STRATEGIC ENERGY FUND
TSX : SEF.UN

STRATEGIC ENERGY FUND

August 10, 2005 10:00 ET

Strategic Energy Fund 'TSX:SEF.UN' Releases 2005 Second Quarter Results

TORONTO, ONTARIO--(CCNMatthews - Aug. 10, 2005) - Strategic Energy Management Corp. is pleased to announce the results of Strategic Energy Fund (TSX:SEF.UN) for the three and six month periods ended June 30, 2005.

Highlights

- The Fund's net assets were C$58,698,266 on June 30, 2005, an increase from C$45,629,972 on March 31, 2005.

- On a per unit basis, the Fund's Net Asset Value after distributions was $13.55 at June 30, 2005, an increase from the December 31, 2004 NAV of $13.14.

- The Fund paid a total of C$0.53 per unit in distributions during the quarter. This included a $0.10 regular distribution in each of April, May and June and a special distribution of C$0.23 in May.

- On a total return basis, using market prices, and without re-investing distributions, the Fund returned 14.6 per cent in the second quarter of 2005 and 57.3 per cent over the 12 months ended June 30, 2005.

- The Fund established holdings in a number of trusts in the second quarter, including Fording Canadian Coal Trust, Freehold Royalty Trust, Penn West Energy Trust and Trinidad Energy Services Trust.

- The Fund received units of Fairborne Energy Trust after Fairborne Energy Ltd. converted to the trust structure and spun-out an exploration-focused junior called Fairquest Energy Ltd. The Fund also received shares of Fairquest Energy in the transaction.

- On April 5, 2005, shares of Highpine Oil & Gas Ltd. began trading on the Toronto Stock Exchange.

- Subsequent to quarter end, the Fund announced a special distribution of $0.25 per unit payable September 30, 2005 to Unitholders of record September 12, 2005.

Management's Discussion and Analysis

Portfolio Commentary

Strategic Energy Fund's net assets increased over $13 million in the second quarter to $58,698,266 as of June 30, 2005. This increase was mostly the result of a successful rights offering. Unitholders of record on April 1, 2005 received one right for each unit held, with three rights entitling the holder to purchase one unit at a price of $12.00 up to April 29, 2005. Upon closing on May 4, 2005, 1,082,694 Fund units were issued, raising total gross proceeds of $12,992,328. This Rights Offering was over-subscribed by nearly $9 million.

The Fund increased its distributions from $0.07 to $0.10 per unit, starting in April 2005, and also paid a special distribution of $0.23 per unit in May that reflected realized capital gains. Based on the closing price of $13.30 per unit on the Toronto Stock Exchange on June 30, 2005, up from $12.20 per unit on March 31, the $0.10 per unit distribution represented a yield of 9 per cent. Units issued under the rights offering were eligible for the special distribution in May.

The increase in the monthly distribution resulted from the strong performance of the portfolio, including the increased exposure to energy-related royalty and income trusts. 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.

The Fund returned 27.8 per cent over the first six months of 2005, and 57.3 per cent over the 12 months ended June 30, 2005, on a total return basis using market prices (without re-investing distributions and including the average trading value of rights).

Portfolio Commentary

Oil and Gas Related Income Trusts

At June 30, 2005, 80 per cent of the Fund's net assets are invested in energy-related royalty and income trusts.

The performance of mature royalty trusts is more directly linked to commodity pricing than traditional exploration and production companies. Their revenues are more directly linked to production volumes and market prices. In addition, many of the newer entrants to the trust market have adopted a new model that involves lower payout ratios and debt to cash flow levels. These trusts often provide capital appreciation potential along with income.

Conversions from traditional exploration and production companies to the trust structure have continued into 2005. The sector also continues to benefit from Standard & Poor's decision to include royalty and income trusts in the S&P/TSX Composite Index beginning in the second half of the year, which should increase demand from institutional investors.

The Fund established holdings in a number of trusts in the second quarter, including Fording Canadian Coal Trust, Freehold Royalty Trust, Penn West Energy Trust and Trinidad Energy Services Trust.

