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

                                December 31, 1996

                                     Part I

                                                                        Page No.
Item 1 - Business                                                             4
Item 2 - Properties                                                         4-6
Item 3 - Legal Proceedings                                                    7
Item 4 - Submission of Matters to a vote of Security Holders (partners)       7

                                                     Part II

Item 5 - Market for the Registrants Partners Capital and related matters      7
Item 6 - Selected Financial Data                                            7-9
Item 7 - Managements Discussion and Analysis of Financial Condition and
Results of Operations                                                     10-11
Item 8 - Financial Statements and Supplementary Data                      12-39
Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure                                                         40

                                                     Part III

Item 10 - Directors and Executive Officers of the Registrant                 40
Item 11 - Executive Compensation                                             41
Item 12 - Security Ownership of Certain Beneficial Owners and management     42
Item 13 - Certain Relationships and Related Transactions                     42

                                                     Part IV

Item 14 - Exhibits, Financial Statement Schedules, and Reports 
           on Form 8-K.                                                   42-43

Signatures                                                                   44

<PAGE>

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

      For the year ended December 31, 1996 Commission file number 33-49946
--------------------------------------------------------------------------------

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

         California                                             94-3158788
------------------------ -----------------------------------------------------
(State or other jurisdiction of                (I.R.S. Employer Identification)
incorporation or organization)

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

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

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

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

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

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

YES   XXX                                   NO
--------------------------------              -----------------------------

As of  December  31,  1996,  the  limited  partnership  units  purchased  by non
affiliates was 152,415.1480 units computed at $100.00 a unit for $15,241,514.80

Documents incorporated by reference:

Portions of the  Prospectus  dated May 19, 1993, and a revised  Prospectus  came
into effect on  December 4, 1996,  are  incorporated  in Parts II, III,  and IV.
Exhibits  filed  as part of  Form  S-11  Registration  Statement  #33-49946  are
referenced in part IV.

<PAGE>


                                     Part I

Item 1 - Business

Redwood  Mortgage  Investors  VIII,  a  California   limited   partnership  (the
Partnership), is organized to engage in business as a mortgage lender, for the
primary  purpose of making loans secured  primarily by first and second deeds of
trust on California real estate. Loans are arranged and serviced by Redwood Home
Loan Co.,  (dba Redwood  Mortgage) an  affiliate  of the General  Partners.  The
Partnerships  objectives  are to make loans that will: (i) yield a high rate of
return from mortgage  lending;  and (ii) preserve and protect the  Partnerships
capital.  Investors should not expect the Partnership to provide tax benefits of
the type commonly associated with limited  partnership tax shelter  investments.
The Partnership is intended to serve as an investment  alternative for investors
seeking current income.  However, unlike other investments which are intended to
provide  current income,  an investment in the Partnership  will be less liquid,
not  readily  transferable,  and  not  provide  a  guaranteed  return  over  its
investment life.

Initially,  a minimum of 2,500 Units  ($250,000)  and a maximum of 150,000 Units
$15,000,000)  were sold.  This  initial  offering  closed on October  31,  1996.
Subsequently,  the  Partnership  commenced  a second  offering  of up to 300,000
additional  Units  ($30,000,000)  commencing on December 4, 1996.  All units are
being offered on a best efforts basis, which means that no one is guaranteeing
that any  minimum  number of Units will be sold,  through  broker-dealer  member
firms of the National Association of Securities Dealers, Inc. (See TERMS OF THE
OFFERING and  PLAN OF DISTRIBUTION).

The  Partnership  began selling Units in February,  1993, and began investing in
mortgages in April,  1993. At December 31, 1996, the Partnership has investments
in Mortgage  Investments  with principal  balances  totalling  $15,642,990  with
interest  rates  thereon  ranging from 10.00% to 14.50%.  Currently  First Trust
Deeds  comprise  41.84% of the Mortgage  Investment  portfolio with Junior loans
(2nd and 3rd Trust Deeds) making up 58.16%.  Owner-occupied homes, combined with
non-owner  occupied  Mortgage  Investments,   total  26.19  %  of  the  Mortgage
Investment.  Loans  secured by apartments  make up 16.12% of the total  Mortgage
Investments.  Commercial  Mortgage  Investments,  now  comprising  57.69% of the
portfolio,  have increased  14.22% from last year.  74.49% of the total Mortgage
Investments, are in six counties of the Bay Area, County of San Joaquin makes up
7.49% of the Mortgage  Investments  and the balance of Mortgage  Investments are
primarily in Northern  California.  Mortgage Investment size increased this past
year, and is now averaging $312,860 per Mortgage Investment, up from $231,678 in
1995. Some of the Mortgage  Investments are  fractionalized  between  affiliated
partnerships  with  objectives  similar to those of the  Partnership  to further
reduce risk.  Average equity per loan transaction  stood at 41.79%. A 40% equity
average  on  loan  origination  is  generally   considered  very   conservative.
Generally,   the  more  equity,   the  more  protection  for  the  lender.   The
Partnerships  Mortgage Investment  portfolio is in good condition with only one
property in foreclosure as of the end of December, 1996.

Item 2 - Properties

At December 31, 1996, the Partnership owned one piece of property, a vacant lot,
through foreclosure valued at $66,991. Additionally, the Partnership wholly owns
a limited liability company (LLC),  whose asset is a partially  completed single
family  residence.   This  partially   completed  single  family  residence  was
originally  foreclosed upon by the Partnership and  subsequently  transferred to
the (LLC). In 1995, the Partnership  chose to allow a senior lender to foreclose
out its deed of trust on one of its secured  investments.  The  Partnership  has
commenced a legal  action to collect its debt and has  recorded the sum involved
as Other Receivables on the financial statements.
<PAGE>


Mortgage Investments as a Percentage of Total Mortgage Investments

First Trust Deeds                                                $6,545,779.70
Appraised Value of Properties                                    14,694,294.00
  Total Investment as a % of Appraisal                                  44.55%
Second Trust Deed Mortgage Investments                            8,797,210.57
Third Trust Deed Mortgage Investments                               300,000.00
First Trust Deeds due other Lenders                              24,801,374.00
Second Trust Deeds due other Lenders                                360,000.00

Total Debt                                                      $40,804,364.27

  Appraised Property Value                                      $70,100,408.00
  Total Investments as a % of Appraisal                                 58.21%

Number of Mortgage Investments Outstanding                                  50


Average Investment                                                 $312,859.81
Average Investment as a % of Net Assets                                  2.13%
Largest Investment Outstanding                                    1,450,000.00
Largest Investment as a % of Net Assets                                  9.86%


Loans as a Percentage of Total Mortgage Investments

First Trust Deeds                                                       41.84%
Second Trust Deeds                                                      56.24%
Third Trust Deeds                                                        1.92%
                                                              -----------------
Total                                                                  100.00%

Mortgage Investments by
Type of Property                        Amount              Percent

Owner Occupied Homes                   $1,808,920.97            11.56%
Non-Owner Occupied Homes                2,288,035.93            14.63%
Apartments                              2,521,515.06            16.12%
Commercial                              9,024,518.31            57.69%
                                   ------------------      ------------

Total                                 $15,642,990.27           100.00%

<PAGE>

The  following  is a  distribution  of Mortgage  Investments  outstanding  as of
December 31, 1996 by Counties.

County                                Total                     Percent
                              Mortgage Investments

San Mateo                              $3,259,389.91             20.84%
San Francisco                           3,218,843.55             20.58%
Santa Clara                             3,024,309.66             19.33%
Stanislaus                              1,496,312.75              9.56%
San Joaquin                             1,171,192.57              7.49%
Marin                                   1,128,849.46              7.22%
Contra Costa                              624,343.77              3.99%
Santa Barbara                             416,828.99              2.66%
Alameda                                   396,587.00              2.53%
San Luis Obispo                           300,000.00              1.92%
Fresno                                    129,384.67              0.83%
Mendocino                                 125,000.00              0.80%
El Dorado                                 118,810.72              0.76%
Sonoma                                     88,732.76              0.57%
Tuoloume                                   87,507.78              0.56%
Sacramento                                 56,896.68              0.36%
                             ------------------------        -----------

Total                                 $15,642,990.27            100.00%


Statement of Condition of Mortgage Investments
         Number of Mortgage Investments in Foreclosure          1

<PAGE>



Item 3 - Legal Proceedings

In the normal course of business, the Partnership may become involved in various
types of legal proceedings such as assignment of rents,  bankruptcy proceedings,
appointment of receivers,  unlawful detainers,  judicial  foreclosure,  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 of trust.  None of these actions would  typically be of any
material  importance.  As of the date hereof, the Partnership is not involved in
any legal  proceedings  other than those  that would be  considered  part of the
normal course of business.

