Norstar Securities Trust

August 29, 2007 16:59 ET

Norstar Securities Trust Announces Second Quarter Results

TORONTO, ONTARIO--(Marketwire - Aug. 29, 2007) - Norstar Securities Trust ("Norstar", the "Trust", the "Company") today released its financial results for the three and six months ended June 30, 2007.

Second Quarter Highlights:

- Closing of its initial public offering on April 23, 2007 of 4,720,000 trust units by way of prospectus dated March 28, 2007 at a price of $0.25 per unit for gross proceeds of $1,180,000.

- Acquisition of the net assets of Norstar Securities International Inc. with the net proceeds of the initial public offering of the Company.

- Revenue of $904,081

- Net income of $399,027

- Earnings per unit of $0.08

Norstar Securities Trust operates an independent Canadian investment dealer through its limited partner, Norstar Securities Limited Partnership.

Other Information:

This press release should be read in conjunction with the management's discussion and analysis and unaudited interim consolidated financial statements for the three and six months ended June 30, 2007, which are available on SEDAR at www.sedar.com

Forward-Looking Statements

This press release may contain forward-looking statements, which are subject to risks and uncertainties and other factors that may cause the Fund's results to differ materially from expectations. When reviewing the Fund's forward-looking statements, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. These include risk relating to market fluctuations, investee performance, strength of the North American and European economy, foreign exchange fluctuations and other risks not yet know to the Fund.. These forward-looking statements speak only as of the date hereof. Unless otherwise required by applicable securities laws, the Fund disclaims any intention or obligation to update these forward-looking statements. The Fund does have an ongoing obligation to disclose material information as it become available. The discussion also includes cautionary statements about these matters. You should read the cautionary statements made as being applicable to all forward-looking statements wherever they appear in this document.

NOTICE TO READER

The accompanying unaudited interim consolidated financial statements of Norstar Securities Trust for the three and six months ended June 30, 2007 have been prepared by management and approved by the Audit Committee and the Board of Directors of the Fund. These statements have not been reviewed by the Fund's external auditors.

Dated: August 27, 2007.

Michael Sheridan, Chief Executive Officer

Brenda Drisdelle, Chief Financial Officer



NORSTAR SECURITIES TRUST

Consolidated Balance Sheet - June 30, 2007
(Unaudited - Prepared by Management)

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June 30, December 31,
2007 2006
(Unaudited) (Audited)

Assets

Current:
Cash $ 3,461,690 $ 10
Securities owned - at fair value (note 5) 2,473,976 -
Due from broker 4,016,284 -
Due from clients 1,887,899 -
Prepaids and other assets 46,320 4,250
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11,886,169 4,260

Capital assets (note 6) 146,741 -
Goodwill (note 4) 128,066 -
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$ 12,160,976 $ 4,260
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Liabilities and Unitholders' Equity
Current:
Due to clients $ 8,520,251 $ -
Securities sold short -
at fair value (note 5) 1,568,447 -
Accounts payable and accrued liabilities 533,251 4,250
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10,621,949 4,250

Subordinated loans (note 7) 160,000 -
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10,781,949 4,250
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Unitholders' equity (note 8) 1,379,027 10
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$ 12,160,976 $ 4,260
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------------------------------------------------------------------------

See accompanying notes to the consolidated financial statements.



NORSTAR SECURITIES TRUST

Consolidated Statement of Earnings
For the three and six months ended June 30, 2007
(Unaudited - Prepared by Management)

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------------------------------------------------------------------------
Three Months Six Months
Ended Ended
------------------------------------------------------------------------

Revenue:
Trading $ 731,350 $ 731,350
Commissions 60,275 60,275
Interest 11,850 11,850
Other 100,606 100,606
904,081 904,081

Expenses:
Salaries, commissions and benefits 280,181 280,181
Office and administration 215,012 215,012
Depreciation 6,861 6,861
Interest 3,000 3,000
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505,054 505,054
------------------------------------------------------------------------

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Net income $ 399,027 $ 399,027
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Earnings per unit $ 0.08 $ 0.08
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See accompanying notes to the consolidated financial statements.



