Series S-1 Income Fund

Series S-1 Income Fund
Citadel S-1 Income Trust Fund

Citadel S-1 Income Trust Fund
Citadel Stable S-1 Income Fund

Citadel Stable S-1 Income Fund

May 11, 2009 16:00 ET

Citadel S-1 Income Trust Fund, Series S-1 Income Fund and Citadel Stable S-1 Income Fund: Special Meetings of Unitholders to Consider Proposal

CALGARY, ALBERTA--(Marketwire - May 11, 2009) - On February 25, 2009, each of Citadel S-1 Income Trust Fund ("S-1") (TSX:SDL.UN), Series S-1 Income Fund ("Series S-1") (TSX:SRC.UN) and Citadel Stable S-1 Income Fund (TSX:CSR.UN) ("Stable S-1" and, together with S-1 and Series S-1, collectively the "Funds") announced that Standard & Poor's Ratings Services had withdrawn its Canadian 'SR-1' stability rating in respect of the Funds in response to evolving market issues affecting Canadian income funds.

At that time, management of each of the Funds indicated that it was preparing a proposal that would address the loss of the 'SR-1' stability rating of the Funds, as required by the declaration of trust of each of the Funds, and that further information would be provided by way of a subsequent update as and when the proposal was developed.

Having considered a number of alternatives, the Funds have called special meetings of their unitholders for June 5, 2009, at which unitholders will be asked to consider and vote on the proposed reorganization (the "Reorganization") of the business and affairs of the Funds in the manner discussed below and as more particularly set out in the management information circular (the "Circular") mailed to unitholders.

The proposed Reorganization, if approved by unitholders, will merge each of S-1 and Stable S-1 into Series S-1 (Series S-1 being referred to following such merger as "CGF High Income") at net asset value as determined in the manner set forth in the Circular, and the declarations of trust of each of the Funds will be amended in conjunction with the Reorganization to the extent necessary to facilitate the Reorganization. Upon completion of the Reorganization, CGF High Income will continue to be managed by Bloom Investment Counsel and will continue paying a high level of monthly distributions with the first distribution payable to holders of record on June 30, 2009. Based on an estimate of the distributable income generated by the current portfolios of the Funds and assuming the Reorganization is completed on or before June 30, 2009, the initial monthly distribution has been set at $0.06 per unit of CGF High Income, representing an annualized yield of 11% based on the May 4, 2009 net asset values and exchange ratios.

The Reorganization has been designed to allow unitholders of each of the Funds the maximum degree of flexibility with their current investment, providing unitholders the option of:

1. Receiving Units and Warrants of CGF High Income Fund:

(a) in the case of S-1 and Stable S-1, having their units exchanged on a relative net asset value basis for units of CGF High Income at an exchange ratio based upon the number of units of the respective Fund and the relative net asset value of the units of such Fund at the close of trading on the TSX on the business day immediately prior to the effective date of the Reorganization (the "Effective Date") to the aggregate net asset value of CGF High Income on completion of the Reorganization (the "Unit Alternative");

(b) unitholders of Series S-1 who elect the Unit Alternative will simply retain their Series S-1 units; and

(c) in addition, all unitholders electing the Unit Alternative (including holders of Series S-1 units who elect the Unit Alternative) will receive warrants ("Warrants") to acquire additional units of CGF High Income on the basis of one Warrant for each whole CGF High Income unit held immediately following the Reorganization. Each whole Warrant will entitle the holder thereof to subscribe for and purchase one CGF High Income unit on either the first or second anniversary of the Effective Date, at a unitholder's election, for a subscription price equal to the net asset value per unit of CGF High Income on the Effective Date (the "Warrant Entitlement"); or

2. Receiving Cash: having their units redeemed by the applicable Fund for an amount in cash equal to their pro rata portion of the net asset value of the applicable Fund of which they are a unitholder on the 4th business day prior to the Effective Date, less, in respect of S-1 and Series S-1 only, the applicable costs payable under the applicable management contract to the end of the original term of the Fund.

In addition and in connection with the Reorganization, a number of changes are being proposed to Series S-1 (the "High Income Amendments"), including:

3. Changing the name to "CGF High Income Fund";

4. Changing the investment objective and expanding the permitted investments of CGF High Income to eliminate the requirement to maintain a 'SR-1' stability rating;

5. Removing the termination date of Series S-1;

6. Adopting an annual redemption feature;

The Unit Alternative, in conjunction with the Warrant Entitlement and the High Income Amendments, is expected to provide such unitholders with the opportunity to hold an investment in an entity that has a larger market capitalization, the potential for increased liquidity and a potentially lower management expense ratio, while providing a right to increase their exposure to CGF High Income by way of a Warrant exercisable on the first and second anniversary of the Effective Date. Given the current trading price band for the units of each of those Funds and the anticipated adjusted cost base of units for the majority of unitholders it was determined that the potential benefits to unitholders of a tax-deferred rollover would have been minimal. Accordingly, the Reorganization will not be effected on a tax-deferred "rollover" basis for S-1 and Stable S-1 unitholders.

If the resolution approving the Reorganization is not approved by unitholders of a Fund at the applicable meeting, the respective administrator will continue to manage the applicable Fund in a manner consistent with past practice and the Fund's current investment objectives, investment strategy and investment restrictions, except that the portfolio will no longer have an 'SR-1' stability rating.

If the Reorganization is approved by unitholders, the Effective Date is anticipated to be on or about June 15, 2009. The High Income Amendments are anticipated to be implemented concurrently with the Reorganization. On or about the Effective Date, the units of each of S-1 and Stable S-1 will be delisted from the TSX.

Contact Information

  • Series S-1 Income Fund
    Andrea Kladar
    Vice President, Sales and Marketing Western Region
    1-866-936-7880 or 1-877-261-9674