Citadel HYTES Fund
TSX : CHF.UN

Citadel HYTES Fund

May 30, 2005 19:10 ET

Citadel HYTES Fund: 1st Quarter Report 2005

CALGARY, ALBERTA--(CCNMatthews - May 30, 2005) - Citadel HYTES Fund (TSX:CHF.UN):

For the three months ended March 31, 2005 (unaudited)



Investment Highlights
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Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31,
2005 2004 2004 2004 2004
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Net Asset Value
per Unit $ 34.89 $ 35.07 $ 33.80 $ 32.11 $ 33.27
Market Price per Unit $ 32.36 $ 34.16 $ 33.17 $ 30.05 $ 31.32
Trading Premium
(Discount) (7.3%) (2.6%) (1.9%) (6.4%) (5.9%)
Quarterly Distributions
per Unit $ 0.78 $1.53(1) $ 0.78 $ 0.78 $ 0.78
12 Month Trailing Yield 12.0% 11.3% 9.4% 10.4% 10.0%
Market Capitalization
($ millions) $ 178.3 $ 189.0 $ 183.0 $ 165.5 $ 174.0
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(1) Includes a special distribution of $0.75 per unit to unitholders of
record on December 31, 2004 and paid January 31, 2005.


Investment Manager Report

After valuations peaked in mid-March, investor concerns over rising interest rates and inflation caused a broad sell-off in the income trust market late in the first quarter of 2005. The hardest hit sectors were the more interest rate sensitive trusts such as real estate and power generation. While oil & gas prices remained strong in the quarter, concerns over the high valuations in the oil & gas royalty trust sector precipitated a sell-off at quarter end as well. The S&P/TSX Income Trust index managed a positive total return of 4.5% during the first quarter of 2005, narrowly outpacing the S&P/TSX Composite index's return of 4.4%. Due to its unit price weakness late in the quarter, Citadel HYTES generated a negative 3.1% return in the first quarter.

The Fund added a new position in Spinrite Income Fund as well as made additions to Bonavista and NAL royalty trusts. The Fund sold holdings in Advantage Energy and Baytex Energy for realized gains for $1.5 million.

Despite the pullback in March 2005, there is evidence that investor fears concerning economic slowdown and inflation may be overstated. With lower valuations and Standard and Poor's January 2005 decision to include trusts in the S&P/TSX Composite index, investor interest is expected to return. Citadel HYTES remains well positioned with a significant cash balance to capitalize on lower valuations and maintain its current distribution level throughout the balance of 2005.

Management's Discussion & Analysis (May 24, 2005)

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

Citadel HYTES' net asset value declined modestly from $35.07 per unit at December 31, 2004 to $34.89 per unit at March 31, 2005 as the Fund's portfolio valuations declined in the latter part of the quarter. With weak market sentiment, the Fund's market price also declined, closing the quarter at $32.36 per unit down from the year end closing price of $34.16 per unit. With unit price weakness in the quarter, the Fund was required to repurchase 39,300 units under the mandatory repurchase program as its unit price dipped below 95% of its net asset value.

For the three months ended March 31, 2005, revenue totaled $4.3 million, down slightly from the $4.6 million generated in the same period in 2004 due to higher cash reserves in 2005. Administrative and investment manager fees totaled $0.61 million for the quarter, up from $0.57 million in the same quarter of 2004 as a result of the Fund's higher net asset value in 2005. Similarly, the trailer fee also increased slightly to $0.20 million from $0.18 million quarter over quarter due to the higher net asset value. General and administration costs declined to $0.07 million in the first quarter of 2005 as special meeting costs were incurred in the prior year. Loan interest was consistent at $0.12 million year over year. After total expenses of $1.0 million for the first quarter of 2005, the Fund generated net investment income of $3.3 million or $0.59 per unit compared to $3.6 million or $0.64 per unit in 2004. Distributions remained stable at $0.78 per unit for both the first quarters of 2005 and 2004.

Total results of operations were $3.3 million or $0.60 per unit for the quarter compared to $14.3 million or $2.55 per unit in the first quarter of 2004. Realized gains in the current quarter added $1.5 million to total results but were offset by unrealized losses of a similar amount. In comparison, net realized and unrealized gains in the first quarter of 2004 were $4.1 and $6.6 million respectively.



