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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 December 31, 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 333-105017 VESTIN FUND III, LLC  NEVADA
    
    87-0693972(State or other jurisdiction of
    
    (I.R.S. EmployerIncorporation or organization)
    
    Identification No.)
 2901 EL CAMINO AVENUE, LAS VEGAS, NEVADA 89102  Registrants telephone number, including area code 702.227.0965 Securities registered pursuant to Section 12(b) of the Act:  Securities registered pursuant to Section 12(g) of the Act:  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. [ X ] 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 March 5, 2004, the Company had 1,163,043 Units outstanding.




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TABLE OF CONTENTS PAGEPART IITEM 1. BUSINESS
    
    
    1ITEM 2. PROPERTIES
    
    
    16ITEM 3. LEGAL PROCEEDINGS
    
    
    16ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    17PART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
    
    
    18ITEM 6. SELECTED FINANCIAL DATA
    
    
    18ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
    
    
    19ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    22ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    22ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
    
    
    22ITEM 9A. CONTROLS AND PROCEDURES
    
    
    22PART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
    
    
    23ITEM 11. EXECUTIVE COMPENSATION
    
    
    25ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT RELATED STOCKHOLDER MATTERS
    
    
    25ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    25ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
    
    
    26PART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
    
    
    27FORM 8-KSIGNATURES
    
    
    28EXHIBIT INDEX
    
    
    29EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32




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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 purchased 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 Vestin Fund III, LLC was organized in April 16, 2003 as RE Investments III,
LLC, a Nevada limited liability company. Under our Operating Agreement, our
existence ends on December 31, 2023, unless the members vote to extend our
duration. In this Report on Form 10-K (the Report) we refer to Vestin Fund
III, LLC as the Company, the Fund, we, us, or our. Through December 31, 2003, we were a development stage company. On November 7,
2003, our prospectus filed with the Securities and Exchange Commission became
effective for the initial public offering (Offering) of 10,000,000 Units at
$10 per Unit (Unit). We had not commenced operations through December 31,
2003. As of February 12, 2004, we raised the required $10,000,000 to break
escrow and commence operations. By March 5, 2004, we had sold 1,163,043 Units
offered pursuant to our registration statement. Members may participate in our
Distribution Reinvestment Plan whereby the members distributions may be used
to purchase additional Units at $10 per Unit. As of December 31, 2003, no
additional Units have been purchased under this plan. Our manager is Vestin Mortgage, Inc. (doing business as Vestin), 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 (Vestin Group), whose common stock is publicly held and traded on
the Nasdaq National Market under the ticker symbol VSTN. Vestin Group has
received notice from Nasdaq that it no longer meets the minimum value of
publicly held shares required for its inclusion on the Nasdaq National Market.
Vestin Group has been afforded an opportunity to regain compliance or transfer
to the Nasdaq Small Cap Market. Vestin Group is currently contemplating
transferring its securities to the Nasdaq Small Cap Market. Through its
subsidiaries, Vestin Group is engaged in asset management, real estate lending
and other financial services. We will seek to invest substantially all of our net Offering proceeds and
distribution reinvestments in mortgage loans and real property, after paying
applicable fees and expenses, if any. The allocation of our investments between
real property and mortgages will be at the discretion of our Manager depending
on the amounts available for investment and investment opportunities. Once the
Fund is fully funded, we anticipate investing approximately 70% of our net
proceeds in real property and 30% in mortgage loans. However, such percentages
are only a guideline, the actual percentages may vary. Although the Mortgage
Program Guidelines of the North American Securities Administrators Association,
Inc. and the Real Estate Program Guidelines of the North American Securities
Administration Association, Inc. (together the NASAA Guidelines) require
reserves of not less than 1% of the Offering proceeds, approximately 3% of net
proceeds will be held as a working capital cash reserve. Vestin Mortgage will
be reimbursed by us for up to 2% of the gross proceeds received in the Offering
for all expenses advanced. At Vestin Mortgages election, it may receive units
in lieu of cash reimbursement. Such expenses include those incurred by us and
owed or paid to attorneys, accountants, brokers or other nonrelated third
parties in 1




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connection with the preparation of the Offering. Vestin Mortgage will not be
reimbursed or credited for any further Offering expenses it incurs. Real Estate Program Objectives Once the Fund is fully funded, we anticipate investing approximately 70% of our
net proceeds in real property and approximately 30% in mortgage loans. However,
such percentages are only a guideline, the actual percentages may vary. We will invest in income producing multifamily residential units, assisted
living facilities, office, industrial and retail properties and other
income-producing real property, such as hotels and resorts, restaurants,
parking lots and amusement parks. We intend to apply our prior experience in
investing in mortgage loans to our evaluation and investment in real property.
Accordingly, we intend to invest in real property throughout the areas in which
Vestin Mortgage and its correspondents have experience, primarily Arizona,
California, Hawaii, Nevada and Texas. Depending on the market and on our
performance, we may expand our investments throughout the United States. We
intend to purchase properties in the range of $5 million to $30 million.
However, our actual purchases may vary from these guidelines. Our principal investment objectives are:  
    
    Provide quarterly cash distributions to you from the rental income earned on our properties;  
    
    Preserve your capital contributions; and  
    
    Realize growth in the value of our properties upon our ultimate sale of such properties. We cannot assure you that we will achieve these objectives or that your capital
will not decrease. Vestin Mortgage may change our investment guidelines,
subject to the fiduciary obligations that it owes to all members and pursuant
to our operating agreement. However, Vestin Mortgage may not change the
investment objectives above, except upon approval of a majority of our members.
Vestin Mortgage has no authority to do anything that would impair our ability
to carry on our ordinary business as a mortgage or real property investor. Mortgage Program Objectives Our principal investment objectives are to:  
    
    Produce revenues from the interest income on our mortgage loans;  
    
    Provide quarterly cash distributions to you from the net income earned on our mortgage loans;  
    
    Preserve your capital contributions; and  
    
    Reinvest to the extent permissible payments of principal and
proceeds of prepayments, sales and insurance proceeds, net of expenses. We intend to invest in mortgage loans throughout the areas in which Vestin
Mortgage and its correspondents have experience, primarily Arizona, California,
Hawaii, Nevada and Texas. Depending on the market and on our performance, we
may expand our investments throughout the United States. However, Vestin
Mortgage has limited experience outside of the Southwest. The loans we invest
in will be selected for us by Vestin Mortgage from among loans originated by
Vestin Mortgage or non-affiliated mortgage brokers. When Vestin Mortgage or
someone else originates a loan for us, that person 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 10 to 20 days. Vestin Mortgage will obtain, negotiate and make each
loan, after which we acquire the loan, provided that the cost of the mortgage
does not exceed the funds reasonably anticipated to be available to us to
purchase the loan. 2




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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. See
Managements Discussion and Analysis of Financial Condition an Results of
Operations  Risks of Investing in Mortgage Loans at page 20. Because of our
willingness to fund riskier loan types and borrowers, borrowers are willing to
pay us an interest rate that is above the rates charged by conventional
lenders. We intend to invest in a significant amount of loans in which the real
property being developed is not generating any income to the borrower. We
anticipate investing 10% to 70% of our assets allocated for mortgages in
construction loans and not more than 25% of our mortgage assets in unimproved
land loans. Our second mortgage investments are riskier because our rights will
be subject to the rights of the first mortgage lender. We may invest up to 10%
of our mortgage assets in second mortgage loans. 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. We anticipate investing up to 50% of our mortgage
assets in bridge loans. In addition, we expect to invest approximately 20% to
50% of our assets allocated for mortgages in commercial property loans, 10% to
25% in acquisition and development loans and a small percentage in residential
property loans. The actual allocations may vary materially from the guidelines
above depending on the amount available for investment in mortgages. In addition to those policies contained in our prospectus and the Operating
Agreement, Vestin Mortgage may establish written policies on loans and
borrowings. Real Estate Program Policies and Guidelines We intend to primarily invest in income producing multifamily residential
units, office, industrial, and retail properties, assisted living facilities
and other income-producing real property. Such properties may include
properties used for hotels and resorts, restaurants, parking lots, amusement
parks or other leasehold properties. We intend to primarily lease out the real
property owned by us. Initially, we intend to purchase our real property
through cash transactions. However, if we are able to obtain favorable
financing for the purchase of real property at a later date, we may choose to
finance the purchase of our real property. We intend to hold our properties
until such time as we believe is the optimal time to enable us to capitalize on
the potential for increased income and capital appreciation of our properties. By investing primarily in different types of properties, we believe we will
reduce our overall portfolio risk and enhance our overall portfolio returns.
Once we are fully funded, no single property will comprise more than 20% of our
assets. We may acquire income-producing properties which have been developed with funds
provided by us pursuant to our mortgage program. For example, we may make a
loan to a developer for the purchase of unimproved land. After the developer
has improved the land we may then purchase the real property. We will seek to invest in properties that will satisfy our investment
objectives of maximizing quarterly distributions, preserving our capital and
realizing capital appreciation upon the ultimate sale of our properties. We
intend to invest in properties located in the United States. We will initially
seek to invest in properties located in Arizona, California, Hawaii, Nevada and
Texas. We do not intend to invest in unimproved land or construction or
development of properties. Vestin Mortgage has not previously been engaged in the business of direct
investment in real property. In making investment decisions for us, Vestin
Mortgage will consider relevant real estate property and financial factors,
such as the location of the property, its income-producing capacity, the
prospects for long-range appreciation, return on capital and its liquidity and
income tax considerations. Vestin Mortgage will have substantial discretion
with respect to the selection of specific investments. We will obtain independent appraisals for each property in which we invest.
Additionally, we will not rely on or utilize any appraisals which have not been
commissioned by us. However, we will rely on our own independent analysis of
various criteria, including such appraisals, in determining whether or not to
invest in a particular 3




