Citadel Income & Growth Fund
TSX : CIF.UN

Citadel Income & Growth Fund

May 30, 2005 19:06 ET

Citadel Income & Growth Fund: 1st Quarter Report 2005

CALGARY, ALBERTA--(CCNMatthews - May 30, 2005) - Citadel Income & Growth Fund (TSX:CIF.UN):



For the three months ended March 31, 2005

Investment Highlights

Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31,
2005 2004 2004 2004 2004
-----------------------------------------------------------------------
Net Asset Value
per Unit $ 11.71 $ 11.50 $ 10.60 $ 10.31 $ 10.74
Market Price
per Unit $ 10.28 $ 10.90 $ 10.08 $ 9.69 $ 10.40
Trading Premium
(Discount) (12.2%) (5.2%) (4.9%) (6.0%) (3.2%)
Quarterly
Distributions
per Unit $0.2124 $0.2124 $0.2124 $0.2124 $0.2124
12 Month Trailing
Yield 8.3% 7.8% 7.7% n/a n/a
Market
Capitalization
($ millions) $ 142.5 $ 156.4 $ 145.7 $ 140.8 $ 152.5
-----------------------------------------------------------------------


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, narrowly outpacing the S&P/TSX Composite index's return of 4.4%. Due to its unit price weakness late in the quarter, Citadel Income & Growth generated a negative 3.8% return in the first quarter.

The Fund acquired a new investment in Baytex Energy and added to its holding of CCS during the first quarter. Dispositions included Direct Cash, Transforce, Dundee Reit, Stoneham Drilling and BCE which resulted in realized gains of $1.4 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 Income & Growth remains well positioned with its strong weightings in ongoing business and oil & gas royalty trusts.

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 Income & Growth's net asset value increased during the quarter from $11.50 per unit at the end of December 2004 to $11.71 at March 31, 2005 as overall portfolio valuations rose during the quarter. Despite the strengthening net asset value, the Fund's market price fell during the quarter closing at $10.28 per unit down from $10.90 per unit at December 31, 2004. As a result of this market price weakness, the Fund repurchased the maximum of 179,372 units under its mandatory repurchase program. In addition, the Fund instituted a normal course issuer bid in February 2005 in order to provide some price support. Pursuant to the issuer bid, Citadel Income & Growth repurchased 355,000 units for cancellation during the first quarter.

Total revenue for the quarter was $3.2 million, consistent with revenue generated in the first quarter of 2004. Administrative and investment manager fees and trailer fees, both of which are calculated in reference to the Fund's net asset value, increased slightly to $0.5 million and $0.17 million respectively due to a higher net asset value in 2005 compared to the first quarter of 2004. General and administration costs were consistent year over year. After total expenses of $0.7 million, the Fund generated net investment income of $2.5 million or $0.18 per unit compared to net investment income of $2.6 million or $0.18 per unit for the first quarter of 2004. Distributions for the both the first quarters of 2005 and 2004 totaled $0.2124 per unit based upon a monthly rate of $0.0708 per unit.

Total results of operations for the quarter ended March 31, 2005 were $5.5 million or $0.40 per unit. Results of operations were boosted by realized gains of $1.4 million and unrealized gains on the existing portfolio of $1.6 million. Comparatively, total results of operations were $10.8 million for the first quarter of 2004 as realized and unrealized gains on the portfolio totaled $8.3 million.



Portfolio Holdings
--------------------------------------------------------------------
Cash & Term Deposits 5%
Non-Dividend Paying Common Shares 2%
Dividend Paying Common Shares 6%
Pipeline/Energy Investments 12%
Ongoing Business Trusts 40%
Real Estate Investment Trusts 8%
Oil & Gas Royalty Trusts 27%
--------------------------------------------------------------------


Citadel Income & Growth Fund
Statement of Net Assets
(Unaudited)

As at March 31, 2005 December 31, 2004
------------------------------------------------------------------------
Assets
Investments, at market $154,804,218 $159,841,770
Cash and term deposits 7,538,186 5,460,137
Revenue receivable 1,053,813 1,327,242
Accounts receivable 82,443 57,063
Prepaid expenses 52,949 52,413
------------------------------------------------------------------------
163,531,609 166,738,625
------------------------------------------------------------------------
------------------------------------------------------------------------
Liabilities
Accounts payable 235,229 633,048
Distributions payable 981,702 1,015,967
------------------------------------------------------------------------
1,216,931 1,649,015
------------------------------------------------------------------------

