MYDAS Fund
TSX : MYF.UN

MYDAS Fund
Citadel Multi-Sector Income Fund
TSX : CMS.UN

Citadel Multi-Sector Income Fund
Citadel Income & Growth Fund
TSX : CIF.UN

Citadel Income & Growth Fund

June 12, 2006 16:05 ET

Mydas Fund, Citadel Multi-Sector Income Fund, Citadel Income & Growth Fund Announce Merger Into Citadel Premium Income Fund

CALGARY, ALBERTA--(CCNMatthews - June 12, 2006) - The Citadel Group of Funds reports that it will be merging (collectively, the "Fund Mergers") each of MYDAS Fund (TSX:MYF.UN), Citadel Multi-Sector Income Fund (TSX:CMS.UN) and Citadel Income & Growth Fund (TSX:CIF.UN) (collectively, the "Merging Funds") into Citadel Premium Income Fund to create one of Canada's largest closed-end income fund with assets of approximately $750 million. The Fund Mergers have a targeted effective date of July 20, 2006.

Background to the Fund Mergers

At the special meetings of the unitholders of each of the Merging Funds held on September 14, 2005 and, in respect of Citadel Multi-Sector Income Fund and Citadel Income & Growth Fund, as adjourned to October 12, 2005, unitholders of each of the Merging Funds were asked to approve a special resolution authorizing the board of directors of each of the administrators of those funds to merge or otherwise combine or consolidate with any one or more other income funds administered by an affiliate of Canadian Income Fund Group Inc. or its successor in interest which has entered into an overhead cost sharing agreement with one or more of the other funds in the Citadel Group of FundsTM, provided that the funds to be merged or otherwise combined or consolidated met certain criteria for merging funds.

Reasons for the Fund Mergers

Subsequent to the special meetings and receipt of unitholder approval, the administrators of each of the Merging Funds determined to implement the Fund Mergers. In order to do so, the board of directors of the administrator of each of the Merging Funds have determined in good faith that the Citadel Premium Income Fund's Investment Objectives are similar to the respective investment objectives of each of the Merging Funds, that the general and administrative expenses attributable to each Merging Fund will be reduced following the Fund Mergers and that the Fund Mergers will not result in an increase to the management expense ratio of each Merging Fund.

The administrators of each of the Merging Funds believe that there are numerous synergies that can be realized through the combination of the Merging Funds into Citadel Premium Income Fund and believe the Fund Mergers are in the best interests of the respective merging funds and their unitholders, for many reasons including:

1. Unitholders of the Merging Funds will thereafter hold units in a fund which will have a market capitalization significantly larger than the existing market capitalization of each Merging Fund taken separately. The larger market capitalization is expected to enhance the liquidity of trust units for all unitholders of merging funds.

2. Following the merger it is expected that aggregate fund operating costs on a per unit basis will be reduced. Following the Fund Mergers, administrative cost savings will be realized by eliminating the duplication of certain third party costs including transfer agent fees, audit fees, regulatory fees and reporting costs. Any net cost savings will be passed on to unitholders by way of increased cash distributions or appreciation in net asset value.

3. Based on an analysis of the trading price premium/discount to net asset value of similar closed-end funds, funds with larger market capitalizations generally appear to trade at smaller discounts to net asset value. Any reduction in the trading price discount to net asset value as a result of a merger is a direct benefit to the unitholders of the Merging Funds.

4. Unitholders of the Merging Funds will thereafter benefit from the trust unit redemption feature of Citadel Premium Income Fund, a feature not present in any of the Merging Funds. Based on an analysis of the trading price premium/discount to net asset value of closed-end funds with and without redemption features, funds with annual redemption features generally appear to trade at smaller discounts to net asset value. Any reduction in the trading price discount to net asset value as a result of Citadel Premium Income Fund's trust unit redemption feature is a direct benefit to the unitholders of the Merging Funds.

5. The Fund Mergers will be effected on a tax-deferred "rollover" basis for unitholders. This will allow unitholders to continue to defer any capital gain on their units from the time of acquisition. Much of the distributions paid to unitholders of the Merging Funds have had the effect of substantially reducing the adjusted cost base of the units of the Merging Funds resulting in unitholders of the Merging Funds accruing unrealized capital gains. In addition, many of the portfolio securities held by the Merging Funds are held at costs significantly lower than their current market prices, resulting in the Merging Funds having significant unrealized capital gains. The Fund Mergers will allow both unitholders of the Merging Funds and the Merging Funds themselves to continue to defer those unrealized capital gains.