The Fund received units of Fairborne Energy Trust after Fairborne Energy Ltd. converted to the trust structure and spun-out an exploration-focused junior called Fairquest Energy Ltd. The Fund also received shares of Fairquest Energy in the transaction.

Private Issuers

Private issuers comprised 14.3 per cent of the Fund's net assets. These companies are a unique investment opportunity unavailable to most retail investors. The Fund's manager is able to draw upon extensive industry contacts to discover the most promising companies. The Fund targets management teams with excellent track records, significant stakes in their companies, and a solid plan to build reserves and execute a successful exit strategy.

In the quarter, the Fund acquired a position in Adamant Energy Inc. On April 5, 2005, private holding Highpine Oil & Gas Ltd. began trading on the Toronto Stock Exchange.

Outlook

Strong commodity prices should allow the oil and gas sector to continue to generate strong returns. The Fund's investment in mature trusts generates predictable levels of income, so investors see cash flow from the first month they invest. Investments in private companies give investors exposure to high-growth opportunities. Capital appreciation is also possible from a number of the newer 'sustainable model' royalty and income trust holdings.

We believe that these segments provide the best risk to reward combination for Strategic Energy Fund investors.

Commodity Commentary

Crude Oil

West Texas Intermediate crude oil prices averaged US$53.10 per barrel in the second quarter of 2005, up from an average of US$49.68 per barrel in the first quarter.

Inventories of both crude oil and refined products increased as expected in the spring, as demand slowed between the winter heating and summer driving seasons, causing oil to fall to under US$50 a barrel. Prices then rebounded to a record US$60 a barrel in June on concerns about possible supply shortages later this year when refineries, which are operating at capacity, could struggle to meet strong demand for refined products and distillates.

In mid-June, members of the Organization of the Petroleum Exporting Countries (OPEC) increased their official production quota by 500,000 barrels to 28 million barrels per day. Yet this was greeted by the market as a symbolic gesture since the U.S. Department of Energy (DOE) estimates that OPEC is actually producing 30 million barrels per day. With OPEC's ability to pump oil apparently at capacity, markets have little spare capacity for dealing with any supply or demand shocks.

Natural Gas

The average price of natural gas at the Henry Hub in Louisiana in the second quarter was US$6.94 per million British thermal units (mmbtu) and US$6.68 for the first six months of 2005. The average price of natural gas at the AECO Hub in Alberta in the second quarter was $6.98 per gigajoule and $6.676 for the first six months of 2005.

According to Baker Hughes Inc., an oilfield services firm, the number of rigs drilling for natural gas in the United States at the end of June was 18 per cent greater than a year ago, and 23 per cent higher than the five-year average for this time of year.

High prices for competing energy sources, such as crude oil and heating oil, are keeping the demand for natural gas strong.

Outlook

Long-term crude prices should remain much higher than historical averages due to high demand and limited capacity that leaves markets at risk of supply shocks. In a June report the DOE estimated third quarter world oil production to be 85.1 million barrels per day, exceeding demand by 600,000 barrels per day. For all of 2005, the DOE is forecasting supply to exceed demand by 200,000 barrels per day.

Factors which could act as an impediment to higher prices include less-than-expected demand from China and a slowdown in economic growth resulting from high prices for crude oil and refined products.

Natural gas prices should stay above recent seasonal norms as U.S. production remains flat or declines despite the record level drilling. In a June report the DOE estimated 2005 U.S. natural gas demand will slightly exceed supplies.

Fund Performance

The Fund's net assets were $58,698,266 on June 30, 2005, an increase from $45,629,972 on March 31, 2005 and $43,925,640 at December 31, 2004. On June 30, 2004, the Fund had net assets of $37,738,407.

The largest factor contributing to the Fund's increase in net assets over the second quarter of 2005 was the rights offering. Upon closing on May 5, 2005, 1,082,694 units were issued, raising total gross proceeds of $12,992,328. The net proceeds of this rights offering of $12,069,667 (after deducting issue costs of $922,661) was used to purchase additional portfolio investments and to pay down the bank loan of $5,800,000. Also contributing to the increase in net assets over the second quarter was a $1,798,370 change in the unrealized appreciation of investments.

