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ANNUAL REPORT (iv) actively monitoring the mortgage portfolio and initiating recovery procedures in a timely manner where required. e maximum exposure to credit risk at February 28, 2014 is the fair values of the Fund's accrued interest receivable and mortgage loan investments, which total $37,438,804 (2013 - $13,120,419). e Fund has recourse under its mortgage loan investments in the event of default by a borrower; in which case, the Fund would have a claim against the underlying property and security. As of February 28, 2014 the Fund, through the Fund Manager, is engaged in enforcement remedies against the following two mortgage investments that are in arrears: (i) A first mortgage investment in which the Fund has invested $500,000 and has $19,167 accrued interest that is past due; and (ii) A first mortgage investment in which the Fund has invested $762,478 and has $9,944 accrued interest that is past due. Subsequent to year-end, the past due interest has been collected by the Fund, and the enforcement actions have been stayed. As at February 28, 2014, another first mortgage investment in which the Fund has advanced $591,070 and has $20,981 accrued interest in arrears, is past due, and also the subject of enforcement action. In respect of the enforcement action on this mortgage the Fund Manager has agreed to allow the second position mortgage holder to direct the enforcement proceedings until May 31, 2014, and the second mortgage holder has agreed to pay the interest due on the first mortgage while they direct the enforcement proceedings. Management believes the Fund will fully recover the principal and interest accrued to date on the mortgage loans for which enforcement actions were underway at February 28, 2014, although there is no assurance that it will be able to do so. (c) Liquidity risk: Liquidity risk is the risk that the Fund will encounter difficulty in meeting its financial obligations as they become due. is risk arises in the normal course of operations from fluctuations in cash flow as a result of the timing of mortgage loan investment fundings and repayments and the redemptions of shares. e Fund Manager routinely forecasts future cash flow sources and requirements to help mitigate this risk and ensure cash is efficiently utilized. (d) Fair values: In accordance with Canadian GAAP, the Fund must classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making its fair value measurements. e following hierarchy has been used in determining and disclosing fair value of financial instruments: • Level 1 – quoted prices in active markets for the same instrument (i.e. without modification or repackaging); • Level 2 – quoted prices in active markets for similar assets or liabilities or other valuation techniques for which all significant inputs are based on observable market data; and • Level 3 – valuation techniques for which any significant input is not based on observable market data. e following tables show an analysis of mortgage loan investments recorded at fair value by level of the fair value hierarchy at February 28, 2014 and February 28, 2013: Feb 28, 2014 Level 1 Level 2 Level 3 Total Mortgage loan investments $ - $ - $ 37,067,774 $ 37,067,774 Feb 28, 2013 Level 1 Level 2 Level 3 Total Mortgage loan investments $ - $ - $ 13,019,170 $ 13,019,170 50