Normally, I reserve Flash Alerts for breaking news and critical developments concerning Portfolio picks. Trusts and high-yielding corporations outside the Portfolio are reviewed in the regular issue.

Over the past couple of weeks, however, I’ve received a large number of questions regarding developments at a number of non-Portfolio companies. Below are my answers to several of these questions.

Note that we’re on the verge of earnings season, and I’ll be updating our favorites’ progress in the November issue and subsequent Flash Alerts. Here again are dates and expected dates of the announcements:

Conservative Holdings

• AltaGas Income Trust (TSX: ALA-U, OTC: ATGFF)–November 5*
• Artis REIT (TSX: AX-U, OTC: ARESF)–November 11
• Atlantic Power Corp (TSX: ATP-U, OTC: ATPWF)–November 12*
• Bell Aliant Regional Communications Income Fund (TSX: BA-U, OTC: BLIAF)–November 10
• Bird Construction Income Fund (TSX: BDT-U, OTC: BIRDF)–November 11*
• Brookfield Renewable Power Fund (TSX: BRC-U, OTC: BRPFF)–November 3*
• Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF)–November 10*
• CML Healthcare Income Fund (TSX: CLC-U, OTC: CMHIF)–November 5*
• Colabor Group (TSX: GCL, OTC: COLFF)–October 16*
• Consumers’ Waterheater Income Fund (TSX: CWI-U, OTC: CSUWF)–October 27*
• Innergex Power Income Fund (TSX: IEF-U, OTC: INRGF)–November 5*
• Just Energy Income Fund (TSX: JE-U, OTC: JUSTF)–November 6*
• Keyera Facilities Income Fund (TSX: KEY-U, OTC: KEYUF)–November 3
• Macquarie Power & Infrastructure Income Fund (TSX: MPT-U, OTC: MCQPF)–November 4
• Northern Property REIT (TSX: NPR-U, OTC: NPRUF)–November 12
• Pembina Pipeline Income Fund (TSX: PIF-U, OTC: PMBIF)–October 29*
• RioCan REIT (TSX: REI-U, OTC: RIOCF)–November 4*
• TransForce (TSX: TFI, OTC: TFIFF)–October 23*
• Yellow Pages Income Fund (TSX: YLO-U, OTC: YLWPF)–November 5

*Bloomberg estimate

Aggressive Holdings

• Ag Growth International (TSX: AFN, OTC: AGGZF)–November 13*
• ARC Energy Trust (TSX: AET-U, OTC: AETUF)–October 30*
• Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–November 4*
• Daylight Resources Trust (TSX: DAY-U, OTC: DAYYF)–November 5*
• Enerplus Resources (TSX: ERF-U, NYSE: ERF)–November 13
• Newalta (TSX: NAL, OTC: NWLTF)–November 5*
• Paramount Energy Trust (TSX: PMT-U, OTC: PMGYF)–November 6*
• Penn West Energy Trust (TSX: PWT-U, NYSE: PWE)–November 11*
• Peyto Energy Trust (TSX: PEY-U, OTC: PEYUF)–November 5*
• Provident Energy Trust (TSX: PVE-U, NYSE: PVX)–November 13*
• Trinidad Drilling (TSX: TDG, OTC: TDGCF)–November 4
• Vermilion Energy Trust (TSX: VET-U, OTC: VETMF)–November 10*

*Bloomberg estimate

Question: I’ve received a series of complex materials from Algonquin Power Income Fund (TSX: APF-U, OTC: AGQNF) regarding a merger with a company called Hydrogenics (TSX: HYG, NSDQ: HYGS). What do you advise?

Answer: This “merger” is simply Algonquin’s method of converting from an income trust to a corporation.

Hydrogenics is technically “acquiring” Algonquin on a share-for-share basis. However, when the transaction closes it will then remove its entire business to a wholly different company, leaving a shell company with a CAD192 million tax shield. The shell company will then change its name to Algonquin Power Inc.

The number of outstanding shares for Algonquin Power will be exactly the same as the number of units as are now traded for Algonquin Power Income Fund. The distribution will also be the same.

There will be no change for Algonquin unitholders, other than they will now own shares in a corporation rather than units in an income trust. There will also be no change in the value of their shares from the transaction.

Why do anything this complex? The reason is, simply, taxes. This process ensures Algonquin’s conversion to a corporation won’t create a taxable event for unitholders. And it will maximize their tax shelters as a corporation once the deal is completed.

It’s a win-win for unitholders/shareholders of Algonquin. Instruct your broker to tender your shares.

Question: Should we vote for the takeover offer for Harvest Energy Trust (TSX: HTE-U, NYSE: HTE)? The offer is well below the price I paid for the company.

Answer: The offer of CAD10 per share by Korea National Oil Corporation is well below any estimate I can come up with for the value of Harvest’s assets in the ground plus its refinery. And when a company sells itself this cheaply, you have to wonder what’s really going on.

In any case, it looks like the fix is in on this one. I suspect it’s the high debt load, combined with the fact that refining margins almost certainly fell in the third quarter and show little sign of a real rebound.

I’ve been glad for some time that we’ve been out of Harvest, and this buyout certainly doesn’t change my opinion. If you still own shares, you’re probably not going to block this deal, no matter how you vote.

And given that Harvest management has agreed not to even consider another offer, it’s almost surely a good sign that it’s time to move on.

