-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PCLd3KJ7d8WeUfiVcsTvOSqb8utYK7A1FTH08p2b+cq9Fa8m44d4tjN1/XjjRpm0 yrE2ctcD4x19owp+3Ksu7g== /in/edgar/work/0000841501-00-000010/0000841501-00-000010.txt : 20001116 0000841501-00-000010.hdr.sgml : 20001116 ACCESSION NUMBER: 0000841501-00-000010 CONFORMED SUBMISSION TYPE: 10-QT PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OWENS MORTGAGE INVESTMENT FUND CENTRAL INDEX KEY: 0000841501 STANDARD INDUSTRIAL CLASSIFICATION: [6221 ] IRS NUMBER: 680023931 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-QT SEC ACT: SEC FILE NUMBER: 000-17248 FILM NUMBER: 770912 BUSINESS ADDRESS: STREET 1: 2221 OLYMPIC BLVD STREET 2: P O BOX 2308 CITY: WALNUT CREEK STATE: CA ZIP: 94595 BUSINESS PHONE: 5109353840 MAIL ADDRESS: STREET 1: 2221 OLYMPIC BLVD STREET 2: P O BOX 2308 CITY: WALNUT CREEK STATE: CA ZIP: 94595 FORMER COMPANY: FORMER CONFORMED NAME: OWENS MORTGAGE INVESTMENT FUND II DATE OF NAME CHANGE: 19920703 10-QT 1 0001.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM l0-Q Quarterly Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 For Quarter Ended September 30, 2000 Commission file number O-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 of incorporation or organization) Identification No.) 2221 Olympic Boulevard Walnut Creek, California 94595 (Address of principal executive office) (Zip Code) (925) 935-3840 (Registrant's Telephone number, including area code) 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_________ PART I. FINANCIAL INFORMATION Item 1. Financial Statements
OWENS MORTGAGE INVESTMENT FUND (A California Limited Partnership) Consolidated Balance Sheets (UNAUDITED) September 30 December 31 2000 1999 ASSETS Cash and cash equivalents $ 9,978,067 $ 5,216,326 Certificates of deposit 50,000 250,000 Loans secured by trust deeds 214,991,403 200,356,517 Less: Allowance for loan losses (4,000,000) (4,000,000) 210,991,403 196,356,517 Real estate properties held for sale, net of allowance for losses of $1,136,000 in 2000 and $1,336,000 in 1999 5,688,969 12,397,722 Real estate properties held for investment, net of depreciation and amortization of $51,556 in 2000 13,065,885 - Interest and other receivables 2,200,827 2,150,952 Total Assets $241,975,151 $216,371,517 LIABILITIES AND PARTNERS' CAPITAL LIABILITIES: Accrued distributions payable $ 609,837 $ 577,281 Accounts payable and accrued liabilities 97,679 430,664 Due to General Partner 915,325 751,759 Note payable 6,023,217 - Total Liabilities 7,646,058 1,759,704 Minority interest 117,706 - PARTNERS' CAPITAL: General partners 2,273,775 2,104,936 Limited partners (Subject to Redemption) 231,937,612 212,506,877 Total Partners' Capital 234,211,387 214,611,813 Total Liabilities and Partners' Capital $241,975,151 $216,371,517 The accompanying notes are an integral part of these consolidated financial statements.
OWENS MORTGAGE INVESTMENT FUND (A California Limited Partnership) Consolidated Statements of Income (Unaudited) For the Three Months Ended For the Nine Months Ended September 30 eptember 30 September 30 September 30 2000 1999 2000 1999 REVENUES: Interest income on loans secured by trust deeds $ 6,025,118 $ 5,015,553 $ 17,471,340 $ 14,472,585 Gain on sale of real estate 2,879,267 822,316 2,879,267 840,640 Rental income 612,393 171,107 1,122,601 511,353 Other income 39,366 68,055 160,592 318,252 Total revenues 9,556,144 6,077,031 21,633,800 16,142,830 EXPENSES: Management fees to General Partner 1,186,069 817,267 3,147,729 1,740,594 Servicing fees to General Partner 134,669 123,670 392,101 355,790 Carried interest (formerly promotional interest) to General Partner 24,478 24,602 71,335 54,972 Administrative 7,875 10,000 23,625 22,500 Legal and accounting 21,489 13,130 112,366 123,287 Rental expenses 214,728 130,848 484,794 403,218 Interest expense 93,620 - 93,620 - Minority interest 17,706 - 17,706 - Provision for loan losses - 250,000 - 250,000 Other 1,325 100 23,294 62,860 Total operating expenses 1,701,959 1,369,617 4,366,570 3,013,221 Net income $ 7,854,185 $ 4,707,414 $ 17,267,230 $ 13,129,609 Net income allocated to General Partner $ 77,324 $ 46,398 $ 169,842 $ 129,565 Net income allocated to limited partners $ 7,776,861 $ 4,661,016 $ 17,097,388 $ 13,000,044 Net income allocated to limited partners per weighted average limited partnership unit $.034 $.022 $.077 $.063 Weighted average limited partnership units 229,131,000 208,589,000 222,223,000 204,916,000 The accompanying notes are an integral part of these consolidated financial statements.
OWENS MORTGAGE INVESTMENT FUND (A California Limited Partnership) Consolidated Statements of Cash Flows (Unaudited) For the Nine Months Ended September 30 September 30 2000 1999 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 17,267,230 $ 13,129,609 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 45,138 - Gain on sale of real estate properties (2,879,267) (840,640) Provision for loan losses - 250,000 Changes in operating assets and liabilities: Interest and other receivables (49,875) (122,298) Accounts payable and accrued liabilities (332,985) (128,668) Due to General Partner 163,566 251,312 Net cash provided by operating activities 14,213,807 12,539,315 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of loans secured by trust deeds (81,558,576) (92,479,859) Principal collected on loans 919,801 1,243,618 Loan payoffs 59,466,576 66,673,967 Sales of loans secured by trust deeds at face value 6,665,913 7,207,294 Investment in real estate properties (180,911) (206,147) Net proceeds from disposition of real estate properties 959,097 851,498 Investment in corporate joint venture (2,845,574) (255,564) Repayment received from corporate joint venture 581,250 - Proceeds from sale of real estate in corporate joint venture 7,195,640 - Purchase of real estate in corporate joint venture (3,337,888) - Minority interest in corporate joint venture 117,706 - Proceeds from maturities of certificates of deposit 200,000 184,006 Proceeds from maturity of commercial paper - 3,084,044 Net cash used in investing activities (11,816,966) (13,697,143) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of partnership Units 19,110,931 15,714,358 Accrued distributions payable 32,556 45,295 Partners' cash distributions (5,387,904) (4,874,487) Partners' capital withdrawals (11,390,683) (13,644,598) Net cash provided by (used in) financing activities 2,364,900 (2,759,432) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,761,741 (3,917,260) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,216,326 8,260,599 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,978,067 $ 4,343,339 See notes 2 , 4 and 5 for supplemental disclosure of non-cash investing and financing activities. The accompanying notes are an integral part of these consolidated financial statements.
OWENS MORTGAGE INVESTMENT FUND (A California Limited Partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 (1) Summary of Significant Accounting Policies In the opinion of the management of the Partnership, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of normal, recurring adjustments, necessary to present fairly the financial information included therein. These consolidated financial statements should be read in conjunction with the audited financial statements included in the Partnership's Form 10-K for the fiscal year ended December 31, 1999 filed with the Securities and Exchange Commission. The results of operations for the three-month and nine-month periods ended September 30, 2000 are not necessarily indicative of the operating results to be expected for the full year. The consolidated financial statements include the accounts of the Partnership and its majority-owned limited liability company. All significant inter-company transactions and balances have been eliminated in consolidation. (2) Loans Secured by Trust Deeds The Partnership's investment in loans delinquent greater than ninety days is $7,945,000 and $7,415,000 as of September 30, 2000 and December 31, 1999, respectively. As of September 30, 2000, $1,717,000 of the delinquent loans has a specific related allowance for credit losses totaling $650,000. There is a non-specific allowance for credit losses of $3,350,000 for the remaining delinquent balance and for other current loans. The Partnership has discontinued the accrual of interest on all loans that are delinquent greater than ninety days. As of September 30, 2000 and December 31, 1999, loans past maturity totaled approximately $43,729,000 and $29,451,000, respectively. Of the past maturity loans at September 30, 2000, $1,717,000 represent loans for which interest payments are delinquent more than ninety days. During the quarter ended September 30, 2000 and 1999, the Partnership refinanced loans totaling $475,000 and $110,000, respectively. During the quarter ended September 30, 2000, the Partnership sold for cash, partial interests in one loan to third parties in the total amount of $500,000. The sale of this loan resulted in no gain or loss to the Partnership in the accompanying consolidated financial statements. During the nine months ended September 30, 2000, the Partnership sold two delinquent loans at book value to the General Partner for notes receivable in the total amount of $1,178,000. The General Partner subsequently foreclosed on the loans. The General Partner repaid the notes in full to the Partnership during the quarter ended September 30, 2000. OWENS MORTGAGE INVESTMENT FUND (A California Limited Partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 (3) Transactions with Affiliates The General Partner of the Partnership, Owens Financial Group, Inc. (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 each of the preceding twelve months 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 .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. In determining the management and servicing fees and hence the yield to the Partnership, OFG may consider a number of factors, including the then-current market yields. Even though the fees for a particular month may exceed one-twelfth of the maximum limits, at the end of the calendar year the sum of the fees collected for each of the twelve months may not exceed the stated limits. Management fees amounted to approximately $1,186,000 and $817,000 for the three months ended September 30, 2000 and 1999, respectively, and $3,148,000 and $1,741,000 for the nine months ended September 30, 2000 and 1999, respectively. Service fee payments to OFG approximated $135,000 and $124,000 for the three months ended September 30, 2000 and 1999, respectively, and $392,000 and $356,000 for the nine months ended September 30, 2000 and 1999, respectively. (4) Real Estate Properties Held for Investment In 1995, the Partnership foreclosed on a $571,853 loan and obtained title to a commercial lot in Los Gatos, California that secured the loan. In 1997, the Partnership contributed the lot to a limited liability company (the Company) formed with an unaffiliated developer to develop and sell a commercial office building on the lot. The Partnership provided construction financing to the Company at the rate of prime plus two percent. During the nine months ended September 30, 2000 and the year ended December 31, 1999, the Partnership advanced an additional $2,846,000 and $1,417,000, respectively, to the Company for development. In addition, the Partnership received repayment of advances from the Company in the amount of $581,000 during the nine months ended September 30, 2000. Construction of the building was substantially completed in June 2000. Prior to the sale of the building in July 2000, the Company entered into a reverse, like-kind exchange, whereby the proceeds attributable to the Partnership's interest in the Company from the sale of the building (approximately $3,338,000), net of repayment of the outstanding advances to the Partnership in the amount of $3,858,000, were reinvested into the purchase of a retail commercial development in Greeley, Colorado. The purpose of this exchange was to defer the recognition of gain for tax purposes to the Company and, hence, the Partnership. The sale resulted in a book gain to the Partnership of approximately $2,691,000. The Company also incurred a note payable in the amount of $6,023,000 as part of the purchase of the new property. A new member that will act as the property manager of the Greeley property was admitted to the Company in August, 2000. OWENS MORTGAGE INVESTMENT FUND (A California Limited Partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 (4) Real Estate Properties Held for Investment, Continued Operation of the new property began in August 2000, and net income to the Partnership was approximately $33,000 for the quarter ended September 30, 2000. The assets, liabilities, income and expenses of the Company have been consolidated into the accompanying consolidated balance sheet and income statement of the Partnership. The minority interest of the joint venture partner of $117,706 as of September 30, 2000 is reported in the accompanying consolidated balance sheet. In addition, the Partnership transferred two properties held for sale to real estate held for investment in the amount of $3,655,000 during the quarter ended September 30, 2000. Real estate properties held for investment consist of the following as of September 30, 2000: Land $ 4,936,259 Buildings 7,392,764 Improvements 676,751 Other 111,667 13,117,441 Less: Accumulated depreciation and amortization (51,556) $ 13,065,885 Real estate properties held for investment are stated as cost. Depreciation is provided on the straight-line method over the estimated useful lives of buildings and improvements of 39 years. Amortization of lease commissions is provided on the straight-line method over the lives of the related leases. Depreciation and amortization for the quarter ended September 30, 2000 was $45,138. (5) Real Estate Properties Held for Sale During the three months ended September 30, 2000, an industrial building located in Lathrop, California that was acquired by the Partnership through foreclosure in April 2000 was sold for cash of $90,000 and a note of $814,000, resulting in a gain to the Partnership of approximately $142,000. In addition, 84 residential lots located in Lake Don Pedro, California were sold for cash resulting in a gain to the Partnership of approximately $46,000. (6) Note Payable The Partnership has a note payable with a bank through its investment in the limited liability company (see note 4), which is secured by the retail development in Greeley, Colorado. The note requires monthly interest payments with the balance of unpaid principal and interest due on May 22, 2003. The interest rate on the note is variable based on the LIBOR rate plus 2.75%. Interest expense for the quarter ended September 30, 2000 was approximately $94,000. The principal balance on the note as of September 30, 2000 is approximately $6,023,000. The Company also has the option to draw an additional $1,370,000 on the note for capital expenditures, tenant improvements or leasing commissions. The note contains certain covenants, which the Company has complied with as of September 30, 2000. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward Looking Statements Some of the information in this Form 10-Q 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 future expectations, 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 the Partnership'S Prospectus. 