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

                                December 31, 2000

                                     Part I

                                                                        Page No.
Item 1 - Business                                                              3
Item 2 - Properties                                                          4-5
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
              Relate Unitholder Matters                                        6
Item 6 - Selected Financial Data                                             6-8
Item 7 - Management's Discussion and Analysis of Financial condition
              and Results of Operations                                     9-13
Item 8 - Financial Statements and Supplementary Data                       13-33
Item 9 - Changes in and Disagreements with Accountants on
              Accounting and Financial Disclosure                             34

                                    Part III

Item 10 - Directors and Executive Officers of the Registrant                  34
Item 11 - Executive Compensation                                              35
Item 12 - Security Ownership of Certain Beneficial Owners and Management      36
Item 13 - Certain Relationships and Related Transactions                      36

                                     Part IV

Item 14 - Exhibits, Financial Statement Schedules, and Reports on
              Form 8- K.                                                   36-37

Signatures                                                                    38



<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, 2000 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)

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
-------------------------------        -----------------------------------------
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,  2000,  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.



<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  Partnership  and 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 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, 2000, the  Partnership had a balance
in its loans portfolio totaling  $12,794,297 with interest rates thereon ranging
from 6.50% to 14.50%.

Currently,  loans secured by First Trust Deeds comprise  68.16% of the amount of
funds in the loan  portfolio  followed by Second Trust Deeds of 31.27% and Third
Trust Deeds of 0.57%.  Owner-occupied  homes,  combined with non-owner  occupied
homes total 14.57% of the loans.  Commercial  loans  origination  decreased from
last year, now comprising 65.19% of the portfolio, a decrease of 8.74%. Loans to
apartments  totaled 20.24%.  The past year brought many  outstanding low loan to
value lending  opportunities in the commercial segment of the market.  66.38% of
the total loans,  are in five counties of the Bay Area. The County of Stanislaus
makes up 21.80% 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 increased the
past year, and is now averaging $336,692 per loan, an increase of $74,510.  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 stood at
39.31%.  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 no  property in
foreclosure as of December 2000.


<PAGE>



Item 2 - Properties

A summary of the  Partnership's  loan  portfolio  as of December 31, 2000 is set
forth below.

Loans as a Percentage of Total Loans

First Trust Deeds                                              $8,720,985.58
Appraised Value of Properties                                  15,179,235.00
  Total Investment as a % of Appraisal                                57.45%
First Trust Deeds                                              $8,720,985.58
Second Trust Deed Loans                                         4,000,140.40
Third Trust Deed Loans                                             73,170.73
                                                          -------------------
                                                               12,794,296.71
Priority positions:
    First Trust Deeds due other Lenders                         7,761,363.00
    Second Trust Deeds due other Lenders                        1,000,000.00

Total Debt                                                    $21,555,659.71

  Appraised Property Value                                    $35,518,467.00
  Total Investments as a % of Appraisal                               60.69%

Number of Loans Outstanding                                               38

Average Investment                                                336,692.02
Average Investment as a % of Net Assets                                3.33%
Largest Investment Outstanding                                  1,995,451.75
Largest Investment as a % of Net Assets                               19.74%

Loans as a Percentage of Total Loans

First Trust Deeds                                                     68.16%
Second Trust Deeds                                                    31.27%
Third Trust Deeds                                                      0.57%
                                                          -------------------
Total                                                                100.00%

Loans by                                     Amount             Percent
Type of Property

Owner Occupied Homes                          $218,941.63              1.71%
Non-Owner Occupied Homes                     1,644,636.22             12.86%
Apartments                                   2,590,022.29             20.24%
Commercial                                   8,340,696.57             65.19%
                                        ------------------ ------------------
Total                                      $12,794,296.71           100.00 %




<PAGE>


The following is a distribution of loans  outstanding as of December 31, 2000 by
Counties.

                                  Total Mortgage
County                              Investments               Percent

San Francisco                         3,769,959.58             29.47%
Stanislaus                            2,789,455.34             21.80%
Contra Costa                          2,115,418.47             16.53%
Alameda                               1,027,809.79              8.03%
San Mateo                              $901,599.29              7.05%
Placer                                  837,967.10              6.55%
Santa Clara                             678,388.30              5.30%
Santa Cruz                              474,294.01              3.71%
Sacramento                               96,716.11              0.76%
Shasta                                   79,538.11              0.62%
Sonoma                                   23,150.61              0.18%
                                 ------------------       ------------
Total                               $12,794,296.71            100.00%


Statement of Condition of Loans

Number of Loans in Foreclosure                               -0-

Scheduled maturity dates of loans as of December 31, 2000 are as follows:

                         Year Ending
                         December 31,                  Amount
                      -------------------        --------------------
                             2001                        $10,100,308
                             2002                          1,317,339
                             2003                            557,348
                             2004                            130,010
                             2005                            514,419
                          Thereafter                         174,873
                                                 --------------------
                            Total                        $12,794,297
                                                 ====================

The  scheduled  maturities  for 2001 include  approximately  $1,664,181 in seven
loans which are past maturity at December 31, 2000. Interest payments on most of
these loans are current.  $753,320 of these loans were categorized as delinquent
over 90 days. This represents only 5.89% of the Partnership's loan portfolio.

Five loans with principals outstanding of $890,597 had interest payments overdue
in excess of 90 days. Which is only 6.96% of the  Partnership's  loan balance as
of December 31, 2000.

Five loans with principals  outstanding of $890,597 were considered  impaired at
December 31, 2000. That is interest accruals are no longer recorded thereon.


<PAGE>


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.  Also refer to a more precise discussion under
Note 6 of the Financial Statements on Page 27 of this report.

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

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

                                     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
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.


<PAGE>



Financial  condition and results of operation for the Partnership for five years
to December 31, 2000 were:


                                                              Balance Sheet
                                                                 Assets
<TABLE>
                                                                           December 31,
                                     ------------------------------------------------------------------------------------------
<S>                                           <C>                 <C>                <C>               <C>                <C>
                                              2000                1999               1998              1997               1996
                                     --------------     ---------------    ---------------    --------------    ---------------

Cash                                      $269,000            $388,770           $461,544          $520,837           $755,089
Accounts receivable:
   Loans secured by deeds of trust      12,794,297          11,011,660         13,209,186        13,449,741         12,036,293
   Accrued interest and other fees         363,321             357,177            442,350           427,952            264,495
   Advances on loans                        29,825              31,669             39,733            33,154             41,203
   Other receivables - unsecured           188,421             163,085            242,493           252,422            337,242
   Less allowance for losses             (850,548)           (828,563)          (787,042)         (424,738)          (228,647)
Real estate owned ("REO")
acquired  through foreclosure at
estimated
     net realizable value                  816,094             307,931            397,396           687,139          1,468,345
Real estate owned in process                     0             525,510                  0                 0                  0
Partnership interest                             0                   0                  0           346,017            242,394
                                     --------------     ---------------    ---------------    --------------    ---------------
                                       $13,610,410         $11,957,239        $14,005,660       $15,292,524        $14,916,414
                                     --------------     ---------------    ---------------    --------------    ---------------


                        Liabilities and Partners Capital

                                                                           December 31
                                    -------------------------------------------------------------------------------------------


                                         2000               1999              1998               1997               1996
                                    --------------     --------------    ---------------   ---------------    ---------------
Liabilities:
  Note payable - bank                   $3,500,000           $800,000        $1,912,663         $2,341,816          $1,175,000
  Accounts payable and
     accrued expenses                        4,102             32,234            12,547              1,845               1,472
  Deferred interest                              0            115,709           131,743                  0                   0
  Discount of loans                              0                  0                 0             69,316             154,598
                                    ---------------    ---------------    --------------    --------------    ----------------
                                         3,504,102            947,943         2,056,953          2,412,977           1,331,070

