OWENS MORTGAGE INVESTMENT FUND A CALIF LTD PARTNERSHIP - 10-K Annual Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

For the fiscal year ended December 31, 2004

Commission file number 000-17248

OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership
(Exact name of registrant as specified in its charter)


California (State or other jurisdiction of incorporation or organization) 2221 Olympic Boulevard Walnut Creek, California (Address of principal executive offices) Registrant's telephone number, including area code		68-0023931 (I.R.S. Employer Identification No.) 94595 (Zip Code) (925) 935-3840

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

NONE

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

Limited Partnership Units
(Title of class)

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

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

Indicate by check mark whether the registrant is an accelerate filer (as defined by Rule 12b-2 of the Act) Yes [ ] No [X]

DOCUMENTS INCORPORATED BY REFERENCE
Certain exhibits filed with Registrant's Registration Statement No.333-69272 are incorporated by reference into Part IV.

TABLE OF CONTENTS

PART I

Item 1.

Item 2.

Item 3.

Item 4.

Business

Properties

Legal Proceedings

Submission of Matters to a Vote of Security Holders

Page

3

15

17

17

PART II

Item 5.

Item 6.

Item 7.

Item 7A.

Item 8.

Item 9.

Item 9A.

Item 9B

Market for Registrant’s Common Equity and Related Stockholder Matters

Selected Financial Data

Management’s Discussion and Analysis of Financial Condition and
Results of Operations

Quantitative and Qualitative Disclosures About Market Risk

Consolidated Financial Statements and Supplementary Data

Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures

Controls and Procedures

Other Information

18

19

20

34

35

35

35

35

PART III

Item 10.

Item 11.

Item 12.

Item 13.

Item 14.

Directors and Executive Officers of the Registrant

Executive Compensation

Security Ownership of Certain Beneficial Owners and Management

Certain Relationships and Related Transactions

Principal Accountant Fees and Services

35

37

37

38

39

PART IV

Item 15.

Exhibits, Consolidated Financial Statement Schedules and Reports on
Form 8-K

Consolidated Financial Statements and Supplementary Information

F-1

Exhibit 31.1
Exhibit 31.2
Exhibit 32

Part I

Item 1. Business

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

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

The following table shows the total Partnership capital, mortgage investments and net income as of and for the years ended December 31, 2004, 2003, 2002, 2001, 2000 and 1999.

	Total Partners’ Capital		Mortgage Investments		Net Income
2004	$	286,267,296	$	258,431,902	$	19,992,241
2003	$	284,464,268	$	266,374,206	$	21,841,989
2002	$	280,350,974	$	260,211,121	$	21,669,959
2001	$	272,286,714	$	213,703,469	$	21,889,224
2000	$	238,757,190	$	223,273,464	$	22,535,056
1999	$	214,611,813	$	200,356,517	$	17,479,853

As of December 31, 2004, the Partnership held investments in 87 mortgage loans, secured by liens on title and leasehold interests in real property. 53% of the mortgage loans are located in Northern California. The remaining 47% are located in Southern California, Arizona, Hawaii, Idaho, Nevada, North Carolina, South Carolina, Texas, Utah, Virginia and Washington.

The following table sets forth the types and maturities of mortgage investments held by the Partnership as of December 31, 2004:

TYPES AND MATURITIES OF MORTGAGE INVESTMENTS
(As of December 31, 2004)

		Amount

1st Mortgages	81	$	256,372,106	99.20%
2nd Mortgages	6		2,059,796	0.80%

	87	$	258,431,902	100.00%


Maturing on or before December 31, 2005 (1)	51	$	152,868,373	59.15%
Maturing on or between January 1, 2006 and December
31, 2007	24		70,230,398	27.18%
Maturing on or between January 1, 2008 and September
1, 2014	12		35,333,131	13.67%

	87	$	258,431,902	100.00%


Income Producing Properties	61	$	159,885,572	61.87%
Construction	9		66,934,856	25.90%
Unimproved Land	16		31,396,474	12.15%
Residential	1		215,000	0.08%

	87	$	258,431,902	100.00%

(1) Approximately $48,165,000 was past maturity as of December 31, 2004.

The average loan balance of the mortgage loan portfolio of $2,970,000 as of December 31, 2004 is considered by the General Partner to be a reasonable diversification of investments concentrated in mortgages secured primarily by commercial real estate. Of such investments, 13.4% earn a variable rate of interest and 86.6% earn a fixed rate of interest. All were negotiated according to the Partnership’s investment standards.

As of December 31, 2004, the Partnership was invested in construction loans in the amount of approximately $66,935,000 and in loans secured by leasehold interests of $32,339,000. As of December 31, 2004, the Partnership has commitments to advance additional funds to borrowers of construction and other loans in the total amount of $10,886,000.

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

$9,009,000 in cash and cash equivalents held for investment, required to transact the business of the Partnership and/or in conjunction with contingency reserve requirements;

$32,357,000 in real estate held for sale and investment; and

$3,259,000 in interest and other receivables.

Delinquencies

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

payments on the loan become delinquent;

the loan is past maturity;

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

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

A review includes a physical evaluation of the property securing the loan and the area in which the property is located, the financial stability of the borrower, and the property’s occupancy.

As of December 31, 2004, the Partnership’s portfolio included $37,319,000 (compared with $22,828,000 as of December 31, 2003) of loans delinquent in payment greater than 90 days, representing 14.4% of the Partnership’s investment in mortgage loans. The balance of delinquent loans at December 31, 2004 includes $4,000,000 (compared with $4,363,000 as of December 31, 2003) in the process of foreclosure and $5,182,000 (compared with $1,600,000 as of December 31, 2003) involving loans to borrowers who are in bankruptcy. The General Partner believes that these loans may result in a loss of principal and foregone interest. However, the General Partner believes that the $4,100,000 allowance for losses on loans which is maintained in the financial statements of the Partnership as of December 31, 2004 is sufficient to cover any potential losses of principal and interest.

In February 2005 (subsequent to year end), the Partnership sold two loans in the total amount of $8,660,000 to unrelated parties and collected all principal and outstanding interest. One of the loans with a principal balance of $2,900,000 was greater than 90 days delinquent in payments and in foreclosure as of December 31, 2004.

There was a $292,000 loss realized upon foreclosure and subsequent sale of a property securing a loan during the year ended December 31, 2004. There was a $353,000 loss realized upon write-off of a Partnership loan and a $1,011,000 loss realized upon the foreclosure and subsequent sale of a property securing a loan during the year ended December 31, 2003 (allowances had been previously established for $1,353,000 of these losses). There was a $1,235,000 loss recognized on a motel property located in Phoenix, Arizona at the time of foreclosure in 2002 and an additional $175,000 upon the sale of the property in 2003. There was a total loss of $614,000 realized on two Partnership loans during the year ended December 31, 2001. There were no actual losses incurred on loans by the Partnership during the years ended December 31, 2000, 1999 and 1998. However, the Partnership realized a loss on real estate in the amount of $712,000 from the sale of a foreclosed property to the General Partner at its fair market value during 1998.

Of the $22,828,000 that was delinquent as of December 31, 2003, $16,117,000 remained delinquent as of December 31, 2004, $1,711,000 was paid off in full, and $5,000,000 became real estate acquired through foreclosure of the Partnership.

Following is a table representing the Partnership’s delinquency experience (over 90 days) and foreclosures by the Partnership as of and during the years ended December 31, 2001, 2002, 2003 and 2004:

	2001		2002		2003		2004
Delinquent Loans	$	18,604,000	$	26,327,000	$	22,828,000	$	37,319,000
Loans Foreclosed	$	3,369,000	$	9,370,000	$	4,300,000	$	18,875,000
Total Mortgage Investments	$	213,703,000	$	260,211,000	$	266,374,000	$	258,432,000
Percent of Delinquent Loans to Total Loans		8.71%		10.12%		8.57%		14.44%

If the delinquency rate increases on loans held by the Partnership, the interest income of the Partnership will be reduced by a proportionate amount. For example, if an additional 10% of the Partnership loans become delinquent, the mortgage interest income of the Partnership would be reduced by approximately 10%. If a mortgage loan held by the Partnership is foreclosed on, the Partnership will acquire ownership of real property and the inherent benefits and detriments of such ownership.

Compensation to the General Partner

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

Compensation and Reimbursement from the Partnership

Management Fees

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

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

Delinquencies on Partnership loans;

Level of cash held pending investment in mortgage loans; and

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

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

If the maximum management fees had been paid to the General Partner during the year ended December 31, 2004, the management fees would have been $7,289,000 (increase of $2,023,000), which would have reduced net income allocated to limited partners by approximately 10.1%, and net income allocated to limited partners per weighted average limited partner unit by the same percentage to $.06.

If the maximum management fees had been paid to the General Partner during the years ended December 31, 2003 and 2002, the management fees would have been $6,992,000 (increase of $1,863,000) and $6,724,000 (increase of $3,108,000), respectively, which would have reduced net income allocated to limited partners by approximately 8.5% and 14.3%, respectively, and net income allocated to limited partners per weighted average limited partner unit by the same percentages to $.07 and $.07, respectively.

The maximum management fee permitted under the Partnership Agreement is 2 ¾% per year of the average unpaid balance of mortgage loans. For the years 2000, 2001, 2002, 2003 and 2004, the management fees were 1.85%, 1.48%, 1.46%, 2.01% and 2.00% of the average unpaid balance of mortgage loans, respectively.

Servicing Fees

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

Carried Interest

Based upon the Partnership’s investment in mortgages of a minimum of 86.5% of capital contributions, the General Partner receives a carried interest of 1/2 of 1% of the aggregate capital accounts of the limited partners, which is additional compensation to the General Partner. The carried interest is increased each month by ½ of 1% of the net increase in the capital accounts of the limited partners. If there is a net decrease in the capital accounts for a particular month, no carried interest is allocated for that month and the allocation to carried interest is “trued-up” to the correct 0.5% amount in the next month that there is an increase in the net change in capital accounts. Thus, if the Partnership generates an annual yield on capital of the limited partners of 10%, the General Partner would receive additional distributions on its carried interest of approximately $150,000 per year if $300,000,000 of Units were outstanding. In addition, if the Partnership were liquidated, the General Partner could receive up to $1,500,000 in capital distributions without having made equivalent cash contributions as a result of its carried interest. These capital distributions, however, will be made only after the limited partners have received capital distributions equaling 100% of their capital contributions.

Reimbursement of Other Expenses

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

Compensation from Borrowers

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

Loan Origination Fees

Loan origination fees, also called mortgage placement fees or points, are paid to the General Partner by the borrowers of loans held by the Partnership, with the exception of certain loans not originated by the General Partner. These fees are compensation for the evaluation, origination, extension and refinancing of loans for the borrowers and may be paid at the placement, extension or refinancing of the loan or at the time of final repayment of the loan. The amount of these fees is determined by competitive conditions and the General Partner and may have a direct effect on the interest rate borrowers are willing to pay the Partnership.

Late Payment Charges

All late payment charges paid by borrowers of delinquent mortgage loans, including additional interest and late payment fees, are retained by the General Partner. Generally, on the majority of the Partnership’s loans, the late payment fee charged to the borrower for late payments is 10% of the payment amount. In addition, on the majority of the Partnership’s loans, the additional interest charge required to be paid by borrowers once a loan is past maturity is in the range of 3%-5% (paid in addition to the pre-default interest rate).

Table of Compensation and Reimbursed Expenses

The following table summarizes the compensation and reimbursed expenses paid to the General Partner or its affiliates for the years ended December 31, 2004 and 2003, showing actual amounts and the maximum allowable amounts for management and servicing fees. No other compensation was paid to the General Partner during these periods. The fees were established by the General Partner and were not determined by arms’-length negotiation.

	Year Ended December 31, 2004				Year Ended December 31, 2003
Form of Compensation	Actual		Maximum Allowable		Actual		Maximum Allowable
Paid by the Partnership:
Management Fees*	$	5,266,000	$	7,289,000	$	5,129,000	$	6,992,000
Servicing Fees		663,000		663,000		635,000		635,000
Carried Interest		9,000		9,000		20,000		20,000

Subtotal	$	5,938,000	$	7,961,000	$	5,784,000	$	7,647,000


Paid by Borrowers:
Loan Origination Fees	$	4,034,000	$	4,034,000	$	6,829,000	$	6,829,000
Late Payment Charges		416,000		416,000		347,000		347,000

Subtotal	$	4,450,000	$	4,450,000	$	7,176,000	$	7,176,000


Grand Total	$	10,388,000	$	12,411,000	$	12,960,000	$	14,823,000


Reimbursement by the Partnership of
Other Expenses	$	44,000	$	44,000	$	134,000	$	134,000

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

Aggregate actual compensation paid by the Partnership and by borrowers to the General Partner during the years ended December 31, 2004 and 2003, exclusive of expense reimbursement, was $10,388,000 and $12,960,000, respectively, or 3.6% and 4.6%, respectively, of partners’ capital. If the maximum amounts had been paid to the General Partner during these periods, the compensation, excluding reimbursements, would have been $12,411,000 and $14,823,000, respectively, or 4.3% and 5.2%, respectively, of partners’ capital, which would have reduced net income allocated to limited partners by approximately 10.1% and 8.5%, respectively.

Loan origination fees as a percentage of loans originated or purchased by the Partnership were 2.5%, 4.0% and 4.2% for the years ended December 31, 2004, 2003, and 2002, respectively. Of the $4,034,000 in loan origination fees accrued during the year ended December 31, 2004, approximately $79,000 were back-end fees earned as of December 31, 2004 but will not be collected until the related loans are paid in full. Of the $6,829,000 in loan origination fees accrued during the year ended December 31, 2003, approximately $2,257,000 were back-end fees earned as of December 31, 2003 but will not be collected until the related loans are paid in full

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

Principal Investment Objectives

The Partnership invests primarily in mortgage loans on commercial, industrial and residential income-producing real property and land. The General Partner arranges, makes and/or purchases all loans, which are then either made or purchased by the Partnership, on a loan-by-loan basis. Normally, when the Partnership has sufficient funds available to make or invest in a specific loan, the General Partner will give the Partnership priority in making or purchasing the loan over other persons to whom the General Partner may sell loans as a part of its business. However, there may be limited instances when another investor may be given priority over the Partnership to purchase a particular loan, such as when the particular loan does not meet all of the investment criteria of the Partnership or when the General Partner does not want to add more of a particular loan type to the Partnership’s portfolio. Factors that further influence the General Partner in determining whether the Partnership has priority over other investors include the following:

All loans arranged 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; and

All hypothecation loans (also called “wrap-around loans” or “all-inclusive deeds of trust”) will be made or acquired by the Partnership. A hypothecation loan is one in which the security for the loan is the assignment of another secured promissory note.

In December 2001, the Partnership obtained its California Finance Lender (“CFL”) license to enable it to fund loans directly to borrowers. Obtaining this license did not change the business of the Partnership in any way or change the duties of or fees paid to the General Partner. The main benefit of the Partnership receiving its CFL license is the quicker investment of proceeds from capital contributions and loan payoffs into new loans, which may increase the income earned by the Partnership.

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

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

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

the property’s potential for capital appreciation;

expected levels of rental and occupancy rates;

current and projected cash flow generated by the property;

potential for rental rate increases;

the marketability of the investment;

geographic location of the property;

the condition and use of the property;

the property’s income-producing capacity;

the quality, experience and creditworthiness of the borrower;

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

any other factors that the General Partner believes are relevant.

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

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

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

Types of Mortgage Loans

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

First Mortgage Loans

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

Second and Wraparound Mortgage Loans

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

Third Mortgage Loans

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

Construction Loans

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

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

Leasehold Interest Loans

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

Variable Rate Loans

Approximately 13.4% ($34,719,000) of the Partnership’s loans as of December 31, 2004 bear interest at a variable rate. Variable rate loans originated by the General Partner may use as indices the one, five and ten year Treasury Constant Maturity Index, the Prime Rate Index or the Monthly Weighted Average Cost of Funds Index for Eleventh or Twelfth District Savings Institutions (Federal Home Loan Bank Board).

