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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-K

(Mark one)

|    |  |                                                                                     
|--- |  | ------------------------------------------------------------------------------------
|[X] |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2003

|     |  |                                                                                         
|---- |  | ----------------------------------------------------------------------------------------
|Or  
|[  ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

Commission File Number 333-32800

VESTIN FUND II, LLC

(Exact name of registrant as specified in its charter)


|                                                                      |  |                                                
|--------------------------------------------------------------------- |  | -----------------------------------------------
|NEVADA
(State or other jurisdiction of
Incorporation or organization) |  | 88-0481336
(I.R.S. Employer
Identification No.)

2901 EL CAMINO AVENUE, LAS VEGAS, NEVADA 89102
(Address of principal executive offices) (Zip Code)

Registrants telephone number, including area code 702.227.0965

Securities registered pursuant to Section 12(b) of the Act:
NONE

Securities registered pursuant to Section 12(g) of the Act:
NONE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Sec 229.405) of this chapter) is not contained herein, and
will not be contained, to the best of the registrants knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [  ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes [  ] No [X]

State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common equity, as
of the last business day of the registrants most recently completed second
fiscal quarter. Not applicable.

As of July 31, 2003, 39,929,095 Units of interest in the Company were
outstanding.





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TABLE OF CONTENTS



|              |                                                                                               |  |  |  |  |  |  | 
|------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I       
|              | ITEM 1. BUSINESS                                                                             
|              | ITEM 2. PROPERTIES                                                                           
|              | ITEM 3. LEGAL PROCEEDINGS                                                                    
|              | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|PART II      
|              | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                
|              | ITEM 6. SELECTED FINANCIAL DATA                                                              
|              | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|              | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          
|              | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                          
|              | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
|PART III     
|              | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT                                      
|              | ITEM 11. EXECUTIVE COMPENSATION                                                              
|              | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                      
|              | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                      
|              | ITEM 14. CONTROL AND PROCEDURES                                                              
|PART IV      
|              | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                    
|EXHIBIT INDEX
|SIGNATURES   
|EXHIBIT 31.1 
|EXHIBIT 31.2 
|EXHIBIT 32   



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TABLE OF CONTENTS

|              |          |                                                                                            |      |    | 
|------------- | -------- | ------------------------------------------------------------------------------------------ | ---- | -- | 
|              |          |                                                                                            | PAGE
|PART I        |          |                                                                                            |      |   
|              | ITEM 1.  | BUSINESS                                                                                   |      | 3  | 
|              | ITEM 2.  | PROPERTIES                                                                                 |      | 12 | 
|              | ITEM 3.  | LEGAL PROCEEDINGS                                                                          |      | 12 | 
|              | ITEM 4.  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                        |      | 12 | 
|PART II       |          |                                                                                            |      |   
|              | ITEM 5.  | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS                      |      | 13 | 
|              | ITEM 6.  | SELECTED FINANCIAL DATA                                                                    |      | 13 | 
|              | ITEM 7.  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      |      | 14 | 
|              | ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                 |      | 25 | 
|              | ITEM 8.  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                |      | 26 | 
|              | ITEM 9.  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE       |      | 26 | 
|PART III      |          |                                                                                            |      |   
|              | ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT                                             |      | 27 | 
|              | ITEM 11. | EXECUTIVE COMPENSATION                                                                     |      | 28 | 
|              | ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT RELATED STOCKHOLDER MATTERS |      | 28 | 
|              | ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                             |      | 29 | 
|              | ITEM 14. | CONTROLS AND PROCEDURES                                                                    |      | 29 | 
|PART IV       |          |                                                                                            |      |   
|              | ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K                           |      | 30 | 
|EXHIBIT INDEX |          | 30                                                                                         |     
|SIGNATURES    |          | 31                                                                                         |     

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PART I

Note Regarding Forward Looking Statements

This report and other written reports and oral statements made from time to
time by us may contain forward looking statements. Such forward looking
statements may be identified by the use of such words as expects, plans,
estimates, forecasts, projects, anticipates, believes and words of
similar meaning. Forward looking statements are likely to address such matters
as our business strategy, future operating results, future sources of funding
for mortgage loans brokered by us, future economic conditions and pending
litigation involving us. Some of the factors which could affect future results
are set forth in the discussion under Managements Discussion and Analysis of
Financial Condition and Results of Operations - Factors Affecting Our Operating
Results.




ITEM 1. BUSINESS

General

We were organized in December 2000 as a Nevada limited liability company for
the purpose of investing in mortgage loans. We invest in loans secured by real
estate through deeds of trust and mortgages. We commenced our business
operations in June 2001. Through June 2003, we raised approximately
$397,783,000 through a public offering of our membership interests (Units).
The Fund may continue to sell units to until June 2004 or until 50 million
units have been sold. Our manager is Vestin Mortgage, Inc., a licensed
mortgage company in the State of Nevada (Vestin Mortgage, or Manager).
Vestin Mortgage is a wholly-owned subsidiary of Vestin Group, Inc., a Delaware
corporation, whose common stock is publicly held and traded on the Nasdaq
National Market under the ticker symbol VSTN. Through its subsidiaries,
Vestin Group, Inc. is engaged in asset management, real estate lending and
other financial services. In June 2002, we changed our fiscal year end from
December 31 to June 30. The financial statements for the twelve-month period
ended June 30, 2002 reflects twelve months of operational activities and are
unaudited as a result of the change in fiscal year end. In this annual report,
from time to time, we will refer to our company, Vestin Fund II, LLC, as the
Company.

We invest in mortgage loans throughout the areas in which Vestin Mortgage and
its correspondents have experience, primarily Arizona, California, Hawaii,
Nevada and Texas. The loans we invest in are selected for us by Vestin Mortgage
from among loans originated by Vestin Mortgage or non-affiliated mortgage
brokers. When Vestin Mortgage or a non-affiliated mortgage broker originates a
loan for us, that entity identifies the borrower, processes the loan
application, makes or invests in the loan, and brokers or sells the loan to us.
We believe that our loans are attractive to borrowers because of the expediency
of Vestin Mortgages loan approval process, which takes about ten to 20 days.

As a non-conventional lender, we are more willing to invest in mortgage loans
to borrowers that conventional lenders would not deem to be creditworthy.
Because of our increased willingness to fund riskier loans and borrowers,
borrowers are willing to pay us an interest rate that is two to five points
above the rates charged by conventional lenders. We invest a significant amount
of our funds in loans in which the real property being developed is not
generating any income to the borrower. The balloon payment loans and bridge
loans in which we invest are riskier because the borrowers repayment depends
on its ability to refinance the loan or develop the property so it can
refinance the loan.

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Our principal investment objectives are to:



| |  |  | Produce revenues from the interest income on our mortgage loans;                       
| | - |  | ---------------------------------------------------------------------------------------
|
| |  |  | Provide monthly cash distributions from the net income earned on our mortgage loans;   
|
| |  |  | Preserve capital contributions; and                                                    
|
| |  |  | Reinvest, to the extent permissible, payments of principal and sales (net of expenses).

Acquisition and Investment Policies

We seek to invest about 97% of our assets in mortgage loans. Approximately 3%
will be held as a working capital cash reserve.

The majority of our collateral on our
mortgage loans is the real property that
the borrower is purchasing or developing with the funds that we make available.
We sometimes refer to these real properties as the security properties. While
we may invest in other types of loans, most of the loans in which we invest
have been made to real estate developers with a lesser proportion of loans
involving land loans and bridge financing.

Our mortgage investments are not insured or guaranteed by any government
agency.

Vestin Mortgage continuously evaluates prospective investments, selects the
mortgages in which we invest and makes all investment decisions on our behalf
in its sole discretion. In evaluating prospective mortgage loan investments,
Vestin Mortgage considers such factors as the following:



| |  |  | the ratio of the amount of the investment to the value
of the property by which it is secured (loan-to-value ratio);
| | - |  | --------------------------------------------------------------------------------------------------------------------
|
| |  |  | the potential for capital appreciation or depreciation
of the property securing the investment;                     
|
| |  |  | expected levels of rental and occupancy rates (if applicable);                                                      
|
| |  |  | potential for rental increases (if applicable);                                                                     
|
| |  |  | current and projected revenues from the property (if applicable);                                                   
|
| |  |  | the status and condition of the record title of the property securing the investment;                               
|
| |  |  | geographic location of the property securing the investment; and                                                    
|
| |  |  | the financial condition of the borrowers and their
principals, if any, who guarantee the loan.                      

Vestin Mortgage may obtain our loans from non-affiliated mortgage brokers and
previous borrowers, and by solicitation of new borrowers in those states where
permissible. We may purchase existing loans that were originated by third party
lenders and acquired by Vestin Mortgage to facilitate our purchase of the
loans. Vestin Mortgage will sell the loans to us for no greater than Vestin
Mortgages cost, not including its service fees and compensation. There are no
specific requirements or guidelines governing Vestin Mortgages discretion in
determining which mortgage loans it will place with us and which it will place
with other funding sources.

When selecting mortgage loans for us, Vestin Mortgage adheres to the following
guidelines, which are intended to control the quality of the collateral given
for our loans:

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|1. |  | Priority of Mortgages.Generally, our assets are secured by first
mortgages. First mortgages are mortgages secured by a full or divided
interest in a first deed of trust secured by the property. Other mortgages
that we invest in on the security property will not be junior to more than
one other mortgage. As of June 30, 2003, more than 99% of the principal
amount of our outstanding interest in loans was secured by first
mortgages.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Loan-to-Value Ratio.The amount of our loan
combined with the outstanding debt secured by a senior mortgage on a
security property does not exceed the following percentage of the appraised
value of the security property at origination:                                                                                                                                                                                                      

|                            |  |  |                     |                                         
|--------------------------- |  |  | ------------------- | ----------------------------------------
|Type of Secured Property    |  |  | Loan-to-Value Ratio
|Residential                 |  |  | 75%                 |                                         
|Unimproved Land             |  |  | 60%                 | (of anticipated as-if development value)
|Acquisition and Development |  |  | 60%                 | (of anticipated as-if development value)
|Commercial Property         |  |  | 75%                 | (of anticipated as-if development value)
|Construction                |  |  | 75%                 | (of anticipated post-development value) 
|Bridge                      |  |  | 75%                 | (of anticipated as-if development value)
|Leasehold Interest          |  |  | 75%                 | (of value of leasehold interest)        



| |  | The target
loan-to-value ratio for our loan portfolio as a whole is
approximately 70%. However, we may deviate from these guidelines under certain circumstances. For
example, Vestin Mortgage, in its discretion, may increase any of the above
loan-to-value ratios if a given loan is supported by credit adequate to
justify a higher loan-to-value ratio, including personal guarantees.
Occasionally, our collateral may include personal property as well as real
property. We do not have specific requirements with respect to the projected
income or occupancy levels of a property securing our investment in a
particular loan. These loan-to-value ratios will not apply to financing
offered by us to the purchaser of any real estate acquired through
foreclosure, or to refinance an existing loan that is in default when it
matures. In those cases, Vestin Mortgage, in its sole discretion, shall be
free to accept any reasonable financing terms it deems to be in our best
interest.                                                                                                                                                                                                                                                                                                   
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Manager receives an appraisal at the time of loan underwriting, which
may have been commissioned by the borrower and also may precede the
placement of the loan with the Company. Such appraisals are generally dated
no greater than 12 months prior to the date of loan origination. The
appraisal may be for the current estimate of the as-if developed value of
the property which approximates the post-construction value of the
collateralized property assuming that such property is developed. As-if
developed values on raw land loans or acquisition and development loans
often dramatically exceed the immediate sales value and may include
anticipated zoning changes, selection by a purchaser against multiple
alternatives, and successful development by the purchaser; upon which
development is dependent on availability of financing. As most of the
appraisals will be prepared on an as-if developed basis, if a loan goes into
default prior to any development of a project, the market value of the
property may be substantially less than the appraised value. As a result,
there may be less security than anticipated at the time the loan was
originally made. If there is less security and a default occurs, the
Company may not recover the full amount of the loan.
|
| |  | We retain appraisers who are licensed or qualified as independent appraisers
and certified by or hold designations from one or more of the following
organizations: the Federal National Mortgage Association, the Federal Home
Loan Mortgage Corporation, 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 from among appraisers with other
qualifications acceptable to Vestin Mortgage. However, appraisals are only
estimates of value and cannot be relied on as measures of realizable value.
The appraisal may be for the current estimated as-if developed or as-if
completed value of the property or, in the case of acquisition and
development loans or construction loans, for the estimated value of the
property upon completion of the project. As-if completed or as-if developed
values on raw land loans or acquisition and development loans often
dramatically exceed the immediate sales value and may include anticipated
zoning changes, selection by a purchaser against multiple alternatives, and
successful development by the purchaser; upon which development is dependent
on                                                                                  

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|   |  | availability of financing. An employee or agent of Vestin Mortgage will
review each appraisal report and will conduct a physical inspection for each
property. A physical inspection includes an assessment of the subject
property, the adjacent properties and the neighborhood but generally does
not include entering any structures on the property.                                                                                                                                                 
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|3. |  | Construction Mortgage Loans. We invest in construction loans other than
home improvement loans on residential property, when the
loan-to-value ratio does not exceed 75% of the appraised, completed
value of the security property at origination.                                                                                                                                                                                                                                                       
|  
|4. |  | Terms of Mortgage Loans.Our loans to date in 2003 range from a two-month
term to a 30-month term. Most of our loans are for a term of 12 months.
Our original loan agreements, however, permit extensions to the term of
the loan by mutual consent. Such extensions are generally provided on
loans where the original term was 12 months or less and where a borrower
requires additional time to complete a construction project or negotiate
take out financing.                                      
|  
|   |  | Currently all of our loans provide for payments of interest only with a
balloon payment of principal payable in full at the end of the term. In
addition, we invest in mortgage loans which require borrowers to maintain
interest reserves funded from the principal amount of the loan for a period
of time. At June 30, 2003, we had outstanding principal on mortgage loans
that had interest reserves of approximately $63,306,000 and interest
reserves in the amount of approximately $3,716,000.
|  
|5. |  | Escrow Conditions.Our loans will often be funded by us through an escrow
account held by a title insurance company, subject to the following
conditions:                                                                                                                                                                                                                                                                                                                                                  



| |  |  | Borrowers will obtain title insurance coverage for all
loans, with the title insurance policy naming us 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 our deed of trust,
and does not insure us against loss by other causes, such as
diminution in the value of the security property.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Borrowers will obtain fire and casualty insurance for
all loans secured by improved real property, naming us as
loss payee in an amount sufficient to cover the replacement
cost of improvements.                                                                                                                                                                                                                
|
| |  |  | All insurance policies, notes, deeds of trust or
mortgages, escrow agreements, and any other loan documents
for a particular transaction will name us as payee and
beneficiary. Mortgage loans will not be written in the name
of Vestin Mortgage or any other nominee.                                                                                                                                          



|6. |  | Purchase of Mortgage Investments from Affiliates.We may acquire mortgage
loans from our affiliates, including Vestin Mortgage, for a price not in
excess of the par value of the note, plus allowable fees and expenses, but
without the allowance of any other compensation for the loans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|7. |  | Note Hypothecation.We may also acquire mortgage loans secured by
assignments of secured promissory notes. These mortgage loans must satisfy
our stated investment standards, including our loan-to-value ratios, and
also may not exceed 80% of the principal amount of the assigned note
upon acquisition. For
example, if the property securing a note we acquire is commercial
property, the total amount of outstanding debts secured by the property
must not exceed 75% of the appraised value of the property, and the
mortgage loan will not exceed 80% of the principal amount of the assigned
note. For mortgage loans secured by promissory notes, we will rely on the
appraised value of the underlying property, as determined by an
independent written appraisal which was conducted within the
then-preceding twelve months. If an appraisal was not conducted within
that period, then we will arrange for a new appraisal to be prepared for
the property prior to acquisition of the loan.
|  
|8. |  | Participation.We participate in loans with other lenders, including
affiliates as permitted by the North American Securities Administrators
Association guidelines (NASAA Guidelines), by providing funds for or
purchasing an undivided interest in a loan meeting our investment
guidelines described above. Typically, we participate in loans if:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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| |  |  | We did not have sufficient funds to invest in an entire loan.                                                                                                                                                                        
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We are seeking to increase the diversification of our loan portfolio.                                                                                                                                                                
|
| |  |  | Vestin Mortgage originated a loan that fit within our
investment guidelines but it would constitute more than 20%
of our anticipated capital contribution or otherwise be
disproportionately large given our then existing portfolio.



|    |  | As of June 30, 2003, 58% of our loans were loans in which we participated
with other lenders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|9.  |  | Diversification.The NASAA Guidelines provide that we neither invest in
or make mortgage loans on any one property which would exceed, in the
aggregate, an amount equal to 20% of our capital nor may we invest in or
make mortgage loans to or from any one borrower which would exceed, in the
aggregate, an amount greater than 20% of our capital. As of June 30, 2003,
we had one mortgage loan which accounted for approximately 6.8% of our
member's equity. The outstanding balance of the loan was approximately $25.5
million. The loan, which matured on August 30, 2003, was extended to August 31, 2005.
|   
|10. |  | Reserve Fund.We have established contingency working capital reserves of
approximately 3% of our capital to cover our unexpected cash needs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|11. |  | Credit Evaluations.When reviewing a loan proposal, Vestin Mortgage
determines whether a borrower has sufficient equity in the security
property. Vestin Mortgage may also consider the income level and
creditworthiness of a borrower to determine its ability to repay the
mortgage loan.                                                                                                                                                                                                                                                                                                                          
|   
|12. |  | Sale of Mortgage Investments. Although Vestin Mortgage has no plans to
do so, Vestin Mortgage may sell our mortgage loans or interest in our
loans to either affiliates or non-affiliated parties when Vestin Mortgage
believes that it is advantageous to us to do so. However, we do not
expect that the loans will be marketable or that a secondary market will
ever develop for them.                                                                                                                                                                                                                           

Mortgage Loans to Affiliates

We will not invest in mortgage loans made to Vestin Mortgage, Vestin Group or
any of our affiliates. However, we may acquire an investment in a mortgage loan
payable by Vestin Mortgage when Vestin Mortgage has assumed the obligations of
the borrower under that loan, through a foreclosure on the property.

Purchase of Loans from Vestin Mortgage and its Affiliates

In addition to those loans Vestin Mortgage selects for us, we purchase loans
that were originated by Vestin Mortgage or other parties and first held for
Vestin Mortgages own portfolio, as long as the loan is not in default and
otherwise satisfies all of our lending criteria. This requirement also applies
to any loan originated by an affiliate of Vestin Mortgage, such as Vestin
Group, Michael Shustek, Chief Executive officer of Vestin Group or another
principal of Vestin Mortgage. However, we will not acquire a loan from or sell
a loan to a mortgage program in which Vestin Mortgage has an interest except in
compliance with NASAA Guidelines.

Types of Loans We Invest In

We primarily invest in loans which are secured by first or second mortgages on
real property. Such loans fall into the following categories: raw and
unimproved land, acquisition and development, construction, commercial,
residential and bridge loans.

Raw and Unimproved Land Loans

Approximately 15% to 25% of the loans invested in by us may be loans made for
the purchase or development of raw, unimproved land. Generally, we determine
whether to invest in these loans based upon the appraised value of

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the property and the borrowers actual capital investment in the property. We
will generally invest in loans for up to 60% of the as-if developed appraised
value of the property and we generally require that the borrower has invested
in the property actual capital expenditures of at least 25% of the propertys
value. As-if developed values on raw and unimproved land loans often
dramatically exceed the immediate sales value and may include anticipated
zoning changes, selection of a purchaser against multiple alternatives, and
successful development by the purchaser, upon which development is dependent on
availability of financing. As of June 30, 2003, approximately 7% of our loans
were in this category.

Acquisition and Development Loans

Approximately ten percent to 25% of the loans invested in by us may be
acquisition and development loans. These loans enable borrowers to acquire
and/or complete the basic infrastructure and development of their property
prior to the construction of buildings or structures. Such development may
include installing utilities, sewers, water pipes, and/or streets. We will
generally invest in loans with a face value of up to 60% of the appraised value
of the property. Loan to value ratios on acquisition and development
loans are calculated using as-if developed appraisals. Such appraisals have
the same valuation limitations as raw and unimproved land loans, described above. As of
June 30, 2003, approximately 8% of our loans were in this category.

Construction Loans

Approximately ten percent to 70% of our loans may be construction loans. A
construction loan provides funds for the construction of one or more structures
on developed land. Funds under this type of loan will generally not be
forwarded to the borrower until work in the previous phase of the project has
been completed and an independent inspector has verified certain aspects of the
construction and its costs. We will typically require material and labor lien
releases by the borrower per completed phase of the project. We will review the
appraisal of the value of the property and proposed improvements, and will
generally finance up to 75% of the appraised value of the property
and proposed improvements. Such appraisals have the same valuation limitations
as raw and unimproved land loans, described above. As of June 30, 2003,
approximately 33% of our loans were in this category.

