FORM 10-Q
                        SECURITIES & EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                   Quarterly Report Under Section 13 or 15 (d)
                     of the Securities Exchange Act of 1934


For Period Ended                  June 30, 1999
--------------------------------------------------------------------------------
Commission file number             33-30427
--------------------------------------------------------------------------------

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

       California                                             94-3094928
--------------------------------------------------------------------------------
(State or other jurisdiction of                               I.R.S. Employer
 incorporation of organization)                               Identification No.

              650 El Camino Real, Suite G, Redwood City, CA. 94063
--------------------------------------------------------------------------------
                     (address of principal executive office)

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

                                 NOT APPLICABLE
--------------------------------------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)

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

YES     XX                                               NO
  ------------                                              --------------------

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                   PROCEEDINGS DURING THE PRECEDING FIVE YEARS

     Indicate by check mark whether the  registrant  has filed all documents and
reports  required  to be filed by  Sections  12, 13 or 15 (d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court.

YES                    NO                    NOT APPLICABLE              X
  -------               ---------                          ----------------

                      APPLICABLE ONLY TO CORPORATE ISSUERS

     Indicate the number of shares  outstanding of each of the issuer's class of
common stock, as of the latest date.


                                 NOT APPLICABLE

<PAGE>
                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                                 BALANCE SHEETS
                         DECEMBER 31, 1998 (audited) and
                            JUNE 30, 1999 (unaudited)

                                     ASSETS

                                              Jun 30, 1999          Dec 31, 1998
                                               (unaudited)             (audited)
                                            --------------       ---------------

Cash                                              $365,763              $461,544
                                            --------------       ---------------

Accounts receivable:
  Mortgage Investments,
   secured by deeds of trust                    14,784,728            13,209,186
  Accrued Interest on Mortgage Investments         184,299               442,350
  Advances on Mortgage Investments                  52,610                39,733
  Accounts receivables, unsecured                  243,118               242,493
                                            --------------       ---------------
                                                15,264,755            13,933,762

  Less allowance for doubtful accounts             999,755               787,042
                                            --------------       ---------------
                                                14,265,000            13,146,720
                                            --------------       ---------------

Real estate owned, acquired through
 foreclosure, held for sale                        358,052               397,396
                                            --------------       ---------------

                                               $14,988,815           $14,005,660
                                            ==============       ===============

                        LIABILITIES AND PARTNERS' CAPITAL


Liabilities:
  Notes payable - bank line of credit           $3,500,000            $1,912,663
  Accounts payable and accrued expenses              4,334                12,547
  Deferred Interest                                      0               131,743
                                             -------------        --------------
                                                 3,504,334             2,056,953
                                             -------------        --------------

Partners' Capital
  Limited partners' capital, subject to
  redemption (Note 4E):
     Net of formation loan receivable of $209,443
     and $253,387 for 1999, and 1998
     respectively                               11,472,503            11,936,729

  General partner' capital                          11,978                11,978
                                             -------------        --------------

           Total Partners' Capital              11,484,481            11,948,707
                                             -------------        --------------

           Total Liabilities and Partners'
           Capital                             $14,988,815           $14,005,660
                                             =============        ==============



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

                                           REDWOOD MORTGAGE INVESTORS VII
                                         (A California Limited Partnership)
                                                STATEMENTS OF INCOME
                        FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 1999 and 1998 (unaudited)

                                                     6 months         6 months          3 months         3 months
                                                      ended             ended            ended             ended
                                                     June 30,       June 30, 1998     Jun 30, 1999     June 30, 1998
                                                       1999
                                                   (unaudited)       (unaudited)      (unaudited)       (unaudited)

Revenues:
<S>                                                    <C>               <C>              <C>             <C>
    Interest on Mortgage Investments                   $902,185          $776,983         $485,336        $390,113
    Interest on bank deposits                             1,269             3,240              411           1,044
    Late charges                                         11,238             7,377           10,593           6,813
    Other                                                 4,068             5,858            2,067           2,888
                                                 --------------     -------------    -------------    ------------
                                                        918,760           793,458          498,407         400,858
                                                 --------------     -------------    -------------    ------------


Expenses:
    Interest on note payable - bank                     118,023            88,076           70,796          35,630
    Clerical costs through Redwood Mortgage Corp.        15,605            17,499            7,638           8,705
    Mortgage Servicing Fees                              85,904            58,999           54,341          32,586
    General Partner asset management fees                 7,579             8,219            3,752           4,074
    Provision for doubtful accounts and losses
    on real estate acquired  through foreclosure        212,713           185,091          131,182         111,693
    Professional Services                                19,621            18,350          (1,312)           1,408
    Printing, supplies and postage                        7,661             6,271            4,197           3,373
    Other                                                 4,043             4,408              747             500
                                                   ------------     -------------    -------------    ------------
                                                        471,149           386,913          271,341         197,969
                                                   ------------     -------------    -------------    -------------

Net income                                             $447,611          $406,545         $227,066        $202,889
                                                   ============    ==============    =============    ============

Net income:  to General Partners (1%)                    $4,476            $4,065           $2,271          $2,029
Net income:  to Limited Partners (99%)                  443,135           402,480          224,795         200,860
                                                   -------------   =============     =============    ============
                                                       $447,611          $406,545         $227,066        $202,889
                                                   =============   ==============    =============    ============

Net income per $1000 invested by Limited
  Partners for entire period:
  - where income is reinvested and compounded            $37.11            $31.00           $18.84          $15.49
                                                   -------------   --------------    -------------   -------------
  - where partner receives income in monthly             $36.55            $30.61           $18.72          $15.41
distributions                                      -------------   --------------    -------------   -------------






See accompanying notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
                                          REDWOOD MORTGAGE INVESTORS VII
                                        (A California Limited Partnership)
                                    STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
                             FOR THE THREE YEARS ENDED DECEMBER 31, 1998 (audited) AND
                                  THE SIX MONTHS ENDED JUNE 30, 1999 (unaudited)


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

                                            Capital
                                            Account          Unallocated         Formation
                                            Limited          Syndication            Loan
                                           Partners             Costs            Receivable           Total
                                         --------------     ---------------    ---------------    --------------

<S>                                        <C>                   <C>               <C>              <C>
Balances at December 31, 1995              $14,216,032           ($13,588)         ($517,051)       $13,685,393

Formation Loan collections                           0                   0             62,225            62,225
Net income                                     850,508                   0                  0           850,508
Allocation of syndication costs               (13,588)              13,588                  0                 0
Early withdrawal penalties                    (37,345)                   0             25,663          (11,682)
Partners' withdrawals                      (1,013,078)                   0                  0       (1,013,078)
                                         --------------     ---------------    ---------------    --------------

Balances at December 31, 1996              $14,002,529                  $0         ($429,163)       $13,573,366

Formation Loan collections                           0                   0             60,223            60,223
Net Income                                     818,610                   0                  0           818,610
Early withdrawal penalties                    (40,258)                   0             27,665          (12,593)
Partners' withdrawals                      (1,572,037)                   0                  0       (1,572,037)
                                         --------------     ---------------    ---------------    --------------

Balances at December 31, 1997              $13,208,844                  $0         ($341,275)       $12,867,569

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

Balances at December 31, 1998              $12,190,116                  $0         ($253,387)       $11,936,729

