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

                                December 31, 1996

                                     Part I

                                                                        Page No.
Item 1 - Business                                                           3
Item 2 - Properties                                                       3-5
Item 3 - Legal Proceedings                                                  5
Item 4 - Submission of Matters to a vote of Security Holders (partners)     6

                                     Part II

Item 5 - Market for the Registrants Partners Capital and related matters    6
Item 6 - Selected Financial Data                                          6-7
Item 7 - Managements Discussion and Analysis of Financial condition
and Results of Operations                                                   8
Item 8 - Financial Statements and Supplementary Data                     9-26
Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure                                                       27

                                    Part III

Item 10 - Directors and Executive Officers of the Registrant               27
Item 11 - Executive Compensation                                           28
Item 12 - Security Ownership of Certain Beneficial Owners and management   29
Item 13 - Certain Relationships and Related Transactions                   29

                                     Part IV

Item 14 - Exhibits,Financial Statement Schedules, and Reports on Form 8-K. 9-30
 
Signatures                                                                 31



<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, 1996 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)

650 El Camino Real Suite G, Redwood City, CA                94063
-------------------------------------------------------------------------------
(address of principal executive offices)                 (zip code)

Registrants telephone No. including area code         (415) 365-5341
-------------------------------------------------------------------------------

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

Title of each class                  Name of each exchange on which registered
-------------------------------------------------------------------------------
Limited Partnership Units                            None
-------------------------------------------------------------------------------

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

     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, 1992, 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
referenced in part IV.

<PAGE>


                                     Part I

Item 1 - Business

     Redwood  Mortgage  Investors  VII, a California  limited  partnership  (the
Partnership),  was organized in 1989 of which D. Russell  Burwell,  Michael R.
Burwell  and  Gymno  Corporation,  a  California  corporation,  are the  General
Partners.  The address of the General  Partners is 650 El Camino Real,  Suite G,
Redwood  City,  California  94063.  The  Partnership  is  organized to engage in
business  as a mortgage  lender,  for the  primary  purpose  of making  Mortgage
Investments  secured  by  deeds of trust on  California  real  estate.  Mortgage
Investments  are  arranged  and  serviced by Redwood  Home Loan Co., dba Redwood
Mortgage, an affiliate of the General Partners. The Partnerships 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 Partnerships  capital.  The Partnerships  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 October 19, 1992. The offering  closed on September 30, 1992, and
the Limited Partners  contributed  capital  totalled  $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, 1996, the Partnership had a balance
in its Mortgage Investments  portfolio totalling $12,036,293 with interest rates
thereon ranging from 4% to 15.50%.

     Currently,  Mortgage  Investments  secured by First  Trust  Deeds  comprise
34.89% of the Mortgage  Investment  portfolio  followed by Second Trust Deeds of
57.44%,  and  Third  Trust  Deeds of 6.01%.  A Fourth  Trust  Deed  makes up the
balance.  Owner-occupied  homes,  combined with  non-owner  occupied homes total
23.72 % of the Mortgage Investments. Commercial Mortgage Investments origination
increased from last year, now comprising 65.26% of the portfolio, an increase of
10.99%.  The past year  brought us many  outstanding  low loan to value  lending
opportunities in this segment of the market.  Mortgage Investment size increased
this past year,  and is now  averaging  $169,525  per  Mortgage  Investment,  an
increase of $2,192. Some of the larger Mortgage  Investments  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  stood at  34.24%.  A 40%  equity  average on loan
origination  is generally  considered  very  conservative.  Generally,  the more
equity,  the  more  protection  for  the  lender.  The  Partnerships   Mortgage
Investment portfolio is in good condition with five properties in foreclosure.

Item 2 - Properties

     A summary of the Partnerships Mortgage Investment Portfolio as of December
31, 1996, is set forth below.

<PAGE>
Mortgage Investments as a Percentage of Total Mortgage Investments

First Trust Deeds                                   $4,199,551.40
Appraised Value of Properties                        8,799,746.00
  Total Investment as a % of Appraisal                      47.72%
Second Trust Deed Mortgage Investments               6,913,852.90
Third Trust Deed Mortgage Investments                  722,887.23
Fourth Trust Deed Mortgage Investments *               200,001.20
First Trust Deeds due other Lenders                 20,947,294.00
Second Trust Deeds due other Lenders                   979,402.00
Third Trust Deeds due other Lenders                    142,858.00

Total Debt                                         $34,105,846.73

  Appraised Property Value                          51,863,991.00
  Total Investments as a % of Appraisal                     65.76%

Number of Mortgage Investments Outstanding                     71

Average Investment                                     169,525.25
Average Investment as a % of Net Assets                      1.21%
Largest Investment Outstanding                         979,272.93
Largest Investment as a % of Net Assets                      6.99%

Mortgage Investments as a Percentage of Total Mortgage Investments

First Trust Deeds                                           34.89%
Second Trust Deeds                                          57.44%
Third Trust Deeds                                            6.01%
Fourth Trust Deeds                                           1.66%
                                                       -----------
Total                                                      100.00%

Mortgage Investments  by                Amount              Percent
Type of Property

Owner Occupied Homes                   $1,742,767.10           14.48%
Non-Owner Occupied Homes                1,112,274.08            9.24%
Apartments                              1,325,871.63           11.02%
Commercial                              7,855,379.92           65.26%
                                   ------------------      -----------

Total                                 $12,036,292.73          100.00%

* Footnotes on following page
<PAGE>
     The following is a distribution of Mortgage  Investments  outstanding as of
December 31, 1996 by Counties.

County                           Total Mortgage             Percent
                                   Investments

Santa Clara                         $2,888,907.85            24.00%
San Francisco                        1,950,728.50            16.21%
Stanislaus                           1,665,745.47            13.84%
San Mateo                            1,536,899.28            12.77%
Alameda                              1,233,138.15            10.25%
Contra Costa                         1,147,497.77             9.53%
Sonoma                                 370,953.22             3.08%
El Dorado                              274,178.59             2.28%
Sacramento                             206,893.59             1.72%
Ventura                                195,000.00             1.62%
Santa Barbara                          122,596.76             1.02%
Solano                                 104,713.29             0.87%
Shasta                                  82,407.46             0.68%
Monterey                                79,619.05             0.66%
Tuoloume                                65,213.37             0.54%
Marin                                   62,836.42             0.52%
Santa Cruz                              48,963.96             0.41%
                                ------------------       -----------

Total                              $12,036,292.73           100.00%

     * Redwood Mortgage Investors VII, together with other Redwood Partnerships,
hold a second and a fourth trust deed against the secured property. In addition,
the principals behind the borrower corporation have given personal guarantees as
collateral.  The overall loan to value ratio on this loan is 76.52%. In addition
to the borrower  paying an interest rate of 12.25%,  the  Partnership  and other
lenders will also participate in profits. The General Partners have had previous
loan activity with this borrower  which had been  concluded  successfully,  with
extra earnings earned for the other partnerships involved.


Statement of Condition of Mortgage Investments

Number of Mortgage Investments in Foreclosure                   5


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/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.  Management  anticipates  that
the ultimate  result of these cases will not have a material  adverse  effect on
the net assets of the Partnership,  with due consideration  having been given in
arriving at the allowance for doubtful accounts.

