REDWOOD MORTGAGE INVESTORS VII
                       (a California Limited Partnership)
                               Index to Form 10-K

                                December 31, 2002

                                     Part I
<TABLE>

                                                                                                             Page No.
                                                                                                           -----------
<S>  <C>                                                                                                         <C>
     Item 1   - Business                                                                                         3
     Item 2   - Properties                                                                                       6
     Item 3   - Legal Proceedings                                                                                6
     Item 4   - Submission of Matters to a Vote of Security Holders (Partners)                                   6


                                     Part II

     Item 5   - Market for the Registrant's "Limited Partnership Units" and Related Unitholder Matters           7
     Item 6   - Selected Financial Data                                                                          7
     Item 7   - Management's Discussion and Analysis of Financial Condition and Results of Operations            9
     Item 7a  - Quantitative and Qualitative Disclosures About Market Risk                                      15
     Item 8   - Financial Statements and Supplementary Data                                                     18
     Item 9   - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure            39

                                    Part III
     Item 10 - Directors and Executive Officers of the Registrant                                               39
     Item 11 - Executive Compensation                                                                           39
     Item 12 - Security Ownership of Certain Beneficial Owners and Management                                   40
     Item 13 - Certain Relationships and Related Transactions                                                   40
     Item 14 - Control and Procedures                                                                           40

                                     Part IV
     Item 15 - Exhibits, Financial Statements and Schedules, and Reports on Form 8-K                            41

     Signatures                                                                                                 42

     Certifications                                                                                             43
</TABLE>



                                       1
<PAGE>




                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                    Form 10-K
                Annual Report Pursuant to Section 13 or 15 (d) of
                       the Securities Exchange Act of 1934

      For the year ended December 31, 2002 Commission file number 33-30427
--------------------------------------------------------------------------------

                         REDWOOD MORTGAGE INVESTORS VII
             (Exact name of registrant as specified in its charter)

              California                                   94-3094928
--------------------------------------------------------------------------------
  (State or other jurisdiction of              (I.R.S. Employer Identification)
   incorporation or organization)

900 Veterans Blvd., Suite 500, Redwood City, CA              94063
--------------------------------------------------------------------------------
(address of principal executive offices)                    (zip code)

Registrant's telephone number including area code           (650) 365-5341
--------------------------------------------------------------------------------

Securities registered pursuant to Section 12(b) of the Act:

    Title of each class                Name of each exchange on which registered
--------------------------------------------------------------------------------
         None                                       None
--------------------------------------------------------------------------------

     Securities  registered  pursuant  to  Section  12(g)  of the  Act:  Limited
Partnership Units

     Indicate by check mark whether the  registrant (1) has filed all reports to
be filed by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934 the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports),  and (2) has been subject to such filing requirements for
the past 90 days.

YES               XXXX                             NO
--------------------------                         -------------------------

     Through  December  31, 2002,  the limited  partnership  Units  purchased by
non-affiliates  was 119,983.59 Units computed at $100.00 a Unit for $11,998,359.
The offering was closed on September 30, 1992.

Documents incorporated by reference:

     Portions of the Prospectus  dated October 20, 1989, and Supplement #5 dated
February 14, 1992,  filed on form S-11, are  incorporated  in Parts II, III, and
IV.  Exhibits filed as part of Form S-11  Registration  Statement  #33-30427 are
incorporated in part IV.




                                       2
<PAGE>



                                     Part I


Item 1 - Business

     Redwood  Mortgage  Investors  VII, a California  limited  partnership  (the
"Partnership"),  was  organized  in 1989 of which  Michael R.  Burwell and Gymno
Corporation, a California corporation,  are the general partners. The address of
the  Partnership  and the general  partners is 900  Veterans  Blvd.,  Suite 500,
Redwood  City,  California  94063.  The  Partnership  is  organized to engage in
business as a mortgage  lender,  for the primary purpose of making loans secured
by deeds of trust on California real estate.  Loans are arranged and serviced by
Redwood Mortgage Corp., an affiliate of the general partners.  The Partnership's
objectives  are to make  investments,  as  referred to above,  which  will:  (i)
provide the maximum  possible cash returns  which limited  partners may elect to
(a)  receive as monthly,  quarterly  or annual  cash  distributions  or (b) have
credited to their capital  accounts and applied to Partnership  activities;  and
(ii) preserve and protect the Partnership's  capital. The Partnership's  general
business  is  more  fully  described  under  the  section  entitled  "Investment
Objectives and Criteria" pages 26-31 of the Prospectus, which is incorporated by
reference.

     Originally,  60,000 Units were offered on a "best  efforts"  basis  through
broker/dealer member firms of the National Association of Security Dealers, Inc.
In accordance with the terms of the Prospectus,  the general partners  increased
the number of Units for sale from 60,000 to 120,000 and elected to continue  the
offering until  September 30, 1992.  The offering  closed on September 30, 1992,
and the limited partners  contributed capital totaled $11,998,359 of an approved
$12,000,000  issue,  in Units of $100 each. At that date all the  applicants had
been admitted into the Partnership with none left in the applicant  status.  The
final SR report  (Report of Sales of Securities  and use of proceeds  therefrom)
was filed on September 21, 1992.

     The Partnership  began selling Units in October 1989 and began investing in
mortgages in December 1989. At December 31, 2002, the  Partnership had a balance
in its secured loans portfolio  totaling  $6,423,984 with interest rates thereon
ranging from 6.125% to 13.00%.

     Currently, loans secured by First Trust Deeds comprise 50.90% of the amount
of funds in the secured loan portfolio  followed by Second Trust Deeds of 45.76%
and Third Trust Deeds of 3.34%.  Owner-occupied  homes  combined with  non-owner
occupied homes total 25.10% of the secured loans.  Commercial loans  origination
decreased  from last year,  now comprising  63.87% of the secured  portfolio,  a
decrease of 1.31%.  Loans to  apartments  totaled  11.03%.  Of the total secured
loans,  52.18% are in six  counties  of the Bay Area.  The County of  Stanislaus
makes up 41.38% of the loans. Stanislaus County is an adjacent county to the San
Francisco  Bay Area,  located  approximately  65 miles from San  Francisco.  The
balance of loans are primarily in Northern  California.  Loan size decreased the
past year, and is now averaging  $256,959 per loan, a decrease of $23,352.  Some
of the larger loans invested in by the  Partnership are  fractionalized  between
other  affiliated   partnerships  with  objectives   similar  to  those  of  the
Partnership to further reduce risk.  Average equity per loan transaction,  which
is our loan plus any senior loans,  divided by the property's  appraised  value,
subtracted from 100%,  stood at 34.14%. A 40% equity average on loan origination
is generally considered very conservative.  Generally, the more equity, the more
protection for the lender. The Partnership's loan portfolio is in good condition
with two properties in foreclosure as of December 2002.

     Delinquencies  are discussed  under Item 7 -  Management's  Discussion  and
Analysis of Financial Condition and Results of Operations.

     During the year the Partnership  acquired one piece of real estate property
through  foreclosure.  To  protect  its own  assets  and  reduce  liability,  it
subsequently  transferred  the  title to a newly  formed  LLC,  Stockton  Street
Property Company,  LLC. The Partnership owns a minority interest of 34% together
with  another  partnership,  an  affiliate  of the general  partners,  the other
investor  in the  foreclosed  loan,  who owns the  majority  interest of 66% and
participated  in the original loan. The LLC is further  discussed under Notes to
Financial Statements (Note 6).





                                       3
<PAGE>



Competition and General Economic Conditions

     The Partnership's  major competitors in providing mortgage loans are banks,
savings and loan associates,  thrifts,  conduit lenders,  mortgage brokers,  and
other entities both larger and smaller than the Partnership.  The Partnership is
competitive  in large part  because the general  partners  generate all of their
loans.  The general partners have been in the business of making or investing in
mortgage  loans in Northern  California  since 1978 and have developed a quality
reputation and recognition within the field.

     Mortgage  interest rates have fallen during the last 18 to 24 months.  This
has been  partially  due to actions by the  Federal  Reserve  Bank to reduce the
discount rate on borrowings  charged to member banks, a slowing  economy and low
rates of inflation. Although the general trend for interest rates has been down,
many lenders have tightened  their credit and reduced their lending  exposure in
various  markets and  property  types.  This credit  tightening  from  competing
lenders  would  generally  provide  the  Partnership  with  additional   lending
opportunities at attractive interest rates.  However, as a result of the slowing
economy,  there are now  fewer  transactions  in the  marketplace,  which  could
potentially  reduce  the  number of lending  opportunities  to the  Partnership.
Continued  rate  reductions  by the Federal  Reserve  Bank, a continued  slowing
economy,  and a  continued  low  threat of  inflation  could  have the effect of
reducing  mortgage  yields in the future.  Current  loans with  relatively  high
yields  could be  replaced  with loans with  lower  yields,  which in turn could
reduce the net yield paid to the limited partners. In addition, if there is less
demand by borrowers  for loans and,  thus,  fewer loans for the  Partnership  to
invest  in,  it  will  invest  its  excess  cash  in  shorter-term   alternative
investments yielding considerably less than the current investment portfolio.

Loan Portfolio

     A summary of the  Partnership's  secured loan  portfolio as of December 31,
2002 is set forth below.

Secured Loans as a Percentage of Appraised Values

   First Trust Deeds                                                  $3,269,897
   Appraised Value of Properties                                       4,618,205
                                                                ----------------
     Total Investment as a % of Appraisal                                 70.80%
                                                                ================

   First Trust Deeds                                                  $3,269,897
   Second Trust Deed Loans                                             2,939,753
   Third Trust Deed Loans                                                214,334
                                                                ----------------
                                                                       6,423,984
   Priority positions due other Lenders
       First Trust Deeds due other Lenders                             4,097,086
       Second Trust Deeds due other Lenders                            1,378,639
                                                                ----------------

   Total Debt                                                        $11,899,709
                                                                ================

     Appraised Property Value                                        $18,069,602
     Total Investments as a % of Appraisal                                65.86%
                                                                ================

   Number of Secured Loans Outstanding                                        25

   Average Investment                                                    256,959
   Average Investment as a % of Loans Outstanding                          4.00%
   Largest Investment Outstanding                                      1,000,000
   Largest Investment as a % of Loans Outstanding                         15.57%

   Secured Loans as a Percentage of Total Loans                        Percent
   ----------------------------------------------------            -------------
   First Trust Deeds                                                      50.90%
   Second Trust Deeds                                                     45.76%
   Third Trust Deeds                                                       3.34%
                                                                   -------------
   Total                                                                 100.00%


                                       4
<PAGE>

Secured Loans as a Percentage of Appraised Values (continued)

   Secured Loans by Type of Property                 Amount           Percent
   -----------------------------------------    ---------------    -------------
   Owner Occupied Homes                              $1,037,474           16.15%
   Non-Owner Occupied Homes                             575,051            8.95%
   Apartments                                           608,648           11.03%
   Commercial                                         4,202,811           63.87%
                                                ---------------    -------------

   Total                                             $6,423,984         100.00 %
                                                ===============    =============

     The following is a distribution of secured loans outstanding as of December
31, 2002 by Counties.

                                         Total Mortgage
   County                                 Investments                 Percent
   ---------------------------------    -----------------       ----------------

   Stanislaus                                  $2,658,350                 41.38%
   Alameda                                        891,400                 13.88%
   San Mateo                                      842,474                 13.11%
   Santa Clara                                    776,883                 12.09%
   San Francisco                                  511,932                  7.97%
   Sacramento                                     224,166                  3.49%
   Marin                                          195,000                  3.03%
   Contra Costa                                   134,879                  2.10%
   San Joaquin                                    100,000                  1.56%
   Shasta                                          77,485                  1.21%
   Sonoma                                          11,415                  0.18%
                                        -----------------       ----------------

   Total                                       $6,423,984                100.00%
                                        =================       ================


Statement of Condition of Loans:
         Number of Loans in Foreclosure     2

     Scheduled  maturity  dates of secured  loans as of December 31, 2002 are as
follows:

                         Year Ending
                         December 31,                 Amount
                      -------------------        -----------------
                             2003                      $3,095,300
                             2004                       1,014,056
                             2005                          40,125
                             2006                          96,716
                             2007                       1,662,819
                          Thereafter                      514,968
                                                 -----------------
                            Total                      $6,423,984
                                                 =================




                                       5
<PAGE>




     The   scheduled   maturities   for  2003  include   seven  loans   totaling
approximately  $2,401,294  past maturity at December 31, 2002.  This  represents
37.38% of the  secured  loan  portfolio.  Interest  payments on 6 of these loans
totaling   $2,266,414  were  categorized  as  delinquent  over  90  days,  which
represents  35.28% of the  Partnership's  secured loan portfolio.  Four of these
loans were made to a  developer  who is in the  process  of selling  part of his
property.  By the middle of 2003 the  Partnership  expects  to receive  the sale
proceeds and at that time, depending on the magnitude of the proceeds, all loans
will either be brought  current or paid off.  Several  other  borrowers  were in
process of refinancing  their loans through other  institutions,  as this was an
opportune  time for them to do so and take advantage of the lower interest rate.
Additionally,  the Partnership allows borrowers to occasionally continue to make
the payments on debt past maturity for periods of time. The Partnership, in most
instances,  receives the benefit of a higher  interest rate than would otherwise
be available in the currently existing loan marketplace.

     Overall,  the loan  portfolio had ten loans with  principal  outstanding of
$3,009,927  where  interest  payments  were  overdue  in excess of 90 days.  The
principal  outstanding  represents 46.85% of the  Partnership's  portfolio as of
December 31, 2002.

     In addition,  one loan with principal outstanding of $96,716 was considered
impaired at December 31, 2002. That is, interest accruals are no longer recorded
thereon. This represents 1.51% of the total loan portfolio.