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 general economic conditions, local real estate conditions, adequacy of reserves, or weather and other natural occurrences that might cause a difference between actual results and those forward-looking statements. Results of Operations Three Months Ended September 30, 2000 Compared to 1999 The net income increase of $3,147,000 (66.8%) for 2000 compared to 1999, was due to: o an increase in gain on sale of real estate of $2,057,000; o an increase in interest income on loans secured by trust deeds of $1,010,000; o an increase in rental income of $441,000; and o a decrease in provision for loan losses of $250,000. The net income increase in 2000 as compared to 1999, was offset by: o an increase in rental expenses of $84,000; o an increase in interest expense of $94,000; and o an increase in management fees to General Partner of $369,000. Gain on sale of real estate increased $2,057,000 (250%) for the three months ended September 30, 2000, as compared to the same period in 1999. This increase was due to the sale of the Los Gatos office building within the corporate joint venture in July 2000. Interest income on loans secured by trust deeds increased $1,010,000 (20.1%) for the three months ended September 30, 2000, as compared to the same period in 1999. This increase was a result of an increase in the weighted average yield of the loan portfolio from 10.84% for the three months ended September 30, 1999 to 11.38% for the three months ended September 30, 2000. In addition, the average loan portfolio grew by 8.9% for the quarter ended September 30, 2000 as compared to 1999, and the Partnership's investment in delinquent loans decreased by $2,067,000 (20.6%) as of September 30, 2000 as compared to September 30, 1999. Rental income from real estate properties increased by $441,000 (258%) during the three months ended September 30, 2000 as compared to the same period in 1999. Rental expenses from real estate properties also increased by $84,000 (64.1%) during the the three months ended September 30, 2000 as compared to the same period in 1999. These increases are a result of increased occupancy and rental rates on several of the Partnership's properties during 2000 and the purchase of the Greeley, Colorado retail property through the related corporate joint venture via the reverse, like-kind exchange of the Los Gatos office building in July 2000. Interest expense increased by $94,000 (100%) during the three months ended September 30, 2000 as compared to the same period in 1999, due to the note payable incurred by the corporate joint venture as a result of the purchase of the Greeley, Colorado retail property. Management fees to the General Partner are paid pursuant to the Partnership Agreement between the General Partner and Limited Partners. Management fees increased by $369,000 (45.1%) during the three months ended September 30, 2000 as compared to the same period in 1999, because the Partnership remained fully invested in loans during this period. Nine Months Ended September 30, 2000 Compared to 1999 The net income increase of $4,138,000 (31.5%) for 2000 compared to 1999, was due to: o an increase in gain on sale of real estate of $2,039,000; o an increase in interest income on loans secured by trust deeds of $2,999,000; o an increase in rental income of $611,000; o a decrease in provision for loan losses of $250,000; and o a decrease in other expenses of $40,000. The net income increase in 2000 as compared to 1999, was offset by: o a decrease in other income of $158,000; o an increase in management fees to General Partner of $1,407,000; o an increase in rental expenses of $82,000; and o an incrase in interest expense of $93,000. Gain on sale of real estate increased $2,039,000 (243%) for the nine months ended September 30, 2000, as compared to the same period in 1999. This increase was due to the sale of the Los Gatos office building within the corporate joint venture in July 2000. Interest income on loans secured by trust deeds increased $2,999,000 (20.7%) for the nine months ended September 30, 2000, as compared to the same period in 1999. This increase was a result of an increase in the weighted average yield of the loan portfolio from 10.79% for the nine months ended September 30, 1999 to 11.29% for the nine months ended September 30, 2000. In addition, the average loan portfolio grew by 10.2% for the quarter ended September 30, 2000 as compared to 1999, and the Partnership''s investment in delinquent loans decreased by $2,067,000 (20.6%) as of September 30, 2000 as compared to September 30, 1999. Rental income from real estate properties increased by $611,000 (120%) during the nine months ended September 30, 2000 as compared to the same period in 1999. Rental expenses from real estate properties also increased by $82,000 (20.2%) during the the nine months ended September 30, 2000 as compared to the same period in 1999. These increases are a result of increased occupancy and rental rates on several of the Partnership's properties during 2000 and the purchase of the Greeley, Colorado retail property. Interest expense increased by $94,000 (100%) during the nine months ended September 30, 2000 as compared to the same period in 1999, due to the note payable incurred by the corporate joint venture as a result of the purchase of the Greeley, Colorado retail property. Other expenses decreased by $40,000 (62.9%) during the nine months ended September 30, 2000 as compared to the same period in 1999. This decrease was due primarily to registration expenses incurred during the nine months ended September 30, 1999 as a result of a new Form S-11 Registration Statement filed with the Securities and Exchange Commission and changes made to the Partnership Agreement during that period. Other income decreased by $158,000 (49.5%) due primarily to a decrease in interest income earned on investments (money market funds, certificates of deposit, etc.) as the Partnership was able to remain fully invested in loans secured by deeds of trust during the nine months ended September 30, 2000. Management fees to the General Partner are paid pursuant to the Partnership Agreement between the General Partner and Limited Partners. Management fees increased by $1,407,000 (80.8%) during the nine months ended September 30, 2000 as compared to the same period in 1999, because the Partnership remained fully invested in loans during this period. Financial Condition September 30, 2000 and December 31, 1999 Loan Portfolio The number of Partnership mortgage investments decreased from 142 to 116 and the average loan balance increased from $1,411,000 to $1,853,000 between December 31, 1999 and September 30, 2000. Approximately $7,945,000 (3.7%) and $7,415,000 (3.7%) of the loans invested in by the Partnership were more than 90 days delinquent in payment as of September 30, 2000 and December 31, 1999, respectively. Of these amounts, approximately $5,202,000 (2.4%) and $850,000 (0.4%) were in the process of foreclosure. A loan loss reserve in the amount of $4,000,000 was maintained on the books of the Partnership as of September 30, 2000 and December 31, 1999, respectively. As of September 30, 2000 and December 31, 1999, approximately 45% and 40% of the Partnership's mortgage loans are secured by real property in Northern California. The increase in the percentage of loans secured by real property in Northern California has been due to the purchase of new loans secured by properties within Northern California during the quarter ended September 30, 2000. The Partnership's investment in construction loans rose by $14,454,000 (63.7%) since December 31, 1999. Improvement in real estate market conditions have made development and, thus, construction loans more attractive. All of the Partnership's construction loans are first trust deeds and none of these loans is delinquent in payments more than 90 days as of September 30, 2000. The Partnership's investment in unimproved land decreased by $4,704,000 (30.5%) since December 31, 1999, due to the payoff of one large loan during the quarter ended September 30, 2000. All of the Partnership's loans secured by unimproved land are first trust deeds. In addition, only one of these loans, in the amount of $802,000, is more than 90 days delinquent in payment as of September 30, 2000. Real Estate Properties Held for Sale and Investment The Partnership currently holds title to thirteen properties that were foreclosed on from January 1, 1993 through September 30, 2000 in the amount of $9,344,000, net of allowance for losses of $1,336,000. As of September 30, 2000, properties held for sale total $5,689,000 and properties held for investment total $3,655,000 (excluding the property held in the corporate joint venture - see below). 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. During the three months ended September 30, 2000, the Partnership acquired no properties through foreclosure. During the three months ended September 30, 2000, an industrial building located in Lathrop, California that was acquired by the Partnership through foreclosure in April 2000 was sold for cash of $90,000 and a note of $814,000 resulting in a gain to the Partnership of approximately $142,000. In addition, 84 residential lots located in Lake Don Pedro, California were sold for cash resulting in a gain to the Partnership of approximately $46,000. Seven of the Partnership's thirteen properties do not currently generate revenue. Excluding the property held in the corporate joint venture, expenses from rental properties have decreased from approximately $131,000 to $104,000 (20.7%) for the three months ended September 30, 1999 and 2000, respectively, and revenues associated with these properties have increased from $171,000 to $357,000 (109%), thus generating a net income from real estate held for sale of $253,000 during the three months ended September 30, 2000. The increase in income is a result of increased occupancy and rental rates on several of the Partnership's properties during the end of 1999 and the first quarter of 2000. Investment in Corporate Joint Venture In 1995, the Partnership foreclosed on a $571,853 loan and obtained title to a commercial lot in Los Gatos, California that secured the loan. In 1997, the Partnership contributed the lot to a limited liability company (the Company) formed with an unaffiliated developer to develop and sell a commercial office building on the lot. The Partnership provided construction financing to the Company at the rate of prime plus two percent. During the nine months ended September 30, 2000 and the year ended December 31, 1999, the Partnership advanced an additional $2,846,000 and $1,417,000, respectively, to the Company for development. In addition, the Partnership received repayment of advances from the Company in the amount of $581,000 during the nine months ended September 30, 2000. Construction of the building was substantially completed in June 2000. Prior to the sale of the building in July 2000, the Company entered into a reverse, like-kind exchange, whereby the proceeds attributable to the Partnership's interest in the Company from the sale of the building, net of repayment of the outstanding advances to the Partnership in the amount of $3,858,000, (appoximately $3,338,000) were reinvested into the purchase of a retail commercial development in Greeley, Colorado. The purpose of this exchange was to defer the recognition of gain for tax purposes to the Company and, hence, the Partnership. The sale resulted in a book gain to the Partnership of approximately $2,691,000. The Company also incurred a note payable in the amount of $6,023,000 as part of the purchase of the new property. A new member that will act as the property manager of the Greeley property was admitted to the Company in August, 2000. Operation of the new property began in August 2000, and net income to the Partnership was approximately $33,000 for the three months ended September 30, 2000. The assets, liabilities, income and expenses of the Company have been consolidated into the accompanying consolidated balance sheet and income statement of the Partnership. The minority interest of the joint venture partner of $117,706 as of September 30, 2000 is reported in the accompanying consolidated balance sheet. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities decreased from approximately $431,000 as of December 31, 1999 to $98,000 as of September 30, 2000 ($333,000 or 77.3%) due to the accrual of a progress billing on the Los Gatos office building construction as of December 31, 1999. There were no such accruals as of September 30, 2000, as construction was completed in July 2000. Asset Quality Some losses are normal when lending money and the amounts of losses vary as the loan portfolio is affected by changing economic conditions and financial experiences of borrowers. There is no precise method of predicting specific losses or amounts that ultimately may be charged off on particular 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 lenders such as banks and savings and loans are subject to regulations that require them to perform ongoing analyses of portfolio, loan to value ratios, reserves, etc., and to obtain current information regarding its 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. Based upon this evaluation, a determination is made as to whether the allowance for loan losses is adequate to cover potential losses of the Partnership. As of September 30, 2000, management believes that the allowance for loan losses of $4,000,000 is adequate. As of then, loans secured by trust deeds include $7,945,000 in loans delinquent over 90 days, of which $5,202,000 was invested in loans that were in the process of foreclosure. Due to the loan-to-value criteria established by the General Partner, in its opinion, the mortgage loans held by the Partnership appear in general to be adequately secured. The General Partner's judgment of the adequacy of loan loss reserves includes consideration of: o economic conditions; o borrower's financial condition; o evaluation of industry trends; o review and evaluation of loans identified as having loss potential; and o quarterly review by Board of Directors. Liquidity and Capital Resources Purchases of Units and loan payoffs provide the capital for mortgage investments. A substantial increase in general market interest rates could have an adverse affect on the Partnership, because then the Partnership's investment yield could be lower than other debt-related investments. In that event, purchases of additional Units could decline, which, in turn, would reduce the liquidity of the Partnership and its ability to make additional mortgage investments. In contrast, a significant increase in the dollar amount of loan payoffs and/or 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. The Partnership has not and does not intend to borrow money for the purpose of making or purchasing loans. There was little variation in the percentage of capital withdrawals to total capital invested by the limited partners between 1994 and 1998, excluding regular distributions of net income to limited partners. The annualized withdrawal percentage increased during 1999 and 2000 primarily due to an increase in the maximum quarterly amount which could be withdrawn by limited partners from $75,000 to $100,000 as a result of a change in the Partnership Agreement in December 1998. Withdrawal percentages have been 7.37%, 6.11%, 7.85%, 6.63%, 7.33%, and 7.99% for the years ended December 31, 1994, 1995, 1996, 1997, 1998 and 1999 and 6.98% (annualized) for the nine months ended September 30, 2000. 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 limited partners may withdraw, or partially withdraw, from the Partnership and obtain the return of their outstanding capital accounts at $1.00 per Unit (book value) within 61 to 91 days after written notices are delivered to the General Partner, subject to the following limitations, among others: o No withdrawal of Units can be requested or made until at least one year from the date of purchase of those Units, for Units purchased on or after February 16, 1999, other than Units received under the Partnership's Reinvested Distribution Plan. o Any such payments are required to be made only from net proceeds and capital contributions (as defined) during said 91-day period. o A maximum of $100,000 per partner may be withdrawn during any calendar quarter. o The General Partner is not required to establish a reserve fund for the purpose of funding such payments. o No more than 10% of the outstanding limited partnership interest may be withdrawn during any calendar year except upon dissolution of the Partnership. Contingency Reserves The Partnership maintains cash, cash equivalents and marketable securities as contingency reserves in an aggregate amount of 2% of the limited partners' capital accounts to cover expenses in excess of revenues or other unforeseen obligations of the Partnership. Although the General Partner believes that contingency reserves are adequate, it could become necessary for the Partnership to sell or otherwise liquidate certain of its investments to cover such contingencies on terms which might not be favorable to the Partnership. Current Economic Conditions The current economic climate in Northern California and the Western United States is generally strong. Despite the Partnership's ability to purchase mortgage loans with relatively strong yields which has resulted in increased net yields paid to the limited partners, increased competition or changes in the economy could have the effect of reducing mortgage yields in the future. Current loans with relatively high yields could be replaced with loans with lower yields, which in turn could reduce the net yield paid to the limited partners. In addition, if there is less demand by borrowers for loans and, thus, fewer loans for the Partnership to invest in, the Partnership will invest its excess cash in shorter-term alternative investments yielding considerably less than the current investment portfolio. The General Partner has the ability to purchase delinquent loans from the Partnership as long as certain criteria outlined in the Partnership Agreement are met. Although the General Partner has purchased delinquent loans from the Partnership in the past, they are not required to do so; therefore, the Partnership could sustain losses with respect to loans secured by properties located in areas of declining real estate values. This could result in a reduction of the net income of the Partnership for a year in which those losses occur. There is no way of making a reliable estimate of these potential losses at the present time. PART II. OTHER INFORMATION Item 1. Legal Proceedings The Partnership is not presently involved in any material legal proceedings. Item 6(a). Exhibits 3. Exhibit A. Fifth Amended and Restated Limited Partnership Agreement dated November 10, 2000. 