NORSTAR SECURITIES TRUST

Consolidated Statement of Unitholders' Equity
For the period ended June 30, 2007
(Unaudited - Prepared by Management)


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Stated Accumulated Unitholders'
Capital Earnings Equity
------------------------------------------------------------------------


Balance as reported
December 31, 2006 $ 10 $ - $ 10

Net earnings for the period - 399,027 399,027
Issuance of units (net of
issuance costs) (note 8) 980,000 - 980,000
Repurchase of initial trust
unit (note 8) (10) (10)

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Balance, June 30, 2007 $ 980,000 $ 399,027 $ 1,379,027
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------------------------------------------------------------------------

See accompanying notes to the consolidated financial statements.



NORSTAR SECURITIES TRUST

Consolidated Statement of Cash Flows
For the three and six months ended June 30, 2007
(Unaudited - Prepared by Management)

------------------------------------------------------------------------
------------------------------------------------------------------------
Three Months Six Months
Ended Ended
------------------------------------------------------------------------

Cash flow from operating activities:
Net income for the period $ 399,027 $ 399,027
Items not affecting cash:
Depreciation 6,861 6,861
------------------------------------------------------------------------
405,888 405,888
Changes in non-cash working
capital balances:
Due from broker (4,076,466) (4,076,466)
Due from clients (1,751,653) (1,751,653)
Due to clients 176,471 176,471
Accounts payable and accrued liabilities 207,411 223,096
Prepaids and other assets 2,346 (12,569)
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Cash flow from (used in) operating
activities (5,036,003) (5,035,233)
------------------------------------------------------------------------

Cash flow from financing activities:
Redemption of units (10) (10)
Issuance of units (net) 980,000 980,000
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Cash flow from financing activities 979,990 979,990
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Cash flow from investing activities:
Acquisition of business assets (net of
cash acquired) 8,171,841 8,171,841
Securities owned (2,223,365) (2,223,365)
Securities sold short 1,568,447 1,568,447
------------------------------------------------------------------------

Cash flow from investing activities 7,516,923 7,516,923
------------------------------------------------------------------------

Increase in cash 3,460,910 3,461,680

Cash, beginning of period 780 10

------------------------------------------------------------------------
Cash, end of period $ 3,461,690 $ 3,461,690
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------------------------------------------------------------------------

Supplementary cash flow information:
Cash paid for interest $ 3,000 $ 3,000
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------------------------------------------------------------------------

See accompanying notes to the consolidated financial statements.



NORSTAR SECURITIES TRUST

Notes to Consolidated Financial Statements

For the six months ended June 30, 2007
(Unaudited - Prepared by Management)


1. Formation and inception of the Fund:

Norstar Securities Trust (the "Fund") is an unincorporated, open-ended, limited purpose mutual fund trust established under the laws of the Province of Ontario pursuant to the Deed of Trust dated December 28, 2006 (amended and restated on February 21, 2007). The Fund did not conduct any commercial operations from inception to April 23, 2007. The Fund and its consolidated entities, Norstar Securities Limited Partnership (the "Partnership") and NSIF Inc. (the "Administrator") were formed for the purposes of conducting the initial public offering of trust units of the Fund (the "Offering") and subsequent acquisition of the securities business and associated assets of Norstar Securities International Inc. (the "Acquisition"). Although the Fund, the Partnership and the Administrator were formed and existed during the period, the Offering and the Acquisition did not close until April 23, 2007.

On December 28, 2006, the Fund was formed on the contribution of $10.00 by the settlor to the Fund following which the Fund subscribed for one common share, being the only issued share, of the Administrator for $1.00. Following this, the Administrator and the Fund formed the Partnership by the contribution of $1.00 by the Administrator for its 10% general partnership interest and the contribution of $9.00 by the Fund for its 90% limited partnership interest.

2. Auditor review:

The unaudited consolidated financial statements have not been reviewed by the Fund's Auditors.