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

The following is a summary of the various indices described above as of December 31, 2004 and 2003:


One-year Treasury Constant Maturity Index	2	.77%	1	.26%

Five-year Treasury Constant Maturity Index	3	.65%	3	.25%

Ten-year Treasury Constant Maturity Index	4	.29%	4	.21%

Prime Rate Index	5	.25%	4	.00%

Monthly Weighted Average Cost of Funds for
Eleventh District Savings Institutions	2	.03%	1	.82%

Monthly Weighted Average Cost of Funds for
Twelfth District Savings Institutions	2	.09%	2	.30%

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

Interest Rate Caps

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

Assumability

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

Prepayment Penalties and Exit Fees

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

Balloon Payment

A majority of the loans made or invested in by the Partnership (96.5% as of December 31, 2004) require the borrower to make a “balloon payment” on the principal amount upon maturity of the loan. To the extent that a borrower has an obligation to pay mortgage loan principal in a large lump sum payment, its ability to satisfy this obligation may be dependent upon its ability to sell the property, obtain suitable refinancing or otherwise raise a substantial cash amount. As a result, these loans involve a higher risk of default than fully amortizing loans.

Equity Interests and Participation in Real Property

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

Debt Coverage Standard for Mortgage Loans

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

Loan Limit Amount

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

Loans to Affiliates

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

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

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

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

Purchase of Loans from Affiliates

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

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

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

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

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

Borrowing

The Partnership may incur indebtedness for the purpose of:

investing in mortgage loans;

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

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

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

The total amount of indebtedness incurred by the Partnership cannot exceed the sum of 50% of the aggregate fair market value of all Partnership loans. The Partnership has executed a line of credit agreement with a bank, which provides interim financing on mortgage loans invested in by the Partnership. The amount of credit available under this line of credit is $40,000,000. There was no balance outstanding on the line of credit as of December 31, 2004.

Repayment of Mortgages on Sales of Properties

The Partnership invests in mortgage loans and does not normally acquire real estate or engage in real estate operations or development (other than when the Partnership forecloses on a loan and takes over management of such foreclosed property). The Partnership also does not invest in mortgage loans primarily for sale or other disposition in the ordinary course of business. The Partnership may require a borrower to repay a mortgage loan upon the sale of the mortgaged property rather than allow the buyer to assume the existing loan. This may be done if the General Partner determines that repayment appears to be advantageous to the Partnership based upon then-current interest rates, the length of time that the loan has been held by the Partnership, the credit-worthiness of the buyer and the objectives of the Partnership. The net proceeds to the Partnership from any sale or repayment are invested in new mortgage loans, held as cash or distributed to the partners at such times and in such intervals as the General Partner in its sole discretion determines.

No Trust or Investment Company Activities

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

Miscellaneous Policies and Procedures

The Partnership will not:

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

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

underwrite securities of other issuers; or

offer securities in exchange for property.

Competitive and General Economic Conditions

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

The Partnership’s sole business, making loans secured by real estate, is particularly vulnerable to changes in macroeconomic conditions. Any significant decline in economic activity, particularly in the geographical markets in which the loans are concentrated, could result in a decline in the demand for real estate acquisition and development loans. Declines in economic activity are often accompanied by a decline in prevailing interest rates. Although the Partnership’s lending rates are not directly tied to the Federal Reserve Board’s discount rate, a sustained and widespread decline in interest rates will impact the interest rates the Partnership is able to obtain on loans. Since the Partnership’s loans generally do not have prepayment penalties, declining interest rates may also cause borrowers to prepay their loans and the Partnership may not be able to reinvest the amounts prepaid in loans generating a comparable yield. Moreover, any significant decline in economic activity could adversely impact the ability of borrowers to complete their projects and obtain take out financing. This in turn could increase the level of defaults the Partnership may experience.

Economic developments in the United States have generally been favorable in 2004 and this has led to expansion and notable gains in employment. The strengthening demand has been a factor contributing to the rise in inflation this year. These and other factors led the Federal Reserve Board to increase the discount rate by a total of 1.25% in 2004. The rates that the Partnership charges on its loans have not been significantly impacted by these actions. However, the weighted average interest rate on Partnership loans increased slightly from 11.05% as of December 31, 2003 to 11.08% as of December 31, 2004. At the present time, the General Partner does not expect a noticeable increase in the rates charged on Partnership loans.

With the exception of the reinvestment of distributions, the Partnership has been closed to most new limited partner investments since September 2001. The Partnership has remained closed during this time because there have not been enough suitable mortgage investments for the Partnership to invest in to allow the Partnership to remain fully invested in loans for a sustainable period of time. Remaining closed to most new limited partner investments reduces the Partnership’s excess cash that would be invested in lower yielding investments, which could have the effect of decreasing the yield paid to existing limited partners.

Employees

The Partnership does not have any employees. The General Partner, Owens Financial Group, Inc., provides all of the employees necessary for the Partnership’s operations. As of December 31, 2004, the General Partner had 16 employees. All employees are at-will employees and none are covered by collective bargaining agreements.

Item 2. Properties

Between 1993 and 2004, the Partnership foreclosed on $53,020,000 of delinquent mortgage loans and acquired title to 33 properties securing the loans. As of December 31, 2004, the Partnership still holds title to 9 of these properties (either solely or through its investments in the limited liability companies discussed below) and one property that was purchased and is held within 720 University, LLC (see below). As of December 31, 2004, the total carrying amount of these properties was $32,357,000, net of an allowance for losses of $660,000. Four of the properties are being held for long-term investment and the remaining six properties are being marketed for sale or will be marketed for sale in the foreseeable future. All of the properties individually have a book value less than 2% of total Partnership assets as of December 31, 2004, other than the properties within 720 University, LLC and Bayview Gardens, LLC (see below).

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

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

Of the ten properties held, seven of the properties are either partially or fully leased to various tenants. Only minor renovations and repairs to the properties are currently being made or planned (other than continued tenant improvements on the property within 720 University, LLC- see below).

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

The Partnership maintains an allowance for losses on real estate held for sale in its financial statements of $660,000 as of December 31, 2004.

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

Investment in Limited Liability Companies

Oregon Leisure Homes, LLC

Oregon Leisure Homes, LLC (OLH) was formed in 2001 between the Partnership and an unrelated developer for the purpose of developing and selling eight condominium units located in Lincoln City, Oregon, which were acquired by the Partnership via a deed in lieu of foreclosure. OLH also purchased two houses located by the ocean in Lincoln City for renovation and ultimate sale. The condominiums are still in the process of being sold. The remaining interests in the two houses were sold during 2003.

The Partnership is co-manager of OLH and is to receive 70% of the profits after payment of all interest on the original loan is made to the Partnership and priority return on partner contributions is allocated at the rate of 11% per annum. The assets, liabilities, income and expenses of OLH have been consolidated into the accompanying consolidated balance sheet and income statement of the Partnership.

During the year ended December 31, 2004, the Partnership advanced an additional $49,000 to OLH for continued operation and marketing of the condominium units that are for sale and received repayment of advances of $310,000 primarily from collections on notes receivable. The net loss to the Partnership was approximately $26,000 and $373,000 for the years ended December 31, 2004 and 2003, respectively. The Partnership’s investment in OLH real property was approximately $1,122,000 and $1,137,000 as of December 31, 2004 and 2003, respectively.

Dation, LLC

Dation, LLC (Dation) was formed in 2001 between the Partnership and an unrelated developer for the purpose of developing and selling lots in a mobile home park located in Lake Charles, Louisiana, which were acquired by the Partnership via a deed in lieu of foreclosure. Certain of these lots are currently being rented to tenants. The Partnership has been advancing funds to Dation as needed. The Partnership is co-manager of Dation and is to receive 50% of the profits and losses after payment of all interest on the original loan is made to the Partnership and priority return on partner contributions is allocated at the rate of 12% per annum.

The net operating loss to the Partnership was approximately $142,000 and $149,000 during the years ended December 31, 2004 and 2003, respectively. The Partnership advanced an additional $316,000 and $136,000, respectively, to Dation and received repayments from sales of lots in the amount of $70,000 and $74,000, respectively, during the years ended December 31, 2004 and 2003. In addition, Dation paid $130,000 of loan interest payable to the Partnership during the year ended December 31, 2004. The Partnership’s total investment in Dation was approximately $1,948,000 and $1,845,000 as of December 31, 2004 and 2003, respectively.

720 University, LLC

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

The net income to the Partnership was approximately $382,000 and $418,000 during the years ended December 31, 2004 and 2003 , respectively. The minority interest of the joint venture partner was approximately $179,000 and $124,000 as of December 31, 2004 and 2003, respectively. The Partnership’s investment in the real property within 720 University was approximately $14,830,000 and $13,063,000 as of December 31, 2004 and 2003, respectively. The Partnership has a note payable with a bank through its investment in 720 University, which is secured by the property. The balance on the note was $9,729,000 and $8,877,000 as of December 31, 2004 and 2003, respectively. 720 University continues to make tenant improvements to the property as required. During the year ended December 31, 2004, the Partnership loaned $210,000 to 720 University to pay certain expenses related to the refinancing of 720 University’s note payable. Per the Operating Agreement, the loan earns interest at the rate of prime plus 2% per annum (7.25% at December 31, 2004) and was repaid in the first quarter of 2005. This loan has been eliminated in the consolidated balance sheet as of December 31, 2004.

In February 2005 (subsequent to year end), 720 University obtained a new note with a financial institution in the amount of $10,500,000, which fully repaid its existing note payable (above) and provided additional funds for property improvements. The new note requires monthly interest payments until March 1, 2010. Commencing April 1, 2010, a constant payment of $56,816 per month is required, with the balance of unpaid principal due on March 1, 2015. The interest rate on the note is fixed at 5.07%.

Bayview Gardens, LLC

During the year ended December 31, 2004, the Partnership obtained a deed in lieu of foreclosure on a first mortgage loan secured by an assisted living facility located in Monterey, California in the amount of $5,000,000. The Partnership paid certain past due bills of the former borrower at the time of foreclosure of approximately $109,000 all of which were capitalized to the basis of the property.

At the time of foreclosure, the Partnership became subject to an existing 2nd deed of trust on the property with the General Partner as the lender, which is recorded as note payable to general partner on the consolidated balance sheet. The principal, accrued interest and other charges on this note of approximately $1,103,000 were capitalized to the basis of the property at the time of foreclosure. Pursuant to an amendment to the note between the Partnership and the General Partner dated June 8, 2004, the maturity date on the note was extended to June 8, 2009 and all interest and other accrued charges were deferred until maturity. In addition, the amendment specifies that upon the sale of the property, the General Partner will only be paid the amounts due under the note after the Partnership recovers its basis in the property at the time of sale including any capital improvements made after foreclosure, but excluding the amounts capitalized pursuant to the General Partner note.

The Partnership created a new entity, Bayview Gardens, LLC (“Bayview”), which is wholly owned by the Partnership. Under the terms of a lease agreement between the Partnership and Bayview, the assisted living facility is leased to Bayview by the Partnership and the facility is managed by an outside property manager. The net loss to the Partnership from Bayview was $116,000 for the year ended December 31, 2004. The assets, liabilities, income and expenses of Bayview have been consolidated into the consolidated balance sheet and income statement of the Partnership. The Partnership’s investment in Bayview real property was approximately $6,166,000 as of December 31, 2004.

Item 3. Legal Proceedings

The Partnership is not presently involved in any material pending legal proceedings other than ordinary routine litigation incidental to the business.

Item 4. Submission of Matters to a Vote of Security Holders

None

Part II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

Market Information

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

Holders: As of December 31, 2004, 2,805 Limited Partners held 283,648,126 Units of limited partnership interest in the Partnership.

The Partnership generally distributes all net income of the Partnership to Unit holders on a monthly basis. The Partnership made distributions of net income to the Limited Partners of approximately $20,977,000 and $20,867,000 during 2003 and 2004, respectively. It is the intention of the General Partner to continue to distribute all net income earned by the Partnership to the Unit holders.

Item 6. Selected Financial Data

OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership

	As of and for the year ended December 31
	2004			2003			2002			2001			2000
Loans secured by trust deeds	$	258,431,902		$	266,374,206		$	260,211,121		$	213,703,469		$	223,273,464
Less: Allowance for loan losses		(4,100,000	)		(4,100,000	)		(4,774,000	)		(4,425,000	)		(4,000,000	)
Real estate held for investment		23,322,740			15,394,293			16,200,449			14,064,664			13,078,189
Real estate held for sale .		9,694,578			13,823,574			15,791,632			14,768,961			6,683,419
Less: Allowance for losses on real
estate held for sale		(660,000	)		(660,000	)		(250,000	)		(634,000	)		(1,136,000	)
Cash, cash equivalents and other
assets		12,267,400			10,584,566			10,053,851			43,812,645			8,300,109

Total assets	$	298,956,620		$	301,416,639		$	297,233,053		$	281,290,739		$	246,199,181



Liabilities	$	12,510,727		$	16,828,444		$	16,750,541		$	8,896,345		$	7,339,888
Minority interest		178,597			123,927			131,538			107,680			102,103
Partners’ capital		2,815,190			2,805,528			2,755,846			2,677,867			2,334,845
General partner
Limited partners		283,452,106			281,658,740			277,595,128			269,608,847			236,422,345

Total partners’ capital		286,267,296			284,464,268			280,350,974			272,286,714			238,757,190

Total liabilities /
Partners’ capital	$	298,956,620		$	301,416,639		$	297,233,053		$	281,290,739		$	246,199,181



Revenues	$	31,852,708		$	32,234,785		$	31,078,295		$	29,479,565		$	28,268,431
Expenses:
Carried interest		9,164			20,342			40,075			173,292			102,212
Management fees		5,266,194			5,129,039			3,616,102			3,437,684			3,914,488
Servicing fees		662,603			635,398			611,243			571,538			531,337
Rental and other expenses on
real estate properties		4,524,057			2,691,789			3,090,324			1,546,678			763,754
Interest expense		1,118,204			373,524			426,778			429,032			235,311
Minority interest		54,670			(7,611	)		35,848			5,577			2,103
Other		382,281			286,413			317,543			386,895			184,170
Recovery of bad debts		(240,000	)		--			--			--			--
Provision for losses on loans		--			679,370			1,584,000			1,039,645			--
Provision for (recovery of)
losses on real estate, net		83,294			584,532			(313,577	)		--			--

Total Expenses		11,860,467			10,392,796			9,408,336			7,590,341			5,733,375

Net Income	$	19,992,241		$	21,841,989		$	21,669,959		$	21,889,224		$	22,535,056


Net income allocated to general
partner	$	198,208		$	216,765		$	214,125		$	214,147		$	221,684

Net income allocated to limited
partners	$	19,794,033		$	21,625,224		$	21,455,834		$	21,675,077		$	22,313,372

Net income allocated to limited
partners per limited partnership
unit	$	.07		$	.08		$	.08		$	.08		$	.10

The information in this table should be read in conjunction with the accompanying audited financial statements and notes to financial statements.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

Some of the information in this Form 10-K may contain forward-looking statements. Such statements can be identified by the use of forward-looking words such as “may,” “will,” “expect,” “anticipate,” “estimate,”“continue” or other similar words. These statements discuss 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

Overview

Owens Mortgage Investment Fund (the “Partnership”) is a California Limited Partnership that invests in mortgage loans on real property located in the United States that are primarily originated by the Partnership’s general partner, Owens Financial Group, Inc. (the “General Partner”).

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

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

The Partnership’s operating results are affected primarily by:

the amount of cash available to invest in mortgage loans;

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

the ability to identify and lend to suitable borrowers;

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

the level of delinquencies on mortgage loans;

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

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

Economic developments in the United States have generally been favorable in 2004 and this has led to expansion and gains in employment. The strengthening demand has been a factor contributing to the rise in inflation this year. These and other factors led the Federal Reserve Board to increase the discount rate by a total of 1.25% in 2004. The rates that the Partnership charges on its loans have not been significantly impacted by these actions. However, the weighted average interest rate on Partnership loans increased slightly from 11.05% as of December 31, 2003 to 11.08% as of December 31, 2004. Presently, the General Partner does not expect a noticeable increase in the rates charged on Partnership loans, primarily because there continues to be a shortage of suitable loans for the Partnership to invest in.

Partnership lending volume in 2004 has been lower than in the prior three years. This fact coupled with a continuing high level of loan payoffs in 2004 has resulted in increased available cash to the Partnership. This has required the Partnership to remain closed to most additional partner investments since September 2001.