Formation Loan collections                           0                   0             37,369            37,369
Net Income                                     443,135                   0                  0           443,135
Early withdrawal penalties                     (9,568)                   0              6,575           (2,993)
Partners' withdrawals                        (941,737)                   0                  0         (941,737)
                                         --------------     ---------------    ---------------    --------------

Balances at June 30, 1999                  $11,681,946                  $0         ($209,443)       $11,472,503
                                         ==============     ===============    ===============    ==============




See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
                                    REDWOOD MORTGAGE INVESTORS VII
                                        (A California Limited Partnership)
                                    STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
                             FOR THE THREE YEARS ENDED DECEMBER 31, 1998 (audited) AND
                                  THE SIX MONTHS ENDED JUNE 30, 1999 (unaudited)


                                                                       PARTNERS' CAPITAL
                                         ------------------------------------------------------------------------------
                                                         GENERAL PARTNERS' CAPITAL
                                         ----------------------------------------------------------
                                          Capital Account         Unallocated                               Total
                                         General Partners      Syndication Costs                          Partners'
                                                                                          Total            Capital
                                         ------------------    -------------------     ------------    ----------------

<S>                                                <C>                     <C>             <C>             <C>
Balances at December 31, 1995                      $11,978                 $(137)          $11,841         $13,697,234

Formation Loan collections                               0                      0                0              62,225
Net income                                           8,591                      0            8,591             859,099
Allocation of syndication costs                      (137)                    137                0                   0
Early withdrawal penalties                               0                      0                0            (11,682)
Partners' withdrawals                              (8,454)                      0          (8,454)         (1,021,532)
                                         ------------------    -------------------     ------------    ----------------

Balances at December 31, 1996                      $11,978                     $0          $11,978         $13,585,344

Formation Loan collections                               0                      0                0              60,223
Net income                                           8,269                      0            8,269             826,879
Early withdrawal penalties                               0                      0                0            (12,593)
Partners' withdrawals                              (8,269)                      0          (8,269)         (1,580,306)
                                         ------------------    -------------------     ------------    ----------------

Balances at December 31, 1997                      $11,978                     $0          $11,978         $12,879,547

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

Balances at December 31, 1998                      $11,978                     $0          $11,978         $11,948,707

Formation Loan collections                               0                      0                0              37,369
Net  income                                          4,476                      0            4,476             447,611
Early withdrawal penalties                               0                      0                0             (2,993)
Partners' withdrawals                              (4,476)                      0          (4,476)           (946,213)
                                         ------------------    -------------------     ------------    ----------------

Balances at June 30, 1999                          $11,978                     $0          $11,978         $11,484,481
                                         ==================    ===================     ============    ================



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

<TABLE>
                                         REDWOOD MORTGAGE INVESTORS VII
                                        (A California Limited Partnership)
                                             STATEMENTS OF CASH FLOWS
                            FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (unaudited)

                                                                           6 months ended        6 months ended
                                                                           June 30, 1999         June 30, 1998
                                                                            (unaudited)           (unaudited)
                                                                          -----------------     -----------------
Cash flows from operating activities:
  <S>                                                                             <C>                   <C>
  Net income                                                                      $447,611              $406,545
  Adjustments to reconcile net income to net cash provided by
      operating activities:
    Provision for doubtful accounts                                                126,748               255,896
    Provision for losses on real estate held for sale                               85,965                     0
    Early withdrawal penalty credited to income                                    (2,993)               (4,958)
    (Increase) decrease in accrued interest & advances                             245,174               125,826
    Increase (decrease) in accounts payable and accrued expenses                   (8,213)                25,528
    Increase (decrease) in deferred interest on Mortgage Investments             (131,743)              (69,316)
                                                                          -----------------     -----------------

      Net cash provided by operating activities                                    762,549               739,521
                                                                          -----------------     -----------------

Cash flows from investing activities:
    Principal collected on mortgage investments                                  3,426,176             3,344,181
    Mortgage Investments made                                                  (5,001,718)           (2,654,729)
    Additions to Real Estate held for sale                                         (3,535)              (24,447)
    Dispositions of real estate held for sale                                       42,879               310,227
    Investment in partnership                                                            0               346,017
    Accounts receivable - Unsecured (Interest and proceeds)                          (625)                   362
                                                                          -----------------     -----------------

      Net cash provided by (used in) investing activities                      (1,536,823)             1,321,611
                                                                          -----------------     -----------------

Cash flows from financing activities:
  Increase (decrease) in note payable-bank                                       1,587,337             (909,153)
  Formation loan collections                                                        37,369                33,404
  Partners withdrawals                                                           (946,213)             (858,782)
                                                                          -----------------
                                                                                                -----------------

      Net cash provided by (used in) financing activities                          678,493           (1,734,531)
                                                                          -----------------     -----------------

Net increase (decrease) in cash                                                   (95,781)               326,601

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

Cash - end of period                                                              $365,763              $847,438
                                                                          =================     =================





See accompanying notes to financial statements.
</TABLE>
<PAGE>
                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1998(audited) AND
                            JUNE 30, 1999 (unaudited)

NOTE 1 - ORGANIZATION AND GENERAL

     Redwood Mortgage Investors VII, (the "Partnership") is a California Limited
Partnership,  of which the General Partners are D. Russell  Burwell,  Michael R.
Burwell and Gymno  Corporation,  a California  corporation owned and operated by
the individual  General  Partners.  The  Partnership  was organized to engage in
business  as a  mortgage  lender  for the  primary  purpose  of making  Mortgage
Investments  secured  by  Deeds of Trust on  California  real  estate.  Mortgage
Investments  are being  arranged  and  serviced by Redwood  Mortgage  Corp.,  an
affiliate of the General Partners.  At September 30, 1992, the offering had been
closed with contributed capital totaling $11,998,359 for limited partners.

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

A. Sales Commissions - Formation Loan

     Sales  commissions  ranging from 0% (Units sold by General Partners) to 10%
of the gross proceeds were paid by Redwood Mortgage, an affiliate of the General
Partners  that  arranges and services the Mortgage  Investments.  To finance the
sales  commissions,  the Partnership was authorized to loan to Redwood  Mortgage
Corp.,  an amount not to exceed  8.3% of the gross  proceeds  provided  that the
Formation  Loan  for the  minimum  offering  period  could  be 10% of the  gross
proceeds for that period.  The Formation  Loan is unsecured and is being repaid,
without  interest,  in  installments  of  principal,  over  a  ten  year  period
commencing  January 1, 1992. At December 31, 1992,  Redwood  Mortgage  Corp. had
borrowed  $914,369 from the Partnership to cover sales  commissions  relating to
$11,998,359  Limited  Partner  contributions  (7.62%).  Through  June 30,  1999,
$704,926  including  $130,698  in early  withdrawal  penalties,  had been repaid
leaving  a  balance  of  $209,443.  The  Formation  Loan,  which  is due from an
affiliate of the General  Partners',  has been deducted  from Limited  Partners'
capital in the balance  sheet.  As amounts are collected  from Redwood  Mortgage
Corp., the deduction from capital will be reduced.

B. Other Organizational and Offering Expenses

     Organizational  and  offering  expenses,   other  than  sales  commissions,
(including printing costs,  attorney and accountant fees, and other costs), were
paid by the Partnership. Such costs were limited to 10% of the gross proceeds of
the offering or $500,000  whichever was less.  The General  Partners were to pay
any amount of such expenses in excess of 10% of the gross proceeds or $500,000.