Item 4 - Submission of matters to 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.

300,000 units at $100 each (minimum 20 units) are being offered  (150,000 units
were  previously  offered and sold)  through  broker-dealer  member firms of the
National  Association  of  Securities  Dealers  on abest  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 67 through 75 of the
Prospectus,   a  part  of  the  referenced  Registration  Statement,   which  is
incorporated by reference.

Item 6 - Selected Financial Data

Redwood  Mortgage  Investors  VIII began  operations  in April  1993.  Financial
results  for  years  1984 to 1995 for prior  partnerships  are  incorporated  by
reference to the Prospectus  (S-11) dated December 4, 1996,  Table III pages 104
through 138.


<PAGE>

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

                                  Balance Sheet
                                     Assets

<CAPTION>

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

                                                               1996                1995                1994
                                                      --------------       -------------      --------------
<S>                                                        <C>                 <C>                 <C>     
Cash                                                       $664.434            $380,318            $397,176
Accounts Receivable:
   Mortgage investments secured by Deeds of Trust        15,642,990          12,047,252           6,484,707
   Accrued interest and other fees                          196,530             113,301              75,345
   Advances on Mortgage Investments                           8,679               8,431               1,053
   Other receivables - Unsecured                             75,334              71,316                   0
   Less allowance for losses                              (117,803)            (39,152)            (13,120)
Investment in Limited Liability Corporation                 191,139                   0                   0
Real estate owned, net                                       66,991                   0                   0
Organization cost net of amortization                         4,375               6,875               9,375
Prepaid Expenses                                             20,720              17,718                   0
Due from General Partners/Related Companies                     311               3,049                   0


                                                      --------------       -------------      --------------
                                                        $16,753,700         $12,609,108          $6,954,536
                                                      --------------       -------------      --------------


                        Liabilities and Partners Capital

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

                                                               1996                1995               1994
                                                       -------------      -------------       -------------
Liabilities:
<S>                                                        <C>                       <C>                <C>
Deferred interest                                          $217,480                  $0                 $0
Note payable - Bank                                       1,500,000           1,910,000                  0
Accounts payable                                             20,625               4,010                  0
Subscriptions to partnership in applicant status            310,937                   0            189,300
                                                      --------------       -------------      -------------
                                                         $2,049,042          $1,914,010           $189,300
                                                      --------------       -------------      -------------

Partners  Capital                                                          
  Limited partners subject to redemption                 14,693,293          10,687,031          6,759,865
  General Partners                                           11,365               8,067              5,371
                                                      --------------       -------------      -------------
                                                        $14,704,658         $10,695,098         $6,765,236
                                                      --------------       -------------      -------------
                                                        $16,753,700         $12,609,108         $6,954,536
                                                      ==============       =============      =============

</TABLE>

<PAGE>

<TABLE>
                                                         
                               Statement of Income
<CAPTION>


<S>                                                             <C>               <C>             <C>     
Gross revenue                                                   $1,726,635      $1,050,236        $497,673
Expenses                                                           493,110         194,495          73,361
                                                            ---------------    ------------     -----------
Income before  interest  credited to Partners in applicant       1,233,525         855,741         424,312
status
Interest credited to Partners in applicant status                    2,618          18,908          14,443
                                                            ---------------    ------------ --- -----------


Net Income                                                      $1,230,907        $836,833        $409,869
                                                            ===============    ============     ===========

Net income to General Partners (1%)                                $12,309          $8,368          $4,099
                                                            ===============    ============     ===========

Net Income to Limited Partners (99%)                            $1,218,598        $828,465        $405,770
                                                            ===============    ============     ===========


Net Income per $1,000  invested  by Limited  Partners  for
entire period (annualized)
   - where income is reinvested and compounded                         $84             $83             $81
                                                            ===============    ============     ===========

   -   where   partner    receives   income   in   monthly             $81             $80             $79
distributions
                                                            ===============    ============     ===========

<FN>
The financial results for the year ending December 31, 1994, reflects net income
of $409,869  which is an annualized  yield of  approximately  8.16% based on the
average amount  invested during the year.  Annualized  yield for 1995 was 8.33%,
and for 1996 was 8.39%.  An average  annualized  yield since  inception  through
December 31, 1996, was 8.36%.
</FN>
</TABLE>
<PAGE>



Item II


          MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS


On December 31, 1996,  the  Partnership  was in the offering stage of its second
offering,  and contributed capital totalled $15,242,954  (Limited Partners).  Of
this amount,  $310,937 remained in applicant status.  The Partnership has sought
and  received  approval  of an  additional  offering  of  $30,000,000  from  the
Securities  and  Exchange  Commission,  the  State of  California  and the NASD,
effective on December 4, 1996.  Accordingly,  the Partnership had approval of an
aggregate offering of $45,000,000 in Units of $100 each.

At December 31, 1996, the Partnerships Mortgage Investments outstanding totalled
$15,642,990.  The  primary  reason  for  an  increase  in  Mortgage  Investments
Outstanding  to  $6,484,707,  $12,047,252  and  $15,642,990  was the  additional
capital admitted to the Partnership  through sale of Limited  Partnership  Units
and  subsequent  admittance of Partners  Capital of  $4,508,824,  $3,834,799 and
$3,863,536,  and through  the  reinvestment  of  earnings  by partners  who have
elected to reinvest  earnings of  $205,607,  $439,492 and $683,695 for the years
ended  December 31, 1994,  December 31, 1995 and December 31, 1996  respectively
and to a lesser extent,  from the line of credit. The effect of more outstanding
Mortgage  Investments raised the interest on Mortgage  Investments for the years
ended 1994, 1995 and 1996 to $480,110,  $1,031,029 and $1,718,208  respectively.
Interest  rates on  Mortgage  Investments  ranged  from  10.00% to  14.50%.  The
Partnership  began  funding  Mortgage  Investments  on April 14,  1993 and as of
December 31, 1996, distributed earnings at an average annualized yield of 8.36%.
Currently,  mortgage interest rates have decreased a little from those prevalent
at the inception of the Partnership. New loans will be originated at these lower
interest  rates.  The result is to reduce the average  return  across the entire
Mortgage Investment 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.
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 1997 over the next 12  months.  Based  upon the rates  payable  in
connection with the existing Mortgage  Investments,  the current and anticipated
interest  rates to be  charged  by the  Partnership  and the  General  Partners
experience, the General Partners anticipate that the annualized yield will range
between eight & nine percent (8% - 9%).

During 1994, the Partnership did not have a credit line;  therefore  Interest on
Note  Payable-Bank was -0-. The Partnership  established a line of credit with a
commercial bank secured by its Mortgage  Investments and has increased the limit
from  $3,000,000  to  $5,000,000.  For the years ended 1995 and 1996 Interest on
Note Payable-Bank was $25,889 and $188,635 respectively.  The primary reason for
this  increase  was  that the  Partnership  did not have  access  to the  credit
facility until September,  1995. Therefore, the usage of the credit line in 1995
was limited to the last quarter of the calendar year. Currently, it has borrowed
$1,500,000 at an interest rate of prime + 1/2%.  This facility could increase as
the  Partnerships  capital  increases.  This added source of funds will help in
maximizing  the  Partnership  yield by allowing the  Partnership to minimize the
amount of funds in lower yield  investment  accounts when  appropriate  Mortgage
Investments are not currently available because the mortgage investments made by
the  Partnership  bear  interest at a rate in excess of the rate  payable to the
bank which  extended the line of credit.  As a result,  once the  principal  and
interest is paid to the bank, the amount to be retained by the Partnership  will
be greater than without the use of the line of credit.  As of December 31, 1996,
the balance  remained at $1,500,000  and in accordance  with the line of credit,
the Partnership paid all accrued interest as of that date.

The Partnerships income and expenses,  accruals and delinquencies are within the
normal range of the General Partners expectations,  based upon their experience
in  managing  similar  Partnerships  over the last  nineteen  years.  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
principal  and pay-off on Mortgage  Investments.  Currently,  cash flow  exceeds
Partnership  expenses and earnings payout  requirements.  As mortgage investment
opportunities become available,  excess cash and available funds are invested in
new mortgage investments.
<PAGE>

The  General  Partners  are  regularly   reviewing  the  Mortgage   Investments
portfolio,  examining the status of  delinquencies,  the  underlying  collateral
securing these properties,  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.
Currently  loss  reserves  are  $117,803  which the  General  Partners  consider
adequate.  Because of the number of  variables  involved,  the  magnitude of the
swings  possible  and the General  Partners  inability  to control many of these
factors, actual results may and do sometimes differ significantly from estimates
made by the General Partners.


