TERRAVEST INCOME FUND
TSX : TI.UN

TERRAVEST INCOME FUND

May 15, 2006 07:00 ET

TerraVest Income Fund Releases 2006 Q1 Financial Results

EDMONTON, ALBERTA--(CCNMatthews - May 15, 2006) - TerraVest Income Fund (TSX:TI.UN) today announced its financial results for its 2006 first quarter ended March 31, 2006.

The Fund's highlights for the 2006 first quarter were:

- Revenues increased 111% to $67.3 million for the 2006 first quarter, up from $32.0 million for the 2005 first quarter;

- Distributable Cash totalled $5.4 million for the 2006 first quarter, compared with $6.3 million for the 2005 first quarter;

- Declared unitholder distributions (undiluted) were $4.4 million ($0.35 per Unit), representing 81% of distributable cash for the 2006 first quarter, up from $3.0 million ($0.29 per Unit) for the 2005 first quarter; and

- Gross proceeds of $34.2 million were raised in April 2006 by issuing 2.95 million Units from treasury at $11.60 per Unit. The funds raised were used to reduce bank indebtedness incurred to acquire Beco.

For the 2006 first quarter, the Fund reported net earnings before non-controlling interest of $3.5 million ($0.21 per Unit), compared with $3.8 million ($0.28 per Unit) for the 2005 first quarter. Calculation of per Unit net earnings is based on the average number of Units outstanding of 12,804,307 during the 2006 first quarter, which is 25% greater than for the 2005 first quarter.



Highlights from the first quarters of 2006 and 2005 are as follows:

thousands of dollars Three Months ended March 31,
------------------------------
2006 2005 Change
------------- -------------- ---------
Revenues
RJV 19,229 19,926
Ezee-On 2,979 3,215
Stylus 9,220 8,835
Don Park 18,919 -
Diamond 8,105 -
Beco 8,882 -
------------- --------------
Total revenues 67,334 31,976 111%

Net earnings before
non-controlling interest 3,478 3,751 (7%)
Per Unit 0.21 0.28 (25%)

Cash flow from operations before
working capital changes 6,805 6,267 9%
Less: Maintenance capital
expenditures (1,066) (103)
Less: Retractable
non-controlling interest (299) 105

Distributable cash (1) 5,440 6,269 (13%)
Per Unit 0.42 0.61

Distributions declared 4,418 2,972
Per Unit 0.35 0.29
Payout ratio (2) 81% 47%


(1) Distributable cash is not a defined term under Canadian generally accepted accounting principles and does not have a standard meaning, but is determined by the Fund to be cash flow from operations before changes in non-cash working capital and less capital expenditures related to maintenance of the portfolio businesses' property, plant and equipment and less retractable non-controlling interest charges. Management believes that distributable cash as a liquidity measure is a useful supplemental measure as it provides the Independent Trustees with an indication of the amount of cash available for distribution to the Unitholders. Investors are cautioned, however, that distributable cash should not be construed as an alternative to using net earnings as a measure of profitability, or to using the audited consolidated statement of cash flows. Further, the Fund's method of calculating distributable cash may not be comparable to measures used by other entities.

(2) Excludes Exchangeable Shares.

As of March 31, 2006, there were 12,804,490 Units issued and outstanding and 1,494,032 Exchangeable Shares - Series 1 and 1,403,545 Exchangeable Shares - Series 2 issued and outstanding. The Exchangeable Shares - Series 1 and Exchangeable Shares - Series 2 are exchangeable for Units of the Fund at the exchange ratio in effect at the conversion date. The exchange ratio, giving effect to the March 2006 distribution is 1.20029 to 1 and is effective April 17, 2006. The Series 2 shares are held by Management and are not listed nor traded on an exchange. Neither the Exchangeable Shares - Series 1 nor the Exchangeable Shares - Series 2 are eligible to receive distributions.

"Clearly, the Fund is benefiting from the diversification of its portfolio," said Dale Laniuk, President and Chief Executive Officer. "With the exception of Beco, the performance of the portfolio businesses met Management's overall expectations. RJV and Diamond exceeded expectations. Both Don Park and Stylus achieved forecasted results for the quarter.

"As previously disclosed, we expected Beco's first quarter revenues, which are normally a seasonally slower period, to be impacted by delays in customer orders and shifts in seasonal programming from some of its major customers. Beco's management team expects revenues to strengthen during the second and third quarters and cash flow to be enhanced by overhead cost reductions.

"At the completion of our quarterly review of the portfolio we are pleased with the overall outlook for the Fund and comfortable with our indicated distribution levels. Each of our management teams is working hard to improve their relative competitive positions and increase productivity. Further, the Fund's priority on cash generated by four of our newest investments adds to the protection of our distributions to our Unitholders."

The Fund's interim financial statements are available on SEDAR at www.sedar.com and on the Fund's website at www.terravestincomefund.com.



The Fund will hold a conference call today. The details are as follows:

Date: Monday, May 15, 2006

Time: 10:00 a.m. (Eastern or Toronto time)
Participants: Dale Laniuk, President and CEO
Tom Kileen, Chief Financial Officer
Tom Zosel, Senior Vice President
Access Number: Toronto: (416) 695-9747
Toll-Free Access: 1 (877) 888-4483


A replay of the conference call will available at (416) 695-5275 (Toll-Free Access: 1 (888) 509-0081) for seven days after the conference call. The pass code is 619973. A transcript can be viewed (within 48 hours) by visiting the Fund's website and clicking to corporate presentations.

The 2006 annual meeting will be held on Tuesday, May 30, 2006 in the Mount Royal Room of the Marriott Hotel (110 - 9th Avenue S.E., Calgary) at 10:30 a.m. (Calgary time). The 2005 annual report, the notice of the annual meeting and the proxy circular have been mailed and are available for viewing on the Fund's web site at www.terravestincomefund.com. The proceedings of the annual meeting will be available by live audio feed to the Fund's web site, which will be archived for one month.

About TerraVest Income Fund

The Fund has invested in six businesses:

- RJV is one of the largest providers of wellhead processing equipment for the Canadian natural gas industry.

- Ezee-On manufactures heavy-duty equipment for large acreage grain farms and livestock operations.

- Stylus is one of Canada's leading made-to-order upholstered furniture manufacturers.

- Don Park is one of Canada's largest manufacturers and suppliers of heating, ventilation and air conditioning (HVAC) products.

- Diamond is a market leader in providing well servicing to the oil and natural gas sector in southwestern Saskatchewan and Alberta.

