Sherman Kreiner's Tribute to Kerry Hrabinsky and Michael Bessey

Before we begin the business portion of our meeting this morning, I want to make a few comments of a more personal nature.

This has been a year of great personal tragedy for the Crocus family. During the past year, we have lost one wonderful young man and a second today lies in palliative care. Each had built a wonderful life partnership and both were raising young families. For all of us, it is a period of grief, mourning and raw emotion, which runs the gamut from anger to love to sorrow and everything in between.

In November, our corporate counsel Kerry Hrabinsky died after a valiant battle with brain cancer. Kerry left his wife, Jacqueline, who I believe is here with us this morning and infant twins, Talia and Ethan. Kerry was a partner at Fillmore, Riley. He was a brilliant person and an extremely technically proficient lawyer. His professional competence resulted in his being made a partner in his firm at a very young age and his tremendous capabilities permitted him to take primary responsibility for the comprehensive and multi-faceted Crocus file. But Kerry's skills went beyond those of a technically competent lawyer. He was a skilled problem-solver who could craft business-minded solutions to challenging legal problems. Kerry was not the type of lawyer who said, "no, you can't do that." Instead, he would roll up his sleeves and work with us to say, "there are some challenges in doing it the way you are proposing, why don't we try to do it this way." Invariably, that way was a better solution.

Kerry also served as general counsel to Community Ownership Solutions, the not-for-profit enterprise development corporation which Crocus formed to help create market-driven businesses offering high quality jobs to individuals from Winnipeg's low income, inner-city communities. As a result of Kerry's creative and groundbreaking work, COS was among the first community development corporations in Canada to obtain charitable status and, as a registered charity, has been able to access philanthropic and public funding to undertake its mission to help create jobs for low income people.

Kerry was a very genuine and warm human being – a lawyer with a great sense of humour. He became a personal friend to many of us and he is very sorely missed.

Within days of Kerry's passing, we learned that our Vice-President, Corporate Development, Mike Bessey, had melanoma, a recurrence from more than five years previous, which this time was unresponsive to treatment and has devastated his body in a few short months. Today, with all medical treatments stopped, Mike rests in palliative care. He will not be with us much longer.

Mike has a long history with our organization. It began before Crocus was created. In the late 1980's and early 1990's, as Secretary to the Economic Development Board in the Filmon government, he designed a number of initiatives to increase access to capital for Manitoba businesses as part of a comprehensive economic development plan, for which he was also the architect. Mike, then, on behalf of the government, and myself, as a consultant to the Manitoba Federation of Labour, negotiated the terms of the legislation which would create Crocus as well as the initial government seed equity investment. You can imagine the challenges, not just in working through the various technical details associated with the Fund, but in bridging the philosophical gap and mistrust that existed between the government and the labour movement at that time. While many others played critical roles in bringing the fund into being, Mike's challenge was particularly daunting, and I always wished I could have been a fly on the wall as he worked to convince many skeptical members of the Tory caucus as to why they should partner with organized labour. Mike then served as the Filmon government's representative on the Crocus board in its formative years.

Mike left Manitoba in the mid-1990s and moved to Boston where he received his doctorate from Harvard University in June, 2000. I was so taken with Mike as a listener, thinker, problem solver and as an eclectic individual with an incredibly diverse set of interests that I made a point of getting together with him when business took me to Boston. When Mike returned to Manitoba, he took a job with PriceWaterhouseCoopers and we began talking about how to build Winnipeg as a regional urban centre. Mike's academic work focused on the importance of "untraded exchanges," that is, non-economic interactions among various stakeholders as a key determining factor in whether a city grew or stagnated. One step, he thought was to have a regular conference on regional economic development, modeled on the annual economic conference held in Davos, Switzerland, which Mike had attended on several occasions. This ultimately led to the Growing Together, 2001 conference which Crocus co-sponsored with the Winnipeg Free Press and which Mike served as the keynote speaker.

These discussions further led to a mutual decision to have Mike return to Crocus, this time as our Vice-President, Corporate Development and Operations. Mike's primary responsibility was to conceptualize, design and create new capital pools, funded with local institutional capital and managed by Crocus, to increase capital available for Manitoba businesses. Mike also took responsibility for leading our Management Operations Committee.

The contribution Mike has made to Crocus extends far beyond his technical skills which are manifold. In the last few weeks, one of Mike's many friends began a Memories of Mike project, asking those of us who knew Mike to put some of our memories down on paper, both to keep Mike's spirits up, to keep some wonderful moments alive for Terri, and to provide a legacy for his children, Lauren and Mason. I want to read an excerpt of some my thoughts to give you a sense of what Mike means to this organization.

"Mike,.....the same concerns which some in the labour movement had about you in 1990 resurfaced when I indicated a desire to hire you in 2002. Many of those concerns revolved around your role in the downsizing of the provincial workforce in the early 1990's and the layoffs of many MGEU members. When I very shortly after indicated a desire to hire Ken Hildahl, who served for many years as the chief operating officer of MGEU, there was a real fear that I was creating an incendiary situation.

As it turned out, of course, nothing could have been further from the truth, to both your credit and Ken's. The warm personal relationship the two of you share has been so obviously apparent during this period of your illness. But the wonderful moment of recognition occurred at our staff Christmas party this year – the one in the Vista room. Many of us were sitting around the main table, but the later arrivals were sitting behind us, with you and Ken sitting next to each other, almost immediately behind me. While the general atmosphere was quite jovial that day, I vividly remember a good half hour of wisecracks, catcalls and other general mischief coming from the two of you, often playing off against each other. I remember it suddenly being a very emotional moment for me on a number of levels at once. I felt like you were two extraordinary people to be able to reach out from the boxes people had put you in to find the level of personal comfort and admiration you had for each other. I felt like we had finally gotten it right – that after ten years of fits and starts we had found the right people in the leadership of this company to bridge the huge gulfs of professional and personal experience, and political and personal philosophy which have made Crocus so innovative, but often such a challenging and frustrating place to work. And that the serendipity of the timing of our senior management development program had cemented a bond and respect among the five officers which had never existed here before. I also felt at that same moment, the first real sense of profound sadness, a sadness I have felt many, many times in the months following, that this moment where everything lined up as it should would be swift and fleeting.

