2003 specialty income trusts

Aleem Israel – Associate Specialty Income Trusts (416) 943-6435 Industry Comment January 10/03

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Industry Comment

Specialty Income Trusts

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TABLE OF CONTENTS

The Popularity of Income Trusts

History....................................................................................................... 1

Why Have Income Trusts Become So Popular?...................................... 1

How Income Trusts Work Description................................................................................................ 4

Tax Efficiency ........................................................................................... 5

Structure ................................................................................................... 5

Determining Distributable Cash................................................................ 7

What Income Trust Investors Should Know Liability...................................................................................................... 8

Taxation of the Trust ................................................................................ 9

Taxation of the Unitholder ...................................................................... 10

Sustainability of Payout Ratios .............................................................. 10

Conclusion................................................................................................... 10

Appendix 1: Canadian Income Trust Universe ........................................ 12

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THE POPULARITY OF INCOME TRUSTS History

Trusts have been around in various forms for hundreds of years, but their more modern function, to securitize assets and/or debt, first appeared in the 1980s. Initially, this was done with credit card and mortgage receivables. Since then, trusts have grown to include real estate, oil and gas and business trusts. The focus of this primer will be on specialty business trusts. Why Have Income Trusts Become So Popular?

The appetite for trusts has been evident. As of October 2002, the TSX recorded 216 trusts with a market capitalization of $57.2 billion versus 174 trusts with market capitalization of $46.3 billion in 2001, and 140 trusts with market capitalization of $30.8 billion in 2000.

The current economic, equity and debt market environment has created the perfect storm in favour of income trust products. According to the Investment Dealers Association, "These instruments (income trusts) have gained in popularity over the past 18 months as stock markets have faltered and debt instruments have not provided investors with acceptable returns in this low interest rate environment." Suddenly, companies that grew too slowly for the technology boom of the 1990s, but generated solid cash flows, have been able to gain greater access to the capital markets as investors seek lower risk alternatives offering reasonable returns through the return of capital (dividends/income). The glaring evidence, according to the Investment Funds Institute of Canada (refer to Figure 1), is the 26.7% increase in dividend & income mutual fund assets to $26.9 billion, compared to the 8.5% and 15.4% asset declines in Canadian and Foreign Common Share mutual funds, respectively.

The current economic, equity and debt market environment has created the perfect storm in favour of income trust products

Canadian dividend and income mutual fund assets have increased 26.7%

FIGURE 1: Canadian Mutual Fund Assets (November)

-10.0

20.030.0

40.050.0

60.070.0

80.090.0

100.0

Balanced CdnCommon

ForeignCommon

USCommon

Bond &Income

ForeignBond &Income

Dividend &Income

$MM

2001

2002

Source: Investment Fund Institute of Canada, Sprott Securities Inc.

Aleem Israel – Associate Specialty Income Trusts (416) 943-6435 - 1 - Industry Comment Jan. 10/03

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Pension funds have been slow to embrace trusts, however, that is changing. A basket of high-quality income trusts offer the opportunity to generate a solid stream of low-risk income, thereby providing a conservative investment vehicle to build a pension fund portfolio. In fact, at a recent conference, a major institutional money manager recently announced that it had received a mandate from a pension fund to manage an income trust-only fund on its behalf.

The unlimited liability issue has been largely blamed for the slow or non-existent move by pension funds into income trusts. However, as discussed above, we are finally seeing signs of pension funds embracing trusts as a viable investment vehicle, as the prevailing view in the legal community is that the liability of a trust unitholder would be held by the courts to be the same as the liability of a shareholder of a corporation (see What Income Trust Investors Should Know: Liability on page 8). While some disagree with this opinion, the issue will likely be litigated at some point and this law will be tested.

Economic and Equity Market Environment: The current economic environment suggests below-average performance. Since 1929, US inflation has averaged 3.0% while real GDP has grown at 3.4% annually. For 2003, real GDP and consumer prices are both expected to grow by only 2.5%.1 As we progress through an environment of both anaemic price and economic growth, the prospect for corporate profit growth is uncertain. Furthermore, corporate and accounting scandals cloud the corporate profit picture even more (see Corporate Governance below).

