UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D. C. 20549

                                    FORM 8-K

                                 CURRENT REPORT


           PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934

Date of Report (Date of earliest event reported)      February 12, 1997
                              (February 12, 1997)


Commission File Number                        0-18550

                           NTS Mortgage Income Fund
           (Exact name of registrant as specified in its charter)

         Delaware                                    61-1146077
(State or other jurisdiction of            (I.R.S. Employer Identification
incorporation or organization)             No.)

   10172 Linn Station Road
   Louisville, Kentucky                              40223
(Address of principal executive                   (Zip Code)
offices)

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

                              Not Applicable
           Former name, former address and former fiscal year,
                       if changed since last report



<PAGE>



Forward-Looking Statements

     In addition to  historical  information,  this  Current  Report on Form 8-K
contains forward-looking  statements.  The forward-looking  statements contained
herein are subject to certain  risks and  uncertainties  that could cause actual
results  to  differ  materially  from  those  reflected  in the  forward-looking
statements.  Factors  that might cause such a  difference  include,  but are not
limited to, those discussed in the section entitled "Management's Discussion and
Analysis of Financial  Condition  and Results of  Operations"  of the  Company's
Quarterly  Reports on Form 10-Q and 10-K.  Readers  are  cautioned  not to place
undue reliance on these forward-looking  statements,  which reflect management's
analysis  only as of the date  hereof.  NTS  Mortgage  Income Fund (the  "Fund")
undertakes no obligation to publicly revise these forward-looking  statements to
reflect events or circumstances that arise after the date hereof. Readers should
carefully  review the factors  described in other  documents that the Fund files
from time to time with the  Securities  and Exchange  Commission,  including the
Quarterly  Reports on Form 10-Q to be filed by the Fund in 1997 and 1998 and any
Current Reports on Form 8-K filed by the Fund.

Item 5.  Other Events

     On February 12, 1997, NTS Mortgage Income Fund (the "Fund") signed a letter
of intent (the "Letter of Intent") with NTS Corporation, the sponsor of the Fund
("NTS"),  and its  affiliates,  NTS  Development  Company  ("NTS  Development"),
NTS/Lake Forest II Residential  Corporation ("NTS/Lake Forest") and NTS/Virginia
Development  Company  ("NTS/Virginia")  regarding  the Fund's  loans to NTS/Lake
Forest and  NTS/Virginia.  The Letter of Intent provides for a restructuring  of
the Fund's loans to NTS/Lake  Forest,  which is secured by the project  known as
Lake Forest North, and to NTS/Virginia, which is secured by the project known as
Fawn  Lake.  The  Letter  of  Intent  contemplates  that  the  ownership  of the
properties  will be  transferred  to the  Fund,  which  plans  to  continue  the
development to completion of such projects and, ultimately,  their orderly sale.
The parties to the Letter of Intent  agreed to consider a general  restructuring
of the relationships among the Fund, NTS and its various affiliates.

     The Fund has not yet determined the method by which it will acquire control
of the  projects.  The Fund  anticipates  that  each  project  will be held in a
separate entity controlled by the Fund for limitation of liability purposes. The
assumption of the projects  should be treated for federal income tax purposes as
a sale or exchange  and should not result in any  immediate  taxable gain to the
Fund.

         Lake  Forest  North and Fawn Lake will have  continued  cash  needs for
development  and  marketing  which  will  significantly  reduce  the cash  flows
associated  with the  projects,  and,  therefore,  the  Board of  Directors  has
determined to terminate the Fund's  quarterly  distribution  for the foreseeable
future  effective  as of the first  quarter of 1997.  It is likely that the Fund
will report losses in the near term.

         It is likely that the Fund will terminate its REIT status in connection
with the ongoing  development  and sale of the Fawn Lake and Lake  Forest  North
projects.  As a result of the  termination  of the REIT status of the Fund,  the
Fund may incur income taxes on future operating income.


