Citadel. Diversified Investment Trust. Investment Highlights. Investment Manager Report. Corporate Information

Transcription

1 Citadel Diversified Investment Trust For the three months ended March 31, 2004 (unaudited) Q Investment Highlights Mar. 31, 2004 Dec. 31, 2003 Sep. 30, 2003 Jun. 30, 2003 Mar. 31, 2003 Net Asset Value per Unit $ $ $ 9.94 $ 9.88 $ 9.48 Market Price per Unit $ $ $ 9.62 $ 9.68 $ 9.30 Trading Premium (Discount) (4.5%) (3.0%) (3.2%) (2.0%) (1.9%) Quarterly Distributions per Unit $ $ $ $ $ Month Trailing Yield 8.8% 9.2% 10.8% 11.0% 11.4% Market Capitalization ($ millions) $ $ $ $ $ Investment Manager Report Corporate Information Administrator Citadel Diversified Management Ltd. Suite 3500, th Avenue S.W. Calgary, Alberta T2P 3N9 Telephone: (403) Fax: (403) Website: Investment Manager Bloom Investment Counsel, Inc. Suite 1710, 150 York Street Toronto, Ontario M5H 3S5 Trustee Computershare Trust Company of Canada 6 th Floor, th Avenue S.W. Calgary, Alberta T2P 3S8 Stock Exchange Listing Toronto Stock Exchange Trust units: The income trust market continued with its robust gains in the first quarter of 2004 as yield hungry investors drove prices to all-time highs in early March. However, the unveiling of the Federal Budget on March 23, 2004 put a decided chill on the income trust market by reducing the overall attractiveness of income trusts to pension funds and foreign investors. Also with the strengthening U.S. economy, retail investors became net sellers of the more interest rate sensitive types of income funds, reflecting their concerns over increasing interest rates. Despite the pullback in March, the S&P/TSX Income Trust index generated a total return of 5.0% for the quarter. For the three months ended March 31, 2004, Citadel Diversified provided unitholders with a 5.5% total return while holding significant cash reserves. During the first quarter, the Fund disposed of its positions in Pengrowth Energy and PrimeWest Energy and took profits on Algonquin Power, Fording Coal and Energy Savings. The Fund added new investments in Countryside Power and Medical Facilities Corp., enhancing its exposure to business trusts. The Fund s portfolio is better positioned to respond to the possibility of increasing interest rates through its exposure in business trusts and oil & gas royalty trusts. Although interest rates are expected to rise modestly, overall economic fundamentals remain favorable for income funds. The Fund also maintains a high percentage of cash which will be deployed as attractive buying opportunities arise. CITADEL GROUP OF FUNDS 1

2 Management s Discussion & Analysis Management s Discussion and Analysis ( MD&A ) should be read in conjunction with the unaudited interim financial statements for the three months ended March 31, 2004, and the audited financial statements and MD&A for the year ended December 31, During the quarter, the Fund s net asset value increased by 4.8% from $10.77 per unit at December 31, 2003 to $11.29 per unit at March 31, 2004 on the continued strength of the oil & gas royalty trusts and many of the general business trusts. The Fund s market price also increased from $10.45 per unit at year end to $10.78 per unit at quarter end. However, as the market price has lagged the net asset value, the Fund was required to repurchase 204,600 units under the mandatory repurchase program. Investment revenue for the quarter was $5.4 million, down 11% from total investment income of $6.1 million in the first quarter of The decline in revenue was due to the fact that profits were taken on a portion of the Fund s investments in higher yielding oil & gas trusts during 2003 and reinvested in lower yielding business trusts. Administrative and investment manager fees, which are paid in units of the Fund, were consistent year over year at $0.9 million. G&A costs totaled $0.1 million in both the first quarters of 2004 and 2003 resulting in total expenses of the Fund of $1.0 million for the first three months of 2004 and Net investment income totaled $4.4 million or $0.19 per unit in the first quarter of 2004 compared to $5.1 million or $0.22 per unit in the first quarter of Distributions during the quarter were $0.24 per unit compared with $0.247 per unit in the same quarter in Total results of operations for the first quarter were $17.5 million or $0.75 per unit compared to $2.7 million or $0.12 per unit in Despite lower net investment income in 2004, realized gains of $3.8 million and unrealized gains of $9.3 million in 2004 resulted in higher results of operations compared to Citadel Diversified Investment Trust Statement of Net Assets As at March 31, 2004 December 31, 2003 Assets Investments, at market $ 212,679,537 $ 205,041,348 Cash and term deposits 50,612,732 43,941,029 Prepaid expenses 1,224,667 1,859,653 Accounts receivable 657,844 Revenue receivable 1,707,624 1,793,913 Note receivable 781,115 1,021, ,663, ,657,560 Liabilities Accounts payable and accrued liabilities 4,311,593 21,374 Distributions payable 1,853,227 1,869,595 6,164,820 1,890,969 Net Assets $ 261,498,699 $ 251,766,591 Units outstanding 23,165,336 23,369,936 Net asset value per unit $ $ CITADEL GROUP OF FUNDS 2