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property. Appraisals are estimates of value and should not be relied upon as
measures of true worth or realizable value. Our obligation to purchase any property will generally be conditioned upon the
delivery and verification of certain documents from the seller or developer,
including, environmental reports, evidence of marketable title, audited
financial statements covering recent operations of properties with operating
histories and title and liability insurance policies. We will attempt to ensure
that all of our properties are adequately insured to cover casualty losses.
However, there are types of losses which are uninsurable or not economically
insurable or may be insurable subject to limitations, such as large deductibles
or co-payments. Our investments generally will take the form of holding fee title in the
properties we acquire. We will acquire such interests directly or through
wholly owned subsidiaries, which may be formed in the future. We may also
invest in real property through joint ventures pursuant to the NASAA
Guidelines. In no event will we acquire an interest in real property through
any structure which would cause us to be deemed an investment company under the
Investment Company Act of 1940. Leasing The terms and conditions of any lease that we enter into with our tenants may
vary substantially. However, we expect that our leases will be the type
customarily used between landlords and tenants in the geographic area where the
property is located. We intend to diversify our portfolio. However, we cannot
predict at this time what the allocation will be. Multifamily.Multifamily leases provide for terms of 6 months to 3 years and
require the tenant to pay monthly lease payments and a security deposit equal
to one months rent. Under such leases, the landlord is generally directly
responsible for all real estate taxes, sales and use taxes, special
assessments, insurance and building repairs. Office.Office leases generally have terms of 3 to 10 years and require tenants
to pay monthly lease payments and a security deposit equal to one months rent.
The landlord may be responsible for all real estate taxes, sales and use taxes,
special assessments, insurance and building repairs, utilities and other
building operation and management costs. Industrial.Industrial leases generally have terms of 5 to 20 years and require
tenants to pay monthly lease payments and a security deposit equal to one
months rent. The tenant typically is responsible for its shares of building
operation and management costs, including real estate taxes, sales and use
taxes, special assessments, insurance and building repairs and utilities. Retail.Retail leases generally have terms of 3 to 5 years with multiple
options and require tenants to pay monthly lease payments and a security
deposit equal to one months rent. The tenant typically is responsible for its
shares of building operation and management costs, including real estate taxes,
sales and use taxes, special assessments, insurance and building repairs and
utilities. Assisted Living.Assisted living leases have terms of 1 to 2 years and require
tenants to pay monthly lease payments and a security deposit equal to one
months rent. The landlord is generally directly responsible for all real
estate taxes, sales and use taxes, special assessments, insurance and building
repairs. We will execute new tenant leases and tenant lease renewals, expansions and
extensions with terms that are dictated by the current market conditions. If it
is economically practical, we will verify the creditworthiness of each tenant.
If we verify the creditworthiness of each tenant, we will use industry credit
rating services to determine the creditworthiness of potential tenants and any
guarantors of each potential tenant. We will also obtain relevant financial
data from potential tenants and guarantors, such as income statements and
balance sheets and cash flow statements. We may require personal guaranties
from shareholders of our corporate tenants. However, there can be no guarantee
that the tenants selected will not default on their leases. 4




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We anticipate that tenant improvements will be funded by us from our cash flow
or our credit line. When one of our tenants vacates its space in one of our
buildings, we may, in order to attract new tenants, be required to expend funds
for tenant improvements. In addition, we may provide free rent for a certain
time period, provide tenant improvement allowances, and provide other
concessions in order to attract new tenants. Borrowing Policies We may borrow funds to acquire our properties. We will not incur debt in an
amount greater than the sum of 85% of the aggregate purchase price of all our
real property owned by us plus 70% of the aggregate fair market value of all
our other assets. Vestin Mortgage will have the authority to select the lender and negotiate the
terms of the loan. Participation We may also participate in the operation and purchase of real property with
other purchasers, including affiliates as permitted by NASAA Guidelines. We
will own any jointly purchased real property in direct fee title. We will participate in the operation and/or purchase with non-affiliates if we
acquire a controlling interest, alone or with any of our publicly registered
affiliates meeting the requirements below, in such participation. A controlling
interest would enable us to direct or cause the direction of the management and
policies of such participation, which would include the authority to:  
    
    review all material contracts;  
    
    cause a sale or refinancing of the property or our interest therein
subject in certain cases to limitations imposed by the participation
agreement between the parties;  
    
    approve budgets and major capital expenditures, subject to a stated
minimum amount;  
    
    veto any sale or refinancing of a property, or alternately, to
receive a specified preference on sale or refinancing proceeds; and  
    
    exercise a right of first refusal on any desired sale or
refinancing by a participant of its interest in a property except for
transfer to its affiliate. In the event of participation with a publicly registered affiliate, the
investment objectives of the participants shall be substantially identical.
There shall be no duplicate fees. The compensation to the sponsors must be
substantially identical, and the investment of each participant must be on
substantially the same terms and conditions. Each participant shall have right
of first refusal to buy the others interest if the co-participant decides to
sell its interest. We may participate in joint ventures or partnerships with
affiliates that are not publicly registered if the investment is necessary to
relieve Vestin Mortgage from any commitment to purchase a mortgage entered into
prior to the closing of the offering, there are no duplicate fees, the
investment of each entity is on the same terms and condition and the
participants have a right of first refusal to buy if Vestin Mortgage wishes to
sell a mortgage held in the joint venture. We will not give Vestin Mortgage, Vestin Group or any of their affiliates any
consideration similar to rebates or give-backs or enter into reciprocal
arrangements with Vestin Mortgage or its affiliates that might be entered into
in lieu of participations. Disposition We anticipate that periodically or at our termination and dissolution, we will
sell our properties. We intend to hold various real properties in which we
invest until such time as a sale or other disposition appears to be
advantageous to achieve our investment objectives or until it appears that such
objectives will not be met. We will consider multiple 5




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factors in deciding on whether or not to dispose of our properties, including
potential capital appreciation, cash flow and federal income tax
considerations. We will decide when to sell our properties based upon economic
and market conditions. Vestin Mortgage may exercise its discretion as to
whether and when to sell a property, and we will have no obligation to sell
properties at any particular time. After our members have received a 100% return on their capital contributions
plus an amount equal to 6% per annum cumulative, Vestin Mortgage will be
eligible to receive up to 25% of cash to be distributed from the net proceeds
remaining from the sale or refinancing of properties. Additionally, Vestin
Mortgage or one of its affiliates may receive a real estate commission of 3% if
Vestin Mortgage or one of its affiliates acts as our broker in the sale or
purchase of real property. Return of the original purchase price paid by us from the disposition of
properties generally will be reinvested during the first seven years of our
operations; thereafter, such proceeds will be distributed to the Members.
Retainable net sale proceeds do not include amounts in excess of the original
purchase price paid by us on the sale of real property which are accounted for
as part of cash funds from our operations. However, we may also reinvest a
portion of cash funds from our operations for amounts attributable to amounts
in excess of the original purchase price paid by us on the sale of real
property. Mortgage Program Policies and Guidelines We anticipate that a majority of our collateral on our mortgage loans will be
the real property that the borrower is purchasing, refinancing 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, we believe that most of the loans in which we invest will have been made
to real estate developers with a lesser proportion of loans involving land
loans and bridge financing. Our mortgage investments will not be insured or
guaranteed by any government agency. We will not give any rebates or enter into
any reciprocal agreement with Vestin Mortgage or any of its affiliates that
enables Vestin Mortgage or its affiliates to receive a rebate. Vestin Mortgage will continuously evaluate prospective investments, select the
mortgages in which we invest and make all investment decisions on our behalf in
its sole discretion, unless the Operating Agreement provides otherwise. You are
not entitled to act on any proposed investment. 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;  
    
    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;  
    
    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. 6




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When selecting mortgage loans for us, Vestin Mortgage will adhere to the
following guidelines, which are intended to control the quality of the
collateral given for our loans:  1.
    
    Priority of Mortgages.We anticipate investing at least 90% of our
assets allocated for mortgages in secured 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. The only subordinated mortgages we currently intend to
invest in at this time are second mortgages, although in the future we
may invest in wraparound, or all-inclusive, mortgages.  2.
    
