SFG MORTGAGE & INVESTMENT CO INC, SB-2/A, 1999-04-21

SFG MORTGAGE & INVESTMENT CO INC
SB-2/A, 1999-04-21
FINANCE SERVICES

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 29, 1999

FILE NO. 33-71399

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------

AMENDMENT 1 TO FORM SB-2

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933
--------------------------

SFG MORTGAGE AND INVESTMENT COMPANY, INC.

(Exact name of issuer as specified in its charter)

WASHINGTON
(State or other jurisdiction of incorporation or organization)

923 POWELL AVENUE SW
RENTON, WASHINGTON 98057
(425) 271-3550
(Address and telephone number of registrant's principal executives offices)

GREGORY B. ELDERKIN, VICE-PRESIDENT
SFG MORTGAGE AND INVESTMENT COMPANY, INC.
923 POWELL AVENUE SW
RENTON, WASHINGTON 98057
(425) 271-3550
(Name, address, and telephone number of agent for service)

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

COPY TO:

JACK G. ORR, ESQ.
LAW OFFICES OF JACK G. ORR
3019 NORTH NARROWS PLACE
TACOMA, WASHINGTON 98407
(253) 756-9795

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(Primary Standard 91-1916172
industrial (I.R.S. Employer
Classification Code Identification
Number) Number)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. /X/

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
--------------------------

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE:

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PROPOSED MAXIMUM CALCULATION OF
TITLE OF EACH CLASS AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Investment Debentures Series I.............. $25,000,000 $1 $25,000,000 $6,950.00
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(1) This amount includes the amount of any principal or interest payments that
holders of the Debentures may, at their option elect to reinvest by
purchasing additional amounts of principal under the Debentures.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID
SECTION 8(A) MAY DETERMINE.

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SFG MORTGAGE AND INVESTMENT COMPANY, INC.
$25,000,000 INVESTMENT DEBENTURES, SERIES I

SFG Mortgage and Investment Company, Inc. (the "Company") is offering
Investment Debentures, Series I on the terms set forth in this Prospectus. The
Debentures are unsecured debt instruments, senior in liquidation to outstanding
equity securities of the Company, subordinate to collateralized debt of the
Company, if any (the amount of which is limited pursuant to the terms of a Trust
Indenture Agreement): on parity with unsecured accounts payable and accrued
liabilities of the Company (Except for certain payments due an affiliate of the
Company for management services and as an overhead allowance, which amounts are
subordinated to the payment of all amounts due under the Debentures during the
current period) and on parity with all other Debentures issued in this Offering
and possibly in subsequent offerings of Debentures by the Company. At September
30, 1998, the Company did not have any debt that will be senior to or in parity
with the Series I Debentures issued in this Offering. No offering will be made
pursuant to this Prospectus subsequent to December 31, 1999.

A holder of the Investment Debentures, Series I of the Company may elect to
receive payment of interest due under the Debenture quarterly, without
compounding; or at the election of the Debenture holder, if interest is left
with the Company it will compound quarterly until maturity, with the entire
amount of principal and accrued interest due at the maturity date of the
Debenture or upon early redemption by a Debenture holder or prepayment by the
Company.

The Company reserves the right to change prospectively, by way of a
post-effective amendment to its registration statement for the Debentures, the
interest rates, maturity, and minimum investment amounts on unsold Debentures.
During the period in which any such post-effective amendment to the registration
statement is pending, the offering of the Debentures by the Company will be
suspended. The current provisions are set forth below. See "DESCRIPTION OF
DEBENTURES."

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TERM TO ANNUAL INTEREST
AMOUNT OF INVESTMENT MATURITY(1) RATE
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$2,000-$9,999 60 Months 7.0%
$10,000-$24,999 60 Months 8.0%
$25,000-$99,999 60 Months 8.35%
$100,000-$249,999 60 Months 8.65%
$250,000+ 60 Months 9.0%
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(1) The Debentures have a 5-year term. Provided, that the term of the Debenture
may be renewed for another five-year term by the Company upon written notice
to the Debenture holder, unless the Debenture holder, after receiving such
written provides written notice to the Company of their intention not to
renew such Debenture. See, "AUTOMATIC RENEWAL OF DEBENTURES."

There is no trading market for the Debentures and none is expected to be
established in the future. See "RISK FACTORS." This offering of Debentures is
subject to withdrawal or cancellation by the Company without notice.

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

FOR A DISCUSSION OF MATERIAL RISKS ASSOCIATED WITH THE DEBENTURES OFFERED
HEREBY, SEE "RISK FACTORS" ON PAGE 6 OF THIS PROSPECTUS.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR ANY PRICING
SUPPLEMENT THERETO. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

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UNDERWRITING DISCOUNTS PROCEEDS TO ISSUER
PRICE TO PUBLIC AND COMMISSIONS(1) OR OTHER PERSONS(2)
<S> <C> <C> <C>
Per Debenture.......................... 100% 0% 100%
Total.................................. $25,000,000 None $25,000,000
</TABLE>

(1) No securities sales commissions will be paid from the offering proceeds
received from sale of the Notes. The Principal Distributor will receive, on
an annual basis from the Company's gross operating income, the following:
(i) an amount equal to one-quarter percent (0.25%) of the principal amount
of the outstanding Debentures for its services as the Principal Distributor
and (ii) an amount equal to one and one quarter percent (1.25%) of the
principal amount of outstanding Debentures as a securities sales commission,
some or all of which may be reallowed to the Selected Dealers participating
in the offer and sale of the Debentures.

(2) Organizational and offering expenses (other than sales commissions),
estimated at $60,000, will be paid by Capital Management Group, Inc., an
affiliate of the Company. See "Plan of Distribution" and "Use of Proceeds."

The Debentures are being offered for sale on a continuous, best efforts
basis. There is no minimum number of securities that must be sold. The offering
is subject to NASD Rule 2720. See "PLAN OF DISTRIBUTION."

PACIFIC WEST SECURITIES, INC.

The date of this Prospectus is , 1999.

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INSIDE FRONT COVER OF PROSPECTUS

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS
AND ANY PRICING SUPPLEMENT. NEITHER THE DELIVERY OF THIS PROSPECTUS AND ANY
PRICING SUPPLEMENT NOR ANY SALE MADE THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION THEREIN IS CORRECT AT ANY TIME
SUBSEQUENT TO THE DATE THEREOF. THIS PROSPECTUS AND ANY PRICING SUPPLEMENT SHALL
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
DEBENTURES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.

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DEALER PROSPECTUS DELIVERY OBLIGATION

Until (insert date) all dealers effecting transactions in the Debentures,
whether or not participating in this distribution, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission in
Washington, D.C. (the "Commission"), a Registration Statement on Form SB-2 under
the Securities Act of 1933, as amended, with respect to the Debentures offered
hereby. Prior to the effective date of the Registration Statement the Company
was not subject to the information requirements of the Securities Exchange Act
of 1934, as amended, (the "Exchange Act"). At the time of the effectiveness of
the Registration Statement the Company became a "reporting company" and is
required to file reports pursuant to the provisions of the Exchange Act. This
Prospectus does not contain all of the information set forth in the Registration
Statement, as permitted by the rules and regulations of the Commission.
Reference is hereby made to the Registration Statement and exhibits thereto for
further information with respect to the Company and the Debentures to which this
Prospectus relates. Copies of the Registration Statement and other information
filed by the Company with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission in Washington, D.C. at
450 Fifth Street, NW, Washington, DC 20549 and at certain of its regional
offices which are located in the New York Regional Office, Seven World Trade
Center, Suite 1300, New York, NY 10048, and the Chicago Regional Office,
CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661-2511. In
addition, the Commission maintains a World Wide Web site that contains reports,
proxy statements and other information regarding registrants such as the Issuer,
that filed electronically with the Commission at the following Internet address:
(http:www.sec.gov).

TABLE OF CONTENTS

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PAGE
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Prospectus Delivery Requirements........................................................................... 3
Available Information...................................................................................... 3
Prospectus Summary......................................................................................... 4
Risk Factors............................................................................................... 10
Use of Proceeds............................................................................................ 15
Business................................................................................................... 16
Deed of Trust and Mortgage Financing in General............................................................ 25
Management................................................................................................. 29
Principal Shareholders..................................................................................... 31
The Company and Affiliates' Loan on Real Estate............................................................ 31
Capitalization............................................................................................. 33
Management's Discussion and Analysis of Financial Condition and Operating Results.......................... 33
Plan of Distribution....................................................................................... 34
Description of Debentures.................................................................................. 35
Debenture Holder's Prepayment Rights....................................................................... 37
Reinvestment of Interest Payments.......................................................................... 38
Indemnification............................................................................................ 38
Legal Matters.............................................................................................. 38
Experts.................................................................................................... 38
</TABLE>

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PROSPECTUS SUMMARY

THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND SHOULD BE
READ IN CONJUNCTION WITH THE DETAILED INFORMATION APPEARING ELSEWERE IN THIS
PROSPECTUS. THIS OFFERING INVOLVES CERTAIN CONSIDERATIONS TO PROSPECTIVE
INVESTORS WHICH ARE SET FORTH IN "DESCRIPTION OF DEBENTURES" & "RISK FACTORS."

THE SFG GROUP OF COMPANIES

The Company was established and incorporated in the State of Washington in
September 1998. Its principal executive offices are located at 923 Powell Avenue
SW, Renton, WA 98057. Its mailing address is P.O. Box 860, Renton, WA 98057, and
its telephone number is (425)271-3550. The Company has several affiliates, some
of which will provide services to and receive compensation from the Company.
Seattle Funding Group, Ltd., ("SFG Ltd."), provides real estate Receivable
origination services to the Company and the Affiliated Group. SFG Data Services,
Inc. ("SFG Data"), another affiliate of the Company, services the real estate
Receivables for the Company and the Affiliated Group. The Company has entered
into a Management Agreement with Capital Management Group, Inc., a Washington
corporation ("CMGI"), under which CMGI provides a variety of management services
to the Company, including administrative services, maintaining shareholder
transfer records, maintaining the financial books and records of the Company,
preparing reports to the Shareholders, and assisting the Company's accountants
in the preparation of financial reports and tax returns. CMGI is the general
partner of two Washington limited partnerships and the supervisory managing
agent of two Washington limited liability companies, all of which were organized
to provide to service the need for non conventional mortgage financing. These
affiliates of the Company have raised in excess of $28,000,000 in capital
through the sale of limited partnership interests and through the issuance of
redeemable secured promissory notes. CMGI is also the Managing Member of SFG
Equity Fund, L.L.C., a limited liability company which engages in mortgage
lending and real estate investment and has raised over $1,950,000 in equity.
Where reference herein is intended to include the Company and its affiliates,
they are jointly referred to as the "Affiliated Group." Where reference herein
is intended to refer to SFG Mortgage and Investment Company, Inc., it is
referred to individually as "the Company."

The Company was formed to engage in the business of making direct, non
conventional equity loans and to invest in real estate and promissory notes
secured by real estate. The proceeds from sale of the Debentures will be used by
the Company to establish a fund from which loans, secured by real property, will
be made to borrowers that meet the Company's lending guidelines and to acquire
real estate and secured notes for investment. The borrowers will generally be
persons or businesses that have been unable to secure loans in a timely manner
from conventional lending institutions due to the increased restrictions and
constraints imposed on borrowers by such institutions. Such borrowers are
expected to be willing to pay interest rates in excess of conventional mortgage
interest rates for a variety of reasons, including: a desire on the part of the
borrower to secure a loan quickly; because the property being used to
collateralize the loan does not fall within the guidelines conventional mortgage
lenders require, or because the borrower is a "non-conforming" borrowing entity
such as a corporation, trust, estate and partnership. The loans will have
shorter terms, generally five to ten years, than conventional mortgage loans.
All loans made by the Company will be secured by deeds of trust or mortgages on
real property with a total loan to value ratios that will generally not exceed
65% of the total value of the subject property and in no event will exceed 75%
of the total value of the subject property. The Company's real estate investment
activities are expected to concentrate on properties acquired from sellers who
are facing foreclosure and/or properties which, in management's opinion, are
being offered below the market. The Company expects to acquire properties and
hold them for both long-term investment and short term investment and resale.

The Company's objective is to obtain income and/or capital appreciation
through its lending and investing activities. The Company intends to do this
primarily through medium- and long-term, and in some cases short-term,
investments associated with real estate, including its mortgage lending
activities. The Company's objective is to make or acquire mortgage loans and to
identify and invest in real properties

4
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that provide the opportunity for the Company to preserve and protect its capital
investment and provide the Company with a return on that investment commensurate
with the risk involved.

In order to enhance the Company's ability to take advantage of opportunities
to invest in Receivables and/or real estate, the Company may from time to time
leverage its assets under limited conditions. The Trust Indenture under which
the Debentures will be issued permits the Company to borrow funds and use the
Company's assets as security for such borrowings. The amount of borrowings may
not exceed thirty-five percent (35%) of the total principal amount due under the
issued and outstanding Debentures at the time such borrowings are secured. The
Company expects that such borrowings would be used to enhance the operations of
the Company and its expected return on investment, primarily in two methods. The
Company believes that an operating line of credit can be used to fund the
acquisition of Receivables and/or real property acquisitions or development
pending the receipt by the Company of term financing or additional capital
investment. The Company also believes that by borrowing funds under a term
lending arrangement, generally expected to be secured by its real estate assets,
it can leverage the equity it has in those assets to acquire other assets which
are expected to provide a return to the Company in excess of the cost of the
borrowed funds. In order to secure these borrowings the Company may agree to
pledge some or all of its assets and/or subordinate payment of the Debentures to
payments due to the lenders. The Trustee is required to take all actions
reasonably necessary to assist the Company in securing such borrowings within
the guidelines established in the Trust Indenture, including executing
collateral assignment agreements and subordination agreements as may be required
by a lender.

The Affiliated Group is engaged, primarily in the Pacific Northwest, in the
business of acquiring, holding, selling, originating and servicing receivables
(hereinafter "Receivables"). These Receivables include real estate contracts and
promissory notes collateralized by first position liens on residential,
commercial and undeveloped or partially developed real estate. On a limited
basis, the Affiliated Group also invests in Receivables consisting of real
estate contracts and promissory notes collateralized by junior position liens.
The Receivables collateralized by real estate are typically non conventional in
that they were originated by lenders who specialize in making loans to persons
who, for a variety of reasons, are unable to obtain financing from conventional
lenders in a timely manner or who are "non-conforming" borrowing entities such
as corporations, trusts, estates and partnerships.

The Company has no employees and is not expected to have employees for the
foreseeable future. At November 30, 1998, the Affiliated Group had 15 full-time
equivalent employees. No personnel are represented by any labor organization and
the Affiliated Group considers relations with its employees to be satisfactory.

The Company's principal offices are located in a commercial building near
downtown Renton, Washington at which the Company and the Affiliated Group shares
space with Capital Management Group, Inc.

DEFINITION OF TERMS

For ease of reading, the following is a compilation of several of the
defined terms which appear regularly within this document.

AFFILIATED GROUP: This term refers to the combined businesses consisting of
the Company and all of its affiliates including CMGI, SFG Ltd., SFG Data and the
SFG Funds.

CAPITAL MANAGEMENT GROUP, INC. OR CMGI: Capital Management Group, Inc., an
affiliate of the Company, which will provide management and administrative
services to the Company.

COMPANY: This term refers to the issuer of the Debentures, SFG Mortgage and
Investment Company, Inc., exclusive of its affiliates.

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DEBENTURES: When this term is capitalized, it refers to the Investment
Debentures being offered herein. When this term is not capitalized, it refers to
debentures generally.

RECEIVABLES: Investments in cash flows, consisting of obligations
collateralized by real estate and other investments.

SFG DATA: SFG Data Services, Inc., an affiliate of the Company.

SFG FUNDS: SFG Income Limited Partnership (hereinafter SFG Fund I), SFG
Funds II, III, and IV and SFG Equity Fund, affiliates of the Company.

SFG Ltd. or Seattle Funding Group: Seattle Funding Group, Ltd., an affiliate
of the Company.

THE OFFERING

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OFFERING.......................... This Debenture offering consists of $25,000,000 in
principal of Investment Debentures, Series I, issued at
minimum investment amounts, terms, and rates set forth
on the cover page of this Prospectus, including the
reinvestment of interest payments by Debenture holders.
There is no minimum amount of Debentures which must be
sold. Debentures are issued in book entry form. See
"DESCRIPTION OF DEBENTURES."

The Debentures are unsecured indebtedness of The
Company. Each of the Debentures will have a 5-year term
and provided, that the term of the Debenture may be
DEBENTURES........................ renewed for another five-year term by the Company upon
written notice to the Debenture holder, unless the
Debenture holder, after receiving such written provides
written notice to the Company of their intention not to
renew such Debenture. See, "AUTOMATIC RENEWAL OF
DEBENTURES," below. Prior to the commencement of this
offering the Company did not have any debentures or
other similar debt obligations issued and outstanding.
Prior to the initiation of this offering, the Company
did not have any issued or outstanding debenture debt.
Prior to this offering the Company had no outstanding
debentures or other debt. The Affiliated Companies had
no outstanding debenture debt and $18,237,732.72
(principal and accrued interest) of outstanding debt in
the form of secured promissory notes as of September 30,
1998. See "CAPITALIZATION."

USE OF PROCEEDS................... The proceeds of this Debenture offering will provide
funds (in descending order of priority) for Receivable
investments, (which will include providing a pool of
funds from which the Company will make or purchase non
conventional mortgage loans, including loans from
affiliates), real estate acquisition and/or development,
and for general corporate purposes. See "USE OF
PROCEEDS."

PRINCIPAL AND INTEREST PAYMENTS... The Debentures will bear interest at the stated rate,
which interest will be calculated on a 365-day year, and
will be payable quarterly without compounding. The
principal amount due under the Debentures, together with
any accrued but unpaid interest, will be due and payable
in full at the end of the term of each of the
Debentures. Debenture holders have the option of
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<TABLE>
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electing to purchase their Debenture with a reinvestment
option whereby the Company will retain all or fifty
percent of the interest payable under terms of the
Debenture and credit the principal amount due the holder
with the amount of such retained interest, thus
compounding the interest due on a quarterly basis. See
"DESCRIPTION OF DEBENTURES-- Payment of Principal and
Interest."

Each of the Debentures is subject to a limited right of
prepayment at the Debenture holder's option beginning on
the first anniversary of the date a Debenture was
EARLY REDEMPTION OF DEBENTURES.... issued. The Company will be obligated to redeem any
Debenture upon ninety (90) days written notice to the
Company from the Debenture holder following the first
anniversary. The redemption amount shall be equal to the
principal amount due under the Debenture, together with
all accrued and unpaid interest. Provided, that the
Company may from time to time, charge a redemption
processing fee which in no event will exceed the lesser
of $500.00 or 3% of the principal amount redeemed per
Debenture. Initially, the Company does not intend to
charge such fees. The Company may elect to limit, in its
discretion the amount of Debentures redeemed to a
maximum of twelve and one-half percent (12.5%) of the
then outstanding total principal balance of Debentures
in any ninety (90) day period, if in the Company's
opinion, the redemption of Debentures during that period
of time would compromise the Company's ability to pay
its obligations (including principal and interest
payments on the remaining debentures in the ordinary
course of business). At the end of the term of any such
suspension period, redemptions will be processed and
paid in the order first received in proper form by the
Company.

CALL OF DEBENTURES BY COMPANY..... The Debentures are callable at the Company's option
beginning on the first anniversary on the date each
Debenture was issued. On or after such dates the
Debenture will be subject to prepayment at the option of
the Company, in whole or in part, at the prices set
forth below, plus accrued and unpaid interest thereon,
if any, to the date of prepayment:

Between First and Second 100.50% of
Anniversary........................ Principal
Between Second and Third 100.25% of
Anniversary........................ Principal
Thereafter......................... 100.00% of
Principal

The Company may elect to renew some or all of the
AUTOMATIC RENEWAL OF DEBENTURES... Debentures at their respective maturity dates by
providing written notice to holders of the Debenture
holders no less than six (6) months prior to the
maturity date. Any holder of a Debenture desiring
payment instead of renewal must, within sixty (60) days
after receiving notice of the Company's intention to
renew the Debenture, decline renewal by written notice
to the Company. If renewal is declined then the Company
will be obligated to pay
</TABLE>

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all principal and interest under the Debenture as such
amounts become due.

