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

                                December 31, 2003


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

                                                Part I
                                                                                                              Page No.
                                                                                                            -----------
Item 1   - Business                                                                                             3
Item 2   - Properties                                                                                           7
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 Registrant's "Limited Partnership Units" and Related Unitholder Matters               7
Item 6   - Selected Consolidated Financial Data                                                                 8
Item 7   - Management's Discussion and Analysis of Financial Condition and Results of Operations                9
Item 7a - Quantitative and Qualitative Disclosures About Market Risk                                            18
Item 8   - Consolidated Financial Statements and Supplementary Data                                             20
Item 9   - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                 48
Item 9a - Controls and Procedures                                                                               48

                                                   Part III

Item 10 - Directors and Executive Officers of the Registrant                                                    48
Item 11 - Executive Compensation                                                                                49
Item 12 - Security Ownership of Certain Beneficial Owners and Management                                        50
Item 13 - Certain Relationships and Related Transactions                                                        50
Item 14 - Principal Accountant Fees & Services                                                                  50

                                                   Part IV

Item 15 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K                                      51

Signatures                                                                                                      52

Certifications                                                                                                  54
</TABLE>


                                       1
<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, 2003 Commission file number 333-106900
-----------------------------------------------------------------------------

                         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)

 900 Veterans Blvd., Suite 500, Redwood City, CA                94063
-----------------------------------------------------------------------------
 (address of principal executive offices)                    (zip code)

Registrant's telephone number including area code         (650) 365-5341
-----------------------------------------------------------------------------

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

      Title of each class           Name of each exchange on which registered
-----------------------------------------------------------------------------
           None                                     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,  2003,  the limited  partnership  units  purchased  by
non-affiliates was 130,059,325 units aggregating $131,268,870.

Documents incorporated by reference:

     Portions of the  Prospectus  effective  October 7, 2003, and post effective
Amendment  No. 1 dated  January  30,  2004,  containing  supplement  No. 1 dated
January 30, 2004, (the "Prospectus"), are incorporated in Parts II, III, and IV.
Exhibits  filed as part of Form  S-11  Registration  Statement  #333-106900  are
incorporated by reference in part IV.


                                       2
<PAGE>

                                     Part I


Item 1 - Business

     Redwood  Mortgage  Investors VIII, a California  Limited  Partnership  (the
"Partnership"), was organized in 1993. Michael R. Burwell, Gymno Corporation and
Redwood Mortgage Corp., both California Corporations,  are the general partners.
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
Mortgage  Corp.  The  partnership's  objectives are to make loans that will: (i)
yield a high rate of return from mortgage lending; and (ii) preserve and protect
the  partnership's  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,  the partnership  offered a minimum of $250,000 and a maximum of
$15,000,000 in units,  of which  $14,932,000  were sold.  This initial  offering
closed on October 31, 1996.  Subsequently,  the  partnership  commenced a second
offering of up to  $30,000,000  in units  commencing  on December 4, 1996.  This
offering sold  $29,993,000 in units and was closed on August 30, 2000. On August
31, 2000 the  partnership  commenced its third  offering for another  30,000,000
units  ($30,000,000).  This offering sold $29,999,000 in units and was closed on
April 23,  2002.  On  October  30,  2002 the  partnership  commenced  its fourth
offering for an additional  50,000,000 units  ($50,000,000).  This offering sold
$49,985,000  in units and was closed on October 6, 2003.  On October 7, 2003 the
partnership  commenced  its fifth  and  current  offering  of  75,000,000  units
($75,000,000).  As of December  31, 2003,  $6,360,000  in units was sold in this
fifth offering,  bringing the aggregate sale of units to $131,269,000.  Units in
the fifth offering 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 Section of the prospectus  entitled  "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,  2003,  the  partnership  has
investments  in secured loans with  principal  balances  totaling  $147,173,814.
Interest rates ranged from 7.50% to 18.00%. Currently First Trust Deeds comprise
57.37% of the total amount of the secured loan  portfolio,  an increase of 2.24%
over 2002  level of  55.13%.  Junior  loans  (2nd and 3rd Trust  Deeds)  make up
42.63%,  a  decrease  of 2.24%  over 2002  level of  44.87%.  Loans  secured  by
owner-occupied  homes,  combined with loans secured by non-owner occupied homes,
total  45.27% of the  secured  loan  portfolio.  Loans  secured by  multi-family
properties  make up 15.39%  of the total  secured  loans.  Commercial  loans now
comprise 35.67% of the secured portfolio, a decrease of 2.69% from last year and
land made up 3.67% of the secured loan  portfolio.  Of the total secured  loans,
72.85% are in six  counties  of the San  Francisco  Bay Area,  and 13.85% are in
counties  adjacent to the San Francisco Bay Area.  The balance of secured loans,
13.30% are in other counties located in California.  Average loan size increased
this year,  and is now  averaging  $1,817,000  per loan,  up  $622,000  from the
average loan balance of $1,195,000 in 2002.  This increase is due to the ability
of the  Partnership by virtue of its increasing  size to invest in larger loans.
Additionally,  there is less  competition  due to fewer lenders being capable of
funding  larger loans,  which allows the  partnership to charge a higher rate of
interest than on smaller sized loans.  The average loan as of December 31, 2003,
represents  1.31% of partner  capital and 1.23% of  outstanding  secured  loans,
compared  to  December  31,  2002 when  average  loan size of 1.25% of  partners
capital  and  1.43%  of  outstanding  secured  loans.  Some  of  the  loans  are
fractionalized between affiliated  partnerships with objectives similar to those
of the partnership to further reduce risk. However, as the partnership has grown
in size the number of  fractionalized  loans has decreased and  represents  less
than 35% of the loan portfolio.  Average equity per loan transaction at the time
the loans were made based upon  appraisals  and prior  liens,  which is our loan
plus any senior loans,  divided by the property's  appraised  value,  subtracted
from 100%,  stood at 46.03%,  an increase  in equity of 6.64% from the  previous
year.  This  average  equity is  considered  conservative.  Generally,  the more
equity,  the more protection for the lender.  The general  partners  believe the
partnership's  loan  portfolio is in good  condition  with three  properties  in
foreclosure  as of the end of December  2003.  The  principal  balances of these
foreclosed  properties  represent  1.99% of the secured loan  portfolio.  All of
these  foreclosures  have  entered  into  workout  agreements.   The  number  of
foreclosures  and principal  amounts are relatively  low. The  partnership  does
expect that during 2004 additional foreclosures may need to be filed in order to
collect  payment from borrowers who have become  delinquent.  This is typical of
our market and the  partnership  expects to have a level of  delinquency  higher
than banking institutions within its portfolio.

                                       3
<PAGE>

     Delinquencies  are discussed  under Item 7 -  Management's  Discussion  and
Analysis of Financial Condition and Results of Operations.

     For the year ended December 31, 2003, the partnership did not take back any
collateral from defaulted  borrowers.  During 2002 the partnership took back its
real estate security on two defaulted  loans. One through a foreclosure sale and
the other as a deed in lieu of  foreclosure.  To assist  in  protecting  its own
assets and to reduce  liability,  the partnership  subsequently  transferred the
properties to two newly formed Limited Liability  Companies  "LLCs".  One of the
LLCs, Russian Hill Property Company, is 100% owned by the partnership and in the
other,  Stockton Street Property  Company,  the  partnership  owned  controlling
interest with an affiliate, the other investor in the foreclosed loan. Assets of
the Stockton Street Property Company were completely sold in 2003. This LLC will
be dissolved after its final tax return for year 2003 is filed.  The partnership
also intends to sell the property of Russian Hill Property  Company and dissolve
this LLC in the  future.  The two  LLCs are  further  discussed  under  Notes to
Consolidated Financial Statements (Note 5).

     The  partnership's  net income  continued to take an upward trend.  The net
income increased from $6,093,000 in 2001 to $7,486,000 in 2002 and to $9,594,000
in 2003. This was made possible largely through investment of additional capital
derived from sales of partnership  units into loans.  The secured loan portfolio
increased from  $82,790,000 in 2001, to $83,650,000 in 2002, to  $147,174,000 in
2003, an increase of 78% over the two-year period. Although net income increased
it did not  increase  in direct  proportion  to the  increased  size of the loan
portfolio  mainly because newly  originated  loans were placed at lower interest
rates.  Interest rates have been  declining  steadily since 2001. In order to be
competitive the  partnership has placed its loans at interest rates  competitive
in the marketplace.  Mortgage  interest income increased from $8,920,000 in 2001
to  $11,416,000  in 2002,  and to  $12,496,000  in 2003,  an increase of 40.09%.
During the year 2003 the partnership's  annualized yield on compounding accounts
was 7.76% and 7.50% on monthly distributing accounts.

Competition and General Economic Conditions.

     The partnership's  major competitors in providing mortgage loans are banks,
savings and loan associations,  thrifts, conduit lenders,  mortgage brokers, and
other entities both larger and smaller than the partnership.  The partnership is
competitive  in large part  because the general  partners  generate all of their
loans. Many of these competitors are unable,  due to their size, to compete with
the partnership's  ability to make loans larger than $1,000,000 per transaction.
The  partnership's  ability to  regularly  entertain  loan  requests at or above
$1,000,000  reduces  competition  and can provide  either higher  quality loans,
higher  returns,  or both.  The general  partners  have been in the  business of
making or investing in mortgage loans in Northern California since 1978 and have
developed a quality reputation and recognition within the field.

     Mortgage  interest rates have fallen during the last 24 to 36 months.  This
has been  partially  due to actions by the  Federal  Reserve  Bank to reduce the
discount rate on borrowings  charged to member banks, a slowing  economy and low
rates of inflation. Although the general trend for interest rates has been down,
many lenders have  tightened  their credit  standards  and reduced their lending
exposure in various  markets and property  types.  This credit  tightening  from
competing  lenders  would  generally  provide the  partnership  with  additional
lending  opportunities at attractive interest rates. However, as a result of the
slowing  economy,  there are now fewer  transactions in the  marketplace,  which
could potentially reduce the number of lending opportunities to the partnership.
Additionally,  lower general  interest  rates  generally mean that borrowers can
reduce their  interest rates on existing  debt,  thereby  lowering their monthly
payments,  which in many instances enhances a borrower's credit  worthiness.  In
these  situations  borrowers  generally  seek  financing  at  lower  rates  from
institutional lenders.  Continued rate reductions by the Federal Reserve Bank, a
continued  sluggish  economy,  and a low inflation rate could have the effect of
reducing  mortgage  yields in the future.  Current  loans with  relatively  high
yields  could be  replaced  with loans with  lower  yields,  which in turn could
reduce the net yield paid to the limited partners. In addition, if there is less
demand by borrowers  for loans and,  thus,  fewer loans for the  partnership  to
invest in, it will invest its excess cash,  including proceeds from the offering
of the units, in shorter-term alternative investments yielding considerably less
than the current investment portfolio.

                                       4
<PAGE>

Secured Loan Portfolio.

     A summary of the  partnership's  secured loan  portfolio as of December 31,
2003, is set forth below (in thousands):

Loans as a Percentage of Appraised Values

First Trust Deeds                                                      $ 84,437
Appraised Value of Properties at Time of Loan                           178,381
                                                                    -----------
      Total Investment as a % of Appraisal                               47.34%
                                                                    ===========

First Trust Deed Loans                                                   84,437
Second Trust Deed Loans                                                  61,247
Third Trust Deed Loans                                                    1,490
                                                                    -----------
      Total of Trust Deed Loans                                         147,174

Priority Positions due other Lenders:
   First Trust Deed Loans due other Lenders                             113,051
   Second Trust Deed Loans due other Lenders                              3,819
                                                                    -----------

      Total Debt                                                       $264,044
                                                                    ===========

  Appraised Property Value at Time of Loan                              489,219
      Total Debt as a % of Appraisal based on appraised
        values and prior liens at date loan was consummated              53.97%
                                                                    ===========

Number of Secured Loans Outstanding                                          81

Average Secured Loan                                                   $  1,817
Average Secured Loan as a % of Secured Loans Outstanding                  1.23%
Largest Secured Loan Outstanding                                         16,010
Largest Secured Loan as a % of Secured Loans Outstanding                 10.88%
Largest Secured Loan as a % of Partnership Assets                         9.84%

Secured Loans as a Percentage of Total Secured Loans                   Percent
-----------------------------------------------------------------   -----------
First Trust Deed Loans                                                   57.37%
Second Trust Deed Loans                                                  41.62%
Third Trust Deed Loans                                                    1.01%
                                                                    -----------
Total Trust Deed Loan Percentage                                        100.00%
                                                                    ===========

Type of Secured Loans by Property                      Amount          Percent
-------------------------------------------------    ------------   -----------
Owner Occupied Homes                                    $ 13,656          9.28%
Non-Owner Occupied Homes                                  52,975         35.99%
Apartments                                                22,649         15.39%
Commercial                                                52,502         35.67%
Land                                                       5,392          3.67%
                                                     ------------   -----------
Total                                                   $147,174        100.00%
                                                     ============   ===========

                                       5
<PAGE>

The following is a distribution of secured loans outstanding as of December 31,
2003 by Counties (in thousands):

                                                     Total
               California County                  Secured Loans        Percent
  ------------------------------------------      -------------     -----------

  San Francisco Bay Area Counties
  Alameda                                           $  38,956            26.47%
  San Francisco                                        25,830            17.55%
  Santa Clara                                          23,569            16.01%
  San Mateo                                            12,105             8.23%
  Marin                                                 3,924             2.67%
  Contra Costa                                          2,827             1.92%
                                                  -----------       -----------
                                                      107,211            72.85%

  San Francisco Bay Area Adjacent Counties
  Napa                                                 10,846             7.37%
  Stanislaus                                            4,774             3.24%
  San Joaquin                                           4,017             2.73%
  Sonoma                                                  749             0.51%
                                                  -----------       -----------
                                                       20,386            13.85%

  Other California Counties
  Los Angeles                                           5,816             3.95%
  Riverside                                             5,150             3.50%
  All others                                            8,611             5.85%
                                                  -----------       -----------
                                                       19,577            13.30%

            Total                                   $ 147,174           100.00%
                                                  ===========       ===========


Statement of Condition of Secured Loans
         Number of Secured Loans in Foreclosure                        3

     Scheduled  maturity  dates of secured  loans as of December 31, 2003 are as
follows (in thousands):

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

                      2004                $ 41,774
                      2005                  59,496
                      2006                  31,165
                      2007                   8,138
                      2008                   3,390
                   Thereafter                3,211
                                        ----------

                                          $147,174
                                        ==========

     The scheduled maturities for 2004 include nine loans totaling  $10,767,000,
and  representing  7.32%% of the portfolio,  past maturity at December 31, 2003.
Several  borrowers are in process of selling the properties or refinancing their
loans through other institutions, as this is an opportune time for them to do so
and/or take advantage of lower interest rates. The partnership  allows borrowers
to occasionally  continue to make the payments on debt past maturity for periods
of time.  Interest  payments on eight of these loans were  delinquent.  Of these
past maturity loans, the partnership has begun foreclosure on two with principal
balances totaling  $2,535,000.  These two foreclosures are included in the total
number of foreclosures begun by the partnership, which total three.

                                       6
<PAGE>

Item 2 - Properties

     The partnership did not take back any collateral security from borrowers in
2003. During 2002, the partnership took back the collateral real estate security
on two of its loans. In each instance,  in order to reduce potential liabilities
the partnership subsequently transferred at its book value the real estate taken
back to two newly formed Limited Liability  Companies  "LLCs".  One property was
transferred to Stockton Street Property Company, LLC. This property,  taken back
through foreclosure,  was comprised of six condominium units.  Management of the
LLC was through its managing member,  Michael Burwell,  a general partner of the
partnership.  All six units held by the Stockton  Street Property  Company,  LLC
were  sold  in  2003  at  an  overall  loss  of  $127,000.   The   partnership's
proportionate share of this loss was $85,000. It is anticipated that in 2004 the
Stockton  Street  Property  Company,  LLC  will  be  closed,   remaining  assets
transferred  back to the  partnership  in proportion to its  ownership,  and its
operations will cease.

     The other property taken back in 2002 was  transferred at its book value to
Russian  Hill  Property  Company,  LLC.  The real estate was held off the market
during 2003,  as the real estate  market for this luxury view  condominium  in a
prestigious  neighborhood of San Francisco was very slow. The management of this
LLC, in consultation with real estate professionals, will continue to review the
market activity during 2004 and will place the property for sale when the timing
is  considered to be opportune.  The  partnership's  net interest in the LLC was
$3,979,000 net of a valuation allowance of $500,000. Michael R. Burwell, general
partner of the partnership, is manager of this LLC.


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,  or 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  Registrant's  "Limited  Partnership  Units"  and
Related Unitholder Partnership Matters

     75,000,000 units at $1 each (minimum purchase of 2,000 units) are currently
being offered  ($125,000,000 in units were previously offered and sold through a
series  of  offerings)  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
limited  partnership  agreement subject to possible early withdrawal  penalties.
There is no established  public trading market.  As of December 31, 2003,  3,830
limited partners had a capital balance of  $138,649,000,  net of Formation Loans
and syndication costs.

     A  description  of  the  partnership  units,   transfer   restrictions  and
withdrawal  provisions  is  more  fully  described  under  the  section  of  the
prospectus  entitled  "Description of Units" and "Summary of Limited Partnership
Agreement",  pages 72 through  73 of the  prospectus,  a part of the  referenced
registration statement, which is incorporated by reference.

                                       7
<PAGE>

Item 6 - Selected Consolidated Financial Data

Redwood Mortgage Investors VIII began operations in April 1993.