Net Assets $162,314,678 $165,089,610
------------------------------------------------------------------------
------------------------------------------------------------------------

Units outstanding 13,865,849 14,349,822
------------------------------------------------------------------------
------------------------------------------------------------------------

Net asset value per unit $ 11.71 $ 11.50
------------------------------------------------------------------------
------------------------------------------------------------------------


Citadel Income & Growth Fund
Statement of Operations
(Unaudited)

For the Three Months Ended March 31, 2005 March 31, 2004
------------------------------------------------------------------------
Revenue
Investment income $ 3,223,796 $ 3,241,741
------------------------------------------------------------------------
3,223,796 3,241,741
------------------------------------------------------------------------
Expenses
Administrative and investment
manager fees 493,898 447,474
Trailer fees 166,390 146,601
General and administration costs 66,754 66,262
------------------------------------------------------------------------
727,042 660,337
------------------------------------------------------------------------
Net investment income 2,496,754 2,581,404
Net realized gain 1,395,604 983,855
Net change in unrealized gain 1,636,723 7,271,862
------------------------------------------------------------------------
Total results of operations $ 5,529,081 $ 10,837,121
------------------------------------------------------------------------
------------------------------------------------------------------------

Results of operations per unit:
Net investment income $ 0.18 $ 0.18
Net realized gain 0.10 0.07
Net change in unrealized gain 0.12 0.50
------------------------------------------------------------------------
$ 0.40 $ 0.75
------------------------------------------------------------------------
------------------------------------------------------------------------


Citadel Income & Growth Fund
Statement of Changes in Net Assets
(Unaudited)

For the Three Months Ended March 31, 2005 March 31, 2004
------------------------------------------------------------------------
Net Assets - beginning of period $165,089,610 $149,316,429
Operations:
Net investment income 2,496,754 2,581,404
Net realized gain 1,395,604 983,855
Net change in unrealized gain 1,636,723 7,271,862
------------------------------------------------------------------------
5,529,081 10,837,121
------------------------------------------------------------------------
Unitholder Transactions:
Distributions to unitholders (2,985,774) (3,110,411)
Issuance of trust units, net 556,371 471,372
Repurchase of trust units (5,874,610) -
------------------------------------------------------------------------
(8,304,013) (2,639,039)
------------------------------------------------------------------------

Net Assets - end of period $162,314,678 $157,514,511
------------------------------------------------------------------------
------------------------------------------------------------------------

Distributions per unit $ 0.2124 $ 0.2124
------------------------------------------------------------------------
------------------------------------------------------------------------


