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

                                December 31, 1995

                                     Part I

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


                                     Part II

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


                                    Part III

Item 10 - Directors and Executive Officers of the Registrant              26
Item 11 - Executive Compensation                                          27
Item 12 - Security Ownership of Certain Beneficial Owners and management  28
Item 13 - Certain Relationships and Related Transactions                  28


                                     Part IV

Item 14 - Exhibits, Financial Statement Schedules, and Reports on 
          Form 8-K.                                                       28-29

Signatures                                                                    

<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, 1995 Commission file number 33-30427
-----------------------------------------------------------------------------

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

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

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

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

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

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

Securities registered pursuant to Section 12(g) of the Act:   NONE

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

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

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

Documents incorporated by reference:

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


                                     Part I

Item 1 - Business

     Redwood  Mortgage  Investors  VII, a California  limited  partnership  (the
Partnership),  was organized in 1989 of which D. Russell  Burwell,  Michael R.
Burwell  and  Gymno  Corporation,  a  California  corporation,  are the  General
Partners.  The address of the General  Partners is 650 El Camino Real,  Suite G,
Redwood  City,  California  94063.  The  Partnership  is  organized to engage in
business as a mortgage  lender,  for the primary purpose of making loans secured
by deeds of trust on California real estate.  Partnership loans are arranged and
serviced by Redwood  Home Loan Co., an affiliate  of the General  Partners.  The
Partnerships  objectives are to make investments,  as referred to above,  which
will: (i) provide the maximum  possible cash returns which Limited  Partners may
elect to (a) receive as monthly,  quarterly or annual cash  distributions or (b)
have credited to their capital  accounts and applied to Partnership  activities;
and (ii)  preserve  and protect the  Partnerships  capital.  The  Partnerships
general business is more fully described under the section entitled  Investment
Objectives and Criteria pages 26-31 of the Prospectus  which is incorporated by
reference.

     Originally,  60,000 Units were offered on a best  efforts  basis  through
broker/dealer member firms of the National Association of Security Dealers, Inc.
In accordance with the terms of the Prospectus,  the General Partners  increased
the number of units for sale from 60,000 to 120,000 and elected to continue  the
offering until October 19, 1992. The offering  closed on September 30, 1992, and
the Limited Partners  contributed  capital  totalled  $11,998,359 of an approved
$12,000,000  issue,  in units of $100 each. At that date all the  applicants had
been admitted into the Partnership with none left in the applicant  status.  The
final SR report (Report of Sales of Securities  and use of proceeds  therefrom),
was filed on September 21, 1992.

     The Partnership began selling units in October, 1989 and began investing in
mortgages in December, 1989. At December 31, 1995, the Partnership had a balance
in its mortgage loans totalling  $12,382,641 with interest rates thereon ranging
from 5% to 15.25%.

     Currently  First Trust Deeds  comprise  31.67% of the loan  portfolio  with
Junior loans making up the balance. Bay Area owner-occupied homes, combined with
non-owner  loans,  total  26.43  % of the  loans.  Commercial  loan  origination
increased from last year, now comprising 58.80% of the portfolio, an increase of
6.46%.  The past year  brought  us many  outstanding  low loan to value  lending
opportunities in this segment of the market. Loan investment size increased this
past year, and is now averaging $167,333 per loan investment. Some of the larger
loans are fractionalized between affiliated partnerships with objectives similar
to those of the  Partnership  to further  reduce risk.  Average  equity per loan
transaction  stood at  37.64%.  A 40%  equity  average  on loan  origination  is
generally  considered very  conservative.  Generally,  the more equity, the more
protection for the lender. The Partnerships loan portfolio is in good condition
with three properties in foreclosure.

Item 2 - Properties

     A summary of the  Partnerships  loan Portfolio as of December 31, 1995, is
set forth below.
<PAGE>

Loans as a Percentage of Total Loans

First Trust Deeds                               $  3,922,119.66
Appraised Value of Properties                      8,251,696.00
Total Investment as a % of Appraisal                      47.53%
Second Trust Deed Loans                            7,377,188.90
Third Trust Deed Loans                               896,188.46
Fourth Trust Deed Loans *                            187,143.98
First Trust Deeds due other Lenders               29,340,831.00
Second Trust Deeds due other Lenders               1,092,161.00
Third Trust Deeds due other Lenders                  142,858.00

Total Debt                                       $42,958,491.00

Appraised Property Value                          68,888,224.00
Total Investments as a % of Appraisal                     62.36%

Number of Loans Outstanding                                  74

Average Investment                                   167,332.99
Average Investment as a % of Net Asset                     1.18%
Largest Investment Outstanding                     1,176,744.19
Largest Investment as a % of Net Asset                     8.28%

Loans as a Percentage of Total Loans

First Trust Deeds                                         31.67%
Second Trust Deeds                                        59.58%
Third Trust Deeds                                          7.24%
Fourth Trust Deeds                                         1.51%
                                                         ------
Total                                                    100.00%

Loans by Type of Property                Amount             Percent


Owner Occupied Homes                $ 2,621,799.60           21.17%
Non-Owner Occupied Homes                651,528.21            5.26%
Apartments                            1,828,876.57           14.77%
Commercial                            7,280,436.62           58.80%
                                 -----------------           -----

Total                               $12,382,641.00          100.00%

<PAGE>

The following is a distribution of loans outstanding as of December 31, 1995 
by Counties.

