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                   12-30
Item 9 - Changes in and Disagreements with Accountants on Accounting 
         and Financial Disclosure                                         31

                                    Part III

Item 10 - Directors and Executive Officers of the Registrant              31
Item 11 - Executive Compensation                                          32
Item 12 - Security Ownership of Certain Beneficial Owners and management  33
Item 13 - Certain Relationships and Related Transactions                  33

                                     Part IV

Item 14 - Exhibits, Financial Statement Schedules, and Reports 
          on Form 8-K.                                                 33-34

Signatures                                                                35

                                     <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               XXXX                                  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                                  1.98%
Largest Investment Outstanding                                    1,450,000.00
Largest Investment as a % of Net Assets                                  9.19%

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 Loans 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.

     3000,000  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 a best  efforts basis (as
indicated in Part I item 1).  Investors have the option of withdrawing  earnings
on a monthly,  quarterly,  or annual basis or reinvesting  and  compounding  the
earnings.  Limited Partners may withdraw from the Partnership in accordance with
the terms of the  Partnership  Agreement  subject to possible  early  withdrawal
penalties. There is no established public trading market.

     A  description  of  the  Partnership  units,   transfer   restrictions  and
withdrawal  provisions  is more  fully  described  under  the  section  entitled
Description  of Units and  summary of Limited  Partnership  Agreement,  pages 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>
<TABLE>

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

                                                             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
Formation loan due from Redwood Mortgage .........................            1,073,706               775,229               525,256
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

                                                                           ------------          ------------          ------------
                                                                           $ 17,827,406          $ 13,384,337          $  7,479,792
                                                                           ------------          ------------          ------------

</TABLE>
<TABLE>


                        Liabilities and Partners Capital

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

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

Liabilities:
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 ................................................................       15,778,364       11,470,327        7,290,492
---------------------------------------------------------------------------------      -----------      -----------      -----------
                                                                                       $17,827,406      $13,384,337      $ 7,479,792
                                                                                       -----------      -----------      -----------

</TABLE>
<PAGE>
<TABLE>

                               Statement of Income

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


Gross revenue ................................................................        $1,570,723        $  964,780        $  468,546
Expenses .....................................................................           337,198           109,039            44,234
                                                                                      ----------        ----------        ----------
Income before interest credited to Partners in applicant status ..............         1,233,525           855,741           424,312
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 distributions ..................        $       81        $       80        $       79
                                                                                      ==========        ==========        ==========

<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  with interest  rates  ranging 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%).

     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. 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.

     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.
<PAGE>

     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.
<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.




                              /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, at estimated net
  realizable value .....................................................................                66,991                     0
Investment in limited liability corporation, at cost which
  approximates market ..................................................................               191,139                     0
Formation loan due from Redwood Mortgage ...............................................             1,073,706               775,229
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
                                                                                                   -----------           -----------

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


                        LIABILITIES AND PARTNERS CAPITAL


Liabilities:
  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 .......................................................................            15,778,364            11,470,327
                                                                                                   -----------           -----------

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


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

Revenues:
  Interest on Mortgage Investments ...........................................        $1,562,296        $  945,573        $  450,983
  Interest on bank deposits ..................................................             4,083            13,120            15,739
  Late charges ...............................................................             3,847             3,876             1,704
  Miscellaneous ..............................................................               497             2,211               120
                                                                                      ----------        ----------        ----------
                                                                                      ----------        ----------        ----------
                                                                                       1,570,723           964,780           468,546
                                                                                      ----------        ----------        ----------

Expenses:
  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
                                                                                      ----------        ----------        ----------
                                                                                         337,198           109,039            44,234
                                                                                      ----------        ----------        ----------

Income before interest credited to partners in applicant status ..............         1,233,525           855,741           424,312

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
                                                                      --------------------------------------------------------------
                                                   PARTNERS IN                                          UNALLOCATED
                                                    APPLICANT          GENERAL          LIMITED         SYNDICATION
                                                     STATUS           PARTNERS         PARTNERS             COSTS             TOTAL
                                              --------------     -------------      -----------        ------------        --------

