Estate of Leon Israel, Jr., Deceased, Barry W. Gray, Executor, and Audrey H. Israel - Page 6

                  As indicated, from 1979 to 1982, Israel, Wolff, Stoller, and                        
            other individuals were partners in Holly, which partnership                               
            invested nominally in interest-bearing Government securities,                             
            such as U.S. Treasury Bonds (T-Bonds) and Government National                             
            Mortgage Association Bonds (GNMA’s) by way of unregulated                                 
            commodity forward contracts.                                                              
                  Holly utilized forward contracts to conduct an arbitrage                            
            program involving the simultaneous purchase in one market and                             
            sale in another market with the expectation of making a profit on                         
            price differences in the different markets.  Holly's program                              
            involved the establishment of long positions in Government                                
            securities and the simultaneous establishment of short positions                          
            in different Government securities, with a difference in the                              
            interest rates, or repurchase rates, on the two positions that                            
            was calculated to yield a nominal net profit to Holly when the                            
            positions were liquidated.                                                                
                  In this instance, a long position represents a contract to                          
            purchase a Government security in the future, and a short                                 
            position represents a contract to sell a Government security in                           
            the future.  The establishment of both long and short positions                           
            in the same type of commodity is called a spread or a straddle.                           
                  In the minds of the partners of Holly, in actuality and in                          
            substance, Holly’s investments in commodity forward contracts                             
            involved nothing more than contracts to speculate in or to                                

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Last modified: May 25, 2011