Appendix A: Resources Reference and Verification Guide

The purpose of this guide is to provide the CAO with descriptions of various types of resources; some more common than others. More information than is usually needed to process a case has been included, since it may prove helpful in some situations.

The guide is divided into four sections:

• A resource desk reference

• A resource verification desk reference

• Suggested questions to help identify resources

• Detailed information about various resources

NOTE:  The material in this appendix may be used with all programs.

Getting and Verifying Resources

Verification

Sample Questions to Identify Potential Resources

• Although most of the questions below are phrased, "Do you...," it is important to get the same information for the members of each budget group as well as any other person whose resources are used to determine eligibility.

• Where do you or any other persons who reside with you cash or deposit your assistance, pay, Social Security, or other checks?

• Do you have to pay a fee to cash a check?

NOTE:  A "no" answer implies the possibility of a bank account.

• Do you belong to a savings and loan or credit union?

• Did you ever have an account with a bank, savings and loan, credit union, etc.?

• Do you own any stocks or bonds?

• Do you own any mutual funds?

• Do you have a retirement fund, such as an IRA, Keogh, or 401K?

• Does your name appear on another person's bank account, certificate, stock account, mutual fund, etc.?

• Do you have any money set aside with a bank or funeral home for your funeral or burial?

• Have you loaned money to anyone?

• Do you expect to receive any money from anyone?

• Do you expect to inherit money from anyone?

• Do you expect to receive any money from life insurance or trust funds?

Checking and Savings Accounts

Savings accounts

Savings accounts, whether of the traditional passbook account or statement type, are interest bearing. There is no longer any government maximum on interest payable. Some banks require a minimum balance to be kept in the account or else they pay no interest or charge a maintenance fee. Deposits and withdrawals can be made at any time in any amount.

NOW and SuperNOW accounts

NOW (Negotiable Order of Withdrawal) accounts are interest-bearing checking accounts. There is no longer any U.S. government maximum on the interest payable.

SuperNOW accounts are money market checking accounts. The government removed minimum-deposit requirements in 1986, but it formerly required a $2,500 minimum. Banks have generally retained their own minimum-deposit requirements, though. There is no limit on the interest they may pay, and rates are higher than for regular NOW accounts.

Money market deposit accounts (MMDAs)

MMDAs allow banks to compete with mutual fund money market funds. There is no ceiling on the interest they may pay. although it is usually slightly less than for other money markets, but MMDAs qualify for deposit insurance. There is now no legal minimum for MMDAs, although banks may set their own. Initially there was a $2,500 limit, which was lowered to $1,000 in 1985 and $0 in 1986. Owners can usually write up to three checks per month on an account.

Certificates of deposit

A certificate of deposit (CD) is a bank deposit that cannot be withdrawn for a certain period of time or can be withdrawn early only with a penalty. It pays a higher rate of interest than a passbook account. Since 1983, the government has removed all interest rate ceilings and minimum-deposit requirements from CDs maturing in over 31 days, but some savings institutions may retain their own minimum-deposit requirements. With early withdrawal, the federal government requires forfeiture of one month’s interest on a 1-year-or-less CD and 3 months’ interest on a CD with an original maturity of more than 1 year. Terms vary from 30 days to 10 years, with 6 months being the most popular. Short-term CDs of 7 to 31 days are sometimes available. So called "designer CDs" allow investment of money in an amount and for a period of the investor’s choosing. The CAO must be alert for the possibility of “window payments” (cashing of CDs) and closed accounts that may be reported on IEVS. Because an account has a penalty for early withdrawal does not mean that it is inaccessible.

Bonds

Corporate bonds

Corporate bonds are used by corporations to raise capital. There are two types of bonds:

• Debentures, which are backed by the issuer’s full faith and credit

• Mortgage-backed bonds, which are backed by a lien on the company’s assets

Bonds usually pay a fixed rate of interest for a fixed period of time, with interest payable annually, semiannually, or quarterly, depending on the issue.

Bonds are issued in two forms:

• Bearer or coupon bonds

• Registered bonds

Bearer bonds pay interest to whomever holds the bond when interest is due. Registered bonds pay interest to the registered owner of the bond.

Convertible bonds are corporate debentures that can be exchanged for a specified number of shares of a company’s common stock within limits specified by the issuer. High-risk bonds are called "junk bonds."

Municipal or tax-exempt bonds

Municipal bonds make up the largest part of the bond market. They are issued by cities, counties, and state governments and authorities. They are exempt from federal tax and often exempt from state and local taxes for residents of that state.