- Beco is the largest Canadian designer, manufacturer and importer of home textile products.


MANAGEMENT'S DISCUSSION AND ANALYSIS

For the period ended March 31, 2006

Dated: May 15, 2006

Caution Regarding Forward-Looking Statements

The public communications of TerraVest Income Fund (the "Fund") often include written or oral forward-looking statements. Statements of this type are included in this Management's Discussion and Analysis ("MD&A"), and may be included in filings with Canadian securities regulators, or in other communications. Forward-looking statements may involve, but are not limited to, comments with respect to our objectives for 2006 and beyond, our strategies or future actions, and our targets or expectations for our financial performance and condition. All statements other than statements of historical fact contained in this MD&A are forward-looking statements, including, without limitation, statements regarding the future financial position, business strategy, proposed acquisitions, budgets, litigation, projected costs and plans and objectives of or involving the Fund. Readers can identify many of these statements by looking for words such as "believe", "expects", "will", "intends", "projects", "anticipates", "estimates", "continues", and similar words or the negative thereof. Although Management believes that the expectations represented in such forward looking statements are reasonable, there can be no assurance that such expectations will prove to be correct

By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties including those discussed in this MD&A. There is significant risk that predictions and other forward-looking statements will not prove to be accurate. We caution readers of this MD&A not to place undue reliance on our forward-looking statements because a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements.

The future outcomes that relate to forward-looking statements may be influenced by many factors, including but not limited to: pending and proposed legislative or regulatory developments; competition from established competitors and new entrants in the markets served by the businesses of the Fund; technological change; acceptance and demand for new products and services; fluctuations in operating results; future capital and other expenditures; commodity prices, interest rates and currency value fluctuations; the effects of war or terrorist activities; the effects of disease or illness that impact on local, national or international economies; the effects of disruptions to public infrastructure, such as transportation, communications, power or water supply; and industry and worldwide economic and political conditions. We caution that the foregoing list of factors is not exhaustive and that when relying on forward-looking statements to make decisions with respect to the Fund, investors and others should carefully consider these factors, as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements. The Fund does not undertake to update any forward-looking statement, whether written or oral, that it may make or that may be made, from time to time, on its behalf.

The information contained in this MD&A, including the information set forth under "Risk Factors" herein, identifies additional factors that could affect the operating results and performance of the Fund and its portfolio businesses. The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this MD&A are made as of the date of this MD&A.

Assumptions about the performance of the Fund's businesses are considered in setting the business plan for the Fund and in setting financial targets. Key assumptions include that the demand for products and services of the Fund's business will remain stable and that the Canadian and other markets in which the Fund's businesses are active (and in particular, the Canadian oil and natural gas industry in western Canada and the markets for household materials and household goods) will remain stable. It is also assumed that the Fund is able to finance acquisitions necessary for its growth strategy and that current Canadian income tax regime with respect to income trusts will not change.

(NOTE: numbers in thousands except Units and per Unit amounts, shares and per share amounts, and well completions)

ABOUT TERRAVEST

TerraVest Income Fund (the "Fund") is an unincorporated, open-ended, limited purpose trust established to invest in a diversified group of income producing businesses.

The Fund was created in June 2004 to provide a means whereby investors could acquire strong Canadian companies that are capable of producing attractive investment returns to the owners of the Fund ("Unitholders").

The Fund's initial investment was the acquisition of 100% of the issued and outstanding securities of Laniuk Industries Inc. ("Laniuk") and its wholly owned subsidiary corporations, consisting of RJV Gas Field Services ("RJV") and Ezee-On Manufacturing ("Ezee-On"). Subsequently the Fund acquired four more operating divisions: Stylus Made to Order Sofas ("Stylus"); Don Park and Don Park (USA) (collectively "Don Park"); Diamond Energy Services ("Diamond"); and Beco Industries ("Beco"). RJV, Ezee-on, Stylus, Don Park, Diamond and Beco are collectively referred to as the portfolio businesses.

RJV is one of Canada's largest providers of wellhead processing equipment for natural gas wells in the Western Canadian Sedimentary Basin. Ezee-on manufactures short-line, heavy-duty equipment for large acreage grain farms and livestock operations and primarily has sales in North America, Eastern Europe and Australia. Stylus is one of Canada's leading manufacturers of made-to-order upholstered furniture and is an importer of leather furniture. Stylus' sales efforts are focused on small format furniture retailers. Don Park is one of Canada's leading manufacturers and suppliers of sheet metal product for the heating, ventilation and air conditioning market and primarily has sales in Canada and the United States. Diamond operates oil and natural gas well service rigs and coiled tubing and swabbing units in southwestern Saskatchewan and in Alberta. Beco is the largest Canadian designer, manufacturer and importer of home textile products with sales in Canada and the United States.

Overall Strategies of the Fund

Acquisitions

The Fund is focused on acquiring and managing diverse businesses which operate independently without reliance on synergistic acquisition assumptions. Growth in the Fund's cash flow is intended to take place both through long-term organic growth of the portfolio businesses and through investments in other businesses which fit the acquisition criteria of the Fund.

Part of the acquisition strategy is to ensure that the senior management of each acquired company retains an interest in the operating business after the acquisition, and to create an incentive for the retractable non-controlling interest of each portfolio business to increase the overall value of that operating business.

Further, the Fund believes that the diversity of the various portfolio businesses substantially enhances the stability of the Fund's overall distributable cash. Diversification minimizes the overall effect on the Fund of changes in market circumstances in any one of the Fund's businesses, thus enabling the Fund to continue making consistent monthly distributions to Unitholders.

Cash Distributions

In negotiating its acquisitions, the Fund endeavours to ensure that Unitholders receive priority returns from the distributable cash of the entities. In four of the investments, Stylus, Don Park, Diamond and Beco, the Fund is entitled to preferred returns of annual distributable cash from these Limited Partnerships. Each year, this preference entitles the Fund to receive all distributions of cash by these Limited Partnerships up to pre-established thresholds, before any distributions of cash are available to the retractable non-controlling interests. After the first pre-established threshold is met by one of these Limited Partnerships, the retractable non-controlling interest holders receive all distributions of cash from that Limited Partnership to a second higher pre-determined threshold. Once both the thresholds are achieved by one of these Limited Partnerships, the distributions of cash are allocated on a pre-determined basis in relation to the ownership interests.