If economic conditions worsen in 2005, the Partnership could experience an increase in loan defaults. This would reduce the amount of income available for distribution to partners. Recognizing this risk, the General Partner seeks to make loans with low initial loan-to-value ratios, which as of December 31, 2004 was approximately 55% on a weighted average basis. By this means, the Partnership hopes to protect the value of loans in the event of default by providing an increased equity position in underlying real property in the event of foreclosure. Nevertheless, no assurances can be given that a marked increase in loan defaults accompanied by a rapid decline in real estate values will not have a material adverse effect on the Partnership’s financial condition and operating results.

Historically, the General Partner has focused its operations on California and certain Western states. Because the General Partner has a significant degree of knowledge with respect to the real estate markets in such states, it is likely most of the Partnership’s loans will be concentrated in such states. As of December 31, 2004, 52.6% of loans were secured by real estate in Northern California, while 10.7% and 8.3% were secured by real estate in Arizona and Southern California, respectively. Such geographical concentration creates greater risk that any downturn in such local real estate markets could have a significant adverse effect upon results of operations.

Commercial real estate markets in segmented areas of California have continued to prosper. However, there can be no assurance that the rate of growth will continue to increase in the future. A worsening economy, particularly in California and Arizona, could adversely affect the Partnership’s operating results.

Summary of Financial Results

		Year Ended December 31,
		2004		2003	2002
Total revenues	$	31,852,708	$	32,234,785	$	31,078,295
Total expenses		11,860,467		10,392,796		9,408,336


Net income	$	19,992,241	$	21,841,989	$	21,669,959


Net income allocated to limited partners	$	19,794,033	$	21,625,224	$	21,455,834


Net income allocated to limited partners
per weighted average limited
partnership unit	$	.07	$	.08	$	.08


Annualized rate of return to limited
partners (1)		7.0%		7.7%		7.8%


Distribution per partnership unit (yield) (2)		7.3%		7.4%		7.9%


Weighted average limited partnership units		282,307,000		280,644,000		274,892,000

(1)

The annualized rate of return to limited partners is calculated based upon the net income allocated to limited partners per weighted average limited partnership unit as of December 31, 2004, 2003 and 2002.

(2)

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

2004 Compared to 2003

Total Revenues

Interest income on loans secured by trust deeds decreased $979,000 (3.6%) during the year ended December 31, 2004 as compared to 2003. This decrease was primarily the result of a decrease in the weighted average yield of the loan portfolio from 11.4% during 2003 to 11.1% during 2004, and an increase in loans greater than 90 days delinquent in payments of $14,491,000 (63.5%) as of December 31, 2004 as compared to 2003. See additional discussion under “Financial Condition – Loan Portfolio” below.

The mortgage loan portfolio has decreased by $7,942,000 (3.0%) since December 31, 2003. If suitable replacement loans are not originated by the Partnership, the Partnership’s net income and distributions to partners may decrease, as the current yield on the Partnership’s money market accounts is substantially lower than the yield on mortgage loans.

Rental and other income from real estate properties increased $776,000 (28.6%) during the year ended December 31, 2004 as compared to 2003 as a result of revenue earned from the assisted living facility located in Monterey, California that was obtained via foreclosure in June 2004 and due to a $400,000 lease termination fee collected within 720 University, LLC in April 2004. See further discussion under “Real Estate Properties Held for Sale and Investment” below.

Gain on sales of real estate decreased $1,003,000 (55.2%) during the year ended December 31, 2004 as compared to 2003 due to the timing of sales activity of the Partnership’s foreclosed real estate. More properties were sold during 2003 than during 2004 and one property located in Monterey, California alone sold for a total gain of $961,000 during 2003. See further discussion under “Real Estate Properties Held for Sale and Investment” below.

Other income increased $824,000 (497.1%) during the year ended December 31, 2004 as compared to 2003 due to the receipt of a promissory note from the guarantors on a foreclosed loan in the amount of $1,000,000 in exchange for release of their personal guarantees. Since payments on the note do not begin until February 2006, the Partnership discounted the face value of its portion of the note to $846,000 based on a discount rate of 4.75%. See further discussion under “Real Estate Held for Sale and Investment” below.

Total Expenses

Management fees to the General Partner are paid pursuant to the Partnership Agreement and are determined at the sole discretion of the General Partner. The maximum management fee permitted under the Partnership Agreement is 2 ¾% per year of the average unpaid balance of mortgage loans. For the years 2001, 2002, 2003 and 2004, the management fees were 1.48%, 1.46%, 2.01% and 2.00% of the average unpaid balance of mortgage loans, respectively.

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

If the maximum management fees had been paid to the General Partner during the year ended December 31, 2004, the management fees would have been $7,289,000 (increase of $2,023,000), which would have reduced net income allocated to limited partners by approximately 10.1% and net income allocated to limited partners per weighted average limited partner unit by the same percentage to $.06.

Rental and other expenses on real estate properties increased $1,832,000 (68.1%) during the year ended December 31, 2004 as compared to 2003 primarily due to the acquisition through foreclosure of the assisted living facility located in Monterey, California and the hotel and casino located in Las Vegas, Nevada during 2004. The expenses on these two properties during 2004 were $869,000 and $1,390,000, respectively. See further discussion under “Real Estate Properties Held for Sale and Investment” below.

Interest expense increased $745,000 (199.4%) during the year ended December 31, 2004 as compared to 2003 due primarily to increased use of the Partnership’s line of credit to invest in loans secured by trust deeds on a short term basis during 2004.

Legal and accounting expenses increased $87,000 (50.8%) during the year ended December 31, 2004 as compared to 2003 due primarily to legal fees paid in connection with certain loans in the process of foreclosure or involving borrowers in bankruptcy.

Minority interest increased $62,000 during the year ended December 31, 2004 as compared to 2003 due to a $400,000 lease termination fee collected within 720 University, LLC in April 2004. This resulted in an increased amount of income being allocated to the minority interest partner within 720 University.

The decrease in the provision for loan losses of $679,000 (100%) and the provision for losses on real estate held for sale of $501,000 (85.8%) during the year ended December 31, 2004 as compared to 2003 was the result of analyses performed on the loan and real estate portfolios, which resulted in no change in the allowance for loan losses and an increase in the allowance for real estate of $83,000 during 2004. In addition, during the year ended December 31, 2004 the Partnership collected $240,000 from a former borrower of a defaulted loan pursuant to a guarantee agreement (recovery of bad debt).

Net Income and Annualized Rate of Return to Limited Partners

The Partnership’s net income decreased 8.5% during the year ended December 31, 2004 and the annualized rate of return to limited partners also decreased as compared to 2003, due primarily to an increase in expenses incurred on two real estate properties that the Partnership obtained through foreclosure during 2004. Expenses incurred during 2004 on the hotel/casino property located in Las Vegas, Nevada that was obtained through foreclosure in February 2004 were approximately $1,390,000. The property was sold on October 1, 2004. See further discussion under “Real Estate Properties Held for Sale and Investment” below.

2003 Compared to 2002

Total Revenues

Interest income on loans secured by trust deeds increased $1,393,000 (5.3%) for the year ended December 31, 2003, as compared to the same period in 2002. This increase was a result of a 4.0% growth in the average loan portfolio during the year ended December 31, 2003 as compared to 2002 and the collection of interest on certain delinquent loans during the year. The increase in the loan portfolio was partially offset by a decrease in the weighted average yield of the loan portfolio from 11.9% for the year ended December 31, 2002 to 11.4% for the year ended December 31, 2003.

Gain on sale of real estate increased by $452,000 (33.1%) for the year ended December 31, 2003, as compared to the same period in 2002 due to increased sales at the manufactured home subdivision development located in Ione, California, increased sales of the interests in the ocean houses in OLH, and gains from the sales of the commercial property in Monterey, California and the land in Reno, Nevada during the year ended December 31, 2003. See further discussion under “Real Estate Properties Acquired Through Foreclosure and Held for Sale and Investment” below.

The decrease in rental and other income from real estate properties of $520,000 (16.1%) was due primarily to the sale of the commercial building located in Monterey, California and the sale of the hotel property located in Phoenix, Arizona during 2003.

Interest income on investments (other income) decreased by $168,000 (50.3%) for the year ended December 31, 2003 as compared to the same period in 2002 due to a decrease of approximately $11,000,000 in the average amount of cash and equivalents held by the Partnership during the year ended December 31, 2003 as compared to 2002, and a decrease in the weighted average yield of the Partnership’s money market investments from approximately 2.1% for the year ended December 31, 2002 to approximately 1.2% for the year ended December 31, 2003.

Total Expenses

The decrease in legal and accounting expenses of $32,000 (15.8%) was due to professional fees incurred in the first quarter of 2002 as a result of a new S-11 filing (registration of new units) with the Securities and Exchange Commission in January 2002 and the S-11 Post-Effective Amendment filing in April 2002. No registration of new units was made during the year ended December 31, 2003.

The decrease in rental and other expenses on real estate properties of $399,000 (12.9%) between the year ended December 31, 2003 and 2002 was primarily the result of the following:

a decrease in rental expenses of approximately $272,000 as a result of the sales of the commercial building located in Monterey, California and the hotel property located in Phoenix, Arizona during 2003;

a decrease in expenses of approximately $60,000 from the manufactured home subdivision development in Ione, California due to the continued sale of lots and houses in the development; and

a decrease in expenses of approximately $60,000 from the Partnership’s investment in Oregon Leisure Homes, LLC as a result of the final sales of the ocean houses during 2003 and the subsequent winding down of operations.

The decrease in interest expense of $53,000 (12.5%) was due to decreased usage of the Partnership’s line of credit during 2003 compared to 2002 and also due to a decline in the average interest rate on borrowings during 2003.

The decrease in the provision for loan losses of $905,000 (57.1%) was due to specific reserves that were established on two loans in the total amount of $679,000 during the year ended December 31, 2003. During the year ended December 31, 2002, there were specific and general reserves in the total amount of $1,584,000 established. See “Financial Condition – Loan Portfolio” below.

Management fees to the General Partner are paid pursuant to the Partnership Agreement and are determined at the sole discretion of the General Partner. The increase in management fees of $1,513,000 (41.8%) during the year ended December 31, 2003 as compared to 2002 was partially a result of an increase in interest income collected on delinquent loans during the year and the growth in the loan portfolio of approximately 4.0%.

The maximum management fee permitted under the Partnership Agreement is 2 ¾% per year of the average unpaid balance of mortgage loans. For the years 2000, 2001, 2002 and 2003, the management fees were 1.85%, 1.48%, 1.46% and 2.01% of the average unpaid balance of mortgage loans, respectively.

If the maximum management fees had been paid to the General Partner during the year ended December 31, 2003, the management fees would have been $6,992,000 (increase of $1,863,000), which would have reduced net income allocated to limited partners by approximately 8.5%, and net income allocated to limited partners per weighted average limited partner unit by the same percentage to $.07.

The increase in the provision for losses on real estate held for sale of $898,000 was due to the creation of reserves on two properties in the total amount of $585,000 during the year ended December 31, 2003. During the year ended December 31, 2002, an allowance established on the manufactured home subdivision development located in Ione, California was reversed resulting in a net recovery of losses on real estate held for sale of $314,000.

Financial Condition

December 31, 2004, 2003 and 2002

Loan Portfolio

At the end of 2002 and 2003 the number of Partnership mortgage investments was 100 and 95, respectively, and decreased to 87 by December 31, 2004. The average loan balance was $2,602,000 and $2,804,000 at the end of 2002 and 2003 respectively, and increased to $2,970,000 as of December 31, 2004. The average loan balance in the Partnership’s portfolio has been steadily increasing for several years. This is due to the fact that there are more lenders competing for short-term bridge financing at loan levels of $1,000,000 and less, and many of these lenders have the financial capability of funding these loans at more competitive rates. The current opportunities for maximizing the return to the Partnership are greater for larger loan amounts.

Approximately $37,319,000 (14.4%) and $22,828,000 (8.6%) of the loans invested in by the Partnership were more than 90 days delinquent in monthly payments as of December 31, 2004 and 2003, respectively. Of these amounts, approximately $4,000,000 (1.5%) and $4,363,000 (1.6%) were in the process of non-judicial foreclosure and approximately $5,182,000 (2.0%) and $1,600,000 (0.6%), respectively, involved loans to borrowers who were in bankruptcy. In addition, the Partnership’s investment in loans that were past maturity (delinquent in principal) but current in monthly payments was approximately $23,583,000 as of December 31, 2004. Of the total past maturity loans as of December 31, 2004, $11,621,000 were refinanced by the Partnership subsequent to year end.

The increase in loans more than 90 days delinquent in monthly payments of $14,491,000 (63.5%) was due to the delinquency of one loan with a principal balance of $14,000,000. This loan is secured by 4 cemetaries and 8 mortuaries located in Hawaii. The loan has been past maturity since March 31, 2004 and has not made monthly payments since August 2004. The Partnership has participated in this loan with an unrelated mortgage investment group (the “Lead Lender”) that originated the loan with the borrower. The Partnership and the Lead Lender are subject to an Intercreditor Agreement, the terms of which state that the Partnership is guaranteed its share of interest and principal prior to any other lenders participated in the loan. The other lenders have an additonal $20,000,000 invested in this loan. As such, the General Partner has concluded that the underlying collateral is sufficient to protect the Partnership against a loss of principal, and, thus, no specific allowance for loan losses was deemed necessary for this loan.

The General Partner does not expect the delinquency rate on the Partnership’s loan portfolio to continue to increase in the forseeable future. However, there is no precise method used by the General Partner to predict delinquency rates or losses on specific loans. Because any decision regarding the allowance for loan losses reflects judgment about the probablity of future events, there is an inherent risk that such judgments will prove incorrect. In such event, actual losses may exceed (or be less than) the amount of any reserve. To the extent that the Partnership experiences losses greater than the amount of its reserves, the Partnership may incur a charge to earnings that will adversely affect operating results and the amount of any distributions payable to Limited Partners.

Loans in the process of foreclosure decreased by $363,000 (8.3%) from December 31, 2003 to December 31, 2004. Loans in the process of foreclosure as of December 31, 2003 consisted of three loans, of which one loan in the amount of $363,000 was paid off in full during the year ended December 31, 2004 and two loans in the total amount of $4,000,000 are still delinquent and in foreclosure.

Loans to borrowers who were in bankruptcy increased by $3,582,000 (223.9%) from December 31, 2003 to December 31, 2004. Loans to borrowers who were in bankruptcy as of December 31, 2003 consisted of one loan which is still delinquent and in bankruptcy as of December 31, 2004. In addition, one loan in the amount of $3,582,000 which has been subject to bankruptcy proceedings since 2002 and was making current payments under the bankruptcy plan, became delinquent greater than 90 days during 2004.

Management has considered the status of all loans in determining the allowance for loan losses.

As of December 31, 2004, 2003 and 2002, the Partnership held the following types of mortgages:

	December 31, 2004		December 31, 2003		December 31, 2002
1st Mortgages	$	256,372,106		260,321,236		241,335,259
2nd Mortgages		2,059,796		6,052,970		18,875,862

Total	$	258,431,902	$	266,347,206	$	260,211,121


Income Producing Properties	$	159,885,572	$	227,559,987	$	228,210,411
Construction		66,934,856		22,044,472		12,670,310
Unimproved Land		31,396,474		14,309,747		16,938,678
Residential		215,000		2,460,000		2,391,722

Total	$	258,431,902	$	266,347,206	$	260,211,121

As of December 31, 2004, 2003, and 2002, approximately 53%, 46% and 43% of the Partnership’s mortgage loans were secured by real property in Northern California.

The Partnership’s investment in construction loans increased by $44,890,000 (203.6%) since December 31, 2003. This increase was primarily due to increased advances on existing construction loans and the origination of one new construction loan secured by a residential housing project with a principal balance of $20,213,000 during 2004.

The Partnership’s investment in loans on unimproved land increased by $17,087,000 (119.4%) since December 31, 2003. This increase was due to the origination of $19,137,000 in new loans, net of repayments of loans received in the amount of $2,050,000 during 2004. All of the loans secured by unimproved land are first trust deeds.

