the homeowners fund ii ppm - final 2-16-11

Our Castle HomeOwners Fund II, LLC

Confidential Private Placement Memorandum No.: ___

Offeree Name: ___________________

CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM

OUR CASTLE HOMEOWNERS FUND II, LLC,a Delaware limited liability company

Private Offering

$10,000,000

100 Units ($100,000 per Unit)

_______________________

FOR ACCREDITED INVESTORS ONLY

February 7, 2011


Key Terms of the Offering

Issuer: Our Castle Homeowners Fund II, LLC, a Delaware limited liability company (the “Fund” or the “Company”).

The Fund has been formed to invest in pools of delinquent residential mortgages throughout the United States, with a focus on loans made to Low and Moderate Income (“LMI”) and Workforce Income (“WI”) level borrowers. The target pools consist of mortgages that were predominantly classified as “Alt-A” loans upon creation that are currently in default or delinquent. The Fund intends to purchase such mortgage pools at a substantial discount to market value and unpaid loan balance. The Fund will then work with homeowners to modify individual loans, where feasible, to enable homeowners to afford a sustainable monthly mortgage payment. In instances where the homeowners do not wish to continue to own their homes, the Fund will attempt to acquire the underlying property by negotiating “deeds in lieu” or by foreclosure. The goal is to yield a “double bottom line” to the Fund with economic returns to Investors as well as providing a benefit to LMI and WI level homeowners, which will also help preserve the inventory of affordable housing.

In order to locate portfolios that meet the Fund’s investment criteria, the Fund Manager intends to utilize its extensive national relationships with financial institutions, loan wholesalers, and third party agents. The Fund Manager will generally invest in portfolios for the Fund that meet its investment criteria throughout the United States.

Strategy: The Fund’s targeted portfolio investment criteria will include:

Geographic diversification Predominately single family homes Purchase significantly below replacement cost of underlying asset Portfolio purchase price significantly lower than estimated fair market

value Delinquency of loans no longer than three years

Offering Size: The Fund seeks a minimum of $5,000,000 and a maximum of $10,000,000 of Offering proceeds.

Minimum Purchase: Investors must purchase a minimum of one unit of membership interests in the Fund (each a “Unit”) for a price of $100,000 per Unit, unless the Manager waives the minimum in its sole discretion.

Term: The term of the Fund’s existence will be five years, subject to one possible extension of one year.

Target Returns: The Fund has a goal of generating an Internal Rate of Return (or IRR) to the Investors targeted at approximately 25%. However, this projected return (which is not a guaranty of performance) is based on assumptions concerning a

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variety of factors and events which may or may not occur, and some over which the Fund may have little or no control (see Section XII, “Risk Factors”). Accordingly, no representations are made and none should be inferred with respect to the estimates and projections or as to the likelihood that the estimates and projections will correspond with actual results.

This projected return has been calculated based upon certain assumptions which are set forth in Projections prepared by the Fund which will be distributed to Investors who indicate an interest in purchasing Units.

Distributions: The Fund will distribute available cash on a quarterly basis to Investors as follows:

Distribution toInvestors*

Distribution toFund Manager

First Tier Distribution: 100% to Investors to a 12% cumulative but not compounded return

on Unreturned Capital 100% 0%

Second Tier Distribution: 100% Return of Capital to Investors 100% 0%

Third Tier Distribution: 70% to Investors and 30% to the Fund Manager to a 18%

cumulative but not compounded return on Unreturned Capital

70% 30%

Fourth Tier Distribution: 50% to Investors and 50% to the Fund Manager thereafter 50% 50%

*includes Fund Manager with respect to its capital contribution.

Upon liquidation of the Fund, distributions will be made in accordance with the above schedule.

Projected InvestmentHolding Period: The Fund plans to hold its interest in each portfolio for the length of time

required to modify each loan, perform “short sales”, or forecloses upon and resell the underlying assets. It is anticipated that the life-cycle of each individual loan will be between twelve and forty eight months from the acquisition of the loan through final sale of loan portfolio, syndication or refinance of individual loans and proceeds to the members of the Fund.

Fund Manager: Our Castle Homes Fund Advisors, LLC, a Delaware limited liability company (“Fund Manager” or “Manager”) will have full and exclusive management authority over all investments, asset disposition and other affairs of the Fund. The Fund Manager will be owned by Robert Wang and Michael

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Wojciechowski (the “Founders”), although certain key personnel at the Fund Manager may be granted minority membership interests or profits interests in the Fund Manager. Key personnel of the Fund Manager are the Founders, Frank McEnulty and David Wong. Messrs. Wang, Wojciechowski, McEnulty and Wong have over 90 years of direct experience managing real estate development projects, including condominium and apartment developments, managing residential real estate properties and financing real estate at all levels. In addition, they have many years of combined general business experience in the real estate industry in a variety of capacities. They have co-developed over 60,000 LIHTC units, built over 300 single family homes, built and managed over 2 million square feet of commercial real estate, and syndicated over $50 million of mortgages in the secondary markets.

The Fund Manager has sole authority regarding all Fund decisions, including, without limitation, the decision to invest in any loan portfolio. The Manager shall provide personnel, as well as administrative services, to the Fund in connection with investments to be made by the Fund.

Fund Manager’s Capital Commitment: The Fund Manager will make a capital commitment in an amount equal to 10%

of the aggregate capital commitments to the Fund, up to $1 million. For example, if the aggregate amount of capital committed by other Investors totals $9,000,000, the Fund Manager will commit to invest $1,000,000, for total of $10,000,000 in aggregate capital commitments.

Fund ManagerCompensation: The Manager is receiving a promotional interest in the Fund. While the

majority of the Manager’s compensation emphasizes back-end performance measured by the attainment of certain Investor return thresholds and includes distributions after Investors have achieved threshold returns (see Section XI, Summary of the Fund’s LLC Agreement – Distributions and Allocations” and Section VII, “Manager Compensation”), the Manager will also receive an annual asset management fee equal to 3.0% of the aggregate Offering proceeds, which fee will be payable on a monthly basis from the first available cash flow of the Fund.

Clawback: The amounts distributable to the Manager attributable to its “promotional” interest will depend solely on the Members’ attaining specified returns, as described in the LLC Agreement. If over the life of the Fund the Members have not received their First, Second and Third Tier Distributions, then to the extent the Manager has received any Fourth Tier Distributions, the Manager will be obligated to return certain amounts to the Fund for distribution to the Members such that the Members receive their full First, Second and Third Tier Distributions (see Section XI, “Summary of the Fund’s LLC Agreement,” subsection 2b).

ConsultingServices, Commissionsand Fees: An affiliate of the Fund Manager has retained certain consultants (the

“Consultants”) to provide services to the Fund, including identifying and securing accredited investors to invest in the Fund, as well as providing referrals of non-performing mortgage loan portfolios for potential purchase by

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the Fund (collectively, the “Consulting Services”). In consideration for the Consulting Services, the Fund and Manager shall pay the Consultants certain fees and commissions (collectively “Commissions”) as outlined in a summary which will be provided upon request to Investors who indicate an interest in purchasing Units.

Use of Proceeds: Invested monies will be used to form the Fund, to pursue portfolio investments, and to provide working capital and operating reserves for the Fund (see Section IX, “Use of Proceeds”). The Fund has yet to enter into any agreements for portfolio investments and no assurance can be given as to when the Fund will engage in portfolio investments.

Formation Expenses: “Formation Expenses” will be comprised of (a) expenses incurred by the Fund Manager in connection with marketing this Offering (including the Commissions payable to the Consultants), which shall not exceed the lesser of: (i) 4% of the aggregate committed capital subscribed for by Investors hereunder, or (ii) such actual expenses, and (b) other fees, costs and expenses incurred by the Fund Manager in connection with this Offering, including legal fees and accounting fees, which fees shall not exceed the lesser of: (i) 1% of the aggregate committed capital subscribed for by Investors hereunder or (ii) such actual expenses, such that the aggregate Formation Expenses payable by the Fund shall not exceed the lesser of (i) 5% of aggregate committed capital subscribed for by Investors hereunder, or (ii) such aggregate actual expenses. To the extent the aggregate Formation Expenses described above exceed 5% of the aggregate committed capital subscribed for by Investors hereunder, the Fund Manager shall be responsible for payment of such excess expenses.

Fund Expenses: The Fund will pay all ongoing expenses directly related to the business operations of the Fund, including, without limitation, all fees, costs and expenses directly related to the purchase and sale of loan portfolios, expenses of custodians, counsel and accountants, insurance, indemnity or litigation expenses, taxes, fees or other governmental charges levied against the Fund and expenses associated with the Fund’s reporting obligations, including the Fund’s annual meeting fee expenses (excluding Members’ individual expenses), Advisory Board reimbursements; financial statements, tax returns and K-1’s.

Fund Manager Expenses: The Fund Manager will be responsible for the overhead expenses of the Fund

Manager, including compensation of all key personnel and employees of the Fund Manager, rent, utilities and other recurring overhead expenses of the Fund Manager. It is anticipated that the annual asset management fee payable by the Fund to the Fund Manager will be applied to cover such expenses of the Fund Manager.

AdvisoryBoard: The Fund Manager will appoint an Advisory Board for the Fund consisting of

representatives of the largest investors in the Fund. The Advisory Board will have no fewer than three members and no more than five members. The Advisory Board will provide advice and counsel in connection with potential conflicts of interest, valuations and other Fund-related matters as further described in the LLC Agreement. The Fund Manager will retain the ultimate responsibility for all decisions relating to the operation and management of the

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Fund, including, but not limited to investment decisions. The Fund will reimburse each Advisory Board member for reasonable out-of-pocket expenses incurred in the performance of these responsibilities. It is anticipated that the Advisory Board will meet telephonically on a quarterly basis and annually in person or by conference call.

Additional CapitalCalls: Capital calls will be made as required to fund acquisitions of mortgage loans,

but only up to the maximum amount of each Investor’s subscribed capital commitment to the Fund, upon 7 business days’ prior written notice to the Investors. No additional capital calls will be made to the Investors beyond their capital commitments.

Term of Offering: The Manager may complete multiple closings of this Offering The Manager plans to hold the initial closing for the Fund on the earliest of April 30, 2011 or when $5,000,000 in equity commitments have been received from qualified Investors. Thereafter, the Manager will hold “rolling closes” as commitments are received from Investors. This Offering will terminate on January 31, 2012. If subscriptions for at least 50 Units have not been received by January 31, 2012, the Manager may in its sole discretion: (i) terminate this Offering and return all funds received from Investors, with interest actually earned on such funds, without deduction, or (ii) purchase, or cause one of its affiliates to purchase, such unsold Units as would be required to cause the Offering to be fully subscribed for the minimum or the maximum number of Units, or any number of Units between the minimum and the maximum. Following subscription for at least 50 Units (i.e. $5,000,000), the Fund may (i) proceed with property portfolio acquisitions and (ii) continue this Offering based upon the actual number of Units sold and seek subscriptions for the remaining available Units (up to an aggregate of 100 Units) from any eligible persons (including, without limitation, the Fund Manager and its affiliates), but in no event shall this Offering remain open after January 31, 2012.

InvestorQualifications: This Offering is limited to persons who are “accredited investors” and who, by

virtue of their financial resources, sophistication, and/or pre-existing personal or business relationships, satisfy the Fund that they meet suitability standards consistent with the maintenance and preservation of the exemption from registration provided by (i) Section 4(2) of the Securities Act of 1933, as amended (the “Act”) and Rule 506 of Regulation D promulgated thereunder, (ii) Section 25102(f) of the California General Corporation Law, and/or (iii) other “blue-sky” laws as are in force in other states, if any, in which Investors may reside. See Section III, “Who May Invest.” Potential Investors must be either sophisticated investors or have a pre-existing relationship with the Fund Manager or any of its officers, directors, employees, or agents. Purchasers of Units are sometimes called “Investors.” The term “Investors” is intended to include persons or entities who from time-to-time contribute capital to the Fund in exchange for an ownership interest in the Fund, to the extent that person or entity is at the relevant time still a member of the Fund.

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Minimum Investmentand SubscriptionProcedure: The minimum subscription by an Investor is $100,000 (1 Unit at $100,000 per

Unit), unless the Manager waives that minimum for particular Investors in its sole discretion. Concurrently with each Investor’s delivery of the completed Subscription Agreement, the Investor shall deliver funds equal to 50% of the Investor’s stated commitment amount in the Subscription Agreement, which funds will be held in the Fund’s name in a segregated interest-bearing account with Wells Fargo Bank, 433 North Camden Drive, Beverly Hills, CA 90210. The remaining amount of each Investor’s commitment will be due within 7 business days after the Fund Manager’s written request therefor, and such funds will be utilized to purchase mortgage portfolios. The Fund Manager reserves the right to make more than one call for such remaining commitment amounts, but only up to the aggregate amount of each Investor’s subscribed commitment.

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OUR CASTLE HOMEOWNERS FUND II, LLC,Table of Contents

Page No.

I. SPECIAL NOTICES........................................................................................................1

II. WHO MAY INVEST........................................................................................................3

III. GLOSSARY......................................................................................................................5

IV. EXECUTIVE SUMMARY..............................................................................................7

V. THE OPPORTUNITY.....................................................................................................9

VI. INVESTMENT STRATEGY.........................................................................................12

VII. MANAGEMENT............................................................................................................19

VIII. MANAGEMENT COMPENSATION; NO EXCLUSIVITY.....................................23

IX. USE OF PROCEEDS.....................................................................................................25

X. CONSULTING SERVICES, COMMISSIONS AND FEES.......................................26

XI. SUMMARY OF THE FUND’S LLC AGREEMENT.................................................27

XII. RISK FACTORS.............................................................................................................31

XIII. FEDERAL INCOME TAX CONSIDERATIONS.......................................................41


I. SPECIAL NOTICES

THE UNITS OF MEMBERSHIP INTERESTS (“UNITS”) OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), IN RELIANCE ON THE EXEMPTIONS PROVIDED BY SECTION 4(2) OF THE ACT AND REGULATION D AND RULE 506 PROMULGATED THEREUNDER. FURTHERMORE, THE UNITS HAVE NOT BEEN REGISTERED UNDER THE CORPORATE SECURITIES RULES OF THE STATE OF CALIFORNIA IN RELIANCE ON THE EXEMPTION PROVIDED BY SECTION 25102(f) OF THE CALIFORNIA GENERAL CORPORATION LAW. THE FUND MAY ALSO ELECT TO RELY UPON SUCH EXEMPTIONS FROM REGISTRATION AS ARE AVAILABLE UNDER THE “BLUE-SKY” LAWS IN FORCE IN OTHER STATES, IF ANY, IN WHICH INVESTORS MAY RESIDE. 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 PRIVATE PLACEMENT MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE UNITS MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER THE ACT AND SUCH STATE LAWS AS MAY APPLY OR AN OPINION OF COUNSEL ACCEPTABLE TO OUR CASTLE HOMEOWNERS FUND II, LLC, A DELAWARE LIMITED LIABILITY COMPANY (THE “FUND”), THAT SUCH REGISTRATION IS NOT REQUIRED.

THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS MEMORANDUM ARE NOT HISTORICAL FACTS OR GUARANTEES OF PERFORMANCE, BUT RATHER ARE BASED UPON CURRENT EXPECTATIONS, ESTIMATES AND PROJECTIONS ABOUT THE FUND’S INDUSTRY, THE FUND’S BELIEFS AND THE FUND’S ASSUMPTIONS. WORDS SUCH AS “ANTICIPATES”, “EXPECTS”, “PROJECTS”, “INTENDS”, “PLANS”, “BELIEVES”, “SEEKS”, “HOPES” AND “ESTIMATES” AND VARIATIONS OF THESE WORDS AND SIMILAR EXPRESSIONS, OR FUTURE OR CONDITIONAL VERBS SUCH AS “WILL”, “SHALL”, “WOULD”, “SHOULD”, “COULD” OR “MAY”, ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO RISKS, UNCERTAINTIES AND OTHER FACTORS, SOME OF WHICH ARE BEYOND THE FUND’S CONTROL, ARE DIFFICULT TO PREDICT, AND COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR FORECASTED IN THE FORWARD-LOOKING STATEMENTS. THESE RISKS AND UNCERTAINTIES INCLUDE (BUT ARE NOT LIMITED TO) THOSE DESCRIBED IN SECTION XII, “RISK FACTORS” AND ELSEWHERE IN THIS MEMORANDUM.

INVESTORS ARE FURTHER ADVISED THAT STATEMENTS OR ESTIMATES OF PAST PERFORMANCE DO NOT CONSTITUTE REPRESENTATIONS, WARRANTIES OR GUARANTEES THAT THE FUND WILL REPLICATE THAT PAST PERFORMANCE IN ITS FUTURE OPERATIONS.

EACH PROSPECTIVE INVESTOR SHOULD CONSULT WITH ITS OWN ADVISORS TO EVALUATE THE FORWARD-LOOKING STATEMENTS AND THE ASSOCIATED ASSUMPTIONS AND MAKE SUCH PROSPECTIVE INVESTOR’S OWN INDEPENDENT DETERMINATION OF THE FEASIBILITY OF THE FORWARD-LOOKING STATEMENTS AND ASSUMPTIONS.

OFFERS OF THE UNITS WILL BE MADE SOLELY BY MEANS OF THIS PRIVATE PLACEMENT MEMORANDUM (“MEMORANDUM”) AND ARE SUBJECT TO THE RIGHT OF THE FUND TO WITHDRAW OR MODIFY THIS OFFER WITHOUT PRIOR NOTICE, OR TO REJECT ANY SUBSCRIPTIONS, AND CERTAIN OTHER CONDITIONS. NO OFFERING

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LITERATURE OR ADVERTISING IN ANY FORM SHALL BE EMPLOYED IN THIS OFFERING, EXCEPT FOR THIS MEMORANDUM, THE RELATED SUBSCRIPTION DOCUMENTS, PROJECTIONS WHICH WILL BE PROVIDED TO INVESTORS WHO INDICATE AN INTEREST IN PURCHASING UNITS OR ANY SUPPLEMENTS HERETO OR THERETO.

PROSPECTIVE INVESTORS AND THEIR ADVISORS, IF ANY, ARE ENCOURAGED TO ASK QUESTIONS OF, AND RECEIVE ANSWERS FROM, OUR CASTLE HOMES FUND ADVISORS, LLC, A DELAWARE LIMITED LIABILITY COMPANY (THE “MANAGER” OF THE FUND), CONCERNING THE TERMS AND CONDITIONS OF THIS OFFERING, AND TO OBTAIN ADDITIONAL INFORMATION TO THE EXTENT POSSESSED OR OBTAINABLE WITHOUT UNREASONABLE EFFORT OR EXPENSE, AS NECESSARY TO VERIFY THE ACCURACY OF THE INFORMATION CONTAINED HEREIN. INQUIRES TO THE MANAGER SHOULD BE DIRECTED TO EITHER MR. MICHAEL WOJCIECHOWSKI, CO-MANAGER AND MEMBER OF THE MANAGER, OR MR. FRANK McENULTY, PRESIDENT AND CHIEF FINANCIAL OFFICER OF THE MANAGER, AT THE MANAGER’S PRINCIPAL ADDRESS: OUR CASTLE HOMES FUND ADVISORS, LLC, 17383 SUNSET BOULEVARD, SUITE A-450, PACIFIC PALISADES, CA 90272; MESSRS. WOJCIECHOWSKI AND McENULTY MAY BE CONTACTED BY TELEPHONE AT (310) 230-2303. EXCEPT AS SET FORTH IN THIS MEMORANDUM, NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION, OR TO MAKE ANY REPRESENTATIONS OR WARRANTIES, EITHER EXPRESSED OR IMPLIED, CONCERNING THE FUND OR THE UNITS. IF MADE, SUCH INFORMATION MUST NOT BE RELIED UPON.

THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO PURCHASE THE UNITS IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.

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II. WHO MAY INVEST

The purchase of the Units in the Fund involves significant risks. See Section XII, “Risk Factors”. There is no public market for the Units. The Units are suitable only for those Investors (a) whose experience, either alone or together with their advisors, makes them capable of evaluating the merits and risks of an investment in the Fund, and (b) who can afford to bear the economic risks of their investment for an indefinite period and have no need for liquidity in this investment. The offering is limited to “accredited investors” as defined in Rule 501(a) of the Act (see “Suitability Standards,” paragraph (e) below).

Suitability Standards

Each Investor must represent in writing that the Investor meets all of the Fund’s financial, business and professional suitability requirements (“Suitability Standards”). The most important of these requirements are the following:

(a) Investors must be accredited investors (as defined below in paragraph (e)).

(b) Investors must have adequate means of providing for their current needs and personal contingencies, even if their investment in the Fund results in a total loss. In addition, Investors must (1) have no need for liquidity in their investment in the Fund, (2) have an overall commitment to illiquid investments that is not disproportionate to the investor’s net worth, and (3) not make an investment in the Fund that will, in their judgment, cause this overall commitment to be disproportionate.

(c) Investors must acknowledge (1) having carefully read this Memorandum and the related documents in deciding to purchase the Units, (2) having had all matters relating to this Memorandum and its exhibits discussed and explained to their satisfaction, (3) having understood the speculative nature of and the risks involved in the proposed investment, and (4) having acquired the Units without relying on any sales literature or information other than this Memorandum and its exhibits.

(d) Investors must recognize that the purchase of the Units involves substantial risks including, but not limited to, those set forth under “RISK FACTORS”.

(e) The definition of accredited investor is set forth in Rule 501 (a) of the Act and includes, but is not limited to, the following persons:

(1) Any natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of his or her purchase, exceeds $1,000,000;

(2) Any natural person who had an individual income in excess of $200,000 in 2009 and 2010, or joint income with that person’s spouse in excess of $300,000 in each of those years, and has a reasonable expectation of reaching the same income level in the current year;

(3) Any corporation not formed for the purposes of acquiring the Units, with total assets in excess of $5,000,000;

(4) Any trust with total assets of $5,000,000, not formed for the purposes of acquiring the Units, whose purchase of the Units is directed by a sophisticated person who has sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of the prospective investment; and

(5) Any entity in which all of the equity owners are accredited investors.

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(f) Finally, each Investor will, by signing the Subscription Agreement (“Subscription Agreement”), represent that the Investor is purchasing the Units for the Investor’s own account and not with a view to or for sale in connection with any distribution of the Units.

THE SUITABILITY STANDARDS REFERRED TO ABOVE REPRESENT MINIMUM SUITABILITY REQUIREMENTS FOR PROSPECTIVE INVESTORS. SATISFACTION OF THESE STANDARDS DOES NOT NECESSARILY MEAN THAT THE UNITS ARE A SUITABLE INVESTMENT FOR ANY SPECIFIED INVESTOR. THE FUND MAY, IN CIRCUMSTANCES IT DEEMS APPROPRIATE, MODIFY THESE REQUIREMENTS, BUT ONLY IN A MANNER THAT INCREASES THE SUITABILITY STANDARDS FOR PROSPECTIVE INVESTORS.

THE FUND HAS THE RIGHT, IN ITS ABSOLUTE DISCRETION, TO REJECT ANY SUBSCRIPTION IN WHOLE OR IN PART. ACCORDINGLY, THE FUND MAY, WITHOUT CONSULTING WITH THE PROSPECTIVE INVESTOR, EITHER REJECT THE PROSPECTIVE INVESTOR’S SUBSCRIPTION OR RETURN A PORTION OF THE INVESTOR’S SUBSCRIPTION FUNDS AND SELL THE INVESTOR FEWER UNITS THAN THE INVESTOR PLANNED TO ACQUIRE.

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III. GLOSSARY

The terms listed below will have the following meanings throughout the Memorandum.

“Act” means the Securities Act of 1933, as amended.

“Affiliate” means any person directly or indirectly controlling, controlled by or under common control with another person. The term “control” (including the terms “controlled by” and “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract or otherwise.

“Commission” means the Securities and Exchange Commission.

“Founders” means Robert Wang and Michael Wojciechowski.

“First Tier Distribution” means an amount such that each Member receives a return of 12% per annum, cumulative but not compounded, on such Member’s Unreturned Capital Contributions.

“Fourth Tier Distribution” means distributions which are made 50% to the Fund Manager and 50% to the Members pro rata in accordance with their Units.

“Fund” means Our Castle HomeOwners Fund II, LLC, a Delaware limited liability company, sometimes also referred to as the “Company.”

“Fund Manager” or “Manager” means Our Castle Homes Fund Advisors, LLC, a Delaware limited liability company, which is the sole Manager of the Fund.

“LLC Agreement” means the limited liability company agreement of the Fund.

“Membership Interests” means membership interests in the Fund as provided for in the LLC Agreement.

“Memorandum” means this Confidential Private Placement Memorandum, dated February 7, 2011.

“Offering” means the offer of Units in the Fund pursuant to this Memorandum.

“Second Tier Distribution” means distributions to the Members pro rata and up to the amount of their Unreturned Capital Contributions.

“Subscription Agreement” shall mean the Subscription Agreement and Subscriber Questionnaire between the Fund, the Fund Manager, and each Investor providing for the purchase of the Units.

“Suitability Standards” means those financial, business and standards required of investors in the Company.

“Third Tier Distribution” means an amount such that each Member receives a return of 18% per annum, cumulative but not compounded, on such Member’s Unreturned Capital Contributions.

“Unit” or “Units” means each Membership Interest in the Fund, at a price of $100,000 per Unit.

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“Unreturned Capital Contributions” or “Unreturned Capital” means, for any Member, the difference between (i) such Member’s aggregate capital contributions, and (ii) the aggregate distributions made to such Member pursuant to the Second Tier Distribution.

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IV. EXECUTIVE SUMMARY

The following discussion summarizes the Fund’s business plan. Other sections of this Confidential Private Placement Memorandum (the “Memorandum”) including, without limitation, a summary of the Fund’s limited liability company agreement (the “LLC Agreement”), Subscription Agreement and other exhibits to this Memorandum, may contain material information concerning the matters addressed in this section. Investors are advised to review this Memorandum in its entirety to ensure that they have a complete understanding of the terms of this Offering. Prior to investing, Investors should receive and carefully review the LLC Agreement in its entirety, as the terms of that document will control in the event that any of its terms conflict with the descriptions in this Memorandum. The LLC Agreement is available to qualified Investors upon request.

The Fund

Our Castle HomeOwners Fund II, a Delaware limited liability company (the “Fund” or the “Company”) intends to invest in the purchase of pools of delinquent mortgages throughout the United States, with an emphasis on the Southeast and Midwest. These pools of mortgages consist primarily of home loans that are either in default or in danger of being in default in the immediate future, with a focus on loans made to LMI and WI level homeowners in the United States. Management of the Fund has had considerable experience in the development of low to moderate income housing around the country and as a result has a strong understanding of the markets and opportunities

The Fund intends to purchase these pools of delinquent mortgages at a significant discount of greater than 75% from the unpaid principal balance of such loans. The Fund seeks to increase the value of these distressed loans by working with the borrowers thereof to modify such loans, thereby preserving both the value of the borrower’s interest in the underlying real estate and enhancing the value of the loan secured by such real estate. The modifications may include: extending the maturity, lowering the interest rate, reducing the principal balance and other restructuring transactions, in each case, on terms and conditions that allow the loan to be rehabilitated to performing status. Once a distressed loan is returned to performing status and seasoned over an appropriate period, such loan may be sold to state or federal agencies or government sponsored enterprises or investors, or pooled with other mortgage loans and securitized.

The Fund anticipates raising $10,000,000 (see Section VIII, “Use of Proceeds”) of equity for the direct acquisition, recapitalization, and sale of single family home loans and related Fund operating expenses. The Fund Manager seeks to deliver its target returns by modifying the individual loans to maximize the value of each loan. The Fund Manager will attempt to recapitalize loans to current market value and keep homeowners in their homes when mutually beneficial.

Through the Fund Manager’s strategy of a “Double Bottom Line,” the Fund Manager will work with individual LMI and WI level homeowners to keep them in their homes at new mortgage rates that are both affordable and sustainable. By purchasing pools at a discount, the Fund seeks to generate an approximate IRR of 25% to Investors over the term of the Fund. The value-add from the Fund will serve both Investors and LMI and WI level homeowners.

The Manager

The Manager of the Fund, Our Castle Homes Fund Advisors, LLC (the “Fund Manager” or “Manager”), has an experienced management team with a background in affordable housing, homebuilding, mortgage syndication, and institutional funds. Collectively, the key personnel of the Manager have over 90 years of real estate experience in residential and commercial real estate throughout the United States, and certain of such personnel hold a California Lenders License and California Real Estate Broker’s License.

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Investor Returns

The target returns for the Fund (which are not guarantees of performance) are based on good faith assumptions (see, among other sections of this Memorandum, Section XII, “Risk Factors”) concerning a variety of factors and events which may or may not occur, and over which the Fund may have little or no control. Accordingly, no representation is made, and none should be inferred, that the target returns will be achieved.

Distributions and Allocations

The Fund’s cash available for distributions will be distributed on a quarterly basis. Such distributions will be divided between the Fund Manager and the Investors as follows: first, distributions will be made 100% to the Investors (including the Fund Manager, which will hold 10% of the Units) until the Investors have received a 12% cumulative but not compounded return on their Unreturned Capital Contributions (the “First Tier Distribution”); second 100% of all Investor capital will be returned to the Investors (including the Fund Manager, with respect to its Units), (the “Second Tier Distribution”); third, 30% to the Fund Manager and 70% to the Investors (including the Fund Manager, with respect to its Units) until the Investors have received a 18% cumulative but not compounded return on their Unreturned Capital Contributions (the “Third Tier Distribution”); and thereafter 50% to the Fund Manager and 50% to the Investors (including the Fund Manager, with respect to its Units) (in proportion to their Units) (the “Fourth Tier Distribution”). The following chart shows the Fund’s distribution structure:

Distribution toInvestors*

Distribution toFund Manager

First Tier Distribution: 100% to Investors to a 12% cumulative but not compounded return

on Unreturned Capital 100% 0%

Second Tier Distribution: 100% Return of Capital to Investors

100% 0%

Third Tier Distribution: 70% to Investors and 30% to the Fund Manager to a 18%

cumulative but not compounded return on Unreturned Capital

70% 30%

Fourth Tier Distribution: 50% to Investors and 50% to the Fund Manager thereafter

50% 50%

*includes Fund Manager with respect to its capital contribution.

On liquidation of the Fund, distributions will be made in accordance with the priorities described above.

In certain circumstances, the Fund Manager will be required to return to the Fund for distribution to the Investors some or all of the distributions it has received under the Fourth Tier Distribution described above so that the Investors receive their full First, Second and Third Tier Distributions. See “XI. Summary of the Fund’s LLC Agreement - Distributions of Distributable Cash.”

