E-Delivery

Income taxes, if any, are accounted for using the asset and liability method. Under this method, current income tax is recognized for the estimated income tax payable or recoverable for the current year. Future income tax assets and liabilities are recognized for temporary differences between the tax and accounting bases of assets and liabilities, as well as for the benefit of tax losses available to be carried forward to future years, to the extent that they are likely to be realized. Future tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years when those temporary differences are recovered or settled. (f ) Preferred share based compensation: On June 1, 2012 the Fund implemented a preferred share compensation (the "PSC") plan for independent directors in respect of their service to the Fund. Under the terms of the plan, each participating independent director purchased 500 Class A preferred shares at a price of $10.00 per share and was awarded 500 Class A preferred shares which vested in two equal portions on February 28, 2013 and February 28, 2014 in respect of services rendered for each year then ended. Certain independent directors have elected to participate in the PSC, and accordingly, the Fund has issued 1,000 preferred shares under the PSC at February 28, 2014 (2013 - 500). e fair value of the PSC is determined by the issue price of $10.00 multiplied by the number of preferred shares issued, plus all dividends declared on the unvested shares during the period. e fair value of the PSC is expensed into income over the same period that the preferred shares vest. is PSC compensation plan expired as at February 28, 2014 with a new plan made effective as at March 1, 2014. (g) Financial instruments - recognition and measurement: e Fund has classified its financial assets as follows: Financial assets Classification Measurement Mortgage loan investments Held-for-trading Fair value Cash Held-for-trading Fair value Accrued interest receivable Loans and receivables Amortized cost Subscription proceeds receivable Loans and receivables Amortized cost Other assets Loans and receivables Amortized cost e Fund has classified its financial liabilities as follows: Financial liabilities Classification Measurement Due to Fund Manager Other financial liabilities Amortized cost Dividends payable Other financial liabilities Amortized cost Accounts payable and accrued expenses Other financial liabilities Amortized cost (h) Increase in net assets from operations per share and net assets per share: Increase in net assets from operations per share is based on the increase in net assets from operations attributable to each class of shares divided by the weighted average number of outstanding shares for that class during the year. e net assets from operations per share are calculated by dividing the net assets of a class of shares by the total number of outstanding shares of the class at the end of the year. (i) Use of estimates: e preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of income and expenses during the years. Actual results could differ from those estimates. e key areas of estimation where management has made a difficult or subjective judgment, often as a result of matters that are inherently uncertain, is valuation of the mortgage loan investments and accrued interest receivable. Significant changes in assumptions could materially change the recorded carrying value of such items. 43

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