STRATEGIC ENERGY FUND

STRATEGIC ENERGY FUND

February 25, 2005 18:19 ET

Strategic Energy Fund Releases 2004 Year-End Results


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: STRATEGIC ENERGY FUND

TSX SYMBOL: SEF.UN

FEBRUARY 25, 2005 - 18:19 ET

Strategic Energy Fund Releases 2004 Year-End Results

TORONTO, ONTARIO--(CCNMatthews - Feb. 25, 2005) - Strategic Energy
Management Corp. is pleased to announce the results of Strategic Energy
Fund (TSX:SEF.UN) for the year 2004.

Highlights

The Fund highlights include:

- The Fund's net assets were $43,925,640 on December 31, 2004, an
increase from $40,270,293 at September 30, 2004, and $33,829,601 at
December 31, 2003.

- On a per unit basis, the net asset value (NAV) increased to $13.14 at
December 31, 2004, from $11.97 at September 30, 2004 and $9.66 at
December 31, 2003

- Strategic Energy Management Corp. also announced that Strategic Energy
Fund
would be increasing its monthly distribution to Unitholders from $0.06
per unit to $0.07 per unit beginning with the March 2005 distribution.

- On a total return basis, using the market price and including the
reinvestment of distributions at the prevailing market price, the Fund's
Units had a return of approximately 39 per cent from December 31, 2003
to December 31, 2004.

- The net asset value for Strategic Energy Fund as at February 23, 2005
was $14.40 per unit.

- The closing price for Strategic Energy Fund on the Toronto Stock
Exchange as at February 24, 2005 was $12.70 per unit.

Management's Discussion and Analysis

Portfolio Commentary

The following is a brief discussion of the main segments of the
portfolio, focusing primarily on activity in the fourth quarter. The
percentages are based on the total portfolio, net of borrowings and
excluding cash.

Private Issuers - 16.2%

The conversion of small private companies into publicly traded companies
is part of the lifecycle in the oil and gas sector. The Fund is
constantly on the lookout for new private opportunities, and invested in
six new companies in the fourth quarter.

The new private positions include Anderson Energy Ltd., Argent Energy
Inc., Highpine Oil and Gas Ltd., Revolve Energy Inc., Standard Energy
Inc. and Timber Rock Energy Ltd.

Publicly Traded Issuers - 42.6%

Smaller oil and gas companies enjoyed a strong period in the fourth
quarter. The Fund reduced its weighting to that sector by selling off a
number of positions. The Fund's largest holding at September 30,
Fairborne Energy Ltd., was sold in the fourth quarter. This was one of
the Fund's first holdings (as a private company) and the sale realized a
gain of more than 500 per cent on the initial investment.

The only new company in this segment of the portfolio is Cinch Energy
(TSX: CNH), formerly a private holding which began trading on the
Toronto Stock Exchange in November. Three other public companies
announced changes to their structure in the quarter, following the
popular trend of converting mature properties into trusts and spinning
off exploration and development properties into smaller operations.

Bear Creek Energy announced it was merging with Ketch Resources to
create an income trust and two exploration firms, while Starpoint Energy
said it was teaming up with E3 Resources to create an income trust and
one exploration firm. Both transactions are expected to occur in
January. Midnight Oil & Gas Ltd. bought the Canadian assets of
Oklahoma-based Vintage Petroleum. The combined enterprises were
restructured to create exploration-focused Midnight Oil Exploration Ltd.
and Daylight Energy Trust.

Oil and Gas Related Income Trusts - 41.2%

The Fund expanded its position in oil and gas trust operations in the
final quarter. This includes new positions in a number of conventional
oil and gas trusts such as Acclaim Energy Trust, Peyto Energy Trust and
Viking Energy Royalty Trust.

It also includes positions in other trusts that derive revenues from oil
and gas operations apart from production, such as Inter Pipeline Fund
and Phoenix Technical Services. These operations are more dependent on
volumes than prices, and so they benefit from high activity levels in
the oil and gas sector, and are less exposed to commodity price
fluctuations.

The third source of the increased exposure to this segment of the oil
and gas market is the conversion of many companies into trusts, often in
conjunction with a merger or acquisition.

Outlook

The forces that drove commodity prices higher are still at work. Global
demand continues to grow, most notably from Asia. Production is still
constrained, near capacity in many current oil fields. New production
requires development - OPEC cannot simply flip a switch to bring new
Middle East fields into production. That tightness will support prices,
and any production disruption could shoot spot prices higher. Natural
gas markets are also tight. Production has not grown, despite record
levels of drilling activity. New discoveries typically feature sharp
production decline rates. As with oil prices, the potential for price
spikes exists.

The strong commodity price environment will result in strong cash flows
for larger Canadian producers, including income trusts. These strong
cash flows should allow trusts to reduce debt, make sensible
acquisitions, develop new properties and most importantly, maintain
steady distributions to investors. This should support valuations
throughout the sector.

The Fund is well positioned to follow the growing industry trend.
Medium-sized operating companies are amalgamating into new enterprises,
converting the established properties into trusts and the exploration
properties into new smaller companies. Increasingly focused on trusts
and small private companies, Strategic Energy Fund's portfolio is
positioned to prosper from this opportunity.

Commodity Commentary

Crude Oil

Crude oil prices continued their ascent through the early weeks of the
fourth quarter before weakening in the final months of the year. Spot
prices peaked at US$55 a barrel for the benchmark West Texas
Intermediate (WTI) crude in early October. This was a continuation of an
upward trend that started in the second quarter of 2003.