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V. THE OPPORTUNITY

The Fund intends to help low and moderate income (“LMI”) and workforce income (“WI”) level homeowners (including teachers, medical professionals, firefighters and police officers, among other groups) who are currently in default or will be in default on their current home mortgages, but would like to stay in their homes if given the opportunity. Due to unfavorable loans made to these homeowners, many can no longer afford to pay their monthly mortgages. The Fund Manager’s strategy is to provide homeowners with the ability to recapitalize their home loans by reducing the unpaid loan balance to reflect current market value, thus decreasing the monthly payments to a sustainable monthly payment. The Fund will purchase pools of distressed mortgages and, whenever possible, modify individual loans with borrowers. The Fund Manager anticipates that a portion of purchased loans will have individual borrowers who may choose to execute a “deed in-lieu” which will allow the Fund to sell the underlying asset “as is” or to rent the property for a period of time.

By purchasing mortgage pools at a substantial discount to market value and unpaid loan balance, the Fund hopes to optimize the value of these pools through maximization of value at the individual loan level. Purchasing in bulk should allow the Fund to sell or recapitalize individual assets at a considerable profit. The value-add the Fund Manager seeks to create is that through modifying each loan the Fund seeks to provide LMI and WI level homeowners with an opportunity to keep their homes and provide Investors with a profitable return on their investment.

Alternative A Loans – Larger Market than Subprime Market

Many of the loans the Fund will be purchasing were issued as Alternative A Loans, or “Alt-A Loans,” which is a mortgage loan program that was at the time deemed safer than subprime loans. This classification led to the exuberance in the financial markets to collateralize and sell Alt-A loans on Wall Street in similar fashion to the sale of subprime loans. The subprime loan market size was approximately $2.5 trillion versus the Alt-A Loan market of approximately $3.0 trillion. The subprime loan period of reset occurred primarily in 2007 – 2009 while Alt-A Loans are projected to reset in 2010 – 2012.

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Resetting of loans occurs when the initial period of interest only and low interest “introductory” periods expire. Upon reset, the mortgage payments will rise due to the commencement of amortization coupled with an increased interest rate. This typically increases mortgage payments to a point that the homeowner can no longer afford to keep up with payments and causes the loan to go into “default”. Alt-A Loans made up a large percentage of all “nontraditional” mortgage financing, such as interest-only mortgages, option ARMs and loans made with stated-income loan applications. More than 65% of all Alt-A Loans were either interest-only mortgages or option ARMs.

Source: US Treasury

Stated-income loan applications, i.e., applications where borrowers estimated income with little to no documentation to prove income, represented 81% of total Alt-A Loans originated in 2006. This combination of nontraditional mortgages and stated-income applications is projected to lead to a second wave of troubled loans that will hit lenders’ balance sheets. Lenders may then be forced to sell these distressed loans at a discounted price to clear their balance sheets.

Our Goal – Retaining Home Ownership

The Fund’s goal is to purchase non-performing, residential, single-family mortgage portfolios. The Fund will seek to modify the acquired loans into profit producing assets for Investors and viable home ownership opportunities for the affordable homeowner segments of the market.

Our goal is to abide by our principle of a “Double Bottom Line” where the Fund will achieve profits and will also achieve a “second bottom line” of positive social impact by assisting current LMI and Workforce income level homeowners who are either in default or in danger of default due to home mortgage payments that are resetting to levels that are no longer affordable.

1 out of every 200 homes is projected to be foreclosed upon. – Mortgage Bankers Association

Every three months approximately 250,000 families enter into foreclosure. – Mortgage Bankers Association

Six in 10 homeowners wish they understood the terms and details of their mortgage better. – Freddie Mac

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Homeowners fail to contact their lender because they are embarrassed, don’t believe the lender can help, and/or believe it would cause them to lose their home more quickly. – Freddie Mac

The Fund’s immediate goals are to primarily help LMI and WI level borrowers stay in their homes. By purchasing the loans at a deep discount, the Fund can provide these borrowers with an alternative to losing their homes. The Fund Manager will work with each borrower to seek the most favorable solution to the delinquent loans. The Fund Manager will use commercially reasonable efforts to keep the LMI and WI level borrower in place with a modified loan balance and payment plans that are both affordable and sustainable.

Competition

Competition for the acquisition of distressed mortgage loans will be primarily from hedge funds, investors and other financial market professionals seeking to buy assets at a deeply discounted price. These mortgage loans are generally available for all portions of the United States and loans are rarely segregated by specific regions.

Our competitors’ objectives may often be different from those of the Fund. Other investors are more likely to foreclose on loans and seek to sell the underlying assets within a short time frame. Their primary goal may be a quick profit, and the current homeowners’ plight may not enter into their calculations. This strategy, although financially viable, does nothing to help the homeowners stay in their homes nor does it provide affordable homeownership opportunities to the affordable homeowner market. The current mortgage financing environment requires at least a 20% down payment and a high credit score. This will limit the buyers of these foreclosed homes to investors and higher credit score individuals, not the affordable homeowner market.

In order to fulfill the Fund’s twin goals of maintaining affordable homeownership and generating an above market return for the Investors, the Fund believes that the best practice will be to modify the distressed loans’ current loan balances, keep the borrowers in their homes making payments, collect interest payments and subsequently syndicate the loans in a mortgage pool whenever possible.

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VI. INVESTMENT STRATEGY

The Fund’s investment strategy of acquiring residential mortgage loans with the intent of modifying the loan balances to keep LMI and WI level borrowers in their homes reduces transaction costs, helps to stabilize neighborhoods, helps to preserve the inventory of affordable housing units and opportunity costs, thus maximizing Investors’ return throughout the life of the Fund. By practicing our principle of Double Bottom Line, the Fund will be a socially responsible investment vehicle. We accomplish this two-fold return by adhering to a strict investment discipline honed during over 90 years of combined real estate experience in affordable housing and commercial real estate of the key personnel of the Fund Manager. Key personnel of the Fund Manager have delivered tangible benefits to the community such as developing over 60,000 units of affordable housing throughout the United States, building over 300 single family homes, developing over 1,000 market rate apartment units, building and managing over 2 million square feet of commercial real estate, and syndicating over $50 million of collateralized mortgage bonds through eight offerings.

Such experience has encompassed projects in over 30 states and they have been responsible for the development, management and work-out of many real estate projects with positive results. Key personnel of the Fund Manager have financed complicated real estate developments and started both a mortgage company and a single family home builder to move stalled projects into profitability.

The Fund Manager’s officers, some of whom may participate directly as owners of the Fund Manager, will provide the Fund with competitive advantages which will contribute to the Fund’s ability to execute its investment strategy, including:

Entrepreneurial Focus with Professional, Institutional Approach

Professional marketing and management approach in a traditionally fragmented market sector; and

Expert knowledge of homeowner needs and high quality customer service.

Efficient Underwriting Capabilities

In-house property due diligence and cash flow analysis;

Combination of property redevelopment, financial structuring and property management skills; and,

In-house ability to perform financial analysis, market analysis, project cost estimates and other key underwriting assessments.

Prudent Management

Conservatively projected costs and modification time tables;

Working closely with expert servicing partners who understand the back office requirements;

Using independent, third-party service providers to verify important assumptions whenever possible;

Conservative selling assumptions upon completion of seasoning modified loans and on the sale of actual properties when required.

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Investment Approach - Acquisitions of Loans

The Fund will acquire mortgage loans that are deemed “distressed” or “troubled” by banks and financial institutions. These troubled loans are a direct result of the aggressive lending practices of the product known as Alt-A Loans.

The Fund Manager has identified portfolio wholesalers, direct contacts with lenders and institutional loan sales groups that are sources of distressed mortgage loans. Portfolio wholesalers purchase large loan portfolios in the size of $100 - $500 million and sell smaller pools of loans to investor groups such as the Fund at a 10% premium to their cost. These portfolio wholesalers typically do not have the resources to manage the large loan portfolios purchased. By selling smaller pools they have the ability to seem large to lenders while maintaining a deep discount on purchases.

Lenders, who are inundated with non-performing loans, are now typically selling portfolios of loans due to the lack of personnel to handle large pools of delinquent mortgages. Some lenders do not have the capability to efficiently modify and work out these loans.

Institutional loan sales groups are third party contractors that sell loans on behalf of institutions. This process is highly competitive and publicized. The Fund Manager does not foresee much product acquired through this avenue due to the public bidding process that will eliminate the discounts required to implement our business plan.

Acquisition targets will be selected:

By Region With home prices that are in-line with median income With good median incomes Stabilized Job Metrics

By Project Type Single Family Homes Condos 2-4 Unit Homes

By Loan Price $5,000 – $20,000 per loan or approximately 10% - 25% of unpaid principal balance

(“UPB”)

Loan Portfolio Diversification

The Fund will have a portfolio of mortgage loans that is intended to reduce risk through diversification, compared to the purchase of individual loans on a one-off basis. This diversification includes:

Mortgages located within a large region with numerous sub-markets; Mitigation of cash flow risk associated with single loans by focusing on multiple

mortgage pools; and Mortgage loan diversification based on size, locations, and borrowers income levels.

Although mortgage portfolios often tend to be multi-state in nature, we will have particular interest in any pools of mortgages that contain mortgages predominantly in the following regions of the country:

Southwest Southeast

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Mid-Atlantic Northwest Specific states such as Florida, Louisiana, Mississippi, Texas, Ohio, Georgia, Alabama,

Tennessee, North Carolina, South Carolina and Virginia

Due Diligence

Due diligence will be performed on underlying properties subject to the mortgage loans prior to acquisition, as well as the mortgage loan files themselves, if available prior to acquisition. The value of the loans to be acquired will be analyzed to endeavor to ensure they are priced well below the fair market value estimates of third party vendors. Given the distressed nature of the loans to be acquired, it may be difficult to perform detailed file due diligence on all loans, including loan documentation, title and credit review. In many cases, individual loan files may not be available for review prior to acquisition of the loan. The loan level information review will be conducted by our Fund team and/or or a reputable third party contractor. In addition, the loans will be analyzed by the Fund’s third party servicer to ascertain a potential liquidation value if the Fund were to foreclose on all properties given as security for the loans to be acquired and subsequently sell them to third parties.

Modification/Disposition of Loans (or underlying property)

The Fund will endeavor to acquire these loans at a discount relative to unpaid loan balance and current home market value. By “working-out/modifying” the loans on an individual basis, which will include a screening process for each borrower, the Fund will endeavor to maximize the value of each loan. Although the Fund’s initial goal is to keep borrowers in their homes, the Fund Manager recognizes that there are situations where borrowers desire to “walk away” or become renters will prevent them from remaining as a homeowner. In those cases where the assets are sold by the Fund into the market place following a foreclosure or deed in lieu transaction, the Fund will endeavor to price them, as often as possible, to remain in the affordable housing market segment. To further attempt to achieve the goal of keeping homes in the affordable housing market segment, the Fund may provide new mortgages to buyers who purchase affordable homes from the Fund to the extent third party financing is not readily available to such buyers in the then current mortgage market.

The Fund Manager realizes that the pools of loans being acquired will be discounted to reflect that certain loans are beyond modification and as a result must be treated accordingly. This means, for example, that the Fund Manager may make the discretionary decision to endeavor to acquire real property through foreclosure and deed in lieu of foreclosure, which may provide the opportunity for an accelerated return of capital and profits at an early stage of the Fund investment period, depending on the Fund’s ability to subsequently sell the applicable properties to third parties.

Modified loans will be held in servicing by the Fund to endeavor to help improve the borrowers’ credit scores as a result of their timely making payments on a “seasoned” loan. After a period of 6 to 18 months and once performing, the Fund Manager will actively either (a) pursue avenues for the applicable borrowers to refinance their loan with more traditional lenders, or (b) sell the mortgages in the secondary mortgage markets.

The Fund will work to educate its borrowers to attempt to help them understand tax and other financial implications of any mortgage modifications, “deeds-in-lieu” transactions, “short sales” or foreclosures.

Deed-in-Lieu of Foreclosure

The Fund will provide qualified homeowners with an incentive for completing a deed-in-lieu of foreclosure transaction. With this option, a homeowner is provided funds to transition to a more affordable housing solution, and mortgage debt owed by the homeowner is forgiven in whole or in part.

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A timely deed-in-lieu process may have a positive impact on the Fund by avoiding the time and expense associated with the foreclosure process. Once title to a property is transferred to the Fund, the Manager will endeavor to proactively market the house for sale.

The Deed-in-Lieu option will be available to homeowners who:

1.) Do not qualify for a new or modified mortgage

2.) Have moved out of the home and no longer want to own the home

3.) Request a deed-in-lieu of foreclosure

Short-Sale

In a short-sale, the Fund allows the homeowner to list the mortgaged property for sale with the understanding that the net proceeds from a sale may be less than the amount due on the first mortgage held by the Fund. Under this option, upon the closing of a sale, the homeowner may be relieved of the mortgage debt without further recourse from the Fund. A short sale allows the homeowner to find a more affordable housing solution while minimizing impact on the homeowners’ credit score. It also potentially increases the net proceeds that the Fund will realize since the property may be viewed as being less distressed when marketed for sale by the homeowner rather than the lender. A timely short sale may have a positive impact on the Fund by avoiding the time and expense associated with the foreclosure process and the sale of the property to a third party.

This option is available to homeowners who:

1.) Do not desire to stay in their current home, and

2.) Have found, or believe they can timely find, a buyer for the home

Foreclosure

The foreclosure process will vary based on the state in which the applicable property is located. When it becomes necessary to pursue foreclosure, the Fund will consult with local professionals to endeavor to complete the process in the most timely and economically beneficial manner. The option of foreclosure will be used on a limited basis only after the homeowner:

1.) Has refused a short-sale or deed-in-lieu of foreclosure coupled with a relocation incentive;

2.) Has moved out and/or abandoned the property; or

3.) Cannot be located after extensive search of Lexis Nexis, credit reports, and past and current employers

If there is a tenant living in the abandoned property, the Manager intends to approach the tenant as a possible purchaser of the property. By offering the tenant the opportunity to purchase, the Manager will create minimal disturbance in the tenant’s life and gives the ability to be a homeowner.

The foregoing processes could be impacted by the bankruptcy of a borrower. See “XII. Risk Factors.”

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Insurance

The nature of the Fund’s business plan is to acquire loans, as opposed to underlying properties, and thus, so long as each borrower maintains required insurance, the Fund will not need to purchase casualty insurance on individual assets unless a deed in-lieu is received or a property is foreclosed upon. Once a property is put into deed-in-lieu process, the Fund will endeavor to obtain appropriate insurance. When the Fund is required to purchase casualty insurance, the Fund may obtain an umbrella policy, which has already been discussed with insurance agents. Such a policy may reduce overall insurance costs. When the Fund sells a property, it will be promptly removed from any umbrella policy. The Fund Manager has taken into account the cost of insurance in its pro forma projections.

Third Party Servicing

Servicing both current and modified loans will be outsourced to one or more third-party mortgage service companies. The Fund Manager has identified several qualified third-party servicing firms that will be solely responsible for billings, receiving monthly payments, mortgage balance calculations, escrow accounts for property taxes, insurance and related services.

These third-party servicers offer a broad spectrum of services on a national basis and hold necessary licenses often required for debt collection and mortgage origination activities. Outsourcing the mortgage loan servicing to a third-party servicer will enable the Fund Manager to concentrate on the management of the Fund. The servicers’ programs are designed to reduce overhead, replace variable costs with predictable fixed costs, reduce liability and give the benefits of excellent reporting and accounting systems. These servicers will also help the Fund present a very professional face to borrowers, which is especially important when working with defaulted borrowers to modify and restructure non-performing loans into performing loans.