I remember you speaking at one of our management retreats about the special camaraderie you felt with the close network of colleagues with whom you shared the running of government and your wondering whether such a bond and feeling could ever be recreated. And I thought at the time that I will fail you on this count at Crocus. And then I realized on that day in December that it was happening. I could see it down the road, because we had together reached a place where we wanted it to be so. Your seeing that possibility and working with the grace and sensitivity which marked your relationships with everyone here is your legacy to Crocus and to me. Thank you.

Finally, as I return to our meeting here this morning, I think there are many different ways to judge an organization – How well does it walk the talk? That judgment can occur on many different levels and I suspect many of you have various judgments about us today. One of the standards we set for ourselves is that we are a caring, compassionate company. The staff and board of Crocus have been supporting the Bessey family in many, many ways, big and small, over the past 6 months. Meals have been prepared each night by our staff and board and, as time went on, others outside our organization, and delivered to the Bessey home. Individuals have contributed to offset cleaning costs to help Michael breathe better at home, as well as to the cost of massages to ease his pain. People in the Crocus family have worked to make Bessey family birthdays and other special events as special as possible under the circumstances. I can't tell you how proud I am to be part of such a warm and caring group of people.

So our hearts are heavy today and many of our thoughts and prayers are with our friend and colleague and his family. As part of the larger Crocus family we hope that you too will remember Kerry and Michael as we go about our business today.

Good morning. My name is Sherman Kreiner, the President and CEO of the Crocus Investment Fund.

Let me start by asking who among you are first time attendees at the Annual General Meeting?

For those of you who raised your hand, thank you for attending. And for our experienced shareholders thank you as well for taking the time to attend this morning. I also want to extend a special welcome to the numerous investment professionals who have joined us this morning and to the Crocus Capital representatives who give generously of their time throughout the year and especially during the busy RRSP season. My thanks also to the members of our Board of Directors, Investment Advisory Committee and staff, for their tremendous support during the year and for being here today.

At Crocus we have always viewed the Annual General Meeting as an extremely important event in the year. It is our primary opportunity to meet with you in person to discuss the performance of the Fund, tell you about our plans for the future, and to respond to your questions. And we look forward to doing that this morning.

We have also had a history of bringing guest speakers to the meeting with the hope of expanding our collective understanding of issues that are important to Crocus, to our community and to our shareholders.

This year our guest speaker is Ms. Deb Abbey, President and CEO of Real Assets, an investment management firm in Vancouver that provides their clients with socially responsible investment opportunities. I'm sure you will find Deb's presentation later this morning interesting and challenging. At that time Deb will be introduced more fully by Cheryl Crowe, our Manager of Social Responsibility Auditing, who will provide a brief overview of the Crocus approach to social auditing as a prelude to Deb's remarks.

Over the past year the Fund has been extremely active achieving several major milestones. Let me share a few of the highlights.

A major highlight is the completion of another highly successful RRSP sales season. For the year ending March 4, 2003, shareholders invested $29.4 million, which is a 20 percent increase over the previous year and which is a 67% market share of the total invested in labour sponsored funds in Manitoba.

This is an increase of nine share points over last year, and an increase of 12 share points over 2001.

This amount included $10 million in reinvestment from shareholders who had reached the end of the mandatory hold period and decided to reinvest for a further eight years. These investors earned a new 30% LSIF tax credit but more importantly indicated their continued confidence in Crocus.

The total sales was offset by $20 million in redeemed funds leaving Crocus with net sales of $9.4 million.

To put this sales success in perspective, consider that all Canadian mutual funds – there are thousands – had net sales for January and February of $16.6 million, a decrease of 99.8% over the $8 billion raised the previous year.

A second highlight has been our ability to create a combined total of more than $30 million in liquid capital available for new investment.

In addition to the $9.4 million in net sales from retail investors, the Fund attracted a $10 million institutional investment from the Solidarity Fund, a Quebec-based Labour Sponsored Investment Fund.

As the Fund investments mature we have also continued to divest portfolio companies when financial and non-financial objectives can be achieved. Our total divestiture thus far this year exceeds $10 million.

When combined with the new capital from retail sales, institutional investment and divestiture, the Fund has significantly increased its ability to make add on investments in the current portfolio or to make new investments.

This increased investment capacity is especially significant because investments can be made at very attractive prices in the current economy.

We see this as a positive endorsement of the Crocus portfolio and the Fund's management team, and a signal that Manitoba is a great place to invest.

A third highlight is our continued efforts to increase the overall supply of venture capital in Manitoba. This is essential because it is clear that the demand for venture capital to support Manitoba businesses continues to exceed the amount that is available.

One way we have done this is by attracting significant investment capital directly to our investee companies by finding new co-investment partners for many of these businesses.

We have also been working with local business and labour leaders on the Premier's Economic Advisory Council, and now the newly formed Local Investment Council, to find ways to increase investment capital in Manitoba.

One key recommendation of the Council is to encourage local pension funds and crown corporations to invest five percent of investment assets in Manitoba.

Collectively, Manitoba pension funds and crown corporations have about $10 billion in assets that are invested almost exclusively outside Manitoba. If 5% of this money were invested locally that would mean $500 million for investment in the provincial economy. This would more than double the amount currently available for investment and have a significant positive impact.