Most municipal bonds are one of two general types:

• General obligation bonds, which are issued on the full faith and credit of the issuing municipality and supported by the taxing power

• Revenue bonds, which are backed by the project being financed and the revenue or user fees it generates

Other types of municipal bonds are limited-tax bonds, anticipation notes, industrial development bonds and life-care bonds. Municipal bonds have maturity dates up to 30 years, and $1,000 is the usual minimum investment.

Unit investment trust (UIT)

A UIT is a package of bonds in a portfolio. One can buy shares of the package for $1 to $1,000 per share with a minimum investment of $750 to $5,000 depending on the trust. The interest rate is usually fixed at purchase and does not change. Units are usually sold or redeemed through the trust sponsor.

Zero coupon bonds

Zero coupon bonds are bonds that pay no current interest but return the amount of the original investment plus all accrued interest upon maturity. Zero coupon bonds sell at a big discount and pay face value at maturity. (This is the same principle that U.S. savings bonds use.) These bonds are generally issued by corporations. The U.S. government does not issue zero coupon bonds directly, but dealers may convert them to zero coupons (see "Tigers and cats," below).

Buying and selling

Bonds are usually bought and sold through brokers, securities dealers, or other investors. Bonds bought at issue usually have no commission charge, but brokers charge a fee to buy or sell existing bonds. The buying and selling of existing bonds through dealers and brokers is called the secondary market. The value of bonds on the secondary market is based on the current interest rate and time to maturity. A bond may sell at more or less than its face value or the purchase price. The usual minimum investment is $1,000. Although there is a listed value for some bonds, most bonds are sold in the over-the-counter (OTC) market, where a lower bid price and a higher ask price are quoted. Some bonds can be difficult to sell or may sell at a reduced price if they are small, little-known issues. Small sellers may also face price concessions.

How to read bond quotations

The following quotation is similar to the daily, weekly, and annual bond tables that are found in newspapers and financial publications. New York Stock Exchange (NYSE) bond tables show, from left to right, the name of the issuer; the bond's nominal or coupon rate; the last two digits of the year in which the bond is scheduled to mature; the current yield; the number of bonds traded during the year; the highest, lowest, and last prices of the bond for the period covered by the quotation; and the net change of the price of the bond.

The standard redemption value of a bond is $1,000, but prices are quoted on a par of 100 instead of 1,000. A bond listed at 95 actually sells for $950. Corporate and municipal bonds, like stocks, are quoted in whole numbers and eighths. A quote of 98 5/8 is actually 98.625 or $986.25.

The above bond quotation is for an American Telephone and Telegraph bond with a 3 7/8 percent coupon and a maturity date of 1990. The last or closing price quotation was 69 1/4 ($692.50).

Bond prices are determined before commissions are deducted, because a commission is not legal indebtedness against the current market value of a bond or other investment. However, if the bond is converted (redeemed or sold) the amount received may be less than the quoted value because of commissions, thus reducing the amount of the owner's resources.

Top rated bonds on the NYSE or American Exchange (AMEX) are listed in many daily newspapers. A complete listing of bonds is available in Barron's (weekly) and the Bank and Quotation Record (monthly). Always make sure you know if you are using a daily, weekly, monthly, or annual bond table. Contact with a securities dealer is often required to establish the value of bonds.

U.S. Government Securities

The U.S. government borrows considerable amounts of money, much of it by issuing securities.

Treasury bills (T-Bills)

These are short-term obligations with 3-, 6-, or 12-month due dates. The minimum investment is $10,000, with additional $5,000 increments available. New 3- and 6-month batches are auctioned each Monday. Twelve-month bills are auctioned once a month. T-bills are registered in book-entry form at the Treasury Department rather than engraved certificates. Purchases receive a receipt for proof of purchase. Issue prices of new bills are not set by Treasury but are set by competitive bid. They can be purchased through the Federal Reserve banks or through a broker. T-bills are sold at a discount, meaning that the purchaser pays less than the face value he or she will receive at maturity. T-bills can be sold before maturity on the secondary market.

Treasury notes and bonds

Treasury notes and bonds are similar to Treasury bills, except they have longer maturities. Notes mature in one to ten years, while bonds mature in ten or more years. The usual minimum investment in these securities is $1,000, although it is sometimes higher. They are auctioned periodically. Treasury notes and bonds were issued in the form of engraved certificates and were bearer bonds. The Treasury began registering them in 1983 and as of July 31, 1986, it issues all securities in book-entry form. Buyers no longer receive an engraved certificate—just a statement or receipt.