     Consolidated   financial   condition  and  results  of  operation  for  the
partnership  as of and for the five  years  ended  December  31,  2003  were (in
thousands,  except for net income per $1,000  invested by limited  partners  for
entire period):

                           Consolidated Balance Sheets

                                     Assets
<TABLE>
<S>                                        <C>              <C>             <C>             <C>             <C>
                                                                       December 31,
                                         ---------------------------------------------------------------------------

                                           2003             2002            2001            2000            1999
                                         ----------       ----------      ----------     ----------       ----------
Cash and cash equivalents                 $   8,921        $   7,188       $   1,917      $   1,460        $   1,603

Loans
   Loans secured by deeds of trust          147,174           83,650          82,790         68,571           35,693
   Loans, unsecured                              34                -               4             54               49
   Accrued interest and late fees             4,735            3,913           3,345          1,039              712
   Advances on loans                            416              279             195            172               33
   Less allowance for losses                (2,649)          (3,021)         (2,247)        (1,345)            (834)

Other receivables                                 -              888               -              -                -

Investment in LLC                                 -                                -              -              373
Real estate owned  (REO), net                 3,979            9,286               -              -                -
Other assets                                     44               22               6             13                6
                                         ----------       ----------      ----------     ----------       ----------
                                          $ 162,654        $ 102,205       $  86,010      $  69,964        $  37,635
                                         ==========       ==========      ==========     ==========       ==========
</TABLE>

                        Liabilities and Partners Capital
<TABLE>
<S>                                        <C>              <C>             <C>             <C>             <C>
                                                                       December 31,
                                         ---------------------------------------------------------------------------

                                           2003             2002            2001            2000            1999
                                         ----------       ----------      ----------     ----------       ----------
Liabilities

   Accounts payable                       $     224        $     449       $      74      $      30        $      29
   Payable to affiliate                         448              294             109              -                -
   Line of credit                            22,000                -          11,400         16,400                -
   Note payable                                   -            1,782               -              -                -
   Deferred interest                              -              112               -             82              214
   Minority interest                              -            1,213               -              -                -
   Subscriptions to partnership in
     applicant status                         1,210            2,578             673            225              330
                                         ----------       ----------      ----------     ----------       ----------
                                             23,882            6,428          12,256         16,737              573
                                         ----------       ----------      ----------     ----------       ----------

Partners' capital
  Limited partners subject to
       redemption                           138,649           95,690          73,687         53,180           37,030
  General partners subject to
       redemption                               123               87              67             47               32
                                         ----------       ----------      ----------     ----------       ----------
       Total partners' capital              138,772           95,777          73,754         53,227           37,062
                                         ----------       ----------      ----------     ----------       ----------

                                          $ 162,654        $ 102,205       $  86,010      $  69,964        $  37,635
                                         ==========       ==========      ==========     ==========       ==========
</TABLE>

                                       8
<PAGE>

                        Consolidated Statements of Income
<TABLE>
<S>                                              <C>              <C>             <C>             <C>             <C>
                                                                               December 31,
                                              ----------------------------------------------------------------------------

                                                 2003             2002            2001            2000            1999
                                              -----------      -----------     -----------     -----------     -----------
Gross revenue                                   $  12,958        $  11,691       $   9,088       $   6,396       $   4,478
Expenses                                            3,369            4,204           2,994           2,104           1,534
                                              -----------      -----------     -----------     -----------     -----------
Income before interest credited to
     partners in applicant status                   9,589            7,487           6,094           4,292           2,944
Interest credited to partners in
     applicant status                                  37                1               1               5               2
                                              -----------      -----------     -----------     -----------     -----------
Minority interest share of subsidiary loss             42                -               -               -               -

Net income                                      $   9,594        $   7,486       $   6,093       $   4,287       $   2,942
                                              ===========      ===========     ===========     ===========     ===========

Net income to general partners (1%)                    96               75              61              43              29
Net income to limited partners (99%)                9,498            7,411           6,032           4,244           2,913
                                              -----------      -----------     -----------     -----------     -----------

Total net income                                $   9,594        $   7,486       $   6,093       $   4,287       $   2,942
                                              ===========      ===========     ===========     ===========     ===========

Net income per $1,000 invested by
    limited partners for entire period
      (annualized) - where income is compounded and
       retained                                 $      78        $      87       $      90       $      86       $      84
                                              ===========      ===========     ===========     ===========     ===========

  - where partner receives income in
       monthly distributions                    $      75        $      84       $      86       $      83       $      81
                                              ===========      ===========     ===========     ===========     ===========
</TABLE>

     The annualized  yield,  when income is compounded and retained for 1999 was
8.42%,  for 2000 it was 8.58%,  for 2001 it was 8.98%, for 2002 it was 8.69% and
for 2003 it was 7.76%. The annualized yield, when income is distributed  monthly
for 1999 was 8.11%,  for 2000 it was 8.26%,  for 2001 it was 8.63%,  for 2002 it
was 8.36% and for 2003 it was 7.50%. The average  annualized  yield, when income
is compounded and retained, from inception through December 31, 2003, was 8.43%.
The average annualized yield, when income is distributed monthly, from inception
through December 31, 2003 was 8.07%

     Certain reclassifications,  not affecting previously reported net income or
total partner  capital,  have been made to the  previously  issued  consolidated
financial statements to conform to the current year presentation.


     Item 7 - Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations

 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF THE PARTNERSHIP

Critical Accounting Policies.

     In preparing the consolidated 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 dates and income and
expenses during the reported periods.  Such estimates relate  principally to the
determination of (1) the allowance for loan losses (i.e. the amount of allowance
established  against loans  receivable as an estimate of potential  loan losses)
including   the  accrued   interest  and  advances  that  are  estimated  to  be
unrecoverable  based on estimates of amounts to be collected  plus  estimates of
the value of the  property as  collateral  and (2) the  valuation of real estate
owned through foreclosure.  At December 31, 2003, the partnership owned one real
estate property, which was taken back from a defaulted borrower.

                                       9
<PAGE>

     Loans and the related accrued interest, late fees and advances are analyzed
on a continuous  basis for  recoverability.  Delinquencies  are  identified  and
followed as part of the loan system.  Delinquencies  are  determined  based upon
contractual  terms.  A provision is made for loan losses to adjust the allowance
for loan losses to an amount  considered by management to be adequate,  with due
consideration  to  collateral  values,  to provide for  unrecoverable  loans and
receivables,  including impaired loans, other loans, accrued interest, late fees
and advances on loans and other accounts receivable (unsecured). The partnership
charges  off  uncollectible  loans  and  related  receivables  directly  to  the
allowance account once it is determined that the full amount is not collectible.

     If the probable  ultimate  recovery of the carrying  amount of a loan, with
due  consideration  for the fair value of  collateral,  is less than amounts due
according to the  contractual  terms of the loan  agreement and the shortfall in
the amounts due are not  insignificant,  the carrying  amount of the  investment
shall be reduced to the  present  value of future cash flows  discounted  at the
loan's effective interest rate. If a loan is collateral dependent,  it is valued
at the estimated fair value of the related collateral.

     If events and/or changes in circumstances  cause management to have serious
doubts  about the  collectibility  of the  contractual  payments,  a loan may be
categorized  as impaired  and  interest  is no longer  accrued.  Any  subsequent
payments on impaired loans are applied to reduce the outstanding  loan balances,
including accrued interest and advances.

     Recent  trends in the  economy  have been taken into  consideration  in the
aforementioned  process of arriving at the  allowance  for loan  losses.  Actual
results could vary from the aforementioned provisions for losses.

Forward Looking Statements.

     Some of the  information  in the Form  10-K  may  contain  forward  looking
statements.  Uses of words  such as  "will",  "may",  "anticipate",  "estimate",
"continue"  or other forward  looking  words,  discuss  future  expectations  or
predictions.  The foregoing analysis of 2003 includes forward looking statements
and  predictions  about the possible  future  events,  results of operations and
financial  condition.  As such, this analysis may prove to be inaccurate because
of  assumptions  made by the general  partners or the actual  development of the
future  events.  No  assurance  can be given  that any of  these  statements  or
predictions will ultimately prove to be correct or substantially correct.

Related Parties.

     The general partners of the partnership are Redwood  Mortgage Corp.,  Gymno
Corporation  and Michael R.  Burwell.  Most  partnership  business is  conducted
through Redwood Mortgage Corp., which arranges,  services and maintains the loan
portfolio for the benefit of the  partnership.  The fees received by the general
partners are paid pursuant to the  partnership  agreement and are  determined at
the sole discretion of the general partner.  In the past the general partner has
elected not to take the maximum compensation. The following is a list of various
partnership activities for which related parties are compensated.

     o Mortgage  Brokerage  Commissions  For fees in connection with the review,
selection,  evaluation,  negotiation and extension of loans, the partnership may
collect an amount  equivalent  to 12% of the loaned  amount until 6 months after
the termination date of the offering. Thereafter, the loan brokerage commissions
(points) 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,  are not an  expense  of the  partnership.  In 2001,  2002 and 2003,  loan
brokerage  commissions  paid by the  borrowers  were  $1,156,000,  $996,000  and
$2,621,000, respectively.

     o Mortgage  Servicing Fees Monthly mortgage  servicing fees of up to 1/8 of
1% (1.5% on an annual basis) of the unpaid principal of the partnership's  loans
are paid to Redwood  Mortgage  Corp., or such lesser amount as is reasonable and
customary in the  geographic  area where the  property  securing the mortgage is
located.  Mortgage  servicing fees of $552,000,  $1,098,000 and $1,057,000  were
incurred for the years ended December 31, 2001, 2002 and 2003, respectively.

     These  servicing  fees  were  charged  at 1%, on an  annual  basis,  of the
outstanding  principal balances.  If the maximum mortgage servicing fee of 1.5%,
on an annual basis, had been charged to the  partnership,  then net income would
have been reduced by  approximately  $528,000.  Reducing net income  reduces the
annualized  yields. An increase or decrease in this fee within the limits set by
the partnership's agreement directly impacts the yield to the limited partners.

                                       10
<PAGE>

     o Asset  Management  Fees The general  partners  receive  monthly  fees for
managing the partnership's portfolio and operations up to 1/32 of 1% of the `net
asset  value'  (3/8 of 1% on an annual  basis).  Management  fees to the general
partners of $158,000, $325,000 and $468,000 were incurred by the partnership for
years 2001, 2002 and 2003, respectively.

     o Other Fees The partnership  agreement  provides that the general partners
may receive other fees such as  reconveyance,  mortgage  assumption and mortgage
extension  fees.  Such fees are  incurred by the  borrowers  and are paid to the
general partners.

     o Income and Losses  All  income  and  losses  are  credited  or charged to
partners in relation to their respective partnership  interests.  The allocation
to the general partners (combined) shall be a total of 1%.

     o  Operating  Expenses  The  general  partners  may  be  reimbursed  by the
partnership for all operating  expenses actually incurred by it 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.

     o  Contributed  Capital  The  general  partners  jointly or  severally  are
required to  contribute  1/10 of 1% in cash  contributions  as proceeds from the
offerings  are received from the limited  partners.  As of December 31, 2002 and
2003,  a  general  partner,  Gymno  Corporation,  had  contributed  $93,000  and
$133,000,  respectively,  as capital in accordance  with Section  4.02(a) of the
partnership agreement.

     o Sales  Commission  - "Formation  Loan" to Redwood  Mortgage  Corp.  Sales
commissions  relating to the capital  contributions  by limited partners are not
paid directly by the  partnership  out of the offering  proceeds.  Instead,  the
partnership  loans  to  Redwood  Mortgage  Corp.,  a  general  partner,  amounts
necessary to pay all sales  commissions  and amounts  payable in connection with
unsolicited  sales.  The loan is  referred  to as the  "Formation  Loan".  It is
unsecured and  non-interest  bearing and is applied to reduce  limited  partners
capital in the consolidated  balance sheets. The sales commissions range between
0 (for units sold by the  general  partners)  and 9%. It is  estimated  that the
total amount of the Formation Loan will approximate 7.6% based on the assumption
that 65% of the investors will reinvest  earnings,  which qualify for the higher
commission percentage.  Formation Loans made to Redwood Mortgage Corp. were on a
per offering basis.

     The following table summarizes Formation Loan transactions through December
31, 2003 (in thousands):
<TABLE>
<S>  <C>                                  <C>           <C>            <C>           <C>            <C>            <C>
                                                                      Offering
                                       --------------------------------------------------------------------

                                          1st           2nd            3rd           4th            5th            Total
                                       ----------    ----------     ----------    ----------    -----------     -----------
     Limited partner contributions       $ 14,932      $ 29,993       $ 29,999      $ 49,985      $   6,360        $131,269
                                       ==========    ==========     ==========    ==========    ===========     ===========
     Formation Loans made                   1,075         2,272          2,218         3,777            453           9,795
     Payments to date                       (690)         (837)          (384)         (130)              -         (2,041)
     Early withdrawal penalties
        applied                              (63)          (88)           (53)             -              -           (204)
                                       ----------    ----------     ----------    ----------    -----------     -----------
     Balance, December 31, 2003          $    322      $  1,347       $  1,781      $  3,647      $     453        $  7,550
                                       ==========    ==========     ==========    ==========    ===========     ===========
</TABLE>

     The amount of the annual  installments  paid by Redwood  Mortgage Corp. are
determined at annual  installments of one-tenth of the principal  balance of the
Formation Loan at December 31 of each year until the offering  period is closed.
Thereafter,  the  remaining  Formation  Loan  is paid  in ten  equal  amortizing
payments over a period of ten years.

     On December  31, 2003,  the  partnership  was in the offering  stage of its
fifth offering,  ($75,000,000).  Contributed capital equaled $14,932,000 for the
first offering,  $29,993,000 for the second offering,  $29,999,000 for the third
offering,  $49,985,000  for the fourth  offering  and  $6,360,000  for the fifth
offering, totaling an aggregate of $131,269,000 as of December 31, 2003. Of this
amount, $1,210,000 remained in applicant status.

                                       11
<PAGE>

Results of Operations - For the years ended December 31, 2001, 2002 and 2003.

     The net income increase of $1,806,000 (42%) for the year ended December 31,
2001 was due primarily to an increase in interest earned on loans of $2,659,000,
an  increase in late fees of $33,000,  and a decrease  in  professional  fees of
$51,000;  offset by expense increases due primarily to the increased size of the
partnership loan portfolio of $46,000 for mortgage  servicing fees,  $85,000 for
interest expense, $596,000 for provisions for losses on loans, $97,000 for asset
management  fees, and $127,000 for clerical cost from Redwood Mortgage Corp. The
net income increase of $1,393,000 (23%) for the year ended December 31, 2002 was
due  primarily  to an  increase in interest  earned on loans of  $2,496,000,  an
increase in late fees of $15,000,  a decrease in interest  expense of  $456,000;
offset  by  expense  increases  due  primarily  to  the  increased  size  of the
partnership of $546,000 for mortgage servicing fees, $323,000 for provisions for
losses on loans and  provisions  for losses on real  estate,  $167,000 for asset
management fees, $25,000 for clerical costs from Redwood Mortgage Corp., $53,000
for professional  fees and $444,000 for broker expense.  The net income increase
of $2,108,000 (28%) for the year ended December 31, 2003 was due primarily to an
increase in interest earned on loans of $1,080,000,  an increase in late fees of
$87,000,  an increase in bank interest of $48,000,  an increase in miscellaneous
income of  $12,000,  a decrease in the  provisions  for losses on loans and real
estate of $498,000,  a decrease in loan servicing fees of $41,000, a decrease in
interest  expense of  $445,000,  and a decrease in broker  expense of  $263,000;
offset  by  expense  increases  due  primarily  to  the  increased  size  of the
partnership of $45,000 for professional services,  $143,000 for asset management
fees,  $24,000 for clerical costs through Redwood  Mortgage  Corp.,  $36,000 for
subscription  interest and $142,000 in other expenses after the consideration of
the minority interest's share of the subsidiary loss.

     The increase in interest on loans of $2,659,000 (42%), $2,496,000 (28%) and
$1,080,000  (9%)  for  the  years  ended  December  31,  2001,  2002  and  2003,
respectively, was due primarily to the increased size of the partnership secured
loan  portfolio,  which  increased  from  $68,571,000  at December 31, 2000,  to
$82,790,000  at December 31, 2001,  to  $83,650,000  at December 31, 2002 and to
$147,174,000 at December 2003. The lower percentage rate of interest increase on
loans (9%) in 2003 is in part due to the lower interest rate environment in 2003
as compared to 2001 and 2002 and reduced collection of "additional  interest" on
one of the  partnership's  loans of  $525,000  in 2003 than in 2002.  Additional
interest is only negotiated on a small percentage of loans and occasionally adds
to income.

     The partnership  has imputed  interest on its Formation Loan. The resulting
interest income and offsetting  amortization of discount on imputed  interest of
$53,000,  $159,000 and $195,000 in 2001, 2002 and 2003,  respectively,  has been
reflected in the accompanying  consolidated  financial  statements.  The imputed
amounts  increased  over 2001,  2002 and 2003 due to increases in the  Formation
Loan from the sale of additional limited partnership investments.

     The increase in other income of $92,000  (133%) and $101,000  (63%) for the
years ended  December  31, 2002 and 2003,  respectively,  was  primarily  due to
increased  imputed  interest  income from the larger  formation loan existing at
year ends 2001,  2002 and 2003.  Additionally,  during 2003 bank interest earned
was higher than in previous years as the partnership  kept more cash in interest
bearing accounts than in 2002 and 2001.

     The late  charge  income  increases  of $33,000  (50%),  $15,000  (15%) and
$87,000 (76%) for the years ended 2001, 2002 and 2003, respectively,  is largely
attributed to the growth in the loan portfolio.

     The increase in interest on the line of credit of $85,000  (10%) during the
year ended 2001 is reflective  of higher  credit line usage in 2001.  Our credit
line is tied to prime  and the prime  rate  declined  from 9.5% in May,  2000 to
4.00% during 2003. The decrease of $445,000 (86%) and $456,000 (47%) in interest
expense in 2003 and in 2002,  respectively,  is primarily  due to lower  average
credit  line usage and the  reduction  of the credit  line  interest  rate.  The
partnership  utilized  its bank line of credit  substantially  less during 2003.
Instead  it relied  largely  on the new  capital  of  investors,  which  totaled
$40,030,000  in 2003.  During 2003 credit line interest  expense was $71,000,  a
drop of $445,000 (86%) from 2002.

     The  increase/(decrease) in mortgage servicing fees for 2001, 2002 and 2003
was $46,000 (9%),  $546,000 (99%) and ($41,000)  (4%).  Mortgage  servicing fees
increased  primarily due to increases in the outstanding loan portfolio.  During
2002,  additional  servicing  fees were earned  related to impaired  loans.  The
partnership does not accrue servicing fees to Redwood Mortgage Corp. on impaired
loans.  Rather,  servicing  fees on  impaired  loans are  incurred  as  borrower
payments are  received.  These  servicing  fees were charged at 1%, on an annual
basis, of the outstanding  principal balances. If the maximum mortgage servicing
fee of 1.5%, on an annual basis, had been charged to the  partnership,  then net
income would have been reduced by  approximately  $528,000.  Reducing net income
reduces the  annualized  yields.  An increase or decrease in this fee within the
limits set by the  partnership's  agreement  directly  impacts  the yield to the
limited partners.