<PAGE>




     The Lake Forest North and Fawn Lake  projects  will be acquired  subject to
the following mortgage indebtedness to third parties and to existing payables:


Lake Forest North existing mortgage debt:

(1)      Approximately $4,000,000 to National City Bank (Lake Forest Country
         Club)
(2)      Approximately $258,000 to Pinetree Aviation (Section Loans)

Fawn Lake existing mortgage debt:

(1)      Approximately $2,000,000 to PNC Bank (Fawn Lake Country Club*)
(2)      Approximately $272,000 to Pinetree Aviation (Section Loans)

         The  Fund  is  further  indebted  to  NTS  Financial   Partnership  and
affiliates in an approximate amount of $5,600,000, which is due and payable from
funds  remitted  to the Fund upon sale of lots,  country  club  memberships  and
ancillary services from the Lake Forest North, Fawn Lake and Orlando Lake Forest
projects,  or is otherwise due on demand.  The Fund will remain  responsible for
repayment  of such  funds on present  terms and on such other  terms as shall be
mutually agreeable.

         The Fund,  as owner of the Lake  Forest  North and Fawn Lake  projects,
expects to continue  development  of the  projects and the orderly sale of lots,
golf course memberships and ancillary services through sell-out,  as well as the
sale of the Fawn Lake Country Club, when appropriate. As owner, the Fund will be
responsible for continuing  development,  operations and marketing costs through
the  remaining  lives of the projects and it would be necessary  for the Fund to
borrow  additional  funds to complete the  development.  While the Fund believes
that such funds will be more readily  available if it owns the  projects,  it is
not certain that the Fund will be able to borrow the funds necessary to complete
the projects.

         NTS Development,  or another subsidiary or affiliate of NTS Corporation
("Manager"), will enter into a management agreement (the "Management Agreement")
with the Fund pursuant to which the Manager  will,  as authorized  agent for the
Fund, provide exclusive management, development, marketing and sales efforts and
personnel  to the  Fund,  and take all other  actions  necessary  to manage  the
development  of  the  projects  to  completion  and  the  sale  of  lots,   golf
memberships, ancillary services and the Fawn Lake Country Club. The terms of the
Management Agreement have not yet been finalized.

         A copy of the Letter of Intent is attached as Exhibit A.

Item 7. Financial Statements and Exhibits

         Exhibits

         A)       Letter of Intent among the Fund, NTS Corporation, NTS
Development Company, NTS/Lake Forest II Residential Corporation and
NTS/Virginia Development Company.

* The Fawn Lake Country Club loan may be  increased  to  $2,500,000  pursuant to
discussions between the Fund and PNC Bank.


<PAGE>



                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  exchange  Act of  1934,  NTS
Mortgage  Income  Fund has duly caused this report to be signed on its behalf by
the undersigned, hereunto duly authorized.

NTS MORTGAGE INCOME FUND


/s/ John W. Hampton                                 Date: February 12, 1997
----------------------------------
John W. Hampton
Secretary/Treasurer of the
NTS Mortgage Income Fund



<PAGE>





                                    Exhibit A


                            NTS Mortgage Income Fund


                                                              February 12, 1997


NTS/Lake Forest II Residential Corporation, NTS/Virginia Development Company,
NTS Corporation and NTS Development Company

Gentlemen:

             The purpose of this letter ("Letter of Intent") is to summarize our
discussions and express our mutual intent regarding the general restructuring of
the  relationship  of NTS Mortgage Income Fund (the "Fund") with NTS Corporation
("NTS") and its various  affiliates  including  NTS/Lake  Forest II  Residential
Corporation   ("NTS/Lake   Forest"),   and  NTS/Virginia   Development   Company
("NTS/Virginia") (together, the "Companies"), subject to the following terms and
conditions,  including  the  execution  by the parties of a mutually  acceptable
definitive agreement  ("Definitive  Agreement") and related ancillary documents.
The  restructuring  would be  undertaken  in order to protect the capital of the
Fund and in an effort to ensure the return of shareholder capital.