Its now clear the Northern  California  recession  reached bottom in 1993. Since
then, the California economy has been improving,  slowly at first, but now, more
vigorously. This improvement is reflective in increasing property values, in job
growth,  personal  income  growth,  etc.,  which all  translates  into more loan
activity. Which of course, is healthy for our lending activity.

At the  time  of  subscription  to the  Partnership,  Limited  Partners  make 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, 1995 and December 31, 1996 the Partnership made distributions
of  earnings to Limited  Partners  after  allocation  of  syndication  costs of,
$303,477 and $418,380 respectively. Distribution of Earnings to Limited Partners
after allocation of syndication  costs for the years ended December 31, 1995 and
December 31, 1996 to Limited  Partners  capital  accounts and not withdrawn was
$439,942  and  $683,695  respectively.  As of December 31, 1995 and December 31,
1996 Limited Partners electing to withdraw  earnings  represented 40% and 34% of
the Limited Partners outstanding capital accounts.

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, 1995 and December 31,
1996,  $5,640 and $146,755 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 would expect in their experience in this and
other  Partnership.  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  investment  to raise  cash.  The trend we are
experiencing in withdrawals by Limited Partners  electing a one year liquidation
program  represents a small percentage of Limited Partner capital as of December
31,  1995 and  December  31,  1996  respectively  and is expected by the General
Partners to commonly occur at these levels.

     Additionally, for the years ended December 31, 1995 and December 31,1996 $0
and $0 were  liquidated  by  Limited  Partners  who have  elected a  liquidation
program  over a period of five years or longer.  Once the initial five year hold
period has passed the General Partners expect to see an increase in liquidations
due to the ability of Limited Partners to withdraw without penalty. 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,  the gross figures  generally  should  subside and the  Partnership
capital again tends to increase.

<PAGE>



              Item 8 - Financial Statements and Supplementary Data

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

A-Financial Statements

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

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

B-Financial Statement Schedules

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

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

     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 VIII
                       (A California Limited Partnership)
                              FINANCIAL STATEMENTS
                                DECEMBER 31, 1996
                         (With Auditors Report Thereon)


<PAGE>

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




                          INDEPENDENT AUDITORS REPORT


THE PARTNERS
REDWOOD MORTGAGE INVESTORS VIII

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

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

     In our opinion,  the financial statements referred to above present fairly,
in all material  respects,  the financial position of REDWOOD MORTGAGE INVESTORS
VIII as of December  31, 1996 and 1995,  and the results of its  operations  and
cash flows for the three years ended  December  31,  1996,  in  conformity  with
generally accepted  accounting  principles.  Further, it is our opinion that the
schedules  referred to above present fairly the information set forth therein in
compliance  with the  applicable  accounting  regulations  of the Securities and
Exchange Commission.


     As  explained  in  notes  2 (k)  and 11 to the  financial  statements,  the
formation  loan  receivable  from Redwood  Mortgage has been  reclassified  as a
reduction in Partners  Capital until  collections  are  received.  There was no
effect on net income.





                              /S/ A. Bruce Cropper
                                PARODI & CROPPER





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


                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                                 BALANCE SHEETS
                           DECEMBER 31, 1996 AND 1995


                                     ASSETS
<CAPTION>

                                                                          1996                 1995
                                                                     ---------------      ---------------

<S>                                                                        <C>                  <C>     
Cash                                                                       $664,434             $380,318
                                                                     ---------------      ---------------

Accounts receivable:
  Mortgage Investments, secured by deeds of trust                        15,642,990           12,047,252
  Accrued Interest on Mortgage Investments                                  196,530              113,301
  Advances on Mortgage Investments                                            8,679                8,431
  Accounts receivables, unsecured                                            75,334               71,316
                                                                     ---------------      ---------------
                                                                         15,923,533           12,240,300

  Less allowance for doubtful accounts                                      117,803               39,152
                                                                     ---------------      ---------------
                                                                         15,805,730           12,201,148
                                                                     ---------------      ---------------


Real Estate owned, acquired through foreclosure, 
   held for sale                                                             66,991                    0
Investment in limited liability corporation, at cost which
  approximates market                                                       191,139                    0
Organization costs, less accumulated amortization of $8,125
 and $5,625, respectively                                                     4,375                6,875
Due from related companies                                                      311                3,049
Prepaid expense-deferred loan fee                                            20,720               17,718
                                                                     ---------------      ---------------
                                                                        $16,753,700          $12,609,108

</TABLE>
<PAGE>
<TABLE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                                 BALANCE SHEETS
                           DECEMBER 31, 1996 AND 1995


                        LIABILITIES AND PARTNERS CAPITAL
<CAPTION>

Liabilities:
<S>                                                                         <C>                   <C>   

  Accounts payable and accrued expenses                                     $20,625               $4,010
  Note payable - bank line of credit                                      1,500,000            1,910,000
  Deferred interest income                                                  217,480                    0
  Subscriptions to partnership in applicant status                          310,937                    0
                                                                     ---------------      ---------------
                                                                          2,049,042            1,914,010


Partners Capital                                                        $17,827,406          $13,384,337
                                                                     ===============      ===============

Partners Capital:
     Limited partners capital, subject to redemption (note 4E):
          Net of unallocated syndication costs of $414,190 and
          $322,677 for 1996 and 1995, respectively:
          and formation loan receivable of $1,073,706 and $775,229
          for 1996 and 1995, respectively                                14,693,293           10,687,031

     General Partners  Capital, net of unallocated syndication 
costs
          of $4184 and $3,258 for 1996 and 1995 respectively                 11,365                8,067
                                                                     ---------------      ---------------

                     Total Partners  Capital                             14,704,658           10,695,098
                                                                     ---------------      ---------------

                     Total Liabilities and Partners  Capital            $16,753,700          $12,609,108
                                                                     ===============      ===============

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

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


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


                                                                    1996              1995                1994
                                                                -------------     --------------      --------------
Revenues:
<S>                                                               <C>                  <C>                 <C>     
  Interest on Mortgage Investments                                $1,718,208         $1,031,029            $480,110
  Interest on bank deposits                                            4,083             13,120              15,739
  Late charges                                                         3,847              3,876               1,704
  Miscellaneous                                                          497              2,211                 120
                                                                -------------     --------------      --------------
                                                                   1,726,635          1,050,236             497,673


Expenses:
  Mortgage servicing fees                                            155,912             85,456              29,127
  Interest on note payable - bank                                    188,638             25,889                   0
  Amortization of loan origination fees                               11,999              2,531                   0
  Provision for doubtful accounts and losses on real estate
    acquired through foreclosure                                      55,383             26,032              13,120
  Asset management fee - General Partner                              17,053             11,587               5,906
  Amortization of organization costs                                   2,500              2,500               2,500
  Clerical costs through Redwood Mortgage                             38,799             22,769              10,664
  Professional services                                               17,687             16,178              10,244
  Printing, supplies and postage                                       1,192                 92                 917
  Other                                                                3,947              1,461                 883
                                                                -------------     --------------      --------------
                                                                     493,110            194,495              73,361
   
Income before interest credited to partners in applicant           1,233,525            855,741             424,312
status

Interest credited to partners in applicant status                      2,618             18,908              14,443
                                                                -------------     --------------      --------------

Net Income                                                        $1,230,907           $836,833            $409,869
                                                                =============     ==============      ==============

Net income:  To General Partners(1%)                                 $12,309             $8,368              $4,099
                     To Limited Partners (99%)                     1,218,598            828,465             405,770
                                                                =============     ==============      ==============
Total - net income                                                $1,230,907           $836,833            $409,869
                                                                =============     ==============      ==============

Net income per $1,000 invested by Limited
 Partners for entire period:
-where income is reinvested and compounded                              $ 84               $ 83                $ 81
                                                                =============     ==============      ==============

-where partner receives income in monthly distributions                 $ 81               $ 80                $ 79
                                                                =============     ==============      ==============
                                                       

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




                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                    STATEMENTS OF CHANGES IN PARTNERS CAPITAL
                   FOR THE THREE YEARS ENDED DECEMBER 31, 1996
<CAPTION>



                                                                                  PARTNERS CAPITAL
                                                            --------------------------------------------------------------
                                                                              LIMITED PARTNERS CAPITAL
                                                            --------------------------------------------------------------

                                                             Capital 
                                         Partners In         Account        Unallocated       Formation 
                                          Applicant          Limited        Syndication          Loan 
                                            Status           Partners          Costs          Receivable         Total
                                         --------------     ------------    -------------     ------------    ------------
<S>                                           <C>            <C>              <C>              <C>             <C>       
Balances at December 31, 1993                 $128,772       $2,809,535       $(188,439)       $(205,954)      $2,415,142

