Citadel Multi-Sector Income Fund
TSX : CMS.UN

Citadel Multi-Sector Income Fund

May 30, 2005 19:08 ET

Citadel Multi-Sector Income Fund: 1st Quarter Report 2005

CALGARY, ALBERTA--(CCNMatthews - May 30, 2005) - Citadel Multi-Sector Income Fund (TSX:CMS.UN)



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

Investment Highlights

Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31,
2005 2004 2004 2004 2004
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Net Asset Value
per Unit $ 11.91 $ 11.81 $ 11.09 $ 10.63 $ 11.06
Market Price per Unit $ 10.52 $ 11.20 $ 10.70 $ 10.15 $ 10.60
Trading Premium
(Discount) (11.7%) (5.2%) (3.5%) (4.5%) (4.2%)
Quarterly
Distributions
per Unit $0.2499 $0.2499 $0.2499 $0.2499 $0.2499
12 Month Trailing
Yield 9.5% 8.9% 9.3% 9.8% 9.4%
Market Capitalization
($ millions) $ 293.1 $ 314.8 $ 299.6 $ 283.1 $ 297.0
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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 Multi-Sector generated a negative 3.9% return in the first quarter.

New investments in Keystone, Spinrite and Esprit Energy were acquired by the Fund, as well as additions to Golf Town, Viking Energy and CCS. Dispositions during the first quarter included Transforce, Baytex Energy, Shiningbank Energy, TransAlta Power and Keyera Facilities which resulted in realized gains of $7.2 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 Multi-Sector 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.

During the first quarter, Citadel Multi-Sector's net asset value increased modestly to close the quarter at $11.91 per unit, up from $11.81 per unit at year end 2004 as overall portfolio valuations rose during the quarter. Despite the strengthening net asset value, the Fund's market price declined to $10.52 per unit at March 31, 2005 from $11.20 per unit at the end of 2004 due to weak market sentiment in the income trust sector. As a result of this weakness, the Fund was required to repurchase 351,305 units under the mandatory repurchase program during the first quarter.

Total revenue for the first quarter of 2004 was $7.5 million, compared to $6.6 million in the same period in 2004. The higher revenue was due to lower cash balances in 2005 compared to the first quarter of 2004. Administrative and investment manager fees and trailer fees at $1.0 million and $0.3 million respectively were higher in the first quarter of 2005 compared to the same period in 2004 due to a higher net asset value. General & administration costs were $0.09 million for the first quarter of 2005 compared to $0.12 million in the first quarter of 2004. After total expenses of $1.4 million, the Fund generated net investment income of $6.0 million or $0.21 per unit for the first quarter of 2005, up from $5.3 million or $0.19 per unit generated in the first quarter of 2004. Distributions during the first quarters were consistent year over year at $0.2499 per unit.

Total results of operations were $9.7 million or $0.34 per unit for the first quarter of 2005 as realized gains of $7.2 million were offset by unrealized losses of $3.6 million. Results of operations totaling $22.3 million or $0.79 per unit in first quarter 2004 were boosted by realized gains of $3.8 million and unrealized gains of $13.2 million.



Portfolio Holdings
--------------------------------------------------------
Cash & Term Deposits 7%
Power Generation Investments 2%
Real Estate Investment Trusts 14%
Ongoing Businesses 38%
Pipeline/Energy Investments 14%
Oil & Gas Royalty Trusts 25%
--------------------------------------------------------


Citadel Multi-Sector Income Fund
Statement of Net Assets
(Unaudited)

As at March 31, December 31,
2005 2004
------------------------------------------------------------------------
Assets
Investments, at market $309,039,648 $314,616,422
Cash and term deposits 22,718,939 17,486,434
Revenue receivable 2,443,254 2,424,247
Accounts receivable 179,947 95,658
Prepaid expenses 80,540 8,033
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334,462,328 334,630,794
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------------------------------------------------------------------------
Liabilities
Accounts payable 334,353 309,149
Distributions payable 2,320,967 2,341,101
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2,655,320 2,650,250
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Net Assets $331,807,008 $331,980,544
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------------------------------------------------------------------------

Units outstanding 27,862,752 28,104,458
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Net asset value per unit $ 11.91 $ 11.81
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Citadel Multi-Sector Income Fund
Statement of Operations
(Unaudited)

March 31, March 31,
For the Three Months Ended 2005 2004
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Revenue
Investment income $ 7,457,588 $ 6,622,195
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7,457,588 6,622,195
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Expenses
Administrative and investment manager fees 1,002,191 882,551
Trailer fees 334,353 308,169
General and administration costs 90,141 118,542
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1,426,685 1,309,262
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Net investment income 6,030,903 5,312,933
Net realized gain 7,213,560 3,750,564
Net change in unrealized gain (loss) (3,568,800) 13,236,797
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Total results of operations $ 9,675,663 $ 22,300,294
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Results of operations per unit:
Net investment income $ 0.21 $ 0.19
Net realized gain 0.26 0.13
Net change in unrealized gain (loss) (0.13) 0.47
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$ 0.34 $ 0.79
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Citadel Multi-Sector Income Fund
Statement of Changes in Net Assets
(Unaudited)

