|
|
|
| Notice to Vector Group Ltd. Stockholders |
Vector Group (NYSE: VGR) anticipates all distributions paid in 2001 on its common stock were not
taxable as dividend income for federal income tax purposes but instead will be considered a nontaxable return of capital.
These distributions consisted of four quarterly cash distributions and the distribution of 12,694,929 shares of
Ladenburg Thalmann Financial Services Inc. common stock (AMEX:LTS) on December 20, 2001, in which Vector Group
stockholders received 0.348 of a Ladenburg Thalmann share for each share of Vector Group owned. Based on tax calculations,
Vector Group has determined that it had neither current nor accumulated earnings and profits for federal income tax purposes for
the year ended December 31, 2001. Vector Group’s determination of its earnings and profits for 2001 and prior years was filed with
the Internal Revenue Service (“IRS”) on September 16, 2002. Stockholders will be advised if there is any material change to the status
of the 2001 distributions as a result of IRS review or audits.
Distributions that are not taxable as dividend income must be applied to reduce the tax basis of the shares on which the distributions are paid.
If the nontaxable distributions exceed the stockholder’s basis in the Vector Group stock, a capital gain will result.
The stockholder’s tax basis in the shares of Ladenburg Thalmann received will equal $0.90 per Ladenburg Thalmann share, which represents
the average of the high and low prices of the Ladenburg Thalmann common stock on December 20, 2001, the date of the distribution.
Stockholders should secure their own tax advice regarding the status of cash and property distributions under applicable federal, state and local tax laws.
A stockholder owned 10,500 shares of Vector Group common stock on December 31, 2001 (and had owned the shares the entire year) and had an adjusted tax
basis at January 1, 2001 in such shares of $100,000. Assuming the stockholder had owned the shares for all of 2001, the stockholder would have
received $19,488.60 in total distributions in 2001, which is comprised of $16,200 in quarterly cash distributions - $4,000 per quarter in March,
June and September 2001 plus $4,200 in December 2001 (the increase from $4,000 is due to the 5% stock dividend paid on September 28, 2001) and 3,654
Ladenburg Thalmann shares (10,500 Vector Group common shares * 0.348), which are valued at $3,288.60 (or $0.90 per Ladenburg Thalmann share).
Therefore, the stockholder’s new tax basis in the Vector Group and Ladenburg Thalmann common stock is as follows:
| |
Adjusted
|
|
Non-
|
|
Adjusted
|
| |
Tax Basis
|
|
Taxable
|
|
Tax Basis
|
| |
1/1/01
|
|
Distributions
|
|
12/31/01
|
| |
|
|
|
|
|
|
Vector Group
|
$ 100,000.00
|
-
|
$ 19,488.601
|
=
|
$ 80,511.40
|
|
Ladenburg Thalmann
|
0.00
|
+
|
3,288.601
|
=
|
3,288.60
|
|
Total
|
$ 100,000.00
|
|
|
|
$83,800.00
|
Assume the same facts as in Example 1, except the stockholder’s adjusted tax basis at January 1, 2001 in such shares was $10,000. Therefore, the stockholder’s
adjusted tax basis at December 31, 2001 in the Vector Group and Ladenburg Thalmann common stock is as follows:
| |
Adjusted
|
|
Non-
|
|
Adjusted
|
|
|
| |
Tax Basis
|
|
Taxable
|
|
Tax Basis
|
|
Capital
|
| |
1/1/01
|
|
Distributions
|
|
12/31/01
|
|
Gain
|
| |
|
|
|
|
|
|
|
|
Vector Group
|
$ 10,000.00
|
-
|
$ 19,488.602
|
=
|
$ 0.00
|
|
$9,488.60
|
|
Ladenburg Thalmann
|
0.00
|
+
|
3,288.602
|
=
|
3,288.60
|
|
0.00
|
|
Total
|
$ 10,000.00
|
|
|
|
$ 3,288.60
|
|
$9,488.60
|
1 In Example 1, the Vector Group stockholder’s basis in the Ladenburg Thalmann common stock received is $3,288.60,
which represents the fair market value of such shares. The stockholder’s basis in Vector Group common stock is
reduced by both the cash distributions received ($16,200) and the fair market value of the Ladenburg Thalmann
common stock received ($3,288.60).
2 In Example 2, the Vector Group stockholder’s basis in the Ladenburg Thalmann common stock received is $3,288.60,
which represents the fair market value of such shares. The stockholder’s basis in Vector Group common stock is
reduced to $0, and any remaining amount of the cash and Ladenburg Thalmann distributions received ($19,488.60)
in excess of adjusted tax basis ($10,000) results in a capital gain ($9,488.60).
|
|
