Redwood Mortgage Investors VIII – ‘424B1’ on 12/24/96

As of:  Tuesday, 12/24/96   ·   Accession #:  889123-96-22   ·   File #:  333-13113

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Prospectus   —   Rule 424(b)(1)
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Document/Exhibit                   Description                      Pages   Size 

 1: 424B1       Prospectus                                           198   1.10M 

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424B1
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================================================================================
 OFFERING OF LIMITED PARTNERSHIP INTERESTS
================================================================================
 REDWOOD MORTGAGE INVESTORS VIII
 $30,000,000
 $100 per Unit - Minimum Purchase Twenty (20) Units ($2,000)

     Redwood  Mortgage  Investors VIII, a California  limited  partnership  (the
"Partnership"),  is engaged in  business as a mortgage  lender,  for the primary
purpose of making  mortgage  investments  secured  primarily by first and second
deeds of trust on California real estate ("Mortgage Investments"). Approximately
ninety-eight percent (98%) of the Partnership's Mortgage Investments are secured
by first and  second  deeds of trust.  Mortgage  Investments  are  arranged  and
serviced  by Redwood  Home Loan  Company  doing  business  as  Redwood  Mortgage
("Redwood  Mortgage"),  an affiliate of the General Partners.  The Partnership's
objectives  are to make  investments  that will: (i) yield a high rate of return
from mortgage lending; and (ii) preserve and protect the Partnership's  capital.
Investors  should not expect the Partnership to provide tax benefits of the type
commonly  associated  with  limited  partnership  tax shelter  investments.  The
Partnership  is intended to serve as an  investment  alternative  for  investors
seeking current income.  However, unlike other investments which are intended to
provide  current income,  an investment in the Partnership  will be less liquid,
not  readily  transferable,  and  not  provide  a  guaranteed  return  over  its
investment life.                                                                

     A maximum  of  300,000  Units  ($30,000,000)  are being  offered on a "best
efforts" basis,  which means that no one is guaranteeing that any minimum number
of Units  will be sold,  through  broker  dealer  member  firms of the  National
Association of Securities  Dealers,  Inc. (See "TERMS OF THE OFFERING" and "PLAN
OF DISTRIBUTION"). As this is not the Partnership's first offering of units, all
proceeds from the sale of Units will be immediately available to the Partnership
for investment. The offering of Units will terminate one year from the effective
date of this Prospectus unless fully subscribed at an earlier date or terminated
on an earlier date by the General Partners,  or extended for additional one-year
periods at the General  Partners'  election.  Of the proceeds  from the sales of
Units of the Partnership, a minimum of 84% (in the event the maximum proceeds of
300,000 Units ($30,000,000) is raised) will be invested in, or reserved for, the
Partnership's activities.  The balance of 16% (if 300,000 Units ($30,000,000) is
raised) will be used for public offering expenses, the formation loan to Redwood
Mortgage and working capital reserves. Upon the repayment of the formation loan,
approximately  ninety-six  percent  (96%)  (if  the  maximum  of  300,000  Units
($30,000,000)  is raised)  will be  invested  in, or  reserved  for  Partnership
activities.                                                                     

     There are risks associated with an investment in the Partnership (See "RISK
FACTORS") including the following:                                              

     The Partnership  will be subject to various  conflicts of interest  arising
out of its relationship to the General Partners and their affiliates.           

     Due to the speculative  nature of the  investment,  there is a risk that an
investor could lose his entire investment.                                      

     The  Formation  Loan to be made to Redwood  Mortgage  will be unsecured and
non-interest bearing, and repayment is not guaranteed.                          

An investment in Units involves material tax risks.                   

     There are substantial  restrictions on the  transferability of Units and it
is not anticipated that a public market for the Units will develop.             

     Purchasers  of  Units  will  have a  limited  ability  to  liquidate  their
investment  and  will  be  subject  to  early  withdrawal  penalties  and  other
restrictions and may be required to accept less than they paid for their Units. 

     The  Partnership's  use of leverage,  if any, may reduce the  Partnership's
profitability or cause losses through liquidation.                              

     The  Partnership  will  rely on  appraisals  which may not be  accurate  to
determine  the fair market value of the real  property used to secure loans made
by the Partnership.                                                             

Loan defaults and foreclosures may adversely affect the Partnership.  

     Limited  Partners  have no right to  participate  in the  management of the
Partnership  and may  only  vote on those  matters  which  are set  forth in the
Limited Partnership  Agreement;  all decisions with respect to the management of
the Partnership will be made exclusively by the General Partners.               

The Date of This Prospectus is December 4, 1996                       

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     Upon admission to the Partnership, each Limited Partner will be required to
make a one-time,  irrevocable election, except as described below, either (i) to
receive monthly,  quarterly or annual distributions of Earnings in cash, or (ii)
to receive  distributions  of Earnings in the form of additional Units valued at
$100 per Unit.  This election,  once made is irrevocable for investors who elect
to receive  monthly,  quarterly or annual  distributions  of earnings.  However,
investors  may change  whether  such  distributions  are  received on a monthly,
quarterly or annual basis.  If a Limited  Partner  initially  elected to receive
additional Units, he may, after three (3) years, change his election and receive
monthly,  quarterly or annual cash  distributions.  Earnings from  investors who
elect to receive additional Units will be retained by the Partnership for making
further Mortgage Investments or other proper Partnership purposes.  The earnings
from these further Mortgage Investments,  will be allocated among all investors,
but investors who receive  distributions  in the form of Units will receive more
Units than investors who receive cash distributions.  (See "PLAN OF DISTRIBUTION
- Election to Receive Periodic Cash Distributions").                            

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

--------------------------------------------------- --------------------------- 
                       Price to Public      Underwriting       Proceeds to
                                               commission (1)(2)  Partnership(3)
--------------------------------------------------- --------------------------- 

Per Unit (Minimum                                                               
Investment 20 units)             $100                   $0               $100   
Total Maximum (4)         $30,000,000                   $0        $30,000,000   

=============================================================================== 

     (1) The Units are being  offered to the public by selected  broker  dealers
who  are   members  of  the   National   Association   of   Securities   Dealers
("Participating Broker Dealers").  Neither the General Partners, the Partnership
nor the Participating Broker Dealers are guaranteeing that any minimum number of
Units will be sold. A Participating  Broker Dealer may receive sales commissions
based  upon a  percentage  of the sales  price of the Units as set forth  below.
Sales commissions will be higher if investors elect to receive  distributions of
Earnings in the form of  additional  Units rather than  electing to receive cash
distributions.   Participating   Broker  Dealers  may  elect  to  receive  sales
commissions as follows:  at a rate of five (5%) if an investor elects to receive
cash  distributions  or at a rate of nine (9%) if the investor elects to receive
additional Units in lieu of cash  distributions.  An investor's initial election
to receive cash distributions is irrevocable;  an investor's election to receive
additional  Units may not be changed  for a period of three (3) years.  Although
total sales commissions could equal (9%), the Partnership anticipates,  based on
historical experience,  that the total sales commissions payable will not exceed
(7.6 %).  This  number is based  upon the  General  Partners'  assumption,  that
sixty-five  percent (65%) of investors will elect to receive additional Units in
lieu of cash distributions and thirty-five percent (35%) of investors will elect
to receive cash  distributions.  In no event will the total of all  compensation
payable to Participating  Broker Dealers,  including sales commissions,  expense
reimbursements,  sales seminars and/or due diligence expenses exceed ten percent
(10%) of the program proceeds  received plus an additional  (0.5%) for bona fide
due diligence  expenses as set forth in Rule 2810 of the NASD Conduct Rules.  In
no  event  shall  any  individual  Participating  Broker  Dealer  receive  total
compensation including sales commissions, expense reimbursements,  sales seminar
and/or due diligence  expenses in excess of (10%) of the sales  proceeds plus an
additional (0.5%) for bona fide due diligence expenses as set forth in Rule 2810
of the NASD Conducts Rules (the Compensation Limitation).                       

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     (2) Sales  commissions  will not be paid directly by the Partnership out of
the offering proceeds.  Instead,  the Partnership will loan to Redwood Mortgage,
an affiliate of the General Partners,  funds from the offering proceeds equal to
the amount of the sales.  For ease of reference,  this loan shall be referred to
as the "Formation  Loan." Thus, all sales commissions and all amounts payable in
connection with unsolicited orders received by the General Partners will be paid
by Redwood Mortgage.  Redwood Mortgage will also act as the mortgage loan broker
for all  Mortgage  Investments.  (See  "RISK -  Formation  Loan"  and PLAN  OF  
DISTRIBUTION - Formation Loan"). The Formation Loan will be unsecured,  will not
bear interest and will be repaid in annual  installments.  Upon the commencement
of this offering,  Redwood Mortgage shall make annual  installments of one-tenth
of the principal  balance of the Formation  Loan as of December 31 of each year.
Such payment shall be due and payable by December 31 of the following  year with
the first payment due by December 31, 1997,  assuming this Offering commences in
1996.  The principal  balance of the Formation  Loan will increase as additional
sales of Units are made each year. The amount of the annual installment  payment
to be made by Redwood Mortgage, during the offering stage, will be determined by
the principal  balance of the Formation  Loan on December 31 of each year.  Upon
the completion of this Offering the balance of the Formation Loan will be repaid
in ten (10) equal annual installments of principal, without interest, commencing
on December 31 of the year following the year the offering  terminates.  Redwood
Mortgage  at its  option  may  prepay  all or any part of  Formation  Loan.  The
Formation Loan is being made to Redwood Mortgage in order to permit an increased
percentage  of the  offering  proceeds,  to be used  for  Mortgage  Investments.
Initially,  the  Formation  Loan will not allow an increased  percentage  of the
offering proceeds to be used for Mortgage Investments, but as the Formation Loan
is repaid, such amounts will be available for making Mortgage Investments       

     (3) The  Partnership  shall  reimburse  Participating  Broker  Dealers  for
bona-fide  due  diligence  expenses  in an amount up to  one-half of one percent
(.5%) of the gross  proceeds.  Units may also be offered or sold directly by the
General  Partners.  No sales  commissions  will be paid on any such solicited or
unsolicited  Units  sold  directly  by  the  General  Partner.   (See  "PLAN  OF
DISTRIBUTION" and "TERMS OF THE OFFERING").                                     

     (4) Such  proceeds  are  calculated  before  deducting  Organizational  and
Offering Expenses (including, without limitation, printing costs, attorneys' and
accountants'  fees,  registration and filing fees and other expenses) payable by
the Partnership in connection with this Offering.  The aggregate  Organizational
and Offering  Expenses payable by the Partnership are estimated to be $1,200,000
if the maximum is sold.  The General  Partners may prepay these items and may be
reimbursed  by the  Partnership  in an amount  not to exceed  the  lesser of ten
percent (10.0%) of the Gross Proceeds or $1,200,000.  The General  Partners will
pay any  offering  expenses  (excluding  selling  commissions)  in excess of ten
percent  (10.0%)  of the  Gross  Proceeds  or  $1,200,000.  (See  "TERMS  OF THE
OFFERING").                                                                     

     THESE  SECURITIES  HAVE NOT BEEN APPROVED OR  DISAPPROVED BY THE SECURITIES
AND  EXCHANGE  COMMISSION,  NOR HAS THE  COMMISSION  PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS.  ANY  REPRESENTATION  TO THE CONTRARY IS A CRIMINAL
OFFENSE. INVESTORS ARE REQUIRED TO GIVE CERTAIN WARRANTIES IN THEIR SUBSCRIPTION
AGREEMENTS (SEE "PLAN OF DISTRIBUTION - SUBSCRIPTION AGREEMENT WARRANTIES").    

     THE USE OF PROJECTIONS IN THIS OFFERING IS PROHIBITED.  ANY  REPRESENTATION
TO THE CONTRARY AND PREDICTIONS,  WRITTEN OR ORAL, AS TO THE AMOUNT OR CERTAINTY
OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCE  WHICH MAY FLOW FROM AN
INVESTMENT IN THE PARTNERSHIP ARE NOT PERMITTED.                                

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                                                                      Page

SUMMARY OF THE OFFERING..................................................1      
The Partnership..........................................................1      
General Partners.........................................................1      
Risk Factors. ...........................................................1      
Investor Suitability Standards...........................................3      
Terms Of The Offering....................................................3      
Estimated Use Of Proceeds................................................3      
Compensation Of The General Partners And Affiliates .....................4      
Conflicts Of Interest....................................................5      
Fiduciary Responsibility Of The General Partners.........................6      
Prior Performance Summary................................................6      
Management...............................................................6      
Investment Objectives And Criteria.......................................6      
Certain Legal Aspects Of Mortgage Investments............................7      
Management's Discussion And Analysis Of Financial Condition Of The              
Partnership..............................................................7      
Business.................................................................7      
Federal Income Tax Consequences..........................................7      
ERISA Considerations.....................................................8      
Description Of Units.....................................................8      
Summary Of Limited Partnership Agreement ................................8      
Transfer Of Units........................................................9      
Distribution Policies....................................................9      
Reports To Limited Partners..............................................10     
Plan Of Distribution.....................................................10     
Supplemental Sales Material..............................................10     
Legal Opinion............................................................10     
Experts..................................................................10     
Additional Information...................................................11     
Tabular Information Concerning Prior Programs............................11     
Glossary.................................................................11     
Subscription Procedures..................................................11     
RISK FACTORS.............................................................11     
REAL ESTATE AND OPERATING RISKS..........................................11     
Unspecified Investments Increase Uncertainty To Investors And Investors         
Must.....................................................................11     
Rely On Judgments Of General Partners In Investing Proceeds of The              
Offering................................................................11      
Loan Defaults And Foreclosures By Borrowers May Adversely Affect                
Partnership.............................................................12      
Risks Associated With Reliance on Appraisals Which May Be Affected By Subsequent
Events..................................................................12      
Risks Associated with Junior Encumbrances And Construction                      
Loans..................................................................12       
Bankruptcy And Limitations On Personal Judgments May Prevent Recovery Of Loan   
Thereby Resulting In A Loss To The Partnership.........................12       
Risks Associated With Unintended Violations Of The Usury Statute.......12       
Loan-To-Value Ratio Are Determined By Appraisals Which May Be In Excess Of The  
Ultimate Purchase Price Of The Underlying Property.....................13       
Use Of Leverage May Reduce The Partnership's Profitability Or Cause Losses      
Through Liquidation....................................................13       
Fluctuations In Interest Rates May Effect Return On Investment.........13       
Marshaling Of Assets Could Delay Or Reduce Recovery Of                          
Mortgage Investment....................................................13       
Potential Liability For Toxic Or Hazardous Substances If Partnership Is         
Considered Owner Of Real Property......................................14       

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Potential Conflicts And Risks If Partnership Invests In Mortgage                
Investments With General Partners Or Affiliates........................14       
INVESTMENT RISKS.......................................................15       
No Assurance Of Cash Distributions To Partners.........................15       
Partner's Ability To Recover Investment On Dissolution And Termination          
Will Be Limited........................................................15       
Risk Of Losses As A Result Of Losses Not Insurable Or Not                       
Economically Insurable.................................................15       
Investors Must Rely On Management For Decisions With Respect To                 
Management Of The Partnership..........................................15       
Investors Will Be Bound By Decision Of Majority Vote...................15       
Net Worth Of The General Partners May Effect Ability Of General                 
Partners To Fulfil Their Obligations To The Partnership ...............16       
Operating History Of The Partnership...................................16       
Risks Regarding Formation Loan And Repayment Thereof...................16       
Delays In Investment Could Adversely Affect Return To Investor.........16       
Subscriptions For Less Than The Maximum Number of Units Could Effect.           
Potential Profitability Of Partnership.................................16       
No Assurance Of Guaranteed Payment For Offering Period.................16       
Possible Extension Of Offering Will Allow Subsequent Investors To Review        
Partnership's Mortgage Investment Portfolio............................17       
No Assurance Of Limitation Of Liability Of Limited Partners............17       
Compensation To General Partners And Affiliates Cannot Be Estimated....17       
No Assurance That Reserves Will Be Adequate............................17       
Limited Transferability Of Units Requires That Investment Be                    
Considered Long Term...................................................17       
Partnership May Be Required To Forego More Favorable Investment To Avoid        
Regulation Under Investment Company Act of 1940........................18       
TAX RISKS..............................................................18       
Material Tax Risks Associated With Investment In Units.................18       
Risks Associated With Partnership Status For Federal Income Tax                 
Purposes...............................................................18       
Risks Associated With Characterization Of Partnership Income As                 
Portfolio Income.......................................................18       
Risks Of Partnership Characterization As A Publicly Traded Partnership.19       
Risks Relating To Taxation Of Undistributed Revenues...................19       
Risks Relating To Creation Of Unrelated Business Taxable Income........19       
Risks Of Applicability Of Alternative Minimum Tax......................19       
Risks Of Audit And Adjustment..........................................19       
Risks Of Effects Of State And Local Taxation...........................20       
ERISA RISKS............................................................20       
Risks Of Investment By Tax-Exempt Investors............................20       
INVESTOR SUITABILITY STANDARDS.........................................21       
Subscription Agreement Warranties......................................21       
Subscription Procedure.................................................22       
NOTICE TO CALIFORNIA RESIDENTS.........................................22       
TERMS OF THE OFFERING..................................................22       
Guaranteed Payment For Offering Period.................................23       
Election To Receive Periodic Cash Distributions........................23       
ESTIMATED USE OF PROCEEDS..............................................24       
CAPITALIZATION OF THE PARTNERSHIP......................................25       
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES....................26       
CONFLICTS OF INTEREST..................................................30       
Conflicts Arising As A Result Of The General Partners' Legal and Financial      
Obligations to Other Partnerships......................................30       
Conflicts Arising From the General Partners' Allocation Of Time Between         
The Partnership and Other Activities...................................30       
Amount Of Loan Brokerage Commissions Effects Rate Of Return To Limited          
Partners...............................................................31       
Terms Of Formation Loan Are Not Result Of Arms Length Negotiations.....31       

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Potential Conflicts If Partnership Invests In Mortgage Investments With         
General Partners Or Affiliates.........................................31       
General Partners Will Represent Both Parties In Sales Of Real Estate Owned to   
Affiliates.............................................................32       
Professionals Hired By General Partners Do Not Represent Limited                
Partners...............................................................32       
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNERS.......................33       
PRIOR PERFORMANCE SUMMARY..............................................33       
Experience And Background Of General Partners And Affiliates...........34       
Additional Information.................................................35       
No Major Adverse Developments..........................................35       
Prior Public Partnerships..............................................35       
Three Year Summary Of Mortgage Investments Originated By Prior                  
Limited Partnership...................................................36        
MANAGEMENT............................................................38        
General ..............................................................38        
D. Russell Burwell....................................................38        
Michael R.Burwell.....................................................38        
Gymno Corporation.....................................................38        
Redwood Mortgage......................................................38        
The Redwood Group, Ltd................................................38        
Theodore J. Fischer...................................................38        
SELECTED OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                  
SELECTED FINANCIAL DATA...............................................39        
ORGANIZATIONAL CHART..................................................40        
INVESTMENT OBJECTIVES AND CRITERIA....................................41        
Principal Objectives..................................................41        
General Standards For Mortgage Investments............................41        
Priority Of Mortgages.................................................41        
Geographic Area Of Lending Activity...................................41        
Construction Mortgage Investments.....................................42        
Loan-To-Value Ratios..................................................42        
Terms Of Mortgage Investments.........................................43        
Equity Interests In Real Property.....................................43        
Escrow Conditions.....................................................43        
Loans To General Partners And Affiliates..............................43        
Purchase Of Mortgage Investments From Affiliates And Other Third                
Parties...............................................................43        
Note Hypothecation....................................................43        
Joint Venturers.......................................................44        
Diversification.......................................................44        
Reserve Fund..........................................................44        
Credit Evaluations....................................................44        
Loan Brokerage Commissions............................................44        
Loan Servicing........................................................44        
Sale Of Mortgage Investments..........................................44        
Borrowing.............................................................44        
Other Policies........................................................44        
CERTAIN LEGAL ASPECTS OF Mortgage Investments.........................45        
Foreclosure...........................................................45        
Tax Liens.............................................................45        
Anti-Deficiency Legislation...........................................45        
Special Considerations In Connection With Junior Encumbrances.........46        
"Due-On-Sale" Clauses.................................................46        
Due-On-Sale...........................................................47        
Due-On-Encumbrance....................................................47        
Prepayment Charges....................................................47        
Real Property Mortgage Investments....................................47        

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF THE              
PARTNERSHIP...........................................................47        
BUSINESS..............................................................51        
FEDERAL INCOME TAX CONSEQUENCES.......................................52        
Summary Of Material Tax Aspects.......................................53        
Opinion Of Counsel....................................................53        
Partnership Tax Status..............................................53      
Publicly Traded Partnerships........................................54      
Portfolio Income And Unrelated Business Taxable Income..............54      
Basis................................................................54       
Allocations To The Limited Partners.................................54      
Tax Status Of The Partnership.........................................55        
Revenue Procedure 89-12...............................................55        
Publicly Traded Partnerships..........................................56        
Result If Partnership Is Taxable As Association.......................57        
Taxation Of Partners -General.........................................57        
Partnership Basis.....................................................57        
Allocations Of Profits And Losses.....................................58        
Sale Of Partnership Interest..........................................58        
Character Of Income Or Loss...........................................59        
Treatment Of Mortgage Investments Containing Participation Features...60        
Repayment or Sale Mortgage Investments................................60        
Property Held Primarily For Sale; Potential Dealer Status.............60        
Tax Consequences Of Reinvestment In Mortgage Investments..............61        
Partnership Organization, Syndication Fees And Acquisition Fees.......61        
Original Issue Discount...............................................61        
Deduction Of Investment Interest......................................61        
Section 754 Election..................................................62        
Termination Of The Partnership........................................62        
Tax Returns...........................................................62        
Audit Of Tax Returns..................................................63        
Investment By Tax-Exempt Investors....................................63        
State And Local Taxes.................................................64        
ERISA CONSIDERATIONS..................................................65        
General...............................................................65        
Fiduciaries Under ERISA...............................................65        
Prohibited Transactions Under ERISA And The Code......................65        
Plan Assets...........................................................66        
Potential Consequences Of Treatment As Plan Assets....................67        
DESCRIPTION OF UNITS..................................................67        
SUMMARY OF LIMITED PARTNERSHIP AGREEMENT..............................68        
Rights And Liabilities Of Limited Partners............................68        
Capital Contributions.................................................68        
Rights, Powers And Duties Of General Partners.........................68        
Profits And Losses....................................................68        
Cash Distributions....................................................68        
Meeting...............................................................68        
Accounting And Reports................................................69        
Restrictions On Transfer..............................................69        
General Partners' Interest............................................69        
Term Of Partnership...................................................69        
Winding Up............................................................70        
Dissenting Limited Partners' Rights...................................70        

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TRANSFER OF UNITS.....................................................70        
Restrictions On The Transfer Of Units.................................70        
Withdrawal From Partnership...........................................71        
DISTRIBUTION POLICIES.................................................72        
Distributions To The Limited Partners.................................72        
Cash Distributions....................................................72        
Allocation Of Net Income And Net Losses...............................73        
REPORTS TO LIMITED PARTNERS...........................................73        
PLAN OF DISTRIBUTION..................................................73        
Formation Loan........................................................74        
Escrow Arrangements...................................................75        
Subscription Account..................................................75        
SUPPLEMENTAL SALES MATERIAL.......................................... 76        

LEGAL PROCEEDINGS.....................................................76        

LEGAL OPINION.........................................................76        
EXPERTS...............................................................76        
ADDITIONAL INFORMATION................................................77        
TABULAR INFORMATION CONCERNING PRIOR PROGRAMS.........................77        
GLOSSARY..............................................................78        
INDEX TO THE FINANCIAL STATEMENTS.....................................80        

APPENDIX I - PRIOR PERFORMANCE TABLES                                           
EXHIBIT A - LIMITED PARTNERSHIP AGREEMENT                                       
EXHIBIT B - SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY                        

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 SUMMARY OF THE OFFERING

     The following  summarizes the material contained in this Prospectus.  It is
qualified in its entirety by the detailed  information and financial  statements
appearing elsewhere in this Prospectus.                                         

     The Partnership.  Redwood Mortgage Investors VIII (the  "Partnership") is a
limited  partnership formed on May 27, 1992,  pursuant to the California Revised
Limited Partnership Act. The Partnership  commenced operations on or about April
12,  1993.  The  Partnership's  principal  business  office is located at 650 El
Camino Real, Suite G, Redwood City, California 94063 and its telephone number is
(415) 365-5341.                                                                 

     The Partnership is engaged in business as a mortgage lender for the primary
purpose of making Mortgage  Investments secured by deeds of trust (the "Mortgage
Investment"  or  "Mortgage   Investments")   on  California   real  estate  (See
"INVESTMENT  OBJECTIVES  AND  CRITERIA").  As of June  30,  1996,  approximately
forty-two percent (42%) of the Partnership's Mortgage Investments are secured by
first deeds of trust ($5,917,837), fifty-six percent (56%) are secured by second
deeds of trust  ($7,979,116)  and two  percent  (2%) by the third deeds of trust
($300,000).  The aggregate principal amount of these Mortgage  Investments total
$14,196,953. Of these loans approximately eighty percent (80%) are loans secured
by properties located in the San Francisco Bay Area.                            

     General  Partners.  The General  Partners of the Partnership are D. Russell
Burwell, Michael R. Burwell and Gymno Corporation, a California corporation. The
principal  offices of the General  Partners  are located at 650 El Camino  Real,
Suite G, Redwood  City,  California  94063,  and the  telephone  number is (415)
365-5341.  The General  Partners  may maintain  additional  offices in the areas
where the properties securing the Mortgage  Investments are located. The General
Partners  will  manage and  control the  Partnership  affairs  and have  general
responsibility and ultimate authority in all matters affecting its business. The
Mortgage  Investments  are  arranged and serviced by an Affiliate of the General
Partners, Redwood Home Loan Company doing business as Redwood Mortgage ("Redwood
Mortgage") (See "MANAGEMENT").                                                  

     Risk Factors. An investment in the Partnership  involves certain risks. The
"RISK  FACTORS"  section of the  Prospectus  discusses  in more  detail the most
important  risks  associated  with an investment in the Units,  including  risks
associated  with  mortgage  lending  on  real  estate,   risks  associated  with
investments  in limited  partnerships  such as the  Partnership,  and tax risks.
These risks include:                                                            

     Although  prospective  investors  will have an  opportunity  to review  the
Partnership's existing portfolio, initial investors will not have an opportunity
to review  Mortgage  Investments  to be  acquired  by the  Partnership  from the
proceeds of this Offering nor will they have the opportunity to evaluate whether
the Partnership should make an investment,  or to provide input of any kind into
such  decisions  which will be made  exclusively by the General  Partners.  (See
INVESTMENT OBJECTIVES AND CRITERIA).                                            

     As this is not the Partnership's first offering of Units, no escrow will be
established  and all  proceeds  from  the  sale  of  Units  will be  immediately
available to the Partnership for investment.  In the event less than $30,000,000
is  raised,  the  Partnership  will  make  fewer  Mortgage  Investments  and the
Partnership  will  achieve  less  diversification  in the types and  amounts  of
Mortgage Investments. (See "TERMS OF THE OFFERING").                            

     The  Partnership  will pay certain  fees to the General  Partners and their
Affiliates  some of which may be paid  regardless of the economic  return to the
Limited  Partners.  The  compensation to be received by the General Partners and
their  Affiliates is based,  in large part,  upon the principal  balances of the
Mortgage   Investments  which  during  the  term  of  the  Partnership  will  be
continually maturing and "turning over" and cannot be precisely determined. (See
"COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES").                         

     The  transferability  of Units is restricted and the marketability of Units
is extremely limited. Accordingly, investors may not be able to sell their Units
quickly or profitably if the need arises (See "INVESTOR SUITABILITY  STANDARDS,"
"SUMMARY OF LIMITED PARTNERSHIP AGREEMENT" and "TRANSFER OF UNITS").            

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     An  investment  in  the  Partnership  involves  certain  income  tax  risks
discussed in the Section  entitled  "FEDERAL INCOME TAX  CONSEQUENCES."  Certain
income tax benefits will not be available to investors unless the Partnership is
classified  as a  partnership  for federal  income tax  purposes.  In  addition,
investors  may be required to report  taxable  income in an amount which exceeds
cash distributed to them.  Potential investors should consult with their own tax
advisers  concerning the federal,  state and local tax  consequences  associated
with an investment in the Units in light of their own unique tax situations.    

     The Partnership is subject to various  conflicts of interest arising out of
its  relationship  to  the  General  Partners  and  their  affiliates  including
conflicts relating to compensation arrangements,  the Formation Loan, allocation
of time between the Partnership and other activities and the legal and financial
obligations of the General Partners to the Partnership and to other partnerships
in which they serve as general partners. (See "CONFLICTS OF INTEREST").         

     The  Partnership  relies on appraisals,  prepared by  non-affiliated  third
persons,  to  determine  the fair market value of real  property  used to secure
Mortgage  Investments  made by the  Partnership.  No assurance can be given that
such  appraisals  will,  in any or all cases,  be accurate.  Moreover,  since an
appraisal fixes the value of real property at a given point in time,  subsequent
events could adversely affect the value of real property used to secure a loan. 

     The  Partnership  may  borrow  funds for the  purpose  of  making  Mortgage
Investments on any terms commercially  available and may assign all or a portion
of its Mortgage Investment portfolio as security for such loans. The Partnership
has  established a line of credit with a commercial bank secured by its Mortgage
Investments to a limit of $3,000,000.  As of June 30, 1996, the  Partnership has
borrowed  $2,892,000  at an interest  rate of nine percent  (9%).  Such borrowed
money bears  interest at a variable  rate,  whereas the  Partnership's  Mortgage
Investments  bear interest at a fixed rate.  Thus, if prevailing  interest rates
rise, the  Partnership's  cost of money could exceed the income earned from that
money, thus reducing the  Partnership's  profitability or causing losses through
liquidation of loans in order to repay the debt on the borrowed money or default
if the Partnership cannot cover the debt on the borrowed money.                 

     Approximately   fifty-six  percent  (56%)  of  the  Partnership's  Mortgage
Investments  are secured by second  deeds of trust and two percent (2%) by third
deeds of trust both of which are  subject to greater  risks than first  deeds of
trust.  The General  Partners  anticipate that the Partnership  will continue to
make  approximately  the same  percentage  amount of loans secured by second and
third  deeds of  trust.  In the  event  that real  estate  is  acquired  through
foreclosure  under a junior deed of trust the debt secured by the senior deed(s)
of trust must be satisfied before any proceeds from the sale of the property can
be applied toward the amounts owed to the Partnership.  Furthermore,  to protect
its  junior  security  interest,   the  Partnership  may  be  required  to  make
substantial  cash outlays for such items as loan payments to senior  lienholders
to prevent their foreclosure, property taxes, insurance, repairs, etc.          

     Many  Mortgage  Investments  will  be  interest  only  loans  or  partially
amortizing  loans providing for relatively  small monthly  payments with a large
"balloon"  payment of principal due at the end of the term. As of June 30, 1996,
ninety-eight  percent  (98%)  ($13,934,817)  of the  Mortgage  Investments  were
interest only loans or partially  amortizing  loans.  Borrowers may be unable to
repay such loans out of their own funds and may be  compelled  to  refinance  or
sell their property.  Fluctuations in interest rates and the  unavailability  of
mortgage  funds could  adversely  affect the ability of  borrowers  to refinance
their loans at maturity or sell their property,  thereby adversely affecting the
Partnership's profitability.                                                    

     If a borrower defaults on a loan, the Partnership may be forced to purchase
the property at a foreclosure sale. If the Partnership  cannot quickly sell such
property,  and the  property  does  not  produce  any  significant  income,  the
Partnership's  profitability will be adversely affected. As of June 30, 1996 the
Partnership  has been forced to purchase  only one property  which was sold at a
price that exceeded the Partnership's net basis in the property.                

     The Partnership  will loan to Redwood  Mortgage funds in an amount equal to
the sales commissions payable to the Participating Broker Dealers. The Formation
Loan will be unsecured,  and will be paid in annual  installments  of principal,
without interest. Upon the commencement of this Offering, Redwood Mortgage shall
make annual  installments of one-tenth of the principal balance of the Formation
Loan as of December 31 of each year.  Such  payment  shall be due and payable by
December 31 of the following  year.  Prior to the  termination of this offering,
the principal balance of the Formation Loan will increase as additional sales of
Units are made each year.  The amount of the  annual  installment  payment to be
made by Redwood  Mortgage,  during the offering stage, will be determined by the
principal  balance of the  Formation  Loan on  December 31 of each year with the
first payment due by December 31, 1997, assuming the Offering commences in 1996.
Upon the completion of this Offering,  the balance of the Formation Loan will be
repaid in ten (10) equal annual installments                                    

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     of  principal,  without  interest,  commencing  on  December 31 of the year
following the year the offering  terminates.  Redwood Mortgage at its option may
prepay all or any part of the Formation Loan.  Redwood Mortgage intends to repay
the  Formation  Loan  principally  from  loan  brokerage  commissions  earned on
Mortgage Investments and other fees paid by the Partnership.                    

     Investor Suitability Standards. Investment in the Partnership involves some
degree of risk. The Partnership has established a minimum  suitability  standard
for an investor  contemplating  investing  in Units.  This  minimum  suitability
standard  requires that an investor have either:  (i) a net worth  (exclusive of
home,  furnishings  and  automobiles)  of at least  $30,000 plus an annual gross
income of at least $30,000;  or (ii)  irrespective of annual gross income, a net
worth of  $75,000  (determined  with the same  exclusions).  Alternatively,  the
standard requires that the investor is purchasing in a fiduciary  capacity for a
person  who (or for an entity  which)  meets  such  conditions.  (See  "INVESTOR
SUITABILITY STANDARDS").                                                        

     Terms  of the  Offering.  Up to  300,000  Units  ($30,000,000)  of  limited
partnership  interest in the Partnership  will be offered in Units of $100 each.
The Units are being  offered  by  selected  registered  broker  dealers  who are
members  of  the  National   Association  of  Securities   Dealers,   Inc.  (the
"Participating  Broker Dealers") on a "best efforts" basis,  which means that no
one is guaranteeing  that any minimum number of Units will be sold (See "PLAN OF
DISTRIBUTION").  As the Partnership has commenced operations,  no escrow will be
established and all proceeds from sale of Units will be immediately available to
the Partnership.  A minimum  investment of 20 Units ($2,000 by each investor) is
required (See "INVESTOR SUITABILITY STANDARDS").                                

     The Limited  Partners shall receive a guaranteed  payment from the Earnings
of the Partnership  during the Guaranteed Payment Period. The guaranteed payment
period is the  period  commencing  on the day an  investor  is  admitted  to the
Partnership  and ending  three (3) months  after the  offering  terminates.  The
guaranteed  payment  shall  not be made  over the life of the  Partnership.  The
guaranteed payment, calculated on a monthly basis, shall be equal to the greater
of (i) the  Partnership's  Earnings,  which  equals all  revenues  earned by the
Partnership less all expenses incurred by the Partnership;  or (ii) the interest
rate  established  by the Monthly  Weighted  Average  Cost of Funds for the 11th
District Savings Institutions, as announced by the Federal Home Loan Bank of San
Francisco during the last week of the preceding month,  plus two points, up to a
maximum  interest rate of twelve  percent  (12%).  The Weighted  Average Cost of
Funds is derived from interest paid on savings accounts,  Federal Home Loan Bank
advances,  and other borrowed money adjusted for variation in the number of days
in each month. The adjustment  factors are 1.086 for February,  1.014 for the 30
day months and 0.981 for 31 day months.  As of the date of this Prospectus,  the
Monthly Weighed Average Cost of Funds for the 11th District as announced  August
30, 1996,  for the period ended July 30, 1996 and in effect until  September 30,
1996 is  4.819%.  To the  extent  the  payment  to be paid is in  excess  of the
Partnership's Earnings, the General Partners shall contribute sufficient capital
to the Partnership so that the guaranteed payment can be made (See "RISK FACTORS
- Guaranteed Payment for Offering Period"). Since the offering period may be for
a period of one year, with  additional one year periods,  or such shorter period
as when all the Units are sold, there is uncertainty  regarding the exact length
of the guaranteed payment.                                                      

     Estimated Use of Proceeds.  The Partnership  will use the proceeds from the
sale of its Units to make Mortgage  Investments and pay expenses relating to the
organization and operation of the Partnership.  Initially, upon the formation of
the Partnership,  a minimum of 84% of each dollar invested will be available for
investment in Mortgage  Investments if 300,000 Units  ($30,000,000) are sold. If
total sales  commissions  payable to participating  Broker Dealers are less than
9%, as  anticipated,  the amount of the Formation Loan will  correspondingly  be
reduced and the amount of proceeds  available for Mortgage  Investments  will be
increased.  If the  offering  is not fully  funded,  the  amount  available  for
investment  will be  less.  As  Redwood  Mortgage  repays  the  Formation  Loan,
approximately ninety-six percent (96%), if 300,000 Units ($30,000,000) are sold,
will be available for investment in Mortgage  Investments.  However,  because of
the  time  value of  money,  the  amount  of  proceeds  available  for  Mortgage
Investments  (ninety-six  percent (96%) if 300,000 Units ($30,000,000) are sold)
upon repayment of the Formation Loan, are not indicative of the actual amount of
proceeds that will be available for investment over the life of the Partnership.
Additionally,  as the Formation  Loan is  unsecured,  there can be no assurance,
other than the fiduciary obligations of the General Partners, that the Formation
Loan will be repaid on a timely basis, if ever. To date, the average size of the
Mortgage Investments is approximately $50,000 to $250,000 on single family homes
and $300,000 to $750,000 on commercial property. The General Partners anticipate
that the  average  size of the  Mortgage  Investments  will  continue  to remain
approximately  the  same.  No  Mortgage  Investments,   whether  residential  or
commercial,  shall  exceed the  greater of $50,000 or ten  percent  (10%) of the
Partnership's  assets at the time the Mortgage Investment is made. The foregoing
amounts are based upon  historical  experience  and are subject to change.  (See
"ESTIMATED USE OF PROCEEDS" and "INVESTMENT OBJECTIVES AND CRITERIA").          

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     Compensation of the General  Partners and Affiliates.  The General Partners
and their  Affiliates  have  received and will  continue to receive  substantial
compensation  in connection  with the Offering and the investment and management
of the Partnership's  assets which is not the result of arms length negotiations
(See  "COMPENSATION  OF THE GENERAL  PARTNERS  AND  AFFILIATES").  The amount of
compensation  to be paid to the General  Partners and their  Affiliates,  as set
forth below,  are estimates and actual  amounts paid may vary.  Except as noted,
there is no limit on the dollar  amount of  compensation  and fees to be paid to
the  General  Partners  and  their  Affiliates.  The most  significant  items of
compensation assuming the Maximum Offering is raised, are as follows:           

     In  connection   with  the  selection  and   arrangement  of  the  Mortgage
Investments,  Redwood  Mortgage will receive Loan  Brokerage  Commissions  which
amounts are negotiated with prospective borrowers on a case by case basis. Based
upon the  historical  experience of the General  Partners,  it is estimated that
such commissions will be approximately three percent (3%) to six percent (6%) of
the  principal  amount  of  each  Mortgage  Investment  made  during  that  year
(approximately $285,000 per year).                                              

     Redwood  Mortgage will receive  processing  and escrow fees for services in
connection with notary,  document  preparation,  credit investigation and escrow
fees in an amount equal to the fees customarily  charged by Redwood Mortgage for
comparable  services in the  geographical  area where the property  securing the
Mortgage  Investments  are located,  which  amounts are paid by the borrower and
estimated to be approximately $19,200 per year.                                 

     Redwood  Mortgage  is  entitled  receive a monthly  servicing  fee of up to
one-eighth of one percent  (.125%) or one and one-half  percent (1 and 1/2%) per
year of the total unpaid principal balance of each Mortgage  Investment,  except
for the Formation Loan,  serviced in connection with their  collection  efforts.
However,  Redwood  Mortgage  has  elected at this time only to  receive  Monthly
Servicing Fees equal to one percent (1%) per year, estimated to be approximately
$310,000 per year.                                                              

     The  General   Partners  will  receive  a  monthly  fee  for  managing  the
Partnership's Loan portfolio and general business  operations in an amount up to
1/32 of one percent  (.03125%) of the "net asset value" of the Partnership which
equals  the  Partnership's   assets  less  its  liabilities,   estimated  to  be
approximately $119,000 per year.                                                

     The General  Partners  will receive one percent (1%) of the Cash  Available
for Distribution, estimated to be approximately $28,000 per year.               

     There are a number of  other,  lesser  items of  compensation  and  expense
reimbursements that the General Partners and their Affiliates may receive during
the operation of the Partnership, including reimbursement of the actual costs to
General  Partners or their  Affiliates  of goods and  materials,  provided  such
reimbursement  will be lesser of (i) the actual costs to the General Partners or
their Affiliates of providing such services; or (ii) ninety percent (90%) of the
amount  the  Partnership  would be  required  to pay to  non-affiliated  persons
rendering similar services in the same or comparable  geographical  location (as
determined by the General Partners based on an analysis of the costs incurred by
similar  lenders,  data  collected  from trade  association  meetings,  relevant
periodicals  and  conversations  with other  professionals  in the industry),  a
reconveyance  fee  to be  paid  to  Gymno  Corporation  in an  amount  equal  to
approximately  $65 per deed of trust, and an assumption fee and/or extension fee
all payable by the borrower as a percentage of the loan  balance,  which amounts
are not  determinable,  and any  interest  earned,  if any,  between the date of
deposit of the borrowers  funds into Redwood  Mortgage's  trust account and the 
date of  payment  of  such  funds  by  Redwood  Mortgage,  which  amount  is not
determinable at this time.                                                      

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     The following table summarizes  compensation and reimbursements paid to the
General Partners for the year ended December 31, 1995, and the period of January
1, 1996 to June 30,  1996  showing  approximate  actual  amounts and the maximum
allowable amounts for management and servicing fees:                            

                                                        [Enlarge/Download Table]

                                                              Year Ended                              Period End                    
                                                           December 31, 1995                       January 1, 1996                  
                                                                                                   to June 30, 1996                 


                                                                                      Maximum                        Maximum Amount 
                                                                                       Amount                            Allowable  
Form                                                                 Actual           Allowable           Actual        for Period  
------------------------------------------------ ----------------------- ------------------ -------------------- ------------------ 

PAID BY PARTNERSHIP                                                                                                                 
                                                                                                                                    

Servicing Fee (1) ......................................           $ 85,457           $128,186           $ 67,389           $101,084

Management Fee (2) .....................................           $ 11,587           $ 34,773           $  7,760           $ 23,280

Reimbursement of Operating Expenses ....................           $ 22,769           $ 22,769           $ 17,647           $ 17,647

1% interest in profits, losses and .....................           $  8,368           $  8,368           $  5,606           $  5,606
distributions                                                                                                                       

PAID BY BORROWERS                                                                                                                   

Loan Brokerage Fees (3) ................................           $265,890           $265,890           $236,435           $236,435

Processing and Servicing Fees ..........................           $  7,957           $  7,957           $  6,950           $  6,950

<FN>                                                                                                                                
_________________________                                                                                                           
(footnotes to table)                                                                                                                

     (1) Redwood  Mortgage is  entitled  to receive a monthly  servicing  fee of                                                    
one-eighth  of one  percent(.125%)  or 1 1/2%  per  year  of  the  total  unpaid                                                    
principal balance of each loan, except for the Formation Loan. However,  Redwood                                                    
Mortgage  elected only to receive  Monthly  Servicing  Fees equal to one percent                                                    
(1%) per year.                                                                                                                      

     (2) The General Partners are entitled to receive a monthly fee for managing                                                    
the Partnership's  Mortgage Investment  Portfolio in an amount up to 1/32 of one                                                    
percent  (.03125%)  or 3/8 of one  percent  (.375%)  per year of the "net  asset                                                    
value"  of the  Partnership  which  equals  the  Partnership's  assets  less its                                                    
liabilities.  However,  the  General  Partners  elected  only to  receive  Asset                                                    
Management Fees in an amount equal to 1/8 of one percent (.125%) per year.                                                          

     (3) Although  Redwood Mortgage can receive loan brokerage fees of up to six                                                    
percent (6%) or higher,  if such fees could have been negotiated with borrowers,                                                    
the  figures  reflect  actual  loan  brokerage  fees  charged  on  the  Mortgage                                                    
Investments.                                                                                                                        
</FN>                                                                                                                               

     Conflicts of Interest.  The Partnership is subject to various  conflicts of
interest  arising out of its  relationships  with the General Partners and their
Affiliates including conflicts related to the arrangements pursuant to which the
General Partners will be compensated by the Partnership. The conflicts include:`

     The General  Partners  and their  Affiliates  serve as general  partners of
other limited partnerships and accordingly have legal and financial  obligations
with respect to those  partnerships  which are similar to their obligations with
respect to the Partnership.                                                     

     As a result of their possible future  interests in other  partnerships  and
other business  activities,  the General Partners and their Affiliates will have
conflicts of interest in allocating their time between the Partnership and other
activities in which they are involved.                                          

     The amount of the loan  brokerage  commission  payable to Affiliates of the
General Partners will effect the overall rate of return to the Limited Partners.

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     The  terms  of the  Formation  Loan  are  not  the  result  of  arms-length
negotiations  and accordingly,  in the event of default,  a conflict of interest
would arise on the General  Partners part in connection  with the enforcement of
the  Formation  Loan and  continued  payment of other fees and  compensation  to
Redwood Mortgage,  including, but not limited to, the Loan Servicing Fee and the
Loan Brokerage Fee.                                                             

     In the event the  Partnership  becomes the owner of real property by reason
of foreclosure, conflicts of interest could arise in connection with the General
Partners sale of the Property by their Affiliates.                              

     The  professionals  retained by the General  Partners do not  represent the
Limited Partners.                                                               

     Fiduciary  Responsibility of the General Partners. The General Partners are
accountable to the  Partnership as  fiduciaries,  and  consequently  are under a
fiduciary  duty to exercise good faith and  integrity in conducting  Partnership
affairs and to conduct  such  affairs in the best  interest of the  Partnership,
subject to certain limitations set forth in the Partnership Agreement.          

     Prior Performance Summary.  The Partnership  commenced operations in April,
1993. The General  Partners and their Affiliates have also sponsored eight prior
partnerships with investment objectives similar to the Partnership.  The General
Partners and their  Affiliates have been engaged in mortgage  lending in the San
Francisco  Bay  Area  since  1977  (See  "MANAGEMENT"  and  "PRIOR   PERFORMANCE
SUMMARY"). For a description of operations of the Partnership and prior programs
of the General Partners and their Affiliates, see "PRIOR PERFORMANCE SUMMARY."  

     Management.  The General Partners are responsible for the management of the
proceeds  of the  Offering  and the  investments  of the  Partnership.  Services
performed by the General Partners include, but are limited to: implementation of
the Partnership investment policies; identification,  selection and extension of
Mortgage  Investments,  preparation and review of budgets, cash flow and taxable
income or loss projections and working capital  requirements;  periodic physical
inspections and market surveys,  supervision and review of Partnership state and
federal tax returns; and supervision and review of professionals employed by the
Partnership  in connection  with any of the foregoing,  including  attorneys and
accountants.                                                                    

     Investment  Objectives  and Criteria.  The  Partnership  has and intends to
continue  to make and seek  Mortgage  Investments  with the  objectives  of: (1)
yielding  a high rate of return  from  mortgage  lending,  after the  payment of
certain fees and expenses to the General  Partners and their  Affiliates,  which
Limited  Partners may elect to (a) receive as monthly,  quarterly or annual cash
distributions  ("Periodic Cash  Distributions")  or (b) receive additional Units
the  proceeds  of which  will be  applied  to  Partnership  activities;  and (2)
preserving and  protecting the  Partnership's  capital.  It is anticipated  that
first  distributions of cash or additional Units,  depending upon the Investors 
elections,  shall be made 60-90 days from the time the Investor is accepted as a
limited partner. (See "PRIOR PERFORMANCE SUMMARY").                             

     The  Partnership  is engaged in the business of making loans to the general
public  secured by real property  deeds of trust (the  "Mortgage  Investments").
Such real property will include single family residences, multi-unit residential
property,  commercial  property and  unimproved  land. As of June 30, 1996,  the
Partnership had made Mortgage  Investments in the aggregate principal balance of
$24,206,030  of  which  $7,722,200  is  secured  by  single  family   residence,
$4,482,280 is secured by multi-unit residential property, $11,251,550 is secured
by commercial property and $750,000 by unimproved land. As of June 30, 1996, the
Partnership  had  outstanding  Mortgage  Investments in the principal  amount of
$14,196,953  of  which  $4,091,433  is  secured  by  single  family  residences,
$2,389,966 is secured by multi-unit residential property,  $7,415,554 is secured
by commercial  property and $300,000 by unimproved  land. It is anticipated that
the  Partnership's  deeds of trust will not generally be junior to more than two
other  encumbrances (a first,  and in some instances,  a second or third deed of
trust) on the real property  securing the Mortgage  Investments.  As of June 30,
1996,  the  Partnership  had  made in the  aggregate  eighty-eight  (88)  loans,
including  forty-four  (44)  secured  by first  deeds of  trust,  forty one (41)
secured by second  deeds of trust and three (3) secured by third deeds of trust.
It is anticipated that such real property securing the Mortgage Investments will
be located  primarily  in  Northern  California  and that  approximately  eighty
percent  (80%) of the  Partnership's  loans will be secured by Deeds of Trust on
properties  located in six  counties  surrounding  the San  Francisco  Bay.  The
Partnership may make construction  loans up to a maximum of ten percent (10%) of
the Partnership's Mortgage Investment portfolio.                                

     The average  size of the Mortgage  Investments  has and is  anticipated  to
continue to be  approximately  $50,000 to $250,000  on single  family  homes and
approximately $300,000 to $750,000 on commercial loans. However, the actual size
of Mortgage  Investments  will vary  depending on a number of factors  including
among other  things,  the general  economic  conditions,  the specific  property
securing the investment,  the credit worthiness of the borrower, and the size of
the Partnership's portfolio.                                                    

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     However, no Mortgage Investments,  whether residential or commercial, shall
exceed the greater of $50,000 or ten percent (10%) of the  Partnership's  assets
when the  investment is made.  Most Mortgage  Investments  will generally be for
periods of between one and ten years.                                           

     The amount of each Mortgage Investment by the Partnership combined with any
outstanding debt secured by a senior deed of trust on the security property will
generally  not  exceed a  specified  percentage  of the  appraised  value of the
security property according to the following table:                             

Type of Security Property                     Loan-to-Value Ratio               
Residential                                                   80%               
Commercial Property                                           70%               
Unimproved Property                                           50%               

     In certain  circumstances,  based  upon,  among other  factors,  a positive
change  in  the  credit  criteria  of the  borrower,  previous  experience  with
borrower,  the availability of additional  collateral,  an expected  inheritance
an/or an increase in the credit  rating of the borrower the above  loan-to-value
ratios may be increased.  However,  in no event shall the loan-to-value ratio on
construction  loans exceed eighty percent (80%) of the  independently  appraised
completed  value of the  property.  The  target  loan-to-value  for  Partnership
Mortgage  Investments as a whole is  approximately  seventy percent (70%).  (See
"INVESTMENT OBJECTIVES AND CRITERIA" and "PRIOR PERFORMANCE").                  

     Certain Legal Aspects of Mortgage  Investments.  Each of the  Partnership's
investments (except the Formation Loan to Redwood Mortgage) will be secured by a
deed of  trust,  the  most  commonly  used  real  property  security  device  in
California.  The  parties to a deed of trust are:  the  debtor-trustor,  a third
party   guarantor   called  the  "trustee,"  the  lender   creditor  called  the
"beneficiary."  The trustor grants the property,  irrevocably  until the debt is
paid,  "in trust,  with power of sale" to the  trustee to secure  payment of the
obligation.  The  trustee  has the  authority  granted  by law,  by the  express
provisions  of the deed of trust and by the  directors of the  beneficiary.  The
Partnership will be a beneficiary under all deeds of trust securing the Mortgage
Investments.                                                                    

     Management's   Discussion  and  Analysis  of  Financial  Condition  of  the
Partnership.  The Partnership  commenced operations in April, 1993. The proceeds
received  from this  public  offering of Units will  enable the  Partnership  to
continue  to carry on its  activities  and  further  expand  and  diversify  its
portfolio.  The Partnership intends to utilize the net proceeds of this Offering
principally  to make Mortgage  Investments.  To the extent that the net proceeds
received by the  Partnership  are less than the maximum  amount of the offering,
the Partnership  will have less  diversification  of  investments.  Although the
Partnership  has  an  existing   portfolio  of  over   $14,000,000  in  Mortgage
Investments,  as of  the  date  of  this  Prospectus,  the  Partnership  has  no
outstanding  commitments to make or acquire any investment  with the proceeds of
this Offering.                                                                  

     Business.  The  Partnership,  formed on May 27,  1992,  is  engaged  in the
business  as a mortgage  lender,  for the  primary  purpose of making  mortgaged
investments  secured  primarily by first and second deeds of trust on California
real estate ("Mortgage Investments").  Approximately  ninety-eight percent (98%)
of the Partnership's  Mortgage Investments are secured by first and second deeds
of trust. The Partnership commenced operations in April, 1993. The Partnership's
address is 650 El Camino Real,  Suite G, Redwood City,  California 94063 and its
telephone number is (415) 365-5341.                                             

     Mortgage  Investments  are arranged and  serviced by Redwood  Mortgage,  an
affiliate of the General Partners.  As of June 30, 1996 approximately  forty-two
percent (42%) of the  Partnership's  Mortgage  Investments  are secured by first
deeds of trust ($5,917,837), fifty-six percent (56%) are secured by second deeds
of trust  ($7,979,116) and two percent (2%) by third deeds of trust  ($300,000).
The aggregate principal balance of these Mortgage Investments total $14,196,953.
Of these loans  approximately  eighty  percent  (80%) are secured by  properties
located in the San Francisco Bay Area. As of June 30, 1996, of the Partnership's
Mortgage  Investment  portfolio  twenty-nine  percent (29%) is secured by single
family residences,  fifty-two percent (52%) by commercial properties,  seventeen
percent  (17%) by  multi-unit  properties  and two  percent  (2%) by  unimproved
property.  No  Mortgage  Investment  may  exceed  the  greater of $50,000 or ten
percent (10%) of the  Partnership's  total assets at the time the  investment is
made.                                                                           

     Federal Income Tax  Consequences.  The section of this Prospectus  entitled
"FEDERAL INCOME TAX CONSEQUENCES"  contains a discussion of the most significant
federal  income tax issues  pertinent  to the  Partnership.  It also  contains a
description of Stephen C. Ryan & Associates,  counsel to the Partnership, legal 
opinion as to federal income tax issues which are expected to be of relevance to
U.S.  taxpayers  who are  individuals.  Other tax issues of  relevance  to other
taxpayers  should be reviewed  carefully by such investors to determine  special
tax consequences of an investment prior to their subscription.                  

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     In  general,  the  material  federal  income  tax  issues,  as to which the
Partnership  has received an opinion  from its tax  counsel,  the Law Offices of
Stephen C. Ryan & Associates  (Stephen C. Ryan & Associates)  are: (i) the tax  
status of the Partnership;  (ii) the likelihood that the Partnership will not be
treated as a publicly traded  partnership under the publicly traded  partnership
rules;  (iii) the likelihood that income of the Partnership will not constitute,
or will not  constitute any  significant  amount of unrelated  business  taxable
income to investing qualified pension, profit-sharing, and stock bonus plans and
IRAs; (iv) the likelihood that  allocations of tax items from the Partnership to
a Limited Partner will be respected;  and (v) whether,  and to what extent,  net
income of the  Partnership  will  constitute  portfolio  income.  Subject to the
conditions  described  in more  detail in  "FEDERAL  INCOME TAX  CONSEQUENCES   
Opinion of Counsel," the Partnership  has received a favorable  opinion from its
tax counsel, Stephen C. Ryan & Associates, on each of these matters.            

     ERISA  Considerations.   The  Partnership's  objectives  and  policies  are
designed to make an investment in Units  appropriate  for Tax-Exempt  Investors.
The Partnership and its policies have been structured to meet the standards for:
(i)  excluding  the assets of the  Partnership  from the  assets of the  Limited
Partners  which  are  employee  benefit  plans  for  purposes  of  the  Employee
Retirement  Income  Security  Act of  1974  ("ERISA")  in  accordance  with  the
exemptions  contained  in  regulations  of the  Department  of  Labor;  and (ii)
minimizing any allocation of "unrelated  business  taxable income" to tax-exempt
entities.  However,  see  "RISK  FACTORS-Investment  by  Tax-Exempt  Investors",
"FEDERAL INCOME TAX  CONSEQUENCES Investment by Tax-Exempt Investors" and "ERISA
CONSIDERATIONS" herein.                                                         

     Description  of  Units.  The Units  will  represent  a Limited  Partnership
Interest in the Partnership. Units will be evidenced by a certificate of Limited
Partnership Interest. Each Unit will represent a Limited Partnership Interest of
$100. The Limited  Partners  representing a majority of the outstanding  Limited
Partnership Interests, may without the concurrence of the General Partners, vote
to take the certain actions including terminating the Partnership,  amending the
Partnership Agreement, subject to certain limitations, and remove or replace one
or all  of the  General  Partners.  (See  "SUMMARY  OF THE  LIMITED  PARTNERSHIP
AGREEMENT").                                                                    

     Summary  of  Limited  Partnership  Agreement.   The  Partnership's  limited
partnership  agreement (the  "Partnership  Agreement")  governs the relationship
between  the Limited  Partners  and the General  Partners.  Please  refer to the
"SUMMARY OF LIMITED PARTNERSHIP AGREEMENT" section for more detailed information
concerning the terms of the Partnership Agreement, including:                   

     Meetings and Voting Rights.  Limited  Partners  holding a majority of Units
may vote to: (i) amend or terminate  contracts for services or goods between the
Partnership and the General Partners; (ii) remove the General Partners and elect
substitute  General  Partners;  (iii) approve or  disapprove  the sale of all or
substantially  all of the  Partnership's  assets;  (iv)  amend  the  Partnership
Agreement (subject to the limitation that no amendment shall be permitted if the
effect of such  amendment  would be to increase the duties or liabilities of any
Partner or materially change any Partner's  interest in the Partnership  without
the consent of such Partner); or (v) dissolve the Partnership.  Limited Partners
who do  not  vote  with  the  majority  in  interest  of  the  Limited  Partners
nonetheless will be bound by the majority vote. There are no regularly scheduled
meetings of the Limited  Partners.  The General Partners shall have the right to
increase  the  size of this  Offering  or  conduct  an  additional  Offering  of
securities  without obtaining the consent of the Limited  Partners.  The General
Partners or Limited  Partners  representing ten percent (10%) of the outstanding
Limited Partnership Interest may call a meeting of the Partnership.  The General
Partners have the power, subject to the provisions of the Partnership Agreement,
to change the Partnership's investment objectives.                              

     Restrictions on  Transferability  of Units. The Units will be transferable,
but only with the  consent  of the  General  Partners,  who may  withhold  their
consent to any transfer that could cause or  contribute to the  characterization
of the Partnership as a "publicly traded partnership" (in general, a partnership
with frequent transfers of its Units),  cause or contribute to the Partnership's
violation of federal and state securities laws,  otherwise  adversely affect the
Partnership's  tax status,  including cause a termination of the Partnership for
federal or California tax purposes,  or if the assignee and/or assignor fails to
comply with certain procedural  requirements of transfer,  including the failure
of the  assignee  to accept,  adopt and  approve  in  writing  all the terms and
conditions of the Partnership  Agreement.  It is not  anticipated  that a public
market for the Units will develop.                                              

     Indemnification.  The Partnership  will indemnify the General  Partners and
their Affiliates who perform services for the Partnership against all losses and
expenses incurred by them as a result of actions the General Partners determined
in good  faith were in the best  interests  of the  Partnership,  except for any
liability arising out of misconduct,  negligence, or breach of fiduciary duty to
the Limited Partners of the Partnership.                                        

     Fiscal Year and Termination.  The Partnership's fiscal year is the calendar
year. The Partnership  Agreement provides that the Partnership will terminate on
December 31, 2032,  unless  sooner  terminated  pursuant to any provision of the
Partnership Agreement.                                                          

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     All statements  made here or elsewhere in this  Prospectus are qualified in
their entirety by reference to the copy of the form of the Partnership Agreement
attached hereto as Exhibit A.                                                   

     Transfer of Units. There are substantial  restrictions upon transferability
of Units and  accordingly  an  investment  in the  Partnership  is illiquid (See
"SUMMARY OF THE LIMITED  PARTNERSHIP  AGREEMENT - Restrictions  on Transfer" and
"TRANSFER OF UNITS").  Limited Partners will have no right to withdraw or obtain
a return of any capital  contributions (or reinvested  earnings) for a period of
one year  from the date of  purchase  of  Units.  In order to  provide a certain
degree of liquidity to the Limited Partners after the one-year  period,  Limited
Partners may withdraw all or part of their Capital Accounts from the Partnership
in four (4) equal  quarterly  installments  beginning the quarter  following the
quarter in which the notice of withdrawal  was given,  provided that such notice
was received thirty (30) days prior to the end of the preceding quarter, subject
to a ten percent (10%) early withdrawal  penalty.  The ten percent (10%) penalty
is applicable to the amount withdrawn as stated in the Notice of Withdrawal. The
entire ten percent  (10%) penalty will be deducted,  pro rata,  from each of the
four quarterly  installments.  Withdrawal  after the one-year holding period and
before the five-year  holding  period will be permitted  only upon the terms set
forth above. Limited Partners will also have the right after five years from the
date of purchase of the Units to withdraw from the Partnership on an installment
basis,  generally over a five year period in twenty (20) equal  installments  or
such  longer  period  of time as the  Limited  Partner  may  desire or as may be
required,  as determined by the General Partners,  if there is insufficient cash
to make such installment payments.  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. For this purpose, cash flow is considered to be available
only  after  all  current   Partnership   expenses  have  been  paid  (including
compensation to the General Partners and Affiliates) and adequate  provision has
been made for the payment of all monthly cash  distributions on a pro rata basis
which must be paid to Limited Partners who elected to receive distributions upon
subscription  for Units.  No penalty  will be imposed if  withdrawal  is made in
twenty (20)  installments  or such  longer  period as  requested  by the Limited
Partner or determined by the General Partners. Notwithstanding the five (5) year
withdrawal period, the General Partners may liquidate all or a part of a Limited
Partner's  capital  account  in four  quarterly  installments  beginning  on the
quarter  following  the  quarter  in which the  notice of  withdrawal  is given,
provided that such notice was received  thirty (30) days prior to the end of the
preceding  quarter  subject to a ten  percent  (10%)  early  withdrawal  penalty
applicable  to any sums  withdrawn  prior to the time when such sums  could have
been withdrawn  pursuant to the five (5) year withdrawal period in the Notice of
Withdrawal (See "SUMMARY OF THE LIMITED PARTNERSHIP  AGREEMENT - Withdrawal from
Partnership").                                                                  

     Distribution  Policies.  Upon  admission to the  Partnership,  each Limited
Partner  will be required to make a one-time,  irrevocable  election,  except as
described  below,  either:  (i) to receive  monthly,  quarterly  or annual  cash
distributions of Earnings  ("Periodic Cash  Distributions");  or (ii) to receive
distributions  of Earnings in the form of additional  Units. The term "Earnings"
means all revenues earned by the Partnership  less all expenses  incurred by the
Partnership.  This election, once made is irrevocable for investors who elect to
receive  Periodic Cash  Distributions.  However,  an investor may change whether
such  distributions  are received on a monthly,  quarterly or annual basis. If a
Limited  Partner  initially  elected  to  receive  additional  Units  in lieu of
Periodic Cash Distributions,  he may, after three (3) years, change his election
and receive  Periodic Cash  Distributions.  Earnings from investors who elect to
acquire  additional  Units will be used by the  Partnership  for making  further
Mortgage  Investments or other proper  Partnership  purposes.  The Earnings from
these further Mortgage Investments,  will be allocated among all investors,  but
investors who do not elect to receive Periodic Cash  Distributions  will receive
additional Units. (See "PLAN OF DISTRIBUTION - Election to Receive Periodic Cash
Distributions").                                                                

     All cash flow attributable to principal  reductions of Mortgage Investments
will be reinvested by the Partnership in Partnership activities by the extension
of additional  Mortgage  Investments  until December 31, 2032. By not later than
such date, all cash flow attributable to principal reduction will be distributed
to the Limited Partners as a return of capital contributions.                   

     Upon acceptance into the  Partnership,  each Partner who acquires his Units
through a  Participating  Broker  Dealer will  receive a capital  account in the
Partnership  which initially will be equal to the purchase price of the Units. A
Partner who acquires a Unit directly from the Partnership in an unsolicited sale
will receive a capital account in the Partnership  which initially will be equal
to the  purchase  price of Units  plus an  amount  equal to the  amount of sales
commissions  that would otherwise have been payable had the Partner acquired his
Unit through a Participating  Broker Dealer assuming no Continuing Servicing Fee
is paid.  Capital  accounts  can be  described  simply  as the "net  equity"  of
Partners in the  Partnership.  The capital  accounts of the Limited Partner are,
under the applicable tax code provisions and regulations, increased by any other
capital  contributions  of the Limited  Partners and net income allocated to the
Limited  Partners.  The capital  account  balances of the Limited  Partners  are
decreased  by the cash  distributions  made to the Limited  Partners  and by net
losses  allocated to the Limited  Partners.  Those Limited Partners who elect to
receive  Periodic Cash  Distributions  will have their capital account  balances
remain static while those who elect to receive  additional Units will have their
capital accounts increased.  Accordingly,  over time, Limited Partners who elect
to reinvest  their  Earnings by  electing to receive  additional  Units will see
their capital accounts  increase relative to those Limited Partners who         

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     elect to receive Periodic Cash Distributions. Accordingly, upon liquidation
a Limited  Partner who elected to receive  additional  Units in lieu of Periodic
Cash  Distributions  will  receive  a larger  distribution  at that  time than a
Limited Partner electing to receive Periodic Cash Distributions.                

     Partnership  Net Income and Net Loss will be allocated  one percent (1%) to
the General  Partners and ninety-nine  percent (99%) to the Limited  Partners in
accordance with their respective  capital accounts provided however that taxable
loss will not be  allocated  to  Limited  Partners  in excess of their  positive
capital  accounts.  The term "Net Income or Net Loss" means for each fiscal year
or any other period,  an amount equal to the Partnership  taxable income or loss
for such fiscal year or other given period,  determined  in accordance  with the
applicable sections of the Internal Revenue Code. While unlikely, a taxable loss
could  occur  for  example,  in the  event the  Partnership  realized  a loss of
principal of its Mortgage  Investments  (through  foreclosure  or otherwise) and
that loss was in excess of the  income  generated  by the  Partnership  for that
fiscal  period.  Cash flow,  which means cash funds  available from Earnings and
from principal  repayments  received in connection with Mortgage  Investments or
the sale of a property  underlying the Mortgage Investment at a foreclosure sale
less the Partnership's costs associated with such sale, attributable to periodic
interest  payments on loans extended by the Partnership will be allocated to the
Limited  Partners and to the General  Partners in accordance with their interest
in Net  Income  and Net  Loss.  As among  Limited  Partners,  cash  flow will be
allocated pro rata in accordance with their capital accounts.                   

     Prospective investors should note that, under the Partnership Agreement and
the policies of the Partnership,  cash distributions are not expected to be made
unless cash flow from operations sufficient therefor has been received.         

     Reports to Limited Partners.  Within ninety (90) days after the end of each
fiscal  year of the  Partnership,  the  General  Partners  will  deliver to each
Limited  Partner such  information  as is necessary for the  preparation of such
Limited Partner of his federal income tax return,  and state income or other tax
returns.  Within 120 days after the end of each  Partnership  fiscal  year,  the
General  Partners  will deliver to each Limited  Partner an annual  report which
includes audited financial  statements of the Partnership prepared in accordance
with   generally   accepted   accounting   principals,   and  which  contains  a
reconciliation  of amounts  shown  therein with  amounts  shown on the method of
accounting used for tax reporting purposes.                                     

     Plan of Distribution.  The Partnership is offering through qualified broker
dealers on a best efforts  basis,  a maximum of 300,000 Units  ($30,000,000)  of
Limited  Partnership  Interest  at $100 per Unit.  The minimum  subscription  is
twenty  (20)  Units   ($2,000).   Participating   Broker  Dealers  will  receive
commissions as follows:  at the rate of either five percent (5%) or nine percent
(9%) (depending upon the investor's election to receive cash distributions or to
reinvest Earnings in the Partnership and acquire  additional Units) of the gross
proceeds on their sales.  Although the General Partners may purchase Units (less
applicable sales commissions),  the General Partners do not anticipate that such
purchases will be made by them or their  affiliates.  In no event will the total
of all  compensation  payable to Participating  Broker Dealers,  including sales
commissions,  expense  reimbursements,   sales  seminars  and/or  due  diligence
expenses  exceed ten percent  (10%) of the  program  proceeds  received  plus an
additional (0.5%) for bona fide due diligence expenses as set forth in Rule 2810
of  the  NASD  Conduct  Rules.   Further,  in  no  event  shall  any  individual
Participating   Broker  Dealer  receive  total   compensation   including  sales
commissions,  expense  reimbursements,  sales seminar or expense  reimbursements
exceed (10%) of the gross proceeds of their sales plus an additional  (0.5%) for
bona fide due  diligence  expenses as set forth in Rule 2810 of the NASD Conduct
Rules (the Compensation Limitation).                                            

     Supplemental Sales Material.  Sales material in addition to this Prospectus
which may be used in  connection  with this  offering  include a sales  brochure
which will  highlight and simplify  certain  information  contained  herein.  If
additional  sales material is prepared for use in connection  with the offering,
use of such  material  will be  conditioned  on filing  with and,  if  required,
clearing by appropriate regulatory authorities.                                 

     Legal  Opinion.  Legal matters in connection  with the Units offered hereby
will be passed upon for the  Partnership by the Law Offices of Stephen C. Ryan &
Associates,  115 Sansome  Street,  Suite 400, San Francisco,  California  94104,
counsel for the  Partnership  and the  General  Partners.  Such  counsel has not
represented the Limited Partners in connection with the Units offered hereby.   

     Experts.  The balance  sheet of the  Partnership  at December  31, 1995 and
balance sheet at June 30, 1995 and 1996 of Gymno Corporation, a General Partner,
included in this Prospectus have been examined by Parodi & Cropper,  independent
certified  public  accountants,  as set forth in their report thereon  appearing
elsewhere  herein and have been included  herein in reliance on such reports and
the authority of such firm as experts in accounting and auditing.               

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     Additional  Information.  The Partnership has filed with the Securities and
Exchange Commission,  Washington, D.C. 20549, a Registration Statement under the
Securities Act of 1933, as amended,  with respect to the Units offered  pursuant
to  this  Prospectus.  For  further  information,   reference  is  made  to  the
Registration  Statement  and to the Exhibits  thereto  which are  available  for
inspection at no fee in the Office of the Commission in Washington,  D.C. 20549.
Additionally,  the Commission  maintains a website that contains reports,  proxy
information  statements and other information  regarding registrants such as the
Partnership that file  electronically.  The address of the Commission website is
http://www.sec.gov.                                                             

     Tabular  Information  Concerning  Prior Programs  Appendix I contains prior
performance  and  investment  information  regarding  this  program  and for the
General Partners' previous programs.  Tables I through III of Appendix I contain
unaudited  information  relating to the prior  programs and their  experience in
raising and  investing  funds,  compensation  of the General  Partners and their
Affiliates  and  operating  results  of prior  programs.  Table V of  Appendix I
contains  unaudited  information  relating  to the prior  programs'  payment  of
mortgage loans.  Table IV is not included  because none of the  Partnerships has
completed its operations or disposed of all of its loans.                       

     Glossary. This Prospectus includes simplified terms and definitions to make
the Prospectus  easier to understand.  These  simplified terms and conditions do
not include all of the details of the terms,  however,  and investors  therefore
should review the "GLOSSARY" section for a more complete understanding.         

     Subscription  Procedures.  In order to subscribe  for Units,  each Investor
should cause the following to be delivered to the  Participating  Broker Dealers
or to the General Partner in the case of unsolicited sales:                     

     1. One executed copy of the Subscription  Agreement,  which  incorporates a
power of attorney to the General Partners.                                      

     2. A check in the amount of $100 per Unit subscribed for. All checks should
be made payable to "Redwood Mortgage Investors VIII," and should be delivered to
the Partnership's offices.                                                      

     The General Partners have the right to accept  subscriptions for fractional
units at any time.                                                              

     The subscription  documents referred to above are contained in the Investor
Subscription Documents provided to                                              
prospective investors under separate cover herewith.                            

RISK FACTORS

     The purchase of the Units offered hereby involves a high degree of risk and
is suitable only for persons with the financial capability of making and holding
long-term investments not readily reducible to cash. Prospective investors must,
therefore, have adequate means of providing for their current needs and personal
contingencies. Prospective investors should also consider the following factors:

REAL ESTATE AND OPERATING RISKS                                                 

     1. Unspecified  Investments Increase Uncertainty To Investors And Investors
Must Rely On Judgment Of General Partners In Investing Proceeds Of The Offering.
The  Partnership's  current Mortgage  Investment  portfolio is summarized in the
Sections of the  Prospectus  entitled  "MANAGEMENT'S  DISCUSSION AND ANALYSIS OF
FINANCIAL  CONDITION OF THE  PARTNERSHIP"  and  "BUSINESS."  However the General
Partners have not yet  identified any specific  investments  with respect to the
proceeds  from  this  Offering  and  thus,  this  Offering  presents   increased
uncertainties to investors.  The Prospective Investors must rely entirely on the
judgment of the General  Partners in investing the proceeds of this Offering and
will be unable to evaluate,  in advance,  the  selection of  borrowers,  and the
terms of the Mortgage  Investments which will be made.  Additionally,  investors
have no  information  to  assist  them in their  investment  decision  as to the
identification  or location of, or as to other  relevant  economic and financial
data  pertaining  to, the assets  which will serve as  collateral  for  Mortgage
Investments.  Thus,  no  assurance  can be given  that the  Partnership  will be
successful in obtaining  suitable  investments or that, if investments are made,
the objectives of the Partnership will be realized.                             

     2. Loan  Defaults  And  Foreclosures  By  Borrowers  May  Adversely  Affect
Partnership.  The  Partnership is in the business of lending money and, as such,
takes the risk of defaults  by  borrowers.  Most  Mortgage  Investments  will be
interest  only  or  partially  amortizing  Mortgage  Investments  providing  for
relatively  small monthly  payments with a large "balloon"  payment of principal
due at the end of the term. Many borrowers are unable to repay such loans out of
their  own  funds  and  are  compelled  to  refinance  or sell  their  property.
Fluctuations  in interest rates and the  unavailability  of mortgage funds coudd

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adversely  affect the ability of borrowers to refinance  their loans at maturity
or sell their property. If the borrower defaults,  the Partnership may be forced
to purchase  the  property at a  foreclosure  sale.  If the  Partnership  cannot
quickly sell or refinance such  property,  and the property does not produce any
significant income, the Partnership's  profitability will be adversely affected.
As of June 30, 1996, the Partnership's  Mortgage  Investment  portfolio included
two (2) loans delinquent over 90 days representing 2.49% of the total portfolio.
These same two loans are in foreclosure.                                        

     3. Risks  Associated With Reliance On Appraisals  Which May Not Be Accurate
Or Which May Be Affected  By  Subsequent  Events.  Since the  Partnership  is an
"asset" rather than a "credit" lender,  the Partnership is relying  primarily on
the real property  securing the Mortgage  Investments to protect its investment.
Thus, the Partnership will rely on appraisals,  prepared by non-affiliated third
parties,  to  determine  the fair market value of real  property  used to secure
Mortgage  Investments  made by the  Partnership.  No assurance can be given that
such  appraisals  will,  in any or all cases,  be accurate.  Moreover,  since an
appraisal fixes the value of real property at a given point in time,  subsequent
events could adversely  affect the value of real property used to secure a loan.
Such  subsequent  events  may  include  general  or local  economic  conditions,
neighborhood values, interest rates and new construction.  Moreover,  subsequent
changes in applicable  governmental  laws and regulations may have the effect of
severely  limiting  the  permitted  uses of the  property,  thereby  drastically
reducing its value.  Accordingly,  if an appraisal is not accurate or subsequent
events adversely effect the value of the property, the Mortgage Investment would
not  be as  secure  as  anticipated,  and,  in the  event  of  foreclosure,  the
Partnership may not be able to recover its entire investment.                   

     4. Risks Associated With Junior  Encumbrances And Construction Loans. As of
June  30,  1996,  the  Partnership's  outstanding  portfolio  included  Mortgage
Investments  of which  forty-two  percent  (42%) were  secured by first deeds by
trust   ($5,917,837),   fifty-six   percent  (56%)  by  second  deeds  of  trust
($7,979,116)  and two percent  (2%) by third deeds of trust  ($300,000).  In the
event of  foreclosure  under a junior deed of trust the debt secured by a senior
deed(s) of trust must be satisfied  before any proceeds from the subsequent sale
of the  property  can be  applied  toward  the  debt  owed  to the  Partnership.
Furthermore,  to protect its junior  security  interest,  the Partnership may be
required to make  substantial  cash  outlays for such items as loan  payments to
senior  lienholders to prevent their  foreclosure,  property  taxes,  insurance,
repairs,  maintenance and any other expenses  associated with the property.  The
Partnership may make construction  loans up to a maximum of ten percent (10%) of
the  Partnership's   Mortgage  Investment   portfolio.   As  of  June  30,  1996
construction  loans accounted for nine percent (9%) of the Company's  portfolio.
Investing in  construction  loans will subject the  Partnership  to greater risk
than loans related to properties with operating histories. Where the Partnership
forecloses on property under  construction,  construction will generally have to
be completed  before the property  can begin to generate an income  stream.  The
Partnership  may not  have  adequate  cash  reserves  on hand  with  respect  to
junior-encumbrances  and/or  construction  loans  at all  times to  protect  its
security in which event the Partnership could suffer a loss of its investment in
such Mortgage Investment (See "CERTAIN LEGAL ASPECTS OF MORTGAGE INVESTMENTS"). 

     5. Bankruptcy And Limitations On Personal Judgments May Prevent Recovery Of
Loan  Thereby  Resulting  In A Loss To The  Partnership.  The  recovery  of sums
advanced by the  Partnership in making  Mortgage  Investments and protecting its
security  may also be  delayed  or  impaired  by the  operation  of the  federal
bankruptcy laws or by  irregularities  in the manner in which the loan was made.
Any borrower has the ability to delay a foreclosure  sale by the Partnership for
a period  ranging  from  several  months  to  several  years or more by filing a
petition in  bankruptcy,  which  automatically  stays any actions to enforce the
terms of the loan. The length of this delay and the costs  associated  therewith
will  generally  have an  adverse  impact  on the  Partnership's  profitability.
Certain  provisions  of California  law  applicable to all real estate loans may
prevent the Partnership from obtaining a personal judgment against a borrower if
the  proceeds  from a  foreclosure  sale were  insufficient  to pay the Mortgage
Investments in full resulting in a loss to the Partnership.  (See "CERTAIN LEGAL
ASPECTS OF MORTGAGE  INVESTMENTS").  As of the effective date of this Prospectus
no borrowers are currently in bankruptcy.                                       

     6. Risks  Associated  With  Unintended  Violations  Of The Usury Statute Or
Other Statutes.  Subject to the exemptions provided by law, interest,  including
"additional  interest" or "reconveyance  fees", on Mortgage  Investments made by
the Partnership will be subject to state usury laws imposing restrictions on the
maximum interest charges. Potential penalties for violation of the usury law may
generally include  restitution of actual usurious interest paid by the borrower,
damages  in an amount  equal to treble  interest  collected  by the  lender  and
unenforceability of the loan. Since Redwood Mortgage, a licensed California real
estate broker, will arrange the Partnership's  Mortgage Investments,  such loans
should be exempt from applicable state usury provisions. Under California Law, a
loan  arranged by a licensed  California  real estate broker will be exempt from
applicable California usury provisions.  Nevertheless, there can be no assurance
that,  in  determining  the legality of interest  rates and other charges by the
Partnership,                                                                    

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unintended violations of the usury statutes may not occur. In such          
an event, the Partnership may have  insufficient cash to pay any damages thereby
adversely  effecting the operations of the  Partnership  and may lose its entire
investment.  In March 1995, the Federal  Reserve Board issued final  regulations
governing high cost mortgages. A high cost mortgage is any consumer loan secured
by the consumer's  principal  residence if either (i) the annual percentage rate
exceeds  by more  than ten  points  the  yield  on  Treasury  securities  having
comparable  periods of maturity or (ii) the total fees  payable by a consumer at
or before  closing  exceeds the greater of eight  percent (8%) of the total loan
amount or $400. The new  regulations  primarily  focus on additional  disclosure
with  respect  to the  terms of the loan to the  borrower,  the  timing  of such
disclosures and the  prohibition of certain terms in the loan including  balloon
payments  and  negative  amortization.  The  failure  to  comply  with  the  new
regulations even the unintended  failure will render the loan rescindable for up
to three  (3) years and the  lender  could be held  liable  for  attorney  fees,
finance  charges and fees paid by the borrower and certain other money  damages.
Although the Partnership  anticipates making relatively few Mortgage Investments
that would  qualify as high cost  mortgages,  the failure to comply with the new
regulations could adversely affect the Partnership.                             

     7. Loan-To-Value  Ratio Are Determined By Appraisals Which May Be In Excess
Of The Ultimate Purchase Price Of The Underlying Property.  The General Partners
will determine the principal amount of each loan.  Generally,  the amount of the
loan combined with the outstanding debt secured by a senior deed of trust on the
security  property will not exceed eighty  percent (80%) of the appraised  value
for  residential  properties,  seventy  percent (70%) of the appraised value for
commercial  property  and  fifty  percent  (50%)  of  the  appraised  value  for
unimproved land. Any of the foregoing  loan-to-value ratios may be increased if,
in the sole  discretion  of the General  Partners,  a given loan is supported by
credit adequate to justify a higher  loan-to-value  ratio.  To date,  there have
been no adjustments  to the foregoing  loan-to-value  ratios.  The factors to be
considered  by the General  Partners  include,  but are not  limited  to,  their
previous   experience  with  the  borrower,   the   availability  of  additional
collateral,  an expected  inheritance  an/or an increase in the credit rating of
the borrower.  In addition,  such  loan-to-value  ratios may be increased by ten
percent  (10%) to the extent  mortgage  insurance  is  obtained.  The  foregoing
loan-to-value  ratios will not apply to purchase-money  financing offered by the
Partnership to sell any Partnership real estate acquired through  foreclosure or
to refinancing of an existing loan in default upon maturity. Notwithstanding the
foregoing,  in no event  will the  loan-to-value  ratio for  construction  loans
exceed eighty percent (80%) of the  independently  appraised  completed value of
the property.  The loan-to-value  ratios set forth above relate to the appraised
value of a property which may be in excess of the ultimate purchase price of the
underlying property. No assurance can be given that such appraisals will reflect
that actual amount buyers will pay for the  property.  Further,  if the value of
the property declines to a value below the amount of the loan, together with all
senior loans, the loan could become under-collateralized. This would result in a
risk of loss for the Partnership if the borrower defaults on the loan.          

     8. Use Of  Leverage  May Reduce The  Partnership's  Profitability  Or Cause
Losses Through Liquidation.  The Partnership may borrow funds for the purpose of
making Mortgage  Investments or for any other proper partnership  purpose on any
terms  commercially  available  and may assign all or a portion of its  Mortgage
Investment   portfolio  as  security  for  such  loans.  The  maximum  aggregate
indebtedness  which may be incurred by the Partnership is fifty percent (50%) of
the value of the Mortgage  Investment  portfolio.  The  Partnership has obtained
from a commercial bank a line of credit in the amount of $3,000,000.  As of June
30, 1996 the Partnership has borrowed  $2,892,000 which represents 20.37% of the
outstanding principal balance of the Mortgage Investment portfolio.  The General
Partners  anticipate  engaging in such borrowing when the interest rate at which
the  Partnership  can borrow  funds is  somewhat  less than the rate that can be
earned  by  the  Partnership  on  its  Mortgage   Investments  (See  "INVESTMENT
OBJECTIVES AND CRITERIA -  Borrowing").  Interest rate  fluctuations  may have a
particularly  adverse  effect on the  Partnership  if it is using such  borrowed
money to fund Mortgage Investments.  Such borrowed money will bear interest at a
variable  rate,  whereas  the  Partnership  may  be  making  fixed  rate  loans.
Therefore,  if prevailing  interest rates rise, the Partnership's  cost of money
could exceed the income earned from that money,  thus reducing the Partnership's
profitability or causing losses through  liquidation of Mortgage  Investments in
order to repay the debt on the  borrowed  money or  default  if the  Partnership
cannot cover the debt on the borrowed money.                                    

     9.  Fluctuations In Interest Rates May Effect Return On Investment.  Recent
years have  demonstrated  that mortgage interest rates are subject to abrupt and
substantial  fluctuations.  The  Partnership  intends to make a large  number of
medium to long range term (three to fifteen year) Mortgage Investments,  and the
purchase of Units is a relatively  illiquid  investment.  If prevailing interest
rates rise above the average  interest  rate being  earned by the  Partnership's
Mortgage  Investment  portfolio,  investors  may be unable to quickly  liquidate
their  investment in order to take  advantage of higher  returns  available from
other  investments.  In addition,  an increase in interest rates  accompanied by
tight supply of mortgage  funds may cause  refinancing by borrowers with balloon
payments to be difficult or  impossible,  regardless  of the market value of the
collateral  at the time  such  balloon  payments  are due.  In such  event,  the
property may be foreclosed upon (See "LOAN DEFAULTS AND FORECLOSURES").         

     10.  Marshaling  Of Assets  Could  Delay Or  Reduce  Recovery  Of  Mortgage
Investments.  As security for a single Mortgage Investment,  the Partnership may
require a borrower to execute  deeds of trust on other  properties  owned by the
borrower in addition to the property the borrower is purchasing  or  refinancing
in order to further secure the borrower's obligation to the Partnership.  In the
event of a default by the borrower, the Partnership may be required to "marshal"
the assets of the borrower,  if there are lienholders junior to the Partnership.
Marshaling is an equitable  doctrine used to protect a junior                   

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     lienholder  with a  security  interest  in a  single  property  from  being
"squeezed out" by a senior  lienholder,  such as the Partnership,  with security
interest not only in the  property,  but in one or more  additional  properties.
Accordingly,  if another  creditor of the  borrower  forced the  Partnership  to
marshal  the  borrower's  assets,  foreclosure,  and  eventual  recovery  of the
Mortgage  Investment,  could be delayed or reduced,  and the Partnership's costs
associated therewith could be increased.                                        

     11. Potential Liability For Toxic Or Hazardous Substances If Partnership Is
Considered Owner Of Real Property.  If the Partnership  takes an equity interest
in, management control of, or forecloses on any of the Mortgage Investments,  it
may be  considered  the  owner  of the  real  property  securing  such  Mortgage
Investments.  If foreclosure on any loan becomes necessary,  and the Partnership
acquires record  ownership of the property  through  foreclosure sale to protect
its  investment,  the  Partnership  will conduct its  management of the property
primarily to protect its security interest in the property. The Partnership will
not  participate  in the  management of any facility on the property in order to
minimize  the  potential   for  liability  for  cleanup  of  any   environmental
contamination  under applicable  federal,  state, or local laws. There can be no
assurance that the Partnership  would not incur full recourse  liability for the
entire cost of any such  removal and  cleanup,  or that the cost of such removal
and cleanup would not exceed the value of the property.  Full recourse liability
means that property of the Partnership in addition to the contaminated  property
could be sold in order to pay the costs of cleanup in excess of the value of the
property at which such  contamination  occurred.  In addition,  the  Partnership
could incur  liability to tenants and other users of the affected  property,  or
users of neighboring  property,  including liability for consequential  damages.
Consequential  damages are damages which are a consequence of the  contamination
but are not costs required to clean up the  contamination,  such as lost profits
of a business.  The  Partnership  would also be exposed to risk of lost revenues
during any cleanup,  and to the risk of lower lease rates or decreased occupancy
if the existence of such  substances or sources on the property become known. If
the  Partnership  fails to remove the  substances  or  sources  and clean up the
property,  it is possible that federal,  state, or local environmental  agencies
could perform such removal and cleanup,  and impose and  subsequently  foreclose
Liens on the property  for the cost  thereof.  A "Lien" is a charge  against the
property  of which the  holder  may cause  the  property  to be sold and use the
proceeds in  satisfaction  of the Lien. The Partnership may find it difficult or
impossible to sell the property prior to or following any such cleanup.  If such
substances  are  discovered  after  the  Partnership  sells  the  property,  the
Partnership  could be liable to the  purchaser  thereof if the General  Partners
knew or had  reason to know that such  substances  or sources  existed.  In such
case, the  Partnership  could also be subject to the costs  described  above. If
toxic or hazardous  substances  are present on real  property,  the owner may be
responsible  for the costs of removal or treatment of the  substance.  The owner
may  also  incur  liability  to users of the  property  or users of  neighboring
property for bodily  injury  arising from  exposure to such  substances.  If the
Partnership  is required to incur such costs or satisfy such  liabilities,  this
could have a material adverse effect on Partnership profitability. Additionally,
if a borrower is required to incur such costs or satisfy such liabilities,  this
could result in the borrower's inability to repay its loan from the Partnership.
If the Partnership anticipates that it may become the owner of property that may
be subject to toxic or hazardous  clean-up,  the General  Partners may, in their
discretion, seek to transfer or sell the Mortgage Investment to an affiliated or
unaffiliated entity.                                                            

     12.  Potential  Conflicts  And Risks If  Partnership  Invests  In  Mortgage
Investments With General  Partners Or Affiliates.  The Partnership may invest in
mortgages  acquired by the General  Partners or  Affiliates.  The  Partnership's
portion of the total mortgage loan may be smaller or greater than the portion of
the loan made by the General  Partners or  Affiliates,  but will generally be on
terms substantially similar to the terms of the Partnership's  investment.  Such
an investment  would be made after a determination  by the General Partners that
the  entire  loan  is in an  amount  greater  than  would  be  suitable  for the
Partnership  to make on its own or that the  Partnership  will  benefit  through
broader diversification of its Mortgage Investment portfolio. However, investors
should be aware that  investing  with the General  Partners or Affiliates  could
result in a  conflict  of  interest  between  the  Partnership  and the  General
Partners or Affiliates  in the event that the borrower  defaults on the loan and
both the  Partnership and the General  Partners or Affiliates  protect their own
interest in the loan and in the  underlying  security.  In order to minimize the
conflicts  of interest  which may arise if the  Partnership  invests in Mortgage
Investments  with the  General  Partners or  Affiliates,  the  Partnership  will
acquire its  interest in the loan on the same terms and  conditions  as does the
General  Partners or  Affiliates  and the terms of the loan will  conform to the
investment  criteria  established  by the  Partnership  for the  origination  of
Mortgage Investments. By investing in a loan on the same terms and conditions as
does the General  Partners or an Affiliate,  the Partnership will be entitled to
enforce the same rights as the General  Partners or  Affiliate  in such loan and
the General Partners and Affiliate will not have greater rights in the loan than
does the  Partnership.  As a result,  in the event of a default by the borrower,
any efforts by the General Partners,  an Affiliate or the Partnership to enforce
the terms of the loan will  benefit  those  persons  with  interests in the loan
based upon their respective ownership interests. (See "CONFLICTS OF INTEREST"). 

