L. T. Capital Gains Tax Treatment of Bear Funds?

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I have a small investment in AFBIX, a bear junk bond fund. Meaning that as prices on a basket of junk go down, this fund goes up.

It is not cheap but not too bad and I would like to explore these bear funds more thoroughly. If I get a long term capital gain on this holding, will it be taxed as a long term capital gain?

If I sold short a junk ETF and had a gain, I would have to pay at short term rates regardless of how long my short had been outstanding. OTOH, if I had a profitable put that went long term, I would get LT capital gains rates.

Anyone know the skinny on these bear funds, or where I might find out about this aspect?

Ha

[brewer12345]

As I understand it, AFBIX is just a pile of buy protection credit default swaps. I would guess that there is a lot of trading in the fund, so a lot of gains would probably generate ST gains. Take a look at the prospectus for st arters.

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Quote:

Originally Posted by brewer12345 Take a look at the prospectus for st arters.

Well, this was definitely a good suggestion. It seems to be taxed like any other fund, gains are passed through as ST or LT as the case may be. Likewise with investment income. Any net gain or loss when the investor sells the fund is ST or LT capital gain or loss, and subject to the max 15% limitation if it has been held long term.

I’ll get a look at the 2006 distributions to see how they were taxed.

Ha