These higher WTI prices reflect a number of forces. The single most
important factor is that the world's demand for crude oil now approaches
the current production limit for existing oil fields. Much of this
demand growth in 2004 - the highest growth rate in 16 years - has
originated in Asia. The amount of excess capacity is now so slim that
any short-term event can create shortages that cause prices to spike
upward.

For 2004, WTI averaged $41.44 per barrel, compared to $31.13 in 2003.
For the fourth quarter, the WTI average was $48.44, much higher than
$31.23 in the same period of 2003. For Canadian producers, the figures
for PAR at Edmonton (equivalent to the quality of WTI) show the same
pattern. Prices averaged $52.84 in 2004, up from $43.41 in 2003. For the
final quarter of 2004, prices averaged $47.97, up from $39.88 in 2003.

Natural Gas

Natural gas prices continue to be supported by a tight balance between
supply and demand. Canadian and U.S. production have been flat or
slightly lower in the past few years, even with a record number of
gas-well completions in both countries. Both U.S. and Canadian
production are believed to have declined in 2004.

For 2004, prices at the U.S. Henry Hub averaged US$5.86 per million
British Thermal Units (mmbtu), up from US$5.47 in 2003. Fourth quarter
prices averaged $6.27, up from $5.11 a year ago. Canadian prices at AECO
averaged C$6.20 per gigajoule (about 93 per cent of the volume in one
mmbtu), in 2004, down slightly from C$6.30 in 2004. For the fourth
quarter, prices averaged $6.26 in 2004, up from $5.52 in 2003.

Outlook

Most forecasts call for continued strength in commodity prices.

For nearly 20 years, OPEC nations have touted their massive proven
reserves. The increasing global demand will require them to develop
those reserves, and higher prices will make it economically feasible to
do so. Whenever global demand reaches global production, prices will
move higher, but also show greater volatility. Any production
interruption or fear of interruption - whether political, economic or
natural catastrophe - could result in sharply higher prices.

For OPEC to have the ability to moderate prices, it needs to rebuild
some spare capacity into the worldwide oil market. Depletion of existing
oil fields requires new production just to replace the normal declines.
Continued growth from China and other Asian economies will boost demand
for oil. North American prices will reflect these higher world prices,
as well as the higher premium that has developed recently. For the first
time in more than 100 years, the world faces physical shortages of crude
oil.

Somewhat similar to the oil markets, tight natural gas markets mean
there is little cushion should the demand/supply situation change. In
the coming years, a particularly harsh winter or hot summer could
challenge supplies and lead to much higher spot prices.

Financial Commentary

Highlights

- The Fund's net assets were $43,925,640 at December 31, 2004, up from
$33,829,601 a year ago.

- Net asset value per unit increased to $13.14 from $9.66 at December
31, 2003.

- Distributions totalled $0.295 per unit in 2004.

Portfolio Performance

The Fund's net assets were $43,925,640 on December 31, 2004, an increase
from $40,270,293 at September 30, 2004, and $33,829,601 at December 31,
2003.

The growth in the size of the Fund's net assets over the past year is
predominantly the result of a net realized gain on the sale of
investments and unrealized appreciation of investments. Share prices for
oil and gas companies, and Unit prices for energy trusts, were supported
by robust commodity prices, merger and acquisition activity, and
conversions of established producers into royalty trusts.

On a per unit basis, the NAV increased to 13.14 at December 31, 2004,
from $11.97 at September 30, 2004 and $9.66 at December 31, 2003.

The Fund's private holdings are valued at cost unless a subsequent
transaction establishes a different value for the shares, or a material
change in the value of the company's shares occurs.

Closed-end trusts may trade above, at or below their net asset value per
unit. The Fund's market value, as established by trading on the TSX, was
$11.09 per unit at the close of trading on December 31, 2004.

On a total return basis, using the market price and including the
reinvestment of distributions at the prevailing market price at the end
of each month, the Fund's Units had a return of approximately 39 per
cent from December 31, 2003 to December 31, 2004.

At December 31, 2004, with a NAV of $13.14, Units traded at a 15.6 per
cent discount to NAV.

Results from Operations

The Fund began paying distributions to Unitholders in June 2003 and paid
regular monthly distributions of $0.0175 per unit through October 2004.

On November 5, 2004, the Manager announced the Fund would increase its
monthly distribution to $0.06 per unit ($0.72 annualized), starting on
November 30. This increase resulted from the strong performance of the
portfolio, including the increased exposure to energy-related royalty
and income trusts, several companies in the portfolio converting or
announcing plans to convert to the trust structure, and a number of
successful transactions that resulted in net realized capital gains.



---------------------------------------------------------------------
Date of Payment Amount Record Date
---------------------------------------------------------------------
31-December-2004 $ 0.06 17-December-2004
30-November-2004 $ 0.06 16-November-2004
29-October-2004 $ 0.0175 15-October-2004
30-September-2004 $ 0.0175 16-September-2004
31-August-2004 $ 0.0175 17-August-2004
30-July-2004 $ 0.0175 16-July-2004
30-June-2004 $ 0.0175 16-June-2004
31-May-2004 $ 0.0175 14-May-2004
30-April-2004 $ 0.0175 16-April-2004
31-March-2004 $ 0.0175 17-March-2004
27-February-2004 $ 0.0175 13-February- 2004
30-January-2004 $ 0.0175 16-January-2004
-- -- -- --- ----------------------------------------------
Calendar 2004 $ 0.295
Calendar 2003 $ 0.1225
---------------------------------------------------------------------
Total $ 0.4175


Investment Approach and Risk Management

The Fund invests in securities of oil and gas royalty and income trusts
to provide income to make monthly cash distributions to Unitholders. The
Fund also invests in start-up and early stage energy companies with a
focus on those that have strong, experienced management teams with
proven track records of enhancing shareholder value and successfully
executing exit strategies. The Fund will also invest in energy issuers
where the portfolio manager believes the potential for capital
appreciation exists.