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INVESTMENT RISKS                                                                

     13. No Assurance Of Cash  Distributions  To Partners.  The General Partners
and their  Affiliates  are paid and  reimbursed by the  Partnership  for certain
services  performed  for the  Partnership  and  expenses  paid on  behalf of the
Partnership (See  "COMPENSATION OF THE GENERAL  PARTNERS AND  AFFILIATES").  The
General  Partners  may  retain  other  firms  to  perform  other  services.  The
Partnership  bears all other expenses  incurred in its operations.  All of these
fees and expenses are deducted  from cash funds  generated by the  operations of
the   Partnership   prior  to  computing  the  amount  which  is  available  for
distribution  to the  General  and  Limited  Partners.  Therefore,  the  General
Partners and Affiliates may benefit as a result of the Partnership's activities,
irrespective  of any cash  distributions  to the Limited  Partners.  The General
Partners,  in their  discretion,  may also  retain  any  portion  of cash  funds
generated  from  operations  for working  capital  purposes of the  Partnership.
Accordingly,  there is no assurance as to when or whether cash will be available
for  Distributions to the Limited Partners from Cash Available for Distribution.
Further,  Limited  Partners  who elect to  acquire  additional  Units in lieu of
receiving  Periodic  Cash  Distributions  will be  entitled  to receive a larger
portion of the Cash Available for Distribution  solely because of their election
to acquire  additional  Units than those  Limited  Partners who elect to receive
monthly, quarterly or annual distributions of Earnings.                         

     14. Partner's Ability To Recover  Investment On Dissolution And Termination
Will  Be  Limited.  In  the  event  of  a  dissolution  or  termination  of  the
Partnership,  the proceeds realized from the liquidation of assets, if any, will
be  distributed  to the  Partners but only after the  satisfaction  of claims of
creditors.  Accordingly,  the ability of a Partner to recover all or any portion
of his investment under such circumstances will depend on the amount of funds so
realized and claims to be satisfied therefrom.                                  

     15. Risk Of Losses As A Result Of Losses Not Insurable Or Not  Economically
Insurable. The Partnership will require comprehensive insurance,  including fire
and extended  coverage,  which is customarily  obtained for or by a mortgagee or
creditor on properties or other assets in which it acquires a security  interest
(generally, such insurance will be obtained by and at the cost of the Borrower).
However,  there are certain types of losses (generally of a catastrophic nature,
such as civil  disturbances and acts of God) which are either uninsurable or not
economically  insurable.   Should  such  a  disaster  occur  to,  or  cause  the
destruction  of, any property  serving as collateral for a Mortgage  Investment,
the Partnership  could lose both its invested  capital and  anticipated  profits
from  such  investment.  In  addition,  on  certain  real  estate  owned  by the
Partnership as a result of foreclosure,  the Partnership may require homeowner's
liability  insurance.  However,  insurance  may  not  be  available  for  theft,
vandalism,  land or mud slides,  hazardous substances or earthquakes on all real
estate owned and losses may result from destruction or vandalism of the property
thereby adversely effecting the profitability of the Partnership.               

     16.  Investors  Must Rely On  Management  For  Decisions  With  Respect  To
Management Of The  Partnership.  All decisions with respect to the management of
the Partnership will be made exclusively by the General Partners. The success of
the Partnership will, to a large extent, depend on the quality of the management
of the  Partnership,  particularly as it relates to lending  decisions.  Limited
Partners  have  no  right  or  power  to  take  part  in the  management  of the
Partnership.  Accordingly,  no person  should  purchase any of the Units offered
hereby  unless he is willing to entrust  all  aspects of the  management  of the
Partnership  to the General  Partners and has  evaluated  the General  Partners'
capabilities to perform such functions (See "MANAGEMENT").                      

     17.  Investors  Will Be Bound By  Decision  Of  Majority  Vote.  Subject to
certain limitations  including notice,  procedure and the inability to amend the
Partnership  Agreement if any such amendment would have the effect of increasing
the duties or  liabilities  of any Partner or materially  changing any Partner's
interest in the  Partnership,  Limited  Partners holding a majority of Units may
vote to, among other things, amend or terminate contracts for services and goods
between the General Partners and the Partnership,  remove the General  Partners,
dissolve the Partnership,  approve or disapprove of all or substantially  all of
the Partnership's assets and amend the Partnership  Agreement.  Limited Partners
who do  not  vote  with  the  majority  in  interest  of  the  Limited  Partners
nonetheless  will be bound by the majority vote. The General  Partner shall have
the right to  increase  this  offering  or conduct  an  additional  offering  of
securities without obtaining the consent of the Limited Partners. Because of the
limitations on transfer of Units, a Limited Partner may not be able to liquidate
his investment in the event he disagrees  with the majority vote.  (See "SUMMARY
OF THE LIMITED PARTNERSHIP AGREEMENT" and "TRANSFER OF UNITS").                 

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     18.  Net Worth Of The  General  Partners  May  Effect  Ability  Of  General
Partners To Fulfill Their  Obligations To The Partnership.  The General Partners
have represented that they have an aggregate net worth on a GAAP basis in excess
of  $1,000,000,  a  significant  portion of which  consists of assets  which are
illiquid. This may be relevant in evaluating the ability of the General Partners
to fulfill  their  obligations  and  responsibilities  to the  Partnership  (See
"MANAGEMENT").                                                                  

     19. Operating  History Of The Partnership.  In addition to the Partnership,
the General Partners have been the general partners of eight prior  partnerships
with similar  investment  objectives.  The continued  success of the Partnership
depends  on the  extent to which the  Partnership  will  continue  to operate in
accordance  with the  expectations  and assumptions set forth in this Prospectus
(See "PRIOR PERFORMANCE SUMMARY").                                              

     20. Risks Regarding  Formation Loan And Repayment Thereof.  The Partnership
will loan to Redwood  Mortgage  funds in an amount equal to the sales (See "PLAN
OF DISTRIBUTION - Formation Loan").  The Formation Loan will be unsecured,  will
not bear  interest and will be repaid in annual  installments.  Commencing  with
this Offering,  Redwood Mortgage shall make annual  installments of one-tenth of
the principal balance of the Formation Loan as of December 31 of each year. Such
payment shall be due and payable by December 31 of the following year.  Prior to
the  termination of this offering,  the principal  balance of the Formation Loan
will increase as additional sales of Units are made each year. The amount of the
annual installment  payment to be made by Redwood Mortgage,  during the offering
stage,  will be  determined by the  principal  balance of the Formation  Loan on
December  31 of each year with the  first  payment  due by  December  31,  1997,
assuming this Offering  commences in 1996.  Upon completion of this Offering the
balance  of the  Formation  Loan  will  be  repaid  in  ten  (10)  equal  annual
installments of principal,  without  interest,  commencing on December 31 of the
year following the year this offering terminates. Redwood Mortgage at its option
may prepay all or any part of the Formation Loan.  Redwood  Mortgage  intends to
repay the Formation Loan principally from loan brokerage  commissions  earned on
Mortgage  Investments and other fees paid by the Partnership.  Furthermore,  the
Partnership  shall  apply a portion of the amount it receives  from  withdrawing
Limited  Partners as early  withdrawal  penalties  first to reduce the principal
balance of the  Formation  Loan,  which  shall have the effect of  reducing  the
amount owed by Redwood Mortgage to the Partnership.  Since Redwood Mortgage will
use the proceeds from loan  brokerage  commissions  on Mortgage  Investments  to
repay the Formation Loan, if all or any one of the initial General  Partners are
removed as a General Partner by the vote of a majority of Limited Partners and a
successor or additional General Partner(s) is thereafter designated, and if such
successor or additional General Partner(s) begins using any other loan brokerage
firm for the  placement  of  Mortgage  Investments  or loan  servicing,  Redwood
Mortgage will be immediately  released from any further payment obligation under
the  Formation  Loan  (except  for  a  proportionate   share  of  the  principal
installment  due at the  end of that  year,  pro  rated  according  to the  days
elapsed).  If all of the General Partners are removed, no other General Partners
are elected,  the  Partnership is liquidated  and Redwood  Mortgage is no longer
receiving payments for services  rendered,  the debt on the Formation Loan shall
be forgiven by the Partnership and Redwood Mortgage will be immediately released
from any further  obligations  under the  Formation  Loan.  As noted above,  the
Formation Loan will not bear interest.  The non-interest  bearing feature of the
Formation  Loan will have the effect of slightly  diluting the rate of return to
Limited  Partners,  but to a much  lesser  extent than if the  Partnership  were
required  to  bear  all of its  own  syndication  expenses  out of the  offering
proceeds.                                                                       

     21.  Delays In Investment  Could  Adversely  Affect Return To Investors.  A
delay will occur between the time  investors  purchase  their Units and the time
the net proceeds of the Offering are invested. This delay could adversely affect
the return paid to the Limited Partners. In order to mitigate this risk, pending
the  investment of the proceeds of this  Offering,  funds will be placed in such
highly liquid,  short-term  investments as the General Partners shall designate.
The interest earned on such interim  investments is expected to be less than the
interest earned by the Partnership on Mortgage Investments. The General Partners
estimate, based upon their historical experience in previous, similar offerings,
that it will be no longer  than  ninety  (90)  days from the time an  investor's
funds are  received  by the  Partnership  until they are  invested  in  Mortgage
Investments.                                                                    

     22.  Subscriptions  For Less Than The Maximum  Number Of Units Could Effect
Potential  Profitability  Of  Partnership.  The  Partnership  will begin  making
Mortgage  Investments which will become part of the existing Mortgage Investment
portfolio as soon as it receives  subscriptions  from  investors.  The potential
profitability of the Partnership and its continued ability to diversify Mortgage
Investments could be adversely  affected if significantly  less than the maximum
offering is raised.                                                             

     23. No Assurance Of  Guaranteed  Payment For Offering  Period.  The Limited
Partners shall receive a guaranteed payment from the Earnings of the Partnership
during the  Guaranteed  Payment  Period (See "TERMS OF THE OFFERING - Guaranteed
Payment for  Offering  Period").  The  Guaranteed  Payment  Period is the period
commencing  on the day an investor is  admitted  to the  Partnership  and ending
three (3) months after the offering terminates. The Guaranteed Payment shall not
be made over the life of the  Partnership.  The Guaranteed  Payment for Offering
Period,  calculated on a monthly basis, shall be equal to the greater of (i) the
Partnership's  Earnings or (ii) the  interest  rate  established  by the Monthly
Weighted Average Cost of                                                        

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     Funds for the Eleventh District Savings  Institutions,  as announced by the
Federal Home Loan Bank of San  Francisco  during the last week of the  preceding
month,  plus two points,  up to a maximum interest rate of twelve percent (12%).
To the extent the payment to be paid is in excess of the Partnership's Earnings,
the General  Partners will contribute  sufficient  capital to the Partnership so
that  the  Guaranteed  Payment  can be  made.  Section  5.07 of the  Partnership
Agreement provides that the General Partners shall not be obligated to make such
Capital  Contribution  if such  amounts  would be subject to claims of creditors
such  that  the  payments  would  not be  available  to be made  to the  Limited
Partners.  The General  Partners  believe that such event is  unlikely.  In such
event,  Section 5.07 provides that the General  Partners will pay the guaranteed
payment from fees which are payable to the General  Partners or Redwood Mortgage
as set forth above.                                                             

     24.  Possible  Extension  Of Offering  Will Allow  Subsequent  Investors To
Review  Partnership's  Mortgage  Investment  Portfolio.   The  General  Partners
anticipate  that the offering will terminate one year from the effective date of
the Prospectus.  However,  the General Partners,  in their sole discretion,  may
elect to extend  the  offering  for  additional  one year  periods.  Prospective
investors  who invest in the later  stages of the  offering  will have a greater
opportunity  to  review   information   regarding  the  Partnership's   Mortgage
Investment  portfolio  that will not be available to early  investors.  Although
early investors will have the opportunity to review the  Partnership's  existing
portfolio of Mortgage  Investments,  they will not have an opportunity to review
any Mortgage Investments to be made with the proceeds of this Offering.  In this
regard,  later investors may have an advantage in initially  deciding whether to
invest in the Partnership.  Earlier  investors will receive  allocations of cash
distributions  from net  proceeds  already  invested in  mortgage  loans and may
receive a higher  rate of return from such  investments  than could be earned on
alternative  investment  by those who invest at a later  stage.  Except as noted
above,  there will be no  investment  advantages  to investors who invest in the
early stage of the offering  versus  investors who invest during the later stage
of the offering during an extended offering period.                             

     25. No Assurance Of Limitation Of Liability Of Limited Partners.  A Limited
Partner  has no right to, and takes no part in,  control and  management  of the
Partnership  business.  However,  the Partnership  Agreement  authorizes Limited
Partners to exercise the right to vote on certain  matters,  including the right
to remove the General  Partners and elect a successor  General  Partner(s)  (See
"SUMMARY  OF  PARTNERSHIP   AGREEMENT  -  Rights  and   Liabilities  of  Limited
Partners").  The California  Revised Limited  Partnership Act expressly provides
that the right to vote on those  matters will not cause the Limited  Partners to
have personal  liability for Partnership  obligations in excess of the amount of
their  Capital  contributions  which have not been  previously  returned to them
(except that the Limited Partners may be required to return amounts  distributed
to them as a return of their Capital  Contributions if the Partnership is unable
to pay creditors  who extended  credit to the  Partnership  prior to the date of
such  return  of  capital).  Stephen  C.  Ryan &  Associates,  counsel  for  the
Partnership,  has advised  that strong  arguments  may be made in support of the
conclusion  that California law governs in all states as to the liability of the
Limited Partners and that neither the possession nor the exercise of such rights
should affect the liability of the Limited Partners.  However, Stephen C. Ryan &
Associates, counsel for the Partnership, has also advised that since there is no
authoritative  precedent  on this  issue,  a question  exists as to whether  the
exercise, or perhaps even the existence, of such rights might provide a basis on
which a court in a state  other  than  California  could  hold that the  Limited
Partners  are  not  entitled  to the  limitation  on  liability  for  which  the
Partnership Agreement provides.                                                 

     26.  Compensation  To General  Partners And Affiliates  Cannot Be Precisely
Determined.  The General Partners and their Affiliates are unable to predict the
amounts of compensation to be paid to them as set forth under  "COMPENSATION  OF
THE GENERAL  PARTNERS AND  AFFILIATES.  Any such  prediction  would  necessarily
involve  assumptions of future events and operating results which cannot be made
at this time.                                                                   

     27. No Assurance That Reserves Will Be Adequate. The Partnership intends to
maintain working capital reserves to meet the Partnership obligations, including
carrying costs and operating  expenses of the Partnership (See "ESTIMATED USE OF
PROCEEDS"). The General Partners believe such reserves are reasonably sufficient
for the  contingencies of the Partnership.  If for any reason those reserves are
insufficient,  the General  Partners  will have to borrow the required  funds or
require the Partnership to liquidate some or all of its Mortgage Investments. In
the event the General  Partners deem it necessary to borrow funds,  there can be
no assurance that such  borrowing will be on acceptable  terms or even available
to the Partnership. Such a result might require the Partnership to liquidate its
investments and abandon its activities.                                         

     28. Limited Transferability Of Units Requires That Investment Be Considered
Long Term. It is highly  unlikely that a public  trading market will develop for
the Units  offered  hereby.  Article VII of the  Partnership  Agreement  imposes
substantial  restrictions upon transferability of Units (See "SUMMARY OF LIMITED
PARTNERSHIP  AGREEMENT and "TRANSFER OF UNITS").  In addition,  the  Partnership
Agreement  does not  provide  for the  buy-back  or  repurchase  of Units by the
Partnership  or the General  Partners,  although  it does  provide for a limited
right to withdraw  capital from the Partnership  after one year from the date of
purchase if a ten  percent  (10%)  early  withdrawal  penalty is paid on the sum
withdrawn or after five years                                                   

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     from the date of purchase  without penalty if the capital is withdrawn over
twenty (20) equal  quarterly  installments or longer as requested by the Limited
Partner or as  determined  by the General  Partners in light of  available  cash
flow.  Notwithstanding  the five (5) years (or longer)  withdrawal  period,  the
General  Partners  may  liquidate  all or part of a  Limited  Partner's  capital
account in four equal  quarterly  installments  subject to a ten  percent  (10%)
withdrawal  penalty applicable to any sums withdrawn prior to the time when such
sums  could  have  been  withdrawn  pursuant  to the  five  (5)  year or  longer
withdrawal  period  (See  "SUMMARY  OF  THE  LIMITED  PARTNERSHIP   AGREEMENT  -
Withdrawal from Partnership").  Limited Partners may not, therefore,  be able to
liquidate  their  investments in the event of an emergency  before the five year
period without the ten percent (10%) penalty and any such liquidation is subject
to  certain  restrictions,  including  the  availability  of  cash.  There is no
assurance  that the value of Units for  purposes of this  withdrawal  in any way
reflects  the fair  market  value of the Units.  In  addition,  Units may not be
readily accepted as collateral for a loan.  Consequently,  the purchase of Units
should be considered only as a long-term investment.                            

     29.  Partnership  May Be Required To Forego More  Favorable  Investment  To
Avoid  Regulation  Under  Investment  Company Act Of 1940. The General  Partners
intend to  conduct  the  operations  of the  Partnership  so that it will not be
subject to  regulation  under the  Investment  Company Act of 1940.  Among other
things,  they will monitor the proportions of the Partnership's  funds which are
placed  in  various  investments  and the form of such  investments  so that the
Partnership  does not come within the definition of an investment  company under
such Act. As a result,  the Partnership  may have to forego certain  investments
which would produce a more favorable return to the Partnership.                 

TAX RISKS                                                                       

     30.  Material Tax Risks  Associated With Investment In Units. An investment
in Units involves  material tax risks.  Each  prospective  purchaser of Units is
urged to consult  his own tax  adviser  with  respect to the federal (as well as
state and  local)  income tax  consequences  of such an  investment.  For a more
detailed  description  of the tax  consequences  of an investment in Units,  see
"FEDERAL INCOME TAX CONSEQUENCES."                                              

     31.  Risks  Associated  With  Partnership  Status  For  Federal  Income Tax
Purposes.  No ruling has been sought (nor would one likely be obtained) from the
Internal Revenue Service that, for federal income tax purposes,  the Partnership
will  be  treated  as a  partnership  and  not as an  association  taxable  as a
corporation.  While an opinion of Stephen C. Ryan &  Associates,  counsel to the
Partnership,  has been  received  that the  Partnership  should be  treated as a
partnership  for federal  income tax purposes,  there is no assurance  that such
treatment will, in fact, be accorded the  Partnership.  An opinion of Stephen C.
Ryan & Associates,  counsel to the Partnership  represents only their best legal
judgment,  and has no  binding  effect on the  Internal  Revenue  Service or any
court,  and no  assurance  can be given  that the  conclusions  reached  in said
opinion  would be  sustained  by a court if  contested.  Any such  contest  to a
determination by the Internal Revenue Service may impose representation  expense
on the Limited Partners.  If the Partnership is taxed as a corporation it would,
among other things, pay income tax on its earnings in the same manner and at the
same rate as a corporation,  and losses,  if any, would not be deductible by the
Limited  Partners.  Also,  Limited  Partners  would be taxed upon  Distributions
substantially in the manner that corporate  shareholders are taxed on dividends.
Thus, if a Partnership  were treated as an association  taxable as a corporation
many of the tax  benefits  that  would  otherwise  be  realized  by the  Limited
Partners would be lost (See "FEDERAL  INCOME TAX CONSEQUENCE - Tax Status of the
Partnership").                                                                  

     32.  Risks  Associated  With  Characterization  Of  Partnership  Income  As
Portfolio  Income.  The General  Partners  anticipate,  based upon the advice of
Stephen C. Ryan & Associates,  counsel to the Partnership,  that the Partnership
will be engaged in the trade or business of mortgage  lending,  and accordingly,
based  upon  the  advice  of  Stephen  C.  Ryan  &  Associates,  counsel  to the
Partnership  (See  "FEDERAL  INCOME TAX  CONSEQUENCES  - Character  of Income of
Loss")  anticipate  that the  Partnership  will likely be  considered an "equity
financed  lending  activity" such that  substantially  all of the  Partnership's
income  will not be  considered  passive  income but rather  will be  considered
portfolio income. Since such treatment is dependent upon a number of factors not
yet  determinable,  such as  whether  the  Partnership  is engaged in a trade or
business,  whether the  Partnership  incurs  liabilities in connection  with its
activities,  and the proper matching of the allocable  expenses  incurred in the
production of Partnership income, there can be no assurance that the Partnership
will be treated as an equity financed lending  activity.  If not, it is possible
that  the  Partnership  would be  unable  to  allocate  expenses  to the  income
produced,  in which case  Limited  Partners  might find their  ability to offset
income  with  allocable  expenses  limited  by the two  percent  (2%)  floor  on
miscellaneous investment expenses.                                              

     Furthermore,  the Partnership's Guaranteed Payment for Offering Period will
likely be treated as a  guaranteed  payment to  Limited  Partners.  As such,  it
should be treated as a payment to partners  for the use of capital  and, to that
extent, will be treated as a payout of interest which again should be treated as
portfolio income. If such Guaranteed Payment for Offering Period were treated as
a Partnership  distributive  share, it is possible,  although unlikely that such
payment would constitute passive income.                                        

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     The determination of whether  Partnership  income will constitute  passive,
non-passive,   or   portfolio   income  is  a  technical   one  subject  to  the
interpretation  of recent and complex  regulations whose full impact has not yet
been determined. It is possible that the treatment of Partnership income will be
different than what is currently anticipated by the General Partners.           

     33. Risks Of Partnership Characterization As A Publicly Traded Partnership.
Based on representations by the General Partners regarding their compliance with
certain safe harbors provided by the IRS, Stephen C. Ryan & Associates,  counsel
for the  Partnership  has  opined  that is it more  likely  than  not  that  the
Partnership will not be treated as a "publicly  traded  partnership" for federal
income tax purposes.  Classification  of the  Partnership as a "publicly  traded
partnership"  could result in: (i) taxation of the Partnership as a corporation;
(ii)  application  of the  passive  activity  loss rules in a manner  that could
adversely  affect the  Limited  Partners;  and (iii)  taxation  of a  tax-exempt
organization's share of the gross income of the Partnership as taxable unrelated
trade or business income (See "FEDERAL INCOME TAX CONSEQUENCES  Publicly Traded 
Partnerships").                                                                 

     34.  Risks  Relating  To Taxation Of  Undistributed  Revenues.  The General
Partners do not anticipate that the  Partnership  will be subject to the risk of
generating   so-called  "phantom  income"  which  is  commonly  associated  with
leveraged  real estate  investment  programs.  Whereas a  leveraged  real estate
program would typically  provide for tax sheltered cash flow in its early years,
such a program generally reaches a cross-over point when the taxable income from
the program exceeds the cash distributions  (due to decreasing  depreciation and
increasing  non-deductible  principal  payments  under the typical  amortization
schedule  for real estate  loans).  As the  Partnership  will not  generally  be
claiming  depreciation or interest deductions on real estate, except in the case
of a  foreclosure  of one of  the  Partnership's  loans,  the  General  Partners
anticipate  based upon  historical  experience  that the  Partnership's  taxable
income  will  not  differ  substantially  from the cash  flow  generated  by the
Partnership's  lending  activities.  It is possible that during certain  taxable
years a Limited  Partner's  taxable income resulting from his ownership of Units
will exceed the cash  distributions  attributable  thereto.  It is possible that
this may occur  because in any given year  otherwise  excess cash may have to be
utilized  to meet  Partnership  obligations.  It is also  possible  that the tax
payable by such  Limited  Partner may exceed the cash  distributed  to him,  and
accordingly, to the extent of such excess, the payment of taxes would constitute
an out-of-pocket  expenditure to the Limited  Partner.  In any year in which the
Partnership  reports  income in excess of  expenses,  a Limited  Partner will be
required to report his allocable share of such income on his personal income tax
return even though he may have received total cash  distributions  less than the
amount of  reportable  income or even the  resultant  federal  income  tax.  For
example,  a Limited Partner who elects to have Earnings  credited to his capital
account  will be  allocated  his share of  Partnership  Net Income and Gain even
though such Partner may receive no cash distributions from the Partnership.     

     35. Risks  Relating To Creation Of Unrelated  Business  Taxable  Income.  A
Tax-Exempt  Limited Partner (such as an employee pension benefit plan or an IRA)
may be subject to tax to the extent that income from the  Partnership is treated
as unrelated  business  taxable income  ("UBTI").  Stephen C. Ryan & Associates,
counsel to the  Partnership  has opined that it is more likely than not that the
income  of the  Partnership  will not  constitute  UBTI.  The  General  Partners
currently  intend to cause the  Partnership  to borrow funds on a limited basis.
The General Partners do not currently intend to cause the Partnership to own and
lease personal  property.  In the event the Partnership  borrows funds or leases
personal  property,  the General  Partners have  represented  that they will use
reasonable efforts to do so in a manner that does not cause Partnership  income,
in any significant amount, to be treated as UBTI. As a result of the possibility
that some portion,  although  likely an  insignificant  portion,  of Partnership
income may be treated as UBTI,  Prospective Investors must consult their own tax
advisors.  An investment in Units may not be suitable for  charitable  remainder
trusts.                                                                         

     36. Risks Of Applicability  Of Alternative  Minimum Tax. The application of
the  alternative  minimum  tax to a Limited  Partner  could  reduce  certain tax
benefits  associated  with the purchase of an Interest in the  Partnership.  The
effect of the  alternative  minimum  tax upon a Limited  Partner  depends on his
particular  overall tax situation,  and each Limited Partner should consult with
his own tax adviser regarding the possible application of this tax.             

     37. Risks Of Audit And Adjustment. A private letter ruling from the Service
has  not  been  obtained  with  respect  to  any  of  the  federal   income  tax
considerations associated with an investment in the Partnership. Certain federal
income tax positions  taken by the  Partnership  may be challenged upon audit by
the Service.  Any adjustment to the Partnership's return resulting from an audit
by the Service  would result in  adjustments  to the tax returns of each Limited
Partner and might result in an examination of items in such returns unrelated to
the  Partnership  or an  examination  of tax returns  for prior or later  years.
Moreover, the Partnership and Limited Partners could incur substantial legal and
accounting costs in contesting any Service challenge, regardless of the outcome.
The General Partners  generally will have the authority and power to act for and
bind  the  Partnership  in  connection  with any such  audit or  adjustment  for
administrative or judicial proceedings in connection therewith.                 

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     38.  Risks Of  Effects  Of State And Local  Taxation.  The state in which a
Limited  Partner  is a  resident  may impose an income tax upon his share of the
taxable income of the Partnership.  Furthermore, states in which the Partnership
will own property  generally  imposes income tax upon each partner's  share of a
partnership's  taxable income considered  allocable to such states.  Differences
may exist between  federal  income tax laws and state and local income tax laws.
Prospective  Limited  Partners  are urged to consult with their own tax advisers
with respect to state and local  taxation.  The  Partnership  may be required to
withhold  state  taxes  from   distributions  to  Limited  Partners  in  certain
instances.                                                                      

ERISA RISKS                                                                     

     39.  Risks  Of  Investment  By  Tax-Exempt  Investors.  In  considering  an
investment in the Partnership of a portion of the assets of a trust of a pension
or  profit-sharing  plan  qualified  under Section 401(a) of the Code and exempt
from tax under  Section  501(a),  a fiduciary  should  consider  (i) whether the
investment  satisfies the  diversification  requirements of Section 404(a)(3) of
the Employee Retirement Income Security Act of 1974 ("ERISA");  (ii) whether the
investment is prudent, since Units are not freely transferable and there may not
be a market created in which he can sell or otherwise  dispose of the Units; and
(iii) whether interests in the Partnership or the underlying assets owned by the
Partnership  constitute  "Plan Assets" for purposes of Section 4975 of the Code.
ERISA requires that the assets of a plan be valued at their fair market value as
of the close of the plan year,  and it may not be possible to  adequately  value
the Units from year to year,  since  there will not be a market for those  Units
and the  appreciation of any property may not be shown in the value of the Units
until the Partnership sells or otherwise disposes of its investments (See "ERISA
CONSIDERATIONS").                                                               

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INVESTOR SUITABILITY STANDARDS

     Investment  in the  Partnership  involves  some  degree of risk.  No public
market for the Units is likely to develop, and the transfer of Units by a holder
could  result in adverse tax  consequences  (See "RISKS AND OTHER  FACTORS"  and
"FEDERAL INCOME TAX CONSEQUENCES"). Accordingly, the Units are suitable only for
persons who have  adequate  financial  means and desire a  relatively  long term
investment with respect to which they do not anticipate any need for liquidity. 

     The  Partnership  has  established  a minimum  suitability  standard  which
requires  that an investor  have  either:  (i) a net worth  (exclusive  of home,
furnishings and  automobiles) of at least $30,000 plus an annual gross income of
at least $30,000,  or (ii)  irrespective of annual gross income,  a net worth of
$75,000  (determined  with the same  exclusions).  Alternatively,  the  standard
requires that the investor is  purchasing  in a fiduciary  capacity for a person
who (or for an entity  which)  meets  such  conditions.  In the case of sales to
fiduciary  accounts,  such  conditions  must  be met by  the  fiduciary,  by the
fiduciary account or by the donor who directly and indirectly supplied the funds
for the purchase of Units.  The Partnership has established  these standards for
the  purchase of Units based upon the  relative  lack of liquidity of such Units
and the fact that the relative  financial  benefit of an investment  therein may
depend upon the tax bracket of the investor.  All prospective  investors will be
required to  represent  in writing  that:  (1) they  comply with the  applicable
standards;  or (ii) they are  purchasing  in a fiduciary  capacity  for a person
meeting such  standards;  or (iii) the standards are met by a donor who directly
or indirectly  supplies the funds for the purchase of Units.  The  Participating
Broker  Dealers will make  reasonable  inquiry to assure that every  prospective
investor  complies  with the  investor  suitability  standards  and the  General
Partners will not accept  subscriptions from any persons who do not represent in
their Subscription  Agreements that they meet such standards.  Under the laws of
certain  states,  transferees  may be required  to comply  with the  suitability
standards set forth herein as a condition to substitution as a Limited  partner.
Accordingly, the Partnership will require certain assurances that such standards
are met before agreeing to any transfer of the Units.                           

     The General  Partners have  established the minimum purchase at twenty (20)
Units  ($2,000).  The General  Partners  may accept  subscriptions  in excess of
$2,000 in  increments  of one Unit  ($100) or  fractional  Units.  No person may
become an Assignee of Record or a substituted  Limited  Partner unless he is the
owner of a minimum of twenty  (20) Units  ($2,000).  An  Assignor  of Units must
continue to hold at least ten (10) Units ($1,000) if he holds any Units. As well
as restrictions on transfer imposed by the  Partnership,  an investor seeking to
transfer his Units  subsequent to his initial  investment  may be subject to the
securities  or "blue  sky" laws of the state in which  the  transfer  is to take
place  (See  "DESCRIPTION  OF UNITS" and  "SUMMARY  OF THE  LIMITED  PARTNERSHIP
AGREEMENT -Restrictions on Transfer").                                          

     A minimum of 20 Units ($2,000) may be purchased,  transferred,  assigned or
retained by an Individual  Retirement Account ("IRA") and incremental amounts in
excess thereof for spousal IRA's  established  under Section 408 of the Internal
Revenue Code of 1986, as amended ("Code").  It should be noted, however, that an
investment in the Partnership will not, in and of itself,  create an IRA for any
investor and that,  in order to create an IRA, an investor  must himself  comply
with the provisions of Section 408 of the Code.                                 

     If the  Partnership  applies to have the Units qualified for sale in states
which have established  suitability  standards and minimum purchase requirements
different  from those set by the  Partnership,  such  suitability  standards and
minimum  purchase  requirements  shall  be set  forth  in a  supplement  to this
Prospectus.                                                                     

     The  investment  objectives  and  policies  of the  Partnership  have  been
designed to make the Units suitable investments for employee benefit plans under
current law. In this regard, the Employee Retirement Income Security Act of 1974
("ERISA")  provides a  comprehensive  regulatory  scheme for "plan  assets."  In
accordance  with final  Regulations  published by the Department of Labor in the
Federal Register on November 13, 1986, the General Partners intend to manage the
Partnership is such a way so as to assure that an investment in the  Partnership
by a Qualified Plan will not, solely by reason of such investment, be considered
to be an investment in the  underlying  assets of the  Partnership so as to make
the assets of the  Partnership  "plan  assets." The final  Regulations  are also
applicable to an IRA. (See "RISK FACTORS--Investment by Tax-Exempt Entities."   

     The General  Partners are not permitted to allow the purchase of Units with
assets  of any  Qualified  Plans if the  General  Partners  (i) have  investment
discretion  with  respect to the assets of the  Qualified  Plan  invested in the
Partnership, or (ii) regularly give individualized investment advice that serves
as the primary  basis for the  investment  decisions  made with  respect to such
assets.  This prohibition is designed to prevent violation of certain provisions
of ERISA.                                                                       

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     Subscription Agreement Warranties. The Subscription Agreement requires each
of the  subscribers  to warrant  that:  he  received,  read and  understood  the
Prospectus  and is relying  on it for his  investment;  he meets the  applicable
suitability  standards  set  forth  in the  Prospectus;  he is  aware  that  the
subscription may be rejected by the General Partners,  the investment is subject
to certain risks  described in the Prospectus and there will be no public market
for the Units;  he has been informed by the  Participating  Broker Dealer of all
facts  relating  to lack of  liquidity  or  marketability;  he  understands  the
restrictions on transferability;  he has sufficient liquid assets to provide for
current  needs  and  personal  contingencies  or,  if a  trustee,  that  limited
liquidity will not affect its ability to make timely  distributions;  he has the
power,  capacity  and  authority  to  make  the  investment;  he is  capable  of
evaluating  the  risks  and  merits  of the  investment;  and he is  making  the
investment  for his own account or his family or in his  fiduciary  capacity and
not as an agent for another. The purpose of the warranties is to ensure that the
subscriber  fully  understands  the  terms of the  offering  and the risks of an
investment and he has the capacity to enter into a Subscription  Agreement.  The
General  Partners on behalf of the Partnership  intend to rely on the warranties
in accepting a Subscription. In any claim or action against the General Partners
or Partnership,  the General Partners or Partnership may use the warranties as a
defense or basis for seeking indemnity from the subscriber.                     

     The  General  Partners  anticipate,  based upon their past  experience  and
knowledge of  professionals  in the  industry,  that  approximately  thirty-five
percent  (35%) of the  Units  issued by the  Partnership  will be  purchased  by
investors who elect to receive monthly,  quarterly or annual distributions,  and
approximately  sixty-five  percent  (65%) by investors  who elect to allow their
share of  Earnings  to be  retained  by the  Partnership  and  credited to their
capital  accounts.  The  General  Partners  may reject  Subscription  Agreements
tendered  by  investors  electing  to  receive  monthly,   quarterly  or  annual
distributions, to the extent necessary to maintain these proportions. Therefore,
a prospective  investor's  Subscription Agreement may be rejected by the General
Partners,  even  though  such  person  meets  the  suitability  and  eligibility
requirements of this offering.                                                  

     Subscription  Procedure. In order to subscribe to Units in the Partnership,
investors must read carefully and execute the "SUBSCRIPTION  AGREEMENT AND POWER
OF ATTORNEY."  For each Unit  subscribed,  investors must tender the sum of $100
per Unit. The minimum investment is twenty (20) Units ($2,000).                 

NOTICE TO CALIFORNIA RESIDENTS

     All Certificates of Limited Partnership  Interests resulting from any offer
and/or sale in California will bear the following legend restricting transfer:  

     "IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS  SECURITY,  OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION  THEREFORE,  WITHOUT THE PRIOR
WRITTEN CONSENT OF THE  COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.                                

 TERMS OF THE OFFERING

     A maximum  of  300,000  Units  ($30,000,000)  are being  offered on a "best
efforts" basis,  which means no one is  guaranteeing  that any minimum number of
Units will be sold, through selected broker dealers (the  "Participating  Broker
Dealers") who are members of the National  Association  of  Securities  Dealers,
Inc. ("NASD"),  at a price of $100 per Unit. The minimum  subscription is twenty
(20)  Units   ($2,000).   The  General   Partners  have  the  option  to  accept
subscriptions  for fractional units in excess of the minimum  subscription.  For
purposes  of meeting  this  minimum  investment  requirement,  an  investor  may
cumulate Units he or she purchased  individually  with those Units  purchased by
his or her spouse or Units  purchased  by his or her  pension or profit  sharing
plan,  IRA or Keogh plan.  Purchasers  of Units will pay $100 cash for each Unit
upon subscription.  The Offering will terminate one year from the effective date
of this Prospectus, unless the General Partners, in their discretion,  terminate
the Offering earlier, or unless the General Partners,  in their sole discretion,
extend the Offering for additional one-year periods.                            

     As this is not the Partnership's first offering of Units, all proceeds from
the  sale  of  Units  will  be  immediately  available  to the  Partnership  for
investment and will not be held in an escrow account.                           

     Subscriptions  received will be deposited into a subscription  account at a
federally  insured  commercial bank or other depository  selected by the General
Partner and invested in short-term  certificates  of deposit,  a money market or
other  liquid asset  account.  Prospective  investors  whose  subscriptions  are
accepted  will be admitted  into the  Partnership  only when their  subscription
funds are  required by the  Partnership  to fund a Mortgage  Investment,  or the
Formation Loan, to create appropriate reserves or to pay organizational expenses
or other proper Partnership  purposes.  During the period prior to admittance of
investors as Limited Partners,  proceeds of the sale are irrevocable and will be
held by the  General  Partners  for the  account of the  Limited  Partner in the
subscription account. Investors' funds will be transferred from the subscription
account into the Partnership's operating account on a first-in, first-out basis.
Upon admission of the Limited  Partners to the Partnership,  subscription  funds
will be released to the Partnership and Units will be issued at the rate of $100
per Unit or fraction thereof. Interest earned on subscription funds while in the
subscription  account will be returned to the  subscriber,  or if the subscriber
elects to compound earnings,  the amount equal to such interest will be added to
his investment in the  Partnership.  If a subscriber  elects to have such amount
added to his investment in the Partnership,  the number of Units actually issued
shall be increased accordingly.                                                 

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     The  General  Partners  and  their  Affiliates  may,  in their  discretion,
purchase Units for their own account. Any Units so purchased will be counted for
the purpose of obtaining  the  required  maximum  subscriptions  and will not be
included in reaching the minimum subscriptions. The maximum amount of Units that
may be  purchased  by the  General  Partners  or their  Affiliates  is 500 Units
($50,000).  However,  it is not anticipated  that such purchases will be made by
the  General  Partners  and their  Affiliates.  Purchases  of such  Units by the
General Partners or their  Affiliates will be made for investment  purposes only
on the same terms, conditions and prices as to unaffiliated parties.            

     Guaranteed  Payment for Offering Period. The Limited Partners shall receive
a guaranteed  payment from the Earnings of the Partnership for Offering  Period,
calculated  on a monthly  basis,  equal to the greater of (i) the  Partnership's
Earnings or (ii) the interest rate  established by the Monthly  Weighted Average
Cost of Funds for the 11th District  Savings  Institutions,  as announced by the
Federal Home Loan Bank of San  Francisco  during the last week of the  preceding
month,  plus two points,  up to a maximum interest rate of twelve percent (12%).
The  Weighted  Average Cost of Funds is derived  from  interest  paid on savings
accounts, Federal Home Loan Bank advances, and other borrowed money adjusted for
valuation in the number of days in each month. The adjustment  factors are 1.086
for  February,  1.024 for 30 day months and 0.981 for 31 day  months.  As of the
date of this Prospectus, the Monthly Weighted Average Cost of Funds for the 11th
District as announced  August 30, 1996,  for the period ended July 30, 1996, and
in effect until September 30, 1996, is 4.819%.  The Guaranteed Payment Period is
the  period  commencing  on  the  day a  Limited  Partner  is  admitted  to  the
Partnership and ending three (3) months after the Offering Termination Date. The
Guaranteed Payment Period shall not be made over the life of the Partnership. To
the extent the  payment to be paid is in excess of the  Partnership's  Earnings,
the General  Partners will contribute  sufficient  capital to the Partnership so
that the Guaranteed Payment may be made. (See "RISK FACTORS - Guaranteed Payment
for  Offering  Period").  Since the  offering  period may be for a period of one
year, with  additional one year periods,  or such shorter period as when all the
Units  are  sold,  there  is  uncertainty  regarding  the  exact  length  of the
Guaranteed Payment Period.                                                      

     Election to Receive  Periodic Cash  Distributions.  Upon  subscription  for
Units,  an investor  must elect whether to receive  Periodic Cash  Distributions
from the  Partnership  or to receive  additional  Units in lieu of Periodic Cash
Distributions. This election, once made, is irrevocable for investors who choose
to receive Periodic Cash Distributions from the Partnership.  However, investors
may change whether such  distributions  are received on a monthly,  quarterly or
annual basis. An investor who initially  elects to receive  additional  Units in
lieu of Periodic Cash Distributions may, after three (3) years, elect to receive
Periodic  Cash  Distributions.  Earnings  allocable  to  investors  who elect to
compound their earnings will be retained by the  Partnership  for making further
Mortgage  Investments or other proper  Partnership  purposes.  The Earnings from
these  further  Mortgage  Investments  will be  allocated  among all  investors;
however;  investors  who  receive  additional  Units  will be  credited  with an
increasingly  larger  proportionate  share of such earnings  than  investors who
receive Periodic Cash Distributions,  since their capital accounts will increase
over time.  Annual cash  distributions  will be made shortly  after the calendar
year end.                                                                       

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 ESTIMATED USE OF PROCEEDS

     The  following  table sets  forth the  estimated  application  of the Gross
Proceeds  of the sale of the  maximum  number  of Units  being  offered  hereby.
Initially, upon the formation of the Partnership,  after deduction of the Public
Offering Expenses, the General Partners estimate that approximately  eighty-four
percent  (84%)  if the  maximum  offering  of  300,000  Units  ($30,000,000)  is
subscribed  of the gross  offering  proceeds  will be used for  making  Mortgage
Investments.  However, as Redwood Mortgage repays the Formation Loan and working
capital reserves are applied to Mortgage  Investments,  as has occurred in prior
programs  approximately  ninety-six  percent  (96%) of the  maximum  offering of
300,000 Units  ($30,000,000)  will be used for making loans. Many of the figures
set  forth  are  estimated,  cannot  be  precisely  calculated  at this time and
consequently should not be relied upon as being definitive.                     

                                                        [Enlarge/Download Table]

                                                         Maximum Offering(6)                      Maximum Offering(7)          
                                                  300,000 Units ($45,000,000) sold         300,000 Units ($30,000,000) sold    
                                                                                                   with leveraged funds        


============================================= ========================================== ======================================
                                                     Dollar Amount           Percent           Dollar Amount           Percent 
------------------------------------------- ----------------------- ----------------- ----------------------- -----------------
                                                                                                                               

Gross Proceeds ....................................... $30,000,000            100.00%            $30,000,000           66.67%  

Leveraged Funds ......................................           0              0                $15,000,000           33.33%  

Total Partnership Funds ...............................$30,000,000            100.00%            $45,000,000          100.00%  

Less Public Offering Expenses (1)                                                                                              

Organizational and Offering Expenses ..................$ 1,200,000              4.00%            $ 1,200,000            2.67%  

Total Offering Expenses ...............................$ 1,200,000              4.00%            $ 1,200,000            2.67%  

Amount Available for Investment (2) ...................$28,800,000             96.00%            $43,800,000           97.35%  

Less:                                                                                                                          

Formation Loan (3) ....................................$ 2,700,000              9.00%            $ 2,700,000            6.00%  

Working Capital Reserves (4) ..........................$   900,000              3.00%            $   900,000            2.00%  

Cash Available for Extension of Loans (5) .............$25,200,000             84.00%            $40,200,000           89.33%  

<FN>                                                                                                                           
(1)      Consists of expenses  incurred in connection with the organization  and formation of the Partnership,  including the  
         legal,  accounting and escrow holder fees and expenses,  the printing costs, the filing fees and other disbursements  
         in connection with the sale and distribution of Units including  reimbursements to Participating  Broker Dealers for  
         bona fide  expenses  incurred for due  diligence  purposes in a maximum  amount of one-half of one percent  (.5%) of  
         Gross  Proceeds  (See  footnote 3 below).  The General  Partners may prepay such  expenses and will be reimbursed by  
         the  Partnership  in an amount not to exceed the lesser of ten percent  (10%) of the Gross  Proceeds or  $1,200,000.  
         The General  Partners will pay any amount of such  expenses in excess of ten percent (10%) of the Gross  Proceeds or  
         $1,200,000 (See "COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES").                                               

(2)      Pending  utilization  of the Net  Proceeds  in the  extension  of Mortgage  Investments  and the  operations  of the  
         Partnership,  all of the Net Proceeds and, thereafter,  the working capital reserves, may be invested in short-term,  
         highly  liquid  investments,  including  government  obligations,  bank  certificates  of deposit,  short-term  debt  
         obligations and interest bearing accounts (See "TERMS OF THE OFFERING" and "PLAN OF DISTRIBUTION").                   

(3)      Participating  Broker Dealers may receive  commissions  as follows:  at the rate of either five percent (5%) or nine  
         percent (9%) (depending upon the investor's  election to receive cash  distributions or to compound  earnings in the  
         Partnership)  of the Gross  Proceeds on sales.  The  Partnership  will loan to Redwood  Mortgage  funds in an amount  
         equal to the sales  commissions  as a Formation  Loan.  The  Formation  Loan is to be used for the purpose of paying  
         sales commissions to                                                                                                  

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Participating  Broker  Dealers.  The amount of the  Formation  Loan set forth in this table is based upon the  maximum  sales  
         commissions  allowable.  The  Formation  Loan will not exceed nine percent  (9%) of the total Gross  Proceeds of the  
         Offering  based  upon the  maximum  sales  commissions  payable,  (See "PLAN OF  DISTRIBUTION  -  Formation  Loan").  
         However,  the General Partners  anticipate,  based upon historical  experience and knowledge of professionals in the  
         industry,  that the  Formation  Loan will be in the  amount of (7.6%) of Gross  Proceeds  if the  maximum  is raised  
         assuming that  sixty-five  percent (65%) of the investors  elect to reinvest their  Earnings and acquire  additional  
         Units  and  thirty-five  percent  (35%)  and  elect to  receive  distributions.  In no event  will the  total of all  
         compensation payable to Participating Broker Dealers,  including sales commissions,  expense  reimbursements,  sales  
         seminars  and/or  due  diligence  expenses  exceed  ten  percent  (10%) of the  program  proceeds  received  plus an  
         additional  (0.5%)  for bona  fide due  diligence  expenses  as set forth in Rule  2810 of the NASD  Conduct  Rules.  
         Further,  in no event shall any individual  Participating  Broker Dealer receive total compensation  including sales  
         commissions,  expense  reimbursements,  sales seminar or expense reimbursement exceed (10%) of the gross proceeds of  
         their sales plus an  additional  (0.5%) for bona fide due  diligence  expenses as set forth in Rule 2810 of the NASD  
         Conduct Rules (the  Compensation  Limitation).  To the extent the actual amount of the Formation Loan is less than    
         the amount stated in the table,  the cash  available for extension of loans will be increased  proportionately.  The  
         Formation  Loan will be  unsecured  and will be repaid,  without  interest,  in annual  installments.  (See "PLAN OF  
         DISTRIBUTION").  Except for the Formation Loan made to Redwood Mortgage,  and  reimbursement of  Organizational  and  
         Offering  Expenses,  no other  Offering  proceeds  will be paid to the  General  Partners or their  Affiliates  (See  
         "COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES").                                                               

(4)      The  Partnership  anticipates  maintaining an average balance of working capital reserve equal to three percent (3%)  
         of the Gross Proceeds of the Offering.                                                                                

(5)      These proceeds will be used to make Mortgage  Investments  (See  "INVESTMENT  OBJECTIVES AND  CRITERIA").  The exact  
         amount of the cash  available  for  extension of Mortgage  Investments  will depend upon the amount of the Formation  
         Loan, organization and operating expenses and cash reserves.  (See Footnote (6) below).                               

(6)      Does not  include  a  capital  contribution  of the  General  Partners  in the  amount  of 1/10th of 1% of the Gross  
         Proceeds (See "SUMMARY OF THE LIMITED PARTNERSHIP AGREEMENT - Capital Contributions").                                

(7)      This  assumes that the General  Partners  can  leverage  approximately  fifty  percent  (50%) of the Gross  Offering  
         Proceeds.                                                                                                             
</FN>                                                                                                                          

 CAPITALIZATION OF THE PARTNERSHIP

     The  capitalization of the Partnership as of June 30, 1996, and as adjusted
to give  effect  to the sale of the  maximum  number  of Units  offered  hereby,
excluding any contributions of the General Partners is as follows:              

                                Actual                         As Adjusted (1)
Units ($100.00 per Unit)    $12,944,388                             $42,944,388 
_______________________                                                         

     (1)  Amount   determined  after  deduction  of  certain  offering  expenses
aggregating $900,000. (See "USE OF PROCEEDS").                                  

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 COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES

     Set forth below in tabular form is a description of  compensation  that may
be received by the General Partners and their Affiliates from the Partnership or
in connection  with the investment of the proceeds of this Offering.  Other than
as set forth herein, no compensation will be paid to the General Partners or any
Affiliate.  These compensation arrangements have been established by the General
Partners  and  are not the  result  of  arms-length  negotiations.  The  General
Partners have reviewed the compensation arrangements among unrelated parties for
the same services and have  accordingly  determined  the following  compensation
levels, based upon that review as well as a determination of what is fair to the
Partnership, are fair and reasonable. In their review, the General Partners have
analyzed  the  compensation  arrangements  in other  offerings,  spoken to other
professionals in the industry including  issuers,  promoters and broker dealers,
examined  "rate sheets" from banks and savings & loans which set forth the rates
being charged by those  institutions for the same or similar services as well as
collected data regarding  compensation  from trade  association  meetings and/or
other relevant  periodicals.  Thus, the amounts are approximately  equivalent to
those  which  would  customarily  be  paid to  unrelated  parties  for the  same
services.  The compensation to be received by the General Partners, as set forth
below, is based upon the loan balances of the Mortgage  Investments which during
the term of the Partnership  will be continually  maturing and "turning over" or
the net asset value of the Partnership. Accordingly, the exact amount of fees to
be paid to the  General  Partners  and their  Affiliates  cannot be  determined.
However, based upon the General Partners' prior experience with this Partnership
and in similar  programs and upon certain  assumptions  made as a result of that
experience  as set forth below,  the General  Partners can estimate on an annual
average basis,  assuming a minimum  partnership  life of twelve (12) years,  the
amount of fees they and their  Affiliates  will receive.  Except as noted below,
there is no limit on the  dollar  amount  of  compensation  and fees paid to the
General Partners and their  Affiliates.  The amount of fees to be paid will vary
from those  estimated  below due to  varying  economic  factors,  over which the
General  Partners have no control,  including,  but not limited to, the state of
the  economy,  lending  competition  in  the  area  where  partnership  Mortgage
Investments  are made,  interest  rates and  Partnership  earnings.  Because the
Partnership is subject to public  reporting  requirements,  the Partnership will
file with the Securities and Exchange  Commission  quarterly and annual reports,
which reports will be available to investors, setting forth, among other things,
the exact amount of compensation  and/or fees being paid to the General Partners
and the Affiliates. Moreover, the General Partners' or their Affiliates' ability
to effect the nature of the  compensation  by undertaking  different  actions is
extremely limited.  The amount of fees paid to the General Partners and/or their
Affiliates  are  competitive  within the  industry,  and  reflect  what  others,
including  some  lending  institutions,  are  charging  for the same or  similar
services. Because the Partnership is only one of many lenders in their industry,
the General Partners' ability to effect fees charged is virtually  non-existent.
Additionally,  to a large extent the amount of fees paid to the General Partners
and their  Affiliates is based upon  decisions  made by the borrower  regarding,
among other things, type and amount of loan, prepayment on the loan and possible
default on the loan.  Certain  terms used in this  table are  defined  under the
caption  "GLOSSARY,"  and the  relationships  with the  General  Partners of the
various   entities   referred  to  herein  are   described   under  the  caption
"MANAGEMENT."                                                                   

OFFERING STAGE

Entity Receiving                                                            
Compensation         Form and Method of                     Estimated Amount
Compensation                      

  General Partners     Reimbursement of organization      Maximum of $1,200,000.
and/or Affiliates    and offering  expenses  including,                     
 but not limited to, attorneys fees,
       accounting fees, printing costs and other
       selling expenses (other than underwriting
     commissions) equal to the lesser of ten
                percent (10%)of the Gross proceeds of the Offering
              or $1,200,000. The General Partners will pay any
          offering and organization expenses in excess
of this amount.(1)                

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 OPERATING STAGE

Entity Receiving                                                            
  Compensation                   Form and Method of             Estimated Amount
Compensation  

  Redwood Mortgage     Loan Brokerage Commissions average   $285,000 per year(5)
 approximately three to six  percent
   (3-6%)of the principal amount of each
Mortgage  Investment, but may be  
    higher or lower depending  upon market
    conditions. Loan Brokerage Commissions
 will be limited to an amount not to
 exceed four  percent (4%) of  the
total Partnership assets per year.
  Such  Commissions are payable solely
by the borrower and not by the    
         Partnership. (See "TERMS OF THE OFFERING").

  Redwood Mortgage     Processing and Escrow Fees for        $19,200 per year(5)
 services in connection with notary,
         document preparation, credit investigation,
   and escrow fees in an amount equal to
the  fees  customarily  charged by
       Redwood Mortgage for comparable  services
         in the geographical area where the property
          securing the Mortgage Investment is located,
    payable solely by the borrower and not
by the Partnership.               

  Redwood Mortgage     Loan Servicing Fee payable monthly   $310,000 per year(5)
 in an amount up to 1/8 of 1% of the
   outstanding  principal amount of each
Mortgage Investment. (2) (3)      

  General Partners     Asset Management Fee payable         $119,000 per year(5)
monthly in an amount up to 1/32   
of 1% of the "net asset value."(2)

 General Partners     Reimbursement of expenses relating     $92,000 per year(5)
and/or Affiliates    to administration of the  Partnership,                   
  subject  to  certain  limitations, see
          Article 10 of the Partnership Agreement.(1)(4)

 Gymno Corporation   Reconveyance Fee for                Approximately $65 per
                     reconveyance of property upon full       deed of trust or
                      payment of loan, payable by borrower.         market rate.

Redwood Mortgage     Assumption Fee for assumption          $5,000 per year(5)
of loans payable by borrower        
as either a set fee or a percentage 
of the loan.                        

Redwood Mortgage     Extension Fee for extending the        $2,500 per year(5)
loan period payable by borrower     
as a percentage of the loan.        

Redwood Mortgage      Interest earned, if any,                   $0 per year(5) 
between the date of deposit of      
     borrower's funds into Redwood  Mortgage's
trust account and  date of payment  
of such funds by Redwood Mortgage   

General Partners      One percent (1%) interest in          $28,000 per year(5) 
Profits, Losses and Distributions   
of Earnings and Cash Available for  
Distribution.                       

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 LIQUIDATING STAGE

Entity Receiving                                                                
Compensation          Form and Method of                       Estimated Amount 
Compensation                  

Redwood Mortgage      Early withdrawal penalty equal         $36,516 per year(5)
to a percentage of the sums         
withdrawn by an early withdrawing   
Limited Partner, a portion of which 
 will be  paid, based  upon the  ratio
between the Formation Loan  and  the
total amount of organizational  and 
  syndication  costs, to the Partnership
as an early withdrawal penalty, to  
reduce the principal amount owed by 
Redwood Mortgage for the Formation  
Loan and  the balance of which      
  will be  retained  by the  Partnership
    for its own account. After the Formation
Loan has been paid, amounts received
from the early  withdrawal  penalty 
   will be retained by the Partnership for
its own account (See  "SUMMARY  OF  
THE  LIMITED  PARTNERSHIP  AGREEMENT
Withdrawal from Partnership").      
_________________________________                                               

     (1) The General  Partners  will  endeavor to minimize  such expenses to the
extent  possible and to the extent  consistent  with the terms of the  offering.
(See "TERMS OF THE OFFERING").                                                  

     (2) The General Partners have assumed that the estimated amount of the Loan
Servicing  Fee payable  will be  approximately  one percent  (1%) per year.  The
General  Partners are entitled to receive a Loan  Servicing Fee of up to one and
one-half percent (1 1/2%) per year. The General  Partners and their  Affiliates,
in their sole  discretion,  may elect to lower the Loan  Servicing  Fee or Asset
Management  Fee for any period of time and  thereafter  raise the fees up to the
stated limits.                                                                  

     (3) On any property  foreclosed  upon, the Loan Servicing Fee is payable by
the borrower up until the time of  foreclosure.  If, at the time of foreclosure,
the Loan  Servicing  Fee has not  been  paid  out of the  trustee's  sale of the
foreclosed property, the Loan Servicing Fee will be payable by the Partnership. 

     (4)  The  Partnership   shall  reimburse  the  General  Partners  or  their
Affiliates  for the  actual  cost of  goods  and  materials  used  for or by the
Partnership and obtained from unaffiliated parties. In addition, the Partnership
shall  reimburse  the  General  Partners  or  their  Affiliates  for the cost of
administrative  services  necessary to the prudent  operation of the Partnership
provided  that such  reimbursement  will be the lesser of (a) the actual cost of
such services or (b) ninety  percent  (90%) of the amount which the  Partnership
would be  required  to pay  independent  parties for  comparable  services.  The
Partnership's  annual report to Limited Partners will provide a breakdown of the
services  performed  and  the  amount  reimbursed  to the  General  Partners  or
Affiliates.                                                                     

     (5)  The  amount  of fees to be paid  to the  General  Partners  and  their
Affiliates  are  based on  certain  assumptions  made in  light  of the  General
Partners' past  experience  with similar  programs.  In determining  the average
annual fees to be paid to the General  Partners and their Affiliates the General
Partners have assumed, based upon their historical experience the following: (i)
a minimum  Partnership life of twelve (12) years assuming  $15,000,000 is raised
in year one (1) and  $15,000,000  is raised in year two (2);  (ii) sixty percent
(60%) of the investors elect to reinvest  Earnings and forty percent (40%) elect
to receive Periodic Cash  Distributions;  (iii) a nine percent (9%) yield in the
first three (3) years of  operation,  an eight  percent (8%) yield in years four
(4),  five  (5) and  six (6) and a nine  percent  (9%)  yield  thereafter;  (iv)
withdrawal  rates  similar  to those  experienced  by past  partnerships;  (v) a
turnover  rate on Mortgage  Investments  of ten percent (10%) in year three (3),
fifteen percent (15%) in year four (4) and twenty percent (20%) thereafter;  and
(vi) no leveraging of the portfolio has been  considered.  However,  because the
estimated amount of fees to be paid to the General Partners and their Affiliates
are  based  on  certain  assumptions  and  conditions,   including,   historical
experience,  which may not provide an exact  measurement of the fees to be paid,
the general state of the economy,  interest rates, the turnover rate of Mortgage
Investments,   Partnership  Earnings,   the  duration  and  type  of  loans  the
Partnership  will make,  and the election of investors to receive  Periodic Cash
Distributions or additional Units, the actual amount of fees paid will vary from
those set forth above.                                                          

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     The following table  summarizes the forms and amounts of  compensation  and
reimbursed  expenses paid to the General  Partners or their  affiliates  for the
year ended December 31, 1995,  and the Period January 1, 1996,  through June 30,
1996,  showing actual amounts and the maximum  allowable  amounts for management
and  servicing  fees.  No other  compensation  was paid to the General  Partners
during such periods. Such fees were established by the General Partners and were
not determined by the arms-length negotiation.                                  

                                                        [Enlarge/Download Table]

                                               Year Ended December 31, 1995             Period Ended January 1, 1996            
                                                                                                  June 30, 1996                 


                                                                                                           Maximum              
                                                                                     Maximum                Amount              
                                                                                      Amount             Allowable              
Form                                                                       Actual  Allowable     Actual for Period              

                                                                           PAID BY PARTNERSHIP                                  
                                                                                                                                

Servicing Fee (1) .....................................................  $ 85,457   $128,186   $ 67,389   $101,084              

Management Fee (2) ....................................................  $ 11,587   $ 34,773   $  7,760   $ 23,280              

Reimbursement of Operating Expenses ...................................  $ 22,769   $ 22,769   $ 17,647   $ 17,647              

1% of Profits, Losses and Disbursements ...............................  $  8,368   $  8,368   $  5,606   $  5,606              

                                                                            PAID BY BORROWERS                                   

Loan Brokerage Fees (3) ...............................................  $265,890   $265,890   $236,435   $236,435              

Processing and Servicing Fees .........................................  $  7,957   $  7,957   $  6,950   $  6,950              

<FN>                                                                                                                            
________________________                                                                                                        
(footnotes to table)                                                                                                            

(1)      Redwood  Mortgage is entitled to receive a monthly  servicing fee of  one-eighth  of one percent  (.125%) or 1 1/2% per
         year of the total unpaid principal  balance of each loan, except for the Formation Loan.  However,  Redwood Mortgage   
         elected only to receive Monthly Servicing Fees equal to one percent (1%) per year.                                     

(2)      The General  Partners  are  entitled to receive a monthly fee for managing  the  Partnership's  Mortgage  Investment   
         Portfolio  in an amount up to 1/32 of one  percent  (.03125%)  or 3/8 of one  percent  (.375%)  per year of the "net   
         asset value" of the Partnership which equals the  Partnership's  assets less its liabilities.  However,  the General   
         Partners elected only to receive Asset Management Fees in an amount equal to 1/8 of one percent (.125%) per year.      

(3)      Although  Redwood  Mortgage can receive loan  brokerage  fees of up to six percent (6%) or higher if such fees could   
         have been  negotiated  with  borrowers,  the figures  reflect  actual loan  brokerage  fees  charged on the Mortgage   
         Investments.                                                                                                           
</FN>                                                                                                                           

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 CONFLICTS OF INTEREST

     The Partnership is subject to various  conflicts of interest arising out of
its  relationships  with the General  Partners and their  Affiliates,  including
conflicts  related to the  arrangements  pursuant to which the General  Partners
will  be  compensated  by the  Partnership  (See  "COMPENSATION  OF THE  GENERAL
PARTNERS AND AFFILIATES"). Because the Partnership was organized and is operated
by the General  Partners,  these  conflicts  will not be resolved  through  arms
length  negotiations but through the exercise of the General Partners'  judgment
consistent with their fiduciary  responsibility  to the Limited Partners and the
Partnership's  investment  objectives and policies.  In this regard, the General
Partners are, and will be subject to, public  reporting  requirements  for prior
public  programs  and  for  this  program  and  thus  will  continue  to have an
obligation to keep investors appraised of material  developments with respect to
all  partnerships  in which they are the general  partners,  including  material
developments  or events which give rise to a conflict of  interest.  (See "PRIOR
PERFORMANCE   SUMMARY").   Additionally,   the  Amended  and  Restated   Limited
Partnership  Agreement  also imposes upon the General  Partners an obligation to
disclose and keep investors  appraised of any developments  that would otherwise
be disclosed in accordance with public reporting  requirements,  including those
developments which would give rise to a conflict of interest.  The powers of the
Limited  Partners with respect to any such  developments  including the power to
amend the  Partnership  Agreement,  remove the General  Partners and/or amend or
terminate  contracts for services or goods between the General  Partners and the
Partnership  act as a check to the actions of General  Partners  including their
ability to resolve a conflict of interest,  or to avoid a potential  conflict of
interest  consistent  with and in accordance  with their  fiduciary  duty.  (See
"FIDUCIARY  DUTY  OF  THE  GENERAL  PARTNERS"  and  "INVESTMENT  OBJECTIVES  AND
CRITERIA"). These conflicts include, but are not limited to, the following:     

     1.  Conflicts  Arising  As A Result  Of The  General  Partners'  Legal  And
Financial  Obligations  To Other  Partnerships.  The General  Partners and their
Affiliates  serve  as  the  general  partners  of  other  limited  partnerships,
including real estate mortgage limited  partnerships with investment  objectives
similar to those of the  Partnership.  They may also organize  other real estate
mortgage limited  partnerships in the future,  including  partnerships which may
have  investment  objectives  similar to those of the  Partnership.  The General
Partners and such Affiliates have legal and financial  obligations  with respect
to these partnerships which are similar to their obligations with respect to the
Partnership.  As general  partners,  they may have contingent  liability for the
obligations of such partnerships as well as those of the Partnership.  The level
of  compensation  payable  to  the  General  Partners  or  their  Affiliates  in
connection with the organization and operation of other  partnerships may exceed
that  payable  in  connection  with  the   organization  and  operation  of  the
Partnership. However, the General Partners and their Affiliates do not intend to
offer for sale interests in any public programs (but not private  programs) with
investment  objectives  similar  to the  Partnership  before  substantially  all
initial  proceeds of this  Offering  are  invested or  committed.  Further,  the
General Partners believe that they have sufficient financial and legal resources
to meet and discharge  their  obligations  to the  Partnership  and to the other
partnerships.  In the event that a conflict were to arise,  however, the General
Partners will  undertake the following  steps:  (i) they will seek the advice of
counsel  with  respect  to the  conflict;  (ii) in the event of a short  fall of
resources,  they will seek to allot their financial and legal resources on a pro
rata basis among the partnerships; (iii) in the event a pro rata allotment would
materially  adversely  effect the  operations  of any  partnership,  the General
Partners  will use their  best  efforts  to apply  available  resources  to that
partnership  so as to  attempt to prevent a  material  adverse  effect,  and the
remainder of the resources, if any, would be applied on a pro rata basis.       

     2. Conflicts Arising From The General Partners'  Allocation Of Time Between
The  Partnership  And Other  Activities.  As a result of their  possible  future
interests  in other  partnerships  and the fact that they have also  engaged and
will continue to engage in other business  activities,  the General Partners and
their  Affiliates  will have  conflicts of interests  in  allocating  their time
between  the  Partnership  and  other  activities  in which  they are  involved.
However,  the General  Partners  believe that they, and their  Affiliates,  have
sufficient  personnel  to  discharge  fully  their   responsibilities  to  other
affiliated  partnerships  and  ventures  in  which  they are  involved.  Redwood
Mortgage also provides loan  brokerage  services to other  investors  beside the
Partnership.  As a result,  there will then exist  conflicts  of interest on the
part of the General Partners between the Partnership and the other  partnerships
or investors with which they are  affiliated at such time. The General  Partners
will  decide  which  Mortgage  Investments  are  appropriate  for funding by the
Partnership or by such other  partnerships and investors after  consideration of
all relevant factors, including the size of the loan, portfolio diversification,
and amount of  uninvested  funds and the length of time that  excess  funds have
remained  uninvested.   To  date,  the  General  Partners  have  each  allocated
approximately  12-17 hours per week,  exclusively on Partnership  activities and
estimate  that they will continue to allocate  approximately  the same amount of
time in the future.  This amount may be higher  during the initial  offering and
marketing stages and may be lower after several years of operations. The General
Partners   believe  that  they  will  have  sufficient   time,  based  upon  the
organization  and  personnel  that they have  built and  retained  over the last
eighteen (18) years, to discharge fully their obligations to the Partnership. In
the event that a conflict were to arise, however, the General Partners will take
the following  action:  (i) they will seek the advice of counsel with respect to
the conflict; (ii) in the event of a short fall of resources, they would seek to
allot  their  financial  and  legal  resources  on a pro rata  basis  among  the
partnerships; (iii) in the event a pro rata allotment would materially adversely
effect the operations of any  partnership,  the General  Partners will use their
best efforts to apply resources to that  partnership so as to attempt to prevent
a material adverse effect, and the remainder of the resources,  if any, would be
applied on a pro rata basis.                                                    

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     3. Amount Of Loan Brokerage  Commissions  Effects Rate Of Return To Limited
Partners.  None of the compensation set forth under "COMPENSATION OF THE GENERAL
PARTNERS AND  AFFILIATES"  was determined by arms length  negotiations.  Redwood
Mortgage anticipates that the loan brokerage commissions charged to borrowers by
Redwood Mortgage will average  approximately  three to six percent (3-6%) of the
principal  amount of each loan, but may be higher or lower depending upon market
conditions.  The Loan Brokerage  Commission shall be capped at four percent (4%)
per  annum of the  Partnership's  assets.  Any  increase  in the Loan  Brokerage
Commission charged on loans may have a direct,  adverse effect upon the interest
rates charged by the Partnership on loans and thus the overall rate of return to
Limited Partners. Conversely, if the General Partners reduced the loan brokerage
commissions  charged  by  Redwood  Mortgage  a higher  rate of  return  might be
obtained for the Partnership and the Limited Partners. This conflict of interest
will exist in connection with every Mortgage Investment transaction, and Limited
Partners must rely upon the fiduciary  duties of the General Partners to protect
their  interests.  In an effort to  partially  resolve  this  conflict,  Redwood
Mortgage  has agreed that Loan  Brokerage  Commissions  shall be limited to four
percent  (4%) per annum of the  Partnership  assets  (See  "COMPENSATION  OF THE
GENERAL PARTNERS AND AFFILIATES" and "INVESTMENT  OBJECTIVES AND CRITERIA - Loan
Brokerage Commissions").  As set forth in the Section of the Prospectus entitled
"Compensation  of the  General  Partners  and  Affiliates"  the  loan  brokerage
commissions to be paid to Redwood Mortgage are approximately  equivalent to that
fee which would  customarily be paid to unrelated  parties for the same service.
However,  in the event of a conflict  with  respect  to the  payment of the loan
brokerage  commissions or the quality or type of loan, the General Partners will
resolve the conflict in favor of the Partnership.                               

     The General  Partners  have  reserved  the right to retain the  services of
other  firms,  in  addition  to or in lieu of Redwood  Mortgage,  to perform the
brokerage  services,  loan servicing and other activities in connection with the
Partnership's   Mortgage  Investment   portfolio  that  are  described  in  this
Prospectus.  Any such  other  firms  may  also be  affiliated  with the  General
Partners.                                                                       

     4. Terms Of  Formation  Loan Are Not A Result Of Arms Length  Negotiations.
Upon  commencement  of this  offering,  Redwood  Mortgage  will  borrow from the
Partnership  an amount  equal to not more than  nine  percent  (9%) of the Gross
Proceeds  of this  Offering.  This loan  (the  "Formation  Loan")  will not bear
interest.  Accordingly,  the Partnership's  rate of return on the Formation Loan
will  be  below  the  rate   obtainable  by  the  Partnership  on  its  Mortgage
Investments. The terms of the Formation Loan were not the result of arm's length
negotiations.  Moreover,  this loan will be an unsecured  obligation  of Redwood
Mortgage (See "PLAN OF DISTRIBUTION - Formation Loan").  The amount of any early
withdrawal penalties received by the Partnership from Investors shall reduce the
principal  balance of the  Formation  Loan,  thus  reducing the amount owed from
Redwood Mortgage to the  Partnership.  In the event of default in the payment of
such loan a conflict of interest  would  arise on the General  Partners  part in
connection with the  enforcement of the loan and the continued  payment of other
fees and compensation,  including the Loan Brokerage Fee and Loan Servicing Fee,
to Redwood  Mortgage.  If the General  Partners  are removed,  no other  General
Partners are elected,  the Partnership is liquidated and Redwood  Mortgage is no
longer receiving payments for services rendered,  the debt on the Formation Loan
shall be forgiven by the Partnership  and Redwood  Mortgage shall be immediately
released from any further obligation under the Formation Loan. In the event of a
conflict  with respect to the  repayment  of the  Formation  Loan,  or a default
thereof  or the  continued  payment of other  fees and  compensation  to Redwood
Mortgage, the Partnership, at the Partnership's expense, will retain independent
counsel,  who has not previously  represented the General  Partners to represent
the Partnership in connection with such conflict.                               

     5. Potential Conflicts if Partnerships Invests in Mortgage Investments With
General Partners or Affiliates. The Partnership may invest in mortgages acquired
by the General Partners or Affiliates.  The  Partnership's  portion of the total
Mortgage  Investment  may be smaller or greater than the portion of the Mortgage
Investment made by the General Partners or Affiliates,  but will generally be on
terms substantially similar to the terms of the Partnership's  investment.  Such
an investment  would be made after a determination  by the General Partners that
the entire  Mortgage  Investment is in an amount  greater than would be suitable
for the  Partnership  to make on its own or that the  Partnership  will  benefit
through broader  diversification of its Mortgage Investment portfolio.  However,
investors should be aware that investing with the General Partners or Affiliates
could result in a conflict of interest  between the  Partnership and the General
Partners or Affiliates  in the event that the borrower  defaults on the Mortgage
Investment  and both the  Partnership  and the General  Partners  or  Affiliates
protect  their own interest in the  Mortgage  Investment  and in the  underlying
security.  In order to minimize the conflicts of interest which may arise if the
Partnership  invests  in  Mortgage  Investments  with the  General  Partners  or
Affiliates,  the  Partnership  will acquire its interest in the loan on the same
terms and conditions as does the General Partners or Affiliates and the terms of
the loan will conform to the investment criteria  established by the Partnership
for  the  origination  of  Mortgage  Investments.  By  investing  in a  Mortgage
Investment on the same terms and  conditions as does the General  Partners or an
Affiliate,  the  Partnership  will be entitled to enforce the same rights as the
General  Partners  or  Affiliate  in such  Mortgage  Investment  and the General
Partners and  Affiliate  will not have greater  rights in the loan than does the
Partnership.                                                                    

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     6. General  Partners  Will  Represent  Both Parties In Sales Of Real Estate
Owned to Affiliates.  In the event the Partnership becomes the owner of any real
property  by  reason  of  foreclosure  on a  Mortgage  Investment,  the  General
Partners' first priority will be to arrange the sale of the property for a price
that will permit the  Partnership  to recover  the full  amount of its  invested
capital plus accrued but unpaid  interest and other charges,  or so much thereof
as can reasonably be obtained in light of current market conditions. In order to
facilitate  such a sale,  the General  Partners  may,  but are not  required to,
arrange a sale to persons  or  entities  controlled  by them,  e.g.,  to another
partnership  formed by one of the General  Partners  for the express  purpose of
acquiring  foreclosure  properties  from  lenders such as the  Partnership.  The
General  Partners  will be subject to conflicts  of interest in  arranging  such
sales since they will  represent both parties to the  transaction.  For example,
the  Partnership  and the  potential  buyer will have  conflicting  interests in
determining  the  purchase  price and other terms and  conditions  of sale.  The
General Partners decision will not be subject to review by any outside parties. 

 The General Partners have undertaken to resolve these conflicts as follows:

     (a) No  foreclosed  property  will be sold to the  General  Partners  or an
Affiliate unless the General Partners have first used their best efforts to sell
the property at a fair price on the open market for at least 60 days.           

     (b) In the  event  the  property  will  be sold  to an  Affiliate,  the net
purchase  price must be more favorable to the  Partnership  than any third party
offer received.  The purchase price will also be no lower than the independently
appraised  value of such property at the time of sale, and (2) no lower than the
total  amount  of  the   Partnership's   "investment"   in  the  property.   The
Partnership's  investment includes without limitation the following:  the unpaid
principal  amount of the  Partnership's  Mortgage  Investment,  unpaid  interest
accrued  to  the  date  of  foreclosure,   expenditures   made  to  protect  the
Partnership's  interest in the property  such as payments to senior  lienholders
and for insurance and taxes,  costs of foreclosure  (including  attorneys'  fees
actually  incurred to prosecute the  foreclosure or to obtain relief from a stay
in bankruptcy),  and any advances made by the General  Partners on behalf of the
Partnership  for  any of the  foregoing  less  any  income  or  rents  received,
condemnation  proceeds or other awards  received or similar monies  received.  A
portion  of  the  purchase  price  may be  paid  by the  affiliate  executing  a
promissory note in favor of the Partnership.  Any such note will be secured by a
deed of trust on the subject property. The principal amount of such a note, plus
any obligations secured by senior liens, will not exceed ninety percent (90%) of
the purchase price of the property. The terms and conditions of such a note will
be  comparable  to  those  the  Partnership  requires  when  selling  foreclosed
properties to third parties.                                                    

     (c) Neither the General  Partners nor any of their Affiliates would receive
a real estate commission in connection with such a sale.                        

     It is the General  Partners'  opinion that these  undertakings will yield a
price which is fair and  reasonable  for all parties,  but no  assurance  can be
given that the Partnership  could not obtain a better price from an unaffiliated
third party purchaser.                                                          

     7.  Professionals  Hired  By  General  Partners  Do Not  Represent  Limited
Partners. The attorneys,  accountants and other experts who perform services for
the  Partnership  also  perform  services  for the  General  Partners  and their
Affiliates.  It is  anticipated  that such  representation  will continue in the
future. Such professionals, including, Stephen C. Ryan & Associates, counsel for
the Partnership and the General Partners, do not represent the Limited Partners.
Under the Partnership  Agreement,  each of the Limited Partners acknowledges and
agrees that such professionals, including, Stephen C. Ryan & Associates, counsel
for the Partnership and the General  Partners,  representing the Partnership and
the General  Partners and their  Affiliates do not  represent,  and shall not be
deemed under applicable codes of professional conduct and responsibility to have
represented  or be  representing,  any or all of  the  Limited  Partners  in any
respect.  Such  professionals,  however,  are obligated under those codes not to
engage in unethical or improper professional conduct. In the event of a conflict
regarding services performed by attorneys,  accountants and other experts,  with
respect to the General  Partners and/or the  Partnership  and Limited  Partners,
then the Partnership,  at Partnership expense,  will retain independent counsel,
who has not previously  represented the  Partnership or the General  Partners to
represent the interests of the Limited Partners solely with respect to the issue
of a conflict regarding the services performed by professionals.                

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FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNERS

     The General Partners are accountable to the Partnership as fiduciaries, and
consequently  are under a fiduciary duty to exercise good faith and integrity in
conducting  the  Partnership's  affairs and to conduct  such affairs in the best
interest of the  Partnership.  The California  Revised  Limited  Partnership Act
provides that a limited  partner may institute legal action on behalf of himself
and all other similarly  situated  limited  partners (a class action) to recover
damages for a breach by a general partner of its fiduciary duty, or on behalf of
the  partnership (a  partnership  derivative  action) to recover  damages from a
general partner or third parties where the general partner has failed or refused
to enforce the obligation.                                                      

     Based upon the present state of the law and federal statutes,  regulations,
rules and relevant judicial and  administrative  decisions,  it appears that (1)
the  Limited  Partners  of  the  Partnership  have  the  right,  subject  to the
provisions of applicable procedural rules and statutes to: (a) bring Partnership
class actions,  (b) enforce rights of all Limited Partners  similarly  situated,
and  (c)  bring  Partnership   derivative  actions  to  enforce  rights  of  the
Partnership including,  in each case, rights under certain rules and regulations
of the Securities  and Exchange  Commission;  and (2) Limited  Partners who have
suffered  losses in connection with the purchase or sale of their Units due to a
breach  of  fiduciary  duty by the  General  Partners  in  connection  with such
purchase  or sale,  including  misapplication  by the  General  Partners  of the
proceeds  from the sale of Units,  may have a right to recover  such losses from
the General  Partners in an action based on Rule 10b-5 under the  Securities and
Exchange Act of 1934. In addition,  where an employee  benefit plan has acquired
Units, case law applying the fiduciary duty concepts of ERISA could be viewed to
apply to the General  Partners.  The General Partners will provide quarterly and
annual  reports of operations and must, on demand,  give any Limited  Partner or
his/her  legal  representative  a copy  of the  Form  10-K  and  true  and  full
information  concerning the Partnership's  affairs.  Further,  the Partnership's
books and records may be  inspected  or copied by its Limited  Partners or their
legal representatives at any time during normal business hours.                 

     This is a rapidly developing and changing area of the law and this summary,
describing  in general  terms the  remedies  available  to Limited  Partners for
breaches of  fiduciary  duty by the General  Partners,  is based on statutes and
judicial and administrative decisions as of the date of this Prospectus. Limited
Partners who have questions concerning the duties of the General Partners or who
believe that a breach of fiduciary duty by a General Partner has occurred should
consult their own counsel.                                                      

     Provision  has been  made in the  Partnership  Agreement  that the  General
Partners shall have no liability to the  Partnership for loss arising out of any
act or omission  by the General  Partners,  provided  that the General  Partners
determine  in good faith  that their  conduct  was in the best  interest  of the
Partnership and, provided  further,  that their conduct did not constitute gross
negligence or gross misconduct. As a result, purchasers of Units may have a more
limited right of action in certain  circumstances than they would in the absence
of such a provision in the Partnership Agreement.                               

     The  Partnership  Agreement also provides that, to the extent  permitted by
law, the Partnership  shall indemnify the General Partners against liability and
related  expenses  (including  attorneys'  fees) incurred in dealings with third
parties,  provided that the conduct of the General  Partners are consistent with
the  standards  described  in  the  preceding  paragraph.   Notwithstanding  the
foregoing,   neither  the  General   Partners  nor  their  Affiliates  shall  be
indemnified for any liability imposed by judgment (including costs and attorneys
fees)  arising  from or out of a violation of state or federal  securities  laws
associated  with  the  offer  and  sale  of  Units  offered   hereby.   However,
indemnification will be allowed for settlements and related expenses of lawsuits
alleging  securities law violations  and for expenses  incurred in  successfully
defending   such   lawsuits   provided   that  (a)  a  court   either   approves
indemnification  of litigation  costs if the General  Partners are successful in
defending the action; or (b) the settlement and  indemnification is specifically
approved  by the court of law which  shall have been  advised as to the  current
position of the  Securities and Exchange  Commission (as to any claim  involving
allegations  that  the  Securities  Act of 1933  was  violated)  and  California
Commissioner of Corporations or the applicable  state authority (as to any claim
involving   allegations  that  the  applicable   state's  securities  laws  were
violated).  Any such  indemnification  shall be recoverable out of the assets of
the  Partnership  and not from Limited  Partners.  A  successful  claim for such
indemnification would deplete Partnership assets by the amount paid.            

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 PRIOR PERFORMANCE SUMMARY

     THE  INFORMATION  PRESENTED  IN  THIS  SECTION  REPRESENTS  THE  HISTORICAL
EXPERIENCE OF REAL ESTATE MORTGAGE  PROGRAMS MANAGED BY THE GENERAL PARTNERS AND
THEIR AFFILIATES.  INVESTORS IN THE PARTNERSHIP SHOULD NOT ASSUME THAT THEY WILL
EXPERIENCE RETURNS IF ANY,  COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN SUCH
PRIOR REAL ESTATE MORTGAGE PROGRAMS.                                            

     Experience and Background of General  Partners and Affiliates.  The General
Partners and their Affiliates have, since 1978,  sponsored and managed eight (8)
real estate mortgage limited  partnerships  not including the  Partnership.  All
partnerships have investment objectives similar to the Partnership. Six of these
partnerships were offered without  registration under the Securities Act of 1933
in  reliance  upon the  intrastate  offering  exemption  from  the  registration
requirements  thereunder  and/or the exemption for  transactions not involving a
public  offering.  Three of these  partnerships  including the Partnership  were
registered  under  Securities Act of 1933. The effect of not  registering six of
the prior partnerships is that the partners in the respective  partnerships have
differing  rights  with  respect  to the  transfer  of  their  interests  in the
partnerships.   When  securities  are  issued  without  registration  under  the
Securities Act of 1933, either in reliance upon the intrastate  exemption or the
exemption for transactions not involving a public offering, those securities may
not be  transferred  without  registration  under,  or an  exemption  from,  the
Securities  Act of 1933.  On the other  hand,  securities  issued  pursuant to a
registration  statement  under the  Securities Act of 1933 generally may be sold
without  such   registration.   In  general,   securities   issued  pursuant  to
registration under the Securities Act of 1933 are more freely  transferable than
those which are issued  without  registration  under the Securities Act of 1933.
However, even securities issued pursuant to a registration statement are subject
to  restrictions  on transfer under the  securities  laws of the states in which
they are issued and under the terms of their respective partnership agreements. 

     Not including the initial offering by the Partnership, as of June 30, 1996,
the eight previous  partnerships had raised aggregate  capital  contributions of
approximately  $47,637,000  from  approximately  3,098  investors  and had total
current net assets under  management of  $43,805,044.  As of June 30, 1996,  the
number  of loans  made by these  partnerships  was  approximately  1,798 and the
number of outstanding  Mortgage  Investments made by these earlier  partnerships
was approximately 304 ($38,834,738) which are secured by properties  principally
located  in  Northern  California.  Of  these  loans,  approximately  139  which
represents twenty-two percent (22%) of the Partnerships  portfolio ($8,673,500) 
are secured by single family  residences,  30, which  represents  eleven percent
(11%) of the  Partnerships  portfolio  ($4,171,500) are secured by multi-family 
units,  120 which  represents  fifty-eight  percent  (58%) of the  Partnerships 
portfolio  ($22,391,210)  are  secured  by  commercial  properties  and 15 which
represents nine percent (9%) of the  Partnerships  portfolio  ($3,598,428)  are 
secured by unimproved property.                                                 

     Redwood  Mortgage  Investors  VII  ("RMI  VII")  is  a  California  limited
partnership  of  which  D.  Russell  Burwell,   Michael  R.  Burwell  and  Gymno
Corporation  are the  Co-General  Partners.  RMI VII was  registered  under  the
Securities  Act of 1933.  As of June  30,  1996,  RMI VII had made 221  Mortgage
Investments totaling $31,158,361.  Of these Mortgage Investments,  approximately
71  (thirty-seven  percent (37%) of the total principal  balance of all Mortgage
Investments)  are first  mortgages,  117 (fifty-nine  percent (59%) of the total
principal balance of all Mortgage  Investments) are second  mortgages,  33 (four
percent (4%) of the total  principal  balance of all Mortgage  Investments)  are
third and fourth mortgages.  Two are construction loans. The average size of the
Mortgage Investment is $140,988.                                                

     Redwood  Mortgage   Investors  VI  ("RMI  VI")  is  a  California   limited
partnership  of  which  D.  Russell  Burwell,   Michael  R.  Burwell  and  Gymno
Corporation  are  the  Co-General  Partners.  RMI VI was  registered  under  the
Securities  Act  of  1933.  As  of  December  31,  1995,  RMI  VI  had  a  total
capitalization of $11,040,895 and 774 investors.                                

     Redwood Mortgage Investors V ("RMI V") is a California limited  partnership
of which D. Russell  Burwell,  Michael R. Burwell and Gymno  Corporation are the
Co-General Partners.  RMI V was qualified under California securities laws and a
permit allowing RMI V to offer and sell Units was issued by the  Commissioner of
Corporations  on  September  15, 1986.  As of June 30,  1996,  RMI V had a total
capitalization of $4,525,792 and 399 investors.                                 

     Redwood  Mortgage   Investors  IV  ("RMI  IV")  is  a  California   limited
partnership  of  which  D.  Russell  Burwell,   Michael  R.  Burwell  and  Gymno
Corporation  are  General  Partners.  RMI  IV  was  qualified  under  California
securities  laws and a permit allowing RMI IV to offer and sell units was issued
by the  Commissioner  of  Corporations  on October 2, 1984. The  Commissioner of
Corporations  subsequently  extended  the  effectiveness  of the RMI IV offering
permit  until  September  18,  1986.  As of June  30,  1996,  RMI IV had a total
capitalization of $8,168,440 and 711 investors.                                 