             1.   Acquisition of Assets and Restructuring.

                  At  the  closing   (the   "Closing"),   NTS/Lake   Forest  and
NTS/Virginia  will  transfer  and assign to the Fund,  and the Fund will acquire
from the  Companies,  all of the assets of NTS/Lake  Forest and of  NTS/Virginia
which are  pledged to the Fund,  free and clear of all claims,  liens,  charges,
security interests and encumbrances,  except for current payables,  indebtedness
to third parties and the mortgages of the Fund securing the loans of the Fund to
the Companies,  and any other liens specifically  excepted,  in exchange for the
cancellation of indebtedness of the Companies to the Fund. The parties will also
consider a general  restructuring of the relationships  among the Fund, NTS, and
its various affiliates.

             2.   Management Agreement.

                  At  the  Closing,  the  Fund  will  enter  into  a  management
agreement (the "Management  Agreement") with NTS Development  Company, or one of
its affiliates (the  "Manager")  pursuant to which the Manager will serve as the
agent of the Fund in providing exclusive management,  development, marketing and
sales efforts and personnel to the Fund, and take all other actions necessary to
manage the  development  of the  projects  to  completion  and the sale of lots,
country club memberships, ancillary services and the Fawn Lake Country Club. The
terms of such Management Agreement shall be as mutually agreed by the parties in
the Definitive Agreement.







<PAGE>



February 12, 1997
Page 2


             3.   Representations, Warranties and Indemnities.

                  (a) The Definitive Agreement will contain such representations
and  warranties  by the NTS  parties  regarding  their  businesses,  properties,
assets, liabilities, operations and conditions as are customary in a transaction
of this nature,  including  representations  and warranties  with respect to the
financial  condition  and  operations  of  the  NTS  parties,   compliance  with
applicable laws, claims, litigation, liens, environmental matters, insurance and
such other  representations  and  warranties as may be agreed to by the parties.
Representations  and warranties shall be subject to such limitations,  standards
and qualifications as the parties may agree.

                  (b) The  Companies  will  agree to  indemnify  the  Fund  with
respect   to  any   damages   it  may  incur  as  a  result   of  any   material
misrepresentation  or breach of warranty as  mutually  agreed in the  Definitive
Agreement.

             4.   Access.

                  The NTS parties shall permit the Fund and its  representatives
full access, at all reasonable times after the date hereof until the Closing, to
the books,  records,  property and personnel involved in the affairs of the Fund
as  the  Fund  may  reasonably   request  in  order  to  facilitate  a  complete
investigation,  inspection  and  analysis  by the  Fund  of the  businesses  and
prospects  of the  Fund.  The  NTS  parties  shall  also  make  available  their
attorneys,  accountants  and  other  outside  consultants  for  the  purpose  of
discussing with the Fund (and its  representatives) the businesses and prospects
of the Fund.

             5.   Conditions to Closing.

                  The obligation of the Fund to consummate the transaction shall
be conditioned  on such matters as may be provided in the Definitive  Agreement,
including the following:

                  (a)  The  parties  shall  have  entered  into  the  Definitive
Agreement and related ancillary documents, in form and substance satisfactory to
each party.

                  (b) All  representations  and warranties of the NTS parties in
the  Definitive  Agreement and ancillary  documents,  all as mutually  agreed in
accordance  with  paragraph  5(a),  shall be true,  correct and  complete in all
material respects as of the date of Closing.

                  (c) All  representations  and  warranties  of the  Fund in the
Definitive  Agreement  shall be  true,  correct  and  complete  in all  material
respects as of the date of Closing.

                  (d) The parties shall have received the consent or approval of
third parties (as specified in the  Definitive  Agreement),  including,  but not
limited to lenders, and applicable governmental or regulatory authorities, whose
consent  or  approval  is  necessary  or  desirable  in   connection   with  the
consummation of the transaction  contemplated  hereby or for Fund's operation of
the businesses transferred to it following the Closing.