     Organization  costs of  $10,102  and  syndication  costs of  $415,692  were
incurred by the  Partnership.  The sum of organization  and  syndication  costs,
$425,794,  approximated 3.55% of the gross proceeds contributed by the Partners.
Both the  Organization  and  Syndication  Costs  have been fully  amortized  and
allocated to the Partners.
<PAGE>
                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1998(audited) AND
                            JUNE 30, 1999 (unaudited)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Accrual Basis

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

B. Management Estimates

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

C. Mortgage Investments, Secured by Deeds of Trust

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

     Financial   Accounting  Standards  Board  Statements  (SFAS)  114  and  118
(effective  January 1, 1995) provide that if the probable  ultimate  recovery of
the carrying amount of a mortgage  investment,  with due  consideration  for the
fair value of  collateral,  is less than the  recorded  investment,  and related
amount due and the  impairment  is considered  to be other than  temporary,  the
carrying  amount of the investment  (cost) shall be reduced to the present value
of future cash flows.  The adoption of these  statements did not have a material
effect on the  financial  statements  of the  Partnership  because  that was the
valuation method previously used on impaired Mortgage Investments.

     At June 30, 1999 and at December 31, 1998, and 1997, reductions in the cost
of Mortgage  Investments  categorized  as impaired by the  Partnership  totalled
$38,634,  $38,634,  and $0  respectively.  The  reduction  in  stated  value was
accomplished by increasing the allowance for doubtful accounts.

     As presented in Note 10 to the  financial  statements  as of June 30, 1999,
the average  mortgage  investment to appraised value of security at the time the
Mortgage  Investments were consummated was 62.87%. When a Mortgage Investment is
valued  for  impairment  purposes,  an  updating  is  made in the  valuation  of
collateral security.  However,  such a low loan to value ratio tends to minimize
reductions for impairment.

D. Cash and Cash Equivalents

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

E. Real Estate Owned, Held for Sale

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

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1998(audited) AND
                            JUNE 30, 1999 (unaudited)

     The following  schedule  reflects the costs of real estate acquired through
foreclosure and the recorded reductions to estimated fair values, less estimated
costs to sell as of June 30,1999, and December 31, 1998 and 1997:

                                June 30,        December 31,        December 31,
                                  1999             1998                1997
                              ------------     -------------       -------------

Costs of properties               $625,198          $765,986            $906,499
Reduction in value               (267,146)         (348,590)           (219,360)
REO prior lien                           0          (20,000)                   0
                              ------------     -------------       -------------

Fair value reflected in
financial statements              $358,052          $397,396            $687,139
                              ------------     -------------       -------------

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

F. Investment in Partnership (see note 5)


G. Income Taxes

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

H. Organization and Syndication Costs

     The Partnership  bears its own  organization  and syndication  costs (other
than certain sales  commissions  and fees described  above)  including legal and
accounting expenses,  printing costs, selling expenses, a 1% wholesale brokerage
fee and filing fees.  Organizational  costs of $10,102 were capitalized and were
amortized  over a five year period.  Syndication  costs of $415,692 were charged
against partners' capital and were allocated to individual  partners  consistent
with the Partnership Agreement.

I. Allowance for Doubtful Accounts

     Mortgage  Investments and the related accrued  interest,  fees and advances
are  analyzed  on a  continuous  basis  for  recoverability.  Delinquencies  are
identified and followed as part of the Mortgage  Investment  system. A provision
is made for doubtful  accounts to adjust the allowance for doubtful  accounts to
an amount  considered by management to be adequate,  with due  consideration  to
collateral value, to provide for unrecoverable  accounts  receivable,  including
impaired mortgage investments, other mortgage investments,  accrued interest and
advances on mortgage investments, and other accounts receivable (unsecured). The
composition  of the  allowance  for doubtful  accounts as of June 30, 1999,  and
December 31, 1998, and 1997 was as follows:

<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1998(audited) AND
                            JUNE 30, 1999 (unaudited)

                                        June 30,      December 31,  December 31,
                                          1999           1998           1997
                                     -------------   -------------   -----------

Impaired Mortgage Investments              $38,634         $38,634            $0
Other Mortgage Investments                 819,012         606,299       284,738
Accounts receivable, unsecured             142,109         142,109       140,000
                                     =============   =============   ===========
                                          $999,755        $787,042      $424,738
                                     =============   =============   ===========

J. Net Income Per $1,000 Invested

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

NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES

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

A. Mortgage Brokerage Commissions

     Redwood Mortgage Corp. receives mortgage brokerage commissions for services
in connection with the review, selection, evaluation,  negotiation and extension
of  Mortgage  Investments  in an amount up to 12% of the  principal  through the
period ending 6 months after the termination  date of the offering.  Thereafter,
commissions  are limited to an amount not to exceed 4% of the total  Partnership
assets per year. Such  commissions  are paid by the borrowers,  and thus, not an
expense of the Partnership.

B. Mortgage Servicing Fees

     Redwood Mortgage Corp. also receives monthly mortgage  servicing fees of up
to 1/8 of 1% (1.5% annual) of the unpaid principal,  or such lesser amount as is
reasonable and customary in the geographic area where the property  securing the
Mortgage Investment is located. Mortgage servicing fees of $85,904, $83,559, and
$97,267 were  incurred  for six months  through June 30, 1999 and for years 1998
and 1997, respectively.

C. Asset Management Fee

     The General Partners  receive a monthly fee for managing the  Partnership's
Mortgage  Investment  portfolio  and  operations of up to 1/32 of 1% of the "net
asset value" (3/8 of 1% annual). No management fees were incurred for year 1997.
For six months  through June 30, 1999, and for the year ended December 31, 1998,
management  fees of $7,579 and $16,141,  respectively,  were paid to the General
Partners.

D. Other Fees

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

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1998(audited) AND
                            JUNE 30, 1999 (unaudited)

E. Income and Losses

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

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

G. General Partners Contributions

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

NOTE 4 - OTHER PARTNERSHIP PROVISIONS

A. Applicant Status

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

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

B. Term of the Partnership

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

C. Election to Receive Monthly, Quarterly or Annual Distributions

     Upon subscriptions,  investors elected either to receive monthly, quarterly
or  annual  distributions  of  earnings  allocations,  or to allow  earnings  to
compound for at least a period of 5 years.

D. Profits and Losses

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

<PAGE>
                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1998(audited) AND
                            JUNE 30, 1999 (unaudited)

E. Liquidity, Capital Withdrawals and Early Withdrawals

     There  are  substantial   restrictions  on  transferability  of  Units  and
accordingly an investment in the Partnership is illiquid.  Limited  Partners had
no right to  withdraw  from the  Partnership  or to obtain  the  return of their
capital  account  for at least one year from the date of purchase of Units which
in all  instances had accrued as of June 30, 1999. In order to provide a certain
degree of liquidity to the Limited Partners after the one-year  period,  Limited
Partners may withdraw all or part of their Capital Accounts from the Partnership
in four quarterly installments beginning on the last day of the calendar quarter
following the quarter in which the notice of  withdrawal is given,  subject to a
10% early  withdrawal  penalty.  The 10%  penalty  is  applicable  to the amount
withdrawn as stated in the Notice of  Withdrawal  and will be deducted  from the
Capital  Account and the balance  distributed  in four  quarterly  installments.
Withdrawal  after the one-year  holding period and before the five-year  holding
period was permitted only upon the terms set forth above.

