthur Andersen has not reissued its reports and we are not able to obtain a consent from Arthur Andersen, we believe that it is unlikely that you would be able to recover damages from Arthur Andersen even if you have a basis for asserting a remedy against, or seeking recovery from Arthur Andersen.

Reasons for the Merger and Recommendations (p. 62)

        Your general partner is recommending that you approve the merger. Summarized below are the principal benefits that your general partner believes you will realize from the merger. There is no assurance that these benefits will be realized.

    Liquidity.    We have applied to list the Partnership Units on the American Stock Exchange. Limited partners should, therefore, be able to buy or sell the Units more easily than the limited partnership interests in each partnership. Presently, trading in the interests in each partnership is confined to a limited and, each general partner believes, inefficient secondary market.

    Majority of Directors are Independent.    NTS Realty Capital will have an annual meeting at which our limited partners will be able to elect its board of directors, the majority of whom will be "independent" under rules promulgated by the American Stock Exchange. In addition, NTS Realty Capital will have an audit committee composed entirely of independent directors.

    Related Party Transactions.    NTS Realty Capital will need approval of the majority of its independent directors to enter into any transaction with affiliates and to renew its one-year management agreement with NTS Development Company.

    Regular Cash Distributions.    Each partnership has suspended making distributions to its limited partners. Due in part to increased cash flows resulting from acquiring the properties owned by the NTS Private Group and in part to the impact of refinancing certain debt as described below, we intend to begin paying distributions on a quarterly basis beginning with the first full quarter after completing the merger.

    Economies of Scale.    The merger should result in economies of scale not available to the partnerships, which should reduce our expenses. For example, if the merger is completed, the five partnerships, each of which is subject to the SEC's reporting requirements, will be merged into a single public entity. Our general partners estimate that the economies of scale will result in annual cost savings of over $500,000.

    Diversified Portfolio.    We will own a more diversified portfolio of properties than any of the partnerships, both in terms of number and to some degree, geographic location. We will own a total of thirty-two properties. The partnerships each own between three and ten properties. Further, we will be diversified to some degree by property type. By owning a larger portfolio of properties than any of the partnerships, our operating results will be less dependent on the performance of any one tenant or property.

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    Greater Access to Capital.    After completing the merger, we will have a larger asset and equity base than any of the individual partnerships. Based on our experience in the real estate industry and our discussions with lenders, we believe the size of our real estate portfolio, which will be much larger than the portfolio of any of the partnerships, may allow us to refinance the debt associated with the properties on more favorable terms than would be available to an individual partnership. For example, the addition of properties owned by the NTS Private Group, which have a combined appraisal value of $63,090,000, will add significantly to the size of our portfolio. These properties generated net income of approximately $1.2 million for the year ended December 31, 2003 and $379,000 for the six months ended June 30, 2004. This greater access to capital should provide us with more financial stability and may provide funding for future property acquisitions. We have entered into a binding letter of intent with The Northwestern Mutual Life Insurance Company to refinance approximately $72.0 million of our debt simultaneously with the closing of the merger. The proposed refinancing would, among other things, lower the average interest rate on the debt from approximately 6.8% to 6.0% and change the amortization schedule to thirty years from ten to fifteen years, thus reducing the amount of debt service payments to our lenders by approximately $6.7 million per year. The reduced debt service payments should allow additional funds to be available for either distribution to the limited partners or reinvestment in new or existing properties. If the merger and simultaneous refinancing of our properties occur based on the terms set forth in the letter of intent with Northwestern Mutual, the refinancing would allow us to reduce our annual principal and interest expense by approximately $6.7 million on a pro forma basis. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Future Liquidity" and "Risk Factors—We may be unable to refinance a portion of the debt that we will assume if the merger is completed."

    Settlement of Litigation.    As part of the settlement, plaintiffs' counsel negotiated or agreed to methods and procedures designed to maximize limited partner value and to improve and not cause a significant adverse change in the voting rights of limited partners, termination dates or investment objectives. In addition, the settlement will eliminate the costly and protracted litigation which could affect the partnerships for some time if the merger is not approved. Finally, NTS Development Company will pay $1.5 million, in the aggregate, to the partnerships as part of the settlement.

    General Partner Preferences.    Unlike the general partner of your partnership, neither NTS Realty Partners nor NTS Realty Capital will be entitled to any preferential allocations or distributions.

Detriments of the Merger (p. 64)

        Although your general partner is recommending that you approve the merger, the detriments to you of the merger are described below:

    Voting.    The general partners and their affiliates currently own and control between 40.98% and 48.15% of the limited partnership interests in each partnership. These interests will be voted "For" the merger. By owning less than a majority of the outstanding interests of each partnership, your general partner and its affiliates do not control the outcome of votes by the limited partners of the partnerships. If the merger is completed, your general partner and its affiliates will own 57.18% of our Units (including the Units that will be voted by plaintiffs' counsel on behalf of the settlement trust and those Units owned by NTS Realty Partners that are not entitled to vote) and, thus, will control the outcome on any matter submitted to a vote of the limited partners. The economic and other rights associated with up to 620,000 of these Units, however, will be designated for the benefit of the qualified settlement trust. Therefore, affiliates of our general partners will not be able to vote those Units for up to two years after we begin making distributions. For more information on the qualified settlement trust, see

9


      "Summary—Partnership Units." In addition, pursuant to our partnership agreement, our general partners will not be entitled to vote the Units they own. For more information on the number of Units that affiliates of our general partners will control immediately after the merger and the designation of rights of certain Units to the qualified settlement trust, see "Summary—Partnership Units."

    Change in Nature of Investment.    Your partnership currently owns between three and ten properties, either in whole or in part through a joint venture. If the merger is completed, we will initially own thirty-two properties whose performance has varied since the properties were acquired by the partnerships and the NTS Private Group. Thus, if your partnership owns properties that have performed well since their acquisition, your investment in our partnership may be negatively affected by the merger because we will own certain properties that have not performed as well. In addition, the partnership agreements for each partnership do not permit the proceeds from property sales or refinancing of existing debt to be reinvested in new properties. We will be permitted to reinvest sale or refinancing proceeds in new properties, which may reduce the distributions made to you.

Alternatives to The Merger (p. 69)

        In determining whether to propose and recommend the merger, your general partner considered two alternatives to the merger:

    selling all of the properties and liquidating the partnership; and

    continuing and operating the partnership independently.

        Liquidating Each Partnership.    The first alternative considered by your general partner was selling the assets of your partnership in bulk or over a short period of time, repaying all of its liabilities, and distributing the net proceeds to the general and limited partners in accordance with the liquidation provisions of your partnership agreement. The primary benefit of this strategy is that the partners of your partnership would receive a cash distribution after the properties were sold and all liabilities repaid. For purposes of this analysis, your general partner assumed the liquidation could be completed in one year. Thus, your partnership would be dissolved and limited partners would not be subject to the risks associated with continuing to own real estate. In evaluating this strategy, your general partner noted that selling the properties in an orderly liquidation likely would result, in your general partner's view, in reduced prices for the properties. Many of the properties are located in and around Louisville, Kentucky. The general partner of each partnership does not believe that demand for properties in the Louisville market is sufficient to absorb the increased supply from selling all of the properties owned by the partnerships without discounting the selling price of the properties or extending the time period for selling properties. Extending the time period also would increase the expenses paid by each partnership while liquidating. For purposes of this analysis, however, none of the general partners discounted the cash generated by selling the properties for this factor. Second, your general partner noted that your partnership would be required to pay significant prepayment penalties associated with repaying debt before its maturity. Third, although the estimates of liquidation value did not include a charge for sales commissions, the general partner of certain of the partnerships would be entitled to a sales commission totaling the lesser of three percent (3%) of the gross proceeds from the sale of each property or fifty percent (50%) of the customary commission in the market. If the properties were sold at their appraised value, the general partners estimate that their aggregate sales commissions would be approximately $1.35 million. If the general partners were forced to discount the sales price of the properties located in the Louisville market as they believe would be necessary to accommodate their timely sale in a liquidation scenario, the general partners estimate that the aggregate sales commission would be approximately $1.19 million. See "Fairness—Comparison of Merger with Alternatives." The merger does not trigger these prepayment penalties and the general partners have waived any sales

10


commissions to which they otherwise may be entitled as a result of the merger. Finally, if the class action litigation were not resolved by the time all of the assets were sold, the time period needed to dissolve the entity could be lengthened and your general partner likely would establish a reserve to account for its obligation to cause your partnership to indemnify your general partner, which would reduce the proceeds available to be distributed to the partners.

        Continuing Each Partnership.    The second alternative considered by your general partner was to continue your partnership as a stand alone entity. Your general partner noted that continuing your partnership without undertaking the merger would have the following benefits: (1) your partnership would remain a separate entity with its own assets, subject to its liabilities, pursuing its investment objectives in accordance with its partnership agreement; (2) your partnership's performance would not be affected by the performance of the other partnerships; (3) there would be no change in the nature of any limited partner's investment; and (4) the limited partners would continue to be entitled to any preferences in distributing operating cash flow, to the extent the preference has not already been paid. If your partnership did continue as a stand alone entity, your general partner may also have been entitled to certain preferences. The supplement for your partnership details these preferences, if any, including any preferences owed to your general partner.

        In your general partner's view, maintaining the partnerships as separate entities, however, would have the following disadvantages: (1) the limited partner interests would continue to be illiquid due to the lack of an established secondary market; (2) the partnerships would be unable to list their respective interests on the American Stock Exchange or any other national securities exchange because each partnership, by itself, is unable to satisfy the listing standards of any national securities exchange; (3) none of the partnerships would be likely to pay distributions in the foreseeable future; (4) the economies of scale expected to be realized from the merger, which our general partners estimate will result in annual cost savings of over $500,000 (based on the reduction in legal, accounting, auditing and tax preparation fees and the elimination of employees performing duplicative functions, but not including the costs associated with the merger), cannot be achieved by the partnerships; (5) each partnership would be more susceptible to the loss of a major tenant or the need for capital expenditures for a particular property; (6) the general partners may be entitled to preferences in operating cash flow or distributions that would provide them with a greater interest than they would be entitled to after the merger; and (7) each partnership would have a continuing requirement to provide indemnity to its general partner in connection with the class action litigation. In the view of each general partner, these detriments outweigh the potential benefits.

        To assist you in evaluating these alternatives, please review the supplement for your particular partnership. The supplement contains estimates of the present value of your investment if your partnership continues to operate without change and of the present value of the net liquidation proceeds that might be available if your partnership was liquidated. The methodology and assumptions used to determine these estimated values are explained in the supplements.

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        The following table summarizes the comparison of these alternatives:

 
  Estimated
Liquidation
Value(1)

  Estimated
Going
Concern
Value(2)

  Net
Asset
Value

 
  (Per $1,00 Investment)(3)

NTS-III   $ 789   $ 812   $ 835
NTS-IV   $ 690   $ 673   $ 729
NTS-V   $ 463   $ 461   $ 507
NTS-VI   $ 884   $ 1,014   $ 1,015
NTS-VII   $ 823   $ 841   $ 895

(1)
Your general partner determined the estimated liquidation values by assuming that the real estate assets of each entity were sold at the appraised value as determined by CBRE. The calculation of the estimated liquidation value for your partnership is set forth in the supplement for your partnership under the heading "NTS Units Allocated to Your Partnership." For purposes of this analysis, the general partners did not discount the values of the properties to account for the significant concentration of the properties in or near Louisville, Kentucky.

(2)
Your general partner determined the estimated going concern value by estimating cash flow to be generated over a ten-year period, assuming the properties were sold in year ten of the analysis and applying a range of discount rates to the cash flow.

(3)
We have used the measure of per $1,000 of investment because that was the original per interest investment amount for each partnership except NTS-VII. We have converted NTS-VII's original investment amount of $20.00 per interest to allow consistent comparison.

Reasons the General Partners Believe the Merger is Fair (p. 67)

        The general partner of each partnership believes that the merger is fair, when considered as a whole, to the limited partners of their respective partnership for the following principal reasons:

    The terms and conditions of the merger, including the terms of our partnership agreement, were negotiated with plaintiffs' counsel representing, among others, the limited partners. On May 6, 2004, the court in which the Buchanan litigation is pending approved the settlement agreement and the transactions contemplated thereby, including the merger, as fair, reasonable, adequate and in the best interest of the class of plaintiffs.

    Houlihan, an independent third party, has delivered a fairness opinion to the general partners. Houlihan considered net asset values calculated as of September 30, 2003, in issuing its fairness opinion. Although the net asset values will not be the same at the time the merger is approved and completed because of, among other things, the continued repayment of mortgage debt by the partnerships and ORIG, the methodology used in determining the net asset values will remain unchanged. For more information on Houlihan's fairness opinion, see "Fairness—Material Factors Underlying Belief as to Fairness."

    All of the real estate assets were appraised by CBRE, an independent third party. For more information on the appraisals, see "Fairness—Material Factors Underlying Belief as to Fairness."

    The economic interests of each general partner and the limited partners are aligned because affiliates of each general partner own a substantial number of the limited partnership interests in each partnership. The general partners and their affiliates, however, may have a conflict of interest in recommending the merger because, if approved, the merger would relieve the general partners and their affiliates of liabilities related to the class action litigation to which they may otherwise be subject and the merger will provide that an affiliate of the general partners, NTS

12


      Development Company, will continue to be employed by and receive property management fees from us for at least one year. In addition, the general partners and their affiliates negotiated the terms of the private entity restructuring and the contribution agreement with ORIG, and negotiated the merger agreement among the partnerships with plaintiffs' counsel. Finally, affiliates of our general partners will increase their ownership percentage from between approximately 41% and 48% of the interests in each of the partnerships to 57.18% of our Units, thereby having control over any matter to be voted upon by the limited partners.

    The Units are being allocated between the general and limited partners on the same basis that liquidation proceeds would be allocated among these partners.

    There are no significant adverse changes in the limited partners' rights to vote and receive distributions or in each partnership's investment objectives and polices. In exchange for contributing twelve additional properties and four joint venture interests to us in the merger, however, affiliates of our general partners will increase their ownership percentage from between approximately 41% and 48% of the interests in each of the partnerships to 57.18% of our Units (including the Units that will be voted by plaintiffs' counsel on behalf of the qualified settlement trust and those Units owned by NTS Realty Partners that are not entitled to vote). The economic and other rights to up to 620,000 of these Units, however, will be designated for the benefit of the qualified settlement trust and plaintiffs' counsel will have the right to vote these Units until they are redesignated in accordance with the terms of the settlement agreement. Therefore, affiliates of our general partners will not be able to vote those Units for up to two years after the date on which we make our first distribution of our net cash flow from operations. For more information on the qualified settlement trust, see "Summary—Partnership Units." In addition, pursuant to our partnership agreement, our general partners will not be entitled to vote the Units they own. For more information on the number of Units that affiliates of our general partners will control immediately after the merger, see "Summary—Partnership Units."

    The general partners of the partnerships have waived any sales commissions (where applicable) to which they otherwise might have been entitled in connection with the sale of the properties and the liquidation of your partnership. Although the general partners also could waive the sales commissions if the partnerships liquidate or continue as going concerns, the general partners are not under any legal obligation and do not intend to do so. The general partners of the partnerships do not believe their decision to waive the sales commissions in the proposed merger has any effect on their determination that the merger is fair, when considered as a whole, to the limited partners.

    The potential benefits of the merger outweigh the potential benefits of the alternatives. For example, our larger asset and equity base should allow us to refinance our debt on more favorable terms than would be available to an individual partnership. In addition, our general partners estimate that we will achieve cost savings of over $500,000 because of economies of scale not available to the partnerships. Our general partners considered the reduction of legal, accounting, auditing and tax preparation fees, postage expense and the elimination of employees performing duplicative functions in calculating the cost savings. The general partners did not consider the one-time costs associated with the merger in calculating the estimated annual cost savings because the cost savings should be realized on a going-forward basis. The general partners calculated their estimate of the savings after reviewing the costs currently incurred by each partnership and discussing with certain vendors and service providers the effect of merging the partnerships into one entity. If we are able to refinance a portion of our debt and achieve the anticipated cost savings related to economies of scale, we should create net cash flow from operations from which to make distributions. The partnerships have suspended making distributions to their limited partners. For a comparison of the return you would receive from an

13


      original investment of $1,000 in any of the partnerships in a liquidation, going concern or merger scenario, see "Summary—Alternatives to the Merger."

        In determining the allocation of units, the general partners of the partnerships will use final net asset values which will be determined no more than ten days after the general partner of each partnership issues a joint press release or files a report on Form 8-K announcing receipt of the necessary consents of the limited partners to approve the merger. The closing of the merger will take place on the fifth business day after the satisfaction or waiver of all the conditions set forth in the merger agreement. Because final net asset values will not have been determined when you vote "For" or "Against" the merger, you will not know the exact number of Units which will be allocated to your partnership and, ultimately, to you. We cannot estimate the final net asset values because the date on which we will determine the final net asset values has not been set. As the partnerships, ORIG and the NTS Private Group continue to make regular payments on their mortgage and other indebtedness prior to the date the net asset values are determined, the net asset values will continue to change. This does not, however, affect the fairness of the transaction because the methods for allocating Units to your partnership and to you will not change between now and the closing of the merger.

Fairness Opinion and Valuation (p. 85)

        As part of the settlement of the class action litigation, the general partners, with the consent of plaintiffs' counsel, retained Houlihan, an independent unaffiliated third-party, to deliver a fairness opinion. Houlihan's opinion, which is subject to certain qualifications and limitations set forth in the opinion, includes the allocation of Units among the parties to the merger and the allocation within each partnership between the general partner and the limited partners.

        In issuing its fairness opinion, Houlihan used net asset value calculations determined as of September 30, 2003, and issued its opinion based on the net asset values determined as of September 30, 2003. As noted above, the final net asset values will differ from the net asset values used by Houlihan. The general partners will ask CBRE to update its appraisals prior to completing the merger if the general partners believe that events have occurred or conditions have changed that would have a material impact on the value of the properties that were appraised. Under any circumstances, a material change will be deemed to have occurred if the aggregate occupancy rate of the properties changes by more than ten percent (10%) or the aggregate rental income generated by the properties changes by more than five percent (5%), based on quarterly comparisons to the results for the quarter ended September 30, 2003. The aggregate rental income is the sum of the rental income generated by the properties and the amount of tenant reimbursements made with respect to the properties. The general partners may determine not to request an updated fairness opinion from Houlihan. The general partners anticipate that they will request that Houlihan update its fairness opinion only if CBRE's appraisals are updated. The final net asset values will be calculated by the general partners using the same methodology opined upon by Houlihan. The table below illustrates the change in aggregate occupancy rate and percentage change in aggregate rental income generated by the properties in each quarter since September 30, 2003.

Quarter

  Aggregate
Rental Income

  Percentage Change
in Rental Income
Since 09/30/03(1)

  Aggregate Occupancy
Percentage

 
September 30, 2003   $ 8,475,231   N/A   85.36 %
December 31, 2003     8,564,182   1.28 % 85.19 %
March 31, 2004     8,289,632   2.19 % 84.91 %
June 30, 2004     8,362,969   1.32 % 85.36 %

(1)
The general partners do not expect the proposed refinancing of debt to cause a material percentage change in the aggregate rental income generated by the properties. The proposed

14


    refinancing will have no effect on the current appraisal values of the properties or the allocation of Units in the merger. For more information on the proposed refinancing, see "Summary Indebtedness."

        Although the general partners cannot currently determine the exact number of Units that each partnership and ORIG will receive if the merger is completed on any date except June 30, 2004, the number of Units will not differ materially from what each entity would have received if the merger were completed as of September 30, 2003. The tables set forth below compare the net asset value of each entity, the number of Units to be received by each entity in the merger and the percentage of the total number of Units that each entity will receive if the merger was completed as of September 30, 2003, March 31, 2004, June 30, 2004, September 30, 2004 and December 31, 2004. The tables assume that the only variable in determining each entity's net asset value is the amount of outstanding mortgage debt and notes payable at the time each calculation is made. The table also does not take into account the fact that the terms of the merger require that the number of Units to be received by each partnership be determined on the partner level, rounding the number of Units to be received by each partner to the nearest whole Unit and causing the number of Units to be received by each partnership not to be exactly equal to one-tenth of the partnership's net asset value. Each entity intends to continue to make regular payments in connection with its debt. The other variables remain constant as of June 30, 2004.

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September 30, 2003

  Net Asset Value
  No. of Units Allocated
  Percentage of
Total Units Allocated

 
NTS-III   $ 14,181,281   1,418,128   12.41 %
NTS-IV     17,409,665   1,740,967   15.24 %
NTS-V     15,846,160   1,584,616   13.87 %
NTS-VI     41,806,014   4,180,601   36.60 %
NTS-VII     10,147,396   1,014,740   8.88 %
ORIG     14,854,845   1,485,484   13.00 %
March 31, 2004

  Net Asset Value
  No. of Units Allocated
  Percentage of
Total Units Allocated

 
NTS-III   $ 14,322,143   1,432,214   12.29 %
NTS-IV     17,666,401   1,766,640   15.16 %
NTS-V     15,681,461   1,568,146   13.46 %
NTS-VI     42,182,409   4,218,241   36.21 %
NTS-VII     10,188,456   1,018,846   8.75 %
ORIG     16,459,337   1,645,934   14.13 %
June 30, 2004

  Net Asset Value
  No. of Units Allocated
  Percentage of
Total Units Allocated

 
NTS-III   $ 14,521,528   1,452,167   12.35 %
NTS-IV     17,756,775   1,755,780   15.11 %
NTS-V     15,593,618   1,559,294   13.27 %
NTS-VI     42,364,037   4,236,131   36.05 %
NTS-VII     10,231,148   1,023,091   8.71 %
ORIG     17,054,960   1,705,496   14.51 %
September 30, 2004

  Net Asset Value
  No. of Units Allocated
  Percentage of
Total Units Allocated

 
NTS-III   $ 14,543,215   1,454,322   11.98 %
NTS-IV     18,129,867   1,812,987   14.94 %
NTS-V     16,073,779   1,607,378   13.24 %
NTS-VI     43,284,235   4,328,424   35.67 %
NTS-VII     10,361,464   1,036,146   8.54 %
ORIG     18,966,712   1,896,671   15.63 %
December 31, 2004

  Net Asset Value
  No. of Units Allocated
  Percentage of
Total Units Allocated

 
NTS-III   $ 14,665,850   1,466,585   11.81 %
NTS-IV     18,305,955   1,830,596   14.74 %
NTS-V     17,151,867   1,715,187   13.82 %
NTS-VI     43,855,420   4,385,542   35.33 %
NTS-VII     10,451,234   1,045,123   8.42 %
ORIG     19,712,966   1,971,297   15.88 %

        The text of Houlihan's fairness opinion is attached as Appendix A to this joint consent/prospectus. You should read Houlihan's opinion in its entirety. See also "Risk Factors—Houlihan's opinion relies on information provided by your general partner and its affiliates. This opinion may not be updated."

        Houlihan did not express any opinion as to:

    the impact of the merger;

    the tax consequences of the merger on the limited partners, the general partners or the partnerships;

    our potential capital structure or its impact on the financial performance of the Units;

16


    the potential impact on the fairness of the allocations of any subsequently discovered environmental or contingent liabilities;

    whether or not alternative methods of determining the allocation of Units to be issued would have also provided fair results or results substantially similar to the methodology used by the general partners;

    the impact, if any, on the trading price of the Units resulting from the decision of limited partners to sell the Units in the market following the closing of the merger;

    the business decision to effect the merger or alternatives to the merger; and

    the number of Units owned by affiliates of the general partner and their ability to influence voting decisions.

Real Estate Appraisals (p. 91)

        Also as part of the settlement, the general partners and ORIG, with the consent of plaintiffs' counsel, retained CBRE, an independent third party, to appraise all of the real properties that we will acquire if the merger is completed, including the properties owned by the NTS Private Group that will be contributed by ORIG. The appraisals were prepared on a limited scope basis utilizing the income approach to valuation. The income approach posits that the value of a property is represented by the present value of the cash flows projected to be generated by the property. These projected cash flows are discounted to present value using a discount rate reflecting the return that, in CBRE's opinion, a third party investor would require from investing in the properties. The sum of these discounted cash flows equals the present value or price at which the property would trade hands between a willing buyer and willing seller. In performing the appraisals, CBRE conducted those investigations and inquiries that it deemed appropriate to estimate value and made assumptions and identified qualifications and limitations that it considered necessary to its findings. The portfolio appraisal represents CBRE's opinion of the estimated value of the properties as of June 1, 2003. These appraisals do not necessarily reflect the sales price that would be realized for any one property or group of properties. Actual sales prices could be higher or lower than appraised value.

Entity

  Real Estate
Portfolio Value
Conclusion

 
NTS-III   $ 20,350,000  
NTS-IV     22,177,295 (1)
NTS-V     27,559,265 (2)
NTS-VI     74,092,510 (3)
NTS-VII     13,740,090 (4)
ORIG     67,096,140 (5)
   
 
Total   $ 225,015,300  

(1)
This amount includes a pro rata amount of the value from each of the following joint venture interests: (1) 4.96% in Plainview Point Office Center Phase III; (2) 29.61% in Blankenbaker Business Center 1A; (3) 10.92% in each of Lakeshore Business Centers, Phases, I, II and III; (4) 9.7% in The Willows of Plainview Phase II; and (5) 3.97% in Golf Brook Apartments.

(2)
This amount includes a pro rata amount of the value from each of the following joint venture interests: (1) 81.19% in each of Lakeshore Business Centers, Phases I, II and III, and (2) 90.30% in The Willows of Plainview Phase II.

(3)
This amount includes a pro rata amount of the value from each of the following joint venture interests: (1) 96.03% in Golf Brook Apartments and (2) 95.04% in Plainview Point Office Center Phase III.

17


(4)
This amount included a pro rata amount of the value from a 31.34% joint venture interest in Blankenbaker Business Center 1A.

(5)
This amount includes a pro rata amount of the value from each of the following joint venture interests: (1) 39.05% in Blankenbaker Business Center 1A and (2) 7.69% in each of Lakeshore Business Centers, Phases I, II and III.

Amendments to Partnership Agreements (p. 117)

        The partnership agreements for NTS-III and NTS-IV must be amended in certain respects to permit the merger. For example, NTS-III is governed by the Georgia Uniform Limited Partnership Act. This Act does not contain provisions governing merger transactions. NTS-III's agreement must, therefore, be amended to make the partnership subject to the Georgia Revised Uniform Limited Partnership Act. This revised act provides the necessary statutory authority for a merger. Similarly, the partnership agreement of NTS-IV must be amended to make that partnership subject to the Kentucky Revised Uniform Limited Partnership Act. The supplement for each partnership describes in detail the required amendments to its respective partnership agreement. The affirmative vote of limited partners owning in excess of fifty percent (50%) of the outstanding limited partnership interests in each of NTS-III and NTS-IV is required to approve the amendments, the same vote as required to approve the merger.

Terms of the Merger (p. 50)

        Conditions.    The merger is not subject to any federal or state regulatory approval requirements other than complying with federal and state securities laws in connection with the issuance of the Units. The merger, however, is subject to the following conditions:

    The limited partners holding in excess of fifty percent (50%) of the limited partner interests in each partnership must approve the merger;

    The Partnership Units must be approved for listing on the American Stock Exchange;

    There must not be any court order preventing the merger or that, in our review, has a material adverse effect on any party's ability to complete the merger or on its results of operations or financial condition;

    All regulatory approvals and all lender consents must have been received; and

    The merger and the contribution to us of substantially all of ORIG's assets and all of its liabilities to us must be completed by December 31, 2004.

        Net Asset Value/Allocation of Units.    On the "Determination Date," we will calculate each partnership's net asset value beginning with the total appraised value of each partnership's real estate as determined by CBRE. In the case of a property owned jointly with another partnership or entity, we will multiply the appraised value of the property by the partnership's percentage interest in the joint venture or entity. We will then add the book value of the other assets (excluding for these purposes straight-line rent receivables and prepaid leasing commissions), the payment to be made by NTS Development Company to each of the partnerships as described herein, and subtract the partnership's outstanding liabilities, including debt secured by the properties owned by the partnership, its share of any joint venture liabilities and any amounts paid to lenders to allow us to assume the entity's debt. For these purposes, the "Determination Date" will be a date not more than ten days after the date the general partner of each partnership issues a joint press release or files a report on Form 8-K announcing receipt of the necessary consents from limited partners to approve the merger. To determine the amount of each entity's debt, we will request pay off letters from the relevant lender reflecting the absence of any defaults and the amount outstanding as of the last day of the month

18


immediately preceding the month in which the Determination Date occurs. During this time, the partnerships and ORIG will continue to repay indebtedness secured by their properties in accordance with the terms and conditions of their respective loan agreements. We will determine the amount of other assets and liabilities by referring to the latest balance sheet filed by each partnership with the SEC before the Determination Date. We will compute ORIG's net asset value in the same manner. We will use the most recently available balance sheet for ORIG. Prior to the Determination Date, we will issue a press release, and each partnership will file a report on Form 8-K, announcing the net asset value for each partnership and ORIG and the number of Units to be allocated to each entity. The partnerships and ORIG do not plan to acquire or sell any properties prior to the Determination Date and we do not expect the assets or liabilities of the partnerships and ORIG to change significantly, other than the reduction of their outstanding indebtedness in connection with the regular repayment of mortgage and other debt in the normal course of business.

        To allocate the Units among ORIG and the partners of the partnerships, we will divide ORIG's net asset value by $10.00, and we will divide the net asset value distributable to each partner under the terms of each partnership agreement by $10.00. In each case, the number of Units delivered will be increased or decreased by rounding to the nearest whole Unit. We estimated a per Unit value of $10.00. This estimated $10.00 value should not be viewed as a measure of the fair market value or trading price of the Units. The Units will be allocated among the general partner and the limited partners of each partnership in accordance with the liquidation provisions of the partnership's partnership agreement. The partnership agreements of NTS-III and NTS-IV require liquidation proceeds to be distributed in the same manner as the proceeds from a sale or refinancing of properties. The partnership agreements of NTS-V, NTS-VI and NTS-VII require liquidation proceeds to be allocated in accordance with the relative capital account balances of the partners after adjusting for any "built in" gain (or "built in" loss) in the assets for tax purposes.

        The following table sets forth, assuming the Determination Date was June 30, 2004:

    the net asset value of each partnership and ORIG;

    the number of Units that would be issued to each partnership and ORIG;

    the value of the Units you would receive for each $1,000 of your original investment; and

    the number of Units per $1,000 of your original investment.

        The actual net asset value calculated on the Determination Date for each partnership and ORIG likely will be different than illustrated below because:

    each entity will continue repaying debt; and

    the other assets and liabilities for each entity likely will increase or decrease.

 
  Net Asset
Value

  Number of Units
Allocated

  Net Asset Value
per $1,000
Original Limited
Partner Investment

  Percentage of
Total Units
Allocated

  Number of Units per $1,000
Original Limited
Partner Investment

NTS-III   $ 14,521,528   1,452,167 (1) $ 835   12.35 % 83
NTS-IV   $ 17,756,775   1,775,780 (1) $ 729   15.11 % 73
NTS-V   $ 15,593,618   1,559,294 (1) $ 507   13.27 % 51
NTS-VI   $ 42,364,037   4,236,131 (1) $ 1,015   36.05 % 101
NTS-VII   $ 10,231,148   1,023,091 (1) $ 895   8.71 % 89
ORIG   $ 17,054,960   1,705,496     N/A   14.51 % N/A
   
 
       
   
Total:   $ 117,522,066   11,751,959     N/A   100.00 % N/A

(1)
The number of Units issued to each partnership is not equal to one-tenth of the net asset value of the partnership because the terms of the merger require Units to be determined at the limited partner level, with the Units awarded to each limited partner rounded to the nearest whole Unit.

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        How we calculated the net asset value per $1,000 original investment for each partnership.    We calculated the net asset value per $1,000 of original limited partner investment by dividing the total value of Units to be issued to the limited partners in the partnership (assuming a value of $10.00 per Unit) by the total original capital invested by the current limited partners (or their predecessors) in the partnership, and multiplying the quotient by 1,000. The supplement for each partnership illustrates the specific calculation of this value for the partnership. To determine the approximate value of the Units you will receive, multiply the figure in the last column, titled "Number of Units Per $1,000 Original Limited Partner Investment," by the amount of your original investment divided by $1,000.

        Why the Partnership Units may trade at prices below $10.00.    The net asset value of ORIG and the net asset value distributable to each partner will be divided by $10.00 (and rounded to the nearest whole Unit) to determine the number of Units to be issued in respect of each entity's net asset value. We estimated a per Unit value of $10.00. The market may not view the value of the Units in the same fashion. First, the $10.00 value represents a pro rata portion of each entity's net asset value. In the hands of each individual limited partner, unaffiliated with ORIG, each Unit will represent a minority interest in us. Minority interests typically trade at a discount to the net asset value of an entity as a whole. Second, the market might value our assets differently by, for example, applying higher discount rates to our cash flows than applied by CBRE in its appraisal. Third, downward pressure may be put on the trading price as a result of limited partners who choose to sell Units as soon as the merger is completed. Thus, the Partnership Units may trade below $10.00 per Unit and may never trade above $10.00 per Unit. See "Risk Factors—There is no prior market for the Partnership Units and the market price is likely to decline after the merger."

Indebtedness (p. 156)

        The table below sets forth the amount of mortgage indebtedness and notes payable owed by each partnership and ORIG that was outstanding as of June 30, 2004, assuming the private entity restructuring occurred as of that date. As a condition to the merger, we will require the consent of certain of the lenders to allow us to assume the debt. The actual amount of debt used in calculating net asset values likely may be greater or less than the amounts set forth below on the Determination Date:

Entity

  Mortgage Debt and Notes Payable
NTS-III   $ 6,090,708
NTS-IV     4,480,036
NTS-V     11,514,216
NTS-VI     30,786,510
NTS-VII     3,540,724
ORIG     49,631,129

        We have entered into a binding letter of intent with The Northwestern Mutual Life Insurance Company to refinance approximately $72.0 million of the mortgage debt on the following properties that we will acquire if the merger is completed: Golf Brook Apartments, Willow Lake Apartments, Park Place Apartments, Sabal Park Apartments and The Willows of Plainview Apartments. Because the terms of most of the partnerships' current debt would require us to pay significant prepayment penalties if we retire the debt before its maturity, we intend to refinance only the debt that does not have a prepayment penalty or where the prepayment penalty is not material or is outweighed by the benefit of the lower interest rates. The refinancing would occur simultaneously with the closing of the merger and would, among other things, lower the average interest rate on the debt from 6.8% to 6.0% and change the amortization schedule to thirty years from ten to fifteen years. If the merger and simultaneous refinancing of our properties occur based on the terms set forth in the letter of intent with Northwestern Mutual, the refinancing would allow us to reduce our annual principal and interest expense by approximately $6.7 million per year. For a discussion of our estimates on the effect of

20



refinancing certain of our properties, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Resources—Future Liquidity," as well as "Risk Factors—We may be unable to refinance a portion of the debt that we will assume if the merger is completed."

Voting (p. 193)

        You are being asked to vote "For" or "Against" the merger proposed by your general partner. If you own interests in more than one partnership, you will receive multiple copies of this joint consent/prospectus, as well as multiple supplements and consents. You must vote separately for each partnership in which you are an investor. If a majority of the limited partner interests in the partnerships approve the merger, you will receive Units as described herein unless you are a limited partner of NTS-V or NTS-VI and exercise your right to appraisal. If the merger is not approved by all of the partnerships, your general partner plans to continue to operate your partnership and its properties in accordance with its partnership agreement.

        Your consent must be received by 5:00 p.m. eastern time on December 27, 2004 unless your general partner extends the solicitation period which it may do in its sole discretion.

        If you do not submit a consent, or indicate on your consent that you abstain, you will be counted as having voted "Against" the merger. If you submit a properly signed consent but do not indicate how you wish to vote, you will be counted as having voted "For" the merger. You may withdraw or revoke your consent at any time before the general partners announce receipt of the required vote. You will be able to review the number of limited partnership interests for each partnership that have approved the merger by visiting www.ntsdevelopment.com, which will be updated regularly. As noted above, and described in the supplements for NTS-III and NTS-IV, limited partners of NTS-III and NTS-IV must vote separately on each of the amendments to their partnership's partnership agreement to permit the merger. If these amendments are not approved, the merger will not occur even if the merger receives the required number of votes.

        The chart below sets forth the number of each limited partnership interests in each partnership owned by ORIG and other entities affiliated with each general partner. These interests will be voted "For" the merger and each of the applicable amendments pursuant to the settlement agreement reached in connection with the class action litigation. If the merger is completed, the general partners, ORIG, Mr. Nichols and their affiliates will own 57.18% of the Units (including the Units that will be voted by plaintiffs' counsel on behalf of the settlement trust and those Units owned by NTS Realty Partners that are not entitled to vote). See "Conflicts of Interests—Substantial Benefits to General Partners and their Affiliates."

Partnership

  Number of Interests
  Percentage of Limited
Partner Interests

 
NTS-III   5,185 (1) 41.25 %
NTS-IV   10,703 (1) 44.39 %
NTS-V   14,566 (1) 47.72 %
NTS-VI   18,726 (1) 48.15 %
NTS-VII   226,306 (1) 40.98 %

(1)
The general partners of the partnership own five limited partner interests in each of the partnerships which are not reflected in this chart because the general limited partners have never received any economic rights in connection with these interests and will receive no consideration in the merger with respect to these interests.

21


Appraisal Rights in the Merger (p. 195)

        If you are a limited partner of NTS-V or NTS-VI, you may, under Maryland law, dissent from the merger and receive a cash payment equal to the fair value of your partnership interests instead of Units. To do so, you must follow certain procedures, including filing certain notices, refrain from voting your interests in favor of the merger and file an action in the Maryland courts. If you are a limited partner in NTS-V or NTS-VI, you will not be reminded or notified of the exact dates in which you must file certain notices in order to be eligible for dissenters' rights under Maryland law. If you return a signed consent but fail to provide instructions as to the manner in which your interests are to be voted, you will be deemed to have voted "For" the merger and will not be entitled to assert appraisal rights. If you pursue your appraisal rights, your interests will not be exchanged for Units. Your only right will be to receive the fair value of your interests in cash as determined by the Maryland court. See "Voting Procedures—Appraisal Rights." Limited partners of NTS-III, NTS-IV and NTS-VII do not have any appraisal rights.

Expenses of the Merger (p. 83)

        Pursuant to the settlement agreement reached in connection with the class action litigation, each partnership and ORIG is bearing a share of the fees and expenses associated with the merger, including fees and expenses of Houlihan and CBRE, legal, accounting, printing, mailing and any other costs associated with the merger. Each partnership is paying the fees and expenses with funds generated from property operations or from available cash. In addition, NTS Development Company has agreed to defer the payment of certain fees and expenses it has earned or is entitled to be reimbursed as the manager of the partnerships' properties. These deferred fees and expenses are not currently accruing interest. ORIG is paying its share of the fees and expenses with funds provided by additional capital contributions by Mr. Nichols and from a bank loan. The table below sets forth the percentage portion of the merger expenses that each of the partnerships and ORIG will pay, as well as the amount of merger expenses paid by each entity through June 30, 2004.

Entity

  Payment Percentage
  Amount of Merger Expenses
Paid Through
June 30, 2004(1)

NTS-III   9 % $ 202,757
NTS-IV   16 %   378,829
NTS-V   21 %   481,188
NTS-VI   27 %   615,736
NTS-VII   7 %   172,168
ORIG(2)   20 %   461,935
   
 
Total   100 % $ 2,312,613

(1)
The fees and expenses of CBRE have been allocated among the partnerships based on the appraised value of the properties owned by each partnership.

(2)
Includes only the percentage of expenses paid directly by ORIG pursuant to the settlement agreement in connection with the class action litigation.

        If the merger is not approved, the general partner of each partnership will pay a portion of all merger expenses equal to the percentage of limited partner interests voting against the merger in its partnership. To the extent the partnership has already paid these expenses, the general partner will reimburse the partnership. Your general partner will bear your partnership's share of all of the "solicitation expenses" incurred if the merger is not approved. For these purposes, solicitation expenses mean all direct marketing expenses (such as telephone calls, broker-dealer fact sheets, legal and other fees related to the solicitation) and compensation paid to broker-dealers in connection with the merger.

22


Your Right to Investor Lists and to Communicate with Other Limited Partners (p. 192)

        Upon written request from you, the general partner of your partnership will deliver the following information to you:

    a statement of the approximate number of limited partners in your partnership; and

    the estimated cost of mailing a consent or proxy statement, form of consent or proxy or other similar communication to those limited partners.