Contributions of Application                 4,560,683                0                0                0               0
Formation loan increases                             0                0                0        (319,302)       (319,302)
Interest   credited  to  partners  in           14,443                0                0                0               0
applicant status

Upon admission to partnership:
    Interest withdrawn                         (5,774)                0                0                0               0
    Transfers to Partners  capital         (4,508,824)        4,504,282                0                0       4,504,282

Net Income                                           0          405,770                0                0         405,770
Syndication costs incurred                           0                0         (80,213)                0        (80,213)
Allocation of syndication costs                      0         (34,349)           34,349                0               0
Partners withdrawals                                 0        (165,814)                0                0       (165,814)
                                         --------------     ------------    -------------     ------------    ------------

Balances at December 31, 1994                  189,300        7,519,424        (234,303)        (525,256)       6,759,865

Contributions of Application                 3,634,264                0                0        (250,373)       (250,373)
Formation loan increases                             0                0                0                0               0
Interest   credited  to  partners  in           18,908                0                0                0               0
applicant status

Upon admission to partnership:
    Interest withdrawn                         (7,673)                0                0                0               0
    Transfers to Partners  capital         (3,834,799)        3,831,211                0                0       3,831,211

Net Income                                           0          828,465                0                0         828,465
Syndication costs incurred                           0                0        (173,581)                0       (173,581)
Allocation of syndication costs                      0         (85,045)           85,045                0               0
Partners  withdrawals                                0        (308,554)                0                0       (308,554)
Early withdrawal penalties                           0            (564)              162              400             (2)
                                         --------------     ------------    -------------     ------------    ------------

Balances at December 31, 1995                        0       11,784,937        (322,677)        (775,229)      10,687,031

Contributions on Application                 4,172,718                0                0                0               0
Formation loan increases                             0                0                0        (314,996)       (314,996)
Formation loan payments                              0                0                0            8,961           8,961
Interest   credited  to  partners  in            2,618                0                0                0               0
applicant status

Upon admission to partnership:
    Interest withdrawn                           (863)                0                0                0               0
    Transfers to Partners  capital         (3,863,536)        3,859,312                0                0       3,859,312

Net Income                                           0        1,218,598                0                0       1,218,598
Syndication costs incurred                           0                0        (212,542)                0       (212,542)
Allocation of syndication costs                      0        (116,523)          116,523                0               0
Partners  withdrawals                                0        (553,027)                0                0       (553,027)
Early withdrawal penalties                           0         (12,108)            4,506            7,558            (44)
                                         --------------     ------------    -------------     ------------    ------------

Balances at December 31, 1996                 $310,937      $16,181,189       $(414,190)      $(1,073,706)    $14,693,293
                                         ==============     ============    =============     ============    ============
<FN>
See accompanying notes to financial statements
</FN>
</TABLE>

<PAGE>
<TABLE>



                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                    STATEMENTS OF CHANGES IN PARTNERS CAPITAL
                   FOR THE THREE YEARS ENDED DECEMBER 31, 1996
<CAPTION>



                                                                          PARTNERS CAPITAL
                                            ------------------------------------------------------------------------------
                                                            GENERAL PARTNERS CAPITAL
                                            ----------------------------------------------------------

                                               Capital            Unallocated                                  Total 
                                               Account            Syndication             Total              Partners 
                                               General               Costs                                    Capital
                                               Partners
                                            ----------------    -----------------    -----------------     ---------------
<S>                                                  <C>                <C>                      <C>           <C>       
Balances at December 31, 1993                        $2,887             $(1,903)                 $984          $2,416,126

Contributions of Application                              0                    0                    0                   0
Formation loan increases                                  0                    0                    0           (319,302)
Interest   credited  to  partners  in                     0                    0                    0                   0
applicant status

Upon admission to partnership:
    Interest withdrawn                                    0                    0                    0                   0
    Transfers to Partners  capital                    4,542                    0                4,542           4,508,824

Net Income                                            4,099                    0                4,099             409,869
Syndication costs incurred                                0                (810)                (810)            (81,023)
Allocation of syndication costs                       (347)                  347                    0                   0
Partners  withdrawals                               (3,444)                    0              (3,444)           (169,258)
                                            ----------------    -----------------    -----------------     ---------------

Balances at December 31, 1994                         7,737              (2,366)                5,371           6,765,236

Contributions of Application                              0                    0                    0                   0
Formation loan increases                                  0                    0                    0           (250,373)
Interest   credited  to  partners  in                     0                    0                    0                   0
applicant status

Upon admission to partnership:
    Interest withdrawn                                    0                    0                    0                   0
    Transfers to Partners  capital                    3,588                    0                3,588           3,834,799

Net Income                                            8,368                    0                8,368             836,833
Syndication costs incurred                                0              (1,753)              (1,753)           (175,334)
Allocation of syndication costs                       (859)                  859                    0                   0
Partners  withdrawals                               (7,509)                    0              (7,509)           (316,063)
Early withdrawal penalties                                0                    2                    2                   0
                                            ----------------    -----------------    -----------------     ---------------

Balances at December 31, 1995                        11,325              (3,258)                8,067          10,695,098

Contributions on Application                              0                    0                    0                   0
Formation loan increases                                  0                    0                    0           (314,996)
Formation loan payments                                                                                             8,961
Interest   credited  to  partners  in                     0                    0                    0                   0
applicant status

Upon admission to partnership:
    Interest withdrawn                                    0                    0                    0                   0
    Transfers to Partners  capital                    4,224                    0                4,224           3,863,536

Net Income                                           12,309                    0               12,309           1,230,907
Syndication costs incurred                                0              (2,147)              (2,147)           (214,689)
Allocation of syndication costs                     (1,177)                1,177                    0                   0
Partners  withdrawals                              (11,132)                    0             (11,132)           (564,159)
Early withdrawal penalties                                0                   44                   44                   0
                                            ----------------    -----------------    -----------------     ---------------

Balances at December 31, 1996                       $15,549             $(4,184)              $11,365         $14,704,658
                                            ================    =================    =================     ===============

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

<PAGE>
<TABLE>

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


                                                                   ---------------------------------------------------
                                                                       1996               1995               1994
                                                                   --------------     -------------      -------------
Cash flows from operating activities:
<S>                                                                   <C>                 <C>                <C>     
  Net income                                                          $1,230,907          $836,833           $409,869
  Adjustments to reconcile net income to net cash provided by
       operating activities:
    Amortization of organization costs                                     2,500             2,500              2,500
    Provision  for doubtful accounts.                                     78,651            26,032             13,120
    Provision for losses (gains) on real estate held for sale           (23,268)                 0                  0
    Increase in accounts payable                                          16,615             4,010                  0
    (Increase) in accrued interest & advances                           (83,477)          (45,334)           (63,008)
    (Increase) decrease in amount due from related companies               2,738           (3,049)              2,493
    (Increase) in deferred loan fee                                      (3,002)          (17,718)                  0
    (Increase) in deferred interest income                               217,480                 0                  0
                                                                   --------------     -------------      -------------
                                                                                      

      Net cash provided by operating activities                        1,439,144           803,274            364,974

Cash flows from investing activities:


    Principal collected on Mortgage Investments                        9,019,190         1,508,190          1,641,847
    Mortgage Investments made                                       (13,148,944)       (7,133,221)        (5,789,880)
    Disposition of real estate held for sale                             299,154                 0                  0
    Accounts receivables, unsecured                                      (4,018)            (8,830                  0
                                                                  ---------------     -------------      -------------

      Net cash used in investing activities                          (3,834,618)       (5,633,861)        (4,148,033)
                                                                  ---------------     -------------      -------------
                                                        
Cash flows from financing activities

 Increase (decrease) in note payable-bank                              (410,000)         1,910,000                  0
 Contributions by partner applicants                                   4,172,718         3,634,264          4,560,683
 Interest credited to partners in applicant status                         2,618            18,908             14,443
 Interest withdrawn by partners in applicant status                        (863)           (7,673)            (5,774)
 Partners withdrawals                                                  (564,159)         (316,063)          (169,258)
 Syndication costs incurred                                            (214,689)         (175,334)           (81,023)
    Formation loan increases                                           (314,996)         (250,373)          (319,302)
    Formation loan collections                                             8,961                 0                  0
                                                                  ---------------     -------------      -------------

      Net cash provided by financing activities                        2,679,590         4,813,729          3,999,769
                                                                  ---------------     -------------      -------------

Net increase (decrease) in cash and cash equivalents                     284,116          (16,858)            216,710

Cash - beginning of period                                               380,318           397,176            180,466
                                                                  ---------------     -------------      -------------

Cash - end of period                                                    $664,434          $380,318           $397,176
                                                                  ===============     =============      =============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>

<PAGE>

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


NOTE 1 - ORGANIZATION AND GENERAL

     Redwood Mortgage  Investors VIII, (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.  Mortgage  Investments  are  being
arranged  and  serviced  by  Redwood  Home Loan Co.  dba  Redwood  Mortgage,  an
affiliate of the General Partners.  At December 31, 1996, the Partnership was in
the offering stage,  wherein contributed capital totalled $15,242,954 in limited
partner contributions of an approved aggregate offering of $45,000,000, in units
of $100 each (152,429). Of this amount, $310,937 remained in applicant status.