Portfolio Holdings
--------------------------------------------------------
Pipeline/Energy Investments 8%
Cash & Term Deposits 16%
Ongoing Business Trusts 35%
Real Estate Investment Trusts 10%
Oil & Gas Royalty Trusts 31%
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Citadel HYTES Fund
Statement of Net Assets
(Unaudited)

As at March 31, December 31,
2005 2004
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Assets
Investments, at market $ 172,600,133 $ 170,214,235
Cash and term deposits 33,323,213 41,277,982
Revenue receivable 1,315,022 1,436,583
Prepaid expenses 344,560 334,215
Accounts receivable 126,712 62,323
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207,709,640 213,325,338
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Liabilities
Accounts payable 492,038 188,138
Distributions payable 1,432,827 5,588,809
Loan payable 13,500,000 13,500,000
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15,424,865 19,276,947
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Net Assets $ 192,284,775 $ 194,048,391
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Units outstanding 5,510,873 5,533,474
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Net asset value per unit $ 34.89 $ 35.07
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Citadel HYTES Fund
Statement of Operations
(Unaudited)

March 31, March 31,
For the Three Months Ended 2005 2004
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Revenue
Investment income $ 4,293,656 $ 4,617,478
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4,293,656 4,617,478
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Expenses
Administrative and investment
manager fees 614,018 565,866
Trailer fee 198,391 177,829
General and administration costs 68,061 148,139
Loan interest 121,608 119,613
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1,002,078 1,011,447
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Net investment income 3,291,578 3,606,031
Net realized gain 1,468,265 4,078,640
Net change in unrealized gain (loss) (1,435,612) 6,574,367
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Total results of operations $ 3,324,231 $14,259,038
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Results of operations per unit:
Net investment income $ 0.59 $ 0.64
Net realized gain 0.27 0.73
Net change in unrealized gain (loss) (0.26) 1.18
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$ 0.60 $ 2.55
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Citadel HYTES Fund
Statement of Changes in Net Assets
(Unaudited)

March 31, March 31,
For the Three Months Ended 2005 2004
------------------------------------------------------------------------
Net Assets - beginning of period $194,048,391 $176,599,393
Operations:
Net investment income 3,291,578 3,606,031
Net realized gain 1,468,265 4,078,640
Net change in unrealized gain (loss) (1,435,612) 6,574,367
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3,324,231 14,259,038
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Unitholder Transactions:
Distributions to unitholders (4,314,546) (4,349,032)
Issuance of trust units, net 573,848 528,847
Repurchase of trust units (1,347,149) (2,154,325)
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(5,087,847) (5,974,510)
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Net Assets - end of period $192,284,775 $184,883,921
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Distributions per unit $ 0.78 $ 0.78
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Citadel HYTES Fund
Statement of Investments
(Unaudited)

