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Kv Mortgage Fund Inc. 3. Shareholders' equity: The Fund is authorize to issue an unlimited number of Class A voting common shares, an unlimited number of Class B non-voting common shares, an unlimited number of Class A preferred shares and an unlimited number of Class B preferred shares. All the classes of preferred shares and preferred shares within a class rank equally with respect to dividends, rank senior to the common shares of the Fund and are redeemable at the option of the Fund's board of directors. The preferred shares are redeemable by the Fund for the net asset value of each particular preferred share plus any declared and unpaid dividends. The common shares have a nominal value and are owned by certain shareholders and officers of the Fund Manager. Class A and Class B preferred shares are privately held and there is no market through which these shares may be sold. The Fund may issue Class A and Class B preferred shares in the future under available prospectus exemptions. Preferred and common shares issued and outstanding changed as follows: 2013 Class A Preferred Shares Class B Preferred Shares Common Shares Shares outstanding, March 1, 2012 815,674 - 400 Issued 565,509 127,124 - 500 - - - - Issued under share based compensation plan Redeemed Dividend reinvestment plan Shares outstanding, February 28, 2013 2012 (224,674) 36,716 48 - 1,193,725 127,172 400 Class A Preferred Shares Class B Preferred Shares Common Shares Shares outstanding, March 1, 2011 452,779 - 400 Issued 357,789 - - Redeemed (17,443) - - Dividend reinvestment plan 22,549 - - 815,674 - 400 Shares outstanding, February 29, 2012 (a)Redemptions: Subject to certain restrictions, Class A preferred shareholders may on a monthly basis request redemption of any or all of their outstanding shares by providing 30 days advance notice to the Fund. Redemptions of Class A preferred shares are completed without any fees. Class B preferred shares are redeemable monthly on the same terms and conditions as the Class A preferred shares and in the first five years from the date of subscription are subject to early redemption fees payable to the Fund Manager. Redemption of Class B preferred shares requested after five years from the date of subscription are completed without any early redemption fees. The Fund shall not accept redemptions for preferred shares in the same calendar month where they represent more than 5% of the total number of preferred shares outstanding on the redemption date. Should the amount of preferred shares tendered for redemption exceed the limit, the Fund may, at its discretion redeem all tendered shares, redeem the shares tendered on a pro rata basis, or suspend redemptions. Redemption of any preferred shares of the Fund is at the option of the Fund's board of directors, in their absolute discretion. (b)Dividends: The Fund intends to pay dividends to shareholders on a monthly basis, on or about the 15th day following the end of each month. 37

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