**EXHIBIT
      12.1**




**OFFERING
                CIRCULAR**
            **FOR
                CALIFORNIA**
              **RESIDENTS
                ONLY**




**LAKESIDE
      MORTGAGE FUND, LLC**




**$50,000,000**


**500,000
      Membership Interests (“Units”)**


**$100
      per Unit**


**Minimum
      Investment: $2,000 (20 Units)**




Lakeside
      Mortgage Fund, LLC (the “Fund”) is a California limited liability company whose
      sole manager is Lakeside Financial Group, Inc., a California corporation (the
      “Manager”). The Fund has been organized for the purpose of making or investing
      in loans secured by deeds of trust encumbering California real estate, both
      commercial and residential. Fund loans are arranged and serviced by the Manager.
      (See “The Manager and Its Affiliates.”)




Investors
      will become non-managing members in the Fund (“Members”). An investment in the Fund is
      subject to substantial penalties for early withdrawal. (See “Summary of
      Operating Agreement -- Withdrawal from Fund.”) This offering also involves
      certain ERISA risks that should be considered by tax-exempt employee benefit
      plans. (See “Federal Income Tax Consequences” and “ERISA Considerations.”)
      Investors have the option, exercisable upon subscription for Units, to receive
      monthly distributions of income, if any, from Fund operations, or to allow
      their
      proportionate share of Fund income to compound and be reinvested by the Fund
      for
      their accounts. (See “Terms of the Offering”). All Fund income is taxed to
      Members (other than tax-exempt entities) as ordinary income, regardless of
      whether it is distributed in cash or reinvested. (See “Federal Income Tax
      Consequences”).




**THIS
      OFFERING INVOLVES SIGNIFICANT RISKS, DESCRIBED IN DETAIL HEREIN. SUBSTANTIAL
      FEES WILL BE PAID TO THE MANAGER, WHO IS SUBJECT TO CERTAIN CONFLICTS OF
      INTEREST. (SEE “RISKS AND OTHER IMPORTANT FACTORS,” “COMPENSATION TO MANAGER”
AND “CONFLICTS OF INTEREST.”) PROSPECTIVE PURCHASERS OF UNITS SHOULD READ THIS
      OFFERING CIRCULAR IN ITS ENTIRETY.**




Price
                to Investors [1]
            
            Selling
                Commissions [2]
            
            Net
                Proceeds to Fund [3]Per
                Unit
            
            $
            100
            
            $
            6.50
            
            $
            93.50Minimum
                Total
            
            $
            500,000
            
            $
            32,500
            
            $
            467,500Maximum
                Total
            
            $
            50,000,000
            
            $
            3,250,000
            
            $
            46,750,000**(Footnotes
                on next page)**





**MANAGER:**


**LAKESIDE
      FINANCIAL GROUP, INC.**


1738
      Yuba
      Street


Redding,
      California 96001


(530)
      226-5850





The
      date
      of this Offering Circular is January 17, 2007







[1]
            The
                initial minimum purchase is $2,000 (20 Units at $100 per Unit). The
                maximum of the offering may be increased by the Manager at any time.




[2]
            Units
                are offered and sold directly by the Manager and the agents and employees
                of the Manager who will not receive selling commissions or other
                compensation from the Fund in connection with the sale of Units.
                The
                Manager also anticipates selling Units through the services of independent
                securities broker/dealers, who are entitled to receive commissions
                of up
                to 6.5% of the gross proceeds received for the sale of Units by such
                broker/dealers. Certain commission arrangements may include a trailing
                payment of up to 1.0% per year of such proceeds for as long as such
                Units
                remain outstanding. To the extent an investor purchasing Units through
                a
                broker/dealer elects to compound his or her earnings in the Fund
                (see,
                “Terms of the Offering - Election to Compound or Receive Monthly Cash
                Distributions”) this annual 1.0% trailing****commission
                (if any) is calculated based upon such investor’s capital account balance
                as of the last day of the month of the anniversary of admission and
                not on
                the initial purchase price for Units at the time of sale to the investor.
                All of the foregoing commissions are paid by the Fund and will directly
                reduce the proceeds from this offering available to the Fund for
                investing
                in mortgage loans, as well as reducing the capital accounts of the
                Members. Upon withdrawal, Members will receive an amount equal to
                their
                original investment, with any difference between the Member’s capital
                account and the Member’s original investment being paid by the Manager.
                There is no firm commitment to purchase or sell any of the Units.
                Units
                are sold on a “best efforts” basis, which means that no broker/dealer
                selling Units on behalf of the Fund is obligated to purchase any
                Units but
                will only be required to use their best efforts to sell Units to
                investors. Units may be sold by broker/dealers that are affiliated
                with
                the Manager.




[3]
            Net
                Proceeds to the Fund is calculated after deduction of selling commissions
                paid to independent securities broker/dealers but before deducting
                organizational and offering expenses, including without limitation
                legal
                and accounting expenses, reproduction costs, selling expenses (other
                than
                commissions) and filing fees paid to the California Department of
                Corporations. (See “Use of Proceeds.”)









THESE
      SECURITIES ARE BEING OFFERED AND SOLD ONLY TO RESIDENTS OF THE STATE OF
      CALIFORNIA PURSUANT TO A PERMIT GRANTED BY THE CALIFORNIA COMMISSIONER OF
      CORPORATIONS. THE COMMISSIONER OF CORPORATIONS DOES NOT RECOMMEND OR ENDORSE
      THE
      PURCHASE OF THESE SECURITIES, NOR HAS THE COMMISSIONER PASSED UPON THE ACCURACY
      OF THE INFORMATION SET FORTH HEREIN.




THE
      SALE
      OF UNITS COVERED BY THIS OFFERING CIRCULAR HAS NOT BEEN REGISTERED WITH THE
      SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
      (THE “ACT”), IN RELIANCE UPON THE EXEMPTIONS FROM SUCH REGISTRATION REQUIREMENTS
      PROVIDED FOR UNDER SECTION 3(a)(11) OF THE ACT AND RULE 147 THEREUNDER RELATING
      TO INTRASTATE OFFERINGS.




ACCORDINGLY,
      THESE UNITS ARE BEING OFFERED SOLELY TO CERTAIN SELECTED RESIDENTS OF THE STATE
      OF CALIFORNIA, AND THIS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
      OF ANY OFFER TO BUY WITH RESPECT TO ANY OTHER PERSON. FURTHERMORE, FOR A PERIOD
      OF NINE MONTHS FROM THE TERMINATION OF THIS OFFERING, NO UNITS MAY BE SOLD
      OR
      OTHERWISE TRANSFERRED EXCEPT TO RESIDENTS OF THE STATE OF
      CALIFORNIA.




THIS
      OFFERING CIRCULAR DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
      AN
      OFFER TO BUY IN ANY STATE OTHER THAN THE STATE OF CALIFORNIA OR WITH RESPECT
      TO
      ANY PERSON WHO IS NOT A BONA FIDE RESIDENT OF CALIFORNIA, NOR DOES IT CONSTITUTE
      AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY WITH RESPECT TO ANY PERSON
      EXCEPT THOSE PARTICULAR PERSONS WHO SATISFY THE SUITABILITY STANDARDS DESCRIBED
      HEREIN. (SEE “INVESTOR SUITABILITY STANDARDS.”)




THERE
      IS
      NO MARKET FOR UNITS AND NONE IS EXPECTED TO DEVELOP IN THE FUTURE. SUMS INVESTED
      IN THE FUND ARE ALSO SUBJECT TO SUBSTANTIAL RESTRICTIONS ON WITHDRAWAL AND
      TRANSFER, AND THE UNITS OFFERED HEREBY SHOULD BE PURCHASED ONLY BY INVESTORS
      WHO
      HAVE NO NEED FOR LIQUIDITY IN THEIR INVESTMENT.




NO
      PERSON
      HAS BEEN AUTHORIZED IN CONNECTION WITH THIS OFFERING TO GIVE ANY INFORMATION
      OR
      TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS OFFERING
      CIRCULAR, AND ANY SUCH INFORMATION OR REPRESENTATIONS SHOULD NOT BE RELIED
      UPON.
      ANY PROSPECTIVE PURCHASER OF UNITS WHO RECEIVES ANY SUCH INFORMATION OR
      REPRESENTATIONS SHOULD CONTACT THE MANAGER IMMEDIATELY TO CHECK ITS ACCURACY.
      NEITHER THE DELIVERY OF THIS OFFERING CIRCULAR NOR ANY SALES HEREUNDER SHALL
      UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE
      IN
      THE AFFAIRS OF THE FUND SINCE THE DATE HEREOF.




PROSPECTIVE
      PURCHASERS SHOULD NOT REGARD THE CONTENTS OF THIS OFFERING CIRCULAR OR ANY
      OTHER
      COMMUNICATION FROM THE MANAGER OF THE FUND AS A SUBSTITUTE FOR CAREFUL AND
      INDEPENDENT TAX AND FINANCIAL PLANNING. EACH POTENTIAL INVESTOR IS ENCOURAGED
      TO
      CONSULT WITH HIS OWN INDEPENDENT LEGAL COUNSEL, ACCOUNTANT AND OTHER
      PROFESSIONAL WITH RESPECT TO THE LEGAL AND TAX ASPECTS OF THIS INVESTMENT AND
      WITH SPECIFIC REFERENCE TO HIS OWN TAX SITUATION, PRIOR TO SUBSCRIBING TO A
      MEMBERSHIP INTEREST IN THE FUND.




ii


TABLE
      OF CONTENTS


SUMMARY
                  OF THE OFFERING
              1INVESTOR
                  SUITABILITY STANDARDS
              4TERMS
                  OF THE OFFERING
              5LENDING
                  STANDARDS AND POLICIES
              8OPERATIONS
                  TO DATE
              13THE
                  MANAGER AND ITS AFFILIATES
              14COMPENSATION
                  TO MANAGER
              16FIDUCIARY
                  RESPONSIBILITY OF THE MANAGER
              18CONFLICTS
                  OF INTEREST
              19RISKS
                  AND OTHER IMPORTANT FACTORS
              22ERISA
                  CONSIDERATIONS
              30USE
                  OF PROCEEDS
              31FEDERAL
                  INCOME TAX CONSEQUENCES
              32CERTAIN
                  LEGAL ASPECTS OF FUND LOANS
              35SUMMARY
                  OF OPERATING AGREEMENT
              38PLAN
                  OF DISTRIBUTION
              43LEGAL
                  MATTERS
              43ADDITIONAL
                  INFORMATION AND UNDERTAKINGS
              43COMMISSIONER’S
                  RULE 260.141.11
              44




iii


**SUMMARY
      OF THE OFFERING**




The
      following information is only a brief summary of the offering, and is qualified
      in its entirety by the information appearing elsewhere in this Offering
      Circular. A thorough examination of the entire Offering Circular is
      recommended.




Fund
                Objectives
            
            The
                Fund is a California limited liability company formed for the purpose
                of
                making or investing in loans secured by deeds of trust on real estate
                located in California. The Units offered hereby represent membership
                interests in the Fund.Capitalization
            
            Minimum
                of $500,000 and a maximum of $50,000,000 (subject to increase by
                the
                Manager).Term
                of the Fund
            
            Indefinite.
                (See “Summary of Operating Agreement - Term of the
                Fund.”)Manager,
                Mortgage Broker and
              Loan
                Servicer
            
            Lakeside
                Financial Group, Inc.
              1738
                Yuba Street
              Redding,
                California 96001
              (530)
                226-5850Prior
                Experience
            
            The
                Manager and its principals have substantial prior experience in the
                mortgage industry. (See “The Manager and Its
                Affiliates.”)Compensation
                to Manager
            
            The
                Manager will receive fees and other compensation from the Fund. (See
                “Compensation to Manager.”)Suitability
                Standards
            
            Units
                are offered exclusively to investors who are California residents
                and who
                meet certain minimum standards of income and/or net worth, with an
                initial
                minimum investment of $2,000. Qualified investors admitted to the
                Fund
                will become Members. (See “Investor Suitability
                Standards.”)Mortgage
                Loan Portfolio
            
            Fund
                loans: (1) are secured by undeveloped land, fully developed commercial
                or
                residential real estate, or leasehold interests in real estate; or
                (2) are
                construction loans secured by undeveloped or partially developed
                property
                and may be subject to a construction loan agreement. Loans are secured
                primarily by property located in California. Loans will be made while
                this
                offering is continuing. (See “Lending Standards and
                Policies.”)




1




Leveraging
                the Portfolio
            
            The
                Fund may borrow funds from a third party lender in order to: (1)
                fund
                mortgage loans made or purchased by the Fund; (2) prevent default
                of loans
                senior to Fund loans or to discharge such loans entirely; or (3)
                develop
                or operate any real property acquired by the Fund as a result of
                a loan
                default. In such case, most or all of the Fund’s loan portfolio will be
                assigned to this lender as security for the loan(s). When borrowing
                funds
                to make or purchase additional mortgage loans, the Fund may increase
                its
                yield; however, leveraging the Fund’s portfolio entails certain additional
                risks and also entails possible adverse tax consequences. (See “Leveraging
                the Portfolio” and “Risk and Other Important Factors - Risk of
                Leverage.”)Cash
                Distributions
            
            Members
                have a choice of: (1) regular monthly cash distributions of Fund
                income,
                or (2) income credited to capital account and reinvested by the Fund.
                An
                investor may elect to switch from one of these options to the other
                only
                upon thirty (30) days notice to the Manager; provided, however, that
                investors may elect to switch from distributions to compounding only
                if
                there is then in effect a permit issued by the California Department
                of
                Corporations for this offering. The Manager, in its sole and absolute
                discretion, reserves the right to commence making cash distributions
                at
                any time to previously compounding ERISA investors in order for the
                Fund
                to remain exempt from the ERISA plan asset regulations. (See “ERISA
                Considerations” and “Summary of Operating Agreement.”)Withdrawal
            
            No
                withdrawal for twelve (12) months;****thereafter,
                investors have a limited right to withdraw from the Fund, subject
                to
                available cash flow, and subject to penalties for withdrawal within
                the
                first four years following the purchase of Units. (See “Summary of
                Operating Agreement -- Withdrawal from
                Fund.”)




