Dear Investor,

As a valued investor in the Colonial Impact Fund II (the “Fund”), we are pleased to share with you the quarterly investor newsletter from Q1, 2016. The Fund has just completed its fourth full quarter of operations. Growing in a profitable and well-managed way continues to be our highest priority for the long-term success of the Fund.

Since its inception, the Fund has strived to acquire assets per our initial investment strategy, which in part includes acquiring performing and non-performing mortgages secured by single family residential properties valued under $125,000 located throughout the United States. By completing these acquisitions consistent with our philosophy and process, the Fund was able to grow its assets under management to just over $13,000,000 at the end of Q1.

The Fund’s unique disposition model (which you will recall is to sell individual assets to the downstream retail buyer network) delivered the projected results. The buyers in this network purchased 81 assets this past quarter, which in part contributed to the Fund’s 13.19% quarterly return, and which also created a “return since inception” of 14.37% (both annualized figures), both of which returns fall within the Fund’s targeted and expected return percentages. (These returns also include the equity investors 9.5% annualized preferred return).

In an effort to keep the Fund well-diversified, the Fund’s assets are spread over 31 states, reducing the overall exposure to any one market. Additionally, the average acquisition price per asset is approximately $24,400, thereby minimizing capital exposure to any one particular asset. Because the Fund is able to purchase assets at attractive discounts, the “investment to value” (ITV) ratio stays at levels that the Fund desires. The Fund currently has about a 50% ITV, meaning that on average, the Fund purchased the real estate notes at fifty cents on the dollar of current market value of the properties securing those notes. (Of course, the ITV is an assessed or approximate ratio and is not in any way certain or guaranteed).

Market conditions continue to be favorable in terms of the amount of available inventory of discounted mortgage notes. With the estimation of more than 7,000,000 distressed mortgages in the market, the large banks and hedge funds continue to look for liquidation strategies. The Fund is routinely approached by institutions looking to trade their loans, secured by properties valued under $125,000. This price point serves as a significant source of deal flow for the Fund because these tend to be the mostly costly assets for the larger institutions to hold.

Our management team has built relationships with the key sellers of these assets over several decades. Additionally, our management team works consistently with both existing and new investors as a source of additional capital and in an effort to take advantage of opportunities in the market. With less than five percent of the total capital raised coming into the debt vertical of the Fund, the vast majority of capital raised is unlevered equity.

While the Fund can secure a credit facility or institutional type debt, the Managers have not opted to do so at this point. In large part, thanks to our valued investors, the Equity Vertical has been well received from a fundraising standpoint, reducing the need to secure a credit facility. What this means for Equity Investors is that their capital has a reduced risk profile since there is largely no superior claims to their capital. So long as the equity capital market conditions continue to be robust, it keeps the need for an institutional lender low.

As of the writing of this newsletter, we are in the process of conducting due diligence on more than 120 assets which will result in investor capital deployment of more than $2,500,000. While not all of these assets will pass through the underwriting process, we continue to see tremendous opportunities for the Fund.
Thank you for your continued interest, trust and confidence. Have a safe and wonderful summer!

If you are interested in investing additional capital into the Fund, please do not hesitate to reach out to me.

Ryan Parson, MBA, CFP®, ChFC
Director-Investor Relations
888-633-1113
[email protected]
www.ColonialCapitalManagement.com

*Neither this document nor its contents are an offer to sell or distribute securities in any jurisdiction.