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     Redwood Mortgage  Investors ("RMI") and Redwood Mortgage Investors II ("RMI
II") are California limited partnerships of which D. Russell Burwell, Michael R.
Burwell and Gymno Corporation are General Partners.  Redwood Mortgage  Investors
III ("RMI III") is also a  California  limited  partnership  of which D. Russell
Burwell,  Michael R. Burwell and Gymno  Corporation  are General  Partners.  All
three of these  partnerships  were  sold only to a  limited  number of  selected
California  residents in compliance with applicable federal and state securities
laws. As of June 30, 1996, RMI had 30 investors, RMI II had 36 investors and RMI
III had 87  investors.  The RMI offering  terminated  on July 31, 1982, at which
time it had a  total  capitalization  of  approximately  $1,090,916.  The RMI II
offering   terminated   on  June  30,  1983,  at  which  time  it  had  a  total
capitalization of approximately  $1,282,802.  The RMI III offering terminated on
June 30,  1984,  at which time it had a total  capitalization  of  approximately
$1,429,624.  This  Partnership was re-offered in July,  1992, and as of June 30,
1996, additional contributions of $838,800, were received.                      

     Corporate Mortgage Investors ("CMI") is a California limited partnership of
which D. Russell Burwell and A & B Financial  Services,  Inc. are the Co-General
Partners. The offering period for CMI commenced August 1, 1978, and interests in
CMI have been closed.  The interest in CMI was offered and sold  exclusively  to
qualified  pension and profit sharing plans and other  institutional  investors.
Commencing January 1, 1984, a segregated  portfolio was created within CMI, into
which all new subscriptions  received by CMI were placed. The two (2) Portfolios
within CMI were  designated  Portfolio I and Portfolio II,  respectively.  As of
June 30,  1996,  the two  portfolios  that had been  merged had total  assets of
$1,735,506 and 134 investors.                                                   

     The funds raised by these partnerships have been used to make loans secured
solely  by deeds of trust.  All  loans are  arranged  and  serviced  by  Redwood
Mortgage,  for  which  it  receives  substantial  compensation.   All  of  these
partnerships  will  have  funds to  invest  in  loans  at the same  time as this
Partnership (See "CONFLICTS OF INTEREST - Interest in Other Partnerships").     

     Copies of  audited  financial  statements  for all prior  partnerships  are
available  from the General  Partners  upon  request  and may be  obtained  upon
payment of a fee sufficient to cover copying costs.  Any investor or prospective
investor who would like to receive such  information,  should contact D. Russell
Burwell,  a General Partner of the  Partnership at 650 El Camino Real,  Suite G,
Redwood  City,   California  94063;   (415)  365-5341.   All  of  the  foregoing
Partnerships have achieved their stated goals to date.                          

     Additional Information.  Certain additional information regarding the eight
partnerships whose investment objectives are similar to the Partnership's is set
forth in Appendix I in the Prior Performance Tables:                            

TABLE I  Experience in Raising and Investing Funds.           

TABLE II Compensation to General Partners and Affiliates.     

    TABLE III         Operating Results of Prior Limited Partnerships.

TABLE V  Payment of Mortgage Investments.                     

     Table IV is not included  herein  because none of the  partnerships
has completed its operations or disposed of all of its loans. 

        Table VI  (Descriptions of Open Mortgage  Investments of Prior Limited
      Partnerships) is contained in Part II of the Registration Statement.

     Upon request,  the General  Partners shall provide without charge a copy of
the most recent Form 10-K Annual Report filed with the  Securities  and Exchange
Commission by any prior public  program that has reported to the  Securities and
Exchange Commission within the last twenty-four  months.  Exhibits to any Annual
Report on Form 10-K may be obtained  upon payment of a fee  sufficient  to cover
the copying costs.                                                              

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     No Major Adverse  Developments.  There have been no major adverse  business
developments or conditions  experienced by any of the prior limited partnerships
that would be material to prospective  investors in the  Partnership.  While the
Tax Reform Act of 1986 made a number of  changes to the tax laws,  some  dealing
with limitations on interest  deductions,  it is not expected to have a material
adverse effect upon the performance of the prior limited partnerships.  In fact,
since the  deductibility  of  residential  mortgage  interest  is one of the few
deductible items of interest  remaining,  the Tax Reform Act of 1986 may in fact
enhance the utility of  residential  mortgage loans of the type offered by these
limited partnerships.                                                           

     Prior  Public  Partnerships.  In addition to the  Partnership,  the General
Partners have previously  sponsored two public partnership  registered under the
Securities Act of 1933. These partnerships are RMI VI and RMI VII.              

     Three Year  Summary of Mortgage  Investments  Originated  by Prior  Limited
Partnerships.  During the  three-year  period  ending  June 30,  1996,  Mortgage
Investments  were made by prior programs with investment  objectives  similar to
those of the Partnership. The following table provides a summary of the Mortgage
Investments  originated for the three-year  period as of June 30, 1996. The last
column of the following chart reflects total Mortgage Investment balances on all
loans for each prior program including those which originated prior to the three
(3) year  period  ending  June 30,  1996.  The  following  tables do not include
information  regarding  the  Partnership  and its existing  Mortgage  Investment
portfolio.                                                                      

                                                                [Download Table]

------------------------- ---------------- ---------------------------- ------- 
  Name of         Number of    Estimated Total  Outstanding Mortgage  Total     
 Partnership      Mortgage       Amount of      Investment Balances  Outstanding
                  Investments  Mortgage        Originated 7/1/93 to   Mortgage  
                               Investment         6/30/96           Investments 
                                                                      as of     
                                                                     06/30/96   

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

CMI ................    20   $ 1,833,266.67    $ 1,227,711.55   $  1,647,476.61 
---------------------   ---     --------------   --------------   --------------

RMI ................    17   $1,308,542.94     $   863,255.49   $  1,138,168.22 
--------------------   ---   --------------    --------------    -------------- 

RMI II .............    15   $1,088,733.18     $   445,064.77   $    725,978.94 
--------------------   ---   --------------   --------------   --------------   

RMI III ............    10   $  820,383.27     $   796,568.73   $  1,244,106.12 
--------------------   ---   --------------   --------------   --------------   

RMI IV .............    28   $6,515,657.58     $ 4,839,848.80   $  8,344,059.66 
--------------------   ---   --------------   --------------   --------------   

RMI V ..............    20   $1,984,598.35     $ 1,507,214.52   $  3,698,939.83 
--------------------   ---   --------------   --------------   --------------   

RMI VI .............    33   $7,835,488.84     $ 5,328,453.81   $  9,879,967.86 
--------------------   ---   --------------   --------------   --------------   

RMI VII ............    48   $14,858,725.21    $ 7,944,672.89   $ 12,156,040.77 
--------------------   ---   --------------   --------------   --------------   

TOTAL ..............   191   $36,245,396.04   $ 22,952,790.56   $ 38,834,738.01 
--------------------   ---   --------------   --------------   --------------   

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     A further breakdown of these Mortgage Investments  according to the type of
deed of trust, the location of the property  securing the Mortgage  Investments,
and the type of property securing the Mortgage Investment is provided below:    

Loans                                                                           
        First Trust Deeds                                 $17,771,450.00
        Second Trust Deeds                                 17,519,946.04
        Third Trust Deeds                                     554,000.00
        Fourth Trust Deeds                                    400,000.00

Total                                                         $36,245,396.04    
                                                      ==================

Location of Loans                                                               
       Santa Clara County                                 $10,010,312.62
       San Mateo County                                     5,883,925.00
       Alameda County                                       5,430,458.42
       San Francisco County                                 4,587,750.00
       Stanislaus                                           3,478,750.00
       Contra Costa County                                  3,088,000.00
       Santa Barbara                                          525,000.00
       Sonoma                                                 409,500.00
       Marin                                                  400,500.00
       Monterey                                               397,000.00
       Sacramento County                                      355,000.00
       Mendocino                                              300,000.00
       San Joaquin                                            275,000.00
       Yuba                                                   269,000.00
       Shasta                                                 225,000.00
       San Luis Obispo                                        200,000.00
       Santa Cruz County                                      100,000.00
       Solano                                                  60,000.00
       Other Counties *                                       250,200.00
                                                        ------------------

Total                                                         $36,245,396.04    
                                                        ==================

Type of Property                                                                
       Owner Occupied Homes                                $4,273,069.04
       Non-Owner Occupied                                   3,044,000.00
       Commercial                                          20,482,077.00
       Raw Land                                             3,250,500.00
       Apartments                                           5,195,750.00
                                                        ------------------
Total                                                         $36,245,396.04    
                                                        ==================

*El Dorado                                                    
*Napa                                                         
*Mariposa                                                     
*Amador                                                       

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MANAGEMENT

     General. The General Partners will be responsible for the management of the
proceeds  of the  offering  and the  investments  of the  Partnership.  Services
performed   by  the  General   Partners   include,   but  are  not  limited  to:
implementation of Partnership investment policies; identification, selection and
extension of Mortgage Investments,  preparation and review of budgets, cash flow
and  taxable  income  or loss  projections  and  working  capital  requirements;
periodic physical  inspections and market surveys,  supervision of any necessary
litigation;  preparation and review of Partnership reports,  communications with
Limited Partners; supervision and review of Partnership bookkeeping,  accounting
and audits; supervision and review of Partnership state and federal tax returns;
and supervision of professionals  employed by the Partnership in connection with
any of the foregoing,  including attorneys and accountants. The General Partners
may be  removed by a majority  of the  Limited  Partners  (See  "SUMMARY  OF THE
LIMITED   PARTNERSHIP   AGREEMENT  -  Rights  and  Liabilities  of  the  Limited
Partners").                                                                     

     D. Russell Burwell. D. Russell Burwell,  age 64, General Partner,  Director
(1978-present)  and President  (1979-present) of Redwood Home Loan Co.; Director
(1978-present) and President (1979-present) of A & B Financial Services, Inc., a
finance  company;  Director  (since  1986) and  president  (since 1986) of Gymno
Corporation.  Mr.  Burwell is licensed as a real estate  sales person and is the
majority owner of The Redwood Group, Ltd.  (described below). Mr. Burwell is the
father of Michael R. Burwell (described below).                                 

     Michael R.  Burwell.  Michael R. Burwell,  age 40,  General  Partner,  past
member  of  Board  of  Trustees  and  Treasurer,   Mortgage  Brokers   Institute
(1984-1986); Director, Chief Financial Officer, Secretary, and Treasurer Redwood
Home Loan Co. (1979-present);  Director, Secretary and Treasurer A & B Financial
Services, Inc.  (1980-present);  Director, Chief Financial Officer and Secretary
(since 1986) of Gymno  Corporation;  Director,  Secretary  and  Treasurer of The
Redwood  Group,  Ltd.  (1979-present).  Mr. Burwell is licensed as a real estate
sales person. He is the son of D. Russell Burwell (described above).            

     Gymno  Corporation.  Gymno  Corporation,  General Partner,  is a California
corporation  formed in 1986 for the  purpose  of acting as a general  partner of
this  Partnership  and of other limited  partnerships  formed by the  individual
General  Partners.  D.  Russell  Burwell and Michael R. Burwell are equal (i.e.,
50-50)  shareholders  of Gymno  Corporation.  D. Russell  Burwell and Michael R.
Burwell are Gymno's  Directors;  D. Russell Burwell is its President and Michael
R. Burwell is its Chief Financial Officer and Secretary.                        

     The General  Partners have  represented that they have a combined net worth
of in  excess  of  $1,000,000  determined  on a GAAP  basis.  Audited  financial
statements for Gymno  Corporation  are set forth  hereafter.  (See "CONFLICTS OF
INTEREST  - Interest  in other  Partnerships"  and "RISK  FACTORS - Net Worth of
General Partners").                                                             

     Redwood  Mortgage.  Redwood  Mortgage  is a  licensed  real  estate  broker
incorporated  in 1978 under the laws of the State of California,  and is engaged
primarily in the business of arranging and  servicing  mortgage  loans.  Redwood
Mortgage  will act as the loan broker and  servicing  agent in  connection  with
Mortgage  Investments,  as it has  done  on  behalf  of  several  other  limited
partnerships  formed by the General Partners (See "PRIOR PERFORMANCE  SUMMARY").
Redwood Mortgage is a subsidiary of The Redwood Group, Ltd.                     

     The Redwood Group, Ltd. The Redwood Group, Ltd., a California  corporation,
is a diversified  financial services company  specializing in various aspects of
the mortgage  lending and investment  business.  Its various  subsidiaries  have
arranged over $400,000,000 in loans secured in whole or in part by first, second
and third deeds of trust.  Its  subsidiaries  include Redwood Mortgage and A & B
Financial Services, Inc. D. Russell Burwell, one of the General Partners, is the
majority shareholder of The Redwood Group, Ltd.                                 

     Theodore  J.  Fischer.  Theodore  J.  Fischer,  age 47,  Director  and Vice
President of Redwood Home Loan Co.  (1980-present);  licensed real estate broker
(1979-present);   Assistant  Vice   President,   Western  Title   Insurance  Co.
(1977-1980);  Business Development representative,  Transamerica Title Insurance
Co. (1976-1977).                                                                

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SELECTED OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT        

     No person or entity owns  beneficially  more than five  percent (5%) of the
ownership  interest  in the  Partnership.  The  following  tables sets forth the
beneficial  ownership  interests in the  Partnership as of June 30, 1996, by (i)
each  General  Partner of the  Partnership  and (ii) all  General  Partners as a
group.                                                                          

                 Amount of
                                          Beneficial                   Percent
 Title of Class   Name and Address          Ownership                   of Class

 Units          Gymno  Corporation,           $12,578                 1/10 of 1%
650 El Camino  Real,                            
Suite G, Redwood City,                          
California 94063(1)                             

                D. Russell  Burwell,               $0                         0%
650 El Camino Real,                             
Suite G, Redwood City,                          
California 94063                                

                Michael R.  Burwell,               $0                         0%
650 El Camino Real,                             
Suite G, Redwood City,                          
California 94063                                

                All General Partners          $12,578                 1/10 of 1%
as a group                                      

     (1) Gymno  Corporation  is owned fifty percent (50%) by D. Russell  Burwell
and fifty percent (50%) by Michael R. Burwell (See "MANAGEMENT").               

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                                                        [Enlarge/Download Table]

                                         SELECTED FINANCIAL DATA                                                                    

                                     REDWOOD MORTGAGE INVESTORS VIII                                                                
                                    (A California Limited Partnership)                                                              


                                                                            As of and for the Year ended December 31                
                                                               -------------------------------------------------------------------- 
                                                                       1996               1995               1994               1993
                                                       As of June  30, 1996                                                         

                                                                                                                                    

Loans secured by trust deeds ............................      $ 14,196,953         12,047,252          6,484,707          2,336,674
Less: Allowance for loan losses .........................      $    (86,505)           (39,152)           (13,120)                 0
Real estate held for Sale ...............................                 0                  0                  0                  0
Cash, cash equivalents and other assets .................      $  1,754,518          1,376,237          1,008,205            414,178
Total assets ............................................      $ 15,864,966         13,384,337          7,479,792          2,750,852
Liabilities .............................................      $  2,908,000          1,914,010            189,300            128,772
Partners capital                                                                                                                    
  General partners ......................................      $     12,578             11,325              7,737              2,887
  Limited partners ......................................      $ 12,944,388         11,459,002          7,282,755          2,619,193
   Total partners capital ...............................      $ 12,956,966         11,470,327          7,290,492          2,622,080
   Total liabilities/partners capital ...................      $ 15,864,966         13,384,337          7,479,792          2,750,852
Revenues ................................................      $    744,289            964,780            468,546            113,476
Operating expenses                                                                                                                  
   Promotional interest .................................                 0                  0                  0                  0
   Management fee .......................................      $      7,760             11,587              5,906                192
   Provisions for losses on loans .......................      $     19,085             26,032             13,120                  0
   Provisions for losses on real estate held for                                                                                    
     sale ...............................................      $          0                  0                  0                   
                                                                                                                               0    
   Other ................................................      $    156,810             90,328             39,651              8,269
  Net income ............................................      $    560,634            836,833            409,869            105,015
   Net income allocated to General Partners .............      $      5,606              8,368              4,099              1,050
   Net income allocated to Limited Partners .............      $    555,028            828,465            405,770            103,965
   Net income per $1,000 invested by Limited                                                                                        
    Partners for entire period:                                                                                                     
  - where income in reinvested and compounded ...........      $         41                 83                 81                 85

  - where partner receives income in monthly                                                                                        
       distributions ....................................      $         40                 80                 79                 83


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ORGANIZATIONAL CHART

 -------------------------------------------------
 THE REDWOOD GROUP, INC.
 -------------------------------------------------

--------------------------------------------
D. RUSSELL BURWELL (1)
--------------------------------------------

-----------------------------------------           ------------------------    
REDWOOD MORTGAGE (2)                                     A & B FINANCIAL        
                                                    SERVICES, INC. (2)
-----------------------------------------           ------------------------    

-------------------------------             
GYMNO CORPORATION                           
(Corporate General Partner)                 
-------------------------------             

--------------------------------        ---------------------------------       
D. RUSSELL BURWELL (3)                  MICHAEL R. BURWELL (3)                  
(Individual General Partner)            (Individual General Partner)            
--------------------------------        ---------------------------------       

              ------------------------------------
            PARTNERSHIPS WE MANAGE
              ------------------------------------

                           -----------------------------------------------------
                                                CORPORATE MORTGAGE INVESTORS
                                              REDWOOD MORTGAGE INVESTORS
                                                REDWOOD MORTGAGE INVESTOR II
                                                  REDWOOD MORTGAGE INVESTORS III
                                                 REDWOOD MORTGAGE INVESTORS IV
                                               REDWOOD MORTGAGE INVESTOR V
                                                 REDWOOD MORTGAGE INVESTORS VI
                                                  REDWOOD MORTGAGE INVESTORS VII
                                                  REDWOOD MORTGAGE INVESTOR VIII
                           -----------------------------------------------------

     (1) D. Russell  Burwell is the majority  shareholder  of The Redwood Group,
Inc.                                                                            
     (2) Redwood Mortgage and A&B Financial  Services,  Inc. Are subsidiaries of
The Redwood Group, Inc.                                                         
     (3) D. Russell Burwell and Michael R. Burwell are the sole  shareholders of
Gymno Corporation.                                                              

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INVESTMENT OBJECTIVES AND CRITERIA  

     Principal Objectives. The Partnership is in the business of extending loans
to the  general  public  secured  by  first  and  junior  deeds of trust on real
property.  The  Partnership  has been  operating  for  three  years and has made
Mortgage  Investments  in the  aggregate in excess of  $22,000,000.  The General
Partners have not yet identified nor committed to make any Mortgage  Investments
from the proceeds of this Offering and, as of the date of the  Prospectus,  have
not  entered  into any  negotiations  with  respect to  extending  any  Mortgage
Investments. The Partnership's primary objectives are to:                       

 1.       Yield a high rate of return from mortgage lending; and

2.       Preserve and protect the Partnership's capital.      

     Investors  should not expect the Partnership to provide tax benefits of the
type commonly associated with limited partnership tax shelter  investments.  The
Partnership  is intended to serve as an  investment  alternative  for  investors
seeking current income.  However, unlike other investments which are intended to
provide  current income,  an investment in the Partnership  will be less liquid,
not  readily  transferable,  and  not  provide  a  guaranteed  return  over  its
investment  life. The foregoing  objectives of the Partnership  will not change,
however,  the  Limited  Partnership  Agreement  does  provide  that the  General
Partners shall have sole and complete  charge of the affairs of the  Partnership
and shall operate the business for the benefit of all partners.                 

     General Standards for Mortgage  Investments.  The Partnership is engaged in
the  business  of making  loans to  members  of the  general  public  which will
generally be secured by deeds of trust on real property, including single-family
residences  (including  homes,  condominiums  and  townhouses),   multiple  unit
residential property (such as apartment buildings), commercial property (such as
stores, shops and offices), and unimproved land. Based on prior experience,  the
General  Partners  anticipate that of the number of Mortgage  Investments  made,
approximately  forty  percent to sixty  percent  (40%-60%)  of the total  dollar
amount of  Mortgage  Investments  will be secured by single  family  residences,
twenty percent to fifty percent (20%-50%) by commercial properties,  ten percent
to twenty  percent  (10%-20%)  by  apartments,  and one  percent to ten  percent
(1%-10%)  by  unimproved  land.  As of  June  30,  1996,  of  the  Partnership's
outstanding Mortgage Investment  portfolio  twenty-nine percent (29%) is secured
by single family residences,  fifty-two percent (52%) by commercial  properties,
seventeen  percent  (17%)  by  multi-unit  properties  and two  percent  (2%) by
unimproved land. The Partnership will also make Mortgage  Investments secured by
promissory  notes  which will be secured by deeds of trust and shall be assigned
to the Partnership.  The Partnership's  Mortgage Investments will not be insured
by  the  Federal   Housing   Administration   or   guaranteed  by  the  Veterans
Administration  or otherwise  guaranteed  or insured.  With the exception of the
Formation Loan to be made to Redwood  Mortgage for the purpose of paying certain
of the Partnership's  syndication  expenses,  Mortgage  Investments will be made
pursuant to a set of guidelines designed to set standards for the quality of the
security given for the Mortgage Investments, as follows:                        

     1. Priority of Mortgages.  The lien securing each Mortgage  Investment will
not be junior to more than two other  encumbrances (a first and, in some cases a
second deed of trust) on the real property (the "security property") which is to
be used as  security  for the  loan.  Although  the  Partnership  may also  make
wrap-around (or "all-inclusive") Mortgage Investment, those wrap-around Mortgage
Investments  will  include  no more  than two (2)  underlying  obligations  (See
"CERTAIN  LEGAL  ASPECTS OF Mortgage  Investments  - Special  Considerations  in
Connection with Junior Encumbrances").  The General Partners anticipate that the
Partnership's   Mortgage   Investments   will  be  diversified  as  to  priority
approximately as follows:  first mortgages - thirty-five  percent (35%);  second
mortgages - sixty percent (60%); third mortgages - five percent (5%). As of June
30,  1996,  of the  Partnership's  outstanding  Mortgage  Investment  portfolio,
forty-two percent (42%) were secured by first mortgages, fifty-six percent (56%)
by second mortgages and two percent (2%) by third mortgages.                    

     2. Geographic Area of Lending  Activity.  The Partnership  will continue to
generally  limit lending to Deeds of Trust on properties  located in California.
Approximately eighty percent (80%) of the Partnership's Mortgage Investments are
secured by Deeds of Trust on  properties  in six San Francisco Bay Area counties
and the General Partners anticipate that this will continue in the future. These
counties,  which have an aggregate  population  of over 3.5  million,  are Santa
Clara, San Mateo,  San Francisco,  Alameda , Contra Costa and Marin. The economy
of the area where the  security is located is  important  in  protecting  market
values. Therefore, the General Partners will limit the largest percentage of its
lending activity  principally to the San Francisco Bay Area since it has a broad
diversified  economic  base, an expanding  working  population  and a minimum of
buildable  sites.  The General  Partners  believe these factors  contribute to a
stable  market for  residential  property.  Although,  the real estate market in
Northern  California,  like most of the country, had fallen off during the early
1990's,  the market appears to be recovering,  the General  Partners believe the
strength of the economy of Northern California, especially in the Bay Area, will
continue to protect market values. Although the General Partners anticipate that
the  Partnership's  primary  area  of  lending  will  continue  to  be  Northern
California,  as the remainder of California  economy  continues its recovery the
General Partners may elect to make Mortgage Investments secured by real property
located throughout California.                                                  

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     A wide variety of indicators suggest that economic growth in California was
strong in the first half of 1996.  Statistics  on the  California  labor market,
personal income, consumer spending, firm formation and housing markets all point
to large gains in economic  activity  this year.  Strength in business  and real
estate  loan demand  contributed  to a large  increase in lending by  California
banks in April and May. This  increase is reflected in a 16.5%  increase in home
sales volume in California on the first quarter, relative to a year earlier. The
largest  gains were in the San  Francisco  Bay Area,  where  sales  were  almost
twenty-five  percent (25%) higher than a year  earlier.  Home sales in San Mateo
County  were  sixty-four  percent  (64%)  higher in May over the same month last
year.  Sales in Alameda County were up 21.7% over the year. In the San Francisco
Bay Area, the median single-family home price increased about three percent (3%)
over the year ending in the first  quarter.  Although it is too early to declare
that the California  housing industry has recovered  completely,  rapid economic
growth,  job growth,  decrease in  unemployment  rates,  increase  retail  sales
suggest that the California real estate market will remain strong.              

     3. Construction Mortgage Investments. The Partnership may make construction
loans  (other  than home  improvement  loans on  residential  property)  up to a
maximum of ten percent (10%) of the Partnership's Mortgage Investment portfolio.
As of June 30, 1996, nine percent (9%) of the Partnership's  Mortgage Investment
consisted of  construction  loans. In no event will the  loan-to-value  ratio on
construction  loans exceed eighty percent (80%) of the  independently  appraised
completed value of the property.  The Partnership will not make loans secured by
properties determined by the General Partners to be Special-Use Properties.     

     4. Loan-to-Value Ratio. The amount of the Partnership's Mortgage Investment
combined  with the  outstanding  debt  secured by a senior  deed of trust on the
security  property  generally  will not  exceed a  specified  percentage  of the
appraised  value of the security  property as determined by independent  written
appraisal at the time the loan is made, according to the following table:       

Type of Security Property                                  Loan to-Value Ratio  

Residential                                                               80%   
Commercial Property                                                       70%   
(including retail stores and office buildings)                                  
Unimproved Land                                                           50%   

     Any of the above  loan-to-value  ratios  may be  increased  if, in the sole
discretion of the General Partners, a given loan is supported by credit adequate
to justify a higher loan-to-value ratio. In addition,  such loan-to-value ratios
may be  increased  by ten  percent  (10%)  (e.g.,  to ninety  percent  (90%) for
residential  property),  to the extent mortgage insurance is obtained;  however,
the General Partners do not anticipate  obtaining mortgage  insurance.  Finally,
the foregoing  loan-to-value  ratios will not apply to purchase-money  financing
offered by the  Partnership  to sell any real  estate  owned  (acquired  through
foreclosure)  or to refinance an existing loan that is in default at the time of
maturity.  In such  cases,  the  General  Partners  shall be free to accept  any
reasonable  financing  terms that they deem to be in the best  interests  of the
Partnership,  in their sole  discretion.  Notwithstanding  the foregoing,  in no
event will the loan-to-value  ratio on construction  loans exceed eighty percent
(80%) of the independently appraised completed value of the property. The target
loan-to-value  ratio  for  Partnership   Mortgage  Investments  as  a  whole  is
approximately seventy percent (70%).                                            

     The  Partnership  will receive an  independent  appraisal for such security
property on which it will make a mortgage loan.  Generally,  appraisers retained
by the Partnership shall be licensed or qualified as independent  appraisers and
be  certified  by or  hold  designations  from  one or  more  of  the  following
organizations:  The Federal National Mortgage Association ("FNMA"),  the Federal
Home Loan Mortgage  Corporation  ("FHLMC"),  the National  Association of Review
Appraisers,  the  Appraisal  Institute,  the Society of Real Estate  Appraisers,
M.A.I., Class IV Savings and Loan appraisers or other qualifications  acceptable
to the General Partners.  The General Partners will review each appraisal report
and will conduct a "drive-by" for each property on which an appraisal is made. A
"drive by" means the  General  Partners  or their  Affiliates  will drive to the
property  and assess the front  exterior of the subject  property,  the adjacent
properties  and the  neighborhood.  A "drive by" does not include  entering  any
structures on the property, however, in most cases the General Partners do enter
the structures on the property.                                                 

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     5. Terms of Mortgage  Investments.  Most Mortgage Investments will be for a
period of one to ten years,  but in no event more than fifteen (15) years.  Most
Mortgage  Investments  will  provide for monthly  payments of  principal  and/or
interest, with many Mortgage Investments providing for payments of interest only
or are only partially  amortizing with a "balloon"  payment of principal payable
in full at the end of the term. Some Mortgage  Investments  will provide for the
deferral  and  compounding  of all or a portion of accrued  interest for various
periods of time.                                                                

     6. Equity  Interests  in Real  Property.  Most  Mortgage  Investments  will
provide for interest rates comparable to second mortgage rates prevailing in the
geographical area where the security property is located.  However,  the General
Partners  reserve  the right to make  Mortgage  Investments  (up to a maximum of
twenty-five percent (25%) of the Partnership's  Mortgage  Investment  portfolio)
bearing  a  reduced  stated  interest  rate in  return  for an  interest  in the
appreciation  in value of the security  property during the term of the Mortgage
Investment (See "CONFLICTS OF INTEREST - Loan Brokerage Commissions").          

     7. Escrow Conditions. Mortgage Investments will be funded through an escrow
account handled by a title insurance company or by Redwood Mortgage,  subject to
the following conditions:                                                       

     (a) Satisfactory  title insurance  coverage will be obtained for all loans,
with the title  insurance  policy  naming the  Partnership  as the  insured  and
providing title insurance in an amount at least equal to the principal amount of
the loan.  (Title  insurance  insures  only the  validity  and  priority  of the
Partnership's deed of trust, and does not insure the Partnership against loss by
reason  of  other  causes,  such as  diminution  in the  value  of the  security
property, over appraisals, etc.).                                               

     (b)  Satisfactory  fire and  casualty  insurance  will be obtained  for all
loans,  naming the  Partnership  as loss  payee in an amount  equal to cover the
replacement cost of improvements (See "RISK FACTORS - Uninsured Losses").       

     (c) The General  Partners do not intend to arrange for mortgage  insurance,
which would afford some protection against loss if the Partnership foreclosed on
a loan and there were insufficient  equity in the security property to repay all
sums owed. If the General Partners  determine in their sole discretion to obtain
such insurance,  the minimum  loan-to-value ratio for residential property loans
will be increased (See Paragraph 4 above).                                      

     (d) All loan documents (notes,  deeds of trust, escrow agreements,  and any
other  documents  needed to document a particular  transaction  or to secure the
loan) and insurance policies will name the Partnership as payee and beneficiary.
Mortgage  Investments  will not be written in the name of the General  Partners,
Redwood Mortgage or any other nominee.                                          

     8. Loans to General  Partners and Affiliates.  Although the Partnership may
loan funds to the General Partners or their Affiliates,  no such loans have been
made to date. However,  the Partnership will make the Formation Loan (see below)
to Redwood  Mortgage and may, in certain  limited  circumstances,  loan funds to
Affiliates, to among other things, purchase real estate owned by the Partnership
as a result of foreclosure.                                                     

     9.  Purchase  of  Mortgage  Investments  from  Affiliates  and Other  Third
Parties.  Existing  Mortgage  Investments  may be  purchased,  from the  General
Partners,  their  affiliates  or other third  parties,  only so long as any such
Mortgage  Investment  is not  in  default  and  otherwise  satisfies  all of the
foregoing requirements; provided, the General Partners and their affiliates will
sell no more than a ninety percent (90%) interest and retain a ten percent (10%)
interest in any Mortgage Investment sold to the Partnership which they have held
for more than 180 days. In such case, the General  Partners and affiliates  will
hold their ten percent (10%) interest and the  Partnership  will hold its ninety
percent  (90%)  interest in the Mortgage  Investment  as tenants in common.  The
purchase  price to the  Partnership  for any such Mortgage  Investment  will not
exceed the par value of the note or its fair market value, whichever is lower.  

     10. Note Hypothecation.  The Partnership also may make Mortgage Investments
which will be secured by assignments of secured  promissory notes. The amount of
a Mortgage Investment secured by an assigned note will satisfy the loan-to-value
ratios set forth in  Paragraph  4 above  (which are  determined  as a  specified
percentage of the appraised value of the underlying  property) and also will not
exceed eighty  percent (80%) of the principal  amount of the assigned  note. For
example,  if the  property  securing a note is  commercial  property,  the total
amount  of  outstanding  debts  secured  by such  property,  including  the debt
represented  by the  assigned  note and any  senior  mortgages,  must not exceed
seventy percent (70%) of the appraised value of such property,  and the Mortgage
Investment  will not exceed eighty percent (80%) of the principal  amount of the
assigned note. For purposes of making Mortgage Investments secured by promissory
notes,  the  Partnership  shall rely on the  appraised  value of the  underlying
property,  as determined by an independent written appraisal which was conducted
within the last twelve  (12)  months,  or if such  appraisal  was not  conducted
within the last  twelve  months,  then the  Partnership  will  arrange for a new
appraisal to be prepared for the property.  All such appraisals will satisfy the
standards described in Paragraph 4 above. Any Mortgage Investment evidenced by a
note assigned to the Partnership  will also satisfy all other lending  standards
and policies described herein. Concurrently with the Partnership's making of the
Mortgage Investment,  the borrower of Partnership funds, i.e., the holder of the
promissory  note,  shall execute a written  assignment which shall assign to the
Partnership his/its interest in the promissory note. No more than twenty percent
(20%) of the  Partnership's  portfolio at any time will be secured by promissory
notes.                                                                          

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     11. Joint  Venturers.  The Partnership  may also  participate in loans with
other  lenders  (including  certain  Affiliates  or other  limited  partnerships
organized by the General  Partners),  other  individuals  and pension funds,  by
providing  funds for or  purchasing  a fractional  undivided  interest in a loan
meeting the  requirements  set forth  above.  Because the  Partnership  will not
participate  in a loan in which would not otherwise meet its  requirements,  the
risk of such participation is minimized.                                        

     12.  Diversification.  The  maximum  investment  by  the  Partnership  in a
Mortgage  Investment  will not exceed the  greater  of (a)  $50,000,  or (b) ten
percent (10%) of the then total Partnership assets (See Joint Venturers, above).

     13. Reserve Fund. A contingency reserve fund equal to three percent (3%) of
the Gross  Proceeds  of the  offering  will be  established  for the  purpose of
covering unexpected cash needs of the Partnership.                              

     Credit Evaluations.  The General Partners may consider the income level and
general  creditworthiness  of a borrower to  determine  his ability to repay the
Mortgage  Investment  according  to  its  terms,  but  such  considerations  are
subordinate  to a  determination  that a borrower has  sufficient  equity in the
security  property  to  satisfy  the   loan-to-value   ratios  described  above.
Therefore,  Mortgage  Investments  may be made to  borrowers  who are in default
under other of their  obligations  (e.g., to consolidate  their debts) or who do
not have  sources of income that would be  sufficient  to qualify for loans from
other lenders such as banks or savings and loan associations.                   

     Loan Brokerage  Commissions.  Redwood Mortgage, an affiliate of the General
Partners,  will  receive Loan  Brokerage  Commissions  for services  rendered in
connection with the review, selection, evaluation,  negotiation and extension of
the Mortgage Investments from borrowers.  Redwood Mortgage anticipates that Loan
Brokerage  Commissions will average approximately three to six percent (3-6%) of
the  principal  amount of each Mortgage  Investment,  but may be higher or lower
depending upon market conditions.  The Loan Brokerage Commission will be limited
to four  percent  (4%) per annum of the  Partnership's  total  assets.  The Loan
Brokerage  Commissions will be paid by the borrower through the title company or
escrow agent at the close of escrow.                                            

     Loan Servicing.  It is anticipated  that all Mortgage  Investments  will be
"serviced"  (i.e.,  loan payments will be  collected)  by Redwood  Mortgage,  an
affiliate  of the General  Partners  which will also act as a loan broker in the
initial placement of Mortgage Investments.  Redwood Mortgage will be compensated
for such loan servicing  activities (See  "COMPENSATION  TO GENERAL PARTNERS AND
AFFILIATES"). Both Redwood Mortgage and the Partnership have the right to cancel
this servicing  agreement and any other continuing  business  relationships that
may exist between them upon 30 days notice.                                     

     Borrowers will make interest payments in arrears, i.e., with respect to the
preceding 30-day period, and will make their checks payable to Redwood Mortgage.
Checks will be deposited in Redwood Mortgage's trust account,  and, after checks
have  cleared,  funds will be  transferred  to the  Partnership's  bank or money
market account.                                                                 

     Sale of Mortgage Investments.  Although, the Partnership has not done so in
the past, the  Partnership  or its  Affiliates may sell Mortgage  Investments to
third parties including  affiliated parties (or fractional interests therein) if
and when the General Partners determine that it appears to be advantageous to do
so.                                                                             

     Borrowing. The Partnership will borrow funds for Partnership activities and
may assign all or a portion of its Mortgage Investment portfolio as security for
such  loan(s).  As of September  30, 1996,  the  Partnership  has borrowed up to
$2,892,000   pursuant  to  $3,000,000  line  of  credit.  The  General  Partners
anticipate  engaging in this type of transaction when the interest rate at which
the  Partnership  can borrow  funds is  somewhat  less than the rate that can be
earned by the  Partnership on its Mortgage  Investments,  giving the Partnership
the  opportunity to earn a profit on this "spread." Such a transaction  involves
certain elements of risk and also entails possible adverse tax consequences (See
"RISK FACTORS - Use and Risk of Leverage" and "FEDERAL INCOME TAX CONSEQUENCES -
Investment  by  Tax-Exempt  Investors").  It is the  General  Partners  present 
intention  to  finance  no more than fifty  percent  (50%) of the  Partnership's
investments with borrowed funds. (See "RISK FACTORS - Risks Relating to Creation
of Unrelated Business Taxable Income").                                         

     Other  Policies.  The Partnership  shall not: (i) issue senior  securities,
(ii) invest in the  securities  of other  issuers for the purpose of  exercising
control,  (iii) underwrite securities of other issuers, or (iv) offer securities
in exchange for property.  If the Partnership  anticipates  that it will become,
through  foreclosure  or  otherwise,  the owner of property that is subject to a
high degree of risk, including without limitation, property subject to hazardous
or toxic cleanup,  prolonged  construction  or other risk, the General  Partners
may, in their discretion, seek to transfer or sell the Mortgage Investment to an
affiliated  or  unaffiliated  entity with the  expertise to manage the attendant
risk.                                                                           

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 CERTAIN LEGAL ASPECTS OF MORTGAGE INVESTMENTS

     Each of the Partnership's  Mortgage  Investments (except the Formation Loan
to Redwood  Mortgage) will be secured by a deed of trust, the most commonly used
real property  security device in California.  The following  discusses  certain
legal aspects of the Mortgage Investments with respect to Federal and California
law only. The deed of trust (also commonly  referred to as a mortgage) creates a
lien  on  the  real  property.   The  Parties  to  a  deed  of  trust  are:  the
debtor-trustor,   a  third-party   grantee   called  the   "trustee",   and  the
lender-creditor  called the  "beneficiary."  The  trustor  grants the  property,
irrevocably  until  the  debt is paid,  "in  trust,  with  power of sale" to the
trustee to secure  payment of the  obligation.  The  trustee  has the  authority
granted  by law,  by the  express  provisions  of the deed of  trust  and by the
directions of the beneficiary.  The Partnership will be a beneficiary  under all
deeds of trust securing Mortgage Investments.                                   

     Foreclosure.  Foreclosure of a deed of trust is  accomplished in most cases
by a nonjudicial trustee's sale under the power-of-sale provision in the deed of
trust.  Prior to such sale, the trustee must record a notice of default and send
a copy to the trustor,  to any person who has recorded a request for a copy of a
notice of default  and  notice of sale,  to any  successor  in  interest  to the
trustor and to the  beneficiary of any junior deed of trust.  The trustor or any
person having a junior lien or  encumbrance  of record may,  until five business
days before the date a foreclosure  sale is held, cure the default by paying the
entire  amount of the debt then due,  exclusive of principal due only because of
acceleration  upon  default,  plus  costs  and  expenses  actually  incurred  in
enforcing the obligation and statutory  limited  attorneys and trustee's  fees. 
After the notice of default is recorded  and  following a three (3) month notice
period and at least 20 days before the  trustee's  sale,  notice of sale must be
posted in a public place and published  once a week over such period.  A copy of
the notice of sale must be posted on the property,  and sent to the trustor,  to
each  person who has  requested  a copy,  to any  successor  in  interest to the
trustor and to the  beneficiary  of any junior  deed of trust,  at least 20 days
before the sale.  Following the sale,  neither the  debtor-trustor  nor a junior
lienholder has any right of  redemption,  and the  beneficiary  may not obtain a
deficiency judgment against the trustor.                                        

     A judicial  foreclosure (in which the  beneficiary's  purpose is usually to
obtain  a  deficiency   judgment  where  otherwise  available  in  the  case  of
non-residential  or  commercial  property)  is subject to most of the delays and
expenses of other lawsuits, sometimes requiring up to several years to complete.
Following a judicial foreclosure sale, the trustor or his successors in interest
will have certain rights to redeem the Property. However, such redemption rights
will not be  available  if the  creditor  waives  the  right to any  deficiency.
Foreclosed junior lienholders do not have a right to redeem the Property after a
Judicial foreclosure sale. The Partnership  generally will not pursue a judicial
foreclosure  to  obtain  a  deficiency  judgment,  except  where,  in  the  sole
discretion of the General  Partners,  such a remedy is warranted in light of the
time and expense involved.                                                      

     Tax Liens.  Any liens for federal or state taxes filed after a loan is made
which is secured by a junior  deed of trust will be junior in priority to rights
of the senior lienholder and any junior lienholders.  Accordingly, the filing of
federal or state tax lien will not effect the priority of the Partnership's deed
of trust,  regardless  of whether it is a senior or junior  deed of trust.  Real
property  tax liens will be in all  instances a lien senior to any deed of trust
given  by  borrowers.  Accordingly,  even  if  the  Partnership  is  the  senior
lienholder,  if a real  property tax lien is filed,  the  Partnership's  deed of
trust will be junior to the real  property  tax lien.  For a  discussion  of the
effect of a junior lien see "SPECIAL  CONSIDERATIONS  IN CONNECTION  WITH JUNIOR
ENCUMBRANCES".                                                                  

     Anti-Deficiency  Legislation.   California  has  four  principal  statutory
prohibitions  which limit the remedies of a  beneficiary  under a deed of trust.
Two  statutes  limit the  beneficiary's  right to obtain a  deficiency  judgment
against the trustor  following  foreclosure of a deed of trust, one based on the
method  of  foreclosure  and the  other on the type of debt  secured.  Under one
statute, a deficiency  judgment is barred where the foreclosure was accomplished
by means of a nonjudicial  trustee's  sale. It is  anticipated  that most of the
Partnership's  Mortgage  Investments  will be enforced by means of a nonjudicial
trustee's sale, if foreclosure becomes necessary,  and, therefore,  a deficiency
judgment  may  not  be  obtained.  However,  it is  possible  that  some  of the
Partnership's  Mortgage  Investments  will be  enforced  by  means  of  judicial
trustee's sale. Under the other statute, a deficiency  judgment is barred in any
event where the foreclosed deed of trust secured a "purchase money"  obligation.
With respect to Mortgage  Investments,  a promissory note evidencing a loan used
to pay all or a part of the purchase price of a residential  property  occupied,
at least in part, by the purchaser,  will be a purchase money obligation.  Thus,
under  either  statute,  the  Partnership  will not be able to seek a deficiency
judgment.                                                                       

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     Another statute,  commonly know as the "one form of action" rule,  provides
that the  beneficiary  commence an action to exhaust the security under the deed
of trust by  foreclosure  before a personal  action may be brought  against  the
borrower. The fourth statutory provision limits any deficiency judgment obtained
by the  beneficiary  following a judicial sale to the excess of the  outstanding
debt over the fair market  value of the  property  at the time of sale,  thereby
preventing a beneficiary from obtaining a large deficiency  judgment against the
debtor as a result of low bids at the judicial sale.                            

     Other matters,  such as litigation  instituted by a defaulting  borrower or
the operation of the federal  bankruptcy  laws,  may have the effect of delaying
enforcement  of the lien of a  defaulted  loan and may in certain  circumstances
reduce the amount realizable from sale of a foreclosed property.                

     Special Considerations in Connection with Junior Encumbrances.  In addition
to the general considerations  concerning trust deeds discussed above, there are
certain additional  considerations applicable to second and third deeds of trust
("junior encumbrances).  By its very nature, a junior encumbrance is less secure
than more senior ones. Only the holder of a first trust deed is permitted to bid
in the amount of his credit at his foreclosure sale; junior lienholders must bid
cash. If a senior  lienholder  forecloses on its loan,  unless the amount of the
bid  exceeds  the senior  encumbrances,  the  junior  lienholders  will  receive
nothing. However, in that event the junior lienholder may have a personal action
against the borrower to enforce the promissory note.                            

     Accordingly,  a junior  lienholder (such as the  Partnership)  will in most
instances be required to protect its security interest in the property by taking
over all  obligations of the trustor with respect to senior  encumbrances  while
the junior lien holder commences his foreclosure,  making adequate  arrangements
either to (i) find a purchaser  of the property at a price which will recoup the
junior lienholders  interest or (ii) to pay off the senior encumbrances so that 
his encumbrance  achieves first priority.  Either  alternative  will require the
Partnership to make substantial  cash  expenditures to protect its interest (See
"RISK FACTORS - Loan Defaults and Foreclosures").                               

     The Partnership may also make wrap-around  mortgage loans (sometimes called
"all-inclusive   loans"),  which  are  junior  encumbrances  to  which  all  the
considerations  discussed above will apply. A wrap-around  loan is made when the
borrower  desires  to  refinance  his  property  but does not wish to retire the
existing indebtedness for any reason, e.g., a favorable interest rate or a large
prepayment penalty. A wrap-around loan will have a principal amount equal to the
outstanding  principal balance of the existing debts plus the amount actually to
be  advanced  by the  Partnership.  The  borrower  will then  make all  payments
directly to the Partnership,  and the Partnership in turn will pay the holder of
the  senior  encumbrance(s).  The  actual  yield  to  the  Partnership  under  a
wrap-around  mortgage  loan will exceed the stated  interest  rate to the extent
that such rate exceeds the interest rate on the  underlying  senior loan,  since
the full principal  amount of the wrap-around loan will not actually be advanced
by the Partnership.                                                             

     The Partnership will record a Request For Notice of Default at the time its
trust deed is recorded.  This procedure  entitles the Partnership to notice when
any senior  lienholder  files a Notice of Default and will  provide more time to
make alternate arrangements to protect its security interest.                   

     In the event the borrower  defaults solely upon his debt to the Partnership
while  continuing  to  perform  with  regard  to  the  senior  lienholder,   the
Partnership (as junior  lienholder) will foreclose upon its security interest in
the manner  discussed  above in connection with deeds of trust  generally.  Upon
foreclosure by a Junior  Lienholder,  the property  remains subject to all liens
senior to the  foreclosed  lien.  Thus,  were the  Partnership  to purchase  the
security  property at its own  foreclosure  sale,  it would acquire the property
subject to all senior encumbrances.                                             

     The standard form of deed of trust used by most institutional lenders, like
the one that will be used by the  Partnership,  confers on the  beneficiary  the
right both to receive all proceeds  collected under any hazard  insurance policy
and all awards made in  connection  with any  condemnation  proceedings,  and to
apply such proceeds and awards to any indebtedness secured by the deed of trust,
in such order as the beneficiary may determine.  Thus, in the event improvements
on the property are damaged or  destroyed by fire or other  casualty,  or in the
event  the  property  is  taken  by  condemnation,  the  beneficiary  under  the
underlying  first  deed of trust  will  have the  prior  right  to  collect  any
insurance  proceeds  payable  under a hazard  insurance  policy and any award of
damages  in  connection  with the  condemnation,  and to  apply  the same to the
indebtedness  secured by the first deed of trust  before any such  proceeds  are
applied to repay the  Partnership's  Mortgage  Investment.  Applicable case law,
however,  has imposed upon the lender the good faith  obligation  to apply those
proceeds towards the repair of the Property in those situations.                

     "Due-on-Sale"  Clauses.  The  Partnership's  forms of promissory  notes and
deeds of trust,  like those of many  lenders  generally,  contain  "due-on-sale"
clauses  permitting the  Partnership to accelerate the maturity of a loan if the
borrower sells the property although some forms of the Partnership's  promissory
notes and deeds of trust will permit  assumption by a subsequent                

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     buyer, but do not usually contain  "due-on-encumbrance" clauses which would
permit the same action if the borrower  further  encumbers  the property  (i.e.,
executes further deeds of trust).  The  enforceability of these types of clauses
has  been the  subject  of  several  major  court  decisions  and  Congressional
legislation in recent years.                                                    

     1. Due-on-Sale. Federal law now provides that, notwithstanding any contrary
preexisting state law,  due-on-sale clauses contained in mortgage loan documents
are  enforceable in accordance  with their terms by any lender after October 15,
1985.  Stephen C. Ryan & Associates,  counsel for the  Partnership,  has advised
that under the Garn-St. Germain Act the Partnership will probably be entitled to
enforce the  "due-on-sale"  clause  anticipated to be used in the deeds of trust
given to secure the Mortgage  Investments.  On the other hand,  acquisition of a
property  by the  Partnership  by  foreclosure  on one of its  loans,  may  also
constitute a "sale" of the property,  and would  entitle a senior  lienholder to
accelerate  its loan against the  Partnership.  This would be likely to occur if
then prevailing interest rates were substantially  higher than the rate provided
for under the accelerated  loan. In that event, the Partnership may be compelled
to sell or refinance the property within a short period of time, notwithstanding
that it may not be an opportune time to do so.                                  

     2.  Due-on-Encumbrance.  With  respect  to  mortgage  loans on  residential
property  containing  four or less units,  federal and  California law prohibits
acceleration  of the loan  merely by reason of the  further  encumbering  of the
property (e.g.,  execution of a junior deed of trust). This prohibition does not
apply to  mortgage  loans  on other  types  of  property.  Although  most of the
Partnership's  second  mortgages  will be on  properties  that  qualify  for the
protection afforded by federal law, some Mortgage Investments will be secured by
apartment buildings or other commercial  properties.  Second mortgage loans made
by the Partnership  may trigger  acceleration of senior loans on such properties
if the senior loans contain due-on-encumbrance clauses, although both the number
of such instances and the actual likelihood of acceleration is anticipated to be
minor.  Failure of a borrower to pay off the accelerated senior loan would be an
event of default and  subject  the  Partnership  (as junior  lienholder)  to the
attendant risks (See "RISK FACTORS - Special  Considerations  in Connection with
Junior Encumbrances").                                                          

     Prepayment Charges. Some Mortgage Investments originated by the Partnership
provide for certain  prepayment  charges to be imposed on the  borrowers  in the
event of certain  early  payments on the Mortgage  Investments.  Any  prepayment
charges  collected on Mortgage  Investments will be retained by the Partnership.
Mortgage  Investments  secured  by  deeds  of  trust  encumbering  single-family
owner-occupied  dwellings may be prepaid at any time,  regardless of whether the
note and deed of trust so provides,  but prepayments made in any 12-month period
during the first five years of the term of the loan which exceed twenty  percent
(20%) of the original balance of the loan may be subject to a prepayment charge.
The law limits  the  prepayment  charge in such loans to an amount  equal to six
months advance  interest on the amount prepaid in excess of the permitted twenty
percent  (20%),  or interest to maturity,  whichever is less.  If a loan that is
secured  by  residential  property  is  being  repaid  because  the  lender  has
accelerated  the loan  upon the sale of the  property,  California  law does not
allow a prepayment penalty to be charged.                                       

     Real  Property  Mortgage  Investments.  California  statutory  law  imposes
certain  disclosure  requirements with respect to loans arranged by a California
real  estate  broker  and  secured  by  residential  property.   However,  those
requirements  are  applicable  to loans  that are in a  lesser  amount  than the
anticipated Mortgage Investments. Notwithstanding the preceding, the Partnership
intends to make  disclosures  to borrowers  that would satisfy these statutes to
the extent  reasonably  practicable,  regardless  of whether  the  statutes  are
applicable to the relevant Mortgage Investments.                                

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

Results of Operations.   For the years ended December 31, 1994, and 1995,       
        and the six months ended June 30, 1996

     The net income  increase of $304,854 (290%) for the year ended December 31,
1994,  $426,964  (104%) for the year ended December 31, 1995, and $197,540 (54%)
for the six month  period  ended June 30,  1996,  as  compared  to the six month
period  ended June 30,  1995,  was  primarily  attributable  to the  increase in
Mortgage  Investments  held by the  Partnership  from $2,336,679 on December 31,
1993, to $6,484,707 as of December 31, 1994, and  $12,047,252 as of December 31,
1995,  and to  $14,196,953  as of June 30,  1996,  respectively.  Net income was
reduced by $13,120 and $26,032 for the years ended  December 31, 1994, and 1995,
respectively  and by $19,085 for the six months  ended June 30,  1996,  so as to
provide a provision for doubtful accounts.  The Partnership did not own any real
estate  as of  December  31,  1994,  and  1995,  or as of  June  30,  1996.  The
Partnership did allow a senior mortgage to foreclose out its secured position on
a Deed of Trust held by the  Partnership  as  security  for one of its  Mortgage
Investments.  The General Partners,  in reviewing the Partnership's  security at
the time of the senior lender's  foreclosure,  felt that the  Partnership  would
have a better chance to recover all or a portion of sums owed the Partnership in
a suit under the  promissory  note.  As of June 30, 1996,  the  Partnership  had
obtained a judgment against the borrower and was pursuing a collection action to
recover sums owed of approximately $72,866.                                     

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     The Partnership's  ability to increase its Mortgage  Investments was due to
an increase in the capital raised,  the compounding of earnings by those Limited
Partners who have chosen to reinvest and by leveraging the Mortgage  Investments
through the use of a credit line from a commercial bank.  During the years ended
December 31, 1994 and 1995,  and the six month  period ended June 30, 1996,  the
Partnership received new Capital  Contributions of $4,508,824,  $3,834,799,  and
$1,254,945,  respectively.  Earnings  compounded  by  Limited  Partners  totaled
$239,956, $525,551 and $341,223 for the years ended December 31, 1994, and 1995,
and the six  months  ended June 30,  1996.  The  Partnership  obtained a line of
credit  in 1995 and  increased  its  ability  to fund  Mortgage  Investments  by
$3,000,000  at that time.  As of  December  31,  1995,  and June 30,  1996,  the
outstanding  balance  on the  line of  credit  was  $1,910,000  and  $2,892,000,
respectively.  The credit  line has a  fluctuating  interest  rate of 3/4 of one
percent (.75%) over the commercial  bank's reference rate. At December 31, 1995,
and as of June 30, 1996,  the interest  rate on the credit line was nine and one
quarter percent (9.25%) and nine percent (9%),  respectively.  The Partnership's
average  Mortgage  Investment  coupon rate,  after  reduction for loan servicing
fees,  was 10.68% and 10.77% on December  31, 1995,  and June 30, 1996,  thereby
providing  the  Partnership  with a  borrowed  funds  spread  of 1.43% and 1.77%
respectfully. The Partnership's average yield has remained relatively consistent
at 8.1%, 8.3% and 8.4%  (annualized)  for Limited Partners who elect to reinvest
Earnings for the years ending  December 31, 1994,  and 1995,  and the six months
ended  June 30,  1996.  Limited  Partners  who have  chosen to  liquidate  their
Earnings monthly have received a somewhat lower yield as they do not receive the
benefit of reinvested  Earnings.  Non-compounding  Limited  Partner  yields were
7.9%,  8.0% and 8.1%  (annualized)  for the years ended  December 31, 1994,  and
1995,  and the six months  ended June 30,  1996.  The yield  represents  the net
income of the Partnership after all expenses.                                   

     The  Partnership  is in the  business  of  lending  money  secured  by real
property.  As a lender,  the  Partnership  anticipates  that it will  experience
Mortgage Investment delinquencies.  These delinquencies are anticipated to be at
a higher level than at banks and thrifts as these lenders are  primarily  credit
lenders  while the  Partnership  is primarily  an asset  lender  basing its loan
decisions  primarily on the equity available to secure the mortgage  investment.
Additionally,  the Partnership began funding loans in the midst of a significant
economic  downturn which caused  significant value reductions in California real
estate.  The  Partnership's  primary  source  of  repayment,  the  Partnership's
securing real estate values, were adversely affected by the recent recession. In
some of the  Partnership's  lending areas,  and on specific types of properties,
real estate values declined by as much as fifty percent (50%). Nevertheless, the
Partnership is experiencing loan  delinquencies  below the anticipated  expected
range. The General  Partners  believe that the favorable  delinquency rate being
experienced by the  Partnership is in part due to diligent  underwriting  of the
Mortgage  Investments  funded by the  Partnership.  As of December 31, 1994, and
1995, and June 30, 1996, the  Partnership's  delinquency rate on loans late over
90 days was .96% ($62,486), 0% ($0.00) and 2.49% ($353,829), respectively. As of
December 31, 1994, and 1995, and June 30, 1996, the  Partnership had outstanding
filed  Notices of  Default  on one (1)  Mortgage  Investment  ($62,486),  no (0)
Mortgage Investments ($0.00), and two (2) Mortgage Investments ($353,829). As of
June 30, 1996, the Partnership  had only completed one  foreclosure  wherein the
Partnership  became  the  owner of the  property  at the  Trustee's  Sale.  This
property  was  subsequently  sold  within  the same  quarter  and at a net price
greater than the Partnership's net basis in the property.                       

     Redwood  Mortgage,  the General  Partner's  affiliate  which  services  the
Mortgage  Investments charged monthly loan servicing fees of $85,456 and $67,389
for the year ended  December 31,  1995,  and the six months ended June 30, 1996.
These  fees were at 1/12 of 1% (1%  annually)  and were  less  than the  maximum
amount allowable.  For the year ended December 31, 1994, the loan servicing fees
based upon a rate of 1/12 of 1% (1%  annually)  would have  amounted to $44,405.
The actual charged loan servicing fees were $15,278,  with the remainder waived.
These fees were less than the amount allowable. The General Partners may receive
a monthly  Asset  Management  Fee equal to 1/32 of 1% (.03125%  annually) of the
Partnership's net asset value. The charged fees of $5,906,  $11,587,  and $7,760
were less than the  allowed  Asset  Management  Fees of  $17,718,  $34,773,  and
$23,280 for the years ended  December  31,  1994,  and 1995,  and the six months
ended June 30, 1996, respectively.  If the maximum fees allowed had been charged
the effect would have been a reduction in the Partnership's  income and therefor
a reduction in the Limited  Partner's  yield.  The General Partner has chosen to
reduce its fees in order to increase the yield to the Limited  Partners.  Income
has also been  affected by the  continuing  heavy  competition  for good lending
opportunities, which has reduced borrowers' acceptable interest rates and fees. 

PORTFOLIO REVIEW - For the years ended December 31, 1994, and 1995,             
and the six months ended June 30, 1996    

Loan Portfolio                                                                  

     The  Partnership  has placed a total of 88  Mortgage  Investments  since it
began investing in Mortgage Investments in April of 1993. The outstanding number
of Mortgage Investments increased to $6,484,707,  $12,047,252 and $14,196,953 as
of the years ended  December 31, 1994,  and 1995,  and the six months ended June
30,  1996.  The average  loan  balance  increased to $231,678 as of December 31,
1995,  and  $262,907 as of June 30, 1996.  The average  loan  balance  increases
reflect the Partnership's increased                                             

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     ability to invest in larger Mortgage Investments, meeting the Partnership's
objectives.  By  investing  in  somewhat  larger  mortgages  the number of other
mortgage  brokers  capable of funding larger equity loans is greatly  diminished
therefore  reducing  competition  and  increasing  interest  rates  paid  by the
borrower..                                                                      

     The Partnership's  loan portfolio  consists primarily of short-term (one to
five years),  fixed rate loans secured by real estate.  As of December 31, 1994,
and 1995, and June 30, 1996, the Partnership's  Mortgage  Investments secured by
real  property  collateral  in the six San  Francisco  Bay  Area  Counties  (San
Francisco, San Mateo, Santa Clara, Alameda, Contra Costa, and Marin) represented
84.5%,  ($5,480,742),  81.3%,  ($9,799,123),  and  80.4%  ($11,414,218)  of  the
outstanding  Mortgage  Investment  portfolio.  The  remainder  of the  portfolio
represented Mortgage Investments in Northern California.                        

     As of December 31, 1994,  approximately  35.9% ($2,325,223) of the Mortgage
Investment   portfolio   was  invested  in  single  family  homes  (1-4  units),
approximately  13.3%  ($861,936),  of  the  Mortgage  Investment  portfolio  was
invested  in  multi-family   dwellings,   (apartments   over  1-4  units),   and
approximately  50.8%  ($3,297,549),  of the Mortgage  Investment  portfolio  was
invested in commercial properties. As of December 31, 1995, approximately, 34.4%
($4,145,083), of the Mortgage Investment portfolio was invested in single family
homes (1-4 units)  approximately 22.1% ($2,664,963),  of the Mortgage Investment
portfolio was invested in multi-family dwellings, (apartments over 4 units), and
approximately  43.5%,  ($5,237,206),  of the Mortgage  Investment  portfolio was
invested in commercial properties.  As of June 30, 1996,  approximately,  28.8%,
($4,091,433),  was invested in single  family  homes (1-4 units),  approximately
16.9%,  ($2,389,966),  was invested in multi-family dwellings (apartments over 4
units) approximately, 52.2%, ($7,415,554) was invested in commercial properties,
and approximately 2.1%, ($300,000) was invested in unimproved land.             

     As of June 30, 1996, the Partnership held 54 Mortgage  Investments  secured
by Deeds of  Trust.  The  following  table  sets  forth  the  priorities,  asset
concentrations   and  maturities  of  the  Mortgage   Investments  held  by  the
Partnership as of June 30, 1996.                                                

 PRIORITIES, ASSET CONCENTRATIONS AND MATURITIES OF MORTGAGE INVESTMENTS
 (As of June 30, 1996)

                           Number of Mortgage Investments    Amount    Percent
============================================ ================================== 

1st Mortgages                         30                   $5,917,837     41.7% 
2nd Mortgages                         23                    7,979,116     56.2% 
3rd Mortgages                          1                      300,000      2.1% 
                                  ------      ----------------------- --------
 Total                               54                   14,196,953    100.0%

Maturing prior to 1/1/98              21                    5,704,299     40.2% 
Maturing prior to 1/1/00              14                    4,388,332     30.9% 
Maturing prior to 1/1/02               7                    1,714,421     12.1% 
Maturing after 1/1/02                 12                    2,389,901     16.8% 
                                 ---------      ---------------------  ---------
Total                                 54                   14,196,953    100.0% 

Average Mortgage Investment                                   262,907      1.8% 
Largest Mortgage Investment                                 1,050,000      7.4% 
Smallest Mortgage Investment                                   40,000       .3% 
Average Loan-to-Value                                                    62.4%

     The  average  loan-to-value  ratio  of  62.4%,  and  the  largest  mortgage
investment of $1,050,000 are within the parameters set forth in the Prospectus. 

     The  diversification of Mortgage  Investments,  with  approximately  eighty
percent  (80%) of the  Mortgage  Investments  being  placed in the six  counties
making up the San Francisco Bay Area,  and the  remaining  Mortgage  Investments
spread over Northern  California are also within the parameters set forth in the
Prospectus.  The  average  loan-to-value  ratio  of 62.4%  is  lower  than  that
originally  contemplated in the offering circular by approximately  (7.6%). This
lower  loan-to-value ratio helps to ensure a greater degree of equity to protect
the Partnership's Mortgage Investments.                                         

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ASSET QUALITY                                                                   

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

     The  conclusion  that a Mortgage  Investment may become  uncollectible,  in
whole or in part, is a matter of judgment.  Although  institutional  lenders are
subject to requirements and regulations  that, among other things,  require them
to perform ongoing analyses of their portfolios, loan-to-value ratios, reserves,
etc., and to obtain and maintain current  information  regarding their borrowers
and the securing properties, the Partnership is not subject to these regulations
and has not adopted these practices. Rather, the General Partners, in connection
with the periodic  closing of the accounting  records of the Partnership and the
preparation  of  the  financial   statements,   causes  an  evaluation,   and  a
determination is made as to whether the allowance for loan losses is adequate to
cover potential  mortgage  investment losses of the Partnership.  As of June 30,
1996, the General Partners have determined that the allowance for loan losses of
$86,505 is adequate in amount.  Because of the number of variables involved, the
magnitude of the swings possible and the General Partners'  inability to control
many of these factors,  actual results may and do sometimes differ significantly
from  estimates  made by the General  Partners.  As of June 30,  1996,  Mortgage
Investments  delinquent over 90 days amounted to $353,829, of which all $353,829
had notices of default  filed.  Additionally,  the  Partnership  has  obtained a
judgment of $72,866  against a borrower,  which the Partnership is attempting to
collect.  This judgment resulted from the General Partners'  determination  that
the most likely recovery of sums owed the Partnership,  in whole or in part, was
through a lawsuit based on the terms of the  Promissory  Note.  The  Partnership
allowed the senior note holder to  foreclose  rather than  reinstate  the senior
mortgage holder to protect the Partnership's  security interest in the property.
The Partnership does not own any real estate acquired through  foreclose,  as of
June 30, 1996.                                                                  

LIQUIDITY AND CAPITAL RESOURCES                                                 

     The  Partnership  relies  upon  purchases  of  Units,  Mortgage  Investment
payoffs,  borrowers'  mortgage  payments,  and, to a lesser degree,  its line of
credit for the source of funds for  Mortgage  Investments.  Currently,  mortgage
interest rates have declined  somewhat from those  available at the inception of
the Partnership. If interest rates were to increase substantially,  the yield of
the  Partnership's  Mortgage  Investments  may provide  lower  yields than other
comparable  debt-related  investments.  As such, additional Limited Partner Unit
purchases  could  decline,  which  would  reduce the  overall  liquidity  of the
Partnership.  Additionally,  since the Partnership has made Mortgage Investments
in primarily fixed rate loans, if interest rates were to rise, the likely result
would be a slower prepayment rate for the Partnership.  This could cause a lower
degree of liquidity as well as a slowdown in the ability of the  Partnership  to
invest in Mortgage  Investments  at the then current  rate.  Conversely,  in the
event interest rates were to decline,  the Partnership  could see both or either
of a surge of unit purchases by prospective  Limited  Partners,  and significant
borrower  prepayments,  which,  if the  Partnership  can  only  obtain  the then
existing lower rates of interest may cause a dilution of the Partnership's yield
on Mortgage Investments, thereby lowering the Partnership's overall yield to the
Limited  Partners.  The  Partnership  to a lessor degree relies upon its line of
credit to fund  Mortgage  Investments.  Generally,  the  Partnership's  Mortgage
Investments are fixed rate,  whereas the credit line is a variable rate loan. In
the event of a significant  increase in overall  interest rates, the credit line
rate of interest  could  increase to a rate above the average  portfolio rate of
interest.  Should such an event occur,  the General Partners would desire to pay
off the line of  credit.  Retirement  of the line of  credit  would  reduce  the
overall liquidity of the Partnership.                                           

CURRENT ECONOMIC CONDITIONS                                                     

     The  Partnership  has  been  affected  by  the  current  regional  economic
downturn;  however the Partnership has not suffered any material losses to date.
As of June  30,  1996,  the  Partnership  did not own any real  estate  acquired
through foreclosure and is experiencing  delinquencies at the low end of General
Partners  expectations.  It is now clear that the Northern California  recession
reached bottom in 1993.  Since then, the California  economy has been improving,
slowly at first, but now, more vigorously.  A wide variety of indicators suggest
that the  economy in  California  was strong in the first half of 1996,  and the
state is well  positioned  for fast growth in the second half of the year.  This
improvement is reflective in increasing property values, in job growth, personal
income growth,  etc.,  all of which  translates  into more loan activity.  These
positive factors for the California  economy have also enticed many lenders with
excess capital to invest in the residential and commercial lending markets.  The
entrance of new lenders,  and an increase in capital devoted to mortgage lending
by existing mortgage lenders,  has created  significant  lending competition and
demand for high quality loans.  The  competition is fiercest in the  residential
lending  markets.  This competition has led to a downward trend in both interest
rates  and  fees  charged  to  borrowers  as well as  liberalizing  underwriting
standards  by the  Partnership's  competition.  The result is a reduction in the
residential  loans  available  for the  Partnership  to  invest in and a greater
concentration of commercial loans.                                              

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BUSINESS

     The  Partnership,  formed on May 27, 1992,  is engaged in the business as a
mortgage lender, for the primary purpose of making Mortgage  Investments secured
primarily  by  first  and  second  deeds  of trust  on  California  real  estate
("Mortgage  Investments").  Approximately  ninety-eight  percent  (98%)  of  the
Partnership's  Mortgage  Investments  are  secured by first and second  deeds of
trust. The Partnership  commenced  operations in April,  1993. The Partnership's
address is 650 El Camino Real,  Suite G, Redwood City,  California 94063 and its
telephone number is (415) 365-5341.                                             

     Mortgage  Investments  are arranged and  serviced by Redwood  Mortgage,  an
affiliate of the General Partners. As of June 30, 1996,  approximately forty-two
percent (42%) of the  Partnership's  Mortgage  Investments  are secured by first
deeds of trust ($5,917,837), fifty-six percent (56%) are secured by second deeds
of trust ($7,979,116) and two percent 2% by third deeds of trust ($300,000). The
aggregate principal balance of these Mortgage Investments total $14,196,953.  Of
these loans approximately eighty percent (80%) are secured by properties located
in the San  Francisco  Bay  Area.  As of June  30,  1996,  of the  Partnership's
Mortgage  Investment  portfolio,  twenty-nine percent (29%) is secured by single
family residences,  fifty-two percent (52%) by commercial properties,  seventeen
percent  (17%) by  multi-unit  properties  and two  percent  (2%) by  unimproved
property.  No  Mortgage  Investment  may  exceed  the  greater of $50,000 or ten
percent (10%) of the  Partnership's  total assets at the time the  investment is
made.                                                                           

     The following table shows the growth in total Partnership capital, Mortgage
Investments and net income as of June 30, 1996, and for the years ended December
31, 1995, 1994, 1993:                                                           

                             Capital         Mortgage Investments     Net Income
1996 (as of 6/30/96)      12,956,966              14,196,953            560,634 
1995                      11,470,327              12,047,252            836,833 
1994                       7,290,492               6,484,707            409,869 
1993 (April - December)    2,622,080               2,336,674            105,015 

     As of June 30, 1996, the  Partnership had made  eighty-eight  (88) Mortgage
Investments,  including  forty-four (44) first deeds of trust, forty (40) second
deeds of trust and four (4) third deeds of trust. The following table sets forth
the types and maturities of these Mortgage Investments.                         

TYPES AND MATURITIES OF MORTGAGE INVESTMENTS (As of June 30, 1996)

Number of Mortgage                                
                    Investments                 Amount               Percent
                  -------------            ------------             --------

First Mortgage                44              $10,222,573                 42.2% 
Second Mortgage               41              $13,524,957                 55.9% 
Third Mortgage                 3                 $458,500                  1.9% 
                        ========             ===========                 =====
                             88              $24,206,030                100.0%
                        ========             ===========                ======

Maturing before 1/1/98        42              $11,929,825                 49.3% 
Maturing after 1/1/98                                                           
and before 1/1/2000          25              $ 5,760,155                 23.8%
Maturing after 1/1/2000                                                         
and before 1/1/2002           8              $ 1,733,000                  7.1%
Maturing after 1/1/2002       13              $ 4,783,050                 19.8% 
                         ======              ===========               =======
                             88              $24,206,030                100.0%
                         ======              ===========               =======

Single Family Residences      42              $ 7,722,200                 31.9% 
Commercial Residences         30              $11,251,550                 46.5% 
Multi-Unit Property           12              $ 4,482,280                 18.5% 
Unimproved Land                4              $   750,000                  3.1% 
                         -------             ------------               ------
                             88              $24,206,030                100.0%
                         =======             ============               ======

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DELINQUENCIES                                                                   

     As  of  June  30,  1996,  the  Partnership  had  two  Mortgage  Investments
($350,292)   which  were  delinquent  over  90  days.  Both  of  these  Mortgage
Investments  were in  foreclosure.  The Mortgage  Investments  delinquent and in
foreclosure  represented  2.5%  ($350,929)  of  the  total  Mortgage  Investment
portfolio as of June 30, 1996.                                                  

REAL ESTATE OWNED                                                               

     As of June 30, 1996, the  Partnership  did not own any real estate.  During
the term of the  Partnership,  the  Partnership  has completed  one  foreclosure
wherein the Partnership  became the owner of the secured property.  The property
was  subsequently  sold at a net price greater than the  Partnerships  basis in 
that property.                                                                  

ALLOWANCE FOR LOSSES                                                            

     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 to provide for  unrecoverable
accounts receivable.  At June 30, 1996, $86,505 was provided as an allowance for
possible losses.                                                                

 FEDERAL INCOME TAX CONSEQUENCES

     CAUTION:  THE  PARTNERSHIP  IS NOT  INTENDED TO PROVIDE TAX BENEFITS OF THE
TYPE COMMONLY ASSOCIATED WITH LIMITED PARTNERSHIP TAX SHELTERS.  NONETHELESS THE
INCOME  TAX  CONSEQUENCES  OF AN  INVESTMENT  IN THE  PARTNERSHIP  ARE  COMPLEX.
ACCORDINGLY  PROSPECTIVE  INVESTORS  SHOULD NOT CONSIDER  THIS  DISCUSSION  AS A
SUBSTITUTE FOR CAREFUL  INDIVIDUAL TAX PLANNING.  PROSPECTIVE  INVESTORS  SHOULD
CONSULT WITH THEIR TAX ADVISORS, ATTORNEYS OR ACCOUNTANTS ON MATTERS RELATING TO
AN INVESTMENT IN THE PARTNERSHIP WITH SPECIAL REFERENCE TO THEIR OWN SITUATION. 

     The following is a summary of federal income tax considerations material to
an investment in the Partnership by prospective  Limited Partners.  This summary
is based upon the Code, effective and proposed  administrative  regulations (the
"Regulations"), judicial decisions, published and private rulings and procedural
announcements  issued by the Treasury  Department as in effect as of the date of
this  Prospectus,  any of which may be subject to change,  possibly with adverse
retroactive  effect.  Many provisions of the Code that significantly  affect the
tax consequences of investments in real estate limited partnerships have not yet
been the subject of court decisions or authoritative  interpretation by the IRS.
It is impossible to predict what tax legislation,  if any, will be enacted,  and
there  can be no  assurance  that  proposals  that  would  adversely  affect  an
investment in the Units will not be enacted into law.                           

     In  considering  the tax  aspects of the  Offering,  Prospective  Investors
should note that the Partnership is not intended to be a so-called "tax shelter"
and that,  accordingly,  many of the tax aspects commonly associated with a "tax
shelter" are  inapplicable  to the Partnership or are of minor  importance.  The
Partnership  does not expect to  generate  tax losses that can be used to offset
Limited  Partners'  income from sources other than the  Partnership  and, if the
Partnership's  investment objectives are met, the Partnership's  operations will
generate taxable income, as opposed to taxable loss, for investors.             

     The  availability  and amount of tax  benefits  that will be claimed by the
Partnership  will depend not only upon the general  legal  principles  described
below, but also upon certain decisions and factual  determinations which will be
made in the  future by the  General  Partners  as to which no legal  opinion  is
expressed  and which are subject to  potential  controversy  on factual or other
grounds. Such determinations include the proper  characterization and purpose of
various  fees,   commissions  and  other  expenses  of  the   Partnership,   the
reasonableness and timing of fees, the dates on which the Partnership  commences
business, whether loans made by the Partnership are for investment purposes, the
terms of the loans, whether the loans will have equity participation or original
issue  discount  features,  whether  the  Partnership  is  engaged in a trade or
business and other  matters of a factual  nature  which will only be  determined
based upon the future operations of the Partnership.                            

     No rulings have been or will be requested  from the IRS  concerning  any of
the tax matters  described herein.  Accordingly,  there can be no assurance that
the IRS or a court will not disagree with the  following  discussion or with any
of the positions taken by the Partnership for federal income tax purposes.      

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     This summary provides a discussion of tax  consequences  deemed material by
counsel but is not, and is not intended to be, a complete or exhaustive analysis
of all possible applicable provisions of the Code, the Regulations, and judicial
and  administrative  interpretations  thereof.  The  income  tax  considerations
discussed  below are  necessarily  general  and will  vary  with the  individual
circumstances of each prospective Limited Partner.  In particular,  this summary
assumes that the Limited Partners will be U.S.  Taxpayers who are individuals or
tax-exempt  pension  or  profit-sharing  trusts or IRAs.  It does not  generally
discuss the federal income tax  consequences of an investment in the Partnership
peculiar to corporate taxpayers, foreign taxpayers,  estates, taxable trusts, or
to a  transferee  of Limited  Partners.  Other tax issues of  relevance to other
taxpayers  should be reviewed  carefully by such investors to determine  special
tax consequence of an investment prior to their subscription.                   

     FOR THE FOREGOING  REASONS,  EACH  PROSPECTIVE  LIMITED PARTNER IS URGED TO
CONSULT HIS OWN TAX ADVISER WITH  RESPECT TO THE FEDERAL AND STATE  CONSEQUENCES
TO SUCH  LIMITED  PARTNER  RESULTING  FROM THE PURCHASE OF UNITS AND FROM FUTURE
CHANGES IN TAX LAWS AND REGULATIONS.                                            

     Summary of Material  Tax  Aspects.  The  following  summarizes  the primary
material tax aspects for an investment in the Partnership. The very nature of an
investment  in  the  Partnership  involves  complex  issues  of  taxation,   and
accordingly,  investors are urged to review the entire discussion of tax matters
in  "FEDERAL  INCOME  TAX  CONSEQUENCES"  and "RISK  FACTORS - Tax Risks" in the
Prospectus.  With  respect to these  issues,  the  Partnership  has  received an
opinion  of  counsel  as to  the  material  tax  aspects  ("FEDERAL  INCOME  TAX
CONSEQUENCES - Opinion of Counsel").                                            

     The  principal tax aspect likely to be material to an investor is the "flow
through" of net income and net loss for tax purposes to Limited Partners. Unlike
a corporation, the Partnership will not be liable for income taxes on net income
generated  by the  Partnership.  Rather,  such income and loss will be allocated
among the Limited Partners and reported  individually by the Limited Partners on
their income tax returns. If for any reason, as such possibilities are described
in the balance of this section, the Partnership was not treated as a partnership
for tax  purposes  it could  result in the  Partnership  being  taxed on its net
income as well as Limited Partners being taxed for any distributions to them.   

     The manner in which net income and net loss are  allocated  to the Partners
will also likely be a material  consideration.  In general, the General Partners
are  allocated  one percent  (1%) of the net income and net loss and the Limited
Partners  are  allocated  ninety-nine  percent  (99%) of such  items.  Among the
Limited Partners such items are allocated  according to their capital  accounts.
While counsel is opining that such allocations  will be respected,  in the event
such allocations were  recharacterized for tax purposes it could involve a shift
in the income or loss from the Limited Partners to the General Partners.        

     The  character  of  the  Partnership's  income  may  also  be  material  to
investors.  The Partnership's  income will generally be characterized as passive
income or  portfolio  income  for tax  purposes.  Counsel  is  opining  that the
Partnership's  income  should be treated as a portfolio  income for tax purposes
and not as unrelated  business  taxable  income.  Portfolio  income is generally
income from  interest,  dividends,  royalties  or certain  rentals.  Such income
generally  cannot be offset by  passive  losses  generated  from  other  passive
investments.  The Partnership is not  anticipated to generate  taxable losses or
passive losses.                                                                 

     Other  aspects  of an  investment  in the  Partnership  may  be  considered
material to Limited  Partners  based upon  unique  circumstances  applicable  to
individual partners.  Accordingly,  investors are urged to review the balance of
the discussion of tax consequences in this section.                             

     Opinion of Counsel.  The  Partnership  has obtained an opinion from the Law
Offices  of Stephen  C. Ryan &  Associates  ("Counsel")  which  states  that the
sections of the Prospectus  which discuss the material tax risks and the section
of  the  Prospectus  entitled  "FEDERAL  INCOME  TAX  CONSEQUENCES"   accurately
described  each  of the  material  tax  issues  and  reflect  Counsel's  opinion
regarding such matters referred to therein.  Counsel has also opined that in the
aggregate, the significant tax benefits anticipated to result from an investment
in the  Partnership  are more likely  than not to be  realized  by an  investor.
However,  the  significant  tax  benefits  should  not be  considered  a primary
investment  feature of the Partnership.  The Partnership is intended to serve as
an  investment  vehicle for  investors  seeking  current  income,  and possibly,
appreciation  through  Earnings  compounding.  Counsel has opined  herein  that,
subject to certain conditions and based upon certain representations, that:     

     1. Partnership Tax Status.  It is more likely than not that the Partnership
will be treated as a partnership as defined in Sections 7701(a)(2) and 761(a) of
the  Code  and not as an  association  taxable  as a  corporation,  and that the
Limited Partners will be subject to tax as partners pursuant to Sections 701-706
of the Code.                                                                    

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     2.   Publicly   Traded   Partnerships.   Based  upon  Notice   88-75,   the
representations  of the General Partners,  and the provisions of the Partnership
Agreement, it is more likely than not that the Partnership will not constitute a
publicly traded  partnership for purposes of Sections 7704, 469(k) and 512(c) of
the Code.                                                                       

     3. Portfolio Income and Unrelated  Business  Taxable Income.  Assuming that
the Partnership  makes the Mortgage  Investments on substantially  the terms and
conditions  described in "INVESTMENT  OBJECTIVES AND CRITERIA" it is more likely
than not that the income of the Partnership  will be treated as portfolio income
and not constitute unrelated business taxable income.                           

     4. Basis.  It is more likely than not a Limited  Partner's basis for his or
her Units will equal the Purchase Price of the Units.                           

     5. Allocations to the Limited Partners. It is more likely than not that all
material  allocations  to  the  Limited  Partners  of  income,  gain,  loss  and
deductions, as provided for in the Partnership Agreement and as discussed in the
Prospectus,  will be  respected  under  Section  704(b) of the  Code,  or in the
alternative,  will be deemed to be in accordance with the Partners' interests in
the Partnership.                                                                

     Counsel's  opinion is based upon the facts described in this Prospectus and
upon facts and assumptions as they have been represented by the General Partners
to Counsel or determined by them as of the date of the opinion.  Counsel has not
independently  audited or verified  the facts  represented  to it by the General
Partners. The material assumptions and representations are summarized below:    

     (i) The  Partnership  will be organized and operated in accordance with the
Revised  Uniform Limited  Partnership  Act, as adopted by, and in effect in, the
State of California.                                                            

     (ii) The  Partnership  will be operated in accordance  with the Partnership
Agreement,  and the Partnership will have the  characteristics  described in the
Prospectus and will be operated as described in the Prospectus.                 

     (iii) The Partnership  will not  participate in any Mortgage  Investment on
terms other than those described in "INVESTMENT OBJECTIVES AND CRITERIA" without
first receiving certain advice of Counsel.                                      

     (iv) The Mortgage  Investments will be made by on  substantially  the terms
and  conditions  described  in the  Prospectus  in  "INVESTMENT  OBJECTIVES  AND
CRITERIA."                                                                      

     (v) The net worth of the  individual  General  Partners  will  continue  to
exceed an amount that is intended to assure that the  Partnership may qualify as
a partnership for federal income tax purposes.                                  

     (vi) The General  Partners will take certain  steps in connection  with the
transfer  of Units to  decrease  the  likelihood  that the  Partnership  will be
treated as a publicly traded  partnership for purposes of Sections 7704, 469(k),
and 512(c) of the Code.                                                         

     Any  alteration  of the facts may  adversely  affect the opinion  rendered.
Furthermore,  the opinion of Counsel is based upon  existing law and  applicable
Regulations and Proposed Regulations, current published administrative positions
of the Service contained in Revenue Rulings and Revenue Procedures, and Judicial
decisions, which are subject to change either prospectively or retroactively.   

     Counsel does not prepare or review the Partnership's income tax information
return,  which is prepared by the General  Partners and independent  accountants
for the  Partnership.  The  Partnership  will make a number of  decisions on tax
matters in  preparing  its  Partnership  tax return  and such  matters  and such
Partnership tax return will be handled by the Partnership, often with the advice
of  independent  accountants  retained  by the  Partnership,  and usually is not
reviewed with Counsel.                                                          

     Each  Prospective  Investor should note that the opinion  described  herein
represents  only  Counsel's  best legal  judgment  and has no binding  effect or
official status of any kind.  Thus, in the absence of a ruling from the Service,
there can be no assurance  that the Service will not challenge the conclusion or
propriety of any of  Counsel's  opinions  and that such  challenge  would not be
upheld by the courts.                                                           

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     Tax Status of the  Partnership.  The Partnership has not requested and does
not intend to request a ruling from the  Service  that the  Partnership  will be
treated  for  federal  income  tax  purposes  as a  partnership  and  not  as an
association  taxable as a corporation.  It is more likely than not, in Counsel's
opinion, that the Partnership will be treated for federal income tax purposes as
a partnership and not as an association taxable as a corporation.               

     The General  Partners have been advised by Counsel that for federal  income
tax  purposes  an  organization  is  treated,  under  the  currently  applicable
Regulations, as a partnership and not as an association taxable as a corporation
as long as the  organization  does not  have a  preponderance  of the  corporate
characteristics  described in such regulations.  In the opinion of Counsel,  the
Partnership will not have a preponderance of those corporate characteristics set
forth in the Regulations as those  Regulations are currently  interpreted by the
Service and, consequently, the Partnership will not be an association taxable as
a  corporation  for  federal  income tax  purposes,  provided  that the  General
Partners   have   "substantial   assets"   as  that  term  is  used  in  Section
301.7701-2(d)(2) of the Regulations, and provided that the Partnership meets the
conditions outlined in the following paragraphs.  That opinion expressly assumes
that (i) the  Partnership  has been duly formed and will  operate in  conformity
with the  requirements  of  California  law and the  provisions  of the  Limited
Partnership Agreement;  (ii) the net worth of the General Partners is sufficient
and will remain  sufficient to satisfy the requirements of "substantial  assets"
within the meaning of the  Regulations  at all times during the existence of the
Partnership;  (iii) no lender on a  nonrecourse  basis  will  obtain or have the
right to obtain a proprietary  interest in the  Partnership  or its assets other
than as a creditor;  (iv) the General Partners will at all times have at least a
one percent (1%) interest in the profits,  losses and each  specially  allocated
item of income, credit or deduction of the Partnership;  (v) the Partnership and
the Partners will enter into the transactions described herein with a reasonable
expectation of profit; and (vi) criteria or standards other than those specified
in the Regulations will not be applied in determining such classifications.     

     At  present,  no specific  criteria  have been  established  by the Service
(other  than  procedural  guidelines)  as to the  minimum  net  worth  or  other
characteristics  that  general  partners  must  maintain  to  qualify  a limited
partnership for federal tax  classification as such, other than that the General
Partners must have  substantial  assets and not be a mere "dummy."  Based on the
current  net  worth of the  General  Partners,  it is  likely  that the  General
Partners would be deemed to have "economic  substance" within the meaning of the
Regulations.                                                                    

     In 1976, the Tax Court, with six judges  dissenting,  in Phillip G. Larson,
66 T.C.  159  (1976),  held that two  California  limited  partnerships  met the
criteria  contained  in the  currently  applicable  Regulations  to be  taxed as
partnerships.  The Service has  acquiesced in this case.  The Tax Court,  in the
course of its  opinion,  suggested  that the  Commissioner  of Internal  Revenue
modify  the  currently   applicable   Regulations.   On  January  5,  1977,  the
Commissioner issued Proposed Regulations that would have altered drastically the
criteria for  determining the tax status of  partnerships,  with the result that
the  Partnership  would be treated as an  association  taxable as a  corporation
rather than as a  partnership.  In that case,  Partners would not be entitled to
the  deductions for tax purposes  available to Limited  Partners with respect to
their investments in the Partnership. The Proposed Regulations were withdrawn by
the  Secretary of the  Treasury on the same day they were  proposed for comment,
and on January 14, 1977, the then  Secretary of the Treasury,  William E. Simon,
announced that the Proposed  Regulations would not be reissued.  However,  there
can be no  assurance  that  this  decision  will  not be  reversed  and that the
Proposed  Regulations will not be reissued. A similar proposal has been included
in certain tax bills being considered by Congress.                              

     Revenue  Procedure  89-12.  The Service  recently issued Revenue  Procedure
89-12 which  specifies  certain  conditions  that must be present before it will
consider  issuing  an  advance  ruling  on  the   classification  of  a  limited
partnership  for federal  income tax purposes.  The  conditions set forth in the
Revenue Procedure are as follows:                                               

     (1) The general  partners  interest in each item of income gain,  deduction
and loss must,  in the  aggregate,  equal at least one percent (1%) of each such
item throughout the existence of the partnership.                               

     (2) The general partners, in the aggregate, must maintain a minimum capital
account  balance  equal  to the  lesser  of (a) one  percent  (1%) of the  total
positive  capital  account  balances for the  partnership  or (b)  $300,000.  An
exception to this condition,  however, provides that the minimum capital account
balance  need  not  be met if at  least  one  general  partner  will  contribute
substantial  services as a partner to the partnership  which are not compensated
by guaranteed  payments and the  partnership  agreement  provides that, upon the
dissolution  and  termination  of the  partnership,  the general  partners  will
contribute to the  partnership  an amount equal to the lesser of (a) the deficit
balance,  if any,  in their  capital  accounts or (b) the excess of 1.01% of the
total capital  contributions of the limited partners over the capital previously
contributed by the general partners.                                            

     (3) The net worth of corporate  general partners (if a partnership has only
corporate  general  partners) must equal at least ten percent (10%) of the total
capital contributions to the partnership throughout the life of the partnership.

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     (4) The partnership agreement may not permit, in the case of the removal of
a general partner, less than a majority in interest of limited partners to elect
a new general partner to continue the partnership.                              

     (5) Limited  partner  interest may not exceed  eighty  percent (80%) of the
total  interest  in the  partnership  or the  Service  will  not  rule  that the
partnership lacks the corporate characteristic of centralized management.       

     The  Partnership  will not satisfy all the  conditions  (1) through (5) set
forth  above.  It  should  be  emphasized  that  the  Revenue   Procedure  89-12
specifically states that it is to be applied only in determining whether advance
ruling  letters  will be issued and that its  provisions  are not intended to be
substantive rules for determining  whether an organization  should be classified
as a partnership.  Similarly,  these rules are not to be applied as criteria for
audits of a  taxpayer's  returns.  Nonetheless,  if the  Service  should at some
future time adopt these rules at the audit level and such a position  were to be
upheld in the courts, the Partnership could be treated as an association taxable
as a corporation for federal income tax purposes.                               