<PAGE>

Item 4 - Submission of matters to vote of Security Holders (Partners).

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

                                     Part II

Item 5 - Market for the Registrants Units and Related Partnership 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
results  for  years  1984 to 1989 for prior  partnerships  are  incorporated  by
reference to the  Prospectus  (S-11) dated  October 20, 1989,  Table III pages 7
through  11 and  Supplement  No. 3 dated  October  2, 1990 to  Prospectus  dated
October 20, 1989, Table III pages 27 through 33.

     Financial  condition and results of operation for the Partnership for three
years to December 31, 1996 were:

<TABLE>
                                  Balance Sheet
                                     Assets
<CAPTION>

                                                                                                    December 31,
                                                                              ------------------------------------------------------

                                                                                   1996                  1995                  1994
                                                                              --------------       --------------      -------------
<S>                                                                        <C>                   <C>                   <C>   

Cash .............................................................         $    755,089          $    514,840          $    462,681
Accounts Receivable:
   Mortgage Investments secured by Deeds of Trust ................           12,036,293            12,382,641            11,345,566
   Accrued interest and other fees ...............................              264,495               940,541               738,142
   Advances on Mortgage Investments ..............................               41,203               110,874                28,767
   Other receivables - Unsecured .................................              337,242               378,200               359,072
   Less allowance for losses .....................................             (228,647)             (200,000)             (201,608)
Real Estate Owned acquired through foreclosure at
    estimated net realizable value ...............................            1,468,345             1,347,997             2,352,221
Formation loan due from Redwood Mortgage .........................              429,163               517,051               604,939
Partnership Interest .............................................              242,394               223,245                     0
Organization cost net of amortization ............................                    0                   368                 2,384

                                                                           ------------          ------------          ------------
                                                                           $ 15,345,577          $ 16,215,757          $ 15,692,164
                                                                           ------------          ------------          ------------
</TABLE>
<PAGE>
<TABLE>
                                                   Liabilities and Partners Capital
<CAPTION>

                                                                                                        December 31,
                                                                             -------------------------------------------------------
                                                                                                1996           1995             1994
                                                                                         -----------    -----------      -----------
                                                     
<S>                                                                                      <C>             <C>             <C>

Liabilities:
Note payable - Bank ................................................................     $ 1,175,000     $ 2,000,000     $ 1,929,630
Accounts payable and accrued expenses ..............................................           1,472           1,472           2,973
Discount of Mortgage Investments ...................................................         154,598               0               0
Due to Related Companies ...........................................................               0               0           5,663
                                                                                         -----------     -----------     -----------
                                                                                         $ 1,331,070     $ 2,001,472     $ 1,938,266

Partners Capital ...................................................................      14,014,507      14,214,285      13,753,898
                                                                                         -----------     -----------     -----------
                                                                                         $15,345,577     $16,215,757     $15,692,164
                                                                                         -----------     -----------     -----------

                                                          Statement of Income

Gross revenue ......................................................................     $ 1,483,233     $ 1,450,487     $ 1,489,882
Expenses ...........................................................................         624,134         538,527         562,591
                                                                                         -----------     -----------     -----------


Net Income .........................................................................     $   859,099     $   911,960     $   927,291
                                                                                         -----------     -----------     -----------

Net income to General Partners (1%) ................................................     $     8,591     $     9,120     $     9,273
                                                                                         ===========     ===========     ===========

Net Income to Limited Partners (99%) ...............................................     $   850,508     $   902,840     $   918,018
                                                                                         ===========     ===========     ===========


Net Income per $1,000 invested by Limited
 Partners for entire period:
   - where income is reinvested and compounded .....................................     $        60     $        60     $        63
                                                                                         ===========     ===========     ===========

   - where partner receives income in monthly
       distributions ...............................................................     $        59     $        58     $        61
                                                                                         ===========     ===========     ===========

<FN>
     Net income in 1994 averaged at an annualized  yield of 6.28%.  In 1995, the
annualized yield was 6.00% and in 1996 the annualized yield was 6.02%.
</FN>
</TABLE>
<PAGE>
            MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

     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, 1996, Partners Capital totaled $14,014,507.

     The Partnership began funding Mortgage Investments on December 27, 1989 and
as of December 31, 1996 had credited  the  Partners  accounts  with income at an
average annualized (compounded) yield of 8.14%.

     Currently,  mortgage  interest rates are lower than those  prevalent at the
inception of the Partnership.  New Mortgage  Investments are being originated at
these lower  interest  rates.  The result is a reduction  of the average  return
across the entire  portfolio held by the  Partnership.  In the future,  interest
rates likely will change from their current levels.  The General Partners cannot
at this time predict at what levels  interest  rates will be in the future.  The
General  Partners  believe the rates charged by the Partnership to its borrowers
will not change  significantly  in the  immediate  future.  Based upon the rates
payable in connection with the existing  Mortgage  Investments,  the current and
anticipated interest rates to be charged by the Partnership, and current reserve
requirements,  the General  Partners  anticipate that the annualized  yield next
year will range only slightly higher from its current rate of 6.02%.

     The  Partnership has a line of credit with a commercial bank secured by its
Mortgage  Investments to a limit of $3,000,000,  at a variable interest rate set
at one half percent above the prime rate. Currently, it has borrowed $1,175,000.
This facility could increase as the Partnership  capital  increases.  This added
source of funds  helped in  maximizing  the  Partnership  yield by allowing  the
Partnership to minimize the amount of funds in lower yield  investment  accounts
when appropriate Mortgage Investments are not currently available and since most
of the Mortgage  Investments  made by the Partnership bear interest at a rate in
excess of the rate payable to the bank which  extended the line of credit.  Once
the required  principal and interest  payments on the line of credit are paid to
the bank,  the Mortgage  Investments  funded  using the line of credit  generate
revenue for the Partnership. As of December 31, 1996, the Partnership is current
with its interest payments on the line of credit.

     The Partnerships income and expenses, accruals and delinquencies are within
the  normal  range  of the  General  Partners  expectations,  based  upon  their
experience  in  managing  similar  Partnerships  over the last  nineteen  years.
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. Cash is constantly being generated
from interest earnings,  late charges,  pre-payment  penalties,  amortization of
Mortgage  Investments  and  pay-off  on  notes.  Currently,  cash  flow  exceeds
Partnership  expenses and earnings payout  requirements.  As Mortgage Investment
opportunities become available,  excess cash and available funds are invested in
new Mortgage Investments.

     The General Partners  regularly review the Mortgage  Investment  portfolio,
examining the status of delinquencies,  the underlying collateral securing these
properties,  the 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.  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.

