Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, May 1, 1995 TAG: 9505050012
SECTION: MONEY PAGE: 6 EDITION: METRO
SOURCE: MAG POFF
DATELINE: LENGTH: Long
I want to invest the maximum $2,000 in an IRA. I can take the full $2,000 deduction on my taxes. I presently have $1,000 in a no-load Janus Mutual Fund IRA. Should I add the $2,000 to my existing IRA mutual fund or open an IRA with a bank?
I am confused about the way some financial institutions set up the IRA in the form of a CD. It is my understanding that you cannot then add to the initial investment, but have to set up another CD each time you want to invest.
A: You can have any number of Individual Retirement Accounts, and diversification is a good rule in investing. Still, you have invested only $1,000 in an IRA so far, and you are young enough to ride out downturns in the stock market. Over a 20-year span, a mutual fund should outperform a bank deposit at interest. Why not add to the Janus fund this year and plan to diversify in the future? You can grow more conservative as you age.
Banks have differing rules about certificates of deposit used as IRAs. Some banks make you buy a new certificate with each deposit, but others are more flexible and allow you to add money to the account.
Partnership investors take hit
Q: A lady who stays in my home invested $10,000 in DeForrest Ventures of Atlanta about nine years ago through Merrill Lynch. Recently, she got an offer from Herman Co. of Dallas, Texas, to buy her units for $2,320. The agent said the value had dropped because of inflation. I thought after nine years they could have invested better than an $8,000 loss. Can you tell me something about this?
A: This is a partnership, and few things have dropped in value in recent years compared to partnerships. Many people who were the original investors have taken a steep hit.
Ryland Hubbard, manager of the Roanoke office of Merrill Lynch, said the partnership was known as MRI Business Properties II through DeForrest Ventures. The offer to your acquaintance came from an affiliate of MRI and closed Oct. 10. If she wants to sell, she can try to peddle her stock on the open market if she can find a buyer. The price on the open market determines the real value today.
The main attractions of the partnership were the tax write-off, which was available in the early years of the investment, and the cash flow. Hubbard said people in the upper income tax brackets received an attractive return in the form of tax benefits even though it turned out that they lost money on the investment.
For this particular partnership, Hubbard said, investors received cash distributions of $3,000 and were able to write off tax losses of $5,000. The partnership still owns the original four pieces of property, which should be liquidated in two to four years, resulting in some more returns.
Hubbard said buyers had to fill out a form in advance stating that they were sophisticated investors who had a high income, understood the risks and could benefit from the tax advantages. Your friend presumably filled out such a form, received the cash distributions and claimed the tax write-offs.
Legal swing at golf club not worth time, money
Q: Is it possible for Blue Hills Golf Corp. to render preferred stock as worthless without notifying the preferred stock holder? I am the holder of a certificate for one share of preferred stock of Blue Hills Golf Corp. issued Dec. 28, 1957. In the body of the certificate is the following: "In case of dissolution or other distribution of assets of the corporation, the holders of preferred stock shall be entitled to receive the par value of such stock before any distribution is made to the holders of common stock."
A: John King, assistant pro at Blue Hills Golf Club said the stock was sold in 1957 in units of four shares: three preferred and one common. Each sold at the time for $25 a share. A unit of those four shares was required for voting membership, although some people bought just preferred.
The preferred stock has not been specifically declared worthless, he said, and it would be worth whatever amount it could command on the open market. But he said people would no longer buy it to create a unit because common stock is no longer available.
Willard Flora, who recently retired as secretary of the club, said the by-laws created the unit of three preferred shares and one common share. He said an organizational meeting was held in 1957 to urge interested people to buy a complete unit for $100. People were given three years to finish the total acquisition. A few years after that deadline expired, he said, people were sent a letter notifying them to buy a unit or face a write-off.
Because the club has not been dissolved, the paragraph you cite might not be applicable. If you want to fight on principal, you might take the club to court. But it would hardly make financial sense to engage in such a fight for an investment of only $25.
by CNB