10(a). Exhibit B. Subscription Agreement and Power of Attorney, as amended on November 15, 2000. Item 6(b). Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended September 30, 2000. 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: November 15, 2000 OWENS MORTGAGE INVESTMENT FUND, a California Limited Partnership By: Owens Financial Group, Inc., General Partner Dated: November 15, 2000 By: /William C. Owens/ William C. Owens, President Dated: November 15, 2000 By: /Bryan H. Draper/ Bryan H. Draper, Chief Financial Officer Dated: November 15, 2000 By: /Melina A. Platt/ Melina A. Platt, Controller EX-99.A4 2 0002.txt LIMITED PARTNERSHIP AGREEMENT EXHIBIT A IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. FIFTH AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OWENS MORTGAGE INVESTMENT FUND, A CALIFORNIA LIMITED PARTNERSHIP THIS FIFTH AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT (the "Agreement"), dated November 10, 2000, is made and entered into by and among Owens Financial Group, Inc. as General Partner (the "General Partner"), and the Limited Partners of Owens Mortgage Investment Fund, a California Limited Partnership (hereinafter referred to collectively as the "Limited Partners"). RECITALS A. Owens Mortgage Investment Fund, a California Limited Partnership (the "Partnership") was formed on June 14, 1984, under the California Uniform Limited Partnership Act, under the name "Owens Mortgage Investment Fund II". Effective October 16, 1992, the Partnership changed its name to its current name. B. The Limited Partnership Agreement was amended and restated as of October 16, 1992, December 14, 1998, February 16, 1999, and April 17, 2000 and it is desired to again amend and restate the Agreement as hereinafter set forth. The Partners therefore agree as follows: I. FORMATION 1. California Revised Limited Partnership Act. The Partnership was formed on June 14, 1984 and, until the February 16, 1999 amendment and restatement (the 'Third Amendment and Restatement'), was governed by and pursuant to the provisions of California Corporations Code, Title 2, Chapter 2, known as the Uniform Limited Partnership Act (the "Act"). The General Partner, pursuant to and by the Third Amendment and Restatement, elected under California Corporations Code Section 15712(b)(1) to have the Partnership governed thenceforth by California Corporations Code, Title 2, Chapter 3, the California Revised Limited Partnership Act. 2. Name. The name of the Partnership is "Owens Mortgage Investment Fund, a California Limited Partnership." 3. Place of Business. The principal place of business for the Partnership is located at 2221 Olympic Blvd., Walnut Creek, CA 94595; provided, however, that the General Partner may change the address of the principal office by notice in writing to all Limited Partners. In addition, the Partnership may maintain such other offices and places of business as the General Partner may deem advisable at any other place or places within the United States. 4. Addresses for the General Partner and Limited Partners. The principal place of business of the General Partner is 2221 Olympic Boulevard, Walnut Creek, California 94595. The address for each of the Limited Partners is that address shown on the books and records of the Partnership located at its principal place of business. The Limited Partners may change such places of residence by written notice to the Partnership, which notice shall become effective upon receipt. 5. Term. The Partnership commenced on June 14, 1984. Unless earlier dissolved under the provisions of this Agreement, the Partnership will dissolve on December 31, 2034. The Partnership may be extended by the affirmative vote of a Majority-In-Interest of the Limited Partners. 6. Purpose. The business and purposes of the Partnership are to make or purchase first, second, third, wraparound, participating and construction mortgage loans and mortgage loans on leasehold interests, and to do all things reasonably related thereto, including, but not limited to, developing, managing and either holding for investment or disposing of real property acquired through foreclosure. 7. Agent for Service of Process; Tax Matters Partner. So long as the General Partner maintains a principal place of business in California, the General Partner is the Partnership's agent for service of process. If the General Partner moves from California, the Limited Partners will designate a new agent for service of process. The General Partner also is the "Tax Matters Partner" as defined in Section 6231(a)(7) of the Internal Revenue Code of 1986, as amended. II. DEFINITIONS The following terms shall have the following respective meanings: "Acquisition and Origination Expenses" means expenses including but not limited to legal fees and expenses, travel and communications expenses, costs of appraisals, accounting fees and expenses, title insurance funded by the Partnership, and miscellaneous expenses related to the origination, selection and acquisition of mortgages, whether or not acquired. The General Partner or its Affiliates shall not receive reimbursement of Acquisition and Origination Expenses. "Acquisition and Origination Fees" means the total of all fees and commissions paid to the General Partner by any party in connection with making or investing in Mortgage Loans. Included in the computation of such fees or commissions shall be any selection fee, mortgage placement fee, nonrecurring management fee, and any origination fee, loan fee, or points paid by borrowers to the General Partner, or any fee of a similar nature, however designated. "Administrator" means the agency or official administering the securities law of a state in which Units are registered or qualified for offer and sale. "Affiliate" means: (i) any person directly or indirectly controlling, controlled by, or under common control with another person; (ii) any person owning or controlling ten percent (10%) or more of the outstanding voting securities of such other person; (iii) any officer, director, or partner of such person; and (iv) if such other person is an officer, director, or partner, any company for which such person acts in such capacity. "Capital Account" means the definition in Article III hereof. "Capital Contribution" means the total investment and contribution to the capital of the Partnership by a Partner in cash or by way of automatic reinvestment of Partnership distributions and, in the case of the General Partner, its Carried Interest as hereinafter defined. "Capital Transaction" means the repayment of principal or prepayment of a Mortgage Loan to the extent classified as a return of capital under the Code, and the foreclosure, sale, exchange, condemnation, eminent domain taking or other disposition of a Mortgage Loan or Real Property subject to a Mortgage Loan, or the payment of insurance or a guarantee with respect to a Mortgage Loan. "Carried Interest" (previously called "Promotional Interest") means a Partnership Interest held by the General Partner, which participates in all allocations and distributions, equal to one half (1/2) of one percent (1%) of the aggregate Capital Accounts of the Limited Partners, said Carried Interest being an expense of the Partnership, subject to the limitation set forth in Article IX. 1. (c) of this Agreement. "Code" means the Internal Revenue Code of 1986, as amended from time to time, or corresponding provisions of subsequent revenue laws. "Controlling Person" means any Person, whatever their title, who performs functions for the General Partner similar to those of (i) chairman or member of the board of directors; (ii) executive or senior management, such as the president, vice-president, or chief financial officer; or (iii) those holding 5% or more equity interest in the General Partner or a Person having the power to direct or cause the direction of the General Partner, whether through the ownership of voting securities, by contract, or otherwise. "Front-End Fees" means fees and expenses paid by any party to acquire assets for the Partnership, including Organization and Offering Expenses, Acquisition and Origination Expenses, Acquisition and Origination Fees, interest on deferred fees and expenses, and any other similar fees, however designated by the General Partner. "Independent Expert" means a Person with no material current or prior business or personal relationship with the General Partner who is engaged to a substantial extent in the business of rendering opinions regarding the value of assets of the type held by the Partnership, and who is qualified to perform such work. "Investment in Mortgage Loans" means the amount of Capital Contributions used to make or invest in Mortgage Loans or the amount actually paid or allocated to the purchase of mortgages, working capital reserves allocable thereto (except that working capital reserves in excess of 3.0% shall not be included), and other cash payments such as interest and taxes but excluding Front-End Fees. "Late Payment Charges" means additional charges paid by borrowers on delinquent loans and loans past maturity held by the Partnership, including additional interest and late payment fees. "Majority-In-Interest" means Limited Partners holding a majority of the outstanding Units (excluding any Units held by the General Partner). "Management Fee" means a fee paid to the General Partner or other Persons for management and administration of the Partnership. "Mortgage Loans" means investments of the Partnership that are notes, debentures, bonds, and other evidence of indebtedness or obligations which are negotiable or nonnegotiable and which are secured or collateralized by mortgages or deeds of trust. "NASAA Guidelines" means the Mortgage Program Guidelines of the North American Securities Administrators Association, Inc. adopted on September 10, 1996. "Net Income Available for Distribution" means Profits and Losses, as defined below, reduced by amounts set aside for restoration or creation of reserves and increased by amounts provided by the reduction or elimination of reserves at the discretion of the General Partner. "Net Proceeds" means the net cash proceeds from any Capital Transaction. "Net Worth" means the excess of total assets over total liabilities as determined by generally accepted accounting principles, except that if any of such assets have been depreciated, then the amount of the depreciation relative to any particular asset may be added to the depreciated cost of such asset to compute total assets, provided that the amount of depreciation may be added only to the extent that the amount resulting after adding such depreciation does not exceed the fair market value of such asset. "Organization and Offering Expenses" means those expenses incurred in connection with and in preparing for registration and subsequently offering and distributing Units to the public, including sales commissions, if any, paid to broker-dealers in connection with the distribution of Units and any advertising expenses. "Partners" means the holders of Partnership interests, including the General Partner and the Limited Partners. "Partnership Interest" means a limited partnership unit or other indicium of ownership in the Partnership. "Person" means any natural person, partnership, corporation, association, or other legal entity. "Profits and Losses" means, for each fiscal year or other period, an amount equal to the Partnership's taxable income or loss for such year or period, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss). "Program" means a limited or general partnership, limited liability company, limited liability partnership, trust, joint venture, unincorporated association or similar organization other than a corporation formed and operated for the primary purpose of investment in mortgage loans. "Property Management Fee" means any fee paid for day-to-day professional property management services. "Prospectus" shall mean the prospectus that forms a part of the effective registration statement under the Securities Act of 1933, as amended, including any preliminary prospectus. "Real property" means and includes land and any buildings, structures, improvements, fixtures, and equipment located on or used in connection with land, but does not include, deeds of trust, mortgages, mortgage loans or interests therein. "Regulations" means, except where the context indicates otherwise, the permanent, temporary, proposed, or proposed and temporary regulations of the United States Department of the Treasury under the Code, as such regulations may be lawfully changed from time to time. "Reinvested Distributions" means Units purchased under the Partnership's Reinvested Distribution Plan that is described in Article III. 3. of this Agreement. "Roll-Up" means a transaction involving the acquisition, merger, conversion, or consolidation, either directly or indirectly of the Partnership and the issuance of securities of a Roll-Up Entity. Such term does not include a transaction involving the conversion of corporate, trust, limited liability company, or association form of only the Partnership if, as a consequence of the transaction, there will be no significant adverse change in any of the following: (a) Partners' voting rights; (b) the term of existence of the Partnership; (c) General Partner compensation; (d) the Partnership's investment objectives. "Roll-Up Entity" means a partnership, real estate investment trust, corporation, trust, limited liability company or other entity that would be created or would survive after the successful completion of a proposed Roll-Up transaction. "Sponsor" means the General Partner or any Person directly or indirectly instrumental in organizing, wholly or in part, a Program or any Person who will manage or participate in the management of a Program, any Afflilate of any such Person, but does not include a Person whose only relation with the Program is as that of an independent property manager, whose only compensation is as such. Sponsor does not include wholly independent third parties such as attorneys, accountants, and underwriters whose only compensation is for professional services rendered in connection with the offering of Program Interests. "Unit" means an interest in the Partnership and represents a contribution either in cash or through reinvestment of distributions of One Dollar ($1.00) to the capital of the Partnership by a Limited Partner, and entitles the holder thereof to the rights and interests of Limited Partners as herein provided. III. PARTNERSHIP INTEREST AND CAPITAL 1. Capital Contributions of Partners. The capital of the Partnership shall be contributed by the Limited Partners and the General Partner. The Limited Partners shall contribute to the capital of the Partnership cash or reinvested distributions in the amount of One Dollar ($1.00) for each Unit subscribed. The General Partner shall contribute to the capital of the Partnership cash in an amount equal to one-half of one percent (1/2 of 1%) of the aggregate of the Capital Accounts of the Limited Partners. The General Partner shall also receive the Carried Interest in the capital of the Partnership. 