As the perceived certainty of growth in future corporate profits continues to be low, the thirst for yield becomes increasingly evident. "Historically, since 1926, we have witnessed dramatic shifts in stock and bond market valuations. Prior to the mid 1950s, stocks were considered a good investment only if their dividend yields exceeded bond yields."2 Over the last 200 years, stocks have generated a real return of about 6.8% per year. However, it is an under-discussed fact that 4.6%, or about two-thirds of this return, was derived from dividends.3 The remainder corresponds to the real annual growth in GDP over that time.

Prior to the mid-1950s, stocks were considered a good investment only if their dividend yield exceeded bond yields

Historical evidence also suggests that with the continued high price to earnings ratios (P/E), we are likely to continue to see negative returns in the near future given that the historical S&P P/E average is 14 times4, while the current P/E is slightly above 19 times.

Interest Rates and the Debt Market: The determination of a trust’s yield is driven by a variety of factors including the relative yields of long-term Canadian bonds. The relationship with corporate bonds (as opposed to government) is the closest as the similar relative risk exists that the threat of default on an interest (distribution) payment will

1 Andersen Economic Research Ltd. The Andersen Monthly Economic Report: Volume 18, Number 11. December 2002. 2 Jahnke, William. White Paper on The Asset Allocation Hoax. 1997. 3 Alexander, Michael. Stock Cycles. March 2000.


4 Mauldin, John F. The Case for a Secular Bear Market. 2002.

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negatively affect the bond (unit) price, and increase the risk premium that the market demands. Referring to Figure 2, from the period of January 1993 to December 2000, Canadian Corporate ten-year bond yields explained 70.6% of the movement in our Sprott Specialty Income Trust Index (SSITI).5

FIGURE 2: Ten-Year Corp. Bond Yieldvs. Sprott Specialty Trust Index

1

10

100

Nov

-02

Dec

-01

Dec

-00

Jan-

00

Jan-

99

Feb-

98

Feb-

97

Mar

-96

Mar

-95

Apr-

94

Apr-

93

Log1

10

100

1000

Inverted Log

Source: Bloomberg, Sprott Securities Inc.

Sprott Specialty Trust I d

Corporate Bond Yi ld

Since the beginning of 2001, however, the relationship between the corporate bond yields and the SSITI disappeared as the bear market began to flex its muscles and money began moving into defensive investments such as gold and income trusts. The same relationship does not exist with the S&P/TSX Income Trust Index, which is primarily comprised of REITs and oil and gas trusts, whereas the SSITI is comprised of only specialty (business) trusts.

The Gold Standard: As mentioned above, the relationship between corporate bond yields and the SSITI fell apart at the end of 2000. Since that time, however, the gold spot price has emerged as a good proxy for movement of the SSITI. In fact, the gold spot price has proved to explain 86.9% of the movement in the SSITI, disclosing the fact that investors’ need for yield in times of uncertainty has been evident and the income trust has emerged as one of the defensive investments of choice.

The gold spot price has proved to explain 86.9% of the movement in the Sprott Specialty Income Trust Index.

Corporate Governance: Negative corporate governance issues have shattered investor confidence. Aggressive accounting and compensation packages have led to the erosion of confidence and shareholder value. In contrast, income trusts have catered to increasing investor confidence through:

Trusts produce and pay out real cash and do not just produce an accounting EPS number

1. Trusts produce and pay out real cash and do not just produce an accounting EPS number. Furthermore, with the trust distributing most of its cash flow (and not reinvesting it), management does not have the liberty to invest in high-risk, low probability projects.


5 Sprott Specialty Trust Index: Market weighted index of business trusts (excludes REITs and oil and gas). Indexed to 22.41 on January 8, 1993.

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2. Acquisitions must usually be immediately accretive. For an income trust to raise equity to fund an acquisition, it must ensure that the acquisition is immediately accretive to the new unit holders that are expecting a distribution in the coming months (and not years).

