Citadel Diversified Investment Trust
TSX : CTD.UN

Citadel Diversified Investment Trust

August 26, 2005 16:17 ET

Citadel Diversified Investment Trust: 2nd Quarter Report 2005

CALGARY, ALBERTA--(CCNMatthews - Aug. 26, 2005) - Citadel Diversified Investment Trust (TSX:CTD.UN):

For the six months ended June 30, 2005 (unaudited)



Investment Highlights

Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30,
2005 2005 2004 2004 2004
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Net Asset Value per
Unit $ 11.88 $ 11.71 $ 11.66 $ 11.07 $ 10.84
Market Price per Unit $ 11.51 $ 10.60 $ 11.42 $ 10.44 $ 10.49
Trading Premium
(Discount) (3.1%) (9.5%) (2.1%) (5.7%) (3.2%)
Quarterly Distributions
per Unit $ 0.24 $ 0.24 $0.32(1) $ 0.24 $ 0.24
12 Month Trailing Yield 9.0% 9.8% 9.1% 9.2% 9.2%
Market Capitalization
($millions) $ 322.4 $ 300.7 $ 328.0 $ 300.4 $ 240.0
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(1) Includes a special distribution of $0.08 per unit to unitholders of
record on December 31, 2004 and paid January 25, 2005.


Investment Manager Report

At the end of March 2005, rising interest rate and inflation concerns dominated the income trust market which resulted in a sell-off similar to that experienced in the spring of 2004. Like 2004, the sell-off was short lived as positive year over year funds flow and declining bond yields boosted income trust valuations. With continued strength in oil and natural gas prices, the energy trust sector delivered a strong 8.6% total return in the second quarter of 2005, while real estate investment trusts surpassed the energy trusts with a 9.3% total return. As a result, the S&P/TSX Income Trust index produced a total return of 7.7% over the second quarter of 2005, again outperforming the S&P/TSX Composite index's return of 3.6%. On a net asset value basis, Citadel Diversified generated a 3.5% total return. On a unit price basis, Citadel Diversified's improved unit price helped boost its total return to 10.9% in the second quarter of 2005.

During the second quarter, Citadel Diversified took advantage of the market weakness and acquired a number of new investments, reducing its cash reserves from 20% at March 31, 2005 to 12% at June 30, 2005. New positions in the real estate trusts were Huntingdon and Primaris (formerly Borealis) along with a trust conversion of Vault Energy and Chamaeolo Exploration in the oil and gas royalty trusts. New initial public offerings of Aeroplan and E.D. Smith were added in the other business trusts, as well as additions to Cineplex Galaxy and Medical Facilities. The Fund made no dispositions in the quarter.

With favorable market sentiment returning to the income trust sector in the second quarter and into the third quarter of 2005, Citadel Diversified expects to achieve its investment objectives in 2005 with maintenance of its current distribution level.

Management's Discussion & Analysis (August 18, 2005)

Management's Discussion and Analysis ("MD&A") should be read in conjunction with the unaudited interim financial statements for the six months ended June 30, 2005, and the audited financial statements and MD&A for the year ended December 31, 2004.

During the quarter, the Fund's net asset value increased slightly to $11.88 per unit at June 30, 2005 from $11.71 per unit at March 31, 2005 as portfolio valuations recovered during the latter part of the quarter. By quarter end, the Fund's unit price recovered from the first quarter, closing the quarter at $11.51 per unit up from $10.60 per unit at the end of March. However, due to price weakness early in the quarter, the Fund repurchased 354,556 units for a total of $3.9 million under the mandatory repurchase program.

Total revenue for the quarter was $6.7 million, a slight increase to that generated in the first quarter of 2005 as additional funds were invested. Revenue is also up from the $5.3 million generated in the second quarter of 2004. The increase in revenue year over year is due to the larger asset base as a result of the successful rights offering in September of 2004. Administrative and investment manager fees, which are paid in units of the Fund, were $1.3 million for both the three months ended June 30 and March 31, 2005 and up from $0.9 million in the second quarter of 2004. These fees were higher as a result of higher net assets resulting from the rights offering. General and administration costs, which totaled $0.1 million in the second quarter of 2005, were consistent with the first quarter of 2005 and slightly lower than the second quarter of 2004. After total expenses of $1.4 million in the quarter, net investment income totaled $5.3 million or $0.19 per unit in the second quarter of 2005 compared to $4.2 million or $0.18 per unit in the second quarter of 2004. Distributions of $0.24 per unit during the quarter were consistent with the distributions paid in the second quarter of 2004 and first quarter of 2005.



