omif10k.htm

10-K 1 omif10k.htm OMIF 10K AT 12/31/08 omif10k.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

-------------------------------------

FORM 10-K

(Mark One)

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

For the Fiscal Year Ended December 31, 2008

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

For the transition period from ________ to __________

Commission file number 000-17248

OWENS MORTGAGE INVESTMENT FUND,

a California Limited Partnership

(Exact name of registrant as specified in its charter)

California		68-0023931
(State or other jurisdiction		(I.R.S. Employer Identification No.)
of incorporation or organization)

2221 Olympic Boulevard
Walnut Creek, California		94595
(Address of principal executive offices)		(Zip Code)

(925) 935-3840
Registrant’s telephone number,
including area code

Securities registered pursuant to Section 12(b) of the Act:

NONE

Securities registered pursuant to Section 12(g) of the Act:

Limited Partnership Units

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [ ]	Accelerated filer [ ]
Non-accelerated filer [ ]	Smaller reporting company [X]

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

As of June 30, 2008, the aggregate value of limited partnership units held by non-affiliates was approximately $287,059,000. This calculation is based on the capital account balances of the limited partners and excludes limited partnership units held by the general partner.

DOCUMENTS INCORPORATED BY REFERENCE

Certain exhibits filed with Registrant’s S-11 Registration Statement No. 333-150428 are incorporated by reference into Part IV.

TABLE OF CONTENTS

PART I
		Page

Item 1	Business	4
Item 1A	Risk Factors	15
Item 2	Properties	26
Item 3	Legal Proceedings	28
Item 4	Submission of Matters to a Vote of Security Holders	28

PART II

Item 5	Market for Registrant’s Limited Partnership Units, Related Unit Holder Matters and
	Issuer Purchases of Equity Securities	28
Item 7	Management’s Discussion and Analysis of Financial Condition and
	Results of Operations	28
Item 8	Consolidated Financial Statements and Supplementary Data	44
Item 9	Changes in and Disagreements with Accountants on Accounting and
	Financial Disclosure	44
Item 9A	Controls and Procedures	44
Item 9B	Other Information	45

PART III

Item 10	Directors, Executive Officers and Corporate Governance	45
Item 11	Executive Compensation	47
Item 12	Security Ownership of Certain Beneficial Owners and Management and
	Related Unit Holder Matters	47
Item 13	Certain Relationships and Related Transactions and Director Independence	48
Item 14	Principal Accounting Fees and Services	49

PART IV

Item 15	Exhibits and Consolidated Financial Statement Schedules	50

Consolidated Financial Statements and Supplementary Information		F-1

Exhibit 31.1

Exhibit 31.2

Exhibit 32

PART I – Item 1. BUSINESS

The Partnership is a California limited partnership organized on June 14, 1984, which invests in first, second, third, wraparound and construction mortgage loans and loans on leasehold interest mortgages. In June 1985, the Partnership became the successor-in-interest to Owens Mortgage Investment Fund I, a California limited partnership formed in June 1983 with the same policies and objectives as the Partnership. In October 1992, the Partnership changed its name from Owens Mortgage Investment Partnership II to Owens Mortgage Investment Fund, a California Limited Partnership. The address of the Partnership is P.O. Box 2400, 2221 Olympic Blvd., Walnut Creek, CA 94595. Its telephone number is (925) 935-3840.

Owens Financial Group, Inc. (the General Partner) arranges, services and maintains the loan portfolio for the Partnership. The Partnership’s mortgage loans are secured by mortgages on unimproved, improved, income-producing and non-income-producing real property, such as condominium projects, apartment complexes, shopping centers, office buildings, and other commercial or industrial properties. No single Partnership loan may exceed 10% of the total Partnership assets as of the date the loan is made.

The following table shows the total Partnership capital, mortgage investments and net income as of and for the years ended December 31, 2008, 2007, 2006, 2005, 2004 and 2003.

	Total Partners’ Capital		Mortgage Investments		Net Income
2008..................................................................................................................................................	$	273,203,409	$	262,236,201	$	2,163,164
2007..................................................................................................................................................	$	298,743,630	$	277,375,481	$	21,592,606
2006..................................................................................................................................................	$	290,804,278	$	250,143,631	$	21,988,245
2005..................................................................................................................................................	$	288,913,263	$	276,411,258	$	21,077,641
2004..................................................................................................................................................	$	286,267,296	$	258,431,902	$	19,992,241
2003..................................................................................................................................................	$	284,464,268	$	266,374,206	$	21,841,989

As of December 31, 2008, the Partnership held investments in 64 mortgage loans, secured by liens on title and leasehold interests in real property. Forty-three percent (43%) of the mortgage loans are located in Northern California. The remaining 57% are located in Southern California, Arizona, Colorado, Florida, Idaho, Nevada, New York, Oregon, Pennsylvania, Texas, Utah, and Washington.

The following table sets forth the types and maturities of mortgage investments held by the Partnership as of December 31, 2008:

TYPES AND MATURITIES OF MORTGAGE INVESTMENTS

(As of December 31, 2008)

	Number of Loans	Amount		Percent

1st Mortgages	56	$	234,060,285	89.26%
2nd Mortgages	8		28,175,916	10.74%
	64	$	262,236,201	100.00%


Maturing on or before December 31, 2008	20	$	102,453,241	39.07%
Maturing on or between January 1, 2009 and December 31, 2010	40		144,358,324	55.05%
Maturing on or between January 1, 2011 and October 4, 2017	4		15,424,636	5.88%
	64	$	262,236,201	100.00%

Commercial	33	$	118,156,590	45.06%
Condominiums	18		93,460,019	35.64%
Apartments	1		4,325,000	1.65%
Single family homes (1-4 units)	2		331,810	0.12%
Improved and unimproved land	10		45,962,782	17.53%
	64	$	262,236,201	100.00%

The average loan balance of the mortgage loan portfolio of $4,097,000 as of December 31, 2008 is considered by the General Partner to be a reasonable diversification of investments concentrated in mortgages secured primarily by commercial real estate. Of such investments, 5.4% earn a variable rate of interest and 94.6% earn a fixed rate of interest. All were negotiated according to the Partnership’s investment standards.

As of December 31, 2008, the Partnership was invested in construction and rehabilitation loans in the total amount of approximately $82,433,000 and in no loans secured by leasehold interests. As of December 31, 2008, the Partnership has commitments to advance additional funds for construction, rehabilitation and improvement loans in the total amount of approximately $4,334,000.

The Partnership has other assets in addition to its mortgage investments, comprised principally of the following:

·	$6,030,000 in cash and cash equivalents and certificates of deposit required to transact the business of the Partnership and/or in conjunction with contingency reserve and compensating balance requirements;

·	$58,429,000 in real estate held for sale and investment;

·	$2,177,000 in investment in limited liability company;

·	$3,644,000 in interest and other receivables;

·	$567,000 in vehicles, equipment and furniture; and

·	$433,000 in other assets.

Delinquencies

The General Partner does not regularly examine the existing loan portfolio to see if acceptable loan-to-value ratios are being maintained because the majority of loans mature in a period of only 1-3 years and the average loan-to-value ratio of the loan portfolio is generally low. The General Partner will perform an internal review on a loan secured by property in the following circumstances:

·	payments on the loan become delinquent;

·	the loan is past maturity;

·	it learns of physical changes to the property securing the loan or to the area in which the property is located; or

·	it learns of changes to the economic condition of the borrower or of leasing activity of the property securing the loan.

A review normally includes conducting a physical evaluation of the property securing the loan and the area in which the property is located, and obtaining information regarding the property’s occupancy. In some circumstances, the General Partner may determine that a more extensive review is warranted, and may obtain an updated appraisal, updated financial information on the borrower or other information.

As of December 31, 2008 and 2007, the Partnership had fifteen and six impaired loans, respectively, that were delinquent in payments greater than ninety days totaling approximately $95,743,000 and $40,537,000, respectively. This included nine and three matured loans totaling $66,129,000 and $3,335,000, respectively. In addition, eleven and eighteen loans totaling approximately $36,324,000 and $62,031,000, respectively, were past maturity but current in monthly payments as of December 31, 2008 and 2007, respectively (combined total of delinquent loans of $132,067,000 and $102,568,000, respectively). Of the impaired and past maturity loans, approximately $46,148,000 and $17,617,000, respectively, were in the process of foreclosure and $10,500,000 and $1,600,000, respectively, involved borrowers who were in bankruptcy as of December 31, 2008 and 2007. The Partnership foreclosed on six and four loans during the years ended December 31, 2008 and 2007, respectively, with aggregate principal balances totaling $18,220,000 and $26,202,000, respectively, and obtained the properties via the trustee’s sales. In the first quarter of 2009, the Partnership began foreclosure proceedings by filing notices of default on three delinquent loans with aggregate principal balances totaling approximately $10,814,000 as of December 31, 2008.

Of the total impaired and past maturity loans as of December 31, 2008, one loan with an aggregate principal balance of $350,000 was paid off in full and four loans with aggregate principal balances totaling $13,165,000 were foreclosed and the underlying properties obtained in the foreclosure sales subsequent to year end.

Of the $40,537,000 in loans that were greater than ninety days delinquent as of December 31, 2007, $23,483,000 remained delinquent as of December 31, 2008, $7,903,000 was paid off in full and $9,152,000 was foreclosed and became real estate owned by the Partnership during 2008.

Following is a table representing the Partnership’s delinquency experience (over 90 days) and foreclosures by the Partnership as of and during the years ended December 31, 2005, 2006, 2007 and 2008:

	2005		2006		2007		2008
Delinquent Loans	$	25,899,000	$	18,835,000	$	40,537,000	$	95,743,000
Loans Foreclosed	$	3,582,000	$	0	$	26,202,000	$	18,220,000
Total Mortgage Investments	$	276,411,000	$	250,144,000	$	277,375,000	$	262,236,000
Percent of Delinquent Loans to Total Loans		9.37%		7.53%		14.61%		35.96%

If the delinquency rate increases on loans held by the Partnership, the interest income of the Partnership will be reduced by a proportionate amount. If a mortgage loan held by the Partnership is foreclosed on, the Partnership will acquire ownership of real property and the inherent benefits and detriments of such ownership.

Compensation to the General Partner

The General Partner receives various forms of compensation and reimbursement of expenses from the Partnership and compensation from borrowers under mortgage loans held by the Partnership.

Compensation and Reimbursement from the Partnership

Management Fees

Management fees to the General Partner are paid pursuant to the Partnership Agreement and are determined at the sole discretion of the General Partner. The management fee is paid monthly and cannot exceed 2¾% annually of the average unpaid balance of the Partnership’s mortgage loans at the end of each of the 12 months in the calendar year. Since this fee is paid monthly, it could exceed 2¾% in one or more months, but the total fee in any one year is limited to a maximum of 2¾%, and any amount paid above this must be repaid by the General Partner to the Partnership. The General Partner is entitled to receive a management fee on all loans, including those that are delinquent. The General Partner believes this is justified by the added effort associated with such loans. In order to maintain a competitive yield for the Partnership, the General Partner in the past has chosen not to take the maximum allowable compensation. A number of factors are considered in the General Partner’s monthly meeting to determine the yield to pay to partners. These factors include:

·	Interest rate environment and recent trends in interest rates on loans and similar investment vehicles;

·	Delinquencies on Partnership loans;

·	Level of cash held pending investment in mortgage loans; and

·	Real estate activity, including net operating income and losses from real estate and gains/losses from sales.

Once the yield is set and all other items of tax basis income and expense are determined for a particular month, the management fees are also set for that month. Large fluctuations in the management fees paid to the General Partner are normally a result of extraordinary items of income or expense within the Partnership (such as gains or losses from sales of real estate, etc.) or fluctuations in the level of delinquent loans, since the majority of the Partnership’s assets are invested in mortgage loans.

If the maximum management fees had been paid to the General Partner during the years ended December 31, 2008 and 2007, the management fees would have been $7,545,000 (increase of $3,341,000) and $7,614,000 (increase of $5,438,000), which would have reduced net income allocated to limited partners by approximately 154.6% and 25.2%, respectively, and would have reduced net income allocated to limited partners per weighted average limited partner unit by the same percentages to a loss of $.004 from a profit of $.01 and to a profit of $.05 from $.07, respectively.

The maximum management fee permitted under the Partnership Agreement is 2 ¾% per year of the average unpaid balance of mortgage loans. For the years 2003, 2004, 2005, 2006, 2007 and 2008, the management fees were 2.01%, 2.00%, 2.27%, 2.04%, 0.79% and 1.53% of the average unpaid balance of mortgage loans, respectively.

Servicing Fees

The General Partner has serviced all of the mortgage loans held by the Partnership and expects to continue this policy. The Partnership Agreement permits the General Partner to receive from the Partnership a monthly servicing fee, which, when added to all other fees paid in connection with the servicing of a particular loan, does not exceed the lesser of the customary, competitive fee in the community where the loan is placed for the provision of such mortgage services on that type of loan or up to 0.25% per annum of the unpaid balance of mortgage loans held by the Partnership. The General Partner has historically been paid the maximum servicing fee allowable.

Carried Interest and Contributed Capital

The General Partner is required to contribute capital to the Partnership in the amount of 0.5% of the limited partners’ aggregate capital accounts, and together with its carried interest has an interest equal to 1% of the limited partners’ capital accounts. The General Partner receives a carried interest of 0.5% of the aggregate capital accounts of the limited partners, which is additional compensation to the General Partner. The carried interest is recorded as an expense of the Partnership and as a contribution to the General Partner’s capital account as additional compensation. The carried interest is increased each month by 0.5% of the net increase in the capital accounts of the limited partners. If there is a net decrease in the capital

accounts for a particular month, no carried interest is allocated for that month and the allocation to carried interest is “trued-up” to the correct 0.5% amount in the next month that there is an increase in the net change in capital accounts. Thus, if the Partnership generates an annual yield on capital of the limited partners of 10%, the General Partner would receive additional distributions on its carried interest of approximately $150,000 per year if $300,000,000 of Units were outstanding. In addition, if the Partnership were liquidated, the General Partner could receive up to $1,500,000 in capital distributions without having made equivalent cash contributions as a result of its carried interest. These capital distributions, however, will be made only after the limited partners have received capital distributions equaling 100% of their capital contributions.

Reimbursement of Other Expenses

The General Partner is reimbursed by the Partnership for the actual cost of goods and materials used for or by the Partnership and obtained from unaffiliated entities and the actual cost of services of non-management and non-supervisory personnel related to the administration of the Partnership (subject to certain limitations contained in the Partnership Agreement).

Compensation from Borrowers

In addition to compensation from the Partnership, the General Partner also receives compensation from borrowers under the Partnership’s mortgage loans arranged by the General Partner.

Acquisition and Origination Fees

The General Partner is entitled to receive and retain all acquisition and origination fees paid or payable by borrowers for services rendered in connection with the evaluation and consideration of potential investments of the Partnership (including any selection fee, mortgage placement fee, nonrecurring management fee, and any origination fee, loan fee, or points paid by borrowers). The acquisition and origination fees are paid by borrowers, and thus, are not an expense of the Partnership. These fees may be paid at the placement, extension or refinancing of the loan or at the time of final repayment of the loan. The amount of these fees is determined by competitive conditions and the General Partner and may have a direct effect on the interest rate borrowers are willing to pay the Partnership.

Late Payment Charges

The General Partner is entitled to receive all late payment charges paid by borrowers on delinquent loans held by the Partnership (including additional interest and late payment fees). The late payment charges are paid by borrowers and collected by the Partnership with regular monthly loan payments or at the time of loan payoff. These are recorded as a liability (Due to General Partner) when collected and are not recognized as an expense of the Partnership. Generally, on the majority of the Partnership’s loans, the late payment fee charged to the borrower for late payments is 10% of the payment amount. In addition, on the majority of the Partnership’s loans, the additional interest charge required to be paid by borrowers once a loan is past maturity is in the range of 3%-5% (paid in addition to the pre-default interest rate).

Other Miscellaneous Fees

The Partnership remits other miscellaneous fees to the General Partner, which are collected from loan payments, loan payoffs or advances from loan principal (i.e. funding, demand and partial release fees).

Table of Compensation and Reimbursed Expenses

The following table summarizes the compensation and reimbursed expenses paid to the General Partner for the years ended December 31, 2008 and 2007, showing actual amounts and the maximum allowable amounts for management and servicing fees. No other compensation was paid to the General Partner during these periods. The fees were established by the General Partner and were not determined by arms’-length negotiation.

	Year Ended				Year Ended
	December 31, 2008				December 31, 2007
			Maximum				Maximum
Form of Compensation	Actual		Allowable		Actual		Allowable
Paid by the Partnership:
Management Fees*	$	4,204,000	$	7,545,000	$	2,176,000	$	7,614,000
Servicing Fees		686,000		686,000		692,000		692,000
Carried Interest		—		—		51,000		51,000
Subtotal	$	4,890,000	$	8,231,000	$	2,919,000	$	8,357,000

Paid by Borrowers:
Acquisition and Origination Fees	$	3,549,000	$	3,549,000	$	6,485,000	$	6,485,000
Late Payment Charges		1,203,000		1,203,000		910,000		910,000
Miscellaneous Fees		34,000		34,000		46,000		46,000
Subtotal	$	4,786,000	$	4,786,000	$	7,441,000	$	7,441,000

Grand Total	$	9,676,000	$	13,017,000	$	10,360,000	$	15,798,000

Reimbursement by the Partnership of Other Expenses	$	88,000	$	88,000	$	48,000	$	48,000

* The management fees paid to the General Partner are determined by the General Partner within the limits set by the Partnership Agreement. An increase or decrease in the management fees paid directly impacts the yield paid to the limited partners.

Aggregate actual compensation paid by the Partnership and by borrowers to the General Partner during the years ended December 31, 2008 and 2007, exclusive of expense reimbursement, was $9,676,000 and $10,360,000, respectively, or 3.6% and 3.5%, respectively, of partners’ capital. If the maximum amounts had been paid to the General Partner during these periods, the compensation, excluding reimbursements, would have been $13,017,000 and $15,798,000, respectively, or 4.8% and 5.3%, respectively, of partners’ capital, which would have reduced net income allocated to limited partners by approximately 154.6% and 25.2%, respectively.

Acquisition and origination fees as a percentage of loans originated or extended by the Partnership were 2.6% and 2.9% for the years ended December 31, 2008 and 2007, respectively. Of the $6,485,000 in acquisition and origination fees accrued during the year ended December 31, 2007, approximately $560,000 were back-end fees earned as of December 31, 2007 but will not be collected until the related loans are paid in full.

The General Partner believes that the maximum allowable compensation payable to it is commensurate with the services provided. However, in order to maintain a competitive yield for the Partnership, the General Partner in the past has chosen not to take the maximum allowable compensation. If it chooses to take the maximum allowable in the future, the amount of net income available for distribution to limited partners could be reduced.

Principal Investment Objectives

The Partnership’s two principal investment objectives are to preserve the capital of the Partnership and provide monthly cash distributions to the limited partners. It is not an objective of the Partnership to provide tax-sheltered income. Under the Partnership Agreement, the General Partner would be permitted to modify these investment objectives without the vote of limited partners but has no authority to do anything that would make it impossible to carry on the ordinary business as a mortgage investment limited partnership.

The Partnership invests primarily in mortgage loans on commercial, industrial and residential income-producing real property and land. Substantially all mortgage loans of the Partnership are arranged by the General Partner, which is licensed by the State of California as a real estate broker and California Finance Lender. During the course of its business, the General Partner is continuously evaluating prospective investments. The General Partner originates loans from mortgage brokers, previous borrowers, and by personal solicitations of new borrowers. The Partnership may purchase or participate in existing loans that were originated by other lenders. Such a loan might be obtained by the Partnership from a third party at an amount equal to or less than its face value. The General Partner evaluates all potential mortgage loan investments to determine if the security for the loan and the loan-to-value ratio meet the standards established for the Partnership, and if the loan meets the Partnership’s investment criteria and objectives.

The General Partner locates, identifies and arranges virtually all mortgages the Partnership invests in and makes all investment decisions on behalf of the Partnership in its sole discretion. The limited partners are not entitled to act on any proposed investment. In evaluating prospective investments, the General Partner considers such factors as the following:

·	the ratio of the amount of the investment to the value of the property by which it is secured;

·	the property’s potential for capital appreciation;

·	expected levels of rental and occupancy rates;

·	current and projected cash flow generated by the property;

·	potential for rental rate increases;

·	the marketability of the investment;

·	geographic location of the property;

·	the condition and use of the property;

·	the property’s income-producing capacity;

·	the quality, experience and creditworthiness of the borrower;

·	general economic conditions in the area where the property is located; and

·	any other factors that the General Partner believes are relevant.

The Partnership requires that each borrower obtain a title insurance policy as to the priority of the mortgage and the condition of title. The Partnership obtains an appraisal from a qualified, independent appraiser for each property securing a Partnership loan, which may have been commissioned by the borrower and also may precede the placement of the loan with the Partnership. Such appraisals are generally dated no greater than 12 months prior to the date of loan origination. Completed, written appraisals are not always obtained on Partnership loans prior to original funding, due to the quick underwriting and funding required on the majority of the Partnership’s loans. Appraisals will ordinarily take into account factors such as property location, age, condition, estimated replacement cost, community and site data, valuation of land, valuation by cost, valuation by income, economic market analysis, and correlation of the foregoing valuation methods. Appraisals are only estimates of value and cannot be relied on as measures of realizable value. Thus, an officer or employee of the General Partner will review each appraisal report, will conduct a physical inspection of each property and will rely on his or her own independent analysis in determining whether or not to make a particular mortgage loan.

The General Partner has the power to cause the Partnership to become a joint venturer, partner or member of an entity formed to own, develop, operate and/or dispose of properties owned or co-owned by the Partnership acquired through foreclosure of a loan. Currently, the Partnership is engaged in three such ventures for purposes of developing and disposing of properties acquired by the Partnership through foreclosure. The General Partner may enter into such ventures in the future.

Types of Mortgage Loans

The Partnership invests in first, second, and third mortgage loans, wraparound mortgage loans, construction mortgage loans on real property, and loans on leasehold interest mortgages. The Partnership does not ordinarily make or invest in mortgage loans with a maturity of more than 15 years, and most loans have terms of 1-3 years. Virtually all loans provide for monthly payments of interest and some also provide for principal amortization. Most Partnership loans provide for payments of interest only and a payment of principal in full at the end of the loan term. The General Partner does not generally originate loans with negative amortization provisions. The Partnership does not have any policies directing the portion of its assets that may be invested in construction or rehabilitation loans, loans secured by leasehold interests and second, third and wrap-around mortgage loans. However, the General Partner recognizes that these types of loans are riskier than first deeds of trust on income-producing, fee simple properties and will seek to minimize the amount of these types of loans in the Partnership’s portfolio. Additionally, the General Partner will consider that these loans are riskier when determining the rate of interest on the loans.

First Mortgage Loans

First mortgage loans are secured by first deeds of trust on real property. Such loans are generally for terms of 1-3 years. In addition, such loans do not usually exceed 80% of the appraised value of improved residential real property, 50% of the appraised value of unimproved real property, and 75% of the appraised value of commercial property.

Second and Wraparound Mortgage Loans

Second and wraparound mortgage loans are secured by second or wraparound deeds of trust on real property which is already subject to prior mortgage indebtedness, in an amount which, when added to the existing indebtedness, does not generally exceed 75% of the appraised value of the mortgaged property. A wraparound loan is one or more junior mortgage loans having a principal amount equal to the outstanding balance under the existing mortgage loans, plus the amount actually to be advanced under the wraparound mortgage loan. Under a wraparound loan, the Partnership generally makes principal and interest payments on behalf of the borrower to the holders of the prior mortgage loans.

Third Mortgage Loans

Third mortgage loans are secured by third deeds of trust on real property which is already subject to prior first and second mortgage indebtedness, in an amount which, when added to the existing indebtedness, does not generally exceed 75% of the appraised value of the mortgaged property.

Construction and Rehabilitation Loans

Construction and rehabilitation loans are loans made for both original development and renovation of property. Construction and rehabilitation loans invested in by the Partnership are generally secured by first deeds of trust on real property for terms of six months to two years. In addition, if the mortgaged property is being developed, the amount of such loans generally will not exceed 75% of the post-development appraised value.

The Partnership will not usually disburse funds on a construction or rehabilitation loan until work in the previous phase of the project has been completed, and an independent inspector has verified completion of work to be paid for. In addition, the Partnership requires the submission of signed labor and material lien releases by the contractor in connection with each completed phase of the project prior to making any periodic disbursements of loan proceeds.

Leasehold Interest Loans

Loans on leasehold interests are secured by an assignment of the borrower’s leasehold interest in the particular real property. Such loans are generally for terms of from six months to 15 years. Leasehold interest loans generally do not exceed 75% of the value of the leasehold interest. The leasehold interest loans are either amortized over a period that is shorter than the lease term or have a maturity date prior to the date the lease terminates. These loans permit the General Partner to cure any default under the lease.

Variable Rate Loans

Approximately 5.4% ($14,279,000) and 8.6% ($23,705,000) of the Partnership’s loans as of December 31, 2008 and 2007, respectively, bear interest at a variable rate. Variable rate loans originated by the General Partner may use as indices the one, five and ten year Treasury Constant Maturity Index, the Prime Rate Index or the Monthly Weighted Average Cost of Funds Index for Eleventh or Twelfth District Savings Institutions (Federal Home Loan Bank Board).

The General Partner may negotiate spreads over these indices of from 2.5% to 6.5%, depending upon market conditions at the time the loan is made.

The following is a summary of the various indices described above as of December 31, 2008 and 2007:

	December 31, 2008	December 31, 2007

One-year Treasury Constant Maturity Index	0.37%	3.34%

Five-year Treasury Constant Maturity Index	1.55%	3.45%

Ten-year Treasury Constant Maturity Index	2.25%	4.04%

Prime Rate Index	3.25%	7.25%

Monthly Weighted Average Cost of Funds for Eleventh District Savings Institutions	2.76%	4.07%

Monthly Weighted Average Cost of Funds for Twelfth District Savings Institutions	3.72%	3.45%

The majority of the Partnership’s variable rate loans use the five-year Treasury Constant Maturity Index. This index tends to be less sensitive to fluctuations in market rates. Thus, it is possible that the rates on the Partnership’s variable rate loans will rise slower than the rates of other loan investments available to the Partnership. However, most variable rate loans arranged by the General Partner contain provisions whereby the interest rate cannot fall below the starting rate (the “floor rate”). Thus, for variable rate loans, the Partnership is generally protected against declines in general market interest rates.

Interest Rate Caps

All of the Partnership’s variable rate loans have interest rate caps. The interest rate cap is generally a ceiling that is 2-4% above the starting rate with a floor rate equal to the starting rate. The inherent risk in interest rate caps occurs when general market interest rates exceed the cap rate.

Assumability

Variable rate loans of 5 to 10 year maturities are generally not assumable without the prior consent of the General Partner. The Partnership does not typically make or invest in other assumable loans. To minimize risk to the Partnership, any borrower assuming a loan is subject to the same stringent underwriting criteria as the original borrower.