<PAGE>



February 12, 1997
Page 3


                  (e) Each of the parties shall have performed and complied with
all material  agreements  and  conditions to be performed or complied with by it
prior to the Closing.

                  (f) The  results  of the  investigations  by the  Fund and its
representative  of  the  business  and  prospects  of  the  Fund  as it is to be
constituted  after the  restructuring,  and of the books,  records and financial
statements relevant to the Fund and its operations, shall be satisfactory to the
Fund in all respects.

                  (g) No material  litigation  or  governmental  action shall be
pending or threatened with respect to the transaction contemplated hereby.

                  (h) The Special Committee of Independent Directors of the Fund
shall  have  approved  the  Definitive   Agreement  and  the  related  ancillary
documents.

             6.   Conduct of the Companies' Business.

                  Between the date  hereof and the  Closing,  the parties  shall
conduct and operate  their  businesses  in the usual and ordinary  course and in
substantially the manner that they have heretofore been conducted.

             7.   Effect.

                  This Letter of Intent does not constitute a binding  agreement
by the parties  hereto;  instead,  it  expresses a good faith  intention  of the
parties  to use their  best  reasonable  efforts  to  proceed  expeditiously  to
negotiate,  prepare and execute the Definitive  Agreement and related  ancillary
documents in accordance  with the provisions  hereof.  Except as provided in the
preceding sentence,  no legally  enforceable  agreement of the parties as to the
subject  matter of this  Letter of Intent  shall be  created  unless and until a
Definitive  Agreement  and  related  ancillary  documents  with  respect to such
subject  matter are duly  authorized,  executed  and  delivered.  This Letter of
Intent shall terminate and be of no further force or effect if the execution and
delivery of the Definitive Agreement has not occurred on or before the date that
is forty-five (45) days after the date of this Letter of Intent.

             8.   Gender.

                  References herein to the neuter gender shall also be deemed to
include or refer to the masculine or feminine gender, as the context requires.

             9.   Governing Law.

                  This Letter of Intent shall be governed by and  construed  and
enforced in accordance with the laws of the State of Kentucky.






<PAGE>


February 12, 1997
Page 4

             Please indicate the agreement of these various parties to the terms
hereof by having this Letter of Intent signed in the spaces  provided  below and
returning a copy to the  undersigned  no later than 6:00 p.m.,  Eastern Time, on
February  14,  1997 (at which time this  Letter of Intent,  if not so signed and
returned,  will  expire).  This  Letter of Intent may be signed in any number of
counterparts,  all of which together shall constitute a single Letter of Intent.
Signatures of the parties transmitted by facsimile will be valid and binding for
all purposes.

                                                     Very truly yours,


                                                     NTS Mortgage Income Fund

                                                     By: /s/ Robert M. Day
                                                         -----------------
                                                     Name: Robert M. Day
                                                     Title:   Director

ACCEPTED AND AGREED TO:

NTS/Lake Forest II Residential Corporation   NTS/Virginia Development Company

By:   /s/ Richard L. Good                    By:    /s/ John W. Hampton
    ----------------------                          --------------------
Name:   Richard L. Good                      Name:    John W. Hampton
Title:     President                         Title:    Senior Vice President


NTS Corporation                              NTS Development Company

By:   /s/ Richard L. Good                    By:    /s/ Richard L. Good
Name:   Richard L. Good                      Name:    Richard L. Good
        ---------------                               ---------------
Title:     President                         Title:    President