                                       12
<PAGE>

     The increase in the  provision  for losses on loans and real estate in 2001
and 2002 of $596,000 (159%) and $323,000 (34%),  respectively,  is primarily due
to the loan portfolio  increasing in amount and due to recognition  that we were
in more  difficult  economic  times.  As the  partnership's  loan  portfolio has
increased  and  since the  partnership  acquired  two  properties  in 2002,  the
provisions for loss have also been increased.  The decrease in the provision for
losses on loans and real estate of $498,000 (39%) in 2003 was because management
felt that the overall  reserve  accumulation of $3,149,000 was adequate and that
the  magnitude  of  provisions  already  made in 2002 and  prior  years  was not
necessary  to be carried  forward in 2003.  The real estate  market and economic
times seem to have  stabilized  and may perhaps be improving.  Real estate owned
has been substantially  reduced by $5,307,000 from the December 31, 2002 balance
of $9,286,000 to the December 31, 2003 balance of $3,979,000. In addition, loans
in  foreclosure  have come down  considerably  from six totaling  $4,029,000  at
December 31, 2002, to three totaling $2,931,000 at December 31, 2003.

     The increase in  management  fees of $97,000  (150%),  $167,000  (106%) and
$143,000 (44%) for 2001, 2002 and 2003, respectively,  is due to the increase in
capital  under  management  in 2001,  2002 and 2003.  In  addition,  the general
partners began  collecting the full asset  management  fees of .375% during 2002
and 2003, as compared to .25% in 2001.

     The  increase  in  clerical  costs of $127,000  (112%),  $25,000  (10%) and
$24,000  (9%) for 2001,  2002 and 2003,  respectively,  is due  primarily  to an
increase in the partnership size and in 2001 to an upgrade of computer  hardware
and software.

     In 2003 the net loss of $85,000 in subsidiary  interest  resulted through a
sale of one of the real estate owned  properties.  The  partnership did not take
any  losses  on real  estate  owned  property  sales in 2001 or 2002  since  the
partnership  did not own any  properties  in 2001 and did not sell either of the
two properties owned in 2002.

     Broker expense of $0 in 2001, $444,000 in 2002 and $181,000 in 2003 was due
to the partnership having an obligation to pay one-half of "additional interest"
collected  on one of its loans to a  non-affiliated  real  estate  broker.  This
expense  ended in 2003 with the full  collection  of the  "additional  interest"
totaling $1,250,000.

     The increase in other  expense of $9,000 (26%) and $184,000  (418%) for the
years ended December 31, 2002 and 2003,  respectively,  was due to growth of the
partnership  size,  and the large increase in 2003 was due to the loss sustained
on the  sale of the  Stockton  Street  Property  Company,  LLC real  estate  and
increased  subscription  interest while new funds from limited  partners awaited
entry into the partnership.

     Partnership  capital continued to increase as the partnership  received new
limited  partner   capital   contributions   of  $19,712,000,   $21,563,000  and
$40,030,000 and retained the earnings of limited partners that have chosen to do
so of $3,892,000,  $4,716,000 and $5,958,000 for the years 2001,  2002 and 2003,
respectively. The partnership ceased raising funds during the period of May 2002
through October 2002 while it was in application status for a fourth offering of
units. The fourth offering  commenced  October 30, 2002 and closed on October 6,
2003. On October 7, 2003 the partnership  commenced its fifth offering and funds
raised will be used to increase the partnership's capital base and provide funds
for additional mortgage loans.

     The  partnership  began  funding loans on April 14, 1993 and as of December
31,  2003,  had  credited  earnings  to limited  partners  who elected to retain
earnings at an average  annualized yield of 8.43%.  Limited partners who elected
to have their earnings  distributed  monthly had an average  annualized yield of
8.07% since inception through December 31, 2003.

     In 1995,  the  partnership  established  a line of credit with a commercial
bank secured by its loan  portfolio.  Since its inception,  the credit limit has
increased from $3,000,000 to  $22,000,000.  The size of the credit line facility
could again increase as the partnership's  capital increases.  This added source
of funds  may help in  maximizing  the  partnership's  yield by  permitting  the
partnership to minimize the amount of funds in lower yield  investment  accounts
when appropriate  loans are not available.  Additionally,  the loans made by the
partnership  bear  interest at a rate in excess of the rate  payable to the bank
which extended the line of credit. The amount to be retained by the partnership,
after  payment of the line of credit cost,  will be greater than without the use
of the line of credit.  As of December 31, 2001,  2002 and 2003, the outstanding
balance on the line of credit was $11,400,000, $0 and $22,000,000, respectively.
Cash generated from interest earnings, late charges,  amortization on principal,
loan  payoffs and capital  contributed  by limited  partners was utilized to pay
down the credit line in full at year ended December 31, 2002.

                                       13
<PAGE>

     Since  January,  2001, and through  December 31, 2003, the Federal  Reserve
reduced interest rates significantly by cutting the Federal Funds Rate to 1.00%.
The effect of the previous cuts has greatly  reduced  short-term  interest rates
and to a lesser  extent  reduced  long-term  interest  rates.  New loans will be
originated at then existing  interest rates. In the future the general  partners
anticipate that interest rates likely will change from their current levels. The
general  partners  cannot,  at this time,  predict at what levels interest rates
will be in the future.  The general  partners  anticipate that new loans will be
placed  during  2004 at rates  similar  to those  that  prevailed  in 2003.  The
lowering of interest  rates has encouraged  those  borrowers that have mortgages
with higher interest rates than those currently available to seek refinancing of
their  obligations.  The  partnership  may  face  prepayments  in  the  existing
portfolio from borrowers taking advantage of these lower rates. However,  demand
for loans from  qualified  borrowers  continues to be strong and as  prepayments
occur,  the  general  partners  expect to  replace  paid off loans with loans at
somewhat lower interest rates. At this time, the general  partners  believe that
the average loan portfolio  interest rate will decline  approximately  .50% over
the year 2004.  Based upon the rates  payable in  connection  with the  existing
loans,  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 7.00% and 7.50% in 2004.

Allowance for Losses.

     The general  partners  regularly  review the loan portfolio,  examining the
status  of  delinquencies,  the  underlying  collateral  securing  these  loans,
borrowers' payment records, etc. Based upon this information and other data, the
allowance for loan losses is increased or decreased. Borrower foreclosures are a
normal aspect of partnership  operations.  The partnership is not a credit based
lender and hence  while it reviews the credit  history and income of  borrowers,
and if  applicable,  the income from income  producing  properties,  the general
partners expect that we will on occasion take back real estate security.  During
2001,  the Northern  California  real estate  market slowed and the national and
local economies  slipped into  recession.  During 2002 and 2003, the economy has
stabilized,  but is still stagnant.  At December 31, 2003 the partnership had 16
loans past due 90 days or more totaling $27,182,000. Included in these 90 day or
more  delinquent  loans are three  notices of default  beginning  the process of
foreclosing  three of our loans.  The principal  amounts of the three foreclosed
loans total $2,931,000 or 2.0% of the loan portfolio.

     In addition to the three workout  agreements with borrowers in foreclosure,
the partnership also entered into workout agreements with borrowers who are past
maturity  or  delinquent  in  their  regular  payments.   The  total  number  of
partnership  workout  agreements  with  borrowers is six,  inclusive of matured,
foreclosed or 90-day delinquent loans. Typically, a workout agreement allows the
borrower to extend the maturity  date of the balloon  payment  and/or allows the
borrower to make current  monthly  payments while deferring for periods of time,
past due  payments,  and  allows  time to pay the loan in  full.  These  workout
agreements and foreclosures generally exist within our loan portfolio to greater
or lesser degrees,  depending primarily on the health of the economy. The number
of foreclosures and workout agreements will rise during difficult economic times
and  conversely  fall  during  good  economic  times.  The  number and amount of
foreclosures  existing at December 31, 2003, in management's  opinion,  does not
have a material effect on our results of operations or liquidity. These workouts
and  foreclosures  have been considered  when management  arrived at appropriate
loan loss  reserves  and based on our  experience,  are  reflective  of our loan
marketplace segment. In 2003, the partnership filed some foreclosure proceedings
to enforce the terms of our loans. In some of these instances the borrowers have
been able to remedy the  foreclosures we have filed. The partnership did not own
any properties taken back through foreclosure in 2001. During 2002, we completed
foreclosure of two loans, which resulted in the partnership taking back two real
estate  properties.  These  properties are more fully  discussed  under Item 2 -
Properties.  The  partnership's  foreclosed  principal  balances were $6,565,000
after excluding an affiliated  partnership's  interest in one of the properties.
During 2003,  one of the  properties  owned through  foreclosure  was sold at an
overall loss of $127,000,  $85,000 to the partnership  and $42,000  allocated to
the  minority  interest.  During  2003 the  partnership  did not  take  back any
property through the foreclosure  process. In 2004, we may initiate  foreclosure
on delinquent  borrowers or borrowers who become  delinquent during the year. We
may take back additional  real estate through the  foreclosure  process in 2004.
Borrower  foreclosures  are a normal aspect of  partnership  operations  and the
general  partners  anticipate  that  they  will not have a  material  effect  on
liquidity.  As a prudent guard against  potential  losses,  the general partners
have  made  provisions  for  losses  on loans  and  real  estate  owned  through
foreclosure of $3,149,000 through December 31, 2003. These provisions for losses
were made to guard against collection losses. The total cumulative provision for
losses as of December  31, 2003,  is  considered  by the general  partners to be
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.

                                       14
<PAGE>

     The  partnership  may  restructure  loans.  This is done either through the
modification  of an existing  loan or by  re-writing a whole new loan.  It could
involve,  among other conditions,  an extension in maturity date, a reduction in
repayment amount, a reduction in interest rate or granting an additional loan.

     During 2003, the partnership  restructured  three loans by granting one new
loan and two other loans through  modification.  The total amount of restructure
was $15,599,000.  In 2002 the partnership  restructured  three loans by granting
two new loans totaling $1,090,000.

Borrower Liquidity and Capital Resources.

     The  partnership  relies upon sales of  partnership  units,  loan  payoffs,
borrowers'  mortgage  payments,  and, to a lesser degree, its line of credit for
the source of funds for loans. Recently,  mortgage interest rates have decreased
somewhat from those available at the inception of the  partnership.  If interest
rates were to increase  substantially,  the yield of the partnership's loans may
provide lower yields than other comparable  debt-related  investments.  As such,
additional limited partner unit purchases could decline,  which would reduce the
overall  liquidity of the partnership.  Additionally,  since the partnership has
made  primarily  fixed rate loans,  if interest  rates were to rise,  the likely
result would be a slower prepayment rate for the partnership. This could cause a
lower  degree  of  liquidity  as  well  as a  slowdown  in  the  ability  of the
partnership to invest in loans at the then current  interest rates.  Conversely,
in the event interest rates were to decline,  the partnership  could see both or
either  of a surge  of unit  purchases  by  prospective  limited  partners,  and
significant borrower prepayments,  which, if the partnership can only obtain the
then existing lower rates of interest may cause a dilution of the  partnership's
yield on loans, thereby lowering the partnership's  overall yield to the limited
partners.  The  partnership to a lesser degree relies upon its line of credit to
fund loans.  Generally,  the  partnership's  loans are fixed  rate,  whereas the
credit line is a variable rate loan.  In the event of a significant  increase in
overall  interest  rates,  the credit line rate of interest  could increase to a
rate above the average  portfolio rate of interest.  Should such an event occur,
the general  partners would desire to pay off the line of credit.  Retirement of
the line of credit would reduce the overall  liquidity of the partnership.  Cash
is constantly being generated from borrower payments of interest,  principal and
loan payoffs.  Currently,  cash flow greatly  exceeds  partnership  expenses and
earnings requirements. Cash is constantly being generated from borrower interest
payments,  late  charges,  amortization  of loan  principal  and  loan  payoffs.
Currently, cash flow exceeds partnership expenses,  earnings and limited partner
capital  payout  requirements.  Excess  cash flow will be  invested  in new loan
opportunities, when available, and will be used to reduce the partnership credit
line or in other partnership business.  Excess cash flow is invested in new loan
opportunities, when available, and is used to reduce the partnership credit line
or for other partnership business.

     At the time of subscription to the partnership, limited partners must elect
either to receive  monthly,  quarterly  or annual  cash  distributions  from the
partnership,  or to compound earnings in their capital account. If you initially
elect to receive monthly, quarterly or annual distributions, such election, once
made, is irrevocable.  If the investor  initially elects to compound earnings in
his/her capital account, in lieu of cash distributions,  the investor may, after
three (3) years,  change the election and receive  monthly,  quarterly or annual
cash distributions. Earnings allocable to limited partners who elect to compound
earnings in their  capital  account,  will be retained  by the  partnership  for
making further loans or for other proper partnership purposes,  and such amounts
will be added to such limited partners' capital accounts.

     During  the years  stated  below,  the  partnership,  after  allocation  of
syndication costs, made the following allocation of earnings both to the limited
partners  who  elected  to  compound  their  earnings,  and those  that chose to
distribute:

                                 2001              2002             2003
                            -------------     -------------    -------------
   Compounding                 $3,892,000        $4,716,000       $5,958,000
   Distributing                $1,962,000        $2,517,000       $3,362,000


     As of December 31, 2001, 2002 and 2003 limited partners electing to receive
cash distributions of earnings represented 34%, 35% and 36%, respectively of the
limited partners' outstanding capital accounts.  These percentages have remained
relatively  stable.  The general partners  anticipate that after all capital has
been raised,  the percentage of limited partners  electing to withdraw  earnings
will decrease due to the dilution effect which occurs when  compounding  limited
partners' capital accounts grow through earnings reinvestment.

                                       15
<PAGE>

     The partnership  also allows the limited partners to withdraw their capital
account  subject to certain  limitations  and penalties  (see  "Withdrawal  From
Partnership" in the Limited  Partnership  Agreement).  Once a limited  partner's
initial five-year holding period has passed,  the general partners expect to see
an increase in liquidations  due to the ability of limited  partners to withdraw
without penalty.  This ability to withdraw five years after a limited  partner's
investment has the effect of providing limited partner liquidity and the general
partners  expect a portion of the limited  partners to avail  themselves of this
liquidity.  This has the anticipated effect of increasing the net capital of the
partnership, primarily through retained earnings during the offering period. The
general partners expect to see increasing numbers of limited partner withdrawals
during a limited partner's 5th through 10th anniversary,  at which time the bulk
of those limited partners who have sought withdrawal have been liquidated. Since
the  five-year  hold period for most limited  partners has yet to expire,  as of
December 31, 2003, many limited partners may not as yet avail themselves of this
provision for  liquidation.  Earnings and capital  liquidations  including early
withdrawals during the three years ended December 31, 2003 were:

                                  2001             2002              2003
                              ------------     -------------     ------------

   Cash distributions           $1,962,000        $2,517,000       $3,362,000
   Capital liquidation*         $1,425,000        $1,049,000       $1,845,000
                              ------------     -------------     ------------

       Total                    $3,387,000        $3,566,000       $5,207,000
                              ============     =============     ============

* These amounts represent gross of early withdrawal penalties.

     Additionally,  limited  partners  may  liquidate  their  investment  over a
one-year period subject to certain  limitations  and penalties.  During the past
three years ended  December  31,  2003,  capital  liquidated  subject to the 10%
penalty for early withdrawal was:

                                  2001              2002             2003
                              ------------      ------------     ------------
                                  $730,000          $244,000         $786,000

     This  represents  0.99%,  0.26% and 0.57% of the limited  partners'  ending
capital for the years ended  December  31,  2001,  2002 and 2003,  respectively.
These  withdrawals  are within the normally  anticipated  range and  represent a
small percentage of limited partner capital.

     In some  cases in order to  satisfy  Broker  Dealers  and  other  reporting
requirements, the general partners have valued the limited partners' interest in
the  partnership  on a basis which  utilizes a per unit  system of  calculation,
rather than based upon the investors' capital account. This information has been
reported  in this manner in order to allow the  partnership  to  integrate  with
certain  software used by the Broker Dealers and other  reporting  entities.  In
those cases, the partnership will report to Broker Dealers,  Trust Companies and
others a  "reporting"  number of units based upon a $1.00 per unit  calculation.
The number of reporting units provided will be calculated based upon the limited
partner's  capital  account  value  divided by $1.00.  Each  investor's  capital
account balance is set forth  periodically on the partnership  account statement
provided  to  investors.  The  reporting  units are solely  for  Broker  Dealers
requiring such information for their software programs and do not reflect actual
units owned by a limited  partner or the limited  partners' right or interest in
cash flow or any other  economic  benefit in the  partnership.  Each  investor's
capital  account balance is set forth  periodically  on the partnership  account
statement  provided  to  investors.  The  amount of  partnership  earnings  each
investor is entitled to receive is determined by the ratio that each  investor's
capital account bears to the total amount of all investor  capital accounts then
outstanding.  The capital account balance of each investor should be included on
any NASD member client account statement in providing a per unit estimated value
of the client's investment in the partnership in accordance with NASD Rule 2340.

     While the general  partners have set an estimated value for the partnership
units,  such  determination  may not be  representative  of the  ultimate  price
realized  by an  investor  for such units upon sale.  No public  trading  market
exists for the partnership's units and none is likely to develop. Thus, there is
no certainty  that the units can be sold at a price equal to the stated value of
the capital account. Furthermore, the ability of an investor to liquidate his or
her investment is limited subject to certain  liquidation rights provided by the
partnership,  which may include early  withdrawal  penalties (See the section of
the  Prospectus  entitled  "Risk  Factors  -  Purchase  of Units is a Long  Term
Investment").

                                       16
<PAGE>

Current Economic Conditions.