    Loan-to-Value Ratio.We do not anticipate that the amount of our
loan combined with the outstanding debt secured by a senior mortgage on
a security property will exceed the following percentage of the
appraised value of the security property at origination: Type of Secured Property
    
    Loan-to-Value RatioResidential
    
    
    75
    %Unimproved Land
    
    60% (of the anticipated as-if developed value)Acquisition and Development
    
    60% (of the anticipated as-if developed value)Commercial Property
    
    75% (of the anticipated post-development value)Construction
    
    75% (of the anticipated as-if developed value)Bridge
    
    75% (of the anticipated as-if developed value)Leasehold Interest
    
    75% (of value of leasehold interest)
  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, in its opinion, 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. Nevertheless, in no event will
the loan-to-value ratio on any loan exceed 80% of the independently
appraised as-if developed value of the property at the time of loan
origination. The target loan-to-value ratio for our loan portfolio as a
whole is approximately 70%.Vestin Mortgage will receive an appraisal at the time of loan
underwriting, which may precede the placement of the loan with us. Copies
of these appraisals will be available for your review at the offices of
Vestin Mortgage for a period of six (6) years. Generally, these
appraisals will be completed within twelve months prior to funding of the
loan. Also, the appraisal may have been previously performed for the
borrower. The appraisal may be for the current estimated as-if
developed value of the property. We will use 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 7




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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 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.  We depend upon our real estate security to protect us on the loans that
we make. We depend upon the skill of independent appraisers to value the
security underlying our loans. However, notwithstanding the experience of
the appraisers, they may make mistakes, or the value of the real estate
may decrease due to subsequent events. In addition, most of the
appraisals will be prepared on an as if-developed basis. If the loan
goes into default prior to completion of the 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, we
may not recover the full amount of our loan, thus reducing the amount of
funds available to distribute to you.  3.
    
    Terms of Mortgage Loans.Most of our loans will range from a
six-month term to a five-year term. Our original loan agreements,
however, will permit extensions to the term of the loan by mutual
consent. Such extensions will generally be 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.We anticipate that substantially all of our loans will provide for
payments of interest only with a balloon payment of principal payable
in full at the end of the term. In addition, we may invest in mortgage
loans which require borrowers to maintain interest reserves funded from
the principal amount of the loan for a period of time.4.
    
    Interest Reserves. We expect that many of our loans
will involve interest reserves
where the funds to be lent to the borrower to cover initial interest payments
on the loan will not disbursed to the borrower but rather will be funded
only when needed and authorized, thereby providing us with greater
control of interest payments. Funds for the interest payments for the
initial interest reserve period may be advanced by us or other lenders,
but the amount of the borrowers loan is increased by the amount of
such advances.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. 8




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
    
    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, if the
loans were acquired to facilitate their acquisition by us, provided
that such loan is purchased by us for a price not in excess of the par
value of the note or its fair market value, whichever is lower, plus
allowable fees and expenses in accordance with applicable NASAA
Guidelines, but without the allowance of any other compensation for the
loans. Except for the compensation paid to Vestin Mortgage, all income
generated and expense associated with the mortgage so acquired shall be
treated as belonging to us.  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. 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 as-if developed
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 as-if developed value
of the underlying property, as determined by a written appraisal which
was conducted within the then-preceding twelve months at the time of
loan origination. If an appraisal was not conducted within that period,
then we will arrange for a new appraisal to be prepared for the
property.  8.
    
    Participation.We may also participate in loans with other lenders,
including affiliates as permitted by NASAA Guidelines, by providing
funds for or purchasing an undivided interest in a loan meeting our
investment guidelines described above. We will directly own any loans
purchased jointly with other lenders. We would be more likely to
participate in loans if, for example:  
    
    we did not have sufficient funds to invest in an entire loan;  
    
    we received Offering proceeds that were insufficient to adequately diversify our portfolio;  
    
    we are seeking to increase the diversification in our loan portfolio; or  
    
    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.  We will participate in loans with non-affiliates if we acquire a
controlling interest, alone or with any of our publicly registered
affiliates meeting the requirements below, in such participation. A
controlling interest would enable us to direct or cause the direction of
the management and policies of such participation, which would include
the authority to:  
    
    review all material contracts;  
    
    cause a sale of the mortgage or our interest therein subject
in certain cases to limitations imposed by the participation
agreement between the parties;  
    
    approve budgets and major capital expenditures, subject to a
stated minimum amount;  
    
    veto any sale of a mortgage, or alternatively, to receive a
specified preference on sale or proceeds; and  
    
    exercise a right of first refusal on any desired sale by a
participant of its interest in a loan except for transfer to its
affiliate. 9




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In the event of participation with a publicly registered affiliate, the
investment objectives of the participants shall be substantially
identical. There shall be no duplicate fees. The compensation to the
sponsors must be substantially identical, and the investment of each
participant must be on substantially the same terms and conditions. Each
participant shall have a right of first refusal to buy the others
interest if the co-participant decides to sell its interest. We will not
participate in joint ventures or partnerships with affiliates that are
not publicly registered except as permitted by NASAA Guidelines.  We will not give Vestin Mortgage, Vestin Group or any of their affiliates
any consideration similar to rebates or give-backs or enter into
reciprocal arrangements with Vestin Mortgage or its affiliates that might
be entered into in lieu of participations.  In addition to participation agreements, we may enter into intercreditor
agreements. Pursuant to intercreditor agreements, a co-lender may
participate in certain loans with us, Vestin Mortgage, Vestin Fund I or
Vestin Fund II (collectively, the Lead Lenders). In the event of
borrower non-performance, the intercreditor agreement generally provides
the Lead Lenders with some or all of the rights to either (i) continue to
remit to the co-lender the interest due on the participation amount; (ii)
substitute an alternative loan acceptable to the co-lender; or (iii)
repurchase the participation from the co-lender for the outstanding
balance of the participation plus accrued interest. Consequently,
mortgage loan financing under an intercreditor 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. We believe that it is in our best long term interest to
have in place relationships with third parties willing to enter into such
arrangements in order to expand our funding sources. We will pursue this
strategy, even when we have substantial uninvested funds, in order to
maintain relationships with such third party 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 March 30, 2004, we had two mortgage loans that
each accounted for more than 20% of our members equity. Our
initial investments may exceed the NASAA Guidelines until we have
sufficient funds to further diversify. NASAA Guidelines permit the
minimum standards to be exceeded if the mortgage loans are made
pursuant to sound underwriting criteria.  10.
    
    Reserve Fund.Although the NASAA Guidelines require reserves of not
less than 1% of the Offering proceeds, we will establish contingency
working capital reserves of approximately 3% of the net proceeds of the
Offering to cover our unexpected cash needs.  11.
    
    Credit Evaluations.Before making a loan, Vestin Mortgage must
first determine that a borrower has sufficient equity in the security
property to meet the loan-to-value ratios described above. 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 plan
to do so, Vestin Mortgage may sell our mortgage loans or interests 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. We may sell our mortgage loans to
Vestin Mortgage under limited circumstances pursuant to the NASAA
Guidelines. 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 may 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 satisfies all of our
lending criteria. This requirement also applies to any loan originated by an
affiliate of Vestin Mortgage, such as 10




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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
unless in compliance with NASAA Guidelines. Types of Loans We Intend to Invest In We intend to 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. Pending completion of our Offering, we intend to
make investments based upon the guidelines set forth below. However, the actual
allocation may vary from the guidelines below depending on the amount available
for investment in mortgages, and may vary materially prior to the completion of
the Offering. Raw and Unimproved Land Loans Approximately 15% to 25% of our mortgage assets may be invested in 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
the property and the borrowers actual capital investment in the property.
Typically, we will invest in loans with a face value of up to 60% of the as-if
developed appraised value of the property and we usually 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. These loans are riskier
because the property is not capable of generating any income, as compared to a
commercial property. Acquisition and Development Loans Approximately 10% to 25% of our mortgage assets may be invested in 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. Generally, we will
invest in loans with a face value of up to 60% of the as-if developed appraised
value of the property. Such appraisals have the same valuation limitations as
raw and unimproved land loans, described above. Construction Loans Approximately 10% to 70% of our mortgage assets may be invested in 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 appraised value of the property and proposed improvements, and will
arrange loans for up to 75% of the as-if developed appraised value. Such
appraisals have the same valuation limitations as raw and unimproved land
loans, described above. These loans are riskier than loans secured by income
producing properties because during construction the borrower does not receive
income from the property to make payments on the loan. Commercial Property Loans Approximately 20% to 50% of our mortgage assets may be invested in 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 value or net operating
income of the property so that it may qualify for institutional refinancing. We
will review the appraised value of the property and will invest in loans for up
to 75% of such appraised value. To the extent such loans include renovations,
appraisals may include as-if developed valuations with the limitations
described above. These loans are riskier because there is no assurance that the
commercial borrower will qualify for the refinancing or that the improvements
will yield the anticipated increase in value and income. 11




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Residential Loans We may invest approximately 5% of our mortgage assets in 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 review the appraised
value of the property and will invest in loans for up to 75% of such appraised
value. Bridge Loans Up to 50% of our mortgage assets may be invested in bridge loans. These loans
provide interim financing to enable commercial borrowers to qualify for
permanent refinancing. We will review the appraised value of the property and
will generally invest in loans of up to 75% of that value. 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. These loans are riskier because there is no assurance
that the developer will qualify for the refinancing. Collateral The types of collateral that will secure the loans brokered by us include a
first deed of trust, a second deed of trust or a leasehold interest. First Deed of Trust The majority of the loans invested in by us will be secured by a first deed of
trust. Thus, we will have rights as a first mortgage lender of the
collateralized property. Second Deed of Trust We will not invest in a second deed of trust unless (i) such loan involves the
sale of real property owned by us, or (ii) we also act as the first mortgage
lender on the loan. Leasehold Interest Up to 20% of our mortgage assets may be invested in loans where the collateral
is an interest in a lease. These loans are riskier because the only rights we
will have is to assume the borrowers obligations under the lease and to use
the property for the length of time and in the limited manner permitted under
the lease. Prepayment Penalties and Exit Fees We anticipate that a majority of 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 will 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. When
we initially grant loans we, among other things, review the financial condition
of the borrower and any guarantors, perform a title search, and receive an
appraisal. Based upon our review of the factors above as well as other
considerations, we decide whether and for 12