Partners' capital:
  General partners                          11,978             11,978            11,978             11,978              11,978
  Limited partners subject to
    redemption                          10,094,330         10,997,318        11,936,729         12,867,569          13,573,366
                                    ---------------    ---------------    --------------     --------------    ----------------
Total partners capital                  10,106,308         11,009,296        11,948,707         12,879,547          13,585,344
                                    ---------------    ---------------    --------------     --------------    ----------------

                                       $13,610,410        $11,957,239       $14,005,660        $15,292,524         $14,916,414
                                    ===============    ===============    ==============     ==============    ================

</TABLE>



<PAGE>

<TABLE>


                               Statement of Income

<S>                                     <C>                <C>               <C>                <C>                 <C>
Gross revenue                           $1,437,964         $1,663,245        $1,657,728         $1,623,863          $1,580,500
Expenses                                   537,818            753,664           811,157            796,984             721,401
                                      -------------    ---------------    --------------     --------------    ----------------
Net Income                                 900,146            909,581           846,571            826,879             859,099
                                      -------------    ---------------    --------------     --------------    ----------------
Net income to general
  partners (1%)                              9,001              9,096             8,466              8,269               8,591
                                      =============    ===============    ==============     ==============    ================
Net income to limited
  partners (99%)                           891,145            900,485           838,105            818,610             850,508
                                      =============    ===============    ==============     ==============    ================


Net income per  $1,000  invested  by
limited
 Partners for entire period:
   - where income is
        reinvested and compounded              $85                $79               $67                $61                 $60
                                      =============    ===============    ==============     ==============    ================

    - where partner receives
        income in monthly
        distributions                          $82                $76               $65                $59                 $59
                                      =============    ===============    ==============     ==============    ================
</TABLE>

Net  income  in 1998  averaged  at an  annualized  yield of  6.69%,  in 1999 the
annualized yield was 7.86% and in 2000 the annualized  yield was 8.52%.  Average
annualized yield since inception through December 31, 2000, was 7.85%.



<PAGE>


ITEM 7  -    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, 2000, Partners' Capital totaled $10,106,308.

At December 31, 2000, the Partnership  loans  outstanding  totaled  $12,794,297.
This  represents a decline of $414,889 from the December 31, 1998 loans balance.
This  reduction in loans  outstanding as of December 31, 2000 was chiefly due to
cash proceeds from Mortgage Investment repayments being used to fund withdrawals
to the Limited Partners of $3,811,803,  during 1999 and 2000. This was offset by
an increase  in Note  Payable-Bank  of  $2,700,000  reinvestment  of earnings of
$846,403,  reduction in accrued  interest,  other  receivables and investment of
cash.  Loans  decreased  from  $13,449,741  from 1997 to  $13,209,186 in 1998, a
decrease  of $240,555  chiefly  due to the  ability of the  General  Partners to
reduce  amounts of real estate  owned by $289,743,  reinvestment  of earnings of
$390,213,  offset by payments to  withdrawing  Limited  Partners  $1,856,833,  a
reduction of  outstanding  Note Payable - Bank of $1,112,663  and  investment of
cash.  The  Partnership  began  funding  loans on December 27,  1989,  and as of
December 31, 2000, had credited the Partners  accounts with income at an average
annualized (compounded) yield of 7.85%.

Since the fall of 1999,  mortgage  interest rates have been rising due primarily
to economic  forces and by the Federal  Reserve raising its core interest rates.
However,  in 2001 the Federal  Reserve has  reversed its policy  towards  higher
rates and is  lowering  its core  interest  rates.  This will have the effect of
lowering interest rates in the marketplace. New loans will be originated at then
existing  interest rates. 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.  Although the rates charged by the
Partnership  are  influenced by the level of interest  rates in the market,  the
General  Partners do not anticipate that rates charged by the Partnership to its
borrowers will change  significantly from the beginning of 2001 over the next 12
months.  As of December 31, 2000 the  Partnership  Real Estate Owned account and
the investment in Partnership account had a combined balance of $816,094.  These
accounts  had  combined  balances of $397,396  and  $307,931 for the years ended
December 31, 1998 and 1999,  respectively.  The increase in the Partnership Real
Estate Owned account is the result of the  acquisition  of one property  through
foreclosure.  The General Partners  anticipate that the annualized yield for the
new year, 2001, will be higher than the previous year.

The Partnership has a line of credit with a commercial bank secured by its loans
to a limit of $3,500,000, at a variable interest rate set at one-quarter percent
above the prime rate. As of December 31, 2000,  the prime rate was 9.50% and the
line of credit rate was 9.75%.  As of December 31,  2000,  December 31, 1999 and
December  31, 1998,  the  balances  were  $3,500,000,  $800,000 and  $1,912,663,
respectively.  This line of credit expires on May 01, 2003. 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
loans  are  not  currently  available.  Since  most  of the  loans  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 loans funded using the
line of credit generate  revenue for the  Partnership.  As of December 31, 2000,
the Partnership is current with its interest payments on the line of credit. For
the years ended  December 31, 1998,  1999 and 2000,  interest paid was $170,867,
$182,350 and $257,390, respectively.

The Partnership's 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  twenty-three  years. Mortgage
Servicing  Fees in 1998  were $128,493, in 1999  were $127,440 and  in 2000 were
$110,713.  These  Mortgage  Servicing  Fees  were  declining  as the outstanding
mortgage loan portfolio  balances  declined.  Asset Management Fees increased to
$16,141 in 1998, and to $44,524 in 1999. For the year 2000, Management Fees paid
was $38,400.  In 1997, the General  Partners waived or partially waived this fee
to the Partnership and increased the Asset  Management Fee to its allowed amount
of 3/8 of 1% in 1999 and 2000.  All other  expenses  fluctuated  in a very close
range  except for  Interest on Note  Payable - bank and  Provision  for Doubtful
Accounts and losses on Real Estate Acquired Through  -Foreclosure each discussed
elsewhere in this Management  Discussion and Analysis of Financial Condition and
Results of  Operations.  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,  2000,  there  were  no  properties  in  foreclosure.  Cash is
constantly  being generated from interest  earnings,  late charges,  pre-payment
penalties,  amortization  of loans and  pay-off on notes.  Currently,  cash flow
exceeds Partnership expenses,  earnings and capital payout requirements.  Excess
cash flow will be invested in new loan  opportunities  when  available,  used to
reduce the Partnership credit line or other Partnership business.
<PAGE>

The General Partners  regularly review the loan 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.  Management  provided $423,054,  $329,057 and $65,664,  as
provision for doubtful  accounts for the years ended December 31, 1998, 1999 and
2000, respectively. The provision for doubtful accounts was decreased $11,441 to
$423,054 in 1998, by $93,997 to $329,057 in 1999,  and by $263,393 to $65,664 in
2000.  These  decreases  reflect  reduced  expected REO  anticipated  losses and
improved collections of secured and unsecured receivables.

The much publicized  California energy crises has not only affected the hi-tech,
manufacturing,   service  and  agro  based  industries,   the  professional  and
commercial businesses, transportation and utilities sectors, but every household
and individual as a whole. The crises, which means higher cost to the consumers,
could adversely affect the economy,  employment and the Partnership's lending in
its commercial  sector.  On the real estate scene,  The San Mateo Times February
22, 2001 issue,  reported  that despite the energy crises and talk of recession,
the median  price of a San Mateo  County home  soared to near  record  levels in
January.  "The  median  price of a  single-family  home  jumped 4  percent  over
December to $651,000, nearing the record $653,000 of last May, during the spring
price-soaring frenzy.  Realtors insist the hysteria of last spring, causing real
estate values to soar, is over and the market has plateaued.  But prices are not
reflecting that yet.

