Citadel S-1 Income Trust Fund
TSX : SDL.UN

Citadel S-1 Income Trust Fund

August 26, 2005 16:15 ET

Citadel S-1 Income Trust Fund: 2nd Quarter Report 2005

CALGARY, ALBERTA--(CCNMatthews - Aug. 26, 2005) - Citadel S-1 Income Trust Fund (TSX:SDL.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 $ 33.37 $ 32.20 $ 32.52 $ 31.37 $ 29.98
Market Price
per Unit $ 31.94 $ 31.99 $ 33.78 $ 30.75 $ 30.25
Trading Premium
(Discount) (4.3%) (0.7%) 3.9% (2.0%) 0.9%
Quarterly
Distributions
per Unit $ 0.624 $ 0.624 $1.424(1) $ 0.624 $ 0.624
12 Month Trailing
Yield 10.3% 10.3% 9.8% 8.1% 8.3%
Market
Capitalization
($ millions) $ 67.7 $ 68.0 $ 72.3 $ 64.9 $ 63.8
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(1) Includes a special distribution of $0.80 per unit to unitholders of
record on December 31, 2004 and paid January 25, 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 S-1 generated a 5.6% total return. Despite its increasing net asset value, Citadel S-1's unit price weakened slightly in the second quarter of 2005, resulting in a modest total return of 1.8%.

During the second quarter, the Fund sold partial positions of TransForce and Inter Pipeline realizing gains of $0.6 million. The Fund added to existing positions of TransCanada Power and Fort Chicago. Net dispositions increased the Fund's cash reserves to 9% of its portfolio at June 30, 2005.

With favorable market sentiment returning to the income trust sector in the second quarter and into the third quarter of 2005, Citadel S-1 expects to achieve its investment objectives in 2005 with maintenance of its current distribution level and SR-1 stability rating.

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 S-1's net asset value increased quarter over quarter closing the quarter at $33.37 per unit up from $32.20 per unit at March 31, 2005 as the Fund's portfolio valuations recovered during the latter part of the quarter. The Fund's market price ended the second quarter at $31.94 per unit, down slightly from $31.99 per unit at the end of the first quarter of 2005. Despite a strengthening net asset value, the Fund was required to repurchase 5,300 units pursuant to its mandatory repurchase program during the quarter.

For the three months ended June 30, 2005, revenue totaled $1.39 million down slightly from the $1.42 million generated in the same period in 2004 and the first quarter of 2005. Administrative and investment manager fees in the second quarter of 2005 increased to $0.24 million from $0.20 million in the second quarter of 2004. These fees are paid in advance each October and amortized over the year. The increased expense reflects the growth in net assets from October 2003 to October 2004. General and administration costs declined between the second quarters of 2005 and 2004 due to economies of scale as a result of new funds being added to the Citadel Group. Net investment income for the second quarter of 2005 was $1.1 million or $0.52 per unit compared to $1.1 million or $0.54 per unit in the comparable period in 2004 and $1.1 million or $0.53 per unit for the first quarter of 2005. Distributions to unitholders remained stable at $0.624 per unit for both the first and second quarters of 2005 and the second quarter of 2004.



Portfolio Holdings
----------------------------------------------
Power Generation Investments 21%
Oil & Gas Royalty Trusts 16%
Ongoing Business Trusts 23%
Real Estate Investment Trusts 13%
Cash & Term Deposits 9%
Pipeline/Energy Investments 18%
----------------------------------------------


Total results of operations for the three months ended June 30, 2005 were $3.8 million or $1.80 per unit compared to negative $3.0 million or negative $1.43 per unit generated in the second quarter of 2004. Results of operations for the second quarter of 2005 were boosted by net realized gains of $0.6 million and unrealized gains of $2.1 million. In the second quarter of 2004, realized gains of $0.4 million were offset by unrealized losses of $4.6 million contributing to the negative results of operations.