2




Restrictions
                on Transfers
            
            There
                are substantial restrictions on transferability of Units under federal
                and
                state securities laws and under the Operating Agreement. (See “Terms of
                Offering -- Restrictions on Transfer” and “Risks and Other Important
                Factors -- No Market for Units.”)Liquidity
            
            There
                is no public market for Units and none is expected to develop in
                the
                foreseeable future. The transferability of Units is also restricted
                by
                federal and state securities laws, and by the Operating Agreement.
                (See
                “Risks and Other Important Factors - No Market for
                Units.”)Reports
                to Investors
            
            Annual
                Reports, including financial statements which may be (but are not
                required
                by the Operating Agreement to be) audited by an independent accounting
                firm.Risks
            
            An
                investment in Units is subject to certain risks which should be carefully
                evaluated before an investment in Units is made. (See “Risks and Other
                Important Factors.”)Conflicts
                of Interest
            
            The
                Fund’s business operations are managed entirely by the Manager. The
                Manager may, subject to certain limitations, make loans to persons
                or
                entities that are related to or affiliated with the Manager, which
                is
                subject to certain conflicts of interest. (See “Conflicts of Interest” and
                “Lending Standards and Policies - Loans to Related
                Parties.”)Operating
                Agreement
            
            Each
                investor is required to become a Member of the Fund and party to
                the
                Operating Agreement. The Operating Agreement gives investors certain
                rights and liabilities, including possible liability for returns
                of
                capital to discharge Fund liabilities. See, “Summary of Operating
                Agreement.”


3


**INVESTOR
      SUITABILITY STANDARDS**




To
      purchase a Unit, an investor must meet certain eligibility and suitability
      standards, the primary ones of which are set forth below, and must execute
      an
      Operating Agreement in the form attached hereto as Exhibit A and a Subscription
      Agreement in the form attached hereto as Exhibit B. By executing the
      Subscription Agreement, an investor makes certain representations and
      warranties, upon which the Manager will rely in accepting subscriptions. Read
      the Subscription Agreement carefully .
      Each
      investor must represent in writing that such investor is a bona fide resident
      of
      the State of California (i.e., the investor has his or her principal residence
      in California, or if the investor is a trust, corporation or other entity that
      the principal office of such trust, corporation or other entity is located
      in
      California). In addition:




1.  Each
      Investor must have either: (i) a net worth (exclusive of home, furnishings
      and
      automobiles) of at least $250,000 and an annual gross income of at least
      $65,000; or (ii) a net worth (exclusive of home, furnishings and automobiles)
      of
      at least $500,000;




2.  The
      amount of each Investor’s investment in Units offered hereby must not exceed ten
      percent (10%) of such Investor’s net worth (exclusive of home, furnishings and
      automobiles); and




3.  If
      the
      investor is an ERISA Plan (such as a pension or profit sharing plan, Individual
      Retirement Account, or 401(k) plan), the foregoing requirements must be met
      by
      either the ERISA plan itself or, if the investment is being made on behalf
      of a
      plan participant who has the power to direct the investment on his or her
      behalf, by the plan participant for whose account the investment is being
      made.




4.  If
      the
      investor is a fiduciary account other than an ERISA Plan (such as a family
      trust
      of a custodial account for the benefit of a minor), the foregoing suitability
      standards may be met by any of the following: (i) by all beneficiaries of the
      account; (ii) by the trustee or custodian if that person is the donor of the
      funds for investment; or (iii) by the donor of the funds for investment if
      the
      only beneficiaries of the fiduciary account are the donor’s ancestors,
      descendants or spouse.




4


**TERMS
      OF THE OFFERING**




This
      offering is made to a limited number of qualified investors to purchase Units
      in
      the Fund. The Unit subscription price to each investor is One Hundred Dollars
      ($100) per Unit with an initial minimum subscription from each investor of
      Two
      Thousand Dollars ($2,000), or 20 Units. Each Unit of investment represents
      a
      membership interest in the Fund.




**Minimum-Maximum
      Offering; Formation of the Fund**




The
      Fund
      was formed on December 4, 2002 upon the filing of the Articles of Organization
      with the Office of the California Secretary of State; however, the Fund did
      not
      begin doing business (i.e., making or investing in mortgage loans) until September
      26, 2003 when the minimum 5,000 Units were sold.




The
      maximum capitalization of the Fund is $50,000,000 (500,000 Units). The maximum
      may be increased by the Manager at any time. This offering may also be
      terminated at the option of the Manager at any time, but in no event later
      than
      one year from the date of this Offering Circular, unless the offering permit
      issued by the California Commissioner of Corporations is thereafter extended.




**Subscription
      Agreements; Admission to the Fund**




Subscription
      Agreements from prospective investors are accepted or rejected by the Manager
      promptly after receipt. The Manager reserves the right to reject any
      subscription submitted for any reason. If accepted, an investor’s subscription
      is irrevocable, and subscription funds are held by the Fund for the account
      of
      each such investor in a non-interest-bearing subscription account. An investor
      will become a Member, and the investor’s investment is deposited into the Fund,
      when the Manager determines that such investor’s subscription funds are required
      by the Fund to invest in a mortgage loan, to create appropriate reserves, or
      to
      pay organizational expenses. At that time, all or a portion of the investor’s
      subscription funds are transferred to the Fund, and Units are issued to such
      investor at the rate of $100 **** per
      Unit
      (see “Use of Proceeds”). Investors’ funds are transferred from the subscription
      account into the Fund on a first-in, first-out basis.




Subscription
      Agreements are non-cancelable and irrevocable and subscription funds are
      non-refundable for any reason, except with the consent of the Manager.
      Notwithstanding the preceding sentence, subscription funds remaining in the
      subscription account after the expiration of sixty (60) days from the date
      the
      subscription funds were first received from the investor shall be returned
      to
      the investor without interest. After having subscribed for at least 20 Units
      ($2,000), an investor may at any time, and from time to time, subscribe to
      purchase additional Units on terms and conditions acceptable to the Manager
      so
      long as the offering is open.




**Election
      to Compound or Receive Monthly Cash Distributions**




Upon
      subscription for Units, an investor must elect whether to receive monthly cash
      distributions from the Fund or to allow his or her earnings to compound for
      the
      term of the Fund. An investor may elect to switch from compounding to monthly
      distributions upon thirty (30) days prior notice to the Manager. In addition,
      if
      there is in effect a permit issued by the California Commissioner of
      Corporations qualifying this offering, an investor may switch from receiving
      monthly distributions to compounding and reinvesting earnings upon thirty (30)
      days’ prior notice to the Manager. Notwithstanding the foregoing, the Manager
      reserves the right, at any time, to immediately commence making monthly cash
      distributions to ERISA plan investors who previously compounded earnings in
      order to ensure that the Fund remains exempt from the Plan Asset Regulations
      pursuant to the “significant participation” exemptions. (See “ERISA
      Considerations.”)




5




Income
      allocable to investors who elect to compound their earnings is retained by
      the
      Fund for investing in further mortgage loans or other proper Fund purposes.
      The
      income from these further loans is allocated among all investors; however,
      investors who compound are credited with a larger proportionate share of such
      earnings than investors who receive monthly distributions since the capital
      accounts of investors who compound will increase over time.




**Restrictions
      on Transfer**




As
      a
      condition to this offering of Units, restrictions have been placed upon the
      ability of investors to resell or otherwise dispose of any Units purchased
      hereunder, including without limitation the following:




(1)  No
      Member
      may resell or otherwise transfer any Units without the prior written consent
      of
      the Manager, which may be withheld in its sole discretion. However, Members
      do
      have the right to transfer Economic Interests only without the Manager’s prior
      written consent. (See “Summary of Operating Agreement -- Limitations on
      Transferability.”)




(2)  Units
      may
      not be sold or transferred without the prior written consent of the California
      Commissioner of Corporations, except as permitted by the Commissioner’s Rules.
      (See “Commissioner’s Rule 260.141.11.”)




(3)  During
      the period that Units are being offered and sold and for a period of nine (9)
      months from the date of the last sale of Units, no Units may be sold or
      otherwise transferred to any person who is not a bona fide resident of the
      State
      of California.




Legends
      substantially in the forms set forth below will be placed upon all instruments
      or certificates evidencing ownership of Units in the Fund stating that the
      Units
      have not been registered under the Securities Act of 1933, as amended, and
      setting forth the foregoing limitations on resale, and notations regarding
      these
      limitations shall be made in the appropriate records of the Fund with respect
      to
      all Units offered hereby. The foregoing steps will also be taken in connection
      with the issuance of any new instruments or certificates for any Units which
      are
      presented to the Manager for transfer during the nine-month period described
      in
      subparagraph (3) above.




Certificates
      shall bear the following legends:




THE
      MEMBERSHIP INTEREST UNITS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
      REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). SUCH
      INTERESTS MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, PLEDGED OR
      HYPOTHECATED TO ANY PERSON AT ANY TIME IN THE ABSENCE OF AN EFFECTIVE
      REGISTRATION STATEMENT COVERING SUCH UNITS UNDER THE ACT OR AN OPINION OF
      COUNSEL SATISFACTORY TO THE MANAGER OF THE FUND TO THE EFFECT THAT SUCH
      REGISTRATION IS NOT REQUIRED. IN ADDITION, IN NO EVENT MAY UNITS BE OFFERED
      FOR
      SALE, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED TO ANY PERSON WHO IS NOT A
      RESIDENT OF CALIFORNIA FOR A PERIOD OF NINE MONTHS FROM THE DATE OF THE LAST
      SALE THEREOF BY THE FUND.




6




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


7


**LENDING
      STANDARDS AND POLICIES**




**General
      Standards for Mortgage Loans**




The
      Fund
      engages in the business of making loans secured by first, second, and third
      deeds of trust that encumber real estate located primarily in California and
      also makes or invests in wraparound loans, construction loans and loans secured
      by leasehold interests in commercial property. The Fund’s loans are not insured
      or guaranteed by any governmental agency or private entity. The Fund selects
      loans for investment pursuant to a strict set of guidelines set forth below,
      which guidelines are designed to set standards for the quality of the real
      property security given for the loans.




**Type
      of Property/Loan to Value Ratio**




**Type
                of Property/Loan**
            
            **Maximum
                Loan**
              **to
                Value Ratio**Improved
                Residential
            
            
            80
            %Improved
                Commercial
            
            
            80
            %New
                Construction Residential
            
            
            75
            %New
                Construction Commercial
            
            
            70
            %Unimproved
                Land
            
            
            50
            %




1.  **Priority
      of Mortgages** .
      Loans
      are secured primarily by a first deed of trust on California real property.
      However, the Fund may invest in deeds of trust which are junior to one or more
      senior encumbrances. If a loan is secured by a first deed of trust, the deed
      of
      trust is senior to all other recorded monetary liens other than liens for taxes
      or the assessments of special assessment districts to fund streets, utilities
      or
      other public improvements. If a Loan is secured by a junior deed of trust (i.e.,
      a second or third deed of trust) the obligations secured by the senior lien(s)
      must not be in default at the time of the loan closing; however, loan proceeds
      may be used to cure defaults under the senior lien(s). Loans may also be secured
      by one or more additional deeds of trust encumbering other property owned by
      the
      borrower or its affiliates where, in the Manager’s reasonable judgment, such
      cross-collateralization is necessary to meet the loan-to-value ratio
      requirements set forth above or to further enhance the security for the
      loan.




2.  **Geographic
      Area of Lending Activity** .
      The
      Fund’s deeds of trust are primarily on properties located in California;
      however, the Fund may make loans secured by out of state properties and may
      take
      a security interest in property outside California as additional collateral
      for
      a Loan. The principal amount of loans secured by out of state properties will
      not exceed 20% of the Fund’s loan portfolio.




8




3.  **Loan-to-Value
      Ratios** .
      The
      amount of the Fund’s loan, combined with the outstanding debt secured by any
      senior deed of trust on the security property, generally will not exceed the
      percentages stated above, based on the value of the security property as
      determined by written analysis or appraisal at the time the loan is made. This
      loan-to-value ratio may be increased if, in the sole discretion of the Manager,
      a given loan is supported by other circumstances adequate to justify a higher
      loan-to-value ratio or if mortgage insurance is obtained; however, the Manager
      does not anticipate obtaining or requiring the borrowers to maintain mortgage
      insurance. The foregoing loan-to-value ratio will not apply to purchase-money
      financing offered by the Fund to sell any real estate owned (acquired through
      foreclosure) or to refinance an existing loan that is in default at the time
      of
      maturity. In such cases, the Manager shall be free to accept any reasonable
      financing terms that it deems to be in the best interests of the Fund, in its
      sole discretion.




