Labrador Iron Ore Royalty Income Fund (the "Fund") is an unincorporated, limited purpose trust which, through its wholly-owned subsidiaries, Labrador Mining Company Limited ("Labmin") and Hollinger-Hanna Limited ("Hollinger-Hanna"), holds a 15.10% equity interest in Iron Ore Company of Canada ("IOC") and receives a 7% gross overriding royalty and a 10 cent per tonne commission on all iron ore products produced, sold and shipped by IOC.

The Fund makes cash distributions of the net income derived from these interests to the maximum extent possible, subject to the maintenance of appropriate levels of working capital. Net income earned from the interests in IOC is transferred from Labmin to the Fund in the form of either interest or dividend payments. This interest and dividend income is in turn distributed to the Fund's unitholders on a quarterly basis.

As at December 31, 2008, the Fund had 32 million units outstanding. The units are traded on The Toronto Stock Exchange under the symbol LIF.UN. The units are qualified investments under the Canadian Income Tax Act for registered retirement savings plans, registered retirement income funds and deferred profit sharing plans.

The Fund is governed by six Trustees, an Audit Committee and a Compensation and Nominating Committee. Both committees are composed of independent Trustees. Scotia Capital Inc., pursuant to an administration agreement, acts as the administrator of the Fund.

About Iron Ore Company of Canada
The income of the Fund is entirely dependent on IOC, as the only assets of the Fund and its subsidiaries are related to IOC and its operations. IOC is Canada's largest iron ore producer, operating a mine, concentrator and pellet plant at Labrador City, Newfoundland, and is among the top five producers of iron ore pellets in the world. It has been producing and processing iron ore concentrate and pellets since 1954. IOC is strategically situated to serve the markets of the Great Lakes and the balance of the world from its year-round port facilities at Sept-Iles, Quebec.

IOC has ore reserves sufficient for approximately 35 years with additional resources of a greater magnitude. Currently it has the capacity to extract around 43 million tonnes of crude ore annually. The crude ore is processed into iron ore concentrate and then either sold or converted into different qualities of iron ore pellets to meet its customers needs. The iron ore concentrate and pellets are transported to IOC's port facilities at Sept-Iles, Quebec via its wholly-owned Quebec North Shore and Labrador Railway, a 418 kilometer rail line which links the mine and the port. From there, the products are shipped to markets throughout North America, Europe, the Middle East and the Asia–Pacific region.

IOC's 2008 sales totalled 15.1 million tonnes comprised of 2.8 million tonnes of iron ore concentrate and 12.3 million tonnes of iron ore pellets. IOC generated revenues of $2,199.9 million in 2008 (2007 - $1,013.5 million). IOC sales traditionally are approximately 35% in North America, 40% in Europe and 25% in the Asia-Pacific region.

Starting in November, 2008 iron ore markets weakened substantially with most producers, including IOC, cutting back production to avoid building up excessive inventories. IOC expects to continue to operate below nominal production capacity until demand recovers.

During 2008, IOC completed an expansion program to increase annual ore production capacity to 43 million tonnes, which supports a nominal annual concentrate production capacity of about 18.4 million tonnes, and to creep annual pellets production capacity to above 13 million tonnes. On March 11, 2008, IOC announced a $500 million expansion program to increase annual concentrate production capacity to 22 million tonnes. On September 4, 2008, IOC announced a $300 million expansion program to further increase production capacity to 22.8 million tonnes, including $75 million towards a feasibility study to increase production capacity to 26 million tonnes. In December 2008, in addition to cutting back production, IOC suspended the $800 million expansion programs in response to adverse market conditions.

IOC Royalty
The Fund, through its subsidiary Labmin, holds certain mining leases and mining licenses covering approximately 18,200 hectares of land near Labrador City. IOC has leased certain portions of these lands from which it currently mines iron ore. In return, IOC pays Labmin a 7% gross overriding royalty on all sales of iron ore products produced from these lands. A 20% tax on the royalty is payable to the Government of Newfoundland and Labrador. For the five years prior to 2008, the average royalty (net of the 20% tax) had been approximately $48.2 million per year and in 2008 was $129.1 million (2007 – $52.9).

Because the royalty is "off-the-top", it is not dependent on the profitability of IOC. However, it is affected by changes in sales volumes, iron ore prices and, because iron ore prices are denominated in US dollars, the United States – Canadian dollar exchange rate.

IOC Equity
In addition to the royalty interest, the Fund through its wholly owned subsidiaries, Labmin and Hollinger-Hanna, owns a 15.10% equity interest in IOC. The other shareholders of IOC are Rio Tinto Limited with 58.72% and Mitsubishi Corporation with 26.18%. Labmin received a dividend of U.S. $75.5 million or approximately Cdn. $77.9 million in 2008 (2007 – Cdn. $18.8 million).

IOC Commissions
Hollinger-Hanna has the right to receive a payment of 10 cents per tonne on the products sold by IOC. Pursuant to an agreement, IOC is obligated to make the payment to Hollinger-Hanna so long as Hollinger-Hanna is in existence and solvent. In 2008, Hollinger-Hanna received a total of $1.5 million in commissions from IOC (2007 - $1.3 million).

Taxation
The Fund is a taxable trust under the Income Tax Act. By electing to have income earned from its investments taxed in the unitholders' hands, it reduces its taxable income to nil. Labmin is a taxable corporation. Dividend income received from IOC and Hollinger-Hanna is received tax free while royalty income, less the expenses of Labmin, is subject to income tax. Expenses of Labmin include $30.7 million a year in interest payments relating to the $247.8 million notes held by the Fund and interest on any bank loans. Hollinger-Hanna is a taxable corporation.

On June 22, 2007, the federal government enacted tax legislation that taxes certain publically traded trusts on the “non-portfolio earnings” distributed to the unitholders at a rate similar to the combined federal and provincial corporate tax rates. Generally, there is a four year transition period for a publically traded fund, such as the Fund, such that the Fund will not be subject to this tax until 2011, provided the Fund does not exceed its “normal growth”, as determined by reference to the normal growth guidelines issued by the Department of Finance on December 15, 2006, as amended from time to time. The Trustees continue to review the implications of these changes on the Fund.