     A  minimum  of 2,500  units  ($250,000)  and a  maximum  of  150,000  units
($15,000,000)  were initially  offered through  qualified  broker-dealers.  This
initial offering was closed in October,  1996. In December 1996, the Partnership
commenced a second  offering of an  additional  300,000 Units  ($30,000,000)  of
which the total of $310,937  was in applicant  status at December  31, 1996.  As
Mortgage  Investments  are identified,  partners are transferred  from applicant
status to admitted  partners  participating in Mortgage  Investment  operations.
Each months income is  distributed  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  are not paid
directly  by  the  Partnership  out  of  the  offering  proceeds.  Instead,  the
Partnership will loan to Redwood Mortgage, an affiliate of the General Partners,
amounts to pay all sales  commissions  and amounts  payable in  connection  with
unsolicited  orders.  This loan is referred to as the Formation  Loan.  It is
unsecured and non-interest bearing.

     The Formation Loan relating to the initial  $15,000,000  offering  totalled
$1,074,840,  which was 7.2% of limited  partners  contributions  of  $14,932,017
(under the limit of 9.1% relative to the initial offering).  It is to be repaid,
without interest,  in ten annual installments of principal,  which must commence
on January 1, following the year the initial offering closes, which was in 1996.

     The Formation Loan relating to the second offering  ($30,000,000)  totalled
$15,384  at  December  31,  1996,   which  was  4.9%  of  the  limited  partners
contributions  of  $310,937.  Sales  commissions  range  from 0% (units  sold by
General Partners) to 9% of gross proceeds. The Partnership  anticipates that the
sales  commissions  will  approximate  7.6% based on the assumption  that 65% of
investors will reinvest earnings, thus generating 9% commissions.  The principal
balance of the Formation  Loan will  increase as  additional  sales of units are
made each  year.  The  amount of the  annual  installment  payment to be made by
Redwood  Mortgage,  during the  offering  stage,  will be  determined  at annual
installments  of one-tenth of the principal  balance of the Formation Loan as of
December 31 of each year.  Such payment  shall be due and payable by December 31
of the  following  year with the first such  payment to be made by December  31,
1997. Upon  completion of the offering,  the balance will be repaid in ten equal
annual installments.
<PAGE>


The following summarizes Formation Loan transactions to December 31, 1996:
<TABLE>

                                               Initial              Subsequent             Total
                                             Offering of           Offering of
                                             $15,000,000           $30,000,000
                                            ---------------       ---------------      ---------------
<CAPTION>

<S>                                            <C>                      <C>               <C>        
Limited Partner contributions                  $14,932,017              $310,937          $15,242,954
                                            ===============       ===============      ===============

Formation Loan made                             $1,074,840                15,384            1,090,224
Payments to date                                   (8,960)                     0              (8,960)
Early withdrawal penalties applied                 (7,558)                     0              (7,558)
                                            ---------------       ---------------      ---------------

Balance December 31, 1996                       $1,058,322               $15,384           $1,073,706
                                            ===============       ===============      ===============

Percent loaned of Partners contributions              7.2%                  4.9%                 7.2%
                                            ===============       ===============      ===============
</TABLE>


     The formation loan, which is receivable from Redwood Mortgage, an affiliate
of the General Partners, has been deducted from Limited Partners Capital in the
balance  sheet.  As amounts are collected from Redwood  Mortgage,  the deduction
from capital will be reduced (see note 11).


     B. Other  Organizational and Offering Expenses  Organizational and offering
expenses, other than sales commissions,  (including printing costs, attorney and
accountant fees,  registration and filing fees and other costs), will be paid by
the Partnership.

     Through  December 31, 1996,  organization  costs of $12,500 and syndication
costs of  $670,610  had been  incurred  by the  Partnership  with the  following
distribution:
<TABLE>

                                             Syndication Costs
                                --------------------------------------------
                                         Offering
                                ----------------------------
                                 Initial         Subsequent                     Organization
                                15,000,000       30,000,000        Total           Costs           Total
                                -----------      -----------     -----------      ---------      ----------
<CAPTION>

<S>                               <C>               <C>             <C>             <C>            <C>    
Costs incurred                    $569,865          100,745         670,610         12,500         683,110
Early withdrawal penalties         (4,714)                0         (4,714)              0         (4,714)
applied
Allocated and amortized to       (247,522)                0       (247,522)        (8,125)       (255,647)
date

                                ----------- ---- ----------- --- ----------- ---- --------- ---- ----------

December 31, 1996 balance         $317,629          100,745         418,374          4,375         422,749
                                =========== ==== =========== === =========== ==== ========= ==== ==========
</TABLE>

     Organization  and syndication  costs  attributable to the initial  offering
($15,000,000)  were  limited  to the  lesser  of 10% of the  gross  proceeds  or
$600,000 with any excess being paid by the General  Partners.  Applicable  gross
proceeds were $14,932,017.  Related  expenditures  totalled  $582,365  ($569,865
syndication costs plus $12,500 organization expense) or 3.90%.

     As of December 31, 1996,  syndication costs  attributable to the subsequent
offering  ($30,000,000)  totalled  $100,745,  with  the  costs  of the  offering
document being greater at the initial stages.  The syndication  costs payable by
the  Partnership  are  estimated to be  $1,200,000 if the maximum is sold (4% of
$30,000,000).  The General Partners will pay any syndication expenses (excluding
selling  commissions)  in  excess  of ten  percent  of  the  gross  proceeds  or
$1,200,000.
<PAGE>

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



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
mortgage  investments,  and  the  valuation  of  real  estate  acquired  through
foreclosure. Actual results could differ significantly from these estimates.

C. Mortgage Investments, Secured by Deeds of Trust

     The  Partnership  has both the  intent  and  ability  to hold the  mortgage
investments 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 simple interest method.

     Financial   Accounting  Standards  Board  Statements  (SFAS)  114  and  118
(effective  January 1, 1995) provide that if the probable  ultimate  recovery of
the carrying amount of a mortgage  investment,  with due  consideration  for the
fair value of  collateral,  is less than the  recorded  investment  and  related
amounts 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.  The adoption of these  statements did not have a material
effect on the  financial  statements  of the  Partnership  because  that was the
valuation method previously used on impaired loans.

     At December 31, 1996,  1995, and 1994,  there were no mortgage  investments
categorized as impaired by the Partnership. Had there been a computed amount for
the reduction in carrying  values of impaired  loans,  the reduction  would have
been included in the allowance for doubtful accounts.

     As presented in Note 10 to the financial  statements  the average  mortgage
investment  to  appraised  value  of  security  at  the  time  the  losses  were
consummated  was  58.21%.  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 has the tendency 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 propertys estimated fair
value,  less estimated  costs to sell. At December 31, 1996,  there was one such
piece of property  with costs  totaling  $71,991  less a reduction  of $5,000 to
arrive at the net fair value of $66,991.

<PAGE>


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


     Effective  January 1, 1996,  the  Partnership  adopted  the  provisions  of
Statement  No 121  (SFAS  121)  of the  Financial  Accounting  Standards  Board,
Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to
be disposed of. The adoption of SFAS 121 did not have a material  impact on the
Partnerships  financial position because the methods indicated were essentially
those previously used by the Partnership.

F. Investment in Limited Liability Corporation (see Note 7)

     The Partnership carries its investment in limited liability  Corporation as
investment  in real estate,  which is at the lower of costs or fair value,  less
estimated costs to sell.

G. 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.

H. 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,  and  filing  fees.
Organizational  costs have been  capitalized  and will be amortized  over a five
year period.  Syndication  costs are charged against  partners  capital and are
being  allocated  to  individual   partners   consistent  with  the  partnership
agreement.

