TERRAVEST INCOME FUND

TERRAVEST INCOME FUND

March 10, 2005 07:00 ET

TerraVest Income Fund Releases 2004 Q4 and Year End Financial Results


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: TERRAVEST INCOME FUND

TSX SYMBOL: TI.UN

MARCH 10, 2005 - 07:00 ET

TerraVest Income Fund Releases 2004 Q4 and Year End
Financial Results

VEGREVILLE, ALBERTA--(CCNMatthews - March 10, 2005) - TerraVest Income
Fund (TSX:TI.UN) today released its financial results for the 2004
fourth quarter and year-end results for the period from July 9, 20004 to
December 31, 2004.

The Fund's highlights for the 2004 July 9 to December period were:

- July $23.1 million (gross proceeds) initial public offering, TSX
listing, and acquisition of RJV Gas Field Services and Ezee-On
Manufacturing

- Acquisition of 80% of Stylus Furniture in December for $22.4 million

- $34.7 million (gross proceeds) raised by issuing 3.3 million Units
from treasury at $10.60 per Unit, proceeds to finance the Stylus
acquisition and reduce bank indebtedness

- Generated distributable cash of $3.247 million and paid cash
distributions to Unitholders totaling $3.805 million

- Announced a $0.10 per Unit increase to annual Unitholder distributions
from $1.06 to $1.16 per Unit as a result of the strong financial
performance of the Fund's current businesses and the accretive nature of
the Stylus acquisition

- Unitholder total return for the period was 54%

For the 2004 period from July 9 to December 31, the Fund reported
revenue of $25.8 million, with net earnings of $1.8 million or $0.17 per
Unit. For the 2004 fourth quarter, the Fund reported revenue of $16.5
million and net earnings of $960,000, or $0.09 per Unit.

The Fund began active operations on July 9, 2004 with the acquisition of
RJV Gas Field Services and Ezee-On Manufacturing. Results for this
period include the operations of Stylus after December 17, 2004.

Highlights from the Fund's fourth quarter and its 2004 reporting period
are as follows:



Operating Highlights
($ thousands, except per Unit earnings amounts)

Three months Period from
ended Dec. 31, 2004 July 9 - Dec.31, 2004
----------------------------------------------

Sales 16,533 25,793
Gross profit 4,005 6,939
Net earnings 960 1,776
Basic and diluted earnings
per Unit 0.09 0.17

Distributable cash 1,565 3,247
Distributions declared 2,137 3,805
Distributions per Unit 0.26487 0.50411


The Fund was established as an open-ended trust during the 2004 third
quarter so it has no comparative period results.

The Fund disclosed the breakdown of cash distributions to Canadian
Unitholders for income tax purposes. Of total distributions during 2004
of $0.50411 per Unit, $0.40036 (79%) is classified as taxable other
income and $0.10375 (21%) is considered return of capital.

The Fund's mandate is to grow its cash flow both through organic growth
of its existing investments and through acquisitions of other businesses
that have characteristics attractive to income funds, but lack the scale
to succeed as stand-alone income funds. The Fund continues to actively
search for additional investment opportunities that meet its investment
criteria.

As of December 31, 2004, the Fund had 10,249,960 Units listed for
trading on the TSX. There are also 1,497,792 Exchangeable Shares -
Series 1 and 1,404,000 Exchangeable Shares - Series 2 outstanding, held
by Fund management. Exchangeable Shares - Series 1 and Exchangeable
Shares - Series 2 are not listed and are not traded on an exchange.

The Fund's audited financial statements are available on SEDAR at
www.sedar.com and on the Fund's website at www.terravestindustries.com.
A conference call with management will take place today at 9:00 a.m.
E.S.T. Shareholders and others may call at 1-877-888-4605 (or
416-695-5259 in Toronto) to listen to a presentation by management.

The Fund's annual meeting will be held on May 26, 2005 at 2:00 p.m. in
the Strathcona Room of the Westin Hotel in Edmonton, Alberta.

The following constitutes Management's Discussion and Analysis of the
audited Consolidated Financial Statements for the period July 9, 2004 to
December 31, 2004.

MANAGEMENT'S DISCUSSION AND ANALYSIS

For the period July 9, 2004 to December 31, 2004

Dated: March 7, 2005

Caution Regarding Forward-Looking Statements

The Fund's public communications often include written or oral
forward-looking statements. Statements of this type are included in this
Management's Discussion and Analysis ("MD&A"), and may be included in
filings with Canadian securities regulators, or in other communications.
Forward-looking statements may involve, but are not limited to, comments
with respect to our objectives for 2005 and beyond, our strategies or
future actions, and our targets or expectations for our financial
condition.

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

The future outcomes that relate to forward-looking statements may be
influenced by many factors, including but not limited to: future capital
and other expenditures; commodity prices; interest rates and currency
value fluctuations; the effects of war or terrorist activities; the
effects of disease or illness that impact on local, national or
international economies; the effects of disruptions to public
infrastructure, such as transportation, communications, power or water
supply; industry and worldwide economic and political conditions;
regulatory and statutory developments; the effects of competition in the
geographic and business areas in which we operate; management actions;
and technological changes. We caution that the foregoing list of factors
is not exhaustive and that when relying on forward-looking statements to
make decisions with respect to the Fund, investors and others should
carefully consider these factors, as well as other uncertainties and
potential events, and the inherent uncertainty of forward-looking
statements. The Fund does not undertake to update any forward-looking
statement, whether written or oral, that may be made, from time to time,
by the organization or on its behalf.