3. Significant accounting policies:

Basis of presentation:

Management has prepared these unaudited consolidated financial statements of the Fund in accordance with Canadian generally accepted accounting principles for interim financial reporting. Accordingly, they do not include all of the information and notes required by Canadian generally accepted accounting principles for annual financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation have been included. The results for the interim periods presented are not necessarily indicative of the results that may be expected for any future period. The following information should be read in conjunction with the consolidated financial statements and notes thereto included in the Fund's audited consolidated financial statements for the year ended December 31, 2006. Accounting policies followed in the preparation of the annual consolidated financial statements are consistent with those used in the preparation of the June 30, 2007 interim consolidated financial statements except for the following:

(a) Effective January 1, 2007, the Fund adopted Canadian Institute of Chartered Accountants' Handbook Section 1530, Comprehensive Income, Section 3861, Financial Instruments - Disclosure and Presentation and Section 3865, Hedges.
Section 3861 establishes standards for disclosure and presentation of financial assets, financial liabilities and non-financial derivatives. As there are no comprehensive income items, comprehensive income is equal to net income. Also, the Fund does not hold any derivative instruments for hedging purposes. Accordingly, adoption of Section 1530 and 3865 has had no effect on the Fund's interim consolidated financial statements.

These consolidated financial statements are prepared in Canadian dollars and include the accounts of Norstar Securities Trust, NSIF Inc. and Norstar Securities Limited Partnership. All intercompany transactions and balances have been eliminated on consolidation.

(b) Comparative figures are presented for the consolidated balance sheet. As the Fund was only established on December 28, 2006 and did not carry on a business until April 23, 2007, no comparative information is presented for the consolidated statement of earnings, statement of unitholders' equity and statement of cash flow.

Income taxes:

We qualify as a mutual fund trust for the purposes of the Income Tax Act (Canada). As such, we are only taxable on any amounts not allocated to unitholders. These financial statements do not reflect any income taxes as we are committed to distributing to our unitholders all or virtually all of our taxable income and capital gains and we intend to comply with the provisions of the Income Tax Act that permit the deduction of distributions to unitholders from our taxable income and taxable capital gains. Income tax liabilities related to our distributions are the obligations of the unitholders.

Earnings per unit:

Earnings per unit is based on the weighted average number of units outstanding during the period.

Securities transactions:

Securities transactions and related revenue and expenses, are recorded in the accounts on a trade-date basis.

Securities owned and securities sold short:

Securities owned and securities sold short are carried at fair values as at the close of business at the balance sheet date. Fair value is based on quoted market prices for exchange-traded equity and fixed income securities, and for exchange-traded derivatives, principally futures and options. Realized and unrealized changes in fair value are recognized in income from principal transactions in the period in which the changes occur.

Capital assets:

Capital assets are carried at cost less accumulated amortization. Amortization is provided using the straight-line basis as follows:



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Furniture and fixtures 5 years
Leasehold improvements 5 years
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Foreign currency translation:

The Fund's subsidiaries are considered to be integrated operations. Accordingly, monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the rate of exchange prevailing at the year end. Non-monetary assets and liabilities denominated in foreign currencies are translated at historical rates. All revenue and expenses denominated in foreign currencies are translated at rates of exchange prevailing at the transaction dates. Gains or losses resulting from translation are included in the determination of net income for the period.

4. Acquisition:

Simultaneous with the closing of the Fund's initial public offering on April 23, 2007, the Fund used the net proceeds of the offering to acquire the net assets of, and the business from, Norstar Securities International Inc.

Norstar Securities International Inc. was a Canadian independent investment dealer carrying on business since September 24, 1996 (a member of the Investment Dealers Association of Canada) focused on proprietary trading of equity securities and in the execution of institutional client orders.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition.

The details of the acquisition are as follows:



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------------------------------------------------------------------------
Purchase price
Cash $ 980,000
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Fair value of net assets acquired:
Current assets $ 9,482,343
Capital assets 153,602
Goodwill (i) 128,066
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9,764,011
Current liabilities (8,624,011)
Subordinated loan (160,000)

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Fair value of net assets assumed $ 980,000
------------------------------------------------------------------------
------------------------------------------------------------------------


(i) The excess of the purchase price over the net assets acquired from Norstar Securities International Inc. in the amount of $128,066 was allocated to goodwill.