The
      Fund
      obtains a valuation for each property securing a mortgage loan, which is in
      the
      form of an appraisal and/or market value analysis performed by an independent
      certified appraiser, a non-certified appraiser, a principal of the Manager,
      independent commercial or real estate brokers, or some combination thereof
      as
      determined by the Manager on a case-by-case basis (a “Market Value Analysis”).
      The Market Value Analysis for construction loans is prepared on an “as
      completed” basis, i.e., assuming that the improvements for which the Loan is
      obtained will be completed. The Market Value Analysis may also assume that
      all
      public improvements to be funded by special assessment district bonds will
      be
      completed as proposed and that the Property will be marketed and sold in the
      manner planned by the borrower. In the case of a construction loan, the
      loan-to-value ratio as estimated in the Market Value Analysis and the budget
      for
      the project may exceed 75% (residential) or 70% (commercial) at times during
      the
      term of the loan. This may occur because the Market Value Analysis is based
      upon
      the value of the property when construction is completed; however, before the
      construction is completed, the value of the property will generally be less
      than
      the “as completed” value and the outstanding balance of the loan may therefore
      be more than 75% (residential) or 70% (commercial) of this lesser, uncompleted
      value.




4.  **Terms
      of Loans** .
      The
      term of Fund loans will vary at the discretion of the Manager. Construction
      loans will generally have a term of between one and five years and will provide
      for monthly payments of interest only with a “balloon payment” at the end of the
      term. Other Fund loans may have a longer amortization schedule and may be fully
      amortizing (i.e., the original principal amount of the loan will be repaid
      in
      equal monthly installments of principal and interest over the term), but
      generally will be interest only with a “balloon payment.”




5.  **Escrow
      Conditions** .
      Fund
      loans are funded through an escrow account handled by the Manager or a qualified
      title insurance or escrow company. The escrow agent is instructed not to
      disburse any funds until the following conditions are met:




(a)  Satisfactory
      title insurance coverage is obtained for all loans, with the title insurance
      policy naming the Fund as the insured and providing title insurance in an amount
      equal to the principal amount of the loan. Title insurance insures only the
      validity and priority of the Fund’s deed of trust, and does not insure the Fund
      against loss by reason of other causes, such as diminution in the value of
      the
      security property, over-appraisals, borrower’s defaults, etc. The
      Manager does not intend to arrange for mortgage insurance, which would afford
      some protection against loss if the Fund foreclosed on a loan and there was
      insufficient equity in the security property to repay all sums
      owed.




9




(b)  Satisfactory
      fire and casualty insurance is obtained for all loans (or only casualty
      insurance in the event of a loan secured by unimproved land) which insurance
      shall name the Fund as loss payee in an amount equal to the principal amount
      of
      the Fund’s loan. (See “Risk and Other Important Factors -- Uninsured Losses.”)




(c)  All
      loan
      documents (notes, deeds of trust, construction loan agreements etc.) and
      insurance policies will name the Fund as payee and beneficiary or additional
      loss insured, as applicable. In the event the Fund purchases loans, the Fund
      receives assignments of all beneficial interest in any documents related to
      each
      Loan so purchased. Fund investments in Loans are not held in the name of the
      Manager or any other nominee.




6.  **Loans
      to Related Parties** **.** The Fund
      may make or invest in loans to persons or entities that are related to or
      affiliated with the Manager or its shareholders. Such loans will not exceed
      20%
      of total Fund assets, must not be more favorable to the borrower than similar
      loans negotiated at arm’s-length, and must be repurchased by the Manager if the
      loan is in default more than 30 days. Such loans, if made, will involve
      significant conflicts of interest. (See “Conflicts of Interest—Fund Loans to
      Related Parties.”)




7.  **Purchase
      of Loans from Affiliates** .
      The
      Manager and its affiliates are active mortgage loan brokers and mortgage
      bankers. The Manager’s affiliates currently fund a significant portion of
      mortgage loans they originate and sell interests in such loans to their
      investors. Existing loans funded by or acquired by the Manager or its affiliates
      may be purchased by the Fund. The Fund may also purchase loans from third
      parties. Any loans purchased by the Fund must not be in default at the time
      of
      purchase and must otherwise satisfy the foregoing lending guidelines. Generally,
      the purchase price to the Fund for any such loan will not exceed the par value
      of the note or its fair market value, whichever is lower, but the Manager may
      purchase loans for a premium if the Manager believes the total purchase price
      is
      fair and reasonable and in the best interest of the Fund.




8.  **Loan
      Diversification** .
      No Fund
      loan (or Fund interest in a loan) will exceed the greater of (a) $5,000,000
      or
      (b) 20% of
      total
      Fund capital at the time of the loan.




9.  **Reserve
      Fund** .
      A
      contingency reserve fund may be retained for the purpose of covering unexpected
      cash needs of the Fund, if the Manager believes it to be in the best interests
      of the Fund. The amount of this reserve fund, if any, would be established
      by
      the Manager. This reserve fund may be held in cash, bank accounts, certificates
      of deposit, money market accounts, short-term banker’s acceptances, publicly
      traded bond funds or other liquid assets.




**Credit
      Evaluations**




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




10




**Loan
      Servicing**




It
      is
      anticipated that all Fund loans will be “serviced” (i.e., loan payments will be
      collected and other administrative services performed) by the Manager, which
      will also act as a loan broker in the initial placement of Fund loans. The
      Manager is compensated by the Fund for such loan servicing activities but
      compensated by borrowers for the initial placement of Fund loans. (See
“Compensation to Manager.”)




Borrowers
      make loan payments in arrears, i.e., with respect to the preceding month, and
      are instructed to mail their checks or money orders to the Manager for deposit
      in the Manager’s trust account to be maintained at a financial institution
      selected by the Manager. (See “Certain Legal Aspects of Fund
      Loans.”)




Servicing
      a construction loan may also include monitoring the construction financed by
      the
      loan pursuant to a construction loan agreement and acting for the Fund in
      authorizing disbursements to borrowers from a construction disbursement account
      or otherwise. If the borrower is permitted to use sales proceeds to finance
      continued construction of the property, the Manager will also monitor the
      reborrowing of sales proceeds deposited in the construction disbursement
      account.




Disbursements
      to borrowers may be made pursuant to a construction budget outlined in a
      construction loan agreement. In making disbursements of loan proceeds to a
      borrower under a construction loan agreement, the Manager will adhere to the
      proposed construction budget supplied by the borrower, and will not make
      disbursements in excess of amounts specified for each category without express
      written instruction by borrower and acceptance by Manager.




**Sale
      of Loans**




The
      Fund
      invests in mortgage loans for investment and does not expect to engage in real
      estate operations in the ordinary course of business (except as may be required
      if the Fund forecloses on a property on which it has invested in a mortgage
      loan
      and takes over ownership and management of the property). The Fund does not
      presently intend to invest in mortgage loans primarily for the purpose of
      reselling such loans in the ordinary course of business; however, the Fund
      may
      occasionally sell mortgage loans (or fractional interests therein) when the
      Manager determines that it appears to be advantageous for the Fund to do so,
      based upon then current interest rates, the length of time that the loan has
      been held by the Fund, and the overall investment objectives of the
      Fund.




**Leveraging
      the Portfolio**




The
      Fund
      may borrow funds from a third party lender (which may be, but is not required
      to
      be, a bank or other financial institution) in order to: (i) fund additional
      mortgage loans; (ii) prevent default of loans senior to Fund loans or to
      discharge such loans entirely; or (iii) develop or operate any real property
      acquired by the Fund as a result of a loan default. The Fund may assign all
      or a
      portion of the Fund’s loan portfolio to the lender as security for the
      loan(s).




11




When
      leveraging the Fund’s loan portfolio to make or purchase additional mortgage
      loans, the Fund can increase the yield to the Fund. This increased yield will
      result if the interest earned by the Fund on its leveraged loans exceeds the
      interest that must be paid by the Fund on the funds borrowed from a third party
      lender. This “spread” between the interest earned on a leveraged loan and the
      interest paid on the borrowed funds used to make the loan will accrue to the
      Fund. Leveraging a loan for any purpose, however, entails certain risks to
      the
      Fund that would not otherwise be present if the Fund funded all of its loans
      from its own funds. For example, to the extent the Fund makes loans at long-term
      fixed interest rates while it borrows funds at short-term variable interest
      rates, the Fund is subject to the risk that prevailing interest rates (and
      the
      Fund’s associated borrowing costs) will rise above the levels earned by the Fund
      on the fixed rate portion of its loan portfolio, causing losses to the Fund.




Borrowing
      funds from third party lenders to make payments to senior lenders or to develop
      or operate any real property acquired by the Fund as a result of a loan default
      also entails additional risks. For example, should the Fund’s net income be
      insufficient to pay these loans as they become due or should the Fund otherwise
      default on such loans, the Fund will be at risk of losing any assets (i.e.,
      the
      Fund loans) pledged as security. (See “Risks and Other Important Factors - Risks
      of Leverage.”)




12


**OPERATIONS
      TO DATE**




The
      Fund
      began doing business (i.e., investing in mortgage loans) on September 26, 2003
      after the minimum of 5,000 Units were sold. As of November 30, 2006, 163,152
      Units ($16,315,219.00) had been sold and the Fund had invested in thirty (30)
      mortgage loans in an aggregate amount of $15,363,057.00. As of November 30,
      2006, the Fund had six (6) loans which had gone into default. These loans are
      in
      foreclosure, but no loss is anticipated due to these events. Additionally,
      one
      loan has gone through the foreclosure process and the Fund now owns the real
      property which secured that loan. The Fund is currently in the process of
      marketing that property.




The
      average size of a Fund loan as of November 30, 2006 was approximately
      $512,000.00. Interest rates on most Fund loans presently range from 10.9 %
      to
      14% and the maturity dates of loans have varied from 6 months to 2 years. As
      of
      December 31, 2005, 4.4% of the total Fund assets were loaned to affiliated
      entities. This was in the form of two (2) loans, in an aggregate amount of
      $724,390.00. As of November 30, 2006, no loan from the Fund to an affiliate
      has
      been in default.




The
      average net investment yield to investors for the year ended on November 30,
      2006, calculated on an accrual basis, was 8.13% per annum. If current interest
      rates remain constant, the Manager anticipates a net investment yield to
      investors of approximately 6% - 9% per annum; however, actual yields will vary
      due to fluctuations in prevailing interest rates, early loan payoffs, loan
      defaults, the length of time investors' funds are held in the subscription
      account and other factors beyond the control of the Manager (see "Risk
      Factors").




THE
      FOREGOING DISCUSSION IS FOR ILLUSTRATIVE PURPOSES ONLY, AND IS NOT A PREDICTION
      OF ACTUAL FUND RESULTS.




13


**THE
      MANAGER AND ITS AFFILIATES**




The
      Manager manages and directs the affairs of the Fund. All loans made or invested
      in by the Fund are arranged and serviced by the Manager.




**Lakeside
      Financial Group, Inc.**




The
      Manager of the Fund is Lakeside Financial Group, Inc. (“Lakeside”), a California
      corporation formed for the purpose of managing the Fund, which was incorporated
      in August of 2002 and began doing business on November 1, 2002. Lakeside’s
      principals and affiliates currently engage in the business of acquiring and
      developing real property, as well as arranging, funding, selling, purchasing
      and
      servicing trust deed investments, and related real estate investments, for
      the
      purchase and development of real property.




**William
      F. Webster** .
      William
      Webster is the President and Secretary, and a director and shareholder, of
      Lakeside. Prior to joining Lakeside, Mr. Webster wa s
      an
      attorney in solo practice in Sacramento, California, where he represented
      privately held businesses and publicly held corporations in the areas of
      securities and corporate finance, mergers and acquisitions, and entity formation
      and reorganization. Mr. Webster represented AREI (described below) and related
      entities for the four years prior to forming Lakeside, serving as general
      corporate counsel and securities counsel, and representing AREI in all of its
      various real estate financing activities. Mr. Webster has not represented AREI
      since the formation of Lakeside.




Prior
      to
      becoming a solo practitioner in 1996, Mr. Webster worked as an associate at
      the
      Sacramento law firm of Weintraub Genshlea Chediak & Sproul. A graduate of
      the University of California, Hastings College of the Law (J. D., 1989), Mr.
      Webster has published numerous articles on business and securities law topics
      in
      journals and periodicals.




**James
      S. Koenig** .
      James
      S. Koenig is a director and shareholder of Lakeside. Mr.
      Koenig’s most recent position was as the sole shareholder and director of Asset
      Real Estate & Investment Company (“AREI”). AREI is in the business of owning
      and developing real property, and arranging for financing for real property
      ownership, particularly assisted living facilities. In the above capacities,
      Mr.
      Koenig directed and oversaw the operations of AREI, including the raising of
      capital for real estate ownership and development through private offerings
      of
      debt and equity securities.




Prior
      to
      his involvement with AREI, from October 1996 until October 1997, Mr. Koenig
      served as president of AMC, a division of Discovery Mortgage Company, a mortgage
      banking company, which made loans to borrowers and pooled loans for future
      sales
      to secondary markets. From January 1994 to October 1996 Mr. Koenig served as
      president of Ashland Mortgage Company, another wholesale mortgage banking
      company. Mr. Koenig’s experience prior to this has been in mortgage lending and
      mortgage-backed securities.




**Placido
      H. Canta.** Placido
      H. Canta is the chief financial officer of Lakeside. Mr. Canta holds a BS Degree
      in Business Administration from the University of the East and is a CPA. Since
      working for one of the “big four” accounting firms (Deloitte & Touche), he
      has worked for companies in various industries such as banking, real estate
      and
      construction, advertising and health care. He is responsible for internal and
      administrative controls, and overseeing the accounting and finance functions
      of
      the company.




14




**Richard
      A. Nelson.** Richard
      Nelson is a Vice President of Lakeside. In this capacity, Mr. Nelson assists
      the
      Company in its lending activity. Since 1995, Mr. Nelson has been the owner
      of
      Western Construction Lending Company, which specializes in wholesale home
      construction loans. Mr. Nelson is a licensed real estate broker, and is also
      an
      officer and broker of AREI. Prior to forming Western Construction Lending
      Company, Mr. Nelson served as Chief Financial Officer and broker of Speiro
      Corporation, d/b/a/ Sterling Mortgage Co., which specialized in conversion
      of
      mobile home parks to private ownership.




