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Canadian Income Trusts
Old 01-02-2006, 09:01 AM   #1
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Canadian Income Trusts

Can someone please explain what these are? And also what would be their US equivalent?



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Re: Canadian Income Trusts
Old 01-02-2006, 09:42 AM   #2
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Re: Canadian Income Trusts

Here's a link to a part of the Provident Energy Trust website that has some excellent explanation of Energy Trust Basics:

Another site worth checking out is that of Enerplus (ERF on NYSE) -, which is the largest of the many Canadian Oil and Gas Royalty Trusts.

Last not least is the excellent book "Canadian Iincome Funds," by Peter Beck and Simon Romano (Wiley, 2004).

My personal experience, with 10% of assets in these trusts for the past 5 years, is that they're an excellent part of an energy portfolio and a fabulous complement to, or substitute for, a portion of one's fixed income allocation. The income they provide is a real boon to retirees. As for capital appreciation - take a look at Enerplus performance vs. the S & P for its entire history - no comparison, though in point of fact the dividend income alone from many of these trusts is so good it makes the capital appreciation just gravy.

Downsides? Foreign currency risk (if you consider it one - I llike having some non-U.S.) and an added complexity come tax time.

As part of an energy and commodity allocation the Canadian Trusts are great, and unlike, say, Vanguard Energy or other typical enertgy fund investments (which all buy Exxon, Shell, etc.) the returns on these funds are not meaningfully correlated to large cap U.S. stock and bond markets.

Hope this helps. Oh and on the U.S. equivalent question they do exist but don't enjoy the favorable tax treatment the Canadian funds have. What one can do here that's beneficiasl is buy small amounts of pipeline partnerships (e.g. Kinder Morgan) that make money on transport of oil and gas.


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Re: Canadian Income Trusts
Old 01-02-2006, 09:43 AM   #3
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Re: Canadian Income Trusts

Imagine a company in whom you hold shares, but they distribute all their cash income to the shareholder instead of setting money aside for future acquistions etc.

Trusts can be REIT's, Oil and Gas, a Fish Packing Plant, an envelope company any business, the differance is the payouts are usually anywhere from 7 to ??%.

I hold EIT.UN and SDT.UN , both traded on Toronto, this is a Trust of Trusts, they contain all the range of trusts so you diversify your risk.

Trusts will be included in the Canadian Stock Index, so if you buy a Canadian Web on AMEX in June you can get exposure to Commodity based industries plus Trusts.

Canadian use them for income , they are very popular with Retirees, some Trusts have monthly payouts in double digits.

Not sure of your PC proficiency, but, $trsts in the Bullboards , is a good site.
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Re: Canadian Income Trusts
Old 01-02-2006, 09:49 AM   #4
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Re: Canadian Income Trusts

I have been looking at these also. Any idea on how the income is taxed (is a portion of it considered a qualified dividend for us investors)?
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Re: Canadian Income Trusts
Old 01-02-2006, 10:31 AM   #5
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Re: Canadian Income Trusts

Financial is a Canadian site similar to this one, and you can pose the question there, some very knowledgeable posters.

Ed-the Gypsy would also probably know?
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Re: Canadian Income Trusts
Old 01-02-2006, 06:55 PM   #6
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Re: Canadian Income Trusts

What Howard failed to mention is that some of the Trust payout is Return of Capital (ROC). Thus while the good news is that only some of the distribution is taxable as income, the remainder is return of your original capital to reduce ur ACB. The ROC component varies considerably from fairly high (oil and gas trusts) to medium (REITS) to low (income trusts of ongoing businesses). I suspect Howard is mostly referring to the latter one. The operative word is to be careful... know what it is that you want.

In theory, a trust with a large ROC component will eventually wind up as going business when the assets deplete, but the oil and gas ones in particular, and the REITS as well, pepetuate their existence by issuing new equity and buying new assets. At some point in the future, oil and gas trusts have to collapse or be consolidated/merged and you do not want to be there at the end when unit prices collapse. The secret is to get out early enough.

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