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Kv Mortgage Fund Inc. MANAGEMENT AND SERVICE FEES A summary of the management fees earned by the Fund Manager for the Year, including a breakdown of services received by the Fund is included in "Related Party Transactions". Class A preferred shares pay each registered dealer that introduced the Fund to purchasers of these securities a fee equal to 1.00% per annum of the subscription proceeds received by the Fund that are attributable to the efforts of these distributors (the "Class A Service Fees"). The Class A Service Fees are calculated and paid at the end of each calendar quarter. Class B preferred shares pay the Fund Manager a service fee equal to 1.00% per annum of the subscription proceeds received by the Fund from all outstanding Class B preferred shares (the "Class B Service Fees"). The Class B Service Fees are calculated and paid at the end of each calendar quarter. In respect of receiving the Class B Service Fees, the Fund Manager pays commissions and fees to registered dealers for Class B preferred share sales that are attributable to their efforts. The payments from the Fund Manager to the registered dealers for sales of Class B preferred shares equates to 5% of the subscription proceeds as a front load cash payment and a trailing fee that commences after 5 years from the subscription date and is equal to 1.00% of the subscription proceeds per annum. In addition to the management fees disclosed above, the Fund will pay for all expenses incurred by it in connection with the operation and management of its business. For the Year, total expenses of the Fund were $228,659 (2012 – $119,030) resulting in a management expense ratio inclusive of the effects of amortizing share issue costs ("MER ratio") of 2.66% (2012 – 2.39%). The total expenses of the Fund include Management Fees of $81,045 that after June 1, 2012 only become payable to the Fund Manager once the Fund's net earnings available for distribution to shareholders are in excess of the Hurdle Rate. 17

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