Firm Capital Mortgage Investment Trust announces year-end 2006 results



    TSX Symbol FC.UN

    TORONTO, March 13 /CNW/ - Firm Capital Mortgage Investment Trust (the
"Trust") (TSX FC.UN), released today its financial statements for the fiscal
year ended December 31, 2006.
    Net earnings for the year ended December 31, 2006 totaled $12,190,065,
being the amount that was distributed to Unitholders for the year. Basic net
earnings per unit based on the weighted average number of units outstanding
during the year totaled $0.969. Net earnings represented a return on weighted
average Unitholders' equity of 10.21% per annum. This return on Unitholders'
equity equates to 605 basis points per annum over the average One Year
Government of Canada Treasury Bill yield 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. Distributions to Unitholders for the 2006 year totaled
$0.969 per unit.
    As at December 31, 2006, the Trust's mortgage portfolio increased to
$208,102,557 as compared to $164,981,562 as at December 31, 2005, representing
an increase of 26%. The portfolio continued to be heavily concentrated in
first mortgages. As at December 31, 2006, the average portfolio face interest
rate was 9.48%. Management continues to reduce risk by syndicating investments
to ensure that the Trust is not significantly exposed to any single mortgage
investment.
    The Trust has in place a Distribution Reinvestment Plan (DRIP) and Unit
Purchase Plan that is available to its Unitholders. The plans allows
participants to have their monthly cash distributions reinvested in additional
Trust units and grants participants the right to purchase additional units.

    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 finance, 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.


    
                           Financial Statements of
                   FIRM CAPITAL MORTGAGE INVESTMENT TRUST
                   Years Ended December 31, 2006 and 2005


    FIRM CAPITAL MORTGAGE INVESTMENT TRUST
    Balance Sheets

    December 31, 2006 and 2005

    -------------------------------------------------------------------------
                                                     2006           2005
    -------------------------------------------------------------------------

    Assets

    Amounts receivable and prepaid expenses     $   2,074,690  $   1,600,688
    Mortgages (note 3)                            208,102,557    164,981,562
    Deferred financing costs - convertible
     debenture (note 4)                             1,111,662              -
    -------------------------------------------------------------------------
                                                $ 211,288,909  $ 166,582,250
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Unitholders' Equity

    Liabilities:
      Bank indebtedness (note 5)                $  40,101,684  $  39,472,417
      Accounts payable and accrued liabilities        571,991        433,464
      Unearned income                                 305,607        316,467
      Loans payable (note 6)                       25,983,173      7,304,447
      Convertible debenture (note 7)               24,648,873              -
    -------------------------------------------------------------------------
                                                $  91,611,328  $  47,526,795

    Unitholders' equity (note 8):                 119,677,581    119,055,455
      Issued and outstanding:
        12,593,549 units (2005 - 12,570,072)

    Commitments (note 3)
    Contingent liabilities (note 14)
    -------------------------------------------------------------------------
                                                $ 211,288,909  $ 166,582,250
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to financial statements.



    FIRM CAPITAL MORTGAGE INVESTMENT TRUST
    Statements of Earnings

    Years ended December 31, 2006 and 2005

    -------------------------------------------------------------------------
                                                     2006           2005
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Interest and fees earned, net of
     Trust Manager interest allocation
     (note 12)                                  $  17,500,633  $  12,469,989
    Less interest expense (note 13)                 4,280,356      1,317,354
    -------------------------------------------------------------------------

    Net interest and fee income                    13,220,277     11,152,635

    Expenses:
      General and administrative                      720,212        666,024
      Allowance for loan losses                       310,000         20,000
    -------------------------------------------------------------------------
                                                    1,030,212        686,024

    -------------------------------------------------------------------------
    Net earnings for the year                   $  12,190,065  $  10,466,611
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net earnings per unit (note 9)
      Basic                                     $       0.969  $       0.939
      Diluted                                   $       0.951  $       0.939

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to financial statements.



    FIRM CAPITAL MORTGAGE INVESTMENT TRUST
    Statement of Unitholders' Equity

    Years ended December 31, 2006 and 2005

    -------------------------------------------------------------------------
                                                     2006           2005
    -------------------------------------------------------------------------

    Trust units (note 8)

    Balance, beginning of year                  $ 119,055,455  $  95,887,464

    Proceeds from issuance of units                   241,644     24,559,504

    Public offering costs                                   -     (1,413,242)

    Unit based compensation                                 -         21,729

    -------------------------------------------------------------------------
    Balance, end of year                        $ 119,297,099  $ 119,055,455
    -------------------------------------------------------------------------

    Equity component of convertible
     debenture (note 7)

    Balance, beginning of year                              -              -

    Equity component of convertible
     debenture issued                                 380,482              -

