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Canadian Income Funds: Your Complete Guide to Income Trusts, Royalty Trusts and Real Estate Investment Trusts


Income trusts are popular, but many people stay away because they can’t figure out what to buy. This book explains them carefully and sorts through the complexities. Here’s the guide you need to find an investment that won’t let you down. —Ellen Roseman, personal finance columnist, Toronto Star, and author of Money 101 and Money 201

Frustrated with mutual fund and stock market performance?

Looking for alternative ways to invest your money?

Why have income trusts come out of nowhere, and how do they work anyway?

Income trusts are booming. They have been one of the best-performing classes of investments in one of the worst markets in decades. With over 150 trusts currently trading on the Toronto Stock Exchange at a combined value of over $90 billion, this relatively new vehicle, the income fund, is one of the hottest tickets on the Canadian investment landscape today.

Income trusts provide Canadians with an alternative to stock investing that offers potentially less risk, higher returns, and regular income. But investing in income trusts can also be fraught with pitfalls, and being stuck with a bad one can do more harm than good.

Written by two of the industry’s top experts and commentators, this is the first book of its kind: a complete guide to the income trust industry in Canada.

  • Includes complete coverage on: what income funds are and how to use them to your advantage; myths and facts about income funds; different types of income trusts; what to look for in an income trust, and how to assess the risks involved; how income trusts, and the investors in them, are taxed; funds of income funds; and much more.
  • Explains what business owners need to know if they are considering converting their businesses into an income trust.
  • Features listings and profiles of over 160 income funds currently available in Canada, including a description of each fund, performance history, and contact information.
  • Designed for anyone interested in knowing how Canadian income funds work, including: investors, business owners, directors, trustees, stockbrokers, financial advisors, lawyers, accountants, investment bankers, and commercial bankers.

Peter Beck is a well-known financial expert and President of SwiftTrade Inc., Canada’s leading proprietary trading firm.

A European-trained chef, Mr. Beck immigrated to Canada in 1979 and set up a number of successful businesses, including a coffee shop, a water bottling company, a pet food delivery service, and ITN Corporation, the first legally operating long distance company in Canada. In 1998, he founded SwiftTrade, which was #7 on Profit Magazine’s "10 Hottest Startups in Canada" for 2001, and was named #2 on the "Top 100 Fastest Growing Businesses in Canada" for 2004, also by Profit, with an astounding five-year growth rate of almost 9000%.

Mr. Beck has been featured in media across the country, including The Globe and Mail, the Toronto Star, CTV News, ROB TV, and Canadian Business. He regularly appears on television to offer commentary on the markets, writes articles for financial publications across the country, and is the co-author of Hedge Funds for Canadians: New Investment Strategies for Winning in Any Market (John Wiley & Sons).

Simon Romano is a partner at Stikeman Elliott LLP, a 440-lawyer firm with an international reputation in all areas of business law, most notably securities, tax, banking, corporate finance, M&A, securitizations and derivatives, commercial litigation, competition law, commercial real estate, labour/employment and pension law, environmental law, intellectual property and related fields. Mr. Romano practices principally in the area of securities, M&A and finance, as well as acting for private equity funds, income trusts, and alternative trading systems.

Mr. Romano has practiced in both Toronto and New York, and was formerly a clerk at the Supreme Court of Canada. During 1995 and 1996, he was Special Counsel to the Ontario Securities Commission, where he dealt with take-over bids as well as other projects. He has written a number of articles, is a frequent speaker at seminars, and was a member of the Ontario Securities Commission’s Securities Advisory Committee.

He is particularly active in the area of income trusts, having advised the Livingston International Income Fund and the SIR Royalty Income Fund, among others. He has been recognized by Lexpert/American Lawyer as one of Canada’s top 500 lawyers, and by Chambers Global as one of the world’s leading lawyers.



Chapter One: What are Income Trusts Anyway?

Today’s Income Trust Landscape.

The Basics: What is a Trust?

The History of Trusts.

The Players in a Trust: Which one is the Investor?

Reasons for Setting up a Trust.

Tax Mitigation.

A Possible Downfall: Liability.

The Basic Structure of an Income Trust.

Setting up a Trust Structure.

Other Structures.

The Economic Climate: Fuel for the Recent Boom.

Chapter Two: The Different Types of Income Trusts.

How Does an Income Trust Differ from a Regular Public Company?

The Types of Income Trusts.

Business Trusts.

Trademark Royalty Trusts.

Oil and Gas Royalty Trusts.

Real Estate Investment Trusts (REITs).

Funds of Income Funds.


Chapter Three: Tax Matters.


Debt and Equity.

Financial Leverage.

Internal Leverage.

The Tax Benefits of Leverage to the Investor.

Return of Capital and Other Tax Nuances.

Is There an Effect on Overall Government Tax Revenues?

IDSs, IPSs, and Other Products.

