CATS/TIGRS

• Product Overview
• Features and Benefits
• Risks and Considerations
• Availability Through Fidelity

Product Overview

CATS & TIGRS are abbreviations for Certificates of Accrual on Treasury Securities (CATS) and Treasury Income Growth Receipts (TIGRS). They are securities that look very similar to Treasury zero coupon bonds. The difference is that whereas Treasury zero coupon bonds were issued by the U.S. Treasury as zero coupon bonds, CATS & TIGRS were created by investment banks in the early 1980s.

Through a process known as "coupon stripping" the investment banks transformed the issued zero-coupon bonds held against the Treasury bonds in escrow. Other brand names for the same product from other brokers include COUGRS (Certificate of Government Receipt) ETRs (Easy Growth Treasury Receipt), TRs (Treasury Receipts) and LIONS (Lehman Investment Opportunity Notes).

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Features and Benefits

• The main motivation behind creating CATS and TIGRS was to provide investors with the means of buying a safe security at a deep discount. At the time of their creation, the Treasury was not issuing its own zero-coupon bonds.
• Even though CATS & TIGRS were issued by private firms, which ultimately had the obligation to repay them, they are backed by U.S. Treasury bonds, giving them a relatively high degree of security.
• Like other zero-coupon bonds, CATS & TIGRS may be ideal investments when saving for a future goal. The maturity of the bond can be matched to when the money is needed for the goal and the investor does not have to be concerned about reinvesting coupon payments.

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Risks and Considerations

• Credit Risk: Because CATS & TIGRS are not pure Treasury bonds they contain a degree of credit risk - despite the Treasuries held in escrow. Now that zero-coupon Treasuries are available investors may wish to consider whether the added yield for a CAT or TIGR is adequate compensation for the credit risk.
• Liquidity Risk: CATS & TIGRS outstanding and trading are typically of smaller issue size than Treasury Zero Coupons meaning they can suffer from liquidity risk particularly in times of financial market stress.
• Price Volatility: Like any zero-coupon bonds CATS & TIGRS have greater sensitivity to market rate changes.
• Call Risk: Not all CATS & TIGRS are call protected.
• Tax Consideration: Investors holding CATS & TIGRS in taxable accounts are also exposed to a general drawback of zero-coupon bonds which means you'll usually have to pay income taxes each year on imputed annual income even though you don't receive a cash payment until maturity.
• Inflation Risk: The risk that the rate of the yield to call or maturity of the investment may not provide a positive return over the rate of inflation for the period of the investment.

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Availability Through Fidelity

• Minimum investments are as low as $1,000 face value.
• Fidelity Capital Markets Services, a division of National Financial Services LLC, makes markets to buy and sell CATS & TIGRS, with Fidelity Brokerage Services LLC normally acting as riskless principal or agent. See current offerings.

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