      County                           Total Loans               Percent

    San Mateo                        $ 2,530,658.90             20.44%
    Contra Costa                       2,317,301.14             18.71%
    Santa Clara                        1,880,866.99             15.19%
    San Francisco                      1,583,398.35             12.79%
    Alameda                            1,178,889.46              9.52%
    Stanislaus                           830,070.88              6.70%
    Sonoma                               377,747.88              3.05%
    Mendocino                            300,000.00              2.42%
    El Dorado                            276,493.42              2.23%
    Monterey                             270,847.90              2.19%
    Marin                                212,074.89              1.71%
    Sacramento                           182,957.30              1.48%
    Santa Barbara                        123,616.04              1.00%
    Solano                               104,993.82              0.85%
    Shasta                                83,007.41              0.67%
    Tuolumne                              68,118.70              0.55%
    Santa Cruz                            61,597.92              0.50%
                                    ------------------        -----------

    Total                           $ 12,382,641.00            100.00%

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

Statement of Condition of Loans
         Number of Loans in Foreclosure                     3

Item 3 - Legal Proceedings

     The  Partnership  is not a defendant  in any legal  actions.  However,  the
Partnership is proceeding in a Judicial  foreclosure against four borrowers with
a recorded  receivable  balance of  $378,200.  Management  anticipates  that the
ultimate  result of these cases will not have a material  adverse  effect on the
net  assets of the  Partnership,  with due  consideration  having  been given in
arriving at the allowance for doubtful accounts.

<PAGE>

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

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

                                     Part II

Item 5 - Market for the Registrants Units and Related Partnership Matters.

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

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

Item 6 - Selected Financial Data

     Redwood Mortgage Investors VII began operations in December 1989. Financial
results  for  years  1984 to 1989 for prior  partnerships  are  incorporated  by
reference to the  Prospectus  (S-11) dated  October 20, 1989,  Table III pages 7
through  11 and  Supplement  No. 3 dated  October  2, 1990 to  Prospectus  dated
October 20, 1989, Table III pages 27 through 33.

Financial condition and results of operation for the Partnership for three
 years to December 31, 1995 were:
<CAPTION>

                                  Balance Sheet
                                     Assets

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

                                                               1995                 1994               1993
                                                      --------------       --------------      -------------
<S>                                                   <C>                   <C>                <C>

Cash ..............................................   $   514,840           $     462,681      $     487,310
Accounts Receivable:
   Mortgage loans secured by Deeds of Trust .......    12,382,641              11,345,566         11,766,189
   Accrued interest and other fees, net ...........       940,541                 738,142            570,283
   Advances on Real Estate Loans, net .............       110,874                  28,767             55,969
   Other receivables - Unsecured ..................       378,200                 359,072            270,783
   Less allowance for losses .................        (   200,000)          (     201,608)      (     94,858)
Real Estate Owned acquired through foreclosure at
    estimated net realizable value ................     1,347,997               2,352,221            647,062
Formation loan due from Redwood Home Loan Co. .....       517,051                 604,939            693,471
Partnership Interest ..............................       223,245                    -0-                 -0-
Organization cost net of amortization .............           368                   2,384              4,400
                                                     ------------             -----------        -----------
                                                     $ 16,215,757             $15,692,164        $14,400,609
                                                     ------------             -----------        -----------

</TABLE>
<PAGE>

<TABLE>

                        Liabilities and Partners Capital
<CAPTION>

                                                                           December 31,
                                                      ----------------------------------------
                                                               1995         1994          1993
                                                      -------------- -----------   -----------
                                                     
<S>                                                    <C>           <C>           <C>

Liabilities:
Note payable - Bank ................................   $ 2,000,000   $ 1,929,630   $   930,493
Accounts payable and accrued expenses ..............         1,472         2,973        40,522
Discount of Mortgage Loans .........................           -0-           -0-         8,548
Due to Related Companies ...........................           -0-         5,663         1,857
                                                       -----------   -----------   -----------
                                                       $ 2,001,472   $ 1,938,266   $   981,420
Partners Capital ...................................    14,214,285    13,753,898    13,419,189
                                                       -----------   -----------   -----------
                                                       $16,215,757   $15,692,164   $14,400,609
                                                       -----------   -----------   -----------

                               Statement of Income

Gross revenue ......................................   $ 1,450,487   $ 1,489,882   $ 1,652,290
Expenses ...........................................       538,527       562,591       526,307
                                                       -----------   -----------   -----------


Net Income ........................................    $   911,960   $   927,291   $ 1,125,983
                                                       -----------   -----------   -----------

Net income to General Partners (1%) ...............    $     9,120   $     9,273   $    11,260 
                                                       ===========   ===========   ===========

Net Income to Limited Partners (99%) ...............   $   902,840   $   918,018   $ 1,114,723
                                                       ===========   ===========   ===========


Net Income per $1,000 invested by Limited
 Partners for entire period:
   - where income is reinvested and compounded .....   $        60   $        63    $       80
                                                       ===========   ===========   ===========

   - where partner receives income in monthly
       distributions ................................  $        58   $        61    $       77
                                                       ===========   ===========   ===========
<FN>
Net income in 1993 averaged at an annualized  yield of 8.01%. In 1994, the annualized  yield was 
6.28% and in 1995 the annualized yield was 6.00%. 
</FN>
</TABLE>
<PAGE>


            MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

     On September 30, 1992, the Partnership  had sold  119,983.59  units and its
contributed capital totalled  $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, 1995, Partners Capital totalled $14,214,285.

     The Partnership began funding mortgage investments on December 27, 1989 and
as of December 31, 1995 had credited  the  Partners  accounts  with income at an
annualized (compounded) yield of 8.49%.

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

     The  Partnership has a line of credit with a commercial bank secured by its
mortgage loans to a limit of $2,000,000,  at a variable interest rate set at one
percent  above the prime rate.  This added source of funds helped in  maximizing
the  Partnership  yield because 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. As a result,  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,  1995,  the
Partnership is current with its interest payments on the line of credit.