Individual oil and gas companies may face unforeseeable production
declines. The manager attempts to mitigate these risks by maintaining a
diversified portfolio. Smaller and early-stage companies may have low
trading volumes. Private companies present an additional liquidity risk.
The Fund selects private companies whose business plans anticipate a
public offering or other liquidity event within three to five years,
thereby reducing this liquidity risk. Commodity prices also affect the
value of the Fund's holdings. Commodity transactions (particularly oil)
are largely priced in U.S. dollars, creating a currency risk. A change
in value of the commodity prices, or the U.S. dollar, may affect the
Fund's value.

Mandatory Market Purchase Program

The Fund has in place a mandatory market purchase program. Under this
program, if the market price at which Unitholders are offering Units for
sale is less than 90 per cent of the latest determined NAV, the Fund is
obligated to purchase Units at the prevailing market price. For the
period April 1, 2003 to March 31, 2004, this program was subject to a
maximum of 1.00 per cent of the number of Units outstanding at the
beginning of such calendar quarter. In 2003, a total of 54,764 Units
were purchased at an average price of $8.1039. For the period April 1,
2004 to March 31, 2005, this basis has been reduced to a maximum of 0.75
per cent per quarter.

In 2004, a total of 72,588 Units were purchased at an average price of
$9.4539. Units are repurchased for cancellation at market prices rather
than at the NAV, thereby increasing the NAV for the remaining Units if
the Units trade at a discount to NAV.

Normal Course Issuer Bid

The Fund had in place a normal course issuer bid program through the
facilities of the TSX. Under the program in effect from November 28,
2003 to November 27, 2004, the Fund could purchase up to 296,900 Units
at the prevailing market price, in accordance with the by-laws and rules
of the TSX. Commencing November 28, 2004, there is no normal course
issuer bid program in place. A similar program was in place from
November 20, 2002 to November 19, 2003. Pursuant to this program, a
total of 61,700 Units were purchased in 2003.

Right of Redemption Program

The Fund has in place a redemption program (the "Right of Redemption
Program"). Under this program, the Fund will redeem Units, at a price of
95 per cent of the NAV per Unit as at the last business day of March
each year (the "Redemption Valuation Date"), up to a maximum of 2.5 per
cent of the outstanding Units as at March 1 of such year. This program
is restricted to those Units surrendered for redemption between March 1
and 5:00 p.m. (Eastern Time) on the fifth business day prior to March 31
(the "Notice Period"). As at March 31, 2003, 47, Units were redeemed at
a price of $8.45, for a total redemption amount of $397,911. In 2004, a
total of 87,480 Units were redeemed at $10.05 for a total redemption
amount of $879,174.

Liquidity and Capital Resources

The Fund is a closed-end investment trust. It funds additional
investments through equity issues, supplemented by bank loans. The Fund
does not consider substantial levels of debt financing appropriate. The
Fund has negotiated a revolving credit facility for investment and
operating purposes, with a current limit of $7 million. The Fund may
pledge up to 100 per cent of its assets (excluding private company
securities) to secure a lower interest rate on borrowings, though the
limit on the level of borrowings remains. As at December 31, 2004, $5.8
million of the credit facility was drawn down.

The Fund derives substantially all its income from investment sources.
Accounts receivable are settled on a monthly or quarterly basis and
accounts payable are settled on a monthly basis. Working capital
liquidity is maintained through drawings or repayments on the revolving
credit facility.

Management Fees

Management fees were $447,805 in 2004, up from to $256,026 in 2003. As
these fees are related to the Fund's assets under management, this
increase reflects the growth of the Fund's assets under management over
this time period.

Fund Administration, Accounting and Audit Fees

These fees were $823,184 in 2004, compared to $473,446 in 2003. The
increases reflect incremental costs that are the result of operating and
administering a larger fund. The Fund's investor relations activity has
also increased significantly in 2004.

Incentive Fees

The accrued incentive fee liability of the Trust increased by $298,532
in 2004. A total of $1,077,868 is payable at December 31, 2004. The
incentive fee is earned when net capital gains earned by the Fund in
respect of each realized investment exceeds what the Fund would have
earned on such investment if the simple rate of return thereon had been
equal to the simple rate of return of the S&P / TSX Oil and Gas
Exploration and Production Index during the period from the date of
acquisition of such investment up to and including the date of
realization. This incentive fee payable may be reduced in the future
when the rate of return on a realized investment is less than the simple
rate of return on that Index during the period when the investment is
held.

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, Strategic
Energy Fund 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 a
result, future events and results may vary substantially from what
Strategic Energy Fund currently foresees.