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how long a loan should be granted. Loan extensions are often contemplated at
the time of the initial loan, usually for 90 day increments. Generally, loan
extensions will only be made for up to one year from the original date of
maturity of the loan. We generally provide extensions on loans which are in
full compliance with the terms of the loan. We reevaluate loans on a quarterly
basis whether or not the loans are made pursuant to an extension. Balloon Payment We anticipate that at least 90% 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. Repayment of Mortgages on Sales 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, you will be deemed to have received a
distribution of capital and recontributed the same amount to us. Capital
transactions 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 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. 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. Interest Rate Caps Variable rate loans generally have interest rate caps. We anticipate that the
interest rate cap will be a ceiling that is 2-4% 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 13




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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 lenders in order to
provide them with a senior 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. No Trust or Investment Company Activities We have not qualified as a real estate investment trust under the Internal
Revenue Code, and therefore we are not subject to the restrictions on its
activities that are imposed on real estate investment trusts. We intend to
conduct our business so that we are not an investment company within the
meaning of the Investment Company Act of 1940. Last, we intend to conduct our
business so that we are not to be deemed a dealer in mortgage loans for
federal income tax purposes. Various Other Policies and Procedures Without approval of a majority of the members, we will not:  
    
    issue securities senior to the units or issue any units or other securities for other than cash;  
    
    invest in the securities of other issuers for the purpose of
exercising control, except when exercising our rights as a secured
lender;  
    
    underwrite securities of other issuers;  
    
    discontinue providing our members with the reports described in our prospectus;  
    
    offer securities in exchange for property; or  
    
    change the nature of our business or our investment policies. Competition and General Economic Conditions 14




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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. For
the past few years, the institutional lenders have not been as active in the
commercial mortgage market as in prior years. Recently, however, many major
institutional lenders have re-entered the commercial mortgage market due to a
stronger economy, stabilized or increased property values and leasing rates,
and the decrease in demand for residential loans. As a result, we anticipate
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
you receive. 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. As of October 1, 2003, Vestin Mortgage is regulated by the Mortgage Lending Division of 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. On March 26, 1999, Del Mar Mortgage, Inc., a company controlled by Michael
Shustek, Chief Executive Officer of Vestin Group, 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 advertising and solicitation of mortgage borrowers and
in its making and servicing of mortgage loans. In April 1999, Vestin Group (then
known as Sunderland Acquisition Corporation) acquired the customer lists,
goodwill and certain other intangible assets of Del Mar Mortgage, Inc. and
assumed certain 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. 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. Should we or Vestin Mortgage not adhere to these regulations, we could face
potential disciplinary or other civil action that could have a material adverse
effect on our business. Policies on Limitation on Investments We will not invest in other limited partnerships except as permitted under the
NASAA Guidelines. We will not invest in limited partnership interests of any
other limited partnership of which Vestin Mortgage serves as a managing or
general partner unless Vestin Mortgage does not receive duplicate fees or
compensation beyond what is permissible by the NASAA Guidelines. We will not engage in the following:  
    
    issue senior securities; 15




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
    
    acquire property for membership interests;  
    
    issue any units after termination of the Offering or issue units in exchange for property;  
    
    underwrite securities of other issuers;  
    
    or make loans to Vestin Mortgage or its affiliates. We do not intend to become an investment company under the Investment Company
Act of 1940. We will only repurchase our securities in response to a request for redemption
pursuant to our operating agreement. Employees We do not have any employees. Our Manager, Vestin Mortgage, and its parent
company, Vestin Group, Inc., provide all of the employees necessary for our
operations. As of March 1, 2004, those entities employed
43 personnel of which one was a part-time employee. All employees are at-will
employees and none are covered by collective bargaining agreements. Available Information Our Internet website address is www.vestinfund.com. We make available free of
charge through www.vestinmortgage.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. 
 ITEM 2. PROPERTIES Our Manager, Vestin Mortgage, operates from its executive offices at 2901 El
Camino Avenue, Las Vegas, Nevada 89102. We do not have any separate offices. Our Manager shares office facilities with its parent corporation, Vestin Group,
which in turn leases its principal executive offices from The
Wildwood Hills Development, Corporation. The lease agreement governing this property expires in
April 2006 and the base rent is approximately $36,000 per month. Vestin Group has entered into
a new lease for its executive offices, which are currently under
construction at Durango Road and the 215 Beltway in Las Vegas,
Nevada, with Luke Properties, LLC. Vestin Group believes that construction will
be completed in summer 2004. Vestin Group is attempting to sublease its
current office space. Vestin Groups new office space is approximately 41,614
square feet. The new lease agreement governing this property will expire in
March 2014 and the base rent is approximately $72,824.50 per month. Vestin
Group anticipates that it will need to make $100,000 to $150,000 in tenant
improvements in excess of the allowance provided by the landlord. Vestin Group
believes that the new leased office space is adequate for its current
operations. 
 ITEM 3. LEGAL PROCEEDINGS Vestin Group, Vestin Mortgage, and Del Mar Mortgage, Inc., a company wholly
owned by Michael Shustek, the largest stockholder and CEO of Vestin
Group, are
defendants in a civil action entitled Desert Land, L.L.C. et al. v. Owens
Financial Group, Inc. et al (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 16




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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. On September 12, 2003, all of the
defendants held liable to Desert Land appealed the judgment to the United
States Court of Appeals for the Ninth Circuit. We are not a party to the
Action. The staff of the Pacific Regional Office of the Securities and Exchange
Commission (SEC) has been conducting an informal inquiry into certain matters
related to us, Vestin Group, Vestin Fund I, and Vestin Fund II. The staff of
the SEC has not identified the reasons for its inquiry, which remains ongoing
as of March 19, 2004. We believe that we have fully complied with SEC
disclosure requirements and are fully cooperating with the inquiry. We cannot
at this time predict the outcome of the inquiry. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 17




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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 March 5, 2004, approximately 436 Unit holders held 1,078,780 Units
of our limited liability interest.c.
    
    It is our intention to distribute significantly all net income generated
by us to Unit holders on a quarterly basis. Recent Sales of Unregistered Securities For the period from April 16, 2003 through April 24, 2003, Vestin Mortgage
advanced expenses in the amount of $5,000 to us for which Vestin Mortgage
became entitled to receive 500 units from us. However, such units
have not been issued and are currently not outstanding. Such
transactions were made by us in reliance upon
exemptions from registration pursuant to Section 4(2) of the Securities Act of
1933, as transactions not involving a public offering. Use of Proceeds from Sales of Registered Securities The net proceeds we receive from the Offering will be at least 87.5% of the
total funds raised in the Offering. We anticipate that we will invest no less
than 82% of the gross proceeds of the Offering and the distributions reinvested
under our reinvestment plan in mortgage loans and real property. Once we are
fully funded, we anticipate investing approximately 70% of our proceeds in real
property and approximately 30% in mortgage loans. However, such percentages are
only a guideline, the actual percentages may vary. As of March 30, 2004, we
have invested in two mortgage loans totaling $10 million. We will not invest
more than 20% of our proceeds in any one property once we are fully funded.
Although the NASAA Guidelines require reserves of not less than 1% of the
Offering proceeds, we will retain approximately 3% of Offering proceeds as a
working capital reserve. 
 ITEM 6. SELECTED FINANCIAL DATA You should read the following selected financial data in conjunction with our
financial statements and related notes and Managements Discussion and
Analysis of Financial Condition and Results of Operations appearing elsewhere
in this Report. Vestin Fund III, LLC (formerly RE Investments III, LLC) December 31,2003Balance Sheet Data:Cash
    
    $
    4,952Investments in mortgage loans (net of allowance)
    
    $
    0Interest and other receivables
    
    $
    0Real estate held for sale
    
    $
    0Assets under secured borrowing
    
    $
    0Deferred offering costs
    
    $
    667,437Total assets
    
    $
    672,389Liabilities
    
    $
    673,088Members equity
    
    $
    (699
    )Total liabilities and members equity
    
    $
    672,389
 18




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For the period from April19, 2003 (Inception)through December 31, 2003Income Statement Data:Revenues
    
