CAPVEST Income Corp.
TSX VENTURE : CVS

CAPVEST Income Corp.

May 27, 2005 18:06 ET

CAPVEST Income Corp. Releases First Quarter 2005 Results

TORONTO, ONTARIO--(CCNMatthews - May 27, 2005) - Sentry Select Capital Corp. is pleased to announce the results of CAPVEST Income Corp (TSX VENTURE:CVS) for the three months ended March 31, 2005.

Highlights

- The net assets of CAPVEST Income Corp. were $4,119,752 on March 31, 2005, a slight increase from $4,092,172 at December 31, 2004.

- CAPVEST Income Corp. begin trading on the TSX Venture Exchange (Symbol: CVS) January 6th, 2005.

- CAPVEST Income Corp. was fully invested in a broad portfolio of income and royalty trusts by March 31, 2005; 43 per cent in oil and gas, 28 per cent in resource-based, and 7 per cent in oil and gas equities expected to convert their operations to trusts in the months ahead.

Report to Shareholders

Introduction

CAPVEST Income Corp. (the "Company") was formed on January 1, 2005, through the merger of two companies, Entech Investments Inc., and Biotech Medical Sciences Inc.

The first quarter of 2005 represents the first period of operation of CAPVEST Income Corp. These financial statements cover the company's operations in that period, particularly as it relates to its investment portfolio.

The financial statements contain comparative figures for the first quarter of 2004. These comparative figures are the cumulative financial statements of three mutual funds, Sentry Select Focused Technologies Fund, Sentry Select Focused Alternative Energy Fund and Sentry Select Focused Biotechnology Fund. The assets of the former two mutual funds were acquired June 29, 2004, as part of a series of transactions that led to the creation of Entech Investments. The assets of the latter mutual fund were acquired June 29, 2004 as part of a series of transactions that led to the creation of Biotech Medical Sciences Inc. These transactions were accounted for using reverse takeover accounting principles, and so the previous year's comparative figures are those of the acquiring entity, the mutual funds.

Sentry Select Capital Corp. is the investment adviser of the Company, responsible for portfolio selections.

At CAPVEST's formation, the majority of the assets of both Entech and Biotech were cash. The priority in the first quarter was to invest those assets in accordance with CAPVEST's objectives.

By focusing on income and royalty trusts, Sentry Select expects to be able to generate attractive income with which to pay dividends to CAPVEST shareholders. Canada's trust market remains a dynamic place to invest, a segment of the marketplace where specialized investment expertise is necessary. Sentry Select was the first investment company to deliver the benefits of a diversified portfolio of trusts to Canadian retail investors. Sentry Select's flagship Diversified Income Trust was introduced in 1997 and continues to deliver a steady stream of income, along with the important benefits of diversification and professional management. Sentry Select's income trust management team, led by Vice-President and Senior Portfolio Manager Sandy McIntyre, has an exceptional track record of selecting trusts to deliver steady monthly distributions and preserve capital.

CAPVEST shares trade on the TSX Venture exchange under the symbol CVS.

Portfolio Commentary

The primary goal of the investment management team in the first quarter was to invest the portfolio in attractive income trust investments. By March 31, 2005, the portfolio was fully invested in a number of resource-based trusts.

More than 43 per cent of the portfolio is invested in oil and gas trusts, and another 7 per cent of the fund is invested in equities of oil and gas companies, which are expected to convert their operations to trusts in the months ahead.

Another substantial portion of the portfolio (27.6 per cent) is invested in resource-based trusts, including Canadian Oil Sands Trust and Fording Canadian Coal Trust.

During the quarter, strong energy prices remained a common theme in the markets. Spot oil prices eventually peaked at US$58 in March, with an increase of 34 per cent in the quarter. Natural gas prices also rose significantly, reflecting a slightly colder winter in northeast North America. Demand continues to grow, approaching the production limits from existing oil fields. It is not unusual for oil prices to weaken in the second quarter, as heating requirements decline and storage facilities such as the U.S. strategic petroleum reserves are refilled. Demand usually grows again during the summer driving period.

