With his background in marketing, Paul Hollands is aware of the value that an affable, cuddly looking mascot can lend to the income trust industry.

Hollands is president and CEO of the A&W Revenue Royalties Income Fund, which distributes cash to unitholders from the proceeds of rights agreements to the company’s name and retro memorabilia, including the A&W Root Bear.

“That’s right, it’s a great icon,” says Hollands, 49, who is also the new chairman of the Toronto-based Canadian Association of Income Funds.

The Root Bear was good for 9¢ a month distribution in 2005, so perhaps the industry association thought its charm might rub off on the industry, which has a number of contentious issues in front of it.

“We have a full menu of items over the next few years,” says Hollands, working the pun.

A handful of similar trusts operate in Canada, distributing cash from royalties paid for the use of brands like Pizza Pizza, The Keg, and Second Cup. The A&W Revenue Royalties Income Fund was established early in 2002 when it acquired a 75% interest in A&W Trade Marks Inc., which owns A&W’s trademarks and collects royalties from their use by licencees. A&W Food Services Inc., the underlying operating company, retains a 25% interest in the trademarks business and runs 638 outlets in Canada either as franchises or as fully owned operations.

The trust structure is “excellent because it’s very transparent,” says Hollands of the A&W trust. “The operating company beneath it has to fully disclose its results as well. From that point of view it’s excellent structure in terms of providing transparency, ease of understanding. And quite frankly it’s easy to operate.

“The structure doesn’t fit every business but it sure fits this one well,” he adds.

As a group, these types of trusts may be more easily understood relative to the entire trust investment class, which has been dogged as much by poor investor education as by the industry’s lack of transparency, argues Hollands.

Noting the industry’s raison d’être, he says trusts have developed in the Canadian market because retirees need income.

“The misunderstanding is that this is about taxes. It isn’t,” he says. “People really have a need for cash and companies can provide that through trust structures.”

Hollands, who lives in Vancouver with his wife, holds a bachelor of commerce degree from the Sauder School of Business at the University of British Columbia, where he is on the faculty advisors committee. He’s involved with The Business Council of British Columbia and he’s also former chairman of the Toronto-based Canadian Restaurant and Foodservices Association. He served on that association’s board for 10 years.

At the end of February, Hollands was in Quebec hunting out franchise opportunities for A&W. At the same time, he was appointed to steer CAIF, which represents the interests of Canadian income funds, publicly listed limited partnerships, income trusts and royalty trusts — a hot-button industry, especially within the past six months.

CAIF was actively lobbying Ottawa when the former Liberal government was bumbling over a decision on tax treatment for trusts in November. And now, it’s on Parliament Hill again, as the Conservative government is expected to include an increase in the Canadian dividend tax credit in its first budget — a decision that could lower the incentive for companies to convert to trusts.

Currently, trusts can distribute cash to unitholders at a lower tax rate than their equivalent corporate structure. Although trusts distribute income before they are taxed, corporations pay tax on revenue before it is distributed to investors in the form of dividends, which are taxed at the personal level as well.

Providing clarity for the term “distributions” is at the top of Hollands’ to-do list. He’ll work with a committee to help clarify the term and provide standards about what constitutes distribution for issuers and investors. Although many trusts distribute the revenue they gain from operations to investors, such as Hollands’ royalty revenue trust, some trusts shore up distribution with portions of the investor’s capital investment, a process that can sometimes winnow away the underlying company’s book value.

In general, Hollands says, the challenge for the association is to educate the public about a relatively unknown asset class. Even though real estate investment trusts and oil and gas trusts have been around for more than a decade, business trusts are relatively new.

@page_break@“You’ve got a whole sector that continues to evolve,” he says. “Issuers, companies, regulators and governments need to figure out how they work, and how they should work for investors.”

CAIF is paying for research on the effect of the proliferation of the trust structure on Canadian productivity. It needs to combat a suggestion that came out last fall that the corporate structure favours research and development, new investment and, thus, productivity.

“There was no data either way to prove or disprove, suggest or support a conclusion that there was a difference between the trust and corporate structure,” says Hollands. “We’re trying to bring facts to the discourse.” IE