Acquisition Criteria

Generally, the Fund intends to acquire manufacturing or service oriented businesses that meet its acquisition criteria. Businesses that meet the Fund's acquisition criteria will have:

- annual revenues exceeding $20,000,

- demonstrated track record of generating stable cash flow,

- durable competitive advantage in an attractive industry,

- ongoing participation of key senior personnel post-acquisition,

- opportunities for organic growth under existing business practices, and

- immediate and longer term accretion to the Fund's distributable cash per Unit.

The Fund believes that, to the vendor of a private middle market business, the Fund is an attractive alternative over other potential buyers due to its: (i) tax efficient structure, which may result in a cost of capital advantage; (ii) ability to utilize publicly-traded Units as an acquisition currency; and (iii) ability to provide operating management teams of acquired businesses with a less complex and more conservatively leveraged capital structure than traditional acquirors of private businesses.

Implementation of Acquisition Strategy

The Fund's businesses operate autonomously and maintain their individual business identities. The Fund relies on the high quality management teams of its businesses and does not rely on operating synergies to justify acquisitions. TerraVest Industries Inc., the Fund's Administrator, together with its external manager, TerraVest Management Partnership ("TMP"), does provide additional managerial support through its experience in strategy development, assistance with planning and analysis, industry contacts, and focus on operational and financial disciplines.

To further diversify its sources of cash flow, the Fund seeks to invest in businesses that operate in diverse industries.

The Fund continues to actively search for additional investment opportunities that meet its investment criteria.

ACQUISITIONS

2004

- In July 2004, the Fund issued 2,830,000 Units at a price of $8.15 per Unit. The aggregate proceeds from the offering were $23,065. On July 9, 2004, the Fund acquired the business operations of Laniuk Industries, which comprised the operating divisions of RJV and Ezee-On. Consideration for the acquisition consisted of a note payable to the former shareholders of Laniuk in the amount of $33,743 and the issuance of exchangeable shares for $17,946. The Fund then issued Units to the former shareholders of Laniuk to satisfy the note payable of $33,743 created upon the acquisition of Laniuk. Costs related to the acquisition of Laniuk totaled $1,658. Additional costs of $2,632 were incurred by the Fund for the issuance of the Units. The total cost of the transaction and the issuance of the Units was $4,290.

- In December 2004, a public offering was completed of 3,277,500 Units at a price of $10.60 per Unit for aggregate proceeds of $34,741. On December 17, 2004, the Fund acquired an 80% interest in the assets and shares of Stylus Furniture Ltd. for $21,816 plus costs of $586 for a total acquisition price of $22,402. Additional costs of $2,520 were incurred by the Fund for the issuance of Units. The total cost of the transaction and the issuance of the Units was $3,106.

2005

- On April 1, 2005, the Fund acquired an 80% interest in the assets of Don Park, Inc. and Don Park (USA), Inc. for $30,157 plus transaction costs of $1,000 for a total acquisition price of $31,157. The acquisition was funded by existing credit facilities.

- On October 3, 2005, the Fund acquired an 87.1% interest in the assets of Diamond Energy Services, Inc. for $33,735 plus acquisition costs of $1,230. The acquisition was funded by existing credit facilities.

- On December 5, 2005, the Fund acquired an 80% interest in the assets of Beco Industries Inc. for $33,600 plus acquisition costs of $1,373. The acquisition was funded by existing credit facilities.

FURTHER CAPITILIZATION OF THE FUND

- In July 2005, the Fund issued 2,550,000 Units for gross proceeds of $35,063. Costs related to this offering were $2,046. The Fund used the proceeds to reduce the debt incurred on the acquisition of Don Park.

- In April 2006, the Fund issued 2,950,000 Units at a price of $11.60 per Unit. The total proceeds from the offering were $34,220, yielding proceeds to the Fund after underwriting fees of $32,509. The proceeds were used to reduce the existing operating loan.

DISTRIBUTABLE CASH

The Fund has a policy of paying stable monthly distributions to Unitholders from its distributable cash. In accordance with the Declaration of Trust, the independent Trustees determine the amount of distributable cash to be distributed to Unitholders.

Distributable cash is not a defined term under Canadian generally accepted accounting principles and does not have a standard meaning, but is determined by the Fund as cash flow from operations before changes in non-cash working capital, less capital expenditures related to maintenance of the portfolio businesses' property, plant and equipment, and less retractable non-controlling interest charges. Management believes that distributable cash as a liquidity measure is a useful supplemental measure as it provides the independent Trustees with an indication of the amount of cash available for distribution to the Unitholders. Investors are cautioned, however, that distributable cash should not be construed as an alternative to using net earnings as a measure of profitability or to using the audited consolidated statement of cash flows as a measure of liquidity. Further, the Fund's method of calculating distributable cash may not be comparable to measures used by other entities.

In the view of Management, the Fund has taken a conservative approach to differentiating maintenance capital expenditures (which are treated as a deduction in determining distributable cash) from capital expenditures for growth or expansion of the businesses (which are not treated as a deduction in determining distributable cash). In order to be classified as a capital expenditure for growth or expansion, the capital expenditure must be for a new product line, a new division or a facet of the business that will create a new stream of revenue that did not previously exist in the organization. All other investments in capital assets are considered to be for the maintenance of existing lines of business, whether or not they yield significant cost or production efficiencies. The Fund expects the costs of acquiring capital assets for growth purposes will be fully recovered out of the cash flows generated by the new or expanded lines of business, and therefore are not deducted in determining distributable cash.

The Fund receives indirect payments of cash from the portfolio businesses and from this cash the Fund pays distributions to the Unitholders and costs and expenses of the Fund and any amounts payable by the Fund in connection with any redemption or purchase of Units. Certain of the portfolio businesses experience seasonality and as a result, there are timing differences in the generation of distributable cash in individual months. It has been the Fund's experience that distributable cash generated by the portfolio businesses exceeds cash distributed to the Fund in some months and that the Fund also has months in which cash distributed will exceed distributable cash generated.

Distributable cash generated for the three months ended March 31, 2006 was $5,440 as compared to $6,269 in the comparable period ended March 31, 2005. The Fund declared distributions to its Unitholders of $4,418 for the three months ended 2006 as compared to $2,972 for the comparable period ended March 31, 2005. The increase in distributable cash generated from the cash flow from operations before working capital changes can be attributed to the acquisition of Don Park, Diamond and Beco after the first quarter of 2005 as well as strong financial performance by RJV. Overall, the Fund's distributable cash decreased during the first quarter of 2006 compared to 2005 due to the significant investment in maintenance capital expenditures that was undertaken by the portfolio businesses.

