THIRD QUARTER REPORT 2005
or the period ended September 30, 2005
TORONTO, Nov. 28 /CNW/ - Middlefield Group is pleased to present the
unaudited financial results for MINT Income Fund (the "Fund") for the period
ended September 30, 2005, the details of which are attached.
In the third quarter of 2005, MINT paid distributions of $0.30 per unit
to unitholders representing a significant increase over distributions of $0.21
per unit paid in the same period in 2004. The increase reflects in part the
benefits of the merger with SAGE Income Fund which took place on April 18,
2005. MINT generated a total return of 48.1% for the one year period ended
September 30, 2005. The Fund's net asset value per unit increased by 36.3%
year-over-year to $14.34 at September 30, 2005. On an annualized basis, the
current distribution rate of $1.20 per unit represents a cash-on-cash yield of
approximately 9.2% based on a market price of $13.00
As at September 30, 2005, the asset class weightings for MINT's portfolio
were:
<<
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Asset Class Portfolio Weighting
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Business Trusts 33%
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Oil and Gas Royalty Trusts 29%
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Real Estate Investment Trusts 22%
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Power and Pipeline Trusts 6%
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Cash 10%
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The Fund invests in a diversified portfolio of income trusts and may also
invest in common shares, high-yield debt, convertible debt and various debt-
like securities with returns linked to movements in equity prices, commodity
prices or currencies. MINT invests selectively in the income trust sector with
a bias toward economically sensitive trusts with lower capital expenditure
requirements, stable cash flows and dominant market positions. Business
trusts, represented by 144 issuers across a broad range of industries,
comprise the largest weighting within MINT's portfolio, supplemented by REITs
and oil and gas royalty trusts. This strategy provides unitholders with a
balance of high, stable, tax-efficient income and potential for capital
appreciation.
MINT trades on the Toronto Stock Exchange under the symbol "MID.UN".
MANAGEMENT'S DISCUSSION AND ANALYSIS
SEPTEMBER 30, 2005 AND 2004 (UNAUDITED)
The following discussion and analysis should be read in conjunction with
the attached unaudited interim financial statements. Readers should also refer
to Management's Discussion and Analysis in the Fund's 2004 Annual Report.
Management is responsible for the existence of appropriate information
systems, procedures and controls to ensure that information used internally
and disclosed externally is complete and reliable.
SECTOR ANALYSIS
The business trust sector continues to expand, offering both attractive
returns and broad industry diversification. In the third quarter, MINT
initiated a position in Peak Energy Services Trust. Peak is a diversified
energy services company providing oil field equipment and related services to
the energy industry in western Canada and the U.S. During the quarter, Peak
completed two acquisitions and increased its monthly distribution by more than
6%. During the third quarter, MINT took profits on Bell Nordiq Income Fund as
its unit price appreciated on speculation of an imminent acquisition of
certain assets from BCE. BCE is considering surfacing value through the sale
of up to a million rural access lines which would significantly increase Bell
Nordiq's size beyond its current portfolio of just over 250,000 access lines
in Ontario and QuDebec.
During the quarter, crude oil prices continued to rise due to a lack of
spare productive and refining capacity and continued global demand growth.
Surging demand from power generators followed by a supply shock caused by
Hurricanes Katrina and Rita also produced record high natural gas prices.
During the quarter, MINT added to its position in Bonavista Energy Trust. From
its inception as a royalty trust in July 2003, Bonavista has delivered
exceptional returns to its investors and has significantly outperformed the
S&P/TSX Energy Trust Index. Bonavista has one of the lowest operating cost
structures and highest cash flow netbacks in the conventional oil and gas
sector. Bonavista also maintains a conservative payout ratio which provides
the trust with the necessary resources to develop its assets efficiently and
sustain production. In addition, employees and directors own approximately 18%
of the trust, aligning their interests with unitholders.
Canadian REIT prices continued to be supported by attractive real estate
valuations relative to other global benchmarks and low interest rates. During
the second quarter, MINT added to its position in O&Y REIT. O&Y REIT
subsequently entered into an agreement with a consortium led by Brookfield
Properties Corporation to acquire the trust at a price of $16.25 per trust
unit resulting in a positive return for the Fund. MINT also added to its
position in Chartwell Seniors Housing REIT which has been an aggressive
acquirer of upscale retirement homes in Canada and the United States.