2. Sale of Units. In the General Partner's sole discretion, Units up to an aggregate outstanding amount of $500,000,000 may be offered and sold by the Partnership. Purchasers of such Units shall become Limited Partners immediately on acceptance of subscriptions by the General Partner. Subscriptions shall be accepted or rejected by the Partnership within 30 days of their receipt by the General Partner; if rejected, all funds will be returned to the subscriber within 10 business days. 3. Limited Partners' Reinvested Distributions: A Limited Partner may elect to participate in the Partnership's Reinvested Distributions Plan (the "Plan") at the time of his purchase of Units, by making such election in the form of the Subscription Agreement for Units executed by each Limited Partner. Participation in the Plan will commence as of the date of acceptance by the Partnership of the Limited Partner's Subscription Agreement. Subsequently, a Limited Partner may revoke any previous election or make a new election to participate in the Plan by sending written notice to the Partnership. Such notice shall be effective for the month in which the notice is received, if received at least ten (10) days prior to the end of the calendar month; otherwise the notice is effective the following month. Distributions to which a Limited Partner participating in the Plan is entitled shall be used to purchase additional Units at $1.00 per Unit. Units so purchased under the Plan are credited to the Limited Partner's Capital Account as of the first day of the month following the month in which the Reinvested Distribution is made. If a Limited Partner revokes a previous election to participate in the Plan, distributions made by the Partnership subsequent to the month in which the revocation notice is received by the Partnership shall be made in cash to the Limited Partner instead of being reinvested in Units. The General Partner will mail to each Limited Partner who is a participant in the Plan a statement of account describing the Reinvested Distributions received, the number of Units purchased thereby, the purchase price per Unit, and the total number of Units held by the Limited Partner, within thirty (30) days after the Reinvested Distributions have been credited. The General Partner will also mail an updated Prospectus to each Limited Partner each time a new Prospectus is filed, which fully describes the Plan, including the minimum investment amount, the type or source of proceeds which may be reinvested and the tax consequences of the reinvestment to the Limited Partners. Each Limited Partner who is a participant in the Plan must continue to meet the investor suitability standards described in the Subscription Agreement and Prospectus for participation in each reinvestment. It is the responsibility of each Limited Partner to notify the General Partner promptly if he or she no longer meets the suitability standards. The terms and conditions of the Plan may be amended, supplemented, or terminated for any reason by the Partnership at any time by mailing notice thereof at least thirty (30) days prior to the effective date of such action to each Limited Partner who is a participant in the Plan at his last address of record. The General Partner, in its sole discretion, may suspend or terminate the Plan if: (a) it determines that the Plan impairs the capital or the operations of the Partnership or that an emergency makes continuance of the Plan not reasonably practicable; (b) any governmental or regulatory agency with jurisdiction over the Partnership so demands for the protection of Limited Partners; (c) in the opinion of counsel for the Partnership, such Plan is not permitted by federal or state law; or repurchase, sales, assignments, transfers and the exchange of Units in the Partnership within the previous twelve (12) consecutive months would result in the Partnership being considered terminated within the meaning of Section 708 of the Code; or (d) it determines that allowing any further Reinvested Distributions would give rise to a material risk that the Partnership would be treated for any taxable year as a "publicly traded partnership," within the meaning of Code Section 7704. 4. Nonassessability of Units. The Units are nonassessable. Once a Unit has been paid for in full, the holder of the Unit has no obligation to make additional Capital Contributions to the Partnership. 5. Capital Accounts. The Partnership shall maintain a Capital Account for each Partner. Initially, the Capital Account of each Partner shall be the amount equal to the initial Capital Contribution made by such Partner in exchange for his or her interest in the Partnership. Thereafter, each Partner's Capital Account shall be maintained in accordance with the provisions of Section 1.704-1(b)(2)(iv) of the Regulations and will be determined as follows: (a) To each Partner's Capital Account there shall be credited the amount of cash contributed by such Partner to the Partnership, and such Partner's distributive share of Partnership profits. (b) To each Partner's Capital Account there shall be debited the amount of cash distributed to such Partner pursuant to any provision of this Agreement and such Partner's distributive share of Partnership losses. In the event any interest in the Partnership is transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred interest. The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulation Section 1.704-1(b) and shall be interpreted and applied in a manner consistent with such Regulations. In the event the General Partner shall reasonably determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto, are computed in order to comply with such Regulations, the General Partner may make such modification, provided that it is not likely to have a material effect on the amounts distributable to any Partner pursuant to Article XIII hereof upon the dissolution of the Partnership. The General Partner also shall (a) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Partners and the amount of Partnership capital reflected on the Partnership's balance sheet, as computed for book purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q), and (b) make any appropriate modifications in the event unanticipated events (for example, the acquisition by the Partnership of oil or gas properties) might otherwise cause this Partnership not to comply with Regulation Section 1.704-1(b). Neither a Limited Partner nor a General Partner is entitled to withdraw any part of his or its Capital Account or to receive any distributions from the Partnership except as specifically provided in this Agreement. No interest shall be paid on any Capital Contribution. 6. No Liability of Limited Partners. A Limited Partner shall not be or become liable for the obligations of the Partnership in an amount in excess of his Capital Account. IV. MANAGEMENT 1. Control in General Partner. Subject to the limitations of Article IV.5 of this Agreement., and except as otherwise expressly stated elsewhere in this Agreement, the General Partner has exclusive control over the business of the Partnership, including the power to assign duties, to determine how to invest the Partnership's assets, to sign bills of sale, title documents, leases, notes, security agreements, Mortgage Loans and contracts, and to assume direction of the business operations. As manager of the Partnership and its business, the General Partner has all duties generally associated with such position, including, but not limited to, dealing with Limited Partners, being responsible for all accounting, tax and legal matters, performing internal reviews of the Partnership's investments and loans, determining how and when to invest the Partnership's capital, and determining the course of action to take with respect to Partnership loans that are in default; and has all the powers with respect and ancillary thereto. Without limiting the generality of the foregoing, such powers include the right: (a) To evaluate potential Partnership investments and to expend the capital of the Partnership in furtherance of the Partnership's business; (b) To acquire, hold, lease, sell, trade, exchange, or otherwise dispose of all or any portion of Partnership property or any interest therein at such price and upon such terms and conditions as the General Partner may deem proper; (c) 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 or resulting from foreclosure of a Mortgage Loan; (d) To manage, operate and develop Partnership property, or to employ and supervise a property manager who may, or may not, be an Affiliate of the General Partner; (e) To borrow money from banks and other lending institutions for any Partnership purpose, and as security therefor, to encumber Partnership property; (f) To repay in whole or in part, refinance, increase, modify, or extend, any obligation, affecting Partnership property; (g) To employ from time to time, at the expense of the Partnership, persons, including the General Partner or its Affiliates, required for the operation of the Partnership's business, including employees, agents, independent contractors, brokers, accountants, attorneys, and others; to enter into agreements and contracts with such persons on such terms and for such compensation as the General Partner determines to be reasonable; and to give receipts, releases, and discharges with respect to all of the foregoing and any matters incident thereto as the General Partner may deem advisable or appropriate; provided, however, that any such agreement or contract between the Partnership and the General Partner or between the Partnership and an Affiliate of the General Partner shall contain a provision that such agreement or contract may be terminated by the Partnership without penalty on sixty (60) days' written notice and without advance notice if the General Partner or Affiliate who is a party to such contract or agreement resigns or is removed pursuant to the terms of this Agreement. Whenever possible, contracts between the Partnership and others shall contain a provision recognizing that the Limited Partners shall have no personal liability for performance or observance of the contract; (h) To maintain, at the expense of the Partnership, adequate records and accounts of all operations and expenditures and furnish the Limited Partners with annual statements of account as of the end of each calendar year, together with all necessary tax-reporting information; (i) To purchase, at the expense of the Partnership, liability and other insurance to protect the property of the Partnership and its business; (j) To refinance, recast, modify, consolidate, or extend any Mortgage Loan or other investment owned by the Partnership; (k) To pay all expenses incurred in connection with the operation of the Partnership; (l) To file tax returns on behalf of the Partnership and to make any and all elections available under the Code, as amended; (m) Without the consent of the Limited Partners, to modify, delete, add to or correct from time to time any provision of this Agreement for one or more of the following reasons, provided no such change shall adversely affect the rights of Limited Partners: (i) To cure any ambiguity or formal defect or omission herein; (ii) To grant to Limited Partners any additional rights, remedies, powers or authorities that may be lawfully granted or conferred upon them; (iii) To conform this Agreement to applicable laws and regulations, including without limitation, federal and state securities and tax laws and regulations, and the NASAA Guidelines; and (iv) To make any other change in this Agreement which, in the judgment of the General Partner, does not adversely affect the rights of the Limited Partners. (n) To elect to have the Partnership governed by the California Revised Limited Partnership Act, California Corporations Code, Title 2, Chapter 3, pursuant to Section 15712(b)(1) thereof. The General Partner shall give prompt written notice to all Limited Partners of each change to this Agreement made pursuant to Subsection (m). 2. Limitations on General Partner's Authority. Without the concurrence of a Majority-in-Interest, the General Partner has no authority to: (a) amend this Agreement in any respect that adversely affects the rights of the Limited Partners; (b) do any act in contravention of this Agreement; (c) do any act which would make it impossible to carry on the ordinary business of the Partnership; (d) confess a judgment against the Partnership; (e) possess Partnership property or assign the rights of the Partnership in property for other than a partnership purpose; (f) admit a person as a General Partner; (g) voluntarily withdraw as General Partner unless such withdrawal would not affect the tax status of the Partnership and would not materially adversely affect the Limited Partners; (h) sell, pledge, refinance, or exchange all or substantially all of the assets of the Partnership; (i) dissolve the Partnership; (j) cause the merger or other reorganization of the Partnership; (k) grant to the General Partner or any of its Affiliates an exclusive right to sell any Partnership assets; (l) receive or permit the General Partner or any Affiliate of the General Partner to receive any insurance brokerage fee or write any insurance policy covering the Partnership or any Partnership property; (m) receive from the Partnership a rebate or participate in any reciprocal business arrangement which would enable the General Partner or any of its Affiliates to do so; (n) commingle the Partnership's assets with those of any other Person; (o) use or permit another to use the Partnership's assets in any manner, except for the exclusive benefit of the Partnership; (p) pay or award, directly or indirectly, any commissions or other compensation to any person engaged by a potential investor for investment advice as an inducement to such advisor to advise the purchase of Units; provided, however, that this clause shall not prohibit the normal sales commissions payable to a registered broker-dealer or other properly licensed person for selling Units; or (q) receive, directly or indirectly, a commission or fee (except as permitted under Article IX. of this Agreement) in connection with the reinvestment or distribution of Net Proceeds. 3. Right to Purchase Receivables and Loans. As long as the requirements of Article VI. 9 of this Agreement are met, the General Partner, in its sole discretion, may at any time, but is not obligated to: (a) purchase from the Partnership the interest receivable or principal on delinquent Mortgage Loans held by the Partnership; (b) purchase from a senior lienholder the interest receivable or principal on mortgage loans senior to Mortgage Loans held by the Partnership held by such senior lienholder; (c) use its own monies to cover any other costs associated with Mortgage Loans held by the Partnership such as property taxes, insurance and legal expenses; 4. Extent of General Partner's Obligation and Fiduciary Duty. The General Partner shall devote such time to the business of the Partnership as the General Partner determines, in good faith, to be reasonably necessary to conduct the business of the Partnership. The General Partner shall not be required to devote all of its business time to the affairs of the Partnership, and the General Partner and its Affiliates may engage for their own account and for the account of others in any other business ventures and employments, including ventures and employments having a business similar or identical or competitive with the business of the Partnership. The General Partner has fiduciary responsibility for the safekeeping and use of all funds and assets of the Partnership, whether or not in the General Partner's possession or control, and the General Partner will not employ, or permit another to employ such funds or assets in any manner except for the exclusive benefit of the Partnership. The General Partner will not allow the assets of the Partnership to be commingled with the assets of the General Partner or any other Person. The Partnership shall not permit a Limited Partner to contract away the fiduciary duty owed to such Limited Partner by the General Partner under common law. If at any time the General Partner owns any Units as a Limited Partner, its right to vote such Units will be waived and not considered outstanding in any vote for removal of the General Partner or regarding any transaction between the Partnership and the General Partner. 