The payout ratio in the period has increased to 81% as compared to 47% in the comparative period. This increase is the result of a reduction in distributable cash generated in the quarter and an increase in distributions declared. The weighted average Units outstanding during the period was 12,804,307 as compared to 10,251,517 in the comparable period. In addition, seasonality in the business cycles of the portfolio businesses has had less impact on distributable cash. The results of the comparable quarter in 2005 included only RJV, Ezee-On and Stylus. Historically the first and fourth quarters for RJV are the strongest. The increase in the number of portfolio businesses diminished the effect of seasonal fluctuations of any one business within the portfolio.



The following table shows the calculation of distributable cash for the
period:

2006 2005
------------------------------------------------------------------------
Cash flow from operations before non-cash
working capital changes $ 6,805 $ 6,267
Less: maintenance capital expenditures (1,066) (103)
Less: retractable non-controlling interest (299) 105
------------------------------------------------------------------------
Distributable cash $ 5,440 $ 6,269
------------------------------------------------------------------------
------------------------------------------------------------------------

Distributions (excluding exchangeable shares)
Distributions declared $ 4,418 $ 2,972
Distributable cash per Unit $ 0.42 $ 0.61
Distributions declared per Unit $ 0.35 $ 0.29
Payout ratio 81% 47%
Proforma distributions (including exchangeable shares)
Proforma distributions declared $ 5,583 $ 3,859
Proforma distributable cash per Unit $ 0.34 $ 0.47
Distributions declared per Unit $ 0.35 $ 0.29
Proforma payout ratio 103% 62%
------------------------------------------------------------------------
------------------------------------------------------------------------


The above calculations under "Proforma distributions (including exchangeable shares)" are calculated as though, before commencement of the relevant year, the Exchangeable Shares had been exchanged for Units and the distributions paid by the Fund in the relevant year had also been paid in respect of such Units. Accordingly, distributions declared, distributable cash per Unit, distributions declared per Unit and payout ratio under "Proforma distributions (including exchangeable shares)" do not reflect distributions actually paid by the Fund, but, rather, reflect a hypothetical scenario. The Fund believes that presenting these amounts in this fashion provides useful supplemental information which reflects on the performance of the Fund and provides information that would be relevant should all of the Exchangeable Shares be exchanged for Units.

Holders of Exchangeable Shares do not receive cash distributions from the Fund. Rather, the exchange ratio is adjusted to account for distributions paid to Unitholders as described herein and as more particularly described in the Annual Information Form of the Fund dated March 29, 2006.



Details of the cash distributions declared by the Fund for the period
ended March 31, 2006 are as follows:

------------------------------------------------------------------------
------------------------------------------------------------------------
Period Record Date Payment Date Per Unit Total
------------------------------------------------------------------------
January January 31 February 15 $ 0.115 $ 1,472
February February 28 March 15 0.115 1,473
March March 31 April 17 0.115 1,473
------------------------------------------------------------------------
Total $ 0.345 $ 4,418
------------------------------------------------------------------------
------------------------------------------------------------------------


As a result of the Fund's acquisitions and financial performance, the Fund has increased the rate of its annual distribution by a total of 30% since commencing operations in July 2004. The current annual distribution per Unit is $1.38.

A Brief Look Back at 2005

The Fund has grown significantly since its inception in July 2004, at which time the transaction with Laniuk occurred. Laniuk's largest business, RJV, is TerraVest's largest portfolio business in terms of distributable cash generated. 2005 marked the third straight year of strengthening results for this business, fueled by high levels of drilling activity in western Canada and strong natural gas pricing. The business experienced record sales in 2005, with $64,302 in annual sales and record net earnings. Ezee-On, another Laniuk business, had sales of $15,272 in the fiscal year ended December 31, 2005. Its results reflect strong export activities, offset by weak conditions in Canada's farming operations.

The Fund experienced significant additional growth through the successful execution of its acquisition strategy. In December 2004, the Fund added Stylus; Don Park was added in April 2005; Diamond was added in October 2005: and Beco followed in December 2005. On a combined basis, these acquisitions increased the Fund's 2005 sales by $117,393.

Long-term financial liabilities also increased in 2005 as the Fund executed its acquisition strategy. As a result, the Fund's debt facility was amended to accommodate growth. Today, debt requirements are primarily funded by a 364-day operating loan and a 364 day fixed term-loan. Long-term financial liabilities consist of capital lease obligations, retractable non-controlling interests in each of Stylus, Don Park, Diamond and Beco, and accrued long-term compensation.

Quarterly Information

The quarterly financial information presented represents seven quarters of TerraVest's operating results from inception on July 9, 2004 to March 2006, and one immediately preceding quarter of the predecessor company, Laniuk.



------------------------------------------------------------------------
TerraVest Fiscal Year ended December 31
------------------------------------------------------------------------
2006 2005 2005 2005 2005
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
------------------------------------------------------------------------
Sales $67,334 $63,743 $53,462 $48,961 $31,976
Net earnings $ 2,742 $ 3,210 $ 2,357 $ 1,646 $ 2,878
Earnings per Unit/Share
- Basic $ 0.21 $ 0.25 $ 0.19 $ 0.16 $ 0.28
- Diluted $ 0.21 $ 0.25 $ 0.19 $ 0.16 $ 0.28
Distributable cash $ 5,440 $ 5,632 $ 4,087 $ 3,899 $ 6,269
Distributable cash per Unit $ 0.42 $ 0.42 $ 0.32 $ 0.38 $ 0.61
Distributions declared per
Unit $ 0.35 $ 0.34 $ 0.32 $ 0.32 $ 0.29
------------------------------------------------------------------------

------------------------------------------------------------------------
TerraVest Fiscal Year ended December 31
------------------------------------------------------------------------
July 9, Laniuk
2004 2004 to Three months
Fourth September ended
Quarter 30, 2004 May 31, 2004
------------------------------------------------------------------------

Sales $16,533 $ 9,260 $16,649
Net earnings $ 665 $ 572 $ 2,085
Earnings per Unit/Share
- Basic $ 0.09 $ 0.08 $ 0.06
- Diluted $ 0.09 $ 0.08 $ 0.04
Distributable cash $ 1,608 $ 1,682 -
Distributable cash per Unit $ 0.22 $ 0.24 -
Distributions declared per Unit $ 0.26 $ 0.24 -
------------------------------------------------------------------------


Significant changes during each quarter were as follows:

- Sales increased in the first quarter of 2006 over the fourth quarter of 2005 due to the inclusion of Beco for the full three months, as compared to including Beco only from the date of acquisition on December 5, 2005 in the previous quarter.