5. Securities owned and securities sold short at fair value are summarized as follows:



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------------------------------------------------------------------------
Securities Securities
Owned Sold Short
------------------------------------------------------------------------
Money market $ 251,222 $ -
Equities 2,222,754 1,568,447

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$ 2,473,976 $ 1,568,447
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6. Capital assets:

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------------------------------------------------------------------------
Accumulated Net Book
Cost Amortization Value
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Furniture and fixtures $ 30,344 $ 2,153 $ 28,191
Leasehold improvements 123,258 4,708 118,550

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$ 153,602 $ 6,861 $ 146,741
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7. Subordinated loans:

The subordinated loan bears interest at 10% per annum, due from certain unitholders of the Fund. Repayment of all subordinated loans is subject to the Investment Dealers Association of Canada approval.

8. Unitholders' capital:

(a) The Fund's Declaration of Trust provides that an unlimited number of Trust Units and Special Voting Units may be issued. Each Trust Unit is transferable and represents an equal undivided beneficial interest in any distribution from the Fund, and in the net assets of the Fund in the event of termination or winding up of the Fund. All Trust Units rank equally with all of the other Trust Units.

Each Special Voting Unit entitles the holder to a number of votes at all meetings of Voting Unitholders or in respect of any resolution of Voting Unitholders equal to the number of Trust Units into which Exchangeable Securities to which such Special Voting Units relate are exchangeable. Except for the right to attend and vote at meetings of Voting Unitholders or in respect of written resolutions of Voting Unitholders, Special Voting Units do not confer upon the holder thereof any other rights. Holders of the Special Voting Units are not entitled to any interest or share in the Trust or any distributions of any nature whatsoever from the Trust and will not have any beneficial interest in any Trust Assets on termination or winding up of the Trust.


(b) Issued and outstanding:

The following table provides the details of the change in the issued and outstanding units:



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------------------------------------------------------------------------
Number Stated
of Units Capital
------------------------------------------------------------------------

Balance, December 31, 2006 1 $ 10
Repurchase of units (i) (1) (10)
Units issued upon initial public
offering (net of issuance costs) (ii) 4,720,000 980,000

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Balance, June 30, 2007 4,720,000 $ 980,000
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(i) The initial trust unit was repurchased for cancellation upon completion of the Fund's initial public offering.

(ii) On April 23, 2007, the Fund closed its initial public offering of 4,720,000 trust units by way of prospectus dated March 28, 2007, at a price of $0.25 per unit for gross proceeds of $1,180,000. After deducting agent's fees and professional fees, the trust net proceeds were $980,000.

9. Operating lease commitments:

The Fund has contractual obligations in respect of rents payable on leased premises (expiring May 31, 2011) and equipment in the approximate amounts as follows:



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2008 $ 107,446
2009 107,446
2010 107,446
2011 51,467
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10. Introducing broker arrangement:

The Fund has a Type 4 uniform introducer/carrier broker arrangement with TD Waterhouse to provide for trading, securities clearing and settlement services, and record keeping information services.

11. Related party transaction:

The Fund leases one of its premises from a corporation whose directors are the controlling unitholders. Total rent paid for the six months ended June 30, 2007 to this corporation was $18,400. The lease expires on May 31, 2011 and has a base rent of approximately $8,200 per month.

12. Financial instruments:

Risk management:

Dependence on key personnel - The Fund is dependent upon the personal efforts and commitment of its existing management, who are responsible for risk management and the future development of The Fund's business. The extent that management's services would be unavailable for any reason, a disruption to the operations of the Fund could result, and other persons would be required to manage and operate the Fund.

Market risks - Unfavourable economic conditions may negatively impact the Funds' ability to generate new investment opportunities. The Fund manages market risk by having a diversified portfolio which is not singularly exposed to any one or class of issuers. The Fund's investment activities in securities owned and sold short are usually held for very short periods of time to minimize exposure to market risks.

Cash flow/revenue - The Fund's liquidity and operating results may be adversely affected if the Fund's access to the capital markets is hindered, whether as a result of a downturn in the market conditions generally or to matters specific to the Fund, or if the value of the Fund's investments declined resulting in losses upon disposition. The Fund generates cash flow primarily from trading in securities, in addition to interest on client balances and the commission earned on its client trading.

