KKR Financial (KFN)

REIT Matters

        As of December 31, 2008, we believe that KFH II qualified as a REIT under the Code. The Code requires, among other things, that at the end of each calendar quarter at least 75% of a REIT's total assets must be "real estate assets" as defined in the Code. The Code also requires that each year at least 75% of a REIT's gross income come from real estate sources and at least 95% of a REIT's gross

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income come from real estate sources and certain other passive sources itemized in the Code, such as dividends and interest. As of December 31, 2008, we believe that KFH II was in compliance with all requirements necessary to be taxed as a REIT. However, the sections of the Code and the corresponding United States Treasury Regulations that relate to qualification and taxation as a REIT are highly technical and complex, and KFH II's qualification and taxation as a REIT depends upon its ability to meet various qualification tests imposed under the Code (such as those described above), including through its actual annual operating results, asset composition, distribution levels and diversity of share ownership. Accordingly, no assurance can be given that KFH II has been organized and has operated, or will continue to be organized and operated, in a manner so as to qualify or remain qualified as a REIT.

REIT Matters

        As of December 31, 2008, we believe that KFH II qualified as a REIT under the Code. The Code requires, among other
things, that at the end of each calendar quarter at least 75% of a REIT's total assets must be "real estate assets" as defined in the Code. The Code also requires that each year at least 75% of a
REIT's gross income come from real estate sources and at least 95% of a REIT's gross

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income
come from real estate sources and certain other passive sources itemized in the Code, such as dividends and interest. As of December 31, 2008, we believe that KFH II was in
compliance with all
requirements necessary to be taxed as a REIT. However, the sections of the Code and the corresponding United States Treasury Regulations that relate to qualification and taxation as a REIT are highly
technical and complex, and KFH II's qualification and taxation as a REIT depends upon its ability to meet various qualification tests imposed under the Code (such as those described above),
including through its actual annual operating results, asset composition, distribution levels and diversity of share ownership. Accordingly, no assurance can be given that KFH II has been
organized and has operated, or will continue to be organized and operated, in a manner so as to qualify or remain qualified as a REIT.

REIT Matters

As of March 31, 2008, we believe that the REIT Subsidiary and KFH II qualified as REITs under the provisions of the Code. The Code requires, among other things, that at the end of each calendar quarter at least 75% of a REIT’s total assets must be “real estate assets” as defined in the Code. The Code also requires that each year at least 75% of a REIT’s gross income come from real estate sources and at least 95% of a REIT’s gross income come from real estate sources and certain other passive sources itemized in the Code, such as dividends and interest. As of March 31, 2008, we believe that the REIT Subsidiary and KFH II were in compliance with

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REIT Matters

        As of December 31, 2007, we believe that the REIT Subsidiary and KFH II (currently presented as discontinued operations), qualify as REITs under the provisions of the Code. The Code requires, among other things, that at the end of each calendar quarter at least 75% of a REIT's total assets must be "real estate assets" as defined in the Code. The Code also requires that each year at least 75% of a REIT's gross income come from real estate sources and at least 95% of a REIT's gross income come from real estate sources and certain other passive sources itemized in the Code, such as dividends and interest. As of December 31, 2007, we believe that the REIT Subsidiary and KFH II were in compliance with such requirements. As of December 31, 2007, we also believe that the REIT Subsidiary and KFH II met all of the REIT requirements regarding the ownership of their common stock and shares, respectively, and the distribution of their taxable income. However, the sections of the Code and the corresponding U.S. Treasury Regulations that relate to qualification and taxation as a REIT are highly technical and complex, and each REIT subsidiary's qualification and taxation as a REIT depends upon its ability to meet various qualification tests imposed under the Code (such as those described above), including through its actual annual operating results, asset composition, distribution levels and diversity of share ownership. Accordingly, no assurance can be given that the REIT Subsidiary and KFH II have been organized and have operated, or will continue to be organized and operated, in a manner so as to qualify or remain qualified as REITs.

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        To maintain their status as REITs for federal income tax purposes, the REIT Subsidiary and KFH II are required to distribute at least 90% of their REIT taxable income for each year. In addition, for each taxable year, to avoid certain federal excise taxes, the REIT Subsidiary and KFH II are required to declare and pay dividends amounting to certain designated percentages of their taxable income by the end of such taxable year. For the periods covered by our calendar year 2007 and 2006 federal tax return, we believe that the REIT Subsidiary and KFH II met all of the distribution requirements of a REIT.