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

ABOUT TERRAVEST

TerraVest Income Fund (the "Fund") is an unincorporated, open-ended,
limited purpose trust established to invest in a diversified group of
income producing businesses. The Fund's initial investment was the
acquisition of 100% of the issued and outstanding securities of Laniuk
Industries Inc. ("Laniuk") and its wholly owned subsidiary corporations.
Currently the Fund has three operating divisions, RJV Gas Field Services
("RJV"), Stylus Made to Order Sofas ("Stylus") and Ezee-On Manufacturing
("Ezee-On"). RJV is one of Canada's largest providers of wellhead
processing equipment for the natural gas industry. Stylus is one of
Canada's leading made-to-order upholstered furniture manufacturers.
Ezee-on manufactures short-line, heavy-duty equipment for large acreage
grain farms and livestock operations and primarily has sales in North
America and Australia.

Overall Strategy of the Fund

Management believes that the Fund is an attractive investment
opportunity due to both the quality of the underlying businesses (RJV,
Stylus and Ezee-On) and the Fund's unique growth strategy. The Fund
intends to grow its cash flow both through organic growth of RJV, Stylus
and Ezee-On and through acquisitions of other businesses that have
characteristics attractive to income funds, but lack the scale to
succeed as stand-alone income funds.

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

Investment Criteria

Generally, the Fund intends to pursue acquisitions of manufacturing, or
service-oriented businesses with sales between $20 million and $100
million. In addition, potential acquisitions will have a track record of
generating stable cash flow, making acquired businesses appropriate
investments for an income trust. To further diversify its sources of
cash flow, the Fund intends to invest in businesses in several
industries.

Acquired businesses will operate autonomously and maintain their
individual business identities and, accordingly, acquired businesses
must have high quality management teams. The Fund does not intend to
rely on operating synergies to justify acquisitions. The Fund will,
however, provide additional managerial support through its experience in
strategy development, assistance with planning and analysis, industry
contacts and focus on operational and financial discipline.

The Fund will assess acquisition opportunities based on the following
criteria:

- Annual revenues of between $20 million and $100 million;

- Demonstrated ability to generate cash flow;

- Durable competitive advantage in an attractive industry;

- Ongoing participation of key personnel of acquired businesses;

- Opportunities for organic growth under existing business practices; and

- Immediate and longer term contribution to distributable cash per Unit.

It is Management's intention to continuously monitor the Fund's
portfolio of businesses, and to undertake future acquisitions and
divestitures if they are deemed beneficial to Unitholders.

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

INCEPTION OF THE FUND

On June 29, 2004, the Fund issued a final prospectus for the sale of
2,640,000 Units at a price of $8.15 per Unit. An over allotment option
was exercised by the Fund's underwriters effective July 23, 2004 for an
additional 190,000 Units at the price of $8.15 per Unit. The aggregate
proceeds from the offering were $23,065. Immediately prior to the
offering, Laniuk Industries Inc. reorganized, which included a statutory
amalgamation with its two wholly owned operating subsidiaries. The
amalgamated company continued as Laniuk, which was then acquired by
TerraVest AcquisitionCo Inc, a wholly owned subsidiary of the Fund.
Consideration for the acquisition consisted of a note payable to the
former shareholders of Laniuk in the amount of $33,743 and the issuance
of exchangeable shares for $17,946. Upon completion of the acquisition
of Laniuk, a further reorganization occurred, which included the
statutory amalgamation of certain subsidiaries of the Fund. The
amalgamated company continued as TerraVest Industries Inc. The Fund then
issued Units of the Fund to the former shareholders of Laniuk to satisfy
the note payable created upon the acquisition of Laniuk. Costs related
to the acquisition of Laniuk totaled $1,658. Additional costs of $2,632
were incurred by the Fund for the issuance of the Units. The total cost
of the transaction and the issuance of the Units was $4,290.

ACQUISITIONS

On December 17, 2004, the Fund acquired an 80% interest in the assets
and shares of Stylus Furniture Ltd. for $21,816 plus costs of $586 for a
total acquisition price of $22,402. Additional costs of $2,520 were
incurred by the Fund for the issuance of Units. The total cost of the
transaction and the issuance of the Units was $3,106. The acquisition
was funded by a public offering of Units. In total 3,277,500 Units,
including 427,500 Units from an over allotment option exercised by the
Fund's underwriters were issued at a price of $10.60 per Unit for
aggregate proceeds of $34,741. The Fund used the excess proceeds from
the offering to reduce its operating loan.

SELECTED FINANCIAL INFORMATION

Quarterly Information

The quarterly financial information presented represents six quarters of
Laniuk's operating results from the second quarter of Laniuk's fiscal
2003 through to the end of the third quarter of Laniuk's fiscal 2004 and
results for the Fund's fiscal third quarter from inception on July 9,
2004 to September 30, 2004 and the Fund's fiscal fourth quarter from
October 1, 2004 to December 31, 2004.