     Considering  Northern  Californias  recent economic slump, 5 of the last 6
years,   wherein   business   activity   slumped   principally   in   aerospace,
communications,  banking, retail trade and the federal government sector causing
employment  losses  which was and still is  reflective  in property  prices to a
greater or lesser degree  depending on location.  The  Partnerships  income and
expenses,  accruals and delinquencies are within the normal range of the General
partners   expectations,   based  upon  their  experience  in  managing  similar
Partnerships over the last eighteen years. Borrowers foreclosures, as set forth
under Results of Operations,  are a normal aspect of partnership  operations and
the General  Partners  anticipate  that they will not have a material  effect on
liquidity.  Cash is constantly  being  generated  from interest  earnings,  late
charges,  pre-payment  penalties,  amortization  of Notes and  pay-off on Notes.
Currently,   cash  flow  exceeds   Partnership   expenses  and  earnings  payout
requirements.  As loan opportunities become available, excess cash and available
funds are invested in new loans.

     The  General  Partners  are  continually   reviewing  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.
<PAGE>

              Item 8 - Financial Statements and Supplementary Data

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

A-Financial Statements

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

       Independent Auditors Report,
       Balance Sheets - December 31, 1995, and December 31, 1994,
       Statements of Income for the three years ended December 31, 1995,
       Statements of Changes in Partners Capital for the three years ended 
       December 31, 1995,
       Statements of Cash Flows for the three years ended December 31, 1995,
       Notes to Financial Statements - December 31, 1995.

B-Financial Statement Schedules

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

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

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


<PAGE>









                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                              FINANCIAL STATEMENTS
                                DECEMBER 31, 1995
                         (With Auditors Report Thereon)

<PAGE>



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




                          INDEPENDENT AUDITORS REPORT


THE PARTNERS
REDWOOD MORTGAGE INVESTORS VII

     We have audited the financial  statements and related  schedules of REDWOOD
MORTGAGE  INVESTORS VII (A California Limited  Partnership)  listed in Item 8 on
form 10-K  including  balance  sheets as of  December  31, 1995 and 1994 and the
statements of income,  changes in partners capital and cash flows for the three
years ended December 31, 1995. These financial statements are the responsibility
of the Partnerships management.  Our responsibility is to express an opinion on
these financial statements based on our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  As 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, 1995 and 1994, and the results of its operations and cash
flows for the three years ended  December 31, 1995 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.




                                PARODI & CROPPER








Lafayette, California
February 28, 1996

<PAGE>
<TABLE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                                 BALANCE SHEETS
                           DECEMBER 31, 1995 AND 1994

<CAPTION>
                                                   ASSETS
                                                    1995            1994
                                              --------------  ----------
<S>                                            <C>           <C>           
Cash .......................................   $   514,840   $   462,681
                                               -----------   -----------

 Accounts receivable:
 Mortgage loans, secured by deeds of trust .... 12,382,641    11,345,566
 Accrued Interest on mortgage loans ............   940,541       738,142
 Advances on mortgage loans ....................   110,874        28,767
 Accounts receivables, unsecured ...............   378,200       359,072
                                               -----------    ----------
                                                13,812,256    12,471,547                    
 Less allowance for doubtful accounts .........    200,000       201,608
                                               -----------   -----------
                                                13,612,256    12,269,939
                                               -----------   -----------

Real estate owned, acquired through foreclosure,
     at net realizable value ..................  1,347,997     2,352,221
Investment in partnership .....................    223,245           -0-

Formation loan due from Redwood Home
  Loan Co. ....................................    517,051       604,939

Organization costs, less accumulated amortization
  of $9,734 and $7,718, respectively ..........        368         2,384
                                               -----------   -----------
                                               $16,215,757   $15,692,164
                                               ===========   ===========


                        LIABILITIES AND PARTNERS CAPITAL


Liabilities:
Notes payable - bank line of credit ..........$ 2,000,000   $ 1,929,630
Accounts payable and accrued expenses ........      1,472         2,973
Due to related companies .....................        -0-         5,663
                                              -----------   -----------
                                                2,001,472     1,938,266

Partners Capital ............                  14,214,285    13,753,898
                                              -----------   -----------

                                              $16,215,757   $15,692,164
                                              ===========   ===========


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


<TABLE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                              STATEMENTS OF INCOME
                   FOR THE THREE YEARS ENDED DECEMBER 31, 1995

<CAPTION>

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

                                                                                      1995                 1994                1993
<S>                                                                             <C>                  <C>                  <C>
                                                                                ----------           ----------           ----------
Revenues:
  Interest on mortgage loans ........................................           $1,430,742           $1,453,969           $1,617,308
  Interest on bank deposits .........................................                8,407               13,843               11,341
  Late charges, and prepayment  fees ................................                9,038               20,232               23,641
  Other .............................................................                2,300                1,838                  -0-
                                                                                ----------           ----------           ----------
                                                                                ----------           ----------           ----------
                                                                                 1,450,487            1,489,882            1,652,290
                                                                                ----------           ----------           ----------

Expenses:
  Interest on note payable - bank ...................................              163,361              135,790              119,351
  Clerical costs through Redwood Home Loan Co .......................               27,762                  -0-               33,641
  Amortization of organization costs ................................                2,016                2,016                2,016
  General partners asset management fee .............................                  -0-               10,008               16,735
  Provision for doubtful accounts and losses
   on real estate acquired through foreclosure ......................              306,779              335,955              235,423
  Professional services .............................................               19,557               53,250               94,188
  Printing, supplies and postage ....................................               14,703               17,282               14,530
  Other .............................................................                4,349                8,290               10,423
                                                                                ----------           ----------           ----------
                                                                                   538,527              562,591              526,307
                                                                                ----------           ----------           ----------


Net Income ..........................................................           $  911,960           $  927,291           $1,125,983
                                                                                ==========           ==========           ==========

Net income:  To General Partners(1%) ................................           $    9,120           $    9,273           $   11,260
                     To Limited Partners (99%) ......................              902,840              918,018            1,114,723
                                                                                ==========           ==========           ==========
                                                                                $  911,960              927,291            1,125,983
                                                                                ==========           ==========           ==========

Net income per $1,000 invested by Limited
 Partners for entire period:
     -where income is reinvested and
          compounded ................................................           $      60            $       63           $       80
                                                                                ==========           ==========           ==========

