<PAGE>



                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D. C. 20549

                                    FORM 10-Q

(Mark one)

[x]           QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
              OF THE SECURITIES EXCHANGE ACT OF 1934

              For the quarterly period ended   September 30, 1997

                                       OR

[ ]           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
              OF THE SECURITIES EXCHANGE ACT OF 1934

              For the transition period from ________ to _______

              Commission File Number               0-17589

                            NTS-PROPERTIES VII, LTD.
             (Exact name of registrant as specified in its charter)

            Florida                                   61-1119232
(State or other jurisdiction of           (I.R.S. Employer Identification No.)
incorporation or organization)

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

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

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

Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months,  and (2) has been subject to such filing  requirements
for the past 90 days.

                                                           YES  X         NO

Exhibit Index: See page 14
Total Pages: 15


<PAGE>




                                TABLE OF CONTENTS

                                                                       Pages

                                     PART I

Item 1.     Financial Statements

            Balance Sheets and Statement of Partners' Equity
              as of September 30, 1997 and December 31, 1996               3

            Statements of Operations
              For the three months and nine months ended
              September 30, 1997 and 1996                                  4

            Statements of Cash Flows
              For the three months and nine months ended
              September 30, 1997 and 1996                                  5

            Notes To Financial Statements                                6-8

Item 2.     Management's Discussion and Analysis of Financial
              Condition and Results of Operations                       9-13


                                     PART II

1.     Legal Proceedings                                                  14
2.     Changes in Securities                                              14
3.     Defaults upon Senior Securities                                    14
4.     Submission of Matters to a Vote of Security Holders                14
5.     Other Information                                                  14
6.     Exhibits and Reports on Form 8-K                                   14

Signatures                                                                15










                                      - 2 -

<PAGE>

<TABLE>


PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements

                            NTS-PROPERTIES VII, LTD.

                BALANCE SHEETS AND STATEMENT OF PARTNERS' EQUITY


<CAPTION>

                                                     As of               As of
                                               September 30,1997   December 31, 1996*
                                               -----------------   ------------------
ASSETS
<S>                                                <C>               <C>        
Cash and equivalents                               $   287,566       $   278,620
Cash and equivalents - restricted                      217,458           162,005
Investment Securities                                   75,000                --
Accounts receivable                                      1,812            14,518
Land, buildings and amenities, net                  10,505,298        10,878,976
Other assets                                           195,576           140,380
                                                   -----------       -----------

                                                   $11,282,710       $11,474,499
                                                   ===========       ===========

LIABILITIES AND PARTNERS' EQUITY

Mortgages payable                                  $ 5,236,104       $ 5,358,215
Accounts payable                                        83,336            90,301
Distributions payable                                   60,426            60,645
Security deposits                                       39,740            39,800
Other liabilities                                      107,701             6,787
                                                   -----------       -----------

                                                     5,527,307         5,555,748

Partners' equity                                     5,755,403         5,918,751
                                                   -----------       -----------

                                                   $11,282,710       $11,474,499
                                                   ===========       ===========
</TABLE>
<TABLE>
<CAPTION>

                                      Limited        General
                                     Partners        Partner         Total
                                     --------        -------         -----
<S>                               <C>             <C>             <C>         
PARTNERS' EQUITY
Capital contributions, net of
 offering costs                   $ 10,935,700    $        100    $ 10,935,800
Net income (loss) - prior years     (2,679,317)        (27,063)     (2,706,380)
Net income - current year               26,351             266          26,617
Cash distributions declared to
 date                               (2,317,042)        (23,404)     (2,340,446)
Repurchase of limited
 partnership Units                    (160,188)             --        (160,188)
                                  ------------    ------------    ------------

Balances at September 30, 1997    $  5,805,504    $    (50,101)   $  5,755,403
                                  ============    ============    ============
</TABLE>

*   Reference is made to the audited  financial  statements  in the Form 10-K as
    filed with the Commission on March 27, 1997.



