Firm Capital Mortgage Investment Trust announces record results



    TSX Symbol FC.UN

    TORONTO, March 6 /CNW/ - Firm Capital Mortgage Investment Trust (the
"Trust") (TSX FC.UN), today released its financial statements for the fiscal
year ended December 31, 2007.

    EARNINGS
    --------
    Net earnings for the year ended December 31, 2007 totaled $12,885,048
compared to $12,190,065 for the year ended December 31, 2006. For the fourth
quarter ended December 31, 2007, net earnings amounted to $3,149,386 compared
to $3,028,741 for the same period ended in 2006. 2007 basic weighted average
net earnings per unit was $1.021 as compared to $0.969 per unit for 2006. The
2007 net earnings represent an annualized return on average Unitholders'
equity of 10.75% per annum. This return on Unitholders' equity equates to 644
basis points per annum over the average One Year Government of Canada Treasury
Bill yield for the year and is well in excess of the Trust's target yield
objective of 400 basis points per annum over the One Year Treasury Bill yield.

    UNITHOLDERS DISTRIBUTIONS
    -------------------------
    Distributions to Unitholders for 2007 totaled $1.021 per unit, an
increase from 2006 distributions of $0.969 per unit.

    MORTGAGE PORTFOLIO
    ------------------
    The Trust's mortgage portfolio increased by 12.3% to $233,731,967 as at
December 31, 2007 as compared to $208,102,557 as at December 31, 2006. The
portfolio continues to be heavily concentrated in first mortgages based in
Ontario and is increasing its geographic diversification. Management continues
to reduce risk by syndicating investments to ensure that the Trust is not
significantly exposed to any single mortgage investment. As at December 31,
2007, the average portfolio face interest rate was 9.55%.
    The Trust feels it is important to clarify that it is not involved in the
sub-prime mortgage investment marketplace and has no exposure to the
securitization market. The Trust's investments are comprised of mortgages for
short-term bridge and interim financing purposes secured on residential,
development and investment properties. Conventional residential single family
housing mortgage investments have loan to values not exceeding 75%, and these
investments represent a very small component of the Trust's portfolio.

    DISTRIBUTION REINVESTMENT PLAN
    ------------------------------
    Unitholders are reminded that they can participate in the Trust's
Distribution Reinvestment Plan and Unit Purchase Plan. The plan allows
participants to have their monthly cash distributions reinvested in additional
Trust units. The Price paid for units is the weighted average trading price
calculated five trading days immediately preceding each distribution date with
no commission cost.

    UNIT PURCHASE PLAN
    ------------------
    Once registered with the plan, participants have the right to purchase
from the Trust, additional Units, totaling no greater than $12,000 per year
and no less than $1,000 per month. Unitholders participating pay no
commission.
    For further information, including answers to frequently asked questions
about the program, please refer to our website: www.firmcapital.com and tab
under the banner Firm Capital Mortgage Investment Trust. To enroll, please
contact your investment advisor or if you are a registered Unitholder complete
the Authorization Form located on our website and forward to our transfer
Agent, Computershare Trust Company of Canada, at the address noted on the web
site. You can also contact Investor Relations at the Trust by calling
416-635-0221, who will assist you in enrolling in the program.

    ABOUT THE TRUST
    ---------------
    The Trust, through its Mortgage Banker, Firm Capital Corporation, is a
non-bank lender providing residential and commercial short-term bridge and
conventional real estate financing, including construction, mezzanine and
equity investments. The Trust's investment objective is the preservation of
Unitholders' equity, while providing Unitholders with a stable stream of
monthly distributions from investments. The Trust achieves its investment
objectives by pursuing a strategy of growth through investments in selected
niche markets that are under-serviced by large lending institutions. Lending
activities to date continue to develop a diversified mortgage portfolio,
producing a stable return to Unitholders.
    Additional information about the Trust, including the Management's
Discussion and Analysis relating to the financial statements, will be
available on the SEDAR website at www.sedar.com.



    AUDITORS' REPORT

    To the Unitholders of Firm Capital Mortgage Investment Trust

    We have audited the balance sheets of Firm Capital Mortgage Investment
Trust (the "Trust") as at December 31, 2007 and 2006 and the statements of
earnings, unitholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
    We conducted our audit in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
    In our opinion, these financial statements present fairly, in all
material respects, the financial position of the Trust as at December 31, 2007
and 2006 and the results of its operations and its cash flows for the years
then ended in accordance with Canadian generally accepted accounting
principles.