Commercial Property Loans

Approximately 20% to 50% of the loans invested in by us may be commercial
property loans. Commercial property loans provide funds to allow commercial
borrowers to acquire income producing property or to make improvements or
renovations to the property in order to increase the net operating income of
the property so that it may qualify for institutional refinancing. We will
review the appraisal of the value of the property and will generally invest in
loans for up to 75% of such appraised value of the property. As of June 30,
2003, approximately 42% of our loans were in this category.

Residential Loans

A small percentage of the loans invested in by us may be residential loans.
Such loans facilitate the purchase or refinance of one to four family
residential property units provided the borrower uses one of the units on the
property as such borrowers principal residence. We will generally invest in
loans for up to 75% of the value of the property. As of June 30, 2002, less
than 4% of our loans were in this category.

Bridge Loans

Up to 15% of our loans may be bridge loans. Such loans provide interim
financing (12 to 24 months) to enable commercial borrowers to qualify for
permanent refinancing. We will review the appraisal of the value of the
property and will generally invest in loans of up to 75% of that value of the
property. Such appraisals may be based on either an as-is basis or as-if
developed basis, depending on the circumstances, and therefore, may not be an
accurate indicator of the fair value of the property. As of June 30, 2003,
approximately 6% of our loans were in this category.

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Collateral

The types of collateral that will secure the loans include a first deed of
trust, a second deed of trust or a leasehold interest.

First Deed of Trust

Most of our loans are secured by a first deed of trust. Thus as a lender, we
will have rights as a first mortgage lender of the collateralized property. As
of June 30, 2003, more than 99% of our loans were secured by a first deed of
trust.

Second Deed of Trust

In the future, up to 10% of our loans may be secured by second deeds of trust.
In a second mortgage loan, the rights of the lender (such as the right to
receive payment on foreclosure) will be subject to the rights of the first
mortgage lender. In a wraparound loan, the lenders rights will be comparably
subject to the rights of a first mortgage lender, but the aggregate
indebtedness evidenced by the loan documentation will be the first mortgage
loan plus the new funds the lender invests. The lender would receive all
payments from the borrower and forward to the senior lender its portion of the
payments the lender receives. As of June 30, 2003, less than 1% of our loans
were secured by a second deed of trust.

Leasehold Interest

Up to 20% of the loans invested in by us may be in loans where the collateral
is an interest in a lease. As of June 30, 2003, we did not have any loans
secured by a leasehold interest.

Prepayment Penalties and Exit Fees

Generally, the loans we invest in will not contain prepayment penalties or exit
fees. If our loans are at a high rate of interest in a market of falling
interest rates, the failure to have a prepayment penalty provision or exit fee
in the loan allows the borrower to refinance the loan at a lower rate of
interest, thus providing a lower yield to us on the reinvestment of the
prepayment proceeds. However, these loans will usually be written with
relatively high minimum interest rates, which we would expect to minimize the
risk of lower yields.

Extensions to Term of Loan

Our original loan agreements permit extension to the term of the loan by mutual
consent. Such extension are generally provided on loans where the original
term was 12 months or less and where a borrower requires additional time to
complete a construction project or negotiate take out financing. However, we
only grant extensions when a borrower is in full compliance with the terms of
the loan, including, but not limited to, the borrowers obligation to make
interest payments on the loan.

Balloon Payment

Currently all of the loans we invest in or purchase will require the borrower
to make a balloon payment on the principal amount upon maturity of the loan.
There are no specific criteria used in evaluating the credit quality of
borrowers for mortgage loans requiring balloon payments. Furthermore, a
substantial period of time may elapse between the review of the financial
statements of the borrower and the date when the balloon payment is due. As a
result, there is no assurance that a borrower will have sufficient resources to
make a balloon payment when due. To the extent that a borrower has an
obligation to pay mortgage loan principal in a large lump sum payment, its
ability to repay the loan may be dependent upon its ability to sell the
property, obtain suitable refinancing or otherwise raise a substantial amount
of cash. As a result, these loans can involve a higher risk of default than
loans where the principal is paid at the same time as the interest payments.

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Repayment of Mortgages on Sale of Properties

We may require a borrower to repay a mortgage loan upon the sale of the
mortgaged property rather than allow the buyer to assume the existing loan. We
will require repayment if we determine that repayment appears to be
advantageous to us based upon then-current interest rates, the length of time
that the loan has been held by us, the creditworthiness of the buyer and our
objectives. We will either invest our net proceeds from any capital
transaction in new mortgage loans, hold the net proceeds as cash or distribute
them to our Members. These net proceeds will also include the principal of a
loan deemed to be repaid for tax purposes as a result of the nature of a loan
modification or loan extension. Our operating agreement provides that whether
we choose to distribute the proceeds or reinvest them, our Members will be
deemed to have received a distribution of capital and recontributed the same
amount to us. Capital transaction include payments of principal, foreclosures
and prepayments of mortgages to the extent classified as a return of capital
under the Internal Revenue Code and any other disposition of a mortgage or
property.

Variable Rate Loans

To date, all of the loans we invest in are fixed rate loans. Occasionally we
may acquire variable rate loans. Variable rate loans originated by Vestin
Mortgage may use as indices the one and five year Treasury Constant Maturity
Index, the Prime Rate Index and the Monthly Weighted Average Cost of Funds
Index for Eleventh District Savings Institutions (Federal Home Loan Bank
Board). Vestin Mortgage may negotiate spreads over these indices of 2.5% to
5.5%, depending upon market conditions when the loan is made. As of June 30,
2003, we did not hold any variable rate loans.

It is possible that the interest rate index used in a variable rate loan will
rise (or fall) more slowly than the interest rate of other loan investments
available to us. Vestin Mortgage attempts to minimize this interest rate
differential by tying variable rate loans to indices that are sensitive to
fluctuations in market rates. Additionally, most variable rate loans originated
by Vestin Mortgage contain provisions under which the interest rate cannot fall
below the initial rate.

Variable rate loans generally have interest rate caps. We anticipate that the
interest rate cap will be a ceiling that is 2% to 4% above the starting rate
with a floor rate equal to the starting rate. For these loans there is the risk
that the market rate may exceed the interest cap rate.

Variable rate loans of five to ten year maturities are not assumable without
the prior consent of Vestin Mortgage. We do not expect to invest in or purchase
a significant amount of other assumable loans. To minimize our risk, any
borrower assuming an existing mortgage loan will be subject to the same
underwriting criteria as the original borrower.

Borrowing

We may incur indebtedness:



| |  |  | to finance our investments in mortgage loans,                                                               
| | - |  | ------------------------------------------------------------------------------------------------------------
|
| |  |  | to prevent a default under mortgage loans that are senior to our mortgage loans,                            
|
| |  |  | to discharge senior mortgage loans if this becomes
necessary to protect our investment in mortgage loans, or
|
| |  |  | to operate or develop a property that we acquired
under a defaulted loan.                                   

Our indebtedness will not exceed 70% of the fair market value of our mortgage
loans. This indebtedness may be with recourse to our assets.

In addition, we may enter into structured arrangements with other lenders in
order to provide them with a senior

10



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position in mortgage loans which we might jointly fund. For example, we might
establish a wholly-owned special purpose corporation which would borrow funds
from an institutional lender under an arrangement where the resulting mortgage
loans would be assigned to a trust, and the trust would issue a senior
certificate to the institutional lender and a junior certificate to the special
purpose corporation. This would assure the institutional lender of repayment in
full prior to our receipt of any repayment on the jointly funded mortgage
loans.

Competition

There are hundreds of commercial banks, insurance companies, mortgage brokers,
pension funds and other institutional lenders competing to make the type of
loans in which we invest. No particular competitor dominates the market. We
anticipate substantial competition for investments in mortgages secured by
commercial properties, which creates pressure on lenders to lower interest
rates. Consequently, we may not be able to obtain as high interest rates on
mortgage investments as we would otherwise obtain, which would affect our
revenues and the distributions made to our investors.

Regulation

Our operations are conducted by Vestin Mortgage. Vestin Mortgages operations
as a mortgage company are subject to extensive regulation by federal, state and
local laws and governmental authorities. Vestin Mortgage conducts its real
estate mortgage business under a license issued by the State of Nevada
Financial Institutions Division. Under applicable Nevada law, the division has
broad discretionary authority over Vestin Mortgages activities, including the
authority to conduct periodic regulatory audits of all aspects of Vestin
Mortgages operations.

We and Vestin Mortgage are also subject to the Equal Credit Opportunity Act of
1974, which prohibits creditors from discriminating against loan applicants on
the basis of race, color, sex, age or marital status, and the Fair Credit
Reporting Act of 1970, which requires lenders to supply applicants with the
name and address of the reporting agency if the applicant is denied credit. We
are also subject to various other federal and state securities laws regulating
the issuance and sale of securities, as well as the Employee Retirement Income
Security Act of 1974.

Employees

The Company does not have any employees. Our Manager, Vestin Mortgage, and its
parent company, Vestin Group, Inc., provide all of the employees necessary for
the operations of the Company. As of September 15, 2003, those entities had a
total of 70 full-time and no part-time employees. All employees are at-will
employees and none are covered by collective bargaining agreements.

Available Information

The Company files electronically with the Securities and Exchange Commission
required reports on Form 8-K, Form 10-Q and Form 10-K; and registration
statements on Forms S-11, as necessary. The public may read and copy any
materials the company has filed with the SEC at the SECs Public Reference Room
at 450 Fifth Street, N.W., Washington, DC 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC.

Our Internet website address is www.vestinfundII.com. We make available free
of charge through www.vestingroup.com our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments
to those reports as soon as reasonably practicable after such material is
electronically filed with or furnished to the Securities and Exchange
Commission.

11



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##### Table of Contents






ITEM 2. PROPERTIES

Our Manager, Vestin Mortgage, operates from its executive offices at 2901 El
Camino Avenue, Las Vegas, Nevada 89102. The Company does not have any separate
offices.




ITEM 3. LEGAL PROCEEDINGS

Other than proceedings related to the normal course of business, we are not
parties to any pending litigation and, to the best of our Managers knowledge,
no legal proceedings have been threatened against us.

Litigation involving the Manager

Vestin Mortgage, Inc., Vestin Group, Inc., and Del Mar Mortgage, Inc., a
company wholly owned by Michael Shustek, the largest shareholder and CEO of
Vestin Group, Inc., are defendants in a civil action entitled Desert Land,
L.L.C. et al. v. Owens Financial Group, Inc. (the Action). The Action was
initiated by Desert Land, L.L.C. (Desert Land) on various
loans arranged by
Del Mar Mortgage, Inc. and/or Vestin Mortgage. On April 10, 2003, the United
States District Court for the District of Nevada (the Court) entered judgment
jointly and severally in favor of Desert Land against Vestin Group, Vestin
Mortgage and Del Mar Mortgage, Inc. Judgment was predicated upon the Courts
finding that Del Mar Mortgage, Inc. received an unlawful penalty fee
from the
plaintiffs.

Defendants subsequently filed a motion for reconsideration. The Court denied
the motion and, on August 13, 2003, held that Vestin Group, Vestin Mortgage,
and Del Mar Mortgage, Inc. are jointly and severally liable for the judgment in
the amount of $5,683,312.19 (which amount includes prejudgment interest and
attorneys fees). On August 27, 2003, the Court stayed execution of the
judgment against Vestin Group and Vestin Mortgage based upon the posting of a
bond in the amount of $5,830,000. The bond was arranged by Michael Shustek and
was posted without any cost or obligation to Vestin Group and Vestin Mortgage.
Additionally, Del Mar Mortgage, Inc. has indemnified Vestin Group and Vestin
Mortgage for any losses and expenses in connection with the Action, and Mr.
Shustek has guaranteed the indemnification. All of the defendants held liable
to Desert Land are planning to appeal the judgment. The Company is not a party
to the Action.




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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##### Table of Contents






PART II




ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information



|a. |  | There is no established public trading market for the trading of Units.                                                                                                                                                                                                                                                                                                                   
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|b. |  | As of June 30, 2003, approximately 5,540 Unit holders held 38,602,848
Units of interest in the Company.                                                                                                                                                                                                                                                                                   
|  
|c. |  | We generally distribute significantly all net income generated by us to
Unit holders on a monthly basis. We made distributions of net income to
our Unit holders of approximately $34,688,196 (prior to reinvested
distributions) during the fiscal year ended June 30, 2003. It is our
intention to continue to distribute significantly all net income earned by
us to the Unit holders.




ITEM 6. SELECTED FINANCIAL DATA

Vestin Fund II, LLC

|                                                                            |  |          |             |          |  |              |             |  |  |   |             | 
|--------------------------------------------------------------------------- |  | -------- | ----------- | -------- |  | ------------ | ----------- |  |  | - | ----------- | 
|                                                                            |  | June 30, |             | June 30, |  | December 31,
|                                                                            |  | 2003     |             | 2002     |  | 2001        
|Balance Sheet Data:                                                         |  |          |             |          |  |              |             |  |  |   |             | 
|Investments in mortage loans (net of allowance)                             |  | $        | 343,280,517 |          |  | $            | 222,058,326 |  |  | $ | 117,236,471 | 
|Cash, cash equivalents, certificates of
deposits and short-term investments |  | $        | 16,815,806  |          |  | $            | 8,623,542   |  |  | $ | 10,012,601  | 
|Interest and other receivables                                              |  | $        | 3,898,231   |          |  | $            | 2,189,631   |  |  | $ | 1,066,369   | 
|Real estate held for sale                                                   |  | $        | 15,833,099  |          |  | $            |            |  |  |   |            | 
|Assets under secured borrowing                                              |  | $        | 26,729,643  |          |  | $            |            |  |  |   |            | 
|Other assets                                                                |  | $        |            |          |  | $            | 255,637     |  |  | $ | 142,448     | 
|Total assets                                                                |  | $        | 406,557,296 |          |  | $            | 233,127,136 |  |  | $ | 128,457,889 | 
|Liabilities                                                                 |  | $        | 31,367,689  |          |  | $            | 650,765     |  |  | $ | 269,078     | 
|Members capital                                                            |  | $        | 375,189,607 |          |  | $            | 232,476,371 |  |  | $ | 128,188,811 | 
|Total liabilities and Members capital                                      |  | $        | 406,557,296 |          |  | $            | 233,127,136 |  |  | $ | 128,457,889 | 

|                                                                      |  |           |            |           |  |              |             |  |  |   |           | 
|--------------------------------------------------------------------- |  | --------- | ---------- | --------- |  | ------------ | ----------- |  |  | - | --------- | 
|                                                                      |  | 12 months |            | 12 months |  | 12 months   
|                                                                      |  | ended     |            | ended     |  | ended       
|                                                                      |  | June 30,  |            | June 30,  |  | December 31,
|                                                                      |  | 2003      |            | 2002      |  | 2001        
|Income Statement Data:                                                |  |           |            |           |  |              | (unaudited) |  |  |   |           | 
|Revenues                                                              |  | $         | 40,312,535 |           |  | $            | 15,290,345  |  |  | $ | 3,801,649 | 
|Expenses                                                              |  | $         | 16,541,231 |           |  | $            | 868,021     |  |  | $ | 86,959    | 
|Net income                                                            |  | $         | 23,771,304 |           |  | $            | 14,422,324  |  |  | $ | 3,714,690 | 
|Net income allocated to Members                                       |  | $         | 23,771,304 |           |  | $            | 14,422,324  |  |  | $ | 3,714,690 | 
|Net income allocated to Members per weighted
average membership units |  | $         | 0.76       |           |  | $            | 1.19        |  |  | $ | 0.67      | 
|Weighted average membership units                                     |  |           | 31,430,793 |           |  |              | 12,114,955  |  |  |   | 5,548,510 | 

The information in this table should be read in conjunction with the
accompanying audited financial statements and notes to financial statements
included elsewhere in this document.

13



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##### Table of Contents






ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Prior to June 14, 2001, we were a development stage company with no operational
activities. We commenced the offering of our Units in June 2001; that offering
continues. Our financial results reflect the amount of capital we had available
for investment in mortgage loans. Our past performance may not be indicative of
future results. This discussion should be read in conjunction with our
financial statements and accompanying notes and other detailed information
regarding the Company appearing elsewhere in this Form 10-K.

RESULTS OF OPERATIONS

OVERVIEW

Our primary business objective is to generate monthly income by investing in
mortgage loans. We believe there is a significant market opportunity to make
mortgage loans to owners and developers of real property whose financing needs
are not met by traditional mortgage lenders. The loan underwriting standards
our Manager utilizes are less strict than traditional mortgage lenders. In
addition, one of our competitive advantages is our ability to approve loan
applications more quickly than traditional lenders. As a result, in certain
cases, we may make mortgage loans which are riskier than mortgage loans made by
commercial banks. However, in return we seek a higher interest rate and our
Manager takes steps to mitigate the lending risks such as imposing a lower loan
to value ratio. While we may assume more risk than traditional mortgage
lenders, in return, we seek to generate higher yields from our mortgage loans.

Our operating results are affected primarily by: (i) the amount of capital we
have to invest in mortgage loans, (ii) the level of real estate lending
activity in the markets we service, (iii) our ability to identify and work with
suitable borrowers, (iv) the interest rates we are able to charge on our loans
and (v) the level of foreclosures and related loan losses which we may
experience. In June 2001, we commenced the sale of our Units, raising
approximately $398 million by June 30, 2003. The Company may continue to sell
units to existing members until June 2004 or until $500 million units have been
sold. These funds, subject to a 3% reserve, will constitute the bulk of the
funds we have available for investment in mortgage loans. We do not have any
arrangements in place to materially increase the funds we will have available
to invest from any other sources. See discussion - Capital and Liquidity.

The US economy has suffered from a mild recession over the recent past few
years, and we have experienced a slowdown in commercial real estate lending in
the markets which we service. A prolonged recession may continue to dampen real
estate development activity, thereby diminishing the market for our loans. In
addition, the continuing decline in interest rates, which is largely
attributable to the weak economy, may be expected to diminish the interest
rates we can charge on our loans. The average interest rate on our loans at
June 30, 2003 was 12.5% as compared to 13.4% at June 30, 2002. Moreover, a
prolonged recession or poor credit decisions by our Manager may continue the
increase in non-performing assets. Non-performing assets total $50.8 million
or 12.5% of our total assets as of June 30, 2003 as compared to
$6.5 million or 2.8%
of our assets as of June 30, 2002. To the extent that the efforts of our
borrowers to develop and sell commercial real estate projects are adversely
impacted by the status of the economy, we may experience an increase in loan
defaults which may reduce the amount of funds we have for distribution to our
Members. In this regard, it should be noted that the weighted average maturity
of our outstanding loans as of June 30, 2003 was 12.9 months, compared to 11.4
months at June 30, 2002. As a of result of these economic conditions, our
annualized rate of return to Members for the fiscal year June 30, 2003 was
7.6%, compared to 11.9% for the fiscal year ended June 30, 2002.

Adverse economic conditions during the next year could have a material impact
on the collectibility of our loans. Recognizing this risk, we seek to maintain
a low loan-to-value ratio which, as of June 30, 2003, was 60% on a weighted
average basis, generally using appraisals prepared on an as-if
developed basis in connection with the loan origination.
In this manner, we hope to retain sufficient cushion in the underlying equity
position to protect the value of our loan in the event of a default.
Nevertheless, no assurances can be given that a marked increase in loan
defaults accompanied by a rapid decline in real estate values will not have a
material adverse effect upon our financial condition and operating results.

14



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##### Table of Contents



Historically, our Manager has focused its operations on Nevada and certain
Western states. Because our Manager has a significant degree of knowledge with
respect to the real estate markets in such states, it is likely most of our
loans will be concentrated in such states. As of June 30, 2003, 31% of the
principal amount of our loans were secured by real estate in Nevada, while 27%,
13%, and 15% were secured by real estate in Texas, California, and Arizona,
respectively. Such geographical concentration creates greater risk that any
downturn in such local real estate markets could have a significant adverse
effect upon our results of operations. Commercial real estate markets in Nevada
have continued to prosper, with significant borrowing activity, throughout the
current recession. However, the rate of growth appears to be slowing. The
commercial real estate markets in Texas, Arizona and California also appear to
be relatively unaffected by the recession. As noted above, if the recession
continues for an extended period or deepens, particularly in any of the
identified states, our operating results could be adversely affected.