Portfolio Holdings
--------------------------------------------------
Real Estate Investment Trusts 9%
Oil & Gas Royalty Trust 23%
Cash & Term Deposits 12%
Pipeline / Energy Investments 13%
Power Generation Investments 4%
Ongoing Business Trusts 39%
--------------------------------------------------


Total results of operations for the second quarter of 2005 were $11.4 million or $0.41 per unit compared to negative $5.0 million or negative $0.21 per unit in the same period in 2004. Results of operations in the second quarter of 2005 were boosted by unrealized gains of $6.1 million. Comparatively, net realized and unrealized losses totaled $9.1 million in the second quarter of 2004.



Citadel Diversified Investment Trust
Statement of Net Assets

(Unaudited)

June 30, December 31,
As at 2005 2004
------------------------------------------------------------------------
Assets
Investments, at market $293,784,380 $285,533,775
Cash and term deposits 41,410,827 53,547,806
Revenue receivable 2,146,664 2,511,738
Prepaid expenses 1,037,189 3,466,269
Accounts receivable - 42,159
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338,379,060 345,101,747
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Liabilities
Accounts payable 3,317,073 5,520,000
Distributions payable 2,240,794 4,595,764
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5,557,867 10,115,764
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Net Assets $332,821,193 $334,985,983
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Units outstanding 28,009,926 28,723,526
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------------------------------------------------------------------------
Net asset value per unit $ 11.88 $ 11.66
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Citadel Diversified Investment Trust
Statement of Operations

(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
For the periods ended 2005 2004 2005 2004
------------------------------------------------------------------------
Revenue
Investment
income $ 6,714,507 $ 5,274,173 $ 13,310,052 $ 10,715,672
------------------------------------------------------------------------
6,714,507 5,274,173 13,310,052 10,715,672
------------------------------------------------------------------------
Expenses
Administrative
and investment
manager fees 1,292,303 933,465 2,584,606 1,876,379
General and
administration
costs 126,080 178,144 223,906 270,490
------------------------------------------------------------------------
1,418,383 1,111,609 2,808,512 2,146,869
------------------------------------------------------------------------
Net investment
income 5,296,124 4,162,564 10,501,540 8,568,803
Net realized gain - 3,572,757 6,884,627 7,353,421
Net change in
unrealized gain
(loss) 6,115,771 (12,701,138) 2,094,508 (3,422,514)
------------------------------------------------------------------------
Total results of
operations $ 11,411,895 $ (4,965,817) $ 19,480,675 $ 12,499,710
------------------------------------------------------------------------
------------------------------------------------------------------------
Results of
operations per
unit:
Net investment
income $ 0.19 $ 0.18 $ 0.37 $ 0.37
Net realized gain - 0.16 0.24 0.32
Net change in
unrealized gain
(loss) 0.22 (0.55) 0.07 (0.15)
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$ 0.41 $ (0.21) $ 0.68 $ 0.54
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Citadel Diversified Investment Trust
Statement of Changes in Net Assets

(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
For the periods ended 2005 2004 2005 2004
------------------------------------------------------------------------
Net Assets
- beginning
of period $332,063,706 $261,498,699 $334,985,983 $251,766,591
Operations:
Net investment
income 5,296,124 4,162,564 10,510,540 8,568,803
Net realized gain - 3,572,757 6,884,627 7,353,421
Net change in
unrealized
gain (loss) 6,115,771 (12,701,138) 2,094,508 (3,422,514)
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11,411,895 (4,965,817) 19,480,675 12,499,710
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Unitholder
Transactions:
Distributions
to unitholders (6,722,382) (5,490,186) (13,587,305) (11,070,787)
Repurchase of
trust units (3,932,026) (3,014,601) (8,058,160) (5,167,419)
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(10,654,408) (8,504,787) (21,645,465) (16,238,206)
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Net Assets - end
of period $332,821,193 $248,028,095 $332,821,193 $248,028,095
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Distributions
per unit $ 0.24 $ 0.24 $ 0.48 $ 0.48
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Citadel Diversified Investment Trust
Statement of Investments