    (signed)
    KPMG LLP

    Chartered Accountants, Licensed Public Accountants

    Toronto, Canada
    March 5, 2008



    

    Financial Statements of

    FIRM CAPITAL MORTGAGE
    INVESTMENT TRUST

    Years Ended December 31, 2007 and 2006



    FIRM CAPITAL MORTGAGE INVESTMENT TRUST
    Balance Sheets

    December 31, 2007 and 2006


    -------------------------------------------------------------------------
                                                        2007            2006
    -------------------------------------------------------------------------

    Assets

    Amounts receivable and prepaid expenses    $   2,093,026   $   2,074,690
    Mortgage investments (note 4)                233,731,967     208,102,557
    -------------------------------------------------------------------------
                                               $ 235,824,993   $ 210,177,247
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Unitholders' Equity

    Liabilities:
      Bank indebtedness (note 5)               $  52,593,158   $  40,101,684
      Accounts payable and accrued liabilities       820,000         571,991
      Unearned income                                335,721         305,607
      Unitholder distribution payable              2,186,413               -
      Loans payable (note 6)                      36,002,060      25,983,173
      Convertible debentures (note 7)             23,753,430      23,537,211
    -------------------------------------------------------------------------
                                                 115,690,782      90,499,666

    Unitholders' equity (note 8):                120,134,211     119,677,581
      Issued and outstanding:
        12,638,227 units (2006 - 12,593,549)

    Commitments (note 4)
    Contingent liabilities (note 14)
    -------------------------------------------------------------------------
                                               $ 235,824,993   $ 210,177,247
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to financial statements.



    FIRM CAPITAL MORTGAGE INVESTMENT TRUST
    Statements of Earnings

    Years ended December 31, 2007 and 2006
    -------------------------------------------------------------------------
                                                        2007            2006
    -------------------------------------------------------------------------

    Interest and fees earned, net of Trust
     Manager interest allocation (note 12)     $  19,683,209   $  17,500,633
    Less interest expense (note 13)                5,709,529       4,280,356
    -------------------------------------------------------------------------

    Net interest and fee income                   13,973,680      13,220,277

    Expenses:
      General and administrative                     788,632         720,212
      Unrealized loss in value of mortgages
       (note 4)                                      300,000         310,000
    -------------------------------------------------------------------------
                                                   1,088,632       1,030,212
    -------------------------------------------------------------------------
    Net earnings for the year                  $  12,885,048   $  12,190,065
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net earnings per unit (note 9):
      Basic                                    $       1.021   $       0.969
      Diluted                                  $       0.989   $       0.951
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to financial statements.



    FIRM CAPITAL MORTGAGE INVESTMENT TRUST
    Statements of Unitholders' Equity

    Years ended December 31, 2007 and 2006
    -------------------------------------------------------------------------
                                                        2007            2006
    -------------------------------------------------------------------------
    Trust units (note 8):

    Balance, beginning of year                 $ 119,297,099   $ 119,055,455
    Proceeds from issuance of units                  456,630         241,644
    -------------------------------------------------------------------------
    Balance, end of year                       $ 119,753,729   $ 119,297,099
    -------------------------------------------------------------------------
    Equity component of convertible
     debentures (note 7):

    Balance, beginning of year                 $     380,482   $           -
    Equity component of convertible
     debentures issued                                     -         380,482
    -------------------------------------------------------------------------
    Balance, end of year                       $     380,482   $     380,482
    -------------------------------------------------------------------------
    Cumulative earnings:

    Balance, beginning of year                 $  53,289,186   $  41,099,121
    Net earnings for the year                     12,885,048      12,190,065
    -------------------------------------------------------------------------
    Balance, end of year                       $  66,174,234   $  53,289,186
    -------------------------------------------------------------------------
    Cumulative distributions to unitholders:

    Balance, beginning of year                 $  53,289,186   $  41,099,121
    Distributions to unitholders (note 10)        12,885,048      12,190,065
    -------------------------------------------------------------------------
    Balance, end of year                       $  66,174,234   $  53,289,186
    -------------------------------------------------------------------------
    Total unitholders' equity                  $ 120,134,211   $ 119,677,581
    -------------------------------------------------------------------------
    Units issued and outstanding (note 8)         12,638,227      12,593,549
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to financial statements.