- Sales increased in the fourth quarter of 2005 from the third quarter primarily due to the addition of Diamond and Beco, adding $8,417 in the period. The remaining increase was the result of continued strong performance by RJV, and Stylus, particularly in sales of its leather furniture. Net earnings for the fourth quarter increased over the previous quarter for similar reasons.

- The increase in sales in the third quarter of 2005 relative to the second quarter of 2005 resulted from increased Stylus sales, an increase in sales at Don Park, reflecting seasonal strength in air conditioning products, and the bulk sale of Ezee-On (Australia) Pty Ltd's inventory. Net earnings increases generally followed the sales increases for the quarter.

- The increase in sales in the second quarter over the first quarter of 2005, resulted primarily from the addition of Don Park on April 1, 2005. Net earnings in the quarter were lower than in the first quarter of 2005, reflecting a seasonally slower period for RJV, margin pressure at Don Park, as well as acquisition related amortization charges related to intangible assets in the second quarter.

- Increased sales in 2005's first quarter over 2004's fourth quarter resulted from the addition of Stylus and record sales for RJV. Net earnings in the first quarter of 2005 reflected the additional sales, and improved margins reflect pricing which fully reflected the rapidly increasing steel costs for RJV and Ezee-On.

- Sales in the fourth quarter 2004, improved over the third quarter, primarily due to seasonally driven stronger results at RJV. Margin pressure, driven by rapid increases in the cost of steel, a key input for both RJV and Ezee-On, dampened the net earnings performance. Net earnings were up 16% in the fourth quarter over the third.

- Prior to its acquisition by the Fund in July 2004, Laniuk had a different year end and quarter ends. The results for Laniuk Industries were driven primarily by RJV, which benefited from strong industry dynamics. RJV's results were offset somewhat by Ezee-On's performance, reflecting weakness prevalent in the Canadian agricultural equipment sector.

The consolidated financial statements of the Fund for the three months ended March 31, 2006 include the operations of the six portfolio businesses. Don Park, Diamond and Beco were acquired on April 1, 2005, October 3, 2005 and December 5, 2005, respectively. For the purposes of this Management's Discussion and Analysis, comparative figures include operations of the portfolio businesses owned by the Fund during the period January 1, 2005 to March 31, 2005. Portfolio businesses acquired by the Fund during 2005 are included only for the portions of the relevant periods for which they were owned by the Fund.



Sales Breakdown
------------------------------------------------------------------------
Three months Three months Year or fiscal Year or fiscal
ended ended period ended period ended
March 31, March 31, December 31, December 31,
2006 2005 2005 2004
------------------------------------------------------------------------
RJV $ 19,229 $ 19,926 $ 64,302 $ 47,172
Ezee-On 2,979 3,215 15,272 13,074
Stylus 9,220 8,835 40,016 1,175
Don Park 18,919 - 70,135 -
Diamond 8,105 - 6,638 -
Beco 8,882 - 1,779 -
------------------------------------------------------------------------
$ 67,334 $ 31,976 $198,142 $ 61,421
------------------------------------------------------------------------
------------------------------------------------------------------------


Operating Activities

RJV

According to published statistics by the Petroleum Services Association of Canada ("PSAC"), there were 4,403 natural gas wells rig released ("completed") in this quarter, as compared to 3,663 in the same quarter of the previous year. The continued strength in the natural gas sector throughout the quarter resulted in strong demand for natural gas processing equipment as completed wells were put into production. This resulted in continued pressure in the market for natural gas separation equipment as producers became more sensitive to product availability.. Accordingly, gross margins improved in this quarter. Revenue in the comparative quarter in 2005 was slightly higher due to shipping a number of units in the first quarter of 2005 that were built in the latter part of 2004. The sales in the first quarter of 2006 did not include as many orders carried over from previous periods. RJV exceeded Management's expectations in its generation of distributable cash for the quarter.

Ezee-On

The decrease in sales when compared to the same period last year can be attributed to poorer economic results in western Canada being experienced by farmers, and hence the reluctance to commit to the purchase of new machinery. Sales in the U.S. were impacted by a government initiative that favoured seeding equipment using a different process than the equipment offered by Ezee-On. Competition has been very aggressive in Australia due to a decrease in demand, with the result that selling prices are being heavily discounted. There has been stronger sales activity in the eastern European market, but other major manufacturers are also attempting to use this marketplace to replace lost sales in other parts of the world. Sales in the second quarter of 2006 are projected to be lower than in the first quarter. Ezee-On generated slightly less distributable cash during the quarter than Management expected.

Stylus

Sales at Stylus have increased over the same period last year due to the continued success of the line of imported leather furniture that was first introduced in the latter part of 2004. The business experienced softer sales in the retail market in the first quarter than originally expected, but was able to reach its anticipated sales projections through a large warehouse sale that was designed to realign inventory levels. In this quarter, the business arranged the lease for a more efficient warehouse to enable it to meet the anticipated growth in leather sofas and loveseats in the latter part of the year. Further, the business has now settled its first union contract without disruption to the business. Stylus generated the distributable cash contribution level that was expected for this quarter.

Don Park

Don Park's sales of $18,919 were marginally below the budgeted sales for the first quarter, and this translated to being just slightly below the targeted distributable cash contribution to the Fund for this period. Unseasonably warm weather in January in southern Ontario had an adverse effect on sales to the furnace repair and replacements market. Further, normal new construction business was delayed in February and March due to wet conditions on the job-sites. Despite these factors, the contractor stores performed reasonably well, and there is the expectation that performance in the stores will increase in the balance of the year as a result of initiatives taken by the business in this quarter. The business continued to focus on plant cost reductions and efficiency in an effort to become the lowest cost manufacturer of HVAC products. Sales in the retail, residential new construction/condo and OEM markets were strong, but were somewhat offset by reduced sales in the wholesale distribution business in Canada and the USA. There has been an emphasis placed on increasing the distribution arm of the business in eastern Canada. Further strategic changes have taken place in the commercial division and the US distribution division which are intended to improve results in the latter part of the second quarter and the balance of the year. The commercial division and the fire protection division met or exceeded expectations for the quarter.