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

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

F. Guaranteed Interest Rate For Offering Period

     During the period commencing with the day a Limited Partner was admitted to
the  Partnership  and ending 3 months after the offering  termination  date, the
General  partners  guaranteed  an  interest  rate equal to the greater of actual
earnings from mortgage operations or 2% above The Weighted Average cost of Funds
Index for the Eleventh  District Savings  Institutions  (Savings & Loan & Thrift
Institutions)  as  computed  by the  Federal  Home  Loan  Bank of San  Francisco
monthly, up to a maximum interest rate of 12%. The guarantee amounted to $12,855
and $5,195 in 1990 and 1991, respectively.  In 1992 and 1993, actual realization
exceeded the  guaranteed  amount each month.  Beginning  with fiscal years after
1993, the guarantee no longer applies.

NOTE 5 - INVESTMENT IN PARTNERSHIP

     The  Partnership's  interest in land  located in East Palo Alto,  CA.,  was
acquired through foreclosure.  The Partnership's interest was invested with that
of two other  Partnerships.  The Partnerships had been attempting to develop the
property into single family residences.  Significant  community  resistance,  as
well as environmental, and fish and wildlife concerns affected efforts to obtain
the required  approvals.  The  Partnership,  in resolving  disputes  which arose
during the course of the Partnership's attempt to obtain entitlements to develop
the property,  entered into agreements on May 8, 1998 with  Rhone-Poulanc,  Inc.
These agreements,  among other things,  restrict the property to non-residential
uses, provide for appropriate indemnifications,  and include other consideration
including the payment of cash. The Partnership  still retains  liability for the
remediation of pesticide contamination affecting the property.  Investigation of
remediation  options are ongoing.  At this time management does not believe that
remediation of the pesticide contaminants will have a material adverse effect on
the  financial  condition  of the  Partnership.  As of December  31,  1998,  the
Partnership had recovered $70,805 in excess of its costs.
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1998(audited) AND
                            JUNE 30, 1999 (unaudited)

NOTE 6 - LEGAL PROCEEDINGS

     The  Partnership  is not a sole  defendant in any legal  actions.  However,
legal actions against  borrowers and other involved  parties have been initiated
by the Partnership to recover payments  against  unsecured  accounts  receivable
totalling  $243,118  at June 30,  1999.  The  Partnership,  along with  numerous
others,  including a developer,  a contractor and other  lenders,  is named as a
defendant  in a lawsuit  involving  the  Partnership's  attempt to  recover  its
investment in real estate acquired through foreclosure.  Management  anticipates
that the ultimate results of these cases will not have a material adverse effect
on the net assets of the Partnership,  with due consideration  having been given
in arriving at the allowance for doubtful accounts.

NOTE 7 - NOTE PAYABLE BANK - LINE OF CREDIT

     The  Partnership  had a  bank  line  of  credit  secured  by  its  Mortgage
Investment  portfolio  of up to  $3,000,000  at .50% over  prime.  The  balances
outstanding as of December 31, 1998, and December 31, 1997 were $1,912,663,  and
$2,341,816  respectively,  and the interest rate was 9.00% (8.50% prime + .50%).
This line of credit  expired in December,  1998,  but was  formally  extended to
March  31,  1999.  In  1999 a new  line  of  credit  was  secured  with  another
institution. The new borrowing limit is $3,500,000, at prime, plus .25% (7.75% +
 .25% = 8.00%). The balance outstanding as of June 30, 1999 is $3,500,000.

NOTE 8 - INCOME TAXES

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

                                       June 30,        Dec. 31,        Dec. 31,
                                        1999            1998             1997
                                    -------------   ------------    ------------

Net assets - Partners' Capital
 per financial statements             $11,484,481    $11,948,707     $12,879,547

Formation Loan receivable                 209,443        253,387         341,275
Allowance for doubtful accounts           999,755        787,042         424,738
                                    =============   ============    ============
Net assets tax basis                  $12,693,679    $12,989,136     $13,645,560
                                    =============   ============    ============

     In 1998,  approximately  68% of taxable  income was allocated to tax exempt
organizations i.e.,  retirement plans. Such plans do not have to file income tax
returns unless their  "unrelated  business  income" exceeds  $1,000.  Applicable
amounts become taxable when distribution is made to participants.

NOTE 9 - FAIR VALUE OF FINANCIAL 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) The  Carrying  Value  of  Mortgage  Investments  - (see  note 2 (c)) is
$14,784,728.  The June 30, 1999, fair value of these  investments of $14,126,669
is estimated based upon projected cash flows discounted at the estimated current
interest  rates at  which  similar  Mortgage  Investments  would  be  made.  The
applicable  amount of the  allowance  for doubtful  accounts  along with accrued
interest and advances  related  thereto  should also be considered in evaluating
the fair value versus the carrying value.
<PAGE>
                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1998(audited) AND
                            JUNE 30, 1999 (unaudited)

NOTE 10 - ASSET CONCENTRATIONS AND CHARACTERISTICS

     The Mortgage  Investments  are secured by recorded deeds of trust.  At June
30, 1999,  there were 49 Mortgage  Investments  outstanding  with the  following
characteristics:

Number of Mortgage Investments outstanding                                    49
Total Mortgage Investments outstanding                               $14,784,728

Average Mortgage Investment outstanding                                 $301,729
Average Mortgage Investment as percent of total                            2.04%
Average Mortgage Investment as percent of Partners' Capital                2.63%

Largest Mortgage Investment outstanding                               $1,500,000
Largest Mortgage Investment as percent of total                           10.15%
Largest Mortgage Investment as percent of Partners' Capital               13.06%

Number of counties where security is located(all California)                  14

Largest percentage of Mortgage Investments in one county                  21.13%
Average Mortgage Investment to appraised value of security
 at time Mortgage Investment was consummated                              62.87%

Number of Mortgage Investments in foreclosure                                  1

     The following  categories of mortgage investments are pertinent at June 30,
1999, and December 31, 1998, 1997:
<TABLE>

                                                  June 30             December 31           December 31
                                               ---------------      ----------------      -----------------
                                                    1999                 1998                   1997
                                               ---------------      ----------------      -----------------

<S>                                                <C>                   <C>                    <C>
First Trust Deeds                                  $8,389,924            $8,638,976             $6,810,113
Second Trust Deeds                                  4,723,217             4,188,401              5,719,369
Third Trust Deeds                                   1,471,586               181,808                720,258
Fourth Trust Deeds                                    200,001               200,001                200,001
                                               ---------------      ----------------      -----------------
  Total mortgage investments                       14,784,728            13,209,186             13,449,741
Prior liens due other lenders                      15,935,184            12,728,867             17,951,579
                                                                    ----------------      -----------------
                                               ===============
  Total debt                                      $30,719,912           $25,938,053            $31,401,320
                                               ===============      ================      =================

Appraised property value at time of loan          $48,863,974           $42,393,561            $52,077,885
                                               ===============      ================      =================

Total investments as a percent of appraisals           62.87%                61.18%                 60.30%
                                               ===============      ================      =================

Investments by Type of Property

Owner occupied homes                                 $561,493              $746,334             $1,104,742
Non-Owner occupied homes                            1,518,179             1,691,016              1,464,596
Apartments                                            907,674               897,292              1,666,916
Commercial                                         11,797,382             9,874,544              9,213,487
                                               ===============      ================      =================
                                                  $14,784,728           $13,209,186            $13,449,741
                                               ===============      ================      =================
</TABLE>
<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1998(audited) AND
                            JUNE 30, 1999 (unaudited)

     Scheduled  maturity dates of mortgage  investments as of June 30, 1999, are
as follows:

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

                            1999                                      $2,471,313
                            2000                                       5,370,664
                            2001                                       3,884,000
                            2002                                       1,596,704
                            2003                                       1,139,111
                         Thereafter                                      322,936
                                                                 ===============
                                                                     $14,784,728
                                                                 ===============

     The scheduled maturities for 1999 include approximately  $1,255,313 in nine
mortgage  investments which are past maturity at June 30, 1999. Interest payment
on most of these Mortgage Investments are current.