Fiscal Year Ended June 30, 2003 Compared To June 30, 2002 (unaudited)

RESULTS OF OPERATIONS

|                                                                      |  |                    |            |                    |  |   |            |  
|--------------------------------------------------------------------- |  | ------------------ | ---------- | ------------------ |  | - | ---------- | -
|                                                                      |  | FOR THE YEAR ENDED |            | FOR THE YEAR ENDED
|                                                                      |  | JUNE 30, 2003      |            | JUNE 30, 2002     
|                                                                      |  |                    |            | (unaudited)       
|Total revenues                                                        |  | $                  | 40,312,535 |                    |  | $ | 15,290,345 |  
|Total expenses                                                        |  | $                  | 16,541,231 |                    |  | $ | 868,021    |  
|Net income                                                            |  | $                  | 23,771,304 |                    |  | $ | 14,422,324 |  
|Net income allocated to members per weighted average Membership units |  | $                  | 0.76       |                    |  | $ | 1.19       |  
|Annualized rate of return to members(a)                               |  |                    | 7.6        | %                  |  |   | 11.9       | %
|Weighted average membership units                                     |  |                    | 31,430,793 |                    |  |   | 12,114,955 |  



|(a) |  | The annualized rate of return to members is calculated based upon
the net income allocated to members per weighted average units as of
June 30, 2003 and 2002 divided by ten (the $10 cost per unit).
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Total Revenues. For the fiscal year ended June 30, 2003, total revenues were
approximately $40.3 million compared to $15.3 million for the fiscal year ended
June 30, 2002, an increase of $25.0 million or 163.6%. Growth in revenue was
mainly due to an increase in our investments in mortgage loans with the
portfolio totaling $352.5 million as of June 30, 2003 compared to $222.6
million as of June 30, 2002. Our average interest yields on our investments in
mortgage loans for the year ended June 30, 2003 was 12.5% compared to 13.4% for
the year ended June 30, 2002. While more money was available to loan as a
result of addition unit sales in fiscal 2003 compared to fiscal 2002, the rates
declined based on overall economic conditions.

Total Expenses. In fiscal 2003, total expenses were $16.5 million compared to
$0.9 million for fiscal 2002, an increase of $15.6 million. The increase in
expenses resulted from several factors, including an increase in management fees due to
the higher capital accounts, interest expense related to secured borrowing (see
Note F), a provision for loan losses (see Note C), losses on real estate held
for sale (see Note D) and the write-off of deferred offering costs (see Note
H). See also  Asset Quality and Loan Reserves.

Net Income. Overall, net income for fiscal 2003 was $23.8 million compared to
$14.4 million in fiscal 2002, an increase of $9.4 million or 64.8%.

Annualized Rate of Return to Members. For fiscal 2003, the annualized rate of
return to members was 7.6% compared to 11.9% for fiscal 2002. The decrease in
annualized rate of return to members was primarily related to the increase in
total expenses as outlined above.

15



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##### Table of Contents



Investment in mortgage loans as of June 30, 2003 are as follows:

|                            |  |        |    |         |  |               |             |            |  |           |       |      |  |  |        |   |  |  |       |  
|--------------------------- |  | ------ | -- | ------- |  | ------------- | ----------- | ---------- |  | --------- | ----- | ---- |  |  | ------ | - |  |  | ----- | -
|                            |  | Number |    |         |  |               |             |            |  |           |       |      |  |  |        |   |  | 
|Loan                        |  | of     |    |         |  |               |             | Average    |  | Portfolio |       | Loan
|Type                        |  | Loans  |    | Balance |  | Interest Rate |             | Percentage |  | To Value*
|                            |  |        |    |         |  |               |             |            |  |          
|Acquisition and development |  |        | 5  |         |  | $             | 29,147,011  |            |  |           | 12.60 | %    |  |  | 8.27   | % |  |  | 44.26 | %
|Bridge                      |  |        | 6  |         |  |               | 22,007,371  |            |  |           | 11.92 | %    |  |  | 6.24   | % |  |  | 65.99 | %
|Commercial                  |  |        | 27 |         |  |               | 147,747,322 |            |  |           | 11.67 | %    |  |  | 41.92  | % |  |  | 64.85 | %
|Construction                |  |        | 16 |         |  |               | 116,106,164 |            |  |           | 13.34 | %    |  |  | 32.94  | % |  |  | 60.05 | %
|Land                        |  |        | 10 |         |  |               | 24,303,120  |            |  |           | 12.70 | %    |  |  | 6.89   | % |  |  | 48.15 | %
|Residential                 |  |        | 7  |         |  |               | 13,169,529  |            |  |           | 13.79 | %    |  |  | 3.74   | % |  |  | 66.76 | %
|                            |  |        |    |         |  |               |             |            |  |           |       |      |  |  |        |   |  |  |       |  
|                            |  |        | 71 |         |  | $             | 352,480,517 |            |  |           | 12.53 | %    |  |  | 100.00 | % |  |  | 59.47 | %
|                            |  |        |    |         |  |               |             |            |  |           |       |      |  |  |        |   |  |  |       |  

Investment in mortgage loans as of June 30, 2002 are as follows:

|                            |  |        |    |         |  |               |             |            |  |           |       |      |  |  |        |   |  |  |       |  
|--------------------------- |  | ------ | -- | ------- |  | ------------- | ----------- | ---------- |  | --------- | ----- | ---- |  |  | ------ | - |  |  | ----- | -
|                            |  | Number |    |         |  |               |             |            |  |           |       |      |  |  |        |   |  | 
|Loan                        |  | of     |    |         |  |               |             | Average    |  | Portfolio |       | Loan
|Type                        |  | Loans  |    | Balance |  | Interest Rate |             | Percentage |  | To Value*
|                            |  |        |    |         |  |               |             |            |  |          
|Acquisition and development |  |        | 9  |         |  | $             | 50,177,032  |            |  |           | 13.22 | %    |  |  | 22.54  | % |  |  | 57.61 | %
|Bridge                      |  |        | 4  |         |  |               | 7,764,367   |            |  |           | 14.00 | %    |  |  | 3.49   | % |  |  | 68.07 | %
|Commercial                  |  |        | 17 |         |  |               | 78,759,650  |            |  |           | 12.50 | %    |  |  | 35.39  | % |  |  | 60.23 | %
|Construction                |  |        | 19 |         |  |               | 59,008,277  |            |  |           | 14.26 | %    |  |  | 26.51  | % |  |  | 61.58 | %
|Land                        |  |        | 9  |         |  |               | 22,180,376  |            |  |           | 13.17 | %    |  |  | 9.97   | % |  |  | 41.39 | %
|Residential                 |  |        | 8  |         |  |               | 4,668,624   |            |  |           | 12.94 | %    |  |  | 2.10   | % |  |  | 57.50 | %
|                            |  |        |    |         |  |               |             |            |  |           |       |      |  |  |        |   |  |  |       |  
|                            |  |        | 66 |         |  | $             | 222,558,326 |            |  |           | 13.35 | %    |  |  | 100.00 | % |  |  | 56.22 | %
|                            |  |        |    |         |  |               |             |            |  |           |       |      |  |  |        |   |  |  |       |  

*Loan to value ratios are based on appraisals obtained at the time of loan
origination and may not reflect subsequent changes in value estimates. Such
appraisals are generally dated no greater than 12 months prior to the date of
loan origination and may have been commissioned by the borrower. The appraisals may be for the current estimate of the as-if
developed value of the property, and which approximates the post-construction
value of the collateralized property assuming that such property is developed.
As-if developed values on raw land loans or acquisition and development loans
often dramatically exceed the immediate sales value and may include anticipated
zoning changes, selection by a purchaser against multiple alternatives, and
successful development by the purchaser; upon which development is dependent on
availability of financing. As most of the appraisals will be prepared on an
as-if developed basis, if a loan goes into default prior to any development of
a project, the market value of the property may be substantially less than the
appraised value. As a result, there may be less security than anticipated at
the time the loan was originally made. If there is less security and a default
occurs, the Company may not recover the full amount of the loan.

|                   |  |               |             |            |  |               |        |            |  |   |             |  |  |  |        |  
|------------------ |  | ------------- | ----------- | ---------- |  | ------------- | ------ | ---------- |  | - | ----------- |  |  |  | ------ | -
|                   |  | June 30, 2003 |             | Portfolio  |  | June 30, 2002 |        | Portfolio 
|Loan Type          |  | Balance       |             | Percentage |  | Balance       |        | Percentage
|                   |  |               |             |            |  |               |        |           
|First mortgages    |  | $             | 350,486,619 |            |  |               | 99.43  | %          |  | $ | 222,513,820 |  |  |  | 99.98  | %
|Second mortgages** |  |               | 1,993,898   |            |  |               | 0.57   | %          |  |   | 44,506      |  |  |  | 0.02   | %
|                   |  |               |             |            |  |               |        |            |  |   |             |  |  |  |        |  
|                   |  | $             | 352,480,517 |            |  |               | 100.00 | %          |  | $ | 222,558,326 |  |  |  | 100.00 | %
|                   |  |               |             |            |  |               |        |            |  |   |             |  |  |  |        |  

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*     All of the Companys second mortgages are junior to a first trust deed
position held by either the Company or the Companys Manager.

The following is a schedule of maturities of investments in mortgage loans as
of June 30, 2003:

|     |  |   |             | 
|---- |  | - | ----------- | 
|2003 |  | $ | 278,983,627 | 
|2004 |  |   | 64,612,324  | 
|2005 |  |   | 8,884,566   | 
|     |  |   |             | 
|     |  | $ | 352,480,517 | 
|     |  |   |             | 

The following is a schedule by geographic location of investments in mortgage
loans as of:

|           |  |               |             |            |  |               |        |            |  |   |             |  |  |  |        |  
|---------- |  | ------------- | ----------- | ---------- |  | ------------- | ------ | ---------- |  | - | ----------- |  |  |  | ------ | -
|           |  | June 30, 2003 |             | Portfolio  |  | June 30, 2002 |        | Portfolio 
|           |  | Balance       |             | Percentage |  | Balance       |        | Percentage
|           |  |               |             |            |  |               |        |           
|Arizona    |  | $             | 54,080,498  |            |  |               | 15.34  | %          |  | $ | 37,528,258  |  |  |  | 16.86  | %
|California |  |               | 45,636,450  |            |  |               | 12.95  | %          |  |   | 43,242,770  |  |  |  | 19.43  | %
|Colorado   |  |               | 4,137,548   |            |  |               | 1.17   | %          |  |   |            |  |  |  | 0.00   | %
|Florida    |  |               | 4,599,543   |            |  |               | 1.30   | %          |  |   |            |  |  |  | 0.00   | %
|Hawaii     |  |               | 17,537,923  |            |  |               | 4.98   | %          |  |   | 15,681,746  |  |  |  | 7.05   | %
|Idaho      |  |               |            |            |  |               | 0.00   | %          |  |   | 2,855,202   |  |  |  | 1.28   | %
|Missouri   |  |               |            |            |  |               | 0.00   | %          |  |   | 5,430,000   |  |  |  | 2.44   | %
|Nevada     |  |               | 108,907,388 |            |  |               | 30.90  | %          |  |   | 64,641,428  |  |  |  | 29.04  | %
|New Mexico |  |               |            |            |  |               | 0.00   | %          |  |   | 42,495      |  |  |  | 0.02   | %
|New York   |  |               | 6,231,259   |            |  |               | 1.77   | %          |  |   |            |  |  |  | 0.00   | %
|Ohio       |  |               | 12,629,726  |            |  |               | 3.58   | %          |  |   |            |  |  |  | 0.00   | %
|Oregon     |  |               | 4,395,115   |            |  |               | 1.25   | %          |  |   |            |  |  |  | 0.00   | %
|Texas      |  |               | 94,325,067  |            |  |               | 26.76  | %          |  |   | 53,136,427  |  |  |  | 23.88  | %
|           |  |               |             |            |  |               |        |            |  |   |             |  |  |  |        |  
|           |  | $             | 352,480,517 |            |  |               | 100.00 | %          |  | $ | 222,558,326 |  |  |  | 100.00 | %
|           |  |               |             |            |  |               |        |            |  |   |             |  |  |  |        |  

Asset Quality and Loan Reserves

Losses may occur from investing in
mortgage loans. The amounts of losses will vary
as the loan portfolio is affected by changing economic conditions and the
financial condition of borrowers.

The conclusion that a mortgage loan is uncollectible or that collectibility is
doubtful is a matter of judgment. On a quarterly basis, the Manager
evaluates the Company's mortgage loan portfolio for impairment. The
fact that a loan is temporarily past due does not necessarily mean
that the loan is impaired. Rather, all relevant circumstances
are considered by our Manager to determine impairment and the need
for specific reserves. Such
evaluation, which includes a review of all loans on which full collectibility
may not be reasonably assured, considers among other matters:

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| |  |  | prevailing economic conditions;                                                                         
| | - |  | --------------------------------------------------------------------------------------------------------
|
| |  |  | historical experience;                                                                                  
|
| |  |  | the nature and volume of the loan portfolio;                                                            
|
| |  |  | the borrowers financial condition and adverse situations that
may affect the borrowers ability to pay;
|
| |  |  | evaluation of industry trends; and                                                                      
|
| |  |  | estimated net realizable value of any underlying collateral in relation to the loan amount.             

Based upon this evaluation, a determination is made as to whether the allowance
for loan losses is adequate to cover any potential losses. Additions to the
allowance for loan losses are made by charges to the provision for loan losses.
Recoveries of previously charged off amounts are credited to the allowance for
loan losses. As of June 30, 2003, our Manager had provided for
$2.2 million as
a general allowance for loan losses. At June 30, 2003, six of our loans were
non-performing (more than 90 days past due on principal or interest payments)
totaling $34.9 million. Our Manager evaluated the loans and concluded that the
underlying collateral was sufficient to protect us against a loss of principal
or interest with the exception on the loan described below. Our Manager will
continue to evaluate these loans in order to determine if any other allowance
for loan losses should be recorded.

As of June 30, 2003, the Company re-evaluated the underlying collateral for one
of the above mentioned loans currently in foreclosure with a principal balance
of $13,000,000. The collateral is 570 acres of land near Austin, Texas. The
Company made the loan for construction of an 18-hole golf course and clubhouse.
The Company ceased funding the construction loan when it determined that the
borrower was significantly over budget for construction costs and behind in the
timely completion of the project. The Company and the borrower are involved in
litigation in Austin, Texas regarding the cessation of funding and the
foreclosure. It is impossible to determine the timing or eventual outcome of
this litigation. It is possible that regardless of the outcome of the
litigation, the borrower may declare bankruptcy which will stay the
foreclosure. The Company has obtained estimates of current value for the
partially completed golf course and estimates of the costs to complete
construction. Based on those estimates, the Company has provided for a specific
allowance for loan loss of $7,000,000 related to this impaired loan.

The Company is also involved in discussions with the other lenders who hold
first trust deeds on the property surrounding the golf course to determine the
feasibility of some type of joint arrangement to complete the project. At this
time, it is too early to determine if any such arrangements might be agreed.

In addition to the above-mentioned loans, at June 30, 2003, our Manager had
granted extensions on 18 loans pursuant to the terms of the original loan
agreements which permit extensions by mutual consent. Such extensions are
generally provided on loans where the original term was 12 months or less and
where a borrower requires additional time to complete a construction project or
negotiate take out financing. The aggregate amount due to us from borrowers
whose loans had been extended as of June 30, 2003 was approximately
$87,967,000. At June 30, 2003, all such loans were performing. Accordingly,
our Manager concluded that no additional allowance for loan losses was
necessary with respect to such loans.

Because of the fact that any decision
regarding the allowance for loan losses
reflects a judgment about the probability of future events, there is an
inherent risk that such judgments will prove incorrect. In such event, actual
losses may exceed (or be less than) the amount of any reserve. To the extent
that we experience losses greater than the amount of our reserves, we may incur
a charge to our earnings that will adversely affect our operating results and
the amount of any distributions payable to our Members.

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Fiscal Year Ended June 30, 2002 Compared To December 31, 2001

RESULTS OF OPERATIONS

|                                                                      |  |                     |            |                   |  |                    |           |   |  |                |         |  
|--------------------------------------------------------------------- |  | ------------------- | ---------- | ----------------- |  | ------------------ | --------- | - |  | -------------- | ------- | -
|                                                                      |  |                     |            |                   |  |                    |           |   |  | FOR THE PERIOD
|                                                                      |  | FOR THE TRANSITION  |            | FOR THE YEAR      |  | FROM JUNE 14, 2001
|                                                                      |  | PERIOD              |            | ENDED             |  | THROUGH           
|                                                                      |  | ENDED JUNE 30, 2002 |            | DECEMBER 31, 2001 |  | JUNE 30, 2001     
|                                                                      |  |                     |            |                   |  |                   
|Total revenues                                                        |  | $                   | 11,504,100 |                   |  | $                  | 3,801,649 |   |  | $              | 15,405  |  
|Total expenses                                                        |  | $                   | 781,081    |                   |  | $                  | 86,959    |   |  | $              | 20      |  
|Net income                                                            |  | $                   | 10,723,019 |                   |  | $                  | 3,714,690 |   |  | $              | 15,385  |  
|Net income allocated to Members per
weighted average membership units |  | $                   | 0.59       |                   |  | $                  | 0.67      |   |  | $              | 0.02    |  
|Annualized net rate of return to
Members(b)                           |  |                     | 11.7       | %                 |  |                    | 12.4      | % |  |                | 04.8    | %
|Weighted average membership units(a)                                  |  |                     | 18,326,615 |                   |  |                    | 5,548,510 |   |  |                | 635,912 |  

(a)  The weighted average number of outstanding units for the transition period
ended June 30, 2002 is calculated based upon the daily number of outstanding
units beginning on January 1, 2002. The weighted average number of outstanding
units for the year ended December 31, 2001 is calculated based upon the daily
number of outstanding units beginning on June 14, 2001. The weighted average
number of outstanding units for the period from June 14, 2001 through June 30,
2001 is calculated based upon the daily number of outstanding units beginning on
June 14, 2001.

(b)  The annualized net rate of return to unit holders is calculated based upon
the net income allocated to unit holders per weighted average units then
divided by the number of months during each period and multiplied by 12 months,
then divided by ten (the $10 cost per unit).

Prior to June 14, 2001, we were a development stage company with no operational
activities. We commenced the offering of our Units in June 2001; that offering
continues. Our financial results reflect the amount of capital we had available
for investment in mortgage loans. Our past performance may not be indicative of
future results. In June 2002, the Company changed its fiscal year end from
December 31 to June 30. The transition period ended June 30, 2002 reflects six
months of operating activities as a result of the change in fiscal year end.

Total Revenues. In 2002, total
revenues were $11.5 million compared to $3.8
million in 2001, an increase of $7.7 million or 203%. Growth in revenue was
mainly due to an increase in our investments in mortgage loans of approximately
$105 million and a full year of operations. Overall, our average interest yields on our investments in
mortgage loans during 2002 were not significantly different as compared to
2001, with average interest yields of 12.5% and 12.4% for 2002 and 2001,
respectively.

Total Expenses. In 2002, total expenses totaled $0.8 million compared to $0.1
million for 2001, an increase of $0.7 million or 798%. Increase in total
expenses for 2002 mainly related to an allowance for loan losses of $0.5
million and management fees of $0.2 million. Management fees are a monthly
recurring expense based upon an amount up to 0.25% of aggregate outstanding
capital.

Net Income. Overall, net income for 2002 totaled $10.7 million compared to
$3.7 million for 2001, an increase of $7 million or 187%.

Annualized Rate of Return to Members. For 2002, annualized net rate of return
to members totaled 11.7% compared to 12.4% for 2001. The decrease in
annualized net rate of return to members was primarily due to allowance for
loan losses which our Manager decided to establish during the transition period
ended June 30, 2002. To date, no specific loans have been written off or
written down. See discussion - Asset Quality and Loan Reserves.

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Investment in Mortgage Loans Secured by Real Estate Portfolio

The following is a summary of our investment in mortgage loans as of June 30,
2002:

|                            |  |   |             |  |  |  |        |  
|--------------------------- |  | - | ----------- |  |  |  | ------ | -
|Commercial                  |  | $ | 78,759,650  |  |  |  | 35.39  | %
|Construction                |  |   | 59,008,277  |  |  |  | 26.51  | %
|Acquisition and development |  |   | 50,177,032  |  |  |  | 22.54  | %
|Bridge                      |  |   | 7,764,367   |  |  |  | 3.49   | %
|Land                        |  |   | 22,180,376  |  |  |  | 9.97   | %
|Residential                 |  |   | 4,668,624   |  |  |  | 2.10   | %
|                            |  |   |             |  |  |  |        |  
|                            |  | $ | 222,558,326 |  |  |  | 100.00 | %
|                            |  |   |             |  |  |  |        |  
|First mortgages             |  | $ | 222,513,820 |  |  |  | 99.98  | %
|Second mortgages            |  |   | 44,506      |  |  |  | 0.02   | %
|                            |  |   |             |  |  |  |        |  
|                            |  | $ | 222,558,326 |  |  |  | 100.00 | %
|                            |  |   |             |  |  |  |        |  

The following is a schedule of maturities of investment in mortgage loans as of
June 30, 2002 for the calendar years ending December 31:

|      |  |   |            
|----- |  | - | -----------
|2002  |  | $ | 92,624,193 
|2003  |  |   | 123,841,163
|2004  |  |   | 5,083,146  
|2005  |  |   | 1,009,824  
|      |  |   |            
|Total |  | $ | 222,558,326
|      |  |   |            

The following is a schedule by geographic location of investment in mortgage
loans as of June 30, 2002:

|           |  |   |             |  |  |  |        |  
|---------- |  | - | ----------- |  |  |  | ------ | -
|Arizona    |  | $ | 37,528,258  |  |  |  | 16.86  | %
|California |  |   | 43,242,770  |  |  |  | 19.43  | %
|Hawaii     |  |   | 15,681,746  |  |  |  | 7.05   | %
|Idaho      |  |   | 2,855,202   |  |  |  | 1.28   | %
|Missouri   |  |   | 5,430,000   |  |  |  | 2.44   | %
|Nevada     |  |   | 64,641,428  |  |  |  | 29.04  | %
|New Mexico |  |   | 42,495      |  |  |  | 0.02   | %
|Texas      |  |   | 53,136,427  |  |  |  | 23.88  | %
|           |  |   |             |  |  |  |        |  
|Total      |  | $ | 222,558,326 |  |  |  | 100.00 | %
|           |  |   |             |  |  |  |        |  

CRITICAL ACCOUNTING POLICIES

Revenue Recognition

Interest is recognized as revenue when earned according to the terms of the
loans, using the effective interest method. The Company does not recognize
interest income on loans once they are determined to be impaired. A loan is
impaired when based on current information and events, it is probable that the
Company will be unable to collect all amounts due according to the contractual
terms of the loan agreement. Cash receipts will be allocated to interest
income, except when such payments are specifically designated by the terms of
the loan as principal reduction or when management does not believe the
Companys investment in the loan is fully recoverable.

