THE JACK & JUDY SHOW -- Courtesy ManuLife & Power Corp.

INCOME TRUST TRUTH VOLUME 1, ISSUE 11

THE NDP: THE GRAND ILLUSIONISTS

How the righteous have fallen! Once the bedrock of Canadian idealism and social justice, the federal NDP, under the leadership of Jack Layton, have turned themselves into “just another political party” ­-- pursuing electoral advantage in any way possible. And that includes a quasi coalition with probably the most right-wing government in Canadian history, the Conservative Party of Stephen Harper.

The latest initiative from the Layton/Harper duo is the draconian plan, announced by the Conservative Finance Minister, to kill off income trusts, mainly at the expense of Canada’s seniors and mainly in order to generate even greater profits for giant Canadian financial mutual-fund interests like Manulife and Power Corporation.

Bay Street’s interests must be served, it would seem, by Mr. Harper and Mr. Layton.

For more than a decade, quality income trusts provided a viable high-income investment alternative for retirees seeking the enhanced income stream needed to cope with today’s ever-escalating costs of living (e.g., increasing realty taxes, higher electricity and heating bills, increasing property and car insurance costs, and higher fresh-food prices). And by providing that alternative, income trusts inadvertently drew large sums of investment money away from the mutual fund industry, depriving traditional mutual fund companies of the generous management fees and profit margins which fueled their unseemly annual profit statements.

In other words, income trusts were getting in the way of influential Bay Street interests. And who could best quash the audacious interlopers, and punish the rebellious seniors who had strayed from the money-sucking mutual fund alternatives provided by Bay Street and had turned instead to the generous yields provided by productive income trusts? Why, of course, Stephen Harper and the political party of Bay Street, along with…um, well, what do you know…Jack Layton, and his compliant NDP parliamentary caucus.

For Jack and his complacent fellow NDPers, political survival had obviously trounced idealism and social justice on the issue of income trusts. After all, who cares who gets hurt in order to avoid a damaging election defeat (for the NDP), as long as it’s the most vulnerable segments of the population (cash-strapped seniors) who can’t fight back -- those lacking the massive financial assets and political influence of such socialist stalwarts as Manulife and Power Corporation.

In fact, sometimes it seems that Jack Layton isn’t even leading the NDP anymore. Lately, the loudest and least able voice in the caucus, Judy Wasylycia-Leis, seems to be running the show. And that’s even though everything that the abrasive one knows about income trusts likely wouldn’t even fit on the head of a pin, while everything she doesn’t know about income trusts could easily fill a twenty-volume encyclopedia.

None of which stops Judy Wasylycia-Leis from presenting herself as one of Canada’s foremost experts on income trusts. Yet, anyone minimally versed in the accounting intricacies of income trusts can’t stop from wondering whether she has a clue regarding what she’s talking about.

For example, in October 2006 Ms. Wasylycia-Leis reported and endorsed the results of an "independent" study, "Income Trusts: Heads I Win, Tails You Lose," conducted by financial hobbyist, Diane Uruquart.

Since then, both of the above self-appointed trust experts have pushed the study's conclusion that occasional unanticipated reductions in income trust distributions (usually in the case of badly managed trusts) reflect a structural weakness inherent in trust securities as a class.

According to the dynamic duo, a key concern for trust investors should be that trusts fail to differentiate between the sources of cash used by trusts for distributions (income paid to the investor) in terms of how much of that cash is actually a return of the cash invested by trust holders when originally buying their shares.

The impression given by this study (and by later misrepresentations to the media by Ms. Wasylycia-Leis in particular) is that what is really the exception to the rule among a few struggling income trusts is generic to all income trusts -- which it isn’t.

The few bad trusts chosen for study (usually business trusts) have been selectively culled for their deficiencies, while the researchers (and Ms. Wasylycia-Leis) fail to present the real way most traded flow-through entities (such as income trusts) generate net earnings or growth. The excellent track record of the majority of income trusts is ignored, in order to focus on the few losers whose unfortunate deficiencies are then used to demonize an entire investment class.

As the more responsible researchers at the non-partisan iTrust Institute have noted:

”(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.”

In other words, the NDP has misrepresented the very core nature of how income trusts operate, in order to rationalize a decision of political expediency to support a right-wing Conservative government in its efforts to exploit vulnerable retirees and other investors for the sake of increasing the already obscene profits of Bay Street’s largest financial institutions.

Stephen Harper, Manulife, Power Corporation and…Jack Layton? Strange bedfellows indeed!