     Seven Mortgage  Investments  with  principal  outstanding of $1,281,589 had
interest  payments  overdue in excess of 90 days. Two Mortgage  Investments with
principal  outstanding  of $231,966 were  considered  impaired at June 30, 1999.
That is interest accruals are no longer recorded thereon.

     The cash  balance  at June 30,  1999 of  $365,763  was in three  banks with
interest  bearing  balances  totalling  $331,608.  The  balances  exceeded  FDIC
insurance limits (up to $100,000 per bank) by $168,845.

<PAGE>
            MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

     On September 30, 1992, the Partnership  had sold  119,983.59  units and its
contributed  capital totaled  $11,998,359 of the approved  $12,000,000 issue, in
units of $100 each. As of that date, the offering was formally  closed.  At June
30, 1999, Partners' Capital totaled $11,484,481.

     At June 30, 1999, the Partnership Mortgage Investments outstanding totalled
$14,784,728.  This  represents  an  increase  of  $1,575,542  from the  12/31/98
Mortgage Investments balance. This increase in Mortgage Investments  outstanding
as of 6/30/99 was chiefly due to an increase in Note Payable-Bank of $1,587,337,
reinvestment of earnings of $202,227,  reduction in real estate owned by $39,344
and investment of cash. The ability of the Partnership to invest in new Mortgage
Investments  during six months  through June 30, 1999,  was partially  offset by
withdrawals  of income and  capital by the  Partners  in the amount of  $949,033
including  early  withdrawal  penalties.  Mortgage  Investments  increased  from
$12,036,293 from 1996 to $13,449,741 in 1997, an increase of $1,413,448  chiefly
due to the ability of the General Partners to reduce the net amounts invested in
real estate owed (REO) during the twelve months,  by increasing bank credit line
borrowing to $2,341,816  as of December 31, 1997 from  $1,175,000 as of December
31,  1996,  by  reinvesting  of  earnings of $419,231  and  investment  of cash.
Mortgage  Investments  decreased  slightly,  by $346,348,  during the year ended
December 31, 1996,  from  $12,382,641 as of December 31, 1995, to $12,036,293 as
of December 31, 1996. This Mortgage Investment  reduction was due primarily to a
reduced usage of the bank line of credit. The Partnership began funding Mortgage
Investments  on December  27, 1989,  and as of June 30,  1999,  had credited the
Partners  accounts with income at an average  annualized  (compounded)  yield of
7.75%.

     Currently,  general mortgage  interest rates are lower than those prevalent
at  the  inception  of the  Partnership.  New  Mortgage  Investments  are  being
originated  at these lower  interest  rates.  The result is a  reduction  of the
average  return  across the entire  portfolio  held by the  Partnership.  In the
future, interest rates likely will change from their current levels. The General
Partners  cannot at this time predict at what levels  interest  rates will be in
the future. The General Partners believe the rates charged by the Partnership to
its borrowers will change significantly from the beginning of 1999 over the next
twelve months. As of June 30, 1999 the Partnership Real Estate Owned account and
the  investment  in  Partnership  account  have been reduced to $358,052 and $0,
respectively.  These accounts had combined balances of $397,396,  $1,033,156 and
$1,710,739   for  the  years  ended  December  31,  1998  and  1997,  and  1996,
respectively.  The conversion of these  non-earning  assets to income  producing
assets will generate  increased income. The overall effect of these developments
will  allow the  Partnership  to  increase  the  annualized  yields  paid by the
Partnership  in  future  quarters.  The  General  Partners  anticipate  that the
annualized yield for the year, 1999, will be higher than the previous year.

     The  Partnership had a line of credit with a commercial bank secured by its
Mortgage  Investments to a limit of $3,000,000,  at a variable interest rate set
at one half  percent  above the prime rate.  As of  December  31,  1998,  it had
borrowed  $1,912,663.  This  line of  credit  expired  on March  31,  1999.  The
Partnership  has  successfully  negotiated  for a  replacement  line of  credit,
effective January,  1999, with another  institution for a limit of $3,500,000 at
prime  plus .25%  (7.75% + .25% = 8%).  This  added  source  of funds  helped in
maximizing  the  Partnership  yield by allowing the  Partnership to minimize the
amount of funds in lower yield  investment  accounts when  appropriate  Mortgage
Investments are not currently available.  Since most of the Mortgage Investments
made by the Partnership bear interest at a rate in excess of the rate payable to
the bank which  extended  the line of credit,  once the required  principal  and
interest  payments  on the line of  credit  are paid to the bank,  the  Mortgage
Investments   funded  using  the  line  of  credit  generate   revenue  for  the
Partnership.  As of June 30, 1999, the  Partnership is current with its interest
payments on the line of credit. In 1996, interest payments decreased to $127,454
reflecting the  Partnership's  overall smaller average  outstanding  credit line
balance due primarily to a large number of Mortgage Investment payoffs.  For the
years ended December 31, 1997 and 1998,  interest paid was $198,316 and $170,867
respectively,  reflecting an overall greater  average  utilization of the credit
line from the previous three years.

<PAGE>
     The  Partnership's  income and  expenses,  accruals and  delinquencies  are
within the normal range of the General Partners' expectations,  based upon their
experience in managing  similar  partnerships  over the last  twenty-two  years.
Mortgage  Servicing  Fees  decreased  from $97,267 in 1996,  to $83,559 in 1997,
primarily due to timing of receipt of payments from borrowers and actual payment
of the Mortgage  Servicing  Fee.  Mortgage  Servicing  Fees increased in 1998 to
$128,493 from $83,559 in 1997 chiefly due to an increase during the 1998 year of
the monthly loan service fee to 1/12% (1% per year). For six months through June
30, 1999,  Mortgage Servicing Fees incurred were $85,904.  Asset Management Fees
increased  from $0 in 1997 and $0 in 1996 to $16,141 in 1998.  Asset  Management
Fees for six months under review were $7,579. All other expenses fluctuated in a
very close range except for Interest on Note  Payable - bank and  Provision  for
Doubtful  Accounts and losses on Real Estate acquired  through  foreclosure each
discussed  elsewhere  in this  Management  Discussion  and Analysis of Financial
Condition and Results of Operations.  Borrower foreclosures,  as set forth under
Results of  Operations,  are a normal aspect of  Partnership  operations and the
General  Partners  anticipate  that  they  will not have a  material  effect  on
liquidity.  As of June 30, 1999, there was one property in foreclosure.  Cash is
constantly  being generated from interest  earnings,  late charges,  pre-payment
penalties, amortization of Mortgage Investments and pay-off on notes. Currently,
cash  flow  exceeds   Partnership   expenses,   earnings   and  capital   payout
requirements.  Excess  cash flow will be  invested  in new  Mortgage  Investment
opportunities  when  available,  used to reduce the  Partnership  credit line or
other Partnership business.