     -where partner receives income in
           monthly distributions ....................................           $      58            $       61           $       77
                                                                                ==========           ==========           ==========


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

<TABLE>




                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                    STATEMENTS OF CHANGES IN PARTNERS CAPITAL
                   FOR THE THREE YEARS ENDED DECEMBER 31, 1995
<CAPTION>

                                                                  PARTNERS CAPITAL

                                                                                           UNALLOCATED
                                                   GENERAL             LIMITED             SYNDICATION
                                                  PARTNERS             PARTNERS               COSTS                 TOTAL
                                               --------------      ---------------      ----------------       ---------------
<S>                                              <C>                  <C>               <C>                    <C>
Balances at December 31, 1992 ................   $  11,987            13,121,673        (       277,899)       12,855.761        
Net income ...................................      11,260             1,114,723                    -0-         1,125,983
Allocation of syndication costs ..............   (     810)           (   80,190)                 81,000              -0- 
Early withdrawal penalties ...................         -0-            (   23,000)                  7,195       (   15,805)
Partners withdrawals. ........................   (  10,459)           (  536,291)                    -0-       (  546,750)
                                                -----------           -----------            ------------       ----------

Balances at December 31, 1993 ................      11,978            13,596,915         (       189,704)      13,419,189
                                          
Net income ...................................       9,273               918,018                     -0-          927,291
Allocation of syndication costs ..............   (     810)           (   80,190)                 81,000              -0-
Early withdrawal penalties ...................         -0-            (   34,001)                 10,635       (   23,366)
Partners withdrawals ........................    (   8,463)           (  560,753)                    -0-       (  569,216) 
                                                -----------          ------------            ------------       ----------

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

Net income ...................................       9,120               902,840                     -0-          911,960
Allocation of syndication costs ..............   (     810)           (   80,190)                 81,000              -0-
Early withdrawal penalties ...................         -0-            (   10,690)                  3,344       (    7,346)
Partners withdrawals ........................    (   8,310)           (  435,917)                    -0-       (  444,227)
                                                -----------           -----------             -----------       ----------
Balances at December 31, 1995 ................   $  11,978            14,216,032          (       13,725)      14,214,285
                                                ===========           ==========              ===========      ===========



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

                                    <TABLE>
                         REDWOOD MORTGAGE INVESTORS VII
                       (A Califonira Limited Partnership)
                            STATEMENTS OF CASH FLOWS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 1995
<CAPTION>

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

                                                        1995        1994         1993
<S>                                                <C>          <C>          <C>
                                                     --------   ----------   ----------
Cash flows from operating activities:
  Net income ...................................   $  911,960   $  927,291   $1,125,983
  Adjustments to reconcile net income to net
   cash provided by operating activities:
    Amortization of organization costs .........        2,016        2,016        2,016
    Increase in allowance for doubtful accounts    (    1,608)     106,750       84,858
    Increase in accrued interest & advances ....   (  284,506)  (  140,657)  (  111,963)
    Increase (decrease) in accounts payable
     and accrued expenses ......................   (    1,501)  (   37,549)      40,022
    (Increase) decrease in amount due from or
       to Redwood Home Loan Co., net ...........   (    5,663)       3,806   (    5,132)
    Increase (decrease) in discount on
        Mortgage Loans .........................          -0-   (    8,548)       8,548
                                                    ----------   ---------    ---------
 Net cash provided by operating activities            620,698      853,109    1,144,332
                                                    ----------   ---------    ---------

Cash flows from investing activities:
  Net (increase) decrease in:
       Mortgage loans ..........................   (1,037,075)     420,623    1,131,459
       Formation loan ..........................       87,888       88,532      101,101
       Real Estate owned .......................    1,004,224   (1,705,159)  (  268,915)
       Other receivables - unsecured ...........   (   19,128)  (   88,289)  (   61,885)
       Investment in partnership ...............   (  223,245)         -0-          -0-
                                                   ----------    ----------    ---------

      Net cash provided by (used in) investing
        activities ............................    (  187,336)  (1,284,293)     901,760
                                                   -----------   ----------    ---------

Cash flows from financing activities:
 Net increase (decrease) in note payable-bank ..       70,370      999,137   (1,069,507)
 Partners withdrawals ..........................   (  444,227)  (  569,216)  (  546,750)
 Early withdrawal penalties, net of credit to
   syndication costs ...........................   (    7,346)  (   23,366)  (   15,805)
                                                    ----------   ----------   ---------

      Net cash provided by (used in) financing
          activities ...........................   (  381,203)     406,555   (1,632,062)
                                                    ----------   ----------   ---------

Net increase (decrease) in cash ................       52,159    (  24,629)     414,030

Cash - beginning of period .....................      462,681      487,310       73,280
                                                    ----------   ----------   ---------

Cash - end of period ...........................   $  514,840   $  462,681   $  487,310
                                                    ==========   ==========   =========
<FN>
See accompanying notes to financial statements .
</FN>
</TABLE>
<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1995

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.  Partnership  loans are being arranged
and  serviced by Redwood  Home Loan Co.  (RHL C0.),  dba  Redwood  Mortgage,  an
affiliate of the General  Partners.  At December 31, 1992, the offering had been
closed with contributed  capital totaling  $11,998,359 for limited partners with
none left in applicant status.

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

A. Sales Commission - Formation Loan
     Sales  commissions  ranging from 0% (units sold by General Partners) to 10%
of the gross proceeds were paid by RHL Co., an affiliate of the General Partners
that arranges and services the mortgage loans. To finance the sales commissions,
the  Partnership  was authorized to loan to RHL Co. an amount not to exceed 8.3%
of the gross proceeds  provided that the Formation Loan for the minimum offering
period could be 10% of the gross proceeds for that period. The Formation Loan is
unsecured  and  is  being  repaid,  without  interest,  in ten  installments  of
principal,  over a ten year period  commencing  January 1, 1992. At December 31,
1992,  RHL Co.  has  borrowed  $914,369  from the  Partnership  to  cover  sales
commissions  relating to  $11,998,359  limited  partner  contributions  (7.62%).
Through  December  31,  1995,  $397,318  including  $49,814 in early  withdrawal
penalties, had been repaid leaving a balance of $ 517,051.