The Fund continued to maintain an underweight position in power and
pipeline trusts in light of the Advisor's expectation of continued growth in
the North American economy and increasing interest rates over the next 12
months.
DISTRIBUTIONS TO UNITHOLDERS
During the third quarter of 2005, MINT declared distributions totaling
$0.30 per unit. This represents an increase of $0.09 per unit or 43% over the
$0.21 per unit distribution paid to unitholders in the third quarter of 2004.
FINANCIAL PERFORMANCE
The net asset value per unit increased by 12.8% during the quarter from
$12.71 at June 30, 2005 to $14.34 at September 30, 2005 and together with
distributions paid resulted in a 15.4% total return. Net investment income was
$0.29 per unit in the third quarter of 2005 compared to $0.20 per unit during
the third quarter of 2004 primarily due to the merger with SAGE. The ratio of
management fees and other operating expenses (excluding interest expense and
bank charges) to average net asset value ("MER") was 1.61% for the three
months ended September 30, 2005, compared to 1.50% in the third quarter of
2004 due to service fees being paid to investment dealers commencing in 2005.
OUTLOOK
In September, the Federal Government released its long-awaited
consultation paper with respect to the taxation of income trusts following
which it suspended advanced tax rulings. As a result, the trust sector sold
off as buyers required a discount to compensate for the risk of an adverse
change in the tax treatment of trusts. On November 23, 2005, with a January
election becoming increasingly likely, the Federal Government announced that
they would be reducing personal income taxes on dividends as the solution to
address the imbalance between the tax treatment of larger corporations and
income trusts. In addition, the government announced that advance tax rulings
would resume on flow through entity structures.
This decision, together with Standard & Poor's recent announcement to
continue with its original schedule for inclusion of income trusts into the
S&P/TSX Composite Index, is very positive. We expect institutional and
international demand to return to the income trust market in the coming months
as well as renewed confidence among individual investors who have come to rely
on trusts as a viable source of investment income. In addition to our
expectation of positive funds flow, we believe that income trust valuations
will be further supported by the current economic environment of modest
economic growth, relatively low interest rates and strong energy prices.
Notwithstanding the positive outcome to the government's review, being
selective, especially within the business trust sector, remains critical.
Chasing yield, especially among many of the newer entrants to this market, can
result in significant volatility as a number of the more speculative business
trusts will continue to be challenged by the combination of higher energy
prices and a stronger Canadian dollar. In order to mitigate these risks, we
continue to focus on the better quality income trusts that have successfully
reduced their payout ratios and operate with modest levels of third party
debt.
FINANCIAL HIGHLIGHTS
FOR THE PERIODS ENDED
SEPTEMBER 30 Three Months Ended Nine Months Ended
September 30 September 30
2005 2004 2005 2004
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DATA PER UNIT
Net Asset Value at
Beginning of Period $ 12.71 $ 9.66 $ 11.86 $ 9.79
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INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income 0.29 0.20 0.84 0.63
Net Realized and
Unrealized Gain
on Investments 1.64 0.87 2.45 0.71
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1.93 1.07 3.29 1.34
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DISTRIBUTIONS TO
UNITHOLDERS 0.30 0.21 0.81 0.61
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Net Asset Value at
End of Period $ 14.34 $ 10.52 $ 14.34 $ 10.52
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Market Price at
End of Period $ 13.50 $ 10.25 $ 13.50 $ 10.25
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RATIOS/SUPPLEMENTAL
DATA
Total Assets at
End of Period $85,792,273 $62,454,542 $85,792,273 $62,454,542
Net Assets at End
of Period $61,188,222 $47,100,299 $61,188,222 $47,100,299
Weighted Average
Net Assets $59,589,417 $45,056,464 $52,551,034 $45,367,695
Market Capitalization
at End of Period $57,584,237 $45,901,120 $57,584,237 $45,901,120
Management Expense
Ratio(1) 1.61% 1.50% 1.64% 2.12%
Total Rate of Return
for the Period(2) 15.35% 11.18% 28.95% 14.29%
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(1) Ratio of expenses to average net assets, based on annualized expenses
for the stated period, excluding interest expense and bank charges.