     The General Partners  regularly review the Mortgage  Investment  portfolio,
examining the status of delinquencies,  the underlying collateral securing these
properties,  the REO expenses and sales  activities,  borrowers payment records,
etc.  Data on the local real estate market and on the national and local economy
are  studied.  Based upon this  information  and other data,  loss  reserves are
increased  or  decreased.  Because  of the  number of  variables  involved,  the
magnitude of the possible swings and the General  Partners  inability to control
many of these factors,  actual results may and do sometimes differ significantly
from  estimates  made by the General  Partners.  Management  provided  $419,437,
$434,495  and $423,054 as  provision  for doubtful  accounts for the years ended
December 31, 1996, 1997 and 1998,  respectively.  During six months through June
30, 1999, the Partnership provided $212,713 for doubtful accounts. The provision
for  doubtful  account  was  increased  by $15,058 in 1997,  to  $434,495 as the
selling of REO accumulated primarily in the California recession of the early to
mid 1990's  netted less  proceeds than  originally  anticipated  and the General
Partners  further  refinement of  anticipated  sales  proceeds on remaining REO,
collections of unsecured receivables,  and additional provisions for unspecified
losses. The provision for doubtful accounts was decreased by $11,441 to $423,054
in 1998. This decrease  reflected  reduced  expected REO anticipated  losses and
improved collections of secured and unsecured receivables.

     The May  1999  issue  of  "Economic  Advisory  Council",  published  by the
California Chamber of Commerce, said the following about the California economy:

     "The state's  economy  continued to grow at a solid pace in early 1999 and,
despite a few areas of emerging  weakness,  will have another above average year
in 1999.  Last year,  payroll  employment  rose 3.6 percent - the biggest annual
gain of the 1990's. This year, it looks like employment will be up an impressive
3 percent to 3.5 percent. The better-than-expected  situation results from three
main factors:"

     "First,  the Asian  economic and financial  crisis didn't hit  California's
economy as badly as feared and now  appears to be  stabilizing  or even  turning
up."

     "Second,  the U.S.  economy has been  stronger than had been  expected.  It
expanded  at about a 4  percent  rate in 1998 in real  terms  and  continued  to
maintain good momentum into 1999."

     "Third,  after some volatility,  the financial markets continued to perform
well,  which  gave a high  level  of  confidence  on which  to base  buying  and
investment decisions. Given that confidence, consumers and business continued to
buy and invest."

     "One  measure of the strong  growth  within the state is that  payroll  tax
withholding  was 14.5  percent  higher in the first  quarter of 1999 than it was
four  quarters  ago.  That very large  gain is  reflective  of the strong  labor
markets,  good  profitability that fed bonuses and big gains in equities markets
that were realized through stock options."
<PAGE>
"Within the state, growth varies by regions."

     "The  southern  metropolitan  areas (San Diego,  Orange,  Riverside and San
Bernardino  counties) were very strong in 1998.  Weakness in aerospace will be a
negative influence,  but booming  construction should be a major stimulus."

     "Los Angeles  continues to expand,  but at a slower pace than the state. It
is losing  some of its apparel  manufacturing  to lower cost  venues."

     "The San Francisco  Bay Area has very tight labor  markets and,  though the
high technology  manufacturing is not too strong,  the software industry is very
robust."

High Technology

     "This key  industry is seeing the leading  signs of better  times.  Asia is
coming back, in terms of orders,  and there is now a year-over-year  increase in
the value of orders. Those trends are welcome news."

     "The industry  still suffers from excess  capacity of  production,  but the
size of the  problem  is  diminishing.  The Y2K issue is still  driving a higher
level of  employment  and spending and that  strength  should  continue over the
year."

     To the Partnership, the above evaluation of the California economy means an
increase in property values, job growth, personal income growth, etc., which all
translates  into  more  loan  activity,  which of  course,  is  healthy  for the
Partnership' lending activity.

     The  Partnership's  interest  in land  located in East Palo  Alto,  Ca, was
acquired through foreclosure.  The Partnership'  interest was invested with that
of two other Partnerships. The Partnership's basis of $ 0, $346,017 and $242,394
for the years ended  December 31,  1998,  1997 and 1996  respectively,  has been
invested  with  that  of  two  other  Partnerships.  The  Partnership  had  been
attempting  to  develop  property  into an  approximately  63 units  residential
subdivision,   (the   "Development").   The  proposed   Development  had  gained
significant  public  awareness  as a result of certain  environmental,  fish and
wildlife,   density,   and  other  concerns.   Incorporated  into  the  proposed
Development  were various  mitigation  measures  which  included  remediation of
hazardous  material  existing on the property,  and  protection  of  potentially
affected  species due to the  proximity  of the  property  to the San  Francisco
Baylands.  These  issues  and others  sparked  significant  public  controversy.
Opposition against and support for the proposed Development existed. Among those
in opposition to the project was Rhone Poulanc,  Inc. which is responsible for a
nearby  hazardous  waste site.  Rhone Poulanc,  Inc. has been  identified as the
Responsible Party for the Arsenic  Contamination which affected a portion of the
property.  On May 8, 1998, the  Partnership,  in order to resolve disputes which
arose  during  the  course  of the  attempts  to  obtain  entitlements  for this
Development,  entered into agreements with Rhone-Poulanc,  Inc which among other
things,   restricted  the  property  to  non  residential  uses,   provided  for
appropriate  indemnification and included other considerations  including a cash
payment to the  Partnership.  The  Partnership  has  retained  ownership  of the
property,  which is subject to various deed  restrictions,  options and or first
rights of refusal.  The General  Partners  are pleased  with this outcome to the
residential  development  attempt.  The General  Partners may now explore  other
available options with respect to alternative uses for the property. In order to
pursue these options,  rezoning of the property's  existing  residential  zoning
classification  will be  required.  The  Partnership  is  continuing  to explore
remediation  options  available to mitigate the pesticide  contamination,  which
affects the property.  This pesticide  contamination appears to be the result of
agricultural  operations  by  prior  owners,  and is  unrelated  to the  Arsenic
Contamination for which  Rhone-Poulanc,  Inc. remains  responsible.  The General
Partners  do not  believe  at  this  time  that  remediation  of  the  pesticide
contaminants  will have a material adverse effect on the financial  condition of
the Partnership.

     At the time of subscription to the  Partnership,  Limited  Partners made an
irrevocable decision to either take distributions of earnings monthly, quarterly
or annually or to compound  earnings  in their  capital  account.  For the years
ended  December 31, 1996,  December 31, 1997,  December 31, 1998, and six months
through June 30, 1999, the Partnership made distributions of earnings to Limited
Partners after allocation of syndication costs of, $327,887,  $399,379, $456,358
and $240,908,  respectively.  Distribution of Earnings to Limited Partners after
allocation of syndication costs for the years ended December 31, 1996,  December
31,  1997,  December 31, 1998 and six months  through June 30, 1999,  to Limited
Partners'  capital accounts and not withdrawn was $522,621,  $419,231,  $381,747
and $202,227, respectively. As of December 31, 1996, December 31, 1997,

<PAGE>

     December 31, 1998 and six months  through June 30, 1999,  Limited  Partners
electing to withdraw  earnings  represented  36%,  44%,  53%, 54% and 56% of the
Limited Partners capital.