Prepayment Penalties and Exit Fees

The Partnership’s loans typically do not contain prepayment penalties or exit fees. If the Partnership’s loans are at a high rate of interest in a market of falling interest rates, the failure to have a prepayment penalty provision or exit fee in the loan allows the borrower to refinance the loan at a lower rate of interest, thus providing a lower yield to the Partnership on the reinvestment of the prepayment proceeds. While Partnership loans do not contain prepayment penalties, many instead require the borrower to notify the General Partner of the intent to payoff within a specified period of time prior to payoff (usually 30 to 120 days). If this notification is not made within the proper time frame, the borrower may be charged interest for that number of days that notification was not received.

Balloon Payment

Substantially all Partnership loans require the borrower to make a “balloon payment” on the principal amount upon maturity of the loan. To the extent that a borrower has an obligation to pay mortgage loan principal in a large lump sum payment, its ability to satisfy this obligation may be dependent upon its ability to sell the property, obtain suitable refinancing or otherwise raise a substantial cash amount. As a result, these loans involve a higher risk of default than fully amortizing loans.

Equity Interests and Participation in Real Property

As part of investing in or making a mortgage loan the Partnership may acquire an equity interest in the real property securing the loan in the form of a shared appreciation interest or other equity participation. The Partnership is not presently involved in any such arrangements.

Debt Coverage Standard for Mortgage Loans

Loans on commercial property generally require the net annual estimated cash flow to equal or exceed the annual payments required on the mortgage loan.

Loan Limit Amount

The Partnership limits the amount of its investment in any single mortgage loan, and the amount of its investment in mortgage loans to any one borrower, to 10% of the total Partnership assets as of the date the loan is made.

Loans to Affiliates

The Partnership will not provide loans to the General Partner, affiliates of the General Partner, or any limited partnership or entity affiliated with or organized by the General Partner except for cash advances made to the General Partner, its affiliates, agents or attorneys (“Indemnified Party”) for reasonable legal expenses and other costs incurred as a result of any legal action or proceeding if:

·	such suit, action or proceeding relates to or arises out of any action or inaction on the part of the Indemnified Party in the performance of its duties or provision of its services on behalf of the Partnership;

·	such suit, action or proceeding is initiated by a third party who is not a Limited Partner; and

·	the Indemnified Party undertakes by written agreement to repay any funds advanced in the cases in which such Indemnified Party would not be entitled to indemnification under Article IV. 5(a) of the Partnership Agreement.

Purchase of Loans from Affiliates

The Partnership may purchase loans deemed suitable for acquisition from the General Partner or its Affiliates only if the General Partner makes or purchases such loans in its own name and temporarily holds title thereto for the purpose of facilitating the acquisition of such loans, and provided that such loans are purchased by the Partnership for a price no greater than the cost of such loans to the General Partner (except compensation in accordance with Article IX of the Partnership Agreement), there is no other benefit arising out of such transactions to the General Partner, such loans are not in default, and otherwise satisfy all requirements of Article VI of the Partnership Agreement, including:

The Partnership shall not make or invest in mortgage loans on any one property if at the time of acquisition of the loan the aggregate amount of all mortgage loans outstanding on the property, including loans by the Partnership, would exceed an amount equal to 80% of the appraised value of the property as determined by independent appraisal, unless substantial justification exists because of the presence of other documented underwriting criteria.

·	The Partnership will limit any single mortgage loan and limit its mortgage loans to any one borrower to not more than 10% of the total Partnership assets as of the date the loan is made or purchased.

·	The Partnership may not invest in or make mortgage loans on unimproved real property is an amount in excess of 25% of the total Partnership assets.

At times when there is a decline in mortgage originations by the General Partner and the Partnership has funds to invest in new loans, the General Partner may purchase loans from or participate in loans with other lending institutions such as banks or mortgage bankers.

Borrowing

The Partnership may incur indebtedness for the purpose of:

·	investing in mortgage loans;

·	to prevent default under mortgage loans that are senior to the Partnership’s mortgage loans;

·	to discharge senior mortgage loans if this becomes necessary to protect the Partnership’s investment in mortgage loans; or

·	to operate or develop a property that the Partnership acquires under a defaulted loan.

The total amount of indebtedness incurred by the Partnership cannot exceed the sum of 50% of the aggregate fair market value of all Partnership loans. The Partnership has a line of credit agreement with a group of banks, which provides interim financing on mortgage loans invested in by the Partnership. The total amount of credit available under this line of credit as of December 31, 2008 was $55,000,000 and there was $32,914,000 outstanding on the line of credit as of December 31, 2008 ($22,086,000 available to advance). There was $27,432,000 outstanding on the line of credit as of December 31, 2007. The line of credit expires on July 31, 2009 and will need to be renegotiated by the General Partner. In March 2009, on the basis of preliminary unaudited financial information, the Partnership notified the agent for the banks lending under the line of credit that the Partnership was out of compliance with the profitability covenant in the line of credit agreement for the quarter ended December 31, 2008. The profitability covenant requires that the Partnership maintain, as of the end of each fiscal quarter, a positive operating profit and positive net profit on a rolling two quarter basis. Effective March 27, 2009, the Partnership obtained from the agent and lending banks a waiver of this covenant violation for the periods ending December 31, 2008 and March 31, 2009, which also now provides that the interest rate on the line of credit will be subject to a floor of not less than 5% per annum. While line of credit borrowings otherwise bear interest at prime rate (3.25% as of December 31, 2008), the addition of the 5% interest floor will immediately increase the Partnership’s cost of funds on such borrowings. Therefore, the banks’ covenant waiver will result in higher Partnership interest expense and lower Partnership income than would apply without the waiver, until the prime rate rises to at least 5% per annum. As of March 27, 2009, the Partnership’s balance on the line of credit is $41,481,000.

Repayment of Mortgages on Sales of Properties

The Partnership invests in mortgage loans and does not normally acquire real estate or engage in real estate operations or development (other than when the Partnership forecloses on a loan and takes over management of such foreclosed property). The Partnership also does not invest in mortgage loans primarily for sale or other disposition in the ordinary course of business.

The Partnership may require a borrower to repay a mortgage loan upon the sale of the mortgaged property rather than allow the buyer to assume the existing loan. This may be done if the General Partner determines that repayment appears to be advantageous to the Partnership based upon then-current interest rates, the length of time that the loan has been held by the Partnership, the credit-worthiness of the buyer and the objectives of the Partnership. The net proceeds to the Partnership from any sale or repayment are invested in new mortgage loans, held as cash or distributed to the partners at such times and in such intervals as the General Partner in its sole discretion determines.

No Trust or Investment Company Activities

The Partnership has not qualified as a real estate investment trust under the Internal Revenue Code of 1986, as amended, and, therefore, is not subject to the restrictions on its activities that are imposed on real estate investment trusts. The Partnership conducts its business so that it is not an “investment company” within the meaning of the Investment Company Act of 1940. It is the intention of the Partnership to conduct its business in such manner as not to be deemed a “dealer” in mortgage loans for federal income tax purposes.

Miscellaneous Policies and Procedures

The Partnership will not:

·	issue securities senior to the Units or issue any Units or other securities for other than cash;

·	invest in the securities of other issuers for the purpose of exercising control, except in connection with the exercise of its rights as a secured lender;

·	underwrite securities of other issuers; or

·	offer securities in exchange for property.

Competitive Conditions

The Partnership’s major competitors in providing mortgage loans are banks, savings and loan associations, thrifts, conduit lenders, and other entities both larger and smaller than the Partnership. The Partnership is competitive in large part because the General Partner generates substantially all of its loans and it is able to provide expedited loan approval, processing and funding. The General Partner has been in the business of making or investing in mortgage loans in Northern California since 1951 and has developed a reputation for performance and fairness within the field.

For several years prior to 2008, a variety of factors, including the entry into the mortgage industry of lenders with large supplies of cash willing to bear increased risk to obtain ostensibly higher yields, resulted in decreased lending opportunities for the Partnership. However, due to the recent substantial decline in the housing and commercial markets, many lenders have experienced severe liquidity issues. The General Partner believes that these liquidity issues have reduced the competition for commercial loans as many lenders do not have access to lendable capital. The Partnership has not been able to capitalize on this competitive opportunity by making new loans because the Partnership has also experienced liquidity issues and a large increase in limited partner withdrawal requests.

Employees

The Partnership does not have employees. The General Partner, Owens Financial Group, Inc., provides all of the employees necessary for the Partnership’s operations. As of December 31, 2008, the General Partner had 17 employees. All employees are at-will employees and none are covered by collective bargaining agreements.

PART I - Item 1A. RISK FACTORS

Risks Associated with the Business of the Partnership

The Partnership invests primarily in mortgage loans secured by real property and interests in real property. It is therefore subject to the usual risks associated with real estate financing, as well as certain special risks, as described below.

Loan delinquencies increased substantially during 2008 and the General Partner believes that a continued rise in loan delinquencies and foreclosures may lead to further reductions in net income (yield) paid to limited partners in 2009

As of December 31, 2008, mortgage loans of approximately $95,743,000 were more than 90 days delinquent in payments, which represented an increase from December 31, 2007, of $55,206,000. In addition, the Partnership’s investment in loans that were past maturity (delinquent in principal) but current in monthly payments was approximately $36,324,000 as of December 31, 2008 (combined total of delinquent loans of $132,067,000 compared to $102,568,000 as of December 31, 2007). Of the impaired and past maturity loans as of December 31, 2008, approximately $46,148,000 were in the process of foreclosure and $10,500,000 involved borrowers in bankruptcy. In the first quarter of 2009, the Partnership began foreclosure proceedings by filing notices of default on three delinquent loans with aggregate principal balances totaling $10,814,000 as of December 31, 2008. Two of these loans became greater than ninety days delinquent in payments subsequent to year end. The Partnership foreclosed on six loans during 2008 with aggregate principal balances totaling $18,220,000 and obtained the properties via the trustee’s sales. In addition, the Partnership foreclosed on four additional loans with aggregate principal balances totaling $13,165,000 and obtained the underlying properties subsequent to year end.

The General Partner believes that Partnership loan delinquencies and foreclosures may continue to rise in the next several months and that this may lead to a further reduction in the net income (yield) paid to limited partners. The yields paid out to

limited partners in January, February and March 2009 were 5.65%, 4.48% and 4.0%, respectively, as compared to an average of 6.8% during 2008. The General Partner expects that with time the majority of the loan delinquency problems will clear up favorably to the Partnership, but there can be no assurance of this. In the meantime, the reduced income and liquidity may require a reduction in the net income paid to limited partners and the management fees paid to the General Partner in the near term.

Defaults on our mortgage loans will reduce our income and your distributions

Since most of the assets of the Partnership are mortgage loans, failure of a borrower to pay interest or repay a loan will have adverse consequences to the Partnership’s income. Examples of these are the following:

·	Any failure by a borrower to repay loans and/or interest on loans will reduce the liquidity and income of the Partnership and distributions to partners;

·	Since the General Partner retains all late payment charges collected on defaulted loans, the Partnership will not be able to partially offset any loss of income from the defaulted loans with these fees;

·	The General Partner is entitled to continue to receive management and loan servicing fees on delinquent loans;

·	The Partnership may not be able to resolve the default prior to foreclosure of the property securing the loan;

·	Properties foreclosed upon may not generate sufficient income from operations to meet expenses and other debt service;

·	Operation of foreclosed properties may require the Partnership to spend substantial funds for an extended period;

·	Subsequent income and capital appreciation from the foreclosed properties to the Partnership may be less than competing investments; and

·	The proceeds from sales of foreclosed properties may be less than the Partnership’s investment in the properties.

Our Results are Subject to Fluctuations in Interest Rates and Other Economic Conditions Which Affect Yields

The Partnership’s results of operations will vary with changes in interest rates and with the performance of the relevant real estate markets. If the economy is healthy, more people are expected to borrow money to acquire, develop and renovate real property. As the economy is now in a recession, real estate development has slowed and mortgage defaults have risen. In addition, there has been a tightening in the credit markets and real estate lending has slowed considerably, which has resulted in fewer Partnership loans being repaid in a timely manner. All of these factors, coupled with a significant increase in limited partner withdrawal requests, has resulted in reduced Partnership liquidity and income. Currently, the Partnership is not able to invest in new mortgage loans due to cash flow constraints. The General Partner believes that the Partnership will have sufficient cash flow to sustain operations over the next year, but may not have the cash available to enable it to honor withdrawal requests or make new investments during that time.

Larger Loans Result in Less Diversity and May Increase Risk

As of December 31, 2008, the Partnership was invested in a total of 64 mortgage loans, with an aggregate face value of $262,236,201. The average value of those loans was approximately $4,097,000, and the median value was $2,378,000. There were fourteen of such loans with a face value each of 3% or more of the aggregate face value of all loans, and the largest loan had a face value of 9% of the aggregate. The Partnership Agreement permits investment in any single mortgage loan with a face value up to 10% of the total Partnership assets as of the date the loan is made.

The Partnership can as a general rule decrease risk of loss from delinquent mortgage loans by investing in a greater total number of loans. Investing in fewer, larger loans generally decreases diversification of the portfolio and increases risk of loss and possible reduction of yield to investors in the Partnership in the case of a delinquency of such a loan. However, since larger loans generally will carry a somewhat higher interest rate to the Partnership, the General Partner may determine, from time to time, that a relatively larger loan is advisable for the Partnership, particularly, as has occurred at times in the recent past, when smaller loans that are appropriate for investment by the Partnership are not available.

Incorrect Original Collateral Assessment (Valuation) Could Result in Losses and Decreased Distributions to You

Appraisals are obtained from qualified, independent appraisers on all properties securing trust deeds, which may have been commissioned by the borrower and also may precede the placement of the loan with the Partnership. However, there is a risk that the appraisals prepared by these third parties are incorrect, which could result in defaults and/or losses related to these loans.

Completed, written appraisals are not always obtained on Partnership loans prior to original funding, due to the quick underwriting and funding required on the majority of Partnership loans. Although the loan officers often discuss value with the appraisers and perform other due diligence and calculations to determine property value prior to funding, there is a risk that the Partnership may make a loan on a property where the appraised value is less than estimated, which could increase the loan’s LTV ratio and subject the Partnership to additional risk.

The Partnership may make a loan secured by a property on which the borrower previously commissioned an appraisal. Although the Partnership generally requires such appraisal to have been made within one year of funding the loan, there is a risk that the appraised value is less than actual value, increasing the loan’s LTV ratio and subjecting the Partnership to additional risk.

Unexpected Declines in Values of Secured Properties Could Cause Losses in Event of Foreclosures and Decreased Distributions to You

Declines in real estate values could impair the Partnership’s security in outstanding loans, and if such a loan required foreclosure, it might reduce the amount we have available to distribute to limited partners.

The Partnership generally makes its loans with the following maximum loan to appraised value ratios:

·	First Mortgage Loans ---

80% of improved residential property,

50% of unimproved property,

75% of commercial property;

·	Second and Wraparound Loans ---

total indebtedness of 75%; and

·	Third Mortgage Loans ---

total indebtedness of 70%.

Values of properties can decline below their appraised values during the term of the associated Partnership loans. In addition, appraisals are only opinions of the appraisers of property values at a certain time. Material declines in values could result in Partnership loans being under secured with subsequent losses if such loans must be foreclosed. The General Partner may vary from the above ratios in evaluating loan requests in its sole discretion.

As of December 31, 2008, the Partnership maintained an allowance for loan losses of approximately $13,728,000. This includes a specific allowance of $6,415,000 on four loans and a non-specific allowance of $7,313,000.

Foreclosures Create Additional Ownership Risks

The Partnership foreclosed on six loans during the year ended December 31, 2008 with aggregate principal balances totaling $18,220,000 and obtained the properties via the trustee’s sales. Subsequent to year end, the Partnership foreclosed on four additional loans with aggregate principal balances totaling $13,165,000 and obtained the underlying properties. In addition, as of the date of this filing, six delinquent loans with aggregate principal balances totaling $54,296,000 have had notices of default filed or are in the process of foreclosure.

When the Partnership acquires property by foreclosure, it has economic and liability risks as the owner, such as:

·	Earning less income and reduced cash flows on foreclosed properties than could be earned and received on mortgage loans;

·	Not being able to realize sufficient amounts from sales of the properties to avoid losses;

·	Properties being acquired with one or more co-owners (called tenants-in-common) where development or sale requires written agreement or consent by all; without timely agreement or consent, the Partnership could suffer a loss from being unable to develop or sell the property;

·	Maintaining occupancy of the properties;

·	Controlling operating expenses;

·	Coping with general and local market conditions;

·	Complying with changes in laws and regulations pertaining to taxes, use, zoning and environmental protection; and

·	Possible liability for injury to persons and property.

During the year ended December 31, 2008, the Partnership recorded impairment losses on four of its real estate properties held for sale and investment in the aggregate amount of approximately $6,005,000.

Geographical Concentration of Mortgages May Result in Additional Delinquencies

Northern California real estate secured approximately 43% of the total mortgage loans held by the Partnership as of December 31, 2008. Northern California consists of Monterey, Kings, Fresno, Tulare and Inyo counties and all counties north of those. In addition, 13.2%, 12.0%, 9.0%, 5.3% and 4.7% of total mortgage loans were secured by Southern California, Arizona, Florida, Colorado and Washington real estate, respectively. These concentrations may increase the risk of delinquencies on our loans when the real estate or economic conditions of one or more of those areas are weaker than elsewhere, for reasons such as:

·	economic recession in that area;

·	overbuilding of commercial properties; and

·	relocations of businesses outside the area, due to factors such as costs, taxes and the regulatory environment.

These factors also tend to make more commercial real estate available on the market and reduce values, making suitable mortgages less available to the Partnership. In addition, such factors could tend to increase defaults on existing loans.

Commercial real estate markets in California have begun to suffer with the worsening economy, and the Partnership expects that this may continue to adversely affect the Partnership’s operating results.

Investments in construction and rehabilitation loans may be riskier than loans secured by operating properties

Construction and rehabilitation mortgage loans may be riskier than loans secured by properties with an operating history, because:

·	The application of the loan proceeds to the construction or rehabilitation project must be assured;

·	The completion of planned construction or rehabilitation may require additional financing by the borrower; and

·	Permanent financing of the property may be required in addition to the construction or rehabilitation loan.

As of December 31, 2008, the Partnership’s loan portfolio contains approximately 31% in construction and rehabilitation loans.

Investments in loans secured by leasehold interests may be riskier than loans secured by fee interests in properties

Loans secured by leasehold interests are riskier than loans secured by real property because the loan is subordinate to the lease between the property owner (lessor) and the borrower, and the Partnership’s rights in the event the borrower defaults are limited to stepping into the position of the borrower under the lease, subject to its requirements of rents and other obligations and period of the lease. As of December 31, 2008, the Partnership’s loan portfolio contained no loans secured by leasehold interests.

Investments in second, third and wraparound mortgage loans may be riskier than loans secured by first deeds of trust

Second, third and wraparound mortgage loans (those under which the Partnership generally makes the payments to the holders of the prior liens) are riskier than first mortgage loans because of:

·	Their subordinate position in the event of default;

·	There could be a requirement to cure liens of a senior loan holder and, if not done, the Partnership would lose its entire interest in the loan.

As of December 31, 2008, the Partnership’s loan portfolio contained 10.7% in second mortgage loans and no third mortgage loans. As of December 31, 2008, the Partnership was invested in no wraparound mortgage loans.

Loans with Balloon Payments Involve a Higher Risk of Default

Our Loans Permit Prepayment Which May Lower Yields

The majority of the Partnership’s loans do not include prepayment penalties for a borrower paying off a loan prior to maturity. The absence of a prepayment penalty in the Partnership’s loans may lead borrowers to refinance higher interest rate loans in a market of falling interest rates. This would then require the Partnership to reinvest the prepayment proceeds in loans or alternative short-term investments with lower interest rates and a corresponding lower yield to partners. However, since the majority of Partnership loans have interest rates that are higher than competing lenders, most borrowers would not make loans with the Partnership if they were required to pay a prepayment penalty.

Equity or Cash Flow Participation in Loans Could Result in Loss of Secured Position in Loans

The Partnership may obtain participation in the appreciation in value or in the cash flow from a secured property. If a borrower defaults and claims that this participation makes the loan comparable to equity (like stock) in a joint venture, the Partnership might lose its secured position as lender in the property. Other creditors of the borrower might then wipe out or substantially reduce the Partnership’s investment. The Partnership could also be exposed to the risks associated with being an owner of real property. The Partnership is not presently involved in any such arrangements.

If a third party were to assert successfully that a Partnership loan was actually a joint venture with the borrower, there might be a risk that the Partnership could be liable as joint venturer for the wrongful acts of the borrower toward the third party.

Intense Competition in the Partnership’s Business Affects Availability of Suitable Loans

Prior to the recent substantial decline in the housing market, the mortgage lending business was highly competitive. Although competition has lessened, the Partnership still competes with numerous established entities, some of which have more financial resources and experience in the mortgage lending business than the General Partner. The Partnership has encountered significant competition from banks, insurance companies, savings and loan associations, mortgage bankers, pension funds, real estate investment trusts, and other lenders with objectives similar in whole or in part to those of the Partnership. Strong competitive conditions tend to lower interest rates on Partnership loans.

Interim Investments, Pending Investment in Suitable Mortgage Loans, Provide Lower Yields

A decrease in lending opportunities to the Partnership can result in an increase in excess cash that must be invested in lower yielding liquid investments. Interest returns on short-term interim investments, pending investment in suitable mortgage

loans, are lower than returns on mortgage loans, which may reduce the yield to holders of Partnership Units, depending on how long these non-mortgage investments are held. In an effort to reduce the amount of excess cash that must be invested in lower yielding investments, the General Partner has chosen to close the Partnership to new contributions from limited partners for periods of time in the past.

When the Partnership invests in non-mortgage, short-term investments, using proceeds from the sale of Units, the purchasers of those Units will nevertheless participate equally in income distributions from the Partnership with holders of Units whose sale proceeds have been invested in mortgage loans, based solely on relative capital account amounts. This will favor, for a time, holders of Units whose purchase monies were invested in non-mortgage investments, to the detriment of holders of Units whose purchase monies are invested in normally higher-yielding mortgage loans.

Some Losses That Might Occur to Borrowers May Not be Insured and May Result in Defaults

Partnership loans require that borrowers carry adequate hazard insurance for the benefit of the Partnership. Some events are however either uninsurable or insurance coverage is economically not practicable. Losses from earthquakes, floods or mudslides, for example, which occur in California, may be uninsured and cause losses to the Partnership on entire loans. No such loan loss has occurred to date.

If a borrower allows insurance to lapse, an event of loss could occur before the Partnership knows of the lapse and has time to obtain insurance itself.

Insurance coverage may be inadequate to cover property losses, even though the General Partner imposes insurance requirements on borrowers that it believes are adequate.

Development on Property Acquired by the Partnership Creates Risks of Ownership a Lender Does Not Have

When the Partnership has acquired property by foreclosure or otherwise as a lender, it may develop the property, either singly or in combination with other persons or entities. This could be done in the form of a joint venture, limited liability company or partnership, with the General Partner and/or unrelated third parties. This development can create the following risks:

·	Reliance upon the skill and financial stability of third-party developers and contractors;

·	Inability to obtain governmental permits;

·	Delays in construction of improvements;

·	Increased costs during development; and

·	Economic and other factors affecting sale or leasing of developed property.

Hazardous or Toxic Substances Could Impose Unknown Liabilities on the Partnership

Various federal, state and local laws can impose liability on owners, operators, and sometimes lenders for the cost of removal or remediation of certain hazardous or toxic substances on property. Such laws often impose liability whether or not the person knew of, or was responsible for, the presence of the substances.

When the Partnership forecloses on a mortgage loan, it becomes the owner of the property. As owner, the Partnership could become liable for remediating any hazardous or toxic contamination, which costs could exceed the value of the property. Other costs or liabilities that could result include the following:

·	damages to third parties or a subsequent purchaser of the property;

·	loss of revenues during remediation;

·	loss of tenants and rental revenues;

·	payment for clean up;

·	substantial reduction in value of the property;

·	inability to sell the property; or

·	default by a borrower if it must pay for remediation.

Any of these could create a material adverse affect on Partnership assets and/or profitability. During the course of the due diligence for the sale of properties owned by the Partnership in Santa Clara, California during 2008, it was discovered that the properties were contaminated and that remediation and monitoring may be required. The parties to the sale agreed to enter into an Operating Agreement to restructure the arrangement as a joint venture. Pursuant to the Operating Agreement, the Partnership is responsible for all costs related to the environmental remediation on the properties and has indemnified its joint venture partner against all obligations related to the contamination. The Partnership accrued approximately $762,000 as an estimate of the expected costs to monitor and remediate the contamination on the properties for the year ended December 31, 2008. The Partnership is unable to estimate the maximum amount to be paid under this guarantee, as the Operating Agreement does not limit the obligations of the Partnership.

Partnership Borrowing Involves Risks if Defaults Occur and Your Distributions May Decrease

Any borrowing by the Partnership may increase the risk of limited partner investments and reduce the amount the Partnership has available to distribute to limited partners. We have obtained a bank line of credit, under authority granted by the Partnership Agreement, which we expect to use from time to time to acquire or make mortgage loans. We may also incur other indebtedness to:

·	prevent defaults under senior loans or discharge them entirely if that becomes necessary to protect the Partnership’s interests; or

·	assist in the development or operation of any real property, which the Partnership has taken over as a result of a default.

The total amount of such borrowing cannot exceed at any time 50% of the aggregate fair market value of all Partnership mortgage loans.

Borrowing by the Partnership under its bank line of credit is likely to be secured with recourse by the lending bank to all Partnership assets. The Partnership and limited partners could face increased risk from our bank line of credit.

If the interest rates we are able to charge on our mortgage loans decrease below the interest rates we must pay on our line of credit, payments of interest due on our line of credit will decrease our income otherwise available for distribution to limited partners. In addition, if one of our mortgage loans goes into default and we are unable to obtain repayment of the principal amount of the loan through foreclosure or otherwise, payments of principal required on our line of credit will decrease the amount of cash we have available and could reduce the amounts we otherwise would have available for repurchases of Units from limited partners.

The bank line of credit agreement requires the Partnership to meet certain financial covenants including profitability, minimum tangible net worth and ratio of total liabilities to tangible net worth. For the quarter ended December 31, 2008, the Partnership was not in compliance with the profitability covenant in the line of credit agreement. Effective March 27, 2009, the Partnership obtained from the agent and lending banks a waiver of this covenant violation for the periods ending December 31, 2008 and March 31, 2009, which also now provides that the interest rate on the line of credit will be subject to a floor of not less than 5% per annum. While line of credit borrowings otherwise bear interest at prime rate (3.25% as of December 31, 2008), the addition of the 5% interest floor will immediately increase the Partnership’s cost of funds on such borrowings. Therefore, the banks’ covenant waiver will result in higher Partnership interest expense and lower Partnership income than would apply without the waiver, until the prime rate rises to at least 5% per annum. As of March 27, 2009, the Partnership’s balance on the line of credit is $41,481,000.