        You have the right, at your option, either to:

    have your partnership mail copies of any consent or proxy statement, consent form or proxy or other soliciting material furnished by you at your expense to any of your partnership's limited partners that you designate; or

    have your partnership deliver to you at your expense, within five business days of when your general partner receives your request, a reasonably current list of the names, addresses and number of interests held by the limited partners in your partnership.

Conflicts of Interest (p. 110)

        General Partners and Affiliates.    Certain of the general partners and their affiliates, including ORIG, are defendants in the class action litigation and negotiated the settlement with plaintiffs' counsel. Each of these parties and their respective owners may receive certain benefits from the merger and the settlement. Thus, your general partner may have a conflict of interest in recommending that limited partners approve the merger, including:

    The general partners, ORIG, Messrs. Nichols, Lavin, Wells and Mitchell and Mrs. Nichols will be relieved of all of the potential liability associated with the claims raised in the class action litigation, including liabilities for any amounts advanced which were subject to being repaid if a court had found indemnification of these amounts improper.

    We will assume all of the debt owed by ORIG, including the debt of the NTS Private Group, which totals $49,631,129 as of June 30, 2004. Mr. Nichols controls ORIG and each of the entities comprising the NTS Private Group. ORIG will be released from any obligation to pay this debt, but Messrs. Nichols and Lavin will continue to guarantee payment of approximately $13.4 million of indebtedness pursuant to a written agreement with a third-party lender. The third-party lender will determine whether to proceed against Messrs. Nichols and Lavin with respect to the enforcement of their guarantee.

    NTS Development Company will continue to manage the properties and receive a fee for doing so. Mr. Nichols controls NTS Development Company. We estimate that we will pay NTS Development Company approximately $5.7 million in fees and expenses during the first twelve months after the merger is completed. For more information on the management fee to be received by NTS Development Company, see "Related Party Transactions—Management Agreement with NTS Development."

    Messrs. Nichols, Lavin and Wells will serve as officers or directors of our general partners.

23


        The table below illustrates the number of interests that ORIG, Mr. Nichols, Mr. Lavin and the applicable general partner owns in each partnership before the merger and the number of Units each will own if the merger is completed.

 
  NTS-III
  NTS-IV
  NTS-V
  NTS-VI
  NTS-VII
  NTS
REALTY

 
ORIG   4,602   10,377   11,934   18,293   218,772   5,699,758 (1)
Mr. Nichols   583 (2) 326 (2) 2,632 (2) 433 (2) 7,534 (2) 6,719,249 (3)
Mr. Lavin              
General Partner(4)   5 (5) 5 (5) 5 (5) 5 (5) 5 (5) 756,099 (5)
Aggregate Number of Interests   5,185   10,703   14,566   18,726   226,306   6,719,249  
Aggregate Percentage Ownership   41.25 % 44.39 % 47.72 % 48.15 % 40.98 % 57.18 %

(1)
ORIG will receive 3,994,262 Units in the merger and an additional 1,705,496 Units in exchange for the contribution of substantially all of its assets and liabilities, including the economic and other rights associated with up to 620,000 Units that will be designated under ORIG's operating agreement for the benefit of the qualified settlement trust upon completion of the merger. Although ORIG will own the Units after the merger, plaintiffs' counsel or his designee will have the right to vote the Units. Further, all distributions in respect of these designated Units will be made to the qualified settlement trust. These Units will be redesignated within two years of the merger to allow ORIG to vote the Units and other members of ORIG to receive distributions in respect of the Units. For more information on how the Units will be redesignated, see "Summary—Partnership Units." Currently Mr. Nichols beneficially owns 75% of ORIG's membership interests and Mr. Lavin owns the remaining 25% of the membership interests.

(2)
Includes interests owned by Mr. Nichols, his immediate family, and entities (other than ORIG and the applicable general partner) that are wholly owned or controlled by Mr. Nichols or his immediate family.

(3)
As ORIG's manager, Mr. Nichols will have the right to vote all of ORIG's 5,699,758 Units, except for up to 620,000 Units that may be voted by plaintiffs' counsel for up to two years. In addition, Mr. Nichols will own beneficially the 756,099 Units that will be issued to NTS Realty Partners, as well as 263,392 Units that will be issued to him, his immediate family or entities controlled by them in exchange for their interests in the partnerships.

(4)
Represents the applicable general partner of each partnership.

(5)
The general partners own five limited partner interests in each of the partnerships which are not reflected in this chart because the general partners have never received any economic rights in connection with these interests and will receive no consideration in the merger with respect to these interests. The general partners will receive 756,099 Units in the merger pursuant to distribution rights in the liquidation provisions of the partnership agreements. Pursuant to the terms of our partnership agreement, NTS Realty Partners, the holder of these Units, will not be entitled to vote them.

        The properties we are acquiring from ORIG were purchased, or constructed, and improved by affiliates of our general partners at a total aggregate cost of approximately $55.5 million. The aggregate appraisal value of these properties is approximately $63.1 million. ORIG, which is acquiring Units based on the $63.1 million appraised value in exchange for these properties, is receiving the benefit of this $7.6 million difference. By virtue of their respective ownership interests in some or all of the entities comprising the NTS Private Group, Mr. Nichols will receive the benefit from approximately $5.7 million of the aggregate difference and Mr. Lavin will receive the benefit from approximately $1.9 million.

24



        The general partners have waived any sales commissions to which they otherwise may be entitled as a result of the merger and they will not receive any other fees as a result of the merger or contribution of assets and liabilities by ORIG to us.

Distribution Policy (p. 188)

        The partnerships have suspended making distributions to their respective limited partners because of insufficient cash flow after expenditures for debt service and capital improvements to their properties and the establishment of reasonable reserves. However, due in part to increased cash flows resulting from acquiring the properties owned by the NTS Private Group, the impact of refinancing the debt described herein and the cost savings from efficiencies resulting from economies of scale, we intend to begin paying distributions on a quarterly basis beginning with the first full quarter after completing the merger. The amount of each distribution will be determined by NTS Realty Capital; provided that, as part of the settlement, we have agreed that these distributions can be no less than sixty-five percent (65%) of our "net cash flow from operations" each quarter as this term is defined in regulations promulgated by the Treasury Department under the Internal Revenue Code of 1986, as amended; provided that if a law is enacted or existing law is modified or interpreted in a manner that subjects NTS Realty to taxation as a corporation or otherwise subjects NTS Realty to entity-level taxation for federal, state or local income tax purposes, NTS Realty will adjust the amount distributed to reflect the obligation of NTS Realty to pay tax. There is no assurance, however, that we will have net cash flow from operations in the future from which to make distributions. For example, our partnership agreement permits our managing general partner to reinvest sales or refinancing proceeds in new and existing properties or to create reserves to fund future capital expenditures. Because net cash flow from operations is calculated after reinvesting sales or refinancing proceeds or establishing reserves, we may not have any net cash flow from operations from which to pay distributions.

        Any distribution other than a distribution with respect to the final quarter of a calendar year shall be made no later than forty-five (45) days after the last day of such quarter based on an estimate of NTS Realty's "net cash flow from operations" for the year. Any distribution with respect to the final quarter of a calendar year shall be made no later than ninety (90) days after the last day of such quarter based on actual "net cash flow from operations" for the year, adjusted for any excess or insufficient distributions made with respect to the first three quarters of the calendar year. We intend to pay our first distribution of at least sixty-five percent (65%) of our "net cash flow from operations" commencing with the first full calendar quarter after completing the merger. For these purposes, "net cash flow from operations" means our taxable income or loss, increased by:

    tax exempt interest;

    depreciation;

    amortization;

    cost recovery allowances; and

    other noncash charges deducted in determining taxable income or loss,

and decreased by:

    principal payments on indebtedness;

    property replacement or reserves actually established;

    capital expenditures when made other than from reserves or from borrowings, the proceeds of which are not included in operating cash flow; and

    any other cash expenditures not deducted in determining taxable income or loss.

25


        On a combined historical basis, without giving effect to any of the benefits of the merger and a refinancing of certain of our debt, we would have had negative net cash flow for each of the years ended December 31, 2003, 2002 and 2001, of approximately $6.7 million, $4.8 million and $5.3 million, respectively. Therefore, we would not have made any distributions during this period. After giving effect to the expected benefits of the merger and the refinancing of certain of our debt, however, we estimate that our net cash flow for the years ended December 31, 2003, 2002 and 2001 would have been approximately $(0.9) million, $3.3 million and $1.5 million, respectively. Therefore, sixty-five percent (65%) of our net cash flow would have been approximately $(0.6) million, $2.1 million and $1.0 million, respectively, for the same periods. We will adopt a policy which prohibits us from acquiring any new properties at a capitalization rate less than five percent (5%). This policy also will require a majority of NTS Realty Capital's directors, including a majority of the independent directors, to approve any decision regarding reinvesting sales or refinancing proceeds.

        The historical net cash flows indicate the amount of cash that would have been available for distribution to the limited partners if the merger occurred in prior periods. Set forth below is a reconciliation of our historical net cash flows.

Historical Combined Tax Basis Distributable Cash Flow
($ In Millions)

 
  2003
  2002
  2001
 
Historical Combined Net Change in Cash   $ (1.8 ) $ (0.6 ) $ 0.2  
Adjustments to reconcile Historical Combined                    
Net Income (Loss):                    
  Cash Flow from Operating Activities     (9.3 )   (8.0 )   (9.3 )
  Cash Flow from Investing Activities     (2.5 )   2.2     3.3  
  Cash Flow from Financing Activities     12.4     6.0     5.3  
   
 
 
 
Historical Combined Net Income (Loss)     (1.2 )   (0.4 )   (0.5 )
Adjustments to reconcile Historical Combined Net Income (Loss) to Historical Combined Income (Loss) for tax: (A)     (0.8 )   0.4     0.2  
   
 
 
 

Historical Combined Income (Loss) for tax

 

 

(2.0

)

 

0.0

 

 

(0.3

)
Adjustments to reconcile Historical Combined Income (Loss) for tax to Historical Combined Tax Basis Distributable Cash Flow:                    
  Depreciation and amortization (tax) (B)     7.1     5.5     5.5  
  Principal payments on Mortgages and notes payable (C)     (8.1 )   (8.3 )   (7.6 )
  Capital expenditures (tax) (D)     (3.7 )   (2.0 )   (2.8 )
  Other             (0.1 )
   
 
 
 

Historical Combined Tax Basis Distributable Cash Flow

 

 

(6.7

)

 

(4.8

)

 

(5.3

)
Adjustments to reflect the estimated effect of the merger:                    
  Effect of refinancing mortgage debt (E)     6.6     6.6     6.6  
  Effect of cost savings, net (F)     0.3     0.3     0.3  
  Less historical capital contributions     (1.5 )       (0.2 )
  Add historical capital distributions     0.4     1.2     0.1  
   
 
 
 

Cash flow

 

 

(0.9

)

 

3.3

 

 

1.5

 
   
 
 
 

65% of cash flow

 

 

(0.6

)

 

2.1

 

 

1.0

 
   
 
 
 

26


NOTES:

A
The adjustments to reconcile Historical Combined Net Income (Loss) to Historical Combined Income (Loss) for tax were derived from the audited financial statements for the public partnerships and NTS Private Group.

B
The distribution formula requires adding back the depreciation and amortization for tax purposes to determine tax basis distributable cash flow. These amounts were derived from the tax return documents for the entities to be merged.

C
The distribution formula requires deducting principal payments on mortgages and notes payable, except for those payments made in connection with the repayment and subsequent refinancing of an obligation.

D
The distribution formula requires deducting capital expenditures in determining tax basis distributable cash flow. These amounts were derived from the tax return documents for the entities to be merged.

E
The anticipated refinancing to be completed at the time of the merger would have reduced our historical debt service by approximately $6.6 million per year as a result of extending the term of the refinanced debt to thirty years.

F
The cost savings anticipated as a result of the merger would have reduced historical expenses by approximately $533,000 due to economies of scale, while the additional annual costs of being an exchange traded public company would be approximately $233,000.

Accounting Treatment (p. 51)

        The merger will be accounted for using the purchase method of accounting in accordance with U.S. generally accepted accounting principles. Under this method, we will be treated as the purchasing entity. A portion of each partnership's assets and liabilities equal to the percentage of Units owned by limited partners, unaffiliated with our general partners, will be "stepped up" to reflect the fair market value of these assets. The remaining portion of the assets reflecting the percentage of Units owned by affiliates of the general partners, essentially ORIG, will be recorded at historical cost. The assets and liabilities contributed by NTS Private Group will be adjusted to reflect their fair market value, except for that portion owned by Mr. Nichols which will be reflected at historical cost due to his common control over the contributing entities.

Description of NTS Realty and the Partnerships (p. 154)

NTS Realty Holdings Limited Partnership

        We are a newly organized Delaware limited partnership. Our general partners are NTS Realty Capital and NTS Realty Partners. Our partnership agreement vests principal management discretion to NTS Realty Capital, our managing general partner. We are located at 10172 Linn Station Rd., Louisville, Kentucky 40223, and our phone number is (502) 426-4800. Our business will consist of owning and operating the properties acquired in the merger, as well as any new assets acquired after the merger. We will be characterized as a partnership for federal income tax purposes.

        Our business objectives are to:

    generate cash flow for distribution;

    obtain long-term capital gain on the sale of any properties;

    make new investments in properties or joint ventures, including by, directly or indirectly, developing new properties; and

27


    preserve and protect the limited partners' capital.

        Our acquisition and operating strategies are to:

    maintain a portfolio which is diversified by property type and to some degree by geographical location;

    invest in properties that we believe offer significant growth opportunities;

    achieve and maintain high occupancy and increase rental rates through: (1) implementing efficient leasing strategies and (2) providing quality maintenance and services to tenants;

    control operating expenses through operating efficiencies and economies of scale;

    attract and retain high quality tenants; and

    emphasize regular repair and capital improvement programs to enhance the properties' competitive advantages in their respective markets.

        We will have a policy of borrowing no more than seventy percent (70%) of the sum of: (1) the appraised value of our fully constructed properties and (2) the appraised value of our properties in the developmental stage as if those properties were completed and ninety-five percent (95%) leased. Our partnership agreement requires that the appraised value be based on an appraisal of the property that is prepared by a qualified independent appraiser no more than three years prior to the date on which the appraised value is used by us for any purpose. We do not have any limitation on the maximum amount of debt that may be borrowed to purchase or refinance any individual property.    

Background and History of the Partnerships and ORIG (p. 57)

        The partnerships were formed between 1982 and 1987 to invest in commercial and residential properties. Assuming the private entity restructuring is completed, ORIG will be the successor to twelve individual properties owned by the NTS Private Group and four properties that ORIG owns as part of a joint venture. The NTS Private Group is composed of entities that are owned by Mr. Nichols, members of his family or entities controlled by him. ORIG will contribute the properties from the NTS Private Group to us simultaneously with the closing of the merger. The NTS Private Group purchased, or constructed, and improved these properties at a total aggregate cost of approximately $55.5 million. The total aggregate appraisal value of these properties is approximately $63.1 million. ORIG, which is acquiring Units based on the $63.1 million appraised value in exchange for these properties is receiving the benefit of this approximately $7.6 million difference.

        As of June 30, 2004, the partnerships owned, in the aggregate, nine multifamily properties and eleven office and business center properties. Following the private entity restructuring, ORIG will own eight office and business center properties, plus interests as a joint venture partner with certain of the partnerships in four other office and business center properties. ORIG also will own three retail properties and one ground lease. The following tables set forth, for each partnership and ORIG, the type and location of properties, the square footage or number of units at each property, and the entity's ownership interest in each property. In ORIG's case, information is presented as though the private entity restructuring was completed on June 30, 2004. In each case, the charts include properties owned indirectly through joint ventures, with each entity's share of the revenue attributable to a particular joint venture property. For each joint venture property other than the ITT Parking Lot, the chart includes total square footage or number of units of that property. The chart includes the ITT Parking Lot's total number of parking spaces.

28



NTS-Properties III

Property

  Type of Property
  Location
  Total Square Footage or
No. of Units

  Ownership
Interest

NTS Center   Office Bldg.   Louisville, KY   115,600 sq. ft.   100.00%
Plainview Center   Office Bldg.   Louisville, KY   96,000 sq. ft.   100.00%
Peachtree Corp. Center   Business Center   Norcross, GA   191,300 sq. ft.   100.00%

NTS-Properties IV

Property

  Type of Property
  Location
  Total Square Footage or
No. of Units

  Ownership
Interest

Commonwealth Business Center Phase I   Business Center   Louisville, KY   83,600 sq. ft   100.00%
Blankenbaker Business Center 1A   Business Center   Louisville, KY   100,600 sq. ft.   29.61%(1)
Lakeshore Business Center Phase I   Business Center   Ft. Lauderdale, FL   104,100 sq. ft.   10.92%(2)
Lakeshore Business Center Phase II   Business Center   Ft. Lauderdale, FL   96,600 sq. ft.   10.92%(2)
Lakeshore Business Center Phase III   Business Center   Ft. Lauderdale, FL   38,900 sq. ft.   10.92%(2)
Plainview Point Office Center Phases I and II   Office Bldg.   Louisville, KY   57,000 sq. ft.   100.00%
Plainview Point Office Center Phase III   Office Bldg.   Louisville, KY   61,700 sq. ft.   4.96%(3)
The Willows of Plainview Phase I   Multifamily   Louisville, KY   118 units   100.00%
The Willows of Plainview Phase II   Multifamily   Louisville, KY   144 units   9.70%(4)
Golf Brook Apartments   Multifamily   Orlando, FL   195 units   3.97%(5)

(1)
Blankenbaker Business Center 1A also is owned by NTS-VII (31.34%) and ORIG (39.05%).

(2)
Each property also is owned by NTS-V (81.19%), ORIG (7.69%) and NTS/Ft. Lauderdale Ltd. (0.20%).

(3)
Plainview Point Office Center Phase III also is owned by NTS-VI (95.04%).

(4)
The Willows of Plainview Phase II also is owned by NTS-V (90.30%).

(5)
Golf Brook Apartments also are owned by NTS-VI (96.03%).


NTS-Properties V

Property

  Type of Property
  Location
  Total Square Footage or
No. of Units

  Ownership
Interest

Commonwealth Business Center Phase II   Business Center   Louisville, KY   65,700 sq. ft.   100.00%
Lakeshore Business Center Phase I   Business Center   Ft. Lauderdale, FL   104,100 sq. ft.   81.19%(1)
Lakeshore Business Center Phase II   Business Center   Ft. Lauderdale, FL   96,600 sq. ft.   81.19%(1)
Lakeshore Business Center Phase III   Business Center   Ft. Lauderdale, FL   38,900 sq. ft.   81.19%(1)
The Willows of Plainview Phase II   Multifamily   Louisville, KY   144 units   90.30%(2)

(1)
Each property also is owned by NTS-IV (10.92%), ORIG (7.69%) and NTS/Ft. Lauderdale Ltd. (0.20%).

(2)
The Willows of Plainview Phase II also is owned by NTS-IV (9.70%).


NTS-Properties VI

Property

  Type of Property
  Location
  Total Square Footage or
No. of Units

  Ownership
Interest

Park Place Apts. Phase I   Multifamily   Lexington, KY   180 units   100.00%
Park Place Apts. Phase III   Multifamily   Lexington, KY   152 units   100.00%
Willow Lake Apts.   Multifamily   Indianapolis, IN   207 units   100.00%
Sabal Park   Multifamily   Orlando, FL   162 units   100.00%
Golf Brook Apts.   Multifamily   Orlando, FL   195 units   96.03%(1)
Plainview Point Office Center Phase III   Office Bldg.   Louisville, KY   61,700 sq. ft.   95.04%(2)

(1)
Golf Brook Apartments also are owned by NTS-IV (3.97%).

(2)
Plainview Point Office Center Phase III also is owned by NTS-IV (4.96%).

29



NTS-Properties VII

Property

  Type of Property
  Location
  Total Square Footage or
No. of Units

  Ownership
Interest

Blankenbaker Business Center 1A   Business Center   Louisville, KY   100,600 sq. ft.   31.34%(1)
Park at the Willows   Multifamily   Louisville, KY   48 units   100.00%
Park Place Apts. Phase II   Multifamily   Lexington, KY   132 units   100.00%

(1)
Blankenbaker Business Center 1A also is owned by NTS-IV (29.61%) and ORIG (39.05%).

30



ORIG

Property

  Type of Property
  Location
  Total Square Footage or
No. of Units

  Ownership
Interest

 
Anthem Office Center   Office Bldg.   Louisville, KY   84,700 sq. ft.   100.00 %
Atrium Center   Office Bldg.   Louisville, KY   104,200 sq. ft.   100.00 %
Springs Medical Office Center   Office Bldg.   Louisville, KY   97,300 sq. ft.   100.00 %
Springs Office Center   Office Bldg.   Louisville, KY   125,300 sq. ft.   100.00 %
Sears Office Bldg.   Office Bldg.   Louisville, KY   66,900 sq. ft.   100.00 %
Blankenbaker Business Center 1B   Business Center   Louisville, KY   60,000 sq. ft.   100.00 %
Blankenbaker Business Center II   Business Center   Louisville, KY   75,300 sq. ft.   100.00 %
Clarke American   Business Center   Louisville, KY   50,000 sq. ft.   100.00 %
Bed, Bath & Beyond   Retail   Louisville, KY   35,000 sq. ft.   100.00 %
Outlets Mall   Retail   Louisville, KY   162,600 sq. ft.   100.00 %
Springs Station   Retail   Louisville, KY   12,000 sq. ft.   100.00 %
ITT Parking Lot   Ground Lease   Louisville, KY   120 spaces   100.00 %
Blankenbaker Business Center 1A   Business Center   Louisville, KY   100,600 sq. ft.   39.05 %(1)
Lakeshore Business Center Phase I   Business Center   Ft. Lauderdale, FL   104,100 sq. ft.   7.69 %(2)
Lakeshore Business Center Phase II   Business Center   Ft. Lauderdale, FL   96,600 sq. ft.   7.69 %(2)
Lakeshore Business Center Phase III   Business Center   Ft. Lauderdale, FL   38,900 sq. ft.   7.69 %(2)

(1)
Blankenbaker Business Center 1A also is owned by NTS-IV (29.61%) and NTS-VII (31.34%).

(2)
Each property also is owned by NTS-IV (10.92%), NTS-V (81.19%) and NTS/Ft. Lauderdale Ltd. (0.20%).

Description of Litigation (p. 52)

        The partnerships are involved in two related cases. The first case is a class action (hereinafter referred to as the "Buchanan litigation") filed on December 12, 2001, in the Superior Court of the State of California, County of Contra Costa, by three current limited partners (Morgan K. Buchanan, James P. Mills and Jesse L. Crews), on behalf of a class of current and former owners of interests in the partnerships. NTS-Properties Associates, NTS-Properties Associates IV, NTS-Properties Associates V, NTS-Properties Associates VI, NTS-Properties Associates VII, NTS Capital Corporation, NTS Development Company, ORIG, LLC, J.D. Nichols, Barbara Nichols and Brian Lavin were initially named as defendants. The plaintiffs assert claims arising out of the acts and course of conduct allegedly engaged in by the defendants in connection with the operation and management of the partnerships, including alleged breaches of fiduciary duty, aiding and abetting breaches of fiduciary duty, and conspiracy to breach fiduciary duty. In their prayer for relief, the plaintiffs seek, on their behalf and on behalf of the putative class, and in an unspecified amount, compensatory damages, pre-judgment interest, punitive and exemplary damages, attorneys' fees and costs of suit. The parties to this litigation entered into a Stipulation and Agreement of Settlement. On May 6, 2004, the Superior Court of California entered an order approving the settlement as fair, reasonable and adequate. On June 11, 2004, the parties who objected to the Superior Court's order approving the settlement filed a Notice of Appeal. The objectors' opening brief in the appeal is due October 22, 2004.

        The second case is a class action (hereinafter referred to as the "Bohm litigation") filed on February 27, 2003, in the Jefferson Circuit Court of the Commonwealth of Kentucky. The Bohm litigation was filed by two current limited partners (Joseph Bohm and Warren Heller) on behalf of a similar putative class. The plaintiffs in the Bohm litigation assert essentially the same claims against essentially the same defendants as in the Buchanan litigation. In their prayer for relief, the plaintiffs in the Bohm litigation seek, on their behalf and on behalf of the putative class, and in unspecified amounts, compensatory damages, punitive damages, pre-judgment and post-judgment interest, attorneys' fees and costs, and restitution. The plaintiffs in the Bohm litigation also seek the appointment of a receiver or liquidation trustee to wind-down the business of the partnerships, dissolution of the partnerships, imposition of a constructive trust and injunctive relief. In light of the settlement of the Buchanan litigation, however, the Jefferson Circuit Court instructed the plaintiffs in the Bohm litigation to amend their pleading to consider the settlement of the class claims and derivative claims, as well as the releases given to the defendants. Certain former plaintiffs in the Bohm litigation filed a Second Amended Complaint on July 23, 2004. On August 9, 2004, the plaintiffs filed a corrected Second Amended Complaint. In response, on September 16, 2004, the defendants filed a motion to strike the Second Amended Complaint. A hearing on this motion is scheduled for November 15, 2004.

31



Unaudited Summary Pro Forma
Consolidated Condensed Financial and Operating Data

        The unaudited summary pro forma consolidated condensed financial and operating data for the six months ended June 30, 2004 and for the year ended December 31, 2003 has been prepared to give pro forma effect to the Merger as if it occurred on January 1, 2003, with regard to the statement of operating data and at June 30, 2004 with respect to the balance sheet data. The unaudited summary pro forma consolidated condensed financial and operating data is for informational purposes only and should not be considered indicative of actual results that would have been achieved had the Merger been consummated on the dates indicated and does not purport to indicate balance sheet data or results of operations for any future period.

        The following data should be read in conjunction with "Unaudited Summary Historical Combined Condensed Financial and Operating Data," "Selected Unaudited Pro Forma Consolidated Condensed Financial and Operating Data," "Selected Unaudited Historical Combined Condensed Financial and Operating Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the financial statements and related notes thereto of the Partnerships, the NTS Private Group and ORIG included in or incorporated by reference elsewhere in this joint consent/prospectus.

 
  As of and for the
Six Months Ended
June 30,
2004

  For the
Year Ended
December 31,
2003

 
 
  (UNAUDITED)

  (UNAUDITED)

 
STATEMENT OF OPERATIONS DATA
             
  Rental income   $ 15,571,550   $ 32,032,451  
  Tenant reimbursements     1,184,048     2,371,880  
   
 
 
  TOTAL REVENUES     16,755,598     34,404,331  
  Operating expenses and operating expenses—affiliated     6,114,211     11,409,356  
  Management fees     905,975     1,854,917  
  Real estate taxes     924,934     2,422,711  
  Professional and administrative & professional and admin.—affiliated     2,560,284     3,958,370  
  Depreciation and amortization     5,206,853     11,414,593  
   
 
 
  TOTAL OPERATING EXPENSES     15,712,257     31,059,947  
   
 
 

OPERATING INCOME

 

 

1,043,341

 

 

3,344,384

 
  Interest and other income     57,513     364,683  
  Interest expense     (3,531,662 )   (7,568,831 )
  Loss on disposal of assets     (53,540 )   (303,906 )
  Settlement charge         (2,400,000 )
   
 
 
  NET LOSS   $ (2,484,348 ) $ (6,563,670 )
   
 
 
  Net loss allocated to limited partners   $ (2,324,605 ) $ (6,146,221 )
   
 
 
  Net loss per limited partnership interest   $ (0.20 ) $ (0.52 )
   
 
 
  Number of limited partnership interests     11,751,959     11,751,959  
   
 
 

BALANCE SHEET DATA (as of June 30, 2004)


 

 

 

 

 

 

 
  Land, buildings and amenities, net     159,854,920        
  Total assets     172,697,153        
  Mortgages and notes payable     106,081,017        

32



Selected Historical Combined Condensed
Financial and Operating Data

        The following table sets forth selected historical combined condensed financial and operating data as if NTS-Properties III, NTS-Properties IV, NTS-Properties V, NTS-Properties VI, NTS-Properties VII, Ltd. (the "Partnerships") and NTS Private Group were combined on a historical basis. This historical combined presentation reflects adjustments to the actual historical data to: (1) include a previously unconsolidated joint venture; (2) eliminate the equity investment and minority interests in wholly combined joint ventures in the historical financial information of the applicable partnership; and (3) include any debt used by ORIG and its related interest cost to acquire interests in the Partnerships which will be assumed by NTS Realty in the Merger.

        We have derived the combined condensed statement of operations and balance sheet data as of and for the years ended December 31, 2000 and 1999 with respect to the Partnerships from the audited financial statements of said Partnerships and with respect to the NTS Private Group from their unaudited combined financial statements. We have derived the combined condensed statement of operations and balance sheet data as of and for the years ended December 31, 2003, 2002, and 2001 from the audited financial statements of the Partnerships and the NTS Private Group. We have derived the combined condensed balance sheet data, consisting of debt of ORIG from its unaudited financial statements as of December 31, 2000 and 1999 and its audited financial statements as of December 31, 2003, 2002 and 2001. We have derived the combined condensed statement of operations data consisting of interest expense relating to ORIG's debt from the unaudited financial statements of ORIG for each of the five years ended December 31, 2003. We have derived the combined condensed statement of operations and balance sheet data as of and for the six months ended June 30, 2004 and 2003 from the unaudited financial statements of the Partnerships, NTS Private Group and ORIG. In the opinion of management, our unaudited financial statements have been prepared on a basis consistent with our audited financial statements and include all adjustments, consisting of normal recurring accruals, which we consider necessary for a fair presentation of our financial condition and the results of operations as of such date and for such periods under U.S. generally accepted accounting principles. The results of operations for the interim periods are not necessarily indicative of the results of operations for the full year or any future period.

        You should read the financial information below in conjunction with the other financial information and analysis presented in this joint consent/prospectus, including "Selected Unaudited Pro Forma Consolidated Condensed Financial and Operating Data," "Unaudited Summary Pro Forma Consolidated Condensed Financial and Operating Data," "Unaudited Summary Historical Combined Condensed Financial and Operating Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the financial statements and related notes of the Partnerships, the NTS Private Group and ORIG included or incorporated by reference elsewhere in this joint consent/prospectus.

33




HISTORICAL COMBINED CONDENSED(1)

 
  Six Months Ended
June 30,

  Years Ended December 31,
 
 
  2004
  2003
  2003
  2002
  2001
  2000
  1999
 
 
  (Unaudited)

  (Unaudited)

  (Unaudited)

  (Unaudited)

  (Unaudited)

  (Unaudited)

  (Unaudited)

 
STATEMENT OF OPERATIONS DATA                          
  Rental income   $ 15,468,552   $ 15,855,834   $ 31,762,268   $ 32,014,147   $ 32,414,553   $ 30,814,831   $ 28,882,337  
  Tenant reimbursements     1,184,048     1,218,903     2,371,880     2,374,347     2,330,607     2,170,390     2,062,855  
   
 
 
 
 
 
 
 
  TOTAL REVENUES     16,652,600     17,074,737     34,134,148     34,388,494     34,745,160     32,985,221     30,945,192  

Operating expenses & operating expenses—affiliated

 

 

6,114,211

 

 

5,779,475

 

 

11,409,356

 

 

11,804,936

 

 

12,202,657

 

 

11,078,609

 

 

10,728,671

 
  Management fees+     905,975     931,431     1,854,917     1,876,685     1,900,161     1,831,860     1,748,919  
  Real estate taxes     924,934     1,327,274     2,422,711     2,267,523     2,332,384     2,214,205     2,161,389  
  Professional and administrative & professional and administrative—affiliated     2,339,992     1,753,825     3,517,787     1,839,931     1,564,025     1,618,543     1,787,615  
  Depreciation and amortization     4,072,207     3,989,604     8,006,076     8,370,527     8,318,800     7,507,502     6,474,760  
   
 
 
 
 
 
 
 
TOTAL OPERATING EXPENSES     14,357,319     13,781,609     27,210,847     26,159,602     26,318,027     24,250,719     22,901,354  

OPERATING INCOME

 

 

2,295,281

 

 

3,293,128

 

 

6,923,301

 

 

8,228,892

 

 

8,427,133

 

 

8,734,502

 

 

8,043,838

 
  Interest and other income & interest and other income—affiliated     57,513     95,635     364,683     299,326     563,354     1,118,519     635,950  
  Interest expense & interest expense—affiliated     (3,839,890 )   (4,131,680 )   (8,185,284 )   (8,763,601 )   (9,274,001 )   (9,283,010 )   (8,087,367 )
  Loss on disposal of assets     (53,540 )   (227,232 )   (303,906 )   (132,478 )   (178,522 )   (1,061,224 )   (1,189,354 )
   
 
 
 
 
 
 
 
NET LOSS   $ (1,540,636 ) $ (970,149 ) $ (1,201,206 ) $ (367,861 ) $ (462,036 ) $ (491,213 ) $ (596,933 )
   
 
 
 
 
 
 
 
Ratio of earnings to fixed charges     0.60     0.77     0.85     0.96     0.95     0.95     0.93  
   
 
 
 
 
 
 
 
Deficiency to cover fixed charges   $ 1,540,636   $ 970,149   $ 1,201,206   $ 367,861   $ 462,036   $ 470,492   $ 596,933  
   
 
 
 
 
 
 
 
BALANCE SHEET DATA (end of period)                          
  Land, buildings and amenities, net     118,014,409     123,497,854     120,994,416     125,902,043     132,277,155     137,888,786     135,190,416  
  Total assets     127,209,799     132,240,524     129,831,524     141,020,277     147,246,636     151,960,898     156,330,852  
  Mortgages and notes payable     106,081,017     111,774,175     109,258,373     122,391,250     123,937,185     123,993,289     122,421,399  

(1)
Reference is made to pages F-3 through F-16 which include information on each of the Partnerships, the NTS Private Group and ORIG derived from audited or unaudited financial statements as so indicated.

Comparison of Rights of Limited Partners of the Partnerships and Limited Partners of NTS Realty (p. 113)

        The rights of limited partners of each partnership are governed by the state of each partnership's organization and its partnership agreement. The partnerships were organized under Georgia (NTS-III), Kentucky (NTS-IV), Maryland (NTS-V and NTS-VI), or Florida (NTS-VII) law. We are organized under Delaware law. Thus, if the merger is approved, the rights of limited partners receiving Units will be governed by Delaware law and our partnership agreement. Our partnership agreement grants essentially the same rights to limited partners as the rights granted limited partners under each of the existing partnership agreements or the various state laws. For example, under both Delaware law and the terms of our partnership agreement, limited partners will continue to have the same voting rights and rights to distributions. For a comparison of rights, see "Comparison of Rights of Limited Partners of the Partnerships and Limited Partners of NTS Realty."

34



Material Federal Income Tax Consequences (p. 97)

        As discussed herein, we will not recognize any gain or loss as a result of the merger. Each limited partner should, however, consult with his or her own tax advisor. Subject to the restrictions applicable to a "publicly traded partnership," we will be characterized as a partnership for federal income tax purposes and will not be subject to federal income tax. This opinion is based in part on representations concerning our future operations and the sources of our income. Each limited partner will be required to take into account his or her share of income, deductions or loss regardless of whether any cash is distributed. The character of the income to each limited partner will depend on its character to us. Although we will be considered a "publicly traded partnership" under the Internal Revenue Code of 1986, as amended (the "Code"), we should qualify, based on our currently anticipated operations and activities, for an exception from the corporate-level tax otherwise imposed on a "publicly traded partnership" and therefore should be treated as a partnership for federal income tax purposes. Notwithstanding the foregoing, our limited partners only will be permitted to apply income, gain and losses in respect of the Units against other items of income, gain or loss generated by us. We may also generate income from debt-financed property. Allocations may, therefore, constitute unrelated business taxable income to tax-exempt limited partners. In connection with the settlement of the class action litigation, and immediately prior to the merger, NTS Development Company will make an aggregate payment of $1.5 million to the partnerships, allocable among the partnerships in accordance with the settlement agreement. These payments will result in additional income to the partnerships prior to the merger, which the partners (including ORIG and any affiliates that are partners) will be required to include in their income (or reduce their loss) for the partnerships' final taxable year. The chart below sets forth the payment to be made to each partnership. For a more detailed discussion of the federal income tax considerations associated with the merger, see "Material Federal Income Tax Consequences."

Entity

  Amount of Payment
NTS-III   $ 202,500
NTS-IV     202,500
NTS-V     345,000
NTS-VI     723,000
NTS-VII     27,000

35



RISK FACTORS

        The proposed merger of your partnership involves various risks. In addition to the other information included in this joint consent/prospectus, including all appendices and supplements, you should carefully consider the following factors in determining whether to vote in favor of the merger.

Risks Relating to the Merger

The merger will change the nature of your investment in certain respects.

    Each partnership owns a portfolio of between three and ten properties either in whole or in part through a joint venture. After the merger, we will initially own thirty-two properties.

    The partnerships are required, under their respective partnership agreements, to commence winding up their affairs and to liquidate after the expiration of their respective terms set forth in each of their partnership agreements. For example, NTS-III's term expires December 31, 2028. NTS-VII's term expires December 31, 2063. The plaintiffs in the class action litigation allege that the partnerships should have already sold their properties and distributed the proceeds to their respective partners and liquidated. Under our partnership agreement, we will be required to commence winding up our affairs, selling our properties and liquidating by December 31, 2028.

    Rather than holding an interest in an entity that must distribute proceeds from property sales or refinancing of debt, you will own an interest in a partnership that may reinvest those proceeds in new or existing properties.

    Each partnership's prospectus estimated that the partnership would sell or refinance its properties between the fourth and tenth year after completing the development of its properties. We do not contemplate selling or refinancing our properties within any defined time period other than that we must terminate our operations by December 31, 2028.

There is no prior market for the Partnership Units and the market price is likely to decline after the merger.

        We are a newly formed entity and there has been no prior market for the Partnership Units. There is substantial uncertainty regarding the price at which the Partnership Units will trade after the merger. The market price of the Partnership Units may be subject to significant volatility after the merger and is likely to decrease from the $10.00 value that we used to allocate the Units. We estimated a per Unit value of $10.00. This estimated value should not be viewed as a measure of the fair market value or trading value of the Units. The Units are likely to trade at a value less than $10.00 for different reasons, including that:

    the market might discount value of the Units as minority interests;

    the market might determine that our aggregate value is less than the sum of the values we used for purposes of calculating the net asset value of each entity; and

    downward pressure on the trading price of the Units might be created by limited partners who choose to sell Units as soon as the merger is completed.

Houlihan's opinion relies on information provided by your general partner and its affiliates. This opinion may not be updated.

        Houlihan's opinion relies, in part, on information prepared by your general partner. Houlihan did not independently verify this information. Also, Houlihan's opinion of fairness, which is dated February 2, 2004, is based on the net asset values determined as of September 30, 2003. The opinion does not cover events or changes occurring after the date of the opinion. Therefore, Houlihan's opinion is not based on the final net asset values of the Partnerships and ORIG and does not cover the fairness

36



of the final allocation of Units. Changes or events after the date of its opinion may have impacted Houlihan's opinion. We may not ask Houlihan to update its opinion prior to closing. Further, Houlihan's opinion does not address the general partners' underlying business decision to effect the merger. Houlihan did not negotiate any terms of the merger or advise the partnerships, their respective general partners, or limited partners with respect to possible alternatives to the merger. Houlihan has not been requested by any of the partnerships or any other person to solicit third-party indications of interest in acquiring all or any part of the partnerships, their properties or other assets or the limited partnerships' interests or to make any recommendations as to the form or amount of consideration in connection with the merger. Further at the general partners' request, Houlihan has not advised the partnerships, their respective general partners or limited partners with respect to alternatives to the merger.

CBRE's appraisal relies on information provided by your general partner and its affiliates, may not be updated and is limited in scope.

        CBRE's appraisal of each property relies, in part, on information provided by your general partner and its affiliates, including ORIG. CBRE did not independently verify this information. The appraisals are dated June 1, 2003 and do not cover events or changes occurring after that date. Changes or events after the date of its opinion may have impacted these appraisals. We may not ask CBRE to update its appraisals prior to closing.

We cannot assure you that our future financial performance will be better than the prior performance of the partnerships.

        On a combined historical basis, without giving effect to any of the benefits of the merger and a refinancing of certain of our debt, we would have reported a net loss during the three years ended December 31, 2003, 2002 and 2001 of approximately $1.2 million, $368,000 and $462,000 respectively. There is no assurance that we will generate income in the future or earn a better economic return for limited partners in comparison to the alternatives to the merger. Further, there is no assurance that we will generate any net cash flow from operations from which to make distributions in the future.

There is no assurance we will have net cash flow from operations from which to pay distributions.

