The following discussion should be read in conjunction with the audited financial statements and accompanying notes and other detailed information regarding the Fund as of and for the year ended December 31, 2007 included in our previously filed Annual Report on Form 10-K ("Form 10-K"), and with the unaudited interim consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q ("Form 10-Q"). All dollar amounts are expressed in thousands, except unit and per unit data. Forward Looking Statements
This Form 10-Q contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The forward-looking statements included in this Form 10-Q include statements concerning our plans, objectives, goals, strategies, future events, future performance, capital expenditures, financing needs, business trends and other information that is not historical information. When used in this Form 10-Q, the words "estimates," "expects," "anticipates," "projects," "plans," "intends," "believes," "forecasts," "assumes," "may," "should," "will" and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements, including, without limitation, the matters discussed under the "Management's Discussion and Analysis of Financial Condition and Results of Operations," are based upon our current expectations, beliefs, projections and assumptions. Our expectations, beliefs, projections and assumptions are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that our financial condition or results of operations will meet the expectations set forth in our forward-looking statements.
The forward-looking statements that we make in this Form 10-Q are subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from such forward-looking statements. Some of the important factors that could cause our actual results to differ from those projected in any forward-looking statements include, but are not limited to, the following factors, which are discussed in greater detail in the "Risk Factors" section of our Form 10-K:
• Our units lack liquidity and marketability and our Members have a limited ability to sell their units or have their units redeemed. As a result, our Members may lose their entire investment or may not be able to sell their units or have them redeemed in a timely manner, or at all, or at the price they paid.

• As a mortgage lender, we are subject to a variety of external forces that could have a material adverse effect our operations and results, including, without limitation, fluctuations in interest rates, fluctuations in economic conditions (which are exacerbated by our limited geographic diversity), competition and amount of available capital and the effect that regulators or bankruptcy courts could have on our operations and rights as a secured lender.

• In recent periods, the homebuilding and capital markets have experienced a severe downturn. Although we are not a direct participant in these markets, we face secondary exposure to downturns in these markets because the markets we serve are directly impacted by events that occur in the homebuilding and capital markets. As a result, we have experienced an increase in delinquencies on our loans and foreclosure activity relating to the collateral securing our loans, which may adversely affect our liquidity.

• Real estate assets acquired in foreclosure or through other means are generally non-earning assets that reduce the distributable yield to investors. Moreover, the ultimate disposition and liquidation of such assets may not occur for an extended period of time, which would adversely affect our liquidity.

• Our borrowers are exposed to various risks associated with owning real estate, and unexpected costs or liabilities could reduce the likelihood that our borrowers will be able to develop or sell the real estate, which could increase the likelihood that our borrowers will default on the loans.

• We are subject to risks generally associated with the ownership of real estate and real estate-related assets, including changing economic conditions, environmental risks, the cost of and ability to obtain insurance and risks related to developing and leasing of properties.

• Our loans, which are not guaranteed by any government agency, are risky and are not sold on any secondary market, and our underwriting standards may not protect Members from loan defaults or ensure that sufficient collateral, including collateral pledged by guarantors, will exist to protect Members from any such defaults.

• We rely exclusively on our Manager to select and manage the mortgage loans in which we invest, and our Manager has limited experience with such activities or sponsoring mortgage funds, although certain employees of the Manager do have such experience. Our Members have no right to participate in decisions relating to the activities of our Manager, including, without limitation, the right to participate in selecting and managing mortgage investments.

• The Fund may not be able to identify and close suitable loans for funding in a timely manner or in a time frame that corresponds with the raising of investor capital, thereby resulting in lower or varying Member yields.

• We are transitioning our lending strategies to increase the percentage of our assets allocated to loans on commercial and income-producing properties. We are also beginning to emphasize smaller loans, in the $2 million to $10 million range, although we also intend to consider making larger loans - over $50 million - on a select basis. There can be no assurance that we will be able to implement these strategies or that, if implemented, they will be successful. Making loans above $50 million would result in higher loan concentrations, and greater dependence on single borrowers, which may increase the risk of loss to investors.

• We are experiencing higher levels of redemptions from Members. If we are unable to replace these funds with new investor contributions or other funding sources, we may be unable to satisfy our liquidity needs.

• We are obligated to pay certain fees to our Manager, which may materially and adversely impact our operating results and reduce cash available for investment and distributions.

• Our Manager will face conflicts of interest, including, without limitation, competing demands upon its time, its involvement with other activities and entities and its desire to generate origination proceeds at the risk of extending or participating in loans not suitable for the Fund, all of which could have a material adverse effect on us.

• As a publicly reporting company, we will be required to divert considerable resources to new compliance initiatives, including refining our disclosure controls and procedures and internal control over financial reporting.