6. The portfolios of the Merging Funds will, by inclusion in Citadel Premium Income Fund, be subject to similar investment objectives, investment policies and investment restrictions as previously, as well as having common investments in a significant number of issuers. As a result, the Fund Mergers will allow current unitholders of each respective merging fund to enjoy a substantially similar portfolio post-merger and minimize transaction costs to achieve target weightings.

7. Unitholders of the Merging Funds will benefit from the potential for reduced administration fees in the future. Although the aggregate administrative fee is expected to initially be unchanged, future asset appreciation and additional fund mergers may result in future administrative fee savings.

Effect on Distributions

Each of the Merging Funds has provided high levels of cash distributions to its respective unitholders, a portion of which have been paid on a tax-deferred basis. Following the Fund Mergers, Citadel Premium Income Fund will provide unitholders with the opportunity to continue to receive tax-deferred cash distributions on a monthly basis generated through its combined diversified portfolio of income producing portfolio securities. It is estimated that immediately following the Fund Mergers, the trust units of Citadel Premium Income Fund will have a net asset value of $12.00 per trust unit and will pay a monthly cash distribution of $0.085 per trust unit, representing a current yield of 8.5% per annum based on net asset value.

In addition, immediately prior to the Fund Mergers, each of the Merging Funds will declare and pay in addition to their regular monthly distribution an additional cash distribution to their respective unitholders. Those additional cash distributions are expected to be as follows:



------------------------------------------------------------------------
Fund Distribution Record Date
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MYDAS Fund $ 0.50 per unit July 13, 2006
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Citadel Multi-Sector Income Fund $ 0.25 per unit July 13, 2006
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Citadel Income & Growth Fund $0.0708 per unit July 13, 2006
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Effect on Administration Fees and Operating Costs

As the administration fees payable to the respective administrators of the Merging Funds are substantially similar to the administration fee payable to the administrator of Citadel Premium Income Fund, there will be no immediate change to the administration fee payable as a result of the completion of the Fund Mergers.

That is, each of the Merging Funds currently pays fees to its respective administrator and investment manager representing in the aggregate 1.10% per annum of the average net asset value of the respective merging fund over the relevant period. Following the Fund Mergers, the administrator of Citadel Premium Income Fund will receive an administration fee, equal to: (a) 1.10% of the average net asset value on the first $1 billion of average net asset value; (b) 1.0% of the average net asset value on the next $1 billion of average net asset value; and (c) 0.9% of the average net asset value on the average net asset value above $2 billion, calculated and payable monthly in arrears. The investment management fee will be paid to the investment manager by the administrator out of the administration fee.

Tax Considerations

Unitholders will not be subject to any adverse Canadian federal income tax consequences as a result of the completion of the Fund Mergers. Following the effective date of the Fund Mergers, the normal federal income tax rules that currently are applicable to Citadel Premium Income Fund and the Merging Funds and their respective unitholders will apply.

Basis of Exchange

Units of each Merging Fund will be exchanged for trust units of Citadel Premium Income Fund at an exchange ratio calculated by dividing the net asset value per trust unit of each Merging Fund by the net asset value per trust unit of Citadel Premium Income Fund, each as determined at the close of trading on the TSX on the business day prior to the effective date of the Fund Mergers and assuming all of the Fund Mergers are completed.

Unitholders are not required to take any action in order to be recognized as a unitholder of Citadel Premium Income Fund and to be in a position to trade their trust units following the Fund Mergers. Registration of each unitholder's beneficial interest in the trust units of Citadel Premium Income Fund will be made through the book-based system administered by The Canadian Depository for Securities Limited.

Citadel Premium Income Fund

Citadel Premium Income Fund is a closed-end investment trust administered by CGF Funds Management Ltd., a subsidiary of Canadian Income Fund Group Inc., and a member of the Citadel Group of FundsTM. Citadel Premium Income Fund's investment objectives are:

(a) Distributions: to provide unitholders with monthly cash distributions in an amount determined and announced from time to time by the administrator having regard to the fund's then current portfolio and the prevailing economic and market conditions, which for the 12 months following the effective date is targeted at $0.085 per trust unit per month;

(b) Opportunity for Capital Appreciation: to provide unitholders with the opportunity for capital appreciation in the net asset value of the fund; and

(c) Distribution of Net Assets: to distribute the net assets of the fund to unitholders on the termination date of the fund.