The Fund Manager is in the final stages of discussion with Carrington Mortgage Services to service mortgage loans for the Fund. Carrington currently services approximately 73,000 loans or $15 billion of mortgages. Carrington has completed more than 52,000 loan modifications and maintained a re-default rate of 16% on the Home Affordable Modification Program (HAMP) loans. HAMP is a modification program sponsored by Freddie Mac and Fannie Mae

Carrington is a vertically integrated servicer with over 350 employees and two office locations in Santa Ana, California and Fisher, Indiana. With two office locations, Carrington is able to service loans effectively in three different time zones. Carrington is rated by Fitch Ratings and Standard & Poor’s and received a RPS3 and Select Servicer rating, respectively. Carrington has also passed all Regulation AB/USAP audits, a requirement of Freddie Mac and Fannie Mae.

Carrington has a “high-touch” servicing platform with a call abandonment rate below 2%. Over 35% of employees speak a second language. The property management affiliated company currently manages more than 3,200 REO rental assets throughout the United States.

Notwithstanding the foregoing, the Fund Manager reserves the right, in its sole discretion, to engage a different qualified mortgage servicer if Fund Manager determines the same is advisable.

Unpaid Accrued Property Taxes

Borrowers that are in default of mortgages are typically behind on property taxes as well. Property taxes have a senior priority to mortgages, which gives cities or counties the ability to foreclose on the property without lenders’ consent. Unpaid taxes will lead government stakeholders to sell the property in a tax sales auction and possibly wipe out any liens or loans.

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The Manager views unpaid taxes as a responsibility of the borrower. As one condition of the Fund’s agreement to modify a mortgage, the borrower must contact the property tax government entity to seek reduction or a repayment plan. Future property taxes will be paid through an escrow account that will be part of the modified monthly mortgage payments.

In situations where the property will be foreclosed, the Fund Manager will budget to pay accrued property taxes to prevent tax sales when necessary for the benefit of the Fund. If the tax sale is in progress, the Fund Manager may purchase the property during tax sales auction. However, due to the discount at which the Fund is purchasing its mortgages, if a property sells at a tax sale it may often provide excess funds which will allow the Fund the opportunity to make a profit on its investment.

If the amount of tax owed surpasses the fair market value of the property, the Fund Manager will allow the tax sales of the property to occur. The Manager has projected a 20% loss of principal due to unpaid taxes and other costs.

Investment Period

The Funds investment period is projected to be 60 months. Within 60 months, the Fund Manger will acquire loan portfolios, modify loans, foreclose where appropriate and syndicate loans in secondary markets after loans are seasoned or refinance borrowers with conventional FHA loans. However, the Manager of the Fund cannot guarantee this life-cycle for any particular property, and actual holding periods may be longer, necessitating an extension of the term of the Fund as permitted by the LLC Agreement.

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VII. MANAGEMENT

The Fund is managed solely by Our Castle Homes Fund Advisors, LLC, a Delaware limited liability company (the “Fund Manager” or “Manager”). Key personnel of the Fund Manager have worked together for over five years at Our Castle Homes, LLC (“OCH”), and such key personnel bring substantial professional experience developed over the prior 90 years combined in a range of key disciplines, including real estate acquisitions, property renovation, development, construction, leasing, sales, asset management, banking, accounting, and lending. The following are key personnel of the Fund Manager:

Robert Wang – Co-Manager and Member of the Fund Manager

Mr. Wang has been a member of the OCH team for over five years and has over 30 years of real estate investment experience. He is an international investor with diversified interests in real estate developments, international equities, technology and venture capital. Mr. Wang was a Director in a family controlled Hong Kong based company that for twenty years developed large scale residential and industrial projects in Asia and North America.

Mr. Wang has also served as the co-founder and Chairman of Kistler Aerospace Corporation and was responsible for raising over $500 million in equity and debt to develop the world’s first fully reusable launch vehicle. Mr. Wang was responsible for Kistler’s business, financial, legal and political affairs and led an international team of highly acclaimed specialists. Mr. Wang led the efforts in communicating and reporting to investors, auditors, and with representatives of capital markets globally, including the United States, Europe, Asia and the Middle East.

Mr. Wang attended college at Boston University and the University of Oregon where he pursued studies in Architecture and Literature. Mr. Wang previously served as Board of Governors for the UCLA Foundation. UCLA Foundation is the giving, receiving, and investing arm of the University.

Mr. Wang is 57.

Michael Wojciechowski – Co-Manager and Member of the Fund Manager

Mr. Wojciechowski has been a member of the OCH team for over five years and has over 30 years of real estate development and management experience. He has been involved in the acquisition, structuring and development of real estate for public and private investment for over 29 years alone. During that time he has analyzed, or directed the analysis of, structured or co-developed over $8.0 billion in real estate, leading to over $3.0 billion in investor funds being raised. Included in this development is the creation of in excess of 60,000 apartment units, all targeted for families in the affordable range through the Section 42 Low Income Housing Tax Credit program. These projects were built in more than 15 states.

Mr. Wojciechowski received a Masters in Business Administration, with an emphasis in Finance, from the University of South Alabama in Mobile, Alabama. He did graduate work in business at San Diego State University and received a Bachelor of Science, with a concentration in Marketing, from the University of South Alabama. Mr. Wojciechowski is currently a candidate for a doctorate in Organization Leadership at Pepperdine University.

Mr. Wojciechowski is a member of World President Organization (WPO) and is currently the Chair of the Santa Monica Chapter. Mr. Wojciechowski was previously Chair of Santa Monica Chapter of the Young Presidents Organization (YPO) in 2003-2004. He also served as the AVP for Membership of CEO.

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Mr. Wojciechowski is age 54.

Frank McEnulty – President & Chief Financial Officer, OCH and President and Chief Financial Officer of Fund Manager

Mr. McEnulty has been working with the OCH management team for over five years and been in the real estate industry for over 30 years. He has served as the Chief Operating Officer, VP of Finance, and acquisition analyst for several successful real estate companies including FPA Corporation, On-Site American Holdings, Tri Five Properties, Angeles Corporation and Wespac REIT’s I and II.

Mr. McEnulty has been responsible for the management of thousands of apartment units, built over 300 single family homes, and over built and managed 2,000,000 square feet of retail space. During his career, Mr. McEnulty has been responsible for the acquisition, disposition, development and/or financing of approximately $400 million in real estate projects.

Mr. McEnulty started and managed FPA Mortgage Company, Inc. in Pompano Beach FL. In the first year of operations FPA Mortgage underwrote and issued over 200 mortgages worth approximately $20 million. Loans were subsequently packaged and sold through American Southwest Financial Corporation and sold by First Boston Corporation, Goldman Sachs & Co., and Morgan Stanley & Co. At his time with FPA Mortgage, Mr. McEnulty syndicated over $50 million of mortgages over eight collateralized mortgage bond placements.

Mr. McEnulty received his MBA in Venture Management from the University of Southern California in 1981 and has undergraduate degrees in Accounting and Finance. He is currently serving as Treasurer for The Knights of Columbus, Long Beach, CA.

Mr. McEnulty is age 54.

David Wong – Director of Acquisitions, OCH and Vice-President of Acquisitions of the Fund Manager

Mr. Wong has been working with the OCH management team for over four years and was previously with a joint venture equity capital source for real estate investors and developers for the acquisition, construction, reposition of commercial real estate. Mr. Wong originated over $40 million of joint venture acquisition/development and was involved with underwriting over $300 million of acquisition, reposition, and development of office, industrial, and multifamily residential real estate.

Mr. Wong received a Bachelor of Arts degree in Business Economics from University of California Los Angeles. Mr. Wong is actively involved in the Urban Land Institute – Young Leaders Group where he serves as Chair of the Technical Assistance Panel Committee.

Mr. Wong holds a California Department of Real Estate Broker License (CA DRE # 01880863).

Mr. Wong is age 30.

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Fund Advisor

Robert D. Held - Board Member of OCH

As President and Chief Executive Officer for Held Properties, Inc., Robert D. Held has been in the real estate industry for more than 25 years. He has expertise in administration, construction management, finance, property work-outs, tenant leasing and institutional liaison. He has provided services in construction, leasing, marketing, and sales for more than 2,000,000 square feet of commercial and residential properties throughout the United States. In this capacity, Mr. Held has worked with such companies as Union Bank, Wells Fargo Bank, Santa Monica Bank, University of California at Los Angeles, Metropolitan Life and Western Mortgage Corporation. He is a licensed general contractor and a licensed real estate broker.

Mr. Held is not only active in the real estate and construction industry; he is an active member in numerous community and charitable organizations, locally and nationally. His current and past affiliations include the Building Owners and Managers Association, the National Review Association of America, Construction Management Association of America, Cedar Sinai (Board of Governors, and Chairman of Building Committee), Foundation for the Junior Blind (Chairman), Jewish Home for the Aging (Chairman of the Building Committee), and Los Angeles Regional Foodbank (Board Member).

Mr. Held earned a Bachelor of Science in Business with an emphasis in Real Estate and Construction from the University of Southern California in 1976.

Prior Fund - Our Castle Homeowners Fund I

In November 2010, the Founders formed Our Castle Homeowners Fund I (“Prior Fund”) to participate as a joint-venture partner in the purchase of a distressed loan pool from GMAC. This pool consisted of approximately 138 loans situated in 26 states throughout the United States with an unpaid loan balance of approximately $10.8 million. The loan pool, GMAC Pool I, was purchased for 12% of unpaid principal balance, total purchase price was approximately $1.25 million. The Prior Fund provided one-half of the capital to acquire the pool and is currently “working out” the pool with its joint-venture partner, Paladin Fund II.

For over two decades the Founders and other key personnel of the Fund Manager have been actively involved in managing multifamily real estate investments involving LIHTC properties, apartment development, condominium development and other real estate development and financing activities. They have managed investments in this sector of over $2 billion in capital for more than $10 billion in real estate assets comprising approximately 60,000 units, including LIHTC, market rate apartments, condominiums, and built over 300 single family homes. This investment record spans a broad range of for-sale housing and commercial real estate transactions and economic and financial cycles. In addition, it reflects the Founders’ experience in managing multiple projects, and collectively raised over $1 billion of debt and equity.

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Organization Chart of Fund Manager TeamThe Fund Manager pursues a hands-on program and views its relationship with the servicer as a partnership. The Fund Manager team and their general duties are set forth below. The Fund Manager will hire additional team members on an as-needed basis.

Co-Managers/Members – Establish and maintain key relationships with financial institutions, portfolio wholesalers, and institutional loan sales groups. Establish and maintain relationships with investors.

President / CFO – Overall management of the Fund’s strategic planning, budgeting, financial reporting, and implementation of business plan.

Director of Acquisitions – Acquire loan portfolio, perform due diligence, and management of third-party servicers.

Loan Administrator – Third-party loan servicers.

Quality Control Auditor – Ensures all policies and procedures of loan modification and foreclosures are followed.

Controller – Produce and coordinate quarterly reports, annual reports, and tax statements to investors.

Mike Wojciechowski & Robert WangCo-Managers & Founding Members

Frank McEnultyPresident / CFO

David WongDirector of

Acquisitions

Nikki OngjocoQuality Control

Auditor

Jenny LayController

Loan Servicing(Third Party)

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VIII. MANAGEMENT COMPENSATION; NO EXCLUSIVITY

The Fund Manager will receive various direct and indirect compensation for activities of the Fund.

Asset Management Fee

The Fund Manager will receive an annual asset management fee equal to 3.0% of the aggregate Offering proceeds, payable on a monthly basis from first available cash flow generated by the Fund.

Promotional Interest of Manager

Under the LLC Agreement, the Fund Manager is required to contribute a minimum of 10% of the Fund’s aggregate capital and will receive 10% of the Units and distributions based on such contributed capital in the same manner as other Investors. However, the Fund Manager will receive an additional 30% of the distributable cash of the Fund after Members (including the Fund Manager with respect to its capital contribution) have received distributions equal to the First and Second Tier Distributions, and will receive an additional 50% of the distributable cash of the Fund after the Members have received distributions equal to the Third Tier Distribution. Under certain circumstances, the Fund Manager may be required to return some or all of the distributions it has received pursuant to its promotional interest. (See Section XI, “Summary of the Fund’s LLC Agreement – Distributions and Allocations of Profits and Losses.”)

Purchase of Mortgage Portfolio from Manager

If the Manager concludes negotiations for a mortgage portfolio investment that meets the investment criteria for the Fund while the Offering is pending, the Manager may elect to invest in the subject project through a company formed and owned by the Manager or its affiliates. In that event, the Manager may thereafter transfer its entire ownership interest in the subject company to the Fund for an amount equal to the sum of (i) a 1% acquisition fee and (ii) the Manager’s actual formation, acquisition and operating costs for the subject pool, including, without limitation, 100% of costs of forming the LLC holding the property, debt service and legal and accounting fees. However, if such transaction shall occur, such transfer must occur no later than 60 days after closing of the acquisition of such mortgage portfolio.

No Exclusivity

Except as set forth below, the Manager and its affiliates will not create a new competing fund or new competing company which has substantially the same investment strategy as that proposed for the Fund until at least 75 % of the Fund’s capital has been invested by the Fund in loan portfolios. At that point, the Manager and/or its affiliates may create and market a competing fund or competing company. Additionally, no new fund or new company formed by the Manager or its affiliates after the closing of the Offering, regardless of the investment strategy employed by the new fund or new company, will invest in property which meets the Fund’s investment criteria until at least 85% of the Fund’s capital has initially been committed to loan portfolio acquisitions.

Upon the initial closing of the Fund, the officers of the Manager will devote such time to the management of the Fund as they deem necessary to execute the Fund’s business plan. In the interim, the Manager, its officers and/or affiliates, acting alone or together with others, are currently engaged in other real estate activities. Following the initial closing of the Offering, the Manager, its officers and/or affiliates will have the right to acquire any loan portfolio, even if such portfolio would satisfy the Fund’s investment criteria, if the acquisition of such loan portfolio was pending at the time of the initial closing of the Offering. The Investors are advised that any such loan portfolio acquired by the Manager, its officers and/or affiliates, together with any loan portfolios acquired by the Manager’s officers and/or

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affiliates prior to the formation of the Offering, may be sold or managed from time-to-time and may compete with the activities of the Fund, and Investors shall have no interest therein.

Further, the Manager, its officers and/or affiliates, acting alone or together with others, will have the right to engage in other real estate activities, so long as those activities do not interfere with the ability of the Fund Manager’s key personnel to provide services to manage the Fund and to execute the Fund’s business plan. Investors are advised that such real estate activities may nonetheless compete with some of the activities of the Fund. Regardless of any such activity, the operating team will be focused on the Fund as a significant operational activity.

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IX. USE OF PROCEEDS

The Fund is a newly formed entity, and its initial liabilities will arise from the formation, organization and operation of the Fund, and the subsequent involvement in mortgage portfolio acquisitions. The Fund currently has no assets, cash or otherwise, and the only funds available to the Fund will be those obtained through this Offering. The Fund plans to use the proceeds of the Offering to fund mortgage portfolio transactions and otherwise as necessary or expedient to facilitate the Fund’s business plan, including providing working capital and operating reserves for the Fund. “Formation Expenses” will (i) be payable to the Manager commencing on the initial closing of this Offering (i.e., at such time as commitments for 50 Units have been subscribed for by Investors), (ii) will be fixed at the lesser of (1) 5% of the aggregate committed capital subscribed for by Investors hereunder, or (2) actual expenses and (iii) are intended to compensate and/or reimburse the Manager for fees, costs and expenses incurred in connection with the marketing of this Offering and the formation of the Fund, including without limitation, legal fees, marketing fees, accounting fees, Commissions, and fees, costs and expenses (including, without limitation, salaries and other intangible costs) attributable to the Manager’s personnel and others involved in the preparation and marketing of this Offering. The following is an estimated breakdown of Formation Expenses based upon $10,000,000 of committed capital subscriptions by Investors, but this estimate will not affect the fixed nature of Formation Expenses. To the extent Formation Expenses exceed 5% of the aggregate committed capital subscribed for by Investors hereunder, the Fund Manager shall be responsible for payment of such excess, with no reimbursement by the Fund.