     The  partnership  makes  loans  primarily  in  Northern  California.  As of
December  31, 2003,  approximately  72.85% of the loans held were in the six San
Francisco  Bay  Area  Counties,  13.85%  were in  counties  adjacent  to the San
Francisco  Bay Area and the  balance  13.30% were in other  counties  throughout
California.  Like the rest of the nation,  the San  Francisco  Bay Area felt the
recession  and  accompanying   slow  down  in  economic  growth  and  increasing
unemployment.

     Recently the national Northern  California  economies seem to be improving.
Job creation remains a concern, as little job creation seems to be evident.  The
partnership makes loans primarily in Northern  California and real estate values
of residential,  commercial,  multi-family properties and land are of particular
interest  to the  partnership.  Real  estate  is the  primary  security  for the
partnership's loans.

     The residential  real estate market in California  continues to appreciate.
The Office of  Federal  Housing  Enterprise  Oversight  reported  that the state
average  home  prices  rose  13.8%  in  2003.  Southern  California  home  price
appreciation  outpaced Northern  California home price  appreciation.  Yet, even
Santa Clara County had positive  price  appreciation  in 2003.  The  residential
market is not all positive. The luxury home market in the San Francisco Bay Area
is still well below values posted in 1999 and 2000. The strong  residential real
estate outlook implies that  collateral  values behind the  partnership's  loans
should remain firm and assist in reducing  losses if the take back of collateral
through the foreclosure process should eventuate.

     While the residential  market outlook remains strong overall the commercial
real estate market is not as strong.

     Commercial  property  values are chiefly  tied to the income a property can
produce. Vacancies in office properties since 2000 have risen sharply in the San
Francisco Bay Area. In the fourth quarter of 2003 both BT Commercial Real Estate
and Cornish and Carey  Commercial/Oncor  International  reported declines in San
Francisco  peninsula office vacancies.  Each reported about 1% declines to about
27.3%. Colliers International reported a decline in San Francisco office vacancy
in the fourth quarter of 2003 from 17.3% to 16.9%.  Rents have also continued to
fall and in San  Francisco  the average is $29.31,  which is down from $30.04 at
the start of 2003. These statistics seem to indicate that the commercial  rental
market is stabilizing but that existing vacancies will take a long time to fill.
Commercial  real estate values have decreased but lowered  capitalization  rates
have helped keep commercial  property from large value reductions.  The decrease
in vacancies  could mean improved cash flows for owners,  which  translates into
improved debt service abilities

     As of December 31, 2003, the partnership had an average loan to value ratio
based  upon  appraisals  and  prior  liens  as of the  date the loan was made of
53.97%.  This did not account for any increases or decreases in property  values
since  the date the  loan was  made,  nor  does it  include  any  reductions  in
principal  through  amortization  of payments after the loan was made.  This low
loan to value ratio will assist the partnership in weathering loan delinquencies
and foreclosures should they eventuate.

     The  foregoing  analysis  of  year  2003  issues  includes  forward-looking
statements  and  predictions  about  possible  or  future  events,   results  of
operations,  and  financial  condition.  As such,  this analysis may prove to be
inaccurate  because of  assumptions  made by the general  partners or the actual
development  of  future  events.  No  assurance  can be given  that any of these
statements or predictions  will ultimately  prove to be correct or substantially
correct.

                                       17
<PAGE>

Item 7a - Quantitative and Qualitative Disclosures About Market Risk

     The  following  table  contains  information  about  the cash held in money
market  accounts,  loans  held in the  partnership's  portfolio  and our line of
credit  as of  December  31,  2003.  The  presentation,  for  each  category  of
information,  aggregates the assets and  liabilities by their maturity dates for
maturities  occurring  in each of the years  2004  through  2008 and  separately
aggregates the information  for all maturities  arising after 2008. The carrying
values of these assets and liabilities  approximate  their fair market values as
of December 31, 2003 (in thousands).
<TABLE>
<S>                                      <C>         <C>         <C>         <C>         <C>       <C>            <C>
                                         2004        2005        2006        2007        2008      Thereafter     Total
                                       ---------   ---------   ---------   ---------   ---------   ----------   ---------
Interest earning assets:
Money market accounts                   $  7,503                                                                 $  7,503
Average interest rate                      1.00%                                                                    1.00%
Loans secured by deeds of trust         $ 41,774    $ 59,496    $ 31,165    $  8,138    $  3,390     $  3,211    $147,174
Average interest rate                     11.17%      10.17%      10.19%      10.45%       9.89%       10.32%      10.47%

Interest bearing liabilities
Line of credit                          $ 22,000           -           -           -           -            -    $ 22,000
Average interest rate                      4.00%           -           -           -           -            -       4.00%
</TABLE>

Market Risk.

     The partnership's line of credit bears interest at a variable rate, tied to
the prime rate. As a result, the partnership's primary market risk exposure with
respect to its  obligations is to changes in interest  rates,  which will affect
the interest cost of outstanding  amounts on the line of credit. The partnership
may also suffer market risk tied to general trends  affecting real estate values
that may impact the partnership's security for its loans.

     The partnership's  primary market risk in terms of its profitability is the
exposure to  fluctuations  in earnings  resulting from  fluctuations  in general
interest  rates.  The majority of the  partnership's  mortgage loans (100% as of
December 31, 2003) earn interest at fixed rates.  Changes in interest  rates may
also affect the value of the partnership's  investment in mortgage loans and the
rates at which the partnership reinvests funds obtained from loan repayments and
new capital contributions from limited partners. If interest rates increase, the
interest  rates the  partnership  obtains from  reinvested  funds will generally
increase,  but the value of the partnership's existing loans at fixed rates will
generally  tend to  decrease.  The  risk  is  mitigated  by the  fact  that  the
partnership  does not intend to sell its loan  portfolio,  rather such loans are
held until they are paid off. If interest rates decrease,  the amounts  becoming
available to the  partnership  for  investment  due to repayment of  partnership
loans may be  reinvested  at lower rates than the  partnership  had been able to
obtain in prior investments, or than the rates on the repaid loans. In addition,
interest rate  decreases may encourage  borrowers to refinance  their loans with
the  partnership at a time where the  partnership is unable to reinvest in loans
of comparable value.

     The  partnership  does not hedge or otherwise seek to manage  interest rate
risk. The partnership does not enter into risk sensitive instruments for trading
purposes.


PORTFOLIO REVIEW - For the years ended December 31, 2001, 2002 and 2003.

Secured Loan Portfolio.

     The partnership's  secured loan portfolio  consists primarily of short-term
(one to five years), fixed rate loans secured by real estate. As of December 31,
2001, 2002 and 2003 the partnership's  loans secured by real property collateral
in the six San  Francisco Bay Area counties  (San  Francisco,  San Mateo,  Santa
Clara,  Alameda,  Contra Costa,  and Marin)  represented  $68,291,000  (82.50%),
$61,741,000  (73.81%) and $107,211,000  (72.85%) of the outstanding secured loan
portfolio.  The  remainder of the  portfolio  represented  loans secured by real
estate located primarily in Northern  California.  No partnership loan equals or
exceeds 10% of the partnership's assets.

                                       18
<PAGE>

     The  following  table  sets  forth the  distribution  of loans  held by the
partnership  by property  type for the years ended  December 31, 2001,  2002 and
2003 (in thousands):
<TABLE>
<S>                                      <C>             <C>           <C>             <C>           <C>             <C>
                                                                           December 31,
                                       ------------------------------------------------------------------------------------

                                                2001                           2002                          2003
                                       ------------------------      ------------------------      ------------------------

Single family homes (1-4 units)          $ 37,542        45.35%        $ 36,574        43.72%        $ 66,631        45.27%
Apartments (over 4 units)                   7,337         8.86%           6,572         7.86%          22,649        15.39%
Commercial                                 32,105        38.78%          32,089        38.36%          52,502        35.67%
Land                                        5,806         7.01%           8,415        10.06%           5,392         3.67%
                                       ----------    ----------      ----------    ----------      ----------     ---------

          Total                          $ 82,790       100.00%        $ 83,650       100.00%        $147,174       100.00%
                                       ==========    ==========      ==========    ==========      ==========     =========
</TABLE>

     As of December 31, 2003, the partnership  held 81 loans secured by deeds of
trust. The following table sets forth the priorities,  asset  concentrations and
maturities of the loans held by the partnership as of December 31, 2003.


        PRIORITIES, ASSET CONCENTRATIONS AND MATURITIES OF SECURED LOANS
                     As of December 31, 2003 (in thousands)
<TABLE>
<S>    <C>                                                               <C>             <C>              <C>
                                                                         # of Loans      Amount           Percent
                                                                         ----------    -----------      -----------

       1st Mortgages                                                             43       $ 84,437           57.37%
       2nd Mortgages                                                             35         61,247           41.62%
       3rd Mortgages                                                              3          1,490            1.01%
                                                                         ==========    ===========      ===========
            Total                                                                81       $147,174          100.00%

       Maturing in 2004                                                          23       $ 41,774           28.38%
       Maturing in 2005                                                          18         59,496           40.43%
       Maturing in 2006                                                          17         31,165           21.18%
       Maturing after 12/31/06                                                   23         14,739           10.01%
                                                                         ==========    ===========      ===========
            Total                                                                81       $147,174          100.00%

       Average secured loan as a % of secured loan portfolio                              $  1,817            1.23%
       Largest secured loan as a % of secured loan portfolio                                16,010           10.88%
       Smallest secured loan as a % of secured loan portfolio                                   40            0.03%
       Average secured loan-to-value at time of loan based on
           appraisals and prior liens at time of loan                                                        53.97%
       Largest secured loan as a % of partnership assets                                    16,010           11.54%
</TABLE>

ASSET QUALITY

     A consequence  of lending  activities is that  occasionally  losses will be
experienced  and that the  amount  of such  losses  will vary from time to time,
depending  upon the risk  characteristics  of the loan  portfolio as affected by
economic  conditions and the financial  experiences of borrowers.  Many of these
factors  are beyond the  control of the  general  partners.  There is no precise
method of predicting  specific  losses or amounts that ultimately may be charged
off on  particular  segments of the loan  portfolio,  especially in light of the
current economic environment.

                                       19
<PAGE>

     The conclusion that a loan may become  uncollectible,  in whole or in part,
is  a  matter  of  judgment.  Although  institutional  lenders  are  subject  to
requirements and regulations  that, among other things,  require them to perform
ongoing analyses of their portfolios,  loan-to-value ratios, reserves, etc., and
to obtain and maintain  current  information  regarding  their borrowers and the
securing properties, the partnership is not subject to these regulations and has
not  adopted  certain of these  practices.  Rather,  the  general  partners,  in
connection  with  the  periodic  closing  of  the  accounting   records  of  the
partnership and the preparation of the financial  statements,  determine whether
the allowance for loan losses is adequate to cover  potential loan losses of the
partnership.  As of December 31, 2003 the general  partners have determined that
the allowance for loan losses of $2,649,000 (1.91% of net assets) is adequate in
amount. 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.  As of December 31, 2003, 16 loans were delinquent over 90
days  amounting to  $27,182,000.  Additionally,  $3,693,000 of these  delinquent
loans were subject to workout agreements.

     The partnership also makes loans requiring periodic disbursements of funds.
As of December 31, 2003 there were eleven such loans. These loans include ground
up  construction  of  buildings  and  loans  for   rehabilitation   of  existing
structures.  Interest on these loans is computed at simple  interest  method and
only on the amounts disbursed on a daily basis.

     A summary of the status of the partnership's  loans, which are periodically
disbursed as of December 31, 2003, is set forth below (in thousands):

                                Complete Construction        Rehabilitation
                                ----------------------     -----------------

    Disbursed funds                    $ 13,899                 $21,978
    Undisbursed funds                  $ 11,540                 $ 3,202


Item 8 - Consolidated Financial Statements and Supplementary Data

A - Consolidated Financial Statements

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

   o  Independent Auditors' Report
   o  Consolidated Balance Sheets - December 31, 2003, and December 31, 2002
   o  Consolidated Statements of Income for the years ended December 31,
      2003, 2002 and 2001
   o  Consolidated Statements of Changes In Partners' Capital for the years
      ended December 31, 2003, 2002 and 2001
   o  Consolidated Statements of Cash Flows for the years ended December 31,
      2003, 2002 and 2001
   o  Notes to Consolidated Financial Statements


B - Consolidated Financial Statement Schedules

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

   o  Schedule II   -  Valuation and Qualifying Accounts
   o  Schedule IV -  Loans on Real Estate

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

                                       20
<PAGE>











                         REDWOOD MORTGAGE INVESTORS VIII
                       (A CALIFORNIA LIMITED PARTNERSHIP)
                        CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002
                         AND FOR EACH OF THE THREE YEARS
                      IN THE PERIOD ENDED DECEMBER 31, 2003















                                       21
<PAGE>








     TABLE OF CONTENTS                                               Page No.

     Independent Auditors' Report                                       23

     Consolidated Balance Sheets                                        24

     Consolidated Statements of Income                                  25

     Consolidated Statements of Changes in Partners' Capital            26

     Consolidated Statements of Cash Flows                              28

     Notes to Consolidated Financial Statements                         29

     Supplemental Schedules

          Schedule II -  Valuation and Qualifying Accounts              44

          Schedule IV -  Mortgage Loans on Real Estate                  45
             Rule 12-29 Loans on Real Estate








                                       22
<PAGE>


                              ARMANINO McKENNA LLP
                          CERTIFIED PUBLIC ACCOUNTANTS
                         12667 Alcosta Blvd., Suite 500
                               San Ramon, CA 94583
                                 (925) 790-2600





                          INDEPENDENT AUDITORS' REPORT


To the Partners
Redwood Mortgage Investors VIII
Redwood City, California

     We have audited the  accompanying  consolidated  balance  sheets of Redwood
Mortgage  Investors VIII (a California  limited  partnership) as of December 31,
2003 and 2002 and the  related  consolidated  statements  of income,  changes in
partners' capital and cash flows for each of the three years in the period ended
December  31,   2003.   These   consolidated   financial   statements   are  the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States of America.  Those standards  require that we plan
and  perform  the  audits 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 consolidated  financial  statements  referred to above
present  fairly,  in all material  respects,  the financial  position of Redwood
Mortgage  Investors VIII as of December 31, 2003 and 2002 and the results of its
operations  and cash  flows  for each of the  three  years in the  period  ended
December 31, 2003, in conformity with accounting  principles  generally accepted
in the United States of America.

     Our  audits  were  conducted  for the  purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. Schedule II and IV are
presented for purposes of additional analysis and are not a required part of the
basic consolidated financial statements.  Such information has been subjected to
the  auditing  procedures  applied  in  the  audits  of the  basic  consolidated
financial  statements  and, in our  opinion,  is fairly  stated in all  material
respects in relation to the basic consolidated  financial  statements taken as a
whole.



                                                        ARMANINO McKENNA  LLP

San Ramon, California
February 13, 2004




                                       23
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2003 AND 2002
                                 (in thousands)

                                     ASSETS

                                                            2003        2002
                                                        -----------  ----------

  Cash and cash equivalents                               $   8,921   $   7,188
                                                        -----------  ----------

  Loans
     Loans secured by deeds of trust                        147,174      83,650
     Loans, unsecured                                            34           -
     Allowance for loan losses                              (2,649)     (3,021)
                                                        -----------  ----------
       Net loans                                            144,559      80,629
                                                        -----------  ----------

  Interest and other receivables
     Accrued interest and late fees                           4,735       3,913
     Advances on loans                                          416         279
     Other receivables                                            -         888
                                                        -----------  ----------
       Total interest and other receivables                   5,151       5,080
                                                        -----------  ----------

  Other assets
     Loan origination fees, net                                  44          22
     Real estate held for sale, net                           3,979       9,286
                                                        -----------  ----------
       Total other assets                                     4,023       9,308
                                                        -----------  ----------

       Total assets                                       $ 162,654   $ 102,205
                                                        ===========  ==========

                        LIABILITIES AND PARTNERS' CAPITAL

  Liabilities
     Line of credit                                       $  22,000   $       -
     Accounts payable                                           224         449
     Payable to affiliate                                       448         294
     Deferred interest                                            -         112
     Note payable                                                 -       1,782
                                                        -----------  ----------
       Total liabilities                                     22,672       2,637
                                                        -----------  ----------

  Minority interest                                               -       1,213
                                                        -----------  ----------
  Investors in applicant status                               1,210       2,578
                                                        -----------  ----------

  Partners' capital
     Limited partners' capital, subject to redemption,
       net of unallocated syndication costs of $875
       and $592 for 2003 and 2002, respectively; and
       net of formation loan receivable of $7,550
       and $5,258 for 2003 and 2002, respectively           138,649      95,690

     General partners' capital, net of unallocated
       syndication costs of $9 and $6 for 2003 and
       2002, respectively                                       123          87
                                                        -----------  ----------
       Total partners' capital                              138,772      95,777
                                                        -----------  ----------

       Total liabilities and  partners' capital           $ 162,654   $ 102,205
                                                        ===========  ==========

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

                                       24
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                        CONSOLIDATED STATEMENTS OF INCOME
              FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
             (in thousands, except for per limited partner amounts)

<TABLE>
<S>                                                                         <C>               <C>              <C>
                                                                            2003              2002             2001
                                                                        ------------      -----------       ----------

Revenues
   Interest on loans                                                      $  12,496         $  11,416         $  8,920
   Late fees                                                                    201               114               99
   Other                                                                        262               161               69
                                                                        -----------       -----------       ----------
                                                                             12,958            11,691            9,088
                                                                        -----------       -----------       ----------

Expenses
   Mortgage servicing fees                                                    1,057             1,098              552
   Interest expense                                                              71               516              972
   Amortization of loan origination fees                                         23                12               14
   Provision for losses on loans                                                782               780              957
   Provision for losses on real estate                                            -               500                -
   Asset management fees                                                        468               325              158
   Clerical costs from Redwood Mortgage Corp.                                   290               266              241
   Professional services                                                        111                66               13
   Broker expense                                                               181               444                -
   Amortization of discount on imputed interest                                 195               154               53
   Other                                                                        228                44               35
                                                                        -----------       -----------       ----------
                                                                              3,406             4,205            2,995
                                                                        -----------       -----------       ----------

Income before minority interest                                               9,552             7,486            6,093

Minority interest share of subsidiary loss                                       42                 -                -
                                                                        -----------       -----------       ----------

Net income                                                                $   9,594         $   7,486         $  6,093
                                                                        ===========       ===========       ==========

