Question: On a recent TV show I heard bits and pieces of a story on GNMAs, on which I would appreciate your comments. The person being interviewed said they were a poor investment if interest rates moved in a certain direction (up or down?) because, in that case, you didn't realize the promised interest rate on your investment. I think he said this occurs when borrowers pay back their principal too fast. Could you restate and explain this?

Answer: For "bits and pieces," you heard quite a bit. You really may have a problem if interest rates move sharply in either direction.

In the event that rates fall to a level substantially below the rate at which the underlying GNMA mortgages were written, large-scale refinancing and prepayment of mortgages can be expected. You will receive repayments of principal faster than anticipated, and be faced with the need to re-invest the money, almost certainly at a lower rate.

If interest rates go up, your originally promised yield is pretty well protected. Return of your initial investment is guaranteed, if you hold the GNMA security to maturity. But if you decide to sell your interest before maturity and rates are higher than at the time of issue, you will probably get back something less than you invested. The amount of loss would depend on the size of the jump in rates.

Q: My question concerns what I recall as a legal deduction that I repeatedly read about in the past but can no longer locate. The deduction was the irrevocable transfer of $3,000 per year per dependent, with a lifetime limit of $30,000. The ability to use this deduction is not addressed in the current literature and I fear it has been "displaced" by something like the Clifford Trust. I am working on my 1983 tax strategy and would appreciate your assistance.

A: The Economic Recovery Tax Act of 1981 changed the rules on the annual exclusion, but the new rule is much more liberal. The lifetime ceiling was eliminated entirely.

And the annual ceiling was raised from $3,000 to $10,000--$20,000 if you're married and your spouse concurs in the gift. It isn't limited to dependents; such gifts may be made to any individual.

But there really isn't any "deduction" in terms of your income tax return. It's an exclusion, and refers to gift tax; that is, you may make as many gifts as you like (subject only to the individual ceiling) without incurring gift tax liability or affecting your unified gift/estate tax credit.

Your income tax break comes in the context of the income generated by the asset you have given away. Income earned after the gift is taxable to the donee rather than to you. This shifting of income tax liability to another member of the family who is in a lower tax bracket makes good tax strategy in some circumstances.

Q: Under the Tax Equity and Fiscal Responsibility Act, a dividend reinvestment plan in certain public utilities has some tax advantages--at least through 1985. But certain conditions must be met for a public utility to qualify. I would appreciate your running a list in your column of those companies whose dividends do in fact qualify for such treatment.

A: Such a list would take up a lot more space than is warranted. Practically every broker has a list of those public utilities that qualify for the deferral of tax on reinvested dividends.

In addition, your broker can tell you the current yield for each of the utilities and should have some recommendations for your specific program, based on risk factors and your investment profile.

Tax Tip: Since the first of the year, the annual interest rate charged on tax underpayments and overpayments by the IRS has been set at 16 percent. Beginning July 1, the rate will drop to 11 percent, and will remain at that rate for the following six-month period.

The interest rate is set semi-annually, by Oct. 15 and April 15 of each year, based on the average prime interest rate for the six-month period ending either Sept. 30 or March 31.

This new rate is considerably lower than it has been for the past couple of years. However, calculations are no longer computed using simple interest; instead, interest is compounded daily, based on tables issued by the IRS and available at any IRS service center.