    -------------------------------------------------------------------------
    Balance, end of year                              380,482              -
    -------------------------------------------------------------------------

    Cumulative earnings

    Balance, beginning of year                  $  41,099,121  $  30,632,510

    Net earnings                                   12,190,065     10,466,611

    -------------------------------------------------------------------------
    Balance, end of year                        $  53,289,186  $  41,099,121
    -------------------------------------------------------------------------

    Cumulative distributions to unitholders

    Balance, beginning of year                  $  41,099,121  $  30,632,510

    Distributions to unitholders                   12,190,065     10,466,611

    -------------------------------------------------------------------------
    Balance, end of year                        $  53,289,186  $  41,099,121
    -------------------------------------------------------------------------

    Total unitholders equity                    $ 119,677,581  $ 119,055,455

    Units issued and outstanding (Note 8(a))       12,593,549     12,570,072

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to financial statements.



    FIRM CAPITAL MORTGAGE INVESTMENT TRUST
    Statement of Cash Flows

    Years ended December 31, 2006 and 2005

    -------------------------------------------------------------------------
                                                     2006           2005
    -------------------------------------------------------------------------

    Cash provided by (used in):

    Operating activities
      Net earnings for the year                 $  12,190,065  $  10,466,611
      Net changes in non-cash items
        Increase in allowance for loan losses         310,000         20,000
        Deferred financing cost amortization          117,584         21,729
        Implicit interest rate in excess of
         coupon rate - convertible debenture           29,355              -
        Decrease (increase) in amounts receivable
         and prepaid expenses                        (474,002)       (90,111)
        Increase (decrease) in accounts payable
         and accrued liabilities                      138,527        108,956
        Increase (decrease) in unearned income        (10,860)       218,103
    -------------------------------------------------------------------------
                                                   12,300,669     10,745,288

    Financing activities:
      Proceeds from issuance of units                 241,644     24,559,504
      Proceeds from convertible debenture          25,000,000              -
      Increase (decrease) in bank indebtedness        629,267     24,391,924
      Increase (decrease) in loans payable         18,678,726     (3,162,526)
      Public offering costs                                 -     (1,413,242)
      Debenture offering costs                     (1,229,246)             -
      Distributions to unitholders                (12,190,065)   (10,466,611)
    -------------------------------------------------------------------------
                                                   31,130,326     33,909,049

    Investing activities:
      Funding of mortgages                       (139,563,985)  (145,081,741)
      Discharge of mortgages                       96,132,990    100,427,404
    -------------------------------------------------------------------------
                                                  (43,430,995)   (44,654,337)

    -------------------------------------------------------------------------
    Increase in cash, being cash, beginning
     and end of year                            $           -  $           -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash flow information
      Interest paid (note 13)                   $   4,045,315  $   1,287,010

    Supplemental disclosure of non-cash
     financing and investing activities
      Equity component of convertible
       debenture issued                         $     380,482  $           -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to financial statements.



    FIRM CAPITAL MORTGAGE INVESTMENT TRUST
    Notes to Financial Statements
    Years ended December 31, 2006 and 2005

    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)   Mortgages

              Mortgages are stated at fair value. 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. An allowance for loan losses is
              recorded against the portfolio where fair value is determined
              to be less than the original value.

        (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)   Deferred financing costs

              The costs incurred to issue the Trust's convertible debenture
              are amortized over the term of the debenture and the
              amortization is included in interest expense.

        (d)   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
                    allocation 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 upon receipt of
                    such amounts.

        (e)   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.

        (f)   Financial instruments:

              The carrying values of the Trust's amounts receivable, bank
              indebtedness, accounts payable and accrued liabilities and
              loans payable approximate their fair values due to their
              short-term nature. The carrying value of the Trust's mortgages
              approximate their fair value because the majority of the
              mortgages are generally (i) short term, and/or (ii) open for
              repayment by borrowers without bonus or penalty, and/or (iii)
              have interest rates that adjust upwards with increases in bank
              prime, subject to a floor interest rate. The fair values of the
              convertible debentures are estimated to be $24,909,922 at
              December 31, 2006 due to changes in interest rates since the
              debentures were issued. The fair values have been estimated
              based on current market rates for debts with similar terms and
              conditions.

        (g)   Unit-based compensation:

              The Trust has unit-based compensation plans (i.e. incentive
              option plan) which are described in note 8(b). 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.

        (h)   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
              debenture, 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 debenture, 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.

        (i)   Financial instruments and comprehensive income:

              The CICA has issued new accounting rules on financial
              instruments, hedges and comprehensive income that require an
              entity to account for all of its financial assets and
              liabilities at fair value. The new rules are effective
              January 1, 2007, at which time the Trust will remeasure its
              financial assets and liabilities, at fair value and report a
              new section of shareholders' equity called other comprehensive
              income, as appropriate.

