Citadel HYTES Fund
TSX : CHF.UN

Citadel HYTES Fund

August 26, 2005 16:16 ET

Citadel HYTES Fund: 2nd Quarter Report 2005

CALGARY, ALBERTA--(CCNMatthews - Aug. 26, 2005) - Citadel HYTES Fund (TSX:CHF.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 $ 35.36 $ 34.89 $ 35.07 $ 33.80 $ 32.11
Market Price per Unit $ 33.60 $ 32.36 $ 34.16 $ 33.17 $ 30.05
Trading Premium
(Discount) (5.0%) (7.3%) (2.6%) (1.9%) (6.4%)
Quarterly
Distributions
per Unit $ 0.78 $ 0.78 $1.53(1) $ 0.78 $ 0.78
12 Month Trailing
Yield 11.5% 12.0% 11.3% 9.4% 10.4%
Market Capitalization
($ millions) $ 184.2 $ 178.3 $ 189.0 $ 183.0 $ 165.5
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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

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 HYTES generated a 3.6% total return. On a unit price basis, Citadel HYTES' improved unit price helped boost its total return to 6.3% in the second quarter of 2005.

During the second quarter, Citadel HYTES took advantage of the market weakness and acquired a number of new investments, reducing its cash reserves from 16% at March 31, 2005 to 5% at June 30, 2005. New positions added to the portfolio were Aeroplan, E.D. Smith, KCP, Esprit Energy, Huntingdon Reit, Primaris Reit (formerly Borealis) and Taylor NGL. The Fund also added to its existing position of Entertainment One (formerly ROW Entertainment). 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 HYTES 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 three months ended June 30, 2005, and the audited financial statements and MD&A for the year ended December 31, 2004.

Citadel HYTES' net asset value increased from $34.89 per unit at March 31, 2005 to $35.36 per unit at June 30, 2005 as the Fund's portfolio valuations recovered during the latter part of the quarter. The Fund's market price also increased, closing the quarter at $33.60 per unit up from $32.36 per unit at March 31, 2005. Despite both the strengthening market price and net asset value in the quarter, the Fund was required to repurchase 48,800 units under the mandatory repurchase program as its unit price dipped below 95% of its net asset value.

For the three months ended June 30, 2005, revenue totaled $4.6 million, up slightly from the $4.4 million generated in the same period in 2004 and in the first quarter of 2005 as new investments were acquired in the second quarter. Administrative and investment manager fees totaled $0.60 million for the quarter, up from $0.55 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 $0.10 million in the second 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 second quarter of 2005, the Fund generated net investment income of $3.6 million or $0.65 per unit compared to $3.4 million or $0.61 per unit in the same period in 2004. Distributions remained stable at $0.78 per unit for both the second quarters of 2005 and 2004.



Portfolio Holdings
--------------------------------------------------------
Pipeline/Energy Investments 10%
Cash & Term Deposits 5%
Ongoing Business Trusts 38%
Real Estate Investment Trusts 13%
Oil & Gas Royalty Trusts 34%
--------------------------------------------------------


Total results of operations were $6.8 million or $1.24 per unit for the second quarter of 2005 compared to negative $2.2 million or negative $0.40 per unit in the second quarter of 2004. Unrealized gains in the current quarter added $3.2 million to total results. By comparison, net realized gains were more than offset by unrealized losses in the second quarter of 2004.



Citadel HYTES Fund
Statement of Net Assets

(Unaudited)

As at June 30, 2005 December 31, 2004
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Assets
Investments, at market $ 195,885,444 $ 170,214,235
Cash and term deposits 11,290,357 41,277,982
Revenue receivable 1,479,853 1,436,583
Prepaid expenses 261,662 334,215
Accounts receivable 13,057 62,323
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$ 208,930,373 $ 213,325,338
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Liabilities
Accounts payable 191,830 188,138
Distributions payable 1,425,020 5,588,809
Loan payable 13,500,000 13,500,000
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15,116,850 19,276,947
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Net Assets $ 193,813,523 $ 194,048,391
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Units outstanding 5,480,848 5,533,474
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Net asset value per unit $ 35.36 $ 35.07
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Citadel HYTES Fund
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 $ 4,579,127 $ 4,393,738 $ 8,872,783 $ 9,011,216
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4,579,127 4,393,738 8,872,783 9,011,216
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Expenses
Administrative
and investment
manager fees 597,252 550,703 1,211,270 1,116,569
Trailer fee 191,830 176,217 390,221 354,046
General and
administration
costs 96,205 177,931 164,266 326,070
Loan interest 123,754 115,298 245,362 234,911
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1,009,041 1,020,149 2,011,119 2,031,596
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Net investment
income 3,570,086 3,373,589 6,861,664 6,979,620
Net realized gain - 4,284,963 1,468,265 8,363,603
Net change in
unrealized gain
(loss) 3,220,254 (9,888,625) 1,784,642 (3,314,258)
------------------------------------------------------------------------