5. Liability and Indemnification of General Partner. (a) Neither the General Partner nor any of its Affiliates, agents or attorneys (hereinafter, an "Indemnified Party") shall be liable, responsible or accountable in damages or otherwise to any other Partner, the Partnership, its receiver or trustee (the Partnership, its receiver or trustee are hereinafter referred to as "Indemnitors") for, and the Indemnitors agree to indemnify, pay, protect and hold harmless each Indemnified Party (on the demand of such Indemnified Party) from and against any and all liabilities, obligations, losses, damages, actions, judgments, suits, proceedings, reasonable costs, reasonable expenses and disbursements (including, without limitation, all reasonable costs and expenses of defense, appeal and settlement of any and all suits, actions or proceedings instituted against such Indemnified Party or the Partnership and all reasonable costs of investigation in connection therewith) (collectively referred to as "Liabilities" for the remainder of this Section) which may be imposed on, incurred by, or asserted against such Indemnified Party or the Partnership in any way relating to or arising out of any action or inaction on the part of the Partnership or on the part of such Indemnified Party in connection with services to or on behalf of the Partnership (and with respect to an Indemnified Party which is an Affiliate of the General Partner for an act which the General Partner would be entitled to indemnification if such act were performed by it) which such Indemnified Party in good faith determined was in the best interest of the Partnership. Notwithstanding the foregoing, each Indemnified Party shall be liable, responsible and accountable, and neither the Partnership nor Indemnitor shall be liable to an Indemnified Party, for any portion of such Liabilities which resulted from such Indemnified Party's (i) own fraud, gross negligence or misconduct or knowing violation of law, (ii) breach of fiduciary duty to the Partnership or any Partner, or (iii) breach of this Agreement, regardless of whether or not any such act was first determined by the Indemnified Party, in good faith, to be in the best interests of the Partnership. If any action suit or proceeding shall be pending against the Partnership or any Indemnified Party relating to or arising out of any such action or inaction, such Indemnified Party shall have the right to employ, at the reasonable expense of the Partnership (subject to the provisions of Subsection 5(b), below), separate counsel of such indemnified Party's choice in such action, suit or proceeding. The satisfaction of the obligations of the Partnership under this Section shall be from and limited to the assets of the Partnership and no Limited Partner shall have any personal liability on account thereof. (b) Cash advances from Partnership funds to an Indemnified Party for legal expenses and other costs incurred as a result of any legal action initiated against an Indemnified Party by a Limited Partner are prohibited. Cash advances from Partnership funds to an Indemnified Party for reasonable legal expenses and other costs incurred as a result of any legal action or proceeding are permissible if (i) 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; (ii) such suit, action or proceeding is initiated by a third party who is not a Limited Partner; and (iii) the Indemnified Party undertakes by written agreement to repay any funds advanced pursuant to this Section in the cases in which such Indemnified Party would not be entitled to indemnification under Subsection 5(a) above. If advances are permissible under this Section, the Indemnified Party shall have the right to bill the Partnership for, or otherwise request the Partnership to pay, at any time and from time to time after such Indemnified Party shall become obligated to make payments therefor, any and all amounts for which such Indemnified Party believes in good faith that such Indemnified Party is entitled to indemnification under Subsection 5(a) above. The Partnership shall pay any and all such bills and honor any and all such requests for payment within 60 days after such bill or request is received. In the event that a final determination is made that the Partnership is not so obligated for any amount paid by it to a particular Indemnified Party, such Indemnified Party will refund such amount within 60 days of such final determination, and in the event that a final determination is made that the Partnership is so obligated for any amount not paid by the Partnership to a particular Indemnified Party, the Partnership will pay such amount to such Indemnified Party within 60 days of such final determination. (c) Notwithstanding anything to the contrary contained in Subsection 7(a) above, neither the General Partner nor any of its Affiliates, agents, or attorneys, nor any person acting as a broker-dealer with respect to the Units shall be indemnified from any liability, loss or damage incurred by them arising due to an alleged violation of federal or state securities laws unless (i) there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular Indemnified Party, or (ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular Indemnified Party, or (iii) a court of competent jurisdiction approves a settlement of the claims against the particular Indemnified Party and finds that indemnification of the settlement and related costs should be made. Prior to seeking a court approval for indemnification, the General Partner shall undertake to cause the party seeking indemnification to apprise the court of the position of the Securities and Exchange Commission and the California Commissioner of the Department of Corporations with respect to indemnification for securities violations. (d) The Partnership shall not incur the cost of the portion of any insurance which insures any party against any liability as to which such party is prohibited from being indemnified as set forth above. (e) For purposes of this Section 5, an Affiliate, agent or attorney of the General Partner shall be indemnified by the Partnership only in circumstances where such person has performed an act on behalf of the Partnership or the General Partner within the scope of the authority of the General Partner and for which the General Partner would have been entitled to indemnification had such act been performed by it. V. VOTING AND OTHER RIGHTS OF LIMITED PARTNERS 1. No Limited Partner, as such, shall take part in the management of the business of, or transact any business for, the Partnership, nor have the power to sign for or bind the Partnership to any agreement or document. Notwithstanding the foregoing, Limited Partners holding at least a Majority-In-Interest may, without the concurrence of the General Partner, vote or consent in writing in accordance with Article VII.3 of this Agreement (and such vote or consent will be required) to: (a) amend this Agreement (except for any amendment permitted to be made by the General Partner as provided in Article IV. 4. (m) of this Agreement; provided that any amendment which modifies the compensation or distributions to which the General Partner is entitled or which affects the duties of the General Partner shall require the written consent of the General Partner). (b) dissolve and windup the Partnership, (c) remove the General Partner and elect one or more new General Partners (see Article XII. 1. and 2.), or (d) approve or disapprove the sale, pledge, refinancing, or exchange of all or substantially all of the assets of the Partnership. 2. The Limited Partners and their designated representatives shall have access to all books and records of the Partnership during normal business hours. An alphabetical -list of the names, addresses and business telephone numbers of all Limited Partners along with the number of Units held by each of them is maintained as a part of the books and records of the Partnership and shall be made available on request to any Limited Partner or his representative for a stated purpose including, without limitation, matters relating to Limited Partners' voting rights, tender offers, and the exercise of Limited Partners' rights under federal proxy law. A copy of the Limited Partner list shall be mailed to any Limited Partner requesting it within ten business days of the request and may include a reasonable charge for the copy work. The Limited Partner list shall be updated at least quarterly to reflect changes in the information contained therein. If the General Partner neglects or refuses to exhibit, produce or mail a copy of the Limited Partner list as requested, the General Partner shall be liable to any Partner requesting the list for the costs, including attorneys' fees, incurred by that Partner for compelling the production of the list, and for actual damages suffered by any Partner by reason of such refusal or neglect. It shall be a defense that the actual purpose and reason for the requests for inspection or for a copy thereof, or of using the same for a commercial purpose other than in the interest of the Partner relative to the affairs of the Partnership. The General Partner may require the Partner requesting the Limited Partner list to represent that the list is not requested for a commercial purpose unrelated to the Partner's interest in the Partnership. The remedies provided hereunder to Partners requesting copies of the list are in addition to, and shall not in any way limit, other remedies available to Partners under federal law, or the laws of California. VI. INVESTMENT AND OPERATING POLICIES 1. The General Partner shall commit at least 86.5% of Capital Contributions to Investment in Mortgage Loans. The Partnership may make or purchase Mortgage Loans of such duration and on such real property and with such additional security as the General Partner in its sole discretion shall determine. Such Mortgage Loans may be senior to other mortgage loans on such property, or junior to other mortgage loans on such property, all in the sole discretion of the General Partner. The Partnership normally shall not make or invest in Mortgage Loans on any one property if at the time of the acquisition of the loan the aggregate amount of all Mortgage Loans outstanding on the property, including loans of 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 underwriting criteria. For purposes of this Subsection, the "aggregate amount of all Mortgage Loans outstanding on the property, including the loans of the Partnership, shall include all interest (excluding contingent participations in income and/or appreciation in value of the mortgaged property), the current payment of which may be deferred pursuant to the terms of such loans. This restriction applies to all loans, including construction loans. 2. The Partnership will not incur indebtedness for the purpose of making or purchasing Mortgage Loans, except: (a) to prevent default under prior loans or to discharge them entirely if this becomes necessary to protect the Partnership's Mortgage Loans, and (b) to assist in the development or operation of any real property on which the Partnership has theretofore made or purchased a Mortgage Loan and has subsequently taken over the operation thereof as a result of default or to protect such Mortgage Loan. The total amount of indebtedness incurred by the Partnership shall at no time exceed the sum of 10% of the aggregate fair market value of all Partnership loans. The General Partner shall be prohibited from providing financing to the Partnership. 3. The Partnership will limit any single Mortgage Loan and will 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. 4. The Partnership may not invest in or make Mortgage Loans on unimproved real property in an amount in excess of 25% of the total Partnership assets. 5. The Partnership may not invest in real estate contracts of sale otherwise known as land sale contracts unless such contracts are in recordable form and appropriately recorded in the chain of title. 6. The Partnership shall require that a mortgagee's or owner's title insurance policy as to the priority of a mortgage or the condition of title be obtained in connection with the making or purchasing of each Mortgage Loan. The Partnership shall also receive an independent, on-site appraisal for each property on which it makes or purchases a Mortgage Loan. All such appraisals shall be conducted by an Independent Expert. Such appraisals will be retained at the office of the Partnership and will be available for review and duplication by any Limited Partner for a period of at least five years after the last day that the Partnership holds a mortgage secured by the subject property. 7. There shall at all times be title, fire, and casualty insurance in an amount equal to the Partnership's Mortgage Loan plus any outstanding senior lien on the security property naming the Partnership and any senior lienholder as loss payees, and, where such senior lienholder exists, a Request for Notice of Default shall be recorded in the county where the security property is situated. 8. Mortgage Loans may be purchased from the General Partner or its Affiliates only if the General Partner acquires 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 this 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 this Article VI. Accordingly, all income generated (except Acquisition and Origination Fees) and expenses associated with a Mortgage Loan so acquired shall be treated as belonging to the Partnership. The General Partner shall not sell a loan to the Partnership if the cost of the loan exceeds the funds reasonably anticipated to be available to the Partnership to purchase the loan. Normally, when the Partnership has sufficient funds available to invest in a specific Mortgage Loan, the General Partner will give the Partnership priority in purchasing such Mortgage Loan over other Persons to whom the General Partner may sell Mortgage Loans as a part of its business. Factors that further influence the General Partner in determining whether the Partnership has priority over other investors include the following: (i) All loans originated by the General Partner which are secured by property located outside the State of California and that satisfy investment criteria of the Partnership will be acquired by the Partnership; (ii) All hypothecation loans will be acquired by the Partnership. 9. The Partnership shall not sell a Mortgage Loan to the General Partner unless all of the following criteria are met: (i) the loan is in default; (ii) the General Partner pays the Partnership an amount in cash equal to the cost of the loan to the Partnership (including all cash payments and carrying costs related thereto); and (iii) the General Partner assumes all of the Partnership's obligations and liabilities incurred in connection with the holding of the loan by the Partnership. 10. The Partnership shall not acquire a loan from, or sell a loan to, another Program in which the General Partner has an interest. 11. The Partnership shall not sell a foreclosed property to the General Partner or to another Program in which the General Partner has an interest. 12. The Partnership will maintain a contingency reserve in an aggregate amount of at least 1-1/2% of the aggregate Capital Accounts of the Limited Partners. The cash Capital Contributions of the General Partner specified in Article III.1. of this Agreement, up to a maximum of 1/2 of 1% of the aggregate Capital Accounts of the Limited Partners, will be available as an additional contingency reserve if considered necessary by the General Partner. 13. The Partnership will not reinvest Net Income Available for Distribution, unless it is Limited Partners' Reinvested Distributions under Article III. 3. of this Agreement. 14. No loans may be made by the Partnership to the General Partner or an Affiliate except as provided in Article IV. 5. of this Agreement. VII. ACCOUNTING RECORDS, REPORTS AND MEETINGS 1. Books of Accounts and Records. The Partnership's books and records are maintained in accordance with Code Section 703(a) at the principal office of the Partnership, and each Partner has access thereto at all reasonable times as provided in Article V.2. of this Agreement. The books and records shall be kept in accordance with sound accounting practices and principles applied in a consistent manner by the Partnership and shall reflect all transactions and be appropriate and adequate for the business of the Partnership. The Partnership shall file all required documents with the applicable regulatory agencies. 2. Cash and Cash Equivalents and Marketable Securities. Partnership cash, cash equivalents and marketable securities are deposited and/or invested in the name of the Partnership in one or more financial institutions designated by the General Partner and shall be withdrawn on the signature of the General Partner or any Person or Persons authorized by it. 3. Meetings of Limited Partners. Special meetings of the Limited Partners to vote upon any matters as to which the Limited Partners are authorized to take action under this Agreement may be called at any time by the General Partner, or a Limited Partner or Limited Partners holding more than ten percent (10%) of the outstanding Units by delivering written notice, either in person, or by registered mail, of such call to the General Partner. As soon as possible, but in all cases within ten (10) days following receipt of such request, and at any time a meeting is called by the General Partner, the General Partner shall cause a written notice, either in person or by registered mail, to be given to the Limited Partners entitled to vote at such meeting, that a meeting will be held at a time and place fixed by the General Partner, convenient to the Limited Partners, which is not less than fifteen (15) days nor more than sixty (60) days after the sending of the notice of the meeting. Included with the notice of the meeting shall be a detailed statement of the action proposed, including a verbatim statement of the wording of any resolution proposed for adoption by the Limited Partners and of any proposed amendment to this Agreement. There shall be deemed to be a quorum at any meeting of the Partnership at which a Majority-In-Interest attend such meeting in person or by a valid proxy. The General Partner shall be entitled to notice of and to attend all meetings of the Limited Partners, regardless of whether called by the General Partner. Any action that may be taken at any meeting of the Limited Partners may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by Limited Partners holding a Majority-in-Interest. 