Citadel Multi-Sector Income Fund
TSX : CMS.UN

Citadel Multi-Sector Income Fund

August 26, 2005 16:16 ET

Citadel Multi-Sector Income Fund: 2nd Quarter Report 2005

CALGARY, ALBERTA--(CCNMatthews - Aug. 26, 2005) - Citadel Multi-Sector Income Fund (TSX:CMS.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
------------------------------------------------------------------------
Net Asset Value per
Unit $ 12.00 $ 11.91 $ 11.81 $ 11.09 $ 10.63
Market Price per Unit $ 11.30 $ 10.52 $ 11.20 $ 10.70 $ 10.15
Trading Premium
(Discount) (5.8%) (11.7%) (5.2%) (3.5%) (4.5%)
Quarterly Distributions
per Unit $0.2499 $0.2499 $0.2499 $0.2499 $0.2499
12 Month Trailing Yield 8.8% 9.5% 8.9% 9.3% 9.8%
Market Capitalization
($millions) $ 312.1 $ 293.1 $ 314.8 $ 299.6 $ 283.1
------------------------------------------------------------------------


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 Multi-Sector generated a 2.9% total return. On a unit price basis, Citadel Multi-Sector's improved unit price helped boost its total return to 9.8% in the second quarter of 2005.

During the second quarter, Citadel Multi-Sector acquired new investments in Aeroplan, E.D. Smith and Esprit Energy Class A and while adding to Richards Packaging and Esprit Energy Class B. Net acquisitions reduced the Fund's cash position from 7% at March 31, 2005 to 4% 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 Multi-Sector 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.

During the second quarter of 2005, Citadel Multi-Sector's net asset value increased modestly to close the quarter at $12.00 per unit, up from $11.91 per unit at the end of the first quarter as portfolio valuations rose during the quarter. The Fund's market price rose as well to close the quarter at $11.30 per unit up from $10.52 at March 31, 2005. Despite the strengthening market price, a discount to net asset value continued to persist and the Fund was required to repurchase 348,284 units under the mandatory repurchase program during the second quarter as the market price traded below 95% of the net asset value of the Fund.

Total revenue for the second quarter of 2005 was $7.4 million compared to $7.0 million in the same period in 2004. The higher revenue was primarily due to lower cash balances in 2005 compared to 2004. Revenue for the first quarter of 2005 was comparable at $7.4 million. Administrative and investment manager fees and trailer fees at $1.0 million and $0.3 million respectively were higher in the second quarter of 2005 compared to the same period in 2004 due to a higher net asset value. General and administration costs fell to $0.12 million for the second quarter of 2005 compared to $0.19 million in the second quarter of 2004. After total expenses of $1.4 million, the Fund generated net investment income of $6.0 million or $0.22 per unit for the second quarter of 2005, up from $5.7 million or $0.20 per unit generated in the second quarter of 2004. Distributions during the second quarters were consistent year over year at $0.2499 per unit.



Portfolio Holdings
--------------------------------------------------------
Cash & Term Deposits 4%
Power Generation Investments 2%
Real Estate Investment Trusts 15%
Ongoing Business Trusts 38%
Pipeline/Energy Investments 15%
Oil & Gas Royalty Trusts 26%
--------------------------------------------------------


Total results of operations were $9.2 million or $0.34 per unit for the second quarter of 2005 with unrealized gains of $3.2 million and net investment income of $6.0 million. For the comparable period in 2004, results of operations totaled negative $5.1 million or negative $0.18 per unit as unrealized losses totaled $12.4 million.



