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    Letters to the Editor

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    To the Editors:

    The Offbeat Offerings column, “EE Savings Bonds,” in the November 2007 AAII Journal states: ‘If the bonds are used for paying college expenses, they are exempt from federal taxes as well.’ Isn’t this only true for bonds issued after 1989?

    N. Senio

    The Editors Respond:

    Yes, you are correct. Here are the rules from IRS Publication 970 Tax Benefits for Education in the section titled “Who Can Cash in Bonds Tax Free”:

    “You may be able to cash in qualified U.S. savings bonds without having to include in your income some or all of the interest earned on the bonds if you meet the following conditions.

    • You pay qualified education expenses for yourself, your spouse, or a dependent for whom you claim an exemption on your return.
    • Your modified adjusted gross income (MAGI) is less than $80,600 ($128,400 if married filing jointly or qualifying widow(er)).
    • Your filing status is not married filing separately.

    “Qualified U.S. savings bonds. A qualified U.S. savings bond is a series EE bond issued after 1989 or a series I bond. The bond must be issued either in your name (as the sole owner) or in the name of both you and your spouse (as co-owners).

    “The owner must be at least 24 years old before the bond’s issue date. The issue date is printed on the front of the savings bond.”

    To the Editors:

    I think the January 2001 data for the “Est Rev Up” screens might be incorrect [“10-Year Month-by-Month Returns” download from the Performance page of the Stock Screens area of AAII.com]. The divergence between the returns on these two screens and their counterparts on the down revisions does not correlate with the “All Exchange Listed Stocks.”

    Kevin Maccullough

    Wayne A. Thorp Responds:

    After reviewing the data for January 2001, there was a large divergence between the performance of the upward revisions and downward revisions screens. Since this was January, many companies on the traditional fiscal-year schedule would have been reporting quarterly and annual earnings that month. Oftentimes you will see companies ‘managing’ expectations leading up to their earnings announcement, which may have been why some earnings estimates had been downwardly revised over the previous 30 days ending 12/31/2000. When these companies finally announced earnings, the market obviously didn’t think the news was as bad as the firms may have been projecting, thus the jump in stock price. On the flip-side, companies with high expectations are usually not rewarded by the market for doing what they are expected to do. That is why the companies with the upward earnings revisions did not have the same level of price increase in January 2001.

    To the Editors:

    When writing about closed-end mutual funds, the AAII Journal correctly portrays the risks inherent in those such funds that are leveraged [April 2008 “Offbeat Offerings”]. It never mentions that such risks can be mitigated, if not eliminated, by narrowing one’s selection process to only those closed-end funds that are unleveraged.

    Norman Meyerson

    To the Editors:

    Your Model Shadow Stock Portfolio rules [last run in the April 2008 AAII Journal] change occasionally based on the number of companies passing the screen. For those of us screening with Stock Investor Pro [AAII’s fundamental stock screening and research database] on our own, what do you consider the acceptable range for the number of companies passing the screen?

    Josh Martin

    James Cloonan Responds:

    The actual model portfolio has fixed assets, we do not add funds. That means we only have to have qualified stocks to buy after we sell. So we make any adjustment to qualify enough stocks to use up the funds freed by the sale. If we have a number of stocks qualifying without stretching the criteria, we will sell under the two-year rule to free funds. Everyone will have to adjust their approach to match their flow of funds. While we never add funds, many members may have additional cash coming in or may need to withdraw and that will determine the degree of adjustment. As long as you don’t set the price-to-book-value ratio above 1.00 initially and have at least 10 stocks, you are within our approach.