THE FOOL IN EXPERT'S CLOTHING

The Truth About Diane Urquart, Self-Annointed Income Trust Expert

From today's press release from the bipartisan I-Trust Institute:

MISINFORMATION FROM EXPERTS DUE TO LIMITED DATA

A respected financial expert, Diane Urquhart, took the press podium in October 2006 beside the NDP finance critic, Judy Wasylycia-Leis, to present an "independent" study, "Income Trusts: Heads I Win, Tails You Lose".

In lead-up to public hearings, that expert is now reinforcing the study conclusion that suggests that reductions in income trust distributions reflect a problematic structure inherent in trust securities.

Ms. Urquhart is quoted (Toronto Star, January 23, 2007) as saying that a key concern for investors is that trusts fail to report the difference in source of cash for distribution in terms of return of capital or net operating gains.

The study and follow-up public commentary gives the public, including Finance Committee members and politicians, the misimpression that such distribution and structure problems are significant and generic among trusts.

Such expert opinion fails, however, to measure the extent to which the relatively few securities cited for study reflect the way flow-through entities [such as income trusts] generate net earnings or growth. Neither pre-hearing media commentary nor expert original study observes a full data set for the income trust market.

As a result, the expert comments are irresponsible and misleading when presented as fact, particularly when published without comparative measure and out of context. The distribution-oriented propositions are as offensive to good Canadian managers as the statements are inappropriately generic.

Through use of comprehensive market-tracking data, the iTrust Institute can show that:

(a) During 2006, there were more than three times as many distribution increases as decreases by income trusts. There is little difference in statistics when REITs are excluded;

(b) Approximately three quarters of income trusts and flow-through entities have not had a reduction in distribution in the past two years and, furthermore, pay cash returns to investors that are less than operating cash from continuing operations;

(c) The high frequency of cash distributions unique to Canadian income trusts generally increases returns relative to market-related risk for investors. This kind of cash return to investors offers such informative and economic value to investors seeking transparency in managerial practice that there is increasing demand by sophisticated foreign investors to own Canadian flow-through securities. There is demand to own Canadian income trusts despite the economic dampening impact of new taxes on recipients of distributions from income trusts.

Comprehensive factual studies show very different findings with significant implications compared to those presented in the expert independent study that was publicized as if part of the NDP Finance Critic's position on income trusts and the Party's stated reason to support
Conservative tax policies.

Institute findings can support some of the conclusions of that same study by Ms. Urquhart in so far as there is common recognition of the need to protect Canadians from false claims and incomplete attention to risk during promotional efforts by financial product and broker sales personnel.

There is clear evidence of need to improve the accuracy of information provided to investors by sellers when they advise or promote purchase of units or shares, particularly for initial public offerings. This perspective is not new or isolated to income trusts, however, and has been featured as a conclusion of reports commissioned by authorities like the Bank of Canada.