    $
    0Expenses
    
    $
    699Net income
    
    $
    (699
    )
 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. 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Twelve Month Plan of Operation We had not commenced operations through December 31, 2003. As of December 31,
2003, we had incurred approximately $667,000 of Offering costs paid by our
Manager on our behalf, which amounts were recorded as deferred offering costs.
Offering costs incurred by Vestin Mortgage on our behalf will be
converted into
membership units up to an aggregate of 2% of the gross proceeds of the
Offering. We will convert our deferred Offering costs into membership units at
a conversion price of $10 per unit once we receive sufficient gross proceeds to
ensure that the deferred Offering costs do not exceed 2% of the gross proceeds.
As of February 12, 2004, we raised the required $10,000,000 to break escrow
and commence operations. By March 5, 2004, we had sold 1,163,043 Units offered
pursuant to our registration statement. During the next 12 months, we plan to invest in mortgage loans where our
collateral is real property and to acquire income producing real property. The
number of loans and properties in which we invest will depend upon the gross
proceeds raised in the Offering. If we only raise $10,000,000, we will likely
only be able to invest in up to four loans or purchase a single property. If we
sell the maximum number of units, we anticipate investing in up to
approximately six mortgage loans and approximately twelve properties. As of
March 30, 2004, we had invested in two mortgage loans totaling $10 million.
These estimates are guidelines as to what we may be able to invest in given the
level of funding. To sufficiently diversify our portfolio, Vestin Mortgage
anticipates that we need to raise at least $30 million. We intend to maintain a 3% cash reserve to pay any future expenses in excess of
revenues, satisfy obligations of underlying security properties, expend money
to satisfy our unforeseen obligations and for other permitted uses of working
capital. In addition, we will owe fees to Vestin Mortgage for the
administration of the Fund as well fees related to the distribution of income.
Previously, Vestin Mortgage has deferred those fees in its other funds. Vestin
Mortgage may choose to defer such fees. We do not anticipate hiring any employees, acquiring any fixed assets like
office equipment or furniture, or incurring material office expenses during the
next 12 months because we will be utilizing Vestin Mortgages personnel and
office equipment. We intend to establish a line of credit for future use and may enter into
financing or securitization arrangements with institutional lenders to expand
our portfolio of mortgage loans. However, we have not yet made any specific
efforts to obtain such arrangements. We believe that under a typical financing
arrangement, we would borrow 85% of the purchase price from conventional
lenders at prevailing rates and terms. 19




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Most of our mortgages will be fixed rate, secured loans. We will not engage in
hedging transactions or acquire derivative instruments in an effort to mitigate
risks of interest rate changes. While we believe such hedging transactions are
not necessary in light of the short term nature of our investments, failure to
engage in hedging transactions may expose us to losses if there are significant
changes in prevailing interest rates. We will invest in income producing properties such as multi-family residential
units, office buildings, industrial properties, retail properties, assisted
living facilities and other income producing property such as parking
lots,
hotels and resorts, restaurants and amusement parks. We will not invest in
unimproved land, properties under construction or other properties which do not
produce current income. Our future operating results will depend upon our ability to promptly identify
and invest in mortgage loans and income producing properties which generate
significant current income. To the extent that we are unable to identify and
make such investments or are delayed in making such investments, our operating
results will suffer. In addition, defaults by borrowers or tenants, lease
terminations, failure to fully rent our properties or unexpected expenses would
adversely effect our income and reduce the funds we have available to
distribute to you. Factors Affecting Our Operating Results Risks of Investing in Real Property  
    
    Changes in the general economic or local conditions could have an
adverse impact on the real estate market in general.  
    
    Changes in the supply of or demand for similar or competing
properties in an area. If we pay a higher price our profitability will
be reduced. Additionally, if we are unable to sell a property when we
determine to do so, it could have a significant adverse affect on our
cash flow and operations.  
    
    Changes in interest rates and availability of permanent mortgage
funds that may render the sale of a property difficult or unattractive.  
    
    Changes in tax, real estate, environmental and zoning laws may
require additional material expenditures by us in order to be in
compliance.  
    
    Periods of high interest rates and tight money supply may make the
sale of property more difficult.  
    
    Tenant turnover could cause us to lose revenue associated with that
lease and increase costs for tenant improvements.  
    
    General overbuilding or excess supply in the market area could lead
to vacancies. If vacancies occur for a long period of time, we may
suffer reduced revenues and could diminish the market value of the
property. 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 then other mortgage lenders.
Due to the nature of loan approvals, there is a risk that the credit
inquiry Vestin Mortgage performs will not reveal all material facts
pertaining to the borrower and the security.  
    
    Appraisals may be performed on an as-if developed basis which
appraised values dramatically exceed immediate sales values. Therefore
there is a risk that the borrower will not complete development of the
project which may affect the expected value of the property and the
loan to value ratio. Also, property may not have value above its as-is
value which itself may be difficult to realize.  
    
    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 be
borrowing money to acquire, develop or renovate real property. However,
if the economy grows too fast, interest rates may 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 our revenues and the distributions to our
members. 20




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
    
    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 and by defaults by tenants in properties that we own. 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. If we do foreclose on a
property, Vestin Mortgage may determine that the best course of action is to
sell such property quickly in order to generate a return of funds to us which
may then be used in our lending operations. As a result, we may not receive the
best price for the foreclosed property and, in some cases, we may receive less
than the amount due to us under the defaulted loan. Similarly, we will attempt
to mitigate against the risk of tenant defaults through security deposits,
guaranties, letters of credit and by selecting properties which we believe are
attractive and easy to rent. However, our assessment in this regard may prove
incorrect and changes in local real estate markets may result in our
experiencing extended vacancies in our properties. Competition for Borrowers and Properties 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. There are numerous investors in income producing real estate including, REITs,
insurance companies, pension funds, property management companies and high net
worth individuals. Many of these investors have substantially more financial
resources and experience than we have, which may enable them to acquire the
most attractive properties on the market. We will attempt to benefit from our
Managers experience and contacts in certain markets to assist us in acquiring
attractive income producing properties. However, there is substantial
competition for real estate investments in each of those markets and no
assurance can be given that our Managers contacts and expertise will provide
us with any competitive advantage. Effect of Fluctuations in the Economy Our sole business, investing in income producing property and 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 investments and loans, could
result in a decline in real estate values, tenant vacancies and a decline in
the demand for real estate development loans. Declines in real estate values
after we have acquired our properties could result in our holding properties
longer than intended. In addition, a general decline in the economy could
result in an increase in tenant defaults. We might also encounter under these
circumstances greater difficulty in finding replacement tenants. In order to
adjust to market conditions, we might be forced to reduce the amount of rent we
collect and to offer various concessions to attract new tenants. Any such
measures could reduce our cash flow and the funds we have available to
distribute. 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 21




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rate, a sustained and widespread decline in interest rates will impact the
interest we are able to earn on our loans. Since our loans will generally 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. 
 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. As of December 31, 2003, we had cash totaling $4,952. In addition, we held
$1,616,246 in proceeds from the sale of units in a segregated escrow account. The
funds will remain in escrow until at least 1,000,000 units have been sold. We
believe that these financial assets do not give rise to significant interest
rate risk due to their short-term nature. 
 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 INDEPENDENT AUDITORS ON ACCOUNTING
AND FINANCIAL DISCLOSURE On January 29, 2004, Ernst & Young LLP (E&Y), informed Vestin Group, the
parent company of Vestin Mortgage, our Manager, and the Audit Committee of
Vestin Group (the Audit Committee) in writing of its decision to resign as
our independent auditors effective as of that date. The Audit Committee has
engaged Moore, Stephens, Wurth, Frazer & Torbet, LLP as our independent
auditors. E&Ys report on our balance sheet as of April 24, 2003 did not contain an
adverse opinion or a disclaimer of opinion, and was not qualified or modified
as to uncertainty, audit scope or accounting principles. During the period from inception (April 16, 2003) to December 31, 2003, and the
subsequent interim period through January 29, 2004, there were no disagreements
between us and E&Y on any matter of accounting principles or practices,
financial statement disclosure or auditing scope and procedures, which, if not
resolved to E&Ys satisfaction, would have caused E&Y to make reference to the
matter in their report. 
 ITEM 9A. CONTROLS AND PROCEDURES We have evaluated the effectiveness of the design and operation of its
disclosure controls and procedures as of December 31, 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., our Manager, who function as the
equivalent of our CEO and CFO. Based upon such evaluation, the CEO and CFO
have concluded that, as of the Evaluation Date, our disclosure controls and
procedures were effective to ensure that information required to be disclosed
in this report has been properly recorded, processed, summarized and reported
within the required time periods. There have been no significant changes in
our internal controls over financial reporting that occurred during our most
recent fiscal quarter that have materially affected, or are reasonably likely
to materially affect, our internal controls over financial reporting. 22




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PART III 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT We do not have any directors or officers. We are managed by Vestin Mortgage.
Vestin Mortgage is a wholly-owned subsidiary of Vestin Group, Inc., a Delaware
corporation (Vestin Group), whose common stock is publicly held and is traded
on the NASDAQ under the symbol VSTN. Vestin Group has received notice from
the Nasdaq that it no longer meets the minimum value of publicly held shares
required for its inclusion on the Nasdaq National Market. Vestin Group has
been afforded an opportunity to regain compliance or transfer to the Nasdaq
Small Cap Market. Vestin Group is currently contemplating transferring its
securities to the Nasdaq Small Cap Market. Through its subsidiaries, Vestin
Group is engaged in asset management, real estate lending and other financial
services. The directors and executive officers of Vestin Mortgage are listed below: Name
    
    Age
    
    TitleMichael V. Shustek
    
    
    45
    
    
    Chief Executive Officer, President,
Chairman of the Board and DirectorPeggy S. May
    