Total results
of operations $ 6,790,340 $ (2,230,073) $ 10,114,571 $ 12,028,965
------------------------------------------------------------------------
------------------------------------------------------------------------

Results of
operations per
unit:
Net investment
income $ 0.65 $ 0.61 $ 1.24 $ 1.26
Net realized gain - 0.78 0.27 1.50
Net change in
unrealized gain
(loss) 0.59 (1.79) 0.32 (0.60)
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$ 1.24 $ (0.40) $ 1.83 $ 2.16
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Citadel HYTES Fund
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 $192,284,775 $184,883,921 $194,048,391 $176,599,393
Operations:
Net investment
income 3,570,086 3,373,589 6,861,664 6,979,620
Net realized gain - 4,284,963 1,468,265 8,363,603
Net change in
unrealized gain
(loss) 3,220,254 (9,888,625) 1,784,642 (3,314,258)
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6,790,340 (2,230,073) 10,114,571 12,028,965
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Unitholder
Transactions:
Distributions to
unitholders (4,277,272) (4,297,668) (8,591,818) (8,646,700)
Issuance of trust
units, net 620,658 577,195 1,194,506 1,106,042
Repurchase of
trust units (1,604,978) (2,108,109) (2,952,127) (4,262,434)
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(5,261,592) (5,828,582) (10,349,439) (11,803,092)
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Net Assets -
end of period $193,813,523 $176,825,266 $193,813,523 $176,825,266
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Distributions
per unit $ 0.78 $ 0.78 $ 1.56 $ 1.56
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Citadel HYTES Fund
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 $ 339,000 $ 400,020
The Brick Group Income Fund 4,793,700 5,795,000
Chemtrade Logistics Income Fund 2,400,000 3,780,000
Cineplex Galaxy Income Fund 3,968,124 6,344,000
Custom Direct Income Fund 2,650,000 3,717,950
Davis + Henderson Income Fund 4,129,467 8,368,000
E. D. Smith Income Fund 1,036,000 1,223,516
Entertainment One Income Fund
(formerly ROW Entertainment) 5,008,968 4,850,000
Great Lakes Carbon Income Fund 3,151,897 3,777,774
IBI Income Fund 3,500,000 3,720,500
KCP Income Fund 3,131,675 3,438,000
Livingston International
Income Fund 1,800,000 3,830,400
Medical Facilities Corp.
Income Part. Security 4,040,225 5,263,489
Priszm Canadian Income Fund 2,850,000 3,890,250
Rogers Sugar Income Fund 4,209,000 5,115,000
SFK Pulp Fund 5,772,405 3,043,900
Spinrite Income Fund 3,135,940 3,612,576
TransForce Income Fund 3,894,502 7,556,040
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59,810,903 77,726,415 37.5%
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Oil & Gas Royalty Trusts
Acclaim Energy Trust 3,749,251 4,767,641
Advantage Energy Income Fund 772,535 1,696,000
ARC Energy Trust 9,846,242 15,952,000
Baytex Energy Trust - -
Bonavista Energy Trust 3,217,580 4,035,200
Enerplus Resources Fund 4,041,325 7,020,000
Esprit Energy Trust Class "B" 3,733,500 3,880,500
NAL Oil & Gas Trust 3,333,670 4,689,675
Paramount Energy Trust 4,959,586 7,052,000
Shiningbank Energy Income Fund 4,657,314 6,465,000
Vermilion Energy Trust 5,658,973 9,344,000
Viking Energy Royalty Trust 5,227,875 6,018,000
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49,197,851 70,920,016 34.3%
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Real Estate Investment Trusts
Huntingdon Reit 3,093,750 3,351,563
InnVest Reit 3,010,470 4,174,500
Morguard Reit 3,717,339 4,779,000
O & Y Reit 3,500,000 5,250,000
Primaris Retail Reit
(formerly Borealis Retail Reit) 3,036,191 3,113,000
Summit Reit 4,156,200 6,153,000
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20,513,950 26,821,063 12.9%
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Pipeline/Energy Investments
Energy Savings Income Fund 1,125,000 7,875,000
Heating Oil Partners Income Fund 2,990,000 837,200
Superior Plus Income Fund 3,538,193 7,484,750
Taylor NGL L. P. 4.082,000 4,221,000
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11,735,193 20,417,950 9.9%
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Investments 141,257,897 195,885,444 94.6%

Cash and Term Deposits 11,290,357 11,290,357 5.4%
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Total $152,548,254 $207,175,801 100.0%
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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 issued 16,862 units for administrative and investment manager fees and 1,913 units for directors' retainer fees during the second quarter of 2005.

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 June 30, 2005, 48,800 units were repurchased pursuant to this program (June 30, 2004 - 69,464 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 second quarter of 2005, the Fund recorded an expense of $597,252 in conjunction with these fees (June 30, 2004 - $550,703).

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 June 30, 2005, the Fund recorded an expense of $191,830 related to these fees (June 30, 2004 - $176,217).

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 June 30, 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 June 30, 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: 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

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