SUBSCRIPTION PROCEEDS HOLDING Pending application of the proceeds from subscription
ACCOUNT......................... for purchase of a Debenture, the subscription proceeds
will be deposited into an interest-bearing account on
behalf of the proposed Debenture holder. Such person
will not become a Debenture holder until the Company has
need for the proceeds to fund its operations. At that
time the funds will be transferred to the Company's
operating account and such person will become a
Debenture holder under the terms under which they
subscribed for the Debentures. If a proposed Debenture
holder's funds have not been transferred to the Company
within sixty (60) days of subscription to the Company,
such proposed Debenture holder may request return of the
subscription funds and cancellation of the Subscription
Agreement by written notice to the Company. Upon receipt
of any such notice, the Company will, within five (5)
business days, withdraw the canceling Debenture holder's
subscription proceeds from the interest-bearing account
and return such proceeds together with all interest
earned thereon to the canceling Debenture holder. Such
Debenture holder's subscription agreement will be
canceled without further force or effect. See "PLAN OF
DISTRIBUTION."

CHANGE IN TERMS OF DEBENTURES..... The Company reserves the right to change prospectively,
by way of a post-effective amendment to its registration
statement for the Debentures, the interest rates,
maturity, and minimum investment amounts on unsold
Debentures. During the period in which any such
post-effective amendment to the registration statement
is pending, the offering of the Debentures by the
Company will be suspended. See "DESCRIPTION OF
DEBENTURES."
</TABLE>

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SUMMARY FINANCIAL DATA

The financial data shown below as of November 9, 1998 have been derived
from, and should be read in conjunction with, the Company's financial statements
and related notes appearing elsewhere in this Prospectus.

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PERIOD ENDED
NOVEMBER 9, 1998
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STATEMENTS OF INCOME DATA:
Revenues...................................................................................... $ 0
Expenses...................................................................................... 0
Gross Profit.................................................................................. 0
Operating Income (loss)....................................................................... 0
Net Income (loss)............................................................................. 0

PER COMMON SHARE DATA(2):
Net Income (loss) per share................................................................... $ 0
Weighted average number of shares outstanding(2).............................................. 40,000

BALANCE SHEET DATA:
Working capital............................................................................... $ 40,000
Total assets.................................................................................. 40,000
Total Liabilities............................................................................. 0
Shareholders equity........................................................................... 40,000
</TABLE>

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(1) The Company was recently formed and has not engaged in any operations, other
than organizing and qualifying this Debenture offering. It has not generated
any revenues and all expenses incurred in connection with the organization
and qualification of the offering have been paid by CMGI, an affiliate of
the Company, pursuant to the Management Agreement between the Company and
CMGI.

(2) The Company issued 40,000 shares of its common stock at a price of $1.00 per
share shortly after it was incorporated.

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RISK FACTORS

Investment in the Debentures offered hereby involves a certain degree of
risk. Each prospective investor should carefully consider the following risk
factors inherent in and affecting the business of the Affiliated Group and this
offering before making an investment decision. This Prospectus contains
forward-looking statements which involve risks and uncertainties. Actual events
or results may differ as a result of various factors, including without
limitation, the risk factors set forth below and the matters set forth in the
Prospectus generally.

1. GENERAL RISKS ASSOCIATED WITH LENDING ACTIVITIES.: The Company's
lending activities will be subject to certain risks generally incident to
mortgage lending activities. Such risks include fluctuating interest rates and
property values, unfavorable economic conditions, and changes in government
rules and regulations, as well as the availability of funds from other lenders
at more favorable terms than offered by the Company. While the Company believes
that its non-conventional lending activities will generally not be impacted by
any such adverse circumstances or conditions as much as more conventional
mortgage lenders, their continued existence for a period of time could adversely
affect the Company's lending activities.

2. RISKS ASSOCIATED WITH NON-CONVENTIONAL LENDING ACTIVITIES:. The Company
will be making loans to borrowers who, for a variety of reasons, have elected to
borrow funds at terms less favorable than are available from conventional
lending institutions. Such borrowers are generally expected to be considered
higher risks for default. While the Company will seek to qualify such borrowers
and will require real property to collateralize its loans, it is possible that
the Company could experience a higher than average default rate on its loans. In
such event the Company will incur additional costs, including legal expenses, to
collect such loans and in some instances may have to foreclose on the collateral
in order to effect payment of a defaulted loan. Such activities could reduce the
overall profitability of the Company, and in some instances could reduce the
Company's capital base. Recently there have been several "sub-prime lenders"
that have experienced financial difficulties, including the filing of bankruptcy
petitions. While this is further indication that the lending and investment
activities in which the Company will engage are higher risk than conventional
lending, the Company believes that it has structured it operations in a manner
which reduces the overall risk to investors. Among the operational factors which
it believes will reduce such risks are that (i) the loan origination activities
will be conducted by an affiliate of the Company and not by the Company itself,
meaning that the Company will not bear the costs and overhead associated with
such business activities, (ii) the Company will use apply loan-to-value ratios
to its loans that are generally lower than those used by most "sub-prime"
lenders, and (iii) the Company will acquire and hold its loans for investment
and will not be dependant upon resale of loans to generate revenues to fund the
Company's operations, including the repayment of Debentures.

3. LACK OF DIVERSIFICATION: All of the assets of the Company will be
committed to the Company's lending and Receivables and real estate investing
activities. The Company will not be engaged in any other activity. Accordingly,
since the Company will not have any other operations nor investments which would
spread the risk of its lending activities, repayment of the principal and
interest due under the Debentures will be dependent, among other things, upon
the success of the Company in identifying qualified borrowers and obtaining
adequate collateral to secure the loans made by the Company and in selecting,
maintaining and successfully selling its real estate investments at a profit.

4. VALUATIONS OF COLLATERAL CANNOT BE ASSURED. Although the Company will
seek to verify through the services of an independent appraiser or other real
estate professional that the property collateralizing its loans will have a
market value equal to or in excess of the loan principal in the event of a
default, the Company generally does not obtain a formal MAI appraisal. There can
be no assurance that the properties will have such value or that even if they do
when a loan or loans are made, that in the event of default the Company will be
able to realize such value upon a liquidation of the collateral to satisfy the
loan obligation. In such event, the Company could incur a loss of capital if a
borrower defaults and the

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Company is unable to liquidate the property for an amount equal to or in excess
of the borrower's obligation to the Company.

5. JUNIOR POSITION MORTGAGES AND DEEDS OF TRUST AND LOANS SECURED BY
UNDEVELOPED PROPERTY: The Company expects that from time to time it will make
loans which will not be secured by a first position deed of trust or mortgage,
but rather a deed of trust or mortgage which is in a junior position behind
another lien(s), including deeds of trust or mortgages. The Company also expects
that from time to time it will make loans which will be secured by property
which has not been developed at all or is only partially developed. Each of
these types of loans will present a higher risk to the Company. In the case of a
loan secured by a junior position mortgage or deed of trust, if the borrower
defaults in payment of an obligation which is in a superior position to that of
the Company, the Company may need to take steps to protect its security interest
in the property. Such steps could include curing the default of the obligation
that is in the superior position and/or paying such obligation if full in order
to keep the Company's interest in the property from being foreclosed upon. In
the case of undeveloped property, the Company may incur additional expenses to
retain its collateral interest in the property, such as the payment of real
estate taxes, LID assessments or other liens. These circumstances could also
reduce the overall return the Company experiences from its portfolio of loans.
The Company will seek to minimize these risks by having no more than twenty
percent (20%) of its loan portfolio in junior position loans and no more than
twenty percent (20%) of its loan portfolio secured by undeveloped property at
any point in time. Further, no loan which is to be secured by a junior position
deed of trust or mortgage or by undeveloped or partially developed property may
have a loan to value ratio, including the Company's loan, which exceeds 65%.

6. RISKS OF REAL ESTATE INVESTMENT: Certain of the investments of the
Company are expected to involve real estate. The Company will be subject to the
risks inherent in the ownership of real estate, including fluctuations in
property values, occupancy rates and operating expenses and variations in rental
schedules. These factors in turn may be adversely affected by general and local
economic conditions, by the supply of and demand for various types of real
estate projects, by zoning laws, by changes in federal income tax laws, by
reduced employment in areas of Company investments, by competing properties, and
by real property tax rates. Certain expenditures associated with real estate
equity investments (principally mortgage payments, real estate taxes and
maintenance costs) are not necessarily decreased by events adversely affecting
the Company's income from such investments. Thus, the cost of operating a
property may exceed the income earned thereon, and the Company may have to
advance funds in order to protect its interest. Because the Company's ability to
achieve profits will depend in part on factors beyond the Company's control, no
assurances of profitable operation can be made.

6. LEVERAGE: The Company may leverage some or all of the real estate in
which it invests using recourse or nonrecourse debt. In order to reduce the
risks associated with the use of leverage, under the Trust Indenture the Company
the total amount of the Company's borrowings may not exceed thirty five percent
(35%) of the principal amount due under the issued and outstanding Debentures at
any time. Even with such limitation, while the use of leverage can result in an
increase in returns on the Company's investments, if the Company were to default
in payment of such debt, it could result in a loss of the Company's equity in
some or all of the assets. In order to secure a loan or loans, the Company may
be required by a lender to pledge some or all of its assets as collateral.
Further, in the event of a default, a lender could elect, in lieu of foreclosure
on assets securing the loan, to pursue other remedies such as obtaining a
judgment against the Company after which the lender could then pursue other
assets of the Company in order to collect the amounts due. In addition, under
the terms of the Trust Indenture, the Company and the Trustee may agree to
subordinate payments due under the Debentures to the payments to one or more of
the lenders. Thus, in order to meet its obligations to a lender, the Company may
have to delay or discontinue payment to the Debenture holders, resulting in a
default in payment of some or all amounts due under the Debentures. Moreover,
should revenues be insufficient to service debt and pay taxes and other
operating costs, the Company will be required to utilize working capital, seek
additional

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<PAGE>
funds, or suffer a foreclosure of the property collateralizing a loan or loans.
There can be no assurance that additional funds will be available, if needed,
or, if available, will be on terms acceptable to the Company.

7. UNINSURED RISKS: The Company intends to require adequate insurance
coverage for the properties in which it invests or it holds as collateral for
its loans. However, as with most if not all personal and business activities,
there may be circumstances that give rise to legal claims not covered or only
partially covered by insurance. A loss or judgment against a borrower, any
property held by the Company or possibly the Company itself not fully covered by
insurance would subject the Company to possible loss of the property or the
collateral for a loan and resultant adverse effects to investors in the Company.

8. INTEREST RATE FLUCTUATIONS: Changes in interest rates can have a
variety of effects on the Company's business. While the non-conventional
mortgage lending that the Company will be engaged in will generally be less
sensitive to interest rate fluctuations, changes in interest rates may impact
the volume of mortgage loan originations, the net interest income on mortgage
loans held for sale, the amount of gain or loss on the sale of mortgage loans,
and the level of competition in the marketplace. During periods of declining
interest rates the Company may experience a decline in mortgage loan
originations because its interest rates will generally not be reduced and the
difference between the interest rates for conventional mortgages and the rates
charged by the Company will increase. An increase or stabilization of interest
rates for an extended period of time may cause an increase in loan originations
as the difference between the conventional mortgage interest rate and the
Company's interest rates decreases. The potentially adverse impact from a
decline in interest rates whereby the Company is unable to continue to place all
of its mortgage pool or reduce its interest rates may cause the Company to begin
redeeming the Debentures and ultimately could affect its ability to meet its
interest payment obligation under the Debentures.

9. HIGH COST MORTGAGE RULES: Effective October 1, 1995 the Department of
Housing and Urban Development adopted regulations regarding so called "high
cost" or "high rate" mortgages. These are mortgages which have higher interest
rates and/or higher loan fees than conventional mortgage loans. Some of the
loans which the Company will place will be subject to these regulations which
require certain additional disclosures to be made, a three day waiting period
after the disclosure is made and places certain limits on the terms of the
loans, including a minimum five year term and no prepayment penalties. SFG Ltd.,
the originator of the Company's loans has instituted procedures to meet, and has
represented to the Company that it does meet, the requirements and limitations
imposed by these regulations. However, if it fails in this regard, the Company
may be liable to a borrower for certain damages. In such event, the Company
could experience a partial or complete loss of principal for any loan which was
not originated in compliance with these regulations.

10. RELIANCE ON MANAGEMENT AND THIRD PARTIES/ABSENCE OF OPERATING
HISTORY: All decisions with respect to the management of the Company will be
made by the Managers and Capital Management Group, Inc. ("CMGI"), an affiliate
of the Company. While managements of the Company and CMGI each have substantial
experience in non-conventional lending and/or real estate, the Company itself
has no operating history upon which investors may evaluate the Company's likely
performance. See "MANAGEMENT."

11. LOAN ORIGINATION AND LOAN SERVICING SERVICES OF AFFILIATES. The
Company will primarily rely on the services of its affiliates to provide the
Company with loan origination and loan servicing. SFG Ltd. will provide the
Company with loan origination services by initiating, processing and initially
funding a substantial portion of the mortgage loans which the Company acquires.
In connection with such services, SFG, Ltd. will not be directly compensated by
the Company. SFG Ltd will be compensated by retaining all or most of the loan
origination fees paid by the borrower in connection with the generation of such
loan. It will not retain any interest in or otherwise be compensated by the
Company after the Company acquires a particular loan from SFG Ltd. SFG Data will
service the mortgage loans which the Company holds for investment, which
services will include the collecting and remitting of loan payments, accounting
for principal and interest, contacting delinquent borrowers, and generally
administering the loans. SFG Data

12
<PAGE>

will not be directly compensated by the Company since the fees and charges
related to loan servicing will be paid by the borrower and/or CMGI from the 1%
overhead allowance allocated to it. In addition, these or affiliates of the
Company may provide additional services to the Company from time to time for
which they will receive compensation.

The Company believes that its affiliates have sufficient experience in
regard to the kinds and nature of the services they will be providing to the
Company so that the Company's needs for such services will be competently and
adequately met. Further, the Company believes that the compensation which the
affiliates will receive for rendering such services, whether from the Company,
borrowers or third parties is reasonable and no more than the usual and
customary amounts paid for such services. However, there can be no assurance
that such affiliates will be able to continue to provide such services to the
Company in the future or that there are not now, or may be in the future, other
businesses that might be able to provide similar services to the Company in a
more efficient, competent and/or less costly manner.

12. FEES PAYABLE TO AFFILIATE'S OF THE COMPANY REGARDLESS OF
PROFITABILITY: The Company will be obligated to pay to affiliates of the
Company certain fees for services that will be payable regardless of the
Company's profitability. The compensation to be paid to the Company's affiliates
were not determined by arms-length negotiations. The amount of such fees that
are payable by the Company to its affiliates is limited to the compensation paid
in connection with the offer and sale of the Debentures and management fees
payable to CMGI under the Management Agreement between the Company and CMGI. The
amount of such fees is calculated based upon the total principal amount due
under the issued and outstanding debentures of the Company.

13. TRANSACTIONS WITH MANAGEMENT AND CONFLICTS OF INTEREST: The Managers
of the Company, directly or indirectly, are now and may again in the future
participate as a manager, general or limited partners of other Companies that
will engage in lending activities. In addition, the Managers may be financially
interested in (as general partners, shareholders or otherwise) and devote
substantial time to, other businesses and activities that may compete with the
Company.

14. DEPENDENCE UPON LEVERAGE FINANCING: The Company's principal sources of
cash flow are expected to include the sale and securitization of Receivables,
collateralized borrowing, Receivable payments, the sale of debenture, and the
sale of real estate. To the extent the Company's cash flow is insufficient or
unavailable for the repayment of debentures which mature during the offering,
portions of the net proceeds of this Debenture offering may be used for such
purpose. At the commencement of this offering there are not Debentures that will
mature during the present fiscal year. The Company's ability to repay its other
outstanding obligations, including those created by the sale of the securities
described herein, may be contingent upon the success of future public offerings
of debentures and/or other securities. The amount of debentures and preferred
stock that may be issued and outstanding may be limited by the State of
Washington, pursuant to the Debenture Company Act. Also See "RISK
FACTORS--Government Regulations."

15. TERM INVESTMENT; ABSENCE OF A TRADING MARKET, LACK OF LIQUIDITY: The
Debentures offered hereby will be issued for specified terms and should not be
considered liquid investments. See "DESCRIPTION OF DEBENTURES." Investors should
be prepared to hold the Debentures until maturity. The Debentures are not traded
on any stock exchange and there is no independent public market for the
Debentures. At present, management does not anticipate applying for a listing
for such public trading.

16. LIMITED INDENTURE RESTRICTIONS AND ABILITY TO INCUR ADDITIONAL
INDEBTEDNESS: The Debentures are issued pursuant to an Indenture which, while
it does place some restrictions the Company's ability or to incur certain debt,
it does not require the Company to maintain any specified financial ratios,
minimum net worth or minimum working capital. Further, it places limited
restrictions on the Company's ability to issue additional Debentures. Debenture
holders should not rely on the terms of the Indenture for protection of their
investments, but should look rather to the creditworthiness of the Company and
its ability to satisfy its obligations. Debentures will not be guaranteed or
insured by any governmental agency. There is no

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<PAGE>
sinking fund for the retirement of Debentures. The Debentures are senior in
liquidation to all outstanding equity securities of The Company. Debentures are
subordinate in liquidation only to The Company's collateralized debt and are on
parity with all other outstanding debentures, unsecured accounts payable (except
for certain payments to CMGI) and unsecured accrued liabilities. In the event of
liquidation of the Affiliated Group, the policyholders and creditors of The
Company's subsidiaries would be paid prior to Debenture holders to the extent of
the net assets of the subsidiaries.

17. RISKS RELATED TO ENVIRONMENTAL CONDITIONS AND REGULATIONS: In the
course of its business, the Affiliated Group acquires properties, generally
through foreclosure. Various state and federal laws and regulations impose
liability upon the owner and previous owner of property on account of hazardous
waste or substances released onto or disposed of on property. As a result, the
owner or former owner may be liable to the government or a third party for the
clean up costs. The costs of investigation, remediation and removal can be
substantial. While the Affiliated Group endeavors to avoid the acquisition of
Receivables or properties which may be contaminated, there can be no assurance
that significant losses could not be incurred due to environmental
contamination.

18. CONFLICTS OF INTEREST: The Company and various of its affiliates
engage in similar business activities which include investing in Receivables and
other related activities. As a result, certain conflicts of interest may arise
between or among these companies. A common management group directs the
activities of all of the companies in the Affiliated Group. Capital Management
Group, Inc. provides general management and Receivable acquisition services to
the Company. Seattle Funding Group, Ltd. and SFG Data Services, Inc., provide
loan origination and receivable servicing and collection services respectively
to the Company. As a result of these affiliated relationships, certain conflicts
of interest may now exist and may arise between or among the Company and the
Affiliated Group. Investors in the Company's securities must rely on the
integrity and corporate responsibilities of the Company, its management and the
management of its affiliates in making business decisions and directing the
operations of the Company and its subsidiaries.

19. GOVERNMENT REGULATIONS: The Affiliated Group's business activities are
subject to extensive regulation, including regulation of its Receivable
origination, acquisition and servicing activities. The Company's sale of
debentures is regulated by the State of Washington pursuant to the Debenture
Company Act. Management is unable to predict with any degree of certainty
whether the state of Washington will impose additional restrictions during this
offering or future securities offerings under the Debenture Company Act, or
whether any such restrictions would impact the financial condition, including
the liquidity, of the Company.