                                      - 3 -

<PAGE>

<TABLE>


                            NTS-PROPERTIES VII, LTD.

                            STATEMENTS OF OPERATIONS


<CAPTION>

                                             Three Months Ended                         Nine Months Ended
                                                September 30,                             September 30,
                                                -------------                             -------------

                                           1997                1996                 1997                 1996
                                        -----------         -----------          -----------         -----------
<S>                                     <C>                 <C>                  <C>                 <C>        
REVENUES:
  Rental income                         $   531,525         $   537,264          $ 1,518,297         $ 1,530,895
  Interest and other income                   4,887               3,845               14,314              13,191
                                        -----------         -----------          -----------         -----------

                                            536,412             541,109            1,532,611           1,544,086

EXPENSES:
  Operating expenses                        122,066             174,123              352,238             416,406
  Operating expenses - affiliated            58,780              54,817              173,161             161,453
  Interest expense                          110,605             113,963              333,978             343,492
  Management fees                            27,398              27,851               78,445              78,987
  Real estate taxes                          24,894              25,907               74,682              77,363
  Professional and administrative
   expenses                                  16,913              12,161               45,829              38,649
  Professional and administrative
   expenses - affiliated                     19,931              24,261               60,795              78,000
  Depreciation and amortization             128,889             133,570              386,866             406,975
                                        -----------         -----------          -----------         -----------

                                            509,476             566,653            1,505,994           1,601,325
                                        -----------         -----------          -----------         -----------

Net income (loss)                       $    26,936         $   (25,544)         $    26,617         $   (57,239)
                                        ===========         ===========          ===========         ===========

Net income (loss) allocated to
 the limited partners                   $    26,667         $   (25,289)         $    26,351         $   (56,667)
                                        ===========         ===========          ===========         ===========

Net income (loss) per limited
 partnership Unit                       $      0.04         $     (0.04)         $      0.04         $     (0.09)
                                        ===========         ===========          ===========         ===========

Weighted average number of Units            598,218             603,210              598,630             620,418
                                        ===========         ===========          ===========         ===========

</TABLE>



                                      - 4 -

<PAGE>

<TABLE>


                            NTS-PROPERTIES VII, LTD.

                            STATEMENTS OF CASH FLOWS

<CAPTION>

                                                  Three Months Ended                   Nine Months Ended
                                                     September 30,                        September 30,
                                                     -------------                        -------------

                                               1997                1996              1997               1996
                                             ---------          ---------          ---------          ---------
<S>                                          <C>                <C>                <C>                <C>       
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                            $  26,936          $ (25,544)         $  26,617          $ (57,239)
Adjustments to reconcile net income
 (loss) to net cash provided by
 operating activities:
   Accrued interest on investment
      securities                                    --              1,230                 --              1,408
   Depreciation and amortization               128,889            133,570            386,866            406,975
   Changes in assets and liabilities
    Cash and equivalents - restricted          (19,700)           (24,992)           (64,141)           (72,151)
    Accounts receivable                            895             (4,573)            12,706            (10,368)
    Other assets                                 9,301              7,584              1,226              3,125
    Accounts payable                             9,088              4,488             (6,965)            42,578
    Security deposits                           (1,700)             3,690                (60)             8,245
    Other liabilities                           51,130             25,903            100,914             77,361
                                             ---------          ---------          ---------          ---------

   Net cash provided by operating
      activities                               204,839            121,356            457,163            399,934
                                             ---------          ---------          ---------          ---------

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and
   amenities                                    (1,578)            (2,748)            (7,166)            (3,351)
Purchase of investment securities              (75,000)                --            (75,000)          (207,439)
Maturity of investment securities                   --            207,439                 --            309,939
                                             ---------          ---------          ---------          ---------

   Net cash provided by (used in)
      investing activities                     (76,578)           204,691            (82,166)            99,149
                                             ---------          ---------          ---------          ---------