15


**COMPENSATION
      TO MANAGER**




The
      following discussion summarizes the forms of compensation received by the
      Manager. All of the amounts described below are received regardless of the
      success or profitability of the Fund, unless waived by the Manager in the
      Manager’s sole discretion. None of the following compensation was determined by
      arm’s-length negotiations. The Manager retains the right to terminate all or any
      portion of its business relationship with the Fund at any time, in which event
      the Fund would seek to retain one or more other firms to perform the various
      services to be rendered by the Manager as described below.




Form
                of Compensation
            
            Estimated
                Amount or Method of CompensationLoan
                Brokerage Commissions, Renewal
              and
                Forbearance Fees to the Manager
            
            Anticipated
                to average between 2% and 6% of the principal amount of each loan
                and
                generally not less than $2,000 per loan, and may be higher or lower
                depending upon market conditions. Such fees are paid to the Manager
                by the
                borrowers and will not be borne by the Fund.Loan
                Processing and Documentation Fees.
            
            Prevailing
                industry rates for documentation fees and for loan processing fees.
                These
                fees may vary depending on market conditions and the size of the
                particular loan, and are paid by the borrowers and not the
                Fund.Late
                Payment Charges and Default Interest
              Retained
                by the Manager
            
            Late
                payment fees of approximately ten percent (10%) of the amount of
                any late
                payment due from borrowers and default interest of 3%-5% above the
                loan
                rate. Such fees are paid by the borrowers and not the Fund.Loan
                Servicing Fee
            
            Up
                to one quarter of one percent (.25%) of the principal amount of each
                Fund
                loan on an annual basis, payable monthly (i.e., 1/12th of .25% per
                month),
                but only as interest is received by the Fund. [1]Asset
                Management Fee
            
            Up
                to 2.75% of Gross Assets Under Management, payable monthly (i.e.,
                .229%
                per month). [2]Reimbursement
                of Expenses to Manager
            
            Reimbursement
                for all out-of-pocket organization and syndication expenses and all
                operating and administrative expenses of the
                Fund.




16




Form
                of Compensation(cont.)
            
            Est.
                Amount or Method of Compensation (cont.)Broker/Dealer
                Commissions to Affiliates of Manager
            
            Broker/dealers
                selling Units on behalf of the Fund is entitled to receive commissions
                of
                up to 6.5% of the gross proceeds received from the sale of Units
                by such
                broker/dealers. Certain commission arrangements may include a trailing
                payment of up to 1.0% per year of such proceeds for as long as the
                Units
                remain outstanding. Certain broker/dealers selling Units on behalf
                of the
                Fund may be affiliated with the
                Manager.




[1]
            Loan
                servicing fees are determined by the Manager on a case by case basis,
                provided that they are not expected to exceed the amounts generally
                charged for comparable services to comparable debtors in the geographical
                area where the security property for the loan is
                located.




[2]
            “Gross
                Assets Under Management” means the total Fund capital, including cash,
                notes (at book value), real estate owned (at book value), accounts
                receivable, advances made to protect loan security, unamortized
                organizational expenses and any other Fund assets valued at fair
                market
                value. The Asset Management Fee is paid on the last day of each calendar
                month with respect to Gross Assets Under Management as of the first
                day of
                the immediately preceding month. As such, the Asset Management Fee
                may
                exceed .229% per month but the total fee in any given year is limited
                to
                2.75% of the Gross Assets Under Management calculated as of the last
                day
                of the Fund’s fiscal year.




17


**FIDUCIARY
      RESPONSIBILITY OF THE MANAGER**




Under
      California law, the fiduciary duties of a manager to the limited liability
      company and to its members are those of a partner to a partnership and to the
      partners of a partnership. Accordingly, a manager is accountable to a limited
      liability company as a fiduciary, which means that a manager is required to
      exercise its duties of good faith and loyalty with respect to company affairs.
      This fiduciary duty is in addition to those other duties and obligations of,
      and
      limitations on, the Manager which are set forth in the Operating Agreement.
      The
      Fund’s business operations and affairs are managed entirely by the Manager,
      which is subject to certain conflicts of interest. (See “Conflicts of
      Interest.”)




The
      Fund
      has not been separately represented by independent legal counsel in its
      formation or in its dealings with the Manager, and Members must rely on the
      good
      faith and integrity of the Manager to act in accordance with the terms and
      conditions of this offering.




The
      Manager must, on demand, give to any Member or his legal representative true
      and
      complete information concerning all Fund affairs. Each Member or his legal
      representative has the right to inspect and copy the Fund’s books and records at
      any time during normal business hours.




The
      Operating Agreement provides that the Manager shall have no liability to the
      Fund for losses resulting from errors in judgment or other acts or omissions,
      unless the Manager is guilty of fraud, bad faith or willful misconduct. The
      Operating Agreement also provides that the Fund shall indemnify the Manager
      against liability and related expenses (including reasonable attorneys’ fees and
      costs) incurred in dealing with the Fund, Members or third parties, so long
      as
      no fraud, bad faith or willful misconduct on the part of the Manager is
      involved. Therefore, Members may have a more limited right of action then they
      would have absent these provisions in the Operating Agreement. A successful
      indemnification of the Manager or any litigation that may arise in connection
      with the Manager’s indemnification could deplete the assets of the Fund. Members
      who believe that a breach of the Manager’s fiduciary duty has occurred should
      consult with their own counsel.




18


**CONFLICTS
      OF INTEREST**




The
      following is a list of the important areas in which the interests of the Manager
      conflict with those of the Fund. The Members must rely on the general fiduciary
      standards provided by applicable law and the Operating Agreement to prevent
      unfairness by the Manager in a transaction with the Fund. The Fund has not
      been
      represented by separate legal counsel in connection with its formation or its
      dealings with the Manager. (See “Fiduciary Responsibility of the Manager.”)
      Except as may arise in the normal course of the relationship, there are no
      transactions presently contemplated between the Fund and its Manager (or its
      affiliates) other than those listed below.




**Loan
      Brokerage Commissions, Renewal and Forbearance Fees:**




None
      of
      the compensation set forth under “Compensation to Manager” was determined by
      arms’ length negotiations. It is anticipated that the loan brokerage
      commissions, renewal and forbearance fees charged to borrowers by the Manager
      for most loans will average between 2-6% of the principal amount of each loan,
      but may be higher or lower depending upon market conditions. Any increase in
      such charges will have a direct, adverse effect upon the interest rates that
      borrowers are willing to pay the Fund, thus reducing the overall rate of return
      to Members. Conversely, if the Manager reduced the loan brokerage commissions,
      renewal and forbearance fees charged by it, a higher rate of return might be
      obtained for the Fund and the Members. This conflict of interest will exist
      in
      connection with every Fund loan transaction, and Members must rely upon the
      fiduciary duties of the Manager, as provided by applicable law and the Operating
      Agreement, to protect their interests. The Fund will generally charge borrowers
      interest at the rate generally prevailing in the geographical areas where the
      security property is located for loans to comparable borrowers of similar size,
      duration and security.




The
      Manager has the right to retain the services of other firms, in addition to
      or
      in lieu of the Manager, to perform brokerage services, loan servicing and other
      activities in connection with the Fund’s loan portfolio that are described in
      this Offering Circular. Such other firms may be affiliates of the Manager or
      the
      Manager’s management team.




**Fund
      Loans to Related Parties**




The
      Fund
      may make or invest in loans to persons or entities that are affiliated with
      the
      Manager (i.e., loans to a borrower that is owned by one or more of the owners
      of
      the Manager). In cases of such related party loans, conflicts of interest will
      exist between the Manager and its affiliated persons, on the one hand, and
      the
      Fund, on the other, in connection with setting the terms of the loan and in
      connection with any enforcement action or renegotiation that may occur in the
      future. The Manager has undertaken to address these conflicts by applying the
      following standards and limitations to such related party loans:




(a)  The
      aggregate principal amount of all related party loans at any time shall not
      exceed 20% of total Fund assets at such time;




(b)  The
      terms
      and conditions of any related party loans shall be consistent with the lending
      standards and policies set forth above and with loan terms typically offered
      by
      the Manager on similar loans to unaffiliated borrowers; and




19




(c)  The
      Manager shall purchase (or cause one of its affiliates to purchase) from the
      Fund, without discount, any related party loan in which any material event
      of
      default has occurred and is continuing for at least thirty (30)
      days.




**Other
      Funds or Businesses**




The
      compensation structure applicable to the Manager in connection with loans that
      are arranged or originated for investors unrelated to the Fund may be different,
      and depending on the circumstances at a given point in time, may be more
      lucrative to the Manager than the compensation payable to the Manager in
      connection with the Fund. As a result, there may exist a financial incentive
      for
      the Manager to arrange or originate loans for private investors outside the
      Fund
      and the Members must rely on the fiduciary duties of the Manager, as provided
      by
      applicable law and the Operating Agreement, to protect their interests under
      such circumstances. In the future, the Manager may also sponsor other funds
      formed to conduct business similar to that of the Fund. If these other funds
      (if
      formed) have funds to invest at the same time as the Fund, there will then
      exist
      conflicts of interest on the part of the Manager as to whether to offer a
      particular loan opportunity to the Fund or to these other funds. The Manager
      will decide which loans are appropriate for funding by the Fund or by such
      other
      funds after consideration of all relevant factors, including the size of the
      loan, portfolio diversification, and amount of uninvested funds.




The
      Manager may engage for its own account, or for the account of others, in other
      business ventures, similar to that of the Fund or otherwise, and neither the
      Fund nor any Member shall be entitled to any interest therein.




The
      Fund
      will not have independent management and it will rely on the Manager for the
      operation of the Fund. The Manager will devote only so much time to the business
      of the Fund as is reasonably required. The Manager will have conflicts of
      interest in allocating management time, services and functions between its
      existing business interests other than the Fund and any future partnerships
      which it may organize as well as other business ventures in which it may be
      involved. The Manager believes it has sufficient staff available to be fully
      capable of discharging its responsibilities to all such entities.




**Lack
      of Independent Legal Representation**




The
      Fund
      has not been represented by independent legal counsel to date. The use by the
      Manager and the Fund of the same counsel in the preparation of this Offering
      Circular and the organization of the Fund may result in the lack of independent
      review. Prospective investors must rely on their own legal counsel for legal
      advice in connection with this investment.




**Sale
      of Defaulted Loans or Real Estate Owned to Affiliates**




In
      the
      event a Fund loan goes into default or the Fund becomes the owner of any real
      property by reason of foreclosure on a Fund loan, the Manager’s first priority
      will be to arrange the sale of the loan or property for a price that will permit
      the Fund to recover the full amount of its invested capital plus accrued but
      unpaid interest and other charges, or so much thereof as can reasonably be
      obtained in light of current market conditions. In order to facilitate such
      a
      sale, the Manager may arrange a sale to persons or entities controlled by or
      affiliated with the Manager (e.g., to another entity formed by the Manager
      or
      its affiliates), for the express purpose of acquiring defaulted loans or
      foreclosure properties from lenders such as the Fund. The Manager will be
      subject to conflicts of interest in arranging such sales since it will represent
      both parties to the transaction. For example, the Fund and the potential buyer
      will have conflicting interests in determining the purchase price and other
      terms and conditions of sale. The Manager’s decision will not be subject to
      review by any outside parties.




20




The
      Manager shall undertake to resolve these conflicts by setting a purchase price
      for each defaulted loan or property which is not less than any of the following:
      (i) the independently appraised value of such loan or property, if any, at
      the
      time of sale; (ii) the amount of any third party offer already received, if
      any;
      or (iii) the total amount of the Fund’s investment in the property. The Fund’s
      investment is deemed to include without limitation the following: the unpaid
      principal amount of the loan upon which the Fund foreclosed, all unpaid interest
      accrued to the date of foreclosure, expenditures made to protect the Fund’s
      interest in the property such as payments to senior lienholders and for
      insurance and taxes, all costs of foreclosure (including attorneys fees actually
      incurred to prosecute the foreclosure or to obtain relief from stays in
      bankruptcy), and any advances made by or on behalf of the Fund for any of the
      foregoing. A portion of the purchase price may be paid by the affiliate
      executing a promissory note in favor of the Fund, secured by a deed of trust
      on
      the property being sold. The total loan-to-value ratio for the property
      (including the Fund’s note and any senior liens) will not exceed 90% of the
      purchase price of the property, and the note will otherwise contain terms and
      conditions comparable to those that would be contained in notes executed by
      third parties.




21


**RISKS
      AND OTHER IMPORTANT FACTORS**




Any
      investment in the Units offered hereby involves a significant degree of risk
      and
      is suitable only for investors who have no need for liquidity in their
      investments. When analyzing this offering, prospective investors should
      carefully consider the following risks and other factors, in addition to those
      discussed herein under the captions “Compensation to Manager,” “Conflicts of
      Interest,” and “Federal Income Tax Consequences.”




**No
      Market for Units**




There
      is
      no public market for the Units and none is expected to develop in the future.
      Even if a potential buyer could be found, the transferability of Units is also
      restricted by the provisions of the Securities Act of 1933, as amended, and
      Rule
      147 thereunder, the California Corporate Securities Law of 1968, as amended,
      the
      regulations thereunder and by the provisions of the Operating Agreement. Any
      sale or transfer of Units also requires the prior written consent of the
      Manager, which may be withheld in its sole discretion and may require the prior
      written consent of the California Commissioner of Corporations. (See
“Commissioner’s Reg. 260.141.11” below.) Furthermore, Members have only limited
      rights to redeem Units or withdraw from the Fund or to otherwise obtain the
      return of their invested capital. Therefore, all purchasers of Units must be
      capable of bearing the economic risks of this investment with the understanding
      that their interest in the Fund may not be liquidated by resale, and should
      expect to hold their Units for an undetermined period of time.