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<PAGE>
USE OF PROCEEDS

DEBENTURE PROCEEDS: If all the Debentures offered are sold, the Company
expects net proceeds from this Debenture offering of $25,000,000. There can be
no assurance, however, that any of the Debentures can be sold. Sales commissions
will not be paid from the offering proceeds or by the purchasers of Debentures.
Rather they will be paid from the Company's operating revenues in an amount
equal to 1.5% of the principal amount of Debentures, including reinvestments or
new purchases, due on a quarterly basis.

In conjunction with the other funds available to it through operations
and/or borrowings, The Company will utilize the proceeds of the Debenture
offerings for the following purposes, shown in their descending order of
priority: funding investments in Receivables and other investments, which is
expected to include establishing a pool to purchase mortgage loans which will
have been originated by one or more of its affiliates, and purchase and/or
development of real estate now held or which may be acquired. The Affiliated
Group continues to evaluate possible acquisition candidates. Presently there are
no commitments or agreements for material acquisitions. To the extent internally
generated funds are insufficient or unavailable for the retirement of maturing
debentures in the future, proceeds of this offering may be used for retiring
maturing debentures and for general corporate purposes (debt service and other
general operating expenses.) There are no debentures that will mature in the
current fiscal year. See "RISK FACTORS--Dependence Upon Leverage Financing."

Management anticipates that some of the proceeds of this offering will be
invested in money market funds, bank repurchase agreements, commercial paper,
U.S. Treasury Bills and similar securities investments while awaiting use as
described above. Due to the Company's inability to accurately forecast the total
amount of Debentures to be sold pursuant to this offering, no specific amounts
have been allocated for any of the foregoing purposes.

In the event substantially less than the maximum proceeds are obtained, the
Company does not anticipate any material changes to its planned use of proceeds
from those described above.

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BUSINESS

OVERVIEW

The Company was established as a corporation in the State of Washington in
September 1998 to engage in the business of making and acquiring direct,
non-conventional equity loans and investing in real estate and Receivables
secured by real estate. Through growth and acquisitions, the Company intends to
become a diversified institution, with operations in non-conventional real
estate mortgage financing, Receivables acquisition and real property ownership
and management. Its principal affiliates are Seattle Funding Group, Ltd., a
non-conventional mortgage loan origination business, SFG Income Funds I, II, III
and IV which acquire and hold Receivables, primarily first position real estate
mortgages for investment, SFG Equity Fund, LLC which invests in real estate
receivables and real estate, SFG Data Services, Inc., a Receivable servicer and
Capital Management Group, Inc. which provides management services to the SFG
Funds and which will provide management services to the Company pursuant to a
management agreement. See "MANAGEMENT--The Management Agreement."

To date, the Affiliated Group's principal business activity is investing in
Receivables. The Receivables primarily consist of real estate contracts and
promissory notes collateralized by first liens on real estate. The Affiliated
Group predominantly invests in Receivables where the borrower or the collateral
does not qualify for conventional financing. This market is commonly referred to
as the non-conventional or "B/C" market. See "BUSINESS--Receivable Investments."
The Affiliated Group began originating and investing in non-conventional loans
during 1994 through SFG Ltd. See "BUSINESS--Loan Origination."

The proceeds from sale of the Debentures will be used by the Company to
establish a fund from which loans, secured by real property, will be made or
acquired and for direct investments in real estate. The borrowers under such
loans must meet the Company's lending guidelines. The borrowers will generally
be persons or businesses that have been unable to secure loans in a timely
manner from conventional lending institutions due to the increased restrictions
and constraints imposed on borrowers by such institution. Such borrowers are
expected to be willing to pay interest rates in excess of conventional mortgage
interest rates in order to secure a loan quickly or under non-conventional terms
such as interest only payments. The Company's real estate investment activities
are expected to concentrate on properties acquired from sellers who are facing
foreclosure and properties which are being offered below market value. The
Company intends to hold such properties for investment, which will involve both
short and long terms. It is expected that some properties will be placed on the
market soon after the Company acquires them while others may be held by the
Company as investment properties for longer terms.

MORTGAGE LENDING AND MORTGAGE BROKERAGE OPERATIONS

The Company is being formed in part to engage in the business of making
direct, non-conventional equity loans, either by itself or in conjunction other
lenders or investors and to acquire existing loans which meet its portfolio
guidelines, including loans which may already be in default. The proceeds from
sale of the Units will be used by the Company to establish a fund from which
loans, secured by real property, will be made to borrowers that meet the
Company's lending guidelines. The borrowers will generally be persons or
businesses that have been unable to secure loans in a timely manner from
conventional lending institutions due to the increased restrictions and
constraints imposed on borrowers by such institution. Such borrowers are
expected to be willing to pay interest rates in excess of conventional mortgage
interest rates in order to secure a loan quickly or under non-conventional terms
such as interest only payments. The loans will have shorter terms, generally
five to ten years, than conventional mortgage loans. All loans made or acquired
by the Company will be secured by a deed of trust or mortgage on real property
with a total loan to value ratio that will generally not exceed 65% of the total
value of the subject property, and in no event will exceed 75% of the total
value of the subject property. In some instances the Company may act as a
co-lender with other lenders, some of which may be affiliates of the Management
of the Company.

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<PAGE>

The Company's Management expects to generate returns on the Company's
lending activities that will be higher than those earned on more conventional
loans. The higher return will generally be the result of interest rates being
paid on the loans at higher rates than conventional loans. The Company believes
that by carefully qualifying the borrowers, which may include requiring the
borrowers to provide the Company with a specific "exit plan" showing how the
loan will be serviced and paid, and by carefully reviewing and evaluating the
property that secures the loan, it can substantially limit the risks that are
usually associated with non-conventional loans, while at the same time enjoying
the higher returns such loans generate.

REAL ESTATE INVESTMENTS

The Company intends to acquire and hold for investment real estate. The
Company expects to acquire such properties from two primary sources: (i) from
"highly motivated sellers" who are borrowers under loans which are in
foreclosure and (ii) the cash purchases of properties that are offered at prices
generally below current market values. The purchase of properties from motivated
sellers would generally occur by purchasing the property at a foreclosure sale
or by purchasing the loan from the lender prior to foreclosure and proceeding
with foreclosure. The Company will also look for properties which are being
offered below current market rates with the intention of making an immediate all
cash offer funded by the Company's cash reserves. It believes that by making an
all cash offer on such properties it will be able to negotiate better prices
because the sellers will not be asked to finance some or all of the purchase
price and because the Company's offer may not be subject to any financing
contingencies the seller can expect the sale of the property to occur more
quickly. The Company believes that it can locate properties which it will be
able to resell at a profit, even in a short term, or properties which it can
hold for income and investment and eventually sell at a profit over a longer
term.

The Company expects to realize income from its real estate investments in
the following forms: (1) gain on resale of property and (2) cash flow and income
from the property through rental of the property. Even though the Company
anticipates that all of its real estate investments will initially be purchased
for cash, in some instances the Company may elect to borrow against or
"leverage" a particular property in order to realize cash from such borrowing to
be used by the Company for its mortgage lending and acquisition activities or
for reinvestment in other property. The Company has established a policy that
the total principal amount of any loans, operating lines of credit or other
indebtedness which the Company may obtain cannot exceed 35% of the principal
amount of its issued and outstanding Debentures at the time any such
indebtedness is incurred. Some or all of this indebtedness may be secured by its
asset portfolio. See, "BUSINESS--Use of Leverage". There is no assurance of the
receipt of any of cash, income or gain generally or in any particular case in
connection with the Company's real estate investment activities. The net amount
of any income or profits that the Company will generate will, of course, depend
upon the Company's success in identifying attractive real estate investment
opportunities and in negotiating favorable terms for the Company' s acquisition
of such real estate. Similarly, the economic performance of the properties in
which the Company invests, interest rates, economic conditions generally and
real estate market conditions specifically, and numerous other factors will
affect the net amount of income or profit that the Company will generate.

Management of properties held by the Company may be conducted either by
independent property management companies or by one or more affiliates of the
Company. In any case, the Company will pay the cost of such services, at the
prevailing rate in the community where such property is located, including
payments to its affiliates. Further, when properties are acquired or sold it is
likely that real estate commissions will be incurred and paid by the Company,
including payments to affiliates of the Company.

THE NEED FOR NON-CONVENTIONAL LOANS

The Company believes that there is a growing demand for non-conventional
consumer and commercial loans. The demand generally comes from borrowers who
have a need for financing more quickly than a conventional lender can fund a
loan or who, for a variety of reasons do not qualify for a conventional loan.

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<PAGE>
Seattle Funding Group, Ltd., an affiliate of the General Partner has been
servicing the needs of borrowers through brokering or directly lending money in
private loan transactions since 1988. It currently is placing in excess of
$3,000,000 per month in private money loans in the Western Washington area. The
Company believes that this growth in loan volume was the result of three
factors: First, increased marketing efforts that expanded the market base
resulting in more qualified borrowers; Second, the public is becoming more
educated on the benefits of borrowing private money; and Third, the market
itself has grown as conventional lenders continue to turn more good loans and
good borrowers away. The Company believes these trends will continue for the
immediate future.

Among the reasons why borrowers are willing to obtain private money,
non-conventional loans under terms less favorable from a conventional lender
are:

- Make funds available to pay off underlying mortgage at a discount

- Bring property out of foreclosure of financial difficulty

- Purchase property at a discount for a quick resale

- Funds are not available from conventional sources

- Non-conforming borrowing entity, e.g. corporations, trusts, etc.

- Faster processing time, with fewer questions and processing steps

LOAN GUIDELINES

The loans which the Company makes or acquires can generally be expect to be
newly originated, "unseasoned" mortgage loans. The loans are generally expected
to have the following terms and conditions:

<TABLE>
<S> <C>
Loan term: 5 to 10 years
Interest
Rate: 11% to 12% per annum minimum(1)
Loan Fees: 2% to 5% of principal amount of loan(2)
First or junior deed of trust or mortgage on real
Security: property(3)(4)
</TABLE>

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

(1) In some instances the interest rate that a lender may pay at the beginning
of a loan may be less than the overall interest rate for the loan. These
blended or graduated interest loans will generally have the same effective
interest rates as the other loans which the Company makes or purchases.

(2) The Company generally will not receive any loan origination fees from
Seattle Funding Group, Ltd. or other affiliates of the Company in connection
with loans acquired from SFG Ltd., or its other affiliates. Such loan fees
will be retained by them as compensation for their services in assisting the
Company in originating, negotiating, evaluating and/or acquiring the
Company's loans. The Company may receive loan origination fees in connection
with loans which it originates for its own account without the services of
SFG Ltd. or other of its affiliates.

(3) All loans will be secured by a first position or sometimes a junior position
deed of trust or mortgage on commercial, investment or residential real
property, including undeveloped or partially developed property on a limited
basis. The total amount of loans which are secured by junior position deeds
of trusts or mortgages, or which are secured by undeveloped land, will not
exceed twenty percent (20%) of the Company's total loan portfolio for either
category of loan. In some instances the Company may require or accept other
collateral as secondary security for a loan.

(4) The Company will require all loans to be secured by a deed of trust or
mortgage on real property, with a total loan to value ratio that generally
will not exceed 65%, but in no event will exceed 75% of the value of the
property collateralizing the loan at the time any loan is made or acquired.

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LOAN ORIGINATION

Seattle Funding Group, Ltd. will provide loan origination services to the
Company on a non-exclusive basis under a Loan Origination Agreement with the
Company. Under the Loan Origination Agreement, SFG Ltd. will present the Company
with the opportunity to acquire mortgage loans which loans SFG Ltd. is in the
process of making or acquiring. The decision to acquire or not to acquire any
loan shall be exclusively in the discretion of the Company. When the Company
makes the decision to acquire a loan from SFG Ltd., the Company will pay 100% of
the principal amount due under the loan to SFG Ltd. in order to acquire the loan
and upon payment of the purchase price, SFG Ltd. will assign 100% of the
principal and interest due under the acquired loan to the Company, without
discount or premium, and without the retention by SFG Ltd. of any economic
interest in any such loan acquired by the Company. SFG Ltd. shall have the right
to retain any and all loan fees or "points" that the borrower has or will pay in
connection with the origination of any loan acquired by the Company.

Seattle Funding Group, Ltd., through its operations, advertising and
personal contacts in the mortgage brokerage community, believes it has
established a reputation as a quality source for non-conventional money needs.
It has been on a long marketing campaign to mortgage brokers in the Pacific
Northwest. It takes a systematic approach in marketing through advertising,
mailing and visiting with mortgage brokers on a consistent basis in order to get
"first look" referrals from these brokers. SFG Ltd. spends an average of 10% of
its gross revenues in each year on marketing (exclusive of sales personnel
costs) which is above the industry average. These marketing costs are not paid
by the Company. The typical wholesale mortgage lender will have one or two
representatives canvassing mortgage broker offices. SFG Ltd. has developed a
marketing system and approach that results in 4,000 mortgage brokers in the
Pacific Northwest every two weeks receiving informational letters and four color
brochures explaining and offering SFG Ltd's. services. This report is both a
marketing resource as well as a resource for the mortgage broker to educate them
on private non conventional financing. In addition, in October, 1998 John
Odegard, the president of SFG Ltd., was a guest speaker at the Washington
Mortgage Broker conference which was attended by over 2,000 mortgage brokers.

The Company expects that SFG Ltd. will originate the majority of loans on
behalf of the Company. It is anticipated that the majority of such loans, from
wherever originated, will come as referrals from mortgage brokers or from
borrowers or referrals from borrowers who have previously borrowed money from
SFG Ltd.

LOAN SERVICING

Loan servicing includes collecting and remitting loan payments, accounting
for principal and interest, contacting delinquent borrowers, and generally
administering the loans. SFG Data Service, Ltd., an affiliate of the Company,
was established in November, 1994 to provide loan servicing for loans placed by
SFG Ltd., including the Company's loans. Under a Loan Servicing Agreement with
the Company, SFG Data Service, Ltd., will be responsible for overall loan
administration of the Company's loans and its services will include those
described above. The Company believes that the fees and charges paid to SFG Data
Service are no more than those that are charged by other organizations providing
similar services. The fees and charges related to loan servicing will be paid by
the borrower and/or CMGI from the 1% overhead allowance allocated to it.

EXAMPLE OF LOAN ORIGINATION, ASSIGNMENT AND SERVICING TRANSACTION

In order to demonstrate the process of the origination of a loan, the
acquisition of it by the Company and the servicing of that loan after
acquisition, including the fees and other compensation which affiliates of the
might receive, the following is an example of what the Company believes will be
a typical loan transaction. The following information is intended only as an
example of a loan transaction in which the

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Company might participate and is not intended to reflect any specific
transaction in which the Company has or might engage.

LOAN ORIGINATION. SFG Ltd. will, at least initially, be the largest source
for loan acquisitions by the Company. SFG Ltd. will generate loans from its own
marketing activities as a mortgage lender and by referrals from other mortgage
brokers. In either event, SFG Ltd. will initiate the loan transaction by
establishing direct contact with the prospective lenders. It will take a loan
application from the borrowers, which application will include a borrowers' loan
application statement from the borrowers, a description of the property which
the borrowers propose as collateral for the loan and the payment of a deposit by
the borrowers to be applied against various fees and expenses that SFG Ltd. will
incur in connection with processing the loan application. Such fees and expenses
generally include appraisal fees, credit report fees and title report fees. SFG
Ltd. has the responsibility of providing the borrowers with all of the
information and loan disclosure statements that are required of a lender under
state and federal law. These statements and disclosures include a Good Faith
Estimate of the settlement charges and a Truth in Lending Statement which are
furnished to the borrowers at or shortly after the time the loan application is
taken.

In connection with the making of a loan, the borrower will be required to
pay all of the costs associated with origination and processing of the loan and,
in addition, will be charged a "loan origination" and/or "loan discount" in
order to obtain the loan. The loan fees are generally calculated as a percentage
of the principal amount of the loan to be made and can be expected to range
between 3% and 10% of the principal amount of the loan. The amount of such fees
will be negotiated between SFG Ltd., if it is the lender, and the borrower and
will depend upon a number of factors including the current interest rates,
market conditions, and the credit worthiness of the borrower. SFG Ltd. will
retain the loan fees as compensation for its services in originating, processing
and generating the loan. By way of example, in connection with a loan in the
principal amount of $100,000 the borrower can be expected to pay loan processing
fees, appraisal fees, escrow fees, credit report fees and miscellaneous fees in
the area of $1,500.00. Most of such fees will be paid to third parties for their
services, by SFG Ltd. However, the loan processing fee, and in some cases the
appraisal fee, will be paid to SFG Ltd. If the negotiated loan origination/loan
discount is 5%, then the total of such fee will be $5,000 which amount will be
retained by SFG Ltd. If a third party mortgage broker referred the borrower to
SFG Ltd., then such third party will likely receive a portion of the loan
origination fee.

As the loan is being processed, or after it has been completed, by SFG Ltd.
it will be offered to the Company for investment. The Company and SFG Ltd. have
established a procedure for the evaluation of loans for acquisition by the
Company. Under the procedure, the Company is provided with a copy of SFG Ltd's
loan file which includes all of the information related to the loan including
the loan application, credit report, title report, property appraisal and loan
documents. The Company reviews the materials and makes a decision of whether or
not to acquire the loan. If the Company elects to acquire the loan it notifies
SFG Ltd. It then delivers to SFG Ltd. an amount equal to the remaining principal
balance due under the loan and SFG Ltd. executes, delivers and records the
appropriate documents to assign the rights under the promissory note evidencing
the loan, the deed of trust or mortgage securing the loan and any other
necessary or appropriate documents to fully and completely assign the loan to
the Company. The Company acquires the entire amount of the principal and
interest remaining due under terms of the loan and SFG Ltd. releases and assigns
all of its remaining rights and interest in the loan to the Company in exchange
for payment of an amount equal to 100% of the principal amount due under the
loan.

LOAN SERVICING. SFG Data, an affiliate of the Company, will provide loan
administration services to the Company under the Loan Servicing Agreement. Under
that Agreement, SFG Data establishes loan payment collection and processing
procedures, collects and disburses payments received under the loans, issues
late payment and delinquency notices, calculates and allocates the interest and
principal payments received and issues monthly reports to the Company on the
status of each loan being serviced. In the event of a default in payment of any
of the Company's loans SFG Data continues to service the loan until it becomes
60 days past due, at which time the loan is referred back to the Company for
further collection

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action. Any late payment fees, default interest or other charges made to a
defaulting borrower are paid to the Company and not to SFG Data.

The Company is not obligated to pay SFG Data any amounts for its servicing
of the Company's loans. CMGI is obligated to pay SFG Data an amount equal to
0.00625% of the principal amount of loans being serviced on behalf of the
Company on a quarterly basis. This amount is paid by CMGI from the overhead
allowance it receives under its Management Agreement with the Company, and is
not an obligation of the Company.

LOAN DEFAULTS AND FORECLOSURES. When and if there is a default in payment
of one or more of the Company's loans, it is the Company's obligation to pursue
collection of the defaulted loan after it has reached 60 days past due status.
SFG Data refers all loans that are 60 or more days in default to the Company and
discontinues its servicing of such loans on behalf of the Company. The Company
pursues collection of such loans through its management, the Management Agent
and/or its attorneys. If the Company is unable to bring the loan current through
its own collection procedures then it will initiate a foreclosure action in
order to collect the amounts due, including late fees, default interest payments
and collection charges. In some instances, affiliates of the Company may provide
services to the Company and receive compensation in connection with the
collection and/or foreclosure of a defaulted loan. There is no agreement in
place with any affiliate of the Company in regard to the rendering of any such
services.

LOAN FRACTIONALIZATION

From time to time the Company anticipates that it will be presented with an
opportunity to make loans with large principal balances. Such loans could have
principal balances in excess of $1,000,000. Because such a loan would represent
a substantial portion of the Company's capital it may elect to "fractionalize"
its investment in such loan by offering participation interests in the loan to
third parties as an investment. The sale of such participation interests may be
either for its own account or through the services of a third party. There are a
number of mortgage lenders which already offer loan participation programs as an
investment vehicle, including SFG Investments, Inc., an affiliate of the
Company.