March 31, March 31,
For the Three Months Ended 2005 2004
------------------------------------------------------------------------
Net Assets - beginning of period $331,980,544 $293,736,810
Operations:
Net investment income 6,030,903 5,312,933
Net realized gain 7,213,560 3,750,564
Net change in unrealized gain (loss) (3,568,800) 13,236,797
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9,675,663 22,300,294
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Unitholder Transactions:
Distributions to unitholders (6,996,409) (6,996,786)
Issuance of trust units, net 1,278,25 1,144,195
Repurchase of trust units (4,131,048) (325,208)
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(9,849,199) (6,177,799)
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Net Assets - end of period $331,807,008 $309,859,305
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Distributions per unit $ 0.2499 $ 0.2499
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Citadel Multi-Sector Income 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
ACS Media Income Fund $ 4,200,493 $ 4,015,800
Advanced Fiber Technologies Income Fund 4,710,029 3,830,240
Arctic Glacier Income Fund 4,216,147 5,321,580
Atlas Cold Storage Income Trust 2,583,284 1,381,013
The Brick Group Income Fund 4,541,400 6,120,000
CML Healthcare Income Fund 5,395,740 6,800,000
Chemtrade Logistics Income Fund 7,403,268 7,644,970
Cineplex Galaxy Income Fund 5,113,097 7,512,000
Clearwater Seafoods Income Fund 3,289,913 2,525,175
Custom Direct Income Fund 5,203,588 6,994,000
Golf Town Income Fund 3,900,000 4,394,400
Grandby Industries Income Fund 5,950,000 6,336,750
Keystone North America Inc. 4,900,657 4,848,000
Priszm Canadian Income Fund 6,963,640 9,581,795
ROW Entertainment Income Fund 6,007,600 6,750,000
Richards Packaging Income Fund 2,760,000 3,237,480
Rogers Sugar Income Fund 6,427,496 6,652,800
SFK Pulp Fund 8,986,191 6,354,000
Specialty Foods Group Income Fund 6,554,800 2,975,400
Spinrite Income Fund 2,376,040 2,331,875
Sun Gro Horticulture Income Fund 5,629,246 5,271,500
TransForce Income Fund 5,142,599 11,014,250
Yellow Pages Income Fund 4,483,500 4,662,000
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116,738,728 126,555,028 38.2%
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Oil & Gas Royalty Trusts
Acclaim Energy Trust 9,336,727 12,939,193
ARC Energy Trust 7,481,547 11,359,467
Baytex Energy Trust 3,990,704 5,889,450
Bonavista Energy Trust 5,373,240 8,135,100
Enerplus Resources Fund 3,840,964 5,947,188
Esprit Energy Trust 1,577,500 1,556,250
Harvest Energy Trust 4,670,500 6,175,000
Paramount Energy Trust 10,617,769 14,058,750
Shiningbank Energy Income Fund 2,815,333 4,026,882
Vermilion Energy Trust 4,230,000 6,819,000
Viking Energy Royalty Trust 5,185,373 5,068,800
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59,119,657 81,975,080 24.7%
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Pipeline/Energy Investments
AltaGas Income Trust 4,796,495 5,727,510
CCS Income Trust 4,200,000 9,733,500
Heating Oil Partners Income Fund 5,485,050 2,295,000
Inter Pipeline Fund 5,976,154 7,983,000
Keyera Facilities Income Fund 3,655,000 5,083,000
Superior Plus Income Fund 3,937,656 5,675,300
Trinidad Energy Services Income Fund 3,708,000 11,124,000
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31,758,355 47,621,310 14.4%
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Real Estate Investment Trusts
Borealis Retail Reit 6,252,815 8,299,960
Calloway Reit 4,504,500 7,571,850
Dundee Reit 6,388,200 8,051,400
InnVest Reit 4,559,717 5,504,750
IPC U.S. Commercial Reit 6,939,961 7,273,720
Retirement Residences Reit 4,638,845 4,536,250
TGS North American Reit 5,882,500 4,556,500
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39,166,538 45,794,430 13.8%
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Power Generation Investments
Countryside Power Income Fund 7,719,022 7,093,800
TransAlta Power L.P. - -
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7,719,022 7,093,800 2.1%
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Fixed Income Investments
Pembina Pipeline Income Fund 7.35% - - -
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- - -
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Investments 254,502,300 309,039,648 93.2%
Cash and Term Deposits 22,718,939 22,718,939 6.8%
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Total $277,221,239 $331,758,587 100.0%
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Citadel Multi-Sector Income Fund

Notes to the Financial Statements

(Unaudited)

The Trust

Citadel Multi-Sector Fund (the "Fund" or "Citadel Multi-Sector") is a closed-end investment trust, established under the laws of Alberta pursuant to a Declaration of Trust dated December 12, 2002. The Fund commenced operations on February 14, 2003 with the completion of its initial public offering. The term of the Fund continues until December 31, 2008, or such earlier or later date as unitholders may determine in accordance with the Declaration of Trust.

The Fund's investment objectives are to provide unitholders with monthly cash distributions derived from a diversified portfolio of income producing investments consisting of income funds and high yielding investment grade debt and to return the original issue price to unitholders upon termination of the Fund. Citadel Multi-Sector's distribution policy is to pay monthly cash distributions targeted at $0.0833 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, 351,305 units were purchased for cancellation (March 31, 2004 - 31,000 units).

Administrative and Investment Manager Fees

Citadel Multi-Sector Management Inc. 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 $1,002,191 related to these fees (March 31, 2004 - $882,551).

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 $334,353 in respect of the trailer fee (March 31, 2004 - $308,169).



Corporate Information

Administrator
Citadel Multi-Sector Management Inc.
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: CMS.un


Contact Information

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