     The Northern  California  recession reached bottom in 1993. Since then, the
California  economy  has  been  improving,   slowly  at  first,  but  now,  more
vigorously.  A wide variety of indicators suggest that the economy in California
was strong in 1996,  and the State is well - positioned  for fast  growth.  This
improvement is reflective in increasing property values, in job growth, personal
income  growth,  etc.,  which all translates  into more loan activity,  which of
course, is healthy for the Partnerships lending activity.
<PAGE>

              Item 8 - Financial Statements and Supplementary Data

     Redwood Mortgage Investors VII, a California Limited  Partnership's list of
Financial Statements and Financial Statement schedules:

A-Financial Statements

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


      Independent Auditors Report,
      Balance Sheets - December 31, 1996, and December 31, 1995,
      Statements of Income for the three years ended December 31, 1996,
      Statements of Changes in Partner Capital for the three years ended 
       December 31, 1996,
      Statements of Cash Flows for the three years ended December 31, 1996,
      Notes to Financial Statements - December 31, 1996.

B-Financial Statement Schedules

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

      Schedule II      Amounts receivable from related parties and underwriters,
                       promoters, and employees other than related parties
      Schedule VIII    Valuation of Qualifying Accounts
      Schedule IX      Short Term Borrowings
      Schedule XII     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.

<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                              FINANCIAL STATEMENTS
                                DECEMBER 31, 1996
                         (With Auditors Report Thereon)

<PAGE>
                                PARODI & CROPPER
                          CERTIFIED PUBLIC ACCOUNTANTS
                       3658 Mount Diablo Blvd., Suite #205
                               Lafayette CA 94549
                                 (510) 284-3590




                          INDEPENDENT AUDITORS REPORT


THE PARTNERS
REDWOOD MORTGAGE INVESTORS VII

     We have audited the financial  statements and related  schedules of REDWOOD
MORTGAGE  INVESTORS VII (A California Limited  Partnership)  listed in Item 8 on
form 10-K  including  balance  sheets as of  December  31, 1996 and 1995 and the
statements of income,  changes in partners  capital and cash flows for the three
years ended December 31, 1996. These financial statements are the responsibility
of the Partnerships  management.  Our responsibility is to express an opinion on
these financial statements based on our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit 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, 1996 and 1995, and the results of its operations and cash
flows for the three years ended  December 31, 1996 in conformity  with generally
accepted  accounting  principles.  Further, it is our opinion that the schedules
referred to above present fairly the information set forth therein in compliance
with the  applicable  accounting  regulations  of the  Securities  and  Exchange
Commission.




                              /S/ A. Bruce Cropper
                                PARODI & CROPPER








Lafayette, California
February 28, 1997
<PAGE>
<TABLE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                                 BALANCE SHEETS
                           DECEMBER 31, 1996 AND 1995
<CAPTION>

                                     ASSETS
                                                                                                            1996                1995
                                                                                                  --------------      --------------


<S>                                                                                                     <C>                 <C>

Cash                                                                                                    $755,089            $514,840
                                                                                                   -------------      --------------
Accounts receivable:
  Mortgage Investments, secured by deeds of trust ..........................................          12,036,293          12,382,641
  Accrued Interest on Mortgage Investments .................................................             264,495             940,541
  Advances on Mortgage Investments .........................................................              41,203             110,874
  Accounts receivables, unsecured ..........................................................             337,242             378,200
                                                                                                     -----------         -----------
                                                                                                      12,679,233          13,812,256
  Less allowance for doubtful accounts .....................................................             228,647             200,000
                                                                                                     -----------         -----------

                                                                                                      12,450,586          13,612,256
                                                                                                     -----------         -----------

Real estate owned, acquired through foreclosure, at net realizable value ...................           1,468,345           1,347,997
Investment in partnership ..................................................................             242,394             223,245

Formation loan due from Redwood Mortgage ...................................................             429,163             517,051

Organization costs, less accumulated amortization of $10,102 and
   $9,734, respectively ....................................................................                   0                 368
                                                                                                     -----------         -----------

                                                                                                     $15,345,577         $16,215,757
                                                                                                     ===========         ===========


                        LIABILITIES AND PARTNERS CAPITAL


Liabilities:
  Notes payable - bank line of credit ......................................................         $ 1,175,000         $ 2,000,000
  Accounts payable and accrued expenses ....................................................               1,472               1,472
  Deferred Interest ........................................................................             154,598                   0
                                                                                                     -----------         -----------
                                                                                                       1,331,070           2,001,472

Partners Capital ...........................................................................          14,014,507          14,214,285
                                                                                                     -----------         -----------

                                                                                                     $15,345,577         $16,215,757
                                                                                                     ===========         ===========


<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                              STATEMENTS OF INCOME
                   FOR THE THREE YEARS ENDED DECEMBER 31, 1996
<CAPTION>


                                                                                               YEARS ENDED DECEMBER 31,
                                                                                ----------------------------------------------------
                                                                                          1996                1995              1994
                                                                                -------------       -------------     --------------
<S>                                                                                 <C>                <C>                <C>

Revenues:
  Interest on Mortgage Investments ........................................         $1,430,183         $1,430,742         $1,453,969
  Interest on bank deposits ...............................................             10,228              8,407             13,843
  Late charges ............................................................             17,266              9,038             20,232
  Other ...................................................................             25,556              2,300              1,838
                                                                                    ----------         ----------         ----------
                                                                                     1,483,233          1,450,487          1,489,882
                                                                                    ----------         ----------         ----------

Expenses:
  Interest on note payable - bank .........................................            127,454            163,361            135,790
  Clerical costs through Redwood Mortgage .................................             40,874             27,762                  0
  Amortization of organization costs ......................................                368              2,016              2,016
  General partners asset management fee ...................................                  0                  0             10,008
  Provision for doubtful accounts and losses
   on real estate acquired through foreclosure ............................            419,437            306,779            335,955
  Professional services ...................................................             18,802             19,557             53,250
  Printing, supplies and postage ..........................................             12,466             14,703             17,282
  Other ...................................................................              4,733              4,349              8,290
                                                                                    ----------         ----------         ----------
                                                                                       624,134            538,527            562,591
                                                                                    ----------         ----------         ----------


Net Income ................................................................         $  859,099         $  911,960         $  927,291
                                                                                    ==========         ==========         ==========

Net income:  To General Partners(1%) ......................................         $    8,591         $    9,120         $    9,273
                     To Limited Partners (99%) ............................            850,508            902,840            918,018
                                                                                    ----------         ----------         ----------
                                                                                  $  859,099         $  911,960         $  927,291
                                                                                    ==========         ==========         ==========

Net income per $1,000 invested by Limited
 Partners for entire period:
     -where income is reinvested and  compounded ..........................         $       60         $       60         $       63
                                                                                    ==========         ==========         ==========

     -where partner receives income in monthly distributions ..............         $       59         $       58         $       61
                                                                                    ==========         ==========         ==========


<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                   STATEMENTS OF CHANGES IN PARTNERS CAPITAL
                   FOR THE THREE YEARS ENDED DECEMBER 31, 1996
<CAPTION>

                                                                                        PARTNERS CAPITAL

                                                                                                      UNALLOCATED
                                                              GENERAL             LIMITED             SYNDICATION
                                                             PARTNERS             PARTNERS               COSTS                 TOTAL
                                                            ---------          -----------           ------------        -----------

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

Balances at December 31, 1993 ..................              11,978           13,596,915             (189,704)          13,419,189

