Citadel Income & Growth Fund
TSX : CIF.UN

Citadel Income & Growth Fund

August 26, 2005 16:17 ET

Citadel Income & Growth Fund: 2nd Quarter Report 2005

CALGARY, ALBERTA--(CCNMatthews - Aug. 26, 2005) - Citadel Income & Growth Fund (TSX:CIF.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 $ 11.76 $ 11.71 $ 11.50 $ 10.60 $ 10.31
Market Price per Unit $ 10.81 $ 10.28 $ 10.90 $ 10.08 $ 9.69
Trading Premium
(Discount) (8.1%) (12.2%) (5.2%) (4.9%) (6.0%)
Quarterly
Distributions
per Unit $0.2124 $0.2124 $0.2124 $0.2124 $0.2124
12 Month Trailing
Yield 7.9% 8.3% 7.8% 7.7% n/a
Market Capitalization
($ millions) $ 148.4 $ 142.5 $ 156.4 $ 145.7 $ 140.8
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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 Income & Growth generated a 2.2% total return. On a unit price basis, Citadel Income & Growth's improved unit price helped boost its total return to 7.3% in the second quarter of 2005.

During the second quarter, Citadel Income & Growth acquired new investments in Aeroplan, Vault Energy and Chamaelo Exploration, reducing its cash reserves from 5% at March 31, 2005 to 2% at June 30, 2005. 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 Income & Growth 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.

Citadel Income & Growth's net asset value increased during the quarter from $11.71 per unit at the end of March 2005 to $11.76 at June 30, 2005 as the portfolio valuation decline was offset by a lower number of units outstanding. The Fund's market price rose during the quarter to $10.81 per unit at June 30, 2005 up from $10.28 per unit at March 31, 2005. Despite this market price improvement, the Fund repurchased the maximum of 173,323 units under its mandatory repurchase program. In addition, the Fund repurchased 11,400 units for cancellation during the second quarter under a normal course issuer bid instituted in February 2005.

Total revenue for the quarter was $3.3 million, equal to that generated in the first quarter of 2005 and in the second 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 $0.16 million in the second quarter of 2005 due to a higher net asset value in 2005 compared to the second quarter of 2004. General and administration costs fell to $0.07 million for the second quarter of 2005 compared to $0.12 million in the second quarter of 2004. After total expenses of $0.7 million, the Fund generated net investment income of $2.6 million or $0.19 per unit compared to net investment income of $2.6 million or $0.18 per unit for the second quarter of 2004. Distributions for the second quarters of 2005 and 2004 totaled $0.2124 per unit based upon a monthly rate of $0.0708 per unit.



Portfolio Holdings
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Cash & Term Deposits 2%
Non-Dividend Paying Common Shares 2%
Dividend Paying Common Shares 6%
Pipeline/Energy Investments 13%
Ongoing Business Trusts 40%
Real Estate Investment Trusts 8%
Oil & Gas Royalty Trusts 29%
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Total results of operations for the quarter ended June 30, 2005 were $3.6 million or $0.26 per unit. Results of operations were increased by unrealized gains on the existing portfolio of $1.0 million. Comparatively, total results of operations were a loss of $3.4 million for the second quarter of 2004 as unrealized losses on the portfolio totaled $6.1 million.



Citadel Income & Growth Fund
Statement of Net Assets

(Unaudited)

As at June 30, 2005 December 31, 2004
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Assets
Investments, at market $ 158,493,497 $ 159,841,770
Cash and term deposits 3,107,520 5,460,137
Revenue receivable 1,039,560 1,327,242
Accounts receivable - 57,063
Prepaid expenses 31,918 52,413
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162,672,495 166,738,625
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Liabilities
Accounts payable 187,781 633,048
Distributions payable 972,163 1,015,967
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1,159,944 1,649,015
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Net Assets $ 161,512,551 $ 165,089,610
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Units outstanding 13,731,113 14,349,822
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Net asset value per unit $ 11.76 $ 11.50
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Citadel Income & Growth Fund
Statement of Operations

(Unaudited)

