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URL:  http://boards.fool.com/kyle2395-bpt-is-bp-prudoe-bay-royalty-trust-it-14602704.aspx

Subject:  Re: third quarter earnings update Date:  3/22/2001  8:55 AM
Author:  mrspindlelegs Number:  29 of 35

kyle2395,

BPT is BP Prudoe Bay Royalty Trust. It is a very interesting vehicle. Read the 10-K posted here at the Fool for the specific details. What I can say is that it is a Trust that gets paid a royalty on somewhere around the first 92,000 barrels of oil pumped out of the Prudoe Bay oil fields. That royalty is tied to the price of oil per barrel. There is almost no overhead as the only costs of running the trust are administrative. The only risk really is if the price of oil drops real low (unlikely to happen in the future) and the market as a whole just decides to dump on the stock and plummet the price. The 10-K discusses the volume of oil available and they project no problems out to 2009 in terms of supply for now. Now you are subject to standard tax rates on the dividends so keep an eye on this if you buy enough shares to cause troubles such as tax penalties for not paying the 90% minimum tax for each quarter. I haven't experienced this yet but my guess is that you have to exceed 10% underpayment by a significant amount before it's worth your time to do 1040ES forms. If you have ever experienced this yourself or know someone who does, let me know how bad tax underpayment penalties can be. I haven't run any theoretical calculations yet to find out.

SFF is Santa Fe Energy Trust. It is a similar vehicle to BPT but it's revenue is based on a combination of oil and gas. Again, the amount of revenue acquired by the trust is tied to the price of oil per barrel and the price of gas. I have had a little more difficulty in executing purchases of shares on this stock. The problem may be limited number of sellers. Purchasing 100 shares went through no problem but smaller sizes like 30, 40, 45, 50, etc., were not executed within the day I requested them (purchased with a setting of "Market Order - Good for the Day").

There are other stocks which have consistently payed huge dividends in the last few years but they have a catch. These are stocks like Knightsbridge Tankers (VLCCF) and Nordic American Tanker (NAT). These companies are traded on the NASDAQ and AMEX exchanges respectively. They are foreign companies that are not incorporated in the US so that they do not open their books to the SEC and they pay no taxes to the US. These companies are designated as Passive Foreign Investment Companies (PFIC) by the SEC. The US government overtaxes you on these companies to discourage investors from taking their money "overseas" so to speak. I have read comments that said that "if you own a PFIC over one year, the tax burden can be greater than the money you made". Either way, the only way I see a PFIC being a good investment vehicle for US citizens is to put them in a Roth IRA. However, I do not know if a PFIC is excluded from tax sheltered vehicles like Roth IRA's. Simple hints that a stock is a PFIC vehicle are things like the headquarters are not in the US (Bermuda or Panama are good examples) and the company files 6-Ks, not 10-Ks. Definitely read the 10-K or 6-K on these guys. VLCCF and NAT could potentially be liquidated in 2004 based on how they were created as corporations.

Check out this link and read the whole thread to see how we tripped across this information:

http://boards.fool.com/Message.asp?mid=14495329&sort=postdate

The only other thing I can point out at this time is that BPT should be going ex-dividend sometime in early April if they hold constant to delivering on quarterly distributions while SFF will probably hit its next ex-dividend date around end of April/beginning of May.

Mr. Spindlelegs
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