While the specifics will vary from loan to loan, these loans will be
required to meet the Company's lending guidelines, including a loan to value
ratio no larger than 75% and must be secured by real property. The Company will
seek to obtain an interest rate of such "jumbo loans" in the same average amount
as the other loans in its Receivables portfolio. Following funding of a
particular jumbo loan the Company may seek to offer third parties participation
interests in the loan, either through its own means or the services of a third
party, including an affiliate of the Company. The Company anticipates that the
offering to acquire a "participation interest" in all or a portion of the
principal amount of such a jumbo loan would be at an interest rate less than the
face amount of the loan. The Company would then be entitled to retain all or a
portion of the excess interest amount.

As an example, assume the Company funds a loan with a principal amount of
$1,000,000 with an interest rate of 12% per annum. The Company may elect to
offer third parties the opportunity to purchase for cash interests in the loan
in an amount up to $750,000 of the principal amount, at an interest rate of 10%.
Such participation interests would be acquired pursuant to Loan Participation
Agreements entered into between the Company and the third parties investing in
the loan. The investors would pay the Company their respective portions of the
principal amount due, thus reducing the Company's capital invested in the loan.
In this example, if the participation interests were fully funded the Company's
capital investment in the loan would be reduced to $250,000. As payments are
collected from the borrower by the Company, under the Loan Participation
Agreements the Company would be obligated to pay to each of the participants an
amount equal to their pro rata participation in the principal amount of the loan
together with interest on such principal amount at the rate that was agreed upon
or 10% in the example. Thus, the Company would receive all of the interest paid
by the borrower on that portion of the loan which the Company has retained, in
the example, 12% on the initial principal balance of $250,000. In addition,

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the Company would also be entitled to retain the difference between the interest
rate on the face amount of the loan (12%) and the interest rate offered to the
loan participation investors (10%) on the remaining principal balance of the
loan, in the example, 2% on the initial principal balance of $750,000. Because
the Company would be entitled to receive all interest on the loan in excess of
the amount owed to the loan participants, in this case 2% of the outstanding
principal balance of $1,000,000 even though its investment in the principal
amount due was $250,000, it would increase its return on the loan above the
interest rate paid by the borrower while further diversifying its asset base.

BUILDERS' ASSISTANCE PROGRAM

The Company has established a "Builders' Assistance Program" through which
it may make loans to contractors or homeowners for new construction or
remodeling. In making such loans the Company will require that the borrower
agree to progress payments which will be made as the construction progresses and
holdbacks for contingencies at the completion of construction. The loans will
otherwise generally be on the same terms and conditions as the Company's other
mortgage loans.

PURCHASE OF DEFAULTED LOANS AND FORECLOSURE ON PROPERTY SECURING LOANS

In some cases loans which the Company has made will go into default. In
other cases the Company may purchase loans, including loans from affiliate and
third parties which are already in default. In purchasing a loan which is
already in default the Company would anticipate generating a higher return than
it realizes from its other loans because the default rate of interest may be
higher and/or there may also be late fees accruing. When and if the borrower
wishes to cure a defaulted loan, the Company may require the payment in full of
all default interest, late fees and other costs incurred in connection with the
default. In selecting a defaulted loan to purchase, the Company would only
purchase a loan which was secured by real estate that it would want to own. In
such instance it would anticipate acquiring the property through foreclosure and
then either reselling the property at a profit in the short term or holding the
property for income and investment and selling the property at a profit in the
longer term.

The Company's primary remedy for collecting all amounts due it under any
defaulted loan will be to foreclose on the property securing the loan. (See
"DEED OF TRUST AND MORTGAGE FINANCING IN GENERAL.") The Company may elect to
accept an amount at foreclosure which may, in some cases, be less than the
actual amount due in order to recover its invested funds and reinvestment them
another loan or property. Affiliates of the Company may bid at such foreclosures
and the Company may elect to accept their bid, even if it is for less than the
full amount due. The Company may also make its own bid for the property at a
foreclosure sale, and in a case there are other bidders and the Company desires
to acquire the property, such bid may be for an amount in excess of the minimum
amount needed to cover the amount due the Company plus its costs of foreclosure.
If the Company is the highest bidder then it will own the property and may hold
the property or resell it for any price it can obtain. If the Company is not the
successful bidder then any bid in excess of the minimum which has been made by a
third party will result in the Company recovering all of the principal, interest
and late fees due it, as well as its costs of foreclosure. (See "CONFLICTS OF
INTEREST--Affiliate's Option to Purchase Property at Foreclosure Sale.")

SALE OF LOANS

The Company may from time to time elect to sell one or more of the loans in
its portfolio. The reasons for selling a loan or loans may include an offer to
purchase at a premium which would increase the yield to the Company, a need for
cash to meet redemption requests, the desire to generate capital to fund a new
loan or investment opportunity, or an attempt to reduce the Company's risk from
a particular loan or loans. In such event, an affiliate of the Company,
including CMGI, may from time to time be a purchaser of a loan or loans from the
Company. Generally, any purchase of a loan by an affiliate will be for no less
than the total of all principal and accrued interest, together with any and all
other costs or amounts due,

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such as foreclosure costs if the loan is in default. However, a loan may be
purchased by an affiliate for an amount less than full amount due in order to
recover and reinvest the company's funds because of the condition of the
property, market conditions, interest rates, or other factors.

USE OF LEVERAGE

In order to enhance the Company's ability to take advantage of opportunities
to invest in Receivables and or real estate, the Company may from time to time
leverage its assets under limited conditions. The Trust Indenture under which
the Debentures will be issued permits the Company to borrow funds and use the
Company's assets as security for such borrowings. The amount of borrowings may
not exceed thirty-five percent (35%) of the total principal amount due under the
issued and outstanding Debentures at the time such borrowings are secured. The
Company expects that such borrowings would be used to enhance the operations of
the Company and its expected return on investment, primarily in two methods. The
Company believes that an operating line of credit can be used to fund the
acquisition of Receivables and/or real property acquisitions or development
pending the receipt by the Company of term financing or additional capital
investment. The Company also believes that by borrowing funds under a term
lending arrangement, generally expected to be secured by its real estate assets,
it can leverage the equity it has in those assets to acquire other assets which
are expected to provide a return to the Company in excess of the cost of the
borrowed funds. In order to secure these borrowings the Company may agree to
pledge some or all of its assets and/or subordinate payment of the Debentures to
payments due to the lenders. The Trustee is required to take all actions
reasonably necessary to assist the Company in securing such borrowings within
the guidelines established in the Trust Indenture, including executing
collateral assignment agreements and subordination agreements as may be required
by a lender.

REGULATION

The Company's private non-conventional lending business is generally not
subject to the rules and regulations of FHA, VA, FNMA, FHLMC, GNMA or Washington
state rules and regulations with respect to originating, processing, selling and
servicing mortgage loans. However, the Company's mortgage origination activities
will generally be subject to the Equal Credit Opportunity Act, the Federal Truth
in Lending Act, the Real Estate Settlement Procedures Act (RESPA) and the
regulations promulgated thereunder which prohibit discrimination and require the
disclosure of certain basic information to mortgagors concerning credit and
settlement costs.

Conventional mortgage lending is subject to Washington state usury statutes.
However, the private non-conventional lending activities of the Company will
generally be exempt from such usury statutes since the loans will be made either
for commercial purposes or consumer lending transactions which are exempted from
coverage under the Washington state usury laws.

COMPETITION

The Company competes with other private money lenders and mortgage bankers
and brokers and to a lesser extent commercial banks, savings and loan
associations, credit unions and insurance companies. Some of its competitors
have substantially greater resources than the Company as well as larger and more
sophisticated marketing programs which could put the Company at a competitive
disadvantage.

YEAR 2000 COMPLIANCE

The Company is undertaking a program to address the technical and business
issues related to the Year 2000. The Company's plans include (i) an awareness of
and an overall assessment of the year 2000 issue; (ii) an inventory of
environments to be remediated or replaced; (3) the remediation or replacement of
affected systems; (4) testing of remediated or new systems; and (5)
implementation of Year 2000 compliant systems. The Company's goal is to have all
systems critical to its business operations deemed

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Year 2000 compliant by June 30, 1999. Because the Company is recently organized
and will primarily rely upon third parties (particularly Capital Management
Group, Inc., Seattle Funding Group, Ltd., and SFG Data Services, Ltd.) to
provide the various services necessary to operate its business, its direct
efforts to ensure Year 2000 compliance are not expected to be difficult or
costly to achieve. The Company is also instituting a program to survey each of
its vendors to determine whether or not they are or will by Year 2000 compliant.
It expects that each of its vendors will be Year 2000 compliant well in advance
of January 1, 2000 or that suitable alternative service vendors that are Year
2000 compliant will be available to the Company, if necessary.

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DEED OF TRUST AND MORTGAGE FINANCING IN GENERAL

The following is a discussion of the terms and practices in real estate
financing which may be relevant to the Company's mortgage lending activities.

DEEDS OF TRUST. Deeds of trust are commonly used to secure the payment of
debts or performance of other obligations with an interest in real estate.

A deed of trust grants a third party (the "trustee") the authority to sell
the real estate upon default of the borrower ("grantor") without the necessity
of filing a lawsuit. Upon the default of the borrower, the trustee follows a
statutory procedure affording interested parties notice and an opportunity to
cure defaults. If the defaults are not cured, then the trustee conducts a
trustee's sale for the benefit of the lender who is the "beneficiary" of the
deed of trust. If the grantor (borrower) repays the note secured by the deed of
trust, the trustee executes a full reconveyance back to the grantor. A deed of
trust must be in writing, signed (by both spouses when community property is
involved) and acknowledged, must contain a legal description of the real estate,
a description of the obligation secured, a power of sale, and a provision that
the property is not used principally for agricultural or farming purposes. If
the deed of trust does not contain a power of sale and a nonagricultural
provision, it will be treated as a mortgage. It should be recorded promptly with
the auditor of the county in which the property is located.

The advantage of a deed of trust is that the lender can choose whether to
proceed by a judicial foreclosure or by a nonjudicial foreclosure. Some of the
advantages of proceeding by a nonjudicial foreclosure include avoidance of
overcrowded court dockets and elimination of all redemption periods. Title vests
immediately in the purchaser at a trustee's sale, and the purchaser is entitled
to possession twenty days after the sale. The nonjudicial procedure and the
generally shorter time period required to realize on the security of the
defaulting debtor can be attractive to a lender. If a nonjudicial foreclosure of
a deed of trust occurs, however, the lender cannot obtain a judgment against the
borrower and may not be able to obtain a deficiency judgment against any
guarantor on the note for any deficiency. A deficiency judgment is a judgment
against the borrower requiring the payment of that portion of the obligation
which was not paid with the net proceeds realized upon the sale of the property
securing the obligations.

NONJUDICIAL FORECLOSURE OF DEEDS OF TRUST. In Washington a nonjudicial
foreclosure of a deed of trust is commenced by the trustee sending, publishing
and posting on the property a statutorily prescribed notice of default. Thirty
days after the notice of default is issued, a notice of sale and notice of
foreclosure is issued. These notices allow the borrower or buyer (and all other
parties with any interest in the property) an opportunity to cure the default. A
default may be cured even if the deed of trust contains an acceleration clause
which would automatically entitle the holder of the deed of trust to collect the
entire balance of the secured debt in a judicial foreclosure.

The trustee's sale of the property may be conducted in a minimum of ninety
days after issuance of the notice of sale. Consequently, the total time period
for foreclosure of a deed of trust will be not less than 120 days from issuance
of the notice of default until the sale is conducted. In addition, the
nonjudicial foreclosure statute does not permit the trustee's sale to occur
earlier than 190 days from the date of default.

At the trustee's sale, the trustee sells the property to the higher bidder
and conveys title to the property by a trustee's deed which is then recorded.
However, the borrower or buyer (or any other party with a record interest in the
property) may cancel a nonjudicial foreclosure at any time prior to eleven days
before the trustee's sale by curing the default set forth in the notice of sale.
Upon discontinuance of the foreclosure, the deed of trust is reinstated and the
obligation remains as though no default had occurred. During the eleven days
prior to the sale, the foreclosure can be discontinued if the deed of trust
contains acceleration provisions only by payment of the entire amount of the
obligation, plus costs, expenses and the trustee's fee. No deficiency judgment
may be obtained in a nonjudicial foreclosure.

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MORTGAGES. A mortgage can also be used to secure the performance of an
obligation to pay money. In the usual real estate transaction, the buyer of real
estate needs or wants to borrow money to pay the seller the difference between
the down payment and the purchase price. When the lender (mortgagee) loans the
money, the buyer-borrower (mortgagor) signs a promissory note for the amount
borrowed and executes a mortgage as a lien against the property to secure the
debt. The purpose of the promissory note is to create personal liability for
payment by the mortgagor. The purpose of the mortgage is to create a lien on the
mortgaged property to secure the obligation to repay. The mortgage is not
effective until and unless there is a valid debt, and the debt must be described
and identified in the mortgage document. The mortgage document is frequently
lengthy and contains many clauses such as provisions for acceleration,
subordination, release, waivers, and covenants to pay taxes, to keep the
premises in repair and to maintain adequate insurance.

A secured note can be sold by the lender to another party and the mortgage
can be assigned to the new holder of the note. In that way, the borrower becomes
legally obligated to pay the new holder according to the terms of the original
note. The new holder's right to payment is secured by the property and the new
holder can look to the property if the borrower defaults. If the Fund purchases
a note secured by a mortgage (or any other form of security instrument), the
note will be endorsed to the Fund, the security instrument is assigned to the
Fund, and the Fund will become the mortgagee.

If the borrower defaults on the obligation to pay, the holder of the
mortgage will have legal recourse against the mortgaged property to satisfy the
debt. Unlike a deed of trust, the mortgagee must bring judicial foreclosure
proceedings to foreclose its lien and cause the mortgagee's interest in the
property to be sold, as provided by statute, subject to the redemption rights of
third parties discussed more fully below. If the proceeds of sale are less than
the amount owed, the mortgagee may obtain a deficiency judgment against the
mortgagor for the balance, unless the mortgagee is deemed to have waived its
right to a deficiency judgment. In some cases, more than one lien exists against
a piece of property, and the priority of the lien usually is determined by the
date and time the lien is recorded in the office of the county auditor. The
priority of the lien can be important because if the property is foreclosed, the
superior liens will usually be in a better position to be paid off than will the
lower priority (or "subordinate") liens. See "Superior Encumbrances" below for
more information concerning the risks involved with subordinate liens.

The mortgage must be in writing, legally describe the mortgaged property,
state the consideration, contain a mortgaging clause, state the amount of the
debt and whether it bears interest, and be signed by the borrower (mortgagor).
In addition, the mortgagors should state their marital status, and, if community
property is involved, both spouses must sign the mortgage. The mortgage must be
"acknowledged" (language reciting that the individuals signing the document were
positively identified and that they signed freely and voluntarily) before a
notary public. The mortgage should then be recorded in the auditor's office of
the county where the property is located.

The "lien theory" of mortgages is generally recognized in Washington and
Oregon. Under this theory, the title to the property remains with the borrower
and is not transferred to the mortgagee. The mortgage placed on the property is
only a charge or a lien on the title.

When property is sold, in some cases the existing mortgages may be assumed
by the buyer or may remain enforceable against the property and against the
seller. Alternatively, the mortgage may be paid off by the seller of the
property. This usually occurs when mortgages become due in full at the time the
property is sold because the mortgage contains a "Due on Sale" clause.

REAL ESTATE CONTRACTS. A real estate contract, also known as a land sales
contract, is used to convey property. It is a written agreement between the
seller and buyer for the purchase of real property by installment payments. The
real estate contract provides that the buyer must pay the purchase price in
installments over the period of the contract with the balance due at maturity.
While the Company generally

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will not make loans where there is a real estate contract involved, it may on
occasion take a seller's (vendor's) interest in a real estate contract as
collateral.

When the buyer completes his required payments, the seller is obligated to
convey good legal title to the buyer by a fulfillment deed. Under the terms of
the real estate contract, the buyer is given possession of the property and is
said to have equitable title to the property, while the seller retains legal
title to the property as security for payment of the purchase price.

The real estate contract usually contains the names of the buyer and seller,
the sales price, the terms of payment, a full legal description, and a lengthy
statement of the rights and obligations of the parties relating to the use and
maintenance of the premises, risk of loss, payment of taxes and insurance, and
remedies in case of default. The contract is signed by both parties (both
spouses must sign when community property is being bought or sold), acknowledged
and recorded.

JUDICIAL FORECLOSURE. Foreclosure is the legal procedure in which a lender
realizes on property that is security for a debt. A lender or seller has the
right to commence foreclosure proceedings if the borrower or buyer fails to pay
the note as required, or fails to pay or perform any other covenant or
obligation as required by the mortgage, deed of trust or real estate contract.
In Washington deeds of trust may be foreclosed as mortgages, although
nonjudicial procedures (such as a nonjudicial foreclosure or a nonjudicial
forfeiture) are used more frequently, unless the lender desires to seek a
deficiency judgment.

The judicial mortgage foreclosure action is brought in the Superior Court of
the county in which the real property is located. If the lender is able to
establish that it is entitled to a judgment of foreclosure, the court orders a
sale of the property to the highest bidder. Anybody wishing to bid on the
property may do so by paying in cash the bid price at the sale conducted by the
sheriff. The lender or seller is entitled to bid the amount of its judgment
(unpaid principal balance and interest, together with court awarded legal fees
and costs) without having to deposit any additional cash with the sheriff. If
the lender wishes to bid more than the amount of its judgment, then the lender
or seller will have to pay the excess amount in cash. Following court
confirmation of the sale, the highest bidder receives a certificate of sale. The
certificate of sale does not transfer title, which remains in the mortgagor
until the sheriff's deed is issued. The mortgagor and junior lienholders may
redeem the property by paying the purchaser the amount of the purchase bid at
the sale, together with interest, assessments, taxes, and certain other
expenses, if the purchaser is also a creditor having a lien prior to that of the
redemptioner, other than the judgment under which the purchase was made, then
the amount of the purchaser's lien, with interest. If the property is commercial
property, a setoff may be allowed for rents received. If none of the parties
entitled to redeem the property have done so within the applicable redemption
period, the sheriff executes a deed to the holder of the certificate of sale.

The statutory period of redemption in Washington is generally one year. If
the security instrument contains certain prescribed provisions, such as a
nonagricultural provision, and if the right to a deficiency judgment is waived,
then the period of redemption is only eight months. When nonagricultural
property improved with a structure is abandoned for six months or more and no
payments are made on the debt during such period, the borrower forfeits his or
her rights or redemption. The redemption period may be extended if there are a
series of successive redemptions by the borrower or junior lienholders or if the
lender fails to timely notify the appropriate parties of the expiration of the
redemption period on homestead property. Ordinarily, the borrower must yield
possession to the successful bidder on the date of sale, but if the property
constitutes the borrower's "homestead," he or she is entitled to retain
possession through the entire period of redemption. Other parties may also be
entitled to retain possession of the property during all or part of the
redemption period, such as a tenant under an unexpired lease, the occupant of
property used for farming purposes, or the mortgagor as the mortgage so
stipulates.

If there are any excess proceeds of the foreclosure sale after deducting
expenses, they are paid to the mortgagor. If, on the other hand, the proceeds
from the sale are not sufficient to repay the foreclosed debt, recourse may be
had against the debtor for the deficiency, if the judgment allows for such
recourse.

27
<PAGE>
ACCELERATED INDEBTEDNESS. The lender generally has the right upon default
by the borrower to "accelerate" the indebtedness if this right is provided for
in the deed of trust, mortgage or note. This means that the lender may sue the
borrower for the entire amount of the note due immediately upon default and the
borrower has the right to cure the default merely by paying the delinquent
installments and accrued interest. However, if a seller under a real estate
contract or a lender forecloses nonjudicially, the borrower may pay the
delinquent installments and prevent acceleration of the mortgage.