    FIRM CAPITAL MORTGAGE INVESTMENT TRUST
    Statements of Cash Flows

    Years ended December 31, 2007 and 2006
    -------------------------------------------------------------------------
                                                        2007            2006
    -------------------------------------------------------------------------

    Cash provided by (used in):

    Operating activities
      Net earnings for the year                $  12,885,048   $  12,190,065
      Items not affecting cash:
        Unrealized loss in value of mortgages        300,000         310,000
        Accretion in convertible debentures          216,219         146,939
      Net changes in non-cash operating items:
        Increase in amounts receivable
         and prepaid expenses                        (18,336)       (474,002)
        Increase in accounts payable and
         accrued liabilities                         248,009         138,527
        Increase (decrease) in unearned income        30,114         (10,860)
    -------------------------------------------------------------------------
                                                  13,661,054      12,300,669

    Financing activities:
      Proceeds from issuance of units                456,630         241,644
      Proceeds from convertible debentures                 -      25,000,000
      Increase in bank indebtedness               12,491,474         629,267
      Increase in loans payable                   10,018,887      18,678,726
      Debenture offering costs                             -      (1,229,246)
      Distributions to unitholders               (12,885,048)    (12,190,065)
      Distributions payable                        2,186,413               0
    -------------------------------------------------------------------------
                                               $  12,268,356      31,130,326

    Investing activities:
      Funding of mortgage investments           (173,281,137)   (139,563,985)
      Discharge of mortgage investments          147,351,727      96,132,990
    -------------------------------------------------------------------------
                                                 (25,929,410)    (43,430,995)

    -------------------------------------------------------------------------
    Increase in cash, being cash, beginning
     and end of year                           $           -   $           -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Supplemental cash flow information
      Interest paid (note 13)                  $   5,206,353   $   4,045,315

    Supplemental disclosure of non-cash
     financing and investing activities:
      Equity component of convertible
       debentures issued                                   -         380,482
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to financial statements.



    FIRM CAPITAL MORTGAGE INVESTMENT TRUST
    Notes to Financial Statements

    Years ended December 31, 2007 and 2006

    1.  Organization of Trust:

        Firm Capital Mortgage Investment Trust (the "Trust") is a closed-end
        trust created for the benefit of the unitholders, pursuant to the
        Declaration of Trust dated July 13, 1999, as amended and restated.

        Pursuant to the Declaration of Trust, the Trust's mortgage banker is
        Firm Capital Corporation and the trust manager is
        FC Treasury Management Inc.

    2.  Summary of significant accounting policies:

        The Trust's accounting policies and its standards of financial
        disclosure are in accordance with Canadian generally accepted
        accounting principles ("GAAP").

        (a)   Mortgage investments:

              Mortgage investments are stated at estimated fair value in
              accordance with Canadian Institute of Chartered Accountants
              Accounting Guideline 18. Fair value is the amount of
              consideration that would be agreed upon in an arm's length
              transaction between knowledgeable, willing parties who are
              under no compulsion to act. The fair value of Mortgage
              investments approximate their carry values due to the fact
              that the majority of the mortgages are (i) are short-term in
              nature with terms of 12 months or less, (ii) repayable in full,
              at any time at the option of the borrower prior to maturity
              without penalty, and (iii) have minimum specified interest
              rates for mortgages with floating rates linked to bank prime.
              When, in management's opinion, collection of principal on a
              particular mortgage investment is no longer reasonably assured,
              the fair value of the mortgage investment is reduced to reflect
              the estimated net realizable recovery from the collateral
              securing the mortgage loan.

        (b)   Convertible debentures:

              The Trust's convertible debentures are classified into debt and
              equity components. The equity component represents the
              estimated value of the conversion rights of the holders.

        (c)   Revenue recognition:

              (i)   Interest and fee income:

                    Interest income is accounted for on the accrual basis,
                    and is recorded net of the Trust Manager interest spread
                    described in note 12. Commitment fees received are
                    amortized over the expected term of the mortgage.

              (ii)  Non-conventional mortgages:

                    Special profit participations earned by the Trust on
                    non-conventional mortgages are recognized only once the
                    receipt of such amounts is certain.

        (d)   Use of estimates:

              The preparation of financial statements requires management to
              make estimates and assumptions that affect the reported amounts
              of assets and liabilities, disclosure of contingent assets and
              liabilities at the date of the financial statements and the
              reported amounts of revenue and expenses during the year.
              Actual results could differ from those estimates.

        (e)   Unit-based compensation:

              The Trust has unit-based compensation plans (i.e. incentive
              option plan) which are described in note 8. The Trust accounts
              for its unit-based compensation using the fair value method,
              under which compensation expense is measured at the grant date
              and recognized over the vesting period.