Net income
   General partners (1%)                                                  $      96         $      75         $     61
   Limited partners (99%)                                                     9,498             7,411            6,032
                                                                        -----------       -----------       ----------

                                                                          $   9,594         $   7,486         $  6,093
                                                                        ===========       ===========       ==========

Net income per $1,000 invested by limited partners
   for entire period
    Where income is reinvested and compounded                             $      78         $      87         $     90
    Where partner receives income in monthly distributions                $      75         $      84         $     86
</TABLE>

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

                                       25
<PAGE>


                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
             CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
              FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
                                 (in thousands)

<TABLE>
<S>                                                   <C>            <C>            <C>             <C>               <C>
                                                                                      Limited Partners

                                                                    ---------------------------------------------------------
                                                      Partners       Capital                                          Total
                                                         In          Account        Unallocated     Formation        Limited
                                                      Applicant      Limited        Syndication       Loan,         Partners'
                                                       Status        Partners'         Costs          Gross          Capital
                                                     -----------    -----------     -----------    -----------    -----------

Balances at December 31, 2000                          $     225      $  56,502      $   (311)      $  (3,011)      $  53,180
   Contributions on application                           19,712              -              -               -              -
   Formation loan increases                                    -              -              -         (1,462)        (1,462)
   Formation loan payments received                            -              -              -             300            300
   Interest credited to partners in applicant
     status                                                    1              -              -               -              -
   Transfers to partners' capital                       (19,265)         19,245              -               -         19,245
   Net income                                                  -          6,032              -               -          6,032
   Syndication costs incurred                                  -              -          (291)               -          (291)
   Allocation of syndication costs                             -          (178)            178               -              -
   Partners' withdrawals                                       -        (3,317)              -               -        (3,317)
   Early withdrawal penalties                                  -           (70)             24              46              -
                                                     ------------   -----------    -----------     -----------    -----------

Balances at December 31, 2001                                673         78,214          (400)         (4,127)         73,687
   Contributions on application                           21,563              -              -               -              -
   Formation loan increases                                    -              -              -         (1,677)        (1,677)
   Formation loan payments received                            -              -              -             530            530
   Interest credited to partners in applicant
     status                                                    1              -              -               -              -
   Transfers to partners' capital                       (19,659)         19,659              -               -         19,659
   Net income                                                  -          7,411              -               -          7,411
   Syndication costs incurred                                  -              -          (377)               -          (377)
   Allocation of syndication costs                             -          (178)            178               -              -
   Partners' withdrawals                                       -        (3,543)              -               -        (3,543)
   Early withdrawal penalties                                  -           (23)              7              16              -
                                                     ------------   -----------    -----------     -----------    -----------

Balances at December 31, 2002                              2,578        101,540          (592)         (5,258)         95,690
   Contributions on application                           40,030              -              -               -              -
   Formation loan increases                                    -              -              -         (2,929)        (2,929)
   Formation loan payments received                            -              -              -             575            575
   Interest credited to partners in applicant
     status                                                   37              -              -               -              -
   Interest withdrawn                                       (14)              -              -               -              -
   Transfers to partners' capital                       (41,421)         41,421              -               -         41,421
   Net income                                                  -          9,498              -               -          9,498
   Syndication costs incurred                                  -              -          (478)               -          (478)
   Allocation of syndication costs                             -          (178)            178               -              -
   Partners' withdrawals                                       -        (5,128)              -               -        (5,128)
   Early withdrawal penalties                                  -           (79)             17              62              -
                                                     ------------   -----------    -----------     -----------    -----------

Balances at December 31, 2003                          $   1,210      $ 147,074      $   (875)      $  (7,550)      $ 138,649
                                                     ============   ===========    ===========     ===========    ===========
</TABLE>

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

                                       26
<PAGE>


                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
       CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (continued)
              FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
                                 (in thousands)

<TABLE>
<S>                                                       <C>           <C>               <C>             <C>
                                                                      General Partners
                                                        -------------------------------------------

                                                          Capital                         Total
                                                          Account       Unallocated      General          Total
                                                          General       Syndication      Partners'      Partners'
                                                         Partners'         Costs          Capital        Capital
                                                        -----------     -----------     -----------    -----------

Balances at December 31, 2000                             $      51       $     (3)       $      48      $  53,228
   Contributions on application                                   -               -               -              -
   Formation loan increases                                       -               -               -        (1,462)
   Formation loan payments received                               -               -               -            300
   Interest credited to partners in applicant status              -               -               -              -
   Capital contributed                                           20               -              20         19,265
   Net income                                                    61               -              61          6,093
   Syndication costs incurred                                     -             (3)             (3)          (294)
   Allocation of syndication costs                              (2)               2               -              -
   Partners' withdrawals                                       (59)               -            (59)        (3,376)
   Early withdrawal penalties                                     -               -               -              -
                                                        -----------     -----------     -----------    -----------

Balances at December 31, 2001                                    71             (4)              67         73,754
   Contributions on application                                   -               -               -              -
   Formation loan increases                                       -               -               -        (1,677)
   Formation loan payments received                               -               -               -            530
   Interest credited to partners in applicant status              -               -               -              -
   Capital contributed                                           22               -              22         19,681
   Net income                                                    75               -              75          7,486
   Syndication costs incurred                                     -             (4)             (4)          (381)
   Allocation of syndication costs                              (2)               2               -              -
   Partners' withdrawals                                       (73)               -            (73)        (3,616)
   Early withdrawal penalties                                     -               -               -              -
                                                        -----------     -----------     -----------    -----------

Balances at December 31, 2002                                    93             (6)              87         95,777
   Contributions on application                                   -               -               -              -
   Formation loan increases                                       -               -               -        (2,929)
   Formation loan payments received                               -               -               -            575
   Interest credited to partners in applicant status              -               -               -              -
   Interest withdrawn                                             -               -               -              -
   Capital contributed                                           40               -              40         41,461
   Net income                                                    96               -              96          9,594
   Syndication costs incurred                                     -             (5)             (5)          (483)
   Allocation of syndication costs                              (2)               2               -              -
   Partners' withdrawals                                       (95)               -            (95)        (5,223)
   Early withdrawal penalties                                     -               -               -              -
                                                        -----------     -----------     -----------    -----------

Balances at December 31, 2003                             $     132       $     (9)       $     123      $ 138,772
                                                        ===========     ===========     ===========    ===========
</TABLE>

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

                                       27
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
                                 (in thousands)
<TABLE>
<S>                                                                       <C>             <C>              <C>
                                                                          2003            2002             2001
                                                                       -----------     -----------      -----------
Cash flows from operating activities
   Net income                                                            $   9,594       $   7,486        $   6,093
   Adjustments to reconcile net income to
     net cash provided by operating activities
       Amortization of loan fees                                                23              12               14
       Imputed interest income                                               (195)           (154)             (53)
       Amortization of discount                                                195             154               53
       Provision for loan and real estate losses                               782           1,280              957
       Realized loss on sale of real estate                                    127               -                -
       Minority interest share of subsidiary loss                             (42)               -                -
       Change in operating assets and liabilities
         Unsecured loans                                                         -               4               50
         Accrued interest and late fees                                    (3,448)         (1,253)          (2,306)
         Advances on loans                                                   (500)           (312)             (23)
         Other receivables                                                     888           (888)                -
         Loan origination fees                                                (45)            (28)              (7)
         Accounts payable                                                    (225)             375               44
         Payable to affiliate                                                  154             185              109
         Deferred interest                                                   (112)             112             (82)
                                                                       -----------     -----------      -----------
Net cash provided by operating activities                                    7,196           6,973            4,849
                                                                       -----------     -----------      -----------

Cash flows from investing activities
   Loans originated                                                       (96,820)        (32,601)         (47,512)
   Principal collected on loans                                             35,097          26,083           33,239
   Payments for development of real estate                                   (706)           (219)                -
   Proceeds from disposition of real estate                                  6,036               -                -
                                                                       -----------     -----------      -----------
Net cash used in investing activities                                     (56,393)         (6,737)         (14,273)
                                                                       -----------     -----------      -----------

Cash flows from financing activities
   Borrowings (repayments) on line of credit, net                           22,000        (11,400)          (5,000)
   Repayments on note payable                                              (1,782)             (7)                -
   Contributions by partner applicants                                      40,093          21,586           19,713
   Partners' withdrawals                                                   (5,223)         (3,616)          (3,376)
   Syndication costs paid                                                    (483)           (381)            (294)
   Formation loan lending                                                  (2,929)         (1,677)          (1,462)
   Formation loan collections                                                  575             530              300
   Distributions to minority interest                                      (1,321)               -                -
                                                                       -----------     -----------      -----------
Net cash provided by financing activities                                   50,930           5,035            9,881
                                                                       -----------     -----------      -----------

Net increase in cash and cash equivalents                                    1,733           5,271              457

Cash and cash equivalents - beginning of year                                7,188           1,917            1,460
                                                                       -----------     -----------      -----------

Cash and cash equivalents - end of year                                  $   8,921       $   7,188        $   1,917
                                                                       ===========     ===========      ===========

Supplemental disclosures of cash flow information
   Cash paid for interest, net                                           $      71       $     516        $     972
</TABLE>

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

                                       28
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2003, 2002 AND 2001


1.     Organizational and General

     Redwood  Mortgage  Investors VIII, a California  Limited  Partnership  (the
"Partnership"),  was  organized  in 1993.  The general  partners  are Michael R.
Burwell,  an individual,  Gymno  Corporation and Redwood  Mortgage  Corp.,  both
California corporations.  The Partnership was organized to engage in business as
a mortgage  lender for the primary  purpose of making loans  secured by deeds of
trust on  California  real  estate.  Loans are being  arranged  and  serviced by
Redwood Mortgage Corp., a general partner. At December 31, 2003, the Partnership
was  in  its  fifth  offering  stage,   wherein   contributed   capital  totaled
$131,269,000 of approved aggregate offerings of $200,000,000. As of December 31,
2003 and 2002,  $1,210,000 and $2,578,000,  respectively,  remained in applicant
status,  and total  Partnership units sold were in the aggregate of $131,269,000
and $91,239,000, respectively.

     A minimum of $250,000 and a maximum of  $15,000,000  in  Partnership  units
were initially offered through qualified  broker-dealers.  This initial offering
closed in October 1996. In December  1996,  the  Partnership  commenced a second
offering of an  additional  $30,000,000,  which  closed on August 30,  2000.  On
August 31, 2000,  the  Partnership  commenced a third offering for an additional
$30,000,000,  which closed in April 2002. On October 31, 2002,  the  Partnership
commenced a fourth  offering  for an  additional  $50,000,000,  which  closed in
October 2003. On October 7, 2003, the Partnership commenced a fifth offering for
an additional  $75,000,000.  As loans are  identified,  partners are transferred
from applicant status to admitted partners participating in loan operations.

       Sales commissions - formation loans

     Sales  commissions  are not paid  directly  by the  Partnership  out of the
offering proceeds. Instead, the Partnership loans to Redwood Mortgage Corp., one
of the  general  partners,  amounts  to pay all sales  commissions  and  amounts
payable in  connection  with  unsolicited  orders.  This loan is  unsecured  and
non-interest bearing and is referred to as the "formation loan."

     The formation loan relating to the initial offering  ($15,000,000)  totaled
$1,075,000, which was 7.2% of limited partners' contributions of $14,932,000. It
is being repaid, without interest, in ten annual installments of $107,000, which
commenced on January 1, 1997, following the year the initial offering closed.

     The formation loan relating to the second  offering  ($30,000,000)  totaled
$2,272,000, which was 7.6% of limited partners' contributions of $29,993,000. It
is being repaid, without interest, in ten equal annual installments of $201,000,
which  commenced  on  January 1, 2001,  following  the year the second  offering
closed.  Additional  payments  on this loan were also made  during the  offering
period.

     The formation  loan relating to the third  offering  ($30,000,000)  totaled
$2,218,000,   which  was  7.4%  of  the  limited   partners'   contributions  of
$29,999,000. It is to be repaid, without interest, in ten annual installments of
$178,000,  which commenced on January 1, 2003.  Additional payments on this loan
were also made during the offering stage.

     The formation loan relating to the fourth  offering  ($50,000,000)  totaled
$3,777,000, which was 7.6% of the limited partners contributions of $49,985,000.
It is to be repaid,  without interest,  in ten annual  installments of $365,000,
which will  commence on January 1, 2004.  Additional  payments on this loan were
also made during the offering stage.

     The formation  loan relating to the fifth  offering  ($75,000,000)  totaled
$453,000  as of  December  31,  2003,  which  was 7.1% of the  limited  partners
contributions of $6,360,000 through December 31, 2003. An equal annual repayment
schedule on this loan, without interest, will commence in the year subsequent to
the closing of this offering.

                                       29
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2003, 2002 AND 2001


1.     Organizational and General (continued)

       Sales commissions - formation loans (continued)

     For the offerings,  sales  commissions paid to brokers 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 elect to  reinvest  earnings,  thus  generating  full 9%
commissions.  The  principal  balance of the  formation  loan will  increase  as
additional sales of units are made. The amount of the annual installment payment
to be made by  Redwood  Mortgage  Corp.,  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.

     The following  summarizes  formation loan transactions to December 31, 2003
(in thousands):
<TABLE>
<S><C>                           <C>            <C>                <C>            <C>              <C>             <C>
                                 Initial        Subsequent         Third          Fourth           Fifth
                                Offering of     Offering of      Offering of     Offering of     Offering of
                                 $15,000         $30,000          $30,000         $50,000         $75,000          Total
                               ------------    -------------    ------------    ------------    ------------    ------------

   Limited Partner
     contributions               $   14,932       $   29,993      $   29,999      $   49,985      $    6,360      $  131,269
                               ============    =============    ============    ============    ============    ============

   Formation loan made           $    1,075       $    2,272      $    2,218      $    3,777      $      453      $    9,795
   Discount on
     imputed interest                  (48)            (435)           (367)           (757)            (86)         (1,693)
                               ------------    -------------    ------------    ------------    ------------    ------------
   Formation loan
     made, net                        1,027            1,837           1,851           3,020             367           8,102
   Repayments to date                 (690)            (837)           (384)           (130)               -         (2,041)
   Early withdrawal
     penalties applied                 (63)             (88)            (53)               -               -           (204)
                               ------------    -------------    ------------    ------------    ------------    ------------
   Formation loan, net
     at December 31, 2003               274              912           1,414           2,890             367           5,857
   Unamortized discount
     on imputed interest                 48              435             367             757              86           1,693
                               ------------    -------------    ------------    ------------    ------------    ------------
   Balance,
     December 31, 2003           $      322       $    1,347      $    1,781      $    3,647      $      453      $    7,550
                               ============    =============    ============    ============    ============    ============

   Percent loaned                      7.2%             7.6%            7.4%            7.6%            7.1%            7.5%
</TABLE>

     The formation loan has been deducted from limited  partners' capital in the
consolidated  balance  sheets.  As amounts are collected  from Redwood  Mortgage
Corp., the deduction from capital will be reduced.  Interest has been imputed at
the market rate of interest in effect at the date the offerings  closed.  During
2003,  2002 and 2001  amortization  expense of  $195,000,  $154,000 and $53,000,
respectively, was recorded related to the discount on imputed interest.

      Syndication costs

     The Partnership bears its own syndication  costs,  other than certain sales
commissions,  including legal and accounting  expenses,  printing costs, selling
expenses  and filing  fees.  Syndication  costs are  charged  against  partners'
capital and are being  allocated  to  individual  partners  consistent  with the
partnership agreement.

                                       30
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2003, 2002 AND 2001


1.     Organizational and General (continued)

       Syndication costs (continued)

     Through  December  31,  2003,  syndication  costs  of  $2,553,000  had been
incurred by the Partnership with the following distribution (in thousands):

         Costs incurred                                    $   2,553
         Early withdrawal penalties applied                     (88)
         Allocated to date                                   (1,581)
                                                         -----------

              December 31, 2003 balance                    $     884
                                                         ===========


     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 $14,932,000.
Related expenditures  totaled $582,000 ($570,000  syndication costs plus $12,000
organization expense) or 3.9%.

     Syndication costs  attributable to the second offering  ($30,000,000)  were
limited to the lesser of 10% of the gross proceeds or $1,200,000 with any excess
being paid by the general  partners.  Gross proceeds of the second offering were
$29,993,000. Syndication costs totaled $598,000 or 2% of contributions.

     Syndication  costs  attributable to the third offering  ($30,000,000)  were
limited to the lesser of 10% of the gross proceeds or $1,200,000 with any excess
being paid by the general  partners.  Gross  proceeds of the third offering were
$29,999,000. Syndication costs totaled $643,000 or 2% of contributions.

     Syndication costs  attributable to the fourth offering  ($50,000,000)  were
limited to the lesser of 10% of the gross proceeds or $2,000,000 with any excess
to be paid by the general  partners.  Gross proceeds of the fourth offering were
$49,985,000. Syndication costs totaled $658,000 or 1.3% of contributions.

     Syndication costs attributable to the fifth offering  ($75,000,000) will be
limited to the lesser of 10% of the gross proceeds or $3,000,000 with any excess
to be paid by the general partners.  As of December 31, 2003, the fifth offering
had incurred syndication costs of $84,000 (1.3% of contributions).

       Term of the partnership

     The  Partnership  is scheduled  to  terminate on December 31, 2032,  unless
sooner terminated as provided in the partnership agreement.

2.     Summary of Significant Accounting Policies

       Basis of presentation

     The Partnership's consolidated financial statements include the accounts of
its 100%-owned  subsidiary,  Russian Hill Property Company,  LLC ("Russian") and
its 66%-owned  subsidiary,  Stockton Street Property Company,  LLC ("Stockton").
All significant  intercompany  transactions and balances have been eliminated in
consolidation.

     Certain reclassifications,  not affecting previously reported net income or
total partner  capital,  have been made to the  previously  issued  consolidated
financial statements to conform to the current year presentation.

