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Financial striptease

s one small investor to another, it would seem the jury is not yet in on the overall ad-

vantages

and disadvantages of

*“strip

bonds’’ or ‘‘zero coupon bonds’’, a new type of in- vestment attracting much attention these days.

They sound complicated and on a scale of 1-to-10 they might rate between 3 and 5, which means they are nol really that difficult to unders- tand. One complication is that they are a new invest- ment vehicle and we do not have much in the way of historic performance to judge whether they are the right in- vestment for you.

Generally speaking, a bond is made up of two things — the principal portion and the interest coupons. The new twist is that each is sold separately at a discount because no interest is paid between the date you buy them and the date of maturity.

Zero coupon bonds, or ‘‘strips’’, are being heavily advertised by the vendors. Merrill Lynch, for example, in recent weeks advertised that a $10,000 investment would grow to $96,000 in 17 years. There are reports that several hundred million dollars worth of these issues have been sold since the start of this year.

$$$

John Nichol, stockbroker with Burns Fry, Vancouver, gave me his views of the ad vantages of stripping coupons from the bond

The quality of the bonds ts generally high, hence basic security is sound. Generally, the bonds are those of the Government of Canada, On- tano Hydro and the like.

All interest $8 auto matically compounded until maturity The exact) return

you receive is known tn ad vance, whercas with a regular bond the return will) vary depending upon the rate at which the tmcome tis re invested The range of maturity dates is great which can allow the investor to tailor them to match invest

ment objectives And the stnps can generally be pur chased at a higher yield to matunty than convenvonal bonds, states Nachol

He and others suggest the strips’) are good in

Bill Ryan

vestments for RRSPs and for investors to whom security of principal and a guaranteed rate of return are important.

$$$

One conclusion can be reached quickly: ‘‘Strips’’ are an investment which should probably be held for their full term. They are risky in- vestments because their resale value can drop sharply as in- terest rates increase, or their price could rise impressively as interest rates fall.

Another vital question is whether there is a ready, or li- quid market for the “‘strips.”’ Some brokers suggest this will develop but in the mean- time you may not be able to dispose of them if you wished to do so, before maturity.

$$$

Other considerations: The tax status of the investment in the coupons (unless, of course, they are in a tax- Sheltered RRSP) is) sull in question. And the Ontario Securities Commission = is considering a requirement

Arts, Sciences & Technology

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that sellers of ‘‘strips’’ must provide the prospective pur- chaser with a purchase cir- cular or special explanatory

Statement, to make sure the.

latter is fully awate of the ad- vantages and risks.

As we suggested.... ‘‘the jury is still out.’” No one is ‘*knocking the strips’’. Just be sure you are thoroughly aware of what you are buying or investing in.

BS - Sunday, August 5, 1984 - North Shore News

Everything’s ship-shape

THE FEDERAL government’s ship-shaped Canadian Pavilion for Expo ‘86 is quickly taking shape on the south side of the harbor. Completion date for the im- pressive new Structure-is the fall of 1985, in time for Expo and the facility’s future as a cruise ship terminal, hotel, office complex and major trade and convention centre.

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