Citadel Income & Growth Fund
Statement of Investments

As at March 31, 2005
------------------------------------------------------------------------
% of
Cost Market Market
------------------------------------------------------------------------
Ongoing Business Trusts
ACS Media Income Fund $ 2,843,700 $ 2,910,000
Advanced Fiber Technologies
Income Fund 2,683,800 1,243,200
The Brick Group Income Fund 2,220,240 2,992,000
Chemtrade Logistics Income Fund 3,648,040 3,401,200
Cineplex Galaxy Income Fund 3,118,614 4,672,500
Custom Direct Income Trust 3,323,305 4,707,500
Direct Cash Income Fund - -
Hot House Growers Income Fund 3,262,282 2,496,452
KCP Income Fund 2,659,733 2,664,000
Livingston International Income Fund 2,162,095 3,186,970
Medical Facilities Corp. Income
Part. Security 3,023,038 4,051,140
Noranda Income Fund 1,303,313 1,537,900
Priszm Canadian Income Fund 4,666,020 6,647,000
ROW Entertainment Income Fund 2,501,000 2,812,500
Rogers Sugar Income Fund 3,755,275 4,480,000
SFK Pulp Fund 3,540,727 3,211,000
Second Cup Roylalty Income Fund 1,600,000 1,688,000
Specialty Foods Group Income Fund 2,440,293 1,275,000
Sun Gro Horticulture Income Fund 3,057,335 2,716,850
TimberWest Forest Corp. 1,974,694 2,586,500
TransForce Income Fund 3,262,906 5,850,000
------------------------------------------------------------------------
57,046,410 65,129,712 40.0%
------------------------------------------------------------------------
Oil & Gas Royalty Trusts
Acclaim Energy Trust 4,253,068 5,323,500
ARC Energy Trust 3,950,511 5,354,250
Baytex Energy Trust 2,237,385 2,236,500
Bonavista Energy Trust 4,511,839 7,517,435
Crescent Point Energy Trust 3,000,000 5,000,000
Esprit Energy Trust 4,260,500 4,357,500
Harvest Energy Trust 2,808,000 4,816,500
NAV Energy Trust - -
Paramount Energy Trust 2,083,445 2,910,075
Vermilion Energy Trust 4,297,370 6,819,000
------------------------------------------------------------------------
31,402,118 44,334,760 27.3%
------------------------------------------------------------------------
Pipeline/Energy Investments
CCS Income Trust 2,160,000 5,005,800
Energy Savings Income Fund 4,136,440 5,593,000
Heating Oil Partners Income Fund 2,901,230 1,115,000
Stoneham Drilling Trust - -
Superior Plus Income Fund 2,746,648 3,435,050
Trinidad Energy Services Income Fund 2,079,000 4,536,000
------------------------------------------------------------------------
14,023,318 19,684,850 12.1%
------------------------------------------------------------------------
Real Estate Investment Trusts
Calloway Reit 2,486,400 4,179,520
Dundee Reit - -
InnVest Reit 2,260,981 2,270,000
O & Y Reit 1,876,806 2,667,300
Retirement Residences Reit 4,458,461 3,820,000
------------------------------------------------------------------------
11,082,648 12,936,820 8.0%
------------------------------------------------------------------------
Common Shares
Bank of Montreal 2,210,232 2,247,200
Barrick Gold Corporation 2,034,128 2,320,000
BCE Inc. - -
CanWest Global Communications Inc. 2,045,300 2,940,000
Domtar Inc. 2,217,000 1,542,000
Shawcor Ltd. Class A 2,784,888 3,600,000
------------------------------------------------------------------------
11,291,548 12,649,200 7.8%
------------------------------------------------------------------------

Citadel Income & Growth Fund
- repurchased units
to be cancelled 68,838 68,876 0.1%
------------------------------------------------------------------------
------------------------------------------------------------------------

Investments 124,914,880 154,804,218 95.4%
Cash and Term Deposits 7,538,186 7,538,186 4.6%
------------------------------------------------------------------------
------------------------------------------------------------------------

Total $132,453,066 $162,342,404 100.0%
------------------------------------------------------------------------
------------------------------------------------------------------------


Citadel Income & Growth Fund

Notes to the Financial Statements (Unaudited)

The Trust

Citadel Income & Growth Fund (the "Fund" or "Citadel Income & Growth") is a closed-end investment trust, established under the laws of Alberta pursuant to a Declaration of Trust dated August 21, 2003 and amended October 16, 2003. The Fund commenced operations on October 16, 2003 with the completion of its initial public offering. The term of the Fund continues until June 30, 2010, 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 unitholders with monthly cash distributions while maximizing total return by investing in income funds with growth potential as well as in other income generating equity securities and common shares. Citadel Income & Growth's distribution policy is to pay monthly cash distributions targeted at $0.0708 per unit.

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 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 recognized 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. During the quarter ended March 31, 2005, 179,372 units were repurchased for cancellation (March 31, 2004 - no units).

On February 11, 2005, the Fund entered into a normal course issuer bid whereby a total of 1,434,982 units may be repurchased for cancellation over a period of twelve months. Up to March 31, 2005, the Fund had repurchased 355,000 units pursuant to this bid.

Administrative and Investment Manager Fees

Citadel IG 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 fees totaling 1.1% of the average weekly net asset value of the Fund, payable in units monthly in arrears. During the quarter ended March 31, 2005, the Fund recorded an expense of $493,898 in respect of these fees (March 31, 2004 - $447,474).

Trailer Fees

A trailer fee is paid 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 $166,390 in respect of the trailer fee (March 31, 2004 - $146,601).



Corporate Information

Administrator
Citadel IG 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: CIF.un


Contact Information

  • Citadel Income & Growth Fund
    Joe MacDonald
    Executive Vice President, Sales and Marketing
    1-877-261-9674
    Website: http://www.citadelfunds.com