THE BOTTOM LINE

WITH ALL the hype and
attention given to mutual
funds these days, another
true RRSP growth invest-
ment has been overlooked.
Stripped coupons have been
around for years and are a
great way for investors to
achieve growth without risk
in their RRSPs.

Stripped coupons are derived
from large blocks of gavernment of
Canada and provincial bonds pur-
chased by some of the larger invest-
ment dealers. Each semi-annual
interest voucher is then stripped
from the regular bond and the
detached vouchers or coupons are
offered for sale individually.

Unlike GICs or term deposits,
which pay interest on your initial
investment, coupons are bought ar a
discount to their value on maturity
date. The difference between what
you pay for the coupon and the
maturity value is the amount of
interest earned.

For example, based on informa-
tion available at this time, a coupon
that matures in October of 2002 has
an annual return of 8.90%. It can be
bought today for $500 and will
have a value at maturity of $1,000,
a discount of $500. You know that
your investment will double in
eight years. By choosing a 10 ycar
maturity, the yield becomes 9.25%
per year and the coupon can be pur-
chased for $410. Since you do not
receive periodic interest payments,
you are never at risk of reinvesting
at a lower rate.

Three points to keep in mind
about stripped coupons:

* There is no reinvestment risk;
your interest payments are automat-
ically reinvested at the same rate

Left ta right:
Nancy Farran,
Gordan Brown,
Janet Kelchen

you made your initial investment at.
« Because your interest is reinvest-
ed, you are continuously com-
pounding it, so all your money is
working for you; this is the key to
growth.
* These coupons are ideal for retire-
ment planning because they offer
flexibility by letting you choose a
maturity date to match your plans.
Generally, the longer the term to
maturity, the higher the rate of
interest you, the investor, can
expect to receive. Investing in
coupors outside of a registered plan
has tax consequences that should be

discussed with your investment
advisor.

The Bottom Line is this: as
interest rates slay low, conservative
investors should look to these
investments for good long term
growth and secure returns.

Russell Moldowan is an invest-
iment adviser in Vancouver. He
advises on investment management
and retirement planning, Call or
write to Russell at (604) 661-7475,
P.O. Box 10342, Pacific Centre,
Vancouver, B.C, V7Y 1H6. Or by
E-mail at russellm@unixg.ube.ca.

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