On a per unit basis, the NAV decreased to $13.55 at June 30, 2005 from $14.05 at March 31, 2005. The NAV per unit was $13.14 at December 31, 2004 and $11.12 at June 30, 2004.

The decline in the NAV per unit in the second quarter was due to the increased distributions, including the special distribution of realized capital gains, as well as the completion of the rights offering that increased the total number of units outstanding.

The Fund's holdings of private companies 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 NAV per unit. On the Toronto Stock Exchange, the Fund units began the quarter at $12.20 and closed on June 30 at $13.30. At this closing price, units traded at a discount of just 1.8 per cent to their NAV.

Distributions

The Fund began paying distributions to Unitholders in June 2003 of $0.0175 per unit. This was increased to $0.06 per unit in November 2004. On March 8, 2005, the Manager announced the Fund would increase its monthly distribution from $0.06 to $0.07 per unit, beginning with the distribution payable on March 31. This increase resulted from the strong performance of the portfolio, including the increased exposure to energy-related royalty and income trusts.

On April 6, the Manager announced the Fund would further increase its monthly distribution to $0.10 per unit, starting on April 29. The Manager also announced that the Fund would make a special distribution of $0.23 per unit payable on May 31, 2005 to Unitholders of record May 16, 2005. This capital gains distribution is the result of realized portfolio gains during the first quarter of 2005.



Date of Payment Amount Record Date
30-June-2005 $ 0.10 17-June-2005
31-May-2005 $ 0.23 16-May-2005
31-May-2005 $ 0.10 16-May-2005
29-April-2005 $ 0.10 15-April-2005
31-March-2005 $ 0.07 16-March-2005
28-February-2005 $ 0.06 14-February-2005
31-January-2005 $ 0.06 17-January-2005
Calendar 2004 $ 0.295
Calendar 2003 $ 0.1225
Total $ 1.1375


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 are largely priced in U.S. dollars, or reflect U.S. prices, 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 their 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. 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. For the period April 1, 2005 to March 31, 2006, this basis has been reduced to a maximum of 0.50 per cent per quarter.

In 2004, 72,588 Units were purchased at an average price of $9.4539. In the second quarter of 2005, no Units were purchased. In the first six months of 2005, 12,341 Units were purchased at an average price of $11.5643.

Units are repurchased at market prices rather than at the NAV, and are then cancelled. This increases the NAV for the remaining Units if the Units trade at a discount to NAV.

Right of Redemption Program

The Fund has in place an annual 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"). In 2004, 87,480 Units were redeemed at $10.05 for a total redemption amount of $879,174. In the first six months of 2005, 83,285 Units were redeemed at a price of $13.32 for a total redemption amount of $1,109,356.

Liquidity and Capital Resources

The Fund is a closed-end investment trust. It funds additional investments through new equity issues, supplemented by bank loans. The Fund does not consider substantial levels of debt financing to be 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 low limit on the level of borrowings remains. As at June 30, 2005, the Fund had fully repaid the outstanding balance of the loan facility.

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 $156,744 in the second quarter of 2005, compared with $109,444 for the same period in 2004. For the six months ended June 30, 2005, management fees were $293,173, compared with $213,730 for the first six months of 2004. 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

Fund administration fees were $129,907 in the second quarter of 2005, compared with $142,518 in the same period in 2004. For the six months ended June 30, 2005, these fees were $204,934, compared with $426,821 for the first six months of 2004. This is the result of lower legal and reporting costs during the period.

Incentive Fees

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 & 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. The accrued incentive fee liability of the Trust was nil as at June 30, 2005, compared with $1,077,868 at December 31, 2004 and nil at March 31, 2005.

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.