Net income .....................................               9,273              918,018                    0              927,291
Allocation of syndication costs ................                (810)             (80,190)              81,000                    0
Early withdrawal penalties .....................                   0              (34,001)              10,635              (23,366)
Partners withdrawals ...........................              (8,463)            (560,753)                   0             (569,216)
                                                         -----------          -----------          -----------          -----------

Balances at December 31, 1994 ..................              11,978           13,839,989              (98,069)          13,753,898

Net income .....................................               9,120              902,840                    0              911,960
Allocation of syndication costs ................                (810)             (80,190)              81,000                    0
Early withdrawal penalties .....................                   0              (10,690)               3,344               (7,346)
Partners withdrawals ...........................              (8,310)            (435,917)                   0             (444,227)
                                                         -----------          -----------          -----------          -----------

Balances at December 31, 1995 ..................         $    11,978           14,216,032              (13,725)          14,214,285

Net income .....................................               8,591              850,508                    0              859,099
Allocation of syndication costs ................                (137)             (13,588)              13,725                    0
Early withdrawal penalties .....................                   0              (37,345)                   0              (37,345)
Partners withdrawals ...........................              (8,454)          (1,013,078)                   0           (1,021,532)
                                                         -----------          -----------          -----------          -----------

Balances at December 31, 1996 ..................         $    11,978           14,002,529                    0           14,014,507
                                                         ===========          ===========          ===========          ===========
<FN>
See accompanying notes to financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A Califonira Limited Partnership)
                            STATEMENTS OF CASH FLOWS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 1996
<CAPTION>

                                                                                                YEARS ENDED DECEMBER 31,
                                                                                ----------------------------------------------------

                                                                                          1996              1995               1994
                                                                                 -------------     -------------      -------------
<S>                                                                                 <C>              <C>                <C>
Cash flows from operating activities:
  Net income .................................................................      $   859,099       $   911,960       $   927,291
  Adjustments to reconcile net income to net cash provided by
      operating activities:
    Amortization of organization costs .......................................              368             2,016             2,016
    Increase in allowance for doubtful accounts ..............................           28,647            (1,608)          106,750
    (Increase) decrease in accrued interest & advances .......................          745,717          (284,506)         (140,657)
    Increase (decrease) in accounts payable and accrued expenses .............                0            (1,501)          (37,549)
    (Increase) decrease in amount due from or to Redwood Mortgage ............                0            (5,663)            3,806
    Increase (decrease) in deferred interest on Mortgage Investments .........          154,598                 0            (8,548)
                                                                                    -----------       -----------       -----------

      Net cash provided by operating activities ..............................        1,788,429           620,698           853,109
                                                                                    -----------       -----------       -----------

Cash flows from investing activities:
  Net (increase) decrease in:
       Mortgage Investments ..................................................          346,348        (1,037,075)          420,623
       Formation loan ........................................................           87,888            87,888            88,532
       Real Estate owned .....................................................         (120,348)        1,004,224        (1,705,159)
       Other receivables - unsecured .........................................           40,958           (19,128)          (88,289)
       Investment in partnership .............................................          (19,149)         (223,245)                0
                                                                                    -----------       -----------       -----------

      Net cash provided by (used in) investing activities ....................          335,697          (187,336)       (1,284,293)
                                                                                    -----------       -----------       -----------

Cash flows from financing activities:
 Net increase (decrease) in note payable-bank ................................         (825,000)           70,370           999,137
Early withdrawal penalties, net of credit to syndication costs ...............          (37,345)         (444,227)         (569,216)
Partners withdrawals .........................................................       (1,021,532)           (7,346)          (23,366)
                                                                                    -----------       -----------       -----------

      Net cash provided by (used in) financing activities ....................       (1,883,877)         (381,203)          406,555
                                                                                    -----------       -----------       -----------

Net increase (decrease) in cash ..............................................          240,249            52,159           (24,629)

Cash - beginning of period ...................................................          514,840           462,681           487,310
                                                                                    -----------       -----------       -----------

Cash - end of period .........................................................      $   755,089       $   514,840       $   462,681
                                                                                    ===========       ===========       ===========

<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1996

NOTE 1 - ORGANIZATION AND GENERAL

     Redwood Mortgage  Investors VII, (the Partnership) is a California  Limited
Partnership,  of which the General Partners are D. Russell  Burwell,  Michael R.
Burwell and Gymno  Corporation,  a California  corporation owned and operated by
the individual  General  Partners.  The  Partnership  was organized to engage in
business  as a  mortgage  lender  for the  primary  purpose  of making  Mortgage
Investments  secured  by  Deeds of Trust on  California  real  estate.  Mortgage
Investments  are being  arranged  and  serviced  by Redwood  Home Loan Co.,  dba
Redwood Mortgage,  an affiliate of the General Partners.  At September 30, 1992,
the offering had been closed with contributed  capital totaling  $11,998,359 for
limited partners.

     A  minimum  of 2,500  units  ($250,000)  and a  maximum  of  120,000  units
($12,000,000)  were  offered  through  qualified  broker-dealers.   As  Mortgage
Investments were identified,  partners were transferred from applicant status to
admitted partners participating in Mortgage Investment operations.  Each months
income is allocated to partners based upon their proportionate share of partners
capital.  Some partners have elected to withdraw income on a monthly,  quarterly
or annual basis.

     A. Sales  Commissions - Formation  Loan Sales  commissions  ranging from 0%
(Units  sold by  General  Partners)  to 10% of the gross  proceeds  were paid by
Redwood  Mortgage,  an  affiliate  of the General  Partners  that  arranges  and
services  the  Mortgage  Investments.  To  finance  the sales  commissions,  the
Partnership  was authorized to loan to Redwood  Mortgage an amount not to exceed
8.3% of the gross  proceeds  provided  that the  Formation  Loan for the minimum
offering  period  could  be 10% of the  gross  proceeds  for  that  period.  The
Formation  Loan is  unsecured  and is being  repaid,  without  interest,  in ten
installments of principal, over a ten year period commencing January 1, 1992. At
December 31, 1992,  Redwood Mortgage has borrowed  $914,369 from the Partnership
to cover sales commissions relating to $11,998,359 limited partner contributions
(7.62%).  Through  December  31,  1996,  $485,206  including  $75,478  in  early
withdrawal penalties, had been repaid leaving a balance of $429,163.

     B. Other  Organizational and Offering Expenses  Organizational and offering
expenses, other than sales commissions,  (including printing costs, attorney and
accountant fees, and other costs), were paid by the Partnership. Such costs were
limited to 10% of the gross  proceeds of the offering or $500,000  whichever was
less. The General  Partners were to pay any amount of such expenses in excess of
10% of the gross proceeds or $500,000.

     Organization  costs of  $10,102  and  syndication  costs of  $415,692  were
incurred by the  Partnership.  The sum of organization  and  syndication  costs,
$425,794,  approximated 3.55% of the gross proceeds contributed by the Partners.
Both the  Organization  and  Syndication  Costs  have been fully  amortized  and
allocated to the Partners.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenues and expenses are accounted for on the accrual basis of accounting.