Changes in the allowance for loan losses for the years ended December 31, 2004, 2003 and 2002 were as follows:

	2004		2003			2002
Balance, beginning of period	$	4,100,000	$	4,774,000		$	4,425,000
Provision		--		679,000			1,584,000
Charge-offs		--		(1,353,000	)		(1,235,000	)

Balance, end of period	$	4,100,000	$	4,100,000		$	4,774,000

Real Estate Properties Held for Sale and Investment

The Partnership currently holds title to 10 properties that were foreclosed on or purchased between 1994 and 2004 in the amount of $32,357,000, net of allowance for losses of $660,000. During the year ended December 31, 2004, the Partnership acquired certain properties through foreclosure on which it had trust deeds totaling $18,875,000. As of December 31, 2004, properties held for sale total $9,035,000 (including the properties held in two limited liability companies) and properties held for investment total $23,323,000 (including the properties held in two limited liability companies). When the Partnership acquires property by foreclosure, it typically earns less income on those properties than could be earned on mortgage loans and may not be able to sell the properties in a timely manner.

Three of the Partnership’s ten properties do not currently generate revenue. Expenses from real estate properties have increased from approximately $2,692,000 to $4,524,000 (68.1%) for the years ended December 31, 2003 and 2004, respectively, and revenues associated with these properties have increased from $2,713,000 to $3,489,000 (28.6%), thus generating a net loss from real estate operations of $1,035,000 during the year ended December 31, 2004 (compared to $21,000 net income during 2003). The increases in income and expenses were primarily due to the acquisition through foreclosure of the assisted living facility located in Monterey, California and the hotel and casino located in Las Vegas, Nevada during 2004. In addition, a $400,000 lease termination fee was collected by 720 University, LLC from a vacated tenant during 2004.

As of December 31, 2003 and 2002, the Partnership owned eleven and fifteen properties, respectively. Prior to foreclosure, these properties secured Partnership loans aggregating $15,771,000 and $18,855,000 in 2003 and 2002, respectively. During the years ended December 31, 2003 and 2002, the Partnership acquired certain properties through foreclosure on which it had trust deed investments totaling $4,300,000 and $9,370,000, respectively.

Changes in the allowance for real estate losses for the years ended December 31, 2004, 2003 and 2002 were as follows:

	2004			2003			2002
Balance, beginning of period	$	660,000		$	250,000		$	634,000
Provision		83,294			584,532			--
Deductions		(83,294	)		(174,532	)		(384,000	)

Balance, end of period	$	660,000		$	660,000		$	250,000

2004 Foreclosure and Sales Activity

During the year ended December 31, 2004, fifteen lots (eleven including houses) located in a manufactured home subdivision development located in Ione, California (that was acquired by the Partnership through foreclosure in 1997) were sold for $1,908,000, resulting in a gain to the Partnership of approximately $408,000.

During the year ended December 31, 2004, a commercial building located in Albany, Oregon that was acquired by the Partnership through foreclosure in 2002 was sold for $2,033,000, resulting in a gain to the Partnership of approximately $233,000.

During the year ended December 31, 2004, an industrial building located in Santa Clara, California that was acquired by the Partnership through foreclosure in 2003 was sold for $2,151,000, resulting in a gain to the Partnership of approximately $174,000.

Acquisition of Hotel and Casino through Foreclosure and Subsequent Sale

In February 2004, the Partnership and two co-lenders (the “Sellers”) participated in a loan with a principal balance of $22,200,000 which was foreclosed upon due to a violation of the bankruptcy stipulation by the borrower and obtained the underlying collateral, a hotel and casino located in Las Vegas, Nevada. The hotel and casino were closed at the time of foreclosure. The lenders were allowed to remove their cash collateral at the time of foreclosure, which totaled approximately $733,000 ($458,000 to the Partnership). Slot machines within the casino were sold at an auction in July 2004 for approximately $536,000 ($335,000 to the Partnership). Certain expenses were incurred on the property after foreclosure for utilities, security, maintenance and legal fees, among other items, in the amount of approximately $1,386,000 to the Partnership.

On June 4, 2004, the Sellers had entered into a Purchase Agreement with an unrelated company (the “Assignor”), whereby the Assignor would purchase the property from the Sellers at a price of $21,600,000 secured by a note for the full purchase price. The note was to bear interest at 8% per annum payable monthly and be due in two years.

On September 27, 2004, the Sellers signed an Assignment Agreement and Release (the “Assignment”) with the Assignor and an unrelated company (the “Assignee”), which assigned the right, title and interest in the Purchase Agreement from the Assignor to the Assignee. In addition, on September 27, 2004, the Sellers signed an Amended and Restated Purchase Agreement (the “Amended Agreement”) with the Assignee or its assigns (the “Buyer”). The Amended Agreement replaced the Purchase Agreement and provided that the Buyer would purchase the Property for $21,767,028 from the Sellers. Although it was signed on September 27, 2004, both it and the Assignment provided that they did not become effective until the close of escrow on October 1, 2004.

On October 1, 2004, escrows for the related transactions were closed and the Assignment and Amended Agreement were made effective. The Partnership received cash of approximately $13,409,000 as its portion of the net sales proceeds. The sale resulted in no gain or loss to the Partnership as an allowance for real estate losses in the amount of approximately $83,000 had been previously established during 2004.

In addition, during 2004 the Sellers received a promissory note from the guarantors on the loan in the amount of $1,600,000 ($1,000,000 to the Partnership) in exchange for their release of their personal guarantees. Since payments on the note do not begin until February 2006, the Partnership discounted the face value of its portion of the note to $846,134 based on a discount rate of 4.75%, which was recorded as other income in the consolidated statements of income.

2003 Foreclosure and Sales Activity

During the year ended December 31, 2003, the Partnership foreclosed on a first mortgage loan secured by an industrial building located in Santa Clara, California in the amount of $2,000,000 and obtained the property via the trustee’s sale.

During the year ended December 31, 2003, the Partnership foreclosed on a first mortgage loan secured by a retail/commercial building located in Norfolk, Virginia in the amount of $2,300,000 and obtained the property via the trustee’s sale. The property was transferred to real estate held for sale net of a $1,000,000 specific allowance previously established. The Partnership sold the property for $1,289,000, resulting in an additional loss of $11,000 during the year ended December 31, 2003.

During the year ended December 31, 2003 the hotel property located in Phoenix, Arizona that was acquired by the Partnership through foreclosure in 2002 was sold for cash of $370,000 and a note in the amount of $1,480,000, resulting in no gain or loss. An additional allowance in the amount of $174,532 had been established during the year ended December 31, 2003.

During the year ended December 31, 2003, the parcel of land located in Reno, Nevada (that was acquired by the Partnership through foreclosure in 1996) was sold for $475,000, resulting in a gain to the Partnership of approximately $106,000.

During the year ended December 31, 2003, 22 lots (11 including houses) located in the manufactured home subdivision development located in Ione, California (that were acquired by the Partnership through foreclosure in 1997) were sold for $1,894,000, resulting in a gain to the Partnership of approximately $433,000. There are 39 lots remaining to be sold on this property as of December 31, 2003.

During the year ended December 31, 2003, the Partnership sold the office building and undeveloped land located in Monterey, California (in separate transactions) for total proceeds of $2,965,000, resulting in a total gain of $961,000.

2002 Foreclosure and Sales Activity

During the year ended December 31, 2002, a commercial parcel located in Vallejo, California that was acquired by the Partnership through foreclosure in 1994 was sold for $1,095,000, resulting in a gain to the Partnership of approximately $734,000. In addition, a commercial building located in Sacramento, California that was acquired by the Partnership through foreclosure in 1998 was sold for $147,000, resulting in a gain to the Partnership of approximately $117,000.

During the year ended December 31, 2002, the Partnership sold a commercial building located in Gresham, Oregon for proceeds in the amount of $340,000 resulting in no gain or loss. An allowance in the amount of $70,000 was previously established in 2002 on this property and, thus, the loss was reported net of the recovery of losses on real estate held for sale in the accompanying consolidated income statement for the year ended December 31, 2002.

During the year ended December 31, 2002, 22 lots (11 including houses) located in a manufactured home subdivision development located in Ione, California (that were acquired by the Partnership through foreclosure in 1997) were sold for $1,811,000, resulting in a gain to the Partnership of approximately $317,000. An allowance in the amount of $384,000 that was previously established on this property was reversed during the year ended December 31, 2002 as a result of management’s evaluation of the property’s fair market value based on recent sales. There are 61 lots remaining to be sold on this property as of December 31, 2002.

During the year ended December 31, 2002, the Partnership foreclosed on a 1st mortgage loan secured by a commercial building located in Albany, Oregon in the amount of $1,800,000 and foreclosed on a 1st mortgage loan secured by commercial land located in Gresham, Oregon in the amount of $1,620,000 and obtained the properties via the trustee’s sale. During the year ended December 31, 2002, the Partnership foreclosed on a first mortgage loan secured by a hotel located in Phoenix, Arizona in the amount of $2,925,000 (which had an allowance established in the amount of $1,235,000) and obtained the property via the trustee’s sale. The Partnership paid $335,000 in delinquent property taxes at the time of foreclosure which were capitalized to the basis of the property. The Partnership transferred the net basis of the loan to real estate held for sale at the time of foreclosure.

During the year ended December 31, 2002, the Partnership foreclosed on a first mortgage loan secured by undeveloped land located in San Jose, California in the amount of $3,025,000 and obtained the property via the trustee’s sale.

Investments in Limited Liability Companies

Oregon Leisure Homes, LLC

The Partnership is co-manager of OLH and is to receive 70% of the profits after payment of all interest on the original loan is made to the Partnership and priority return on partner contributions is allocated at the rate of 11% per annum. The assets, liabilities, income and expenses of OLH have been consolidated into the consolidated balance sheet and income statement of the Partnership.

2004 Activity

During the year ended December 31, 2004, the Partnership advanced an additional $49,000 to OLH for continued operation and marketing of the condominium units that are for sale and received repayment of advances of $310,000 from collections on notes receivable. The net loss to the Partnership was approximately $26,000 for the year ended December 31, 2004. The Partnership’s investment in OLH real property was approximately $1,122,000 as of December 31, 2004.

2003 Activity

During the year ended December 31, 2003, the Partnership advanced an additional $1,037,000 to OLH for continued development and marketing of the condominium units and houses that have been for sale and received repayment of advances of $1,008,000 from sales and collections on notes receivable. During the year ended December 31, 2003, OLH sold the remaining one interest in the first ocean house and seven interests in the second ocean house for total cash proceeds of $670,000 and notes taken back in the amount of $420,000, resulting in gains in the total amount of $329,000. Both ocean houses have been fully sold as of December 31, 2003. During the year ended December 31, 2003, OLH bought back the interests in three of the condominium units previously sold in 2002 for a total of $74,000 to allow OLH to sell the condominiums individually. As a result of an analysis performed based on projected sales proceeds, OLH recorded an allowance for losses in the amount of $410,000 on the condominium units during the year ended December 31, 2003. The net loss to the Partnership was approximately $373,000 for the year ended December 31, 2003. The Partnership’s investment in OLH real property was approximately $1,137,000 as of December 31, 2003.

Dation, LLC

The net operating loss to the Partnership was approximately $142,000, $149,000 and $184,000 during the years ended December 31, 2004, 2003 and 2002, respectively. Dation paid $130,000 of loan interest payable to the Partnership during the year ended December 31, 2004. The remaining receivable in the amount of $62,257 as of December 31, 2004 is reported as due from affiliate in the consolidated balance sheet. The Partnership advanced an additional $316,000, $136,000 and $140,000, respectively, to Dation and received repayments from sales of lots in the amount of $70,000, $74,000 and $60,000, respectively, during the years ended December 31, 2004, 2003 and 2002. The Partnership’s total investment in Dation was approximately $1,948,000 and $1,845,000 as of December 31, 2004 and 2003, respectively.

720 University, LLC

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

The net income to the Partnership was approximately $382,000, $418,000 and $291,000 during the years ended December 31, 2004, 2003 and 2002, respectively. The minority interest of the joint venture partner of approximately $179,000 and $124,000 as of December 31, 2004 and 2003, respectively. The Partnership’s investment in the real property within 720 University was approximately $14,830,000 and $13,063,000 as of December 31, 2004 and 2003, respectively. The Partnership has a note payable with a bank through its investment in 720 University, which is secured by the property. The balance on the note was $9,729,000 and $8,877,000 as of December 31, 2004 and 2003, respectively. During the year ended December 31, 2004, the Partnership loaned $210,000 to 720 University to pay certain expenses related to the refinancing of 720 University’s note payable. Per the Operating Agreement, the loan earns interest at the rate of prime plus 2% per annum (7.25% at December 31, 2004) and was repaid in the first quarter of 2005. This loan has been eliminated in the consolidated balance sheet as of December 31, 2004.

Bayview Gardens, LLC

At the time of foreclosure, the Partnership became subject to an existing 2nd deed of trust on the property with the General Partner as the lender, which is recorded as note payable to general partner on the balance sheet. The principal, accrued interest and other charges on this note of approximately $1,103,000 were capitalized to the basis of the property at the time of foreclosure. Pursuant to an amendment to the note between the Partnership and the General Partner dated June 8, 2004, the maturity date on the note was extended to June 8, 2009 and all interest and other accrued charges were deferred until maturity. In addition, the amendment specifies that upon the sale of the property, the General Partner will only be paid the amounts due under the note after the Partnership recovers its basis in the property at the time of sale including any capital improvements made after foreclosure, but excluding the amounts capitalized pursuant to the General Partner note.

Cash and Cash Equivalents

Cash and cash equivalents increased from approximately $6,633,000 as of December 31, 2003 to approximately $9,009,000 as of December 31, 2004 ($2,376,000 or 35.8%) due primarily to proceeds from loan payoffs and sales of real estate properties during 2004 without investment in new mortgage loans of the same amount.

Interest and Other Receivables

Interest and other receivables decreased from approximately $3,759,000 as of December 31, 2003 to $3,196,000 as of December 31, 2004 ($563,000 or 15.0%), due primarily to the following:

the collection of deferred interest on two loans in the total amount of $432,000 at the time of payoff during the year ended December 31, 2004, net of the accrual of deferred interest on two additional loans in the amount $278,000 during 2004;

the reclassification of $339,000 in deferred interest to real estate held for sale at the time of foreclosure of the loan in February 2004; and

a decrease in accrued interest receivable due to a decrease in the outstanding balance of trust deeds of $7,942,000 (3.0%) between December 31, 2003 and 2004.

Due to General Partner

Due to General Partner decreased from approximately $1,167,000 as of December 31, 2003 to $673,000 as of December 31, 2004 ($494,000 or 42.3%), due primarily to lower accrued management fees for the months of November and December 2004 as compared to November and December 2003. These fees are paid pursuant to the Partnership Agreement (see “Results of Operations” above).

Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities increased from approximately $211,000 as of December 31, 2003 to $460,000 as of December 31, 2004 ($249,000 or 117.9%), due primarily to accrued property taxes on the Greeley, Colorado retail complex within 720 University, LLC as of December 31, 2004.

Note Payable

Note payable increased from approximately $8,877,000 as of December 31, 2003 to $9,729,000 as of December 31, 2004 ($852,000 or 9.6%), due to additional advances on the note payable securing the Greeley, Colorado retail complex. The funds were used for additional property and tenant improvements made to the complex in 2004.

Note Payable to General Partner

Note payable to general partner increased $1,103,000 since December 31, 2003 as a result of the deed in lieu of foreclosure obtained on a Partnership loan during the year ended December 31, 2004. The receipt of the deed in lieu of foreclosure made the Partnership subject to the second deed of trust on the related property payable to Owens Financial Group, Inc., the Partnership’s General Partner. Pursuant to an amendment to the note between the Partnership and the General Partner dated June 8, 2004, the maturity date on the note was extended to June 8, 2009 and all interest and other accrued charges were deferred until maturity. In addition, the amendment specifies that upon the sale of the property, the General Partner will only be paid the amounts due under the note after the Partnership recovers its basis in the property at the time of sale including any capital improvements made after foreclosure, but excluding the amounts capitalized pursuant to the General Partner note.

Line of Credit Payable

Line of credit payable decreased from $6,000,000 as of December 31, 2003 to no balance outstanding as of December 31, 2004 due to repayments made as a result of excess cash from loan payoffs and sales of real estate properties during 2004. There is $40,000,000 available to be advanced from the line of credit as of December 31, 2004.

