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 are arranged
and serviced by the Manager. (See "The Manager and Its Affiliates.")

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

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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
                         Price to Investors [1]      Selling Commissions [2]     Net Proceeds to Fund [3]
------------------------------------------------------------------------------------------------------------
<S>                             <C>                      <C>                            <C>
Per Unit                               $100                     $4.50                          $95.50
Minimum Total                      $500,000                   $22,500                        $477,500
Maximum Total                   $25,000,000                $1,125,000                     $23,875,000
(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 February 1, 2006

<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 are offered  and sold  directly by the Manager and the agents and
         employees of the Manager who will not receive  selling  commissions  or
         other  compensation from the Fund in connection with the sale of Units.
         The Manager  also  anticipates  selling  Units  through the services of
         independent  securities  broker/dealers,  who are  entitled  to receive
         commissions of up to 4.5% 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) is calculated  based upon such investor's
         capital  account  balance  as of  the  last  day of  the  month  of the
         anniversary  of  admission  and not on the initial  purchase  price for
         Units  at the  time  of  sale  to the  investor.  All of the  foregoing
         commissions  are paid by the Fund and will directly reduce the proceeds
         from this  offering  available  to the Fund for  investing  in mortgage
         loans,  as well as reducing the capital  accounts of the Members.  Upon
         withdrawal,  Members  will  receive an amount  equal to their  original
         investment,  with any difference  between the Member's  capital account
         and the Member's original  investment being paid by the Manager.  There
         is no firm  commitment to purchase or sell any of the Units.  Units are
         sold on a "best  efforts"  basis,  which  means  that no  broker/dealer
         selling  Units on behalf of the Fund is obligated to purchase any Units
         but will only be  required  to use their best  efforts to sell Units to
         investors. Units may be sold by broker/dealers that are affiliated with
         the Manager.

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

<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...........................................34
SUMMARY OF OPERATING AGREEMENT................................................37
PLAN OF DISTRIBUTION..........................................................42
LEGAL MATTERS.................................................................42
ADDITIONAL INFORMATION AND UNDERTAKINGS.......................................42
COMMISSIONER'S RULE 260.141.11................................................43

                                       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.

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.  443
Loan Servicer                           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:   (1)   are   secured   by
                                        undeveloped    land,   fully   developed
                                        commercial or  residential  real estate,
                                        or  leasehold  interests in real estate;
                                        or (2) are construction loans secured by
                                        undeveloped   or   partially   developed
                                        property   and  may  be   subject  to  a
                                        construction  loan agreement.  Loans are
                                        secured primarily by property located in
                                        California.  Loans  will be  made  while
                                        this   offering  is   continuing.   (See
                                        "Lending Standards and Policies.")


                                       1
<PAGE>

Leveraging the Portfolio.............   The Fund may  borrow  funds from a third
                                        party  lender  in  order  to:  (1)  fund
                                        mortgage  loans made or purchased by the
                                        Fund;  (2)  prevent   default  of  loans
                                        senior  to Fund  loans  or to  discharge
                                        such loans  entirely;  or (3) develop or
                                        operate  any real  property  acquired by
                                        the Fund as a result of a loan  default.
                                        In such case,  most or all of the Fund's
                                        loan  portfolio will be assigned to this
                                        lender as security for the loan(s). When
                                        borrowing  funds  to  make  or  purchase
                                        additional  mortgage loans, the Fund may
                                        increase its yield; however,  leveraging
                                        the  Fund's  portfolio  entails  certain
                                        additional   risks   and  also   entails
                                        possible adverse tax consequences.  (See
                                        "Leveraging the Portfolio" and "Risk and
                                        Other   Important   Factors  -  Risk  of
                                        Leverage.")

Cash Distributions...................   Members  have a choice of:  (1)  regular
                                        monthly  cash   distributions   of  Fund
                                        income,   or  (2)  income   credited  to
                                        capital  account and  reinvested  by the
                                        Fund.  An  investor  may elect to switch
                                        from one of these  options  to the other
                                        only upon thirty (30) days notice to the
                                        Manager;    provided,    however,   that
                                        investors   may  elect  to  switch  from
                                        distributions  to  compounding  only  if
                                        there is then in effect a permit  issued
                                        by   the   California    Department   of
                                        Corporations  for  this  offering.   The
                                        Manager,   in  its  sole  and   absolute
                                        discretion,   reserves   the   right  to
                                        commence  making cash  distributions  at
                                        any time to previously compounding ERISA
                                        investors  in  order  for  the  Fund  to
                                        remain  exempt from the ERISA plan asset
                                        regulations. (See "ERISA Considerations"
                                        and "Summary of Operating Agreement.")