<PAGE>
[{"type": "8-K", "sequence": "1", "description": "FORM 8-K DATED FEBRUARY 12, 1997", "secsgml_size_bytes": 18213}]
{"company-data": {"conformed-name": "NTS MORTGAGE INCOME FUND", "cik": "0000841942", "assigned-sic": "6798", "irs-number": "611146077", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "033-25217", "film-number": "97528096"}, "business-address": {"street1": "10172 LINN STATION RD SUITE 200", "city": "LOUISVILLE", "state": "KY", "zip": "40223", "phone": "5024264800"}, "mail-address": {"street1": "10172 LINN STATION ROAD", "street2": "SUITE 200", "city": "LOUISVILLE", "state": "KY", "zip": "40223"}, "former-company": {"former-conformed-name": "NTS HIGH INCOME FUND", "date-changed": "19890212"}}
UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D. C. 20549

                                    FORM 8-K

                                 CURRENT REPORT

           PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934

Date of Report (Date of earliest event reported)      February 12, 1997
                              (February 12, 1997)

Commission File Number                        0-18550

                           NTS Mortgage Income Fund
           (Exact name of registrant as specified in its charter)

         Delaware                                    61-1146077
(State or other jurisdiction of            (I.R.S. Employer Identification
incorporation or organization)             No.)

   10172 Linn Station Road
   Louisville, Kentucky                              40223
(Address of principal executive                   (Zip Code)
offices)

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

                              Not Applicable
           Former name, former address and former fiscal year,
                       if changed since last report
Forward-Looking Statements

     In addition to  historical  information,  this  Current  Report on Form 8-K
contains forward-looking  statements.  The forward-looking  statements contained
herein are subject to certain  risks and  uncertainties  that could cause actual
results  to  differ  materially  from  those  reflected  in the  forward-looking
statements.  Factors  that might cause such a  difference  include,  but are not
limited to, those discussed in the section entitled "Management's Discussion and
Analysis of Financial  Condition  and Results of  Operations"  of the  Company's
Quarterly  Reports on Form 10-Q and 10-K.  Readers  are  cautioned  not to place
undue reliance on these forward-looking  statements,  which reflect management's
analysis  only as of the date  hereof.  NTS  Mortgage  Income Fund (the  "Fund")
undertakes no obligation to publicly revise these forward-looking  statements to
reflect events or circumstances that arise after the date hereof. Readers should
carefully  review the factors  described in other  documents that the Fund files
from time to time with the  Securities  and Exchange  Commission,  including the
Quarterly  Reports on Form 10-Q to be filed by the Fund in 1997 and 1998 and any
Current Reports on Form 8-K filed by the Fund.

Item 5.  Other Events

     On February 12, 1997, NTS Mortgage Income Fund (the "Fund") signed a letter
of intent (the "Letter of Intent") with NTS Corporation, the sponsor of the Fund
("NTS"),  and its  affiliates,  NTS  Development  Company  ("NTS  Development"),
NTS/Lake Forest II Residential  Corporation ("NTS/Lake Forest") and NTS/Virginia
Development  Company  ("NTS/Virginia")  regarding  the Fund's  loans to NTS/Lake
Forest and  NTS/Virginia.  The Letter of Intent provides for a restructuring  of
the Fund's loans to NTS/Lake  Forest,  which is secured by the project  known as
Lake Forest North, and to NTS/Virginia, which is secured by the project known as
Fawn  Lake.  The  Letter  of  Intent  contemplates  that  the  ownership  of the
properties  will be  transferred  to the  Fund,  which  plans  to  continue  the
development to completion of such projects and, ultimately,  their orderly sale.
The parties to the Letter of Intent  agreed to consider a general  restructuring
of the relationships among the Fund, NTS and its various affiliates.

     The Fund has not yet determined the method by which it will acquire control
of the  projects.  The Fund  anticipates  that  each  project  will be held in a
separate entity controlled by the Fund for limitation of liability purposes. The
assumption of the projects  should be treated for federal income tax purposes as
a sale or exchange  and should not result in any  immediate  taxable gain to the
Fund.

         Lake  Forest  North and Fawn Lake will have  continued  cash  needs for
development  and  marketing  which  will  significantly  reduce  the cash  flows
associated  with the  projects,  and,  therefore,  the  Board of  Directors  has
determined to terminate the Fund's  quarterly  distribution  for the foreseeable
future  effective  as of the first  quarter of 1997.  It is likely that the Fund
will report losses in the near term.

