A CHOICE OF INVESTMENTS
Two alternatives are available for equity investors wanting to own an interest
in the Partnership’s portfolio of energy transportation assets. The first is
via class A common units representing limited partner ownership interests
of Enbridge Energy Partners, L.P., which are publicly traded on the New
York Stock Exchange (NYSE) under the symbol EEP. These units represent
a direct interest in a traditional master limited partnership. An investment in a partnership
differs in a number of significant ways from an investment in a corporation.
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A unitholder (partner) in a publicly traded partnership owns units of the
partnership rather than shares of stock and receives cash distributions rather
than dividends. Cash distributions received generally reduce a partner’s tax
basis in the partnership. The cash distributions are not taxable as long as the
partner’s tax basis exceeds zero.
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Typically, a corporation is subject to federal and state income taxes but a partnership
is not. All of the income, gains, losses and deductions of a partnership
are passed through to its partners, who are required to show their allocated
share of these amounts on their income tax returns. Allocated taxable income
increases a partner’s tax basis in the partnership.
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In late February, partners are provided a tax package (Schedule K-1) required
for preparation of their personal income tax returns. By comparison, a corporate
stockholder typically receives a Form 1099 in late January detailing required
tax data.
The second choice available to equity investors is shares of Enbridge Energy
Management, L.L.C., which is a limited liability company that trades publicly on
the NYSE under the symbol EEQ. These shares represent an indirect investment in
Enbridge Partners since Enbridge Management’s only investment is its interest in the
Partnership. Further, the performance of Enbridge Management shares is generally
expected to track that of the Partnership, since its shares are maintained on a one-for-one
basis with a specific class of Enbridge Partners limited partner units. An investment in
EEQ shares differs from an investment in EEP partnership units in a number of
significant ways.
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Enbridge Management shareholders receive quarterly distributions in the form of
additional shares. The distributions are comparable in value to the quarterly cash
distributions paid to unitholders of Enbridge Partners.
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Enbridge Management distributions are not taxable when received and shareholders
are not issued either a Schedule K-1 or a 1099 tax form. The sale of Enbridge
Management shares is generally subject to capital gains treatment, thus providing
a tax-efficient form of investment.
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These investment attributes result in shares of Enbridge Management being
attractive to many individual investors. In addition, Enbridge Management is
classified as a corporation for federal income tax purposes, making ownership
of its shares a more suitable investment for mutual funds and tax-exempt investors
than direct ownership of partnership units.