Quicker Income from Savings Bonds
Q: Last year we invested $30,000 in Series EE Savings Bonds. We would like to roll them over into Series HH bonds. How do we do this? Does it make any sense? Can either type of bond be put in a revocable living trust? --M. A. S.
A: Six months after purchasing Series EE bonds, you may exchange them for an equivalent amount of Series HH bonds. Simply ask any bank that sells Savings Bonds for a Form PD-3253, or request the form in writing from the Federal Reserve Bank of Kansas City, 925 Grand Blvd., Kansas City, Mo. 64198-0001. Take the completed form along with your EE bonds to the bank. Within four to six weeks you should receive your HH bonds from the Federal Reserve. Series HH bonds may only be purchased through exchange of Series EE bonds that have been held for at least six months.
Does such an exchange make sense? That depends on what you want from your investments. Series EE bonds are an appreciating asset. Their purchase price is half their face value; bonds purchased today reach their full maturity in 18 years, accumulating value at a guaranteed minimum rate of 4% if held for at least five years. (Minimum rates for older bonds are generally higher and vary according to their issue dates.) Series EE bonds are attractive to savers who do not need immediate income from their investments. Interest on the bonds is subject to federal income taxes--but not state or local taxes--when the bonds are redeemed.
Series HH bonds pay interest every six months by direct deposit into the holder’s account. They are especially attractive to investors who want current income and do not mind paying taxes (just federal, not state and local) on the semi-annual interest payments. Until March, there was a slight advantage to converting Series EE bonds into HH bonds because the HH bonds paid the guaranteed minimum interest rate from the date of purchase and did not require a minimum five-year holding period to get that rate. However, that advantage was eliminated and now the only significant difference between the two bonds series is how they pay interest.
If you elect to exchange Series EE bonds that you have held for years for HH bonds, you are entitled to defer paying federal taxes on the accumulated EE bonds’ interest until the HH bonds are cashed in.
Both Series EE and HH bonds may be included in a revocable living trust.
It’s No Easy Task to Track Obscure Stocks
Q: My son has fewer than five shares of stock in two companies that we cannot find listed on any exchange. They are Hemotec Inc. and United Energy Resources, Inc. Since these holdings are so small, I fear it would cost more to hire a professional agency to track them than they are worth. Is there anything we can do? -- F. R. P.
A: With the help of Mark Batatian of Prudential American Securities in Pasadena, we tried to track down these companies. Batatian found United Energy Resources listed on what are known as the “pink sheets.” These sheets list stocks that are traded exclusively on the over-the-counter market and are usually handled by just a few brokerage houses. United Energy Resources is traded by the Tucker Anthony securities firm in New York and was priced recently at nearly $40 per share. Batatian did not find Hemotec listed anywhere. A thorough search of mergers, acquisitions, bankruptcies and business closures would be required to uncover what has become of the company.
The purpose of answering your letter in this fashion is to help readers learn how they can handle this research themselves.
First, you should consult the Standard & Poor’s Stock Guide, which contains pertinent information on about half of all publicly held securities in the United States. You might find this guide in the reference section of your local public library. It should also be part of the permanent collection of every brokerage house. The S&P; guide, if it lists the company you are seeking, will tell you on which exchange (or exchanges) your stock is traded.
If your company isn’t included in the S&P;, your next step should be to consult the “pink sheets” published by the National Quotations Bureau. This listing (which used to be printed on pink paper) covers about 15,000 publicly traded companies and gives the names of the brokerage houses handling the stocks. While a local brokerage branch office might not have a copy of this listing, its regional trading center certainly will. Can you get a broker to look it up for you? Possibly, but brokers are in the business to make trades for their customers, not to do research for the public. Of course, brokers are always happy to oblige a potential customer.
If your company isn’t listed in the pink sheets, only one real choice remains: You can retain a stock research company to find out what became of the company whose certificate you hold. Did it merge with another company? Go bankrupt? Cease operating? If you decide to proceed with the research, try contacting Prudential American Securities, which charges $40 per company search. Send a copy of the stock certificate along with a $40 check to 921 E. Green St., Pasadena, Calif. 91106.
Your choice is a tough one. With so few shares, you may well spend more on the research than the shares are worth. Also, you can expect to spend a minimum of about $40 to sell your shares, unless you already have an established relationship with a broker--or promise to open up an active trading account with the brokerage. To be honest, you may well find it easier to drop the matter entirely.
One lesson to be learned here is that it can be folly to give your children or grandchildren--or anyone, for that matter--just a share or two of stock as gifts. To be sure, investing in American enterprise is important, but it doesn’t make economic sense when commissions--and, potentially, research fees--are likely to consume the proceeds. Though certainly not as exciting, U.S. Savings Bonds are a better choice for the gift giver who wants to offer a modest stake in the nation’s economy.