(Unaudited)

As at June 30, 2005
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% of
Cost Market Market
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Ongoing Business Trusts
Aeroplan Income Fund $ 542,000 $ 639,560
Armtech Infrastructure Income Fund 4,507,385 6,660,000
Art in Motion Income Fund 5,280,000 3,542,880
BFI Canada Income Fund 5,520,000 6,279,000
The Brick Group Income Fund 6,559,800 7,930,000
CML Healthcare Income Fund 6,114,390 7,894,500
Chemtrade Logistics Income Fund 3,310,118 3,937,500
Cineplex Galaxy Income Fund 1,018,500 1,600,000
Cineplex Galaxy Income Fund
Subscription Receipts 3,220,000 3,220,000
Clearwater Seafoods Income Fund 420,240 269,036
Custom Direct Income Trust 4,451,928 6,209,678
Davis + Henderson Income Fund 2,301,667 4,602,400
E. D. Smith Income Fund 1,658,000 1,958,098
Gateway Casinos Income Fund 3,211,000 6,285,500
Great Lakes Carbon Income Fund 4,277,550 5,123,316
Halterm Income Fund 4,841,613 4,300,468
KCP Income Fund 7,054,933 8,597,292
Livingston International Income Fund 2,848,506 5,639,200
Medical Facilities Corp. Income
Part. Sec. 6,688,596 8,050,350
Oceanex Income Fund 2,244,148 3,689,400
Priszm Canadian Income Fund 4,034,440 5,460,000
Rogers Sugar Income Fund 3,304,095 2,557,500
SFK Pulp Fund 6,577,189 3,493,000
Spinrite Income Fund 1,253,000 1,558,732
Sun Gro Horticultural Income Fund 4,551,000 4,848,000
TransForce Income Fund 4,944,266 9,002,196
Yellow Pages Income Fund 4,522,748 5,964,000
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105,257,112 129,311,606 38.6%
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Oil & Gas Royalty Trusts
Acclaim Energy Trust 5,558,788 7,967,596
ARC Energy Trust 5,524,220 11,964,000
Baytex Energy Trust 4,876,000 5,392,000
Chamaelo Exploration Ltd. 1,578,979 1,580,800
Crescent Point Energy Trust 5,093,100 6,468,000
Enerplus Resources Fund 2,280,163 4,680,000
Harvest Energy Trust 946,700 1,367,350
NAL Oil and Gas Trust 5,243,051 7,381,500
Paramount Energy Trust 6,233,450 8,944,000
Petrofund Energy Trust 3,430,000 6,033,300
Shiningbank Energy Income Fund - -
Vault Energy Trust 5,181,022 5,434,000
Vermilion Energy Trust 3,525,000 5,840,000
Viking Energy Royalty Trust 5,314,943 5,664,000
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54,785,416 78,716,546 23.5%
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Pipeline/Energy Investments
AltaGas Income Trust 4,955,225 6,143,505
CCS Income Trust 2,330,693 8,317,200
Energy Savings Income Fund 1,405,275 9,625,000
Heating Oil Partners Income Fund 3,931,837 1,092,000
Inter Pipeline Fund 3,083,000 4,440,609
Keyera Facilities Income Fund - -
Superior Plus Income Fund 3,317,060 6,688,500
Trinidad Energy Services Income Trust 4,485,000 7,187,500
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23,508,090 43,494,314 13.0%
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Real Estate Investment Trusts
H&R Reit 2,071,134 3,416,000
Huntingdon Reit 4,950,000 5,362,500
IPC U.S. Reit 6,271,105 6,594,000
Morguard Reit 5,516,373 6,304,014
Primaris Retail Reit
(formerly Borealis Retail Reit) 4,899,309 5,023,250
Summit Reit - -
TGS North American Reit 4,244,400 3,300,000
------------------------------------------------------------------------
27,952,321 29,999,764 8.9%
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Power Generation Investments
Atlantic Power Income Fund 4,700,000 5,076,000
Clean Power Income Fund 3,090,314 2,011,750
Countryside Power Income Fund 5,422,962 5,174,400
TransAlta Power, L.P. - -
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13,213,276 12,262,150 3.7%
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Investments 224,716,215 293,784,380 87.7%
Cash and Term Deposits 41,410,827 41,410,827 12.3%
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Total $266,127,042 $335,195,207 100.0%
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Citadel Diversified Investment Trust
Notes to the Financial Statements

