TrustInvestor and iTrustReport

GLOSSARY

For most standard language used in international financial markets

Language related to income trusts and structured funds is not, however, standard from market to the next. Trust and fund terms are often used interchangeably to talk about corporate entities with legal trust structures that are particular to Canada.

TrustInvestor is an investors' guide to Canadian income trusts and relevant news. And for our purposes, some basic terms are considered as follows:

INCOME TRUSTS

Income trusts are generally units of a specific business formed as or converted into a legal trust structure that provides regular distributions to unit holders.

Specifically, income trusts take a legal form similar to a mutual fund, passing a significant proportion of earnings and/or cash flow through to unit holders in whose hands the earnings are then taxable. The proportion of cash flow paid to unit holders is often called the payout ratio.

Unlike traditional mutual funds, however, trust units are exchangeable -- bought and sold by members of the public through a public stock exchange. When there is this kind of public listing, there is also some formal requirement for trust unit issuers to publish certain prospectus and other standard business documents (found at SEDAR - refer to Resource section).

Income trusts can hold all the shares or productive assets in a particular private or once-public corporation. Some pension and other fund managers use an income trust structure as a means to sell units in a privately held company to the public while maintaining an interest in the returns from the business.

For purposes of TrustInvestor and TrustModel, income trusts include:

Units denominated in Canadian dollars and that trade on the Toronto Stock Exchange, representing ownership in the income from:
- Oil & gas producers or related rights to oil and gas royalties;
- Energy related services, facilities, pipelines & utilities including power generation;
- Real Estate Income Trusts (REIT's) operating residential
or commercial accommodation properties as well as hotel & temporary lodging;
- Food related operations;
- Other forms of business.

With an emphasis on the distribution of proceeds from a business in the form of cash, income trusts are often formed to share the risks and returns from relatively mature business operations. Although, there is often an on-going cost of maintenance and, more often than not, some interest by the underlying business in growing its operations and cash flow.

Trusts include open-ended trusts for which new units may be issued over time and, in some cases, closed-end trusts that have a defined number of units issued. Both forms of trusts are often focused or limited in their purpose with the latter sometimes carrying a predetermined date of termination or liquidation (when net assets are divided between unit holders).

For purpose of TrustInvestor, we may also include certain limited partnerships (LP) and equity units structured to pass cash flow and its tax implications through to individual owners.

Units in businesses that either make an "initial public offering" (IPO) of units in a legal trust or convert equity structures and limited liability organizations into trust units.

STRUCTURED FUNDS

For the purposes of TrustInvestor, we are calling "funds of funds" or managed funds with diversified holdings: "Structured Funds".

This form of trust is packaged together by fund managers as a product with a variety of holdings to provide regular distributions to unit holders. Their managers often call them "income trusts" or "structured trusts". But we differentiate them based on their diversified holdings, including:

Units structured to pay distributions by holding a variety of investment products, sometimes specialized in one or more areas, including portfolios of trust units, equities or preferred shares and, in some cases, bonds in Canadian or other markets.

Units denominated in Canadian dollars and that trade on the Toronto Stock Exchange.

Closed-end trusts with defined number of units issued and, in certain cases, limited partnerships (LP) or equity units structured to pass cash flow and its tax implications through to individual owners.

Units structured much like mutual funds that trade in a public market and have similar expense structures including fees and expenses based on a percentage of assets managed by financial managers. Some closed-end units have redemption features and a termination date.

Specialty investment products: Trust units that sometimes use sophisticated financial or investment techniques (such as forward and unique debt structures) in an attempt to stabilize returns and minimize risks, often incurring large management fees in the process.

ISSUES EXCLUDED

Units or shares that denominated in $US.

Traditional equity shares and preferred shares that pay dividends.

Exchange traded index funds (ETF's) despite the fact that these units can be similar to Structured Funds (above), because ETF's are often created to serve more as an index for capital markets than a reflection of income-oriented products.

Split shares, for specific businesses, created when a holding company or trust is formed to issue, in turn, two separate shares to concentrate the capital gains and distributions in "split" shares representing holdings in the underlying business.

Tax shelter units: Units in closed-end trusts that own a share of revenue from partnerships established to run mutual funds. These units pay distributions that appear to increase as a yield on unit value because units depreciate over time. They have no final redemption value but provided initial investors with a tax shelter.

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