TerraVest Fiscal Year ended
December 31
------------------------------------------------------------------------


2004 Fourth July 9, 2004 to
Quarter September 30, 2004
------------------------------------------------------------------------
Sales $ 16,533 $ 9,260
Net earnings 960 816
Earnings per Unit/ share
- Basic 0.09 0.08
- Diluted 0.09 0.08
------------------------------------------------------------------------


Laniuk Fiscal Year ended
August 31
------------------------------------------------------------------------
2004 2004 2004 2003 2003 2003
Third Second First Fourth Third Second
Quarter Quarter Quarter Quarter Quarter Quarter
------------------------------------------------------------------------
Sales $16,649 $18,141 $11,836 $7,527 $14,276 $13,188
Net earnings 2,085 2,441 1,197 (695) 1,898 1,394
Earnings per
Unit/ share
- Basic 0.06 0.06 0.03 (0.02) 0.05 0.04
- Diluted 0.04 0.05 0.02 (0.02) 0.04 0.04
------------------------------------------------------------------------


Annual Information

As the Fund commenced active operations on July 9, 2004 after the
acquisition of Laniuk, there is no comparative annual financial
information available for the Fund. Accordingly, the comparative annual
information presented is for Laniuk.



July 9,
2004 to Year ended Year ended Year ended
December 31, August 31, August 31, August 31,
2004 2003 2002 2001
------------------------------------------------------------------------
Sales $25,793 $42,992 $37,383 $57,596
Net earnings 1,776 2,761 3,059 4,774
Earnings per
Unit/share - basic 0.17 0.07 0.08 0.17
Earnings per
Unit/share - diluted 0.17 0.07 0.07 0.10
Total assets 136,852 35,457 43,065 50,975
Total long-term
financial liabilities 5,544 12,171 11,578 27,427
------------------------------------------------------------------------


In the fiscal year ended August 31, 2001, natural gas prices reached all
time highs. As a result, a record number of natural gas wells were
drilled and completed and RJV was able to capitalize on demand for its
product. In 2002, natural gas prices fell dramatically, drilling was
reduced and two of Laniuk's largest customers discontinued drilling
efforts. As a result, RJV experienced a 50% reduction in revenues. This
was somewhat mitigated by improvements in Ezee-On's operations,
specifically in Australia where revenues doubled. In 2003, natural gas
prices began to climb again and drilling and well completion activity
improved. Consolidated revenues increased by 15%. Consolidated margins
were lower, reflecting more aggressive bidding initiated to secure new
customers. In 2003, the agricultural sector suffered through drought
conditions in North America and Australia and mad cow disease impacted
the western Canadian cattle industry. Additionally, the strengthening
Canadian dollar versus the US dollar impacted Ezee-On's results in the
US. In the fiscal period July 9, 2004 to December 31, 2004, natural gas
prices remained high which led to continued strong growth in the natural
gas industry, which resulted in improved revenues and earnings for RJV.

Long-term financial liabilities have declined in the current year as the
Fund's balance sheet was recapitalized on the formation of the Fund.
Today, debt requirements are primarily funded by a 364-day operating
loan. Long-term financial liabilities at December 31, 2004 consisted of
capital lease obligations, and a non-controlling interest in Stylus. In
prior years, a portion of the long-term debt was converted to debt with
a 364-day term. As a result, certain amounts were converted to current
liabilities. As at August 31, 2003 and August 31, 2002, the amounts
reclassified were $7,094 and $11,508, respectively.

RESULTS OF OPERATIONS

Because the Fund commenced active operations on July 9, 2004, no
comparative figures exist for the same period for the prior year.
Comparative figures included are provided for illustrative purposes only
and are for the predecessor company, Laniuk Industries Inc., for the
period July 1, 2003 to December 31, 2003 (the "comparative period"). The
results of the Fund represent a different capital structure, a different
management structure and restated asset values. Certain expenses of the
Fund differ from those of the predecessor company.

Sales

Consolidated sales of the Fund were $25,793 for the period from July 9,
2004 to December 31, 2004 (the "period") as compared to $21,964 in the
comparative period. The increase in sales is largely the result of
continued strength in the natural gas sector. Revenues for RJV during
the period were $21,130 compared to $17,376 in the comparative period.
Ezee-On sales were $3,488 in the period compared to $4,458 during the
comparative period. Stylus sales were $1,175 in the period December 17,
2004 to December 31, 2004.

In the fourth quarter, consolidated sales were $16,533 compared to
$13,217 in the same quarter a year ago. RJV's sales were $14,039 during
the quarter compared to $10,844 in the same quarter a year ago.
Ezee-On's sales were $1,319 compared to $2,373 in the same quarter of
2003. Stylus sales were $1,175 in the quarter. No comparative figures
are available for Stylus.

The increase in consolidated sales for the period and fourth quarter
sales is primarily the result of continued strength in the natural gas
sector. During the period there were 8,505 natural gas wells completed
compared to 8,799 in the comparative period. During the fourth quarter
there were 4,221 natural gas wells completed compared to 3,722 in the
same quarter of 2003. As a result of the continued strength in the
natural gas sector, RJV's revenues increased 22% in the period and 29%
in the quarter when compared to the comparative period and prior year
quarter.

The decline in sales at Ezee-On is attributable to several factors
including the lingering effects of BSE on the agricultural industry, a
strong Canadian dollar relative to the US dollar, and a poor harvest as
a result of cold and wet weather in much of Western Canada and Australia
during 2004.

The strengthening of the Canadian dollar has increased the competitive
pressure on Ezee-On's business in the U.S. Ezee-On reduced pricing
during the period to improve its competitive position in the U.S. These
actions are being supported with increased focus on selling efforts with
additional sales and marketing activities.

Cost of Sales

Costs of sales for the period were $18,854 compared to $15,716 in the
comparative period. Cost of sales for the fourth quarter were $12,528
compared to $9,036. The increase in cost of sales is primarily the
result of the increased level of sales at RJV and the addition of Stylus.