     The Partnership  also allows the Limited Partners to withdraw their capital
account  subject  to  certain   limitations  (see   liquidation   provisions  of
Partnership  Agreement).  For the years ended  December 31,  1996,  December 31,
1997,  December  31,  1998,  and six months  through  June 30,  1999,  $412,798,
$475,348,  $381,458 and $119,294,  respectively,  were liquidated subject to the
10% penalty for early  withdrawal.  These  withdrawals  are within the  normally
anticipated  range that the General Partners would expect in their experience in
this and other partnerships. The General Partners expect that a small percentage
of Limited Partners will elect to liquidate their capital accounts over one year
with a 10% early withdrawal penalty.  In originally  conceiving the Partnership,
the General  Partners wanted to provide Limited  Partners  needing their capital
returned a degree of liquidity. Generally, Limited Partners electing to withdraw
over one  year  need to  liquidate  investment  to raise  cash.  The  trend  the
Partnership is  experiencing in withdrawals by Limited  Partners  electing a one
year  liquidation  program  represents  a small  percentage  of Limited  Partner
capital as of December 31, 1996,  December 31, 1997,  December 31, 1998 and June
30, 1999, respectively and is expected by the General Partners to commonly occur
at these levels.

     Additionally,  for the years ended  December 31,  1996,  December 31, 1997,
December  31, 1998 and six months  through June 30,  1999,  $318,902,  $737,568,
$1,019,017 and $591,103,  respectively,  were liquidated by Limited Partners who
have elected a liquidation  program over a period of five years or longer.  This
ability to  withdraw  after five  years by  Limited  Partners  has the effect of
providing  Limited Partner  liquidity  which the General  Partners then expect a
portion of the Limited Partners to avail themselves of. This has the anticipated
effect of the Partnership growing, primarily through reinvestment of earnings in
years one through five. The General Partners expect to see increasing numbers of
Limited Partner withdrawals in years five through eleven, at which time the bulk
of those Limited Partners who have sought withdrawal have been liquidated. After
year eleven,  liquidation  generally subsides and the Partnership  capital again
tends to increase.

     Actual  liquidation  of both  capital  and  earnings  from year five (1994)
through  year nine  (1998),  and six  months  through  June 30,  1999,  is shown
hereunder:
                                  Years ended December 31,

                      1994                  1995                  1996
                  -------------         --------------        --------------
Earnings              $263,206                270,760               336,341
Capital*              $340,011                184,157               722,536
                  -------------         ==============        ==============
Total                 $603,217               $454,917            $1,058,877
                  ==============        ==============        ==============

                                                                  6 months
                                                                   through
                       1997                  1998                 6/30/99
                  -------------         --------------        --------------
Earnings               399,379                456,358               240,908
Capital*             1,212,916              1,400,475               710,397
                  -------------         --------------        --------------
Total               $1,612,295             $1,856,833              $951,305
                  =============         ==============        ==============

* These amounts represent gross of early withdrawal penalties.

     The Year 2000 will be a challenge for the entire world, with respect to the
conversion of existing computerized operations. The Partnership is completing an
assessment  of Year 2000  hardware and software  issues.  The hardware  issue is
fully complete but the software issue is not. The Partnership  relies on Redwood
Mortgage  Corp., an affiliate of the  Partnership,  and third parties to provide
loan and investor services and other  computerized  functions,  affected by Year
2000  computerized  operations.  Major services  provided to the  Partnership by
these  companies  are loan  servicing,  accounting  and investor  services.  The
vendors  that supply the software  for loan  servicing  is  installed  and is in
compliance with Year 2000 issues.  Installation  of accounting  software that is
Year 2000  compliant  began and completed  during the second quarter of 1999 and
will be tested until  September 30, 1999. The investor  servicing  software Year
2000 compliance is still being modified.  Existing investor  servicing  software

<PAGE>

maintenance   agreements   provide  for  conversion  to  Year  2000  compliance.
Additionally,  the  Partnership  has  contacted  several  vendors  that  provide
investor  services as a possible  alternative to continuing to provide investors
services in house.  It would appear that these service  providers  would be more
expensive  than the  current  in house  systems  but they do  provide  a back-up
alternative in the event of our own failure to fully convert.  Hardware utilized
by  Redwood  Mortgage  Corp.,  is  currently  being  tested to  insure  that any
modifications  necessary to be made prior to Year 2000, can be accomplished.  At
this  juncture,  existing  hardware  appears to be in compliance  with Year 2000
issues.  Reports  are  being  run  parallel  to  insure  accuracy  of Year  2000
compliance. This will continue until December, 1999.

     The costs of updating  the various  software  systems  will be borne by the
various  companies  that supply the  Partnership  with services.  Therefore,  no
significant  capital outlays are  anticipated  and the Partnership  expects only
incidental costs of conversion for Year 2000 issues.

     The Partnership is in the business of making Mortgage  Investments  secured
by real estate. The most important factor in making the Mortgage  Investments is
the value of the real estate  security.  Year 2000 issues have some potential to
affect  industries  and  businesses  located  in the  marketplaces  in which the
Partnership places its Mortgage  Investments.  This would only have an effect on
the Partnership if Year 2000 issues cause a significant downturn in the northern
California economy. In fact, Silicon Valley is located in our marketplace. There
may be significant  increased  demand for Silicon Valley type services and goods
as companies make ready for the Year 2000 conversion.

     Although almost fully developed,  if all or any accounting,  loan servicing
and  investor  services  conversions  should  fail,  the size  and  scope of the
Partnership's  activities  are such that they  could be  handled  at an equal or
higher cost on a manual basis or outsourced to other  servicers  existing in the
industry,  while correcting systems problems and are likely to be temporarily in
nature.  While this would  entail some  initial set up costs,  these costs would
likely not be so significant as to have a material effect upon the  Partnership.
Shifting portions of daily operations to manual or outsourced systems may result
in time delays.  Time delays in providing  accurate  and  pertinent  information
could negatively affect customer relations and lead to the potential loss of new
loans and Limited Partner investments.

     The  foregoing  analysis  of  Year  2000  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 the assumptions made by the General Partner or the actual
development  of  future  events.  No  assurance  can be given  that any of these
forward-looking  statements and predictions  will ultimately prove to be correct
or even substantially  correct.  Various compliances and modifications will come
to an actual  test upon  arrival of Year 2000.  Only time will tell  whether the
transition will be smooth, manageable or otherwise.

     Various  other  risks and  uncertainties  could  also  affect the Year 2000
analysis  causing the effect on the Partnership to be more severe than discussed
above. The General  Partners Year 2000 compliance  testing cannot guarantee that
all computer  systems will function  without  error beyond the Year 2000.  Risks
also exist with respect to Year 2000 compliance by external parties who may have
no  relationship  to the  Partnership  or the General  Partners,  but who have a
significant  relationship with one or more third parties,  and may have a system
failure that adversely  affects the  Partnership's  ability to conduct business.
While the General Partners are attempting to identify such external parties,  no
assurance can be given that it will be able to do so.