        Our partnership agreement requires us to distribute at least sixty-five percent (65%) of our net cash flow from operations to our limited partners. There is no assurance that we will have any net cash flow from operations from which to pay distributions. Our partnership agreement also permits our managing general partner to reinvest sales or refinancing proceeds in new or existing properties or to create reserves to fund future capital expenditures. Because net cash flow from operations is calculated after reinvesting sales or refinancing proceeds or establishing reserves, we may not have any net cash flow from operations from which to pay distributions.

Majority vote of the limited partners of a partnership binds all limited partners of that partnership.

        The merger will be approved on the affirmative vote of a majority of the limited partner interests in each partnership. Affiliates of your general partner, such as ORIG, own, in the aggregate, limited partner interests ranging from approximately 41% to 48% of the outstanding limited partner interests. These interests will be voted "For" the merger pursuant to the settlement agreement reached in connection with the class action litigation. Approval by the required number of holders in a partnership will bind all of the limited partners in that partnership, including you or any other limited partner who voted against the merger or abstained from voting.

37



Loss of relative voting power by limited partners.

        If the merger is completed, the limited partners will have an investment in a larger entity but will lose relative voting power. Limited partners of the partnerships vote on certain matters in proportion to the interests of all limited partners in the same partnership. Following the merger, each individual limited partner will own a smaller percentage of the voting interests in us than he or she currently owns in the existing partnerships. Further, affiliates of the general partners, including ORIG, own between 41% and 48% of the limited partner interests in the partnerships. Although the limited partners will have one vote per unit, ORIG and its affiliates will own or control approximately 57.18% of the outstanding Units (including the Units voted by plaintiffs' counsel on behalf of the settlement trust and those Units owned by NTS Realty Partners that are not entitled to vote) and, thus, will be able to influence significantly the outcome of all matters submitted to a vote of limited partners, including proposals to amend our partnership agreement.

Your general partner will not be able to calculate how many Units you will receive in the merger until shortly prior to the closing of the merger.

        The number of Units that will be issued to your partnership will be based on its net asset value. As provided in the merger agreement, the general partner of each partnership will calculate the net asset value and partnership exchange amount no more than ten days after the date that the general partner issues a joint press release or files a report on Form 8-K announcing receipt of the necessary consents from the limited partners of the partnerships to approve the merger. Your general partner cannot calculate how many Units you will receive prior to the Determination Date because the net asset value of each partnership will continue to change until the Determination Date primarily because each partnership and ORIG will continue to make regular payments on their respective mortgage debt and notes payable, thus increasing each entity's net asset value.

        Your general partner anticipates that the merger closing will take place within                        days of the date that the general partner of each partnership issues a joint press release or files a report on Form 8-K announcing receipt of the necessary consents from the limited partners of the partnerships to approve the merger.

Limited partners in NTS-III, IV and VII have no appraisal rights.

        Limited partners of NTS-III, IV and VII do not have the right to dissent from the merger and have their interests appraised and be paid in cash for the value of their interest.

Your general partner may have conflicting interests in recommending the merger.

        The general partners and their affiliates, including ORIG and Messrs. Nichols, Lavin, Wells and Mitchell, negotiated the settlement of the class action litigation, including the structure of the merger. These parties will derive certain benefits from the merger which is part of the settlement and may have conflicting interests in recommending that you vote for the merger. For example, if the merger is approved, the general partners and their affiliates, including ORIG, will be relieved of the liability they otherwise may incur if the litigation is not settled. If the merger is not approved, the court-approved settlement agreement terminates, which may result in continuing litigation. Further, we will assume $49,631,129 of debt currently owed by ORIG (assuming the private entity restructuring was completed as of June 30, 2004). This debt includes $35,489,735 that ORIG will acquire from the NTS Private Group in the private entity restructuring and its share of the debt from the joint ventures it owns. Finally, an affiliate, NTS Development Company, will continue to receive property management fees. These fees likely would cease if the properties were sold to third parties or if the partnerships were liquidated. Based on the combined historical fees and expenses paid to NTS Development Company for the years ended December 31, 2003, 2002 and 2001, we estimate that we will pay fees and expenses

38



to NTS Development Company of approximately $5.7 million during the first twelve months after the merger is completed. The actual amount of fees that we will pay to NTS Development Company after the merger is completed may be higher or lower than this estimate because the fees are based on a percentage of gross revenues that the properties generate. Mr. Nichols controls NTS Development Company. See "Related Party Transactions—Management Agreement with NTS Development" for a discussion of the agreement with NTS Development.

        Messrs. Nichols, Lavin and Wells serve as officers or directors for the general partners and certain of their affiliates, including ORIG, as well as for us. These individuals may experience conflicts of interest in their management of us, which arise principally from their involvement in other activities that may conflict with our business and interests. For example, the officers and directors of our general partners are not required to dedicate their full time and attention to our business, thus allowing them to provide their services to affiliates of our general partners. In addition, we may compete with affiliates of our general partners in acquiring additional properties in the future.

        The properties we are acquiring from ORIG were purchased, or constructed, and improved by affiliates of our general partners at a total aggregate cost of approximately $55.5 million. The aggregate appraisal value of these properties is approximately $63.1 million. ORIG, which is acquiring Units as described above in exchange for these properties is receiving the benefit of this $7.6 million difference. By virtue of their respective ownership interests in some or all of the entities comprising the NTS Private Group, Mr. Nichols will receive the benefit from approximately $5.7 million of the aggregate difference and Mr. Lavin will receive the benefit from approximately $1.9 million.

        The general partners and their affiliates currently own and control between 40.98% and 48.15% of the limited partnership interests in each partnership. These interests will be voted "For" the merger. By owning less than a majority of the outstanding interests of each partnership, your general partner and its affiliates do not control the outcome of votes by the limited partners of the partnerships. If the merger is completed, your general partner and its affiliates will own 57.18%, or 6,719,249, of our Units (including the Units that will be voted by plaintiffs' counsel on behalf of the qualified settlement trust and those Units owned by NTS Realty Partners that are not entitled to vote) and, thus, control the outcome of matters submitted to a vote of the limited partners. Mr. Nichols will control all of these Units, except for up to 620,000 Units that plaintiffs' counsel may vote for up to two years after the merger is completed.

The partnerships may have contingent or undisclosed liabilities that we will become responsible for after the merger.

        Because we will be acquiring the partnerships by way of a merger, we will succeed to all of the assets and liabilities of these entities including any contingent or unknown liabilities. The partnerships will not make any representations or warranties to us with respect to their assets or liabilities. As a result, we will not be entitled to any indemnity if assets are encumbered or if undisclosed liabilities exist. If, after the merger, we determine that the assets are materially encumbered or that undisclosed liabilities exist, there may be an adverse effect on our financial condition and the market value of the Units.

The merger will require limited partners to forego alternatives to the merger.

        Each general partner considered alternatives to the merger, such as continuing its partnership on a stand alone basis or liquidating through the sale of its assets. The benefits of these alternatives include avoiding certain expenses and risks of the merger. If the merger is approved, the partnerships will not be able to pursue these other alternatives.

39



NTS Realty Capital may change investment policies.

        The descriptions in this joint consent/prospectus of our investment, financing and other business policies and the various types of investments that we may make, reflect only our current plans. NTS Realty Capital, acting through its board of directors, may change these investment policies without a vote of the limited partners. A change in these policies may alter the relative risks and rewards of investing in the Units and negatively impact their value. See "Policies With Respect to Certain Activities—Change in Policies."

You will relinquish certain rights if the merger is approved and completed by December 31, 2004.

        On May 6, 2004, the court in the Buchanan litigation approved the settlement as fair, reasonable, adequate and in the best interest of the class of plaintiffs. Therefore, if the merger is approved and completed by December 31, 2004, the limited partners and all other class members who have not exercised their right to exclude themselves from the settlement will release and discharge the defendants and all other released parties, including the general partners of the partnerships and ORIG, from any and all of the claims based on allegations made in the complaints filed by the plaintiffs in each of the class action litigation matters. The release and discharge will be applicable to all such limited partners and class members, without regard to whether they objected to the settlement of the merger.

        In particular, subject to the right to exclude oneself from the settlement, the limited partners and all other class members will discharge, settle and release all claims, whether known or unknown, that have been, could have been or in the future might be asserted in the class action litigation or in any court or any other proceeding (including any claims arising in the Bohm litigation, filed in Kentucky, relating to alleged fraud, breach of any duty, negligence or otherwise) by or on behalf of the limited partners, any class members and the partnerships against the defendants and all other released parties that have arisen, arise now or could have arisen out of, or relate in any way to, any of the facts, occurrences, transactions or events described in the complaint in the class action litigation, including the merger (collectively, the "Settled Claims"). See "Description of the Litigation" for a summary of the various claims. The Settled Claims specifically include any claims which the limited partners, all other class members and the partnerships do not know or suspect to exist in their favor at the time of the release of the defendants and all other released parties which, if known by them, might have affected their settlement with, and release of, the defendants and all other released parties.

        Subject to the right to exclude oneself from the settlement, the limited partners, and all other class members may discover facts in addition to, or different from, those which they now know or believe to be true with respect to the subject matter of the settled claims, but they shall nevertheless be deemed to have settled and released any and all claims, known or unknown, which exist upon any theory of law or equity. If the merger is not completed by December 31, 2004, limited partners and other class members could pursue the claims that are being released as part of the approval of the settlement, subject to the right of the parties against whom claims were asserted to raise any defenses available to them.

You may be unable to pursue claims against Arthur Andersen, the independent auditors who audited financial statements of the partnerships.

        Arthur Andersen LLP, independent auditors, audited the consolidated financial statements of the partnerships as of December 31, 2001 and 2000, and for each of the two years in the period ended December 31, 2001, as set forth in their report. We have incorporated by reference these consolidated financial statements in this joint consent/prospectus in reliance on Arthur Andersen LLP's report, given on their authority as experts in accounting and auditing.

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        In June 2002, Arthur Andersen LLP was convicted on a federal obstruction of justice charge. As a result, Arthur Andersen ceased operations and is no longer in a position to reissue its audit reports or to provide consent to include financial statements reported on by it in this joint consent/prospectus. Because Arthur Andersen has not reissued its reports and we are not able to obtain a consent from Arthur Andersen, we believe that it is unlikely that you would be able to recover damages from Arthur Andersen even if you have a basis for asserting a remedy against, or seeking recovery from, Arthur Andersen.

Risks Related to Our Business and Properties

Our properties depend upon the economy in and around Louisville, Kentucky.

        Based on the CBRE appraisals, approximately 69% in number or 52% by value, of our properties are located in Jefferson County, Kentucky. Consequently, we are particularly susceptible to adverse economic or real estate developments in Jefferson County (which may be adversely affected by business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics, increased telecommuting, infrastructure quality, state budgetary constraints and priorities, increases in real estate taxes, costs of complying with government regulations and other factors) and the national and regional office business center or multifamily markets. Any adverse economic or real estate developments in Jefferson County, or any decrease in demand for office, business centers or multifamily properties, could adversely impact our financial condition, results of operations, cash flow, the trading price of the Units, our ability to satisfy our debt service obligations and to pay distributions to you. Moreover, because our portfolio of properties consists primarily of office and business centers and multifamily properties, a decrease in the demand for properties of this type could have a greater adverse effect on our business and financial condition than if we owned a more diversified real estate portfolio.

We may suffer losses at our properties that are not covered by insurance.

        The partnerships and ORIG carry comprehensive liability, fire, extended coverage, terrorism and rental loss insurance covering all of the properties that we will own after the merger. We believe the policy specifications and insured limits are appropriate given the relative risk of loss, the cost of the coverage and industry practice. None of the entities carry insurance for generally uninsured losses such as losses from riots, war, acts of God or mold. Some of the policies, like those covering losses due to terrorism and floods, are insured subject to limitations involving large deductibles or co-payments and policy limits which may not be sufficient to cover losses. If we experience a loss which is uninsured or which exceeds policy limits, we could lose the capital invested in the damaged property as well as the anticipated future cash flows from that property. In addition, if the damaged property is subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if it was irreparably damaged.

Future terrorist attacks in the United States could harm the demand for and the value of our properties.

        Future terrorist attacks in the U.S., such as the attacks that occurred in New York, Washington, D.C. and Pennsylvania on September 11, 2001, and other acts of terrorism or war could harm the demand for, and the value of, our properties. A decrease in demand could make it difficult for us to renew or re-lease our properties at lease rates equal to, or above, historical rates. Terrorist attacks also could directly impact the value of our properties through damage, destruction, loss, or increased security costs, and the availability of insurance for these acts may be limited or costly. To the extent that our tenants are impacted by future attacks, their ability to honor obligations under their existing leases with us could be adversely affected.

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We may be unable to complete acquisitions and successfully operate acquired properties.

        We will seek to acquire new properties when strategic opportunities exist. Our ability to acquire properties on favorable terms and successfully operate them is subject to significant risks, including:

    potential inability to acquire a desired property at acceptable prices, if at all, because of competition from other real estate investors;

    we may be unable to finance the acquisition on favorable terms;

    we may spend more than budgeted amounts to make necessary improvements or renovations to acquired properties;

    we may be unable to quickly and efficiently integrate new acquisitions, particularly multiple properties, into our existing operations;

    market conditions may result in higher than expected vacancy rates and lower than expected rental rates; and

    we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities such as liabilities for clean up of undisclosed environmental contamination, claims by tenants, vendors or other persons dealing with the former owners of the properties and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.

        If we cannot finance property acquisitions on favorable terms, or operate acquired properties to meet our financial expectations, our financial condition, results of operations, cash flow, the value of the Units and ability to satisfy our debt service obligations and to pay distributions to you could be adversely affected.

Our ability to pay distributions and the value of our properties and the Units are subject to risks associated with real estate assets and with the real estate industry in general.

        Our ability to pay distributions depends on our ability to generate revenues in excess of expenses, scheduled principal payments on debt and capital expenditure requirements. Events and conditions generally applicable to owners and operators of real property that are beyond our control that could impact our ability to pay distributions, the value of our properties and the value of the Units include:

    local oversupply, increased competition or reduction in demand for office, business centers or multifamily properties;

    inability to collect rent from tenants;

    vacancies or our inability to rent space on favorable terms;

    increased operating costs, including insurance premiums, utilities, and real estate taxes;

    costs of complying with changes in governmental regulations;

    the relative illiquidity of real estate investments;

    changing market demographics; and

    inability to acquire and finance properties on favorable terms.

        In addition, periods of economic slowdown or recession, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in rents or in increased defaults under existing leases, which could adversely affect our financial condition, results of operations, cash flow, the value of the Units and ability to satisfy our debt service obligations and to pay distributions to you.

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        Three of the properties that we will acquire if the merger is completed have roofs that were constructed with defective shingles. The defective shingles were obtained from a manufacturer who declared bankruptcy after the shingles were purchased. NTS-VI and NTS-VII which currently own the properties are in the process of replacing the shingles, but do not have sufficient working capital to replace all of the shingles simultaneously. The total cost of the remaining repairs is estimated to be $880,000. Although these repair obligations were considered as part of CBRE's appraisal, the failure to complete the repairs could adversely affect the value of these properties.

We may be unable to refinance a portion of the debt that we will assume if the merger is completed.

        We anticipate refinancing a portion of the debt we will assume if the merger is completed so that we can lengthen the amortization schedule to thirty years from ten to fifteen years. However, the anticipated refinancing is subject to negotiation and there can be no assurance that we will be successful in accomplishing a refinancing or that interest rates will be favorable at the time of the refinancing. As a result, our financial condition, results of operations, cash flow, the value of the Units and ability to satisfy our debt service obligations and to pay distributions to you could be adversely affected.

We face significant competition, which may decrease the occupancy and rental rates of our properties.

        We compete with several developers, owners and operators of commercial real estate, many of which own properties similar to ours. Our competitors may be willing to make space available at lower prices than the space in our properties. If our competitors offer space at rental rates below current market rates, we may lose potential tenants and be pressured to reduce our rental rates to retain an existing tenant when its lease expires. As a result, our financial condition, results of operations, cash flow, the value of the Units and ability to satisfy our debt service obligations and to pay distributions to you could be adversely affected.

Our debt level reduces cash available for distribution and could expose us to the risk of default under our debt obligations.

        Payments of principal and interest on borrowings could leave us with insufficient cash resources to operate our properties or to pay distributions. Our level of debt could have significant adverse consequences, including:

    cash flow may be insufficient to meet required principal and interest payments;

    we may be unable to borrow additional funds as needed or on favorable terms;

    we may be unable to refinance our indebtedness at maturity or the terms may be less favorable than the terms of our original indebtedness;

    we may be forced to dispose of one or more of our properties, possibly on disadvantageous terms;

    we may default on our obligations and the lenders or mortgagees may foreclose on the properties securing their loans or receiving an assignment of rents and leases;

    we may violate restrictive covenants in our loan documents, which would entitle the lenders to accelerate our debt obligations; and

    default under any one of the mortgage loans with cross default provisions could result in a default on other indebtedness.

If any one of these events were to occur, our financial condition, results of operations, cash flow, the value of the Units, our ability to satisfy our debt service obligations and to pay distributions to you

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could be adversely affected. In addition, foreclosures could create taxable income which would be allocated to all of the partners but we may not be able to pay a cash distribution to the partners to pay the resulting taxes.

We could incur significant costs related to government regulation and private litigation over environmental matters.

        Under various federal, state and local laws, ordinances and regulations relating to the protection of the environment, a current or previous owner or operator of real estate may be held liable for contamination resulting from the presence or discharge of hazardous or toxic substances at that property, and may be required to investigate and clean up any contamination at, or emanating from, that property. These laws often impose liability, which may be joint and several, without regard to whether the owner or operator knew of, or was responsible for, the presence of the contaminants. The presence of contamination, or the failure to remediate contamination, may adversely affect the owner's ability to sell, lease or develop the real estate or to borrow using the real estate as collateral. In addition, the owner or operator of a site may be subject to claims by third parties based on personal injury, property damage or other costs, including costs associated with investigating or cleaning up the environmental contamination present at, or emanating from, a site.

        These environmental laws also govern the presence, maintenance and removal of asbestos containing building materials, or "ACBM." These laws require that ACBM be properly managed and maintained, and may impose fines and penalties on building owners or operators who fail to comply with these requirements. These laws may also allow third parties to seek recovery from owners or operators for personal injury associated with exposure to asbestos fibers. Some of our properties could contain ACBM.

        Some of the properties in our portfolio contain or could have contained, or are adjacent to or near other properties that have contained or currently contain underground storage tanks used to store petroleum products or other hazardous or toxic substances. These operations create a potential for the release of petroleum products or other hazardous or toxic substances. For example, one of the properties we will acquire if the merger is completed currently has a service station located adjacent to it, and two of the properties are located on a former operating farm under which an underground tank was removed several years ago.

        Recent news accounts suggest that there is an increasing amount of litigation over claims that mold or other airborne contaminants have damaged buildings or caused poor health. We have, infrequently, discovered relatively small amounts of mold-related damage at a limited number of our properties, generally caused by one or more water intrusions, such as roof leaks, or plugged air conditioner condensation lines. Mold and certain other airborne contaminants occur naturally and are present in some quantity in virtually every structure. A plaintiff could successfully establish that mold or another airborne contaminant at one of our properties causes or exacerbates certain health conditions. We generally have no insurance coverage for the cost of repairing or replacing elements of a building or its contents that are affected by mold or other environmental conditions, or for defending against this type of lawsuit.

Existing conditions at some of our properties may expose us to liability related to environmental matters.

        Over the last ten years, independent environmental consultants have conducted Phase I or similar environmental site assessments on a majority of the properties that we will own after completing the merger. We have not updated the assessments. Site assessments are intended to discover and evaluate information regarding the environmental condition of the surveyed property and surrounding properties although they generally do not include soil samplings, subsurface investigations or an asbestos survey. These assessments may not, however, have revealed all environmental conditions, liabilities, or

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compliance concerns. Further, updated assessments might have revealed these issues since material environmental conditions, liabilities, or compliance concerns may have arisen after the review was completed or may arise in the future.

        The cost of future environmental compliance may affect our ability to make distributions to you and could have a material adverse effect on our business, assets, results of operations, cash flow, the value of the Units and ability to satisfy our debt service obligations.

We may incur significant costs complying with the Americans with Disabilities Act and similar laws.

        Under the Americans with Disabilities Act of 1990, or the "ADA," all public accommodations must meet federal requirements related to access and use by disabled persons. Although we believe that our properties substantially comply with the ADA, we have not conducted an audit or investigated all of our properties to determine compliance with the ADA. If one or more of the properties is not in compliance, we would be required to incur additional costs. Additional federal, state and local laws also may require modifications to, or restrict our ability to renovate, our properties. We cannot predict the cost of complying with the ADA or other legislation that may become applicable. If we incur substantial costs, our financial condition, results of operations, cash flow, the value of the Units, ability to satisfy our debt service obligations and to pay distributions to you could be adversely affected.

We may incur significant costs complying with other regulations.

        The properties in our portfolio are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements. If we fail to comply with these various requirements, we may be fined or have to pay private damage awards. We believe that the properties that we will own immediately after completing the merger materially comply with all applicable regulatory requirements. These requirements could change in the future requiring us to make significant unanticipated expenditures that could adversely impact our financial condition, results of operations, cash flow, the value of the Units, our ability to satisfy our debt service obligations and to pay distributions to you.

We may invest in joint ventures, which add another layer of risk to our business.

        We may acquire properties through joint ventures which could subject us to certain risks which may not otherwise be present if we made the investments directly. These risks include:

    the potential that our joint venture partner may not perform;

    the joint venture partner may have economic or business interests or goals that are inconsistent with or adverse to our interests or goals;

    the joint venture partner may take actions contrary to our requests or instructions or contrary to our objectives or policies;

    the joint venture partner might become bankrupt or fail to fund its share of required capital contributions;

    we and the joint venture partner may not be able to agree on matters relating to the property; and

    we may become liable for the actions of our third-party joint venture partners.

        Any disputes that may arise between joint venture partners and us may result in litigation or arbitration that would increase our expenses and prevent us from focusing our time and effort on the business of the joint venture.

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Our failure to re-lease property on favorable terms, or at all, will significantly harm our financial condition and results of operations.

        Approximately 82% of the square footage of the leases on the office and business centers that we will acquire at the time of the merger will expire by December 31, 2008. We might be unable to lease all or a portion of this space, or might have to lease it at less favorable rates, or only after incurring additional expenses. In addition, the occupancy rates at our multifamily properties are volatile and are subject to, among other things, interest rates, the supply of nearby entry-level priced homes and tenant preferences. As interest rates decline, our multifamily properties could lose tenants because the purchase of entry-level homes becomes more economically feasible.

        If we cannot re-lease the space in our office and business centers or the units in our multifamily properties, or can do so only at less favorable rates or by incurring substantial additional expenses, then adverse effects might occur with respect to our financial condition, results of operations, cash flow, the value of the Units, and our ability to satisfy our debt service obligations and to pay distributions to you.

        A major tenant at each of NTS Center, a property owned by NTS-III, Blankenbaker Business Center 1A, a property jointly owned by NTS-IV, NTS-VII and ORIG, and the sole tenant at Anthem Office Building, a property owned by a member of the NTS Private Group, are seeking alternatives to renewing their respective leases that are scheduled to expire in the near future. These tenants generated approximately $670,000, $949,000 and $811,000, respectively, in rental revenue and operating expense recoveries during the year ended December 31, 2003. In addition, a major tenant at Outlets Mall has filed for bankruptcy and has not yet notified the bankruptcy court whether it has decided to reaffirm its lease at Outlets Mall. If the tenants do not renew or reaffirm their leases, we may be unable to re-lease all or a portion of this space for an extended period of time, or may have to lease it at less favorable rates, or only after incurring additional expenses.

Tax Risks

If we are not treated as a partnership for tax purposes, we will pay federal income taxes at corporate rates.

        We are organized as a limited partnership. Many of the advantages and economic benefits of investment in the Units depend on us being classified as a partnership for federal income tax purposes, rather than as an association taxable as a corporation. If we were taxed as a corporation, we would be required to pay tax on our income prior to making any distributions, reducing the cash available for us to distribute or to invest in our business.

        If we were treated as a corporation for federal income tax purposes, we would pay federal income tax on our income at the corporate tax rate, which is currently a maximum of 35%. Distributions to you would generally be taxed again as corporate distributions, and no income, gains, losses, deductions or credits would flow through to you. Because a tax would be imposed upon us as a corporation, our cash available for distribution to you would be substantially reduced. If we were treated as a corporation, the after-tax return to the limited partners would be less, likely causing a substantial reduction in the value of the Units.

        Current law may change so as to cause us to be taxed as a corporation for federal income tax purposes or otherwise subject us to entity-level taxation. Our partnership agreement provides that, if a law is enacted or existing law is modified or interpreted in a manner that subjects us to taxation as a corporation or otherwise subjects us to entity-level taxation for federal, state or local income tax purposes, then provisions of the partnership agreement relating to distributions will be changed to reflect the impact of that law on us.

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A successful IRS contest of the tax positions we take could adversely impact the value of the Units, and the cost of any IRS contest will be borne by limited partners.

        We have not requested a ruling from the Internal Revenue Service, or "IRS," with respect to any matter affecting us. The IRS may adopt positions that differ from the positions we take or the conclusions of our counsel expressed in this joint consent/prospectus. We may have to resort to administrative or court proceedings to sustain some or all of our positions or our counsel's conclusions. Any contest with the IRS could materially and adversely impact the value of the Units. In addition, the costs of any contest with the IRS will be borne directly or indirectly by the partners.

        You could be required to pay taxes on your share of our income even if you do not receive any cash distributions from us.

        You could be required to pay federal income taxes and, in some cases, state and local income taxes on your allocable share of our income, whether or not you receive cash distributions. You might not receive cash distributions from us equal to your share of our taxable income or even equal to the actual tax liability that you are required to pay.

Tax gain or loss on disposition of Units could be different than expected.

        If you sell your Units, you will recognize a gain or loss equal to the difference between the amount realized and your tax basis in those Units. Prior distributions to you in excess of the total net taxable income you were allocated for a Unit, which decreased your tax basis in that Unit, will, in effect, become taxable income to you if the Unit is sold at a price greater than your tax basis in that Unit, even if the price is less than your original cost. A substantial portion of the amount realized, whether or not representing gain, may be ordinary income.

If you are a tax-exempt entity, a mutual fund or a foreign person, you may experience adverse tax consequences from owning Units.

        Investment in Units by tax-exempt entities, including employee benefit plans and individual retirement accounts, regulated investment companies or mutual funds and non-U.S. persons raises issues unique to them. For example, a significant amount of our income allocated to organizations exempt from federal income tax, including individual retirement accounts and other retirement plans, will be unrelated business taxable income and will be taxable to such a holder. Very little of our income will be qualifying income to a regulated investment company. Distributions to non-U.S. persons will be reduced by withholding tax at the highest marginal tax rate applicable to individuals, and non-U.S. holders will be required to file United States federal income tax returns and pay tax on their share of our taxable income.

We will treat each purchaser of Units as having the same tax benefits without regard to the Units purchased. The IRS may challenge this treatment, which could adversely affect the value of the Units.

        Because we cannot match transferors and transferees of Units, we will adopt certain positions that do not conform with all aspects of existing Treasury Regulations. A successful IRS challenge to those positions could adversely affect the timing or amount of tax benefits available to you, the amount of gain from your sale of Units or result in audit adjustments to your tax returns.

You likely will be subject to state and local taxes in states where you do not live as a results of an investment in Units.

        In addition to federal income taxes, you likely will be subject to other taxes, including state and local taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we do business or own property, even if you do not live in any of

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those jurisdictions. You likely will be required to file state and local income tax returns and pay state and local income taxes in some or all of these jurisdictions. Further, you may be subject to penalties for failure to comply with those requirements. We will initially own assets and do business in the states of Florida, Georgia, Indiana and Kentucky. You must file all required United States federal, state and local tax returns. Our counsel has not rendered an opinion on the state or local tax consequences of an investment in the Units.

The IRS could successfully challenge the partnerships' non-recognition of gain in connection with the merger.

        The partnerships will take the position that they will not recognize any gain or loss in connection with the merger. The IRS may, however, challenge this position. If the IRS prevails, your partnership will recognize gain equal to the amount by which the fair market value of the Units received increased by the liabilities assumed, exceeds the tax basis of the assets transferred. Your share of the gain will be allocated to you. We will not make distributions in connection with the merger which would provide cash for you to pay taxes on your share of this gain.

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THE MERGER

General

        We have entered into a merger agreement with the partnerships and a contribution agreement with ORIG. Each of these agreements contains conditions to completing the transactions contemplated thereby. A copy of the merger agreement and the contribution agreement with ORIG is attached to this joint consent/prospectus as Appendix B and Appendix C, respectively. The following summary is qualified in its entirety by reference to the complete agreements.

        Merger Agreement.    The merger agreement, the terms of which are incorporated herein by reference, provides for the merger of the partnerships with and into us. Although the merger agreement has not been negotiated on an arms' length basis, it contains customary representations and warranties from each of the partnerships and us regarding, among other things, organization and valid existence, but does not contain any representations or warranties with respect to the partnerships' assets or liabilities or provide indemnity for breach of the representations and warranties because of the common or affiliated nature of each partnership's general partner. The merger agreement may be amended only with the prior written consent of all of the general partners and us.

        Contribution Agreement.    The contribution agreement requires ORIG to contribute substantially all of its assets to us, including those properties that ORIG acquires from the NTS Private Group in the private entity restructuring, and requires us to assume all of ORIG's liabilities. Our obligations are subject to ORIG concurrently completing the private entity restructuring. Although the contribution agreement has not been negotiated on an arms' length basis, it contains customary representations and warranties from ORIG regarding the properties and its operations and from us regarding, among other things, our organization and valid existence. Further, ORIG is required to indemnify us for breaches of its representations and warranties contained in the contribution agreement. The contribution agreement may be amended only with the prior written consent of ORIG and us.

        Allocation of Units.    The number of Units allocated to each partnership and to ORIG will be based on the net asset value of these entities. The net asset value of the partnerships and the net asset value of the assets reduced by the liabilities contributed by ORIG will be equal to the aggregate value of the real estate owned by the entity, as determined by CBRE, less the amount of any debt outstanding on the Determination Date, plus or minus the book value of any other assets (excluding for these purposes straight-line rent receivables and prepaid leasing commissions) or liabilities of the entity, excluding the value of any assets not being contributed by ORIG, as reflected on the entity's last balance sheet prior to the Determination Date. The net asset value for each partnership will also be increased by the amount of the payment to be made by NTS Development Company as part of the class action litigation settlement and reduced by the amount of any monies paid to lenders to allow us to assume the entity's debt. The Determination Date will be a date no more than ten days after the date the general partner of each partnership issues a joint press release or files a report on Form 8-K announcing receipt of the necessary consents from the limited partners to approve the merger. To determine the amount of each entity's debt, we will request payoff letters from the holders of each obligation confirming the absence of any defaults and the amount outstanding as of the last day of the month immediately preceding the month in which the Determination Date occurs.

        To allocate the Units among ORIG and the partners of the partnerships, we will divide ORIG's net asset value by $10.00, and we will divide the net asset value distributable to each partner under the terms of each partnership agreement by $10.00. In each case, the number of Units delivered will be increased or decreased by rounding to the nearest whole Unit. We estimated a per Unit value of $10.00. This estimated $10.00 value should not be viewed as a measure of the fair market value or trading price of the Units. The Units likely will trade at a value of less than $10.00 per Unit. See "Risk Factors—There is no prior market for the Partnership Units and the market price is likely to decline

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after the merger." Within each partnership, the Units will be allocated among the general partner and the limited partners in accordance with the liquidation provisions of each partnership agreement. The partnership agreements of NTS-III and NTS-IV require liquidation proceeds to be distributed in the same manner as proceeds from a sale or refinancing of properties. The partnership agreements of NTS-V, NTS-VI and NTS-VII require liquidation proceeds to be distributed in accordance with relative capital account balances after adjusting for any "built in" gain (or "built in" loss) in the assets for tax purposes.

        If your partnership approves the merger, it also will have consented to all actions necessary or appropriate to accomplish the merger. A separate vote of the limited partners of NTS III and NTS IV, however, is required to approve amendments to the partnership agreements for those entities. Limited partners of those entities should review the supplements for those partnerships for information on the amendments to the partnership's partnership agreement.

        Conditions to the Merger Agreement and Contribution Agreement.    The transactions contemplated by the merger agreement and the contribution agreement will not be completed if:

    any of the representations or warranties made by the partnerships, ORIG or us is inaccurate at or prior to the closing date;

    any of the partnerships has not approved the merger;

    any of the lenders of any indebtedness that we will assume in the merger has not consented to the merger;

    this joint consent/prospectus is not declared effective by the SEC;

    the Units are not approved for listing on the American Stock Exchange;

    the transactions contemplated by the merger agreement and the contribution agreement are not completed by December 31, 2004;

    there has been a material adverse change in the overall business, valuation or prospects of the partnerships or ORIG or in the tax or other regulatory provisions applicable to the partnerships, ORIG or any of the defendants;

    there is a statute, rule or court order which prohibits or challenges the merger; or

    there has been: (1) any suspension of trading or limitation on prices of securities generally on the American Stock Exchange or (2) any banking or lending moratorium.

        The defendants in the class action litigation, including each general partner and ORIG, have the right to terminate the merger and the settlement of the litigation if, as a result of the review of this joint consent/prospectus by the SEC or other governmental entity, a material change is necessary or required to the terms and conditions of the merger.

        Recommendation of the General Partners and Plaintiffs' Counsel.    The general partners of the partnerships recommend the merger and believe it is in the best interest of their respective limited partners. The general partners believe that the merger will provide greater overall benefits to the limited partners than the benefits derived from any of the alternatives to the merger analyzed by each general partner. The general partners base this belief on a comparison of the potential present value of the other alternatives to the limited partners and the merger. Also, plaintiffs' counsel negotiated or agreed to certain governance protections and other procedures to maximize limited partner value beyond those protections normally available to limited partners. These enhancements were intended to improve and not cause a significant adverse change in voting rights, termination dates or investment objectives. These enhancements include, among other things: (1) listing the Units and (2) allowing limited partners to elect directors. You should consider carefully the factors described under "Risk

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Factors" and the comparison of an investment in your partnership versus an investment in us described in the supplement for your partnership. You should also consult with your financial, tax and legal advisors prior to determining whether to vote in favor of the merger. The general partners may have conflicts of interest with respect to recommending you vote "For" the merger. See "Conflicts of Interest—Substantial Benefits to General Partners and their Affiliates."

        Appraisal and Fairness Opinion.    The merger agreement and the contribution agreement each require the partnerships or ORIG, as the case may be, to have their real estate assets appraised. The merger agreement also requires the partnerships to obtain a fairness opinion covering the matters that are the subject of the merger transaction. The partnerships, with the consent of plaintiffs' counsel, engaged CBRE to appraise independently the value of the real estate assets owned by each entity. In addition, the general partners, with the consent of plaintiffs' counsel, retained Houlihan to render a fairness opinion. The general partners will ask CBRE to update its appraisals prior to the completion of the merger if the general partners believe that events have occurred or conditions have changed that would have a material impact on the value of the properties that were appraised. Under any circumstances, a material change will be deemed to have occurred if the aggregate occupancy rate of the properties changes by more than ten percent (10%) or the aggregate net income generated by the properties changes by more than five percent (5%) from September 30, 2003, based on quarterly comparisons. The general partners anticipate asking Houlihan to update its fairness opinion only if CBRE's appraisals are updated.

        Accounting Treatment.    The merger will be accounted for using the purchase method of accounting in accordance with U.S. generally accepted accounting principles. Under this method, we will be treated as the purchasing entity for accounting purposes. A portion of our assets, equal to the percentage of unaffiliated limited partners compared to the whole, will be "stepped up" to fair market value. The remaining portion of the assets reflecting the Units owned by ORIG and its affiliates will be recorded at historical cost. The assets and liabilities contributed by NTS Private Group will be adjusted to reflect their fair market value, except for that portion owned by Mr. Nichols, which will be reflected at historical cost due to his common control over the contributing entities.

        No Fractional Interests.    No fractional interests will be issued in the merger. Because the payment of cash in lieu of fractional interests could cause the recognition of taxable income in excess of the amount of cash paid, the number of Units to which you are entitled will be increased or decreased to the nearest whole Unit, and no cash will be paid for the fractional interests.

        Taxable Gain or Loss.    In general, from the perspective of each partnership, the merger is intended to qualify as a tax-free transfer of assets within the meaning of Section 721 of the Internal Revenue Code. See "Material Federal Income Tax Consequences—Tax Treatment of the Merger."

        Appraisal Rights.    A limited partner of either NTS-V or NTS-VI who objects to the merger may exercise statutory appraisal rights and elect to be paid, in cash, the fair value of his or her interest in that partnership. Limited partners of NTS-III, IV and VII do not have statutory appraisal rights. See "Voting Procedures—Appraisal Rights." We have not conditioned the merger, however, on how many limited partners may exercise these rights.

        Legal Proceedings.    The general partners and one or more of the partnerships may be involved in litigation incidental to their businesses, but no material litigation is currently pending or threatened against any of the partnerships, the assets of the partnerships or the general partners, other than the class action litigation discussed herein. See "Description of the Litigation."

        Management Agreement.    NTS Development Company will enter into a management agreement with us to manage each of our properties. The terms and conditions of this agreement will be substantially identical to the existing agreements between each partnership and NTS Development. The

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management agreement may be amended only with the prior written consent of the party accepting the amended responsibility or obligation. See "Related Party Transactions—Management Agreement with NTS Development."


DESCRIPTION OF THE LITIGATION

Buchanan Litigation

        On December 12, 2001, a complaint was filed in the Superior Court of the State of California, County of Contra Costa, captioned Buchanan, et al. v. NTS-Properties Associates, et al., Case No. C 01-05090 ("Buchanan litigation"), by the plaintiffs, Morgan K. Buchanan, James P. Mills and Jesse L. Crews, on behalf of an alleged class of current and former owners of interests in the partnerships. Named as defendants were NTS-Properties Associates, NTS-Properties Associates IV, NTS Associates V, NTS-Properties Associates VI, NTS-Properties Associates VII, NTS Capital Corporation, NTS Development Company, ORIG, LLC, Mr. Nichols, his spouse and Mr. Lavin.

        The plaintiffs assert claims arising out of the acts and course of conduct allegedly engaged in by the defendants in connection with the operation and management of the partnerships, including alleged breaches of fiduciary duty, aiding and abetting breaches of fiduciary duty, and conspiracy to breach fiduciary duty. The plaintiffs seek, on their behalf and on behalf of the alleged class and in unspecified amounts, compensatory damages, prejudgment interest, punitive and exemplary damages and attorneys' fees and costs of suit.

        The plaintiffs allege that the defendants engaged in a course of conduct which resulted in breaches of fiduciary duty to the plaintiffs and the alleged class. First, the plaintiffs allege that the general partner breached fiduciary duties owed to the plaintiffs and the alleged class by breaching certain representations or provisions contained in the partnerships' respective prospectuses and limited partnership agreements. The plaintiffs allege that, despite disclosure by each partnership that it would sell, finance or refinance their various properties within a specified time period, the general partners did not sell the properties and liquidate the partnerships, allegedly to: (1) maintain the income stream received by NTS Development for managing the properties; (2) maintain the existence of the partnerships; and (3) allow the defendants and certain affiliated entities to acquire limited partnership interests for less than fair value.

        According to the plaintiffs, beginning in 1998, the defendants and affiliated entities made or participated in making a series of allegedly coercive tender offers to purchase interests in the partnerships. The plaintiffs alleged that the tender offers were coercive for the following reasons: (1) the tender offers stated that, absent accepting the offers, limited partners may not be able to liquidate their interests; (2) the tender offers also stated that cash distributions to the partners were suspended, and might not be resumed; (3) the tender offers further stated that the partnerships had no current plans to sell their assets and distribute the proceeds to the partners; (4) the tender offers provided that, if the partners retained their interests, they will be subjected to increased risk and increased voting control by affiliates of the general partners; and (5) the general partners did not independently value the assets of the partnerships or provide a fairness opinion prior to the tender offers, allegedly depriving the partners the opportunity to make a determination of fair value of their interests. Finally, the plaintiffs allege that the general partners suffered from conflicts of interest which required separate legal and financial representation of the partnerships in connection with the tender offers.

        Notwithstanding the foregoing, settlement discussions among plaintiffs' counsel and the defendants and the partnerships resulted in a proposed settlement, including the merger. On December 5, 2003, the parties filed a Stipulation and Agreement of Settlement describing in detail the proposed settlement and merger. On February 18, 2004, the Superior Court conducted a preliminary approval hearing to determine, among other things, whether the class should be preliminarily approved. At the

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close of the hearing, the Superior Court entered an order certifying the class, allowing Notice to be sent to absent class members, and preliminarily approving the Settlement, and scheduling a final approval hearing for May 6, 2004.