Strategic Energy Fund
Statements of Net Assets


As at December 31, 2004 and December 31, 2003 2004 2003
---------------------------------------------------------------------

Assets

Investments, at estimated fair value
(Note 2) $ 50,517,218 $ 31,657,644
Cash and short-term investments 329,377 3,400,195
Interest receivable and other assets 220,590 78,486
---------------------------------------------------------------------
51,067,185 35,136,325
---------------------------------------------------------------------

Liabilities

Management and servicing fees payable 85,813 66,039
Accrued incentive fee (Note 3) 1,077,868 779,336
Accounts payable and other accrued
liabilities 177,864 461,349
Bank loan payable (Note 6) 5,800,000 -
---------------------------------------------------------------------
7,141,545 1,306,724
---------------------------------------------------------------------

Net Assets $ 43,925,640 $ 33,829,601
---------------------------------------------------------------------
---------------------------------------------------------------------

Number of Trust Units Outstanding 3,343,708 3,503,776
---------------------------------------------------------------------

Net Asset Value per Trust Unit $ 13.14 $ 9.66
---------------------------------------------------------------------
---------------------------------------------------------------------

The accompanying notes are an integral part of these financial
statements.


Strategic Energy Fund

Statements of Operations

For the period ended For the period ended
December 31, December 31,
2004 2003
---------------------------------------------------------------------

Investment Income
Distributions $ 1,094,768 $ 540,143
Interest 26,465 71,491
---------------------------------------------------------------------
1,121,233 611,634

Expenses (Note 3)
Management fees 447,805 256,026
Fund administration, accounting
and audit fees 823,184 473,446
Servicing fee 158,034 94,237
Loan Interest and fees 88,717 31,016
Transfer and custody fees 100,734 63,731
---------------------------------------------------------------------

1,618,474 918,456
---------------------------------------------------------------------

Net Investment Loss (497,421) (306,822)
---------------------------------------------------------------------
Net realized gain on sale
of investments 9,673,079 1,065,276
Return of capital (233,821) (150,534)
Change in unrealized appreciation
of investments 4,082,910 5,623,295
Incentive fee payable/paid
(Note 3) (732,767) (192,692)
Change in incentive fee provision
(Note 3) 434,235 (571,533)
---------------------------------------------------------------------

13,223,636 5,773,812
---------------------------------------------------------------------

Increase in Net Assets
from Operations $ 12,726,395 $ 5,466,990
---------------------------------------------------------------------
---------------------------------------------------------------------
Income per Trust Unit(a) $ 3.73 $ 2.30
---------------------------------------------------------------------
---------------------------------------------------------------------

The accompanying notes are an integral part of these financial
statements.

(a) Calculated by dividing the increase (decrease) in net assets from
operations by the weighted average outstanding Units during the
period.


Strategic Energy Fund

Statements of Net Realized Gain(Loss) on Sale of Investments

For the period ended For the period ended
December 31, December 31,
2004 2003
---------------------------------------------------------------------
---------------------------------------------------------------------

Proceeds from sale of
investments $ 32,084,481 $ 10,221,253
Cost of investments,
beginning of period 24,866,912 15,263,288
Return of capital (233,821) (150,534)
Cost of investments, purchased
during the period 37,421,887 18,910,135
---------------------------------------------------------------------

62,054,978 34,022,889

Cost of investments,
end of period 39,643,576 24,866,912
---------------------------------------------------------------------

Cost of investments sold,
during the period 22,411,402 9,155,977
---------------------------------------------------------------------

Net Realized Gain(Loss) on
Sale of Investments $ 9,673,079 $ 1,065,276
---------------------------------------------------------------------
---------------------------------------------------------------------

The accompanying notes are an integral part of these financial
statements.


Strategic Energy Fund

Statements of Changes in Net Assets

For the period ended For the period ended
December 31, December 31,
2004 2003
---------------------------------------------------------------------

Net Assets, beginning
of period $ 33,829,601 $ 17,852,847
Increase in Net Assets
from Operations
Net investment loss (497,241) (306,822.00)
Net realized gain on sale
of investments 9,673,079 1,065,276.00
Return of capital (233,821) (150,534.00)
Incentive fee payable/paid (732,767) (192,692.00)
Change in unrealized depreciation
of investments and incentive fee 4,517,145 5,051,761.00
---------------------------------------------------------------------

12,726,395 5,466,989
---------------------------------------------------------------------

Unitholder Transactions
Issuance of Units - 13,476,020
Cost of issuance of Units (63,798) (1,324,565)
Distributions to Unitholders (1,001,146) (307,386)
Redemption of Units (879,174) (397,911)
Repurchase of Units (686,238) (936,393)
---------------------------------------------------------------------

(2,630,356) 10,509,765

Net Increase in Net Assets 10,096,039 15,976,754
---------------------------------------------------------------------
Net Asset Value, end of period $ 43,925,640 $ 33,829,601
---------------------------------------------------------------------
---------------------------------------------------------------------

The accompanying notes are an integral part of these financial
statements.


Strategic Energy Fund

Statement of Investment Portfolio

As at December 31, 2004

---------------------------------------------------------------------
---------------------------------------------------------------------
Estimated
Shares Fair Value % of
Investments Held Average Cost (Note 2) Net Assets
---------------------------------------------------------------------
Private Issuers
Anderson Energy Ltd.,
Cl. B 182,000 1,001,000 1,001,000 2.28%
Argent Energy Inc. 1,000,000 1,000,000 1,000,000 2.27%
Citadel Resources
Inc. 750,000 750,000 750,000 1.71%
Ferus Gas Industries
Trust 100,000 250,000 250,000 0.57%
Highpine Oil & Gas
Ltd. 85,000 765,000 765,000 1.74%
Newpact Energy Corp. 385,000 500,500 500,500 1.14%
Revolve Energy Inc. 300,000 300,000 300,000 0.68%
Spry Energy Ltd. 250,000 500,000 825,000 1.88%
Standard Energy Inc.,
Common 666,666 999,999 999,999 2.28%
Stylus Exploration
Inc., Consolidated 450,600 638,250 901,200 2.05%
Timber Rock Energy
Ltd. 400,000 400,000 400,000 0.91%
Timing Energy Ltd. 500,000 500,000 500,000 1.14%
---------------------------------------------------------------------
7,604,749 8,192,699 18.65%