REIT Matters

        As of December 31, 2007, we believe that the REIT Subsidiary and KFH II (currently presented as discontinued operations), qualify as REITs under the
provisions of the Code. The Code requires, among other things, that at the end of each calendar quarter at least 75% of a REIT's total assets must be "real estate assets" as defined in the Code. The
Code also requires that each year at least 75% of a REIT's gross income come from real estate sources and at least 95% of a REIT's gross income come from real estate sources and certain other passive
sources itemized in the Code, such as dividends and interest. As of December 31, 2007, we believe that the REIT Subsidiary and KFH II were in compliance with such requirements. As of
December 31, 2007, we also believe that the REIT Subsidiary and KFH II met all of the REIT requirements regarding the ownership of their common stock and shares, respectively, and the
distribution of their taxable income. However, the sections of the Code and the
corresponding U.S. Treasury Regulations that relate to qualification and taxation as a REIT are highly technical and complex, and each REIT subsidiary's qualification and taxation as a REIT depends
upon its ability to meet various qualification tests imposed under the Code (such as those described above), including through its actual annual operating results, asset composition, distribution
levels and diversity of share ownership. Accordingly, no assurance can be given that the REIT Subsidiary and KFH II have been organized and have operated, or will continue to be organized and
operated, in a manner so as to qualify or remain qualified as REITs.

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        To
maintain their status as REITs for federal income tax purposes, the REIT Subsidiary and KFH II are required to distribute at least 90% of their REIT taxable income for each
year. In addition, for each taxable year, to avoid certain federal excise taxes, the REIT Subsidiary and KFH II are required to declare and pay dividends amounting to certain designated
percentages of their taxable income by the end of such taxable year. For the periods covered by our calendar year 2007 and 2006 federal tax return, we believe that the REIT Subsidiary and
KFH II met all of the distribution requirements of a REIT.

REIT Matters

As of September 30, 2007, we believe that our REIT Subsidiary, presented as a discontinued operation, qualified as a REIT under the provisions of the Internal Revenue Code of 1986, as amended (the "Code"). The Code requires, among other things, that at the end of each calendar quarter at least 75% of our REIT Subsidiary’s total assets must be “real estate assets” as defined in the Code. The Code also requires that each year at least 75% of our REIT Subsidiary’s gross income come from real estate sources and 95% of our REIT Subsidiary’s gross income come from real estate sources and certain other passive sources itemized in the Code, such as dividends and interest. As of September 30, 2007, we believe that our REIT Subsidiary was in compliance with such requirements. As of September 30, 2007, we also believe that our REIT Subsidiary met all of the REIT requirements regarding the ownership of its common shares and the distribution of its taxable income. However, the sections of the Code and the corresponding U.S. Treasury Regulations that relate to qualification and taxation as a REIT are highly technical and complex, and our REIT Subsidiary’s qualification and taxation as a REIT depends upon its ability to meet various qualification tests imposed under the Code (such as those described above), including through its actual annual operating results, asset composition, distribution levels and diversity of share ownership. Accordingly, no assurance can be given that our REIT Subsidiary has been organized and has operated, or will continue to be organized and operated, in a manner so as to qualify or remain qualified as a REIT.

To maintain our REIT Subsidiary’s status as a REIT for federal income tax purposes, our REIT Subsidiary is required to distribute at least 90% of its REIT taxable income for each year. In addition, for each taxable year, to avoid certain federal excise taxes, our REIT Subsidiary is required to declare and pay dividends amounting to certain designated percentages of our REIT Subsidiary’s taxable income by the end of such taxable year. For the period covered by our calendar year 2006 federal tax return, we believe that our REIT Subsidiary met all of the distribution requirements of a REIT.

REIT Matters

As of June 30, 2007, we believe that our REIT Subsidiary qualified as a REIT under the provisions of the Code. The Code requires, among other things, that at the end of each calendar quarter at least 75% of our REIT Subsidiary’s total assets must be “real estate assets” as defined in the Code. The Code also requires that each year at least 75% of our REIT Subsidiary’s gross income come from real estate sources and 95% of our REIT Subsidiary’s gross income come from real estate sources and certain other passive sources itemized in the Code, such as dividends and interest. As of June 30, 2007, we believe that our REIT Subsidiary was in compliance with such requirements. As of June 30, 2007, we also believe that our REIT Subsidiary met all of the REIT requirements regarding the ownership of its common shares and the distribution of its

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taxable income. However, the sections of the Code and the corresponding U.S. Treasury Regulations that relate to qualification and taxation as a REIT are highly technical and complex, and our REIT Subsidiary’s qualification and taxation as a REIT depends upon its ability to meet various qualification tests imposed under the Code (such as those described above), including through its actual annual operating results, asset composition, distribution levels and diversity of share ownership. Accordingly, no assurance can be given that our REIT Subsidiary has been organized and has operated, or will continue to be organized and operated, in a manner so as to qualify or remain qualified as a REIT.

To maintain our REIT Subsidiary’s status as a REIT for federal income tax purposes, our REIT Subsidiary is required to distribute at least 90% of its REIT taxable income for each year. In addition, for each taxable year, to avoid certain federal excise taxes, our REIT Subsidiary is required to declare and pay dividends amounting to certain designated percentages of our REIT Subsidiary’s taxable income by the end of such taxable year. For the period covered by our calendar year 2006 federal tax return, we believe that our REIT Subsidiary met all of the distribution requirements of a REIT.