We see this as a strategic opportunity for the Fund and we are working aggressively to increase local investing and bring that locally invested capital under Crocus management. This past year we hired Michael Bessey as the Fund's new Vice President for Corporate Development. Mike' work has been designing local investment pools and attracting institutional capital to the Fund.

We also created the Crocus Centre for Labour Capital.

The Centre will work with the labour movement, a key stakeholder in any local investment strategy, and with Union leaders and trustees representing plan beneficiaries. In particular, the Centre will provide education on the benefits and opportunities, as well as challenges, associated with local institutional investing. Ken Hildahl who has been hired as a Vice President at Crocus, serves as the Centre's President.

A further highlight for the past year is the Fund's ability to contribute to the quality of life in our communities and province.

We completed the financing and are proceeding with the construction of the True North Centre in downtown Winnipeg. This is the first full year of the affiliation agreement between the Manitoba Moose – who continue their inspiring drive to the Calder Cup – and the Vancouver Canucks of the NHL – who themselves have had a wonderful season – and for the first time the Moose will make a substantial profit. With the new income from the affiliation agreement and enhanced revenue opportunities in the new building we expect the team to continue be profitable and to increase in value.

At the same time, CanWest Global Park is being expanded to accommodate the demand to watch the Winnipeg Goldeyes and to make room for a new restaurant operated by WOW Hospitality, another business in our portfolio.

The renovated Crocus Building is also fully occupied by Crocus and a consortium of Winnipeg Arts groups and other tenants and we believe it is a valuable addition to the historic character of the Exchange District.

For us a telling moment was the day the new Crocus sign was erected on the building. Frank Reimer, who designed the sign, took great care to ensure the sign fit the heritage character of the building. On the day the sign was being raised an elderly man was watching on the street and exclaimed to our staff who were also watching "it's about time they took down that old sign" – right there we knew Frank had succeeded. Since that time we have been inundated with requests to tour the building and it has been scouted and used as a location for several television and film productions.

Community Ownership Solutions, the charitable organization we started, is now also fully operational and funded by a variety of public and philanthropic groups.

The aim is to create businesses that employ low-income residents of the inner city. This past year COS started its first business – Inner City Renovations, a housing renovation company, which now employs more than twenty young aboriginal men , most of whom were previously unemployed. This is filling an important need in Winnipeg's inner city and businesses like ICR are designed to compete like other private businesses and succeed on merit.

While these highlights are significant for the Fund, they are not the entire story of the past year. As you all know, the Fund's share price declined in fiscal 2002 and this is cause for concern. While some of the decline in our share price is the result of the performance of our portfolio companies, a more important contributor to our declining share price this year, however, is how private sector businesses are valued.

For the most part, valuations of private businesses in the Crocus portfolio are based on pricing multiples of public companies in comparative sectors. As we all know the global economy continued to decline for the third consecutive year as did public equity markets, and as a result most publicly traded businesses would sell for a lower price this year than last year.

As a consequence, businesses in the Crocus portfolio may also be worth less today – even businesses that are performing well and meeting or exceeding their performance expectations. Of course the reciprocal of this is also true and when the economy is strong and pricing multiples increase, the value of private businesses will also increase at a much faster rate.

James will discuss the issue of pricing multiples more fully in his remarks.

Compared to other labour-sponsored funds in Canada and to equity mutual funds, Crocus has, however, performed well. This is not to suggest that we are satisfied with this performance, but the fact remains that given the market conditions, our Fund has fared better than most.

As reported by Globe Fund, Crocus has outperformed the Labour Sponsored Investment Fund sector in Canada over the past year and performed significantly better than the average small business in Canada as measured by the Nesbitt Burns Small Cap Index – the standard measure used by most financial analysts to show the performance of publicly traded small businesses in Canada.

Again as reported by Globe Fund for the year ending March 31, 2003 Crocus return, not including the tax credits was minus 5.75% compared to negative 10.6% for all Labour Funds in Canada, and significantly better than the negative 17.5% reported for the Nesbitt Burns Small Cap Index.

On a three-year basis – the length of the current economic downturn- the Fund has also outperformed the LSIF sector and had performance comparable to the Nesbitt Burns Index.

When you calculate your investment return you must also include the value of the tax credits which are an integral part of your investment.

As you know, the Manitoba and Federal governments provide a combined 30% tax credit up front, when you buy Crocus. For those investing the maximum $5000 annually that amounts to $1500 in direct tax savings – meaning your net investment is $3500 although your account is credited with the full $5000. These tax credits compensate you for the requirement that we can only invest in Manitoba whereas other investment funds have greater flexibility to invest virtually anywhere to make a profit.

When you add the value of the tax credits to the investment return for the past year and three years, Crocus has outperformed many other Canadian equity investments. Over the most prolonged downtown in equity markets in your or my lifetime, the tax credits offer each of us a buffer and protect our retirement or investment nest egg. And, at times of economic prosperity the tax credits increase our investment returns.

As I have said many times before, Crocus is a long term investor and as you can see on the slide, shareholders who completed their 7-year hold period at the end of March earned 6.3% compound annual return including the value of the tax credits. Since inception of the Fund, the compound annual return including the tax credits is 7.6%.

We think these are very competitive returns and one reason why Gordon Pape, one of Canada's pre-eminent investment commentators described Crocus as "a good choice for risk-averse investors" in his 2003 Buyer's Guide to Mutual Funds.

While the past is important, our focus at the Fund is on the future where our goals are characterized by our new marketing phrase – Make a profit and a difference. Personally, I like to think of it in a slightly different way – that is profit from the difference.

I believe the positive long-term financial returns I just described, are achieved to a great extent because of how we invest. First and foremost we invest in people. Our portfolio is filled with top-notch entrepreneurs who have been recognized for that skill locally, nationally and internationally.