     Publicly Traded  Partnerships.  Certain limited partnerships are subject to
the risk of being  reclassified as a "publicly  traded  partnerships"  which are
taxed  as  corporations  for  certain  federal  income  tax  purposes.  The term
"publicly  traded  partnerships  for this purpose means any  partnership  if the
interests  in such  partnership  are:  (i) traded on an  established  securities
market;  or (ii)  readily  tradable  on a secondary  market (or the  substantial
equivalent of a secondary market).  This second test includes  partnerships that
are not traded on an  established  securities  market,  but whose  partners  are
nevertheless  readily able to buy, sell or exchange their partnership  interests
in a manner  that is  comparable,  economically,  to trading  on an  established
securities market.                                                              

     In the  event  that the  Partnership  is deemed  to be a  "publicly  traded
partnership"  and the Partnership does not meet the ninety percent (90%) or more
gross income exception  (described below), then the Partnership shall be treated
as a corporation.  In the event the  Partnership  were treated as a corporation,
there would be several adverse tax  consequences  to the Partners.  In addition,
the  Partnership  will be  regarded  as  having  transferred  all of its  assets
(subject to all of its  liabilities)  to a newly formed  corporation in exchange
for stock which will be deemed  distributed  to the Partners in  liquidation  of
their  interests in the  Partnership.  (See "Results if  Partnership  Taxed as a
Corporation" below). In addition, if the Partnership is deemed to be a "publicly
traded  partnership,"  then special rules under Section 469 govern the treatment
of losses and income of the Partnership.                                        

     There is an  exception  from  treatment  as a  corporation  for a "publicly
traded partnership" if ninety percent (90%) or more of its gross income consists
of  "qualifying  income" for such taxable year and each  preceding  taxable year
beginning  after  December  31,  1987,  during  which  the  partnership  (or any
predecessor) was in existence.  Qualifying income includes interest. Even if the
Partnership meets the ninety percent (90%) exception rule, its income and losses
will still be subject to special rules under Section 469.                       

     Units  in the  Partnership  will not be  traded  on a  national  securities
exchange,  a local exchange or an  over-the-counter  market.  The prospectus and
sales material for the Partnership states that there is no public market for the
Units  and it is not  expected  that  any  market  will  develop;  and  (ii) all
potential investors should be aware that the Units should be purchased only as a
long-term  investment.  The Conference Committee Report to the 1987 Act provides
several  factors  to look at in  determining  whether  a  partnership  should be
classified  as a publicly  traded  partnership.  The major  factors  are whether
trades in the  partnership  interests  are  frequent,  whether a regular plan of
redemption exists,  whether a partnership interest can be traded in a time frame
similar to a secondary market,  and what types of restrictions are placed on the
transferability of interests.                                                   

     No  regulations  have been issued  under  Sections  469(k)(2) or 7704(b) to
clarify when  interests in a partnership  that are not traded on an  established
securities  market will be treated as readily  tradable on a secondary market or
the substantial equivalent thereof.  However, on June 17, 1988, the IRS recently
issued Advance Notice 88-75 ("Advance  Notice")  providing guidance with respect
to whether  interests in a  partnership  are  considered  readily  tradable on a
secondary  market or the  substantial  equivalent  thereof within the meaning of
Sections 469(k)(2),  512(c)(2), and 7704(b). Interests in a partnership will not
be  considered  readily  tradable  on a  secondary  market  or  the  substantial
equivalent  thereof  within the meaning of  Sections  469(k)(2),  513(c)(2)  and
7704(b)  of the Code for a  taxable  year of the  partnership  if the sum of the
percentage   interests  in  partnership   capital  or  profits   represented  by
partnership  interests  that  are  sold  or  otherwise  disposed  of  (including
purchases  by a  partnership  of its own  interests  ("redemptions")  during the
taxable year does not exceed five percent (5% in the case of a partnership  that
also relies on a separate  matching  service safe harbor described below) of the
total interest in  partnership  capital or profits ("Five Percent Safe Harbor").
In addition,  certain types of transfers will be disregarded for purposes of the
Five Percent Safe Harbor. The Advance Notice also provides that sales thorough a
matching Service  ("Matched  Sales") will be disregarded (the "Matching  Service
Safe Harbor") for purposes of determining whether  partnership  interests are to
be  considered  readily  tradable  on a  secondary  market  or  the  substantial
equivalent thereof.                                                             

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     The Partnership  Agreement  provides that Limited  Partners must obtain the
consent of at least the General  Partners to transfer a Unit in the Partnership,
which consent can be withheld if such  transfer in counsel to the  Partnership's
opinion or the General Partners' opinion may cause the Partnership to be treated
as a "publicly  traded  partnership"  or would not satisfy the Five Percent Safe
Harbor or Matching  Service Safe Harbor contained in IRS Advance Notice 88-75 or
Regulations  subsequently  issued.  The  restrictions  have  been  placed in the
Partnership  Agreement to prevent the Units from being able to be bought or sold
in a manner  that is  comparable,  economically  to  trading  on an  established
securities market.                                                              

     The General Partners have represented that they will use their best efforts
to  assure  that  the   Partnership  is  not  treated  as  a  "publicly   traded
partnership." The General Partners have also represented that they will not take
any affirmative action on behalf of the Partnership to intentionally establish a
market for the  Partnership  interests.  Based on IRS Advance Notice 88-75,  the
General  Partners  representations  contained herein and the terms contained in 
the Partnership Agreement, Counsel is of the opinion that the Partnership,  more
likely  than not,  will not be treated as a  "publicly  traded  partnership"  as
defined above. Although the General Partners will use their best efforts to make
sure that a secondary market or substantial  equivalent thereof does not develop
for  interests in the  Partnership,  there can be no assurance  that a secondary
market for the Units  will not  develop,  or that the IRS may take the  position
that the Partnership should be classified as a "publicly traded partnership" for
this  purpose.  In  addition,  regulations  may be adopted  that would cause the
Partnership to be treated as a publicly traded partnership.                     

     Results if Partnership  is Taxable as an  Association.  If the  Partnership
were  classified as an  association  taxable as a corporation,  the  Partnership
itself would be subject to a federal income tax on any taxable income at regular
corporate  tax rates.  The Limited  Partners  would not be entitled to take into
account their distributive share of the Partnership's deductions or credits, and
would not be subject  to tax on their  distributive  share of the  Partnership's
income.  Distributions  to the  Partners  would be treated as  dividends  to the
extent of accumulated and current  earnings and profits;  as a return of capital
to the extent of basis; and thereafter,  as taxable income,  perhaps as ordinary
income,  to the  extent  Distributions  were  in  excess  of the tax  basis.  In
addition,  if the  loss  of  partnership  status  occurred  at a time  when  the
Partnership's  indebtedness  exceeded  the tax  basis  of its  assets  and  such
corporate  status was  prospective  only, it could be argued that a constructive
incorporation  occurred,  and that the  Limited  Partners  realized  gain  under
Section 357(c) of the Code, measured by the difference between such indebtedness
and the Partnership's  tax basis of its assets.  If the Regulations  proposed on
January 5, 1977, are reissued and do become  applicable to the  Partnership at a
future  date  such  that  the  Partnership  becomes  taxable  as  a  corporation
prospectively,  a constructive  incorporation may be deemed to have occurred and
Partners may be required to recognize income as described in this Section.      

     Taxation of Partners - General.  If the  Partnership is treated for federal
income tax  purposes as a  partnership  and not as an  association  taxable as a
corporation,  it will file an annual  informational  income tax return, but will
not be  subject  as an entity to the  payments  of federal  income  tax.  On his
personal income tax return,  each Limited Partner will be required to report his
share of  Partnership  income or loss without  regard to the amount,  if any, of
cash or other  distributions  made to him.  Thus,  each Limited  Partner will be
taxed on his share of income even though the amount of cash  distributed  to him
may be more or less than the resulting tax liability.                           

     Subject to various limitations referred to herein, each Limited Partner may
deduct  his share of the  Partnership  losses if any,  to the  extent of his tax
basis in his Partnership interest.  Any losses in excess of basis may be carried
forward  indefinitely  to offset future  taxable income of the  Partnership.  In
computing income or losses, the Partnership will include appropriate  deductions
for  non-capital  costs  and the  depreciation  portion  of  capital  costs.  If
Distributions in any one year exceed the  Partnership's  taxable income (whether
in  liquidation  or  otherwise),  the amount of such excess will be treated as a
return of capital reducing the tax basis of the Limited Partner in his interest.
Any cash  distributions in excess of the recipient's basis are treated as a sale
or exchange of the Limited  Partnership  Interest resulting in taxable income to
the recipient.                                                                  

     Within 90 days after the end of each fiscal year, the General Partners will
provide each Partner with a report  containing such  information as is necessary
for the  completion of the Partner's  federal  income tax return with respect to
his share of the Partnership's  income,  gains,  losses,  and deductions for the
previous calendar year.                                                         

     Partnership  Basis.  A Limited  Partner's  adjusted  tax basis for  federal
income tax purposes includes the cost of his Partnership interest.  Investors in
the  Partnership  will pay the $100  purchase  price  for each Unit in cash upon
subscription.  Based on these facts,  it is  Counsel's  opinion that the Limited
Partners  basis for their Units will  initially be the cash  purchase  price of 
their Units. A Limited  Partner's basis will be increased by any subsequent cash
contribution  he  makes  to  the  Partnership,  by  his  distributive  share  of
Partnership  taxable  income,  by any income  exempt from  taxation,  and by his
share, equal to his proportionate share of Partnership  profits, of non-recourse
loans (i.e.,  neither the General nor Limited Partners are personally liable for
the repayment of the loan) made to the Partnership.                             

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     A Limited  Partner's basis will be decreased (but not below zero) by actual
distributions  to him  from  the  Partnership,  by  his  distributive  share  of
Partnership  losses, by an actual or deemed decrease in his share of Partnership
nonrecourse  borrowings,  and by his  share  of  nondeductible  expenses  of the
Partnership  which are not properly  chargeable to his capital  account.  In the
event that cash  distributions to a Limited Partner exceed the adjusted basis of
his Units, a Limited Partner must recognize gain equal to such excess.          

     Pursuant to the 1984 Act, the Treasury has issued regulations regarding the
conditions under which recourse and non-recourse liabilities may be reflected on
partner's  bases in their  partnership  interests.  Such  regulations  permit an
increase in a limited  partner's  basis for  non-recourse  debts and an increase
where the limited partner assumes or guarantees or otherwise bears the "economic
risk" for the partnership debt.                                                 

     Allocation  of Profits  and  Losses.  The net profits and net losses of the
Partnership  will  be  allocated  as  specified  in  Article  V of  the  Limited
Partnership Agreement (See "SUMMARY OF THE LIMITED PARTNERSHIP AGREEMENT").     

     For federal  income tax  purposes,  each  Partner's  distributive  share of
specific  items of income,  gain,  loss,  deduction  and credit is determined by
reference to the general ratio for sharing profits and losses as provided in the
Partnership  Agreement.  In general,  the  allocation  provided in a partnership
agreement  will  control  unless  such  allocation  does not  have  "substantial
economic effect." If an allocation provision of a partnership agreement is found
to lack  "substantial  economic effect"  partnership  items will be allocated in
accordance with a partner's  interest in the partnership  based on all the facts
and circumstances.                                                              

     Under the Regulations which are extremely complex, one of three alternative
tests must be met in order for an allocation  to be valid under Section  704(b).
Allocations are valid if: (i) the allocation has substantial economic effect; or
(ii)  the   partners   can  show  that,   taking  into  account  all  facts  and
circumstances,  the allocation is in accordance with the partners  interests in 
the partnership;  or (iii) the allocation can be deemed to be in accordance with
the partners  interests in the partnership in accordance with special rules set 
forth in the Regulations.                                                       

     Counsel  believes  that  the  allocations  of the  income  and  loss of the
Partnership  has  "substantial  economic  effect"  based  upon the fact that the
allocations   affect  the  dollar  amount  of  each  Partner's  share  of  total
Partnership income or loss independent of tax consequences; the capital accounts
of the Partners will reflect the allocation;  and the economic risk of loss will
be borne by the Limited Partners,  or that in the alternative,  the allocations,
if held to lack substantial  economic effect,  would nonetheless be deemed to be
in accordance with the Partners interests in the Partnership. This would result 
in the  same  treatment  as if the  allocations  were  held to have  substantial
economic effect.                                                                

     Sale of Partnership  Interest.  A Limited Partner may be unable to sell his
Limited  Partnership  interest as there may be no public  market for it. Gain or
loss  recognized  on the sale of an  interest  in the  Partnership  by a Limited
Partner who is not a "dealer"  with respect to such interest and who has held it
for more than one year, will  ordinarily  result in the recognition of long-term
capital gain or loss.  Gain or loss will be recognized by a Partner  measured by
the difference  between the consideration  received  including the Partner's pro
rata share of the Partnership's  liabilities and the Partner's adjusted basis of
the Units being sold.  Notwithstanding  this  general  rule,  the 1986 Act taxes
capital gains at the same rate as ordinary income beginning January 1, 1988. If,
at the  time of the  sale  of the  Partnership  interest,  the  Partnership  has
"unrealized  receivables"  (which  includes  accelerated  depreciation  of  real
property) or  substantially  appreciated  inventory  items," that portion of the
amount  realized from the sale of the interest that is attributable to the value
of such  items  will give rise to  ordinary  income to the  extent  such  amount
exceeds  the basis to the  Partnership  of the selling  Partner's  share of such
"unrealized receivables" and "inventory items." Any Partner desiring to sell his
interest  should consult his personal tax advisor for proper  planning in regard
to these provisions.                                                            

     The  Revenue  Act of 1978  increased  the  amount of  ordinary  income of a
non-corporate  taxpayer  against  which net  capital  losses may be  deducted to
$3,000 in 1978 and subsequent years (or in the case of a husband and wife filing
separate  returns,  to  $1,500  respectively).  As was  the  case  prior  to the
enactment of the Act within these dollar  limitations,  only fifty percent (50%)
of the net long-term  capital losses in excess of net  short-term  capital gains
may be  deducted  from  ordinary  income,  while  all of the  excess  of the net
short-term capital loss over net long-term capital gain may be so deducted.     

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     Section 706 of the Code, as amended by the 1984 Act, provides special rules
for the allocation of income and loss,  and items thereof,  to any partner whose
interest in the partnership  changes during a taxable year,  whether by the sale
of all or a part of such interest,  the entry of a new partner or otherwise.  In
determining  the income,  loss and special items allocable to the partners whose
interests have changed, a partnership is required to allocate certain "allocable
cash basis items"  (generally  interest,  taxes and payments for services or for
the  use of  property)  to the  days  in the  taxable  year to  which  they  are
attributable.  Other items may be allocated on any basis approved in Regulations
to be issued, which Regulations are expected to follow the guidelines set out in
the  Committee  Reports  on the 1984 Act.  The  general  purpose of the 1984 Act
amendments to Section 706 is to prevent retroactive  allocations of economically
accrued deductions to partners who enter a partnership after such accrual.      

     The Partnership's  taxable year will close on the date of sale with respect
to a Limited  Partner  (but not the  remaining  Partners)  who sells his  entire
interest  in the  Partnership.  In such a case the  Partnership  items  would be
prorated pursuant to Section 706. In the event of a sale of less than the entire
interest of a Limited  Partner,  the  Partnership  year will not terminate  with
respect to the selling Partner,  but his proportionate share of items of income,
gain,  loss,  deduction and credit will also be  determined  pursuant to Section
706.                                                                            

     In the case of either the sale of the  Properties  or a sale of a Partner's
interest  in the  Partnership,  a Limited  Partner may  realize  taxable  income
substantially  in excess of the cash,  if any,  he  receives as a result of such
sale.  Further,  a  Partner  who sells an  interest  in the  Partnership  may be
required to report a share of Partnership  income for the year of such sale even
though he  received no cash  Distribution  during the year or the amount of cash
Distribution was less than his share of income required to be reported.         

     Character of Income or Loss. The 1986 Act distinguishes between income from
a "passive" activity and portfolio income. A passive activity includes (1) trade
or business  activities in which the taxpayer does not  materially  participate,
and (2) rental  activities  where payments are primarily for the use of tangible
property.  In  general,  losses  generated  by a passive  activity  will only be
allowed to offset income from a passive activity.                               

     Portfolio income generally includes interest, dividends, royalty or annuity
income and gain from sales of portfolio assets,  for example,  property held for
investment.  Portfolio  income is not  treated  as  passive  income  and must be
accounted for  separately.  Portfolio  income is reduced by deductible  expenses
(other than  interest)  that are clearly and directly  allocable to such income.
Properly allocable interest expenses also reduces portfolio income.  With regard
to interest, the Treasury has issued Temporary Regulations which adopt a tracing
rule.  Interest  attributable  to  indebtedness  which  is used to  purchase  an
interest  in a passive  activity  will be regarded as passive and subject to the
passive loss rules.  Thus, if a Limited Partner borrowed all or a portion of the
funds used to purchase his Unit(s),  interest  paid on such  borrowing  could be
used to offset income attributable to a passive activity.                       

     The  distinction  between  passive  income and portfolio  income thus has a
material effect on the Partnership and the Limited Partners.  If the Partnership
is engaged in a passive  activity,  any income  from the  Partnership  is deemed
"passive  income"  which is available to be offset by any other  passive  losses
which the Limited  Partner has from other  sources.  Portfolio  income cannot be
offset by such passive losses. Specifically, passive losses from the Partnership
net of taxable income from the  Partnership may be used to offset passive income
from other sources,  with any unused losses carried over into the next tax year,
where they are available to offset passive income from the Partnership and other
sources.  In the year  that the  Unit is  disposed  of,  or the  Partnership  is
dissolved,  any unused  passive  loss is  available  to offset any gain upon the
disposition  or  dissolution,  as the case may be,  then to offset  any  passive
income from other sources and, finally, to offset ordinary income.              

     The Treasury has promulgated  certain  Temporary  Regulations which provide
that the lesser of the  Partnership's  net passive  income or the  Partnership's
equity financed interest income shall be treated as not from a passive activity.
Such income is in turn treated as interest income, or in other words,  portfolio
income.                                                                         

     The  Partnership's  equity financed  interest income is that portion of its
net  interest  income  derived  by  excluding   interest  income   allocable  to
liabilities  incurred in the  activity.  It is  determined  by  multiplying  net
interest  income by a fraction  whose  numerator  is the  excess of the  average
outstanding  balance  for the year of interest  bearing  assets less the average
outstanding balance for the year of the liabilities incurred in the activity and
whose  denominator  is the  average  outstanding  balance  for  the  year of the
interest  bearing assets held in the activity.  Net interest income is the gross
interest  income less  expenses  from the activity  reasonably  allocable to the
gross interest income.                                                          

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     The Partnership does not currently anticipate that it will have significant
liabilities incurred in connection with its lending activities. Accordingly, its
equity  financed  interest  income should equal its net passive  income and such
amount should be treated as portfolio income. To the extent that the Partnership
does incur liabilities, it would require a portion of income between passive and
portfolio income.                                                               

     The  treatment of the  Partnership's  equity  financed  interest  income as
portfolio  income is premised upon the  Partnership  being engaged in a trade or
business.                                                                       

     Whether  the  Partnership  is engaged in the trade or  business  of lending
money will depend on the facts and  circumstances.  Such facts and circumstances
include the manner in which the Partnership  conducts its affairs and the nature
of its dealings  with  borrowers and other third parties and the number of loans
made by the Partnership in any one year. For example,  the courts have held that
a person  who  makes  one or two  loans in a year is not  engaged  in a trade or
business even though that person made many loans in preceding years.  Similarly,
making up to five loans did not  constitute  a trade or  business.  On the other
hand, the making of twenty loans was deemed to be a trade or business. It is not
possible under the  circumstances  to determine  whether the Partnership will be
deemed to be engaged in a trade or business.                                    

     The  Partnership  may also make  payments  to  Limited  Partners  under its
Guaranteed  Payment for Offering  Period.  The  Guaranteed  Payment for Offering
Period is likely to  constitute a guaranteed  payment as provided  under Section
707(c).  As such, these payments should be considered  interest payments treated
as portfolio income.                                                            

     Treatment of Mortgage Investments  Containing  Participation  Features. The
Partnership  may extend  Mortgage  Investments  with an equity  interest  in the
property  securing the Mortgage  Investments  (See  "INVESTMENT  OBJECTIVES  AND
CRITERIA-  Equity  Interests  in  Real  Property").  With  respect  to  Mortgage
Investments containing  participation features, an issue may arise as to whether
the relationship between the Partnership and the mortgagor is that of debtor and
creditor  or  whether  the  Partnership  is engaged  in a  partnership  or joint
venturer with the mortgagor.  If the Partnership is a creditor of the mortgagor,
a Limited Partner's distributive share of income derived from the mortgagor will
be treated in full as  interest  income.  If the  Partnership  is a partner or a
joint venture with the mortgagor,  the income from the participation  feature of
the  Mortgage  Investments  and/or  the  stated  interest  may be  treated  as a
distribution of profits of the  Partnership or Joint Venture.  This would result
in the receipt of  unrelated  business  taxable  income for  certain  Tax-Exempt
Investors  investing in the Partnership and would have material  adverse effects
for certain trusts.                                                             

     In analyzing whether a partner's  unsecured loan to a partnership should be
treated as a loan or a capital  contribution (See Joseph Hambuechen,  43 T.C. 90
(1964)) and whether an unsecured  loan  constitutes  a joint  venture (See Hyman
Podell,  55  T.C.  429  (1970)),  courts  have  considered  all  the  facts  and
circumstances  surrounding the transactions and at times both lines of authority
consider the same  factors.  Counsel  believes that in  determining  whether the
relationship  between the Partnership and a mortgagor is that of a debtor paying
interest or a joint venturer  distributing  net profits,  a Court would consider
the following  factors:  (1) the names given to the certificates  evidencing the
indebtedness;  (2) the presence or absence of a maturity date; (3) the source of
the  payments;  (4) the right to enforce the payment of principal  and interest;
(5)  participation  in management;  (6) a status equal to or inferior to that of
regular  creditors;  (7) the  intent of the  parties;  (8)  "thin"  or  adequate
capitalization;  (9) identity of or interest between creditor and borrower; (10)
payment of interest only out of net proceeds; and (11) the ability of the entity
to obtain loans from outside lending institutions.                              

     Under relevant case law,  whether a partnership or joint venture exists for
federal income tax purposes, turns on the intent of the parties, as evidenced by
their conduct,  relevant agreements,  and their respective abilities and capital
contributions.  (See  Commissioner  v.  Culbertson,  337 U.S. 733 (1949) Podell,
supra; Utility Trailer Mfg. Co. v. U.S., 212 F.Supp. 733 (D. Cal. 1963)).       

     Repayment  or  Sale of  Mortgage  Investments.  No  gain  or  loss  will be
recognized by the Partnership upon the full repayment of principal of a Mortgage
Investment.  Any gain recognized by the Partnership on the sale or exchange of a
Mortgage  Investment will be treated as a capital gain unless the Partnership is
deemed to be a "dealer" in Mortgage  Investments for federal income tax purposes
(See "Property Held Primarily for Sale; Potential Dealer Status" below). In such
case, the entire gain, if any, would constitute ordinary income.                

     Property Held Primarily for Sale;  Potential Dealer Status. The Partnership
has  been  organized  to  invest  in  Mortgage  Investments.   However,  if  the
Partnership  were at any time deemed for tax  purposes to be holding one or more
Mortgage  Investments  primarily for sale to customers in the ordinary course of
business, any gain or loss realized upon the disposition of those loans would be
taxable  as  ordinary  gain  or  loss  rather  than as  capital  gain  or  loss.
Furthermore, such income would also constitute unrelated business taxable income
to any investors  which are tax-exempt  entities (See  "Investment by Tax-Exempt
Investors").  Under existing law, whether property is held primarily for sale to
customers in the ordinary  course of business  must be  determined  from all the
facts  and  circumstances  surrounding  the  particular  property  and  sale  in
question.   The  Partnership  intends  to  hold  the  Mortgage  Investments  for
investment purposes and to make such occasional  dispositions  thereof as in the
opinion of the General Partners are consistent with the Partnership's investment
objectives.  Accordingly,  the  Partnership  does not anticipate that it will be
treated as a "dealer" with respect to any of its properties.  However,  there is
no assurance that the Service will not take the contrary position.              

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     Tax Consequences of Reinvestment in Mortgage Investments.  Limited Partners
may avail  themselves of a plan  pursuant to which  Limited  Partners may forego
current  distributions  of Cash Available for Distribution and have said amounts
credited to their  capital  accounts and used by the  Partnership  in conducting
Partnership activities.  Limited Partners who avail themselves of such an option
may incur a tax liability on their pro rata share of Partnership  income with no
corresponding cash with which to pay such tax liability.  However,  Unit Holders
which are Tax-Exempt  Investors should not incur any such tax liability,  to the
extent said income is interest income and not UBTI (See "Property Held Primarily
for Sale; Potential Dealer Status" and "Investment by Tax-Exempt Investors").   

     Partnership  Organization,  Syndication  Fees and Acquisition  Fees.  Under
Section 709 of the Code, all Organization, Syndication Fees and Acquisition Fees
must be  capitalized.  Organization  fees and  expenses  paid or incurred  after
December 31, 1976, may be amortized over a five year period. Amortization is not
allowed  with  respect  to  syndication  expenses  paid  by a  partnership.  The
Regulations under Section 709 state that syndication costs include  commissions,
professional   fees  and  printing  costs  in  marketing  sales  of  Partnership
interests,  brokerage  fees and legal and accounting  fees regarding  disclosure
matters.  A portion of the fees  incurred  will be allocated  to  organizational
costs.  The Partnership  intends to amortize all  organization  expenses ratably
over a five year period.  The Service may challenge the  deductibility  of these
organization  fees on the basis that these are fees paid in connection  with the
syndication of the Limited Partners  Interests rather than organization fees. If
the Service were successful in taking these or other positions on such fees, the
Partnership's and therefore the Limited Partners deductions during 1996 through 
2001 or such longer period as  necessitated  by this offering would be less than
projected although not substantially so.                                        

     Original Issue  Discount.  The  Partnership  may be subject to the original
issue  discount  rules with  respect to interest to be received  with respect to
Mortgage Investments. Original issue discount may arise with respect to Mortgage
Investments  if (a) the interest rate varies  according to fixed terms;  (b) the
borrower is permitted to defer  interest  payments to years after such  interest
accrues;  and (c) the amount of the Partnership's  share of interest income with
respect  to  additional  interest  or  deferred  interest  related to the income
appreciation  from  the  mortgage  property  under a right of  participation  is
determined  in a year prior to the year in which  payment of such amount is due.
The Partnership  anticipates  extending  mortgage loans under some or all of the
proceeding  terms, and to the extent it does, the original discount rules may be
applicable.  Counsel  cannot  opine  as to  the  applicability  of  these  rules
prospectively  since the Partnership has not identified as Mortgage  Investments
as of the date of this Prospectus.                                              

     The amount of original issue discount under a mortgage loan  containing any
of the foregoing terms is to be computed based upon the compound interest method
of  calculation,  resulting in the  reporting of interest  income in  increasing
amounts each taxable year.  Recognition  by the  Partnership  of original  issue
discount with respect to a Mortgage  Investment will increase the  Partnership's
basis in that loan,  thereby  reducing in like amount the income the Partnership
must  recognize  in the year  payment of the amount  giving rise to the original
issue  discount  is  actually  received  or  upon  disposition  of the  Mortgage
Investment.  The reporting of the  recognition  by the  Partnership  of original
issue  discount  as income in any  particular  tax year will have the  effect of
increasing the amount of income which the Limited  Partners must report from the
Partnership,  without the concurrent receipt of the cash distribution with which
to pay tax, if any, resulting from the reporting of such income. However, to the
extent such original issue discount constitutes  "interest" tax exempt investors
may exclude such original issue discount in computing their  unrelated  business
taxable income liability.                                                       

     Deduction of Investment Interest. The Code imposes substantial  limitations
upon the  deductibility of interest on funds borrowed by an investor to purchase
or to carry investment assets. Code Section 163(d) provides that a deduction for
"investment  interest" may be taken by an individual  only to the extent of such
individual's  net investment  income for the taxable year.  Investment  interest
generally is any interest  that is paid or accrued on  indebtedness  incurred or
continued to purchase or carry investment property. Investment interest includes
interest  expenses  allocable to portfolio  income and  investment  and interest
expenses  allocable  to an activity in which the  taxpayer  does not  materially
participate,  if such  activity is not treated as a passive  activity  under the
passive loss rules.  Investment  interest  does not include any interest that is
taken into account in  determining  a  taxpayer's  income or loss from a passive
activity  or a  rental  activity  in  which a  taxpayer  actively  participates.
Therefore,  an  investment  expense  attributable  to an investment as a Limited
Partner  in  the  Partnership,  will  be  subject  to  the  investment  interest
limitations.  This  exclusion  will not apply  for  interest  expenses,  if any,
allocable  to  portfolio  income.  See  "Limitations  on Losses and Credits from
Passive Activities."                                                            

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     Net  investment  income  consists of the excess of  investment  income over
investment  expenses.  Investment  income  generally  includes gross income from
property held for investment,  gain attributable to property held for investment
and amounts treated as portfolio income under the passive loss rules. Investment
income does not include income taken into account in computing gain or loss from
a passive  activity.  Passive losses allowable solely as a result of the passive
activity loss phase-in rules may, however, reduce investment income.  Investment
expenses are deductible  expenses (other than interest)  directly connected with
the  production of  investment  income.  Generally,  in  calculating  investment
expenses, however, only those expenses in excess of two percent (2%) of adjusted
gross income are included.                                                      

     It is not  anticipated  the  Partnership  will incur any material amount of
"investment  interest"  that  will be  significantly  limited  by  these  rules.
However,  investment  interest  that cannot be deducted  for any year because of
these limitations may be carried over and deducted in succeeding  taxable years,
subject to certain limitations.                                                 

     Section 754 Election.  Because of the  complexities  of the tax  accounting
required, the Partnership does not presently intend to file under Section 754 of
the Code an  election  to adjust  the basis of the  properties  in the case of a
transfer of a Limited Partnership  Interest,  although the General Partners have
the authority to make such an election.  The effect of such an election would be
that,  with respect to the  transferee  Limited  Partner only,  the basis of the
Partnership's   properties  would  either  be  increased  or  decreased  by  the
difference between the transferee's basis for his Limited  Partnership  Interest
and  his  proportionate  share  of the  Partnership's  adjusted  basis  for  all
properties. A substitute Limited Partner would have to account separately in his
personal  income  tax  return  for the  special  basis  (and the  deductions  in
connection  therewith) in his Partnership interest  attributable to the election
made  pursuant to Section 754. Any increase or decrease  resulting  from such an
adjustment would be allowable among the Partnership's  assets in accordance with
rules  established  under the Code.  After such  adjustment  has been made,  the
transferee  Limited  Partner's share of the adjusted basis of the  Partnership's
properties would equal the adjusted basis of his Limited  Partnership  Interest.
If (as presently  anticipated)  the Partnership  does not make such an election,
upon a sale of the properties  subsequent to a transfer of a Limited Partnership
Interest,  taxable  gain or  loss to the  transferee  will  be  measured  by the
difference between his share of the gross proceeds of such sale and his share of
the  Partnership's  tax basis in the  properties  (which,  in the  absence  of a
Section  754  election,  will  be  unchanged  by the  transfer  of  the  Limited
Partnership Interest to him), rather than by the difference between his share of
such  proceeds and the portion of the purchase  price for his interest  that was
allocable to the properties.  As a consequence,  such transferee will be subject
to a tax upon a portion of the proceeds  which  represents as to him a return of
capital,  if the  purchase  price  for his  interest  exceeds  his  share of the
adjusted basis for all  properties.  However,  in the event of a taxable sale or
other disposition of his Limited Partnership  Interest,  the purchase price paid
by the transferee is important since,  notwithstanding the Partnership's failure
to make a Section 754 election,  such purchase  price will be taken into account
in determining such transferee's basis for such interest. The absence of a right
to have such election made by the Partnership may inhibit  transferability  of a
Limited  Partnership  Interest  since a potential  transferee  may consider this
factor as reducing the value of the interest.                                   

     Termination  of the  Partnership.  A  partnership  is  terminated  for  tax
purposes only (i) if no part of the partnership business, financial operation or
venture  continues to be carried on by any of its  partners,  or (ii) if, within
any 12-month period,  there is a sale or exchange of fifty percent (50%) or more
of the  total  interest  in  partnership  capital  and  profits.  If,  upon such
termination,  the  partnership  business is continued by the partners,  they are
deemed to have received a distribution  in liquidation of the partnership and to
have recontributed the distributed  property to a successor entity. The original
partnership's  taxable year closes with respect to all partners as the result of
such a "constructive" liquidating distribution and recontribution.              

     Upon a termination  of a  partnership  for federal  income tax purposes,  a
partner  generally will recognize a capital gain to the extent cash distributed,
and the reduction,  if any, in his pro rata share of  partnership  debt) exceeds
his adjusted tax basis for his Units immediately  before the  distribution,  and
will  recognize  capital loss to the extent his adjusted tax basis of unrealized
receivables and substantially  appreciated  inventory  distributed to him (if no
other property is distributed).  However, if substantially appreciated inventory
or unrealized  receivables  are distributed  non-pro rata in  liquidation,  such
distribution  would be treated as a sale or  exchange,  with the result that the
distributee  partners  could be required to recognize  both ordinary  income and
capital gain on the  distribution.  Furthermore,  depending upon the partnership
election, there may be a recapture of any investment tax credit taken.          

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     Tax Returns.  The Partnership will furnish annually to the Limited Partners
(but not to assignees of Limited Partners unless they become substituted Limited
Partners)  sufficient  information  from the  Partnership's  tax  return for the
Limited Partners to prepare their own federal,  state and local tax returns. The
Partnership's  tax returns will be prepared by accountants to be selected by the
General  Partners.  The Revenue Act of 1978  provides a  substantial  additional
penalty for failure to timely  file the  federal  information  tax return of the
Partnership  and/or  filing of such a return that fails to show the  information
required under Section 6031 of the Code.                                        

     Audit of Tax Returns.  The General Partners  understand that the Service is
paying  increased  attention  to the  proper  application  of the  tax  laws  to
partnerships. While the Partnership is not being formed so as to allow investors
to avail themselves of losses or deductions  generated by the  Partnership,  the
Service  still may choose to audit the  Partnership's  information  returns.  An
audit of the Partnership's  information  returns may precipitate an audit of the
income tax returns of Limited  Partners.  Any expense  involved in an audit of a
Limited  Partner's  returns must be borne by such Limited  Partner.  Prospective
investors  should  also be aware  that if the  Service  successfully  asserts  a
position to adjust any item of income,  gain,  deduction  or loss  reported on a
Partnership information return,  corresponding  adjustments would be made to the
income tax returns of Limited Partners.  Further, any such audit might result in
Service adjustments to items of non-Partnership income or loss.                 

     If a tax deficiency is  determined,  the taxpayer is liable for interest on
such  deficiency  from the due date of the return.  Interest on  underpayment is
payable at the federal short-term rate plus three percentage points,  rounded to
the nearest full  percent  (rounding up in the case of a multiple of one-half of
one percent).  The federal  short-term rate is determined for the first month of
each quarter,  and the rate so determined governs the calculation of the rate of
interest on underpayment for calendar quarter after the quarter during the first
month of which the rate is so determined.  The "federal  short-term  rate" for a
month  is  determined  by the  Service  based  on the  average  market  yield on
outstanding  marketable  obligations of the United States with remaining periods
to  maturity  of  three  years  or  less.  In  the  case  of  any   "substantial
underpayment"  attributable to a "tax motivated  transaction," the interest rate
on  underpayment  is one hundred twenty percent (120%) of the interest rate that
otherwise  apply. A "substantial  underpayment"  is any  underpayment  of tax in
excess of $1,000 attributable to one or more "tax motivated  transaction," which
is defined to include (among other things) certain valuation overstatements, any
use which may result in a substantial  distortion of income for any period,  and
any sham or fraudulent transaction.                                             

     The tax treatment of items of partnership income, gain, loss, deductions or
credit is to be determined  at the  partnership  level in a unified  partnership
proceeding,  rather than in separate proceedings with the partners. However, any
partner has the right to  participate  in any  administrative  proceeding at the
partnership  level.  Generally,  the "tax matters  partner," Michael R. Burwell,
would  represent  the  Partnership  before  the  Service  and may  enter  into a
settlement with the Service as to partnership tax issues which generally will be
binding on all of the partners,  unless a partner  timely files a statement with
the Service  providing that tax matters  partner shall not have the authority to
enter into a settlement  agreement on his behalf.  Similarly,  only one judicial
proceeding  contesting  a  Service  determination  may be filed on  behalf  of a
partnership and all partners.  However, if the tax matters partner fails to file
such an action, then any partner, unless such partner owns less than one percent
(1%)  interest in a  partnership  having more than 100  partners)  or a group of
partners  owning  five  percent  (5%)  or more of the  profits  interest  in the
partnership  may file such an action.  The tax matters partner may consent to an
extension of the statute of  limitation  period for all partners with respect to
partnership items.                                                              

     Investment  by  Tax-Exempt  Investors.   Tax-Exempt  Investors,   including
Employee  Trusts and  Individual  Retirement  Accounts  ("IRAs"),  are generally
exempt from federal income taxation.  However, such organizations are subject to
taxation on their "unrelated business taxable income," as defined in Section 512
of the Code.  Unrelated  business  taxable income does not, in general,  include
interest,  dividends,  rents from real property,  gain from the sale of property
other than  inventory or property  held  primarily  for sale to customers in the
ordinary  course of  business,  and certain  other  types of passive  investment
income,  unless such income is derived from "debt-financed  property" as defined
in Section 514 of the Code.                                                     

     In addition to receiving interest income (which will comprise substantially
all of its income),  the Partnership may also receive  payments in the nature of
points or loan servicing or origination fee at the time funds are advanced under
a Mortgage  Investment.  The fees paid for services  rendered in connection with
the making or securing of Mortgage  Investments,  as opposed to fees paid merely
for the use of money,  will not be  treated  as  interest  income  and will most
likely constitute unrelated business taxable income.                            

     Any Partnership  borrowing for the purpose of making  additional  loans may
result in "debt financed  property" and,  therefore,  unrelated business taxable
income to tax-exempt  Limited Partners to the extent that the Service  concludes
that such borrowings are allocable to the Limited Partners for this purpose (see
Rev. Rule 76-354,  1976-2 C.B.  179).  Furthermore,  any borrowings by a Limited
Partner for the purpose of  financing  his  investment  in the  Partnership  can
result in "debt-financed  property" and,  therefore,  unrelated business taxable
income.                                                                         

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     As a consequence  of the exercise of a default  remedy under a Partnership,
the  Partnership  may be forced  to  foreclose  and hold real or other  property
(which  secures  the  Mortgage  Investment)  for a short  period  of  time.  The
Partnership  is  permitted  to borrow  funds to assist in the  operation  of any
property on the security of which it has previously  made a Mortgage  Investment
and the  operations  of which it has  subsequently  taken  over as a result of a
default. Furthermore, the foreclosed properties may be subject to other existing
mortgages.  Consequently,  any  such  acquired  property  may  be  deemed  to be
"debt-financed  property."  In such  event,  net  income  and gain from any such
property may constitute  unrelated  business taxable income,  although  Employee
Trusts  (but  not most  other  tax-exempt  organizations,  including  IRAs)  may
nevertheless  qualify for an exception,  found in Code Section 514(c)(9),  which
would  exempt  them  from  taxation  on such net  income in the case of the real
property.                                                                       

     The  Partnership  intends to hold its Mortgage  Investments  for investment
and,  therefore,  no unrelated  business  taxable  income should result from the
disposition  of  these  assets.  Such  may  not be  the  case,  however,  if the
Partnership  does not act in accordance with this intention and it is determined
that the Partnership is a dealer in the business of buying and selling  Mortgage
Investments.  The General  Partners have represented that they intend to conduct
the activities of the Partnership in a manner so as to minimize or eliminate the
risk of having the  Partnership  classified as a "dealer" for federal income tax
purposes (See "PROPERTY HELD PRIMARILY FOR SALE/POTENTIAL DEALER STATUS.")      

     In computing  unrelated  business  taxable income,  a Tax-Exempt  Investor,
including  an Employee  Trust or IRA,  may deduct a  proportionate  share of all
expenses which are directly connected with the activities generating such income
or with the  "debt-financed  property," as the case may be, and is also entitled
to an annual  exclusion  of $1,000 with respect to  unrelated  business  taxable
income.  Even  though a  portion  of the  income  of a  Tax-Exempt  Investor  is
unrelated  business  taxable  income,  income  from other  sources  which is not
unrelated  business  taxable  income  will  not be  subject  to  federal  income
taxation.  In addition,  the receipt of unrelated  business  taxable income by a
Tax-Exempt  Investor  generally  will not  affect its  tax-exempt  status if the
investment is not otherwise inconsistent with the nature of its tax exemption.  

     In addition to the general tax  treatment  of  unrelated  business  taxable
income  received by  tax-exempt  investors,  special  rules apply to  charitable
remainder trusts. In general, a charitable remainder trust is a trust in which a
portion of an asset will be transferred to a charitable organization through the
use of a trust and the trust  itself  will not be  subject  to  taxation  on its
income.  If a charitable  remainder trust (which includes  charitable  remainder
annuity  trusts,  charitable  remainder  unitrusts and charitable  remainder net
income trusts)  receives any unrelated  business  taxable income for any taxable
year,  the  trust is  taxable  on all of its  income  as a  complex  trust.  The
remainder trust is taxable on its accumulated income to the extent the income is
not distributed to beneficiaries and to the extent the income exceeds the amount
deductible  under Section 661(a).  The  Partnership  does not anticipate that it
will  generate any  significant  unrelated  business  taxable  income.  However,
Prospective  Investors which are charitable remainder trusts should review their
individual  tax situation with their tax advisors to determine the effect of the
receipt of unrelated business taxable income to the trust.                      

     A Prospective  Investor which is a Tax-Exempt Investor is strongly urged to
consult its own tax  adviser  with regard to the  foregoing  unrelated  business
taxable income aspects of an investment in the  Partnership.  Furthermore,  with
regard to certain  non-tax  aspects of an  investment in the  Partnership,  (see
"RISK FACTOR - Investments by Tax-Exempt Investors" and "ERISA CONSIDERATIONS.")

     State and Local Taxes.  In addition to the federal income tax  consequences
described  above,  prospective  investors  may be subject to state and local tax
consequences  by reason of investment in the  Partnership.  A Limited  Partner's
distributive  share of the taxable income or loss of the  Partnership  generally
will be required to be included in determining  his reportable  income for state
or local  income tax  purposes  in the  jurisdiction  in which he is a resident.
Further,  upon his death,  estate or inheritance  taxes might be payable in such
Jurisdictions based upon his interest in the Partnership. In addition, a Limited
Partner might be subjected to income tax,  estate or  inheritance  tax, or both.
Depending  upon the  applicable  state and local laws,  tax  benefits  which are
available  to  Limited  Partners  for  federal  income tax  purposes  may not be
available to Limited Partners for state or local income tax purposes.  Potential
investors are urged to consult their  personal tax advisor  regarding the impact
of state and local taxes upon an investment in the Partnership.  A discussion of
state and local tax law is beyond the scope of this Prospectus.                 

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ERISA CONSIDERATIONS

     General. The law governing retirement plan investment in the Partnership is
the Employee  Retirement  Income  Security Act of 1974  ("ERISA")  and the Code.
Persons or  organizations  that exercise  discretion or control over plan assets
are deemed to be fiduciaries  under ERISA.  Section 404 of ERISA provides that a
fiduciary is subject to a series of specific  responsibilities  and prohibitions
and is  required  to  manage  plan  assets  "solely  in  the  interest  of  plan
participants."  Section 404 of ERISA  requires that plan  fiduciaries  discharge
their duty with care, skill,  prudence and diligence (the so called "prudent man
rule") and that the fiduciary diversify the investments of the plan unless under
the circumstances it is clearly not prudent to do so.  Regulations issued by the
Department  of Labor ("DOL") under these  statutory  provisions  require that in
making investments,  the fiduciary consider numerous factors,  current return of
the portfolio  relative to the anticipated  cash flow  requirements of the plan,
and the projected return of the portfolio  relative to the funding objectives of
the plan.  In  addition,  before the  enactment of ERISA,  the Internal  Revenue
Service,  proceeding  under a statutory  mandate that all qualified plans be for
the exclusive benefit of participants and beneficiaries, issued a similar set of
investment  considerations  for plan fiduciaries.  That Internal Revenue Service
position  has  not  been  modified  since  ERISA.  Consequently,  a  "Tax-Exempt
Investor", which is defined as a qualified profit-sharing, pension or retirement
trust, an HR-10 (Keogh) Plan, or an Individual Retirement Account (IRA), should,
in  general,   purchase  Units  of  Limited  partnership   interest  only  when,
considering  all  assets  held by such  plans,  those  prudence,  liquidity  and
diversification requirements are satisfied.                                     

     Fiduciaries  Under  ERISA.  A fiduciary  of a Qualified  Plan is subject to
certain   requirements   under  ERISA,   including  the  duty  to  discharge  of
responsibilities solely in the interest of, and for the benefit of the Qualified
Plan's  participants and  beneficiaries.  A fiduciary is required to (a) perform
its duties with the skill,  prudence  and  diligence  of a prudent man acting in
like  capacity,  (b) diversify  investments  so as to minimize the risk of large
losses and (c) act in accordance with the Qualified Plan's governing documents. 

     Fiduciaries  with  respect to a  Qualified  Plan  include  any  persons who
exercise  or  possess  any  discretionary   power  of  control,   management  or
disposition over the funds or other property of the Qualified Plan. For example,
any person who is responsible for choosing a Qualified  Plan's  investments,  or
who is a member of a  committee  that is  responsible  for  choosing a Qualified
Plan's  investments,  is a fiduciary of the Qualified Plan.  Also, an investment
professional whose advice will serve as one of the primary basis for a Qualified
Plan's investment decisions may be a fiduciary of the Qualified Plan, as may any
other  person with special  knowledge  or influence  with respect to a Qualified
Plan's investment or administrative activities.                                 

     While the  beneficiary  "owner" or "account  holder" of an IRA is generally
treated as a fiduciary of the IRA under the Code, IRAs generally are not subject
to ERISA's  fiduciary  duty  rules.  Where a  participant  in a  Qualified  Plan
exercises control over such  participant's  individual  account in the Qualified
Plan in a "self-directed  investment" arrangement that meets the requirements of
Section  404(c) of ERISA,  such  Participant  (rather  than the person who would
otherwise  be a  fiduciary  of  such  Qualified  Plan)  will  generally  be held
responsible   for  the   consequences   of  his   investment   decisions   under
interpretations  of applicable  regulations of the Department of Labor.  Certain
Qualified  Plans  of  sole   proprietorships,   partnerships   and  closely-held
corporations  of which the owners of one hundred percent (100%) of the equity of
such business and their  respective  spouses are the sole  participants  in such
Plans at all times  generally  not  subject to  ERISA's  fiduciary  duty  rules,
although they are subject to the Code's prohibited  transaction rules, explained
below.                                                                          

     A person  subject to ERISA's  fiduciary  rules with  respect to a Qualified
Plan should consider those rules in the context of the particular  circumstances
of the  Qualified  Plan before  authorizing  an  investment  of a portion of the
Qualified Plan's assets in Units.                                               

     Prohibited  Transactions Under ERISA and the Code. Section 4975 of the Code
(which applies to all Qualified  Plans and IRAs) and Section 406 of ERISA (which
does not  apply to IRAs or to  certain  Qualified  Plans  that,  under the rules
summarized above, are not subject to ERISA's fiduciary rules) prohibit Qualified
Plans and IRAs from  engaging in certain  transactions  involving  "plan assets"
with  parties  that are  "disqualified  persons"  under the Code or  "parties in
interest"  under ERISA  ("disqualified  persons" and  "parties in interest"  are
hereafter referred to as "Disqualified  Persons").  Disqualified Persons include
fiduciaries of the Qualified Plan or IRA, officers, directors,  shareholders and
other owners of the company  sponsoring the Qualified  Plan and natural  persons
and legal entities sharing certain family or ownership  relationships with other
Disqualified Persons.                                                           

     "Prohibited transactions" include any direct or indirect transfer or use of
a  Qualified  Plan's or IRA's  assets to or for the  benefit  of a  Disqualified
Person,  any act by a fiduciary  that involves the use of a Qualified  Plan's or
IRA's assets in the fiduciary's  individual  interest or for the fiduciary's own
account,  and any receipt by a  fiduciary  of  consideration  for his or her own
personal  account  from  any  party  dealing  with a  Qualified  Plan  or IRA in
connection with a transaction  involving the assets of the Qualified Plan or the
IRA. Under ERISA, a Disqualified Person that engages in a prohibited transaction
will be required to disgorge any profits made in connection with the transaction
and  for  any  losses  sustained  by the  Qualified  Plan.  In  addition,  ERISA
authorizes  additional  penalties  and  further  relief  from such  transaction.
Section 4975 of the Code  imposes  excise  taxes on a  Disqualified  Person that
engages in a prohibited transaction with a Qualified Plan or IRA.               

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     In order to avoid the occurrence of a prohibited  transaction under Section
4975 of the Code and/or  Section 406 of ERISA,  Units may not be  purchased by a
Qualified  Plan or IRA from  assets as to which the  General  Partners or any of
their  Affiliates  are  fiduciaries.  Additionally,  fiduciaries  of,  and other
Disqualified  Persons with respect to,  Qualified Plans and IRAs should be alert
to the potential for prohibited  transactions that may occur in the context of a
particular Qualified Plan's or IRA's decision to purchase Units.                

     Plan Assets. If the Partnership's assets were determined under ERISA or the
Code  to be  "plan  assets"  of  Qualified  Plans  and/or  IRAs  holding  Units,
fiduciaries of such Qualified  Plans and IRAs might under certain  circumstances
be subject to  liability  for  actions  taken by the  General  Partners or their
Affiliates. In addition, certain of the transactions described in the Prospectus
in which the  Partnership  might engage,  including  certain  transactions  with
Affiliates,  might constitute  prohibited  transactions under the Code and ERISA
with respect to such  Qualified  Plans and IRAs,  even if their  acquisition  of
Units  did  not  originally  constitute  a  prohibited  transaction.   Moreover,
fiduciaries with  responsibilities to Qualified Plans (other than IRAs) might be
deemed to have  improperly  delegated their  fiduciary  responsibilities  to the
General Partner in violation of ERISA.                                          

     Although under certain  circumstances ERISA and the Code, as interpreted by
the   Department  of  Labor  in  currently   effective   regulations,   apply  a
"look-through"  rule under  which the  assets of an entity in which a  Qualified
Plan or IRA  has  made an  equity  investment  may  generally  constitute  "plan
assets," the  applicable  regulations  except  investments  in certain  publicly
registered securities from the application of the "look-through" principle.     

     In order to qualify for the exception  described  above,  the securities in
question must be "publicly-offered  securities." Publicly-offered securities are
defined as freely transferable,  owned by at least 100 investors  independent of
the issuer and of one another,  and registered either (a) under Section 12(b) or
12(g) of the  Securities  Exchange Act of 1934,  or (b) sold as part of a public
offering  pursuant to an effective  registration  statement under the Securities
Act of 1933 and registered under the Securities  Exchange Act of 1934 within 120
days (or such  later  time as may be  allowed  by the  Securities  and  Exchange
Commission)  after the end of the issuer's fiscal year during which the offering
occurred.                                                                       

     The  Partnership's  Units should constitute  "publicly-offered  securities"
because (a) the General  Partners have represented that it is highly likely that
substantially  more than 100 independent  investors will purchase and hold Units
in the Partnership,  and the Regulation  states that, when 100 or more investors
independent of the issuer and of one another purchase a class of securities, the
class  will  be  deemed  to be  widely  held;  (b)  the  General  Partners  have
represented  that the  Partnership's  offering the Units is registered under the
Securities  Act of 1933 and that the General  Partners  intend to  register  the
Units in the  Partnership  under the  Securities  Exchange Act of 1934;  and (c)
although whether a security is freely  transferable is a factual  determination,
the limitations on the assignment of Units and  substitution of Limited Partners
contained  in  the  Partnership  Agreement,  with  the  possible  exception  for
publicly-traded  partnership  discussed below,  fall within the scope of certain
restrictions  enumerated in the  Regulation  that  ordinarily  will not affect a
determination   that  securities  are  freely   transferable  when  the  minimum
investment  is  $10,000  or  less.  The  Partnership   Agreement  prohibits  the
assignment  or other  transfer of Units  without the General  Partners'  written
consent if the General Partners determine in good faith that such transfer might
result  in a  change  in the  status  of the  Partnership  to a  publicly-traded
partnership  within the meaning of Section  7704 of the Code,  as  currently  or
hereafter   interpreted  by  the  Service  in  rulings,   regulations  or  other
publications,  or by the courts,  and such status would have a material  adverse
impact on the  Limited  Partners  or their  assignees.  In order to prevent  the
Partnership from being classified as a publicly-traded  partnership, the General
Partner has represented  that it intends to prohibit  transfers of Units only to
the extent  necessary  to comply with the safe  harbors  contained in IRS Notice
88-75,  under which  certain  levels of trading are  permissible  (See  "FEDERAL
INCOME TAX CONSEQUENCES Publicly  Traded Partnerships").  The Regulation permits
restrictions  that  prohibit any transfer or  assignment  that would result in a
reclassification  of the entity for  federal  income tax  purposes.  In Advisory
Opinion  89-14A,  dated August 2, 1989,  the  Department of Labor  expressed its
opinion that a restriction  against  transfer of  partnership  interests that is
drafted  to  avoid  reclassification  of  a  partnership  as  a  publicly-traded
partnership  would  qualify  as the  type  of  restriction  contemplated  by the
Regulation.  Therefore, the restriction in the Partnership Agreement should not,
absent  unusual  circumstances,  affect  the free  transferability  of the Units
within the meaning of the Regulation.                                           

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     Potential  Consequences of Treatment as Plan Assets.  In the event that the
Units do not constitute "publicly-offered  securities," the underlying assets of
the  Partnership  are  treated  as plan  assets  under the  regulations.  If the
Partnership's  underlying  assets are deemed to be plan assets,  the Partnership
may be required to take steps which  could  affect  Partners  who are subject to
income tax, as well as Qualified Plans which may invest in the  Partnership.  In
such event,  the  fiduciary  duties,  including  compliance  with the  exclusive
benefit  rule  and  the  diversification  and  prudence  requirements,  must  be
considered  with respect to the investment in the  Partnership.  Each Partner of
the  Partnership  who has authority or control with respect to the management or
disposition of the assets of the Partnership,  or who renders  investment advice
for a fee or other compensation,  direct or indirect, with respect to the assets
of the  Partnership  would be  treated as a  fiduciary  and  therefore  would be
personally  liable  for any  losses to a  Qualified  Plan  which  invests in the
Partnership resulting from a breach of fiduciary duty.                          

     The prohibited transaction  restrictions would apply to any transactions in
which the  Partnership  engages  involving the assets of the  Partnership  and a
party-in-interest.  Such  restrictions  could,  for  example,  require  that the
Partnership and the General Partners avoid  transactions  with entities that are
affiliated with the  Partnership or the General  Partners or that Qualified Plan
investors be given the opportunity to withdraw from the  Partnership.  Also, the
General  Partners who participate in a prohibited  transaction may be subject to
an excise tax.  Finally,  entering into a prohibited  transaction  may result in
loss of the Qualified Plan's tax-exempt status.                                 

DESCRIPTION OF UNITS

     The Units will represent a Limited Partnership Interest in the Partnership.
Units will be evidenced by a Certificate of Limited Partnership  Interest.  Each
Unit will represent a Limited Partnership Interest of $100.                     

     The Limited  Partners  representing a majority of the  outstanding  Limited
Partnership Interests may, without the concurrence of the General Partners, vote
to take the following  actions:  (a) terminate  the  Partnership;  (b) amend the
Limited  Partnership  Agreement,  subject to certain  limitations  described  in
Section 12.4 of the Limited Partnership Agreement; (c) approve or disapprove the
sale of all or substantially all of the assets of the Partnership; or (d) remove
or replace one or all of the General  Partners.  In addition,  Limited  Partners
representing  ten percent  (10%) of the  Limited  Partner  Interests  may call a
meeting  of  the   Partnership.   (See  "SUMMARY  OF  THE  LIMITED   PARTNERSHIP
AGREEMENT").                                                                    

     An  assignee  of Units shall not become a  substituted  Limited  Partner in
place of his assignor unless the written consent of the General Partners to such
substitution  shall have been obtained,  which consent shall not be unreasonably
withheld. An assignee who does not become a substituted Limited Partner shall be
entitled  to receive  allocations  and  distributions  attributable  to the Unit
properly  transferred  to him,  but shall not have any of the other  rights of a
Limited Partner,  including the right to vote as a Limited Partner and the right
to inspect and copy the Partnership's books.                                    

     It is not  anticipated  that there will be a public  trading market for the
Units  and the  transferability  of the  Units  will be  subject  to a number of
restrictions.  Accordingly,  the  liquidity  of the Units  will be  limited  and
holders of the Units may not be able to liquidate their  investment in the event
of an  emergency,  except as permitted in the  withdrawal  provisions  described
below.  Any  transferee  must be a person  that  would  have been  qualified  to
purchase  Units in this  offering  and no  transferee  may acquire  less than 20
Units. No Unit may be transferred if, in the judgment of the General Partners, a
transfer would  jeopardize the status of the  Partnership or cause a termination
of the Partnership for federal income tax purposes.  Transfers of the Units will
generally  require the consent of the California  Commissioner of  Corporations,
except as permitted in the Commissioner's  Rules. The certificates  representing
the  Units  will  bear a  legend  setting  forth  this  restriction.  Additional
restrictions  on transfers of Units may be imposed under the securities  laws of
other states upon  transfers  occurring in or  involving  the  residents of such
states.  In addition,  no Limited Partner will be permitted to make any transfer
or  assignment  of his Limited  Partnership  Interest  if the  General  Partners
determine  such transfer or  assignment  would result in the  Partnership  being
classified  as a  "publicly  traded  partnership"  within the meaning of Section
7704(b)  of the  Code  or  any  rules,  regulations  or  safe-harbor  guidelines
promulgated thereunder.                                                         

     The  Partnership  will not repurchase any Units from the Limited  Partners.
However,  the Limited Partners may withdraw from the Partnership  after one year
from  the date of  purchase  in four  quarterly  installments  subject  to a ten
percent  (10%)  early  withdrawal  penalty  being  deducted  from their  Capital
Account.  Limited  Partners may also withdraw after five years on an installment
basis,  generally a five year period in twenty  installments or longer,  without
the imposition of any penalty (See "SUMMARY OF THE LIMITED PARTNERSHIP AGREEMENT
- Withdrawal from Partnership").                                                

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SUMMARY OF THE LIMITED PARTNERSHIP AGREEMENT

     The  following is a summary of the Limited  Partnership  Agreement  for the
Partnership,  and is  qualified  in its  entirety by the terms of the  Agreement
itself. Potential investors are urged to read the entire Agreement, which is set
forth as Exhibit A to this Prospectus.                                          

     Rights and Liabilities of Limited Partners.  The rights,  duties and powers
of Limited  Partners  are  governed by the  Limited  Partnership  Agreement  and
Sections  15611,  et seq. of the California  Corporations  Code (the  California
Revised  Limited  Partnership  Act (the  "Partnership  Act")) and the discussion
herein of such  rights,  duties  and  powers is  qualified  in its  entirety  by
reference to such Agreement and Partnership Act.                                

     Investors who become Limited  Partners in the Partnership in the manner set
forth herein will not be responsible  for the  obligations  of the  Partnership.
However,  they will be liable to the  extent  of any  deficit  in their  capital
accounts upon dissolution, and may also be liable for any return of capital plus
interest if  necessary  to  discharge  liabilities  existing at the time of such
return.  Any cash distributed to Limited  Partners may constitute,  wholly or in
part, return of capital.                                                        

     Limited   Partners  will  have  no  control  over  the  management  of  the
Partnership,  except  that  Limited  Partners  representing  a  majority  of the
outstanding  Limited  Partnership  interests may, without the concurrence of the
General  Partners,  take the following  actions:  (a) terminate the  Partnership
(including merger or reorganization  with one or more other  partnerships);  (b)
amend the Limited Partnership  Agreement;  (c) approve or disapprove the sale of
all or  substantially  all of the assets of the  Partnership;  or (d) remove and
replace one or all of the General Partners. The approval of all Limited Partners
is  required  to elect a new General  Partner to  continue  the  business of the
Partnership  where there is no remaining General Partner after a General Partner
ceases to be a general partner other than by removal. The General Partners shall
have the right to increase  the size of this  Offering or conduct an  additional
offering of securities  without  obtaining the consent of the Limited  Partners.
Limited  Partners  representing  ten percent  (10%) of the  Limited  Partnership
interests may call a meeting of the Partnership.                                

     Capital  Contributions.  Interests in the Partnership will be sold in Units
of $100,  and no person may  acquire  less than 20 Units  ($2,000).  The General
Partners have the discretion to accept  subscriptions  for  fractional  units in
excess of the minimum  subscription.  The General Partners,  collectively,  will
contribute  the sum of l/10th of 1% of the Gross  Proceeds to the capital of the
Partnership.                                                                    

     Rights, Powers and Duties of General Partners.  Subject to the right of the
Limited  Partners to vote on specified  matters,  the General Partners will have
complete charge of the business of the Partnership. The General Partners are not
required  to devote  full time to  Partnership  affairs but only such time as is
required  for the  conduct  of  Partnership  business.  Any  one of the  General
Partners  acting  alone  has the  power  and  authority  to act for and bind the
Partnership.  The General  Partners are granted the special power of attorney of
each Limited Partner for the purpose of executing any document which the Limited
Partners have agreed to execute and deliver.                                    

     Profits and Losses. Profits and losses of the Partnership will be allocated
among the Limited  Partners  according to their respective  outstanding  capital
accounts  on a daily  basis.  Upon  transfer  of Units (if  permitted  under the
Limited  Partnership  Agreement  and  applicable  law),  profit and loss will be
allocated to the transferee  beginning with the next succeeding  calendar month.
One percent  (1%) of all  Partnership  profit and loss will be  allocated to the
General Partners.                                                               

     Cash  Distributions.  Upon his subscription for Units, each Limited Partner
will be required to elect  either (i) to receive  monthly,  quarterly  or annual
distributions  ("Periodic  Distributions");  or (ii) to acquire additional Units
with his  allocable  share of Earnings.  The election to receive  Periodic  Cash
Distributions  is  irrevocable  although an  investor  may change  whether  such
distributions are received on a monthly, quarterly or annual basis. If a Limited
Partner initially  elected to receive  additional Units, he may, after three (3)
years, change his election and receive Periodic Cash Distributions.  The General
Partners will also receive cash distributions equal to one percent (1%) of total
Partnership income.                                                             

     As  a  result,  the  relative   percentage  of  Partnership   interests  of
non-electing Partners (including voting rights and shares of future income) will
gradually  increase due to the compounding  effect of crediting  income to their
capital  accounts,  while the percentage  interests of Partners who receive cash
distributions will decrease during the term of the Partnership.                 

     Meeting.  A General Partner,  or Limited Partners  representing ten percent
(10%)  of  the  Limited  Partnership  interests,  may  call  a  meeting  of  the
Partnership  on at least 30 days  written  notice.  Unless the notice  otherwise
specifies,  all  meetings  will  be  held  at 2:00  P.M.  at the  office  of the
Partnership.  Limited Partners may vote in person or by proxy at the Partnership
meeting.  A majority  of the  outstanding  Limited  Partnership  interests  will
constitute a quorum at Partnership  meetings.  There are no regularly  scheduled
meetings of the Limited Partners.                                               

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     Accounting and Reports.  The General Partners will cause to be prepared and
furnished  to the  Limited  Partners  an  annual  report  of  the  Partnership's
operation,  which will be audited by an independent  accounting firm. Within 120
days after the close of the year  covered  by the  report,  a copy or  condensed
version will be furnished to the Limited  Partners.  The Limited  Partners shall
also be furnished such detailed information as is reasonably necessary to enable
them to complete their own tax returns within 90 days after the end of the year.

     The General Partners  presently intend to maintain the Partnership's  books
and records on the accrual basis for  bookkeeping and accounting  purposes,  and
also intend to use the accrual  basis method of reporting  income and losses for
federal income tax purposes.  The General  Partners  reserve the right to change
such methods of accounting, upon written notice to Limited Partners. Any Limited
Partners may inspect the books and records of the  Partnership at all reasonable
times.                                                                          

     Restrictions  on  Transfer.   The  Limited  Partnership   Agreement  places
substantial  limitations upon transferability of Limited Partnership  interests.
Any  transferee  must be a person that would have been  qualified  to purchase a
Limited  Partnership Unit in this offering and no transferee may acquire or hold
less than 20  Limited  Partnership  Units.  No Limited  Partnership  Unit may be
transferred if, in the judgment of the General Partners,  and/or their counsel a
transfer  would  jeopardize  the status of the  Partnership  as a partnership or
cause a termination  of the  Partnership  for federal  income tax purposes.  The
written consent of the California  Commissioner of Corporations is also required
prior to any sale or transfer of Units  except as  permitted.  In  addition,  no
Limited  Partner will be permitted  to make any  transfer or  assignment  of his
Limited  Partnership  Interest  if the General  Partners  and/or  their  counsel
determine  such transfer or  assignment  would result in the  Partnership  being
classified  as a  "publicly  traded  partnership"  within the meaning of Section
7704(b)  of the  Code  or  any  rules,  regulations  or  safe-harbor  guidelines
promulgated thereunder.                                                         

     A  transferee  may not become a  substituted  Limited  Partner  without the
consent of the General  Partners.  A  transferee  who does become a  substituted
Limited Partner has no right to any information  regarding the Partnership or to
inspect the Partnership's  books, but is entitled only to the share of income or
return of capital to which the transferor would be entitled.                    

     General Partners' Interest. Any General Partner, or all of them, may retire
from the  Partnership  at any time upon six months written notice to all Limited
Partners, in which event a retiring General Partner would not be entitled to any
termination or severance payment from the Partnership,  except for the return of
his capital  account  balance.  A General Partner may also sell and transfer his
general  partner   interest  in  the  Partnership   (including  all  powers  and
authorities  associated  therewith) for such price as he shall  determine in his
sole discretion,  and neither the Partnership nor the Limited Partners will have
any  interest  in the  proceeds of such sale.  However,  the  successor  General
Partner  must  be  approved  by  Limited  Partners  holding  a  majority  of the
outstanding Limited Partnership  interests.  In the event that all or any one of
the initial  General  Partners  are removed by the vote of a majority of Limited
Partners and a successor General Partner(s) is thereafter  designated,  prior to
becoming a successor or additional  General  Partner,  such  designated  General
Partner shall sign a written document (i)  acknowledging  that Redwood Mortgage,
an affiliate of the initial  General  Partners,  was repaying the Formation Loan
with the  proceeds  it  earned  from  loan  brokerage  commissions  on  Mortgage
Investments  and other fees paid by the  Partnership;  and (ii) agreeing that in
the event such successor General Partner(s) elects to use another loan brokerage
firm  for  the  placement  of  Mortgage  Investments,   Redwood  Mortgage  shall
immediately  be released from all further  obligation  under the Formation  Loan
(except for a proportionate share of the principal installment due at the end of
that  year,  prorated  according  to the days  elapsed).  If all of the  General
Partners are removed, no other General Partners are elected,  the Partnership is
liquidated  and Redwood  Mortgage is no longer  receiving  payments for services
rendered,  the debt on the Formation  Loan shall be forgiven by the  Partnership
and Redwood  Mortgage will be immediately  released from any further  obligation
under the Formation Loan.                                                       

     Term of Partnership.  The term of the Partnership  commenced on the day the
Limited Partnership Agreement was executed, and will continue until December 31,
2032.  The  Partnership  will dissolve and terminate if any one of the following
occurs:  (1) upon the  removal,  death,  retirement,  insanity,  dissolution  or
bankruptcy  of a General  Partner,  unless the  business of the  Partnership  is
continued by a remaining  General  Partner,  if any, or if there is no remaining
General  Partner,  by a new General  Partner elected to continue the business of
the Partnership by all the Limited Partners (or by a majority-in-interest of the
Limited  Partners,  in the case of removal);  (2) upon the affirmative vote of a
majority-in  interest  of the  Limited  Partners;  (3)  upon  the sale of all or
substantially  all (i.e., at least seventy  percent (70%)) of the  Partnership's
assets; or (4) otherwise by operation of law.                                   

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     Winding  Up.  The  Partnership  will  not  terminate  immediately  upon the
occurrence of an event of dissolution,  but will continue until its affairs have
been wound up. Upon  dissolution of the  Partnership,  the General Partners will
wind up the  Partnership's  affairs by liquidating the  Partnership's  assets as
promptly as is consistent with obtaining the fair current value thereof,  either
by sale to third parties or by collecting  loan payments  under the terms of the
loan.  All funds  received  by the  Partnership  shall be  applied to satisfy or
provide for  Partnership  debts and the balance shall be distributed to partners
in accordance with the terms of the Limited Partnership Agreement.              

     Dissenting Limited Partners' Rights. If the Partnership participates in any
acquisition  of the  Partnership  by  another  entity,  any  combination  of the
Partnership  with  another  entity  through  a merger or  consolidation,  or any
conversion of the Partnership into another form of business entity through (such
as a  corporation)  that  requires  the  approval  of  the  outstanding  limited
partnership interests, the result of which would cause the other entity to issue
securities  to the  Limited  Partners,  then each  Limited  Partner who does not
approve such  reorganization  (the "Dissenting Limited Partner") may require the
Partnership to purchase for cash, at its fair market value,  his or her interest
in accordance  with Section  15679.2 of the  California  Corporations  Code. The
Partnership,  however,  may itself  convert to another  form of business  entity
(such as a corporation,  trust or association) if the conversion will not result
in a  significant  adverse  change  in (i)  the  voting  rights  of the  Limited
Partners, (ii) the termination date of the Partnership (currently,  December 31,
2032, unless terminated  earlier in accordance with the Partnership  Agreement),
(iii) the compensation  payable to the General Partners or their Affiliates,  or
(iv) the Partnership's investment objectives.                                   

     The General  Partners will make the  determination as to whether or not any
such  conversion  will  result  in a  significant  adverse  change in any of the
provisions  listed in the preceding  paragraph based on various factors relevant
at the time of the  proposed  conversion,  including an analysis of the historic
and projected  operations of the  Partnership;  the tax  consequences  (from the
standpoint  of the Limited  Partners) of the  conversion of the  Partnership  to
another form of business entity and of an investment in a limited partnership as
compared  to an  investment  in the  type of  business  entity  into  which  the
Partnership would be converted;  the historic and projected operating results of
the  Partnership's   Mortgage  Investments,   and  the  then-current  value  and
marketability of the Partnership's Mortgage Investments. In general, the General
Partners  would  consider any material  limitation  on the voting  rights of the
Limited Partners or any substantial  increase in the compensation payable to the
General Partners or their  Affiliates to be a significant  adverse change in the
listed provisions.                                                              

     It is anticipated that, under the provisions of the Partnership  Agreement,
the  consummation of any such conversion of the Partnership into another form of
business entity (whether or not approved by the General  Partners) would require
the approval of Limited Partners holding a majority of the Units.               

 TRANSFER OF UNITS

     Restrictions  on the  Transfer  of Units.  There is no public or  secondary
market for the Units and none is expected to develop.  Moreover, a Unit may only
be transferred if certain requirements are satisfied, and transferees may become
Limited Partners only with the consent of the General Partners.  Under Article 7
of the Partnership Agreement,  the assignment or other transfer of Units will be
subject to compliance  with the minimum  investment  and  suitability  standards
imposed  by the  Partnership.  (See  "INVESTOR  SUITABILITY  STANDARDS").  Under
presently applicable state securities law ("Blue Sky") guidelines, except in the
case of a transfer  by gift or  inheritance  or upon  family  dissolution  or an
intra-family  transfer,  each  transferee  of  Units  of  the  Partnership  must
generally satisfy minimum investment and investor suitability  standards similar
to those which were applicable to the original offering of Units and,  following
a transfer of less than all of his Units,  each transferor must generally retain
a  sufficient  number  of Units to  satisfy  the  minimum  investment  standards
applicable to his initial  purchase of Units. In the case of a transfer in which
a member firm of the  National  Association  of  Securities  Dealers,  Inc.,  is
involved,  that firm  must be  satisfied  that a  proposed  transferee  of Units
satisfies the suitability  requirements  as to financial  position and net worth
specified  in Section  3(b) of Appendix F to the NASD's  Conduct  Rules and must
inform the proposed  transferee of all pertinent facts relating to the liquidity
and marketability of the Units during the term of the investment.               

     Unless the General Partners shall give their express written  approval,  no
Units may be assigned or  otherwise  transferred  (i) to a minor or  incompetent
(unless a guardian,  custodian or  conservator  has been appointed to handle the
affairs of such  Person);  (ii) to any Person not  permitted  to be a transferee
under  applicable  law,   including,   in  particular  but  without  limitation,
applicable  federal and state  securities  laws;  (iii) to any Person if, in the
opinion of Tax Counsel,  such assignment  would result in the termination  under
the Code of the  Partnership's  taxable year of its status as a partnership  for
federal income tax purposes;  (iv) to any Person if such assignment would affect
the Partnership's  existence or qualification as a limited partnership under the
California Act or the  applicable  laws of any other  jurisdiction  in which the
Partnership is then conducting business.                                        

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     Any such attempted  assignment  without the express written approval of the
General  Partners  shall  be  void  and  ineffectual  and  shall  not  bind  the
Partnership.  In the case of a proposed  assignment,  which is prohibited solely
under clause (iii) above,  however, the Partnership shall be obligated to permit
such assignment to become effective if and when, in the opinion of Counsel, such
assignment  would no longer have either of the  adverse  consequences  under the
Code which are specified in that clause.                                        

     Section 7.03 of the  Partnership  Agreement  provides that so long as there
are adverse  federal income tax  consequences  from being treated as a "publicly
traded partnership" for federal income tax purposes,  the General Partners shall
not permit any  interest in a Unit to be Assigned on a secondary  public  market
(or a  substantial  equivalent  thereof)  as  defined  under  the  Code  and any
regulations  promulgated  thereunder (a "Secondary  Market") and, if the General
Partners  determine in their sole  discretion,  that a proposed  assignment  was
affected on a Secondary  Market,  the Partnership and the General  Partners have
the right to refuse to recognize  any such proposed  Assignment  and to take any
action  deemed  necessary or  appropriate  in the General  Partners'  reasonable
discretion so that such assignment is not in fact  recognized.  For the purposes
of Section 7.3 of the Partnership  Agreement,  any assignment which results in a
failure to meet the "safe  harbor"  provisions  of Notice  88-75  (July 5, 1988)
issued by the  Service or any  substitute  safe-harbor  provisions  subsequently
established by Treasury  Regulations shall be treated as causing the Units to be
publicly  traded.   The  Limited  Partners  agree  to  provide  all  information
respecting  assignments  which the General  Partners deem  necessary in order to
determine  whether a proposed  transfer  occurred  on a  secondary  market.  The
General  Partners  shall  incur no  liability  to any  investor  or  prospective
investor for any action or inaction by them in  connection  with the  foregoing,
provided it acted in good faith.                                                

     Consequently,  holders  of  Units  may  not  be  able  to  liquidate  their
investments in the event of  emergencies or for any other reasons.  In addition,
Units may not be readily accepted as collateral for loans.                      

     Withdrawal  from  Partnership.  A Limited  Partner has no right to withdraw
from the  Partnership or to obtain the return of all or any portion of sums paid
for the purchase of Units (or reinvested  earnings with respect thereto) for one
(1) year after the date such Units are purchased.  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 equal quarterly  installments  beginning the calendar quarter  following
the quarter in which the notice of withdrawal is given, provided notice is given
thirty  (30) days  prior to the end of the  preceding  quarter  subject to a ten
percent  (10%)  early  withdrawal  penalty.  The ten  percent  (10%)  penalty is
applicable to the amount  withdrawn as stated in the Notice of  Withdrawal.  The
ten percent (10%) penalty will be deducted,  pro rata,  from the four  quarterly
installments paid to the Limited Partner.  Withdrawal after the one year holding
period and before the five year holding  period will be permitted  only upon the
terms set forth above.                                                          

     Limited Partners will also have the right after five years from the date of
purchase of the Units to withdraw from the Partnership on an installment  basis,
generally, over a five-year period (in 20 equal quarterly installments), or over
such  longer  period  of time as the  Limited  Partner  may  desire or as may be
required in light of  Partnership  cash flow.  During this five-year (or longer)
period,  the Partnership will pay any distributions  with respect to Units being
liquidated  directly to the  withdrawing  Limited  Partner.  No penalty  will be
imposed  on  withdrawals  made  in  twenty  quarterly  installments  or  longer.
Notwithstanding  the  five-year  (or  longer)  withdrawal  period,  the  General
Partners may liquidate all or part of a Limited Partners Capital Account in four
quarterly  installments  beginning the calendar quarter following the quarter in
which the notice of withdrawal is given,  provided that such notice was received
thirty (30) days prior to the end of the preceding  quarter.  Such  liquidations
shall,  however,  be subject to a ten  percent  (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 ten
percent  (10%)  penalty  will be  deducted  from the Limited  Partners'  Capital
Account.                                                                        

     The ten percent  (10%)  early  withdrawal  penalty  will be received by the
Partnership, and a portion of the sums collected as such penalty will be applied
toward the next  installment(s)  of principal,  under the Formation Loan owed to
the  Partnership  by Redwood  Mortgage  thereby  reducing the amount owed to the
Partnership from Redwood Mortgage. Such portion shall be determined by the ratio
between  the  initial  amount  of the  Formation  Loan and the  total  amount of
organization and syndication costs incurred by the Partnership in this offering.
After  the  Formation  Loan has been  paid,  any  withdrawal  penalties  will be
retained by the Partnership for its own account.  (See "PLAN OF  DISTRIBUTION").
Limited  Partners  may  commence  withdrawal  (or partial  withdrawal)  from the
Partnership in installments by surrendering  Units as of the end of any calendar
quarter.  The amount that a  withdrawing  Limited  Partner will receive from the
Partnership is based on the withdrawing  Limited  Partner's  capital account.  A
capital account is a sum calculated for tax and accounting purposes,  and may be
greater  than or less  than the fair  market  value of such  investor's  Limited
Partnership  Interest in the  Partnership.  The fair  market  value of a Limited
Partner's   interest  in  the  Partnership   will  generally  be  irrelevant  in
determining  amounts to be paid upon  withdrawal,  except to the extent that the
current fair market  value of the  Partnership's  loan  portfolio is realized by
sales of  existing  Mortgage  Investments  (which  sales are not  required to be
made).                                                                          

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     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. For
this purpose,  cash flow is  considered  to be available  only after all current
Partnership  expenses  have been paid  (including  compensation  to the  General
Partners and affiliates) and adequate provision has been made for the payment of
all  periodic  cash  distributions  on a pro rata  basis  which  must be paid to
Limited Partners who elected to receive such distributions upon subscription for
Units.  Furthermore,  no more than  twenty  percent  (20%) of the total  Limited
Partners'  Capital  Accounts  outstanding for the beginning of any calendar year
shall be liquidated during any calendar year. Notwithstanding the twenty percent
(20%)  limitation,  the General  Partners  shall have the  discretion to further
limit the percentage of the total Limited Partners' Capital Accounts that may be
withdrawn  in order to  comply  with any  regulation  to be  enacted  by the IRS
pursuant to Section 7704 of the Code and the safe harbor provisions set forth in
Notice 88-75 to avoid the Partnership  being taxed as a corporation.  If Notices
of  Withdrawal  in excess  of these  limitations  are  received  by the  General
Partners,  the  priority  of  distributions  among  Limited  Partners  shall  be
determined  as follows:  first to those  Limited  Partners  withdrawing  Capital
Accounts according to the 20 quarter or longer installment  liquidation  period,
then ERISA plan Limited  Partners  withdrawing  Capital  Accounts after five (5)
years,  over  four (4)  quarterly  installments  (which  need  such  sums to pay
retirement  benefits),  then to Limited Partners  withdrawing after one (1) year
over four (4)  quarterly  installments.  Except as  provided  above,  withdrawal
requests will be considered by the General Partners in the order received.      

     Upon dissolution and termination of the Partnership, a five-year winding-up
period  is  provided  for  liquidating  the  Partnership's  loan  portfolio  and
distributing cash to Limited Partners.  Due to high prevailing interest rates or
other factors,  the Partnership  could suffer reduced  earnings (or losses) if a
substantial portion of its loan portfolio remains and must be liquidated quickly
at the end of such winding-up period. Limited Partners who complete a withdrawal
from the Partnership  prior to any such  liquidation will not be exposed to this
risk. Conversely,  if prevailing interest rates have declined at a time when the
loan portfolio must be  liquidated,  unanticipated  profits could be realized by
those Limited Partners who remained in the Partnership until its termination.   

 DISTRIBUTION POLICIES

     Distributions to the Limited  Partners.  The Partnership will make monthly,
quarterly  or annual  distributions  of all Earnings to those  Limited  Partners
affirmatively  electing to receive cash  distributions  upon  subscription.  All
other  Limited  Partners  will not receive  current  Distributions  of Earnings.
Rather,  they will  acquire  additional  Units  with  their pro rata  portion of
Earnings the value of which will be credited to their Capital  Accounts and will
be applied to  Partnership  Operations.  For every  $100 of cash  available  for
distribution, such Investor will acquire an additional Unit or fraction thereof.
However, there is no assurance as to the timing or amount of any Distribution to
the holders of the Units.                                                       

     Cash Available for  Distribution  will be allocated to the Limited Partners
and their  assignees  in the ratio which the  capital  accounts of the number of
Units owned by each of them bears to the capital accounts of the total number of
Units then  outstanding,  subject to adjustment  with respect to Units issued by
the  Partnership  during the quarter.  For such purposes,  a transferee of Units
will be deemed to be the owner thereof as of the first day following the day the
transfer is completed and will therefore not  participate in  distributions  for
the period prior to which the transfer occurs.                                  

     Earnings means cash funds available from operations from interest payments,
early  withdrawal  penalties  not  applied  to  the  Formation  Loan,  late  and
prepayment  charges,  interest on  short-term  investments  and Working  Capital
Reserve,  after  deducting  funds  used to pay or  provide  for the  payment  of
Partnership expenses and appropriate reserves.                                  

     Subject to the right of the  General  Partners  to  terminate  the right of
Investors  to  acquire  additional  Units in lieu of receipt  of  Periodic  Cash
Distributions,  such option to acquire  additional  Units will  continue  unless
prohibited  by  applicable  federal  or state  law.  Units  acquired  in lieu of
Periodic Cash  Distributions  will have the same rights and obligations of Units
acquired initially.                                                             

     Cash  Distributions.  Cash Available for Distribution will be determined by
computing  the net income  during the calendar  month on an accrual basis and in
accordance  with  generally  accepted  accounting  principles.  The  term  "Cash
Available  for  Distribution"  means an  amount of cash  equal to the  excess of
accrued income from  operations and investment of, or the sale or refinancing or
other  disposition  of,  Partnership  assets during any calendar  month over the
accrued operating expenses of the Partnership  during such month,  including any
adjustments for bad debt reserves or deductions as the General Partners may deem
appropriate,  all determined in accordance  with generally  accepted  accounting
principles; provided, that such operating expenses shall not include any general
overhead expenses of the General Partners not specifically related to, billed to
or  reimbursable by the Partnership as specified in Sections 10.15 through 10.17
of the Limited Partnership  Agreement.  All Cash Available for Distribution will
be allocated one percent (1%) to the General  Partners and  ninety-nine  percent
(99%) to the Limited Partners.                                                  

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     Allocation  of Net  Income  and Net  Losses.  Net  Income  and Net Loss for
accounting  purposes for each fiscal quarter and all items of net profits or net
losses and credits for tax purposes  for each quarter  shall be allocated to the
Partners as set forth in Article V of the  Limited  Partnership  Agreement.  Net
Income and Net Loss will be allocated  one percent (1%) to the General  Partners
and ninety-nine percent (99%) to the Limited Partners.                          

 REPORTS TO LIMITED PARTNERS

     Within 90 days after the end of each  fiscal year of the  Partnership,  the
General  Partners will deliver to each Limited  Partner such  information  as is
necessary for the  preparation by such Limited Partner of his federal income tax
return, and state income or other tax returns.  Within 120 days after the end of
each Partnership  fiscal year, the General Partners will deliver to each Limited
Partner an annual  report which  includes  audited  financial  statements of the
Partnership   prepared  in  accordance   with  generally   accepted   accounting
principles,  and which contains a  reconciliation  of amounts shown therein with
amounts shown on the method of accounting used for tax reporting purposes.  Such
financial statements include a profit and loss statement, a balance sheet of the
Partnership,  a Cash Flow  statement  and a  statement  of changes in  financial
position.  The  annual  report  for  each  year  reports  on  the  Partnership's
activities for that year,  identifies  the source of Partnership  Distributions,
sets forth the  compensation  paid to the General  Partners and their Affiliates
and a statement of the services performed in consideration therefor and contains
such other information as is deemed reasonably necessary by the General Partners
to advise the Limited Partners of the affairs of the Partnership.               

     For as long as the  Partnership  is required to file  quarterly  reports on
Form 10-Q with the Securities and Exchange Commission, the information contained
in each such report for a quarter shall be sent to the Limited  Partners  within
60 days after the end of such quarter. If and when such reports are not required
to be filed,  each Limited  Partner will be furnished,  within 60 days after the
end of each of the first three  quarters of each  Partnership  fiscal  year,  an
unaudited  financial  report  for  that  period  including  a  profit  and  loss
statement, a balance sheet and a Cash Flow statement.  The foregoing reports for
any period in which fees are paid to the General  Partners  or their  Affiliates
for services shall set forth the fees paid and the services rendered.           

PLAN OF DISTRIBUTION

     Subject to the  conditions  set forth in this  Prospectus and in accordance
with the terms and  conditions of the  Partnership  Agreement,  the  Partnership
offers  through  qualified  broker dealers on a best efforts basis, a maximum of
300,000 Units  ($30,000,000) of Limited  Partnership  Interest at $100 per Unit.
The minimum  subscription  is twenty (20) Units ($2,000).  Participating  Broker
Dealers will receive sales  commissions  of five percent (5%) of Gross  Proceeds
for subscriptions  where investors elect to receive cash distributions and sales
commissions   of  nine  percent  (9%)  of  Gross   Proceeds  will  be  paid  for
subscriptions  where  investors  elect to reinvest  their  Earnings  and acquire
additional Units in the Partnership. Additionally,  Participating Broker Dealers
may be entitled  to receive up to  one-half  of one  percent  (.5%) of the Gross
Proceeds  for bona  fide due  diligence  expenses,  and  certain  other  expense
reimbursements  and sales seminar expenses payable by the Partnership.  Although
total sales  commissions  payable could equal nine percent (9%), the Partnership
anticipates,  based on historical  experience,  that the total sales commissions
payable will not exceed (7.6%).  This number is based upon the General Partners'
assumption,  based on historical  experience,  that sixty-five  percent (65%) of
investors  will  elect  to  compound  earnings  and  receive  additional  Units,
thirty-five percent (35%) of investors will elect to receive distributions,.  In
no event  will the total of all  compensation  payable to  Participating  Broker
Dealers,  including sales commissions,  expense  reimbursements,  sales seminars
and/or due diligence  expenses exceed ten percent (10%) of the program  proceeds
received plus an additional  (0.5%) for bona fide due diligence  expenses as set
forth in Rule 2810 of the NASD  Conduct  Rules.  Further,  in no event shall any
individual  Participating  Broker Dealer  receive total  compensation  including
sales   commissions,   expense   reimbursements,   sales   seminar   or  expense
reimbursement  exceed  (10%)  of the  gross  proceeds  of  their  sales  plus an
additional (0.5%) for bona fide due diligence expenses as set forth in Rule 2810
of the NASD Conduct  Rules (the  Compensation  Limitation).  Units may also be  
offered or sold directly by the General  Partners for which they will receive no
sales commissions. No commissions will be paid on any Units acquired by Partners
in lieu of Periodic Cash Distributions                                          

     The Partnership  will not pay referral or similar fees to any  accountants,
attorneys or other persons in  connection  with the  distribution  of the Units.
Participating Broker Dealers are not obligated to obtain any subscriptions,  and
there is no assurance that any Units will be sold.                              