Item 2 - Properties

     During 2002, the  Partnership  acquired the real estate  security on one of
its loans  through  foreclosure  with another  partnership,  an affiliate of the
general partners. It subsequently  transferred its interest in the property to a
newly formed LLC. The real estate security was seven condominium units. In order
to sell these units,  the  Partnership  was required to obtain a "White  Report"
from the Department of Real Estate. That report was obtained in February,  2003.
Two of the  condominiums  were listed for sale in March,  2003. One of the seven
units will require renovations estimated to cost approximately $230,000 and that
work has  currently  commenced.  The general  partners have visited the property
with real estate  professionals,  reviewed the appraisal and concluded  that the
collateral   appears   adequate  to  cover  the  collection  of  sums  due.  The
Partnership's net investment at December 31, 2002 was $1,212,722.

     The Partnership  also owns (through  foreclosure) two other  properties;  a
commercial  property and the other land.  The land is located in East Palo Alto.
The land is owned with two other affiliated partnerships.  The Partnership's net
investment  at December  31, 2002 is $62,733.  Currently  there is not an active
market for land sale. The  Partnership's  net investment of $62,733 is less than
1% of  Partnership  assets.  The general  partners are offering the property for
sale but there has been little activity, although some negotiations have ensued.
The general partners believe that the property is worth  considerably  more than
its net investment.

     Our final  property  is a  commercial  property  located  in Walnut  Creek,
California.  The property is currently for sale.  Management  has set aside loss
reserves, which they believe are adequate in amount to cover anticipated losses.


Item 3 - Legal Proceedings

     In the normal  course of business the  Partnership  may become  involved in
various types of legal  proceedings  such as  assignments  of rents,  bankruptcy
proceedings,   appointments   of   receivers,   unlawful   detainers,   judicial
foreclosures, etc., to enforce the provisions of the deeds of trust, collect the
debt owed under the promissory notes or to protect or recoup its investment from
the real property  secured by the deeds. As of the date hereof,  the Partnership
is not  involved  in any  legal  proceedings  other  than  those  that  would be
considered part of the normal course of business.


Item 4 - Submission of Matters to a Vote of Security Holders (Partners)

No matters have been submitted to a vote of the Partnership.



                                       6
<PAGE>




                                     Part II


     Item 5 -  Market  for the  Registrant's  "Limited  Partnership  Units"  and
Related Unitholder Matters

     120,000  Units  at $100  each  (minimum  20  Units)  were  offered  through
broker-dealer  member firms of the National Association of Securities Dealers on
a "best  efforts"  basis (as  indicated  in Part I item 1).  Investors  have the
option of  withdrawing  earnings  on a monthly,  quarterly,  or annual  basis or
reinvesting and compounding the earnings. Limited partners may withdraw from the
Partnership in accordance with the terms of the Partnership Agreement subject to
possible early  withdrawal  penalties.  There is no  established  public trading
market.

     A  description  of  the  Partnership  Units,   transfer   restrictions  and
withdrawal  provisions  is more  fully  described  under  the  section  entitled
"Description of Units" and "Summary of Limited Partnership Agreement",  pages 47
to 50 of the Prospectus, a part of the referenced Registration Statement,  which
is incorporated by reference.


Item 6 - Selected Financial Data

Redwood Mortgage Investors VII began operations in December 1989.

     Financial  condition and results of operation for the  Partnership for five
years to December 31, 2002 were:

                                 Balance Sheets
                                     Assets
<TABLE>

                                                                           December 31,
                                      ----------------------------------------------------------------------------------------
                                           2002              2001              2000               1999               1998
                                       -------------    ---------------    --------------     --------------    ---------------

<S>                                      <C>                 <C>               <C>                <C>                <C>
Cash                                     $1,057,845          $ 389,844         $ 269,000          $ 388,770          $ 461,544

Loans
   Loans, secured by deeds of trust       6,423,984         10,091,195        12,794,297         11,011,660         13,209,186
   Loans, unsecured                         216,770            173,731           188,421            163,085            242,493
   Less allowance for losses              (791,882)          (887,578)         (850,548)          (828,563)          (787,042)

Interest and other receivables
   Accrued interest and other fees          304,936            666,189           363,321            357,177            442,350
   Advances on loans                         17,230             50,665            29,825             31,669             39,733

Real estate owned ("REO"), net              683,136            872,133           816,094            307,931            397,396
Real estate owned in process                      -                  -                 -            525,510                  -
Investment in LLC                         1,212,722                  -                 -                  -                  -
                                       -------------    ---------------    --------------     --------------    ---------------
                                         $9,124,741        $11,356,179       $13,610,410        $11,957,239        $14,005,660
                                       =============    ===============    ==============     ==============    ===============

</TABLE>



                                       7
<PAGE>



                        Liabilities and Partners' Capital

<TABLE>

                                                                                 December 31
                                           ----------------------------------------------------------------------------------------
                                               2002              2001               2000              1999               1998
                                           -------------     --------------    --------------     --------------     --------------
Liabilities
<S>                                                   <C>      <C>                <C>                 <C>               <C>
  Note payable - bank                                 -        $ 1,907,000        $ 3,500,000         $ 800,000         $1,912,663
  Accounts payable and
     accrued expenses                             2,593             11,295              4,102            32,234             12,547
  Deferred interest                              37,704              2,322                  -           115,709            131,743
Payable to affiliate                             32,176              3,316                  -                 -                  -
                                           -------------     --------------    ---------------    --------------     --------------
                                                 72,473          1,923,933          3,504,102           947,943          2,056,953

Partners' capital
  General partners                               11,978             11,978             11,978            11,978             11,978
  Limited partners subject to
    redemption                                9,040,290          9,420,268         10,094,330        10,997,318         11,936,729
                                           -------------     --------------    ---------------    --------------     --------------
 Total partners capital                       9,052,268          9,432,246         10,106,308        11,009,296         11,948,707
                                           -------------     --------------    ---------------    --------------     --------------
                                             $9,124,741        $11,356,179        $13,610,410       $11,957,239        $14,005,660
                                           =============     ==============    ===============    ==============     ==============
</TABLE>


                              Statements of Income
<TABLE>

                                                                           December 31,
                                           ------------------------------------------------------------------------------------
                                               2002              2001             2000              1999             1998
                                           -------------     -------------    -------------     -------------    --------------

<S>                                          <C>               <C>              <C>               <C>               <C>
Gross revenue                                $1,078,186        $1,192,381       $1,437,964        $1,663,245        $1,657,728
Expenses                                        314,704           371,184          537,818           753,664           811,157
                                           -------------     -------------    -------------     -------------    --------------

Net income                                   $  763,482        $  821,197       $  900,146        $  909,581        $  846,571
                                           =============     =============    =============     =============    ==============

Net income to general partners (1%)               7,635             8,212            9,001             9,096             8,466
Net income to limited partners (99%)            755,847           812,985          891,145           900,485           838,105
                                           -------------     -------------    -------------     -------------    --------------
                                              $ 763,482        $  821,197       $  900,146        $  909,581        $  846,571
                                           =============     =============    =============     =============    ==============

Net income per $1,000 invested by limited partners for entire period:

   - where income is compounded
        and reinvested                              $85               $85              $85               $79               $67
                                           =============     =============    =============     =============    ==============

    - where partner receives
         income in monthly distributions            $82               $82              $82               $76               $65
                                           =============     =============    =============     =============    ==============
</TABLE>


     The annualized  yield for 1999 was 7.86%, for 2000 the annualized yield was
8.52%, and for 2001 the annualized yield was 8.50%, and the annualized yield for
2002 was 8.44%.  Average  annualized  yield from inception  through December 31,
2002, was 7.89%.



                                       8
<PAGE>



     Item 7 - Management  Discussion  and Analysis of  Financial  Condition  and
Results of Operations


     Management  Discussion  and Analysis of Financial  Condition and Results of
Operations


Critical Accounting Policies.

     In  preparing  the  financial  statements,  management  is required to make
estimates based on the information available that affect the reported amounts of
assets and  liabilities  as of the balance  sheet date.  Such  estimates  relate
principally to the  determination of (1) the allowance for loan losses (i.e. the
amount of  allowance  established  against  loans  receivable  as an estimate of
potential  loan losses)  including  the accrued  interest and advances  that are
estimated to be unrecoverable based on estimates of amounts to be collected plus
estimates of the value of the property as  collateral  and (2) the  valuation of
real estate acquired through foreclosure.

     Loans and the related accrued interest, late fees and advances are analyzed
on a continuous  basis for  recoverability.  Delinquencies  are  identified  and
followed  as part of the loan  system.  A  provision  is made for loan losses to
adjust the allowance for loan losses to an amount considered by management to be
adequate,   with  due   consideration  to  collateral   value,  to  provide  for
unrecoverable  loans and  receivables,  including  impaired loans,  other loans,
accrued interest,  late fees and advances on loans and other accounts receivable
(unsecured).  The  Partnership  charges  off  uncollectible  loans  and  related
receivables  directly to the allowance  account once it is  determined  that the
full amount is not collectible.

     Statement of Financial  Accounting  Standards Nos. 114 and 118 provide that
if the probable  ultimate  recovery of the carrying  amount of a loan,  with due
consideration  for the fair  value  of  collateral,  is less  than  amounts  due
according to the  contractual  terms of the loan  agreement and the shortfall in
the amounts due are not  insignificant,  the carrying  amount of the  investment
shall be reduced to the  present  value of future cash flows  discounted  at the
loan's effective interest rate. If a loan is collateral dependent,  it is valued
at the estimated fair value of the related collateral.  If events and or changes
in  circumstances  cause  management  to have  serious  doubts about the further
collectibility  of the  contractual  payments,  a loan  may  be  categorized  as
impaired and interest is no longer accrued.  Any subsequent payments on impaired
loans are applied to reduce the  outstanding  loan  balances  including  accrued
interest and advances.

     Recent  trends in the  economy  have been taken into  consideration  in the
aforementioned  process of arriving at the  allowance  for loan  losses.  Actual
results could vary from the aforementioned provisions for losses.

Forward Looking Statements.

     Some of the  information  in the Form  10-K  may  contain  forward  looking
statements.  Uses of words  such as  "will",  "may",  "anticipate",  "estimate",
"continue"  or other forward  looking  words,  discuss  future  expectations  or
predictions.  The foregoing analysis of 2002 includes forward looking statements
and predictions  about the  possibility of future events,  results of operations
and  financial  condition.  As such,  this  analysis may prove to be  inaccurate
because of assumptions made by the general partners or the actual development of
the future  events.  No assurance  can be given that any of these  statements or
predictions will ultimately prove to be correct or substantially correct.

Related Parties.

     The general  partners of the Partnership are Gymno  Corporation and Michael
R. Burwell.  Most  Partnership  business is conducted  through Redwood  Mortgage
Corp.,  an  affiliate  of the general  partner,  which  arranges,  services  and
maintains  the loan  portfolio  for the  benefit  of the  Partnership.  The fees
received by the  affiliate  to the  general  partners  are paid  pursuant to the
partnership agreement and are determined at the sole discretion of the affiliate
to the general  partner.  In the past, the affiliate to the general partners has
elected not to take the maximum compensation. The following is a list of various
Partnership activities for which related parties are compensated. o


                                       9
<PAGE>



     o Mortgage  Brokerage  Commissions  For fees in connection with the review,
selection,  evaluation,  negotiation and extension of loans, the Partnership may
collect an amount  equivalent  to 12% of the loaned  amount until 6 months after
the termination date of the offering. Thereafter, the loan brokerage commissions
(points) will be limited to an amount not to exceed 4% of the total  Partnership
assets per year. The loan brokerage  commissions are paid by the borrowers,  and
thus,  are not an expense of the  Partnership.  For the years ended December 31,
2000, 2001 and 2002 loan brokerage  commissions paid by borrowers were $130,487,
$84,137 and $24,661, respectively.

     o Mortgage  Servicing Fees Monthly mortgage  servicing fees of up to 1/8 of
1% (1.5% on an annual basis) of the unpaid principal of the Partnership's  loans
is paid to Redwood  Mortgage  Corp.,  or such lesser amount as is reasonable and
customary in the  geographic  area where the  property  securing the mortgage is
located. Mortgage servicing fees of $110,713, $94,396 and $163,531 were incurred
for the years ended December 31, 2000, 2001 and 2002, respectively.

     o Asset  Management  Fees The general  partners  receive  monthly  fees for
managing the Partnership's portfolio and operations up to 1/32 of 1% of the `net
asset  value'  (3/8 of 1% on an annual  basis).  Management  fees to the general
partners of $38,400,  $37,233 and $34,869 were incurred by the  Partnership  for
the years ended December 31, 2000, 2001 and 2002, respectively.

     o Other Fees The partnership  agreement  provides that the general partners
may receive other fees such as  reconveyance,  mortgage  assumption and mortgage
extension  fees.  Such fees are  incurred by the  borrowers  and are paid to the
general partners.

     o Income and Losses  All  income  and  losses  are  credited  or charged to
partners in relation to their respective Partnership  interests.  The allocation
to the general partners (combined) shall be a total of 1%.

     o Operating  Expenses An affiliate  of the  Partnership,  Redwood  Mortgage
Corp.,  is reimbursed by the  Partnership  for all operating  expenses  actually
incurred  by it on  behalf of the  Partnership,  including  without  limitation,
out-of-pocket general and administration expenses of the Partnership, accounting
and audit fees,  legal fees and expenses,  postage and preparation of reports to
limited partners.

     o  Contributed   Capital  The  general   partners   jointly  and  severally
contributed 1/10 of 1% in cash contributions as proceeds from the offerings were
received from the limited partners.  As of December 31, 2002 and 2001, a general
partner,  Gymno  Corporation,  had contributed  $11,978 as capital in accordance
with Section 4.02(a) of the partnership agreement.

     Results of Operations - For the three years ended  December 31, 2000,  2001
and 2002.

     On September 30, 1992, the Partnership  had sold  119,983.59  Units and its
contributed  capital totaled  $11,998,359 of the approved  $12,000,000 issue, in
Units of $100 each.  As of that date,  the  offering  was  formally  closed.  At
December 31, 2002, Partners' Capital totaled $9,052,268.