(2) Historical total return of an investment for the period, assuming
reinvestment of all distributions.
STATEMENTS OF NET ASSETS
AS AT SEPTEMBER 30, 2005 AND DECEMBER 31, 2004
Unaudited 2005 2004
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ASSETS:
Investments at Fair Value $76,868,245 $67,162,950
Cash 8,346,725 1,298,073
Income and Interest Receivable 541,679 437,651
Accounts Receivable 35,624 7,954
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85,792,273 68,906,628
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LIABILITIES:
Loan Payable 23,923,326 15,957,337
Unitholder Distributions Payable 427,230 310,026
Accounts Payable and Accrued Liabilities 253,495 123,904
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24,604,051 16,391,267
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Net Assets $61,188,222 $52,515,361
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Units Issued and Outstanding 4,265,499 4,428,449
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Net Asset Value per Unit $ 14.34 $ 11.86
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The accompanying notes to financial statements are an integral part of
these financial statements.
STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED
SEPTEMBER 30 Three Months Ended Nine Months Ended
September 30 September 30
Unaudited 2005 2004 2005 2004
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INVESTMENT INCOME:
Income from
Investments $ 1,656,366 $ 1,294,964 $ 4,517,974 $ 3,945,427
Interest 27,340 4,357 54,873 14,787
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1,683,706 1,299,321 4,572,847 3,960,214
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EXPENSES:
Interest and Bank
Charges 181,647 90,693 471,350 295,208
Management Fee 163,295 122,117 414,213 365,512
Service Fee to
Investment Dealers 46,135 34,814 114,575 34,814
General and
Administrative 32,950 129,668 115,553 384,851
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424,027 377,292 1,115,691 1,080,385
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Net Investment Income 1,259,679 922,029 3,457,156 2,879,829
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NET REALIZED AND
UNREALIZED GAIN
ON INVESTMENTS:
Net Realized Gain
(Loss) from Investment
Transactions 5,361,830 (458,708) 13,650,609 1,330,200
Change in Net
Unrealized Gain (Loss)
on Investments 1,732,281 4,321,528 (2,221,045) 1,754,074
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Net Gain on
Investments 7,094,111 3,862,820 11,429,564 3,084,274
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Net Increase in Net
Assets Resulting
from Operations $ 8,353,790 $ 4,784,849 $14,886,720 $ 5,964,103
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Earnings per Unit $ 1.98 $ 1.05 $ 3.61 $ 1.31
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STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIODS ENDED
SEPTEMBER 30 Three Months Ended Nine Months Ended
September 30 September 30
Unaudited 2005 2004 2005 2004
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Net Assets at
Beginning of Period $55,909,631 $43,663,662 $52,515,361 $45,504,919
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OPERATIONS:
Net Increase in Net
Assets Resulting
from Operations 8,353,790 4,784,849 14,886,720 5,964,103
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DISTRIBUTIONS TO
UNITHOLDERS (1,299,060) (942,660) (3,357,913) (2,775,056)
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UNITHOLDER
TRANSACTIONS:
Issue (Purchase) of
Trust Units, Net (1,776,139) (405,552) (2,855,946) (1,593,667)
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Net Increase in
Net Assets 5,278,591 3,436,637 8,672,861 1,595,380
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Net Assets at End
of Period $61,188,222 $47,100,299 $61,188,222 $47,100,299
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Distributions
per Unit $ 0.30 $ 0.21 $ 0.81 $ 0.61
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The accompanying notes to financial statements are an integral part of
these financial statements.