Question: Vanguard Brokerage now charges me an additional fee whenever I buy or sell Canadian stocks and trusts. What can I do about it?

Answer: Brokerages are free to charge whatever fees for service they want.

This case is particularly egregious, since Vanguard’s new clearing corporation has decided Canadian dividends need to be withheld at a 25 percent rate, rather than the 15 percent mandated by the US/Canada tax treaty. And these policies aren’t just for Canada–they apply to any foreign stock you buy through Vanguard.

Over the past couple months I’ve urged Vanguard customers to get in somebody’s face and demand the brokerage go back to its previous pro-investor policies. Unfortunately, despite the assurances of some representatives, they don’t seem to be doing a whole lot to make that happen.

You can continue to complain to your Vanguard representative. I suggest going up the company ladder, particularly if you have a sizeable account. Letting a company know loud and clear how you feel is the absolute best way to get them to change policy.

I’m rapidly running out of patience with this situation, however. Clearly, the brokerage business is going through a slump, and Vanguard is trying to bring down costs for all. But bilking any investor who tries to buy foreign stocks is a formula for disaster for all concerned.

And if Vanguard can’t give us satisfaction, there are plenty of other brokers that don’t impose these unfair fees.

Question: Your recent Flash Alert concerning Atlantic Power Corp (TSX: ATP-U, OTC: ATPWF) stated the post-conversion dividend wouldn’t be qualified for tax purposes. Is that true?

Answer: Fortunately, it’s not. The entire dividend after conversion will be a qualified dividend, taxed at a maximum rate of 15 percent, at least until the preferential rate expires in 2011. I apologize for the misleading typo. I’m very bullish on this move by Atlantic, which should open the door for faster growth in cash flow and dividends.

This question does bring up an interesting point, however. Mainly, is there anything we can do to get Congress to extend at least some kind of preferential rate for dividend taxes?

I’ve become aware of DefendMyDividend.org, an important new group organizing investors to preserve the preferential tax rate on dividends past 2010.

Please visit the site and sign the petition. It’s no guarantee the dividend tax rate will be extended, but with 2011 fast approaching there’s nothing to lose and everything to gain.

Question: I believe we’re going to see more inflation in the near future and probably a collapse of the US dollar. Wouldn’t this hurt our Canadian trusts and dividend-paying corporations?

Answer: Normally, even trusts that produce energy have been at least somewhat sensitive to rising interest rates and inflation. But these are not normal times.

Rather, since the fall of Lehman Brothers almost every income generating investment–including trusts–has behaved pretty much like cyclical stocks. They rise when the economic news is good and fall when it’s been weak. As such, they’re moving almost exactly opposite to Treasuries.

That will ultimately change, but not until the economy finally recovers. Until then, trusts and other income investments are going to be decoupled from US Treasury rates. That, in my view, means we’re going to enjoy a lot more upside from here, before there’s real downside from inflation.

Question: Keystone North America (TSX: KNA, OTC: KNAIF) is being taken over. I’m very happy with the premium paid but at a loss as to what to do now. Should I tender my shares?

Answer: Actually, the safest thing to do for US investors is probably just to sell your shares. I don’t think this deal is in any danger of failing because the offer is just too generous.

But there is the possibility that your broker will botch it. That could mean you are erroneously withheld 15 percent, as you would with a dividend. Or you could just face a long delay getting your money.

Either way, it probably makes sense to forgo the extra few cents between Keystone’s current price and takeover value, unless you’re very sure your broker will get it right.

Question: What does it mean in the How They Rate table that a company is “already taxed”?

Answer: It means that the trust has already converted to a corporation and therefore has no pending issues with 2011 taxes. You can rest assured that as long as the business is sound the company will hold its dividend steady in 2011 and beyond.

Question: What’s the best way to get started with Canadian Edge?

Answer: I advise one of two things. First, you can build a collection of eight to 10 Portfolio picks by investing in three equal increments. That’s one third now, a third in about a month, and the final third a month after that.

If you’re interested primarily in stability and income, stick with the Conservative Holdings, which have little or no exposure to changes in commodity prices. If you want exposure to commodities particularly energy, stick to the Aggressive Holdings.

The other way to buy in is to simply buy the High Yield of the Month picks in every issue. After five months, you’ll own 10 trusts at good prices, and that’s a pretty good foundation for any portfolio.

Question: What’s better for me, master limited partnerships (MLP) or Canadian trusts?

Answer: Any well-balanced portfolio will own some of both. In fact, I never recommend anyone invest more than 20 percent of their portfolio in any one sector. That’s just leaving too much to chance.

The key to any investment is not how it’s structured for tax purposes. Rather, it’s the health of the underlying business. There are great trusts and MLPs and absolutely lousy trusts and MLPs. Your success will depend not on whether you pick one sector over the other but how you judge the health of the individual companies you choose.

Trusts do face a day of reckoning of sorts, as pending taxation in 2011 will force most, if not all, to convert to corporations. What happens to the dividends after conversion, however, is entirely up to management and what the underlying business can afford to pay given the new taxes. The key here is expectations. And the bar has been set so low for post-conversion dividends it won’t take much to beat it.

That means trusts that convert have the potential to hand investors a real windfall, and in fact we’ve seen it happen a dozen times or so already.

For more on 2011 taxation and how it affects trusts, see the August 2009 feature article and the October Portfolio Update.