(Unaudited)


THE TRUST

Citadel Diversified Investment Trust (the "Fund" or "Citadel Diversified") is a closed-end investment trust, established under the laws of Ontario pursuant to a Declaration of Trust dated July 11, 1997. The Fund commenced operations on September 16, 1997 with the completion of its initial public offering. The term of the Fund continues until December 31, 2012, or such earlier or later date as the unitholders may determine in accordance with the Declaration of Trust.

The Fund's investment objectives are to provide its unitholders with a high level of monthly distributions from a diversified portfolio of income funds, royalty trusts and Reits and to maximize the net asset value of the Fund over its life. The Fund's distribution policy is to distribute all net income received from its portfolio on a monthly basis in a manner that minimizes the monthly fluctuation in distribution levels.

SIGNIFICANT ACCOUNTING POLICIES

These interim financial statements have been prepared in accordance with Canadian generally accepted accounting principles and include estimates and assumptions by management. Actual results may differ from these estimates. Significant accounting policies employed include:

a) Cash and cash equivalents consists of cash on hand and short term bankers' acceptances with maturities of less than 90 days on acquisition.

b) Investments are stated at market values based on closing market quotations. Average cost is used to compute realized and unrealized gains or losses on investments. Transactions are recorded on the trade date.

c) The Fund qualifies as a unit trust within the meaning of the Income Tax Act (Canada). Provided the Fund distributes to its unitholders its net income for tax purposes, the Fund will not generally be liable for income tax under Part I of the Canadian Income Tax Act.

d) Dividend income is recorded on the ex-dividend date, distribution income is recorded on the ex-distribution date and interest is recognized as earned.

UNITHOLDERS' CONTRIBUTION

The authorized capital of the Fund consists of an unlimited number of trust units which are transferable non-redeemable units of beneficial interest.

The Fund has a mandatory repurchase program whereby units offered for sale at a discount to the Fund's net asset value per unit of greater than 5% are repurchased for cancellation. This program is subject to a maximum of 1.25% of the total number of units outstanding at the beginning of each calendar quarter. A total of 354,556 units were repurchased for cancellation during the quarter ended June 30, 2005 (June 30, 2004 - 289,560 units).

ADMINISTRATIVE AND INVESTMENT MANAGER FEES

Citadel Diversified Management Ltd. is the administrator of the Fund and Bloom Investment Counsel, Inc. is the investment manager of the Fund. The administrator and the investment manager are entitled to fees totaling 1.5% of the average weekly net asset value of the Fund, payable in advance in units, subject to annual adjustment. For the quarter ended June 30, 2005, the Fund recorded an expense of $1,292,303 in respect of these fees (June 30, 2004 - $933,465).

CREDIT FACILITY

The Fund maintains a revolving prime rate credit facility with a Canadian chartered bank for a maximum of $15 million of which no amount was drawn at June 30, 2005 or 2004. Borrowings are collateralized by a demand debenture in the amount of $55,000,000 which provides a first floating charge over the Fund's assets.



CORPORATE INFORMATION
Administrator
Citadel Diversified Management Ltd.
Suite 3500, 350 - 7th Avenue S.W.
Calgary, Alberta T2P 3N9
Telephone: (403) 261-9674
Fax: (403) 261-8670
Website: www.citadelfunds.com

Investment Manager
Bloom Investment Counsel, Inc.
Suite 1710, 150 York Street
Toronto, Ontario M5H 3S5

Trustee
Computershare Trust Company of Canada
6th Floor, 530 - 8th Avenue S.W.
Calgary, Alberta T2P 3S8

Stock Exchange Listing
Toronto Stock Exchange
Trust units: CTD.un


Contact Information

  • Citadel Diversified Management Ltd.
    Joe MacDonald
    Executive Vice President, Sales and Marketing
    1-877-261-9674
    Website: www.citadelfunds.com