E-Delivery

2015 ANNUAL REPORT In fiscal 2015, KV Mortgage Fund's Board of Directors, the management team and KV Capital Inc. worked together to deliver another year of consistent performance. e board is pleased with the results achieved and believes that KV Mortgage Fund has again strongly delivered on its mandates to preserve capital and generate income. Based on the results achieved we have complete confidence in KV Capital Inc. and the executive team to continue executing KV Mortgage Fund's business plan. e relationship between resource prices and real estate is familiar to the Alberta market, and is in fact one of the factors that drive high yields for private mortgages in the jurisdictions where KV Mortgage Fund chooses to operate. Recent events have again demonstrated that economic changes can occur unexpectedly and that market effects are difficult to accurately forecast. Since inception, KV Mortgage Fund has mitigated against such changes by exercising discipline in its investments and balancing capital preservation characteristics with yield. During Q4 we temporarily enhanced the purvue of the Lending Review Committee, to further leverage the experience of the members during this cycle. e value of ongoing discipline is demonstrated through the strength of the February 28, 2015 portfolio, particularly given that it is predominantly comprised of deals originated prior to the emergence of low oil prices. Consistent with its investment thesis, the Fund actively mitigates the downside risks of exposure to real estate by holding short term mortgages which represent a priority position within the capital stack of each property held as security. By incorporating flexibility and priority charges secured on real assets at conservative loan to values we believe that the Fund is pursuing a corporate strategy that is best suited to its strengths and is sustainable over the long term. Looking forward to fiscal 2016, there will be attractive lending opportunities in Alberta as both banks and non-bank lenders independently navigate the market and borrowers are motivated to seek out new sources of financing. e capital pool available to the Alberta mortgage market has demonstrated signs of tightening, and the conditions remain favourable for KV Mortgage Fund to invest in mortgages with attractive risk adjusted returns. Over the coming year KV Mortgage Fund will have the opportunity to strategically grow the borrower base in its mortgage portfolio and expand its market share within the non-bank lending space by continuing to focus on deal quality through the local expertise of KV Capital Inc. On behalf of the Board we offer our congratulations on a successful 2015, welcome Mr. Ralph Young's appointment as a new director during the year and extend our thanks to Mr. Shane Stevenson and Mr. Cameron Brinkman for their contributions during tenures that ended during fiscal 2015. Respectfully submitted on behalf of the board, Paul Allard, MBA Board Chair 14

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