Estimated Formation Expenses(Assumes $10 million Proceeds)

%of Expense Amount ProceedsLegal/Accounting $ 100,000 1.00%Marketing & Closing Costsincluding payment ofCommissions $ 400,000 4.00% Total $ 500,000 5.00%

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X. CONSULTING SERVICES, COMMISSIONS AND FEES

An affiliate of the Fund Manager has retained the Consultants to provide services to the Fund, including identifying and securing accredited investors to invest in the Fund, as well as providing referrals of non-performing mortgage loan portfolios for potential purchase by the Fund (collectively, the “Consulting Services”). In consideration for the Consulting Services, the Fund and Manager shall pay the Consultants certain fees and commissions as outlined in a summary which will be provided upon request to Investors who indicate an interest in purchasing Units.

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XI. SUMMARY OF THE FUND’S LLC AGREEMENT

The Fund will be governed by a Limited Liability Company Agreement (“LLC Agreement”), which the Manager will execute on behalf of each of the Investors pursuant to a power of attorney contained in the Investor’s Subscription Documents. Complete copies of the LLC Agreement and the Subscription Documents will be provided to those persons who, after reviewing this Memorandum, express to the Manager an interest in investing in the Fund.

The following is a summary of the key provisions of the LLC Agreement. Investors should not rely on this summary but should review the actual LLC Agreement before investing. If there is any conflict between this summary and the provisions of the actual LLC Agreement, the LLC Agreement itself will control.

Admission of Investors and Capital Contributions.

(a) Initial closing . At such time as the Manager has accepted Subscription Documents from Investors committing to purchase no fewer than 50 Units, the Manager will conduct an initial closing. Each Investor will be required to make an initial capital contribution of $50,000 per Unit purchased, or 50% of the maximum capital commitment. Concurrent with the initial closing, the Manager will make an initial capital contribution equal to 11.11% of the Investors’ aggregate initial capital contributions, or 10% of the total of the Investors’ and the Manager’s initial capital contributions and therefore will hold 10% of the outstanding Units on the same terms as other Investors.

(b) Subsequent capital calls . The Manager may, at any time and from time to time, make a capital call on the Investors for some or all of the remaining 50% of the maximum capital commitment for each Unit, or up to an additional $50,000 per Unit. The capital call will be in writing and will specify a date, no less than seven (7) business days from the date of the notice, by which the additional capital contribution is due. Concurrent with the closing of each additional capital contribution, the Manager will contribute 11.11% of the Investors’ aggregate additional capital contributions, or 10% of the total of the Investors’ and the Manager’s additional capital contributions. Thus, the maximum amount Investors can be required to contribute is $100,000 per Unit, and the Manager will contribute 10% of the total of all capital contributions.

(c) Sales of additional Units; subsequent closings . If, at the initial closing, less than 100 Units have been issued, the Manager may, from time to time prior to January 31, 2012, cause the Fund to sell additional Units to additional Investors until a maximum of 100 Units have been issued, and conduct one or more additional closings to admit such additional Investors to the Fund. The purchase price of such additional Units will be $100,000 per Unit and will be paid as follows: at the closing, an amount equal to the aggregate initial and additional capital contributions which the previous Investors have made, and thereafter, such additional Investors will be subject to the same capital call requirements as previous Investors. The Manager will make capital contributions equal to 11.11% of the capital contributed by such additional Investors, concurrent with their initial capital contributions, such that the Manager will, at all times, have contributed 10% of all capital contributions to the Fund and therefore will acquire additional Units so that it continues to hold 10% of the outstanding Units.

(d) Failure to meet capital calls; “Defaulting Member” . If an Investor fails timely to make any required additional capital contribution, the Investor will be a “Defaulting Member” under the LLC Agreement. As a Defaulting Member, such Investor’s Units will no longer be considered outstanding, and the Investor will have no rights to vote or consent to any matter on which Members of the Fund may vote. In addition, the Manager and the Fund will have the option, exercised at any time by ten (10) days written notice to the Defaulting Member, to purchase the Defaulting Member’s interest in the Fund for an amount equal to the Defaulting Member’s unreturned capital contributions to the Fund. If the option is not exercised, then the Defaulting Member will be entitled only to a return of its unreturned capital

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contributions upon liquidation of the Fund. A Defaulting Member may cure its default, and have its Units and rights as a Member reinstated, by making all required capital contributions plus interest at the lower of the prime rate as published in The Wall Street Journal for the date of the default or the maximum legal rate, but its right to cure will lapse ninety (90) days from the date of the default.

Distributions and Allocations of Profits and Losses.

(a) Distributions of “Distributable Cash” . It is intended that the Fund will make distributions of “Distributable Cash” to the Manager and Members on a quarterly basis. Distributable Cash is the amount of Fund cash which the Manager determines is not needed for investment, for Fund operations, to meet Fund liabilities including the Manager’s asset management fee or as reserves for possible claims against the Fund. There can be no assurance that the Fund will be able to make any distributions in a particular quarter. Taking into account that the Manager will invest capital in an amount equal to 10% of the aggregate capital contribution of all Members (including the Fund Manager) and thus will hold 10% of the outstanding Units, Distributable Cash, if then available, will be distributed as follows:

First, 100% to the Members (including the Manager with respect to its Units) in proportion and up to the amount which will yield to each Member a “First Tier Distribution” equal to 12% per annum, cumulative but not compounded, on that Member’s Unreturned Capital Contributions (the “First Tier Distribution”);

Second, 100% to the Members (including the Manager with respect to its Units) in proportion and up to the amount equal to each Member’s Unreturned Capital Contributions (the “Second Tier Distribution”);

Third, 30% to the Manager and 70% to the Members (including the Manager with respect to its Units) in proportion and up to the amount which will yield to each Member a “Third Tier Distribution” equal to 18% per annum, cumulative but not compounded, on that Member’s Unreturned Capital Contributions (the “Third Tier Distribution”); and

Thereafter, 50% to the Manager and 50% to the Members (including the Manager with respect to its Units) in proportion to the number of Units held by each Member (the “Fourth Tier Distribution”).

For purposes of computing the First, Second and Third Tier Distributions, a Member’s Unreturned Capital Contributions equals its aggregate capital contributions to the Fund, reduced by all Second Tier Distributions received from the Fund.

Upon liquidation of the Fund, distributions will be made in accordance with the schedule described above for quarterly distributions.

(b) Manager’s “Clawback .” As described above, the amount distributable to the Manager will depend in part on the Members’ attaining specified returns. If, upon liquidation of the Fund, the Members have not received, over the life of the Fund, their full First Tier Distribution, the Second Tier Distribution and the Third Tier Distribution, then to the extent the Manager has received any Fourth Tier Distribution (excluding distributions made with respect to its Units), it shall return an amount to the Fund for distribution to the Members such that the Members receive their full First, Second and Third Tier Distributions.

(c) Allocations of Profits and Losses . Because the Fund expects to be classified as a partnership for income tax purposes, it will not pay income tax on its profits, but its profits and losses will be allocated and passed through to the Manager and the Members. The rules for allocating profits

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and losses in a tax partnership are quite complex, but generally such allocations must have “substantial economic effect,” that is, losses must be allocated to the persons who will sustain the losses financially and profits must be allocated to the persons who will receive the profits. Thus, the allocation of profits and losses will follow the contribution and distribution provisions summarized above. Each potential Investor is urged to review the allocation provisions in the LLC Agreement and discuss them with its personal tax advisor before deciding to invest in the Fund.

Management of the Fund

Management of the Fund and its business is vested in the Manager. The Members will not have the right to consent to or vote upon matters relating to the day-to-day operations of the Fund, including the adoption of budgets or the determination of Distributable Cash. The Manager will be the “tax matters partner” of the Fund and will be responsible for the preparation of Fund tax returns and interfacing with state or federal tax authorities in the event of an audit of a Fund tax return.

Under the LLC Agreement, the Members will have the right to vote or consent only to the following matters, with a “Majority in Interest” of the Members being required to take any action: (i) the issuance of any Units in excess of 100 Units; (ii) any change in the Manager’s asset management fee; (iii) any amendment to the LLC Agreement or the Fund’s Certificate of Formation, with certain limited exceptions relating to the correction of errors or the substitution of Members in the event of a transfer of Units; (iv) a decision to merge the Fund with or into another entity or convert the Fund from a limited liability Fund to another form of entity or another state of formation; or (v) liquidation of the Fund (which right may not be exercised prior to 5 years from the initial closing). For voting purposes, Majority in Interest means Members holding more than 50% of the outstanding Units. In addition, upon the affirmative vote of 80% of the Fund’s Membership interests, if Our Castle Homes Fund Advisors, LLC ceases to be the Fund’s Manager for any reason, the Fund will undergo an appraisal and accounting process to ascertain the value of Our Castle Homes Fund Advisors, LLC’s promotional interest in the Fund, based upon the promotional distributions which Our Castle Homes Fund Advisors, LLC would receive if all assets of the Fund were sold for their fair market value, the Fund were dissolved, and its assets distributed to the members in accordance with the LLC Agreement. Following the appraisal and accounting process, (i) Our Castle Homes Fund Advisors, LLC and each Investor’s capital account will be adjusted as directed by the Fund’s accountant, (ii) Our Castle Homes Fund Advisors, LLC will receive a percentage ownership interests in the Fund based upon the ratio that the liquidating promotional distributions which the Manager would receive (as determined by the Fund’s accountant) would bear to the aggregate liquidating distribution which would be received by the Manager and all of the Investors (as determined by the Fund’s accountant), and (iii) available cash (from all sources) will thereafter be distributed among the Investors (including, without limitation, the Manager) in accordance with their adjusted percentage ownership interests in the Fund.

The Fund will hold one annual meeting of Members. Under the LLC Agreement, meetings of Members may be called by the Manager or by Members holding more than 20% of the outstanding Units. The LLC Agreement contains provisions for the calling and conduct of Member meetings.

The Members also have limited rights to review Fund tax returns, financial statements, books and records and certain other Fund information as provided in the LLC Agreement.

Payment of Excess Formation Expenses

Formation Expenses will be fixed at the lesser of (i) 5% of the aggregate committed capital subscribed for by Members and (ii) actual expenses (see Section VIII, “Use of Proceeds”). If the actual Formation Expenses associated with this Offering exceed 5% of the aggregate committed capital subscribed for by Members, then the Manager will pay the excess without cost to the Fund.

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Establishment of Advisory Board

The Fund Manager will appoint an Advisory Board for the Fund consisting of representatives of the largest investors in the Fund. The Advisory Board will have no fewer than three members and no more than five members. The Advisory Board will provide advice and counsel in connection with potential conflicts of interest, valuations and other Fund-related matters as further described in the LLC Agreement. The Fund Manager will retain the ultimate responsibility for all decisions relating to the operation and management of the Fund, including, but not limited to investment decisions. The Fund will reimburse each Advisory Board member for reasonable out-of-pocket expenses incurred in the performance of these responsibilities. It is anticipated that the Advisory Board will meet quarterly by telephone and have an annual meeting in person or by conference call.

Transferability of Units

In general, a Member’s Units may not be transferred without the consent of the Manager, which may be given or withheld in the Manager’s sole discretion. A Member may, however, transfer its Units without Manager consent to certain trusts for the benefit of the Member and/or the Member’s spouse and/or children; or between corporations, partnerships or other legal entities which are under common control, as defined in the LLC Agreement (“permitted transfers”). Any other attempted transfer is null and void and will not be recognized for any purpose.

In the event of an “involuntary transfer” (e.g., death of an individual Member, dissolution of a Member which is a legal entity, or bankruptcy of a Member), unless the involuntary transfer results in a permitted transfer, the Manager will have the option (which it can assign to one or more parties including other Members) to purchase the former Member’s Units at a purchase price equal to fair market value, determined without discounts for lack of control or liquidity, established by agreement or an appraisal process. The option process must be initiated within 90 days of the date the Manager learns of the involuntary transfer event, and must be exercised within 30 days of the date the purchase price is established. If the option is not exercised, then the involuntary transfer will be recognized, but the transferee will acquire only the economic rights pertaining to the affected Units, and will not acquire any other rights of a Member unless admitted to the Fund as a Member with the consent of the Manager.

In addition, no attempted transfer will be recognized (whether or not a “permitted transfer”) if it would violate securities or other laws or constitute a breach of any agreement to which the Fund is a party.

Dispute Resolution

Under the LLC Agreement, disputes arising under the Agreement shall be resolved by a reference proceeding before a retired Superior Court Judge in Los Angeles County, California.

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XII. RISK FACTORS

PROSPECTIVE INVESTORS IN THE UNITS SHOULD GIVE CAREFUL CONSIDERATION TO THE RISK FACTORS DESCRIBED BELOW AS WELL AS OTHER INFORMATION IN THIS MEMORANDUM. INVESTMENT IN UNITS INVOLVES RISK AND IS SUITABLE ONLY FOR PERSONS OF FINANCIAL MEANS WHO HAVE NO NEED FOR LIQUIDITY IN SUCH INVESTMENTS, AND WHO CAN AFFORD THE POSSIBLE LOSS OF THEIR ENTIRE INVESTMENT. INVESTORS SHOULD CONSULT WITH THEIR OWN PROFESSIONAL ADVISORS TO CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS AND THE MATTERS DISCUSSED:

This Memorandum and the documents incorporated into this Memorandum contain forward-looking statements within the meaning of the Act pertaining to, among other things, general business, industry and economic conditions applicable to the Fund. Actual results could differ materially from those projected in the forward-looking statements as a result of the risk factors set forth below and the matters set forth or otherwise incorporated in this Memorandum. However, Investors are cautioned that the list of risk factors may not be exhaustive.

Mortgage Investment Risks

General

Mortgage investments are subject to varying degrees of risk. Revenues and the value of some or all of the mortgages may be adversely affected by the general economic climate, the local economic climate and local real estate conditions, including the perceptions of prospective buyers of the attractiveness of a particular property; the ability of the Fund to provide adequate management, maintenance and insurance; the inability to collect mortgage payments due to bankruptcy or insolvency of borrowers or otherwise; and increased operating costs. Cash flow and business could be adversely affected if the Fund Manager is not able to promptly modify loans, sell properties, or sell loans in secondary markets. Real estate values may also be adversely affected by such factors as applicable laws, including tax laws, interest rate levels and the availability of financing.

Economic Uncertainties

The success of the Fund will depend upon certain factors which are beyond the control of the Fund Manager, and cannot be predicted accurately at this time. Such factors include, without limitation, general and local economic conditions, increased competition, operating expenses (including, without limitation, taxes and insurance) changes in consumer spending patterns, changes in borrowers tastes and preferences, changes in local demographics, seasonality of local businesses, and limitations imposed by government regulation.