For  example,  the median price of a home in East Palo Alto jumped 25 percent in
January to $736,000.  This is especially shocking,  considering East Palo Alto's
median was well under  $200,000 in January 1998,  with  fixer-uppers  in the low
$100,000s.  While a few high price homes can skew median home  prices,  it is an
indication that the real estate market has not completely plateaued.

Popular three-bedroom,  two-bath homes settled in between $600,000 and $800,000.
Many two-bedroom, one-bath homes are selling for $500,000 and up.

Sales slowed in January, as usual, to 269 from 362 in December countywide.  They
were off from 315 sales in January 2000.

 "There are still plenty of buyers wanting to buy, and now there are more people
wanting  to sell,"  said  Denise  Aquila,  a real  estate  agent at ReMax in San
Carlos.  Despite the stock market's  recent  tanking and many dot-com  failures,
Aquila and other realtors see a strong market this year  countywide  with prices
holding  their own. Part of the reason for the  resilience  is that  entry-level
homes are in the $500,000 to $700,000 range countywide,  and "they aren't making
any more of them," Aquila said. The County's median price for January climbed 21
percent  over the same  period  last  year.  Although  the  article  focuses  on
single-family  residences  only,  corresponding  increase  in values had similar
impact on commercial, industrial and apartment buildings in general.

To the Partnership,  these sales statistics indicate a strong real estate market
that is  beginning  to slow down from the rapid  appreciation  that has occurred
over the last 3 years.  The real  estate  market  appears to be coming more into
balance with similar  numbers of buyers and sellers which will allow buyers more
opportunity to negotiate and be selective in their real estate purchases.

The California  energy crisis is a longer-term  problem,  which the  Partnership
cannot  affect.  Creative and pragmatic  solutions  will need to be developed by
Industry and  Government so as not to stifle the business  growth in California.
The crises  which  means  higher  cost to the  consumers  in the near term could
adversely affect the economy,  employment and the  Partnership's  lending in its
residential and commercial loans by lowering real estate values.
<PAGE>

Bank discount rate fell from 6.00% in May 2000 to 4.5% in March 2001.  The price
hike in real  estate  properties  means  more  equity to the  homeowners,  which
increases  equity on the existing  portfolio.  Lower interest rates mean cutting
the cost of capital, improving profit margins and encouraging expansion. It also
helps to induce consumer spending, sparking home sales and mortgage refinancing.
This all translates into more loan activity,  which,  of course,  is healthy for
the Partnership's lending activity.

The  Partnership's  interest in land located in East Palo Alto, CA, was acquired
through foreclosure.  The investment was previously  classified as Investment in
Partnership  in the Financial  Statements  and has been  reclassified  into Real
Estate Owned. The Partnership's basis of $38,238, $9,039, and $ 0, for the years
ended  December 31, 2000,  December  31, 1999 and 1998,  respectively,  has been
invested with that of two other  Partnerships.  The Partnership is continuing to
explore remediation  options available to mitigate the pesticide  contamination,
which  affects the  property.  This  pesticide  contamination  appears to be the
result of  agricultural  operations  by prior  owners,  and is  unrelated to the
Arsenic  Contamination  for which a major chemical company remains  responsible.
The  General  Partners  do not  believe  at this  time that  remediation  of the
pesticide  contaminants  will have a material  adverse  effect on the  financial
condition of the  Partnership.  The General Partners are attempting to subdivide
this land into two  parcels and  exploring  the ability to obtain new zoning for
this property.

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, 1998, 1999 and 2000, the Partnership  made  distributions  of
earnings to Limited Partners after allocation of syndication  costs of $456,358,
$490,841  and  $454,386,  respectively.  Distribution  of  Earnings  to  Limited
Partners after allocation of syndication  costs for the years ended December 31,
1998, 1999 and 2000 to Limited  Partners' capital accounts and not withdrawn was
$381,747, $409,644 and $436,759,  respectively. As of December 31 1998, December
31, 1999 and December 31, 2000,  Limited Partners  electing to withdraw earnings
represented 53%, 54% and 49% 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, 1998,  1999 and 2000,
$381,458,  $231,025 and $179,343, 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, 1998, December 31, 1999 and December 31, 2000,  respectively and
is expected by the General Partners to commonly occur at these levels.

Additionally,  for the years ended  December  31,  1998,  December  31, 1999 and
December 31, 2000,  $1,019,017,  $1,205,917 and $1,250,291,  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,  which
the General  Partners  then expect,  a portion of the Limited  Partners to avail
themselves  of.  This has the  anticipated  effect of the  Partnership  growing,
primarily  through  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,  at which time the bulk of those Limited  Partners
who have sought withdrawal have been liquidated.  After year eleven, liquidation
generally subsides and the Partnership capital again tends to increase.


<PAGE>

Actual  liquidation  of both capital and earnings from year five (1994)  through
year eleven  (2000) is shown  hereunder;  which  confirms  the General  Partners
theory on the liquidation habits of the Limited Partners:

<TABLE>
                                            Years ended December 31,

<S>                          <C>                  <C>                   <C>                      <C>
                             1994                 1995                  1996                     1997
                   ---------------       --------------        --------------         ----------------
Earnings                 $263,206             $270,760              $336,341                 $399,379
Capital                 *$340,011            *$184,157             *$722,536              *$1,212,916
                   ---------------       --------------        --------------         ----------------
Total                    $603,217             $454,917            $1,058,877               $1,612,295
                   ===============       ==============        ==============         ================


                             1998                 1999                  2000
                   ---------------       --------------        --------------
Earnings                 $456,358             $490,841              $454,386
Capital               *$1,400,475          *$1,436,942            *1,429,634
                   ---------------       --------------        --------------
Total                  $1,856,833           $1,927,783            $1,884,020
                   ===============       ==============        ==============

</TABLE>

* These amounts represent gross of early withdrawal penalties.

The Year 2000 was considered by most to be a challenge for the entire world with
respect to the conversion of existing computerized  operations.  The Partnership
relied on Redwood Mortgage Corp., third parties and various software vendors for
its hardware and software needs. The year 2000 has come and gone and we have not
experienced  any computer  hardware  breakdowns.  We assume that our testing and
upgrading of computer  hardware prior to year 2000 identified all hardware areas
of concern.  Computer  software  programs  are all  operational  with only minor
problems  being  experienced  with  some  programs.  These  problems  have  been
addressed  by the  appropriate  software  vendors or software  programmers.  All
annual  computerized  functions have been run, and testing of the operations has
taken place. We do not expect any problems hereafter.

The costs of updating  our  computer  systems  were  substantially  borne by the
non-affiliated  software vendors and the in house system conversion costs to the
Partnership were marginal.

Year 2000 issues do not appear to have affected,  in any significant manner, any
industries or businesses in the marketplace in which the Partnership  places its
loans.  We believe that year 2000 issues were a non-event  and will have little,
if any,  future  effect on the  Partnership,  its  affiliates  or the people and
businesses with which it associates.

With this report we hereby conclude our discussion on the Y2K issue.

After 25 years of active  participation  in the  mortgage  business,  D. Russell
Burwell,  our founder and a General  Partner of the  Partnership  has decided to
retire  effective  September 30, 2001.  "Russ" has enjoyed a long and successful
career.  His original  business model, upon which our Partnership has its roots,
has withstood the test of time through varying  economic  cycles.  Collectively,
the various Redwood Mortgage Investors  Partnerships (I-VIII) have grown from an
idea to over  $110,000,000  in assets and  produced  excellent  results  for the
Limited Partners under Russ's  stewardship in Redwood  Mortgage  Investor's VII.
This  Partnership  originally  raised  $11,998,359  in Limited  Partner  Capital
contributions  and at December 31, 2000 had  $10,094,330  in  remaining  Limited
Partner Capital.

