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2015 ANNUAL REPORT (b) Mortgage loan investments: Mortgage loan investments, classified as loans and receivable investments, are recognized initially at fair value. Subsequent to initial recognition, the mortgage loan investments are measured at amortized cost using the effective interest method, less impairment losses, if any. e mortgage loan investments are assessed at each reporting date to determine whether there is objective evidence of impairment. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of an asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. An impairment loss in respect of a mortgage loan investment measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the mortgage's original effective interest rate. Losses are recognized in the statements of comprehensive income and reflected in an allowance account against the investments. Interest on the impaired asset continues to be recognized through the unwinding of the discount if it is considered collectable. Impairment losses can be reversed provided there is an indication that previously recognized impairment losses no longer exist or have decreased. (c) Revenue recognition: Interest income earned on mortgage loan investments is accounted for using the effective interest method. Revenue is recognized on the accrual basis or once receipt of such amounts by the Fund are certain. (d) Income taxes: It is the intention of the Fund to qualify as a mortgage investment corporation ("MIC") for Canadian income tax purposes. As such, the Fund is able to deduct, in computing its income for the taxation year, dividends paid to its shareholders during the year or within 90 days of the end of the year. e Fund intends to maintain its status as a MIC and pay dividends to its shareholders in the year and in future years to ensure that it will not be subject to income taxes. Accordingly, for financial statement reporting purposes, the tax deductibility of the Fund's distributions of dividends result in the Fund being non-taxable and no provision for current or future income taxes has been recorded. (e) Preferred share compensation plan: On March 1, 2014 the Fund implemented a new equity-settled preferred share compensation (the "PSC") plan for independent directors and members of the independent lending review committee ("LRC") in respect of their service to the Fund. Under the terms of the plan, preferred shares were awarded as follows to each qualifying participant (awards are cumulative where an individual holds multiple positions): Positions Held Participants Independent chair Independent director Independent member Board of Directors 250 Class A preferred shares 500 Class A preferred shares n/a LRC Members 200 Class A preferred shares n/a 100 Class A preferred shares is PSC plan expired as at February 28, 2015 with a new plan made effective as at March 1, 2015. e fair value of the PSC plan is determined by the issue price at the grant date of $10.00 multiplied by the number of preferred shares issued. e expense is recognized into income over the same period that the preferred shares vest. 46

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