SUPERIOR ENCUMBRANCES. The property securing a payment obligation may be
subject to prior security interests in favor of other lenders. It may also be
subject to liens securing obligations such as real property taxes, construction
bills and public improvement assessment lines, which, by operation of law, are
or may become superior to a deed of trust or mortgage. These prior security
interests and liens are commonly referred to as superior encumbrances. If a
default occurs on a superior encumbrance, there is a risk of losing the security
interest in the property through foreclosure of a superior encumbrance.

By law, the holder of a subordinate lien or encumbrance has the right to pay
off a superior encumbrance, and may, depending on the nature of the superior
encumbrance and the terms of the subordinate encumbrance, have the right to cure
defaults. The Company may from time to time make loans and take a security
interest in property which has a superior encumbrance. If there is a default on
an obligation secured by such senior encumbrance, the Company may decide it is
necessary or advisable, in order to avoid a loss, to pay the periodic
installments due on or the entire amount secured by the superior encumbrance.
This could require the Company to make additional cash outlays for an indefinite
period of time. There may be additional costs for court and attorney fees and
other expenses incidental to protecting the investment.

RISK OF LOSS. In the event that a holder of a superior interest forecloses
on the property, lienholders who have lower priority interests will be paid only
to the extent, if any, that the sales price for the property exceeds the amount
of all superior liens. Accordingly, unless the price at which the property is
sold is sufficient to satisfy the Company's security interest and all superior
liens involved in the foreclosure proceedings, the Company faces the risk of
losing all or part of its investment. If such were to occur, the Company may
have the right to obtain a personal judgment against the borrower, but would
have to institute additional legal proceedings to do so and would not be able to
take any further action with respect to the particular property which had
secured the borrower's obligation. The Company's ability to recover from the
borrower would depend upon the existence of other assets of the borrower which
might be reached through such court proceedings.

USURY. Usury is charging a rate of interest in excess of that permitted by
law. The statutory usury rate in Washington is the higher of twelve percent, or
four percentage points above a floating rate prescribed by statute. Any
commission, bonus, fee, premium, penalty or other charge, compensation or
gratuity, whether in money, credit or other thing of value given as
consideration for the purpose of compensation or inducement for obtaining a
loan, renewal or extension is deemed part of the interest charged on such loan.

In the event the contract does provide for a usurious rate of interest, the
contract itself is still valid. However, in any action on such contract, if
there is proof that a greater rate of interest has been directly or indirectly
contracted for or taken or reserved, the creditor is only entitled to the
principal, less the amount of interest accruing thereon at the rate contracted
for. If interest has been paid, the creditor is only entitled to the principal
less twice the amount of the interest paid and less the amount of all accrued
and unpaid interest. The debtor is entitled to costs and reasonable attorneys'
fees plus the amount by which the amount he has paid under the contract exceeds
the amount to which the creditor is entitled. Only consumer loans and
residential loans are covered by the usury statute.

28
<PAGE>
MANAGEMENT

THE MANAGERS

Under the Articles of Incorporation and Bylaws of the Company, its
management and control is vested in the Officers and Directors. The Company has
also entered into a Management Agreement with Capital Management Group, Inc.,
under which CMGI will provide management and administrative services to the
Company. CMGI will provide all services it considers proper and necessary to act
in the capacity of supervisory management agent, will maintain all records of
the interest of Company and its Members, will arrange for the preparation and
execution of all assignments of Debentures and record such assignments, will
maintain financial books and records, and will calculate and make interest
payments under the Debentures, will maintain the books and records of the
Company, prepare reports, and will assist the Company's accountants in the
preparation of financial reports and tax returns. The success of the Company
will, to a large extent, depend on the Company's management. Accordingly, no
person should purchase any Debentures unless he or she is willing to entrust all
aspects of Company management to the Officers and Directors and CMGI and has
evaluated their capabilities to perform such services. The Management and their
affiliates will receive compensation and fees from the Company.

The Company was formed as a corporation in the state of Washington on
September 17, 1998. The Company is an affiliate of Seattle Funding Group, Ltd.,
a Washington corporation which has engaged in the business of originating and
making non-conventional loans since 1988. John Odegard, the founder and Chief
Executive Officer of Seattle Funding Group, Ltd., is the president and a manager
of the Company. SFG Ltd. will generally act as the marketing agent, loan
originator, and loan processor for the Company. It will be entitled to receive
any and all loan fees generated in connection with any loan made by the Company
originated and processed by SFG Ltd. for its services.

A summary of the history and operations of Seattle Funding Group, Ltd., and
the experience of management of the Company follows.

SEATTLE FUNDING GROUP, LTD. ("SFG Ltd.") originated in 1988 to service the
growing demand for non-conventional commercial and consumer loans. At its
inception it operated primarily as a mortgage broker assisting borrowers who
were unable to secure loans in a timely manner from conventional lending
institutions due to increasing restrictions being placed on such institutions.
As SFG Ltd. became more known in the brokerage community it began to receive
loan requests from other mortgage brokers as well as unsolicited loan requests
from borrowers. For the past several years, SFG Ltd. has operated as a direct
private funding portfolio using invested funds to fund its non-conventional
mortgage lending activity. SFG Ltd. will serve as a marketing agent and loan
originator for the Company.

SFG Ltd. has nine loan executives whose responsibilities are to gather loan
requests, package and present them to SFG Ltd.'s underwriting department for
approval. It has developed an account base in excess of four thousand mortgage
brokers from which it receives referrals. The brokers are contacted on a regular
basis in person and by mail with brochures, newsletters and reports of
successful loan transactions. In this matter SFG Ltd. is able to keep its name
in front of the mortgage brokerage community on a regular basis. SFG Ltd. is
currently placing an average of $3,000,000 per month in loans in the Pacific
Northwest area. The average loan size is approximately $140,000.

JOHN ODEGARD. President and Manager; 35 years old. Mr. Odegard is the
President and founder of Seattle Funding Group, Ltd., an affiliate of the
Manager. Seattle Funding Group, Ltd. was organized in 1988 to engage in private
mortgage lending. He is the President and a Director of Capital Management
Group, Inc. and the President of SFG Income Funds III and IV, which are limited
liability companies. He is also the Vice President and a co-founder of Home
Assistance Services, Inc., a real estate consulting and acquisition firm which
also began operations in 1988. Mr. Odegard has attended three years of college
during which he studied real estate finance and development. He has been a
speaker on local and national media regarding real estate investing and
financing and is the author of a two volume manual for real

29
<PAGE>
estate investing. He also has testified as an expert on real estate and related
matters at the request of the largest law firm in the Pacific Northwest.

GREGORY B. ELDERKIN. Vice-President, Secretary and Manager; 35 years old.
Mr. Elderkin is the Vice President and designated broker of Pacific West
Brokerage, Inc., a commercial and investment real estate concern. Prior to his
affiliation with Pacific West Brokerage, Inc., Mr. Elderkin was affiliated with
Century 21 Pacific West Properties where he concentrated on commercial property
management and brokerage. He is also the Vice-President and a Director of
Capital Management Group, Inc. and the Vice-President of SFG Income Funds III
and IV, which are limited liability companies. Mr. Elderkin graduated with
honors from Washington State University in 1986 with a Bachelor of Arts degree
in Business Administration/ Finance.

MARK SPENO. Treasurer and Manager; 38 years old. Mr. Speno has been the
Vice President of Operations for SFG Ltd. since joining that organization in
1992. He has designed, implemented and is responsible for maintaining SFG Ltd.'s
compliance to lending regulations and quality control standards. He is the
Treasurer and a Director of Capital Management Group, Inc. and the Treasurer of
SFG Income Funds III and IV, which are limited liability companies. Prior to
joining SFG Ltd., he was a casualty and life insurance broker with Nationwide
and Wausau Insurance Companies emphasizing in commercial and real estate risk
for developers and real estate portfolios for developers and real estate
investment firms. Prior to entering the insurance business Mr. Speno was a U.S.
Naval Officer. He graduated from Washington State University in 1982 with a
Bachelor of Arts degree in Business Administration.

CAPITAL MANAGEMENT GROUP, INC. Capital Management Group was incorporated in
the state of Washington on September 16, 1993. It is the General Partner of SFG
Income Fund Limited Partnership and SFG Income Fund II, L.P., both of which are
Washington limited partnerships organized to provide a loan fund to service the
need for non-conventional mortgage financing. SFG Income Fund Limited
Partnership raised $5,000,000 and SFG Income Fund II, L.P. raised $4,975,500
through sale of units of limited partnership interests. It is also the
Supervisory Managing Agent for SFG Income Fund III, L.L.C., and SFG Income Fund
IV, L.L.C., Washington limited liability companies which were also organized to
provide funds to service the need for non-conventional mortgage financing. SFG
Income Funds III and IV raised $9,730,000 and $6,966,954 (as of September 30,
1998) through the issuance of redeemable secured promissory notes. Capital
Management Group is also the Managing Member of SFG Equity Fund, L.L.C., a
limited liability which engages in mortgage lending and the acquisition of real
estate and has raised over $1,950,000 in equity capital.

THE MANAGEMENT AGREEMENT

Under terms of the Management Agreement to be entered into between CMGI and
the Company, CMGI will be appointed to manage the day to day operations of the
Company. The Managers of the Company will set the policies under which the
Company will operate and CMGI will, subject to such direction direct the
operations of the Company and pay all overhead expenses incurred by the Company,
except for extraordinary expenses incurred by the Company such as foreclosure
expenses and/or litigation costs.

The Management Agreement has an initial term of five years and automatically
renews for two year terms thereafter unless canceled by either the Company or
CMGI upon written notice to the other no less than 60 days prior to the
expiration of the current term of the agreement. CMGI will receive a management
fee on an annual basis equal to equal to 1.5% of the Company's total principal
amount of the outstanding Debentures to be paid from the Company's gross
operating income. This amount is to be paid quarterly from the Company's
operating revenues. CMGI is also entitled to receive an overhead allowance in an
amount equal to, on an annual basis, 1.0% of the Company's total principal
amount of the outstanding Debentures to be paid from the Company's gross
operating income. From this overhead allowance CMGI will pay all expenses
incurred in operating the Company, except certain extraordinary

30
<PAGE>
expenses such as costs of foreclosure and/or litigation. Payment of the
management fee and overhead allowance is subordinated to the Company's payment
of its principal and interest obligations due under the Debentures.

Under the Management Agreement CMGI, subject to the direction of the
Company's managers will, among other things, direct the Company's mortgage
lending activities, maintain all records of the Company, arrange for the
preparation and execution of all assignments of Debentures record such
assignments, maintain the Company's financial books and records, and will
calculate and make interest payments under the Debentures and calculate and pay
all commissions, fees, allowances and other expenses for which the Company is
obligated. In addition, CMGI will supervise the maintenance of the Company's
books and records, arrange the preparation of all necessary tax and information
returns of, and the preparation and distribution of an annual profit and loss
statement and balance sheet.

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information as of November 30, 1998
with respect to those persons or groups known to the Company who beneficially
own more than five percent of the Company's Common Stock, for each officer and
director and for all officers and directors as a group.

<TABLE>
<CAPTION>
NUMBER OF PERCENT BEFORE PERCENT AFTER
NAME AND ADDRESS OF OWNER(1) SHARES OFFERING OFFERING(2)
- ---------------------------------------------------- ----------- ------------------- -----------------
<S> <C> <C> <C>
John Odegard........................................ 10,000 25% 25%
Gregory B. Elderkin................................. 10,000 25% 25%
Mark Speno.......................................... 10,000 25% 25%
Loretta N. Elderkin(2).............................. 10,000 25% 25%
All officers and Directors as a group
(3 persons)....................................... 30,000 75% 75%
</TABLE>

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

(1) The address for all persons listed is 923 Powell Avenue SW, Renton, WA
98057.

(2) Ms. Elderkin holds the shares as her separate property. She is the mother of
Gregory Elderkin.

THE COMPANY AND AFFILIATES' LOANS ON REAL ESTATE

As of the commencement date of this offering, the Company has not engaged in
any lending or real estate investment activities. However, the affiliated group
of Company's have been engaged in real estate lending activities since 1994.

SCHEDULE OF MANAGED FUNDS

The information presented in the following table represents the historical
experience of the SFG Income Fund, L.P., SFG Income Fund II, L.P., SFG Income
Fund III, L.L.C., SFG Equity Fund, L.L.C. and SFG Income Fund IV, L.L.C.
programs. This information has been subjected to an attestation engagement (a
review) performed by Peterson Sullivan PLLC. Whose report, dated December 8,
1998, is included in the Financial Statement section of this Prospectus.

Investors in the Debentures should not assume that they will experience
returns, if any, comparable to those experienced by investors in the programs
displayed below. All the information set forth below was obtained from unaudited
financial statements. Investors purchasing a Debenture will not, by such
purchase, obtain any interest in the programs described in the following tables.

31
<PAGE>

<TABLE>
<CAPTION>
SFG INCOME FUND, L.P. SFG INCOME FUND II, L.P. SFG INCOME FUND III, L.L.C. SFG EQUITY FUND, L.L.C.
---------------------- ------------------------- ---------------------------- ------------------------
<S> <C> <C> <C> <C>
Type of Investment
Offered.............. Limited Partnership Limited Partnership Units 10.5% Promissory Notes (debt Limited Liability
Units (equity (equity securities) securities) Membership Units (equity
securities) securities)
Date Offering
Commenced............ September 15, 1993 February 1, 1995 November 20, 1995 November 18, 1996
Date Offering
Completed............ January 13, 1995 November 17, 1995 February 10, 1997 June 13, 1997
Total Amount of
Offering............. $5,000,000 $5,000,000 $10,000,000 $2,000,000
Total Amount Raised
through Offering..... $5,000,000 $4,975,500 $9,733,073 $1,966,960
Nature of Company
Business............. Non-Conventional Non-Conventional Mortgage Non-Conventional Mortgage Non-Conventional
Mortgage Lending Lending Lending Mortgage Lending and
Real Estate Ownership
Average Annualized
Distributions to
Investors from
Program inception to
09/30/98............. 11.34% 11.07% 10.50% 9.76%
10.00%

MORTGAGE PORTFOLIO
(AS OF 09/30/98) SFG INCOME FUND, L.P. SFG INCOME FUND II, L.P. SFG INCOME FUND III, L.L.C. SFG EQUITY FUND, L.L.C.
- --------------------- ---------------------- ------------------------- ---------------------------- ------------------------
<S> <C> <C> <C> <C>
Invested Portfolio... $6,315,610 $4,940,970 $11,383,170 $1,206,250
Number of Loans...... 43 37 68 11
Average Loan Size.... $146,875 $133,540 $167,400 $109,659
Average Value of
Security............. $281,326 $265,243 $346,919 $211,636
Average Loan to
Value................ 52.2% 50.3% 48.3% 51.8%
Average Loan Size as
a % of Invested
Portfolio............ 2.33% 2.70% 1.47% 9.09%
2.22%
Average Loan Term -
Months............... 104.9 99.4 110.1 120
<CAPTION>

INVESTOR INFORMATION
(AS OF 09/30/98)
- ---------------------
<S> <C> <C> <C> <C>
Investor Funds
(including
reinvestment)........ $6,463,319 $5,221,233 $11,036,537 $2,177,106
Average Investment... $76,039 $62,158 $68,978 $34,557
Total Investors...... 85 84 160 63
<CAPTION>

DELINQUENCY
(AS OF 09/30/98)
- ---------------------
<S> <C> <C> <C> <C>
90 Days or more...... 1 4 6 1
In Foreclosure
(included above)..... 1 5 7 1
Real Estate Owned.... 0 0 0 6(2)

<CAPTION>
SFG INCOME FUND IV, L.L.C.
----------------------------
<S> <C>
Type of Investment
Offered.............. 10.0% Promissory Notes (debt
securities)

Date Offering
Commenced............ September 1, 1997
Date Offering
Completed............ N/A
Total Amount of
Offering............. $10,000,000
Total Amount Raised
through Offering..... $6,966,955(1)
Nature of Company
Business............. Non-Conventional Mortgage
Lending

Average Annualized
Distributions to
Investors from
Program inception to
09/30/98.............

MORTGAGE PORTFOLIO
(AS OF 09/30/98) SFG INCOME FUND IV, L.L.C.
- --------------------- ----------------------------
<S> <C>
Invested Portfolio... $7,160,500
Number of Loans...... 45
Average Loan Size.... $159,122
Average Value of
Security............. $298,789
Average Loan to
Value................ 53.3%
Average Loan Size as
a % of Invested
Portfolio............

Average Loan Term -
Months............... 120
INVESTOR INFORMATION
(AS OF 09/30/98)
- ---------------------
<S> <C>
Investor Funds
(including
reinvestment)........ $7,163,433
Average Investment... $44,771
Total Investors...... 160
DELINQUENCY
(AS OF 09/30/98)
- ---------------------
<S> <C>
90 Days or more...... 3
In Foreclosure
(included above)..... 3
Real Estate Owned.... 0
</TABLE>

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

(1) As of 09/30/98

(2) SFG Equity Fund, L.L.C. was formed, in part, to purchase and own properties
in its portfolio.

32
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company at November
9, 1998 and as adjusted to reflect the sale of the maximum of $25,000,000 in
Debentures in connection with this offering. This table should be read in
conjunction with the financial statements and related notes included elsewhere
in this Prospectus.

<TABLE>
<CAPTION>
AS ADJUSTED
ACTUAL MAXIMUM OFFERING
--------- -----------------
<S> <C> <C>
Long-term debt payable, net of current portion............................ $ -0- $ 25,000,000
Stockholders' Equity:
Common Stock (no par value), 10,000,000 shares authorized and 40,000
issued at November 9, 1998............................................ 40,000 40,000
Retained Earnings (Deficit)............................................... -0- -0-
--------- -----------------
Total Stockholders' Equity............................................ 40,000 40,000
--------- -----------------
Total Capitalization.................................................. $ 40,000 $ 25,040,000
--------- -----------------
--------- -----------------
</TABLE>

MANAGEMENTS' DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND OPERATING RESULTS

OPERATIONS

The Company was recently formed primarily to make and/or invest in
promissory notes secured by real estate originated by Seattle Funding Group,
Ltd., an affiliate of the Company. These real estate Receivables are
non-conventional as they are not originated by a regulated financial institution
and are not underwritten to FNMA or FHA underwriting guidelines. Typically,
either the borrower or the collateral will not meet sufficient FNMA or FHA
underwriting guidelines to qualify for conventional financing. These borrowers
are expected to be willing to pay interest rates in excess of conventional
mortgage rates for the above reasons and for the ability to secure a loan in an
expeditious manner in contrast to the typically lengthy approval process for
conventional financing. Because the borrowers in this market may have blemished
credit records and the Company generally does not require income/employment
verification, underwriting practices focus primarily on the collateral value as
the ultimate source of repayment. While higher delinquency rates are expected in
this market as compared to the conventional mortgage market, the Company
believes this risk is generally offset by the value of the underlying collateral
relative to the Company's investment therein and the superior yields achievable.

The Company will also, to a lesser extent, acquire real estate for
investment or resale. The Company's real estate acquisition activities are
expected to concentrate on properties acquired from highly motivated sellers who
are offering their properties at below market value, in management's opinion.
Such Sellers may be facing foreclosure or willing to take a discounted price in
consideration of purchase terms that may include all cash and/or a
non-contingent transaction. By investing in such real property acquisitions, the
Company expects to build its asset base and profits through eventual resale. It
is anticipated that real estate acquisition will not occur until the Company has
created sufficient excess income through its Receivables investments so that
such real estate investment will not negatively effect the Company's ability to
service the Debentures and pay its operating expenses.

REVENUES, EXPENSES, FINANCING AND CAPITAL RESOURCES

As the Company has not yet commenced operations, the revenues and expenses
can only be predicted. However, the Company has used historical experience from
affiliated companies which were created for similar purpose. It is anticipated
that the interest income generated from the Company's prospective investments in
Receivables will be sufficient to meets its obligations. The Company's
anticipated expenses

33
<PAGE>

are variable based upon the total amount of the Debentures outstanding. Through
this structure, Management believes the Company can meet its obligations
regardless of how much capital the offering of Debentures generates.