     The decline in interest  revenues from  $1,406,098 in 2000 to $1,172,474 in
2001 and to $1,037,717 in 2002 is primarily attributable to the reducing secured
loan  portfolio  balance from  $12,794,297  to $10,091,195 to $6,423,984 for the
years 2000, 2001 and 2002, respectively.  Significant reduction of the portfolio
in 2002 represents principal pay-offs and pay-down on loans totaling $4,581,021,
and one loan with a principal  balance of $954,488  became REO versus funding of
new loans of only $1,868,298.

     Late fee income was  $11,219 in 2000,  $8,495 in 2001 and  $24,920 in 2002.
The increase in 2002 mainly  involves  collection of additional  late charges in
excess of amounts recorded when some larger loans paid-off.

     Reduction  in other  income from  $20,647 in 2000 to $11,412 in 2001 and to
$15,549 in 2002 was mainly  because of reduction in transfer  fees  received and
reduction in interest on money market deposits.



                                       10
<PAGE>



     Mortgage Servicing fees were $110,713 in 2000, $94,396 in 2001 and $163,531
in 2002. The increase in 2002 is primarily  attributable to additional servicing
fees earned related to impaired loans. The Partnership does not accrue servicing
fees to Redwood  Mortgage  Corp. on impaired  loans.  Rather,  servicing fees on
impaired loans are incurred as borrower payments are received.

     Reduction  in interest  expense on bank line of credit is because of lesser
utilization of the credit  facility in 2002. The  Partnership  used loan pay-off
proceeds received at year end and paid down the line of credit to 0. The line of
credit  balances were  $3,500,000,  $1,907,000 and $0 at December 31, 2000, 2001
and 2002, respectively.

     Decrease in asset  management  fees from $38,400 in 2000 to $37,233 in 2001
and to $34,869 in 2002 was due to a decrease in limited  partners' capital under
management. Limited partners' capital balances were $10,094,330,  $9,420,268 and
$9,040,290 at December 31, 2000, 2001 and 2002, respectively.

     Increase in  professional  fees from $22,068 in 2000 to $23,868 in 2001 and
to  $40,158  in 2002 was due to  increased  costs  and the  timing  of  services
provided in 2002 versus 2001 in relation to audit and tax return processing.

     No  provision  for  losses on loans  was  required  in 2002 as the  general
partners felt the allowance for loan losses of $791,882 as of December 31, 2002,
was adequate to offset any  potential  loss in loans or real estate.  A negative
provision of ($20,039) in 2002 was due to loan loss recoveries  during 2002. All
other expenses ranged within the level expected by the general partners.

     During  the year 2002 the  Partnership's  annualized  yield on  compounding
accounts was 8.40% and on monthly distributing accounts it was 8.20%.

     During 2001,  and through  December 31, 2002, the Federal  Reserve  reduced
interest  rates by cutting the Federal  Funds Rate  twelve  times to 1.25%.  The
effect of the previous cuts has greatly reduced short-term interest rates and to
a  lesser  extent  reduced  long-term   interest  rates.  The  general  partners
anticipate  that new loans  will be placed  at rates  approximately  1% to 1.50%
lower than  similar  loans  during  2002.  The  lowering of  interest  rates has
encouraged  those  borrowers that have mortgages with higher interest rates than
those  currently  available  to  seek  refinancing  of  their  obligations.  The
Partnership may face prepayments in the existing portfolio from borrowers taking
advantage  of these  lower  rates.  However,  demand  for loans  from  qualified
borrowers  continues to be strong and as prepayments occur, the general partners
expect to replace paid off loans with loans at somewhat lower interest rates. At
this time, the general partners believe that the average loan portfolio interest
rate will decline  approximately .50% to .75% over the year 2003.  Nevertheless,
based  upon the  rates  payable  in  connection  with the  existing  loans,  and
anticipated  interest  rates to be charged by the  Partnership  and the  general
partners' experience,  the general partners anticipate that the annualized yield
will range between 7% and 8% in 2003.

     Borrower  foreclosures,  as set forth under  Results of  Operations,  are a
normal aspect of Partnership operations and the general partners anticipate that
they will not have a material  effect on  liquidity.  As of December  31,  2002,
there  were  two  properties  in  foreclosure.  The  principal  amount  of these
foreclosures was  $236,807.00.  Cash is constantly being generated from interest
earnings,  late charges,  pre-payment  penalties,  amortization of principal and
loan pay-offs.  Currently, cash flow exceeds Partnership expenses,  earnings and
capital  payout  requirements.  Excess  cash flow will be  invested  in new loan
opportunities, when available, and will be used to reduce the Partnership credit
line or in other Partnership business.


Allowance for Losses.

     The general  partners  regularly  review the loan portfolio,  examining the
status of delinquencies,  the underlying  collateral  securing these properties,
the Real Estate Owned ("REO") expenses and sales  activities,  borrowers payment
records, etc. Data on the local real estate market and on the national and local
economy are studied.  Based upon this  information and other data, loss reserves
are  increased  or  decreased.  Borrower  foreclosures  are a normal  aspect  of
Partnership  operations.  The Partnership is not a credit based lender and hence
while it reviews the credit history and income of borrowers,  and if applicable,
the income from income producing properties, the general partners expect that we
will on occasion take back real estate security.  During 2001, and continuing in
2002,  the Northern  California  real estate  market slowed and the national and
local  economies  have slipped  into  recession.  As of December  31, 2002,  two
notices of default are currently  filed beginning the process of foreclosing two


                                       11
<PAGE>

     additional  loans. The principal  amounts of the two foreclosed loans total
$236,807 or 3.69% of our loan  portfolio.  The  Partnership  also  entered  into
workout  agreements  with borrowers who are past maturity or delinquent in their
regular  payments.  The  Partnership had workout  agreements on  approximately 2
loans totaling $65,108 as of December 31, 2002.  Typically,  a workout agreement
allows the  borrower  to extend the  maturity  date of the  balloon  payment and
allows the borrower to make current monthly payments while deferring for periods
of time,  past  due  payments,  or  allows  time to pay the loan in full.  These
workout agreements and foreclosures generally exist within our loan portfolio to
greater or lesser degrees, depending primarily on the health of the economy. The
number of foreclosures  and workout  agreements will rise during difficult times
and  conversely  fall  during  good  economic  times.  The  number and amount of
foreclosures  and  workout   agreements   existing  at  December  31,  2002,  in
management's  opinion,  does  not  have a  material  effect  on our  results  of
operations or liquidity.  These workouts and  foreclosures  have been considered
when  management  arrived at  appropriate  loan loss  reserves  and based on our
experience,  are  reflective  of our loan  marketplace  segment.  Because of the
number of variables  involved,  the  magnitude  of the  possible  swings and the
general partners inability to control many of these factors,  actual results may
and do  sometimes  differ  significantly  from  estimates  made  by the  general
partners. Management provided $65,664, $37,371, and ($20,039), as provisions for
losses on loans and real estate for the years ended December 31, 2000, 2001, and
2002,  respectively.  The  provision  for  losses on loans and real  estate  was
decreased  by $263,393 to $65,664 in 2000,  by $28,293 to $37,371 in 2001 and by
$57,410 to ($20,039)  in 2002.  These  decreases  reflect  reduced  expected REO
anticipated  losses in the various  years and in 2002 that current  reserves for
losses are  adequate to handle  potential  losses.  If  conditions  change,  the
Partnership may again increase its provisions for loan losses.

     The  Partnership  makes  loans  primarily  in  Northern  California.  As of
December 31, 2002,  approximately 52.18%,  ($3,352,568) of the loans held by the
Partnership  were in the six San Francisco Bay Area  Counties.  The remainder of
the loans held were secured primarily by Northern California real estate outside
the San Francisco Bay Area.  Like the rest of the nation,  the San Francisco Bay
Area has felt the recession and  accompanying  slow down in economic  growth and
increasing unemployment. The technology companies of Silicon Valley, the airline
industry,  the tourism  industry and other industries are feeling the effects of
the overall United States recession,  which includes lower earnings,  losses and
layoffs.

     As of December 31, 2002, the Partnership had an average loan to value ratio
computed as of the date the loan was made of 65.86%.  This  percentage  does not
account for any  increases or  decreases  in property  values since the date the
loan  was  made,  nor  does it  include  any  reductions  in  principal  through
amortization  of payments after the loan was made.  This low loan to value ratio
will assist the Partnership in weathering loan  delinquencies  and  foreclosures
should they eventuate.

Borrower Liquidity and Capital Resources.

     At the time of subscription to the  Partnership,  limited  partners made an
irrevocable decision to either take distributions of earnings monthly, quarterly
or annually or to compound  earnings  in their  capital  account.  For the years
ended December 31, 2000, 2001, and 2002, the Partnership  made  distributions of
earnings to limited partners after allocation of syndication  costs of $454,386,
$374,689,  and  $303,020,  respectively.  Distribution  of  Earnings  to limited
partners, which were not withdrawn after allocation of syndication costs for the
years ended  December  31,  2000,  2001 and 2002 were  $436,759,  $438,296,  and
$452,827,  respectively. As of December 31 2000, 2001 and 2002, limited partners
electing  to  withdraw  earnings  represented  49%,  42% and 36% of the  limited
partners' capital.

     The Partnership  also allows the limited partners to withdraw their capital
account  subject  to  certain   limitations  (see   liquidation   provisions  of
partnership  agreement).  For the years ended December 31, 2000, 2001, and 2002,
$179,343,  $98,857,  and $186,716 were liquidated subject to the 10% penalty for
early withdrawal.  These  withdrawals are within the normally  anticipated range
that the general  partners  would expect in their  experience  in this and other
partnerships.  The general  partners  expect that a small  percentage of limited
partners will elect to liquidate their capital accounts over one year with a 10%
early withdrawal penalty. In originally conceiving the Partnership,  the general
partners wanted to provide  limited  partners  needing their capital  returned a
degree of liquidity.  Generally,  limited partners electing to withdraw over one
year need to liquidate their investment to raise cash. The trend the Partnership
is  experiencing  in  withdrawals  by  limited  partners  electing  a  one  year
liquidation  program represents a small percentage of limited partner capital as
of December 31, 2000, 2001, and 2002, respectively.

     Additionally,  for the years  ended  December  31,  2000,  2001,  and 2002,
$1,250,291,  $1,089,113, and $646,089,  respectively, were liquidated by limited
partners who have elected a  liquidation  program over a period of five years or
longer.  This ability to withdraw  after five years by limited  partners has the
effect of providing  limited partner  liquidity.  The general  partners expect a
portion of the limited  partners to take advantage of this  provision.  This has
the  anticipated   effect  of  the  Partnership   growing,   primarily   through


                                       12
<PAGE>

     reinvestment  of earnings in years one through five.  The general  partners
expect to see increasing  numbers of limited  partner  withdrawals in years five
through  eleven,  after which time the bulk of those  limited  partners who have
sought withdrawal have been liquidated. After year eleven, liquidation generally
subsides.

Actual liquidation of both capital and earnings from year five (1994) through
year thirteen (2002) is shown hereunder:

                            Years ended December 31,

                          Earnings                Capital
                         Liquidation         Liquidation           Total
                       ----------------    ---------------     ---------------

1994                          $ 263,206       *$   340,011         $   603,217

1995                          $ 270,760       *$   184,157         $   454,917

1996                          $ 336,341       *$   722,536         $ 1,058,877

1997                          $ 399,379       *$ 1,212,916         $ 1,612,295

1998                          $ 456,358       *$ 1,400,475         $ 1,856,833

1999                          $ 490,841       *$ 1,436,942         $ 1,927,783

2000                          $ 454,386       *$ 1,429,634         $ 1,884,020

2001                          $ 374,689       *$ 1,187,970         $ 1,562,659

2002                          $ 303,020       *$   832,805         $ 1,135,825

* These amounts represent gross of early withdrawal penalties.


     In some  cases in order to  satisfy  Broker  Dealers  and  other  reporting
requirements, the general partners have valued the limited partners' interest in
the  Partnership  on a basis which  utilizes a per Unit  system of  calculation,
rather than based upon the investors' capital account. This information has been
reported  in this manner in order to allow the  Partnership  to  integrate  with
certain  software used by the Broker Dealers and other  reporting  entities.  In
those cases, the Partnership will report to Broker Dealers,  Trust Companies and
others a  "reporting"  number of Units based upon a $1.00 per Unit  calculation.
The number of reporting Units provided will be calculated based upon the limited
partner's  capital  account  value  divided by $1.00.  Each  investor's  capital
account balance is set forth  periodically on the Partnership  account statement
provided  to  investors.  The  reporting  Units are solely  for  Broker  Dealers
requiring such information for their software programs and do not reflect actual
Units owned by a limited  partner or the limited  partners' right or interest in
cash flow or any other  economic  benefit in the  Partnership.  Each  investor's
capital  account balance is set forth  periodically  on the Partnership  account
statement  provided  to  investors.  The  amount of  Partnership  earnings  each
investor is entitled to receive is determined by the ratio that each  investor's
capital account bears to the total amount of all investor  capital accounts then
outstanding.  The capital account balance of each investor should be included on
any NASD member client account statement in providing a per Unit estimated value
of the client's investment in the Partnership in accordance with NASD Rule 2340.

     While the general  partners have set an estimated value for the Partnership
Units,  such  determination  may not be  representative  of the  ultimate  price
realized  by an  investor  for such Units upon sale.  No public  trading  market
exists for the Partnership's Units and none is likely to develop. Thus, there is
no certainty  that the Units can be sold at a price equal to the stated value of
the capital account. Furthermore, the ability of an investor to liquidate his or
her investment is limited subject to certain  liquidation rights provided by the
Partnership,  which may include early  withdrawal  penalties (See the section of
the  Prospectus  entitled  "Risk  Factors  -  Purchase  of Units is a long  term
investment").


                                       13
<PAGE>

Current Economic Conditions.