Gross margin

Gross margins for the period were $6,939 or 27% of consolidated sales
compared to $6,248 or 28% in the comparative period. For the fourth
quarter, gross margins were $4,005 or 24% of consolidated sales compared
to $4,181 or 31% in the same quarter last year. Gross margins at both
RJV and Ezee-On were impacted by increases in the cost of raw materials,
primarily steel and components fabricated from steel. Management passed
commodity cost increases onto customers where possible. Some significant
customers did not receive price adjustments until the new fiscal year.
The net effect was a 4 point reduction in gross margins at RJV in the
fourth quarter when compared to the same period last year. Margins were
further impacted by efforts at Ezee-on to deal with the difficulties in
the agricultural industry. As a result of the competitive pressures
combined with efforts to close out some aged inventory, margins at
Ezee-On were down by 50% when compared to the same period a year ago.

Administration expenses

Administration expenses for the period were $2,253 compared to $1,628
for the comparative period. Administration expenses for the quarter were
$1,487 compared to $874 in the comparative quarter. The increase in the
period compared to the comparative period and quarter over quarter is
primarily the result of additional costs related to administration of
the Fund. During the period, the Fund incurred additional costs of $212
related to fees and expenses of the external manager and the trustees,
approximately $317 related to audit, accounting, legal and other
compliance costs of the Fund, and approximately $96 for administrative
staff and expenses of the Fund.

Selling expenses

Selling expenses relate to the operations of Stylus and Ezee-on. Selling
expenses were $779 compared to $759 in the comparative period. For the
quarter, selling expenses were $485 compared to $332 in the comparative
quarter. The increase is primarily the result of the addition of Stylus.

Product development expenses

Product development expenses relate to the design and engineering of
Ezee-On's product line. Product development expenses were $157 in the
period compared to $142 in the comparative period. In the quarter,
product development expense was $82 compared to $76 in the comparative
quarter. The increase is primarily the result of increased labour costs.

Amortization expense

The Fund's property, plant and equipment were restated to fair market
value at the date of the acquisition of Laniuk by the Fund. Amortization
expense reflects utilization of those assets during the period. The Fund
also incurred $162 in costs related to placing a new operating loan
facility. These costs will be amortized over the one-year life of the
related debt. Amortization of $81 is related to these costs. In
addition, the Fund has intangible assets in the amount of $11,365.
Amortization of $682 is related to those intangible assets.

Interest on operating debt

The Fund, through its affiliate, TerraVest Industries Limited
Partnership, has an operating line with a maximum available indebtedness
of $20,000. During the period, the average daily balance was
approximately $13,300. Interest for the period was charged at an
effective rate of 3.9% and totaled $260. The Fund was recapitalized at
inception and as such no comparative information has been provided for
interest expense.

TOTAL ASSETS

Total assets at December 31, 2004 were $136,852 compared to $35,457 at
August 31, 2003. The increase is primarily the result of the acquisition
of Laniuk and Stylus and the related goodwill and intangible assets, and
significant investments in working capital at RJV to meet seasonal
demand.

LIQUIDITY AND CAPITAL RESOURCES

Consolidated working capital at December 31, 2004 was $32,405 compared
to $15,893 as at August 31, 2003. Of the $16,512 increase during the
period, $5,809 relates to the acquisition of Stylus and the balance was
the result of the increased activity in the oil and gas sector. The
Fund's subsidiary, RJV, has increased its level of inventory since
August 31, 2003 by approximately $9,053 of which approximately $4,035 is
finished product and the balance is raw materials and assemblies.
Management increased inventory levels at RJV to meet required service
levels throughout the 2004-2005 winter season.

Short-term borrowings under the operating loan provide flexibility for
managing seasonal fluctuations in working capital. The Fund has an
operating loan with a maximum authorized limit of $20,000. The operating
loan has financial covenants related to tangible net worth of the Fund
and cash available for debt servicing. As at December 31, 2004, the Fund
met all of its financial covenants. Advances on the operating loan are
based on margining of accounts receivable and inventory. As at December
31, 2004, the Fund had borrowing capacity of $20,000 and had an
outstanding loan balance of $10,400.

In Management's view, the Fund has sufficient resources available to
meet ongoing liquidity needs.

The Fund's off balance sheet financing arrangements as at December 31,
2004, consist of documentary letters of credit totaling $US28 for the
purchase of raw materials.

FOURTH QUARTER

Sales in the fourth quarter continued to be strong and growth was led by
RJV as the producers in the natural gas industry continued their
aggressive drilling programs. This resulted in fourth quarter sales of
$14,039 at RJV during the quarter compared to $10,844 in the same
quarter a year ago. As a result of the increased sales, RJV contributed
$2,471 of net earnings to the Fund in the fourth quarter compared to
$1,562 in the same quarter a year ago.

Sales at Ezee-On were disappointing and reflect general economic
conditions in the agricultural sector in both Canada and Australia.
Ezee-On's sales were $1,319 compared to $2,373 in the same quarter of
2003. As a result of the decline in sales and increased competitive
pressures, Ezee-On had a net loss of $798 in the quarter compared to net
earnings of $73 in the same quarter of 2003.

The Fund continued with its acquisition strategy in the fourth quarter
and on December 17, 2004 acquired an 80% interest in the operations of
Stylus. Sales at Stylus were $1,175 in the period from December 17, 2004
to December 31, 2004. No comparative figures for this period are
available for Stylus. Stylus had a net loss for the 14-day period of
$217. As part of the acquisition of Stylus, the Fund acquired intangible
assets of which $1,414 is being amortized over a 90-day period.
Amortization charged in the fourth quarter related to this asset was
$226.