Going forward, although oil prices may decline to the US$42-$45 range, high prices are expected to persist. This range is likely sustainable because of lack of spare capacity, as well as growing demand for oil in both China and India. As a necessary commodity in most households, consumers will be forced to adapt to higher oil prices, which will benefit energy-based income trusts.

Management's Discussion and Analysis

Portfolio Performance

CAPVEST Income Corp.'s total assets were $4,159,152 at March 31, 2005, a decrease from $4,187,172 at December 31, 2004.

The largest factor in this small decline in total assets was an unrealized depreciation in net assets during the period of $105,711. This decline was the result of a downturn in the income trust market that affected the entire sector in March. The unrealized losses more than offset the realized gain of $72,864.

The value of the Company's shares was $0.20 on the TSX Venture Exchange at March 31, 2005.

Results from Operations

The Company earned $114,452 in gross investment income in the first quarter, mostly from distributions and royalties. In the first quarter of 2004, the comparative figure was $12,781. This increase primarily reflects the portfolio choices. In 2005, the portfolio was largely invested in trusts, which pay out monthly distributions. In 2004, the mutual funds largely held common shares with a capital appreciation objective.

In the first quarter of 2005, the Company realized $72,864 on the sale of investments. The comparative figure for 2004 was $57,357. There was an unrealized depreciation in the value of investments of $105,711 in the first quarter of 2005, due to a decline in trust valuations. In the first quarter of 2004, the comparative figure was an unrealized appreciation of $346,904, which was the result of strong equity market performance in that period.

The Company had a net increase of $25,180 in assets from investment operations in the quarter, compared to a gain of $378,280 in 2004.

Management Fees

The Company's largest expense in the quarter is management and investment advisory fees of $16,660. This compares to an expense of $38,762 in the first quarter of 2004. Also, in 2004, a total of $66,250 in expenses were absorbed by the Manager.

Fund Administration and Trustee Fees

Fund administration and trustee fees declined to $7,238 in the first quarter of 2005 from $56,533 in the first quarter of 2004. The Company now pays a set fee structure, based on the size of the Company's net asset base. In prior years, the fees were charged on a fixed fee basis. This has resulted in lower fees for the Company.

Forward-Looking Statements

This disclosure includes statements about expected future events and/or financial results that are forward-looking in nature and subject to substantial risks and uncertainties. For those statements, CAPVEST Income Corp. cautions that actual performance will be affected by a number of factors, many of which are beyond its control. These include general economic conditions in Canada and the United States; industry conditions including changes in laws and regulations; changes in income tax regulations; increased competition; and fluctuations in commodity prices, foreign exchange and interest rates. In addition, there are numerous risks and uncertainties associated with oil and natural gas operations and the evaluation of oil and natural gas reserves, as well as those of other commodity based operations. As a result, future events and results may vary substantially from what CAPVEST Income Corp. currently foresees.




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CAPVEST Income Corp.
Statements of Net Assets
As at As at
(unaudited) March 31, December 31,
2005 2004
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Assets
Investments at market value $ 4,124,949 $ -

Cash and cash equivalents 121 4,187,172

Dividends and interest receivable 34,082 -
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Total Assets 4,159,152 4,187,172
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Liabilities

Administration fee payable 18,845 -

Issue costs payable 14,792 95,000

Management fee payable 5,763 -
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Total liabilities 39,400 95,000
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Shareholders' Equity
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Equity (Note 4) $ 4,094,572 $ 4,092,172
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Surplus 25,180 -
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Total shareholders' equity 4,119,752 4,092,172
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Total liabilities and shareholders'
equity $ 4,159,152 $ 4,187,172
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The accompanying notes are an integral part of these financial
statements.