     As contained in a collection of real estate statistics in the San Francisco
Chronicle  dated  December  20, 2002 Bay Area home prices rose again in November
2002. The article states,  "Despite a struggling economy,  the median home price
in the Bay Area in November rose 13% on a year-over-year basis, though the price
has leveled since its all-time high this summer, a real estate  information firm
reported  Thursday.  Driven by historically  low interest  rates,  the number of
homes sold increased  24.4% between  November 2001 and November  2002;  however,
that  comparison is somewhat skewed given that sales plunged after September 11,
2001.  The  median  home price in the nine Bay Area  counties  was  $416,000  in
November,  compared with  $368,000 last  November,  said  DataQuick  Information
Systems in La Jolla (San Diego County).  Compared with October,  the median rose
2%, and the number of sales fell 12.8%. In July and August,  the Bay Area median
hit a record high $417,000.  Last fall, in the wake of a sagging economy and the
terrorist attacks,  home prices and sales cooled considerably.  But beginning in
January, prices and sales shot up around the country as interest rates plummeted
and consumers  looked for an alternative  to the gyrating  stock market.  At the
same time,  many  economists  have  suggested  a housing  bubble is brewing  and
predict  home prices may fall,  particularly  in  expensive  markets such as San
Francisco and Boston.  The median price of a  single-family  home  nationwide is
$159,600,  according  to the  National  Association  of  Realtors.  (DataQuick's
figures  include  both  single-family  homes  and  condos.)  `The  days of rapid
appreciation have ended,' said Ken Rosen, a real estate and economics  professor
at UC  Berkeley.  He noted that home  prices  have  appreciated  far faster than
personal income in the Bay Area in recent years.  `Next year, we may see a small
rise (in home prices),  but there could be some significant weakness if interest
rates  go up and the  economy  gets  worse,'  Rosen  said.  On the  other  hand,
DataQuick researcher John Karevoll said he sees no evidence of a major price dip
in the Bay Area despite an uptick in the number of notices of default, the first
step in the foreclosure  process.  `Housing is in a fairly good state,' Karevoll
said.  `Default  activity  would  have to double  for it to be a  concern.'  The
typical monthly mortgage payment Bay Area residents committed to in November was
$1,843.  The peak was $2,124 in May 2000. Marin County posted the highest median
home price - $602,000 - in November. Solano County had the lowest median price -
$291,000  - but it  experienced  the  biggest  year-over-year  percentage  price
increase. In November 2001, the county's median was $247,000.  The median is the
price at which half of sales are above and half are below.  Sales in Santa Clara
County,  where the high-tech tumble has pushed  unemployment to 7.8%, showed the
largest jump, from 1,284 last November to 1,894 last month. But that falls short
of the county's typical November sales count of between 1,900 and 2,300.  Re/Max
real estate agent Bruce Scheer in Cupertino said DataQuick's  numbers don't tell
the whole story.  Although sales in the county are up nearly 48% year over year,
the  number of homes on the  market is up more  than  60%.  `There's  a lot more
inventory, and sales have slowed,' Scheer said, `I think people are worried that
the  economy  is going to get  worse,  and they  think that if they wait to sell
their home, they'll get less for it.'"

     The San Francisco  Chronicle  dated December 20, 2002 further  analyzed the
home sale price by county  comparing sales of November 2001 versus November 2002
as follows:
<TABLE>

                                Homes sold              Percent                  Median*                 Percent
      County              Nov. `01      Nov. `02         Change         Nov. `01        Nov. `02         change
--------------------     -----------    ----------    -------------    -----------    -------------    ------------
<S>                           <C>           <C>              <C>             <C>              <C>            <C>
Alameda                       1,309         1,771            35.3%           $352             $407           15.6%
Contra Costa                  1,464         1,599              9.2            308              352             4.3
Marin                           309           334              8.1            513              602            17.3
Napa                            159           171              7.5            341              398            16.7
San Francisco                   355           493             38.9            492              568            15.4
San Mateo                       531           620             16.8            490              522             6.5
Santa Clara                   1,284         1,894             47.5            421              446             5.9
Solano                          635           733             15.4            247              291            17.8
Sonoma                          598           650              8.7            319              342             7.2
                         ===========    ==========    =============    ===========    =============    ============
Bay Area                      6,644         8,265            24.4%           $368             $416           13.0%
</TABLE>

*in thousands

     For the  Partnership,  these  statistics imply that the values of the homes
secured by  mortgages  should  remain firm and assist in reducing  losses if the
take back of collateral through the foreclosure process should eventuate.


                                       14
<PAGE>

     On the commercial scene, the San Francisco Business Times dated October 10,
2002 states "Grubb & Ellis has reported a slight  decrease in office  vacancy in
San Francisco for the third  quarter,  breaking a two-year  losing  streak.  The
commercial  real estate firm said vacancy  dropped to 21.9% with 127,000  square
feet of  positive  absorption.  Colin  Yasukochi,  research  director of Grubb &
Ellis' San  Francisco  office,  said office  demand has turned  positive for the
first time in two years.  He reported 1.3 million  square feet of gross  leasing
activity in the quarter. The five biggest deals of the quarter:

o Zurich Insurance took 77,000 square feet at 560 Mission street;
o Gensler Architecture signed a 57,000-square-foot lease at 2 Harrison Street;
o Law firm Clifford Chance opening its Bay Area headquarters at One market with
  47,000 square feet;
o Bank of the West and PayMap each signed leases of at least 50,000 square feet.

     `The sustained gross leasing  activity bodes well for more positive news in
the fourth  quarter,'  Yasukochi  said.  `However,  over 650,000  square feet of
mostly vacant new space  scheduled for delivery in that same quarter will likely
cause  vacancy to rise.' He predicts a sustained  recovery is two to three years
away."

     To the Partnership,  stabilizing  vacancy rates may mean that we are at the
vacancy rate bottom.  High levels of space exist,  and as tenants  leases expire
they may be able to negotiate lower rental rates.  This could lead to lower cash
flows for owners,  which may mean we could  experience  higher  delinquencies or
foreclosures on commercial properties.

     On or about  March  19,  2003,  the  United  States  entered  into an armed
conflict  with Iraq.  While the  general  partners do not  anticipate  that this
conflict will affect the real estate market in Northern California,  a prolonged
military  conflict  could  have  adverse  effects  on the  economy of the United
States, which could eventually impact the local real estate market.


Item 7a - Quantitative and Qualitative Disclosures About Market Risk

     The  following  table  contains  information  about  the cash held in money
market accounts,  secured loans held in the  Partnership's  portfolio and a note
payable on our line of credit as of December 31,  2002.  The  presentation,  for
each category of  information,  aggregates  the assets and  liabilities by their
maturity dates for  maturities  occurring in each of the years 2003 through 2007
and separately aggregates the information for all maturities arising after 2007.
The  carrying  values of these  assets and  liabilities  approximate  their fair
market values as of December 31, 2002:
<TABLE>
<S>                              <C>          <C>          <C>          <C>         <C>       <C>             <C>

                                 2003         2004         2005         2006        2007      Thereafter      Total
                             ------------- ------------ ------------ ----------- ------------ ------------ -------------
Interest earning assets:
Money market accounts          $1,013,637                                                                    $1,013,637
Avg. interest rate                  1.00%                                                                         1.00%
Loans secured by deeds
   Of trust                    $3,095,300    1,014,056       40,125      96,716    1,662,819      514,968    $6,423,984
Average interest rate              11.22%       10.62%        7.00%       6.50%        8.46%        7.75%        10.04%
Interest bearing
   liabilities:
Note payable to bank                    -                                                                             -
Average interest rate               4.50%                                                                         4.50%

</TABLE>

Market Risk.

     The  Partnership's  note  payable to the bank for its line of credit  bears
interest  at a  variable  rate,  tied  to  the  prime  rate.  As a  result,  the
Partnership's primary market risk exposure with respect to its obligations is to
changes in interest  rates,  which will affect the interest cost of  outstanding
amounts on the note payable. The Partnership may also suffer market risk tied to
general trends  affecting  real estate values that may impact the  Partnership's
security for its loans.


                                       15
<PAGE>

     The Partnership's  primary market risk in terms of its profitability is the
exposure to  fluctuations  in earnings  resulting from  fluctuations  in general
interest  rates.  The majority of the  Partnership's  mortgage loans (100% as of
December 31, 2002) earn interest at fixed rates.  Changes in interest  rates may
also affect the value of the Partnership's  investment in mortgage loans and the
rates at which the Partnership reinvests funds obtained from loan repayments and
new capital contributions from limited partners. If interest rates increase, the
interest  rates the  Partnership  obtains from  reinvested  funds will generally
increase,  but the value of the Partnership's existing loans at fixed rates will
generally  tend to  decrease.  The  risk  is  mitigated  by the  fact  that  the
Partnership  does not intend to sell its loan  portfolio,  rather such loans are
held until they are paid off. If interest rates decrease,  the amounts  becoming
available to the  Partnership  for  investment  due to repayment of  Partnership
loans may be  reinvested  at lower rates than the  Partnership  had been able to
obtain in prior investments, or than the rates on the repaid loans. In addition,
interest rate  decreases may encourage  borrowers to refinance  their loans with
the  Partnership at a time where the  Partnership is unable to reinvest in loans
of comparable value.

     The  Partnership  does not hedge or otherwise seek to manage  interest rate
risk. The Partnership does not enter into risk sensitive instruments for trading
purposes.

PORTFOLIO REVIEW - For the years ended December 31, 2000, 2001 and 2002.

Loan Portfolio

     The Partnership's  loan portfolio  consists primarily of short-term (one to
five years),  fixed rate loans secured by real estate.  As of December 31, 2000,
2001 and 2002 the Partnership's loans secured by real property collateral in the
six San  Francisco Bay Area counties  (San  Francisco,  San Mateo,  Santa Clara,
Alameda,  Contra Costa, and Marin) represented  $8,493,000  (66.4%),  $6,784,000
(67.2%), and $3,353,000 (52.2%) of the outstanding loan portfolio. The remainder
of the portfolio  represented  loans secured by real estate located primarily in
Northern California.

     As of December 31, 2000, approximately 14.6% ($1,863,000),  was invested in
loans  secured  by  single  family  homes  (1-4  units),   approximately   20.2%
($2,590,000), was invested in loans secured by multifamily dwellings (apartments
over 4 units),  approximately 41.3% ($5,286,000),  was invested in loans secured
by commercial  properties,  and approximately 23.9% ($3,055,000) was invested in
loans  secured  by  land.  As  of  December  31,  2001,   approximately,   20.4%
($2,058,000),  was invested in loans secured by single family homes (1-4 units),
approximately  15.5%  ($1,563,000)  was invested in loans secured by multifamily
dwellings  (apartments  over 4  units),  approximately  32.5%  ($3,280,000)  was
invested in loans  secured by commercial  properties,  and  approximately  31.6%
($3,190,000)  was  invested in loans  secured by land.  As of December 31, 2002,
approximately,  25.1%  ($1,612,000),  was  invested  in loans  secured by single
family homes (1-4 units),  approximately  9.5%  ($709,000) was invested in loans
secured by  multi-family  dwellings  (apartments  over 4 units),  approximately,
31.8% ($2,046,000) was invested in loans secured by commercial  properties,  and
approximately 33.6% ($2,057,000) was invested in loans secured by land.


                                       16
<PAGE>

     As of December 31, 2002, the Partnership  held 25 loans secured by deeds of
trust. The following table sets forth the priorities,  asset  concentrations and
maturities of the loans held by the Partnership as of December 31, 2002.

            PRIORITIES, ASSET CONCENTRATIONS AND MATURITIES OF LOANS
                             As of December 31, 2002

<TABLE>
<S>                                   <C>                   <C>                  <C>
                                      # of Loans            Amount               Percent
                                    ---------------    ------------------    -----------------

1st Mortgages                                   12           $ 3,270,000                  51%
2nd Mortgages                                   11             2,940,000                  46%
3rd Mortgages                                    2               214,000                   3%
                                    ===============    ==================    =================
  Total                                         25           $ 6,424,000                 100%

Maturing 12/31/03 and prior                     13           $ 3,095,000                  48%
Maturing prior to 12/31/04                       4             1,014,000                  16%
Maturing prior to 12/31/05                       1                40,000                   1%
Maturing after 12/31/05                          7             2,275,000                  35%
                                    ===============    ==================    =================
Total                                           25           $ 6,424,000                 100%

Average Loan                                                 $   257,000                   4%
Largest Loan                                                   1,000,000                  16%
Smallest Loan                                                     11,000                 0.2%
Average Loan-to-Value                                                                     66%

</TABLE>

ASSET QUALITY

     A consequence  of lending  activities is that  occasionally  losses will be
experienced  and that the  amount  of such  losses  will vary from time to time,
depending  upon the risk  characteristics  of the loan  portfolio as affected by
economic  conditions and the financial  experiences of borrowers.  Many of these
factors  are beyond the  control of the  general  partners.  There is no precise
method of predicting  specific  losses or amounts that ultimately may be charged
off on  particular  segments of the loan  portfolio,  especially in light of the
current economic environment.

     The conclusion that a loan may become  uncollectible,  in whole or in part,
is  a  matter  of  judgment.  Although  institutional  lenders  are  subject  to
requirements and regulations  that, among other things,  require them to perform
ongoing analyses of their portfolios,  loan-to-value ratios, reserves, etc., and
to obtain and maintain  current  information  regarding  their borrowers and the
securing properties, the Partnership is not subject to these regulations and has
not adopted these practices.  Rather,  the general partners,  in connection with
the  periodic  closing  of the  accounting  records of the  Partnership  and the
preparation  of the financial  statements,  determine  whether the allowance for
loan losses is adequate to cover potential loan losses of the Partnership. As of
December 31, 2002 the general  partners have  determined  that the allowance for
loan losses of $792,000  (8.7% of net assets) is adequate in amount.  Because of
the number of variables  involved,  the magnitude of the swings possible and the
general partners' inability to control many of these factors, actual results may
and do  sometimes  differ  significantly  from  estimates  made  by the  general
partners.  As of  December  31,  2002,  10 loans  were  delinquent  over 90 days
amounting to $2,401,000,  which represents an increase of 34% of loans that were
delinquent as of December 31, 2001.