Diamond

With the robust activity in the oil and natural gas industry in Alberta and Saskatchewan, Diamond has exceeded the revenue and cash flow contributions expected for the first quarter. Utilization rates have been very strong for both the service rig and coiled tubing divisions The continued strength in oil and natural gas prices during the period resulted in strong demand for Diamond's service rigs and coiled tubing units. In addition to strong utilization rates, Diamond was able to obtain higher average hourly rates for its equipment, resulting in increased revenue and gross margin levels. Operationally, Diamond experienced few issues, and this factor, when combined with favourable weather conditions in the first quarter in western Canada, enabled the business to operate efficiently from a cost control perspective. The business has contracted to have two new rigs built for delivery near the end of 2006. Diamond generated distributable cash in excess of expectations for the quarter.

Beco

Beco's sales during the period were negatively impacted by delays in replenishment orders and shifts in shipments for seasonal programming at two of the business's major customers. Sales in the second and third quarters are expected to be stronger. Much of the business's overhead is of a fixed nature, and therefore the absorption of these costs, in a quarter with less than expected sales, has a direct impact on profitability. Although it is anticipated that sales will return to projected levels in the second quarter, the business has embarked on a thorough rationalization program with regard to all of its overhead expenses. Beco generated less distributable cash during the quarter than management expected.

Overall Fund Results

The Fund is presently comprised of six diverse businesses and intends to continue to acquire strong operating entities that fall within its investment criteria. Diversity is one of the strategic advantages of the Fund in that fluctuating operating results in any single division may be mitigated by operating results in one or more of the other portfolio businesses within the group. In addition, the structuring of the investments in Stylus, Don Park, Diamond and Beco provide the Fund with a priority return of cash, providing significant additional protection to the Fund's Unitholders.

On total sales of $67,334 during the quarter, the Fund achieved a gross profit of $18,586 (28%) and net earnings of $2,742. In the comparable period last year the Fund had sales of $31,976, a gross profit of $9,011 (28%), and net earnings $2,878.

With the addition of Don Park, Diamond and Beco after the first quarter of 2005, any meaningful comparison of overhead expenses is somewhat difficult. For example, administration, selling and other sundry overhead expenses totaled $2,559 for the three months ended March 31, 2005, but in the quarter ended March 31, 2006 amounted to $10,043. Similarly, the total amortization, interest and retractable non-controlling interest total in the three months ended March 31, 2005 was $1,916, whereas this amount was $4,372 in the three months ended March 31, 2006.

The retractable non-controlling interest represents specified percentage interests in each of Stylus, Don Park, Diamond and Beco held by third parties. The amount recorded of $299 represents the total allocation of income from the respective partnerships to their non-controlling interest holders during the quarter.

The non-controlling interest on the consolidated balance sheet consists of the fair value of the Exchangeable Shares upon issuance plus the accumulated earnings attributable to the non-controlling interest. The net earnings attributable to the non-controlling interest on the consolidated statement of operations of $736 represents the share of net earnings attributable to the non-controlling interest based on the Units issuable for Exchangeable Shares in proportion to total Units issued and issuable at each month end during the period.

Interest expense

The Fund's affiliates, TerraVest Industries Limited Partnership, Stylus, Don Park, Diamond and Beco as guarantors, and the Fund as covenantor, are parties to a credit agreement with a maximum available operating loan of $75,000 and a 364 day term loan totaling $35,000 for total debt capacity of $110,000 at March 31, 2006. At March 31, 2006, the Fund had drawn $56,517 on its operating loan and $30,000 on its term loan. Interest was charged at prime plus 0.5% on the operating loan and prime plus 0.75% on the term loan. Total interest charged for the current period was $1,261 as compared to $135 in the same period last year.

LIQUIDITY AND CAPITAL RESOURCES

Consolidated working capital at March 31, 2006 was $9,533 compared to $9,030 as at December 31, 2005. The working capital position has increased since December 31, 2005 due to the peak period investment in accounts receivable at Diamond and RJV and additional investments in inventory at RJV and Stylus to meet future demands.

Short-term borrowings under the operating loan provide flexibility for managing seasonal fluctuations in working capital. The credit facility has financial covenants related to minimum interest coverage; funded debt to earnings before interest, taxes, depreciation and amortization; funded debt to capitalization; net worth; and working capital. As at March 31, 2006, the Fund met all of its financial covenants.

In Management's view, the Fund has sufficient resources available to meet its liquidity needs for the next twelve months.

The Fund plans to fund future acquisitions with debt and/or equity financing. The Fund provides, in its budget, for capital expenditures required for maintenance and growth of its businesses. In Management's view, the Fund's cash flow, together with its debt facilities and access to additional capital, is sufficient to meet these expenditures.

The Fund's off balance sheet financing arrangements as at March 31, 2006, consist of documentary letters of credit totaling $2,732 for the purchase of raw materials and standby letters of credit totaling $495.

On April 21, 2006, the Fund closed an offering of 2,950,000 Units for $11.60 per Unit. The aggregate proceeds from the offering were $34,220. After deducting underwriter's fees, the proceeds of the offering were $32,509. The proceeds were used to reduce the Fund's operating loan.



COMMITMENTS

Contractual obligations consist of the following amounts:
------------------------------------------------------------------------
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Total 1 year 2-3 years 4-5 years
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Operating leases $ 20,973 $ 5,597 $ 9,721 $ 5,655
Capital leases 149 40 74 35
Equipment purchase
commitments 2,371 2,371 - -
Documentary letters
of credit 2,732 2,732 - -
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Total $ 26,225 $ 10,740 $ 9,795 $ 5,690
------------------------------------------------------------------------
------------------------------------------------------------------------


UNITS OUTSTANDING

The Fund's Units are listed on the Toronto Stock Exchange under the symbol TI.UN.

The Declaration of Trust provides that an unlimited number of Units of the Fund may be issued. Each Unit is transferable and represents an equal undivided interest in any distributions of the Fund and in the net assets of the Fund. All Units have equal rights and privileges. Each Unit entitles the holder thereof to participate equally in allocations and distributions and to one vote at all meetings of Unitholders for each whole Unit held. The Units issued are not subject to future calls or assessments. Units are redeemable at any time at the option of the holder at amounts related to market prices at the time, subject to a maximum of $50 in cash redemptions by the Fund in any particular month. This limitation may be waived at the discretion of the Trustees of the Fund. Redemptions in excess of this amount, assuming no waiving of the limitation, shall be paid by way of a distribution in specie of a pro rata number of notes or securities held by the Fund.

As at May 15, 2006, there were 15,754,490 Units issued and outstanding.

The Exchangeable Shares referred to below are not listed or traded on any stock exchange.