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CAPVEST Income Corp.
Statements of Operations

(unaudited)
For the three For the three
months ended months ended
March 31, March 31,
2005 2004
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Investment and other income
Distributions

Royalties and dividends $ 92,798 $ 12,497

Return of capital 12,334 -

Foreign withholding tax on dividends - (1,421)
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Interest 9,320 1,705
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114,452 12,781
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Expenses

Management and investment advisory fees 16,660 38,762

Legal, listing and filing fees 9,279 -

Audit fees 7,722 8,799

Fund administration and Trustee fees 7,238 56,533

Securityholder reporting 3,192 918
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Total Expenses 44,091 105,012
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Less:
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Expenses absorbed by Manager - (66,250)
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Net expenses 44,091 38,762
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Net investment income (loss) 70,361 (25,981)
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Realized and unrealized gain (loss)
on investments and other net assets
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Net realized gain (loss) on sale of
investments 72,864 57,357

Return of capital (12,334) -

Change in unrealized appreciation
(depreciation) of investments (105,711) 346,904

(45,181) 404,261
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Net income from investment
operations for the period $ 25,180 $ 378,280
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Income per unit $ 0.00 $ 0.02
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The accompanying notes are an integral part of these financial
statements.



CAPVEST Income Corp.
Statements of Net Realized Gain on Sale of Investments
(unaudited)
For the three For the three
months ended months ended
March 31, March 31,
2005 2004
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Proceeds from sale of investments $ 2,528,080 $ 877,933
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Cost of investments, beginning of
period - 6,118,594
Return of capital (12,334) -
Purchases during the period 6,698,210 -
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6,685,876 6,118,594

Cost of investments, end of period 4,230,660 5,298,018

Cost of investments sold, during
the period 2,455,216 820,576
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Net realized gain on sale of
investments $ 72,864 $ 57,357
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The accompanying notes are an integral part of these financial
statements.



CAPVEST Income Corp.
Statements of Shareholders' Equity

(unaudited)
For the three For the three
months ended months ended
March 31, March 31,
2005 2004
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Shareholders' equity, beginning of
period $ 4,092,172 $ 6,252,104
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Issuance of equity shares 2,400 889,236

Redemptions - (3,042,247)

Net income from investment
operations for the period 25,180 378,280

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Shareholders' equity, end of period $ 4,119,752 $ 4,477,373
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The accompanying notes are an integral part of these financial
statements.



CAPVEST Income Corp.
Statements of Cash Flow

(unaudited)
For the three For the three
months ended months ended
March 31, March 31,
2005 2004
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Operating activities
Net income from investment operations
for the period $ 25,180 $ 378,280
Items not affecting cash/other:

Net realized gain on sale of
investments (72,864) (57,357)
Change in unrealized (appreciation)
depreciation of investments 105,711 (346,904)
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58,027 (25,981)
Change in working capital

Change in other assets and liabilities (89,682) 1,396,943
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Cash flows from (used in) operating
activities (31,655) 1,370,962
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Financing activities
Net proceeds from issuance (redemption)
of Equity Shares 2,400 (2,153,011)
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Cash flows from (used in) financing
activities 2,400 (2,153,011)
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Investing activities

Sales of investments 2,528,080 877,933

Return of capital 12,334 -

Purchase of investments (6,698,210) -
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Cash flow from (used in) investing
activities (4,157,796) 877,933
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Net increase in cash during the
period (4,187,051) 95,884

Cash and cash equivalents, beginning
of period 4,187,172 520,202
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Cash and cash equivalents, end of
period $ 121 $ 616,086
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The accompanying notes are an integral part of these financial
statements.



CAPVEST Income Corp.

Statement of Investment Portfolio

(unaudited)

As at March 31, 2005
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Units Average Market % of Net
Investments Held Cost Value Assets
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Income Funds
Energy
Acclaim Energy Trust
9,500 $145,075 $144,495 3.51
ARC Energy Trust
10,600 197,137 192,390 4.67
Bonavista Energy Trust
7,000 206,148 210,910 5.12
Crescent Point Energy Trust
8,100 147,836 162,000 3.93
Esprit Energy Trust Cl. B
14,400 188,841 179,280 4.35
Focus Energy Trust
7,800 171,841 162,240 3.94
Ketch Resources Trust
11,700 172,763 154,440 3.75
Vermilion Energy Trust
7,800 173,004 177,294 4.30
Viking Energy Royalty Trust
30,000 212,928 211,200 5.13
Zargon Energy Trust
7,400 193,102 181,670 4.41
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1,808,675 1,775,919 43.11
Resources