If we are unable to maintain compliance with line of credit covenants in the future, or to timely obtain a waiver of noncompliance, the Partnership may be unable to borrow additional funds on the line of credit, and the banks may accelerate repayment of outstanding borrowings, or charge a higher “default rate” of interest. Each of these consequences could reduce the amount of cash available to the Partnership, and therefore the amount of cash available for repurchases of Units from limited partners. Acceleration of repayment could require the Partnership to refinance, potentially on less favorable terms, or to liquidate Partnership investments to repay outstanding borrowings. There can be no assurance that we will be able to maintain compliance with covenants or obtain waivers of noncompliance on acceptable terms.

Lack of Liquidity of Your Investment Increases its Risk

General

You may not be able to obtain cash for Units you own on a timely basis. There are a number of restrictions on your ability to sell or transfer your Units or to have them repurchased by the Partnership. These are summarized in this Risk Factor.

No Free Tradability of Units

The Units are restricted as to free tradability under the Federal Income Tax Laws. In order to preserve the Partnership’s status as a limited partnership and prevent being taxable as a corporation, you will not be free to sell or transfer your Units at will, and they are likely not to be accepted by a lender as security for borrowing.

There is no market for the Units, public or private, and there is no likelihood that one will ever develop. You must be prepared to hold your Units as a long-term investment.

To comply with applicable tax laws, the General Partner may refuse on advice of tax counsel to consent to a transfer or assignment of Units. The General Partner must consent to any assignment that gives the assignee the right to become a limited partner, and its consent to that transaction may be withheld in its absolute discretion.

The California Commissioner of Corporations has also imposed a restriction on sale or transfer, except to specified persons, because of the investor suitability standards that apply to a purchaser of Units who is a resident of California. Units may not be sold or transferred without consent of the Commissioner, except to family members, other holders of Units, and the Partnership.

Repurchase of Units by the Partnership is Restricted

If you purchase Units, you must own them for at least one year before you can request the Partnership to repurchase any of those Units. This restriction does not apply to Units purchased through the Partnership’s Distribution Reinvestment Plan. Some of the other restrictions on repurchase of Units are the following:

·	You must give a written request to withdraw at least 60 days prior to the withdrawal;

·	Payments only return all or the requested portion of your Capital Account and are not affected by the value of the Partnership’s assets, except upon final liquidation of the Partnership;

·	Payments are made only to the extent the Partnership has available cash;

·	There is no reserve fund for repurchases;

·	You may withdraw a maximum of $100,000 during any calendar quarter;

·	The total amount withdrawn by all limited partners during any calendar year cannot exceed 10% of the aggregate capital accounts of the limited partners.

·	Any withdrawal that reduces a limited partners’ capital account below $2,000 ($2,500 for residents of North Carolina) may lead to the General Partner distributing all remaining amounts in the account to close it out.

·	All withdrawal payments are made on a “first-come, first-served” basis.

·	Payments are only made by the Partnership on the last day of any month.

If the Partnership does not sell sufficient Units or if principal payments on existing loans decrease, your ability to have your Units repurchased may be adversely affected, especially if the total amount of requested withdrawals should increase substantially. To help prevent lack of such liquidity, the Partnership will not refinance or invest in new loans using payments of loan principal by borrowers, new invested capital of limited partners or proceeds from the sale of real estate, unless it has sufficient funds to cover previously requested withdrawals. In December 2008, the Partnership reached the 10% limited partner withdrawal limit and the majority of scheduled withdrawals for December were temporarily suspended. These withdrawals were then made in January 2009. In addition, January, February and March 2009 scheduled withdrawals were not made because the Partnership did not have available cash to make such withdrawals. As of the date of this filing, there are approximately $35,381,000 of scheduled withdrawals for 2009 ($14,787,000 of which were scheduled to be disbursed in the first quarter of 2009) that have not been disbursed. The General Partner believes that it is highly likely that there will be continued delays in disbursing scheduled withdrawals and that the 10% withdrawal limit will be reached again sometime in 2009, if sufficient loan payoffs and limited partner capital contributions are received.

Limited Partners Have No Control Over Operations of the Partnership

California law prevents limited partners from involvement in the conduct of our business.

Under California limited partnership law, you cannot exercise any control over the day to day conduct of business of the Partnership. The General Partner has the sole power to do so. However, a majority of the limited partners can take action and bind the Partnership to:

·	dissolve the Partnership,

·	change the nature of the Partnership’s business,

·	remove and replace the General Partner,

·	amend the Partnership Agreement, or

·	approve a merger with another entity or sell all of the assets of the Partnership.

Removal or withdrawal of the General Partner could terminate the Partnership.

The Partnership has only one General Partner, Owens Financial Group, Inc. If it withdraws or is terminated as General Partner by its dissolution or bankruptcy, the Partnership itself will be dissolved unless a majority of the limited partners agree to continue the Partnership, and, within six months, admit one or more successor general partners.

Only the General Partner selects mortgage loans.

The General Partner has sole discretion in selecting the mortgage loans to be invested in by the Partnership, so the limited partners have no control over the choice of mortgage loans to be acquired with their invested funds. There are currently only five loan brokers obtaining loans for the Partnership, four employed by the General Partner and one commissioned broker. If any one of these brokers were to leave the General Partner or become ill for a long period of time, it could impact the amount of new loans originations and the monitoring of existing loans for the Partnership.

The General Partner could choose loans with less favorable terms.

The General Partner in selecting mortgage loans for the Partnership has the discretion to set or negotiate the terms of the loans, such as interest rates, term and loan-to-value ratios, that could vary from the targeted values that it has otherwise established .

The Partnership relies exclusively on the General Partner to originate or arrange loans to be invested in by the Partnership.

The General Partner originates or arranges all of the mortgage loans purchased by the Partnership. The General Partner receives referrals for loans from existing and prior borrowers and commercial loan brokers and occasionally purchases loans from other lending institutions on behalf of the Partnership.

The General Partner can change our investment objectives and controls the daily conduct of the Partnership’s business.

Although the General Partner may not change the nature of the Partnership’s business without majority approval by the limited partners, it does establish our investment objectives and may modify those without the approval of the limited partners.

The Partnership’s compliance with Rule 404 of the Sarbanes-Oxley Act is dependent solely on the General Partner.

The General Partner’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f). As the Partnership has no employees of its own, the Partnership is

dependent on the employees and management of the General Partner to establish, maintain and report upon internal control over financial reporting.

Conflicts of Interest Risks

The General Partner and its affiliates are subject to various conflicts of interest in managing the Partnership. The Partnership pays the General Partner substantial fees that are not determined by arms’-length negotiations.

Payment of Fees to General Partner

Acquisition and origination fees to the General Partner are generally payable up front from payments made by third party borrowers. These fees are compensation for the evaluation, origination, extension and refinancing of loans for the borrowers and may be paid at placement, extension or refinancing of the loan or at the time of final repayment of the loan. Such fees may create a conflict of interest for the General Partner when determining whether particular loans are suitable as investments for the Partnership. Because the General Partner receives all of these fees, the Partnership’s interests will diverge from those of the General Partner when the General Partner decides whether it should charge the borrower a higher rate of interest on a loan or higher fees. The General Partner could negotiate higher loan origination fees for itself in exchange for a lower interest rate to the detriment of the Partnership. The General Partner employs no formal procedures to address this potential conflict of interest and the limited partners must rely on the fiduciary duty of the General Partner to deal fairly with the limited partners in this situation. Substantial amounts were earned by the General Partner in 2007 and 2008 from loan origination fees.

Maximum Compensation Not Received by General Partner

The monthly management and loan servicing fees are paid to the General Partner, as determined by the General Partner within the limits set by the Partnership Agreement. These are obligations of the Partnership. Accordingly, the General Partner may continue to receive these fees even if the Partnership is generating insufficient income to make distributions to the limited partners.

In prior periods, the General Partner has elected to receive less than the maximum management fees it is entitled to pursuant to the Partnership Agreement, which is 2 ¾% annually of the average unpaid balance of the Partnership’s mortgage loans at the end of each month. Because the General Partner has not elected to receive all of the management fees that it was otherwise entitled to receive in all prior periods, the Partnership’s performance (and yield/distributions to limited partners) in those prior periods may be better than the Partnership’s performance in future periods in which the General Partner elects to receive up to the maximum management fees. In 2008, the General Partner elected to receive a management fee of 1.53%, compared to 0.79% in 2007 and 2.04% in 2006. The limited partners must rely on the fiduciary duty of the General Partner to deal fairly with the limited partners in those situations.

General Partner Not Full Time

The Partnership does not have its own officers, directors, or employees. The General Partner supervises and controls the business affairs of the Partnership, locates investment opportunities for the Partnership and renders certain other services. The General Partner devotes only such time to the Partnership’s affairs as may be reasonably necessary to conduct its business. The General Partner conducts business as a real estate broker separate from the Partnership. While the General Partner has investments in various real estate joint ventures where they act as a general partner, member or managing member, it does not act as the general partner or sponsor of any other real estate mortgage investment program.

Taxation Risks

Tax consequences can vary among investors.

The tax consequences of investing in the Partnership may differ materially, depending on whether the limited partner is an individual, corporation, trust, partnership or tax-exempt entity. You should consult your own tax advisor about investing in the Partnership.

Your cash flow and distributions will be reduced if we are taxed as a corporation.

Tax counsel to the Partnership has given its opinion as of April 15, 2008, that under Treasury Regulations adopted in 1996, the Partnership will retain its previous classification as a partnership for tax purposes. Tax counsel has also given its opinion as of that date that the Partnership will not be classified as a “publicly traded partnership”, taxable as a corporation.

Of course, it is possible that this treatment might change because of future changes in tax laws or regulations. The Partnership will not apply for a ruling from the IRS that it agrees with tax counsel’s opinion.

If the Partnership were taxable as a corporation, it would be subject to federal income tax on its taxable income at regular corporate tax rates. The limited partners would then not be able to deduct their share of the Partnership’s deductions and credits. They would be taxed on the distributions they receive from the Partnership’s income. Taxation as a corporation would result in a reduction in yield and cash flow, if any, of the Units.

If the Partnership were not engaged in a trade or business, your share of expense deductions would be reduced.

The IRS might assert that the Partnership is not engaged in a trade or business. If it is not, then your share of expenses would be deductible only to the extent all your other “miscellaneous itemized deductions” exceed 2% of your adjusted gross income.

If you finance the purchase of your Units, interest you pay might not be deductible

Under the “investment interest” limitation of the tax code, the IRS might disallow any deductions you take on any financing you use to purchase Units. Thus, you may not be able to deduct those financing costs from your taxable income.

An IRS audit of our return, books and records could result in an audit of your tax returns.

If we are audited by the IRS and it makes determinations adverse to us, including disallowance of deductions we have taken, the IRS may decide to audit your income tax returns. Any such audit could result in adjustments to your tax return for items of income, deductions or credits, and the imposition of penalties and interest for the adjustments and additional expenses for filing amended income tax returns.

Equity participation in mortgage loans may result in limited partners reporting taxable income and gains from these properties.

If the Partnership participates under a mortgage loan in any appreciation of the property securing the loan or its cash flow and the IRS characterizes this participation as “equity”, the Partnership might have to recognize income, gains and other items from the property. The limited partners will then be considered to have received these additional taxable items.

Inconsistencies between federal, state and local tax rules may adversely affect your cash flow, if any, from investment in our Units.

If we are treated as a partnership for federal income tax purposes but as a corporation for state or local income tax purposes, or if deductions that are allowed by the IRS are not allowed by state or local regulators, your cash flow and distributions from our Units would be adversely affected.

Unrelated business income of the Partnership would subject tax-exempt investors to taxation of Partnership income.

If you as an investor are a tax-exempt entity, and all or a portion of Partnership income were to be deemed “unrelated trade or business income”, you would be subject to tax on that income.

Retirement Plan Risks

An investment in the Partnership may not qualify as an appropriate investment under all retirement plans.

There are special considerations that apply to pension or profit sharing plans or IRAs investing in Units. If you are investing the assets of a pension, profit sharing, 401(k), Keogh or other qualified retirement plan or the assets of an IRA in the Partnership, you could incur liability or subject the plan to taxation if:

·	your investment is not consistent with your fiduciary obligations under ERISA and the Internal Revenue Code;

·	your investment is not made in accordance with the documents and instruments governing your plan or IRA, including your plan’s investment policy;

·	your investment does not satisfy the prudence and diversification requirements of Sections 404(a)(1)(B) and 404(A)(1)(C) of ERISA;

·	your investment impairs the liquidity of the plan; or

·	your investment produces “unrelated business taxable income” for the plan or IRA.

PART I - Item 2. PROPERTIES

As of December 31, 2008, the Partnership holds title to 15 properties that were acquired through foreclosure (either solely or through its investments in the limited liability companies discussed below) and one property that was purchased and is held within 720 University, LLC (see below). As of December 31, 2008, the total carrying amount of these properties was $58,429,000. Eleven of the properties are being held for long-term investment and the remaining five properties are currently being marketed for sale. All of the properties individually have a book value less than 2% of total Partnership assets as of December 31, 2008, other than the property within 720 University, LLC (see below) and the 75 finished lots owned within the subdivision development in Auburn, California.

·	The Partnership’s (or related LLC’s) title to all properties is held as fee simple.

·	There are no mortgages or encumbrances to third parties on any of the Partnership’s real estate properties acquired through foreclosure (other than within 720 University, LLC- see below).

·	Of the sixteen properties held, nine of the properties are either partially or fully leased to various tenants. Only minor renovations and repairs to the properties are currently being made or planned (other than continued tenant improvements on real estate held for investment).

·	Management of the General Partner believes that all properties owned by the Partnership are adequately covered by customary casualty insurance.

Real estate acquired through foreclosure may be held for a number of years before ultimate disposition primarily because the Partnership has the intent and ability to dispose of the properties for the highest possible price (such as when market conditions improve). During the time that the real estate is held, the Partnership may earn less income on these properties than could be earned on mortgage loans and may have negative cash flow on these properties.

For purposes of assessing potential impairment of value on properties during 2008, the Partnership obtained updated appraisals or other valuation support as of December 31, 2008 or during the first quarter of 2009 for four of its real estate properties held for sale and investment, which resulted in additional impairment losses in the aggregate amount of approximately $6,005,000 recorded in the consolidated statements of income.

Investment in Limited Liability Companies

Oregon Leisure Homes, LLC

Oregon Leisure Homes, LLC (OLH) is an Oregon limited liability company formed in 2001 for the purpose of developing and selling eight condominium units located in Lincoln City, Oregon, which were acquired by the Partnership via a deed in lieu of foreclosure. The Partnership is the sole member in OLH. The assets, liabilities, income and expenses of OLH have been consolidated into the consolidated balance sheets and income statements of the Partnership.

During the years ended December 31, 2007, the Partnership advanced an additional $17,000 to OLH for continued operation and marketing of the condominium units that are for sale and received repayment of advances of $665,000 from collections on notes receivable and sales of condominium units. During the year ended December 31, 2007, OLH sold three condominium units for total sales proceeds of approximately $656,000, and gain on sale in the total amount of approximately $141,000. All condominium units were sold and the LLC ceased operations as of December 31, 2007.

The net income to the Partnership from OLH was approximately $231,000 for the year ended December 31, 2007.

DarkHorse Golf Club, LLC

DarkHorse Golf Club, LLC (DarkHorse) is a California limited liability company formed in August 2007 for the purpose of operating the DarkHorse golf course located in Auburn California, which was acquired by the Partnership via foreclosure in August 2007. The golf course was placed into DarkHorse via a grant deed on the same day that the trustee’s sale was held. The Partnership is the sole member in DarkHorse. The assets, liabilities, income and expenses of DarkHorse have been consolidated into the consolidated balance sheets and income statements of the Partnership. The golf course is being operated and managed by an unrelated company.

The Partnership advanced approximately $793,000 and $500,000 to DarkHorse during the years ended December 31, 2008 and 2007, respectively, for operations and equipment purchases. The net loss to the Partnership from DarkHorse was approximately $401,000 and $202,000 for the years ended December 31, 2008 and 2007, respectively. Continued operation of DarkHorse may result in additional losses to the Partnership and may require the Partnership to provide funds for operations and capital improvements. During the year ended December 31, 2008, the Partnership recorded an impairment loss of approximately $671,000 on the golf course.

Dation, LLC

Dation, LLC (Dation) was formed in 2001 between the Partnership and an unrelated developer for the purpose of developing and selling lots in a manufactured home park located in Lake Charles, Louisiana, which were acquired by the Partnership via a deed in lieu of foreclosure. The Partnership advances funds to Dation as needed. The Partnership owns 50% of Dation and is co-manager. Pursuant to the Operating Agreement, the Partnership is to receive 50% of Dation’s profits and losses after receipt of all interest on the original loan and priority return on partner contributions allocated at the rate of 12% per annum. The Partnership has recorded 100% of Dation’s net income and losses since inception because it has the majority of the risks and rewards of ownership. The assets, liabilities, income and expenses of Dation have been consolidated into the consolidated balance sheets and income statements of the Partnership.

Dation sold no houses or lots during the year ended December 31, 2008. Dation sold one lot during the year ended December 31, 2007 resulting in gain on sale of approximately $10,000. Dation repaid $0 and $10,000, respectively, of the loan to the Partnership and repaid $75,000 and $25,000, respectively, in Partnership capital contributions during the years ended December 31, 2008 and 2007. The Partnership advanced an additional $16,000 and $20,000, respectively, to Dation during the years ended December 31, 2008 and 2007.

The net income to the Partnership from Dation was approximately $35,000 and $94,000 during the years ended December 31, 2008 and 2007 respectively. During the year ended December 31, 2008, the Partnership recorded an impairment loss of approximately $909,000 on the manufactured home park.

720 University, LLC

The Partnership has an investment in a limited liability company, 720 University, LLC (720 University), which owns a commercial retail property located in Greeley, Colorado. The Partnership receives 65% of the profits and losses in 720 University after priority return on partner contributions is allocated at the rate of 10% per annum. The assets, liabilities, income and expenses of 720 University have been consolidated into the consolidated balance sheet and income statement of the Partnership.

The net income to the Partnership was approximately $204,000 and $197,000 (including depreciation of approximately $615,000 and $610,000) during the years ended December 31, 2008 and 2007, respectively. The minority interest of the joint venture partner of approximately $69,000 and $109,000 as of December 31, 2008 and 2007, respectively, is reported in the Partnership’s consolidated balance sheets. The Partnership’s investment in 720 University real property was approximately $13,440,000 and $13,872,000 as of December 31, 2008 and 2007, respectively.

The Partnership has a note payable with a bank in the amount of $10,500,000 through its investment in 720 University, which is secured by the commercial retail property. The note requires monthly interest payments until March 1, 2010 at a fixed rate of 5.07% per annum. Commencing April 1, 2010, monthly payments of $56,816 will be required, with the balance of unpaid principal due on March 1, 2015.

PART I - Item 3. LEGAL PROCEEDINGS

In the normal course of business, the Partnership may become involved in various types of legal proceedings such as assignment of rents, bankruptcy proceedings, appointment of receivers, unlawful detainers, judicial foreclosure, etc., to enforce the provisions of the deeds of trust, collect the debt owed under the promissory notes, or to protect, or recoup its investment from the real property secured by the deeds of trust. None of these actions would typically be of any material importance. As of the date hereof, the Partnership is not involved in any legal proceedings other than those that would be considered part of the normal course of business.

PART I - Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

PART II - Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

There is no established public market for the trading of Units.

Holders

As of December 31, 2008, 2,405 Limited Partners held 270,617,699 Units of limited partnership interests in the Partnership.

Dividends

The Partnership generally distributes all tax basis net income of the Partnership to Unit holders on a monthly basis. Partners have the ability to reinvest their distributions into new Units of the Partnership pursuant to the Reinvested Distributions Plan. The Partnership made cash distributions of net income to Limited Partners and the General Partner of approximately $7,064,000 and $6,956,000 during 2008 and 2007, respectively.

It is the intention of the General Partner to continue to distribute all net income earned by the Partnership to the Unit holders on a monthly basis.

Securities Authorized for Issuance under Equity Compensation Plans

None

PART II - Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

Some of the information in this Form 10-K may contain forward-looking statements. Such statements can be identified by the use of forward-looking words such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue” or other similar words. These statements discuss expectations, hopes, intentions, beliefs and strategies regarding the future, contain projections of results of operations or of financial conditions or state other forward-looking information. When considering such forward-looking statements you should keep in mind the risk factors and other cautionary statements in this Form 10-K. Forward-looking statements include, among others, statements regarding future interest rates and economic conditions and their effect

on the Partnership and its assets, trends in real estate markets in which the Partnership does business, effects of competition, estimates as to the allowance for loan losses and the valuation of real estate held for sale and investment, estimates of future limited partner withdrawals, additional foreclosures in 2009 and their effects on liquidity, and recovering certain values for properties through sale. Although management of the Partnership believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, there are certain factors, in addition to these risk factors and cautioning statements, such as unexpected changes in general economic conditions or interest rates, local real estate conditions including a downturn in the real estate markets where the Partnership has made loans), adequacy of reserves, the impact of competition and competitive pricing, or weather and other natural occurrences that might cause a difference between actual results and those forward-looking statements. All forward-looking statements and reasons why results may differ included in this Form 10-K are made as of the date hereof, and we assume no obligation to update any such forward-looking statement or reason why actual results may differ.

Critical Accounting Policies

In preparing the consolidated financial statements, management is required to make estimates based on the information available that affect the reported amounts of assets and liabilities as of the balance sheet dates and revenues and expenses for the reporting periods. Such estimates relate principally to the determination of (1) the allowance for loan losses including the accrued interest and advances that are estimated to be unrecoverable based on estimates of amounts to be collected plus estimates of the value of the property as collateral; (2) the valuation of real estate held for sale and investment; and (3) the estimate of environmental remediation liabilities. At December 31, 2008, the Partnership owned sixteen real estate properties, including three within limited liability companies. The Partnership also has a 50% ownership interest in a limited liability company that owns property located in Santa Clara, California.

Loans and related accrued interest and advances are analyzed on a periodic basis for recoverability. Delinquencies are identified and followed as part of the loan system. Provisions are made to adjust the allowance for loan losses and real estate held for sale to an amount considered by management to be adequate, with consideration to original collateral values at loan inception and to provide for unrecoverable accounts receivable, including impaired and other loans, accrued interest, and advances on loans.

Recent trends in the economy have been taken into consideration in the aforementioned process of arriving at the allowance for loan losses and real estate. Actual results could vary from the aforementioned provisions for losses. If the probable ultimate recovery of the carrying amount of a loan, with consideration of the fair value of collateral, is less than amounts due according to the contractual terms of the loan agreement, the carrying amount of the loan is reduced to the present value of future cash flows discounted at the loan’s effective interest rate. If a loan is collateral dependent, it is valued by management at the estimated fair value of the related collateral, less estimated selling costs. Estimated collateral fair values are determined based on internal and external appraisals, opinions of fair value from third party real estate brokers and/or comparable third party sales.

If events and/or changes in circumstances cause management to have serious doubts about the collectability of the contractual payments or when monthly payments are delinquent greater than ninety days, a loan is categorized as impaired and interest is no longer accrued. Any subsequent payments received on impaired loans are first applied to reduce any outstanding accrued interest, and then are recognized as interest income, except when such payments are specifically designated principal reduction or when management does not believe the Partnership’s investment in the loan is fully recoverable.

Real estate held for sale includes real estate acquired through foreclosure and is stated at the lower of the recorded investment in the loan, inclusive of any senior indebtedness, or at the property’s estimated fair value, less estimated costs to sell.

Real estate held for investment includes real estate purchased or acquired through foreclosure (including three properties within consolidated limited liability companies) and is initially stated at the lower of cost or the recorded investment in the loan, or the property’s estimated fair value. Depreciation of buildings and improvements is provided on the straight-line method over the estimated remaining useful lives of buildings and improvements. Depreciation of tenant improvements is provided on the straight-line method over the lives of the related leases. Costs related to the improvement of real estate held for sale and investment are capitalized, whereas those related to holding the property are expensed.

The Partnership periodically compares the carrying value of real estate held for investment to expected undiscounted future cash flows as determined by internally or third party generated valuations for the purpose of assessing the recoverability of

the recorded amounts. If the carrying value exceeds future undiscounted cash flows, the assets are reduced to estimated fair value.

The Partnership’s environmental remediation liability related to the property located in Santa Clara, California was estimated based on a third party consultant’s estimate of the costs required to remediate and monitor the contamination.

Related Parties

The General Partner of the Partnership is Owens Financial Group, Inc. (“OFG” or the “General Partner”). All Partnership business is conducted through the General Partner, which arranges, services, and maintains the loan portfolio for the benefit of the Partnership. The fees received by the General Partner are paid pursuant to the Partnership Agreement and are determined at the sole discretion of the General Partner, subject to the limitations imposed by the Partnership Agreement. In the past, the General Partner has elected not to take the maximum compensation in order to maintain return to the limited partners at historical levels. There can be no assurance that the General Partner will continue to do this in the future. The following is a list of various Partnership activities for which related parties are compensated.

Management Fees - In consideration of the management services rendered to the Partnership, the General Partner is entitled to receive from the Partnership a management fee payable monthly, subject to a maximum of 2.75% per annum of the average unpaid balance of the Partnership’s mortgage loans at the end of each month in the calendar year. Management fees amounted to approximately $4,204,000 and $2,176,000 for the years ended December 31, 2008 and 2007, respectively.

Servicing Fees – All of the Partnership’s loans are serviced by the General Partner, in consideration for which the General Partner is entitled to receive from the Partnership a monthly fee, which, when added to all other fees paid in connection with the servicing of a particular loan, does not exceed the lesser of the customary, competitive fee in the community where the loan is placed or up to 0.25% per annum of the unpaid principal balance of the loans at the end of each month. Service fees amounted to approximately $686,000 and $692,000 for the years ended December 31, 2008 and 2007, respectively.

Acquisition and Origination Fees – The General Partner is entitled to receive and retain all acquisition and origination fees paid or payable by borrowers for services rendered in connection with the evaluation and consideration of potential investments of the Partnership (including any selection fee, mortgage placement fee, nonrecurring management fee, and any origination fee, loan fee, or points paid by borrowers). The acquisition and origination fees are paid by borrowers, and thus, are not an expense of the Partnership. Such fees earned by OFG amounted to approximately $3,549,000 and $6,485,000 on loans originated or extended of approximately $136,675,000 and $225,785,000 for the years ended December 31, 2008 and 2007, respectively.

Late Payment Charges – The General Partner is entitled to receive all late payment charges by borrowers on delinquent loans held by the Partnership (including additional interest and late payment fees). The late payment charges are paid by borrowers and collected by the Partnership with regular monthly loan payments or at the time of loan payoff. These are recorded as a liability (Due to General Partner) when collected and are not recognized as an expense of the Partnership. The amounts paid to or collected by OFG for such charges totaled approximately $1,203,000 and $910,000 for the years ended December 31, 2008 and 2007, respectively.

