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Small investors should stay north of the border

Q. Friends in Mexico constantly tell me of great interest rates _ 18 to 34 percent. They say the money is safe. Do you have any information about this? Also, is it subject to income tax yearly? Would interest be paid in pesos or U.S. dollars?

A. Believe it or not, you can get higher rates than that. The yield on 28-day Mexican treasury bills is about 44 percent (paid in pesos), and that's about half what it was a few months ago. You can get in on these yields by buying Mexican fixed-income investments through many U.S. brokerage firms. However, that may not be such a good idea.

If you buy a Mexican treasury bill, a bank certificate of deposit or any other peso-denominated income investment, you exchange dollars for pesos. The problem is that you might pay 32 cents a peso, which is what a peso was worth at the beginning of last year, and get back 16 cents a peso, which is what pesos are going for these days. This is called currency risk.

It also is possible to buy dollar-denominated Mexican investments; a three-year dollar CD now yields about 15 percent. The risk there is that your money may not be paid back in full.

Robert Soler, vice president of the international group at Barnett Banks Inc. in Miami, said he does not recommend Mexican fixed-income investing for small investors.

"Some investors were willing to take the high risk and have made some money since interest rates have come down," he said. "But you have to stay close to the market, and you have to know when to get out. By the time the person in St. Petersburg finds out what it is going on, it may be too late."

Foreign investment income is subject to U.S. income taxes. However, in most instances, taxpayers are eligible for a tax credit for any foreign taxes they have paid on their income.

Q. I bought 40,000 shares of a penny stock, HDL Communications, in 1987 for $2,200 in an IRA account with Blinder, Robinson & Co. The broker represented the stock as speculative but safe. I did not receive any financial reports from HDL.

When I called Blinder, Robinson, they said they had no information on HDL, nor could they locate my broker. I called the company, and eventually I received a fourth-quarter report that showed they went through $500,000 in capital assets in one year with negative income. Finally I got Delaware Charter Trust, the custodian for the IRA, to send me my shares for a fee of $164.

Here are my questions: Did Blinder, Robinson act in good faith, recommending a company that lost all of its stock sale capital in two years? Does the SEC require annual financial reports from all corporations? Do they have to be sent to shareholders? Is HDL still in business? Are the shares worthless?

A. Nothing is "speculative but safe."

Blinder, Robinson was a notorious penny stock firm that went out of business several years ago after being accused of illegally inflating the prices of stocks it sold.

The Securities and Exchange Commission requires companies to file annual financial reports. However, spokesman John Heine said companies are required to mail a report to a shareholder only if the shareholder requests it and the company is having an annual meeting or there is a proxy solicitation in progress.

In 1989, HDL became a "shell" company, meaning it did not conduct any business. Last year, it awoke from its slumber to merge with and change its name to Bikers Dream Inc., which is in the used motorcycle business.

In the process, there was a reverse stock split and, as best I can determine, you are entitled to about 30 shares of Bikers Dream. This company trades on the Nasdaq Bulletin Board under the symbol HOGS, with recent trades between $3 and $4 a share. A broker should be able to help you sell your shares.

CORRECTION: The estate tax on a $700,000 estate is $37,000. Last week's column gave a different amount. Estate tax must be figured on the gross estate; then a $192,800 credit (representing the $600,000 exemption) is subtracted from tax due.

Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731, or to hhuntleysptimes.com by electronic mail.

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