         It is likely that the Fund will terminate its REIT status in connection
with the ongoing  development  and sale of the Fawn Lake and Lake  Forest  North
projects.  As a result of the  termination  of the REIT status of the Fund,  the
Fund may incur income taxes on future operating income.
The Lake Forest North and Fawn Lake  projects  will be acquired  subject to
the following mortgage indebtedness to third parties and to existing payables:

Lake Forest North existing mortgage debt:

(1)      Approximately $4,000,000 to National City Bank (Lake Forest Country
         Club)
(2)      Approximately $258,000 to Pinetree Aviation (Section Loans)

Fawn Lake existing mortgage debt:

(1)      Approximately $2,000,000 to PNC Bank (Fawn Lake Country Club*)
(2)      Approximately $272,000 to Pinetree Aviation (Section Loans)

         The  Fund  is  further  indebted  to  NTS  Financial   Partnership  and
affiliates in an approximate amount of $5,600,000, which is due and payable from
funds  remitted  to the Fund upon sale of lots,  country  club  memberships  and
ancillary services from the Lake Forest North, Fawn Lake and Orlando Lake Forest
projects,  or is otherwise due on demand.  The Fund will remain  responsible for
repayment  of such  funds on present  terms and on such other  terms as shall be
mutually agreeable.

         The Fund,  as owner of the Lake  Forest  North and Fawn Lake  projects,
expects to continue  development  of the  projects and the orderly sale of lots,
golf course memberships and ancillary services through sell-out,  as well as the
sale of the Fawn Lake Country Club, when appropriate. As owner, the Fund will be
responsible for continuing  development,  operations and marketing costs through
the  remaining  lives of the projects and it would be necessary  for the Fund to
borrow  additional  funds to complete the  development.  While the Fund believes
that such funds will be more readily  available if it owns the  projects,  it is
not certain that the Fund will be able to borrow the funds necessary to complete
the projects.

         NTS Development,  or another subsidiary or affiliate of NTS Corporation
("Manager"), will enter into a management agreement (the "Management Agreement")
with the Fund pursuant to which the Manager  will,  as authorized  agent for the
Fund, provide exclusive management, development, marketing and sales efforts and
personnel  to the  Fund,  and take all other  actions  necessary  to manage  the
development  of  the  projects  to  completion  and  the  sale  of  lots,   golf
memberships, ancillary services and the Fawn Lake Country Club. The terms of the
Management Agreement have not yet been finalized.

         A copy of the Letter of Intent is attached as Exhibit A.

Item 7. Financial Statements and Exhibits

         Exhibits

         A)       Letter of Intent among the Fund, NTS Corporation, NTS
Development Company, NTS/Lake Forest II Residential Corporation and
NTS/Virginia Development Company.

* The Fawn Lake Country Club loan may be  increased  to  $2,500,000  pursuant to
discussions between the Fund and PNC Bank.
SIGNATURES

Pursuant  to the  requirements  of the  Securities  exchange  Act of  1934,  NTS
Mortgage  Income  Fund has duly caused this report to be signed on its behalf by
the undersigned, hereunto duly authorized.

NTS MORTGAGE INCOME FUND

/s/ John W. Hampton                                 Date: February 12, 1997
----------------------------------
John W. Hampton
Secretary/Treasurer of the
NTS Mortgage Income Fund
Exhibit A

                            NTS Mortgage Income Fund

                                                              February 12, 1997

NTS/Lake Forest II Residential Corporation, NTS/Virginia Development Company,
NTS Corporation and NTS Development Company

Gentlemen:

             The purpose of this letter ("Letter of Intent") is to summarize our
discussions and express our mutual intent regarding the general restructuring of
the  relationship  of NTS Mortgage Income Fund (the "Fund") with NTS Corporation
("NTS") and its various  affiliates  including  NTS/Lake  Forest II  Residential
Corporation   ("NTS/Lake   Forest"),   and  NTS/Virginia   Development   Company
("NTS/Virginia") (together, the "Companies"), subject to the following terms and
conditions,  including  the  execution  by the parties of a mutually  acceptable
definitive agreement  ("Definitive  Agreement") and related ancillary documents.
The  restructuring  would be  undertaken  in order to protect the capital of the
Fund and in an effort to ensure the return of shareholder capital.