Other Miscellaneous Fees - The Partnership remits other miscellaneous fees to the General Partner, which are collected from loan payments, loan payoffs or advances from loan principal (i.e. funding, demand and partial release fees). Such fees remitted to OFG totaled approximately $34,000 and $46,000 for the years ended December 31, 2008 and 2007, respectively.

Partnership Expenses – The General Partner is entitled to be reimbursed by the Partnership for the actual cost of goods and materials used for or by the Partnership and obtained from unaffiliated entities and the actual cost of services of non-management and non-supervisory personnel related to the administration of the Partnership (subject to certain limitations in the Partnership Agreement). The amounts reimbursed to the General Partner by the Partnership were approximately $88,000 and $48,000 during the years ended December 31, 2008 and 2007, respectively.

Carried Interest and Contributed Capital – The General Partner is required to contribute capital to the Partnership in the amount of 0.5% of the limited partners’ aggregate capital accounts and, together with its carried interest; the General Partner has an interest equal to 1% of the limited partners’ capital accounts. This carried interest of the General Partner of up to 1/2 of 1% is recorded as an expense of the Partnership and credited as a contribution to the General Partner’s capital account as additional compensation. As of December 31, 2008, the General Partner has made cash capital contributions of $1,496,000 to the Partnership. The General Partner is required to continue cash capital contributions to the Partnership in order to maintain its required capital balance. The carried interest expense charged to the Partnership was $0 and $51,000 for the years ended December 31, 2008 and 2007, respectively.

Results of Operations

Overview

The Partnership invests in mortgage loans on real property located in the United States that are primarily originated by the General Partner.

The Partnership’s primary objective is to generate monthly income from its investment in mortgage loans. The Partnership’s focus is on making mortgage loans to owners and developers of real property whose financing needs are often not met by traditional mortgage lenders. These include borrowers that traditional lenders may not normally consider because of perceived credit risks based on ratings or experience levels, and borrowers who require faster loan decisions and funding. One of the Partnership’s competitive advantages is the ability to approve loan applications and fund more quickly than traditional lenders.

The Partnership will originate loans secured by very diverse property types. In addition, the Partnership will occasionally lend to borrowers whom traditional lenders will not normally lend to because of a variety of factors including their credit ratings and/or experience. Due to these factors, the Partnership may make mortgage loans that are riskier than mortgage loans made by commercial banks and other institutional lenders. To compensate for those potential risks, the Partnership seeks to make loans at higher interest rates and with more protection from the underlying real property collateral, such as with lower loan to value ratios.

The Partnership’s operating results are affected primarily by:

·	the amount of cash available to invest in mortgage loans;

·	the level of real estate lending activity in the markets serviced;

·	the ability to identify and lend to suitable borrowers;

·	the interest rates the Partnership is able to charge on loans;

·	the level of delinquencies on mortgage loans;

·	the level of foreclosures and related loan and real estate losses experienced; and

·	the income or losses from foreclosed properties prior to the time of disposal.

During 2007 and 2008, the U.S. economy showed signs of deterioration mostly due to a substantial decline in the housing market, liquidity issues in the lending market and rising gasoline prices. The national unemployment rate has increased substantially from 5.0% in December 2007 to 7.2% in December 2008 while the California unemployment rate has increased over the same period from 6.1% to 8.7%. Although inflation continues to be a concern, the growth of the Gross Domestic Product slowed from 2.0% in 2007 to 1.1% in 2008. The Gross Domestic Product showed annualized increases of 0.9% and 2.8% in the first two quarters of 2008, respectively, and annualized decreases of 0.5% and 6.2% in the third and fourth quarters of 2008, respectively. The general consensus is that the U.S. economy is currently in recession. The Federal Reserve decreased the federal funds rate from 5.25% at the beginning of 2007 to 4.25% and 0.25% as of December 31, 2007 and 2008, respectively.

Short term interest rates have responded quickly to the decreases in the federal funds rate. However, longer term interest rates have been slower to react. These rate decreases have not had a substantial impact on the rates that the Partnership has charged on its loans. In fact, the weighted average interest rate on Partnership loans increased from 10.76% as of December 31, 2007 to 10.88% as of December 31, 2008. Presently, the General Partner does not expect a substantial increase or decrease in the rates charged on Partnership loans.

The Partnership has experienced a significant increase in limited partner capital withdrawal requests in the last four months of 2008 and early 2009. The Partnership was required to suspend approximately $5,000,000 in December 2008 withdrawal requests until January 2009, as only 10% of limited partner capital can be withdrawn in any calendar year, pursuant to the Partnership Agreement. In addition, the Partnership was required to temporarily suspend first quarter 2009 withdrawal requests as there was not enough cash available to make the requested withdrawals. As of the date of this filing, approximately $35,381,000 ($14,787,000 of which were scheduled to be disbursed in the first quarter of 2009) of limited partner withdrawals have been requested but not disbursed. It is highly likely that there will be continued delays in meeting withdrawal requests and that the 10% annual limit for limited partner capital withdrawals will be reached sometime in 2009, if sufficient loan payoffs and limited partner capital contributions are received.

Loan delinquencies have been rising primarily in the residential real estate market. The Partnership does not make loans for the purchase or refinance of single-family residential properties. The Partnership’s loans are secured primarily by commercial properties and residential development projects. The Partnership has experienced increased loan delinquencies and foreclosures over the past year. The General Partner believes that the increase is partially the result of the slowing housing market in California and other parts of the nation as nine of the twenty-six delinquent and past maturity loans as of December 31, 2008 are either residential land or condominium projects. In addition, the Partnership foreclosed on four loans secured partially or fully by residential improved and unimproved land located in California during 2007 and 2008.

Although currently the General Partner believes that only five of the Partnership's delinquent loans will result in loss to the Partnership because the underlying collateral values exceed the Partnership’s basis in the loans, the current economic slowdown could continue to push values of real estate properties down. As a result, given the continued decreasing values in the real estate market, the Partnership continues to perform frequent evaluations of such collateral values using internal and external sources, including the use of updated independent appraisals. As a result of these evaluations, the allowance for loan losses and the Partnership’s investments in real estate could change in the near term, and such changes could be material.

Although the last two U.S. recessions were relatively short-lived, lasting only eight months each, there is no assurance that current economic conditions will improve anytime in the near future. The longer and deeper the recession is, the greater the chance of decreasing real estate values. If the economy were to continue to experience a recession with additional significant drops in Gross Domestic Product and increased unemployment, the values of real estate held by the Partnership and providing security for Partnership loans would most likely decrease further. This could potentially lead to even greater delinquencies and foreclosures, further reducing the liquidity and net income (yield) of the Partnership, decreasing the cash available for distribution in the form of net income and capital redemptions, and increase real estate held by the Partnership. The General Partner expects that with time the majority of the loan delinquency problems will clear up favorably to the Partnership, but there can be no assurance of this. In the meantime, the reduced income and liquidity has required a reduction in the net income paid to limited partners and a delay in disbursing capital withdrawals requested by limited partners.

For Partnership loans outstanding as of December 31, 2008, the Partnership had an average loan-to-value ratio of approximately 51%, computed on a weighted average basis based on appraised values and senior liens as of the date the loan was made. This percentage does not account for any increases or decreases in property values since the date the loan was made, nor does it include any reductions in principal or senior indebtedness through amortization of payments after the loan was made. No assurance can be given that continuing increases in loan defaults and related foreclosures by the Partnership, accompanied by declines in real estate values, will not have a material adverse effect on the Partnership’s financial condition and operating results.

Historically, the General Partner has focused its operations on California and certain Western states. Because the General Partner has a significant degree of knowledge with respect to the real estate markets in such states, it is likely most of the Partnership’s loans will be concentrated in such states. As of December 31, 2008, 43.5% of loans were secured by real estate in Northern California, while 13.2%, 12.0%, 9.0%, 5.3% and 4.7% were secured by real estate in Southern California, Arizona, Florida, Colorado and Washington, respectively. Such geographical concentration creates greater risk that any downturn in such local real estate markets could have a significant adverse effect upon results of operations.

Summary of Financial Results

	Year Ended December 31,
	2008		2007
Total revenues	$	31,058,755	$	32,809,785
Total expenses		28,895,591		11,217,179

Net income	$	2,163,164	$	21,592,606

Net income allocated to limited partners	$	2,139,623	$	21,379,251

Net income allocated to limited partners per weighted average limited partnership unit	$	.01	$	.07

Annualized rate of return to limited partners (1)		0.7%		7.3%

Distribution per partnership unit (yield) (2)		6.8%		7.6%

Weighted average limited partnership units		288,606,000		292,164,000

(1)	The annualized rate of return to limited partners is calculated based upon the net income allocated to limited partners per weighted average limited partnership unit as of December 31, 2008 and 2007.

(2)	Distribution per partnership unit (yield) is the annualized average of the monthly yield paid to the partners for the periods indicated. The monthly yield is calculated by dividing the total monthly cash distribution to partners by the prior month’s ending partners’ capital balance.

2008 Compared to 2007

Total Revenues

Interest income on loans secured by trust deeds decreased $2,754,000 (10.1%) during the year ended December 31, 2008, as compared to 2007, primarily due to an increase in the amount of loans greater than ninety days delinquent in payments and the foreclosures experienced by the Partnership during the year. See “Financial Condition – Loan Portfolio” below.

Gain on sale of real estate increased $118,000 (11.5%) during the year ended December 31, 2008, as compared to 2007, due primarily to the sale of a one-half interest in the properties located in Santa Clara, California (see “Investment in Limited Liability Company” below) for gain of approximately $1,037,000 and the sale of a unit in the office condominium complex located in Roseville, California that was obtained via deed in lieu of foreclosure in 2008 for gain of approximately $102,000. During 2007, the Gresham, Oregon land was sold resulting in a gain of $773,000, the final three condominium units in Oregon Leisure Homes, LLC were sold resulting in total gains of approximately $141,000 and two lots and one lot, respectively, in the manufactured home parks located in Ione, California and within Dation, LLC were sold resulting in gains of approximately $36,000 and $10,000, respectively.

Other income decreased $284,000 (56.3%) during the year ended December 31, 2008, as compared to the same period in 2007 due primarily to a decrease in interest earned on money market investments during 2008. The Partnership had a decreased amount of cash and equivalents available during 2008. In addition, the rates earned on money market investments have generally decreased in 2008 as compared to 2007.

Income from investment in limited liability company increased $48,000 (100%) during the year ended December 31, 2008, as compared to the same period in 2007 due to the Partnership’s investment in 1850 De La Cruz, LLC during 2008 (see “Investment in Limited Liability Company” below).

Total Expenses

Management fees to the General Partner increased $2,028,000 (93.2%) during the year ended December 31, 2008, as compared to 2007. This increase was primarily a result of the collection of delinquent interest at the time of payoff of three loans of approximately $3,538,000 and the recognition of gain of approximately $1,037,000 from the sale of a one-half interest in the properties located in Santa Clara, California during the year. The maximum management fee permitted under the Partnership Agreement is 2.75% per year of the average unpaid balance of mortgage loans. For the years 2005, 2006, 2007 and 2008, the management fees were 2.27%, 2.04%, 0.79% and 1.53% of the average unpaid balance of mortgage loans, respectively.

If the maximum management fees had been paid to the General Partner during the years ended December 31, 2008 and 2007, the management fees would have been $7,545,000 (increase of $3,341,000) and $7,614,000 (increase of $5,438,000), which would have reduced net income allocated to limited partners by approximately 109.7% and 25.2%, respectively, and would have reduced net income allocated to limited partners per weighted average limited partner unit by the same percentages to a loss of $.001 from a profit of $.01 and to a profit of $.05 from $.07, respectively.

In determining the management fees and hence the yield to the partners, the General Partner may consider a number of factors, including current market yields, delinquency experience, uninvested cash and real estate activities. The General Partner expects that the management fees that it receives from the Partnership will vary in amount and percentage from period to period, and it is highly likely that the General Partner will again receive less than the maximum management fees in the future. However, if the General Partner chooses to take the maximum allowable management fees in the future, the yield paid to limited partners may be reduced.

Carried interest to general partner decreased $51,000 (100%) during the year ended December 31, 2008 because the General Partner was not required to contribute capital to the Partnership pursuant to the Partnership Agreement as there was a decrease in limited partner capital during 2008.

Interest expense increased $559,000 (36.0%) during the year ended December 31, 2008, as compared to 2007, due to increased usage of the line of credit during 2008 as compared to 2007.

Bad debt expense decreased approximately $680,000 (100%) during the year ended December 31, 2008, as compared to 2007, as a result of a full allowance recorded on an unsecured receivable during 2007 due to collectability concerns.

During the course of the due diligence for the sale of properties owned by the Partnership in Santa Clara, California, it was discovered that the properties were contaminated and that remediation and monitoring may be required. The parties to the sale agreed to enter into an Operating Agreement to restructure the arrangement as a joint venture. Pursuant to the Operating Agreement, the Partnership is responsible for all costs related to the environmental remediation on the properties and has indemnified its joint venture partner against all obligations related to the contamination. The Partnership accrued approximately $762,000 as an estimate of the expected costs to monitor and remediate the contamination on the properties based on a third party consultant’s estimate which was recorded as Environmental Remediation Expense in the consolidated statements of income for the year ended December 31, 2008. The Partnership has estimated the amount to be paid under this guarantee based on the information available at this time. If additional amounts are required to monitor and remediate the contamination, it will be an obligation of the Partnership, as the Operating Agreement does not limit the obligations of the Partnership.

Other expenses increased $76,000 (139%) during the year ended December 31, 2008, as compared to 2007 primarily due to registration fees and printing costs incurred related to filing the Partnership’s new registration statement on Form S-11, state income taxes paid at the Partnership level for non-California real estate properties and foreclosure costs incurred during 2008.

The provision for loan losses of $9,537,000 during the year ended December 31, 2008 was the result of an analysis performed on the loan portfolio, which resulted in an increase in the general and specific allowances for loan losses during the year. This was primarily a result of an increase in non-performing loans and loans in the process of foreclosure in 2008 and specific loan loss reserves recorded on four loans based on appraised values in the total amount of approximately $6,415,000. The Partnership increased the allowance for loan losses by $2,196,000 during the year ended December 31, 2007.

Losses on real estate properties increased $5,954,000 during the year ended December 31, 2008, as compared to 2007. The Partnership obtained updated appraisals or other valuation support on the unimproved, residential land located in Madera County, California, the manufactured home subdivision development located in Lake Charles, Louisiana (held within Dation, LLC), and the golf course located in Auburn, California (held within DarkHorse Golf Club, LLC), which resulted in additional impairment losses in the aggregate amount of approximately $5,907,000 during the year ended December 31, 2008. In addition, the Partnership recorded an impairment loss of approximately $98,000 during 2008 on four lots (three with houses) in the manufactured home park located in Ione, California.

Net Income from Rental and Other Real Estate Properties

Net income from rental and other real estate properties decreased $596,000 (81.6%) during the year ended December 31, 2008, as compared to 2007, due primarily to additional expenses incurred on real estate foreclosed during 2007 and 2008 and a 2008 net loss of approximately $401,000, as compared to $202,000 during 2007, from the golf course in DarkHorse Golf Club, LLC that was acquired through foreclosure in 2007.

Financial Condition

December 31, 2008 and 2007

Loan Portfolio

The number of Partnership mortgage investments decreased from 72 as of December 31, 2007 to 64 as of December 31, 2008, and the average loan balance increased from $3,852,000 to $4,097,000 between December 31, 2007 and December 31, 2008. The average loan balance in the Partnership’s portfolio has been steadily increasing for several years.

Approximately $95,743,000 (36.5%) and $40,537,000 (14.6%) of the loans invested in by the Partnership were impaired and more than ninety days delinquent in monthly payments as of December 31, 2008 and 2007, respectively. In addition, the Partnership’s investment in loans that were past maturity (delinquent in principal) but current in monthly payments was approximately $36,324,000 and $62,031,000 as of December 31, 2008 and 2007, respectively (combined total of $132,067,000 and $102,568,000, respectively, that are past maturity and delinquent in payments greater than ninety days). Of the impaired and past maturity loans, approximately $46,148,000 (17.6%) and $17,617,000 (6.4%), respectively, were in the process of foreclosure and approximately $10,500,000 (4.0%) and $1,600,000 (0.6%), respectively, involved loans to borrowers who were in bankruptcy. The Partnership foreclosed on six and four loans during the years ended December 31, 2008 and 2007, respectively, with aggregate principal balances totaling approximately $18,220,000 and $26,202,000, respectively, and obtained the properties via the trustee’s sales. In the first quarter of 2009, the Partnership began foreclosure proceedings by filing notices of default on three delinquent loans with aggregate principal balances totaling approximately $10,814,000 as of December 31, 2008. Two of these loans became greater than ninety days delinquent subsequent to year end.

Loans in the process of foreclosure increased by $28,531,000 between December 31, 2007 and 2008 due to increased delinquencies experienced during 2008.

Loans involving borrowers in bankruptcy as of December 31, 2007 consisted of one loan with a principal balance of $1,600,000. This loan was foreclosed on by the Partnership in 2008. In addition, two loans secured by the same property resulted in the borrower entering into bankruptcy during 2008.

As of December 31, 2008 and 2007, the Partnership held the following types of mortgages:

	2008		2007
By Property Type:
Commercial	$	118,156,590	$	151,435,333
Condominiums		93,460,019		81,327,519
Apartments		4,325,000		7,903,750
Single family homes (1-4 units)		331,810		336,870
Improved and unimproved land		45,962,782		36,372,009
	$	262,236,201	$	277,375,481
By Deed Order:
First mortgages	$	234,060,285	$	255,962,228
Second mortgages		28,175,916		21,413,253
	$	262,236,201	$	277,375,481

As of December 31, 2008 and 2007, approximately 43% and 35% of the Partnership’s mortgage loans were secured by real property in Northern California. In addition, approximately 82% of the Partnership’s mortgage loans were secured by real estate located in the states of California, Arizona, Florida and Nevada, which have experienced dramatic reductions in real estate values over the past several months.

The Partnership’s investment in loans decreased by $15,139,000 (5.5%) during the year ended December 31, 2008 as a result of loan payoffs, loan sales and foreclosures in excess of loan originations.

The General Partner increased the allowance for loan losses by approximately $8,686,000 (provision net of charge-offs) during the year ended December 31, 2008. The General Partner believes that this increase is sufficient given the estimated underlying collateral values of impaired loans. There is no precise method used by the General Partner to predict delinquency rates or losses on specific loans. The General Partner has considered the number and amount of delinquent loans, loans subject to workout agreements and loans in bankruptcy in determining allowances for loan losses, but there can be no absolute assurance that the allowance is sufficient. Because any decision regarding the allowance for loan losses reflects judgment about the probablity of future events, there is an inherent risk that such judgments will prove incorrect. In such event, actual losses may exceed (or be less than) the amount of any reserve. To the extent that the Partnership experiences losses greater than the amount of its reserves, the Partnership may incur a charge to earnings that will adversely affect operating results and the amount of any distributions payable to Limited Partners.

Changes in the allowance for loan losses for the years ended December 31, 2008 and 2007 were as follows:

	2008			2007
Balance, beginning of period	$	5,042,000		$	4,225,000
Provision		9,537,384			2,195,515
Recovery of bad debts		—			—
Charge-off		(851,750	)		(1,378,515	)
Balance, end of period	$	13,727,634		$	5,042,000

The Partnership’s allowance for loan losses was $13,727,634 and $5,042,000 as of December 31, 2008 and 2007, respectively. As of December 31, 2008, there is a non-specific allowance for loan losses of $7,313,000 and a specific allowance for loan losses on five loans in the total amount of $6,414,634. As of December 31, 2007, the entire allowance for loan losses was a non-specific reserve.

Real Estate Properties Held for Sale and Investment

As of December 31, 2008, the Partnership held title to sixteen properties that were foreclosed on or purchased by the Partnership since 1997 in the amount of approximately $58,429,000 (including properties held in three limited liability companies), net of accumulated depreciation of $3,306,000. The Partnership foreclosed on six and four loans during the years ended December 31, 2008 and 2007, respectively, with aggregate principal balances totaling $18,220,000 and $26,202,000, respectively, and obtained the underlying properties via the trustee’s sales (see below). As of December 31, 2008, properties held for sale total $11,414,000 and properties held for investment total $47,015,000 (including properties held in three limited liability companies). When the Partnership acquires property by foreclosure, it typically earns less income on those properties than could be earned on mortgage loans and may not be able to sell the properties in a timely manner.

Changes in real estate held for sale and investment during the years ended December 31, 2008 and 2007 were as follows:

	2008			2007
Balance, beginning of period	$	52,910,307		$	29,353,381
Real estate acquired through foreclosure		17,904,366			25,743,465
Investments in real estate properties		1,494,083			679,364
Sales of real estate properties		(5,055,512	)		(2,185,849	)
Impairment losses on real estate properties		(6,005,018	)		(400,000	)
Recovery of losses on real estate held for sale		—			349,224
Transfer of real estate to investment in LLC		(2,129,204	)		—
Depreciation		(690,450	)		(629,278	)
Balance, end of period	$	58,428,572		$	52,910,307

Seven of the Partnership’s sixteen properties do not currently generate revenue. Expenses from real estate properties have increased from approximately $3,236,000 to $4,953,000 (53.0%) for the years ended December 31, 2007 and 2008, respectively, and revenues associated with these properties have increased from $3,967,000 to $5,088,000 (28.3%), thus generating a net income from real estate properties of $135,000 during the year ended December 31, 2008 (compared to $731,000 during 2007).

For purposes of assessing potential impairment of value on properties during 2008, the Partnership obtained updated appraisals or other valuation support as of December 31, 2008 or during the first quarter of 2009 for the unimproved, residential land located in Madera County, California, the manufactured home subdivision development located in Lake Charles, Louisiana (held within Dation, LLC), the golf course located in Auburn, California (held within DarkHorse Golf Club, LLC), and the manufactured home park located in Ione, California. As a result, the Partnership recorded impairment losses in the aggregate amount of approximately $6,005,000.

Changes in the allowance for real estate held for sale losses for the years ended December 31, 2008 and 2007 were as follows:

	2008		2007
Balance, beginning of year	$	—	$	405,388
Provision		—		—
Recovery for real estate sold		—		(405,388	)
Balance, end of year	$	—	$	—

The recovery of losses on real estate held for sale in 2007 relates to the sales of condominium units in Oregon Leisure Homes, LLC (OLH) and the reversal of the $250,000 allowance for the undeveloped land located in Gresham, Oregon due to the recovery of the original cost of the property pursuant to a sale which closed in 2007. Of the total recovery amount, $56,164 was included in gain on sale of real estate (for a condominium unit sold in OLH) and $349,224 was recorded as recovery of losses on real estate properties. In addition, an impairment loss of $400,000 was recorded on the Sacramento building during 2007, resulting in a net loss on real estate properties of $50,776.

2008 Foreclosure and Sales Activity

During the year ended December 31, 2008, the Partnership foreclosed on a first mortgage loan secured by an office/retail complex located in Hilo, Hawaii in the amount of $1,300,000 and obtained the property via the trustee’s sale. In addition, certain advances made on the loan or incurred as part of the foreclosure (such as delinquent property taxes) in the total amount of approximately $336,000 were capitalized to the basis of the property. The estimated fair market value of the property was determined to be greater than the Partnership’s basis in the property at the time of foreclosure. The property is classified as held for sale, as a sale is expected to be completed in the next one-year period.

During the year ended December 31, 2008, the Partnership obtained deeds in lieu of foreclosure from the borrower on two first mortgage loans secured by 18 units in three buildings in an office condominium complex located in Roseville, California in the total amount of approximately $9,068,000. In addition, certain advances made on the loans or incurred as part of the foreclosure in the total amount of approximately $34,000 were capitalized to the basis of the properties. At the time of foreclosure, it was determined that the fair market values of the units in two buildings were lower than the Partnership’s cost basis in those units by approximately $533,000, and, thus, this amount was recorded as a charge-off against the allowance for loan losses. The properties are classified as held for sale as sales are expected to be completed in the next one-year period. During 2008, one unit was sold for net sales proceeds of approximately $562,000, resulting in a gain to the Partnership of approximately $102,000. An additional unit was sold in January 2009 for net sales proceeds of approximately $468,000, resulting in a gain to the Partnership of approximately $50,000.

During the year ended December 31, 2008, the Partnership foreclosed on a first mortgage loan secured by two improved residential lots located in West Sacramento, California in the amount of approximately $435,000 and obtained the lots via the trustee’s sale. In addition, certain advances made on the loan or incurred as part of the foreclosure (such as legal fees and delinquent property taxes) in the total amount of approximately $76,000 were capitalized to the basis of the property. The estimated fair market values of the lots were determined to be greater than the Partnership’s basis in the lots at the time of foreclosure. The lots are classified as held for sale, as sales are expected to be completed within one year.

During the year ended December 31, 2008, the Partnership foreclosed on a first mortgage loan secured by a storage facility located in Stockton, California in the amount of approximately $5,817,000 and obtained the property via the trustee’s sale. In addition, certain advances made on the loan or incurred as part of the foreclosure (such as legal fees and delinquent property taxes) in the total amount of approximately $176,000 were capitalized to the basis of the property. At the time of foreclosure, approximately $319,000 was charged off against the allowance for loan losses to write the loan/property down to estimated fair market value based on a pending sale. The sale contract was canceled by the potential buyer in September 2008. Because it is not anticipated that the property will be sold within one year, the property is classified as held for investment as of December 31, 2008.

During the year ended December 31, 2008, the Partnership foreclosed on a first mortgage loan secured by undeveloped, commercial land located in Half Moon Bay, California in the amount of $1,600,000 and obtained the lots via the trustee’s sale. In addition, certain advances made on the loan or incurred as part of the foreclosure (such as legal fees and delinquent property taxes) in the total amount of approximately $459,000 were capitalized to the basis of the property. The property is classified as held for investment as the Partnership plans to obtain the necessary entitlements for the property and it is unlikely that a sale will be completed within one year.

During the year ended December 31, 2008, the Partnership sold the mixed-use retail building located in Sacramento, California for net sales proceeds of approximately $988,000 in cash and a note receivable of $1,450,000, resulting in a loss to the Partnership of approximately $12,000. The note receivable was paid off in full by the buyer in May 2008.

2007 Foreclosure and Sales Activity

During the year ended December 31, 2007, the Partnership foreclosed on a first mortgage loan secured by undeveloped residential land located in Madera County, California in the amount of approximately $6,576,000 and obtained the property via the trustee’s sale. In addition, certain advances made on the loan or incurred as a result of the foreclosure (such as legal and foreclosure fees and delinquent property taxes) in the total amount of approximately $253,000 were capitalized to the basis in the property (total of approximately $6,829,000). At the time of foreclosure, an appraisal was obtained that valued the property at $5,450,000, thus, resulting in a charge-off against the allowance for loan losses of approximately $1,379,000. This property is classified as held for investment because it is not currently being marketed for sale and it will likely take longer than one year to obtain the entitlements on the land and complete a sale.

