Investment vehicles that may engage in the development, acquisition, and/or production of oil and gas reserves. The trust receives royalty income fromproducing properties (essentially, net cash flow) and then sells interests in the trust (called trust units) to investors. Conventional oiland gas royalty trusts are actively managed portfolios holding assets of mature producing properties. Substantially all of the cash flow generated by the oil and gas assets, net of certaindeductions, such as administrative expenses andmanagement fees, is passed on to the unit holders as royalty income. Capital expenses may also be deducted, but are usually subject to restrictions on the amount. The distributions are highly dependent uponthe cash flow generated by the trust. In general, the largest variable in determining the level of cash flow is the price of crude oil and natural gas.
Royalty trusts provide an alternative (from owning theshares of individual companies) for investors to participate in the oil and gassector.