Foreign exchange/currency of operations - The Fund's operations are exposed to foreign exchange fluctuations in its investment portfolio and cash denominated in US currency. This exposure is mitigated by the fact that most securities owned and sold short by the Fund are held for very short periods, and cash denominated in US currency is held for the payment on account of client balances also denominated in US currency. The Fund believes it is not significantly exposed to foreign exchange risk.

Interest and credit risk - Certain of the Fund's assets are exposed to the risk of a financial loss occurring as a result of default of a counterparty on its obligations to the Fund. The risk is mitigated by the fact that most client receivables are secured by the underlying shares in their broker account which are held in segregation or safekeeping by the Fund's carrying broker.

13. Subsequent event:

On July 26, 2007 the Fund declared a quarterly distribution of $0.0106 per unit for a total of $50,032.00 to unitholder's of record August 3, 2007 payable on August 17, 2007.

Distributable cash is determined by the Board of Trustees and takes into consideration cash reserves deemed to be reasonable and necessary for the operation of the fund and its associated entities. The Fund's distributable cash may not be directly comparable to distributable cash reported by other income funds or similar issuers.



Management Discussion and Analysis
Quarter Ended June 30, 2007


The following Management Discussion and Analysis ("MD&A") should be read in conjunction with the Trust's unaudited financial statements for the quarter ended June 30, 2007 and all of the notes and other information contained in the unaudited financial statements. This MD&A is dated August 28, 2007 and is in respect of the quarter ended June 30, 2007. The unaudited consolidated financial statements along with the financial data disclosed in this Management's Discussion and Analysis ("MD&A"), have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") and all amounts expressed are presented in Canadian dollars, unless expressly stated otherwise.

The following discussion contains forward-looking statements, which are subject to risks and uncertainties and other factors that may cause the Fund's results to differ materially from expectations. When reviewing the Fund's forward-looking statements, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. These include risk relating to market fluctuations, investee performance, strength of the North American and European economy, foreign exchange fluctuations and other risks not yet know to the Fund.. These forward-looking statements speak only as of the date hereof. Unless otherwise required by applicable securities laws, the Fund disclaims any intention or obligation to update these forward-looking statements. The Fund does have an ongoing obligation to disclose material information as it become available. The discussion also includes cautionary statements about these matters. You should read the cautionary statements made below as being applicable to all forward-looking statements wherever they appear in this document.

Overview

The Fund and its consolidated entities, Norstar Securities Limited Partnership (the "Partnership") and NSIF Inc. (the "Administrator") were formed for the purposes of conducting the initial public offering of trust units of the Fund (the "Offering") and subsequent acquisition of the securities business and associated assets of Norstar Securities International Inc. (the "Acquisition"). Although the Fund, the Partnership and the Administrator were formed and existed prior to the beginning of the quarter ended June 30, 2007, the Offering and the Acquisition did not close until April 23, 2007.

On April 23, 2007, the Fund closed its initial public offering of 4,720,000 trust units by way of prospectus dated March 28, 2007, at a price of $0.25 per unit for gross proceeds of $1,180,000. After deducting agent's fees and professional fees, the trust net proceeds were $980,000. Simultaneous with the closing of the Fund's initial public offering on April 23, 2007, the Fund used the net proceeds of the offering to acquire the net assets of, and the business from, Norstar Securities International Inc. The purchase price is comprised of the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition. The details of the acquisition are as follows:

Purchase price of $980,000 comprised of the fair value of net assets acquired (current assets of $9,482,343; capital assets of $153,602; goodwill of $128,066), less current liabilities of $8,624,011 and subordinated loans of $160,000.

Norstar Securities International Inc. was a Canadian independent investment dealer carrying on business since September 24, 1996 (a member of the Investment Dealers Association of Canada) focused on proprietary trading of equity securities and in the execution of institutional and retail client orders.

Results of Operations

In all discussions on Results of Operations, there will be no comparisons to previous periods as operations of the Trust and its associated entities commenced on April 23, 2007 and no previous periods exist.

