<PAGE>   1
 
================================================================================
 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                   FORM 10-K
 
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
     SECURITIES EXCHANGE ACT OF 1934
 
                  FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1997
 
                                       OR
 
[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
     SECURITIES ACT OF 1934
 
                         FOR THE TRANSITION PERIOD FROM
                               --------------- TO
                                ---------------.
 
                      COMMISSION FILE NUMBER: 333-22681-1
 
 SEQUOIA MORTGAGE FUNDING CORPORATION (AS SPONSOR OF THE SEQUOIA MORTGAGE TRUST
                                     1, THE
 ISSUER OF COLLATERALIZED MORTGAGE BONDS UNDER AN INDENTURE DATED AS OF JUNE 1,
                                     1997)
                            ------------------------
 
                      SEQUOIA MORTGAGE FUNDING CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                            <C>
                   DELAWARE                                      91-1771827
       (STATE OR OTHER JURISDICTION OF              (I.R.S. EMPLOYER IDENTIFICATION NO.)
        INCORPORATION OR ORGANIZATION)
 
       591 REDWOOD HIGHWAY, SUITE 3100                             94941
           MILL VALLEY, CALIFORNIA                               (ZIP CODE)
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
 
                                 (415) 389-7373
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
 
<TABLE>
<S>                                            <C>
      SECURITIES REGISTERED PURSUANT TO              SECURITIES REGISTERED PURSUANT TO
          SECTION 12(B) OF THE ACT:                      SECTION 12(G) OF THE ACT:
                     NONE                                           NONE
               (TITLE OF CLASS)                               (TITLE OF CLASS)
</TABLE>
 
     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 such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [ ]
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [X]
 
     State the aggregate market value of the voting stock held by non-affiliates
of Registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of specified date within 60 days prior to the date of filing:
 
                                 Not Applicable
 
                      DOCUMENTS INCORPORATED BY REFERENCE:
 
                                 Not Applicable
 
================================================================================
<PAGE>   2
 
                         SEQUOIA MORTGAGE TRUST 1 BONDS
 
                                     INDEX
 
<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
  <S>       <C>                                                           <C>
                                     PART I
 
  ITEM 1.   BUSINESS....................................................    1
  ITEM 2.   PROPERTIES..................................................    1
  ITEM 3.   LEGAL PROCEEDINGS...........................................    1
  ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........    1
 
                                    PART II
 
  ITEM 5.   MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
            MATTERS.....................................................    1
  ITEM 6.   SELECTED FINANCIAL DATA.....................................    1
  ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS...................................    1
  ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................    1
  ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
            AND FINANCIAL DISCLOSURE....................................    1
 
                                    PART III
 
  ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..........    2
  ITEM 11.  EXECUTIVE COMPENSATION......................................    2
  ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
            MANAGEMENT..................................................    2
  ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............    2
 
                                    PART IV
 
  ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
            8-K.........................................................    2
  SIGNATURES............................................................    3
  INDEX TO EXHIBITS.....................................................    4
</TABLE>
 
                                        i
<PAGE>   3
 
                                     PART I
 
ITEM 1. BUSINESS
 
     Not Applicable.
 
ITEM 2. PROPERTIES
 
     Sequoia Mortgage Funding Corporation (the "Depositor") will furnish
information regarding the Mortgaged Properties by reference to the Annual
Compliance Certificates to be filed herein under Item 14.
 
ITEM 3. LEGAL PROCEEDINGS
 
     The Depositor is not aware of any material pending legal proceedings
involving either the bonds issued by Sequoia Mortgage Trust 1 ("Trust 1"),
established pursuant to the Deposit Trust Agreement, as amended, dated July 17,
1997, between the Depositor and Wilmington Trust Company, as owner trustee (the
"Owner Trustee"); the Master Servicing Agreement, dated June 1, 1997, among
First Union National Bank, as bond trustee (the "Bond Trustee"), Redwood Trust,
Inc., as Manager, Trust 1, as issuer (the "Issuer"), and Norwest Bank Minnesota,
N.A., as master servicer (the "Master Servicer"); the Depositor; the Owner
Trustee; the Bond Trustee; the Manager; the Issuer or the Master Servicer.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     No matter has been submitted to a vote of the holders of beneficial
interests in Trust 1 through the solicitation of proxies or otherwise.
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
 
     To the best knowledge of the Depositor, there is no established public
trading market for the Bonds issued under Trust 1.
 
