E-Delivery

Annual report 2013 Results of Operations The Fund generated an internal rate of return (IRR) of 8.91% for the Year after the payment of all fees and expenses. In comparison, the Fund's targeted annual return of the Government of Canada 2-year bench mark bond yield plus 5.50% for the Year was 6.61%. The Fund Manager is very pleased with the performance of the fund over the Year, and believes that the IRR of 8.98% since inception in 2009 demonstrates a strong track record of achieving the stated objectives. During the Year, the Fund grew its net assets by $5,155,419 to $13,205,555 as at February 28, 2013 primarily by completing ongoing sales of its Class A and Class B preferred shares. Overall, the Fund's net assets have grown by approximately 64% since February 29, 2012. The Fund's continued growth has meant that larger individual mortgage investments are compatible with the investment strategy and asset allocation model, thus increasing the universe of potential investments to the Fund, and its ability to hold larger positions in a single mortgage. Over the Year, the Fund advanced investment funds 69 times (February 29, 2012 – 27 times) totalling $14,142,515 (February 29, 2012 – $7,591,047) and received principal pay downs 58 times (February 29, 2012 – 32 times) on previously advanced mortgage investments totalling $8,963,829 (February 29, 2012 – $4,178,563). The net result of these transactions are total portfolio investments at February 28, 2013 of $13,019,170 (February 29, 2012 – $7,840,484) or a portfolio turnover rate of 1.62 (February 29, 2012 – 1.35 times). Further, the new mortgage investments from the Year equate to approximately 87% of the Fund's mortgage investments at year end. The weighted average interest rate on the portfolio at February 28, 2013 was 10.88% (February 29, 2012 – 10.57%). The weighted average interest rate has increased over the Year, mainly as a result of the Fund and Fund Manager eliminating the 0.5% servicing spread on its investments, effective January 2013. The average loan advance during the Year of $204,964 (February 29, 2012 – $281,150) represented a reduction from the prior year as the fund participated in a larger number of mortgages with multiple advances. 14 The Fund continues to maintain a diversified portfolio of mortgage investments located in Western Canada. At February 28, 2013, 94% of the mortgage portfolio was allocated to Alberta, and 6% to Saskatchewan. This is compared to February 29, 2012 where 100% of the mortgage portfolio was allocated to Alberta. The Fund has continued to maintain significant exposure to Alberta as it benefits directly from the strong real estate market and local expertise of the Fund Manager. The Fund Manager places a high degree of emphasis on closely monitoring the portfolio and, where appropriate, will adjust the fair value of a mortgage investment if it determines that it is unlikely to recover the full value of the Fund's investment and accrued interest. At February 28, 2013, all of the mortgages comprising the Fund's investments are current and, as such, no fair value adjustment has been recorded in the financial statements. During the Year, the Fund generated an increase in net assets from operations of $781,198 (February 29, 2012 – $537,764) or a per share increase of $0.87 (February 29, 2012 – $0.90). The Fund was able to distribute $770,066 (February 29, 2012 – $513,132) or $0.87 (February 29, 2012 – $0.85) per share. The Fund either pays distributions in cash to preferred shareholders, or automatically reinvests these amounts into additional preferred shares of the same Class, as directed by each shareholder. Per share net asset value after distributions of both Class A and Class B preferred shares at February 28, 2013 is $10.00. Total income earned by the Fund for the Year increased to $1,009,875 from $656,794 or an increase of 54% from the year ended February 29, 2012. The increase in revenue was primarily due to the Fund increasing its portfolio of mortgage investments by $5,178,686, or 66%, from February 29, 2012 to February 28, 2013. Under the terms of the January 2013 restructuring, the Fund has ceased earning a 0.5% lender fee revenue, and as an offset, will now realize a 0.5% increase in interest revenue as it is no longer subject to an interest rate spread on its investments. Total expenses for the Year increased to $228,659 from $119,030 for the year ended February 29, 2012. While this increase is primarily due to management and servicing fees which increase in proportion to the growth in the Fund's invested assets, and available capital respectively, the Fund also incurred expenses of $8,652 (February 29, 2012 – $nil) and $900 (February 29, 2012 – $nil) for the first time to compensate the independent members of its board of directors and lending review committees respectively. The Fund further paid approximately $20,000 (February 29, 2012 – $nil) in restructuring costs that are not expected to be ongoing. The majority of the Fund's expenses consist of management fees of $81,045 (February 29, 2012 – $65,254) and service fees of $87,381 (February 29, 2012 – $32,128).

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