CASH FLOWS FROM FINANCING ACTIVITIES
Cash and equivalents - restricted                   --             66,896              8,688             27,722
Principal payments on mortgages
   payable                                     (41,564)           (38,206)          (122,111)          (112,246)
Loan Costs                                     (62,442)                --            (62,442)                --
Cash distributions                             (60,426)           (62,397)          (181,498)          (190,295)
Repurchase of limited partnership
   Units                                            --            (66,896)            (8,688)          (148,992)
                                             ---------          ---------          ---------          ---------

   Net cash used in financing
      activities                              (164,432)          (100,603)          (366,051)          (423,811)
                                             ---------          ---------          ---------          ---------
                                                                                                        225,444
   Net increase (decrease) in cash and
      equivalents                              (36,171)            75,272

CASH AND EQUIVALENTS, beginning of
   period                                      323,737             99,387            278,620            249,559
                                             ---------          ---------          ---------          ---------

CASH AND EQUIVALENTS, end of period          $ 287,566          $ 324,831          $ 287,566          $ 324,831
                                             =========          =========          =========          =========

Interest paid on a cash basis                $ 110,605          $ 113,963          $ 334,396          $ 344,260
                                             =========          =========          =========          =========

</TABLE>


                                      - 5 -

<PAGE>



                            NTS-PROPERTIES VII, LTD.

                          NOTES TO FINANCIAL STATEMENTS

The financial  statements included herein should be read in conjunction with the
Partnership's  1996 Annual Report.  In the opinion of the general  partner,  all
adjustments (only consisting of normal recurring  accruals) necessary for a fair
presentation  have been made to the  accompanying  financial  statements for the
three months and nine months ended September 30, 1997 and 1996.

1.   Use of Estimates in the Preparation of Financial Statements
     -----------------------------------------------------------

     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions  that affect the reported amounts of assets and liabilities and
     disclosure  of  contingent  assets  and  liabilities  at  the  date  of the
     financial  statements  and the  reported  amounts of revenues  and expenses
     during the reporting period.
     Actual results could differ from those estimates.

2.   Cash and Equivalents - Restricted
     ---------------------------------

     Cash and equivalents - restricted represents funds received for residential
     security  deposits,  funds which have been escrowed with mortgage companies
     for  property  taxes in  accordance  with the loan  agreements,  and  funds
     reserved  by the  partnership  for the  repurchase  of limited  partnership
     Units.

3.   Investment Securities
     ---------------------

     Investment  securities represent  investments in Certificates of Deposit or
     securities issued by the U.S. Government with initial maturities of greater
     than three months.  The  Partnership  intends to hold the securities  until
     maturity.  During  1996  and  1997,  the  Partnership  sold  no  investment
     securities.  At December  31,  1996,  the  Partnership  held no  investment
     securities with initial maturities greater than three months. The following
     provides details regarding the investment held at September 30, 1997:



                                    Amortized       Maturity      Value at
                  Type                Cost            Date        Maturity
                  ----                ----            ----        --------

         Certificate of Deposit     $ 75,000        12/04/97      $ 76,009
                                     =======                       =======


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

     Mortgages payable consist of the following:

                                                 September 30,     December 31,
                                                     1997               1996
                                                     ----               ----
     Mortgage  payable to an insurance  
     company,  bearing interest at a fixed 
     rate of 8.375%, due October 5, 2002,
     secured by land and buildings               $ 3,056,476        $ 3,091,363

     Mortgage payable to an insurance
     company, bearing interest at a fixed
     rate of 8.375%, due October 5, 2002,
     secured by land and buildings                   940,454            951,189


                                            (Continued next page)


                                      - 6 -

<PAGE>
4.   Mortgages Payable - Continued
     -----------------------------


                                               September 30,        December 31,
                                                    1997                1996
                                                    ----                ----
     Mortgage  payable to an insurance  
     company,  bearing interest at a fixed 
     rate of 8.5%, due November 15, 2005,
     secured by land and building.              $  1,239,174        $  1,315,663
                                                ------------         -----------
                                                $  5,236,104        $  5,358,215
                                                ============         ===========


     Based on the borrowing  rates  currently  available to the  Partnership for
     mortgages  with  similar  terms and average  maturities,  the fair value of
     long-term debt is approximately $6,600,000 .

