OFFERING CIRCULAR                                                 FOR CALIFORNIA
                                                                  RESIDENTS ONLY

                           LAKESIDE MORTGAGE FUND, LLC

                                   $25,000,000
                     250,000 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 will be
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 illiquid and subject to  substantial
restrictions on 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 will be 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.

<TABLE>
<CAPTION>
---------------------------- --------------------------- ---------------------------- ----------------------------
                               Price to Investors [1]      Selling Commissions [2]     Net Proceeds to Fund [3]
---------------------------- --------------------------- ---------------------------- ----------------------------
<S>                                   <C>                        <C>                            <C>
Per Unit                                     $100                     $6.50                          $93.50
Minimum Total                            $500,000                   $32,500                        $467,500
Maximum Total                         $25,000,000                $1,625,000                     $23,375,000
(FOOTNOTES ON NEXT PAGE)
---------------------------- --------------------------- ---------------------------- ----------------------------
</TABLE>

                                    MANAGER:
                         LAKESIDE FINANCIAL GROUP, INC.
                          443 Redcliff Drive, Suite 240
                            Redding, California 96002
                                 (530) 226-5850

               The date of this Offering Circular is March 2, 2005

<PAGE>

[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 will be 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 will be  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 0.5% 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 0.5% trailing  commission (if any) will be 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  shall be 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.  There is no firm  commitment  to  purchase or sell any of the
         Units.  Units will be sold on a "best efforts" basis,  which means that
         no broker/dealer  selling Units on behalf of the Fund will be 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.")

<PAGE>

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.


                                       ii
<PAGE>

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.


                                      iii
<PAGE>

                                TABLE OF CONTENTS


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





                                       iv

<PAGE>

                             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.

<TABLE>
<CAPTION>
<S>                                <C>
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   $25,000,000
                                   (subject to increase by the Manager).

Term of the Fund.................  Indefinite.  (See "Summary of Operating Agreement - Term
                                   of the Fund.")

Manager, Mortgage Broker and ....  Lakeside Financial Group, Inc.
Loan Servicer                      443 Redcliff Drive, Suite 240
                                   Redding, California 96002
                                   (530) 226-5850

Prior 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 will be: (1)  secured by  undeveloped  land,
                                   fully developed  commercial or residential  real estate,
                                   or leasehold  interests  in real estate;  or (2) will be
                                   construction  loans secured by  undeveloped or partially
                                   developed  property and may be subject to a construction
                                   loan  agreement.  Loans  will be  secured  primarily  by
                                   property  located  in  California.  Loans  will  be made
                                   while  this  offering  is   continuing.   (See  "Lending
                                   Standards and Policies.")
</TABLE>


                                       1
<PAGE>

<TABLE>
<CAPTION>
<S>                                <C>
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...............  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
                                   sixty  (60)  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  may  be
                                   subject to  penalties  for  withdrawal  within the first
                                   four  years  following  the  purchase  of  Units.   (See
                                   "Summary  of  Operating  Agreement  --  Withdrawal  from
                                   Fund.")
</TABLE>

                                       2
<PAGE>

<TABLE>
<CAPTION>
<S>                                <C>
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 will be 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  will be  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."
</TABLE>


                                       3
<PAGE>

                         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 (a) 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 (b) 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
<PAGE>

                              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 $25,000,000 (250,000
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 will be
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  will become a Member and the  investor's  entire  investment  shall be
deposited  into the Fund only  when  all,  or any  portion,  of 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  and all or a
portion of the investor's  subscription  funds are transferred to the Fund. (See
"Use of Proceeds.") Until then, an investor's  subscription is irrevocable,  and
subscription  funds  received by the Manager shall be held by it for the account
of each such investor in a non-interest-bearing subscription account. Investors'
funds  will be  transferred  from the  subscription  account  into the Fund on a
first-in,  first-out  basis,  at which time the investor will be admitted to the
Fund and Units will be issued to such investor at the rate of $100 per Unit.

                  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 sixty (60) days prior notice to the
Manager.  In addition,  if there is in effect a permit issued by the  California

                                       5
<PAGE>

Commissioner  of Corporations  qualifying this offering,  an investor may switch
from receiving  monthly  distributions  to compounding and reinvesting  earnings
upon sixty (60) 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.")

                  Income  allocable  to  investors  who elect to compound  their
earnings will be retained by the Fund for investing in further mortgage loans or
other  proper  Fund  purposes.  The  income  from  these  further  loans will be
allocated among all investors;  however, investors who compound will be 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


                                       6
<PAGE>

                  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.

                  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
<PAGE>

                         LENDING STANDARDS AND POLICIES

GENERAL STANDARDS FOR MORTGAGE LOANS

                  The Fund will engage in the business of making  loans  secured
by first,  second,  and third deeds of trust that encumber  real estate  located
primarily  in  California  and will also make or  invest  in  wraparound  loans,
construction  loans and loans  secured  by  leasehold  interests  in  commercial
property. The Fund's loans will not be insured or guaranteed by any governmental
agency or private entity. The Fund will select 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

                                                             MAXIMUM LOAN
           TYPE OF PROPERTY/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 will be 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 will be 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 will limit
lending  primarily  to  deeds  of trust 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
<PAGE>

                  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 shall obtain a valuation  for each  security  property on which it
will make or invest in a mortgage  loan based upon 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 will be 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).