Liquidity and capital resources are expected initially to be generated
through the sale of Debentures. Once the Company has commenced operations,
Receivable payoffs and sale of Receivables will add to this source. In addition,
it is anticipated that the company may borrow additional funds secured by its
assets. Per the Debenture Trust Indenture, the Company is limited to a maximum
of 35% of the total principal amount of the Debentures for such additional
borrowing. The Company expects that such borrowing will enhance the operations
of the Company and its return on investment, primarily through two methods.
First, it is anticipated that a line of credit will be secured that will allow
the Company to fund Receivables that are available pending receipt of additional
Debenture subscriptions and/or Receivable payoffs. Management believes that a
line of credit facility will provide a consistent source of liquidity assisting
the Company in maintaining its source of Receivables. Second, as the Company
acquires real estate to be held for investment, it is anticipated that it will
secure a modest level of term financing secured by the specific property, not
expected to exceed 70% of the properties value. Management believes that the
risks associated with this modest use of leverage will be offset by the
potential enhanced return on investment.

PLAN OF DISTRIBUTION

GENERAL

The Company is offering up to $25,000,000 face value of the Series I
Debentures directly to the public on a continuing best efforts basis through
Pacific West Securities, Inc ("PWSI"). Pacific West Securities, Inc. is a member
of the National Association of Securities Dealers, Inc. ("NASD") member firm. No
securities sales commissions will be paid from the offering proceeds received
from sale of the Notes. However, PWSI will receive, on an annual basis from the
Company's gross operating income, the following: (i) an amount equal to
one-quarter percent (0.25%) of the principal amount of the outstanding
Debentures for its services as the Principal Distributor and (ii) an amount
equal to one and one quarter percent (1.25%) of the principal amount of
outstanding Debentures as a securities sales commission, some or all of which
may be reallowed to Selected Dealers, who are members of the NASD, and certain
foreign dealers who are not eligible for membership in the NASD, which agree to
participate in the offer and sale of the Debentures. Loretta Elderkin, the
president, and Janilee Jefferies, the owner of 100% of the issued and
outstanding shares of PWSI, are, respectively the mother and sister of Gregory
Elderkin, the Vice-President and a director of the Company. Mr. Elderkin is
neither an officer nor director of PWSI and holds no ownership interest in PWSI.

SUBSCRIPTION PROCEEDS HOLDING ACCOUNT

Upon receipt of properly completed subscription documents and proceeds for
subscription to a Debenture from a Debenture purchaser, the Company will review
such documents and determine if such subscription documents are properly
completed. Upon such determination, the proposed Debenture holder will be
notified by the Company of the acceptance of their subscription to the Offering
and the subscription proceeds will be deposited into an interest-bearing account
on behalf of the proposed Debenture holder. However, such person will not become
a Debenture holder at that time. The subscription proceeds will be held in the
interest-bearing account for the benefit of the proposed Debenture holder for up
to sixty (60) days and all interest earned while such funds are on deposit will
be earned by and paid to the proposed Debenture holder. When the Company has
need for the proceeds to fund its operations, the funds will be transferred to
the Company's operating account, the subscribers whose funds have been
transferred will become a Debenture holder, and the Company will issue Debenture
to such persons under the terms under which they subscribed for the Debentures.

34
<PAGE>

If a proposed Debenture holder's funds have not been transferred to the
Company and such proposed Debenture holder has not received a Debenture within
sixty (60) days of subscription to the Company, such proposed Debenture holder
may request return of the subscription funds and cancellation of the
Subscription Agreement by written notice to the Company at the following
address: SFG Mortgage and Investment Company, Inc., 923 Powell Avenue SW.,
Renton, Washington 98055. Upon receipt of any such notice, the Company will,
within five (5) business days, withdraw the canceling Debenture holder's
subscription proceeds from the interest-bearing account and return such proceeds
together with all interest earned thereon to the canceling Debenture holder.
Such Debenture holder's subscription agreement will be canceled without further
force or effect.

LACK OF TRADING MARKET

There is not now and the Company does not expect that there will be a public
trading market for the Debentures in the future. PWIS does not intend to make a
market for the Debentures. See "RISK FACTORS--TERM INVESTMENT; ABSENCE OF A
TRADING MARKET, LACK OF LIQUIDITY."

DESCRIPTION OF DEBENTURES

GENERAL

The Debentures will be issued under an Indenture dated as of ,
1999. The following statements relating to the Debentures and the Indenture are
summaries and do not purport to be complete. Such summaries are subject to the
detailed provisions of the Indenture and are qualified in their entirety by
reference to the Indenture, a copy of which is filed as an exhibit to the
Registration Statement and is also available for inspection at the office of the
Trustee.

The Debentures will represent unsecured general obligations of The Company
and will be issued in book entry form without coupons, in fractional
denominations of $0.01 or more subject to the stated minimum investment amount
requirements. The Debentures will be sold at 100% of the principal amount. The
Debentures will have the minimum investment amounts, maturities and interest
rates set forth on the cover page of this Prospectus. The stated interest rates,
maturities, and minimum investment amounts may be changed at any time by The
Company by way of a supplement to this Prospectus. Any such change will have no
effect on the terms of the previously sold Debentures.

Debentures may be transferred or exchanged for other Debentures of the same
series of a like aggregate principal amount subject to the limitations set forth
in the Indenture. No service charge will be made for any transfer or exchange of
Debentures. The Company may require payment of taxes or other governmental
charges imposed in connection with any such transfer or exchange. Interest will
accrue at the stated rate from the date of issue until maturity. The Debentures
are not convertible into capital stock or other securities of The Company.

The Debentures are subject to redemption prior to maturity and may also be
prepaid pursuant to the prepayment provisions described below. Also, subject to
regulatory restrictions affecting redemptions and exchanges of securities during
an offering, and certain other restrictions set forth in the Debenture and/or
the Trust Indenture, the Company will be obligated to honor requests for an
early payout of a Debenture. Such early payout requests, when received, are
honored in the order received.

PAYMENT OF PRINCIPAL AND INTEREST

Interest will be payable to Debenture holders quarterly with the principal
and any accrued, but unpaid interest due and payable at the maturity date of the
Debenture, unless the Debenture is renewed pursuant to its terms. A Debenture
purchaser may elect to have interest paid on a quarterly basis, without
compounding; or may elect to leave all or fifty percent (50%) of the accrued
interest with the Company in which case it will compound quarterly at the stated
interest rate. Debenture holders may change the interest payment election at any
time by written notice to the Company.

35
<PAGE>
Unless Debenture holders are notified in writing by the Company of its
intention to renew all or some portion of the Debentures, all accrued interest
and the principal balance will be paid in full by the Company within 15 days of
the Maturity Date of the Debenture. Debentures do not earn interest after the
maturity date. The Company will pay the principal and accumulated interest due
on matured Debentures to the registered owner(s) in cash at the Company's main
office in Renton, Washington or by check mailed to the address designated by the
registered owner.

CALL OF DEBENTURES BY COMPANY

The Debentures are callable at the Company's option beginning on the first
anniversary on the date each Debenture was issued. On or after such date the
Debenture will be subject to prepayment at the option of the Company, in whole
or in part, at the prices set forth below, plus accrued and unpaid interest
thereon, if any, to the date of prepayment:

<TABLE>
<CAPTION>
<S> <C>
Between First and Second Anniversary................................. 100.50% of Principal
Between Second and Third Anniversary................................. 100.25% of Principal
Thereafter........................................................... 100.00% of Principal
</TABLE>

AUTOMATIC RENEWAL OF DEBENTURES

The Company may elect to renew some or all of the Debentures at their
respective maturity dates by providing written notice of its intention to do so
to the holder of a Debenture no less than six (6) months prior to the maturity
date of the Debenture. Any holder of a Debenture desiring payment instead of
renewal must, within sixty (60) days after receiving notice of the Company's
intention to renew the Debenture, decline renewal by written notice to the
Company. If renewal is declined then the Company will be obligated to pay all
principal and interest under the Debenture as such amounts become due.

REGARDING THE TRUSTEE

The Debentures will be issued under, and at all times, will be subject to
the terms and conditions of the Indenture. U.S. Bank, N.A. ("Trustee")
designated as the Trustee under the Indenture. The Trustee is a national banking
association, with a combined capital and surplus in excess of $ million. The
Company and certain of its subsidiaries may maintain deposit accounts and from
time to time, may borrow money from the Trustee and conduct other banking
transactions with it. As of the date of this Prospectus, no loans from the
Trustee were outstanding. In the event of default, the Indenture permits the
Trustee to become a creditor of the Company and its subsidiaries, and does not
preclude the Trustee from enforcing its rights as a creditor, including rights
as a holder of collateralized indebtedness. The fees of the Trustee will be paid
by CMGI pursuant to the terms of the Management Agreement with the Company. See
"MANAGEMENT--The Management Agreement."

RIGHTS AND PROCEDURES IN THE EVENT OF DEFAULT

Events of default include the failure of The Company to pay interest on any
Debenture for a period of 30 days after it becomes due and payable; the failure
to pay the principal or any required installment thereof of any Debenture when
due; the failure to perform any other covenant in the Indenture for 60 days
after notice; and certain events in bankruptcy, insolvency or reorganization
with respect to The Company. Upon the occurrence of an event of default, either
the Trustee or the holders of 25% or more in principal amount of Debentures then
outstanding may declare the principal of all the Debentures to be due and
payable immediately.

The Trustee must give the Debenture holders notice by mail of any default
within 90 days after the occurrence of the default, unless it has been cured or
waived. The Trustee may withhold such notice if it

36
<PAGE>
determines in good faith that such withholding is in the best interest of the
Debenture holders, except if the default consists of failure to pay principal or
interest on any Debenture.

Subject to certain conditions, any such default, except failure to pay
principal or interest when due, may be waived by the holders of a majority (in
aggregate principal amount) of the Debentures then outstanding. Such holders
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or of exercising any power
conferred on the Trustee, except as otherwise provided in the Indenture. The
Trustee may require reasonable indemnity from holders of Debentures before
acting at their direction.

Within 120 days after the end of each fiscal year, The Company must furnish
to the Trustee a statement of certain officers of The Company concerning their
knowledge as to whether or not The Company is in default under the Indenture.

MODIFICATION OF THE TRUST INDENTURE

Debenture holders' rights may be modified with the consent of the holders of
66 2/3% of the outstanding principal amounts of Debentures, and 66-2/3% of those
series specifically affected. In general, no adverse modification of the terms
of payment and no modifications reducing the percentage of Debentures required
for modification is effective against any Debenture holder without his or her
consent.

RESTRICTIONS ON CONSOLIDATION, MERGER, ETC.

The Company may not consolidate with or merge into any other corporation or
transfer substantially all its assets unless either The Company is the
continuing corporation or the corporation formed by such consolidation, or into
which The Company is merged, or the person acquiring by conveyance or transfer
of such assets shall be a corporation organized and existing under the laws of
the United States or any state thereof which assumes the performance of every
covenant of The Company under the Indenture and certain other conditions
precedent are fulfilled.

TRANSFER AGENT AND REGISTRAR

The Company acts as its own transfer agent and registrar of the Debentures,
but may elect in the future to contract with a third party to provide such
services.

DEBENTURE HOLDER'S PREPAYMENT RIGHTS

The Debenture holder's will, subject to certain limitations, have the
opportunity to request prepayment of the principal amount of the Secured Notes,
together with any unpaid interest owed to them by the Company. Beginning upon
the first anniversary of the date each Debenture was issued, the Company will be
obligated to prepay the balance due a Debenture holder requesting early
redemption in a ninety (90) day period beginning the first day of the first full
month after receipt of a request for prepayment from such Debenture holder. The
redemption payment amount shall be equal to the principal amount due under the
Debenture, together with all accrued and unpaid interest. Provided, that the
Company may from time to time, charge a redemption processing fee which in no
event will exceed $500.00 per Debenture. Initially, the Company does not intend
to charge such fee. The Company has the right under the Debentures to limit, in
its sole discretion, the amount of Debentures redeemed to a maximum of twelve
and one-half percent (12.5%) of the then outstanding total principal balance of
Debentures in any ninety (90) day period, if in the Company's opinion, the
redemption of Debentures during that period of time would compromise the
Company's ability to pay its obligations (including principal and interest
payments on the remaining debentures) in the ordinary course of business. At the
end of the term of any such suspension period, redemptions will be processed and
paid in the order first received in proper form by the Company. If, in any
ninety (90) day period, during which the Company has limited the Debenture
holder's right to redemption the Company receives requests for prepayment from
Debenture holders which exceed

37
<PAGE>
twelve and one-half percent (12.5%) of the total principal amount due under all
outstanding Debentures, the Company may, at its option, pay to all Debenture
holders requesting prepayment a pro rated amount, which amount shall be based
upon the principal amount due under each Debenture holder who has requested
early redemption.

REINVESTMENT OF INTEREST PAYMENTS

Each Debenture holder may elect to reinvest all or fifty percent (50%) of
that Debenture holder's interest payments under the Secured Note. If a Debenture
holder makes such an election, the amount reinvested will be treated as an
additional principal due under the Debenture holder's Secured Note. By
increasing such electing Debenture holder's principal balance due, the interest
payable under that Debenture holder's Secured Note will be proportionately
increased. Reinvested funds will be held by the Company, placed in money market
funds or other temporary instruments and then invested in deeds of trust,
mortgages or real estate investments as they become available. The Company may
terminate or restrict the reinvestment option at any time upon written notice to
the Debenture holder's.

INDEMNIFICATION

The Company's Articles of Incorporation provide for indemnification of The
Company's directors, officers and employees for expenses and other amounts
reasonably required to be paid in connection with any civil or criminal
proceedings brought against such persons by reason of their service of or
position with The Company unless it is adjudged in such proceedings that the
person or persons are liable due to willful malfeasance, bad faith, gross
negligence or reckless disregard of his or her duties in the conduct of his or
her office. Such right of indemnification is not exclusive of any other rights
that may be provided by contract or other agreement or provision of law. Such
indemnification is not currently covered by insurance.

As of the date of this Prospectus, no contractual or other agreements
providing for indemnification of officers, directors or employees were in
existence other than as set forth above. Pursuant to Washington State law, The
Company is required to indemnify any director for his or her reasonable expenses
incurred in the successful defense of any proceeding in which such director was
a party because he or she was a director of The Company.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to The Company's officers, directors or controlling
persons pursuant to the foregoing provisions, The Company has been informed that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.

LEGAL MATTERS

LEGAL OPINION

The legality of the Debentures offered hereby is being passed upon for The
Company by the Law Offices of Jack G. Orr, 3019 Narrows Place, Tacoma, WA 98407.

LEGAL PROCEEDINGS

There are no material legal proceedings or actions pending or threatened
against any of the companies within the Affiliated Group or to which its
property is subject.

EXPERTS

The Financial Statements of the Company as of November 9, 1998 in this
prospectus, have been included herein in reliance on the report, of Peterson
Sullivan, PLLC independent accountants, given on the authority of that firm as
experts in accounting and auditing.

38
<PAGE>

SFG MORTGAGE & INVESTMENT COMPANY, INC.
FINANCIAL REPORT
DECEMBER 31, 1998

<PAGE>
CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INDEPENDENT AUDITORS' REPORT............................................................................... 1

FINANCIAL STATEMENTS
Balance sheet............................................................................................ 2
Statement of cash flows.................................................................................. 3
Notes to financial statements............................................................................ 4-9
</TABLE>

<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors
SFG Mortgage & Investment Company, Inc.
Renton, Washington

We have audited the accompanying balance sheet of SFG Mortgage & Investment
Company, Inc. as of December 31, 1998, and the related statement of cash flows
for the period from September 17, 1998 (date of incorporation) to December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a text basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1998, and its cash flows for the period from September 17, 1998 (date of
incorporation) to December 31, 1998, in conformity with generally accepted
accounting principles.

As described in Note 6, at December 31, 1998, the Company has not commenced
operations. Therefore, a statement of operations for the period from September
17, 1998 (date of incorporation) to December 31, 1998, has not been included in
these financial statements.

Peterson Sullivan PLLC
March 15, 1999
Seattle, Washington

1
<PAGE>
SFG MORTGAGE & INVESTMENT COMPANY, INC.

BALANCE SHEET

DECEMBER 31, 1998

<TABLE>
<CAPTION>
Cash....................................................................... $40,000
<S> <C>
-------
-------
Stockholders' Equity
Common stock, no par value, 1,000,000 shares authorized, 40,000 shares
issued and outstanding................................................ $40,000
-------
-------
</TABLE>

See Notes to Financial Statements

2
<PAGE>
SFG MORTGAGE & INVESTMENT COMPANY, INC.

STATEMENT OF CASH FLOWS

SEPTEMBER 17, 1998 (DATE OF INCORPORATION) TO DECEMBER 31, 1998

<TABLE>
<CAPTION>
Cash Flows from Financial Activities
Proceeds from sale of common stock........................................ $40,000
<S> <C>
-------
Net increase in cash....................................................... 40,000
Cash at September 17, 1998 (date of incorporation)......................... --
Cash at December 31, 1998.................................................. $40,000
-------
-------
</TABLE>

See Notes to Financial Statements

3
<PAGE>
NOTES TO FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS

SFG Mortgage & Investment Company, Inc. ("the Company") was incorporated on
September 17, 1998, in Washington for the purpose of making direct,
non-conventional equity loans secured by real estate and to directly invest in
real estate. On November 16, 1998, the Company issued 40,000 shares of no par
common stock for $40,000 in cash.

The Company's business will be concentrated in non-conventional mortgage
lending activities. This market segment generally has higher default rates than
conventional mortgage lending. The Company's default rates could also be
negatively impacted by risks that are inherent to mortgage lending activities.
Such risks include, but are not limited to, fluctuating interest rates and
property values, and changes in economic conditions and government rules and
regulations.

Non-conventional equity loans include loans to persons/businesses that have
been unable to secure loans in a timely manner from conventional lending
institutions. The Company expects that these borrowers will be willing to pay
interest rates in excess of conventional mortgage interest rates. The loans will
generally have terms of five to ten years. All loans will be secured by a deed
of trust or mortgage on real property with a total loan to value ratio that
generally will not exceed 65% but will in no event exceed 75% of the value of
the property. The Company's real estate investment activities will be
concentrated on properties acquired from sellers who are facing foreclosure
and/or properties which, in management's opinion, are being offered at below
market.

The Company's private non-conventional lending business is generally not
subject to the rules and regulations of FHA, VA, FNMA, FHLMC, GNMA or Washington
state rules and regulations with respect to originating, processing, selling and
servicing mortgage loans. The Company's mortgage origination activities will
generally be subject to the Equal Credit Opportunity Act, the Federal Truth in
Lending Act and regulations promulgated thereunder which prohibit discrimination
and require the disclosure of certain basic information to mortgagors concerning
credit and settlement costs.

The Company is currently preparing to offer up to $25 million in debentures
to the public in order to fund operations. No operations have yet taken place.

The Company's fiscal year will end annually on December 31.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH

Cash consists of amounts held in demand deposit accounts.

MORTGAGE NOTES RECEIVABLE

Mortgage notes receivable will be held for investment purposes and will be
carried at amortized cost net of any allowances for credit losses. Discounts
originating at the time of purchase, net of capitalized acquisition costs, will
be amortized using the interest method. Interest income will be recognized when
earned using the interest method for those notes which are not deemed impaired.

ALLOWANCE FOR LOSSES

the allowances for losses on mortgage notes receivable will include amounts
for estimated probable losses on receivables determined in accordance with the
provisions of Statement of Financial Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan", as amended. Specific allowances will be
established for delinquent receivables, as necessary. Additionally, the Company
will establish

4
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
allowances, based on prior delinquency and loss experience, for currently
performing receivables and smaller delinquent receivables. Allowances for losses
will be based on the net carrying values of the receivables, including accrued
interest.