STATEMENT OF INVESTMENT PORTFOLIO
AS AT SEPTEMBER 30, 2005
Unaudited
No. of
Description Securities Cost Fair Value
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AG Growth Income Fund 60,000 $ 821,837 $ 942,000
BFI Canada Income Fund 65,000 1,078,354 1,883,700
Cargojet Income Fund 35,000 354,693 320,250
CCS Income Trust 40,000 618,500 1,239,200
Cineplex Galaxy Income Fund 100,000 1,610,000 1,539,000
Connors Bros. Income Fund 85,000 1,473,842 1,227,400
Davis + Henderson Income Fund 60,000 847,324 1,271,400
Granby Industries Income Fund 50,000 464,000 442,500
Great Lakes Carbon Income Fund 10,000 125,000 107,500
Hardwoods Distribution Income Fund 75,000 875,397 682,500
P Income Fund 110,000 1,132,176 1,149,500
Livingston International Income Fund 50,000 714,125 1,119,500
Medical Facilities Corporation 80,000 1,059,887 959,200
Morneau Sobeco Income Fund 32,300 323,000 343,995
Newalta Income Fund 50,000 643,750 1,137,500
Noranda Income Fund 130,000 1,355,563 1,584,700
Parkland Income Fund 75,000 1,498,708 1,432,500
PBB Global Logistics Income Fund 85,000 1,123,120 1,343,850
Peak Energy Services Trust 100,000 1,155,870 1,189,000
Precision Drilling Corporation 20,000 1,139,508 1,144,200
Spinrite Income Fund 100,000 1,106,727 1,265,000
Student Transportation of
America Ltd. 75,000 832,650 937,500
Superior Plus Income Fund 45,000 913,830 1,182,600
The Consumers' Waterheater
Income Fund 120,000 1,362,876 1,932,000
UE Waterheater Income Fund 105,000 1,210,758 1,375,500
Westshore Terminals Income Fund 65,000 472,117 890,500
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BUSINESS TRUSTS: 33.6% 24,313,612 28,642,495
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Acclaim Energy Trust 100,000 1,360,629 2,050,000
ARC Energy Trust 65,000 958,378 1,566,500
Bonavista Energy Trust 45,000 972,144 1,674,000
Canadian Oil Sands Trust 15,000 1,771,050 1,926,750
Crescent Point Energy Trust 55,000 955,384 1,193,500
Enerplus Resources Fund 35,000 1,220,763 1,921,850
Esprit Energy Trust 100,000 1,147,210 1,449,000
Fairborne Energy Trust 100,000 1,100,460 1,849,000
NAL Oil & Gas Trust 100,000 1,062,406 1,595,000
Penn West Energy Trust 50,000 1,439,740 1,825,500
Peyto Energy Trust 40,000 1,220,950 1,218,000
Progress Energy Trust 100,000 1,218,000 1,761,000
Vault Energy Trust 90,000 901,569 1,235,700
Vermilion Energy Trust 55,000 823,242 1,600,500
Viking Energy Royalty Trust 175,000 1,205,956 1,713,250
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OIL AND GAS ROYALTY TRUSTS: 28.9% 17,357,881 24,579,550
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Allied Properties Real Estate
Investment Trust 45,000 663,475 803,250
Calloway Real Estate Investment Trust 75,000 1,056,079 1,923,000
Canadian Real Estate Investment Trust 75,000 1,052,500 1,635,000
Chartwell Seniors Housing Real
Estate Investment Trust 80,900 1,229,680 1,213,500
H&R Real Estate Investment Trust 80,000 1,135,539 1,660,800
Huntington Real Estate Investment
Trust 300,000 825,000 909,000
IPC US Income Commercial Real Estate
Investment Trust 125,000 1,267,879 1,425,000
Northern Property Real Estate
Investment Trust 50,000 894,500 905,000
O&Y Real Estate Investment Trust 120,000 1,743,995 1,938,000
Primaris Retail Real Estate
Investment Trust 105,000 1,165,415 1,685,250
Retirement Residences Real Estate
Investment Trust 130,000 1,354,363 1,144,000
RioCan Real Estate Investment Trust 75,000 1,012,037 1,688,250
Summit Real Estate Investment Trust 80,000 1,196,680 1,824,000
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REAL ESTATE INVESTMENT TRUSTS: 22.0% 14,597,142 18,754,050
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AltaGas Income Trust 50,000 1,058,654 1,395,000
Calpine Power Income Fund 85,000 855,934 845,750
Keyera Facilities Income Fund 50,000 588,022 943,000
Macquarie Power Income Fund 85,000 895,305 938,400
Pembina Pipeline Income Fund 50,000 574,944 770,000
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POWER AND PIPELINE TRUSTS: 5.7% 3,972,859 4,892,150
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CASH: 9.8% 8,346,725 8,346,725
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Total Investment Portfolio,
including Cash $68,588,219 $85,214,970
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The accompanying notes to financial statements are an integral part of
this financial statement.