     All of the Bonds issued by Trust 1 are held by the Depository Trust Company
("DTC") which in turn maintains records of holders of beneficial interests in
such Bonds. Based on information obtained by the Trusts from DTC, as of December
31, 1997, there were fewer than 300 holders of the Bonds issued by Trust 1.
 
ITEM 6. SELECTED FINANCIAL DATA
 
     Not Applicable.
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
     Not Applicable.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
 
     Not Applicable.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
 
     There were no changes of accountants or disagreements on accounting or
financial disclosures between the Depositor and its accountants.
 
                                        1
<PAGE>   4
 
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     Not Applicable.
 
ITEM 11. EXECUTIVE COMPENSATION
 
     Not Applicable.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     The Depositor is a wholly-owned subsidiary of Redwood Trust, Inc., a
Maryland corporation. Sequoia Mortgage Trust 1 is a Delaware statutory business
trust wholly-owned by the Depositor.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     None.
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
(a) The following documents are filed as part of this report:
 
        1. FINANCIAL STATEMENTS:
 
          Not applicable.
 
        2. FINANCIAL STATEMENT SCHEDULES:
 
          Not applicable.
 
        3. EXHIBITS:
 
<TABLE>
<CAPTION>
           EXHIBIT NO.                            DESCRIPTION
           -----------                            -----------
           <C>            <S>
              99.1*       Statement of Compliance of the Master Servicer of Trust 1.
              99.2*       Annual Report of Independent Accountant with respect to the
                          Master Servicer's overall servicing operations with respect
                          to Trust
              99.3        Statement of Compliance of the Issuer under the Indenture
                          with respect to Trust 1.
</TABLE>
 
---------------
* The document is not due to be delivered until 120 days after the year ended
  December 31, 1997. Such document will be filed with the Securities and
  Exchange Commission by amendment upon receipt by the registrant.
 
                                        2
<PAGE>   5
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Depositor has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
                                    By: SEQUOIA MORTGAGE FUNDING CORPORATION
                                       As Depositor
 
                                        By:     /s/ GEORGE E. BULL III
 
                                         ---------------------------------------
                                                   George E. Bull III
                                                  Chairman of the Board
                                               and Chief Executive Officer
 
Date: March 26, 1998.
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the Depositor
and in the capacities and on the dates indicated: indicated:
 
<TABLE>
<CAPTION>
                       SIGNATURE                                   POSITION                   DATE
                       ---------                                   --------                   ----
<S>                                                       <C>                            <C>
 
                 /s/ GEORGE E. BULL III                     Chairman of the Board,       March 26, 1998
--------------------------------------------------------           Director
                   George E. Bull III                        (Principal Executive
                                                                    Officer
 
                 /s/ DOUGLAS B. HANSEN                        President, Director        March 26, 1998
--------------------------------------------------------
                   Douglas B. Hansen
 
                /s/ FREDERICK H. BORDEN                       Secretary, Director        March 26, 1998
--------------------------------------------------------
                  Frederick H. Borden
 
                   /s/ VICKIE L. RATH                        Treasurer, Assistant        March 26, 1998
--------------------------------------------------------           Secretary
                     Vickie L. Rath                          (Principal Accounting
                                                                   Officer)
                                                             (Principal Financial
                                                                   Officer)
 
                                                                   Director              March   , 1998
--------------------------------------------------------
                    John Connolly IV
 
                                                                   Director              March   , 1998
--------------------------------------------------------
                    Craig Severance
</TABLE>
 
                                        3
<PAGE>   6
 
                               INDEX TO EXHIBITS
                                   ITEM 14(C)
 
<TABLE>
<CAPTION>
    EXHIBIT NO.                            DESCRIPTION
    -----------                            -----------
    <C>            <S>                                                           <C>
       99.1*       Statement of Compliance of the Master Servicer of Trust 1...

       99.2*       Annual Report of Independent Accountant with respect to the
                   Master Servicer's overall servicing operations with respect
                   to Trust 1..................................................

       99.3        Statement of Compliance of the Issuer under the Indenture
                   with respect to Trust 1.....................................
</TABLE>
 
---------------
* The document is not due to be delivered until 120 days after the year ended
  December 31, 1997. Such document will be filed with the Securities and
  Exchange Commission by amendment upon receipt by the registrant.
 
                                        4