STOCK EXCHANGE LISTING

Toronto Stock Exchange

Symbol: SEF.UN



Strategic Energy Fund

Statements of Net Assets

(unaudited)

As at June 30, 2005 and December 31, 2004 2005 2004
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Assets
Investments, at estimated fair value $ 57,934,305 $ 50,517,218
Cash and short-term investments 2,540,792 329,377
Receivable for securities sold 22,905 -
Interest receivable and other assets 369,886 220,590
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60,867,888 51,067,185
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Liabilities
Management and servicing fees payable 115,655 85,813
Accrued incentive fee (Note 3) - 1,077,868
Payable for securities purchased 1,685,150 -
Accounts payable and other accrued liabilities 368,817 144,684
Redemption payable (Note 4) - 33,180
Bank loan payable (Note 7) - 5,800,000
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2,169,622 7,141,545
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Net assets $ 58,698,266 $ 43,925,640
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Number of Trust Units outstanding (Note 4) 4,330,776 3,343,708
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Net asset value per Trust Unit $ 13.55 $ 13.14
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The accompanying notes are an integral part of these financial
statements.


Strategic Energy Fund

Statements of Operations

(unaudited)

For the For the For the For the
three three six six
months months months months
ended ended ended ended
June 30, June 30, June 30, June 30,

2005 2004 2005 2004
---------------------------------------------------------------------
Investment and other income
Distributions
Royalties and
dividends $866,287 $160,138 $1,608,686 $321,948
Return of capital 296,861 53,737 504,469 98,220
Interest 17,646 6,211 32,950 13,024
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1,180,794 220,086 2,146,105 433,192
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Expenses
Management fees 156,744 109,444 293,173 213,730
Fund administration 129,907 142,518 204,934 426,821
Servicing fee 58,832 37,738 105,541 73,855
Loan Interest and fees 24,842 21,717 86,202 24,193
Transfer and custody fees 25,586 28,891 54,267 64,923
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395,911 340,308 744,117 803,522
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Net investment income
(loss) 784,883 (120,222) 1,401,988 (370,330)
---------------------------------------------------------------------
Net realized gain on sale
of investments 899,277 1,174,732 10,216,533 2,461,337
Return of capital (296,861) (53,737) (504,469) (98,220)
Change in unrealized
appreciation
(depreciation)
of investments 1,798,370 1,092,896 (4,683,713) 3,449,214
Change in incentive
fee provision - (118,114) 345,101 (75,492)
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2,400,786 2,095,777 5,373,452 5,736,839
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Increase in net assets
from operations $3,185,669 $1,975,555 $6,775,440 $5,366,509
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Income per Trust
unit(i) $0.80 $0.58 $1.85 $1.56
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The accompanying notes are an integral part of these financial
statements.

(i) 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

(unaudited)

For the For the For the For the
three three six six
months months months months
ended ended ended ended
June 30, June 30, June 30, June 30,

2005 2004 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Proceeds from sale of
investments $13,235,742 $6,539,247 $40,832,293 $11,128,234
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Cost of investments,
beginning of
period 47,554,776 29,379,051 39,643,576 24,866,912
Return of capital (296,861) (53,737) (504,469) (98,220)
Cost of investments,
purchased during
the period 16,822,926 5,998,747 43,221,029 13,857,751
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64,080,841 35,324,061 82,360,136 38,626,443
Cost of investments,
end of period 51,744,376 29,959,546 51,744,376 29,959,546
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Cost of investments
sold, during
the period 12,336,465 5,364,515 30,615,760 8,666,897
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Net realized gain
on sale of
investments $899,277 $1,174,732 $10,216,533 $2,461,337
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The accompanying notes are an integral part of these financial
statements.



Strategic Energy Fund

Statements of Cash Flow

(unaudited)

For the For the For the For the
three three six six
months months months months
ended ended ended ended
June 30, June 30, June 30, June 30,

2005 2004 2005 2004
---------------------------------------------------------------------
Operating activities
Increase in net assets
from operations $3,185,669 $1,975,555 $6,775,440 $5,366,509
Items not affecting
cash:
Net realized gain on sale
of investments (899,277) (1,174,732)(10,216,533) (2,461,337)
Change in unrealized
appreciation of
investments (1,798,370) (974,782) 4,338,612 (3,373,722)
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488,022 (173,959) 897,519 (468,550)
Net change in working
capital:
Payment of incentive
fee - - (732,767) -
Change in other assets
and liabilities 722,591 (2,142,262) 1,733,744 (192,742)
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Cash flows from (used in)
operating activities 1,210,613 (2,316,221) 1,898,496 (661,292)
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Financing activities
Change in loan credit
facility (5,800,000) - (5,800,000) 2,000,000
Distributions to
unitholders (2,187,042) (178,974) (2,820,410) (362,767)
Net proceeds from
issuance of Trust
Units 12,069,667 - 12,069,667 -