I. Allowance for Doubtful Accounts 

     Mortgage  Investments and the related accrued interest,  fees, and advances
are  analyzed  on a  continuous  basis  for  recoverability.  Delinquencies  are
identified and followed as part of the Mortgage  Investment  system. A provision
is made for doubtful  accounts to adjust the allowance for doubtful  accounts to
an amount  considered by management to be adequate,  with due  consideration  to
collateral values, to provide for unrecoverable  accounts receivable,  including
impaired  mortgage  investments,   unspecified  mortgage  investments,   accrued
interest and advances on mortgage  investments,  and other  accounts  receivable
(unsecured).  The  composition  of the  allowance  for  doubtful  accounts as of
December 31, 1996, and 1995 was as follows:

<TABLE>

                                               December 31,
                                     ----------------------------------
                                     1996                          1995
                                     ----                          -----

<S>                                    <C>                             <C>
Impaired mortgage investments          $0                              $0
Unspecified mortgage investments   72,803                           9,152
Amounts receivable, unsecured      45,000                          30,000
                                 ----------                     -----------
                                 $117,803                         $39,152
                             ===============                 ===============

</TABLE>

<PAGE> 
 
                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1996

J. 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 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.

K. Reclassifications and Changes in Presentation

     Certain  reclassifications not affecting net income have been made to prior
year  amounts to conform to the current  year  presentation.  In  addition,  the
formation loan previously categorized as an asset has been deducted from Limited
Partners  Capital until  collected from Redwood  Mortgage,  an affiliate of the
General Partners (see note 11).

NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES

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

     A. Mortgage  Brokerage  Commissions For fees in connection with the review,
selection,  evaluation,   negotiation  and  extension  of  Partnership  Mortgage
Investments  in an amount up to 12% of the Mortgage  Investments  until 6 months
after the  termination  date of the  offering.  Thereafter,  mortgage  brokerage
commissions  will  be  limited  to an  amount  not to  exceed  4% of  the  total
Partnership assets per year. The mortgage brokerage  commissions are paid by the
borrowers, and thus, not an expense of the partnership.


     B. Mortgage  Servicing Fees Monthly mortgage servicing fees of up to 1/8 of
1% (1.5% annual) of the unpaid principal,  is paid to Redwood Mortgage,  or such
lesser amount as is reasonable  and customary in the  geographic  area where the
property securing the mortgage is located.  Mortgage servicing fees of $155,912,
$85,456 and $29,127 were incurred for years 1996, 1995 and 1994 respectively.


     C. Asset  Management  Fee The General  Partners will receive a monthly fees
for managing the Partnerships Mortgage Investment portfolio and operations equal
to 1/32 of 1% of the net asset  value  (3/8 of 1%  annual).  Management  fees of
$17,053,  $11,587  and  $5,906  were  incurred  for years  1996,  1995 and 1994,
respectively.

<PAGE>

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

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 will be credited or charged to partners in
relation to their respective partnership interests.  The partnership interest of
the General Partners (combined) shall be a total of 1%.

     F.  Operating  Expenses The General  Partners or their  affiliate  (Redwood
Mortgage) are reimbursed by the Partnership for all operating  expenses actually
incurred by them on behalf of the  Partnership,  including  without  limitation,
out-of-pocket general and administration expenses of the Partnership, accounting
and audit fees,  legal fees and expenses,  postage and preparation of reports to
Limited Partners. Such reimbursements are reflected as expenses in the Statement
of Income.

     The General  Partners  collectively or severally were to contribute 1/10 of
1% in cash  contributions  as proceeds from the offering are admitted to limited
Partner capital.  As of December 31, 1996 a General Partner,  GYMNO Corporation,
had  contributed  $15,241,  as capital 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
are not admitted to the Partnership until appropriate lending  opportunities are
available.  During  the  period  prior  to  the  time  of  admission,  which  is
anticipated  to be between 1-120 days in most cases,  purchasers  subscriptions
will remain  irrevocable and will earn interest at money market rates, which are
lower  than the  anticipated  return on the  Partnerships  Mortgage  Investment
portfolio.

     During the periods  ending  December 31,  1996,  1995,  and 1994,  interest
totalling $2,618, $18,908 and $14,443 respectively,  was credited to partners in
applicant  status.   As  Mortgage   Investments  were  made  and  partners  were
transferred  to  regular  status  to  begin  sharing  in  income  from  Mortgage
Investments  secured by deeds of trust, the interest credited was either paid to
the  investors  or  transferred  to  partners  capital  along with the original
investment.

     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 elect either to receive  monthly,  quarterly or annual
distributions of earnings allocations, or to allow earnings to compound. Subject
to certain limitations, an investor may subsequently change his election.

     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 VIII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1996

     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 in the
Partnership Agreement.

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

     The Partnership will not establish a reserve from which to fund withdrawals
and,  accordingly,  the  Partnerships  capacity  to return a Limited  Partners
capital 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 is admitted to the  Partnership  and
ending 3 months after the offering  termination date, the General partners shall
guarantee an earnings 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  on a monthly  basis,  up to a
maximum  interest  rate  of  12%.  To  date,  actual  realization  exceeded  the
guaranteed amount for each month.

NOTE 5- LEGAL PROCEEDINGS

The Partnership is not a defendant in any legal actions.

NOTE 6 - NOTE PAYABLE - BANK LINE OF CREDIT

     The  Partnership  has a bank line of credit of up to $5,000,000 at .5% over
prime secured by its Mortgage  Investment  portfolio.  The note payable balances
were $1,500,000 and $1,910,000 at December 31, 1996, and 1995, respectively, and
the interest rate was 8.75% at December 31, 1996, (8.25% prime plus .50%).

     NOTE 7 -  INVESTMENT  IN  LIMITED  LIABILITY  CORPORATION  As a  result  of
acquiring real property through foreclosure, the Partnership has contributed its
interest  (principally  land) to a  Limited  Liability  Corporation  which  will
complete the  construction  and sell the property.  The  Partnership  expects to
realize a profit from the venture.
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1996
NOTE 8 - 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:
<TABLE>


                                                                          December 31,
                                                            ------------------------------------------
                                                                  1996                      1995
                                                            -----------------          ---------------

<S>                                                              <C>                      <C>        
Net Assets - Partners  Capital per financial statements          $14,704,658              $10,695,098
Unamortized syndication costs                                        418,374                  325,935
Allowance for doubtful accounts                                      117,803                   39,152
                                                            -----------------          ---------------
Formation loans receivable                                         1,073,706                  775,229
                                                            -----------------          ---------------
Net assets tax basis                                             $16,314,541              $11,835,414
                                                            =================          ===============
</TABLE>

     In 1996,  approximately  55% 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 9 - FAIR VALUE OF FINANCIAL INVESTMENTS

     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)  The  carrying  value  of  mortgage   investments  (see  note  2(c)  is
$15,642,990.  The fair value of these  investments  of  $16,451,970 is 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>


NOTE  10- ASSET CONCENTRATIONS AND CHARACTERISTICS

     The  Mortgage  Investments  are  secured  by  recorded  deeds of trust.  At
December  31,  1996,  there were 50 Mortgage  Investments  outstanding  with the
following characteristics:
<TABLE>

<S>                                                                                                        <C>
Number of Mortgage Investments outstanding                                                                 50
Total Mortgage Investments outstanding                                                            $15,642,990

Average Mortgage Investment outstanding                                                              $312,860
Average Mortgage Investment as percent of total                                                         2.00%
Average Mortgage Investment as percent of Partners  Capital                                             2.13%

Largest Mortgage Investment outstanding                                                            $1,450,000
Largest Mortgage Investment as percent of total                                                         9.27%
Largest Mortgage Investment as percent of Partners  Capital                                             9.86%

Number of counties where security is located (all California)                                              16
Largest percentage of Mortgage Investments in one county                                               20.84%
Average Mortgage Investment to appraised value of security at time loan was consummated                58.21%

Number of Mortgage Investments in foreclosure status                                                        1
Amount of Mortgage Investments in foreclosure                                                        $118,811


     The following  categories of mortgage investments are pertinent at December
31, 1996 and 1995:

                                                                          December 31,
                                                            ------------------------------------------
                                                                  1996                      1995
                                                            -----------------          ---------------

<S>                                                               <C>                      <C>       
First Trust Deeds                                                 $6,545,779               $4,996,887
Second Trust Deeds                                                 8,797,211                7,050,365
Third Trust Deeds                                                    300,000                        0
                                                            -----------------          ---------------
  Total mortgage investments                                      15,642,990               12,047,252
Prior liens due other lenders                                     25,161,374               26,965,234
                                                            -----------------          ---------------
  Total debt                                                     $40,804,364              $39,012,486
                                                            =================          ===============

Appraised property value at time of loan                         $70,100,408              $61,347,449
                                                            =================          ===============

Total investments as a percent of appraisals                          58.21%                   63.59%
                                                            =================          ===============

Investments by Type of Property

Owner occupied homes                                              $1,808,921               $2,300,576
Non-Owner occupied homes                                           2,288,036                1,844,507
Apartments                                                         2,521,515                2,664,963
Commercial                                                         9,024,518                5,237,206
                                                            =================          ===============
                                                                 $15,642,990              $12,047,252
                                                            =================          ===============
<FN>
     The interest rates on the mortgage  investments range from 10.00% to 14.50%
at December 31, 1996.
</FN>

</TABLE>
<PAGE>


     Scheduled  maturity  dates of mortgage  investments as of December 31, 1996
are as follows:


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

                            1997                           $2,381,155
                            1998                            3,268,418
                            1999                            2,427,585
                            2000                            2,377,963
                            2001                            2,865,997
                         Thereafter                         2,321,872
                                                        ===============
                                                          $15,642,990
                                                        ===============


     The scheduled maturities for 1997 include  approximately  $468,000 in loans
which are past  maturity at December 31, 1996.  Interest  payment on these loans
are current..