     Subsequent to September 30, 1997, the Partnership  obtained a mortgage loan
     from an  insurance  company in the amount of  $4,100,000.  The new mortgage
     bears  interest at a fixed rate of 7.37%,  matures  October 12, 2012 and is
     secured by the land, buildings and amenities of Park Place Apartments Phase
     II.  The  repayment  of  principal  will be  amortized  over 19 years.  The
     proceeds  from the loan  were  used to pay off debt  financings  which  had
     balances  at  September  30,  1997 of  $3,056,476  and  $940,454  (total of
     $3,996,930) and fund loan closing costs.

5.   Interest Repurchase Reserve
     ---------------------------

     Pursuant  to  Section  16.4  of  the  Partnership's  Amended  and  Restated
     Agreement  of Limited  Partnership,  the  Partnership  has  established  an
     Interest  Repurchase  Reserve.  Through September 1997, the Partnership has
     funded a total  amount of  $248,923  to the  Reserve  which  will allow the
     Partnership  to repurchase up to 62,230 Units at a price of $4.00 per Unit.
     As of September 30, 1997, the Partnership has repurchased a total of 40,047
     Units for $160,188.  Repurchased  Units will be retired by the Partnership,
     thus  increasing  the share of ownership of each  remaining  investor.  The
     Interest  Repurchase  Reserve  was funded  from cash  reserves.  The amount
     remaining in the  Interest  Repurchase  Reserve at  September  30, 1997 was
     $88,735.

6.   Related Party Transactions
     --------------------------

     Property   management  fees  of  $78,445  and  $78,987  were  paid  to  NTS
     Development  Company, an affiliate of the general partner,  during the nine
     months ended  September  30, 1997 and 1996,  respectively.  The fee is paid
     monthly in an amount equal to 5% of the gross revenues from the residential
     properties  and 6% of the  gross  revenues  from  the  commercial  property
     pursuant to an agreement with the  Partnership.  The  Partnership  also was
     charged the  following  amounts from NTS  Development  Company for the nine
     months ended September 30, 1997 and 1996. These charges include items which
     have been expensed as operating  expenses - affiliated or professional  and
     administrative  expenses - affiliated and items which have been capitalized
     as other assets or as land, buildings and amenities.


                                                1997               1996
                                             ----------          ---------

          Leasing                             $  30,044          $  29,725
          Administrative                         80,049             96,243
          Property manager                      122,775            112,089
          Other                                   1,088              1,396
                                              ---------           --------

                                              $ 233,956          $ 239,453
                                              =========           ========


                                     - 7 -

<PAGE>

7.   Reclassification of 1996 Financial Statements
     ---------------------------------------------

     Certain  reclassifications  have  been  made  to  the  September  30,  1996
     financial   statements   to   conform   with   the   September   30,   1997
     classifications.  These  reclassifications  have no  effect  on  previously
     reported operations.





















                                      - 8 -

<PAGE>



Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 
        ----------------------------------------------------------------------- 
        OF OPERATIONS
        -------------

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

The occupancy levels at the Partnership's  properties as of September 30 were as
follows:


                                                 1997                 1996
                                                 ----                 ----

Wholly-owned Properties
-----------------------

The Park at the Willows                            94%                  94%

Park Place Apartments Phase II                     95%                  94%

Property Owned in Joint Venture with
NTS-Properties IV and NTS-Properties
Plus Ltd. (Ownership % at September
30, 1997)
------------------------------------

Blankenbaker Business Center 1A (31%)             100%                 100%

Rental and other income generated by the Partnership's  properties for the three
months and nine months ended September 30, 1997 and 1996 was as follows:


                                     Three Months Ended     Nine Months Ended
                                       September 30,          September 30,

                                     1997        1996        1997       1996
                                    ------      ------      ------     ------
Wholly-owned Properties
-----------------------