HOW INCOME TRUSTS WORK Description

Income trusts are essentially investment syndicates (or holding companies) that pool together to acquire assets that generate cash flow. After expenses have been satisfied, cash flow is then distributed among the trust’s unit holders.

Since income trusts pay most of their cash flow out as distributions, the ability to grow is limited. Therefore, the income trust best suits a business with relatively stable free cash flows that do not need much capital for growth.

The income trust best suits a business with relatively stable earnings that does not need much capital for growth

In addition to being a unit trust resident of Canada, the key legal requirement that a unit trust must satisfy is one of the following6 two requirements:

1. Not less than 95% of the fair market value of all issued units of the trust (determined without regard to voting rights) include units having conditions attached that require the trust to accept, at demand of the holder, that the units be redeemed at prices determined and payable in accordance with the terms of the trust (the redemption requirement).

2. The trust: a. Must be a resident in Canada throughout the year; b. Its only undertaking must be the investment of funds in property

(except real property), the acquisition holding, maintaining, improving, leasing or managing of real property or an interest therein that is capital property to it, or a combination of the above;

c. Not less than 80% of its property must be shares, property convertible into shares, cash, bonds and debentures, marketable securities, real estate or an interest in real property situated in Canada, and rights to an interest in any rental or royalty in respect of Canadian-based resources;

d. 95% of its income must be derived from, or from the disposition of, these investments, and

e. Not more than 10% of its property may consist of bonds, securities or shares in the capital stock of a corporation or debtor, other than the federal, provincial or municipal government.

Condition (2) above is the investment requirement; and while REITs and royalty trusts can be structured to meet this requirement, business trusts


6 Lewin, Richard. Heenan Blaikie LLP. Income Tax Issues Relating to the Income Trust, Pg 6. November 2002.

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usually cannot, and therefore, must satisfy requirement (1) instead. The satisfaction of requirement (1), the redemption requirement, is discussed in Structure below. While the redemption requirement is essentially never exercised given that most (if not all) business trusts are publicly listed, it is nevertheless stipulated in the prospectus as the primary mechanism for liquidity.7 Tax Efficiency

One of the main reasons an operating business would structure itself as a trust, rather than as a corporation, is to take advantage of the tax efficient structure. Typically, income trusts pay very little cash taxes. Since the portfolio's investments are made through a trust, all income and expenses are flowed through to the unit holders (see Structure below to see how this is accomplished without taxation).

Income trusts pay very little cash taxes

Income trusts distribute substantially all of its cash flow to Unitholders on a monthly basis. If the trust’s cash flow exceeds its annual distributions, the trust will distribute units on December 31st equal to the excess. Immediately afterward, the income trust consolidates the total units back to the total number of units issued and outstanding prior to the unit distribution. For example, assume an income trust has 1,000,000 issued and outstanding units. Suppose that 10,000 units are issued on December 31 to satisfy its obligation to distribute 100% of its income. Upon the issuance of the 10,000 new units, the 1,010,000 units will be reconsolidated back into the original 1,000,000 units. This legal work is typically conducted behind the scenes.

Please refer to Taxation of the Trust on Page 9 for additional information on Canadian and US tax treatment. Structure

The basic structure of trusts is quite easy to understand. More complex trusts can be found with limited partnerships, trusts on trusts, or trusts on partnerships intertwined primarily for increased tax efficiency.

The basic trust structure, as seen in Figure 3, helps explain the core elements. The Unitholders are beneficiaries of the Income Trust and not the actual operating entity (Holdco/Opco) or its assets. The income trust essentially operates as a holding company that receives cash flows from Holdco/Opco, which is typically a corporation.



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FIGURE 3: Income Trust Business Structure

Unitholders

Income

Operating

Trust

Trust

Holdco/Opco

Unitholders

Income

Operating

Trust

Trust

Holdco/Opco

Why are the cash flows not taxed between Holdco/Opco (a corporation) and the Income Trust? On the formation of the trust, there are a variety of transactions that legally must take place:8

1. The Income Trust is created.

2. An Operating Trust is established (for fulfillment of redemption requirements) and the Income Trust will be its sole beneficiary.