Withdrawal...........................   No  withdrawal  for twelve (12)  months;
                                        thereafter,  investors  have  a  limited
                                        right to withdraw from the Fund, subject
                                        to available  cash flow,  and subject to
                                        penalties  for  withdrawal   within  the
                                        first four years  following the purchase
                                        of Units.  (See  "Summary  of  Operating
                                        Agreement -- Withdrawal from Fund.")


                                       2
<PAGE>

Restrictions on Transfers............   There are  substantial  restrictions  on
                                        transferability  of Units under  federal
                                        and state  securities laws and under the
                                        Operating  Agreement.   (See  "Terms  of
                                        Offering --  Restrictions  on  Transfer"
                                        and "Risks and Other  Important  Factors
                                        -- No Market for Units.")

Liquidity............................   There is no public  market for Units and
                                        none  is  expected  to  develop  in  the
                                        foreseeable  future. The transferability
                                        of Units is also  restricted  by federal
                                        and state  securities  laws,  and by the
                                        Operating  Agreement.  (See  "Risks  and
                                        Other Important  Factors - No Market for
                                        Units.")

Reports to Investors.................   Annual  Reports,   including   financial
                                        statements  which  may be  (but  are not
                                        required by the  Operating  Agreement to
                                        be) audited by an independent accounting
                                        firm.

Risks................................   An  investment  in Units is  subject  to
                                        certain  risks which should be carefully
                                        evaluated  before an investment in Units
                                        is made. (See "Risks and Other Important
                                        Factors.")

Conflicts of Interest................   The  Fund's   business   operations  are
                                        managed  entirely  by the  Manager.  The
                                        Manager   may,    subject   to   certain
                                        limitations,  make  loans to  persons or
                                        entities   that   are   related   to  or
                                        affiliated  with the  Manager,  which is
                                        subject   to   certain    conflicts   of
                                        interest.  (See  "Conflicts of Interest"
                                        and  "Lending  Standards  and Policies -
                                        Loans to Related Parties.")

Operating Agreement..................   Each  investor  is  required to become a
                                        Member  of the  Fund  and  party  to the
                                        Operating   Agreement.   The   Operating
                                        Agreement gives investors certain rights
                                        and  liabilities,   including   possible
                                        liability  for  returns  of  capital  to
                                        discharge   Fund    liabilities.    See,
                                        "Summary of Operating Agreement."


                                       3
<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:  (i) a net worth (exclusive of home,
furnishings and  automobiles) of at least $250,000 and an annual gross income of
at least  $65,000;  or (ii) a net  worth  (exclusive  of home,  furnishings  and
automobiles) of at least $500,000;

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

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

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


                                       4
<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  are accepted or
rejected by the Manager  promptly after receipt.  The Manager reserves the right
to reject any subscription  submitted for any reason. If accepted, an investor's
subscription is irrevocable, and subscription funds are held by the Fund for the
account of each such investor in a non-interest-bearing subscription account. An
investor will become a Member,  and the investor's  investment is deposited into
the Fund, when the Manager  determines that such investor's  subscription  funds
are  required by the Fund to invest in a mortgage  loan,  to create  appropriate
reserves,  or to pay organizational  expenses. At that time, all or a portion of
the  investor's  subscription  funds are  transferred to the Fund, and Units are
issued to such  investor  at the rate of $100 per Unit (see "Use of  Proceeds").
Investors' funds are transferred from the subscription  account into the Fund on
a first-in, first-out basis.

         Subscription   Agreements  are   non-cancelable   and  irrevocable  and
subscription funds are non-refundable for any reason, except with the consent of
the  Manager.   Notwithstanding  the  preceding  sentence,   subscription  funds
remaining in the  subscription  account after the expiration of thirty (30) days
from the date the subscription funds were first received from the investor shall
be returned to the investor  without  interest.  After having  subscribed for at
least 20 Units  ($2,000),  an investor  may at any time,  and from time to time,
subscribe to purchase additional Units on terms and conditions acceptable to the
Manager so long as the offering is open.

ELECTION TO COMPOUND OR RECEIVE MONTHLY CASH DISTRIBUTIONS

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


                                       5
<PAGE>

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

RESTRICTIONS ON TRANSFER

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

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

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

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

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

         Certificates shall bear the following legends:

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


                                       6
<PAGE>

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

TYPE OF PROPERTY/LOAN TO VALUE RATIO

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

         2. GEOGRAPHIC AREA OF LENDING  ACTIVITY.  The Fund's deeds of trust are
primarily on properties located in California;  however, the Fund may make loans
secured by out of state properties and may take a security  interest in property
outside California as additional  collateral for a Loan. The principal amount of
loans secured by out of state  properties will not exceed 20% of the Fund's loan
portfolio.