4. Reports. Within sixty (60) days after the end of each fiscal year of the Partnership, the General Partner will deliver to each Limited Partner such information as is necessary for the preparation by each Limited Partner of his federal income tax return. Within sixty days (60) days after the end of each quarter of the Partnership, the General Partner will transmit to each Limited Partner a report which includes a balance sheet, a statement of income for the quarter then ended, a statement of cash flows for the quarter then ended and other pertinent information regarding the Partnership and its activities during the quarter covered by the report, all of which may be unaudited. Within one hundred twenty (120) days after the end of the Partnership's calendar year, the General Partner will transmit to each Limited Partner an annual report which will include financial statements of the Partnership audited by the Partnership's independent public accountants and prepared on an accrual basis in accordance with generally accepted accounting principles. Such financial statements will include the Partnership's statements of income, balance sheets, statements of cash flows and statements of Partners' capital with a reconciliation with respect to information furnished to Limited Partners for income tax purposes. The annual report for each year will report on the Partnership's activities for that year and identify the source of Partnership distributions as is deemed reasonably necessary by the General Partner to advise the Limited Partners of the affairs of the Partnership. In addition, the annual report will contain a breakdown of the costs reimbursed to the General Partner and Affiliates. The Partnership's independent certified public accountants must perform agreed-upon procedures to verify the allocation of such costs to the Partnership by, at a minimum, a review of the time records of individual employees (the costs of whose services were reimbursed) and a review of the specific nature of the work performed by each such employee. This review will be reported on by the independent certified public accountants in a report that is separate from the Partnership's audited financial statements. The additional costs of such verification will be itemized by said accountants and may be reimbursed to the General Partner by the Partnership only to the extent that such reimbursement when added to the costs for administrative services rendered does not exceed the competitive rate for such services as determined by this paragraph. The Partnership will have available upon written request for review by Limited Partners a copy of the information filed with the Securities and Exchange Commission on Form 10-K not more than ninety (90) days after the closing of the fiscal year end, and on Form 10-Q not more than forty-five (45) days after the closing of each other quarterly fiscal period, by dissemination of such Form 10-K and Form 10-Q or any other report containing substantially the same information as required by Form 10-K and Form 10-Q. VIII. ALLOCATIONS AND DISTRIBUTIONS 1. Allocations of Profits and Losses. Profits and Losses for any fiscal year shall be allocated: (i) ninety-nine and 01/100 percent (99.01%) to the Limited Partners in proportion to their Capital Accounts, and (ii) 99/100 percent (.99%) to the General Partner. 2. Distributions. (a) Net Income Available for Distribution. Net Income Available for Distribution shall be allocated ninety-nine percent and 01/100 (99.01%) to the Limited Partners and 99/100 percent (.99%) to the General Partner and shall be distributed in cash to those Limited Partners who have on file with the Partnership their written election to receive such distributions. A pro rata share of the total Net Income Available for Distribution to Limited Partners shall be distributed monthly in cash to each Limited Partner who has on file with the Partnership his written election to receive such distributions, in proportion to the weighted average Capital Account of each Limited Partner during the preceding calendar month. All sums of Net Income Available for Distribution not so distributed to the Limited Partners shall be credited proportionately to the Capital Accounts of the remaining Limited Partners and reinvested in Units in accordance with Article III.3 of this Agreement. The General Partner's proportionate share of Net Income Available for Distribution shall be distributed to the General Partner or credited to its Capital Accounts. (b) Net Proceeds. Net Proceeds, if any, may be reinvested in new Mortgage Loans, may be used to improve or maintain properties acquired by the Partnership through foreclosure, may be used to pay operating expenses or may be distributed to the Partners, in each event in the sole discretion of the General Partner. In the event of any distributions of Net Proceeds, such distributions shall be made to the Partners according to the allocations described in Subsection 2 (a) above, provided that no such distributions are to be made to the General Partner with respect to that portion of its Capital Account represented by the Carried Interest, until the Limited Partners shall have received 100% of their Capital Accounts. Reinvestment of Net Proceeds will not take place unless sufficient cash will be distributed to Partners to pay any state or federal income tax created by the Capital Transaction that created the Net Proceeds. IX. TRANSACTIONS BETWEEN THE PARTNERSHIP AND THE GENERAL PARTNER 1. Compensation to General Partner from the Partnership. The General Partner is entitled to receive the following fees, compensation and expense reimbursements from the Partnership: (a) Management Fee. 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. Although the Management Fee is paid monthly, the maximum payment is calculated on an annual basis; thus, the Management Fee in any one month could exceed .2292% (2.75% / 12 months) of the unpaid balance of the Partnership's Mortgage Loans at the end of such month, provided that the maximum annual Management Fee shall not exceed 2.75% of the average unpaid balance of the Partnership's Mortgage Loans at the end of each month in the calendar year. In the event the Management Fee paid by the General Partner in a calendar year exceeds such 2.75%, the General Partner shall promptly refund such excess to the Partnership. The Management Fee may be accrued without interest when Partnership funds are not available for its payment. Any accrued Management Fee may be paid from the next available Net Income Available for Distribution or Net Proceeds. No Management Fee may be paid from Partnership reserves. (b) Loan Servicing Fee. The General Partner may act as servicing agent with respect to all Partnership loans, in consideration for which it shall be 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 for the provision of such mortgage services on that type of loan or up to 0.25% per annum of the unpaid balance of the Partnership's Mortgage Loans at the end of each month. (c) Carried Interest (previously the "Promotional Interest"). The Carried Interest can only be taken if a minimum of 86.5% of Capital Contributions are committed to Investment in Mortgages. (d) Partnership Expenses. All of the Partnership's expenses shall be billed directly, to the extent practicable, to and paid by the Partnership. Reimbursement to the General Partner, or its Affiliates, for any expenses paid by the General Partner, or its Affiliates, including, but not limited to, legal and accounting expenses, filing fees, printing costs, goods, services and materials used by or for the Partnership will be made from Net Income Available for Distribution immediately following the expenditure. Except as indicated in this Article IX.1(d), the General Partner or any affiliate shall not be reimbursed by the Partnership for services for which the General Partner is entitled to compensation by way of a separate fee. Excluded from the allowable reimbursement shall be: (i) rent or depreciation, utilities, capital equipment, or other administrative items; and (ii) salaries, fringe benefits, travel expenses, and other administrative items incurred or allocated to any Controlling Person of the General Partner or Affiliates. The Partnership, however, may reimburse the General Partner and any affiliate for salaries (and related salary expenses, but excluding expenses incurred in connection with the administration of the Partnership) for nonmanagement and nonsupervisory services which could be performed, directly for the Partnership by independent parties, such as legal, accounting, transfer agent, data processing and duplicating. There shall be no reimbursement for management and supervisory personnel (e.g., services of employees of the General Partner or its Affiliates who oversee the work which would have been performed by an independent party if such party had been so engaged). The amounts charged to the Partnership shall not exceed the lesser of (a) the actual cost of such services, or (b) the amounts which the Partnership would be required to pay to independent parties for comparable services. Reimbursement may also be made for the allocable cost charged by independent parties for maintenance and repair of data processing and other special purpose equipment used for or by the Partnership. The reimbursement for expenses provided for in this Article IX.1(d) shall be made to the General Partner regardless of whether any distributions are made to the Limited Partners under the provisions of Article VIII.2. (e) No Other Fees. The General Partner is not entitled to receive real estate brokerage commissions, Property Management Fees, insurance service fees or a Promotional Interest (as defined by the NASAA Guidelines) from the Partnership. In addition, the General Partner is not entitled to receive reimbursement of Acquisition and Origination Expenses incurred by the General Partner or its Affiliates in the origination, selection and acquisition of Mortgage Loans. 2. Payments by Borrowers. (a) Acquisition and Origination Fees. The General Partner or its Affiliates shall be 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. (b) Late Payment Charges. The General Partner shall receive all Late Payment Charges paid by borrowers on delinquent loans held by the Partnership. X. ASSIGNMENT OF INTEREST: SUBSTITUTED LIMITED PARTNERS 1. General Partner. The interest of a General Partner shall not be assignable in whole or in part, except when a substitution is made by vote of the Limited Partners or as provided in Article XI.2. 2. Partnership Interests. A Limited Partner's interests in the Partnership may be transferred by written instrument satisfactory in form to the General Partner, accompanied by such assurance of the genuineness and effectiveness of each signature and the obtaining of any necessary governmental or other approvals as may be reasonably required by the General Partner, provided, however, that: (a) no transfer may be made of a fractional unit, and no transfer may be made if, as a result of such transfer, a Limited Partner (other than one transferring all of his units) will own fewer than two thousand (2,000) units except where such transfer occurs by operation of law; (b) no transfer may be made except where the transfer complies with any restriction imposed under applicable state securities laws or regulations with regard to suitability standards; (c) no transfer may be made if, in the opinion of tax counsel for the Partnership, it would jeopardize the status of the Partnership as a partnership for Federal or any applicable state income tax purposes; and (d) the transferor will pay in advance all legal, recording, and accounting costs in connection with any transfer, and the cost of any tax advice necessary under Subsection 2(b) above. Assignments complying with the above shall be recognized by the Partnership not later than the last day of the calendar month in which the written notice of assignment is received by the Partnership. No assignee of a Limited Partner shall have the right to become a Limited Partner unless the General Partner has consented in writing to the substitution of such Limited Partner, the granting or denial of which shall be within the absolute discretion of the General Partner. XI. DEATH, LEGAL INCOMPETENCY, OR WITHDRAWAL OF A LIMITED PARTNER 1. Effect of Death or Legal Incompetency of a Limited Partner on the Partnership. The death or legal incompetency of a Limited Partner shall not cause a dissolution of the Partnership or entitle the Limited Partner or his estate to a return of capital. 2. Rights of Personal Representative. On the death or legal incompetency of a Limited Partner, his personal representative shall have all the rights of a Limited Partner for the purpose of settling his estate or managing his property, including the rights of assignment and withdrawal. 3. Withdrawal of Limited Partners. To withdraw, or partially withdraw from the Partnership, a Limited Partner must give written notice thereof to the General Partner and may thereafter obtain the return, in cash, of his Capital Account, or the portion thereof as to which he requests withdrawal, within 61 to 91 days after written notice of withdrawal is delivered to the General Partner, subject to the following limitations: (a) except with regard to the right of the personal representative of a deceased Limited Partner under Section 2 of this Article XI, no notice of withdrawal shall be honored and no withdrawal made until the expiration of at least one year from the date of a purchase of Units by any Limited Partner on or after the date of effectiveness of this Agreement, other than by way of Reinvested Distributions discussed in Article III. 3. (b) any such cash payments in return of an outstanding Capital Account shall be made by the Partnership only from Net Proceeds and Capital Contributions. (c) a maximum of $100,000 may be withdrawn by any Limited Partner during any calendar quarter; (d) the Limited Partners shall have the right to receive such distributions of cash from their Capital Accounts only to the extent such funds are available; the General Partner shall not be required to establish a reserve fund for the purpose of funding such payments; the General Partner shall not be required to use any other sources of Partnership funds other than those set forth in Subsection 3(a) above; the General Partner shall not be required to sell or otherwise liquidate any portion of the Partnership's loan portfolio or any other asset in order to make a cash distribution of any Capital Account; (e) during the ninety (90) days following receipt of written notice of withdrawal from a Limited Partner, the General Partner shall not refinance any loans of the Partnership or reinvest any Net Proceeds or Capital Contributions in new loans or other nonliquid investment unless and until the Partnership has sufficient funds available to distribute to the withdrawing Limited Partner the amount of his Capital Account in cash that he is withdrawing; (f) the amount to be distributed to any withdrawing Limited Partner shall be a sum equal to the amount of such Limited Partner's Capital Account as of the date of such distribution, as to which the Limited Partner has given a notice of withdrawal under this Subsection 3, notwithstanding that such sum may be greater or lesser than such Limited Partner's proportionate share of the current fair market value of the Partnership's net assets; (g) in no event shall the General Partner permit the withdrawal during any calendar year of total amounts from the Capital Accounts of Limited Partners that exceeds ten percent (10%) of the aggregate Capital Accounts of all outstanding Limited Partners' Units, except upon the vote of the Limited Partners to dissolve the Partnership pursuant to Article V above; (h) requests by Limited Partners for withdrawal will be honored in the order in which they are received by the General Partner. If any request may not be honored, due to any limitations imposed by this subsection 3 (except the one year holding limitation set forth in Subsection 3(a)), the General Partner will so notify the requesting Limited Partner in writing, whose request, if not withdrawn by the Limited Partner, will subsequently be honored if and when the limitation no longer is imposed; and (i) if a Limited Partner's Capital Account would have a balance of less than $2,000 following a requested withdrawal, the General Partner, at its discretion, may distribute to such Limited Partner the entire balance in such account. XII. BANKRUPTCY, WITHDRAWAL, REMOVAL, OR DISSOLUTION OF THE GENERAL PARTNER 1. Removal of the General Partner. A Majority-In-Interest by vote or written consent given in accordance with Article VII.3 of this Agreement may remove the General Partner. Written notice of such removal setting forth the effective date thereof shall be served upon the General Partner and, as of the effective date, shall terminate all of its rights and powers as a General Partner. 