An open-end unit trust invests the proceeds of a public offering in a note of a bank and then enters into a total-return swap with the Bank respecting a bond index (some of the components of which correspond to bonds held by the bank). Under the Swap, the Trust agrees to make quarterly payments to the Bank equal to the interest received on the note, minus X% of the assets of the Trust.
The income of the Trust includes the interest accruing to it on the note, and is reduced by the quarterly payments made in each taxation year to the Bank. The return under the Swap based on the bond index is not included until maturity.