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From: bwm@ccice2.UUCP (Brad Miller)
Newsgroups: net.invest
Subject: Re: long term investments (0's)
Message-ID: <614@ccice2.UUCP>
Date: Wed, 20-Mar-85 12:13:08 EST
Article-I.D.: ccice2.614
Posted: Wed Mar 20 12:13:08 1985
Date-Received: Sat, 23-Mar-85 02:26:25 EST
References: <610@ccice2.UUCP>
Reply-To: bwm@ccice2.UUCP (Bradford W. Miller)
Organization: CCI Central Engineering, Rochester, NY
Lines: 30
Summary: 

Some more info that I omitted from my original article:

Tax considerations!

Something that is VERY important about 0's based on Govenment obligations
(i.e. not a tax-free muni 0) is that the IMPUTED interest (that is the
interest you would have been receiving on the zero had it been paid to you)
is taxable EACH YEAR. Now if you (like me) don't really feel like paying
taxes on money that hasn't been paid to you, you will only use them for
your IRA or KEOGH account.

If, on the other hand you bought a tax-free muni 0, you won't have this
problem, BUT you might fall into another VERY BIG hole:

The issuing authority may call the bond!! Most muni (though I am told not
all) 0's can be called early. The problem is, that they are called for the
ORIGINAL ISSUING PRICE plus the interest thru the call date. SO, if you
payed a premium above it's current value (like, the 'current' rate is
better than the 'issue' rate) YOU COULD LOSE MONEY IF IT'S CALLED.

The only way to avoid this is to a) buy uncallable muni 0s,
b) make sure you are buying at a discount, so you will get a premium if
it is called or
c) buy at the end of a series, so your bond will be the LAST to be called,
and thus less likely.

Brad Miller

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