             1.   Acquisition of Assets and Restructuring.

                  At  the  closing   (the   "Closing"),   NTS/Lake   Forest  and
NTS/Virginia  will  transfer  and assign to the Fund,  and the Fund will acquire
from the  Companies,  all of the assets of NTS/Lake  Forest and of  NTS/Virginia
which are  pledged to the Fund,  free and clear of all claims,  liens,  charges,
security interests and encumbrances,  except for current payables,  indebtedness
to third parties and the mortgages of the Fund securing the loans of the Fund to
the Companies,  and any other liens specifically  excepted,  in exchange for the
cancellation of indebtedness of the Companies to the Fund. The parties will also
consider a general  restructuring of the relationships  among the Fund, NTS, and
its various affiliates.

             2.   Management Agreement.

                  At  the  Closing,  the  Fund  will  enter  into  a  management
agreement (the "Management  Agreement") with NTS Development  Company, or one of
its affiliates (the  "Manager")  pursuant to which the Manager will serve as the
agent of the Fund in providing exclusive management,  development, marketing and
sales efforts and personnel to the Fund, and take all other actions necessary to
manage the  development  of the  projects  to  completion  and the sale of lots,
country club memberships, ancillary services and the Fawn Lake Country Club. The
terms of such Management Agreement shall be as mutually agreed by the parties in
the Definitive Agreement.
February 12, 1997
Page 2

             3.   Representations, Warranties and Indemnities.

                  (a) The Definitive Agreement will contain such representations
and  warranties  by the NTS  parties  regarding  their  businesses,  properties,
assets, liabilities, operations and conditions as are customary in a transaction
of this nature,  including  representations  and warranties  with respect to the
financial  condition  and  operations  of  the  NTS  parties,   compliance  with
applicable laws, claims, litigation, liens, environmental matters, insurance and
such other  representations  and  warranties as may be agreed to by the parties.
Representations  and warranties shall be subject to such limitations,  standards
and qualifications as the parties may agree.

                  (b) The  Companies  will  agree to  indemnify  the  Fund  with
respect   to  any   damages   it  may  incur  as  a  result   of  any   material
misrepresentation  or breach of warranty as  mutually  agreed in the  Definitive
Agreement.

             4.   Access.

                  The NTS parties shall permit the Fund and its  representatives
full access, at all reasonable times after the date hereof until the Closing, to
the books,  records,  property and personnel involved in the affairs of the Fund
as  the  Fund  may  reasonably   request  in  order  to  facilitate  a  complete
investigation,  inspection  and  analysis  by the  Fund  of the  businesses  and
prospects  of the  Fund.  The  NTS  parties  shall  also  make  available  their
attorneys,  accountants  and  other  outside  consultants  for  the  purpose  of
discussing with the Fund (and its  representatives) the businesses and prospects
of the Fund.

             5.   Conditions to Closing.

                  The obligation of the Fund to consummate the transaction shall
be conditioned  on such matters as may be provided in the Definitive  Agreement,
including the following:

                  (a)  The  parties  shall  have  entered  into  the  Definitive
Agreement and related ancillary documents, in form and substance satisfactory to
each party.

                  (b) All  representations  and warranties of the NTS parties in
the  Definitive  Agreement and ancillary  documents,  all as mutually  agreed in
accordance  with  paragraph  5(a),  shall be true,  correct and  complete in all
material respects as of the date of Closing.