                                       31
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2003, 2002 AND 2001


2.     Summary of Significant Accounting Policies (continued)

       Management estimates

     The  preparation of  consolidated  financial  statements in conformity with
accounting  principles  generally  accepted  in the  United  States  of  America
requires management to make estimates and assumptions about the reported amounts
of assets and liabilities, and disclosures of contingent assets and liabilities,
at the dates of the consolidated  financial  statements and the reported amounts
of revenues and expenses  during the reported  periods.  Such  estimates  relate
principally to the determination of the allowance for loan losses, including the
valuation  of  impaired  loans and the  valuation  of real estate held for sale.
Actual results could differ significantly from these estimates.

       Loans, secured by deeds of trust

     Loans generally are stated at their  outstanding  unpaid principal  balance
with interest thereon being accrued by the effective interest method.

     If the probable  ultimate  recovery of the carrying  amount of a loan, with
due  consideration  for the fair value of  collateral,  is less than amounts due
according to the contractual  terms of the loan agreement,  and the shortfall in
the  amounts  due are not  insignificant,  the  carrying  amount  of the loan is
reduced  to the  present  value of future  cash flows  discounted  at the loan's
effective interest rate. If a loan is collateral dependent,  it is valued at the
estimated fair value of the related collateral.

     If events and or changes in circumstances  cause management to have serious
doubts  about the  collectibility  of the  contractual  payments,  a loan may be
categorized  as impaired  and  interest  is no longer  accrued.  Any  subsequent
payments on impaired loans are applied to reduce the outstanding  loan balances,
including  accrued  interest and advances.  At December 31, 2003 and 2002, there
were no loans  categorized as impaired by the Partnership.  The average recorded
investment in impaired loans was $0 for 2003 and $355,000 for 2002 and 2001.

     At December 31, 2003 and 2002, the Partnership had sixteen and twenty loans
past due 90 days or more totaling $27,182,000 and $28,650,000, respectively. The
Partnership  does not  consider  these  loans to be  impaired  because  there is
sufficient  collateral to cover the amount outstanding to the Partnership and is
still  accruing  interest  on  these  loans.  As  presented  in  Note  11 to the
consolidated  financial  statements,  the  average  loan to  appraised  value of
security  based upon  appraised  values and prior  indebtedness  at the time the
loans were  consummated for loans  outstanding at December 31, 2003 and 2002 was
53.97%  and  60.61%,  respectively.  When  loans are  considered  impaired,  the
allowance  for loan losses is updated to reflect the change in the  valuation of
collateral  security.  However,  a low loan to value  ratio has the  tendency to
minimize reductions for impairment.

     During 2003, the Partnership  restructured  three loans into a new loan and
restructured  two loans into an existing loan,  both with lower interest  rates.
The amount restructured was $15,599,000.

     During 2002, the Partnership  restructured three previously  impaired loans
into two new loans  with a lower  interest  rate.  The amount  restructured  was
$1,090,000.


                                       32
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2003, 2002 AND 2001


2.     Summary of Significant Accounting Policies (continued)

       Allowance for loan losses

     Loans and the related accrued interest, late fees and advances are analyzed
on a continuous  basis for  recoverability.  Delinquencies  are  identified  and
followed as part of the loan system.  Delinquencies  are  determined  based upon
contractual  terms.  A provision is made for loan losses to adjust the allowance
for loan losses to an amount  considered by management to be adequate,  with due
consideration  to  collateral  values,  to provide for  unrecoverable  loans and
receivables,  including impaired loans, other loans, accrued interest, late fees
and advances on loans and other accounts receivable (unsecured). The Partnership
charges  off  uncollectible  loans  and  related  receivables  directly  to  the
allowance account once it is determined that the full amount is not collectible.

     The  composition  of the  allowance for loan losses as of December 31, 2003
and 2002 was as follows (in thousands):

                                      2003              2002
                                  -----------        ----------

          Specified loans           $      49          $    120
          General                       2,600             2,901
                                  -----------        ----------

                                    $   2,649          $  3,021
                                  ===========        ==========


       Activity in the allowance for loan losses is as follows for the years
ended December 31, (in thousands):

                                           2003          2002          2001
                                        ----------    -----------    ----------

         Beginning balance                $  3,021       $ 2,247       $  1,345
         Restructured loans                      -            11              -
         Additions charged to income           782           780            957
         Write-offs                        (1,154)          (17)           (55)
                                        ----------    ----------     ----------

                                          $  2,649       $ 3,021       $  2,247
                                        ==========    ==========     ==========


      Cash and cash equivalents

     The  Partnership  considers all highly liquid  financial  instruments  with
maturities  of  three  months  or  less  at the  time  of  purchase  to be  cash
equivalents.

      Real estate held for sale

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

     The Partnership  periodically compares the carrying value of real estate to
expected  undiscounted  future  cash  flows for the  purpose  of  assessing  the
recoverability  of the recorded  amounts.  If the carrying  value exceeds future
undiscounted  cash flows,  the assets are reduced to estimated  fair value.  The
Partnership  increased  the allowance for losses on real estate held for sale by
$500,000 during the year ended December 31, 2002.

                                       33
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2003, 2002 AND 2001


2.     Summary of Significant Accounting Policies (continued)

       Loan origination fees

     The Partnership capitalizes fees for obtaining bank financing. The fees are
amortized over the life of the financing using the straight-line method.

       Income taxes

     No  provision  for federal and state income taxes (other than an $800 state
minimum tax) is made in the consolidated financial statements since income taxes
are the obligation of the partners if and when income taxes apply.

       Net income per $1,000 invested

     Amounts  reflected  in the  statements  of income as net  income per $1,000
invested by limited  partners  for the entire  period are amounts  allocated  to
limited  partners  who held  their  investment  throughout  the  period and have
elected to either  leave their  earnings to compound or have  elected to receive
periodic 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 selected other options.

       Late fee revenue

     Late fees are generally  charged at 6% of the monthly  installment  payment
past due. During 2003, 2002 and 2001, late fee revenue of $201,000, $114,000 and
$99,000,  respectively,  was recorded.  The  Partnership has a recorded late fee
receivable at December 31, 2003 and 2002 of $193,000 and $133,000, respectively.

      Recently issued accounting pronouncements

     In November 2002, the Financial  Accounting  Standards  Board (FASB) issued
FASB Interpretation 45, "Guarantor's  Accounting and Disclosure Requirements for
Guarantees,  Including Indirect  Guarantees of Indebtedness of Others" (FIN 45).
FIN 45 requires the recognition of liabilities for guarantees that are issued or
modified  subsequent to December 31, 2002.  The  liabilities  should reflect the
fair value,  at  inception,  of the  guarantor's  obligations  to stand ready to
perform, in the event that the specified  triggering events or conditions occur.
The  implementation  of  FIN 45 did  not  have  any  significant  effect  on the
Partnership.

     In January  2003,  FASB issued FASB  Interpretation  46  "Consolidation  of
Variable Interest Entities, an Interpretation of ARB No. 51" (FIN 46). FIN 46 is
effective  immediately for any variable  interest entities created after January
31, 2003 and is effective beginning in the third quarter of 2003 to any variable
interest  entities created prior to the issuance of the  interpretation.  FIN 46
provides a new framework to identify variable interest entities and to determine
when an entity should include the assets, liabilities, non-controlling interests
and the results of  activities  of a variable  interest  entity in its financial
statements.  The implementation of FIN 46 did not have any significant effect on
the Partnership.



                                       34
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2003, 2002 AND 2001


2.     Summary of Significant Accounting Policies (continued)

       Recently issued accounting pronouncements (continued)

     In December 2003, the American  Institute of Certified  Public  Accountants
(AICPA)  Accounting  Standards  Executive  Committee (AcSEC) issued Statement of
Position 03-03,  "Accounting for Certain Loans or Debt Securities  Acquired in a
Transfer"(SOP  03-3).  SOP 03-03 is effective for loans acquired in fiscal years
beginning  after December 15, 2004,  with early adoption  encouraged.  SOP 03-03
addresses  accounting for differences  between  contractual  cash flows and cash
flows expected to be collected from an investor's initial investment in loans or
debt securities acquired in a transfer if those differences are attributable, at
least in part,  to credit  quality.  It  includes  loans  acquired  in  business
combinations   and   applies   to  all   nongovernmental   entities,   including
not-for-profit organizations.  The SOP does not apply to loans originated by the
entity.  The  implementation  of  SOP  03-03  is not  anticipated  to  have  any
significant effect on the Partnership.


3.    Other Partnership Provisions

     The Partnership is a California limited partnership. The rights, duties and
powers of the general and limited  partners of the  Partnership  are governed by
the limited  partnership  agreement and Sections 15611 et seq. of the California
Corporations Code.

     The general partners are in complete  control of the Partnership  business,
subject to the voting rights of the limited partners on specified  matters.  Any
one of the general  partners acting alone has the power and authority to act for
and bind the Partnership.

     A majority of the outstanding  limited  partnership  interests may, without
the permission of the general partners,  vote to: (i) terminate the Partnership,
(ii) amend the limited  partnership  agreement,  (iii) approve or disapprove the
sale of all or  substantially  all of the  assets  of the  Partnership  and (iv)
remove or replace one or all of the general partners.

     The approval of all the limited partners is required to elect a new general
partner to continue the Partnership business where there is no remaining general
partner  after a general  partner  ceases to be a general  partner other than by
removal.

      Applicant status

     Subscription  funds received from  purchasers of Partnership  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 - 90 days,  purchasers'  subscriptions  will remain
irrevocable  and will earn interest at money market rates,  which are lower than
the anticipated return on the Partnership's loan portfolio.

     During 2003, 2002 and 2001,  interest totaling $37,000,  $1,000 and $1,000,
respectively,  was credited to partners in applicant  status. As loans were made
and partners were  transferred to regular status to begin sharing in income from
loans  secured by deeds of trust,  the interest  credited was either paid to the
investors  or  transferred   to  partners'   capital  along  with  the  original
investment.

      Election to receive monthly, quarterly or annual distributions

     At subscription,  investors elect to receive  monthly,  quarterly or annual
distributions of earnings allocations, or to allow earnings to compound. Subject
to certain  limitations,  a  compounding  investor may  subsequently  change his
election, but an investor's election to have cash distributions is irrevocable.


                                       35
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2003, 2002 AND 2001


3.    Other Partnership Provisions (continued)

      Profits and losses

     Profits and losses are allocated  among the limited  partners  according to
their respective capital accounts monthly after 1% of the profits and losses are
allocated to the general partners.

      Liquidity, capital withdrawals and early withdrawals

     There are substantial  restrictions on transferability of Partnership units
and accordingly an investment in the Partnership is non-liquid. 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.

     After five years from the date of purchase of the units,  limited  partners
have the  right  to  withdraw  from the  Partnership  on an  installment  basis.
Generally this is done over a five-year period in twenty quarterly installments.
Once a limited  partner has been in the  Partnership  for the minimum  five-year
period,  no penalty will be imposed if  withdrawal  is made in twenty  quarterly
installments  or longer.  Notwithstanding  the five-year (or longer)  withdrawal
period,  the general  partners may liquidate all or part of a limited  partner's
capital account in four quarterly  installments beginning on the last day of the
calendar  quarter  following  the quarter in which the notice of  withdrawal  is
given. This withdrawal is subject to a 10% early withdrawal  penalty  applicable
to any sums withdrawn prior to the time when such sums could have been withdrawn
without penalty.

     The Partnership will not establish a reserve from which to fund withdrawals
and,  accordingly,  the  Partnership's  capacity  to return a limited  partner's
capital is restricted to the availability of Partnership cash flow. Furthermore,
no more than 20% of the total limited partners' capital accounts  outstanding at
the beginning of any year, shall be liquidated during any calendar year.

      Guaranteed interest rate for offering period

     For the first three offerings,  the general partners guaranteed 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%. The interest rate was guaranteed  during the period commencing with
the day a limited partner was admitted to the Partnership and ended three months
after the initial through third offering  termination  date,  which in all cases
was August 2002.  Through August 2002,  actual earnings  exceeded the guaranteed
amount for each month.


                                       36
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2003, 2002 AND 2001


4.    General Partners and Related Parties

     The following are  commissions  and/or fees,  which are paid to the general
partners:

      Mortgage brokerage commissions

     For fees in connection with the review, selection, evaluation,  negotiation
and extension of loans, the Partnership may collect an amount  equivalent to 12%
of the loaned amount until 6 months after the termination  date of the offering.
Thereafter, loan brokerage commissions (points) 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,  are not an  expense  of the
Partnership.  In 2003,  2002 and 2001,  loan brokerage  commissions  paid by the
borrowers were $2,621,000, $996,000 and $1,156,000, respectively.

      Mortgage servicing fees

     Monthly  mortgage  servicing  fees of up to 1/8 of 1% (1.5%  annual) of the
unpaid  principal  are paid to  Redwood  Mortgage  Corp.,  based  on the  unpaid
principal balance of the loan portfolio,  or such lesser amount as is reasonable
and customary in the geographic area where the property securing the mortgage is
located. Once a loan is categorized as impaired,  mortgage servicing fees are no
longer accrued thereon. Additional service fees are recorded upon the receipt of
any subsequent  payments on impaired  loans.  Mortgage  servicing fees of $1,057
000,   $1,098,000   and  $552,000  were  incurred  for  2003,   2002  and  2001,
respectively.  The  Partnership  has a payable to  Redwood  Mortgage  Corp.  for
servicing  fees of  $448,000  and  $294,000  at  December  31,  2003  and  2002,
respectively.

      Asset management fee

     The general  partners  receive monthly fees for managing the  Partnership's
loan  portfolio and operations up to 1/32 of 1% of the "net asset value" (3/8 of
1% annual).  Asset  management  fees of $468,000,  $325,000  and  $158,000  were
incurred for 2003, 2002 and 2001, respectively.

      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 the general partners.

      Operating expenses

     Redwood Mortgage Corp., a general partner, is reimbursed by the Partnership
for  all  operating  expenses  incurred  by it 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.  During 2003,  2002 and 2001,
operating expenses totaling $290,000, $266,000 and $241,000,  respectively, were
reimbursed to Redwood Mortgage Corp.

      Contributed capital

     The general  partners  jointly or severally are to contribute 1/10 of 1% of
limited  partners'  contributions  in cash  contributions  as proceeds  from the
offerings  are received from the limited  partners.  As of December 31, 2003 and
2002,  Gymno  Corporation,  a general  partner,  had capital in accordance  with
Section 4.02(a) of the Partnership Agreement.


                                       37
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2003, 2002 AND 2001


5.    Real Estate Held for Sale

     During 2002, the  Partnership  contributed  its interests in two foreclosed
real properties into two limited liability companies ("LLCs").

     The  following  schedule  reflects  the cost of the  LLCs'  properties  and
recorded reductions to estimated fair values at December 31, (in thousands):

                                                      2003             2002
                                                  -----------      -----------

          Costs of properties                        $  4,479          $ 9,786
          Reduction in value                            (500)            (500)
                                                  -----------      -----------

              Real estate held for sale, net         $  3,979          $ 9,286
                                                  ===========      ===========


      Russian

     During 2002, a  single-family  residence  that secured a  Partnership  loan
totaling  $4,402,000,  including accrued interest and advances,  was transferred
via a  statutory  warranty  deed to a new entity  named  Russian  Hill  Property
Company, LLC ("Russian").  Russian was formed by the Partnership to complete the
development  and sale of the  property.  The assets,  liabilities  and operating
results of Russian have been  consolidated  into the  accompanying  consolidated
financial  statements  of the  Partnership.  Costs  related  to the sale of this
property are being capitalized;  thus, there was no income or expense recognized
by  Russian  during  2003 and  2002.  As of  December  31,  2003 and  2002,  the
Partnership had advanced  approximately  $94,000 and $37,000,  respectively,  to
Russian for sales costs. At December 31, 2003 and 2002, the Partnership's  total
investment  in  Russian  was  $3,979,000  and  $3,913,000,  net  of a  valuation
allowance of $500,000.

      Stockton

     During 2002, six condominium units that secured a Partnership loan totaling
$2,163,000,  including  accrued  interest and advances,  were  transferred via a
statutory  warranty deed to a new entity named Stockton Street Property Company,
LLC  ("Stockton").  In  addition,  senior  debt was  assumed by  Stockton on the
property in the amount of  $1,789,000  (see Note 7).  Stockton was formed by the
Partnership  and  an  affiliate  to  complete   development  and  sales  of  the
condominium  units.  The  Partnership  is co-manager of Stockton  along with the
other  member  and is to receive  66% of the  profits  or  losses.  The  assets,
liabilities and operating  results of Stockton have been  consolidated  into the
accompanying  consolidated financial statements of the Partnership.  Development
costs were capitalized during construction; thus, there was no income or expense
recognized  by Stockton  during 2002 and a portion of 2003.  As of December  31,
2003 and 2002,  advances of  approximately  $132,000 and $238,000  were made for
construction  and other  related  development  costs and  $48,000 and $87,000 of
interest  expense was  capitalized,  respectively.  At December  31,  2002,  the
Partnership's  total  investment in Stockton was $5,373,000.  As of December 31,
2003,  the property had been sold and a net loss of $127,000  was  incurred,  of
which $42,000 was allocated to the minority interest.


6.    Bank Line of Credit

     The Partnership has a $22,000,000  bank line of credit through November 25,
2005,  with  borrowings  at  prime  and  secured  by  its  loan  portfolio.  The
outstanding  balances  were  $22,000,000  and $0 at December  31, 2003 and 2002,
respectively.  The interest  rate was 4.00% at December  31,  2003.  The line of
credit requires the Partnership to comply with certain financial covenants.  The
Partnership  was in  compliance  with these  covenants  at December 31, 2003 and
2002.

                                       38
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2003, 2002 AND 2001


7.    Note Payable

     During  2002,  the  Partnership  assumed  a  bank  loan  of  $1,789,000  in
connection with the foreclosure on a property (see Note 5). The loan was secured
by the property and bore interest at 5.68%.  As of December 31, 2003,  this loan
has been paid in full upon the sale of the related property.


 8.   Income Taxes

     The following  reflects a reconciliation  of partners' capital reflected in
the consolidated  financial  statements to the tax basis of Partnership  capital
(in thousands):
<TABLE>
<S>          <C>                                                                 <C>                <C>
                                                                                 2003               2002
                                                                              -----------        -----------

             Partners' capital per consolidated financial statements            $ 138,772          $  95,777
             Non-allocated syndication costs                                          884                598
             Allowance for loan losses and real estate held for sale                3,149              3,521
             Formation loans receivable                                             7,550              5,258
                                                                              -----------        -----------

                  Partners' capital - tax basis                                 $ 150,355          $ 105,154
                                                                              ===========        ===========
</TABLE>

     In 2003 and 2002,  approximately  47% of taxable  income was  allocated  to
tax-exempt organizations (i.e., retirement plans).