Redemption Privilege

Trust units of Citadel Premium Income Fund may be surrendered for redemption in June of each year commencing in June 2007, subject to certain conditions, for redemption on the second last business day of June. Trust units may only be surrendered for redemption if at any time during the period from the first business day of August immediately preceding the redemption date to the last business day of May of that year the trust units traded for a period of not less than 25 consecutive trading days at a weighted average price per trust unit that was more than 5% lower than Citadel Premium Income Fund's then net asset value per trust unit. Unitholders whose trust units are redeemed will receive a redemption price equal to the redemption value calculated as of the redemption date. The redemption value will be determined by calculating the net asset value of the fund on the redemption date and subtracting therefrom the costs of and associated with the redemption, all as more particularly set out in Citadel Premium Income Fund's declaration of trust. Payment of the redemption price will be made on or before the 15th business day in July, subject to the administrator's right to suspend redemptions in certain circumstances. The maximum number of trust units that may be redeemed in any year may not be greater than the number obtained by deducting from 15% of the trust units then outstanding the total number of trust units repurchased since the last redemption date under Citadel Premium Income Fund's mandatory and discretionary trust unit repurchase programs. To the extent trust units in excess of the maximum redemption are surrendered in any year, the fund shall redeem the trust units surrendered on a pro rata basis and shall return the unredeemed trust units to unitholders.

Investment Manager

Citadel Premium Income Fund's investment manager is Fiera Capital Management Inc. The investment manager directly and through its wholly-owned subsidiary YMG Capital Management Inc. ("YMG" and together "Fiera YMG") offer competitive and tailored multi-style investment solutions to their respective clients using four core investment processes: active fixed income, structured fixed income, active equity and quantitative products/financial engineering. Fiera YMG's clients are broadly represented among institutional investors, investment funds and wrap accounts offered by other financial services firms, religious and charitable organizations and high net worth individuals. Fiera YMG has assets under management of over $26 billion.

Since November 1997, YMG has been the investment manager of the Yield Management Group High Income Trust, a closed-end fund listed on the TSX that invests in income trusts and other high yielding assets. The Yield Management Group High Income Trust's annualized 1, 3 and 5 year returns as at March 31, 2006 are as follows:



------------------------------------------------------------------------
Fund 1 Year Return 3 Year Return 5 Year Return
------------------------------------------------------------------------
Yield Management Group
High Income Trust 26.53% 34.04% 27.51%
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Fiera YMG was retained as the investment manager for Citadel Premium Income Fund primarily as a result of YMG's long and impressive track record in delivering very strong returns in the income fund sector essentially since the sector's inception in 1997. The Citadel Group of Funds'TM unique independent structure allows each fund within the group to stand on its own and retain "best-in-class" investment managers. Fiera YMG will join Bloom Investment Counsel, Inc., Galileo Equity Management Ltd. and Shaunessy & Company Ltd. as investment managers for funds within the Citadel Group of FundsTM. Until such time as the merged funds are wound-up, Bloom Investment Counsel, Inc. will continue as the investment manager of the Merging Funds.

The annualized 1, 3 and 5 year returns for each of the Merging Funds as at March 31, 2006 are as follows:



------------------------------------------------------------------------
3 Year or 5 Year or
Inception Inception
Fund 1 Year Return Return Return
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MYDAS Fund 17.28% 18.13% 15.60%(1)
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Citadel Multi-Sector Income Fund 16.73% 14.28% 15.75%(2)
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Citadel Income & Growth Fund 11.03% 13.45%(3) N/A
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Notes:

1. The period since inception of MYDAS Fund on Feb 14, 2002 and based on opening net asset value not the issue price. Based on issue price the annualized return is 14.02%.

2. The period since inception of Citadel Multi-Sector Income Fund on Feb 14, 2003 and based on opening net asset value not the issue price. Based on issue price the annualized return is 13.64%.

3. The period since inception of Citadel Income & Growth Fund on Oct 16, 2003 and based on opening net asset value not the issue price. Based on issue price the annualized return is 10.73%.
Termination Date

Citadel Premium Income Fund does not have a fixed termination date but may be terminated at any time upon not less than 90 days' written notice to the administrator from the trustee with the prior approval of at least 75% of the unitholders present in person or by proxy at a duly convened meeting of unitholders called for the purpose of considering such resolution, provided that unitholders holding at least 20% of the trust units outstanding on the record date of the meeting vote in favour of such resolution. After paying outstanding liabilities, the fund will distribute its remaining assets pro rata to unitholders.

Contact Information

  • Citadel Group of Funds
    Joe MacDonald
    Executive Vice President, Sales and Marketing
    1-877-261-9674
    Website: www.citadelfunds.com