REAL ESTATE HELD FOR SALE

Real estate will be stated at the lower of cost or fair value less estimated
costs to sell. The Company intends to acquire real estate through acquisition
and foreclosure. Cost will be determined by the purchase price of the real
estate or, for real estate acquired by foreclosure, at the lower of (a) the fair
value of the property at the date of foreclosure less estimated selling costs,
or (b) cost (unpaid receivable carrying value). The Company will periodically
review its carrying values of real estate held for sale by obtaining independent
appraisals and adjusting its carrying values to the lower of cost or net
realizable value, as necessary.

Income from sales of real estate will be recognized when a purchaser's
initial and continuing investment is adequate to demonstrate (1) a commitment to
fulfill the terms of the transaction, (2) that collectibility of the remaining
sales price due is reasonably assured, and (3) the Company maintains no
continuing involvement or obligation in relation to the property sold and has
transferred all the risks and rewards of ownership to the buyer.

STOCK RESTRICTIONS

Shares of the Company's common stock may not be disposed of without first
being offered to the non-selling shareholders. The price to be paid is to be
determined between the shareholders.

INCOME TAXES

Income taxes will be accounted for using the asset and liability approach,
which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Deferred income taxes will be provided for
the temporary differences between the financial reporting basis and the tax
basis of the Company's assets and liabilities. A valuation allowance will be
recognized for deferred tax assets not likely to be realized. Deferred taxes are
to be measured by the provisions of currently enacted tax laws.

USE OF ACCOUNTING ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS

The preparation of financial statements in accordance with generally
accepted accounting principles 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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.

NOTE 3. AFFILIATES

The Company has affiliates which are in the business of acquiring, holding,
selling, originating and servicing mortgage notes receivables primarily in the
Pacific Northwest. Certain of these affiliates will

5
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 3. AFFILIATES (CONTINUED)

provide services to and receive compensation from the Company. The following is
a list of affiliates, their relationships to the Company, and a brief
description of services that they will provide:

- Seattle Funding Group, Ltd. will provide mortgage notes receivable
origination services to the Company and other affiliates. Seattle Funding
Group, Ltd., and the Company have certain common shareholders and
officers. Seattle funding Group, Ltd. expects to be compensated for the
origination service by the mortgagee.

- Capital Management Group, Inc. ("CMGI") is a corporation owned, in part,
by the principles of Seattle Funding Group, Ltd. and Pacific West
Securities, Inc. Certain officers of CMGI are also shareholders and
officers of the Company. The Company entered into a five year management
agreement with CMGI whereby CMGI will be paid a management fee and an
overhead allowance. The management fee and overhead allowance are 1.5% and
1%, respectively, of the outstanding total principal balance due under all
debentures issued by the Company. the overhead allowance will cover all
expenses incurred in operating the Company, except certain extraordinary
expenses such as costs of foreclosure and/or litigation which will be paid
separately. Payment of any amounts under the management agreement will be
subordinate to payment of the Company's debentures. The management
agreement contains an automatic renewal for two-year periods unless
terminated. CMGI will subcontract some of these services to Pacific West
Investment Services, Inc. which is owned by relatives of an officer and
shareholder of the Company.

In addition, CMGI will pay all organizational and offering expenses
incurred by the Company related to the offer and sale of the debentures
that are discussed in Note 5. CMGI may borrow up to $60,000 for a period
not to exceed two years from the Company at an interest rate of 13% per
annum to pay these expenses.

A subsidiary of CMGI, SFG Investments, Inc., may invest fractionally in
mortgage notes receivable which are originally acquired by the Company.

- SFG Data Services, Inc. provides mortgage notes receivable services to the
Company and other affiliates. SFG Data Services, Inc. will be partially
compensated from the 1% overhead allowance fee that is charged by CMGI and
fees to be paid by mortgagees. Certain offices of SFG Data SErvices, Inc.
are also shareholders and officers of the Company.

- Pacific West Securities, Inc. provides brokerage services and will serve
as the principal distributor of the Company's debentures. Pacific West
Securities, Inc. will receive annually, a distribution fee and a sales
commission fee of .25% and 1.25%, respectively, of the principal amount of
outstanding debentures. The president and owner of Pacific West
Securities, Inc. are related to one of the officers and shareholders of
the Company.

The Company is affiliated with the SFG Family of Funds ("the Funds") which
include two Washington limited partnerships and three Washington limited
liability companies all of which engage primarily in non-conventional mortgage
financing. The SFG Family of Funds and their relationships to the Company and
its affiliates are as follows:

- SFG Income Fund, L.P.--CMGI is the general partner.

- SFG Income Fund II, L.P.--CMGI is the general partner.

- SFG Income Fund III, L.L.C.--This fund has common ownership and officers
with the Company. Also, CMGI is the contract manager.

6
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 3. AFFILIATES (CONTINUED)

- SFG Equity Fund, L.L.C.--CMGI is the managing member of this fund.

- SFG Income Fund IV, L.L.C.--This fund has common ownership and officers
with the Company. Also, CMGI is the contract manager.

Seattle Funding Group, Ltd. may offer the same mortgage notes receivable it
originates to the Funds as well as to the Company. These offering will be on a
rotating basis which may allow the funds with available cash to invest in
mortgage notes receivable which would otherwise be offered to the Company.

NOTE 4. STATEMENT OF OPERATIONS

As of December 31, 1998, the Company has not commenced operations and thus
has not included a statement of operations in these financial statements. Since
inception, all costs associated with incorporation and preparation of the public
offering of debentures have been paid by CMGI pursuant to the management
agreement described in Note 3. Payments of management fees to CMGI will not
begin until the debentures are issued.

NOTE 5. COMMITMENTS

PUBLIC OFFERING OF DEBENTURES

The Company expects to offer to the public up to $25 million in debentures.
The debentures will be offered on a continuous, best effort basis at minimum
investment amounts. The debentures will be sold at 100% of the principal amount
and have a five-year term with an option to renew for an additional five years.
Interest rates will be dependent upon the amount of the investment and will be
payable quarterly without compounding. The debentures are unsecured debt
instruments, senior in liquidation to outstanding equity securities of the
Company, and will be subordinate to any collateralized debt. No trading market
is expected for the debentures.

Each of the debentures will be subject to a limited right of prepayment at
the holders' option beginning on the first anniversary of the date that the
debenture was issued. The Company will be obligated to redeem any debenture upon
ninety days written notice from the holder following the first anniversary. The
amount of redemptions may be limited by the Company to a maximum of 12.5% of the
outstanding principal balance of debentures in any ninety day period, if the
Company believes the redemption during the period would affect its ability to
pay obligations. The debentures will not be convertible into capital stock or
other securities of the Company.

LINE OF CREDIT

The Trust Indenture under which the debentures will be issued permits the
Company to borrow money. The Company is currently negotiating an operating
line-of-credit with a financial institution. Terms have not been finalized.

The amount of money that the Company can borrow is limited by the Trust
Indenture. Borrowings may not exceed thirty-five percent of the total principal
amount due under the issued and outstanding debentures at the time of the
borrowing. In order to secure these borrowings, the Company may pledge some or
all of its assets.

7
<PAGE>
SFG MORTGAGE & INVESTMENT COMPANY, INC.
SCHEDULE OF MANAGED FUNDS
(A REVIEW)
INCEPTION TO SEPTEMBER 30, 1998
<PAGE>
CONTENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
INDEPENDENT AUDITORS' REPORT........................................................................... 1
Schedule of Managed Funds 2 and 3
Note to Schedule of Managed Funds...................................................................... 4
</TABLE>

<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors
SFG Mortgage & Investment Company, Inc.
Renton, Washington

We have reviewed the accompanying Schedule of Managed Funds as of September
30, 1998, and for the period inception through September 30, 1998. Our review
was conducted in accordance with standards established by the American Institute
of Certified Public Accountants.

A review is substantially less in scope than an examination, the objective
of which is the expression of an opinion on the Schedule of Managed Funds.
Accordingly, we do not express such an opinion.

Based on our review, nothing came to our attention that caused us to believe
that the accompanying Schedule of Managed Funds is not presented in conformity
with the measurement and disclosure criteria set forth in the Note.

Peterson Sullivan PLLC
November 9, 1998
Seattle, Washington

1
<PAGE>
SCHEDULE OF MANAGED FUNDS
FUND INCEPTION THROUGH SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
SFG INCOME FUND, L.P. SFG INCOME FUND II, L.P. SFG INCOME FUND III, L.L.C.
------------------------- ------------------------- ---------------------------

<S> <C> <C> <C>
Type of Investment Offered.............. Limited Partnership Units Limited Partnership Units 10.5% Promissory Notes
(equity securities) (equity securities) (debt securities)
Date Offering Commenced................. September 15, 1993 February 1, 1995 November 20, 1995
Date Offering Completed................. January 13, 1995 November 17, 1995 February 10, 1997
Total Amount of Offering................ $5,000,000 $4,975,500 $9,733,073
Nature of Company Business.............. Non-Conventional Mortgage Non-Conventional Mortgage Non-Convention Mortgage
Lending Lending Lending Ownership
Average Annualized Distributions to
Investors from inception through
September 30, 1998.................... 11.34% 11.07% 10.50%
MORTGAGED PORTFOLIO (AS OF SEPTEMBER 30,
1998)
Invested Portfolio...................... $6,315,610 $4,940,970 $11,383,170
Number of Loans......................... 43 37 68
Average Loan Size....................... $146,875 $133,540 $167,400
Average Value of Security............... $281,326 $265,243 $346,919
Average Loan to Value................... 52.50% 50.30% 48.30%
Average Loan Size as a % of Invested
Portfolio............................. 2.33% 2.70% 1.47%
Average Loan Term-months................ 104.9 99.4 110.1
INVESTOR INFORMATION (AS OF SEPTEMBER
30, 1998)
Investor Funds (including
reinvestment)......................... $6,463,319 $5,221,233 $11,036,537
Average Investment...................... $76,039 $62,158 $68,978
Total Investors......................... 85 84 160
DELINQUENCY (AS OF SEPTEMBER 30, 1998)
90 Days or more......................... 1 4 6
In Foreclosure (included above) 1 5 7
Real Estate Owned....................... 0 0 0

<CAPTION>
SFG EQUITY FUND, L.L.C. SFG INCOME FUND IV, L.L.C.
------------------------- --------------------------
<S> <C> <C>
Type of Investment Offered.............. Limited Liability 10.0% Promissory Notes
Membership Units (equity (debt securities)
securities)
Date Offering Commenced................. November 18, 1996 September 1, 1997
Date Offering Completed................. June 13, 1997 N/A
Total Amount of Offering................ $1,966,960 $6,966,955
Nature of Company Business.............. Non-Conventional Mortgage Non-Conventional Mortgage
Lending and Real Estate Lending
Average Annualized Distributions to
Investors from inception through
September 30, 1998.................... 9.76% 10.00%
MORTGAGED PORTFOLIO (AS OF SEPTEMBER 30,
1998)
Invested Portfolio...................... $1,206,250 $7,160,500
Number of Loans......................... 11 45
Average Loan Size....................... $109,659 $159,122
Average Value of Security............... $211,636 $298,289
Average Loan to Value................... 51.80% 53.30%
Average Loan Size as a % of Invested
Portfolio............................. 9.09% 2.22%
Average Loan Term-months................ 120 120
INVESTOR INFORMATION (AS OF SEPTEMBER
30, 1998)
Investor Funds (including
reinvestment)......................... $2,177,106 $7,163,433
Average Investment...................... $34,557 $44,221
Total Investors......................... 63 160
DELINQUENCY (AS OF SEPTEMBER 30, 1998)
90 Days or more......................... 1 3
In Foreclosure (included above) 1 3
Real Estate Owned....................... 6* 0
</TABLE>

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

* SFG Equity Fund, L.L.C. was formed, in part, to purchase and own properties in
its portfolio.

See Independent Accountants' Report and Note to Schedule.

2
<PAGE>
NOTE TO SCHEDULE OF MANAGED FUNDS

The five funds in the accompanying Schedule of Managed Funds are managed by
Capital Management Group, Inc. ("CMGI") which is expected to also manage SFG
Mortgage and Investment Company, Inc. These are the only funds being managed by
CMGI. The Average Annualized Distribution to Investors from inception through
September 30, 1998, may not be indicative of future distributions from the five
funds or from any other funds which may be managed in the future by CMGI.

The Average Annualized Distributions to Investors is an annualized average
of actual distributions from the individual fund's income (stated as a
percentage of average invested capital, as defined) to the limited partners
and/or members (limited liability corporations) from fund inception through
September 30, 1998.

The annualized distributions for the SFG Income Fund III L.L.C. and SFG
Income Fund IV, L.L.C. are contractually stipulated at 10.5% and 10%,
respectively. Therefore, distributions from these two funds are limited to these
rates. There are no distributions in arrears related to these two funds.

Invested Portfolio consists of the total original loan amounts and the
Average Loan Term is the simple average term of all original loans.

4
<PAGE>
PART II--INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION.

Article VIII of the Registrant's Articles of Incorporation provides as
follows:

The personal liability of a director or the directors to the corporation or
its shareholders for monetary damages is hereby eliminated for any conduct as a
director except acts or omissions that involve intentional misconduct or a
knowing violation of law by a director, for conduct violating RCW 23B.08.310, or
for any transaction from which a director will personally receive a benefit in
money, property, or services to which a director is not legally entitled.

If the Washington Business Corporation Act is hereafter amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director shall be eliminated or limited to
the full extent permitted by the Washington Business Corporation Act, as so
amended. Any repeal or modification of this Article shall not adversely affect
any right or protection of a director of the corporation existing at the time of
such repeal or modification for or with respect to an act or omission of such
director occurring prior to such repeal or modification.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 6,950
NASD Filing Fee................................................... 2,500
Blue Sky Qualification Fees and Expenses.......................... 3,000*
Accounting Fees and Expenses...................................... 20,000*
Legal Fees and Disbursements...................................... 30,000*
Printing Expenses................................................. 5,000*
Miscellaneous Expenses............................................ 10,000*
----------
Total Expenses.................................................... $ 77,450*
</TABLE>

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

* Estimated Item

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

In connection with the organization of the Registrant, a total of 40,000
shares of Common Stock of the Registrant were sold at a price of $1.00 per share
for an aggregate price for all shares of $40,000. The shares were sold to the
officers and directors and to one family an officer and director of the
Registrant in reliance on the exemption provided by Section 4(2) of the
Securities Act of 1933 and Regulation D promulgated thereunder.

The names and identities of the persons to whom the securities were issued
are as follows:

<TABLE>
<CAPTION>
NUMBER OF
LAST NAME FIRST NAME(S) IDENTITY SHARES $ AMOUNT
- ----------- ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Odegard John Individual 10,000 $ 10,000.00
Elderkin Gregory B. Individual 10,000 10,000.00
Elderkin Loretta N. Individual 10,000 10,000.00
Speno Mark Individual 10,000 10,000.00
</TABLE>

II-1
<PAGE>
ITEM 27. EXHIBITS

The following is a list of exhibits filed with this Registration Statement:

<TABLE>
<CAPTION>
EXHIBIT NO. PAGE
- ------------- -----
<C> <S> <C>
1.3 Best Efforts Underwriting and Selected Dealers Agreements**

2.1 Articles of Incorporation**

2.2 Bylaws**

3.1 Form of Debenture**

3.2 Trust Indenture Agreement**

4 Subscription Agreement*

6.1 Management Agreement with Capital Management Group, Inc.**

6.2 Loan Origination Agreement with Seattle Funding Group, Ltd.*

6.3 Master Collection Contract and Loan Servicing Agreement with SFG Data Services, Inc.*

10.1 Consent of Peterson Sullivan, L.L.P.*

10.2 Consent of Law Offices of Jack G. Orr, P.S.**

11 Opinion of Law Offices of Jack G. Orr, P.S.**
</TABLE>

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

* Filed Herewith

** Previously Filed

ITEM 28. UNDERTAKINGS.

(a) The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission

II-2
<PAGE>
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling persons of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

(c) For the purpose of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective. For the purpose of
determining any liability under the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

ITEM 29. FINANCIAL STATEMENTS.

Not Applicable

II-3
<PAGE>
PART III

ITEM 1. INDEX TO EXHIBITS

The following is a list of exhibits filed with this Registration Statement:

<TABLE>
<CAPTION>
EXHIBIT NO. PAGE
- ------------- ---------
<C> <S> <C>
1.2. Best Efforts Underwriting and Selected Dealers Agreements**

2.1 Articles of Incorporation**

2.2 Bylaws**

3.1 Form of Debenture**

3.2 Trust Indenture Agreement**

4 Subscription Agreement*

6.1 Management Agreement with Capital Management Group, Inc.**

6.2 Loan Origination Agreement with Seattle Funding Group, Ltd.*

6.3 Master Collection Contract and Loan Servicing Agreement with SFG Data Services, Inc.*

10.1 Consent of Peterson Sullivan, P.L.L.C.*

10.2 Consent of Law Offices of Jack G. Orr, P.S.**

11 Opinion of Law Offices of Jack G. Orr, P.S.**
</TABLE>

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

* Filed Herewith

** Previously Filed

II-4
<PAGE>
SIGNATURES

The issuer has duly caused this offering statement to be signed on its
behalf by the undersigned, hereunto duly authorized, in the City of Seattle,
State of Washington, on April 15, 1999.

<TABLE>
<S> <C> <C>
SFG MORTGAGE AND INVESTMENT COMPANY, INC.

By: /s/ JOHN ODEGARD
-----------------------------------------
John Odegard
PRESIDENT
</TABLE>

This registration statement was signed by the following persons in the
capacities and on the dates stated.

<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------

<C> <S> <C>
/s/ JOHN ODEGARD
- ------------------------------ President, Chief Executive April 15, 1999
John Odegard Officer And Director

/s/ GREGORY B. ELDERKIN
- ------------------------------ Vice-President And April 15, 1999
Gregory B.Elderkin Director

/s/ MARK SPENO
- ------------------------------ Treasurer And Director April 15, 1999
Mark Speno
</TABLE>

<PAGE>
EXHIBIT 4

FORM OF SUBSCRIPTION AGREEMENT AND INSTRUCTIONS
<PAGE>
SFG MORTGAGE AND INVESTMENT COMPANY, INC.
SUBSCRIPTION INSTRUCTIONS
SUBSCRIPTION AGREEMENT DATED , 1999

Any person considering subscribing for the Debentures
should carefully read and review a current Prospectus.

THE DATE PRINTED ON THE FRONT OF THE PROSPECTUS AND AT THE TOP OF THE
SUBSCRIPTION
AGREEMENT CAN BE NO LATER THAN 9 MONTHS OLD. IF THE DATE IS MORE THAN
9 MONTHS OLD, NEW MATERIALS ARE AVAILABLE AND MUST BE UTILIZED.

1. Enter the total dollar amount being invested on LINE 1.

2. Indicate whether this is an initial investment or an additional investment
in LINE 2.

3. If this is an addition to an existing account, list Debenture holder # in
LINE 2.

4. Enter the Social Security Number OR Taxpayer ID Number, as applicable, on
LINE 3 and check the appropriate box to indicate ownership type. For IRA
accounts, the Taxpayer ID Number of the Custodian should be entered in LINE
3.

5. Enter the name of the investor on LINE 5. For UGMA/UTMA (MINOR), enter the
Minor name on LINE 5, followed by "Minor", and enter the custodian name
where indicated. For TRUSTS, enter the Trust name on LINE 5 and the
Trustee(s) name(s) on the Custodian line. For CORPORATIONS, PARTNERSHIPS,
AND ESTATES, enter the entity name on LINE 5, and officer or contact person
name on the Custodian line. Investors who are not individuals must furnish
a copy of organizing or other documents evidencing the authority of such
entity to invest in the Fund (for example, trusts must furnish a copy of
the trust agreement, corporations must furnish a corporate resolution or
bylaws).

6. Enter the legal address (which is the residence or domicile address used
for tax purposes) of the investor on LINE 6. (No P.O. Boxes)

7. If the mailing address is different from the legal address, enter on LINE
7.

8. If an IRA account, enter Custodian's name and address on LINE 8.

9. The investor must sign and date LINE 9. If it is a joint account, both
investors must sign. In the case of IRAs, the Custodian's signature is also
required.