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

                           (a)  Satisfactory  title  insurance  coverage will be
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,


                                       9
<PAGE>

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.

                           (b) Satisfactory fire and casualty insurance has been
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 shall receive  assignments of all beneficial
interest in any documents related to each Loan so purchased. Fund investments in
Loans will not be 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.  All loans  purchased by the Fund
shall 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  bankers  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


                                       10
<PAGE>

of their  obligations  (e.g.,  to  consolidate  their  debts) or who do not have
sources of income  that  would be  sufficient  to  qualify  for loans from other
lenders such as banks or savings and loan associations.

LOAN 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 will be  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  will make loan  payments  in  arrears,  i.e.,  with
respect to the preceding  month,  and will be 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 will invest 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
but is not required to be a bank or other  financial  institution)  in order to:
(1) fund additional  mortgage loans; (2) prevent default of loans senior to Fund
loans or to discharge  such loans  entirely;  or (3) develop or operate any real


                                       11
<PAGE>

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).

                  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 will be 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
<PAGE>

                               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
December 31, 2004,  56,348.73 Units  ($5,634,873.45)  had been sold and the Fund
had  invested  in  twelve  (12)  mortgage  loans  in  an  aggregate   amount  of
$5,016,489.00.  As of December 31,  2004,  the Fund had no loans which have gone
into  default.  The  average  size of a Fund loan as of  December  31,  2004 was
approximately  $418,000.00.  Interest rates on most Fund loans  presently  range
from 10.9 % to 12% and the maturity  dates of loans have varied from 6 months to
2 years.  As of December 31,  2004,  17% of the total Fund assets were loaned to
affiliated  entities.  This was in the form of three (3) loans,  in an aggregate
amount of  $982,000.00.  As of December  31,  2004,  no loan from the Fund to an
affiliate has been in default.

                  The average net  investment  yield to investors for the fiscal
year ended on December 31, 2004,  calculated on an accrual basis,  was 8.09% per
annum. If current interest rates remain constant,  the Manager anticipates a net
investment  yield to  investors  of  approximately  6% - 8% 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
<PAGE>

                         THE MANAGER AND ITS AFFILIATES

                  The  Manager  will  manage and direct the affairs of the Fund.
All loans made or invested in by the Fund will be 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, of Lakeside.  Prior to joining Lakeside, Mr. Webster
was 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 has  represented  AREI  (described  below) and
related entities for the past four years,  serving as general  corporate counsel
and securities counsel,  and representing AREI in all of its various real estate
financing activities.

                  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,  and is a contributing author
to Forming and Operating  California Limited Liability Companies (CEB 1995), and
the author of California Business Structures Law Guide (LawPress 2000).

                  JAMES S. KOENIG. James S. Koenig is a director and shareholder
of  Lakeside.  Mr.  Koenig is 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 and  development.  In the above  capacities,  Mr.  Koenig  directs and
oversees the  operations of AREI,  which include the raising of capital for real
estate  ownership and development  through private  offerings of debt and equity
securities.   In  the  past  three  years  AREI  has   participated  in  raising
approximately  $33,000,000 for real estate related  projects,  with average loan
size  approximately  $3,000,000.  Mr.  Koenig is a  principal  in several  other
companies  which own and develop real property,  such as Larkspur Fund, LLC, and
is a principal in several companies which own, or anticipate acquiring, assisted
living facilities, including Oakdale Heights Senior Living, LLC; Oakdale Heights
West, L.P.; Oakdale Heights Bakersfield, L.P.; and Oakdale Heights Fresno, L.P.

                  Prior to his  involvement  with AREI,  from October 1996 until
October 1997,  Jim 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


                                       14
<PAGE>

mortgage lending and mortgage-backed  securities with such companies as Danville
Financial Group, Echelon Mortgage Acceptance Company, and Commonwealth  Mortgage
Corporation.

                  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.

                  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. In the
past three years Mr. Nelson's company has loaned over $21,000,000,  with average
loan size of $276,000.  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

<PAGE>

                             COMPENSATION TO MANAGER

                  The following discussion  summarizes the forms of compensation
to be  received  by the  Manager.  All of the  amounts  described  below will be
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.

<TABLE>
<CAPTION>
         Form of Compensation                                 Estimated Amount or Method of Compensation
         --------------------                                 ------------------------------------------
<S>                                                    <C>
Loan Brokerage Commissions, Renewal                    Anticipated  to  average   between  2%  and  6%  of  the
and Forbearance Fees to the Manager                    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 will be
                                                       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 will be paid by the borrowers and
                                                       not the Fund.

