Currency risk is also an issue, because almost all the trusts, including those listed in New York, pay their distributions in Canadian dollars. The currency has strengthened in recent months; it now trades at US$0.6885.
Michael E. Lewitt, president of Harch Capital Management in Boca Raton, Floriday, said that although he is familiar with the securities, his company has not invested in them or recommended them.
"It's something we haven't really thought about," he said.
But Pincus of Goodmans said, "As time goes on, I think we'll see a greater number of American investors participate in this vehicle."
American companies generally have not formed income trusts in the United States because they would be regulated as mutual funds, with strict reporting requirements and limits on fees, according to Andrew F. Viles, a partner at the law firm of Goodwin Procter in Boston. From an investor's point of view, he said, "one of the great things is that it's like a fixed-income product, so long as the business continues to perk along as it has."
The trusts' risks stem from their status as equity holdings. The absence of any cash-reserve buffer makes them especially vulnerable to changing business conditions, but some investors may not be aware of that.
"You've got widows and orphans buying units and expecting dividends on a regular basis," said Kenneth Pearce, a partner at the law firm of Blake, Cassels & Graydon here.
The risks were evident late last month when the Halterm Income Fund, whose main asset is a container port in Halifax, Nova Scotia, suspended income distributions after two shipping lines moved their business elsewhere. And the Sun Gro Horticulture Income Fund of Bellevue, Washington, whose underlying business is North America's biggest peat moss distributor, warned last month that its earnings for the 12 months ended March 31 would not be enough to cover distributions.
The prices of both trusts' units, which are listed on the Toronto exchange, have slumped sharply.
RSS