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Kv Mortgage Fund Inc. (c) Fund operating expenses: Each class of preferred shares is responsible for the payment of its proportionate share of common operating expenses such as directors' fees, independent review committee fees, audit fees, filing fees, legal fees and other administrative expenses, in addition to the expenses that are attributable to a particular class of shares. The common operating expenses are allocated on a proportionate basis to each class of shares based on the weighted average number of preferred shares outstanding for the year. (d) Director fees: Effective June 1, 2012 the Fund appointed three directors that are independent of management to its board of directors. In respect of their services, independent directors are provided compensation under the PSC plan as described in Note 1, or alternatively may elect to receive compensation in the form of a $2,000 cash retainer for each year of service. (e) Independent review committee fees: Effective January 10, 2013 the Fund appointed members to the independent review committee. In respect of their services, members that are independent of management are provided compensation of $100 for each meeting they attend. 5. Related party balances and transactions: (a) As at February 28, 2013, $22,230 (February 29, 2012 – $20,489) is payable by the Fund to the Fund Manager for management fees. In addition, $27,083 (February 29, 2012 – $32,128) and $881 (February 29, 2012 – $2,900) is payable by the Fund to the Fund Manager respectively for service fees and the reimbursement of Fund operating expenses paid by the Fund Manager. (b) As at February 28, 2013, $1,900 (February 29, 2012 – $nil) is payable by the Fund to the directors that are independent of management for remuneration as directors and members of the independent lending review committee. (c) As at February 28, 2013, the Fund has co-invested as a syndicate with one related party in a mortgage loan secured by real estate that is owned by a third party. The related party syndicate member is a director, officer and common shareholder of the Fund and a director, officer and shareholder of the Fund Manager. The Fund's share in the mortgage investment is $475,000 (February 29, 2012 – $nil). The Fund Manager has been retained by the director to provide loan administration services. (d) The Fund incurred $7,373 (February 29, 2012 – $55,168) in share issue costs to the Fund Manager for subscriptions to the Fund's preferred shares that occurred prior to June 1, 2012. After June 1, 2012 the Fund does not pay share issue costs in respect of the distribution of Class A and Class B preferred shares. (e) The Fund incurred $85,596 (February 29, 2012 – $32,128) in service fees to the Fund Manager during the year. (f ) The Fund received a repayment of $99,421 (February 29, 2012 – $nil) from the Fund Manager during the year to offset the Fund's unamortized share issue balance at June 1, 2012. This repayment was in respect of share issue costs that were previously paid to the Manager under the terms of the Fund's structure prior to June 1, 2012 (see note 5(d)). (g) The Fund made a repayment of unearned income to the Fund Manager of $16,100 (February 29, 2012 – $nil). This repayment was in respect of structural changes to the Fund that occurred on January 21, 2013. (h) As at February 28, 2013 related parties, including certain directors that are not independent of management, voting shareholders, and their immediate families and related corporations, held 150,984.31 (February 29, 2012 – 183,848.03) of Class A preferred shares, with a total dollar value of $1,509,843.10 (February 29, 2012 – $1,838,480). 39

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