     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.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1995

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

     Mortgage  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  mortgage  loan  system.  A  provision  is made for
doubtful  account to adjust the  allowance  for  doubtful  accounts to an amount
considered by management  to be adequate to provide for  unrecoverable  accounts
receivable.

     In  preparing  the  financial  statements,  management  is required to make
estimates based on the information available that affect the reported amounts of
assets and  liabilities  as of the balance  sheet date and revenues and expenses
for the related periods.  Such estimates relate principally to the determination
of the allowance for doubtful accounts and the valuation of real estate acquired
through  foreclosure.  Actual  results  could  differ  significantly  from these
estimates.

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

     Amounts  reflected  in the  statements  of income as net  income per $1,000
invested by Limited Partners for the entire period are actual amounts  allocated
to Limited  Partners who have their  investment  throughout  the period and have
elected to either  leave their  earnings to compound or have  elected to receive
monthly  distributions of their net income.  Individual income is allocated each
month  based on the  Limited  partners  pro rata  share of  Partners  Capital.
Because the net income percentage varies from month to month, amounts per $1,000
will vary for those  individuals  who made or  withdrew  investments  during the
period,  or select other  options.  However,  the net income per $1,000  average
invested  has  approximated  those  reflected  for those whose  investments  and
options have remained constant.

NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES

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

A. Loan Brokerage Commissions
     For  services  in  connection  with  the  review,  selection,   evaluation,
negotiation  and  extension of  Partnership  loans in an amount up to 12% of the
principal  through the period ending 6 months after the termination  date of the
offering.  Thereafter,  loan brokerage  commissions will be limited to an amount
not to exceed 4% of the total  Partnership  assets per year.  The loan brokerage
commissions  are  paid  by  the  borrowers,  and  thus,  not an  expense  of the
partnership.


<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1995

B. Loan Servicing Fees
     Monthly loan  servicing fees of up to 1/8 of 1% (1.5% annual) of the unpaid
principal,  or  such  lesser  amount  as is  reasonable  and  customary  in  the
geographic  area  where  the  property  securing  the loan is  located.  Amounts
remitted  to the Company  and  recorded as interest on mortgage  loans is net of
such fees. In 1993,  $57,825 of the total loan  servicing  fees of $116,627 were
waived by Redwood  Home Loan Co. In 1994,  all $124,049 in loan  servicing  fees
were waived. In 1995,  $66,888 of the total loan servicing fees of $100,282 were
waived.

C. Asset Management Fee
     The General Partners  receive a monthly fee for managing the  Partnerships
loan portfolio and operations  equal to 1/32 of 1% of the net asset value (3/8
of 1% annual).  In 1995,  1994 and 1993, the asset  management fees charged were
$-0-, $10,008,  and $16,735,  respectively.  The computed management fees were $
52,801, $51,519,  $50,360 and respectively,  with the difference being waived by
the General Partners.

D. Other Fees
     The  Partnership  Agreement  provides for other fees such as  reconveyance,
loan assumption and loan extension fees. Such fees are incurred by the borrowers
and are paid to parties related to the General Partners.

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

F. Operating Expenses
     The  General  Partners  or their  affiliate  (Redwood  Home  Loan  Co.) are
reimbursed by the Partnership for all operating  expenses  actually  incurred by
them on behalf of the Partnership,  including without limitation,  out-of-pocket
general and  administration  expenses of the  Partnership,  accounting and audit
fees,  legal fees and expenses,  postage and  preparation  of reports to Limited
Partners.  In 1994,  all such expenses were absorbed by Redwood Home Loan Co. In
1995 and 1993, reimbursed expenses totalled $27,762 and $33,641, respectively.

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

NOTE 4 - OTHER PARTNERSHIP PROVISIONS

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

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

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1995

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

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

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

E. Liquidity, Capital Withdrawals and Early Withdrawals
     There  are  substantial   restrictions  on  transferability  of  Units  and
accordingly an investment in the Partnership is illiquid.  Limited Partners have
no right to  withdraw  from the  partnership  or to obtain  the  return of their
capital  account for at least one year from the date of  purchase  of Units.  In
order to provide a certain degree of liquidity to the Limited Partners after the
one-year  period.  Limited  Partners may  withdraw all or part of their  Capital
Accounts from the  Partnership in four quarterly  installments  beginning on the
last day of the calendar  quarter  following  the quarter in which the notice of
withdrawal is given,  subject to a 10% early withdrawal penalty. The 10% penalty
is applicable to the amount  withdrawn as stated in the Notice of Withdrawal and
will be deducted from the Capital  Account and the balance  distributed  in four
quarterly installments.  Withdrawal after the one-year holding period and before
the  five-year  holding  period will be permitted  only upon the terms set forth
above.

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

F. Guaranteed Interest Rate For Offering Period
     During the period commencing with the day a Limited Partner was admitted to
the  Partnership  and ending 3 months after the offering  termination  date, the
General  partners  guaranteed  an  interest  rate equal to the greater of actual
earnings from mortgage operations or 2% above The Weighted Average cost of Funds
Index for the Eleventh  District Savings  Institutions  (Savings & Loan & Thrift
Institutions) as computed by the Federal Home Loan Bank of San Francisco,  up to
a maximum interest rate of 12%. The guarantee  amounted to $12,855 and $5,195 in
1990 and 1991,  respectively.  In 1992 and 1993, actual realization exceeded the
guaranteed amount each month. None of 1994 or 1995 was subject to the guarantee.
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1995

NOTE 5 - INVESTMENT IN PARTNERSHIP

     The Partnerships  interest in land, acquired through foreclosure,  located
in East Palo Alto with costs  totalling  $223,245 has bee invested  with that of
two other Partnerships (total cost of $941,050) in a partnership which is in the
process of constructing  approximately 72 single family homes for sale.  Redwood
Mortgage  Investors  V, VI and VII have first  priority on return of  investment
plus interest thereon, in addition to a share of profits realized.