                                       8
<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  obtains a  valuation  for each  property  securing a mortgage
loan,  which  is in the  form  of an  appraisal  and/or  market  value  analysis
performed by an independent certified appraiser,  a non-certified  appraiser,  a
principal of the Manager, independent commercial or real estate brokers, or some
combination  thereof as  determined  by the Manager on a  case-by-case  basis (a
"Market Value  Analysis").  The Market Value Analysis for construction  loans is
prepared on an "as completed"  basis,  i.e.,  assuming that the improvements for
which the Loan is obtained will be completed. The Market Value Analysis may also
assume that all public  improvements to be funded by special assessment district
bonds will be completed  as proposed and that the Property  will be marketed and
sold in the manner planned by the borrower.  In the case of a construction loan,
the loan-to-value ratio as estimated in the Market Value Analysis and the budget
for the project may exceed 75% (residential) or 70% (commercial) at times during
the term of the loan.  This may occur because the Market Value Analysis is based
upon the value of the property when construction is completed;  however,  before
the construction is completed,  the value of the property will generally be less
than  the "as  completed"  value  and the  outstanding  balance  of the loan may
therefore be more than 75%  (residential)  or 70%  (commercial)  of this lesser,
uncompleted value.

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

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

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


                                       9
<PAGE>

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

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

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

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

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

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

CREDIT EVALUATIONS

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


                                       10
<PAGE>

LOAN SERVICING

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

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

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

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

SALE OF LOANS

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

LEVERAGING THE PORTFOLIO

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


                                       11
<PAGE>

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

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


                                       12
<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, 2005, 111,441 Units ($11,144,097.00) had been sold and the Fund had invested
in twenty one (21) mortgage loans in an aggregate amount of $9,631,815.00. As of
December 31, 2005, the Fund had one loan which had gone into default.  This loan
is now in foreclosure,  with no loss  anticipated due to this event. The average
size of a Fund  loan as of  December  31,  2005 was  approximately  $459,000.00.
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,
2005, 8% of the total Fund assets were loaned to affiliated  entities.  This was
in the form of three (3) loans,  in an aggregate  amount of  $901,390.00.  As of
December 31, 2005, 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, 2005,  calculated on an accrual basis,  was 8.02% 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 manages and directs the affairs of the Fund. All loans made
or invested in by the Fund are arranged and serviced by the Manager.

LAKESIDE FINANCIAL GROUP, INC.

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

         WILLIAM F. WEBSTER. William Webster is the President and Secretary, and
a director and shareholder,  of Lakeside. Prior to joining Lakeside, Mr. Webster
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 represented AREI (described below) and related
entities  for the four  years  prior to  forming  Lakeside,  serving  as general
corporate  counsel and securities  counsel,  and representing AREI in all of its
various real estate financing  activities.  Mr. Webster has not represented AREI
since the formation of Lakeside.

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

         JAMES S.  KOENIG.  James S.  Koenig is a director  and  shareholder  of
Lakeside. Mr. Koenig 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.  Mr. Koenig is a principal in several other  companies which own and
develop real  property,  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 mortgage
lending and mortgage-backed securities with such companies as Danville Financial
Group,   Echelon  Mortgage   Acceptance  Company,   and  Commonwealth   Mortgage
Corporation.


                                       14
<PAGE>

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

Form of Compensation                  Estimated Amount or Method of Compensation
--------------------                  ------------------------------------------
Loan   Brokerage   Commissions,       Anticipated  to average  between 2% and 6%
Renewal and Forbearance Fees to       of the  principal  amount of each loan and
the Manager                           generally  not less than  $2,000 per loan,
                                      and may be higher or lower  depending upon
                                      market  conditions.  Such fees are paid to
                                      the Manager by the  borrowers and will not
                                      be borne by the Fund.

Loan Processing and Documentation     Prevailing      industry     rates     for
Fees.                                 documentation fees and for loan processing
                                      fees.  These  fees may vary  depending  on
                                      market  conditions  and  the  size  of the
                                      particular  loan,  and  are  paid  by  the
                                      borrowers and not the Fund.

Late Payment Charges and Default      Late  payment  fees of  approximately  ten
Interest Retained by  the Manager     percent  (10%) of the  amount  of any late
                                      payment  due from  borrowers  and  default
                                      interest  of 3%-5%  above  the loan  rate.
                                      Such  fees are paid by the  borrowers  and
                                      not the Fund.

