Zero Coupon Bonds

Description
Zero coupon bonds are backed by the full faith and credit of the issuer. These securities, known as STRIPS, are issued directly by the issuer. These bonds are offered at a deep discount and mature at face value. They compound semi-annually at the corresponding yield the investor locks in at the time of purchase.

Objective
To provide investors who don't need income now the opportunity to let their money grow until a specific future date.

Suitability
Zero coupon bonds can be used for any situation where the goal is to accumulate a specific amount of money by a certain future date.

Features

• Credit Safety: Zero coupon bonds are backed by the good faith and credit of the issuer as to the payment of face amount at maturity.
• Small Initial Cash Investment: A small investment today can grow to a large investment over time. Liquidity: Zero coupon bonds can be sold on any business day at their current market value. You may receive the same, more or less than originally invested.
  
• Market Value Fluctuations: As interest rates change, the price of zero coupon bonds change. These price fluctuations may be greater than those on interest-paying bonds of the same maturity.
• Phantom Income: The compounding interest of STRIPS will build an increasing tax liability each year. Investors must pay taxes on the "phantom income" or "accreted value" each year they hold the security.
• Tax Status: The phantom income/accreted value is fully taxable unless held in a qualified retirement plan.

For more information, please contact your Edward Jones financial advisor*.