     One loan in the  principal  amount of $118,811  had  interest  paid through
September  1,  1996,  and is in  foreclosure.  That loan  which is the only loan
categorized as delinquent,  is not  considered  impaired  because the underlying
security is sufficient to cover amount due.

     The cash  balance at December  31,  1996 of  $664,434  was in one bank with
interest  bearing  balances  totalling  $605,871.  The  balances  exceeded  FDIC
insurance limits (up to $100,000 per bank) by $564,434.

NOTE 11 - CHANGE IN PRESENTATION

     The formation loan  receivable from Redwood  Mortgage,  an affiliate of the
General  Partners,  has been  categorized  as a reduction  in Limited  Partners
Capital,  the source of the funds.  It was previously  reflected as an asset. As
payments are received,  or early withdrawal  penalties  realized,  the formation
loan  balance  will be reduced and restored to Limited  Partners  Capital.  The
total of the formation loan  outstanding was $1,073,706 and $775,229 at December
31, 1996 and 1995, respectively.

     In addition,  Limited  Partners  Capital and General Partners Capital are
reflected  separately  in  the  Balance  Sheet,  whereas  they  were  previously
reflected separately in the Statement of Changes in Partners Capital.

<PAGE>


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

<TABLE>

Column A                    Column B               Column C            Column D                   Column E
Name of Debtor              Balance Beginning      Additions                 Deductions            Balance at end of period
                            of period 12/31/95                          (1)            (2)           (1)           (2)
                                                                      Amounts        Amounts       Current     Not Current
                                                                     collected     written off              12/31/96
<S>                           <C>                    <C>              <C>             <C>           <C>          <C>       
Redwood Mortgage              $775,229               $314,996         $8,960          $7,559        $0.00        $1,073,706


<FN>
     The above  schedule  represents  the  formation  loan  borrowed  by Redwood
Mortgage from the Partnership to pay for the selling commissions on units. It is
an  unsecured  loan  and  will  not  bear  interest.  It will be  repaid  to the
Partnership in ten annual installments as described in Note 1 A to the financial
statements.  The amount written off represents the proportionate amount of early
withdrawal  penalties  allocated  to  the  formation  loan  as  provided  in the
prospectus.
</FN>
</TABLE>
<PAGE>
<TABLE>

                SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
                         REDWOOD MORTGAGE INVESTORS VIII


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

Year Ended
12/31/96

Deducted from
Asset accounts:

Allowance for
<S>                         <C>                 <C>                 <C>                 <C>          <C>     
Doubtful accts              $39,152             $78,651             $0                  0.00         $117,803


Cumulative
write-down of
Real Estate
held for sale
(REO)                            $0            (23,268)            (28,268)                0            5,000


------------------ ----------------- ------------------- ------------------- ---------------- ----------------
Totals                      $39,152             $55,383        $(28,268)(a)               $0         $122,803

<FN>
(a)  represents gain on disposition of REO
</FN>
</TABLE>
<PAGE>

<TABLE>

SCHEDULE XII

                      MORTGAGE INVESTMENTS ON REAL ESTATE.
                    RULE 12-29 MORTGAGE LOANS ON REAL ESTATE

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

<S>        <C>       <C>        <C>         <C>       <C>           <C>           <C>       <C>        <C>         
Apts       14.500%   01/01/94   1,570.84    164,805   130,000.00    130,000.0     0.00      2nd Mtg    San Mateo
Comm.      13.750%   10/01/96     458.33       0.00    40,000.00    40,000.00     0.00      1st Mtg    Santa Clara
Comm       12.500%   04/05/08   1,235.89       0.00   100,273.36    87,507.78     0.00      1st Mtg    Tuolume
Res.       12.000%   05/01/98     721.32       0.00    70,125.00    69,084.03     0.00      1st Mtg    San Francisco
Res.       12.000%   07/01/98   1,337.20     37,236   130,000.00   118,810.72  118,810.72   2nd Mtg    El Dorado
Comm       12.000%   09/01/03     848.61       0.00    82,500.00    81,345.94     0.00      1st Mtg    Alameda
Comm       11.000%   09/01/05     846.15    846,019    67,500.00    56,896.68     0.00      2nd Mtg    Sacramento
Comm       12.000%   11/01/98   2,057.23      5,635   200,000.00    74,423.44     0.00      2nd Mtg    San Francisco
Comm       10.000%   12/01/98   1,689.33       0.00   192,500.00   190,039.09     0.00      1st Mtg    Alameda
Comm       12.000%   02/01/99   5,131.13       0.00   468,000.00   503,457.45     0.00      1st Mtg    Santa Clara
Res.       10.500%   03/01/99     402.49       0.00    44,000.00    43,334.36     0.00      1st Mtg    Santa Clara
Res        10.250%   04/01/97     797.79     63,244    93,400.00    88,732.76     0.00      2nd Mtg    Sonoma
Comm       12.000%   06/01/04   4,476.20       0.00   425,000.00   416,828.99     0.00      1st Mtg    Santa Barbara
Comm       10.750%   06/01/97   2,508.33       0.00   280,000.00   280,000.00     0.00      1st Mtg    San Mateo
Apts       11.500%   11/01/99   1,980.58    713,917   200,000.00   198,204.19     0.00      2nd Mtg    San Joaquin
Res.       11.000%   12/01/03   3,185.37  1,060,486   325,000.00   319,746.90     0.00      2nd Mtg    San Francisco
Res        11.000%   04/01/99   4,999.70    775,649   525,000.00   520,343.77     0.00      2nd Mtg    Contra Costa
Apts       11.500%   04/01/05   1,928.65       0.00   400,000.00   194,758.33     0.00      1st Mtg    San Francisco
Res.       11.500%   04/01/00     792.24    259,886    80,000.00    79,439.15     0.00      2nd Mtg    San Mateo
Comm       11.875%   05/01/05   2,088.00       0.00   200,000.00   197,605.96     0.00      1st Mtg    San Francisco
Comm       12.500%   07/01/00   1,387.44       0.00   130,000.00   129,384.67     0.00      1st Mtg    Fresno
Res        11.750%   07/01/00     802.36     74,551    66,000.00    65,201.97     0.00      2nd Mtg    Alameda
Apts       12.000%   08/01/00   6,951.28  3,033,304   660,000.00   653,937.66     0.00      2nd Mtg    San Joaquin
Res        11.000%   09/01/05     688.76       0.00    50,000.00    46,312.75     0.00      1st Mtg    Stanislaus
Comm       12.000%   11/30/98   7,500.00  3,000,000   750,000.00   750,000.00     0.00      2nd Mtg    San Mateo
Comm       12.000%   10/01/96     600.00    290,711    60,000.00    60,000.00     0.00      2nd Mtg    Alameda
Res        12.250%   10/01/96   2,476.18    395,597   250,000.00   238,000.00     0.00      2nd Mtg    San Francisco
Comm.      12.000%   12/31/99  10,500.00  5,691,116  1,050,000.00 1,050,000.00    0.00      2nd Mtg    Santa Clara
Res.       12.000%   04/30/97   7,078.21       0.00   770,000.00   687,851.60     0.00      1st Mtg    Marin
Apts       11.875%   01/01/01   4,330.76       0.00   425,000.00   423,554.55     0.00      1st Mtg    San Mateo
Res        11.875%   01/01/01   2,292.76       0.00   225,000.00   224,234.71     0.00      1st Mtg    San Mateo
Comm       12.500%   01/01/06   3,415.23       0.00   320,000.00   319,050.72     0.00      1st Mtg    San Joaquin
Comm       11.750%   02/01/99   1,018.34       0.00   104,000.00   104,000.00     0.00      1st Mtg    Contra Costa
Comm       11.875%   02/01/06   4,541.40       0.00   435,000.00   432,524.66     0.00      1st Mtg    San Mateo
Comm       12.000%   03/01/01     789.92       0.00    75,000.00    74,582.34     0.00      1st Mtg    San Mateo
Comm       12.000%   12/31/01   9,792.73  5,492,794   955,000.00   979,272.93     0.00      2nd Mtg    Santa Clara
Land       12.500%   04/01/98   3,125.00    574,089   300,000.00   300,000.00     0.00      3rd Mtg    San Luis Obispo
Comm       12.000%   03/15/98   4,000.00    300,000   400,000.00   400,000.00     0.00      2nd Mtg    Santa Clara
Res        11.500%   04/01/06   1,039.81       0.00   105,000.00   104,706.97     0.00      1st Mtg    San Francisco
Res        11.500%   02/27/97   1,197.92    150,301   125,000.00   125,000.00     0.00      2nd Mtg    San Francisco
Res        11.750%   11/01/97   2,904.47       0.00   325,000.00   290,572.52     0.00      1st Mtg    San Mateo
Res        12.000%   12/01/97   4,552.97       0.00   910,000.00   440,997.86     0.00      1st Mtg    Marin
Res        12.000%   08/01/01   1,250.00       0.00   125,000.00   125,000.00     0.00      1st Mtg    Mendocino
Apts       12.000%   02/01/98   9,106.84    883,750  1,427,500.00  921,060.33     0.00      2nd Mtg    San Francisco
Res        11.500%   09/01/11     759.33       0.00    65,000.00    64,586.83     0.00      1st Mtg    San Mateo
Res        11.000%   08/30/98   4,079.17    372,417   445,000.00   445,000.00     0.00      2nd Mtg    San Mateo
Comm       12.000%   03/01/01     684.60     74,754    65,000.00    64,895.15     0.00      2nd Mtg    San Mateo
</TABLE>
<PAGE>

