ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, August 19, 1996 TAG: 9608190123
SECTION: MONEY PAGE: 6 EDITION: METRO
COLUMN: Money Matters
SOURCE: MAG POFF
Q: I conveyed corporate stock to a child as a gift with a market value of approximately $9,000 and an investment cost of approximately $2,000. If the child sells the stock for a gain to educate a grandchild, how is this reported and is there any tax break?
A: The recipient of a gift takes the tax basis of the donor. Thus, in your case, your child must use $2,000 as his or her own tax basis in computing the gain for tax purposes.
If the purpose of the gift was to pay for college expenses, it is usually better to hold the money in the name of the grandparents. That's because in the eyes of the college, parents have a financial obligation to pay the costs of college if they can, a burden that grandparents do not share.
A student's eligibility for financial aid is based on the assets held in his own name and held in the names of his parents. The assets of grandparents are not counted when it comes to doling out financial assistance. When the level of college assistance is determined, grandparents can come late to the rescue by paying some of the expenses for college.
In addition, money paid by grandparents for medical bills and college tuition is classified as exempt from gift restrictions and generation-skipping transfer taxes. That means a grandparent (or any other person except a parent) can make a voluntary payment for tuition and still give another $10,000 to the student in the same year. The payment must be made directly to the college and is limited just to tuition, not room and board.
Single-country funds carry risk, little choice
Q: When Boris Yeltsin was elected, they said the Russian stock market was up 115 percent since it began. I heard a program that said analysts expect it to go considerably higher. I would like to know when the Russian stock market began and how I can invest in it, preferably through American or international mutual funds accessible to American investors.
A: Single-country funds, especially those of emerging nations, carry great risk. You do not know what will happen to the economy of a single country - witness Mexico. And the Russian shift to capitalism could prove difficult or temporary.
International funds carry an extra risk beyond those of funds that invest in U.S. companies. That is currency risk, because the dollar constantly shifts in value against the money of other countries, even stable ones. This could either enhance or wipe out any gain you make in the stock market.
Chris Wloszczyna, spokesman for the Investment Company Institute, a trade organization of mutual funds, said few single-country funds exist for countries such as Russia. Most single-country funds invest in stable, developed nations in Europe and in Japan. This limits your choices.
Wloszczyna said most global and international funds invest in groups of countries, such as the Pacific Rim and Europe. He said you may want to look into emerging markets funds that often include Russian stocks in their portfolios from developing nations.
But here are some suggestions for you:
Templeton Russia Fund. This is a closed-end fund, which means the number of shares was limited at the fund's start so that they could trade on the New York Stock Exchange like stocks. You would have to buy shares in this fund through a broker. You can obtain the latest annual report of this fund by calling Templeton at (800) 342-3863.
Lexington/Troika Dialogue Russia Fund. This mutual fund invests solely in Russian securities and is sponsored jointly by Lexington Management and Troika Dialogue Asset Management. You can get information and a prospectus by calling (800) 526-0056.
Pioneer Funds Distributors Inc., which has an emerging markets fund with 10.8 percent of its assets invested in Russian stocks. Many other holdings are in central and eastern Europe. You can reach this fund by calling (800) 225-6292. Pioneer, incidentally, is forming a Russia fund for Russian investors, a first for that market. But this will not be registered for distribution in the United States.
Vontobel Eastern European Equity, a fund that has 15 percent of its portfolio invested in Russian stocks. Its toll-free number is (800) 445-8872.
Nobody at the Investment Company Institute or at any of the listed funds knew the date on which the Russian stock market opened.
Bonds pay floating interest rate that vary
Q: I have some U.S. Savings Bonds from the early 1990s. When will they mature, and how much interest are they paying?
A: The date of maturity, or the time the bonds reach face value, will depend on the various interest rates they earn over the years. Bonds pay a floating interest rate that varies with the market. To learn the interest rate your bonds are earning, you would have to consult a listing of earnings. You can get this table by wriing to the Bureau of Public Debt, 200 Third Street, Parkersburg, W.Va. 26106-1328. For bonds purchased since May 1995, you can obtain the current rate yourself by calling
(800) 487-2663 each May 1 and Nov. 1. Bonds in this category are currently earning 4.36 percent.
Bonds pay interest after maturity, however. Bonds purchased since 1966 earn interest for a period of 30 years when they reach final maturity.
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