Over  the  last  few  years,   Russ  has  been  passing  along  his  duties  and
responsibilities  to the  remaining  General  Partners.  The  remaining  General
Partners  are  Mr.  Michael   Burwell  and  Gymno   Corporation,   a  California
Corporation.  Mr. Michael Burwell has been a General Partner of Redwood Mortgage
Investors  VII since its  inception  and has been  employed by Redwood  Mortgage
Corp, an affiliate of the Partnership,  since 1979. The Partnership  through the
remaining  General Partners and the employees of its affiliate  Redwood Mortgage
Corp., is well prepared for Russ's  departure and looks forward to emulating the
steady  consistent  returns that the Limited  Partners have enjoyed during Russ'
tenure.
<PAGE>

Mr. D. Russell Burwell is  providing this  notification  pursuant  to  Article 8
Section 8.02 of the Limited Partnership Agreement.The remaining General Partners
have elected to continue the business of the Partnership as described in Article
9 Section 9.01(d) of the Limited Partnership Agreement.


The General  Partners have  determined that for purposes of establishing a value
for reporting purposes,  including brokerage and trustee account statements, the
estimated  value of the  limited  partnership  interests  on a per unit basis is
equal to the capital account balance of each investor 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,  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").


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:


o           Independent Auditors' Report
o           Balance Sheets - December 31, 2000, and December 31, 1999
o           Statements of Income for the three years ended December 31, 2000
o           Statements of Changes in Partners' Capital for the three years
                ended December 31, 2000
o           Statements of Cash Flows for the three years ended December 31, 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.



<PAGE>















                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                              FINANCIAL STATEMENTS
                                DECEMBER 31, 2000
                         (With Auditors' Report Thereon)



<PAGE>


                              ARMANINO McKENNA LLP
                          CERTIFIED PUBLIC ACCOUNTANTS
                          1855 Olympic Blvd., Suite 225
                             Walnut Creek, CA 94596
                                 (925) 939-8500



                          INDEPENDENT AUDITOR'S REPORT


THE PARTNERS
REDWOOD MORTGAGE INVESTORS VII
REDWOOD CITY, CALIFORNIA

We have audited the accompanying balance sheet of REDWOOD MORTGAGE INVESTORS VII
(a California Limited Partnership) and the related statements of income, changes
in  partners'  capital and cash flows as of and for the year ended  December 31,
2000. Our audit also included the financial  statement  schedules  listed in the
Index at Item 8. These financial statements and schedules are the responsibility
of the Partnership's management.  Our responsibility is to express an opinion on
these financial  statements based on our audit.  The financial  statements as of
December 31, 1999 and the two years then ended,  were audited by other  auditors
whose  report dated March 15, 2000,  expressed an  unqualified  opinion on these
financial statements.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  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  audit  provides  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, 2000,  and the results of its  operations  and cash flows for
the year ended  December  31,  2000 in  conformity  with  accounting  principles
generally  accepted in the United States of America.  Also, in our opinion,  the
related financial statements schedules, when considered in relation to the basic
financial  statements taken as a whole,  present fairly in all material respects
the information set forth therein.


                            /s/ ARMANINO McKENNA LLP






Walnut Creek, California
February 23, 2001





<PAGE>





                        Caporicci, Cropper & Larson, LLP
                          CERTIFIED PUBLIC ACCOUNTANTS
                           1575 Treat Blvd., Suite 208
                             Walnut Creek, CA 94598
                                 (925) 932-3860



                          INDEPENDENT AUDITOR'S 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, 1999 and 1998 and the
statements of income,  changes in partners' capital and cash flows for the three
years ended December 31, 1999. 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 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, 1999 and 1998,  and the results of its  operations  and cash
flows for the three years ended  December 31, 1999 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
                        Caporicci, Cropper & Larson, LLP





Walnut Creek, California
March 15, 2000









<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                                 BALANCE SHEETS
                           DECEMBER 31, 2000 AND 1999

                                     ASSETS
                                                       2000                1999
                                                    -----------       ----------
Cash                                                 $269,000           $388,770
                                                    -----------       ----------

Accounts receivable:
  Loans, secured by deeds of trust                 12,794,297         11,011,660
  Accrued Interest on loans                           363,321            357,177
  Advances on loans                                    29,825             31,669
  Accounts receivables, unsecured                     188,421            163,085
                                                   -----------        ----------
                                                   13,375,864         11,563,591

  Less allowance for doubtful accounts                850,548            828,563
                                                   -----------        ----------
                                                   12,525,316         10,735,028
                                                   -----------        ----------


Real estate in process of acquisition,
  to be sold                                                -            525,510
Real estate owned, held for sale                      816,094            307,931
                                                   -----------        ----------
                                                  $13,610,410        $11,957,239
                                                   ===========        ==========

                        LIABILITIES AND PARTNERS' CAPITAL


Liabilities:
  Notes payable - bank line of credit              $3,500,000           $800,000
  Accounts payable and accrued expenses                 4,102             32,234
  Deferred interest                                         -            115,709
                                                   ----------         ----------
                                                    3,504,102            947,943
                                                   ----------         ----------

Partners' capital
  Limited partners' capital, subject to redemption
     Net of formation loan receivable
      of $75,612 and $165,499 for 2000
      and 1999, respectively                       10,094,330         10,997,318

  General partners' capital                            11,978             11,978
                                                  -----------         ----------

      Total partners' capital                      10,106,308         11,009,296
                                                  -----------         ----------

      Total liabilities and partners'capital      $13,610,410        $11,957,239
                                                  ===========         ==========





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


<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                              STATEMENTS OF INCOME
                 FOR THE THREE YEARS ENDED DECEMBER 31, 2000
<TABLE>


                                                                             YEARS ENDED DECEMBER 31,
                                                                ----------------------------------------------------
<S>                                                                 <C>                 <C>                <C>
                                                                    2000                1999               1998
                                                                -------------       -------------      -------------
Revenues:
  Interest on loans                                               $1,406,098          $1,634,416         $1,625,573
  Interest on bank deposits                                            4,725               6,813              7,465
  Late charges                                                        11,219              14,367             13,632
  Other                                                               15,922               7,649             11,058
                                                                -------------       -------------      -------------
                                                                   1,437,964           1,663,245          1,657,728
                                                                -------------       -------------      -------------
Expenses:
  Mortgage servicing fees                                            110,713             127,440            128,493
  Interest on note payable - bank                                    257,640             182,350            170,867
  Clerical costs through Redwood Mortgage Corp.                       27,032              30,367             34,173
  Asset management fee                                                38,400              44,524             16,141
  Provision for bad debts and losses
       on real estate acquired through foreclosure                    65,664             329,057            423,054
  Professional services                                               22,068              21,521             19,983
  Printing, supplies and postage                                      10,293              12,554             12,326
  Other                                                                6,008               5,851              6,120
                                                                -------------       -------------      -------------
                                                                     537,818             753,664            811,157
                                                                -------------       -------------      -------------


Net income                                                          $900,146            $909,581           $846,571
                                                                =============       =============      =============

Net income:  To General Partners (1%)                                 $9,001              $9,096             $8,466
                     To Limited Partners (99%)                       891,145             900,485            838,105
                                                                -------------       -------------      -------------
                                                                    $900,146            $909,581           $846,571
                                                                =============       =============      =============

Net income per $1,000 invested by Limited Partners
   for entire period:
     -where income is reinvested and compounded                          $85                 $79                $67
                                                                =============       =============      =============

     -where partner receives income in monthly distributions             $82                 $76                $65
                                                                =============       =============      =============



</TABLE>








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


<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                   STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2000

<TABLE>
                                                           PARTNERS' CAPITAL
                                          -----------------------------------------------------
                                                       LIMITED PARTNERS' CAPITAL
                                          -----------------------------------------------------