Tigers and cats

These are names given by brokers to government securities issued with a zero-coupon concept. The broker removes the interest coupons from the security and sells it at a big discount with long maturity. The interest is not paid periodically but is kept in an account and compounded. At maturity, the interest payments are made in a lump sum along with the principal payment. These bonds can be sold on the secondary market before maturity.

Federal agency securities

Many federal agencies created by Congress have charters to issue securities. These include the Federal Home Loan Bank Board, Federal Home Loan Mortgage Corporation (FREDDIE MAC), Export-Import Bank, TVA, and Government National Mortgage Association (GINNIE MAE). They have maturity dates from one week to thirty years, and the minimum investment ranges from $1,000 to $25,000.

U.S. savings bonds

U.S. savings bonds are registered, nontransferable Treasury securities. They pay market-based rates on a minimum investment of $25 for a $50 bond. They can be purchased at almost any bank or through payroll deduction and can be redeemed after six months at most banks. Series EE savings bonds pay 5½ percent interest for the first year, with interest payments increasing ½ percent per year until 7½ percent is reached in five years. After five years, series EE bonds pay 85 percent of the average return on five-year marketable Treasury securities, with a minimum of 7½percent. Interest is compounded monthly for the first 18 months and semiannually afterwards. Maturity is seven years, with an automatic extension period up to forty years from date of issue.

Series HH bonds are available in exchange for EE bonds in denominations from $500 to $10,000. They provide semiannual interest payments of 7½ percent for ten years, when the principal is returned to the investor.

Reading government securities quotations

Tables from government bonds traded OTC show the nominal or coupon interest rate; the scheduled month and year of maturity; the highest, lowest, and last prices of the bond; and the net change from a previous period. Some tables will quote a yield figure, which is the rate of return per year on the coupon rate at current purchase price. U.S. bonds and securities are quoted in whole numbers and thirty-seconds. Thus a government bond quoted at 98.24 should be read as 98 24/32 or 98 3/4 which translates to $987.50, as they are listed on a par of 100.

The quotation shows a security due in November 1986 with a coupon of 6-1/8 percent, a bid price of 89.11 ($893.43), and an asked price of 90.11 ($903.43).

Prices of government securities are determined before commissions are deducted. If a government security is converted, the amount received may be less than the quoted value, because of commissions. The above quotations do not apply to U.S. savings bonds, as they are nontransferable.

Mutual Funds

Mutual funds is a term that encompasses a wide range of investments. Basically, it is a pool of assets (stocks, bonds, etc.) that are managed by an investment company. Many investors who cannot afford to purchase a large portfolio can pool their money and buy shares of a large portfolio, which is managed for them by professionals. Each share represents a proportionate interest in many different stocks or bonds, so price is based on the assets of the funds divided by the number of shares sold. Dividends typically are distributed quarterly. Mutual funds are referred to as "load" or "no-load" funds. Load funds charge a sales commission, usually 8½ percent of the investment, while no-load funds have no commission.

Types of mutual funds

• Growth funds (long-term funds, aggressive-growth funds, performance funds, or hedge funds)

This is one of the largest categories of mutual funds. They usually invest in common stocks. The objective is long-term growth of investment instead of current income. Dividends are typically low, expecting increase in the value of fund shares.

• Income funds

The objective is current income through high dividends and interest, as opposed to capital gains. They may invest in blue chip stocks and bonds or often just bonds.

• Balanced funds (growth and income funds)

These funds invest in a mix of stocks and bonds to reduce risk and to provide higher current income along with capital appreciation.

• Municipal bond fund (tax-exempt fund)

Investments are made in tax-exempt bonds and the interest is passed along to holders on a tax-exempt basis. They are more liquid than unit trusts, because they are managed funds.

Money market funds

Invented in the 1970s, they are one of the most popular investments ever. Money markets make short-term investments in secure conservative markets (Treasury bills, bank certificates, commercial 100s, etc.). The minimum investment is usually $1,000 (some are less) with shares usually priced at $1. Income received on the shares is the return or yield. Income may fluctuate daily based on interest rates. Shares are usually redeemed at the same $1-per-share purchase price. There is often a check-writing feature associated with money markets.

Buying and selling

Load funds are sold through a broker, who collects a sales commission. No-load funds are usually bought directly from the fund through the mail or in person. These no-load funds are often advertised in newspapers and magazines.

How to read mutual fund quotations

The price of a mutual fund share is quoted on the net asset value (NAV), which is the total assets of the fund divided by the number of shares outstanding. The NAV is calculated daily and reported to the National Association of Securities Dealers (NASD). The format of the table above is similar to those quoted in newspapers and financial publications such as Barron's. It shows the names of funds that are managed by the Fund Founders Group. Next, the high and low values for the previous 52-week period are listed, then the most recent closing price or NAV, the change over the previous week, and the fund's income and capital gains totals for the previous 12 months.

