Canadian Income Trusts
A Introduction to Canadian Income Trust Funds

Also see

Canadian Income Trusts
Canadian Income Trust Funds (List)
Canadian Income Trusts - Our Viewpoint

Canadian income trusts are business entities that buy assets which generate steady cash flow from operations or royalties - often a lot of cash flow. Canadian income trusts are also called Canadian unit trusts, Canadian royalty trusts, or Canadian income funds, depending upon their industry and various formal distinctions.

Canadian income trusts use part of their cash flow to pay expenses and make provision for buying future assets to keep the business going. They send the rest out to shareholders. Usually these distributions are the lion's share of cash flow - sometimes over 80% of it.

The variety of businesses upon which Canadian income trusts have been created is broad, both in the nature of the underlying industry and assets and in geographic location. The Canadian income trust universe is, in general, comprised of the following four categories:

Canadian Business Trusts - a Canadian Income Trust where the principal business of the underlying corporation or other entity is in the manufacturing, service or general industrial sectors. It is anticipated that the number of businesses constituted or reorganized as Canadian Income Trusts will increase significantly over the next year.

REITs - Real Estate Investment Trust, a trust that pools the capital of investors to invest in various forms of real estate, usually income producing assets that are structured to generate regular distributions of cash. REITs seek out investment opportunities and actively manage real estate assets.

Canadian Resource Trusts - a Canadian Income Trust where the principal business of the underlying corporation or other entity is the exploitation, production and/or sale of commodities such as fossil fuels, metals, minerals, timber and their by-products. The amount of distributions paid on a Canadian Resource Trust's units will vary from time to time based on production levels, commodity prices, royalty rates, costs and expenses, and deductions. Currently, most Canadian Resource Trusts focus on the oil and gas sector.

Utility Trusts - a Canadian Income Trust where the principal business of the underlying corporation or other entity derives its income from operating public utilities that provide regulated services such as pipelines, telecommunications, light, power and water. Utility Trusts tend to have stable cash flow and distributions.