     The Participating  Broker Dealers shall not directly or indirectly  finance
or arrange for the financing of,  purchase of any Units,  nor shall the proceeds
of this  Offering be used either  directly or indirectly to finance the purchase
of any Units.                                                                   

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     The Selling Agreement provides that with respect to any liabilities arising
out of the  Securities  Act of 1933,  as  amended,  the General  Partners  shall
indemnify the Participating  Broker Dealer.  To the extent that  indemnification
provisions purport to include  indemnification for liabilities arising under the
Securities Act of 1933, such  indemnification,  in the opinion of the Securities
and   Exchange   Commission   is  contrary  to  public   policy  and   therefore
unenforceable.                                                                  

     Each  subscriber  will be required to comply with (i) the minimum  purchase
requirement and investor  suitability standard of his state of residence or (ii)
the investor  suitability  standard imposed by the Partnership in the event that
his  state  of  residence  does  not  impose  such  a  standard  (See  "INVESTOR
SUITABILITY STANDARDS").                                                        

     In order to purchase any Units,  the  subscriber  must complete and execute
the Signature Page for the  Subscription  Agreement.  Any subscription for Units
must be accompanied by tender of the sum of $100 per Unit. The Signature Page is
set  forth at the end of this  Prospectus  at  Exhibit  B-l.  By  executing  the
Signature Page for the Subscription  Agreement,  the subscriber agrees to all of
the  terms  of the  Partnership  Agreement  including  the  grant  of a power of
attorney  under certain  circumstances.  Limited  Partnership  Interests will be
evidenced  by a written  Partnership  Agreement  and each  Limited  Partner will
receive a Certificate of Limited  Partnership  Interest indicating the extent of
his interest in the Partnership.                                                

     Subscription  Agreements  from  prospective  investors  will be accepted or
rejected by the General  Partners  within thirty (30) days after their  receipt.
Subscriptions  will be effective only on acceptance by the General  Partners and
the right is reserved to reject any  subscription  in whole or in part" for any 
reason.                                                                         

     The  General  Partners  and  their  Affiliates  may,  in their  discretion,
purchase  Units for their own. The maximum amount of Units that may be purchased
by the General Partners or their Affiliates is $50,000 (500 Units). Purchases of
such  Units  by the  General  Partners  or  their  Affiliates  will be made  for
investment  purposes  only  on the  same  terms,  conditions  and  prices  as to
unaffiliated  parties.  It is not anticipated that the General Partners or their
Affiliates will purchase Units for their own accounts.                          

     Formation  Loan. All selling  commissions  incurred in connection  with the
offer and sale of Units and all  amounts  paid in  connection  with  unsolicited
orders will be paid by Redwood  Mortgage.  Initially,  upon the formation of the
Partnership,  approximately  eighty four percent  (84%) of each dollar  invested
will be available for Mortgage  Investments if 300,000 Units  ($30,000,000)  are
sold.  However,  as Redwood  Mortgage  repays the Formation Loan, and if working
capital  reserves are applied to Mortgage  Investments  as has occurred in prior
programs,  approximately ninety-six percent (96%) if 300,000 Units ($30,000,000)
are sold, will be available for investment in Mortgage Investments.             

     One of the Partnership's loans will be made to Redwood Mortgage, to be used
exclusively to pay certain selling expenses of the  Partnership.  Although it is
possible  that the  amount  of this loan (the  "Formation  Loan")  could be nine
percent (9%) of the Gross  Proceeds,  it is anticipated  that the Formation Loan
will average  approximately  (7.6%).  Thus it is anticipated  that the Formation
Loan will not exceed (7.6%) of the total gross proceeds of this Offering for the
maximum offering amount assuming,  based upon the General  Partners'  historical
experience  and  knowledge of  professionals  in the industry,  that  sixty-five
percent  (65%) of the  investors  elect to compound  their  earnings and acquire
additional Units and thirty-five percent (35%) elect to receive distributions or
the actual amount of selling commissions incurred by Redwood Mortgage, whichever
is less. The Formation  Loan will be unsecured,  will not bear interest and will
be repaid in annual  installments.  Upon commencement of this Offering,  Redwood
Mortgage shall make annual installments of one-tenth of the principal balance of
the Formation Loan as of December 31 of each year. Such payment shall be due and
payable by  December  31 of the  following  year with the first  payment  due by
December 31, 1997,  assuming  this  Offering  commences in 1996.  The  principal
balance of the Formation  Loan will  increase as  additional  sales of Units are
made each  year.  The  amount of the  annual  installment  payment to be made by
Redwood Mortgage, during the offering stage, will be determined by the principal
balance of the Formation  Loan on December 31 of each year.  Upon the completion
of this  offering the balance of the  Formation  Loan will be repaid in ten (10)
equal annual installments of principal, without interest, commencing on December
31 of the year following the year this offering terminates.  Redwood Mortgage at
its option may prepay all or any part of the Formation  Loan.  Redwood  Mortgage
intends to repay the Formation Loan principally from loan brokerage  commissions
earned on  Mortgage  Investments,  and the  receipt  of a  portion  of the early
withdrawal  penalties  and other  fees paid by the  Partnership.  Since  Redwood
Mortgage  will use the  proceeds  from loan  brokerage  commissions  on Mortgage
Investments  to  repay  the  Formation  Loan,  if all or any one of the  initial
General  Partners  is removed as a General  Partner by the vote of a majority of
Limited Partners and a successor or additional  General Partner(s) is thereafter
designated, and if such successor or additional                                 

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     General  Partner(s)  begins  using any other  loan  brokerage  firm for the
placement of Mortgage Investments, Redwood Mortgage will be immediately released
from any further obligation under the Formation Loan (except for a proportionate
share  of the  principal  installment  due at the end of that  year,  pro  rated
according to the days elapsed).  In addition, if all of the General Partners are
removed,  no  successor  General  Partners  are  elected,   the  Partnership  is
liquidated and Redwood Mortgage is no longer receiving any payments for services
rendered,  the debt on the Formation Loan shall be forgiven and Redwood Mortgage
will be  immediately  released from any further  obligation  under the Formation
Loan.                                                                           

     The Formation  Loan will not bear  interest.  Thus, the Formation Loan will
have the effect of slightly diluting the rate of return to Limited Partners, but
to a much lesser extent than if the Partnership were required to bear all of its
own  syndication  expenses as is the case with certain  other  publicly  offered
mortgage pools.                                                                 

     Escrow  Arrangements.  Commencing on the effective date of this Prospectus,
funds received by the Participating  Broker Dealers from subscriptions for Units
will be immediately available to the Partnership for investment.  As this is not
the Partnership's  first offering,  no escrow will be established.  Subscription
Proceeds  will  be  released  to  the   Partnership   and  deposited   into  the
Partnership's operating account.                                                

     The Offering will  terminate  one (1) year from the  effective  date of the
Prospectus unless terminated earlier by the General Partners, or unless extended
by the General Partners for additional one year periods.                        

     Upon  acceptance  of  subscription  agreements,  the  subscribers  will  be
admitted  promptly as Limited Partners and  Certificates of Limited  Partnership
Interests will be delivered to such Limited Partners. In addition, the Formation
Loan will be made to Redwood  Mortgage,  the Organization and Offering  Expenses
incurred  by the  Partnership  will be paid  and the  General  Partners  will be
reimbursed  for any  Organizational  and Offering  Expenses  previously  paid on
behalf of the Partnership.                                                      

     Subscription  Account.  Subscriptions will be deposited into a subscription
account at a federally  insured  commercial  bank or depository  and invested in
short-term  certificates  of  deposit,  a money  market  or other  liquid  asset
account. Prospective investors whose subscriptions are accepted will be admitted
into the  Partnership  only when their  subscription  funds are  required by the
Partnership  to  fund  a  mortgage  loan,  or  the  Formation  Loan,  to  create
appropriate reserves, or pay organizational expenses or other proper Partnership
activities  (See  "ESTIMATED  USE OF  PROCEEDS").  During  the  period  prior to
admittance of investors as Limited Partners, proceeds from the sale of Units are
irrevocable, and will be held by the General Partners for the account of Limited
Partners in the subscription  account.  Investors funds will be transferred from
the  subscription  account into the Partnership on a first-in,  first-out basis.
Upon admission to the  Partnership,  subscription  funds will be released to the
Partnership  and Units  will be issued at the rate of $100 per Unit or  fraction
thereon. Interest earned on subscription funds while in the subscription account
will be  returned to the  subscriber,  or if the  subscriber  elects to compound
earnings  (see below),  the amount equal to such  interest  will be added to his
investment in the Partnership,  and the number of Units actually issued shall be
increased accordingly.                                                          

     By executing the Subscription  Agreement,  a subscriber  agrees to purchase
the number of Units shown thereon on a "when issued basis." Accordingly, when he
executes  the  Subscription  Agreement,  he is not yet an owner of the Units for
which he has subscribed. Units will be issued when the subscriber is admitted to
the  Partnership,  i.e., when the sums  representing the purchase for such Units
are transferred from the subscription account into the Partnership.  The General
Partners anticipate that the delay between delivery of a Subscription  Agreement
and admission to the Partnership  will be  approximately  90 days,  during which
time  investors  will  earn  interest  at  pass  book  savings   account  rates.
Subscription   Agreements  are   non-cancelable   and  subscription   funds  are
non-refundable  for any reason.  After having  subscribed  for at least 20 Units
($2,000),  a  subscriber  may at any time,  and from time to time  subscribe  to
purchase  additional  Units in the  Partnership so long as the offering is open.
Each purchaser is liable for the payment of the full purchase price of all Units
for which he has subscribed.                                                    

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 SUPPLEMENTAL SALES MATERIAL

     Sales  material  in  addition  to  this  Prospectus  which  may be  used in
connection with this offering  include a sales brochure which will highlight and
simplify certain  information  contained herein. If additional sales material is
prepared for use in connection  with the Offering,  use of such material will be
conditioned on filing with and, if required, clearance by appropriate regulatory
authorities.                                                                    

     As of the date of this  Prospectus,  it is  anticipated  that the following
sales material will be authorized for use by the  Partnership in connection with
this Offering:  (i) a brochure entitled Redwood Mortgage  Investors VIII; (ii) a
brochure describing Redwood Mortgage Company and its affiliated entities;  (iii)
a fact sheet describing the general features of Redwood Mortgage Investors VIII;
(iv) a cover letter  transmitting the Prospectus;  (v) a summary  description of
the Offering;  (vi) a slide presentation;  (vii) broker updates; (viii) an audio
cassette presentation; (ix) a video presentation; (x) seminar advertisements and
invitations; and (xi) certain third-party articles.                             

     The General  Partners  and their  Affiliates  may also  respond to specific
questions from Participating Broker Dealers and prospective investors.  Business
reply  cards,   introductory  letters  or  similar  materials  may  be  sent  to
Participating Broker Dealers for customer use, and other information relating to
the offering may be made  available to  Participating  Broker  Dealers for their
internal use.  However,  the Offering is made only by means of this  Prospectus.
Except as described  herein or in Supplements  hereto,  the  Partnership has not
authorized  the use of other sales  materials in  connection  with the Offering.
Although the  information  contained in such material does not conflict with any
of the information contained in this Prospectus,  such material does not purport
to be complete and should not be considered as a part of this  Prospectus or the
Registration Statement of which this Prospectus is a part, or as incorporated in
this  Prospectus  or the  Registration  Statement by reference or as forming the
basis of the Offering of the Units described herein.                            

     No  dealer,  salesman  or  other  person  has been  authorized  to give any
information or to make any  representations  other than those  contained in this
Prospectus or in Supplements  hereto or in supplemental  sales literature issued
by the Partnership and referred to in this Prospectus or in Supplements thereto,
and, if given or made, such  information or  representations  must not be relied
upon. This Prospectus does not constitute an offer to sell, or a solicitation of
an offer to buy, any securities  other than the Units to which it relates or any
of  such  Units  to any  person  in  any  jurisdiction  in  which  such  offeror
solicitation  is unlawful.  The delivery of this Prospectus at any time does not
imply that the information contained herein is correct as of any time subsequent
to its date.                                                                    

 LEGAL PROCEEDINGS

     In the normal  course of business the  Partnership  may become  involved in
various types of legal  proceedings  such as  assignments  of rents,  bankruptcy
proceedings,   appointments   of   receivers,   unlawful   detainers,   judicial
foreclosures,  etc, to enforce the provisions of the deeds of trust, collect the
debt owed under the promissory  notes or to  protect/recoup  its investment from
the real property secured by the deeds. None of these actions would typically be
of any  material  importance.  As of the date  hereof,  the  Partnership  is not
involved in any legal proceedings other than those that would be considered part
of the normal course of business.                                               

 LEGAL OPINION

     Legal  matters in connection  with the Units offered  hereby will be passed
upon for the  Partnership  the Law Offices of Stephen C. Ryan & Associates,  115
Sansome  Street,  Suite 400, San Francisco,  California  94104,  counsel for the
Partnership  and the General  Partners.  Such  counsel has not  represented  the
Limited Partners in connection with the Units offered hereby.                   

 EXPERTS

     The balance  sheet of the  Partnership  and the  balance  sheet at June 30,
1995,  and 1996,  of Gymno  Corporation,  a General  Partner,  included  in this
Prospectus have been examined by Parodi & Cropper,  independent certified public
accountants, as set forth in their report thereon appearing elsewhere herein and
have been included  herein in reliance on such reports and the authority of such
firm as experts in accounting  and auditing.  The  statements  under the caption
"FEDERAL INCOME TAX CONSEQUENCES" and "ERISA  CONSIDERATIONS"  as they relate to
the matters  referenced therein have been reviewed by the Law Offices of Stephen
C. Ryan & Associates,  and are included herein in reliance upon the authority of
that firm as experts thereon.                                                   

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ADDITIONAL INFORMATION

     The  Partnership  has filed with the  Securities  and Exchange  Commission,
Washington,  D.C.  20549, a Registration  Statement  under the Securities Act of
1933, as amended, with respect to the Units offered pursuant to this Prospectus.
For further information,  reference is made to the Registration Statement and to
the Exhibits  thereto which are available for inspection at no fee in the office
of the Commission in Washington,  D.C., 450 Fifth Street, N.W., Washington, D.C.
20549.  Photostatic  copies of the material  containing this  information may be
obtained from the Commission upon paying of the fees prescribed by the rules and
regulations  at  the  Washington  office  only.  Additionally,   the  Commission
maintains a website that contains reports,  proxy and information statements and
other  information  regarding  registrants,  such as the Partnership,  that file
electronically. The address of the Commissions website is http://www.sec.gov.   

 TABULAR INFORMATION CONCERNING PRIOR PROGRAMS

     Appendix I contains prior  performance  and investment  information for the
General Partners' previous programs.  Tables I through III of Appendix I contain
unaudited  information  relating to the prior  programs and their  experience in
raising and  investing  funds,  compensation  of the General  Partners and their
Affiliates  and  operating  results  of prior  programs.  Table V of  Appendix I
contains  unaudited  information  relating  to the prior  programs'  payment  of
mortgage loans.  Table IV is not included  because none of the  partnerships has
completed  its  operations  or disposed of all of its loans.  PURCHASERS  OF THE
UNITS OFFERED BY THIS  PROSPECTUS  WILL NOT ACQUIRE ANY OWNERSHIP IN INTEREST IN
ANY PRIOR  PROGRAM AND SHOULD NOT ASSUME THAT THE RESULTS OF THE PRIOR  PROGRAMS
WILL BE  INDICATIVE OF THE FUTURE  RESULTS OF THIS  PARTNERSHIP.  MOREOVER,  THE
OPERATING RESULTS FOR THE PRIOR PROGRAMS SHOULD NOT BE CONSIDERED  INDICATIVE OF
FUTURE  RESULTS OF THE PRIOR PROGRAMS OR WHETHER THE PRIOR PROGRAMS WILL ACHIEVE
THEIR  INVESTMENT  OBJECTIVES  WHICH  WILL IN LARGE PART  DEPEND ON FACTS  WHICH
CANNOT NOW BE DETERMINED.                                                       

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GLOSSARY

     The following are  definitions  of certain terms used in the Prospectus and
not otherwise defined herein:                                                   

     Affiliate. The term "Affiliate" means (a) any person directly or indirectly
controlling,  controlled by or under common control with another person, (b) any
person owning or controlling ten percent (10%) or more of the outstanding voting
securities  of such other person,  (c) any officer,  director or partner of such
person,  and (d) if such other  person is an officer,  director or partner,  any
company for which such person acts in any such capacity.                        

     Assignee.  The term  "Assignee"  shall  mean a person  who has  acquired  a
beneficial  interest  in one or more Units but who is neither a Limited  Partner
nor an Assignee of Record.                                                      

     Capital  Account.  The term "Capital  Account,  means,  with respect to any
Partner,  the Capital Account maintained for such Partner in accordance with the
following provisions:                                                           

     (a) To each  Partner's  Capital  Account  there  shall  be  credited,  such
Partner's Capital  Contribution,  such Partners  distributive share of profits, 
and any items in the  nature of income and gain  (from  unexpected  adjustments,
allocations or distributions)  that are specially allocated to a Partner and the
amount of any Partnership  liabilities  that are assumed by such Partner or that
are secured by any Partnership property distributed to such Partner.            

    (b) To each Partners  Capital Account there shall be debited the amount of
cash and the Gross Asset Value of any partnership  property  distributed to such
Partner pursuant to any provision of this Agreement, such Partners distributive 
share of  Losses,  and any  items in the  nature of  expenses  and  losses  that
specially  allocated  to a Partner  and the  amount of any  liabilities  of such
Partner that are assumed by the  Partnership or that are secured by any property
contributed by such Partner to the Partnership.                                 

     Closing  Date.  The term  "Closing  Date" means the date  designated by the
General  Partners  but not later than one year from the date of the  Prospectus,
unless  extended for  additional  one (1) year periods at the General  Partners'
election.                                                                       

     Code.  The term "Code" means the Internal  Revenue Code of 1986, as amended
to the date of this Prospectus.                                                 

     Deed of Trust.  The term "Deed of Trust" means the lien or liens created on
the  real  property  or  properties  of the  borrower  securing  the  borrower's
obligation to the Partnership to repay the Mortgage Investment.                 

     Distributions.  The term  "Distributions"  means any cash or other property
distributed to Holders and the General  Partners arising from their interests in
the  Partnership,  but shall not  include any  payments to the General  Partners
under the provisions of Article 10 of the Partnership Agreement.                

     Earnings.  The term "Earnings" means all revenues earned by the Partnership
less all expenses incurred by the Partnership.                                  

     Formation Loan. The term "Formation Loan" means a loan to Redwood Mortgage,
an  affiliate  of the  General  Partners,  equal  to  the  amount  of the  sales
commissions.  Redwood Mortgage will pay all sales commissions from the Formation
Loan. The Formation  Loan will be unsecured,  will not bear interest and will be
repaid in annual installments.                                                  

     General  Partners.  The term "General  Partners" means D. Russell  Burwell,
Michael R. Burwell and Gymno Corporation, a California corporation,  the General
Partners of Redwood Mortgage Investors VIII, a limited  partnership formed under
the California Revised Limited Partnership Act.                                 

     Gross Proceeds.  The term "Gross  Proceeds" shall be deemed to mean the sum
of $100 for each Unit subscribed and paid for during the Offering.              

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     Guaranteed  Payment for Offering Period.  The term "Guaranteed  Payment for
Offering  Period" means the interest rate guaranteed to Limited  Partners by the
General Partners during the Guaranteed  Payment Period.  The Guaranteed  Payment
Offering Period, calculated on a monthly basis, shall be equal to the greater of
(i) the  Partnership's  Earnings or (ii) the interest  rate  established  by the
Monthly   Weighted   Average  Cost  of  Funds  for  the  11th  District  Savings
Institutions, as announced by the Federal Home Loan Bank of San Francisco during
the last week of the preceding month,  plus two points, up to a maximum interest
rate of twelve  percent  (12%).  The  Guaranteed  Payment  Period is the  period
commencing  on the day a Limited  Partner is  admitted  to the  Partnership  and
ending  three  months after the  Offering  Termination  Date.  To the extent the
return to be paid is in excess of the  Partnership's  Earnings,  the  Guaranteed
Payment for Offering  Period  shall be payable by the General  Partners out of a
Capital  Contribution  to the  Partnership  and/or  fees  payable to the General
Partners or Redwood Mortgage which are lowered or waived.                       

     Holders.  The term  "Holders"  means the  owners  of Units  who are  either
Partners or Assignees of Record, and reference to a "Holder" shall be to any one
of them.                                                                        

     Initial  Closing Date.  The term  "Initial  Closing Date" means the date on
which  subscribers  for Units  offered  pursuant  to this  Prospectus  are first
admitted to the Partnership as Limited Partners.                                

     Initial Limited  Partner.  The term "Initial  Limited  Partner" means Gymno
Corporation.                                                                    

     Limited Partners. The term "Limited Partners" means the purchasers of Units
in Redwood Mortgage  Investors VIII who are admitted thereto and whose names are
included on the  Certificate  and  Agreement of Limited  Partnership  of Redwood
Mortgage Investors VIII.                                                        

     Limited Partnership Interest. The term "Limited Partnership Interest" means
a limited  partnership  interest in Redwood  Mortgage  Investors VIII,  acquired
pursuant to the purchase of a Unit and thereafter means the percentage ownership
interest of any Limited  Partner in the  Partnership  determined  at any time by
dividing a Limited  Partner's  current Capital Account by the total  outstanding
Capital Accounts of all Limited Partners.                                       

     Mortgage Investment(s). The term "Mortgage Investment(s)" means the loan(s)
and/or an undivided  interest in the loans the Partnership  intends to extend to
the general public secured by real property deeds of trust.                     

     NASD.  The acronym  "NASD" means the  National  Association  of  Securities
Dealers, Inc.                                                                   

     Net Asset Value. The term "Net Asset Value" means the  Partnership's  total
assets less its total liabilities.                                              

     Net Income or Net Loss.  The term "Net  Income or Net Loss"  means for each
Fiscal Year or any other period,  an amount equal to the  Partnership's  taxable
income  or loss for  such  Fiscal  Year or other  given  period,  determined  in
accordance  with  Section  703(a) of the Code (for  this  purpose,  all items of
income,  gain, loss, or deduction  required to be stated separately  pursuant to
Code Section  703(a)(1)  shall be included in taxable income or loss),  with the
following adjustments:                                                          

     (a) Any income of the  Partnership  that is exempt from federal  income tax
and not  otherwise  taken into account in  computing  Profits or Losses shall be
added to such taxable income or loss;                                           

     (b) Any expenditures of the Partnership  described in Section  105(a)(2)(B)
of the Code or treated as Section 105(a)(2)(B) expenditures pursuant to Treasury
Regulation Section 1.7041(b)(2)(iv)(i),  and not otherwise taken into account in
computing  Profits  or  Losses  pursuant  to  Section  10.16 of the  Partnership
Agreement, shall be subtracted from such taxable income or loss;                

     (c) Gain or loss  resulting from any  disposition  of Partnership  property
with respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the property disposed
of,  notwithstanding  that the adjusted tax basis of such property  differs from
its Gross Asset Value;                                                          

     (d) In lieu of the  depreciation,  amortization,  and other  cost  recovery
deductions  taken into account in computing such taxable  income or loss,  there
shall be taken into account  depreciation,  amortization  or other cost recovery
deductions for such Fiscal Year or other period, computed such that if the Gross
Asset Value of an asset differs from its adjusted  basis for federal  income tax
purposes  at the  beginning  of a  Fiscal  Year or other  period,  depreciation,
amortization  or other cost recovery  deductions  shall be an amount which bears
the same ratio to such  beginning  Gross Asset  Value as the federal  income tax
depreciation,  amortization  or other cost recovery  deductions  for such Fiscal
Year or other period bears to such beginning adjusted tax basis; and            

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     (e) Notwithstanding any other provision of Section 10.16 of the Partnership
Agreement,  any items in the  nature of income or gain or  expenses  or  losses,
which are  specially  allocated,  shall not be taken into  account in  computing
Profits or Losses.                                                              

     Net Proceeds.  The term "Net Proceeds"  means the total Gross Proceeds less
expenses  incurred  and  to  be  paid  by  the  Partnership  in  organizing  the
Partnership and in offering Units to the public.                                

     Organizational and Offering Expenses. The term "Organizational and Offering
Expenses"  means the expenses  incurred in connection  with the  organization of
Redwood  Mortgage  Investors  VIII and the  offer  and  sale of  Units  therein,
including  all  expenses  and  fees  for  qualifying   such  Units  and  Limited
Partnership  interests  under federal and state laws,  all legal and  accounting
fees,  all printing and mailing  expenses,  all escrow and  depository  fees and
charges,  and all other expenses,  fees, and charges incurred and related to the
offer and sale of such Units and Limited  Partnership  interests,  but excluding
all sales commissions paid in connection with this Offering.                    

     Participating  Broker Dealers.  The term Participating Broker Dealers means
broker dealer member firms of the NASD and any related  persons which enter into
selling agreements with the Partnership.                                        

     Partners.  The term "Partners"  means the General  Partners and the Limited
Partners, and reference to a "Partner" shall be to any one of the Partners.     

     Partnership.  The term "Partnership" means Redwood Mortgage Investors VIII,
a  limited  partnership  formed  pursuant  to  the  California  Revised  Limited
Partnership Act.                                                                

     Partnership Agreement. The term "Partnership Agreement" means the Agreement
of Limited  Partnership of Redwood  Mortgage  Investors  VIII,  attached to this
Prospectus as Exhibit A.                                                        

     Prospectus.  The  term  "Prospectus"  means  the  final  prospectus  in the
registration of Units filed with the Securities and Exchange  Commission on Form
S-11, as amended.                                                               

     Sales  Commissions.  The term  "Sales  Commissions"  means  the  amount  of
compensation to be paid to  Participating  Broker Dealers in connection with the
sale of Units.                                                                  

     Special-Use  Properties.  The  term  "Special-Use  Properties"  shall  mean
bowling alleys, churches and gas stations.                                      

     Subscription  Agreement.   The  term  "Subscription  Agreement"  means  the
agreement,  attached  to this  Prospectus  as Exhibit B, in which a  prospective
investor agrees to purchase Units in Redwood Mortgage Investors VIII.           

     Tax-Exempt  Investors.  The term "Tax-Exempt  Investor(s)"  means qualified
pension, profit sharing and other private retirement trusts, bank funds for such
trusts,  government  pension and  retirement  trusts,  HR-10  (Keogh)  plans and
Individual Retirement Accounts (IRAs).                                          

     UBTI. The acronym "UBTI" means Unrelated Business Taxable Income as defined
in the Code.                                                                    

     Unit.  The  term  "Unit"  means  a  Capital  Contribution  of  $100  to the
Partnership  which shall  entitle  the Holder  thereof to an interest in the Net
Income, Net Loss, and Distributions of the Partnership without regard to capital
accounts.                                                                       

     Working Capital  Reserve.  The term "Working  Capital Reserve" shall mean a
portion of the Invested Capital which the General Partners, in their discretion,
determine is prudent to be maintained by the  Partnership  to pay for operating,
and other  costs and  expenses  the  Partnership  may incur with  respect to its
activities.                                                                     

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 INDEX TO THE FINANCIAL STATEMENTS

                                                                        Page

Redwood Mortgage Investors VIII                                                 
Financial Statements, December 31, 1995 with Auditors Report Thereon         82 
Independent Auditors Report                                                  83 

GYMNO Corporation                                                               
Financial Statements, June 30, 1996 and 1995 with Auditors                      
Report Thereon                                                              92
Independent Auditors Report                                                  93 

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 REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
FINANCIAL STATEMENTS
 DECEMBER 31, 1995
(With Auditors Report Thereon)

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PARODI & CROPPER
CERTIFIED PUBLIC ACCOUNTANTS
 3658 Mount Diablo Blvd., Suite #205
Lafayette CA 94549
(510) 284-3590
Fax (510-284-3593)

INDEPENDENT AUDITORS REPORT 

THE PARTNERS                                                                    
REDWOOD MORTGAGE INVESTORS VIII                                                 

     We have audited the financial  statements and related  schedules of REDWOOD
MORTGAGE INVESTORS VIII (A California Limited  Partnership)  listed in Item 8 on
Form 10-K  including  balance  sheets as of December 31, 1995, and 1994, and the
statements of income, changes in partners capital and cash flows for the period 
from  inception,  April 14, 1993, to December 31, 1993,  and the two years ended
December 31, 1995, and 1994. These financial  statements are the  responsibility
of the Partnerships management.  Our responsibility is to express an opinion on 
these financial statements based on our audits.                                 

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

     In our opinion,  the financial statements referred to above present fairly,
in all material  respects,  the financial position of REDWOOD MORTGAGE INVESTORS
VIII as of December 31, 1995,  and 1994,  and the results of its  operations and
cash flows for the two years and period then ended in conformity  with generally
accepted  accounting  principles.  Further, it is our opinion that the schedules
referred to above present fairly the information set forth therein in compliance
with the  applicable  accounting  regulations  of the  Securities  and  Exchange
Commission.                                                                     

PARODI & CROPPER

Lafayette, California                                                           
February 28, 1996                                                               

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                         REDWOOD MORTGAGE INVESTORS VIII                       
                       (A California Limited Partnership)                      
                                 BALANCE SHEETS                                
                           DECEMBER 31, 1995 AND 1994                          

                                     ASSETS                                    


                                                           1995           1994 
                                                     -----------   ----------- 
                                                                               

Cash ................................................$   380,318   $   397,176 
                                                     -----------   ----------- 

Accounts receivable:                                                           
  Mortgage loans, secured by deeds of trust ......... 12,047,252     6,484,707 
  Accrued Interest on mortgage loans ................    113,301        75,345 
  Advances on mortgage loans ........................      8,431         1,053 
  Accounts receivable, unsecured ....................     71,316             0 
                                                     -----------    ---------- 
                                                      12,240,300     6,561,105 

Less allowance for doubtful accounts ..............       39,152        13,120 
                                                     -----------   ----------- 
                                                      12,201,148     6,547,985 
                                                     -----------   ----------- 

Formation loan due from Redwood Home                                           
Loan Co. ...........................................     775,229       525,256 
Organization costs, net of accumulated                                         
amortization of $5,625 and $3,125 respectively .....       6,875         9,375 
Due from related companies .........................       3,049             0 
Prepaid expense-deferred loan fee ..................      17,718             0 
                                                      -----------   -----------

                                                     $13,384,337   $ 7,479,792 
                                                     ===========   =========== 

                        LIABILITIES AND PARTNERS CAPITAL                       

Liabilities:                                                                   
  Accounts payable and accrued expenses ............ $     4,010   $         0 

  Notes payable - Pacific Bank .....................   1,910,000             0 
  Subscriptions to partnership in applicant status ..          0       189,300 
                                                     -----------   ----------- 
                                                       1,914,010       189,300 

 Partners Capital ..................................  11,470,327     7,290,492 
                                                     -----------   ----------- 

                                                     $13,384,337   $ 7,479,792 
                                                     ===========   =========== 

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

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                         REDWOOD MORTGAGE INVESTORS VIII                                                                 
                       (A California Limited Partnership)                                                                
                               STATEMENT OF INCOME                                                                       
                 FOR THE PERIOD FROM INCEPTION, APRIL 14, 1993,                                                          
                            THROUGH DECEMBER 31, 1993                                                                    
                    AND THE TWO YEARS ENDED DECEMBER 31, 1995                                                            


                                                                                    1995             1994            1993
                                                                         ----------------  --------------  --------------
                                                                                                                         

Revenues:                                                                                                                
   Interest on mortgage loans ..........................................        $945,573         $450,983        $107,129
   Interest on bank deposits ...........................................          13,120           15,739           5,690
  Late charges .........................................................           3,876            1,704             606
   Miscellaneous .......................................................           2,211              120              51
                                                                                --------         --------        --------
                                                                                --------         --------        --------
                                                                                 964,780          468,546         113,476
                                                                                --------         --------        --------

Expenses:                                                                                                                
   Interest on note payable ............................................          25,889                0               0
   Amortization of loan origination fees ...............................           2,531                0               0
   Provision for doubtful accounts .....................................          26,032           13,120               0
   Asset management fee - General Partners .............................          11,587            5,906             192
   Amortization of organization costs ..................................           2,500            2,500             625
   Clerical costs through Redwood Home Loan Co. ........................          22,769           10,664           2,692
   Professional fees ...................................................          16,178           10,244             200
   Printing, supplies and postage ......................................              92              917              34
   Other ...............................................................           1,461              883              77
                                                                                --------         --------        --------
                                                                                 109,039           44,234           3,820
                                                                                --------         --------        --------

Income before interest credited to partners in                                                                           
   applicant status ....................................................         855,741          424,312         109,656

Interest credited to partners in applicant status ......................          18,908           14,443           4,641
                                                                                --------         --------        --------

       Net Income ......................................................        $836,833         $409,869        $105,015
                                                                                ========         ========        ========

Net income:  To General Partners(1%) ...................................        $  8,368         $  4,099        $  1,050
           To Limited Partners (99%) .........................                   828,465          405,770         103,965
                                                                                --------         --------        --------

         Total- net income .............................................        $836,833         $409,869        $105,015
                                                                                ========         ========        ========

Net income per $1,000 invested by Limited                                                                                
   Partners for entire period after admission                                                                            
      to partnership:                                                                                                    
  -Where income is reinvested and compounded ...........................        $     83         $     81        $     85
                                                                                ========         ========        ========

  -Where partner receives income in monthly                                                                              
   distributions .......................................................        $     80         $     79        $     83
                                                                                ========         ========        ========

<FN>                                                                                                                     
See accompanying notes to financial statements.                                                                          
</FN>                                                                                                                    
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                         REDWOOD MORTGAGE INVESTORS VIII                                                                         
                       (A California Limited Partnership)                                                                        
                    STATEMENT OF CHANGES IN PARTNERS CAPITAL                                                                     
                 FOR THE PERIOD FROM INCEPTION, APRIL 14, 1993,                                                                  
                            THROUGH DECEMBER 31, 1993                                                                            
                    AND THE TWO YEARS ENDED DECEMBER 31, 1995                                                                    


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

Contributions on application .... $2,890,530                  0                     0               0                        0   

Interest credited to Partners                                                                                                    
in applicant status..............      4,641                  0                     0               0                        0   

Upon admission to partnership:                                                                                                   
   Interest withdrawn .............(   1,956)                 0                     0               0                        0   
 Transfers to Partners capital....(2,764,443)             2,887             2,761,556               0                2,764,443   

Net income ......................          0              1,050               103,965               0                  105,015   
Syndication costs incurred .....           0                  0                     0        (199,564)               ( 199,564)  
Allocation of syndication costs .          0             (   92)            (   9,130)          9,222                        0   
Partners withdrawals ............          0             (  958)            (  46,856)              0                (  47,814)  

Balances at December 31, 1993 ..     128,772              2,887             2,809,535       ( 190,342)               2,622,080   
Contributions on application ...   4,560,683                  0                     0               0                        0   
Interest credited to partners                                                                                                    
in applicant status.............      14,443                  0                     0               0                        0   

Upon admission to partnership:                                                                                                   
   Interest withdrawn ..........  (    5,774)                 0                     0               0                        0   
Transfers to Partners capital...  (4,508,824)             4,542             4,504,282               0                4,508,824   

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

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

Contributions on application ..    3,634,264                   0                    0              0                        0    

Interest credited to partners                                                                                                    
in applicant status............       18,908                   0                    0              0                        0    

Upon admission to Partnership:                                                                                                   
   Interest withdrawn .........   (    7,673)                  0                    0              0                        0    

Transfers to Partners capital.    (3,834,799)              3,588             3,831,211             0                 3,834,799   

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

Balances at December 31, 1995 .   $        0              11,325            11,784,937     ( 325,935)               11,470,327   
                                  ==========          ==========            ==========   ===========                ==========   

<FN>                                                                                                                             
See accompanying notes to Financial Statements                                                                                   
</FN>                                                                                                                            

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                         REDWOOD MORTGAGE INVESTORS VIII                                    
                       (A California Limited Partnership)                                   
                             STATEMENT OF CASH FLOWS                                        
                 FOR THE PERIOD FROM INCEPTION, APRIL 14, 1993,                             
                            THROUGH DECEMBER 31, 1993                                       
                    AND THE TWO YEARS ENDED DECEMBER 31, 1995                               


                                                          1995          1994          1993  
                                                     ----------     ---------   ----------  
Cash flows from operating activities:                                                       
                                                                                            

  Net income ......................................   $  836,833   $  409,869   $  105,015  
  Adjustments to reconcile net income to net                                                
   cash provided by operating activities:                                                   
    Amortization of organization costs ............        2,500        2,500          625  
    Increase in allowance for doubtful accounts ...       26,032       13,120            0  
    Increase in accounts payable ..................        4,010            0            0  
    (Increase) in accrued interest and advances ...   (   45,334)   (  63,008)  (   13,390) 
    (Increase) decrease in amount due from                                                  
        related companies .........................   (    3,049)       2,493   (    2,493) 
    (Increase) in deferred loan fee ...............   (   17,718)           0            0  
    Organization costs incurred ...................            0            0   (   12,500) 
                                                      ----------      -------     --------  

          Net cash provided by operating activities      803,274      364,974       77,257  
                                                      --------- -   ----------    --------  

Cash flows from investing activities:                                                       

  Net (increase) in:                                                                        
       Mortgage loans .............................   (5,562,545)   (4,148,033) ( 2,336,674)
       Formation loan .............................   (  249,973)   (  319,302) (   205,954)
       Accounts receivable, unsecured .............   (   71,316)            0            0 
                                                       ----------   ----------    --------- 

          Net cash used in investing activities ...   (5,883,834)   (4,467,335) ( 2,542,628)

Cash flows from financing activities:                                                       

  Increase in notes payable bank ..................    1,910,000            0            0  
  Contributions by partner applicants .............    3,634,264    4,560,683    2,890,530  
  Interest credited to partners in applicant status       18,908       14,443        4,641  
  Interest withdrawn by partners in applicant status  (    7,673)  (    5,774)  (    1,956) 
  Partners withdrawals ............................   (  316,063)  (  169,258)  (   47,814) 
  Early withdrawal penalties, net .................   (      400)           0            0  
Syndication costs incurred ......................     (  175,334)  (   81,023)  (  199,564) 
                                                       ----------   ----------   ---------  

      Net cash provided by financing activities ...    5,063,702    4,319,071    2,645,837  
                                                      ----------   ----------   ----------  

Net increase in cash and cash equivalents .........(      16,858)     216,710      180,466  

Cash - beginning of period ........................      397,176      180,466            0  
                                                      ----------   ----------   ----------  

Cash - end of period ..............................   $  380,318   $  397,176   $  180,466  
                                                      ==========   ==========   ==========  
<FN>                                                                                        
See accompanying notes to financial statements.                                             
</FN>                                                                                       

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(A California Limited Partnership)
 NOTES TO FINANCIAL STATEMENTS
 DECEMBER 31, 1995

     NOTE 1 - ORGANIZATION  AND GENERAL  Redwood  Mortgage  Investors VIII, (the
Partnership) is a California Limited Partnership,  of which the General Partners
are D. Russell Burwell,  Michael R. Burwell and Gymno Corporation,  a California
corporation  owned  and  operated  by  the  individual  General  Partners.   The
partnership  was  organized  to engage in business as a mortgage  lender for the
primary  purpose of making loans  secured by Deeds of Trust on  California  real
estate.  Partnership  loans are being arranged and serviced by Redwood Home Loan
Co., dba Redwood Mortgage, an affiliate of the General Partners. At December 31,
1995, the  Partnership was in the offering stage,  wherein  contributed  capital
totaled $11,074,460 in limited partner  contributions of an approved $15,000,000
issue,  in  units  of  $100  each.  All  applicants  had  been  admitted  to the
partnership at December 31, 1995.                                               

     A  minimum  of 2,500  units  ($250,000)  and a  maximum  of  150,000  units
($15,000,000) were offered through qualified  broker-dealers.  As mortgage loans
are  identified,  partners are  transferred  from  applicant  status to admitted
partners  participating  in mortgage  loan  operations.  Each months  income is 
distributed  to  partners  based  upon  their  proportionate  share of  partners
capital.  Some partners have elected to withdraw income on a monthly,  quarterly
or annual basis.                                                                

     A. Sales  Commission  - Formation  Loan Sales  commissions  ranging from 0%
(units sold by General  Partners) to 10% of the gross proceeds are being paid by
RHL Co., an affiliate  of the General  Partners  that  arranges and services the
mortgage loans. To finance the sales  commissions,  the Partnership will loan to
Redwood  Mortgage an amount not to exceed 9.1% gross proceeds  provided that the
Formation  Loan for the minimum  offering  period  (which has lapsed) could have
been 10% of the gross  proceeds The General  Partners  have  estimated  that the
Formation Loan will approximate  7.1% of the gross proceeds.  The Formation Loan
will  be  unsecured,  and  will  be  repaid,  without  interest,  in ten  annual
installments of principal,  which will commence on January 1, following the year
the  offering  closes.  At December  31,  1995,  Redwood  Mortgage  had borrowed
$775,229 from the Partnership to cover sales commissions relating to $11,074,460
limited partner contributions to date.                                          

     B. Other  Organizational and Offering Expenses  Organizational and offering
expenses, other than sales commissions,  (including printing costs, attorney and
accountant fees, registration and filing fees, and other costs), will be paid by
the  Partnership  up to 10% of the gross  proceeds  of the  offering or $600,000
whichever is less. The General  Partners will pay any amount of such expenses in
excess of 10% of the gross proceeds or $600,000.                                

     At December 31, 1995,  organization  costs of $12,500 and syndication costs
of approximately  $455,921 had been incurred by the  Partnership,  which is less
than the 10% of the gross proceeds limitation indicated above. It is anticipated
that ultimately the sum of organization and syndication  costs will be less than
4.00% of the gross proceeds contributed by the Partners.                        

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                             
Revenues and expenses are accounted for on the accrual basis of accounting.     

     The Partnership  bears its own  organization  and syndication  costs (other
than certain sales  commissions  and fees described  above)  including legal and
accounting  expenses,   printing  costs,  selling  expenses,  and  filing  fees.
Organizational  costs have been  capitalized  and will be amortized  over a five
year period.  Syndication  costs were charged against partners capital and will 
be allocated to individual partners consistent with the partnership agreement.  

     If  property is acquired  through  foreclosure,  it will be held for prompt
sale to return the funds to the loan  portfolio.  Such property will be recorded
at cost,  which  includes the  principal  balance of the former loan made by the
Partnership,  plus  accrued  interest,  payments  made to keep the senior  loans
current,  costs of obtaining  title and  possession,  less rental income,  or at
estimated net realizable value, if less. The difference between such costs and  
estimated net  realizable  value will be included in an allowance for losses and
deducted from cost in the Balance Sheet to arrive at the carrying  value of such
property.  At  December  31,  1995,  there  was  no  property  acquired  through
foreclosure.                                                                    

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 REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
 NOTES TO FINANCIAL STATEMENTS
 DECEMBER 31, 1995

     Mortgage  loans 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  loan  system.  A  provision  is made for
doubtful  accounts to adjust the  allowance  for doubtful  accounts to an amount
considered by management  to be adequate to provide for  unrecoverable  accounts
receivable.                                                                     

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

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

     Amounts  reflected  in the  statement  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 selected other options.  However,  the net income per $1,000 average
invested  has  approximated  those  reflected  for those whose  investments  and
options have remained constant.                                                 

     NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES The following are commissions
and/or fees which will be paid to the General Partners and/or related parties.  

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

     B. Loan Servicing Fees Monthly loan servicing fees of up to 1/8 of 1% (1.5%
annual) of the unpaid  principal  is paid to Redwood  Mortgage,  or such  lesser
amount as is reasonable and customary in the geographic  area where the property
securing the loan is located.  Currently,  such servicing fees are at 1/12 of 1%
per month (1% annually).  Amounts  remitted to the  Partnership  and recorded as
interest on  mortgage  loans is net of such fees.  In 1993,  $3,028 of the total
loan servicing fees of $8,528 were waived by Redwood Mortgage.  In 1994, $15,278
of the total  loan  servicing  fees of $44,405  were  waived.  In 1995,  Redwood
Mortgage received the total loan servicing fees earned of $85,456.              

     C. Asset Management Fee The General Partners will receive a monthly fee for
managing the Partnerships  loan portfolio and operations equal to 1/32 of 1% of 
the net asset value (3/8 of 1% per year).  Such fees were reduced from $4,331 to
$192 in 1993 with the difference being waived by the General Partners. Fees were
reduced  from $17,718 to $5,906 in 1994 with the  difference  being  waived.  In
1995, fees were reduced from $34,773 to $11,587 with the difference being waived
by the General Partners.                                                        

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

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

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 REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
 NOTES TO FINANCIAL STATEMENTS
 DECEMBER 31, 1995

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

     The General Partners collectively or severally are to contribute 1/10 of 1%
in cash  contributions  as proceeds  from the  offering  and admitted to Limited
Partner capital. As of December 31, 1995, a General Partner,  GYMNO Corporation,
contributed  $11,017  as  capital  in  accordance  with  Section  4.02(a) of the
Partnership Agreement.                                                          

NOTE 4 - OTHER PARTNERSHIP PROVISIONS                                           

     A. Applicant  Status  Subscription  funds received from purchasers of units
are not admitted to the Partnership until appropriate lending  opportunities are
available.  During  the  period  prior  to  the  time  of  admission,  which  is
anticipated   to  be  between  1  and  120  days  in  most  cases,   purchasers 
subscriptions  will remain  irrevocable  and will earn  interest at money market
rates,  which are lower than the anticipated  return on the  Partnerships  loan 
portfolio.                                                                      

     During the periods  ending  December 31,  1995,  1994,  and 1993,  interest
totaling $18,908, $14,443 and $4,641, respectively,  was credited to partners in
applicant  status.  As loans were made and partners were  transferred to regular
status to begin  sharing  in income  from loans  secured by deeds of trust,  the
interest  credited was either paid to the investors or  transferred to partners 
capital along with the original investment.                                     

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

     C.  Election to Receive  Monthly,  Quarterly or Annual  Distributions  Upon
subscriptions,  investors elect either to receive  monthly,  quarterly or annual
distributions of earnings allocations, or to allow earnings to compound. Subject
to certain limitations, an investor may subsequently change his election..      

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

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

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 REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
 NOTES TO FINANCIAL STATEMENTS
 DECEMBER 31, 1995

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

     The Partnership will not establish a reserve from which to fund withdrawals
and,  accordingly,  the  Partnerships  capacity  to return a  Limited  Partners 
capital is restricted to the availability of Partnership cash flow.             

     F.  Guaranteed   Interest  Rate  For  Offering  Period  During  the  period
commencing  with the day a Limited  Partner is admitted to the  Partnership  and
ending 3 months after the offering  termination date, the General Partners shall
guarantee an earnings rate equal to the greater of actual earnings from mortgage
operations or 2% above The Weighted Average Cost of Funds Index for the Eleventh
District Savings Institutions (Savings & Loan & Thrift Institutions) as computed
by the Federal Home Loan Bank of San Francisco, up to a maximum interest rate of
12%. In 1993, 1994, and 1995, actual realization  exceeded the guaranteed amount
each month.                                                                     

     NOTE 5 - LEGAL  PROCEEDINGS The Partnership is not a defendant in any legal
actions.                                                                        

     NOTE 6 - ASSET  CONCENTRATIONS AND  CHARACTERISTICS  The mortgage loans are
secured by recorded  deeds of trust.  At December 31, 1995,  there were 52 loans
outstanding with the following characteristics:                                 

Number of loans outstanding                                          52     
Total loans outstanding                                     $12,047,252     

Average loan outstanding                                    $   231,677     
Average loan as percent of total                                   1.92%    
Average loan as percent of Partners Capital                        2.02%    

Largest loan outstanding                                     $1,073,721     
Largest loan as percent of total                                   8.91%    
Largest loan as percent of Partners Capital                        9.36%    

Number of counties where security is                                        
located (all California)                                         15 
Largest percentage of loans in one county                         23.47%    
Average loan to appraised value                                             
at time loan was consummated                                  63.59%
Number of loans in foreclosure status                                 0     
Amount of loans in foreclosure                                        0     

     The cash balance at December  31, 1995,  of $380,318 was in four banks with
interest  bearing  balances  totaling  $372,262.   The  balances  exceeded  FDIC
insurance limits (up to $100,000 per bank) by $279,653.                         

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 GYMNO CORPORATION
FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(With Auditors Report Thereon)

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PARODI & CROPPER
CERTIFIED PUBLIC ACCOUNTANTS
 3658 MOUNT DIABLO BOULEVARD, SUITE #205
 LAFAYETTE, CALIFORNIA 94549
 -----------------
(510) 284-3590
FAX (510) 284-3593

 INDEPENDENT AUDITORS REPORT

BOARD OF DIRECTORS                                                              
GYMNO CORPORATION                                                               

     We have audited the accompanying  balance sheets of GYMNO Corporation as of
June 30, 1996,  and 1995,  and the related  statements  of income,  stockholders
equity and cash flows for the two years then ended.  These financial  statements
are the  responsibility  of the Companys  management.  Our  responsibility is to
express an opinion on these financial statements based on our audits.           

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

     In our opinion,  the financial statements referred to above present fairly,
in all material respects, the financial position of GYMNO Corporation as of June
30, 1996,  and 1995,  and the results of its  operations  and cash flows for the
years then ended in conformity with generally accepted accounting principles.   

PARODI & CROPPER

Lafayette, California                                                           
July 31, 1996                                                                   

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                                GYMNO CORPORATION                     
                                 BALANCE SHEETS                       
                             JUNE 30, 1996 AND 1995                   

                                     ASSETS                           


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

Cash and equivalents ..............................$   398   $ 1,376  
Deferred income tax benefits .....................     120       120  
Recoverable income taxes .........................       0       922  
                                                    -------   ------- 

    Total current assets ..........................    518     2,418  
                                                    -------   ------- 

Investment in partnerships, at net equity:                            
  Redwood Mortgage Investors IV ...................  7,500     8,281  
  Redwood Mortgage Investors V ....................  5,000     5,000  
  Redwood Mortgage Investors VI ...................  9,773     9,773  
  Redwood Mortgage Investors VII .................. 12,748    12,998  
  Redwood Mortgage Investors VIII ................. 12,270     7,429  
                                                   -------   -------  
                                                    47,291    43,481  
                                                    ======   =======  
                                                   $47,809   $45,899  
                                                   =======   =======  

                                   LIABILITIES AND STOCKHOLDERS EQUITY

Liabilities:                                                          
  Accounts payable - Stockholders .................$   436   $   436  
  Accounts payable ................................  1,000     1,000  
  Accrued income taxes ............................    357         0  
  Loan from Redwood Home Loan Co., at 8% interest .  4,000     4,000  
                                                    -------   ------- 

    Total current liabilities: ....................  5,793     5,436  
                                                    -------   ------- 

Stockholders Equity:                                                  
  Common Stock at stated value:                                       
    Authorized 1,000,000 shares of no par value                       
    issued and outstanding 500 shares .............  5,000     5,000  
  Paid-in surplus .................................. 7,500     7,500  
  Retained earnings ................................29,516    27,963  
                                                    ------   -------  

    Total stockholders equity ..................... 42,016    40,463  
                                                   =======   =======  
                                                   $47,809   $45,899  
                                                   =======   =======  

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

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                                GYMNO CORPORATION                               
                              STATEMENTS OF INCOME                              
                       YEARS ENDED JUNE 30, 1996 AND 1995                       



                                                             1996           1995

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

REVENUE                                                                         
  Partnership earnings - ...........................       $11,275       $10,347
    as General Partner                                                          
  Reconveyance fees ................................         3,360         3,990
  Other partnership earnings .......................            74           355
                                                           -------       -------

                                                            14,709        14,692
                                                           -------       -------

EXPENSES                                                                        
  Management services - Stockholders ...............         7,516         6,898
  Contracted services - ............................           672           798
    Redwood Mortgage    ............................                            
  Professional Services ............................         3,421         4,015
  Interest expense .................................           320           321
  Other ............................................            10           247
                                                           -------       -------

                                                            11,939        12,279
                                                           -------       -------

Income before provision for income taxes ...........         2,770         2,413
                                                           -------       -------

Provision for income taxes:                                                     
  California .......................................           800           800
  Federal ..........................................           417            58
                                                           -------       -------
                                                             1,217           858
                                                           -------       -------

Net income .........................................       $ 1,553       $ 1,555
                                                           =======       =======

Per share (500 shares) .............................       $  3.11       $  3.11
                                                           =======       =======

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

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                                GYMNO CORPORATION                                                               
                       STATEMENTS OF STOCKHOLDERS EQUITY                                                        
                       YEARS ENDED JUNE 30, 1996 AND 1995                                                       


                                                                COMMON STOCK         PAID-IN   RETAINED         
                                                             ----------------------                             
                                                             SHARES         AMOUNT   SURPLUS   EARNINGS    TOTAL

                                                                                                                

Balances - June 30, 1994 ...................................   500#        $ 5,000    $ 7,500   $26,408  $38,908

Net income for the year ended June 30, .....................      0              0          0     1,555    1,555
                                                                                                           1995 
                                                               ----        -------    -------   -------  -------

Balances - June 30, 1995 ...................................   500#        $ 5,000    $ 7,500   $27,963  $40,463

Net income for the year ended June 30, .....................      0              0          0     1,553    1,553
                                                                                                           1996 
                                                               ----        -------    -------   -------  -------

Balances - June 30, 1996 ...................................   500#        $ 5,000    $ 7,500   $29,516  $42,016

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

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                                GYMNO CORPORATION                               
                            STATEMENTS OF CASH FLOWS                            
                       YEARS ENDED JUNE 30, 1996 AND 1995                       



                                                              1996         1995 

                                                                                

Cash flows from operating activities:                                           
  Net income .........................................     $ 1,553      $ 1,555 
  Adjustments to reconcile net income to net                                    
    cash provided by operating activities:                                      
     (Increase) decrease in recoverable                                         
       income taxes...................................         922         (922)
     Mark investment to current value ................           0         (100)
     Increase (decrease) in accounts payable                                    
      and accrued liabilities ........................         357          746 
                                                           -------      ------- 

                                                             2,832        1,279 
                                                           -------      ------- 

Cash flows from investing activities:                                           
  (Increase) decrease in:                                                       
     Cash invested in partnership ....................      (3,810)      (1,563)
                                                           -------      ------- 

Net increase (decrease) in cash equivalents ..........        (978)        (284)

Cash equivalents at beginning of year ................       1,376        1,660 
                                                           -------      ------- 

Cash equivalents at end of year                                                 
  (consisting of cash in banks) ......................     $   398      $ 1,376 
                                                           =======      ======= 
<FN>                                                                            
See accompanying notes to financial statements.                                 
</FN>                                                                           

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 GYMNO CORPORATION
 NOTES TO BALANCE SHEETS
JUNE 30, 1996 AND 1995

NOTE 1 - ORGANIZATION                                                           

     GYMNO  Corporation  (the  Company) was formed in July,  1986, by D. Russell
Burwell and  Michael R.  Burwell,  each  owning 250  shares,  for the purpose of
serving  as  corporate  General  Partner  of  California  limited  partnerships,
(presently Redwood Mortgage Investors I, II, III, IV, V, VI, VII and VIII) which
invest in high-yield debt  instruments,  primarily  promissory  notes secured by
deeds of trust on California real estate.                                       

     As corporate General Partner, the Company receives management fees and/or a
small  percentage  of  income  for  its  services  which  are  performed  by the
stockholders.  In addition,  the Company receives reconveyance fees for which it
contracts  with Redwood Home Loan Company,  dba Redwood  Mortgage at 20% of such
fees. Redwood Mortgage is controlled by D. Russell Burwell.                     

     The  Company  has also  acquired  limited  partnership  interest in Redwood
Mortgage Investors IV and VII. The Company receives  investment income from such
limited  partnership  interests.  At June  30,  1996,  the  limited  partnership
interest in Redwood Mortgage Investors IV had been liquidated.                  

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NOTE 2 - SUMMARY OF ACCOUNTING POLICIES                                         

     The accompanying financial statements were prepared on the accrual basis of
accounting wherein revenue is recognized when earned and expenses are recognized
when incurred.                                                                  

     Earnings per share,  included in the statements of income,  were calculated
by  dividing  net  income  by  the  weighted  average  of  common  stock  shares
outstanding during the period.  There is only one class of shares (common stock)
and there are no provisions or agreements which could dilute earnings per share.

NOTE 3 - INCOME TAXES                                                           

     The  following  reflects the income taxes for the two years ending June 30,
1996 and 1995:                                                                  

                                                        [Enlarge/Download Table]
                                GYMNO CORPORATION                                                         
                             NOTES TO BALANCE SHEETS                                                      
                               YEARS 1996 AND 1995                                                        


                                    1996 1995                                                             
                                           CALIFORNIA         FEDERAL         CALIFORNIA          FEDERAL 
                                                                                                          

Income before provision for income taxes ................... $  2,770   $  2,770      $  2,413   $  2,413 
Nondeductible expenses .....................................        0          0             1          1 
State Tax Deduction:                                                                                      
   Prior fiscal year tax ...................................        0       (800)            0       (800)
Taxable income differential-partnerships ...................      832        812        (1,227)    (1,227)
                                                              -------     -------       ------     -------

Taxable income .............................................    3,602      2,782         1,187        387 
                                                              -------     -------       ------     -------

Tax rate (California $800 minimum) .........................      9.3%        15%          9.3%        15%
                                                              -------    --------       ------     -------

Income tax expense ......................................... $    800        417       $   800    $    58 
                                                              =======    =======        ======    ======= 

Above tax liability ........................................ $    800        417       $   800    $    58 
Estimated tax payments .....................................      800         60           800        980 
                                                             --------     -------       ------    ------- 

Income tax liability (recoverable) ......................... $     0         357       $     0    $  (922)
                                                             =======      =======       ======     =======

Total liability (recoverable) .............................. $   357                   $  (922)           
                                                             =======                    =======           


     California  income taxes were  determined at the greater of 9.3% of taxable
income or the minimum tax ($800) and Federal income taxes were determined at the
applicable Federal rate (15%).                                                  

     Deferred  income taxes are based on timing  differences  in deductions  for
California  income taxes which are deductible in the year after they apply (i.e.
- fiscal year 1996 taxes are  deductible  in 1997).  At both June 30, 1996,  and
1995,  there were  deferred  income tax  benefits  of $120  relating to the $800
California Franchise Tax deductible in the following year.                      

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PRIOR PERFORMANCE TABLES  

     The prior performance tables as referenced in the Prior Performance Summary
of the Prospectus present  information on programs  previously  sponsored by the
General Partners.                                                               

     The purpose of the tables is to provide  information on the  performance of
these partnerships to assist prospective  investors in evaluating the experience
of the General  Partners as  sponsors  of such  partnerships.  While none of the
information  represents  activities of an entity whose investment objectives and
criteria  are  identical  to the  Partnership,  in the  opinion  of the  General
Partners,  all  of  the  partnerships  included  in the  tables  had  investment
objectives which were similar to those of the Partnership. Factors considered in
making such  determination  included the type of investments,  expected benefits
from  investment and structure of the programs.  Each of such prior programs had
the  following  objectives:  (i)  annual  distributions  of cash or credits to a
Partner's  capital  account  for  additional  Mortgage  Investments;   and  (ii)
preservation  of the  Partnership's  capital.  Redwood  Mortgage  Investors  VI,
Redwood  Mortgage  Investors  VII and the  Partnership  differ  from  the  prior
programs in that they will  amortize  organizational  costs over a five (5) year
period instead of a ten (10) year period and will invest in a greater percentage
of first deeds of trust. In addition,  the Partnership's Loan Servicing Fees may
be slightly higher and interest earned on the loans made by the Partnership will
differ due to economic  considerations  and other  factors at the present  time.
Accordingly,   such  prior  programs  differed  in  certain  respects  from  the
Partnership,  and inclusion of these tables does not imply that investors of the
Partnership  will  experience  results  comparable to those  experienced  in the
partnerships referred to in the tables.                                         

The tables consist of:                                                          

Table I                         Experience in Raising and Investing Funds.      

Table II                        Compensation to General Partners and Affiliates.

Table III                       Operating Results of Prior Limited Partnerships.

Table V                         Payment of Mortgage Investments.                

     Persons who purchase  Interests in the Partnership will not thereby acquire
any ownership  interest in any of the partnerships to which these tables relate.
The inclusion of the following  tables in the Prospectus does not imply that the
Partnership  will make  investments  comparable to those reflected in the tables
with respect to cash flow,  income tax consequences  available to investors,  or
other  factors,  nor does it imply that they will  experience  returns,  if any,
comparable to those  experienced  by investors in the  partnerships  referred to
below.                                                                          

     The General  Partners  have  sponsored  only two (2) other public  programs
registered with the Securities and Exchange Commission. Therefore, the following
tables include  information  about prior  non-public  programs whose  investment
objectives  are similar to those of the  Partnership.  These  partnerships  were
offered without  registration  under the Securities Act of 1933 in reliance upon
the intrastate offering exemption from the registration  requirements thereunder
and/or the exemption for transactions not involving a public offering.          

     Additional   information   regarding  the   Description  of  Open  Mortgage
Investments of Prior Limited  Partnerships is provided in Table VI in Part II of
this Registration Statement. The Partnership will furnish without charge to each
person to whom this Prospectus is delivered, upon request, a copy of Table VI.  

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 DEFINITIONS AND GLOSSARY OF TERMS

The following terms used in the Tables have the following meanings:   

     "Cash  Generated  From  Operations"  shall  mean  excess or  deficiency  of
operating cash receipts over operating cash expenditures.                       

"GAAP" shall mean generally accepted accounting principles.           

     "Months To Invest 90% Of Amount  Available For  Investment"  shall mean the
time  period  from  commencement  of the  offering to date of close of escrow of
initial Mortgage Investments.                                                   

The following is a brief description of the Tables:                   

TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS                   

     Table I summarizes, as a percentage basis, all funds through June 30, 1996,
for  partnerships  which completed  funding during the three (3) years ending on
such date.                                                                      

TABLE II - COMPENSATION TO GENERAL PARTNERS AND AFFILIATES            

     Table  II  summarizes  the  compensation  paid  the  General  Partners  and
Affiliates by those  partnerships  which completed  funding during the three (3)
years ended June 30, 1996.                                                      

TABLE III - OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS           

     Table III summarizes the annual operating results through December 31, 1995
for  partnerships  which closed their offering during the seven (7) years ending
June 30, 1996.                                                                  

TABLE V - PAYMENT OF MORTGAGE INVESTMENTS                             

     Table V presents information on the payment of the partnerships'  mortgages
within the three (3) years ending June 30, 1996.                                

     About one-third of the loans to the partnerships are  fractionalized  loans
and held as undivided  interests with other partnerships and third parties.  The
information presented in Table V as to fractionalized loans represents only that
partnership's interest in a certain loan.                                       

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                                     TABLE I                                    
                    EXPERIENCE IN RAISING AND INVESTING FUNDS                   
                              (AS OF JUNE 30, 1996)                             
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)            

                                                                        RMI VII 
                                                       ------------------------ 
                                                                                

Dollar Amount Offered ...................................        $   12,000,000 
Dollar Amount Raised ....................................        $   11,998,359 
Percentage of Amount Raised .............................                 100.0%
Less Offering Expenses:                                                         
     Organization Expense ...............................                  3.55%
Percentage Available for Investment                                             
       Net of Offering Expenses .........................                 96.45%
     Loans Funded from Offering Proceeds                                        
       Secured by Mortgage ..............................                 86.85%
     Formation Loan (1): ................................                  7.62%
     Selling Commissions Paid to                                                
       Non-Affiliates ...................................                  1.00%
     Selling Commissions Paid to                                                
       Affiliates .......................................                   -0- 
     Loan Commitments (2): ..............................                   -0- 
     Loan Application or Loan                                                   
       Processing Fees ..................................                   -0- 
     Funds Available for Future                                                 
       Commitments ......................................                   -0- 
     Reserve ............................................                  0.98%
                                                                 ============== 
Total....................................................                 96.45%
                                                                 ============== 

Date Offering Commenced .................................        10/20/89       
Length of Offering ......................................        36 months      
     Months to Commit 90% of Amount                                             
     Available for Investment                                                   
     (Measured from Beginning of                                                
     Offering) ..........................................        38 months      

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                                     TABLE I                                    
                    EXPERIENCE IN RAISING AND INVESTING FUNDS                   
                              (AS OF JUNE 30, 1996)                             
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)~           


                                                                         RMI VI 
                                                       ------------------------ 
                                                                                

Dollar Amount Offered ...................................        $   12,000,000 
Dollar Amount Raised ....................................        $    9,772,594 
Percentage of Amount Raised .............................                 100.0%
Less Offering Expenses:                                                         
     Organization Expense ...............................                  2.63%
     Selling Commissions Paid to                                                
       Non-Affiliates ...................................                   1.0%
     Selling Commissions Paid to                                                
       Affiliates .......................................                   -0- 
Percentage Available for Investment,                                            
       Net of Offering Expenses .........................                 96.37%
     Loans Funded from Offering Proceeds                                        
       Secured by Mortgage ..............................                 86.04%
     Formation Loan (1): ................................                  6.27%
     Loan Commitments ...................................                    -0-
     Loan Application or Loan                                                   
       Processing Fees ..................................                    -0-
     Funds Available for Future                                                 
       Commitments ......................................                  1.06%
     Reserve ............................................                  3.00%
                                                                   =============
Total ...................................................                 96.37%
                                                                  ==============

Date Offering Commenced .................................        09/03/87       
Length of Offering ......................................        24 months      
Months to Commit 90% of Amount                                                  
     Available for Investment                                                   
       (Measured from Beginning of                                              
       Offering) ........................................        25 months      


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                                    TABLE II                                    
                 COMPENSATION TO GENERAL PARTNERS AND AFFILIATES                
                              (AS OF JUNE 30, 1996)                             
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS)           


                                                                        RMI VII 
                                                        ----------------------- 
                                                                                

Date Offering Commenced ....................................            10/20/89
Dollar Amount Raised .......................................         $11,998,359
Amount Paid to General Partners                                                 
     and Affiliates from:                                                       
       Offering Proceeds ...................................                 -0-
       Selling Commissions .................................                 -0-
       Loan Application or Loan                                                 
         Processing Fees ...................................                 -0-
       Reimbursement of Expenses, at Cost ..................              86,082
       Acquisition Fees ....................................                 -0-
       Advisory Fees .......................................                 -0-
       Other ...............................................                 -0-
Loan Points, Processing and                                                     
     Other Fees Paid by the Borrowers to                                        
       Affiliates:                                                              
          Points (1) .......................................         $ 1,197,309
          Processing Fees (1) ..............................              39,777
          Other (1) ........................................               6,181
Dollar Amount of Cash Generated                                                 
     from Operations Before Deducting                                           
       Payments to General Partners and                                         
       Affiliates: .........................................         $ 7,918,165
Amount Paid to General Partners and                                             
     Affiliates from Operations:                                                
       Partnership Management Fees .........................         $    53,246
       Earnings Distribution ...............................              49,331
       Mortgage Servicing Fee ..............................             234,906
     Late Charges ..........................................                 -0-
       Reimbursement of Expenses, at Cost ..................             127,090
     Prepayment Fee ........................................                 -0-

<FN>                                                                            

     (1) These sums were paid by borrowers of  partnership  funds,  and were not
expenses of the partnership.                                                    
</FN>                                                                           

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                                    TABLE II                                    
                 COMPENSATION TO GENERAL PARTNERS AND AFFILIATES                
                              (AS OF JUNE 30, 1996)                             
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)            


                                                                         RMI VI 
                                                        ----------------------- 
                                                                                

Date Offering Commenced ....................................             9/03/87
Dollar Amount Raised .......................................         $ 9,772,594
Amount Paid to General Partners                                                 
     and Affiliates from:                                                       
       Offering Proceeds ...................................                 -0-
       Selling Commissions .................................                 -0-
       Loan Application or Loan                                                 
         Processing Fees ...................................                 -0-
       Reimbursement of Expenses, at Cost ..................             103,708
       Acquisition Fees ....................................                 -0-
       Advisory Fees .......................................                 -0-
       Other ...............................................                 -0-
Loan Points, Processing and                                                     
     Other Fees Paid by the Borrowers to                                        
       Affiliates:                                                              
     Points (1) ............................................         $ 1,451,286
     Processing Fees (1) ...................................              58,376
     Other (1) .............................................               7,985
Dollar Amount of Cash Generated                                                 
     from Operations Before Deducting                                           
       Payments to General Partners and                                         
       Affiliates: .........................................         $11,676,002
Amount Paid to General Partners and                                             
     Affiliates from Operations:                                                
       Partnership Management Fees .........................         $    74,296
     Earnings Fee ..........................................              70,076
     Mortgage Servicing Fee ................................             543,892
     Reimbursement of Expenses, at Cost ....................             202,043

<FN>                                                                            

     (1) These sums were paid by borrowers of  partnership  funds,  and were not
expenses of the partnerships.                                                   
</FN>                                                                           

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                                     TABLE I                                    
                    EXPERIENCE IN RAISING AND INVESTING FUNDS                   
                              (AS OF JUNE 30, 1996)                             
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)            


                                                                        RMI VII 
                                                       ------------------------ 
                                                                                

Dollar Amount Offered ...................................        $   12,000,000 
Dollar Amount Raised ....................................        $   11,998,359 
Percentage of Amount Raised .............................                 100.0%
Less Offering Expenses:                                                         
     Organization Expense ...............................                  3.55%
Percentage Available for Investment                                             
       Net of Offering Expenses .........................                 96.45%
     Loans Funded from Offering Proceeds                                        
       Secured by Mortgage ..............................                 86.85%
     Formation Loan (1): ................................                  7.62%
     Selling Commissions Paid to                                                
       Non-Affiliates ...................................                  1.00%
     Selling Commissions Paid to                                                
       Affiliates .......................................                   -0- 
     Loan Commitments (2): ..............................                   -0- 
     Loan Application or Loan                                                   
       Processing Fees ..................................                   -0- 
     Funds Available for Future                                                 
       Commitments ......................................                   -0- 
     Reserve ............................................                  0.98%
                                                                 ============== 
Total....................................................                 96.45%
                                                                 ============== 

Date Offering Commenced .................................        10/20/89       
Length of Offering ......................................        36 months      
     Months to Commit 90% of Amount                                             
     Available for Investment                                                   
     (Measured from Beginning of                                                
     Offering) ..........................................        38 months      


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                                     TABLE I                                    
                    EXPERIENCE IN RAISING AND INVESTING FUNDS                   
                              (AS OF JUNE 30, 1996)                             
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)~           


                                                                         RMI VI 
                                                       ------------------------ 
                                                                                

Dollar Amount Offered ...................................        $   12,000,000 
Dollar Amount Raised ....................................        $    9,772,594 
Percentage of Amount Raised .............................                 100.0%
Less Offering Expenses:                                                         
     Organization Expense ...............................                  2.63%
     Selling Commissions Paid to                                                
       Non-Affiliates ...................................                   1.0%
     Selling Commissions Paid to                                                
       Affiliates .......................................                   -0- 
Percentage Available for Investment,                                            
       Net of Offering Expenses .........................                 96.37%
     Loans Funded from Offering Proceeds                                        
       Secured by Mortgage ..............................                 86.04%
     Formation Loan (1): ................................                  6.27%
     Loan Commitments ...................................                    -0-
     Loan Application or Loan                                                   
       Processing Fees ..................................                    -0-
     Funds Available for Future                                                 
       Commitments ......................................                  1.06%
     Reserve ............................................                  3.00%
                                                                   =============
Total ...................................................                 96.37%
                                                                 ============== 

Date Offering Commenced .................................        09/03/87       
Length of Offering ......................................        24 months      
Months to Commit 90% of Amount                                                  
     Available for Investment                                                   
       (Measured from Beginning of                                              
       Offering) ........................................        25 months      


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                                    TABLE II                                    
                 COMPENSATION TO GENERAL PARTNERS AND AFFILIATES                
                              (AS OF JUNE 30, 1996)                             
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS)           


                                                                        RMI VII 
                                                        ----------------------- 
                                                                                

Date Offering Commenced ....................................            10/20/89
Dollar Amount Raised .......................................         $11,998,359
Amount Paid to General Partners                                                 
     and Affiliates from:                                                       
       Offering Proceeds ...................................                 -0-
       Selling Commissions .................................                 -0-
       Loan Application or Loan                                                 
         Processing Fees ...................................                 -0-
       Reimbursement of Expenses, at Cost ..................              86,082
       Acquisition Fees ....................................                 -0-
       Advisory Fees .......................................                 -0-
       Other ...............................................                 -0-
Loan Points, Processing and                                                     
     Other Fees Paid by the Borrowers to                                        
       Affiliates:                                                              
          Points (1) .......................................         $ 1,197,309
          Processing Fees (1) ..............................              39,777
          Other (1) ........................................               6,181
Dollar Amount of Cash Generated                                                 
     from Operations Before Deducting                                           
       Payments to General Partners and                                         
       Affiliates: .........................................         $ 7,918,165
Amount Paid to General Partners and                                             
     Affiliates from Operations:                                                
       Partnership Management Fees .........................         $    53,246
       Earnings Distribution ...............................              49,331
       Mortgage Servicing Fee ..............................             234,906
     Late Charges ..........................................                 -0-
       Reimbursement of Expenses, at Cost ..................             127,090
     Prepayment Fee ........................................                 -0-

<FN>                                                                            

     (1) These sums were paid by borrowers of  partnership  funds,  and were not
expenses of the partnership.                                                    
</FN>                                                                           

                                                                [Download Table]

                                    TABLE II                                    
                 COMPENSATION TO GENERAL PARTNERS AND AFFILIATES                
                              (AS OF JUNE 30, 1996)                             
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)            


                                                                         RMI VI 
                                                        ----------------------- 
                                                                                

Date Offering Commenced ....................................             9/03/87
Dollar Amount Raised .......................................         $ 9,772,594
Amount Paid to General Partners                                                 
     and Affiliates from:                                                       
       Offering Proceeds ...................................                 -0-
       Selling Commissions .................................                 -0-
       Loan Application or Loan                                                 
         Processing Fees ...................................                 -0-
       Reimbursement of Expenses, at Cost ..................             103,708
       Acquisition Fees ....................................                 -0-
       Advisory Fees .......................................                 -0-
       Other ...............................................                 -0-
Loan Points, Processing and                                                     
     Other Fees Paid by the Borrowers to                                        
       Affiliates:                                                              
     Points (1) ............................................         $ 1,451,286
     Processing Fees (1) ...................................              58,376
     Other (1) .............................................               7,985
Dollar Amount of Cash Generated                                                 
     from Operations Before Deducting                                           
       Payments to General Partners and                                         
       Affiliates: .........................................         $11,676,002
Amount Paid to General Partners and                                             
     Affiliates from Operations:                                                
       Partnership Management Fees .........................         $    74,296
     Earnings Fee ..........................................              70,076
     Mortgage Servicing Fee ................................             543,892
     Reimbursement of Expenses, at Cost ....................             202,043
<FN>                                                                            

     (1) These sums were paid by borrowers of  partnership  funds,  and were not
expenses of the partnerships.                                                   
</FN>                                                                           

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                                    TABLE III                                                                                  
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                                                               
                                     RMI VII                                                                                   
                              (AS OF JUNE 30, 1996)                                                                            
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)                                                           


                                                                                       1989          1990              1991    
                                                                                 -----------  ------------     ------------    
                                                                    5 days in December 1989                                    

                                                                                                                               

Gross Revenues ...........................................................      $     1,682    $   238,949       $   759,828   
Less: General Partners' Management Fee ...................................              -0-          4,795             7,506   
  Mortgage Servicing Fee .................................................              -0-         14,172            42,177   
  Administrative Expenses ................................................              191          5,304            36,595   
  Provision for Uncollected Accounts .....................................              -0-          3,000            19,398   
  Amortization of Organization and Syndication Costs .....................                3            773               894   
  Offering Period Interest Expense to Limited Partners ...................            1,241         14,616            23,114   
  Interest Expense .......................... ............................              -0-            -0-               -0-   
                                                                                -----------    -----------       -----------   
Net Income (GAAP Basis) distr. to Limited Partners .......................      $      247     $   196,289       $   630,144   
                                                                                -----------    -----------       -----------   
Sources of Funds - Net Income ............................................      $      247     $   196,289       $   630,144   

Reduction in Assets ......................................................             -0-             -0-               -0-   
Increase in Liabilities ..................................................           28,696            -0-            13,531   
Early Withdrawal Penalties Applied to Synd. Costs ........................             -0-             -0-               370   
Increase in Applicant's Deposit ..........................................          163,632         27,290           134,278   
Increase in Partners' Capital ............................................          135,743      2,866,189         4,957,724   
                                                                                -----------    -----------       -----------   
Cash generated from Operations ...........................................      $   328,318    $ 3,089,768       $ 5,736,047   
Use of Funds-Increase in Assets ..........................................      $   287,117    $ 2,720,557       $ 5,549,077   
Reduction in Liabilities .................................................              -0-         27,876               -0-   
Decrease in Applicant's Deposit ..........................................              -0-           -0-               -0-    
Offering Period Interest Expense to Limited Partners .....................              188          5,094             9,379   
  Investment Income Pd to LP's ...........................................               52         58,001           228,039   
  Return of Capital to LP's ..............................................              -0-            -0-            10,893   
                                                                                -----------    -----------       -----------   
Net Increase (Decrease) in Cash ..........................................      $   40,961     $   278,240       $   (61,341)  

Cash at the beginning of the year ........................................             -0-     $   40,961        $   319,201   

Cash at the end of the year ..............................................      $    40,961    $   319,201       $   257,860   

Income & Distribution Data for $1,000 Invested for                                                                             
  a Compounding Limited Partner  (GAAP Basis) ............................      $      1.46    $    108.02       $    102.02   

Income & Distribution Data for                                                                                                 
  $1,000 Invested for a Limited Partner Receiving                                                                              
  Monthly Earning Distribution (GAAP Basis) ..............................      $      1.46    $    102.99       $     97.51   

Cash Distribution to Investors for $1,000 Invested                                                                             
  Income (1) .............................................................      $      0.38    $     35.41(1)    $     39.22(1)

  Capital (1) ............................................................              -0-            -0-       $      1.87   

Federal Income Tax Results for $1,000 Invested Capital                                                                         
  for a Compounding Ltd. Partner .........................................      $      9.10    $    119.03       $    109.67   

Federal Income Tax Results for $1,000 Invested for a Limited                                                                   
  Partner Receiving Monthly Earnings Distributions .......................      $      8.33    $    113.40       $    104.83   

<FN>                                                                                                                           
NOTES:                                                                                                                         
(1)  Based upon year's average capital balances.                                                                               
</FN>                                                                                                                          

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                                                TABLE III                                                         
                             OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                                      
                                                 RMI VII                                                          
                                          (AS OF JUNE 30, 1996)                                                   
                         (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)                                 



                                                                                 1992           1993         1994 
                                                                         ------------   ------------  ------------

                                                                                                                  
Gross Revenues .......................................................    $ 1,468,593    $ 1,711,092  $ 1,489,882 
Less: General Partners' Management Fee ...............................         14,202         16,735       10,008 
  Mortgage Servicing Fee .............................................         53,628         58,802          -0- 
  Administrative Expenses ............................................         95,526        152,782       78,822 
  Provision for Uncollected Accounts..................................        125,618        235,423      335,955 
  Amortization of Organization and Syndication Costs .................          2,016          2,016        2,016 
  Offering Period Interest Expense to Limited Partners ...............         13,361            -0-          -0- 
  Interest Expense ...................................................         68,226        119,351      135,790 
                                                                           -----------   -----------   -----------
Net Income (GAAP Basis) distr. to Limited Partners ...................    $ 1,096,016    $ 1,125,983      927,291 
                                                                          -----------   -----------   ----------- 
Sources of Funds - Net Income ........................................    $ 1,096,016    $ 1,125,983  $   927,291 
Reduction in Assets ..................................................            -0-        883,182          -0- 
Increase in Liabilities ..............................................      1,999,649            -0-      956,846 
Early Withdrawal Penalties Applied to Synd. Costs ....................          1,173          7,195       10,635 
Increase in Applicant's Deposit ......................................            -0-            -0-          -0- 
Increase in Partners' Capital ........................................      4,091,481            -0-          -0- 
                                                                          -----------   -----------   ----------- 
Cash generated from Operations .......................................    $ 7,188,319    $ 2,016,360  $ 1,894,772 
Use of Funds-Increase in Assets ......................................    $ 6,239,730            -0-  $ 1,316,184 
Reduction in Liabilities .............................................            -0-      1,032,580          -0- 
Decrease in Applicant's Deposit ......................................        310,539            -0-          -0- 
Offering Period Interest Expense to Limited Partners .................          5,202            -0-          -0- 
  Investment Income Pd to LP's .......................................        360,641        339,746      263,206 
  Return of Capital to LP's ..........................................        456,787        230,004      340,011 
                                                                          -----------   -----------   ----------- 
Net Increase (Decrease) in Cash ......................................    $  (184,580)   $   414,030  $   (24,629)
Cash at the beginning of the year ....................................    $   257,860    $    73,280  $   487,310 
Cash at the end of the year ..........................................    $    73,280    $   487,310  $   462,681 

Income & Distribution Data for $1,000 Invested for                                                                
  a Compounding Limited Partner  (GAAP Basis) ........................    $     93.03    $     80.06  $     62.85 

Income & Distribution Data for                                                                                    
  $1,000 Invested for a Limited Partner Receiving                                                                 
  Monthly Earning Distribution (GAAP Basis) ..........................    $     89.27     $    77.76  $     61.09 

Cash Distribution to Investors for $1,000 Invested                                                                
  Income (1) .........................................................    $     42.48     $    26.43  $     19.61 

  Capital (1) ........................................................    $     53.80     $    17.89  $     25.34 

Federal Income Tax Results for $1,000 Invested Capital                                                            
  for a Compounding Ltd. Partner .....................................    $    100.70     $    92.76  $     76.88 

Federal Income Tax Results for $1,000 Invested for a Limited                                                      
  Partner Receiving Monthly Earnings Distributions ...................    $     96.64     $    89.52  $     74.67 

<FN>                                                                                                              
NOTES:                                                                                                            
(1)  Based upon year's average capital balances.                                                                  
</FN>                                                                                                             

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                                    TABLE III                                                                         
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                                                      
                                     RMI VII                                                                          
                              (AS OF JUNE 30, 1996)                                                                   
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)                                                  



                                                                                             1995             06/30/96
                                                                                            ------------  ------------

                                                                                                                      

Gross Revenues ....................................................................... $1,483,881           $  764,258
Less: General Partners' Management Fee ...............................................        -0-                  -0-
  Mortgage Servicing Fee .............................................................     33,394               32,733
  Administrative Expenses ............................................................     66,371               48,562
  Provision for Uncollected Accounts .................................................    306,779              157,661
  Amortization of Organization and Syndication Costs .................................      2,016                  368
  Offering Period Interest Expense to Limited Partners ...............................        -0-                  -0-
  Interest Expense ...................................................................    163,361               88,659
                                                                                       ----------           ----------
Net Income (GAAP Basis) distr. to Limited Partners ................................... $  911,960           $  436,275
                                                                                       ----------           ----------
Sources of Funds - Net Income ........................................................ $  911,960           $  436,275
Reduction in Assets ..................................................................        -0-              151,779
Increase in Liabilities ..............................................................     63,206                  -0-
Early Withdrawal Penalties Applied to Synd. Costs ....................................      3,344                  -0-
Increase in Applicant's Deposit ......................................................        -0-                  -0-
Increase in Partners' Capital ........................................................        -0-                  -0-
                                                                                       ----------           ----------
Cash generated from Operations ....................................................... $  978,510           $  588,054
Use of Funds-Increase in Assets ...................................................... $  471,434                  -0-
Reduction in Liabilities .............................................................        -0-                  500
Decrease in Applicant's Deposit ......................................................        -0-                  -0-
Offering Period Interest Expense to Limited Partners .................................        -0-                  -0-
  Investment Income Pd to LP's .......................................................    270,760              148,420
  Return of Capital to LP's ..........................................................    184,157              245,910
                                                                                       ----------           ----------
Net Increase (Decrease) in Cash ...................................................... $   52,159           $  193,224
Cash at the beginning of the year .................................................... $  462,681           $  514,840
Cash at the end of the year .......................................................... $  514,840           $  708,064
Income & Distribution Data for $1,000 Invested for                                                                    
  a Compounding Limited Partner  (GAAP Basis) ........................................ $    60.01           $    29.64

Income & Distribution Data for                                                                                        
  $1,000 Invested for a Limited Partner Receiving                                                                     
  Monthly Earning Distribution (GAAP Basis) .......................................... $    58.43           $    29.28

Cash Distribution to Investors for $1,000 Invested                                                                    
  Income (1) ......................................................................... $    19.69           $    10.44

  Capital (1) ........................................................................ $    13.39           $    17.30

Federal Income Tax Results for $1,000 Invested Capital                                                                
  for a Compounding Ltd. Partner ..................................................... $    65.75                 N/A 

Federal Income Tax Results for $1,000 Invested for a Limited                                                          
  Partner Receiving Monthly Earnings Distributions ................................... $    64.01                 N/A 

<FN>                                                                                                                  
NOTES:                                                                                                                
(1)  Based upon years average capital balances                                                                        
</FN>                                                                                                                 

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                                    TABLE III                                                                        
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                                                     
                                     RMI VI                                                                          
                              (AS OF JUNE 30, 1996)                                                                  
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)                                                 



                                                                              1987            1988          1989(2)  
                                                                       ------------    ------------    ------------  

                                                                                                                     

Gross Revenues ....................................................... $    35,485     $   600,194     $ 1,284,180   
Less: General Partners' Management Fee ...............................         833          15,726             -0-   
  Mortgage Servicing Fee .............................................       2,659          46,393          90,434   
  Administrative Expenses ............................................         494          19,837          53,083   
  Provision for Uncollected Accounts .................................         -0-             -0-          50,631   
  Amortization of Organization and Syndication Costs .................         102           2,196           2,952   
  Offering Period Interest Expense to Limited Partners ...............       8,072          44,871          18,976   
  Interest Expense ...................................................         -0-             -0-         108,883   
                                                                       -----------     -----------     -----------   
Net Income (GAAP Basis) dist. to Limited Partners .................... $    23,325     $   471,171     $   959,221   
                                                                       -----------      -----------    -----------   
Sources of Funds - Net Income ........................................ $    23,325     $   471,171     $   959,221   
Reduction in Assets ..................................................         -0-             -0-             -0-   
Increase in Liabilities ..............................................      44,060             -0-       1,580,600   
Early Withdrawal Penalties Applied to Synd. Costs ....................         -0-             -0-             -0-   
Increase in Applicant's Deposit ......................................   1,114,238             -0-             -0-   
Increase in Partners' Capital ........................................   1,158,336       5,811,540       2,537,274   
                                                                       -----------      -----------    -----------   
Cash generated from Operations ....................................... $ 2,339,959     $ 6,282,711     $ 5,077,095   
Use of Funds-Increase in Assets ...................................... $ 1,342,112     $ 5,836,269     $ 4,438,494   
Reduction in Liabilities .............................................         -0-          37,472             -0-   
Decrease in Applicant's Deposit ......................................         -0-         567,520         546,718   
Offering Period Interest Expense to Limited Partners .................       1,585          16,691           9,802   
  Investment Income Pd to LP's .......................................       7,864         144,038         326,195   
  Return of Capital to LP's ..........................................         -0-             -0-           8,369   
                                                                       -----------     -----------     -----------   
Net Increase (Decrease) in Cash ...................................... $   988,398     $  (319,279)    $  (252,483)  
Cash at the beginning of the year ....................................         -0-     $   988,398     $   669,119   
Cash at the end of the year .......................................... $   988,398     $   669,119     $   416,636   
Income & Distribution Data for $1,000 Invested for                                                                   
  a Compounding Limited Partner  (GAAP Basis) ........................ $     24.33     $    101.64     $    100.56   

Income & Distribution Data for                                                                                       
  $1,000 Invested for a Limited Partner Receiving                                                                    
  Monthly Earning Distribution (GAAP Basis) .......................... $     20.78     $     97.18     $     96.18   

Cash Distribution to Investors for $1,000 Invested                                                                   
  Income (1) ......................................................... $     18.41(1)  $     29.19(1)  $     44.76(1)
  Capital (1) ........................................................         -0-             -0-     $      1.15   

Federal Income Tax Results for $1,000 Invested Capital                                                               
  for a Compounding Ltd. Partner ..................................... $     26.07     $    109.34     $    107.58   

Federal Income Tax Results for $1,000 Invested for a Limited                                                         
  Partner Receiving Monthly Earnings Distributions ................... $     22.50     $    104.50     $    102.92   

<FN>                                                                                                                 
NOTES:                                                                                                               
(1)  Based upon years average capital balances                                                                       
(2)  The offering terminated in September, 1989.                                                                     
</FN>                                                                                                                

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                                    TABLE III                                                                       
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                                                    
                                     RMI VI                                                                         
                              (AS OF JUNE 30, 1996)                                                                 
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)                                                



                                                                                  1990           1991          1992 
                                                                          ------------   ------------  ------------ 

                                                                                                                    

Gross Revenues ..........................................................  $ 1,527,697    $ 1,587,354   $ 1,661,779 
Less: General Partners' Management Fee ..................................        3,496         14,489        15,287 
  Mortgage Servicing Fee ................................................      105,405         54,390        79,326 
  Administrative Expenses ...............................................      113,610         76,692        93,282 
  Provision for Uncollected Accounts ....................................       13,687        174,290       266,786 
  Amortization of Organization and Syndication Costs ....................        3,167          3,167         3,166 
  Offering Period Interest Expense to Limited Partners ..................          -0-            -0-           -0- 
  Interest Expense ......................................................      154,187        142,442       145,395 
                                                                           -----------    -----------   ----------- 
Net Income (GAAP Basis) distr. to Limited Partners ......................  $ 1,134,145    $ 1,121,884   $ 1,058,537 
                                                                           -----------   -----------    ----------- 
Sources of Funds - Net Income ...........................................  $ 1,134,145    $ 1,121,884   $ 1,058,537 
Reduction in Assets .....................................................          -0-            -0-           -0- 
Increase in Liabilities .................................................          -0-            -0-     1,401,613 
Early Withdrawal Penalties Applied to Synd. Costs .......................        3,813          1,345         5,518 
Increase in Applicant's Deposit .........................................          -0-            -0-           -0- 
Increase in Partners' Capital ...........................................          -0-            -0-           -0- 
                                                                           -----------   -----------    ----------- 
Cash generated from Operations ..........................................  $ 1,137,958    $ 1,123,229   $ 2,465,668 
Use of Funds-Increase in Assets .........................................  $   500,209    $   380,888   $ 2,073,362 

