Overview of our business

OVERVIEW OF OUR BUSINESS

YPG

We are Canada's largest directories publisher and the exclusive owner of the Yellow Pages™, Pages Jaunes™, and Walking Fingers & Design™ trademarks in Canada. Through our predecessor businesses, we have been an industry leader since we published our first directory in 1908. We are the official publisher of Bell Canada's directories in Canada as well as for a number of other incumbent telephone company directories that have leading market share in their markets. We are also the managing partner of Aliant ActiMedia, the incumbent telephone directories publisher in Atlantic Canada, in which we hold a 12.86% ownership interest. Including Aliant ActiMedia, we published 244 different telephone directories in 2004 with a total circulation of approximately 18 million copies.

We also operate the leading online directories in Canada, YellowPages.ca™, Canada411.ca, CanadaTollFree.ca and the CanadaPlus.ca group of city sites. This online presence allows us to offer bundled packages of print and online directory advertising products. Our network of Web sites catered to an Internet audience of over 4.2 million unique visitors in December 2004 (Source: comScore Media Metrix).

Business strategy

We have implemented a business strategy to improve our operations and to achieve sustainable growth in revenues and profitability. During the year, we reinforced our brand equity, enhanced our directories, strengthened our online offerings, expanded our distribution and continued to improve our operational processes.

Our focus remains on executing our organic growth strategy and extending our product and service offerings for the benefit of both our advertisers and our users. The directory advertising industry needs to accommodate user preferences, usage being the key driver affecting the level of advertising activity. Our industry is subject to changes arising from the increased usage of Internet-based products and technology advancement. As such, we have aligned our online and print strategies in a continued effort to connect buyers and sellers and to become the #1 source of references for our advertisers.

We may consider expanding our geographic coverage through selective investments and business acquisitions. We believe that the diversity of our customer base, geographic coverage and product offerings enhance the overall stability and potential growth of our earnings and cash flow. Capital raising activities conducted since the Fund's inception in 2003 have solidified our capital structure for future growth and permit us to consider investments or business acquisitions which could further strengthen our market position and increase cash available for distributions to unitholders.

The following critical initiatives continued to underpin our strategy for maximizing the long-term sustainability of our business:

Reinforce our position as the leading publisher of directories in Canada
Increase the productivity of our sales force
Improve the effectiveness of our workflows and business processes
Implement new automated tools to optimize efficiency

We believe that the execution of our business strategy combined through the achievement of the above mentioned initiatives should result in recurring and sustainable free cash flow generation.

The Fund

The Fund, established as an unincorporated open-ended limited purpose trust to invest in YPG, commenced operations on August 1, 2003 through the completion of a $1 billion initial public offering. On December 17, 2003, the Fund completed a follow-on offering and issued additional units to the public for gross proceeds of $1.5 billion. On June 11, 2004, YPG became a wholly-owned subsidiary of the Fund through a third public offering, by issuing additional units generating gross proceeds of $743.3 million.

Distributions to Unitholders

The distribution policy of the Fund is to make distributions to unitholders of its available cash to the maximum extent possible. The Fund makes equal monthly cash distributions to unitholders of record on the last business day of each month, net of estimated cash amounts required for expenses and other obligations of the Fund, potential cash redemptions of units and any tax liability.

We periodically review cash distributions taking into account our current and prospective performance. Some of the factors considered in making decisions related to distributions include cash amounts to service debt obligations, maintenance capital expenditures, taxes and other items considered to be prudent. In addition, we believe that underlying trends in revenues and EBITDA⁽¹⁾ should result in sustainable increases in distributions.