     The Partnership  bears its own  organization  and syndication  costs (other
than certain sales  commissions  and fees described  above)  including legal and
accounting expenses,  printing costs, selling expenses, a 1% wholesale brokerage
fee and filing fees.  Organizational  costs were  capitalized and were amortized
over a five year  period.  Syndication  costs  were  charged  against  partners
capital  and  were  allocated  to  individual   partners   consistent  with  the
Partnership Agreement.
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1996

     Property  acquired  through  foreclosure  will be held for  prompt  sale to
return the funds to the Mortgage Investment portfolio. Such property is recorded
at cost which includes the principal  balance of the former Mortgage  Investment
made by the Partnership plus accrued interest,  payments made to keep the senior
loans current, costs of obtaining title and possession, less rental income or at
estimated net realizable  value, if less. The difference  between such costs and
estimated  net  realizable  value is deducted  from cost in the Balance Sheet to
arrive at the carrying value of such property.

     Mortgage  Investments and the related accrued  interest,  fees and advances
are  analyzed  on a  continuous  basis  for  recoverability.  Delinquencies  are
identified and followed as part of the Mortgage  Investment  system. A provision
is made for doubtful account to adjust the allowance for doubtful accounts to an
amount  considered  by  management  to be adequate to provide for  unrecoverable
accounts receivable.

     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 and revenues and expenses
for the related periods.  Such estimates relate principally to the determination
of the allowance for doubtful accounts and the valuation of real estate acquired
through  foreclosure.  Actual  results  could  differ  significantly  from these
estimates.

     No provision  for Federal and State  income taxes is made in the  financial
statements  since  income taxes are the  obligation  of the partners if and when
income taxes apply.

     Amounts  reflected  in the  statements  of income as net  income per $1,000
invested by Limited Partners for the entire period are actual amounts  allocated
to Limited  Partners who have their  investment  throughout  the period and have
elected to either  leave their  earnings to compound or have  elected to receive
monthly  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.  However,  the net income per $1,000  average
invested  has  approximated  those  reflected  for those whose  investments  and
options have remained constant.

NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES

     The following are commissions and/or fees which will be paid to the General
Partners and/or related parties.

     A.  Mortgage  Brokerage  Commissions  For services in  connection  with the
review, selection, evaluation, negotiation and extension of Mortgage Investments
in an amount up to 12% of the principal through the period ending 6 months after
the termination date of the offering. Thereafter, loan brokerage commissions are
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,  not an
expense of the Partnership.
<PAGE>
                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1996

     B. Mortgage  Servicing  Fees Monthly loan servicing fees of up to 1/8 of 1%
(1.5%  annual) of the unpaid  principal,  or such lesser amount as is reasonable
and customary in the  geographic  area where the property  securing the Mortgage
Investment  is located.  Amounts  remitted to Redwood  Mortgage  and recorded as
interest on Mortgage  Investments  is net of such fees. In 1994, all $124,049 in
loan servicing  fees were waived by Redwood  Mortgage.  In 1995,  $66,888 of the
total loan servicing fees of $100,282 were waived. In 1996, $92,249 of the total
loan servicing fees of $189,516 were waived by Redwood Mortgage.

     C. Asset  Management  Fee The  General  Partners  receive a monthly fee for
managing the Partnerships Mortgage Investment portfolio and operations equal to
1/32 of 1% of the net asset value(3/8 of 1% annual).  In 1996, 1995 and 1994,
the asset management fees charged were $10,008, $16,735, and $0.00 respectively.
The computed management fees were $51,519,  $50,360,  and $53,537  respectively,
with the difference being waived by the General Partners.

     D. 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.

     E.  Income  and Losses All income is  credited  or charged to  partners  in
relation to their respective partnership interests.  The partnership interest of
the General Partners (combined) is a total of 1%.

     F.  Operating  Expenses The General  Partners or their  affiliate  (Redwood
Mortgage) are reimbursed by the Partnership for all operating  expenses actually
incurred by them 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.  In 1994, all such expenses were absorbed by Redwood Mortgage.
In  1996  and  1995,   reimbursed   expenses   totalled   $40,874  and  $27,762,
respectively.

     The General  Partners  collectively or severally were to contribute 1/10 of
1% in cash  contributions as proceeds from the offering were admitted to limited
Partner capital.  As of December 31, 1992 a General Partner,  GYMNO Corporation,
had  contributed  $11,998,  1/10  of  1% of  limited  partner  contributions  in
accordance with Section 4.02(a) of the Partnership Agreement.

NOTE 4 - OTHER PARTNERSHIP PROVISIONS

     A. Applicant  Status  Subscription  funds received from purchasers of units
were not admitted to the Partnership  until  appropriate  lending  opportunities
were available.  During the period prior to the time of admission,  which ranged
between 1-120 days,  purchasers  subscriptions  remained irrevocable and earned
interest  at money  market  rates,  which  were  lower  than the  return  on the
Partnerships loan portfolio.

     Interest  earned prior to  admission  was credited to partners in applicant
status.  As Mortgage  Investments  were made and partners  were  transferred  to
regular status to begin sharing in income from Mortgage  Investments  secured by
deeds of trust,  the  interest  credited  was either  paid to the  investors  or
transferred to Partners Capital along with the original investment.
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1996

     B. Term of the Partnership The term of the Partnership is  approximately 40
years,  unless sooner  terminated  as provided.  The  provisions  provide for no
capital  withdrawal for the first five years,  subject to the penalty  provision
set forth in (E) below. Thereafter,  investors have the right to withdraw over a
five-year period, or longer.

     C.  Election to Receive  Monthly,  Quarterly or Annual  Distributions  Upon
subscriptions,  investors elected either to receive monthly, quarterly or annual
distributions of earnings  allocations,  or to allow earnings to compound for at
least a period of 5 years.

     D. Profits and Losses  Profits and losses are  allocated  among the Limited
Partners according to their respective capital accounts after 1% is allocated to
the General Partners.

     E.  Liquidity,   Capital   Withdrawals  and  Early  Withdrawals  There  are
substantial   restrictions  on  transferability  of  Units  and  accordingly  an
investment in the  Partnership  is illiquid.  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  as stated in the  Notice  of  Withdrawal  and will be
deducted from the Capital Account and the balance  distributed in four quarterly
installments.  Withdrawal  after the  one-year  holding  period  and  before the
five-year holding period will be permitted only upon the terms set forth above.

     Limited  Partners  also have the right  after  five  years from the date of
purchase of the Units to withdraw from the partnership on an installment  basis,
generally  over a five year  period in twenty  (20)  quarterly  installments  or
longer.  Once this five year  period  expires,  no  penalty  will be  imposed if
withdrawal   is  made  in  twenty  (20)   quarterly   installments   or  longer.
Notwithstanding  the  five-year  (or  longer)  withdrawal  period,  the  General
Partners will liquidate all or part of a Limited  Partners  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,  subject to a
10% early withdrawal  penalty applicable to any sums withdrawn prior to the time
when such sums could have been  withdrawn  pursuant to the five-year (or longer)
withdrawal period.

     The Partnership will not establish a reserve from which to fund withdrawals
and,  accordingly,  the  Partnerships  capacity  to return a  Limited  Partners
capital account is restricted to the availability of Partnership cash flow.

