CIBC WM INCOME TRUST BENCHMARK INDEX METHODOLOGY

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1 CIBC WM INCOME TRUST BENCHMARK INDEX METHODOLOGY August 30, 2004 Yin Luo (416) Dawn Jia (416) CIBC World Markets Inc. (CIBC WM) produces a family of 30 Canadian income trust indices, covering the entire Canadian income trust market. The indices are market cap-weighted and include only those income trusts established in Canada. All indices are subsets of the CIBC WM Income Trust Composite Index (the Index). The Index is designed as a benchmark for the broad Canadian income trust sector. CIBC World Markets The Index was constructed by and is managed by CIBC WM. CIBC WM maintains the right to add, remove or bypass any income trust and at its discretion applies rules and policies in making all inclusion and deletion decisions and setting any other index changes, policies or procedures. The Index embodies several industry standard approaches used by major index providers (e.g. S&P and Russell Indices). However, because there is no one single industry standard, the Index by necessity involves some subjective elements. For example, some indices use total market cap for weighting (S&P U.S. indices), while others use float (S&P/TSX, Russell, and MSCI). The size cut-off point for stocks to be included in the index ($30 million) is subjective, and the breakpoint between Large/Mid Cap and Small Cap is determined by a formula similar to that used for the Russell indices (Russell 1000 and Russell 2000). The following index methodology is continually reviewed by CIBC WM on a best efforts basis and is subject to change at any time. All trading data used is based on trading activity on the Toronto Stock Exchange (TSX). 1. Key Features of the Index 1) A comprehensive benchmark family covering the fast growing Canadian income trust industry, including all income trusts established in Canada with market cap over $30 million. 2) Serves as a performance standard for active managers, a proxy for asset allocation purposes, and a purchasable and replicable vehicle for passive indexing. 1

2 3) Two streams of size sub-indices: Large/Mid Cap and Small Cap. 4) Four streams of sector sub-indices: Business, Energy, REIT, and Utilities. 5) Both price and total return indices available. 6) A complete index family with 30 sub-indices. 7) Transparent rules-based index methodology following standard equity index industry practice; consistent index policies across all segments (size and sector). 8) Full disclosure of index constituents and weights each month. 9) Index calculated monthly with quarterly rebalancing. Daily index values are available at the beginning of the following month. 10) Historical information of the indices available from December 31, Definition 1) Income Trusts are trusts generally structured to own debt and equity of an underlying entity that carries on an active business, or a royalty in revenues generated by the assets thereof. 2) Closed-end Investment Trusts invest principally in other income funds or securities of a specialized nature, or with portfolios representing a particular industry. Closed-end Investment Trusts issue only a fixed number of shares and trade on stock exchanges. Closed-end Investment Trusts are not eligible for the Index. 3) Eligible Income Trusts are income trusts that meet Methodology #3 Criteria for Inclusion (1) to (6). 4) Primary Exchange is determined as the exchange that provides the most trading volume in the previous quarter. 5) Quarterly Rebalancing Months are March, June, September, and December. 6) Reference Quarter End is defined as the last business day in February, May, August, and November. 3. Criteria for Inclusion 1) Only Canadian income trusts listed on the TSX are considered for inclusion in the Index. For this purpose, Canadian means trusts established in Canada and traded in Canadian dollars. 2) If an income trust is listed on more than one stock exchange and the primary exchange is not the TSX, it is not eligible for the Index. 3) Normally, only trusts whose income streams are derived from actual underlying business assets will be considered. Closed-end investment trusts are not eligible for the Index. 4) To be included in the Index, an income trust must be listed on the TSX prior to and including the Reference Quarter End. 2

3 5) Only one class of units shall be eligible for inclusion in the Index. In the event that an income trust has more than one class of units, only the most liquid class will be used. 6) Income trusts with a total market cap of less than $30 million at the Reference Quarter End are not eligible for the Index. 7) In general, additions to the Index will only be made as part of the Quarterly Rebalancing Procedure. 4. Criteria for Deletion 1) Income trusts may be deleted from the Index for the following reasons: 5. Index Family a) Size. As part of the Quarterly Rebalancing Procedure, an income trust will be deleted from the Index if its total market cap at the Reference Quarter End falls below $30 million. b) Bankruptcy. An income trust will be removed from the Index at the first practical date after filing for bankruptcy. c) Takeover. An income trust will be removed from the Index at the first practical date following CIBC WM s determination that a takeover bid for the issuer of such security has been successful. d) Delisting. An income trust will be removed from the Index at the first practical date following CIBC WM s determination that such income trust has been delisted. 1) There are a total of 30 sub-indices in the Index. All Eligible Income Trusts that meet Methodology #3 Criteria for Inclusion (1) to (6) are included in the CIBC WM Income Trust Composite Index. All indices are subsets of the CIBC WM Income Trust Composite Index. 2) All income trusts in the CIBC WM Income Trust Composite Index are classified based on size and sector. 3) Size Indices. a) We calculate two size indices: Large/Mid Cap Income Trust Index and Small Cap Income Trust Index. b) As part of the Quarterly Rebalancing Procedure, we rank all Eligible Income Trusts based on their market capitalization at the Reference Quarter End. We then include the largest one-third of the universe in the Large/Mid Cap Income Trust Index and the smallest two-thirds of the universe in the Small Cap Income Trust Index. As of June 2004 quarterly rebalancing, there were 145 Eligible Income Trusts that meet Methodology #3 Criteria for Inclusion (1) to (6). After ranking the 145 Eligible Income Trusts from the largest to the smallest, we assign the income trusts ranked 1 st to 48 th to the Large/Mid Cap Income Trust Index and those ranked 49 th to 145 to the Small Cap Income Trust Index (see chart below). 3