Asset Quality

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 their loan portfolios (including analyses of 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. The allowance for loan losses is established through a provision for loan losses based on the General Partner’s evaluation of the risk inherent in the Partnership’s loan portfolio and current economic conditions. Such evaluation, which includes a review of all loans on which full collectibility may not be reasonably assured, considers among other matters:

prevailing economic conditions;

historical experience;

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

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

evaluation of industry trends;

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

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

Based upon this evaluation, a determination is made as to whether the allowance for loan losses is adequate to cover potential losses of the Partnership. Additions to the allowance for loan losses are made by charges to the provision for loan losses. Loan losses deemed to be uncollectible are charged against the allowance for loan losses. Recoveries of previously charged off amounts are credited to the allowance for loan losses.

During the year ended December 31, 2004, the Partnership collected $240,000 from a former borrower of a defaulted loan pursuant to a guarantee agreement.

As of December 31, 2004, management believes that the allowance for loan losses of $4,100,000 and the allowance for real estate losses in the amount of $660,000 are adequate.

Liquidity and Capital Resources

Sales of Units to investors, portfolio loan payoffs, and advances on the Partnership’s line of credit provide the capital for new mortgage investments. If general market interest rates were to rise substantially, investors might turn to interest-yielding investments other than Partnership Units, which would reduce the liquidity of the Partnership and its ability to make additional mortgage investments to take advantage of the generally higher interest rates. In contrast, a significant increase in the dollar amount of loan payoffs and additional limited partner investments without the origination of new loans of the same amount would increase the liquidity of the Partnership. This increase in liquidity could result in a decrease in the yield paid to limited partners as the Partnership would be required to invest the additional funds in lower yielding, short term investments. With the exception of the reinvestment of distributions, the Partnership has been closed to most new limited partner investments since September 2001, because there have not been enough suitable mortgage investments to allow the Partnership to remain fully invested in loans for a sustainable period of time.

Withdrawal percentages have been 6.64%, 5.45%, 3.32%, 4.42% and 4.47% for the years ended December 31, 2000, 2001, 2002, 2003 and 2004, respectively. These percentages are the annual average of the limited partners’capital withdrawals in each calendar quarter divided by the total limited partner capital as of the end of each quarter.

The limited partners may withdraw, or partially withdraw, from the Partnership and obtain the return of their outstanding capital accounts at $1.00 per Unit within 61 to 91 days after written notices are delivered to the General Partner, subject to the following limitations, among others:

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

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

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

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

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

The Partnership may incur indebtedness for the purpose of investing in mortgage loans, among other things. The total amount of indebtedness incurred by the Partnership cannot exceed the sum of 50% of the aggregate fair market value of all Partnership loans. The Partnership has executed a line of credit agreement with a bank, which provides interim financing on mortgage loans invested in by the Partnership. The amount of credit available under this line of credit is $40,000,000. There was no balance outstanding on the line of credit as of December 31, 2004. The Partnership also has a note payable with a bank through its investment in 720 University, LLC with a balance of $9,729,000 as of December 31, 2004.

As of December 31, 2004, the Partnership has commitments to advance additional funds to borrowers of construction and other loans in the total amount of approximately $10,886,000. The Partnership expects these amounts to be advanced to borrowers by December 31, 2006.

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.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The following table contains information about the cash held in money market accounts, loans held in the Partnership’s portfolio and a note payable securing a real estate property owned by the Partnership as of December 31, 2004. The presentation, for each category of information, aggregates the assets and liabilities by their maturity dates for maturities occurring in each of the years 2005 through 2009 and separately aggregates the information for all maturities arising after 2009. The carrying values of these assets and liabilities approximate their fair values as of December 31, 2004.

Interest Earning Assets and Interest Bearing Liabilities,
Aggregated by Maturity Date
Twelve Months Ended December 31,

	2005		2006		2007		2008		2009		Thereafter		Total
*Interest earning*
*assets:*
Money market
accounts	$	8,386,217		--		--		--		--		--	$	8,386,217
Average interest rate		1.5$		--		--		--		--		--		1.5$
Loans secured by
trust deeds	$	152,868,373		57,113,961	$	13,116,437	$	1,034,485	$	5,440,458	$	28,858,188	$	258,431,902
Average interest rate		11.5%		10.7%		10.7%		6.9%		9.5%		10.3%		11.1%

*Interest bearing*
*liabilities:*
Note payable to bank	$	297,600	$	326,300	$	9,105,073		--		--		--	$	9,728,973
Average interest rate		5.3%		5.3%		5.3%		--		--		--		5.3%
Note payable to
general partner		--		--		--		--	$	1,102,895		--	$	1,102,895
Average interest rate		--		--		--		--		12.0%		--		12.0%

Market Risk

Market risk is the exposure to loss resulting from changes in interest rates, equity prices and real estate values. The Partnership does not have any assets or liabilities denominated in foreign currencies. The Partnership does not hedge or otherwise seek to manage interest rate risk. The Partnership does not enter into risk sensitive instruments for trading purposes.

The majority of the Partnership’s mortgage loans (86.6% as of December 31, 2004) earn interest at fixed rates. All of the mortgage loans are held for investment purposes and are held until maturity. The majority of Partnership loans do not have prepayment penalties for payoff prior to maturity, but many instead require the borrower to notify the General Partner of the intent to payoff within a specified period of time prior to payoff (usually 30 to 120 days). If this notification is not made within the proper time frame, the borrower is charged interest for those number of days that notification was not received.

Changes in interest rates may affect the value of the Partnership’s investment in mortgage loans and the rates at which the Partnership reinvests funds obtained from loan repayments and new capital contributions from limited partners. As interest rates increase, although the interest rates the Partnership obtains from reinvested funds will generally increase, the value of the Partnership’s existing loans at fixed rates will generally tend to decrease. As interest rates decrease, the amounts available to the Partnership from repayment of Partnership loans may be invested at lower rates than the Partnership had been able to obtain in prior investments, or lower than the rates on the repaid loans.

The Partnership’s note payable bears interest at a variable rate, tied to the LIBOR rate of interest. The Partnership’s line of credit payable (no balance at December 31, 2004) bears interest at a variable rate, tied to the bank discount rate. As a result, the Partnership’s primary market risk exposure is to changes in interest rates, which will affect the interest cost of outstanding amounts on the note and line of credit payable.

Item 8. Consolidated Financial Statements and Supplementary Data

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

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

There were no changes in or disagreements on items dealing with accounting and financial disclosure with the independent auditors during the past two fiscal years.

Item 9A. Controls and Procedures

Within the 90 days prior to the date of this report, the General Partner of the Partnership carried out an evaluation, under the supervision and with the participation of the General Partner’s management, including the General Partner’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Partnership’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer of the General Partner concluded that the Partnership’s disclosure controls and procedures are effective. There were no significant changes in the Partnership’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

Item 9B. Other Information

There was no information required to be filed in a Form 8-K during the fourth quarter of 2004.

Part III

Item 10. Directors and Executive Officers of the Registrant

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

The General Partner manages and controls the affairs of the Partnership and has general responsibility and final authority in all matters affecting the Partnership’s business. These duties include dealings with limited partners, accounting, tax and legal matters, communications and filings with regulatory agencies and all other needed management duties. The General Partner may also, at its sole discretion and subject to change at any time,

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

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

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

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

The General Partner had a net worth of approximately $40,000,000 on December 31, 2004. The following persons comprise the board of directors and management employees of the General Partner actively involved in the administration and investment activity of the Partnership.

William C. Owens – Mr. Owens, age 54, has been President of the General Partner since April 1996 and is also a member of the Board of Directors and the Loan Committee of the General Partner. From 1989 until April 1996, he served as a Senior Vice President of the General Partner. Mr. Owens has been active in real estate construction, development, and mortgage financing since 1973. Prior to joining Owens Mortgage Company in 1979, Mr. Owens was involved in mortgage banking, property management and real estate development. As President of the General Partner, Mr. Owens is responsible for the overall activities and operations of the General Partner, including corporate investment, operating policy and planning. In addition, he is responsible for loan production, including the underwriting and review of potential loan investments. Mr. Owens is also the President of Owens Securities Corporation, a subsidiary of the General Partner. Mr. Owens is a licensed real estate broker.

Bryan H. Draper – Mr. Draper, age 47, has been Chief Financial Officer and corporate secretary of the General Partner since December 1987 and is also a member of the board of directors of the General Partner. Mr. Draper is a Certified Public Accountant and is responsible for all accounting, finance, and tax matters for the General Partner and Owens Securities Corporation. Mr. Draper received a Masters of Business Administration degree from the University of Southern California in 1981.

William E. Dutra – Mr. Dutra, age 42, is a Senior Vice President and member of the Board of Directors and the Loan Committee of the General Partner and has been its employee since February 1986. In charge of loan production, Mr. Dutra has responsibility for loan committee review, loan underwriting and loan production.

Andrew J. Navone – Mr. Navone, age 48, is a Vice President and member of the Board of Directors and the Loan Committee of the General Partner and has been its employee since August 1985. Mr. Navone has responsibilities for loan committee review, loan underwriting and loan production.

Melina A. Platt – Ms. Platt, age 38, has been Controller of the General Partner since May 1998. Ms. Platt is a Certified Public Accountant and is responsible for all accounting, finance, and regulatory agency filings of the Partnership. Ms. Platt was previously a Senior Manager with KPMG LLP.

The General Partner has adopted a code of business conduct for officers (including the General Partner’s Chief Executive Officer, Chief Financial Officer and Controller) and employees, known as the Code of Conduct (the “Code”). The General Partner will provide a copy of the Code to any person without charge upon request.

Research and Acquisition

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

Partnership Management

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

the creation and implementation of Partnership investment policies;

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

preparation and review of Partnership reports and regulatory filings;

communications with limited partners;

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

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

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

For these and certain other services the General Partner is entitled to receive a management fee of up to 2-3/4% per annum of the unpaid balance of the Partnership’s mortgage loans. The management fee is payable on all loans, including nonperforming or delinquent loans. The General Partner believes that a fee payable on delinquent loans is justified because of the expense involved in the administration of such loans. See “Compensation to the General Partner—Management Fees,” at page 6.

Item 11. Executive Compensation

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

The following table summarizes the forms and amounts of compensation paid to the General Partner for the year ended December 31, 2004. Such fees were established by the General Partner and were not determined by arms-length negotiation.

	Year Ended December 31, 2004
Form of Compensation	Actual		Maximum Allowable
Paid by the Partnership:
Management Fees	$	5,266,000	$	7,289,000
Servicing Fees		663,000		663,000
Carried Interest		9,000		9,000

Subtotal	$	5,938,000	$	7,961,000


Paid by Borrowers:
Loan Origination Fees	$	4,034,000	$	4,034,000
Late Payment Charges		416,000		416,000

Subtotal	$	4,450,000	$	4,450,000


Grand Total	$	10,388,000	$	12,511,000


Reimbursement by the Partnership of
Other Expenses	$	44,000	$	44,000

Item 12. Security Ownership of Certain Beneficial Owners and Management

No person or entity owns beneficially more than 5% of the ownership interests in the Partnership. The General Partner owns approximately 3,667,000 units (1.3%) of the Partnership as of December 31, 2004. The voting common stock of the General Partner is owned as follows: 56.098% by William C. Owens, and 14.634% each by Bryan H. Draper, William E. Dutra and Andrew J. Navone.

Item 13. Certain Relationships and Related Transactions

Transactions with Management and Others

Management Fee

The General Partner 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. The amount of management fees to the General Partner for the year ended December 31, 2004 was approximately $5,266,000.

Servicing Fee

All of the Partnership’s loans are serviced by the General Partner, in consideration for which the General Partner receives up to .25% per annum of the unpaid principal balance of the loans on a monthly basis. The amount of servicing fees to the General Partner for the year ended December 31, 2004 was approximately $663,000.

Carried Interest

The General Partner is required to continue cash capital contributions to the Partnership in order to maintain its required capital balance equal to 1% of the limited partners’ capital accounts. The General Partner has contributed capital to the Partnership in the amount of 0.5% of the limited partners’ aggregate capital accounts and, together with its carried interest, the General Partner has an interest equal to 1% of the limited partners’ capital accounts. This carried interest of up to 1/2 of 1% is recorded as an expense of the Partnership and credited as a contribution to the General Partner’s capital account as additional compensation. As of December 31, 2004, the General Partner had made total cash capital contributions of $1,419,000 to the Partnership. During 2004, the Partnership incurred carried interest expense of $9,000.

Reimbursement of Other Expenses

Compensation from Others

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

Loan Origination Fees

Loan origination fees, also called mortgage placement fees or points, are paid to the General Partner from the borrowers under loans held by the Partnership. These fees are compensation for the evaluation, origination, extension and refinancing of loans for the borrowers and may be paid at the placement, extension or refinancing of the loan or at the time of final repayment of the loan. The amount of these fees is determined by competitive conditions and the General Partner and may have a direct effect on the interest rate borrowers are willing to pay the Partnership. During 2004, the General Partner earned investment evaluation fees on Partnership loans in the amount of $4,034,000.

Late Payment Charges

All late payment charges paid by borrowers of delinquent mortgage loans, including additional interest and late payment fees, are retained by the General Partner. During 2004, the General Partner received late payment charges from borrowers of Partnership loans in the amount of $416,000.

Item 14. Principal Accounting Fees and Services

Items 14(e)(1) to 14(e)(4)

	2004		2003
Audit Fees	$	82,093	$	79,330

Audit-Related Fees		5,000		--

Tax Fees (1)		40,793		35,991

All Other Fees		--		--


Total	$	127,886	$	115,321

(1) Tax services include tax research and compliance, tax planning and advice, and tax return preparation.

Item 14(e)(5)

(i) Before the accountant is engaged by the Partnership to render audit or non-audit services, the engagement is approved by the Board of Directors of the General Partner.

(ii) 100% of the services described in Items 9(e)(2) through 9(e)(4), above, were approved by the Board of Directors of the General Partner of the Partnership.

Item 14(e)(6)

Not applicable

Part IV

Item 15. Exhibits, Consolidated Financial Statement Schedules

(a)(1)

List of Financial Statements:

Report of Registered Public Accounting Firm

F-1

Consolidated Balance Sheets - December 31, 2004 and 2003

F-2

Consolidated Statements of Income for the years ended
December 31, 2004, 2003 and 2002

F-3

Consolidated Statements of Partners’ Capital for the
years ended December 31, 2004, 2003 and 2002

F-4

Consolidated Statements of Cash Flows for the years
ended December 31, 2004, 2003 and 2002

F-5

Notes to Consolidated Financial Statements

F-6

(2)

Schedule II- Valuation and Qualifying Accounts

F-25

Schedule IV- Mortgage Loans on Real Estate

F-26

(3)

Exhibits

Sixth Amended and Restated Agreement of Limited Partnership, incorporated by reference to Exhibit
A to Post-Effective Amendment No. 4 to the Form S-11 Registration Statement No. 333-69272 filed
April 16, 2004 and declared effective on April 28, 2004.

3.1

Certificate of Limited Partnership – Form LP-1: Filed July 1, 1984*

3.2

Amendment to Certificate of Limited Partnership – Form LP-2: Filed March 20, 1987*

3.3

Amendment to Certificate of Limited Partnership – Form LP-2: Filed August 29, 1989*

3.4

Amendment to Certificate of Limited Partnership – Form LP-2: Filed October 22, 1992*

3.5

Amendment to Certificate of Limited Partnership – Form LP-2: Filed January 24, 1994*

3.6

Amendment to Certificate of Limited Partnership – Form LP-2: Filed December 30, 1994*

4.1

Sixth Amended and Restated Limited Partnership Agreement, incorporated by reference to Exhibit A
to Post-Effective Amendment No. 4 to the Form S-11 Registration Statement No. 333-69272 filed
April 16, 2004 and declared effective on April 28, 2004.

4.2

Subscription Agreement and Power of Attorney, incorporated by reference to Exhibit B to
Post-Effective Amendment No. 4 to the Form S-11 Registration Statement No. 333-69272 filed April
16, 2004 and declared effective on April 28, 2004.

31.1

Section 302 Certification of William C. Owens

31.2

Section 302 Certification of Bryan H. Draper

Certification Pursuant to U.S.C. 18 Section 1350

*Previously filed under Amendment No. 3 to Registration Statement No. 333-69272 and incorporated herein by this reference.