UNITS OUTSTANDING

At close of the initial public offering in July 2004 and after the
exercise of the over allotment option, the Fund had 6,970,433 Units
outstanding. On December 17, 2004, the Fund closed a Unit offering to
finance the acquisition of an 80% interest in the assets of Stylus and
to pay down existing levels of Fund debt. The offering resulted in an
issuance of additional 3,277,500 Units. The Fund also had 1,500,000
Series 1 Exchangeable Shares outstanding and 1,404,000 Series 2
Exchangeable Shares outstanding at close of the initial public offering.
During the period, holders of Exchangeable Shares - Series 1 exchanged
2,208 shares for 2,227 Units. As at December 31, 2004 there are
10,249,960 Units issued and outstanding as well as 1,497,792
Exchangeable Shares - Series 1 and 1,404,000 Exchangeable Shares -
Series 2 issued and outstanding. The Fund's Units are listed on the
Toronto Stock Exchange under the symbol TI.UN. Exchangeable Shares -
Series 1 and Exchangeable Shares - Series 2 are not listed and are not
traded on an exchange. As at March 7, 2005 there are 10,253,753 Units
issued and outstanding and 1,494,220 Exchangeable Shares - Series 1 and
1,404,000 Exchangeable Shares - Series 2 issued and outstanding.

Each Unit entitles the holder thereof to participate equally in
allocations and distributions and to one vote at all meetings of
Unitholders for each whole Unit held.

RISKS

Risks Related Specifically to RJV

The demand for natural gas wellhead processing equipment is sensitive to
current pricing of natural gas as well as general industry perception of
future natural gas prices. Natural gas pricing has historically been
cyclical and there is no assurance that natural gas prices will remain
at current levels.

The market for RJV's natural gas wellhead processing equipment is
geographically concentrated in the Western Canadian Sedimentary Basin
and the demand for such equipment may be affected by changes in the
level of exploration in the basin, independent of the pricing of natural
gas.

RJV derives a significant portion of its revenues from a limited
customer base and if one or more of RJV's significant customers were to
cease doing business with RJV, or significantly reduce or delay its
purchase of equipment from RJV, TerraVest Industries' business,
financial condition, and results of operations could be materially
adversely affected.

There is no proprietary protection for the primary product lines or
processes of RJV.

Risks Related Specifically to Stylus

As a manufacturer and distributor of furniture, Stylus is subject to a
number of risk factors including increases in the prices of raw
materials and parts and general economic cycles in Canada and the United
States. Risk factors relating to general economic conditions include
interest rates, levels of new home ownership, consumer confidence and
employment levels. Reduced consumer confidence will result in lower
purchases of home furnishings and could have a material adverse affect
on the Fund's financial condition and results of operations.

Stylus' sales depend on sufficient inventory of finished products being
on hand for its customers.

If Stylus does not maintain its reputation for high quality design and
manufacture or its levels of customer service or if the furniture
retailers that carry Stylus product lines fail to maintain sufficient
inventory, Stylus may lose sales due to its product lines not being
immediately available.

Stylus' business is subject to foreign exchange risk for sales and
purchases denominated in foreign currencies. Foreign exchange risk
arises from the fluctuation of foreign exchange rates and the degree of
volatility of these rates relative to the Canadian dollar. Stylus does
not enter into hedging agreements to manage this risk because Management
considers Stylus to be naturally hedged, with purchases denominated in
foreign currencies offsetting sales denominated in foreign currencies.

There is no proprietary protection for the primary product lines or
processes of Stylus.

Risks Related Specifically to Ezee-On

As a manufacturer of short-line agricultural equipment, Ezee-On is
subject to a number of risk factors including: changes in agricultural
commodity prices in Canada, the United States, Australia and other
countries in which Ezee-On sells its equipment; and governmental
agricultural policies in Canada, the United States, Australia and other
countries in which Ezee-On sells its equipment. Reduced cash flow of
farms in these countries will result in lower demand for Ezee-On's
equipment, and could materially adversely affect the Fund's financial
condition, and its results of operations.

Ezee-On's sales depend on sufficient inventory of finished products
on-hand for Ezee-On and its dealers. If Ezee-On and its dealers fail to
maintain sufficient inventory, Ezee-On may lose sales due to product not
being immediately available, particularly during seasons of higher
demand. However, in periods of sudden decline in demand for Ezee-On's
finished products, inventories can build up to levels that are greater
than what might be needed to meet the demand. This may result in price
discounts which adversely affect Ezee-On's financial results or Ezee-On
having to carry a higher level of inventory over an extended period of
time, which may constrain the Fund's working capital.

Ezee-On's business is subject to foreign exchange risk for sales and
purchases denominated in foreign currencies. Foreign currency risk
arises from the fluctuation of foreign exchange rates and the degree of
volatility of these rates relative to the Canadian dollar. Ezee-On does
not enter into hedging transactions to manage this risk, as the amounts
are considered insignificant to the Fund.

Prior to being acquired by the Fund, Ezee-On had sold some of its
equipment to purchasers located in emerging markets such as Kazakhstan.
By selling equipment in such markets, Ezee-On may be subject to
collections and other business risks. Ezee-On has mitigated its
collections risk for its prior sales to Kazakhstan by requiring
documentary letters of credit and it plans to continue to require
similar terms on any such future sales.

There is no proprietary protection for the primary product lines or
processes of Ezee-On.