We find the companies in our portfolio by undertaking the most comprehensive due diligence in our sector. In addition to extensive financial due diligence and an assessment of conventional management capabilities that is undertaken by other similar funds, we also conduct a comprehensive audit of a broad range of business practices we call the social audit.

This social audit sets us apart from our competitors and we have learned from experience that top performers on the social audit are top financial performers as well.

In her remarks Cheryl Crowe will describe this process in more detail.

Today the Fund is invested in Manitoba businesses with a total of more than 13,400 employees.

The economic impact of these businesses on the Manitoba economy is also significant. For example, a ballpark estimate of the total payroll of these businesses is approximately 500 million dollars each year.

This is just the start.

Employees also spend their income here in Manitoba, purchasing goods and services that create even more beneficial economic activity that benefits each of us. The spin-off benefits go on and on.

This type of economic return is one reason why the Manitoba government offers you special tax credits when you invest in Crocus.

Studies show that the investment in tax credits is recouped by the government in revenue from direct taxation in about two years, after which there is an ongoing positive return on taxpayer investment.

I encourage you to learn about the businesses in the portfolio and to use their services when and where possible – they are the fund!

We have also set an aggressive goal and hope to cut our Management Expense Ratio significantly over the next five years. We are doing this by finding small savings, and by creating new revenue from a variety of sources that will in effect, reduce our overall cost of operation.

For example, we sent notice to all shareholders that we intend to mail semi-annual financial statements only to those shareholders who request to receive them. This has the potential to save the Fund at least $30,000 in mailing and printing costs.

At the same time we are extremely conscious of ensuring that detailed financial information is available to you as shareholders.

Accordingly, we will continue to provide semi-annual financial statements to your financial advisors and other key investment partners and post them on our website.

We have also found an innovative way to increase our revenue from operations.

When we first started the Fund we made the decision to develop and provide the back office services using in-house staff. We did this because it was significantly more cost effective and because Manitobans would benefit directly from the jobs created rather than the Fund creating jobs in Toronto or Vancouver.

This decision is now paying an additional dividend as we have contracted to provide the back office services to a Saskatchewan labour fund.

In essence we have sold the system capability we developed for our own needs. This opportunity - which was identified and developed by staff in our finance, information technology, and shareholder services departments – has created an ongoing new revenue stream for the Fund and effectively lowered the cost of operating our business. In the future we see more opportunity in this area.

On a larger scale we continue to develop new institutional capital pools that we can manage to earn significant new net revenue. Again, the new revenue lowers our net cost of operating.

You are aware of one such initiative, the highly successful Manitoba Science and Technology Fund which we started in 1999 and is now fully invested, earning management fees for Crocus.

For the past year we have been working aggressively with numerous partners to develop more funds like MS&T and expect to announce the first of several such initiatives shortly. As I mentioned earlier, a key component of our strategy is to encourage pension funds and crown corporations to invest a portion of their capital here in Manitoba. We think the Crocus Centre for Labour Capital is a key step in making this happen.

Most other funds like ours do this type of work through management companies. In these instances, the management company takes the profit. Things are different at Crocus. All staff are employees of the Fund and the profits from introducing and managing these capital pools directly benefit you as shareholders.

These new capital pools also provide additional venture capital for Manitoba businesses, including companies in the Crocus portfolio as James will describe later.

I want to end today by sharing with you one of my favourite images since I came to Crocus and to Manitoba. It has reoccurred every summer since the Goldeyes started playing at CanWest Global Park and I'm sure it will again this year. It happens when I'm sitting in the bleachers.

As I look around the park I see people from all parts of the community enjoying one of their special past times. The park is full and I know that is good news for the Goldeyes and for Crocus shareholders. I see people enjoying a hot dog or a group having a catered meal in a sky suite, and I know it is earning profit for WOW Hospitality another Crocus business. If they are watering it down with a beverage like Norm's Hard Lemonade, I know our partner Maple Leaf Distillers is also making a profit.

Most of all I feel the downtown is alive and it is a sign that something good is happening – our city and province are prospering. But the real joy comes when that noisy train chugs along the tracks by the third base line blowing its even noisier whistle.

I've heard fans express their displeasure with the train at times, but for me it is again a positive sign.

On many occasions that train is operated by Central Manitoba Railway, a subsidiary of Cando Contracting, another of our investee companies located in Brandon. On days I'm there and the train doesn't make an appearance I feel somehow short-changed – but when it blows that noisy whistle, I know all is right with Crocus.

Thank you.

Good morning and thank you for taking the time to attend this morning.

As Sherman inferred in his remarks, the global economy continued to perform poorly for the third consecutive year.

For example, in Canada the S&P TSX total return at March 31, 2003 declined 17.6% over 1 year.

The total return for the past three years is negative 11.07%.

And, for the past five years the total return also remains slightly negative at minus 1.91%.

The US economy has also continued to suffer.

The one-year total return for the S&P 500 Composite Index is negative 30.61%

the three year return was minus 15.79% and

the five year return was negative 3.02%.

Manitoba, while having several positive economic indicators such as strong home sales, and the lowest unemployment rate of any province in Canada, is also impacted by the previously mentioned downturn. This contradiction is at times confusing to people. Public equity markets are known as leading indicators in the world of economics and as a result, a downturn in the market could be a forecast for a weaker economy in the future.

As with most economic interpretations however, the crystal ball is often cloudy. If you collect seven different economists, three would have one opinion, three will have a directly opposing opinion using the same facts and the seventh will confuse and bore you to death --- or maybe all seven will just bore you to death.

What is clear however is that equity rates of return have been poor over the past three years in both public and private markets and notwithstanding the unemployment and housing numbers I mentioned, the unfortunate fact is that equity return performance for Manitoba companies are not insulated from the downturn in the broader markets.