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Investments in Mortgage Loans

Investment in mortgage loans secured by trust deeds and mortgages are
originated by our Manager in accordance with terms contained in our operating
agreement. Currently, all of the mortgage loans are fixed rate loans with
maturities ranging from one to two years, secured by first and second deeds of
trust on properties securing commercial, land, construction, residential,
bridge, and acquisition and development loans. Bridge loans provide interim
financing (12 to 24 months) to enable commercial borrowers to attempt to
qualify for permanent financing. Currently, all of our mortgage loans require
interest only payments with a balloon payment of the principal at maturity. We
have both the intent and ability to hold mortgage loans until maturity and,
therefore, mortgage loans are classified and accounted for as held for
investment and are carried at cost.

Allowance for Loan Losses

We maintain an allowance for loan losses on our investment in mortgage loans
for estimated and expected credit impairment which is considered inherent to
our investment in mortgage loans portfolio. Our Managers estimate of expected
losses is based on a number of factors including the types and dollar amounts
of loans in the portfolio, adverse situations that may effect the borrowers
ability to repay, prevailing economic conditions and the underlying collateral
securing the loan. Additions to the reserve are provided through a charge to
earnings and are based on an assessment of certain factors including, but not
limited to, estimated losses on the loans. Actual losses on loans are recorded
as a reduction to the allowance for loan losses. Subsequent recoveries
of amounts previously charged off are added back to the reserve. Our Manager
believes that the allowance for loan losses totaling $9.2 million as of June
30, 2003, included in the accompanying balance sheet is adequate to address
estimated and expected credit impairment.

Real Estate Held For Sale

Real estate held for sale includes real estate acquired through foreclosure and
is carried at the lower of the recorded amount, inclusive of any senior
indebtedness, or the propertys estimated fair value, less estimated costs to
sell. At June 30, 2003 and June 30, 2002, the Company had $15.8 million and
$0, respectively, in real estate held for sale.

FACTORS AFFECTING OUR OPERATING RESULTS

Our business is subject to numerous factors affecting our operating results. In
addition to the factors discussed above, our operating results may be affected
by:

Risks of Investing in Mortgage Loans



| |  |  | Our underwriting standards and procedures are more
lenient than conventional lenders in that we will invest in
loans to borrowers who will not be required to meet the
credit standards of conventional mortgage lenders.                            
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We approve mortgage loans more
quickly than other
mortgage lenders. Due to the nature of loan approvals, there
is a risk that the credit inquiry our Manager performs will
not reveal all material facts pertaining to the borrower and
the security.
|
| |  |  | Our results of operations will vary with changes in
interest rates and with the performance of the relevant real
estate markets.                                                                                                                     
|
| |  |  | If the economy is healthy, we expect that more people
will borrow money to acquire, develop or renovate real
property. However, if the economy grows too fast, interest
rates may                                                                    

21



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| |   |  | increase too much and the cost of borrowing may become too
expensive. This could result in a slowdown in real estate
lending which may mean we will have fewer loans to acquire,
thus reducing the our revenues and the distributions to our
Members.                                                                                                                                                                                                                                                                                                                   
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | If, at a time of relatively low interest rates, a
borrower should prepay obligations that have a higher
interest rate from an earlier period, investors will likely
not be able to reinvest the funds in mortgage loans earning
that higher rate of interest. In the absence of a prepayment
fee, the investors will receive neither the anticipated
revenue stream at the higher rate nor any compensation for
their loss. This in turn could harm our reputation and make
it more difficult for us to attract investors willing to
acquire interest in mortgage loans.

Risk of Defaults

Our performance will be directly impacted by any defaults on the loans in our
portfolio. As noted above, we may experience a higher rate of defaults than
conventional mortgage lenders. We seek to mitigate the risk by estimating the
rate of the underlying collateral and insisting on low loan to value ratios.
However, no assurance can be given that these efforts will fully protect us
against losses on defaulted loans. Moreover, during the period of time when a
defaulted loan is the subject of foreclosure proceedings, it is likely that we
will earn less (if any) income from such loans, thereby reducing our earnings.

Competition for Borrowers

We consider our competitors for borrowers to be the providers of
non-conventional mortgage loans, that is, lenders who offer short-term,
equity-based loans on an expedited basis for higher fees and rates than those
charged by conventional lenders and mortgage loans investors, such as
commercial banks, thrifts, conduit lenders, insurance companies, mortgage
brokers, pension funds and other financial institutions that offer conventional
mortgage loans. Many of the companies against which we compete have
substantially greater financial, technical and other resources than we do.
Competition in our market niche depends upon a number of factors including
price and interest rates of the loan, speed of loan processing, cost of
capital, reliability, quality of service and support services.

Effect of Fluctuations in the Economy

Our sole business, making loans secured by real estate, is particularly
vulnerable to changes in macroeconomic conditions. Any significant decline in
economic activity, particularly in the geographical markets in which we
concentrate our loans, could result in a decline in the demand for real estate
development loans. In order to stay fully invested during a period of declining
demand for real estate loans, we may be required to make loans on terms less
favorable to us or to make loans involving greater risk to us. Declines in
economic activity are often accompanied by a decline in prevailing interest
rates. Although our lending rates are not directly tied to the Federal Reserve
Boards discount rate, a sustained and widespread decline in interest rates
will impact the interest we are able to earn on our loans. Since our loans
generally do not have prepayment penalties, declining interest rates may also
cause our borrowers to prepay their loans and we may not be able to reinvest
the amounts prepaid in loans generating a comparable yield. Moreover, any
significant decline in economic activity could adversely impact the ability of
our borrowers to complete their projects and obtain take out financing. This in
turn could increase the level of defaults we may experience.

CAPITAL AND LIQUIDITY

Liquidity is a measure of a companys ability to meet potential cash
requirements, including ongoing commitments to fund lending activities and for
general operating purposes. Subject to a 3% reserve, we use all of our
available funds to invest in mortgage loans. Income generated from such loans
is paid out to our Members unless they have elected to reinvest their
dividends. We do not anticipate the need for hiring any employees, acquiring
fixed assets such as office equipment or furniture, or incurring material
office expenses during the next twelve months because Vestin Mortgage will
manage our affairs. We may pay Vestin Mortgage a monthly management fee of up
to 0.25% of our aggregate capital contributions.

22



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During the year ended June 30, 2003, cash flows provided by our operating
activities approximated $33,729,000. Our investing activities for the year
ended June 30, 2003 consisted of investment in loans secured by real estate in
the amount of $146,478,000 (net of proceeds from payoffs and sales of mortgage
loans), and investment in certificates of deposits of $4,650,000. Our
financing activities primarily consisted of proceeds from the sale of Units in
the amount of $156,984,000 offset by Member withdrawals of $12,773,000 and
Members distributions, net of reinvestments, of $25,269,000.

As the offering of our Units is continuing, we currently rely upon the sale of
Units, loan repayments and dividend reinvestments to provide the cash necessary
to carry on our business. We will continue to sell our Units until June 2004 or
until we raise a total of $500 million. Approximately 2,542 of our Members,
currently reinvest their distributions. Our ability to attract investors to
purchase Units and the level of distribution reinvestment depends upon a number
of factors, some of which are beyond our control. The key factors in this
regard include general economic conditions, the conditions of commercial real
estate markets, the availability and attractiveness of alternative investment
opportunities, our operating performance and the track record and reputation of
our Manager. We believe our ability to attract investors has been enhanced by
the high historical yields generated by our mortgage investments and by
comparable yields earned by Vestin Fund I, LLC which is also managed by our
Manager. These yields may prove particularly attractive to the extent that
equity markets are viewed as risky or volatile and to the extent that most
fixed income investments provide a lower yield. Notwithstanding our high
historical yields, our ability to raise additional funds from investors may be
impaired by our relatively small size and our limited operating history. In
addition, the mortgage loans in which we invest are not federally insured as
are certain bank deposits and are generally illiquid as compared to government
and certain corporate bonds. Thus, our ability to generate high yields is
critical to offsetting some of these disadvantages. Our ability to raise
additional funds would suffer if the performance of our loan portfolio declines
or if alternative investment vehicles offering comparable yields and greater
safety and/or liquidity become available.

Any significant level of defaults on outstanding loans could reduce the funds
we have available for investment in new loans. Resulting foreclosure
proceedings may not generate full repayment of our loans and may result in
significant delays in the return of invested funds. This would diminish our
capital resources and would impair our ability to invest in new loans. See the
discussion Asset Quality and Loan Reserves. In addition, redemptions by our
Members would reduce the capital we have available for investment. Such
redemptions are limited by the terms of our operating agreement to not more
than 10% per year and not more than $100,000 per member per calendar
year and are subject to other conditions.

Beginning capital as of
January 1, 2003 was $315.0 million, which would limit
redemptions to $31.5 million for calendar 2003. On
September 12, 2003, the Company
discontinued accepting requests for the redemption of units for the
2003 calendar year. As of September 12, 2003, the total of
redemptions made and redemptions requested and awaiting payment was
$30.9 million. All redemptions
requests received after that date have been logged for redemption
beginning in January 2004. As of September 19, 2003, requests to
redeem 234,910 units had been logged.

Our Manager believes that total non-performing assets at June 30, 2003 have
increased primarily as a result of factors unique to specific borrowers.
Because of the estimated value of the underlying properties, the Company does
not believe that any losses beyond those already recognized will be incurred
from these assets upon final disposition. However, it is possible that the
Company will not be able to realize the full estimated carrying values upon
disposition, particularly if continuing economic weakness results in declining
real estate values.

As of June 30, 2003, the Company
had secured borrowings of $26.7 million related to an intercreditor agreement. Pursuant to the
intercreditor agreement, the Investor may participate in certain loans with
Vestin Mortgage, Vestin Fund I, and the Company (collectively, the Lead Lenders). In
the event of borrower non-performance, the intercreditor agreement gives the
Lead Lenders the right to either (i) continue to remit to the investor the
interest due on the participation amount; (ii) substitute an alternative loan
acceptable to the investor; or (iii) repurchase the participation from the
investor for the outstanding balance of the participation plus accrued
interest. Consequently, mortgage loan financing under the participation
arrangement is accounted for as a secured borrowing in accordance with SFAS No.
140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities.

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As of June 30, 2003, we have only one revolving line of credit, which is from
First Hawaiian Bank in the amount of $2,000,000. The balance as of June 30,
2003 for that line of credit was $2,000,000. As of June 30, 2003, the Company
was in compliance with all applicable covenants related to the line of credit.

We may seek to expand our capital resources through borrowings from
institutional lenders or through securitization of our loan portfolio or
similar arrangements. Other than the line of credit mentioned above, we
currently do not have in place any commitments to borrow any funds or
securitize any of our assets. No assurance can be given that, if we should seek to borrow funds or to securitize our assets we would be able
to do so on commercially attractive terms. Our ability to expand our capital
resources in this manner is subject to many factors, some of which are beyond
our control, including the state of the economy, the state of the capital
markets and the perceived quality of our loan portfolio.

We do not currently have any interest in any special purpose entities nor do we
have any commitments or obligations which are not reflected on our balance
sheet. We do not have any interest in derivative contracts.

We maintain working capital reserves of approximately 3% of aggregate members
capital accounts in cash and cash equivalents, certificates of deposits and
short-term investments. This reserve is available to pay expenses in excess of
revenues, satisfy obligations of underlying security properties, expend money
to satisfy our unforeseen obligations and for other permitted uses of the
working capital. At June 30, 2003, the Company had $5.7 million in cash, $11.1
million in certificates of deposit, and $406.6 million in total assets. It
appears the Company has sufficient working capital to meet its operating needs
in the near term.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk, primarily from changes in interest rates. We do
not deal in any foreign currencies and do not own any options, futures or other
derivative instruments. We do not have a significant amount of debt.

Most of our assets consist of investments in mortgage loans. At June 30, 2003,
our aggregate investment in mortgage loans was approximately $352,480,517 with
a weighted average effective interest rate of 12.5%. Most of the mortgage loans
have a term of 12 months; the weighted average term of outstanding loans at
June 30, 2003 was 12.9 months. All of the outstanding mortgage loans at June
30, 2003 were fixed rate loans. All of the mortgage loans are held for
investment purposes; none are held for sale. We intend to hold such mortgage
loans to maturity. None of the mortgage loans have prepayment penalties.

Market fluctuations in interest rates
generally do not affect the carrying value of our investment
in mortgage loans. However, significant and sustained changes in interest rates could affect
our operating results. If interest rates decline significantly, some of the
borrowers could prepay their loans with the proceeds of a refinancing at lower
interest rates. This would reduce our earnings and funds available for
distribution to Members. On the other hand, a significant increase in interest
rates could result in a slowdown in real estate development activity which
would reduce the demand for commercial mortgage loans. As a result, we might
encounter greater difficulty in identifying appropriate borrowers. We are not
in a position to quantify the potential impact on our operating results from a
material change in interest rates.

At June 30, 2003, we also had approximately $16,816,000 invested in cash and
cash equivalents, and certificates of deposit. Approximately 3% of our assets
will be held in such accounts as a cash reserve; additional deposits in such
accounts will be made as funds are received from new investors and repayment of
loans pending the deployment of such funds in new mortgage loans. We believe
that these financial assets do not give rise to significant interest rate risk
due to their short-term nature.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data are indexed in Item 15 of this
report.




ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There were no changes in or disagreements on any items dealing with accounting
and financial disclosure with the accountants during the past two fiscal years.

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PART III




ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

The Company does not have any directors or officers. The Company is managed by
Vestin Mortgage. Vestin Mortgage is a wholly-owned subsidiary of Vestin Group,
Inc., a Delaware corporation, whose common stock is publicly held and is traded
on the NASDAQ under the symbol VSTN. Through its subsidiaries, Vestin Group,
Inc. is engaged in asset management, real estate lending and other financial
services.

The directors and executive officers of Vestin Mortgage, Inc. are listed below:

|                     |  |     |    |       |  |                                                            | 
|-------------------- |  | --- | -- | ----- |  | ---------------------------------------------------------- | 
|Name                 |  | Age |    | Title | 
|Peggy S. May         |  |     | 34 |       |  | President                                                  | 
|Stephen A. Schneider |  |     | 56 |       |  | Vice President                                             | 
|Lance K. Bradford    |  |     | 36 |       |  | Chief Financial Officer, Treasurer, Secretary and Director | 
|Michael V. Shustek   |  |     | 44 |       |  | Chief Executive Officer, Chairman and Director             | 

The principal occupation and business experience for each of our officers and
directors and key employees, for at least the last five years, are as follows:

Peggy S. May has been with Vestin Group since September 1995, and has been the
President of Vestin Mortgage since January 2001. From 1997 to 2000, Ms. May was
the Senior Vice President of Vestin Mortgage. She is responsible for all new
and existing clients, loan packages and manages investor relationships and
serves as the administrator of the corporate offices. Ms. May has over ten
years of experience in title, escrow and private lending.

Stephen A. Schneider has been Vice President of Vestin Mortgage since January
2001. From July 2000 to December 2000, Mr. Schneider was the Chief Operation
Officer of Vestin Group. Mr. Schneider is responsible for the maintenance of
all banking and financial relationships. Mr. Schneider has over 26 years
experience in the financial services industry. He worked at US Bank where he
managed the banks business banking department and underwrote loans for
companies with sales of $1 million to $10 million and maintained relationships
with the banks business customers. Mr. Schneider sits on the boards of Focus
Las Vegas and Leadership Las Vegas Youth as well as several other
organizations. He is responsible for the Vestin Foundation, a non-profit
organization aimed at funding local charitable organizations.

Lance K. Bradford has been the Chief Financial Officer, Treasurer, Secretary
and a director of Vestin Mortgage since April 1999. Mr. Bradford has been the
Chief Financial Officer, President, Treasurer, and a director of Vestin Group
since April 1999. From 1999 to 2000, Mr. Bradford was also the Corporate
Secretary of Vestin Group. Since 1992, Mr. Bradford has been a partner in L.L.
Bradford & Company, Las Vegas, Nevada, a Certified Public Accounting firm that
he founded. From 1988 to 1991, Mr. Bradford served as an accountant with Ernst
& Young International. Mr. Bradford received a Bachelor of Science degree in
Accounting from the University of Nevada, in Reno, Nevada.

Michael V. Shustek has been a director of Vestin Mortgage and Chairman of the
Board of Directors, Chief Executive Officer and a director of Vestin Group
since April 1999. In 2003, Mr. Shustek became the Chief Executive Officer of
Vestin Mortgage. In 1995, Mr. Shustek founded Del Mar Mortgage, and has been
involved in various aspects of the real estate industry in Nevada since 1990.
In 1993, he founded Foreclosures of Nevada, Inc., a company specializing in
non-judicial foreclosures. In 1993, Mr. Shustek also started Shustek
Investments, a company that originally specialized in property valuations for
third-party lenders or investors and which continues today as the primary
vehicle for his private investment portfolio. In 1997, Mr. Shustek was involved
in the initial founding of Nevada First Bank, with the largest initial capital
base of any new state charter in Nevadas history. In 2000, Mr. Shustek
co-authored a book, Trust Deed Investments, on the topic of private mortgage
lending. Mr. Shustek is a guest lecturer at the University of Nevada, Las
Vegas, where he also teaches a course in Real Estate Law and Ethics. Mr.
Shustek received a Bachelor of Science degree in Finance at the University of
Nevada, Las Vegas.

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On March 26, 1999, Del Mar Mortgage, Inc. ,the stock of which is wholly-owned
by Mr. Shustek, entered into a stipulated court order (the Order) with the
State of Nevada, Department of Business and Industry, Financial Institutions
Division (the Division) resolving a dispute regarding Del Mar Mortgage,
Inc.s alleged noncompliance with various Nevada regulatory statutes. Without
admitting any facts, and solely to settle these matters, Del Mar Mortgage, Inc.
agreed to assure compliance with applicable Nevada law in all of its record
keeping, advertising and solicitation of mortgage borrowers and in its making
and servicing of mortgage loans. Del Mar Mortgage, Inc. paid the Division an
aggregate of $50,000 to cover the Divisions costs. The Order contained no
findings of wrongful conduct by Del Mar Mortgage, Inc. or Mr. Shustek. Mr.
Shustek was apparently named by the Division because he was the controlling
person of Del Mar Mortgage, Inc. In April 1999, Vestin Group (then known as
Sunderland Acquisition Corporation) acquired the customer lists, good will and
certain other intangible assets of Del Mar Mortgage, Inc. and assumed
liabilities related to such assets. Neither Vestin Group (then Sunderland
Acquisition Corporation) nor Vestin Mortgage (then known as Capsource, Inc.)
acquired any loans or other financial assets of Del Mar Mortgage, Inc., which
continued to operate as an independent business. In contemplation of such
acquisition, Vestin Group (then Sunderland Acquisition Corporation) and Vestin
Mortgage (then Capsource, Inc.) agreed to be bound by the terms of the Order.




ITEM 11. EXECUTIVE COMPENSATION

Not Applicable.




ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

No person or entity owns beneficially more than 5% of the ownership interests
in us. Our Manager owns approximately 110,000 units or 0.29% of our capital as
of June 30, 2003.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transactions with Management and Others

Management Fee

Our Manager is entitled to receive from us a management fee of up to 0.25% of
our aggregate capital contribution, paid monthly in arrears. The amount of
management fees paid to our Manager for the fiscal years ended June 30, 2003
and 2002, approximated $793,000 and $324,000, respectively.

Amount Due to Managing Member

As of June 30, 2003 and June 30, 2002, we owed our Manager approximately
$2,397,000 and $651,000, respectively, for expenses advanced on our behalf and
distributions due related to units owned by our Manager.

Purchase of Loans from Vestin Fund I, LLC

During the fiscal years ended June 30, 2003 and 2002, the Company purchased
approximately $17,725,000 and $11,763,000 in mortgage loans from Vestin Fund I,
LLC, a Company managed by our Manager.