                  (c) All  representations  and  warranties  of the  Fund in the
Definitive  Agreement  shall be  true,  correct  and  complete  in all  material
respects as of the date of Closing.

                  (d) The parties shall have received the consent or approval of
third parties (as specified in the  Definitive  Agreement),  including,  but not
limited to lenders, and applicable governmental or regulatory authorities, whose
consent  or  approval  is  necessary  or  desirable  in   connection   with  the
consummation of the transaction  contemplated  hereby or for Fund's operation of
the businesses transferred to it following the Closing.
February 12, 1997
Page 3

                  (e) Each of the parties shall have performed and complied with
all material  agreements  and  conditions to be performed or complied with by it
prior to the Closing.

                  (f) The  results  of the  investigations  by the  Fund and its
representative  of  the  business  and  prospects  of  the  Fund  as it is to be
constituted  after the  restructuring,  and of the books,  records and financial
statements relevant to the Fund and its operations, shall be satisfactory to the
Fund in all respects.

                  (g) No material  litigation  or  governmental  action shall be
pending or threatened with respect to the transaction contemplated hereby.

                  (h) The Special Committee of Independent Directors of the Fund
shall  have  approved  the  Definitive   Agreement  and  the  related  ancillary
documents.

             6.   Conduct of the Companies' Business.

                  Between the date  hereof and the  Closing,  the parties  shall
conduct and operate  their  businesses  in the usual and ordinary  course and in
substantially the manner that they have heretofore been conducted.

             7.   Effect.

                  This Letter of Intent does not constitute a binding  agreement
by the parties  hereto;  instead,  it  expresses a good faith  intention  of the
parties  to use their  best  reasonable  efforts  to  proceed  expeditiously  to
negotiate,  prepare and execute the Definitive  Agreement and related  ancillary
documents in accordance  with the provisions  hereof.  Except as provided in the
preceding sentence,  no legally  enforceable  agreement of the parties as to the
subject  matter of this  Letter of Intent  shall be  created  unless and until a
Definitive  Agreement  and  related  ancillary  documents  with  respect to such
subject  matter are duly  authorized,  executed  and  delivered.  This Letter of
Intent shall terminate and be of no further force or effect if the execution and
delivery of the Definitive Agreement has not occurred on or before the date that
is forty-five (45) days after the date of this Letter of Intent.

             8.   Gender.

                  References herein to the neuter gender shall also be deemed to
include or refer to the masculine or feminine gender, as the context requires.

             9.   Governing Law.

                  This Letter of Intent shall be governed by and  construed  and
enforced in accordance with the laws of the State of Kentucky.
February 12, 1997
Page 4

             Please indicate the agreement of these various parties to the terms
hereof by having this Letter of Intent signed in the spaces  provided  below and
returning a copy to the  undersigned  no later than 6:00 p.m.,  Eastern Time, on
February  14,  1997 (at which time this  Letter of Intent,  if not so signed and
returned,  will  expire).  This  Letter of Intent may be signed in any number of
counterparts,  all of which together shall constitute a single Letter of Intent.
Signatures of the parties transmitted by facsimile will be valid and binding for
all purposes.

                                                     Very truly yours,

                                                     NTS Mortgage Income Fund

                                                     By: /s/ Robert M. Day
                                                         -----------------
                                                     Name: Robert M. Day
                                                     Title:   Director

ACCEPTED AND AGREED TO:

NTS/Lake Forest II Residential Corporation   NTS/Virginia Development Company

By:   /s/ Richard L. Good                    By:    /s/ John W. Hampton
    ----------------------                          --------------------
Name:   Richard L. Good                      Name:    John W. Hampton
Title:     President                         Title:    Senior Vice President

NTS Corporation                              NTS Development Company

By:   /s/ Richard L. Good                    By:    /s/ Richard L. Good
Name:   Richard L. Good                      Name:    Richard L. Good
        ---------------                               ---------------
Title:     President                         Title:    President