E-Delivery

Kv Mortgage Fund Inc. Recent Developments During fiscal 2013, the Fund continued to benefit from being able to selectively invest in the mortgage securities of the Fund Manager. With real estate participants seeing good economic fundamentals in Western Canada, transactional activity has remained strong. The Fund Manager has developed a professional reputation resulting in numerous repeat borrowers and a growing network of referrals, this, combined with the fact that institutional lenders are unwilling to provide flexible debt financing options, has led to the Fund Manager seeing another year of increase in demand from borrowers. The Fund Manager is focused on identifying lending opportunities that require the expertise of its professional staff, local expertise and hands-on management style. As a result, the portfolio of the Fund encompasses mortgage securities secured on construction or development projects, short duration lending opportunities and customized financing arrangements. Given the current availability of loans that are consistent with the Funds investment objectives, there has been no need to modify the Fund's asset allocation model during the Year. Independent Board of Directors In June 2012, the Fund appointed three new directors that are independent of management to its board. The structuring of a majority independent board, chaired by an independent director was completed to provide the Fund access to best practice corporate governance. The benefits derived from independent oversight extend beyond the new board members significant professional and industry specific experience by removing the conflict of interest from its fiduciary duty over the Fund's operations and dealings with the Fund Manager. An informational summary of each director is included in the Board of Directors section of this report. Independent Lending Review Committee Under the guidance of the Fund's independent board of directors, in September of 2013 the Fund restructured its Lending Review Committee (the "LRC") to become a subcommittee of the board of directors. In conjunction with these changes, independent directors were appointed to the LRC to introduce independence from Management and KV Capital Inc. in monitoring the portfolio, the execution of the asset allocation model and the discretion available to the Fund Manager in individual investment selection. In January 2013, the chair position of this subcommittee was accepted by an independent director, making this subcommittee fully independent. Future Accounting Changes Effective January 1, 2011, Canadian GAAP for publicly accountable enterprises converged with IFRS. In December 2011, the Accounting Standards Board of the Canadian Institute of Chartered Accountants required investment companies applying Accounting Guideline 18 to further defer adoption of IFRS until fiscal years beginning on or after January 1, 2014 by extending the mandatory requirement for all Canadian publically accountable enterprises to prepare their financial statements in accordance with IFRS as issued by the International Accounting Standards Board. The Fund will adopt IFRS for its fiscal year beginning March 1, 2014, and will issue its first financial statements in accordance with IFRS, including comparative IFRS information for the previous fiscal period, for the year ending February 28, 2015. The Fund Manager continues to monitor changes to IFRS and is assessing the impact for the Fund. 15

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