Reduction in Liabilities ................................................      232,193        293,099           -0- 
Decrease in Applicant's Deposit .........................................          -0-            -0-           -0- 
Offering Period Interest Expense to Limited Partners ....................          -0-            -0-           -0- 
  Investment Income Pd to LP's ..........................................      375,864        341,505       323,037 
  Return of Capital to LP's .............................................      100,628         41,254       232,370 
                                                                           -----------    -----------   ----------- 
Net Increase (Decrease) in Cash .........................................  $   (70,936)   $    66,483   $  (163,101)
Cash at the beginning of the year .......................................  $   416,636    $   345,700   $   412,183 
Cash at the end of the year .............................................  $   345,700    $   412,183   $   249,082 
Income & Distribution Data for $1,000 Invested for                                                                  
  a Compounding Limited Partner  (GAAP Basis) ...........................  $   100.09     $     93.40   $     82.87 

Income & Distribution Data for                                                                                      
  $1,000 Invested for a Limited Partner Receiving                                                                   
  Monthly Earning Distribution (GAAP Basis) .............................  $    95.75     $     89.62   $     79.88 

Cash Distribution to Investors for $1,000 Invested                                                                  
  Income (1) ............................................................  $    36.01     $     30.74   $     27.26 

  Capital (1) ...........................................................  $     9.64     $      3.71   $     19.61 

Federal Income Tax Results for $1,000 Invested Capital                                                              
  for a Compounding Ltd. Partner ........................................  $   108.29     $     99.00   $     91.00 

Federal Income Tax Results for $1,000 Invested for a Limited                                                        
  Partner Receiving Monthly Earnings Distributions ......................  $   103.60     $     95.00   $     87.71 

<FN>                                                                                                                
NOTES:                                                                                                              
(1)  Based upon years average capital balances                                                                      
(2)  The offering terminated in September, 1989.                                                                    
</FN>                                                                                                               

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                                    TABLE III                                                                        
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                                                     
                                     RMI VI                                                                          
                              (AS OF JUNE 30, 1996)                                                                  
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)                                                 


                                                                                     1993          1994          1995
                                                                             ------------  ------------  ------------

                                                                                                                     

Gross Revenues .............................................................   $1,713,378   $ 1,391,088   $ 1,277,782
Less: General Partners' Management Fee .....................................       15,523         8,942           -0-
  Mortgage Servicing Fee ...................................................       94,306           -0-        42,056
  Administrative Expenses ..................................................      123,473        59,346        59,656
  Provision for Uncollected Accounts .......................................      420,583       472,967       344,807
  Amortization of Organization and Syndication Costs .......................          -0-           -0-           -0-
  Offering Period Interest Expense to Limited Partners .....................          -0-           -0-           -0-
  Interest Expense .........................................................      161,705       185,131       212,915
                                                                               ----------   -----------   -----------
Net Income (GAAP Basis) distr. to Limited Partners .........................   $  897,788   $   664,702   $   618,348
                                                                              -----------   -----------   -----------
Sources of Funds - Net Income ..............................................   $  897,788   $   664,702   $   618,348
Reduction in Assets ........................................................      676,847        18,749       749,375
Increase in Liabilities ....................................................          -0-       374,511           -0-
Early Withdrawal Penalties Applied to Synd. Costs ..........................        3,700           -0-           -0-
Increase in Applicant's Deposit ............................................          -0-           -0-           -0-
Increase in Partners' Capital ..............................................          -0-           -0-           -0-
                                                                              -----------   -----------   -----------
Cash generated from Operations .............................................   $1,578,335   $ 1,057,962   $ 1,367,723
Use of Funds-Increase in Assets ............................................          -0-           -0-           -0-
Reduction in Liabilities ...................................................      498,663           -0-       335,500
Decrease in Applicant's Deposit ............................................          -0-           -0-           -0-
Offering Period Interest Expense to Limited Partners .......................          -0-           -0-           -0-
  Investment Income Pd to LP's .............................................      377,712       303,014       303,098
  Return of Capital to LP's ................................................      528,737       729,449       892,953
                                                                               ----------   -----------   -----------
Net Increase (Decrease) in Cash ............................................   $  173,223   $    25,499   $ (163,828)
Cash at the beginning of the year ..........................................   $  249,082   $   422,305   $   447,804
Cash at the end of the year ................................................   $  422,305   $   447,804   $   283,976
Income & Distribution Data for $1,000 Invested for                                                                   
  a Compounding Limited Partner  (GAAP Basis) ..............................   $    72.01   $     54.95   $     53.03

Income & Distribution Data for                                                                                       
  $1,000 Invested for a Limited Partner Receiving                                                                    
  Monthly Earning Distribution (GAAP Basis) ................................   $    69.74   $     53.62   $     51.79

Cash Distribution to Investors for $1,000 Invested                                                                   
  Income (1) ...............................................................   $    30.57   $     24.53   $     25.29

  Capital (1) ..............................................................   $    42.79   $     59.06   $     74.51

Federal Income Tax Results for $1,000 Invested Capital                                                               
  for a Compounding Ltd. Partner ...........................................   $    92.72   $     49.87   $    59.39 

Federal Income Tax Results for $1,000 Invested for a Limited                                                         
  Partner Receiving Monthly Earnings Distributions .........................   $    89.90   $     48.66   $    58.00 

<FN>                                                                                                                 
NOTES:                                                                                                               
(1)  Based upon years average capital balances                                                                       
(2)  The offering terminated in September, 1989.                                                                     
</FN>                                                                                                                

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                                    TABLE III                                   
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                
                                     RMI VI                                     
                              (AS OF JUNE 30, 1996)                             
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)            



                                                                       06/30/96 
                                                                   ------------ 
                                                                                

Gross Revenues ..................................................    $   597,065
Less: General Partners' Management Fee ..........................            -0-
  Mortgage Servicing Fee ........................................         28,923
  Administrative Expenses .......................................         42,217
  Provision for Uncollected Accounts ............................        135,588
  Amortization of Organization and Syndication Costs ............            -0-
  Offering Period Interest Expense to Limited Partners ..........            -0-
  Interest Expense ..............................................         90,206
                                                                     -----------
Net Income (GAAP Basis) distr. to Limited Partners ..............    $   300,131
                                                                     -----------
Sources of Funds - Net Income ...................................    $   300,131
Reduction in Assets .............................................        645,182
Increase in Liabilities .........................................            -0-
Early Withdrawal Penalties Applied to Synd. Costs ...............            -0-
Increase in Applicant's Deposit .................................            -0-
Increase in Partners' Capital ...................................            -0-
                                                                     -----------
Cash generated from Operations ..................................    $   945,313
Use of Funds-Increase in Assets .................................            -0-
Reduction in Liabilities ........................................        326,000
Decrease in Applicant's Deposit .................................            -0-
Offering Period Interest Expense to Limited Partners ............            -0-
  Investment Income Pd to LP's ..................................        145,281
  Return of Capital to LP's .....................................        520,437
                                                                     -----------
Net Increase (Decrease) in Cash .................................    $  (46,405)
Cash at the beginning of the year ...............................    $   283,976
Cash at the end of the year .....................................    $   237,571
Income & Distribution Data for $1,000 Invested for                              
  a Compounding Limited Partner  (GAAP Basis) ...................    $     26.46

Income & Distribution Data for                                                  
  $1,000 Invested for a Limited Partner Receiving                               
  Monthly Earning Distribution (GAAP Basis) .....................    $     26.18

Cash Distribution to Investors for $1,000 Invested                              
  Income (1) ....................................................    $     12.74

  Capital (1) ...................................................    $     45.63

Federal Income Tax Results for $1,000 Invested Capital                          
  for a Compounding Ltd. Partner ................................            N/A
Federal Income Tax Results for $1,000 Invested for a Limited                    
  Partner Receiving Monthly Earnings Distributions ..............            N/A

<FN>                                                                            
NOTES:                                                                          
(1)  Based upon years average capital balances                                  
(2)  The offering terminated in September, 1989.                                
</FN>                                                                           

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                                    TABLE III                                                                              
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                                                           
                                      RMI V                                                                                
                              (AS OF JUNE 30, 1996)                                                                        
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)                                                       


                                                                                        1986            1987          1988 
                                                                                 ------------    ------------  ------------
                                                                               (1 month only)                              

                                                                                                                           

Gross Revenues ...........................................................   $  20,794         $  460,522       $   627,223
Less: General Partners' Management Fee ...................................         342              7,922             5,260
  Mortgage Servicing Fee .................................................       1,052             40,010            50,274
  Administrative Expenses ................................................         753             16,702            44,802
  Provision for Uncollected Accounts .....................................       1,740                -0-            22,119
  Amortization of Organization and Syndication Costs .....................         271                502               606
  Offering Period Interest Expense to Limited Partners ...................       7,114             23,135              -0- 
  Interest Expense .......................................................         -0-                -0-              -0- 
                                                                            ----------         ----------       -----------
Net Income (GAAP Basis) distr. to Limited Partners .......................     $ 9,522         $  372,251       $   504,162
                                                                            ----------         ----------      ------------
Sources of Funds - Net Income ............................................     $ 9,522         $  372,251       $   504,162
Reduction in Assets ......................................................         -0-                -0-               -0-
Increase in Liabilities ..................................................       7,815                -0-               -0-
Early Withdrawal Penalties Applied to Synd. Costs ........................         -0-                -0-               -0-
Increase in Applicant's Deposit ..........................................     515,356                -0-               -0-
Increase in Partners' Capital ............................................   1,369,469          3,540,065               -0-
                                                                           -----------         ----------       -----------
Cash generated from Operations ...........................................  $1,902,162         $3,912,316       $   504,162
Use of Funds-Increase in Assets ..........................................  $1,743,843         $2,842,678       $   566,387
Reduction in Liabilities .................................................         -0-              5,169               834
Decrease in Applicant's Deposit ..........................................         -0-            515,356               -0-
Offering Period Interest Expense to Limited Partners .....................       1,790              9,119               -0-
  Investment Income Pd to LP's ...........................................       2,962            137,682           178,902
  Return of Capital to LP's ..............................................         -0-                -0-               -0-
                                                                            ----------         ----------       -----------
Net Increase (Decrease) in Cash ..........................................  $  153,567         $  402,312       $ (241,961)
Cash at the beginning of the year ........................................         -0-         $  153,567       $   555,879
Cash at the end of the year ..............................................  $  153,567         $  555,879       $   313,918
Income & Distribution Data for $1,000 Invested for                                                                         
  a Compounding Limited Partner  (GAAP Basis) ............................  $      110         $      101       $        95

Income & Distribution Data for                                                                                             
  $1,000 Invested for a Limited Partner Receiving                                                                          
  Monthly Earning Distribution (GAAP Basis) ..............................  $      106          $      96       $        91

Cash Distribution to Investors for $1,000 Invested                                                                         
  Income (1) .............................................................  $       26          $      39       $        35

  Capital (1) ............................................................         -0-                -0-               -0-
Federal Income Tax Results for $1,000 Invested Capital                                                                     
  for a Compounding Ltd. Partner .........................................  $      114          $     103       $        97

Federal Income Tax Results for $1,000 Invested for a Limited                                                               
  Partner Receiving Monthly Earnings Distributions .......................  $      109          $      99      $         93

<FN>                                                                                                                       
NOTES:                                                                                                                     
(1)  Based upon years initial capital balances                                                                             
</FN>                                                                                                                      

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                                    TABLE III                                                                       
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                                                    
                                      RMI V                                                                         
                              (AS OF JUNE 30, 1996)                                                                 
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)                                                



                                                                                   1989          1990           1991
                                                                            ------------  ------------  ------------

                                                                                                                    

Gross Revenues ...........................................................  $   755,856   $   775,058    $   745,102
Less: General Partners' Management Fee ...................................        9,395         7,323          7,487
  Mortgage Servicing Fee .................................................       47,501        57,395         29,117
  Administrative Expenses ................................................       46,129        46,319         67,569
  Provision for Uncollected Accounts .....................................       63,984        51,770         61,411
  Amortization of Organization and Syndication Costs .....................          631           631            631
  Offering Period Interest Expense to Limited Partners ...................          -0-           -0-            -0-
  Interest Expense .......................................................       61,600        67,569         24,462
                                                                            -----------   -----------    -----------
Net Income (GAAP Basis) distr. to Limited Partners .......................  $   526,616   $   544,051    $   554,425
                                                                           -----------    -----------    -----------
Sources of Funds - Net Income ............................................  $   526,616   $   544,051    $   554,425
Reduction in Assets ......................................................          -0-       591,879         36,728
Increase in Liabilities ..................................................      808,466           -0-            -0-
Early Withdrawal Penalties Applied to Synd. Costs ........................          -0-         8,003          4,658
Increase in Applicant's Deposit ..........................................          -0-           -0-            -0-
Increase in Partners' Capital ............................................          -0-           -0-            -0-
                                                                            -----------   -----------    -----------
Cash generated from Operations ...........................................  $ 1,335,082   $ 1,143,933    $   595,811
Use of Funds-Increase in Assets ..........................................  $ 1,272,177           -0-            -0-
Reduction in Liabilities .................................................          -0-       586,933         17,593
Decrease in Applicant's Deposit ..........................................          -0-           -0-            -0-
Offering Period Interest Expense to Limited Partners .....................          -0-           -0-            -0-
  Investment Income Pd to LP's ...........................................      178,180       191,970        172,259
  Return of Capital to LP's ..............................................       78,120       283,253        170,711
                                                                            -----------   -----------    -----------
Net Increase (Decrease) in Cash ..........................................  $  (193,395)  $    81,777    $   235,248
Cash at the beginning of the year ........................................  $   313,918   $   120,523    $   202,300
Cash at the end of the year ..............................................  $   120,523   $   202,300    $   437,548
Income & Distribution Data for $1,000 Invested for                                                                  
  a Compounding Limited Partner  (GAAP Basis) ............................  $        93   $        94    $        94

Income & Distribution Data for                                                                                      
  $1,000 Invested for a Limited Partner Receiving                                                                   
  Monthly Earning Distribution (GAAP Basis) ..............................  $        89   $        91    $        90

Cash Distribution to Investors for $1,000 Invested                                                                  
  Income (1) .............................................................  $        33   $        34    $        30

  Capital (1) ............................................................  $        14   $        49    $        29

Federal Income Tax Results for $1,000 Invested Capital                                                              
  for a Compounding Ltd. Partner .........................................  $       107   $       106    $        99

Federal Income Tax Results for $1,000 Invested for a Limited                                                        
  Partner Receiving Monthly Earnings Distributions .......................  $       102   $       101    $        95

<FN>                                                                                                                
NOTES:                                                                                                              
(1)  Based upon years initial capital balances                                                                      
</FN>                                                                                                               

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                                    TABLE III                                                                       
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                                                    
                                      RMI V                                                                         
                              (AS OF JUNE 30, 1996)                                                                 
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)                                                


                                                                                  1992           1993          1994 
                                                                          ------------   ------------  ------------ 

                                                                                                                    

Gross Revenues ..........................................................  $   840,592    $   826,774   $   557,036 
Less: General Partners' Management Fee ..................................       14,746         12,084         2,333 
  Mortgage Servicing Fee ................................................       42,526         42,609           -0- 
  Administrative Expenses ...............................................       59,495         80,006        39,594 
  Provision for Uncollected Accounts ....................................      114,162        141,059       140,499 
  Amortization of Organization and Syndication Costs ....................          631            631           629 
  Offering Period Interest Expense to Limited Partners ..................          -0-            -0-           -0- 
  Interest Expense ......................................................       68,662         79,848        79,951 
                                                                           -----------    -----------   ----------- 
Net Income (GAAP Basis) distr. to Limited Partners ......................  $   540,370    $   470,537   $   294,030 
                                                                           -----------    -----------   ----------- 

Sources of Funds - Net Income ...........................................  $   540,370    $   470,537   $   294,030 
Reduction in Assets .....................................................          -0-        554,553       418,962 
Increase in Liabilities .................................................      945,442            -0-         9,731 
Early Withdrawal Penalties Applied to Synd. Costs .......................        1,833          1,617           634 
Increase in Applicant's Deposit .........................................          -0-            -0-           -0- 
Increase in Partners' Capital ...........................................          -0-            -0-           -0- 
                                                                           -----------    -----------   ----------- 

Cash generated from Operations ..........................................  $ 1,487,645    $ 1,026,707   $   723,357 
Use of Funds-Increase in Assets .........................................  $ 1,389,730            -0-           -0- 
Reduction in Liabilities ................................................          -0-         62,234           -0- 
Decrease in Applicant's Deposit .........................................          -0-            -0-           -0- 
Offering Period Interest Expense to Limited Partners ....................          -0-            -0-           -0- 
  Investment Income Pd to LP's ..........................................      179,048        233,928       139,550 
  Return of Capital to LP's .............................................  $   280,929    $   546,248   $   640,685 
                                                                           -----------    -----------   ----------- 
Net Increase (Decrease) in Cash .........................................  $  (362,062)   $   184,297   $   (56,878)
Cash at the beginning of the year .......................................  $   437,548    $    75,486   $   259,783 
Cash at the end of the year .............................................  $    75,486    $   259,783   $   202,905 

Income & Distribution Data for $1,000 Invested for                                                                  
  a Compounding Limited Partner  (GAAP Basis) ...........................  $       89     $        77   $        50 

Income & Distribution Data for                                                                                      
  $1,000 Invested for a Limited Partner Receiving                                                                   
  Monthly Earning Distribution (GAAP Basis) .............................  $       85     $        75   $        49 

Cash Distribution to Investors for $1,000 Invested                                                                  
  Income (1) ............................................................  $       30     $        38   $        24 

  Capital (1) ...........................................................  $       47     $        89   $       110 

Federal Income Tax Results for $1,000 Invested Capital                                                              
  for a Compounding Ltd. Partner ........................................  $       97     $        93   $        10 

Federal Income Tax Results for $1,000 Invested for a Limited                                                        
  Partner Receiving Monthly Earnings Distributions ......................  $       93     $        90   $        10 

<FN>                                                                                                                
NOTES:                                                                                                              
(1)  Based upon years initial capital balances                                                                      
</FN>                                                                                                               

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                                    TABLE III                                                                     
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                                                  
                                      RMI V                                                                       
                              (AS OF JUNE 30, 1996)                                                               
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)                                              



                                                                                               1995       06/30/96
                                                                                        ------------  ------------

                                                                                                                  

Gross Revenues ........................................................................ $   567,540       $200,344
Less: General Partners' Managment Fee .................................................         -0-            -0-
  Mortgage Servicing Fee ..............................................................         -0-            -0-
  Administrative Expenses .............................................................      30,593         23,798
  Provision for Uncollected Accounts ..................................................     182,162         18,419
  Amortization of Organization and Syndication Costs ..................................         627            314
  Offering Period Interest Expense to Limited Partners ................................         -0-            -0-
  Interest Expense ....................................................................      95,941         45,253
                                                                                        -----------       --------
Net Income (GAAP Basis) distr. to Limited Partners .................................... $   258,217       $112,560
                                                                                        -----------       --------
Sources of Funds - Net Income .........................................................     258,217        112,560
Reduction in Assets ...................................................................     464,011        380,552
Increase in Liabilities ...............................................................        -0-             -0-
Early Withdrawal Penalties Applied to Synd. Costs .....................................        -0-             -0-
Increase in Applicant's Deposit .......................................................        -0-             -0-
Increase in Partners' Capital .........................................................        -0-             -0-
                                                                                        -----------       --------

Cash generated from Operations ........................................................ $   722,228       $493,112
Use of Funds-Increase in Assets .......................................................         -0-            -0-
Reduction in Liabilities ..............................................................      69,000        124,499
Decrease in Applicant's Deposit .......................................................         -0-            -0-
Offering Period Interest Expense to Limited Partners ..................................         -0-            -0-
  Investment Income Pd to LP's ........................................................     124,329         51,539
  Return of Capital to LP's ...........................................................     689,307        296,716
                                                                                        -----------       --------
Net Increase (Decrease) in Cash ....................................................... $  (160,408)      $ 20,358
Cash at the beginning of the year ..................................................... $   202,905       $ 42,497
Cash at the end of the year ........................................................... $    42,497       $ 62,855

Income & Distribution Data for $1,000 Invested for                                                                
  a Compounding Limited Partner  (GAAP Basis) ......................................... $        50       $     24

Income & Distribution Data for                                                                                    
  $1,000 Invested for a Limited Partner Receiving                                                                 
  Monthly Earning Distribution (GAAP Basis) ........................................... $        49       $     24

Cash Distribution to Investors for $1,000 Invested                                                                
  Income (1) .......................................................................... $        23       $     11

  Capital (1) ......................................................................... $       130       $     62

Federal Income Tax Results for $1,000 Invested Capital                                                            
  for a Compounding Ltd. Partner ...................................................... $        51            N/A

Federal Income Tax Results for $1,000 Invested for a Limited                                                      
  Partner Receiving Monthly Earnings Distributions .................................... $        50            N/A

<FN>                                                                                                              
NOTES:(1)  Based upon years initial capital balances                                                              
</FN>                                                                                                             

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                                    TABLE III                                                                       
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                                                    
                                     RMI IV                                                                         
                              (AS OF JUNE 30, 1996)                                                                 
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)                                                


                                                                                  1985         1986           1987  
                                                                           -----------   ------------  ------------ 

                                                                                                                    

Gross Revenues ..........................................................  $   236,437   $   870,719    $ 1,104,423 
Less: General Partners' Management Fee ..................................        5,253        21,185         30,732 
  Mortgage Servicing Fee ................................................       11,375        44,077         93,423 
  Administrative Expenses ...............................................        3,384        49,905         66,321 
  Provision for Uncollected Accounts ....................................        7,441        22,830         (5,457)
  Amortization of Organization and Syndication Costs ....................        3,510        13,429          3,953 
  Offering Period Interest Expense to Limited Partners ..................       22,680        43,310            -0- 
  Interest Expense ......................................................          -0-        35,242         94,461 
                                                                           -----------   -----------    ----------- 
Net Income (GAAP Basis) distr. to Limited Partners ......................  $   182,794   $   640,741    $   820,990 
                                                                          -----------   -----------    -----------  

Sources of Funds - Net Income ...........................................  $   182,794   $   640,741    $   820,990 
Reduction in Assets .....................................................          -0-           -0-        559,202 
Increase in Liabilities .................................................        7,669     1,012,556            -0- 
Early Withdrawal Penalties Applied to Synd. Costs .......................          -0-           -0-            -0- 
Increase in Applicant's Deposit .........................................      605,351           -0-            -0- 
Increase in Partners' Capital ...........................................    3,323,145     4,238,412            -0- 
                                                                           -----------   -----------    ----------- 

Cash generated from Operations ..........................................  $ 4,118,959   $ 5,891,709    $ 1,380,192 
Use of Funds-Increase in Assets .........................................  $ 3,327,257   $ 5,131,576            -0- 
Reduction in Liabilities ................................................          -0-           -0-        277,205 
Decrease in Applicant's Deposit .........................................          -0-       605,351            -0- 
Offering Period Interest Expense to Limited Partners ....................       20,118        45,713            -0- 
  Investment Income Pd to LP's ..........................................       73,959       279,521        322,880 
  Return of Capital to LP's .............................................          -0-           -0-            -0- 
                                                                           -----------   -----------    ----------- 
Net Increase (Decrease) in Cash .........................................  $   697,625   $  (170,452)   $   780,107 
Cash at the beginning of the year .......................................          -0-   $   697,625    $   527,173 
Cash at the end of the year .............................................  $   697,625   $   527,173    $ 1,307,280 
Income & Distribution Data for $1,000 Invested for                                                                  
  a Compounding Limited Partner  (GAAP Basis) ...........................  $       137   $       120    $       101 

Income & Distribution Data for                                                                                      
  $1,000 Invested for a Limited Partner Receiving                                                                   
  Monthly Earning Distribution (GAAP Basis) .............................  $       126    $      114    $        97 

Cash Distribution to Investors for $1,000 Invested                                                                  
  Income (1) ............................................................  $       28     $       88    $        41 

  Capital (1) ...........................................................         -0-            -0-            -0- 
Federal Income Tax Results for $1,000 Invested Capital                                                              
  for a Compounding Ltd. Partner ........................................  $      138     $      122    $       104 

Federal Income Tax Results for $1,000 Invested for a Limited                                                        
  Partner Receiving Monthly Earnings Distributions ......................  $      128     $      116    $       100 

<FN>                                                                                                                
NOTES:                                                                                                              
(1)  Based upon years initial capital balances                                                                      
</FN>                                                                                                               

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                                    TABLE III                                                                         
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                                                      
                                     RMI IV                                                                           
                              (AS OF JUNE 30, 1996)                                                                   
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)                                                  


                                                                                  1988           1989             1990
                                                                          ------------   ------------    ------------ 

                                                                                                                      

Gross Revenues ..........................................................  $ 1,129,031     $ 1,211,845     $ 1,277,106
Less: General Partners' Management Fee ..................................       29,706          34,382          23,258
  Mortgage Servicing Fee ................................................       88,759          75,527          86,746
  Administrative Expenses ...............................................       63,560          60,693          73,780
  Provision for Uncollected Accounts ....................................       53,594          76,840          31,384
  Amortization of Organization and Syndication Costs ....................          405           1,974           1,975
  Offering Period Interest Expense to Limited Partners ..................          -0-             -0-             -0-
  Interest Expense ......................................................       85,230         121,043         160,574
                                                                           -----------     -----------     -----------
Net Income (GAAP Basis) distr. to Limited Partners ......................  $   807,777     $   841,386     $   899,389
                                                                           -----------     -----------     -----------

Sources of Funds - Net Income ...........................................  $   807,777     $   841,386     $   899,389
Reduction in Assets .....................................................          -0-             -0-             -0-
Increase in Liabilities .................................................          -0-         506,746         567,797
Early Withdrawal Penalties Applied to Synd. Costs .......................          -0-             -0-             -0-
Increase in Applicant's Deposit .........................................          -0-             -0-             -0-
Increase in Partners' Capital ...........................................          -0-             -0-             -0-
                                                                            -----------    -----------     -----------

Cash generated from Operations ..........................................  $   807,777     $ 1,348,132     $ 1,467,186
Use of Funds-Increase in Assets .........................................  $ 1,346,774     $ 1,282,363     $   826,609
Reduction in Liabilities ................................................      136,669             -0-             -0-
Decrease in Applicant's Deposit .........................................          -0-             -0-             -0-
Offering Period Interest Expense to Limited Partners ....................          -0-             -0-             -0-
  Investment Income Pd to LP's ..........................................      290,113         259,531         293,775
  Return of Capital to LP's .............................................          -0-             353          94,721
                                                                           -----------     -----------     -----------
Net Increase (Decrease) in Cash .........................................  $  (965,779)    $  (194,115)    $   252,081
Cash at the beginning of the year .......................................  $ 1,307,280     $   341,501     $   147,386
Cash at the end of the year .............................................  $   341,501     $   147,386     $   399,467
Income & Distribution Data for $1,000 Invested for                                                                    
  a Compounding Limited Partner  (GAAP Basis) ...........................  $        92     $        93     $        94

Income & Distribution Data for                                                                                        
  $1,000 Invested for a Limited Partner Receiving                                                                     
  Monthly Earning Distribution (GAAP Basis) .............................  $        91     $        89     $        90

Cash Distribution to Investors for $1,000 Invested                                                                    
  Income (1) ............................................................  $        35     $        29     $        31
  Capital (1) ...........................................................  $        -0-    $       -0-     $        10

Federal Income Tax Results for $1,000 Invested Capital                                                                
  for a Compounding Ltd. Partner ........................................  $        94     $       101     $        94

Federal Income Tax Results for $1,000 Invested for a Limited                                                          
  Partner Receiving Monthly Earnings Distributions ......................  $        90     $        97     $        90

<FN>                                                                                                                  
NOTES:                                                                                                                
(1)  Based upon years initial capital balances                                                                        
</FN>                                                                                                                 

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                                                TABLE III                                                                  
                             OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                                               
                                                  RMI IV                                                                   
                                          (AS OF JUNE 30, 1996)                                                            
                         (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)                                          



                                                                                        1991           1992           1993 
                                                                                ------------   ------------   ------------ 

                                                                                                                           

Gross Revenues ..........................................................        $ 1,261,526    $ 1,329,074     $ 1,186,369
Less: General Partners' Management Fee ..................................             12,644          6,306          12,315
  Mortgage Servicing Fee ................................................                -0-         44,638          71,037
  Administrative Expenses ...............................................             90,490         70,546          62,545
  Provision for Uncollected Accounts ....................................            165,786        295,550         367,250
  Amortization of Organization and Syndication Costs ....................              1,975          1,975           1,975
  Offering Period Interest Expense to Limited Partners ..................                -0-            -0-             -0-
  Interest Expense ......................................................            118,355        122,990             -0-
                                                                                 -----------    -----------     -----------
Net Income (GAAP Basis) distr. to Limited Partners ......................        $   872,276    $   787,069     $   671,247
                                                                                 -----------    -----------     -----------

Sources of Funds - Net Income ...........................................        $   872,276    $   787,069     $   671,247
Reduction in Assets .....................................................                -0-      1,548,510         607,766
Increase in Liabilities .................................................              3,732            -0-             -0-
Early Withdrawal Penalties Applied to Synd. Costs .......................              2,329            958             118
Increase in Applicant's Deposit .........................................                -0-            -0-             -0-
Increase in Partners' Capital ...........................................                -0-            -0-             -0-
                                                                                  -----------   -----------     -----------

Cash generated from Operations ..........................................        $   878,337    $ 2,336,537     $ 1,279,131
Use of Funds-Increase in Assets .........................................        $   103,300            -0-             -0-
Reduction in Liabilities ................................................                -0-      1,670,953           9,828
Decrease in Applicant's Deposit .........................................                -0-            -0-             -0-
Offering Period Interest Expense to Limited Partners ....................                -0-            -0-             -0-
  Investment Income Pd to LP's ..........................................            327,082        331,750         292,590
  Return of Capital to LP's .............................................            454,911        613,524         742,194
                                                                                 -----------    -----------     -----------
Net Increase (Decrease) in Cash .........................................        $    (6,956)   $  (279,690)    $   234,519

Cash at the beginning of the year .......................................        $   399,467    $   392,511     $   112,822
Cash at the end of the year .............................................        $   392,511    $   112,821     $   347,341
Income & Distribution Data for $1,000 Invested for                                                                         
  a Compounding Limited Partner  (GAAP Basis) ...........................        $        87    $        79     $        68

Income & Distribution Data for                                                                                             
  $1,000 Invested for a Limited Partner Receiving                                                                          
  Monthly Earning Distribution (GAAP Basis) .............................        $        84    $        76     $        66

Cash Distribution to Investors for $1,000 Invested                                                                         
  Income (1) ............................................................        $        33    $        33     $        30

  Capital (1) ...........................................................        $        45    $        61     $        75

Federal Income Tax Results for $1,000 Invested Capital                                                                     
  for a Compounding Ltd. Partner ........................................        $        87    $        90     $        82

Federal Income Tax Results for $1,000 Invested for a Limited                                                               
  Partner Receiving Monthly Earnings Distributions ......................        $        83    $        87     $        79

<FN>                                                                                                                       
NOTES:                                                                                                                     
(1)  Based upon years initial capital balances                                                                             
</FN>                                                                                                                      

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                                    TABLE III                                                                        
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                                                     
                                     RMI IV                                                                          
                              (AS OF JUNE 30, 1996)                                                                  
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)                                                 


                                                                                   1994          1995       06/30/96 
                                                                           ------------  ------------   ------------ 

                                                                                                                     

Gross Revenues ...........................................................  $   994,076   $ 1,016,152     $   479,203
Less: General Partners' Management Fee ...................................       11,687        10,959           5,224
  Mortgage Servicing Fee .................................................       88,072        73,032          27,942
  Administrative Expenses ................................................       56,734        54,789          39,063
  Provision for Uncollected Accounts .....................................      243,856       189,026          88,001
  Amortization of Organization and Syndication Costs .....................        1,975         1,241             -0-
  Offering Period Interest Expense to Limited Partners ...................          -0-           -0-             -0-
  Interest Expense .......................................................        9,585       139,708          68,478
                                                                            -----------   -----------     -----------
Net Income (GAAP Basis) distr. to Limited Partners .......................  $   582,167   $   547,397     $   250,495
                                                                            -----------   -----------     -----------

Sources of Funds - Net Income ............................................  $   582,167   $   547,397         250,495
Reduction in Assets ......................................................          -0-           -0-         270,537
Increase in Liabilities ..................................................    1,111,875       396,156             -0-
Early Withdrawal Penalties Applied to Synd. Costs ........................        1,400           -0-             -0-
Increase in Applicant's Deposit ..........................................          -0-           -0-             -0-
Increase in Partners' Capital ............................................          -0-           -0-             -0-
                                                                            -----------   -----------     -----------

Cash generated from Operations ...........................................  $ 1,695,442   $   943,553     $   521,032
Use of Funds-Increase in Assets ..........................................  $   520,319   $    74,528             -0-
Reduction in Liabilities .................................................          -0-           -0-          11,875
Decrease in Applicant's Deposit ..........................................          -0-           -0-             -0-
Offering Period Interest Expense to Limited Partners .....................          -0-           -0-             -0-
  Investment Income Pd to LP's ...........................................      261,074       233,353         102,816
  Return of Capital to LP's ..............................................      907,454       864,922         370,500
                                                                            -----------   -----------     -----------
Net Increase (Decrease) in Cash ..........................................  $     6,595   $  (229,250)         35,841

Cash at the beginning of the year ........................................  $   347,341   $   353,936         124,686
Cash at the end of the year ..............................................  $   353,936   $   124,686         160,527
Income & Distribution Data for $1,000 Invested for                                                                   
  a Compounding Limited Partner  (GAAP Basis) ............................  $        62   $        63      $       30

Income & Distribution Data for                                                                                       
  $1,000 Invested for a Limited Partner Receiving                                                                    
  Monthly Earning Distribution (GAAP Basis) ..............................  $        60   $        61      $       30

Cash Distribution to Investors for $1,000 Invested                                                                   
  Income (1) .............................................................  $        27   $        26      $       12

  Capital (1) ............................................................  $        95   $        97      $       44

Federal Income Tax Results for $1,000 Invested Capital                                                               
  for a Compounding Ltd. Partner .........................................  $        44   $        67             N/A

Federal Income Tax Results for $1,000 Invested for a Limited                                                         
  Partner Receiving Monthly Earnings Distributions .......................  $        43   $        66             N/A

<FN>                                                                                                                 
NOTES:                                                                                                               
(1)  Based upon years initial capital balances                                                                       
</FN>                                                                                                                

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                                    TABLE III                                                                        
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                                                     
                                     RMI III                                                                         
                              (AS OF JUNE 30, 1996)                                                                  
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)                                                 


                                                                                   1984           1985           1986
                                                                           ------------   ------------   ------------

                                                                                                                     

Gross Revenues ...........................................................   $  121,765     $  215,150    $   200,934
Less: General Partners' Management Fee ...................................        5,878         11,488         12,240
  Mortgage Servicing Fee .................................................        5,384          9,421         12,118
  Administrative Expenses ................................................        4,001          7,368         16,210
  Provision for Uncollected Accounts .....................................        1,228         10,420          7,612
  Amortization of Organization and Syndication Costs .....................          789          1,051          1,051
  Offering Period Interest Expense to Limited Partners ...................        4,501            -0-            -0-
                                                                             ----------     ----------    -----------
Net Income (GAAP Basis) distr. to Limited Partners .......................   $   99,984     $  175,402    $   151,703
                                                                             -----------     ----------   ---------- 

Sources of Funds - Net Income ............................................   $   99,984     $  175,402    $   151,703

Decrease in Assets .......................................................          -0-            -0-         73,219
Increase in Liabilities ..................................................       15,080            -0-            914
Increase in Applicant's Deposit ..........................................          -0-            -0-            -0-
Increase in Partners' Capital ............................................    1,429,624            -0-            -0-
                                                                            -----------     ----------    -----------

Cash generated from Operations ...........................................   $1,544,688     $  175,402    $   225,836
Use of Funds-Increase in Assets ..........................................   $1,476,990     $   47,801            -0-
Decrease in Liabilities ..................................................          -0-         14,848            -0-
Decrease in Applicant's Deposit ..........................................          -0-            -0-            -0-
Offering Period Interest Expense to Limited Partners .....................          -0-            -0-            -0-
  Investment Income Pd to LP's ...........................................       40,333         77,652         58,391
  Return of Capital to LP's ..............................................          -0-            -0-            -0-
                                                                             ----------     ----------    -----------
Net Increase (Decrease) in Cash ..........................................    $  27,365    $    35,101    $   167,445

Cash at the beginning of the year ........................................          -0-    $   27,365    $     62,466

Cash at the end of the year ..............................................    $  27,365    $   62,466    $    229,911

Income & Distribution Data for $1,000 Invested for                                                                   
  a Compounding Limited Partner  (GAAP Basis) ............................    $     123    $      119    $         97

Income & Distribution Data for                                                                                       
  $1,000 Invested for a Limited Partner Receiving                                                                    
  Monthly Earning Distribution (GAAP Basis) ..............................    $     121    $      114    $         93

Cash Distribution to Investors for $1,000 Invested                                                                   
  Income (1) .............................................................    $     27     $       52    $         37

  Capital (1) ............................................................         -0-            -0-             -0-
Federal Income Tax Results for $1,000 Invested Capital                                                               
  for a Compounding Ltd. Partner .........................................    $    124     $      120    $         96

Federal Income Tax Results for $1,000 Invested for a Limited                                                         
  Partner Receiving Monthly Earnings Distributions .......................    $    121     $      113    $         92

<FN>                                                                                                                 
NOTES:                                                                                                               
(1)  Based upon years initial capital balances                                                                       
</FN>                                                                                                                

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                                    TABLE III                                                                            
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                                                         
                                     RMI III                                                                             
                              (AS OF JUNE 30, 1996)                                                                      
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)                                                     



                                                                                     1987           1988           1989  
                                                                             ------------   ------------   ------------  

                                                                                                                         

Gross Revenues .............................................................     $ 165,951     $ 190,856       $ 211,062 
Less: General Partners' Management Fee .....................................         1,050           -0-           3,408 
  Mortgage Servicing Fee ...................................................         3,989         8,678          11,179 
  Administrative Expenses ..................................................        14,664        16,186          16,281 
  Provision for Uncollected Accounts .......................................        13,886        22,486          30,612 
  Amortization of Organization and Syndication Costs .......................           462           578             990 
  Offering Period Interest Expense to Limited Partners .....................           -0-           -0-             -0- 
                                                                                 ---------     ---------       --------- 
Net Income (GAAP Basis) distr. to Limited Partners .........................     $ 131,900     $ 142,928       $ 148,592 
                                                                                 ---------     ---------       --------- 

Sources of Funds - Net Income ..............................................     $ 131,900     $ 142,928       $ 148,592 
Decrease in Assets .........................................................        48,139           -0-             -0- 
Increase in Liabilities ....................................................         2,656         1,580             -0- 
Increase in Applicant's Deposit ............................................           -0-           -0-             -0- 
Increase in Partners' Capital ..............................................           -0-           -0-             -0- 
                                                                                 ---------     ---------       --------- 

Cash generated from Operations .............................................     $ 182,695     $ 144,508       $ 148,592 
Use of Funds-Increase in Assets ............................................           -0-     $ 290,071       $   5,767 
Decrease in Liabilities ....................................................           -0-           -0-           4,532 
Decrease in Applicant's Deposit ............................................           -0-           -0-             -0- 
Offering Period Interest Expense to Limited Partners .......................           -0-           -0-             -0- 
  Investment Income Pd to LP's .............................................        53,836        61,267          94,559 
  Return of Capital to LP's ................................................           -0-           -0-         116,362 
                                                                                 ---------     ---------       --------- 
Net Increase (Decrease) in Cash ............................................     $ 128,859     $(206,830)      $ (72,628)
Cash at the beginning of the year ..........................................     $ 229,911     $ 358,770       $ 151,940 
Cash at the end of the year ................................................     $ 358,770     $ 151,940       $  79,312 

Income & Distribution Data for $1,000 Invested for                                                                       
  a Compounding Limited Partner  (GAAP Basis) ..............................     $      78     $      81       $      83 

Income & Distribution Data for                                                                                           
  $1,000 Invested for a Limited Partner Receiving                                                                        
  Monthly Earning Distribution (GAAP Basis) ................................     $      76     $      78       $      80 

Cash Distribution to Investors for $1,000 Invested                                                                       
  Income (1) ...............................................................     $      32     $      35       $      51 

  Capital (1) ..............................................................     $     -0-     $     -0-       $      63 

Federal Income Tax Results for $1,000 Invested Capital                                                                   
  for a Compounding Ltd. Partner ...........................................     $      79     $      82       $      83 

Federal Income Tax Results for $1,000 Invested for a Limited                                                             
  Partner Receiving Monthly Earnings Distributions .........................     $      76     $      79       $      80 

<FN>                                                                                                                     
NOTES:                                                                                                                   
(1)  Based upon years initial capital balances                                                                           
</FN>                                                                                                                    

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                                    TABLE III                                                                        
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                                                     
                                     RMI III                                                                         
                              (AS OF JUNE 30, 1996)                                                                  
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)                                                 



                                                                                    1990          1991           1992
                                                                            ------------   ------------  ------------

                                                                                                                     

Gross Revenues ............................................................    $ 196,540     $ 169,921    $   177,555
Less: General Partners' Management Fee ....................................       12,833        11,454          7,915
  Mortgage Servicing Fee ..................................................        9,561         8,008          9,842
  Administrative Expenses .................................................       12,596        12,399         22,371
  Provision for Uncollected Accounts ......................................        5,828         4,040          9,977
  Amortization of Organization and Syndication Costs ......................          -0-           -0-            -0-
  Offering Period Interest Expense to Limited Partners ....................          -0-           -0-    $        57

Net Income (GAAP Basis) distr. to Limited Partners ........................    $ 155,722     $ 134,020    $   127,393
                                                                               ---------   -----------     ----------

Sources of Funds - Net Income .............................................    $ 155,722     $ 134,020    $   127,393
Decrease in Assets ........................................................      124,828       229,739            -0-
Increase in Liabilities ...................................................          -0-           735            764
Increase in Applicant's Deposit ...........................................          -0-           -0-         80,000
Increase in Partners' Capital .............................................          -0-           -0-        345,151
                                                                             -----------     ---------    -----------

Cash generated from Operations ............................................    $ 280,550     $ 364,494    $   553,308
Use of Funds-Increase in Assets ...........................................          -0-           -0-        206,184
Decrease in Liabilities ...................................................        1,279           -0-            -0-
Decrease in Applicant's Deposit ...........................................          -0-           -0-            -0-
Offering Period Interest Expense to Limited Partners ......................          -0-           -0-            -0-
  Investment Income Pd to LP's ............................................      123,195        96,512         84,590
  Return of Capital to LP's ...............................................      219,305       238,846        230,697
                                                                               ---------     ---------    -----------
Net Increase (Decrease) in Cash ...........................................    $ (63,229)    $  29,136    $    31,837

Cash at the beginning of the year .........................................    $  79,312     $  16,083    $    45,219

Cash at the end of the year ...............................................      $16,083     $  45,219    $    77,056

Income & Distribution Data for $1,000 Invested for                                                                   
  a Compounding Limited Partner  (GAAP Basis) .............................    $      94     $      90    $        88

Income & Distribution Data for                                                                                       
  $1,000 Invested for a Limited Partner Receiving                                                                    
  Monthly Earning Distribution (GAAP Basis) ...............................    $      90     $      87    $        85

Cash Distribution to Investors for $1,000 Invested                                                                   
  Income (1) ..............................................................    $      69     $      61    $        61

  Capital (1) .............................................................    $     123     $     150    $       166

Federal Income Tax Results for $1,000 Invested Capital                                                               
  for a Compounding Ltd. Partner ..........................................    $      98     $     111    $        97

Federal Income Tax Results for $1,000 Invested for a Limited                                                         
  Partner Receiving Monthly Earnings Distributions ........................    $     107     $      93    $        94

<FN>                                                                                                                 
NOTES:                                                                                                               
(1)  Based upon years initial capital balances                                                                       
</FN>                                                                                                                

                                                        [Enlarge/Download Table]

                                    TABLE III                                                                         
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                                                      
                                     RMI III                                                                          
                              (AS OF JUNE 30, 1996)                                                                   
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)                                                  


                                                                                     1993         1994           1995 
                                                                             ------------  ------------  ------------ 

                                                                                                                      

Gross Revenues .............................................................    $ 236,762     $ 165,126     $ 166,111 
Less: General Partners' Management Fee .....................................        2,993         6,065         6,399 
  Mortgage Servicing Fee ...................................................       11,917        12,068        11,267 
  Administrative Expenses ..................................................       23,634        15,883        16,954 
  Provision for Uncollected Accounts .......................................       66,633           683            43 
  Amortization of Organization and Syndication Costs .......................          -0-           -0-           -0- 
  Offering Period Interest Expense to Limited Partners .....................    $     242     $     396     $      54 
                                                                                ---------     ---------     --------- 
Net Income (GAAP Basis) distr. to Limited Partners .........................    $ 131,343     $ 130,031     $ 131,394 
                                                                                ---------     ---------     --------- 

Sources of Funds - Net Income ..............................................    $ 131,343     $ 130,031     $ 131,394 
Decrease in Assets .........................................................      128,311           -0-           -0- 
Increase in Liabilities ....................................................          -0-         3,818           324 
Increase in Applicant's Deposit ............................................       10,000           -0-           -0- 
Increase in Partners' Capital ..............................................      110,242       290,396        25,054 
                                                                                ---------     ---------     --------- 

Cash generated from Operations .............................................    $ 379,896     $ 424,245     $ 156,772 
Use of Funds-Increase in Assets ............................................          -0-       192,646        67,506 
Decrease in Liabilities ....................................................        1,099           -0-           -0- 
Decrease in Applicant's Deposit ............................................          -0-        90,000           -0- 
Offering Period Interest Expense to Limited Partners .......................          173           283            54 
  Investment Income Pd to LP's .............................................       85,197        77,734        81,250 
  Return of Capital to LP's ................................................      236,366       129,391        65,478 
                                                                                ---------     ---------     --------- 
Net Increase (Decrease) in Cash ............................................    $ 57,061      $(65,809)     $ (57,516)

Cash at the beginning of the year ..........................................    $ 77,056      $ 134,117     $  68,308 

Cash at the end of the year ................................................    $ 134,117     $  68,308     $  10,792 

Income & Distribution Data for $1,000 Invested for                                                                    
  a Compounding Limited Partner  (GAAP Basis) ..............................    $     82      $      80     $      77 

Income & Distribution Data for                                                                                        
  $1,000 Invested for a Limited Partner Receiving                                                                     
  Monthly Earning Distribution (GAAP Basis) ................................    $     79      $      77     $      74 

Cash Distribution to Investors for $1,000 Invested                                                                    
  Income (1) ...............................................................    $     55      $      53     $      48 

  Capital (1) ..............................................................    $     153     $      88     $      39 

Federal Income Tax Results for $1,000 Invested Capital                                                                
  for a Compounding Ltd. Partner ...........................................    $     116     $      81     $      71 

Federal Income Tax Results for $1,000 Invested for a Limited                                                          
  Partner Receiving Monthly Earnings Distributions .........................    $     112     $      79     $      69 

<FN>                                                                                                                  
NOTES:                                                                                                                
(1)  Based upon years initial capital balances                                                                        
</FN>                                                                                                                 

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                                    TABLE III                                
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS             
                                     RMI III                                 
                              (AS OF JUNE 30, 1996)                          
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)         


                                                                    06/30/96 
                                                                 ------------

                                                                             

Gross Revenues ................................................   $ 82,767   
Less: General Partners' Management Fee ........................      1,089   
  Mortgage Servicing Fee ......................................      4,368   
  Administrative Expenses .....................................      9,429   
  Provision for Uncollected Accounts ..........................      3,275   
  Amortization of Organization and Syndication Costs ..........      1,658   
  Offering Period Interest Expense to Limited Partners .....      $    -0-   
                                                                   --------  
Net Income (GAAP Basis) distr. to Limited Partners.............   $ 62,948   
                                                                  --------   
Sources of Funds - Net Income .................................   $ 62,948   
Decrease in Assets ............................................     60,689   
Increase in Liabilities .......................................        -0-   
Increase in Applicant's Deposit ...............................        -0-   
Increase in Partners' Capital .................................     50,000   
                                                                  --------   
Cash generated from Operations ................................   $173,637   
Use of Funds-Increase in Assets ...............................        -0-   
Decrease in Liabilities .......................................      4,266   
Decrease in Applicant's Deposit ...............................        -0-   
Offering Period Interest Expense to Limited Partners ..........        -0-   
  Investment Income Pd to LP's ................................     38,421   
  Return of Capital to LP's ...................................     13,493   
                                                                  --------   
Net Increase (Decrease) in Cash ...............................   $117,457   
Cash at the beginning of the year .............................   $ 10,792   
Cash at the end of the year ...................................   $128,249   
Income & Distribution Data for $1,000 Invested for                           
  a Compounding Limited Partner  (GAAP Basis) .................   $     36   
Income & Distribution Data for                                               
  $1,000 Invested for a Limited Partner Receiving                            
  Monthly Earning Distribution (GAAP Basis) ...................   $     35   
Cash Distribution to Investors for $1,000 Invested                           
  Income (1) ..................................................   $     23   
  Capital (1) .................................................   $      8   

Federal Income Tax Results for $1,000 Invested Capital                       
  for a Compounding Ltd. Partner ..............................        N/A   
Federal Income Tax Results for $1,000 Invested for a Limited                 
  Partner Receiving Monthly Earnings Distributions ............        N/A   

<FN>                                                                         

NOTES:                                                                       
(1)  Based upon years initial capital balances                               
</FN>                                                                        

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                                    TABLE III                                                                        
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                                                     
                                     RMI II                                                                          
                              (AS OF JUNE 30,1996)                                                                   
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)                                                 



                                                                                    1984           1985          1986
                                                                            ------------   ------------  ------------

                                                                                                                     

Gross Revenues ............................................................    $ 207,656      $ 218,404   $   210,308
Less: General Partners' Management Fee ....................................       13,621         14,712        15,480
  Mortgage Servicing Fee ..................................................        9,591         11,334        13,950
  Administrative Expenses .................................................        6,089          7,500        13,922
  Provision for Uncollected Accounts ......................................        8,282         12,056         4,132
  Amortization of Organization and Syndication Costs ......................          755            831           584
  Offering Period Interest Expense to Limited Partners ....................          211            -0-           -0-
                                                                               ---------      ---------   -----------
Net Income (GAAP Basis) distr. to Limited Partners ........................    $ 169,107      $ 171,971   $   162,240
                                                                              ----------      ---------   -----------

Sources of Funds - Net Income .............................................    $ 169,107      $ 171,971   $   162,240
Decrease in Assets ........................................................          -0-            -0-           -0-
Increase in Liabilities ...................................................          -0-            217           -0-
Increase in Applicant's Deposit ...........................................          -0-            -0-           -0-
Increase in Partners' Capital .............................................      116,982         10,320           -0-
                                                                              -----------     ---------   -----------

Cash generated from Operations ............................................    $ 286,089      $ 182,508   $   162,240
Use of Funds-Increase in Assets ...........................................    $ 221,005      $  44,365   $    10,802

Decrease in Liabilities ...................................................        1,277            -0-           340
Decrease in Applicant's Deposit ...........................................      113,968            -0-           -0-
Offering Period Interest Expense to Limited Partners ......................          -0-            -0-           -0-
  Investment Income Pd to LP's ............................................       65,285         75,311        50,444
  Return of Capital to LP's ...............................................          -0-            -0-        70,043
                                                                               ---------      ---------   -----------
Net Increase (Decrease) in Cash ...........................................    $(115,446)     $  62,832   $    30,612

Cash at the beginning of the year .........................................    $ 177,223      $  61,777   $   124,609
Cash at the end of the year ...............................................    $  61,777      $ 124,609   $   155,221

Income & Distribution Data for $1,000 Invested for                                                                   
  a Compounding Limited Partner  (GAAP Basis) .............................    $    130       $     122   $       109

Income & Distribution Data for                                                                                       
  $1,000 Invested for a Limited Partner Receiving                                                                    
  Monthly Earning Distribution (GAAP Basis) ...............................    $    123       $     116   $       104

Cash Distribution to Investors for $1,000 Invested                                                                   
  Income (1) ..............................................................    $     54       $      53   $        33

  Capital (1) .............................................................    $    -0-       $     -0-   $        46

Federal Income Tax Results for $1,000 Invested Capital                                                               
  for a Compounding Ltd. Partner ..........................................    $    130       $     122   $       109

Federal Income Tax Results for $1,000 Invested for a Limited                                                         
  Partner Receiving Monthly Earnings Distributions ........................    $    123       $     116   $       104

<FN>                                                                                                                 
NOTES:                                                                                                               
(1)  Based upon years initial capital balances                                                                       
</FN>                                                                                                                

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                                    TABLE III                                                                                
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                                                             
                                     RMI II                                                                                  
                              (AS OF JUNE 30, 1996)                                                                          
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)                                                         


                                                                                         1987         1988            1989   
                                                                                     ------------  ------------  ------------

                                                                                                                             

Gross Revenues .....................................................................   $ 208,807    $ 232,361     $   190,156
Less: General Partners' Management Fee .............................................      16,238       16,619          14,306
  Mortgage Servicing Fee ...........................................................      16,558       17,876          10,740
  Administrative Expenses ..........................................................      16,116       16,759          10,208
  Provision for Uncollected Accounts ...............................................         -0-       19,946           4,666
  Amortization of Organization and Syndication Costs ...............................         -0-          -0-             -0-
  Offering Period Interest Expense to Limited Partners .............................         -0-          -0-             -0-
                                                                                       ---------    ---------     -----------
Net Income (GAAP Basis) distr. to Limited Partners .................................   $ 159,895    $ 161,161     $   150,236
                                                                                      -----------   ---------     -----------

Sources of Funds - Net Income ......................................................   $ 159,895    $ 161,161     $   150,236
Decrease in Assets .................................................................      55,985          -0-         258,519
Increase in Liabilities ............................................................         -0-        6,421             -0-
Increase in Applicant's Deposit ....................................................         -0-          -0-             -0-
Increase in Partners' Capital ......................................................         -0-          -0-             -0-
                                                                                      -----------   ---------     -----------

Cash generated from Operations .....................................................   $ 215,880    $ 167,582     $   408,755
Use of Funds-Increase in Assets ....................................................         -0-    $ 123,504             -0-
Decrease in Liabilities ............................................................       8,607          -0-           7,854
Decrease in Applicant's Deposit ....................................................         -0-          -0-             -0-
Offering Period Interest Expense to Limited Partners ...............................         -0-          -0-             -0-
  Investment Income Pd to LP's .....................................................      45,516       66,746          70,915
  Return of Capital to LP's ........................................................         -0-      264,015         327,020
                                                                                       ---------    ---------     -----------
Net Increase (Decrease) in Cash ....................................................   $ 161,757    $(286,683)    $     2,966

Cash at the beginning of the year ..................................................   $ 155,221    $ 316,978     $    30,295
Cash at the end of the year ........................................................   $ 316,978    $  30,295     $    33,261
Income & Distribution Data for $1,000 Invested for                                                                           
  a Compounding Limited Partner  (GAAP Basis) ......................................   $     100    $     100     $       109

Income & Distribution Data for                                                                                               
  $1,000 Invested for a Limited Partner Receiving                                                                            
  Monthly Earning Distribution (GAAP Basis) ........................................   $      97    $      96     $       104

Cash Distribution to Investors for $1,000 Invested                                                                           
  Income (1) .......................................................................   $      29    $      40     $        47
  Capital (1) ......................................................................   $     -0-    $     156     $       215

Federal Income Tax Results for $1,000 Invested Capital                                                                       
  for a Compounding Ltd. Partner ...................................................   $     102    $     115     $       109

Federal Income Tax Results for $1,000 Invested for a Limited                                                                 
  Partner Receiving Monthly Earnings Distributions .................................   $     97     $     110     $       106

<FN>                                                                                                                         
NOTES:                                                                                                                       
(1)  Based upon years initial capital balances                                                                               
</FN>                                                                                                                        

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                                    TABLE III                                                                              
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                                                           
                                     RMI II                                                                                
                              (AS OF JUNE 30, 1996)                                                                        
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)                                                       


                                                                                         1990            1991          1992
                                                                                 ------------    ------------  ------------

                                                                                                                           

Gross Revenues .............................................................  $ 131,811          $  93,683       $  892,67 

Less: General Partners' Management Fee .....................................     11,221                -0-             -0- 
  Mortgage Servicing Fee ...................................................      5,395                -0-           2,156 
  Administrative Expenses ..................................................     10,146             10,950          12,948 
  Provision for Uncollected Accounts .......................................      5,434             57,690          16,886 
  Amortization of Organization and Syndication Costs .......................        -0-                -0-             -0- 
  Offering Period Interest Expense to Limited Partners .....................        -0-                -0-             -0- 
                                                                              ---------          ---------       ----------
Net Income (GAAP Basis) distr. to Limited Partners .........................  $  99,615          $  25,043       $  60,688 

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

Sources of Funds - Net Income ..............................................  $ 99,615         $    25,043       $  60,688 

Decrease in Assets .........................................................     58,107             69,363             -0- 
Increase in Liabilities ....................................................        -0-             11,604             -0- 
Increase in Applicant's Deposit ............................................        -0-                -0-             -0- 
Increase in Partners' Capital ..............................................        -0-                -0-             -0- 
                                                                             ----------          ---------       ----------

Cash generated from Operations .............................................  $ 157,722          $ 106,010       $  60,688 

Use of Funds-Increase in Assets ............................................        -0-                -0-          11,908 
Decrease in Liabilities ....................................................        845                -0-           9,935 
Decrease in Applicant's Deposit ............................................        -0-                -0-             -0- 
Offering Period Interest Expense to Limited Partners .......................        -0-                -0-             -0- 
  Investment Income Pd to LP's .............................................     40,172             27,856           5,765 
  Return of Capital to LP's ................................................    130,796             54,362          66,267 
                                                                              ---------          ---------       ----------
Net Increase (Decrease) in Cash ............................................  $ (14,091)         $  23,792       $ (33,187)
Cash at the beginning of the year ..........................................  $  33,261          $  19,170       $  42,962 

Cash at the end of the year ................................................  $  19,170          $  42,962       $   9,775 

Income & Distribution Data for $1,000 Invested for                                                                         
  a Compounding Limited Partner  (GAAP Basis) ..............................  $      83          $      20       $      53 

Income & Distribution Data for                                                                                             
  $1,000 Invested for a Limited Partner Receiving                                                                          
  Monthly Earning Distribution (GAAP Basis) ................................  $      80          $      20       $      53 

Cash Distribution to Investors for $1,000 Invested                                                                         
  Income (1) ...............................................................  $      32          $      23       $       5 

  Capital (1) ..............................................................  $     103          $      45       $      58 

Federal Income Tax Results for $1,000 Invested Capital                                                                     
  for a Compounding Ltd. Partner ...........................................  $      88          $      15       $      67 

Federal Income Tax Results for $1,000 Invested for a Limited                                                               
  Partner Receiving Monthly Earnings Distributions .........................  $      85          $      16       $      67 

<FN>                                                                                                                       
NOTES:                                                                                                                     
(1)  Based upon years initial capital balances                                                                             
</FN>                                                                                                                      

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                                    TABLE III                                                                              
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                                                           
                                     RMI II                                                                                
                              (AS OF JUNE 30, 1996)                                                                        
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)                                                       



                                                                                  1993              1994               1995
                                                                                 ------------    ------------  ------------

                                                                                                                           

Gross Revenues ...........................................................  $ 130,958          $ 102,122        $   100,734
Less: General Partners' Management Fee ...................................      1,523              3,533              9,858
  Mortgage Servicing Fee .................................................      8,626              7,131              6,124
  Administrative Expenses ................................................     10,950             14,130             10,232
  Provision for Uncollected Accounts .....................................     68,644             33,851             27,874
  Amortization of Organization and Syndication Costs .....................        -0-                -0-                -0-
  Offering Period Interest Expense to Limited Partners ...................        -0-                -0-                -0-
                                                                            ---------          ---------        -----------
Net Income (GAAP Basis) distr. to Limited Partners .......................  $  41,215          $  43,477        $    46,646
                                                                           -----------         ---------        -----------

Sources of Funds - Net Income ............................................  $  41,215          $  43,477        $    46,646
Decrease in Assets .......................................................    213,667                -0-            121,620
Increase in Liabilities ..................................................        -0-                535              4,723
Increase in Applicant's Deposit ..........................................        -0-                -0-                -0-
Increase in Partners' Capital ............................................        -0-                -0-                -0-
                                                                            ----------         ---------        -----------

Cash generated from Operations ...........................................  $ 254,882          $  44,012        $   172,989
Use of Funds-Increase in Assets ..........................................        -0-          $  99,062               -0- 
Decrease in Liabilities ..................................................        355                -0-               -0- 
Decrease in Applicant's Deposit ..........................................        -0-                -0-               -0- 
Offering Period Interest Expense to Limited Partners .....................        -0-                -0-               -0- 
  Investment Income Pd to LP's ...........................................     16,423             19,630             21,689
  Return of Capital to LP's ..............................................     78,361             87,614            100,673
                                                                            ---------          ---------        -----------
 Net Increase (Decrease) in Cash .........................................  $ 159,743          $(162,294)       $    50,627

Cash at the beginning of the year ........................................  $   9,775          $ 169,518        $     7,224

Cash at the end of the year ..............................................  $ 169,518          $   7,224        $    57,851

Income & Distribution Data for $1,000 Invested for                                                                         
  a Compounding Limited Partner  (GAAP Basis) ............................  $      37          $      41        $        48

Income & Distribution Data for                                                                                             
  $1,000 Invested for a Limited Partner Receiving                                                                          
  Monthly Earning Distribution (GAAP Basis) .............................. $       37          $      41        $        47

Cash Distribution to Investors for $1,000 Invested                                                                         
  Income (1) ............................................................. $       15          $      18        $        21

  Capital (1) ............................................................ $       69          $      81        $        99

Federal Income Tax Results for $1,000 Invested Capital                                                                     
  for a Compounding Ltd. Partner ......................................... $      100          $     (6)        $        77

Federal Income Tax Results for $1,000 Invested for a Limited                                                               
  Partner Receiving Monthly Earnings Distributions .......................  $      98          $     (6)        $        75

<FN>                                                                                                                       
NOTES:                                                                                                                     
(1)  Based upon years initial capital balances                                                                             
</FN>                                                                                                                      

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                                    TABLE III                                   
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                
                                     RMI II                                     
                              (AS OF JUNE 30,1996)                              
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)            



                                                                      06/30/96  
                                                                    ----------- 
                                                                                

Gross Revenues ...................................................     $ 46,905 
Less: General Partners' Management Fee ...........................        1,557 
  Mortgage Servicing Fee .........................................        1,921 
  Administrative Expenses ........................................        8,664 
  Provision for Uncollected Accounts .............................       10,888 
  Amortization of Organization and Syndication Costs .............          -0- 
  Offering Period Interest Expense to Limited Partners ...........          -0- 
                                                                       -------- 
Net Income (GAAP Basis) distr. to Limited Partners ...............     $ 23,875 
                                                                       -------- 
Sources of Funds - Net Income ....................................     $ 23,875 
Decrease in Assets ...............................................          -0- 
Increase in Liabilities ..........................................          -0- 
Increase in Applicant's Deposit ..................................          -0- 
Increase in Partners' Capital ....................................          -0- 
                                                                       -------- 
Cash generated from Operations ...................................     $ 23,875 
Use of Funds-Increase in Assets ..................................     $  7,068 
Decrease in Liabilities ..........................................        6,572 
Decrease in Applicant's Deposit ..................................          -0- 
Offering Period Interest Expense to Limited Partners .............          -0- 
  Investment Income Pd to LP's ...................................       10,465 
  Return of Capital to LP's ......................................       42,291 
                                                                       -------- 
Net Increase (Decrease) in Cash ..................................     $(42,521)
Cash at the beginning of the year ................................     $ 57,851 
Cash at the end of the year ......................................     $ 15,330 
Income & Distribution Data for $1,000 Invested for                              
  a Compounding Limited Partner  (GAAP Basis) ....................     $     26 
Income & Distribution Data for                                                  
  $1,000 Invested for a Limited Partner Receiving                               
  Monthly Earning Distribution (GAAP Basis) ......................     $     26 
Cash Distribution to Investors for $1,000 Invested                              
  Income (1) .....................................................     $      11
  Capital (1) ....................................................     $      45
Federal Income Tax Results for $1,000 Invested Capital                          
  for a Compounding Ltd. Partner .................................          N/A 
Federal Income Tax Results for $1,000 Invested for a Limited                    
  Partner Receiving Monthly Earnings Distributions ...............          N/A 

<FN>                                                                            
NOTES:                                                                          
(1)  Based upon years initial capital balances                                  
</FN>                                                                           

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                                    TABLE III                                                                         
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                                                      
                                       RMI                                                                            
                              (AS OF JUNE 30, 1996)                                                                   
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)                                                  


                                                                                    1984           1985           1986
                                                                            ------------   ------------   ------------

                                                                                                                      

Gross Revenues ............................................................    $ 188,289       $ 205,116   $   206,710
Less: General Partners' Management Fee ....................................        1,539           1,434         1,491
  Mortgage Servicing Fee ..................................................       10,735          11,808        13,240
  Administrative Expenses .................................................        2,734           8,476        15,253
  Provision for Uncollected Accounts ......................................       22,278          51,508        15,498
  Amortization of Organization and Syndication Costs ......................          -0-             -0-           -0-
  Offering Period Interest Expense to Limited Partners ....................          -0-             -0-           -0-
                                                                               ---------       ---------   -----------
Net Income (GAAP Basis) distr. to Limited Partners ........................    $ 151,003       $ 131,890   $   161,228
                                                                             -----------       ---------   -----------

Sources of Funds - Net Income .............................................    $ 151,003       $ 131,890   $   161,228
Decrease in Assets ........................................................          -0-             -0-           -0-
Increase in Liabilities ...................................................          -0-             591         4,677
Increase in Applicant's Deposit ...........................................          -0-             -0-           -0-
Increase in Partners' Capital .............................................          -0-             -0-           -0-
                                                                             -----------       ---------   -----------

Cash generated from Operations ............................................    $ 151,003       $ 132,481   $   165,905
Use of Funds-Increase in Assets ...........................................    $ 209,076       $   8,249   $    42,076
Decrease in Liabilities ...................................................          952             -0-           -0-
Decrease in Applicant's Deposit ...........................................          -0-             -0-           -0-
Offering Period Interest Expense to Limited Partners ......................          -0-             -0-           -0-
  Investment Income Pd to LP's ............................................        2,205          15,746        14,701
  Return of Capital to LP's ...............................................       53,363         100,073        76,449
                                                                               ---------       ---------   -----------
Net Increase (Decrease) in Cash ...........................................    $(114,593)      $   8,413   $    32,679
Cash at the beginning of the year .........................................    $ 187,939       $  73,346   $    81,759
Cash at the end of the year ...............................................    $  73,346       $  81,759   $   114,438
Income & Distribution Data for $1,000 Invested for                                                                    
  a Compounding Limited Partner  (GAAP Basis) .............................    $     107       $      87   $       105

Cash Distribution to Investors for $1,000 Invested                                                                    
  Income (1) ..............................................................    $       2       $      10   $         9
  Capital (1) .............................................................    $      37       $      65   $        49
 Federal Income Tax Results for $1,000 Invested Capital                                                               
  for a Compounding Ltd. Partner ..........................................    $     107       $      87   $       105

<FN>                                                                                                                  
NOTES:                                                                                                                
(1)  Based upon years initial capital balances                                                                        
</FN>                                                                                                                 

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                                    TABLE III                                                                       
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                                                    
                                       RMI                                                                          
                              (AS OF JUNE 30, 1996)                                                                 
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)                                                



                                                                                  1987          1988           1989 
                                                                          ------------  ------------   ------------ 

                                                                                                                    

Gross Revenues ..........................................................    $ 207,133     $ 217,668      $ 209,477 
Less: General Partners' Management Fee ..................................        9,278        12,359         12,504 
  Mortgage Servicing Fee ................................................       13,099        14,742         12,654 
  Administrative Expenses ...............................................       15,674        15,015         12,971 
  Provision for Uncollected Accounts ....................................       16,734        23,499          7,993 
  Amortization of Organization and Syndication Costs ....................          -0-           -0-            -0- 
  Offering Period Interest Expense to Limited Partners ..................          -0-           -0-            -0- 
                                                                             ---------     ---------      --------- 
Net Income (GAAP Basis) distr. to Limited Partners ......................    $ 152,348     $ 152,053      $ 163,355 
                                                                             ---------     ---------      --------- 
Sources of Funds - Net Income ...........................................    $ 152,348     $ 152,053      $ 163,355 
Decrease in Assets ......................................................       34,814           -0-            -0- 
Increase in Liabilities .................................................          -0-         4,608            -0- 
Increase in Applicant's Deposit .........................................          -0-           -0-            -0- 
Increase in Partners' Capital ...........................................          -0-           -0-            -0- 
                                                                             ---------      ---------      ---------
Cash generated from Operations ..........................................    $ 187,162     $ 156,661      $ 163,355 
Use of Funds-Increase in Assets .........................................          -0-     $  85,795      $  86,738 
Decrease in Liabilities .................................................        1,142           -0-          6,916 
Decrease in Applicant's Deposit .........................................          -0-           -0-            -0- 
Offering Period Interest Expense to Limited Partners ....................          -0-           -0-            -0- 
  Investment Income Pd to LP's ..........................................       16,331        25,710         37,745 
  Return of Capital to LP's .............................................      112,317       113,029        119,469 
                                                                             ---------     ---------      --------- 
Net Increase (Decrease) in Cash .........................................    $  57,372     $ (67,873)     $ (87,513)

Cash at the beginning of the year .......................................    $ 114,438     $ 171,810      $ 103,937 
Cash at the end of the year .............................................    $ 171,810     $ 103,937      $  16,424 
Income & Distribution Data for $1,000 Invested for                                                                  
  a Compounding Limited Partner  (GAAP Basis) ...........................    $      96     $      95      $     101 
Cash Distribution to Investors for $1,000 Invested                                                                  
  Income (1) ............................................................    $      10     $      16      $      23 
  Capital (1) ...........................................................    $      69     $      69      $      72 
Federal Income Tax Results for $1,000 Invested Capital                                                              
  for a Compounding Ltd. Partner ........................................    $      96     $      95      $     101 

<FN>                                                                                                                
NOTES:                                                                                                              
(1)  Based upon years initial capital balances                                                                      
</FN>                                                                                                               

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                                    TABLE III                                                                         
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                                                      
                                       RMI                                                                            
                              (AS OF JUNE 30, 1996)                                                                   
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)                                                  


                                                                                    1990          1991            1992
                                                                            ------------  ------------    ------------

                                                                                                                      

Gross Revenues ............................................................    $ 187,920      $ 152,401    $   143,619
Less: General Partners' Management Fee ....................................       12,398         11,129            -0-
  Mortgage Servicing Fee ..................................................       10,551            -0-          3,562
  Administrative Expenses .................................................       10,999         12,481         20,051
  Provision for Uncollected Accounts ......................................        5,681         56,012         52,860
  Amortization of Organization and Syndication Costs ......................          -0-            -0-            -0-
  Offering Period Interest Expense to Limited Partners ....................          -0-            -0-            -0-
                                                                               ---------      ---------    -----------
Net Income (GAAP Basis) distr. to Limited Partners ........................    $ 148,291      $  72,779    $    67,146
                                                                               ---------      ---------    -----------
Sources of Funds - Net Income .............................................    $ 148,291      $  72,779    $    67,146
Decrease in Assets ........................................................      226,219            -0-            -0-
Increase in Liabilities ...................................................          -0-         11,215            -0-
Increase in Applicant's Deposit ...........................................          -0-            -0-            -0-
Increase in Partners' Capital .............................................          -0-            -0-            -0-
                                                                             -----------      ---------    -----------
Cash generated from Operations ............................................    $ 374,510      $  83,994    $    67,146
Use of Funds-Increase in Assets ...........................................          -0-      $  67,263    $    51,385
Decrease in Liabilities ...................................................        2,500            -0-         10,129
Decrease in Applicant's Deposit ...........................................          -0-            -0-            -0-
Offering Period Interest Expense to Limited Partners ......................          -0-            -0-            -0-
  Investment Income Pd to LP's ............................................       51,260         25,014          7,600
  Return of Capital to LP's ...............................................      149,425         93,506         66,017
                                                                               ---------      ---------    -----------
Net Increase (Decrease) in Cash ...........................................    $ 171,325      $(101,789)   $  (67,985)
Cash at the beginning of the year .........................................    $  16,424      $ 187,749    $    85,960
Cash at the end of the year ...............................................    $ 187,749      $  85,960    $    17,975
Income & Distribution Data for $1,000 Invested for                                                                    
  a Compounding Limited Partner  (GAAP Basis) .............................    $      92      $      45    $        43
Cash Distribution to Investors for $1,000 Invested                                                                    
  Income (1) ..............................................................    $      31      $      15    $         5
  Capital (1) .............................................................    $      90      $      58    $        42
Federal Income Tax Results for $1,000 Invested Capital                                                                
  for a Compounding Ltd. Partner ..........................................    $      98      $      40    $        77

<FN>                                                                                                                  
NOTES:                                                                                                                
(1)  Based upon years initial capital balances                                                                        
</FN>                                                                                                                 

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                                    TABLE III                                                                         
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                                                      
                                       RMI                                                                            
                              (AS OF JUNE 30, 1996)                                                                   
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)                                                  



                                                                                   1993            1994           1995
                                                                           ------------    ------------   ------------

                                                                                                                      

Gross Revenues ...........................................................    $ 214,168       $ 151,237    $   153,757
Less: General Partners' Management Fee ...................................        1,942           3,819          5,597
  Mortgage Servicing Fee .................................................       12,231           9,961          9,579
  Administrative Expenses ................................................       31,039          23,433         11,724
  Provision for Uncollected Accounts .....................................       96,493          37,822         48,471
  Amortization of Organization and Syndication Costs .....................          -0-             -0-            -0-
  Offering Period Interest Expense to Limited Partners ...................          -0-             -0-            -0-
                                                                              ---------       ---------    -----------
Net Income (GAAP Basis) distr. to Limited Partners .......................    $  72,463       $  76,202    $    78,386
                                                                              -----------      ---------   -----------
Sources of Funds - Net Income ............................................    $  72,463       $  76,202    $    78,386
Decrease in Assets .......................................................      207,128             -0-         41,320
Increase in Liabilities ..................................................        9,332             -0-             16
Increase in Applicant's Deposit ..........................................          -0-             -0-            -0-
Increase in Partners' Capital ............................................          -0-             -0-            -0-
                                                                            -----------       ---------    -----------
Cash generated from Operations ...........................................    $ 288,923       $  76,202    $   119,722
Use of Funds-Increase in Assets ..........................................          -0-       $  75,654            -0-
Decrease in Liabilities ..................................................          -0-           9,152            -0-
Decrease in Applicant's Deposit ..........................................          -0-             -0-            -0-
Offering Period Interest Expense to Limited Partners .....................          -0-             -0-            -0-
  Investment Income Pd to LP's ...........................................       18,867          28,658         28,580
  Return of Capital to LP's ..............................................       78,090          69,512        124,513
                                                                              ---------       ---------    -----------
 Net Increase (Decrease) in Cash .........................................    $ 191,966       $(106,774)   $  (33,371)
Cash at the beginning of the year ........................................    $  17,975       $ 209,941    $   103,167
Cash at the end of the year ..............................................    $ 209,941       $ 103,167    $    69,796
Income & Distribution Data for $1,000 Invested for                                                                    
  a Compounding Limited Partner  (GAAP Basis) ............................    $      47       $     50     $        53
Cash Distribution to Investors for $1,000 Invested                                                                    
  Income (1) .............................................................    $      12       $     19     $        19
  Capital (1) ............................................................    $      50       $     45     $        82
Federal Income Tax Results for $1,000 Invested Capital                                                                
  for a Compounding Ltd. Partner .........................................    $     109       $   (18)     $        80

<FN>                                                                                                                  
NOTES:                                                                                                                
(1)  Based upon years initial capital balances                                                                        
</FN>                                                                                                                 

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                                    TABLE III                                
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS             
                                       RMI                                   
                              (AS OF JUNE 30, 1996)                          
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)         



                                                                    06/30/96 
                                                                 ------------
                                                                             

Gross Revenues ............................................     $61,611      
Less: General Partners' Management Fee ....................       1,795      
  Mortgage Servicing Fee ..................................       3,208      
  Administrative Expenses .................................       9,526      
  Provision for Uncollected Accounts ......................       9,087      
  Amortization of Organization and Syndication Costs ......         -0-      
  Offering Period Interest Expense to Limited Partners ....         -0-      
                                                                   ----      
Net Income (GAAP Basis) distr. to Limited Partners ........     $37,995      
                                                                   ----      
Sources of Funds - Net Income .............................     $37,995      
Decrease in Assets ........................................         -0-      
Increase in Liabilities ...................................         -0-      
Increase in Applicant's Deposit ...........................         -0-      
Increase in Partners' Capital .............................         -0-      
                                                                   ----      
Cash generated from Operations ............................     $37,995      
Use of Funds-Increase in Assets ...........................     $31,251      
Decrease in Liabilities ...................................       1,865      
Decrease in Applicant's Deposit ...........................         -0-      
Offering Period Interest Expense to Limited Partners ......         -0-      
  Investment Income Pd to LP's ............................      11,936      
  Return of Capital to LP's ...............................      46,578      
                                                                   ----      
Net Increase (Decrease) in Cash ...........................     $(53,635)    
Cash at the beginning of the year .........................     $69,796      
Cash at the end of the year ...............................     $16,161      
Income & Distribution Data for $1,000 Invested for                           
  a Compounding Limited Partner  (GAAP Basis) .............     $    27      
Cash Distribution to Investors for $1,000 Invested                           
  Income (1) ..............................................     $     8      
  Capital (1) .............................................     $    32      
Federal Income Tax Results for $1,000 Invested Capital                       
  for a Compounding Ltd. Partner ..........................         N/A      

<FN>                                                                         
NOTES:                                                                       
(1)  Based upon years initial capital balances                               
</FN>                                                                        

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                                    TABLE III                                                                          
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                                                       
                               CMI (CONSOLIDATED)                                                                      
                              (AS OF JUNE 30, 1996)                                                                    
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)                                                   


                                                                                     1984           1985           1986
                                                                             ------------   ------------   ------------

                                                                                                                       

Gross Revenues ..........................................................     $   592,783    $   567,307    $   515,812
Less: General Partners' Management Fee ..................................          28,027          5,366          5,336
  Mortgage Servicing Fee ................................................          28,169         33,756         42,630
  Administrative Expenses ...............................................          28,900         34,833         58,759
  Provision for Uncollected Accounts ....................................          77,966        155,408        171,844
  Amortization of Organization and Syndication Costs ....................           2,123          1,132          1,877
  Offering Period Interest Expense to Limited Partners ..................           3,529          2,997          1,849
                                                                              -----------    -----------    -----------
Net Income (GAAP Basis) distr. to Limited Partners ......................     $   424,069    $   333,815    $   233,518
                                                                              -----------    -----------    -----------
Sources of Funds - Net Income ...........................................     $   424,069    $   333,815    $   233,518
Decrease in Assets ......................................................         274,181        873,340        919,823
Increase in Liabilities .................................................           1,323          3,129          6,384
Increase in Applicant's Deposit .........................................          42,433            -0-            -0-
Increase in Partners' Capital ...........................................         233,005        228,018        223,959
                                                                              -----------    -----------    -----------
Cash generated from Operations ..........................................     $   975,011    $ 1,438,302    $ 1,383,684
Use of Funds-Increase in Assets .........................................             -0-            -0-            -0-
Decrease in Liabilities .................................................             -0-            -0-            -0-
Decrease in Applicant's Deposit .........................................             -0-         44,725         15,712
Offering Period Interest Expense to Limited Partners ....................             -0-            -0-            -0-
  Investment Income Pd to LP's ..........................................          95,851        123,166        125,074
  Return of Capital to LP's .............................................         969,496      1,521,375      1,171,920
                                                                              -----------    -----------    -----------
Net Increase (Decrease) in Cash .........................................     $   (90,336)   $  (250,964)   $    70,979
Cash at the beginning of the year .......................................     $   432,118    $   341,782    $    90,818
Cash at the end of the year .............................................     $   341,782    $    90,818    $   161,797
Income & Distribution Data for $1,000 Invested Net Income                                                              
  CMI (Original Portfolio)  (GAAP Basis) ................................     $        59    $        47    $        32
Net Income CMI II (New Portfolio of CMI)  (GAAP Basis) ..................     $       128    $       122    $       108
Cash Distribution to Investors for $1,000 Invested:  CMI                                                               
  (Original Portfolio)                                                                                                 
    Income (1) ..........................................................     $        13    $        18    $        23
    Capital (1) .........................................................     $       130    $       224    $       216
 CMI  II (New Portfolio of CMI)                                                                                        
    Income (1) ..........................................................             -0-            -0-            -0-
    Capital (1) .........................................................             -0-            -0-            -0-
Federal Income Tax Results for $1,000 Invested Capital                                                                 
  Ordinary Income from Operations CMI (Original Portfolio) ..............     $        59    $        47    $        32
  Ordinary Income from Operations CMI II (New Portfolio of CMI ..........     $       130    $       123    $       110

<FN>                                                                                                                   
NOTES:                                                                                                                 
(1)  Based upon years initial capital balances                                                                         
(2)  CMI II (New Portfolio of CMI I) commenced operation on January 1, 1984                                            
</FN>                                                                                                                  

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                                    TABLE III                                                                         
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                                                      
                               CMI (CONSOLIDATED)                                                                     
                              (AS OF JUNE 30, 1996)                                                                   
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)                                                  



                                                                                     1987           1988          1989
                                                                             ------------   ------------  ------------

                                                                                                                      

Gross Revenues ...........................................................    $   454,722    $   327,040   $   355,951
Less: General Partners' Management Fee ...................................          6,884          7,631         8,223
  Mortgage Servicing Fee .................................................         26,258         25,206         9,007
  Administrative Expenses ................................................         45,785         40,102        27,002
  Provision for Uncollected Accounts .....................................        140,639         75,443       170,176
  Amortization of Organization and Syndication Costs .....................            800            793           -0-
  Offering Period Interest Expense to Limited Partners ...................            255            -0-           -0-
                                                                              -----------    -----------   -----------
Net Income (GAAP Basis) distr. to Limited Partners .......................    $   234,101    $   177,865   $   141,543
                                                                              -----------    -----------   -----------
Sources of Funds - Net Income ............................................    $   234,101    $   177,865   $   141,543
Decrease in Assets .......................................................        977,963        963,036       423,042
Increase in Liabilities ..................................................            -0-          4,680           -0-
Increase in Applicant's Deposit ..........................................            -0-            -0-           -0-
Increase in Partners' Capital ............................................         70,223              1           -0-
                                                                              -----------    -----------   -----------
Cash generated from Operations ...........................................    $ 1,282,287    $ 1,145,582   $   564,585
Use of Funds-Increase in Assets ..........................................            -0-            -0-   -0-        
Decrease in Liabilities ..................................................          9,039            -0-         6,543
Decrease in Applicant's Deposit ..........................................         56,068            -0-   -0-        
Offering Period Interest Expense to Limited Partners .....................            -0-            -0-   -0-        
  Investment Income Pd to LP's ...........................................         50,657         59,413        33,471
  Return of Capital to LP's ..............................................      1,249,210        765,486       604,010
                                                                              -----------    -----------   -----------
Net Increase (Decrease) in Cash ..........................................    $   (82,687)   $   320,683   $  (79,439)
Cash at the beginning of the year ........................................    $   161,797    $    79,110   $   399,793
Cash at the end of the year ..............................................    $    79,110    $   399,793   $   320,354
Income & Distribution Data for $1,000 Invested Net Income                                                             
  CMI (Original Portfolio)  (GAAP Basis) .................................    $        37    $        28   $        18
Net Income CMI II (New Portfolio of CMI)  (GAAP Basis) ...................    $       100    $        98   $        92
Cash Distribution to Investors for $1,000 Invested:  CMI                                                              
  (Original Portfolio)                                                                                                
    Income (1) ...........................................................    $        12    $        17   $        10
    Capital (1) ..........................................................    $       292    $       243   $       243
  CMI  II (New Portfolio of CMI)                                                                                      
    Income (1) ...........................................................            -0-    $         6   $         9
    Capital (1) ..........................................................            -0-    $         6   $        21
Federal Income Tax Results for $1,000 Invested Capital                                                                
  Ordinary Income from Operations CMI (Original Portfolio) ...............    $        37    $        28   $        19
  Ordinary Income from Operations CMI II (New Portfolio of CMI ...........    $       102    $       101   $        96

<FN>                                                                                                                  
NOTES:                                                                                                                
(1)  Based upon years initial capital balances                                                                        
(2)  CMI II (New Portfolio of CMI I) commenced operation on January 1, 1984                                           
</FN>                                                                                                                 

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                                    TABLE III                                                                          
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                                                       
                               CMI (CONSOLIDATED)                                                                      
                              (AS OF JUNE 30, 1996)                                                                    
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)                                                   


                                                                                     1990           1991           1992
                                                                             ------------   ------------   ------------
                                                                                                                       

Gross Revenues ............................................................     $ 294,299      $ 310,196    $   279,365
Less: General Partners' Management Fee ....................................         9,821         18,751         17,149
  Mortgage Servicing Fee ..................................................        12,034         18,904         21,171
  Administrative Expenses .................................................        22,840         23,084         24,763
  Provision for Uncollected Accounts.......................................       129,980         80,123         32,831
  Amortization of Organization and Syndication Costs ......................           -0-            -0-            -0-
  Offering Period Interest Expense to Limited Partners ....................           -0-            -0-            -0-
                                                                                ---------      ---------    -----------
Net Income (GAAP Basis) distr. to Limited Partners ........................     $ 119,624      $ 169,334    $   183,451
                                                                              -----------      ---------    -----------

Sources of Funds - Net Income .............................................     $ 119,624      $ 169,334    $   183,451
Decrease in Assets ........................................................       287,077        298,408            -0-
Increase in Liabilities ...................................................           -0-         14,202            -0-
Increase in Applicant's Deposit ...........................................           -0-            -0-            -0-
Increase in Partners' Capital .............................................           -0-            -0-            -0-
                                                                             -----------       ---------    -----------

Cash generated from Operations ............................................     $ 406,701      $ 481,944    $   183,451
Use of Funds-Increase in Assets ...........................................           -0-            -0-         74,593
Decrease in Liabilities ...................................................         1,718            -0-          2,981
Decrease in Applicant's Deposit ...........................................           -0-            -0-            -0-
Offering Period Interest Expense to Limited Partners ......................           -0-            -0-            -0-
  Investment Income Pd to LP's ............................................        28,704         46,573         48,497
  Return of Capital to LP's ...............................................       477,549        356,864        259,493
                                                                                ---------      ---------    -----------
Net Increase (Decrease) in Cash ...........................................     $(101,270)     $  78,507    $ (202,113)
Cash at the beginning of the year .........................................     $ 320,354      $ 219,084    $   297,591
Cash at the end of the year ...............................................     $ 219,084      $ 297,591    $    95,478
Income & Distribution Data for $1,000 Invested Net Income                                                              
  CMI (Original Portfolio)  (GAAP Basis) ..................................     $       7      $      58    $        82
Net Income CMI II (New Portfolio of CMI)  (GAAP Basis) ....................     $      93      $      81    $        82
Cash Distribution to Investors for $1,000 Invested:  CMI                                                               
  (Original Portfolio)                                                                                                 
    Income (1) ............................................................     $       3      $      18    $        18
    Capital (1) ...........................................................     $     249      $     204    $       142
  CMI  II (New Portfolio of CMI)                                                                                       
    Income (1) ............................................................     $      20      $      18    $        22
    Capital (1) ...........................................................     $      20      $      63    $        81
Federal Income Tax Results for $1,000 Invested Capital                                                                 
  Ordinary Income from Operations CMI (Original Portfolio) ................     $       7      $      105   $        75
  Ordinary Income from Operations CMI II (New Portfolio of CMI ............     $     100      $      101   $        75

<FN>                                                                                                                   
NOTES:                                                                                                                 
(1)  Based upon years initial capital balances                                                                         
(2)  CMI II (New Portfolio of CMI I) commenced operation on January 1, 1984                                            
</FN>                                                                                                                  

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                                    TABLE III                                                                              
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS                                                           
                               CMI (CONSOLIDATED)                                                                          
                              (AS OF JUNE 30, 1996)                                                                        
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)                                                       


                                                                                       1993          1994             1995 
                                                                               ------------  ------------     ------------ 
                                                                                                                           

Gross Revenues ...............................................................     $258,338      $204,608       $   210,590
Less: General Partners' Management Fee .......................................       16,318        15,274            14,180
  Mortgage Servicing Fee .....................................................       18,665        12,451            18,193
  Administrative Expenses ....................................................       17,943        16,687            14,485
  Provision for Uncollected Accounts .........................................       72,551        74,215            69,692
  Amortization of Organization and Syndication Costs .........................          -0-           -0-               -0-
  Offering Period Interest Expense to Limited Partners .......................          -0-           -0-               -0-
                                                                                   --------      --------       -----------
Net Income (GAAP Basis) distr. to Limited Partners ...........................     $132,861      $ 85,981       $    94,040
                                                                                   --------      --------       -----------

Sources of Funds - Net Income ................................................     $132,861      $ 85,981       $    94,040

Decrease in Assets ...........................................................      220,577       140,444            29,224
Increase in Liabilities ......................................................          -0-           -0-               -0-
Increase in Applicant's Deposit ..............................................          -0-           -0-               -0-
Increase in Partners' Capital ................................................          -0-           -0-               -0-
                                                                                   --------      -----------    -----------