Additional Risks

Volatility of Steel Prices

Steel is a major component of the equipment produced by Ezee-On and,
RJV. Steel prices are subject to economic and seasonal fluctuations and
may rise at rapid rates over short periods of time. In some, but not all
cases, Ezee-On and RJV are able to recover higher costs of steel through
the prices charged for the equipment manufactured. This is more
difficult to do in periods when the price of steel is more volatile.
Ezee-On and RJV may not be able to recover higher costs of steel through
the prices charged for the equipment manufactured.

Competition

The Canadian natural gas wellhead processing equipment business is
highly competitive. RJV will compete with a broad range of other
companies some of which provide fully integrated Units similar to RJV
and others which only compete with RJV with respect to certain of the
components used for processing natural gas. Some of RJV's competitors
are divisions of large corporations that may have greater financial and
other resources than RJV. There can be no assurance that such
competitors will not substantially increase the resources devoted to the
development and marketing of products that will compete with those of
RJV or that new competitors will not enter the Canadian natural gas
market. RJV also competes with many small and medium sized companies in
Canadian regional markets or in the Canadian market as a whole, some of
which may have certain competitive advantages such as lower overhead
costs, strong customer relationships and specialized regional strengths.

The Canadian furniture manufacturing and distribution industry is also
highly competitive. Stylus competes with a broad range of companies
ranging from highly specialized domestic furniture manufacturers to
larger domestic and foreign standardized longer production run
manufacturers. Many of these companies have greater financial and other
resources than Stylus. There can be no assurance that such competitors
will not substantially increase the resources devoted to the development
and marketing of products that will compete with those of Stylus or that
new competitors will not enter Stylus' markets. Stylus also competes
against many companies with other competitive advantages including
stronger brand loyalty, lower overhead, larger distribution systems and
greater buying power.

The Canadian and international short-line agriculture equipment market
is also highly competitive. Ezee-On competes with a broad range of
companies ranging from multinational agricultural equipment
manufacturers to local manufacturers, many of which service both the
Canadian and international marketplace. Many of these companies have
greater financial and other resources than Ezee-On. There can be no
assurance that such competitors will not substantially increase the
resources devoted to the development and marketing of products that will
compete with those of Ezee-On or that new competitors will not enter
Ezee-On's markets. Ezee-On also competes against many companies with
other competitive advantages including stronger brand loyalty, lower
overhead, larger distribution systems and greater buying power.

Labour

The success of the Fund depends on the ability of RJV, Stylus and
Ezee-On to maintain their productivity and profitability. The
productivity and profitability of RJV, Stylus and Ezee-On may be limited
by their ability to employ, train and retain the skilled personnel
necessary to meet their respective requirements. None of RJV, Stylus or
Ezee-On can be certain that they will be able to maintain the adequate
skilled labour force necessary to operate efficiently and to support
their growth strategies. None of the Fund's businesses can be certain
that their labour expenses will not increase as a result of shortages in
the supply of these skilled personnel. Labour shortages or increased
labour costs could impair the ability of RJV, Stylus and Ezee-On to
maintain their respective business or grow their revenues.

Key Personnel

The success of each of RJV, Stylus and Ezee-on depends on the skills,
experience and effort of its senior management. The loss of services of
one or more members of key senior management personnel could
significantly weaken RJV, Stylus and Ezee-On's management expertise and
the ability to deliver their services efficiently and profitably.

Environmental Legislation

All phases of the oil and gas business, including RJV's business, are
subject to regulation under a variety of federal, provincial,
territorial, state and municipal laws and regulations relating to health
and safety and the environment. RJV believes that it is currently in
compliance with such laws and regulations. RJV has invested financial
and managerial resources to ensure compliance and will continue to do so
in the future. Although such expenditures historically have not been
material to RJV, such laws or regulations are subject to change.
Accordingly, it is impossible to predict the cost or impact of such laws
and regulations on RJV's future operations.

Management believes both Stylus and Ezee-On are in compliance with all
relevant environmental legislation.

Restrictive Covenants in Current and Future Indebtedness of the Fund and
its Operating Subsidiaries

The ability of the Fund and its operating subsidiaries to make
distributions is subject to the applicable laws and contractual
restrictions contained in the instruments governing any indebtedness of
those entities.

The Operating Loan facility contains certain restrictive covenants that
limit the discretion of the Fund and its operating subsidiaries and
place significant restrictions on, among other things, the ability of
these entities to create liens or other encumbrances, pay distributions
on its Units or make certain other payments, investments, loans and
guarantees and to sell or otherwise dispose of assets and merge or
consolidate with another entity. In addition, the Operating Loan
facility contains a number of financial covenants that require the Fund
to meet certain financial condition tests. A failure to comply with the
obligations in the Operating Loan facility could result in a default,
which if not cured or waived, could result in a termination of
distributions by the Fund and permit acceleration of the related
indebtedness. If the indebtedness under the Operating Loan facility were
to be accelerated, there can be no assurance that the assets of the Fund
and its operating subsidiaries would be sufficient to repay the
indebtedness in full.

Income Taxes

There can be no assurance that Canadian federal income tax laws and
administrative policies respecting the treatment of mutual fund trusts
will not be changed in a manner which affects the holders of Units.

The Fund Declaration of Trust provides that all of the Fund's net income
and net realized capital gains shall be distributed to Unitholders in
order to eliminate the Fund's liability for tax under Part 1 of the
Income Tax Act (Canada). Where such amount of net income and net
realized capital gains of the Fund in a taxation year exceeds the cash
available for distribution in the year, such excess net income and net
realized capital gains will be distributed to Unitholders in the form of
additional Units. Unitholders are generally required to include an
amount equal to fair market value of those Units in their taxable
income, in circumstances where they do not directly receive a cash
distribution.