                                       17
<PAGE>


Item 8 - Financial Statements and Supplementary Data


A - Financial Statements

     The following  financial  statements of Redwood Mortgage  Investors VII are
included in Item 8:

o   Independent Auditors' Report
o   Balance Sheets - December 31, 2002, and December 31, 2001
o   Statements of Income for the years ended December 31, 2002, 2001 and 2000
o   Statements of Changes in Partners' Capital for the years ended December 31,
    2002, 2001 and 2000
o   Statements of Cash Flows for the years ended December 31, 2002, 2001 and
    2000
o   Notes to Financial Statements


B - Financial Statement Schedules

     The following  financial  statement schedules of Redwood Mortgage Inventors
VII are included in Item 8.



o   Schedule II - Valuation and Qualifying Accounts

o   Schedule IV - Mortgage Loans on Real Estate

     All  other  schedules  for  which  provision  is  made  in  the  applicable
accounting  regulations  of the  Securities  and  Exchange  Commission  are  not
required under the related instructions or are inapplicable,  and therefore have
been omitted.



                                       18
<PAGE>











                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                              FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2002 AND 2001
                         AND FOR EACH OF THE THREE YEARS
                      IN THE PERIOD ENDED DECEMBER 31, 2002











                                       19
<PAGE>




                              ARMANINO McKENNA LLP
                          CERTIFIED PUBLIC ACCOUNTANTS
                         12667 Alcosta Blvd., Suite 500
                               San Ramon, CA 94583
                                 (925) 790-2600




                          INDEPENDENT AUDITORS' REPORT


To the Partners
Redwood Mortgage Investors VII
Redwood City, California

     We have  audited  the  accompanying  balance  sheets  of  Redwood  Mortgage
Investors VII (a  California  limited  partnership)  as of December 31, 2002 and
2001 and the related statements of income, changes in partners' capital and cash
flows for each of the three years in the period ended  December 31, 2002.  These
financial statements are the responsibility of the Partnership's management. Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States of America.  Those standards  require that we plan
and  perform  the  audits to  obtain  reasonable  assurance  about  whether  the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material  respects,  the financial position of Redwood Mortgage Investors
VII as of December 31, 2002 and 2001 and the results of its  operations and cash
flows for each of the three years in the period  ended  December  31,  2002,  in
conformity with accounting principles generally accepted in the United States of
America.

     Our  audits  were  conducted  for the  purpose of forming an opinion on the
basic financial  statements taken as a whole.  Schedules II and IV are presented
for purposes of  additional  analysis  and are not a required  part of the basic
financial  statements.  Such  information  has been  subjected  to the  auditing
procedures  applied in the audits of the basic financial  statements and, in our
opinion,  is fairly  stated in all  material  respects  in relation to the basic
financial statements taken as a whole.



                                            ARMANINO McKENNA LLP

San Ramon, California
February 21, 2003




                                       20
<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                                 Balance Sheets
                           December 31, 2002 and 2001

                                                      ASSETS
<TABLE>

                                                                             2002                  2001
                                                                       ------------------    ------------------

<S>                                                                          <C>                    <C>
     Cash and cash equivalents                                               $ 1,057,845            $  389,844
                                                                       ------------------    ------------------

     Loans
        Loans secured by deeds of trust                                        6,423,984            10,091,195
        Loans, unsecured, net of discount of $150,407 in 2002                    216,770               173,731
        Allowance for loan losses                                              (791,882)             (887,578)
                                                                       ------------------    ------------------
        Net loans                                                              5,848,872             9,377,348
                                                                       ------------------    ------------------

     Interest and other receivables
        Accrued interest and late fees                                           304,936               666,189
        Advances on loans                                                         17,230                50,665
                                                                       ------------------    ------------------
                                                                                 322,166               716,854
                                                                       ------------------    ------------------

     Investment in limited liability company                                   1,212,722                     -
                                                                       ------------------    ------------------

     Real estate held for sale, net                                              683,136               872,133
                                                                       ------------------    ------------------

        Total assets                                                         $ 9,124,741          $ 11,356,179
                                                                       ==================    ==================

                                         LIABILITIES AND PARTNERS' CAPITAL

     Liabilities
          Line of credit                                                     $         -          $  1,907,000
          Accounts payable                                                         2,593                11,295
          Payable to affiliate                                                    32,176                 3,316
          Deferred interest                                                       37,704                 2,322
                                                                       ------------------    ------------------
             Total liabilities                                                    72,473             1,923,933
                                                                       ------------------    ------------------

     Partners' capital
          Limited partners' capital, subject to redemption, 120,000 Units
            authorized in 2002 and 2001, 119,984 Units
            outstanding in 2002 and 2001                                       9,040,290             9,420,268
          General partners' capital                                               11,978                11,978
                                                                       ------------------    ------------------
             Total partners' capital                                           9,052,268             9,432,246
                                                                       ------------------    ------------------

             Total liabilities and partners' capital                         $ 9,124,741           $11,356,179
                                                                       ==================    ==================

</TABLE>

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



                                       21
<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                              Statements of Income
              For the Years Ended December 31, 2002, 2001 and 2000

<TABLE>
<S>                                                                       <C>               <C>               <C>

                                                                          2002              2001              2000
                                                                     ----------------  ---------------   ----------------
Revenues

   Interest on loans                                                     $ 1,037,717      $ 1,172,474        $ 1,406,098
   Late fees                                                                  24,920            8,495             11,219
   Other                                                                      15,549           11,412             20,647
                                                                     ----------------  ---------------   ----------------
                                                                           1,078,186        1,192,381          1,437,964
                                                                     ----------------  ---------------   ----------------
Expenses
   Mortgage servicing fees                                                   163,531           94,396            110,713
   Interest expense                                                           54,724          128,224            257,640
   Clerical costs from Redwood Mortgage Corp.                                 30,572           38,313             27,032
   Asset management fees                                                      34,869           37,233             38,400
   Provisions for (recovery of) losses on loans and real estate             (20,039)           37,371             65,664
   Professional services                                                      40,158           23,868             22,068
   Other                                                                      10,889           11,779             16,301
                                                                     ----------------  ---------------   ----------------
                                                                             314,704          371,184            537,818

Net income                                                                 $ 763,482        $ 821,197          $ 900,146
                                                                     ================  ===============   ================

Net income
   General partners (1%)                                                   $   7,635        $   8,212          $   9,001
   Limited partners (99%)                                                    755,847          812,985            891,145

                                                                     ----------------  ---------------   ----------------
                                                                           $ 763,482        $ 821,197          $ 900,146
                                                                     ================  ===============   ================

Net income per $1,000 invested by limited partners for entire period
   Where income is reinvested and compounded                                 $    85          $    85            $    85
                                                                     ================  ===============   ================
   Where partner receives income in periodic distributions                   $    82          $    82            $    82
                                                                     ================  ===============   ================

</TABLE>







The accompanying notes are an integral part of these financial statements



                                       22
<PAGE>




                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                   Statements of Changes in Partners' Capital
              For the Years Ended December 31, 2002, 2001 and 2000

<TABLE>

                                                Limited Partners' Capital
                                     -------------------------------------------------
                                         Limited                          Total             General
                                        Partners'      Formation         Limited           Partners'          Total
                                         Capital          Loan          Partners'           Capital         Partners'
                                        Accounts       Receivable        Capital            Account          Capital
                                     --------------  ---------------  ----------------  ----------------  ---------------

<S>                                    <C>              <C>             <C>                   <C>          <C>
Balances at December 31, 1999          $ 11,162,817     $ (165,499)     $ 10,997,318          $ 11,978     $ 11,009,296

 Collections on Formation Loan                    -          79,505           79,505                 -           79,505

 Net income                                 891,145               -          891,145             9,001          900,146

 Early withdrawal penalties                (15,107)          10,382          (4,725)                 -          (4,725)

 Partners' withdrawals                  (1,868,913)               -      (1,868,913)           (9,001)      (1,877,914)
                                     ----------------  ---------------  --------------  ---------------  ---------------

Balances at December 31, 2000             10,169,942        (75,612)       10,094,330            11,978       10,106,308

 Collections on Formation Loan                     -          71,460           71,460                 -           71,460

 Net income                                  812,985               -          812,985             8,212          821,197

 Early withdrawal penalties                  (7,908)           4,152          (3,756)                 -          (3,756)

 Partners' withdrawals                   (1,554,751)               -      (1,554,751)           (8,212)      (1,562,963)
                                     ---------------  ---------------  ---------------  ----------------  ---------------

Balances at December 31, 2001             9,420,268                -        9,420,268            11,978        9,432,246

 Net income                                 755,847                -          755,847             7,635          763,482

 Early withdrawal penalties                (11,619)                -         (11,619)                  -        (11,619)

 Partners' withdrawals                                                    (1,124,206)           (7,635)      (1,131,841)
                                         (1,124,206)               -
                                     ----------------  --------------  ---------------  -----------------  --------------
Balances at December 31, 2002            $ 9,040,290      $        -      $ 9,040,290          $ 11,978      $ 9,052,268
                                     ================  ==============  ===============  =================  ==============

</TABLE>

The accompanying notes are an integral part of these financial statements



                                       23
<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                            Statements of Cash Flows
              For the Years Ended December 31, 2002, 2001 and 2000
<TABLE>

                                                                         2002               2001              2000
                                                                   ------------------  ---------------   ---------------
Cash flows from operating activities
<S>                                                                        <C>              <C>               <C>
Net income                                                                 $ 763,482        $ 821,197         $ 900,146
Adjustments to reconcile net income to net cash provided by
         operating activities
  Provisions for (recovery of) losses on loans and real estate              (20,039)           37,371            65,664
  Early withdrawal penalty credited to income                               (11,619)          (3,756)           (4,725)
         Change in operating assets and liabilities:
     Loans, unsecured                                                         45,292           14,690             5,082
     Accrued interest and late fees                                         (73,456)        (302,868)          (34,916)
     Advances on loans                                                      (47,216)         (20,840)             1,844
     Accounts payable                                                        (8,702)            7,193          (28,132)
     Payable to affiliate                                                     28,860            3,316                 -
     Deferred interest                                                        35,382            2,322         (115,709)

                                                                   ------------------  ---------------   ---------------
Net cash provided by operating activities                                    711,984          558,625           789,254
                                                                   ------------------  ---------------   ---------------

Cash flows from investing activities
  Principal collected on loans                                             4,569,574        6,123,575         5,324,620
  Loans originated                                                       (1,447,329)      (3,066,276)       (7,112,078)
  Payments for real estate                                                  (11,033)        (449,197)          (87,392)
  Proceeds from disposition of real estate                                         -           38,620            64,235
  Investments in limited liability company                                 (116,354)                -                 -
                                                                   ------------------  ---------------   ---------------
Net cash provided by (used in) investing activities                        2,994,858        2,646,722       (1,810,615)
                                                                   ------------------  ---------------   ---------------
Cash flows from financing activities
Borrowings (repayments) on line of credit, net                           (1,907,000)      (1,593,000)         2,700,000
Formation loan collections                                                         -           71,460            79,505
Partners' withdrawals                                                    (1,131,841)      (1,562,963)       (1,877,914)
                                                                   ------------------  ---------------   ---------------
Net cash (used in) provided by financing activities                      (3,038,841)      (3,084,503)
                                                                                                                901,591
                                                                   ------------------  ---------------   ---------------
Net increase (decrease) in cash and cash equivalents                         668,001          120,844         (119,770)


Cash and cash equivalents at beginning of year                               389,844          269,000           388,770
                                                                   ------------------  ---------------   ---------------
Cash and cash equivalents at end of year                                 $ 1,057,845        $ 389,844         $ 269,000
                                                                   ==================  ===============   ===============
Supplemental disclosures of cash flow information
Cash payments for interest                                                 $  54,724        $ 128,224         $ 257,640
                                                                   ==================  ===============   ===============

</TABLE>

The accompanying notes are an integral part of these financial statements



                                       24
<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          Notes to Financial Statements
                        December 31, 2002, 2001 and 2000


NOTE 1   ORGANIZATION AND GENERAL

     Redwood Mortgage Investors VII, (the "Partnership") is a California limited
partnership  organized  on June 30,  1989.  The general  partners are Michael R.
Burwell, an individual,  and Gymno Corporation;  a California  corporation owned
and  operated on an equal  50/50%  basis by Michael R. Burwell and by D. Russell
Burwell,  a former general  partner.  The Partnership was organized to engage in
business as a mortgage lender for the primary purpose of making loans secured by
deeds of trust on California real estate.  Loans are being arranged and serviced
by Redwood Mortgage Corp., an affiliate of the general partners.

Term of the Partnership

     The  Partnership  is scheduled  to  terminate on December 31, 2029,  unless
sooner terminated as provided.


note 2   Summary of Significant Accounting Policies

Management estimates

     The  preparation  of financial  statements  in conformity  with  accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management  to make  estimates  and  assumptions  about the reported  amounts of
assets and liabilities  and disclosures of contingent  assets and liabilities at
the date of the financial  statements  and the reported  amounts of revenues and
expenses during the reported period.  Such estimates  relate  principally to the
determination  of the  allowance  for loan losses,  including  the  valuation of
impaired  loans and the valuation of real estate held for sale.  Actual  results
could differ significantly from these estimates.

Loans, secured by deeds of trust

     Loans generally are stated at their  outstanding  unpaid principal  balance
with interest thereon being accrued by the effective interest method.

     Statement of Financial  Accounting  Standards Nos. 114 and 118 provide that
if the probable  ultimate  recovery of the carrying  amount of a loan,  with due
consideration  for the fair  value  of  collateral,  is less  than  amounts  due
according to the  contractual  terms of the loan  agreement and the shortfall in
the amounts due are not  insignificant,  the carrying  amount of the  investment
shall be reduced to the  present  value of future cash flows  discounted  at the
loan's effective interest rate. If a loan is collateral dependent,  it is valued
at the estimated fair value of the related collateral.

     If events and or changes in circumstances  cause management to have serious
doubts about the further  collectibility of the contractual payments, a loan may
be  categorized  as impaired and interest is no longer  accrued.  Any subsequent
payments on impaired loans are applied to reduce the  outstanding  loan balances
including  accrued  interest and advances.  At December 31, 2002 and 2001, there
were loans  categorized as impaired by the  Partnership of $96,716 and $889,439,
respectively.  In addition, the impaired loans had accrued interest and advances
totaling  $7,841 and $277,479 at December 31, 2002 and 2001,  respectively.  The
reduction  in carrying  value of the  impaired  loans of $6,620 and  $150,092 at
December 31, 2002 and 2001, respectively,  is included in the allowance for loan
losses.  The average  recorded  investment  in the impaired  loans was $493,074,
$890,018 and $687,563 for December 31, 2002, 2001 and 2000, respectively.