What we all must appreciate is that businesses in Manitoba and in the Crocus portfolio are directly impacted as a result.

Almost every business in the portfolio does business throughout Canada and most in the United States or for that matter around the world. I can't think of one business that has not lost a sale or been negatively impacted in some other way.

As a result our share price has also been impacted. As Sherman explained in great detail, much of this is due to valuation and pricing reality, which I may add is the direct cause of our most recent price decline. The good news is that this resulted in many businesses in our portfolio being valued today significantly lower than they would be valued in a stronger market. And this means tremendous upside potential for our portfolio when the market strengthens.

I must caution however that none of us has a crystal ball and we do not know when the economy will finally turn the corner and make a sustained upward move.

What this reinforces is the importance of being a long term investor like Crocus. At Crocus, we expect to hold businesses in our portfolio for an average of five to eight years, in some cases longer, or shorter. We think this way because that is most often how long it takes to achieve the optimal return on the investment.

Private equity investors like Crocus must generally ride through at least one business cycle. These cycles are not the same in all industries and in fact many times, run opposite to one another.

For example, some industries fair better in high inflation environments while others fair better in low inflation. Some are commodity price sensitive others interest rate sensitive and so on – so I'm sure you get the picture. This is why we diversify and invest for the long-term.

Today we remain committed to our long-standing investment strategy – which quite simply is to buy at depressed values, support the business to grow both with capital and value-added management expertise, and then sell at a higher valuation most likely to a strategic buyer.

In 2002 we were ahead of our investment pacing requirements and as a result we were in a position to be extremely selective. While we reviewed several strong proposals this past year, we made no new investments.

We are still at a point where many entrepreneurs are still living with the valuation dreams of yesterday and not prepared to recognize the reality of today. In addition, due to the uncertain economic outlook we also have seen a disproportionately large number of desperate proposals that we have declined to invest in.

We did however make a number of add-on investments in strong businesses in the current portfolio. I should note that the pricing for add-on investments also reflects the value of the business in the current market conditions and as a result the pricing was very positive for Crocus.

In most cases add-on investments helped businesses in the portfolio take advantage of strategic growth opportunities. For example, we increased our investment in Maple Leaf Distillers, allowing that business to acquire assets at bargain basement prices – a specialty I might add of our partner and CEO of Maple Leaf, Costas Ataliotis – and as a result significantly increase its production capacity.

Maple Leaf moved to larger facilities and was able to secure a number of new production contracts including a deal to produce ready-to-drink Keg Caesars for the Keg Restaurant Chain across Western Canada. Maple Leaf also continued to expand its product distribution and for the second consecutive year was the fastest growing company in Manitoba.

Crocus also added to their investment in Wellington West Capital, Novra Techhnologies, and Cando Contracting among others.

A major focus of the Investment Department over the past year was in the area of Strategic Divestiture. As Sherman mentioned in his remarks, we have divested in excess of $10 million in the past year and there will be more to come in the months ahead.

Divestiture is an integral part of a mature fund like Crocus and has been an increasingly important focus for the Fund for at least the past five years. Planning for divestiture starts in the due diligence phase – we need to know then what time lines are, and have a series of pre-determined exit strategies. As the business matures and market conditions change, these strategies may be adapted, but in all cases divestiture remains a key objective. I would estimate I spend approximately 30 to 40 percent of our time in this area.

A key divestiture this year was the sale of our majority ownership of Inner-Tec Security Limited to Rentokil Initial, a leading international services company that operates several lines of business including security. Rentokil entered into this transaction in order to expand its Canadian operations and will maintain a significant presence in Winnipeg.

The sale of Inner-Tec is a clear example of the business model I mentioned earlier. We first invested in Inner-Tec in June of 1999 and added to our investment on November 30, 2001.

As a result of this growth Inner-Tec was attractive to Rentokil who wanted to expand their market share through a strategic merger. When a business like Rentokil is looking to make a strategic buy like this, the price they are willing to pay is often considerably higher, as was the case here. In many ways these are the same circumstances that resulted in the sale of the Angus Reid Group to Ipsos Reid two years ago. In both instances the financial return on the Crocus investment more than doubled, illustrating how pricing multiples can work to your advantage.

In addition to the sale of Inner-Tec, we also exited our mature $2 million investment with Megill-Stephenson Company Limited and concluded pre-planned partial divestitures with several businesses in the portfolio.

We also continue to sell our ownership of businesses like National Leasing, Cando Contracting and others, on a pre-determined basis through existing employee ownership agreements. I should add that Crocus is the only LSIF that has the advantage of exiting through the pre-determined sale of shares to employees.

We have also focused a significant amount of time on attracting new institutional capital to the Fund.

As Sherman indicated, our objective is to earn new revenues for Crocus from management fees and to create a source of new capital for future co-investment or as an investment partner for businesses in the current portfolio. These new institutional capital pools are also potential buyers, providing Crocus with another way to exit current investments.

This past year we announced a strategic partnership with a principal of Montreal-based BioCapital a venture capital pool focused exclusively on the BioTechnology and Life Sciences Sector. We anticipate this will close soon. When fully funded this venture pool is projected to exceed $200 million US with 10 to 20 percent invested in Manitoba. Our role will be to identify and manage investments in Manitoba. Success in establishing this fund will be extremely helpful in furthering Manitoba's potential as a major centre for BioTechnology research and development.

We are also working aggressively to develop a new Property Fund, that will invest in downtown real estate and further accelerate the economic rebirth of Winnipeg's downtown. On this project we have partnered with one of Winnipeg's pre-eminent real estate developers, Arnie Thorsteinson and his company, Shelter Corporation.

The initial capitalization of this fund is projected at $25 million with the potential to grow to $50 million. We expect to make a formal announcement concerning the property fund in the coming months.