**Tax
      Risks**




The
      Fund
      has elected to be treated as a partnership for federal income tax purposes.
      Any
      favorable federal tax treatment presently available with respect to the Fund
      could be affected by any changes in tax laws that may result through future
      Congressional action, tax court or other judicial decisions, or interpretations
      of the Internal Revenue Service. IN VIEW OF THE FOREGOING, PROSPECTIVE MEMBERS
      ARE URGED TO REVIEW THE “FEDERAL INCOME TAX CONSEQUENCES” SECTION CAREFULLY AND
      TO CONSULT THEIR OWN TAX COUNSEL.




Other
      tax
      risks include:




·
            If
                the Fund is deemed by the IRS not to be engaged in a trade or business,
                the Members’ share of expense deductions would be
                reduced.




·
            Interest
                paid by investors who finance their purchase of Units may not be
                deductible.




·
            An
                IRS audit of the Fund’s tax return, books and records could result in an
                audit of investors’ tax returns.




**Loan
      Defaults and Foreclosures**




The
      Fund
      is in the business of lending money and, as such, takes the risk of defaults
      by
      borrowers and other risks faced by lenders. Some Fund loans will provide for
      monthly payments of interest only or will have long amortization schedules,
      but
      be entirely due and payable in five (5) years or less. Thus, the borrower will
      have to make a large “balloon” payment of principal due at the end of the term.
      Many borrowers are unable to repay such loans out of their own funds and are
      compelled to refinance. Fluctuations in interest rates and the unavailability
      of
      mortgage funds could adversely affect the ability of borrowers to refinance
      their loans at maturity.




22




The
      Fund
      is an “asset lender” rather than a “credit lender,” although each borrower will
      need to demonstrate adequate ability to meet its financial obligations under
      the
      terms of any loan which the Fund may invest in. This means that the Fund may
      rely primarily on the value of the real property securing loans to protect
      its
      investment, with repayment ability always being taken into consideration. There
      are a number of factors which could adversely affect the value of any such
      real
      property securing Fund loans, including, among other things, the following:




1.  The
      Fund
      will rely on a Market Value Analysis to determine the fair market value of
      real
      property used to secure loans made by the Fund. No assurance can be given that
      such an analysis will in any or all cases, be accurate. Moreover, since a Market
      Value Analysis fixes the value of real property at a given point in time,
      subsequent events could adversely affect the value of real property used to
      secure a loan. Such subsequent events may include nationwide, statewide or
      local
      economic, demographic, property or other trends, or may include specific local
      events such as freeway construction or adverse weather conditions. Neither
      the
      appraiser, the Manager, or any other party conducting the Market Value Analysis
      will be able to predict with any certainty whether these events will occur
      after
      a loan is made.




2.  In
      making
      a construction loan based upon a Market **** Value
      Analysis of a property “as constructed,” the Fund is subject to the risks that
      actual construction costs may exceed budget, construction delays could occur,
      labor or supply shortages may exist, or, the market value of the project once
      completed could be less than anticipated. Also, if the Fund must foreclose
      on
      the property before the project is completed, it is unlikely that the property
      will then have a value as high as its analyzed value “as constructed,” and
      therefore there is a greater likelihood that the Fund will not be able to sell
      the property for the full amount owing to the Fund. Furthermore, if the Fund
      must foreclose before construction is completed, and if there are insufficient
      funds in any construction disbursement account to complete construction, the
      Manager will need to choose between selling the property with construction
      incomplete or incurring debt to finance completion of the project before it
      is
      sold. If the Manager elects to sell the property before completing construction,
      the property is more likely to sell at a price which will not return to the
      Fund
      the amount owed on that loan. On the other hand, if monies are borrowed to
      complete construction, those monies will have to be repaid before the Fund
      will
      receive the amount it invested. Under the construction loan agreement the
      Manager may, but will not be obligated to, advance the funds required to
      complete construction of a property or to otherwise increase its marketability.
      If the Manager advances funds, the advances plus interest will be repayable
      out
      of proceeds from the sale or refinancing of the property before payments will
      be
      made to the Fund.




3.  If
      the
      borrower defaults, the Fund may be forced to purchase the property at a
      foreclosure sale. If the Fund cannot quickly sell such property, or the property
      does not produce any significant income, the Fund’s profitability will be
      adversely affected.




23




4.  To
      the
      extent that loans are secured by improved real property, the improvements will
      constitute a significant portion of the value of the real property security
      for
      such loans. In the event that such improvements are destroyed or damaged, the
      value of the real property security will be correspondingly diminished to the
      extent not covered by insurance. (See “Uninsured Losses,” below.)




5.  Due
      to
      certain provisions of California law applicable to all real estate loans, if
      the
      real property security proves insufficient to repay amounts owing to the Fund,
      it is unlikely that the Fund would have any right to recover any deficiency
      from
      the borrower. (See “Certain Legal Aspects of Fund Loans.”)




6.  A
      number
      of the Fund’s loans are secured by second or other junior deeds of trust. In the
      event of foreclosure on a Fund loan that is so secured, the debt secured by
      the
      senior deeds of trust must be satisfied before any proceeds from the sale of
      the
      property can be applied toward the debt owed to the Fund. Furthermore, to
      protect its junior security interest, the Fund may be required to make
      substantial cash outlays for such items as loan payments to senior lienholders
      to prevent their foreclosure, property taxes, insurance, property maintenance
      or
      repair, etc. The Fund may not have adequate cash reserves on hand at all times
      to protect its security, in which event the Fund could suffer a loss of its
      invested capital in such loan. Therefore, investments in loans secured by junior
      deeds of trust are subject to greater risk in the event of a decline in property
      values than are loans secured by first deeds of trust. (See “Certain Legal
      Aspects of Fund Loans.”)




7.  The
      recovery of sums advanced by the Fund in making or investing in loans and
      protecting its security may also be delayed or impaired by the operation of
      the
      federal bankruptcy laws or by irregularities in the manner in which the loan
      was
      made. Any borrower has the ability to delay a foreclosure sale by the Fund
      for a
      period ranging from several months to several years simply by filing a petition
      in bankruptcy, which automatically stays any actions to enforce the terms of
      the
      loan. The length of this delay and the costs associated therewith may have
      an
      adverse impact on the Fund’s profitability.




8.  The
      property securing Fund loans could be adversely affected by earthquakes, floods,
      mud slides, similar events and acts of God that may not be insured against.
      (See
“Uninsured Losses” below.)




**Due-On-Encumbrance
      Clauses**




A
      “due-on-encumbrance” clause contained in a senior deed of trust, which permits
      the holder of the deed of trust to accelerate the loan if the borrower executes
      an additional deed of trust on the security property in favor of a junior
      lienholder, is enforceable in all cases except when the security property
      consists of residential property consisting of four or fewer units. The Manager
      intends to follow customary and prudent lending practices when potential
      security property for a loan (except residences with four or fewer units) is
      already encumbered by a senior deed of trust which contains a
“due-on-encumbrance” clause and, if deemed necessary, the Manager, before making
      the loan, shall obtain the written consent of the senior lienholder agreeing not
      to enforce the “due-on-encumbrance” clause by reason of the Fund’s
      loan.




24




**Unspecified
      Loans; Reliance on the Manager**




The
      loans
      in which the proceeds of this offering will be invested are determined solely
      by
      the Manager, and Members have no opportunity to review potential Fund loans.
      The
      Manager will make all decisions with respect to the management of the Fund,
      including the determination as to what loans to make or purchase, and the Fund
      is dependent to a substantial degree on their continued services. In the event
      of the dissolution, death, retirement or other incapacity of the Manager or
      its
      principals, the business and operations of the Fund may be adversely affected.
      Under the Operating Agreement, the Manager may withdraw on six months notice
      to
      the Members. There can be no assurances that an acceptable replacement Manager
      may be available on economically viable terms or at all.




**Management
      and Competition**




The
      Manager has substantial prior experience in the mortgage lending business.
      Due
      to the nature of the Fund’s business, its profitability will depend to a large
      degree upon the future availability of secured loans. The Fund will compete
      with
      the Manager and investors unrelated to the Fund, institutional lenders and
      others engaged in the mortgage lending business, some of whom have greater
      financial resources and experience than the Fund. The Members will not have
      a
      voice in the management decisions of the Fund and can exercise only a limited
      amount of control over the Manager.




**Fluctuations
      in Interest Rates**




Mortgage
      interest rates are subject to abrupt and substantial fluctuations, but the
      purchase of Units is a relatively illiquid investment. (See above, “No Market
      for Units.”) If prevailing interest rates rise above the average interest rate
      being earned by the Fund’s loan portfolio, investors may wish to liquidate their
      investment in order to take advantage of higher returns available from other
      investments but will only have a limited ability to do so.




**Manager
      Not Required to Devote Full Time to the Business of the
      Fund**




The
      Manager is not required to devote its full time to the Fund’s affairs, but only
      such time as the affairs of the Fund may reasonably require.




**Investors
      Not Independently Represented**




The
      investors in the Fund have not been represented by independent counsel in its
      organization, and the attorneys who have performed services for the Fund have
      also represented the Manager. Thus, conflicts of interest between the Fund
      and
      the Manager may not have been addressed as vigorously as in an arms-length
      transaction. (See “Conflicts of Interest.”)




**Investment
      Delays**




There
      is
      a delay between the time initial subscriptions are submitted by prospective
      investors and placed in a non-interest-bearing subscription account, and the
      time the funds are placed into the Fund and Units are sold. Further, there
      may
      be a delay between the time Units are sold and the time the proceeds of this
      offering are invested in loans by the Fund. During these periods, the proceeds
      of this offering may be invested in short-term certificates of deposit,
      money-market funds or other liquid assets which will not yield a return as
      high
      as the anticipated return to be earned on Fund loans. The length of these delays
      may adversely affect the overall investment return to Members.




25




**Uninsured
      Losses**




The
      Manager will arrange for comprehensive title, fire and casualty insurance on
      the
      properties securing the Fund’s loans. The Manager may also, but is not required
      to, arrange for earthquake insurance. However, there are certain types of losses
      (generally of a catastrophic nature) which are either uninsurable or not
      economically insurable, such as losses due to war, floods, mudslides or other
      acts of God. Should any such disaster occur, or if casualty insurance is allowed
      to lapse through oversight, the Fund could suffer a loss of principal and
      interest on the loan secured by the uninsured property. Furthermore, other
      losses could occur which may result in the denial of insurance coverage or
      inadequate coverage or other unforeseen circumstances and may also lead to
      loss
      of principal and interest or damages on a loan investment.




**Lack
      of Regulation**




The
      management and investment practices of the Fund are not supervised or regulated
      by any federal or state authority, except to the extent that the lending and
      brokerage activities of the Manager are subject to supervision or regulation
      by
      the California Department of Real Estate or Department of Corporations.




**Risks
      of Government Action**




While
      the
      Manager will use its best efforts to comply with all local, state and federal
      lending regulations, there is the possibility of governmental action to enforce
      any alleged violations of such lending laws which may result in legal fees,
      damage awards or fines and penalties. While the Manager has never been accused
      of any such violations in the past, there is risk of potential governmental
      enforcement action which may lead to losses for the Fund.




**Conflicts
      of Interest**




There
      are
      several areas in which the interests of the Manager will conflict with those
      of
      the Fund, which should be carefully considered (see “Conflicts of Interest”).




**Environmental
      Liabilities**




Under
      current federal and state law, the owner of real property contaminated with
      toxic or hazardous substances (including a mortgage lender that has acquired
      title through foreclosure) may be liable for all costs associated with any
      remedial action necessary to bring the property into compliance with applicable
      environmental laws and regulations. This liability may arise regardless of
      who
      caused the contamination or when it was caused.




The
      Fund
      does not and will not participate in the on-site management of any facility
      on
      the property in order to minimize the potential for liability for cleanup of
      any
      environmental contamination under applicable federal, state, or local laws.
      There can be no assurance that the Fund would not incur full recourse liability
      for the entire cost of any such removal and cleanup, or that the cost of such
      removal and cleanup would not exceed the value of the property. In addition,
      the
      Fund could incur liability to tenants and other users of the affected property,
      or users of neighboring property, including liability for consequential damages.
      The Fund would also be exposed to risk of lost revenues during any cleanup,
      and
      to the risk of lower lease rates or decreased occupancy if the existence of
      such
      substances or sources on the property becomes known. If the Fund fails to remove
      the substances or sources and clean up the property, it is possible that
      federal, state, and/or local environmental agencies could perform such removal
      and cleanup, and impose and subsequently foreclose liens on the property for
      the
      cost thereof. The Fund may find it difficult or impossible to sell the property
      prior to or following any such cleanup. Fund could be liable to the purchaser
      thereof if the Manager knew or had reason to know that such substances or
      sources existed. In such case, the Fund could also be subject to the costs
      described above. If toxic or hazardous substances are present on real property,
      the owner may be responsible for the costs of removal or treatment of the
      substances. The owner may also incur liability to users of the property or
      users
      of neighboring property for bodily injury arising from exposure to such
      substances. If the Fund is required to incur such costs or satisfy such
      liabilities, this could have a material adverse effect on Fund profitability.
      Additionally, if a borrower is required to incur such costs or satisfy such
      liabilities, this could result in the borrower’s inability to repay its loan
      from the Fund.




