<THE FOOLISH FOUR>

Foolish Four Report
by Robert Sheard

LEXINGTON, KY. (Jan. 16, 1998) -- For those of you who own General Motors <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GM)") else Response.Write("(NYSE: GM)") end if %> and received a distribution in December of shares in Raytheon <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RTN.A)") else Response.Write("(NYSE: RTN.A)") end if %>, a helpful reader pointed me to an explanation of the tax basis calculations you'll need to make to reapportion your cost basis in the two companies.

According to the legalese in the statement on GM's website (http://www.gm.com), you can base your calculation in three different ways, based on the closing price of the stocks on December 19, the opening price, or an average of the day's high and low prices. You'll need to consult a tax advisor if you think choosing one method or another may give you a tax advantage.

Today, I'll go through a sample based on the closing price method.

If you owned 100 shares of General Motors, you will have received 6.377 shares of Raytheon, Class 'A.' The closing price of GM on December 19 was $58.5625 and Raytheon closed at $51.25. So your total value after the distribution was $5,856.25 in General Motors and $326.82 in Raytheon, or a grand total of $6,183.07.

Let's say you originally paid $50 a share for the investment in General Motors. Your cost basis for the entire investment is $5,000. To calculate the new cost basis for each stock, you'll use the percentage splits calculated by General Motors. Using this method, 94.71% of the original cost stays with your 100 shares of GM. So your cost basis in these shares is no longer $5,000, but is now $4735.50 (or if you want the per-share amount, it would be $47.355 for each of the 100 GM shares).

The remaining $264.50 is your cost basis for your new 6.377 shares of Raytheon (or $41.477 per share).

To complicate matters, the fractional shares of Raytheon were sold automatically and paid out in cash. So you'll need to know how much of the Raytheon cost basis goes toward the fractional share because that sale is a reportable tax event, even though you didn't make the sale directly. Since your fractional share is 0.377 and each of your Raytheon shares has a cost basis of $41.477, the cost basis for the fractional share that you received in cash was $15.64. (If you received more than $15.64 from the sale of the fractional share, you have a gain to report to the I.R.S.)

Finally, subtract that $15.64 from your cost basis for the entire Raytheon distribution ($264.50) and your remaining 6 shares have a cost basis of $248.86. (If you divide that amount by 6, you'll find the per-share cost basis for Raytheon didn't change; it's still $41.477.)

Confused yet? Let me summarize. Take the original amount you invested in General Motors and split it into two groups: 94.71% of that original dollar amount stays with General Motors while the other 5.29% goes into the new Raytheon shares. And the acquisition date you'll list for Raytheon when you go to sell it is the same date you bought your original General Motors shares, not the December distribution date. Fool on!

TODAY'S NUMBERS

Stock Change Last -------------------- UK - 5/8 40.75 IP +1 1/2 43.50 MO + 1/8 45.19 EK + 1/2 58.94

Day Month Year FOOL-4 +0.80% -1.76% -1.76% DJIA +0.80% -1.96% -1.96% S&P 500 +1.13% -0.92% -0.92% NASDAQ +1.02% -0.48% -0.48% Rec'd # Security In At Now Change 12/31/97 289 Int'l Pape 43.13 43.50 0.87% 12/31/97 276 Philip Mor 45.25 45.19 -0.14% 12/31/97 206 Eastman Ko 60.56 58.94 -2.68% 12/31/97 291 Union Carb 42.94 40.75 -5.09% Rec'd # Security In At Value Change 12/31/97 289 Int'l Pape 12463.13 12571.50 $108.38 12/31/97 276 Philip Mor 12489.00 12471.75 -$17.25 12/31/97 206 Eastman Ko 12475.88 12141.13 -$334.75 12/31/97 291 Union Carb 12494.81 11858.25 -$636.56 CASH $77.19 TOTAL $49119.82