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ANNUAL REPORT (j) Future accounting standards: International Financial Reporting Standards ("IFRS"): Effective January 1, 2011, Canadian GAAP for publicly accountable enterprises converged with IFRS. In December 2011, the Accounting Standards Board of the Canadian Institute of Chartered Accountants required investment companies applying Accounting Guideline 18, to further defer adoption of IFRS until fiscal years beginning on or after January 1, 2014 by extending the mandatory requirement for all Canadian publically accountable enterprises to prepare their financial statements in accordance with IFRS as issued by the International Accounting Standards Board. e Fund will adopt IFRS for its fiscal year beginning March 1, 2014, and will issue its first financial statements in accordance with IFRS, including comparative IFRS information for the previous fiscal period, for the year ending February 28, 2015. e Fund Manager continues to monitor changes to IFRS and is assessing the impact for the Fund. 2. Mortgage loan investments: e balance of mortgage loan investments at the year ends are as follows: % Feb 28, 2014 % Feb 28, 2013 Interest in first mortgages 99.8 $ 36,997,597 92.1 $ 11,993,170 Interest in KV second mortgages 0.2 70,177 3.1 400,000 Interest in second mortgages behind a third party - - 4.8 626,000 100.0 $ 37,067,774 100.0 $ 13,019,170 Interest in KV second mortgages refers to the Fund's interest in second mortgages behind first position mortgages that are originated and serviced by the Fund Manager. Mortgage loan investments are secured by the real property to which they relate and bear interest at a weighted average interest rate of 10.60% (2013 – 10.88%). As at February 28, 2014, five (2013 – nil) mortgages with principal balances totaling $3,788,942 (2013 - $nil) are in arrears. Subsequent to year-end, arrears interest was collected on three of the mortgages in arrears and the Fund Manager is engaged in enforcement remedies as described in Note 10. As at February 28, 2014 the Fund has no unadvanced mortgage commitments (February 28, 2013 - nil). Principal repayments based on contractual maturity dates are as follows: Matured $ 1,852,548 2014 balance of calendar year 29,623,193 2015 5,481,033 Open Term 110,000 Total $ 37,067,774 All of the un-matured mortgage loans that do not have an open term contain a prepayment option, whereby the borrower may repay the principal at any time prior to maturity, subject to payment of an interest penalty that is specific to each mortgage. Subsequent to year-end, the fund has received full repayment of principal and accrued interest on the open term loan. As part of the assessment of fair value, the Fund Manager routinely reviews each mortgage loan investment for changes in the credit quality of the mortgage and underlying real estate assets and determines whether such changes result in changes in the fair value of the mortgage. 44

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