     Furthermore,  third parties with direct relationships with the Partnership,
whose  systems have been  identified  as likely to be Year 2000  compliant,  may
suffer a breakdown due to unforeseen circumstances. It is also possible that the
information  collected by the General Partners for these third parties regarding
their compliance with Year 2000 issues may be incorrect.  Finally,  it should be
noted that the  foregoing  discussion  of Year 2000 issues  assumes  that to the
extent  the  General  Partners  systems  fail,  whether  because  of  unforeseen
complications  or  because  of  third  parties'  failure,  switching  to  manual
operations will allow the Partnership to continue to conduct its business. While
the  General  Partner  believes  this  assumption  to  be  reasonable,  if it is
incorrect,  the  Partnership's  results of operations  would likely be adversely
affected.
<PAGE>

COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP

     The Partnership has no officers or directors. The Partnership is managed by
the General Partners.  There are certain fees and other items paid to management
and related parties.

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

     The  following  compensation  has been  paid to the  General  Partners  and
Affiliates  for services  rendered  during the six months  period ended June 30,
1999. All such compensation is in compliance with the guidelines and limitations
set forth in the Prospectus.

Entity Receiving              Description of Compensation and             Amount
Compensation                          Services Rendered
-------------------------- -----------------------------------------------------
I.
Redwood Mortgage           Mortgage Servicing Fee for servicing
Corp.                      Mortgage Investments                          $85,904

General Partners &/or
Affiliate                  Asset Management Fee for managing
                           assets.........................................$7,579

General Partners           1% interest in profits.........................$4,476

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

Redwood Mortgage     Mortgage Brokerage  Commissions for services in connection
Corp.                with the review, selection,  evaluation,  negotiation, and
                     extension  of  the  Mortgage   Investments   paid  by  the
                     borrowers and not by the Partnership...............$124,463

Redwood Mortgage     Processing  and Escrow  Fees for  services  in  connection
Corp.                with notary,  document preparation,  credit investigation,
                     and escrow fees  payable by the  borrowers  and not by the
                     Partnership..........................................$3,168


     III. IN ADDITION, THE GENERAL PARTNERS AND/OR RELATED COMPANIES PAY CERTAIN
EXPENSES ON BEHALF OF THE PARTNERSHIP FOR WHICH IT IS REIMBURSED AS NOTED IN THE
STATEMENT OF INCOME. ....................................................$15,605

<PAGE>
            MORTGAGE INVESTMENT PORTFOLIO SUMMARY AS OF JUNE 30, 1999

                                              Partnership Highlights

Mortgage Investment to Value Ratios

First Trust Deeds                                              $8,389,924.44
Appraised Value of Properties *                                14,694,134.00
   Total Investment as a % of Appraisal                               57.10%

First Trust Deed Mortgage Investments                           8,389,924.44
Second Trust Deed Mortgage Investments                          4,723,217.18
Third Trust Deed Mortgage Investments                           1,471,585.55
Fourth Trust Deed Mortgage Investments  **                        200,001.20
                                                            -----------------
                                                              $14,784,728.37

First Trust Deeds due other Lenders                            13,940,838.00
Second Trust Deeds due other Lenders                            1,851,488.00
Third Trust Deeds due other Lenders                               142,858.00
                                                            -----------------

Total Debt                                                    $30,719,912.37

   Appraised Property Value *                                  48,863,974.00
   Total Investment as a % of Appraisal                               62.87%

Number of Mortgage Investments Outstanding                                49

Average Investment                                               $301,729.15
Average Investment as a % of Net Assets                                2.63%
Largest Investment Outstanding                                  1,500,000.00
Largest Investment as a % of Net Assets                               13.06%

Loans as a Percentage of Total Mortgage Investments

First Trust Deed Mortgage Investments                                 56.75%
Second Trust Deed Mortgage Investments                                31.95%
Third Trust Deed Mortgage Investments                                  9.95%
Fourth Trust Deed Mortgage Investments                                 1.35%
                                                             ----------------
Total                                                                100.00%

Mortgage Investments by Type of
Property                               Amount                    Percent

Owner Occupied Homes                    $561,492.81                    3.80%
Non Owner Occupied Homes               1,518,179.48                   10.27%
Apartments                               907,674.43                    6.14%
Commercial                            11,797,381.65                   79.79%
                                                             ----------------
                                  ------------------
Total                                $14,784,728.37                  100.00%

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

     *Values  used are the  appraisal  values  utilized at the time the mortgage
investment was consummated.

<PAGE>


Diversification by County

County                                         Total Loans          Percent

Stanislaus                                   $3,124,456.60           21.13%
San Mateo                                     2,706,699.33           18.31%
San Francisco                                 2,500,580.12           16.91%
Alameda                                       1,798,117.99           12.16%
Santa Clara                                   1,712,387.34           11.58%
Solano                                          898,930.76            6.08%
Contra Costa                                    741,759.49            5.02%
Marin                                           724,999.98            4.90%
Sonoma                                          158,800.71            1.07%
Sacramento                                      121,908.46            0.83%
Ventura                                          91,000.00            0.62%
Shasta                                           80,649.70            0.55%
Monterey                                         77,269.33            0.52%
Santa Cruz                                       47,168.56            0.32%

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

Total                                       $14,784,728.37          100.00%

     **  Redwood   Mortgage   Investors   VII,   together   with  other  Redwood
Partnerships,  holds a second  and a  fourth  trust  deed  against  the  secured
property. In addition, the principals behind the borrower corporation have given
personal guarantees as collateral.  The overall loan to value ratio on this loan
is 76.52%.  Besides the borrower  paying a fixed  interest  rate of 12.25%,  the
partnership  and  other  lenders  will  also be  entitled  to share  in  profits
generated  by  the  corporation  with  respect  to  the  secured  property.  The
affiliates of the Partnership had entered into previous loan  transactions  with
this borrower  which had been  concluded  successfully,  resulting in additional
revenue beyond interest payments for the affiliates involved.



<PAGE>



                                                      PART 2
                                                 OTHER INFORMATION

         Item 1.           Legal Proceedings

                                    None, where the Partnership is a defendant.
                                    Please refer to Note 6 of Notes to Financial
                                    Statements.

         Item 2.           Changes in the Securities

                                    Not Applicable

         Item 3.           Defaults upon Senior Securities

                                    Not Applicable

         Item 4.           Submission of Matters to a Vote of Security Holders

                                    Not Applicable

         Item 5.           Other Information

                                    Not Applicable

         Item 6.           Exhibits and Reports on Form 8-K

                           (a)      Exhibits

                                    Not Applicable

                           (b)      Form 8-K

                                    The registrant has not filed any reports on
                                    Form 8-K during the nine month period ending
                                    June 30, 1999
<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 3rd day of August,
1999.


REDWOOD MORTGAGE INVESTORS VII


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


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


By:      Gymno Corporation, General Partner


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


         By:     /s/ Michael R. Burwell
                 ---------------------------------------------
                 Michael R. Burwell, Secretary/Treasurer


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been signed below by the following person on behalf of the registrant
and in the capacity indicated on the 3rd day of August, 1999.


Signature                           Title                            Date


/s/ D. Russell Burwell
-----------------------------
D. Russell Burwell             General Partner                    August 3, 1999


/s/ Michael R. Burwell
-----------------------------
Michael R. Burwell             General Partner                    August 3, 1999



/s/ D. Russell Burwell
-----------------------------
D. Russell Burwell            President of Gymno Corporation,     August 3, 1999
                              (Principal Executive Officer);
                              Director of Gymno Corporation


/s/ Michael R. Burwell
-----------------------------
Michael R. Burwell            Secretary/Treasurer of Gymno        August 3, 1999
                              Corporation (Principal Financial
                              and Accounting Officer);
                              Director of Gymno Corporation