4 c) The breakpoint market cap that divides the Large/Mid Cap Income Trusts and Small Cap Income Trusts will vary over time according to the number of Eligible Income Trusts in the market and their market cap values. The breakpoint market cap as of June 2004 quarterly rebalancing was $522 million. Largest Income Trust Eligible Income Trust universe ranked by total market cap at Reference Quarter End CIBC WM Large/Mid Cap Income Trust Index (48 income trusts as of June 2004 quarterly rebalancing) 1/3 (market cap breakpoint = $522 as of June 2004 quarterly rebalancing) CIBC WM Small Cap Income Trust Index (97 income trusts as of June 2004 quarterly rebalancing) CIBC WM Income Trust Composite Index (145 income trusts as of June 2004 quarterly rebalancing) $30 Million 4) Sector Indices. a) We calculate 12 sector indices: Composite Energy Trust Index, Composite Utilities Trust Index, Composite REIT (Real Estate Investment Trust) Index, Composite Business Trust Index, Large/Mid Cap Energy Trust Index, Large/Mid Cap Utilities Trust Index, Large/Mid Cap REIT Index, Large/Mid Cap Business Trust Index, Small Cap Energy Trust Index, Small Cap Utilities Trust Index, Small Cap REIT Index, and Small Cap Business Trust Index. b) If CIBC WM determines that an income trust s business nature has significantly changed, CIBC WM will review and may move the income trust to an appropriate sector as part of the Quarterly Rebalancing Procedure. 5) Price and total return index. There are both price and total return indices for the CIBC WM Income Trust Composite Index, as well as size and sector sub-indices. 6) The chart below summarizes the 30 indices. 4

5 Income Trust Composite Large/Mid Cap Income Trust Small Cap Income Trust Index Series Index Series Index Series Composite Large/Mid Cap Small Cap Utility Utility Utility REIT REIT REIT Energy Energy Energy Business Business Business 6. Index Calculation 1) The Index is total market capitalization weighted. The Index is calculated monthly. 2) Index calculations are based on closing unit prices on the TSX. We provide both price return index and total return index. 3) For the purpose of total return index calculation, actual cash distributions paid (e.g., monthly or quarterly) are assumed to be reinvested in the overall Index on the ex-date. 7. Quarterly Rebalancing Procedure 1) CIBC World Markets will conduct an index quarterly rebalancing in March, June, September, and December. 2) As part of the Quarterly Rebalancing Procedure, the number of units outstanding for all Index constituents will be updated. Normally, this information will not be adjusted between quarterly rebalancing dates. Publicly available information up to the Reference Quarter End date will be incorporated for the quarterly rebalancing. Examples that change the number of units outstanding include secondary and treasury offerings, private placements, dividend (distribution) reinvestment plans, and unit buybacks. 3) As part of the Quarterly Rebalancing Procedure, candidates for addition to or deletion from the Index will be assessed on the basis of data as of the previous Reference Quarter End with respect to trading statistics on the TSX. 4) All additions, deletions and share changes are effective after the close of business on the last business day of the Quarterly Rebalancing Month. 5) The following table summarizes the adjustment frequency for common corporate actions. 5

6 Corporate Action Adjustment Frequency Immediately Unit Splits Spin-offs Bankruptcy and delisting Quarterly Additions/Deletions New Issues Secondary Offerings 8. Announcement Policy 1) The previous month s Index will be available on the third business day of the following month. 2) Upon corporate actions that necessitate immediate adjustment, we will announce the adjustment at the same time as we release the Index value, normally the third business day of the following month. 3) After the close of business on the third Friday of the Quarterly Rebalancing Month, we will announce the additions and deletions as well as the new number of shares outstanding for all Index constituents. Please contact Yin Luo ( / yin.luo@cibc.ca) or Dawn Jia ( / dawn.jia@cibc.ca) for any questions. Data is proprietary to CIBC World Markets Inc. and copyright protected. Information can be cited or used by third parties only upon execution of our data use license agreement. 6

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