(b)

Exhibits:

3.1

Certificate of Limited Partnership – Form LP-1: Filed July 1, 1984*

3.2

Amendment to Certificate of Limited Partnership – Form LP-2: Filed March 20, 1987*

3.3

Amendment to Certificate of Limited Partnership – Form LP-2: Filed August 29, 1989*

3.4

Amendment to Certificate of Limited Partnership – Form LP-2: Filed October 22, 1992*

3.5

Amendment to Certificate of Limited Partnership – Form LP-2: Filed January 24, 1994*

3.6

Amendment to Certificate of Limited Partnership – Form LP-2: Filed December 30, 1994*

4.1

4.2

31.1

Section 302 Certification of William C. Owens

31.2

Section 302 Certification of Bryan H. Draper

Certification Pursuant to U.S.C. 18 Section 1350

(c)

Schedules:

Schedule II - Valuation and Qualifying Accounts
Schedule IV - Mortgage Loans on Real Estate

SIGNATURES

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

OWENS MORTGAGE INVESTMENT FUND, a California Limited Partnership

By: Owens Financial Group, Inc., General Partner

Dated: March 24, 2005

By: /s/ William C. Owens
William C. Owens, Chief Executive Officer and President

Dated: March 24, 2005

By: /s/ Bryan H. Draper
Bryan H. Draper, Chief Financial Officer and Secretary

Dated: March 24, 2005

By: /s/ Melina A. Platt
Melina A. Platt, Controller

Report of Independent Registered Public Accounting Firm

The Partners
Owens Mortgage Investment Fund

We have audited the accompanying consolidated balance sheets of Owens Mortgage Investment Fund, a California Limited Partnership, as of December 31, 2004 and 2003, and the related consolidated statements of income, partners’ capital and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Owens Mortgage Investment Fund as of December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

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

/s/ Grant Thornton LLP

Reno, Nevada
February 18, 2005

OWENS MORTGAGE INVESTMENT FUND,
A CALIFORNIA LIMITED PARTNERSHIP

Consolidated Balance Sheets

December 31, 2004 and 2003

Assets	2004		2003
Cash and cash equivalents	$	9,008,819	$	6,632,997

Loans secured by trust deeds, net of allowance for
losses of $4,100,000 in 2004 and 2003		254,331,902		262,274,206

Interest and other receivables		3,196,324		3,758,922
Due from affiliate		62,257		192,647
Real estate held for sale, net of allowance for
losses of $660,000 in 2004 and 2003		9,034,578		13,163,574
Real estate held for investment, net of accumulated depreciation
and amortization of $1,282,430 in 2004 and $812,370 in 2003		23,322,740		15,394,293

	$	298,956,620	$	301,416,639

Liabilities and Partners’ Capital
Liabilities:
Accrued distributions payable	$	546,219	$	573,725
Due to general partner		672,940		1,166,522
Accounts payable and accrued liabilities		459,700		210,994
Note payable		9,728,973		8,877,203
Note payable to general partner		1,102,895		--
Line of credit payable		--		6,000,000


Total liabilities		12,510,727		16,828,444


Minority interest		178,597		123,927


Partners’ capital (units subject to redemption):
General partner		2,815,190		2,805,528
Limited partners
Authorized 500,000,000 units outstanding in 2004 and 2003;
472,687,651 and 457,419,768 units issued and 283,648,126 and
281,854,760 units outstanding in 2004 and 2003, respectively		283,452,106		281,658,740


Total partners’ capital		286,267,296		284,464,268


	$	298,956,620	$	301,416,639

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

OWENS MORTGAGE INVESTMENT FUND,
A CALIFORNIA LIMITED PARTNERSHIP

Consolidated Statements of Income

Years Ended December 31, 2004, 2003 and 2002

	2004			2003			2002
Revenues:
Interest income on loans secured by trust deeds	$	26,559,888		$	27,538,573		$	26,145,598
Gain on sale of real estate, net		814,681			1,817,684			1,366,048
Rental and other income from real estate properties		3,488,580			2,712,791			3,233,067
Other income		989,559			165,737			333,582


Total revenues		31,852,708			32,234,785			31,078,295


Expenses:
Management fees to general partner		5,266,194			5,129,039			3,616,102
Servicing fees to general partner		662,603			635,398			611,243
Carried interest to general partner		9,164			20,342			40,075
Administrative		44,400			44,400			39,600
Legal and accounting		259,130			171,858			204,091
Rental and other expenses on real estate properties		4,524,057			2,691,789			3,090,324
Interest expense		1,118,204			373,524			426,778
Minority interest		54,670			(7,611	)		35,848
Other		78,751			70,155			73,852
Recovery of bad debts		(240,000	)		--			--
Provision for loan losses		--			679,370			1,584,000
Provision for (recovery of) losses on real estate
held for sale, net		83,294			584,532			(313,577	)


Total expenses		11,860,467			10,392,796			9,408,336


Net income	$	19,992,241		$	21,841,989		$	21,669,959


Net income allocated to general partner	$	198,208		$	216,765		$	214,125


Net income allocated to limited partners	$	19,794,033		$	21,625,224		$	21,455,834


Net income allocated to limited partners per
weighted average limited partnership unit	$	0.07		$	0.08		$	0.08

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

OWENS MORTGAGE INVESTMENT FUND,
A CALIFORNIA LIMITED PARTNERSHIP

Consolidated Statements of Partners’ Capital

Years Ended December 31, 2004, 2003 and 2002

										Total
	General			Limited partners						Partners’
	partner			Units			Amount			capital
Balances, December 31, 2001	$	2,677,867			269,804,867		$	269,608,847		$	272,286,714

Net income		214,125			21,455,834			21,455,834			21,669,959
Sale of partnership units		80,150			3,042,450			3,042,450			3,122,600
Partners’ withdrawals		--			(9,125,830	)		(9,125,830	)		(9,125,830	)
Partners’ distributions		(216,296	)		(7,386,173	)		(7,386,173	)		(7,602,469	)


Balances, December 31, 2002		2,755,846			277,791,148			277,595,128			280,350,974

Net income		216,765			21,625,224			21,625,224			21,841,989
Sale of partnership units		40,684			1,394,732			1,394,732			1,435,416
Partners’ withdrawals		--			(12,090,578	)		(12,090,578	)		(12,090,578	)
Partners’ distributions		(207,767	)		(6,865,766	)		(6,865,766	)		(7,073,533	)


Balances, December 31, 2003		2,805,528			281,854,760			281,658,740			284,464,268

Net income		198,208			19,794,033			19,794,033			19,992,241
Sale of partnership units		18,328			1,218,027			1,218,027			1,236,355
Partners’ withdrawals		--			(12,635,612	)		(12,635,612	)		(12,635,612	)
Partners’ distributions		(206,874	)		(6,583,082	)		(6,583,082	)		(6,789,956	)


Balances, December 31, 2004	$	2,815,190			283,648,126		$	283,452,106		$	286,267,296

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

OWENS MORTGAGE INVESTMENT FUND,
A CALIFORNIA LIMITED PARTNERSHIP

Consolidated Statements of Cash Flows

Years ended December 31, 2004, 2003 and 2002

	2004			2003			2002
Cash flows from operating activities:
Net income	$	19,992,241		$	21,841,989		$	21,669,959
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of real estate properties		(814,681	)		(1,817,684	)		(1,366,048	)
Provision for loan losses		--			679,370			1,584,000
Provision for (recovery of) losses on real estate properties
held for sale, net		83,294			584,532			(313,577	)
Depreciation and amortization		470,060			315,790			288,672
Changes in operating assets and liabilities:
Interest and other receivables		582,174			(162,136	)		(600,344	)
Accounts payable and accrued liabilities		248,706			93,969			38,196
Due from affiliate		130,390			--			(64,432	)
Due to general partner		(493,582	)		209,722			(315,242	)

Net cash provided by operating activities		20,198,602			21,745,552			20,921,184


Cash flows from investing activities:
Purchases of loans secured by trust deeds		(137,800,776	)		(168,074,409	)		(148,595,993	)
Principal collected on loans		564,546			544,569			781,258
Loan payoffs		126,303,534			158,193,385			91,937,090
Investment in real estate properties		(3,566,179	)		(4,874,689	)		(12,217,682	)
Net proceeds from disposition of real estate properties		19,986,374			2,680,715			3,850,052
Proceeds received from real estate joint venture		--			7,695,550			14,028,000
Minority interest in corporate joint venture		54,670			(7,611	)		23,858

Net cash provided by (used in) investing activities		5,542,169			(3,842,490	)		(50,193,417	)


Cash flows from financing activities:
Proceeds from sale of partnership units		1,236,355			1,435,416			3,122,600
Accrued distributions payable		(27,506	)		(45,509	)		(6,411	)
Advances on notes payable, net		851,770			687,092			1,270,282
Advances on (repayments of) line of credit payable, net		(6,000,000	)		(867,371	)		6,867,371
Partners’ cash distributions		(6,789,956	)		(7,073,533	)		(7,602,469	)
Partners’ capital withdrawals		(12,635,612	)		(12,090,578	)		(9,125,830	)

Net cash used in financing activities		(23,364,949	)		(17,954,483	)		(5,474,457	)


Net increase (decrease) in cash and cash equivalents		2,375,822			(51,421	)		(34,746,690	)

Cash and cash equivalents at beginning of year		6,632,997			6,684,418			41,431,108


Cash and cash equivalents at end of year	$	9,008,819		$	6,632,997		$	6,684,418

Supplemental Disclosures of Cash Flow Information
Cash paid during the year for interest	$	1,090,098		$	389,273		$	411,903

See notes 3, 4 and 5 for supplemental disclosure of noncash investing and financing activities. The accompanying notes are an integral part of these financial statements.

OWENS MORTGAGE INVESTMENT FUND,
A CALIFORNIA LIMITED PARTNERSHIP

Notes to Consolidated Financial Statements

December 31, 2004, 2003 and 2002

(1)

Organization

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

The general partner of the Partnership is Owens Financial Group, Inc. (OFG), a California corporation engaged in the origination of real estate mortgage loans for eventual sale and the subsequent servicing of those mortgages for the Partnership and other third-party investors.

OFG is authorized to offer and sell units in the Partnership up to an aggregate of 500,000,000 units outstanding at $1.00 per unit, representing $500,000,000 of limited partnership interests in the Partnership. Limited partnership units outstanding were 283,648,126, 281,854,760 and 277,791,148 as of December 31, 2004, 2003 and 2002, respectively.

(2)

Summary of Significant Accounting Policies

(a)

Basis of Presentation

The consolidated financial statements include the accounts of the Partnership, its majority-owned limited liability company located in Oregon (see Note 4) and its majority-owned limited liability companies located in Colorado and California (see Note 5). All significant inter-company transactions and balances have been eliminated in consolidation. Other real estate investments entered into by the Partnership are recorded under the equity method of accounting.

Certain reclassifications not affecting net income have been made to the 2003 and 2002 consolidated financial statements to conform to the 2004 presentation.

(b)

Management Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(c)

New Accounting Pronouncements

SFAS 152

In December 2004, the FASB issued SFAS 152, Accounting for Real Estate Time-Sharing Transactions. SFAS 152 amends SFAS 66 to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA SOP 04-2, Accounting for Real Estate Time-Sharing Transactions. This Statement also amends SFAS 67 to state that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. SFAS 152 is effective for fiscal years beginning after June 15, 2005. The Partnership does not expect the implementation of SFAS 152 to have a material impact on its consolidated financial position or results of operations.

SFAS 153

In December 2004, the FASB issued SFAS 153, Exchanges of Nonmonetary Assets. SFAS 153 amends APB Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS 153 is effective for fiscal years beginning after June 15, 2005. The Partnership does not expect the implementation of SFAS 153 to have a material impact on its consolidated financial position or results of operations.

Interpretation No. 46

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("Interpretation 46") which was then revised in December 2003. Interpretation 46 clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The recognition and measurement provisions of Interpretation 46 are effective for newly created variable interest entities formed after January 31, 2003, and for existing variable interest entities, on the first interim or annual reporting period beginning after March 15, 2004. The adoption of FIN 46 did not have a material impact on the Partnership’s financial position or results of operations.

SOP 03-3

In October 2003, the AICPA issued SOP 03-3 Accounting for Loans or Certain Debt Securities Acquired in a Transfer. SOP 03-3 applies to a loan with the evidence of deterioration of credit quality since origination acquired by completion of a transfer for which it is probable at acquisition, that the Partnership will be unable to collect all contractually required payments receivable. SOP 03-3 is effective for loans acquired in fiscal years beginning after December 31, 2004. The Partnership does not expect SOP 03-3 to have a material impact on its consolidated financial position or results of operations.

(d)

Loans Secured by Trust Deeds

Loans secured by trust deeds are recorded at cost. Interest income on loans is accrued by the simple interest method. The Partnership does not recognize interest income on loans once they are determined to be impaired until the interest is collected in cash. A loan is impaired when, based on current information and events, it is probable that the Partnership will be unable to collect all amounts due according to the contractual terms of the loan agreement, when the loan is past maturity, or when monthly payments are delinquent greater than 90 days. Cash receipts are allocated to interest income, except when such payments are specifically designated as principal reduction or when management does not believe the Partnership’s investment in the loan is fully recoverable.

(e)

Allowance for Loan Losses

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

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the types and dollar amounts of loans in the portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the underlying collateral.

(f)

Cash and Cash Equivalents

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

The Partnership maintains its cash in bank deposit accounts that, at times, may exceed Federally insured limits. The Partnership has not experienced any losses in such accounts. The Partnership believes it is not exposed to any significant credit risk on cash and cash equivalents.

(g)

Marketable Securities

At various times during the year, the Partnership may purchase marketable securities with various financial institutions with original maturities of up to one year. The Partnership classifies its debt securities as held-to-maturity, as the Partnership has the ability and intent to hold the securities until maturity. These securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. A decline in the market value of any held-to-maturity security below cost that is deemed to be other than temporary results in a reduction in carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the effective interest method. Interest income is recognized when earned.

(h)

Real Estate Held for Sale and Investment

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

Real estate held for investment includes real estate purchased or acquired through foreclosure and is initially stated at the lower of cost or the recorded investment in the loan, or the property’s estimated fair value. Depreciation 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.

In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposition of Long-lived Assets, the Partnership periodically compares the carrying value of real estate to expected future cash flows for the purpose of assessing the recoverability of the recorded amounts. If the carrying value exceeds future cash flows, the assets are reduced to fair value. During the year ended December 31, 2004, the Partnership recorded an allowance for losses in the amount of $83,294 related to a hotel and casino received through foreclosure during 2004. This allowance was recovered when the property was sold during 2004. During the year ended December 31, 2003, the Partnership recorded an allowance for losses in the amount of $410,000 from its investment in the Oregon limited liability company (see Note 4). During the year ended December 31, 2002, the Partnership reduced the carrying value of a property located in Gresham, Oregon by approximately $70,000 to its fair market value and reversed a previously established reserve on a property located in Ione, California in the amount of $384,000.

(i)

Income Taxes

No provision is made for income taxes since the Partnership is not a taxable entity. Accordingly, any income or loss is included in the tax returns of the partners.

(3)

Loans Secured by Trust Deeds

Loans secured by trust deeds as of December 31, 2004 and 2003 are as follows:

	2004
Income-producing properties	$	159,885,572	227,559,987
Construction		66,934,856	22,044,472
Unimproved land		31,396,474	14,309,747
Residential		215,000	2,460,000


	$	258,431,902	266,374,206


First mortgages	$	256,372,106	260,321,236
Second mortgages		2,059,796	6,052,970


	$	258,431,902	266,374,206

Scheduled maturities of loans secured by trust deeds as of December 31, 2004 and the interest rate sensitivity of such loans are as follows:

	Fixed interest rate
Year ending December 31:
2004 (past maturity)	$	42,264,769	5,900,000	48,164,769
2005		104,527,529	176,075	104,703,604
2006		57,113,961	--	57,113,961
2007		13,083,192	33,245	13,116,437
2008		249,711	784,774	1,034,485
2009		5,440,458	--	5,440,458
Thereafter (through 2014)		1,033,552	27,824,636	28,858,188

	$	223,713,172	34,718,730	258,431,902

Variable rate loans use as indices the one-year, five-year and 10-year Treasury Constant Maturity Index (2.77%, 3.65% and 4.29%, respectively, as of December 31, 2004), the prime rate (5.25% as of December 31, 2004) or the weighted average cost of funds index for Eleventh or Twelfth District savings institutions (2.03% and 2.09%, respectively, as of December 31, 2004) or include terms whereby the interest rate is increased at a later date. Premiums over these indices have varied from 0.25% to 0.65% depending upon market conditions at the time the loan is made.