During the year ended December 31, 2007, the Partnership foreclosed on a $3,268,000 first mortgage loan secured by a mixed-use retail building in the process of rehabilitation located in Sacramento, California and unimproved land located in Marysville, California and obtained the properties via the trustee’s sale. The unimproved land located in Marysville was transferred to real estate held for investment during the fourth quarter of 2007 as the property is not currently being marketed for sale and a sale will likely not be completed in the next year. The Partnership recorded an impairment on the Sacramento building in the amount of $400,000 during the fourth quarter of 2007 pursuant to a sales contract executed in February 2008. The building is classified as held for sale as the sale is expected to be completed in the first quarter of 2008.

During the year ended December 31, 2007, the Partnership foreclosed on two first mortgage loans in the total amount of approximately $16,358,000 secured by 75 improved, residential lots and a golf course located in Auburn, California and obtained the properties via the trustee’s sales. The golf course was transferred to DarkHorse Golf Club, LLC at the time of foreclosure (see below). The 75 improved, residential lots were transferred by the Partnership to a new wholly owned limited liability company in February 2008. These properties are classified as held for investment as it is unlikely that sales will be completed within the next year.

During the year ended December 31, 2007, three lots located in the manufactured home subdivision development located in Ione, California (that were acquired by the Partnership through foreclosure in 1997) were sold for $138,000, resulting in total gain to the Partnership of approximately $95,000.

During the year ended December 31, 2007, the Partnership sold the undeveloped land located in Gresham, Oregon for net sales proceeds of approximately $2,397,000 resulting in gain on sale of approximately $773,000.

Oregon Leisure Homes, LLC

During the year ended December 31, 2007, the Partnership advanced an additional $17,000 to OLH for continued operation and marketing of the condominium units and received repayment of advances of $665,000 from sales of condominium units and collections on notes receivable. During the year ended December 31, 2007, OLH sold three condominium units for total net sales proceeds of approximately $656,000 resulting in gain on sale of approximately $141,000. All condominium units were sold and the LLC ceased operations as of December 31, 2007. The net income to the Partnership from OLH was approximately $231,000 for the year ended December 31, 2007.

Dation, LLC

Dation, LLC (Dation) was formed in 2001 between the Partnership and an unrelated developer for the purpose of developing and selling lots in a manufactured home park located in Lake Charles, Louisiana, which were acquired by the Partnership via a deed in lieu of foreclosure. The Partnership advances funds to Dation as needed. The Partnership owns 50% of Dation and is the general manager pursuant to an amendment to the Operating Agreement executed in October 2007. Pursuant to the Operating Agreement, the Partnership is to receive 50% of Dation’s profits and losses after receipt of all interest on the original loan and priority return on partner contributions allocated at the rate of 12% per annum. The Partnership has recorded 100% of Dation’s net income and losses since inception because it has the majority of the risks and rewards of ownership. The assets, liabilities, income and expenses of Dation have been consolidated into the consolidated balance sheets and income statements of the Partnership.

Dation sold no houses or lots during the year ended December 31, 2008. Dation sold one lot during the year ended December 31, 2007 resulting in total gain on sale of approximately $10,000. Dation repaid $0 and $10,000, respectively, of the loan to the Partnership and repaid $75,000 and $25,000, respectively, of Partnership capital contributions during the years ended December 31, 2008 and 2007. The Partnership advanced an additional $16,000 and $20,000 to Dation during the years ended December 31, 2008 and 2007, respectively.

The net income to the Partnership from Dation was approximately $35,000 and $94,000 during the years ended December 31, 2008 and 2007, respectively. During the year ended December 31, 2008, the Partnership recorded an impairment loss of approximately $909,000 on the manufactured home park.

DarkHorse Golf Club, LLC

DarkHorse Golf Club, LLC (DarkHorse) is a California limited liability company formed in August 2007 for the purpose of operating the DarkHorse golf course located in Auburn, California, which was acquired by the Partnership via foreclosure in August 2007. The golf course was placed into DarkHorse via a grant deed on the same day that the trustee’s sale was held. The Partnership is the sole member in DarkHorse. The assets, liabilities, income and expenses of DarkHorse have been consolidated into the consolidated balance sheets and income statements of the Partnership. The golf course is being operated and managed by an unrelated company.

The Partnership advanced approximately $793,000 and $500,000 to DarkHorse during the years ended December 31, 2008 and 2007, respectively, for operations and equipment purchases. The net loss to the Partnership from DarkHorse was approximately $401,000 and $202,000, respectively, for the years ended December 31, 2008 and 2007. Continued operation of DarkHorse may result in additional losses to the Partnership and may require the Partnership to provide funds for operations and capital improvements. During the year ended December 31, 2008, the Partnership recorded an impairment loss of approximately $671,000 on the golf course.

720 University, LLC

The net income to the Partnership was approximately $204,000 and $197,000 (including depreciation and amortization totaling approximately $615,000 and $610,000) during the years ended December 31, 2008 and 2007, respectively. The minority interest of the joint venture partner of approximately $69,000 and $109,000 as of December 31, 2008 and 2007, respectively, is reported in the consolidated balance sheets of the Partnership. The Partnership’s investment in 720 University real property was approximately $13,440,000 and $13,872,000 as of December 31, 2008 and 2007, respectively.

Investment in Limited Liability Company

During 2008, the Partnership entered into an Operating Agreement of 1850 De La Cruz LLC, a California limited liability company (“1850”), with Nanook Ventures LLC (“Nanook”). The purpose of the joint venture is to acquire, own and operate certain industrial land and buildings located in Santa Clara, California that were owned by the Partnership. The property was subject to a Purchase and Sale Agreement dated July 24, 2007 (the “Sale Agreement”), as amended, between the Partnership, as seller, and Nanook, as buyer. During the course of due diligence under the Sale Agreement, it was discovered that the property is contaminated and that remediation and monitoring may be required. The parties agreed to enter into the Operating Agreement to restructure the arrangement as a joint venture. The Partnership and Nanook are the Members of 1850 and NV Manager, LLC is the Manager. Pursuant to the Agreement, the Partnership contributed the property to 1850 at an agreed upon fair market value of $6,350,000. Cash in the amount of $3,175,000 was then distributed by 1850 to the Partnership such that the Partnership has an initial capital account balance of $3,175,000. Nanook contributed cash in the amount of $3,175,000 to 1850 and has an initial capital account balance of the same amount.

At the time of closing, the two properties were separately contributed to two new limited liability companies, Nanook Ventures One LLC and Nanook Ventures Two LLC, that are wholly owned by 1850. The Partnership recognized a gain of approximately $1,037,000 from its sale of a one-half interest in the properties to Nanook. Pursuant to the Operating Agreement, the Partnership is responsible for all costs related to the environmental remediation on the properties and has indemnified Nanook against all obligations related to the contamination. The Partnership accrued approximately $762,000 (including $161,000 owed to Nanook) as an estimate of the expected costs to monitor and remediate the contamination on the properties which is recorded as Environmental Remediation Expense for the year ended December 31, 2008. The Partnership is unable to estimate the maximum amount to be paid under this guarantee, as the Operating Agreement does not limit the obligations of the Partnership. The Partnership is accounting for its investment in the joint venture under the equity method. The net income to the Partnership from its investment in 1850 was approximately $48,000 since inception.

Cash and Cash Equivalents

Cash and cash equivalents decreased from approximately $9,159,000 as of December 31, 2007 to approximately $2,800,000 as of December 31, 2008 ($6,359,000 or 69.4%). This was due primarily to a decrease in loan payoffs during 2008 and due to investments in certificates of deposits during 2008 that were made in order to better avail the Partnership of federal deposit insurance for the Partnership’s cash and contingency reserves. Some of the Partnership’s certificates of deposit have maturities in excess of three months, but not greater than six months, and therefore are not classified as cash equivalents.

Interest and Other Receivables

Interest and other receivables decreased from approximately $5,413,000 as of December 31, 2007 to $3,644,000 as of December 31, 2008 ($1,769,000 or 32.7%), due primarily to an increase in loans greater than ninety days delinquent in payments during the year, which resulted in the discontinuation of interest accruals on delinquent loans.

Due to General Partner

Due to General Partner decreased from approximately $2,278,000 as of December 31, 2007 to a receivable balance (Due from General Partner) of $44,000 as of December 31, 2008, due primarily to decreased accrued management fees for the months of November and December 2008 as compared to November and December 2007. These fees are paid pursuant to the Partnership Agreement (see “Results of Operations” above).

Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities increased from approximately $972,000 as of December 31, 2007 to $1,704,000 as of December 31, 2008 ($732,000 or 75.3%), due primarily to an increase in accrued interest payable on the Partnership’s line of credit as of December 31, 2008 and estimated accrued environmental remediation costs related to the property owned through the Partnership’s investment in 1850 De La Cruz LLC.

Line of Credit Payable

Line of credit payable increased from $27,432,000 as of December 31, 2007 to $32,914,000 as of December 31, 2008 ($5,482,000 or 20.0%) due to advances made on the line of credit during the year ended December 31, 2008 to enable the Partnership to invest in new mortgage loans. There was an additional $22,086,000 available to be advanced from the line of credit as of December 31, 2008. In April 2008, a Modification to Credit Agreement was executed whereby the amount of credit available under the line of credit was increased to $55,000,000 (from $40,000,000) through the expiration date of July 31, 2009.

Asset Quality

A consequence of lending activities is that occasionally losses will be experienced and that the amount of such losses will vary from time to time, depending on the risk characteristics of the loan portfolio as affected by economic conditions and the financial experiences of borrowers. Many of these factors are beyond the control of the General Partner. There is no precise method of predicting specific losses or amounts that ultimately may be charged off on specific loans or on segments of the loan portfolio.

The conclusion that a Partnership loan may become uncollectible, in whole or in part, is a matter of judgment. Although institutional lenders are subject to regulations that, among other things, require them to perform ongoing analyses of their loan portfolios (including analyses of loan-to-value ratios, reserves, etc.), and to obtain current information regarding their borrowers and the securing properties, the Partnership is not subject to these regulations and has not adopted these practices. Rather, management of the General Partner, in connection with the quarterly closing of the accounting records of the Partnership and the preparation of the financial statements, evaluates the Partnership’s mortgage loan portfolio. The allowance for loan losses is established through a provision for loan losses based on the General Partner’s evaluation of the risk inherent in the Partnership’s loan portfolio and current economic conditions. Such evaluation, which includes a review of all loans on which the General Partner determines that full collectability may not be reasonably assured, considers among other matters:

·	prevailing economic conditions;

·	the Partnership’s historical loss experience;

·	the types and dollar amounts of loans in the portfolio;

·	borrowers’ financial condition and adverse situations that may affect the borrowers’ ability to pay;

·	evaluation of industry trends;

·	review and evaluation of loans identified as having loss potential; and

·	estimated net realizable value or fair value of the underlying collateral.

Based upon this evaluation, a determination is made as to whether the allowance for loan losses is adequate to cover probable losses of the Partnership. Additions to the allowance for loan losses are made by charges to the provision for loan losses. Loan losses deemed to be uncollectible are charged against the allowance for loan losses. Recoveries of previously charged off amounts are credited to the allowance for loan losses. As of December 31, 2008, management believes that the allowance for loan losses of $13,728,000 is adequate in amount to cover probable losses. Because of the number of variables involved, the magnitude of the swings possible and the General Partner’s inability to control many of these factors, actual results may and do sometimes differ significantly from estimates made by the General Partner. As of December 31, 2008, fifteen loans totaling $95,743,000 were delinquent in monthly payments greater than ninety days and are no longer accruing interest. Nine of these loans totaling $66,129,000 were past maturity as of December 31, 2008. In addition, eleven loans totaling $36,324,000 were also past maturity but current in monthly payments as of December 31, 2008 (combined total of $132,067,000 in loans that are past maturity and delinquent in payments greater than ninety days). The Partnership recorded a charge-off against the allowance for loan losses of approximately $852,000 for two foreclosed loans during the year ended December 31, 2008 and after the General Partner’s evaluation of the loan portfolio recorded an additional provision for loan losses of approximately $9,537,000 for losses that are estimated to have likely occurred, which resulted in a net increase to the allowance of approximately $8,686,000. The General Partner believes that the allowance for loan losses is sufficient given the estimated fair value of the underlying collateral of impaired and past maturity loans.

Construction Loans are determined by the General Partner to be those loans made to borrowers for the construction of entirely new structures or dwellings, whether residential, commercial or multifamily properties. The General Partner has approved the borrowers up to a maximum loan balance; however, disbursements are made in phases throughout the construction process. As of December 31, 2008, the Partnership held two Construction Loans totaling approximately $17,569,000 and had commitments to disburse an additional $646,000 on Construction Loans.

The Partnership also makes loans, the proceeds of which are used to remodel, add to and/or rehabilitate an existing structure or dwelling, whether residential, commercial or multifamily properties, or are used to complete improvements to land. The General Partner has determined that these are not Construction Loans. Many of these loans are for cosmetic refurbishment of both interiors and exteriors of existing condominiums or conversion of apartments or other properties into condominiums. The refurbished/converted units are then sold to new users, and the sales proceeds are used to repay the Partnership’s loans. These loans may also include completion of tenant or other improvements on commercial properties. These loans are referred to as Rehabilitation Loans. As of December 31, 2008, the Partnership held eight Rehabilitation Loans totaling approximately $64,874,000 and had commitments to disburse an additional $3,689,000 on Rehabilitation Loans.

Liquidity and Capital Resources

During the year ended December 31, 2008, cash flows provided by operating activities approximated $16,937,000. Investing activities used approximately $1,042,000 of net cash during the year, as approximately $95,670,000 was used for investing in loans, net of approximately $94,039,000 received from the payoff or sale of loans. Approximately $22,253,000 was used in financing activities, as approximately $36,554,000 was distributed to limited partners in the form of income distributions and capital withdrawals, net of approximately $5,482,000 of cash advanced from the Partnership’s line of credit and $8,819,000 received from the sale of Partnership units during 2008. The General Partner believes that the Partnership will have sufficient cash flow to sustain operations over the next year.

requests as there was not enough cash available from loan payoffs, new capital contributions or real estate sales to make the requested withdrawals. As there has been a significant slow down in the amount of loan payoffs over the past several months due primarily to the economic and credit crisis, it is highly likely that there will be continued delays in meeting withdrawal requests. In additions, if cash becomes available from loan payoffs, real estate sales and/or limited partner capital contributions in 2009, it is likely that the 10% annual limit for limited partner capital withdrawals will be reached again in 2009. As of the date of this filing, approximately $35,381,000 ($14,787,000 of which were scheduled to be disbursed in the first quarter of 2009) of limited partner withdrawals have been requested but not disbursed.

The limited partners may withdraw, or partially withdraw, from the Partnership and obtain the return of their outstanding capital accounts within 61 to 91 days after written notices are delivered to the General Partner, subject to the following limitations, among others:

·	No withdrawal of Units can be requested or made until at least one year from the date of purchase of those Units, other than Units received under the Partnership’s Reinvested Distribution Plan.

·	Any such payments are required to be made only from net proceeds and capital contributions (as defined) during said 91-day period.

·	A maximum of $100,000 per partner may be withdrawn during any calendar quarter.

·	The General Partner is not required to establish a reserve fund for the purpose of funding such payments.

·	No more than 10% of the total outstanding limited partnership interests may be withdrawn during any calendar year except upon a plan of dissolution of the Partnership.

Sales of Units to investors, reinvestment of limited partner distributions, portfolio loan payoffs, and advances on the Partnership’s line of credit provide the capital for new mortgage investments. If general market interest rates were to increase substantially, investors might turn to interest-yielding investments other than Partnership Units, which would reduce the liquidity of the Partnership and its ability to make additional mortgage investments to take advantage of the generally higher interest rates. In addition, an increase in delinquencies on Partnership loans (including an increase in loans past maturity) could also have the effect of reducing liquidity which could reduce the cash available to invest in new loans and distribute to limited partners. In contrast, a significant increase in the dollar amount of loan payoffs and additional limited partner investments without the origination of new loans of the same amount would increase the liquidity of the Partnership. This increase in liquidity could result in a decrease in the yield paid to limited partners as the Partnership would be required to invest the additional funds in lower yielding, short term investments.

Limited partner capital decreased by approximately $25,361,000 during the year ended December 31, 2008. A large component of the decrease in limited partner capital during 2008 was an increase in the allowance for loan losses and impairment losses on real estate properties in the total amount of approximately $15,542,000. The Partnership received new limited partner contributions of approximately $8,408,000 and $11,767,000 for the years ended December 31, 2008 and 2007, respectively. Reinvested distributions from limited partners electing to reinvest were $13,162,000 and $15,527,000 for the years ended December 31, 2008 and 2007, respectively. Limited partner withdrawals were $29,079,000 for the year ended December 31, 2008 as compared to $18,547,000 for the year ended December 31, 2007. Limited partner withdrawal percentages have been 4.42%, 4.47%, 4.29%, 4.70%, 6.34% and 10.00% for the years ended December 31, 2003, 2004, 2005, 2006, 2007 and 2008, respectively. These percentages are the annual average of the limited partners’ capital withdrawals in each calendar quarter divided by the total limited partner capital as of the end of each quarter.

The Partnership relies upon its line of credit to fund loans from time to time. The Partnership may incur indebtedness for the purpose of investing in mortgage loans, among other things. The total amount of indebtedness incurred by the Partnership cannot exceed the sum of 50% of the aggregate fair market value of all Partnership loans. The Partnership has executed a line of credit agreement with a group of three banks, which provides interim financing on mortgage loans invested in by the Partnership. All assets of the Partnership are pledged as security for the line of credit. The line of credit is guaranteed by the General Partner. In April 2008, a Modification to Credit Agreement was executed whereby the amount of credit available under the line of credit was increased to $55,000,000 (from $40,000,000) through the expiration date of July 31, 2009. There was $32,914,000 and $27,432,000 outstanding on the line of credit as of December 31, 2008 and 2007, respectively.

In March 2009, on the basis of preliminary unaudited financial information, the Partnership notified the agent for the banks lending under the line of credit that the Partnership was out of compliance with the profitability covenant in the line of credit agreement for the quarter ended December 31, 2008. The profitability covenant requires that the Partnership maintain, as of the end of each fiscal quarter, a positive operating profit and positive net profit on a rolling two quarter basis. Effective

March 27, 2009, the Partnership obtained from the agent and lending banks a waiver of this covenant violation for the periods ending December 31, 2008 and March 31, 2009, which also now provides that the interest rate on the line of credit will be subject to a floor of not less than 5% per annum. While line of credit borrowings otherwise bear interest at prime rate (3.25% as of December 31, 2008), the addition of the 5% interest floor will immediately increase the Partnership’s cost of funds on such borrowings. Therefore, the banks’ covenant waiver will result in higher Partnership interest expense and lower Partnership income than would apply without the waiver, until the prime rate rises to at least 5% per annum. As of March 27, 2009, the Partnership’s balance on the line of credit is $41,481,000.

The Partnership also has a note payable with a bank through its investment in 720 University, LLC with a balance of $10,500,000 as of December 31, 2008. Generally, the Partnership’s loans are fixed rate, whereas the credit line is a variable rate loan. In the event of a significant increase in overall interest rates, the credit line rate could increase to a rate above the average portfolio rate of interest. Should such an event occur, the General Partner would desire to pay off the line of credit and would generally not use it to fund loans. This would reduce the overall liquidity of the Partnership.

As of December 31, 2008, the Partnership has commitments to advance additional funds to borrowers of Construction and Rehabilitation Loans in the total amount of approximately $4,334,000. The Partnership expects the majority of these amounts to be advanced to borrowers by July 2009. The source of funds to fulfill these commitments will be primarily from payoffs on existing mortgage loans, sales of Units to investors or advances on the Partnership’s line of credit.

Contingency Reserves

The Partnership is required to maintain cash, cash equivalents and marketable securities as contingency reserves in an aggregate amount of at least 1-1/2% of the capital accounts of the limited partners to cover expenses in excess of revenues or other unforeseen obligations of the Partnership. The cash capital contributions of OFG (amounting to $1,496,000 as of December 31, 2008), up to a maximum of 1/2 of 1% of the limited partners’ capital accounts may be maintained as additional contingency reserves, if considered necessary by the General Partner. Although the General Partner believes the contingency reserves are adequate, it could become necessary for the Partnership to sell or otherwise liquidate certain of its investments or other assets to cover such contingencies on terms which might not be favorable to the Partnership.

PART II - Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

PART II - Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There were no disagreements with accountants or other events reportable under Item 304(b) of Regulation S-K.

PART II - Item 9A. CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

The General Partner of the Partnership carried out an evaluation, under the supervision and with the participation of the General Partner’s management, including the General Partner’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Partnership’s disclosure controls and procedures, as that term is defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer of the General Partner concluded that, as of December 31, 2008, which is the end of the period covered by this annual report on Form 10-K, the Partnership’s disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

During the course of the general evaluation of the Partnership’s internal controls and the 2008 close process, two significant deficiencies in the design and operation of internal controls were identified. The Partnership has addressed and is now in the process of remediating such deficiencies.

Management’s Report on Internal Control Over Financial Reporting

The General Partner’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as that term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of the General Partner’s management, including the General Partner’s Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the internal control over financial reporting was conducted based on the framework established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). There are inherent limitations in any internal control system over financial reporting, which may not prevent or detect misstatements. The Partnership’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and the General Partner’s Chief Executive Officer and Chief Financial Officer have concluded that the Partnership maintained effective internal control over financial reporting as of December 31, 2008.

This annual report does not include an attestation report of the Partnership’s registered public accounting firm regarding internal control over financial reporting. The General Partner’s report was not subject to attestation by the Partnership’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Partnership to provide only management’s report in this annual report.

PART II - Item 9B. OTHER INFORMATION

There is no information required to be disclosed in a report on Form 8-K during the fourth quarter of the year covered by this Annual Report on Form 10-K that has not been so reported.

PART III - Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The General Partner is Owens Financial Group, Inc., a California corporation, 2221 Olympic Blvd., Walnut Creek, CA 94595. Its telephone number is (925) 935-3840.

The Partnership has no officers or directors and, accordingly, does not have a compensation committee, audit committee or audit committee financial expert. The General Partner manages and controls the affairs of the Partnership and has general responsibility and final authority in all matters affecting the Partnership’s business. These duties include dealings with limited partners, accounting, tax and legal matters, communications and filings with regulatory agencies and all other needed management duties. The General Partner may also, at its sole discretion and subject to change at any time,

·	purchase from the Partnership the interest receivable or principal on delinquent mortgage loans held by the Partnership;

·	purchase from a senior lienholder the interest receivable or principal on mortgage loans senior to mortgage loans held by the Partnership; and

·	use its own funds to cover any other costs associated with mortgage loans held by the Partnership such as property taxes, insurance and legal expenses.

In order to assure that the limited partners will not have personal liability as a General Partner, limited partners have no right to participate in the management or control of the Partnership’s business or affairs other than to exercise the limited voting rights provided for in the Partnership Agreement. Limited partners do not have the right to elect the General Partner or its directors on an annual or other continuing basis, and the General Partner may not be removed except in compliance with the requirements of the Partnership Agreement. The General Partner has primary responsibility for the initial selection, evaluation and negotiation of mortgage investments for the Partnership. The General Partner provides all executive, supervisory and certain administrative services for the Partnership’s operations, including servicing the mortgage loans held by the Partnership. The Partnership’s books and records are maintained by the General Partner, subject to audit by independent certified public accountants.

The General Partner had a net worth of approximately $27,000,000 on December 31, 2008. The following persons comprise the board of directors and management employees of the General Partner actively involved in the administration and investment activity of the Partnership.

William C. Owens – Mr. Owens, age 58, has been President of the General Partner since April 1996 and is also a member of the Board of Directors and the Loan Committee of the General Partner. From 1989 until April 1996, he served as a Senior Vice President of the General Partner. Mr. Owens has been active in real estate construction, development, and mortgage financing since 1973. Prior to joining Owens Mortgage Company in 1979, Mr. Owens was involved in mortgage banking, property management and real estate development. As President of the General Partner, Mr. Owens is responsible for the overall activities and operations of the General Partner, including corporate investment, operating policy and planning. In addition, he is responsible for loan production, including the underwriting and review of potential loan investments. Mr. Owens is also the President of Owens Securities Corporation, a subsidiary of the General Partner. Mr. Owens is a licensed real estate broker.

Bryan H. Draper – Mr. Draper, age 51, has been Chief Financial Officer and corporate secretary of the General Partner since December 1987 and is also a member of the Board of Directors of the General Partner. Mr. Draper is a Certified Public Accountant and is responsible for all accounting, finance, and tax matters for the General Partner and Owens Securities Corporation. Mr. Draper received a Masters of Business Administration degree from the University of Southern California in 1981.

William E. Dutra – Mr. Dutra, age 46, is a Senior Vice President and member of the Board of Directors and the Loan Committee of the General Partner and has been its employee since February 1986. In charge of loan production, Mr. Dutra has responsibility for loan committee review, loan underwriting and loan production.

·	Andrew J. Navone – Mr. Navone, age 52, is a Senior Vice President and member of the Board of Directors and the Loan Committee of the General Partner and has been its employee since August 1985. Mr. Navone has responsibilities for loan committee review, loan underwriting and loan production.

·	Melina A. Platt – Ms. Platt, age 42, has been Controller of the General Partner since May 1998. Ms. Platt is a Certified Public Accountant and is responsible for all accounting, finance, and regulatory agency filings of the Partnership. Ms. Platt was previously a Senior Manager with KPMG LLP.

The General Partner has adopted a code of business conduct for officers (including the General Partner’s Chief Executive Officer, Chief Financial Officer and Controller) and employees, known as the Code of Conduct (the “Code”). The General Partner will provide a copy of the Code to any person without charge upon request. The request should be made in writing and addressed to Bryan Draper, Chief Financial Officer of Owens Financial Group, Inc., at 2221 Olympic Blvd., Walnut Creek, California 94595.

Research and Acquisition

The General Partner considers prospective investments for the Partnership. In that regard, the General Partner evaluates the credit of prospective borrowers, analyzes the return to the Partnership of potential mortgage loan transactions, reviews property appraisals, and determines which types of transactions appear to be most favorable to the Partnership. For these services, the General Partner generally receives mortgage placement fees (points) paid by borrowers when loans are originally funded or when the Partnership extends or refinances mortgage loans. These fees may reduce the yield obtained by the Partnership from its mortgage loans.

Partnership Management

The General Partner is responsible for the Partnership’s investment portfolio. Its services include:

·	the creation and implementation of Partnership investment policies;

·	preparation and review of budgets, economic surveys, cash flow and taxable income or loss projections and working capital requirements;

·	preparation and review of Partnership reports and regulatory filings;

·	communications with limited partners;

·	supervision and review of Partnership bookkeeping, accounting, internal controls and audits;

·	supervision and review of Partnership state and federal tax returns; and

·	supervision of professionals employed by the Partnership in connection with any of the foregoing, including attorneys, accountants and appraisers.

For these and certain other services the General Partner is entitled to receive a management fee of up to 2 ¾ % per annum of the unpaid balance of the Partnership’s mortgage loans. The management fee is payable on all loans, including nonperforming or delinquent loans. The General Partner believes that a fee payable on delinquent loans is justified because of the expense involved in the administration of such loans. See “Compensation to the General Partner—Management Fees,” at page 7.