As at March 31, 2005
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% of
Cost Market Market
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Ongoing Business Trusts
The Brick Group Income Fund $4,793,700 $6,460,000
Chemtrade Logistics Income Fund 2,400,000 3,710,400
Cineplex Galaxy Income Fund 3,968,124 5,947,500
Custom Direct Income Fund 2,650,000 3,564,250
Davis + Henderson Income Fund 4,129,467 8,800,000
Great Lakes Carbon Income Fund 3,151,897 3,542,630
IBI Income Fund 3,500,000 3,867,500
Livingston International Income Fund 1,800,000 3,789,000
Medical Facilities Corp. Income
Part. Security 4,040,225 5,408,245
Priszm Canadian Income Fund 2,850,000 4,118,250
Rogers Sugar Income Fund 4,209,000 4,928,000
ROW Entertainment Income Fund 3,102,379 3,479,625
SFK Pulp Fund 5,772,405 4,123,600
Spinrite Income Fund 3,135,940 2,976,600
TransForce Income Fund 3,894,502 7,361,250
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53,397,639 72,076,850 35.0%
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Oil & Gas Royalty Trusts
Acclaim Energy Trust 3,749,251 4,727,238
Advantage Energy Income Fund 772,535 1,945,000
ARC Energy Trust 9,846,243 14,520,000
Baytex Energy Trust - -
Bonavista Energy Trust 3,217,580 3,916,900
Enerplus Resources Fund 4,041,325 6,582,000
NAL Oil & Gas Trust 3,333,670 4,541,580
Paramount Energy Trust 4,959,586 7,072,500
Shiningbank Energy Income Fund 4,657,314 6,447,000
Vermilion Energy Trust 5,658,973 9,092,000
Viking Energy Royalty Trust 5,227,875 5,984,000
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45,464,352 64,828,218 31.5%
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Real Estate Investment Trusts
InnVest Reit 3,010,470 3,915,750
Morguard Reit 3,717,339 4,535,625
O & Y Reit 3,500,000 5,491,500
Summit Reit 4,156,200 5,544,000
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14,384,009 19,486,875 9.5%
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Pipeline/Energy Investments
Energy Savings Income Fund 1,125,000 7,402,500
Heating Oil Partners Income Fund 2,990,000 1,495,000
Superior Plus Income Fund 3,538,193 7,019,450
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7,653,193 15,916,950 7.7%
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Citadel Hytes Fund
- repurchased units to be cancelled 293,647 291,240 0.1%
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Investments 121,192,840 172,600,133 83.8%
Cash and Term Deposits 33,323,213 33,323,213 16.2%
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Total $154,516,053 $205,923,346 100.0%
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Citadel HYTES Fund

Notes to the Financial Statements

(Unaudited)

The Trust

Citadel HYTES Fund (the "Fund" or "Citadel HYTES") is a closed-end investment trust established under the laws of Alberta pursuant to a Declaration of Trust dated February 27, 2001. The Fund commenced operations with the completion of its initial public offering on April 11, 2001. The term of the Fund continues until December 31, 2011, 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 a stable, sustainable and predominantly tax deferred monthly distribution targeted at $0.26 per unit and to return the original invested capital at the end of the Fund's life.

Significant Accounting Policies

These interim financial statements have been prepared in accordance with Canadian generally accepted accounting principles and include estimates and assumptions made 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 that the Fund distributes to its unitholders its net income for tax purposes, the Fund will not be liable for income tax under Part 1 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, subject to a maximum of 1.25% of the total number of units outstanding at the beginning of each calendar quarter. During the quarter ended March 31, 2005, 39,300 units were repurchased pursuant to this program (March 31, 2004 - 70,123 units).

Administrative and Investment Manager Fees

Citadel TEF Management Ltd. is the administrator of the Fund and Bloom Investment Counsel, Inc. is the investment manager of the Fund. The administrator and investment manager are entitled to receive fees totaling 1.1% of the aggregate of the average weekly net asset value of the Fund payable in units monthly in arrears. During the first quarter of 2005, the Fund recorded an expense of $614,018 in conjunction with these fees (first quarter 2004 - $565,866).

Trailer Fee

The Fund pays a trailer fee to investment dealers calculated and payable quarterly in arrears at an annual rate of 0.4% of the net asset value of the Fund held by unitholders in accounts with investment dealers. During the quarter ended March 31, 2005, the Fund recorded an expense of $198,391 related to these fees (March 31, 2004 - $177,829).

Credit Facility

The Fund maintains a credit facility with a Canadian chartered bank to a maximum of $23.5 million, of which $13.5 million is a term facility and $10.0 million is an operating facility. The term facility was fully drawn as of March 31, 2005 and 2004 and is due and payable on the earlier of December 31, 2006 or the termination of the Fund. No amount was drawn under the operating facility at March 31, 2005 and 2004. Borrowings are collateralized by a general security agreement which provides a first floating charge over the Fund's assets. The facility bears interest at the bank's prime lending rate or at bankers' acceptance rates if advances are made in that form.



Corporate Information

Administrator
Citadel TEF Management Ltd.
Suite 3500, 350 - 7th Avenue S.W.
Calgary, Alberta
T2P 3N9
Telephone: (403) 261-9674
Fax: (403) 261-8670
Website: http://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: CHF.un


Contact Information