Need for Additional Capital

Investors should also be aware that, if the portfolio experiences operating deficiencies, members of the Fund may find it prudent to provide additional funds to meet such deficiencies and protect their investment in the Fund. No Investor will have an obligation to contribute additional capital to the Fund beyond the amount of its original capital commitment. However, if the Fund Manager determines that the Fund requires funds in excess of those provided by this Offering, the Manager may seek to obtain such funds through outside financing (including loans from the Manager and its affiliates).

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Highly Competitive Market

The Fund’s investment strategy is to invest in distressed mortgage loan portfolios for the purpose of helping borrowers keep their homes. There are numerous investors, managers and owners of hedge funds that may compete with the Fund Manager for the purchase of these distressed mortgages pools. Further, if properties are foreclosed or short sold, there will be many other competitive properties for rent or sale. Some of the competing for-sale properties may be newer, better located or owned by parties better capitalized than the Fund. The Manager will make commercially reasonable efforts to identify and acquire suitable properties that meet the Fund’s investment strategy.

Insurance

The Fund will, as necessary, carry comprehensive liability, fire, and extended coverage insurance with respect to its mortgages or properties owned in the event of deed-in-lieu or foreclosure, with policy specifications and insured limits customary for similar circumstances. There are, however, certain types of losses (generally of a catastrophic nature, such as wars, terrorism, or earthquakes) which may be either uninsurable or not economically insurable.

Most, if not all, of the mortgaged properties will be located in areas with a low risk for earthquakes. Depending upon its magnitude, an earthquake could severely damage the secured properties, which would adversely affect the value of mortgage modifications and resale. The Fund will not maintain earthquake insurance for mortgage properties.

Events in the United States and elsewhere have substantially increased the perceived risk of a terrorist event occurring on United States soil. The Fund will not acquire mortgages on “trophy” properties which would be the likely targets of a terrorist attack, but there is no assurance that Fund property will not suffer, directly or indirectly, from a terrorist attack (e.g. whether by direct physical damage or by the general economic impacts of a terrorist attack). Although it may elect to do so, the Fund does not plan to maintain insurance coverage for damages due to terrorist activities.

An insured loss may exceed available coverage under applicable policies of insurance. Should an uninsured or under-insured loss occur with respect to a mortgaged property, the Fund could lose both its invested capital in, and anticipated profits from, that mortgage. The Fund, when necessary, may procure and maintain insurance through blanket policies of insurance.

Reliance on Manager for Management

The Fund will depend upon the experience and expertise of the Fund Manager, including the Founders and other key personnel, in, among other things, the identification, due diligence and selection of mortgage loans to acquire, acquisition thereof, loan modification and sale of properties. The Fund Manager, acting through its principals, has substantial experience in these matters. However, if the Fund Manager cannot manage the Fund for any reason, experienced management that understands the intricacies of the foregoing issues for properties in the target market area may not be readily available, which could negatively affect Fund revenues. The Manager’s ability to manage an increase in the number of new mortgage pools may require it to successfully integrate new systems into its existing accounting and property management programs. The Fund cannot assure that the Fund Manager will be able to successfully manage that integration. The Fund’s reliance upon the Fund Manager is also substantially increased in a “blind” investment offering such as this (i.e. specific loan portfolios have not yet been targeted), because the Fund will be totally reliant upon the Manager to locate, evaluate and negotiate for the purchase of specific loan portfolios and the underlying properties.

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Investment Strategy Related Risks

The investment strategy of the Fund is premised on the view that disruptions in the mortgage market have caused mortgages to trade at prices that are below their intrinsic value. It is hoped that when conditions in these markets improve, it may be possible to sell these interests at a gain. Nevertheless, investors should only invest in the Fund with the understanding that markets - and in particular, markets for mortgage-related assets - are undergoing a period of unprecedented dislocation. As a result, many of the risks facing the Fund are unusually difficult to predict. Assumptions about the value of mortgage loans may prove to be wrong if, for example, social attitudes and/or government intervention make foreclosure unusually difficult or impossible to effect. Also, there is a risk that market conditions will not materially improve and, indeed, that they will deteriorate further, within the investment horizon of the Fund, thereby potentially resulting in a significant or total loss of capital.

Among the factors that have caused prices to decline is a lack of liquidity in the market created by a supply/demand imbalance and uncertainty about asset quality and asset performance. The lack of buyers for the assets being sold into the market is continuing to force prices lower. There can be no assurances that market liquidity will have improved when the Fund desires to sell assets.

The Fund Manager believes that the default rate for residential mortgage rates may increase due in large part to borrowers’ inability or unwillingness to carry the mortgage loan on a current basis, increased mortgage loan carrying costs resulting from resets of adjustable rate mortgages and increases in taxes and insurance, the inability of borrowers to refinance mortgage loans and general factors that reduce the ability of the borrower to pay its mortgage loan obligations including loss of employment, increased cost of living and unexpected significant bills such as health care related expenses. Lenders may exercise their foreclosure rights which will further decrease the value of the residential real estate as foreclosure sales are often at lower prices than sales in the ordinary course. Such conditions could cause a vicious cycle that decreases the value of the residential real estate, making it difficult for borrowers to refinance and adding to recessionary pressures in the affected markets. The Fund could face increased default rates on its sub-performing and non-performing mortgage loans, including loans that were modified with the expectation that they would be re-performing loans.

Prior Encumbrance Risk

The Fund may purchase a variety of assets from entities that are financially or economically distressed. There is a risk that such third-party distressed entities may assign, transfer, encumber, pledge or otherwise dispose of assets already sold by such entities to the Fund. There is also a risk that the sale of any asset by such third party distressed entity may be disallowed, subordinated or disenfranchised by a bankruptcy court, should such third party file for bankruptcy or similar protection.

Environmental Hazards

Under applicable environmental laws, owners of property may be liable for the clean up and removal of hazardous substances even where the owner was not responsible for placing the hazardous substances on the property or where the property was contaminated prior to the time the owner took title. The kinds of hazardous substances for which liability may be incurred include, inter alia, chemicals and other materials commonly used by small businesses and manufacturing operations. The costs of removal and clean-up of hazardous substances and wastes can be extremely expensive and, in some cases, can exceed the value of a property. If any property acquired by the Fund through foreclosure or otherwise subsequently were found to have an environmental problem, such acquiring entity could incur substantial costs and suffer a complete loss of its investment in such property as well as of other assets. Similarly, real estate is subject to loss due to so-called “special hazards” ( e.g. floods, earthquakes and hurricanes). It may be impractical or impossible to fully insure against such events and, should such an

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event occur, the Fund could incur substantial costs and suffer a complete loss of its investment in such property.

Borrower Bankruptcy Related Risks

It is possible that some of the borrowers whose loans are being acquired by the Fund may have already filed bankruptcy, or that a borrower will file bankruptcy after the loan is acquired by the Fund. Bankruptcy can be a lengthy process, due, among other factors, to the imposition of the automatic stay which stops the foreclosure process until a court order can be obtained, and to the backlog in the courts. Time delay of bankruptcy varies by state; the Fund Manager estimates that the time between filing and when relief from stay is obtained generally ranges from 90-245 days, although the facts of a particular case can cause that to vary.

A bankruptcy filing by a borrower is most likely to occur in the circumstance in which the Fund has determined that foreclosure is the only solution. Usually, such a bankruptcy filing will be a Chapter 7 filing, which means that a bankruptcy trustee is appointed to sell the property, if the trustee believes there is value above the amount owed on the loan. Because this is unlikely for the distressed loans being acquired, the bankruptcy trustee may choose not to sell the property and not to oppose the Fund’s request from the court to remove the automatic stay to allow the Fund to foreclose.

Another possibility is that the borrower could file a Chapter 13 bankruptcy, which would allow the borrower to stay in the house and make payments to the Fund based upon the fair market value of the house and a reasonable interest rate. Because such a recharacterization and payment schedule is the Fund’s preferred approach with each borrower before a bankruptcy is filed, it is unlikely that many borrowers will seek to file Chapter 13 given that they can essentially accomplish the same outcome vis-a-vis the Fund without a bankruptcy filing. However, problems with other creditors could cause the borrower to file a Chapter 13.

A borrower could also legally file a Chapter 11. However, this is highly unlikely and would occur very rarely for a low income borrower due to the high cost of remaining in Chapter 11, which is a Chapter more often used by businesses.

The Fund Manager estimates that the average cost of attorney fees for bankruptcy cases is approximately $3,400 per case. The Fund Manager will work with the courts, the bankruptcy trustee and/or borrower, as applicable, to either keep the current borrower in place, if financially appropriate, or foreclose on the property to return the home to the affordable and workforce housing stock.

Risks Related to Residential Mortgages

Generally

The investment characteristics of mortgage related securities differ from traditional debt securities. Among the major differences are that interest and principal payments are made more frequently, usually monthly, and that principal may be prepaid at any time because the underlying mortgage loans or other assets generally may be prepaid at any time.

Alternative A Mortgages

Alternative A Loans generally are not government guaranteed or privately insured, though in some cases they may benefit from private mortgage insurance. Such loans are directly exposed to losses resulting from default and foreclosure. Therefore, the value of the underlying property, the creditworthiness and financial position of the borrower, and the priority and enforceability of the lien are each of great importance. There can be no assurance as to the adequacy of the protection of the

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terms of the loan, including the validity or enforceability of the loan and the maintenance of the anticipated priority and perfection of the applicable security interests. Furthermore, claims may be asserted that might interfere with enforcement of the rights of the Fund. In the event of a foreclosure, the Fund may assume direct ownership of the underlying real estate. The liquidation proceeds upon sale of such real estate may not be sufficient to recover the Fund’s cost basis in the loan, resulting in a loss to the Fund. Any costs or delays involved in the effectuation of a foreclosure of the loan or a liquidation of the underlying property will further reduce the proceeds and thus increase the loss.

Alternative A Loans have risks above and beyond those discussed above. For example, such loans are subject to “special hazard” risk (property damage caused by hazards, such as earthquakes or environmental hazards, not covered by standard property insurance policies), and to bankruptcy risk (reduction in a borrower’s mortgage debt by a bankruptcy court). In addition, claims may be assessed against the Fund on account of its position as mortgage holder or property owner, including responsibility for tax payments, environmental hazards and other liabilities.

Special Residential Mortgage Loan Risks

The Fund will invest primarily in sub-performing and non-performing mortgage loans. This strategy subjects the Fund to the risks of residential real estate and residential real estate-related investments. These risks include, among others: (a) continued declines in the value of residential real estate; (b) risks related to general and local economic conditions; (c) possible lack of availability of mortgage funds for borrowers to refinance or sell their homes; (d) overbuilding; (e) the general deterioration of the borrower’s ability to keep a rehabilitated sub-performing or non-performing mortgage loan current; (f) increases in property taxes and operating expenses; (g) changes in zoning laws; (h) costs resulting from the clean-up of, and liability to third parties for damages resulting from, environmental problems; (i) casualty or condemnation losses; (j) uninsured damages from floods, earthquakes or other natural disasters; (k) limitations on and variations in rents; (1) fluctuations in interest rates; and (m) fraud by borrowers, originators and/or sellers of mortgage loans. To the extent that assets underlying the Fund’s investments are concentrated geographically, by property type or in certain other respects, the Fund may be subject to certain of the foregoing risks to a greater extent. Additionally, the Fund may be required to foreclose distressed mortgage loans and such actions would subject the Fund to greater concentration of the risks of the residential real estate markets and risks related to the ownership and management of real property.

The mortgage loan portfolios acquired by the Fund will have been originated by third parties. While the Fund Manager will conduct due diligence through its staff, attorneys and other professionals, there is a risk that the underlying mortgage loan documentation and calculations of outstanding principal, interest, late fees and other amounts are deficient and/or inaccurate and that the Fund will not detect such deficiencies and inaccuracies prior to acquisition. Accordingly, the mortgage loan portfolio may be compromised, reducing the value of the Fund’s investments.

The borrowers under distressed mortgage loans may have a variety of rights to contest the enforceability of the mortgage loan and prevent or significantly delay and increase the cost of any foreclosure action, including, without limitation, allegations regarding fraud in the inducement by the original lender or broker, failure of the lender to produce the original documentation, improper recordation of the mortgage, various theories of lender liability, and relief through the U.S. Bankruptcy Code and similar state laws providing debtor relief.

Of paramount concern in the purchase of loans secured by real estate is the possibility of material misrepresentation or omission on the part of the borrower or seller. The actual home owner may not be responsible for such fraudulent residential mortgage loans. Such fraudulent mortgage loans may not be identified as such due to internal control weaknesses and failure of the loan originator or intermediary to be advised of such claims. Such mortgage loans could be acquired by the Fund despite the exercise of

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prudent due diligence. Any inaccuracy or incompleteness on the part of the borrower or seller may adversely affect the valuation of the real estate underlying the loans or may adversely affect the ability of the Fund to perfect or effectuate a lien on the real estate or other collateral securing the loan. Under certain circumstances, payments to the Fund may be reclaimed if such payment or distribution is later determined to have been a fraudulent conveyance or a preferential payment.

Servicing Risk

Most residential mortgage loans require a servicer to manage collections on each of the underlying loans. Both default frequency and default severity of loans is highly dependent on the quality of the servicer. If the servicer engaged by the Fund is not vigilant in encouraging borrowers to make their monthly payments, the borrowers may be far less likely to make these payments (hence higher frequency of default). If the servicer takes longer to liquidate non-performing assets, loss severities may tend to be higher than originally anticipated. Higher loss severity may also be caused by less competent dispositions of REO properties.

Servicer quality is thus of prime importance in the default performance of residential mortgage loans. Many servicers have gone out of business in recent years, requiring a transfer of servicing to another servicer. This transfer takes time and loans may become delinquent because of confusion or lack of attention. When servicing is transferred, servicing fees may increase which may have an adverse effect on the Fund.

Risk of Decline in Value of Real Estate Collateral

The value of the real estate which underlies mortgage loans is subject to market conditions. Changes in the real estate market may adversely affect the value of the collateral and thereby lower the value to be derived from a liquidation. In addition, adverse changes in the real estate market increase the probability of default, as the incentive of the borrower to retain and protect equity in the property declines. There has been a substantial decline in the value of housing in many markets in the U.S. over the past three to four years, which has continued throughout 2010. It is possible that real estate values will continue to decline for a substantial period. Loans purchased or by the Fund may be non-performing for a wide variety of reasons, including, without limitation, because the mortgaged property is too highly leveraged (and, therefore, the borrower is unable to meet debt service payments), the borrower falls upon financial distress (such as from job loss or income reduction, or the reset of interest rates on the mortgage itself, which reduces the borrower’s ability to pay) or the property is in a market which has suffered a decline in home prices (and therefore, a borrower has a reduced willingness to pay). Such non-performing loans may require a substantial amount of workout negotiations and/or restructuring, which may entail, among other things, a substantial reduction in the interest rate, capitalization of interest payments and a substantial write-down of the principal of the loan. However, even if such restructuring were successfully accomplished, a risk exists that the borrower will not be able or willing to maintain the restructured payments or refinance the restructured mortgage upon maturity.

It is possible that the Fund may find it necessary or desirable to foreclose on some, if not many, of the loans it acquires. The foreclosure process may be lengthy and expensive. Borrowers may resist mortgage foreclosure actions by asserting numerous claims, counterclaims and defenses against the Fund including, without limitation, numerous lender liability claims and defenses, even when such assertions may have no basis in fact, in an effort to prolong the foreclosure action and force the lender into a modification of the loan or a favorable buy-out of the borrower’s position. In some states, foreclosure actions can sometimes take several years or more to litigate. At any time prior to or during the foreclosure proceedings, the borrower may file for bankruptcy, which would have the effect of staying the foreclosure actions and further delaying the foreclosure process. Foreclosure may create a negative public image of the mortgaged property and may result in a diminution of value.