    
    34
    
    
    Vice PresidentDaniel B. Stubbs
    
    
    42
    
    
    Senior Vice President, UnderwritingStephen A. Schneider
    
    
    57
    
    
    Vice President of OperationsLance K. Bradford
    
    
    37
    
    
    Chief Financial Officer, Treasurer,
Secretary 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: 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 February 2004, Mr. Shustek became the President of Vestin
Group. In 2003, Mr. Shustek became the Chief Executive Officer of Vestin
Mortgage and, in February 2004, he assumed the additional position of President
of Vestin Mortgage. Mr. Shustek also serves on the loan
committee. 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. Mr. Shustek co-authored two
books entitled Trust Deed Investments, on the topic of private mortgage
lending, and If I Can Do It, So Can You. 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. Mr. Shustek is
the former husband of Ms. May, who serves as the Vice President
of Vestin Mortgage. Peggy S. May has been with Vestin Group since September 1995, and is currently
Vice President of Vestin Mortgage. From January 2001 until February 2004, Ms.
May was the President of Vestin Mortgage. From 1997 to 2000, Ms. May was the
Senior Vice President of Vestin Mortgage. Ms. May is responsible for all new
and existing clients and loan packages, 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.
Ms. May is the former wife of Mr. Shustek, Vestin
Mortgages Chief Executive Officer, President and Chairman. Daniel B. Stubbs has been the Vice President, Underwriting of Vestin Mortgage
since January 2000. Mr. Stubbs is responsible for analyzing the risks of each
loan as well as prescribing Title Insurance coverage for each individual
transaction. In addition, Mr. Stubbs serves on the loan committee and acts as a
liaison between Vestin Mortgage and the various banks that carry its lines of
credit. Mr. Stubbs has over 13 years experience in the Title Insurance 23




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industry. Mr. Stubbs received his Bachelor of Arts degree in Communications
Studies from the University of Nevada, in Las Vegas, Nevada. Stephen A. Schneider has been Vice President of Operations 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 and also serves on the
loan committee. 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. Mr. Schneider received his Bachelor of
Arts degree in Accounting from the University of New Mexico. Lance K. Bradford has served as Chief Financial Officer, Treasurer, Secretary
and a director of Vestin Mortgage and Treasurer and a director of Vestin Group
since April 1999. Mr. Bradford also served as President of Vestin Group from
January 2001 until February 2004. In addition, Mr. Bradford was appointed as
Chief Financial Officer of Vestin Group in February 2004 and serves on the loan
committee. Mr. Bradford previously held the office of
Chief Financial Officer of Vestin Group from 1999 to September 2002. Mr.
Bradford also acts as the functional equivalent of a Chief Financial Officer
for both Vestin Fund I and Vestin Fund II. Mr. Bradford was also the Corporate
Secretary of Vestin Group from 1999 to 2000. 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. Audit Committee The board of directors of Vestin Group, the parent corporation of our Manager,
has a standing Audit Committee established in accordance with section 3(a)(58)
of the Securities Exchange Act. The Audit Committee is responsible for the
appointment, compensation, retention and oversight of our independent
accountants. In addition, the Audit Committee reviews with Vestin Groups
management and our independent accountants financial information that will be
provided to our members and others, and our audit and financial reporting
processes. The Audit Committee operates under a written Audit Committee Charter
adopted by Vestin Groups board of directors. The Audit Committee consists of
Robert J. Aalberts, David Chavez and Roland Sansone. The board of directors of
Vestin Group believes that Mr. Chavez meets the financial expertise
requirements set forth in Section 407 of the Sarbanes-Oxley Act of 2002. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our
executive officers and directors, and persons who own more than 10% of a
registered class of our equity securities, to file an initial report of
securities ownership on Form 3 and reports of changes in securities ownership
on Form 4 or 5 with the Securities and Exchange Commission. Such executive
officers, directors and 10% shareholders are also required by SEC rules to
furnish us with copies of all Section 16(a) forms that they file. We have no
executive officers or directors. We are managed by Vestin
Mortgage. Based solely on our review of the copies of such forms received by
us, or written representations from certain reporting persons that no Forms 4
or 5 were required for such persons, we believe that for the reporting period
from April 16, 2003 (inception) to December 31, 2003, the executive officers of
Vestin Mortgage complied with all their reporting requirements under Section
16(a). Code of Ethics As we do not have any executive officers we have not adopted a Code of Ethics.
However, the executive officers of Vestin Mortgage, our Manager, are under an
obligation to follow the Code of Ethics of Vestin Group which has been filed as
Exhibit 14.1 to Vestin Groups Form 10KS-B for the year ended December 31,
2003. 24




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ITEM 11. EXECUTIVE COMPENSATION Not Applicable. 
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table indicates the beneficial ownership of our voting securities
by each person known by us to be the beneficial owner of more than 5% of such
securities, as of March 5, 2004. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission. Unless
otherwise indicated, the unit holders listed possess sole voting and investment
power with respect to the units shown. Percentage ofUnits
    
    UnitsName
    
    Beneficially Owned
    
    Beneficially OwnedDr. Bernard Greenblatt
    
    
    200,000
    
    
    
    18.5
    %880 Buffwood
Avenue,
Las Vegas, Nevada 89123Ronald Vinci P.O. Box 2695,
Rancho Santa Fe, California 92067
    
    
    72,560
    
    
    
    6.71
    %
 Equity Compensation Plan Information As of December 31, 2003, we did not have any equity compensation plans. 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with Management and Others Property Management Fee Vestin Mortgage, or a third party property manager hired by Vestin Mortgage,
may act as property manager for the real property owned by us. Vestin Mortgage
shall receive the following property management fees for property management
services provided to us by it or the third party property manager: (i) in the
case of residential property, 5% of the gross revenues of such property, (ii)
in the case of industrial and commercial property, 6% of gross revenues where
Vestin Mortgages services include leasing, re-leasing and leasing related
services, or (iii) in the case of industrial or commercial property which are
leased for ten or more years on net (or similar) bases, 1% of gross revenues
from such leases, except for a one time initial leasing fee of 3% of the gross
revenues on each lease payable over the first full 5 years of the original term
of the lease. Additionally, Vestin Mortgage may receive a one-time initial
rent-up or leasing-up of a newly constructed property if such service is not
included in the purchase price of the property. During the period from April
16, 2003 (inception) through December 31, 2003, we did not pay any management
fees. After our members have received a 100% return on their capital contribution
plus an amount equal to 6% per annum cumulative, Vestin Mortgage will be
eligible to receive up to 25% of cash to be distributed from net proceeds
remaining from the sale or refinancing of properties. 25




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We will pay a commission equal to 7.5% of the gross proceeds for any units sold
by selected third party dealers or Vestin Capital, Inc., a broker-dealer
affiliate of the Vestin Mortgage acting as dealer manager for the Offering.
Vestin Capital will also receive 2% of the gross proceeds of any units sold in
the Offering as a dealer manager. As of December 31, 2003,
Vestin Mortgage had an investment in us of approximately
$673,088, which consists of certain costs paid on our behalf related to the
registration and start-up costs. As of February 12, 2004, we raised the
required $10,000,000 to break escrow and commence operations. Such
costs will be converted into membership units at a conversion price
of $10 per unit once we receive sufficient gross proceeds to ensure
that such costs do not exceed 2% of the gross proceeds received by
us. If converted into units,
Vestin Mortgage would have received 67,309 units from us related to this investment. During the period from
April 16, 2003 (inception) through December 31, 2003,
Vestin Mortgage
paid $17,172 for legal fees to a law firm in which the Secretary of Vestin Group has an equity ownership
interest. 
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES We were formed on April 16, 2003. During the fiscal year ended December 31,
2003, Ernst & Young LLP provided various audit, audit related and non-audit
services to us as follows: December 31, 2003Audit Fees:
    
    $
    16,328Audit Related Fees:
    
    $
    0Tax Fees:
    
    $
    0All Other Fees:
    
    $
    0
 Ernst & Young LLP did not provide any services described as audit related fees,
tax fees and all other fees. Our current independent accountants, Moore,
Stephens, Wurth, Frazer & Torbet, LLP, did not provide any services during the
fiscal year ended December 31, 2003. The Audit Committee of Vestin Group (the Audit Committee) has direct
responsibility to review and approve the engagement of the independent auditors
to perform audit services or any permissible non-audit services. All audit and
non-audit services to be provided by the independent auditors must be approved
in advance by the Audit Committee. The Audit Committee may not engage the
independent auditors to perform specific non-audit services proscribed by law
or regulation. All services performed by independent auditors under engagements
entered into on or after May 6, 2003, were approved by the Audit Committee
pursuant to its pre-approval policy, and none was approved pursuant to the de
minimus exception to the rules and regulations of the Securities and Exchange
Commission on pre-approval. 26




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PART IV 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K  (a)
    
    The financial statement are contained on Pages F-2 through
F-11 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.The following documents are filed or incorporated by reference as exhibits
to this Report: EXHIBIT INDEX Exhibit No.
    