Other Transactions with the Manager

During the fiscal years ended June 30, 2002, the Company and Vestin Fund I, LLC
made a mortgage loan in the amount of $130,500 and $3,000,000, respectively,
for a total of $3,130,500 to an independent borrower who used the proceeds of
the loan to purchase a property from the Companys Manager, which the Companys
Manager had previously acquired through foreclosure proceedings. The loan from
the Company to such independent borrower is interest only, payable monthly at
an annual rate of 10% with the principal due in June 2003. The terms of the
loan to such third party borrower were negotiated by our Manager, such terms
were not reviewed by any independent parties.

During the transition period ended June 30, 2002, the Company purchased
$10,000,000 in mortgage loans from the Companys Manager at their historical
cost pursuant to Section 4.4.1 of the Companys Operating Agreement.

Accounting fees

During the year ended June 30,
2003, the Company paid $6,230 to L.L. Bradford &
Company, LLC, a certified public accounting firm for accounting services.
Vestin Mortgages Chief Financial Officer, Treasurer, Secretary and Director is an equity owner in that
firm.




ITEM 14. CONTROL AND PROCEDURES

The Company has evaluated the effectiveness of the design and operation of its
disclosure controls and procedures as of June 30, 2003 (the Evaluation Date).
Such evaluation was conducted under the supervision and with the participation
of the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO)
of Vestin Mortgage, Inc., the Companys Manager, who function as the equivalent
of the CEO and CFO of the Company. Based upon such evaluation, the Companys
CEO and CFO have concluded that, as of the Evaluation Date, the Companys
disclosure controls and procedures were effective. There have been no
significant changes in the Companys internal controls over financial reporting
that occurred during the Companys most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
Companys internal controls over financial reporting.

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PART IV




ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K



|(a) 1. |  | The financial statement are contained on Pages F-2 through F-24 on
this Annual Report on Form 10-K, and the list of the financial statement
contained herein is set forth on page F-1, which is hereby incorporated by
reference.
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      
|(b)    |  | The Company did not have any Current Reports on Form 8-K filing during the
fourth fiscal quarter of 2003.                                                                                                                        

(c)




EXHIBIT INDEX

|            |  |                                                  | 
|----------- |  | ------------------------------------------------ | 
|Exhibit No. |  | Description
of Exhibits                          | 
|3.1(1)      |  | Articles of Organization                         | 
|            |  |                                                  | 
|10(2)       |  | Amended and Restated Operating Agreement         | 
|            |  |                                                  | 
|31.1        |  | Section 302 Certification of Michael V. Shustek  | 
|            |  |                                                  | 
|31.2        |  | Section 302 Certification of Lance K. Bradford   | 
|            |  |                                                  | 
|32          |  | Certification Pursuant to U.S.C. 18 Section 1350 | 



| | (1) |  | Incorporated herein by reference to our S-11 Registration Statement filed on December 21, 2000.              
| | --- |  | -------------------------------------------------------------------------------------------------------------
|
| | (2) |  | Incorporated herein by reference to Amendment No. 2 to our S-11 Registration Statement filed on
July 3, 2002.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.

| |                     |  |     |  |                                                    
| | ------------------- |  | --- |  | ---------------------------------------------------
| | Vestin Fund II, LLC
| |                     |  | By: |  | Vestin Mortgage, Inc., its sole manager            
| |                     |  | By: |  | /s/ Michael V. Shustek                             
| |                     |  |     |  | Michael V. Shustek                                 
| |                     |  |     |  | Chief Executive Officer and Director of the Manager
| |                     |  |     |  | (Principal Officer of Manager)                     
| |                     |  | By: |  | /s/ Lance K. Bradford                              
| |                     |  |     |  | Lance K. Bradford                                  
| |                     |  |     |  | Director, Secretary and Treasurer                  
| |                     |  |     |  | (Chief Financial Officer of the Manager)           

Dated: September 26, 2003

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CONTENTS

|                                                   |                                |                                                           |     |      |      | 
|-------------------------------------------------- | ------------------------------ | --------------------------------------------------------- | --- | ---- | ---- | 
|                                                   |                                |                                                           |     | PAGE
|REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS |                                |                                                           | F-2 |     
|FINANCIAL STATEMENTS                              
|                                                   | Balance Sheets                 |                                                           |     | F-3  |     
|                                                   | Statements of Income           |                                                           |     | F-4  |     
|                                                   | Statements of Members Equity  |                                                           |     | F-5  |     
|                                                   | Statements of Cash Flows       |                                                           |     | F-6  |     
|                                                   | Notes to Financial Statements  |                                                           |     | F-7  |     
|SUPPLEMENTARY INFORMATION                         
|                                                   | Mortgage Loans on Real Estate: |                                                           |     |      |     
|                                                   |                                | Mortgage Loan Rollforward                                 |     |      | F-18 | 
|                                                   |                                | Mortgage Loans by Type of Property                        |     |      | F-19 | 
|                                                   |                                | Mortgage Loans by Lien Position                           |     |      | F-20 | 
|                                                   |                                | Mortgage Loans that Exceed Three Percent of the Portfolio |     |      | F-21 | 

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Report of Independent Auditors

Members
VESTIN FUND II, LLC

We have audited the accompanying
balance sheets of Vestin Fund II, LLC (the "Company") as of
June 30, 2003 and 2002, and the related statements of income, members equity, and cash
flows for the year ended June 30, 2003, the six-month period
ended June 30, 2002, and the year ended December 31, 2001. These financial
statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Vestin Fund II, LLC as of June
30, 2003 and 2002, and the results of its operations and its cash
flows for the year ended June 30, 2003, the six-month period
ended June 30, 2002, and the year ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States.

Our audits were conducted for the
purpose of forming an opinion on the financial statements taken as a
whole. The Mortgage Loan Rollforward, Mortgage Loans by Type of
Property, Mortgage Loans by Lien Position, and Mortgage Loans That
Exceed Three Percent of the Portfolio are presented for purposes of
additional analysis and is not a required part of the financial
statements. Such information has been subjected to the auditing
procedures applied in our audits of the financial statements and, in
our opinion, is fairly stated in all material respects in relation to
the financial statements taken as a whole.



/s/ Ernst & Young LLP
Phoenix, Arizona
September 19, 2003

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Vestin Fund II, LLC

BALANCE SHEETS

|                                                                                                                                                                       |                           |                                       |             |               |             |               |             |         |             | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ------------------------------------- | ----------- | ------------- | ----------- | ------------- | ----------- | ------- | ----------- | 
|                                                                                                                                                                       |                           |                                       |             | JUNE 30, 2003 |             | JUNE 30, 2002
|                                                                                                                                                                       |                           |                                       |             |               |             |              
|ASSETS                                                                                                                                                                 |                           |                                       |             |               |             |               |             |        
|Cash
and cash equivalents                                                                                                                                              |                           | $                                     | 5,740,806   |               |             | $             | 2,198,542   |        
|Certificates of deposit                                                                                                                                                |                           |                                       | 11,075,000  |               |             |               | 6,425,000   |        
|Interest and other receivables                                                                                                                                         |                           |                                       | 3,898,231   |               |             |               | 2,189,631   |        
|Investment in mortgage loans, net of allowance for loan
losses of $9,200,000 and $500,000 at June 30 2003,
and June 30, 2002, respectively                             |                           |                                       | 343,280,517 |               |             |               | 222,058,326 |        
|Real estate held for sale                                                                                                                                              |                           |                                       | 15,833,099  |               |             |               |            |        
|Assets under secured borrowing                                                                                                                                         |                           |                                       | 26,729,643  |               |             |               |            |        
|Deferred offering costs                                                                                                                                                |                           |                                       |            |               |             |               | 255,637     |        
|                                                                                                                                                                       |                           |                                       |             |               |             |               |             |        
|                                                                                                                                                                       |                           | $                                     | 406,557,296 |               |             | $             | 233,127,136 |        
|                                                                                                                                                                       |                           |                                       |             |               |             |               |             |        
|LIABILITIES AND MEMBERS EQUITY                                                                                                                                        |                           |                                       |             |               |             |               |             |        
|Liabilities                                                                                                                                                            |                           |                                       |             |               |             |               |             |        
|                                                                                                                                                                       | Accounts Payable          |                                       | $           | 118,503       |             |               | $           |        |            
|                                                                                                                                                                       | Due to Manager            |                                       |             | 2,328,150     |             |               |             | 650,765 |            
|                                                                                                                                                                       | Due
to Related Party, net |                                       |             | 191,393       |             |               |             |        |            
|                                                                                                                                                                       | Line of Credit            |                                       |             | 2,000,000     |             |               |             |        |            
|                                                                                                                                                                       | Secured Borrowing         |                                       |             | 26,729,643    |             |               |             |        |            
|                                                                                                                                                                       |                           |                                       |             |               |             |               |             |        
|                                                                                                                                                                       |                           | Total liabilities                     |             |               | 31,367,689  |               |             |         | 650,765     | 
|                                                                                                                                                                       |                           |                                       |             |               |             |               |             |        
|Members equity - authorized 50,000,000 units
38,602,848 and 23,239,836, units issued and outstanding
at $10 per unit at June 30, 2003 and June 30, 2002, respectively |                           |                                       | 375,189,607 |               |             |               | 232,476,371 |        
|                                                                                                                                                                       |                           |                                       |             |               |             |               |             |        
|                                                                                                                                                                       |                           | Total members equity                 |             |               | 375,189,607 |               |             |         | 232,476,371 | 
|                                                                                                                                                                       |                           |                                       |             |               |             |               |             |        
|                                                                                                                                                                       |                           | Total liabilities and members equity |             | $             | 406,557,296 |               |             | $       | 233,127,136 | 
|                                                                                                                                                                       |                           |                                       |             |               |             |               |             |        

The accompanying notes are an
integral part of these statements.

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Vestin Fund II, LLC

STATEMENTS OF INCOME

|                                                                      |                                                   |                          |            |               |            |               |            |                   |            |                   |            |                    |            |   |           |           |           | 
|--------------------------------------------------------------------- | ------------------------------------------------- | ------------------------ | ---------- | ------------- | ---------- | ------------- | ---------- | ----------------- | ---------- | ----------------- | ---------- | ------------------ | ---------- | - | --------- | --------- | --------- | 
|                                                                      |                                                   |                          |            |               |            |               |            |                   |            |                   |            | FOR THE SIX MONTHS |            |   |           |          
|                                                                      |                                                   |                          |            | FOR THE YEAR  |            | FOR THE YEAR  |            | TRANSITION PERIOD |            | FOR THE YEAR     
|                                                                      |                                                   |                          |            | ENDED         |            | ENDED         |            | ENDED             |            | ENDED            
|                                                                      |                                                   |                          |            | JUNE 30, 2003 |            | JUNE 30, 2002 |            | JUNE 30, 2002     |            | December 31, 2001
|                                                                      |                                                   |                          |            |               |            |               |            |                   |            |                  
|                                                                      |                                                   |                          |            |               |            |               |            | (UNAUDITED)       |            |                   |            |                    |            |   |           |          
|Revenues                                                              |                                                   |                          |            |               |            |               |            |                   |            |                   |            |                    |            |   |           |          
|                                                                      | Interest income from investment in
mortgage loans |                          | $          | 39,540,998    |            |               | $          | 14,798,164        |            |                   | $          | 11,288,619         |            |   | $         | 3,801,649 |          
|                                                                      | Other income                                      |                          |            | 771,537       |            |               |            | 492,181           |            |                   |            | 215,481            |            |   |           |          |          
|                                                                      |                                                   |                          |            |               |            |               |            |                   |            |                   |            |                    |            |   |           |          
|                                                                      |                                                   | Total revenues           |            |               | 40,312,535 |               |            |                   | 15,290,345 |                   |            |                    | 11,504,100 |   |           |           | 3,801,649 | 
|                                                                      |                                                   |                          |            |               |            |               |            |                   |            |                   |            |                    |            |   |           |          
|Operating expenses                                                    |                                                   |                          |            |               |            |               |            |                   |            |                   |            |                    |            |   |           |          
|                                                                      | Management fees to Managing Member                |                          |            | 792,758       |            |               |            | 323,610           |            |                   |            | 236,778            |            |   |           | 86,832    |          
|                                                                      | Provision for loan losses                         |                          |            | 8,700,000     |            |               |            | 500,000           |            |                   |            | 500,000            |            |   |           |          |          
|                                                                      | Interest expense                                  |                          |            | 3,307,293     |            |               |            |                  |            |                   |            |                   |            |   |           |          |          
|                                                                      | Write off of deferred offering costs              |                          |            | 1,094,042     |            |               |            |                  |            |                   |            |                   |            |   |           |          |          
|                                                                      | Write down of real estate held for sale           |                          |            | 2,073,040     |            |               |            |                  |            |                   |            |                   |            |   |           |          |          
|                                                                      | Other                                             |                          |            | 574,098       |            |               |            | 44,411            |            |                   |            | 44,303             |            |   |           | 127       |          
|                                                                      |                                                   |                          |            |               |            |               |            |                   |            |                   |            |                    |            |   |           |          
|                                                                      |                                                   | Total operating expenses |            |               | 16,541,231 |               |            |                   | 868,021    |                   |            |                    | 781,081    |   |           |           | 86,959    | 
|                                                                      |                                                   |                          |            |               |            |               |            |                   |            |                   |            |                    |            |   |           |          
|                                                                      |                                                   | NET INCOME               |            | $             | 23,771,304 |               |            | $                 | 14,422,324 |                   |            | $                  | 10,723,019 |   |           | $         | 3,714,690 | 
|                                                                      |                                                   |                          |            |               |            |               |            |                   |            |                   |            |                    |            |   |           |          
|Net income allocated to members                                       |                                                   | $                        | 23,771,304 |               |            | $             | 14,422,324 |                   |            | $                 | 10,723,019 |                    |            | $ | 3,714,690 |          
|                                                                      |                                                   |                          |            |               |            |               |            |                   |            |                   |            |                    |            |   |           |          
|Net income allocated to members per
weighted average membership units |                                                   | $                        | 0.76       |               |            | $             | 1.19       |                   |            | $                 | 0.59       |                    |            | $ | 0.67      |          
|                                                                      |                                                   |                          |            |               |            |               |            |                   |            |                   |            |                    |            |   |           |          
|Weighted average membership units                                     |                                                   |                          | 31,430,793 |               |            |               | 12,114,955 |                   |            |                   | 18,326,615 |                    |            |   | 5,548,510 |          
|                                                                      |                                                   |                          |            |               |            |               |            |                   |            |                   |            |                    |            |   |           |          

The accompanying notes are an
integral part of these statements.

F-4



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##### Table of Contents



Vestin Fund II, LLC

STATEMENTS OF MEMBERS EQUITY

FOR THE YEAR ENDED JUNE 30, 2003,
FOR THE TRANSITION PERIOD ENDED JUNE 30, 2002 AND
FOR THE YEAR ENDED DECEMBER 31, 2001

|                                          |  |       |            |        |  |   |             |  
|----------------------------------------- |  | ----- | ---------- | ------ |  | - | ----------- | -
|                                          |  | Units |            | Amount
|                                          |  |       |            |       
|Members equity at December 31, 2000      |  |       | 26,428     |        |  | $ | 264,275     |  
|Issuance of units (net of offering costs) |  |       | 12,771,595 |        |  |   | 126,615,950 |  
|Redemptions                               |  |       |           |        |  |   | (2,866,933  | )
|Reinvestments of distributions            |  |       | 47,092     |        |  |   | 470,920     |  
|Members withdrawals                      |  |       | (1,009     | )      |  |   | (10,091     | )
|Net income                                |  |       |           |        |  |   | 3,714,690   |  
|                                          |  |       |            |        |  |   |             |  
|Members equity at December 31, 2001      |  |       | 12,844,106 |        |  |   | 128,188,811 |  
|Issuance of units                         |  |       | 10,202,022 |        |  |   | 102,020,216 |  
|Redemptions                               |  |       |           |        |  |   | (10,392,755 | )
|Reinvestments of distributions            |  |       | 200,909    |        |  |   | 2,009,092   |  
|Members withdrawals                      |  |       | (7,201     | )      |  |   | (72,012     | )
|Net income                                |  |       |           |        |  |   | 10,723,019  |  
|                                          |  |       |            |        |  |   |             |  
|Members equity at June 30, 2002          |  |       | 23,239,836 |        |  |   | 232,476,371 |  
|Issuance of units                         |  |       | 15,698,394 |        |  |   | 156,983,941 |  
|Redemptions                               |  |       |           |        |  |   | (34,688,196 | )
|Reinvestments of distributions            |  |       | 941,883    |        |  |   | 9,418,832   |  
|Members withdrawals                      |  |       | (1,277,265 | )      |  |   | (12,772,645 | )
|Net income                                |  |       |           |        |  |   | 23,771,304  |  
|                                          |  |       |            |        |  |   |             |  
|Members equity at June 30, 2003          |  |       | 38,602,848 |        |  | $ | 375,189,607 |  
|                                          |  |       |            |        |  |   |             |  

The accompanying notes are an
integral part of these statements.