              The Trust is determining the impact that these changes in
              accounting policy will have on its financial statements once
              adopted.

    3.  Mortgages

        The following is a breakdown of the mortgages as at December 31, 2006
        and 2005:

        ---------------------------------------------------------------------
                                         2006                 2005
        ---------------------------------------------------------------------
                                        Amount      %        Amount      %
        ---------------------------------------------------------------------
        Conventional first
         mortgages                 $ 170,806,640   81.4 $ 135,295,004   81.5
        Conventional non-first
         mortgages                    26,049,819   12.5    16,148,324    9.7
        Non-conventional mortgages
         & related investments        12,671,098    6.1    14,653,234    8.8
        ---------------------------------------------------------------------
                                     209,527,557  100.0   166,096,562  100.0

        Allowance for loan losses      1,425,000            1,115,000

        ---------------------------------------------------------------------
                                   $ 208,102,557        $ 164,981,562
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The mortgages are secured by real property, bear interest at the
        weighted average rate of 9.48% (2005 - 9.29%) and mature between 2007
        and 2011. Included with mortgages is one loan not directly secured on
        real property totalling $1,408,584 (2005 - two loans totalling
        $3,285,000).

        The continuity of allowance for loan losses is as follows:

        ---------------------------------------------------------------------
                                                      2006           2005
        ---------------------------------------------------------------------
        Balance, beginning of year                  1,115,000      1,095,000
        Increase during the year                      310,000         20,000

        ---------------------------------------------------------------------
        Balance - End of year                       1,425,000      1,115,000
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The unadvanced funds under the existing mortgage portfolio (which are
        commitments of the Trust) amounted to $40,759,332 as at December 31,
        2006 (2005 - $43,810,378).

        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.

        Where appropriate, management makes specific provisions for loan
        losses. Specific provisions are determined on an item by item basis
        and reflect the estimated realizable amount of a mortgage.

        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:

        ---------------------------------------------------------------------
        2007                                                   $ 147,035,417
        2008                                                      47,429,063
        2009                                                      13,263,414
        2010                                                         426,855
        2011                                                       1,372,808
        ---------------------------------------------------------------------
                                                               $ 209,527,557
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

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

    4.  Deferred financing costs:

        ---------------------------------------------------------------------
                                                      2006           2005
        ---------------------------------------------------------------------
        Deferred financing costs
          - convertible debenture                   1,229,246              -

        Accumulated amortization                     (117,584)             -

        ---------------------------------------------------------------------
                                                    1,111,662              -
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    5.  Bank indebtedness:

        The Trust has entered into credit arrangements of which $40,101,684
        (2005 - $39,472,417) 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. 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 5.30% to
        8.50% (2005 - 5.30% to 6.85%).

        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:

        ---------------------------------------------------------------------
        2007                                                   $   1,671,700
        2008                                                      16,975,982
        2009                                                         726,415
        2010                                                       6,435,254
        2011                                                         173,822
        ---------------------------------------------------------------------
                                                               $  25,983,173
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    7.  Convertible Debenture:

        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
        preceeding 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.

        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
        debenture, which increases the liability component from the initial
        allocation on the date of issuance, is included in interest expense.

        ---------------------------------------------------------------------
        Liability, April 24, 2006               $  24,619,518
        Implicit interest rate in excess of
         Coupon rate                                   29,355

        ---------------------------------------------------------------------
        Liability, December 31, 2006            $  24,648,873
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    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:

        ---------------------------------------------------------------------
                                                      2006           2005
        ---------------------------------------------------------------------

        Balance, beginning of year                 12,570,072     10,424,369
        New units from public offering during
         the year                                           -      2,130,000
        New units issued during the year under
         Distribution Reinvestment Plan                23,477         15,703

        ---------------------------------------------------------------------
        Balance, end of year                       12,593,549     12,570,072
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (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 each option grant 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 volatililty 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.

        (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 preceeding 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:

        ---------------------------------------------------------------------
                                                      2006           2005
        ---------------------------------------------------------------------

        Numerator for basic earnings
         per unit:
          Net earnings                          $  12,190,065  $  10,466,611

        ---------------------------------------------------------------------

        Denominator for basic earnings per unit:
          Weighted average units                   12,578,514     11,142,238

        ---------------------------------------------------------------------

        Basic earnings per unit                 $       0.969  $       0.939

        ---------------------------------------------------------------------

        Diluted earnings per unit calculation:


        ---------------------------------------------------------------------
                                                      2006           2005
        ---------------------------------------------------------------------

        Numerator for diluted earnings
         per unit:
          Net earnings                          $  12,190,065  $  10,466,611
          Interest on convertible debentures        1,172,282              -