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Operating Risks

Limited Operating History

Although the Fund’s management team has substantial real estate experience in the business in which the Fund plans to engage, the purchase of large pools of mortgages at a steep discount for purposes of modification and re-writing is fairly new to the Fund Manager on a single-family mortgage basis and, as such, is a fairly new venture for the Fund’s management team. However, the Fund will be working with national mortgage servicing companies and professional real estate and mortgage companies throughout the country to minimize such operating risk. The Fund itself, however, is a newly-formed entity with no operations prior to this Offering. There can be no assurance that the Fund will operate profitably in the future.

No Assurance of Return of Capital

Any return to the Investors on their invested capital will be dependent upon the ability of the Fund to modify and resell those modified loans or any foreclosed properties at a profit. Such profitable operation and sale will depend, in part, upon economic factors and conditions which are beyond the Fund’s control. There can be no assurance that the Manager will be able to modify the mortgages or sell the foreclosed properties at a profit. Additionally, there can be no assurance that the Fund Manager will be able to locate acceptable loan portfolios for acquisition, or that any acquired mortgage portfolios will generate a positive cash flow. As a result, there can be no assurance that the Investors will recover their investment in the Fund.

No Insurance for Investment Accounts

The Manager will maintain funds with one or more financial institutions; it will do so without regard to whether such deposits exceed the amount insured by the Federal Deposit Insurance Corporation (FDIC). The Fund Manager may also from time to time determine that investment conditions are such that deposits should be maintained either with financial institutions, or in categories of accounts, which are not insured by the FDIC. Investors are advised that the failure of any financial institution which maintains the Fund deposits could result in a substantial, if not complete, loss of the Investors’ investment in the Fund.

Reliance on Key Personnel

The Fund’s success depends substantially upon the continued participation of the management team of the Manager, and the withdrawal from the Manager for any reason of any key personnel could significantly and adversely affect the performance of the Fund while the Fund’s members select a new manager.

Conflicts of Interest - Manager

The Manager, its managers, officers, members, employees, and agents will devote such time to the business of the Fund as is necessary to execute the Fund’s business plan. Subject solely to those restrictions on the Manager’s activities as set forth in this Memorandum (see Section VIII, “Management Compensation; No Exclusivity”), the Manager, and its managers, officers, members, employees and agents, may continue to engage in any other business activity in which the Fund may have no interest. Furthermore, the Manager and its affiliates, acting alone or together with others, will have the right to engage in certain other real estate activities which do not qualify under the Fund’s investment criteria, and Investors are advised that those activities may nonetheless compete with the activities of the Fund.

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Additionally, the compensation to be paid by the Fund to the Manager, and the other arrangements between the Fund and the Manager, are not the result of arm’s-length negotiations, which may affect the manner in which the Fund operates and sells the loan portfolio.

Working Capital Reserves

An adequate amount of working capital is necessary for the successful operation of the Fund. Working capital reserves for each loan portfolio purchased will initially be established by the Fund to fund certain operating costs and contingencies. There can be no assurance that such working capital reserves, initially or as augmented, will be sufficient to fund operating expenses or contingencies.

Use of Leverage

The Manager does not intend to obtain debt financing to purchase loan portfolios.

Loss of Property in Property Tax Lien

As a result of acquiring mortgage loans in default or delinquency, there may be property tax liens on the underlying assets. The Fund Manager will make a decision to either pay accrued property taxes to bring property current or if the taxes exceed potential profit from the mortgage allow the property to be foreclosed upon for taxes. Should revenues from a property be insufficient to service its tax obligations or other operating costs, the Fund Manager will utilize working capital or suffer a foreclosure of a property. There can be no assurance that additional funds will be available to the Fund or that the available terms will be acceptable to the Fund Manager.

Limited Diversification

The ability of the Fund to obtain diversification of its investments is limited because the Fund will only invest in distressed residential mortgage loan portfolios. If the real estate market for competing properties decreases, whether generally or within any targeted market area, such events would have an increased impact upon the Fund as a whole than would have been the case if the Fund invested in more than one type of property.

Same Counsel for Fund and Manager

Counsel to the Fund also represents the Manager. Therefore, the Fund will not receive any benefits that might be obtained by an independent legal review. The Fund anticipates utilizing the same counsel unless a conflict of interest arises. If such a conflict arises the Manager will consider the extent to which and the manner in which the interests may diverge from those of these other entities and will work with the Advisory Board to determine whether to seek new counsel or waive any potential conflict.

Risks of The Limited Liability Company Format

The following is a summary of some of the risks associated with the limited liability format of the Fund. Investors are advised that changes in the law and/or interpretations of the law may be effected by future legislation, judicial decisions or the commission of corporations. Any such change may or may not be retroactively applied. This summary does not purport to deal with all aspects of the law applicable to limited liability companies.

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Limitation of Manager’s Liability

The Manager, its affiliates, and their respective officers, shareholders, directors, employees, and agents will generally not be liable to the Fund or any of their members. The Fund will indemnify each of the foregoing against any claims, liabilities, or damages, including attorneys’ fees, incurred by in connection with the performance of their respective duties, except where such person or entity acted in a grossly negligent or fraudulent manner. An Investor will have more limited rights of action against the Manager and such persons than would be available absent the indemnification and waiver provisions described above.

Units not Transferable

None of the Units may be transferred without the prior written consent of the Manager, and transferees may be required to satisfy the suitability standards for original Investors. In addition, transferability of the Units will be restricted by state and federal securities laws, rules, and regulations. However, the Fund’s LLC Agreement will permit Investors who are natural persons to transfer their interests in the Units to their heirs upon death, as well as to specified family members during the Investor’s lifetime (subject to the terms thereof and to applicable laws and tax considerations). Investors for Units should assume that they will have to bear the economic risk of an investment in the Units for an indefinite period of time.

No Market for Securities; Arbitrary Determination of Price

There will be no ready market for the Units, and it is unlikely that any such market for the Units will develop. The price and terms of the Units offered were arbitrarily determined by the Manager, and bear no relation to the assets, revenues, or book value of the Fund, or to any other objective criteria.

No Securities Act Registration

This Offering has not been registered under the Act or any applicable state securities laws in reliance on exemptive provisions of the Act and such state laws. There is no assurance that the Offering presently qualifies or will continue to qualify under such exemptive provisions due to, among other things, adequacy of disclosure, the manner of distribution of the Offering, the existence of similar offerings conducted by the Fund or its affiliates, or the retroactive change of any securities laws or regulations. If suits for rescission are brought against the Fund under the Act or state laws, both capital and assets of the Fund could be adversely affected. Further, the expenditure of Fund time and capital in defending an action by Investors, the Securities and Exchange Commission, or state regulators, even if the Fund is ultimately exonerated, may adversely affect the Fund’s ability to profitably operate the fund.

No Right for Investors to Manage Fund

No Investor, other than the Manager, is permitted to take any part in the management or control of the business or affairs of the Fund. The LLC Agreement for the Fund will vest exclusive control and management of the Fund in the Manager, including without limitation, the sole authority to purchase loan portfolios, modify loans and lease and/or sell or otherwise dispose of any acquired properties. Accordingly, the Investors have no right to participate in the management of the Fund, and will be totally dependent on the Manager to manage the business of the Fund. Accordingly, the success of the Fund’s business will depend in large part on the expertise of the Manager. Removal of the Manager, with respect to the Fund, will be permitted upon the affirmative vote of holders of more than eighty percent (80%) of the Units or membership interests in the Fund (excluding any interests held by the Manager).

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Changes in Laws

It is anticipated that present laws applicable to limited liability companies, or the interpretation of such present tax laws, will change. Such changes, which could apply retroactively and adversely affect the Investors, may materially change the risk factors described below. The Manager is under no obligation to provide and will not provide any information concerning any changes to the laws described in this Offering.

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XIII. FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of some of the United States federal income tax aspects of investing in the Fund. It is based on the Internal Revenue Code of 1986, as amended (the “Code”), existing Treasury Regulations promulgated thereunder (“Regulations”) and judicial decisions, and on current administrative rules and interpretations by the Internal Revenue Service (the “IRS”). It is possible that changes in the law and/or interpretations of the law may be effected by future legislation, judicial decisions and/or the IRS. Any such change may or may not be retroactively applied. This summary does not purport to deal with all aspects of federal income taxation that may affect Investors, particularly in light of their individual circumstances, nor with certain types of Investors subject to special treatment under the federal income tax laws. Furthermore, no state, local or foreign tax consequences are discussed. Consequently, prospective Investors should consult with, and must rely upon the advice of, their own tax advisors with respect to all of the federal, state, local and foreign income tax and other tax consequences of investing in the Fund.

Changes in Tax Laws

It is anticipated that present federal income tax laws, or the interpretation of present federal income tax laws, will change. Such changes, which could apply retroactively and adversely affect the Investors, may materially change the tax consequences described below. The Manager is under no obligation to provide (and will not provide) any information concerning (or update) any changes to the tax laws described in this Offering. Furthermore, no rulings have been or will be requested from any federal or state taxing authorities as to any matter. The discussion herein is not binding upon, nor considered authority by, the IRS or any court or state taxing authority, and no assurance can be provided that the tax treatment claimed by the Fund (or any Investor) will not be successfully challenged by the IRS or any state taxing authority.

Tax Status of the Fund

The Manager intends to cause the Fund to elect to be treated as a partnership for federal tax purposes. Many of the tax consequences discussed below depend upon the classification (for federal income tax purposes only) of the Fund as a partnership rather than as an association taxable as a corporation. However, if, for any reason, the Fund were treated as an association taxable as a corporation, or otherwise taxable as a corporation (for example, see paragraph entitled “Certain Federal Income Tax Considerations - Publicly Traded Partnership Considerations”), then (i) the Fund would be subject to federal and state income tax on its taxable income at corporate income tax rates, without a deduction for any distributions to the Investors, and (ii) the Investors would be forced to treat all distributions of money or property by the Fund as dividends, return of capital or capital gain items (without regard to whether the Fund itself paid tax on the income that is the source of the distributions). The discussion below assumes that the Fund will be treated as a partnership for federal income tax purposes and not as an association taxable as a corporation.

Publicly Traded “Partnership” Considerations

A limited liability company that constitutes a “publicly traded partnership” may be taxed as a corporation in certain circumstances. Were the Fund to be treated as a “publicly traded partnership” and subject to tax as a corporation, the substantial adverse tax consequences described above would result.

Generally, under the Regulations, a limited liability company will not be treated as a “publicly traded partnership” unless interests in the company are either (i) traded on an established securities market or (ii) readily tradable on a secondary market or a substantial equivalent. Interests in the Fund will not be traded on an established securities market and restrictions have been imposed upon the transfer of

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interests in the Fund which may satisfy certain “safe harbor” restrictions. This should enable the Fund to avoid classification as a “publicly traded partnership.”

Effect of Partnership Status

Assuming the Fund is respected as a partnership for federal income tax purposes, the Fund itself will not be subject to federal income tax. Instead, each Investor, regardless of whether such Investor receives a distribution of cash flow, will be required to report and take into account its allocable share of the Fund items of income, gain, loss, deduction and credit. Each Investor will generally be subject to tax on its allocable share of such Fund items as if recognized directly by the Investor, although such items are generally treated as realized by the Fund for purposes of tax characterization.

Following the close of the Fund’s taxable year, the Fund will provide tax information to each Investor on a Schedule K-l. The Schedule K-l will specify the amount of Fund income, gain, loss, deduction or credit allocated to such Investor. Each Investor is solely responsible for preparing and filing its own federal and state tax returns reflecting the income, gain, loss, deduction or credit allocated by the Fund to such Investor. This information may not be received in sufficient time to permit the Fund to prepare and circulate the Schedule K -1 s to the Investors prior to April 15 of each year. As a result, each Investor may be required to file for extensions for the completion of its income tax returns and may be required to make estimated tax payments.

Each Investor will generally be required to treat the Fund items on such Investor’s individual income tax return in a manner that is consistent with the treatment of such items shown on the Schedule K-l. This general rule applies unless the Investor files a statement with the IRS disclosing the inconsistent treatment. An audit of an Investor’s individual return could be triggered as a result of inconsistently treated items.

Allocation of Fund Income and Losses

The Fund’s LLC Agreement generally attempts to allocate Fund income, gain, loss, deduction and credit to each Investor in a manner that (i) will correspond to the cash flow distributions the Fund will make to each Investor, and (ii) will generally result in each Investor’s capital account equaling the amount of cash flow distributions each such Investor will be entitled to receive from the Fund upon its liquidation. However, under Section 704(b) of the Code, items of income, gain, loss, deduction or credit of the Fund allocated to an Investor will not be respected for federal income tax purposes (and allocated in whole or in part away from such Investor) unless the allocation has “substantial economic effect.” Although the allocations to Investors have been drafted in an attempt to comply with Section 704(b) of the Code and the “substantial economic effect” requirements of the Regulations, the Regulations are extremely complex and there is no assurance that the IRS will respect these allocations.

If the allocation of an item lacks “substantial economic effect,” then each Investor’s share of such item will be reallocated on the basis of such Investor’s “interest in the Fund” taking into account all facts and circumstances relating to the economic arrangement of the Investors. Any reallocation of an item of income, gain, loss, deduction and/or credit of the Fund could result in additional tax liability, interest and potential penalties to the Investors.

Timing of Taxable Income and Cash Flow

The Fund is not required to make current distributions of cash flow to the Investors. In addition, because of the nature of the Fund’s business, it may be required to recognize taxable income when there is no corresponding receipt of cash. Accordingly, Investors may be allocated taxable income by the Fund without receiving corresponding distributions of cash flow from the Fund to pay any tax liabilities associated with such income. Each Investor and such Investor’s advisors therefore should be aware that

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they may need to rely on cash derived from outside sources (and not the Fund) to pay income taxes on income realized from the Fund.

Passive Activity Loss Rules

Under Code Section 469, certain Investors generally may not deduct losses derived from a “passive activity” (i.e., a trade or business in which such Investors do not materially participate) against non-passive income (e.g., salary, interest or dividends). The limitations imposed on losses derived from passive activities apply to individuals, estates, trusts, personal service corporations and certain closely-held corporations. Generally, under Code Section 469, losses from passive activities will be allowed to offset only income from passive activities, and will not be allowed to offset (i) “portfolio income” such as interest, dividends, royalties and gains from sales of assets held for investment, (ii) income from a trade or business in which the taxpayer materially participates, or (iii) other non-passive income such as wages or salary. Losses from passive activities that exceed passive activity income (or credits from passive activities that exceed the regular tax allocable to passive activities) for the tax year are “suspended” and carried forward to future tax years to offset passive activity income (or regular tax allocable to passive activities) in such future years. Any remaining suspended loss from an activity can generally be claimed when a taxpayer makes a fully taxable disposition of the entire interest in the passive activities to an unrelated person.

The ownership of Units in the Fund will be treated as a passive activity for all Investors except for Investors who are active in the Fund’s business by virtue of being involved with the Manager. Accordingly, any income and loss (other than portfolio income generated by reserves and other bank deposits) allocated to an Investor by the Fund for tax purposes will generally be attributable to a passive activity. An Investor’s share of passive activity income or loss generated by the Fund can be offset by any passive activity loss or income, respectively, from other passive activities in which such Investor owns an interest. However, if the Investor does not have passive income from other activities, then any passive losses allocated to the Investor from the Fund will be suspended unless subsequent passive income is realized or the Investor disposes of all of such Investor’s interest in the Fund to an unrelated person in a taxable transaction.