        On May 6, 2004, the Superior Court conducted a final approval hearing to determine, among other things, whether the settlement is fair, reasonable and adequate and in the best interests of the class of plaintiffs. At the close of the final approval hearing, the Superior Court, over the objections of the plaintiffs in the Bohm litigation, entered a Final Order and Judgment: (1) certifying the class; (2) approving the proposed settlement, including the transactions contemplated thereby, as fair, reasonable and adequate and in the best interests of the class of plaintiffs; (3) dismissing the complaint and every cause of action set forth therein; and (4) releasing the defendants from all claims which were or could have been asserted against them by the plaintiffs in the Buchanan litigation or the Bohm litigation.

        On June 11, 2004, the parties who objected to the Superior Court's Final Order and Judgment filed a Notice of Appeal.

Bohm Litigation

        On February 27, 2003, a complaint was filed in the Jefferson Circuit Court, Division Eleven, of the State of Kentucky, captioned Joseph Bohm, et al. v. J.D. Nichols, et al., Case No. 03 Cl 01740 (the "Bohm litigation"), by plaintiffs Joseph Bohm and Warren Heller, M.D. on behalf of current and former limited partners against essentially the same defendants in the Buchanan litigation. In addition, the chief financial officer of NTS Capital and NTS Development was named as a defendant. The complaint also included derivative claims on behalf of the partnerships, except NTS—III, against their respective general partners and the other defendants. Shortly thereafter, on March 21, 2003, the plaintiffs filed an amended complaint. In addition to the defendants identified above, the plaintiffs also named as defendants the general partner of NTS-Properties III and the general partner of NTS-Properties Plus.

        The plaintiffs assert claims for declaratory judgment seeking to declare the defendants to be alter egos of one another; breach of the limited partnership agreements; intentional interference with contractual relations; breach of fiduciary duty and the implied covenants of good faith and fair dealing; aiding and abetting and conspiracy to breach fiduciary duty; conspiracy; an action for an accounting; dissolution; injunctive relief; a derivative claim for breach of fiduciary duty; and a derivative claim for aiding and abetting breach of fiduciary duty and conspiracy to breach fiduciary duty.

        The plaintiffs assert claims arising out of the acts and course of conduct allegedly engaged in by the defendants in connection with the operation and management of the partnerships. The plaintiffs seek compensatory damages, punitive damages, pre-judgment and post-judgment interest, attorneys' fees and costs, restitution, appointment of a receiver or liquidation trustee to wind-down the business of the partnerships, dissolution of the partnerships, imposition of a constructive trust and injunctive relief.

        On July 12, 2004, the Jefferson Circuit Court instructed the plaintiffs to file an amended complaint in light of the final order in the Buchanan litigation, which approved the settlement and released the defendants from certain claims. Subsequently, on July 23, 2004, the plaintiffs, joined by Raymond Fogarty, Leonard Lilliston and Arthur Paone, filed a Second Amended Complaint. The Second Amended Complaint states claims on behalf of those persons who opted out of the class in the Buchanan litigation, along with certain other claims previously asserted in the First Amended Complaint. On August 9, 2004, the plaintiffs, joined by William and Sharon Budnick and Franklin and Shirley Ross, filed a corrected Second Amended Complaint asserting the same allegations as in the Second Amended Complaint. On September 16, 2004, the defendants filed a motion to strike the corrected Second Amended Complaint. A hearing on this motion is scheduled for November 15, 2004. The defendants intend to vigorously defend against the Second Amended Complaint.

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BACKGROUND OF THE MERGER

Chronology of the Merger

        From time to time, the general partner of each partnership, through the executive officers of their respective corporate general partners, has evaluated ways to best maximize the value of each partnership's assets and, hence, the value of their respective limited partners' investment. The general partner of each partnership is itself a limited partnership. Mr. Nichols and NTS Capital Corporation are general partners of the general partner of each partnership. Mr. Nichols is the chairman and sole director of NTS Corporation which wholly owns NTS Capital Corporation. NTS Corporation and NTS Capital Corporation each have a relatively small number of executive officers. Thus, when we speak of discussions and determinations by the general partner of each partnership, we are referring to discussions by this group of people. The principal participants in these discussions were Messrs. Nichols, Lavin, Wells and Mitchell. Mr. Lavin has served as the president and chief operating officer of NTS Development, NTS Capital Corporation and NTS Corporation since February 1999. Mr. Wells has served as senior vice president and chief financial officer of NTS Development Company, NTS Capital Corporation and NTS Corporation since July 1999. Mr. Mitchell has served as Vice President—Treasurer of NTS Corporation since 1987. Also participating from time to time in these discussions were other employees of NTS Development, NTS Capital Corporation or NTS Corporation and various third parties including counsel to the partnerships. As described further herein, some of these discussions later involved George Donaldson of The Law Offices of George Donaldson, plaintiffs' counsel in the Buchanan litigation described herein, as well as Messrs. Nichols, Lavin, and Wells as representatives of the NTS Private Group. The discussions were conducted informally and no official record or minutes of the various meetings and phone calls described herein were maintained. The general partners did not retain an unaffiliated representative to act on behalf of the limited partners of the partnerships in negotiating the terms of the merger. The general partners agreed to the merger as part of the settlement of the class action litigation that was negotiated on behalf of the limited partners by plaintiffs' counsel. The general partners believe that plaintiffs' counsel fulfilled the role of an unaffiliated representative in negotiating the settlement. Plaintiffs' counsel negotiated settlement and governance protections with the general partners and representatives of their counsel, Shefsky & Froelich Ltd.

        As part of these discussions, the general partners considered various alternatives. In large measure, these discussions were impacted by a decision made several years ago by the general partners to refinance each partnership's mortgage debt. The general partners decided, based on their view that interest rates were at or near historical lows, to refinance a large portion of the debt borrowed by the partnerships and secured by the properties owned by the partnerships. Affiliates of the general partners pursued the same strategy for the properties owned by the NTS Private Group. At the time, the general partners concluded that refinancing each partnership's existing debt and borrowing new money at the lowest rates available would ultimately allow the partnerships to increase limited partner value because interest costs would decrease. To maximize the savings in interest costs, each partnership agreed to shorten the maturity dates of each loan from thirty years to between ten and fifteen years. In addition, each partnership agreed to restrictions on repaying the new debt prior to maturity. Specifically, each partnership agreed to significant penalties for repaying the debt before maturity.

        As a result of the refinancings and the accelerated repayment of principal required by the new mortgage documents, as well as the normal cost of capital improvements made to the properties, each partnership ceased making distributions to its partners in order to meet its obligation of repaying the refinanced debt. The general partners believed that suspending distributions would ultimately benefit the limited partners because each partnership would be able to increase more rapidly the equity value in each property. To provide limited partners who desired to sell some or all of their interests in the various partnerships with a method for doing so, the partnerships and later ORIG and its affiliates began repurchasing interests in 1998 through a series of tender offers and other transactions. Each

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partnership and ORIG stated in the documents for the tender offers that the proposed purchase price should not be viewed as the equivalent to the fair market value or liquidation value of an interest in any of the partnerships, as well as other risks associated, with re-selling or deciding not to re-sell interests. On December 12, 2001, the Buchanan litigation was filed in a state court in California.

        During 2001, due to continuing declines in interest rates and increases in the costs of complying with the public reporting requirements, the general partners began evaluating further the potential for selling the properties or further refinancings. As part of this evaluation, the general partners concluded that continuing to hold the properties and paying the on-going entity costs was preferable to triggering the prepayment penalties by selling the properties. As illustrated in the table below, the general partners calculated their aggregate annual on-going entity costs to be approximately $1.6 million, compared to prepayment penalties of nearly $9.0 million based on the partnerships outstanding debt in 2001.

 
  On-Going
Entity Costs

  Prepayment
Penalties

NTS-III   223,767   695,206
NTS-IV   281,573   695,200
NTS-V   304,966   1,245,544
NTS-VI   569,490   5,541,668
NTS-VII   181,621   651,442
   
 
Total   1,561,417   8,829,060
   
 

        The general partners also noted, however, that combining the partnerships might allow them to reduce their administrative costs as a percentage of assets and revenues by creating a single public entity and diversifying the limited partners' investments in properties to include additional markets and types of properties. Further, the general partners believed that a merger could create an asset base and capital structure that would enable greater access to capital markets and possibly reduce interest rates on a combined portfolio refinancing. The partnerships disclosed in March 2002 that they were evaluating a merger of the partnerships. To further facilitate this analysis, the general partners decided to seek proposals from third parties to appraise the value of the properties owned by each partnership and by the NTS Private Group. The general partner proceeded to interview three firms in November 2002 and on April 15, 2003, the partnerships, with the consent of plaintiffs' counsel, engaged CBRE to perform these appraisals. The general partners also decided to seek proposals from third parties to provide a fairness opinion in connection with any potential transactions. Also, in November 2002, three firms made presentations regarding their services to provide a fairness opinion. Houlihan was subsequently engaged on June 20, 2003. The general partners chose CBRE and Houlihan, respectively, because each is a national firm with an outstanding reputation and significant experience in the real estate marketplace. Further, each of their proposals satisfied the general partners' request for the respective services in an economic and timely manner.

        In October 2002, a motion to dismiss the Buchanan litigation was denied. In early December 2002, counsel to the partnerships met plaintiffs' counsel and explored the possibility of a settlement of the Buchanan litigation. These discussions were preliminary in nature and concerned potential mechanisms for resolving the case including, among other things, mediation. Although no agreement was reached, counsel to the parties agreed to continue a dialogue. On December 6, 2002, counsel to the parties appeared before the court and advised the court that they had met and conferred about the possibility of settlement. The court suggested that one aspect of a potential settlement might include some method to allow current limited partners liquidity at a mutually-agreeable price.

        In early February 2003, counsel for the parties again met and discussed the possibility of a settlement. At this time, counsel agreed to recommend to their respective clients that they actively engage in settlement negotiations, including the exchange of information concerning the properties owned by the partnerships, and to consider potential mediation to assist the parties in attempting to reach a settlement.

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        Subsequently, as part of the settlement discussions with plaintiffs' counsel, the general partners formulated a specific proposal to merge the partnerships. This proposal was presented to plaintiffs' counsel in February 2003. As originally proposed, the general partners envisioned a new entity that would merge with each of the partnerships and potentially other private entities affiliated with the general partner. The new entity would not, however, list its securities for public trading. Further, the new entity would be permitted to reinvest the proceeds from sales or refinancing of existing properties and would begin paying distributions to its limited partners shortly after completing the merger.

        On February 27, 2003, the Bohm litigation was filed in state court in Kentucky. Notwithstanding the Bohm litigation, discussions continued with plaintiffs' counsel in the Buchanan litigation.

        Between February 2003 and June 2003, counsel for the general partners and plaintiffs' counsel held numerous meetings, both in person and telephonically, and with and without representatives of the general partner (which included Messrs. Lavin and Wells), to negotiate a potential settlement of the Buchanan litigation, including the proposed merger. The negotiations were conducted primarily by counsel for the parties with representatives of the general partners participating from time to time to discuss issues relating to analysis of current status of partnership properties and representatives of ORIG concerning the nature and form of ORIG's participation in the settlement. Among other things, the parties discussed the relative benefits of merging the partnerships versus liquidating each entity or continuing each entity on a stand-alone basis. The benefits and detriments of the merger as discussed by the parties are described in more detail herein. See "Background of the Merger—Benefits of, and Reasons for the Merger" and "—Fairness." The parties also discussed the contribution to the surviving entity of certain properties owned by affiliates of the general partners that are wholly owned by affiliates of the general partners. The parties' intent was four-fold. First, these properties would provide the surviving entity with a larger asset and capital base that might allow the surviving entity greater access to capital. Second, the parties desired to lessen or remove the inherent conflict of interest that would result from owning and managing the same type of properties through public and private entities. Third, the substantial majority of these properties were generating positive cash flow, which should assist the surviving entity in making distributions to its limited partners. Fourth, many of these properties had small or no prepayment penalties associated with their debt, thus allowing the surviving entity to refinance the debt more easily.

        On June 20, 2003, each partnership filed an interim report on Form 8-K announcing an agreement in principle between the general partners and other defendants in the Buchanan litigation and plaintiffs' counsel regarding a settlement of the Buchanan litigation, including a proposal to merge the partnerships and the properties owned by the NTS Private Group into a newly-formed entity. As part of the agreement in principle, plaintiffs' counsel agreed that it would enhance the new entity's prospects and, hence, limited partner value if it were permitted to reinvest sales or refinancing proceeds. In return, however, plaintiffs' counsel required the general partners to investigate the feasibility of listing the new entity's securities on a public market. Counsel for the partnerships and the general partners subsequently held meetings both in person and telephonically with representatives of the American Stock Exchange to determine the feasibility of listing the interests in the new entity for trading. The purpose of these meetings was to discuss the listing application that we must prepare and the listing standards that we must satisfy for the Units to qualify to be listed for trading on the American Stock Exchange.

        From June 2003 through early December 2003, discussions continued with plaintiffs' counsel negotiating the terms and conditions of the settlement as well as the proposed merger, including the terms of the partnership agreement for the new entity. During these meetings, the general partners agreed to plaintiffs' counsel's proposals regarding various governance protections to be provided to limited partners, as well as requirements that would establish minimum levels of distributions to be made to the limited partners. The governance protections discussed included: (1) the election and selection of a majority of independent directors on the board of directors of NTS Realty Capital;

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(2) institution of annual meetings of our limited partners; (3) creation of an audit committee for NTS Realty Capital composed entirely of independent directors; (4) the criteria for review and approval of related-party transactions by us; and (5) the mechanism for reviewing our property management agreement with NTS Development. With regard to distributions, the settling parties discussed: (a) the refinancing of a portion of our outstanding debt on the properties we will acquire if the merger is completed in order to reinstitute distributions; and (b) the amount and formula for determining the reinstated distributions. The general partners and plaintiffs' counsel agreed that we would distribute a minimum of sixty-five percent (65%) of our "net cash flow from operations" each quarter, as that term is defined in the regulations promulgated by the Treasury Department under the Internal Revenue Code of 1986, as amended. For more information regarding how net cash flow from operations is calculated, see "Summary—Distribution Policy." The general partners also agreed to file an application to list the Units on the American Stock Exchange. The governance protections afforded to our limited partners exceed those normally provided to limited partners of a partnership whose securities are listed for trading on the American Stock Exchange. In fact, the American Stock Exchange rules specifically exempt limited partnerships from these requirements.

        While the general partners were completing negotiations with plaintiffs' counsel, an unaffiliated third party began a series of mini-tender offers for certain of the merging partnerships. These mini-tender offers were initiated in the late fall of 2003 and early 2004 for limited partnership interests in NTS-IV, NTS-V, and NTS-VII. The mini-tenders were terminated until June 30, 2004, by the court order of February 26, 2004, in connection with the preliminary approval of the settlement in the Buchanan litigation. Prior to the termination of the mini-tenders, the third party purchased 111, 145 and 2,398 interests of NTS-IV, NTS-V and NTS-VII, for $200.00, $200.00 (20 of these interests were purchased for $230.00 per interest) and $5.75 per interest, respectively. In August 2004, the unaffiliated third party made additional mini-tender offers for interests in NTS-IV through NTS-VII. The respective general partners of NTS-IV, NTS-V and NTS-VII recommended that each of the mini-tender offers should be rejected because the value offered in each instance was inadequate and the mini-tender offers failed to provide limited partners with important procedural safeguards associated with tender offers.

Information about the Partnerships and ORIG

        Formation.    The partnerships were formed between 1982 and 1987. The business, objectives and termination date of each partnership follows:


NTS-Properties III

Business:   The partnership was formed to acquire, own and operate an office complex located in Jeffersontown, Kentucky, a suburb of Louisville, known as Plainview Plaza II, and a business park located in Norcross, Georgia, a suburb of Atlanta, known as Peachtree Corporate Center. The partnership also acquired an office complex located in Jeffersontown, Kentucky known as Plainview Triad North.
Objectives:   To provide the limited partners with cash distributions resulting from partnership operations.
    To provide the limited partners with additional cash distributions resulting from financing the properties which are not subject to federal income tax.
    To obtain long-term capital gain income on the sale or refinancing of the properties. To provide the limited partners with certain tax benefits, in the form of deferred federal income taxes.
    To preserve and protect the limited partners' capital.
Termination Date:   December 31, 2028.

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NTS-Properties IV

Business:   The partnership was formed to acquire, own and operate real property, which was either under development or proposed for development, on which the partnership would develop, construct, own and operate apartment complexes, business parks, and retail, industrial and office buildings located throughout the United States.
Objectives:   To provide the limited partners with cash distributions from property operations.
    To provide the limited partners with additional cash distributions resulting from financing the properties.
    To obtain long-term capital gain income on sale or refinancing of the properties. To provide the limited partners with certain tax benefits, in the form of deferred federal income taxes.
    To preserve and protect the limited partners' capital.
Termination Date:   December 31, 2028.


NTS-Properties V

Business:   The partnership was formed to acquire, own and operate, directly or by joint venture, unimproved or partially improved land, to construct and otherwise develop apartment complexes, business parks or retail, industrial and office buildings throughout the United States. The partnership was permitted to use up to 25% of its "funds available for investment" to acquire "fully improved properties." An affiliate of the general partner was permitted to act as construction manager in developing and constructing the properties, provided that the general partner was required to guarantee that all properties (other than "fully improved properties") would be completed at an aggregate cost to the partnership not to exceed 85% of the aggregate "as built appraised value" or "completed appraised value," whichever was greater, of the properties.
Objectives:   To generate cash available for distribution to the limited partners from property operations, a portion of which would be designed to be tax free during the early years of the partnership.
    To generate additional cash available for distribution to the limited partners from financing or refinancing fully developed properties.
    To obtain long-term capital gain on the sale of properties.
    To preserve and protect the limited partners' capital.
Termination Date:   December 31, 2060.

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NTS-Properties VI

Business:   The partnership was formed to acquire, own and operate, directly or by joint venture, unimproved or partially improved land, to construct and otherwise develop apartment complexes, residential facilities for the elderly, business parks or retail, industrial and office buildings throughout the United States. In addition, the partnership was permitted to invest up to 25% of the gross proceeds of its initial offering plus any amounts borrowed in "fully improved properties." An affiliate of the general partner was permitted to act as construction manager in developing and constructing the properties and was to render services in connection with property acquisitions. The general partner was required to guarantee that all properties (other than "fully improved properties") were to be completed at an aggregate cost to the partnership not to exceed 85% of the aggregate "to be built appraised value" or "completed appraised value," whichever was greater.
Objectives:   To generate cash available for distribution to the limited partners from property operations, a portion of which would be designed to be, tax free during the early years of the partnership.
    To generate additional cash available for distribution to the limited partners from financing or refinancing fully developed properties.
    To obtain long-term capital gain on the sale of properties.
    To preserve and protect the limited partners' capital.
Termination Date:   December 31, 2061.


NTS-Properties VII

Business:   The partnership was formed to acquire, own and operate, directly or by joint venture, unimproved or partially improved land, to construct and otherwise develop apartment complexes and other commercial properties. In addition, the partnership was permitted to invest up to 25% of the gross proceeds of its initial offering plus any amounts borrowed in "fully improved properties." An affiliate of the general partner was permitted to act as construction manager in developing and constructing the properties and was permitted to render services in connection with acquiring the properties. The general partner was required to guarantee that the total construction and development costs, excluding interest and certain other costs, did not exceed 85% of the aggregate "completed appraised value" of the properties.
Objectives:   To obtain long-term capital gain treatment on the sale of properties.
    To generate cash for distribution to the limited partners from financing or refinancing fully developed properties.
    To generate cash for distribution to the limited partners from operation of the properties, a portion of which would be designed to be tax free from federal income taxation.
    To preserve and protect the limited partners' capital.
Termination Date:   December 31, 2063.

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        Historical Information.    The table below sets forth a comparison of the capital raised and the distributions made to the partners of each partnership as of and through June 30, 2004:

Partnership

  Total Capital
Raised

  Aggregate
Distributions

  Portion of Aggregate
Distributions Paid to
General Partners

  Portion of Aggregate
Distributions Paid to
Limited Partners

NTS-III   $ 15,600,000   $ 11,556,830   $ 206,985   $ 11,349,845
NTS-IV     29,745,000     21,825,889     218,253     21,607,636
NTS-V     35,876,000     16,809,655     168,176     16,641,479
NTS-VI     47,435,000     12,127,661     121,277     12,006,384
NTS-VII     12,765,300     2,744,491     27,445     2,717,046
   
 
 
 
    $ 141,421,300   $ 65,064,526   $ 742,136   $ 64,322,390

Information About ORIG

        ORIG is a Kentucky limited liability company formed by Messrs. Nichols and Lavin in 1998 to, among other things, purchase limited partnership interests in the partnerships. Mr. Nichols is the manager of ORIG and owns one percent (1%) of ORIG's membership interests. Mr. Nichols' spouse owns seventy-four percent (74%) of ORIG's membership interests and Mr. Lavin owns the remaining twenty-five percent (25%) of the membership interests. Mrs. Nichols granted Mr. Nichols an irrevocable proxy to vote her interest in ORIG. Following the private entity restructuring, the entities comprising the NTS Private Group will own a separate class of membership interests in ORIG, through which they will share proportionately the indirect ownership of the Units issued in respect of ORIG's contribution to us of the assets and liabilities ORIG acquired from the NTS Private Group. Since 1998, ORIG or affiliates (including Mr. Nichols, his immediate family and other entities owned or controlled by Mr. Nichols or his immediate family) purchased the following limited partnership interests in the partnerships.

Partnership

  Number of Interests
  Percentage of Limited
Partner Interests

 
NTS-III   5,185(1 ) 41.25 %
NTS-IV   10,703(1 ) 44.39 %
NTS-V   14,566(1 ) 47.72 %
NTS-VI   18,726(1 ) 48.15 %
NTS-VII   226,306(1 ) 40.98 %

(1)
The general partners of the partnership own five limited partner interests in each of the partnerships which are not reflected in this chart because the general partners have never received any economic rights in connection with these interests and will receive no consideration in the merger with respect to these interests. The general partner interests of the general partners of the partnerships will entitle them to 756,099 Units in the merger.

        ORIG has entered into various agreements to acquire the NTS Private Group. These entities are owned substantially by Mr. Nichols or his affiliates, including his spouse. The transactions through which ORIG will acquire these assets and liabilities are known as the "private entity restructuring." The private entity restructuring must be completed concurrently with the closing of the merger. As a result of the private entity restructuring, ORIG will acquire substantially all of the real property owned by the NTS Private Group, consisting of twelve properties with an aggregate value of $63,090,000. As of June 30, 2004, ORIG had mortgage indebtedness and notes payable, assuming for these purposes that the private entity restructuring is completed, of $49,631,129.

        If the partnerships approve the merger with us, ORIG and its affiliates who own interests in the partnerships will be treated the same as all of the other limited partners. Thus, they will exchange all of

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the limited partnership interests they own for Units. As part of the class action settlement, ORIG has agreed to admit a "qualified settlement trust" as a special member of ORIG. This special member interest is being created for the benefit of the class members in the Buchanan litigation who are former limited partners who sold their limited partnership interests to ORIG, its affiliates or the partnerships either as part of tender offers, other repurchase programs or otherwise. Under the terms of ORIG's operating agreement, all of the economic and other rights associated with up to 620,000 Units owned by ORIG will be designated for the benefit of the qualified settlement trust. ORIG will own the Units; therefore the former limited partners will not be able to sell them on the public market. All of the rights associated with the Units will inure to the qualified settlement trust. Plaintiffs' counsel, or his designee, will have the right, acting as a representative of these former limited partners, to cause ORIG to vote these designated Units pursuant to his direction. The amount of Units was determined based on a $6.2 million settlement amount agreed upon by the general partners and Plaintiffs' counsel. Therefore, if each Unit is valued at $10.00, then the economic and other rights associated with 620,000 Units will be needed to satisfy the settlement amount. The final amount of the settlement, however, is based on the amount of valid claims filed by the former limited partners in the class of plaintiffs. If claims are not made for the full $6.2 million settlement amount, ORIG will designate the economic and other rights to fewer Units for the benefit of the qualified settlement trust to satisfy the claims. We refer to these designated Units as the "Class Units." ORIG will admit the qualified settlement trust as a member of ORIG rather than transfer Units to the qualified settlement trust or directly to the former limited partners in order to minimize the tax impact to ORIG and maximize the value available to the former limited partners in settlement of the class action litigation. If ORIG transferred the Units either to the qualified settlement trust or directly to the former limited partners, ORIG would recognize gain equal to the difference between its tax basis in the Units and their fair market value. This gain would be allocated to Mr. Nichols, his spouse and Mr. Lavin which would increase their personal income tax liability. By admitting the qualified settlement trust as a member of ORIG and avoiding the recognition of taxable gain, ORIG was able to agree to more favorable terms to the former limited partners under the settlement agreement.

        Under the terms of the settlement agreement governing the qualified settlement trust, Mr. Nichols, his spouse and Mr. Lavin are jointly obligated, for a period of two years, to pay the qualified settlement trust, an amount equal to seventy-five percent (75%) of the distributions that ORIG receives in respect of the Units owned by ORIG which otherwise would have gone to Mr. Nichols, his spouse or Mr. Lavin, in exchange for the economic and other rights associated with the number of Class Units calculated under the formulas described below. Each payment will result in the redesignation of rights associated with the number of Class Units equal to the amount of the distribution divided by 115% of the "fair market value" of the Units. As a result of each payment, the number of Class Units designated for the benefit of the qualified settlement trust will decrease until the economic and other rights associated with all of the Class Units are ultimately redesignated for the benefit of Mr. Nichols, his spouse and/or Mr. Lavin within two years of when we begin making distributions. If any Class Units remain at the end of this two-year period, the settlement agreement provides that Mr. Nichols, his spouse and Mr. Lavin must make a final payment to the qualified settlement trust that is sufficient to redesignate any remaining Class Units. For these purposes, fair market value will be equal to the average closing price of the Units on the American Stock Exchange for the thirty-day period prior to the date of the redesignation. If the distributions in respect of the Units owned by ORIG are not sufficient to allow Mr. Nichols, his spouse and Mr. Lavin to redesignate the economic and other rights associated with all of the Class Units, then Mr. Nichols, his spouse and Mr. Lavin must find alternate personal sources for the funds required to make the final payment at the end of the two-year period. The payment plan to the qualified settlement trust described above is the only manner in which the former limited partners will be paid to relinquish their economic and other rights in the Class Units. Because all of the rights associated with the Class Units will be redesignated for the benefit of Mr. Nichols, his spouse and/or Mr. Lavin by the end of the two-year period, Mr. Nichols, his spouse

61



and/or Mr. Lavin will eventually obtain the economic rights associated with the Class Units, and ORIG will eventually be entitled to vote the Class Units. Thus, Mr. Nichols, his spouse and Mr. Lavin will retain their ownership interest in ORIG (and indirectly in us) by making the required payments to the qualified settlement trust.

        Assume, for example, that during the two-year period described in the prior paragraph, we make a distribution to ORIG in which, based on the rights associated with the membership interests in ORIG owned by Mr. Nichols, his spouse and Mr. Lavin, their proportionate share of our distribution to ORIG would be equal to $100,000. Mr. Nichols, his spouse and Mr. Lavin would be required to pay $75,000 collectively to the qualified settlement trust. Assume further that 620,000 Units are Class Units, and 115% of the "fair market value" (the average closing price of the Units on the American Stock Exchange for the prior thirty-day period) of the Class Units is equal to $750,000. Upon receipt of the $75,000 payment by the qualified settlement trust, ORIG would redesignate the rights associated with 62,000 Class Units for the benefit of Mr. Nichols, his spouse and Mr. Lavin (pro rata based on their relative proportion of the $75,000 payment), and ORIG would continue to designate the rights associated with 558,000 Class Units for the benefit of the qualified settlement trust (620,000 – 62,000).

        Assume, for example, that, contrary to the prior example, we never make any distributions during the two-year period. Assume further, that at the end of the two-year period, 115% of the "fair market value" (under the formula described above) of the Class Units is equal to $1,000,000. Mr. Nichols, his spouse and Mr. Lavin would be required to pay $1,000,000 collectively to the qualified settlement trust from personal sources other than distributions from ORIG. Upon receipt of the $1,000,000 payment by the qualified settlement trust, ORIG would redesignate the rights associated with all of the Class Units for the benefit of Mr. Nichols, his spouse and Mr. Lavin (pro rata based on their relative proportion of the $1,000,000 payment), and ORIG would no longer designate the rights associated with any of the Class Units for the benefit of the qualified settlement trust.

        The use of $100,000 of distributions and values of $750,000 and $1,000,000 in the examples set forth above are purely for illustrative purposes and bear no relation to anticipated distributions or anticipated values.

Benefits of, and Reasons for, the Merger

        In deciding whether to recommend the merger (or, with respect to plaintiffs' counsel, the settlement, which includes the merger) to the limited partners and in negotiating the terms of the merger, the general partners, ORIG and plaintiffs' counsel considered the following benefits which they believed could be derived from the merger.

    Liquidity.    We have applied to list the Units on the American Stock Exchange. If the Units are approved for listing, you should be able to buy or sell the Units more easily than the limited partnership interests in your existing partnership. Presently, trading in the interests in each partnership is confined to a limited and, each general partner believes, inefficient secondary market.

    Majority of Directors are Independent.    NTS Realty Capital will have an annual meeting at which our limited partners will be able to elect its board of directors, the majority of whom will be "independent" under rules promulgated by the American Stock Exchange. In addition, NTS Realty Capital will have an audit committee composed entirely of independent directors.

    Related Party Transactions.    NTS Realty Capital will need approval of the majority of its independent directors to enter into any transaction with affiliates and to renew its one-year management agreement with NTS Development Company.

    Regular Cash Distributions.    Each partnership has suspended making distributions to its limited partners. Due in part to increased cash flows resulting from acquiring the properties owned by

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      the NTS Private Group and in part to the impact of refinancing the debt described below, we intend to begin paying distributions on a quarterly basis beginning with the first full quarter after completing the merger.

    Economies of Scale.    The merger should result in economies of scale not available to the partnerships. For example, if the merger is completed, the five partnerships, each of which is subject to the SEC's reporting requirements, will be merged into a single public entity. Our general partners estimate that the economies of scale will result in annual cost savings of over $500,000.

    Diversified Portfolio.    We will own a more diversified portfolio of properties than any of the partnerships both in terms of numbers and to some degree, geographic location. For example, we will own a total of thirty-two properties. The partnerships each own between three and ten properties. Further, we will be diversified to some degree by property type. For example, NTS-III owns only business center and office properties. The other partnerships own a combination of business center and office and multifamily properties. ORIG owns business center and office buildings, retail properties and a ground lease on property used as a parking lot. By owning a larger portfolio of properties than any of the partnerships, our operating results will be less dependent on the performance of any one tenant or property.

    Greater Access to Capital.    After completing the merger, we will have a larger asset and equity base than any of the individual partnerships. Based on our experience in the real estate industry and our discussions with lenders, we believe the size of our real estate portfolio, which will be much larger than the portfolio of any of the partnerships, may allow us to refinance the debt associated with the properties on more favorable terms than would be available to an individual partnership. For example, the addition of properties owned by the NTS Private Group, which have a combined appraisal value of $63,090,000 and debt of $49,631,129, will add significantly to the size of our portfolio. These properties generated net income of approximately $1.2 million for the year ended December 31, 2003 and $379,000 for the six months ended June 30, 2004. Greater access to capital would provide us with more financial stability and may provide funding for future property acquisitions. We have entered into a binding letter of intent with The Northwestern Mutual Life Insurance Company to refinance approximately $72.0 million of our debt simultaneously with the closing of the merger. The proposed refinancing would, among other things, lower the average interest rate on the debt from 6.8% to 6.0% and change the amortization schedule to thirty years from ten to fifteen years. If the merger and simultaneous refinancing of our properties occur based on the terms available to us today, the refinancing would allow us to reduce our annual principal and interest expense by approximately $6.7 million per year. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Resources—Future Liquidity" and "Risk Factors—We may be unable to refinance a portion of the debt that we will assume if the merger is completed."

    Settlement of Litigation.    As part of the settlement, plaintiffs' counsel negotiated or agreed to methods and procedures designed to maximize limited partner value and to improve and not cause a significant adverse change in the voting rights of limited partners, termination dates or investment objective. In addition, the settlement will eliminate the costly and protracted litigation which could affect the partnerships for some time if the merger is not approved. Finally, NTS Development will pay the partnerships an aggregate of $1.5 million as part of the settlement.

    General Partner Preferences.    Unlike the general partner of your partnership, neither NTS Realty Partners nor NTS Realty Capital will be entitled to preferential allocations or distributions.

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Detriments of the Merger

        Although your general partner is recommending that you approve the merger, summarized below are the detriments to you of the merger.

    Voting.    Prior to the merger, affiliates of your general partner owned and controlled between 40.98% and 48.15% of the limited partnership interests in each partnership. By owning less than a majority of the outstanding interests of each partnership, your general partner and its affiliates did not technically control the outcome of votes by the limited partners of your partnership. Following the merger, your general partner and its affiliates will own 57.18% of our Units (including the Units that will be voted by plaintiff's counsel on behalf of the qualified settlement trust and those Units owned by NTS Realty Partners that are not entitled to vote) and, thus, control the outcome of every vote of the limited partnership. The economic and other rights to up to 620,000 of these Units, however, will be designated for the benefit of the qualified settlement trust. Therefore, affiliates of our general partners will not be able to vote those Units for up to two years after we begin making distributions. In addition, the Units owned by NTS Realty Partners are not entitled to vote. For more information on the number of Units that affiliates of our general partners will control immediately after the merger and the designation of rights of certain Units to the qualified settlement trust, see "Summary—Partnership Units."

    Change in Nature of Investment.    Prior to the merger your partnership owned between three and ten properties either in whole or in part through a joint venture. After the merger we will initially own thirty-two properties, whose performance has each varied since the original investment. Thus if your partnership had properties that only performed well, your investment in our partnership will be negatively affected by the merger. In addition, the partnership agreements for each partnership do not permit the proceeds from property sales or refinancing of existing debt to be reinvested in new properties. Our partnership will be permitted to reinvest sale or refinancing proceeds in new properties, which may negatively affect the cash distributions made to you.

    Distributions.    Although we must distribute at least sixty-five percent (65%) of our net cash flow from operations as this term is defined by the Treasury Department under the Internal Revenue Code of 1986, as amended, there is no assurance that we will have any net cash flow from operations from which to pay distributions. For example, our partnership agreement permits our managing general partner to reinvest sales or refinancing proceeds in new or existing properties or to create reserves to fund future capital expenditures. Because net cash flow from operations is calculated after reinvesting cash or refinancing proceeds or establishing reserves, we may not have any net cash flow from operations from which to pay distributions.

Prior Performance of Affiliates

        The general partners of the partnerships and their affiliates have a significant amount of experience in the real estate industry. They have sponsored nine public programs, namely NTS-La Fontenay Partners, NTS Properties Plus, Ltd., NTS Mortgage Income Fund, NTS-Plainview Partners, 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. Seven of these programs remain in existence today. During the last ten years, they have sponsored forty different public or private real estate investment programs and have raised an aggregate of almost $325 million from over 18,500 investors. The majority of these forty programs have investment objectives similar to our objectives. Through these programs, the general partners and their affiliates have purchased or constructed an aggregate of eighty-eight properties in Kentucky, Georgia, Indiana and Florida. Approximately fifty-seven percent (57%) of these properties are commercial in nature, while the remainder are residential properties. These eighty-eight properties have an aggregate value of over

64



$400 million. The general partners or their affiliates constructed approximately eighty percent (80%) of the properties and purchased the remaining twenty percent (20%) of the properties after they were constructed. They have sold eight properties during the last ten years. None of the prior programs have acquired property within the last three years.

        There have been no major adverse business developments or conditions experienced by any of the prior programs during the last ten years, other than those affecting the real estate industry in general, the Buchanan litigation and Bohm litigation. During this period, the general partners and their affiliates have experienced interest rate volatility, changing climates within the lending environment, the broad impact of inflated real estate markets in the U.S. during the early 1990s and the subsequent devaluation of property values. In addition, the Louisville real estate market has experienced relatively flat commercial rents, which have affected certain of the prior programs. However, none of the prior programs has experienced any material adverse business developments or conditions. For more information on the Buchanan litigation and the Bohm litigation, please see "Description of the Litigation."

        The most recent annual report for each of the public partnerships is available for no fee upon written request. In addition, copies of any exhibits to such annual report will be provided, upon written request, for a reasonable fee. Alternatively, the annual reports are available at www.ntsdevelopment.com.

        Set forth below are tables that further describe the prior public and private real estate investment programs that have been sponsored by the general partners or their affiliates. None of our affiliates' offerings have closed within the last five years, none of their programs have completed operations within the last five years, and none of their properties have been acquired, sold or otherwise disposed of in the last three years.

Public

Number of programs sponsored     7  
Total raised from investors   $ 230,692,000  
Total number of investors     18,420  

Number of properties purchased/constructed:

 

 

 

 
  Kentucky     20  
  Georgia     1  
  Indiana     1  
  Florida     6  
  Virginia     1  
   
 
  Total     29  

Aggregate dollar amount of property purchased/constructed

 

$

283,839,000

 

Percentage of properties purchased/constructed based on commercial or residential:

 

 

 

 
  Commercial        
    Office     39 %
    Shopping Centers     0 %
    Other     0 %
  Residential     61 %

Percentage of properties purchased/constructed based upon new/used constructed:

 

 

 

 
  New     0 %
  Used     11 %
  Constructed     89 %

Number of properties sold

 

 

4

 

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Non-Public

Number of programs sponsored     33  
Total raised from investors   $ 93,152,000  
Total number of investors     247  

Number of properties purchased/constructed:

 

 

 

 
  Kentucky     59  
  Georgia     0  
  Indiana     0  
  Florida     0  
   
 
  Total     59  

Aggregate dollar amount of property purchased/constructed

 

$

120,743,000

 

Percentage of properties purchased/constructed based on commercial or residential:

 

 

 

 
  Commercial        
    Office     34 %
    Shopping Centers     12 %
    Other     21 %
  Residential     33 %

Percentage of properties purchased/constructed based upon new/used constructed:

 

 

 

 
  New     0 %
  Used     24 %
  Constructed     76 %

Number of properties sold

 

 

4

 

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FAIRNESS

General

        The general partner of your partnership believes the merger is fair when considered as a whole and is fair to, and in the best interest of, your partnership, each of the other partnerships and each limited partner such as yourself. Your general partner recommends that you and the other limited partners approve the merger. Your general partner believes the merger is fair for a variety of factors, including but not limited to:

    the structure, terms and conditions of the merger having been negotiated at arms'-length with plaintiffs' counsel acting on behalf of the limited partners;

    plaintiffs' counsel's responsibility to act in the best interests of the limited partners;

    comparing the potential benefits and detriments of the merger with the alternatives to the merger;

    the appraisals prepared by CBRE;

    the fairness opinion rendered by Houlihan;

    the process by which the Units were allocated between the general partner and each of the limited partners in your partnership;

    there are no significant adverse changes in the limited partners' rights to vote and to receive distributions or in each partnership's investment objectives and policies;

    the limited partners of the partnerships were given the opportunity to object to the settlement at the fairness hearing on May 6, 2004 that was held by the court in which the Buchanan litigation is pending;

    only six of the limited partners filed an objection to the settlement with the court and only thirty-one of the limited partners opted out of the settlement; and

    the court in which the Buchanan litigation is pending approved the settlement, which includes the merger, as fair, reasonable, adequate and in the best interests of the class of plaintiffs.

        Your general partner viewed these factors in the aggregate and did not specifically weight any of the factors.

        Your general partner believes that an investment in the Units will provide greater overall benefits to you and the other limited partners than the benefits that might be derived from a continuing investment in your partnership or selling your partnership's assets, distributing the proceeds and liquidating.

        Your general partner also believes that the merger is procedurally fair. First, the merger is required to be approved by the limited partners holding a majority of the outstanding interests in each partnership and is subject to the conditions set forth in "The Merger—General." Second, the general partners believe that the net asset value for each entity was determined on a consistent basis. Third, Houlihan, a recognized independent investment banking entity, has rendered a fairness opinion.