The Park at the Willows            $  88,877  $  89,814  $  243,872  $  245,508

Park Place Apartments Phase II     $ 369,994  $ 374,453  $1,057,099  $1,066,276

Property owned in Joint Venture
with NTS-Properties IV and NTS-
Properties Plus Ltd. (Ownership %
at September 30,1997)
---------------------------------

Blankenbaker Business Center 1A    $  73,478  $  73,478  $  220,461  $  220,392
(31%)(1)


(1)    Revenues  shown  in this  table  represent  the  Partnership's  share  of
       revenues generated by Blankenbaker  Business Center 1A. The Partnership's
       percentage  interest in the joint venture was 31% during the three months
       and nine months ended September 1997 and 1996.

The Park at the  Willows'  occupancy  was 94% at  September  30,  1996 and 1997.
Average  occupancy for the nine month period ended  September 30 decreased  from
94% (1996) to 90% (1997).  Average  occupancy  for the three month  period ended
September 30 increased  from 94% (1996) to 95% (1997).  Occupancy at residential
properties fluctuates on a continuous basis. Period ending occupancy percentages
represent occupancy only on a specific date; therefore, it is more meaningful to
look at  average  occupancy  percentages  which are more  representative  of the
entire period's  results.  Large changes in occupancy at The Park at the Willows
are due to the fact that the complex has only 48 units.  One vacant apartment in
this  complex  equates  to a 2%  decrease  in  occupancy;  therefore,  occupancy
percentage





                                      - 9 -

<PAGE>



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

changes  may appear  distorted  on a  percentage  basis when  compared  to other
residential  properties.  In  residential  properties,  it is not  uncommon  for
multiple  residents to vacate at month-end with new residents  taking  occupancy
within a few days.  When this occurs at The Park at the Willows,  the changes in
occupancy will be much greater than at other residential  properties  because of
its small size. The Park at the Willows' rental and other income remained fairly
constant  for the three  months and nine  months  ended  September  30,  1997 as
compared to the same periods in 1996.

Park Place Apartments  Phase II's occupancy  increased from 94% at September 30,
1996 to 95% at September 30, 1997.  Average  occupancy for the nine month period
ended  September 30 decreased from 93% (1996) to 92% (1997).  Average  occupancy
for the three month period ended  September 30 increased  from 95% (1996) to 96%
(1997).  Rental and other income at Park Place Apartments Phase II decreased for
the three  months and nine months  ended  September  30, 1997 as compared to the
same periods in 1996 as a result of decreased income from fully furnished units.
Fully furnished units are apartments  which rent at an additional  premium above
base rent.  Therefore,  it is possible for occupancy to increase and revenues to
decrease when the number of fully furnished units has decreased.

A  wholly-owned  subsidiary  of the  Prudential  Insurance  Company  of  America
(Prudential  Service  Bureau,  Inc.) has leased  100% of  Blankenbaker  Business
Center 1A through July 2005.  In addition to monthly rent  payments,  Prudential
Service  Bureau,  Inc. is obligated to pay  substantially  all of the  operating
expenses attributable to its space. Blankenbaker Business Center 1A's rental and
other income remained fairly constant for the three months and nine months ended
September 30, 1997 as compared to the same periods in 1996.

If present  trends  continue,  the  Partnership  will be able to continue at its
current level of operation without the need of any additional financing. Current
occupancy  levels are  considered  adequate to  continue  the  operation  of the
Partnership's  properties.  See the Liquidity and Capital  Resources  section of
Item 2 for a discussion  regarding the cash  requirements  of the  Partnership's
current debt financing.

Interest and other income includes  interest income from investments made by the
Partnership with cash reserves. Interest income remained fairly constant for the
three  months and nine months ended  September  30, 1997 as compared to the same
period in 1996.