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

Balances at December 31, 1993 ............          128,772             2,887         2,809,535          (190,342)        2,622,080

Contributions on application .............        4,560,683                 0                 0                 0                 0

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)            4,542         4,504,282                 0         4,508,824

Net income ...............................                0             4,099           405,770                 0           409,869
Syndication costs incurred ...............                0                 0              0.00           (81,023)          (81,023)
Allocation  of syndication costs .........                0              (347)          (34,349)           34,696                 0
Partners withdrawals .....................                0            (3,444)         (165,814)                0          (169,258)
                                                -----------       -----------       -----------       -----------       -----------

Balances at December 31, 1994 ............          189,300             7,737         7,519,424          (236,669)        7,290,492

Contributions on application .............        3,634,264                 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)            3,588         3,831,211                 0         3,834,799

Net income ...............................                0             8,368           828,465                 0           836,833
Syndication costs incurred ...............                0                 0                 0          (175,334)         (175,334)
Allocation of syndication costs ..........                0              (859)          (85,045)           85,904                 0
Partners withdrawals .....................                0            (7,509)         (308,554)                0          (316,063)
Early withdrawal penalties ...............                0                 0              (564)              164              (400)
                                                -----------       -----------       -----------       -----------       -----------

Balances at December 31, 1995 ............      $      0.00            11,325        11,784,937          (325,935)       11,470,327

Contributions on application .............        4,172,718                 0                 0                 0                 0

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)            4,224         3,859,312                 0         3,863,536

Net income ...............................                0            12,309         1,218,598                 0         1,230,907
Syndication costs incurred ...............                0                 0                 0          (214,689)         (214,689)
Allocation of syndication costs ..........                0            (1,177)         (116,523)          117,700                 0
Partners withdrawals .....................                0           (11,132)         (553,027)                0          (564,159)
Early withdrawal penalties ...............                0                 0          (12,108)            4,550            (7,558)
                                                -----------       -----------       -----------       -----------       -----------

Balances at December 31, 1996 ............          310,937            15,549        16,181,189          (418,374)       15,778,364
                                                ===========       ===========       ===========       ===========       ===========

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

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

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

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

Cash flows from operating activities:
  Net income ..............................................................       $ 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
    Increase in allowance for doubtful accounts ...........................            78,651             26,032             13,120
    Increase in account 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 ...........................         1,462,412            803,274            364,974
                                                                                  -----------        -----------        -----------

Cash flows from investing activities:

  Net (increase) decrease in:
       Mortgage Investments ...............................................        (3,595,738)        (5,562,545)        (4,148,033)
       Formation loan .....................................................          (298,477)          (249,973)          (319,302)
       Accounts receivables, unsecured ....................................            (4,018)           (71,316)                 0
       Real estate acquired through foreclosure ...........................           (66,991)                 0                  0
       Investment in limited liability corporation ........................          (191,139)                 0                  0
                                                                                  -----------        -----------        -----------

      Net cash used in investing activities ...............................        (4,156,363)        (5,883,834)        (4,467,335)
                                                                                  -----------        -----------        -----------

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)
 Early withdrawal penalties, net ..........................................            (7,558)              (400)                 0
 Syndication costs incurred ...............................................          (214,689)          (175,334)           (81,023)
                                                                                  -----------        -----------        -----------

      Net cash provided by financing activities ...........................         2,978,067          5,063,702          4,319,071
                                                                                  -----------        -----------        -----------

Net increase in 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. 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>
<TABLE>

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

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


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

<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

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

     The Partnership  bears its own  organization  and syndication  costs (other
than certain sales  commissions  and fees described  above)  including legal and
accounting  expenses,   printing  costs,  selling  expenses,  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.

     When  property  is  acquired  through  foreclosure,  it is held for sale to
return the funds to the Mortgage Investment portfolio. Such property is recorded
at cost which includes the principal  balance of the former Mortgage  Investment
made by the Partnership, plus accrued interest, payments made to keep the senior
loans current,  costs of obtaining title and possession,  less rental income, or
at estimated net realizable value, if less. The difference  between such costs
and  estimated net  realizable  value is included in an allowance for losses and
deducted from cost in the Balance Sheet to arrive at the carrying  value of such
property. ($66,991 at December 31, 1996).