Material Factors Underlying Belief as to Fairness

        In determining that the merger is fair to you and the other limited partners of your partnership, your general partner considered the following material factors:

        Negotiation of Settlement; Court Approval.    The structure, terms and conditions of the merger were negotiated on an arms'-length basis as part of the settlement of the class action litigation with plaintiffs'

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counsel under the administration of the court in which the Buchanan litigation is pending. Your general partner noted that plaintiffs' counsel believes the settlement, which includes the merger, provides substantial benefits to all members of the class of plaintiffs and, in doing so, addresses directly the allegations of wrongdoing alleged in the complaints filed in the Buchanan litigation and Bohm litigation. Plaintiffs' counsel believes that the settlement, which includes the merger, is in the best interest of the limited partners. Further, plaintiffs' counsel negotiated or agreed to certain governance protections and other procedures to maximize limited partner value beyond those protections normally available to limited partners. These enhancements were intended to improve and not cause a significant adverse change in voting rights, termination dates or investment objectives. These enhancements include, among other things: (1) listing the Units and (2) allowing limited partners to elect directors. On May 6, 2004, the court in which the Buchanan litigation is pending held a fairness hearing, during which the limited partners of the partnerships were given the opportunity to object to the settlement, which includes the merger. Only six of the limited partners filed an objection to the settlement with the court and only thirty-one of the limited partners opted out of the settlement. The court approved the settlement as fair, reasonable, adequate and in the best interest of the class of plaintiffs.

        Similarity of the Partnerships and ORIG.    The general partners of the partnerships do not believe that there are any material differences among the partnerships or between the partnerships and ORIG that would affect the fairness of the merger to you or the other limited partners. The partnerships own substantially similar properties and have substantially identical investment objectives. These factors make it easier to compare the value of each partnership.

        The primary differences among the partnerships and between the partnerships and ORIG are as follows:

    Size and diversity.  Some of the partnerships own fewer properties and are less diverse with respect to the number of tenants and type of properties. For example, NTS-III and NTS-VII each own all or part of three properties, while NTS-IV owns all or part of ten properties. Further, NTS-V owns all or part of four business centers and one multifamily property, while NTS-VI owns all or part of five multifamily properties and one office building. In comparison, ORIG owns all or part of sixteen properties, including seven business centers and five office buildings, but no multifamily properties. For more information on the number and diversity of properties owned by each partnership, see "Business and Properties—Overview" and "Summary—Background and History of the Partnerships and ORIG."

    Indebtedness.  The partnerships have varying amounts of indebtedness. For example, as of June 30, 2004, NTS-IV has outstanding mortgages and notes payable of $4,480,036, while NTS-VI's outstanding mortgages and notes payable are $30,786,510. In comparison, ORIG has $49,631,129 of outstanding mortgages and notes payable as of June 30, 2004. For more information on the varying amounts of indebtedness for each partnership and ORIG, see "Business and Properties—Indebtedness."

    Appraisal Rights.  Limited partners of NTS-V and NTS-VI may, under Maryland law, dissent from the merger and receive a cash payment equal to the fair value of their respective partnership interests instead of Units. Limited partners of NTS-III, NTS-IV and NTS-VII do not have a similar right. For more information on the appraisal rights of the limited partners, see "Summary—Appraisal Rights in the Merger."

        Independent Appraisal and Fairness Opinion.    Your general partner relied, in part, on the fairness opinion prepared by Houlihan and on the real estate appraisals prepared by CBRE. Houlihan was asked by each general partner, with the consent of plaintiffs' counsel, to render an opinion as to the fairness, from a financial point of view, of the consideration to be received by the limited partners of each partnership in connection with the merger and the execution by us of the management agreement with NTS Development. As described further herein, Houlihan rendered its opinion based on net asset

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values as of September 30, 2003, and concluded that the consideration received by the limited partners of each partnership: (1) in relation to the consideration received by the general partner of their partnership; (2) in relation to the consideration received by the other entities; and (3) in connection with the management contract entered into between NTS Development and us, is fair from a financial point of view.

        Your general partner also relied on, and reviewed, the appraisals prepared by CBRE, independent appraisers selected by each general partner with the consent of plaintiffs' counsel to appraise the real properties owned, directly or indirectly, by the partnerships and ORIG as a result of the private restructuring. CBRE's appraisals are dated as of June 1, 2003, but the general partners do not believe that any events have occurred or conditions have changed since that date that would cause a material change in the value of the properties. CBRE was not engaged to represent the interests of the general partners or any specific group of limited partners. The general partners believe that engaging an independent expert to appraise these assets using a consistent methodology and criteria, increased the likelihood that the value of the assets would be determined on a fair, consistent and unbiased basis. The general partners will ask CBRE to update its appraisals prior to completing the merger if the general partners believe that events have occurred or conditions have changed that would have a material impact on the value of the properties that were appraised. Under any circumstances, a material change will be deemed to have occurred if the aggregate occupancy rate of the properties changes by more than ten percent (10%) or the aggregate rental income generated by the properties changes by more than five percent (5%) from September 30, 2003, based on quarterly comparisons. The aggregate rental income is the sum of the rental income generated by the properties and the amount of tenant reimbursements made with respect to the properties. The general partners may determine not to request an updated fairness opinion from Houlihan. The general partners anticipate that they will ask Houlihan to update its fairness opinion only if CBRE's appraisals are updated.

        Allocation of Units among ORIG and the Limited and General Partners of each Partnership.    At closing of the merger, the Units will be allocated among ORIG and the partners of the partnerships based on the net asset value of the assets reduced by the liabilities contributed by ORIG and the net asset value of the partnerships divided by $10.00, the value we selected for purposes of determining how many Units would be issued in respect of total net asset value, and increasing or decreasing the number of Units delivered to ORIG and each partner by rounding to the nearest whole Unit. We estimated a per Unit value of $10.00. This $10.00 value should not be viewed as a measure of fair market value of the Units or the trading price of the Units. See "Risk Factors—There is no prior market for the Partnership Units and the market price is likely to decline after the merger." For a description of the method we will use to determine net asset value, see "The Merger—General—Allocation of Units." Within each partnership, the Units will be allocated among the general partner and the limited partners in accordance with the provisions governing the distribution of liquidation proceeds contained in the partnership agreement for each partnership. The partnership agreements of NTS-III and NTS-IV require liquidation proceeds to be distributed in the same manner as the proceeds from a sale or refinancing of properties. The partnership agreements of NTS-V, NTS-VI and NTS-VIII require liquidation proceeds to be allocated in accordance with relative capital account balances after adjusting for any "built in" gain (or "built-in" loss) in the assets for tax purposes. See "Material Federal Income Tax Consequences—Taxation of Limited Partners."

Comparison of Merger with Alternatives

        Prior to proposing the merger and to evaluate the fairness of the merger, each general partner estimated the present value of the interests assuming each partnership was either liquidated or continued in business on a stand alone basis. To determine whether the merger would be more beneficial to limited partners than either one of the alternatives, the general partner of each partnership compared the potential benefits and detriments of the merger with the potential benefits

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and detriments of the alternatives. In comparing the benefits of the merger to the other alternatives, the general partners used the net asset value of each partnership determined for purposes of allocating the Units. The general partners noted that the net asset value of each partnership is not necessarily equivalent to the fair market value of the Units, which was not estimated for these purposes. The general partners concluded that allocating Units based on an estimate of fair market value could not be done with any measure of precision because any estimate of the fair market value of the Units would necessarily have to take into account the value of the benefits of the merger. These benefits include the cash flow generated by the properties owned by the NTS Private Group, potential economies of scale and the refinancing. In each general partner's view, these benefits cannot be allocated to the partnerships in an objective fashion. In the general partners' view, however, the fair market value of the Units likely would be greater than the net asset values used to determine the value of the Units (although, as noted elsewhere, the Units may trade at a lower value). For the reasons set forth below, each general partner determined that the merger is more beneficial to its limited partners than either of the alternatives.

Liquidating the Partnerships

        The first alternative considered by each general partner was to sell the assets of its partnership, pay off existing liabilities and distribute the net proceeds to the general and limited partners in accordance with the partnership agreement.

        Advantages of Liquidating.    Your general partner noted that liquidating your partnership would have the following potential advantages:

    You would receive a distribution following the wind up of your partnership. For more information on the liquidation distribution, see the chart included in "Summary—Alternatives to the Merger." This liquidating distribution could exceed the amount you could realize by immediately selling your Partnership Units following the merger. The table below illustrates the estimated liquidation value of a $1,000 original investment in each partnership.

 
  Estimated
Liquidation
Value Per $1,000
Investment

 
NTS-III   $ 789  
NTS-IV     690  
NTS-V     463  
NTS-VI     884  
NTS-VII     823 (1)

(1)
We have used the measure of per $1,000 of investment because that was the original per interest investment amount for each partnership except NTS-VII. We have converted NTS-VII's original investment amount of $20.00 per interest to allow consistent comparison.

You avoid the risks of continued ownership.

        Disadvantages of Liquidating.    Your general partner noted that liquidating your partnership would have the following potential disadvantages:

    Selling the assets on a portfolio basis to one or two buyers, would, in your general partner's view, likely result in reduced sale proceeds or other additional costs because the high concentration of the properties owned by the partnerships which are located in and around Louisville, Kentucky which, in your general partner's view, would not be able to absorb the sale

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      of the properties without incurring a discount of approximately 25% to 35% from a normal sales price;

    Selling on a property by property basis to reduce the discount would increase the time and expense associated with liquidating;

    The partnerships would have incurred prepayment penalties aggregating $7,580,010 if their debt were repaid on June 30, 2004, as further illustrated in the table below:

 
  Payment Penalties
As of June 30, 2004

NTS-III   $ 633,826
NTS-IV     483,656
NTS-V     729,995
NTS-VI     4,969,543
NTS-VII     762,990
   
  Total   $ 7,580,010
   
    The partnerships would have to establish reserves for the class action litigation or other future liabilities, which would reduce the proceeds available to be distributed to the partners. The general partners estimate that the aggregate amount of this liquidation reserve could be in excess of $3.0 million. The general partners, however, did not include a liquidation reserve in calculating the amount of the estimated liquidation distributions.

Continuing the Partnerships

        A second alternative to the merger is to continue each partnership as a separate, stand alone entity. Each partnership would continue to own its assets, subject to its liabilities and be governed by its existing partnership agreement.

        Advantages of Continuing as Stand Alone Entity.    The general partner of your partnership noted that continuing as a separate stand alone entity would have the following potential advantages:

    Each partnership would continue to own its assets subject to its liabilities and would pursue its investment objectives consistent with the guidelines, restrictions and safeguards contained in its limited partnership agreement;

    Each partnership's performance would not be affected by the performance of any other partnership's assets;

    There would be no change in the nature of any limited partner's investment or relative voting rights; and

    The limited partners would continue to be entitled to any preferences in distributing operating cash flow, to the extent the preference has not already been paid.

        Disadvantages of Continuing Partnerships.    Your general partner noted that continuing the partnership as a separate, stand alone entity would have the following potential disadvantages:

    The interests in each partnership would continue to be illiquid and difficult to value due to the lack of an established secondary market;

    The partnerships would be unable to list their respective interests on the American Stock Exchange or any other national securities exchange because each partnership, by itself, is unable to satisfy the listing standards of any national securities exchange;

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    None of the partnerships anticipate being able to pay distributions in the foreseeable future given their current capital situation;

    The economies of scale expected to be realized from the merger cannot be achieved by the partnerships;

    Each partnership would remain susceptible to the loss of a major tenant or the need for capital expenditures for a particular property;

    The general partners may be entitled to preferences in operating cash flow or distributions that would provide them with a greater interest than they would be entitled to after the merger; and

    Each partnership would have a continuing requirement to provide indemnity to the general partners in connection with the class action litigation.

        Comparative Analysis of Consideration.    To assist limited partners in evaluating the merger, the general partners compared:

    Estimates of the fair market value of the partnership interests on a liquidation basis assuming that the real estate assets of each partnership were sold at the appraised value reflected in the CBRE appraisal, the non-real estate assets were sold at book value, and the net proceeds after satisfying partnership liabilities and estimated prepayment penalties, all as of June 30, 2004, were allocated and distributed to the partners in accordance with the limited partnership agreements within one year; and

    Estimates of the fair market value of the partnership interests assuming that each partnership continues as a stand alone entity and their respective assets are sold at the end of a ten-year holding period. Due to the uncertainty in establishing these values, the general partners established a range of estimated values for the going concern alternative.

        The general partners noted that the value estimated for each of the alternatives depends on varying market conditions. Accordingly, no assurance can be given that the range of estimated values reflects the highest or lowest possible values. The general partners believe that the analysis of alternatives described below establishes a reasonable framework for comparing alternatives to the merger.

        The result of this comparative analysis is summarized in the table below. Limited partners should bear in mind that the estimated values are based on a variety of assumptions relating to, among other things:

    expectations as to each partnership's future income, expense and cash flow;

    the capitalization rates that would be used by prospective buyers;

    the appropriate rates to use in discounting projected cash flows; and

    the costs and manner of selling the properties.

        Further, as noted above, the net asset value of each partnership does not necessarily equal the fair market value of the Units. The estimates below are based upon information available to the general partners at the time the estimates were computed. No assurance can be given that the same conditions will exist at the time of, or following, the merger. The assumptions used have been determined by the general partners in good faith and, where appropriate, are based upon current and historical information regarding the partnerships and current real estate markets. No assurance can be given that the estimates set forth in the tables would be realized through any of the alternatives. Limited partners should carefully consider the following discussion to understand the assumptions, qualifications and limitations inherent in the estimates. Actual results may vary from those set forth below for a number

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of reasons, including fluctuations in interest rates, changes in real estate markets, tax law, and the supply and demand for properties similar to those owned by the partnerships.


Comparison of Alternatives
(Per $1,000 Investment)(1)

 
  Estimated
Liquidation Value(2)

  Estimated Going
Concern Value

  Net Asset Value
NTS-III   $ 789   $ 812   $ 835
NTS-IV   $ 690   $ 673   $ 729
NTS-V   $ 463   $ 461   $ 507
NTS-VI   $ 884   $ 1,014   $ 1,015
NTS-VII   $ 823   $ 841   $ 895

(1)
Adjusted for any preferences or amounts paid or allocable to the general partners. We use $1,000 per investment because that was the per interest investment amount in each partnership except NTS-VII. Because the original issue price of the NTS-VII interests was less than $1,000 per interest, we divided $1,000 by the original purchase price of an NTS-VII interest to determine the number of interests that could be purchased originally with $1,000.

(2)
For purposes of this analysis, the general partners did not discount the values of the properties to account for the significant concentration of the properties in or near Louisville, Kentucky.

        Estimated Going Concern Values.    Each general partner estimated the going concern value of its partnership assuming that it continues to operate as a separate stand alone entity. A going concern analysis differs from a liquidation analysis which assumes that each partnership immediately commences an orderly sale of its properties and distributes the net proceeds to its general and limited partners. The going concern analysis done by each general partner estimated the present value of the limited partnership interests in each partnership, assuming that each partnership is operated as an independent stand alone entity during an assumed holding period of ten years and sells its properties at the end of the ten-year period.

        In calculating the going concern value, each general partner assumed that its partnership's existing debt would be repaid in accordance with its existing terms over the course of the ten-year holding period and adjusted the outstanding mortgage balance accordingly. Each general partner estimated revenues, operating expenses, general and administrative costs, capital expenditures and leasing costs at each property and assumed that distributions would not be paid to limited partners except for a liquidating distribution to be paid at the end of the tenth year. Importantly, for purposes of this analysis, each general partner did not include the expenses which would be generated by each partnership's continuing obligation to indemnify its general partner in the class action litigation. If the litigation were not settled, however, these expenses would continue.

        To determine the net proceeds from the sale of the properties, each general partner assumed that its partnership's properties would be sold in the tenth year at the value reflected in CBRE's appraisal. The CBRE appraisals were based on discounted cash flows or direct capitalization of net operating income. CBRE selected the method in its sole discretion. The net proceeds resulting from the sale of the properties, after repaying all liabilities (including the adjusted mortgage balances) and assuming the present value of other assets and liabilities (other than mortgages) would be the same as their current values, were then assumed to be distributed to the limited and general partners in accordance with the provisions of each partnership's limited partnership agreement governing the allocation and distribution of liquidation proceeds. The calculation of net proceeds did not include expenses associated with liquidating the partnership, such as selling commissions.

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        The distribution to the limited partners in year ten was discounted to present value at the discount rates indicated below. The result is a range of estimated going concern values per $1,000 investment in each partnership. Among the factors influencing the discount rates utilized for each partnership were leverage, quality and location of the portfolio, lease rates and turnover. The rates are consistent with the discount ratio used by CBRE in its study and the general partners' view of market rates.

        The estimated value of each partnership interest on a going concern basis is not intended to reflect the distributions payable to limited partners if the assets of each partnership were to be sold at their current fair market values.


Going Concern Analysis

 
  NTS-III
  NTS-IV
  NTS-V
  NTS-VI
  NTS-VII
 
 
  Direct
Cash
Flow
Analysis

  Direct
Capitalization
Approach

  Direct
Cash
Flow
Analysis

  Direct
Capitalization
Approach

  Direct
Cash
Flow
Analysis

  Direct
Direct
Capitalization
Approach

  Cash
Flow
Analysis

  Direct
Capitalization
Approach

  Direct
Capitalization
Approach

 
Revenues   N/A   1,497,739   N/A   2,047,228   N/A   4,218,078   N/A   10,356,884   1,920,468  
Operating Expenses   N/A   515,520   N/A   757,214   N/A   1,766,850   N/A   4,418,723   704,733  
Reserves   N/A   28,710   N/A   32,083   N/A   26,006   N/A   232,290   39,154  
Net Operating Income   N/A   953,509   N/A   1,257,931   N/A   2,425,222   N/A   5,705,871   1,176,581  
Debt Service   N/A   N/A   N/A   N/A   N/A   N/A   N/A   N/A   N/A  
Lease up Discount   N/A   N/A   N/A   75,348   N/A   560,211   N/A   N/A   N/A  
Avg. Operating Cash Flow   1,381,454   N/A   846,233   N/A   329,778   N/A   396,997   N/A   N/A  
Residual Value   5,098,802   N/A   3,376,532   N/A   1,472,840   N/A   1,454,112   N/A   N/A  
Annual Discount Rate—Low Value   13.50 % 11.25 % 12.04 % 9.19 % 10.25 % 9.84 % 13.50 % 8.38 % 9.13 %
Annual Discount Rate—High Value   12.50 % 10.75 % 11.23 % 8.68 % 9.75 % 9.33 % 12.50 % 7.88 % 8.63 %
Going Concern—Low Value   11,827,733   8,475,636   7,749,441   13,845,325   2,805,000   24,173,213   3,441,377   68,085,211   13,427,051  
Going Concern—High Value   12,605,444   8,869,851   8,327,149   14,668,425   3,528,000   25,516,388   3,660,821   72,406,160   14,243,625  
GC Value per CBRE Report   12,200,000   8,150,000   8,036,000   14,141,295   3,000,000   24,559,265   3,564,000   70,528,510   13,740,090  
Mortgage Debt & Notes Payable       (5,001,490 )     (3,897,635 )     (10,469,152 )     (25,955,635 ) (2,916,521 )
Net Other Assets & Liabilities       59,736       (142,983 )     (762,498 )     (1,664,962 ) 4,782  
Partnership Costs       (1,468,001 )     (1,742,909 )     (2,168,771 )     (4,163,003 ) (1,337,876 )
Going Concern Value       13,940,245       16,393,767       14,158,844       42,308,910   9,490,475  
Going Concern Low Range Value       13,893,613       15,811,239       13,577,792       39,742,988   9,177,435  
Going Concern High Range Value       15,065,540       17,212,046       15,643,967       44,283,381   9,994,009  

        Estimated Liquidation Values.    In estimating the liquidation value of each partnership interest, the general partners assumed that the real properties owned by each partnership would be sold at the appraised values reflected in the CBRE report and the other assets sold at book value. For purposes of this analysis, the general partners did not discount the values to account for the significant

74



concentration of properties located in or near Louisville, Kentucky. See "Risk Factors—Our properties depend upon the economy in and around Louisville, Kentucky." The general partners did not include any estimate of selling and liquidation costs, such as real estate commissions and legal and other closing costs, although these costs would reduce the ultimate amount available to be distributed to limited partners. The liquidation analysis assumed that the portfolio of each partnership would be sold over the course of one year. In each case, the general partners assumed that all outstanding liabilities, such as the mortgages (including any prepayment penalties), would be repaid prior to distributing any monies to the limited partners. The general partners did not include reserves for indemnification obligations associated with the class action litigation even though these likely would be required if the class action or any other litigation was not resolved. The need to provide this indemnity would extend the timing of any distribution of liquidation proceeds to limited partners and likely would reduce the amount ultimately distributed to limited partners. The general partners did not include this reserve in calculating the estimated liquidation distributions because they desired to compare the benefits of the merger with the most favorable outcome in a liquidation scenario.

        Secondary Market Prices.    The limited partnership interests of each partnership are not traded on an organized exchange and the general partners do not expect one to develop. From time to time, these interests have traded on a limited basis on an informal secondary market in which a small group of independent securities brokerage firms act as intermediaries in matching up buyers and sellers of publicly-registered, non-traded limited partnerships. These nine independent firms, according to Direct Investments Spectrum, consist of: Advantage Partnership Board, Alliance Partnership Services; American Partnership Board; Frain Asset Management; MacKenzie Patterson Fuller; National Partnership Exchange; Pacific Partnership Group; Partnership Marketing Company and A-1 Partnership Service Network. The price for the interests in each partnership was established by the price paid to limited partners in previous transactions by the partnerships, ORIG, other affiliates or unaffiliated third parties.

        As noted above, the partnerships and affiliates of the general partners, such as ORIG, purchased limited partnership interests pursuant to tender offers or in privately negotiated transactions. The chart below sets forth the number of interests in each partnership that were purchased by the partnerships, ORIG or other affiliates of the general partners. The price that the partnerships, ORIG or other affiliates paid to purchase the interests in each partnership differed over time because the purchasers were exceeding the price offered by unaffiliated third parties in the secondary market or other tender offers at any given time.

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Partnership

  Date of Last
Tender Offer
by ORIG or
the Partnership

  Date of Purchase by
Affiliate or the Partnership

  No. of Interests
Purchased(1)

  Price
Per Period

  Highest Purchase
Price by Affiliate
in the Last 12 Months

NTS-III   September 2002   March 1995-January 1997   1,555       $ 315.00
        April 1998-May 2001   4,413 (2)        
        October 2001-April 2002   1,479          
        September 2002-May 2003   716          
       
 
         
        Total/Weighted Avg. Price   8,215 (3)        

NTS-IV

 

September 2002

 

April 1995-June 1998

 

3,940

(4)

 

 

$

230.00
        July 1998-August 2000   5,106 (5)        
        December 2000-May 2003   7,284 (6)        
       
 
         
        Total/Weighted Avg. Price   16,339 (7)        

NTS-V

 

September 2002

 

January 1996-March 1997

 

2,620

 

 

 

$

230.00
        April 1998-June 1998   1,484          
        May 1998-June 1998   209          
        August 1998-September 1998   20          
        February 1999-September 1999   4,981          
        December 1999-May 2003   10,426 (8)        
       
 
         
        Total/Weighted Avg. Price   19,921 (9)        

NTS-VI

 

September 2002

 

December 1995-September 1997

 

4,743

(10)

 

 

$

380.00
        October 1997-June 1998   1,414          
        July 1998-January 1999   3,090          
        September 1999-October 1999   2,821          
        December 1999-May 2003   15,069 (11)        
       
 
         
        Total/Weighted Avg. Price   27,272 (12)        

NTS-VII

 

September 2002

 

February 1996-June 1997

 

40,745

 

 

 

$

6.50
        February 1998-April 2002   221,054 (13)        
        September 2002-May 2003   50,536          
       
 
         
        Total/Weighted Avg. Price   312,335          

(1)
The number of interests purchased does not reflect the five interests in each partnership that the respective general partners received upon each partnership's formation because the general partners have never received any economic rights in connection with these interests and will receive no consideration in the merger with respect to these interests.

(2)
Includes 135 interests purchased in February 2000 for $286.49 per interest and 14 interests purchased in May 2001 for $270.00 per interest.

(3)
Includes 52 interests purchased during or prior to November 1994. No information on the purchase price of these interests is available.

(4)
Includes 5 interests purchased in November 1995 for $152.00 per interest; 26 interests purchased in January 1996 for $154.00 per interest; 5 interests purchased in July 1996 for $152.00 per interest; and 43 interests purchased in June 1998 for $160.00 per interest.

(5)
Includes 155 interests purchased in August 1998 for $150.00 per interest and 565 interests purchased in February 2000 for $241.82 per interest.

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(6)
Includes 70 interests purchased in May 2001 for $267.50 per interest and 64 interests purchased in May 2001 for $250.00 per interest.

(7)
Includes 9 interests purchased during March 1995 for $130.00 per interest.

(8)
Includes 1,604 interests purchased in February 2000 for $265.55 per interest; 43 interests purchased in May 2001 for $250.00 per interest; and 20 interests purchased in May 2001 for $267.50 per interest.

(9)
Includes 20 interests purchased during or prior to July 1995 for $112.00 per interest; 20 interests purchased during September 1995 for $130.00 per interest; 27 interests purchased during October 1995 for $150.00 per interest; and 114 interests purchased during November and December 1995 for $140.00 per interest.

(10)
Includes 66 interests purchased in January 1996 for $255.00 per interest; 15 interests purchased in February 1996 for $285.00 per interest; and 6 interests purchased in June 1997 for $267.00 per interest.

(11)
Includes 675 interests purchased in February 2000 for $416.49 per interest; 165 interests purchased in May 2001 for $400.00 per interest; and 141 interests purchased in May 2001 for $417.50 per interest.

(12)
Includes 135 interests purchased during or prior to November 1995, 75 of which were purchased at $260.00 per interest and 40 of which were purchased at $234.00 per interest. No information on the purchase price is available for 20 interests purchased in 1991.

(13)
Includes 5,040 interests purchased in October 1998 for $4.00 per interest; 2,251 interests purchased in February 2000 for $6.70 per interest; and 1,014 interests purchased in April 2001 for $6.40 per interest.

        Neither the partnerships, nor affiliates such as ORIG, have purchased any interests since May 2003. Since this date, the interests of each of the partnerships have traded sporadically in the secondary market. The chart below sets forth the number of interests traded in each partnership since

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May 2003, the date of the last purchase of interests by the partnerships, ORIG or other affiliates of the general partners.

Partnership

  Dates of Purchases
by Third Parties

  No. of Interests
Purchased by
Third Parties

  Price Per Month
  Weighted Average
Purchase Price

NTS-III   N/A   N/A     N/A     N/A
   
 
           

NTS-IV

 

January 31, 2004

 

10

 

$

200.00

 

 

 
    December 31, 2003   41   $ 200.00      
    November 30, 2003   13   $ 255.00      
    September 30, 2003   10   $ 230.00      
    July 31, 2003   5   $ 215.00      
    June 30, 2003   22   $ 215.00      
    April 30, 2003   2   $ 201.12      
   
 
           
        Total   103         $ 213.81
   
 
           

NTS-V

 

February 29, 2004

 

30

 

$

200.00

 

 

 
    January 31, 2004   38   $ 200.00      
    January 31, 2004   5   $ 257.00      
    October 31, 2003   2   $ 220.00      
    September 30, 2003   15   $ 263.00      
    August 31, 2003   20   $ 257.00      
    April 30, 2003   2   $ 205.00      
   
 
           
        Total   112         $ 221.61
   
 
           

NTS-VI

 

December 31, 2003

 

30

 

$

430.00

 

 

 
    December 31, 2003   10   $ 425.00      
    December 31, 2003   5   $ 385.00      
    November 30, 2003   5   $ 358.93      
    September 30, 2003   14   $ 401.75      
    May 31, 2003   20   $ 350.00      
   
 
           
        Total   84         $ 398.74
   
 
           

NTS-VII

 

February 29, 2004

 

1,500

 

$

5.75

 

 

 
    November 30,2003   818   $ 7.00      
    August 31, 2003   1,546   $ 6.50      
    May 30, 2003   500   $ 5.51      
   
 
           
        Total   4,364         $ 6.22
   
 
           

        In addition to the information included in the chart above, between November 2003 and January 2004, third parties commenced "mini-tender" offers for interests in NTS-IV, NTS-V and NTS-VII. Two of the third parties proposed to pay $200 per interest for up to 4.9% of the outstanding limited partner interests in each of NTS-IV and NTS-V. In addition, a third party offered to pay $5.75 per interest for up to 4.9% of the outstanding limited partner interests in NTS-VII. A "mini-tender" is an offer that is structured to avoid the filing, disclosure and procedural requirements designed to protect investors. The general partners of NTS-IV, NTS-V and NTS-VII recommended rejecting the offers.

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        Assumptions, Limitations and Qualifications.    In evaluating the alternatives to the merger, the general partners noted that the prices at which the Partnership Units trade may be affected by, among other things:

    sales of Units by investors who previously have not been able to sell as a result of the historic illiquidity of the limited partner interests;

    our lack of an operating history;

    the unfamiliarity of institutional investors, financial analysts and broker/dealers with us and our prospects as an investment when compared with other equity securities; and

    the historical financial performance of the partnerships.

        We cannot predict how these factors will affect the price of the Partnership Units. The price at which the Units trade may be either lower or higher than the value of $10.00 used in computing the number of Units to be issued in the merger. We estimated a per Unit value of $10.00.

Fairness in View of Conflicts of Interest

        A general partner is accountable to a limited partnership as a fiduciary and, consequently, must exercise good faith and integrity in handling partnership affairs. This is a rapidly developing and changing area of the law. If you have questions concerning the duties of your general partner, you should consult with your counsel.

        In addition to the specific duties and obligations imposed under the partnership agreement, each general partner has a fiduciary duty to the limited partners of its partnership. In managing the affairs of its partnership, the general partner is required to act in good faith, to use reasonable care in conducting the partnership's affairs and to act with an undivided duty of loyalty to the limited partners. In the case of the merger, your general partner is required to assess whether the merger is fair and equitable, taking into account the unique characteristics affecting value (such as the partnership's estimated revenues and expenses and the prospects for increases or decreases in future cash flows), and comparing these factors against similar factors affecting the value of the assets held by the other partnerships. To assist the general partners in fulfilling their fiduciary obligations, each general partner engaged Houlihan to render a fairness opinion and CBRE to appraise the real estate owned by each entity. The general partners believe that they have fulfilled their fiduciary duties in reaching their recommendation. The general partners will ask CBRE to update its appraisals prior to the completion of the merger if the general partners believe that events have occurred or conditions have changed that would have a material impact on the value of the properties that were appraised. Under any circumstances, a material change will be deemed to have occurred if the aggregate occupancy rate of the properties changes by more than ten percent (10%) or the aggregate rental income generated by the properties changes by more than five percent (5%) from September 30, 2003, based on quarterly comparisons. The general partners may determine not to request an updated fairness opinion from Houlihan. The general partners anticipate that they will ask Houlihan to update its fairness opinion only if CBRE's appraisals are updated.

        Nevertheless, in determining whether or not to approve the merger, limited partners should consider that the merger affords a number of benefits to the general partners and their affiliates, such as ORIG, including among others: (1) settlement of the class action litigation and corresponding releases from liability for the general partners and their affiliates, including Messrs. Nichols, Lavin, Wells and Mitchell, (2) the assumption of $49,631,129 of debt from ORIG, assuming for these purposes that the private entity restructuring is completed as of June 30, 2004, (3) the continued payment of management fees and expenses to NTS Development Company, which we estimate will be approximately $5.7 million during the first twelve months after the merger is completed, (4) Messrs. Nichols, Lavin and Wells will serve as officers or directors of our general partners, and (5) an increase

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in the percentage of Units that ORIG and the other entities affiliated with each general partner will own from approximately 41% to 48% of the interests in each partnership to 57.18%, or 6,719,249 of our Units, with Mr. Nichols controlling all of these Units (except for up to 620,000 Units that plaintiffs' counsel may vote for up to two years after the merger is completed), and (6) the properties we are acquiring from ORIG were purchased, or constructed, and improved by affiliates of our general partners at a total aggregate cost of $55.5 million, but the $7.6 million difference in the appraised value of the properties (approximately $63.1 million) will benefit ORIG when it exchanges these properties for our Units. By virtue of their respective ownership interests in some or all of the entities comprising the NTS Private Group, Mr. Nichols will receive the benefit from approximately $5.7 million of the aggregate difference and Mr. Lavin will receive the benefit from approximately $1.9 million. See "Conflicts of Interest—Substantial Benefits to General Partners and their Affiliates." Further, the general partners may not be liable to its respective partnership or limited partners for acts or omissions not amounting to negligence or misconduct because provision has been made in the various partnership agreements for the exculpation of the general partners. Therefore, limited partners have a more limited right of action than they would have absent the limitation in the partnership agreements.

        The partnership agreements provide for indemnification of the general partners by the partnerships for liabilities the general partners incur with respect to their activities on behalf of the partnerships or in furtherance of the interests of the partnerships. The general partners, however, cannot be indemnified for liabilities arising under the Securities Act of 1933 because, in the opinion of the Securities and Exchange Commission, such indemnification is contrary to public policy and is not enforceable.

Allocation of Units

        General.    We will calculate each partnership's net asset value beginning with the total appraised value of each partnership's real estate as determined by CBRE in determining the final net asset value for each partnership and the final net asset value of the assets reduced by the liabilities contributed by ORIG, on the "Determination Date." In the case of a property owned jointly with another partnership or entity, we will multiply the appraised value of the property by the partnership's percentage interest in the joint venture or entity. We will then add the book value of the other assets (excluding for these purposes straight line rent receivables and prepaid leasing commissions), the payment to be made by NTS Development Company to each of the partnerships as described herein, and subtract the partnership's outstanding liabilities, including debt secured by the properties owned by the partnership, its share of any joint venture liabilities and any amounts paid to lenders to allow us to assume the entity's debt. For a discussion of the monies to be paid by the NTS Development Company as part of the class action settlement, see "—Payments to Lenders." For these purposes, the "Determination Date" will be a date not more than ten days after the date the general partner of each partnership issues a joint press release or files a report on Form 8-K announcing receipt of the necessary consents from limited partners to approve the merger. To determine the amount of each entity's debt, we will request pay off letters from the holders of each debt confirming the absence of any defaults and the amount outstanding as of the last day of the month immediately preceding the month in which the Determination Date occurs. We will determine the amount of other assets reduced by liabilities by referring to the latest balance sheet filed by each partnership with the SEC before the Determination Date. We will compute the net asset value of the assets reduced by the liabilities contributed by ORIG in the same manner. Because ORIG does not file financial statements with the SEC, we will use its most recently available balance sheet prior to the Determination Date. Prior to the Determination Date, we will issue a press release, and each partnership will file a report on Form 8-K, announcing the net asset value for each partnership and ORIG and the number of Units to be issued to each entity.

        To allocate the Units among ORIG and the partners of the partnerships, we will divide ORIG's net asset value by $10.00, the value of the Units that we selected for this purpose, and we will divide

80



the net asset value distributable to each partner under the terms of each partnership agreement by $10.00. In each case, the number of Units delivered will be increased or decreased by rounding to the nearest whole Unit. We estimated a per Unit value of $10.00. This $10.00 estimated value should not be viewed as a measure of the fair market value or trading price of the Units. See "Risk Factors—There is no prior market for the Partnership Units and the market price is likely to decline after the merger." Within each partnership, the Units will be allocated among the general partner and the limited partners in accordance with the liquidation provisions of each partnership's partnership agreement. The partnership agreements of NTS-III and NTS-IV require liquidation proceeds to be distributed the same manner as proceeds from a sale or refinancing of properties. The partnership agreements of NTS-V, NTS-VI and NTS-VII require liquidation proceeds to be allocated in accordance with the relative capital account balances of the partners after adjustment for any "built in" gain (or "built in" loss) in the assets for tax purposes. NTS Realty Partners will own 756,099 Units as the successor in interest to the existing general partners of the partnerships. These Units are being issued based on an allocation of the net asset values of each partnership among the various general partners and limited partners in accordance with the liquidation provisions of each partnership's partnership agreement.

        The following table sets forth, assuming the Determination Date was June 30, 2004:

    the net asset value of each partnership and the net asset value of the assets reduced by the liabilities contributed by ORIG;

    the number of Units that would be issued to each partnership and ORIG;

    the value of the Units you would receive for each $1,000 of your original investment; and

    the number of Units per $1,000 of your original investment.

        The actual net asset value calculated on the Determination Date for each partnership and ORIG likely will be different than illustrated below because:

    each entity will continue repaying debt; and

    the other assets and liabilities for each entity likely will increase and decrease, respectively.

 
  Net Asset
Value

  Number of Units
Allocated

  Net Asset Value per $1,000
Original Limited
Partner Investment

  Percentage of
Total Units
Allocated

  Number of Units per $1,000
Original Limited
Partner Investment

NTS-III   $ 14,521,528   1,452,167 (1) $ 835   12.35 % 83
NTS-IV   $ 17,756,775   1,775,780 (1) $ 729   15.11 % 73
NTS-V   $ 15,593,618   1,559,294 (1) $ 507   13.27 % 51
NTS-VI   $ 42,364,037   4,236,131 (1) $ 1,015   36.05 % 101
NTS-VII   $ 10,231,148   1,023,091 (1) $ 895   8.71 % 89
ORIG   $ 17,054,960   5,699,758 (2)   N/A   48.50 % N/A
   
 
       
   
Total:   $ 117,522,066   11,751,959     N/A   100.00% (3) N/A

(1)
The number of Units issued to each partnership is not equal to one-tenth of the net asset value of the partnership because the terms of the merger require Units to be determined at the partner level, with the Units awarded to each partner rounded to the nearest whole Unit.

(2)
ORIG will receive 1,705,496 Units in exchange for its contribution of assets and liabilities to us and 3,994,262 Units in exchange for its interests in the partnerships as a result of the merger.

(3)
Includes the 1,705,496, or 14.51%, of our Units tht ORIG will receive in exchange for its contribution of assets and liabilities.

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        How we calculated the net asset value per $1,000 original investment for each partnership.    We calculated the net asset value per $1,000 of original limited partner investment by dividing the total value of Units to be issued to the limited partners in the partnership by the total original capital invested by the current limited partners (or their predecessors) in the partnership, and multiplying the quotient by 1,000. The supplement for each partnership illustrates the specific calculation of this value for the partnership. To determine the approximate value of the Units you will receive, multiply the figure in the last column, titled "Number of Units Per $1,000 Original Partner Investment," by the amount of your original investment divided by $1,000.

        Why we are showing a $1,000 original investment even though you may have originally invested more or less than $1,000 in your partnership.    We used a $1,000 original investment to more easily illustrate the values with a round number. In order to determine the approximate value of the Units you will receive, multiply the figure in the last column, titled "Number of Units per $1,000 Original Limited Partner Investment," by the amount of your original investment divided by $1,000.

        Why the Partnership Units may trade at prices below $10.00.    The net asset value for each entity will be divided by $10.00 to determine the number of Units to be issued in respect of each entity's net asset value. We estimated a per Unit value of $10.00. As noted above, the net asset value of each partnership is not necessarily equivalent to the fair market of the Units. In the general partner's view, the fair market value of the Units likely would be greater than the net asset values used to determine the exchange value of the Units even though the Units may trade at a lower value because the market may not view the value of the Units in the same fashion. First, the $10.00 value represents a pro rata portion of each entity's net asset value. In the hands of each individual limited partner, unaffiliated with ORIG, each Unit will represent a minority interest in us. Minority interests typically trade at a discount to the net asset value of an entity as a whole. Second, the market might value our assets differently by, for example, applying higher discount rates to our cash flows than applied by CBRE in its appraisal. Third, downward pressure may be put on the trading price as a result of limited partners who choose to sell Units as soon as the merger is completed. Thus, the Partnership Units may trade below $10.00 per Unit and may never trade above $10.00 per Unit.

        The table below sets forth the net asset value of each entity calculated as of June 30, 2004:

Derivation of Net Asset Values

Entity

  Appraised Value
of Real Estate(1)

  Mortgage Debt
and Notes Payable(1)

  Net Other Assets
and Liabilities(1)

  Payments by
NTS Development

  Net Asset
Value

NTS-III   $ 20,350,000   $ (6,090,708 ) $ 59,736   $ 202,500   $ 14,521,528
NTS-IV     22,177,295     (4,480,037 )   (142,983 )   202,500     17,756,775
NTS-V     27,559,265     (11,514,216 )   (796,431 )   345,000     15,593,618
NTS-VI     74,092,510     (30,786,511 )   (1,664,962 )   723,000     42,364,037
NTS-VII     13,740,090     (3,540,724 )   4,782     27,000     10,231,148
ORIG     67,096,140     (49,631,129 )(2)   (410,052 )   N/A     17,054,960

(1)
Reflects the pro rata ownership percentage that the entity holds in each property. These amounts do not reflect the balance sheet amounts for a particular entity because, for financial reporting purposes, an entity that owns greater than fifty percent (50%) of a property is allocated the total mortgage debt, notes payable or value of other assets or liabilities attributable to that property.