        (f)   Basic and diluted net earnings per unit:

              Basic net earnings per unit is computed by dividing net
              earnings for the year by the weighted average number of units
              outstanding during the year. Diluted net earnings per unit is
              computed similarly to basic net earnings per unit, except that
              the weighted average number of shares outstanding is increased
              to include additional shares from the assumed exercise of
              incentive option units and the conversion of the convertible
              debentures, if dilutive. The number of additional units is
              calculated by assuming that outstanding incentive options were
              exercised and that proceeds from such exercises were used to
              acquire units at the average market price during the year. The
              additional units would also include those units issuable upon
              the assumed conversion of the convertible debentures, with an
              adjustment to net earnings for the year to add back any
              interest paid to the debenture holders. These common equivalent
              units are not included in the calculation of the weighted
              average number of units outstanding for diluted earnings per
              unit when the effect would be anti-dilutive.

    3.  New accounting policies:

        Effective January 1, 2007, the Trust adopted the following new
        accounting standards issued by the Canadian Institute of Chartered
        Accountants Accounting Standards Board:

        CICA Section 1530, "Comprehensive Income", requires the presentation
        of a Statement of Comprehensive Income where certain gains and losses
        that would otherwise be recorded as part of net earnings are
        presented in other comprehensive income until it is considered
        appropriate to recognize it in net earnings. The Trust does not have
        any material income from this source and as such a Statement of
        Comprehensive Income has not been included in these financial
        statements.

        CICA Section 3865, "Hedges", specifies the requirements for the use
        of hedge accounting. The Trust does not apply hedge accounting.

        CICA Section 3855, "Financial Instruments - Recognition and
        Measurement", establishes standards for recognizing and measuring
        financial assets and financial liabilities including non-financial
        derivatives. In accordance with this new standard, the Trust is
        required to classify its financial assets as one of the following:
        (i) held-to-maturity, (ii) loans and receivables, (iii) held for
        trading or (iv) available for sale. All financial liabilities must be
        classified as: (i) held for trading or (ii) other liabilities. The
        Trust's designations on adoption are as follows:

           Amounts receivable are classified as "Loans and Receivables" and
           are measured at amortized cost.

           Bank indebtedness, Accounts payable and accrued liabilities,
           Unitholder distribution payable, Loans payable and Convertible
           debentures are classified as "Other Liabilities" and are measured
           at fair value on inception and amortized using the effective
           interest rate method. In accordance with this new standard,
           deferred financing costs relating to the issuance of convertible
           debentures are no longer presented as a separate asset on the
           balance sheet and are now included in the carrying value of the
           convertible debenture. This change in accounting policy has not
           resulted in a change in the net carrying value of the convertible
           debenture and as such no resulting entry has been made to
           Unitholder's Equity.

        The adoption of this standard has not resulted in a change in the
        carry value of any of the Trust's assets or liabilities.

    4.  Mortgages:

        The following is a breakdown of the mortgages as at December 31, 2007
        and 2006:

    -------------------------------------------------------------------------
                                               2007                 2006
    -------------------------------------------------------------------------
                                          Amount     %          Amount     %
    -------------------------------------------------------------------------
    Conventional first mortgages   $ 195,367,641  83.0   $ 170,806,640  81.4
    Conventional non-first
     mortgages                        25,642,548  10.9      26,049,819  12.5
    Non-conventional mortgages &
     related investments              14,446,778   6.1      12,671,098   6.1
    -------------------------------------------------------------------------
    Total mortgage investments
     (at cost)                       235,456,967 100.0     209,527,557 100.0

    Fair value adjustment              1,725,000             1,425,000
    -------------------------------------------------------------------------
    Fair value                     $ 233,731,967         $ 208,102,557
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

        Conventional first mortgages are loans secured by a first priority
        mortgage charge with loan to values not exceeding 75%. Conventional
        non-first mortgages are loans secured by either a second or third
        priority mortgage charge with loan to values not exceeding 75%.
        Non-conventional mortgages & related investments are loans having
        loans to value exceeding 75%. Included with Non-conventional
        mortgages & related investments is one loan not directly secured on
        real property totalling $1,311,043 (2006 - $1,408,584).