3 Statement of Operations For the periods ended March 31, 2004 March 31, 2003 Revenue Investment income $ 5,441,499 $ 6,141,631 5,441,499 6,141,631 Expenses Administrative and investment manager fees 942, ,355 General and administration costs 92, ,578 1,035,260 1,030,933 Net investment income 4,406,239 5,110,698 Net realized gain 3,780, ,943 Net change in unrealized gain (loss) 9,278,624 (2,790,663) Results of operations $ 17,465,527 $ 2,729,978 Results of operations per unit: (1) Net investment income $ 0.19 $ 0.22 Net realized gain Net change in unrealized gain (loss) 0.40 (0.12) $ 0.75 $ 0.12 (1) Based on the weighted average number of units outstanding. Citadel Diversified Investment Trust Statement of Changes in Net Assets For the periods ended March 31, 2004 March 31, 2003 Net Assets beginning of period $ 251,766,591 $ 223,498,273 Operations: Net investment income 4,406,239 5,110,698 Net realized gain 3,780, ,943 Net change in unrealized gain (loss) 9,278,624 (2,790,663) 17,465,527 2,729,978 Unitholder Transactions: Distributions to unitholders (5,580,601) (5,741,751) Issuance of trust units, net (38,407) Repurchase of trust units (2,152,818) (7,733,419) (5,780,158) Net Assets end of period $ 261,498,699 $ 220,448,093 Distributions per unit $ $ CITADEL GROUP OF FUNDS 3

4 Notes to the Financial Statements The Trust Citadel Diversified Investment Trust (the Fund or Citadel Diversified ) is a closed-end investment trust, established under the laws of Ontario pursuant to a Declaration of Trust dated July 11, The Fund commenced operations on September 16, 1997 with the completion of its initial public offering. The term of the Fund continues until December 31, 2012, 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 provide its unitholders with a high level of monthly distributions from a diversified portfolio of income funds, royalty trusts and Reits and to maximize the net asset value of the Fund over its life. The Fund s distribution policy is to distribute all net income received from its portfolio on a monthly basis in a manner that minimizes the monthly fluctuation in distribution levels. 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 all of its net income for tax purposes to its unitholders, the Fund will not 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 recorded 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. A total of 204,600 units were repurchased for cancellation during the quarter ended March 31, 2004 (March 31, 2003 no units repurchased). Administrative and Investment Manager Fees Citadel Diversified 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 fees totaling 1.5% of the average weekly net asset value of the Fund, payable in advance in units, subject to annual adjustment. For the quarter ended March 31, 2004, the Fund recorded an expense of $942,914 in respect of these fees (March 31, 2003 $929,355). Note Receivable As part of the exchange offering completed in 2002, the administrator and investment manager of the Fund agreed to jointly pay $2.8 million of the total expenses of the exchange offering. The Fund recorded a non-interest bearing note receivable with no specified term to the administrator and investment manager which is to be repaid as future management fees are earned. As at March 31, 2004, the balance of the note receivable was $781,115 (December 31, 2003 $1,021,617). Credit Facility The Fund maintains a revolving prime rate credit facility with a Canadian chartered bank for a maximum of $15 million of which no amount was drawn at March 31, Borrowings are collateralized by a demand debenture in the amount of $55,000,000 which provides a first floating charge over the Fund s assets. CITADEL GROUP OF FUNDS 4