Operating  expenses  decreased  for the  three  months  and  nine  months  ended
September  30,  1997 as  compared  to the same  periods  in 1996 as a result  of
decreased  replacement  costs  (carpet,  vinyl and  wallcovering)  and decreased
building repair and  maintenance  costs at Park Place  Apartments  Phase II. The
decrease in operating  expenses for the nine month period is partially offset by
increased carpet  replacement costs,  insurance costs and increased  landscaping
costs at The Park at the  Willows and  increased  exterior  building  repair and
maintenance costs at Blankenbaker  Business Center 1A. The decrease in operating
expenses for the three month period is  partially  offset by increased  exterior
building  repair  and  maintenance  costs at  Blankenbaker  Business  Center 1A.
Operating  expenses  at The  Park at the  Willows  for the  three  months  ended
September  30,  1997 as  compared  to the same  period in 1996  remained  fairly
constant.

Operating  expenses - affiliated  increased for the three months and nine months
ended  September 30, 1997 as compared to the same periods in 1996 as a result of
increased  property  management  costs at all of the  Partnership's  properties.
Operating  expenses - affiliated are expenses incurred for services performed by
employees of NTS Development Company, an affiliate of the General Partner.

The  decrease in interest  expense  for the three  months and nine months  ended
September  30, 1997 as compared to the same periods in 1996 is the result of the
Partnership's  decreasing debt level as a result of principal payments made. See
the Liquidity and Capital  Resources  section of this item for details regarding
the Partnership's debt.




                                     - 10 -

<PAGE>



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

Management  fees are  calculated as a percentage of cash  collections;  however,
revenue  for  reporting  purposes  is on the  accrual  basis.  As a result,  the
fluctuations of revenues  between  periods will differ from the  fluctuations of
management fee expense.

Real estate taxes and professional and  administrative  expenses remained fairly
constant  for the three  months and nine  months  ended  September  30,  1997 as
compared to the same periods in 1996.

Professional and  administrative  expenses - affiliated  decreased for the three
months and nine months ended  September 30, 1997 as compared to the same periods
in 1996 as a result of decreased salary costs.  Professional and  administrative
expenses affiliated are expenses incurred for services performed by employees of
NTS Development Company, an affiliate of the General Partner.

Depreciation  and  amortization  decreased  for the three months and nine months
ended  September 30, 1997 as compared to the same periods in 1996 as a result of
a portion of the assets with  shorter  lives at Park Place  Apartments  Phase II
becoming fully  depreciated.  Depreciation  is computed using the  straight-line
method over the estimated useful lives of the assets which are 10 - 30 years for
land  improvements,   30  years  for  buildings,  5  -  30  years  for  building
improvements  and  5 - 30  years  for  amenities.  The  aggregate  cost  of  the
Partnership's properties for Federal tax purposes is approximately $12,200,000.

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

Cash provided by operations  was $457,163 and $399,934 for the nine months ended
September 30, 1997 and 1996, respectively.  These funds in conjunction with cash
on hand were used to pay a 2%  (annualized)  cash  distribution  of $181,279 and
$186,533 for the nine months ended  September  30, 1997 and 1996,  respectively.
The  annualized  distribution  rate is  calculated  as a percent of the original
capital contribution.  The limited partners received 99% and the general partner
received 1% of these  distributions.  The primary source of future liquidity and
distributions is expected to be derived from cash generated by the Partnership's
properties  after adequate cash reserves are  established for future leasing and
tenant finish costs.  Cash reserves (which are unrestricted cash and equivalents
and  investment  securities  as shown on the  Partnership's  balance sheet as of
September  30) were  $362,566  and  $423,754  at  September  30,  1997 and 1996,
respectively.

As of September 30, 1997, the Partnership had mortgages payable in the amount of
$3,996,930  ($3,056,476  and  $940,454)  from  two  insurance  companies.   Both
mortgages  bear a fixed  interest rate of 8.375% for the first 60 months and are
due October 5, 2002.  Both  mortgages  are  secured by a first  mortgage on Park
Place Apartments Phase II. Current monthly principal  payments on both mortgages
are based  upon a  27-year  amortization  schedule.  The  outstanding  principal
balance  at  maturity  based  on the  current  rate  of  amortization  would  be
$3,607,560 ($2,758,723 and $848,837).