 9.   Fair Value of Financial Instruments

     The following  methods and assumptions were used to estimate the fair value
of financial instruments:

     (a) Cash and Cash  Equivalents.  The carrying amount equals fair value. All
amounts, including interest bearing, are subject to immediate withdrawal.

     (b) Secured  loans  carrying  value was  $147,174,000  and  $83,650,000  at
December  31,  2003 and 2002,  respectively.  The fair  value of these  loans of
$148,748,000 and $84,976,000,  respectively,  was estimated based upon projected
cash flows  discounted at the estimated  current interest rates at which similar
loans would be made.  The  applicable  amount of the  allowance  for loan losses
along  with  accrued  interest  and  advances  related  thereto  should  also be
considered in evaluating the fair value versus the carrying value.


 10.  Non-cash Transactions

     During 2003, the Partnership  restructured  three loans that resulted in an
increase to loans  receivable of $2,989,000  and a decrease to accrued  interest
and advances of $2,626,000 and $363,000, respectively.

     During 2003, a previously secured loan became unsecured which resulted in a
decrease to loans  receivable  of $34,000 and an increase to unsecured  loans of
$34,000.

                                       39
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2003, 2002 AND 2001


 10.  Non-cash Transactions (continued)

     During 2002, the  Partnership  foreclosed on two  properties  (see Note 5),
which  resulted in an increase in real estate held for sale and notes payable of
$8,354,000  and  $1,789,000,  respectively  and a decrease in loans  receivable,
accrued   interest  and   advances  of   $5,986,000,   $383,000  and   $196,000,
respectively.

     During 2002, the Partnership  restructured  three loans that resulted in an
increase to loans  receivable  and the allowance for loan losses of $345,000 and
$11,000,  respectively  and a  decrease  to accrued  interest  and  advances  of
$302,000 and $32,000, respectively.


11.   Asset Concentrations and Characteristics

     Most loans are secured by recorded deeds of trust. At December 31, 2003 and
2002,  there were 81 and 70 secured loans  outstanding,  respectively,  with the
following characteristics (dollars in thousands):

<TABLE>
<S>    <C>                                                                        <C>              <C>
                                                                                  2003             2002
                                                                               ----------       ----------

       Number of secured loans outstanding                                             81               70
       Total secured loans outstanding                                          $ 147,174        $  83,650

       Average secured loan outstanding                                         $   1,817        $   1,195
       Average secured loan as percent of total                                     1.23%            1.43%
       Average secured loan as percent of partners' capital                         1.31%            1.25%

       Largest secured loan outstanding                                         $  16,010        $   4,943
       Largest secured loan as percent of total                                    10.88%            5.91%
       Largest secured loan as percent of partners' capital                        11.54%            5.16%
       Number of counties where security is located (all California)                   20               15

       Largest percentage of secured loans in one county                           26.47%           27.22%

       Average secured loan to appraised value of security based on
           appraised values and prior liens at time loan was consummated           53.97%           60.61%

       Number of secured loans in foreclosure status                                    3                6
       Amount of secured loans in foreclosure                                   $   2,931        $   4,029
</TABLE>


                                       40
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2003, 2002 AND 2001


11.   Asset Concentrations and Characteristics (continued)

     The following  secured loan  categories  were held at December 31, 2003 and
2002 (in thousands):

                                                          2003         2002
                                                      -----------   ----------

     First trust deeds                                  $  84,437     $ 46,117
     Second trust deeds                                    61,247       30,930
     Third trust deeds                                      1,490        6,603
                                                      -----------   ----------
            Total loans                                   147,174       83,650
     Prior liens due other lenders at time of loan        116,870       79,846
                                                      -----------   ----------

            Total debt                                  $ 264,044     $163,496
                                                      ===========   ==========

     Appraised property value at time of loan           $ 489,219     $269,773

     Total loans as a percent of appraisals                53.97%       60.61%

     Loans by type of property
          Owner occupied homes                          $  13,656     $ 12,854
          Non-owner occupied homes                         52,975       23,720
          Apartments                                       22,649        6,572
          Commercial                                       52,502       32,089
          Land                                              5,392        8,415
                                                      -----------   ----------

                                                        $ 147,174     $ 83,650
                                                      ===========   ==========


     The interest  rates on the loans range from 7.50% to 18.00% at December 31,
2003.

     Scheduled  maturity  dates of secured  loans as of December 31, 2003 are as
follows (in thousands):

                 Year Ending December 31,
                           2004                     $  41,774
                           2005                        59,496
                           2006                        31,165
                           2007                         8,138
                           2008                         3,390
                        Thereafter                      3,211
                                                  -----------

                                                    $ 147,174
                                                  ===========


     The scheduled  maturities for 2004 include nine loans totaling  $10,767,000
(7.3%), which are past maturity at December 31, 2003. Interest payments on eight
of these  loans were  delinquent  and are  included in total of loans 90 days or
more delinquent presented in Note 2.

     Cash  deposits per bank at December 31, 2003,  exceeded  federal  insurance
limits (up to $100,000 per bank) by approximately $9,446,000.

                                       41
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2003, 2002 AND 2001


12.   Commitments and Contingencies

      Construction loans

     The Partnership has  construction  loans on projects,  which are at various
stages of completion. The Partnership has approved the borrowers up to a maximum
loan  balance;   however,   disbursements  are  made  during  completion  phases
throughout the construction process. At December 31, 2003, there was $14,742,000
of undistributed construction loans.

      Workout agreements

     The Partnership has negotiated  various workout  agreements with borrowers.
The  Partnership  is not obligated to fund  additional  money as of December 31,
2003.  There are six loans  totaling  $4,227,000  in  workout  agreements  as of
December 31, 2003.

      Legal proceedings

     The  Partnership is involved in various legal actions arising in the normal
course of business.  In the opinion of management,  such matters will not have a
material effect upon the financial position of the Partnership.


13.   Selected Financial Information (Unaudited)
<TABLE>
<S> <C>                                                <C>          <C>           <C>        <C>          <C>
                                                                      Calendar Quarter
                                                                       (in thousands)
                                                     ------------------------------------------------

                                                       First        Second        Third      Fourth       Annual
                                                     ---------    ----------    ---------   ---------   ---------
    Revenues
         2003                                          $ 2,789       $ 3,072      $ 3,225     $ 3,872     $12,958
         2002                                          $ 2,591       $ 2,515      $ 3,165     $ 3,420     $11,691
         2001                                          $ 2,151       $ 2,195      $ 2,265     $ 2,477     $ 9,088

    Expenses
         2003                                          $   659       $   711      $   722     $ 1,272     $ 3,364
         2002                                          $   788       $   665      $ 1,311     $ 1,441     $ 4,205
         2001                                          $   802       $   711      $   676     $   806     $ 2,995

    Net income allocated to general partners
         2003                                          $    21       $    24      $    25     $    26     $    96
         2002                                          $    18       $    18      $    19     $    20     $    75
         2001                                          $    13       $    14      $    15     $    19     $    61

    Net income allocated to limited partners
         2003                                          $ 2,109       $ 2,337      $ 2,478     $ 2,574     $ 9,498
         2002                                          $ 1,784       $ 1,831      $ 1,836     $ 1,960     $ 7,411
         2001                                          $ 1,335       $ 1,469      $ 1,573     $ 1,655     $ 6,032
</TABLE>

                                       42
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2003, 2002 AND 2001


13.   Selected Financial Information (Unaudited) (continued)
<TABLE>
<S>  <C>                                              <C>          <C>          <C>        <C>           <C>
                                                                       Calendar Quarter
                                                                        (in thousands)
                                                     ----------------------------------------------

                                                      First        Second       Third       Fourth       Annual
                                                     ---------    ---------    ---------   --------    ---------
     Net income per $1,000 invested
       where income is reinvested
             2003                                      $    20       $   19      $   18      $   21       $   78
             2002                                      $    21       $   21      $   21      $   24       $   87
             2001                                      $    22       $   22      $   22      $   24       $   90

       where income is withdrawn
             2003                                      $    20       $   19      $   18      $   18       $   75
             2002                                      $    21       $   21      $   21      $   21       $   84
             2002                                      $    22       $   22      $   20      $   20       $   86
</TABLE>


14.   Subsequent Events

     Subsequent  to December 31, 2003 and through the date of this  report,  the
Partnership  has  received  $3,928,000  of new  investor  money for the  current
offering and had admitted  $3,067,000  of partners in applicant  status into the
Partnership.




                                       43
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                December 31, 2003
                                 (in thousands)

<TABLE>
<S>        <C>                           <C>           <C>             <C>                 <C>               <C>
                                                                Col. C
                                                               Additions
                                                      ----------------------------
                                         Col. B                                                              Col. E
                                       Balance at      Charged to      Charged to                          Balance at
           Col. A                      Beginning        Costs &          Other             Col. D            End of
         Description                   of Period       Expenses         Accounts         Deductions          Period
----------------------------------    ------------    -----------      -----------      ------------       -----------
Year Ended December 31, 2003

Deducted from asset accounts

Allowance for loan losses                $   3,021      $     782         $       -        $  (1,154) (a)     $   2,649

Cumulative write-down of
  real estate held for sale (REO)              500              -                 -                 -               500
                                      ------------    -----------      ------------     -------------      ------------

                                         $   3,521      $     782         $       -        $  (1,154) (a)     $   3,149
                                      ============    ===========      ============     =============      ============
</TABLE>



      Note (a) - Represents write-offs of loans.






                                       44
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   SCHEDULE IV - mortgage loans on real estate
                         rule 12-29 loans on real estate
                                December 31, 2003
                                 (in thousands)
<TABLE>
<S>         <C>         <C>           <C>         <C>          <C>          <C>          <C>        <C>         <C>
                                                               Col. F       Col. G       Col. H
                        Col. C        Col. D                    Face       Carrying       Pr.                   Col. J
            Col. B      Final        Periodic     Col. E      Amt. Of       Amount.      Amount     Col. I       Geog.
Col. A     Interest    Maturity       Payment     Prior       Mortgage     Mortgage     Subj. to    Type of     County
 Desc.       Rate        Date          Terms      Liens       Orig. Amt.  Investment   Delinquency   Lien      Location
-----------------------------------------------------------------------------------------------------------------------------

Comm.       11.75%     12/01/09      $     3     $     -      $    148     $    148      $       -    1st      Yuba
Comm.       14.00%     04/01/06           12           -           700          290              -    1st      San Francisco
Res.        13.50%     07/01/00            7           -           579          579            579    1st      San Francisco
Comm.       11.00%     10/01/07            6           -           650          626              -    1st      San Francisco
Res.        18.00%     03/01/00           11         580           951          762            762    2nd      San Francisco
Res.        12.00%     05/01/03           12         363         1,210        1,210          1,210    1st      Marin
Land        11.00%     01/01/01           13         363         1,800        1,392          1,392    2nd      Stanislaus
Land        11.00%     07/01/01           24         358         2,600        2,537          2,537    2nd      Stanislaus
Apts.       12.50%     11/15/02            4          47            39          298            298    2nd      Contra Costa
Land        11.00%     11/01/00            2       2,968           222            -              -    3rd      Stanislaus
Comm.       11.50%     02/01/05            4         493           400          396            396    2nd      San Francisco
Land        11.50%     07/01/01            5       2,600           476          476            476    2nd      Stanislaus
Comm.       10.50%     06/01/06            7           -           775          759              -    1st      San Mateo
Apts.       12.00%     07/01/06           40           -         4,000        6,483              -    1st      San Francisco
Comm.       12.00%     05/01/07            9       2,916           799          789              -    2nd      Santa Clara
Res.        12.00%     03/01/01           13           -         1,325        1,325          1,325    1st      Marin
Res.        12.00%     05/01/03            -           -         4,117            -              -    3rd      Santa Clara
Apts.       11.50%     06/01/06            2           -           182          178              -    1st      Merced
Res.        13.25%     12/01/02           20         582         2,188        2,188          2,188    2nd      Santa Clara
Res.        13.25%     01/01/03           20           -         3,516        3,991          3,991    1st      Napa
Comm.       11.50%     08/01/06            4           -           350          282              -    1st      San Mateo
Res.        11.50%     12/01/06            1         167            70           69              -    2nd      Stanislaus
Res.        10.25%     12/01/04            3         978           300          300              -    2nd      San Francisco
Land        9.50%      02/01/04            8           -           987          987              -    1st      Santa Clara
Res.        11.00%     02/01/04            6          65           708          708              -    2nd      Lake
Comm.       11.00%     03/01/07           16           -         1,600        1,589          1,589    1st      Alameda
Res.        10.00%     12/01/02            3           -           318          316            316    1st      San Mateo
Comm.       7.50%      02/28/07            5           -           770          770              -    1st      Santa Clara
Comm.       7.50%      02/28/07            2           -           320          320              -    1st      Alameda
Res.        10.25%     04/01/05           14           -         1,650        2,300              -    1st      Napa
Comm.       13.00%     06/01/05           41      10,000         4,550        6,020          6,020    2nd      Santa Clara
Comm.       10.50%     08/01/04           32           -         3,600        3,600              -    1st      Santa Clara
Res.        10.25%     08/01/04            4       1,647           263          236              -    2nd      Santa Clara
Res.        10.50%     08/01/07           18       3,500         2,000        1,986              -    2nd      San Francisco
Res.        10.50%     09/01/07            2       1,468           805          270              -    3rd      Santa Clara
Res.        11.50%     09/01/05           12           -         1,300        1,300          1,300    1st      Alameda
Res.        10.50%     09/01/05            2         710           269          269              -    2nd      San Mateo
Res.        10.50%     10/01/05           16           -         1,781        1,781          1,781    1st      San Mateo
Comm.       10.50%     10/01/07            4           -           441          438              -    1st      San Mateo
</TABLE>

                                       45
<PAGE>


SCHEDULE IV (continued)
<TABLE>
<S>         <C>         <C>           <C>          <C>         <C>          <C>          <C>         <C>         <C>
                                                               Col. F       Col. G       Col. H
                        Col. C        Col. D                    Face       Carrying        Pr.                   Col. J
            Col. B      Final        Periodic      Col. E      Amt. Of       Amount.      Amount     Col. I       Geog.
Col. A     Interest    Maturity       Payment      Prior       Mortgage     Mortgage     Subj. to    Type of     County
 Desc.       Rate        Date          Terms       Liens       Orig. Amt.  Investment   Delinquency   Lien      Location
---------------------------------------------------------------------------------------------------------------------------
Res.         10.50%     10/01/07            2          245           159          205            -   2nd         San Mateo
Comm.        11.25%     12/01/07            9          718           900          896            -   1st & 3rd   El Dorado
Res.         10.00%     11/01/05           11          500         1,320        1,320        1,320   2nd         Napa
Comm.        10.00%     12/01/07            2        1,802           250          249            -   2nd         Sonoma
Res.         12.75%     07/01/04            1          749           650          384            -   2nd         Santa Clara
Comm.        10.00%     01/01/08           13            -         1,500        1,500            -   1st         River Side
Comm.        13.00%     02/01/05           16            -         1,500          600            -   1st         Calaveras
Comm.        9.50%      02/01/06           11            -         1,388        1,388            -   1st         Santa Clara
Res.         10.00%     03/01/08           13        1,699         1,450        1,444            -   2nd         El Dorado
Comm.        1.00%      12/31/04           87            -        10,440       10,440            -   1st         San Francisco
Comm.        10.00%     03/01/08            1          546           137          136            -   2nd         San Mateo
Apts.        10.00%     10/14/05           79       13,768         9,420        4,372            -   2nd         Alameda
Comm.        9.75%      05/01/13            4            -           420          418            -   1st         San Francisco
Res.         11.50%     12/01/04           41            -         7,700        5,345            -   1st         San Mateo
Comm.        10.00%     04/01/05           47            -         5,293        5,816            -   1st         Los Angeles
Apts.        10.00%     05/01/05            3            -           396          396            -   1st         Alameda
Res.         11.50%     11/01/04            3        1,734           395          324            -   3rd         San Mateo
Comm.        10.00%     06/01/06           14        5,500         1,625        1,625            -   2nd         Napa
Apts.        10.00%     06/01/05           16        2,147         1,950        1,949            -   2nd         Contra Costa
Apts.        13.00%     01/02/06           29       14,800         2,660        2,660            -   2nd         Santa Clara
Comm.        12.00%     07/01/06           25            -         2,500        2,500            -   1st         Sacramento
Apts.        10.00%     05/01/04           19       15,440         2,250        2,250            -   2nd         San Mateo
Res.         11.00%     07/01/05            9            -         6,074        1,067            -   1st         Fresno
Res.         10.00%     08/01/13            2            -           230          229            -   1st         San Joaquin
Res.         9.00%      07/01/06           28            -         3,707        2,699            -   1st         Alameda
Comm.        11.00%     07/01/06           33            -         3,570        3,570            -   1st         Alameda
Res.         11.00%     08/01/10           10          940         3,185        1,389            -   2nd         Marin
Res.         9.00%      02/01/06            4          893           500          500            -   2nd         Sonoma
Res.         8.75%      09/01/05          103            -        15,600        8,700            -   1st         Alameda
Res.         9.50%      09/01/04           16          680         2,000        2,000            -   2nd         Santa Clara
Res.         8.50%      10/01/08            1            -           180          180            -   1st         Contra Costa
Res.         9.00%      11/01/09            2            -           300          300            -   1st         Stanislaus
Apts.        9.50%      01/01/09            4            -           413          413            -   1st         San Joaquin
Comm.        9.50%      12/01/05           22            -         2,750        2,750            -   1st         San Francisco
Res.         9.25%      12/01/08            1          376           130          130            -   2nd         Santa Clara
Res.         8.75%      11/01/05            6            -           800          800            -   1st         San Francisco
Apts.        9.50%      11/01/05           29        3,115         3,650        3,650            -   2nd         River Side
Res.         8.50%      12/01/04            -          505            40           40            -   2nd         Santa Clara
Res.         8.50%      12/01/04            3        1,131           400          400            -   2nd         Contra Costa
Res.         11.50%     01/01/06           13          445         4,483        2,107            -   2nd         Santa Clara
Comm.        9.00%      01/01/06           25            -         3,375        3,375            -   1st         San Joaquin
Res.         10.00%     12/25/05          133       13,575        16,010       16,010            -   2nd         Alameda
Res.         8.50%      01/01/06            8            -         1,070        1,070            -   1st         Placer
Comm.        9.50%      01/01/06           13            -         1,610        1,610            -   1st         Napa
                                    --------------------------------------------------------------

Total                                $  1,318    $ 111,113    $  173,139     $147,174     $ 27,480
                                    ==============================================================
</TABLE>


                                       46
<PAGE>


                         REDWOOD MORTGAGE INVESTORS VIII
                       (A California Limited Partnership)
                   SCHEDULE IV - mortgage loans on real estate
                   rule 12-29 loans on real estate (continued)
                                 (in thousands)

     Reconciliation of carrying amount (cost) of loans at close of periods
<TABLE>
<S><C>                                                  <C>               <C>               <C>
                                                               Year ended December 31,
                                                     ----------------------------------------------

                                                        2003              2002              2001
                                                     ------------     ------------     ------------
   Balance at beginning of year                        $   83,650       $   82,790       $   68,571

   Additions during period:
      New loans                                            96,820           32,601           47,512
      Other                                                 2,989            1,060                -
                                                     ------------     ------------     ------------
        Total additions                                    99,809           33,661           47,512
                                                     ------------     ------------     ------------

   Deductions during period:
      Collections of principal                             35,097           26,083           33,239
      Foreclosures                                              -            5,986                -
      Cost of loans sold                                        -                -                -
      Amortization of premium                                   -                -                -
      Other                                                 1,188              732               54
                                                     ------------     ------------     ------------
        Total deductions                                   36,285           32,801           33,293
                                                     ------------     ------------     ------------

   Balance at close of year                            $  147,174       $   83,650       $   82,790
                                                     ============     ============     ============
</TABLE>



                                       47
<PAGE>




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

     There  were no  disagreements  with the  partnership's  independent  public
accountants during the years ended December 31, 2003 and 2002.