Loan Servicing Fee                    Up to one quarter of one percent (.25%) of
                                      the principal  amount of each Fund loan on
                                      an annual basis,  payable  monthly  (i.e.,
                                      1/12th  of .25%  per  month),  but only as
                                      interest is received by the Fund. [1]

Asset Management Fee                  Up  to  2.75%  of   Gross   Assets   Under
                                      Management,  payable monthly (i.e.,  .229%
                                      per month). [2]

Reimbursement of Expenses             Reimbursement    for   all   out-of-pocket
to Manager                            organization and syndication  expenses and
                                      all operating and administrative  expenses
                                      of the Fund.


                                       16
<PAGE>

<TABLE>
<CAPTION>
Form of Compensation(cont.)           Estimated Amount or Method of Compensation (cont.)
---------------------------           --------------------------------------------------
<S>                                   <C>
Broker/Dealer Commissions to          Broker/dealers selling Units on behalf of the Fund is
Affiliates of Manager                 entitled to receive  commissions of up to 4.5% 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 is paid on the last day of
         each calendar month with respect to Gross Assets Under Management as of
         the first day of the  immediately  preceding  month. As such, the Asset
         Management  Fee may  exceed  .229%  per  month but the total fee in any
         given  year is limited to 2.75% of the Gross  Assets  Under  Management
         calculated as of the last day of the Fund's fiscal year.


                                       17
<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 are managed
entirely by the Manager, which is subject to certain conflicts of interest. (See
"Conflicts of Interest.")

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

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

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


                                       18
<PAGE>

                              CONFLICTS OF INTEREST

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

LOAN BROKERAGE COMMISSIONS, RENEWAL AND FORBEARANCE FEES:

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

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

FUND LOANS TO RELATED PARTIES

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

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


                                       19
<PAGE>

         (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

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

OTHER FUNDS OR BUSINESSES
-------------------------

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

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

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

LACK OF INDEPENDENT LEGAL REPRESENTATION
----------------------------------------

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

SALE OF DEFAULTED LOANS OR REAL ESTATE OWNED TO AFFILIATES
----------------------------------------------------------

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


                                       20
<PAGE>

         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
have  only  limited  rights  to  redeem  Units or  withdraw  from the Fund or to
otherwise obtain the return of their invested capital. Therefore, all purchasers
of Units must be capable of bearing the economic risks of this  investment  with
the  understanding  that their  interest  in the Fund may not be  liquidated  by
resale,  and should  expect to hold their  Units for an  undetermined  period of
time.

TAX RISKS
---------

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

         Other tax risks include:

         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.


                                       22
<PAGE>

LOAN DEFAULTS AND FORECLOSURES
------------------------------

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

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

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

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


                                       23
<PAGE>

         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.

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

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

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

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

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

DUE-ON-ENCUMBRANCE CLAUSES
--------------------------

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


                                       24
<PAGE>

UNSPECIFIED LOANS; RELIANCE ON THE MANAGER
------------------------------------------

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

MANAGEMENT AND COMPETITION
--------------------------

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

FLUCTUATIONS IN INTEREST RATES
------------------------------

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

MANAGER NOT REQUIRED TO DEVOTE FULL TIME TO THE BUSINESS OF THE FUND
--------------------------------------------------------------------

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

INVESTORS NOT INDEPENDENTLY REPRESENTED
---------------------------------------

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


                                       25
<PAGE>

INVESTMENT DELAYS
-----------------

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

UNINSURED LOSSES
----------------

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

LACK OF REGULATION
------------------

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

RISKS OF GOVERNMENT ACTION
--------------------------

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

CONFLICTS OF INTEREST
---------------------

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


                                       26
<PAGE>

ENVIRONMENTAL LIABILITIES
-------------------------

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

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

         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.


                                       27
<PAGE>

RISKS OF LEVERAGE
-----------------

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

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

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

RISKS OF LITIGATION
-------------------

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

HIGH COST MORTGAGES
-------------------

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


                                       28
<PAGE>

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

POSSIBLE LACK OF LOAN DIVERSITY AND GEOGRAPHIC CONCENTRATION OF LOANS
---------------------------------------------------------------------

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

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


                                       29
<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  are  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]   $    22,500         4.5%       $ 1,125,000         4.5%

Investment in Mortgage       $   387,500        77.5%       $22,975,000        91.9%
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 4.5% 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  is  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 are less than 3% leaving more capital for
         investment in mortgage loans.