We also invested this past year in the Springboard Fund, a new capital pool designed exclusively to commercialize products developed through research at the University of Manitoba. Crocus, the University and other partners have initialially capitalized this fund at a modest $2 million with the expectation of growing the fund to exceed $10 million in the near future. As managers of the Springboard Fund, Crocus earns management fees and also has first right of refusal to provide financing for any commercialization projects coming from this program at the University.

By choosing Crocus as co-investment partner and manager of the Springboard Fund, the University of Manitoba is recognizing our leadership position in this area in Manitoba.

Several other Funds are at various stages of development and we expect to make announcements over the coming year.

Over the next five years our objective is to have at least $150 million in institutional capital under management earning significant net new revenue for Crocus.

We also concluded a transaction that resulted in the Solidarity Fund, the largest labour fund in Canada, investing $10 million in Crocus. We did this to ensure we could take full advantage of strategic buying opportunities that we expect to arise in what we characterize as a buyer's market.

As noted in our prospectus the terms of this investment provide Solidarity Fund with a floor rate of return of 10%, although consistent with other venture investments they expect to earn a stronger return as a result of growth in the value of the portfolio, and their share price will track the same value as our class A shares.

We have also predefined a series of milestones in the agreement. These check in points are common for this type of strategic partnership but the intent of both parties is for this arrangement to be a long term relationship similar to our existing partnership in the Manitoba Science & Technology Fund and in BioCapital Fund.

As you know we work hand-in-hand with portfolio businesses providing value-added services in virtually every area of business from sales and marketing, to human resource management and corporate finance. This is a significant strategic advantage for Crocus and this work continues to occupy a significant amount of our time.

For example, we have been instrumental in bringing over $100 million in third party investment to portfolio companies by finding strategic co-investment partners from other parts of Canada, the US, the UK, Europe and in fact from around the globe

The ability to provide this extra value is a function of our depth of experience and the number of high quality businesses in the portfolio. And as the Fund continues to grow and mature, we see this advantage accelerating even more. We believe Manitoba businesses seeking venture capital recognize this advantage.

Looking back on the past year there are many highlights. I've mentioned a few this morning and want to leave you with a sample of others by referring to Headlines that appeared in the local and national media. These stories and many more are posted on our website at www.crocusfund.com.

Westward Industries was the feature story in Start Up Magazine this past spring. Larry Mauws, the President and CEO of Westward is shown here next to the GO $ Interceptor, built in Portage la Prairie and sold exclusively in the United States where Westward is the sole supplier in cities like San Francisco and New York. They have recently expanded their business with a second production facility in St Francis.

Canad Inn Hotels continued to expand purchasing the Westward Inn in Portage la Prairie, and confirming plans to build new properties in Grand Forks and Brandon. Canad purchased the Portage la Prairie property from Larry Mauws, the President and owner of Westward Industries.

Medicure, that recently opened their new building on Waverly Street, announced successful results from clinical trials of their new heart drug MC-1.

Ezedia increased its distribution in the United States with help from Apple Computers.

Assante Asset Management, a publicly traded company in our portfolio, announced positive net sales in December – a significant achievement if you remember the negative sales for mutual funds that Sherman mentioned.

National Leasing, among others was again one of Canada's 50 Best Managed Companies – for the ninth consecutive year. As Nick Logan, President and CEO said in the article "Being the best in our industry has now become a part of our culture."

There are many more highlights I could mention and we look forward to more positive news in the future. In the interim, thank you again for attending today and thank you for your continued confidence in Crocus.

Good morning. I am pleased to present an overview of the Fund's financial performance for the year ending September 30, 2002. My presentation this morning will be based on some key financial highlights.

As you can see from this first slide, net assets of the fund were $164 million at September 30, 2002, a decline of 2% from $167.5 million in 2001. This is the first year in the Fund's history that net assets declined on a year over year basis. During the year, assets were impacted by lower revenue from interest on short-term investments, and a net loss of $6.4 million in the value of the portfolio. The loss on the portfolio included $16.1 million in net realized losses that were offset by $9.8 million in net unrealized appreciation.

Simply this means that some businesses in the portfolio declined in value at the same time others gained in value. As James indicated previously a significant portion of the declining value in the portfolio is directly related to valuation multiples impacted by current market conditions.

As you will note the last bar on the graph indicates that today net assets have increased to $176.4 million reflecting the results of a positive RSP selling season, new institutional investment and strategic divestitures.

The Fund is structured as a balanced portfolio meaning a percentage of assets are in liquid reserves and a percentage are invested in Manitoba businesses. As at September 30, 2002 the Fund has 82% of total assets in Manitoba businesses 11% in short term funds, 5% in bonds and 2% in working capital. The majority of our investments are in established businesses with proven performance although we are also invested in a relatively small number of early stage businesses.

As a consequence of the change in net asset value the share price at September 30, 2002 was $12.72, down 7% for the year. As you can see from the graph, the share price has experienced a further decline in the last six-month period and today is $12.24, continuing to reflect the economy.

In the last few years, equity markets experienced considerable volatility and the greatest sustained declines ever. The speculative bubble in the market up until March 10, 2000 generated unrealistic expectations for investors and we witnessed the NASDAQ fall 40% in two months following this time. Today, public equity valuations remain near multi-year lows. Crocus' portfolio remains strong although we have experienced some share price decline along with market trends.

While this market or systematic risk is beyond our control, Crocus tries to minimize non-systematic business risk (company risk) by buying businesses we understand, and diversifying across industries to minimize exposure to industry cycles. At Crocus, our knowledge of the Manitoba venture business is unparalleled. Also, Crocus has developed business relationships with global investors who have participated with us by investing in Manitoba business, bringing outside markets and capital.

