Which of the following statements are true about Treasury Receipts?
The investor "locks in" a rate of return that is free from reinvestment risk if the Receipt is held to maturity
The underlying bonds are held by a trustee for the beneficial owners
The interest income on the Receipts is subject to Federal income tax annually
The Receipts are issued by broker-dealers, who maintain a secondary market in these securities
Treasury Receipts represent an undivided interest in a portfolio of U.S. Government securities held by a trustee. The portfolio is assembled by a broker-dealer, who sells "receipts" representing ownership of the interest. Each receipt is, essentially, a zero-coupon obligation, that is purchased at a discount, and which is redeemable at par at a pre-set date. Thus, there is no reinvestment risk, since semi-annual interest payments are not received. The implicit rate of return is locked-in when the security is purchased, and the customer will earn that rate of return if the security is held to maturity. The annual accretion amount is taxable, since the underlying securities are U.S. Governments. At maturity, the receipt will have an adjusted cost basis of par, and will be redeemed at par, for no capital gain or loss.