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

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

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

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

NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES

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

     A. Mortgage  Brokerage  Commissions For 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,  loan  brokerage
commissions  will  be  limited  to an  amount  not to  exceed  4% of  the  total
Partnership  assets per year.  The loan  brokerage  commissions  are paid by the
borrowers, and thus, not an expense of the partnership.
<PAGE>
                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1996

     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. Currently, such servicing fees are at
1/12 of 1% per month (1%  annually).  Amounts  remitted to the  Partnership  and
recorded  as  interest on  Mortgage  Investments  is net of such fees.  In 1994,
$15,278 of the total  mortgage  servicing fees of $44,405 were waived by Redwood
Mortgage.  In 1995,  and 1996,  Redwood  Mortgage  received  the total  mortgage
servicing fees earned of $85,456 and $155,912 respectively.

     C. Asset Management Fee The General Partners will receive a monthly fee for
managing the Partnerships Mortgage Investment portfolio and operations equal to
1/32 of 1% of the net asset value (3/8 of 1% annual). Fees were reduced by the
General  Partners  from  $17,718 to $5,906 in 1994,  with the  difference  being
waived.  In 1995,  and 1996,  fees were reduced from $34,773 to $11,587 and from
$51,158  to  $17,053  respectively,  with the  differences  being  waived by the
General Partners.

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

     E.  Income and Losses All income 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.
<PAGE>
                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1996

     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.

     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.
<PAGE>

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

     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.

     NOTE 8 - 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:

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               1.98%

Largest Mortgage Investment outstanding                            $1,450,000
Largest Mortgage Investment as percent of total                          9.27%
Largest Mortgage Investment as percent of Partners Capital               9.19%

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 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.
<PAGE>
<TABLE>


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

<CAPTION>

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

Redwood Mortgage ............        $  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

<CAPTION>

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

Year Ended
12/31/96

Deducted from
Asset accounts:
<S>                                             <C>                 <C>                 <C>                    <C>          <C>
Allowance for
Doubtful accts .....................            $ 39,152            $ 55,383            $ 23,268               0.00         $117,803
</TABLE>
<PAGE>
<TABLE>

SCHEDULE XII

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

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

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

<PAGE>


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

<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
</TABLE>
<PAGE>



Schedule XII

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

Balance at beginning of period 1/01/96                              $12,047,252
Additions during period:
New Mortgage Investments                           $13,148,944
Other                                                      0        $13,148,944
-------------------------------------------------------------------------------
                                                                    $25,196,196

Deduction during period:
Collections of principal                            $9,019,190
Foreclosures                                           534,016
Cost of Mortgage Investments sold                           0
Amortization of Premium                                     0
Other                                                       0        $9,553,206
-------------------------------------------------------------------------------


Balance at close of period (12/31/96)                               $15,642,990
                                                            -------------------
<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
Short-Term Borrowings                              of Period       Interest Rate       Outstanding        Outstanding       Average 
                                                                                 During the Period  During the Period  Interest Rate
                                                                                                                   during 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.          Loan Servicing Fee for                   $155,912
                                servicing  Loans

General Partners            Asset Management Fee for 
  &/or Affiliate            managing assets   ...           
                    ($34,105 waived by the General Partners)            $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  Loan Brokerage Commissions for services in
                  connection with the review, selection,
                  evaluation, negotiation, and extension of the
                  Mortgage Investments paid by the borrowers and
                  not by the Partnership                               $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
                                  
     III. IN ADDITION, THE GENERAL PARTNERS AND/OR RELATED COMPANIES PAY CERTAIN
EXPENSES ON BEHALF OF THE PARTNERSHIP FOR WHICH IT IS REIMBURSED AS NOTED IN THE
STATEMENT OF INCOME.                                                    $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>