Chapter Four: How to Choose an Income Trust.

First and Foremost: Due Diligence.

The Stages of Your Investment Life.


Getting Married.

Kid(s) Arrive(s).

Kid(s) Leave(s) Home.


Some Economic Conditions to Consider.

Today’s Interest Rate Climate.

Equity Market Outlook.

Exchange Rate Considerations.

Commodity Price Outlook for Oil and Gas.

Understanding the Underlying Business.

Stability of Distributions.

Growth Possibilities.

Management Experience and Reputation.


Funds of Funds – Management and Fees.

When to Sell.

Need Some Cash?

Found a Better Investment Vehicle?

Is the Fund Performing Badly?

Setting Your Own Risk Controls.

Stop Loss.

The Rolling Stop.

Discipline, Discipline, Discipline.

Case in Point: Specialty Foods Group.

Chapter Five: Measuring Risks: The Underlying Business.

The Nature of the Particular Industry.

Vulnerability to General Economic Conditions.

Interest Rate Fluctuations.


Labour and Employee Relations.

Regulatory or Environmental Risks.

Foreign Exchange Risk.

Litigation Risks.

The Quality of Corporate Governance.

The Extent of Insurance Coverage.

Seasonality and Weather.

Supplier-Related Risks.

The Nature of Customers and Customer Relationships.

Commodity Price Risks.

The Impact of Technology.

Other Risks.

Chapter Six: Measuring Risks: The Trust Structure.

Structural Complexity.

Possible Unlimited Liability to Unit Holders.

Dependence on the Underlying Business.

Cash Distributions Are Not Guaranteed, and Fluctuate with Performance.

Restrictions on the Potential Growth of the Underlying Business.

Nature of the Trust Units.

Distributions in Kind on Redeeming Units, or on Termination of the Income Fund.

Absence of a Prior Public Market.

Issue of Additional Trust Units Diluting Existing Unit Holders’ Interest.

Investment Eligibility and Foreign Property.

Income Tax Matters.

Restrictions on Non-Resident Unit Holders.



Chapter Seven: Measuring Risks: Management, Sponsors, and Other Issues.

Management Arrangements.

Internal Management and LTIPs.

External Management and "Internalization" Costs.

Management Equity Ownership.

Overall Management Arrangement Assessment.

Sponsor-Related Risks.

The Nature of Retained Interests.

Non-Competition Agreements.

Governance Issues – Voting and Veto Rights.

Representations and Warranties.

Overall Assessment of Sponsor Relationship.

The Spectre of Unlimited Liability of Unit Holders.

Chapter Eight: Measuring Risks: Stability Ratings.

Some Things to Consider about Stability Ratings.

Standard and Poor’s (S&P).

Dominion Bond Rating Service (DBRS).

A Final Note on Risk.

Chapter Nine: IPOs and Conversions: The Recipes for Making Income Trusts.

The IPO Process.

The Preliminary Prospectus.

Stock Exchange Listing and Liquidity.

Withdrawal Rights.

Investors’ Rights on a Misrepresentation.

IPO Closing Mechanics.

Post-IPO Obligations of Income Trusts.

Available Information.

The Income Trust Conversion Process.

Management Proxy Circular.

Arrangement Proceedings.

Stock Exchange Listing.

Investors’ Rights on a Misrepresentation.

Post-Conversion Obligations of Income Trusts.

Pricing on Conversion.

Closing Mechanics.

Available Information.

Chapter Ten: The Legal State of Affairs in Canada: Preventative Medicine for Liability.

Ontario’s Bill 198.

Making the Facts Clear: The Disclosure Policy.

Disclosure Compliance System.

Insider Trading Policies.

Corporate Governance Matters.

Rules of the Canadian Securities Regulatory Authorities.

Corporate Governance Disclosure: The Proposed Policy and Rule.


Chapter Eleven: Selling a Business to an Income Trust – Issues for Business Owners.

Why Sell Your Business to an Income Trust?

First Steps.


Exchangeable Securities, Retained Interests, and Subordination.

Audited Financial Statements.

Reporting Systems and Internal Controls.

Business and Strategic Plan.

Pre-IPO Restructuring or Changes.

Outside Directors and Trustees.

The Prospectus.

The Underwriting and Sale Agreements.

The Marketing Process.

Post-IPO Obligations.

Insider Trading.


Chapter Twelve: The Canadian Income Trust Market Today.

The Two Main Benefits.

Tax Effectiveness.

Higher Distributions.

Looking to the Future of Income Trusts.

Increasing Size and Quality.

Unit Holder Limited Liability Protection Is On the Way!

More Institutional Involvement.

More Choices.

More Funds of Income Funds.

Don’t Forget the Risks!

A Key Question: Is This a Bubble?

The Long-Term Under-investment Risk Facing Canada.


Canadian Income Fund Profiles.

Index of Funds.


Author Biographies.