5 Statement of Investments As at March 31, 2004 As at December 31, 2003 % of % of Cost Market Market Cost Market Market Income Funds ACS Media Income Fund $ 2,375,424 $ 2,984,400 $ 2,375,424 $ 2,685,960 Algonquin Power Income Fund 3,322,351 3,806,014 4,429,565 5,136,824 Atlas Cold Storage Income Trust 4,304,027 2,080,000 4,304,027 2,540,000 Boralex Power Income Fund 2,420,970 2,691,549 2,420,970 2,420,970 CCS Income Trust 2,330,693 4,373,700 2,330,693 4,373,700 Chemtrade Logistics Income Fund 2,822,932 4,575,852 2,822,932 4,239,945 Clearwater Seafoods Income Fund 3,060,000 3,720,000 3,060,000 3,600,000 Clean Power Income Fund 3,090,314 3,017,625 3,494,701 3,395,000 Connors Brothers Income Fund 2,646,260 4,400,000 2,646,260 3,632,500 Countryside Power Income Fund 3,724,000 3,724,000 Custom Direct Income Fund 3,500,000 3,937,500 3,500,000 3,626,000 Davis + Henderson Income Fund 2,947,180 5,464,980 2,947,180 4,915,665 Energy Savings Income Fund 1,788,532 11,655,000 2,076,230 11,437,345 Fording Canadian Coal Trust 3,023,200 5,296,000 5,139,440 7,820,000 Gateway Casinos Income Fund 3,211,000 5,463,250 3,211,000 5,070,000 Great Lakes Carbon Income Fund 4,277,550 4,993,240 4,277,550 4,615,600 Halterm Income Fund 2,396,604 2,168,880 2,396,604 1,800,945 Heating Oil Partners Income Fund 3,900,000 5,280,600 3,900,000 5,538,000 Inter Pipeline Fund 3,082,999 3,777,696 3,082,999 3,523,428 KCP Income Fund 2,557,000 2,431,707 2,557,000 3,119,540 Livingston International Income Fund 2,414,107 4,166,400 2,414,107 3,900,000 Medical Facilities Corp. Income Part. Security 4,031,447 4,310,241 Menu Foods Income Fund 726,564 1,149, , ,740 Norske Skog Canada Ltd. 1,065, ,931 1,065, ,621 Oceanex Income Fund 3,193,048 5,027,310 3,193,048 4,711,000 Priszm Canadian Income Fund 3,720,000 4,274,280 3,720,000 3,887,400 PRT Forest Regeneration Income Fund 2,199,039 2,121,055 2,199,039 1,998,900 Rogers Sugar Income Fund 6,307,818 4,494,000 6,307,818 3,780,000 SFK Pulp Fund 6,003,491 5,020,800 6,003,491 4,769,760 Superior Plus Income Fund 3,317,060 5,915,700 3,317,060 5,388,600 TransForce Income Fund 5,182,631 6,377,900 4,264,700 4,824,660 UE Waterheater Income Fund 1,527,000 1,801,860 1,527,000 1,746, ,468, ,465, % 95,710, ,428, % Oil & Gas Royalty Trusts Acclaim Energy Trust 3,990,737 4,916,000 3,990,738 4,800,000 Advantage Energy Income Fund 2,971,300 4,363,100 2,971,300 4,126,200 ARC Energy Trust 5,524,221 9,384,000 5,524,221 8,844,000 Enerplus Resources Fund 2,280,163 3,844,000 2,280,163 3,935,000 NAL Oil and Gas Trust 3,099,051 4,014,500 3,099,051 3,829,000 Paramount Energy Trust 3,273,851 3,033,374 3,273,851 3,007,623 Pengrowth Energy Trust 2,918,536 4,250,000 PrimeWest Energy Trust 3,479,737 3,445,000 Shiningbank Energy Income Fund 2,546,444 3,733,800 2,546,444 3,914,400 Ultima Energy Trust 3,430,000 5,334,000 3,430,000 4,368,000 Vermilion Energy Trust 3,525,000 4,575,000 3,525,000 3,835,000 Viking Energy Royalty Trust 5,025,543 4,297,500 5,025,543 4,237,500 35,666,310 47,495, % 42,064,584 52,591, % Real Estate Investment Trusts Cdn Hotel Income Properties Reit 4,093,498 3,858,750 4,093,498 3,656,250 Firm Capital Mortgage Investment Trust 1,599,768 1,947,216 1,599,768 1,861,056 H&R Reit 2,071,134 3,106,250 2,071,134 2,780,750 IPC US Income Commercial Reit 3,479,284 3,799,620 3,479,284 3,566,310 Morguard Reit 5,516,372 5,731,983 5,516,372 5,428,457 Retirement Residences Reit 5,144,173 5,101,200 5,144,173 5,011,500 RioCan Reit 2,953,350 4,526,500 2,953,350 4,207,500 Royal Host Reit 3,331,766 2,091,704 3,331,766 2,099,811 TGS North American Reit 3,500,000 3,556,000 3,500,000 3,409,000 31,689,345 33,719, % 31,689,345 32,020, % Investments 167,823, ,679, % 169,464, ,041, % Cash and Term Deposits 50,612,732 50,612, % 43,941,029 43,941, % Total $ 218,436,628 $ 263,292, % $ 213,405,360 $ 248,982, % CITADEL GROUP OF FUNDS 5