Shares Market % of
Investments Held Average Cost Value Net Assets
---------------------------------------------------------------------
---------------------------------------------------------------------

Small Energy Issuers
Arrow Energy Ltd. 476,000 499,800 354,620 0.81%
Bear Creek Energy
Ltd. 373,500 1,111,607 3,171,015 7.22%
Blue Mountain Energy
Ltd. 273,725 1,657,644 2,217,173 5.05%
Cinch Energy Corp. 266,400 499,500 650,016 1.48%
Cinch Energy,
Warrants 333,000 - 58,275 0.13%
Crispin Energy Inc. 562,500 618,750 762,188 1.74%
Cyries Energy Inc. 86,907 491,201 677,006 1.54%



Shares Market % of
Investments Held Average Cost Value Net Assets

Small Energy Issuers,
continued
Galleon Energy Inc.,
Cl. A 102,000 816,000 1,106,700 2.52%
Grand Banks Energy,
Warrants 263,160 - 10,526 0.02%
Hawk Energy Corp.
Cl. A 110,000 308,000 403,700 0.92%
Lightning Energy Ltd. 172,400 689,600 746,492 1.70%
Luke Energy Ltd. 295,000 427,750 967,600 2.20%
Midnight Oil
Exploration Ltd. 40,450 82,919 137,530 0.31%
Mustang Resources Inc. 65,000 416,000 526,500 1.20%
ProEx Energy Ltd. 46,321 260,819 393,729 0.90%
Tango Energy Inc. 1,266,540 759,924 747,259 1.70%
Tempest Energy
Corp., Cl. A 362,500 1,450,000 2,407,000 5.48%
Tiverton Petroleums
Ltd. 324,200 120,004 92,397 0.21%
Vaquero Energy Ltd. 110,000 291,500 519,200 1.18%
---------------------------------------------------------------------
10,501,018 15,948,926 36.31%

Junior Energy Issuers

Duvernay Oil Corp. 133,363 1,292,581 2,597,911 5.91%
NuVista Energy Ltd. 100,000 693,000 1,060,000 2.41%
StarPoint Energy Ltd. 105,000 283,415 556,500 1.27%
---------------------------------------------------------------------
2,268,996 4,214,411 9.59%

Senior Energy Issuers

Niko Resources Ltd. 20,000 723,800 1,009,400 2.30%
---------------------------------------------------------------------
723,800 1,009,400 2.30%

Other Issuers

Innicor Subsurface
Tech. Inc. 140,200 315,450 346,294 0.79%
---------------------------------------------------------------------
315,450 346,294 0.79%


Shares Market % of
Income Trusts Held Average Cost Value Net Assets

Acclaim Energy Trust 102,000 1,481,990 1,468,800 3.34%
ARC Energy Trust 87,500 1,224,678 1,566,250 3.57%
Atlantic Power Corp,
IPS Units 100,000 1,000,000 1,075,000 2.45%
Bonavista Energy Trust 74,000 1,668,737 2,005,400 4.57%
Crescent Point Energy
Trust 90,997 1,157,678 1,533,299 3.49%
Daylight Energy,
Exchangeable Shares 68,900 432,145 669,667 1.52%
Daylight Energy Trust 12,000 96,781 115,200 0.26%
Enerplus Resources
Fund 18,500 741,441 806,600 1.84%
Esprit Energy Trust,
Cl. B 101,200 1,279,913 1,253,868 2.85%
Inter Pipeline Fund 130,000 939,339 1,190,800 2.71%
Keyspan Facilities
Income Fund 500 6,443 7,195 0.02%
Paramount Energy Trust 90,000 1,456,714 1,434,600 3.27%
Peyto Energy Trust 37,300 1,558,535 1,784,059 4.06%
Phoenix Technical
Services Income
Trust 110,000 440,000 498,300 1.13%
Progress Energy Trust 100,000 1,290,099 1,352,000 3.08%
Vermilion Energy Trust 60,000 730,664 1,207,200 2.75%
Viking Energy Royalty
Trust 173,000 1,198,345 1,167,750 2.66%
Zargon Energy Trust 70,000 1,526,061 1,669,500 3.80%
---------------------------------------------------------------------
18,229,563 20,805,488 47.37%
---------------------------------------------------------------------
Total portfolio of
investments 39,643,576 50,517,218 115.01%
Net liabilities (6,591,578) -15.01%
---------------------------------------------------------------------
Total Net Assets 43,925,640 100.00%
---------------------------------------------------------------------
---------------------------------------------------------------------

Note: Percentage of net assets shown relates to investments at market
value to total net assets of the Trust.
The accompanying notes are an integral part of these financial
statements.


Strategic Energy Fund
Notes to Financial Statements

December 31, 2004


NOTE 1 - ORGANIZATION OF THE FUND

Strategic Energy Fund (the "Fund") is a closed-end investment trust
established under the laws of the Province of Ontario pursuant to a
trust agreement amended and restated as of October 10, 2003 (the "Trust
Agreement") and began operations on May 9, 2002. Strategic Energy
Management Corp. (the "Manager"), a corporation incorporated under the
laws of the Province of Ontario, is the manager of the Fund.
Computershare Trust Company of Canada (the "Trustee") is the trustee of
the Fund.