Late Payment Charges and Default Interest              Late payment fees of approximately  ten percent (10%) of
Retained by  the Manager                               the amount of any late  payment due from  borrowers  and
                                                       default  interest  of 3%-5%  above the loan  rate.  Such
                                                       fees will be 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.
</TABLE>

                                       16
<PAGE>

<TABLE>
<CAPTION>
      Form of Compensation (cont.)                         Estimated Amount or Method of Compensation (cont.)
      ----------------------------                         --------------------------------------------------
<S>                                                    <C>
Broker/Dealer Commissions to Affiliates of Manager     Broker/dealers  selling Units on behalf of the Fund will
                                                       be 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 0.5% 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.
</TABLE>

[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 will be 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  will be  limited  to 2.75% of the Gross  Assets
         Under  Management  calculated  as of the last day of the Fund's  fiscal
         year.



                                       17
<PAGE>

                     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 will be
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
<PAGE>

                              CONFLICTS OF INTEREST

                  The  following is a list of the  important  areas in which the
interests of the Manager will 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 will be 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
<PAGE>

                  (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


                                       20
<PAGE>

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.

                  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
<PAGE>

                        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 will 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 will elect 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:

                  o     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.

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

                  o     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


                                       22
<PAGE>

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.

                  The Fund will  frequently be an "asset" 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
<PAGE>

                  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 will be 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
<PAGE>

UNSPECIFIED LOANS; RELIANCE ON THE MANAGER

                  The  loans in which  the  proceeds  of this  offering  will be
invested have not yet been  determined,  and Members will 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 will be a delay  between the time initial  subscriptions
are submitted by prospective  investors and the time the minimum  capitalization
of the Fund is  reached,  after  which  time the Fund  can  commence  making  or
investing in loans. Even after minimum funding has been received,  there will 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


                                       25
<PAGE>

of this  offering  will 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.

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  inaccurate  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


                                       26
<PAGE>

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.

                  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: (1) fund  additional  mortgage  loans;  (2)  prevent  default of loans
senior  to Fund  loans or to  discharge  such  loans in their  entirety;  or (3)
develop or operate any real property  acquired by the Fund as a result of a loan


                                       27
<PAGE>

default.  The Fund may assign most or all of its loan  portfolio to such lenders
for the loans. (See "Leveraging the Portfolio.")

                  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


                                       28
<PAGE>

consumer.   HOEPA  raises  significant  questions  as  to  its  application  and
interpretation,  especially in cases  involving  clerical  errors that result in
mistaken disclosures.

                  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.  There  can be no
assurances  that more than the minimum will be raised or that the Fund will ever
make a significant 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
<PAGE>

                              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
<PAGE>

                                 USE OF PROCEEDS

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

<TABLE>
<CAPTION>
                              Minimum Offering      Percentage      Maximum Offering        Percentage
                              ----------------      ----------      ----------------        ----------
<S>                                 <C>                <C>                <C>                  <C>
Organizational and                  $75,000            15.0%              $150,000             0.6%
Syndication Expenses
Selling Commissions [1][2]          $32,500             6.5%            $1,625,000             6.5%
Investment in Mortgage             $377,500            75.5%           $22,475,000            89.9%
Loans [3]
Reserves [4]                        $15,000             3.0%              $750,000             3.0%
------------------------------------------------------------------------------------------------------

TOTAL:                             $500,000             100%           $25,000,000           100%
</TABLE>

[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  of 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 0.5% 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 will be calculated based upon the
         increased  value of such Members 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 will be less than 3% leaving more capital
         for investment in mortgage loans.

[3]      All loan  brokerage  commissions  paid to the  Manager  will be 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 will be 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
<PAGE>

                         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  partner 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  will be  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


                                       32
<PAGE>

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.

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.
ss.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


                                       33
<PAGE>

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.

                  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
<PAGE>

                       CERTAIN LEGAL ASPECTS OF FUND LOANS

                  Each  of  the  Fund's  loans  will  be  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 will be 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 90 days  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


                                       35
<PAGE>

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.

                  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 to (i) 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
<PAGE>

                  The standard form of deed of trust used by most  institutional
lenders,  like the one that will be 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
<PAGE>

                         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  will be 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
<PAGE>

                  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 will be 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 will be  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 sixty (60) 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 will be retained by the Fund for making or investing
in further mortgage loans or other proper Fund purposes. The earnings from these
further  loans will be allocated  among all  investors;  however,  investors who
compound will be 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  will
be  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 will be 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.


                                       39
<PAGE>

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.

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 (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 that the investor's  original  contribution  to
the  Fund.  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
<PAGE>

                  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:  (1) three  percent  (3%) of any
amount disbursed in the year following the expiration of the Holding Period; (2)
two  percent  (2%) of any amount  disbursed  in the second  year  following  the
expiration  of the  Holding  Period;  and (3)  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
<PAGE>

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:  (1) no new loans will be made or purchased;  and (2)
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

<PAGE>

                              PLAN OF DISTRIBUTION

                  The  Units  will be  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  anticipates  retaining 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 0.5% 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 will be 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  will be 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
<PAGE>

                         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.

SS.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
<PAGE>

                                    (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