                                             Capital
                                             Account-          Formation
                                             Limited              Loan
                                             Partners          Receivable            Total
                                          ---------------    ---------------     --------------

<S>                                          <C>                 <C>               <C>
Balances at January 1, 1998                  $13,208,844         $(341,275)        $12,867,569

Formation loan collections                             0             66,908             66,908
Net income                                       838,105                  0            838,105
Early withdrawal penalties                      (30,529)             20,980            (9,549)
Partners' withdrawals                        (1,826,304)                  0        (1,826,304)
                                          ---------------    ---------------     --------------

Balances at December 31, 1998                $12,190,116         $(253,387)        $11,936,729

Formation loan collections                             0             75,138             75,138
Net income                                       900,485                  0            900,485
Early withdrawal penalties                      (18,553)             12,750            (5,803)
Partners' withdrawals                        (1,909,231)                  0        (1,909,231)
                                          ---------------    ---------------     --------------

Balances at December 31, 1999                $11,162,817         $(165,499)        $10,997,318

Formation loan collections                             0             79,505             79,505
Net income                                       891,145                  0            891,145
Early withdrawal penalties                      (15,107)             10,382            (4,725)
Partners' withdrawals                        (1,868,913)                  0         (1,868,913
                                          ---------------    ---------------     --------------

Balances at December 31, 2000                $10,169,942          $(75,612)        $10,094,330
                                          ===============    ===============     ==============



</TABLE>











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


<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                   STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2000


                                                 PARTNERS' CAPITAL
                                  ----------------------------------------------
                                              GENERAL PARTNERS' CAPITAL
                                  ----------------------------------------------
                                           Capital Account       Total Partners'
                                          General Partners          Capital
                                          ------------------    ----------------
Balances at January 1, 1998                       $11,978            $12,879,547

Formation loan collections                              0                 66,908
Net income                                          8,466                846,571
Early withdrawal penalties                              0                (9,549)
Partners' withdrawals                             (8,466)            (1,834,770)
                                          ------------------    ----------------

Balances at December 31, 1998                     $11,978            $11,948,707

Formation loan collections                              0                 75,138
Net income                                          9,096                909,581
Early withdrawal penalties                              0                (5,803)
Partners' withdrawals                             (9,096)            (1,918,327)
                                          ------------------    ----------------

Balances at December 31, 1999                     $11,978            $11,009,296

Formation loan collections                              0                 79,505
Net income                                          9,001                900,146
Early withdrawal penalties                              0                (4,725)
Partners' withdrawals                             (9,001)            (1,877,914)
                                          ------------------    ----------------
                                          ------------------    ----------------

Balances at December 31, 2000                     $11,978            $10,106,308
                                          ==================    ================

















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


<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                            STATEMENTS OF CASH FLOWS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2000
<TABLE>

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

<S>                                                                         <C>                 <C>                 <C>
                                                                            2000                1999                1998
                                                                        --------------     ---------------    --------------
Cash flows from operating activities:
  Net income                                                                 $900,146            $909,581          $846,571
  Adjustments to reconcile net income to net cash provided by
      operating activities:
    Provision for doubtful accounts                                            25,160             332,013           362,304
    Provision for losses on real estate held for sale                          40,504             (2,956)            60,750
    Early withdrawal penalty credited to income                               (4,725)             (5,803)           (9,549)
    Change in operating assets and liabilities:
        Accrued interest & advances                                          (33,072)            (62,310)          (20,977)
        Accounts payable and accrued expenses                                (28,132)              19,687            10,702
        Deferred interest on loans                                          (115,709)            (16,034)            62,427
                                                                        --------------     ---------------    --------------

      Net cash provided by operating activities                               784,172           1,174,178         1,312,228
                                                                        --------------     ---------------    --------------

Cash flows from investing activities:
    Principal collected on loans                                            5,324,620           9,314,140         6,529,324
    Loans made                                                            (7,112,078)         (7,716,617)       (6,398,769)
    Payments for Real Estate held for sale                                   (87,392)            (14,111)           323,720
    Proceeds from of Real Estate held for sale                                 64,235             106,532          (55,532)
    Proceeds from Partnership                                                       0                   0           522,212
    Investment in Partnership                                                       0                   0         (105,390)
    Proceeds from unsecured Accounts Receivable                                 5,082              18,956             9,929
                                                                        --------------     ---------------    --------------

      Net cash provided by (used in) investing activities                 (1,805,533)           1,708,900           825,494
                                                                        --------------     ---------------    --------------

Cash flows from financing activities:
  Net increase (decrease) in note payable-bank                              2,700,000         (1,112,663)         (429,153)
  Formation loan collections                                                   79,505              75,138            66,908
  Partners withdrawals                                                    (1,877,914)         (1,918,327)       (1,834,770)

                                                                        --------------     ---------------    --------------
      Net cash provided by (used in) financing activities                     901,591         (2,955,852)       (2,197,015)
                                                                        --------------     ---------------    --------------

Net increase in cash                                                        (119,770)            (72,774)          (59,293)

Cash - beginning of period                                                    388,770             461,544           520,837
                                                                        --------------     ---------------    --------------

Cash - end of period                                                         $269,000            $388,770          $461,544
                                                                        ==============     ===============    ==============


Cash payments for interest                                                   $257,640            $182,350          $170,867

</TABLE>


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


<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000

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 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.  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  loans  were  identified,
partners  were   transferred   from  applicant   status  to  admitted   partners
participating in loan  operations.  Each month's 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 Corp., an affiliate of the General
Partners that arranges and services the loans. To finance the sales commissions,
the Partnership  was authorized to loan to Redwood  Mortgage Corp. an amount not
to exceed 8.3% of the gross proceeds invested in the Partnership,  provided that
the  formation  loan for the minimum  offering  period could be 10% of the gross
proceeds for the minimum offering 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  Corp.  had  borrowed  $914,369  from the  Partnership  to cover  sales
commissions  relating to  $11,998,359  limited  partner  contributions  (7.62%).
Through  December  31, 2000,  $838,757  including  $147,254 in early  withdrawal
penalties  had been repaid  leaving a balance of $75,612.  The  Formation  Loan,
which is due from an affiliate of the General Partners',  has been deducted from
Limited  Partners'  capital in the balance sheet.  As amounts are collected from
Redwood Mortgage Corp., the deduction from capital will be reduced.

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.


<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Accrual Basis

Revenues and  expenses  are  accounted  for on the accrual  basis of  accounting
wherein  income is recognized as earned and expenses are recognized as incurred.
Once a loan is categorized as impaired, interest is no longer accrued thereon.

B. Management Estimates

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,  including the valuation of impaired loans, and
the valuation of real estate acquired through foreclosure.  Actual results could
differ significantly from these estimates.

C. Loans, Secured by Deeds of Trust

The  Partnership  has both the intent and ability to hold the loans to maturity,
i.e.,  held for  long-term  investment.  They are  therefore  valued at cost for
financial  statement  purposes  with  interest  thereon  being  accrued  by  the
effective interest method.

Financial  Accounting Standards Board Statements (SFAS) 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 the  recorded
investment,  and related amount due and the impairment is considered to be other
than temporary, the carrying amount of the investment (cost) shall be reduced to
the present value of future cash flows.

At December 31, 2000 and 1999,  reductions in the cost of loans  categorized  as
impaired by the Partnership  totaled  $137,175 and $152,231,  respectively.  The
reduction in stated value was  accomplished  by  increasing  the  allowance  for
doubtful accounts.

As presented in Note 10 to the financial statements as of December 31, 2000, the
average  loan to  appraised  value  of  security  at the  time  the  loans  were
consummated  was  60.69%.  When a loan is valued  for  impairment  purposes,  an
updating is made in the valuation of collateral  security.  However,  such a low
loan to value ratio tends to minimize reductions for impairment.