Exchangeable Shares - Series 1

The Exchangeable Shares - Series 1 are convertible at the option of the holder into Units at any time.

Exchangeable Shares - Series 2

The Exchangeable Shares - Series 2 are subordinated to both the Units and the Exchangeable Shares - Series 1 and cannot be exchanged for Units until the subordination period ends. The subordination period expires on the earlier of July 9, 2007 and the first date on or after July 9, 2006 that certain conditions related to the distributions and financial results of the Fund are met. During the period, the Fund had met all of the conditions for the earlier subordination end date to be effective and expects to continue to meet those conditions. As a result the Fund allowed the early exchange of 455 Shares held by a non related third party. The remaining Shares are held by Management and will not be allowed to be exchanged for Units until July 9, 2006, at the earliest.

The Series 1 and Series 2 Exchangeable Shares can only be exchanged for Units of the Fund at the exchange ratio in effect at the conversion date. The holders of Series 1 and Series 2 Exchangeable Shares are not entitled to cash distributions but are entitled to an economic equivalent of a cash distribution through an adjustment in the number of exchangeable shares. Each month an exchange ratio adjustment is determined to reflect the economic equivalent of a cash distribution. During the period, holders of Series 2 Exchangeable Shares exchanged 455 originally issued exchangeable shares multiplied by the weighted average exchange ratio of 1.16561 for 530 Units. The exchange ratio, giving effect to the March 2006 distribution declared is 1.20029 to 1 and is effective April 17, 2006. The terms of the Series 1 and Series 2 Exchangeable Shares are summarized in the Annual Information Form of the Fund dated March 29, 2006.

As at May 15, 2006 there were 1,494,032 Exchangeable Shares - Series 1 and 1,403,545 Exchangeable Shares - Series 2 issued and outstanding.

RISK FACTORS

A detailed description of operating and financial risks relating to the portfolio businesses is included in the Management's Discussion and Analysis of the Fund for the year ended December 31, 2005 under "Risk Factors" and a detailed description of risks related to the Fund's growth strategy and risks relating to units is included in the Annual Information Form of the Fund dated March 29, 2006 under "Risk Factors". The Management's Discussion and Analysis of the Fund for the year ended December 31, 2005 and the Annual Information Form of the Fund are available on the internet at www.sedar.com.

RELATED PARTY TRANSACTIONS

During the period, the Fund incurred costs related to management of the Fund totaling $214 (2005 - $107). These costs were incurred pursuant to the Management Services Agreement between the Fund and TMP, which is controlled by significant Unitholders of the Fund, who are also Trustees of the Fund. In addition, during the quarter TMP became entitled to receive an incentive payment, payable in Units, pursuant to the terms of the contract. The incentive payment for the period totaled $188 and is included in contributed surplus (2005 - Nil). The Fund also paid $164 for expenses incurred by TMP (2005 - $64). The amounts were recorded at the exchange amount under normal business conditions.

During the quarter, the Fund, through Stylus Limited Partnership, paid rent of $115 (2005 - $115) for the Stylus manufacturing facility, to a company owned by the retractable non-controlling interest holders of Stylus Limited Partnership. The amount paid is pursuant to a lease agreement that expires on July 9, 2009 and is based upon fair market value rent for a similar facility.

During the quarter, the Fund, through Don Park (USA) Limited Partnership, paid rent of $89 (2005 - Nil) for operating facilities to a company owned by the retractable non-controlling interest holders of Don Park (USA) Limited Partnership. The amount paid is pursuant to a lease agreement that expires in April 2009, and is based upon fair market value rent for a similar facility.

During the quarter, the Fund, through Don Park Limited Partnership, paid rent of $461 (2005 - Nil) for several operating facilities to companies owned by the retractable non-controlling interest holders of Don Park Limited Partnership. The amounts paid are pursuant to lease agreements and are based on fair market value rents for similar facilities, and the leases expire on various dates between November 2008 and November 2014.

During the quarter, the Fund, through Beco Limited Partnership paid rent of $125 (2005 - Nil) for its operating facilities to a company owned by the retractable non-controlling interest holders of Beco Industries Limited Partnership. The amount paid is pursuant to a lease agreement that expires on April 30, 2011, and is based on fair market value rents for similar facilities.

OUTLOOK

The outlook for the Fund is positive.

The oil and natural gas sector continues to be strong. Despite recent weaknesses, long-term natural gas prices are expected to remain high relative to long-term historical prices. Futures contracts for natural gas on NYMEX exchange for December 2006 delivery average US$9.73. As a result of high natural gas prices, exploration and production activity in the oil and natural gas sector is expected to remain strong. The latest forecast issued by PSAC estimates in excess of 25,000 wells being completed in 2006 with an emphasis on natural gas. RJV and Diamond are both expected to benefit from the robust market conditions.

Ezee-On's performance is expected to remain flat year over year after discounting the bulk sale of inventory in Australia in 2005. Sales in Canada are expected to be slow as current market conditions are weak due to a poor harvest in the fall of 2005 and low commodity prices. Management of Ezee-On expects to continue to focus its efforts in the United States and internationally.

Sales of imported leather sofas and chairs continue to be strong for Stylus. Management expects this to continue throughout 2006.The opening of the show room in Las Vegas, Nevada and attendance at the first Las Vegas Market allowed Stylus to increase its exposure to a large dealer base in the United States. As a result, Management expects improved sales in the United States market across all product lines.

Don Park is expected to improve its performance as Management has made several key strategic decisions in order to improve operational efficiencies. While the market is expected to remain extremely competitive from a pricing standpoint, Don Park is focusing its efforts on becoming the lowest cost manufacturer in the industry while continuing to maintain its level of sales to third parties and across its network of thirteen Don Park retail locations.

Beco is expecting strong demand for its products, based on order projections provided by its key customers. The business continues to add value to its customer base by designing innovative products and sourcing across its international network. Management of Beco continues to focus on ways to grow the business, including adding additional product lines to existing accounts and expanding its base of customers.

ACCOUNTING POLICIES

The Fund prepares its financial statements in accordance with Canadian GAAP. The Fund's accounting policies are disclosed in the notes of the unaudited consolidated financial statements for the period ended March 31, 2006.

IMPACT OF NEW ACCOUNTING STANDARDS

Financial Instruments - recognition and measurement

In January 2005, the CICA released new Handbook Section 3855, Financial Instruments - Recognition and Measurement, effective for annual and interim periods beginning on or after October 1, 2006. This new section prescribes when a financial instrument is to be recognized on the balance sheet and at what amount, sometimes using fair value, at other times using cost-based measures. It also specifies how financial instrument gains and losses are to be presented, and defines financial instruments to include accounts receivable and payable, loans, investments in debt and equity securities and derivative contracts. Management has not yet determined the impact of the adoption of this standard on our results from operations or financial position.