3. The proceeds of the issuance of the Income Trust are used by the Income Trust to purchase units and notes (typically 10% units and 90% notes) of the Operating Trust.

4. The proceeds received by the Operating Trust are used by the Operating Trust to purchase high-yield subordinated notes issued by Holdco and to subscribe for the common shares of Holdco (typically 1-5% shares and 95-99% notes).

5. Holdco will then purchase the shares of the target corporation (Opco).

6. Holdco and Opco will amalgamate.

The amount of debt and yield between the Operating Trust and Holdco/Opco is usually set at the magnitude of expected distributable cash. Subsequently, cash flows from Holdco/Opco to the Income Trust are made through interest payments, which is tax-deductible by Holdco/Opco. All income trusts are taxable, however, as long as they distribute all of their cash to unitholders (thereby shifting the tax burden), they eliminate any taxable income. Since Income Trusts are not taxable (as long as cash flow is paid out to beneficiaries, and not held by



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the trust), these interest payments that the Income Trust receives are then flowed directly through to the Unitholders (as distributions).

Why is a corporate structure used as Holdco/Opco? The primary reason is that the actual income trust cannot carry on a business as stipulated in trust law; however, it can act as a “holding company” instead. The second key reason a corporation is used as the actual operating entity (Holdco/Opco) is to provide limited liability to its shareholders who, in this case, is the Income Trust and in turn, the Unitholders.

Why is the Operating Trust inserted between the Income Trust and Holdco/Opco? When satisfying the theoretical redemption clause discussed above, Canada Customs and Revenue Agency (CCRA) has issued rulings that allow the Income Trust to pay the redemption of units by distribution of trust assets instead of cash.9 Hence, the Operating Trust is placed below the Income Trust so that if a Unitholder requests redemption (rather than selling the units on the public market), the Income Trust redeems units and notes it owns in the Operating Trust as opposed to being obligated to pay cash on demand, which would result in running the actual business inefficiently. For example, to meet the strict redemption requirement, an Income Trust’s operating business would have to keep a cash store or sell operating assets on demand that may be necessary for the day-to-day operation of the business. Determining Distributable Cash

Distributable cash, which is not an accounting measure defined by GAAP, is essentially free cash flow that the income trust has available for payout (and not reinvestment). There are two variations of determining distributable cash: bottom-up or top-down.

Top-Down: The widest and quickest measure of determining distributable cash is the top down method starting with earnings before interest, taxes, interest, depreciation and amortization or EBITDA. From EBITDA, the following components are subtracted: interest, cash taxes and maintenance capital expenditures (refer to Table 1). Finally, the proceeds on asset sales may be added.



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TABLE 1: Top-Down Approach ABC Income Fund

2003E Statement of Distributable Cash (000s, except per unit amounts)

2003E EBITDA 30,000 Subtract: Interest 2,000 Cash taxes 100 Maintenance capital expenditures 7,500

20,400 Add: Proc. - Sale of Assets 500 Distributable Cash 20,900

Bottom-Up: Another way to measure distributable cash is to start from net income (refer to Table 2). From there, add back the non-cash items such as future income taxes, depreciation and amortization, and any loss or gain on the sale of assets. Finally, subtract capital expenditures and add the proceeds from the sale of assets.

TABLE 2: Bottom-up Approach ABC Income Fund

2003E Statement of Distributable Cash (000s, except per unit amounts)

Net Income 15,000 Add Non-cash Items: Depreciation and Amortization 10,400 Future Income Taxes 2,000 Loss/(Gain) on Sale of Assets 500

27,900 Minus: Capital Expenditures 7,500 Add: Proc. - Sale of Assets 500 Distributable Cash 20,900

WHAT INCOME TRUST INVESTORS SHOULD KNOW Liability

It is the consensus opinion in the legal community that the unlimited liability of unitholders is very remote. Many legal opinions have been registered holding that there is only a very remote chance that any liability would accrue to unitholders if the trust’s assets were insufficient to satisfy creditor demands.10