     F.  Guaranteed   Interest  Rate  For  Offering  Period  During  the  period
commencing  with the day a Limited  Partner was admitted to the  Partnership and
ending 3 months  after the  offering  termination  date,  the  General  partners
guaranteed  an  interest  rate  equal to the  greater  of actual  earnings  from
mortgage operations or 2% above The Weighted Average cost of Funds Index for the
Eleventh District Savings Institutions (Savings & Loan & Thrift Institutions) as
computed by the Federal Home Loan Bank of San Francisco monthly, up to a maximum
interest rate of 12%. The  guarantee  amounted to $12,855 and $5,195 in 1990 and
1991, respectively. In 1992 and 1993, actual realization exceeded the guaranteed
amount each month.  None of 1994,  1995, or 1996,  was subject to the guarantee.
This guarantee is now no longer applicable.
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1996

NOTE 5 - INVESTMENT IN PARTNERSHIP

     The Partnerships interest in land, acquired through foreclosure, located in
East Palo Alto with costs totalling  $242,394 has been invested with that of two
other  Partnerships  (total cost to date,  primarily  land, of  $1,021,798) in a
partnership  which is in the  process of  obtaining  approval  for  constructing
approximately 72 single family homes for sale.  Redwood Mortgage Investors V, VI
and VII have first priority on return of investment  plus interest  thereon,  in
addition to a share of profits realized.

NOTE 6 - LEGAL PROCEEDINGS

     The  Partnership  is not a defendant in any legal actions.  However,  legal
actions against  borrowers and other involved parties have been initiated by the
Partnership  to help  assure  payments  against  unsecured  accounts  receivable
totalling $337,242 at December 31, 1996.

     Management  anticipates  that the ultimate  results of these cases will not
have a material  adverse effect on the net assets of the  Partnership,  with due
consideration  having  been given in  arriving  at the  allowance  for  doubtful
accounts.

     NOTE 7 - NOTE PAYABLE BANK - LINE OF CREDIT The Partnership has a bank line
of credit  secured by its Mortgage  Investment  portfolio of up to $3,000,000 at
 .50% over prime. The balances  outstanding as of December 31, 1995 and 1996 were
$2,000,000,  and $1,175,000 respectively,  and the interest rate at December 31,
1996 was 8.75% (8.25% prime + .50%).

NOTE 8 - ASSET CONCENTRATIONS AND CHARACTERISTICS

     The  Mortgage  Investments  are  secured  by  recorded  deeds of trust.  At
December  31,  1996,  there were 71 Mortgage  Investments  outstanding  with the
following characteristics:

Number of Mortgage Investments outstanding                              71
Total Mortgage Investments outstanding                         $12,036,293

Average Mortgage Investment outstanding                           $169,525
Average Mortgage Investment as percent of total                       1.41%
Average Mortgage Investment as percent of Partners Capital            1.21%

Largest Mortgage Investment outstanding                           $979,273
Largest Mortgage Investment as percent of total                       8.14%
Largest Mortgage Investment as percent of Partners Capital            6.99%

Number of counties where security is located(all California)            17

Largest percentage of Mortgage Investments in one county             24.00%
Average Mortgage Investment to appraised value of security at time 
loan was consummated                                                 65.76%

Number of Mortgage Investments in foreclosure                            5

     The cash  balance at December  31,  1996 of  $755,089  was in one bank with
interest  bearing  balance  totalling  $179,572.   The  balances  exceeded  FDIC
insurance limits (up to $100,000 per bank) by $655,089.
<PAGE>
<TABLE>

                                 SCHEDULE II AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
                                    PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES. Rule 12-03

<CAPTION>
         
Column A                                   Column B          Column C     Column D                         Column E
Name of Debtor                             Balance Beginning Additions           Deductions                 Balance at end of period
                                           of period 12/31/95                 (1)              (2)                (1)         (2)
                                                                            Amounts          Amounts            Current  Not Current
                                                                           collected       written off              12/31/96
<S>                                         <C>              <C>           <C>              <C>               <C>           <C>

Redwood Mortgage ..................         $517,051         $   0.00      $ 62,225         $ 25,663*         $   0.00      $429,163


<FN>
     The above  schedule  represents  the  formation  loan  borrowed  by Redwood
Mortgage from the Partnership to pay for the selling commissions on units. It is
an  unsecured  loan  and  will  not  bear  interest.  It will be  repaid  to the
Partnership in ten annual  installments of principal only commencing  January 1,
1992.

     * The amount written off is comprised of the applications of the applicable
portions of early withdrawal penalty as provided for in the prospectus.
</FN>
</TABLE>
<PAGE>
<TABLE>
                SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
                         REDWOOD MORTGAGE INVESTORS VII
<CAPTION>


Column A                                      Column B                        Column C                Column D           Column E
Description                                   Balance at                      Additions               Deductions         Balance at
                                              beginning               (1)                 (2)          Describe        End of Period
                                             of period         Charged to          Charged to
                                                               Costs & Expenses    Other accounts -
                                                                                   Describe

Year Ended
12/31/96

Deducted from
Asset accounts:

<S>                                            <C>                 <C>                 <C>              <C>                 <C>
Allowance for
Doubtful accts ....................            $200,000            $419,437            $   0.00         $390,790            $228,647




<FN>
     *The provision  noted above,  includes  amounts  written off on real estate
acquired through foreclosure.
</FN>
</TABLE>
<PAGE>


<TABLE>
SCHEDULE IX

                                                         SHORT TERM BORROWINGS
                                                    REDWOOD MORTGAGE INVESTORS VII
<CAPTION>
RULE 12-10

Column A                                Column B         Column C            Column D          Column E         Column F
Category of Aggregate                   Balance at End   Weighted Average    Maximum Amount    Average Amount   Weighted Average
Short-Term Borrowings                   of Period        Interest Rate       Outstanding       Outstanding      Interest Rate during
                                                                             During the Period During the Period   the period
-----------------------                ---------------- ------------------- --------------------- ---------------------------------

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

Year-Ended 12/31/96 ..................  $1,175,000         9.300%            $2,000,000          $1,370,413         9.300%
</TABLE>
<PAGE>

<TABLE>
SCHEDULE XII

                                                 MORTGAGE INVESTMENTS ON REAL ESTATE.
                                               RULE 12-29 MORTGAGE LOANS ON REAL ESTATE
<CAPTION>

Col. A    Col. B    Col. C    Col. D      Col. E     Col. F       Col. G         Col. H     Col. I    Col. J
Descp.    Interest  Final     Periodic    Prior      Face Amt.    Carrying     Principal    Type of   Geographic
          Rate      Maturity  Payment     Liens      of           amount of    amount of    Lien      County
                    Date      Terms                  Mortgage     Mortgage     Mortgage               Location
                                                     Investments  Investments  Investments
                                                     (original                 subject to
                                                     amount)                   Delinq.
                                                                               Principal
                                                                               or Interest