Item 9a. - Controls and Procedures

     The partnership  carried out an evaluation,  under the supervision and with
the participation of the general partners of the effectiveness of the design and
operation of the partnership's  disclosure controls and procedures as of the end
of the period covered by this report pursuant to the Securities and Exchange Act
of 1934.  Based upon that evaluation,  the general  partners  concluded that the
partnership's disclosure controls and procedures were effective.

     There were no significant  changes in the  partnership's  internal  control
over  financial  reporting  during the  partnership's  fourth fiscal quarter and
through the date of this report that have materially affected,  or are likely to
materially affect, the partnership's internal control over financial reporting.

                                    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 three general partners, one of whom is an individual,
Michael R. Burwell.  The other two general  partners are Gymno  Corporation  and
Redwood  Mortgage  Corp.  Both are California  corporations,  formed in 1986 and
1978,  respectively.  Mr.  Burwell  is one  of the  two  shareholders  of  Gymno
Corporation,  a  California  corporation,  on an equal  (50-50)  basis.  Redwood
Mortgage  Corp.  is a  subsidiary  of The Redwood  Group Ltd.,  whose  principal
stockholders are the Burwell Trusts, the other shareholder of Gymno Corporation.

The General Partners.

     Michael R.  Burwell.  Michael R. Burwell,  age 46,  General  Partner,  past
member  of  Board  of  Trustees  and  Treasurer,   Mortgage  Brokers   Institute
(1984-1986);  President,  Director,  Chief Financial  Officer,  Redwood Mortgage
Corp.  (1979-present);  Director,  Secretary  and  Treasurer  A  &  B  Financial
Services, Inc. (1980-present);  President, Director, Chief Financial Officer and
Secretary (since 1986) of Gymno Corporation;  President, Director, Secretary and
Treasurer of The Redwood Group, Ltd. (1979-present).  Mr. Burwell is licensed as
a real estate sales person.

     Gymno  Corporation.  Gymno  Corporation,  General Partner,  is a California
corporation  formed in 1986 for the  purpose  of acting as a general  partner of
this  partnership  and of other limited  partnerships  formed by the  individual
general partners. The shares in Gymno Corporation are held equally by Michael R.
Burwell  and the  estate  of D.  Russell  Burwell.  Upon the  completion  of the
administration of D. Russell  Burwell's  estate,  Michael R. Burwell will have a
controlling  interest in Gymno Corporation.  Michael R. Burwell is a director of
Gymno and the director  position held by D. Russell Burwell is currently vacant.
Michael R. Burwell is its President, Chief Financial Officer and Secretary.

     Redwood  Mortgage  Corp.  Redwood  Mortgage Corp. is a licensed real estate
broker  incorporated  in 1978 under the laws of the State of California,  and is
engaged  primarily in the business of arranging  and servicing  mortgage  loans.
Redwood  Mortgage  Corp.  will act as the loan  broker  and  servicing  agent in
connection  with  loans,  as it has done on  behalf  of  several  other  limited
partnerships formed by the general partners.


                                       48
<PAGE>


Financial Oversight by General Partners.

     The partnership  does not have a board of directors or an audit  committee.
Accordingly,  the general  partners  serve the  equivalent  function of an audit
committee  for,  among  other  things,  the  following  purposes:   appointment,
compensation,  review  and  oversight  of the  work  of our  independent  public
accountants,  and  establishing  the  enforcing of the Code of Ethics.  However,
since the partnership  does not have an audit committee and the general partners
are not independent of the partnership,  the partnership does not have an "audit
committee financial expert."

Code of Ethics.

     The  general  partners  have  adopted  a Code of Ethics  applicable  to the
general partners and to any agents, employees or independent contractors engaged
by the  general  partners  to perform the  functions  of a  principal  financial
officer, principal accounting officer or controller of the partnership,  if any.
You may obtain a copy of this Code of Ethics,  without  charge,  upon request by
calling our Investor Services Department at (650) 365-5341.


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 (S-11) dated October 7, 2003, page 5, 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, 2003. All
such compensation is in compliance with the guidelines and limitations set forth
in the prospectus.
<TABLE>
<S>                                  <C>                                                     <C>
Entity Receiving Compensation        Description of Compensation and Services
                                                   Rendered                                  Amount
--------------------------------------------------------------------------------------------------------
I. Redwood Mortgage Corp.            Mortgage Servicing Fee for servicing loans...............$1,057,000
     (General Partner)

General Partners &/or Affiliates     Asset Management Fee for managing assets...................$468,000

General Partners                     1% interest in profits......................................$96,000
                                     Less allocation of syndication costs.........................$2,000
                                                                                           -------------
                                                                                                 $94,000

General Partners &/or Affiliates     Portion of early withdrawal penalties applied to
                                     reduce Formation Loan.......................................$62,000
</TABLE>



                                       49
<PAGE>

     II. FEES PAID BY BORROWERS ON MORTGAGE LOANS PLACED WITH THE PARTNERSHIP BY
COMPANIES  RELATED TO THE GENERAL  PARTNERS  (EXPENSES OF  BORROWERS  NOT OF THE
PARTNERSHIP)
<TABLE>
<S>                         <C>                                                               <C>
Redwood Mortgage Corp.      Mortgage Brokerage Commissions for services in
                            connection with the review, selection, evaluation,
                            negotiation, and extension of the loans paid by the
                            borrowers and not by the partnership..............................$2,621,000

Redwood Mortgage Corp.      Processing and Escrow Fees for services in borrowers
                            connection with notary, document preparation, credit
                            investigation, and escrow fees payable by the
                            and not by the partnership...........................................$32,000

Gymno Corporation           Reconveyance Fee......................................................$7,033
</TABLE>


     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
CONSOLIDATED  STATEMENTS OF INCOME . . . . . . . . . . . . . . . . . . .$290,000


Item 12 - Security Ownership of Certain Beneficial Owners and Management

     The  general  partners  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  footnotes  3  and  4 of  the  Notes  to  Consolidated  Financial
Statements in Part II item 8, which describes related party fees and data.

     Also refer to the Prospectus dated October 7, 2003, (incorporated herein by
reference) on page 5 "Compensation of General Partners and Affiliates".


Item 14 - Principal Accountant Fees and Services

     Fees for services performed for the partnership by the principal accountant
for 2003 and 2002 are as follows:

     Audit Fees The aggregate  fees billed  during the years ended  December 31,
2003  and  2002  for  professional  services  rendered  for  the  audit  of  the
partnership's  annual financial  statements included in the partnership's Annual
Report  on  Form  10-K,   review  of  financial   statements   included  in  the
partnership's  Quarterly  Reports  on Form  10-Q and for  services  provided  in
connection with regulatory filings were $101,302 and $131,066, respectively.

     Audit  Related  Fees  There  were no fees  billed  during  the years  ended
December 31, 2003 and 2002 for audit-related services.

     Tax fees The  aggregate  fees billed for tax  services  for the years ended
December  31, 2003 and 2002,  were $5,487 and $6,605,  respectively.  These fees
relate to professional services rendered primarily for tax compliance.

     All Other  Fees  There were no other  fees  billed  during the years  ended
December 31, 2003 and 2002.

     All audit and non-audit  services are approved by the general partner prior
to the accountant being engaged by the partnership.


                                       50
<PAGE>

                                     Part IV

Item 15 - Exhibits, Financial Statements 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 - Consolidated Financial Statements.

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

   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


     All of these exhibits were previously filed as the exhibits to Registrant's
Registration   Statement  on  Form  S-11   (Registration   No.   333-106900  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 (filed as
   part of the S-11 registration statement) dated October 7, 2003, supplement
   No. 1 dated January 30, 2004 (post effective amendment No. 1 to the S-11
   registration statement), for financial data related to Gymno Corporation,
   and Redwood Mortgage Corp., the Corporate General Partners.


                                       51
<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 30th day of March,
2004.


REDWOOD MORTGAGE INVESTORS VIII


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


By: Gymno Corporation, General Partner


    By: /S/ Michael R. Burwell
       ------------------------------------------
        Michael R. Burwell, President, Secretary,
        and Principal Financial Officer



By: Redwood Mortgage Corp.


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



                                       52
<PAGE>

     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 30th day of March, 2004.


            Signature                   Title                         Date



/S/ Michael R. Burwell
---------------------------
Michael R. Burwell                  General Partner               March 30, 2004



/S/ Michael R. Burwell
---------------------------
Michael R. Burwell            President of Gymno Corporation,     March 30, 2004
                              (Principal Executive Officer);
                              Director of Gymno Corporation
                               Secretary/Treasurer of Gymno
                              Corporation (Principal Financial
                                 and Accounting Officer);




/S/ Michael R. Burwell
---------------------------
Michael R. Burwell             President, Secretary/Treasurer of  March 30, 2004
                                  Redwood Mortgage Corp.
                                 (Principal Financial and
                                    Accounting Officer);
                              Director of Redwood Mortgage Corp.



                                       53
<PAGE>

                                                                    Exhibit 99.1

                          GENERAL PARTNER CERTIFICATION


     I, Michael R. Burwell, General Partner of the Partnership, certify that:

     1. I have  reviewed  this  annual  report on Form 10-K of Redwood  Mortgage
Investors VIII, a California Limited Partnership (the "Registrant");

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge, the consolidated financial statements,  and other
financial  information  included in this annual  report,  fairly  present in all
material respects the financial condition,  results of operations and cash flows
of the Registrant as of, and for, the periods presented in this annual report;

     4. The  Registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

     (a)  designed  such  disclosure  controls  and  procedures  to ensure  that
material  information  relating to the  Registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this annual report is being prepared;

     (b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of December 31, 2003 (the "Evaluation Date"); and

     (c) presented in this annual report our conclusions about the effectiveness
of the  disclosure  controls and  procedures  based on our  evaluation as of the
Evaluation Date.

     5. The Registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  Registrant's  auditors  and the  audit
committee  of  Registrant's  board  of  directors  (or  persons  performing  the
equivalent function):

     (a) all  significant  deficiencies  in the design or  operation of internal
controls  which  could  adversely  affect  the  Registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
Registrant's auditors any material weaknesses in internal controls; and

     (b) any fraud,  whether or not material,  that involves management or other
employees who have a significant role in the Registrant's internal controls.

     6. The Registrant's other certifying  officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.



/s/ Michael R. Burwell
-----------------------------------
Michael R. Burwell, General Partner
March 30, 2004


                                       54
<PAGE>

                                                                    Exhibit 99.1


                            CERTIFICATION PURSUANT TO
                             18 U.S.C SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


     In connection  with the Annual Report of Redwood  Mortgage  Investors  VIII
(the "Partnership") on Form 10-K for the period ended December 31, 2003 as filed
with the Securities and Exchange  Commission on the date hereof (the  "Report"),
pursuant  to 18  U.S.C.  (S)  1350,  as  adopted  pursuant  to  (S)  906  of the
Sarbanes-Oxley  Act of 2002,  I,  Michael  R.  Burwell,  General  Partner of the
partnership, certify that to the best of my knowledge:

     (1) The Report fully  complies  with the  requirements  of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and results of operations of the
partnership.


/s/ Michael R. Burwell
-----------------------------------
Michael R. Burwell, General Partner
March 30, 2004


                                       55
<PAGE>

                                                                    Exhibit 99.2

               PRESIDENT AND CHIEF FINANCIAL OFFICER CERTIFICATION

     I,  Michael R.  Burwell,  President  and Chief  Financial  Officer of Gymno
Corporation, General Partner of the partnership, certify that:

     1. I have  reviewed  this  annual  report on Form 10-K of Redwood  Mortgage
Investors VIII, a California Limited Partnership (the "Registrant");

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge, the consolidated financial statements,  and other
financial  information  included in this annual  report,  fairly  present in all
material respects the financial condition,  results of operations and cash flows
of the Registrant as of, and for, the periods presented in this annual report;

     4. The  Registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

     (a)  designed  such  disclosure  controls  and  procedures  to ensure  that
material  information  relating to the  Registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this annual report is being prepared;

     (b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of December 31, 2003 (the "Evaluation Date"); and

     (c) presented in this annual report our conclusions about the effectiveness
of the  disclosure  controls and  procedures  based on our  evaluation as of the
Evaluation Date.

     5. The Registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  Registrant's  auditors  and the  audit
committee  of  Registrant's  board  of  directors  (or  persons  performing  the
equivalent function):

     (a) all  significant  deficiencies  in the design or  operation of internal
controls  which  could  adversely  affect  the  Registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
Registrant's auditors any material weaknesses in internal controls: and

     (b) any fraud,  whether or not material,  that involves management or other
employees who have a significant role in the Registrant's internal controls.

     6. The Registrant's other certifying  officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


/s/ Michael R. Burwell
----------------------------------
Michael R. Burwell, President, and
Chief Financial Officer of Gymno
Corporation, General Partner
March 30, 2004


                                       56
<PAGE>
                                                                    Exhibit 99.2


                            CERTIFICATION PURSUANT TO
                             18 U.S.C SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


     In connection  with the Annual Report of Redwood  Mortgage  Investors  VIII
(the "Partnership") on Form 10-K for the period ended December 31, 2003 as filed
with the Securities and Exchange  Commission on the date hereof (the  "Report"),
pursuant  to 18  U.S.C.  (S)  1350,  as  adopted  pursuant  to  (S)  906  of the
Sarbanes-Oxley Act of 2002, I, Michael R. Burwell, President and Chief Financial
Officer of Gymno Corporation,  General Partner of the partnership,  certify that
to the best of my knowledge:

     (1) The Report fully  complies  with the  requirements  of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and results of operations of the
partnership.


/s/ Michael R. Burwell
----------------------------------
Michael R. Burwell, President, and
Chief Financial Officer of Gymno
Corporation, General Partner
March 30, 2004


                                       57
<PAGE>
                                                                    Exhibit 99.3

                            PRESIDENT'S CERTIFICATION


     I, Michael R. Burwell,  president of Redwood Mortgage Corporation,  General
Partner, certify that:

     1. I have  reviewed  this  annual  report on Form 10-K of Redwood  Mortgage
Investors VIII, a California Limited Partnership (the "Registrant");

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge, the consolidated financial statements,  and other
financial  information  included in this annual  report,  fairly  present in all
material respects the financial condition,  results of operations and cash flows
of the Registrant as of, and for, the periods presented in this annual report;

     4. The  Registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

     (a)  designed  such  disclosure  controls  and  procedures  to ensure  that
material  information  relating to the  Registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this annual report is being prepared;

     (b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of December 31, 2003 (the "Evaluation Date"); and

     (c) presented in this annual report our conclusions about the effectiveness
of the  disclosure  controls and  procedures  based on our  evaluation as of the
Evaluation Date.

     5. The Registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  Registrant's  auditors  and the  audit
committee  of  Registrant's  board  of  directors  (or  persons  performing  the
equivalent function):

     (a) all  significant  deficiencies  in the design or  operation of internal
controls  which  could  adversely  affect  the  Registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
Registrant's auditors any material weaknesses in internal controls; and

     (b) any fraud,  whether or not material,  that involves management or other
employees who have a significant role in the Registrant's internal controls.

     6. The Registrant's other certifying  officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.



/s/ Michael R. Burwell
------------------------------
Michael R. Burwell, President,
Redwood Mortgage Corporation,
General Partner
March 30, 2004


                                       58
<PAGE>
                                                                    Exhibit 99.3


                            CERTIFICATION PURSUANT TO
                             18 U.S.C SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


     In connection  with the Annual Report of Redwood  Mortgage  Investors  VIII
(the "Partnership") on Form 10-K for the period ended December 31, 2003 as filed
with the Securities and Exchange  Commission on the date hereof (the  "Report"),
pursuant  to 18  U.S.C.  (S)  1350,  as  adopted  pursuant  to  (S)  906  of the
Sarbanes-Oxley Act of 2002, I, Michael R. Burwell,  President,  Redwood Mortgage
Corporation, General Partner, certify that to the best of my knowledge:

     (1) The Report fully  complies  with the  requirements  of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and results of operations of the
partnership.


/s/ Michael R. Burwell
------------------------------
Michael R. Burwell, President,
Redwood Mortgage Corporation,
General Partner
March 30, 2004



                                       59