        ---------------------------------------------------------------------
        Net earnings for diluted earnings
         per unit                               $  13,362,347  $  10,466,611
        ---------------------------------------------------------------------



        ---------------------------------------------------------------------
        Denominator for diluted earnings
         per unit:
          Weighted average units                   12,578,514     11,142,238
          Net units that would be issued:
            Assuming the proceeds from incentive
             options are used to repurchase units
             at the average unit price                 14,951          5,481

            Assuming convertible debentures
             are converted                          1,463,130              -

        ---------------------------------------------------------------------
        Diluted weighted average units             14,056,595     11,147,719
        ---------------------------------------------------------------------

        Diluted earnings per unit               $       0.951  $       0.939

        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    10. Distributions:

        The Trust makes distributions to the unitholders on a monthly basis
        on or about the 15th day of each month other than January and on
        December 31 in each calendar year. The Declaration of Trust provides
        that the Trust will distribute 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.

        For the year ended December 31, 2006, the Trust recorded
        distributions of $12,190,065 (2005 - $10,466,611) to its unitholders.
        Distributions were $0.969 (2005 - $0.935) 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.

        In respect of the assets and liabilities of the Trust, the net book
        value for accounting purposes of those net assets is less than their
        tax basis by an amount of approximately $1,600,000 (2005 -
        $2,850,000).

        On December 21, 2006, the Department of Finance (Canada) ("Finance")
        released for public comment draft legislation relating to the
        taxation of publicly-traded trusts (such as income trusts and real
        estate investment trusts) and partnerships for Canadian federal
        income tax purposes (the "Proposals"). There can be no assurance that
        the Proposals will be enacted in the form proposed, if at all. The
        Proposals create the concept of "specified investment flow-through"
        entities, or "SIFTs", which would generally be subject to a new tax
        on distributions. The Trust has considered the Proposals and
        determined that the Trust could be a SIFT.

        Under the Proposals, SIFTs would be taxed on certain distributions of
        income made to unitholders. (Returns of capital are not subject to
        this tax.) This tax is intended to replicate the entity-level tax
        that the SIFT would pay if it were a corporation. In addition, the
        Proposals generally provide that such distributions will be taxed in
        the hands of unitholders as though they were dividends received by
        the unitholders from a taxable Canadian corporation. Therefore,
        individual Canadian resident unitholders will be entitled to the
        proposed enhanced dividend gross-up and tax credit mechanism.

        The Proposals will be effective for the 2007 taxation year with
        respect to trusts and partnerships that commence public trading after
        October 31, 2006; but the application of the Proposals will be
        delayed to the 2011 taxation year with respect to trusts and
        partnerships the units of which were publicly traded prior to
        November 1, 2006 ("Existing Trusts and Partnerships"). However, at
        the time of the Proposals' release, Finance indicated that this
        transitional relief might be lost in certain circumstances, including
        "undue expansion" of an income trust.

        On December 15, 2006, Finance released guidelines that establish
        objective tests to determine and limit the amount of growth Existing
        Trusts and Partnerships will be permitted without jeopardizing their
        transitional relief.

        The Trust is considering these announcements and the possible impact
        of the Proposals on the Trust. The Proposals may adversely affect the
        marketability of the Trust's units and, if they apply to the Trust,
        the distributable cash of the Trust may be materially reduced.

    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 interest allocation, calculated as 0.75% per annum of the
        Trust's daily outstanding performing mortgage investment balances.
        For the year ended December 31, 2006 this amount was $1,436,530
        (2005 - $1,008,051), 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 $192,000 (2005 -
        $134,000). 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, 2006
        was $686,765 (2005 - $513,018) and applicable special profit income
        for the year ended December 31, 2006 was $580,970 (2005 - $576,032).

        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, 2006 (2005 -
        $1,440,000) 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

        ---------------------------------------------------------------------
                                                      2006           2005
        ---------------------------------------------------------------------
        Bank interest expense                   $   2,006,305  $     858,487
        Loans payable interest expense              1,101,769        458,867
        Debenture interest expense                  1,172,282              -
        ---------------------------------------------------------------------
        Interest Expense                        $   4,280,356  $   1,317,354
        Deferred finance cost amortization
         - Convertible debentures                    (117,584)             -
        Implicit interest rate in excess of
         coupon rate - Convertible debentures         (29,355)             -
        Change in accrued interest                    (88,102)       (30,344)
        ---------------------------------------------------------------------

        Cash interest paid                      $   4,045,315  $   1,287,010
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    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. Comparative figures:

        Certain 2005 comparative figures have been reclassified to conform
        with the financial statement presentation adopted in 2006.
    





For further information:

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


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