PART III - Item 11. EXECUTIVE COMPENSATION

The Partnership does not have a compensation committee or other group providing a similar function, and does not have compensation policies or pay any compensation to any persons other than fees paid to the General Partner. The Partnership has not issued, awarded or otherwise paid to any General Partner, any options, stock appreciation rights, securities, or any other direct or indirect form of compensation other than the management and service fees and carried interest permitted under the Partnership Agreement.

The following table summarizes the forms and amounts of compensation paid to the General Partner for the year ended December 31, 2008. Such fees were established by the General Partner and were not determined by arms-length negotiation.

	Year Ended
	December 31, 2008
			Maximum
Form of Compensation	Actual		Allowable
Paid by the Partnership:
Management Fees	$	4,204,000	$	7,545,000
Servicing Fees		686,000		686,000
Carried Interest		—		—
Subtotal	$	4,890,000	$	8,231,000

Paid by Borrowers:
Acquisition and Origination Fees	$	3,549,000	$	3,549,000
Late Payment Charges		1,203,000		1,203,000
Miscellaneous Fees		34,000		34,000
Subtotal	$	4,786,000	$	4,786,000

Grand Total	$	9,676,000	$	13,017,000

Reimbursement by the Partnership of Other Expenses	$	88,000	$	88,000

PART III - Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

No person or entity owns beneficially more than 5% of the ownership interests in the Partnership. The General Partner owns approximately 3,779,000 units (1.4%) of the Partnership as of December 31, 2008. The voting common stock of the General Partner is owned as follows: 56.098% by William C. Owens and 14.634% each by Bryan H. Draper, William E. Dutra and Andrew J. Navone.

PART III - Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Transactions with Related Persons

The affairs of the Partnership are managed by the General Partner pursuant to the terms of the Partnership Agreement. The Partnership engages in a variety of transactions with the General Partner which are reviewed by the officers of the General Partner to ensure they are permitted by the terms of the Partnership Agreement.

Management Fee

The General Partner is entitled to receive from the Partnership a management fee of up to 2 ¾ % per annum of the average unpaid balance of the Partnership’s mortgage loans at the end of each of the preceding twelve months for services rendered as manager of the Partnership. The amount of management fees to the General Partner for the year ended December 31, 2008 was approximately $4,204,000.

Servicing Fee

All of the Partnership’s loans are serviced by the General Partner, in consideration for which the General Partner receives up to 0.25% per annum of the unpaid principal balance of the loans on a monthly basis. The amount of servicing fees to the General Partner for the year ended December 31, 2008 was approximately $686,000.

Carried Interest

The General Partner is required to continue cash capital contributions to the Partnership in order to maintain its required capital balance equal to 1% of the limited partners’ capital accounts. The General Partner has contributed capital to the Partnership in the amount of 0.5% of the limited partners’ aggregate capital accounts and, together with its carried interest, the General Partner has an interest equal to 1% of the limited partners’ capital accounts. This carried interest of up to 1/2 of 1% is recorded as an expense of the Partnership and credited as a contribution to the General Partner’s capital account as additional compensation. As of December 31, 2008, the General Partner had made total cash capital contributions of $1,496,000 to the Partnership. During 2008, the Partnership incurred no carried interest expense because there was a net decrease in limited partners’ capital accounts during the year.

Reimbursement of Other Expenses

Loan Participated with General Partner

During 2007, the Partnership funded a $30,000,000 portion of a $75,200,000 mortgage loan secured by a condominium complex (in the process of conversion and renovation) located in Miami, Florida and entered into a Co-Lending and Servicing Agent Agreement (the “Agreement”) with three other co-lenders in the loan. The General Partner is also a co-lender in the subject loan and is party to the Agreement. The interest rate payable to the Partnership and the General Partner on the loan is 10% per annum. Pursuant to the Agreement, the Partnership and the General Partner, as senior co-lenders, have priority on a pro-rata basis over all other co-lenders in such loan and shall first receive their share of interest in the loan prior to any other co-lender and, after any protective advances made are reimbursed to the co-lenders on a pro-rata basis, shall receive their share of principal in the loan prior to any other co-lender in the loan). The servicer of the loan is an affiliate of one of the co-lenders (the “Servicing Agent”) and the Partnership receives the payments on the loan from the Servicing Agent. As of December 31, 2008, the borrower is in default of the loan documents and management of the project has been assumed by the Servicing Agent. As of December 31, 2008, the Partnership had funded $718,000 of its pro-rata share of unreimbursed protective advances to complete renovations to the property and funded an additional $13,000 subsequent to year end. The Partnership also received reimbursement of its pro-rata share of protective advances of $13,000 subsequent to year end. As of December 31, 2008, the Partnership’s and General Partner’s remaining principal balance in the subject loan was approximately $23,483,000 and $7,828,000, respectively, as $6,517,000 and $2,172,000, respectively, of principal has been repaid. During 2008, the Partnership and General Partner have collected no interest income on this loan. During 2008, the Servicing Agent filed a notice of default on this loan and the loan is now in the process of foreclosure. An appraisal was obtained on the loan’s underlying property in January 2009, which resulted in the Partnership recording a specific loan loss allowance for this loan of $3,148,000 as of December 31, 2008.

Second Deeds of Trust Held by General Partner

As of December 31, 2008, the General Partner held a second and fourth deeds of trust in the total amount of approximately $789,000 secured by the same property (and to the same borrower) on which the Partnership has a first deed of trust in the amount of $2,200,000 at an interest rate of 12% per annum. Approximately $517,000 of the General Partner’s second deed of trust is an exit fee included in the deed of trust at the time of loan origination in 2006. The interest rate on the General Partner’s loan is 17% per annum. During 2008, the Partnership and General Partner collected no interest income on these loans. The loans payable to the Partnership and the General Partner are greater than ninety days delinquent and past maturity as of December 31, 2008.

In addition to compensation from the Partnership, the General Partner also receives compensation from borrowers under the mortgage loans placed by the General Partner with the Partnership.

Acquisition and Origination Fees

Acquisition and origination fees, also called loan fees, mortgage placement fees or points, are paid to the General Partner from the borrowers under loans held by the Partnership. These fees are compensation for the evaluation, origination, extension and refinancing of loans for the borrowers and may be paid at the placement, extension or refinancing of the loan or at the time of final repayment of the loan. The amount of these fees is determined by competitive conditions and the General Partner and may have a direct effect on the interest rate borrowers are willing to pay the Partnership. During 2008, the General Partner earned acquisition and origination fees on Partnership loans in the amount of $3,549,000, on loans originated or extended of approximately $136,675,000.

Late Payment Charges

Pursuant to the Partnership Agreement, the General Partner receives all late payment charges, including additional interest and late payment fees, from borrowers on loans owned by the Partnership, with the exception of loans participated with outside entities. The amounts paid to or collected by the General Partner for such charges totaled approximately $1,203,000 for the year ended December 31, 2008.

PART III - Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Moss Adams LLP audited the Partnership’s consolidated financial statements and otherwise acted as the Partnership’s independent registered public accounting firm with respect to the fiscal years ended December 31, 2008 and December 31, 2007. Grant Thornton LLP provided tax services to the Partnership for the fiscal years ended December 31, 2008 and 2007. The following is a summary of the fees billed to the Partnership by Moss Adams LLP and Grant Thornton LLP for professional services rendered for 2008 and 2007:

	2008		2007

Audit Fees	$	138,735	$	111,946

Audit-Related Fees		10,468		5,000

Tax Fees		67,753		70,152

All Other Fees		—		—

Total Fees	$	216,956	$	187,098

Audit Fees were for the audits of our annual consolidated financial statements, reviews of the financial statements included in our Quarterly Reports on Form 10-Q, and other assistance required to complete the year-end audits.

Audit-Related Fees were for the issuance of consents and assistance with review of registration statements filed with the SEC.

Tax Fees include services for tax research and compliance, tax planning and advice, and tax return preparation.

Before the accountant is engaged by the Partnership to render audit or non-audit services, the engagement is approved by the Board of Directors of the General Partner. All of the services listed above were approved by the Board of Directors of the General Partner of the Partnership.

PART IV - Item 15. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

(a)
(1)	Financial Statements:
	Report of Independent Registered Public Accounting Firm	F-1
	Consolidated Balance Sheets - December 31, 2008 and 2007	F-2
	Consolidated Statements of Income for the years ended December 31, 2008 and 2007	F-3
	Consolidated Statements of Partners’ Capital for the years ended December 31, 2008 and 2007	F-4
	Consolidated Statements of Cash Flows for the years ended December 31, 2008 and 2007	F-5
	Notes to Consolidated Financial Statements	F-6

(2)	Financial Statement Schedules:
	Schedule IV- Mortgage Loans on Real Estate	F-28

(3)	Exhibits:
	3	Sixth Amended and Restated Agreement of Limited Partnership, incorporated by reference to Exhibit A to the Form S-11 Registration Statement No. 333-150428 filed April 15, 2008 and declared effective on April 30, 2008.
	3.1	Certificate of Limited Partnership – Form LP-1: Filed July 1, 1984*
	3.2	Amendment to Certificate of Limited Partnership – Form LP-2: Filed March 20, 1987*
	3.3	Amendment to Certificate of Limited Partnership – Form LP-2: Filed August 29, 1989*
	3.4	Amendment to Certificate of Limited Partnership – Form LP-2: Filed October 22, 1992*
	3.5	Amendment to Certificate of Limited Partnership – Form LP-2: Filed January 24, 1994*
	3.6	Amendment to Certificate of Limited Partnership – Form LP-2: Filed December 30, 1998***
		Amendment to Certificate of Limited Partnership – Form LP-2: Filed March 19, 1999***
	4.1	Sixth Amended and Restated Agreement of Limited Partnership, incorporated by reference to Exhibit A to the Form S-11 Registration Statement No. 333-150428 filed April 15, 2008 and declared effective on April 30, 2008.
	4.2	Subscription Agreement and Power of Attorney, incorporated by reference to Exhibit B to the Form S-11 Registration Statement No. 333-150428 filed April 15, 2008 and declared effective on April 30, 2008.
	10.1	Credit Agreement By and Among Owens Mortgage Investment Fund, California Bank & Trust, As Agent, and the Lenders Parties Thereto Dated as of August 31, 2001**
		Modification to Credit Agreement as of February 28, 2002**
		Second Modification to Credit Agreement as of August 16, 2002**
		Modification to Credit Agreement as of July 31, 2003**
		Modification to Credit Agreement as of July 31, 2005**
		Modification to Credit Agreement as of September 30, 2005**
		Modification to Credit Agreement as of February 9, 2006**
		Modification to Credit Agreement as of August 15, 2006**
		Modification to Credit Agreement as of February 23, 2007**
		Modification to Credit Agreement dated July 20, 2007****
		Modification to Credit Agreement dated March 31, 2008*****

		Modification to Credit Agreement dated March 27, 2009
	31.1	Section 302 Certification of General Partner Chief Executive Officer
	31.2	Section 302 Certification of General Partner Chief Financial Officer
	32	Certification Pursuant to U.S.C. 18 Section 1350
	*Previously filed under Amendment No. 3 to the Form S-11 Registration Statement No. 333-69272 and incorporated herein by this reference.
	** Previously filed under Form 10-K for the fiscal year ended December 31, 2006 and incorporated herein by this reference.
	***Previously filed under Amendment No. 7 to the Form S-11 Registration Statement No. 333-69272 and incorporated herein by this reference.
	****Previously filed under Form 10-Q for the quarterly period ended June 30, 2007 and incorporated herein by this reference.
	*****Previously filed under Form 10-Q for the quarterly period ended March 31, 2008 and incorporated herein by this reference.

(b)	Exhibits:
	3	Sixth Amended and Restated Agreement of Limited Partnership, incorporated by reference to Exhibit A to the Form S-11 Registration Statement No. 333-150428 filed April 15, 2008 and declared effective on April 30, 2008.
	3.1	Certificate of Limited Partnership – Form LP-1: Filed July 1, 1984*
	3.2	Amendment to Certificate of Limited Partnership – Form LP-2: Filed March 20, 1987*
	3.3	Amendment to Certificate of Limited Partnership – Form LP-2: Filed August 29, 1989*
	3.4	Amendment to Certificate of Limited Partnership – Form LP-2: Filed October 22, 1992*
	3.5	Amendment to Certificate of Limited Partnership – Form LP-2: Filed January 24, 1994*
	3.6	Amendment to Certificate of Limited Partnership – Form LP-2: Filed December 30, 1998***
		Amendment to Certificate of Limited Partnership – Form LP-2: Filed March 19, 1999***
	4.1	Sixth Amended and Restated Agreement of Limited Partnership, incorporated by reference to Exhibit A to the Form S-11 Registration Statement No. 333-150428 filed April 15, 2008 and declared effective on April 30, 2008.
	4.2	Subscription Agreement and Power of Attorney, incorporated by reference to Exhibit B to the Form S-11 Registration Statement No. 333-150428 filed April 15, 2008 and declared effective on April 30, 2008.
	10.1	Credit Agreement By and Among Owens Mortgage Investment Fund, California Bank & Trust, As Agent, and the Lenders Parties Thereto Dated as of August 31, 2001**
		Modification to Credit Agreement as of February 28, 2002**
		Second Modification to Credit Agreement as of August 16, 2002**
		Modification to Credit Agreement as of July 31, 2003**
		Modification to Credit Agreement as of July 31, 2005**
		Modification to Credit Agreement as of September 30, 2005**
		Modification to Credit Agreement as of February 9, 2006**
		Modification to Credit Agreement as of August 15, 2006**
		Modification to Credit Agreement as of February 23, 2007**
		Modification to Credit Agreement dated July 20, 2007****
		Modification to Credit Agreement dated March 31, 2008*****
		Modification to Credit Agreement dated March 27, 2009
	31.1	Section 302 Certification of General Partner Chief Executive Officer
	31.2	Section 302 Certification of General Partner Chief Financial Officer
	32	Certification Pursuant to U.S.C. 18 Section 1350

(c)	Financial Statement Schedules
	Schedule IV - Mortgage Loans on Real Estate

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Dated: April 1, 2009 OWENS MORTGAGE INVESTMENT FUND,

a California Limited Partnership

By: OWENS FINANCIAL GROUP, INC., GENERAL PARTNER

Dated: April 1, 2009 By: /s/ William C. Owens

William C. Owens, Director, Chief Executive Officer and President

Dated: April 1, 2009 By: /s/ Bryan H. Draper

Bryan H. Draper, Director, Chief Financial Officer and Secretary

Dated: April 1, 2009 By: /s/ William E. Dutra

William E. Dutra, Director and Senior Vice President

Dated: April 1, 2009 By: /s/ Melina A. Platt

Melina A. Platt, Controller

Report of Independent Registered Public Accounting Firm

The Partners

Owens Mortgage Investment Fund

We have audited the accompanying consolidated balance sheets of Owens Mortgage Investment Fund as of December 31, 2008 and 2007 and the related consolidated statements of income, partners’ capital and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Owens Mortgage Investment Fund as of December 31, 2008 and 2007 and the consolidated results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 15 to the consolidated financial statements, effective January 1, 2008, the Partnership adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements.

Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule IV is presented for purposes of additional analysis and is not a required part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

/s/ Moss Adams LLP

San Francisco, California

April 1, 2009

F-1

OWENS MORTGAGE INVESTMENT FUND,

A CALIFORNIA LIMITED PARTNERSHIP

Consolidated Balance Sheets

December 31,

Assets	2008		2007
Cash and cash equivalents	$	2,800,123	$	9,159,033
Restricted cash		1,000,000		1,000,000
Certificates of deposit		2,229,601		—
Loans secured by trust deeds, net of allowance for losses of $13,727,634 in 2008 and $5,042,000 in 2007		248,508,567		272,333,481
Due from general partner		44,162		—
Interest and other receivables, net of allowance for doubtful receivable of $674,679 in 2008 and 2007		3,643,774		5,412,821
Vehicles, equipment and furniture, net of accumulated depreciation of $119,281 in 2008 and $10,267 in 2007		566,640		310,245
Other assets, net of accumulated amortization of $516,649 in 2008 and $436,088 in 2007		432,898		405,222
Investment in limited liability company		2,176,883		—
Real estate held for sale		11,413,760		10,572,237
Real estate held for investment, net of accumulated depreciation of $3,305,857 in 2008 and $2,655,831 in 2007		47,014,812		42,338,070

	$	319,831,220	$	341,531,109

Liabilities and Partners’ Capital
Liabilities:
Accrued distributions payable	$	562,740	$	594,620
Due to general partner		—		2,278,330
Accounts payable and accrued liabilities		1,703,917		972,011
Deferred gain		878,509		902,009
Note payable		10,500,000		10,500,000
Line of credit payable		32,914,000		27,432,000

Total liabilities		46,559,166		42,678,970

Minority interest		68,645		108,509

Partners’ capital (units subject to redemption):
General partner		2,781,730		2,960,604
Limited partners
Authorized 500,000,000 units outstanding in 2008 and 2007; 552,097,845 and 530,083,924 units issued and 270,617,699 and 295,979,046 units outstanding in 2008 and 2007, respectively		270,421,679		295,783,026

Total partners’ capital		273,203,409		298,743,630

	$	319,831,220	$	341,531,109

The accompanying notes are an integral part of these financial statements.

F-2

OWENS MORTGAGE INVESTMENT FUND,

A CALIFORNIA LIMITED PARTNERSHIP

Consolidated Statements of Income

Years Ended December 31,

	2008			2007

Revenues:
Interest income on loans secured by trust deeds	$	24,553,214	$	27,307,578
Gain on sale of real estate, net		1,150,301		1,031,933
Rental and other income from real estate properties		5,087,705		3,966,885
Income from investment in limited liability company		47,680		—
Other income		219,855		503,389

Total revenues		31,058,755		32,809,785

Expenses:
Management fees to general partner		4,203,848		2,176,099
Servicing fees to general partner		685,905		692,158
Carried interest to general partner		—		51,391
Administrative		60,000		48,000
Legal and accounting		428,859		462,164
Rental and other expenses on real estate properties		4,952,920		3,236,493
Interest expense		2,113,897		1,554,482
Environmental remediation expense		762,035		—
Minority interest		13,896		14,396
Other		131,204		54,821
Bad debt expense		625		680,884
Provision for loan losses		9,537,384		2,195,515
Losses on real estate properties		6,005,018		50,776

Total expenses		28,895,591		11,217,179

Net income	$	2,163,164	$	21,592,606

Net income allocated to general partner	$	23,541	$	213,355

Net income allocated to limited partners	$	2,139,623	$	21,379,251

Net income allocated to limited partners per weighted average limited partnership unit	$	0.01	$	0.07

The accompanying notes are an integral part of these financial statements.

F-3

OWENS MORTGAGE INVESTMENT FUND,

A CALIFORNIA LIMITED PARTNERSHIP

Consolidated Statements of Partners’ Capital

Years Ended December 31,

	General			Limited partners						Total Partners’
	partner			Units			Amount			capital

Balances, December 31, 2006	$	2,866,930			288,133,368		$	287,937,348		$	290,804,278

Net income		213,355			21,379,251			21,379,251			21,592,606
Sale of partnership units		102,782			11,766,823			11,766,823			11,869,605
Partners’ withdrawals		—			(18,546,530	)		(18,546,530	)		(18,546,530	)
Partners’ distributions		(222,463	)		(6,753,866	)		(6,753,866	)		(6,976,329	)

Balances, December 31, 2007	$	2,960,604			295,979,046		$	295,783,026		$	298,743,630

Net income		23,541			2,139,623			2,139,623			2,163,164
Sale of partnership units		410,759			8,407,942			8,407,942			8,818,701
Partners’ withdrawals		(410,759	)		(29,078,814	)		(29,078,814	)		(29,489,573	)
Partners’ distributions		(202,415	)		(6,830,098	)		(6,830,098	)		(7,032,513	)

Balances, December 31, 2008	$	2,781,730			270,617,699		$	270,421,679		$	273,203,409

The accompanying notes are an integral part of these financial statements.

F-4

OWENS MORTGAGE INVESTMENT FUND,

A CALIFORNIA LIMITED PARTNERSHIP

Consolidated Statements of Cash Flows

Years ended December 31,

	2008			2007
Cash flows from operating activities:
Net income	$	2,163,164		$	21,592,606
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale of real estate, net		(1,150,301	)		(1,031,933	)
Income from investment in limited liability company		(47,680	)		—
Provision for loan losses		9,537,384			2,195,515
Losses on real estate properties		6,005,018			50,776
Bad debt expense		625			680,884
Depreciation and amortization		876,413			722,939
Changes in operating assets and liabilities:
Due from general partner		(44,162	)		—
Interest and other receivables		1,232,004			(3,117,184	)
Other assets		(89,252)			—
Accounts payable and accrued liabilities		731,906			245,486
Due to general partner		(2,278,330	)		2,046,891
Net cash provided by operating activities		16,936,789			23,385,980

Cash flows from investing activities:
Investment in loans secured by trust deeds		(95,669,713	)		(172,292,085	)
Principal collected on loans		85,295,118			106,509,976
Sales of loans to third parties		8,744,177			12,348,525
Investment in real estate properties		(1,513,068	)		(729,089	)
Net proceeds from disposition of real estate properties		4,732,314			3,204,886
Purchases of vehicles, equipment and furniture		(361,797	)		(320,512	)
Investments in certificates of deposit		(2,229,601	)		—
Minority interest in limited liability company		(39,864	)		(31,876	)
Net cash used in investing activities		(1,042,434	)		(51,310,175	)

Cash flows from financing activities
Proceeds from sale of partnership units		8,818,701			11,869,605
Net advances on line of credit payable		5,482,000			27,432,000
Partners’ cash distributions		(7,064,393	)		(6,955,617	)
Partners’ capital withdrawals		(29,489,573	)		(18,546,530	)
Net cash (used in) provided by financing activities		(22,253,265	)		13,799,458

Net decrease in cash and cash equivalents		(6,358,910	)		(14,124,737	)

Cash and cash equivalents at beginning of year		9,159,033			23,283,770

Cash and cash equivalents at end of year	$	2,800,123		$	9,159,033

Supplemental Disclosures of Cash Flow Information
Cash paid during the year for interest	$	2,101,086		$	1,471,707

See notes 4, 5 and 6 for supplemental disclosure of noncash investing and financing activities.

The accompanying notes are an integral part of these financial statements

F-5

OWENS MORTGAGE INVESTMENT FUND,

a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

NOTE 1 – ORGANIZATION

Owens Mortgage Investment Fund, a California Limited Partnership, (the Partnership) was formed on June 14, 1984 to invest in loans secured by first, second and third trust deeds, wraparound, participating and construction mortgage loans and leasehold interest mortgages. The Partnership commenced operations on the date of formation and will continue until December 31, 2034 unless dissolved prior thereto under the provisions of the Partnership Agreement.

The general partner of the Partnership is Owens Financial Group, Inc. (OFG), a California corporation engaged in the origination of real estate mortgage loans for eventual sale and the subsequent servicing of those mortgages for the Partnership and other third-party investors. The Partnership’s operations are managed solely by OFG pursuant to the Partnership Agreement.

OFG is authorized to offer and sell units in the Partnership up to an aggregate of 500,000,000 units outstanding at $1.00 per unit, representing $500,000,000 of limited partnership interests in the Partnership. Limited partnership units outstanding were 270,617,699 and 295,979,046 as of December 31, 2008 and 2007, respectively.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of the Partnership and its majority-owned limited liability companies located in Louisiana, Colorado and California (see Notes 4 and 5). All significant inter-company transactions and balances have been eliminated in consolidation. The Partnership is in the business of providing mortgage lending services and manages its business as one operating segment.

Certain reclassifications not affecting net income have been made to the 2007 consolidated financial statements to conform to the 2008 presentation.

Management Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Such estimates relate principally to the determination of the allowance for loan losses, including the valuation of impaired loans, the valuation of real estate held for sale and investment, and the estimate of the environmental remediation liability (see Note 4). Actual results could differ significantly from these estimates.

New Accounting Pronouncements

FAS 157

On January 1, 2008, the Partnership adopted the provisions of FAS 157, Fair Value Measurements, with the exception of the requirements that pertain to nonfinancial assets and nonfinancial liabilities covered by FASB Staff Position (FSP) No. FAS 157-2. FAS 157 defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements for fair value measurements. FSP FAS 157-2 delays the effective date of the FAS 157 requirements for nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008. Real estate held for sale and investment is an example of a nonfinancial asset that the Partnership will be required to measure at fair value on a non-recurring basis in accordance with generally accepted accounting principles. The Partnership does not expect the implementation of FSP FAS 157-2 to have a material impact on its consolidated financial condition or results of operations.

F-6

OWENS MORTGAGE INVESTMENT FUND,

a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

FSP FAS 157-3

On October 10, 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active. The FSP clarifies the application of FAS 157, Fair Value Measurements, in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP FAS 157-3 is effective upon issuance, including prior periods for which financial statements have not been issued. Revisions resulting from a change in the valuation technique or its application should be accounted for as a change in accounting estimate following the guidance in FAS 154, Accounting Changes and Error Corrections. However, the disclosure provisions in FAS 154 for a change in accounting estimate are not required for revisions resulting from a change in valuation technique or its application. Adoption of FSP FAS 157-3 did not have a significant impact on the Partnership’s consolidated financial condition or results of operations.

FAS 160

In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial Statements, which provides guidance for accounting and reporting of noncontrolling (minority) interests in consolidated financial statements. FAS 160 is effective for fiscal years and interim periods within fiscal years beginning on or after December 15, 2008. The Partnership does not expect the implementation of FAS 160 to have a material impact on its consolidated financial condition or results of operations.

FAS 162

In May 2008, the FASB issued FAS 162, The Hierarchy of Generally Accepted Accounting Principles. FAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements that are presented in conformity with generally accepted accounting principles in the United States. FAS 162 became effective on November 15, 2008. The Partnership does not believe that FAS 162 will have a material impact on the Partnership’s consolidated financial condition or results of operations.

Loans Secured by Trust Deeds

Loans secured by trust deeds are stated at the principal amount outstanding. The Partnership’s portfolio consists primarily of commercial real estate loans generally collateralized by first and second deeds of trust. Interest income on loans is accrued by the simple interest method. Loans are generally placed on nonaccrual status when the borrowers are past due greater than ninety days or when full payment of principal and interest is not expected. When a loan is classified as nonaccrual, interest accruals discontinue and all past due interest remains accrued until the loan becomes current. Interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest. Cash receipts on nonaccrual loans are recorded as interest income, except when such payments are specifically designated as principal reduction or when management does not believe the Partnership’s investment in the loan is fully recoverable.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have likely occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the types and dollar amounts of loans in the portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

F-7

OWENS MORTGAGE INVESTMENT FUND,

a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

The allowance consists of specific, general and unallocated components. For the specific component, an allowance is established on an impaired loan when the collateral value of the impaired loan is lower than the carrying value of that loan. Collateral values are determined based on available market quotes, third party appraisals, broker price opinions, comparable properties or other indications of value. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses, such as economic developments or natural disasters that surface or occur between the time management estimates credit losses and the date of the financial statements. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

A loan is considered impaired when, based on current information and events, it is probable that the Partnership will be unable to collect all amounts due according to the contractual terms of the loan agreement or when monthly payments are delinquent greater than 90 days. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the underlying collateral, if collateral dependent.