Redemption of Trust
Units - (174,480) (1,252,071) (1,094,936)
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Cash flows from
(used in)
financing activities 4,082,625 (353,454) 2,197,186 542,297
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Investing activities
Purchase of
investments (16,822,926) (5,998,747)(43,221,029)(13,857,751)
Return of capital 296,861 53,737 504,469 98,220
Sales of investments 13,235,742 6,539,247 40,832,293 11,128,234
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Cash flow from
(used in)
investing activities (3,290,323) 594,237 (1,884,267) (2,631,297)
---------------------------------------------------------------------
Net increase in cash
during the period 2,002,915 (2,075,438) 2,211,415 (2,750,292)
Cash and short-term
investments,
beginning of period 537,877 2,725,341 329,377 3,400,195
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Cash and short-term
investments,
end of period $2,540,792 $649,903 $2,540,792 $649,903
---------------------------------------------------------------------

Cash 792 903 792 903
Short-term investments 2,540,000 649,000 2,540,000 649,000
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$2,540,792 $649,903 $2,540,792 $649,903
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Supplemental disclosure
of cash flow information:
Amount of interest paid
during the period $31,015 $12,515 $92,384 $14,711
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The accompanying notes are an integral part of these financial
statements.


Strategic Energy Fund

Statements of Changes in Net Assets

(unaudited)

For the For the For For
three three the six the six
months months months months
ended ended ended ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
---------------------------------------------------------------------
Net assets, beginning $ $ $ $
of period 45,629,972 36,116,306 43,925,640 33,829,601
---------------------------------------------------------------------
Increase in net assets
from operations
Net investment income
(loss) 784,883 (120,222) 1,401,988 (370,330)
Net realized gain on sale
of investments 899,277 1,174,732 10,216,533 2,461,337
Return of capital (296,861) (53,737) (504,469) (98,220)
Change in unrealized
appreciation
(depreciation) of
investments and incentive
fee 1,798,370 974,782 (4,338,612) 3,373,722
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3,185,669 1,975,555 6,775,440 5,366,509
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Unitholder transactions
(Note 4)
Units issued per rights
offering 12,992,328 - 12,992,328 -
Issue cost of rights
offering (922,661) - (922,661) -
Distributions to
unitholders (2,187,042) (178,974) (2,820,410) (362,767)
Redemption of units - - (1,109,356) (879,174)
Repurchase of units - (174,480) (142,715) (215,762)
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9,882,625 (353,454) 7,997,186 (1,457,703)
Net increase in net
assets 13,068,294 1,622,101 14,772,626 3,908,806
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Net asset value, end of $ $ $ $
period 58,698,266 37,738,407 58,698,266 37,738,407
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The accompanying notes are an integral part of these financial
statements.


Strategic Energy Fund

Statement of Investment Portfolio

(unaudited)

As at June 30, 2005
---------------------------------------------------------------------
---------------------------------------------------------------------
Estimated % of
Shares Average Fair Net
Investments Held Cost Value Assets
---------------------------------------------------------------------
Private issuers
Adamant Energy Inc. 333,334 $500,001 $500,001 0.85%
Anderson Energy Ltd. 182,000 1,001,000 1,183,000 2.02%
Argent Energy Inc. 1,000,000 1,000,000 1,000,000 1.70%
Citadel Resources Inc. 750,000 750,000 750,000 1.28%
Ferus Gas Industries Trust 100,000 250,000 250,000 0.43%
Newpact Energy Corp. 385,000 500,500 577,500 0.98%
Redsky Energy Ltd. 220,000 660,000 660,000 1.12%
Revolve Energy Inc. 300,000 300,000 300,000 0.51%
Ridgeback Exploration Ltd. 300,000 375,000 375,000 0.64%
Spry Energy Ltd. 250,000 500,000 912,500 1.55%
Standard Energy Inc. 666,666 999,999 999,999 1.70%
Timber Rock Energy Ltd. 400,000 400,000 400,000 0.68%
Timing Energy Ltd. 500,000 500,000 500,000 0.84%
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7,736,500 8,408,000 14.30%