Limitation on Deductibility of Losses

An Investor may deduct such Investor’s distributive share of the Fund’s losses for a given year only to the extent of that Investor’s tax basis for such Investor’s interest in the Fund at the end of the Fund’s tax year. Because the Fund does not intend to incur any borrowing to finance its business, an Investor’s initial tax basis for such Investor’s interest in the Fund will equal the amount of money such Investor contributes to the Fund. The tax basis for such interest will be increased by such Investor’s share of Fund net profits (i.e., Fund liability as to which no Investor is personally liable) and shall be reduced by such Investor’s share of Fund net losses and distributions of cash flow received by such Investor. The tax basis limitation rules may restrict the amount of any net losses otherwise available to any Investor.

Capital Loss Limitations

In addition to the limitations described above, the IRS limits the deductibility of any capital losses that might be generated by the Fund. For non-corporate taxpayers, any capital losses are deductible only to the extent of any capital gains, plus ordinary income of only up to $3,000 for each taxable year. Thus, if the Fund realizes any capital losses, such losses may be only used to offset up to $3,000 of a non- corporate Investor’s ordinary income from other sources for any taxable year. Any excess capital losses may be indefinitely carried over by non-corporate taxpayers to subsequent tax years to offset future ordinary income (subject to the foregoing $3,000 limitation) and future capital gains.

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Distributions in Excess of Basis

As previously discussed, the distribution of cash flow and other money or property from the Fund to an Investor will not generally cause an Investor to recognize taxable gain. However, an Investor could recognize taxable gain under Section 731(a) of the Code as a result of any actual or deemed cash distribution if (and to the extent that) the amount of the distribution exceeds the Investor’s adjusted tax basis in such Investor’s interest in the Fund.

Dissolution and Technical Terminations of the Fund

Upon the dissolution of the Fund, the assets of the Fund are required to be sold, which may result in the recognition of taxable gain to the Investors. Distributions of proceeds arising from the dissolution of the Fund will generally be non-taxable under Section 731 of the Code except to the extent any money distributed (whether in the form of cash or relief from liabilities) to an Investor exceeds the adjusted basis in such Investor’s interest in the Fund.

If 50% or more of the total capital and profits interests in a partnership is sold or exchanged within a twelve-month period, then the partnership will technically terminate for tax purposes. It is therefore possible that a technical tax termination could occur as a result of transfers of interests in the Fund, which could expose the Fund and the Investors to additional expenses. A technical termination of the Fund would necessitate the filing of new tax elections by the Fund and could result in non-calendar-year Investors being required to include Fund taxable income in their taxable income in an earlier taxable year than would otherwise be the case. A technical tax termination could also decrease any depreciation deductions of the Fund.

Tax-Exempt Investors

Prospective Investors that are tax-exempt entities should consult with, and must rely upon the advice of, their own tax advisors concerning federal, state, and foreign income and other tax consequences before electing to subscribe for Units. Tax-exempt entities such as retirement plans and charitable foundations are generally subject to income tax on “unrelated business taxable income” (“UBTI”). In the case of an investment in a partnership which carries on an unrelated trade or business, a tax-exempt entity is subject to tax on its share of any partnership income which constitutes UBTI. The business of the Fund will be an unrelated trade or business for any Investors which are tax-exempt entities. However, under Section 512(b) of the Code, generally, interest income, loan fees, real property rents, and gains and losses from the sale of property other than property held primarily for sale to customers in the ordinary course of a trade or business are excluded from UBTI unless such income is derived from debt-financed property. The Fund does not intend to incur borrowings to finance its business. Accordingly, even though the Fund’s business will be an unrelated business for tax purposes for tax-exempt entities, much of its income should be excluded from UBTI under Section 512(b).

Foreign or Non-U.S. Investors

Prospective Non-U.S. Person Investors in the Fund should consult with, and must rely upon the advice of, their own tax advisors with respect to the federal, state, local, foreign and other tax consequences, including estate taxes, relating to an investment in the Fund.

A “Non-U.S. Person” is a person that is not (i) a U.S. citizen or resident, (ii) a corporation or partnership created or organized under the laws of the United States or any state, (iii) an estate the income of which is required to be included in gross income for U.S. federal income tax purposes regardless of source, or (iv) a trust if a U.S. court is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all substantial decisions of the trust.

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Generally, a Non-U.S. Person that is a member of a limited liability company is considered to be engaged in a U.S. trade or business, except to the extent that such company is itself engaged in a U.S. trade or business. In the case where such company is not engaged in a U.S. trade or business, a U.S. withholding tax (at a 30% or lower applicable treaty rate) is imposed on the Non-U .S. Person’s allocable share of certain types of periodic income (e.g., dividends and certain types of interest) whether or not such income is distributed to the Non-U.S. Person.

The Manager expects that the Fund’s activities will be considered to rise to the level of carrying on a trade or business in the U.S. In such case, a Non-U.S. Person Investor would similarly be treated as engaged in a U.S. trade or business. As such, the Non-U.S. Person Investor would be required to file a U.S. federal income tax return, report in such return its allocable share of the Fund’s income determined to be effectively connected with such trade or business and pay U.S. federal income tax at regular U.S. rates on its share of such income. In addition, the Fund would be required to withhold and pay over to the IRS an amount equal to the highest tax rate applicable to each individual and corporate Non-U.S. Person in the Fund in respect of each such Person’s allocable share of such Fund effectively connected income. Any amount so withheld may be credited against such Non-U.S. Person’s federal income tax liability and would be repayable to the extent that such withholding exceeded such income tax liability.

Adjustment to Partnership Tax Basis

Section 754 of the Code generally permits limited liability companies that chose to be taxed as partnerships to elect to adjust the basis of Fund property upon the transfer of an interest in the Fund and upon the distribution of property by the Fund to a member (if certain other conditions are met). A limited liability company is required to adjust the basis of partnership property in certain circumstances if there is a built-in loss or basis reduction of more than $250,000. The general effect of such an election is that the tax basis of Fund property is adjusted for purposes of determining depreciation, gain and loss. Generally, a Section 754 election to adjust basis will benefit (or harm) the transferee Investor in the case of any transfer of an interest in the Fund or the remaining Investors in the case of any distribution of property by the Fund. Any such election, once made, may not be revoked without the consent of the IRS.

The Fund’s LLC Agreement provides the Manager with the authority (in its sole and absolute discretion) to determine whether or not to cause the Fund to make this election. The Fund may make various other elections for federal tax reporting purposes which could result in various items of income, gain, loss, deduction and credit being treated differently for tax purposes than for accounting purposes. The determination of whether to elect a different treatment for tax purposes than for accounting purposes with respect to a particular item will be made by the Manager.

Organization and Syndication Expenses

Expenses paid or incurred in connection with the organization and syndication of the Fund must be capitalized. The Fund may elect to currently deduct up to $5,000 of organization expenses and amortize the balance of its organization expenses over 180 months. The $5,000 deduction is reduced to the extent the partnership has organization expenses in excess of $50,000. Syndication expenses may not be deducted currently or amortized but must instead be capitalized. Organizational expenses include the legal fees and expenses incurred in connection with the negotiation and preparation of the Fund’s LLC Agreement, accounting fees for establishing the Fund’s accounting system, and necessary filing fees. Syndication expenses are expenses incurred in connection with the issuance and marketing of the interests in the Fund and include registration fees, legal fees and printing and mailing costs of this PPM and other related materials.

The Manager intends to elect to cause the Fund to deduct and amortize certain expenses incurred in connection with the organization of the Fund and to capitalize the syndication expenses. The allocation

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between organization and syndication expenses cannot be determined at this time and will depend upon the nature of the actual expenses incurred in connection with the formation of the Fund. If the IRS challenges the Fund’s allocation between organization and syndication expenses, then the expenses subject to amortization could be recharacterized as non-deductible syndication expenses, reducing deductions which might otherwise be available to the Investors (and resulting in the imposition of additional tax, interest and penalties).

Alternative Minimum Tax

Prospective Investors should consider the impact of the alternative minimum tax in determining whether to acquire interests in the Fund. Calculating the alternative minimum tax is complex and its potential application will vary depending on the individual circumstances of each taxpayer. Each prospective Investor should consult with, and must rely upon, such Investor’s own tax advisors as to the applicability of the alternative minimum tax to such Investor prior to investing in the Fund.

Fund Audits

The Code generally provides for a single unitary audit of tax partnerships at the partnership level instead of at the partner (member) level. The tax returns filed by the Fund may be audited by the IRS, which could lead to proposed adjustments of Fund items in each Investor’s tax returns. Furthermore, an audit of the Fund’s returns could result in an audit of an Investor’s returns, which could result in proposed adjustments to non-Fund items.

Possible Disallowance of Payments to the Manager and its Affiliates

The IRS has indicated that it will closely scrutinize deductions for management and other fees payable by a tax partnership to its members or its affiliates. As a result, the IRS may challenge the Fund’s treatment of all or a portion of any fees, including the asset management fees, to be paid by the Fund to the Manager, by asserting, for example, that some or all of the fees are excessive or represent, in whole or in part, capital expenditures of the Fund. To the extent the deduction of any such fees is disallowed, an Investor could incur additional tax liability, interest and potential penalties.

Agreements with IRS

Generally, notice of an audit of a tax partnership must be given to all of its members in order for such members to be bound by the result of the proceeding. The Manager, in its capacity as the “tax matters partner” for the Fund, has the primary responsibility for representing the Fund in an audit and for contesting any adverse determinations. In this capacity, the Manager will have the right to enter into agreements with the IRS without the consent of the Investors. Any such agreement could be beneficial to the Manager and detrimental to the Investors. A settlement agreement between the IRS and one or more members binds all parties to the agreement, and all other members have the right to enter into consistent agreements. The final result of any IRS proceeding against the Fund will be binding on all Investors (other than members agreeing to or being bound by a settlement with the IRS), and any resulting deficiency may be assessed and collected by notice and demand at any time after the determination becomes final.

Possible Consequences of Successful IRS Challenge

If the IRS were to succeed in challenging the deductions taken by the Fund, resulting in a reduction in the losses of the Fund for any given year, or if the IRS were to succeed in challenging the allocation of the Fund’s losses to any Investor, and if the result of such challenge was an increase in the Investor’s overall tax liability for that year, the Investors would be subject to the payment of the interest charges, and possibly penalties, with respect to the amount of the Investor’s underpayment of taxes.

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State Taxes

In addition to the federal income tax consequences described above, each Investor must also carefully consider the potential state tax consequences of electing to subscribe for Units in the Fund. Investors may be required to file state tax returns and tax liability may be imposed both in the state where an Investor resides and in each state in which the Fund engages in business or otherwise has assets. State tax laws are often substantially different from U.S. federal income tax laws with respect to the treatment, calculation and timing of recognition of specific tax items. Each Investor should consult with such Investor’s personal tax advisor with respect to the state income tax implications that apply by virtue of purchasing Units and the subsequent ownership and disposition of Units.

Tax Shelter Registration

The Code and Treasury Regulations require reporting of any “reportable transaction.” The Regulations are broad and encompass many transactions that would not typically be considered tax shelters. Characterization of a transaction as a reportable transaction under the Regulations requires additional reporting obligations and may increase the likelihood of an audit by the IRS. Although the Fund is not created for the purpose of providing tax shelter to Investors, prospective Investors should consult with their own tax advisers concerning the tax shelter rules and should be aware that the Fund might engage in a transaction that would be a reportable transaction covered by the tax shelter Regulations.

No Substantial Tax Benefits Expected

It is expected that an investment in the Fund will not substantially reduce the cumulative tax liability of an Investor in any year as a result of tax losses, deductions or credits. Accordingly, prospective Investors should not invest in the Fund with the expectation of receiving any such tax benefits.

ERISA Considerations

Persons who are fiduciaries with respect to an employee benefit plan, IRA, Keogh plan or other arrangement subject to the Employee Retirement Income Security Act of 1974, as amended, (“ERISA”) or the Code (collectively, the “ERISA Plans”) should carefully analyze the impact of ERISA and the Code in the context of the ERISA Plan’s particular circumstances before authorizing an investment in the Fund. ERISA imposes significant responsibilities on fiduciaries with respect to an ERISA Plan, including prudence, diversification, prohibited transactions and other standards. In determining whether a particular investment is appropriate for an ERISA Plan, Department of Labor regulations provide that a fiduciary of an ERISA Plan must give appropriate consideration to, among other things, the role that the investment plays in the ERISA Plan’s portfolio, and take into account a variety of factors, including whether the investment is designed reasonably to further the ERISA Plan’s purposes, an examination of risk and return factors, a portfolio’s composition with regard to diversification, the liquidity and return of the total portfolio relative to the anticipated cash flow needs of the ERISA Plan, the income tax consequences of the investment and projected return of the total portfolio relative to the ERISA Plan’s accompanying objectives. Before subscribing for an interest in the Fund, a fiduciary of an ERISA Plan should determine whether such an investment is consistent with its fiduciary responsibilities and the foregoing regulations.

The Department of Labor has issued a regulation (the “Plan Asset Regulation”) that provides guidance in determining when the assets of a partnership, and not just an interest in the partnership itself, is treated as an asset of the ERISA Plan investor. If the Fund’s assets include plan assets, then certain fiduciary standards and certain prohibited transaction rules would apply to the Fund’s holdings and could severely restrict the manner in which the Manager may invest the Fund’s assets and subject the Fund (and the Investors) to significant additional expenses. These rules do not apply to an investment in the Fund if at all times “benefit plan investors” (as defined in the Plan Asset Regulation), which include,

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without limitation, all foreign and domestic employee benefit plans, IRAs, Keogh plans and any entities deemed to hold ERISA plan assets) hold less than twenty-five percent (25%) of each class of equity interest in the Fund. Equity interests held by the Manager or its affiliates are disregarded for purposes of applying the twenty-five percent (25%) ownership rule. However, certain prospective ERISA Plan Investors may currently maintain relationships with the Manager and/or entities that are affiliates of the Manager. Each of such entities may be deemed to be a party in interest or disqualified person to and/or a fiduciary of any such plan which it provides investment management, investment advisory or other services. ERISA and the Code prohibit the plan assets from being used for the benefit of a party in interest or a disqualified person.

The Manager will attempt to cause the Fund to comply with the twenty-five percent (25%) limitation described above. However, despite the restrictions on purchases of interests by and transfers of interests to ERISA Plans, there can be no assurance that ERISA Plans will at no time own twenty-five percent (25%) or more of the equity interests in the Fund. Prior to subscribing for an interest in the Fund, prospective ERISA Plan Investors should consult with their legal advisors concerning the impact of ERISA and the Code and the potential consequences of such an investment with respect to their specific circumstances. Each Plan fiduciary should also take into account its fiduciary obligations with respect to an investment in the Fund before its ERISA Plan subscribes for an interest in the Fund. The sale of interest to an ERISA Plan shall not be deemed a representation by the Fund, the Manager or any other person that such investment meets all ERISA and other requirements with respect to ERISA Plans.

This summary of certain federal income tax considerations is not intended as a substitute for careful tax planning. Accordingly, prospective Investors are advised to consult with their own tax advisors concerning all of the tax aspects of the transactions contemplated by this PPM. As is the case with tax matters generally, neither the Fund nor the Manager is making any representations regarding the tax consequences to any Investor of the purchase, holding or disposition of Units in the Fund, or of the Fund’s operations.

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