Canadian Oil Sands Trust 2,700 202,623 222,075 5.39

Fording Canadian Coal Trust 1,900 221,760 210,653 5.11

Labrador Iron Ore Royalty Income
Fund 6,400 170,112 147,264 3.57


Units Average Market % of Net
Held Cost Value Assets
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Noranda Income Fund Cl. A 13,500 174,566 159,705 3.88

PRT Forest Regeneration Income
Fund 12,700 $130,231 $120,015 2.91

SFK Pulp Fund 17,400 128,324 117,624 2.86

TimberWest Forest Corp. 10,700 171,521 158,146 3.84
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1,199,137 1,135,482 27.56

Utilities & Infrastructure

Inter Pipeline Fund Cl. A 13,900 129,436 123,293 2.99

Keyera Facilities Income
Fund 12,900 194,650 192,855 4.68
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324,086 316,148 7.67

Consumer

Rogers Sugar Income Fund 36,700 174,304 164,416 3.99

Industrials

CCS Income Trust 8,800 207,377 244,728 5.94

Great Lakes Carbon Income Fund 17,000 217,290 194,650 4.73
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424,667 439,378 10.67

Equities Shares Held
Energy

Canadian Natural
Resources Ltd. 1,600 $108,864 $109,376 2.66

Penn West Petroleum Ltd. 2,300 190,927 184,230 4.47
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299,791 293,606 7.13
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Total portfolio of investments $4,230,660 $4,124,949 100.13

Liabilities, net of cash and
other assets (5,197) (0.13)
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Total net assets $4,119,752 100.00
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Note: Percentage of net assets shown relates to investments at market
value to total net assets of the Fund.
The accompanying notes are an integral part of these financial
statements.



CAPVEST Income Corp.
Notes to Financial Statements

March 31, 2005 and 2004
(unaudited)


NOTE 1 - ORGANIZATION

CAPVEST Income Corp. ("CAPVEST", or the "Company") was created through the amalgamation of Biotech Medical Sciences Inc. ("Biotech") and Entech Investments Inc. ("Entech") effective January 1, 2005. Special Meetings of Shareholders of Entech and Biotech were held on December 21, 2004 at which time all resolutions in regards to the amalgamation were passed. Sentry Select Capital Corp. ("Sentry Select") is the Investment Advisor (the "Investment Advisor") of the Company. Sentry Select had also served as the Investment Advisor of Biotech and Entech.

On March 12, 2004, Sentry Select and Inter Energy Corp. ("Inter Energy")announced a proposal to transfer the assets from Sentry Select Focused Technologies Fund and Sentry Select Focused Alternative Energy Fund, two mutual funds administered by Sentry Select, to Inter Energy in exchange for common shares and warrants of Inter Energy. Sentry Select had served as the manager of the mutual fund trusts. In connection with the approval of this transaction, Inter Energy's shareholders approved a change of the corporate name to Entech Investments Inc. Unitholders of the two mutual funds approved the asset transfer transaction at special meetings called for that purpose on April 30, 2004. Effective June 29, 2004, Entech acquired all of the outstanding units of the mutual funds in exchange for 15,376,562 common shares and 15,376,562 common share purchase warrants, each entitling a warrantholder to purchase one common share at a price of $0.20 per share for a 12-month period. The completion of the asset transfer transaction was accepted by the TSX Venture Exchange (the "Exchange") as a "Qualifying Transaction." Entech began trading as a regular Tier 2 issuer on the Exchange effective July 16, 2004.

On March 12, 2004, Sentry Select and Rita Capital Corp. ("Rita Capital") announced a proposal to transfer the assets from Sentry Select Focused Biotechnology Fund, a mutual fund administered by Sentry Select, to Rita Capital in exchange for common shares and warrants of the Rita Capital. Sentry Select had served as the manager of the mutual fund trust. Unitholders of Sentry Select Focused Biotechnology Fund approved the asset transfer transaction at a special meeting called for that purpose on April 30, 2004. In connection with the approval of this transaction, Rita Capital's shareholders approved a change of the corporate name to Biotech Medical Sciences Inc. Effective June 29, 2004, Biotech acquired all of the outstanding units of Sentry Select Focused Biotechnology Fund in exchange for 7,640,738 common shares and 7,640,738 common share purchase warrants, each entitling a warrantholder to purchase one common share at a price of $0.20 per share for a 12-month period. The completion of the asset transfer transaction was accepted by the TSX Venture Exchange (the "Exchange") as a "Qualifying Transaction." Biotech began trading as a regular Tier 2 issuer on the Exchange effective July 19, 2004.

