Citadel Stable S-1 Income Fund
TSX : CSR.UN

Citadel Stable S-1 Income Fund

May 30, 2005 19:08 ET

Citadel Stable S-1 Income Fund: 1st Quarter Report 2005

CALGARY, ALBERTA--(CCNMatthews - May 30, 2005) - Citadel Stable S-1 Income Fund (TSX:CSR.UN)

For the period from December 6, 2004, date of inception, to March 31, 2005 (unaudited)



Investment Highlights
Mar. 31,
2005
-----------------------------------------------------
Net Asset Value per Unit $ 9.02
Market Price per Unit $ 9.65
Trading Premium (Discount) 7.0%
Quarterly Distributions per Unit $ 0.07 (1)
Market Capitalization ($ millions) $ 555.6
-----------------------------------------------------
(1) First monthly distribution had a record date of February 28, 2005
and was paid March 15, 2005


Investment Manager Report

Citadel Stable S-1 Income Fund completed its initial public offering on February 15, 2005 and subsequent over-allotment option with the issuance of 57.5 million units at a price of $10.00 per unit. By March 31, 2005, the Fund had deployed approximately 73% of the total net proceeds. During this period of high income trust valuations, Citadel Stable S-1 commenced its investment process with the objectives of maintaining the S&P SR-1 stability rating and providing unitholders with a stable and sustainable monthly distribution.

However as 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. Over the period from February 15, 2005 to March 31, 2005, the S&P/TSX Income Trust index generated a negative total return of 3.7%. Similarly, Citadel Stable S-1 generated a negative 2.8% return over the same period as its unit price weakened with the general market.

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 Stable S-1 is well positioned to invest its cash reserves at these lower prices and to continue delivering its targeted monthly distribution of $0.0583 per unit.

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 period ended March 31, 2005.

The net asset value of the Fund closed the quarter at $9.02 per unit down from the inception net asset value of $9.46 per unit as all sectors of the Fund's portfolio declined with the pullback. As a result of the weak market sentiment, the Fund's market price also declined to $9.65 per unit at March 31, 2005.

Total revenue for the Fund's first 45 days of operations was $5.8 million. Administrative and investment manager fees and trailer fees, both of which are calculated in reference to the Fund's net asset value, were $0.8 million and $0.3 million respectively. General and administration costs were $0.05 million over the short period. After total expenses of $1.1 million, the Fund generated net investment income of $4.7 million or $0.08 per unit for the period. From inception to March 31, 2005, the Fund paid two monthly distributions of $0.025 and $0.045 per unit for February and March record dates respectively. With the portfolio more fully invested, Citadel Stable S-1 commenced paying its targeted monthly distribution of $0.0583 per unit to unitholders of record on April 30, 2005.

Total results of operations of negative $21.3 million or negative $0.38 per unit for the period ended March 31, 2005 were attributable to the $26.1 million of unrealized losses on the existing portfolio as valuations declined in the period.



Portfolio Holdings
----------------------------------------------------
Oil & Gas Royalty Trusts 14%
Ongoing Business Trusts 20%
Real Estate Investment Trusts 15%
Power Generation Investments 16%
Pipeline/Energy Investments 8%
Cash & Term Deposits 27%
----------------------------------------------------


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

As at March 31, 2005
------------------------------------------------------------------------
Assets
Investments, at market $ 392,255,385
Cash and term deposits 141,156,188
Revenue receivable 3,096,531
Accounts receivable 96,654
Prepaid expenses 89,693
------------------------------------------------------------------------
536,694,451
------------------------------------------------------------------------
------------------------------------------------------------------------

Liabilities
Accounts payable 14,793,201
Distributions payable 2,591,021
------------------------------------------------------------------------
17,384,222
------------------------------------------------------------------------

Net Assets $ 519,310,229
------------------------------------------------------------------------
------------------------------------------------------------------------

Units outstanding 57,578,246
------------------------------------------------------------------------
------------------------------------------------------------------------

Net asset value per unit $ 9.02
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Citadel Stable S-1 Income Fund
Statement of Operations
(Unaudited)

Period from December 6, 2004,
date of inception, to
March 31, 2005
------------------------------------------------------------------------
Revenue
Investment income $ 5,848,764
------------------------------------------------------------------------
5,848,764
------------------------------------------------------------------------
Expenses
Administrative and investment manager fees 764,195
Trailer fees 287,891
General and administration costs 49,945
------------------------------------------------------------------------
1,102,031
------------------------------------------------------------------------
Net investment income 4,746,733
Net realized gain (loss) on sale of investments (18,354)
Net change in unrealized gain (loss) on investments (26,064,361)
------------------------------------------------------------------------
Total results of operations $ (21,335,982)
------------------------------------------------------------------------
------------------------------------------------------------------------
Results of operations per unit:
Net investment income $ 0.08
Net realized gain on sale of investments -
Net change in unrealized gain (loss) on income portfolio (0.46)
------------------------------------------------------------------------
$ (0.38)
------------------------------------------------------------------------
------------------------------------------------------------------------


Citadel Stable S-1 Income Fund
Statement of Changes in Net Assets
(Unaudited)

