Preferred and Derivatives  

Income Trusts
Income Trusts are designed as a higher-risk alternative to fixed-income securities.   Distributions, based on performance of the fund's underlying assets, can vary substantially depending upon commodity prices, as well as volume of business and costs of production.

Oil & Gas Royalty Trusts are investments that provide exposure to resource sectors. The trust purchases a royalty, typically 99%, from a company with producing oil and gas properties. The trust receives royalty income, essentially net cash flow (cash flow, net of certain deductions, such as administrative expenses and management fees).

Depending on the tax position of the trust--how much of its income is sheltered with Canadian Oil and Gas Property Expense or other tax pools--unitholders may receive all, or a portion of, the distributions as a return of capital. Under Canadian tax rules, this would reduce the adjusted cost base of the Income Trusts, and the unitholder could have to pay capital gains tax when the units are sold or deemed to be sold. A portion of the distributions can also be deemed a return on capital, and taxable as income.

Structured Products are structured to own debt and/or equity of a company engaged in a resource-oriented or other business. Whereas a royalty trust distributes the bulk of its cash flow derived from royalty income, an income trust distributes cash flow through interest on debentures and dividends from shares. Unlike a royalty trust, a tax shield on distributions is not available to an income trust.

Real Estate Investment Trusts are closed-end investment trusts that normally invest in income-producing properties. They often operate with balance sheets that are more conservative than those of traditional real estate companies. Typically, borrowing is limited to no more than 50% of adjusted assets, and they do not normally invest in raw land or engage in speculative development. REITs typically pay out 90% of distributable income. The capital cost allowance available to the REIT will reduce taxable income at the trust level but will not affect the amount of cash that can be distributed to unitholders of the REIT. The portion of distributed income which is not immediately taxable to the unitholder is treated as a return of capital and reduces the unitholder's cost base.  

This table is organized into six trust groupings as follows:
(1) Business Trusts, (2) Oil & Gas Royalty Trusts, (3) Real Estate Investment Trusts, (4) Power and Pipeline Trusts, (5) Structured Products, (6) Miscellaneous Trusts.