2. Dissolution or Continuance of Partnership. The filing of a certificate of dissolution, withdrawal, removal, or adjudication of bankruptcy of the General Partner (any of which events is referred to hereafter as the "Terminating Event,"and the General Partner affected as the "Terminated General Partner") shall immediately destroy the agency relationship between the Partnership and the Terminated General Partner. No other events affecting the General Partner shall constitute or be a "Terminating Event." A Terminating Event shall dissolve the Partnership and cause it to be wound up pursuant to Subsection (b) below, unless the Partnership is continued by a new general partner elected in place of the Terminated General Partner by a Majority-In-Interest, as set forth in (a) below. (a) Following a Terminating Event, if a Majority-In-Interest of the Limited Partners promptly by written consent agree to continue the business of the Partnership and within six (6) months of such Terminating Event admit one or more General Partners, then the Partnership shall continue without dissolution and winding up. A successor General Partner must be named if the newly admitted General Partner under this provision is an individual. (b) If a Majority-In-Interest do not agree by written consent to continue the business of the Partnership or do not act to admit one or more new General Partners within six (6) months of the Terminating Event, the Partnership is dissolved and its affairs shall be wound up in accordance with Article 8 of the California Revised Limited Partnership Act, Sections 15681 to 15685, and Article XIII of this Agreement. 3. Rights of Terminated General Partner. Upon the occurrence of a Terminating Event, the Partnership shall pay to the Terminated General Partner all amounts then accrued and owing to the Terminated General Partner. The Partnership shall also terminate the Terminated General Partner's interest in Partnership profits, gains, losses, net proceeds, distributions, and capital by payment of an amount equal to the then present fair market value of the Terminated General Partner's interest determined by agreement of the Terminated General Partner and the Partnership, or, if they cannot agree, by arbitration in accordance with the then current rules of the American Arbitration Association. The expense of arbitration is to be borne equally by the Terminated General Partner and the Partnership. The method of payment to the Terminated General Partner must be fair and must protect the solvency and liquidity of the Partnership. Where the termination is voluntary, the method of payment will be deemed presumptively fair where it provides for a non-interest bearing unsecured promissory note with principal payable, if at all, from distributions which the Terminated General Partner otherwise would have received under the Agreement had the General Partner not terminated. Where the termination is involuntary, the method of payment will be deemed presumptively fair where it provides for an interest bearing promissory note coming due in no less than 5 years with equal installments each year. XIII. DISSOLUTION AND WINDING UP 1. Upon the vote or written consent of a Majority-In-Interest or as otherwise provided in this Agreement, the Partnership shall be dissolved and wound up, the assets shall be liquidated and converted to cash and the net proceeds distributed to the Partners after payment of the debts of the Partnership as provided herein and by applicable law. In settling accounts after liquidation, the monies of the Partnership shall be applied in the following manner: (a) the liabilities of the Partnership to creditors other than the General Partner shall be paid or otherwise adequately provided for; (b) the liabilities of the Partnership to the General Partner shall be paid or otherwise provided for; and (c) the remaining assets shall be distributed to the Limited Partners and the General Partner in the same manner as Net Proceeds are distributed under Article VIII.2(b) hereof. 2. In the event that, upon dissolution and winding up of the Partnership, following the sale or other disposition of all of its assets, and after crediting any gain or charging any loss pursuant to Article VIII, the General Partner shall have a deficient balance in its Capital Account, then the General Partner shall contribute in cash to the capital of the Partnership an amount which is equal to such deficit in its Capital Account. XIV. ROLL-UP 1. In connection with a proposed Roll-up, an appraisal of all Partnership assets shall be obtained from a competent, Independent Expert. If the appraisal will be included in the Prospectus used to offer the securities of a Roll-Up Entity, the appraisal shall be filed with the Securities and Exchange Commission and the states as an Exhibit to the Registration Statement for the offering. Partnership assets shall be appraised on a consistent basis. The appraisal shall be based on an evaluation of all relevant information and shall indicate the value of the Partnership's assets as of a date immediately prior to the announcement of the proposed Roll-Up. The appraisal shall assume an orderly liquidation of the Partnership's assets over a 12-month period, shall consider other balance sheet items, and shall be net of the assumed cost of sale. The terms of the engagement of the Independent Expert shall clearly state that the engagement is for the benefit of the Partnership and its Limited Partners. A summary of the independent appraisal, indicating all material assumptions underlying the appraisal, shall be included in a report to the Partners in connection with the proposed Roll-up. 2. In connection with a proposed Roll-up, the person sponsoring the Roll-up shall provide each Limited Partner with a document which instructs the Limited Partner on the proper procedure for voting against or dissenting from the Roll-Up and shall offer to Limited Partners voting "no" on the proposal the choice of: (a) accepting the securities of the Roll-Up Entity offered in the proposed Roll-Up; or (b) one of the following (i) remaining as Limited Partners in the Partnership and preserving their interests therein on the same terms and conditions as existed previously, or (ii) receiving cash in an amount equal to the Limited Partners' pro rata share of the appraised value of the net assets of the Partnership. 3. The Partnership shall not participate in any proposed Roll-Up which would result in Limited Partners having democracy rights in the Roll-Up Entity which are less than those provided for under Articles IV, V and VII of this Agreement. If the Roll-Up Entity is a corporation, the voting rights of Limited Partners shall correspond to the voting rights provided for in these guidelines to the greatest extent possible. 4. The Partnership shall not participate in any proposed Roll-Up which includes provisions which would operate to materially impede or frustrate the accumulation of shares by any purchaser of the securities of the Roll-Up Entity (except to the minimum extent necessary to preserve the tax status of the Roll-Up Entity). The Partnership shall not participate in any proposed Roll-Up which would limit the ability of a Limited Partner to exercise the voting rights of its securities of the Roll-Up on the basis of the number of Partnership Units held by that Limited Partner. 5. The Partnership shall not participate in any proposed Roll-Up in which the Limited Partners' rights of access to the records of the Roll-Up Entity will be less than those provided for under Article V of this Agreement. 6. The Partnership shall not participate in any proposed Roll-Up in which any of the costs of the transaction would be borne by the Partnership if the Roll-Up is not approved by the Limited Partners. XV. INVESTMENTS IN OR WITH OTHER PROGRAMS 1. The Partnership shall be permitted to invest in general partnerships or joint ventures (including entities in limited liability company and limited liability partnership form) with non-Affiliates that own one or more particular loans, if the Partnership, alone or together with any publicly registered Affiliate of the Partnership meeting the requirements of paragraph 2 of this Subsection, acquires a controlling interest in such a general partnership or joint venture, but in no event shall duplicate fees be permitted. For purposes of this paragraph, "controlling interest" means an equity interest possessing the power to direct or cause the direction of the management and policies of the general partnership or joint venture, including the authority to: (a) review all contracts entered into by the general partnership or joint venture that will have a material effect on its business or assets; (b) cause a sale of the loan or its interest therein subject in certain cases where required by the partnership or joint venture agreement, to limits as to time, minimum amounts, and/or a right of first refusal by the joint venture partner or consent of the joint venture partner; (c) approve budgets and major capital expenditures, subject to a stated minimum amount; (d) veto any sale of the loan, or, alternatively, to receive a specified preference on sale or proceeds; and (e) exercise a right of first refusal on any desired sale by the joint venture partner of its interest in the mortgage except for transfer to an Affiliate of the joint venture partner. 2. The Partnership shall be permitted to invest in general partnerships or joint ventures with other publicly registered Affiliates of the Partnership if all of the following conditions are met: (a) the Programs have substantially identical investment objectives. (b) there are no duplicate fees. (c) the compensation to Sponsors is substantially identical in each Program. (d) each program must have a right of first refusal to buy if the other Programs wish to sell assets held in the joint venture. (e) the investment of each Program is on substantially the same terms and conditions. (f) the Prospectus discloses the potential risk of impasse on joint venture decisions since no Program controls and the potential risk that while a Program may have the right to buy the asset from the partnership or joint venture, it may not have the resources to do so. 3. The Partnership shall be permitted to invest in general partnerships or joint ventures with Affiliates other than publicly registered Affiliates of the Partnership only under the following conditions: (a) the investment is necessary to relieve the Sponsor from any commitment to purchase a loan entered into in compliance with Article III. 6. prior to the closing of the offering period of the Program; (b) there are no duplicate fees; (c) the investment of each entity is on substantially the same terms and conditions; (d) the Program provides for a right of first refusal to buy if the Sponsor wishes to sell a loan held in the joint venture; and (e) the Prospectus discloses the potential risk of impasse on joint venture decisions. 4. Other than as specifically permitted in paragraphs 2 and 3 of this Subsection, the Partnership shall not be permitted to invest in general partnerships or joint ventures with Affiliates. 5. The Partnership shall be permitted to invest in general partnership interests of limited partnerships only if the Partnership alone or together with any publicly registered Affiliate of the Partnership meeting the requirements of paragraph 2 of this Article acquires a "controlling interest" as defined in paragraph 1 of this Article, no duplicate fees are permitted, and no additional compensation beyond that permitted by Article IX shall be paid to the Sponsor. 6. A Program that is an "upper-tier Program" shall be permitted to invest in interests of other Programs (the "lower-tier Programs") only if the conditions provided for under Sections V.G. 6. and 7. of the NASAA Guidelines are met. XVI. SIGNATURES Any security agreement, chattel mortgage, lease, contract of sale, bill of sale, or other similar document to which the Partnership is a party, shall be executed by the General Partner, and no other signatures shall be required. XVII. SPECIAL POWER OF ATTORNEY Any person who becomes a Limited Partner after the effective date of this Agreement shall execute and deliver to the General Partner a special power of attorney in form acceptable to the General Partner (existing Limited Partners having already executed and delivered same) in which the General Partner is constituted and appointed as the attorney-in-fact for such Limited Partner with power and authority to act in his name and on his behalf to execute, acknowledge, and swear to in the execution, acknowledgment, and filing of documents, which shall include, by way of illustration but not of limitation, the following: 1. This Agreement and all certificates of Limited Partnership, as well as all amendments to the foregoing which, under the laws of the State of California or the laws of any other state, are required to be filed or recorded or which the General Partner deems it advisable to file or record; 2. All other instruments or documents which may be required to be filed or recorded by the Partnership under the laws of any state or by any governmental agency, or which the General Partner deems it advisable to file or record; and 3. All instruments or documents which may be required to effect the continuation of the Partnership, the admission of additional or substituted Limited Partners, the withdrawal of Limited Partners, or the dissolution and termination of the Partnership, provided such continuation, admission, withdrawal and dissolution and termination are in accordance with the terms of this Agreement. The special power of attorney to be concurrently granted upon admission as such by each Limited Partner: 1. is a special power of attorney coupled with an interest, is irrevocable, shall survive the death of the granting Limited Partner, and is limited to those matters herein set forth; 2. shall survive an assignment by a Limited Partner of all or any portion of his Units except that, where the assignee of the Units owned by a Limited Partner has been approved by the General Partner for admission to the Partnership as a substituted Limited Partner, the special power of attorney shall survive each assignment for the purpose of enabling the General Partner to execute, acknowledge, and file any instrument or document necessary to effect such substitution. XVIII. MISCELLANEOUS 1. Notices. Any notice, payment, demand, or communication required or permitted to be given by any provision of this Agreement shall be deemed to have been sufficiently given or served for all purposes if delivered personally to the party or to an officer of the party to whom the same is directed, or if sent by registered or certified mail, postage and charges prepaid addressed as follows: If to the General Partner: Owens Financial Group, Inc. 2221 Olympic Boulevard P. O. Box 2400 Walnut Creek, CA 94595 If to a Limited Partner, at such Limited Partner's address for purposes of notice which is set forth on the books and records of the Partnership, or in either case as the General Partner or a Limited Partner shall designate pursuant to the notice provision hereof. Any such notice shall be deemed to be given on the date on which the same was deposited in a regularly maintained receptacle for the deposit of United States mail, addressed and sent as aforesaid. 2. Application of California Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California. 3. Execution in Counterparts. This Agreement may be executed in any number of counterparts with the same effect as if all parties hereto had all signed the same document. All counterparts shall be construed together and shall constitute one agreement. 4. Waiver of Action for Partition. Each of the parties hereto irrevocably waives during the term of the Partnership any right that he or it may have to maintain any action for partition with respect to the property of the Partnership. 5. Assignability. Except as expressly limited herein, each and all of the covenants, terms, provisions, and agreements herein contained shall be binding upon and inure to the benefit of the successors and assigns of the respective parties hereto. 