<TABLE>

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

<S>         <C>      <C>       <C>             <C>    <C>          <C>            <C>       <C>        <C>             
Comm        11.750%  11/01/01  10,089.29       0.00   975,000.00   974,457.59     0.00      1st Mtg    San Francisco
Comm        12.000%  02/01/99      84.98     20,800    18,000.00     8,244.92     0.00      2nd Mtg    Santa Clara
Land        12.000%  01/01/00     14,500    880,313  1,450,000.00 1,450,000.00    0.00      2nd Mtg    Stanislaus

                               ---------- ---------- ------------ ------------ ------------

Total                      $160,595.13  $25,161,374.00 $17,113,798.36  $15,642,990.27 $118,810.72


<FN>
Notes:


     None of the above loans is considered impaired. Therefore, none of them has
been written down, although the allowance for doubtful accounts includes $72,803
relating to the above loans and accrued interest receivable and advances related
thereto.

     Amounts  reflected  in column G (carrying  amount of mortgage  investments)
represents both cost and the tax basis of the loans.
</FN>
</TABLE>

<PAGE>

<TABLE>


Schedule XII

     Reconciliation  of carrying amount (cost) of Mortgage  Investments at close
of periods
<CAPTION>

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

                                                 1996                  1995                 1994
                                            ---------------       ---------------      ---------------

<S>                                            <C>                    <C>                  <C>       
Balance at beginning of year                   $12,047,252            $6,484,707           $2,336,674
                                            ---------------       ---------------      ---------------
Additions during period:
  New Mortgage Investments                      13,148,944             7,133,221            5,789,880
  Other                                                  0                     0                    0
                                            ---------------       ---------------      ---------------
                  Total Additions               13,148,944             7,133,221            5,789,880
                                            ---------------       ---------------      ---------------


Deductions during period:
  Collections of principal                       9,019,190             1,508,190            1,641,847
  Foreclosures                                     534,016                     0                    0
  Cost of Mortgage Investments sold                      0                     0                    0
  Amortization of Premium                                0                     0                    0
  Other                                                  0                62,486                    0
                                            ---------------       ---------------      ---------------
                  Total Deductions               9,553,206             1,570,676            1,641,847
                                            ---------------       ---------------      ---------------

Balance at close of year                       $15,642,990           $12,047,252           $6,484,707
                                            ===============       ===============      ===============
   
</TABLE>
<PAGE>



<TABLE>

SCHEDULE IX

                                                         SHORT TERM BORROWINGS
                                             REDWOOD MORTGAGE INVESTORS VIII - 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 12/31/96     $1,500,000             9.15%              $3,000,000           $2,071,270            9.15%


</TABLE>
<PAGE>


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

     The  Partnership  has neither  changed its accountants nor does it have any
disagreement  on any matter of  accounting  principles,  practices  or 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 6-7, under the section  Compensation of the General Partners
and the Affiliates,  which is incorporated by reference.  Such  compensation is
summarized below.

     The  following  compensation  has been  paid to the  General  Partners  and
Affiliates  for services  rendered  during the year ended December 31, 1996. All
such compensation is in compliance with the guidelines and limitations set forth
in the Prospectus.


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

I. Redwood Mortgage.                 Mortgage Servicing Fee for servicing 
                                     Mortgage Investments...............$155,912

General Partners &/or Affiliate      Asset Management Fee for
                                      managing assets................... $17,053

General Partners                     1% interest in  profits............ $12,309
                                     Less allowance for syndication costs  1,177
                                                                          ------
                                                                         $11,132

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

Redwood Mortgage   Mortgage Brokerage Commissions for services in
                   connection with the review, selection,
                   evaluation, negotiation, and extension of the
                   Mortgage Investments paid by the borrowers and
                   not by the Partnership                             $389,043
                    
Redwood Mortgage   Processing and Escrow Fees for services in
                   connection with notary, document preparation,
                   credit investigation, and escrow fees payable by
                   the borrowers and not by the Partnership            $10,333
                                
     II. 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.                                                   $38,799
<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 December 4, 1996,  (incorporated  herein
by reference) on pages 4-5 Compensation of General Partners and Affiliates and
page 5 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 for 
                        Construction Loans which provides for principal and 
                        interest payments.
                        (b)  Form of Note secured by Deed of Trust for
                        Commercial and Multi-Family loans which provides for
                         principal and interest payments
                        (c)  Form of Note secured by Deed of Trust for
                         Commercial and Multi-Family loans which provides for
                         interest only payments
                        (d)  Form of Note secured by Deed of Trust for Single
                         Family Residential Loans which provides for interest 
                         and principal payments.
                        (e)  Form of Note secured by Deed of Trust for Single 
                         Family Residential loans which provides for interest
                         only payments.
      10.4              (a)  Deed of Trust, Assignment of Leases and Rents, 
                         Security Agreement and Fixture Filing to accompany 
                         Exhibits   10.3  (a),  and (c).
                        (b)  Deed of Trust, Assignment of Leases and Rents, 
                         Security Agreement and Fixture Filing to accompany
                         Exhibit 10.3 (b).
                        (c)  Deed of Trust, Assignment of Leases and Rents,
                         Security Agreement and Fixture Filing to accompany 
                         Exhibit 10.3 (c).
      10.5              Promissory Note for Formation Loan
      10.6              Agreement to Seek a Lender
      24.1              Consent of Parodi & Cropper
      24.2              Consent of Stephen C. Ryan & Associates

     All of these exhibits were previously filed as the exhibits to Registrants
Statement on Form S-11  (Registration No. 33-49946 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) to pages 94 through
          97 and revised Prospectus dated December 4, 1996, 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 19th day of March,
1997.


REDWOOD MORTGAGE INVESTORS VIII


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  persons  on  behalf  of the
registrant and in the capacity indicated on the 19th day of March, 1997.


Signature                            Title                                Date


/S/ D. Russell Burwell
----------------------
D. Russell Burwell         General Partner                       March 19, 1997


/S/ Michael R. Burwell
----------------------
Michael R. Burwell         General Partner                       March 19, 1997



/S/ D. Russell Burwell
-----------------------
D. Russell Burwell       President of Gymno Corporation,         March 19, 1997
                         (Principal Executive Officer);
                         Director of Gymno Corporation


/S/ Michael R. Burwell
-----------------------
Michael R. Burwell       Secretary/Treasurer of Gymno            March 19, 1997
                        Corporation (Principal Financial
                        and Accounting Officer);
                        Director of Gymno Corporation


<PAGE>