The following is a schedule by geographic location of loans secured by trust deeds as of December 31, 2004 and 2003:

	December 31, 2004 Balance		Portfolio Percentage		December 31, 2003 Balance
Arizona	$	27,699,326	$	0.72%		16,729,412	6.28%
California		157,309,967		60.87%		143,353,415	53.82%
Colorado		--		--		1,050,000	0.39%
Connecticut		--		--		2,382,607	0.89%
Hawaii		15,300,000		5.92%		15,300,000	5.74%
Idaho		1,721,726		0.67%		1,840,741	0.69%
Missouri		--		--		3,300,000	1.24%
North Carolina		18,715,000		7.24%		18,715,000	7.03%
Nevada		9,087,254		3.51%		37,128,615	13.94%
Oregon		--		--		1,750,000	0.66%
South Carolina		3,301,509		1.28%		3,301,509	1.24%
Texas		2,635,000		1.02%		2,635,000	0.99%
Utah		11,620,593		4.50%		8,080,057	3.03%
Virginia		3,185,000		1.23%		3,185,000	1.20%
Washington		7,856,527		3.04%		7,622,850	2.86%

	$	258,431,902		100.00%	$	266,374,206	100.00%

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

As of December 31, 2004 and 2003, the Partnership has commitments to advance additional funds to borrowers of construction and other loans in the total amount of approximately $10,886,000 and $23,182,000, respectively.

As of December 31, 2004 and 2003, the Partnership participated in 3 and 7 separate loans, respectively, with a total principal balance of $24,237,000 and $46,375,000, respectively, with an unrelated mortgage investment group (the “Lead Lender”) that originated the loans with the borrowers. The General Partner receives the payments on these participated loans from the Lead Lender. Pursuant to Intercreditor Agreements between the Partnership and the Lead Lender on 3 and 4 of the loans, respectively, with a total principal balance of $24,237,000 and $32,500,000, respectively, the Partnership is guaranteed its share of interest and principal prior to any other investors participated in such loans.

The scheduled maturities for 2004 include approximately $48,165,000 of loans which are past maturity as of December 31, 2004, of which $24,582,000 represents loans for which interest payments are delinquent over 90 days. Of the total past maturity loans as of December 31, 2004, $11,621,000 was refinanced subsequent to year end.

During the years ended December 31, 2004 and 2003, the Partnership refinanced loans totaling $26,367,000 and $37,735,000, respectively, thereby extending the maturity dates of such loans.

The Partnership’s investment in impaired loans that were delinquent in payments greater than 90 days was approximately $37,319,000 and $22,828,000 as of December 31, 2004 and 2003, respectively. In addition, the Partnership’s investment in impaired loans that were past maturity (delinquent in principal) but current in monthly payments was approximately $23,583,000 and $12,279,000 as of December 31, 2004 and 2003, respectively. Of the impaired loans, approximately $4,000,000 and $4,363,000, respectively, were in the process of foreclosure and $5,182,000 and $1,600,000, respectively, involved borrowers who were in bankruptcy as of December 31, 2004 and 2003.

The Partnership’s allowance for loan losses was $4,100,000 as of December 31, 2004 and 2003, respectively. Of the total impaired loans as of December 31, 2004 and 2003, $10,937,000 and $11,617,000, respectively, had a specific related allowance for loan losses totaling $1,300,000. There was a non-specific allowance for loan losses of $2,800,000 for the remaining loans.

The average recorded investment in impaired loans (including loans delinquent in payments greater than 90 days and past maturity loans) was $52,334,000 and $57,862,000 as of December 31, 2004 and 2003, respectively. Interest income received on impaired loans during the years ended December 31, 2004, 2003 and 2002 was $7,407,000, $4,698,000, and $3,403,000, respectively.

Changes in the allowance for loan losses for the years ended December 31, 2004, 2003 and 2002 were as follows:

	2004
Balance, beginning of year	$	4,100,000	4,774,000		4,425,000
Provision		--	679,000		1,584,000
Charge-offs		--	(1,353,000	)	(1,235,000	)

Balance, end of year	$	4,100,000	4,100,000		4,774,000

As of December 31, 2004 and 2003, the Partnership’s loans secured by deeds of trust on real property collateral located in Northern California totaled approximately 53% ($135,867,000) and 46% ($122,031,000), respectively, of the loan portfolio. The Northern California region (which includes the following counties and all counties north: Monterey, Fresno, Kings, Tulare and Inyo) is a large geographic area which has a diversified economic base. The ability of borrowers to repay loans is influenced by the economic strength of the region and the impact of prevailing market conditions on the value of real estate.

(4)

Real Estate Held for Sale

Real estate held for sale includes the following components as of December 31, 2004 and 2003:

	2004
Real estate held for sale	$	5,964,839	10,181,752
Investment in limited liability companies		3,069,739	2,981,822

	$	9,034,578	13,163,574

Real estate properties held for sale as of December 31, 2004 and 2003 consists of the following properties acquired through foreclosure in 1994 through 2004:

	2004
Commercial lot, Sacramento, California, net of valuation
allowance of $0 and $250,000 as of December 31, 2004
and 2003, respectively	$	521,828	299,828

Manufactured home subdivision development, Ione,
California		1,042,971	1,420,584

Undeveloped land, Gresham, Oregon, net of valuation
allowance of $250,000 as of December 31, 2004		1,374,048	1,624,048

Commercial building, Albany, Oregon		--	1,800,000

Undeveloped land, San Jose, California		3,025,992	3,025,992

Industrial building, Santa Clara, California		--	2,011,300

	$	5,694,839	10,181,752

The acquisition of certain real estate properties through foreclosure (including properties held for investment – see Note 5) resulted in non-cash increases in real estate held for sale and non-cash decreases in loans secured by trust deeds of approximately $18,875,000, $3,300,000 and $9,370,000 for the years ended December 31, 2004, 2003 and 2002, respectively.

2004 Foreclosure and Sales Activity

Acquisition of Hotel and Casino through Foreclosure and Subsequent Sale

2003 Foreclosure and Sales Activity

During the year ended December 31, 2003 a hotel property located in Phoenix, Arizona that was acquired by the Partnership through foreclosure in 2002 was sold for cash of $370,000 and a note in the amount of $1,480,000, resulting in no gain or loss. An additional allowance in the amount of $174,532 had been established during the year ended December 31, 2003.

During the year ended December 31, 2003, a parcel of land located in Reno, Nevada (that was acquired by the Partnership through foreclosure in 1996) was sold for $475,000, resulting in a gain to the Partnership of approximately $106,000.

During the year ended December 31, 2003, 22 lots (11 including houses) located in a manufactured home subdivision development located in Ione, California (that were acquired by the Partnership through foreclosure in 1997) were sold for $1,894,000, resulting in a gain to the Partnership of approximately $433,000. There were 39 lots remaining to be sold on this property as of December 31, 2003.

2002 Foreclosure and Sales Activity

During the year ended December 31, 2002, the Partnership transferred the commercial building located in Roseville, California in the amount of $758,000 from real estate held for sale to real estate held for investment.

During the year ended December 31, 2002, 22 lots (11 including houses) located in a manufactured home subdivision development located in Ione, California (that were acquired by the Partnership through foreclosure in 1997) were sold for $1,811,000, resulting in a gain to the Partnership of approximately $317,000. An allowance in the amount of $384,000 that was previously established on this property was reversed during the year ended December 31, 2002 as a result of management’s evaluation of the property’s fair market value based on recent sales. There were 61 lots remaining to be sold on this property as of December 31, 2002.

During the year ended December 31, 2002, the Partnership foreclosed on a first mortgage loan secured by a hotel located in Phoenix, Arizona in the amount of $2,925,000 (which had an allowance established in the amount of $1,235,000) and obtained the property via the trustee’s sale. The Partnership paid $335,000 in delinquent property taxes at the time of foreclosure which were capitalized to the basis of the property. The Partnership transferred the net basis of the loan to real estate held for sale at the time of foreclosure.

Changes in the allowance for real estate losses for the years ended December 31, 2004, 2003 and 2002 were as follows:

	2004
Balance, beginning of year	$	660,000		250,000		634,000
Provision		83,294		584,532		--
Deductions		(83,294	)	(174,532	)	(384,000	)

Balance, end of year	$	660,000		660,000		250,000

(b)

Investment in Limited Liability Companies

Oregon Leisure Homes, LLC

2004 Activity

During the year ended December 31, 2004, the Partnership advanced an additional $49,000 to OLH for continued operation and marketing of the condominium units that are for sale and received repayment of advances of $310,000 primarily from collections on notes receivable. The net loss to the Partnership was approximately $26,000 for the year ended December 31, 2004. The Partnership’s investment in OLH real property was approximately $1,122,000 as of December 31, 2004.

2003 Activity

During the year ended December 31, 2003, the Partnership advanced an additional $1,037,000 to OLH for continued development and marketing of the condominium units and houses that have been for sale and received repayment of advances of $1,008,000 from sales and collections on notes receivable. During the year ended December 31, 2003, OLH sold the remaining one interest in the first ocean house and seven interests in the second ocean house for total cash proceeds of $670,000 and notes taken back in the amount of $420,000, resulting in gains in the total amount of $329,000. Both ocean houses were fully sold as of December 31, 2003. During the year ended December 31, 2003, OLH bought back the interests in three of the condominium units previously sold in 2002 for a total of $74,000 to allow OLH to sell the condominiums individually. As a result of an analysis performed based on projected sales proceeds, OLH recorded an allowance for losses in the amount of $410,000 on the condominium units during the year ended December 31, 2003. The net loss to the Partnership was approximately $373,000 for the year ended December 31, 2003. The Partnership’s investment in OLH real property was approximately $1,137,000 as of December 31, 2003.

2002 Activity

During the year ended December 31, 2002, the Partnership advanced an additional $936,000 to OLH (for a total of $1,537,000) for continued development and marketing of the condominium units and house that have been for sale. OLH sold three interests in the condominiums during the year ended December 31, 2002 for total cash proceeds of $74,000 and a note in the amount of $27,000. No gain or loss was recognized as a result of these sales. OLH sold six interests in the ocean house during the year ended December 31, 2002 for cash proceeds of $383,000 and three notes in the total amount of $296,000, and recognized gain in the amount of $198,000. The net loss to the Partnership (including gains on sales) was approximately $182,000 for the year ended December 31, 2002. The Partnership’s investment in the OLH real property was approximately $1,558,000 as of December 31, 2002.

Dation, LLC

Dation, LLC (Dation) was formed in 2001 between the Partnership and an unrelated developer for the purpose of developing and selling lots in a mobile home park located in Lake Charles, Louisiana, which were acquired by the Partnership via a deed in lieu of foreclosure. The Partnership has been advancing funds to Dation as needed. The Partnership is co-manager of Dation and is to receive 50% of the profits and losses after payment of all interest on the original loan is made to the Partnership and priority return on partner contributions is allocated at the rate of 12% per annum.

The net operating loss to the Partnership was approximately $142,000, $149,000 and $184,000 during the years ended December 31, 2004, 2003 and 2002, respectively. Dation paid $130,000 of loan interest payable to the Partnership during the year ended December 31, 2004. The remaining receivable in the amount of $62,257 as of December 31, 2004 is reported as due from affiliate in the accompanying consolidated balance sheets. The Partnership advanced an additional $316,000, $136,000 and $140,000, respectively, to Dation and received repayments from sales of lots in the amount of $70,000, $74,000 and $60,000, respectively, during the years ended December 31, 2004, 2003 and 2002. The Partnership’s total investment in Dation was approximately $1,948,000 and $1,845,000 as of December 31, 2004 and 2003, respectively.

(5)

Real Estate Held for Investment

Real estate held for investment as of December 31, 2004 is comprised of a retail property located in Greeley, Colorado held within 720 University, LLC (see below), a light industrial building located in Paso Robles, California, a commercial building located in Roseville, California, and an assisted living facility located in Monterey, California and is comprised of the following as of December 31, 2004 and 2003:

	2004
Land	$	5,690,620		4,349,064
Buildings		14,699,653		9,373,890
Improvements		3,513,323		2,292,918
Other		701,574		190,791

		24,605,170		16,206,663
Less: Accumulated depreciation
and amortization		(1,282,430	)	(812,370	)

	$	23,322,740		15,394,293

Depreciation and amortization expense was $470,000, $316,000 and $289,000 for the years ended December 31, 2004, 2003 and 2002, respectively.

Bayview Gardens, LLC

During the year ended December 31, 2004, the Partnership obtained a deed in lieu of foreclosure on a first mortgage loan secured by an assisted living facility located in Monterey, California in the amount of $5,000,000. The Partnership paid certain past due bills of the former borrower at the time of foreclosure of approximately $109,000, all of which were capitalized to the basis of the property.

At the time of foreclosure, the Partnership became subject to an existing 2nd deed of trust on the property with OFG as the lender, which is recorded as note payable to general partner on the accompanying balance sheet. The principal, accrued interest and other charges on this note of approximately $1,103,000 were capitalized to the basis of the property at the time of foreclosure. Pursuant to an amendment to the note between the Partnership and OFG dated June 8, 2004, the maturity date on the note was extended to June 8, 2009 and all interest and other accrued charges were deferred until maturity. In addition, the amendment specifies that upon the sale of the property, OFG will only be paid the amounts due under the note after the Partnership recovers its basis in the property at the time of sale including any capital improvements made after foreclosure, but excluding the amounts capitalized pursuant to the OFG note.

The Partnership created a new entity, Bayview Gardens, LLC (“Bayview”), which is wholly owned by the Partnership. Under the terms of a lease agreement between the Partnership and Bayview, the assisted living facility is leased to Bayview by the Partnership and the facility is managed by an outside property manager. The net loss to the Partnership from Bayview was $116,000 for the year ended December 31, 2004. The assets, liabilities, income and expenses of Bayview have been consolidated into the accompanying consolidated balance sheet and income statement of the Partnership. The Partnership’s investment in Bayview real property was approximately $6,166,000 as of December 31, 2004.

720 University, LLC

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

The net income to the Partnership was approximately $382,000, $418,000, and $291,000 during the years ended December 31, 2004, 2003 and 2002, respectively. The minority interest of the joint venture partner of approximately $179,000 and $124,000 as of December 31, 2004 and 2003, respectively, is reported in the accompanying consolidated balance sheet. The Partnership’s investment in 720 University real property was approximately $14,830,000 and $13,063,000 as of December 31, 2004 and 2003, respectively. During the year ended December 31, 2004, the Partnership loaned $210,000 to 720 University to pay certain expenses related to the refinancing of 720 University’s note payable. Per to the Operating Agreement, the loan earns interest at the rate of prime plus 2% per annum (7.25% at December 31, 2004) was repaid in the first quarter of 2005. This loan has been eliminated in the accompanying consolidated balance sheet as of December 31, 2004.

(6)

Note Payable

The Partnership has a note payable with a bank through its investment in the limited liability company (see note 5), 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 31, 2007. An additional $24,800 is required to be paid monthly and applied to principal ($28,900 beginning June 2006). The interest rate on the note is variable based on the LIBOR rate plus 2.75% (5.25% at December 31, 2004). Interest expense for the years ended December 31, 2004, 2003 and 2002 was approximately $407,000, $345,000 and $350,000, respectively. The principal balance on the note as of December 31, 2004 and 2003 was approximately $9,729,000 and $8,877,000, respectively. The Company also has the option to draw an additional $398,000 on the note for capital expenditures, tenant improvements or leasing commissions. The note contains certain covenants, which the Company has complied with as of December 31, 2004.

