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    Thursday, March 24, 2005


    Reader Question - Oil Sands Split Trust

    AB asked me what the relationship between Canadian oil sands and oil sands split trust was. I will answer the questions without getting into the mechanics of how it's achieved.

    Oil sands split trust units come in two types, capital units and preferred units. Each capital unit entitles the holder to double the capital appreciation of holding one share of COS. Each pref unit entitles the holder to 7% (I can't remember if it's 6,7 or 8%) interest on the redemption value and on windup to the entire amount of the windup value.

    So, if COS increases 10%, OST capital units increase 20% and the pref units don't necessarily increase at all (they're effectively bonds).

    In short this is achieved by using the pref units as debt and buying more capital units which go the capital unit holders. The capital unit holders do not receive the dividends from 2 shares of COS, they receive whatever is left over once the pref has been paid. Importantly if COS goes down 10% then the capital OST units go down 20%.

    I recommend checking out OST's SEDAR filings if you want more details.
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    Disclaimer and Disclosure Analyses are prepared from sources and data believed to be reliable, but no representation is made as to their accuracy or completeness. I am not paid by covered companies. Strategies or ideas are presented for informational purposes and should not be used as a basis for any financial decisions.
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