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Market
Investments Value
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Junior energy issuers
Arrow Energy Ltd. 106,900 112,245 64,140 0.11%
Duvernay Oil Corp. 10,000 277,500 326,100 0.56%
Fairquest Energy Limited 43,290 281,385 298,701 0.51%
Fairquest Energy Limited,
Restricted 33,000 219,450 227,700 0.39%
Highpine Oil & Gas Limited 20,292 338,892 421,059 0.72%
Rockyview Energy Inc. 699 3,983 4,110 0.01%
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1,233,455 1,341,810 2.30%

Energy related issuers
Mullen Transportation Inc. 19,000 1,164,510 1,168,500 1.99%
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1,164,510 1,168,500 1.99%
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% of
Investments Shares Average Market Net
Income trusts Held Cost Value Assets
Acclaim Energy Trust 188,200 2,727,798 2,886,988 4.92%
Altagas Income Trust 21,400 496,434 539,922 0.92%
ARC Energy Trust 96,500 1,383,693 1,924,210 3.28%
Badger Income Fund 32,000 543,685 512,000 0.87%
Bonavista Energy Trust 74,000 1,668,762 2,296,960 3.91%
CCS Income Trust 24,000 497,540 696,000 1.19%
Crescent Point Energy Trust 98,297 1,266,235 1,816,529 3.09%
Enerplus Resources Fund 33,500 1,406,450 1,567,800 2.67%
Esprit Energy Trust, Cl. A 100,000 1,193,000 1,191,000 2.03%
Fairborne Energy Trust 130,000 1,443,000 1,404,000 2.39%
Fording Canadian Coal Trust 17,400 1,710,226 1,951,932 3.33%
Freehold Royalty Trust 33,900 496,879 542,061 0.92%
Inter Pipeline Fund 203,000 1,623,989 1,985,340 3.38%
Ketch Resources Trust 38,750 588,186 441,750 0.75%
Keyera Facilities Income Fund 102,500 1,431,301 1,674,850 2.85%
MacQuarie Power Income Fund 103,700 1,106,617 1,176,995 2.01%
NAL Oil & Gas Trust 142,300 1,935,628 2,027,775 3.45%
Newalta Income Fund 23,000 506,679 508,530 0.87%
Paramount Energy Trust 118,000 1,927,825 2,029,600 3.46%
Penn West Energy Trust 26,700 749,754 773,766 1.32%
Petrofund Energy Trust 85,000 1,486,084 1,657,500 2.82%
Peyto Energy Trust 74,600 1,533,593 2,182,050 3.72%
Phoenix Technology Income
Fund 110,000 440,000 673,200 1.15%
Progress Energy Trust 150,000 1,980,359 1,954,500 3.33%
StarPoint Energy Trust 90,243 1,432,396 1,701,081 2.90%
StarPoint Energy,
Subscription Receipts 30,000 540,000 573,000 0.98%
Taylor NGL L.P. 165,600 1,506,218 1,553,328 2.65%
Trilogy Energy Trust 97,600 1,533,292 1,748,016 2.98%
Trimac Income Fund 22,000 220,000 258,500 0.44%
Trinidad Energy Services
Trust 100,000 1,109,100 1,250,000 2.13%
Vermilion Energy Trust 78,000 1,704,668 1,822,080 3.10%
Viking Energy Royalty Trust 167,900 1,174,759 1,188,732 2.03%
Zargon Energy Trust 100,000 2,245,761 2,506,000 4.27%
41,609,911 47,015,995 80.11%
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Total portfolio of
investments $ 51,744,376 57,934,305 98.70%
Liabilities, net of cash and
other assets 763,961 1.30%
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Total net assets $ 58,698,266 100.00%
---------------------------------------------------------------------
---------------------------------------------------------------------

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.