F-5



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##### Table of Contents



Vestin Fund II, LLC

STATEMENTS OF CASH FLOWS

|                                                    |                                                                                   |                                                           |                                           |              |               |              |               |              |               |              |                   |              |             |              |           |              |             |              |  
|--------------------------------------------------- | --------------------------------------------------------------------------------- | --------------------------------------------------------- | ----------------------------------------- | ------------ | ------------- | ------------ | ------------- | ------------ | ------------- | ------------ | ----------------- | ------------ | ----------- | ------------ | --------- | ------------ | ----------- | ------------ | -
|                                                    |                                                                                   |                                                           |                                           |              |               |              |               |              |               |              |                   |              | FOR THE SIX |              |           |              |            
|                                                    |                                                                                   |                                                           |                                           |              |               |              |               |              | FOR THE YEAR  |              | MONTHS            |              |             |              |          
|                                                    |                                                                                   |                                                           |                                           |              | FOR THE YEAR  |              | ENDED         |              | TRANSITION    |              | FOR THE YEAR     
|                                                    |                                                                                   |                                                           |                                           |              | ENDED         |              | JUNE 30, 2002 |              | PERIOD ENDED  |              | ENDED            
|                                                    |                                                                                   |                                                           |                                           |              | JUNE 30, 2003 |              | (UNAUDITED)   |              | JUNE 30, 2002 |              | DECEMBER 31, 2001
|                                                    |                                                                                   |                                                           |                                           |              |               |              |               |              |               |              |                  
|Cash flows from operating activities:               |                                                                                   |                                                           |                                           |              |               |              |               |              |               |              |                   |              |             |              |           |             
|                                                    | Net income                                                                        |                                                           | $                                         | 23,771,304   |               |              |               | 14,422,324   |               |              | $                 | 10,723,019   |             |              | $         | 3,714,690    |            
|                                                    | Adjustments to reconcile net income to net
cash provided by operating activities: |                                                           |                                           |              |               |              |               |              |               |              |                   |              |             |              |           |              |            
|                                                    |                                                                                   | Provision for loan losses                                 |                                           |              | 8,700,000     |              |               |              | 500,000       |              |                   |              | 500,000     |              |           |              |            |             
|                                                    |                                                                                   | Write down of real estate held for sale                   |                                           |              | 2,073,040     |              |               |              |              |              |                   |              |            |              |           |              |            |             
|                                                    |                                                                                   | Write off of deferred offering costs                      |                                           |              | 1,094,042     |              |               |              |              |              |                   |              |            |              |           |              |            |             
|                                                    |                                                                                   | Change in operating assets and liabilities:               |                                           |              |               |              |               |              |               |              |                   |              |             |              |           |              |             |             
|                                                    |                                                                                   |                                                           | Interest and other receivables            |              |               | (2,070,149   | )             |              |               | (2,181,545   | )                 |              |             | (1,123,262   | )         |              |             | (1,066,369   | )
|                                                    |                                                                                   |                                                           | Real estate held for sale                 |              |               | 109,696      |               |              |               |             |                   |              |             |              |           |              |             |              |  
|                                                    |                                                                                   |                                                           | Other assets                              |              |               | (838,405     | )             |              |               | (255,637     | )                 |              |             | (113,189     | )         |              |             |             |  
|                                                    |                                                                                   |                                                           | Due from Manager                          |              |               | 512,647      |               |              |               | 650,765      |                   |              |             | 381,687      |           |              |             |             |  
|                                                    |                                                                                   |                                                           | Due from Related Party                    |              |               | 258,575      |               |              |               |             |                   |              |             |             |           |              |             |             |  
|                                                    |                                                                                   |                                                           | Accounts Payable                          |              |               | 118,503      |               |              |               |             |                   |              |             |             |           |              |             |             |  
|                                                    |                                                                                   |                                                           |                                           |              |               |              |               |              |               |              |                   |              |             |              |           |             
|                                                    |                                                                                   |                                                           | Net cash provided by operating activities |              |               | 33,729,253   |               |              |               | 13,135,907   |                   |              |             | 10,368,255   |           |              |             | 2,648,321    |  
|                                                    |                                                                                   |                                                           |                                           |              |               |              |               |              |               |              |                   |              |             |              |           |             
|Cash flows from investing activities:               |                                                                                   |                                                           |                                           |              |               |              |               |              |               |              |                   |              |             |              |           |             
|                                                    | Purchase of investments in mortgage loans                                         |                                                           |                                           | (308,974,057 | )             |              |               | (278,750,297 | )             |              |                   | (153,844,526 | )           |              |           | (133,379,244 | )          
|                                                    | Purchase of investments in mortgage loans from:                                   |                                                           |                                           |              |               |              |               |              |               |              |                   |              |             |              |           |              |            
|                                                    |                                                                                   | Vestin Fund I, LLC                                        |                                           |              | (17,725,212   | )            |               |              | (21,954,763   | )            |                   |              | (665,000    | )            |           |              | (21,289,763 | )           
|                                                    |                                                                                   | Manager                                                   |                                           |              | (816,905      | )            |               |              |              |              |                   |              |            |              |           |              |            |             
|                                                    |                                                                                   | Vestin Group, Inc.                                        |                                           |              | (5,023,151    | )            |               |              | (10,000,000   | )            |                   |              | (10,000,000 | )            |           |              |            |             
|                                                    |                                                                                   | Other Related Party                                       |                                           |              | (21,688,839   | )            |               |              |              |              |                   |              |            |              |           |              |            |             
|                                                    |                                                                                   | Private Investor                                          |                                           |              | (44,533,135   | )            |               |              |              |              |                   |              |            |              |           |              |            |             
|                                                    | Proceeds received from sale of mortgage loans to:                                 |                                                           |                                           |              |               |              |               |              |               |              |                   |              |             |              |           |              |            
|                                                    |                                                                                   | Vestin Fund I, LLC                                        |                                           |              | 15,249,950    |              |               |              | 10,000,000    |              |                   |              |            |              |           |              | 10,000,000  |             
|                                                    |                                                                                   | Manager                                                   |                                           |              | 500,855       |              |               |              | 4,026,598     |              |                   |              |            |              |           |              | 4,026,598   |             
|                                                    |                                                                                   | Vestin Group, Inc.                                        |                                           |              | 4,500,000     |              |               |              |              |              |                   |              |            |              |           |              |            |             
|                                                    |                                                                                   | Other Related Party                                       |                                           |              | 2,674,950     |              |               |              |              |              |                   |              |            |              |           |              |            |              |  
|                                                    |                                                                                   | Private Investor                                          |                                           |              | 85,027,158    |              |               |              | 26,692,135    |              |                   |              | 25,692,135  |              |           |              | 1,000,000   |             
|                                                    | Proceeds from loan payoff                                                         |                                                           |                                           | 146,329,465  |               |              |               | 55,901,474   |               |              |                   | 33,495,536   |             |              |           | 22,405,938   |            
|                                                    | Assets transferred from Vestin Group                                              |                                                           |                                           | (2,000,000   | )             |              |               |             |               |              |                   |             |             |              |           |             |            
|                                                    | Investment in certificates of deposit                                             |                                                           |                                           | (4,650,000   | )             |              |               | (6,175,000   | )             |              |                   | (4,024,350   | )           |              |           | (2,400,650   | )          
|                                                    |                                                                                   |                                                           |                                           |              |               |              |               |              |               |              |                   |              |             |              |           |             
|                                                    |                                                                                   |                                                           | Net cash used in investing activities     |              |               | (151,128,921 | )             |              |               | (220,259,853 | )                 |              |             | (109,346,205 | )         |              |             | (119,637,121 | )
|                                                    |                                                                                   |                                                           |                                           |              |               |              |               |              |               |              |                   |              |             |              |           |             
|Cash flows from financing activities:               |                                                                                   |                                                           |                                           |              |               |              |               |              |               |              |                   |              |             |              |           |             
|                                                    | Proceeds from issuance of membership units                                        |                                                           |                                           | 156,983,941  |               |              |               | 218,326,665  |               |              |                   | 102,020,216  |             |              |           | 126,880,225  |            
|                                                    | Members distributions, net of reinvestments                                      |                                                           |                                           | (25,269,364  | )             |              |               | (10,779,676  | )             |              |                   | (8,383,663   | )           |              |           | (2,349,383   | )          
|                                                    | Members withdrawals                                                              |                                                           |                                           | (12,772,645  | )             |              |               | (82,103      | )             |              |                   | (72,012      | )           |              |           | (10,091      | )          
|                                                    | Proceeds from draws on line of credit                                             |                                                           |                                           | 5,000,000    |               |              |               |             |               |              |                   |             |             |              |           | 80,000       |            
|                                                    | Payments on line of credit                                                        |                                                           |                                           | (3,000,000   | )             |              |               |             |               |              |                   |             |             |              |           |             |            
|                                                    |                                                                                   |                                                           |                                           |              |               |              |               |              |               |              |                   |              |             |              |           |             
|                                                    |                                                                                   |                                                           | Net cash provided by financing activities |              |               | 120,941,932  |               |              |               | 207,464,886  |                   |              |             | 93,564,541   |           |              |             | 124,600,751  |  
|                                                    |                                                                                   |                                                           |                                           |              |               |              |               |              |               |              |                   |              |             |              |           |             
|                                                    |                                                                                   |                                                           | NET INCREASE (DECREASE) IN CASH           |              |               | 3,542,264    |               |              |               | 340,940      |                   |              |             | (5,413,409   | )         |              |             | 7,611,951    |  
|Cash
and cash equivalents, beginning of period      |                                                                                   |                                                           | 2,198,542                                 |              |               |              | 1,857,602     |              |               |              | 7,611,951         |              |             |              |          |             
|                                                    |                                                                                   |                                                           |                                           |              |               |              |               |              |               |              |                   |              |             |              |           |             
|Cash
and cash equivalents, ending of period         |                                                                                   | $                                                         | 5,740,806                                 |              |               | $            | 2,198,542     |              |               | $            | 2,198,542         |              |             | $            | 7,611,951 |             
|                                                    |                                                                                   |                                                           |                                           |              |               |              |               |              |               |              |                   |              |             |              |           |             
|Supplemental disclosures of cash flows information: |                                                                                   |                                                           |                                           |              |               |              |               |              |               |              |                   |              |             |              |           |             
|                                                    | Non-cash financing activities:                                                    |                                                           |                                           |              |               |              |               |              |               |              |                   |              |             |              |           |              |            
|                                                    |                                                                                   | Conversion of deferred offering costs to
membership units |                                           | $            |              |              |               | $            | 1,100,000     |              |                   | $            |            |              |           | $            | 1,100,000   |             
|                                                    |                                                                                   |                                                           |                                           |              |               |              |               |              |               |              |                   |              |             |              |           |             
|                                                    |                                                                                   | Reinvestment of members distributions                    |                                           | $            | 9,418,832     |              |               | $            | 2,480,011     |              |                   | $            | 2,009,092   |              |           | $            | 470,920     |             
|                                                    |                                                                                   |                                                           |                                           |              |               |              |               |              |               |              |                   |              |             |              |           |             
|                                                    |                                                                                   | Deferred debt offering costs paid by Manager              |                                           | $            |              |              |               | $            | 255,637       |              |                   | $            | 135,573     |              |           | $            | 142,448     |             
|                                                    |                                                                                   |                                                           |                                           |              |               |              |               |              |               |              |                   |              |             |              |           |             
|                                                    |                                                                                   | Distributions payable to Manager                          |                                           | $            |              |              |               | $            |              |              |                   | $            | 68,961      |              |           | $            | 46,630      |             
|                                                    |                                                                                   |                                                           |                                           |              |               |              |               |              |               |              |                   |              |             |              |           |             
|                                                    |                                                                                   | Real estate held for sale acquired through foreclosure    |                                           | $            | 16,046,378    |              |               | $            |              |              |                   | $            |            |              |           | $            |            |             
|                                                    |                                                                                   |                                                           |                                           |              |               |              |               |              |               |              |                   |              |             |              |           |             
|                                                    |                                                                                   | Loans funded through secured borrowing                    |                                           | $            | 26,729,643    |              |               | $            |              |              |                   | $            |            |              |           | $            |            |             
|                                                    |                                                                                   |                                                           |                                           |              |               |              |               |              |               |              |                   |              |             |              |           |             
|                                                    |                                                                                   | Due to manager assumed through foreclosure                |                                           | $            | 745,159       |              |               | $            |              |              |                   | $            |            |              |           | $            |            |             
|                                                    |                                                                                   |                                                           |                                           |              |               |              |               |              |               |              |                   |              |             |              |           |             
|                                                    |                                                                                   | Sale of rights to receive proceeds of guarantee           |                                           | $            | 1,714,926     |              |               | $            |              |              |                   | $            |            |              |           | $            |            |             
|                                                    |                                                                                   |                                                           |                                           |              |               |              |               |              |               |              |                   |              |             |              |           |             

The accompanying notes are an
integral part of these statements.

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##### Table of Contents



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1.     Organization

Vestin Fund II, LLC, a Nevada Limited Liability Company, (the Company) is
primarily engaged in the business of mortgage lending. The Company invests in
loans secured by real estate through deeds of trust and mortgages. The Company
was organized on December 7, 2000 and will continue until December 31, 2020
unless dissolved prior or extended thereto under the provisions of its
operating agreement.

On June 13, 2001, the Companys Form S-11/A filed with the Securities and
Exchange Commission became effective for the initial public offering of
50,000,000 units at $10 per unit. Consequently, the Company commenced
operations on June 14, 2001. As of June 30, 2003, the Company had sold
approximately 39,783,000 units of the total 50,000,000 units offered.
Additionally, the Company issued 110,000 units to its Manager for offering
costs paid by them to unrelated third parties on the Companys behalf. The
Company may continue to offer its remaining unsold units to the public until
the earlier of such time as the Company has raised $500 million or June 2004.

The Manager of the Company is Vestin
Mortgage, Inc. (the Manager), a Nevada corporation
engaged in the business of brokerage, placement and servicing of commercial
loans secured by real property. The Manager is a wholly-owned subsidiary of
Vestin Group, Inc., a Delaware Corporation, whose common stock is publicly held
and traded on the Nasdaq National Market under the symbol VSTN. Through its
subsidiaries, Vestin Group, Inc. is engaged in asset management, real estate
lending and other financial services and has managed over $1 billion
in real estate loans. The operating agreement provides that
the Manager controls the daily operations of the Company; including
the power to assign duties, to determine how to invest the Companys assets, to
sign bills of sale, title documents, leases, notes, security agreements,
mortgage investments and contracts, and to assume direction of the business
operations. The operating agreement also provides that the members have
certain rights, including the right to terminate the Manager subject to a
majority vote of the members.

Vestin Mortgage, Inc. is also the Manager of Vestin Fund I, LLC, (Fund I) and
in Vestin Nevada, Inc., entities in the same business as the Company.

In June 2002, the Company changed its fiscal year end from December 31 to June
30. The transition period ended June 30, 2002 reflects six months of
operational activities as a result of the change in fiscal year end. Unaudited
financial statements for the 12 months ended June 30, 2002 are shown for
comparative purposes. Certain amounts of prior periods have been
classified to conform to the current year presentation.

See Note K for detail of transactions with the Manager.

2.     Management Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

3.     Income Taxes

Income tax effects resulting from the Companys operations pass through to the
members individually and, accordingly, no provision for income taxes is
included in the financial statements.

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##### Table of Contents



4.     Cash and Cash Equivalents

Cash and cash equivalents include interest-bearing and noninterest-bearing bank
deposits, money market accounts, short-term certificates of deposit with
original maturities of three months or less, and short-term
instruments with
a liquidation provision of one month or less (see Note B). As of
June 30, 2003, $2,000,000 is restricted and used as collateral
for the line of credit.

5.     Investment in Mortgage Loans

Investment in mortgage loans secured by trust deeds and mortgages are
originated by the Manager in accordance with terms contained in the Companys
Operating Agreement. Currently, all of the mortgage loans are fixed rate loans
with maturities ranging from two months to 30 months, secured by first or
second deeds of trust on properties securing commercial, land, construction,
residential, bridge, and acquisition and development loans. Bridge loans
provide interim financing (12 to 24 months) to enable commercial borrowers to
attempt to qualify for permanent financing. Currently, substantially all of the
Companys mortgage loans require interest only payments with a balloon payment
of the principal at maturity. The Company has both the intent and ability to
hold mortgage loans until maturity and, therefore, mortgage loans are
classified and accounted for as held for investment and are carried at cost.
Interest income on loans is accrued by the effective interest method.

The Company also invests in mortgage loans that have interest reserves. Loans
with interest reserves require the borrowers to maintain interest reserves
funded from the principal amount of the loan for a period of time. At June 30,
2003 and June 30, 2002, the Company had outstanding principal on mortgage loans
that had interest reserves of approximately $63,306,000 and $73,473,000,
respectively, and interest reserves in the amount of approximately $3,716,000
and $10,922,000, respectively.

The Company also sells full or partial interests in loans to related and third
parties at the discretion of the Manager. During the fiscal years ended June
30, 2003 and 2002, the Company sold loans to third parties in the amount of
$85,027,000 and $25,700,000, respectively. During the fiscal years ended June 30, 2003
and 2002, the Company sold loans to related parties in the amount of
$22,926,000 and $0, respectively. During the fiscal years ended June
30, 2003 and 2002, the Company purchased loans from third parties in the amount
of $44,533,000 and $0, respectively. During the fiscal years ended
June 30, 2003 and 2002, the Company purchased loans from related parties in the
amount of $45,254,000 and $10,665,000, respectively. The sale of all loans
resulted in no gain or loss in the accompanying financial statements.

6.     Revenue Recognition

Interest is recognized as revenue when earned according to the terms of the
loans, using the effective interest method. The Company does not recognize
interest income on loans once they are determined to be impaired. A loan is
impaired when based on current information and events, it is probable that the
Company will be unable to collect all amounts due according to the contractual
terms of the loan agreement. Cash receipts will be allocated to interest
income, except when such payments are specifically designated by the terms of
the loan as principal reduction or when management does not believe the
Companys investment in the loan is fully recoverable.

7.     Allowance for Loan Losses

The Company maintains an allowance for loan losses on its investment in
mortgage loans for estimated and expected credit impairment which is considered
inherent to the Companys investment in mortgage loans. The Managers estimate
of expected losses is based on a number of factors including the types and
dollar amounts of loans in the portfolio, adverse situations that may effect
the borrowers ability to repay, prevailing economic conditions and the
underlying collateral securing the loan. Additions to the reserve are provided
through a charge to earnings and are based on an assessment of certain factors
including, but not limited to, estimated losses on the loans. Actual losses on
loans are recorded as a charge-off or a reduction to the allowance
for loan losses reserve.
Subsequent recoveries of amounts previously charged off are added back to the
reserve.

F-8



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##### Table of Contents



8.     Real Estate Held For Sale

Real estate held for sale includes real estate acquired through foreclosure and
will be carried at the lower of the recorded amount, inclusive of any senior
indebtedness, or the propertys estimated fair value, less estimated costs to
sell.

9.     Fair Value of Financial Instruments

The Financial Accounting Standards Boards Statement No. 107, Disclosures about
Fair Value of Financial Instruments, requires the determination of fair value
of the Companys financial assets. The following methods and assumptions were
used to estimate the fair value of financial statements included in the
following categories:



| | (a) |  | Certificate of Deposits and Short Term Investments: The carrying
amount of these instruments are at amortized cost which approximates
fair value.                                                                                                                                                                                                                                              
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Investment in Mortgage Loans: The carrying value of these
instruments, net of the allowance for loan losses, approximates the
fair value due to their short-term maturities. Fair values for loans,
which are delinquent and/or in foreclosure are indeterminable at this
time as no ready market exists for these loans, but fair value may be
significantly below the current carrying value.
|
| | (c) |  | Assets under secured
borrowing: The carrying amount of these instruments approximate fair
value. The fair value is estimated based upon projected cash flows
discounted at the estimated current interest rates at which similar
loans would be made.                                                                                                                                          

10.     Net Income Allocated to Members

Net income allocated to members is computed by dividing income available to
members by the weighted average number of membership units outstanding for the
year.

11.     Segments

The Company operates as one business segment.

NOTE B - FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK

Financial instruments with concentration of credit and market risk include cash
and loans secured by trust deeds.

The Company maintains cash deposit accounts and certificates of deposit which,
at times, may exceed federally insured limits. The Company has not experienced
any losses in such accounts and believes it is not exposed to any significant
credit risk on cash. As of June 30, 2003 and 2002, the Company had $15,616,000
and $7,414,000, respectively, in excess of the federally insured limits.

As of June 30, 2003, 31% of the Companys mortgage loans were in Nevada
compared to 29% at June 30, 2002 and 27% of the Companys mortgage loans were
in Texas compared to 24% at June 30, 2002. As a result of this geographical
concentration of the Companys mortgage loans, a downturn in the local real
estate markets in Nevada and/or Texas could have a material adverse effect on
the Company.

At June 30, 2003, the aggregate amount of loans to the Companys three largest
borrowers represented 17% of the Companys total investment in mortgage loans.
These mortgage loans consisted of construction and commercial loans, located in
Arizona, Nevada and California, with a first lien position, earning between 12%
and 13.5%, outstanding balances of approximately $69,334,000 and maturing from
August 2003 through November 2003. At June 30, 2002, the aggregate amount of
loans to the Companys three largest borrowers represented 25% of the Companys
total mortgage loans. These mortgage loans consisted of land and commercial
loans, located in Arizona and California, with a first lien position, earning
between 11% and 14%, outstanding balances of approximately $55,752,000 and
maturing from June 2003 through November 2003. Because the Company has a
significant

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concentration of credit risk with its three largest borrowers, a default by any
of such borrowers could have a material adverse effect on the Company.

Substantially all of the Companys mortgage loans will require the borrower to
make a balloon payment of the principal at maturity. The success of a
borrowers ability to repay its mortgage loan obligation in a large lump-sum
payment may be dependent upon the borrowers ability to refinance the
obligation or otherwise raise a substantial amount of cash. An increase in
interest rates over the mortgage rate applicable at origination of the loan may
have an adverse effect on the borrowers ability to refinance.

NOTE C - INVESTMENT IN MORTGAGE LOANS

Investment in mortgage loans as of June 30, 2003 are as follows:

|                            |  |        |    |         |  |               |             |            |  |           |       |      |  |  |        |   |  |  |       |  
|--------------------------- |  | ------ | -- | ------- |  | ------------- | ----------- | ---------- |  | --------- | ----- | ---- |  |  | ------ | - |  |  | ----- | -
|                            |  | Number |    |         |  |               |             |            |  |           |       |      |  |  |        |   |  | 
|Loan                        |  | of     |    |         |  |               |             | Average    |  | Portfolio |       | Loan
|Type                        |  | Loans  |    | Balance |  | Interest Rate |             | Percentage |  | To Value*
|                            |  |        |    |         |  |               |             |            |  |          
|Acquisition and development |  |        | 5  |         |  | $             | 29,147,011  |            |  |           | 12.60 | %    |  |  | 8.27   | % |  |  | 44.26 | %
|Bridge                      |  |        | 6  |         |  |               | 22,007,371  |            |  |           | 11.92 | %    |  |  | 6.24   | % |  |  | 65.99 | %
|Commercial                  |  |        | 27 |         |  |               | 147,747,322 |            |  |           | 11.67 | %    |  |  | 41.92  | % |  |  | 64.85 | %
|Construction                |  |        | 16 |         |  |               | 116,106,164 |            |  |           | 13.34 | %    |  |  | 32.94  | % |  |  | 60.05 | %
|Land                        |  |        | 10 |         |  |               | 24,303,120  |            |  |           | 12.70 | %    |  |  | 6.89   | % |  |  | 48.15 | %
|Residential                 |  |        | 7  |         |  |               | 13,169,529  |            |  |           | 13.79 | %    |  |  | 3.74   | % |  |  | 66.76 | %
|                            |  |        |    |         |  |               |             |            |  |           |       |      |  |  |        |   |  |  |       |  
|                            |  |        | 71 |         |  | $             | 352,480,517 |            |  |           | 12.53 | %    |  |  | 100.00 | % |  |  | 59.47 | %
|                            |  |        |    |         |  |               |             |            |  |           |       |      |  |  |        |   |  |  |       |  

Investment in mortgage loans as of June 30, 2002 are as follows:

|                            |  |        |    |         |  |               |             |            |  |           |       |      |  |  |        |   |  |  |       |  
|--------------------------- |  | ------ | -- | ------- |  | ------------- | ----------- | ---------- |  | --------- | ----- | ---- |  |  | ------ | - |  |  | ----- | -
|                            |  | Number |    |         |  |               |             |            |  |           |       |      |  |  |        |   |  | 
|Loan                        |  | of     |    |         |  |               |             | Average    |  | Portfolio |       | Loan
|Type                        |  | Loans  |    | Balance |  | Interest Rate |             | Percentage |  | To Value*
|                            |  |        |    |         |  |               |             |            |  |          
|Acquisition and development |  |        | 9  |         |  | $             | 50,177,032  |            |  |           | 13.22 | %    |  |  | 22.54  | % |  |  | 57.61 | %
|Bridge                      |  |        | 4  |         |  |               | 7,764,367   |            |  |           | 14.00 | %    |  |  | 3.49   | % |  |  | 68.07 | %
|Commercial                  |  |        | 17 |         |  |               | 78,759,650  |            |  |           | 12.50 | %    |  |  | 35.39  | % |  |  | 60.23 | %
|Construction                |  |        | 19 |         |  |               | 59,008,277  |            |  |           | 14.26 | %    |  |  | 26.51  | % |  |  | 61.58 | %
|Land                        |  |        | 9  |         |  |               | 22,180,376  |            |  |           | 13.17 | %    |  |  | 9.97   | % |  |  | 41.39 | %
|Residential                 |  |        | 8  |         |  |               | 4,668,624   |            |  |           | 12.94 | %    |  |  | 2.10   | % |  |  | 57.50 | %
|                            |  |        |    |         |  |               |             |            |  |           |       |      |  |  |        |   |  |  |       |  
|                            |  |        | 66 |         |  | $             | 222,558,326 |            |  |           | 13.35 | %    |  |  | 100.00 | % |  |  | 56.22 | %
|                            |  |        |    |         |  |               |             |            |  |           |       |      |  |  |        |   |  |  |       |  

*Loan to value ratios are based on appraisals obtained at the time of loan
origination and may not reflect subsequent changes in value estimates. Such
appraisals are generally dated no greater than 12 months prior to the date of
loan origination and may have been commissioned by the borrower. The appraisals may be for the current estimate of the as-if
developed value of the property, and which approximates the post-construction
value of the collateralized property assuming that such property is developed.
As-if developed values on raw land loans or acquisition and development loans
often dramatically exceed the immediate sales value and may include anticipated
zoning changes, selection by a purchaser against multiple alternatives, and
successful development by the purchaser; upon which development is dependent on
availability of financing. As most of the appraisals will be prepared on an
as-if developed basis, if a loan goes into default prior to any development of
a project, the market value of the property may be substantially less than the
appraised value. As a result, there may be less security than anticipated at
the time the loan was originally made. If there is less security and a default
occurs, the Company may not recover the full amount of the loan.