DISTRIBUTIONS

The Fund makes monthly distributions of its available distributable
cash. Distributable cash is not a defined term under Canadian generally
accepted accounting principles, but is determined by the Fund as cash
flow from operations before changes in working capital adjusted for
unrealized foreign exchange gains less capital expenditures related to
maintenance of the operating subsidiaries' property, plant and equipment
and any provision determined necessary by the Fund's independent
trustees. Management believes that distributable cash as a liquidity
measure is a useful supplemental measure of performance as it provides
the Fund's trustees an indication of the amount of cash available for
distribution to the Fund's Unitholders. Investors are cautioned,
however, that distributable cash should not be construed as an
alternative to using net earnings as a measure of profitability or to
using the audited consolidated statement of cash flows. Further, the
Fund's method of calculating distributable cash may not be comparable to
measures used by other companies or trusts.

The Fund has a policy of paying stable monthly distributions. Trustees
set cash distributions, assisted in part by projections and analysis
prepared by Management and historical financial results. The Fund's
policy is to make equal monthly distributions to Unitholders based on
forecasted annual distributable cash. The businesses of the Fund
experience seasonality and as a result, there are timing differences in
the generation of distributable cash and distribution of cash in certain
individual quarters. It is likely that distributable cash generated by
the businesses will exceed cash distributed in individual quarters and
conversely, the Fund will have quarters in which cash distributed will
exceed distributable cash generated. Declarations of distributions are
made to Unitholders of record on the last business day of each month and
are payable on or about the 15th day of the month following the
declaration.

Distributable cash for the period, July 9, 2004 to December 31, 2004 was
$3,247 and the Fund distributed $3,805 to its Unitholders. The following
table shows the calculation of distributable cash for the period:



Cash flow from operations before working capital changes $ 3,521
Less: maintenance capital expenditures (274)
------------------------------------------------------------------------
Distributable cash $ 3,247
------------------------------------------------------------------------
------------------------------------------------------------------------

Distributions declared $ 3,805
Distributions declared per Unit
(excludes exchangeable shares) $ 0.50411
------------------------------------------------------------------------
------------------------------------------------------------------------


Cash flow from operations before working capital changes for the
comparative period totaled $2,185. Of the $1,336 year on year increase
in cash flow from operations, $322 is attributed to growth in the Fund's
businesses, $384 was from a reduction in interest expense and $630 was
from a reduction in income taxes resulting from the conversion of Laniuk
to TerraVest Income Fund and subsequent recapitalization of the Fund.

EXCHANGEABLE SHARES

The Series 1 and Series 2 Exchangeable Shares can only be exchanged for
Units of the Fund.
The holders of Series 1 and Series 2 Exchangeable shares are not
entitled to cash distributions but are entitled to an economic
equivalent of a cash distribution through an adjustment in the number of
exchangeable shares. Each month an exchange ratio adjustment is
determined to reflect the economic equivalent of a cash distribution.
Holders of Series 1 Exchangeable Shares exchanged 2,208 originally
issued Exchangeable Shares multiplied by the weighted average exchange
ratio of 1.0086 for 2,227 Units. The exchange ratio, giving effect to
the December 31, 2004 distribution declared, was 1.05459 to 1.

RELATED PARTY TRANSACTIONS

The Fund is managed by an external manager, TerraVest Management
Partnership ('TMP"). TMP is controlled by the President, Chief Financial
Officer and Senior Vice-President of the Fund, each a significant holder
of Units and/or exchangeable shares and two of whom are Trustees of the
Fund. During the period, the Fund accrued and paid management fees and
expenses of $274 for payment to TMP pursuant to the Management Services
Agreement between the Fund and TMP.

OUTLOOK

Management's outlook for TerraVest is positive.

With respect to RJV, industry groups forecast record drilling in 2005.
The Canadian Association of Drilling Contractors Canada latest drilling
forecast estimates in excess of 24,000 well completions in 2005 with an
emphasis on natural gas. RJV is well positioned to capitalize on any
such increase. Currently, RJV is operating at near capacity and has
secured significant forward orders for delivery in the first and second
quarters of 2005.

Prospects for Stylus are also quite positive. Sales of the core custom
upholstered products remain strong. Additionally, the company introduced
a line of imported leather sofas and chairs and the initial reception
from retailers has been quite strong. In the commercial division, the
company continues to provide solutions in the hospitality sector. The
business will continue its growth efforts through both market expansion
and product line extensions, focusing on its core small format retail
customers.

Ezee-On is expected to continue to deal with soft market conditions when
compared to prior periods. While farmers experienced some improvement in
cash receipts in 2004, Ezee-On did not generate additional sales. In
order to offset the continuing softness in the Canadian market,
Management has refocused its marketing efforts in Canada and continues
to evaluate additional export opportunities. This includes adding
additional sales staff in the United States to better penetrate the U.S
market, and continued discussions with distributors representing eastern
European companies.

Additionally, Fund Management is actively evaluating acquisition
opportunities that, if acquired, will increase the diversification and
size of the Fund. The Fund has a stated objective to become a
multi-company, diversified income trust. Acquisitions are being pursued
across multiple industries to diversify the businesses of the Fund.