Citadel Multi-Sector Income Fund
Statement of Net Assets

(Unaudited)

June 30, December 31,
As at 2005 2004
------------------------------------------------------------------------
Assets
Investments, at market $317,768,840 $314,616,422
Cash and term deposits 13,782,755 17,486,434
Revenue receivable 2,382,606 2,424,247
Prepaid expenses 56,343 8,033
Accounts receivable 25,567 95,658
------------------------------------------------------------------------
334,016,111 334,630,794
------------------------------------------------------------------------
------------------------------------------------------------------------

Liabilities
Accounts payable 331,425 309,149
Distributions payable 2,300,645 2,341,101
------------------------------------------------------------------------
2,632,070 2,650,250
------------------------------------------------------------------------
Net Assets $331,384,041 $331,980,544
------------------------------------------------------------------------
------------------------------------------------------------------------
Units outstanding 27,618,785 28,104,458
------------------------------------------------------------------------
------------------------------------------------------------------------
Net asset value per unit $ 12.00 $ 11.81
------------------------------------------------------------------------
------------------------------------------------------------------------


Citadel Multi-Sector Income 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 $ 7,410,427 $ 7,031,840 $ 14,868,015 $ 13,654,035
------------------------------------------------------------------------
7,410,427 7,031,840 14,868,015 13,654,035
------------------------------------------------------------------------
Expenses
Administrative
and investment
manager fees 959,827 862,120 1,962,018 1,744,671
Trailer fees 331,425 278,887 665,778 587,056
General and
administration
costs 115,758 185,464 205,899 304,006
------------------------------------------------------------------------
1,407,010 1,326,471 2,833,695 2,635,733
------------------------------------------------------------------------
Net investment
income 6,003,417 5,705,369 12,034,320 11,018,302
Net realized gain - 1,606,123 7,213,560 5,356,687
Net change in
unrealized gain
(loss) 3,201,279 (12,395,767) (367,521) 841,030
------------------------------------------------------------------------
Total results of
operations $ 9,204,696 $ (5,084,275) $ 18,880,359 $ 17,216,019
------------------------------------------------------------------------
------------------------------------------------------------------------
Results of
operations per
unit:
Net investment
income $ 0.22 $ 0.20 $ 0.43 $ 0.39
Net realized gain - 0.06 0.26 0.19
Net change in
unrealized gain
(loss) 0.12 (0.44) (0.01) 0.03
------------------------------------------------------------------------
$ 0.34 $ (0.18) $ 0.68 $ 0.61
------------------------------------------------------------------------
------------------------------------------------------------------------


Citadel Multi-Sector Income 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 $331,807,008 $309,859,305 $331,980,544 $293,736,810
Operations:
Net investment
income 6,003,417 5,705,369 12,034,320 11,018,302
Net realized gain - 1,606,123 7,213,560 5,356,687
Net change in
unrealized gain
(loss) 3,201,279 (12,395,767) (367,521) 841,030
------------------------------------------------------------------------
9,204,696 (5,084,275) 18,880,359 17,216,019
------------------------------------------------------------------------
Unitholder
Transactions:
Distributions
to unitholders (6,893,332) (6,971,642) (13,889,741) (13,968,428)
Issuance of trust
units, net 1,166,276 1,087,437 2,444,534 2,231,632
Repurchase of
trust units (3,900,607) (2,328,925) (8,031,655) (2,654,133)
------------------------------------------------------------------------
(9,627,663) (8,213,130) (19,476,862) (14,390,929)
------------------------------------------------------------------------
Net Assets - end
of period $331,384,041 $296,561,900 $331,384,041 $296,561,900
------------------------------------------------------------------------
------------------------------------------------------------------------
Distributions
per unit $ 0.2499 $ 0.2499 $ 0.4998 $ 0.4998
------------------------------------------------------------------------
------------------------------------------------------------------------


Citadel Multi-Sector Income Fund
Statement of Investments

(Unaudited)