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|                   |  |               |             |            |  |               |        |            |  |   |             |  |  |  |        |  
|------------------ |  | ------------- | ----------- | ---------- |  | ------------- | ------ | ---------- |  | - | ----------- |  |  |  | ------ | -
|                   |  | June 30, 2003 |             | Portfolio  |  | June 30, 2002 |        | Portfolio 
|Loan Type          |  | Balance       |             | Percentage |  | Balance       |        | Percentage
|                   |  |               |             |            |  |               |        |           
|First mortgages    |  | $             | 350,486,619 |            |  |               | 99.43  | %          |  | $ | 222,513,820 |  |  |  | 99.98  | %
|Second mortgages** |  |               | 1,993,898   |            |  |               | 0.57   | %          |  |   | 44,506      |  |  |  | 0.02   | %
|                   |  |               |             |            |  |               |        |            |  |   |             |  |  |  |        |  
|                   |  | $             | 352,480,517 |            |  |               | 100.00 | %          |  | $ | 222,558,326 |  |  |  | 100.00 | %
|                   |  |               |             |            |  |               |        |            |  |   |             |  |  |  |        |  

**     All of the Companys second mortgages are junior to a first trust deed
position held by either the Company or the Companys Manager.

The following is a schedule of maturities of investments in mortgage loans as
of June 30, 2003:

|     |  |   |            
|---- |  | - | -----------
|2003 |  | $ | 278,983,627
|2004 |  |   | 64,612,324 
|2005 |  |   | 8,884,566  
|     |  |   |            
|     |  | $ | 352,480,517
|     |  |   |            

The following is a schedule by geographic location of investments in mortgage
loans as of:

|           |  |               |             |            |  |               |        |            |  |   |             |  |  |  |        |  
|---------- |  | ------------- | ----------- | ---------- |  | ------------- | ------ | ---------- |  | - | ----------- |  |  |  | ------ | -
|           |  | June 30, 2003 |             | Portfolio  |  | June 30, 2002 |        | Portfolio 
|           |  | Balance       |             | Percentage |  | Balance       |        | Percentage
|           |  |               |             |            |  |               |        |           
|Arizona    |  | $             | 54,080,498  |            |  |               | 15.34  | %          |  | $ | 37,528,258  |  |  |  | 16.86  | %
|California |  |               | 45,636,450  |            |  |               | 12.95  | %          |  |   | 43,242,770  |  |  |  | 19.43  | %
|Colorado   |  |               | 4,137,548   |            |  |               | 1.17   | %          |  |   |            |  |  |  | 0.00   | %
|Florida    |  |               | 4,599,543   |            |  |               | 1.30   | %          |  |   |            |  |  |  | 0.00   | %
|Hawaii     |  |               | 17,537,923  |            |  |               | 4.98   | %          |  |   | 15,681,746  |  |  |  | 7.05   | %
|Idaho      |  |               |            |            |  |               | 0.00   | %          |  |   | 2,855,202   |  |  |  | 1.28   | %
|Missouri   |  |               |            |            |  |               | 0.00   | %          |  |   | 5,430,000   |  |  |  | 2.44   | %
|Nevada     |  |               | 108,907,388 |            |  |               | 30.90  | %          |  |   | 64,641,428  |  |  |  | 29.04  | %
|New Mexico |  |               |            |            |  |               | 0.00   | %          |  |   | 42,495      |  |  |  | 0.02   | %
|New York   |  |               | 6,231,259   |            |  |               | 1.77   | %          |  |   |            |  |  |  | 0.00   | %
|Ohio       |  |               | 12,629,726  |            |  |               | 3.58   | %          |  |   |            |  |  |  | 0.00   | %
|Oregon     |  |               | 4,395,115   |            |  |               | 1.25   | %          |  |   |            |  |  |  | 0.00   | %
|Texas      |  |               | 94,325,067  |            |  |               | 26.76  | %          |  |   | 53,136,427  |  |  |  | 23.88  | %
|           |  |               |             |            |  |               |        |            |  |   |             |  |  |  |        |  
|           |  | $             | 352,480,517 |            |  |               | 100.00 | %          |  | $ | 222,558,326 |  |  |  | 100.00 | %
|           |  |               |             |            |  |               |        |            |  |   |             |  |  |  |        |  

At June 30, 2003, six of our loans were non-performing (more than 90 days past
due on principal or interest payments) totaling $34.9 million. Our Manager
evaluated the loans and concluded that the underlying collateral was sufficient
to protect us against a loss of principal or interest with the
exception of the
loan described below. Our Manager will continue to evaluate these
loans to determine if an allowance for loan losses should be recorded.

As of June 30, 2003,
all loans, except for the six loans mentioned above, were current and
performing according to their terms.

As of June 30, 2003, the Company re-evaluated the underlying collateral for one
of the above mentioned loans currently in foreclosure with a principal balance
of $13,000,000. The collateral is 570 acres of land near Austin, Texas. The
Company made the loan for construction of an 18-hole golf course and clubhouse.
The Company ceased funding the construction loan when it determined that the
borrower was significantly over budget for construction costs and behind in the
timely completion of the project. The Company and the borrower are involved in
litigation in Austin, Texas regarding the cessation of funding and the
foreclosure. It is impossible to determine the timing or eventual outcome of
this litigation. It is possible that regardless of the outcome of the
litigation, the borrower may declare bankruptcy which will stay the
foreclosure. The Company has obtained estimates of current value for the
partially completed golf course and estimates of the costs to complete
construction. Based on those estimates, the Company has provided for a specific
allowance for loan losses of $7,000,000 related to this impaired loan.

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The Company is also involved in discussions with the other lenders who hold
first trust deeds on the property surrounding the golf course to determine the
feasibility of some type of joint arrangement to complete the project. At this
time, it is too early to determine if any such arrangements might be agreed.

At June 30, 2002, the Company had one loan totaling $42,000 that was both past
due on principal and more than 90 days past due on interest payments.
Foreclosure proceedings were completed in March 2003. At June 30, 2002,
the Company also had three loans totaling $6,471,000 that were past due on
principal and interest. The borrowers on these loans are companies which are
affiliated with one another. The Company completed foreclosure on
these three loans as of November, 2002. With the exception of a small
parcel, the underlying collateral for these loans was sold on
August 24, 2003.

In addition, the Companys Manager granted extensions on 18 loans and 14 loans
as of June 30, 2003 and June 30, 2002, respectively, pursuant to the terms of
the original loan agreements which permit extensions by mutual consent. Such
extensions are generally provided on loans where the original term was twelve
months or less and where a borrower requires additional time to complete a
construction project or negotiate take out financing. However, the Companys
Manager only grants extensions when a borrower is in full compliance with the
terms of the loan, including, but not limited to the borrowers obligation to
make interest payments on the loan. The aggregate amount due to the Company
from borrowers whose loans have been extended as of June 30, 2003 and 2002, was
approximately $87,967,000 and $41,410,000, respectively.

The Companys Manager has evaluated the collectibility of the loans in light of
the types and dollar amounts of loans in the portfolio, adverse situations that
may effect the borrowers ability to repay, prevailing economic conditions and
the underlying collateral securing the loan. The Companys Manager believes
that the allowance for loan losses totaling $9.2 million and $500,000 included
in the accompanying balance sheet as of June 30, 2003 and 2002, respectively,
is adequate to address estimated and expected credit impairment which is
considered inherent in the Companys investment in mortgage loans as of that
date.

The Company has six mortgage loan products consisting of land, construction,
commercial building, bridge, residential, and acquisition and development
loans. Mortgage loans have effective interest rates ranging from 5.5% to 15%
and 8% to 16% at June 30, 2003 and 2002, respectively. Revenue by product will
fluctuate based upon relative balances during the period.

On June 25, 2003, the Company refinanced a $15.2 million note due on August 19,
2003 as a new note with the interest rate reduced from 11.0% to 5.5%.
No specific reserve has been provided for this loan based on the
underlying collateral value. The new
loan has a term of 24 months.

On July 22, 2003, the Company entered into a stipulation with a borrower which
among other things reduced the interest rate to 7.0% from 12.5% on the
principal balance of $5.0 million (which represents a 25% pari
passu interest in a first
trust deed of $20.0 million), deferred interest payments through October 31,
2003, and extended the maturity date from June 14, 2003 to June 14, 2005. The
borrower filed Chapter 11 Bankruptcy on June 26, 2003. The United States
Bankruptcy Court approved the stipulation. In the event of default of the
stipulation by the borrower, the automatic bankruptcy stay will be lifted and
the Company will be allowed to complete a foreclosure sale of the collateral.
As approved by the United States Bankruptcy Court, the Company and a
third-party participant have advanced an additional $2.2 million of
post-petition financing. No specific reserve has been provided for this loan based on the
underlying collateral value.

NOTE D  REAL ESTATE HELD FOR SALE

As of June 30, 2003, the Company had seven properties with a total carrying
value of $15.9 million, which were acquired through foreclosure and recorded as
investments in real estate held for sale. The Company may share ownership of
such properties with Fund I, the Manager, or other unrelated parties. The
summary below includes the

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Companys percentage ownership in each property. These investments in real
estate held for sale are accounted for at the lower of cost or fair value, less
selling costs, based on appraisals and knowledge of local market conditions.
It is not the Companys intent to invest in or own real estate as a long-term
investment. The Company seeks to sell properties acquired through foreclosure
as quickly as circumstances permit. The following is a summary of real estate
held for sale as of June 30, 2003:

|                                                                       |  |                |     |                |  |   |            | 
|---------------------------------------------------------------------- |  | -------------- | --- | -------------- |  | - | ---------- | 
|Description                                                            |  | % of ownership |     | Carrying Value
|                                                                       |  |                |     |               
|Custom residential property located in Santa Fe, New Mexico            |  |                | 4   | %              |  | $ | 85,727     | 
|40 acres of land containing 354 residential lots in
Henderson, Nevada  |  |                | 31  | %              |  |   | 4,820,663  | 
|An approximate 200-unit apartment complex located in Las
Vegas, Nevada |  |                | 98  | %              |  |   | 4,772,190  | 
|11.42 acres of vacant land zoned commercial in Henderson,
Nevada       |  |                | 100 | %              |  |   | 1,990,000  | 
|An uncompleted golf course in Mesquite, Nevada                         |  |                | 36  | %              |  |   | 1,208,738  | 
|65 acres of raw land in Mesquite, Nevada                               |  |                | 41  | %              |  |   | 928,453    | 
|Raw land in Mesquite, Nevada                                           |  |                | 42  | %              |  |   | 2,027,328  | 
|Total                                                                  |  |                |     |                |  | $ | 15,883,099 | 

Based on managements estimate of fair value of these assets, adjustments to
carrying value of $2.1 million were recorded as of June 30, 2003, including the
adjustments described below.

The Company entered into an agreement for the sale of a portion of the
Companys interest in 40 acres of land containing 354 residential lots in
Henderson, Nevada. The agreement required the buyer to purchase 138 lots for
cash and gives the buyer an option to purchase the remaining 216 lots over the
next three years at a predetermined price, which may be adjusted for potential
value increases. The buyer completed the purchase of the 138 lots on July 14,
2003. The company recorded a valuation adjustment as of June 30, 2003 in the
amount of approximately $886,000 to adjust the carrying value of the Companys
interest in the parcel to the amount corresponding to the negotiated sale and
option price.

The Company entered into an agreement to sell the uncompleted golf course, 65
acres of raw land and an additional parcel of raw land in Mesquite Nevada. The
Company closed this sale on August 24, 2003. The Company recorded a valuation
adjustment as of June 30, 2003 in the amount of approximately $973,000 to
adjust the carrying value of the Companys interest in these properties to the
amount corresponding to the sales agreement. After the sale, the Company will
have remaining a 42% interest in 28 acres of commercial land in Mesquite,
Nevada valued at approximately $1.7 million.

Through foreclosure, the Company assumed an approximate 98% ownership of a
200-unit apartment complex as described above. The other 2% is owned by Fund
I. The operations of the facility were also assumed which is being managed by
an outside management company. The Companys share of income from operations
for the six months ended June 30, 2003 totaled $28,000 which is included in
other income on the accompanying statements of income.

NOTE F  SECURED BORROWING

As of June 30, 2003 and 2002, the Company had approximately $26,700,000 and $0,
respectively, in secured borrowings pursuant to an intercreditor agreement with
the related amounts included in assets under secured borrowing. For the years
ended June 30, 2003 and 2002, the Company recorded interest expense of
$3,266,000 and $0, respectively, related to the secured borrowing.

NOTE G  NOTE RECEIVABLE

The Company received a note receivable from an unaffiliated borrower in the
amount of $2,333,333 in connection with the sale of real estate. The note
requires monthly interest payments at a rate of 8.5% per annum and is payable
in full on June 13, 2005. The note is personally guaranteed by the owner of
the borrower and is secured by a second

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deed of trust on 756 acres purchased
by the borrower. The note resulted from the Companys financing
of a mortgage note due June 13, 2004 from the borrower for the
sale of real estate located in the City of Mesquite, Nevada. The Company is using the cost
recovery method of accounting for the financing. Accordingly, the Company will
not recognize any income or the note receivable related to this transaction
until the principal balance of the underlying notes in the amount of
$11,659,000 are paid in full. Payments
received by the Company in excess of the principal balance will be recorded as
income when, and if, received.

NOTE H DEFFERRED OFFERING COSTS

As of June 30, 2003, the Company expensed previously deferred bond offering
costs in the amount of $1,094,000. The Companys Manager
determined that, due
to the current interest rate environment, it is not feasible to proceed with
the securitization of the Companys mortgage loans through the sale of bonds
secured by those mortgages, and accordingly, has expensed the costs incurred to
date. As of June 30, 2002, deferred bond offering costs totaled $256,000.

NOTE I - REVOLVING LINE OF CREDIT

The Company has a revolving line of credit with a financial institution, which
provides for borrowing up to $2,000,000. The balances at June 30, 2003 and 2002
were $2.0 million and $0, respectively. The line of credit, which is secured
by the Companys certificates of deposit with First Hawaiian Bank, is payable
in monthly installments of interest only at 1.50% over the weighted average
interest rate paid on the First Hawaiian Bank certificates of deposit (3.76%
and 2.51% at June 30, 2003 and 2002, respectively), maturing October 31, 2003.
The interest rate will be reset upon the occurrence of either a new drawing on
the revolving line of credit or at the maturity of the certificate of deposit.
The agreement contains covenants which the Company was in compliance with as of
June 30, 2003.

NOTE J - MEMBERS EQUITY

1.     Membership Units

As of June 30, 2002, the Manager contributed $1,100,000 to the Company in
connection with offering costs incurred on behalf of the Company in return for
110,000 units. Members contribute to the capital of the Company an amount
equal to $10.00 for each unit subscribed for by each member, with a minimum
subscription of 200 units per member. The total Capital contribution of the
members will not exceed $500,000,000 not including reinvested distributions.

2.     Allocations and Distributions

In accordance with the operating agreement, the Companys profits, gains and
losses are to be credited to and charged against each member in proportion to
their respective capital accounts as of the close of business on the last day
of each calendar month.

Interest received on mortgage loans is distributed monthly to members, members
may elect to reinvest their distributions.

Distributions of proceeds from the repayment of principal on a mortgage loan
will be made to the members pro rata based on their capital accounts.

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|3. |  | Working Capital Reserves
|-- |  | ------------------------

The Company is required by the
operating agreement to maintain working capital
reserves of at least 3% of the aggregate capital accounts of the members. This
reserve is available to pay any future expenses in excess of revenues, satisfy
obligations of underlying security properties, expend money to satisfy the
Companys unforeseen obligations and for other permitted uses of its working
capital. Working capital reserves of up to 3% in cash or cash equivalents,
short-term investments and certificates of deposit are excluded from the funds
committed to mortgage investments in determining what proportion of the
offering proceeds and reinvested distributions have been invested in mortgage
loans. As of June 30, 2003 and 2002, the Company had approximately $16,816,000
and $8,624,000, respectively, for its working capital reserves of
which $2.0 million is restricted and used as collateral for the
line of credit.

NOTE K - TRANSACTIONS WITH THE MANAGER AND ITS AFFILIATES



|1. |  | Fees Paid by the Company
|-- |  | ------------------------



| | a. |  | The Companys Manager is entitled to receive from the Company a
monthly management fee of up to 0.25% of the aggregate capital
contributions, paid monthly in arrears. As of June 30, 2003 and 2002,
management fees to the Manager approximated $793,000 and $237,000,
respectively.
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | The Manager may receive fees for reselling foreclosed
properties. These fees may not be greater than 3.0% of the proceeds
where substantial service has been performed by the Manager. As of
June 30, 2003 and 2002, no payments were required to be paid to the Manager.            



|2. |  | Purchase of Loans from Vestin Fund I, LLC
|-- |  | -----------------------------------------

During the fiscal years ended June 30, 2003 and 2002, the Company
purchased approximately $17,725,000 and $11,763,000, respectively, in mortgage
loans from Vestin Fund I, LLC, a Company managed by the Manager.



|3. |  | Due to the Manager
|-- |  | ------------------

Due to Manager at June 30, 2003 consisted of approximately $1,632,000 in
advances and unpaid management fees and distributions payable totaling $669,000
on units owned by the Manager. Due to the Manager at June 30, 2002 consisted
of $298,000 advances by the Manager and of distributions payable to the Manager
in the amount of $353,000. These advances do not accrue interest and are due on
demand.



|4. |  | Other Transactions with the Manager
|-- |  | -----------------------------------

During the transition period ended June 30, 2002, the Company and Vestin Fund
I, LLC made a mortgage loan in the amount of $130,500 and $3,000,000,
respectively, for a total of $3,130,500 to an independent borrower who used the
proceeds of the loan to purchase a property from the Companys Manager which
the Companys Manager had previously acquired through foreclosure proceedings.
The loan from the Company to such independent borrower is interest only,
payable monthly at an annual rate of 10% with the principal due in
June 2003 and extended to September 2003.
The terms of the loan to such third party borrower were
negotiated by the Companys Manager; such terms were not reviewed by any
independent parties.

During the fiscal years ended June 30, 2003 and 2002, the Company purchased
$817,000 and $10,000,000, respectively, in mortgage loans from the Companys
Manager at their historical cost pursuant to Section 4.4.1 of the

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Companys Operating Agreement. During the fiscal years ended June 30, 2003 and
2002, the Company sold $501,000 and $1,120,000, respectively to the Companys
Manager.

The Manager may purchase from the Company the interest receivable or principal
on delinquent loans held by the Company. The Company shall not sell a
foreclosed property to the Manager or to another program in which the Manager
or its affiliates has an interest. As of June 30, 2003 and 2002, no such
transaction occurred.