Subsequent to September 30, 1997, the Partnership  obtained a mortgage loan from
an  insurance  company  in the  amount of  $4,100,000.  The new  mortgage  bears
interest at a fixed rate of 7.37% and matures October 12, 2012 and is secured by
the land,  buildings  and  amenities  of Park  Place  Apartments  Phase II.  The
repayment of principal  will be amortized  over 19 years.  The proceeds from the
loan were used to pay off debt  financings  which had balances at September  30,
1997 of  $3,056,476  and $940,454  (total of  $3,996,930)  and fund loan closing
costs.

As of September 30, 1997,  Blankenbaker  Business Center Joint Venture, in which
the Partnership  has a joint venture  interest,  had a mortgage  payable with an
insurance  company in the amount of  $3,953,968.  The  mortgage is recorded as a
liability  of the  Joint  Venture  and is  secured  by the  assets  of the Joint
Venture. The Partnership's  proportionate  interest in the mortgage at September
30, 1997 is $1,239,174.  The mortgage bears interest at a fixed rate of 8.5% and
is due November 15, 2005. Current





                                     - 11 -

<PAGE>



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

monthly principal payments are based upon an 11-year amortization  schedule.  At
maturity,  the  mortgage  will have been  repaid  based on the  current  rate of
amortization.

Pursuant to Section 16.4 of the Partnership's  Amended and Restated Agreement of
Limited  Partnership,  the Partnership  has  established an Interest  Repurchase
Reserve.  Through  September  1997, the Partnership has funded a total amount of
$248,923 to the Reserve  which will allow the  Partnership  to  repurchase up to
62,230  units at a price of $4.00  per  Unit.  As of  September  30,  1997,  the
Partnership  has  repurchased a total of 40,047 Units for $160,188.  Repurchased
Units will be retired by the Partnership, thus increasing the share of ownership
of each remaining investor. The Interest Repurchase Reserve was funded from cash
reserves.  The amount remaining in the Interest  Repurchase Reserve at September
30, 1997 was $88,735.

The  majority  of  the  Partnership's   cash  flow  is  derived  from  operating
activities. Cash flows used in investing activities are for capital improvements
at the Partnership's properties. These improvements are funded by cash flow from
operations. Cash flows used in investing activities are also for the purchase of
investments securities.  Cash flows provided by investing activities are derived
from the  maturity  of  investment  securities.  As part of its cash  management
activities,  the Partnership has purchased Certificates of Deposit or securities
issued by the U. S.  Government  with initial  maturities  of greater than three
months to improve  its return on its cash  reserves.  The  Partnership  held the
securities until maturity.  Cash flows used in financing activities are for cash
distributions,   principal  payments  on  mortgages  payable,   loan  costs  and
repurchases  of  limited   partnership  Units.  Cash  flows  used  in  financing
activities  also include cash which has been reserved by the Partnership for the
repurchase  of limited  partnership  Units.  Cash flows  provided  by  financing
activities  represent  the  utilization  of cash which has been  reserved by the
Partnership  for the repurchase of limited  partnership  Units.  The Partnership
does not expect any  material  changes in the mix and  relative  cost of capital
resources from those in 1996.

The  primary  source of future  liquidity  and  distributions  is expected to be
derived from cash  generated by the  Partnership's  operating  properties  after
adequate cash  reserves are  established  for future  leasing,  renovations  and
tenant finish costs.  It is anticipated  that the cash flow from  operations and
cash  reserves  will be  sufficient  to meet the needs of the  Partnership.  The
Partnership had no material  commitments for renovations or capital improvements
at September 30, 1997.

The table below  presents  that portion of the  distributions  that  represent a
return of capital on a Generally  Accepted  Accounting  Principle  basis for the
nine months ended September 30, 1997 and 1996.