        Mortgages are stated at estimated fair value in accordance with
        Canadian Institute of Chartered Accountants Accounting Guideline 18.
        Estimated fair value is based on discounted cash flows. The discount
        interest rate utilized by the Trust is equivalent to the weighted
        average interest rate on the mortgage portfolio since the majority of
        the mortgages are (i) are short-term in nature with terms of 12
        months or less, (ii) repayable in full, at any time at the option of
        the borrower prior to maturity without penalty, and (iii) have
        minimum specified interest rates for mortgages with floating rates
        linked to bank prime. When, in management's opinion, collection of
        principal and/or interest on a particular mortgage investment is no
        longer reasonably assured, the value of the mortgage investment is
        reduced to reflect the estimated net realizable recovery from the
        collateral securing the mortgage loan. The Fair value adjustment in
        the amount of $1,725,000 as at December 31, 2007 represents the total
        amount of management's estimate of the shortfall between the mortgage
        investment principal balances and the estimated net realizable
        recovery from the collateral securing the mortgage loans.

        The mortgages are secured by real property, bear interest at the
        weighted average rate of 9.55% (2006 - 9.48%) and mature between 2008
        and 2012.

        The un-advanced funds under the existing mortgage portfolio (which
        are commitments of the Trust) amounted to $49,359,642 as at
        December 31, 2007 (2006 - $40,759,332).

        Credit risk arises from the possibility that mortgagors may
        experience financial difficulty and be unable to fulfill their
        mortgage commitments. In accordance with the operating policies of
        the Declaration of Trust, the Trust mitigates the risk of credit loss
        by ensuring that its mix of mortgages is diversified between
        conventional and non-conventional mortgages, and by limiting its
        exposure to any one mortgagor.

        Interest rate risk arises from a mismatch of terms on borrowings to
        terms on the mortgage investments. The bank indebtedness bears
        interest at a floating rate that fluctuates with bank prime. A
        significant portion of the investment portfolio is short term in
        nature and also bears interest that fluctuates with bank prime,
        subject to an interest rate floor, thereby partially mitigating the
        interest rate risk. Interest on loans payable is matched to specific
        mortgage investments, thereby ensuring positive interest rate spread.

        Principal repayments based on contractual maturity dates are as
        follows

    -------------------------------------------------------------------------
    2008                           $ 181,031,611
    2009                              43,342,559
    2010                               7,764,797
    2011                               3,000,000
    2012                                 318,000
    -------------------------------------------------------------------------
                                   $ 235,456,967
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

        Borrowers who have open loans have the option to repay principal at
        anytime prior to the maturity date.

    5.  Bank indebtedness:

        The Trust has entered into credit arrangements of which $52,593,158
        (2006 - $40,101,684) has been drawn. Interest on bank indebtedness is
        predominately charged at rates that vary with bank prime and may have
        a component with a fixed interest rate established based on a formula
        linked to Bankers Acceptance rates. The credit arrangement comprises
        a revolving operating facility, a component of which is a demand
        facility and a component of which has a committed term to
        September 30, 2008. Bank indebtedness is secured by a general
        security agreement. The credit agreement contains certain financial
        covenants that must be maintained.

    6.  Loans payable:

        First priority charges on specific mortgage investments have been
        granted as security for the loans payable. The loans mature on dates
        consistent with those of the underlying mortgages. The loans are on a
        non-recourse basis and bear interest at rates ranging from 6.25% to
        7.55% as at December 31, 2007 (2006 - 5.30% to 8.50%).

        The loans are repayable at the earlier of the contractual expiry date
        of the underlying mortgage investment and the date the underlying
        mortgage is repaid. Repayments based on contractual maturity dates
        are as follows:

    -------------------------------------------------------------------------
    2008                           $  25,127,447
    2009                               9,125,518
    2010                               1,749,096
    -------------------------------------------------------------------------
                                   $  36,002,060
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    7.  Convertible debentures:

        On April 24, 2006, the Trust completed a public offering of 25,000
        6% convertible unsecured subordinated debentures at a price of $1,000
        per debenture for gross proceeds of $25,000,000. The debentures
        mature on June 30, 2013 and interest is paid semi-annually on
        June 30 and December 31. The debentures are convertible at the option
        of the holder at any time prior to the maturity date at a conversion
        price of $11.75. The debentures may not be redeemed by the Trust
        prior to June 30, 2009. On and after June 30, 2009, but prior to
        June 30, 2010, the debentures are redeemable at a price equal to the
        principal, plus accrued interest, at the Trust's option on not more
        than 60 days and not less than 30 days notice, provided that the
        weighted average trading price of the units on the Toronto Stock
        Exchange for the 20 consecutive trading days ending five trading days
        preceding the date on which the notice of redemption is given is not
        less than 125% of the conversion price. On and after June 30, 2010
        and prior to the maturity date, the debentures are redeemable at a
        price equal to the principal amount plus accrued interest, at the
        Trust's option on not more than 60 days and not less than 30 days
        prior notice. On redemption or at maturity, the Trust may, at its
        option, elect to satisfy its obligation to pay all or a portion of
        the principal amount of the debenture by issuing that number of units
        of the Trust obtained by dividing the principal amount being repaid
        by 95% of the weighted average trading price of the units for the
        20 consecutive trading days ending on the fifth trading day preceding
        the redemption or maturity date.