The Fund's investment objectives are: i) to provide holders of the Units
(the "Unitholders") with an opportunity for superior rates of return,
principally in the form of long-term capital appreciation; and ii) a
cost-effective method of reducing investment risk through a
diversification strategy focused on investment opportunities within the
Canadian energy sector.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These financial statements have been prepared in accordance with
Canadian generally accepted accounting principles.

The significant accounting policies of the Fund are as follows:

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 Fund, in conjunction with other investment
funds, continues to assess the impact of section 1100 on its financial
statements.

Valuation of investments

The value of any security which is listed on a stock exchange or traded
on an over-the-counter market will be the last sale price applicable to
a board lot prior to the time of determination of net asset value (NAV)
or if no such sale price is available at that time, but if bid and ask
quotations are available, at the average of the bid and the ask price,
rather than the quoted sale price. Securities which are listed on a
stock exchange or traded over-the-counter and which are subject to a
hold period or other trading restrictions will be valued as described
above, with an appropriate discount as determined by the Manager, acting
reasonably.

The value of any security or other asset for which no published market
exists, including securities of private issuers, will be determined by
the Manager in accordance with the following: (i) such securities or
other assets will normally be carried at cost unless: (a) there is an
arm's length transaction which in the Manager's reasonable opinion
establishes a different value, or (b) a material change in the value of
an issuer occurs, including as a result of a writedown of its assets on
its audited balance sheet or the preparation of a valuation of the
issuer or of a substantial portion of its assets by a qualified
independent person, in which event the value will be increased or
decreased, as appropriate, to the resulting fair value.

The process of valuing investments for which no published market exists
is based on inherent uncertainties and the resulting values may differ
from values that would have been used had a ready market existed for the
investments and may differ from the prices at which the investments may
be sold. These differences could be material to the fair value of
investments as a portfolio.

The difference between the market or fair value and the average cost of
the investments is recorded as an unrealized appreciation (depreciation)
of investments.

Investment transactions and income recognition

Investment transactions are accounted for on a
trade-date-plus-one-business-day basis. Distributions and royalty
income, if any, are recorded on the ex-dividend date. Interest is
recorded on an accrual basis. Gains or losses arising from the sale of
investments and unrealized appreciation or depreciation in value of
investments are determined on an average-cost basis.

Income taxes

The Fund qualifies as a mutual fund trust under the provisions of the
Income Tax Act (Canada) and, accordingly, is subject to tax on net
income including net realized capital gains in the tax year, which is
not paid or payable to Unitholders during the year. It is the intention
of the Fund to distribute all of its net income and sufficient net
realized capital gains so that the Fund will not be subject to income
taxes other than foreign withholding taxes, if applicable.

Unit valuation

The Units of the Fund are valued as of 4:15 p.m. (Eastern Time) on each
Wednesday ("Valuation Date") during the year (or, if a Wednesday is a
non-business day, the next business day following such Wednesday).
Additional valuation days are the last business day of each quarter and
December 31 of each year. The net asset value per unit is calculated as
the value of the Fund's assets less its liabilities divided by the
number of Units outstanding at the time.

Use of estimates

The preparation of financial statements in accordance with Canadian
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the amounts of
income and expense during the reported period. Actual results could
differ from those estimates.

NOTE 3 - MANAGEMENT FEES AND OPERATING EXPENSES

Management Fee

The Manager of the Fund provides investment and administrative services
to the Fund for which it receives a management fee payable, in cash,
monthly at a rate of 1/12 of 1.10 per cent of the average Net Asset
Value of each weekly published Valuation Date in the month. The Manager
has retained Sentry Select Capital Corp., (the "Investment Advisor") a
company controlled by the shareholder of the Manager, to provide
investment advisory services to the Fund for which it is paid an
investment advisory fee by the Manager.

Incentive fee

The Incentive Fee is based on the relative performance of each of the
Fund's realized investments and will be paid in cash.

The Incentive Fee will be equal to 20 per cent of the difference, if
positive, between the net capital gain earned by the Fund in respect of
each realized investment and the amount that the Fund would have earned
on such investment if the simple rate of return thereon had been equal
to the simple rate of return of the S&P/TSX Oil & Gas Exploration and
Production Index during the period from the date of acquisition of such
investment up to and including the date of realization.

The Manager will pay 25 per cent of any Incentive Fee received by it,
plus applicable taxes, to dealers on a proportionate basis according to
the number of Fund Units held by their respective clients at the end of
the month preceding the month in which the Incentive Fee is received.

In the event that there is a loss on an investment in circumstances
where there was a positive simple rate of return on the S&P/TSX Oil &
Gas Exploration and Production Index during the applicable investment
period, the amount of such loss plus the amount that the Fund would have
earned on such investment if the simple rate of return thereon had been
equal to the simple rate of return of the S&P/TSX Oil & Gas Exploration
and Production Index during the period from the date of acquisition of
such investment up to and including the date of realization will be
carried forward, on a cumulative basis, to reduce the Incentive Fee
payable in respect of subsequent gains.

