Leema Enterprises, Inc. - Page 14




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               Of 76 participants in the initial Merit T-bill market, only            
          one had a gain, of $961, at the end of the first taxable year of            
          investing.  Upon completion of their T-bill trading, only 12 of the         
          participants had earned overall profits; however, these were                
          generally very small.4                                                      
                         (b)  T-bond Transactions                                     
               Merit also offered a market in T-bond options for which it             
          issued a separate PPM.  This PPM advised that "there are material           
          income tax considerations involved".  The material under the                
          heading "Federal Income Tax Aspects" provided an explanation of tax         
          aspects of trading in options.  It traced the provisions of Rev.            
          Rul. 78-182, 1978-1 C.B. 265, which discussed trading commodity             
          options on the Chicago Board of Exchange.  It discussed the                 
          "special rules relating to the tax treatment accorded to the writer         
          of an option on inter alia, securities such as T-Bonds". It                 
          explained that--                                                            
               gain or loss recognized by a writer resulting from the                 
               sale of T-Bonds pursuant to the exercise of a call would               
               be taxable as capital gain or loss.  Such gain or loss                 
               will be characterized as long-term * * * where the T-                  
               Bonds sold have been held for a period of at least one                 
               year * * *.                                                            



               4    One notable exception was Case Enterprises, an offshore           
          entity set up by the Carabini family, who also controlled Monex.            
          In its first participating transaction, Case Enterprises                    
          deposited $1 million with Merit in September 1981, the last month           
          of its fiscal year, incurring losses of $7,200, and in October              
          1981 (the beginning of its next taxable year), it withdrew                  
          $992,800.  In September 1982, it again deposited $1 million,                
          incurred substantial gains, and, 10 days later, in October 1982             
          (the beginning of its third taxable year), it withdrew                      
          $1,255,000.                                                                 

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