        The convertible debentures were allocated into liability and equity
        components on the date of issuance as follows:

    -------------------------------------------------------------------------
    Liability                      $ 25,000,000
    Equity                              380,482
    -------------------------------------------------------------------------
    Principal                      $ 24,619,518
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

        The accretion of the liability component of the convertible
        debentures, which increases the liability component from the initial
        allocation on the date of issuance, is included in interest expense.

    -------------------------------------------------------------------------
                                                        2007            2006
    -------------------------------------------------------------------------
    Liability, beginning of year (or
     April 24/06 for 2006)                     $  23,537,211   $  23,390,308
    Implicit interest rate in excess of
     coupon rate                                      45,230          29,355
    Amortization of debenture financing costs        170,989         117,548
    -------------------------------------------------------------------------
    Liability, end of year                     $  23,753,430   $  23,537,211
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

        As discussed in Note 3 herein, in accordance with the new accounting
        standard adopted by the Trust, Deferred financing costs relating to
        the issuance of convertible debentures are no longer presented as a
        separate asset on the balance sheet and are now netted against the
        carrying value of the convertible debenture.

        Notwithstanding the carry value of the convertible debenture, the
        principal balance outstanding to the debenture holders is
        $25,000,000.

    8.  Unitholders' equity:

        The beneficial interests in the Trust are represented by a single
        class of units which are unlimited in number. Each unit carries a
        single vote at any meeting of unitholders and carries the right to
        participate pro rata in any distributions.

        (a)   The following units are issued and outstanding:

    -------------------------------------------------------------------------
                                                        2007            2006
    -------------------------------------------------------------------------
    Balance, beginning of year                    12,593,549      12,570,072

    Net units from exercise of options                22,500               -
    New units issued during the year under
     Distribution Reinvestment Plan                   22,178          23,477
    -------------------------------------------------------------------------
    Balance, end of year                          12,638,227      12,593,549
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

        (b)   Incentive option plan:

              In November, 2005, 415,000 options were issued to trustees,
              directors, officers and employees of the Trust Manager and
              Mortgage Banker, with an exercise price of $9.90 per unit. The
              options are exercisable any time up to November 17, 2010. The
              fair value of the unit options used to compute compensation
              expense of $21,729 (which was recorded in the fourth quarter of
              2005) is the estimated fair value of all options granted on the
              grant date. This was calculated for the options granted during
              the 2005 using the Black-Scholes option pricing model with the
              following assumptions: expected distribution yield is 9.44%,
              expected volatility is 8.83%; risk free interest rate is 3.96%;
              and expected option life in years is 5. The options vested on
              the grant date. During 2007 22,500 unit options were exercised.
              As at December 31, 2007, 392,500 options remained outstanding.

        (c)   Distribution reinvestment plan and direct unit purchase plan:

              The Trust has a distribution reinvestment plan and direct unit
              purchase plan for its unitholders which allows participants to
              reinvest their monthly cash distributions in additional trust
              units at a unit price equivalent to the weighted average price
              of units for the proceeding five day period.

    9.  Per unit amounts:

        The following table reconciles the numerators and denominators of the
        basic and diluted earnings per unit.

        Basic earnings per unit calculation:

    -------------------------------------------------------------------------
                                                        2007            2006
    -------------------------------------------------------------------------
    Numerator for basic earnings per unit:
      Net earnings                             $  12,885,048   $  12,190,065
    -------------------------------------------------------------------------
    Denominator for basic earnings per unit:
          Weighted average units                  12,616,382      12,578,514
    -------------------------------------------------------------------------
    Basic earnings per unit                    $       1.021   $       0.969
    -------------------------------------------------------------------------

    Diluted earnings per unit calculation:

    -------------------------------------------------------------------------
                                                        2007            2006
    -------------------------------------------------------------------------
    Numerator for diluted earnings per unit:
      Net earnings                             $  12,885,048   $  12,190,065
      Interest on convertible debentures           1,716,219       1,172,282
    -------------------------------------------------------------------------
    Net earnings for diluted earnings per unit $  14,601,267   $  13,362,347
    -------------------------------------------------------------------------
    Denominator for diluted earnings per unit:
      Weighted average units                      12,616,382      12,578,514
      Net units that would be issued:
        Assuming the proceeds from
         incentive options are used to
         repurchase units at the
         average unit price                           22,076          14,951