26




Even
      if
      the Fund does not foreclose on a contaminated site, the mere existence of
      hazardous substances on the property may depress the market value of the
      property such that the loan is no longer adequately secured.




A
      lender’s best protection against environmental risks is to thoroughly inspect
      and investigate the property before making or investing in a loan; however,
      environmental inspections and investigations are very expensive, and often
      are
      not financially feasible in connection with loans of the size and type to be
      made by the Fund, particularly in the case of residential mortgage loans. As
      a
      result, toxic contamination reports or other environmental site assessments
      will
      generally not be obtained by the Fund in connection with its loans. The Manager
      will, however, take certain precautions to avoid environmental problems, such
      as
      attempting to avoid making or investing in loans secured by properties known
      or
      suspected to have (or to be likely to have) environmental problems.




**Risks
      of Ownership of Real Property**




When
      the
      Fund acquires any equity or leasehold interest in real property by direct
      investment, foreclosure or otherwise, the Fund is exposed to the risks of
      liability incident to real property ownership or tenancy. Owners of real
      property may be subject to liability for injury to persons and property
      occurring on the real property or in connection with the activity conducted
      thereon, and liability for non-compliance with governmental
      regulations.




**Risks
      of Leverage**




The
      Fund
      may borrow funds from private third party lenders in order to: (i) fund
      additional mortgage loans; (ii) prevent default of loans senior to Fund loans
      or
      to discharge such loans in their entirety; or (iii) develop or operate any
      real
      property acquired by the Fund as a result of a loan default. The Fund may assign
      most or all of its loan portfolio to such lenders for the loans. (See
“Leveraging the Portfolio.”)




27




Where
      the
      Fund borrows funds in order to fund additional mortgage loans, the cost of
      the
      funds that the Fund will be borrowing from lenders may accrue interest at a
      floating rate of interest. However, most of all of the Fund’s loans will be made
      at a fixed rate of interest. If the adjustable rate should increase such that
      the Fund’s cost of borrowed funds exceeds the fixed rate of interest that it is
      earning on the fixed rate portion of its loan portfolio, the Fund may default
      under its loan and security agreement with a lender. If most or all of the
      Fund’s loan portfolio is assigned to a lender as security for the loan, the Fund
      would be at risk of losing its assets (i.e., the Fund loans and the underlying
      real property security) to a lender if a lender elected to foreclose on this
      collateral as a result of a default by the Fund, causing losses to Investors.
      (See “Leveraging the Portfolio.”)




Where
      loan proceeds are used for purposes other than funding new loans, the Fund
      may
      not have the cash available to service the loans, causing the Fund to default
      on
      the loans. Various other events may cause the fund to default under a third
      party loan, thereby allowing a third party lender to foreclose on the Fund’s
      portfolio. These events may include the failure of the Fund to observe any
      of
      the covenants contained in the loan agreement, the default by the Fund under
      any
      other loan agreement to which it is a party, the bankruptcy or insolvency of
      the
      Manager, and other events specified in the loan agreement. Thus, the Fund is
      at
      risk of losing most or all of its loan portfolio on the occurrence of many
      events that do not directly relate to the ability of the Fund to service the
      third party loans and some of which are not within the control of the
      Fund.




**Risks
      of Litigation**




The
      Manager will act in good faith and use reasonable judgment in selecting
      borrowers and making and managing the loans. However, as a lender, the Manager
      and the Fund are exposed to the risk of litigation by a borrower for any
      allegations by the borrower (warranted or otherwise) regarding the terms of
      the
      loans or the actions or representations of the Manager in making, managing
      or
      foreclosing on the loans. It is impossible for the Manager to foresee what
      allegations may be brought by a specific borrower, and the Manager will use
      its
      best efforts to avoid litigation if, in the Manager’s judgment, the
      circumstances warrant an alternative resolution. If an allegation is brought
      and/or litigation is commenced against the Fund or the Manager, the Fund will
      incur legal fees and costs to respond to the allegations and to defend any
      resulting litigation. If the Fund is required to incur such fees and costs,
      this
      could have an adverse effect on Fund profitability.




**High
      Cost Mortgages**




The
      Home
      Ownership and Equity Protection Act of 1994, and the regulations thereunder
      (collectively the “HOEPA”) impose restrictions on, and require certain
      Truth-in-Lending disclosures with respect to, mortgage loans secured by a
      consumer’s principal dwelling (other than purchase money or construction loans
      and reverse mortgages) which either: (a) bear interest at an APR that is 8
      percentage points higher than the yield on Treasury securities having comparable
      periods of maturity; or (b) involve payment of points and fees by the consumer
      in excess of the greater of 6% of the loan amount or $400. A failure to comply
      with HOEPA subjects the lender to a loss of all finance charges and fees paid
      by
      the consumer and may be grounds for rescission by the consumer. HOEPA raises
      significant questions as to its application and interpretation, especially
      in
      cases involving clerical errors that result in mistaken
      disclosures.




28




The
      Fund
      may make loans that are subject to HOEPA and if such loans are made the Fund
      intends to comply with the requirements of the HOEPA. However, it is possible
      that the Fund may inadvertently fail to comply with the requirements of the
      HOEPA, which may result in unanticipated costs and/or losses to the
      Fund.




**Possible
      Lack of Loan Diversity and Geographic Concentration of
      Loans**




Especially
      in the early stages of operations when the Fund has raised only the minimum
      or
      only somewhat more than the minimum in this offering, the number of loans is
      likely to be small. During this phase the effect on the Fund of a default on
      one
      or a small number of loans will be significantly greater than if the Fund had
      made a large number of loans.




In
      addition, at least 80% and as much as 100% of the Fund’s loan portfolio will be
      secured by properties within California. This concentration may increase the
      risk of delinquencies on the Fund’s loans when California real estate or
      economic conditions are weaker than elsewhere. Further, if demand for commercial
      and residential properties decreases in California, increased competition for
      mortgage loans will likely result, and the Fund’s ability to minimize such risks
      through diversification is limited.




29


**ERISA
      CONSIDERATIONS**




The
      Employee Retirement Income Security Act of 1974 (“ERISA”) contains strict
      fiduciary responsibility rules governing the actions of “fiduciaries” of
      employee benefit plans. It is anticipated that some Members will be corporate
      pension or profit-sharing plans and Individual Retirement Accounts, or other
      employee benefit plans that are subject to ERISA. In any such case, the person
      making the investment decision concerning the purchase of Units will be a
“fiduciary” of such plan and will be required to conform to ERISA’s fiduciary
      responsibility rules. Persons making investment decisions for employee benefit
      plans (i.e., “fiduciaries”) must discharge their duties with the care, skill and
      prudence which a prudent man familiar with such matters would exercise in like
      circumstances. In evaluating whether the purchase of Units is a “prudent”
investment under this rule, fiduciaries should consider all of the risk factors
      set forth above. Fiduciaries should also carefully consider the possibility
      and
      consequences of unrelated business taxable income (see “Federal Income Tax
      Consequences.”), as well as the percentage of plan assets which will be invested
      in the Fund insofar as the diversification requirements of ERISA are concerned.
      An investment in the Fund is relatively illiquid, and fiduciaries must not
      rely
      on an ability to convert an investment in the Fund into cash in order to meet
      liabilities to plan participants who may be entitled to distributions. DUE
      TO
      THE COMPLEX NATURE OF ERISA, EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT
      HIS
      OWN TAX ADVISOR OR PENSION CONSULTANT TO
      DETERMINE THE APPLICATION OF ERISA TO HIS OR HER PROSPECTIVE INVESTMENT.




Fiduciaries
      of plans subject to ERISA are required to determine annually the fair market
      value of the assets of such plans as of the close of any such plan’s fiscal
      year. Although the Manager will provide annually upon the written request of
      a
      Member an estimate of the value of the Units based upon, among other things,
      outstanding mortgage investments, it may not be possible to value the Units
      adequately from year to year, because there will be no market for
      them.




30


**USE
      OF PROCEEDS**




The
      proceeds from the sale of Units offered hereby are used approximately as set
      forth below. The figures set forth below are only estimates, and actual use
      of
      proceeds will vary.




Minimum
                Offering
            
            Percentage
            
            Maximum
                Offering
            
            PercentageOrganizational
                and Syndication Expenses
            
            $
            75,000
            
            
            15.0
            %
            $
            150,000
            
            
            0.3
            %Selling
                Commissions [1][2]
            
            $
            32,500
            
            
            6.5
            %
            $
            3,250,000
            
            
            6.5
            %Investment
                in Mortgage Loans [3]
            
            $
            377,500
            
            
            75.5
            %
            $
            45,850,000
            
            
            91.7
            %Reserves
                [4]
            
            $
            15,000
            
            
            3.0
            %
            $
            750,000
            
            
            1.5
            %TOTAL:
            
            $
            500,000
            
            
            100
            %
            $
            50,000,000
            
            
            100
            %




[1]
            The
                Manager anticipates retaining the services of independent securities
                broker/dealers to sell Units. Such broker/dealers may be entitled
                to
                receive selling commissions of up to 6.5% of the gross proceeds from
                sales
                of Units effected by them. Additionally, the Manager, in its discretion,
                may negotiate a continuing commission to such broker/dealers of up
                to 1.0%
                per annum of such proceeds for as long as the Units sold by such
                broker/dealers remain outstanding. To the extent that a Member purchases
                Units through a broker/dealer and elects to compound his or her earnings
                in the Fund, any annual commission negotiated by the Manager is calculated
                based upon the increased value of such Member’s capital account on the
                last day of the month of the anniversary of admission.




[2]
            The
                Manager will also sell Units directly to new investors for no commission.
                To the extent the Manager sells such Units, overall commissions paid
                by
                the Fund are less than 3% leaving more capital for investment in
                mortgage
                loans.




[3]
            All
                loan brokerage commissions paid to the Manager are paid by borrowers
                out
                of the proceeds of loans made by the Fund. Thus, a portion of the
                proceeds
                from the sale of Units, which are used by the Fund to fund its loans,
                will
                indirectly be paid to the Manager in the form of loan brokerage
                commissions, but will ultimately be repaid to the Fund by the borrowers.
                (See “Compensation to Manager.”)




[4]
            Reserves
                may be set aside by the Fund, in such amounts as the Manager shall
                deem
                appropriate, to meet unexpected cash needs of the Fund, including
                such
                cash needs that may arise if a Fund loan goes into
                default.




31


**FEDERAL
      INCOME TAX CONSEQUENCES**




The
      following is a summary of certain relevant federal income tax considerations
      resulting from an investment in the Fund, but does not purport to cover all
      of
      the potential tax considerations applicable to any specific purchaser.
      Prospective investors are urged to consult with and rely upon their own tax
      advisors for advice on these and other tax matters with specific reference
      to
      their own tax situation and potential changes in applicable law. The Fund will
      not seek, and therefore will not obtain, an opinion of counsel as to any tax
      consequences intended to result from an investment in the Fund.




**Taxation
      of Undistributed Fund Income (Individual Investors)**




Under
      the
      laws pertaining to federal income taxation of limited liability companies that
      are treated as partnerships, no federal income tax is paid by the Fund as an
      entity. Each individual Member reports on his federal income tax return his
      distributive share of Fund income, gains, losses, deductions and credits,
      whether or not any actual distribution is made to such member during a taxable
      year. Each individual Member may deduct his distributive share of Fund losses,
      if any, to the extent of the tax basis of his Units at the end of the Fund
      year
      in which the losses occurred. The characterization of an item of profit or
      loss
      will usually be the same for the member as it was for the Fund. Since individual
      Members are required to include Fund income in their personal income without
      regard to whether there are distributions of Fund income, such investors will
      become liable for federal and state income taxes on Fund income even though
      they
      have received no cash distributions from the Fund with which to pay such
      taxes.




**Distributions
      of Income**




To
      the
      extent cash distributions exceed the current and accumulated earnings and
      profits of the Fund, they will constitute a return of capital, and each Member
      will be required to reduce the tax basis of his Units by the amount of such
      distributions and to use such adjusted basis in computing gain or loss, if
      any,
      realized upon the sale of Units. Such distributions will not be taxable to
      Members as ordinary income or capital gain until there is no remaining tax
      basis, and, thereafter, will be taxable as gain from the sale or exchange of
      the
      Units.




**Property
      Held Primarily for Sale; Potential Dealer Status**




The
      Fund
      has been organized to invest in loans primarily secured by deeds of trust on
      real property. However, if the Fund were at any time deemed for federal tax
      purposes to be holding one or more Fund loans primarily for sale to customers
      in
      the ordinary course of business (a “dealer”), any gain or loss realized upon the
      disposition of such loans would be taxable as ordinary gain or loss rather
      than
      as capital gain or loss. The federal income tax rates for ordinary income are
      higher than those for capital gains. In addition, income from sales of loans
      to
      customers in the ordinary course of business would also constitute unrelated
      business taxable income to any investors which are tax-exempt entities. Under
      existing law, whether or not real property is held primarily for sale to
      customers in the ordinary course of business must be determined from all the
      relevant facts and circumstances. The Fund intends to invest in loans and hold
      the Fund loans for investment purposes only, and to dispose of Fund loans,
      by
      sale or otherwise, at the discretion of the Manager and as consistent with
      the
      Fund’s investment objectives. It is possible that, in so doing, the Fund will be
      treated as a “dealer” in mortgage loans, and that profits realized from such
      sales will be considered unrelated business taxable income to otherwise
      tax-exempt investors in the Fund.




32




**Tax
      Returns**




Annually,
      the Fund will provide the Members and Economic Interest Owners sufficient
      information from the Fund’s informational tax return for such persons to prepare
      their individual federal, state and local tax returns. The Fund’s informational
      tax returns will be prepared by certified public accountants selected by the
      Manager.