NOTE 6 - LEGAL PROCEEDINGS

     The  Partnership  is not a defendant in any legal actions.  However,  legal
actions against  borrowers and other involved parties have been initiated by the
Partnership  to help  assure  payments  against  unsecured  accounts  receivable
totalling $378,200 at December 31, 1995.

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

NOTE 7 - NOTES PAYABLE BANK - LINE OF CREDIT

     The  Partnership  has a bank line of credit  secured by its  mortgage  loan
portfolio up to $2,000,000 at .75% over prime.  The balances  outstanding  as of
December 31, 1994 and 1995 were $1,929,630,and $2,000,000 respectively,  and the
interest rate at December 31, 1995 was 9.5% (8.75% prime + .75%).

NOTE 8 - ASSET CONCENTRATIONS AND CHARACTERISTICS


 Number of loans outstanding                               74
 Total loans outstanding                          $12,382,641

 Average loan outstanding                         $   167,333
 Average loan as percent of total                        1.35%
 Average loan as percent of Partners Capital             1.18%

 Largest loan outstanding                          $1,176,744
 Largest loan as percent of total                        9.50%
 Largest loan as percent of Partners Capital             8.28%

 Number of counties where security is located
  (all California)                                      17
 Largest percentage of loans in one county              20.44%
 Average loan to appraised value of security
     at time loan was consummated                       62.36%
 Number of loans in foreclosure                             3

     The cash  balance at December  31, 1995 of $514,840 was in three banks with
interest  bearing  balances  totalling  $314,308.  The  balances  exceeded  FDIC
insurance limits (up to $100,000 per bank) by $314,092.
<PAGE>
<TABLE>

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

<CAPTION>

Column A                    Column B               Column C            Column D                   Column E
Name of Debtor              Balance Beginning      Additions                 Deductions            Balance at end of period
                            of period 12/31/94                          (1)            (2)           (1)           (2)
                                                                      Amounts        Amounts       Current     Not Current        
                                                                     collected     written off              12/31/95
<S>                         <C>                    <C>               <C>           <C>             <C>         <C>

Redwood Home Loan Co. ..    $604,939               $-0-              $ 80,542      $  7,346*       $ -0-       $517,051


<FN>

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

* The amount written off is comprised of the applications of the applicable  portions of early withdrawal penalty as provided for
in the prospectus.
</FN>
</TABLE>
<PAGE>


<TABLE>


                SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
                         REDWOOD MORTGAGE INVESTORS VII

<CAPTION>

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

Year Ended
12/31/95

Deducted from
Asset accounts:
<S>              <C>                 <C>                      <C>           <C>               <C>  

Allowance for
Doubtful accts   $    201,608        $  29,365                -0-           $ 30,973 *        $  200,000




<FN>
*In addition to the provision noted above, REO loans were recognized of $277,414 for a total provision for 
 losses of $306,779.
</FN>
</TABLE>
<PAGE>



<TABLE>


SCHEDULE IX

                                                         SHORT TERM BORROWINGS
                                                    REDWOOD MORTGAGE INVESTORS VII

RULE 12-10
<CAPTION>

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

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

Year-Ended 12/31/95     $  2,000,000        9.800%           $  2,000,000           $  1,659,638          9.800%
</TABLE>
<PAGE>