Further, we invest across all industries diversifying risk. At September 30, 2002 our portfolio includes 26% in Science, Medical and Technology; 21% in Entertainment and Hospitality; 30% in Manufacturing; 9% in Financial Services; 7% in Transportation and 7% in Service industries.

Sales of class A shares for the period were $25.6 million, an increase of 15% from the previous year and net sales were $6.5 million including redemptions and deferred selling costs. As you can see on the slide gross sales of class A shares for the most recent RSP selling season were $29.4 million. This is the second consecutive year sales have increased by 15% over the previous year.

The number of shareholders in the Fund has increased each year and totalled nearly 32,000 at the end of September 2002. Today, including new shareholders who joined the fund in the RRSP season, the number of shareholders increased again to over 33,000. The continuing increase in shareholders is a clear indication of continued support from Manitobans.

Management Expense Ratio or MER is the standard used by Crocus and other mutual funds to compare management expenses. It is a key statistic for Crocus and a specific target of the Fund's annual business plan to "maintain the MER at a level sufficient to permit the Fund to achieve its financial and non-financial objectives."

The Fund's MER increased from 3.75% to 4.03% reflecting increased costs associated with managing a larger investment portfolio and the start-up costs associated with our initiative to attract significant new institutional capital.

In subsequent years we expect these new initiatives to add significant new net revenue to the fund and our objective is to cut the MER significantly over the next several years.

As you can also see from the slide, the Crocus MER continues to be significantly less than the average for the labour fund sector in Canada, and although not in this slide, the Crocus MER is by far the lowest among labour-sponsored funds in Manitoba.

For mature labour sponsored funds, one of the key management challenges is the balance between the amount of money invested in Manitoba businesses and the amount held in liquid investments.

To ensure Manitoba LSIFs maintain the right balance, both Crocus and Ensis, the other labour-fund in Manitoba, are required to maintain a reserve fund equal to at least 15% of investment assets. This is the minimal threshold and liquid reserves at Crocus can be as high as 30 percent - especially at the end of the RRSP season.

At September 30, 2002 Crocus had $24.7 million in liquid reserves and today liquid reserves are $34.8 million including institutional capital, net sales of class A shares and significant divestitures. When all financial transactions are completed for the sale of Inner-Tec, this amount will increase further.

Accounting practices in our industry have changed significantly over the past year and several new protocols continue to be discussed by various interest groups.

At Crocus we want to advise you of two specific changes we are making.

We are also pleased to tell you that we will include management discussion and analysis (MD & A) which is a plain language summary of our results. We are doing this to help you better understand the performance of the fund. Although MD & A is not currently a requirement for our industry we wish to be proactive in introducing this feature to our reporting.

Secondly, I want to remind you we will only be distributing the semi-annual financial statements to shareholders who request a copy. This change has been approved by the Manitoba Securities Commission and is quickly becoming the standard in our industry. We see this as the first of many possible changes as Crocus looks for ways to adapt to rapid changes in how people communicate in today's electronic society. We are actively investigating the use of email and other forms of communication and expect to make ongoing changes to our systems where practical and cost-effective.

This change was announced in the AGM materials and forms were provided for you to complete and return to the Fund. If you would like to receive the semi-annual statement and have not sent the form, please leave your name with one of our shareholder services representatives at the registration desk on your way out.

As I mentioned earlier, accounting rules have been changing with regularity in the past year and we expect more changes in the future. Crocus is however leading the way having already implemented many of the changes anticipated in our industry. We continue to work closely with our auditors, PricewaterhouseCoopers in this regard.

We have also developed strong working relationships with the financial professionals in our investee companies which has also contributed to improvements in our systems and management practices.

This concludes my formal remarks.

Thank you.

Make a Profit & a Difference with Crocus Investment Fund

Good morning everyone and welcome! Today, my discussion will focus on the multi-faceted approach that the Crocus Fund utilizes with respect to socially responsible investing or SRI in Manitoba. As you will see, the Crocus Fund employs most of the various SRI strategies that are currently being implemented in the SRI sector in Canada. These approaches will be highlighted by our distinguished guest speaker, Deb Abbey, CEO & Portfolio Manager Real Assets Investment Management, in her discussion today.

The Crocus Fund is 1 out of 5 labour sponsored funds in Canada that has committed to conducting a social audit with respect to sound labour and employment practices, health and safety practices and environmental practices. As you can see from the slide, the Crocus Fund is the only Manitoba labour sponsored fund that has made such a commitment. This alliance of 5 funds now accounts for approximately $5 .62 billion dollars in assets under management and represents 57% of all retail assets in the SRI sector. Moreover, the alliance represents 63% of all assets in the labour sponsored fund asset class.

Crocus uses a multi-faceted proactive approach to SRI in Manitoba. First, the Fund utilizes positive screens, which sets a minimum standard in health and safety, environmental and employment and labour practices.

The Fund conducts random interviews with a cross section of senior and middle management and front-line employees. Where necessary, we conduct interviews with third party specialists such as labour representatives, groundwater specialists or wildlife conservation officers to name a few examples. In addition, we conduct a site visit which includes a health and safety audit and an environmental audit where applicable.

We then ask management to complete a social audit that has been developed by the Fund and encompasses human resource, health and safety and environmental practices.

Finally, we conduct third party reviews with governmental organizations such as the human rights commission, workplace health and safety, dept of the environment and employment standards and the labour board to see what type of operating history a particular company has in these areas. All of these pieces are then put together and analyzed to create the "SRI snapshot" of the company.

Why does the Crocus Fund do this extensive due diligence? The answer is plain and simple. Companies with positive track records in these areas- PERFORM BETTER. Moreover, the fund does not want the unnecessary risk associated with companies that historically have had poor records in these areas. In the end, this is positive for Crocus shareholders.