• There are material income tax and retirement plan risks associated with ownership of our units.

The foregoing list of factors is not exhaustive. You should carefully consider the foregoing factors and the other uncertainties and potential events described in our previously filed Form 10-K. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and involve inherent risks and uncertainties. The forward-looking statements contained in this report are made only as of the date hereof. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Except as required by applicable law, including the securities laws of the United States, we undertake no obligation, and disclaim any duty, to update or revise information contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Overview of the Business
We invest in and manage mortgage investments, consisting primarily of short-term commercial mortgage loans collateralized by first mortgages on real property (herein referred to as mortgages), and perform all functions reasonably related thereto, including developing, managing and either holding for

investment or disposing or real property acquired through foreclosure or other means. IMH is our Manager. Since we commenced operations in August 2003, we have originated in excess of $1,000,000 of real estate loans.
We lend capital provided by investment in units by our Members. Only accredited investors, as defined by Rule 501 of Regulation D promulgated under the Securities Act, may invest in the Fund. Although the minimum initial investment is $50, investment accounts tend to be substantially larger. We have offered units for sale since May 2003 pursuant to the exemption from registration provided by Rule 506 of Regulation D. Industry Conditions and Fund Strategy
In recent periods, the homebuilding and consumer credit markets have been in a severe downturn. Although we do not directly participate in these markets, we face secondary exposure to downturns in these markets because the markets we serve are directly impacted by the homebuilding and consumer credit markets. As a result of excess new and existing home supply, including those homes available as a result of increased foreclosure activity, coupled with the relative lack of availability of consumer mortgage financing, there has been a significant decline in the volume of home sales in recent periods, which has adversely affected the viability of some of the projects on which we lend money and has, in some cases, caused the borrowing developers to default on the loans we have extended. In the near term, we have experienced and are likely to continue to experience:
• Continued economic, legislative and regulatory pressure on housing values and mortgage origination volumes, which has adversely affected and we believe will continue to adversely affect the demand for the residential and commercial projects our borrowers participate in and develop;

• Increasing delinquencies of our loans and foreclosure activity relating to the collateral securing our loans, which reduces the earning asset base of our asset portfolio; and

• Continued disruptions in the secondary mortgage and debt capital markets, which adversely affects the ability of some of our borrowers to find alternative or follow-on financing and repay our loans.

Nevertheless, IMH believes that the Fund's portfolio is well positioned, especially given current conditions. Nearly 70% of the Fund's assets are in cash or in loans underwritten in 2007 and 2008 (the loans having been underwritten on the basis of what we believe to be realistic 2007 market values). Conversely, approximately 23% of the Fund's assets reflect "vintage" 2005-2006 loans when we believe real estate values were at their peak. The Funds remaining assets are comprised of accrued interest receivable, real estate held for development and other assets. To position the Fund to weather the downturn, and to place the Fund in a position to capitalize on opportunities when the markets correct, IMH, on behalf of the Fund, took the following actions, among others:
• Asset Class Avoidance: IMH minimized the Fund's investment in a number of asset classes because IMH believed such investments would have resulted in an unnecessary risk to investor capital. These asset classes included condominium conversions, high-rise condominiums, public homebuilder projects, large land parcels not in proximity to existing development, and office condominiums.

• Portfolio Diversification: Although the Fund's portfolio is concentrated in Arizona and California, over the past several years the Fund has diversified into several markets that IMH believes reflect long-term affordability and economic growth. IMH anticipates increased geographic diversification in the latter half of 2008. IMH also plan to increase the percentage of its assets allocated to loans on commercial properties. The Fund may also explore increasing its emphasis on smaller loans, in the $2 million to $10 million range (although it also intends to consider making larger loans - over $50 million - on a select basis).

• Underwriting: IMH utilizes residual analysis methodology in its underwriting process. This methodology results in an assessment of whether there is there sufficient "equity" in the loan that, in the event of a default and foreclosure, we could complete development of the project in a manner such that the fair value of the project in the marketplace would exceed our aggregate investment, ideally generating a return of 18%-20% or more. We believe this type of analysis mitigates the likelihood of loaning too much money in relation to a project's value and has allowed the Fund to remain well-positioned in a volatile market.