The ambiguity comes from the fact that trust law is hundreds of years old and it was not originally created with business trusts in mind. Interpreting Ontario law strictly would hold that any beneficiary of a trust (the unitholder) is liable if the assets of the trust are not sufficient to fulfill a bankruptcy or catastrophic lawsuit. However, the amount that can be claimed from the unitholder is limited to the benefits


10 Erlichman, Stephen I. Income Trusts: Some Legal Considerations. November 2002.

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(distributions) that it has received. For example, if John Doe receives a $100 distribution from the trust, he would only potentially be liable for $100.

However, with the advent of business trusts, there are a few precautionary measures that have been taken to specifically protect unitholders:

1. In the Declaration of Trust, it declares that the unitholders shall not be held liable for any shortfall that may arise in the fund’s assets. This is where the ambiguity about unitholder liability comes about, because there has never been a case where this Declaration was challenged.

2. Every contract that the Fund’s operating business signs for operations is intended to contain a paragraph that states that there will be non-recourse to the unitholders. This has been upheld in the courts through limited partnership precedence.

3. The actual operating entities of an income fund operate as corporations. Therefore, the shareholder (the income trust) of this corporate operating entity has limited liability, and therefore, unlimited liability protection should be passed through to the unitholders.

Numerous organizations have been lobbying provincial governments to change the law, in order to specifically grant limited liability to unitholders of a trust. In fact, laws in Quebec, Manitoba and Delaware are already quite protective of unitholders. Taxation of the Trust

Canada: There has been wide speculation that the CCRA would put an end to businesses operating as trusts; however, we do not believe this is a priority for the CCRA’s radar screen given the following:

1. While the growth of income trusts has eroded the corporate tax base to the tune of approximately $1 billion a year, income trusts have also generated tax dollars on corporate conversions and also on fees related to public offerings.

2. Income trusts are widely held by retail and institutional investors. Any tax or policy change would be very political in nature, and would cause heavy lobbying and uproar.

Investment decisions on the basis of what the Department of Finance might or might not do in the future are unreasonable. For example, there is always the possibility of the corporate tax rate being changed, but most investors do not make investment decisions based on this. If a change is made, it would be made in a budget, and only then will it be the time to review the situation and take the appropriate action.

US: With US businesses, and Canadian businesses with substantial US operations becoming income trusts, there has been speculation that the US Internal Revenue Service (IRS) would re-classify the underlying debt


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instruments as equity, thereby disallowing tax deductibility of interest payments.

To alleviate this worry, the businesses that fall into this category structure themselves so that they qualify for classification as US “fixed investment trusts,” which essentially allows interest deductibility. Under this structure, the concerns about excessive debt being viewed as equity by the IRS are relieved at the expense of reduced leverage, which leaves more tax leakage than in a pure Canadian vehicle. However, despite some tax leakage, these trusts still provide very attractive returns.11 Taxation of the Unitholder

Canada: Distributions from business trusts are largely interest income flow-through, as opposed to REITs that also offer a return on capital as a portion of the distribution. Therefore, distributions are taxed as income (i.e. at the taxpayer’s marginal tax rate). However, tax-exempt institutions do not pay tax on these distributions. Furthermore, those holding the trust investment in a tax-deferred plan are sheltered given that most Canadian income trusts are considered domestic content within registered plans.

Non-Canadian Residents: Investors outside of Canada that purchase income trusts are subject to the 15% withholding tax on distributions; however, tax-exempt institutions (i.e. pension funds) are relieved of this tax burden. Despite the withholding tax burden, the current average income trust yield of 11.0% (refer to Appendix One) still returns non-Canadian residents approximately 9.5% on an after-tax basis. Furthermore, the new proposed US tax law to eliminate taxation of dividends at the individual level may promote the value of some income trusts that pay a portion of their distribution out as dividends as opposed to interest. Sustainability of Payout Ratios

The newer business trusts are typically hitting the market with payout ratios in the mid-to-high 90% range. In our opinion, this payout rate is unsustainable. However, this does not necessarily mean that a given trust will have to cut distributions, but what it may mean is that an increase in future cash flows may not necessarily translate into an increase in distributions. CONCLUSION

The popularity of income trusts is far from over and history is working in its favour. With the outlook for below-average economic growth, low interest rates and a secular bear market, investors are likely to continue to hunt for defensive investments such as gold and income trusts that offer yield as opposed to the popularity of capital gains during the late nineties.