STATEMENTS OF NET REALIZED GAIN (LOSS) FROM INVESTMENT TRANSACTIONS
FOR THE PERIODS ENDED
SEPTEMBER 30 Three Months Ended Nine Months Ended
September 30 September 30
Unaudited 2005 2004 2005 2004
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Proceeds from Sale of
Investments $27,920,222 $ 4,943,502 $72,634,259 $17,678,861
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Less: Cost of
Investments
Sold:
Owned at
Beginning
of Period 62,735,031 47,205,620 48,315,155 46,979,186
Purchased During
Period 20,064,855 4,410,122 70,909,989 15,583,007
Owned at End
of Period (60,241,494) (46,213,532) (60,241,494) (46,213,532)
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22,558,392 5,402,210 58,983,650 16,348,661
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Net Realized Gain
(Loss) from
Investment
Transactions $ 5,361,830 $ (458,708) $13,650,609 $ 1,330,200
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NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The interim financial statements of MINT Income Fund (the "Fund") have
been prepared in accordance with Canadian generally accepted accounting
principles. They follow the same accounting policies and methods of
application as the Fund's financial statements for the year ended
December 31, 2004. The Fund's interim financial statements do not include
all disclosures as required by GAAP for annual financial statements and
accordingly, should be read in conjunction with the financial statements
for the year ended December 31, 2004 as set out on pages 61 to 63 and 78
to 82 of the Middlefield Income Funds 2004 Annual Report.
2. DISTRIBUTIONS
For the nine months ended September 30, 2005, distributions amounted to
$0.81 per unit (2004 - $0.61). Distributions of the Fund, at the
discretion of the unitholder, are reinvested in additional units of the
Fund, under the Distribution Reinvestment Plan without sales charge. For
the nine months ended September 30, 2005, 9,372 units (2004 - 8,999) were
issued under the Plan of which no units (2004 - 2,536) were issued from
treasury.
3. MERGER WITH SAGE INCOME FUND
The Fund merged with SAGE Income Fund ("SAGE") on April 18, 2005, with
MINT as the continuing entity. The Fund issued 1,461,336 units in
exchange for the net assets of SAGE using an exchange ratio based on the
relative net asset values of MINT and SAGE as at the close of trading on
April 15, 2005.
DISTRIBUTION REINVESTMENT PLAN
The Fund's Distribution Reinvestment Plan allows unitholders to
automatically reinvest monthly distributions in additional units of the
Fund. This feature provides unitholders with an excellent opportunity to
benefit from compounding by reinvesting distributions. Please contact
your investment advisor to enroll in the Plan or contact Angela Wanniappa
at (888) 890-1868.
FUND PROFILE
The primary objectives of MINT are to produce a high level of sustainable
income and minimize the risk of investing in high yield securities on a
cost effective basis. MINT is comprised of the following asset classes:
business trusts, oil and gas royalty trusts, real estate investment
trusts and power and pipeline trusts. MINT is fully RRSP eligible. MINT
trades on the Toronto Stock Exchange under the symbol "MID.UN".
DIRECTORS AND OFFICERS OF THE MANAGER
W. Garth Jestley, Chairman and Director
Dean C. Orrico, President and Director
Sylvia V. Stinson, Executive Vice President and Director
Nancy Tham, Vice President
Angela V. Wanniappa, Senior Vice President and Secretary-Treasurer
THE ADVISOR
Middlefield Capital Corporation
Darren N. Cabral, Executive Director, Research
Richard L. Faiella, Managing Director, Corporate Finance
W. Garth Jestley, President and C.E.O.
Robert F. Lauzon, Executive Director, Trading
Dean C. Orrico, Managing Director
Scott A. Roberts, Director, Trading
HEAD OFFICE
Middlefield Group
One First Canadian Place
58th Floor
P.O. Box 192
Toronto, Canada M5X 1A6
Telephone (416) 362-0714
Fax (416) 362-7925
Email invest(at)middlefield.com
Web Site www.middlefield.com
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