Period from December 6, 2004,
date of inception, to
March 31, 2005
------------------------------------------------------------------------
Net Assets - beginning of period $ -
Operations:
Net investment income 4,746,733
Net realized gain (loss) on sale of investments (18,354)
Net change in unrealized gain (loss) on investments (26,064,361)
------------------------------------------------------------------------
(21,335,982)
------------------------------------------------------------------------
Unitholder Transactions:
Distributions to unitholders (3,966,777)
Issuance of trust units, net 544,612,988
------------------------------------------------------------------------
540,646,211
------------------------------------------------------------------------

Net Assets - end of period $ 519,310,229
------------------------------------------------------------------------
------------------------------------------------------------------------

Distributions per unit $ 0.07
------------------------------------------------------------------------
------------------------------------------------------------------------


Citadel Stable S-1 Income Fund
Statement of Investments
(Unaudited)

As at March 31, 2005
% of
Cost Market Value Market
------------------------------------------------------------------------
Ongoing Business Trusts
Bell Nordiq Income Fund $ 3,802,154 $ 3,728,550
Chemtrade Logistics Income Fund 9,674,342 8,966,800
Clearwater Seafoods Income Fund 7,628,400 7,326,000
Custom Direct Income Fund 9,082,200 8,070,000
Grandby Industries Income Fund 8,551,098 7,561,500
Great Lakes Carbon Income Fund 12,555,305 12,119,825
KCP Income Fund 2,615,819 2,783,880
Noranda Income Fund 17,790,500 15,379,000
Priszm Canadian Income Fund 9,371,285 9,279,790
Spinrite Income Fund 11,219,100 10,250,000
SunGro Horticulture Income Fund 9,540,300 8,921,000
Yellow Pages Income Fund 13,310,250 12,987,000
------------------------------------------------------------------------
115,140,753 107,373,345 20.1%
------------------------------------------------------------------------
Power Generation Investments
Algonquin Power Income Fund 10,388,475 9,221,800
Atlantic Power Corporation 23,582,600 22,050,000
Boralex Power Income Fund 10,153,350 8,908,000
Calpine Power Income Fund 5,511,300 5,233,150
Innergex Power Income Fund 8,947,899 8,612,500
Northland Power Income Fund 13,100,500 11,730,400
Transalta Power L.P. 19,681,727 18,240,000
TransCanada Power L.P. 3,483,200 3,360,000
------------------------------------------------------------------------
94,849,051 87,355,850 16.4%
------------------------------------------------------------------------
Real Estate Investment Trusts
Dundee Reit 20,815,081 19,783,440
H&R Reit 8,117,500 7,735,000
Firm Capital Mortgage Investment Trust 8,823,500 7,693,000
Retirement Residences Reit 12,099,506 11,506,795
RioCan Reit 7,940,920 7,804,500
Summit Reit 22,006,000 20,328,000
TGS North American Reit 9,784,393 7,010,000
------------------------------------------------------------------------
89,586,900 81,860,735 15.3%
------------------------------------------------------------------------
Oil & Gas Royalty Trusts
Acclaim Energy Trust 11,728,953 11,255,400
Baytex Energy Trust 9,721,894 9,840,600
Bonavista Energy Trust 2,833,200 3,013,000
Esprit Energy Trust 9,026,000 8,715,000
Ketch Resources Trust 9,821,104 9,240,000
NAL Oil & Gas Trust 11,613,060 11,316,000
Paramount Energy Trust 9,111,513 9,228,750
Paramount Energy Trust
subscription receipts 1,516,500 1,516,500
Viking Energy Royalty Trust 10,970,960 10,841,600
------------------------------------------------------------------------
76,343,184 74,966,850 14.1%
------------------------------------------------------------------------
Pipeline/Energy Investments
AltaGas Income Trust 10,798,255 10,327,500
Inter Pipeline Fund 18,580,580 17,740,000
Keyera Facilities Income Fund 12,872,149 12,481,755
Superior Plus Income Fund 148,875 149,350
------------------------------------------------------------------------
42,399,859 40,698,605 7.6%
------------------------------------------------------------------------
Investments 418,319,747 392,255,385 73.5%
Cash and term deposits 141,156,188 141,156,188 26.5%
------------------------------------------------------------------------
Total $ 559,475,935 $ 533,411,573 100.0%
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Citadel Stable S-1 Income Fund

Notes to the Financial Statements

(Unaudited)

The Trust

Citadel Stable S-1 Income Fund (the "Fund" or "Citadel Stable S-1") is a closed-end investment trust, established under the laws of Alberta pursuant to a Declaration of Trust dated December 6, 2004. The Fund commenced operations on February 15, 2005 with the completion of its initial public offering. The Fund does not have a fixed termination date but may be terminated at any time upon not less than 90 day's written notice to the Administrator with prior approval of the unitholders.

The Fund's investment objectives are to provide unitholders with stable and sustainable monthly cash distributions and to maintain a Standard & Poor's (S&P) SR-1 stability rating. 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.

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 period ended March 31, 2005, no units were repurchased for cancellation.

Administrative and Investment Manager Fees

Stable Yield Management Inc. is the administrator of the Fund and Counsel, Inc. is the investment manager of the Fund. The administrator and the 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 period ended March 31, 2005, the Fund recorded an expense of $764,195 in respect of these fees.

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 period ended March 31, 2005, the Fund recorded an expense of $287,891 in respect of the trailer fee.



Corporate Information

Administrator
Stable Yield 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: CSR.un



Contact Information

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