D. Cash and Cash Equivalents

For purposes of the statements of cash flows, cash and cash equivalents  include
interest bearing and non-interest bearing bank deposits.

E. Real Estate Owned, Held for Sale

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


<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000

The  following  schedule  reflects  the costs of real  estate  acquired  through
foreclosure and the recorded reductions to estimated fair values, less estimated
costs to sell as of December  31, 2000 and 1999,  not  including  real estate in
process of acquisition at December 31, 1999:

                                                             December 31,
                                              ----------------------------------
                                                       2000                 1999
                                                     ---------         ---------

Costs of properties                                 $1,258,966       $1,182,701
Reduction in value                                    (442,872)        (349,260)
REO prior lien                                               0                0
                                                  ------------      ------------
Fair value reflected in financial statements          $816,094          $833,441
                                                  ============      ============

F. Income Taxes

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.

G. Organization and Syndication Costs

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 of $10,102 were capitalized and were
amortized over a five-year  period.  Syndication  costs of $415,692 were charged
against partners' capital and were allocated to individual  partners  consistent
with the Partnership Agreement.

H. Allowance for Doubtful Accounts

Loans 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 loan  system.  A  provision  is made  for bad  debt to an  amount
considered by management to be adequate,  with due  consideration  to collateral
value, to provide for  unrecoverable  accounts  receivable,  including  impaired
loans,  other loans,  accrued interest and advances on loans, and other accounts
receivable  (unsecured).  The composition of the allowance for doubtful accounts
as of December 31, 2000 and 1999 was as follows:
                                                            December 31,
                                                --------------------------------
                                                        2000            1999
                                                     ---------         ---------
Impaired loans                                       $137,175           $152,231
Unspecified loans                                     569,612            598,803
Accounts receivable, unsecured                        143,761             77,529
                                                     ---------         ---------
                                                     $850,548           $828,563
                                                     =========         =========

I. 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  actual  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  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.


<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000

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

Redwood Mortgage Corp.  receives mortgage brokerage  commissions for services in
connection with the review, selection, evaluation,  negotiation and extension of
loans in an amount up to 12% of the  principal  amount of the loans  through the
period ending 6 months after the termination  date of the offering.  Thereafter,
commissions  are limited to an amount not to exceed 4% of the total  Partnership
assets per year.  Such  commissions  are paid by the  borrowers,  and are not an
expense  to the  Partnership.  Loan  brokerage  fees for 2000,  1999,  and 1998,
totaled $130,487, $207,739 and $166,752, respectively.

B. Mortgage Servicing Fees

Redwood Mortgage Corp. also receives  monthly  mortgage  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
loan is located. Mortgage servicing fees of $110,713, $127,440 and $128,493 were
incurred for the years ended December 31, 2000, 1999 and 1998, respectively.

C. Asset Management Fee

The General Partners receive a monthly fee 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%
annual).  Asset  management  fees were $38,400,  $44,524 and $16,141  during the
years ended December 31, 2000, 1999 and 1998, respectively.

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 and losses are  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 Corp.) 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. Such
reimbursements are reflected as expenses in the Statements of Income.

G. General Partners Contributions

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.


<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000

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  Partnership's  loan
portfolio.

Interest earned prior to admission was credited to partners in applicant status.
As loans were made, applicant  subscriptions were transferred to Limited Partner
status to begin  sharing  in income  from loans  secured by deeds of trust.  The
interest  earned  prior  to  admission  was  either  paid  to the  investors  or
transferred to Partners' Capital along with the original investment.

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.

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.


<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000

E. Liquidity, Capital Withdrawals and Early Withdrawals

There are substantial  restrictions on  transferability of Units and accordingly
an investment in the Partnership is not liquid. Limited Partners had 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 which in all  instances
had occurred as of December 31,  2000.  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.  Withdrawal after
the  one-year  holding  period  and  before  the  five-year  holding  period was
permitted only upon the terms set forth above.

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 (20) 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  (20)  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.

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.  Beginning  with fiscal years after
1993, the guarantee no longer applies.

NOTE 5 - LEGAL PROCEEDINGS

Legal actions against  borrowers and other involved  parties have been initiated
by the Partnership to help assure payments against unsecured accounts receivable
totaling  $188,421 at December 31, 2000. The  Partnership is a defendant,  along
with  numerous  other  defendants  including a developer,  contractor  and other
lenders,  in a lawsuit  involving  the  Partnership's  attempt to  recover  it's
investment in Real Estate acquired through foreclosure.

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.


<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000



NOTE 6 - NOTE PAYABLE 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, 2000
and 1999 were $3,500,000, and $800,000,  respectively, and the interest rate was
9.75% (9.50% prime + .25%) at December 31, 2000. This line of credit expires May
1, 2003.

NOTE 7 - INCOME TAXES

The following  reflects a  reconciliation  from net assets  (Partners'  Capital)
reflected in the financial statements to the tax basis of those net assets:

                                                             December 31,
                                                        ------------------------
                                                        2000              1999
                                                       -------           -------
Net assets - Partners' Capital
             per financial statements               $10,106,308      $11,009,296

Formation loan receivable                                75,612          165,499
Allowance for doubtful accounts                         850,548          828,563
                                                     -----------      ----------
Net assets tax basis                                $11,032,468      $12,003,358
                                                     ===========      ==========

In 2000 and 1999, approximately 70% and 69%, respectively, of taxable income was
allocated to tax exempt organizations i.e.,  retirement plans. Such plans do not
have to file income tax returns unless their "unrelated business income" exceeds
$1,000.   Applicable  amounts  become  taxable  when  distribution  is  made  to
participants.

NOTE 8 - 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) Mortgage  Investments (see note 2 (c) had a carrying value of $12,794,297 at
December  31,  2000.  The fair value of these  investments  of  $12,792,716  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 doubtful  accounts  along with accrued  interest and advances
related  thereto  should also be considered in evaluating  the fair value versus
the carrying value.


<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000

NOTE 9 - ASSET CONCENTRATIONS AND CHARACTERISTICS

The loans are secured by recorded  deeds of trust.  At December 31, 2000,  there
were 38 loans outstanding with the following characteristics:

Number of loans outstanding                                                  38
Total loans outstanding                                             $12,794,297

Average loan outstanding                                               $336,692
Average loan as percent of total                                           2.63%
Average loan as percent of Partners' Capital                               3.33%

Largest loan outstanding                                             $1,995,452
Largest loan as percent of total                                          15.60%
Largest loan as percent of Partners' Capital                              19.74%

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

Largest percentage of loans in one county                                 29.47%
Average loan to appraised value of security at time
    loan was consummated                                                  60.69%

Number of loans in foreclosure                                                0


The following categories of loans are pertinent at December 31, 2000 and 1999:

                                                              December 31,
                                                             -------------------
                                                         2000               1999
                                                       --------         --------

First Trust Deeds                                    $8,720,986       $6,077,532
Second Trust Deeds                                    4,000,140        4,272,714
Third Trust Deeds                                        73,171          661,414
                                                    -----------       ----------
  Total loans                                        12,794,297       11,011,660
Prior liens due other lenders                         8,761,363       10,389,233
                                                    ------------      ----------
  Total debt                                        $21,555,660      $21,400,893
                                                    ============      ==========

Appraised property value at time of loan            $35,518,467      $34,223,193
                                                    ============      ==========

Total investments as a percent of appraisals             60.69%           62.53%
                                                    ============      ==========

Investments by Type of Property

Owner occupied homes                                    $218,942        $340,864
Non-Owner occupied homes                               1,644,636       2,347,394
Apartments                                             2,590,022         182,675
Commercial                                             8,340,697       8,140,727
                                                    ------------      ----------
                                                     $12,794,297     $11,011,660
                                                    ============      ==========


<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000

Scheduled maturity dates of loans as of December 31, 2000 are as follows:

                    Year Ending
                   December 31,                  Amount
                --------------------       -------------------

                       2001                       $10,100,308
                       2002                         1,317,339
                       2003                           557,348
                       2004                           130,010
                       2005                           514,419
                    Thereafter                        174,873
                                                 ------------
                       Total                      $12,794,297
                                                 ============

The  scheduled  maturities  for 2001 above include  approximately  $1,664,181 in
seven loans which are past  maturity at December  31,  2000.  Although  interest
payments  on most of these  loans are  current,  $753,320  of these  loans  were
categorized as delinquent over 90 days.

