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Why is the popularity of income trusts rising? How should I determine which income trust to purchase?

A few years ago only utilities and real estate companies came to market as income trusts. Recently, a wide variety of companies ranging form cold storage to long distance trucking have converted to income trusts.

Royalty (or income or investment) trusts are tax shelters that provide the investor with a stream of income based on the revenues of a company. In the case of a royalty trust, the income is based on a natural resource such as oil or gas. When you buy royalty trusts, you are purchasing an opportunity to share a company's future profit from a specific pool of oil and gas or from a particular mineral reserve until the resource is depleted. The expenses of royalty trusts include the cost of resource extraction and of investing in new properties to replace depleting assets. After management fees and expenses are paid, net income is distributed to the unit holders. Income is often paid monthly or quarterly. Conversion to income trusts offers an economical way for companies to raise capital at a time when the cost of debt is rising and share values are languishing. Investors interested in purchasing income trusts should look for businesses with a high sustainable cash flow (i.e. a cash flow that exceeds cash flow requirements) and with assets that will maintain their value.