Mutual funds are verified in the same manner as stocks. Some mutual funds may charge redemption fees, so the amount received for mutual fund shares may be less than the quoted value. Until they are redeemed, the value of the shares is determined before redemption fees are deducted. This is done because a redemption fee does not reduce the fund owner's equity in the investment even though it may mean a lesser amount of resources after redemption. Contact with a securities dealer may be necessary to establish the value of a mutual fund share if the fund is not listed or is not listed on a daily basis.

Stocks

Common stock

Common stock is usually in the form of a certificate registered in the purchaser’s name. This certificate may indicate a face ("par") value, but this has little relationship to the current value of the stock. Dividends are usually declared and paid quarterly and may vary based on the profits (or lack of profits) the company earns.

There are several types of common stock:

• Listed stocks are those listed on the NYSE, the AMEX, or a regional exchange, such as the Boston, Philadelphia, or Chicago exchanges. (These are usually major companies.)

• Over-the-counter (OTC) stocks are not listed on major exchanges, because they are usually small companies who do not qualify to be listed.

• Penny stocks are OTC stocks. These stocks are usually reported in the National Association of Security Dealers Automated Quotations system.

OTC stocks are quoted on a bid price and an asked price, at which dealers will buy or sell the stock.

Preferred stock

Preferred stock receives preference in dividends and distribution of assets in case of bankruptcy. All preferred stock dividends must be paid before common stock dividends can be paid, and while common stock dividends can be skipped, preferred stock dividends are paid at a fixed rate. Convertible preferred stocks can be exchanged for a specific number of shares of common stock at a specified time and price.

Preferred stock is verified in the same manner as common stock. After the name, a "pf" symbol is listed, indicating a preferred stock.

Buying and selling

Initial offerings of stocks by a company can often be bought with no commission fee from a broker retained by a company to sell them, but usually stocks are sold in the secondary market by brokers who charge commissions. They may also be sold to brokers, who charge a commission for this service.

Reading stock quotations

Stock tables may vary slightly in format from publication to publication but generally include an abbreviation of the company name; the dividend rate; the number of shares traded; the price/earnings ratio; the high, low, and closing (or "list") prices of the stock, and the change from the last quote. The last or closing prices are the one we are concerned with. Like bonds, stock prices are quoted in whole numbers and eighths. A stock listed at 52-1/4 sells for $52.25.

The quote listed above is for Philadelphia Electric Company. The first line is the common stock, which pays a dividend of $2.20 and has a price/earnings ratio of 9, sales of 432,300, a daily high of 22 7/8 ($22.875), a daily low of 22 5/8 ($22.625), and a last price of 22 3/4 ($22.75), which was down 1/8 point from yesterday's closing price. The second line shows a share of preferred stock with a dividend of $4.30, sales of 5,000, a high, a low, and a last price of 42 3/4 ($42.75).

Stock prices are determined before commissions are deducted. Commission charges may mean that the amount received is less than its quoted price.

The values of listed common stocks are printed in many daily newspapers or financial papers, such as the Wall Street Journal. Standard and Poor's Inc. publishes annual stock reports and The Daily Stock Price Record, which lists daily stock prices from 1962. These and other references can often be obtained in libraries. Always determine whether the quotation is daily, monthly, or annual.

The value of OTC stocks can usually be verified in the same manner as listed stocks, except you use the "bid" price if the stock is quoted on a bid-and-ask basis. In the case of some small, obscure companies, it may be necessary to contact a stock broker to verify the value of the stock.

Individual retirement accounts (IRAs), Keogh accounts, and 401K accounts

IRAs, Keoghs, and 401K accounts are types of retirement funds. They are described in detail in the Internal Revenue Code.

Early withdrawal of IRA, Keogh, or 401K funds will mean significant tax penalty, but that does not mean it is not a resource. Until it is actually withdrawn, the value of an IRA, Keogh, or 401K account for resource-determination purposes is the value of the investment.

Promissory note

This is a written promise to pay or repay a specified sum of money at a stated time or on demand. It may or may not include interest to be paid.

Burial funds

These are funds set aside specifically to pay for expenses of burial. The funds may have been established directly with a financial institution or through a funeral director. A signed agreement or contract normally exists regarding whether a fund is revocable or irrevocable and whether the fund will earn interest, which is or is not available to the client.

Reviewed December 11, 2017. Reissued September 20, 2012;  replacing January 31, 2012.