Five loans with interest overdue in excess of 90 days and principal  outstanding
of $890,597 were  considered  impaired at December 31, 2000.  That is,  interest
accruals are no longer recorded thereon.

The cash balance at December 31, 2000 of $269,000 was in two banks with interest
bearing balances totaling $107,578.  The balances exceeded FDIC insurance limits
(up to $100,000 per bank) by $69,000.  The  Partnership's  main bank is the same
financial  institution  that has provided the  Partnership  with the  $3,500,000
limit line of credit.  At December 31, 2000, draw down against this facility was
$3,500,000.  As and when deposits in the  Partnership's  bank accounts  increase
significantly beyond the insured limit, the funds are either placed in new loans
or used to pay-down on the line of credit balance.




<PAGE>




                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                         REDWOOD MORTGAGE INVESTORS VII

<TABLE>


Column A                Column B                     Column C                 Column D         Column E
Description             Balance at                   Additions                Deductions       Balance at
                                       --------------------------------------
                        beginning of          (1)                 (2)         Describe         End of Period
                        of period      Charged to          Charged to             (a)
                                     Costs & Expenses    Other accounts -
                                                            Describe
Year Ended
12/31/00
Deducted from
Asset accounts:
<S>                          <C>                  <C>                     <C>        <C>              <C>
Allowance for
Doubtful accts               $828,563             $25,160                 $0         $(3,175)         $850,548
Cumulative
write-down of
Real Estate held
For sale (REO) (b)           $349,260             $40,504                 $0          $53,108         $442,872
                        --------------      --------------            ----------   -----------      ----------

Total                      $1,177,823             $65,664                 $0          $49,933       $1,293,420
                        ==============      ==============            ==========   ===========      ==========

</TABLE>
(a)  Represents net loss or net (gain) on loans and real estate held for sale.
(b)  The beginning  balance of REO includes  actual REO of $119,220 and $230,040
     for REO in process at 12/31/99 which became REO in year 2000.







<PAGE>


SCHEDULE IV

                                               LOANS ON REAL ESTATE
                                       RULE 12-29 MORTGAGE LOANS ON REAL ESTATE
<TABLE>

<S>         <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
Descp.      Int.     Final         Periodic      Prior Liens     Face Amt. of      Carrying           Principal    Type   Geographic
            Rate %   Maturity      Payment                       Loans (original   amount of Loans     amt of       of       County
                        Date        Terms                            amount)                           Loans       Lien     Location
                                                                                                     subject to
                                                                                                      Delinq.
                                                                                                      Prin. or
                                                                                                        Int.
=========== ======== =========== ============= ================= ================= ================ ============= ======= ==========

Res           12.00   01/10/04        $150.00       $208,000.00        $15,000.00          $646.71         $0.00   2nd     San Mateo
Apts           6.50   05/01/06        $540.83        $89,904.00        $75,000.00       $96,716.11    $21,092.37   2nd     Sacramnto
Res           12.75   07/01/08        $370.90       $236,164.00        $29,700.00       $21,589.46         $0.00   2nd     San Mateo
Res            8.00   05/01/09        $753.50             $0.00        $81,825.00       $56,566.84         $0.00   1st     Alameda
Comm          10.00   12/01/98      $3,619.98             $0.00       $412,500.00      $405,682.17    $83,259.54   1st     Alameda
Comm           7.00   12/01/03        $575.74       $281,250.00        $49,586.38       $40,560.78    $16,696.46   2nd     Alameda
Comm          12.00   02/01/99      $3,420.76             $0.00       $335,638.30      $335,638.30    $66,134.56   1st     S Clara
Apts           7.00   02/10/05        $234.06        $80,250.00        $40,125.00       $40,125.00         $0.00   2nd     San Fran
Comm           9.00   05/10/02        $670.52             $0.00        $83,333.33       $79,538.11         $0.00   1st     Shasta
Res            8.00   09/18/03         $87.56             $0.00        $11,932.83       $11,422.21         $0.00   1st     Sonoma
Res            8.00   09/30/03         $89.71             $0.00        $12,225.92       $11,728.40         $0.00   1st     Sonoma
Comm          12.00   02/01/99        $124.00       $312,000.00        $12,000.00       $12,000.00     $3,446.09   2nd     S Clara
Res           14.00   01/01/98      $1,983.34             $0.00       $340,000.00      $170,000.00         $0.00   1st     Alameda
Comm           7.00   07/01/02      $1,131.11             $0.00       $146,666.66      $138,418.47         $0.00   1st     Con Costa
Land          11.50   09/01/99      $3,833.33             $0.00       $400,000.00      $400,000.00         $0.00   1st     Stanislas
Land          11.50   02/01/00      $4,791.67             $0.00       $500,000.00      $267,689.91         $0.00   1st     Stanislas
Comm          10.50   04/01/99     $14,000.00        $1,464,790     $1,600,000.00      $750,000.00         $0.00  2nd      San Mateo
Land          11.00   01/01/01      $9,166.67       $201,686.00     $1,000,000.00      $800,112.32         $0.00  2nd      Stanislas
Land          11.00   07/01/01      $9,166.67       $137,737.00     $1,000,000.00    $1,000,000.00         $0.00  2nd      Stanislas
Res           12.00   05/01/01      $2,782.54             $0.00       $800,000.00      $738,509.95         $0.00   1st     Placer
Land          11.00   11/01/00        $782.52     $1,141,690.00        $85,365.85       $73,170.73         $0.00   3rd     Stanislas
Res           11.00   11/01/04      $1,238.02       $553,179.00       $130,000.00      $129,363.12         $0.00   2nd     San Mateo
Comm          10.25   12/01/01     $10,121.87             $0.00     $1,185,000.00      $829,500.00         $0.00   1st     Con Costa
Res           11.00   01/01/05      $4,535.44             $0.00       $476,250.00      $474,294.01         $0.00   1st     Santa Crz
Comm          11.50   03/01/02      $4,165.48             $0.00       $434,659.10      $434,659.10         $0.00   1st     San Fran
Comm          11.50   03/01/02      $4,156.03       $434,659.00       $565,340.92      $441,994.30         $0.00  2nd      San Fran
Land          11.50   07/01/01      $1,753.05     $1,000,000.00       $182,926.83      $182,926.83         $0.00  2nd      Stanislas
Res           12.00   05/01/01        $994.57       $800,000.00        $99,457.15       $99,457.15         $0.00  2nd      Placer
Res           11.00   04/01/01      $1,375.00       $986,950.00       $150,000.00      $150,000.00         $0.00  2nd      Alameda
Apts          12.00   05/01/01     $19,680.91             $0.00     $2,010,689.63    $1,995,451.75         $0.00   1st     San Fran
Comm          12.00   12/01/01     $11,475.00             $0.00     $1,147,500.00    $1,147,500.00         $0.00   1st     Co Costa
Comm          11.00   07/01/01      $3,666.66             $0.00       $500,000.00      $400,000.00         $0.00   1st     San Fran
Apts          12.00   08/01/03      $4,400.00             $0.00       $720,000.00      $440,000.00         $0.00   1st     San Fran
Apts          12.50   04/01/02        $119.83       $440,000.00        $31,884.05       $17,729.43         $0.00  2nd      San Fran
Comm          13.00  11/01/02       $2,220.84       $310,381.00       $205,000.00      $205,000.00         $0.00  2nd      Alameda
Comm          10.00   12/01/03        $470.70             $0.00        $53,636.36       $53,636.36         $0.00   1st     Stanislas
Comm          10.00   12/01/01        $104.60        $82,723.00        $11,919.19       $11,919.19         $0.00   2nd     Stanislas
Land          12.00   12/01/01      $3,307.50             $0.00       $330,750.00      $330,750.00         $0.00   1st     S Clara
                                 ------------- ----------------- ----------------- ---------------- -------------
                                   132,060.91      8,761,363.00     15,265,912.50    12,794,296.71    190,629.02
                                 ============= ================= ================= ================ =============
</TABLE>

Notes:
         Loans  classified as `impaired loans' had principal  balances  totaling
         $890,597  at December  31,  2000.  Impaired  loans are defined as loans
         where the costs 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.