(2)
Includes debt of $13,430,908 of ORIG, which is secured by, among other things, ORIG's interests in the partnerships and a pledge by Messrs. Nichols and Lavin of their interest in NTS/BBC, L.P., and a pledge by Messrs. Nichols and Lavin and NTS Future R.P. Corporation for their interests in

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    NTS Mall Limited Partnership. Messrs. Nichols and Lavin have jointly and severally guaranteed this debt.

        Net Other Assets and Liabilities.    The following table sets forth the components of each entity's "Net Other Assets and Liabilities" as of June 30, 2004:

Entity

  Cash(1)
  Net Accounts
Receivable and
Other Assets(2)

  Straight-Line
Rent
Receivables(3)

  Prepaid Leasing
Commissions(3)

  Rent Deposits
Accounts Payable
and Other
Liabilities(4)

  Total
 
NTS-III   $ 381,510   $ 1,262,496   $ (798,438 ) $ (272,098 ) $ (513,734 ) $ 59,736  
NTS-IV     391,948     381,352     (125,296 )   (110,249 )   (680,738 )   (142,983 )
NTS-V     900,558     1,205,579     (491,326 )   (495,451 )   (1,915,791 )   (796,431 )
NTS-VI     696,957     537,075     2,987     (67,410 )   (2,834,571 )   (1,664,962 )
NTS-VII     184,751     70,333     0     (11,708 )   (238,594 )   4,782  
ORIG     1,101,544     1,369,279     (658,716 )   (678,690 )   (1,543,469 )   (410,052 )

(1)
Cash and cash equivalents and cash restricted.

(2)
Net Accounts Receivable and Other Assets includes tenant and insurance receivables, accrued interest and rents receivable, reserve for uncollected rent, and accounts receivable from affiliates.

(3)
Straight-Line Rent Receivables and Prepaid Leasing Commissions are assets derived from treatments prescribed by GAAP. The general partners believe that CBRE has made provision in its appraisals for the underlying value in these assets in each property's appraisal value. Including these assets as part of Net Other Assets and Liabilities would give rise to a double counting of their value. Accordingly, they are deducted in arriving at Net Other Assets and Liabilities.

(4)
Rent Deposits, Accounts Payable and Other Liabilities consist of accrued interest payable, accounts payable and accrued expenses, prepaid rental income, security deposits and accounts payable to affiliates.

        Allocation of Units Among the Partnerships and ORIG.    The following table illustrates the allocation of our Units among each of the partnerships and ORIG.

Entity

  Net Asset
Value
of Entity

  Unit
Allocation

  Percentage of Total Net
Asset Value/Percentage
of Total Units Issued

 
NTS-III   $ 14,521,528   1,452,167 (1) 12.35 %
NTS-IV     17,756,775   1,775,780 (1) 15.11 %
NTS-V     15,593,618   1,559,294 (1) 13.27 %
NTS-VI     42,364,037   4,236,131 (1) 36.05 %
NTS-VII     10,231,148   1,023,091 (1) 8.71 %
ORIG(2)     17,054,960   1,705,496   14.51 %
   
 
 
 
Total:   $ 117,522,066   11,751,959   100.00 %

(1)
The number of Units issued to each partnership is not equal to one-tenth of the net asset value of the partnership because the terms of the merger require Units to be determined at the partner level, with the Units awarded to each partner rounded to the nearest whole Unit.

(2)
The allocation to ORIG includes only Units that ORIG will receive by contributing its assets reduced by liabilities to us (and excludes any Units ORIG will receive as a limited partner of the partnerships).

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        Merger Expenses.    The following table sets forth the components of the merger expenses paid or accrued through June 30, 2004, by each entity in connection with the merger. Each partnership is paying the fees and expenses with funds generated from property operations. In addition, NTS Development Company has agreed to defer the payment of certain fees and expenses it has earned or is entitled to be reimbursed as the manager of the partnerships' properties. These deferred fees and expenses are not currently accruing interest. ORIG is paying its share of the fees and expenses with funds provided by additional capital contributions by Mr. Nichols and from a bank loan.

 
  NTS III
  NTS IV
  NTS V
  NTS VI
  NTS VII
  ORIG
  TOTAL
Appraisals   $ 8,500   $ 7,500   $ 12,500   $ 17,000   $ 3,000   $ 30,500   $ 79,000
Fairness Opinion     19,321     37,070     46,731     59,761     16,850     44,933     224,666
Solicitation                                          
Legal     109,089     207,924     262,662     335,299     94,871     240,204     1,250,049
Printing & Mailing                                          
Accounting     65,847     126,335     159,295     203,676     57,447     146,298     758,898
Title, Transfer & Recording                                          
Legal Closing Fees                                          
   
 
 
 
 
 
 
Total:   $ 202,757   $ 378,829   $ 481,188   $ 615,736   $ 172,168   $ 461,935   $ 2,312,613

        Cash Distributions.    The following table sets forth the amount of cash distributions made by each partnership to its respective general partner and limited partners during the past five years.

Partnership

  Class
  1999
  2000
  2001
  2002
  2003
NTS-III   General Partner     0     0   0   0   0
    Limited Partners     0     0   0   0   0

NTS-IV

 

General Partner

 

 

0

 

 

0

 

0

 

0

 

0
    Limited Partners     0     0   0   0   0

NTS-V

 

General Partner

 

$

12,649

(1)

 

0

 

0

 

0

 

0
    Limited Partners   $ 1,252,275 (1)   0   0   0   0

NTS-VI

 

General Partner

 

$

4,005

(1)

 

0

 

0

 

0

 

0
    Limited Partners   $ 396,514 (1)   0   0   0   0

NTS-VII

 

General Partner

 

$

1,138

(2)

$

840

(4)

0

 

0

 

0
    Limited Partners   $ 112,646 (3) $ 83,236 (5) 0   0   0

(1)
The entire cash distribution is a return of capital.

(2)
$369 is a return of capital.

(3)
$36,519 is a return of capital.

(4)
$550 is a return of capital.

(5)
$54,477 is a return of capital.

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FAIRNESS OPINIONS AND REAL ESTATE APPRAISALS

Fairness Opinion

        General.    The partnerships, each by their respective general partner and ORIG, with the consent of plaintiffs' counsel, retained Houlihan to opine on the fairness, from a financial point of view, of the consideration to be received by the limited partners in connection with the merger, including the new management agreement with NTS Development. The full text of the opinion delivered by Houlihan, including a description of the assumptions and qualifications made, matters considered and limitations imposed on Houlihan's review and analysis, is set forth in Appendix A and should be read in its entirety. Certain of the material assumptions, qualifications and limitations to the fairness opinion are described below. The summary set forth below does not purport to be a complete description of the analyses used by Houlihan in rendering its opinion.

        Houlihan, as part of its investment banking business, is regularly engaged in valuing businesses and securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for corporations, estates and other purposes. The partnerships based their selection of Houlihan on several factors, including experience, reputation and price. Houlihan is a nationally recognized investment banking firm that is engaged in providing financial advisory services and rendering fairness opinions in connection with mergers and acquisitions, leveraged buyouts, business and securities valuations for a variety of regulatory and planning purposes and recapitalizations, financial restructurings and private placements of debt and equity securities.

        The partnerships and ORIG have agreed to indemnify Houlihan against certain liabilities arising out of Houlihan's engagement to prepare and deliver the fairness opinion. Upon consummating the merger, we will assume these indemnity obligations.

        In connection with its engagement, Houlihan was not asked to serve as financial advisor to plaintiffs' counsel or any other party in negotiating the terms of the merger. Plaintiffs' counsel and the defendants did not place any limitation on the scope of Houlihan's investigation or review.

        Houlihan was not asked to opine on the underlying business decision to effect the merger. Houlihan did not negotiate the merger or advise the partnerships, their respective general partners, or limited partners with respect to possible alternatives to the merger. Houlihan did not, and was not requested by any of the partnerships or any other person to, solicit third party indications of interest in acquiring all or any part of the partnerships, their properties or other assets or the limited partnerships' interests or to make any recommendations as to the form or amount of consideration in connection with the merger. Also, Houlihan was not requested to, and did not, analyze potential alternative transactions to the merger. Houlihan was not asked to opine and has not expressed any opinion as to:

    the tax consequences of the merger, including, but not limited to, the impact of any federal, state or local income taxes to the limited partners arising out of the merger;

    the legal consequences to any of the partnerships or their respective limited partners that may arise out of the merger;

    the realizable value of limited partnerships' interests or the prices at which the Units may trade in the future following the merger; or

    the fairness of any aspect of the merger or any other related transactions not expressly addressed in its fairness opinions.

        Houlihan did not perform an independent appraisal of the assets of the partnerships. The opinion does not constitute a recommendation to any limited partner as to how they should vote with respect to the merger or any other proposal to be considered. Houlihan has no obligation to update its opinion.

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        Summary of Materials Considered.    In the course of Houlihan's analysis, and in arriving at its opinion, Houlihan:

    held discussions with our senior management and the general partners of the partnerships to discuss the merger, the partnerships, the operations, financial condition, future prospects and performance of the assets held by the partnerships and ORIG;

    held discussions with CBRE to discuss the properties held by the partnerships;

    held discussions with the general partners and others involved in determining the method for allocating the Units among the general and limited partners of each partnership;

    visited the business offices of NTS Corporation and certain properties held by the partnerships;

    reviewed the public partnerships' annual reports to shareholders on Form 10-K for each of the three fiscal years ended December 31, 2002, 2001 and 2000 and quarterly reports on Form 10-Q for each of the three quarters ended March 31, April 30, and September 30, 2003; which the general partners identified as being the most current financial statements available;

    reviewed internally prepared financial statements for the properties held by the partnerships for each of the three fiscal years ended December 31, 2002, 2001 and 2000 and interim financial statements for the six month period ended June 30, 2003;

    reviewed financial statements related to the mortgage of the properties held by the partnerships dated September 30, 2003;

    reviewed the draft Limited Appraisal Summary Report of NTS Real Estate Portfolio prepared by CBRE as of June 1, 2003, including forecasts and projections included therein with respect to the properties for the years ending December 31, 2004 through December 31, 2013;

    reviewed a copy of the draft NTS Realty Holdings Limited Partnership Form S-4, including supplements, dated January 30, 2004;

    reviewed the draft Management Agreement by and between NTS Realty Holdings Limited Partnership and NTS Development Company;

    reviewed the Amended and Restated Agreement of Limited Partnership of NTS-Properties III, executed on September 23, 1982;

    reviewed the Amended and Restated Agreement of Limited Partnership of NTS-Properties IV, executed on July 29, 1983;

    reviewed the Amended and Restated Agreement of Limited Partnership of NTS-Properties V, executed on April 30, 1984;

    reviewed the Amended and Restated Agreement of Limited Partnership of NTS-Properties VI, executed in 1985;

    reviewed the Amended and Restated Agreement of Limited Partnership of NTS-Properties VII, Ltd., executed on February 11, 1988;

    reviewed the amended and restated partnership agreements of the private partnerships;

    reviewed the Schedule of Net Other Assets and Liabilities for the public partnerships, as of September 30, 2003;

    reviewed a draft copy of the allocation spreadsheet prepared for each public partnership dated January 16, 2004;

    reviewed certain other publicly available financial data for certain properties that Houlihan deems comparable to the properties held by the partnerships; and

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    conducted other such analyses, studies and investigations as Houlihan deemed appropriate under the circumstances for rendering the opinion expressed herein.

        You are urged to read the full text of the Houlihan opinion carefully and in its entirety. The following is a summary of the material financial analyses used by Houlihan in connection with providing its opinion.

Determination of Fairness—Allocation of Units Between the Partnerships and ORIG

        In evaluating the fairness of the allocation of the Units between the partnerships and ORIG, Houlihan observed that the allocation of the Units was determined based on the net asset value of each entity, which was based substantially on the independent appraisal provided by CBRE adjusted for, among other things, outstanding debt. Accordingly, in connection with its fairness opinion, Houlihan reviewed the CBRE appraisals and the adjustments made thereto and performed independent analyses to confirm the reasonableness of the net asset value of each entity.

        The first step in Houlihan's analyses was to determine the estimated "Enterprise Value" of each entity. For these purposes Enterprise Value is the value of the assets of an entity without regard to its capital structure. For real estate holding entities, Enterprise Value is frequently referred to as "Net Asset Value."

        Houlihan considered the partnerships' properties to be the primary assets of the partnerships. Accordingly, Houlihan concluded that the value of these properties, plus respective adjustments for each entity's other assets, served as a reasonable proxy for the Enterprise Value of each entity. In order to determine the estimated Enterprise Value of each entity Houlihan primarily used the "Appraised Value Approach" based upon the CBRE appraisals.

        Appraised Value Approach.    Houlihan reviewed the CBRE appraisals which concluded an appraised value of each of the properties as of June 1, 2003. In connection with the Appraised Value Approach, Houlihan held discussions with CBRE regarding its appraisals and certain underlying assumptions and conclusions set forth in the appraisals, held discussions with senior management of the general partners to discuss the CBRE appraisals, as well as changes in the real estate market, if any, since the date of the CBRE appraisals, and performed various analyses using publicly available information to independently evaluate the reasonableness of certain of the assumptions and conclusions set forth in the CBRE appraisals.

        Specifically, Houlihan reviewed, as appropriate, the key assumptions and conclusions set forth in the CBRE appraisals, particularly with respect to the net operating income and selected capitalization rate for each property, as follows:

    Houlihan confirmed that the estimated net operating income for each property was consistent with: (1) the historical (or stabilized) operating results of the properties, including the most recent results; (2) current market rental and occupancy rates for the partnerships' properties; (3) projected future cash flow and operating performance; (4) projected future lease expirations (or renewal) of the partnerships' properties; and (5) the general condition and estimated replacement costs of certain equipment and fixtures in the partnerships' properties.

    Houlihan noted that CBRE's utilized capitalization rates (which ranged from a low of 8.5 percent to a high of 11.5 percent) were applied to net operating income. Houlihan analyzed the reasonableness of CBRE's capitalization rates by reviewing publicly available information regarding capitalization rates exhibited in transactions involving assets similar in type and location to the properties. For these purposes, Houlihan reviewed publicly available information published by Market Monitor, a publication that compiles pricing information for transactions involving real estate assets in major metropolitan areas, PricewaterhouseCoopers, Korpacz Real Estate Investor Survey ("Korpacz") and Green Street Advisors.

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    Houlihan also noted that CBRE's utilized discount rates (which ranged from a low of 9.5 percent to a high of 13 percent) were applied to the properties' cash flows. Houlihan confirmed the reasonableness of the discount rates utilized by CBRE by reviewing publicly available information on discount rates based on transactions involving assets similar in type and location to the properties published by Korpacz.

        Houlihan also considered that there are other methodologies for determining the value of an entity, (for example, the discounted cash flow analysis or the market multiple/comparable sale analysis). However, Houlihan noted that the Appraised Value Approach is focused on the actual properties owned by the partnerships, while any other approaches would focus on comparables that may be similar (but not identical) to the properties. Houlihan also noted that the methodologies underlying the CBRE appraisals are consistent with the market multiple/comparable sale analysis and the discounted cash flow analysis, and therefore such methodologies are inherent in the conclusions of the Appraised Value Approach.

        Based upon the foregoing, Houlihan concluded that the CBRE appraisals reasonably reflected the value of the properties owned by the partnerships. Accordingly, Houlihan based its determination of the value of each partnership based on the CBRE appraisals.

        Adjusted Enterprise Value Range Determination.    Houlihan used the CBRE appraisals to determine the value of the properties owned by the entities. However, Houlihan noted that the appraisals did not adjust for any debt specific to any property, certain of the properties are owned across multiple entities and the entities may have other assets (such as cash) or liabilities (such as payables) that impact their value. Accordingly, Houlihan considered and made the following adjustments to the CBRE appraisals to determine the amount of equity in the properties that would be available to the asset owning entities:

    deduction of any current mortgage debt and notes payable outstanding for each property;

    addition of certain cash and cash equivalents of each partnership;

    consideration of certain working capital items of each partnership; and

    deduction of settlement payments by NTS Development, pursuant to the settlement agreement.

        These adjustments result in a range of equity values for each partnership, and as a result a calculation of the relative value of each partnership vis-à-vis each other. Houlihan noted that its methodology for determining the value of each entity (and therefore its relative value) is consistent with the methodology proposed by the general partners. Houlihan therefore confirmed that the proposed net asset values and resulting allocation of Units between the partnerships and ORIG was consistent with Houlihan's independent analyses.

Determination of Fairness—Allocation of Units Between the General Partner and the Limited Partners of Each Partnership

        In addition to considering the allocation of Units to each partnership (as set forth above), Houlihan considered the allocation of Units within each partnership between the general partners and the limited partners of each partnership. In this regard Houlihan observed that the allocation of the Units was determined based on: (1) the net asset values (as set forth above); and (2) the provisions in the partnership agreements of each partnership regarding the allocation of liquidation proceeds between the general and limited partners of each partnership.

        Houlihan reviewed each partnership agreement and held discussions with the general partners and others involved in determining the method for allocating the Units among the general and limited partners of each partnership resulting from the net asset values. Houlihan did not independently calculate the allocation of the proceeds, but rather, based upon its review of the partnership agreements and discussions with the general partners and others involved in determining the method

88



for allocating the Units, concluded that the allocation of Units between the general partner and limited partners of each partnership was consistent with the liquidation provisions of each partnership as set forth in the partnership agreements.

Determination of Fairness—Management Contract with NTS Development

        Houlihan reviewed each partnership agreement with respect to the fees that each partnership pays to an affiliate of the general partner for management services. Specifically, Houlihan noted that the partnerships currently pay affiliates of their general partners:

    property management fees that generally range from a low of 5 percent to a high of 6 percent, depending on asset type (this number may vary according to market rates and the duration of the lease);

    construction management fees that generally range from 4.75 percent to 5.9 percent; and

    repair and maintenance fees that are based upon written agreement, actual costs, 1 percent of gross revenue, or reimbursement of costs plus an incremental fee.

        Houlihan also noted that the partnerships will continue to operate, based upon their existing partnership agreements for a period of 25 to 60 years. Accordingly, the partnerships, in all likelihood, would continue to pay fees to affiliates of their general partners for the same period.

        Houlihan also reviewed management fees customarily charged by property managers for externally managed REITs and publicly traded limited partnerships whose primary assets are real estate. Houlihan noted that:

    externally managed REITs whose primary assets are multifamily property have management fees ranging from a low of 1.6 percent to a high of 6.4 percent with a median of 4.4 percent.

    externally managed REITs whose primary assets are commercial property have management fees ranging from a low of 0.5 percent to a high of 4.7 percent with a median of 2.3 percent.

    limited partnerships with holdings consisting primarily of real estate have management fees ranging from a low of 2.25 percent to a high of 7.32 percent with a median of 4.5 percent.

        Houlihan compared the existing fee structures to the proposed fee structure, and the existing expected duration of the partnerships to the proposed term of the management agreement. Houlihan noted that the management agreement provides for fees that are equal to, or less than, those fees currently being paid by the partnerships, and that the term of the management agreement is less than the likely duration of the partnerships (and therefore less than the likely period that the affiliates of the general partners would receive fees).

        Conclusions.    Houlihan concluded that, based upon its analysis and the assumptions, limitations and qualifications thereto, and as of the date of the information considered in the fairness opinion, that: (i) the allocation of Units among the public partnerships and ORIG, (ii) the allocation of Units between the general partner and the limited partners of each public partnership, and (iii) the financial terms of the new management agreement between NTS Development Company and us is fair to the limited partners of each of the public partnership from a financial point of view.

        Assumptions.    Houlihan, in rendering its opinion, relied on, without independently verifying, the accuracy and completeness of all financial and other information contained in this joint consent/prospectus, or that was otherwise furnished or communicated to Houlihan by the partnerships, ORIG or any of their respective partners or members, or that was publicly available. Houlihan did not

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independently evaluate or appraise the assets or liabilities of the entities. Houlihan also relied on the assurance provided by the general partners and ORIG, that:

    the calculations made to determine allocations between joint venture participants and within each partnership between the general partner and limited partners are consistent with the provisions of each joint venture agreement and each partnership's partnership agreement;

    any financial projections, pro forma statements, budgets, value estimates or adjustments provided to Houlihan were reasonably prepared by the general partners in good faith on bases consistent with actual historical experience;

    no material changes have occurred in the real estate values subsequent to June 1, 2003, which are not reflected in the net asset values herein; and

    the partnerships, the general partners and ORIG are not aware of any information or facts regarding the partnerships, ORIG, or the real estate portfolios that would cause the information supplied to Houlihan to be incomplete or misleading.

        Limitations and Qualifications of Fairness Opinion.    Houlihan did not:

    select the method of determining the allocation of Units or establish the allocations; or

    make any recommendations to the limited partners, the general partners or the partnerships regarding the merger.

        Houlihan also did not express any opinion on:

    the impact of the merger;

    the tax consequences of the merger on the limited partners, the general partners or the partnerships;

    our potential capital structure or its impact on the financial performance of the Units;

    the potential impact on the fairness of the allocations of any subsequently discovered environmental or contingent liabilities;

    whether or not alternative methods of determining the allocation of Units to be issued would have also provided fair results or results substantially similar to the methodology used by the general partners;

    the impact, if any, on the trading price of the Units resulting from the decision of limited partners to sell the Units in the market following the closing of the merger;

    the business decision to effect the merger or alternatives to the merger; and

    the number of Units owned by affiliates of the general partner and their ability to influence voting decisions.

        In arriving at its opinion, Houlihan reviewed key economic and market indicators, including, but not limited to, growth in the U.S. gross domestic product, inflation rates, interest rates, consumer spending levels, manufacturing productivity levels, unemployment rates and general stock market performance. Houlihan's opinion is based on the business, economic, market and other conditions as they existed as of February 2, 2004. In rendering its opinion, Houlihan relied upon and assumed, without independent verification, the accuracy and completeness of the financial and other information prepared by the general partners or ORIG and provided orally or in writing to Houlihan and that such financial and other information was reasonably prepared by the general partners or ORIG, as the case may be, in good faith on bases consistent with actual historical experience and that no material changes have occurred to the information reviewed between the date the information was provided and the date of Houlihan's opinion. Houlihan did not independently verify the accuracy or completeness of the information supplied to it with respect to the entities and does not assume responsibility for it. Houlihan did not make any independent appraisal of the properties or other assets of the partnership.

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Houlihan considered the appraisals and allocation spreadsheet described herein in reaching its conclusions.

        The summary set forth above describes the material points of more detailed analyses performed by Houlihan in arriving at its opinion. The preparation of a fairness opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and application of those methods to the particular circumstances and is therefore not readily susceptible to summary description. In arriving at its opinion, Houlihan made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Houlihan believes that its analyses and the summary set forth herein must be considered as a whole and that selecting portions of its analyses, without considering all analyses and factors, or portions of this summary, could create an incomplete or inaccurate view of the processes underlying the analyses set forth in Houlihan's fairness opinion. In its analyses, Houlihan made numerous assumptions with respect to the partnership, the merger, industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the respective entities. The estimates contained in these analyses are not necessarily indicative of actual values or predictive of future results or values, which may be more or less favorable than suggested by the analyses. Additionally, analyses relating to the value of businesses or securities of a partnership are not appraisals. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty.

        Compensation and Material Relationships.    The partnerships and ORIG will pay Houlihan a fee of $200,000 for preparing the fairness opinion. In addition, Houlihan will be reimbursed for all reasonable out-of-pocket expenses, including legal fees, subject to an aggregate maximum limit of $25,000 without the general partners' prior written approval. Houlihan also will be indemnified against liabilities, including liabilities under the federal securities laws. The fee was negotiated among the partnerships, the general partners and Houlihan. Payment of the fee to Houlihan is not dependent on the merger being completed. Neither the partnerships on the one hand, nor ORIG or any of its affiliates on the other hand, have previously retained Houlihan to perform services.

Real Estate Appraisals

        Appraisal.    The partnerships, each by their respective general partner, and ORIG, with the consent of plaintiffs' counsel, retained CBRE to opine on the value of the real estate owned by each partnership and by ORIG as a result of the private entity restructuring. A copy of CBRE's appraisal is attached hereto as Appendix E. These appraisals were used to calculate the net asset value of each partnership and the net asset value of the assets contributed by ORIG. Although the appraisals are not necessarily indicative of the price at which these assets would sell, the valuation methodology utilized generally seeks to estimate the most probable price at which each property would sell in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgably, and assuming the price is not affected by undue stimulus. Implicit in CBRE's definition is consummating a sale as of a specified date and the passing of title from seller to buyer under conditions where:

    the buyer and seller are typically motivated;

    both parties are well informed or well advised, and acting in what they consider their own best interests;

    a reasonable time is allowed for exposure in the open market;

    payment is made in U.S. dollars or comparable financial arrangements; and

    the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

        Summary of Methodology.    CBRE performed a limited appraisal as defined by the Uniform Standards of Professional Appraisal Practice. CBRE's analysis was limited to the "income capitalization

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approach." CBRE concluded that, because the properties owned by the partnerships and ORIG are income producing, limiting the appraisal approach to the "income capitalization approach" was appropriate and reasonable. CBRE included information regarding improved sales in its appraisal report for informational purposes only. The general partners believe that use of the "income approach" to value the properties owned by the partnerships and ORIG is appropriate because it corresponds with the method generally used by purchasers to value income producing property.

        CBRE derived its values under the "income capitalization approach" using either the direct capitalization method or a discounted cash flow or DCF analysis. CBRE developed rental projections for each property based on a lease and market rent analysis using the terms of existing leases and for any vacant space, an analysis of market rents and historical rents achieved at the property. Appropriate adjustments were made where lease terms included percentage rent provisions.

        CBRE analyzed lease renewals and turnovers based upon escalated current market rental rates. The annual market rent escalation rates utilized were based on local market conditions in the area of each property, inflation rates, the projected holding period of the property and rental rate growth parameters applied by investors in similar type properties. The renewal option was assumed to be exercised where projected market rental rates at the time of the renewal option materially exceeded contractual lease renewal rates.

        Vacancy and collection losses were factored into CBRE's analysis where appropriate. A property management fee deemed appropriate for retaining a professional real estate organization to manage the specific type of property was included in the projections. Expenses relating solely to the administration of the partnerships such as investor reporting and accounting were excluded.

        CBRE analyzed the expenses based upon a review of actual expenses for the fiscal years ended December 31, 2000, 2001 and 2002, respectively. CBRE also reviewed budgeted expenses for 2003 and published data on expenses for similar type properties, and the most recent tax bills and information for each property. Finally, where a capital expense reserve, deferred maintenance or extraordinary capital expenditure was required for an individual property, the cash flows and value were adjusted accordingly.

        Market Rent Conclusions.    Market rents for each property were based on a review of the contract rents and lease abstracts (where applicable) as compared to current asking rates for the subject and those of competitive properties.

        Vacancy and Collection Loss.    The projected stabilized occupancy rate for each property was based on historical performance and economic conditions in the subject's vicinity.

        Operating Expense Analysis.    In estimating the operating expenses for the various subject properties, the actual operating history and current budgets were analyzed as well as those obtained from recognized industry publications or comparable properties.

        Direct Capitalization.    Direct capitalization refers to a method used to convert a single year's estimated stabilized net operating income into a value by dividing the net operating income by a capitalization rate. The capitalization rate used was based on both current comparable sales activity and current investor expectations via various published survey data reviewed by CBRE making allowances for risk factors such as above or below market rent or occupancy.

        In the case of the apartment properties, CBRE determined the gross potential rent for each property based on the number and type of apartment units in each property and the estimated market rental rates deemed appropriate for the property based on review of the rates charged at similar properties in the local market and historical and current rental rates at the subject property. CBRE also reviewed income from ancillary sources, and historical and current occupancy rates at the subject and competing properties.

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        After assessing these factors, CBRE estimated each property's effective gross income based on unit mix and market rental rates and estimates of ancillary income and occupancy. Expenses were estimated based on historical and budgeted operating expenses, discussions with management, and certain industry expense information. Estimated property operating expenses, including replacement reserves, were then deducted from effective gross income to arrive at each property's estimated net operating income.

        CBRE then employed the direct capitalization method to estimate the value of each stabilized apartment property by dividing net operating income by a capitalization rate deemed appropriate based on reviews of parameters utilized by investors in apartment properties and data on transactions involving apartment properties.

        Discounted Cash Flow Analysis.    The DCF method values a property by projecting operating cash flows and net sales proceeds and then discounting these projected cash flows and sales proceeds to present value. In calculating values using this method, CBRE considered such factors as income and expense growth rates, terminal capitalization rates and discount rates. Specific tenant assumptions were analyzed and projected based upon current lease terms, market lease terms, expense structures, leasing commissions, tenant improvements and renewal probability projections.

        In the course of performing the DCF method, CBRE reviewed available sales transactions of similar properties as well as market data relating to overall capitalization rates for similar properties in the general location of the subject properties. CBRE selected terminal capitalization rates based upon these reviews and considered factors such as age, quality, anticipated functional and economic obsolescence, competitive position of the property, the projected date of sale, and buyers' acquisition criteria.

        Net operating income during the twelve months following the lease expiration was estimated based on current market rents, estimated escalation factors, and the estimated vacancy rate and other property operating expenses incurred by the owner. The resulting net operating income estimate was capitalized to determine residual value. The residual value was discounted to present value after deducting estimated sales expenses. The discount rate employed was based on current acquisition criteria and target rates of return among commercial property investors. The resulting discounted present values of operating cash flows and net sale proceeds were then added together for each property to arrive at an estimated discounted present value.

        In conducting the appraisal, CBRE reviewed and relied upon, without independent verification, information supplied by the general partners and NTS Development including:

    schedules of current lease rates and terms, income, expenses, capital expenditures, cash flow and related financial information;

    property descriptive information and rentable square footage; and

    information relating to the condition of each property, including any deferred maintenance, the status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements.

        Representatives of CBRE also physically inspected some of the properties. In the course of these site visits, CBRE inspected the physical facilities of the properties and gathered information on the local market and the subject property. Information on the local market was also gathered via telephonic surveys and reviews of published information.

        In addition, CBRE discussed the condition of each property, including any deferred maintenance, renovations, reconfigurations and other factors affecting the physical condition of the improvements, competitive conditions in the property markets, tenant trends affecting the properties, certain lease terms, and historical and anticipated lease revenues and expenses with the general partners. CBRE also reviewed historical operating statements and the operating budgets for the properties and reviewed the

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acquisition criteria and parameters used by real estate investors utilizing published information and information derived from interviews with buyers, owners and managers of real property portfolios. The chart below sets forth the aggregate value of each entity's real estate portfolio.

Entity

  Real Estate Portfolio
Value Conclusion

 
NTS-III   $ 20,350,000  
NTS-IV   $ 22,177,295 (1)
NTS-V   $ 27,559,265 (2)
NTS-VI   $ 74,092,510 (3)
NTS-VII   $ 13,740,090 (4)
ORIG   $ 67,096,140 (5)
   
 
Total   $ 225,015,300  
   
 

(1)
This amount includes a pro rata amount of the value from each of the following joint venture interests: (1) 4.96% in Plainview Point Office Center Phase III; (2) 29.61% in Blankenbaker Business Center 1A; (3) 10.92% in each of Lakeshore Business Centers, Phases, I, II and III; (4) 9.7% in The Willows of Plainview Phase II; and (5) 3.97% in Golf Brook Apartments.

(2)
This amount includes a pro rata amount of the value from each of the following joint venture interests: (1) 81.19% in each of Lakeshore Business Centers, Phases I, II and III, and (2) 90.30% in The Willows of Plainview Phase II.

(3)
This amount includes a pro rata amount of the value from each of the following joint venture interests: (1) 96.03% in Golf Brook Apartments and (2) 95.04% in Plainview Point Office Center Phase III.

(4)
This amount included a pro rata amount of the value from a 31.34% joint venture interest in Blankenbaker Business Center 1A.

(5)
This amount includes a pro rata amount of the value from each of the following joint venture interests: (1) 39.05% in Blankenbaker Business Center 1A and (2) 7.69% in each of Lakeshore Business Centers Phases I, II and III.

        The following tables provide information regarding the properties owned by the partnerships and ORIG, assuming the private entity restructuring was completed prior to the date of this joint consent/prospectus, and the appraised values of the properties as determined by CBRE.

    Office Buildings

Property

  Property Location
  Property
Owner

  Appraised Value
as of
June 1, 2003

  Approx. Sq.
Footage

  Year
Constructed

Anthem Office Center   Louisville, Kentucky   ORIG   $ 6,050,000   84,700   1995
Atrium Center   Louisville, Kentucky   ORIG   $ 4,500,000   104,200   1984
NTS Center   Louisville, Kentucky   NTS-III   $ 5,900,000   115,600   1977
Plainview Center   Louisville, Kentucky   NTS-III   $ 6,300,000   96,000   1983
Plainview Point Office Center Phase III   Louisville, Kentucky   J.V. (1) $ 3,750,000   61,700   1987
Plainview Point Office Center Phases I and II   Louisville, Kentucky   NTS-IV   $ 3,300,000   57,000   1983
Springs Medical Office Center   Louisville, Kentucky   ORIG   $ 9,800,000   97,300   1988
Springs Office Center   Louisville, Kentucky   ORIG   $ 12,250,000   125,300   1990
Sears Office Building   Louisville, Kentucky   ORIG   $ 5,100,000   66,900   1987

(1)
Plainview Point Office Center Phase III is owned by a joint venture between NTS-IV, which owns a 4.96% interest in the joint venture, and NTS-VI which owns a 95.04% interest in the joint venture.

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    Business Centers

Property

  Property Location
  Property
Owner

  Appraised Value
as of
June 1, 2003

  Approx. Sq.
Footage

  Year
Constructed

Blankenbaker Business Center 1A   Louisville, Kentucky   J.V. (2) $ 6,350,000   100,600   1988
Blankenbaker Business Center 1B   Louisville, Kentucky   ORIG   $ 3,900,000   60,000   1988
Blankenbaker Business Center II   Louisville, Kentucky   ORIG   $ 4,400,000   75,300   1988
Clarke American   Louisville, Kentucky   ORIG   $ 4,500,000   50,000   2000
Commonwealth Business Center Phase I   Louisville, Kentucky   NTS-IV   $ 4,550,000   83,600   1984
Commonwealth Business Center Phase II   Louisville, Kentucky   NTS-V   $ 3,000,000   65,700   1985
Lakeshore Business Center Phase I   Fort Lauderdale, Florida   J.V. (3) $ 8,100,000   104,100   1986
Lakeshore Business Center Phase II   Fort Lauderdale, Florida   J.V. (3) $ 7,900,000   96,600   1989
Lakeshore Business Center Phase III   Fort Lauderdale, Florida   J.V. (3) $ 3,850,000   38,900   2000
Peachtree Corporate Center   Norcross, Georgia   NTS-III   $ 8,150,000   191,300   1979

(2)
Blankenbaker Business Center 1A is owned by a joint venture between NTS-IV, which owns a 29.61% interest in the joint venture, NTS-VII, which owns a 31.34% interest in the joint venture, and ORIG, which owns a 39.05% interest in the joint venture

(3)
Lakeshore Business Center Phase I, Lakeshore Business Center Phase II and Lakeshore Business Center Phase III are each owned by a joint venture between NTS-IV, which owns a 10.92% interest in the joint venture, NTS-V, which owns an 81.19% interest in the joint venture, ORIG, which owns a 7.69% and NTS/Ft. Lauderdale Ltd. which owns 0.20%.

    Multifamily

Property

  Property Location
  Property
Owner

  Appraised Value as of
June 1, 2003

  Number of
Units

  Year Constructed
Golf Brook Apartments   Orlando, Florida   J.V. (4) $ 21,700,000   195   1988-1989
Park Place Apartments Phase I   Lexington, Kentucky   NTS-VI   $ 11,775,000   180   1987
Park Place Apartments Phase II   Lexington, Kentucky   NTS-VII   $ 9,500,000   132   1989
Park Place Apartments Phase III   Lexington, Kentucky   NTS-VI   $ 10,825,000   152   2000
Sabal Park Apartments   Orlando, Florida   NTS-VI   $ 12,700,000   162   1987
The Park at the Willows   Louisville, Kentucky   NTS-VII   $ 2,250,000   48   1988
The Willows of Plainview Phase I   Louisville, Kentucky   NTS-IV   $ 8,325,000   118   1985 (I-II)
The Willows of Plainview Phase II   Louisville, Kentucky   J.V. (5) $ 9,350,000   144   1985
Willow Lake Apartments   Indianapolis, Indiana   NTS-VI   $ 14,390,000   207   1985

(4)
Golf Brook Apartments is owned by a joint venture between NTS-IV, which owns a 3.97% interest in the joint venture, and NTS-VI, which owns a 96.03% interest in the joint venture.

(5)
The Willows of Plainview Phase II is owned by a joint venture between NTS-IV, which owns a 9.7% interest in the joint venture, and NTS-V which owns a 90.30% interest in the joint venture.

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    Retail

Property

  Property Location
  Property
Owner

  Appraised Value
as of
June 1, 2003

  Approx. Sq.
Footage

  Year Constructed
Bed, Bath & Beyond   Louisville, Kentucky   ORIG   $ 4,200,000   35,000   1999
Outlets Mall   Louisville, Kentucky   ORIG   $ 5,700,000   162,600   1983
Springs Station   Louisville, Kentucky   ORIG   $ 2,400,000   12,000   2001

    Ground Lease

Property

  Property Location
  Property
Owner

  Appraised Value
as of
June 1, 2003

   
   
ITT Parking Lot(1)   Louisville, Kentucky   ORIG   $ 290,000        

(1)
ITT Parking Lot is a 120-space parking lot leased to ITT Educational Services, Inc., and is attached to Plainview Point I and II.

        Assumptions, Limitations and Qualifications.    The portfolio appraisal represents CBRE's opinion of the estimated value of the properties owned by the partnerships and the NTS Private Group as of June 1, 2003 based on information available on that date and does not necessarily reflect the prices that would be realized in an actual sale of the portfolios. Actual prices could be higher or lower than appraised value. Events occurring after the valuation date and before the closing of the merger could affect the properties or the assumptions used in preparing the appraisal. CBRE has no obligation to update the appraisals on the basis of subsequent events. In connection with preparing its appraisals, CBRE did not prepare a written report or compendium of its analysis for internal or external use beyond the analysis set forth in Appendix E. CBRE will not deliver any additional written summary of the analysis.

        Compensation and Material Relationships.    The partnerships and ORIG paid CBRE an aggregate fee of $85,000 for preparing the appraisal. In addition, CBRE is entitled to reimbursement for reasonable legal, travel and out of pocket expenses incurred in making site visits and preparing the appraisal. CBRE is also entitled to indemnification against liabilities, including liabilities under federal securities laws. The fee was negotiated between the partnerships and CBRE and payment thereof is not dependent upon completion of the merger. Neither the partnerships nor ORIG or any of its affiliates have previously retained CBRE to perform services.

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MATERIAL FEDERAL INCOME TAX CONSEQUENCES

General

        The following discussion describes the material federal income tax consequences to the partnerships, the limited partners and us that may result from the merger. This discussion is based on relevant provisions of the Code, Treasury Regulations promulgated thereunder, rulings of the IRS and court decisions.

        There can be no assurance that provisions of the Code, Treasury Regulations or rulings will not be changed by new legislation, Treasury Regulations or rulings, which may or may not apply retroactively to transactions entered into or completed prior to the date of the change, or that there will not be differences of opinion as to the interpretation of provisions of the Code and Treasury Regulations and their application to the partnerships, the limited partners and us.

        This summary is directed primarily to limited partners who are individual residents or citizens of the United States. This summary does not discuss federal income tax consequences peculiar to insurance companies, banking institutions, regulated investment companies, real estate investment trusts, or other persons or entities to which special rules apply by virtue of the nature of their specific activities. Specific consideration is given, however, to entities that are exempt from federal income taxation in "Considerations for Tax-Exempt Limited Partners" below and to non-U.S. persons in "Considerations for Non-U.S. Limited Partners" below. In addition, no representations are made as to state or local tax consequences resulting from the merger. In particular, limited partners who are nonresident aliens are urged to contact their tax advisors concerning the potential effects of the relevant provisions of the Foreign Investment in Real Property Tax Act of 1980 to the merger. Accordingly, this summary is not intended as a substitute for careful tax planning and limited partners, and in particular tax-exempt investors, should consult with their own tax advisors as to their particular circumstances in relation to the tax considerations described in this joint consent/prospectus.

Opinions Of Counsel

        Shefsky & Froelich Ltd., our counsel, has rendered its opinion subject to various assumptions and conditioned upon certain representations as to factual matters, to the effect that, subject to the limitations described herein, the discussion that follows fairly summarizes the material federal income tax considerations associated with the merger and is the opinion of Shefsky & Froelich Ltd. It should be noted that a ruling from the IRS will not be requested and that the opinion of counsel, unlike a ruling by the IRS, is not binding on the IRS or any court. Therefore, no assurance can be given that the IRS will not challenge any views expressed in this discussion.