As discussed in our previous filings, loan defaults continue to rise. Although investors often view a defaulted loan as a loss event, IMH only funds loans if it believes the loan has an abundance of equity. Therefore, if and when a default occurs, IMH believes the Fund will be well positioned to preserve its investors' capital, and potentially recover default interest and fees and possibly more. For example, in the first half of 2008, Members received in excess of $2.1 million in default interest and fees. In the aggregate, IMH believes it has positioned the Fund to maintain investors' capital despite an increase in loan defaults. Management continues to evaluate financing alternatives in an effort to provide exit strategies for its borrowers.
In addition, IMH believes that competition has significantly lessened, thereby permitting IMH to be more selective when choosing loans to fund. For example, in Arizona, prior to 2004, management estimates that the Fund had approximately ten competitors. Between 2004 and 2006, management estimates that the Fund had as many as 60 competitors. During the first quarter of 2008, IMH was aware of only four other similarly structured private lenders in the markets in which we operate which have the ability to actively fund new loans. In 2006, management estimates that IMH received approximately 100 loan requests per month and chose to fund approximately five percent of such requests each month. Currently, management estimates that IMH receives in excess of 500 loan requests per month, and chooses to fund approximately one percent or less of such requests per month.

Selected Financial Data
The table that follows sets forth certain financial data of the Fund. The
summary financial data are derived from our audited and unaudited financial
statements and other financial records.

                                                     (Unaudited)                              (Unaudited)
                                                  As of and for the                        As of and for the                As of and for the
                                              Six Months Ended June 30,               Three Months Ended June 30,               Year Ended
                                               2008                2007                 2008               2007             December 31, 2007
Cash and cash equivalents                 $    108,060          $  34,422          $    108,060        $     34,422         $         73,604
Total assets                              $    711,400          $ 443,905          $    711,400        $    443,905         $        590,559
Interest income and fees                  $     33,520          $  21,187          $     17,010        $     11,708         $         49,763
Management fees                           $        519          $     425          $        272        $        231         $            968

Interest expense                          $         78          $   1,045          $         49        $        308         $          1,220
Net earnings                              $     32,923          $  19,717          $     16,689        $     11,169         $         45,675
Net distributions to Members              $     32,536          $  19,061          $     16,532        $     10,834         $         46,920
Net Member distribution as a % of
net earnings                                      98.8 %             96.7 %                99.1 %              97.0 %                  102.7 %

Net earnings allocated to Members
per weighted average membership
units outstanding                         $     522.80          $  587.81          $     255.02        $     295.18         $       1,073.47
Net distributions to Members per
weighted average membership units         $     516.66          $  568.27          $     252.62        $     286.32         $       1,102.72
Average annualized yield to Members              10.29 %            11.51 %               10.02 %             11.52 %                  11.09 %

Member Equity Related:
Retained earnings (Loan Loss
Reserve)                                  $        405          $   2,037          $        405        $      2,037         $             49
Total Members' equity                     $    677,230          $ 424,644          $    677,230        $    424,644         $        576,833
Number of Member accounts                        4,335              2,409                 4,335               2,409                    3,472

Average Member account balance            $        156          $     176          $        156        $        176         $            166
States in which the Fund has
Members                                             49                 46                    49                  46                       49
Member investments (excluding
reinvestments)                            $    166,871          $ 173,393          $     90,715        $     91,717         $        349,523
Member earnings distributed               $     15,472          $   7,954          $      7,889        $      4,660         $         20,755

Member earnings reinvested                $     17,064          $  11,107          $      8,643        $      6,174         $         26,165
Retained earnings additions
(distributed)                             $        387          $     655          $        157        $        335         $         (1,245 )
% of total earnings reinvested                   51.83 %            56.33 %               51.79 %             55.28 %                  57.28 %
Redemptions                               $     83,894          $  20,647          $     41,458        $     11,342         $         57,790
Redemptions as % of new investment
(incl. reinvestments)                            45.61 %            11.19 %               41.73 %             11.59 %                  15.38 %

Loan Related:
Loan deployment ratio                             82.7 %             95.4 %                81.8 %              93.2 %                   89.0 %
Note balances originated                  $    235,268          $ 316,111          $    141,848        $    212,080         $        428,777
Number of notes originated                          11                 22                     6                  12                       38
Average note balance originated           $     21,388          $  14,369          $     23,641        $     17,673         $         11,284

Net principal balances outstanding        $    547,785          $ 404,918          $    547,785        $    404,918         $        508,896
Number of loans outstanding                         57                 50                    57                  50                       61
Average principal balance                 $      9,610          $   8,098          $      9,610        $      8,098         $          8,343
% of Portfolio Principal - Fixed
interest rate                                     35.7 %             48.9 %                35.7 %              48.9 %                   30.4 %

Number of fixed rate loans                          22                 25                    22                  25                       22
Weighted average interest rate -
Fixed                                            11.37 %            12.20 %               11.37 %             12.20 %                  12.26 %
% of portfolio - Variable interest
rate                                              64.3 %             51.1 %                64.3 %              51.1 %                   69.6 %
Number of variable rate loans                       35                 25                    35                  25                       39
Weighted average interest rate -
Variable                                         12.36 %            12.72 %               12.36 %             12.72 %                  12.52 %