<TABLE>

SCHEDULE XII

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

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

Res.        14.500%   10/01/95  $2,142.98  $     -0-  $175,000.00  $173,116.99  $ 196,090  1st Mtg   Santa Clara
Comm.       14.500%   12/01/95   2.755.25        -0-   225,000.00   221,340.10     -0-     1st Mtg   Alameda
Res.        14.500%   12/01/95   1,114.35    336,591    91,000.00    89.363.25     -0-     2nd Mtg   San Mateo
Res.        14.000%   09/01/94     175.00     67,583    15,000.00    15,000.00     -0-     2nd Mtg   San Mateo
Res.        14.000%   05/01/93     350.00    442,500    30,000.00    30,000.00     -0-     2nd Mtg   Sonoma
Res.        14.500%   06/01/01     782.62     84,303    63,910.49    63,116.66     783     2nd Mtg   Marin
Res.        13.750%   08/01/96   1,258.32        -0-   108,000.00   106,179.84     -0-     1st Mtg   San Francisco
Res.        15.000%   09/01/96   1,251.80    319,721    99,000.00    91,807.25     -0-     2nd Mtg   San Mateo
Res.        12.000%   08/01/04     710.00     70,729    66,000.00    65,078.50     -0-     2nd Mtg   Alameda
Res.        13.750%   10/01/96     916.67    369,163    80,000.00    80,000.00     -0-     2nd Mtg   San Mateo
Res.        13.750%   10/01/96     988.28        -0-    86,250.00    86,250.00     -0-     1st Mtg   Santa Clara
Comm.       13.500%   12/01/95     572.71    299,431    50,000.00    49,333.14     -0-     2nd Mtg   Alameda
Res.        12.500%   02/01/07     369.76        -0-    30,000.00    26,521.97     -0-     1st Mtg   Santa Cruz
Res.        10.000%   12/24/01     308.28        -0-    37,984.50    35,337.21     -0-     1st Mtg   Alameda
Comm.       13.875%   08/01/96   3,757.82        -0-   325,000.00   325,000.00     -0-     1st Mtg   Santa Clara
Res.        10.000%   04/17/97     132.08    126,800    15,850.00    15,793.32     -0-     2nd Mtg   Sonoma
Comm.       13.500%   06/01/93   1,375.00    210,000   110,000.00   110,000.00     -0-     3rd Mtg   Sacramento
Res.        13.000%   07/01/97    1603.99    254,505   145,000.00   143,291.24     -0-     2nd Mtg   San Mateo
Res.        12.500%   07/01/97     453.58    129,491    42,500.00    41,930.85     -0-     2nd Mtg   San Mateo
Res.        12.750%   07/01/97     880.22    592,878    81,000.00    79,566.51     -0-     2nd Mtg   San Mateo
Apts.       13.000%   08/01/97   1,935.85    853,242   175,000.00   171,092.92     -0-     3rd Mtg   San Mateo
Comm.       13.000%   07/15/94   1,453.13        -0-   112,500.00   112,500.00     -0-     1st Mtg   San Mateo
Comm.        7.000%   08/06/02     311.38     17,382   46, 803.50    45,080.73     -0-     2nd Mtg   Alameda
Comm.       12.000%   10/01/97   4,517.38    796,163   438,000.00   433,214.71     -0-     3rd Mtg   Contra Costa
Res.        13.000%   03/29/95   2,267.03    308,267   209,500.00   209,500.00     -0-     2nd Mtg   Santa Clara
Res.        10.000%   11/06/07      65.91     48,829     6,133.33     5,474.95     -0-     2nd Mtg   San Francisco
Comm.       12.500%   01/01/98     587.00        -0-    55,000.00    54,388.67     -0-     1st Mtg   San Mateo
Comm.       12.250%   01/01/98   4,083.36    354,077   400,002.42   400,002.42     -0-     2nd Mtg   Contra Costa
Res.        12.000%   03/01/95     203.13    208,000    15,000.00    15,000.00     -0-     2nd Mtg   San Mateo
Comm.       12.000%   04/01/98   1,298.00    387,920   129,800.00   129,800.00     -0-     2nd Mtg   San Francisco
Comm.       12.500%   04/05/08     921.02        -0-   175,000.00    68,118.70     -0-     1st Mtg   Tuoloume
Res.        12.000%   05/01/98     514.31        -0-    50,000.00    49,483.04     -0-     1st Mtg   San Francisco
Comm.       12.000%   06/01/98   2,038.01        -0-   239,850.00   196,704.56     -0-     1st Mtg   Sonoma
Apts.       12.500%   08/01/97     467.67     89,904    75,000.00    72,957.30     -0-     2nd Mtg   Sacramento
Res.        12.000%   07/01/98   3,085.84     85,930   300,000.00   276,493.42     -0-     2nd Mtg   El Dorado
Res.        12.750%   07/01/08     370.90    236,164    29,700.00    27,832.02     -0-     2nd Mtg   San Mateo
Res.        11.250%   09/01/95   3,875.00    350,000   300,000.00   300,000.00   300,000   2nd Mtg   Mendocino
Res.        13.500%   09/01/08   1,647.07    106,044   126,861.90   120,195.84     -0-     2nd Mtg   Contra Costa
Comm.       12.000%   09/01/03     848.61        -0-    82,500.00    81,741.52     -0-     1st Mtg   Alameda
Comm.        5.000%   09/01/03     797.50        -0-   133,000.00   127,425.32     -0-     1st Mtg   San Mateo
Comm.       12.000%   11/01/98   2,057.23      5,635   200,000.00    85,670.56     -0-     2nd Mtg   San Francisco
Res.         8.000%   05/01/09     753.50        -0-    81,825.00    75,128.04     -0-     1st Mtg   Alameda
Comm.       10.000%   12/01/98     647.21        -0-    73,750.00    72,926.63     -0-     1st Mtg   Stanislaus
Comm.       12.250%   01/01/98   1,947.07    891,453   200,001.20   187,143.98     -0-     4th Mtg   Contra Costa
Comm.       10.000%   12/01/98   3,619.98        -0-   412,500.00   407,673.94     -0-     1st Mtg   Alameda
Comm.        7.000%   12/01/03     575.74    281,250    49,586.38    42,227.19     -0-     2nd Mtg   Alameda
Apts.       11.750%   05/01/96  11,767.44  7,812,510  1,176,744.19 1,176,744.19    -0-     2nd Mtg   Contra Costa