Citadel S-1 Income Trust Fund
Statement of Net Assets
(Unaudited)

As at June 30, 2005 December 31, 2004
------------------------------------------------------------------------
Assets
Investments, at market $ 64,070,763 $ 64,816,310
Cash and term deposits 6,398,123 5,759,969
Revenue receivable 463,807 448,599
Prepaid expenses 249,651 726,963
Accounts receivable 11,578 45,546
------------------------------------------------------------------------
71,193,922 71,797,387
------------------------------------------------------------------------
------------------------------------------------------------------------
Liabilities
Distributions payable 441,007 2,158,861
------------------------------------------------------------------------
441,007 2,158,861
------------------------------------------------------------------------
Net Assets $ 70,752,915 $ 69,638,526
------------------------------------------------------------------------
------------------------------------------------------------------------
Units outstanding 2,120,227 2,141,727
------------------------------------------------------------------------
------------------------------------------------------------------------
Net asset value per unit $ 33.37 $ 32.52
------------------------------------------------------------------------
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Citadel S-1 Income Trust Fund
Statement of Operations

(Unaudited)

Three Months Ended Six Months Ended
For the June 30 June 30
periods ended 2005 2004 2005 2004
------------------------------------------------------------------------
Revenue
Investment income $ 1,392,102 $ 1,423,312 $ 2,816,450 $ 2,866,955
------------------------------------------------------------------------
1,392,102 1,423,312 2,816,450 2,866,955
------------------------------------------------------------------------
Expenses
Administrative and
investment manager
fees 242,560 195,768 485,121 391,537
General and
administration
costs 56,435 80,553 101,159 124,095
------------------------------------------------------------------------
298,995 276,321 586,280 515,632
Net investment
income 1,093,107 1,146,991 2,230,170 2,351,323
Net realized gain 585,550 405,207 5,844,592 2,940,443
Net change in
unrealized gain
(loss) 2,123,526 (4,566,737) (3,619,668) (3,100,026)
------------------------------------------------------------------------
Total results of
operations $ 3,802,183 $(3,014,539) $ 4,455,094 $ 2,191,740
------------------------------------------------------------------------
------------------------------------------------------------------------
Results of
operations per
unit:
Net investment
income $ 0.52 $ 0.54 $ 1.05 $ 1.10
Net realized gain 0.28 0.19 2.74 1.38
Net change in
unrealized gain
(loss) 1.00 (2.16) (1.70) (1.45)
------------------------------------------------------------------------
$ 1.80 $ (1.43) $ 2.09 $ 1.03
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Citadel S-1 Income Trust Fund
Statement of Changes in Net Assets

(Unaudited)