                                       25
<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          Notes to Financial Statements
                        December 31, 2002, 2001 and 2000


note 2   Summary of Significant Accounting Policies (continued)

Loans, secured by deeds of trust (continued)

     At December 31, 2002 and 2001, the  Partnership  had nine loans past due 90
days or more  totaling  $2,913,212  and  $3,314,054  (45.35%  and  32.84% of the
secured loan portfolio),  respectively.  The Partnership does not consider these
loans to be impaired because there is sufficient  collateral to cover the amount
outstanding to the Partnership and is still accruing interest on these loans. At
December  31,  2002 and 2001,  as  presented  in Note 11,  the  average  loan to
appraised  value of security at the time the loans were  consummated  was 65.86%
and 60.66%,  respectively.  When loans are considered impaired, the allowance is
updated to reflect the change in the valuation of collateral security.  However,
a low  loan  to  value  ratio  has  the  tendency  to  minimize  reductions  for
impairment.

     During 2002, the Partnership  restructured  four previously  impaired loans
into two new loans  with a lower  interest  rate.  The amount  restructured  was
$1,246,754.  Had the loans been current in accordance  with their original terms
and had they been outstanding  throughout the entire year, the Partnership would
have  recognized  gross interest  income of $144,772 for 2002.  The  Partnership
recognized $70,130 of income on the restructured loans for 2002.

Allowance for loan losses

     Loans and the related accrued interest, late fees and advances are analyzed
on a continuous  basis for  recoverability.  Delinquencies  are  identified  and
followed  as part of the loan  system.  A  provision  is made for loan losses to
adjust the allowance for loan losses to an amount considered by management to be
adequate,   with  due   consideration  to  collateral   value,  to  provide  for
unrecoverable  loans and  receivables,  including  impaired loans,  other loans,
accrued interest,  late fees and advances on loans and other accounts receivable
(unsecured).  The  Partnership  charges  off  uncollectible  loans  and  related
receivables  directly to the allowance  account once it is  determined  that the
full amount is not collectible.

     The  composition  of the  allowance for loan losses as of December 31, 2002
and 2001 was as follows:

                                            2002                   2001
                                      ------------------      ----------------
      Impaired loans                           $  6,620              $150,092
      Specified loans                           163,731                     -
      General                                   533,200               593,500
      Unsecured loans                            88,331               143,986
                                      ------------------      ----------------
                                               $791,882              $887,578
                                      ==================      ================

     Activity in the allowance for loan losses is as follows for the years ended
December 31:

                                      2002            2001             2000
                                 -------------   --------------   --------------
 Beginning balance                    $887,578         $850,548         $828,563
 Provision for loan losses              20,394           37,371           25,160
 Recoveries                           (40,433)                -                -
 Restructures                         (64,210)                -                -
 Write-offs                           (11,447)            (341)          (3,175)
                                 -------------   --------------   --------------
                                      $791,882         $887,578         $850,548
                                 =============   ==============   ==============




                                       26
<PAGE>




                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          Notes to Financial Statements
                        December 31, 2002, 2001 and 2000


note 2   Summary of Significant Accounting Policies (continued)

Cash and cash equivalents

     The  Partnership  considers all highly liquid  financial  instruments  with
maturities  of  three  months  or less  at the  time  of  purchase  to be a cash
equivalent.

Real estate held for sale

     Real estate held for sale includes real estate acquired through foreclosure
and is stated  at the lower of the  recorded  investment  in the loan,  plus any
senior  indebtedness,  or at the property's estimated fair value, less estimated
costs to sell.

     In  accordance  with  Statement of Financial  Accounting  Standards No 144,
"Accounting  for the  Impairment  or  Disposition  of Long  Lived  Assets,"  the
Partnership  periodically compares the carrying value of real estate to expected
future  undiscounted cash flows for the purpose of assessing the  recoverability
of the recorded amounts.  If the carrying value exceeds future undiscounted cash
flows,  the assets  are  reduced to  estimated  fair  value.  During  2002,  the
Partnership  transferred  $200,030  from the  allowance  for loan  losses to the
allowance for losses on real estate held for sale.

Investment in limited liability company

     Investment in limited  liability  company is accounted for using the equity
method.  In 2002, the Company had a 34% interest in the Stockton Street Property
Company, LLC (see Note 6).

Income taxes

     No  provision  for federal and state income taxes (other than an $800 state
minimum  tax) is made in the  financial  statements  since  income taxes are the
obligation of the partners if and when income taxes apply.

Net income per $1,000 invested

     Amounts  reflected  in the  statements  of income as net  income per $1,000
invested by limited  partners  for the entire  period are amounts  allocated  to
limited partners who had their investment throughout the period and have elected
to either leave their  earnings to compound or have elected to receive  periodic
distributions  of their net income.  Individual  income is allocated  each month
based on the limited partners' pro rata share of partners' capital.  Because the
net income percentage  varies from month to month,  amounts per $1,000 will vary
for those  individuals who made or withdrew  investments  during the period,  or
select other options.

Late fee revenue

     Late fees are generally  charged at 6% of the monthly  installment  payment
past due. During 2002,  2001 and 2000,  late fee revenue of $24,920,  $8,495 and
$11,219, respectively,  were recorded. The Partnership has a late fee receivable
at December 31, 2002 and 2001 of $13,320 and $0.

Reclassification

     Certain reclassifications,  not affecting previously reported net income or
total  partners'  capital,  have been made to the  previously  issued  financial
statements to conform to the current year classification.




                                       27
<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          Notes to Financial Statements
                        December 31, 2002, 2001 and 2000


note 2   Summary of Significant Accounting Policies (continued)

Recently issued accounting pronouncements

     In January 2003,  the Financial  Accounting  Standards  Board (FASB) issued
FASB  Interpretation  46  "Consolidation  of  Variable  Interest  Entities,   an
Interpretation of ARB No. 51" (FIN 46). FIN 46 is effective  immediately for any
variable  interest  entities  created  after  January 31, 2003 and is  effective
beginning in the third quarter of 2002 to any variable interest entities created
prior to the issuance of the interpretation.  FIN 46 provides a new framework to
identify  variable  interest  entities  and  determining  when an entity  should
include the assets,  liabilities,  non-controlling  interests and the results of
activities  of a  variable  interest  entity in its  financial  statements.  The
implementation  of FIN 46 is not anticipated to have any  significant  effect on
the Partnership.


note 3   Other Partnership Provisions

     The Partnership is a California limited partnership. The rights, duties and
powers of the general and limited  partners of the  Partnership  are governed by
the limited  Partnership  agreement and Sections 15611 et seq. of the California
Corporations Code.

     The general partners are in complete  control of the Partnership  business,
subject to the voting rights of the limited partners on specified  matters.  Any
one of the general  partners acting alone has the power and authority to act for
and bind the Partnership.

     A majority of the outstanding  limited  partnership  interests may, without
the permission of the general partners,  vote to: (i) terminate the Partnership,
(ii) amend the limited  partnership  agreement,  (iii) approve or disapprove the
sale of all or  substantially  all of the  assets  of the  Partnership  and (iv)
remove or replace one or all of the general partners.

     The  approval  of all  limited  partners is required to elect a new general
partner to continue the Partnership business where there is no remaining general
partner  after a general  partner  ceases to be a general  partner other than by
removal.

Election to receive monthly, quarterly or annual distributions

     At subscription,  investors elected either to receive monthly, quarterly or
annual distributions of earnings allocations,  or to allow earnings to compound.
Subject to certain  limitations,  a compounding investor may subsequently change
his  election,  but  an  investor's  election  to  have  cash  distributions  is
irrevocable.

Profits and losses

     Profits and losses are allocated  among the limited  partners  according to
their respective capital accounts monthly after 1% of the profits and losses are
allocated to the general partners.

Liquidity, capital withdrawals and early withdrawals

     There are substantial  restrictions on transferability of Partnership Units
and accordingly an investment in the Partnership is not liquid. Limited partners
have no right to withdraw from the  Partnership or to obtain the return of their
capital account for at least one year from the date of purchase of Units.

     In order to provide a certain  degree of liquidity to the limited  partners
after the one-year  period,  limited  partners may withdraw all or part of their
capital accounts from the Partnership in four quarterly  installments  beginning
on the last day of the  calendar  quarter  following  the  quarter  in which the
notice of withdrawal is given,  subject to a 10% early withdrawal  penalty.  The
10% penalty is  applicable  to the amount  withdrawn  early and will be deducted
from the capital account.




                                       28
<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          Notes to Financial Statements
                        December 31, 2002, 2001 and 2000


note 3   Other Partnership Provisions (continued)

Liquidity, capital withdrawals and early withdrawals (continued)

     After five years from the date of purchase of the Units,  limited  partners
have the  right to  withdraw  from the  Partnership,  on an  installment  basis.
Generally this is done over a five-year period in twenty quarterly installments.
Once a limited  partner has been in the  Partnership  for the minimum  five-year
period,  no penalty will be imposed if  withdrawal  is made in twenty  quarterly
installments  or longer.  Notwithstanding  the five-year (or longer)  withdrawal
period,  the general  partners may liquidate all or part of a limited  partner's
capital account in four quarterly  installments beginning on the last day of the
calendar  quarter  following  the quarter in which the notice of  withdrawal  is
given. This withdrawal is subject to a 10% early withdrawal  penalty  applicable
to any sums withdrawn prior to the time when such sums could have been withdrawn
without penalty.

     The Partnership will not establish a reserve from which to fund withdrawals
and,  accordingly,  the  Partnership's  capacity  to return a limited  partner's
capital  account is restricted to the  availability  of  Partnership  cash flow.
Furthermore,  no more than 20% of the total limited  partners'  capital accounts
outstanding at the beginning of any year shall be liquidated during any calendar
year.


note 4   General Partners and Related Parties

     The  following are  commissions  and fees which will be paid to the general
partners.

Mortgage brokerage commissions

     For fees in connection with the review, selection, evaluation,  negotiation
and extension of loans, the Partnership may collect an amount  equivalent to 12%
of the loaned amount until 6 months after the termination  date of the offering.
Thereafter, loan brokerage commissions (points) will be limited to an amount not
to exceed 4% of the  total  Partnership  assets  per  year.  The loan  brokerage
commissions  are paid by the  borrowers  and  thus,  are not an  expense  of the
Partnership.  During 2002, 2001 and 2000, loan brokerage commissions paid by the
borrowers were $24,661 and $84,137 and $130,487, respectively.

Mortgage servicing fees

     Monthly  mortgage  servicing  fees of up to 1/8 of 1% (1.5%  annual) of the
unpaid  principal  are paid to  Redwood  Mortgage  Corp.,  based  on the  unpaid
principal balance of the loan portfolio,  or such lesser amount as is reasonable
and customary in the geographic area where the property securing the mortgage is
located. Once a loan is categorized as impaired,  mortgage servicing fees are no
longer  accrued.  Additional  service fees are recorded  upon the receipt of any
subsequent  payments on impaired  loans.  Mortgage  servicing  fees of $163,531,
$94,396 and $110,713 were incurred for 2002,  2001 and 2000,  respectively.  The
Partnership  has a payable to  Redwood  Mortgage  Corp.  for  servicing  fees of
$32,176 and $3,316 at December 31, 2002 and 2001, respectively.

Asset management fee

     The general  partners  receive monthly fees for managing the  Partnership's
loan  portfolio and operations of up to 1/32 of 1% of the "net asset value" (3/8
of 1%  annually).  Asset  management  fees of $34,869,  $37,233 and $38,400 were
incurred for 2002, 2001 and 2000, respectively.






                                       29
<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          Notes to Financial Statements
                        December 31, 2002, 2001 and 2000


note 4   General Partners and Related Parties (continued)

Other fees

     The  Partnership  Agreement  provides for other fees such as  reconveyance,
mortgage  assumption and mortgage  extension fees. Such fees are incurred by the
borrowers and are paid to parties related to the general partners.

Operating expenses

     Redwood Mortgage Corp., an affiliate of the general partners, is reimbursed
by the Partnership for all operating  expenses actually incurred by it on behalf
of the Partnership,  including  without  limitation,  out-of-pocket  general and
administration  expenses of the  Partnership,  accounting and audit fees,  legal
fees and  expenses,  postage  and  preparation  of reports to limited  partners.
During 2002, 2001 and 2000,  operating  expenses totaling  $30,572,  $38,313 and
$27,032, respectively, were reimbursed to Redwood Mortgage Corp.


note 5   Real Estate Held for Sale

     The following  schedule  reflects the costs of real estate acquired through
foreclosure  and the recorded  reductions  to estimated  fair values,  including
estimated costs to sell as of December 31, 2002 and 2001:

                                         2002                  2001
                                  -----------------     -----------------
 Costs of properties                    $1,263,222            $1,252,189
 Reduction in value                      (580,086)             (380,056)
                                  -----------------     -----------------
 Real estate held for sale               $ 683,136             $ 872,133
                                  =================     =================


note 6   Investment in Limited Liability Company

     As a result of acquiring real property through foreclosure, the Partnership
transferred its interest  (principally land and building) to a limited liability
company ("LLC"), Stockton Street Property Company LLC, which is owned 34% by the
Partnership and 66% by an affiliate.  Development  costs are being  capitalized;
thus,  there was no income or expense  recognized  by Stockton  Street  Property
Company during 2002. During 2002, the LLC completed construction and now intends
to sell the  property.  The  Partnership  expects to  realize a profit  from the
venture.