In the event that there is a loss on an investment in circumstances
where there was a negative simple rate of return on the S&P/TSX Oil &
Gas Exploration and Production Index during the applicable investment
period, a portion of such loss will be carried forward, on a cumulative
basis, to reduce the Incentive Fee payable in respect of subsequent
gains. Such portion will be equal to the amount of the loss, if any,
which exceeds the amount that the Fund would have lost on such
investment if the negative simple rate of return thereon had been equal
to the negative simple rate of return of the S&P/TSX Oil & Gas
Exploration and Production Index during the period from the date of
acquisition of such investment up to and including the date of
realization. The Incentive Fee will be determined based upon the cash
proceeds received by the Fund from the realization of an investment. In
the event that the Fund receives non-cash proceeds (such as securities)
upon the realization of an investment, the Incentive Fee will not be
calculated or become payable until such non-cash proceeds are sold for
cash.

As at December 31, 2004, $732,767 was payable to the Manager under this
Incentive Fee arrangement. As at December 31, 2003, $192,692 was paid to
the Manager under this Incentive Fee arrangement. The Fund has accrued
for an Incentive Fee that has accumulated unrealized gains and which is
not payable, of $345,101 (2003 - $779,336).

Other fees and expenses

The Fund is responsible for paying a Servicing Fee to dealers, of 0.4
per cent of the NAV per annum, calculated and payable at the end of each
quarter.

The Fund is responsible for payment of all expenses relating to the
operation and the carrying on of its business, including legal, audit,
trustee, custodial and safekeeping fees, taxes, brokerage commissions,
operating and administrative costs, investor servicing, costs of
financial and other reports and prospectuses of the Fund.

The expenses incurred by the Manager and the Investment Advisor related
to the provision of management and investment advisory services,
including the cost of employing management and staff and the related
general and administrative expenses, are for the account of such parties
and not for the account of the Fund.

The Fund will pay or reimburse the Manager for all expenses incurred in
connection with the operation and administration of the Fund.

NOTE 4 - UNITS

The authorized capital of the Fund consists of an unlimited number of
Units. Each Unitholder in the Fund acquires Units, which represent an
undivided interest in the net assets of the Fund. All Units are of the
same class with equal rights and privileges and are entitled to one vote
at any meeting of the Unitholders and to equal participation in any
distributions made by the Fund.

On May 9, 2002 the Fund issued an initial 2,000,000 Units at a price of
$10.00 per unit. Subsequently the Fund issued to the holders of its
outstanding Trust Units of record at the close of business on March 13,
2003, rights to subscribe for Trust Units. Each Unitholder received one
right for each Trust Unit held. Four rights entitled the holder to
subscribe for one Trust Unit at a price of $7.00 per Trust Unit. A total
of 354,860 Units (1,419,440 rights) were subscribed for.

On November 6, 2003, the Fund issued 1,250,000 Units at $8.00 per unit
for total gross proceeds of $10,000,000 pursuant to an offering.
Pursuant to an over-allotment option, an additional 124,000 Units were
issued for total gross proceeds of $992,000 in December 2003.

The Fund has in place a redemption program (the "Right of Redemption
Program"). Under this program, the Fund will redeem Units, at a price of
95 per cent of the net asset value per fund unit as at the last business
day of March each year (the "Redemption Valuation Date"), up to a
maximum of 2.5 per cent of the outstanding Fund Units as at March 1 of
such year. This program is restricted to those Units surrendered for
redemption between March 1 and 5:00 p.m. (Eastern Time) on the fifth
business day prior to March 31 (the "Notice Period"). In 2003, a total
of 47,090 Units were redeemed at $8.45, for a total redemption amount of
$397,911. In 2004, a total of 87,480 Units were redeemed at $10.05, for
a total redemption amount of $879,174.

The Fund has in place a mandatory market purchase program (the
"Mandatory Market Purchase Program"). Under this program, the Fund will
be obligated, on a best efforts basis, to purchase Units at the
prevailing market price, if the market price at which Unitholders are
then offering their Units for sale is less than 90 per cent of the
latest determined net asset value per unit. This program was subject to
a maximum of 1.25 per cent of the number of Units outstanding at the
beginning of such calendar quarter, until March 31, 2003. For the period
April 1, 2003, to March 31, 2004, this program was subject to a maximum
of 1.00 per cent per quarter. Pursuant to this program a total of 54,764
Fund Units were purchased at an average price of $8.1039 in 2003. For
the period April 1, 2004 to March 31, 2005, this basis is reduced to a
maximum of 0.75 per cent per quarter. Pursuant to this program, a total
of 72,588 Units were purchased at an average price of $9.4539 in 2004.

The Fund had in place a normal course issuer bid program (the "Normal
Course Issuer Bid"). This program through the facilities of the Toronto
Stock Exchange (the "TSX") was in effect from November 20, 2002 to
November 19, 2003. Under this program, the Fund was able to purchase up
to 175,500 Units at the prevailing market price, in accordance with the
by-laws and rules of the TSX. Pursuant to this program a total of 61,700
Fund Units were purchased in 2003 at an average price of $7.9837. A
subsequent Normal Course Issuer Bid was in effect from November 28, 2003
to November 27, 2004, under which the Fund was authorized to purchase up
to 296,900 Fund Units. No Units were purchased through this subsequent
Normal Course Issuer Bid. Commencing November 28, 2004, there is no
Normal Course Issuer Bid currently in place.