Three Months Ended Six Months Ended
For the June 30 June 30
periods ended 2005 2004 2005 2004
------------------------------------------------------------------------
Net Assets -
beginning
of period $ 68,439,410 $ 67,954,490 $ 69,638,526 $ 64,873,160
Operations:
Net investment
income 1,093,107 1,146,991 2,230,170 2,351,323
Net realized gain 585,550 405,207 5,844,592 2,940,443
Net change in
unrealized gain
(loss) 2,123,526 (4,566,737) (3,619,668) (3,100,026)
------------------------------------------------------------------------
3,802,183 (3,014,539) 4,455,094 2,191,740
------------------------------------------------------------------------
Unitholder Transactions:
Distributions to
unitholders (1,324,124) (1,316,804) (2,657,192) (2,647,634)
Repurchase of
trust units (164,554) (357,133) (683,513) (1,151,252)
------------------------------------------------------------------------
(1,488,678) (1,673,937) (3,340,705) (3,798,886)
------------------------------------------------------------------------
Net Assets
- end of period $ 70,752,915 $ 63,266,014 $ 70,752,915 $ 63,266,014
------------------------------------------------------------------------
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Distributions per
unit $ 0.624 $ 0.624 $ 1.248 $ 1.248
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Citadel S-1 Income Trust 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 $ 1,176,450 $ 1,201,750
Amtelecom Income Fund 1,200,000 1,668,000
Bell Nordiq Income Fund - -
CML Healthcare Income Fund 965,430 1,246,500
Custom Direct Income Fund 900,000 1,262,700
Entertainment One Income Fund
(formerly ROW Entertainment) 1,085,850 921,500
Great Lakes Carbon Income Fund 1,263,000 1,221,000
Noranda Income Fund 1,003,000 1,245,000
Rogers Sugar Income Fund 1,042,048 1,046,250
Royal LePage Franchise Services
Fund 1,972,000 2,259,300
SFK Pulp Fund 1,165,964 718,560
Spinrite Income Fund 1,053,000 1,244,000
TransForce Income Fund 539,895 1,167,600
UE Waterheater Income Fund - -
Yellow Pages Income Fund 956,250 1,267,350
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14,322,887 16,469,510 23.4%
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Power Generation Investments
Algonquin Power Income Fund 2,338,126 2,537,623
Boralex Power Income Fund 2,537,310 2,762,500
Clean Power Income Fund 2,490,800 1,690,000
Northland Power Income Fund 1,441,113 2,492,200
Taylor NGL L.P. - -
TransAlta Power, L.P. 3,380,872 3,650,410
TransCanada Power, L.P. 1,121,578 1,350,540
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13,309,799 14,483,273 20.5%
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Pipeline/Energy Investments
AltaGas Income Trust 1,108,440 1,135,350
Energy Savings Income Fund 215,343 542,500
Fort Chicago Energy Partners
Class "A" 1,016,000 1,040,800
Heating Oil Partners Income Fund 1,190,445 266,000
Inter Pipeline Fund 1,884,190 3,227,400
Keyera Facilities Income Fund 2,675,182 3,431,400
Superior Plus Income Fund 1,491,011 3,312,400
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9,580,611 12,955,850 18.4%
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Oil & Gas Royalty Trusts
ARC Energy Trust 818,920 1,395,800
Bonavista Energy Trust 711,351 1,257,120
Enerplus Resources Fund 721,691 1,310,400
NAL Oil & Gas Trust 1,251,900 1,282,500
Paramount Energy Trust 1,051,458 1,419,000
Shiningbank Energy Income Fund 896,250 1,361,960
Vermilion Energy Trust 1,057,500 1,752,000
Viking Energy Trust 1,198,670 1,203,600
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7,707,740 10,982,380 15.6%
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Real Estate Investment Trusts
Borealis Retail Reit - -
Calloway Reit - -
Dundee Reit 2,528,400 2,941,400
Firm Capital Mortgage Investment
Trust 1,743,637 2,070,000
RioCan Reit 765,774 1,600,000
Summit Reit 1,554,670 1,743,350
TGS North American Reit 975,502 825,000
------------------------------------------------------------------------
7,567,983 9,179,750 13.0%
------------------------------------------------------------------------
Investments 52,489,020 64,070,763 90.9%
Cash and Term Deposits 6,398,123 6,398,123 9.1%
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Total $ 58,887,143 $ 70,468,886 100.0%
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Citadel S-1 Income Trust Fund
Notes to the Financial Statements
(Unaudited)


THE TRUST

Citadel S-1 Income Trust Fund (the "Fund" or "Citadel S-1") is a closed-end investment trust established under the laws of Alberta pursuant to a Declaration of Trust dated August 11, 2000. The Fund commenced operations upon completion of its initial public offering on October 6, 2000. The term of the Fund continues until December 31, 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 maximize cash available for distribution while maintaining an SR-1 stability rating and to maximize the net asset value of the Fund over its expected ten year life. This rating signifies S&P's assessment that the Fund's units have the highest level of distribution sustainability and the lowest level of distribution variability in relation to other rated Canadian income funds. Citadel S-1's distribution policy is to pay monthly cash distributions targeted at $0.208 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 made by management. Actual results may differ from these estimates. The significant accounting principles 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 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 all of its income for tax purposes to its unitholders, it is not 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 income 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, 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, the Fund repurchased 5,300 units for cancellation (June 30, 2004 - 12,200 units).

ADMINISTRATIVE AND INVESTMENT MANAGER FEES

Citadel S1 Management Ltd. is the administrator of the Fund and Bloom Investment Counsel, Inc. is the investment manager of the Fund. The administrator and the investment manager are entitled to a fee totaling 1.25% of the average weekly net asset value of the Fund, payable in units in advance and subject to annual adjustment. For the second quarter of 2005, the Fund recorded an expense of $242,560 in respect of these fees (June 30, 2004 - $195,768).



CORPORATE INFORMATION

Administrator
Citadel S1 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
BNY Trust Company of Canada
Suite 1101, 4 King Street West
Toronto, Ontario M5H 1B6

Stock Exchange Listing
Toronto Stock Exchange
Trust units: SDL.un


Contact Information

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