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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: H.Jablomey who wrote (89732)	2/21/2001 10:53:03 AM
From: Thomas M.	Respond to of 132070

newrisk.ifci.ch Short-Short Rule A provision of the tax code that disqualifies a mutual fund from income pass-through treatment as a regulated investment company if more than 30 percent of its gross income before deduction of losses is from gains on positions held less than 3 months. The purpose of this rule is to discourage active trading by mutual funds.

To: H.Jablomey who wrote (89732)	2/21/2001 1:52:36 PM
From: Knighty Tin	Read Replies (1) \| Respond to of 132070

JS, It was a rule for mutual funds that existed from the start of the SEC until essentially eliminated in the past 5 years. Basically, if you managed a fund, no more than 30% of the fund's GROSS income could be derived from positions held less than 90 days. The penalties could be similar to a death penalty for the fund and/or the management co., so you didn't want to break the rule. The problem for me was that I ran options money and many, many times, the best time to exit for the highest profit was in less than 90 days. Also, the key word was gross profits. If I bought a stock and sold an at the money call for $4, and the stock went up $20, I could sell the stock for a $20 profit and buy back the call at $20 for a $16 loss, netting $4. However, in calculating the short short portion, there was no offset, so the $20 on the stock goes right into the gross income under short short. It was a killer. I calculated that short short cost my shareholders about 5% in 1985 and another 3% in 1986. That is too much and I fought like crazy to get it repealed. The Congress finally allowed for a matching of losses to gains, which effectively eliminates the problem.