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

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


                                       31
<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 may deduct his distributive
share of Fund losses, if any, to the extent of the tax basis of his Units at the
end of the Fund year in which the losses occurred.  The  characterization  of an
item of profit or loss will usually be the same for the member as it was for the
Fund.  Since  individual  Members are  required to include  Fund income in their
personal  income  without  regard to  whether  there are  distributions  of Fund
income,  such investors will become liable for federal and state income taxes on
Fund income even though they have received no cash  distributions  from the Fund
with which to pay such taxes.

DISTRIBUTIONS OF INCOME
-----------------------

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

PROPERTY HELD PRIMARILY FOR SALE; POTENTIAL DEALER STATUS
---------------------------------------------------------

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


                                       32
<PAGE>

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
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.


                                       33
<PAGE>

                       CERTAIN LEGAL ASPECTS OF FUND LOANS
                       -----------------------------------

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

FORECLOSURE
-----------

         Foreclosure  of a deed of  trust  is  accomplished  in most  cases by a
nonjudicial  trustee's  sale under the  power-of-sale  provision  in the deed of
trust.  Prior to such sale, the trustee must record a notice of default and send
a copy to the trustor,  to any person who has recorded a request for a copy of a
notice of default  and  notice of sale,  to any  successor  in  interest  to the
trustor and to the  beneficiary  of any junior deed of trust.  If the default is
not cured  within 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
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.


                                       34
<PAGE>

         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.


                                       35
<PAGE>

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

"DUE-ON-SALE" CLAUSES
---------------------

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

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

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


                                       36
<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 are sold in  Units of $100,  and no  person  may
initially acquire less than 20 Units ($2,000). After subscribing for at least 20
Units an investor may at any time, and from time to time,  subscribe to purchase
additional  Units,  in amounts  and on terms and  conditions  acceptable  to the
Manager. For purposes of meeting this minimum investment  requirement,  a person
may cumulate Units he or she purchases  individually with Units purchased by his
or her  spouse.  To  purchase  Units  an  investor  must  deliver  to the Fund a
Subscription Agreement in the form attached to this Offering Circular as Exhibit
B, together with his or her initial cash contribution.

RIGHTS, POWERS AND DUTIES OF MANAGER
------------------------------------

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


                                       37
<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 are
allocated as of the last day of such calendar month to the Members in accordance
with their respective  outstanding  capital account balances as of the first day
of such month,  or, if any Units are  purchased  following the first day of such
month,  then the profits and losses  allocable to the Members for such month are
allocated in proportion to the number of days during such month that each Member
held a capital account in the Fund.

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

CASH DISTRIBUTIONS
------------------

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

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


                                       38
<PAGE>

MEETINGS
--------

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

ACCOUNTING AND REPORTS
----------------------

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

AMENDMENT OF THE AGREEMENT
--------------------------

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

WITHDRAWAL FROM FUND
--------------------

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

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

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


                                       39
<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: (i) three percent (3%) of any amount  disbursed
in the year  following the  expiration of the Holding  Period;  (ii) two percent
(2%) of any amount  disbursed in the second year following the expiration of the
Holding Period;  and (iii) one percent (1%) of any amount disbursed in the third
year following the expiration of the Holding Period. All such penalties shall be
retained for the benefit of the Fund, and shall directly  reduce the total value
of the capital account being withdrawn by the withdrawing Member.

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

LIMITATIONS ON TRANSFERABILITY
------------------------------

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


                                       40
<PAGE>

         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.

TERM OF FUND
------------

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

WINDING UP
----------

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

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

MERGER WITH OTHER BUSINESS ENTITIES
-----------------------------------

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


                                       41
<PAGE>

                              PLAN OF DISTRIBUTION
                              --------------------

         The Units are offered and sold by the Manager, with respect to which no
commissions or fees will paid to the Manager or its employees.  The Manager also
retains the services of independent securities broker/dealers to sell Units, who
may receive  selling  commissions of up to 4.5% 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  is
calculated based upon the increased value of such Members capital account on the
last day of the month of the anniversary of admission.  Any such commissions are
borne by the Fund,  but will have the effect of reducing  the  Member's  capital
account,  and will directly reduce the proceeds  received from this offering for
investment in mortgage loans by the Fund.  (See "Use of Proceeds.")  There is no
firm  commitment  to  purchase  any Units,  and there is no  assurance  that the
maximum amount of this offering will be received.

                                  LEGAL MATTERS
                                  -------------

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

                     ADDITIONAL INFORMATION AND UNDERTAKINGS
                     ---------------------------------------

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

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


                                       42
<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;


                                       43
<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."


                                       44