11 Romano, Simon. Stikeman Elliott. New Developments, Emerging Trends and the Future of Income Trusts in Canada. 2002.

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Investor awareness and education is increasing. With the highly misunderstood unlimited liability concern, investors are now becoming more comfortable with the issue; pension funds are finally starting to bring income trusts into portfolios. Furthermore, we are likely to also see Canadian equity generalist funds and US money managers, who have been slow to embrace income trusts, enter the income trust market in search of lower risk and solid returns.

The stability of distribution streams and clear optics of income trusts is likely to continue to allow them to outperform the market in 2003. We do not believe that the bear market is over and yield will continue to become increasingly important. Furthermore, as more business trusts prove their worth as income trusts, we are likely to see declining yields as the perceived risk declines. For example, Connor Bros. Income Fund’s (we use this example because, (1) Connor Bros. is one of the older business income trusts, (2) its distribution has not changed during 2002, (3) it has not made any significant financial or corporate changes during 2002) yield (unit price) has declined (increased) from 10% ($12.00) at the beginning of 2002 to 8.8% ($13.70) at the end of 2002 (see Figure 4). The same trend is likely to follow some of the new lower-risk business trusts over the coming year.

FIGURE 4: Connor Bros. Income Fund 2002 Perf.

$10.00$10.50$11.00$11.50$12.00$12.50$13.00$13.50$14.00$14.50

12/3

1/20

02

12/4

/200

2

11/8

/200

2

10/1

6/20

02

9/20

/200

2

8/27

/200

2

8/1/

2002

7/9/

2002

6/12

/200

2

5/16

/200

2

4/23

/200

2

3/28

/200

2

3/5/

2002

2/7/

2002

1/14

/200

2

Pric

e ($

)

6.00%

7.00%

8.00%

9.00%

10.00%

11.00%

12.00%

Yiel

d (%

)

Source: Baseline, Sprott Securities Inc.

Yield

Unit P i

As more business trusts are introduced to the market, we expect see yields differ more widely across trusts. For example, referring to Appendix One, the market demands a 2.43% yield premium for transportation and logistics trusts as opposed to consumer products trusts in order to compensate for the relative sensitivity to economic cycles. Thus, in terms of investment strategy, it is prudent to select top quality business trusts with relatively conservative payout ratios, solid management teams and sustainable, to growing, cash flow profiles.


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APPENDIX ONE

Canadian Income Trust Universe

INCOME TRUST UNIVERSE

Company

Ticker Unit Price

Market Cap

Dist.