     Summarized  financial  information  of the LLC at  December  31, 2002 is as
follows:

      Assets                                 $1,814,186
      Liabilities                             (601,464)
                                      ------------------

      Total                                  $1,212,722
                                      ==================





                                       30
<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          Notes to Financial Statements
                        December 31, 2002, 2001 and 2000


note 7   Bank Line of Credit

     The  Partnership has a bank line of credit secured by its loan portfolio of
up to $3,500,000 at .25% over prime. The balances outstanding as of December 31,
2002 and 2001 were $0 and $1,907,000,  respectively; the interest rate was 4.50%
(4.25% prime + .25%) at December 31,  2002.  This line of credit  expires May 1,
2003 and requires the  Partnership to meet certain  financial  covenants.  As of
December 31, 2002, the Partnership was in compliance with all loan covenants.

     Should the  general  partners  choose not to renew the line of credit,  the
balance then outstanding would be converted to a three-year term loan.


note 8   Income Taxes

     The following  reflects a reconciliation  of partners' capital reflected in
the financial statements to the tax basis of the Partnership capital:

                                                  2002                  2001
                                             ---------------      --------------
 Partners' capital per financial statements     $ 9,052,268          $9,432,246
 Allowance for loan losses                          791,882             887,578
 Allowance for real estate losses                   580,086             380,056
                                             ---------------      --------------
 Partners' capital tax basis                    $10,424,236         $10,699,910
                                             ===============      ==============


     In 2002 and  2001,  approximately  69% and 68%,  respectively,  of  taxable
income was allocated to tax exempt organizations (i.e.,  retirement plans). Such
organizations generally do not have to file income tax returns.


note 9   Fair Value of Financial Instruments

     The following  methods and assumptions were used to estimate the fair value
of financial instruments:

     (a) Cash and Cash  Equivalents - The carrying amount equals fair value. All
amounts, including interest bearing, are subject to immediate withdrawal.

     (b) Secured loans had a carrying  value of $6,423,984 and  $10,091,195,  at
December  31,  2002 and 2001,  respectively.  The fair  value of these  loans of
$6,030,669 and $10,107,321, respectively was estimated based upon projected cash
flows discounted at the estimated  current interest rates at which similar loans
would be made. The applicable amount of the allowance for loan losses along with
accrued  interest and advances  related  thereto  should also be  considered  in
evaluating the fair value versus the carrying value.






                                       31
<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          Notes to Financial Statements
                        December 31, 2002, 2001 and 2000


note 10   Non-cash Transactions

     During 2002, the Partnership foreclosed on one property and transferred its
interest into a LLC (see Note 6), which  resulted in an increase in  investments
of $1,096,368 and a decrease in loans receivable,  accrued interest and advances
of $954,488, $88,913 and $52,967, respectively.

     During 2002, the  Partnership  restructured  four loans that resulted in an
increase to loans  receivable  and the allowance for loan losses of $420,969 and
$47,489,  respectively,  and a decrease  to accrued  interest  and  advances  of
$345,796 and $27,684, respectively.

     During 2002, the Partnership  originated two unsecured non-interest bearing
loans,  which  resulted in an increase to  unsecured  loans of $238,738  and the
allowance for loan losses of $88,331.  The Partnership imputed interest on these
loans at 10.5% per annum, which resulted in a decrease to unsecured loans and an
increase to discount on loans of $150,407.


note 11   Asset Concentrations and Characteristics

     The loans are secured by recorded deeds of trust.  At December 31, 2002 and
2001,  there were 25 and 36 secured loans  outstanding,  respectively,  with the
following characteristics:
<TABLE>

                                                                               2002                    2001
                                                                         ------------------      ------------------
<S>                                                                                     <C>                     <C>
      Number of secured loans outstanding                                               25                      36
      Total secured loans outstanding                                           $6,423,984            $ 10,091,195

      Average secured loan outstanding                                           $ 256,959              $  280,311
      Average secured loan as percent of total                                       4.00%                   2.78%
      Average secured loan as percent of Partners' capital                           2.84%                   2.97%

      Largest secured loan outstanding                                          $1,000,000              $1,000,000
      Largest secured loan as percent of total                                      15.57%                   9.91%
      Largest secured loan as percent of Partners' capital                          11.05%                  10.60%

      Number of counties where security is located (all California)                     11                      11

      Largest percentage of loans in one county                                     41.38%                  31.92%

      Average secured loan to appraised value of security at time
         loan was consummated                                                       65.86%                  60.66%

      Number of secured loans in foreclosure                                             2                       2
      Amount of secured loans in foreclosure                                     $ 236,807               $ 216,493

</TABLE>



                                       32
<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          Notes to Financial Statements
                        December 31, 2002, 2001 and 2000


note 11   Asset Concentrations and Characteristics (continued)

     The  following  categories  of secured loans were held at December 31, 2002
and 2001:
<TABLE>

                                                                     2002                    2001
                                                              --------------------     ------------------
<S>                                                                   <C>                    <C>
  First trust deeds                                                   $ 3,269,897            $ 5,042,062
  Second trust deeds                                                    2,939,753              4,803,146
  Third trust deeds                                                       214,334                245,987
                                                              --------------------     ------------------
      Total loans                                                       6,423,984             10,091,195
  Prior liens due other lenders                                         5,475,725              9,318,486
                                                              --------------------     ------------------

      Total debt                                                     $ 11,899,709           $ 19,409,681
                                                              ====================     ==================

  Appraised property value at time of loan                           $ 18,069,602           $ 31,997,080

  Total investments as percent of appraisals                               65.86%                 60.66%

  Investments by type of property
      Owner occupied homes                                            $ 1,037,474             $  622,435
      Non-owner occupied homes                                            575,051              1,435,444
      Apartments                                                          708,648              1,563,214
      Commercial                                                        4,102,811              6,470,103
                                                              --------------------     ------------------

                                                                       $6,423,984           $ 10,091,195
                                                              ====================     ==================
</TABLE>

     Scheduled  maturity  dates of secured  loans as of December 31, 2002 are as
follows:


      Year Ending December 31,
      --------------------------
               2003                                     $ 3,095,300
               2004                                       1,014,056
               2005                                          40,125
               2006                                          96,716
               2007                                       1,662,819
            Thereafter                                      514,968
                                                    ----------------

               Total                                    $ 6,423,984
                                                    ================






                                       33
<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          Notes to Financial Statements
                        December 31, 2002, 2001 and 2000



note 11   Asset Concentrations and Characteristics (continued)

     The scheduled maturities for 2003 above include approximately $2,401,294 in
7 loans, which are past maturity at December 31, 2002.  Interest payments on six
of  these  loans  with  an  aggregate   principal  balance  of  $2,266,414  were
categorized as delinquent over 90 days.

     Cash deposits per bank at December 31, 2002 of $1,351,327 were in one bank.
The  balance  exceeded  FDIC  insurance  limits  (up to  $100,000  per  bank) by
$1,251,327.  The Partnership's main bank is the same financial  institution that
has provided the Partnership with the $3,500,000 limit line of credit.

     The Partnership has a substantial amount of its loan receivable balance due
from one borrower in 2002. This borrower  accounted for approximately 22% of the
loan balance at December 31, 2002.


note 12   Commitments and Contingencies

Workout agreements

     The Partnership has negotiated various  contractual workout agreements with
borrowers  whose  loans  are  past  maturity  or who are  delinquent  in  making
payments.  The  Partnership  is not  obligated  to fund  additional  money as of
December 31, 2002. As of December 31, 2002 the Partnership had approximately two
loans under workout agreements totaling $65,108.

Construction loans

     The  Partnership  has  construction  loans,  which are at various stages of
completion of the construction process at December 31, 2002. The Partnership has
approved the borrowers up to a maximum loan balance; however,  disbursements are
made during completion phases throughout the construction  process.  At December
31, 2002,  there were $8,837 of undistributed  construction  loans which will be
funded by a combination of borrower interest payments, line of credit draw-downs
and retirement of principal on current loans.

Legal proceedings

     The  Partnership is involved in various legal actions arising in the normal
course of business.  In the opinion of management,  such matters will not have a
material effect upon the financial position of the Partnership.








                                       34
<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          Notes to Financial Statements
                        December 31, 2002, 2001 and 2000


note 13   Selected Financial Information (Unaudited)
<TABLE>

                                                                              Calendar Quarter
                                                  First           Second           Third           Fourth           Annual
                                               -------------    ------------    ------------    -------------    --------------
  Revenues
<S>                                               <C>             <C>             <C>              <C>              <C>
      2002 as previously stated                   $ 389,922       $ 278,648       $ 260,548        $ 226,946        $1,156,064
      Adjustment                                   (77,878)               -               -                -          (77,878)
                                               -------------    ------------    ------------    -------------    --------------
      2002 restated                                 312,044         278,648         260,548          226,946         1,078,186
      2001                                          349,061         291,342         261,312          290,666         1,192,381
      2000                                          307,831         356,247         362,586          411,300         1,437,964

  Expenses
      2002 as previously stated                     193,291          81,173          69,770           48,348           392,582
      Adjustment                                   (77,878)               -               -                -          (77,878)
                                               -------------    ------------    ------------    -------------    --------------
      2002 restated                                 115,413          81,173          69,770           48,348           314,704
      2001                                          137,576          84,453          58,231           90,924           371,184
      2000                                           74,265         128,581         140,617          194,355           537,818

  Net income allocated to general partners
      2002                                            1,966           1,975           1,908            1,786             7,635
      2001                                            2,115           2,069           2,031            1,997             8,212
      2000                                            2,336           2,276           2,220            2,169             9,001

  Net income allocated to limited partners
      2002                                          194,665         195,500         188,870          176,812           755,847
      2001                                          209,370         204,820         201,050          197,745           812,985
      2000                                          231,230         225,390         219,749          214,776           891,145

  Net income per $1,000 invested
    Where income is reinvested
          2002                                       $   21          $   21          $   21           $   22           $    85
          2001                                           21              21              21               22                85
          2000                                           21              21              21               22                85

    Where income is withdrawn
          2002                                           21              21              21               19                82
          2001                                           20              21              21               20                82
          2000                                           21              21              21               19                82
</TABLE>


     The  adjustments  represent  correction  of amounts  missposted to interest
revenue and the provision for loan losses in the first quarter of 2002.




                                       35
<PAGE>




SCHEDULE II

                         REDWOOD MORTGAGE INVESTORS VII
                        VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<S>        <C>                  <C>            <C>                 <C>                <C>              <C>

           Column A             Column B                   Column C                   Column D         Column E
          Description          Balance at                  Additions                 Deductions       Balance at
                                              ------------------------------------
                              Beginning of          (1)               (2)           Describe (a)    End of Period
                                 Period         Charged to         Charged to
                                                  Costs &       Other accounts-
                                                 Expenses         Describe (b)
     ---------------------- ----------------- ---------------- ------------------- --------------- -----------------
     Year Ended
     12/31/02

     Deducted from asset accounts:

     Allowance for
       doubtful accts              $ 887,578       $ (20,039)          $ (64,210)      $ (11,447)         $ 791,882

     Cumulative
       write-down of
       Real Estate held
       for sale (REO)              $ 380,056           $    0           $ 200,030          $    0         $ 580,086
                            ----------------- ---------------- ------------------- --------------- -----------------

     Total                        $1,267,634       $ (20,039)           $ 135,820      $ (11,447)        $1,371,968
                            ================= ================ =================== =============== =================
</TABLE>


(a) Represents write-offs on loans.

(b) Represents restructure of loans.




                                       36
<PAGE>



SCHEDULE IV

                         REDWOOD MORTGAGE INVESTORS VII
                          MORTGAGE LOANS ON REAL ESTATE
                         RULE 12-29 LOANS ON REAL ESTATE
                                DECEMBER 31, 2002
<TABLE>
<S>   <C>      <C>       <C>         <C>        <C>         <C>          <C>         <C>       <C>      <C>

      Col. A   Col. B    Col. C      Col. D     Col. E      Col. F       Col. G      Col. H    Col. I   Col. J
     Descrip. Interest   Final       Period      Prior     Face Amt.    Carry Amt. Principal    Type   Geographic
               Rate     Maturity     Payment     Liens     Mortgage     Mortgage   or interest  Lien    Location
                                                                                     Amount
                                                                                   Delinquent
------------------------------------------------------------------------------------------------------------------
      Apts.   12.00%   8/1/2003    $ 4,400     $     -   $ 720,000    $ 440,000     $ 52,800   1st   San Francisco
      Apts.   10.50%   06/01/03        875           -     100,000      100,000            -   1st   San Joaquin
      Apts.    6.50%   05/01/06        541      89,904      75,000       96,716       34,072   2nd   Sacramento
      Apts.    7.00%   02/10/05        234      80,250      40,125       40,125            -   2nd   San Francisco
      Apts.   12.50%   04/01/02        120     440,000      31,884       31,807       35,460   2nd   San Francisco
      Comm.    9.00%   05/10/02        671           -      83,333       77,485            -   1st   Shasta
      Comm.    7.00%   07/01/02      1,131           -     146,667      134,880      134,880   1st   Contra Costa
      Comm.   10.00%   12/01/03        471           -      53,636       53,309            -   1st   Stanislaus
      Comm.   10.00%   07/01/11      1,995           -     219,538      216,529            -   1st   Santa Clara
      Comm.    7.50%   02/28/07      3,206           -     513,000      560,354            -   1st   Santa Clara
      Comm.    7.50%   02/28/07      4,290           -     686,400      686,400            -   1st   Alameda
      Comm.   13.00%   11/01/02      2,221     310,381     205,000      205,000      220,546   2nd   Alameda
      Comm.   10.00%   12/01/01        105      82,723      11,919       11,797          732   2nd   Stanislaus
      Land     8.00%   12/01/04        900           -     135,000      127,450            -   1st   Sacramento
      Land    11.00%   01/01/01      9,167     201,686   1,000,000      773,510      824,851   2nd   Stanislaus
      Land    11.00%   07/01/01      9,167     137,737   1,000,000    1,000,000    1,064,167   2nd   Stanislaus
      Land    11.50%   07/01/01      1,753   1,000,000     182,927      182,927      195,198   2nd   Stanislaus
      Land    11.00%   11/01/00        783   1,141,690      85,366       73,171       92,734   3rd   Stanislaus
      Res.     8.00%   09/30/03         90           -      12,226       11,415            -   1st   Sonoma
      Res.     6.13%   08/01/32      1,823           -     300,000      298,439            -   1st   San Mateo
      Res.    11.00%   09/01/04      5,167           -     563,636      563,636            -   1st   Stanislaus
      Res.    11.00%   11/01/04      1,238     553,179     130,000      127,969            -   2nd   San Mateo
      Res.    11.00%   02/01/04      1,788     348,257     195,000      195,000        7,150   2nd   Marin
      Res.    11.00%   09/01/07      2,619     415,386     275,000      274,902            -   2nd   San Mateo
      Res.    12.00%   03/01/06        810     674,532     130,000      141,163            -   3rd   San Mateo
                            -------------------------------------------------------------
      Total                        $55,561  $5,475,725  $6,895,657   $6,423,984   $2,662,590
                            =============================================================
</TABLE>

     Notes: Loans classified as `impaired loans' had principal balances totaling
$96,716 at  December  31,  2002.  Impaired  loans are defined as loans where the
carrying value of related balances exceeds the anticipated fair value less costs
to collect. Accrued interest is no longer recorded thereon. Amounts reflected in
column G (carrying  amount of loans)  represents both costs and the tax basis of
the loans.