Certain Tax Differences Between the Ownership of Limited Partnership Interests in the Partnerships and Units

        Limited partners are treated as partners of the partnerships for federal income tax purposes. The partnerships are not subject to federal income taxation and, instead, each limited partner is required to take into account his or her share of tax attributes (including income, deductions or loss) of the partnership in which he or she invested, regardless of whether any cash is distributed. The character of income to each limited partner is the same as its character to the partnerships. Upon completing the merger, the limited partners in each of the partnerships will be treated as receiving Units in liquidation of the partnerships. Thus, the limited partners of the partnership become limited partners of us. We will be characterized as a partnership for federal income tax purposes. This opinion is based in part on representations concerning our future operations and the sources of our income. See "Taxation of Limited Partners" and "Taxation of NTS Realty Subsequent to the Merger" below.

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Tax Treatment of the Merger

        Overview.    For federal income tax purposes, the merger will be treated as: (1) a contribution by each partnership of its assets to NTS Realty in exchange for Units and the assumption by NTS Realty of the liabilities of the partnerships; and (2) the distribution of the Units to the limited partners in liquidation of the partnerships. See "—Tax Elections" below.

        Recognition of Gain or Loss as a Result of the Merger.    In general, under Section 721 of the Code, no gain or loss is recognized as a result of a contribution of property to a partnership in exchange for an interest in that partnership. However, gain might be recognized by a partner at the time of the contribution: (1) if the partnership would be treated as an investment company; (2) if the contribution is treated as a "disguised sale;" or (3) to the extent his or her share of the liabilities of the partnership after the exchange is less than the liabilities assumed or taken subject to by the partnership in connection with the transfer. Each limited partner will be required to include in income a share of any income recognized by the partnership of which he or she is a limited partner.

        Investment Company Rules.    Section 721 of the Code will not apply and gain or loss will be recognized if the transferee partnership would be treated as an investment company for federal income tax purposes if it were a corporation. For this purpose, a corporation would be treated as an investment company if the transfer results directly or indirectly in the diversification of the transferors' interests and the transferee is a corporation more than eighty percent (80%) of the value of the assets of which are held for investment and are stock or securities, money, stocks and other equity interests in corporations, evidences of indebtedness, publicly traded partnership interests and interests in an entity if substantially all of the assets of that entity are assets listed in this sentence (the "Listed Assets").

        If there are two or more transferors in a Section 721 transaction, a transferor may have taxable income in the event he or she receives interests in the transferee with a value in excess of the property contributed by him or her. Thus, a partnership, that receives Units with a fair market value in excess of the net fair market value of the assets and liabilities it contributes to us may recognize income in amounts equal to this excess. Similarly, in the event the net fair market values of the assets and liabilities of the partnerships and the Units are different from those anticipated by us, limited partners of each partnership could recognize gain as a result of the merger.

        We expect that: (1) more than twenty percent (20%) of the value of our assets will be attributable to assets other than Listed Assets; and (2) the value of the Units each partnership is deemed to receive will not exceed the net value of the assets and liabilities contributed to us. Based on the foregoing, we expect the merger to be treated as an exchange subject to the nonrecognition provisions of Section 721 of the Code and that we will not recognize gain except in the event the net fair market value of the assets and liabilities of the partnerships or the Units is different from the value we anticipate.

        We will not request a ruling from the IRS that the merger will be subject to the nonrecognition provisions of Section 721 of the Code. The federal income tax consequences as a result of the merger described in this joint consent/prospectus are based in part on our factual representations to counsel. In addition, the valuation of the partnerships' assets is subject to uncertainty. As a result, there can be no assurance that the IRS will concur with the conclusions set forth herein.

        Disguised Sale Regulations.    To the extent that the merger is treated as a "disguised sale" of the property under the Code or Regulations, the deemed contribution of property to us will not be tax free to the limited partners of the partnerships. Code Section 707(a)(2)(B) and the Regulations thereunder (the "Disguised Sale Regulations") generally provide that, unless one of the prescribed exceptions is applicable, a partner's contribution of property to a partnership and a simultaneous or subsequent transfer of money or other consideration (including the assumption by the partnership of a liability of the partner or taking of property by the partnership subject to a liability) from the partnership to the partner will be presumed to be a sale, in whole or in part, of such property by the partner to the

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partnership. Further, the Disguised Sale Regulations provide generally that in the absence of an applicable exception, transfers of money or other consideration between a partnership and a partner made within two years of a contribution of property other than cash to a partnership are presumed to create a sale unless the facts and circumstances clearly establish that either the transfers do not constitute a sale or that an exception to disguised sale treatment applies.

        One exception to disguised sale treatment in the Disguised Sale Regulations relates to "operating cash flow distributions," as that term is defined in the Disguised Sale Regulations. Distributions of cash flow related to the normal operations of the business, even if made within two years of the contribution, are presumed not to be part of a sale of property to a partnership unless the facts and circumstances establish that the operating cash flow distributions are part of a sale. The Disguised Sale Regulations contain a safe harbor for calculating a partner's interest in operating cash flow. This safe harbor generally allows the definition in the partnership agreement to apply. We will not distribute any cash to the limited partners in connection with the merger. In addition, the provisions of our partnership agreement relating to operating cash flow distributions have been designed to comply with the rules in the Disguised Sale Regulations.

        The Disguised Sale Regulations also provide an exception to disguised sale treatment for the assumption of certain liabilities by a partnership. The assumption by a partnership of a "qualified liability" will not give rise to disguised sale treatment. For these purposes, a qualified liability includes: (1) any liability incurred more than two years prior to the earlier of the transfer of the property or the date the partner agrees in writing to the transfer, as long as the liability has encumbered the transferred property throughout the two year period; (2) a liability that was not incurred in anticipation of the transfer of the property to a partnership, but that was incurred by the partner within the two year period prior to the earlier of the date the partner agrees in writing to transfer the property or the date the partner transfers the property to a partnership, and that has encumbered the transferred property since it was incurred; (3) a liability that is traceable under the Treasury Regulations to capital expenditures with respect to the property; and (4) a liability that was incurred in the ordinary course of the trade or business in which property transferred to the partnership was used or held, but only if all the assets related to that trade or business are transferred, other than assets that are not material to a continuation of the trade or business. However, a recourse liability is not a qualified liability unless the amount of the liability does not exceed the fair market value of the transferred property (less any other liabilities that are senior in priority and that encumber the property or any allocable liabilities described in (3) or (4) above) at the time of transfer. A liability described in (2) above is presumed to be incurred in anticipation of the transfer unless the facts and circumstances clearly establish that the liability was not incurred in anticipation of the transfer. However, to the extent that the proceeds of a partner or partnership liability (a "refinancing debt") are allocable under the Treasury Regulations to payments discharging all or part of any other liability of that partner or of the partnership, as the case may be, the refinancing debt is considered the same as the other liability for purposes of the Disguised Sale Regulations. Finally, if a partner treats a liability described in (2) above as a "qualified liability" because the facts clearly establish that it was not incurred in anticipation of the transfer, such treatment must be disclosed to the IRS in the manner set forth in the Disguised Sale Regulations.

        If a transfer of property by a partner to a partnership and one or more actual or deemed transfers of money or other consideration (including the assumption of or taking subject to a liability) by the partnership to that partner are treated as a disguised sale, then the transfers will be treated as a sale of property, in whole or in part, to the partnership by the partner acting in a capacity other than as a member of a partnership, rather than as a contribution to the partnership under Section 721 of the Code and a partnership distribution. A transfer that is treated as a sale under the Disguised Sale Regulations is treated as a sale for all purposes of the Code, and the sale is considered to take place on the date that, under general principles of federal income tax law, the partnership is considered to become the owner of the property. If the transfer of money or other consideration from the

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partnership to the partner occurs after the transfer of property to the partnership, the partner and the partnership are treated as if, on the date of the transfer of the property, the partnership transferred to the partner an obligation to transfer to the partner money or other consideration.

        Moreover, if a transfer of property to a partnership is treated as a part of a sale without regard to the partnership's assumption of, or taking subject to, a "qualified liability," as defined above, then the partnership's assumption of, or taking subject to, that liability is treated as a transfer of additional consideration to the transferring partner. The amount of the "qualified liability" treated as additional consideration generally is the lesser of (x) the excess of the amount of the "qualified liability" over the partner's share of the "qualified liability" immediately after the partnership assumes or takes subject to the liability, as calculated under the Disguised Sale Regulations, and (y) an amount determined by multiplying the "qualified liability" by the partner's "net equity percentage." The "net equity percentage" generally is the amount of consideration received by such partner (other than relief from "qualified liabilities") divided by the partner's net equity in the property sold, as calculated under the Disguised Sale Regulations. In such case, the taxable gain may exceed the cash consideration received in the disguised sale even if the liabilities assumed by the partnership were "qualified liabilities."

        The general partners believe that the debt of each partnership and ORIG would be classified as "qualified liabilities" under the Disguised Sale Regulations. There can be no assurance that the IRS would not successfully challenge this characterization which might cause taxable income to certain limited partners. There is no authority with respect to the application of the Disguised Sale Regulations to circumstances in which a partnership, such as any of the partnerships or ORIG, transfers property to another partnership, such as here, in exchange for partnership interests and the transferor partnership liquidates or is deemed to liquidate. Under these circumstances, the IRS may treat the transfer of money or other consideration from us as giving rise to disguised sale treatment between us and the partnerships followed by a distribution by the partnerships to the limited partners, as opposed to being made directly to the limited partners.

        Relief from Liabilities/Deemed Cash Distribution.    Under the applicable provisions of the Code, a partner in a partnership includes in the tax basis for his or her partnership interest, the partners share of the partnership's liabilities, in accordance with the Treasury Regulations under Section 752 of the Code. In addition, the determination of the amount of non-recourse liabilities a partner may include in the tax basis of its partnership interest applies a "look through" approach to allow the partner also to include a share of the non-recourse liabilities of a partnership in which the partnership is itself a partner. The partner also includes in the tax basis for his or her partnership interest any capital contributions that the partner has actually made to the partnership and the partner's allocable share of all partnership income and gains, and he or she reduces the tax basis by the amount of all distributions that the partner receives from the partnership and the partner's allocable share of all partnership losses. For purposes of these rules, if a partner's share of the partnership liabilities is reduced for any reason, the partner is deemed to have received a cash distribution equal to the amount of the reduction. The partner will recognize gain as a result of this deemed cash distribution if, and to the extent that, the deemed cash distribution exceeds the partner's adjusted tax basis for his or her partnership interest. Determining whether the deemed cash distribution results in taxable gain depends upon a number of circumstances.

        Under Section 752 of the Code and the Treasury Regulations, a partner's share of partnership liabilities generally equals the sum of the partner's share of partnership recourse liabilities plus the partner's share of partnership non-recourse liabilities. A partnership liability is a recourse liability to the extent that any partner or a related person bears the economic risk of loss for that liability. Any other partnership liability is considered non-recourse. A partner's share of recourse liabilities equals the portion of the liability, if any, for which that partner or a related person bears the economic risk of loss. A partner's share of partnership non-recourse liabilities equals the sum of: (1) the partner's share of "partnership minimum gain," determined in accordance with the rules of Section 704(b) of the Code

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and the Treasury Regulations thereunder ("Minimum Gain"); (2) the amount of any taxable gain that would be allocated to the partner under Section 704(c) of the Code (or in the same manner as Section 704(c) of the Code in connection with a revaluation of partnership property) if the partnership disposed of (in a taxable transaction) all partnership property subject to one or more non-recourse liabilities of the partnership in full satisfaction of that liability and for no consideration other than an amount that equals the excess of the debt allocable to a property over the property's tax basis (referred to as "Section 704(c) Minimum Gain"); and (3) the partner's share of excess non-recourse liabilities (those not allocated under (1) and (2) above), which is determined by such partner's relative interest in the partnership.

        The merger likely will cause each partner's allocable share of partnership liabilities to differ from the partner's allocable share of partnership liabilities prior to the merger. Each partner who has an increase in his or her allocable share of partnership liabilities will be treated as contributing cash to us equal to this increase. Similarly, each partner who has a decrease in his or her allocable share of partnership liabilities will be treated as receiving a cash distribution from us. A partner will recognize gain to the extent a deemed cash distribution exceeds his or her adjusted tax basis in the Units.

        Formation of NTS Realty.    As discussed above, pursuant to the provisions of Section 721 of the Code, the partnerships and the limited partners should not recognize gain or loss as a result of the deemed contribution of assets to us in exchange for Units, unless a deemed cash distribution exceeds a limited partner's adjusted tax basis in the Units. We do not expect to distribute cash to limited partners which would correspond to any income recognized in connection with the merger. See "Risk Factors—Risks Relating to the Merger—Tax Risks."

        The limited partners, including limited partners that did not vote in favor of the merger, will be required to include in income, a share of any gain recognized in connection with the merger. Any of this gain would be characterized as capital gain, except for any portion of gain attributable to the partnerships' recapture amounts. The amount of any of this gain recognized by a limited partner would result in an increase in his or her adjusted tax basis in his or her limited partnership interests and a corresponding increase in the adjusted tax basis of his or her Units.

        Our tax basis in the assets acquired from the partnerships and ORIG will equal the tax basis for the partnerships or ORIG, as the case may be, in these assets immediately prior to the merger plus any gain recognized by the partnerships as a result of the merger. Our holding period for the assets will include the period during which these assets were held by the partnerships except to the extent gain is recognized by partners.

        As a general matter, a partner will recognize gain as a result of the liquidation of a partnership only to the extent the amount of distributed cash exceeds the adjusted tax basis of his or her partnership interest. For this purpose, marketable securities are treated as if they were cash. This provision will not, however, apply to marketable securities received in a nonrecognition transaction if: (1) the value of the marketable securities and cash exchanged by the partnership in the nonrecognition transaction is less than 20% of all its assets transferred in the exchange; and (2) the partnership distributes the marketable securities acquired in the nonrecognition transaction within five years of their acquisition. The general partners of the partnerships do not expect that the limited partners in the partnerships will recognize gain or loss as a result of the deemed liquidation of the partnerships.

        Because the partnerships will terminate upon completing the merger, the taxable year for the partnerships will end at that time and the limited partners of the partnerships must report, in the taxable year of the merger, their respective share of all income, gain, loss, deduction and credits from the partnerships including, if any, their allocable share of gain resulting from the merger. Limited partners in the partnerships whose taxable years differ from those of the partnerships may have a "bunching" of income because of the short taxable year.

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        Limited Partners' Tax Bases And Holding Period In Their Limited Partnership Interests.    The tax basis that each limited partner will have in the Units he or she receives as a result of the merger will equal (1) the adjusted tax basis the limited partner had in the partner's limited partnership interests prior to the merger, increased by (2) any taxable gain recognized as a result of the merger and any capital contributions deemed to be made as a result of the merger and decreased by (3) any distributions deemed to be made as a result of the merger. For purposes of calculating capital gain and loss on the sale of Units, a limited partner's holding period for the Units will include the period during which the limited partner held his or her limited partnership interest. Each limited partner will be required to maintain a single aggregate tax basis for all Units. Thus, a limited partner that sells a portion of his or her Units must allocate a pro rata portion of his or her tax basis to the Units sold.

        Tax Elections.    Partnerships of more than 100 members may elect to apply simplified procedures for calculating and passing through its income. The election is in effect for the year for which it is made and all subsequent years, unless revoked with the consent of the Secretary of the Treasury or the number of members drops below 100. Among other things, if this election were made, partners of this partnership would include in income a share of the partnership's net capital gain. In addition, in computing its taxable income, the partnership would exclude seventy percent (70%) of its miscellaneous itemized deductions. Further, the partnership would not terminate as a result of the sale of fifty percent (50%) or more of its interests. NTS Realty Capital may, in its discretion, make this election on our behalf.

        In the event that a limited partner sells his or her Units at a profit (or loss), the purchaser will have a higher (or lower) tax basis in the Units than the selling limited partner. The tax basis of our assets will not be adjusted to reflect that higher (or lower) basis unless we were to file an election under Section 754 of the Code. In order to avoid the administrative complexities that would be involved in keeping accurate accounting records, as well as potentially onerous information reporting requirements, we currently do not intend to make an election under Section 754 of the Code. As a result, limited partners might be allocated a greater or lesser amount of our income than they otherwise would have received had we been able to make the election under Section 754 in an efficient manner.

Taxation of NTS Realty Subsequent To The Merger

        The federal income tax consequences of owning Units described in this joint consent/prospectus depend on us being classified as a partnership for federal income tax purposes rather than as an association or publicly traded partnership taxable as a corporation. For federal income tax purposes, a limited partnership, will be treated as a partnership and its limited partners are treated as partners of the partnership if certain conditions, described below, are satisfied for each of its taxable years and the partnership does not elect to be taxed as a corporation for federal income tax purposes. We believe that the partnerships have satisfied those conditions for all of their taxable years prior to the merger and that we will satisfy the conditions for all taxable years subsequent to the merger. Furthermore, we will not elect to be taxed as a corporation for federal tax purposes. Consequently, we should be treated as a partnership for federal income tax purposes and the federal income tax treatment of our limited partners should be substantially similar to that of limited partners of the partnerships.

        Upon completing the merger, we will be characterized as a partnership for federal income tax purposes. No ruling, however, has been sought from the IRS on this issue. The opinion is based in part on representations concerning our future operations and the sources of our income. If our actual operations or income differ from that described in the representations, there can be no assurance that we will be characterized as a partnership for federal income tax purposes.

        If we were treated as an association or publicly traded partnership taxable as a corporation for federal income tax purposes, then: (a) our income, deductions and losses would not pass through to the

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limited partners; (b) we would be required to pay federal income taxes on our taxable income at rates up to the current maximum corporate rate of 35%, which would substantially reduce the amount of cash available for distribution to limited partners; and (c) any distributions from us would be treated as dividends currently generally taxable at a federal rate of 15% to the extent of our current and accumulated earnings and profits.

        In general, a partnership that otherwise qualifies as a partnership for federal income tax purposes will be subject to taxation as a corporation if it is characterized as a publicly traded partnership under Section 7704 of the Code. A partnership will be characterized as a publicly traded partnership if its partnership interests are traded on an established securities market like the American Stock Exchange. Notwithstanding the foregoing, a safe harbor provides that a publicly traded partnership will not be taxable as a corporation, if for each of its taxable years, at least 90% of its gross income is derived from certain passive sources which include, among other sources, gain from the sale or other disposition of real property, rents from real property and interest, provided that the partnership does not conduct a finance or insurance business. We believe that: (1) in all of the taxable years prior to the merger, the partnerships and the NTS Private Group did not conduct a finance or insurance business and that more than ninety percent (90%) of the gross income of the partnerships and the NTS Private Group was derived from gains from the sale or other disposition of real property, real property rents or interest; and (2) subsequent to the merger, we will not operate a finance or insurance business and that more than ninety percent (90%) of our gross income will be derived from gains from the sale or other disposition of real property, from real property rents and from interest. Therefore, based on prior and anticipated future operations, we believe that, although we may be characterized as a publicly traded partnership, the partnerships were not and we will not be subject to taxation as a corporation for federal income tax purposes.

Taxation of Limited Partners

        General.    We are required to report to the IRS, each item of our income, gain, loss, deduction and items of tax preference, if any. Each partner will be required to report his or her distributive share of each item of our income, gain, loss, deduction, credit and tax preference on the partner's tax return. Each limited partner will be taxed on the partner's distributive share of our taxable income regardless of whether he or she has received, or will receive, any cash distributions from us. Moreover, a limited partner's distributive share of our taxable income and the income tax payable by the limited partner thereon may exceed the cash that we actually distribute.

        Our partnership agreement generally will provide that net income and net losses will be allocated to the limited partners and the general partner in accordance with their percentage interests. Under Section 704(b) of the Code, any allocation of income, gain, loss or deduction to a limited partner will be given effect for federal income tax purposes so long as it has substantial economic effect, or is otherwise in accordance with the limited partner's interest in us. If an allocation of an item does not satisfy this standard, it will be reallocated among the limited partners and the general partner on the basis of their respective interest in us, taking into account all facts and circumstances.

        Our income tax returns may be audited by the IRS, and this audit may result in the audit of a limited partner's individual return. As a result of an audit, various deductions could be disallowed, in whole or in part, which would increase a limited partner's allocable share of our taxable income or decrease a limited partner's share of our taxable loss. See "Information Returns and Audit Procedures."

        Each limited partner generally is required to treat items of income, gain, loss, deduction, credit or tax preference in the same manner as reported on our informational return. Failure to satisfy this requirement could result in an adjustment to conform the limited partner's treatment to our treatment and may cause the limited partner to be subject to penalties.

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        Audits will be performed in a single proceeding, rather than in separate proceedings with each limited partner. Adjustments of our items of income, gain, loss, deduction, credits or tax preference made on audit may be made by our tax matters partner. Suits challenging a determination by the IRS may be brought by our tax matters partner. All limited partners generally will be bound by the court's final determination. NTS Realty Capital will serve as our tax matters partner.

        Tax Allocations with Respect to Book Tax Difference on Contributed Properties.    Pursuant to Section 704(c) of the Code, income, gain, loss, and deduction attributable to appreciated or depreciated property that is contributed to a partnership in exchange for a partnership interest in the partnership must be allocated so that the contributing partner is charged with, or benefits from, respectively, the unrealized gain or unrealized loss associated with the property at the time of its contribution to the partnership. The amount of unrealized gain or unrealized loss is generally equal to the difference between the property's fair market value and its adjusted tax basis at the time of the initial contribution and is referred to as "built in gain" or "built in loss," respectively. If we sell property with "built in gain" or "built in loss," then the gain or loss that we recognize is required to be allocated to the contributing partner in an amount that takes into account the "built in gain" or "built in loss." For purposes of Section 704(c), each limited partner will be treated as contributing his or her pro rata share of the properties held by the partnerships. Therefore, if we sell property that was held directly or indirectly (through a partnership) by a limited partner prior to the merger, the limited partner might be allocated gain in excess of his or her proportional interest and might owe more income tax than the amount of cash distributions he or she receives.

        Distributions.    We expect to pay distributions in cash to limited partners in proportion to the number of Units owned by a limited partner. A limited partner will recognize gain as a result of a distribution of cash, or in some cases, marketable securities to the extent the cash or marketable securities exceed the adjusted tax basis of his or her Units. Ordinarily, this gain will be treated as a gain from the sale or exchange of Units. A reduction in a limited partner's allocable share of our liabilities, for example through repaying debt, is treated as a deemed distribution of cash. See "Gain or Loss on the Sale of Limited Partnership Interests."

        Passive Income And Losses.    Section 469 of the Code provides that losses or deductions from passive trade or business activities in excess of income from all passive activities may not be deducted against wages, salaries, portfolio income or other income. Similarly, credits from passive activities are limited to tax allocable to these passive activities. Suspended losses and credits may be carried forward and treated as deductions and credits against income from passive trade or business activities in succeeding taxable years. Moreover, suspended passive losses are allowed in full when the taxpayer disposes of his or her entire interest in the passive activity in a fully taxable transaction to an unrelated party.

        Passive income, gain, losses and credits from publicly traded partnerships may only be applied against other items of income, gain or loss from that publicly traded partnership. With respect to the passive loss rules, we will be deemed a publicly traded partnership. Therefore, passive income, gain and losses cannot be used to offset passive income, gains and losses from other activities. In this regard, we may differ from the partnerships because the partnerships may not have been characterized as publicly traded partnerships for federal income tax purposes.

        Income attributable to interest from mortgage loans likely will be deemed portfolio income. Therefore, losses, if any, attributable to our passive activities, like rental activities, cannot be offset against this portfolio income. In addition, any passive income that we generate from rental activities may not be used to offset passive losses from other sources.

        Gain or Loss on the Sale of Limited Partnership Interests.    In order to receive long term capital gains rates, an individual must hold capital assets for more than twelve months. The maximum long

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term capital gains rate for individuals generally is fifteen percent (15%). In general, an individual may only use up to $3,000 of capital loss in excess of capital gains to offset ordinary income, like wages and interest income, in any taxable year. Assuming that a limited partner holds Units as a capital asset, and except to the extent attributable to the limited partner's interest in our unrealized receivables (including depreciation recapture) or substantially appreciated inventory, the sale of Units will result in either capital gain or loss and be subject to the foregoing rules. A portion of this gain or loss, however, will be separately computed and taxed as ordinary income or loss under Section 751 of the Code to the extent attributable to assets giving rise to depreciation recapture or other "unrealized receivables" or to "inventory items" owned by us. The term "unrealized receivables" includes potential recapture items, including depreciation recapture. Ordinary income attributable to unrealized receivables, inventory items and depreciation recapture may exceed net taxable gain realized upon the sale of Unit and may be recognized even if there is a net taxable loss realized on the sale of Unit. Thus, a limited partner may recognize both ordinary income and a capital loss upon a disposition of Units.

        Investment Interest.    Investment interest, or for example, interest paid or accrued on indebtedness incurred or continued to purchase or carry property held for investment, is deductible by non-corporate taxpayers only to the extent it does not exceed "net investment income," or investment income less investment expenses. Investment income and investment interest do not include income from or interest paid with respect to an investment that is a passive activity. Investment interest which is not allowable as a deduction in one year pursuant to this limitation may be carried over to subsequent years within certain limits. Limited partners who borrowed to finance the purchase of their limited partnership interests should be aware that interest on the borrowing may constitute investment interest and would therefore be subject to the above described limitations before and after the merger.

        Deductibility of Fees.    All of our expenditures must constitute ordinary and necessary business expenses in order to be currently deductible, unless the deduction for an item is otherwise expressly permitted by the Code. We intend to claim deductions for management fees and any other fees paid to the general partners or their affiliates. We believe that these fees will be deductible as ordinary and necessary business expenses. No assurance can, however, be given that the deduction of any of these fees will not be successfully challenged by the IRS. If all or a portion of these fees were disallowed as current deductions, our taxable income would be increased or our losses reduced.

        Section 67 of the Code limits the deductibility of an individual's miscellaneous itemized deductions, including investment expenses, to the amount by which the deductions exceed 2% of his or her adjusted gross income. Under Treasury Regulation Section 1.67-2T(b) individual partners in a partnership are required to separately take into account partnership deductions that would otherwise be characterized as miscellaneous itemized deductions. Therefore, the limited partners may be unable to deduct all or a portion of fees and expenses.

        Tax Basis of Units and "At Risk" Rules.    As discussed above, the limited partners will have a tax basis in the Units they receive as a result of the merger that equals their adjusted tax basis in their limited partnership interests immediately prior to the merger plus any gain recognized by the partner as a result of the merger. See "—Tax Treatment of the Merger—Limited Partner's Tax Bases And Holding Period In Their Limited Partnership Interests." Following the merger, each limited partner's tax basis in his or her Units will be increased by the amount of: (a) his or her allocable share of items of income and gain; and (b) any increase in his or her proportionate share of indebtedness and reduced, but not below zero, by: (1) his or her allocable share of our losses and deductions; (2) the amount of cash distributions, including the "deemed" cash distributions related to reductions of his or her proportionate share of liabilities, if any, and (3) the tax basis in any property distributed by us.

        The amount of our losses that may be deducted by a limited partner is limited to the limited partner's adjusted tax basis in his or her Units. Any excess is carried over until the limited partner has sufficient tax basis to deduct the losses. The "at risk" rules of Section 465 of the Code further limit a

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limited partner's ability to deduct losses by providing that a limited partner may not deduct losses from an activity for a taxable year to the extent the losses exceed the aggregate amount for which a limited partner is considered "at risk" with respect to the activity. Any amount in excess of this "at risk" amount will be allowed in future taxable years to the extent the limited partner has an "at risk" amount. To the extent that any of our borrowing is deemed to be recourse debt or qualified nonrecourse financing, the "at risk" rules should not apply to the deductibility of company losses. We believe that, except to the extent we incur debt that does not so qualify, our borrowings generally will be recourse debt or qualified nonrecourse financings. Therefore, we expect that the "at risk" rules will not limit the use of our losses.

Sale or Other Disposition of Property

        If we sell one or more of our properties, it is likely that capital gain or loss would result. The amount of gain we realize and allocate to our partners upon a sale or other disposition of property, which includes a foreclosure by a lender securing its indebtedness with any of our property, will be measured by the difference between: (i) the proceeds realized upon the sale or other disposition, which includes any indebtedness to which the property is taken subject and, in the case of a foreclosure, the principal amount of the indebtedness foreclosed upon and (ii) our adjusted tax basis in the sold or otherwise disposed property. Under certain circumstances, the net cash proceeds distributed from the sale or other disposition of our property may not be sufficient to pay the tax liabilities resulting from the event. These circumstances not only include a foreclosure by a lender, but also include a sale from which a partner's share of cash proceeds is significantly less than the partner's share of taxable gain, because cash is used to retire debts, while gain is not so reduced. The character of the gain allocated to the partners generally will be based on the character of the gain to us. Our gain generally will be capital gain (long-term if we held the property for more than one year) if we sell or otherwise dispose of a capital asset, such as real estate (unless we are treated as a dealer in real estate) except to the extent the gain is a recapture item (in which case the gain will either be taxed as unrecaptured Section 1250 gain which is taxed at a maximum rate of twenty-five percent (25%) or as ordinary income). Our gain generally will be ordinary income if we sell or otherwise dispose of an asset not held as a capital asset, such as inventory, including real estate if we are treated as a dealer in real estate. We should not be treated as a dealer in real estate because our trade or business does not include the regular sale or other disposition of real estate.

Potential Application of Section 183 of the Code

        Under Section 183 of the Code, deductions that a taxpayer derives from "activities not engaged in for profit" are allowed only to the extent of the taxpayer's share of gross income from the activity, plus amounts that are deductible regardless of profit motive. All facts and circumstances are taken into account and no one factor or combination of factors is determinative of whether an activity is engaged in for profit. Because the presence or absence of a profit objective is in part a question of fact that depends on the actual intent and individual circumstances of each partner, we cannot determine with accuracy whether a particular partner will be able to establish that the partner has a profit objective with respect to the partner's Units.

Liquidation or Dissolution

        In the event of our liquidation or dissolution prior to the expiration of our term, we might be required to liquidate our properties during a limited period of time. This liquidation of properties might cause us to sustain substantial economic losses. Nevertheless, we would be required to recognize taxable income on such sales to the extent the amount realized exceeds the adjusted tax basis in the property sold. (See "Sale or Other Disposition of Property" above). You will recognize capital gain or loss on the distribution of cash (and distribution of certain cash equivalents such as publicly traded

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securities) in liquidation of us based on the difference between the amount of cash (or value of cash equivalents) distributed and your adjusted tax basis in your Units. If we distribute non-cash (or non-cash equivalent) property in our liquidation or dissolution, you generally will not recognize any gain or loss and generally will hold the property distributed to you with a tax basis equal to your adjusted tax basis in your Units (reduced by the amount of any cash (or cash equivalents) distributed to you as part of the liquidation or dissolution transaction).

Uniformity of Units

        Because we cannot match transferors and transferees of Units, we must maintain uniformity of the economic and tax characteristics of the Units to a purchaser of these Units. In the absence of uniformity, we may be unable to completely comply with a number of statutory and regulatory federal income tax requirements. A lack of uniformity would result from a literal application of the Treasury Regulations promulgated under Section 704(c) of the Code. See "Taxation of Limited Partners Tax Allocations with Respect to Book Tax Difference on Contributed Properties." Any non-uniformity could have a negative impact on the value of the units.

Considerations for Tax-Exempt Limited Partners

        Limited partners that are tax-exempt entities, including charitable corporations, pension, profit sharing or stock bonus plans, Keogh Plans, Individual Retirement Accounts and some other employee benefit plans are subject to federal income tax on unrelated business taxable income, for example, net income derived from the conduct of a trade or business regularly carried on by a tax-exempt entity or by a partnership in which it is a partner if such trade or business is not substantially related to the exempt purposes of the exempt entity.

        A $1,000 special deduction is allowed in determining the amount of unrelated business taxable income subject to tax. Tax-exempt entities taxed on their unrelated business taxable income are also subject to the alternative minimum tax for items of tax preference which enter into the computation of unrelated business taxable income. Tax-exempt persons who are members of a partnership will be deemed engaged in the trade or business of the partnership. Moreover, each tax-exempt person who is a limited partner will recognize unrelated business taxable income in the event we incur acquisition indebtedness with respect to our assets. Limited partners who are tax-exempt entities for federal income tax purposes are urged to consult with their tax advisors with respect to the application of the federal income tax rules associated with unrelated taxable business income.

        In addition, income generated by debt-financed property will constitute unrelated business taxable income to tax-exempt persons. In general, certain types of income, like interest and real property rents, are excluded from the calculation of unrelated business taxable income. Notwithstanding the foregoing, income, including interest, gain from the sale or other disposition of property (other than inventory), and real property rents, derived from debt-financed property will be included in unrelated business taxable income. Debt-financed property includes, among other things, debt incurred to acquire or improve property and debt incurred after the acquisition or improvement if the debt would not have been incurred but for the acquisition and improvement and at the time of acquisition the incurrence of the debt was foreseeable.

Considerations For Non-U.S. Limited Partners

        A non-U.S. partner that is deemed to be engaged in a U.S. trade or business who has income that is effectively connected to the trade or business will be subject to regular U.S. income tax thereon. Non resident aliens, foreign corporations, foreign partnerships and foreign estates that are partners in a United States partnership are generally deemed to be non-U.S. partners. A non-U.S. partner in a

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partnership that is engaged in a trade or business in the United States will be considered to be engaged in the trade or business, even if the non-U.S. partner is only a limited partner.

        Leasing property, together with the provision of services to the lessee or the maintenance of the leased properties, generally will be deemed a U.S. trade or business. Interest income can be deemed to be effectively connected to a U.S. trade or business if the instrument generating the income is used or held primarily for the principal purpose of promoting the present conduct of a U.S. trade or business.

        We believe that subsequent to the merger, our rental activities will be deemed to be a U.S. trade or business and rental income therefrom will be deemed to be effectively connected to the U.S. trade or business. Therefore, a limited partner that is a non-U.S. partner will be required to file a U.S. income tax return and pay U.S. income taxes on his or her distributive share of our taxable income at regular U.S. income tax rates.

        Section 1446 of the Code provides that a partnership must withhold effectively connected income allocable to non-U.S. partners at the highest rate of tax imposed under Section 1 of the Code. Non-U.S. partners will treat their respective shares of the foregoing withholding payments as credits against their federal income tax liability.

        Because a limited partner that is a non-U.S. partner likely will be deemed to be engaged in a U.S. trade or business, some types of income from some other business transactions could also be attributed to our U.S. trade or business. This could cause the other income to be subject to U.S. income taxation. Furthermore, a limited partner that is a non-U.S. partner may be subject to tax on his or her distributive share of our income and gain in his or her country of nationality, residence or elsewhere. The system of taxation in any such jurisdiction, if any, may vary considerably from the U.S. tax system.

        A non-U.S. partner limited partner's distributive share of some investment income, like some short-term investment income, may not be considered to be income effectively connected with a U.S. trade or business and the income would not be subject to the withholding on effectively connected income discussed above. However, depending upon the type of income, we may be obligated to withhold tax equal to thirty percent (30%) of a non-U.S. partner limited partner's distributive share of this income.

        If any of the partnerships realize gain as a result of the merger, a limited partner that is a non-U.S. partner will be subject to the withholding on effectively connected income discussed above on his or her distributive share of this gain.

        We cannot predict the impact of the above described principles on specific limited partners that are non-U.S. partners, or how the provisions of tax treaties between the U.S. and foreign governments may affect the federal income taxation of limited partners that are non-U.S. partners. Consequently, we urge limited partners that may be non-U.S. partners to consult their tax advisors with respect to all U.S. federal income tax issues and other tax issues associated with the merger and owning or holding Units.

Information Returns and Audit Procedures

        We intend to furnish to each limited partner, within 90 days after the close of each calendar year, specific tax information, including a Schedule K-1, which describes each limited partner's share of our income, gain, loss and deduction for our preceding taxable year. In preparing this information, which will generally not be reviewed by counsel, we will use various accounting and reporting conventions, some of which have been mentioned earlier, to determine the limited partner's share of income, gain, loss and deduction. We cannot assure you that any of those conventions will yield a result that conforms to the requirements of the Code, Treasury Regulations or administrative interpretations of the IRS. We cannot assure prospective limited partners that the IRS will not successfully contend in

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court that those accounting and reporting conventions are impermissible. Any challenge by the IRS could negatively affect the value of the Units.

        The IRS may audit our federal income tax information returns. Adjustments resulting from any audit of this kind may require each limited partner to adjust a prior year's tax liability, and possibly may result in an audit of that limited partner's own return. Any audit of a limited partner's return could result in adjustments not related to our returns as well as those related to our returns.

        Partnerships generally are treated as separate entities for purposes of federal tax audits, judicial review of administrative adjustments by the IRS and tax settlement proceedings. The tax treatment of partnership items of income, gain, loss and deduction are determined in a partnership proceeding rather than in separate proceedings with the partners. The Code provides for one partner to be designated as the "Tax Matters Partner" for these purposes. The partnership agreement appoints NTS Realty Capital as the Tax Matters Partner of NTS Realty.

        Thus, NTS Realty Capital will make some elections on our behalf and on behalf of limited partners, including extending the statute of limitations for assessing tax deficiencies against limited partners for items in our returns. The Tax Matters Partner may bind a limited partner with less than a one percent (1%) profits interest in us to a settlement with the IRS unless that limited partner elects, by filing a statement with the IRS, not to give that authority to the Tax Matters Partner. The Tax Matters Partner may seek judicial review, by which all the limited partners are bound, of a final partnership administrative adjustment and, if the Tax Matters Partner fails to seek judicial review, judicial review may be sought by any limited partner having at least a one percent (1%) interest in profits or by any group of limited partners having in the aggregate at least a five percent (5%) interest in profits. However, only one action for judicial review will go forward, and each limited partner with an interest in the outcome may participate. However, if we elect to be treated as a large partnership, a limited partner will not have the right to participate in settlement conferences with the IRS or to seek a refund.

        A limited partner must file a statement with the IRS identifying the treatment of any item on his federal income tax return that is not consistent with the treatment of the item on our return. Intentional or negligent disregard of the consistency requirement may subject a limited partner to substantial penalties.

NTS Development Company Settlement Payment

        In connection with the settlement of the class action litigation, and immediately prior to the merger, NTS Development Company will make an aggregate payment of $1.5 million to the partnerships, allocable among the partnerships as set forth in the settlement agreement. See "Fairness—Allocation of Units" for a description of the allocation of this payment. These payments will be included as ordinary taxable income in the partnerships' final taxable year. The income will be allocated among the partners (including ORIG and any affiliates that are partners) in accordance with the terms of the partnership agreements. The income will increase the amount of taxable income (or reduce the amount of taxable loss) that otherwise would have been allocated to the partners with respect to the partnerships' final taxable years. Each partner's tax basis in NTS Realty also will be increased by the amount of this income allocated to the partner.

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CONFLICTS OF INTEREST

General Partners

        The general partner of your partnership believes the merger is fair when considered as a whole and is fair to, and in the best interest of, your partnership and each limited partner. For more information on the general partners' belief that the merger is fair, see "Fairness—General." The general partner of each partnership has an obligation to assess whether the terms of the merger are fair and equitable to the limited partners of its partnership, without regard to whether the merger is fair and equitable to any of the other participants, including the limited partners in other partnerships. Each general partner is controlled, directly or indirectly, by Mr. Nichols.

        Other entities controlled directly or indirectly by Mr. Nichols have made and may continue to make investments in properties similar to those that we will acquire if the merger is completed. In addition, affiliates of our general partners currently own vacant lots located adjacent to Blankenbaker Business Centers 1A and 1B and Outlets Mall. These affiliates may acquire additional properties in the future which are located adjacent to properties we will acquire if the merger is completed. If this occurs, it could create a conflict with respect to the allocation of time spent and services provided by NTS Development's employees among the properties.

        Messrs. Nichols, Lavin and Wells will serve as officers or directors of our general partners.

        The chart set forth below illustrates the relationship among our general partners, their affiliates and us, as well as the percentage of Units that each individual or entity will own if the merger is completed.

GRAPHIC


(1)
NTS Realty Capital will not own any Units immediately after the merger, but is included in this chart to illustrate its relationship with us as our managing general partner. NTS Realty Capital is wholly owned by Messrs. Nichols and Lavin.

(2)
NTS Realty Partners will own 6.44% of the Units if the merger is completed. These Units will be non-voting Units. Following the merger, NTS Realty Partners will be owned by the current owners of the general partners. Mr. Nichols currently controls each of the general partners.

(3)
Each of ORIG, Ocean Ridge Investments, Ltd. and BKK Financial, Inc. are entities that are wholly owned or controlled by Mr. Nichols or members of his immediate family.