10. The Account Executive must sign and date in LINE 10. Some broker/dealers
may also require signature by the office manager.

11. The name of the selling firm, account executive name, account executive
number, and address and phone number must be entered in LINE 11.

THE CLIENT SHOULD RETURN THIS SUBSCRIPTION AGREEMENT AND PAYMENT TO HIS/HER
ACCOUNT EXECUTIVE.

Subscription agreements, payment, and any other required documents should be
sent by the account executive to either

1) the administration office of the selling firm, if firm procedures
require, or

2) to the custodial firm if one is required (sending document early in the
month is best if it is to reach SFG Mortgage and Investment Company, Inc.
by month end), or

3) to SFG Mortgage and Investment Company, Inc., 923 Powell Avenue SW,
Renton, WA 98057

If payment is being made by wire transfer, account executive should contact
either his or her firm's administration department or SFG Mortgage and
Investment Company, Inc. for instructions. Payments made by check must be
received at least 3 business days prior to the last business day of the month.

Subscriptions close on the last business day of each month. However, the
selling firm's administration department may have an earlier cut-off for
subscriptions.

If account executives have specific questions about the subscription
process, please call SFG Mortgage and Investment Company, Inc. at 425-271-3550.
<PAGE>
SFG MORTGAGE AND INVESTMENT COMPANY, INC.--SUBSCRIPTION AGREEMENT
IMPORTANT: READ REVERSE SIDE BEFORE SIGNING
INVESTMENT DEBENTURES, SERIES I

The investor named below, by execution and delivery of this Subscription
Agreement, by payment of the purchase price and by enclosing a check for the
amount of the subscription, hereby subscribes for the purchase of an Investment
Debenture, Series I to be issued by SFG Mortgage and Investment Company, Inc.
(the "Company") to the subscriber upon acceptance of this Subscription
Agreement.

The named investor further acknowledges receipt of the Prospectus of the Company
dated ___________, 1999.

CHECKS SHOULD BE MADE PAYABLE TO:_SFG MORTGAGE AND INVESTMENT COMPANY, INC.

<TABLE>
<CAPTION>
1.) Total $ Amount 2.) Initial Investment Additional Investment
(Check One)
Debenture Holder Number
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------

3.) - -
Social Security Number Taxpayer ID #

4.) Legal Form of Ownership (please check only one):

/ / Individual Ownership (one signature required) / / Corporation (authorized agent must sign)
/ / Joint Tenants with Right of Survivorship (all / / Partnership (all partners must sign; commonly a
parties
must sign; commonly used in situations where business or investment group)
spouses are investing and wish to pass to / / Trust (trustee must sign)
surviving spouse free of probate) / / Other (please specify)
/ / Tenants-in-Common (all parties must sign;
each investor has an undivided interest)
5.) REGISTERED OWNER:

----------------------------------------------------- ----------------------------------------------------------
Name Custodian Name (if any)

6.) Residence Address
7.) Mailing Address
(If Different)

8.) Custodian Address
9.) INVESTORS MUST SIGN

X X
Signature of Investor Date Telephone No. Signature of Joint Investor Date Telephone No.
</TABLE>

EXECUTING AND DELIVERING THIS SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SHALL
IN NO RESPECT BE DEEMED TO CONSTITUTE A WAIVER OF ANY RIGHTS UNDER THE
SECURITIES EXCHANGE ACT OF 1933 OR UNDER THE SECURITIES EXCHANGE ACT OF 1934.

UNITED STATES INVESTORS ONLY

I have checked the following box if I am subject to backup withholding under the
provisions of Section 3406(a)(I)(C) of the Internal Revenue Code: / /. Under
penalties of perjury, by signature above I hereby certify that the Social
Security Number or Taxpayer ID Number next to my name is my true, correct and
complete Social Security Number or Taxpayer ID Number and that the information
given in the immediately preceding sentence is true, correct and complete.

NON-UNITED STATES INVESTORS ONLY

Under penalties of perjury, by signature above I hereby certify that (a) I am
not a citizen or resident of the United States or (b) (in the case of an
investor which is not an individual) the investor is not a United States
corporation, partnership, estate or trust.
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C> <C>
10.) ACCOUNT EXECUTIVE MUST SIGN
</TABLE>

I hereby certify that I have informed the investor of all pertinent facts
relating to the risks, liquidity, marketability, management and control of the
Company with respect to an investment in the Debentures, as set forth in the
Prospectus dated ___________, 1999. I have also informed the investor of the
unlikelihood of a public trading market developing of the Debentures.

I have reasonable grounds to believe, based on information obtained from this
investor concerning his/her investment objectives, other investments, financial
situation and needs and any other information known by me, that investment in
the Debentures is suitable for such investor in light of his/her financial
position, net worth and other suitability characteristics.

The Account Executive MUST sign below in order to substantiate compliance with
Article 111, Section 34 of the NASD's Rules of Fair Practice.

<TABLE>
<S> <C> <C> <C>
X X
ACCOUNT EXECUTIVE SIGNATURE DATE OFFICE MANAGER SIGNATURE DATE
(if required by Selling Agent, as the case may be, procedures)

11.) SELLING FIRM A.E. NAME

A.E PHONE A.E. FAX A.E. NUMBER

A.E. ADDRESS
(FOR CONFIRMATIONS) STREET (P.O. BOX NOT ACCEPTABLE) CITY STATE ZIP CODE
</TABLE>

<PAGE>
SFG MORTGAGE AND INVESTMENT COMPANY, INC.
INVESTMENT DEBENTURES, SERIES I

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

SUBSCRIPTION AGREEMENT

SFG Mortgage and Investment Company, Inc.
923 Powell Avenue SW
Renton, WA 98057

Dear Sirs:

1. SUBSCRIPTION FOR INVESTMENT DEBENTURES, SERIES I. I hereby subscribe
for the principal amount of Investment Debentures, Series I ("Debentures") to be
issued by SFG Mortgage and Investment Company, Inc. (the "Company") set forth on
the face of this Subscription Agreement (minimum $2,000), at the face amount of
the Debentures as set forth in the Prospectus of the Company dated ,
1999 (the "Prospectus"). The undersigned's check payable to SFG Mortgage and
Investment Company, Inc., in the full amount of the undersigned's subscription
(additional investments in excess of the required minimum investment may be made
in increments of $500.00), accompanies the Subscription Agreement. If this
subscription is rejected, all funds remitted by the undersigned herewith will be
returned, together with any interest actually earned thereon, if any. The
Company may, in its sole and absolute discretion, accept or reject this
subscription in whole or in part. All subscriptions once submitted are
irrevocable. All Debentures are offered subject to prior sale.

2. REPRESENTATIONS AND WARRANTIES OF SUBSCRIBER. I have received and
reviewed the Prospectus.

3. IRREVOCABILITY; GOVERNING LAW. I hereby acknowledge and agree that I am
not entitled to cancel, terminate or revoke this subscription or any of my
agreements hereunder after the Subscription Agreement has been submitted (and
not rejected) and that this subscription and such agreements shall survive my
death or disability, but shall terminate with the full redemption or payment of
all my Debentures. This Subscription Agreement shall be governed by and
interpreted in accordance with the laws of the State of Washington.

READ AND COMPLETE REVERSE SIDE

<PAGE>

EXHIBIT 6.2

LOAN ORIGINATION AGREEMENT WITH SEATTLE FUNDING GROUP, LTD.

<PAGE>

LOAN ORIGINATION AGREEMENT
PARTIES

This Loan Origination Agreement is made this day of , 1999
between Seattle Funding Group, Ltd., a Washington corporation ("SFG, Ltd."),
whose address is 1239 120th Ave. NE, Suite J, Bellevue, WA 98005 and SFG
Mortgage and Investment Co., Inc., a Washington corporation ("SFG Mortgage"),
whose mailing address is PO Box 860, Renton, WA 98057 and Capital Management
Group, Inc., a Washington corporation ("Management Agent"), whose mailing
address is PO Box 860, Renton, WA 98057.

RECITALS

WHEREAS, SFG makes or otherwise originates loans to third parties, which
loans are secured by mortgages or deeds of trust on real property (hereinafter
referred to as "Mortgage Loans"); and,

WHEREAS, SFG Mortgage desires to invest in Mortgage Loans from time to time;
and,

WHEREAS, the Management Agent

NOW THEREFORE the parties agree as follows:

1. LOAN ORIGINATION, ACQUISITION AND ASSIGNMENT. SFG will present to the
Management Agent on behalf of SFG Mortgage, the opportunity to acquire Mortgage
Loans from SFG, which Mortgage Loans SFG has previously made or acquired. The
decision to acquire or not to acquire any Mortgage Loan shall be exclusively in
the discretion of SFG Mortgage and the Management Agent acting on its behalf.
Upon the acquisition of a Mortgage Loan by SFG Mortgage and payment of the
purchase price as set forth below, SFG shall assign the Mortgage Loan to SFG
Mortgage without recourse to SFG, using the usual and customary documents for
the transfer and assignment of promissory notes and real property security
interests, all rights and interest is such Mortgage Loan.

2. LOAN GUIDELINES. The loans, which SFG will present for acquisition by
SFG Mortgage, shall generally have the following terms and conditions:

<TABLE>
<S> <C>
Loan term: 5 to 10 years
Interest
Rate: 11%-12% per annum
First or junior deed of trust or mortgage on real
Security: property
</TABLE>

3. TERMS OF ACQUISITION. In the event that SFG Mortgage elects to acquire
a Mortgage Loan from SFG, it shall pay to SFG one hundred percent (100%) of the
remaining principal balance on the Mortgage Loan in cash and SFG shall assign
one hundred percent (100%) of the principal balance and interest payments due
under such Mortgage Loan to SFG Mortgage, without discount or premium, and
without the retention by SFG of any economic interest in any Mortgage Loan
acquired by SFG Mortgage. Provided, that as set forth below, SFG shall have the
right to retain any and all loan fees or "points" that the borrower under any
Mortgage Loan acquired by SFG Mortgage has paid to SFG.

4. NON-EXCLUSIVE AGREEMENT. The Mortgage Loan origination services of SFG
and the loan acquisition by SFG Mortgage shall be on a non-exclusive basis. SFG
Mortgage shall have the right to decline to acquire any Mortgage Loan originated
by SFG and offered to it. Further, in addition to acquiring Mortgage Loans under
this Agreement, SFG Mortgage shall have to right to acquire Mortgage Loans from
any other person at any time. Nothing herein shall be construed to mean that SFG
Mortgage is under any obligation to acquire Mortgage Loans originated by SFG.

5. RETENTION OF LOAN FEES. As compensation for its services in originating
any Mortgage Loan acquired by SFG Mortgage under this Agreement, SFG shall have
the right to retain any loan origination fees or points, appraisal fees,
processing fees and any other fees or expenses paid by the borrower in
connection with the origination, processing and making of a Mortgage Loan. SFG
will not retain or otherwise holdback any economic interest, including servicing
fees, in the principal or interest payments due from the borrower under any
Mortgage Loan acquired by SFG Mortgage.

<PAGE>

6. TERM AND TERMINATION. This Agreement shall on the date hereof and,
(unless sooner terminated as permitted below, shall remain in effect for one (1)
year from the date of this Agreement, and may thereafter be extended on an
annual basis by the mutual agreement of the parties. At the conclusion of the
initial one (1) year term this Agreement may be terminated by either party upon
delivery of sixty (60) days written notice to the non-terminating party.

7. ASSIGNMENT. None of the parties may assign its obligations hereunder
without the prior written consent of all other parties. Subject to this
restriction on assignment, this Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the parties.

8. INDEMNIFICATION AND DEFENSE. SFG agrees to indemnify, hold harmless,
and furnish legal defense to SFG Mortgage with respect to any and all claims,
liability, costs, and expenses relating to the negligence or misconduct of SFG
and/or its agents in connection with the origination or acquisition of any
Mortgage Loan acquired by SFG Mortgage. In the event of any breach of this
Agreement by any party, the non-breaching parties shall be entitled to recover
all damages incurred as a result of such breach, together with their costs
incurred including attorney fees and costs of litigation.

9. GOVERNING LAW. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Washington.

10. AMENDMENTS. This Agreement may only be amended by written agreement
executed by and between the parties hereto.

11. VALIDITY; SEVERABILITY. In the event that any provision of this
Agreement shall be held unlawful or otherwise invalid, such provision shall not
affect in any respect whatsoever the validity of the remainder of the Agreement.

AGREED AND ACCEPTED this day of , 1999.
SFG MORTGAGE AND INVESTMENT COMPANY, INC.

By:

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

Its:

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

CAPITAL MANAGEMENT GROUP, INC.

By:

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

Its:

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

SFG DATA SERVICES, INC.

By:

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

Its:

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

<PAGE>

EXHIBIT 6.3

MASTER COLLECTION CONTRACT AND LOAN SERVICING AGREEMENT WITH SFG DATA SERVICES,
INC.

<PAGE>

SFG DATA SERVICES, INC.
MASTER CONTRACT COLLECTION AND SERVICING AGREEMENT
PARTIES

This Master Contract Collection and Servicing Agreement is made this day
of , 1999 between SFG Data Services, Inc., a Washington corporation
("Collection Agent"), whose mailing address is 1239 120th Ave NE, Suite J,
Bellevue, WA 98005 and SFG Mortgage and Investment Co., Inc., a Washington
corporation ("Payee"), whose mailing address is PO Box 860, Renton, WA 98057 and
Capital Management Group, Inc., a Washington corporation ("Management Agent"),
whose mailing address is PO Box 860, Renton, WA 98057.

WITNESSETH:

1.0 APPOINTMENT

Collection Agent is hereby appointed as the agent and representative of
Payee for the purpose of collection and servicing of Payee's receivables, either
real estate contracts or promissory notes secured with deeds of trust, that
Payee delivers to Collection Agent for said purpose ("Receivables").

2.0 DUTIES OF COLLECTION AGENT

It is agreed that the authorities, duties and responsibilities of Collection
Agent in connection with the collection and servicing of the Receivables shall
be, as follows:

2.1 COLLECTION OF PAYMENT. Collection Agent shall take all reasonable
steps to collect and enforce the collection of all payments and other charges
due to Payee from the Receivables in accordance with the terms thereof.
Collection Agent is hereby authorized to accept all full payments tendered under
said Receivables and to issue receipts thereof. If said payment is not a full
payment bringing paid collected instrument to a current status, Collection Agent
is instructed to contact Payee for further instruction as whether to accept said
funds or to return said funds tendered to payors. Notwithstanding the foregoing,
Collection Agent is authorized and instructed to accept any payment which does
not include the late charge as specified herein if any and to add that amount to
the principal balance of the loan, if any.

If a check or an electronic funds transfer is rejected, due to insufficient
funds, or any other reason a return charge of $25.00 per account will be
collected from the payors and retained by the Collection Agent (example: the
returned check was payment on three different accounts, the return check charge
would be $75.00). Also if Collection Agent has advanced funds on behalf of the
Payee under these instruction, Payee shall immediately reimburse the Collection
Agent for those funds advanced. It is further understood that if payments are
made by negotiable instruments other than cash, no disbursement by Collection
Agent is necessary until said instruments have cleared the Collection Agents
collection account.

It is understood and agreed that Collection Agent's services include
automated delinquency notices to the payor on the first business day following
fifteen days and thirty day past due on such accounts. Collection Agent will
continue with periodic delinquency notices until the earlier of the time the
payor brings the instrument to a current status or the account becomes 60 days
past due at which time the account will be returned to Payee for further
collection efforts including referral to Payee's attorney for foreclosure.
Collection Agent will provide monthly status reports to the Payee regarding the
status of all accounts.

2.1.1 DISBURSEMENT OF FUNDS. Proceeds of the payments are to be disbursed
as instructed by the payee with written instructions.

2.1.2 INTEREST COMPUTATION. Interest will be calculated as stated in the
collection instrument. If the interest calculation is not stated in the
instrument the Collection Agent will use a 365-day factor and a thirty- (30) day
month. Interest will be credited to the payment due each period without regard
to the actual date the payment is received.

<PAGE>

2.2 EVIDENCE OF INSURANCE. Collection Agent shall take all reasonable
steps to verify that each account has provided evidence of insurance pursuant to
the terms of underlying loan documents including that Payee is named as
lienholder on each policy with a lenders' loss payable endorsement. Collection
Agent will provide a monthly report to Payee as to the status of insurance on
each account. Collection Agreement will notify Payee of each account where
evidence of insurance cannot be verified. Payee will then force place insurance
on said account and Collection Agent will include the cost of such insurance in
the payment invoice to the payor.

2.3 BUILDER'S ASSISTANCE PROGRAM. Collection Agent shall all reasonable
steps to administer and process disbursal of workorder holdback accounts as they
apply to loans under the Builder's Assistance Program. It is understood that
Collection Agent may charge the payor an administration fee as provided for in
the loan documents for this service for its costs in regards to this service.
Collection Agent is authorized to disburse holdback accounts subject to
completion of improvements to the property securing the obligation only upon
final review and approval of Payee. Collection Agent will provide a monthly
report to Payee as to the status of each account with a workorder holdback. This
report will include notification of any loan with such holdbacks that should be
placed in default due to non-performance under the terms of the loan documents
relating to the workorder holdback. Upon request from a payor to release all or
a portion of the workorder holdback, Collection Agent will perform an inspection
of the property and prepare a report, satisfactory to Payee, on the status of
the project and will include Collection Agents recommendation of the amount of
workorder holdback that should be released. Payee shall then make a
determination, in its sole discretion, of the amount to be released to payor.

3.0 SERVICING CHARGES

Management Agent agrees to pay the Collection Agent for its services
pursuant to this agreement, on a quarterly basis, an amount equal .000625
multiplied the outstanding aggregate principle balance of the loans being
serviced at the end of each calendar quarter. Servicing charges are due on the
first day of the first month of each quarter for the prior quarter, but no later
than the fifteen days after the due date. Collection Agent hereby agrees that
Management Agent has the sole responsibility for payment of Servicing Charges
under the terms of the Management Agreement between Payee and Management Agent.
Collection Agent shall not withhold any funds due Payee for non-payment of
Servicing Charges.

4.0 DELIVERY OF DOCUMENTS

Upon full payment of a Receivable account, Payee will deliver the following
documents to Collection Agent:

4.1.1 If the instrument being collected is a Real Estate Contract, the
original statutory warranty (Fulfillment) Deed to be transmitted to the payor by
Collection Agent.

4.1.2 If the instrument being collected is a Promissory Note secured with a
Deed of Trust, the original Promissory Note marked "Paid in Full," original Deed
of Trust and original Request for Full Reconveyance to be transmitted to the
trustee by Collection Agent.

5.0 TERM

Any party may cancel this agreement upon 60 days written notification to the
other parties.

6.0 RESPONSIBILITY

It is understood that the duties of the Collection Agent in regard to this
matter are as set out above, and that Collection Agent assumes no responsibility
beyond the exercise of reasonable care in the performance of such duties.

2
<PAGE>

7.0 ENTIRE AGREEMENT.

These instructions constitute the entire understanding of the parties
hereto. These instructions may not be modified or amended except by written
instrument executed by all parties.

AGREED AND ACCEPTED this day of , 1999.
SFG MORTGAGE AND INVESTMENT COMPANY, INC. ("Payee")

By:

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

Its:

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

CAPITAL MANAGEMENT GROUP, INC. ("Management Agent")

By:

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

Its:

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

SFG DATA SERVICES, INC. ("Collection Agent")

By:

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

Its:

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

<PAGE>

[PETERSON SULLIVAN P.L.L.C. LETTERHEAD]

INDEPENDENT AUDITOR'S CONSENT

We consent to use in this Registration Statement of SFG Mortgage and
Investment Company, Inc. on Amendment 1 to Form SB-2 of our report dated
March 15, 1999, appearing in the Prospectus, which is part of this
Registration Statement.

We also consent to the reference to us under the headings "Schedule of
Managed Funds" and "Experts" in such Prospectus.

/s/ Peterson Sullivan PLLC

April 14, 1999
Seattle, Washington