<S>        <C>      <C>        <C>         <C>        <C>          <C>         <C>          <C>       <C> 
Res.       14.500%  12/01/95   $1,114.35   $336,591   $91,000.00   $89,074.94  $89,074.94   2nd Mtg   San Mateo
Res        14.000%  09/01/94      175.00     67,583    15,000.00    14,708.39     0.00      2nd Mtg   San Mateo
Res        14.500%  06/01/01      782.62     84,303    63,910.49    62,836.42   62,836.42   2nd Mtg   Marin
Res        13.750%  08/01/96    1,258.32       0.00   108,000.00   105,694.70     0.00      1st Mtg   San Francisco
Res        15.000%  09/01/96    1,251.80    319,721    99,000.00    90,740.78   90,740.78   2nd Mtg   San Mateo
Res        12.000%  08/01/04      710.00     70,729    62,000.00    64,393.56     0.00      2nd Mtg   Alameda
Res        13.750%  10/01/96      916.67    369,163    80,000.00    80,000.00     0.00      2nd Mtg   San Mateo
Res        13.750%  10/01/96      988.28       0.00    86,250.00    86,250.00     0.00      1st Mtg   Santa Clara
Res        12.500%  02/01/07      369.76       0.00    30,000.00    25,438.43     0.00      1st Mtg   Santa Cruz
Res        10.000%  12/24/01      308.28       0.00    37,984.50    34,884.05     0.00      1st Mtg   Alameda
Res        10.000%  04/17/97      132.08    126,800    15,850.00    15,788.90     0.00      2nd Mtg   Sonoma
Land       15.000%  06/01/93    1,375.00    210,000   110,000.00   110,000.00     0.00      3rd Mtg   Sacramento
Res        13.000%  07/01/97    1,603.99    254,505   145,000.00   142,127.61     0.00      2nd Mtg   San Mateo
Res        12.500%  07/01/97      453.58    129,491    42,500.00    41,717.30     0.00      2nd Mtg   San Mateo
Res        12.750%  07/01/97      880.22    592,878    81,000.00    79,123.10     0.00      2nd Mtg   San Mateo
Land       15.500%  07/15/94    1,453.13       0.00   112,500.00   112,500.00     0.00      1st Mtg   San Mateo
Comm        7.000%  08/06/02      311.38     17,382    46,803.50    44,532.37     0.00      2nd Mtg   Alameda
Comm       12.000%  10/01/97    4,517.38    796,163   439,172.47   431,064.13     0.00      3rd Mtg   Contra Costa
Res        10.000%  11/06/07       65.91     48,829     6,133.33     5,242.28     0.00      2nd Mtg   San Francisco
Comm       12.500%  01/01/98      587.00       0.00    55,000.00    54,128.70     0.00      1st Mtg   San Mateo
Comm       12.250%  01/01/98    4,083.36    354,077   400,002.42   400,002.42     0.00      2nd Mtg   Contra Costa
Res        12.000%  02/01/98      150.00    208,000    15,000.00     8,528.06     0.00      2nd Mtg   San Mateo
Comm       12.500%  04/05/08      921.02       0.00   175,000.00    65,213.37     0.00      1st Mtg   Tuoloume
Res        12.000%  05/01/98      514.31       0.00    50,000.00    49,257.75     0.00      1st Mtg   San Francisco
Comm       12.000%  06/01/98    2,038.01       0.00   239,850.00   195,804.52     0.00      1st Mtg   Sonoma
Apts        4.000%  05/01/06      540.83     89,904   100,000.00    96,893.59     0.00      2nd Mtg   Sacramento
Res        12.000%  07/01/98    3,085.84     85,930   300,000.00   274,178.59  274,178.59   2nd Mtg   El Dorado
Res        12.750%  07/01/08      370.90    236,164    29,700.00    26,875.11     0.00      2nd Mtg   San Mateo
Res        13.500%  09/01/08    1,647.07    106,044   126,861.90   116,430.02     0.00      2nd Mtg   Contra Costa
Comm       12.000%  09/01/03      848.61       0.00    82,500.00    81,345.94     0.00      1st Mtg   Alameda
Comm        6.000%  09/01/03      885.00       0.00   133,000.00   125,200.12     0.00      1st Mtg   San Mateo
Comm       12.000%  11/01/98    2,057.23      5,635   200,000.00    74,423.44     0.00      2nd Mtg   San Francisco
Res         8.000%  05/01/09      753.50       0.00    81,825.00    71,982.62     0.00      1st Mtg   Alameda
Comm       10.000%  12/01/98      647.21       0.00    73,750.00    72,887.14     0.00      1st Mtg   Stanislaus
Comm       12.250%  01/01/98    2,080.84    891,453   200,001.20   200,001.20     0.00      4th Mtg   Contra Costa
Comm       10.000%  12/01/98    3,619.98       0.00   412,500.00   407,226.68     0.00      1st Mtg   Alameda
Comm        7.000%  12/01/03      575.74    281,250    49,586.38    41,566.43     0.00      2nd Mtg   Alameda
Comm       12.000%  02/01/99    3,420.75       0.00   312,000.00   335,638.30     0.00      1st Mtg   Santa Clara
Comm       12.000%  06/01/04    1,316.53       0.00   125,000.00   122,596.76     0.00      1st Mtg   Santa Barbara
Land       12.000%  07/01/96    1,352.50    679,258   135,250.00   135,250.00  135,250.00   3rd Mtg   Sonoma
Res        11.000%  10/01/99      571.39    478,120    60,000.00    59,375.29     0.00      2nd Mtg   San Mateo
Comm       15.250%  10/01/95    1,270.83    510,979   100,000.00    23,525.53     0.00      2nd Mtg   Santa Cruz
Land       11.500%  12/20/96    6,160.73    907,480   757,144.25   642,858.33     0.00      2nd Mtg   Stanislaus
Apts        7.000%  02/10/05      234.06     80,250    40,125.00    40,125.00     0.00      2nd Mtg   San Francisco
Res        12.000%  03/01/98    1,500.29       0.00   280,000.00   147,206.50     0.00      1st Mtg   Alameda
Apts       11.500%  04/01/05    2,651.89       0.00   550,000.00   267,792.71     0.00      1st Mtg   San Francisco
Comm       11.875%  05/01/05    2,088.00       0.00   200,000.00   197,605.96     0.00      1st Mtg   San Francisco

