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Notes to Financial Statements Years ended February 28, 2015 and 2014 1. Nature of operations: KV Mortgage Fund Inc. (the "Fund") was incorporated under the laws of the Province of Alberta by articles of incorporation on January 8, 2009 under the name e Mortgage Corner Investment Fund Ltd. e investment objective of the Fund is to provide its preferred shareholders with income generated from a diversified portfolio of mortgage loan investments (also referred to as "mortgages"), while preserving the Fund's capital. KV Capital Inc., as manager of the Fund (the "Fund Manager"), is responsible for the day-to-day operations and providing all general management and administrative services of the Fund's mortgage loan portfolio. KV Capital Inc. is related to the Fund because of the management arrangement, certain common directors and officers, and certain directors and officers of the Fund and KV Capital Inc. whom also control voting shares in both entities. e Fund and Fund Manager are domiciled in Canada, with head offices at #108, 2627 Ellwood Drive SW, Edmonton, Alberta. 2. Basis of presentation: (a) Statement of compliance: e financial statements of the Fund have been prepared by management in accordance with International Financial Reporting Standards ("IFRS"). ese are the Fund's first annual financial statements prepared in accordance with IFRS and IFRS 1, First-time Adoption of International Financial Reporting Standards ("IFRS 1"). Previously, the Fund prepared its financial statements in accordance with Part V of Canadian generally accepted accounting principles ("Canadian GAAP"). e Fund has consistently applied the accounting policies used in the preparation of its opening IFRS statements of financial position at March 1, 2013 and throughout all periods presented, as if these policies had always been in effect. An explanation of how the transition to IFRS has affected the reported financial position, financial performance and cash flows of the Fund is provided in note 4. e financial statements are presented in Canadian dollars, which is the Fund's functional currency. ese financial statements were approved by the Board of Directors on April 29, 2015. (b) Use of estimates and judgments: e preparation of financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. e Fund used estimates in its preparation of these financial statements that include valuation of the mortgage loan investments and accrued interest receivable. ese assumptions are limited by the availability of reliable comparable data, economic uncertainty, and the uncertainty of predictions concerning future events. Accordingly, by their nature, estimates are subjective and do not necessarily result in precise determinations. Should the underlying assumptions change, the estimated value could vary by a material amount. 3. Significant accounting policies: (a) Cash and cash equivalents: Cash and cash equivalents of the Fund comprise cash in hand, deposits held in banks, and highly liquid investments with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. 45

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