    Description of Exhibits3.1(1)
    
    Articles of Organization (as amended)4.1(2)
    
    Operating Agreement4.2(3)
    
    Subscription Agreement and Power of Attorney
(applicable to all States except for Minnesota and
Michigan) (included as Exhibit B to the prospectus)4.3(4)
    
    Subscription Agreement and Power of Attorney
(applicable to Minnesota and Michigan) (included as
Exhibit C to the prospectus)31.1
    
    Section 302 Certification of Michael V. Shustek31.2
    
    Section 302 Certification of Lance K. Bradford32
    
    Certification Pursuant to U.S.C. 18 Section 1350
  (1)
    
    Incorporated herein by reference to our Pre-Effective Amendment No. 3
to Form S-11 Registration Statement filed on September 12, 2003, File
No. 333-105017.(2)
    
    Incorporated herein by reference to Exhibit A to our Final Prospectus
filed on November 11, 2003, File No. 333-105017.(3)
    
    Incorporated herein by reference to Exhibit B to our Final Prospectus
filed on November 11, 2003, File No. 333-105017.(4)
    
    Incorporated herein by reference to Exhibit C to our Final Prospectus
filed on November 11, 2003, File No. 333-105017.  (b)
    
    We did not have any Current Reports on Form 8-K filed during the fourth
fiscal quarter of 2003. 27




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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 III, LLCBy:
    
    Vestin Mortgage, Inc., its sole managerBy:
    
    /s/ Michael V. ShustekMichael V. Shustek
Chief Executive Officer, President and Director of the
Manager
(Principal Executive Officer of Manager)By:
    
    /s/ Lance K. BradfordLance K. Bradford
Chief Financial Officer, Secretary, Treasurer and
Director of the Manager
(Chief Financial Officer of the Manager)
 Dated: March 30, 2004 28




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EXHIBIT INDEX Exhibit No.
    
    Description of Exhibits3.1(1)
    
    Articles of Organization (as amended)4.1(2)
    
    Operating Agreement4.2(3)
    
    Subscription Agreement and Power of Attorney
(applicable to all States except for Minnesota and
Michigan) (included as Exhibit B to the prospectus)4.3(4)
    
    Subscription Agreement and Power of Attorney
(applicable to Minnesota and Michigan) (included as
Exhibit C to the prospectus)31.1
    
    Section 302 Certification of Michael V. Shustek31.2
    
    Section 302 Certification of Lance K. Bradford32
    
    Certification Pursuant to U.S.C. 18 Section 1350
  (1)
    
    Incorporated herein by reference to our Pre-Effective Amendment No. 3
to Form S-11 Registration Statement filed on September 12, 2003, File
No. 333-105017.(2)
    
    Incorporated herein by reference to Exhibit A to our Final Prospectus
filed on November 11, 2003, File No. 333-105017.(3)
    
    Incorporated herein by reference to Exhibit B to our Final Prospectus
filed on November 11, 2003, File No. 333-105017.(4)
    
    Incorporated herein by reference to Exhibit C to our Final Prospectus
filed on November 11, 2003, File No. 333-105017. 29




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CONTENTS PageREPORT OF INDEPENDENT AUDITORS
    
    
    F-2FINANCIAL STATEMENTSBalance Sheet
    
    
    F-3Statement of Income
    
    
    F-4Statement of Members Equity
    
    
    F-5Statement of Cash Flows
    
    
    F-6Notes to Financial Statements
    
    
    F-7
 F-1




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Report of Independent Certified Public Accountants Member of Vestin Fund III, LLC
(Formerly RE Investments III, LLC)
(A Development Stage Company
Las Vegas, Nevada We have audited the accompanying balance sheet of Vestin Fund III, LLC
(formerly RE Investments III, LLC) (A Development Stage Company) (the
Company) as of December 31, 2003, and the related statements of operations,
members equity, and cash flows for the period from inception April 16, 2003 to
December 31, 2003. 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 audit. We conducted our audit 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 balance sheet is 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 audit provides a reasonable basis
for our opinion. In our opinion, the financial statements referred to above presents fairly, in
all material respects, the financial position of Vestin Fund III, LLC
(formerly RE Investments III, LLC) as of December 31, 2003, and the results of
operations and its cash flows for the period from inception
April 16, 2003 to December 31, 2003 in conformity with
accounting principles generally accepted in the United States. Moore Stephens Wurth Frazer and Torbet, LLP
March 1, 2004
Orange, California F-2




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Vestin Fund III, LLC
(Formerly RE Investments III, LLC)
(A Development Stage Company)
Balance Sheet ASSETS December 31, 2003Cash
    
    $
    4,952Deferred offering costs
    
    
    667,437Total assets
    
    $
    672,389LIABILITIES AND MEMBERS EQUITYDue to manager
    
    
    673,088Total liabilities
    
    
    673,088Members equity  at $10 per unit, minimum 1,000,000 units
maximum 12,000,000 units, no units issued
    
    
    (699
    )Total members equity
    
    
    (699
    )Total liabilities and members equity
    
    $
    672,389
 The accompanying notes are an integral part of this statement. F-3




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Vestin Fund III, LLC
(Formerly RE Investments III, LLC)
(A Development Stage Company)
Statement of Operations For the period fromApril 16, 2003 (Inception)through December 31, 2003Revenues
    
    $
    ExpensesGeneral and administrative expenses
    
    
    699Total operating expenses
    
    
    699NET LOSS
    
    $
    (699
    )
 The accompanying notes are an integral part of this statement. F-4




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Vestin Fund III, LLC
(Formerly RE Investments III, LLC)
(A Development Stage Company)
Statement of Members Equity Units
    
    AmountInception, April 16, 2003 (Inception)
    
    
    
    
    
    $
    Net loss
    
    
    
    
    
    
    (699
    )Members equity at December 31, 2003
    
    
    
    
    
    $
    (699
    )
 The accompanying notes are an integral part of this statement. F-5




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Vestin Fund III, LLC
(Formerly RE Investments III, LLC)
(A Development Stage Company)
Statement of Cash Flows For the period fromApril 16, 2003 (Inception)through December 31, 2003Cash flows from operating activities:Net loss
    
    $
    (699
    )Adjustments to reconcile net loss to net
cash provided by operating activities:Change in operating assets and liabilities:Due to Manager
    
    
    5,651Net cash provided by operating activities
    
    
    4,952Cash flows from investing activities:Net cash provided by (used in) investing activities
    
    
    Cash flows from financing activities:Net cash provided by (used in) financing activities
    
    
    NET INCREASE IN CASH
    
    
    4,952Cash, beginning
    
    
    Cash, ending
    
    $
    4,952Non-cash financing activities:Offering costs paid by Vestin Mortgage, Inc. and recorded as
deferred offering costs and due to manager on the
accompanying balance sheet.
    
    $
    667,437Interest paid during the period
    
    $
    Taxes paid during the period
    
    $
    
 The accompanying notes are an integral part of this statement. F-6




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Vestin Fund III, LLC
(Formerly RE Investments III, LLC)
(A Development Stage Company) Notes to Financial Statements Note A Organization and Summary of Significant Accounting Policies 1. Organization Vestin Fund III, LLC, formerly known as RE Investments III, LLC, (the
Company), a newly-organized Nevada Limited Liability Company, intends to
invest in mortgage loans, where the collateral is real property, and
income-producing real property such as office, industrial and retail
properties, multifamily residential units, and assisted living facilities. The
Company was organized on April 16, 2003 and will continue until December 31,
2023 unless dissolved or extended under the provisions of its operating
agreement. The Company does not operate as an investment company within the
meaning of the Investment Company Act of 1940. As a company investing in
mortgage loans and raising funds through a public offering, the Company is
subject to the North American Securities Administration Act Mortgage Program
Guidelines (the NASAA Guidelines) promulgated by the state securities
administrators. During August 2003, the Company filed an Amended Articles of Organization with
the State of Nevada to change the name of the Company from RE Investments, LLC
to Vestin Fund III, LLC. Operations of the Company since inception through December 31, 2003 were
primarily organization of the Company structure; registration of the Company in
various states; and raising capital investments. Based on these activities,
the Company is considered a Development Stage Company. Certain disclosures
and financial statement presentations are incorporated into the accompanying
financial statements and notes accordingly. The Manager of the Company is Vestin Mortgage, Inc. (Vestin Mortgage), 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. The Companys
operating agreement provides that the Manager has control over the business 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, amend the Operating Agreement, dissolve the Company, merge with
another company and approve or disapprove the sale of more than 50% of the
Companys assets, all of which are subject to a majority vote of the members. The Companys sole activity through December 31, 2003 consisted of the
organization and start-up of the Company. For the period from April 16, 2003
(date of inception) through December 31, 2003, the only transactions were costs
incurred in association with organization and offering costs. Substantially
all offering costs have been advanced by Vestin Mortgage for which it will
receive units of the Company upon such time that the Company is eligible to
offer units. F-7