As at June 30, 2005
------------------------------------------------------------------------
% of
Cost Market Market
------------------------------------------------------------------------
Ongoing Business Trusts
ACS Media Income Fund $ 4,200,493 $ 4,326,300
Advanced Fiber Technologies Income
Fund 4,710,029 1,837,480
Aeroplan Income Fund 544,000 641,920
Arctic Glacier Income Fund 4,216,147 5,001,829
Atlas Cold Storage Income Trust 2,583,284 1,299,089
The Brick Group Income Fund 4,541,400 5,490,000
CML Healthcare Income Fund 5,395,740 6,925,000
Chemtrade Logistics Income Fund 7,403,268 7,788,375
Cineplex Galaxy Income Fund 5,113,097 8,012,800
Clearwater Seafoods Income Fund 3,289,913 2,025,724
Custom Direct Income Fund 5,203,588 7,295,600
E. D. Smith Income Fund 1,658,000 1,958,098
Entertainment One Income Fund
(formerly ROW Entertainment) 6,007,600 5,820,000
Golf Town Income Fund 3,900,000 3,845,100
Grandby Industries Income Fund 5,950,000 5,485,900
Keystone North America Inc. 4,900,657 4,728,000
Priszm Canadian Income Fund 6,963,640 9,051,315
Richards Packaging Income Fund 2,783,414 2,899,886
Rogers Sugar Income Fund 6,427,496 6,905,250
SFK Pulp Fund 8,986,191 4,690,600
Specialty Foods Group Income Fund 6,554,800 2,856,000
Spinrite Income Fund 2,376,040 2,830,100
Sun Gro Horticulture Income Fund 5,629,246 5,252,000
TransForce Income Fund 5,142,599 11,305,704
Yellow Pages Income Fund 4,483,500 5,218,500
------------------------------------------------------------------------
118,964,142 123,490,570 37.2%
------------------------------------------------------------------------
Oil & Gas Royalty Trusts
Acclaim Energy Trust 9,336,727 13,049,784
ARC Energy Trust 7,481,547 12,479,768
Baytex Energy Trust 3,990,704 5,324,600
Bonavista Energy Trust 5,373,240 8,380,800
Enerplus Resources Fund 3,840,964 6,342,944
Esprit Energy Trust Class "A" 2,650,500 2,679,750
Esprit Energy Trust Class "B' 2,166,500 2,089,500
Harvest Energy Trust 4,733,499 6,836,752
Paramount Energy Trust 10,617,769 14,018,000
Shiningbank Energy Income Fund 2,815,333 4,038,125
Vermilion Energy Trust 4,230,000 7,008,000
Viking Energy Royalty Trust 5,185,373 5,097,600
------------------------------------------------------------------------
62,422,156 87,345,623 26.3%
------------------------------------------------------------------------
Pipeline/Energy Investments
AltaGas Income Trust 4,796,495 5,946,711
CCS Income Trust 4,200,000 10,150,000
Heating Oil Partners Income Fund 5,485,050 1,285,200
Inter Pipeline Fund 5,976,154 8,802,000
Keyera Facilities Income Fund 3,655,000 5,555,600
Superior Plus Income Fund 3,937,655 6,051,500
Trinidad Energy Services Income Trust 3,708,000 12,875,000
------------------------------------------------------------------------
31,758,354 50,666,011 15.3%
------------------------------------------------------------------------
Real Estate Investment Trusts
Calloway Reit 4,504,500 9,193,470
Dundee Reit 6,388,200 8,423,100
InnVest Reit 4,559,717 5,868,500
IPC U.S. Reit 6,939,961 7,541,338
Primaris Retail Reit
(formerly Borealis Retail Reit) 6,252,815 8,764,510
Retirement Residences Reit 4,638,845 4,317,750
TGS North American Reit 5,882,500 4,875,000
------------------------------------------------------------------------
39,166,538 48,983,668 14.8%
------------------------------------------------------------------------
Power Generation Investments
Countryside Power Income Fund 7,719,022 7,282,968
TransAlta Power, L.P. - -
------------------------------------------------------------------------
7,719,022 7,282,968 2.2%
------------------------------------------------------------------------
Fixed Income Investments
Pembina Pipeline Income Fund 7.35% - -
------------------------------------------------------------------------
- - -
------------------------------------------------------------------------
Investments 260,030,213 317,768,840 95.8%
Cash and Term Deposits 13,782,755 13,782,755 4.2%
------------------------------------------------------------------------
Total $273,812,968 $331,551,595 100.0%
------------------------------------------------------------------------
------------------------------------------------------------------------


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 issued 81,310 units for administrative and investment manager fees and 23,007 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, 348,284 units were purchased for cancellation (June 30, 2004 - 233,700 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 June 30, 2005, the Fund recorded an expense of $959,827 related to these fees (June 30, 2004 - $862,120).

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 $331,425 in respect of the trailer fee (June 30, 2004 - $278,887).



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: 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: www.citadelfunds.com