The Crocus Fund utilizes the corporate engagement approach to SRI when a particular company doesn't reach the minimum standard. The Fund meets with senior management of the company to discuss proactive changes in the area where they are deficient. If management agrees to the changes, these modifications are written as a condition of investment in the shareholders agreement, including a clause for divestment in certain situations. The Fund then assists these companies to obtain the necessary information and resources to meet the minimum standard in the deficient area. These particular companies are then monitored on a quarterly basis and reported on an annual basis to the Crocus Board by myself. In addition, the Fund assumes a Board seat with all of our investments, therefore; monitoring can also occur on an ongoing basis throughout the life of our investment in any particular company. If management and the Crocus Fund cannot reach agreement on the changes that need to be made, the Fund does not make the investment. Currently, we are working with companies on health and safety and environmental requirements within our portfolio.

The Crocus Fund utilizes the shareholder advocacy approach to SRI by assuming a Board seat with every investment that is made. During the life of the investment, discussions with the company's Board can include: broad based employee ownership and participative management; management enrolling in the Certificate in Participative Management course which was created by the Fund and is offered through the continuing education program at the University of Manitoba. This course offers an alternative approach to the conventional approach to management and governance.

Other issues that might arise at the Board level are health and safety issues, environmental issues, employment practices and financial performance. In addition, all of our CEO's attend an annual CEO Roundtable event where various topics are discussed and business to business networking and synergies are shared.

The Crocus Fund takes a best-of-sector approach in problematic sectors that have been identified in Manitoba. For example, the Fund has utilized the best of sector approach with respect to environmental issues, health & safety issues and working conditions in sectors such as hog farming and call centers. There is a greater possibility for market leaders to impact the entire sector in the local community than in the secondary markets. As you can see by the slide, the following factors put this investment in the best of sector class with respect to hog farming

• The company proactively complied with 2003 environmental regulations in the year 2000
• An environmental compliance officer was hired to comply with the 2003 regulations
• Detailed health & safety program has been put in place in a sector which sees little compliance in these areas from other companies
• Crates are larger than standard and there are heated floors and windows in the barns
• Ground water & surface water specialists were interviewed during due diligence with respect to soil types and optimal locations for barns in Manitoba
• The Fund attended a community review meeting to see the residents response to the proposed site for the barns
• An additional $30,000 was spent on the manure storage liner to prevent leakage into groundwater in the area
• Benefits, over- time and profit sharing are available to all employees in a sector which isn't even covered by minimum employment standards
• Comments from community that young people do not have to leave community now – good paying employment opportunities )

The Crocus Investment's mandate as a labour sponsored fund is to utilize economically targeted investing to stimulate economic and employment growth in Manitoba. The Fund has created a new job for approximately every $20,000 that is invested in Manitoba. To date, the Crocus Fund has an unsurpassed track record in the stimulation of employment growth rates in the labour sponsored fund sector. In addition, the Fund established Community Ownership Solutions, a not-for–profit development corporation which builds quality business-based jobs for low-income people.

To date, COS has raised approximately $ 1.6 million from foundations and government and launched its first company, Inner City Renovations in August 2002. As described by Sherman earlier, this company provides construction and renovation services to not-for-profit housing corporations and employs 20 full-time people, 80% of those employees are aboriginal.

The Crocus Fund has created, saved or maintained approximately 13,424 (not final) jobs as at April 2003, which includes approximately 2079( not final) permanent jobs that are seasonal. Moreover, the Fund has also encouraged alternative forms of local ownership by promoting broad based employee ownership and participation in our investee companies. Currently, approximately 27% of the employees within our investee portfolio are owners or have the opportunity to become owners. Research indicates that broad based employee owned companies, in combination with participative management, outperform non ESOP- owned companies in revenue, employment and productivity growth. (U.S. study Rutgers University New Jersey 2000)

Before concluding my remarks, I would like to add to the comments that have been made around financial performance of SRI Funds.

There has been a perception in the traditional investment sector that financial performance and the quality of investments that are made are compromised as a result of SRI. THIS IS SIMPLY NOT THE CASE! The argument for associating financial performance with progressive employment practices, health and safety practices and environmental practices is now being made. In a Canadian Press newswire in January 2003, Joe D'Cruz a professor in the Rotman School of Management states, "SRI funds have been defying financial theory that says any restriction to diversification will poorly affect performance. This isn't proving the case with ethical funds. They are doing quite well, partly because we are in a climate that places a higher value on ethical behaviour, which directly affects the bottom line."

Moreover, other direct comparisons can be made by looking at the Jantzi Social Index and the Domini Social Index. Both of these indexes have outperformed their comparable benchmarks- the TSX 60 and S&P 500 on a consistent basis. Finally, there have been 95 studies carried out to find the link between corporate social performance and financial performance. Only 4 out of those 95 studies have found a negative relationship.

As you will see from the next few slides, setting minimum standards in the areas of employment and labour practices, health & safety practices and environmental practices have led the Crocus Fund into selecting some of our top performers in our portfolio.

Others seem to have the same opinion, as the 50 Best Privately Managed Companies awards and the Entrepreneur Awards are national awards sponsored by Deloitte &Touche, CIBC, National Post and Ernst and Young respectively. As you can see by this slide, eight of our investee companies have won the 50 Best Managed Companies in Canada.

In addition, only 12 Manitobans have won the Prairie Entrepreneur of the Year awards for the region since 1994 and 5 of those 12 CEO's are Crocus Fund CEO's. Moreover, another 4 have been prairie finalists and one has been a Pacific region award winner!

This combination of well-managed companies and competitive financial performance gives the Crocus Fund a competitive advantage that no other MB labour-sponsored fund can match.

In conclusion, Crocus Investment Fund is generating proactive SRI changes right here in your community. From a personal prospective, I believe that the business case can be made that "making a profit while making a difference in Manitoba" makes sense from an economic, community development and quality of life prospective. Thank you.