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2. Deferred Offering Costs As of December 31, 2003, the Company had incurred approximately $667,000 of
offering costs paid by Vestin Mortgage on behalf of the Company, which amounts
were recorded as deferred offering costs. When the offering becomes effective,
these deferred offering costs, which are primarily legal, accounting and
registration fees, will be converted to membership units at a price of $10 per
unit. Any additional offering costs incurred by the Company will be converted
to membership units in the Company up to an aggregate of $2,500,000 and any
additional costs may be absorbed by Vestin Mortgage. 3. 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. 4. 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. Note B New Accounting Pronouncements In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51, effective
February 1, 2003. Interpretation No. 46 requires the primary beneficiary of a
variable interest entity (VIE) to consolidate the VIE under certain
circumstances. Interpretation No. 46 is effective for all new VIEs created or
acquired after January 31, 2003. For VIEs created or acquired prior to
February 1, 2003, Interpretation No. 46 must be applied for the first interim
or annual period beginning after December 15, 2003. The Company will comply
with this pronouncement beginning in 2004. The adoption of this statement did
not have a significant impact on the financial condition or results of
operations of the Company. In April 2003, the FASB issued Statement of Financial Accounting Standards No.
149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities, effective July 1, 2003. SFAS No. 149 amends and clarifies
financial accounting and reporting for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities entered into after June 30, 2003, under SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities. The Company has applied
the provisions of SFAS No. 149 prospectively upon adoption. The adoption of
this statement did not have a significant impact on the financial condition or
results of operations of the Company. In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150, Accounting for Certain Financial Instruments with Characteristics of
Both Liabilities and Equity, effective July 1, 2003. SFAS No. 150 establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. The adoption
of this statement did not have a significant impact on the financial condition
or results of operations of the Company. F-8




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Note B New Accounting Pronouncements (continued) In December 2003, the FASB revised Statement of Financial Accounting Standards
No 132 (revised 2003), Employers Disclosure about Pensions and Other Post
Retirement Benefits, (SFAS No. 132). SFAS
No. 132 amends SFAS No. 87,
Employers Accounting for Pensions, SFAS No. 88, Employers Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits, and SFAS No. 106, Employers Accounting for
Postretirement Benefits Other Than Pensions. This Statement retains the
disclosure requirements contained in SFAS No. 132, Employers Disclosures
about Pensions and Other Postretirement Benefits, which it replaces. It also
requires additional disclosures to those in the original SFAS No. 132 about the
assets, obligations, cash flows, and net periodic benefit cost of defined
benefit pension plans and other defined benefit postretirement plans. The
adoption of this statement did not have a significant impact on the financial
condition or results of operations of the Company. Note C Members Equity 1. Membership Units The Company filed a Registration Statement on Form S-11 with the Securities and
Exchange Commission with respect to a proposed public offering (the Offering)
of up to 12,000,000 units, of which 10,000,000 units are offered
under the prospectus and 2,000,000 units have been reserved under the
Distribution Reinvestment Plan. All expenses related to the Offering of the Companys units will be advanced by
the Companys Manager. The Manager will be reimbursed for such expenses with
units in the Company, provided that such reimbursement may not exceed 2% of the gross proceeds received in the Offering. The
Manager may elect to waive reimbursement of all or a portion of the Offering
expenses and the amount waived will be deemed a capital contribution made by
the Manager. The members will contribute to the capital of the Company an amount equal to
$10.00 for each unit subscribed, with a minimum subscription in most states of
200 units for each member. The total gross capital contribution of the members
will not exceed $100,000,000, not including reinvested distributions. As of December 31, 2003,
$1,616,246 in proceeds from the sale of units were held in a
segregated escrow account. These proceeds will remain in the escrow
account until the required minimum of $10 million is raised at
which time the Company will commence planned operations. The
$1,616,246 has not been reported on the accompanying balance sheet as
of December 31, 2003. 2. Allocations and Distributions Allocations and distributions of income and cash flows are outlined and defined
in the Companys operating agreement. Generally, the Companys profits and
losses shall be allocated to the members in proportion to their respective
capital accounts as of the close of business on the last day of each quarter in
proportion to the number of days during the quarter they held the equity
interest (known as the weighted average capital account). Furthermore, cash
flow generated from operations will be distributed to members quarterly, based
upon estimated amounts available for distribution for the preceding quarter, in
proportion to the weighted average capital account of each member during the
preceding month. Members may also elect to reinvest their distributions. Distributions of net proceeds from the repayment of principal on a mortgage
loan or sale of a real estate property may be made to the members based on
their pro-rata share of members equity. If the net proceeds are retained by
the Company to make new loans, improve or maintain properties, or to pay
operating expenses they will be deemed to be distributed to the members and
then recontributed by the members. Such net proceeds will not be retained
after 7 years from the effective date of the prospectus. Upon request for redemption, a member may receive a distribution equaling its
capital account as well as any unallocated profits, losses, or adjustments.
Units may only be redeemed after a member has held them for one year. Also,
withdrawals which are requested between the first and fifth anniversaries of a
members date of purchase shall be valued for withdrawal purposes at a discount
of between 25% and 10%, depending on the year of withdrawal. Withdrawals
requested after five years from the date of purchase will F-9




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not be subject to a discount. Any capital withheld due to a members withdrawal
between the first and fifth anniversary shall be allocated on a pro rata basis
among the remaining members. The total amount withdrawn by all members during any calendar year cannot
exceed 10% of the total capital, subject to the Managers discretion to allow a
greater amount. 3. Working Capital Reserves NASAA Guidelines require that reserves are maintained of not less than 1% of
the Offering proceeds. However, the Company is required by the operating
agreement to maintain working capital reserves of approximately 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 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. Note D  Transactions with the Manager and its Affiliates 1. Fees Paid by the Company The Manager may receive fees for property management services provided to the
Company by it or a third party property manager of up to 6% of gross revenues
of the related property. Additionally, the Manager may receive a one-time
initial rent-up or leasing-up fee of a newly constructed property if such
service is not included in the purchase price of the property. The Manager may receive fees for reselling foreclosed properties. These fees
may not be greater than 3% of the proceeds where substantial service has been
performed by the Manager. After the Companys members have received a 100% return on their capital
contribution plus an amount equal to 6% per annum cumulative, the Manager will
be eligible to receive up to 25% of cash to be distributed from net proceeds
remaining from the sale or refinancing of properties. A commission equal to 7% of the gross proceeds will be paid for any units sold
by selected third party dealers or Vestin Capital, Inc., a broker-dealer
affiliate of the Manager acting as dealer manager for the Offering. Vestin
Capital, Inc. will also receive 3.5% of the gross proceeds of any units sold in
the Offering as a dealer manager. No commission will be paid for units sold by
Vestin Mortgage except for reimbursed offering costs not to exceed 2% of the
gross proceeds. 2. Fees Paid by Borrowers Acting as a broker, the Manager will receive loan origination fees of
approximately 2-6% of the principal amount of each mortgage investment made
during the year as well as fees for evaluating and processing each loan. The
Manager will also receive fees in consideration for servicing each loan during
the loan term as well as loan extension fees of 2-5% of the outstanding
principal of extended loans as permitted by local law and local market
conditions. Note E  Conflict of Interest The Company will have no directors, officers or employees and will depend
entirely on Vestin Mortgage to manage our operations. Vestin Mortgage will face
various conflicts of interest in managing the Companys affairs. Vestin
Mortgage is also the Manager of Vestin Fund I, LLC (Fund I), Vestin Fund II,
LLC (Fund II), and inVestin Nevada, Inc., entities in the same business as
the Company. As the Manager of the Company, Vestin Mortgage will provide
servicing and asset management services for the Company. Other affiliates of
Vestin Mortgage may also provide certain services for the Company from time to
time. F-10




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Note F  Legal Proceedings The Manager, Vestin Mortgage and Del Mar Mortgage, Inc., an affiliated company
wholly owned by Mike Shustek, the largest stockholder and CEO of
Vestin Group are
defendants in a civil action entitled Desert Land, L.L.C. et al v. Owens
Financial Group, Inc. et al (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 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
attorneys 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. On September 12, 2003,
all of the defendants held liable to Desert Land appealed the
judgment to the United States Court of Appeals for the Ninth Circuit.
The Company is not a party to the Action. The staff of the Pacific
Regional Office of the Securities and Exchange Commission
(SEC) has been conducting an informal inquiry into
certain matters related to the Company, Vestin Group, Fund I and Fund
II. The staff of the SEC has not identified the reasons for its
inquiry, which remains ongoing as of March 30, 2004. The Company
believes that
it has fully complied with SEC disclosure requirements and is fully
cooperating with the inquiry. The Company cannot at this time predict the
outcome of the inquiry. The Company believes that it is not a party to any pending legal or arbitration
proceedings that would have a material adverse effect on the Companys
financial condition or results of operations or cash flows, although it is
possible that the outcome of any such proceedings could have a material impact
on the Companys net income in any particular period. Note G  Unaudited
Events Subsequent to the Report Date The Companys sole activity through December 31, 2003 consisted of the
organization and start-up of the Company. During February 2004, the Company
sold the minimum 1,000,000 units and delivered funds of approximately
$10,371,000 to the Company and investors were admitted as members of the
Company for units of approximately 1,037,100. Through the date of this report,
the Company has sold approximately 1,079,000 units. Through the date of this
report, the Manager has not been issued Units for the deferred offering costs. Through the date of this report, the Company has an investment in a land loan
and building loan for $4 million and $6 million, respectively. These loans
bear interest at 13% and 14%, respectively, mature during May 2004 and June
2004, respectively, and have a loan-to-value ratio of approximately 39% and
64%, respectively, based on appraisals obtained at the time of loan
origination. The appraisals 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. F-11