From the closing of the acquisition on April 23, 2007 through June 30, 2007 revenue totaled $904,081, which is comprised of approximately 80% trading revenue with the remaining approximately 20% comprised of commissions, interest and other income. Expenses for the period totaled $505,054. Approximately 55% of the expenses were comprised of salaries, commissions and benefits, and approximately 43% was office and administration expenses.

Net income for the period totaled $399,027, or approximately $0.08 per unit.

Cash Flows

Cash flow used in operating activities for the 3 month period ending June 30, 2007 totaled ($5,036,003), as compared to ($5,035,233) for the 6 month period ending June 30, 2007. The small difference is a result of changes to "Accounts payable and accrued liabilities" and to "Prepaids and other assets". Cash flow from financing activities in the amount of $979,990 encompasses the closing of the fund's initial public offering of 4,720,000 trust units by way of prospectus dated March 28, 2007, at a price of $0.25 per unit for gross proceeds of $1,180,000, less agent's fees and professional fees, for net proceeds of $980,000. Cash flow from investing activities for both the 3 months and the 6 months ended June 30, 2007 totaled $7,516,923 which includes the acquisition of business assets (net of cash acquired), securities owned and securities sold short. Cash at the end of the 3 month period and the 6 month period ending June 30, 2007 was $3,461,690.

Liquidity and Capital Resources

As at June 30, 2007, cash and cash equivalents totaled $3,461,690. The fund's working capital was $1,264,220.

The fund's business is subject to strict regulatory minimum capital requirements, which must be maintained at all times. As a result of this, all transactions and activities, growth plans and development activities are predicated to the level of capital available and required at any given time.

Current holdings of cash and cash equivalents, along with revenue from operations provide sufficient and appropriate level of cash for operating and regulatory purposes for the reasonably foreseeable future given the current market, economic and business climate within which the fund operates.

The fund does not expect its capital requirements to change significantly in the near future. Any changes to capital requirements could be met through additional subordinated debt (subject to Investment Dealers Association of Canada approval) or through equity financing.

Debt

Subordinated loans in the amount of $160,000, due from certain unitholders of the fund, bear interest at 10% per annum. Repayment of all subordinated loans is subject to the approval of the Investment Dealers Association of Canada.

Distributions and Distributable Cash

On July 26, 2007 the fund declared a quarterly distribution of $0.0106 per unit for a total of $50,032.00 to shareholders of record August 3, 2007 payable on August 17, 2007.

Distributable cash is determined by the Board of Trustees and takes into consideration cash reserves deemed to be reasonable and necessary for the operation of the fund and its associated entities. The Fund's distributable cash may not be directly comparable to distributable cash reported by other income funds or similar issuers.

Unitholder's Equity

The Fund is authorized to issue an unlimited number of trust units and special voting units. As at June 30, 2007 there were 4,720,000 trust units issued and outstanding. There has been no change to the number of issued and outstanding trust units as at August 28, 2007.

Related Party Transactions

The Fund leases its premises located at 73 Richmond Street West, Toronto, Ontario from a corporation whose directors are the controlling unitholders. Total rent paid for the period ended June 30, 2007 to this corporation was $18,400. The lease expires on May 31, 2011 and has a base rent of approximately $8,200 per month.

Disclosure Controls

The CEO and CFO have concluded that the Fund's disclosure controls and procedures, as defined in Multilateral Instrument 52-109, Certification of Disclosure in Issuer's Annual and Interim Filings, are effective to ensure that information required to be disclosed in reports that the Fund files or submits under Canadian securities legislation is recorded, processed, summarized and reported within the time periods specified in those rules and forms.

During 2006 and the first two quarters of 2007, the Trust's management, including the CEO and CFO, established, maintained and designed internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP. The CEO and CFO confirm there were no changes during the three months ended June 30, 2007 which materially affected, or are reasonably likely to materially affect, these controls.

Off-balance sheet arrangements

The Fund has no off-balance sheet arrangements at this time.

Additional information

Additional information relating to the Fund is available on Sedar at www.sedar.com.

Contact Information

  • Norstar Securities Trust
    Michael Sheridan
    Chief Executive Officer
    (416) 619-2008
    (416) 619-2011 (FAX)