The directors and officers of Biotech and Entech continued as directors and officers of CAPVEST. Common shares of CAPVEST began trading on January 6, 2005 on the TSX Venture Exchange under the symbol CVS.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICICIES

The financial statements are prepared in accordance with Canadian generally accepted accounting principles, which require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses during the reporting period. Actual results could differ from these estimates.


Generally accepted accounting principles

The Canadian Institute of Chartered Accountants ("CICA") issued Section 1100, "Generally Accepted Accounting Principles ("GAAP")" of the CICA Handbook - Accounting, which establishes standards for financial reporting. Section 1100 applies to all entities, with the exception of rate-regulated operations, for fiscal years beginning on or after October 1, 2003. As a result, certain disclosures previously considered GAAP by virtue of general use in the investment funds industry are no longer considered GAAP. This section primarily impacts the disclosure of an investment fund's financial statements, and accordingly, has no impact on the valuation of a fund or in the calculation of the net asset value per unit of a fund. The Company, in conjunction with other investment funds, continues to assess the impact of section 1100 on its financial statements.

A summary of significant accounting policies used in the preparation of these financial statements is as follows:

a. Valuation of Investments

Investments are valued at market value, which is determined by the closing sale price on the recognized stock exchange on which the investments are listed or principally traded. If no closing price was reported, the most recent closing price, if it is between the bid and ask price, or the average of the closing bid and closing ask prices, is used.

Portfolio investments for which reliable quotations are not readily available are valued at management's best estimate of fair value, as determined pursuant to procedures established by the Investment Advisor. The types of securities that are subject to such valuations are delisted securities that are valued at the lower of the last traded price of the security and the Investment Advisor's best estimate of fair value.

b. Investment Transactions and Income Recognition

Investment transactions are accounted for on the date following the date on which the investments are purchased or sold. Dividend income is recognized on the ex-dividend date and interest income is recognized daily on an accrual basis. Realized gains or losses arising from the sale of investments, and unrealized appreciation and depreciation on investments, are calculated on an average-cost basis. Brokerage commissions incurred for portfolio transactions are included in the cost of portfolio investments purchased or as a reduction of the proceeds received upon the sale of portfolio investments.

c. Return of capital

Distributions that are treated as a return of capital for income tax purposes are separately identified within the Statements of Changes in Net Assets and Operations and are used to reduce the average cost of the underlying investments on the Statement of Investment Portfolio.

d. Foreign Currency Translation

The market value of foreign currency denominated investments, currency holdings and other assets and liabilities denominated in a foreign currency are translated into Canadian dollars using the prevailing rate of exchange on each valuation date. Income, expenses and investment transactions in foreign currencies are translated into Canadian dollars at the rate of exchange prevailing on the respective dates of such transactions.

The portion of the results of operations arising from changes in foreign exchange rates on portfolio investments is not isolated from the fluctuations arising from changes in market prices. Such fluctuations are included in "Net realized gain (loss) on sale of investments" in the statement of operations.

e. Cash and Cash Equivalents

Cash and cash equivalents include cash and instruments with maturity of three months or less when purchased.

f. Income Taxes

The Company follows the liability method of accounting for income taxes. Under this method, income tax assets and liabilities are recognized for the estimated tax consequences attributable to differences between the amounts reported in the financial statements and their respective tax bases, using substantively enacted income tax rates. The effect of a change in income tax rates on future tax assets and liabilities is recognized in income in the period that the change occurs.

g. Stock-Based Compensation

The Company has a stock-based compensation plan as described in Note 4. The Company follows the fair value method of accounting for the compensation expense associated with the plan, whereby an estimate of the fair value of the stock options granted is measured and recorded as compensation expense over the vesting period or at the date of grant if options vest immediately, with the related offset recorded as contributed surplus. The effect of actual forfeitures of a previously granted option are recognized as they occur. Any consideration paid to the Company with respect to the exercise of stock options is credited to share capital.