        Assuming convertible debentures
         are converted                             2,127,660       1,463,130
    -------------------------------------------------------------------------
    Diluted weighted average units                14,766,117      14,056,596
    -------------------------------------------------------------------------
    Diluted earnings per unit                  $       0.989   $       0.951
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    10. Distributions:

        The Trust makes distributions to the unitholders on a monthly basis
        on or about the 15th day of each month. The Declaration of Trust
        provides that the Trust will distribute by year end at least 100% of
        the net income of the Trust determined in accordance with the Income
        Tax Act (Canada), subject to certain adjustments, to Unitholders. The
        net income of the Trust determined in accordance with the Income Tax
        Act (Canada), for the year ended December 31, 2007 was $12,398,473
        (2006 - $11,226,893).

        For the year ended December 31, 2007, the Trust recorded
        distributions of $12,885,048 (2006 - $12,190,065) to its unitholders.
        Distributions were $1.021 (2006 - $0.969) per unit.

    11. Income taxes:

        The Trust is taxed as a mutual fund trust for income tax purposes.
        Pursuant to the Declaration of Trust, the Trust is required to
        distribute its income for income tax purposes each year to such an
        extent that it will not be liable for income tax under Part 1 of the
        Income Tax Act (Canada). Therefore, no provision for income taxes is
        required on income earned by the Trust.

        On June 22, 2007, Bill C-52, which significantly modifies the income
        tax rules applicable to certain publicly traded or listed trusts and
        partnerships, received Royal Assent. In particular, certain income of
        (and distributions made by) these entities will be taxed in a manner
        similar to income earned by (and distributions made by) a
        corporation. These rules will be effective for the 2007 taxation year
        with respect to trusts which commence public trading after
        October 31, 2006. For trusts which were publicly traded or listed
        prior to November 1, 2006, the application of the rules will be
        delayed to the earlier of (i) the trust's 2011 taxation year, and
        (ii) a taxation year of the trust in which the trust exceeds normal
        growth as determined by reference to the normal growth guidelines, as
        amended from time to time, unless that excess arose as a result of a
        prescribed transaction. As currently structured, the Trust will be
        subject to these new rules, once applicable.

        On December 15, 2006, the Department of Finance (Canada) released the
        normal growth guidelines for income trusts and other flow-through
        entities that qualify for the four-year transitional relief. The
        guidance establishes objective tests with respect to how much an
        income trust is permitted to grow without jeopardizing its
        transitional relief. In general, the Trust will be permitted to issue
        new equity, which for these purposes includes units and convertible
        debt, in each of the next three years equal to the greater of
        $50 million and a certain percentage of the Trust's market
        capitalization as of the end of trading on October 31, 2006 (up to
        100% percent during the transitional period). This latter amount is
        cumulative to the extent it is not used in a given year and,
        accordingly, the Trust will be permitted to issue new equity during
        the transitional period at least equal to its October 31, 2006 market
        capitalization (subject to the applicable annual limits). Market
        capitalization, for these purposes, is to be measured in terms of the
        value of the Trust's issued and outstanding publicly-traded units. If
        these limits are exceeded, the Trust may lose its transitional relief
        and thereby become immediately subject to the new rules. The Trust
        has not exceeded these limits.

        The Trust is considering these legislative changes and their possible
        impact to the Trust. The new rules (including the normal growth
        guidelines released on December 15, 2006) may adversely affect the
        marketability of the Trust's units and the ability of the Trust to
        undertake financings and acquisitions, and, at such time as the new
        rules apply to the Trust, the distributable cash of the Trust may be
        materially reduced.

        The Trust expects that its distributions will not be subject to tax
        prior to 2011 and accordingly has not recorded future income taxes on
        temporary differences expected to be reversed prior to then. In
        addition, as the temporary differences between accounting and taxable
        income will all, or substantially all, reverse during the
        transitional period when the tax rate is 0%, a future tax asset or
        liability was not recorded.

    12. Related party transactions and balances:

        Transactions with related parties are in the normal course of
        business and are recorded at the exchange amount, which is the amount
        of consideration established and agreed to by the related parties,
        and represents fair market value.

        The Trust Manager (a company controlled by some of the trustees),
        pursuant to the Trust Management Agreement and Declaration of Trust,
        receives an allocation of mortgage interest referred to as
        Trust Manager spread interest, calculated as 0.75% per annum of the
        Trust's daily outstanding performing mortgage investment balances.
        For the year ended December 31, 2007 this amount was $1,592,107
        (2006 - $1,436,530), and was deducted from interest and fees earned.