Schedule IV

Reconciliation of carrying amount (cost) of loans at close of periods

                                                  Year ended December 31,
                                         ---------------------------------------
                                            2000          1999           1998
                                         ----------     -------        -------
Balance at beginning of year             $11,011,660   $13,209,186   $13,449,741
                                       -------------   -----------   -----------
Additions during period:
New loans                                  7,112,078     7,716,617     6,398,769
Other                                              0             0             0
                                       -------------   -----------   -----------
         Total Additions                   7,112,078     7,716,617     6,398,769
                                       -------------   -----------   -----------


Deduction during period:
Collections of principal                   5,324,620     9,314,140     6,529,324
Foreclosures                                               400,002       110,000
Cost of loans sold                                               0             0
Amortization of Premium                                          0             0
Other                                          4,821       200,001             0
                                        -------------  ------------  -----------
         Total Deductions                  5,329,441     9,914,143     6,639,324
                                        -------------  ------------  -----------

Balance at close of year                 $12,794,297   $11,011,660   $13,209,186
                                        =============  ============  ===========




<PAGE>


Item 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE

Bruce  and/or  John  Cropper  (the  Croppers)  have  been  providing  audit  and
accounting  services  to the  General  Partners  of the  Partnership  and  their
affiliates for over 16 years through the following CPA firms:  1993-1998- Parodi
& Cropper,  CPA's;  1999 -  Caporicci,  Cropper & Larson,  LLP;  2000 - Armanino
McKenna LLP.

Bruce and  John Cropper were  shareholders in Cropper  Accountancy Corp. through
December 31, 2000.

Cropper  Accountancy  was a partner  in the firm of  Parodi & Cropper  from 1993
until  April  of 1998.  In May of  1998,  Cropper  Accountancy  Corp.,  formed a
partnership  with Caporicci & Larson creating a new firm,  Caporicci,  Cropper &
Larson,  LLP with offices in Irvine and Walnut Creek,  California.  The Parodi &
Cropper firm was dissolved.

Effective January 1, 2001, Cropper  Accountancy Corp.,  withdrew from Caporicci,
Cropper & Larson, LLP partnership.  John Cropper joined the larger regional firm
of Armanino  McKenna,  LLP as a partner and Bruce  Cropper  continues to provide
services through Cropper Accountancy. The Croppers continue to perform audit and
accounting  services  to the  General  Partners  of the  partnership  and  their
affiliates.

As a result, the Partnership has retained the firm of Armanino McKenna,  LLP, to
provide its audit and financial services. Thus, although there has been a change
in accounting  firms,  there has not been a change in accountants and there have
not been any disagreement on any matter of accounting  principles,  practices or
financial status 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.

After 25 years of active  participation  in the  mortgage  business,  D. Russell
Burwell,  our founder and a General  Partner of the  Partnership  has decided to
retire  effective  September 30, 2001.  "Russ" has enjoyed a long and successful
career.  His original  business model, upon which our Partnership has its roots,
has withstood the test of time through varying  economic  cycles.  Collectively,
the various Redwood Mortgage Investors  Partnerships (I-VIII) have grown from an
idea to over  $110,000,000  in assets and  produced  excellent  results  for the
Limited Partners under Russ's  stewardship in Redwood  Mortgage  Investor's VII.
This  Partnership  originally  raised  $11,998,359  in Limited  Partner  Capital
contributions  and at December 31, 2000 had  $10,094,330  in  remaining  Limited
Partner Capital.

Over  the  last  few  years,   Russ  has  been  passing  along  his  duties  and
responsibilities  to the  remaining  General  Partners.  The  remaining  General
Partners  are  Mr.  Michael   Burwell  and  Gymno   Corporation,   a  California
Corporation.  Mr. Michael Burwell has been a General Partner of Redwood Mortgage
Investors  VII since its  inception  and has been  employed by Redwood  Mortgage
Corp, an affiliate of the Partnership,  since 1979. The Partnership  through the
remaining  General Partners and the employees of its affiliate  Redwood Mortgage
Corp., is well prepared for Russ's  departure and looks forward to emulating the
steady  consistent  returns that the Limited  Partners have enjoyed during Russ'
tenure.

Mr. D. Russell  Burwell is  providing  this  notification  pursuant to Article 8
Section  8.02  of the  Limited  Partnership  Agreement.  The  remaining  General
Partners have elected to continue the business of the  Partnership  as described
in Article 9 Section 9.01(d) of the Limited Partnership Agreement.


<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,  2000.  All such
compensation  is in compliance  with the guidelines and limitations set forth in
the Prospectus.

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

I. Redwood Mortgage         Mortgage Servicing Fee
   Corp.                    for servicing loans                        $ 110,713

General Partners &/or       Asset Management Fee
Affiliates                  managing assets.........................     $38,400
General Partners            1% interest in profits..................      $9,001

General Partners &/or       Portion of early withdrawal penalties
Affiliates                  applied to reduce Formation Loan........     $10,382

II. FEES PAID BY BORROWERS ON LOANS PLACED BY COMPANIES RELATED TO THE GENERAL
    PARTNERS WITH THE PARTNERSHIP (EXPENSES OF BORROWERS NOT OF THE PARTNERSHIP)

Redwood Mortgage      Mortgage Brokerage Commissions for services in connection
 Corp.                with the review, selection, evaluation, negotiation, and
                      extension of the loans paid by the borrowers and not by
                      the Partnership...............................    $130,487

Redwood Mortgage      Processing and Escrow Fees for services in connection with
 Corp.                notary, document preparation, credit investigation, and
                      escrow fees payable by the borrowers and not by the
                      Partnership...................................      $4,498
Gymno Corporation
 Inc.                 Reconveyance Fee..............................        $816


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                                          $27,032




<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 Caporicci, Cropper & Larson, LLP
        24.3              Consent of McCutchen, Doyle, Brown & Enersen, LLP


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. A Form 8-K was filed on February 7, 2000
         relating to a change in accounting firm.  Another Form 8-K was filed on
         February 13, 2001, relating to the subsequent change in accounting firm
         (see Item 9 above).

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 29th day of March
2001.

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 29th day of March 2001.


Signature                                Title                           Date


/S/ D. Russell Burwell
----------------------
D. Russell Burwell                  General Partner               March 29, 2001


/S/ Michael R. Burwell
----------------------
Michael R. Burwell                  General Partner               March 29, 2001


/S/ D. Russell Burwell
----------------------
D. Russell Burwel             President of Gymno Corpor           March 29, 2001
                              (Principal Executive Officer);
                               Director of Gymno Corporation


/S/ Michael R. Burwell
----------------------
Michael R. Burwell            Secretary/Treasurer of Gymno        March 29, 2001
                            Corporation (Principal Financial
                                 and Accounting Officer);
                              Director of Gymno Corporation