---------------------------------------------------------------------
Fund Units 2004 2003
---------------------------------------------------------------------
Balance, beginning of period 3,503,776 1,938,470
---------------------------------------------------------------------
Mandatory Market Purchase Plan (72,588) (54,764)
---------------------------------------------------------------------
Normal Course Issuer Bid program - (61,700)
---------------------------------------------------------------------
Redemption (87,480) (47,090)
---------------------------------------------------------------------
March rights offering - 354,860
---------------------------------------------------------------------
November offering - 1,250,000
---------------------------------------------------------------------
December over-allotment - 124,000
---------------------------------------------------------------------
Balance, end of period 3,343,708 3,503,776
---------------------------------------------------------------------


NOTE 5 - DISTRIBUTIONS

Pursuant to its Trust Agreement, the Fund is required to distribute at
least 25 per cent of the net realized capital gains, if any, and at
least 50 per cent of its net taxable income, if any, to Unitholders on
an annual basis.

The Fund began to pay monthly distributions to Unitholders in June of
2003. The first distribution was $0.0175 per unit on June 30, 2003 to
Unitholders of record on June 16, 2003. Each subsequent monthly
distribution was also $0.0175 per unit until October 2004.

On November 5, 2004 the Manager announced an increase to the monthly
distribution from $0.0175 to $0.06 per unit. The first distribution
paying $0.06 per unit had an ex-distribution date of November 12, 2004,
a record date of November 16 and was payable on November 30.

Unitholders have the option of receiving their distributions either in
cash or in the form of additional Fund Units by way of automatic
reinvestment.

NOTE 6 - BANK LOAN

The Fund has a secured $4 million, 364-day revolving credit facility due
October 2005. The facility is secured by a Security Interest pledge of
the Portfolio. On December 1, 2004 this facility was increased to $7
million. The facility bears interest at the prime rate, payable monthly.
As at December 31, 2004, $5,800,000 of the credit facility was drawn
down (2003 - nil). In 2004, $88,717 in interest was paid pursuant to
this facility (2003 - $31,016).

NOTE 7 - RISK FACTORS

The following are certain considerations relating to an investment in
Units that prospective investors should consider before purchasing such
securities:

Types of issuers

The Fund invests in small and medium-sized issuers, many of which have
limited or no operating history. Some of these investments may require a
number of years in order to mature and generate expected returns and
some might prove to be unsuccessful. Trading prices of the public
issuers in which the Fund invests may be volatile, which may result in
volatility in the NAV. Oil and gas companies may also experience
unforeseen production declines.

The Manager attempts to mitigate these risks by maintaining a
diversified portfolio and by focusing on issuers with strong,
experienced management teams that have proven track records. Investments
in private issuers are focused upon issuers whose business plans
anticipate a public offering or other liquidity event within four years,
thereby reducing to some extent the liquidity risks associated with
investments of this nature.

Performance of issuers

The NAV per unit will vary according to the value of the securities in
which the Fund invests, which will depend, in part, upon the performance
of the issuers of such securities. Additionally, external economic
forces can affect the competitive strength and profitability of the
businesses represented by these securities, which would significantly
affect the value of such securities.

The amount of distributions available for payment to Unitholders will
depend in part on the amount of distributions paid by the issuers of the
securities held by the Fund in the portfolio. The Fund cannot predict
whether the securities of issuers held by it will trade at a discount
from, a premium to, or at the net asset values of the issuers of such
securities or when or if distributions on such securities will be made.
It is possible that, due to declines in the market values of securities
in the portfolio, the Fund will have insufficient assets to achieve in
full its monthly distribution and capital preservation and enhancement
objectives.

The Fund may make investments in issuers that have low trading volumes.
Accordingly, it may be difficult for the Fund to make trades in these
issuers without adversely affecting the price of such issuers and
consequently the NAV of the Fund.

Interest rate fluctuations

It is anticipated that the market price for the Units at any given time
will be affected by the level of interest rates prevailing at such time.
A rise in interest rates may have a negative effect on the market price
of the Units.

Commodity price and currency fluctuations

The operations and financial condition of resource-based issuers in
which the Fund will invest and, accordingly, the amount of distributions
paid on their securities will be dependent on prices applicable to the
commodities sold by such issuers. Prices for commodities may vary and
are determined by supply and demand factors, including weather and
general economic and political conditions and other conditions or
circumstances beyond the control of the issuers of these securities. A
decline in commodity prices could have an adverse effect on the
operations and financial condition of such issuers and the value of, and
amount of distributions paid on, their securities. In addition, energy
prices are denominated generally in U.S. dollars. Accordingly, a
decrease in the value of the U.S. dollar against the Canadian dollar
could reduce the amount of distributions paid on such securities.

NOTE 8 - INVESTMENTS IN RELATED PARTIES

Pursuant to the Trust Agreement, the Fund is permitted to invest in
other related trusts that are managed by the Manager or entities under
common control as the Manager, subject to some restrictions.

As at December 31, 2004, the Fund held 130,000 units of Inter Pipeline
Fund having a market value of $1,190,800 that represents 2.71 per cent
of the Trust's net asset value.

NOTE 9 - PRIOR YEAR FIGURES

Certain of the prior year's comparative figures have been reclassified
to conform to the current year's presentation.

NOTE 10 - SUBSEQUENT EVENT

A preliminary prospectus for a rights offering was filed for the Fund on
February 25, 2005. Each holder of Units on the Record Date will receive
one right for each Unit held.



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


-30-

Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    Investor Services
    (investor enquiries)
    1-888-246-6656
    (416) 364-1330 (FAX)
    or
    Jason Graham/Patrick Schryburt
    (media enquiries)
    1-888-246-6656
    (416) 364-1330 (FAX)
    info@sentryselect.com
    www.sentryselect.com