        The Mortgage Banker (a company controlled by a Trustee), pursuant to
        the Mortgage Banking Agreement and Declaration of Trust, receives
        certain fees from the borrowers as follows: loan servicing fees equal
        to 0.10% per annum on the principal amount of each of the Trust's
        mortgage investments; 75% of all the commitment and renewal fees
        generated from the Trust's mortgage investments and 25% of all the
        special profit income generated from the non-conventional mortgage
        investments after the Trust has yielded a 10% per annum return on its
        investments. Interest and fee income is net of the loan servicing
        fees paid to the Mortgage Banker of approximately $212,000
        (2006 - $192,000). The Mortgage Banker also retains all overnight
        float interest and incidental fees and charges payable by borrowers
        on the Trust's mortgage investments. The Trust's share of commitment
        and renewal fees recorded in income for the year ended
        December 31, 2007 was $933,872 (2006 - $686,765) and applicable
        special profit income for the year ended December 31, 2007 was
        $554,646 (2006 - $580,970).

        The Trust Management Agreement and Mortgage Banking Agreement
        contains provisions for the payment of termination fees to the Trust
        Manager and Mortgage Banker in the event that the respective
        agreements are either terminated or not renewed.

        Several of the Trust's mortgages are shared with other investors of
        the Mortgage Banker, which may include members of management of the
        Mortgage Banker and/or Officers or Trustees of the Trust. The Trust
        ranks equally with other members of the syndicate as to receipt of
        principal and income.

        Mortgages totalling $1,760,000 at December 31, 2007
        (2006 - $1,760,000) were issued to borrowers controlled by certain
        Trustees of the Trust. Each mortgage is dealt with in accordance with
        the Trust's existing investment and operating policies and is
        personally guaranteed by the related Trustee.

    13. Interest:


    -------------------------------------------------------------------------
                                                        2007            2006
    -------------------------------------------------------------------------
    Bank interest expense                      $   2,156,534   $   2,006,305
    Loans payable interest expense                 1,836,776       1,101,769
    Debenture interest expense                     1,716,219       1,172,282
    -------------------------------------------------------------------------
    Interest expense                           $   5,709,529   $   4,280,356
    Deferred finance cost amortization -
     convertible Debenture                          (170,989)       (117,584)
    Implicit interest rate in excess of
     coupon rate - Convertible debentures            (45,230)        (29,355)
    Change in accrued interest                      (286,957)        (88,102)
    -------------------------------------------------------------------------
    Cash interest paid                         $   5,206,353   $   4,045,315
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    14. Contingent liabilities:

        The Trust is involved in certain litigation arising out of the
        ordinary course of investing in mortgages. Although such matters
        cannot be predicted with certainty, management believes the claims
        are without merit and does not consider the Trust's exposure to such
        litigation to have an impact on these financial statements.

    15. Fair value of financial Instruments:

        The fair value of amounts receivable, bank indebtedness, accounts
        payable and accrued liabilities, unearned income and unitholder
        distribution payable, approximate their carry values due to their
        short-term maturities.

        The fair value of Loans payable approximate their carry values due to
        the fact that the majority of the loans are (i) are short-term in
        nature with terms of 12 months or less, (ii) repayable in full, at
        any time upon the borrower under the underlying mortgage that secures
        the loan payable repaying their mortgage without penalty, and (iii)
        have floating interest rates linked to bank prime.

        The fair value of the Convertible debentures has been determined
        based on the December 31 closing price on the TSX. The fair value has
        been estimated at December 31, 2007 to be $23,000,000
        (2006 - $24,750,000).

    16. Future accounting policy changes:

        New accounting standards issued in December 2006, Handbook Sections
        3862 (Financial Instruments - Disclosures) and Section 3863
        (Financial Instruments - Presentation), replace Section 3861
        (Financial Instruments - Disclosure and Presentation). The new
        standards require increased qualitative and quantitative disclosures
        about an entity's exposure to risks arising from financial
        instruments and how the entity manages those risks. These new
        standards are effective for the Trust from January 1, 2008.
        Management does not expect the impact from implementing these new
        standards to be significant.

    17. Comparative figures:

        Certain 2006 comparative figures have been reclassified to conform
        with the financial statement presentation adopted in 2007.

    




For further information:

For further information: Eli Dadouch, President & Chief Executive
Officer, (416) 635-0221, www.firmcapital.com


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