<PAGE>




Col. A    Col. B    Col. C    Col. D      Col. E     Col. F       Col. G         Col. H     Col. I    Col. J
Descp.    Interest  Final     Periodic    Prior      Face Amt.    Carrying     Principal    Type of   Geographic
          Rate      Maturity  Payment     Liens      of           amount of    amount of    Lien      County
                    Date      Terms                  Mortgage     Mortgage     Mortgage               Location
                                                     Investments  Investments  Investments
                                                     (original                 subject to
                                                     amount)                   Delinq.
                                                                               Principal
                                                                               or Interest
Comm        9.000%  05/10/02      670.52       0.00    83,333.33    82,407.46     0.00      1st Mtg   Shasta
Comm       12.000%  10/31/99    7,000.00  2,684,430   700,000.00   700,000.00     0.00      2nd Mtg   Santa Clara
Res         8.000%  09/27/00      530.79    106,333    79,619.05    79,619.05     0.00      2nd Mtg   Monterey
Land        8.000%  12/01/97      400.00       0.00    60,000.00    60,000.00     0.00      1st Mtg   Solano
Comm.      11.875%  02/01/06    4,437.00       0.00   425,000.00   422,581.57     0.00      1st Mtg   San Mateo
Comm.      12.000%  12/31/01    9,792.73  5,492,794   955,000.00   979,272.93     0.00      2nd Mtg   Santa Clara
Comm       12.000%  03/15/98    4,000.00  3,000,000   400,000.00   400,000.00     0.00      2nd Mtg   Santa Clara
Land       12.000%  02/01/97    3,822.50       0.00   382,250.00   382,250.00     0.00      1st Mtg   Santa Clara
Apts       12.000%  02/01/98    9,106.84    883,750  1,427,500.00  921,060.33     0.00      2nd Mtg   San Francisco
Res        12.000%  02/01/98    2,107.47    825,000   320,000.00   246,903.83     0.00      2nd Mtg   San Francisco
Res         8.000%  09/18/03       87.56       0.00    11,932.83    11,908.65     0.00      1st Mtg   Sonoma
Res        12.000%  05/01/98      235.43       0.00   238,000.00    42,622.50     0.00      1st Mtg   San Francisco
Res         8.000%  09/30/03       89.71       0.00    12,225.92    12,201.15     0.00      1st Mtg   Sonoma
Res         8.000%  04/10/97      199.63       0.00    29,944.39    29,944.39     0.00      1st Mtg   San Mateo
Comm       12.000%  02/01/99       56.65    312,000    12,000.00     5,496.62     0.00      2nd Mtg   Santa Clara
Res        13.000%  12/01/99      704.17       0.00    65,000.00    65,000.00     0.00      1st Mtg   Ventura
Res        13.000%  12/01/99      704.17       0.00    65,000.00    65,000.00     0.00      1st Mtg   Ventura
Res        13.000%  12/01/99      704.17       0.00    65,000.00    65,000.00     0.00      1st Mtg   Ventura
Res        12.000%  01/01/98    3,400.00       0.00   340,000.00   340,000.00     0.00      1st Mtg   Alameda
Land       12.000%  01/01/00    9,500.00     89,692   950,000.00   950,000.00     0.00      2nd Mtg   Stanislaus
Res        13.000%  01/01/03      999.54     15,400    79,000.00    51,719.39     0.00      2nd Mtg   San Mateo
Res        10.000%  08/01/97      388.67    309,872    45,000.00    46,573.10     0.00      3rd Mtg   San Mateo
Res        13.500%  04/01/95      732.61       0.00    63,960.00    61,981.43     0.00      1st Mtg   San Mateo
Res        15.250%  04/01/95      588.29     11,601    45,800.00    44,713.29     0.00      2nd Mtg   Solano
                              ----------- ---------- ------------ ------------ ------------

Totals                    $124,899.62  $22,069,554  $13,811,765.96 $12,036,292.73  $652,080.73
</TABLE>
<PAGE>


Schedule XII

     Reconciliation  of  carrying  amount of  Mortgage  Investments  at close of
period (12/31/96)

Balance at beginning of period 1/01/96                              $12,382,641
Additions during period:
New Mortgage Investments                         $9,099,688
Other                                                     0          $9,099,688
-------------------------------------------------------------------------------

                                                                    $21,482,329

Deduction during period:
Collections of principal                        $8,923,339
Foreclosures                                       492,697
Cost of Mortgage Investment sold                         0
Amortization of Premium                                  0
Other                                               30,000           $9,446,036
--------------------------------------------------------------------------------


Balance at close of period (12/31/96)                               $12,036,293
                                                                    -----------
<PAGE>

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

     The  Partnership  has neither  changed its accountants nor does it have any
disagreement  on any matter of  accounting  principles or practices of financial
statement disclosures.

                                    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 three General  Partners of which two individuals
are D. Russell  Burwell and Michael R.  Burwell.  The third  General  Partner is
Gymno Corporation,  a California  corporation,  formed in 1986. The Burwells are
the two shareholders of Gymno Corporation, a California corporation, on an equal
(50-50) basis.
<PAGE>

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, 1996. All
such compensation is in compliance with the guidelines and limitations set forth
in the Prospectus.

Entity Receiving          Description of Compensation and                Amount
Compensation                    Services Rendered 
-------------------------------------------------------------------------------

I.  Redwood Mortgage       Mortgage Servicing Fee for servicing        $97,267
                           Mortgage Investments ($92,249 waived 
                           by Redwood Mortgage)

General Partners &/or      Asset Management Fee for managing               
Affiliate                  assets...........................               $0
                           ($53,537 waived by the General Partners)

General Partners           1% interest in profits..........            $8,591
                           Less allowance for syndication costs           137   
                                                                       $8,454
                                                                     
  II. FEES PAID BY BORROWERS ON MORTGAGE LOANS PLACED BY COMPANIES RELATED TO
THE GENERAL  PARTNERS  WITH THE  PARTNERSHIP  (EXPENSES OF BORROWERS  NOT OF THE
PARTNERSHIP)

Redwood Mortgage.  Loan Brokerage Commissions for services in
                   connection with the review, selection,
                   evaluation, negotiation, and extension of the
                   Mortgage Investments paid by the borrowers and
                   not by the Partnership......................       $236,310
                        
Redwood Mortgage   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......       $5,609
                         

     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. $40,874
<PAGE>


Item 12 - Security Ownership of Certain Beneficial Owners and Management

     The General  Partners are to own a combined total of 1% of the  Partnership
including a 1% portion of income and losses.

Item 13 - Certain Relationships and Related Transactions

     Refer to footnote 3 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.




                                     Part IV

Item 14 - 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.

<PAGE>

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
      24.1   Consent of Parodi & Cropper
      24.2   Consent of Stephen C. Ryan & Associates.


     All of these exhibits were previously filed as the exhibits to Registrants
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.
<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 18th day of March,
1997.


REDWOOD MORTGAGE INVESTORS VII


By:      /S/ D. Russell Burwell
         ---------------------------------------------
         D. Russell Burwell, General Partner


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


By:      Gymno Corporation, General Partner


         By:     /S/ D. Russell Burwell
                 ---------------------------------------------
                 D. Russell Burwell, President


         By:     /S/ Michael R. Burwell
                 ---------------------------------------------
                 Michael R. Burwell, Secretary/Treasurer


     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 18th day of March, 1997.


Signature                              Title                          Date


/S/ D. Russell Burwell
----------------------
D. Russell Burwell                 General Partner               March 18, 1997


/S/ Michael R. Burwell
----------------------
Michael R. Burwell                 General Partner               March 18, 1997



/S/ D. Russell Burwell
----------------------
D. Russell Burwell            President of Gymno Corporation,    March 18, 1997
                               (Principal Executive Officer);
                              Director of Gymno Corporation


/S/ Michael R. Burwell
----------------------
Michael R. Burwell            Secretary/Treasurer of Gymno       March 18, 1997
                             Corporation (Principal Financial
                                and Accounting Officer);
                             Director of Gymno Corporation