(7)

Note Payable to General Partner

The Partnership has a note payable to OFG in the amount of $1,102,895 as a result of the deed in lieu of foreclosure obtained on a Partnership loan during the year ended December 31, 2004 (see note 5). This amount includes the original loan principal balance of $907,446 and accrued interest and late charges to the date of foreclosure of $195,449. The note was amended at the time of foreclosure in June 2004. The maturity date of the note is June 8, 2009. The principal balance of the original note bears interest at the rate of 12.0% per annum. All interest and other accrued charges are deferred until maturity. In addition, the amendment specifies that upon the sale of the property, OFG will only be paid the amounts due under the note after the Partnership recovers its basis in the property at the time of sale including any capital improvements made after foreclosure, but excluding the amounts capitalized pursuant to this note.

(8)

Line of Credit Payable

The Partnership has a line of credit agreement with a group of banks, which provides interim financing on mortgage loans invested in by the Partnership. The amount of credit available under this line of credit is $40,000,000. The balance outstanding on the line of credit was $0 and $6,000,000 as of December 31, 2004 and 2003, respectively. Borrowings under this line of credit bear interest at the bank’s prime rate, which was 5.25% as of December 31, 2004. Interest expense was approximately $711,000, $28,000 and $77,000 for the years ended December 31, 2004, 2003 and 2002, respectively. The line of credit expires on July 31, 2005. The Partnership is required to maintain non-interest bearing accounts in the total amount of $500,000 with two of the banks. The agreement requires the Partnership to meet certain financial covenants including minimum tangible net worth and total liabilities to tangible net worth. The Partnership has complied with these covenants as of December 31, 2004.

(9)

Partners’ Capital

(a)

Allocations, Distributions and Withdrawals

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

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

The Partnership makes monthly net income distributions to those limited partners who elect to receive such distributions. Those limited partners who elect not to receive cash distributions have their distributions reinvested in additional limited partnership units. Such reinvested distributions totaled $14,091,000, $13,855,000 and $14,270,000 for the years ended December 31, 2004, 2003, and 2002, respectively. Reinvested distributions are not shown as partners’ cash distributions or proceeds from sale of partnership units in the accompanying consolidated statements of partners’ capital and cash flows.

The limited partners may withdraw, or partially withdraw, from the Partnership and obtain the return of their outstanding capital accounts at $1.00 per unit (book value) within 61 to 91 days after written notices are delivered to OFG, subject to the following limitations, among others:

•

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

•

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

•

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

•

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

•

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

(b)

Carried Interest of General Partner

OFG has contributed capital to the Partnership in the amount of 0.5% of the limited partners’ aggregate capital accounts and, together with its carried interest; OFG has an interest equal to 1% of the limited partners’ capital accounts. This carried interest of OFG of up to 1/2 of 1% is recorded as an expense of the Partnership and credited as a contribution to OFG’s capital account as additional compensation. As of December 31, 2004, OFG had made cash capital contributions of $1,419,000 to the Partnership. OFG is required to continue cash capital contributions to the Partnership in order to maintain its required capital balance.

The carried interest expense charged to the Partnership was $9,000, $20,000 and $40,000 for the years ended December 31, 2004, 2003 and 2002, respectively.

(10)

Contingency Reserves

In accordance with the Partnership Agreement and to satisfy the Partnership’s liquidity requirements, the Partnership is required to maintain contingency reserves in an aggregate amount of at least 1-1/2% of the capital accounts of the limited partners. The cash capital contribution of OFG (amounting to $1,419,000 as of December 31, 2004), up to a maximum of 1/2 of 1% of the limited partners’ capital accounts will be available as an additional contingency reserve, if necessary.

The contingency reserves required as of December 31, 2004 and 2003 were approximately $5,694,000 and $5,641,000, respectively. Cash and cash equivalents as of the same dates were accordingly maintained as reserves.

(11)

Income Taxes

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

	2004
Partners’ capital per financial statements	$	286,267,296		284,464,268
Accrued interest income		(1,988,076	)	(3,148,479	)
Allowance for loan losses		4,100,000		4,100,000
Allowance for real estate held for sale/investment		660,000		660,000
Accrued distributions		546,219		573,725
Accrued fees due to general partner		140,687		706,788
Tax-deferred gains on sales of real estate		(2,690,850	)	(2,690,850	)
Other		479,051		198,274

Partners’ capital per federal income tax return	$	287,514,327		284,863,726

(12)

Transactions with Affiliates

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

All of the Partnership’s loans are serviced by OFG, in consideration for which OFG receives up to .25% per annum of the unpaid principal balance of the loans.

OFG, at its sole discretion may, on a monthly basis, adjust the management and servicing fees as long as they do not exceed the allowable limits calculated on an annual basis. Even though the fees for a month may exceed 1/12 of the maximum limits, at the end of the calendar year the sum of the fees collected for each of the 12 months must be equal to or less than the stated limits. Management fees amounted to approximately $5,266,000, $5,129,000 and $3,616,000 for the years ended December 31, 2004, 2003 and 2002, respectively, and are included in the accompanying consolidated statements of income. Service fees amounted to approximately $663,000, $635,000 and $611,000 for the years ended December 31, 2004, 2003 and 2002, respectively, and are included in the accompanying consolidated statements of income. As of December 31, 2004 and 2003, the Partnership owed management and servicing fees to OFG in the amounts of $669,000 and $1,162,000, respectively.

The maximum servicing fees were paid to OFG during the years ended December 31, 2004, 2003 and 2002. If the maximum management fees had been paid to OFG during the years ended December 31, 2004, 2003 and 2002, the management fees would have been $7,289,000 (increase of $2,023,000), $6,992,000 (increase of $1,863,000) and $6,724,000 (increase of $3,108,000), respectively, which would have reduced net income allocated to limited partners by approximately 10.1%, 8.5% and 14.3%, respectively, and net income allocated to limited partners per weighted average limited partner unit by the same percentages to $.06, $.07 and $.07, respectively.

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

Pursuant to the Partnership Agreement, OFG receives all late payment charges from borrowers on loans owned by the Partnership, with the exception of those loans participated with outside entities. The amounts paid to or collected by OFG for such charges on Partnership loans totaled approximately $416,000, $347,000 and $649,000 for the years ended December 31, 2004, 2003 and 2002, respectively. In addition, the Partnership remits other miscellaneous fees to OFG, which are collected from loan payments, loan payoffs or advances from loan principal (i.e. funding, demand and partial release fees). Such fees remitted to OFG totaled approximately $50,000, $111,000 and $197,000 for the years ended December 31, 2004, 2003 and 2002, respectively.

OFG originates all loans the Partnership invests in and receives loan origination fees from borrowers. Such fees earned by OFG amounted to approximately $4,034,000, $6,829,000 and $5,815,000 on loans originated of approximately $144,801,000, $169,425,000 and $138,278,000 for the years ended December 31, 2004, 2003 and 2002, respectively. Such fees as a percentage of loans purchased by the Partnership were 2.8%, 4.0% and 4.2% for the years ended December 31, 2004, 2003 and 2002, respectively.

OFG is reimbursed by the Partnership for the actual cost of goods and materials used for or by the Partnership and obtained from unaffiliated entities and the actual cost of services of non-management and non-supervisory personnel related to the administration of the Partnership (subject to certain limitations in the Partnership Agreement). The amounts reimbursed to OFG by the Partnership during the years ended December 31, 2004, 2003 and 2002 were $44,000, $134,000 and $217,000, respectively.

(13)

Net Income per Limited Partner Unit

Net income per limited partnership unit is computed using the weighted average number of limited partnership units outstanding during the year. These amounts were 282,306,953, 280,643,964 and 274,891,723 for the years ended December 31, 2004, 2003 and 2002, respectively.

(14)

Rental Income

The Partnership’s real estate properties held for investment are leased to tenants under noncancellable leases with remaining terms ranging from one to twenty-two years. Certain of the leases require the tenant to pay all or some operating expenses of the properties. The future minimum rental income from noncancellable operating leases due within the five years subsequent to December 31, 2004, and thereafter is as follows:


Year ending December 31:
2005	$	1,798,982
2006		1,476,343
2007		1,010,077
2008		993,274
2009		870,001
Thereafter (through 2026)		5,028,696

	$	11,177,373

(15)

Fair Value of Financial Instruments

The Financial Accounting Standards Board’s Statement No. 107, Disclosures about Fair Value of Financial Instruments, requires the disclosure of fair value for certain of the Partnership’s assets. The following methods and assumptions were used to estimate the value of the financial instruments included in the following categories:

(a)

Cash and Cash Equivalents and Commercial Paper

The carrying amount approximates fair value because of the relatively short maturity of these instruments.

(b)

Loans Secured by Trust Deeds

The carrying value of these instruments of $258,432,000 approximates the fair value as of December 31, 2004. The fair value is estimated based upon projected cash flows discounted at the estimated current interest rates at which similar loans would be made. The allowance for loan losses of $4,100,000 as of December 31, 2004 is also considered in evaluating the fair value of loans secured by trust deeds.

(c)

Note Payable and Note Payable to General Partner

The carrying value of the Partnership’s note payable in the amount of $9,729,000 and note payable to general partner of $1,103,000 approximates the fair value as of December 31, 2004. The fair value is estimated based upon the quoted market prices for the same or similar issues or on the current rates offered to the Partnership for debt of the same remaining maturities.

(16)

Selected Quarterly Financial Data (Unaudited)

		First Quarter	Second Quarter	Third Quarter	Fourth Quarter	Year
Revenues:
2004	$	7,790,596 $	8,113,342 $	8,140,413	$ 7,808,357	$	31,852,708
2003		8,969,594	7,596,786	7,977,351	7,691,054		32,234,785

Expenses:
2004		2,243,636	3,080,477	3,528,607	3,007,747		11,860,467
2003		3,072,599	2,400,319	2,496,528	2,423,350		10,392,796

Net Income Allocated to
General Partner
2004		54,934	49,922	45,701	47,651		198,208
2003		58,402	51,352	54,562	52,359		216,765

Net Income Allocated to
Limited Partners
2004		5,492,026	4,982,943	4,566,105	4,752,959		19,794,033
2003		5,838,593	5,145,115	5,426,261	5,215,255		21,625,224

Net Income Allocated to
Limited Partners per
Weighted Average Limited
Partnership Unit
2004		0.02	0.02	0.01	0.02		0.07
2003		0.02	0.02	0.02	0.02		0.08

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

PROVISION FOR LOAN LOSSES ROLLFORWARD


Balance at January 1, 2002	$	4,425,000
Provision		1,584,000
Charge-offs		(1,235,000	)

Balance at December 31, 2002		4,774,000
Provision		679,000
Charge-offs		(1,353,000	)

Balance at December 31, 2003		4,100,000
Provision		--
Charge-offs		--

Balance at December 31, 2004	$	4,100,000

PROVISION FOR LOSSES ON REAL ESTATE ROLLFORWARD


Balance at January 1, 2002	$	634,000
Charges to costs and expenses		--
Deductions		(384,000	)

Balance at December 31, 2002		250,000
Charges to costs and expenses		584,532
Deductions		(174,532	)
Balance at December 31, 2003		660,000
Charges to costs and expenses		83,294
Deductions		(83,294	)

Balance at December 31, 2004	$	660,000

SCHEDULE IV

OWENS MORTGAGE INVESTMENT FUND
MORTGAGE LOANS ON REAL ESTATE — DECEMBER 31, 2004

Description	Interest Rate	Final Maturity date	Carrying Amount of Mortgages		Principal Amount of Loans Subject to Delinquent Principal		Principal Amount of Loans Subject to Delinquent Payments
TYPE OF LOAN
Income Producing	5.25-14.50%	Current to Sept. 2014	$	159,885,572	$	31,869,429	$	35,719,396
Construction	9.25-12.00%	Current to June 2014		66,934,856		11,620,593		--
Land	10.00-15.00%	Current to Nov. 2007		31,396,474		4,459,747		1,600,000
Residential	11.00-12.00%	Current to July 2005		215,000		215,000		--

TOTAL			$	258,431,902	$	48,164,769	$	37,319,396



AMOUNT OF LOAN
$0-250,000	10.00-14.50%	Current to Sept. 2014	$	1,866,260	$	530,000	$	--
$250,001-500,000	10.00-12.00%	Current to Feb. 2013		5,215,584		1,744,247		--
$500,001-1,000,000	5.25-13.00%	Current to July 2008		7,317,482		1,751,093		--
Over $1,000,000	8.00-15.00%	Current to June 2014		244,032,576		44,139,429		37,319,396

TOTAL			$	258,431,902	$	48,164,769	$	37,319,396



POSITION OF LOAN
First	8.00-15.00%	Current to Sept. 2014	$	256,372,106	$	48,164,769	$	37,319,396
Second	5.25-12.00%	Feb. 2005 to Aug. 2010		2,059,796		--		--

TOTAL			$	258,431,902	$	48,164,769	$	37,319,396

NOTE 1: All loans are arranged by or acquired from an affiliate of the Partnership, namely Owens Financial Group, Inc., the General Partner.

NOTE 2:


Balance at beginning of period (1/1/02)	$	213,703,469
Additions during period:
New mortgage loans		148,595,993

Subtotal		362,299,462
Deductions during period:
Collection of principal		92,718,348
Foreclosures		9,369,993

Balance at end of period (12/31/02)	$	260,211,121

Balance at beginning of period (1/1/03)	$	260,211,121
Additions during period:
New mortgage loans		168,074,409
Note taken back from sale of real estate property		1,480,000

Subtotal		429,765,530
Deductions during period:
Collection of principal		158,737,954
Charge-off of loans against allowance for loan losses		353,370
Foreclosures		4,300,000

Balance at end of period (12/31/03)	$	266,374,206


Balance at beginning of period (1/1/04)	$	266,374,206
Additions during period:
New mortgage loans		137,800,776

Subtotal		404,174,982
Deductions during period:
Collection of principal		126,868,080
Foreclosures		18,875,000

Balance at end of period (12/31/04)	$	258,431,902

During the years ended December 31, 2004, 2003 and 2002, the Partnership refinanced loans totaling $26,367,000, $37,735,000 and $21,985,000, respectively, thereby extending the maturity date.

NOTE 3: Included in the above loans are the following loans which exceed 3% of the total loans as of December 31, 2004. There are no other loans that exceed 3% of the total loans as of December 31, 2004:

Description	Interest Rate	Final Maturity Date	Periodic Payment Terms	Prior Liens	Face Amount of Mortgages	Carrying Amount of Mortgages	Principal Amount of Loans Subject to Delinquent Principal or Interest
Unimproved Land	12.00	9/29/05	Interest only,	None	$ 7,800,000	$ 7,800,000	$ 0
Simi Valley, California………			balance due at
			maturity

Assisted Living Facility	10.50	9/18/06	Interest only,	None	$ 8,175,555	$ 8,175,555	$ 0
Fresno, California……………			balance due at
			maturity

Hotel	12.00	10/16/04	Interest only,	None	$ 8,500,000	$ 8,500,000	$ 0
(Construction Loan)			balance due at
Wasatch County, Utah………			maturity

Office and Retail	12.00	2/1/13	Principal and	None	$13,240,000	$ 9,837,206	$ 9,837,206
Buildings in Seattle,			interest due
WA, Renton, WA, Nampa,			monthly				See Note 5
ID, Reno, NV, Olympia,
WA, Gig Harbor, WA,
Richland, WA and Idaho
Falls, ID…………………………

Retail Buildings	10.00	12/8/05	Interest only,	None	$13,615,000	$10,790,416	$ 0
(Construction Loan)			balance due at
Hanford, California…………			maturity

Hotel	12.00	12/31/05	Interest only,	None	$12,000,000	$12,000,000	$ 0
Sedona, Arizona………………			balance due at
			maturity

8 Cemeteries and	14.00	3/31/04	Interest only,	None	$34,000,000	$14,000,000	$14,000,000
Mortuaries			balance due at
Islands of Hawaii, Oahu,			maturity
and Maui…………………………

Mixed Commercial Building	9.25	6/24/14	Interest only,	None	$19,000,000	$17,891,246	$ 0
(Construction Loan)			balance due at
S. Lake Tahoe, California………			maturity

Housing Development	11.00	12/21/06	Interest only,	None	$25,401,000	$20,213,048	$ 0
(Construction Loan)			balance due at
Auburn, California…………			maturity

NOTE 4: All amounts reported in this Schedule IV represent the aggregate cost for Federal income tax purposes.

NOTE 5: A loan loss allowance in the amount of $1,000,000 has been established as of December 31, 2004 on the loan with a carrying amount of $9,837,206 under Note 3 above.