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(4)
NTS Development Company will not own any Units immediately after the merger, but is included in this chart to illustrate its relationship with us pursuant to the management agreement. NTS Development Company is wholly owned by Messrs. Nichols and Lavin. See "Related Party Transactions—Management Agreement with NTS Development."

(5)
Following the private entity restructuring, the NTS Private Group will receive a separate class of ORIG's membership interests in exchange for contributing the properties to ORIG. This separate class of interests will entitle the NTS Private Group to share proportionately the indirect ownership of the Units issued in respect of ORIG's contribution to us of the assets and liabilities acquired from the NTS Private Group. ORIG's original class of membership interests will continue to be owned by Mr. Nichols (1%), Mrs. Nichols (74%) and Mr. Lavin (25%). The entities comprising the NTS Private Group are: NTS/BBX Office, LLC, NTS Springs Office Ltd., NTS Springs Medical Office Center, Ltd., NTS Pickford, Ltd., NTS Atrium Center, NTS BBC I, NTS Breckinridge, Ltd., NTS Willow Lake Partners Limited Partnership, NTS Mall Limited Partnership, NTS Whetstone Limited Partnership, NTS Bluegrass Commonwealth Park and Mr. Nichols. Mr. Nichols and his immediate family will own approximately 73.5% of the separate class of ORIG's membership interests, while Mr. Lavin and certain unaffiliated individuals will own approximately 24.5% and 2.0%, respectively.

Substantial Benefits to General Partners and Their Affiliates

        As a result of the merger, the general partners and their affiliates, including Messrs. Nichols and Lavin and ORIG expect to receive certain benefits including:

        Control.    The general partners, Mr. Nichols, ORIG and their affiliates will own, in the aggregate, approximately 57.18% or 6,719,249, of the Units (including the Units that will be voted by plaintiffs' counsel on behalf of the settlement trust and those Units owned by NTS Realty Partners that are not entitled to vote) and, thus, will have significant influence on the outcome of any matter submitted to a vote of the limited partners. Mr. Nichols will control each of these Units. The table below sets forth the number and percentage of limited partnership interests in each partnership owned by the general partners, Mr. Nichols, ORIG and their affiliates as of June 30, 2004, as well as the number of Units each will own after the merger is completed. These interests will be voted "For" the merger.

Partnership

  Number of
Interests

  Percentage of Limited
Partner Interests

 
NTS-III   5,185 (1) 41.25 %
NTS-IV   10,703 (1) 44.39 %
NTS-V   14,566 (1) 47.72 %
NTS-VI   18,726 (1) 48.15 %
NTS-VII   226,306 (1) 40.98 %
(1)
The general partners of the partnership own five interests in each of the partnerships which are not reflected in this chart because the general partners have never received any economic rights in connection with these interests and will receive no consideration in the merger with respect to these interests.

        ORIG will be relieved of financial obligations.    As part of the contribution agreement with ORIG, we will acquire substantially all of the real properties owned by ORIG and assume all of its debt. Substantially all of these properties and related debt will be acquired or assumed by ORIG in the private entity restructuring, which will be completed immediately prior to the merger. The entities comprising the NTS Private Group will receive interests in a separate class of ORIG's membership interests in exchange for the properties. This separate class of interests will entitle the NTS Private Group to share proportionately the indirect ownership of the Units issued in respect of ORIG's

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contribution to us. The properties have an aggregate appraised value of $67,096,140 as determined by CBRE. ORIG has debt totaling $49,631,129 as of June 30, 2004, giving effect to the private entity restructuring. Messrs. Nichols and Lavin will continue to personally guarantee approximately $13.4 million of this debt. All of this debt was subtracted in determining ORIG's net asset value. Like the partnerships' final net asset value and ultimate allocation of our Units, ORIG's net asset value on the Determination Date may differ from its estimated net asset value and, therefore, the number of Units allocated to ORIG may differ from the estimate contained herein primarily because ORIG or the various entities in the NTS Private Group, as applicable, intend to continue making principal payments on their outstanding debt.

        Terms of the Contribution from ORIG.    The contribution agreement between ORIG and us contains customary representations and warranties from ORIG and ORIG will indemnify us for certain breaches of those representations and warranties. We believe that the terms are fair and reasonable. There is no assurance, however, that these terms and conditions reflect what would have resulted from an arms-length negotiation because the same individuals negotiated on behalf of ORIG and the NTS Private Group. In addition, the properties we are acquiring from ORIG were purchased, or constructed, and improved by affiliates of our general partners at a total aggregate cost of $55.5 million, but the $7.6 million difference in the appraised value of the properties (approximately $63.1 million) will benefit ORIG when it exchanges these properties for our Units. By virtue of their respective ownership interests in some or all of the entities comprising the NTS Private Group, Mr. Nichols will receive the benefit from approximately $5.7 million of the aggregate difference and Mr. Lavin will receive the benefit from approximately $1.9 million.

        Management Fees.    NTS Development Company will continue to manage the properties and receive a fee for doing so. We estimate that we will pay NTS Development Company approximately $5.7 million in fees and expenses during the first twelve months after the merger is completed. See "Related Party Transactions—Management Agreement with NTS Development" for a discussion of the agreement with NTS Development, including the fees that will be paid to NTS Development. The management fee arrangement might lead to a conflict because Messrs. Nichols and Lavin gain economic benefit from the management fees that we pay to NTS Development Company.

        Releases in Settlement.    As part of the settlement of the class action litigation, the general partners and their affiliates, including Messrs. Nichols, Lavin, Wells and Mitchell, will be granted releases from liability from the former limited partners who previously disposed of their interests through tender offers or other repurchases conducted by the partnerships, ORIG or its affiliates. The release granted to the general partners and their affiliates includes all claims that were or could have been asserted against them arising out of the class action litigation or the transactions contemplated or undertaken in connection with the settlement of the class action litigation. The releases granted in the settlement may create a conflict because Messrs. Nichols, Lavin, Wells and Mitchell gain benefit from the releases to the general partners and their affiliates.

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COMPARISON OF RIGHTS OF LIMITED PARTNERS OF THE PARTNERSHIPS
AND LIMITED PARTNERS OF NTS REALTY

        The information below highlights the differences between the rights of limited partners of the partnerships and the rights they will have as limited partners of NTS Realty. We have included this comparison to assist you in casting your vote. In most cases, the rights of the limited partners are substantially similar to the rights they presently enjoy as limited partners of the partnership. Unless we indicate otherwise, the discussion applies to each of the partnerships. This discussion is only a summary and does not constitute a complete discussion. We encourage you to review the rest of this joint consent/prospectus, as well as the accompanying supplement for additional information.

Length and Type of Investment

Partnerships

 

NTS

Each partnership is a finite life entity with a stated term that expires between 2028 and 2063. NTS-III and IV originally anticipated selling or refinancing their properties between the fifth and tenth years after completing development. NTS-V, NTS-VI and NTS-VII originally anticipated selling or refinancing their properties between the fourth and seventh years after completing development.

 

We are a limited life entity with a term that expires on December 31, 2028. We will have the ability to reinvest the proceeds from sales or refinancing of properties.

Business and Property Diversification

Partnerships

 

NTS

Each partnership currently owns between three and ten properties, consisting of multifamily and office and business center properties.

 

We will initially own a portfolio of thirty-two properties. In addition to the multifamily and office and business center properties, we will also own three retail properties and one ground lease.

Borrowing Policies

Partnerships

 

NTS

NTS-III was permitted to borrow up to fifty percent (50%) of appraised value to acquire a property. The remaining partnerships were limited to borrowing forty percent (40%) of the appraised value. On a refinancing, each partnership was able to borrow up to eighty percent (80%) of the appraised value of its properties. There were no time limits imposed on when any of the partnerships could refinance a borrowing, including immediately after acquiring a property.

 

We will assume mortgage indebtedness and notes payable totaling $106,043,323 as a result of the merger, which equates to approximately forty-seven percent (47%) of the appraised value of the properties acquired in the merger. If we are able to refinance the portion of our debt as described herein, our total indebtedness will be approximately $118,694,991. We will have a policy of borrowing no more than 70% of the sum of: (1) the appraised value of our fully constructed properties and (2) the appraised value of our properties in the developmental stage as if those properties were completed and ninety-five percent (95%) leased.

 

 

 

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Reinvestment


Partnerships


 


NTS

Each partnership is permitted to reinvest sale or refinancing proceeds into existing properties for capital improvements.

 

We will be permitted to reinvest sales or refinancing proceeds in new and existing properties. We have entered into a binding letter of intent with the Northwestern Mutual Life Insurance Company to refinance approximately $72.0 million of our debt simultaneously with the closing of the merger to, among other things, change the amortization schedule to thirty years from ten to fifteen years and lower the average interest rate on the debt. If the merger and simultaneous refinancing of our properties occur based on the terms available to us today, the refinancing would allow us to reduce our annual principal and interest expense by approximately $6.7 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Resources—Future Liquidity" and "Risk Factors—We may be unable to refinance a portion of the debt that we will assume if the merger is completed."

Other Investment Restrictions

Partnerships

 

NTS

Each partnership was required to obtain an independent appraisal in connection with each acquisition.

 

We will similarly be required to obtain an independent appraisal in connection with all property acquisitions after the merger.

Transactions with Affiliates

Partnerships

 

NTS





The partnerships are prohibited from acquiring, and in some cases leasing, property from the general partners or their affiliates. Similarly, the partnerships are also prohibited from:
• making loans to the general partner or its affiliates;
• paying commissions to the general partner or an affiliate in connection with the purchase of properties by the partnership;
• paying an insurance brokerage fee or writing an insurance policy to the general partner or an affiliate; and
• commingling the partnership's funds with those of any other person.





 





Our partnership agreement will contain the same limits and prohibitions. In addition, our partnership agreement will prohibit us from engaging in a transaction with our general partners, including the officers and directors of NTS Realty Capital or persons owning or controlling one or more of any class of our outstanding voting securities (or any affiliate of such persons), except to the extent that a transaction is approved by a majority of our independent directors and is on terms no less favorable than those generally being provided to or available from unrelated third parties.

 

 

 

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Repurchase of Interests


Partnerships


 


NTS

 

 

 

Each partnership is permitted to repurchase interests in the discretion of the general partner subject to the conditions set forth in the partnership agreement. The partnership agreement of each partnership establishes a method of calculating the price at which interests may be repurchased by the partnerships and the procedures followed in connection with each repurchase.

 

Although we may repurchase Partnership Units from time to time, we do not intend to establish any reserves for that purpose. Any repurchases will be governed by SEC rules applicable to issuer repurchases. Unlike the interests in each of the partnerships, we have filed an application to list our Partnership Units for trading on the American Stock Exchange.

Management/Voting

Partnerships

 

NTS

The general partner of each partnership is itself a limited partnership that has at least two general partners: Mr. Nichols and NTS Capital Corporation. The general partners have, subject to policies and restrictions set forth in the various partnership agreements, exclusive authority to manage the operations and affairs of each partnership and to take all actions that they deem necessary and proper to carry out their responsibilities. The limited partners of each partnership have no right to participate in the management and control of their partnership and have no voice in the partnership's affairs except on limited matters that may be submitted to a vote of the limited partners. Under each partnership's partnership agreement and subject to procedural requirements set forth in the agreement, limited partners have the right to approve a sale of all or substantially all of the partnership's properties, except the final property, without the concurrence of the general partner. Limited partners also have the right to remove the general partner and elect a new general partner and to dissolve the partnership.

 

We will have two general partners, NTS Realty Capital and NTS Realty Partners. NTS Realty Capital will have, subject to policies and restrictions set forth in our partnership agreement, the exclusive authority to manage our business, including the authority to take all actions that it deems necessary and proper in carrying out its responsibilities. NTS Realty Capital will be required to comply with all of the governance requirements applicable to corporations listed on the American Stock Exchange. For example, a majority of its board of directors will be composed of "independent" directors. Similarly, the board will have an audit committee composed entirely of independent directors. Our limited partners will have the same voting and other rights currently accorded limited partners of the partnership.

 

 

 

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Fiduciary Duties


Partnerships


 


NTS

Under the law of each partnership's state of organization, the general partner is accountable as a fiduciary to the partnership and owes the partnership and its limited partners a duty of loyalty and a duty of care, and is required to exercise good faith and fair dealing in conducting the affairs of the partnership. The duty of good faith requires that each general partner deal fairly and with complete candor toward the limited partners. The duty of loyalty requires that, without the limited partners' consent, the general partner may not have business or other interests that are adverse to the interests of the partnership. The duty of fair dealing also requires that all transactions between the general partners and the partnerships be fair in the manner in which the transactions are effected and in the amount of the consideration received by the general partner or its affiliates.

 

Our general partners will owe the same duties and be subject to the same standard of care.

Management's Liability and Indemnification

Partnerships

 

NTS

Each partnership's limited partnership agreement provides that neither the general partner, nor any partner of the general partner, nor any partner, director or officer of a partner of the general partner will be liable to the partnership or its limited partners for any act or omission within the scope of the general partner's authority unless the act or omission was performed or omitted fraudulently, in bad faith or negligently. Under each partnership agreement, the partnership must indemnify the general partner, any partner of the general partner and any partner, director or officer of a partner of the general partner against any losses or expenses arising out of, any acts or omissions arising out of, their activities on behalf of the partnership or in furtherance of the interests of the partnership, including judgments, settlements, attorneys' fees and other costs or expenses incurred in connection with the defense of any actual or threatened action, if the acts or omissions upon which the claim or action is based were taken or omitted in a manner reasonably believed to be in the best interests of the partnership, were within the scope of the authority conferred on the general partner by the agreement or by law, were not performed or omitted fraudulently, in bad faith or as a result of negligence or misconduct, and were not in violation of the general partner's fiduciary obligation to the partnership. Any indemnification must be only from the assets of the partnership. If any indemnified party has insurance covering any liability for which indemnification is not provided, the partnership may not pay for that portion of the insurance.

 

Our limited partnership agreement will contain the same provisions regarding liability and indemnification. In addition, we will indemnify the independent directors of NTS Realty Capital's board of directors to the fullest extent permitted by Delaware law.

 

 

 

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Amendments


Partnerships


 


NTS

Amendments to the existing partnership agreements, must be approved by a majority of the limited partners. Certain amendments must also be approved by the general partner. These are:

 

Our partnership agreement will contain the same provisions.

• provisions governing the allocation of gains and losses and distribution of cash proceeds from operations or sales or refinancing of properties;

 

 

• provisions setting forth the powers, rights and obligations of the general partner; and

 

 

• sections providing that limited partners will not have any personal liability for partnership debts.

 

 

Review of Investor Lists

Partnerships

 

NTS

Under each partnership's limited partnership agreement, a list of limited partners, their names and addresses and the number of interests held by each will be furnished to any limited partner who makes a written request for the list that states a proper purpose for the request. The list will be furnished at the limited partner's expense.

 

Our partnership agreement will contain the same provisions.

 

 

 

117



Distributions

Partnerships

 

NTS

The interests in each partnership are equity interests entitling each limited partner to his or her pro rata share of cash distributions. The limited partnership agreement for each partnership specifies how the cash available for distribution, whether arising from operation or sales or refinancing, is to be shared among the partnership's general partner and limited partners. The distributions payable by each partnership, pursuant to its general partner's discretion, are not fixed in amount and depend upon the operating results and net sales or refinancing proceeds available from the disposition of the partnership's assets. Each partnership has suspended paying distributions indefinitely.

 

Our partnership agreement will contain the same general provisions. Unlike the partnerships, we will be required to pay distributions of at least sixty-five percent (65%) of our net cash flow from operations. For more information on the definition of net cash flow from operations, see "Summary—Distribution Policy." We intend to begin making these distributions commencing with the first full quarter after completing the merger. Unlike the partnerships, we are permitted to reinvest sales or refinancing proceeds in new and existing properties.
Although there can be no assurance that we will not suspend distributions in the future, any suspension would require the approval of NTS Realty Capital's board of directors, a majority of whom will be "independent" and elected annually by our limited partners.

Additional Equity/Potential Dilution

Partnerships

 

NTS

The partnerships are prohibited from issuing additional equity interests without the approval of the majority of the limited partners.

 

Our partnership agreement will contain the same provisions.

Liability Of Investors

Partnerships

 

NTS

No limited partner has any liability to the partnership or any of its creditors beyond the capital he or she contributed to the partnership.

 

Our partnership agreement will contain the same provisions.

 

 

 

118



Differences in Services or Fees Under the Management Agreement

Partnerships

 

NTS

Each partnership's management agreement with NTS Development Company is substantially similar. NTS-IV through VII pay NTS Development a property management fee equal to 5% of gross revenues from residential properties and 6% of gross revenues from commercial properties, or the customary charge in the market if it is less. NTS-III does not distinguish between residential and commercial properties and pays NTS Development Company a property management fee equal to 5% of its properties gross revenues or the customary charge in the market, whichever is less.

 

Our management agreement with NTS Development Company, which has an initial term of one year, will contain the same provisions. Therefore, NTS Development Company will receive a management fee equal to 5% of the gross revenues generated by the properties we acquire in the merger from NTS-III and the residential properties that we acquire from NTS-IV through NTS-VII and ORIG, and 6% of the gross revenues generated by the commercial properties we acquire from NTS-IV through NTS-VII and ORIG. NTS Development Company will provide substantially identical services for us as it currently provides to the partnerships. After the initial one-year term of the management agreement, the independent directors of our managing general partner must review the terms of the management agreement and decide whether to renew the management agreement on the same terms and conditions or, if the independent directors determine that the terms are not consistent with other similar agreements for properties in our markets, negotiate a new management agreement. The independent directors will have the authority to retain a nationally recognized real estate expert to assist them in evaluating the management agreement.

Liquidation Rights

Partnerships

 

NTS

Each of the partnerships distributes liquidation proceeds between the limited partners and the general partner based on a formula contained in their respective partnership agreements. Generally, each of the partnerships distributes liquidation proceeds among the limited partners based on relative number of interests owned in the partnership. For a detailed description of the liquidation formula utilized by your partnership, please see the supplement for your partnership.

 

Each of our Units is identical in all respects, whether the Unit is owned by a limited partner or a general partner. Therefore, each holder of Units will receive a pro rata portion of the liquidation proceeds. No preferential returns will be made to any limited partner or general partner.

 

 

 

119



Affiliate Voting Power

Partnerships

 

NTS

ORIG, Mr. Nichols and their affiliates own between approximately 41% and 48% of each partnership's interests.

 

If the merger is completed, NTS Realty Partners, ORIG, Mr. Nichols and their affiliates will own approximately 57.18% of the Units. Pursuant to the terms of our partnership agreement, NTS Realty Partners is not entitled to vote the Units that it owns. Further, plaintiffs' counsel will be entitled to vote the Class Units until the Class Units are redesignated as described in "Summary—Partnership Units."

 

 

The primary reason for the increased affiliate ownership percentage is that ORIG is contributing twelve properties and four joint venture interests to us in exchange for 1,705,496 Units, which accounts for approximately 14.51% of our outstanding Units.

State Law Differences

Partnerships

 

NTS

NTS-III is organized under Georgia's Uniform Limited Partnership Act (referred to herein as the "ULPA"), and NTS-IV is organized under Kentucky's ULPA. NTS-V and NTS-VI are organized under Maryland's Revised Uniform Limited Partnership Act (referred to herein as "RULPA"), and NTS-VII is organized under Florida's RULPA. ULPA does not permit a limited partnership to engage in a merger transaction. As part of the merger transaction, the limited partners of NTS-III and NTS-IV are being asked to approve the amendment of their respective partnership agreements so that they are governed by the Georgia and Kentucky RULPA, respectively, and will be allowed to engage in the merger. RULPA permits merger transactions. Maryland's RULPA requires the limited partnership to offer state law appraisal rights to dissenting limited partners in a merger. Florida's RULPA also provides state law appraisal rights to dissenting limited partners in a merger, but excludes limited partnerships with at least 500 partners. NTS VII has more than 500 partners.

 

We will be organized under Delaware's RULPA. We are permitted to engage in a merger transaction and our limited partners will not be entitled to state law appraisal rights in a merger. However, our partnership agreement includes a provision based on Maryland's RULPA to provide our limited partners with the same appraisal rights in Delaware courts that limited partners in a partnership organized under Maryland's RULPA would have in Maryland's courts.

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COMPENSATION AND FEES

        Under the governing agreement for each partnership, each partnership or limited liability company in the NTS Private Group and for us, the general partner or manager (as the case may be) is entitled to receive a share of distributions from cash flow, sales of properties or refinancing of debt. In addition, each limited partnership agreement or operating agreement permits affiliates of the general partner or the manager to receive commissions, fees and reimbursements. The following chart summarizes the distributions, commissions, fees and reimbursements payable to each general partner or manager or its affiliates. All of the compensation and fees relate to the operational stage of each entity and us. Each of the fees described below have been or will be payable to NTS Development Company as the manager of the properties.

 
  NTS-III
  NTS-IV
  NTS-V
  NTS-VI
  NTS-VII
  NTS Realty
  NTS Private Group
  ORIG
Interest in Cash Flow   Percentage of invested capital (approximately 35%), subject to 10% non cumulative return on invested capital to limited partners; 48% interest once limited partners have received return of capital.   1% of operating cash flow until limited partners receive an 8% preferred return on invested capital, then 100% of cash flow until the general partner receives 10.1% of the distribution made to limited partners during the year, then 10% of cash flow thereafter.   1% of operating cash flow until limited partners receive an 8% preferred return on invested capital, then 100% of cash flow until the general partner receives 10.1% of the distribution made to limited partners during the year, then 10% of cash flow thereafter.   1% of operating cash flow until limited partners receive an 8% preferred return on invested capital, then 100% of cash flow until the general partner receives 10.1% of the distribution made to limited partners during the year, then 10% of cash flow thereafter.   1% of operating cash flow until limited partners receive an 8% preferred return on invested capital, then 100% of cash flow until the general partner receives 10.1% of the distribution made to limited partners during the year, then 10% of cash flow thereafter.   An amount equal to at least 65% of net cash flow from operations will be distributed pro rata among holders of Units each quarter.   Subject to the general partner's or manager's discretion.   To the members in accordance with their relative participating percentages.

Interest in the Proceeds from Sales or Refinancing of Properties

 

Return of capital invested in property, subject to 15% cumulative return on invested capital paid to limited partners; 48% interest once limited partners have received return of capital.

 

1% of the proceeds until limited partners receive an 8% cumulative preference on their invested capital, then 25% of the proceeds thereafter.

 

1% of the proceeds until limited partners have received the return of their invested capital, then 25% of the proceeds thereafter.

 

1% of the proceeds until limited partners have received the return of their invested capital, then 20% of the proceeds thereafter.

 

1% of the proceeds until limited partners have received the return of their invested capital, then 20% of the proceeds thereafter.

 

Proceeds may be used to fund reserves, make capital improvements to existing properties or pay indebtedness relating to existing properties.

 

Subject to the general partner's or manager's discretion.

 

To the members in accordance with their relative participating percentages.

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  NTS-III
  NTS-IV
  NTS-V
  NTS-VI
  NTS-VII
  NTS Realty
  NTS Private Group
  ORIG
Commissions on Sale of Properties   50% of customary charges in market or 3% of sales price, whichever is less   None.   None.   The lesser of 3% of the gross sales price, 50% of the customary commission in the market or the difference between 6% of the gross sales price and commissions and fees paid to people involved in the sale.   The lesser of 3% of the gross sales price, 50% of the customary commission in the market or the difference between 6% of the gross sales price and commissions and fees paid to people involved in the sale.   None.   None.   None.

Property Management Fees

 

5% of the gross revenues from properties of the partnership or customary charge for market, whichever was less, plus reimbursement of out of pocket expenses.

 

5% of gross revenues from residential properties, 6% of gross revenues from commercial properties, or the customary charge in the market, whichever is less, plus reimbursement of out of pocket expenses.

 

5% of gross revenues from residential properties, 6% of gross revenues from commercial properties, or the customary charge in the market, whichever is less, plus reimbursement of out of pocket expenses, subject to certain limitations where the general partner does not perform the leasing service or where property is leased on a long term net basis.

 

5% of gross revenues from residential properties, 6% of gross revenues from commercial properties, or the customary charge in the market, whichever is less, plus reimbursement of out of pocket expenses, subject to certain limitations where the general partner does not perform the leasing service or where property is leased on a long term net basis.

 

5% of gross revenues from residential properties, 6% of gross revenues from commercial properties, or the customary charge in the market, whichever is less, plus reimbursement of out of pocket expenses, subject to certain limitations where the general partner does not perform the leasing service or where property is leased on a long term net basis.

 

5% of gross revenues from residential properties, 6% of gross revenues from commercial properties (5% from NTS-III's commercial properties), or the customary charge in the market, whichever is less, plus reimbursement of out of pocket expenses, subject to certain limitations where the general partner does not perform the leasing service or where property is leased on a long term net basis.

 

6% of gross revenues from commercial properties.

 

Subject to the manager's discretion.

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  NTS-III
  NTS-IV
  NTS-V
  NTS-VI
  NTS-VII
  NTS Realty
  NTS Private Group
  ORIG
Construction Management Fees   None.   4 3/4% of the gross proceeds of the offering of interests in the partnership.   4.9% of the gross proceeds of the offering of interests in the partnership.   4.9% of the sum of the gross proceeds of the offering of interests in the partnership plus the first $10 million borrowed by the partnership, plus reimbursement of certain expenses.   5.9% of the gross proceeds of the offering of interests in the partnership, plus 5.9% of the total debt to which partnership properties are subject two years after the termination of the offering.   None.   5% of construction costs (including tenant finish costs) incurred by the entity.   Subject to the manager's discretion.

Repair and Maintenance Fee

 

1% of annual gross revenues of each property.

 

1% of the annual gross revenues from the partnership's properties.

 

Actual cost of services.

 

Actual cost of services.

 

Reimbursement of costs, plus a fee equal to the lesser of 5.9% of the cost of construction or 90% of the fee customarily charged in the market.

 

None.

 

None.

 

Subject to the manager's discretion.

Reimbursement of Expenses

 

Permitted for costs of goods or materials obtained from unaffiliated parties, cost of administrative services that could be performed for partnership by independent parties, such as accounting, transfer agent and similar services, plus ordinary and necessary travel expenses; reimbursement limited to lesser of actual cost or customary charges in market.

 

Permitted for costs of goods or materials obtained from unaffiliated parties, cost of administrative services that could be performed for partnership by independent parties, such as accounting, transfer agent and similar services, plus ordinary and necessary travel expenses; reimbursement limited to lesser of actual cost or customary charges in market.

 

Permitted for costs of goods or materials obtained from unaffiliated parties, cost of administrative services that could be performed for partnership by independent parties, such as accounting, transfer agent and similar services, plus ordinary and necessary travel expenses; reimbursement limited to lesser of actual cost or customary charges in market.

 

Permitted for costs of goods or materials obtained from unaffiliated parties, cost of administrative services that could be performed for partnership by independent parties, such as accounting, transfer agent and similar services, plus ordinary and necessary travel expenses; reimbursement limited to lesser of actual cost or customary charges in market.

 

Permitted for costs of goods or materials obtained from unaffiliated parties, cost of administrative services that could be performed for partnership by independent parties, such as accounting, transfer agent and similar services, plus ordinary and necessary travel expenses; reimbursement limited to lesser of actual cost or customary charges in market.

 

Permitted for costs of goods or materials obtained from unaffiliated parties, cost of administrative services that could be performed for partnership by independent parties, such as accounting, transfer agent and similar services, plus ordinary and necessary travel expenses; reimbursement limited to lesser of actual cost or customary charges in market.

 

Permitted for costs of goods or materials obtained from unaffiliated parties, cost of administrative services that could be performed for entity by independent parties, such as accounting plus ordinary and necessary travel expenses.

 

Subject to the manager's discretion.

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        The following table quantifies the various fees and expenses paid to the general partners since the formation of the partnerships.

Historical Fees and Expenses to the General Partner

 
  NTS-III
  NTS-IV
  NTS-V
  NTS-VI
  NTS-VII
Cash Flow Distributions(1)   $ 206,985   $ 218,253   $ 168,176   $ 121,277   $ 27,445
Proceeds from Sale/Refinancing         6,050,582     24,868,181     821,353     8,155
Commissions on Sales                    
Property Management/Leasing Fees     4,937,439     4,578,778     6,651,073     11,731,207     2,285,850
Construction Management Fees     0     1,251,208     2,336,901     2,659,478     337,798
Repair/Maintenance Fees     459,344     106,908     339,988     199,900     35,138
Reimbursement of Expenses(2)     5,139,101     6,571,625     9,074,477     16,595,636     4,399,931
   
 
 
 
 
  TOTAL:   $ 10,742,869   $ 18,777,354   $ 43,438,796   $ 32,128,851   $ 7,094,317

(1)
Includes distributions made in respect of the general partner interest in each partnership.

(2)
Includes the following: professional and administrative expenses, operating expenses, landscaping costs, travel costs, construction costs, organization costs, promotional costs, site selection costs, interest expense, loan costs and other various expenses.

Historical Fees and Expenses of NTS Private Group and ORIG(1)

 
  NTS Private Group
  ORIG
Cash Flow Distributions   $ 4,818,617   $
Proceeds from Sale/Refinancing        
Commissions on Leases     450,217    
Property Management Fees     3,111,077    
Construction Management Fees        
Repair and Maintenance Fees     404,026    
Reimbursement of Expenses     3,841,165     53,772
Other     16,912    
   
 
  TOTAL:   $ 12,642,014   $ 53,772

(1)
This table includes the fees and expenses paid since 1999. Data prior to 1999 is not readily available to either ORIG or the entities comprising the NTS Private Group.


COMPENSATION, REIMBURSEMENTS AND DISTRIBUTIONS
TO THE GENERAL PARTNERS

        The following information has been prepared to compare the amount of compensation paid, and distributions made, by the partnerships to the general partners and their affiliates to the amounts that would have been paid if our compensation and distribution structure, which will be in effect after the merger, had been in effect during the years presented below.

        Under the partnership agreements, the general partners of the partnerships or their affiliates are entitled to receive fees in connection with managing the affairs of each partnership. For example, certain of the partnership agreements provide that the general partner is entitled to a commission on the sales of properties. However, the general partners have waived any sales commissions they might

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have otherwise been entitled to as a result of the merger. The partnership agreements also provide that the general partners are to be reimbursed for their expenses for some of the administrative services performed for each partnership, such as legal, accounting, transfer agent, data processing, duplicating, investor communications and other services. For more information on the compensation and fees that the general partners or their affiliates are entitled to receive, see "Compensation and Fees."

        We intend to operate as a Delaware limited partnership under a partnership agreement which is substantially similar to the partnership agreements for each partnership. We will pay fees to NTS Development Company in its capacity as the property manager pursuant to a management agreement substantially similar to the management agreement between NTS Development Company and each partnership.

        During the years ended December 31, 2000, 2001, 2002 and 2003, and the six months ended June 30, 2004, the aggregate amounts accrued or actually paid by the partnerships to the general partner are shown below.

Compensation, Reimbursements And Distributions
To The General Partners

 
  Year Ended December 31(1)
   
 
  Six Months
Ended
06/30/04

 
  2001
  2002
  2003
Property Management Fees   $ 1,311,605   $ 1,288,174   $ 1,298,762   $ 629,505
Repair and maintenance Fees     109,843     79,377     94,907     36,691
Leasing Commissions     115,858     109,175     30,586     15,195
Professional & Adm. Expenses     1,003,952     954,401     1,003,346     538,224
Operating Expenses     3,369,475     3,307,084     3,053,625     1,685,729
Cash Distributions—General Partner     0     0     0     0
Cash Distributions—Limited Partner(2)     0     0     0     0
   
 
 
 
Total historical   $ 5,910,733   $ 5,738,211   $ 5,481,226   $ 2,905,344

(1)
The compensation, reimbursements and distributions paid to the partnerships' general partners and their affiliates were calculated based upon the compensation, reimbursements and distributions that the general partners and their affiliates received under the partnerships' partnership agreements. For a description of the compensation structure and the applicable formulae, see "Comparison of Rights of Limited Partners of the Partnerships and Limited Partners of NTS Realty."

(2)
Represents distributions on limited partner interests in the partnerships owned by the general partners and their affiliates.

        After completing the merger, we expect that the amounts paid for property management fees, repair and maintenance fees and leasing commissions as well as property management expenses will increase because we will now own more properties in the aggregate than were owned by the partnerships in the aggregate prior to the merger. As described elsewhere herein, however, the percentage fees charged to manage these properties will be the same as the percentage fees currently charged by the partnerships. For example, we generally will pay NTS Development Company a property management fee equal to five percent (5%) of the gross revenues from residential properties and six percent (6%) of the gross revenues from commercial properties. Each of the partnerships, except NTS-III, already pays NTS Development Company a property management fee based on the same percentages. Please note that NTS-III does not distinguish between commercial and residential properties. NTS-III pays a fee equal to five percent (5%) of gross revenues even though its existing properties are commercial properties. We believe that the total amount of the fees will increase strictly

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because NTS Development Company will manage more properties than it currently manages for the partnerships.

        We anticipate that the amounts paid for audit and professional fees will decrease as a result of the economies of scale because only one, rather than five, quarterly and annual reports will be required to be filed with the SEC and, similarly, we will require only one audit opinion rather than five on our annual filing. Although our general partners believe our audit and professional fees will increase in the future as a result of complying with the corporate governance initiatives of the Sarbanes-Oxley Act of 2002, these costs will be significantly less than the related costs for five separate partnerships. Based on the combined historical fees and expenses paid to NTS Development Company during the years ended December 31, 2003, 2002 and 2001, we estimate that we will pay fees and expenses of approximately $5.7 million during the first twelve months after the merger is completed. The actual amount of fees that we will pay to NTS Development Company after the merger is completed may be higher or lower than this estimate because the fees are based on a percentage of gross revenues that the properties generate. Under the settlement agreement, we are required to pay distributions equal to sixty-five percent (65%) of our "net cash flow from operations" as that term is defined in the regulations promulgated under the Internal Revenue Code of 1986, as amended.

        For more detailed information regarding the general partners' compensation and distributions on a historical basis for each partnership, please read the supplement for your partnership under the heading "Compensation, Reimbursements and Distributions to the General Partner."


SELECTED UNAUDITED PRO FORMA
CONSOLIDATED CONDENSED FINANCIAL AND OPERATING DATA

        The selected unaudited pro forma consolidated condensed financial and operating data for the six months ended June 30, 2004 and for the year ended December 31, 2003 has been prepared to give pro forma effect to the Merger as if it occurred on January 1, 2003, with regard to the statement of operating data and at June 30, 2004 with respect to the balance sheet data. The selected unaudited pro forma consolidated condensed financial and operating data is for informational purposes only and should not be considered indicative of actual results that would have been achieved had the merger been consummated on the dates indicated and does not purport to indicate balance sheet data or results of operations for any future period.

        The following data should be read in conjunction with "Selected Historical Combined Condensed Financial and Operating Data," "Unaudited Summary Pro Forma Consolidated Condensed Financial and Operating Data," "Unaudited Summary Historical Combined Condensed Financial and Operating Data," Management's Discussion and Analysis of Financial Condition and Results of Operations," and

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the financial statements and related notes thereto of the Partnerships, the NTS Private Group and ORIG included in or incorporated by reference elsewhere in this joint consent/prospectus.

 
  As of and for the
Six Months Ended
June 30,
2004

  For the
Year Ended
December 31,
2003

 
 
  (UNAUDITED)

  (UNAUDITED)

 
STATEMENT OF OPERATIONS DATA              
  Rental income   $ 15,571,550   $ 32,032,451  
  Tenant reimbursements     1,184,048     2,371,880  
   
 
 
  TOTAL REVENUES     16,755,598     34,404,331  
 
Operating expenses & operating expenses—affiliated

 

 

6,114,211

 

 

11,409,356

 
  Management fees     905,975     1,854,917  
  Real estate taxes     924,934     2,422,711  
  Professional and administrative & professional and admin.—affiliated     2,560,284     3,958,370  
  Depreciation and amortization     5,206,853     11,414,593  
   
 
 
  TOTAL OPERATING EXPENSES     15,712,257     31,059,947  
   
 
 
OPERATING INCOME     1,043,341     3,344,384  
 
Interest and other income and affiliated

 

 

57,513

 

 

364,683

 
  Interest expense and affiliated     (3,531,662 )   (7,568,831 )
  Loss on disposal of assets     (53,540 )   (303,906 )
  Settlement charge         (2,400,000 )
   
 
 
  NET LOSS   $ (2,484,348 ) $ (6,563,670 )
   
 
 
  Net loss allocated to limited partners   $ (2,324,605 ) $ (6,146,221 )
   
 
 
  Net loss per limited partnership interest   $ (0.20 ) $ (0.52 )
   
 
 
  Number of limited partnership interests     11,751,959     11,751,959  
   
 
 
  Ratio of earnings to fixed charges     0.30     0.13  
   
 
 
  Deficiency to cover fixed charges   $ 2,484,348   $ 6,563,670  
   
 
 

BALANCE SHEET DATA (as of June 30, 2004)

 

 

 

 

 

 

 
  Land, buildings and amenities, net     159,854,920        
  Total assets     172,697,153        
  Mortgages and notes payable     106,081,017        
  Book value per unit   $ 5.02        
   
       


UNAUDITED SELECTED HISTORICAL COMBINED CONDENSED
FINANCIAL AND OPERATING DATA

        The following table sets forth unaudited summary historical combined condensed financial and operating data as if NTS-Properties III, NTS-Properties IV, NTS-Properties V, NTS-Properties VI, NTS-Properties VII, Ltd. (the "Partnerships") and NTS Private Group were combined on a historical basis. This historical combined presentation reflects adjustments to the actual historical data to: (1) include a previously unconsolidated joint venture; (2) eliminate the equity investment and minority interests in wholly combined joint ventures in the historical financial information of the applicable partnership; and (3) include debt used by ORIG and its related interest cost to acquire interests in the Partnerships which will be assumed by NTS Realty in the merger.

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        We have derived the combined condensed statement of operations and balance sheet data as of and for the years ended December 31, 2003, 2002 and 2001 from the audited financial statements of the Partnerships and the NTS Private Group. We have derived the combined condensed balance sheet data, consisting of debt of ORIG from the audited financial statements as of December 31, 2003, 2002 and 2001. We have derived the combined condensed statement of operations data consisting of interest expense relating to ORIG's debt from the unaudited financial statements of ORIG for each of the three years ending December 31, 2003. We have derived the combined condensed statement of operations and balance sheet data as of and for the six months ended June 30, 2004 and 2003 from the unaudited financial statements of the Partnerships, NTS Private Group and ORIG. In the opinion of management, our unaudited financial statements have been prepared on a basis consistent with our audited financial statements and include all adjustments, consisting of normal recurring accruals, which we consider necessary for a fair presentation of our financial condition and the results of operations as of such date and for such periods under U.S. generally accepted accounting principles. The results of operations for the interim periods are not necessarily indicative of the results of operations for the full year or any future period.

        You should read the financial information below in conjunction with the other financial information and analysis presented in this joint consent/prospectus, including "Unaudited Summary Pro Forma Consolidated Condensed Financial and Operating Data," "Selected Unaudited Pro Forma Consolidated Condensed Financial and Operating Data," "Selected Historical Combined Condensed Financial and Operating Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and related notes thereto of the Partnerships, the

128



NTS Private Group and ORIG included or incorporated by reference elsewhere in this joint consent/prospectus.

 
  For the Six Months Ended June 30,
  For the Years Ended December 31,
 
 
  2004
  2003
  2003
  2002
  2001
 
 
  (UNAUDITED)

  (UNAUDITED)

  (UNAUDITED)

  (UNAUDITED)

  (UNAUDITED)

 
STATEMENT OF OPERATIONS DATA                                
  Rental income   $ 15,468,552   $ 15,855,834   $ 31,762,268   $ 32,014,147   $ 32,414,553  
  Tenant reimbursements     1,184,048     1,218,903     2,371,880     2,374,347     2,330,607  
   
 
 
 
 
 
  TOTAL REVENUES     16,652,600     17,074,737     34,134,148     34,388,494     34,745,160  
 
Operating expenses and affiliated

 

 

6,114,211

 

 

5,779,475

 

 

11,409,356

 

 

11,804,936

 

 

12,202,657

 
  Management fees     905,975     931,431     1,854,917     1,876,685     1,900,161  
  Real estate taxes     924,934     1,327,274     2,422,711     2,267,523     2,332,384  
  Professional and administrative and affiliated     2,339,992     1,753,825     3,517,787     1,839,931     1,564,025  
  Depreciation and amortization     4,072,207     3,989,604     8,006,076     8,370,527     8,318,800  
   
 
 
 
 
 
  TOTAL OPERATING EXPENSES     14,357,319     13,781,609     27,210,847     26,159,602     26,318,027