Yield

Consumer Products Associated Brands ABF.U $10.85 127.2 $1.08 9.91% Clearwater Seafood CLR.U $10.32 241.0 $1.15 11.14% Connors Bros. Income Fund CBF.U $13.80 215.5 $1.20 8.70% KCP Income Fund KCP.U $11.43 293.7 $1.10 9.62% Menu Foods Income Fund MEW.U $13.49 172.8 $1.18 8.71% North West Company NWF.U $20.90 334.6 $1.58 7.54% Rogers Sugar RSI.U $4.73 367.6 $0.46 9.62% SCI Income Trust SMN.U $11.78 88.4 $1.20 10.19% Swiss Water Income Fund SWS.U $10.90 59.7 $1.30 11.93% Average 9.71% Transportation and Logistics Chemtrade Logistics CHE.U $14.20 184.2 $1.59 11.20% Contrans Income Fund CSS.U $9.30 154.4 $1.25 13.44% Livingston International LIV.U $11.45 170.7 $1.15 10.04% Oceanex Income Fund OAX.U $12.12 104.7 $1.12 9.28% PBB Global Logistics PBB.U $10.70 62.3 $1.50 14.02% Transforce Income Fund TIF.U $7.88 372.9 $1.14 14.47% Versacold Income Fund ICE.U $8.20 158.6 $0.93 11.34% Westshore Terminals WTE.U $4.63 320.2 $0.62 13.31% Average 12.14% Energy/Environmental Services CCS Income Trust CCR.U $16.80 279.9 $1.68 10.00% Energy Savings Income Fund SIF.U $13.85 517.6 $1.01 7.30% PRT Forest Regeneration PRT.U $10.03 73.3 $0.88 8.73% Average 8.68% Industrial Products Foremost Industries FMO.U $6.50 32.2 $0.70 10.77% General Donlee GDI.U $9.50 82.8 $1.45 15.26% Tree Island Income Fund TIL.U $9.60 154.0 $1.28 13.28% Average 13.10% Other Advanced Fiber AFT.U $10.50 137.4 $1.20 11.43% Arctic Glacier Income Fund AG.U $8.80 138.9 $1.05 11.93% Bell Nordiq Income Fund BNQ.U $10.90 355.4 $0.90 8.26% Davis + Henderson DHF.U $12.80 488.4 $1.32 10.31% Gateway Casinos GCI.U $10.33 272.6 $1.20 11.62% SFK Pulp Fund SFK.U $10.38 459.0 $1.20 11.56% Timberwest Forest TWF.U $11.95 912.7 $1.08 9.02% Average 10.59% Universe Average 10.80%

Source: Baseline, StarData, Sprott Securities Inc. Aleem Israel – Associate Specialty Income Trusts (416) 943-6435 - 12 - Industry Comment Jan. 10/03

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- NOTES -


RESEARCH ANALYSTSDirector of Research

INSTITUTIONAL SALES Scott Lamacraft, CFA (416) 943-6426 Peter Charton (416) 943-6451 Consumer Products & Special Situations Simon Lussier (514) 878-0009 Andrea Harbour, CFA (416) 943-6424 Gabriel Ollivier, CMA, CFA (403) 750-7200 Economics Roger Poirier, CFA (416) 943-6447 Peter Andersen, Ph.D. (416) 364-7772 Cendrine Rollet (514) 878-0009 Energy Service Sector & Special Situations Chris Roy, CFA (416) 943-6433 Scott Lamacraft, CFA (416) 943-6426 Kevin Williams (416) 943-6437 John Bereznicki, CFA (403) 750-7207 David Viljoen (416) 943-6487 Health Sciences Zoran Vukasinovic (416) 943-6438 David Dean (416) 943-6722

Industrial Technology EQUITY TRADING Sarah Hughes, CFA (416) 943-6485 Toronto Toll-Free (800) 407-6272 Mining Montreal Toll-Free (888) 322-9666 George Topping (416) 943-6423 Jay Bakker (416) 943-6428 David Stein (416) 943-6407 John Brikis (514) 878-0009 Oil & Gas Scott Connolly (416) 362-6342 Ryan Shay, CA, CFA (403) 750-7202 Ryan Lloyd (416) 362-6341 Special Situations Taylor Shambleau (416) 362-3440 Leigh Gardner, CFA (416) 943-6431 Sonia Tomei (416) 362-3602 Heather Hatch (416) 943-6415

Technology INVESTMENT BANKING Brandon Osten, CFA (416) 943-6427 Craig Bridgman (416) 943-6452 Susan Streeter, CFA (416) 943-6425 Robert Chalmers (416) 943-6412 Vigen Ghazarian, CFA (416) 943-6460 Duff Kovacs (416) 943-6409 Research Coordinator Michael McCloskey (416) 943-6443 Natascha Swyrydenko (416) 943-6421 Philip Moore, CFA (403) 750-7206 ASSOCIATES Darren Wallace, CFA (416) 943-6411 Aleem Israel (416) 943-6435

Brent Watson (403) 750-7201

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2003 specialty income trusts

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