**Portfolio
      Income**




The
      Fund’s primary source of income will be interest, which is ordinarily considered
      “portfolio income” under the Code. Similarly, Temporary Regulations issued by
      the Internal Revenue Service in 1988 (Temp. Reg. §1.469-2T(f)(4)(ii)) confirmed
      that net interest income from an equity-financed lending activity such as the
      Fund will be treated as portfolio income, not as passive income, to Members.
      Therefore, investors in the Fund will not be entitled to treat their
      proportionate share of Fund income as “passive income,” against which passive
      losses (such as deductions from unrelated real estate investments) may be
      offset.




**Unrelated
      Business Taxable Income**




Units
      may
      be offered and sold to certain tax exempt entities (such as qualified pension
      or
      profit sharing plans) that otherwise meet the investor suitability standards
      described elsewhere in this Offering Circular (see “Investor Suitability
      Standards”). Such tax exempt entities generally do not pay federal income taxes
      on their income unless they are engaged in a business which generates “unrelated
      business taxable income,” as that term is defined by Section 513 of the Code.
      Under the Code, tax exempt purchasers of Units will not be deemed to be engaged
      in an unrelated trade or business by reason of interest income earned by the
      Fund. Interest income (which will constitute the primary source of Fund income)
      does not constitute an item of unrelated business taxable income, except to
      the
      extent it is derived from “debt-financed property.” Since the Fund may utilize
      borrowed funds for the purpose of making or investing in loans (see “Leveraging
      the Portfolio,” p. 2), interest earned on these loans may constitute unrelated
      business taxable income and investors that are otherwise exempt from federal
      and
      state income taxes may realize taxable income with respect to this interest
      income earned by the Fund. The Fund may also realize unrelated business taxable
      income by reason of profits earned from the resale or lease of properties
      acquired through foreclosure that are encumbered by senior mortgage loans.
      However, unrelated business income is taxable only to the extent such income
      from all sources exceeds $1,000 per year. The remainder of a tax exempt
      investor’s income will continue to be exempt from federal income taxes to the
      extent it complies with other applicable provisions of law, and the mere receipt
      of unrelated business income will not otherwise affect the qualification of
      an
      IRA or ERISA plan under the Code. The Manager does not anticipate that the
      Fund
      will ever earn so much unrelated business taxable income as to exceed this
      $1,000 threshold for any tax exempt investor.




Rents
      from real property and gains from the sale or exchange of property are also
      excluded from unrelated business taxable income, unless the property is held
      primarily for sale to customers or is acquired or leased in certain manners
      described in Section 514(c)(9) of the Code. Therefore, unrelated business
      taxable income may also be generated if the Fund operates or sells at a profit
      any property that has been acquired through foreclosure on a Fund loan, but
      only
      if such property (1) is deemed to be held primarily for sale to customers,
      or
      (2) is acquired from or leased to a person who is related to a tax-exempt
      investor in the Fund.




33




The
      trustee of any trust that purchases Units in the Fund should consult with his
      tax advisors regarding the requirements for exemption from federal income
      taxation and the consequences of failing to meet such requirements, in addition
      to carefully considering his fiduciary responsibilities with respect to such
      matters as investment diversification and the prudence of particular
      investments.




34


**CERTAIN
      LEGAL ASPECTS OF FUND LOANS**




Each
      of
      the Fund’s loans is secured directly or indirectly by a deed of trust, the most
      commonly used real property security device in California. The deed of trust
      (also commonly referred to as a mortgage) formally has three parties: a
      debtor-trustor, a third-party grantee called the “trustee”, and the
      lender-creditor called the “beneficiary”. The trustor grants the property,
      irrevocably until the debt is paid, “in trust, with power of sale” to the
      trustee to secure payment of the obligation. The trustee’s authority is governed
      by law, the express provisions of the deed of trust and the directions of the
      beneficiary. The Fund is the beneficiary under all deeds of trust securing
      Fund
      loans.




**Foreclosure**




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




A
      judicial foreclosure (in which the beneficiary’s purpose is usually to obtain a
      deficiency judgment where otherwise available) is subject to most of the delays
      and expenses of other lawsuits, sometimes requiring up to several years to
      complete. Following a judicial foreclosure sale, the trustor or his successors
      in interest will have certain rights to redeem the property, unless the creditor
      waives any right to a deficiency. The Fund generally will not pursue a judicial
      foreclosure to obtain a deficiency judgment, except where, in the sole
      discretion of the Manager, such a remedy is warranted in light of the time
      and
      expense involved.




**Anti-Deficiency
      Legislation**




California
      has four principal statutory prohibitions which limit the remedies of a
      beneficiary under a deed of trust. Two statutes limit the beneficiary’s right to
      obtain a deficiency judgment against the trustor following foreclosure of a
      deed
      of trust, one based on the method of foreclosure and the other on the type
      of
      debt secured. Under one statute, a deficiency judgment is barred where the
      foreclosure was accomplished by means of a nonjudicial trustee’s sale. It is
      anticipated that all of the Fund’s loans will be enforced by means of a
      nonjudicial trustee’s sale, if foreclosure becomes necessary. Under the other
      statute, a deficiency judgment is barred in any event where the foreclosed
      deed
      of trust secured a “purchase money” obligation, i.e., a promissory note
      evidencing a loan used to pay all or a part of the purchase price of a
      residential property occupied, at least in part, by the purchaser. This
      restriction may apply to some Fund loans.




35




Another
      statute, commonly known as the “one form of action” rule, requires the
      beneficiary to exhaust the security under the deed of trust by foreclosure
      before bringing a personal action against the trustor on the promissory note.
      The fourth statutory provision limits any deficiency judgment obtained by the
      beneficiary following a judicial sale to the excess of the outstanding debt
      over
      the fair market value of the property at the time of sale, thereby preventing
      a
      beneficiary from obtaining a large deficiency judgment against the debtor as
      a
      result of low bids at the judicial sale. Other matters, such as litigation
      instituted by a defaulting borrower or the operation of the federal bankruptcy
      laws, may have the effect of delaying enforcement of the lien of a defaulted
      loan and may in certain circumstances reduce the amount realizable from sale
      of
      a foreclosed property.




**Special
      Considerations in Connection with Junior Encumbrances**




In
      addition to the general considerations concerning trust deeds discussed above,
      there are certain additional considerations applicable to second, third or
      fourth deeds of trust (“junior encumbrances”). By its very nature, a junior
      encumbrance is less secure than more senior ones. Only the holder of a first
      trust deed is permitted to bid in the amount of his credit at his foreclosure
      sale; junior lienholders must bid cash. If a senior lienholder forecloses on
      its
      loan, unless the amount of the bid exceeds the senior encumbrances, the junior
      lienholders will receive nothing. Because of the limited notice and attention
      given to foreclosure sales, it is possible for junior lienholders to be sold
      out, receiving nothing from the foreclosure sale. However, in such event the
      junior lienholder may have a personal action against the borrower to enforce
      the
      debt.




Accordingly,
      a junior lienholder (such as the Fund) may find that the only method of
      protecting its security interest in the property is to take over all obligations
      of the trustor with respect to senior encumbrances while the junior lienholder
      commences his foreclosure, making adequate arrangements either: (i) to find
      a
      purchaser of the property at a price which will recoup the junior lienholder’s
      interest, or (ii) to pay off the senior encumbrances so that his encumbrance
      achieves first priority. Either alternative will require the Fund to make
      substantial cash expenditures to protect its interest. (See “Risk and Other
      Important Factors -- Defaults and Foreclosures.”)




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




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




36




The
      standard form of deed of trust used by most institutional lenders, like the
      one
      that is used by the Fund, confers on the beneficiary the right both to receive
      all proceeds collected under any hazard insurance policy and all awards made
      in
      connection with any condemnation proceedings, and to apply such proceeds and
      awards to any indebtedness secured by the deed of trust, in such order as the
      beneficiary may determine. Thus, in the event improvements on the property
      are
      damaged or destroyed by fire or other casualty, or in the event the property
      is
      taken by condemnation, the beneficiary under the underlying first deed of trust
      will have the prior right to collect any insurance proceeds payable under a
      hazard insurance policy and any award of damages in connection with the
      condemnation, and to apply the same to the indebtedness secured by the first
      deed of trust before any such proceeds are applied to repay the Fund’s loan.
      Applicable case law, however, imposes upon the lender the good faith obligation
      to apply the proceeds toward reconstruction where the lender’s security would
      not be impaired.




**“Due-on-Sale”
      Clauses**




The
      Fund’s forms of promissory notes and deeds of trust, like those of most lenders,
      contain “due-on-sale” clauses permitting the Fund to accelerate the maturity of
      a loan if the borrower sells the property, but do not usually contain
“due-on-encumbrance” clauses which would permit the same action if the borrower
      further encumbers the property (i.e., executes further deeds of trust). The
      enforceability of these types of clauses is discussed below:




1.  Due-on-Sale .
      Due-on-sale clauses contained in mortgage loan documents executed by the Fund
      after October 15, 1982 are enforceable in accordance with their terms. However,
      acquisition of a property by the Fund by foreclosure on one of its loans would
      also constitute a “sale” of the property, and would entitle a senior lienholder
      to accelerate its loan against the Fund. This would be likely to occur if
      then-prevailing interest rates were substantially higher than the rate provided
      for under the accelerated loan. In that event, the Fund may be compelled to
      sell
      or refinance the property within a short period of time, notwithstanding that
      it
      may not be an opportune time to do so.




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


37


**SUMMARY
      OF OPERATING AGREEMENT**




The
      following is a summary of the Operating Agreement for the Fund dated as of
      February 24, 2003, and is qualified in its entirety by the terms of the
      Operating Agreement itself. Potential investors are urged to read the entire
      Operating Agreement which is set forth as Exhibit A to this Offering
      Circular.




**Rights
      and Liabilities of Members**




The
      rights, duties and powers of Members are governed by the Operating Agreement
      and
      Chapter 3, Title 2.5 of the California Corporations Code (the “Act”) and the
      discussion herein of such rights, duties and powers is qualified in its entirety
      by reference to such Agreement and Act.




Investors
      who become Members in the Fund in the manner set forth herein will not be
      responsible for the obligations of the Fund and will be liable only to the
      extent of their agreed upon capital contributions. Members may be liable for
      any
      return of capital plus interest if necessary to discharge liabilities existing
      at the time of such return. Any cash distributed to Members may constitute,
      wholly or in part, return of capital.




Members
      will have no control over the management of the Fund except that with the
      consent of the Manager, Members representing a majority of the outstanding
      Fund
      Membership interests may approve or disapprove any of the following matters:
      (a)
      dissolution and termination of the Fund; (b) merger or consolidation of the
      Fund
      with one or more other entities; (c) amendment of the Operating Agreement;
      and
      (d) removal of the Manager and election of a successor manager. In addition,
      upon the cessation of the Manager for any reason (such as the withdrawal or
      resignation of the Manager), a majority in interest of the Members may elect
      a
      replacement manager to continue the business of the Fund. Members representing
      10% of the Membership interests may call a meeting of the Fund.




**Capital
      Contributions**




Interests
      in the Fund are sold in Units of $100, and no person may initially acquire
      less
      than 20 Units ($2,000). After subscribing for at least 20 Units an investor
      may
      at any time, and from time to time, subscribe to purchase additional Units,
      in
      amounts and on terms and conditions acceptable to the Manager. For purposes
      of
      meeting this minimum investment requirement, a person may cumulate Units he
      or
      she purchases individually with Units purchased by his or her spouse. To
      purchase Units an investor must deliver to the Fund a Subscription Agreement
      in
      the form attached to this Offering Circular as Exhibit B, together with his
      or
      her initial cash contribution.




**Rights,
      Powers and Duties of Manager**




Subject
      to the right of the Members to vote on specified matters, the Manager will
      have
      complete charge of the business of the Fund. The Manager is not required to
      devote full time to Fund affairs but only such time as is required for the
      conduct of Fund business. The Manager acting alone has the power and authority
      to act for and bind the Fund.




38




The
      Manager is granted the special power of attorney of each Member for the purpose
      of executing the documents which the Members have expressly agreed to execute
      and deliver or which are required to be executed, delivered and/or filed under
      applicable law.




**Profits
      and Losses**




Profits
      and losses of the Fund accrued during any calendar month are allocated as of
      the
      last day of such calendar month to the Members in accordance with their
      respective outstanding capital account balances as of the first day of such
      month, or, if any Units are purchased following the first day of such month,
      then the profits and losses allocable to the Members for such month are
      allocated in proportion to the number of days during such month that each Member
      held a capital account in the Fund.




Upon
      transfer of Units (if permitted under the Operating Agreement and applicable
      law), profit and loss will be allocated to the transferee beginning with the
      next succeeding calendar month.




**Cash
      Distributions**




Upon
      subscription for Units, an investor must elect whether to receive monthly cash
      distributions from the Fund or to allow his or her earnings to compound for
      the
      term of the Fund. Investors who elect to change this election must give the
      Manager thirty (30) days prior written notice. Investors who elect to receive
      distributions may change this election in order to begin compounding earnings
      only if there is in effect a permit issued by the California Department of
      Corporations. Earnings allocable to investors who elect to compound their
      earnings are retained by the Fund for making or investing in further mortgage
      loans or other proper Fund purposes. The earnings from these further loans
      are
      allocated among all investors; however, investors who compound are credited
      with
      an increasingly larger proportionate share of such earnings than investors
      who
      receive monthly distributions, since their capital accounts will increase over
      time. Cash available for distribution is determined by computing the net income
      during the calendar month on the accrual basis and in accordance with generally
      accepted accounting principles.