Comprehensive Income and Equity

In January 2005, CICA released new Handbook Section 1530, Comprehensive Income, and Section 3251, Equity, effective for annual and interim periods beginning on or after October 1, 2006. Section 1530 establishes standards for reporting and display of comprehensive income. It defines other comprehensive income to include revenues, expenses, gains and losses that, in accordance with primary sources of generally accepted accounting principles, are recognized in comprehensive income, but excluded from net income. The Section does not address issues of recognition or measurement for comprehensive income and its components. Section 3251 establishes standards for the presentation of equity and changes in equity during the reporting period. The requirements in this Section are in addition to Section 1530 and recommend that an enterprise should present separately the following components of equity: retained earnings; accumulated other comprehensive income; contributed surplus; share capital; and reserves. Management has not yet determined the impact of the adoption of this standard on the presentation of the results from operations or financial position.

Non-Monetary Transactions

Effective January 1, 2006, the Fund adopted the recommendations of CICA Handbook Section 3831, Non-Monetary Transactions, replacing section 3830 of the same title. The new accounting standard requires all non-monetary transactions be measured at fair value unless certain conditions are satisfied. The new requirements are effective for non-monetary transactions initiated in periods beginning on or after January 1, 2006.

The Fund has determined that adoption of Section 3831 did not have an effect on its financial position or results of operations in the current period presented.

Implicit Variable Interests under AcG-15

Effective January 1, 2006 the Fund adopted the recommendations of abstract No. 157, Implicit Variable Interests under AcG-15 (EIC-157). The new abstract addresses whether a company has an implicit variable interest in a variable interest entity (VIE) or potential VIE when specific conditions exist. An implicit variable interest acts the same as an explicit variable interest except it involves the absorbing and/or receiving of variability indirectly from the entity (rather than directly). The identification of an implicit variable interest is a matter of judgment that depends on the relevant facts and circumstances.

The Fund has determined that adoption of EIC-157 did not have an effect on its financial position, results of operations or cash flows in the current period presented.

CRITICAL ACCOUNTING ESTIMATES

The Fund's consolidated financial statements include estimates and assumptions made by Management relating to the results of operations, financial condition, contingencies, commitments and related disclosures. Actual results may vary from these estimates. The following are, in the opinion of Management, the Fund's most critical accounting estimates.

Inventory valuation requires the use of estimates to determine obsolescence and to ensure that the cost of inventory is not in excess of net realizable value.

Capital assets amortization requires estimates by Management as to the estimated useful life of the assets, the residual value at the end of the useful life, and the appropriate amortization rates.

Goodwill impairment incorporates, at a minimum, an annual assessment of the value of the Fund's goodwill by applying a fair value based test to each segment of goodwill. Each fair value test may incorporate estimates such as normalized earnings, future earnings, price earnings multiples, future cash flows, discount rates, and terminal values. Goodwill arose on the Fund's acquisition of Laniuk, Stylus, Don Park, Diamond and Beco. Any impairment of goodwill would reduce net earnings. Management conducts an annual assessment of goodwill in the fourth quarter of each fiscal year.

Intangible asset impairment incorporates, at a minimum, an annual assessment of the value of the Fund's intangible assets by applying a fair value based test to each segment of intangible asset. Each fair value test may incorporate estimates such as normalized earnings, future earnings, price earnings multiples, future cash flows, discount rates, and terminal values. The intangible assets arose on the Fund's acquisition of Laniuk, Stylus, Don Park, Diamond and Beco. Any impairment of intangible assets would reduce net earnings. Management conducts an annual assessment of intangible assets in the fourth quarter of each fiscal year.

Warranty costs require estimates by Management as to the warranty expense expected to be incurred. An estimate of future warranty costs is made annually based on historical results and any change is charged to income in the period.

Income tax provisions, including current and future income tax assets and liabilities, may require estimates and interpretations of federal and provincial income tax rules and regulations, and judgments as to their interpretation and application to the Fund's specific situation. Current income taxes are not provided by the Fund, as the Fund's intention is to minimize its tax liabilities by paying distributions to its Unitholders. However, income taxes may be incurred and payable at the entity level, and in such cases are reflected in the operations of the particular entity. Any changes in future income tax assets and liabilities are charged to income in the period.

Accounts receivable collectibility may require an assessment and estimation of the creditworthiness of customers, the timing of collection, and the amounts that will be received. An allowance is provided against any amount estimated to be uncollectible, and reflected as a bad debt expense.

Valuation of acquired assets and liabilities on the acquisition date requires the use of estimates to determine the purchase price allocation. Estimates are made as to the valuations of capital assets, intangible assets and goodwill as well as to the fair value of assets acquired. In certain circumstances such as the valuation of intangible assets and property, plant and equipment, Management also relies on independent third party estimates.

FINANCIAL INSTRUMENTS

The Fund's financial instruments consist primarily of cash, accounts receivable, amounts payable under the operating loan, accounts payable and accrued liabilities, derivative instruments, distributions payable, term debt and capital lease obligations.

The carrying value of cash, accounts receivable, amounts payable under the operating loan, accounts payable and accrued liabilities, derivative instruments, and distributions payable, term debt and capital lease obligations approximate their fair values due to their immediate or short-term maturity.

The Fund is exposed to interest rate risk arising from fluctuations in interest rates on its amounts payable under the operating loan and the term loan.

The Fund is subject to foreign exchange risk for sales and purchases denominated in foreign currencies. Foreign currency risk arises from the fluctuation of foreign exchange rates and the degree of volatility of these rates relative to the Canadian dollar. The Fund uses the temporal method for translation of foreign currencies. Monetary assets and liabilities denominated in foreign currencies are translated to Canadian dollars at exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at rates of exchange at each transaction date. Revenues and expenses are translated at the average exchange rate for the period. Gains and losses resulting from translation are credited or charged to income.

The Fund is exposed to credit risk. Credit risk arises from the potential that a counter party will fail to perform its obligations. The Fund's credit risk is minimized by selling its products and services to a broad range of customers, many of which maintain investment grade credit ratings. The Fund maintains allowances for potential bad debts on its accounts receivable and any such losses to date have been within Management's expectations.

Additional information concerning the Fund can be found at www.sedar.com

Contact Information