NOTE L  NEW ACCOUNTING PRONOUNCEMENT

In January 2003, the FASB issued Interpretation No. 46 Consolidation of
Variable Interest Entities(FIN 46), which addresses consolidation by
business enterprises of variable interest entities (VIEs). The accounting
provisions and expanded disclosure requirements for VIEs are effective at
inception for VIEs created after January 31, 2003, and are effective for
reporting periods beginning after June 15, 2003 for VIEs created prior to
February 1, 2003. An entity is subject to consolidation according to the
provisions of FIN 46, if, by design, either (i) the total equity investment at
risk is not sufficient to permit the entity to finance its activities without
additional subordinated financial support from other parties, or (ii) as a
group, the holders of the equity investment at risk lack: (a) direct or
indirect ability to make decisions about an entitys activities (b) the
obligation to absorb the expected losses of the entity if they occur; or (c)
the right to receive the expected residual returns of the entity if they occur.
In general, FIN 46 will require a VIE to be consolidated when an enterprise
has a variable interest that will absorb a majority of the VIEs expected
losses or receive a majority of the VIEs expected residual
return. The FASB has recently proposed to defer the adoption date for
certain variable interest entities until interim and annual periods
ending after December 15, 2003. The
Company continues to evaluate its relationships and interest in entities that
may be considered VIEs. The impact of adopting FIN 46 on the Financial
Statements is still being reviewed.

NOTE M  COMMITMENTS AND
CONTINGENCIES

The Company is involved with certain
legal proceedings incidental to its business activities. The
Manager believes that the outcome of these proceedings will not have
a material adverse effect on the Companys financial condition,
results of operations and cash flows.

LIGATION INVOLVING THE MANAGER

Vestin Mortgage, Inc., Vestin Group, Inc., and Del Mar Mortgage, Inc., a
company wholly owned by Michael Shustek, the largest shareholder and CEO of
Vestin Group, Inc., are defendants in a civil action entitled Desert Land,
L.L.C. et al. v. Owens Financial Group, Inc. (the Action). The Action was
initiated by Desert Land, L.L.C. (Desert Land) on various
loans arranged by
Del Mar Mortgage, Inc. and/or Vestin Mortgage. On April 10, 2003, the United
States District Court for the District of Nevada (the Court) entered judgment
jointly and severally in favor of Desert Land against Vestin Group, Vestin
Mortgage and Del Mar Mortgage, Inc. Judgment was predicated upon the Courts
finding that Del Mar Mortgage, Inc. received an unlawful penalty fee
from the plaintiffs.

Defendants subsequently filed a motion for reconsideration. The court denied
the motion and, on August 13, 2003, held that Vestin Group, Vestin Mortgage,
and Del Mar Mortgage, Inc. are jointly and severally liable for the judgment in
the amount of $5,683,312.19 (which amount includes prejudgment interest and
attorneys fees). On August 27, 2003, the Court stayed execution of the
judgment against Vestin Group and Vestin Mortgage based upon the posting of a
bond in the amount of $5,830,000. The bond was arranged by Michael Shustek and
was posted without any cost or obligation to Vestin Group and Vestin Mortgage.
Additionally, Del Mar Mortgage, Inc. has indemnified Vestin Group and Vestin
Mortgage for any losses and expenses in connection with the Action, and Mr.
Shustek has guaranteed the indemnification. All of the defendants held liable
to Desert Land are planning to appeal the judgment. The Company is not a party
to the Action.

NOTE N  REDEMPTION LIMITATION

In order to comply with the Companys operating agreement and Federal statues,
the Company may redeem no more than 10% of the members capital in any
calendar year. Beginning capital as of January 1, 2003 was $315.0 million,
which would limit redemptions to $31.5 million for calendar
2003. On September
12, 2003, the Company discontinued accepting
requests for the redemption of units for the 2003 calendar year. As
of September 12, 2003, the total of redemptions made and
redemptions requested and awaiting payment was $30.9 million. All redemptions requests received after that date have been logged
for redemption beginning in January 2004. As of September 19, 2003,
requests to redeem 234,910 units had been logged.

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##### Table of Contents



NOTE O  SELECTED QUARTERLY
FINANCIAL DATA (UNAUDITED)

The following schedule is selected
quarterly financial data for fiscal year ended June 30, 2003:

|                                                                      |  |         |            |         |  |         |            |         |  |      |            |  |  |   |            |   |  |   |            | 
|--------------------------------------------------------------------- |  | ------- | ---------- | ------- |  | ------- | ---------- | ------- |  | ---- | ---------- |  |  | - | ---------- | - |  | - | ---------- | 
|                                                                      |  | First   |            | Second  |  | Third   |            | Fourth  |  |     
|                                                                      |  | Quarter |            | Quarter |  | Quarter |            | Quarter |  | Year
|                                                                      |  |         |            |         |  |         |            |         |  |     
|Revenues                                                              |  | $       | 8,853,369  |         |  | $       | 10,123,913 |         |  | $    | 10,302,679 |  |  | $ | 11,032,574 |   |  | $ | 40,312,535 | 
|Expenses                                                              |  |         | 1,014,717  |         |  |         | 1,261,538  |         |  |      | 1,594,242  |  |  |   | 12,670,734 |   |  |   | 16,541,231 | 
|                                                                      |  |         |            |         |  |         |            |         |  |      |            |  |  |   |            |   |  |   |            | 
|Net
income                                                            |  | $       | 7,838,652  |         |  | $       | 8,862,375  |         |  | $    | 8,708,437  |  |  | $ | (1,638,160 | ) |  | $ | 23,771,304 | 
|                                                                      |  |         |            |         |  |         |            |         |  |      |            |  |  |   |            |   |  |   |            | 
|Net
income allocated to members per weighted average membership units |  | $       | 0.31       |         |  | $       | 0.30       |         |  | $    | 0.26       |  |  | $ | (0.04      | ) |  | $ | 0.76       | 
|                                                                      |  |         |            |         |  |         |            |         |  |      |            |  |  |   |            |   |  |   |            | 
|Weighted
average membership units                                     |  |         | 25,535,977 |         |  |         | 29,868,724 |         |  |      | 33,277,556 |  |  |   | 37,143,153 |   |  |   | 31,430,793 | 
|                                                                      |  |         |            |         |  |         |            |         |  |      |            |  |  |   |            |   |  |   |            | 

The following schedule is selected
quarterly financial data for six-month transition period ended
June 30, 2002:



|                                                                      |  |         |            |         |  |          |            |  |  |   |            |  |  |  |  |  |  |  |  | 
|--------------------------------------------------------------------- |  | ------- | ---------- | ------- |  | -------- | ---------- |  |  | - | ---------- |  |  |  |  |  |  |  |  | 
|                                                                      |  | First   |            | Second  |  | June 30, |            |  |  |  
|                                                                      |  | Quarter |            | Quarter |  | 2002     |            |  |  |  
|                                                                      |  |         |            |         |  |         
|Revenues                                                              |  | $       | 4,732,343  |         |  | $        | 6,771,757  |  |  | $ | 11,504,100 | 
|Expenses                                                              |  |         | 103,599    |         |  |          | 677,482    |  |  |   | 781,081    |  |  |  |  |  |  |  |  | 
|                                                                      |  |         |            |         |  |          |            |  |  |   |           
|Net
income                                                            |  | $       | 4,628,744  |         |  | $        | 6,094,275  |  |  | $ | 10,723,019 | 
|                                                                      |  |         |            |         |  |          |            |  |  |   |           
|Net
income allocated to members per weighted average membership units |  | $       | 0.29       |         |  | $        | 0.29       |  |  | $ | 0.59       | 
|                                                                      |  |         |            |         |  |          |            |  |  |   |           
|Weighted
average membership units                                     |  |         | 15,749,588 |         |  |          | 20,875,319 |  |  |   | 18,326,615 | 
|                                                                      |  |         |            |         |  |          |            |  |  |   |           

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##### Table of Contents



Schedule I

Vestin Fund II, LLC

MORTGAGE LOANS ON REAL ESTATE
MORTGAGE LOAN ROLLFORWARD

|                           |  |                              |                                              |  |  |            
|-------------------------- |  | ---------------------------- | -------------------------------------------- |  |  | -----------
|Balance, December 31, 2000 |  | $                            |                                            
|                           |  | Additions during the period` |                                              |  | 
|                           |  |                              | New mortgage loans                           |  |  | 154,669,007
|                           |  | Deductions during the period |                                              |  | 
|                           |  |                              | Collections of principal                     |  |  | 22,405,938 
|                           |  |                              | Mortgage loans sold                          |  |  | 15,026,598 
|                           |  |                              |                                             
|                           |  |                              | 37,432,536                                  
|                           |  |                              |                                             
|Balance, December 31, 2001 |  |                              | 117,236,471                                 
|                           |  | Additions during the period  |                                              |  | 
|                           |  |                              | New mortgage loans                           |  |  | 155,595,440
|                           |  |                              | Mortgage loans bought                        |  |  | 8,914,086  
|                           |  | Deductions during the period |                                              |  | 
|                           |  |                              | Collections of principal                     |  |  | 33,495,536 
|                           |  |                              | Mortgage loans sold                          |  |  | 25,692,135 
|                           |  |                              |                                             
|                           |  |                              | 105,321,855                                 
|                           |  |                              |                                             
|Balance, June 30, 2002     |  |                              | 222,558,326                                 
|                           |  | Additions during the period  |                                              |  | 
|                           |  |                              | New mortgage loans                           |  |  | 308,974,057
|                           |  |                              | Mortgage loans bought                        |  |  | 93,502,169 
|                           |  | Deductions during the period |                                              |  | 
|                           |  |                              | Collections of principal                     |  |  | 146,329,465
|                           |  |                              | Foreclosed loans (Real estate held for sale) |  |  | 18,271,656 
|                           |  |                              | Mortgage loans sold                          |  |  | 107,952,914
|                           |  |                              |                                             
|                           |  |                              | 129,922,191                                 
|                           |  |                              |                                             
|Balance, June 30, 2003     |  | $                            | 352,480,517                                 
|                           |  |                              |                                             

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##### Table of Contents



Schedule II

Vestin Fund II, LLC

MORTGAGE LOANS ON REAL ESTATE
MORTGAGE LOANS BY TYPE OF PROPERTY

As of June 30, 2003:

|                            |  |               |          |          |  |                |             |           |  |             |             |            |  |  |            |        |  |   |           
|--------------------------- |  | ------------- | -------- | -------- |  | -------------- | ----------- | --------- |  | ----------- | ----------- | ---------- |  |  | ---------- | ------ |  | - | ----------
|                            |  |               |          |          |  |                |             |           |  | Carrying    |             |            |  |  |            | Amount
|                            |  |               |          |          |  | Face Amount of |             | amount of |  | Maturity    |             | Subject to
|Type of Property            |  | Interest Rate |          | Mortgage |  | mortgage       |             | Date      |  | Delinquency
|Commercial                  |  |               | 5.5%-14  | %        |  | $              | 237,787,500 |           |  | $           | 147,747,321 |            |  |  | 12/02-6/05 |        |  | $ | 13,995,000
|Construction                |  |               | 12%-15   | %        |  | $              | 180,855,000 |           |  | $           | 116,106,164 |            |  |  | 2/03-3/04  |        |  | $ | 16,349,865
|Acquisition and
Development |  |               | 11%-14   | %        |  | $              | 67,825,000  |           |  | $           | 29,147,011  |            |  |  | 2/02-3/03  |        |  | $ |          
|Land                        |  |               | 10%-14   | %        |  | $              | 36,485,500  |           |  | $           | 24,303,121  |            |  |  | 8/03-5/04  |        |  | $ |          
|Bridge                      |  |               | 8%-14    | %        |  | $              | 69,600,000  |           |  | $           | 22,007,371  |            |  |  | 7/03-6/05  |        |  | $ | 4,599,192 
|Residential                 |  |               | 12.5%-14 | %        |  | $              | 15,087,500  |           |  | $           | 13,169,529  |            |  |  | 8/03-8/04  |        |  | $ |           

As of June 30, 2002:

|                            |  |               |           |          |  |                |             |           |  |             |            |            |  |  |           |        |  |   |          
|--------------------------- |  | ------------- | --------- | -------- |  | -------------- | ----------- | --------- |  | ----------- | ---------- | ---------- |  |  | --------- | ------ |  | - | ---------
|                            |  |               |           |          |  |                |             |           |  | Carrying    |            |            |  |  |           | Amount
|                            |  |               |           |          |  | Face Amount of |             | amount of |  | Maturity    |            | Subject to
|Type of Property            |  | Interest Rate |           | Mortgage |  | mortgage       |             | Date      |  | Delinquency
|Commercial                  |  |               | 10%-14.5  | %        |  | $              | 185,186,000 |           |  | $           | 78,759,650 |            |  |  | 7/02-3/05 |        |  | $ |         
|Construction                |  |               | 13%-15.75 | %        |  | $              | 193,311,000 |           |  | $           | 59,008,277 |            |  |  | 6/02-6/04 |        |  | $ | 3,437,937
|Acquisition and
Development |  |               | 8%-15.5   | %        |  | $              | 90,708,000  |           |  | $           | 50,177,032 |            |  |  | 2/02-3/03 |        |  | $ | 3,075,514
|Land                        |  |               | 10%-15.5  | %        |  | $              | 34,220,500  |           |  | $           | 22,180,376 |            |  |  | 7/02-6/03 |        |  | $ |         
|Bridge                      |  |               | 14        | %        |  | $              | 17,725,000  |           |  | $           | 7,764,367  |            |  |  | 6/02-5/03 |        |  | $ |         
|Residential                 |  |               | 8%-14     | %        |  | $              | 6,460,050   |           |  | $           | 4,668,624  |            |  |  | 8/02-5/03 |        |  | $ |         

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##### Table of Contents



Schedule III

Vestin Fund II, LLC

MORTGAGE LOANS ON REAL ESTATE
MORTGAGE LOANS BY LIEN POSITION

As of June 30, 2003:

|              |  |                |             |          |  |                 |           |          |  |             |             |  |  |  |            |  |  |        |            | 
|------------- |  | -------------- | ----------- | -------- |  | --------------- | --------- | -------- |  | ----------- | ----------- |  |  |  | ---------- |  |  | ------ | ---------- | 
|              |  |                |             |          |  |                 |           |          |  |             |             |  |  |  |            |  |  | Amount
|              |  | Face Amount of |             | Interest |  | Carrying amount |           | Maturity |  | Subject to 
|Lien Position |  | Mortgage       |             | Rate     |  | of mortgage     |           | Date     |  | Delinquency
|1st           |  | $              | 604,809,500 |          |  |                 | 5.5%-15   | %        |  | $           | 350,486,618 |  |  |  | 2/02-3/05  |  |  | $      | 34,939,057 | 
|2nd           |  | $              | 2,646,000   |          |  |                 | 9.5%-14.5 | %        |  | $           | 1,993,899   |  |  |  | 6/02-11/03 |  |  | $      | 5,000      | 

As of June 30, 2002:

|              |  |                |             |          |  |                 |        |          |  |             |             |  |  |  |            |  |  |        |           | 
|------------- |  | -------------- | ----------- | -------- |  | --------------- | ------ | -------- |  | ----------- | ----------- |  |  |  | ---------- |  |  | ------ | --------- | 
|              |  |                |             |          |  |                 |        |          |  |             |             |  |  |  |            |  |  | Amount
|              |  | Face Amount of |             | Interest |  | Carrying amount |        | Maturity |  | Subject to 
|Lien Position |  | Mortgage       |             | Rate     |  | of mortgage     |        | Date     |  | Delinquency
|1st           |  | $              | 527,610,550 |          |  |                 | 8%-16  | %        |  | $           | 222,513,820 |  |  |  | 2/02-3/05  |  |  | $      | 6,513,451 | 
|2nd           |  | $              | 53,113,000  |          |  |                 | 10%-15 | %        |  | $           | 44,506      |  |  |  | 6/02-11/03 |  |  | $      |          | 

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##### Table of Contents



Schedule IV

Vestin Fund II, LLC

MORTGAGE LOANS ON REAL ESTATE
MORTGAGE LOANS THAT EXCEED THREE PERCENT
OF THE PORTFOLIO

As of June 30, 2003:

|                            |  |          |       |          |  |          |          |                |  |           |  |             |            |  |  |   |            |          |  |        |            |  |  | 
|--------------------------- |  | -------- | ----- | -------- |  | -------- | -------- | -------------- |  | --------- |  | ----------- | ---------- |  |  | - | ---------- | -------- |  | ------ | ---------- |  |  | 
|                            |  |          |       |          |  |          |          |                |  |           |  |             |            |  |  |   |            | Carrying |  | Amount
|Description                 |  | Interest |       | Maturity |  | Lien     |          | Face Amount of |  | Amount of |  | Subject to 
|of Loan                     |  | Rate     |       | Date     |  | Position |          | Mortgage       |  | Mortgage  |  | Delinquency
|Commercial                  |  |          | 13.00 | %        |  |          | 11/25/03 |                |  | 1st       |  | $           | 29,000,000 |  |  | $ | 22,514,360 |          |  | $      |           | 
|Commercial                  |  |          | 5.50  | %        |  |          | 6/25/04  |                |  | 1st       |  | $           | 15,150,000 |  |  | $ | 12,664,188 |          |  | $      |           | 
|Commercial                  |  |          | 12.50 | %        |  |          | 8/3/03   |                |  | 1st       |  | $           | 12,500,000 |  |  | $ | 12,310,430 |          |  | $      |           | 
|Commercial                  |  |          | 12.00 | %        |  |          | 11/27/03 |                |  | 1st       |  | $           | 31,000,000 |  |  | $ | 21,290,628 |          |  | $      |           | 
|Acquisition and
Development |  |          | 14.00 | %        |  |          | 6/28/03  |                |  | 1st       |  | $           | 32,000,000 |  |  | $ | 11,900,893 |          |  | $      |           | 
|Construction                |  |          | 14.00 | %        |  |          | 8/1/03   |                |  | 1st       |  | $           | 17,500,000 |  |  | $ | 12,927,598 |          |  | $      | 12,927,598 | 
|Construction                |  |          | 13.50 | %        |  |          | 8/30/03  |                |  | 1st       |  | $           | 48,000,000 |  |  | $ | 25,528,760 |          |  | $      |           | 
|Construction                |  |          | 13.00 | %        |  |          | 3/31/04  |                |  | 1st       |  | $           | 13,500,000 |  |  | $ | 12,629,726 |          |  | $      |           | 

As of June 30, 2002:

|                            |  |          |       |          |  |          |            |                |  |           |  |             |            |  |  |   |            |          |  |        |   |  |  | 
|--------------------------- |  | -------- | ----- | -------- |  | -------- | ---------- | -------------- |  | --------- |  | ----------- | ---------- |  |  | - | ---------- | -------- |  | ------ | - |  |  | 
|                            |  |          |       |          |  |          |            |                |  |           |  |             |            |  |  |   |            | Carrying |  | Amount
|Description                 |  | Interest |       | Maturity |  | Lien     |            | Face Amount of |  | Amount of |  | Subject to 
|of Loan                     |  | Rate     |       | Date     |  | Position |            | Mortgage       |  | Mortgage  |  | Delinquency
|Commercial                  |  |          | 13.00 | %        |  |          | 11/25/03   |                |  | 1st & 2nd |  | $           | 29,000,000 |  |  | $ | 19,000,000 |          |  | $      |  | 
|Commercial                  |  |          | 11.00 | %        |  |          | 10/22/2003 |                |  | 1st       |  | $           | 15,150,000 |  |  | $ | 12,664,188 |          |  | $      |  | 
|Acquisition and
Development |  |          | 14.00 | %        |  |          | 9/10/2002  |                |  | 1st       |  | $           | 18,000,000 |  |  | $ | 10,852,154 |          |  | $      |  | 
|Land                        |  |          | 14.00 | %        |  |          | 7/30/2002  |                |  | 1st       |  | $           | 12,500,000 |  |  | $ | 8,000,000  |          |  | $      |  | 
|Land                        |  |          | 14.00 | %        |  |          | 06/28/03   |                |  | 1st       |  | $           | 32,000,000 |  |  | $ | 24,088,072 |          |  | $      |  | 
|Construction                |  |          | 15.75 | %        |  |          | 8/25/2002  |                |  | 1st       |  | $           | 14,000,000 |  |  | $ | 6,900,133  |          |  | $      |  | 
|Commercial                  |  |          | 10.00 | %        |  |          | 12/11/2002 |                |  | 1st & 2nd |  | $           | 13,245,000 |  |  | $ | 7,995,000  |          |  | $      |  | 

F-21



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##### Table of Contents



EXHIBIT INDEX

|            |  |                                                 
|----------- |  | ------------------------------------------------
|Exhibit No. |  | Description
of Exhibits                         
|3.1(1)      |  | Articles of Organization                        
|            |  |                                                 
|10(2)       |  | Amended and Restated Operating Agreement        
|            |  |                                                 
|31.1        |  | Section 302 Certification of Michael V. Shustek 
|            |  |                                                 
|31.2        |  | Section 302 Certification of Lance K. Bradford  
|            |  |                                                 
|32          |  | Certification Pursuant to U.S.C. 18 Section 1350



|(1) |  | Incorporated herein by reference to our S-11 Registration Statement filed on December 21, 2000.              
|--- |  | -------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Incorporated herein by reference to Amendment No. 2 to our S-11 Registration Statement filed on July
3, 2002.