Three Months Ended Six Months Ended
June 30 June 30
For the periods ended 2005 2004 2005 2004
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Revenue
Investment
income $ 3,285,312 $ 3,308,607 $ 6,509,108 $ 6,550,348
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3,285,312 3,308,607 6,509,108 6,550,348
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Expenses
Administrative
and investment
manager fees 465,093 439,492 958,991 886,966
Trailer fees 164,774 145,257 331,164 291,858
General and
administration
costs 74,477 117,659 141,231 183,921
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704,344 702,408 1,431,386 1,362,745
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Net investment
income 2,580,968 2,606,199 5,077,722 5,187,603
Net realized gain - 97,723 1,395,605 1,081,578
Net change in
unrealized gain
(loss) 1,006,482 (6,099,203) 2,643,204 1,172,659
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Total results
of operations $ 3,587,450 $ (3,395,281) $ 9,116,531 $ 7,441,840
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Results of
operations per
unit:
Net investment
income $ 0.19 $ 0.18 $ 0.36 $ 0.35
Net realized gain - 0.01 0.10 0.07
Net change in
unrealized gain
(loss) 0.07 (0.42) 0.19 0.08
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$ 0.26 $ (0.23) $ 0.65 $ 0.50
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Citadel Income & Growth 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
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Net Assets -
beginning of
period $162,314,678 $157,514,511 $165,089,610 $149,316,429
Operations:
Net investment
income 2,580,968 2,606,199 5,077,722 5,187,603
Net realized
gain - 97,723 1,395,605 1,081,578
Net change in
unrealized gain
(loss) 1,006,482 (6,099,203) 2,643,204 1,172,659
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3,587,450 (3,395,281) 9,116,531 7,441,840
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Unitholder
Transactions:
Distributions to
unitholders (2,912,977) (3,085,949) (5,898,751) (6,196,360)
Issuance of trust
units, net 532,891 490,442 1,089,262 961,814
Repurchase of
trust units (2,009,491) (1,792,750) (7,884,101) (1,792,750)
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(4,389,577) (4,388,257) (12,693,590) (7,027,296)
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Net Assets - end
of period $161,512,551 $149,730,973 $161,512,551 $149,730,973
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Distributions
per unit $ 0.2124 $ 0.2124 $ 0.4248 $ 0.4248
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Citadel Income & Growth 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
ACS Media Income Fund $ 2,843,700 $ 3,135,000
Advanced Fiber Technologies
Income Fund 2,683,800 596,400
Aeroplan Income Fund 265,000 312,700
The Brick Group Income Fund 2,220,240 2,684,000
Chemtrade Logistics Income Fund 3,648,040 3,465,000
Cineplex Galaxy Income Fund 3,118,614 4,984,000
Custom Direct Income Trust 3,323,304 4,910,500
Direct Cash Income Fund - -
Entertainment One Income Fund
(formerly ROW Entertainment) 2,501,000 2,425,000
Hot House Growers Income Fund 3,262,282 2,488,864
KCP Income Fund 2,659,733 2,750,400
Livingston International Income Fund 2,162,095 3,221,792
Medical Facilities Corp.
Income Part. Security 3,023,038 3,942,708
Noranda Income Fund 1,303,313 1,618,500
Priszm Canadian Income Fund 4,666,020 6,279,000
Rogers Sugar Income Fund 3,755,275 4,650,000
SFK Pulp Fund 3,540,727 2,370,250
Second Cup Royalty Income Fund 1,600,000 1,753,600
Specialty Foods Group Income Fund 2,440,293 1,224,000
Sun Gro Horticulture Income Fund 3,057,335 2,706,800
TimberWest Forest Corp. 1,974,694 2,577,750
TransForce Income Fund 3,262,908 6,004,800
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57,311,411 64,101,064 39.7%
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Oil & Gas Royalty Trusts
Acclaim Energy Trust 4,253,068 5,369,000
ARC Energy Trust 3,950,511 5,882,300
Baytex Energy Trust 2,237,385 2,022,000
Bonavista Energy Trust 4,511,839 7,744,480
Crescent Point Energy Trust 3,000,000 4,620,000
Esprit Energy Trust 4,260,500 4,179,000
Harvest Energy Trust 2,857,137 5,332,664
NAV Energy Trust - -
Paramount Energy Trust 2,083,445 2,901,640
Vault Energy Trust 1,868,156 1,959,375
Vermilion Energy Trust 4,297,370 7,008,000
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33,319,411 47,018,459 29.1%
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Pipeline/Energy Investments
CCS Income Trust 2,160,000 5,220,000
Energy Savings Income Fund 4,136,440 5,950,000
Heating Oil Partners Income Fund 2,901,230 624,400
Stoneham Drilling Trust - -
Superior Plus Income Fund 2,746,648 3,662,750
Trinidad Energy Services Income Fund 2,079,000 5,250,000
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14,023,318 20,707,150 12.8%
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Real Estate Investment Trusts
Calloway Reit 2,486,400 5,074,624
Dundee Reit - -
InnVest Reit 2,260,981 2,420,000
O & Y Reit 1,876,806 2,550,000
Retirement Residences Reit 4,458,461 3,636,000
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11,082,648 13,680,624 8.5%
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Common Shares
Bank of Montreal 2,210,232 2,281,200
Barrick Gold Corporation 2,034,128 2,448,000
BCE Inc. - -
CanWest Global Communications Inc. 2,045,300 2,724,000
Chamaelo Exploration Ltd. 569,343 570,000
Domtar Inc. 2,217,000 1,359,000
Shawcor Ltd. Class A 2,784,888 3,604,000
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11,860,891 12,986,200 8.0%
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Investments 127,597,679 158,493,497 98.1%

Cash and Term Deposits 3,107,520 3,107,520 1.9%
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Total $130,705,199 $161,601,017 100.0%
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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 issued 41,360 units for administrative and investment manager fees and 8,627 units under its distribution reinvestment plan 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. 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 June 30, 2005, 173,323 units were repurchased for cancellation (June 30, 2004 - 183,250).

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. During the second quarter 11,400 units were purchased under the issuer bid. For the period ended June 30, 2005, the Fund had repurchased 366,400 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 June 30, 2005, the Fund recorded an expense of $465,093 in respect of these fees (June 30, 2004 - $439,492).

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 June 30, 2005, the Fund recorded an expense of $164,774 in respect of the trailer fee (June 30, 2004 - $145,257).



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: 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: www.citadelfunds.com