Cash generated from Operations ...............................................     $353,438      $226,425       $   123,264
Use of Funds-Increase in Assets ..............................................          -0-           -0-               -0-
Decrease in Liabilities ......................................................        2,954         2,600               -0-
Decrease in Applicant's Deposit ..............................................          -0-           -0-               -0-
Offering Period Interest Expense to Limited Partners .........................          -0-           -0-               -0-
  Investment Income Pd to LP's ...............................................       37,370        26,841            33,554
  Return of Capital to LP's ..................................................      235,477       188,064           214,560
                                                                                   --------      --------       -----------
Net Increase (Decrease) in Cash ..............................................     $ 77,637      $  8,920       $ (124,850)
Cash at the beginning of the year ............................................     $ 95,478      $173,115       $   182,035
Cash at the end of the year ..................................................     $173,115      $182,035       $    57,185
Income & Distribution Data for $1,000 Invested Net Income                                                                  
  CMI (Original Portfolio)  (GAAP Basis) .....................................     $     61      $     42       $        50
Net Income CMI II (New Portfolio of CMI)  (GAAP Basis) .......................     $     61      $     42       $        50
Cash Distribution to Investors for $1,000 Invested:  CMI                                                                   
  (Original Portfolio)                                                                                                     
    Income (1) ...............................................................     $     18      $     17       $        24
    Capital (1) ..............................................................     $    138      $    122       $       137
  CMI  II (New Portfolio of CMI)                                                                                           
    Income (1) ...............................................................     $     14      $     10       $        12
    Capital (1) ..............................................................     $     77      $     64       $        89
 Federal Income Tax Results for $1,000 Invested Capital                                                                    
  Ordinary Income from Operations CMI (Original Portfolio) ...................     $     23      $     53       $        93
  Ordinary Income from Operations CMI II (New Portfolio of CMI ...............     $     23      $     53       $        93

<FN>                                                                                                                       
NOTES:                                                                                                                     
(1)  Based upon years initial capital balances                                                                             
(2)  CMI II (New Portfolio of CMI I) commenced operation on January 1, 1984                                                
</FN>                                                                                                                      

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                                    TABLE III                              
                 OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS           
                               CMI (CONSOLIDATED)                          
                              (AS OF JUNE 30, 1996)                        
            (NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)       


                                                                  06/30/96 
                                                              ------------ 
                                                                           

Gross Revenues ................................................   $ 98,061 
Less: General Partners' Management Fee ........................      6,667 
  Mortgage Servicing Fee ......................................      7,758 
  Administrative Expenses .....................................     11,755 
  Provision for Uncollected Accounts ..........................     23,906 
  Amortization of Organization and Syndication Costs ..........        -0- 
  Offering Period Interest Expense to Limited Partners ........        -0- 
                                                                       --- 
Net Income (GAAP Basis) distr. to Limited Partners ............   $ 47,975 
                                                                       --- 
Sources of Funds - Net Income .................................   $ 47,975 
Decrease in Assets ............................................    176,268 
Increase in Liabilities .......................................        -0- 
Increase in Applicant's Deposit ...............................        -0- 
Increase in Partners' Capital .................................        -0- 
                                                                       --- 
Cash generated from Operations ................................   $224,243 
Use of Funds-Increase in Assets ...............................   $    -0- 
Decrease in Liabilities .......................................        -0- 
Decrease in Applicant's Deposit ...............................        -0- 
Offering Period Interest Expense to Limited Partners ..........        -0- 
  Investment Income Pd to LP's ................................     13,642 
  Return of Capital to LP's ...................................     93,296 
                                                                    ------ 
Net Increase (Decrease) in Cash ...............................   $117,305 
Cash at the beginning of the year .............................   $ 57,185 
Cash at the end of the year ...................................   $174,490 
Income & Distribution Data for $1,000 Invested Net Income                  
  CMI (Original Portfolio)  (GAAP Basis) ......................   $     27 
Net Income CMI II (New Portfolio of CMI)  (GAAP Basis) ........   $     27 
Cash Distribution to Investors for $1,000 Invested:  CMI                   
  (Original Portfolio)                                                     
    Income (1) ................................................   $     11 
    Capital (1) ...............................................   $     72 
  CMI  II (New Portfolio of CMI)                                           
    Income (1) ................................................   $      5 
    Capital (1) ...............................................   $     38 
Federal Income Tax Results for $1,000 Invested Capital                     
  Ordinary Income from Operations CMI (Original Portfolio) ....        N/A 
  Ordinary Income from Operations CMI II (New Portfolio of CMI.        N/A 

<FN>                                                                       
NOTES:                                                                     
(1)  Based upon years initial capital balances                             
(2)  CMI II (New Portfolio of CMI I) commenced operation on January 1, 1984
</FN>                                                                      

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                                     TABLE V                                    
                            PAYMENT OF MORTGAGE LOANS                           
                         REDWOOD MORTGAGE INVESTORS VIII                        
                           FOR THE THREE YEARS ENDING                           
                                  JUNE 30,1996                                  



SINGLE FAMILY 1-4 UNITS (county)                                                
================= =========== ============ ================== ==============    
PROPERTY              FUNDED   CLOSED ON  LOAN AMOUNT  INTEREST/   PROCEEDS     
                                                       LATE/MISC    TO DATE     
================= =========== ============ ================== ==============    
                                                                                

San Francisco .......04/01/93   05/21/93    38500.98      672.45    39173.43    
San Mateo ...........04/01/93   10/07/93    46400.00     3072.32    49472.32    
San Mateo ...........06/09/93   01/21/94    65000.00     4463.41    69463.41    
San Mateo .......... 10/26/93   03/21/94    40000.00     1565.51    41565.51    
San Francisco ...... 05/14/93   03/22/94    65000.00     5891.09    70891.09    
Sonoma ............. 05/18/93   05/17/94    65000.00     6388.70    71388.70    
San Mateo .......... 02/24/94   06/01/94   225000.00     6091.16   231091.16    
San Mateo ...........11/10/93   07/01/94   196800.00    12643.73   209443.73    
San Mateo ...........06/28/94   09/27/94   132000.00     3719.50   135719.50    
San Mateo ...........08/25/94   09/29/94    50000.00      493.15    50493.15    
Contra Costa ........05/01/93   10/14/94    50000.00     8069.18    58069.18    
Sonoma ..............03/15/94   11/04/94   151875.00    11638.07   163513.07    
Santa Clara .........06/01/93   03/13/95    99000.00    17191.42   116191.42    
San Mateo ...........07/19/94   06/20/95    40000.00     3076.20    43076.20    
Santa Clara .........06/04/93   12/31/95   100000.00    26825.94   126825.94    
Santa Clara .........05/31/95   02/09/96   278207.20    17412.44   295619.64    
San Mateo ...........10/08/93   02/15/96   130000.00    28518.49   159428.49    
Santa Clara .........12/29/94   03/13/96   250000.00    17232.38   267232.38    
San Mateo ...........02/21/96   05/20/96    58500.00     1770.24    60270.20    
San Mateo ...........11/15/94   05/30/96   213717.85    17458.48   231176.33    
San Mateo ...........09/15/95   05/31/96   300000.00    21446.57   321446.57    
Marin ...............05/05/94   06/14/96   300000.00    63479.64   363479.64    

MULTIPLE 5+ UNITS (county)                                                      
=============================================================================== 
PROPERTY ............ FUNDED     CLOSED ON  LOAN AMOUNT    INTEREST/   PROCEEDS 
                                                           LATE/MISC   TO DATE  
================================================================================
                                                                                

Alameda .............04/28/93 .   12/01/95     50000.00     9239.47     59239.47
San Francisco .......07/20/94 .   01/19/96    175000.00    12052.07    187052.07
Contra Costa ........01/06/94 .   01/19/96   1073720.93   145782.30   1219503.23
Alameda .............03/17/95 .   05/31/96     13000.00     1664.76     14664.76

COMMERCIAL (county)                                                             
=============================================================================== 
PROPERTY ............  FUNDED     CLOSED ON   LOAN AMOUNT  INTEREST/   PROCEEDS 
                                                          LATE/MISC     TO DATE 
=============================================================================== 
                                                                                

Nevada ..............04/01/93 ....   12/09/93    59500.00    4963.60    64463.60
San Mateo ...........09/30/93 ....   01/01/94   400000.00   10466.61   410466.61
Merced ..............06/02/93 ....   10/31/94    45000.00    7163.32    52163.32
Alameda .............01/14/94 ....   03/17/95   300000.00   34922.50   334922.50


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                                     TABLE V                                    
                            PAYMENT OF MORTGAGE LOANS                           
                         REDWOOD MORTGAGE INVESTORS VIII                        
                           FOR THE THREE YEARS ENDING                           
                                  JUNE 30,1996                                  


COMMERCIAL (county) CONTINUED                                                   
================================================================================
PROPERTY                 FUNDED   CLOSED ON  LOAN AMOUNT   INTEREST/    PROCEEDS
                                                           LATE/MISC     TO DATE
================= =========== ============ =====================================
                                                                                
Alameda .............   10/14/94   05/31/95    310000.00   20774.14    330774.14
Santa Clara .........   01/26/96   03/21/96   1125000.00   18882.96   1143882.96
San Francisco .......   03/19/93   06/28/96    116500.00   36540.57    153040.57
Santa Clara .........   12/30/94   06/30/96     95000.00   14691.62    109691.62
                        --------   --------   ----------   --------   ----------

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                                     TABLE V                                    
                            PAYMENT OF MORTGAGE LOANS                           
                         REDWOOD MORTGAGE INVESTORS VII                         
                           FOR THE THREE YEARS ENDING                           
                                  JUNE 30, 1996                                 



SINGLE FAMILY 1-4 UNITS (county)                                                
================= =========== ============ ================== ==================
PROPERTY ............... FUNDED    CLOSED ON  LOAN AMOUNT  INTEREST/    PROCEEDS
                                                          LATE/MISC      TO DATE
================================================================================
                                                                                

San Mateo ............   07/23/91   01/07/93    90000.00    18151.56   108151.56
San Mateo ............   07/09/90   01/22/93    25000.00     9072.49    34072.46
San Mateo ............   02/21/92   02/09/93   115000.00    13384.11   128384.11
Santa Clara ..........   05/17/91   02/10/93    78000.00    12285.25    90285.25
San Mateo ............   06/19/92   02/16/93    30000.00     2561.85    32561.85
Santa Clara ..........   11/27/91   03/31/93    40000.00     9101.44    49101.44
Contra Costa .........   07/24/91   04/01/93    70500.00    16709.15    87209.15
Contra Costa .........   01/27/91   04/01/93    60000.00    11922.82    71922.82
Santa Cruz ...........   07/02/91   04/27/93   105000.00    26745.68   131745.68
San Francisco ........   12/14/92   05/21/93    65000.00     2871.63    67871.63
Santa Clara ..........   04/22/91   05/24/93   150000.00    41469.24   191469.24
Santa Clara ..........   06/17/92   05/27/93    84000.00     6156.26    90156.26
San Mateo ............   12/09/91   06/30/93   363000.00    72136.40   435136.40
Sonoma ...............   02/19/92   07/02/93   130000.00    22780.57   152780.57
San Mateo ............   04/10/92   07/15/93   220000.00    33470.96   253470.96
San Mateo ............   05/14/91   07/28/93   194400.00     5733.85   200133.85
San Francisco ........   08/21/91   07/28/93   166875.00    46179.49   213054.49
Sonoma ...............   02/19/92   07/30/93   212500.00    40314.47   252814.47
Sacramento ...........   07/23/91   08/02/93    66000.00    18102.51    84102.51
San Mateo ............   11/13/90   08/19/93   150000.00    55926.93   205926.93
Santa Clara ..........   12/26/91   08/20/93   150000.00    31008.87   181008.87
Sacramento ...........   04/13/90   08/27/93    55000.00    29505.32    84505.32
Contra Costa .........   11/30/90   08/29/93   129000.00    45968.36   174968.36
Marin ................   08/31/92   09/10/93   300000.00    37076.60   337076.60
Napa .................   12/03/90   10/01/93    53500.00    22856.40    76356.40
Alameda ..............   09/01/92   10/29/93    91500.00     4006.15    95506.15
Marin ................   03/25/91   11/10/93   202500.00    15359.92   217859.92
Monterey .............   08/26/92   11/24/93   285000.00    45098.17   330098.17
Contra Costa .........   08/12/92   12/10/93    80000.00     3975.47    83975.47
Monterey .............   01/24/92   12/30/93   100000.00    19876.07   119876.07
San Mateo ............   05/05/92   01/14/94    40000.00     8029.79    48029.79
Santa Clara ..........   08/10/90   03/16/94    75000.00    40842.82   115842.82
San Francisco ........   05/14/93   03/22/94    15000.00     1359.48    16359.48
San Mateo ............   05/18/92   04/01/94    32000.00     3432.74    35432.74
San Mateo ............   06/16/92   04/15/94    60000.00    12607.41    72607.41
San Mateo ............   03/02/93   04/19/94   100000.00    12205.41   112205.41
San Mateo ............   06/01/90   04/22/94    91000.00   -13609.71    77390.29
Santa Clara ..........   09/01/93   04/29/94   156750.00     6524.50   163274.50
San Mateo ............   08/07/92   05/04/94    70000.00    14318.42    84318.42
Sonoma ...............   10/02/91   05/13/94    22000.00     7643.20    29643.20
Solano ...............   03/29/90   06/28/94    44600.00    27937.99    72537.99
                                                                       ---------

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                                     TABLE V                                    
                            PAYMENT OF MORTGAGE LOANS                           
                         REDWOOD MORTGAGE INVESTORS VII                         
                           FOR THE THREE YEARS ENDING                           
                                  JUNE 30, 1996                                 


SINGLE FAMILY 1-4 UNITS (county) (continued)                                    
----------------- ----------- ------------ ------------------ ----------------- 
                                                                                

Alameda ..............   09/30/91   08/05/94    68987.44    24341.28    93328.72
Sonoma ...............   12/03/90   08/16/94    57000.00    29283.93    86283.93
San Mateo ............   12/07/92   08/24/94   250000.00    29890.13   279890.13
San Mateo ............   04/25/90   08/25/94    33000.00    17769.20    50769.20
Alameda ..............   04/28/92   08/31/94   145000.00     3768.21   148768.21
Alameda ..............   08/31/92   09/19/94    77000.00    17401.80    94401.80
Contra Costa .........   05/01/93   10/14/94    50000.00     8069.18    58069.18
Contra Costa .........   09/23/92   11/30/94    50000.00    12841.91    62841.91
Mendocino ............   08/04/92   10/19/94   100000.00    25951.11   125951.11
Solano ...............   09/21/91   02/22/95   294500.00   -19094.98   275405.02
Alameda ..............   08/07/92   03/31/95   135000.00    39743.01   174743.01
San Mateo ............   08/12/91   03/10/95   196000.00   -17431.30   178568.70
San Mateo ............   12/11/91   04/18/95    95000.00   -16923.29    78076.71
San Mateo ............   07/28/93   07/14/95    60000.00    12275.08    72275.08
Alameda ..............   02/23/93   06/13/95   104000.00    27469.23   131469.23
San Mateo ............   07/26/91   08/21/95    71000.00   -25231.62    45768.38
Monterey .............   09/18/92   09/27/95   110000.00   -72503.76    37496.24
San Mateo ............   11/09/93   09/29/95   153000.00    25546.76   178546.76
San Mateo ............   12/07/93   09/29/95    25000.00     4467.56    29467.56
San Mateo ............   03/10/95   11/29/95   200000.00    11018.65   211018.65
Santa Clara ..........   06/04/93   12/31/95    25000.00     6858.86    31858.86
Mendocino ............   08/06/93   03/31/96   300000.00    92035.16   392035.16
San Mateo ............   02/21/96   05/20/96    58500.00     1770.20    60270.20
San Mateo ............   11/15/94   05/30/96   213717.85    17819.23   231537.08
Marin ................   05/05/94   06/14/96   150000.00    32728.99   182728.99

MULTIPLE 5+ UNITS (county)                                                      
================================================================================
PROPERTY ........  FUNDED      CLOSED ON  LOAN AMOUNT    INTEREST/    PROCEEDS  
                                                        LATE/MISC       TO DATE 
================================================================================
                                                                                

San Mateo ........02/05/90      06/29/93      30000.00    10465.27     40465.27 
San Francisco ....08/28/91      07/19/93      95000.00    24399.89    119399.89 
Alameda ..........10/15/91      08/12/93      70000.00    17313.79     87313.79 
Santa Clara ....  01/03/92      10/08/93     159375.00    35199.68    194574.68 
Santa Cruz .....  04/22/92      12/14/93     142000.00    29222.72    171222.72 
San Francisco ..  05/29/90      01/11/95      75000.00   -21412.94     53587.06 
San Francisco ..  12/09/91      10/31/95      25000.00     9554.33     34554.33 
Alameda ........  04/28/93      12/01/95     150000.00    28283.23    178283.23 
Contra Costa ...  01/06/94      01/19/96    1226744.19   193722.14   1420466.33 
Alameda ........  03/17/95      05/31/96      28166.67     3798.22     31964.89 
------------------------------------------------------------------------------- 

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                                     TABLE V                                    
                            PAYMENT OF MORTGAGE LOANS                           
                         REDWOOD MORTGAGE INVESTORS VII                         
                           FOR THE THREE YEARS ENDING                           
                                  JUNE 30, 1996                                 



COMMERCIAL (county)                                                             
================================================================================
PROPERTY ...........   FUNDED   CLOSED ON  LOAN AMOUNT    INTEREST/     PROCEEDS
                                                         LATE/MISC      TO DATE 
=============================================================================== 
                                                                                
Alameda ...........   03/06/90   03/09/93     80000.00     32361.69    112361.68
San Francisco .....   03/10/93   05/01/93     91200.00      1150.41     92350.41
San Mateo .........   06/13/90   09/03/93    100000.00     30969.62    130969.62
Stanislaus ........   12/29/89   11/18/93     24999.92     16838.16     41838.08
Alameda ...........   12/29/89   11/18/93     93750.00     14626.49    108376.49
Alameda ...........   11/30/90   11/18/93     27083.33     10928.32     38011.65
San Francisco .....   10/07/92   12/10/93    200000.00     32675.55    232675.55
San Mateo .........   02/28/94   01/01/94    690000.00    171369.86    861369.86
San Mateo .........   07/29/91   02/09/94    105000.00     31793.88    136793.88
Alameda ...........   05/31/93   03/29/94    200000.00   -111073.87     88926.13
Sonoma ............   07/03/91   06/20/94    117500.00     47064.41    164564.41
Stanislaus ........   09/10/91   12/19/94    399941.72    118615.34    518557.06
Stanislaus ........   06/30/94   12/19/94     60000.11      3229.61     63229.72
Stanislaus ........   09/10/91   12/19/94    399941.72    118615.34    518557.06
San Francisco .....   07/15/93   12/31/94     10000.00      1007.71     11007.71
Alameda ...........   01/14/94   03/17/95    650000.00     87376.02    737376.02
Shasta ............   06/06/90   05/10/95    100000.00      3005.47    103005.47
Alameda ...........   02/12/92   11/03/95    240000.00     62538.96    320296.01
Solano ............   04/30/92   11/30/95    200000.00     37668.49    237904.59
San Francisco .....   01/25/91   12/15/95     80000.00     50960.94    130960.94
San Mateo .........   08/28/95   03/19/96    375000.00     48000.00    423000.00
Santa Clara .......   01/26/96   03/21/96   1125000.00     18882.96   1143882.96
San Francisco .....   03/19/93   06/28/96    129800.00     45175.68    174975.68
Santa Clara .......   01/22/92   06/30/96    325000.00    116200.42    441200.42
                                 --------   ----------   ----------   ----------

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                                     TABLE V                                    
                            PAYMENT OF MORTGAGE LOANS                           
                          REDWOOD MORTGAGE INVESTORS VI                         
                           FOR THE THREE YEARS ENDING                           
                                  JUNE 30, 1996                                 



SINGLE FAMILY 1-4 UNITS (county)                                                
================= ============ ============= ================ ==================
PROPERTY                 FUNDED   CLOSED ON LOAN AMOUNT    INTEREST/    PROCEEDS
                                                           LATE/MISC     TO DATE
================= ============ ============= ================ ==================
                                                                                
San Mateo ...........   10/16/92   01/03/93   330000.00     14976.62   344976.62
Santa Clara .........   05/17/91   02/10/93    78000.00     12285.26    90285.26
Santa Clara .........   08/19/92   02/12/93    55750.00      3334.26    59084.26
San Francisco .......   01/28/91   03/09/93   155000.00     22757.37   177757.37
San Mateo ...........   08/23/89   04/14/93    60000.00     32739.27    92739.27
San Mateo ...........   04/20/88   04/30/93    72000.00     49494.89   121494.89
Sonoma ..............   02/29/88   05/03/93    60000.00     41103.80   101103.80
Santa Clara .........   04/22/91   05/24/93   150000.00     41469.24   191469.24
San Mateo ...........   09/08/89   06/07/93   120000.00     14438.23   134438.23
Contra Costa ........   01/30/91   06/22/93    67500.00     13981.40    81481.40
San Francisco .......   08/21/91   07/28/93   166875.00     46179.47   213054.47
Sonoma ..............   02/19/92   07/30/93   212500.00     40314.47   252814.47
Contra Costa ........   11/13/89   08/04/93    38000.00     35070.34    73070.34
San Mateo ...........   11/13/90   08/19/93   150000.00     54354.05   204354.05
Santa Clara .........   12/26/91   08/20/93   150000.00     31008.87   181008.87
Contra Costa ........   08/30/90   08/24/93   150000.00     25529.86   175529.86
Alameda .............   03/12/93   08/26/93    45000.00      2589.03    47589.03
Contra Costa ........   06/14/88   08/29/93    22000.00     15789.89    37789.89
Marin ...............   08/31/92   09/10/93    70000.00      8651.21    78651.21
San Mateo ...........   01/06/93   10/07/93   116000.00      8378.50   124378.50
Santa Clara .........   11/01/89   12/31/93   168000.00   -123155.57    49943.93
San Francisco .......   01/15/93   01/28/94    45000.00      5374.32    50374.32
Santa Cruz ..........   07/31/91   03/10/94    51000.00     16959.98    67959.98
San Mateo ...........   03/02/93   04/19/94    75000.00      9154.06    84154.06
San Mateo ...........   06/01/90   04/22/94    91000.00    -13570.25    77429.75
Sonoma ..............   05/18/93   05/17/94    25000.00      2457.47    27457.47
Contra Costa ........   07/26/90   06/06/94    95000.00     50888.89   145888.89
Marin ...............   03/11/93   08/19/94    45000.00      7614.65    52614.65
San Mateo ...........   12/07/92   08/24/94   200000.00     23912.10   223912.10
Contra Costa ........   05/01/93   10/14/94    62500.00     10086.48    72586.48
Sonoma ..............   12/24/91   11/04/94   168750.00     56286.16   225036.16
Contra Costa ........   12/19/90   11/10/94    22000.00     10517.42    32517.42
Stanislaus ..........   08/26/92   06/27/94    87500.00     17713.96   105213.96
Alameda .............   11/23/88   02/10/95    50000.00     37945.22    87945.22
Solano ..............   09/21/92   02/22/95   190016.46    -13169.40   176847.06
Contra Costa ........   10/30/92   03/02/95    89500.00     15442.55   104942.55
Contra Costa ........   11/20/90   04/14/95    50000.00       330.88    50330.88
San Mateo ...........   12/11/91   04/18/95     95000.0     16246.05   111246.05
Contra Costa ........   04/02/91   07/18/95    72000.00    -30261.48    41738.52
Napa ................   12/22/88   08/31/95   200000.00    160662.42   360662.42
Monterey ............   09/18/92   09/27/95   100000.00    -65098.70    34901.30
San Mateo ...........   10/17/88   12/08/95    91400.00     79779.21   171179.21
                        --------   --------   ---------   ----------   ---------

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                                                 TABLE V                        
                                        PAYMENT OF MORTGAGE LOANS               
                                      REDWOOD MORTGAGE INVESTORS VI             
                                        FOR THE THREE YEARS ENDING              
                                              JUNE 30, 1996                     



SINGLE FAMILY 1-4 UNITS (county)(continued)                                     
================= ============ ============= ================ ==================
PROPERTY                  FUNDED  CLOSED ON  LOAN AMOUNT   INTEREST/    PROCEEDS
                                                           LATE/MISC    TO DATE 
================= ============ ============= ================ ==================
                                                                                

Santa Clara ..........   06/04/93   12/31/95    25000.00     6858.86    31858.86
San Mateo ............   10/08/93   02/15/96    57425.00    13083.50    70508.50
San Mateo ............   03/03/89   03/31/96   160000.00   138007.09   298007.09
Marin ................   05/05/94   06/14/96   200000.00    43638.72   243638.72

MULTIPLE 5+ UNITS (county)                                                      
================================================================================
PROPERTY                 FUNDED   CLOSED ON LOAN AMOUNT   INTEREST/     PROCEEDS
                                                         LATE/MISC       TO DATE
================================================================================
                                                                                

San Francisco .......   06/02/89   02/25/93    75000.00     41236.25   116236.25
Marin ...............   09/17/90   06/18/93   340000.00     47489.63   387489.63
Alameda .............   05/06/88   04/01/94    50000.00     33567.33    83567.33
Sacramento ..........   03/20/92   12/31/94   356750.00   -318741.07    38008.93
San Francisco .......   05/29/90   01/11/95    75000.00    -21792.60    53207.40
San Francisco .......   01/13/93   02/03/95    30000.00      7430.37    37430.37
Alameda .............   04/28/93   12/01/95   100000.00     18853.45   118853.45
Contra Costa ........   01/06/94   01/19/96   516279.07     89938.48   606217.55
San Mateo ...........   08/12/92   05/15/96   175000.00     42482.37   217482.37
Alameda .............   03/17/95   05/31/96     9750.00      1279.92    11029.92
                                   --------   ---------   ----------   ---------
COMMERCIAL (county)                                                             
================================================================================
PROPERTY                   FUNDED  CLOSED ON  LOAN AMOUNT  INTEREST/   PROCEEDS 
                                                          LATE/MISC     TO DATE 
================================================================================
                                                                                

Alameda ..............   03/06/90   03/09/93    20000.00     8089.69    28089.69
San Francisco ........   03/10/93   05/01/93    22800.00      287.60    23087.60
Sonoma ...............   05/09/88   05/25/93   225000.00   154627.26   379627.26
Stanislaus ...........   01/05/89   11/18/93   205000.00   133410.75   338410.75
Stanislaus ...........   12/29/89   11/18/93    75000.00    43121.09   118121.09
Alameda ..............   11/30/90   11/18/93    81249.94    32784.92   114034.86
Alameda ..............   12/29/89   11/18/93   187500.00    29253.00   216753.00
San Francisco ........   10/07/92   12/10/93   100000.00    16337.77   116337.77
San Mateo ............   01/17/89   12/16/93    60000.00    38626.36     9862636
San Mateo ............   02/28/92   01/01/94   750000.00   214212.33   964212.33
Alameda ..............   05/31/91   03/29/94   150000.00   -79044.10    70955.90
Sonoma ...............   07/03/91   06/20/94   117500.00    47549.42   165049.42
Sonoma ...............   07/07/89   11/11/94   110000.00    17084.40   127084.40
                                    --------   ---------   ---------   ---------

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                                     TABLE V                                    
                            PAYMENT OF MORTGAGE LOANS                           
                          REDWOOD MORTGAGE INVESTORS VI                         
                           FOR THE THREE YEARS ENDING                           
                                  JUNE 30, 1996                                 



COMMERCIAL (county) (continued)                                                 
================= ============ ============= ================ ================= 
PROPERTY                  FUNDED  CLOSED ON  LOAN AMOUNT   INTEREST/   PROCEEDS 
                                                           LATE/MISC    TO DATE 
================= ============ ============= ================ ==================
                                                                                

Stanislaus ...........   09/10/91   12/19/94   299955.53    92990.31   392945.84
Stanislaus ...........   06/30/94   12/19/94    44999.97     2422.20    47422.17
Sonoma ...............   07/06/89   12/31/94   135000.00    93057.01   228057.01
Alameda ..............   01/14/94   03/17/95   225000.00    29899.40   254899.40
Shasta ...............   06/06/90   05/10/95   100000.00     2637.03   102637.03
San Mateo ............   01/25/91   08/03/95   162500.00    95276.39   257776.39
San Francisco ........   01/25/91   12/15/95   100000.00    63892.44   163892.44
Alameda ..............   08/03/90   01/30/96   200000.00   141515.95   341515.95
Santa Clara ..........   02/01/96   03/21/96   392829.43     6722.72   399552.15
San Francisco ........   03/19/93   06/28/96   110000.00     6234.61   116234.61
Santa Clara ..........   09/10/92   06/30/96   100000.00    44430.51   144430.51
Santa Clara ..........   01/22/92   06/30/96   175000.00    86246.63   261246.63

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

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                                     TABLE V                                    
                            PAYMENT OF MORTGAGE LOANS                           
                          REDWOOD MORTGAGE INVESTORS V                          
                           FOR THE THREE YEARS ENDING                           
                                  JUNE 30, 1996                                 



SINGLE FAMILY 1-4 UNITS (county)                                                
================= ============ ============= ================ ==================
PROPERTY                  FUNDED  CLOSED ON  LOAN AMOUNT   INTEREST/    PROCEEDS
                                                           LATE/MISC    TO DATE 
================= ============ ============= ================ ================= 
                                                                                
San Mateo ............   10/16/92   01/08/93    90000.00     4084.52    94084.52
Contra Costa .........   04/03/91   04/01/93   120000.00    22553.37   142553.37
Alameda ..............   04/09/92   05/21/93    81000.00    11899.69    92899.69
San Mateo ............   11/13/90   08/19/93    75000.00    27431.21   102431.21
Monterey .............   01/24/92   12/30/93   100000.00    19876.06   119876.06
Alameda ..............   05/29/90   02/02/94   156600.00    80234.17   236834.17
Alameda ..............   09/30/91   08/05/94   138000.00    27330.74   165330.74
San Mateo ............   12/07/92   08/24/94    50000.00     5978.03    55978.03
Sonoma ...............   12/24/91   11/04/94   168750.00    44608.09   213358.09
San Francisco ........   11/11/92   12/21/94    54000.00    12943.80    66943.80
Contra Costa .........   02/14/92   04/27/95   264500.00   -44659.84   219840.16
San Mateo ............   11/04/92   05/22/95    30000.00     9458.37    39458.37
                         --------   --------   ---------   ---------   ---------

MULTIPLE 5+ UNITS (county)                                                      
================= ============ ============ ================= ==================
PROPERTY               FUNDED    CLOSED ON  LOAN AMOUNT   INTEREST/     PROCEEDS
                                                         LATE/MISC      TO DATE 
================= ============ ============ ================= ==================
                                                                                
Sacramento ..........   04/23/87   06/14/93   300000.00    244473.02   544473.02
Santa Clara .........   01/03/92   10/08/93   159375.00     35199.69   194574.69
Sacramento ..........   03/20/92   12/31/94   178375.00   -159360.07    19014.93
Santa Clara .........   09/21/88   06/19/95   100000.00     74156.73   174156.73
Alameda .............   04/28/93   12/01/95   100000.00     19070.91   119070.91
Contra Costa ........   01/06/94   01/19/96   187116.28      7265.70   194381.98
Alameda .............   03/17/95   05/31/96     3250.00       438.26     3688.26
                        --------   --------   ---------   ----------   ---------
COMMERCIAL (county)                                                             
================= ============ ============ ================= ==================
PROPERTY                  FUNDED  CLOSED ON  LOAN AMOUNT   INTEREST/    PROCEEDS
                                                          LATE/MISC     TO DATE 
================= ============ ============ ================= ==================
                                                                                
Contra Costa .........   10/09/87   04/08/93   130000.00    95053.76   225053.79
Stanislaus ...........   12/29/89   11/18/93    24999.90    14373.61    39373.51
Alameda ..............   12/29/89   11/18/93    62500.00    10779.97    73279.97
Alameda ..............   11/30/90   11/18/93    27083.33    10928.31    38011.64
Nevada ...............   11/05/92   12/09/93   119000.00    10740.82   129740.82
San Francisco ........   10/07/92   12/10/93    70000.00    11436.44    81436.44
San Mateo ............   02/28/92   01/01/94   500000.00   132341.61   632341.61

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                                     TABLE V                                    
                            PAYMENT OF MORTGAGE LOANS                           
                          REDWOOD MORTGAGE INVESTORS V                          
                           FOR THE THREE YEARS ENDING                           
                                 JUNE 30, 1996                                  



COMMERCIAL (county) (continued)                                                 
================= ============ ============ ================= ==================
PROPERTY                  FUNDED  CLOSED ON  LOAN AMOUNT   INTEREST/    PROCEEDS
                                                           LATE/MISC     TO DATE
================= ============ ============ ================= ==================
                                                                                
San Mateo ............   07/29/91   02/09/94   105000.00    32152.51   137152.51
Alameda ..............   05/31/91   03/29/94   100000.00   -60648.08    38351.92
Sonoma ...............   07/07/89   11/11/94   100000.00    15500.18   115500.18
Stanislaus ...........   09/10/91   12/19/94   236759.66    42103.49   278863.15
Stanislaus ...........   06/30/94   12/19/94    18749.99     1009.25    19759.24
Alameda ..............   01/14/94   03/17/95    75000.00     9966.47    84966.47
Shasta ...............   06/06/90   05/10/95    70000.00     2831.72    72831.72
San Francisco ........   03/19/93   06/28/96    90000.00     6288.17    96288.17
Santa Clara ..........   09/10/92   06/30/96   150000.00    67251.67   217251.67
Santa Clara ..........   01/22/92   06/30/96   100000.00    42945.81   142945.81
                         --------   --------   ---------   ---------   ---------

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                                     TABLE V                                    
                            PAYMENT OF MORTGAGE LOANS                           
                          REDWOOD MORTGAGE INVESTORS IV                         
                           FOR THE THREE YEARS ENDING                           
                                  JUNE 30, 1996                                 



SINGLE FAMILY 1-4 UNITS (county)                                                
================= ============ ============ ================= ==================
PROPERTY                 FUNDED   CLOSED ON LOAN AMOUNT    INTEREST/    PROCEEDS
                                                           LATE/MISC     TO DATE
================= ============ ============ ================= ==================
                                                                                
Santa Clara .........   08/09/89   03/31/93    80000.00     44091.08   124091.08
San Francisco .......   12/31/91   09/27/93   408139.54     31892.39   440031.93
Marin ...............   03/25/91   11/10/93   202500.00     15359.93   217859.93
Alameda .............   11/04/86   11/11/93    60000.00     42940.91   102940.91
San Francisco .......   09/24/93   01/14/94   272093.02      5648.72   277741.74
Contra Costa ........   05/29/91   03/09/94    80000.00   -144614.39   -64614.39
San Francisco .......   05/14/93   03/22/94    20000.00      1812.66    21812.66
San Mateo ...........   12/02/93   06/24/94   326500.00         0.00   326500.00
Stanislaus ..........   08/26/92   06/27/94    87500.00     17713.96   105213.96
Alameda .............   04/06/90   08/26/94    56000.00     32820.64    88820.64
San Francisco .......   03/29/91   09/30/94   126000.00   -26456.30     99543.70
Contra Costa ........   09/23/92   11/30/94    51500.00     13227.17    64727.17
San Mateo ...........   03/03/93   12/08/94    52500.00      9372.86    61872.86
Alameda .............   03/01/91   12/14/94    35000.00      8275.11    43275.11
Marin ...............   04/29/88   06/02/95    67000.00     55264.42   122264.42
Alameda .............   03/01/91   12/14/94    35000.00      8275.11    43275.11
Contra Costa ........   02/14/92   04/27/95   259094.66   -45346.45    213748.21
San Mateo ...........   12/30/94   07/03/95   328583.63     13353.36   341936.99
                        --------   --------   ---------   ----------   ---------

MULTIPLE 5+ UNITS (county)                                                      
================= ============ ============ ================= ================= 
PROPERTY               FUNDED   CLOSED ON   LOAN AMOUNT   INTEREST/     PROCEEDS
                                                          LATE/MISC      TO DATE
================= ============ ============ ================= ==================
                                                                                
Alameda ............   04/01/86   06/10/94    27193.39     19547.55     46740.94
San Francisco ......   04/05/89   09/28/94   120000.00     85295.94    205295.94
Contra Costa .......   10/03/85   11/18/94    46281.93     25250.22     71532.15
Mendocino ..........   06/29/90   12/23/94   353097.43    119341.00    472438.43
San Francisco ......   05/29/90   01/11/95    50000.00   -13804.88      36195.12
Santa Clara ........   09/21/88   06/19/95   100000.00     74222.65    174222.65
Sacramento .........   12/16/87   07/03/95   102000.00   -203272.80   -101272.80
San Francisco ......   03/06/91   11/29/95    60000.00     39835.76     99835.76
Alameda ............   04/28/93   12/01/95   100000.00     18472.90    118472.90
Contra Costa .......   01/06/94   01/19/96   418604.65     69271.80    487876.45
Alameda ............   03/17/95   05/30/96     6500.00       832.37      7332.37
                       --------   --------   ---------   ----------   ----------

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                                     TABLE V                                    
                            PAYMENT OF MORTGAGE LOANS                           
                          REDWOOD MORTGAGE INVESTORS IV                         
                           FOR THE THREE YEARS ENDING                           
                                  JUNE 30, 1996                                 


COMMERCIAL(county)                                                              
================= ============ ============ ================= ================= 
PROPERTY                  FUNDED  CLOSED ON  LOAN AMOUNT    INTEREST/   PROCEEDS
                                                           LATE/MISC    TO DATE 
================= ============ ============ ================= ==================
                                                                                
Alameda ..............   03/06/90   03/09/93   150000.00    60680.00   210680.00
Contra Costa .........   10/09/87   04/08/93   130000.00    95053.82   225053.82
Sonoma ...............   05/09/88   05/25/93   225000.00   154627.25   379627.25
San Mateo ............   06/13/90   08/01/93   100000.01    30969.63   130969.64
Alameda ..............   09/10/91   09/30/93    81000.00    22903.01   103903.01
Stanislaus ...........   01/05/89   11/18/93   205000.00   133410.76   338410.76
Stanislaus ...........   12/29/89   11/18/93    75000.00    43121.09   118121.09
Alameda ..............   12/29/89   11/18/93   187500.00    32339.98   219839.98
Alameda ..............   11/30/90   11/18/93    81250.00    32784.93   114034.93
San Mateo ............   02/28/92   01/01/94   650000.00   185650.68   835650.68
Santa Barbara ........   05/10/94   06/30/94   150000.00     1857.19   151857.19
Stanislaus ...........   09/10/91   12/19/94   499925.87   154983.84   654909.71
Stanislaus ...........   06/30/94   12/19/94    74999.94     4037.00    79036.94
Alameda ..............   01/14/94   03/17/95   250000.00    23414.86   273414.86
Fresno ...............   05/31/85   07/11/95   160000.00   196652.27   356652.27
San Mateo ............   01/25/91   08/03/95   162500.00    62530.67   225030.67
                         --------   --------   ---------   ---------   ---------

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                                     TABLE V                                    
                            PAYMENT OF MORTGAGE LOANS                           
                         REDWOOD MORTGAGE INVESTORS III                         
                           FOR THE THREE YEARS ENDING                           
                                  JUNE 30, 1996                                 


SINGLE FAMILY 1-4 UNITS (county)                                                
================= ============ ============ ================= ==================
PROPERTY               FUNDED    CLOSED ON   LOAN AMOUNT  INTEREST/     PROCEEDS
                                                         LATE/MISC       TO DATE
================= ============ ============ ================= ==================
                                                                                
San Mateo ........    10/16/92    01/08/93     76000.00     2514.48     78541.48
Santa Clara ......    08/19/92    02/12/93     68000.00     4066.90     72066.90
Santa Clara ......    08/09/89    03/31/93     80000.00    35052.17    115052.17
San Mateo ........    03/30/89    09/15/93     21000.00    13430.26     34430.26
San Mateo ........    03/06/87    03/22/94     53000.00    36681.38     89681.38
San Mateo ........    03/03/93    12/08/94     52500.00     9372.86     61872.86
Santa Clara ......    03/31/93    03/13/95    110000.00     3733.39    113733.39
Napa .............    08/31/90    08/31/95     73281.93    44487.64    117769.57
                      --------    --------    ---------    --------    ---------

MULTIPLE 5+ UNITS (county)                                                      
----------------- ------------ ------------ ----------------- ------------------
PROPERTY              FUNDED   CLOSED ON     LOAN AMOUNT   INTEREST/    PROCEEDS
                                                           LATE/MISC    TO DATE 
----------------- ------------ ------------ ----------------- ------------------
                                                                                
Alameda .......     05/11/84     06/10/94     33000.00     10860.90     43860.90
                    --------     --------     --------     --------     --------

COMMERCIAL (county)                                                             
================= ============ ============= ================ ==================
PROPERTY               FUNDED    CLOSED ON   LOAN AMOUNT  INTEREST/    PROCEEDS 
                                                         LATE/MISC      TO DATE 
================= ============ ============= ================ ==================
                                                                                
Alameda ..........    08/15/91    02/24/93     42500.00     6734.79     49234.79
Alameda ..........    12/20/89    10/14/93     55400.00    24598.94     79998.94
Stanislaus .......    12/29/89    11/18/93     37500.00    21560.54     59060.54
Alameda ..........    12/29/89    11/18/93     75000.00    12833.09     87833.09
Alameda ..........    11/30/90    11/18/93     40625.00    16392.52     57017.52
Stanislaus .......    09/10/91    12/19/94    142055.79    25262.10    167319.89
Stanislaus .......    06/30/94    12/19/94     11249.99      605.55     11855.54
San Mateo ........    09/30/92    08/03/95     81250.00    31562.66    112812.66
Santa Clara ......    12/22/92    09/29/95     40000.00    13206.65     53206.65
Alameda ..........    09/30/95    01/30/96    138015.68     6304.19    144319.87
Santa Clara ......    09/10/92    06/30/96     75000.00    33322.88    108322.88
                      --------    --------    ---------    --------    ---------

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                                     TABLE V                                    
                            PAYMENT OF MORTGAGE LOANS                           
                          REDWOOD MORTGAGE INVESTORS II                         
                           FOR THE THREE YEARS ENDING                           
                                  JUNE 30, 1996                                 



SINGLE FAMILY 1-4 UNITS (county)                                                
================= ============ ============ ================= ==================
PROPERTY                   FUNDED  CLOSED ON  LOAN AMOUNT  INTEREST/   PROCEEDS 
                                                          LATE/MISC     TO DATE 
================= ============ ============ ================= ==================
                                                                                
San Francisco .........   12/31/91   09/27/93   470930.23   36798.91   507729.14
San Francisco .........   09/24/93   01/14/94   313953.49    6517.76   320471.25
San Mateo .............   02/24/94   06/01/94   100000.00    2707.18   102707.18
San Mateo .............   11/04/94   10/24/95   119000.00   13294.21   132294.21
                          --------   --------   ---------   --------   ---------

MULTIPLE 5+ UNITS (county)                                                      
================= ============ ============ ================= ================= 
PROPERTY                 FUNDED    CLOSED ON LOAN AMOUNT    INTEREST/  PROCEEDS 
                                                           LATE/MISC    TO DATE 
================= ============ ============ ================= ==================
                                                                                
Sacramento .........    03/20/92    12/31/94    89187.50    -80131.24    9056.26
                        --------    --------    --------    ---------    -------

COMMERCIAL (county)                                                             
================= ============ ============ ================ ===================
PROPERTY                 FUNDED    CLOSED ON LOAN AMOUNT   INTEREST/   PROCEEDS 
                                                          LATE/MISC     TO DATE 
================= ============ ============ ================ ================== 
                                                                                
Stanislaus .........    12/29/89    11/18/93    25000.18    11909.30    36909.48
Alameda ............    12/29/89    11/18/93    50000.00     8623.99    58623.99
Alameda ............    11/30/90    11/18/93    27083.34    10928.31    38011.65
                        --------    --------    --------    --------    --------

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                                     TABLE V                                    
                            PAYMENT OF MORTGAGE LOANS                           
                           REDWOOD MORTGAGE INVESTORS                           
                           FOR THE THREE YEARS ENDING                           
                                  JUNE 30, 1996                                 



SINGLE FAMILY 1-4 UNITS (county)                                                
================= ============ ============ =============== =================== 
PROPERTY                   FUNDED CLOSED ON    LOAN AMOUNT  INTEREST/   PROCEEDS
                                                            LATE/MISC   TO DATE 
================= ============ ============ =============== =================== 
                                                                                
Contra Costa ..........   06/14/88   08/29/93    30000.00   21531.72    51531.72
San Francisco .........   12/31/91   09/27/93   470930.23   36798.91   507729.14
San Francisco .........   09/24/93   01/14/94   313953.49    6517.76   320471.25
Alameda ...............   09/23/92   05/27/94    22000.00    3985.55    25985.55
San Mateo .............   02/24/94   06/01/94   100000.00    2707.18   102707.18
Solano ................   02/22/91   07/07/94    30800.00   14120.56    44920.56
San Mateo .............   03/08/91   11/11/94    20000.00   -9009.44    10990.56
Napa ..................   12/22/88   08/31/95    50000.00   40203.57    90203.57
                          --------   --------   ---------   --------   ---------

MULTIPLE 5+ UNITS (county)                                                      
================= ============= ============ ================ ================= 
PROPERTY                FUNDED    CLOSED ON   LOAN AMOUNT   INTEREST/   PROCEEDS
                                                            LATE/MISC   TO DATE 
================= ============= ============ ================ ================= 
                                                                                
Mendocino .........    06/29/90    12/23/94    39233.05     13260.11    52493.16
Sacramento ........    03/20/92    12/31/94    89187.50    -80146.80     9040.70
Alameda ...........    03/17/95    05/31/96     2166.67       277.46     2444.13
                       --------    --------    --------    ---------    --------

COMMERCIAL (county)                                                             
================= =========== ============ ================== =================-
PROPERTY              FUNDED    CLOSED ON   LOAN AMOUNT   INTEREST/    PROCEEDS 
                                                          LATE/MISC     TO DATE 
================= =========== ============ ================== ==================
                                                                                
Stanislaus .......    12/29/89    11/18/93    37500.00     21560.54     59060.54
Alameda ..........    11/30/90    11/18/93    40625.09     16392.52     57017.61
Alameda ..........    05/31/91    03/29/94    50000.00    -30324.05     19675.95
Alameda ..........    01/14/94    03/17/95    50000.00      6481.93     56481.93
Fresno ...........    05/31/85    07/11/95    75000.00     92143.53    167143.53
Santa Clara ......    12/22/92    09/29/95    30000.00      9905.00     39905.00
                      --------    --------    --------    ---------    ---------

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                                     TABLE V                                    
                            PAYMENT OF MORTGAGE LOANS                           
                       CORPORATE MORTGAGE INVESTORS I & II                      
                           FOR THE THREE YEARS ENDING                           
                                  JUNE 30, 1996                                 


SINGLE FAMILY 1-4 UNITS (county)                                                
================= ============ ============ ================= ==================
PROPERTY                  FUNDED  CLOSED ON  LOAN AMOUNT    INTEREST/   PROCEEDS
                                                           LATE/MISC    TO DATE 
================= ============ ============ ================= ================= 
                                                                                
San Francisco ........   06/18/92   01/22/93    55000.00     6208.83    61208.83
Alameda ..............   01/01/92   03/15/93     2834.03      303.56     3137.59
Solano ...............   01/01/92   03/31/93    27685.22     3477.50    31162.72
Contra Costa .........   03/02/93   04/01/93    62500.00      741.40    63241.40
Alameda ..............   01/01/92   04/21/93    35125.84     6653.32    41779.16
San Mateo ............   02/18/93   06/14/93    45500.00     1752.44    47252.44
Alameda ..............   06/13/90   03/04/94    65000.00    33159.13    98159.13
Alameda ..............   06/21/88   03/21/94    23000.00    17133.40    40133.40
San Francisco ........   02/28/84   04/28/94    23000.00    21022.24    44022.24
San Mateo ............   09/01/86   05/24/94   254000.00   106221.19   360221.19
Alameda ..............   10/19/92   07/20/94    25000.00     5038.21    30038.21
Contra Costa .........   05/01/93   10/14/94    75000.00    12103.77    87103.77
San Francisco ........   03/05/85   04/12/95   172624.22   127435.71   300059.93
San Francisco ........   05/23/90   07/28/95    50000.00     7856.50    57856.58
San Mateo ............   01/10/92   08/29/95   130000.00    57349.62   187349.62
Mariposa .............   01/27/95   09/18/95    77000.00     4351.26    81351.26
Santa Clara ..........   03/31/90   12/04/95    80262.02    56152.77   136414.79
Alameda ..............   01/31/95   01/25/96    80000.00     8745.08    88745.08
San Mateo ............   01/31/96   04/29/96   175000.00     4790.52   179790.52
                         --------   --------   ---------   ---------   ---------

MULTIPLE 5+ UNITS(county)                                                       
================= ============ ============ ================= ==================
PROPERTY               FUNDED    CLOSED ON  LOAN AMOUNT    INTEREST/   PROCEEDS 
                                                          LATE/MISC     TO DATE 
================= ============ ============ ================= ==================
                                                                                
San Francisco .......   05/23/90   05/15/94   140000.00   -121491.06    18508.94
Alameda .............   12/06/84   05/20/94   106000.00     34326.10   140326.10
Contra Costa ........   01/06/94   01/19/96   239534.88     25835.30   265370.18
Sacramento ..........   12/15/87   05/30/96   102000.00   -24018.43     77981.57
Alameda .............   03/17/95   05/31/96     2166.67       277.46     2444.13
                        --------   --------   ---------   ----------   ---------

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                                     TABLE V                                    
                            PAYMENT OF MORTGAGE LOANS                           
                       CORPORATE MORTGAGE INVESTORS I & II                      
                           FOR THE THREE YEARS ENDING                           
                                  JUNE 30, 1996                                 


COMMERCIAL (county)                                                             
================= ============ ============= ================ ==================
PROPERTY                  FUNDED   CLOSED ON  LOAN AMOUNT  INTEREST/   PROCEEDS 
                                                          LATE/MISC     TO DATE 
================= ============ ============= ================ ==================
                                                                                
Unsecured ............   01/01/92   07/08/93    29325.88     2420.93    31746.81
Sacramento ...........   07/20/90   08/26/93   125000.00    54148.23   179148.23
Alameda ..............   12/29/89   11/18/93   300000.00   144407.41   444407.41
Marin ................   09/15/92   10/27/94    30000.00     8321.27    38321.29
San Mateo ............   12/30/93   01/01/94   100000.00        0.00   100000.00
San Mateo ............   04/12/90   02/20/95   100000.00    45757.46   145757.46
Alameda ..............   01/14/94   03/17/95    50000.00     6481.93    56481.93
San Francisco ........   03/19/93   06/28/96    35000.00     9588.97    44588.97
                         --------   --------   ---------   ---------   ---------

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AMENDED AND RESTATED
 LIMITED PARTNERSHIP AGREEMENT
OF
 REDWOOD MORTGAGE INVESTORS VIII
A California Limited Partnership

     THIS LIMITED PARTNERSHIP  AGREEMENT was made and entered into as of the 4th
day of December,  1996, by and among D. RUSSELL BURWELL, an individual,  MICHAEL
R. BURWELL,  an  individual,  and GYMNO  CORPORATION,  a California  corporation
(collectively,  the "General Partners"),  and such other persons who have become
Limited Partners  ("Existing  Limited Partners") and as may be added pursuant to
the terms  hereof  (the  "New  Limited  Partners")  (collectively  the  "Limited
Partners").                                                                     

RECITALS

     A. On or about October 1993, the General  Partners and the Limited Partners
entered into an agreement of limited partnership for the Partnership.           

     B. In order to  increase  the  Partnership's  capital  base and  permit the
Partnership to further diversify its portfolio, in September,  1996, the General
Partners elected to offer an additional 300,000 Units.                          

     C. In  connection  with the  additional  offering  of Units and in order to
correct some  ambiguities  and  supplement  some  provisions of the  Partnership
Agreement  the General  Partners have elected to amend and restate the agreement
of limited partnership (the "Partnership Agreement").                           

 ARTICLE 1
 DEFINITIONS

     Unless stated  otherwise,  the terms set forth in this Article I shall, for
all purposes of this Agreement, have the meanings as defined herein:            

     1.1 "Affiliate"  means (a) any person  directly or indirectly  controlling,
controlled by or under common control with another person, (b) any person owning
or controlling ten percent (10%) or more of the outstanding voting securities of
such other person,  (c) any officer,  director or partner of such person, or (d)
if such other person is an officer,  director or partner,  any company for which
such person acts in any such capacity.                                          

     1.2 "Agreement" means this Limited Partnership  Agreement,  as amended from
time to time.                                                                   

     1.3 "Capital  Account"  means,  with  respect to any  Partner,  the Capital
Account maintained for such Partner in accordance with the following provisions:

     (a) To each  Partner's  Capital  Account  there  shall  be  credited,  such
Partner's Capital Contribution, such Partner's distributive share of Profits and
any  items  in the  nature  of  income  or gain  (from  unexpected  adjustments,
allocations or distributions)  that are specially allocated to a Partner and the
amount of any Partnership  liabilities  that are assumed by such Partner or that
are secured by any Partnership property distributed to such Partner.            

     (b) To each Partner's  Capital Account there shall be debited the amount of
cash and the Gross Asset Value of any Partnership  property  distributed to such
Partner pursuant to any provision of this Agreement, such Partner's distributive
share of Losses,  and any items in the  nature of  expenses  or losses  that are
specially  allocated  to a Partner  and the  amount of any  liabilities  of such
Partner that are assumed by the  Partnership or that are secured by any property
contributed by such Partner to the Partnership.                                 

     In the event any interest in the  Partnership  is transferred in accordance
with Section 7.2 of this Agreement,  the transferee shall succeed to the Capital
Account of the transferor to the extent it relates to the transferred interest. 

 EXHIBIT A

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     In the event the Gross Asset Values of the Partnership  assets are adjusted
pursuant to Section 1.9, the Capital  Accounts of all Partners shall be adjusted
simultaneously  to reflect the  aggregate net  adjustment as if the  Partnership
recognized gain or loss equal to the amount of such aggregate net adjustment.   

     The  foregoing  provisions  and the  other  provisions  of  this  Agreement
relating to the  maintenance  of Capital  Accounts  are  intended to comply with
Treasury Regulation Section 1.704-1(b),  and shall be interpreted and applied in
a manner  consistent  with such  Regulation.  In the event the General  Partners
shall  determine  that it is prudent  to modify the manner in which the  Capital
Accounts, or any debits or credits thereto, are computed in order to comply with
the then  existing  Treasury  Regulation,  the  General  Partners  may make such
modification,  provided  that it is not likely to have a material  effect on the
amounts  distributable  to any  Partner  pursuant  to Article IX hereof upon the
dissolution of the  Partnership.  The General  Partners shall adjust the amounts
debited  or  credited  to Capital  Accounts  with  respect  to (a) any  property
contributed to the Partnership or distributed to the General  Partners,  and (b)
any liabilities that are secured by such contributed or distributed  property or
that are assumed by the  Partnership or the General  Partners,  in the event the
General  Partners shall determine such  adjustments are necessary or appropriate
pursuant to Treasury  Regulation  Section  1.704-l(b)(2)(iv)  as provided for in
Section 5.4. The General Partners shall make any appropriate modification in the
event  unanticipated  events might  otherwise cause this Agreement not to comply
with Treasury  Regulation Section 1.704-l(b) as provided for in Sections 5.6 and
12.4(k).                                                                        

     1.4 "Cash Available for Distribution"  means an amount of cash equal to the
excess of accrued  income  from  operations  and  investment  of, or the sale or
refinancing  or other  disposition  of,  Partnership  assets during any calendar
month over the accrued operating  expenses of the Partnership during such month,
including  any  adjustments  for bad debt  reserves or deductions as the General
Partners may deem  appropriate,  all  determined  in accordance  with  generally
accepted accounting principles; provided, that such operating expenses shall not
include any general  overhead  expenses of the General Partners not specifically
related  to,  billed to or  reimbursable  by the  Partnership  as  specified  in
Sections 10.13 through 10.15.                                                   

     1.5  "Code"  means  the  Internal  Revenue  Code of 1986 and  corresponding
provisions of subsequent revenue laws.                                          

     1.6  "Continuing  Servicing  Fee"  means an amount  equal to  approximately
(0.25%) of the Limited  Partnerships capital account which amount shall be paid 
to certain  participating  Broker  Dealers  payable only in connection  with the
initial offering of 150,000 Units pursuant to the Prospectus dated May 19, 1993.

     1.7 "Deed of Trust" means the lien or liens created on the real property or
properties of the borrower securing the borrower's obligation to the Partnership
to repay the Mortgage Investment.                                               

     1.8  "Earnings"  means  all  revenues  earned by the  Partnership  less all
expenses incurred by the Partnership.                                           

1.9 "Fiscal Year" means a year ending December 31st.                  

     1.10 "First Formation Loan" means a loan to Redwood Mortgage,  an affiliate
of the General  Partners,  in  connection  with the initial  offering of 150,000
Units pursuant to the Prospectus  dated May 19, 1993, equal to the amount of the
sales  commissions  (excluding  any Continuing  Servicing  Fees) and all amounts
payable in connection with any unsolicited sales.  Redwood Mortgage will pay all
sales  commissions  (excluding  any Continuing  Servicing  Fees) and all amounts
payable in connection with any unsolicited  sales from the First Formation Loan.
The First Formation Loan will be unsecured, and will be repaid in ten (10) equal
annual installments of principal,  without interest commencing on December 31 of
the year in which the initial offering terminates.                              

     1.11 "Formation  Loans" means  collectively  the First and Second Formation
Loan.                                                                           

     1.12 "General  Partners" means D. Russell  Burwell,  Michael R. Burwell and
Gymno Corporation, a California corporation,  or any Person substituted in place
thereof  pursuant  to this  Agreement.  "General  Partner"  means any one of the
General Partners.                                                               

     1.13 "Gross Asset  Value"  means,  with  respect to any asset,  the asset's
adjusted basis for federal income tax purposes, except as follows:              

     (a) The initial Gross Asset Value of any asset  contributed by a Partner to
the  Partnership  shall  be the  gross  fair  market  value  of such  asset,  as
determined by the contributed Partner and the Partnership;                      

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     (b) The Gross Asset Values of all  Partnership  assets shall be adjusted to
equal their  respective  gross fair market values,  as determined by the General
Partners,  as of the  following  times:  (a) the  acquisition  of an  additional
interest in the  Partnership  (other than pursuant to Section 4.2) by any new or
existing  Partner in exchange for more than a de minimis  Capital  Contribution;
(b) the  distribution  by the Partnership to a Partner of more than a de minimis
amount of  Partnership  property other than money,  unless all Partners  receive
simultaneous distributions of undivided interests in the distributed property in
proportion to their Interests in the Partnership; and (c) the termination of the
Partnership for federal income tax purposes pursuant to Section  708(b)(1)(B) of
the Code; and                                                                   

     (c) If the Gross  Asset Value of an asset has been  determined  or adjusted
pursuant to clause (a) or (b) above,  such Gross Asset Value shall thereafter be
adjusted by the  depreciation,  amortization  or other cost  recovery  deduction
allowable which is taken into account with respect to such asset for purposes of
computing Profits and Losses.                                                   

     1.14 "Guaranteed  Payment for Offering Period" means the payment guaranteed
to Limited  Partners  by the  General  Partners  during the  Guaranteed  Payment
Period.  The  Guaranteed  Payment for Offering  Period  calculated  on a monthly
basis,  shall be equal to the greater of (i) the Partnership's  Earnings or (ii)
the interest rate  established by the Monthly Weighted Average Cost of Funds for
the 11th District  Savings  Institutions,  as announced by the Federal Home Loan
Bank of San  Francisco  during the last week of the  preceding  month,  plus two
points, up to a maximum interest rate of 12%. The Weighted Average Cost of Funds
is derived  from  interest  paid on  savings  accounts,  Federal  Home Loan Bank
advances, and other borrowed money adjusted from valuation in the number of days
in each month. The adjustment  factors are 1.086 for February,  1.024 for 30 day
months  and  0.981  for 31 day  months.  As of the date of the  Prospectus,  the
Monthly  Weighted  Average Funds for the 11th  District as announced  August 30,
1996,  for the period ended July 30, 1996,  and in effect  until  September  30,
1996, is 4.819%.  The Guaranteed  Payment Period is the period commencing on the
day a Limited  Partner is admitted to the  Partnership  and ending  three months
after the Offering  Termination  Date. To the extent the return to be paid is in
excess of the Partnership's Earnings, the Guaranteed Payment for Offering Period
shall be payable by the General  Partners out of a Capital  Contribution  to the
Partnership  and/or  fees  payable to the General  Partners or Redwood  Mortgage
which are lowered or waived.                                                    

     1.15 "Limited  Partners"  means the Initial  Limited Partner until it shall
withdraw as such,  and the  purchasers  of Units in Redwood  Mortgage  Investors
VIII, who are admitted  thereto and whose names are included on the  Certificate
and  Agreement  of Limited  Partnership  of  Redwood  Mortgage  Investors  VIII.
Reference to a "Limited Partner" shall be to any one of them.                   

     1.16 "Limited Partnership Interest" means the percentage ownership interest
of any Limited Partner in the  Partnership  determined at any time by dividing a
Limited  Partner's  current  Capital  Account by the total  outstanding  Capital
Accounts of all Limited Partners.                                               

     1.17 "Majority of the Limited  Partners" means Limited  Partners  holding a
majority of the total outstanding Limited Partnership  Interests as of the first
day of the current calendar month.                                              

     1.18  "Mortgage  Investment(s)"  means  the  loan(s)  and/or  an  undivided
interest in the loans the  Partnership  intends to extend to the general  public
secured by real property deeds of trust.                                        

     1.19 "Net Asset Value" means the Partnership's  total assets less its total
liabilities.                                                                    

     1.20  "Partners"  means the  General  Partners  and the  Limited  Partners,
collectively. "Partner" means any one of the Partners.                          

     1.21  "Partnership"  means Redwood  Mortgage  Investors  VIII, a California
limited partnership, the limited partnership created pursuant to this Agreement.

     1.22 "Partnership Interest" means the percentage ownership interest of each
Partner in the partnership as defined in Section 5.1.                           

     1.23  "Person"  means  any  natural   person,   partnership,   corporation,
unincorporated association or other legal entity.                               

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     1.24 "Profits" and "Losses" mean, for each Fiscal Year or any other period,
an amount equal to the Partnership's taxable income or loss for such Fiscal Year
or other given period,  determined in accordance with Section 703(a) of the Code
(for this purpose,  all items of income, gain, loss, or deduction required to be
stated  separately  pursuant  to Code  Section  703(a)(1)  shall be  included in
taxable income or loss), with the following adjustments:                        

     (a) Any income of the  Partnership  that is exempt from federal  income tax
and not otherwise taken into account in computing  Profits or Losses pursuant to
this Section 1.21 shall be added to such taxable income or loss;                

     (b) Any expenditures of the Partnership  described in Section  705(a)(2)(B)
of the Code or treated as Section 705(a)(2)(B) of the Code expenditures pursuant
to Treasury  Regulation  Section  1.704-1(b)(2)(iv)(i),  and not otherwise taken
into account in computing Profits or Losses pursuant to this Section 1.21, shall
be subtracted from such taxable income or loss.                                 

     (c) Gain or loss  resulting from any  disposition  of Partnership  property
with respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the property disposed
of,  notwithstanding  that the adjusted tax basis of such property  differs from
its Gross Asset Value;                                                          

     (d) In lieu of the  depreciation,  amortization,  and other  cost  recovery
deductions  taken into account in computing such taxable  income or loss,  there
shall be taken into account  depreciation,  amortization  or other cost recovery
deductions for such Fiscal Year or other period, computed such that if the Gross
of an Asset Value of an asset differs from its adjusted basis for federal income
tax purposes at the  beginning of a Fiscal Year or other  period,  depreciation,
amortization  or other cost recovery  deductions  shall be an amount which bears
the same ratio to such  beginning  Gross Asset  Value as the federal  income tax
depreciation,  amortization  or other cost recovery  deductions  for such Fiscal
Year or other period bears to such beginning adjusted tax basis; and            

     (e)  Notwithstanding any other provision of this Section 1.21, any items in
the  nature of  income;  or gain or  expenses  or  losses,  which are  specially
allocated, shall not be taken into account in computing Profits or Losses.      

     1.25 "Sales  Commissions"  means the amount of  compensation,  which may be
paid under one of two options,  to be paid to  Participating  Broker  Dealers in
connection with the sale of Units.                                              

     1.26  "Second  Formation  Loan"  means  the loan to  Redwood  Mortgage,  an
affiliate of the General  Partners,  in connection  with the second  offering of
300,000 Units  pursuant to the  Prospectus  dated  December 4, 1996 equal to the
amount of the sales  commissions  and the  amounts  payable in  connection  with
unsolicited  sales.  Redwood Mortgage will pay all sales commissions and amounts
due in connection  with  unsolicited  sales from the Second  Formation Loan. The
Second  Formation  Loan will be  unsecured,  will not bear  interest and will be
repaid in annual installments.                                                  

     1.27  "Units" mean the shares of  ownership  of the  Partnership  issued to
Limited  Partners  upon their  admission  to the  Partnership,  pursuant  to the
Partnership's Prospectuses dated February 2, 1993, and December 4, 1996, and any
supplements or amendments thereto (the "Prospectus").                           

 ARTICLE 2
 ORGANIZATION OF THE LIMITED PARTNERSHIP

     2.1  Formation.   The  parties  hereto  hereby  agree  to  form  a  limited
partnership,  pursuant to the provision of Chapter 3, Title 2, of the California
Corporations  Code,  as in  effect  on the date  hereof,  commonly  known as the
California Revised Limited Partnership Act (the "California Act").              

     2.2 Name. The name of the Partnership is REDWOOD MORTGAGE INVESTORS VIII, a
California limited partnership.                                                 

     2.3 Place of Business.  The principal  place of business of the Partnership
shall be located at 650 El Camino Real, Suite G, Redwood City, California 94063,
until changed by designation of the General Partners, with notice to all Limited
Partners.                                                                       

     2.4  Purpose.  The  primary  purpose  of this  Partnership  is to engage in
business  as a  mortgage  lender  for the  primary  purpose  of making  Mortgage
Investments secured by deeds of trust (the "Mortgage Investments") on California
real estate.                                                                    

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     2.5 Substitution of Limited Partner.  A Limited Partner may assign all or a
portion of his Partnership  Interest and substitute  another person in his place
as a Limited Partner only in compliance with the terms and conditions of Section
7.2.                                                                            

     2.6  Certificate of Limited  Partnership.  The General  Partners shall duly
execute  and file  with the  Office  of the  Secretary  of State of the State of
California,  a Certificate of Limited Partnership  pursuant to the provisions of
Section  15621 of the  California  Corporations  Code.  Thereafter,  the General
Partners  shall execute and cause to be filed  Certificates  of Amendment of the
Certificate of Limited  Partnership  whenever  required by the California Act or
this Agreement.  At the discretion of the General Partners,  a certified copy of
the  Certificate of Limited  Partnership  may also be filed in the Office of the
Recorder of any county in which the  Partnership  shall have a place of business
or in which real property to which it holds title shall be situated.            

     2.7 Term. The Partnership shall be formed and its term shall commence as of
the date on  which  this  Limited  Partnership  Agreement  is  executed  and the
Certificate of Limited Partnership  referred to in Section 2.6 is filed with the
Office of the Secretary of State,  and shall  continue  until December 31, 2032,
unless  earlier  terminated  pursuant to the  provisions of this Agreement or by
operation of law.                                                               

     2.8 Power of Attorney. Each of the Limited Partners irrevocably constitutes
and  appoints  the General  Partners,  and each of them,  any one of them acting
alone,  as his true and lawful  attorney-in-fact,  with full power and authority
for him, and in his name, place and stead, to execute, acknowledge,  publish and
file:                                                                           

     (a)  This  Agreement,  the  Certificate  of  Limited  Partnership  and  any
amendments  or  conciliation  thereof  required  under  the laws of the State of
California;                                                                     

     (b)  Any  certificates,   instruments  and  documents,  including,  without
limitation,  Fictitious Business Name Statements,  as may be required by, or may
be appropriate  under, the laws of any state or other  jurisdiction in which the
Partnership is doing or intends to do business; and                             

     (c) Any documents  which may be required to effect the  continuation of the
Partnership,  the  admission of an  additional or  substituted  Partner,  or the
dissolution and termination of the Partnership.                                 

     Each Limited  Partner  hereby  agrees to execute and deliver to the General
Partners  within five (5) days after  receipt of the General  Partners'  written
request  therefore,  such other and further statements of interest and holdings,
designations,  and further  statements of interest and  holdings,  designations,
powers  of  attorney  and  other  instruments  that the  General  Partners  deem
necessary  to  comply  with any  laws,  rules  or  regulations  relating  to the
Partnership's activities.                                                       

     2.9 Nature of Power of  Attorney.  The  foregoing  grant of  authority is a
special power of attorney coupled with an interest, is irrevocable, and survives
the death of the undersigned or the delivery of an assignment by the undersigned
of a Limited Partnership Interest; provided, that where the assignee thereof has
been  approved by the General  Partners for  admission to the  Partnership  as a
substituted Limited Partner, the Power of Attorney survives the delivery of such
assignment  for the sole  purpose of enabling  the General  Partners to execute,
acknowledge and file any instrument necessary to effect such substitution.      

 ARTICLE 3
THE GENERAL PARTNERS

     3.1 Authority of the General Partners.  The General Partners shall have all
of the  rights  and  powers of a partner  in a  general  partnership,  except as
otherwise provided herein.                                                      

     3.2  General  Management  Authority  of the  General  Partners.  Except  as
expressly  provided  herein,  the General  Partners shall have sole and complete
charge of the affairs of the  Partnership and shall operate its business for the
benefit of all Partners. Each of the General Partners, acting alone or together,
shall have the  authority to act on behalf of the  Partnership  as to any matter
for  which the  action  or  consent  of the  General  Partners  is  required  or
permitted.  Without limitation upon the generality of the foregoing, the General
Partners shall have the specific authority:                                     

     (a) To expend  Partnership  funds in  furtherance  of the  business  of the
Partnership  and to acquire  and deal with  assets  upon such terms as they deem
advisable, from affiliates and other persons;                                   

     (b) To determine the terms of the offering of Units, including the right to
increase the size of the offering or offer additional securities, the amount for
discounts  allowable or  commissions to be paid and the manner of complying with
applicable law;                                                                 

     (c) To employ, at the expense of the Partnership,  such agents,  employees,
independent  contractors,  attorneys and accountants as they deem reasonable and
necessary;                                                                      

     (d)  To  effect  necessary  insurance  for  the  proper  protection  of the
Partnership, the General Partners or Limited Partners;                          

     (e) To pay, collect, compromise, arbitrate, or otherwise adjust any and all
claims or demands against the Partnership;                                      

     (f) To bind the Partnership in all transactions involving the Partnership's
property or business affairs,  including the execution of all loan documents and
the  sale of  notes  and to  change  the  Partnership's  investment  objectives,
notwithstanding any other provision of this Agreement;  provided,  however,  the
General  Partners  may not,  without  the  consent of a Majority  of the Limited
Partners, sell or exchange all or substantially all of the Partnership's assets,
as those terms are defined in Section 9.1;                                      

     (g) To amend this  Agreement  with  respect  to the  matters  described  in
Subsections 12.4(a) through (k) below;                                          

     (h) To  determine  the  accounting  method  or  methods  to be  used by the
Partnership,  which methods may be changed at any time by written  notice to all
Limited Partners;                                                               

     (i) To open accounts in the name of the  Partnership  in one or more banks,
savings and loan  associations or other financial  institutions,  and to deposit
Partnership  funds  therein,  subject to  withdrawal  upon the  signature of the
General Partners or any person authorized by him;                               

     (j) To  borrow  funds  for the  purpose  of  making  Mortgage  Investments,
provided  that the amount of borrowed  funds does not exceed fifty percent (50%)
of the Partnership's  Mortgage Investment  portfolio and in connection with such
borrowings,  to pledge or  hypothecate  all or a  portion  of the  assets of the
Partnership as security for such loans; and                                     

     (k) To invest the reserve funds of the  Partnership in cash, bank accounts,
certificates of deposits, money market accounts, short-term bankers acceptances,
publicly traded bond funds or any other liquid assets.                          

     3.3  Limitations.  Without  a written  consent  of or  ratification  by all
Limited  Partners,  the General  Partners  shall have no authority to do any act
prohibited  by law;  or to admit a person as a  Limited  Partner  other  than in
accordance with the terms of this Agreement.                                    

     3.4 No  Personal  Liability.  The General  Partners  shall have no personal
liability for the original  invested  capital or any Limited Partner or to repay
the  Partnership  any portion or all of any  negative  balance in their  capital
accounts, except as otherwise provided in Article 4.                            

     3.5  Compensation  to  General  Partners.  The  General  Partners  shall be
entitled to be compensated  and  reimbursed for expenses  incurred in performing
its  management  functions  in  accordance  with the  provisions  of  Article 10
thereof, and may receive compensation from parties other than the Partnership.  

     3.6  Fiduciary  Duty.  The  General   Partners  shall  have  the  fiduciary
responsibility  for the  safekeeping  and use of all  funds  and  assets  of the
Partnership, and they shall not employ such funds or assets in any manner except
for the exclusive benefit of the Partnership.                                   

     3.7 Allocation of Time to Partnership Business.  The General Partners shall
not be required to devote full time to the affairs of the Partnership, but shall
devote whatever time, effort and skill they deem to be reasonably  necessary for
the conduct of the  Partnership's  business.  The General Partners may engage in
any  other  businesses  or  activities,   including  businesses  related  to  or
competitive with the Partnership.                                               

     3.8  Assignment  by a General  Partner.  A General  Partner's  interest  in
income,  losses and  distributions of the Partnership shall be assignable at the
discretion of a General Partner,  which, if made, may be converted, at a General
Partner's  option,  into a limited  partnership  interest  to the  extent of the
assignment.                                                                     

     3.9 Partnership Interest of General Partners. The General Partners shall be
allocated a total of one percent (1%) of all items of Partnership income, gains,
losses,  deductions  and credits as  described  in Section  5.1,  which shall be
shared equally among them.                                                      

     3.10 Removal of General Partners. A General Partner may be removed upon the
following conditions:                                                           

     (a) By written  consent  of a majority  of the  Limited  Partners.  Limited
Partners may exercise such right by presenting to the General  Partner a notice,
with their  acknowledged  signatures  thereon,  to the effect  that the  General
Partner is removed;  the notice  shall set forth the grounds for removal and the
date on which removal is become effective;                                      

     (b) Concurrently  with such notice or within thirty (30) days thereafter by
notice  similarly given, a majority of the Limited Partners may also designate a
successor as General Partner;                                                   

     (c) Substitution of a new General Partner,  if any, shall be effective upon
written  acceptance of the duties and  responsibilities  of a General Partner by
the new General Partner.  Upon effective  substitution of a new General Partner,
this Agreement  shall remain in full force and effect,  except for the change in
the General Partner,  and business of the Partnership  shall be continued by the
new General Partner.  The new General Partner shall thereupon execute,  file and
record an  amendment to the  Certificate  of Limited  Partnership  in the manner
required by law.                                                                

     (d) Failure of the Limited Partners giving notice of removal to designate a
new  General  Partner  within  the time  specified  herein or failure of the new
General  Partner so designated to execute  written  acceptance of the duties and
responsibilities  of a General Partner hereunder within ten (10) days after such
designation shall dissolve and terminate the Partnership, unless the business of
the Partnership is continued by the remaining General Partners, if any.         

     In the event that all of the General Partners are removed, no other General
Partners are elected,  the Partnership is liquidated and Redwood  Mortgage is no
longer receiving payments for services rendered,  the debt on the Formation Loan
shall be forgiven by the  Partnership  and Redwood  Mortgage will be immediately
released from any further obligation under the Formation Loan.                  

     3.11  Commingling  of  Funds.  The  funds of the  Partnership  shall not be
commingled with funds of any other person or entity.                            

     3.12  Right  to Rely on  General  Partners.  Any  person  dealing  with the
Partnership may rely (without duty of further inquiry) upon a certificate signed
by the General Partners as to:                                                  

(a) The identity of any General Partner or Limited Partner;           

     (b) The existence or nonexistence  of any fact or facts which  constitute a
condition  precedent  to acts by a General  Partner or which are in any  further
manner germane to the affairs of the Partnership;                               

     (c) The persons who are authorized to execute and deliver any instrument or
document of the Partnership; or                                                 

     (d)  Any act or  failure  to act by the  Partnership  or any  other  matter
whatsoever involving the Partnership or any Partner.                            

     3.13 Sole and Absolute  Discretion.  Except as  otherwise  provided in this
Agreement, all actions which any General Partner may take and all determinations
which any  General  Partner  may take and all  determinations  which any General
Partners may make  pursuant to this  Agreement may be taken and made at the sole
and absolute discretion of such General Partner.                                

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     3.14 Merger or Reorganization of the General Partners. The following is not
prohibited and will not cause a dissolution of the Partnership:  (a) a merger or
reorganization of the General Partners or the transfer of the ownership interest
of the General Partners;  and (b) the assumption of the rights and duties of the
General  Partners  by the  transferee  of the rights  and duties of the  General
Partners by the  transferee  entity so long as such  transferee  is an affiliate
under the control of the General Partners.                                      

     3.15 Dissenting  Limited Partners' Rights. If the Partnership  participates
in any acquisition of the Partnership by another entity,  any combination of the
Partnership  with  another  entity  through  a merger or  consolidation,  or any
conversion of the  Partnership  into another form of business  entity (such as a
corporation) that requires the approval of the outstanding  limited  partnership
interest,  the result of which would cause the other entity to issue  securities
to the Limited Partners,  then each Limited Partner who does not approve of such
reorganization (the "Dissenting Limited Partner") may require the Partnership to
purchase for cash,  at its fair market  value,  the  interest of the  Dissenting
Limited  Partner in the  Partnership in accordance  with Section  15679.2 of the
California  Corporations Code. The Partnership,  however,  may itself convert to
another form of business entity (such as a corporation, trust or association) if
the conversion will not result in a significant adverse change in (i) the voting
rights of the Limited  Partners,  (ii) the  termination  date of the Partnership
(currently,  December 31, 2032, unless terminated earlier in accordance with the
Partnership  Agreement),  (iii) the compensation payable to the General Partners
or their Affiliates, or (iv) the Partnership's investment objectives.           

     The General  Partners will make the  determination as to whether or not any
such  conversion  will  result  in a  significant  adverse  change in any of the
provisions  listed in the preceding  paragraph based on various factors relevant
at the time of the  proposed  conversion,  including an analysis of the historic
and projected  operations of the  Partnership;  the tax  consequences  (from the
standpoint  of the Limited  Partners) of the  conversion of the  Partnership  to
another form of business entity and of an investment in a limited partnership as
compared  to an  investment  in the  type of  business  entity  into  which  the
Partnership would be converted;  the historic and projected operating results of
the  Partnership's   Mortgage  Investments,   and  the  then-current  value  and
marketability of the Partnership's Mortgage Investments. In general, the General
Partners  would  consider any material  limitation  on the voting  rights of the
Limited Partners or any substantial  increase in the compensation payable to the
General Partners or their  Affiliates to be a significant  adverse change in the
listed provisions.                                                              

     3.16  Exculpation and  Indemnification.  The General Partners shall have no
liability  whatsoever to the Partnership or to any Limited Partner, so long as a
General  Partner  determined  in good  faith,  that the course of conduct  which
caused the loss or liability was in the best interests of the  Partnership,  and
such  loss or  liability  did not  result  from the  gross  negligence  or gross
misconduct of the General Partner being held harmless.  The General  Partners or
any  Partnership  employee or agent shall be entitled to be  indemnified  by the
Partnership,  at the expense of the  Partnership,  against any loss or liability
(including  attorneys'  fees,  which shall be paid as incurred)  resulting  from
assertion of any claim or legal  proceeding  relating to the  activities  of the
Partnership,  including claims, or legal proceedings brought by a third party or
by Limited Partners, on their own behalf or as a Partnership derivative suit, so
long as the party to be indemnified  determined in good faith that the course of
conduct which gave rise to such claim or proceeding was in the best interests of
the Partnership and such course of conduct did not constitute  gross  negligence
or gross misconduct;  provided,  however, any such indemnification shall only be
recoverable out of the assets of the Partnership and not from Limited  Partners.
Nothing  herein shall prohibit the  Partnership  from paying in whole or in part
the premiums or other  charge for any type of  indemnity  insurance by which the
General Partners or other agents or employees of the Partnership are indemnified
or insured  against  liability  or loss  arising out of their actual or asserted
misfeasance  or  nonfeasance  in the  performance  of their duties or out of any
actual or  asserted  wrongful  act against the  Partnership  including,  but not
limited to judgments, fines, settlements and expenses incurred in the defense of
actions,  proceedings  and appeals  therefrom.  Notwithstanding  the  foregoing,
neither the General  Partners nor their  affiliates shall be indemnified for any
liability imposed by judgment (including costs and attorneys' fees) arising from
or out of a violation of state or federal  securities  laws  associated with the
offer and sale of Units offered hereby. However, indemnification will be allowed
for  settlements  and  related  expenses  of lawsuits  alleging  securities  law
violations  and for expenses  incurred in  successfully  defending such lawsuits
provided that (a) a court either approves indemnification of litigation costs if
the  General  Partners  are  successful  in  defending  the  action;  or (b) the
settlement  and  indemnification  is  specifically  approved by the court of law
which shall have been advised as to the current  position of the  Securities and
Exchange  Commission (as to any claim involving  allegations that the Securities
Act of 1933 was violated) and California  Commissioner  of  Corporations  or the
applicable  state  authority  (as to any claim  involving  allegations  that the
applicable state's securities laws were violated).                              

 ARTICLE 4
 CAPITAL CONTRIBUTIONS; THE LIMITED PARTNERS

     4.1  Capital  Contribution  by  General  Partners.  The  General  Partners,
collectively,  shall  contribute to the  Partnership  an amount in cash equal to
1/10 of 1% of the aggregate capital contributions of the Limited Partners.      

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4.2 Other Contributions.                                              

     (a) Capital Contribution by Initial Limited Partner.  Upon the execution of
this Agreement,  the Initial Limited Partner made a cash capital contribution to
the Partnership of $1,000.  Upon the admission of additional Limited Partners to
the Partnership  pursuant to Section 4.2(b) of this  Agreement,  the Partnership
promptly refunded to the Initial Limited Partner its $1,000 capital contribution
and upon receipt of such sum the Initial  Limited Partner was withdrawn from the
Partnership as its Initial Limited Partner.                                     

     (b)  Capital  Contributions  of Existing  Limited  Partners.  The  Existing
Limited  Partners  have  contributed  in the  aggregate  to the  capital  of the
Partnership an amount equal to $12,350,741 as of June 30, 1996.                 

     (c) Capital Contributions of New Limited Partners. The New Limited Partners
shall  contribute  to the  capital  of the  Partnership  an amount  equal to one
hundred  dollars  ($100) for each Unit  subscribed  for by each such New Limited
Partners,  with a minimum  subscription of twenty (20) Units per Limited Partner
(including subscriptions from entities of which such limited partner is the sole
beneficial owner). The total additional capital contributions of the New Limited
Partners will not exceed $30,000,000.                                           

     (d) Escrow Account.  No escrow account will be established and all proceeds
from the sale of Units will be remitted directly to the Partnership.            

     Subscription  Agreements  shall be accepted  or rejected  within 30 days of
their receipt.  All subscription monies deposited by persons whose subscriptions
are  rejected  shall  be  returned  to such  subscribers  forthwith  after  such
rejection  without  interest.  The public  offering of Units shall terminate one
year from the effective  date of the  Prospectus  unless fully  subscribed at an
earlier date or terminated on an earlier date by the General Partners, or unless
extended by the General Partners for additional one year periods.               

     (e) Subscription  Account.  Subscriptions  received after the activation of
the  Partnership  will be deposited into a  subscription  account at a federally
insured   commercial  bank  or  other  depository  and  invested  in  short-term
certificates  of  deposit,  a  money  market  or  other  liquid  asset  account.
Prospective investors whose subscriptions are accepted will be admitted into the
Partnership only when their  subscription  funds are required by the Partnership
to fund a Mortgage  Investment,  or the Formation  Loan,  to create  appropriate
reserves or to pay organizational expenses or other proper Partnership purposes.
During the period prior to admittance of investors as Limited Partners, proceeds
from the sale of Units are irrevocable, and will be held by the General Partners
for the account of Limited  Partners  in the  subscription  account.  Investors'
funds will be transferred from the subscription  account into the Partnership on
a first-in,  first-out basis.  Upon admission to the  Partnership,  subscription
funds will be released to the  Partnership  and Units will be issued at the rate
of $100 per unit or fraction  thereof.  Interest  earned on  subscription  funds
while in the subscription account will be returned to the subscriber,  or if the
subscriber elects to compound  earnings,  the amount equal to such interest will
be added to his investment in the Partnership,  and the number of Units actually
issued  shall  be  increased  accordingly.  In the  event  only a  portion  of a
subscribing  Limited  Partner's  funds are required,  then all funds invested by
such  subscribing  Limited  Partners at the same time shall be transferred.  Any
subscription funds remaining in the subscription account after the expiration of
one (1) year from the date any such  subscription  funds were first  received by
the General Partners shall be returned to the subscriber.                       

     (f) Admission of Limited Partners. Subscribers shall be admitted as Limited
Partners when their subscription funds are required by the Partnership to fund a
Mortgage Investment, or the Formation Loan, to create appropriate reserves or to
pay organizational expenses, as described in the Prospectus. Subscriptions shall
be accepted or  rejected  by the General  Partners on behalf of the  Partnership
within 30 days of their  receipt.  Rejected  subscriptions  and monies  shall be
returned to subscribers forthwith.                                              

     The Partnership shall amend Schedule A to the Limited Partnership Agreement
from time to time to effect the substitution of substituted  Limited Partners in
the case of  assignments,  where  the  assignee  does not  become a  substituted
Limited Partner,  the Partnership  shall recognize the assignment not later than
the last day of the calendar month following acceptance of the assignment by the
General Partners.                                                               

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     No person  shall be admitted as a Limited  Partner who has not executed and
filed with the  Partnership  the  subscription  form specified in the Prospectus
used in connection with the public offering,  together with such other documents
and  instruments  as the General  Partners  may deem  necessary  or desirable to
effect  such   admission,   including,   but  not  limited  to,  the  execution,
acknowledgment  and  delivery to the General  Partners of a power of attorney in
form and substance as described in Section 2.8 hereof.                          

     (g) Names,  Addresses,  Date of Admissions,  and  Contributions  of Limited
Partners. The names, addresses,  date of admissions and Capital Contributions of
the  Limited  Partners  shall be set forth in  Schedule  A attached  hereto,  as
amended from time to time, and incorporated herein by reference.                

     4.3 Election to Receive  Monthly,  Quarterly or Annual Cash  Distributions.
Upon subscription for Units, a subscribing Limited Partner must elect whether to
receive monthly,  quarterly or annual cash distributions from the Partnership or
to  receive  additional  Units  in lieu of cash  distributions.  If the  Limited
Partner initially elects to receive monthly,  quarterly or annual distributions,
such election, once made, is irrevocable.  However, a Limited Partner may change
his  election  regarding  whether he wants to receive  such  distributions  on a
monthly,  quarterly or annual basis. If the Limited Partner  initially elects to
receive additional Units in lieu of cash  distributions,  he may after three (3)
years,  change his  election  and  receive  monthly,  quarterly  or annual  cash
distributions.  Earnings  allocable  to  Limited  Partners  who elect to receive
additional Units will be retained by the Partnership for making further Mortgage
Investments or for other proper Partnership  purposes,  and such amounts will be
added to such Limited Partners' Capital Accounts. The Earnings from such further
Mortgage  Investments  will be allocated  among all Partners;  however,  Limited
Partners  who  elect  to  receive  additional  Units  will be  credited  with an
increasingly  larger  proportionate share of such Earnings than Limited Partners
who receive monthly,  quarterly or annual  distributions since Limited Partners'
Capital Accounts who elect to receive  additional Units will increase over time.
Annual distributions will be made after the calendar year.                      

     4.4  Interest.  No  interest  shall  be paid  on,  or in  respect  of,  any
contribution to Partnership  Capital by any Partner,  nor shall any Partner have
the  right to  demand  or  receive  cash or other  property  in  return  for the
Partner's Capital Contribution.                                                 

     4.5 Loans.  Any Partner or  Affiliate  of a Partner  may,  with the written
consent of the General  Partners,  lend or advance money to the Partnership.  If
the General Partners or, with the written consent of the General  Partners,  any
Limited  Partner shall make any loans to the Partnership or advance money on its
behalf,  the  amount  of any such loan or  advance  shall  not be  treated  as a
contribution to the capital of the Partnership, but shall be a debt due from the
Partnership.  The amount of any such loan or advance by a lending  Partner or an
Affiliate of a Partner  shall be  repayable  out of the  Partnership's  cash and
shall bear  interest  at a rate of not in excess of the greater of (i) the prime
rate  established,  from time to time, by any major bank selected by the General
Partners for loans to the bank's most creditworthy commercial borrowers, plus 5%
per annum,  or (ii) the maximum rate  permitted by law.  None of the Partners or
their  Affiliates  shall  be  obligated  to  make  any  loan or  advance  to the
Partnership.                                                                    

     4.6 No  Participation in Management.  Except as expressly  provided herein,
the  Limited  Partners  shall  take no part in the  conduct  or  control  of the
Partnership business and shall have no right or authority to act for or bind the
Partnership.                                                                    

     4.7 Rights  and Powers of Limited  Partners.  In  addition  to the  matters
described in Section 3.10 above,  the Limited  Partners  shall have the right to
vote upon and take any of the following  actions upon the approval of a Majority
of the Limited Partners, without the concurrence of the General Partners.       