<PAGE>



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

Comm        12.000%   02/01/99   2,790.57        -0-   312,000.00   312,000.00     -0-     1st Mtg   Santa Clara
Comm        12.000%   06/01/04   1,316.53        -0-   125,000.00   123,616.04     -0-     1st Mtg   Santa Barbara
Res         11.000%   06/01/99   1,428.50        -0-   150,000.00   148,958.23     -0-     1st Mtg   Marin
Comm.       12.000%   07/01/96   1,352.50    679,258   135,250.00   135,250.00     -0-     3rd  Mtg  Sonoma
Comm.       11.000%   10/01/96   5,958.33  5,504,000   650,000.00   650,000.00     -0-     2nd Mtg   San Mateo
Res.        11.000%   10/01/99     571.39    478,120    60,000.00    59,681.60     -0-     2nd Mtg   San Mateo
Comm.       12.000%   10/01/95    1270.83    510,979   100,000.00    35,075.95     -0-     2nd Mtg   Santa Cruz
Comm.       11.000%   11/01/97   2,520.83     61,953   275,000.00   275,000.00     -0-     2nd Mtg   Santa Clara
Comm.       11.500%   12/20/96   7,255.96    907,480   757,144.25   757,144.25     -0-     2nd Mtg   Stanislaus
Res.        12.000%   05/01/96   1,719.28    346,880   215,000.00   182,620.90     -0-     2nd Mtg   San Mateo
Apts         7.000%   01/10/05     234.06     80,250    40,125.00    40,125.00     -0-     2nd Mtg   San Francisco
Res         12.000%   03/01/98   1,275.15        -0-   280,000.00   130,606.09     -0-     1st Mtg   Alameda
Res         12.500%   09/01/96   1,862.70        -0-   245,000.00   191,228.85     -0-     1st Mtg   Monterey
Apts        11.500%   04/01/05   3,840.14        -0-   550,000.00   342,614.16     -0-     1st Mtg   San Francisco
Apts        12.500%   04/01/00     633.69    667,333    28,166.67    25,343.00     -0-     2nd Mtg   Alameda
Comm        11.875%   05/01/05   2,088.00        -0-   200,000.00   198,980.79     -0-     1st Mtg   San Francisco
Comm         9.000%   05/10/02     670.52        -0-    83,333.33    83,007.41     -0-     1st Mtg   Shasta
Comm        12.000%   11/30/98   3,750.00  1,500,000   375,000.00   375,000.00     -0-     2nd Mtg   San Mateo
Comm        12.000%   12/31/99   5,000.00  2,684,430   500,000.00   500,000.00     -0-     2nd Mtg   Santa Clara
Res          8.000%   09/27/00     530.79    106,333    79,619.05    79,619.05     -0-     2nd Mtg   Monterey
Comm.        8.000%   12/01/97     400.00        -0-    60,000.00    60,000.00     -0-     1st Mtg   Solano
Comm.       11.500%   04/30/96  12,188.87    575,496   625,070.01   625,070.01     -0-     2nd Mtg   San Francisco
Res.        13.000%   01/01/03     999.54     15,400    79,000.00    56,255.98     -0-     2nd Mtg   San Mateo
Res.        14.000%   07/01/99     593.10        -0-    50,056.30    48,929.20     -0-     1st Mtg   San Mateo
Res.        10.000%   08/01/97     388.67    309,872    45,000.00    46,630.83     -0-     3rd Mtg   San Mateo
Res.        13.500%   04/01/95     732.61        -0-    63,960.00    62,342.36     -0-     1st Mtg   San Mateo
Res.        15.250%   04/01/95     588.29     11,601    45,800.00    44,993.82     -0-     2nd Mtg   Solano
                                ---------- ---------- ------------ ------------ ----------

Totals                       $136,515.83  30,575,850  13,300,077.52 12,382,641   496,873
</TABLE>

<PAGE>



Schedule XII

Reconciliation of carrying amount of mortgages at close of period (12/31/95)

Balance at beginning of period 1/01/95                        $  11,345,566
Additions during period:
New mortgage loans                     $   3,592,507
Other                                            -0-          $   3,592,507
-------------------------------------------------------------------------------
                                                              $  14,938,073


Deduction during period:
Collections of principal               $   1,980,879
Foreclosures                                 485,322
Cost of mortgage sold                            -0-
Amortization of Premium                          -0-
Other                                         89,231          $   2,555,432
-------------------------------------------------------------------------------


Balance at close of period (12/31/95)                         $  12,382,641
                                                            -------------------


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

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

          Item 10 - Directors and Executive Officers of the Registrant

     The Partnership has no Officers or Directors. Rather, the activities of the
Partnership  are managed by the three General  Partners of which two individuals
are D. Russell  Burwell and Michael R.  Burwell.  The third  General  Partner is
Gymno Corporation,  a California  corporation,  formed in 1986. The Burwells are
the two shareholders of Gymno Corporation, a California corporation, on an equal
(50-50) basis.
<PAGE>

Item 11 - Executive Compensation

COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP

     As  indicated  above  in  Item  10,  the  Partnership  has no  officers  or
directors. The Partnership is managed by the General Partners. There are certain
fees and other items paid to management and related parties.

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

     The  following  compensation  has been  paid to the  General  Partners  and
Affiliates  for services  rendered  during the year ended December 31, 1995. All
such compensation is in compliance with the guidelines and limitations set forth
in the Prospectus.

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

I. RHL Co.            Loan Servicing Fee for servicing Loans      $    33,394
                      ($66,888 waived by RHL Co.)

General Partners      Asset Management Fee for managing assets    $       -0-
&/or Affiliate        ($52,801 waived by the General Partners)

General Partners      1% interest in profits                      $      9,120
                      Less allowance for syndication costs                 810
                                                                  -------------
                                                                  $      8,310

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

RHL Co.               Loan Brokerage Commissions for services 
                      in connection with the review, selection, 
                      evaluation, negotiation, and extension of
                      the Partnership Loans paid by the borrowers 
                      and  not by the Partnership                $      82,708
                
RHL Co.               Processing and Escrow Fees for services
                      in connection with notary, document
                      preparation, credit investigation, and escrow
                      fees payable by the borrowers and not by the  
                      Partnership                                $       1,572
                                 
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.                                      $      27,762

<PAGE>


Item 12 - Security Ownership of Certain Beneficial Owners and Management

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

Item 13 - Certain Relationships and Related Transactions

     Refer to footnote 3 of the notes to financial  statements in Part II item 8
which describes related party fees and data.

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



                                     Part IV

Item 14 - Exhibits, Financial Statements and Schedules, and Reports on Form 8-K.

A.       Documents filed as part of this report are incorporated:

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

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

<PAGE>


3.  Exhibits.

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

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



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

B.       Reports of Form 8-K.

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

C.       See A (3) above.

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



<PAGE>

                                   SIGNATURES

     Pursuant  to the  requirements  of Section  13 or 15 (d) of the  Securities
Exchange Act of 1934 the  registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized on the 25th day of March,
1996.

REDWOOD MORTGAGE INVESTORS VII


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


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


By:      Gymno Corporation, General Partner


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


         By:
                 ---------------------------------------------
                 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 25th day of March, 1996.

Signature                             Title                         Date



---------------------
D. Russell Burwell               General Partner                March 25, 1996



---------------------
Michael R. Burwell               General Partner                March 25, 1996




---------------------
D. Russell Burwell       President of Gymno Corporation,        March 25, 1996
                         (Principal Executive Officer);
                         Director of Gymno Corporation



---------------------
Michael R. Burwell      Secretary/Treasurer of Gymno            March 25, 1996
                        Corporation (Principal Financial
                        and Accounting Officer);
                        Director of Gymno Corporation