E-Delivery

Annual report 2013 6. Income taxes: The Fund has future deductible temporary differences at February 28, 2013 of $4,423 (February 29, 2012 – $106,878) for income tax purposes, that may be carried forward and used to offset future taxable income. The potential benefit of these temporary differences has not been recognized in the financial statements. 7. Reconciliation of net asset value Reconciliation between the paid up capital ("PUC NAV") of the preferred shares and net assets calculated using Canadian GAAP ("GAAP NAV") is as follows: Feb 28, 2013 PUC NAV Adjustment Feb 29, 2012 GAAP NAV PUC NAV Adjustment GAAP NAV (3,997) $11,933,257 $ 8,156,739 $ (107,603) $ 8,049,136 (426) 1,271,298 - - - Net asset value: Class A preferred shares $ 11,937,254 Class B preferred shares 1,271,724 $ Net asset value per share: Class A preferred shares Class B preferred shares $ 10.00 10.00 $ (0.003) (0.003) $ 10.00 10.00 $ 10.00 - $ (0.13) $ 9.87 - - The GAAP NAV differs from the PUC NAV used for Fund redemption. The adjustment is due to fair value differences between PUC NAV and GAAP NAV and for the inclusion of costs associated with the establishment and structuring of the Fund attributable to the preferred shares, being included in the GAAP NAV (see note 6). These costs are being amortized for GAAP NAV purposes over five years. 8. Capital risk management: The Fund manages its capital structure in order to support ongoing operations while focusing on its primary objectives of preserving shareholder capital and generating a cash dividend to preferred shareholders. The Fund defines its capital structure to include Class A common shares, Class B common shares, Class A preferred shares and Class B preferred shares. The Fund reviews its capital structure on an ongoing basis and adjusts its capital structure in response to mortgage loan investment opportunities, the availability of capital, and anticipated changes in general economic conditions. The Fund's internally imposed investment restrictions and asset allocation model incorporate various restrictions and investment parameters to manage the risk profile of the mortgage loan investments. The investment restrictions permit the Fund to use leverage to maintain liquidity, for general working capital purposes, and to bridge the timing differences between loan advances, maturities and equity offerings. The aggregate amount of borrowing by the Fund may not exceed 20% of the book value of the Fund's mortgage investment portfolio, without the approval of the independent board of directors. In addition, the asset allocation model dictates the allocation of the mortgage investments based upon geographical, borrower, zoning, term, security position and loan-to-appraised value criteria. At February 28, 2013 the Fund did not employ leverage and was in compliance with its investment restrictions and the asset allocation model parameters. The Fund is not subject to externally imposed capital requirements. 40

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