At any time, Management of the Fund is engaged in the evaluation of a
number of possible acquisition targets, and is currently in some early
stage of discussions with several firms which may or may not lead to one
or more acquisitions in the future.

ACCOUNTING POLICIES

The Fund's accounting policies are disclosed in Note 4 of the
accompanying audited consolidated financial statements for the period
ended December 31, 2004.

The audited consolidated financial statements of the Fund include the
operations of RJV and Ezee-On for the period July 9, 2004 to December
31, 2004, and Stylus for the period December 17, 2004 to December 31,
2004.

ACCOUNTING POLICY CHANGES

Asset Impairment

The Fund has adopted the new recommendations of CICA Handbook Section
3063, Impairment of Long-Lived Assets. Section 3063 requires that the
impairment of long-lived assets held for use be established through a
two-step process, with the first step determining when an impairment is
recognized and the second step measuring the amount of the impairment.
An impairment loss is recognized when the carrying value of a long-lived
asset exceeds the sum of the undiscounted cash flows expected to result
from its use and eventual disposition, and is measured as the amount by
which the long-lived asset's carrying amount exceeds its fair value.
There is no material impact on the financial statements resulting from
the adoption of Section 3063 in the current period.

IMPACT OF NEW ACCOUNTING STANDARDS

Variable Interest Entities

The Fund plans to adopt the Canadian Institute of Chartered Accountants'
(CICA) Accounting Guideline 15 (AcG-15) on the consolidation of variable
interest entities, which is effective for annual and interim periods
beginning on or after November 1, 2004. Variable interest entities refer
to those entities that are subject to control on a basis other than
ownership of voting interests. AcG-15 provides guidance for identifying
variable interest entities, and criteria for determining consolidation.
Management has determined that adoption of this standard will not have a
material effect on our results from operations or financial position.

Financial Instruments - disclosure and presentation

In November 2003, CICA Handbook Section 3860, Financial Instruments -
Disclosure and Presentation was amended to require that certain
obligations that may be settled at the issuer's option in cash or
equivalent value by a variable number of the issuer's own equity
instruments be presented as a liability. The amendments are expected to
be effective for fiscal years beginning after November 1, 2004 and would
be applied retroactively, thus requiring restatement. Management has not
yet determined the impact of the adoption of this standard on our
results of operations or financial position.

Financial Instruments - recognition and measurement

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

Comprehensive Income and Equity

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

CRITICAL ACCOUNTING ESTIMATES

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

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

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

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

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

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

Income tax provisions, including current and future income tax assets
and liabilities, may require estimates and interpretations of federal
and provincial income tax rules and regulations, and judgments as to
their interpretation and application to the Fund's specific situation.
Current income taxes are not provided by the Fund, as the policy of the
Fund is to distribute all available cash to Unitholders to the maximum
extent possible. Any changes in future income tax assets and liabilities
are charged to income in the period.

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

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

FINANCIAL INSTRUMENTS

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

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

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

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

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

2004 INCOME TAX INFORMATION

Canadian Residents

The following table outlines the breakdown of cash distributions per
Unit paid by TerraVest Income Fund for the period July 9 to January 17,
2005 for Canadian Income Tax purposes.



------------------------------------------------------------------------
Total Taxable
Distribution Other Return
Paid Income of Capital
Record Date Payment Date CDN$/Unit CDN$/Unit CDN$/Unit
------------------------------------------------------------------------
Jul 30, 2004 Aug 16, 2004 0.06266 0.04976 0.01290
Aug 31, 2004 Sept 16, 2004 0.08829 0.07012 0.01817
Sept 30, 2004 Oct 18, 2004 0.08829 0.07012 0.01817
Oct 29, 2004 Nov 15, 2004 0.08829 0.07012 0.01817
Nov 30, 2004 Dec 15, 2004 0.08829 0.07012 0.01817
Dec 31, 2004 Jan 17, 2005 0.08829 0.07012 0.01817
------------------------------------------------------------------------
TOTAL 0.50411 0.40036 0.10375
------------------------------------------------------------------------
------------------------------------------------------------------------


United States Residents

The following table outlines the breakdown of cash distributions per
Unit, prior to any amounts deducted for withholding tax, paid by
TerraVest Income Fund for the period July 9, 2004 to January 17, 2005
for Units held through a broker or other intermediary. The amounts shown
on the schedule are in U.S. dollars as converted on the applicable
payment dates.


------------------------------------------------------------------------
Non-Taxable
Distribution Distribution Taxable Return of
Record Payment Paid Exchange Paid Dividend Capital
Date Date CDN$/Unit Rate US$/Unit US$/Unit US$/Unit
------------------------------------------------------------------------
Jul 30, Aug 16,
2004 2004 0.06266 0.76480 0.04792 0.03470 0.01323
Aug 31, Sept 16,
2004 2004 0.08829 0.77560 0.06848 0.05507 0.01341
Sept 30, Oct 18,
2004 2004 0.08829 0.79690 0.07036 0.05658 0.01378
Oct 29, Nov 15,
2004 2004 0.08829 0.83120 0.07339 0.05901 0.01437
Nov 30, Dec 15,
2004 2004 0.08829 0.81770 0.07219 0.05806 0.01414
Dec 31, Jan 17,
2004 2005 0.08829 0.82200 0.07257 0.05836 0.01421
------------------------------------------------------------------------
TOTAL 0.50411 0.40491 0.32177 0.08314
------------------------------------------------------------------------
------------------------------------------------------------------------


Additional information concerning the Fund is filed on SEDAR at
www.sedar.com.

-30-

Contact Information