What is the tax treatment of U.S. shareholders of the Company?
What is the tax treatment of U.S. shareholders of the Company? The Company was a "passive foreign investment company" ("PFIC") prior to 2004. As a result of a change in its activities during 2004, the Company was not a PFIC in 2004 with respect to (i) a shareholder who had a "qualified electing fund" ("QEF") election in effect for the entire period that he held shares of the Company or (ii) a shareholder who did not acquire shares of the Company prior to January 1, 2004, and the Company does not currently expect to be a PFIC in 2005 or subsequent years with respect to shareholders described above. Accordingly, such a shareholder is taxed on dividends paid to him by the Company, rather than paying tax on his pro rata share of the Company's income as was the case prior to 2004. Beginning in 2005, the Company's dividends should be treated as "qualified dividend income" that is taxable to a non-corporate U.S. shareholder described above at preferential tax rates (through 2008), provided that the shareholder satisfies certain holding period requirements.
In the case of a shareholder who acquired his shares of the Company prior to January 1, 2004 and did not have a QEF election or a "mark-to-market" election in effect for the entire period that he held shares of the Company, the shareholder will continue to be subject to the PFIC rules for 2004 and subsequent years despite the change in the Company's operations, unless the shareholder makes a "deemed sale" election pursuant to Internal Revenue Code section 1298(b)(1). Shareholders should consult with their own tax advisors with respect to the procedure for, and the consequences of, making this election.
THIS IS NOT TAX ADVICE. EACH INVESTOR IN THE COMPANY SHOULD CONSULT HIS/HER OWN TAX ADVISOR WITH RESPECT TO THE CONSEQUENCES OF OWNERSHIP OF THE COMPANY'S SHARES.
Why do dividends vary so much?
After having paid its expenses the company has historically distributed, in each quarter, all its cash. The expenses being relatively stable from quarter to quarter, this means that the charterhire earned in a quarter has determined the Company?s distribution.
Under the Shell bareboat charters, the charterhire earned by the Company was market related and subject to significant changes from quarter to quarter. The charterhire was determined based on an assessment of the tanker market for the quarter made by the London Tanker Broker Panel. The charterhire was subject to a floor, and if the market assessment by the London Tanker Broker Panel was lower than the floor rate then the Company received the floor rate. The floor rate was equivalent to a time charter equivalent rate of US$32,569 per day. At the floor rate the Company has been able to distribute to its shareholders US$0.44-0.45 per share for the quarter.
Under the new trading arrangements that the Company has in place, earnings will still include a significant component that is market related and distributions may continue to vary quarter to quarter.
When is the next dividend going to be paid?
The Company makes distribution to shareholders after each quarter. The announcement of distribution will normally made approximately one month after the end of the quarter and payment will be made about 25 days after the announcement.