     (a) Dissolution and termination of the Partnership  prior to the expiration
of the term of the Partnership as stated in Section 2.7 above                   

     (b) Amendment of this  Agreement,  subject to the  limitations set forth in
Section 12.4;                                                                   

     (c) Disapproval of the sale of all or  substantially  all the assets of the
Partnership (as defined in Subsection 9.1(c) below); or                         

     (d) Removal of the General  Partners and  election of a  successor,  in the
manner and subject to the conditions described in Section 3.10 above.           

     Except as  expressly  set forth  above or  otherwise  provided  for in this
Agreement,  the Limited  Partners shall have no other rights as set forth in the
California Act.                                                                 

     4.8 Meetings.  The General Partners,  or Limited Partners  representing ten
percent  (10%) of the  outstanding  Limited  Partnership  Interests,  may call a
meeting  of the  Partnership  and,  if  desired,  propose an  amendment  to this
Agreement to be considered at such meeting. If Limited Partners representing the
requisite  Limited  Partnership  Interests  present  to the  General  Partners a
statement  requesting a Partnership  meeting,  the General  Partners shall fix a
date for such meeting and shall,  within  twenty (20) days after receipt of such
statement,  notify all of the Limited  Partners of the date of such  meeting and
the  purpose  for which it has been  called.  Unless  otherwise  specified,  all
meetings  of the  Partnership  shall be held at 2:00 P.M.  at the  office of the
Partnership,  upon not less  than ten (10) and not more  than  sixty  (60)  days
written notice. At any meeting of the Partnership,  Limited Partners may vote in
person or by proxy. A majority of the Limited Partners,  present in person or by
proxy,  shall  constitute  a quorum at any  Partnership  meeting.  Any  question
relating  to the  Partnership  which may be  considered  and  acted  upon by the
Limited  Partners  hereunder  may be  considered  and  acted  upon  by vote at a
Partnership  meeting,  and any consent required to be in writing shall be deemed
given  by a  vote  by  written  ballot.  Except  as  expressly  provided  above,
additional  meeting and voting  procedures  shall be in conformity  with Section
1563 of the California Corporations Code, as amended.                           

     4.9 Limited Liability of Limited Partners. Units are non-assessable, and no
Limited Partner shall be personally liable for any of the expenses, liabilities,
or  obligations  of the  Partnership or for any of the losses thereof beyond the
amount of such Limited  Partners'  capital  contribution  to the Partnership and
such Limited  Partners' share of any  undistributed  net income and gains of the
Partnership,  provided,  that any return of capital  to Limited  Partners  (plus
interest at the legal rate on any such amount from the date of its return)  will
remain liable for the payment of Partnership  debts existing on the date of such
return of capital;  and,  provided  further,  that such Limited Partner shall be
obligated upon demand by the General  Partners to pay the Partnership cash equal
to the amount of any deficit  remaining  in his Capital  Account upon winding up
and termination of the Partnership.                                             

     4.10  Representation  of Partnership.  Each of the Limited  Partners hereby
acknowledges and agrees that the attorneys  representing the Partnership and the
General  Partners and their  Affiliates do not represent and shall not be deemed
under the applicable codes of professional responsibility to have represented or
be representing  any or all of the Limited  Partners in any respect at any time.
Each of the Limited Partners further acknowledges and agrees that such attorneys
shall have no obligation to furnish the Limited Partners with any information or
documents obtained, received or created in connection with the representation of
the Partnership, the General Partners and/or their Affiliates.                  

 ARTICLE 5
PROFITS AND LOSSES; CASH DISTRIBUTIONS

     5.1 Income and Losses.  All Income and Losses of the  Partnership  shall be
credited to and charged  against the Partners in proportion to their  respective
"Partnership  Interests",  as hereafter defined. The Partnership Interest of the
General Partners shall at all times be a total of one percent (1%), to be shared
equally  among  them  and  the  Partnership  Interest  of the  Limited  Partners
collectively shall be ninety-nine  percent (99%), which shall be allocated among
them according to their respective  Limited  Partnership  Interests.  Income and
Losses  realized by the  Partnership  during any month shall be allocated to the
Partners as of the close of business on the last day of each calendar  month, in
accordance with their respective Limited Partnership Interests and in proportion
to the number of days during such month that they owned such Limited Partnership
Interests,  without  regard to Income and Losses  realized  with respect to time
periods within such month.                                                      

     5.2 Cash Earnings.  Earnings as of the close of business on the last day of
each calendar month shall be allocated among the Partners in the same proportion
as Income and Losses as  described in Section 5.1 above.  Earnings  allocable to
those  Limited  Partners  who elect to receive cash  distributions  as described
below shall be distributed to them in cash as soon as practicable  after the end
of each calendar month. The General Partners'  allocable share of Earnings shall
also be distributed  concurrently  with cash  distributions to Limited Partners.
Earnings  allocable to those Limited Partners who elected to receive  additional
Units shall be  retained by the  Partnership  and  credited to their  respective
Capital Accounts as of the first day of the succeeding calendar month.  Earnings
to Limited  Partners  shall be  distributed  only to those Limited  Partners who
elect in writing,  upon their initial  subscription for the purchase of Units or
after  three (3) years to  receive  such  distributions  during  the term of the
Partnership.   Each  Limited   Partner's   decision   whether  to  receive  such
distributions shall be irrevocable, except as set forth in paragraph 4.3 above. 

     5.3 Cash Distributions  Upon Termination.  Upon dissolution and termination
of  the  Partnership,  Cash  Available  for  Distribution  shall  thereafter  be
distributed to Partners in accordance with the provisions of Section 9.3 below. 

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5.4 Special Allocation Rules.                                         

     (a) For purposes of this Agreement,  a loss or allocation (or item thereof)
is attributable to non-recourse debt which is secured by Partnership property to
the  extent of the  excess of the  outstanding  principal  balance  of such debt
(excluding any portion of such  principal  balance which would not be treated as
an amount realized under Internal Revenue Code Section 1001 and Paragraph (a) of
Section  1.1001-2 if such debt were  foreclosed  upon over the adjusted basis of
such property.  This excess is herein defined as "Minimum Gain (whether  taxable
as capital gain or as ordinary  income) as more explicitly set forth in Treasury
Regulation T.704 l(b)(4)(iv)(c).  Notwithstanding any other provision of Article
V, the  allocation  of loss or  deduction  (or  item  thereof,  attributable  to
non-recourse debt which is secured by Partnership  property will be allowed only
to the extent that such allocation does not cause the sum of the deficit capital
account  balances of the Limited  Partners  receiving such allocations to exceed
the minimum gain determined at the end of the Partnership able year to which the
allocations relate. The balance of such losses shall be allocated to the General
Partners.  Any Limited Partner with a deficit capital account balance  resulting
in whole or in part from  allocations  of loss or  deduction  (or item  thereof)
attributable  to  non-recourse  debt which is secured  by  Partnership  property
shall, to the extent possible,  be allocated income or gain (or item thereof) in
an amount  not less than the  minimum  gain at a time no later  than the time at
which the minimum gain is reduced below the sum if such deficit  capital account
balances.  This section is intended and shall be  interpreted to comply with the
requirements of Treasury Regulation Section 1.704-l(b)(4)(iv)(e).               

     (b) In the event any Limited Partner receives any adjustments,  allocations
or distributions,  not covered by Section 75.4(a),  so as to result in a deficit
capital  account,  items  of  Partnership  income  and gain  shall be  specially
allocated  to such  Limited  Partners  in an amount  and  manner  sufficient  to
eliminate  the  deficit  balances  in their  Capital  Accounts  created  by such
adjustments,  allocations or distributions as quickly as possible.  This Section
shall  operate a qualified  income  offset as  utilized  in Treasury  Regulation
Section 1.704-1(b)(23)(ii)(d).                                                  

     (c)  Syndication  expenses  for any fiscal  year or other  period  shall be
specially  allocated  to the Limited  Partners  in  proportion  to their  Units,
provided that if additional  Limited Partners are admitted to the Partnership on
different dates, all Syndication Expenses shall be divided among the Persons who
own Units from time to time so that,  to the  extent  possible,  the  cumulative
Syndication Expenses allocated with respect to each Unit at any time is the same
amount.  In the event the General  Partners shall  determine that such result is
not likely to be achieved  through future  allocations of Syndication  Expenses,
the  General  Partners  may  allocate a portion of Net Income or Losses so as to
achieve  the  same  effect  on  the  Capital   Accounts  of  the  Unit  Holders,
notwithstanding any other provision of this Agreement.                          

     (d) For purposes of determining  the Net Income,  Net Losses,  or any other
items allocable to any period,  Net Income, Net Losses, and any such other items
shall be determined on a daily,  monthly,  or other basis,  as determined by the
General  Partners  using any  permissible  method under Code Section 706 and the
Treasury Regulations thereunder.                                                

     (e) Notwithstanding Section 5.1 and 5.2 hereof, (i) Net Losses allocable to
the period prior to the admission of any additional Limited Partners pursuant to
Section 4.2(b) and (e) hereof shall be allocated 99% to the General Partners and
1% to the Initial  Limited  Partner and Net Income  during that same period,  if
any,  shall be  allocated  to the General  Partners,  and (ii) Profits or Losses
allocable to the period  commencing  with the admission of any  additional  such
Limited  Partners and all  subsequent  periods  shall be  allocated  pursuant to
Section 5.1.                                                                    

     (f)  Except  as  otherwise  provided  in  this  Agreement,   all  items  of
Partnership  income,  gain,  loss,  deduction,  and any  other  allocations  not
otherwise  provided  for  shall  be  divided  among  the  Partners  in the  same
proportions as they share Net Income or Net Losses,  as the case may be, for the
year.                                                                           

     5.5 704(c)  Allocations.  In  accordance  with Code 704(c) and the Treasury
Regulations  thereunder  income,  gain,  loss, and deduction with respect to any
property  contributed to the capital of the  Partnership  shall,  solely for tax
purposes, be allocated among the Partners so as to take account of any variation
between  the  adjusted  basis of such  property to the  Partnership  for federal
income tax purposes and its initial fair market value.                          

     Any elections or other decisions relating to such allocations shall be made
by the General  Partners in any manner that reasonably  reflects the purpose and
intention of this Agreement. Allocations pursuant to this Section 5.5 are solely
for purposes of federal,  state, and local taxes and shall not affect, or in any
way be taken into account in computing, any Person's Capital Account or share of
Profits, Losses, other items, or distributions pursuant to any provision of this
Agreement.                                                                      

     5.6 Intent of Allocations.  It is the intent of the  Partnership  that this
Agreement  comply  with the safe  harbor  test  set out in  Treasury  Regulation
Sections  1.704-1(b)(2)(ii)(D)  and 1.704-l(b)(4)(iv)(D) and the requirements of
those  Sections,   including  the  qualified  income  offset  and  minimum  gain
chargeback,  which are  hereby  incorporated  by  reference.  If,  for  whatever
reasons,  the  Partnership  is advised by  counsel or its  accountants  that the
allocation provisions of this Agreement are unlikely to be respected for federal
income tax purposes, the General Partners are granted the authority to amend the
allocation provisions of this Agreement,  to the minimum extent deemed necessary
by  counsel  or  its   accountants  to  effect  the  plan  of  Allocations   and
Distributions  provided in this Agreement.  The General  Partners shall have the
discretion to adopt and revise rules,  conventions and procedures as it believes
appropriate  with  respect  to the  admission  of  Limited  Partners  to reflect
Partners' interests in the Partnership at the close of the years.               

     5.7  Guaranteed  Payment for Offering  Period.  The Limited  Partners shall
receive a guaranteed  payment from the  Earnings of the  Partnership  during the
Guaranteed   Payment  Period.   The  Guaranteed  Payment  for  Offering  Period,
calculated  on a  monthly  basis,  shall  be  equal  to the  greater  of (i) the
Partnership's  Earnings or (ii) the  interest  rate  established  by the Monthly
Weighted  Average Cost of Funds for the 11th District Savings  Institutions,  as
announced by the Federal Home Loan Bank of San Francisco during the last week of
the preceding month,  plus two points, up to a maximum interest rate of 12%. The
Weighted  Average  Cost of Funds is derived  from the  interest  paid on savings
accounts, Federal Home Loan Bank advances, and other borrowed money adjusted for
valuation in the number of days in each month. The adjustment  factors are 1.086
for  February,  1.024 for 30 day months and 0.981 for 31 day  months.  As of the
date of the Prospectus the Monthly  Weighted  Average Cost of Funds for the 11th
District as announced August 30, 1996, for the period ended May 30, 1996, and in
effect until September 30, 1996, is 4.819%. The Guaranteed Payment Period is the
period  commencing on the day a Limited  Partner is admitted to the  Partnership
and ending three months after the Offering  Termination  Date. To the extent the
interest  rate  to be paid  is in  excess  of the  Partnership's  Earnings,  the
Guaranteed  Payment for Offering Period shall be payable by the General Partners
out of a Capital  Contribution,  to the  Partnership  and/or fees payable to the
General Partners or Redwood Mortgage which are lowered or waived.               

     Amounts  paid  pursuant  to this  Section 5.7 are  intended  to  constitute
guaranteed  payments within the meaning of I.R.C.  Code Section 707(c) and shall
not be treated as  distributions  for  purposes  of  computing  the  recipient's
Capital  Accounts.  In the event the  Partnership is unable to make any payments
required to be made  pursuant to this Section 5.7,  the General  Partners  shall
promptly  make  additional  Capital  Contributions   sufficient  to  enable  the
Partnership to make such payments on a timely basis;  provided however, that the
General  Partners  shall not be obligated to make such Capital  Contribution  if
such amounts  would be subject to claims of creditors  such that the  guaranteed
payments  would not be  available  to be made to the Limited  Partners.  In such
event,  the General Partners shall pay the interest out of its fees as set forth
above.                                                                          

 ARTICLE 6
BOOKS AND RECORDS, REPORTS AND RETURNS

     6.1 Books and Records.  The General Partners shall cause the Partnership to
keep the following:                                                             

     (a) Complete  books and records of account in which shall be entered  fully
and accurately all transactions and other matters relating to the Partnership.  

     (b) A current list setting  forth the full name and last known  business or
residence  address of each Partner which shall be listed in  alphabetical  order
and stating his respective Capital  Contribution to the Partnership and share in
Profits and Losses.                                                             

     (c) A copy of the  Certificate  of Limited  Partnership  and all amendments
thereto.                                                                        

     (d) Copies of the Partnership's federal, state and local income tax returns
and reports, if any, for the six (6) most recent years.                         

     (e) Copies of this  Agreement,  including all amendments  thereto,  and the
financial statements of the Partnership for the three (3) most recent years.    

     All such  books  and  records  shall  be  maintained  at the  Partnership's
principal  place of business and shall be available for  inspection  and copying
by, and at the sole expense of, any Partner,  or any Partner's  duly  authorized
representatives, during reasonable business hours.                              

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     6.2 Annual  Statements.  The General Partners shall cause to be prepared at
least  annually,  at  Partnership  expense,  financial  statements  prepared  in
accordance with generally  accepted  accounting  principles and accompanied by a
report  thereon  containing  an  opinion  of  an  independent  certified  public
accounting  firm.  The  financial  statements  will  include  a  balance  sheet,
statements  of  income or loss,  partners'  equity,  and  changes  in  financial
position.  The  General  Partners  shall have  prepared  at least  annually,  at
Partnership expense: (i) a statement of Cash Flow; (ii) Partnership  information
necessary in the preparation of the Limited  Partners'  federal and state income
tax returns; (iii) a report of the business of the Partnership; (iv) a statement
as to the compensation  received by the General  Partners and their  Affiliates,
during the year from the Partnership which shall set forth the services rendered
or to be rendered by the General Partners and their Affiliates and the amount of
fees received;  and (v) a report identifying  distributions from (a) Earnings of
that year, (b) Earnings of prior years,  (c) Working Capital  Reserves and other
sources, and (d) a report on the costs reimbursed to the General Partners, which
allocation  shall be verified by  independent  public  accountants in accordance
with generally accepted auditing standards.  Copies of the financial  statements
and reports shall be distributed  to each Limited  Partner within 120 days after
the  close of each  taxable  year of the  Partnership;  provided,  however,  all
Partnership  information  necessary in the preparation of the Limited  Partners'
federal  income tax returns  shall be  distributed  to each Limited  Partner not
later than 90 days after the close of each fiscal year of the Partnership.      

     6.3 Semi-Annual  Report.  Until the Partnership is registered under Section
12(g) of the Securities  Exchange Act of 1934,  the General  Partners shall have
prepared,  at Partnership  expense,  a semi-annual report covering the first six
months of each fiscal year,  commencing  with the six-month  period ending after
the Initial Closing Date, and containing unaudited financial statements (balance
sheet,  statement of income or loss and  statement of Cash Flow) and a statement
of other  pertinent  information  regarding the  Partnership  and its activities
during the six-month period.  Copies of this report shall be distributed to each
Limited Partner within 60 days after the close of the six-month period.         

     6.4  Quarterly  Reports.  The General  Partners  shall cause to be prepared
quarterly,  at Partnership Expense: (i) a statement of the compensation received
by the General Partners and Affiliates  during the quarter from the Partnership,
which  statement shall set forth the services  rendered by the General  Partners
and  Affiliates  and the  amount  of fees  received,  and  (ii)  other  relevant
information.  Copies of the  statements  shall be  distributed  to each  Limited
Partner within 60 days after the end of each quarterly  period.  The information
required by Form 10-Q (if required to be filed with the  Securities and Exchange
Commission)  will be supplied  to each  Limited  Partner  within 60 days of each
quarterly  period.  If the Partnership is registered  under Section 12(g) of the
Securities Exchange Act of 1934, as amended, the General Partners shall cause to
be prepared,  at Partnership  expense,  a quarterly report for each of the first
three quarters in each fiscal year  containing  unaudited  financial  statements
(consisting of a balance sheet, a statement of income or loss and a statement of
Cash  Flow)  and a  statement  of  other  pertinent  information  regarding  the
Partnership and its activities  during the period covered by the report.  Copies
of the statements and other pertinent  information  shall be distributed to each
Limited  Partner  within 60 days after the close of the  quarter  covered by the
report  of  the  Partnership.   The  quarterly  financial  statements  shall  be
accompanied  by the  report  thereon,  if any,  of the  independent  accountants
engaged by the  Partnership  or, if there is no such report,  the certificate of
the General  Partners that the financial  statements were prepared without audit
from  the  books  and  records  of the  Partnership.  Copies  of  the  financial
statements,  if any, filed with the Securities and Exchange  Commission shall be
distributed  to each  Limited  Partner  within  60 days  after  the close of the
quarterly period covered by the report of the Partnership.                      

     6.5 Filings. The General Partners, at Partnership expense,  shall cause the
income tax returns for the  Partnership to be prepared and timely filed with the
appropriate  authorities.  The General Partners,  at Partnership expense,  shall
also cause to be prepared and timely filed,  with appropriate  federal and state
regulatory  and  administrative  bodies,  all reports  required to be filed with
those entities under then current  applicable laws,  rules and regulations.  The
reports shall be prepared by the  accounting or reporting  basis required by the
regulatory  bodies.  Any Limited Partner shall be provided with a copy of any of
the reports  upon  request  without  expense to him.  The General  Partners,  at
Partnership  expense,  shall file,  with the securities  administrators  for the
various  states in which this  Partnership  is  registered,  as required by such
states, a copy of each report referred to this Article VI.                      

     6.6 Suitability Requirements. The General Partners, at Partnership expense,
shall  maintain for a period of at least four years a record of the  information
obtained  to  indicate  that a Limited  Partner  complies  with the  suitability
standards set forth in the Prospectus.                                          

6.7 Fiscal Matters.                                                   

     (a) Fiscal Year. The Partnership shall adopt a fiscal year beginning on the
first  day of  January  of each  year and  ending  on the last day of  December;
provided,  however,  that the  General  Partners in their sole  discretion  may,
subject to approval by the Internal  Revenue  Service and the  applicable  state
taxing  authorities  at any time  without the  approval of the Limited  Partners
change the Partnership's fiscal year to a period to be determined by the General
Partners.                                                                       

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     (b) Method of Accounting.  The accrual  method of accounting  shall be used
for both income tax purposes and financial reporting purposes.                  

     (c)  Adjustment  of Tax Basis.  Upon the  transfer  of an  interest  in the
Partnership,  the  Partnership  may,  at the  sole  discretion  of  the  General
Partners, elect pursuant to Section 754 of the Internal Revenue Code of 1986, as
amended, to adjust the basis of the Partnership  property as allowed by Sections
734(b) and 743(b) thereof.                                                      

     6.8 Tax  Matters  Partner.  In the  event the  Partnership  is  subject  to
administrative  or judicial  proceedings  for the  assessment  or  collection of
deficiencies  for federal taxes for the refund of  overpayments of federal taxes
arising out of a Partner's  distributive  share of profits,  Michael R. Burwell,
for so long as he is a General  Partner,  shall act as the  Tax-Matters  Partner
("TMP")  and shall  have all the powers  and  duties  assigned  to the TMP under
Sections 6221 through 6232 of the Code and the Treasury Regulations  thereunder.
The Partners agree to perform all acts necessary  under Section 6231 of the Code
and Treasury Regulations thereunder to designate Michael R. Burwell as the TMP. 

 ARTICLE 7
 TRANSFER OF PARTNERSHIP INTERESTS

     7.1 Interest of General Partners. A successor or additional General Partner
may be admitted to the Partnership as follows:                                  

     (a) With the consent of all General  Partners and a Majority of the Limited
Partners,  any General  Partner may at any time designate one or more Persons to
be successors to such General Partner or to be additional  General Partners,  in
each case with such participation in such General Partner's Partnership Interest
as they may agree upon,  provided that the Limited  Partnership  Interests shall
not affected thereby; provided,  however, that the foregoing shall be subject to
the  provisions  of Section  9.1(d)  below,  which shall be  controlling  in any
situation to which such provisions are applicable.                              

     (b) Upon any sale or transfer of a General Partner's  Partnership Interest,
the successor  General Partner shall succeed to all the powers,  rights,  duties
and obligations of the assigning  General Partner  hereunder,  and the assigning
General Partner shall thereupon be irrevocably  released and discharged from any
further  liabilities  or  obligations  of or to the  Partnership  or the Limited
Partners  accruing  after the date of such  transfer.  The sale,  assignment  or
transfer of all or any portion of the outstanding  stock of a corporate  General
Partner,  or of any interest  therein,  or an assignment of a General  Partner's
Partnership  Interest for security  purposes  only,  shall not be deemed to be a
sale or transfer of such General Partner's  Partnership  interest subject to the
provisions of this Section 7.1.                                                 

     (c) In the event that all or any one of the initial  General  Partners  are
removed  by the vote of a  majority  of  Limited  Partners  and a  successor  or
additional General Partner(s) is designated pursuant to Section 3.10, prior to a
Person's admission as a successor or additional General Partner pursuant to this
Section 7.1, such Person shall execute in writing (i) acknowledging that Redwood
Mortgage, an Affiliate of the General Partners,  has been repaying the Formation
Loans,  which are discussed in Section 10.9,  with the proceeds it receives from
loan brokerage commissions on Mortgage Investments, fees received from the early
withdrawal  penalties and fees for other services paid by the  Partnership,  and
(ii) agreeing that if such  successor or additional  General  Partner(s)  begins
using the services of another mortgage loan broker or loan servicing agent, then
Redwood  Mortgage  shall  immediately  be released from all further  obligations
under the  Formation  Loans (except for a  proportionate  share of the principal
installment  due at  the  end of  that  year,  prorated  according  to the  days
elapsed).                                                                       

     7.2 Transfer of Limited Partnership  Interest.  No assignee of the whole or
any portion of a Limited Partnership  Interest in the Partnership shall have the
right to become a substituted  Limited Partner in place of his assignor,  unless
the following conditions are first met.                                         

     (a) The assignor shall designate such intention in a written  instrument of
assignment,  which shall be in a form and substance  reasonably  satisfactory to
the General Partners;                                                           

     (b) The written consent of the General Partners to such substitution  shall
be obtained, which consent shall not be unreasonably withheld, but which, in any
event,  shall not be given if the General  Partners  determine that such sale or
transfer may jeopardize the continued ability of the Partnership to qualify as a
"partnership"  for federal income tax purposes or that such sale or transfer may
violate any applicable  securities  laws  (including any investment  suitability
standards);                                                                     

     (c) The assignor and assignee  named therein shall execute and  acknowledge
such other  instruments as the General Partners may deem necessary to effectuate
such  substitution,  including,  but not limited  to, a power of  attorney  with
provisions more fully described in Sections 2.8 and 2.9 above;                  

     (d) The  assignee  shall  accept,  adopt and  approve in writing all of the
terms and provisions of this Agreement as the same may have been amended;       

     (e) Such  assignee  shall pay or, at the election of the General  Partners,
obligate   himself  to  pay  all   reasonable   expenses   connected  with  such
substitution, including but not limited to reasonable attorneys' fees associated
therewith; and                                                                  

     The Partnership has received,  if required by the General Partners, a legal
opinion satisfactory to the General Partners that such transfer will not violate
the  registration  provisions of the Securities  Act of 1933, as amended,  which
opinion shall be furnished at the Limited Partner's expense.                    

     7.3 Further Restrictions on Transfers. Notwithstanding any provision to the
contrary  contained herein,  the following  restrictions shall also apply to any
and  all  proposed  sales,  assignments  and  transfer  of  Limited  Partnership
Interests, and any proposed sale, assignment or transfer in violation of same to
void ab initio.                                                                 

     (a) No Limited  Partner shall make any transfer or assignment of all or any
part of his Limited  Partnership  Interest if said transfer or assignment would,
when considered with all other transfers during the same applicable twelve month
period,  cause a termination of the Partnership for federal or California  state
income tax purposes.                                                            

     (b) Instruments evidencing a Limited Partnership Interest shall bear and be
subject to legend conditions in substantially the following forms:              

     IT IS UNLAWFUL TO  CONSUMMATE A SALE OR TRANSFER OF THIS  SECURITY,  OR ANY
INTEREST  THEREIN OR TO RECEIVE ANY  CONSIDERATION  THEREFOR,  WITHOUT THE PRIOR
WRITTEN CONSENT OF THE  COMMISSIONER OR CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.                                

     (c) No Limited  Partner shall make any transfer or assignment of all or any
of his  Limited  Partnership  Interest if the General  Partners  determine  such
transfer or assignment  would result in the  Partnership  being  classified as a
"publicly traded partnership" with the meaning of Section 7704(b) of the Code or
any regulations or rules promulgated thereunder.                                

 ARTICLE 8
 WITHDRAWAL FROM PARTNERSHIP

     8.1 Withdrawal by Limited Partners. No Limited Partner shall have the right
to withdraw from the Partnership, receive cash distributions or otherwise obtain
the return of all or any portion of his Capital  Account balance for a period of
one year after such  Limited  Partner's  initial  purchase of Units,  except for
monthly,  quarterly or annual  distributions of Cash Available for Distribution,
if any, to which such  Limited  Partner may be entitled  pursuant to Section 5.2
above.  Withdrawal  after a minimum one year holding  period and before the five
year holding  period as set forth below shall be permitted  in  accordance  with
subsection (a) below.  If a Limited  Partner elects to withdraw either after the
one (1) year holding  period or the five (5) year  withholding  period,  he will
continue to receive  distributions or have those Earnings  compounded  depending
upon his initial election,  based upon the balance of his capital account during
the  withdrawal  period.  Limited  Partners may also withdraw  after a five year
holding period in accordance  with  subsection  b(i) and (ii). A Limited Partner
may withdraw or  partially  withdraw  from the  Partnership  upon the  following
terms:                                                                          

     (a) A Limited  Partner who desires to withdraw from the  Partnership  after
the expiration of the above referenced one year period shall give written notice
of withdrawal ("Notice of Withdrawal") to the General Partners,  which Notice of
Withdrawal shall state the sum or percentage interests to be withdrawn.  Subject
to the provisions of  subsections  (e) and (f) below,  such Limited  Partner may
liquidate  part or all of his entire  Capital  Account  in four equal  quarterly
installments  beginning the quarter following the quarter in which the Notice of
Withdrawal  is given,  provided  that such notice was received  thirty (30) days
prior to the end of the quarter.  An early  withdrawal under this subsection (a)
shall  be  subject  to a 10%  early  withdrawal  penalty  applicable  to the sum
withdrawn  as  stated in the  Notice of  Withdrawal.  The 10%  penalty  shall be
subject to and payable upon the terms set forth in subsection (c) below.        

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     (b) A Limited  Partner who desires to withdraw from the  Partnership  after
the  expiration  of the above  referenced  five year period  shall give  written
notice of  withdrawal  ("Notice of  Withdrawal")  to the General  Partners,  and
subject  to the  provisions  of  subsections  (e) and  (f)  below  such  Limited
Partner's Capital Account shall be liquidated as follows:                       

     (i) Except as provided in subsection  (b)(ii) below, the Limited  Partner's
Capital Account shall be liquidated in twenty (20) equal quarterly  installments
each equal to 5% of the total Capital  Account  beginning  the calendar  quarter
following the quarter in which the Notice of Withdrawal is given,  provided that
such  notice is  received  thirty  (30) days  prior to the end of the  preceding
quarter.  Upon approval by the General  Partners,  the Limited Partner's Capital
Account may be  liquidated  upon similar  terms over a period longer than twenty
(20) equal quarterly installments.                                              

     (ii)  Notwithstanding  subsection  (b)(i)  above,  any Limited  Partner may
liquidate part or all of his entire  outstanding  Capital  Account in four equal
quarterly installments beginning of the calendar quarter following the preceding
quarter in which Notice of  Withdrawal  is given,  provided that such notice was
received  thirty (30) days prior to the end of the preceding  quarter.  An early
withdrawal  under  this  subsection  8.1(b)(ii)  shall be subject to a 10% early
withdrawal penalty applicable to any sums prior to the time when such sums could
have  been  withdrawn  pursuant  to  the  withdrawal  provisions  set  forth  in
subsection (a)(i) above.                                                        

     (c) The 10% early  withdrawal  penalty  will be deducted  pro rata from the
Limited  Partner's  Capital Account.  The 10% early  withdrawal  penalty will be
received by the  Partnership,  and a portion of the sums collected as such early
withdrawal  penalty  shall  be  applied  by  the  Partnership  toward  the  next
installment(s)  of principal under the Formation Loan owed to the Partnership by
Redwood  Mortgage,  an Affiliate of the General Partners and any successor firm,
as described in Section 10.9 below.  This  portion  shall be  determined  by the
ratio between the initial  amount of the Formation  Loan and the total amount of
the  organizational  and  syndication  costs incurred by the Partnership in this
offering  of Units.  The  balance of such early  withdrawal  penalties  shall be
retained by the  Partnership  for its own account.  After the Formation Loan has
been paid, the 10% early  withdrawal  penalty will be used to pay the Continuing
Servicing  Fee, as set forth in Section  10.13 below.  The balance of such early
withdrawal penalties shall be retained by the Partnership for its own account.  

     (d)  Commencing  with the end of the calendar month in which such Notice of
Withdrawal is given, and continuing on or before the twentieth day after the end
of each month thereafter,  any Cash Available for Distribution  allocable to the
Capital Account (or portion  thereof) with respect to which Notice of Withdrawal
has been given  shall also be  distributed  in cash to the  withdrawing  Limited
Partner in the manner provided in Section 5.2 above.                            

     (e) During the liquidation  period described in subsections 8.1(a) and (b),
the Capital  Account of a withdrawing  Limited  Partner shall remain  subject to
adjustment  as  described  in Section 1.3 above.  Any  reduction in said Capital
Account  by  reason  of an  allocation  of  Losses,  if any,  shall  reduce  all
subsequent liquidation payments  proportionately.  In no event shall any Limited
Partner receive cash  distributions  upon withdrawal from the Partnership if the
effect  of such  distribution  would be to  create  a  deficit  in such  Limited
Partner's Capital Account.                                                      

     (f) Payments to withdrawing  Limited Partners shall at all times be subject
to the  availability of sufficient cash flow generated in the ordinary course of
the  Partnership's  business,  and the  Partnership  shall  not be  required  to
liquidate outstanding Mortgage Investments prior to their maturity dates for the
purposes  of meeting  the  withdrawal  requests  of Limited  Partners.  For this
purpose,  cash  flow is  considered  to be  available  only  after  all  current
Partnership  expenses  have been paid  (including  compensation  to the  General
Partners and Affiliates) and adequate provision has been made for the payment of
all monthly or annual cash  distributions on a pro rata basis which must be paid
to Limited Partners who elected to receive such  distributions upon subscription
for Units  pursuant  to Section  4.3 or who changed  their  initial  election to
compound Earnings as set forth in Section 4.3. Furthermore,  no more than 20% of
the total Limited  Partners'  Capital Accounts  outstanding for the beginning of
any calendar year shall be liquidated during any calendar year.  Notwithstanding
the 20%  limitation,  the General  Partners shall have the discretion to further
limit the percentage of the total Limited Partners' Capital Accounts that may be
withdrawn  in order to comply  with any  Regulations  to be enacted  pursuant to
Section  7704 of the Code and the safe  harbor  provisions  set  forth in Notice
88-75 to avoid the  Partnership  being  taxed as a  corporation.  If  Notices of
Withdrawal in excess of these  limitations are received by the General Partners,
the priority of  distributions  among  Limited  Partners  shall be determined as
follows: first, to those Limited Partners withdrawing Capital Accounts according
to the 20 quarter  or longer  installment  liquidation  period  described  under
subsection (b)(i) above, then to ERISA plan Limited Partners withdrawing Capital
Accounts  under  subsection  (b)(ii) above,  then to all other Limited  Partners
withdrawing  Capital Accounts under subsection (b)(ii) above, and finally to all
other Limited Partners withdrawing Capital Accounts under subsection (a) above. 

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     8.2 Retirement by General Partners.  Any one or all of the General Partners
may withdraw  ("retire") from the Partnership  upon not less than six (6) months
written notice of the same to all Limited Partners. Any retiring General Partner
shall not be liable for any debts,  obligations or other responsibilities of the
Partnership  or  this  Agreement  arising  after  the  effective  date  of  such
retirement.                                                                     

     8.3  Payment  to  Terminated  General  Partner.  If  the  business  of  the
Partnership  is continued as provided in Section 9.1(d) or 9.1(e) below upon the
removal,  retirement,  death, insanity,  dissolution, or bankruptcy of a General
Partner,  then the  Partnership  shall pay to such General  Partner,  or his/its
estate, a sum equal to such General Partner's  outstanding Capital Account as of
the  date  of  such  removal,  retirement,   death,  insanity,   dissolution  or
bankruptcy,  payable in cash  within  thirty  (30) days after such date.  If the
business of the Partnership is not so continued, then such General Partner shall
receive from the  Partnership  such sums as he may be entitled to receive in the
course of terminating the Partnership and winding up its affairs, as provided in
Section 9.3 below.                                                              

ARTICLE 9 DISSOLUTION OF THIS PARTNERSHIP; MERGER OF THE
PARTNERSHIP 

     9.1  Events  Causing  Dissolution.  The  Partnership  shall  dissolve  upon
occurrence of the earlier of the following events:                              

     (a)  Expiration  of the term of the  Partnership  as stated in Section  2.7
above.                                                                          

(b) The affirmative vote of a majority of the Limited Partners.       

     (c)  The  sale of all or  substantially  all of the  Partnership's  assets;
provided,  for purposes of this  Agreement  the term  "substantially  all of the
Partnership's assets" shall mean assets comprising not less than seventy percent
(70%) of the aggregate fair market value of the Partnership's total assets as of
the time of sale.                                                               

     (d) The retirement, death, insanity, dissolution or bankruptcy of a General
Partner  unless,  within ninety (90) days after any such event (i) the remaining
General Partners, if any, elect to continue the business of the Partnership,  or
(ii) if there are no remaining  General  Partners,  all of the Limited  Partners
agree to continue the business of the  Partnership  and to the  appointment of a
successor  General  Partner who executes a written  acceptance of the duties and
responsibilities of a General Partner hereunder.                                

     (e) The removal of a General Partner,  unless within ninety (90) days after
the effective date of such removal (i) the remaining General  Partners,  if any,
elect to  continue  the  business  of the  Partnership,  or (ii) if there are no
remaining  General  Partners,  a  successor  General  Partner is  approved  by a
majority  of the  Limited  Partners  as  provided  in Section  3.7 above,  which
successor  executes  a written  acceptance  as  provided  therein  and elects to
continue the business of the Partnership.                                       

     (f) Any other event causing the  dissolution of the  Partnership  under the
laws of the State of California.                                                

     9.2  Winding  Up and  Termination.  Upon  the  occurrence  of an  event  of
dissolution, the Partnership shall immediately be terminated, but shall continue
until its  affairs  have been wound up.  Upon  dissolution  of the  Partnership,
unless the  business of the  Partnership  is continued  as provided  above,  the
General Partners will wind up the Partnership's affairs as follows:             

(a) No new Mortgage Investments shall be made or purchased;           

     (b) Except as may be agreed upon by a majority  of the Limited  Partners in
connection with a merger or consolidation described in Sections 9.5, 9.6 or 9.7,
the General  Partners shall  liquidate the assets of the Partnership as promptly
as is consistent with  recovering the fair market value thereof,  either by sale
to  third  parties  or  by  servicing  the  Partnership's  outstanding  Mortgage
Investments  in  accordance  with their terms;  provided,  however,  the General
Partners shall  liquidate all Partnership  assets for the best price  reasonably
obtainable in order to completely wind up the Partnership's  affairs within five
(5) years after the date of dissolution;                                        

     (c) Except as may be agreed upon by a majority  of the Limited  Partners in
connection with a merger or consolidation described in Sections 9.5, 9.6 or 9.7,
all sums of cash held by the Partnership as of the date of dissolution, together
with all sums of cash received by the Partnership  during the winding up process
from any source whatsoever,  shall be distributed in accordance with Section 9.3
below.                                                                          

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     9.3  Order of  Distribution  of  Assets.  In the  event of  dissolution  as
provided in Section 9.1 above, the cash of the Partnership  shall be distributed
as follows:                                                                     

     (a) All of the  Partnership's  debts and  liabilities to persons other than
Partners shall be paid and discharged;                                          

     (b) All of the  Partnership's  debts and  liabilities  to Partners shall be
paid and discharged;                                                            

     (c) The balance of the cash of the Partnership  shall be distributed to the
Partners in proportion to their respective  outstanding  Capital Accounts.      

     Upon  dissolution,  each Limited Partner shall look solely to the assets of
the  Partnership  for  the  return  of  his  Capital  Contribution,  and  if the
Partnership  assets  remaining  after the payment or  discharge of the debts and
liabilities  of  the   Partnership  is   insufficient   to  return  the  Capital
Contribution  of each  Limited  Partner,  such  Limited  Partner  shall  have no
recourse  against  the  General  Partners  or any  other  Limited  Partner.  The
winding-up of the affairs of the Partnership and the  distribution of its assets
shall be conducted  exclusively by the General Partners. It is hereby authorized
to do any and all acts and things  authorized by law for these purposes.  In the
event  of  insolvency,  dissolution,  bankruptcy  or  resignation  of all of the
General Partners or removal of the General Partners by the Limited Partners, the
winding up of the affairs of the Partnership and the  distribution of its assets
shall be  conducted  by such  person or entity as may be selected by a vote of a
majority of the outstanding  Units,  which person or entity is hereby authorized
to do any and all acts and things authorized by law for such purposes.          

     9.4 Compliance With Timing  Requirements  of Regulations.  In the event the
Partnership is "liquidated"  within the meaning of Treasury  Regulation  Section
1.704-1(b)(2)(ii)(g), (a) distributions shall be made pursuant to this Article 9
(if such liquidation  constitutes a dissolution of the Partnership) or Article 5
hereof (if it does not) to the General  Partners  and Limited  Partners who have
positive  Capital  Accounts  in  compliance  with  Treasury  Regulation  Section
1.704-1(b)(2)(ii)(b)(2) and (b) if the General Partners' Capital Accounts have a
deficit balance (after giving effect to all  contributions,  distributions,  and
allocations  for all  taxable  years,  including  the  year  during  which  such
liquidation  occurs),  such General  Partners shall contribute to the capital of
the Partnership the amount  necessary to restore such deficit balance to zero in
compliance with Treasury Regulation Section 1.704-1(b)(2)(ii)(b)(3);            

     9.5 Merger or Consolidation of the Partnership.  The Partnership's business
may be merged or  consolidated  with one or more limited  partnerships  that are
Affiliates of the Partnership,  provided the approval of the required percentage
in interest of Partners is obtained  pursuant to Section 9.6. Any such merger or
consolidation  may be  effected  by way of a sale of the assets of, or units in,
the  Partnership  or  purchase  of the assets of, or units in,  another  limited
partnership(s),  or by any other method approved pursuant to Section 9.6. In any
such merger or  consolidation,  the  Partnership may be either a disappearing or
surviving entity.                                                               

     9.6 Vote  Required.  The  principal  terms of any  merger or  consolidation
described  in Section 9.5 must be approved  by the General  Partners  and by the
affirmative vote of a Majority of the Limited Partners.                         

     9.7 Sections Not  Exclusive.  Sections 9.5 and 9.6 shall not be interpreted
as setting forth the exclusive means of merging or consolidating the Partnership
in the  event  that the  California  Revised  Limited  Partnership  Act,  or any
successor  statute,  is  amended  to  provide  a  statutory  method by which the
Partnership may be merged or consolidated.                                      

ARTICLE 10
 TRANSACTIONS BETWEEN THE PARTNERSHIP,
 THE GENERAL PARTNERS AND AFFILIATES

     10.1 Loan Brokerage  Commissions.  The Partnership will enter into Mortgage
Investment transactions where the borrower has employed and agreed to compensate
the General  Partners or an Affiliate of the General Partners to act as a broker
in arranging the loan.  The exact amount of the Loan Brokerage  Commissions  are
negotiated with  prospective  borrowers on a case by case basis. It is estimated
that such commissions  will be  approximately  three percent (3%) to six percent
(6%) of the principal amount of each Mortgage  Investment made during that year.
The Loan Brokerage  Commissions shall be capped at 4% of the Partnership's total
assets per year.                                                                

     10.2 Loan  Servicing  Fees. A General  Partner or an Affiliate of a General
Partner may act as servicing agent with respect to all Mortgage Investments, and
in consideration for such collection  efforts he/it shall be entitled to receive
a monthly  servicing fee up to  one-eighth  of one percent  (.125%) of the total
unpaid principal balance of each Mortgage  Investment  serviced,  or such higher
amount as shall be customary and  reasonable  between  unrelated  Persons in the
geographical  area  where the  property  securing  the  Mortgage  Investment  is
located.  The General Partners or an Affiliate may lower such fee for any period
of time and thereafter raise it up to the limit set forth above.                

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     10.3 Escrow and Other Loan  Processing  Fees.  The  General  Partners or an
Affiliate of a General Partner may act as escrow agent for Mortgage  Investments
made by the  Partnership,  and may also provide  certain  document  preparation,
notarial  and credit  investigation  services,  for which  services  the General
Partners  shall be entitled to receive such fees as are  permitted by law and as
are generally  prevailing in the geographical  area where the property  securing
the Mortgage Investment is located.                                             

     10.4 Asset Management Fee. The General Partners shall receive a monthly fee
for  managing  the  Partnership's  Mortgage  Investment  portfolio  and  general
business  operations  in an amount up to 1/32 of one  percent  (.03125%)  of the
total "net  asset  value" of all  Partnership  assets  (as  hereafter  defined),
payable on the first day of each calendar month until the Partnership is finally
wound up and terminated.  "Net asset value" shall mean total Partner's  capital,
determined in accordance with generally accepted accounting principles as of the
last  day of the  preceding  calendar  month.  The  General  Partners,  in their
discretion, may lower such fee for any period of time and thereafter raise it up
to the limit set forth above.                                                   

     10.5  Reconveyance  Fees.  The  General  Partners  may receive a fee from a
borrower for reconveyance of a property upon full payment of a loan in an amount
as is  generally  prevailing  in the  geographical  area where the  property  is
located.                                                                        

     10.6  Assumption  Fees. An Affiliate of the General  Partners may receive a
fee payable by a borrower for assuming a loan in an amount equal to a percentage
of the loan or a set fee.                                                       

     10.7 Extension Fee. An Affiliate of the General  Partners may receive a fee
payable by a borrower  for  extending  the loan  period in an amount  equal to a
percentage of the loan.                                                         

     10.8 Prepayment and Late Fees. Any prepayment and late fees collected by an
Affiliate of the General Partners in connection with Mortgage  Investments shall
be paid by the Affiliate to the Partnership.                                    

     10.9 Formation Loans to Affiliate of General Partners.  The Partnership may
lend to Redwood  Mortgage,  an Affiliate of the General  Partners,  a sum not to
exceed 10% of the total amount of Capital  Contributions  to the  Partnership by
the Limited Partners, the proceeds of which shall be used solely for the purpose
of paying selling commissions.  The Formation Loans shall be unsecured and shall
be evidenced  by a  non-interest  bearing  promissory  note  executed by Redwood
Mortgage in favor of the Partnership. The First Formation Loan will be repaid in
ten (10) equal annual installments of principal without interest,  commencing on
December 31 of the year in which the offering  terminates.  The Second Formation
Loan will be repaid as follows: Upon the commencement of this offering,  Redwood
Mortgage shall make annual installments of one-tenth of the principal balance of
the Formation loan as of December 31 of each year. Such payment shall be due and
payable by  December  31 of the  following  year with the first  payment  due by
December 31, 1997,  assuming  this  offering  commences in 1996.  The  principal
balance of the Second  Formation Loan will increase as additional sales of Units
are made each year. The amount of the annual  installment  payment to be made by
Redwood Mortgage during the offering stage,  will be determined by the principal
balance of the  Second  Formation  Loan on  December  31 of each year.  Upon the
completion  of this  offering the balance of the Second  Formation  Loan will be
repaid in ten (10) equal annual  installments  of principal,  without  interest,
commencing  on  December  31 of  the  year  following  the  year  this  offering
terminates.  Redwood  Mortgage  at its  option may prepay all or any part of the
Formation  Loans.  Redwood  Mortgage will repay the Formation Loans  principally
from loan brokerage commissions earned on Mortgage Investments, early withdrawal
penalties and other fees paid by the  Partnership.  Since Redwood  Mortgage will
use the proceeds from loan  brokerage  commissions  on Mortgage  Investments  to
repay the Formation  Loans and, with respect to the initial  offering of 150,000
Units, for the continued payment of the Continuing Servicing Fees, if all or any
one of the initial General  Partners is removed as a General Partner by the vote
thereafter  designated,  and if such successor or additional  General Partner(s)
begins  using  any other  loan  brokerage  firm for the  placement  of  Mortgage
Investments,  Redwood  Mortgage  will be  immediately  released from any further
obligation  under the Formation Loans (except for a  proportionate  share of the
principal  installment  due at the end of that year, pro rated  according to the
days elapsed and for the continued payment of the Continuing Servicing Fees with
respect to the initial  offering of 150,000  Units.) In addition,  if all of the
General Partners are removed,  no successor  General  Partners are elected,  the
Partnership  is  liquidated  and  Redwood  Mortgage is no longer  receiving  any
payments  for  services  rendered,  the  debt on the  Formation  Loans  shall be
forgiven and Redwood  Mortgage  will be  immediately  released  from any further
obligations under the Formation Loans or Continuing  Servicing Fees with respect
to the initial offering of 150,000 Units.                                       

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     10.10 Sale of Mortgage  Investments  and Loans Made to General  Partners or
Affiliates.  The  Partnership  may sell  existing  Mortgage  Investments  to the
General  Partners  or  their  Affiliates,  but  only so long as the  Partnership
receives  net sales  proceeds  from such  sales in an amount  equal to the total
unpaid balance of principal, accrued interest and other charges owing under such
Mortgage  Investment,  or the fair  market  value of such  Mortgage  Investment,
whichever is greater.  Notwithstanding the foregoing, the General Partners shall
be under no obligation to purchase any Mortgage  Investment from the Partnership
or to guarantee any payments under any Mortgage Investment.  Generally, Mortgage
Investments  will  not be made to the  General  Partners  or  their  Affiliates.
However,  the Partnership  may make the Formation Loans to Redwood  Mortgage and
may in certain limited circumstances,  loan funds to Affiliates to purchase real
estate owned by the Partnership as a result of foreclosure.                     

     10.11 Purchase of Mortgage Investments from General Partners or Affiliates.
The  Partnership may purchase  existing  Mortgage  Investments  from the General
Partners or Affiliates, provided that the following conditions are met:         

     (a) At the time of purchase the borrower  shall not be in default under the
Mortgage Investment;                                                            

     (b) No brokerage  commissions or other  compensation  by way of premiums or
discounts shall be paid to the General Partners or their Affiliates by reason of
such purchase; and                                                              

     (c) If such  Mortgage  Investment  was held by the seller for more than 180
days,  the seller shall  retain a ten percent  (10%)  interest in such  Mortgage
Investment.                                                                     

     10.12 Interest. Redwood Mortgage shall be entitled to keep interest if any,
earned on the  Mortgage  Investments  between the date of deposit of  borrower's
funds into Redwood Mortgage's trust account and date of payment of such funds by
Redwood Mortgage.                                                               

     10.13  Sales  Commissions.  The Units are being  offered to the public on a
best efforts basis through the Participating  Broker-Dealers.  The Participating
Broker-Dealers may receive commissions as follows: at the rate of either (5%) or
(9%) (depending upon the investor's election to receive cash distributions or to
compound earnings and acquire  additional Units in the Partnership) of the Gross
Proceeds on all of their sales.  In no event will the total of all  compensation
payable to Participating  Broker Dealers,  including sales commissions,  expense
reimbursements,  sales seminars and/or due diligence expenses exceed ten percent
(10%) of the program proceeds  received plus an additional  (0.5%) for bona fide
due  diligence  expenses  as set forth in Rule 2810 of the NASD  Conduct  Rules.
Further,  in no event shall any individual  Participating  Broker Dealer receive
total compensation including sales commissions,  expense  reimbursements,  sales
seminar or expense  reimbursement  exceed  (10%) of the gross  proceeds of their
sales plus an  additional  (0.5%) for bona fide due  diligence  expenses  as set
forth in Rule 2810 of the NASD Conduct Rules (the Compensation Limitation).     

     Sales  commissions  will not be paid by the Partnership out of the offering
proceeds.  All sales commissions will be paid by Redwood Mortgage,  an affiliate
of the General Partners, which will also act as the mortgage loan broker for all
Mortgage  Investments  as set forth in Section  10.7 above.  With respect to the
initial offering of 150,000 Units, the Continuing  Servicing Fee will be paid by
Redwood  Mortgage,  but will not be included in the first  Formation  Loan.  The
Partnership  will loan to Redwood Mortgage funds in an amount equal to the sales
commissions.  With  respect to the initial  offering of 150,000  Units,  Redwood
Mortgage  will use the  proceeds  from loan  brokerage  commissions  on Mortgage
Investments to pay the Continuing  Servicing  Fees, and if all or any one of the
initial General  Partners is removed as a General Partner by the vote thereafter
designated,  if such  successor or additional  General  Partner(s) use any other
loan brokerage firm for the placement of Mortgage Investments,  Redwood Mortgage
will be immediately  released from any further obligation to continue to pay any
Continuing  Servicing  Fees.  In  addition,  if all of the General  Partners are
removed,  no  successor  General  Partners  are  elected,   the  Partnership  is
liquidated and Redwood Mortgage is no longer receiving any payments for services
rendered,  Redwood  Mortgage  will be  immediately  released  from  any  further
obligation to continue to pay any  Continuing  Servicing Fee in connection  with
the  initial  offering  of  150,000  Units.  Units may also be  offered  or sold
directly  by  the  General  Partners  for  which  they  will  receive  no  sales
commissions.  The Partnership shall reimburse  Participating  Broker-Dealers for
bona fide due diligence expenses in an amount up to (.5%) of the Gross Proceeds.

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     10.14 Reimbursement of Organizational Expenses. The General Partners may be
reimbursed for, or the Partnership may pay directly,  all expenses in connection
with the  organization or offering of the Units including,  without  limitation,
attorneys  fees,  accounting  fees,  printing costs and other selling  expenses 
(other than  underwriting  commissions)  in an amount equal to the lesser of ten
percent (10%) of the gross proceeds of the Offering or  $1,200,000.  The General
Partners may pay, at their election,  any offering and organization  expenses in
excess of this amount.                                                          

     10.15  Reimbursement.  The Partnership shall reimburse the General Partners
or  their  Affiliates  for the  actual  cost to the  General  Partners  or their
Affiliates (or pay directly), the cost of goods and materials used for or by the
Partnership and obtained from entities unaffiliated with the General Partners or
their  Affiliates.  The  Partnership  shall also pay or  reimburse  the  General
Partners or their Affiliates for the cost of administrative  services  necessary
to the prudent  operation of the Partnership,  provided that such  reimbursement
will be at the lower of (A) the actual  cost to the  General  Partners  or their
Affiliates of providing such services,  or (B) 90% of the amount the Partnership
would be required to pay to non affiliated persons rendering similar services in
the  same or  comparable  geographical  location.  The  cost  of  administrative
services as used in this  subsection  shall mean the pro rata cost of personnel,
including an allocation of overhead  directly  attributable  to such  personnel,
based on the  amount of time such  personnel  spent on such  services,  or other
method of allocation  acceptable to the program's  independent  certified public
accountant.                                                                     

     10.16 Non-reimbursable Expenses. The General Partners will pay and will not
be  reimbursed by the  Partnership  for any general or  administrative  overhead
incurred by the General  Partners in connection with the  administration  of the
Partnership  which  is not  directly  attributable  to  services  authorized  by
Sections 10.16 or 10.17.                                                        

     10.17 Operating Expenses. Subject to Sections 10.14 and 10.15 and 10.16 all
expenses  of the  Partnership  shall  be  billed  directly  to and  paid  by the
Partnership  which  may  include,  but are not  limited  to:  (i) all  salaries,
compensation,  travel expenses and fringe benefits of personnel  employed by the
Partnership and involved in the business of the Partnership.  including  persons
who may also be employees of the General  Partners or  Affiliates of the General
Partners,  but  excluding  control  persons of either the  General  Partners  or
Affiliates of the General Partners,  (ii) all costs of borrowed money, taxes and
assessments on Partnership properties foreclosed upon and other taxes applicable
to the Partnership,  (iii) legal,  audit,  accounting,  and brokerage fees, (iv)
printing, engraving and other expenses and taxes incurred in connection with the
issuance,  distribution,  transfer,  registration  and  recording  of  documents
evidencing ownership of an interest in the Partnership or in connection with the
business  of the  Partnership,  (v) fees and  expenses  paid to leasing  agents,
consultants,  real estate brokers,  insurance  brokers,  and other agents,  (vi)
costs and expenses of foreclosures,  insurance  premiums,  real estate brokerage
and leasing  commissions and of maintenance of such property,  (vii) the cost of
insurance as required in connection with the business of the Partnership, (viii)
expenses  of  organizing,  revising,  amending,  modifying  or  terminating  the
Partnership,  (ix)  expenses  in  connection  with  Distributions  made  by  the
Partnership,  and  communications,  bookkeeping  and clerical work  necessary in
maintaining  relations with the Limited Partners and outside parties,  including
the cost of printing  and  mailing to such  persons  certificates  for Units and
reports of meetings of the  Partnership,  and of preparation of proxy statements
and solicitations of proxies in connection therewith, (x) expenses in connection
with  preparing  and mailing  reports  required to be  furnished  to the Limited
Partners for investor,  tax reporting or other purposes, or other reports to the
Limited  Partners which the General Partners deem to be in the best interests of
the  Partnership,  (xi)  costs of any  accounting,  statistical  or  bookkeeping
equipment and services necessary for the maintenance of the books and records of
the Partnership including, but not limited to, computer services and time, (xii)
the  cost of  preparation  and  dissemination  of the  information  relating  to
potential sale, refinancing or other disposition of Partnership property, (xiii)
costs  incurred in connection  with any  litigation in which the  Partnership is
involved,  as well as in the  examination,  investigation  or other  proceedings
conducted  by any  regulatory  agency  with  jurisdiction  over the  Partnership
including  legal and  accounting  fees incurred in connection  therewith.  (xiv)
costs of any computer services used for or by the Partnership,  (xv) expenses of
professionals  employed  by  the  Partnership  in  connection  with  any  of the
foregoing, including attorneys,  accountants and appraisers. For the purposes of
Sections  10.17(i),  a control person is someone  holding a 5% or greater equity
interest in the General  Partners or affiliate  or a person  having the power to
direct or cause the  direction  of the General  Partners or  Affiliate,  whether
through the ownership of voting securities, by contract or otherwise.           

     10.18 Deferral of Fees and Expense Reimbursement.  The General Partners may
defer  payment of any fee or expense  reimbursement  provided  for  herein.  The
amount so  deferred  shall be  treated  as a  non-interest  bearing  debt of the
Partnership  and  shall  be paid  from any  source  of  funds  available  to the
Partnership,   including   cash   available  for   Distribution   prior  to  the
distributions to Limited Partners provided for in Article 5.                    

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     10.19 Payment upon Termination.  Upon the occurrence of a terminating event
specified  in Article 9 of the  termination  of an  affiliate's  agreement,  any
portion of any reimbursement or interest in the Partnership payable according to
the provisions of this Agreement if accrued,  but not yet paid, shall be paid by
the  Partnership  to the General  Partners or Affiliates in cash,  within thirty
(30) days of the terminating  event or termination date set forth in the written
notice of termination.                                                          

ARTICLE 11
 ARBITRATION

     11.1 Arbitration. As between the parties hereto, all questions as to rights
and  obligations  arising  under  the terms of this  Agreement  are  subject  to
arbitration,  including  any  question  concerning  any right or duty  under the
Securities Act of 1933,  the Securities  Exchange Act of 1934 and the securities
laws of any state in which  Units are  offered,  and such  arbitration  shall be
governed by the rules of the American Arbitration Association.                  

     11.2  Demand  for  Arbitration.  If  a  dispute  should  arise  under  this
Agreement,  any  Partner  may  within 60 days make a demand for  arbitration  by
filing a demand in writing for the other.                                       

     11.3 Appointment of Arbitrators. The parties may agree upon one arbitrator,
but in the event that they  cannot  agree,  there  shall be three,  one named in
writing by each of the parties within five (5) days after demand for arbitration
is given and a third chosen by the two appointed.  Should either party refuse or
neglect  to join in the  appointment  of the  arbitrator(s)  or to  furnish  the
arbitrator(s)  with any papers or information  demanded,  the  arbitrator(s) are
empowered by both parties to proceed ex parte.                                  

     11.4 Hearing.  Arbitration shall take place in San Mateo,  California,  and
the hearing before the  arbitrator(s) of the matter to be arbitrated shall be at
the time and place  within said city as is selected  by the  arbitrator(s).  The
arbitrator(s)  shall  select such time and place  promptly  after his (or their)
appointment  and shall give written  notice thereof to each party at least sixty
(60) days prior to the date so fixed.  At the hearing any relevant  evidence may
be presented by either  party,  and the formal rules of evidence  applicable  to
judicial  proceedings shall not govern.  Evidence may be admitted or excluded in
the sole  discretion of the  arbitrator(s).  Said  arbitrator(s)  shall hear and
determine  the matter and shall execute and  acknowledge  their award in writing
and cause a copy thereof to be delivered to each of the parties.                

     11.5 Arbitration Award. If there is only one arbitrator, his decision shall
be binding and conclusive on the parties, and if there are three arbitrators the
decision of any two shall be binding and conclusive. The submission of a dispute
to the  arbitrator(s)  and the rendering of his (or their)  decision  shall be a
condition  precedent  to any right of legal  action on the  dispute.  A judgment
confirming  the award of the  arbitrator(s)  may be rendered by any Court having
Jurisdiction;  or such  Court  may  vacate,  modify,  or  correct  the  award in
accordance with the prevailing sections of California State Law.                

     11.6 New Arbitrators. If three arbitrators are selected under the foregoing
procedure  but two of the three fail to reach an Agreement in the  determination
of the matter in question,  the matter shall be decided by three new arbitrators
who shall be appointed  and shall  proceed in the same  manner,  and the process
shall be  repeated  until a  decision  is  finally  reached  by two of the three
arbitrators selected.                                                           

     11.7 Costs of Arbitration.  The costs of such arbitration shall be borne by
the losing party or in such proportions as the arbitrators shall determine.     

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ARTICLE 12
 MISCELLANEOUS

     12.1  Covenant to Sign  Documents.  Without  limiting the power  granted by
Sections 2.8 and 2.9, each Partner covenants, for himself and his successors and
assigns, to execute, with acknowledgment or verification,  if required,  any and
all  certificates,  documents  and  other  writings  which may be  necessary  or
expedient  to form the  Partnership  and to  achieve  its  purposes,  including,
without  limitation,  the Certificate of Limited  Partnership and all amendments
thereto, and all such filings,  records or publications necessary or appropriate
laws of any jurisdiction in which the Partnership shall conduct its business.   

     12.2 Notices. Except as otherwise expressly provided for in this Agreement,
all  notices  which any  Partner may desire or may be required to give any other
Partners  shall be in writing  and shall be deemed  duly  given  when  delivered
personally  or when  deposited in the United  States mail,  first-class  postage
pre-paid. Notices to Limited Partners shall be addressed to the Limited Partners
at the last address  shown on the  Partnership  records.  Notices to the General
Partners or to the Partnership shall be delivered to the Partnership's principal
place of business,  as set forth in Section 2.3 above or as hereafter charged as
provided herein.  Notice to any General Partner shall  constitute  notice to all
General Partners.                                                               

     12.3 Right to Engage in Competing Business.  Nothing contained herein shall
preclude any Partner from  purchasing  or lending money upon the security of any
other property or rights therein,  or in any manner investing in,  participating
in, developing or managing any other venture of any kind,  without notice to the
other  Partners,  without  participation  by the  other  Partners,  and  without
liability to them or any of them.  Each Limited  Partner waives any right he may
have against the General Partners for capitalizing on information  received as a
consequence  of  the  General  Partners   management  of  the  affairs  of  this
Partnership.                                                                    

     12.4  Amendment.  This Agreement is subject to amendment by the affirmative
vote of a Majority  of the Limited  Partners in  accordance  with  Section  4.5;
provided,  however,  that no such amendment  shall be permitted if the effect of
such amendment  would be to increase the duties or liabilities of any Partner or
materially change any Partner's interest in Profits, Losses, Partnership assets,
distributions,  management  rights  or voting  rights,  except as agreed by that
Partner. In addition, and notwithstanding  anything to the contrary contained in
this  Agreement  the  General  Partners  shall  have the  right  to  amend  this
Agreement, without the vote or consent of any of the Limited Partnership, when: 

     (a) There is a change in the name of the  Partnership  or the amount of the
contribution of any Limited Partner;                                            

(b) A Person is substituted as a Limited Partner;                     

(c) An Additional Limited Partner is admitted;                        

     (d) A Person is admitted as a successor or  additional  General  Partner in
accordance with the terms of this Agreement;                                    

     (e) A General  Partner  retires,  dies,  files a  petition  in  bankruptcy,
becomes  insane or is removed,  and the  Partnership  business is continued by a
remaining or replacement General Partner;                                       

    (f) There is a change in the character of the business of the Partnership;

     (g)  There  is a change  in the time as  stated  in the  Agreement  for the
dissolution of the Partnership, or the return of a Partnership contribution;    

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     (h) To cure any ambiguity, to correct or supplement any provision which may
be inconsistent  with any other provision,  or to make any other provisions with
respect to matters or questions  arising under this Agreement  which will not be
inconsistent with the provisions of this Agreement;                             

     (i) To delete or add any  provision  of this  Agreement  required  to be so
deleted or added by the Staff of the Securities and Exchange  Commission or by a
State "Blue Sky"  Administrator or similar official,  which addition or deletion
is deemed by the  Administrator  or official to be for the benefit or protection
of the Limited Partners;                                                        

     (j) To elect for the Partnership to be governed by any successor California
statute governing limited partnerships; and                                     

     (k) To modify provisions of this Agreement as noted in Sections 1.3 and 5.6
to cause this Agreement to comply with Treasury Regulation Section 1.704-1(b).  

     The General  Partners shall notify the Limited Partners within a reasonable
time of the adoption of any such amendment.                                     

     12.5 Entire  Agreement.  This Agreement  constitutes  the entire  Agreement
between  the  parties  and   supersedes   any  and  all  prior   agreements  and
representations,  either  oral or in writing,  between  the parties  hereto with
respect to the subject matter contained herein.                                 

     12.6  Waiver.  No waiver by any party  hereto of any  breach of, or default
under,  this  Agreement by any other party shall be construed or deemed a waiver
of any other breach of or default under this  Agreement,  and shall not preclude
any party from  exercising  or asserting  any rights under this  Agreement  with
respect to any other.                                                           

     12.7 Severability.  If any term,  provision,  covenant or condition of this
Agreement is held by a court of competent  jurisdiction  to be invalid,  void or
unenforceable, the remainder of the provisions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated. 

     12.8  Application  of  California  law;  Venue.   This  Agreement  and  the
application or interpretation thereof shall be governed, construed, and enforced
exclusively  by its  terms  and by the law of the  State of  California  and the
appropriate  Courts in the County of San Mateo, State of California shall be the
appropriate forum for any litigation arising hereunder.                         

     12.9 Captions.  Section titles or captions  contained in this Agreement are
inserted only as a matter of convenience and for reference and in no way define,
limit, extend or describe the scope of this Agreement.                          

     12.10  Number and  Gender.  Whenever  the  singular  number is used in this
Agreement and when  required by the context,  the same shall include the plural,
and the masculine gender shall include the feminine and neuter genders.         

     12.11 Counterparts.  This Agreement may be executed in counterparts, any or
all of which  may be  signed by a  General  Partner  on  behalf  of the  Limited
Partners as their attorney-in-fact.                                             

     12.12  Waiver  of  Action  for  Partition.   Each  of  the  parties  hereto
irrevocably waives during the term of the Partnership any right that it may have
to  maintain  any action for  partition  with  respect  to any  property  of the
Partnership.                                                                    

     12.13 Defined Terms.  All terms used in this Agreement which are defined in
the Prospectus of Redwood Mortgage  Investors VIII, dated December 4, 1996 shall
have the meanings  assigned to them in said  Prospectus,  unless this  Agreement
shall provide for a specific definition in Article 2.                           

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     12.14 Assignability.  Each and all of the covenants,  terms, provisions and
arguments herein contained shall be binding upon and inure to the benefit of the
successors  and  assigns  of  the  respective  parties  hereto,  subject  to the
requirements of Article 7.                                                      

     IN WITNESS WHEREOF, the parties hereto have hereunto set their hand the day
and year first above written.                                                   

GENERAL PARTNERS:                                                               

                          --------------------------------------------------
D. Russell Burwell      

                          --------------------------------------------------
Michael R. Burwell      

GYMNO CORPORATION       
A California Corporation

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

LIMITED PARTNERS:                                                               

By:   Gymno Corporation,
              (General Partner and Attorney-in-Fact)

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

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SCHEDULE A

 LIMITED PARTNERS OF
REDWOOD MORTGAGE INVESTORS VIII,
A California Limited Partnership

Name and Address                 Date of Admission       Capital Contribution   

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SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY

REDWOOD MORTGAGE INVESTORS VIII,
A California Limited Partnership

     The  undersigned  hereby  applies  to become a Limited  Partner  in REDWOOD
MORTGAGE INVESTORS VIII, a California limited  partnership (the  "Partnership"),
and  subscribes to purchase the number of Units  specified  herein in accordance
with the terms and conditions of the Limited  Partnership  Agreement attached as
Exhibit A to the Prospectus dated December 4, 1996.                             

     1. Representations and Warranties.  The undersigned represents and warrants
to the Partnership and its General Partners as follows:                         

     (a) I have received,  read and understand the Prospectus  dated December 4,
1996,  and in  making  this  investment  I am  relying  only on the  information
provided  therein.  I have  not  relied  on any  statements  or  representations
inconsistent with those contained in the Prospectus.                            

     (b) I, or the  fiduciary  account  for  which  I am  purchasing,  meet  the
applicable  suitability  standards and financial  requirements  set forth in the
Prospectus under "INVESTOR  SUITABILITY  STANDARDS" as they pertain to the state
of my primary residence and domicile.                                           

     (c) I am aware that this  Subscription  may be rejected in whole or in part
by the  General  Partners  in  their  sole  and  absolute  discretion;  that  my
investment, if accepted, is subject to certain risks described in part in "RISKS
AND OTHER FACTORS" set forth in the Prospectus; and that there will be no public
market for Units,  and  accordingly,  it may not be  possible  for me to readily
liquidate my investment in the Partnership.                                     

     (d) I have been informed by the Participating  Broker-Dealer firm specified
herein,  if any, of all  pertinent  facts  relating to the lack of  liquidity or
marketability  of this  investment.  I understand  that Units may not be sold or
otherwise disposed of without the prior written consent of the General Partners,
which  consent  may be granted or withheld  in their sole  discretion,  that any
transfer is subject to numerous other  restrictions  described in the Prospectus
and in the  Limited  Partnership  Agreement,  and  that  if I am a  resident  of
California or if the transfer  occurs in  California,  any such transfer is also
subject  to  the  prior  written  consent  of  the  California  Commissioner  of
Corporations.  I have  liquid  assets  sufficient  to  assure  myself  that such
purchase will cause me no undue  financial  difficulties  and that I can provide
for my current needs and possible personal contingencies, or if I am the trustee
of a retirement  trust,  that the limited  liquidity of the Units will not cause
difficulty  in meeting the trusts  obligations  to make  distributions  to plan 
participants in a timely manner.                                                

     (e) I am of the age of majority (as  established in the state in which I am
domiciled) if I am an individual, and in any event, I have full power, capacity,
and authority to enter into a contractual relationship with the Partnership.  If
acting in a representative or fiduciary capacity for a corporation,  partnership
or trust,  or as a  custodian,  or agent for any person or  entity.  I have full
power or authority to enter into this  Subscription  Agreement in such  capacity
and on behalf of such corporation, partnership, trust, person or entity;        

     (f) By virtue of my own  investment  acumen  and  experience  or  financial
advice from my independent  advisors (other than a person receiving  commissions
by reason of my purchase  of Units),  I am capable of  evaluating  the risks and
merits of an investment in the Partnership.                                     

 EXHIBIT B

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     (g) I am buying the Units solely for my own account,  or for the account of
a member or members of my  immediate  family or in a fiduciary  capacity for the
account of another person or entity and not as an agent for another.            

     (h) I acknowledge and agree that counsel representing the Partnership,  the
General  Partners and their  Affiliates  does not  represent me and shall not be
deemed  under  the  applicable  codes  of  professional  responsibility  to have
represented  or to be  representing  me or any of the  Limited  Partners  in any
respect.                                                                        

     (i) If I am buying the Units in a fiduciary  capacity or as a custodian for
the account of another person or entity,  I have been directed by that person or
entity  to  purchase  the  Unit(s),  and such  person  or  entity is aware of my
purchase  of Units on their  behalf,  and  consents  thereto and is aware of the
merits and risks involved in the investment in the Partnership.                 

     By making these representations, the subscriber has not waived any right of
action available under applicable federal or state securities laws.             

     2. Power of Attorney.  The undersigned hereby  irrevocably  constitutes and
appoints the General Partners, and each of them, either one acting alone, as his
true and lawful attorney-in-fact,  with full power and authority for him, and in
his name, place and stead, to execute, acknowledge, publish and file:           

     (a)  The  Limited  Partnership   Agreement,   the  Certificate  of  Limited
Partnership and any amendments  thereto or cancellations  thereof required under
the laws of the State of California;                                            

     (b) Any other certificates,  instruments,  and documents as may be required
by, or may be appropriate  under, the laws of any state or other jurisdiction in
which the Partnership is doing or intends to do business; and                   

     (c) Any documents  which may be required to effect the  continuation of the
Partnership,  the admission of an additional or substituted  Limited Partner, or
the dissolution and termination of the Partnership.                             

     The power of attorney  granted above is a special power of attorney coupled
with an interest,  is irrevocable,  and shall survive the death or incapacity of
the undersigned or, if the undersigned is a corporation,  partnership,  trust or
association, the dissolution or termination thereof. The power of attorney shall
also  survive  the  delivery  of an  assignment  of Units by a Limited  Partner;
provided,  that where the  assignee  thereof  has been  approved  by the General
Partners for admission to the Partnership as a substituted Limited Partner, such
power of attorney  shall  survive the delivery of such  assignment  for the sole
purpose of enabling  the General  Partners  to  execute,  acknowledge,  file and
record any instrument necessary to effect such substitution.                    

     3. Acceptance.  This Subscription Agreement will be accepted or rejected by
a General  Partner  within  thirty (30) days of its receipt by the  Partnership.
Upon acceptance,  this subscription will become  irrevocable,  and will obligate
the  undersigned  to  purchase  the number of Units  specified  herein,  for the
purchase  price  of  $100  per  Unit.   The  General   Partners  will  return  a
countersigned copy of this Subscription Agreement to accepted subscribers, which
copy (together with my canceled check) will be evidence of my purchase of Units.

     4. Payment of Subscription Price. The full purchase price for Units is $100
per Unit,  payable  in cash  concurrently  with  delivery  of this  Subscription
Agreement.  I understand that my subscription  funds will be held by the General
Partners,  until my funds  are  needed  by the  Partnership  to fund a  mortgage
investment  or for  other  proper  Partnership  purposes,  and only  then will I
actually be admitted to the Partnership. In the interim, my                     

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     subscription  funds will earn interest at passbook  savings accounts rates.
If I elect to receive monthly, quarterly or annual cash distributions, then such
interest  will be returned to me when I am  admitted  to the  Partnership.  If I
elect to allow my share of  Partnership  income in the form of additional  Units
that will be reinvested by the Partnership,  then such interest will be invested
in the  Partnership  in  which  case I  understand  that the  number  of Units I
initially subscribed for will be increased accordingly.  If I initially elect to
receive  additional  Units and reinvest my share of  Partnership  income,  I may
after three (3) years  change my  election  and receive  monthly,  quarterly  or
annual cash  distributions.  I understand  that if I initially  elect to receive
monthly,  quarterly  or annual cash  distributions,  my election to receive cash
distributions is irrevocable.  However, I understand that I may change whether I
receive such distributions on a monthly, quarterly or annual basis.             

     5. THE UNDERSIGNED  AGREES TO INDEMNIFY AND HOLD REDWOOD MORTGAGE INVESTORS
VIII,  A  CALIFORNIA  LIMITED  PARTNERSHIP,  AND ITS GENERAL  PARTNERS AND OTHER
AGENTS AND  EMPLOYEES  HARMLESS  FROM AND AGAINST  ANY AND ALL CLAIMS,  DEMANDS,
LIABILITIES,  AND DAMAGES,  INCLUDING,  WITHOUT LIMITATION,  ALL ATTORNEYS' FEES
WHICH SHALL BE PAID AS INCURRED)  WHICH ANY OF THEM MAY INCUR,  IN ANY MANNER OR
TO ANY PERSON, BY REASON OF THE FALSITY,  INCOMPLETENESS OR MISREPRESENTATION OF
ANY INFORMATION FURNISHED BY THE UNDERSIGNED HEREIN OR IN ANY DOCUMENT SUBMITTED
HEREWITH.                                                                       

     6.  Signature.  The  undersigned  represents  that:  (a) I  have  read  the
foregoing and that all the information  provided by me is accurate and complete;
and (b) I will notify the General  Partners  immediately of any material adverse
change in any of the  information  set forth  herein  which  occurs prior to the
acceptance of my subscription.                                                  

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 REDWOOD MORTGAGE INVESTORS VIII
SUBSCRIPTION AGREEMENT

 PLEASE READ BOTH SIDES OF THIS AGREEMENT BEFORE SIGNING

------------------------------------------------------------------------------- 
Type Of Ownership: (check one)                                                  

1.     [ ]  SINGLE PERSON (I)        10. [  ](IRA) INDIVIDUAL RETIREMENT ACCOUNT
                                    (Beneficiary & Plan Administrator must sign)
2.     [ ]  MARRIED PERSON-SEPARATE PROPERTY (I-2)                              
                 11. [  ]  (SEP) IRA/SEP
                                    (Beneficiary & Plan Administrator must sign)
*3.    [ ]  COMMUNITY PROPERTY (COM)                                            
                      12. [  ]  ROLLOVER IRA (ROI)
*4.    [ ]  TENANTS IN COMMON (T)   (Beneficiary & Plan Administrator must sign)
(All parties must sign)                                     
                                  13. [  ]  KEOGH (H.R.10) (K)
*5.    [ ] JOINT TENANTS WITH RIGHTS OF    (Custodian signature required)       
SURVIVORSHIP (J)                                          
(All parties must sign)                                 
                                     14. [  ]  PARTNERSHIP (P)
6.     [ ] CORPORATION: Authorized Party must                                   
sign on behalf of the corporation. (C)                      

                                        15. [  ]  NON-PROFIT ORGANIZATION (NP)

7.    [  ]  TRUST (TR)                        16.[  ]  CUSTODIAN (CU)           
           (Trustee signature required)         (Custodian signature required)
(Print trustee name(s) here; sign in                    
       signature section)                17.[  ]  CUSTODIAN/UGMA (UGM)
           [  ] Taxable (TRT)______________     (Custodian signature required)
[  ] Tax Exempt (TRE)_____________                      
                                    18.[  ]  OTHER (Explain)
8.    [  ]  PENSION PLAN (PP)                                                   
(Trustee signature required)                            
                                     -------------------------

9.    [  ]  PROFIT SHARING PLAN (PSP)                                           
                                     -------------------------
(Trustee signature required)                            

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

     * Two or more signatures  required.  If using Ownership Boxes 7 through 18,
Complete Sections 1 through 6.                                                  

=============================================================================== 

1.  INVESTOR  NAME AND ADDRESS                                        

     Type or print your  name(s)  exactly as they  should  appear in the account
records of the  Partnership.  Include  the name of the  trustee,  custodian  and
administrator  when applicable.  All checks and  correspondence  will go to this
address unless another address is listed in Sections 2 or 5 below.              

                                   ---------------------------------------
           Individual Name

                                    ----------------------------------------
                                (Additional Name(s) if held in joint
                          tenancy, community property,
                tenants-in-common)

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                                    ----------------------------------------
          Street Address

                                     --------------- ----------- -------------
                                  City            State         Zip Code

                                     --------------------     ----------------
                                      Daytime Phone Number     Home Phone Number

                                     --------------------   ------------------
                                    Taxpayer ID#           Social Security #

     A social security number or taxpayer  identification number is required for
each individual  investor.  (For IRAs,  Keoghs (HR10) and Qualified  Plans,  the
taxpayer  identification  number  is  your  plan  or  account  tax  or  employer
identification number. For most individual taxpayers, it is your social security
number.  NOTE:  If the Units are to be held in more  than one name,  the  number
should be that of the first  person  listed.  For IRAs and Keoghs enter both the
social security number and the taxpayer identification number.)                 

                                     -----------------------------------------
              State of Residence
                    (IRA and KEOGH accounts:
                                      state of residence of plan beneficiary;all
                                   others, state of residence of investor)

2.   TRUST COMPANY                    Name of Trust:                            
REGISTRATION                     ---------------------------          
                                      Please  print here the exact name of Trust
                                   and Trustee, Custodian or Administrator

                           -------------------------------
   Address

                                     ---------------- ------------- ----------
                                    City              State         Zip Code

                                    ------------------      ----------------
                                  Taxpayer ID#            Tax Year End #

3.   INVESTMENT                       Number of Units to be purchased _________ 

Minimum Subscription is 20 Units                                                
at $100 per Unit ($2,000), with       Amount of payment enclosed ______________ 
additional investments of any amount.                                           
Make check payable to "Redwood Mortgage Investors VIII".

     If the investor has elected to compound his share of monthly,  quarterly or
annual  income (see 4 below),  then the interest  earned on  subscription  funds
until  admission  to the  Partnership  will be invested in  additional  Units on
behalf of the  investor;  therefore,  the actual number of Units to be issued to
the investor upon admission to the Partnership will be increased.               

                              Check one: [  ] Initial Investment
                                          [  ] Additional Investment

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4.   DISTRIBUTIONS                    Does the investor wish to receive         
                                    additional Units that will be reinvested
                          in lieu of cash distributions?
                                 [  ] YES                      [  ] NO

                                 If "NO", income shall be distributed:

                                      [  ] Monthly  [ ] Quarterly  [ ] Annually.

                                    The election to compound income may only
                             be changed after three (3) years.

5.   SPECIAL ADDRESS FOR                                                        
                                    ------------------------------------------
CASH DISTRIBUTIONS                   Name                                       
(If the Same as in 2, Please                                                    
Disregard)                                                                      

                                    ------------------------------------------
 Address

                                   --------------- ------------- -----------
                                City            State         Zip Code

     If cash  distributions are to be sent to a money market or other account at
an address other than that listed,  please enter that account number and address
here.  All other  communications  will be mailed  to the  investor's  registered
address of record under  Sections 2 or 3, or to the alternate  address listed in
Section  6  above.  In no  event  will  the  Partnership  or its  Affiliates  be
responsible for any adverse consequences of direct deposits.                    

6.   SIGNATURES                      IN WITNESS WHEREOF, the undersigned has    
                          executed below this __________
                              day of _______________, __________
           at ____________
                                  Investor's primary residence is in  ____

                                    ------------------------------------------
                        (Investor Signature and Title)

                                    ------------------------------------------
                        (Investor Signature and Title)

                                    ------------------------------------------
                        (Investor Signature and Title)

                                    ------------------------------------------
                        (Investor Signature and Title)

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     7. BROKER-DEALER DATA The undersigned  Broker-Dealer  hereby certifies that
(i) a copy of the  Prospectus,  as (To Be  Completed By Selling  amended  and/or
supplemented  to date,  has  been  delivered  to the  above  investor;  and (ii)
Broker-Dealer)  that the appropriate  suitability  determination as set forth in
the  Prospectus  has  been  made  and that the  appropriate  records  are  being
maintained.                                                                     

                                    ------------------------------------------
                            Broker-Dealer Authorized Signature
                  (Required on all Orders)

                   Registered Representative
                                    Last Name First: _________________________
                                    Registered Representative No.: ___________
                                    Registered Representative Phone No.: _____
                                    Broker-Dealer Name: ______________________
                                    Street Address: __________________________
                                    City, State, Zip Code: ___________________

     The  registered  representative,  by signing  below,  certifies that he has
reasonable  grounds to believe,  on the basis of  information  obtained from the
investor  concerning his investment  objectives,  other  investments,  financial
situation   and  needs  and  any  other   information   known  by  the   selling
Broker-Dealer,  that  investment  in the Units is suitable  for the investor and
that suitability records are being maintained;  and (2) that he has informed the
investor of all pertinent facts relating to the liquidity and  marketability  of
the Units.                                                                      

                                Registered Representative's Signature:
                                   -----------------------------------------

             Print or Type Name:
                                   -----------------------------------------

8.   ACCEPTANCE                      This subscription accepted                 
This Subscription will not be an                                                
effective Agreement until it or a    REDWOOD MORTGAGE INVESTORS VIII,           
facsimile is signed by a General     A California Limited Partnership           
Partner of Redwood Mortgage          P.O. Box 5096                              
Investors VIII, a California         Redwood City, California  94063            
limited partnership                  (415) 365-5341                             

                                    By:_______________________________________

           (Office Use Only)

    Account #:
                                                           -------------------
              Investor Check Date:
                                                           -------------------
       Check Amount:
                                                           -------------------
  Check #:
                                                           -------------------
                            Entered By:            Checked By:
                                 --------------          ---------------
       Date Entered:
                                    ------------------------------------------

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SPECIAL NOTICE FOR CALIFORNIA RESIDENTS ONLY
 COMMISSIONERS RULE 260.141.11
260.141.11 Restriction on Transfer

     (a) The issuer of any  security  upon which a  restriction  on transfer has
been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall cause a
copy of this  section  to be  delivered  to each  issuee or  transferee  of such
security.                                                                       

     (b) It is unlawful for the holder of any such security to consummate a sale
or transfer of such security, or any interest therein, without the prior written
consent of the Commissioner (until this condition is removed pursuant to Section
260.141.12 of these rules), except:                                             

(1) to the issuer;                                                    

(2) pursuant to the order or process of any court;                    

     (3) to any person described in Subdivision (i) of Section 25102 of the Code
or Section 260.105.14 of these rules;                                           

    (4) to the transferors  ancestors,  descendants or spouse or any custodian
or trustee  for the account of the  transferor  or the  transferors  ancestors, 
descendants  or spouse;  or to a transferee  by a trustee or  custodian  for the
account of the transferee or the transferees ancestors, descendants or spouse;  

(5) to the holders of securities of the same class of the same issuer;

(6) by way of gift or donation inter vivos or on death;               

     (7) by or through a broker-dealer licensed under the Code (either acting as
such or as a finder) to a resident of a foreign state,  territory or country who
is neither  domiciled in this state to the knowledge of the  broker-dealer,  nor
actually  present  in  this  state  if the  sale of  such  securities  is not in
violation  of any  securities  law of the foreign  state,  territory  or country
concerned;                                                                      

     (8) to a broker-dealer  licensed under the Code in a principal transaction,
or as an underwriter or member of an underwriting syndicate or group;           

     (9) if the interest sold or  transferred is a pledge or other lien given by
the  purchaser  to the  seller  upon  a  sale  of the  security  for  which  the
Commissioners written consent is obtained or under this rule is not required;   

     (10) by way of a sale qualified under Sections  25111,  25112, or 25113, or
25121 of the Code, of the securities to be  transferred,  provided that no order
under  Section  25140 or  Subdivision  (a) of  Section  25143 is in effect  with
respect to such qualification;                                                  

     (11) by a corporation to a wholly owned subsidiary of such corporation,  or
by a wholly owned subsidiary of a corporation to such corporation;              

     (12) by way of an exchange  qualified under Section 25111,  25112, or 25113
of the Code,  provided that no order under Section 25140 or  Subdivision  (a) of
Section 25148 is in effect with respect to such qualification;                  

     (13) between residents of foreign states,  territories or countries who are
neither domiciled nor actually present in this state;                           

     (14) to the State Controller  pursuant to the Unclaimed  Property Law or to
the administrator of the unclaimed property law of another state; or            

     (15) by the State Controller  pursuant to the Unclaimed  Property Law or to
the administrator of the unclaimed  property law of another state, if, in either
such case,  such person (i)  discloses to potential  purchasers at the sale that
transfer of the securities is restricted  under this rule, (ii) delivers to each
purchaser a copy of this rule, and (iii) advises the Commissioner of the name of
each purchaser;                                                                 

     (16) by a  trustee  to a  successor  trustee  when such  transfer  does not
involve a change in the beneficial  ownership of the  securities,  provided that
any such  transfer  is on the  condition  that any  certificate  evidencing  the
security  issued to such  transferee  shall contain the legend  required by this
section.                                                                        

     (c) The  certificates  representing  all such securities  subject to such a
restriction  on transfer,  whether  upon  initial  issuance or upon any transfer
thereof,  shall  bear on their  face a legend,  prominently  stamped  or printed
thereon in capital letters of not less than 10-point size, reading as follows:  

     IT IS UNLAWFUL TO  CONSUMMATE A SALE OR TRANSFER OF THIS  SECURITY,  OR ANY
INTEREST THEREIN,  OR TO RECEIVE ANY CONSIDERATION  THEREFOR,  WITHOUT THE PRIOR
WRITTEN CONSENT OF THE  COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONERS RULES.                                 

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==============================================================================  

 REDWOOD MORTGAGE INVESTORS VIII

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

 300,000 Units of Limited Partnership Interest

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

 General Partners:

D. Russell Burwell
Michael R. Burwell
 Gymno Corporation

 Dated: December 4, 1996

=============================================================================== 

     No dealer,  salesman or any other  person has been  authorized  to give any
information or to make any  representations  other than those  contained in this
Prospectus, and, if given or made, such information and representations must not
be  relied  upon.  This  Prospectus  does not  constitute  an offer to sell or a
solicitation  of an offer to buy any of the  securities  offered  hereby  in any
state to any  person to whom it is  unlawful  to make such  offer.  Neither  the
delivery  of this  Prospectus  nor any  sale  made  herunder  shall,  under  any
circumstances,  create  any  implication  that  there  has been no change in the
affairs of the Partnership  since the respective  dates at which  information is
given herein, or the date hereof;  however,  if any material change occurs while
this  Prospectus is required by law to be  delivered,  this  Prospectus  will be
amended or supplemented accordingly.                                            

     ALL DEALERS EFFECTING  TRANSACTIONS IN THE REGISTERED SECURITIES WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE  OBLIGATION  OF DEALERS TO DELIVER A PROSPECTUS  WHEN
ACTING  AS  UNDERWRITERS  AND  WITH  RESPECT  TO  THEIR  UNSOLD   ALLOTMENTS  OR
SUBSCRIPTIONS.                                                                  

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘424B1’ Filing		Date		First		Last			Other Filings
		12/31/32		16		173
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Filed on:		12/24/96
		12/4/96		1		198			POS AM
		9/30/96		11		176			10-Q,  S-11
		8/30/96		11		176
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		5/30/96		176
		2/28/96		92
		1/1/96		13		37
		12/31/95		13		110
		6/30/95		18		108
		12/31/94		56		99
		6/30/94		105
		12/31/93		56		99
		5/19/93		169
		4/14/93		92		96
		4/12/93		9
		2/2/93		171
		5/27/92		9		60
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