Cash and Cash Equivalents

Cash and cash equivalents include interest-bearing and noninterest-bearing bank deposits, money market accounts and short-term certificates of deposit with original maturities of three months or less.

The Partnership maintains its cash and cash equivalents in bank deposit accounts that, at times, may exceed federally insured limits. The Partnership has not experienced any losses in such accounts. The Partnership believes it is not exposed to any significant credit risk on cash and cash equivalents. At December 31, 2008, the Partnership did not have any significant concentrations of credit risk arising from cash deposits as 100% of its cash and cash equivalents were invested in FDIC-insured bank products.

Restricted Cash

Restricted cash includes non-interest bearing deposits with three banks that are required pursuant to the Partnership’s line of credit agreement with such banks.

Certificates of Deposit

At various times during the year, the Partnership may purchase certificates of deposit with various financial institutions with original maturities of up to one year. Interest income on certificates of deposit is recognized when earned. Certificates of deposit are held in several federally insured depository institutions.

Vehicles, Equipment and Furniture

Depreciation of vehicles, equipment and furniture owned by DarkHorse Golf Club, LLC is provided on the straight-line method over their estimated useful lives (5-7 years).

Other Assets

Other assets include capitalized lease commissions and loan costs, prepaid expenses, deposits and inventory. Amortization of lease commissions is provided on the straight-line method over the lives of the related leases. Amortization of loan costs in 720 University, LLC is provided on the straight-line method through the maturity date of the related debt.

F-8

OWENS MORTGAGE INVESTMENT FUND,

a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

Real Estate Held for Sale and Investment

Real estate held for sale includes real estate acquired through foreclosure. These investments are carried at the lower of the recorded investment in the loan, inclusive of any senior indebtedness, or the property’s estimated fair value, less estimated costs to sell.

Real estate held for investment includes real estate purchased or acquired through foreclosure and is initially stated at the lower of cost or the recorded investment in the loan, or the property’s estimated fair value. Depreciation of buildings and improvements is provided on the straight-line method over the estimated remaining useful lives of buildings and improvements (5-39 years). Depreciation of tenant improvements is provided on the straight-line method over the lives of the related leases.

Costs related to the improvement of real estate held for sale and investment are capitalized, whereas those costs related to holding the property are expensed.

In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-lived Assets, the Partnership periodically compares the carrying value of real estate held for investment to expected future cash flows as determined by internally or third party generated valuations for the purpose of assessing the recoverability of the recorded amounts. If the carrying value exceeds future undiscounted cash flows, the assets are reduced to fair value.

The Partnership reclassifies real estate properties from held for investment to held for sale in the period in which all of the following criteria are met: 1) Management commits to a plan to sell the property; 2) The property is available for immediate sale in its present condition; 3) An active program to locate a buyer has been initiated; 4) The sale of the property is probable and the transfer of the property is expected to qualify for recognition as a completed sale, within one year; and 5) Actions required to complete the plan indicate it is unlikely that significant changes to the plan will be made or the plan will be withdrawn.

If circumstances arise that previously were considered unlikely, and, as a result, the Partnership decides not to sell a real estate property classified as held for sale, the property is reclassified to held for investment. The property is then measured individually at the lower of its carrying amount, adjusted for depreciation or amortization expense that would have been recognized had the property been continuously classified as held for investment, or its fair value at the date of the subsequent decision not to sell.

Income Taxes

No provision for federal and state income taxes (other than the $800 state minimum tax and non-California state income tax at the Partnership level for real estate properties) is made in the consolidated financial statements since the Partnership is not a taxable entity. Accordingly, any income or loss is included in the tax returns of the partners.

F-9

OWENS MORTGAGE INVESTMENT FUND,

a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

NOTE 3 - LOANS SECURED BY TRUST DEEDS

Loans secured by trust deeds as of December 31, 2008 and 2007 are as follows:

	2008		2007
By Property Type:
Commercial	$	118,156,590	$	151,435,333
Condominiums		93,460,019		81,327,519
Apartments		4,325,000		7,903,750
Single family homes (1-4 Units)		331,810		336,870
Improved and unimproved land		45,962,782		36,372,009
	$	262,236,201	$	277,375,481
By Deed Order:
First mortgages	$	234,060,285	$	255,962,228
Second mortgages		28,175,916		21,413,253
	$	262,236,201	$	277,375,481

The Partnership’s loan portfolio above includes Construction Loans and Rehabilitation Loans. Construction Loans are determined by the General Partner to be those loans made to borrowers for the construction of entirely new structures or dwellings, whether residential, commercial or multifamily properties. The General Partner has approved the borrowers up to a maximum loan balance; however, disbursements are made in phases throughout the construction process. As of December 31, 2008 and 2007, the Partnership held Construction Loans totaling approximately $17,569,000 and $13,274,000, respectively, and had commitments to disburse an additional $646,000 and $4,801,000, respectively, on Construction Loans.

Scheduled maturities of loans secured by trust deeds as of December 31, 2008 and the interest rate sensitivity of such loans are as follows:

	Fixed Interest Rate		Variable Interest Rate		Total
Year ending December 31:
2008 (past maturity)	$	102,453,241	$	—	$	102,453,241
2009		135,607,427		—		135,607,427
2010		8,715,000		35,897		8,750,897
2011		1,100,000		—		1,100,000
2012		—		—		—
2013		—		—		—
Thereafter (through 2017)		81,810		14,242,826		14,324,636
	$	247,957,478	$	14,278,723	$	262,236,201

F-10

OWENS MORTGAGE INVESTMENT FUND,

a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

Variable rate loans use as indices the one-year, five-year and 10-year Treasury Constant Maturity Index (0.37%, 1.55% and 2.25%, respectively, as of December 31, 2008), the prime rate (3.25% as of December 31, 2008) or the weighted average cost of funds index for Eleventh or Twelfth District savings institutions (2.76% and 3.72%, respectively, as of December 31, 2008) or include terms whereby the interest rate is increased at a later date. Premiums over these indices have varied from 0.25% to 0.65% depending upon market conditions at the time the loan is made.

The following is a schedule by geographic location of loans secured by trust deeds as of December 31, 2008 and 2007:

	December 31, 2008 Balance		Portfolio Percentage	December 31, 2007 Balance		Portfolio Percentage
Arizona	$	31,580,323	12.04%	$	28,245,574	10.18%
California		148,522,264	56.65%		156,449,351	56.41%
Colorado		13,999,402	5.34%		13,999,414	5.05%
Florida		23,482,581	8.96%		23,482,581	8.47%
Hawaii		—	—%		1,300,000	0.47%
Idaho		2,200,000	0.84%		3,568,290	1.29%
Nevada		10,357,000	3.95%		1,253,209	0.45%
New York		10,500,000	4.00%		9,420,000	3.40%
Oregon		81,810	0.03%		86,870	0.03%
Pennsylvania		1,320,057	0.50%		1,650,071	0.59%
Tennessee		—	—%		10,547,470	3.80%
Texas		2,635,000	1.00%		2,635,000	0.95%
Utah		5,305,262	2.02%		4,143,751	1.49%
Virginia		—	—%		2,230,000	0.80%
Washington		12,252,502	4.67%		18,363,900	6.62%
	$	262,236,201	100.00%	$	277,375,481	100.00%

As of December 31, 2008 and 2007, the Partnership’s loans secured by deeds of trust on real property collateral located in Northern California totaled approximately 43% ($113,998,000) and 35% ($96,247,000), respectively, of the loan portfolio. The Northern California region (which includes Monterey, Fresno, Kings, Tulare and Inyo counties and all counties north) is a large geographic area which has a diversified economic base. The ability of borrowers to repay loans is influenced by the economic strength of the region and the impact of prevailing market conditions on the value of real estate. In addition, approximately 82% of the Partnership’s mortgage loans were secured by real estate located in the states of California, Arizona, Florida and Nevada, which have experienced dramatic reductions in real estate values over the past several months.

During the years ended December 31, 2008 and 2007, the Partnership refinanced loans totaling $13,564,000 and $11,124,000, respectively, thereby extending the maturity dates of such loans.

As of December 31, 2008 and 2007, $251,792,000 (96.0%) and $264,289,000 (95.3%) of Partnership loans are interest-only and require the borrower to make a “balloon payment” on the principal amount upon maturity of the loan. To the extent that a borrower has an obligation to pay mortgage loan principal in a large lump sum payment, its ability to satisfy this obligation may be dependent upon its ability to sell the property, obtain suitable refinancing or otherwise raise a substantial cash amount. As a result, these loans involve a higher risk of default than fully amortizing loans.

F-11

OWENS MORTGAGE INVESTMENT FUND,

a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

Most of the Partnership’s loans contain balloon payments at their maturity date, meaning that a lump sum payment of principal is due at the maturity date. Borrowers occasionally are not able to pay the full amount due at the maturity date. The Partnership may allow these borrowers to continue making the regularly scheduled monthly interest payments for certain periods of time to assist the borrower in meeting the balloon payment obligation without formally filing a notice of default. These loans for which the principal and any accrued interest is due and payable, but the borrower has failed to make such payment of principal and/or accrued interest are referred to as “past maturity loans”. As of December 31, 2008 and 2007, the Partnership had twenty and twenty-one past maturity loans totaling approximately $102,453,000 and $65,366,000, respectively.

In the first quarter of 2009 (subsequent to year end), the Partnership began foreclosure proceedings by filing notices of default on three delinquent loans with aggregate principal balances totaling approximately $10,814,000 as of December 31, 2008. Two of these loans became greater than ninety days delinquent subsequent to year end.

During 2008, the Partnership entered into participation agreements on six loans with aggregate principal balances totaling $19,845,000 with an unrelated mortgage investment group that originated the loans with the borrowers (the “Lead Lender”). The General Partner receives the monthly interest payments on these participated loans from the Lead Lender. Pursuant to Intercreditor Agreements between the Partnership and the Lead Lender on all of the participated loans, the Partnership is guaranteed its share of interest and principal prior to any other investors participating in such loans. During the year ended December 31, 2008, the Partnership received partial repayment on one loan in the amount of approximately $1,194,000 and sold the remaining principal balance of approximately $1,169,000 to the Lead Lender. In addition, the Partnership sold a $2,000,000 portion of the principal balance of one loan to the Lead Lender and sold its entire portion of the principal balances in two additional loans to the Lead Lender in the aggregate amount of approximately $5,576,000. The sales of these loans resulted in no gain or loss in the accompanying consolidated financial statements.

As of December 31, 2006, the Partnership participated in one loan with a principal balance of $18,670,000 with the Lead Lender that originated the loan with the borrower. During the year ended December 31, 2007, the Partnership received partial repayment of this loan in the amount of approximately $6,321,000 and sold the remaining principal balance of approximately $12,349,000 to the Lead Lender. The sale of this loan resulted in no gain or loss in the accompanying consolidated financial statements.

F-12

OWENS MORTGAGE INVESTMENT FUND,

a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

During 2007, the Partnership funded a $30,000,000 portion of a $75,200,000 mortgage loan secured by a condominium complex (in the process of conversion and renovation) located in Miami, Florida and entered into a Co-Lending and Servicing Agent Agreement (the “Agreement”) with three other co-lenders in the loan. The General Partner is also a co-lender in the subject loan and is party to the Agreement. The interest rate payable to the Partnership and the General Partner on the loan is 10% per annum. Pursuant to the Agreement, the Partnership and the General Partner, as senior co-lenders, have priority on a pro-rata basis over all other co-lenders in such loan as follows: After any protective advances made are reimbursed to the co-lenders on a pro-rata basis, the Partnership and General Partner shall receive their share of interest in the loan prior to any other co-lender and, once all interest has been paid to the co-lenders, the Partnership and General Partner shall receive their share of principal in the loan prior to any other co-lender in the loan. The servicer of the loan is an affiliate of one of the co-lenders (the “Servicing Agent”) and the Partnership receives the payments on the loan from the Servicing Agent. As of December 31, 2008, the borrower is in default of the loan documents and management of the project has been assumed by the Servicing Agent. As of December 31, 2008, the Partnership had funded $718,000 of its pro-rata share of unreimbursed protective advances to complete renovations to the property and funded an additional $13,000 subsequent to year end. The Partnership also received reimbursement of its pro-rata share of protective advances of $13,000 subsequent to year end. As of December 31, 2008, the Partnership’s and General Partner’s remaining principal balance in the subject loan was approximately $23,483,000 and $7,828,000, respectively. During 2008, the Servicing Agent filed a notice of default on this loan and the loan is now in the process of foreclosure. A third party appraisal was obtained on the loan’s underlying property, which resulted in the Partnership recording a specific loan loss allowance for this loan of $4,032,000 as of December 31, 2008.

The average recorded investment in impaired loans (including loans delinquent in payments greater than 90 days) was approximately $90,600,000 and $39,173,000 as of December 31, 2008 and 2007, respectively. Interest income recognized on impaired loans during the years ended December 31, 2008 and 2007 was approximately $4,589,000 and $2,313,000, respectively. Interest income received on impaired loans during the years ended December 31, 2008 and 2007 was approximately $6,920,000 and $1,781,000, respectively.

The Partnership’s allowance for loan losses was $13,727,634 and $5,042,000 as of December 31, 2008 and 2007, respectively. As of December 31, 2008, there is a non-specific allowance for loan losses of $7,313,000 and a specific allowance for loan losses on four loans in the total amount of $6,414,634. As of December 31, 2007, the entire allowance for loan losses was a non-specific reserve.

Changes in the allowance for loan losses for the years ended December 31, 2008 and 2007 were as follows:

	2008			2007
Balance, beginning of year	$	5,042,000		$	4,225,000
Provision		9,537,384			2,195,515
Charge-offs		(851,750	)		(1,378,515	)
Balance, end of year	$	13,727,634		$	5,042,000

F-13

OWENS MORTGAGE INVESTMENT FUND,

a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

NOTE 4 – INVESTMENT IN LIMITED LIABILITY COMPANY

During 2008, the Partnership entered into an Operating Agreement of 1850 De La Cruz LLC, a California limited liability company (“1850”), with Nanook Ventures LLC (“Nanook”), an unrelated party. The purpose of the joint venture is to acquire, own and operate certain industrial land and buildings located in Santa Clara, California that was owned by the Partnership. The property was subject to a Purchase and Sale Agreement dated July 24, 2007 (the “Sale Agreement”), as amended, between the Partnership, as seller, and Nanook, as buyer. During the course of due diligence under the Sale Agreement, it was discovered that the property is contaminated and that remediation and monitoring may be required. The parties agreed to enter into the Operating Agreement to restructure the arrangement as a joint venture. The Partnership and Nanook are the Members of 1850 and NV Manager, LLC is the Manager. Pursuant to the Agreement, the Partnership contributed the property to 1850 at an agreed upon fair market value of $6,350,000. Cash in the amount of $3,175,000 was then distributed by 1850 to the Partnership such that the Partnership has an initial capital account balance of $3,175,000. Nanook contributed cash in the amount of $3,175,000 to 1850 and has an initial capital account balance of the same amount.

At the time of closing in July 2008, the two properties were separately contributed to two new limited liability companies, Nanook Ventures One LLC and Nanook Ventures Two LLC, that are wholly owned by 1850. The Partnership recognized a gain of approximately $1,037,000 from its sale of a one-half interest in the properties to Nanook. Pursuant to the Operating Agreement, the Partnership is responsible for all costs related to the environmental remediation on the properties and has indemnified Nanook against all obligations related to the contamination. The Partnership accrued approximately $762,000 (including $161,000 owed to Nanook) as an estimate of the expected costs to monitor and remediate the contamination on the properties based on a third party consultant’s estimate which is recorded as Environmental Remediation Expense in the accompanying consolidated statements of income for the year ended December 31, 2008. The Partnership has estimated the amount to be paid under this guarantee based on the information available at this time. If additional amounts are required to monitor and remediate the contamination, it will be an obligation of the Partnership, as the Operating Agreement does not limit the obligations of the Partnership.

The net income to the Partnership from its investment in 1850 De La Cruz was approximately $48,000 since inception.

NOTE 5 - REAL ESTATE HELD FOR SALE

Real estate properties held for sale as of December 31, 2008 and 2007 consists of the following properties acquired through foreclosure between 1997 and 2008:

	2008		2007
Manufactured home subdivision development, Ione, California	$	745,570	$	837,838
Commercial buildings, Roseville, California (see Note 6)		380,924		—
Undeveloped land, San Jose, California (transferred to real estate held for investment – see Note 6)		—		3,025,992
Industrial land and buildings, Santa Clara, California (see Note 4)		—		4,258,407
Mixed-use retail building, Sacramento, California		—		2,450,000
Two improved residential lots, West Sacramento, California		510,944		—
Office/retail complex, Hilo, Hawaii		1,655,647		—
Office condominium complex (17 units), Roseville, California		8,120,675		—
	$	11,413,760	$	10,572,237

F-14

OWENS MORTGAGE INVESTMENT FUND,

a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

The acquisition of certain real estate properties through foreclosure (including properties held for investment – see Note 6) resulted in non-cash increases in real estate held for sale and non-cash decreases in loans secured by trust deeds of approximately $17,904,000 and $25,743,000 for the years ended December 31, 2008 and 2007, respectively.

During the year ended December 31, 2008, the Partnership recorded an impairment loss of approximately $98,000 on four lots (three with houses) in the manufactured home park located in Ione, California based on estimated fair values, which is reflected in losses on real estate properties in the accompanying consolidated statements of income.

2008 Foreclosure and Sales Activity

During the year ended December 31, 2008, the Partnership foreclosed on a first mortgage loan secured by an office/retail complex located in Hilo, Hawaii in the amount of $1,300,000 and obtained the property via the trustee’s sale. In addition, certain advances made on the loan or incurred as part of the foreclosure (such as delinquent property taxes) in the total amount of approximately $336,000 were capitalized to the basis of the property. The estimated fair value of the property was determined to be greater than the Partnership’s basis in the property at the time of foreclosure. The property is classified as held for sale as a sale is expected to be completed in the next one year period.

During the year ended December 31, 2008, the Partnership obtained deeds in lieu of foreclosure from the borrower on two first mortgage loans secured by 18 units in three buildings in an office condominium complex located in Roseville, California in the total amount of approximately $9,068,000 and obtained the properties. In addition, certain advances made on the loans or incurred as part of the foreclosure in the total amount of approximately $34,000 were capitalized to the basis of the properties. At the time of foreclosure, it was determined that the fair values of the units in two buildings were lower than the Partnership’s cost basis in those units by approximately $533,000, and, thus, this amount was recorded as a charge-off against the allowance for loan losses. The properties are classified as held for sale as sales are expected to be completed in the next one year period. During 2008, one unit was sold for net sales proceeds of approximately $562,000, resulting in a gain to the Partnership of approximately $102,000.

During the year ended December 31, 2008, the Partnership foreclosed on a first mortgage loan secured by two improved residential lots located in West Sacramento, California in the amount of approximately $435,000 and obtained the lots via the trustee’s sale. In addition, certain advances made on the loan or incurred as part of the foreclosure (such as legal fees and delinquent property taxes) in the total amount of approximately $76,000 were capitalized to the basis of the property. The estimated fair values of the lots were determined to be greater than the Partnership’s basis in the lots at the time of foreclosure. The lots are classified as held for sale as sales are expected to be completed within one year.

2007 Foreclosure and Sales Activity

During the year ended December 31, 2007, the Partnership foreclosed on a $3,268,000 first mortgage loan secured by a mixed-use retail building in the process of rehabilitation located in Sacramento, California and unimproved land located in Marysville, California and obtained the properties via the trustee’s sale. The unimproved land located in Marysville was transferred to real estate held for investment during the fourth quarter of 2007 as the property is not currently being marketed for sale and a sale will likely not be completed in the next year. The Partnership recorded an impairment on the Sacramento building in the amount of $400,000 during the fourth quarter of 2007 pursuant to a sales contract executed in February 2008, which is included in losses on real estate properties in the accompanying consolidated statements of income. The building is classified as held for sale as the sale is expected to be completed in the first quarter of 2008.

F-15

OWENS MORTGAGE INVESTMENT FUND,

a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

During the year ended December 31, 2007, three lots located in a manufactured home subdivision development located in Ione, California (that was acquired by the Partnership through foreclosure in 1997) were sold for total proceeds of $138,000, resulting in a gain to the Partnership of approximately $95,000.

Changes in the allowance for real estate held for sale losses for the years ended December 31, 2008 and 2007 were as follows:

	2008		2007
Balance, beginning of year	$	—	$	405,388
Provision		—		—
Recovery for real estate sold		—		(405,388	)
Balance, end of year	$	—	$	—

The recovery of losses on real estate held for sale in 2007 relates to the sales of condominium units in Oregon Leisure Homes, LLC (see below) and the reversal of the $250,000 allowance for the undeveloped land located in Gresham, Oregon due to the recovery of the original cost of the property pursuant to a sale which closed in 2007. Of the total recovery amount, $56,164 was included in gain on sale of real estate (for a condominium unit sold in Oregon Leisure Homes, LLC) and $349,224 was recorded as recovery of losses on real estate properties in the accompanying consolidated statements of income. In addition, an impairment loss of $400,000 was recorded on the Sacramento building during 2007, resulting in a net loss on real estate properties of $50,776 in the accompanying consolidated statements of income.

Investment in Limited Liability Companies

Oregon Leisure Homes, LLC

Oregon Leisure Homes, LLC (OLH) was formed in 2001 between the Partnership and an unrelated developer for the purpose of developing and selling eight condominium units located in Lincoln City, Oregon, which were acquired by the Partnership via a deed in lieu of foreclosure.

During the year ended December 31, 2007, the Partnership advanced an additional $17,000 to OLH for continued operation and marketing of the condominium units that are for sale and received repayment of advances of approximately $665,000 from collections on notes receivable and sales of condominium units. During the year ended December 31, 2007, OLH sold three condominium units for total sales proceeds of approximately $656,000, resulting in gain on sale in the total amount of approximately $141,000. The net income to the Partnership from OLH was approximately $231,000 during the year ended December 31, 2007.

F-16

OWENS MORTGAGE INVESTMENT FUND,

a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

NOTE 6 - REAL ESTATE HELD FOR INVESTMENT

Real estate held for investment is comprised of the following properties as of December 31, 2008 and 2007:

	2008		2007
Light industrial building, Paso Robles, California	$	1,625,770	$	1,608,735
Commercial buildings, Roseville, California		659,531		793,013
Retail complex, Greeley, Colorado (held within 720 University, LLC)		13,440,143		13,871,742
Undeveloped land, Madera County, California		1,225,000		5,520,797
Manufactured home subdivision development, Lake Charles, Louisiana (held within Dation, LLC)		1,960,000		2,845,403
Undeveloped land, Marysville, California		594,610		594,610
Golf course, Auburn, California (held within DarkHorse Golf Club, LLC		2,830,568		3,340,000
75 improved, residential lots, Auburn, California		13,898,890		13,763,770
Undeveloped land, San Jose, California (transferred from real estate held for sale- see Note 5)		3,025,992		—
Undeveloped land, Half Moon Bay, California		2,110,809		—
Storage facility, Stockton, California		5,643,499		—
	$	47,014,812	$	42,338,070

The balances of land and the major classes of depreciable property for real estate held for investment as of December 31, 2008 and 2007 are as follows:

	2008			2007
Land	$	29,564,886		$	29,489,524
Buildings		15,459,666			10,756,286
Improvements		5,285,690			4,737,664
Other		10,427			10,427
		50,320,669			44,993,901
Less: Accumulated depreciation and amortization		(3,305,857	)		(2,655,831	)
	$	47,014,812		$	42,338,070

It is the Partnership’s intent to sell the majority of its real estate properties held for investment, but expected sales are not probable to occur within the next year.

Depreciation expense was $690,000 and $629,000 for the years ended December 31, 2008 and 2007, respectively.

For purposes of assessing potential impairment of value on properties during 2008, the Partnership obtained updated appraisals or other valuation support as of December 31, 2008 or during the first quarter of 2009 for the unimproved, residential land located in Madera County, California, the manufactured home subdivision development located in Lake Charles, Louisiana (held within Dation, LLC), and the golf course located in Auburn, California (held within DarkHorse Golf Club, LLC). As a result, the Partnership recorded impairment losses in the aggregate amount of approximately $5,907,000 in the accompanying consolidated statements of income.

F-17

OWENS MORTGAGE INVESTMENT FUND,

a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

2008 Foreclosure Activity

During the year ended December 31, 2008, the Partnership foreclosed on a first mortgage loan secured by a storage facility located in Stockton, California in the amount of approximately $5,817,000 and obtained the property via the trustee’s sale. In addition, certain advances made on the loan or incurred as part of the foreclosure (such as legal fees and delinquent property taxes) in the total amount of approximately $176,000 were capitalized to the basis of the property. At the time of foreclosure, approximately $319,000 was charged off against the allowance for loan losses to write the loan/property down to estimated fair value based on the commitment of a pending sale. The sale contract was canceled by the potential buyer in September 2008 and it is now unlikely that the property will be sold within one year. Thus, the property is classified as held for investment as of December 31, 2008.

During the year ended December 31, 2008, the Partnership foreclosed on a first mortgage loan secured by undeveloped, commercial land located in Half Moon Bay, California in the amount of $1,600,000 and obtained the property via the trustee’s sale. In addition, certain advances made on the loan or incurred as part of the foreclosure (such as legal fees and delinquent property taxes) in the total amount of approximately $459,000 were capitalized to the basis of the property. The property is classified as held for investment as it is unlikely that a sale will be completed within the next year.

During the year ended December 31, 2008, the Partnership transferred the undeveloped land located in San Jose, California from real estate held for sale to real estate held for investment because it is unlikely that the property will be sold within one year. The property was transferred at the lower of its carrying value or fair value.

During 2008, the Partnership obtained approval to sell the buildings individually within the commercial building complex located in Roseville, California. Two of these buildings are currently vacant and are listed for sale. In November 2008, the book value of these buildings was transferred from real estate held for investment to real estate held for sale (see Note 5) and depreciation was discontinued.

2007 Foreclosure Activity

720 University, LLC

The Partnership has an investment in a limited liability company, 720 University, LLC (720 University), which owns a commercial retail property located in Greeley, Colorado. The Partnership receives 65% of the profits and losses in 720 University after priority return on partner contributions is allocated at the rate of 10% per annum. The assets, liabilities, income and expenses of 720 University have been consolidated into the accompanying consolidated balance sheet and income statement of the Partnership.

F-18

OWENS MORTGAGE INVESTMENT FUND,

a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

The net income to the Partnership was approximately $204,000 and $197,000 (including depreciation and amortization totaling approximately $615,000 and $610,000) during the years ended December 31, 2008 and 2007, respectively. The minority interest of the joint venture partner of approximately $69,000 and $109,000 as of December 31, 2008 and 2007, respectively, is reported in the accompanying consolidated balance sheets. The Partnership’s investment in 720 University real property was approximately $13,440,000 and $13,872,000 as of December 31, 2008 and 2007, respectively.