                              Net Income               Cash
                                 (Loss)            Distributions      Return of
                               Allocated             Declared          Capital
                               ---------             --------          -------

Limited Partners:
       1997                    $  26,351             $ 179,466        $ 153,115
       1996                      (56,667)              184,668          184,668

General Partner:
       1997                    $     266             $   1,813        $   1,547
       1996                         (572)                1,865            1,865










                                     - 12 -

<PAGE>



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

In an effort to continue to improve occupancy at the  Partnership's  residential
properties,  the  Partnership  has an on-site  leasing  staff,  employees of NTS
Development Company, at each of the apartment communities. The staff handles all
on-site visits from potential  tenants,  coordinates  local advertising with NTS
Development  Company's  marketing  staff,  makes  visits to local  companies  to
promote  fully  furnished  units  and  works  with  current  residents  on lease
renewals.

The  lease at  Blankenbaker  Business  Center  1A  provides  for the  tenant  to
contribute toward the payment of common area expenses, insurance and real estate
taxes.  This lease provision,  along with the fact that  residential  leases are
generally for a period of one year, should protect the Partnership's  operations
from the impact of inflation and changing prices.

Some of the statements included in Item 2, Management's  Discussion and Analysis
of Financial  Condition and Results of Operations,  or elsewhere in this report,
may be  considered  to be  "forward-looking  statements"  since such  statements
relate to matters which have not yet occurred. For example, phrases such as "the
Partnership  anticipates",  "believes" or "expects" indicate that it is possible
that the event  anticipated,  believed  or expected  may not occur.  Should such
event not occur,  then the result which the  Partnership  expected  also may not
occur or occur in a different manner, which may be more or less favorable to the
Partnership.  The  Partnership  does not undertake any  obligations  to publicly
release the result of any revisions to these forward-looking statements that may
be made to reflect any future events or circumstances.

Any forward-looking  statements included in Management's Discussion and Analysis
of Financial  Condition and Results of Operations,  or elsewhere in this report,
which reflect  management's best judgement based on factors known, involve risks
and uncertainties. Actual results could differ materially from those anticipated
in any forward-looking  statements as a result of a number of factors, including
but not  limited  to those  discussed  below.  Any  forward-looking  information
provided by the  Partnership  pursuant to the safe harbor  established by recent
securities legislation should be evaluated in the context of these factors.

The  Partnership's  principal  activity  is  the  leasing  and  management  of a
commercial business center and apartment  complexes.  If Prudential,  the tenant
that  occupies  100% of the  business  center,  or a large  number of  apartment
lessees default on their lease, the  Partnership's  ability to make payments due
under its debt  agreements,  payment  of  operating  costs and  payment of other
partnership  expenses  would be directly  impacted.  A lessee's  ability to make
payments are subject to risks  generally  associated  with real estate,  many of
which are beyond  the  control of the  Partnership,  including  general or local
economic conditions,  competition,  interest rates, real estate tax rates, other
operating expenses and acts of God.



                                     - 13 -

<PAGE>



PART II.  OTHER INFORMATION

1.     Legal Proceedings

       None

2.     Changes in Securities

       None

3.     Defaults upon Senior Securities

       None

4.     Submission of Matters to a Vote of Security Holders

       None

5.     Other Information

       None

6.     Exhibits and Reports on Form 8-K

       (a)    Exhibits:

              Exhibit 27. Financial Data Schedule

       (b) Reports on Form 8-K:

              There  were no  reports  on Form 8-K for the  three  months  ended
              September 30, 1997.



                                     - 14 -

<PAGE>



                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  NTS-Properties  VII, Ltd. has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.


                                           NTS-PROPERTIES VII, LTD.
                                                 (Registrant)

                                     By:     NTS-Properties Associates VII,
                                             General Partner
                                             By:   NTS Capital Corporation,
                                                   General Partner


                                                   /s/ John W. Hampton
                                                   John W. Hampton
                                                   Senior Vice President



Date:   November 12, 1997








                                     - 15 -

<PAGE>