WHAT ARE TIGRS, CATS, AND LIONS?

TIGRs, CATS and LIONs—actually referred to as "felines" by some—are acronyms for securities issued by private companies but derived from U.S. Treasury bonds. The catlike appellations are brand names belonging to the brokerage firms that first created them. For instance, Salomon Brothers invented CATS—Certificates of Accrual on Treasury Securities. Merrill Lynch introduced TIGRs (Treasury Income Growth Receipts), and Lehman Brothers created LIONS (Lehman Investment Opportunity Notes).

Introduced between 1982 and 1986, the felines are zero coupon instruments based on Treasury bonds the brokerages held in escrow. They were created through a process known as coupon stripping: the brokerage would separate—strip—the bond's interest (or coupon) from its principal, and issue bonds based on the interest separately.

Unlike regular bonds, CATS don't make regular payments of interest to their holders. Instead, investors buy them at a deep discount from their face value, which is the amount the investor receives when the bond matures. The difference between the face value and the actual price of the zero coupon bond represents the interest earnings of the investment.

In 1986, the Treasury instituted its own STRIPS system for backing zero coupons with Treasury securities, one that made it easier for private firms to issue them and that was safer for investors. As a result, our menagerie of feline bonds is no longer being issued. However, they are still available on the secondary bond market.