6. Interpretation. As used in this Agreement, the masculine includes the feminine and neuter and the singular includes the plural, as determined by the context. 7. Captions. Paragraphs, titles, or captions in no way define, limit, extend, or describe the scope of this Agreement nor the intent of any of its provisions. 8. Adjustment of Basis. The General Partner may elect, pursuant to Code Section 754, to adjust the basis of Partnership property under the circumstances and in the manner provided in Code Sections 734 and 743. The General Partner shall, in the event of such an election, take all necessary steps to effect the election. 9. Entire Agreement. This Agreement constitutes the entire understanding and agreement among the parties hereto with respect to the subject matter hereof. IN WITNESS WHEREOF, the undersigned have executed this Agreement effective this 15th day of November, 2000. GENERAL PARTNER: OWENS FINANCIAL GROUP, INC. By: /William C. Owens/ William C. Owens, President LIMITED PARTNERS: By: OWENS FINANCIAL GROUP, INC., GENERAL PARTNER By: /William C. Owens/ William C. Owens, President As Attorney-In-Fact for the Limited Partners EX-99.A4 3 0003.txt SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY EXHIBIT B SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY Owens Mortgage Investment Fund, A California Limited Partnership 1. SUBSCRIPTION. The undersigned investor ("Investor") hereby applies to become a Limited Partner in Owens Mortgage Investment Fund, a California Limited Partnership (the "Partnership"), and agrees to purchase the number of units of limited partnership interest in the Partnership (the "Units") stated below in accordance with the terms and conditions of the Amended and Restated Limited Partnership Agreement (the "Limited Partnership Agreement"), a copy of which is contained in the Prospectus of the Partnership, and tenders the amount required to purchase the Units ($1.00 per Unit, 2,000 Unit minimum purchase, 2,500 for residents of North Carolina). The Units which the Investor offers to purchase hereby shall not be deemed issued to, or owned by, the Investor until: (a) the Investor has fully paid in cash for such Units, and (b) the General Partner has in its sole discretion accepted Investor's offer of purchase. A sale of Partnership Units to an Investor may not be completed until at least five business days after the date the Investor receives a Prospectus. The General Partner will send each Investor a confirmation of purchase within five business days of acceptance of the Subscription Agreement. 2. REPRESENTATIONS BY THE UNDERSIGNED. The Investor represents and warrants that the Investor: (a) has received the Prospectus of the Partnership dated April 28, 2000; (b) understands that no federal or state agency has made any finding or determination as to the fairness for public investment in, nor any recommendation nor endorsement of, the Units; (c) understands that Units are offered for a minimum investment of $2,000 ($2,500 for residents of North Carolina); (d) understands that there will be no public market for the Units, that there are substantial restrictions on repurchase, sale, assignment or transfer of the Units, and that it may not be possible readily to liquidate this investment; (e) has (i) a minimum net worth (exclusive of home, home furnishings, and automobiles) of $45,000 ($30,000 in the States of California and Oregon and $50,000 in the State of Washington), plus an annual gross income of at least $45,000 ($30,000 in the States of California and Oregon and $50,000 in the State of Washington); or (ii) minimum net worth (exclusive of home, home furnishings, and automobiles) of $150,000 ($75,000 in the States of California and Oregon); or (iii) if purchasing for a fiduciary account, the minimum standards in (i) or (ii) above are met by the beneficiary, the fiduciary account, or by a donor or grantor who directly or indirectly supplies the funds to purchase the Partnership Units if the donor or grantor is the fiduciary; (f) if an individual, has attained the age of majority (as established in the state in which domiciled), and, in any event, is under no disability with respect to entering into a contractual relationship with the Partnership; (g) if a trustee, is the trustee for the trust on behalf of which it is purchasing the Units, and has due authority to purchase Units on behalf of the trust; (h) fully indemnifies and holds harmless the Partnership, the General Partner, and its Affiliates from any and all claims, actions, causes of action, damages, and expenses (including legal fees and expenses) whatsoever which may result from a breach or alleged breach of any of the representations by Investor contained herein. 3. ADOPTION OF AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT. The Investor hereby adopts, accepts, and agrees to be bound by all terms and provisions of the Limited Partnership Agreement and to perform all obligations therein imposed upon a Limited Partner with respect to Units to be purchased. Upon acceptance of this Subscription Agreement by the General Partner on behalf of the Partnership, payment in full of the subscription price and the filing of a Certificate of Limited Partnership of the Partnership, the undersigned shall become a Limited Partner for all purposes of the Limited Partnership Agreement. 4. LIMITATION ON ASSIGNMENT. The Investor acknowledges that the Units may be assigned only as provided in the Limited Partnership Agreement and further acknowledges the restrictions on resale, transfer, or assignment of the Units set forth in the Limited Partnership Agreement and as described in the Prospectus. 5. SPECIAL POWER OF ATTORNEY. The Investor hereby makes, constitutes, and appoints the General Partner of the Partnership to be such person's true and lawful attorney-in-fact to sign and acknowledge, file and record: (a) the Limited Partnership Agreement and any amended certificate of limited partnership, as well as any and all amendments thereto required under the laws of the State of California or of any other state to be filed or which the General Partner deems advisable to prepare, execute and file; (b) any other instrument or document which may be required to be filed by the Partnership by any governmental agency or by the laws of any state, or which the General Partner deems it advisable to file; and (c) any documents which may be required to effect the continuation of the Partnership, the admission of a substituted Limited Partner, or the dissolution and termination of the Partnership, provided such continuation, admission, or dissolution and termination are in accordance with the terms of the Limited Partnership Agreement. The foregoing grant of authority: (i) is a Special Power of Attorney coupled with an interest, is irrevocable, shall survive the death of the Investor and shall not be affected by the subsequent incapacity of the Investor; (ii) may be exercised by the General Partner for each Limited Partner by a facsimile signature of or on behalf of the General Partner or by listing all of the Limited Partners and by executing any instrument with a single signature of or on behalf of the General Partner, acting as attorney-in-fact for all of them; and (iii) shall survive the delivery of an assignment by a Limited Partner of the whole or any portion of his interest; except that where the assignee thereof has been approved by the General Partner for admission to the Partnership as a substituted Limited Partner, the Special Power of Attorney shall survive the delivery of such assignment for the sole purpose of enabling such person to execute, acknowledge, and file any instrument necessary to effect such substitution. 6. PAYMENT OF SUBSCRIPTION. The amount of the Investor's subscription is set forth below and payment of such amount is enclosed by a check payable to Owens Mortgage Investment Fund, a California Limited Partnership. The Investor hereby authorizes and directs the General Partner to deliver this Subscription Agreement to the Partnership and pay the funds delivered herewith to the Partnership, to the extent the Investor's subscription has been accepted. If the Investor's subscription is rejected in part, the funds delivered herewith will, to the extent the application is so rejected, be returned to the Investor as soon as practicable without interest or deduction, except to the extent of any interest actually earned. 7. PURCHASE BY FIDUCIARY. If the Investor is purchasing the Units subscribed hereby in a fiduciary capacity, the above representations and warranties are to be deemed to have been made on behalf of the person(s) for whom the Investor is so purchasing except that such person(s) need not be over 18 years of age. 8. NOTIFICATION OF GENERAL PARTNER. The Investor agrees to notify the General Partner immediately if any of the foregoing statements made herein shall become untrue. 9. LIMITED PARTNERSHIP AGREEMENT GOVERNS. In the event of any conflict between the provisions of the Limited Partnership Agreement and any instrument or document executed, acknowledged, filed or recorded by the General Partner pursuant to this special power of attorney, the Limited Partnership Agreement will govern. 10. SUBSCRIPTION AMOUNT. The Investor subscribes $_____________ and encloses such sum herewith as the purchase price of _____________ Units. 11. REINVESTMENT OF DISTRIBUTIONS. The Partnership maintains a Distribution Reinvestment Plan ("Plan") under which distributions of income of the Partnership may be reinvested for the purchase of additional Units, rather than being received in cash. See Prospectus at page 63. So long as the Investor meets the suitability standards established by the Partnership and by the securities law administrator of the state in which the Investor is domiciled, and subject to possible suspension or termination of the Plan by the General Partner, as set forth in the Limited Partnership Agreement, the Investor will continue to participate in the Plan if it elects option A, below. Option B, below, will constitute an election not to participate in the Plan. The Investor may change his election at any time by written notice to the Partnership. Please choose one or the other of the two options by a check mark in the appropriate blank. If you check neither blank, you will be considered to have elected to receive your distributions in cash (Option B). A. ___ Investor elects to participate in the Partnership Distribution Reinvestment Plan. B. ___Investor elects not to participate in the Partnership Distribution Reinvestment Plan and to receive distributions in cash. 12. OWNERSHIP OF UNITS. The Investor's interest will be owned and should be shown on the Partnership's records as follows: Check one: ___ Individual Ownership ___ JTROS (all parties must sign) ___ Tenants in Common (all parties must sign) ___ Community Property (one signature required) ___ Custodian ___ Trustee ___ Corporation ___ Partnership ___ Nonprofit Organization (Please Print) Name______________________________________________________________________ First Middle Last or Entity's legal name __________________________________________________________________________ Resident Address __________________________________________________________________________ City State Zip Code ______________________________________ _________________________________ Home Telephone Number (if applicable) Business Telephone Number (include area code) (include area code) Date of Birth __________________________________ (Individual Investors Only) Occupation _____________________________________ (Individual Investors Only) Marital Status (check one): Single____ Married____ (Individual Investors Only) Citizenship: U.S.____ Other_____________________ (Individual Investors Only) Investment Objective: Current income with retention of capital ____ (check) Other (please explain): ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Investor's Financial Status and Suitability: Net Worth $_____________________ Liquid Net Worth $_____________________ Gross Income $_____________________ Investor's Years of Investment Experience _____ Investor's Tax Bracket (if individual) ________% Please initial here to acknowledge your understanding that it may not be possible to readily liquidate your investment in the Partnership: _______ Please initial here to acknowledge your understanding that if you move to a state in which the Partnership is not registered, you may not be able to purchase additional Units or receive new Units through your participation in the Dividend Reinvestment Plan: _______ ******************************************************************************* (Please Print) Name______________________________________________________________________ First Middle Last or Entity's legal name __________________________________________________________________________ Resident Address __________________________________________________________________________ City State Zip Code ____________________________________________________________________________ Home Telephone Number (if applicable) Business Telephone Number (include area code) (include area code) Date of Birth __________________________________ (Individual Investors Only) Occupation _____________________________________ (Individual Investors Only) Marital Status (check one):Single____ Married____ (Individual Investors Only) Citizenship: U.S.____ Other______________________ (Individual Investors Only) Investment Objective: Current income with retention of capital ____ (check) Other (please explain): _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ Investor's Financial Status and Suitability: Net Worth $_____________________ Liquid Net Worth $_____________________ Gross Income $_____________________ Investor's Years of Investment Experience _____ Investor's Tax Bracket (if individual) ________% Please initial here to acknowledge your understanding that it may not be possible to readily liquidate your investment in the Partnership: _______ Please initial here to acknowledge your understanding that if you move to a state in which the Partnership is not registered, you may not be able to purchase additional Units or receive new Units through your participation in the Dividend Reinvestment Plan: _______ ****************************************************************************** 13. IF APPLICABLE, THE ACCOUNT REPRESENTATIVE AND INVESTMENT FIRM PRINCIPAL MUST EACH SIGN BELOW IN ORDER TO SUBSTANTIATE COMPLIANCE WITH APPENDIX F TO ARTICLE 3, SECTION 34 OF THE NASD'S RULES OF FAIR PRACTICE. IN WITNESS WHEREOF, the undersigned Investor has executed this Subscription Agreement and Power of Attorney. Dated: _____________, 20___ ____________________________________ _______________________________________ Authorized Signature of Subscriber Social Security Number or Federal Tax Identification Number ____________________________________ _______________________________________ Authorized Signature of Subscriber Social Security Number or Federal Tax (if more than one) Identification Number ACCEPTED: Owens Mortgage Investment Fund, A California Limited Partnership Owens Financial Group, Inc., General Partner By: ____________________________________ William C. Owens, President Dated: ____________, ____ The Account Representative and Principal signing below each have reasonable grounds to believe, based on information obtained from the above Investor concerning his or her investment objectives, other investments, financial situation and needs and any other information known by either of them, that investment in the Partnership is suitable for such Investor in light of his or her financial position, net worth and other suitability characteristics, and that the Investor meets the suitability requirements applicable to this offering. The undersigned account representative and principal have advised the above Investor that no market for the securities being offered exists nor is one expected to develop, and that the Investor may not be able to liquidate his or her investment in the event of an emergency or for any other reason. _______________________________ _____________________________________ Signature of Investment Firm Principal Signature of Account Representative Owens Securities Corporation _______________________________ _____________________________________ Please PRINT Name and Title Please PRINT Account Representative Name EX-27 4 0004.txt FDS --
5 (Replace this text with the legend) 841501 Owens Mortgage Investment Fund 1 U.S. DOLLARS 3-MOS DEC-31-2000 JUL-01-2000 SEP-30-2000 1.00 10,028,067 0 2,200,827 0 0 0 13,117,441 51,556 241,975,151 1,622,841 0 0 0 0 234,211,387 241,975,151 0 9,556,144 0 1,608,339 0 0 93,620 7,776,861 0 4,897,594 0 2,879,267 0 7,776,861 .034 .034
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