Principal balance % by state:
Arizona                                           56.0 %             47.9 %                56.0 %              47.9 %                   44.8 %
California                                        26.7 %             29.3 %                26.7 %              29.3 %                   33.7 %
New Mexico                                         1.0 %              0.7 %                 1.0 %               0.7 %                    0.9 %

Texas                                              3.1 %              6.5 %                 3.1 %               6.5 %                    6.3 %
Idaho                                              9.0 %             10.9 %                 9.0 %              10.9 %                    9.6 %
North Carolina                                     0.0 %              4.7 %                 0.0 %               4.7 %                    0.0 %
Minnesota                                          2.8 %              0.0 %                 2.8 %               0.0 %                    2.9 %

Nevada                                             1.5 %              0.0 %                 1.5 %               0.0 %                    1.8 %
Interest payments over 30 days
delinquent                                $      1,088          $       -          $      1,088        $          -         $          2,741
Loans past scheduled maturity                       12                  6                    12                   6                       15
Principal balances past scheduled
maturity                                  $    127,656          $  22,013          $    127,656        $     22,013         $        133,532

Loans in non accrual status                          6                  4                     6                   4                       10
Principal balances in non accrual
status                                    $     80,341          $  15,458          $     80,341        $     15,458         $         73,346
Allowance for credit losses               $      1,900          $       -          $      1,900        $          -         $          1,900
Allowance for credit losses as % of
loan principal                                     0.3 %              0.0 %                 0.3 %               0.0 %                    0.4 %

* Where applicable, quarterly results are annualized to allow for compatability with annual results.

Results of Operations for the Six and Three Months Ended June 30, 2008 and 2007 The revenues and expenses of the Fund are relatively straightforward. We generate income from interest and fees on our mortgage loans, including default interest and fees, as well as interest income from money market, short-term investments or similar accounts in which we temporarily invest excess cash. We do not pay any overhead or operating expenses as those costs are presently paid by our Manager, as specified by the Operating Agreement, which are summarized below. However, the Fund is required to pay direct expenses or costs, which include management fees paid to our Manager; expenses or costs related to defaulted loans, foreclosure activities, or property acquired through foreclosure (none of which are payable to the Manager); and interest expense paid on loans that we have sold or participated, but we must account for as secured borrowings. The management fee is an annual fee equal to 0.25% of the "Earning Asset Base" of the Fund, which is defined as mortgage loan investments held by the Fund and property acquired through foreclosure and upon which income is being accrued under GAAP. Accordingly, when defaulted loans or foreclosed property enter into non-accrual status, or related income is otherwise not recorded, the loan is removed from the Earning Asset Base for purposes of computing management fees. Interest expense is the amount of interest paid by us to the purchasers of participations in loans or whole loans sold.

   Revenues

                                                    Six Months Ended June 30,                                Three Months Ended June 30,
Interest and Fee Income:                  2008         2007       $ Change       % Change          2008         2007        $ Change       % Change
Mortgage Loans                          $ 32,198     $ 20,720     $  11,478           55.4 %     $ 16,468     $ 11,366     $    5,102           44.9 %
Investments and Money Market Accounts      1,322          467           855          183.1 %          542          342            200           58.5 %

Total Interest and Fee Income           $ 33,520     $ 21,187     $  12,333           58.2 %     $ 17,010     $ 11,708     $    5,302           45.3 %

During the six months ended June 30, 2008, income from mortgage loans was $32,198, an increase of $11,478, or 55.4%, from $20,720 for the six months ended June 30, 2007. During the three months ended June 30, 2008 income from mortgage loans was $16,468, an increase of $5,102, or 44.9%, from $11,366 for the three months ended June 30, 2007.
The increases in mortgage loan income for the six and three months ended June 30, 2008 is directly attributable to the increasing size of the Fund's loan portfolio ($547,785 versus $404,918 at June 30, 2008 and 2007, respectively) and a higher average outstanding principal balance during these periods. However, as a result of loans foreclosures in the first and second quarters of 2008 and the increase in non-accrual loan balances, the interest-earning portion of the loan portfolio totaled $467,444 and $389,460 at June 30, 2008 and 2007, respectively. Despite the drop in the Prime interest rate, note interest rates have remained relatively consistent from period to period as a result of the interest rate floors on such loans, and the increase in the loan portfolio has resulted in an increase in interest income. Additionally, the Fund recognized approximately $2,169 in default interest, fees and other gains during the first six months of 2008, as compared with approximately $295 in such income in the same period in 2007.
During the six months ended June 30, 2008, interest income from investment and money market accounts was $1,322, an increase of $855, or 183.1%, from $467 for the six months ended June 30, 2007. During the three months ended June 30, 2008, interest income from investment and money market accounts was $542, an increase of $200, or 58.5%, from $342 for the three months ended June 30, 2007. . . .