Dation, LLC

Dation, LLC (Dation) was formed in 2001 between the Partnership and an unrelated developer for the purpose of developing and selling lots in a manufactured home park located in Lake Charles, Louisiana, which were acquired by the Partnership via a deed in lieu of foreclosure. The Partnership advances funds to Dation as needed. The Partnership owns 50% of Dation and is the sole general manager of the LLC (pursuant to an amendment to the Operating Agreement signed on October 29, 2007). Pursuant to the Operating Agreement, the Partnership is to receive 50% of Dation’s profits and losses after receipt of all interest on the original loan and priority return on partner contributions allocated at the rate of 12% per annum. The Partnership has recorded 100% of Dation’s net income and losses since inception because it has the majority of the risks and rewards of ownership. The assets, liabilities, income and expenses of Dation have been consolidated into the accompanying consolidated balance sheets and income statements of the Partnership.

Dation sold no lots or houses during the year ended December 31, 2008. Dation sold one lot during the year ended December 31, 2007, resulting in gain on sale of approximately $10,000. Dation repaid $0 and $10,000 of the loan to the Partnership and repaid $75,000 and $25,000, respectively, of Partnership capital contributions during the years ended December 31, 2008 and 2007, respectively. The Partnership advanced an additional $16,000 and $20,000 to Dation during the years ended December 31, 2008 and 2007, respectively.

The net operating income to the Partnership was approximately $35,000 and $94,000 during the years ended December 31, 2008 and 2007, respectively.

The Dation property was transferred to real estate held for investment during 2007.

DarkHorse Golf Club, LLC

DarkHorse Golf Club, LLC (DarkHorse) is a California limited liability company formed in August 2007 for the purpose of operating the DarkHorse golf course located in Auburn California, which was acquired by the Partnership via foreclosure in August 2007. The golf course was placed into DarkHorse via a grant deed on the same day that the trustee’s sale was held. The Partnership is the sole member in DarkHorse. The assets, liabilities, income and expenses of DarkHorse have been consolidated into the accompanying consolidated balance sheets and income statements of the Partnership. The golf course is being operated and managed by an unrelated company.

NOTE 7 - NOTE PAYABLE

The Partnership has a note payable with a bank in the amount of $10,500,000 through its investment in 720 University (see Note 6), which is secured by the retail development located in Greeley, Colorado. The note requires monthly interest payments until March 1, 2010 at a fixed rate of 5.07% per annum. Commencing April 1, 2010, monthly payments of $56,816 will be required, with the balance of unpaid principal due on March 1, 2015. Interest expense for the years ended December 31, 2008 and 2007 was approximately $541,000 and $540,000, respectively.

F-19

OWENS MORTGAGE INVESTMENT FUND,

a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

NOTE 8 - LINE OF CREDIT PAYABLE

The Partnership has a line of credit agreement with a group of banks, which provides interim financing on mortgage loans invested in by the Partnership. All assets of the Partnership are pledged as security for the line of credit. The line of credit is guaranteed by the General Partner. In April 2008, a Modification to Credit Agreement was executed whereby the amount of credit available under the line of credit was increased to $55,000,000 (from $40,000,000) through the expiration date of July 31, 2009. The balance outstanding on the line of credit was $32,914,000 and $27,432,000 as of December 31, 2008 and 2007, respectively. Borrowings under this line of credit bear interest at the bank’s prime rate, which was 3.25% as of December 31, 2008. The interest rate will be increased by 2% upon an event of default of the Partnership. Interest expense was approximately $1,573,000 and $1,015,000 for the years ended December 31, 2008 and 2007, respectively. The line of credit expires on July 31, 2009. The Partnership is required to maintain non-interest bearing accounts in the total amount of $1,000,000 with the banks. This amount is reported as restricted cash on the accompanying consolidated balance sheets.

The agreement requires the Partnership to meet certain financial covenants including profitability, minimum tangible net worth and ratio of total liabilities to tangible net worth. In March 2009, on the basis of preliminary unaudited financial information, the Partnership notified the agent for the banks lending under the line of credit that the Partnership was out of compliance with the profitability covenant in the line of credit agreement for the quarter ended December 31, 2008. The profitability covenant requires that the Partnership maintain, as of the end of each fiscal quarter, a positive operating profit and positive net profit on a rolling two quarter basis. Effective March 27, 2009, the Partnership obtained from the agent and lending banks a waiver of this covenant violation for the periods ending December 31, 2008 and March 31, 2009, which also now provides that the interest rate on the line of credit will be subject to a floor of not less than 5% per annum. While line of credit borrowings otherwise bear interest at prime rate, the addition of the 5% interest floor will immediately increase the Partnership’s cost of funds on such borrowings. Therefore, the banks’ covenant waiver will result in higher Partnership interest expense and lower Partnership income than would apply without the waiver, until the prime rate rises to at least 5% per annum.

NOTE 9 - PARTNERS’ CAPITAL

Allocations, Distributions and Withdrawals

In accordance with the Partnership Agreement, the Partnership’s profits, gains and losses are allocated to each limited partner and OFG in proportion to their respective capital accounts.

Distributions of net income are made monthly to the partners in proportion to their weighted-average capital accounts as of the last day of the preceding calendar month. Accrued distributions payable represent amounts to be distributed to partners in January of the subsequent year based on their capital accounts as of December 31.

The Partnership makes monthly net income distributions to those limited partners who elect to receive such distributions. Those limited partners who elect not to receive cash distributions have their distributions reinvested in additional limited partnership units. Such reinvested distributions totaled $13,162,000 and $15,527,000 for the years ended December 31, 2008 and 2007, respectively. Reinvested distributions are not shown as partners’ cash distributions or proceeds from sale of partnership units in the accompanying consolidated statements of partners’ capital and cash flows.

The limited partners may withdraw, or partially withdraw, from the Partnership and obtain the return of their outstanding capital accounts within 61 to 91 days after written notices are delivered to OFG, subject to the following limitations, among others:

•	No withdrawal of units can be requested or made until at least one year from the date of purchase of those units, other than units received under the Partnership’s Reinvested Distribution Plan.

F-20

OWENS MORTGAGE INVESTMENT FUND,

a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

•	Any such payments are required to be made only from net proceeds and capital contributions (as defined) during said 91-day period.

•	A maximum of $100,000 per partner may be withdrawn during any calendar quarter.

•	The general partner is not required to establish a reserve fund for the purpose of funding such payments.

•	No more than 10% of the outstanding limited partnership interest may be withdrawn during any calendar year except upon dissolution of the Partnership.

During the year ended December 31, 2008, the 10% limited partnership withdrawal limit was reached and December 2008 withdrawal requests of approximately $5,000,000 were suspended. These withdrawal requests were distributed in January 2009. In addition, the Partnership was required to temporarily suspend January, February and March 2009 withdrawal requests in the aggregate amount of approximately $14,787,000 as there was not cash available to make the requested withdrawals. It is highly likely that there will be continued delays in meeting withdrawal requests and that the 10% annual limit for limited partner capital withdrawals will be reached sometime in 2009.

Carried Interest of General Partner

OFG has contributed capital to the Partnership in the amount of 0.5% of the limited partners’ aggregate capital accounts and, together with its carried interest, OFG has an interest equal to 1% of the limited partners’ capital accounts. This carried interest of OFG of up to 1/2 of 1% is recorded as an expense of the Partnership and credited as a contribution to OFG’s capital account as additional compensation. As of December 31, 2008, OFG had made cash capital contributions of $1,496,000 to the Partnership. OFG is required to continue cash capital contributions to the Partnership in order to maintain its required capital balance.

The carried interest expense charged to the Partnership was $0 and $51,000 for the years ended December 31, 2008 and 2007, respectively.

NOTE 10 - CONTINGENCY RESERVES

In accordance with the Partnership Agreement and to satisfy the Partnership’s liquidity requirements, the Partnership is required to maintain cash, cash equivalents and marketable securities as contingency reserves in an aggregate amount of at least 1-1/2% of the capital accounts of the limited partners to cover expenses in excess of revenues or other unforeseen obligations of the Partnership. The cash capital contributions of OFG (amounting to $1,496,000 as of December 31, 2008), up to a maximum of 1/2 of 1% of the limited partners’ capital accounts may be maintained as additional contingency reserves, if considered necessary by the General Partner. Although the General Partner believes the contingency reserves are adequate, it could become necessary for the Partnership to sell or otherwise liquidate certain of its investments or other assets to cover such contingencies on terms which might not be favorable to the Partnership, which could lead to unanticipated losses upon sale of such assets.

The 1-1/2% contingency reserves required per the Partnership Agreement as of December 31, 2008 and 2007 were approximately $4,361,000 and $4,467,000, respectively. Cash, cash equivalents and certificates of deposit as of the same dates were accordingly maintained as reserves.

F-21

OWENS MORTGAGE INVESTMENT FUND,

a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

NOTE 11 - INCOME TAXES

The net difference between partners’ capital per the Partnership’s federal income tax return and these financial statements is comprised of the following components:

	(Unaudited) 2008			(Unaudited) 2007
Partners’ capital per financial statements	$	273,203,409		$	298,743,630
Accrued interest income		(1,969,301	)		(4,611,913	)
Allowance for loan losses		13,727,634			5,042,000
Allowance for doubtful receivable		662,179			674,679
Book/tax differences in basis of real estate properties		6,732,612			61,728
Book/tax differences in joint venture investments		2,192,055			994,220
Accrued distributions		562,740			594,621
Accrued fees due to general partner		(312,927	)		1,027,744
Tax-deferred gain on sale of real estate		(2,690,850	)		(2,690,850	)
Book-deferred gain on sale of real estate		878,509			902,009
Environmental remediation liability		586,877			—
Other		128,323			28,286
Partners’ capital per federal income tax return	$	293,701,260		$	300,766,154

NOTE 12 - TRANSACTIONS WITH AFFILIATES

OFG is entitled to receive from the Partnership a management fee of up to 2.75% per annum of the average unpaid balance of the Partnership’s mortgage loans at the end of the twelve months in the calendar year for services rendered as manager of the Partnership.

All of the Partnership’s loans are serviced by OFG, in consideration for which OFG receives up to 0.25% per annum of the unpaid principal balance of the loans.

OFG, at its sole discretion may, on a monthly basis, adjust the management and servicing fees as long as they do not exceed the allowable limits calculated on an annual basis. Even though the fees for a month may exceed 1/12 of the maximum limits, at the end of the calendar year the sum of the fees collected for each of the 12 months must be equal to or less than the stated limits. Management fees amounted to approximately $4,204,000 and $2,176,000 for the years ended December 31, 2008 and 2007, respectively, and are included in the accompanying consolidated statements of income. Service fees amounted to approximately $686,000 and $692,000 for the years ended December 31, 2008 and 2007, respectively, and are included in the accompanying consolidated statements of income. As of December 31, 2008, OFG owed the Partnership approximately $44,000 as reimbursement of prior months’ management fees. As of December 31, 2007, the Partnership owed management and servicing fees to OFG in the amount of $1,870,000.

The maximum servicing fees were paid to OFG during the years ended December 31, 2008 and 2007. If the maximum management fees had been paid to OFG during the years ended December 31, 2008 and 2007, the management fees would have been $7,545,000 (increase of $3,341,000) and $7,614,000 (increase of $5,438,000), respectively, which would have reduced net income allocated to limited partners by approximately 154.6% and 25.2%, respectively, and would have reduced net income allocated to limited partners per weighted average limited partner unit by the same percentages to a loss of $.004 from a profit of $.01 and to a profit of $.05 from $.07, respectively.

F-22

OWENS MORTGAGE INVESTMENT FUND,

a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

In determining the yield to the partners and hence the management fees, OFG may consider a number of factors, including current market yields, delinquency experience, uninvested cash and real estate activities. Large fluctuations in the management fees paid to the General Partner are normally a result of extraordinary items of income or expense within the Partnership (such as gains or losses from sales of real estate, large increases or decreases in delinquent loans, etc.). Thus, OFG expects that the management fees that it receives from the Partnership will vary in amount and percentage from period to period, and OFG may again receive less than the maximum management fees in the future. However, if OFG chooses to take the maximum allowable management fees in the future, the yield paid to limited partners may be reduced.

Pursuant to the Partnership Agreement, OFG receives all late payment charges from borrowers on loans owned by the Partnership, with the exception of those loans participated with outside entities. The amounts paid to or collected by OFG for such charges on Partnership loans totaled approximately $1,203,000 and $910,000 for the years ended December 31, 2008 and 2007, respectively. In addition, the Partnership remits other miscellaneous fees to OFG, which are collected from loan payments, loan payoffs or advances from loan principal (i.e. funding, demand and partial release fees). Such fees remitted to OFG totaled approximately $34,000 and $46,000 for the years ended December 31, 2008 and 2007, respectively.

OFG originates all loans the Partnership invests in and receives loan origination fees from borrowers. Such fees earned by OFG amounted to approximately $3,549,000 and $6,485,000 on loans originated or extended of approximately $136,675,000 and $225,785,000 for the years ended December 31, 2008 and 2007, respectively. Such fees as a percentage of loans purchased by the Partnership were 2.6% and 2.9% for the years ended December 31, 2008 and 2007, respectively.

OFG is reimbursed by the Partnership for the actual cost of goods and materials used for or by the Partnership and obtained from unaffiliated entities and the actual cost of services of non-management and non-supervisory personnel related to the administration of the Partnership (subject to certain limitations in the Partnership Agreement). The amounts reimbursed to OFG by the Partnership during the years ended December 31, 2008 and 2007 were $88,000 and $48,000, respectively.

During 2007, the President of the General Partner funded a $600,000 second deed of trust secured by the same property (and to the same borrower) on which the Partnership has a first deed of trust in the amount of $2,400,000 at an interest rate of 11% per annum. The interest rate on the President’s loan was 12% per annum. Both of these loans were paid off in full in 2008.

As of December 31, 2008 and 2007, the General Partner held second and fourth deeds of trust in the total amount of approximately $789,000 and $727,000, respectively, secured by the same property (and to the same borrower) on which the Partnership has a first deed of trust in the amount of $2,200,000 at an interest rate of 12% per annum. Approximately $517,000 of the General Partner’s second deed of trust is an exit fee included in the deed of trust at the time of loan origination in 2006. The interest rate on the General Partner’s loan is 17% per annum. The loans to the Partnership and the General Partner are greater than ninety days delinquent and past maturity as of December 31, 2008.

NOTE 13 - NET INCOME PER LIMITED PARTNER UNIT

Net income per limited partnership unit is computed using the weighted average number of limited partnership units outstanding during the year. These amounts were approximately 288,606,000 and 292,164,000 for the years ended December 31, 2008 and 2007, respectively.

F-23

OWENS MORTGAGE INVESTMENT FUND,

a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

NOTE 14 - RENTAL INCOME

The Partnership’s real estate properties held for investment are leased to tenants under noncancellable leases with remaining terms ranging from one to eighteen years. Certain of the leases require the tenant to pay all or some operating expenses of the properties. The future minimum rental income from noncancellable operating leases due within the five years subsequent to December 31, 2008, and thereafter is as follows:

Year ending December 31:
2009	$	1,979,705
2010		1,276,158
2011		1,083,737
2012		786,235
2013		633,710
Thereafter (through 2026)		2,868,496

	$	8,628,041

NOTE 15 - FAIR VALUE

As discussed in Note 2, FAS 157 was implemented by the Partnership for its financial assets and liabilities on January 1, 2008. Pursuant to FSP 157-2, the Partnership delayed the adoption of FAS 157 for nonfinancial assets and nonfinancial liabilities until 2009, including the Partnership’s real estate properties held for sale and investment. FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. FAS 157 has been applied prospectively as of the beginning of 2008.

Fair value is defined in FAS 157 as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 Quoted prices in active markets for identical assets or liabilities

Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or

liabilities; quoted prices in active markets that are not active; or other inputs that are

observable or can be corroborated by observable market data for substantially the full

term of the assets or liabilities

Level 3 Unobservable inputs that are supported by little or no market activity, such as the

Partnership’s own data or assumptions.

Level 3 inputs include unobservable inputs that are used when there is little, if any, market activity for the asset or liability measured at fair value. In certain cases, the inputs used to measure fair value fall into different levels of the fair value hierarchy. In such cases, the level in which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement. Our assessment of the significance of a particular input requires judgment and considers factors specific to the asset or liability being measured.

The following is a description of the Partnership’s valuation methodologies used to measure and disclose the fair values of its financial assets and liabilities on a recurring and nonrecurring basis.

F-24

OWENS MORTGAGE INVESTMENT FUND,

a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

Certificates of Deposit

Certificates of deposit are held in several federally insured depository institutions and have original maturities greater than three months. These investments are held to maturity and are recorded at fair value on a recurring basis. Fair value measurement is estimated using a matrix based on interest rates.

Loans Secured by Trust Deeds

The Partnership does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. A loan is considered impaired when, based on current information and events, it is probable that the Partnership will be unable to collect all amounts due according to the contractual terms of the loan agreement or when monthly payments are delinquent greater than ninety days. Once a loan is identified as impaired, management measures impairment in accordance with FAS 114, Accounting by Creditors for Impairment of a Loan. The fair value of impaired loans is estimated by either an observable market price (if available) or the fair value of the underlying collateral, if collateral dependent. The fair value of the loan’s collateral is determined by third party appraisals, broker price opinions, comparable properties or other indications of value. Those impaired loans not requiring an allowance represent loans for which the fair value of the collateral exceed the recorded investments in such loans. At December 31, 2008, substantially all of the total impaired loans were evaluated based on the fair value of the collateral. In accordance with FAS 157, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser using observable market data, the Partnership records the impaired loan as nonrecurring Level 2. When an appraised value is not available, management determines the fair value of the collateral is further impaired below the appraised value or there is no observable market data included in a current appraisal, the Partnership records the impaired loan as nonrecurring Level 3.

The following table presents the fair value measurements of assets and liabilities recognized in the accompanying consolidated balance sheet measured at fair value on a recurring and nonrecurring basis and the level within the FAS 157 fair value hierarchy in which the fair value measurements fall at December 31, 2008:

		Fair Value Measurements Using
	Carrying Value	Quoted Prices In Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Recurring:
Certificates of deposit	$ 2,229,601		$ 2,229,601

Nonrecurring:
Impaired loans	$ 23,978,649			$ 23,978,649

F-25

OWENS MORTGAGE INVESTMENT FUND,

a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

The following is a reconciliation of the beginning and ending balances of nonrecurring fair value measurements recognized in the accompanying consolidated balance sheet using significant unobservable (Level 3) inputs:

		Impaired Loans
Balance, January 1, 2008	$	—
Total realized and unrealized gains and losses Included in net income	$	(6,414,634	)
Included in other comprehensive income	$	—
Purchases, issuances and settlements	$	—
Transfers in and/or out of Level 3	$	30,393,283
Balance, December 31, 2008	$	23,978,649

The following methods and assumptions were used to estimate the fair value of financial instruments not recognized in the accompanying consolidated balance sheets pursuant to FAS 107, Disclosures about Fair Value of Financial Instruments.

Cash, Cash Equivalents and Restricted Cash

The carrying amount of cash, cash equivalents and restricted cash approximates fair value because of the relatively short maturity of these instruments.

Loans Secured by Trust Deeds

The carrying value of loans secured by trust deeds, other than those analyzed under FAS 114 and FAS 157 above, approximates the fair value. The fair value is estimated based upon projected cash flows discounted at the estimated current interest rates at which similar loans would be made by the Partnership. The applicable amount of the allowance for loan losses along with accrued interest and advances related thereto should also be considered in evaluating the fair value versus the carrying value.

Line of Credit Payable

The carrying value of the line of credit payable is estimated to be fair value as borrowings on the line of credit are generally short-term and the line bears interest at a variable rate (bank’s prime rate).

Note Payable

The fair value of the Partnership’s note payable with a carrying value of $10,500,000 is estimated to be approximately $9,500,000 as of December 31, 2008. The fair value is estimated based upon comparable market indicators of current pricing for the same or similar issue or on the current rate offered to the Partnership for debt of the same remaining maturity.

NOTE 16 - COMMITMENTS AND CONTINGENCIES

Construction/Rehabilitation Loans

The Partnership makes construction, rehabilitation and other loans which are not fully disbursed at loan inception. The Partnership has approved the borrowers up to a maximum loan balance; however, disbursements are made periodically during completion phases of the construction or rehabilitation or at such other times as required under the loan documents. As of December 31, 2008, there were approximately $4,334,000 of undisbursed loan funds which will be funded by a combination of repayments of principal on current loans, line of credit draws or capital contributions from limited partners. The Partnership does not maintain a separate cash reserve to hold the undisbursed obligations that will be funded.

F-26

OWENS MORTGAGE INVESTMENT FUND,

a California Limited Partnership

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

Legal Proceedings

The Partnership is involved in various legal actions arising in the normal course of business. In the opinion of management, such matters will not have a material effect upon the financial position of the Partnership.

NOTE 17 – FOURTH QUARTER INFORMATION

During the quarter ended December 31, 2008, the Partnership recorded a provision for loan losses of approximately $6,574,000 and impairment losses on real estate properties of approximately $6,005,000.

F-27

SCHEDULE IV

OWENS MORTGAGE INVESTMENT FUND

MORTGAGE LOANS ON REAL ESTATE — DECEMBER 31, 2008

Description	Interest Rate	Final Maturity date		Carrying Amount of Mortgages		Principal Amount of Loans Subject to Delinquent Principal	Principal Amount of Loans Subject to Delinquent Payments
TYPE OF PROPERTY
Commercial	8.00-12.00%	Current to June 2016	$	118,156,590	$	38,989,742	$	21,355,000
Condominiums	10.00-12.00%	Current to Nov. 2009		93,460,019		47,014,097		47,014,097
Apartments	11.00%	Mar. 2009		4,325,000		—		—
Single family homes (1-4 units)	11.00-11.50%	Current to Oct. 2017		331,810		250,000		250,000
Improved and unimproved land	11.00-12.00%	Current to Sept. 2010		45,962,782		16,199,402		27,123,490
TOTAL			$	262,236,201	$	102,453,241	$	95,742,587

AMOUNT OF LOAN
$0-250,000	10.00-11.50%	Current to Oct. 2017	$	417,707	$	250,000	$	250,000
$250,001-500,000	10.00-12.00%	Current to Sept. 2010		3,543,989		1,547,851		500,000
$500,001-1,000,000	10.00-12.00%	Current to Sept. 2010		4,538,086		665,000		2,278,490
Over $1,000,000	8.00-12.00%	Current to June 2016		253,736,419		99,990,390		92,714,097
TOTAL			$	262,236,201	$	102,453,241	$	95,742,587

POSITION OF LOAN
First	8.00-12.00%	Current to June 2016	$	234,060,285	$	99,088,848	$	74,018,034
Second	10.50-12.00%	Current to Dec. 2009		28,175,916		3,364,393		21,724,553
TOTAL			$	262,236,201	$	102,453,241	$	95,742,587

NOTE 1:

All loans are arranged by or acquired from an affiliate of the Partnership, namely Owens Financial Group, Inc., the General Partner.

NOTE 2:

Balance at beginning of period (1/1/07)	$	250,143,631
Additions during period:
New mortgage loans		172,292,085
Subtotal		422,435,716
Deductions during period:
Collection of principal		106,509,976
Sales of loans to third parties at face values		12,348,525
Foreclosures		26,201,734
Balance at end of period (12/31/07)	$	277,375,481

Balance at beginning of period (1/1/08)	$	277,375,481
Additions during period:
New mortgage loans		95,669,713
Note taken back from sale of real estate property		1,450,000
Subtotal		374,495,194
Deductions during period:
Collection of principal		85,295,118
Sales of loans to third parties at face value		8,744,177
Foreclosures		18,219,698
Balance at end of period (12/31/08)	$	262,236,201

F-28

During the years ended December 31, 2008 and 2007, the Partnership refinanced loans totaling $13,564,000 and $11,124,000, respectively, thereby extending the maturity date.

NOTE 3: Included in the above loans are the following loans which exceed 3% of the total loans as of December 31, 2008. There are no other loans that exceed 3% of the total loans as of December 31, 2008:

Description	Interest Rate	Final Maturity Date	Periodic Payment Terms	Prior Liens	Face Amount of Mortgages		Carrying Amount of Mortgages		Principal Amount of Loans Subject to Delinquent Principal or Interest

Condominiums (Participated Loan) Miami, Florida	10.00%	2/1/08	Interest only, balance due at maturity	$0		$75,200,000		$19,450,369 Note 5		$19,450,369

Land S. Lake Tahoe, California (3 Notes)	12.00%	1/1/09	Interest only, balance due at maturity	$25,621,727		$23,680,000		$22,923,490		$22,923,490

Assisted Living Facilities La Mesa and Laguna Beach, California and Bensalem, PA	11.00%	4/30/08	Interest only, balance due at maturity	$810,000		$20,000,000		$16,000,000		$16,000,000

Condominiums (Rehabilitation Loan) Phoenix, Arizona (2 Notes)	10.10% 10.00%	2/23/08	Interest only, balance due at maturity	$0		$18,849,000		$13,031,516		$13,031,516

Condominiums (Construction Loan) San Francisco, California (2 Notes)	11.00%	2/1/09	Interest only, balance due at maturity	$0		$13,500,000		$12,909,596		$0

Unimproved Land Gypsum, Colorado	12.00%	9/30/08	Interest only, balance due at maturity	$0		$11,000,000		$10,999,402		$10,999,402

Condominiums Santa Barbara, California (2 Notes)	10.50% 12.00%	4/4/07	Interest only, balance due at maturity	$0		$10,500,000		$10,500,000		$10,500,000

Assisted Living Facility Patterson, New York	10.75%	10/15/09	Interest only, balance due at maturity	$0		$10,500,000		$10,500,000		$0

Condominiums (Rehabilitation Loan) Oakland, California (2 Notes)	11.00% 12.00%	2/15/09	Interest only, balance due at maturity	$0		$11,600,000		$10,016,893		$0

Mixed Commercial Building S. Lake Tahoe, California	9.40%	6/24/14	Interest only, balance due at maturity	$0		$19,000,000		$9,000,000		$0

Medical Office Condos (Rehabilitation Loan) Gilbert, Arizona	11.50%	5/1/09	Interest only, balance due at maturity	$0		$9,725,000		$9,591,778		$0

F-29

Industrial Building Chico, California	12.00%	6/1/09	Interest only, balance due at maturity	$0	$8,500,000	$8,500,000	$0

Assisted Living Facility Fresno, California	10.50%	9/18/06	Interest only, balance due at maturity	$0	$8,175,555	$8,175,555	$8,175,555

TOTALS				$26,431,727	$240,229,000	$161,598,599	$101,080,332

NOTE 4:

The aggregate cost of the above mortgages for Federal income tax purposes is $165,630,811 as of December 31, 2008.

NOTE 5:

A third party appraisal was obtained on this loan’s underlying property resulting in a specific loan loss allowance of $4,032,212 as of December 31, 2008.

F-30