Promptly
      after the end of each calendar month, the Fund will distribute to Members
      receiving monthly distributions an amount of cash equal to their proportionate
      share of the Fund’s accrued net income during such month. Accrued net income
      means the excess of accrued income from operations and investment of, or the
      sale or refinancing or other disposition of, Fund assets during such calendar
      month over the accrued operating expenses of the Fund during such month,
      including any adjustments for bad debt reserves or deductions as the Manager
      may
      deem appropriate, all determined in accordance with generally accepted
      accounting principles. Cash available for distribution shall be distributed
      only
      to those Members who elect to receive such distributions in an amount equal
      to
      their respective allocable shares of Fund profits during such month, and the
      balance of Fund income is credited to the capital accounts of Members who
      elected to compound earnings.




**Meetings**




The
      Manager, or Members representing ten percent (10%) of the outstanding membership
      interests, may call a meeting of the Fund. Unless the notice otherwise
      specifies, all meetings will be held at the office of the Fund. Members may
      vote
      in person or by proxy at the Fund meeting. A majority of the membership
      interests will constitute a quorum at Fund meetings.




39




**Accounting
      and Reports**




The
      Manager will cause to be prepared and furnished to the Members an annual report
      of the Fund’s operation, which may be (but is not required to be) audited by an
      independent accounting firm. Within six months of the close of the year covered
      by the report, a copy or condensed version will be furnished to the Members.
      The
      Members will also be furnished such detailed information as is reasonably
      necessary to enable them to complete their own tax returns within 90 days after
      the end of the year. Any Members may inspect the books and records of the Fund
      at all reasonable times and upon reasonable prior notice to the
      Manager.




**Amendment
      of the Agreement**




The
      Operating Agreement may be amended by the Manager alone (with respect to certain
      matters), or upon the vote of Members holding a majority of the outstanding
      membership interests.




**Withdrawal
      from Fund**




A
      Member
      has no right to withdraw from the Fund or to obtain the return of all or any
      portion of sums paid for the purchase of Units (or reinvested earnings with
      respect thereto) for at least twelve (12) months after the date such Units
      are
      purchased (the “Holding Period”). After twelve (12) months, Members may withdraw
      all or part of their capital accounts from the Fund by giving at least sixty
      (60) days prior written notice to the Manager. Members may withdraw all or
      part
      of their capital accounts from the Fund in four quarterly installments beginning
      on the last day of the calendar quarter in which the 60-day notice of withdrawal
      is given, subject to the restrictions and penalties discussed
      below.




The
      amount that a withdrawing Member will receive from the Fund is based on the
      withdrawing Member’s capital account. A capital account is a sum calculated for
      tax and accounting purposes, and may be greater than or less than the fair
      market value of such investor’s membership interest in the Fund, and may be
      greater or less than the investor’s original contribution to the Fund. Upon
      withdrawal, Members will receive an amount equal to their original investment,
      with any difference between the Member’s capital account and the Member’s
      original investment being paid by the Manager. The fair market value of a
      Member’s interest in the Fund will generally be irrelevant in determining
      amounts to be paid upon withdrawal, except to the extent that the current fair
      market value of the Fund’s loan portfolio is realized by sales of existing loans
      (which sales are not required to be made).




The
      Fund
      will not establish a reserve from which to fund withdrawals and, accordingly,
      the Fund’s capacity to return a Member’s capital account is restricted to the
      availability of Fund cash. For this purpose, cash is considered to be available
      only after all current Fund expenses have been paid (including compensation
      to
      the Manager), adequate reserves have been established for anticipated Fund
      expenses, and adequate provision has been made for the payment of all monthly
      cash distributions on a pro rata basis which must be paid to Members who elected
      to receive such distributions upon subscription for Units.




40




If
      current cash flow of the Fund is inadequate to return a Member’s capital account
      within the time periods stated above, the Fund is not required to liquidate
      any
      Fund loans prior to maturity for the purpose of liquidating the capital account
      of a withdrawing Member, and is merely required to continue paying whatever
      cash
      flow is available to withdrawing Members until their liquidation schedules
      are
      being adhered to once again.




Notwithstanding
      anything to the contrary stated above, the Manager shall not liquidate (and
      Members shall not be entitled to withdraw), within any single calendar year,
      more than ten percent (10%) of the total Fund capital accounts outstanding
      at
      the beginning of such calendar year.




Unless
      otherwise waived by the Manager, any withdrawals requested by a Member and
      disbursed by the Fund within the three-year period following the one-year
      Holding Period (i.e., within four years after the date such Member’s Units are
      purchased) shall be reduced by the following amounts as a penalty for early
      withdrawal from the Fund: (i) three percent (3%) of any amount disbursed in
      the
      year following the expiration of the Holding Period; (ii) two percent (2%)
      of
      any amount disbursed in the second year following the expiration of the Holding
      Period; and (iii) one percent (1%) of any amount disbursed in the third year
      following the expiration of the Holding Period. All such penalties shall be
      retained for the benefit of the Fund, and shall directly reduce the total value
      of the capital account being withdrawn by the withdrawing Member.




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




**Limitations
      on Transferability**




The
      Operating Agreement places substantial limitations upon transferability of
      membership interests. The transfer of a Membership Interest requires the written
      consent of the Manager (although the transfer of only the Economic Interest
      may
      be accomplished without such written consent). Any transferee (including a
      donee) must be a person or entity which would have been qualified to purchase
      a
      Unit in this offering and a transferee may not become a substituted Member
      without the consent of the Manager. A transferee who does not become a
      substituted Member will own an Economic Interest which entitles him or her
      only
      to the share of income or return of capital to which the transferor would be
      entitled. Economic Interest holders will have no voting or inspection
      rights.




In
      addition to the restrictions imposed by the Operating Agreement, the California
      Commissioner of Corporations has imposed additional restrictions on
      transferability as set forth in Commissioners Rule 260.141.11 which is set
      forth
      below.




41




**Term
      of Fund**




The
      Fund
      will continue indefinitely until dissolved and terminated by vote of Members
      holding a majority of the outstanding membership interests with the concurrence
      of the Manager.




**Winding
      Up**




Upon
      dissolution of the Fund, the Manager will wind up the Fund’s affairs as follows:
      (i) no new loans will be made or purchased; and (ii) the Manager or its
      successor will liquidate the Fund’s remaining assets as promptly as is
      consistent with obtaining the fair current value thereof, either by sale to
      third parties or by collecting loan payments under the terms of the loan. All
      funds received by the Fund shall be applied and promptly distributed in
      accordance with the Act and the Operating Agreement.




In
      the
      event the Fund dissolves at a time when there are outstanding unfulfilled
      withdrawal requests, such withdrawal requests will be of no further force or
      effect and all Members will thereafter be entitled to receive their pro rata
      portion of all remaining liquidating distributions of the Fund in accordance
      with their respective outstanding capital account balances.




**Merger
      with Other Business Entities**




The
      Manager, upon the prior written consent of a majority interest of the Members,
      will have the right to merge the Fund with one or more other business entities
      (of which the Manager may be a sponsor or co-sponsor).


42


**PLAN
      OF DISTRIBUTION**




The
      Units
      are offered and sold by the Manager, with respect to which no commissions or
      fees will paid to the Manager or its employees. The Manager also retains the
      services of independent securities broker/dealers to sell Units, who may receive
      selling commissions of up to 6.5%
      of
      the gross sales proceeds from the sales of Units effected by such
      broker/dealers. Certain commission arrangements may include at trailing payment
      of 1.0% per annum of such proceeds as long as the Units sold remain outstanding.
      To the extent that a Member purchases Units through a broker/dealer and elects
      to compound his or her earnings in the Fund, any annual commission negotiated
      by
      the Manager is calculated based upon the increased value of such Members capital
      account on the last day of the month of the anniversary of admission. Any such
      commissions are borne by the Fund, but will have the effect of reducing the
      Member’s capital account, and will directly reduce the proceeds received from
      this offering for investment in mortgage loans by the Fund. (See “Use of
      Proceeds.”) There is no firm commitment to purchase any Units, and there is no
      assurance that the maximum amount of this offering will be
      received.




**LEGAL
      MATTERS**




The
      Manager has retained Stein & Lubin LLP of San Francisco, California to
      advise it in connection with the preparation of this Offering Circular and
      the
      Operating Agreement, as well as the offer and sale of the Units offered hereby.
      Stein & Lubin LLP may be, but as yet has not been, retained to provide legal
      services in connection with the drafting of any of the loan documents, the
      negotiation or closing of any loans or the servicing or enforcement of any
      loans, nor has it represented the interests of the Members in connection with
      the Units offered hereby. Investors purchasing Units that wish to obtain the
      benefit of review by legal counsel on their behalf must retain their own
      attorneys to do so.




**ADDITIONAL
      INFORMATION AND UNDERTAKINGS**




The
      Manager undertakes to make available to each offeree every opportunity to obtain
      any additional information from the Fund or the Manager necessary to verify
      the
      accuracy of the information contained in this Offering Circular, to the extent
      that they possess such information or can acquire it without unreasonable effort
      or expense. This additional information includes, without limitation, all the
      organizational documents of the Fund, and all other documents or instruments
      relating to the operation and business of the Fund and material to this offering
      and the transactions contemplated and described in this Offering
      Circular.




The
      Fund
      is a reporting company under the Securities Exchange Act of 1934. As such,
      the
      Fund prepares and files periodic reports such as annual reports on Form 10-KSB
      and quarterly reports on Form 10-QSB. All such filings of the Fund can be
      accessed through the EDGAR system, and are available (among other places) at
      the
      Securities & Exchange Commission website (www.sec.gov).




43




**COMMISSIONER’S
      RULE 260.141.11**




In
      addition to the various restrictions on the transfer of Units imposed by the
      Operating Agreement and state and federal securities laws generally, no Unit
      may
      be sold or transferred or any consideration received therefor without the prior
      written consent of the California Commissioner of Corporations, except as
      provided in the Commissioner’s Rules. Commissioner’s Rule 260.141.11 is set
      forth below in its entirety.




**§260.141.11.Restriction
      on Transfer**




(a)  The
      issuer of any security upon which a restriction on transfer has been imposed
      pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall cause a copy of
      this
      section to be delivered to each issuee or transferee of such security at the
      time the certificate evidencing the security is delivered to the issuee or
      transferee.




(b)  It
      is
      unlawful for the holder of any such security to consummate a sale or transfer
      of
      such security, or any interest therein, without the prior written consent of
      the
      Commissioner (until this condition is removed pursuant to Section 260.141.12
      of
      these rules), except:




(1)  to
      the
      issuer;




(2)  pursuant
      to the order or process of any court;




(3)  to
      any
      person described in Subdivision (i) of Section 25102 of the Code or Section
      260.105.14 of these rules;




(4)  to
      the
      transferor’s ancestors, descendants or spouse, or any custodian or trustee for
      the account of the transferor or the transferor’s ancestors, descendants, or
      spouse; or to a transferee by a trustee or custodian for the account of the
      transferee or the transferee’s ancestors, descendants or spouse;




(5)  to
      holders of securities of the same class of the same issuer;




(6)  by
      way of
      gift or donation inter vivos or on death;




(7)  by
      or
      through a broker-dealer licensed under the Code (either acting as such or as
      a
      finder) to a resident of a foreign state, territory or country who is neither
      domiciled in this state to the knowledge of the broker-dealer, nor actually
      present in this state if the sale of such securities is not in violation of
      any
      securities law of the foreign state, territory or country
      concerned;




(8)  to
      a
      broker-dealer licensed under the Code in a principal transaction, or as an
      underwriter or member of an underwriting syndicate or selling
      group;




(9)  if
      the
      interest sold or transferred is a pledge or other lien given by the purchaser
      to
      the seller upon a sale of the security for which the Commissioner’s written
      consent is obtained or under this rule not required;




44




(10)  by
      way of
      a sale qualified under Sections 25111, 25112, 25113, or 25121 of the Code,
      of
      the securities to be transferred, provided that no order under Section 25140
      or
      Subdivision (a) of Section 25143 is in effect with respect to such
      qualification;




(11)  by
      a
      corporation to a wholly owned subsidiary of such corporation, or by a wholly
      owned subsidiary of a corporation to such corporation;




(12)  by
      way of
      an exchange qualified under Section 25111, 25112, or 25113 of the Code, provided
      that no order under Section 25140 or Subdivision (a) of Section 25143 is in
      effect with respect to such qualification;




(13)  between
      residents of foreign states, territories or countries who are neither domiciled
      nor actually present in this state;




(14)  to
      the
      State Controller pursuant to the Unclaimed Property Law or to the administrator
      of the unclaimed property law of another state;




(15)  by
      the
      State Controller pursuant to the Unclaimed Property Law or to the administrator
      of the unclaimed property law of another state if, in either such case, such
      person (i) discloses to potential purchasers at the sale that transfer of the
      securities is restricted under this rule, (ii) delivers to each purchaser a
      copy
      of this rule, and (iii) advises the Commissioner of the name of each purchaser;




(16)  by
      a
      trustee to a successor trustee when such transfer does not involve a change
      in
      the beneficial ownership of the securities ;
      or




(17)  by
      way of
      an offer and sale of outstanding securities in an issuer transaction that is
      subject to the qualification requirement of Section 25110 of the Code but exempt
      from that qualification requirement by subdivision (f) of Section 25102;
      provided that any such transfer is on the condition that any certificate
      evidencing the security issued to such transferee shall contain the legend
      required by this section.




(c)  The
      certificates representing all such securities subject to such a restriction
      on
      transfer, whether upon initial issuance or upon any transfer thereof, shall
      bear
      on their face a legend, prominently stamped or printed thereon in capital
      letters of not less than 10-point size, reading as follows:




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




45