NOTE 3 - INVESTMENT MANAGEMENT AND SERVICING FEES

The Investment Advisor is responsible for the management of the Company's portfolio of investments and earns a management fee equal to 1.10 per cent per annum on the net asset value of the Company. Prior to June 29, 2004, the Investment Advisor also paid a servicing fee to eligible dealers equal to 0.40% of the net asset value of each mutual fund trust.

NOTE 4 - SHARE CAPITAL

Authorized
The authorized share capital of CAPVEST consists of an unlimited number of common shares, Class A Preference shares, Class B Preference shares and Class C Preference shares. All Preference shares are issuable in series.

Issued
In connection with the amalgamation, each shareholder of Biotech and Entech received common shares of CAPVEST in exchange for common shares of Biotech or Entech held. The exchange ratios, determined by an independent valuator, were as follows.



One (1) Entech share equals One (1) CAPVEST Income Corp share.
One (1) Biotech share equals 0.88 CAPVEST Income Corp share.


Upon the completion of the amalgamation, 28,680,411 CAPVEST common shares were issued. There were also 22,100,411 warrants outstanding, 15,376,562 issued through the purchase of Entech, and 6,723,849 issued through the purchase of Biotech.

As at March 31, 2005 there are no Preference shares issued.



Common shares outstanding:
Shares Outstanding 2005
--------------------------------------------------
Beginning -
Shares issued upon amalgamation 28,680,411
Warrants exercised 12,000
--------------------------------------------------
Ending 28,692,411
--------------------------------------------------


Stock Option Plan

As of March 31, 2005, there were 430,000 outstanding options that are exchangeable into CAPVEST common shares. These options were originally issued in 2003 by Biotech and Entech. At that time, Biotech and Entech each issued 215,000 options. Each Biotech option entitles the holder to acquire 0.88 CAPVEST common shares at a price of $0.20 until November 18, 2007. Each Entech option entitles the holder to acquire one (1) CAPVEST common share at a price of $0.20 until November 18, 2007. No stock option expense has been recognized as at March 31, 2005 as CAPVEST's share price was less than the exercise price of the options.

Warrants

In the first quarter of 2005, 12,000 warrants were exercised to purchase common shares at a price of $0.20 per share. This conversion of warrants added $2,400 to the shareholders equity in the period.

NOTE 5 - COMPARATIVE FIGURES

Comparative information for the period ended March 31, 2004 is that of Sentry Select Focused Technologies Fund, Sentry Select Focused Alternative Energy Fund and Sentry Select Focused Biotechnology Fund. Comparative financial information at December 31, 2004 represents the combined balance sheets of Entech and Biotech. Certain information from the prior years may have been restated to conform with the changes between reporting requirements of a mutual fund trust and those of a corporation.

NOTE 6 - INCOME TAXES

As at March 31, 2005 there is no provision for income taxes due to tax loss carry forwards, as detailed below.

The Company has non-capital losses of approximately $581,925. These losses were originally incurred by Entech. The breakdown of these losses is as follows:



Non-Capital Losses
Date Expiry Amount
2002 2009 $ 27,769
2003 2010 $ 28,088
2004 2014 $526,068
--------
$581,925
--------
--------


The future tax asset relating to these items has not been recognized on the balance sheet due to the uncertainty of realization.

Biotech had non-capital losses of $486,640 at December 31, 2004. These losses expired as of January 1, 2005 due to the amalgamation of Entech and Biotech.

NOTE 7 - INVESTMENTS IN RELATED PARTIES

The Company is permitted to invest in other trusts that are managed by the Manager or entities under common control as the Manager, subject to some restrictions, up to a total limit of 5 per cent.

As of March 31, 2005, the Trust held 13,900 units in Inter Pipeline Fund having a market value of $123,293, which represents 2.99 per cent of the Trust's net asset value.



The Exchange Tower
130 King Street West
Suite 2850, P.O. Box 104
Toronto, Ontario M5X 1A4


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