Prepaid variable forward contract is an agreement made with the brokerage firm by an executive of the firm to lock in the profut and defer the taxes on the capital gain. Predetermined number of shares is given to the brokerage firm, with the official transferring on some future date. In return the executive recieves usually 75%to 90% of the current value of the stock.
The original owner receives a high percentage of the value of the shares at the time of transfer and receives a portion of the gains at the official transferring. If there was a loss during this time period, the brokerage absorbs it. The investor can then use the cash advance to diversify his or her overall investment portfolio.