                                       37
<PAGE>



                                   SCHEDULE IV

Reconciliation of carrying amount (cost) of secured loans at close of periods
<TABLE>

                                                                 Year ended December 31,
                                              ---------------------------------------------------------------

<S>                                                <C>                    <C>                     <C>
                                                   2002                   2001                    2000
                                              ----------------        --------------         ----------------

Balance at beginning of year                      $10,091,195           $12,794,297              $11,011,660
                                              ----------------        --------------         ----------------
Additions during period:
New loans                                           1,447,329             3,065,934                7,112,078
Other                                                 420,969               354,538                        -
                                              ----------------        --------------         ----------------
                  Total Additions                   1,868,298             3,420,472                7,112,078
                                              ----------------        --------------         ----------------

Deduction during period:
Collections of principal                            4,569,574             6,123,574                5,324,620
Foreclosures                                          954,488                     -                        -


Other                                                  11,447                     -                    4,821
                                              ----------------        --------------         ----------------
                  Total Deductions                  5,535,509             6,123,574                5,329,441
                                              ----------------        --------------         ----------------

Balance at close of year                           $6,423,984           $10,091,195              $12,794,297
                                              ================        ==============         ================
</TABLE>




                                       38
<PAGE>





     Item 9 - Changes in and  Disagreements  with  Accountants on Accounting and
Financial Disclosure

None


                                    Part III


Item 10 - Directors and Executive Officers of the Registrant

     The Partnership has no Officers or Directors. Rather, the activities of the
Partnership  are  managed  by  the  two  general  partners,  one of  whom  is an
individual, Michael R. Burwell. The second general partner is Gymno Corporation,
a  California  corporation,  formed  in  1986.  Mr.  Burwell  is one of the  two
shareholders  of Gymno  Corporation,  a  California  corporation,  and has a 50%
interest in the corporation.


Item 11 - Executive Compensation


       COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP

     As  indicated  above  in  Item  10,  the  Partnership  has no  Officers  or
Directors. The Partnership is managed by the general partners. There are certain
fees and other items paid to management and related parties.

     A more  complete  description  of management  compensation  is found in the
Prospectus, pages 12-13, under the section "Compensation of the General Partners
and the Affiliates",  which is incorporated by reference.  Such  compensation is
summarized below.

     The  following  compensation  has been  paid to the  general  partners  and
affiliates  for services  rendered  during the year ended December 31, 2002. All
such compensation is in compliance with the guidelines and limitations set forth
in the Prospectus.
<TABLE>
<S>  <C>                                 <C>                                                              <C>

     Entity Receiving Compensation       Description of Compensation and Services Rendered                Amount
     I.  Redwood Mortgage Corp.          Mortgage Servicing Fee for servicing loans.......................$165,531

     General Partners &/or Affiliates    Asset Management Fee for managing assets..........................$34,869

     General Partners                    1% interest in profits.............................................$7,635
</TABLE>


     II. FEES PAID BY BORROWERS ON MORTGAGE LOANS PLACED WITH THE PARTNERSHIP BY
COMPANIES  RELATED TO THE GENERAL  PARTNERS  (EXPENSES OF  BORROWERS  NOT OF THE
PARTNERSHIP)
<TABLE>
<S>  <C>                       <C>                                                                              <C>

     Redwood Mortgage Corp.    Mortgage Brokerage Commissions for services in connection with the
                               review, selection, evaluation, negotiation, and extension of the loans
                               paid by the borrowers and not by the Partnership.................................$24,661

     Redwood Mortgage Corp.    Processing and Escrow Fees for services in connection with notary,
                               document preparation, credit investigation, and escrow fees payable by
                               the borrowers and not by the Partnership..........................................$1,767

     Gymno Corporation         Reconveyance Fee....................................................................$364
</TABLE>


                                       39
<PAGE>


     III. IN ADDITION, THE GENERAL PARTNERS AND/OR RELATED COMPANIES PAY CERTAIN
EXPENSES ON BEHALF OF THE PARTNERSHIP FOR WHICH IT IS REIMBURSED AS NOTED IN THE
STATEMENT OF INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . $30,572


Item 12 - Security Ownership of Certain Beneficial Owners and Management

     The general partners are to own an aggregate total of 1% of the Partnership
including a 1% portion of income and losses.


Item 13 - Certain Relationships and Related Transactions

     Refer to footnotes 3 and 4 of the Notes to Financial  Statements in Part II
item 8, which describes related party fees and data.

     Also refer to the Prospectus dated October 20, 1989 (incorporated herein by
reference) on page 12 "Compensation of General Partners and Affiliates" and page
14 "Conflicts of Interest".


Item 14 - Controls and Procedures

     Based  on  their  evaluation  of the  effectiveness  of  the  Partnership's
disclosure  controls  and  procedures,  as of a date within 90 days prior to the
date of the filing of this report,  the President and Chief Financial Officer of
Gymno Corporation,  the Partnership's  corporate general partner,  has concluded
that the  Partnership's  disclosure  controls and  procedures  are effective and
sufficient to ensure that the Partnership record, process, summarize, and report
information  required to be disclosed in its  periodic  reports  filed under the
Securities  Exchange Act within the time periods specified by the Securities and
Exchange Commission's rules and forms.

     Subsequent  to the  date  of such  evaluation,  there  have  not  been  any
significant  changes in the Partnership's  internal controls or in other factors
that could significantly affect these controls,  including any corrective action
with regard to significant deficiencies and material weaknesses.




                                       40
<PAGE>



                                     Part IV


Item 15 - Exhibits, Financial Statements and Schedules, and Reports on Form 8-K

A      Documents filed as part of this report are incorporated:

       1. In Part II, Item 8 under A - Financial Statements.

       2. The Financial Statement Schedules are listed in Part II - Item 8
          under B - Financial Statement Schedules.

       3. Exhibits.

   Exhibit No.            Description of Exhibits
------------------        -------------------------

         3.1              Limited Partnership Agreement
         3.2              Form of Certificate of Limited Partnership Interest
         3.3              Certificate of Limited Partnership
        10.1              Escrow Agreement
        10.2              Servicing Agreement
        10.3              (a)  Form of Note secured by Deed of Trust which
                          provides for principal and interest payments.
                          (b)  Form of Note secured by Deed of Trust which
                          provides principal and interest payments and right of
                          assumption
                          (c)  Form of Note secured by Deed of Trust which
                          provides for interest only payments
                          (d)  Form of Note
        10.4              (a)  Deed of Trust and Assignment of Rents to
                          accompany Exhibits   10.3  (a), and (c)
                          (b) Deed of Trust and Assignment of Rents to accompany
                          Exhibit 10.3 (b) (c) Deed of Trust to accompany
                          Exhibit 10.3 (d)
        10.5              Promissory Note for Formation Loan
        10.6              Agreement to Seek a Lender

All of these exhibits were previously filed as the exhibits to Registrant's
Statement on Form S-11 (Registration No. 33-30427 and incorporated by reference
herein).

   B.    Reports of Form 8-K.

         No  reports  on Form 8-K have been  filed  during  the last  quarter
         of the period covered by this report.

   C.    See A (3) above.

   D.    See A (2) above. Additional reference is made to the prospectus (S-11
         filed as part of the Registration statement) dated October 20, 1989 to
         pages 65 through 67 and Supplement #5 dated February 14, 1992 for
         financial data related to Gymno Corporation, a general partner.



                                       41
<PAGE>




                                   SIGNATURES

     Pursuant  to the  requirements  of Section  13 or 15 (d) of the  Securities
Exchange Act of 1934 the  registrant has duly caused this report to be signed on
its behalf by the undersigned,  thereto duly authorized on the 31st day of March
2003.

REDWOOD MORTGAGE INVESTORS VII


          By: /S/ Michael R. Burwell
          ---------------------------------------------
          Michael R. Burwell, General Partner


By:       Gymno Corporation, General Partner

          By:     /S/ Michael R. Burwell
                  --------------------------------------------------
                  Michael R. Burwell, President, Secretary & Chief
                  Financial Officer



     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been signed below by the following person on behalf of the registrant
and in the capacity indicated on the 31st day of March 2003.

Signature                             Title                          Date


/S/ Michael R. Burwell
-------------------------
Michael R. Burwell               General Partner                 March 31, 2003


/S/ Michael R. Burwell
-------------------------
Michael R. Burwell         President, Secretary & Chief          March 31, 2003
                            Financial Officer of Gymno
                          Corporation (Principal Financial
                              and Accounting Officer);
                         Director of Gymno Corporation




                                       42
<PAGE>



                                                                    Exhibit 99.1

                          GENERAL PARTNER CERTIFICATION


I, Michael R. Burwell, General Partner of the Partnership, certify that:

     1. I have  reviewed  this  annual  report on Form 10-K of Redwood  Mortgage
Investors VII, a California Limited Partnership (the "Registrant");

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
Registrant as of, and for, the periods presented in this annual report;

     4. The  Registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

     (a)  designed  such  disclosure  controls  and  procedures  to ensure  that
material  information  relating to the  Registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this annual report is being prepared;

     (b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

     (c) presented in this annual report our conclusions about the effectiveness
of the  disclosure  controls and  procedures  based on our  evaluation as of the
Evaluation Date.

     5. The Registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  Registrant's  auditors  and the  audit
committee  of  Registrant's  board  of  directors  (or  persons  performing  the
equivalent function):

     (a) all  significant  deficiencies  in the design or  operation of internal
controls  which  could  adversely  affect  the  Registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
Registrant's auditors any material weaknesses in internal controls; and

     (b) any fraud,  whether or not material,  that involves management or other
employees who have a significant role in the Registrant's internal controls.

     6. The Registrant's other certifying  officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.



/s/ Michael R. Burwell
----------------------------
Michael R. Burwell, General Partner
March 31, 2003



                                       43
<PAGE>


                                                                    Exhibit 99.1


                            CERTIFICATION PURSUANT TO
                             18 U.S.C SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


     In connection with the Annual Report of Redwood Mortgage Investors VII (the
"Partnership")  on Form 10-K for the period  ending  December  31, 2002 as filed
with the Securities and Exchange  Commission on the date hereof (the  "Report"),
pursuant  to 18  U.S.C.  (S)  1350,  as  adopted  pursuant  to  (S)  906  of the
Sarbanes-Oxley  Act of 2002,  I,  Michael  R.  Burwell,  General  Partner of the
Partnership, certify, that to the best of my knowledge:

     (1) The Report fully  complies  with the  requirements  of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and results of operations of the
Partnership.


/s/ Michael R. Burwell
-----------------------------
Michael R. Burwell, General Partner
March 31, 2003





                                       44
<PAGE>



                                                                   Exhibit 99.2

               PRESIDENT AND CHIEF FINANCIAL OFFICER CERTIFICATION

     I,  Michael R.  Burwell,  President  and Chief  Financial  Officer of Gymno
Corporation, General Partner of the Partnership, certify that:

     1. I have  reviewed  this  annual  report on Form 10-K of Redwood  Mortgage
Investors VII, a California Limited Partnership (the "Registrant");

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
Registrant as of, and for, the periods presented in this annual report;

     4. The  Registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

     (a)  designed  such  disclosure  controls  and  procedures  to ensure  that
material  information  relating to the  Registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this annual report is being prepared;

     (b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

     (c) presented in this annual report our conclusions about the effectiveness
of the  disclosure  controls and  procedures  based on our  evaluation as of the
Evaluation Date.

     5. The Registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  Registrant's  auditors  and the  audit
committee  of  Registrant's  board  of  directors  (or  persons  performing  the
equivalent function):

     (a) all  significant  deficiencies  in the design or  operation of internal
controls  which  could  adversely  affect  the  Registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
Registrant's auditors any material weaknesses in internal controls; and

     (b) any fraud,  whether or not material,  that involves management or other
employees who have a significant role in the Registrant's internal controls.

     6. The Registrant's other certifying  officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.



/s/ Michael R. Burwell
--------------------------
Michael R. Burwell, President and
Chief Financial Officer of Gymno
Corporation, General Partner
March 31, 2003



                                       45
<PAGE>


                                                                    Exhibit 99.2



                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


     In connection with the Annual Report of Redwood Mortgage Investors VII (the
"Partnership")  on Form 10-K for the period  ending  December  31, 2002 as filed
with the Securities and Exchange  Commission on the date hereof (the  "Report"),
pursuant  to 18  U.S.C.  (S)  1350,  as  adopted  pursuant  to  (S)  906  of the
Sarbanes-Oxley Act of 2002, I, Michael R. Burwell, President and Chief Financial
Officer of Gymno Corporation,  General Partner of the Partnership,  certify that
to the best of my knowledge:

     (1) The Report fully  complies  with the  requirements  of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and results of operations of the
Partnership.


/s/ Michael R. Burwell
-----------------------------
Michael R. Burwell, President and
Chief Financial Officer of Gymno
Corporation, General Partner
March 31, 2003



                                       46
<PAGE>