Strategic Energy Fund

Notes to Financial Statements

June 30, 2005 and 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 December 31, 2004 (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 - INTERIM FINANCIAL STATEMEMTS

These unaudited interim financial statements have been prepared by management following the same accounting policies and methods of their application as the most recent annual financial statements. The note disclosure for annual financial statements provides additional disclosure to that required for interim financial statements. Accordingly, these interim financial statements should be read in conjunction with the audited financial statements included in the Fund's 2004 annual report as set out on pages 9 to 19 of that report.

NOTE 3 - INCENTIVE FEE

The fund had no accrued incentive fee as at June 30, 2005 (December 31, 2004: $1,077,868).

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.

The Fund has in place an annual 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 2004, 87,480 units were redeemed at $10.05, for a total redemption amount of $879,174. In 2005, 83,285 units were redeemed at $13.32, for a total redemption amount of $1,109,356.

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. For the period April 1, 2004 to March 31, 2005, this basis is reduced to a maximum of 0.75 per cent per quarter. For the period April 1, 2005 to March 31, 2006, this basis is reduced to a maximum of 0.50 per cent per quarter. Pursuant to this program, 72,588 Units were purchased at an average price of $9.4539 in 2004. In the second quarter of 2005 no Units were purchased. In the first six months of 2005, 12,341 Units were purchased at an average price of $11.5643.

Here is a summary of the Unit transactions for the year 2004 and the first six months of 2005:



---------------------------------------------------------------------
Fund Units 2005 2004
---------------------------------------------------------------------
Balance, beginning of period 3,343,708 3,503,776
---------------------------------------------------------------------
Issued pursuant to Rights Offering (Note 5) 1,082,694 -
---------------------------------------------------------------------
Mandatory Market Purchase Plan (12,341) (72,588)
---------------------------------------------------------------------
Annual Redemption (83,285) (87,480)
---------------------------------------------------------------------
Balance, end of period 4,330,776 3,343,708
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NOTE 5 - RIGHTS OFFERING

Strategic Energy Management Corp. filed a final prospectus dated March 18, 2005 on behalf of the Fund that qualified the distribution of the rights (the "Rights") and the units (the "Units") issuable on the exercise of the Rights in each of the provinces and territories of Canada. Unitholders of record on April 1, 2005 received one Right for each Unit held. Three Rights entitled the holder of the Rights to purchase one Unit at a price of $12.00 until 4:00 p.m. (Toronto time) on April 29, 2005. The Rights started trading on the Toronto Stock Exchange on April 1, 2005 and were posted for trading on a "when issued" basis as of March 30, 2005 under the symbol SEF.RT. The offering closed May 4, 2005 and 1,082,694 fund units were issued, raising total gross proceeds of $12,992,328.

NOTE 6 - INVESTMENTS IN RELATED PARTIES

Pursuant to the Trust Agreement, the Fund 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.

As of June 30, 2005, the Fund held 203,000 (June 30, 2004: 130,000) units in Inter Pipeline Fund, a fund that is controlled by the same entity that ultimately controls the Manager of the Fund, having a market value of $1,985,340 (June 30, 2004: $1,033,500) that represents 3.38 (June 30, 2004: 2.74) per cent of the Fund's net asset value.

NOTE 7 - BANK LOAN

As of June 30, 2005, the Fund had fully repaid the outstanding balance of the loan facility.

NOTE 8 - SUBSEQUENT EVENT - EXCHANGE OFFERING

On July 28, 2005 Strategic Energy Management Corp. filed a preliminary prospectus for an offering of units of the Fund. Units may be acquired by prospective purchasers either by an exchange option of freely tradeable securities of certain eligible issuers or by cash payment.



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


Contact Information

  • Strategic Energy Fund
    Investor Services (investor enquiries)
    1-888-246-6656
    (416) 364-1197 (FAX)
    info@sentryselect.com
    or
    Strategic Energy Fund
    June MacKinnon (media enquiries)
    1-888-246-6656
    (416) 364-1197 (FAX)
    www.sentryselect.com