(MONEY Magazine) – Q Last year, when I retired, I invested $50,000 in CMOs at 9 1/4% interest. But I don't know much about them. Is my principal secure in CMOs? Will they provide steady income over the years? Could you please explain what these products are and how they work? Harry Hancock Ocala, Fla. A Oh, how I wish you had asked these very intelligent questions before you bought your collateralized mortgage obligations -- investments that are as difficult to understand as they are to pronounce. Fortunately, CMOs, which some brokers are pushing heavily these days, are also pretty safe. Like other mortgage-backed securities such as Ginnie Maes or Freddie Macs, CMOs are shares in pools of residential mortgages that are insured against homeowner default, thus protecting your principal. But CMOs go on to fix one drawback of such securities -- the fact that, as homeowners refinance their loans, sell their homes or otherwise prepay their mortgages, your principal dribbles back into your hands unpredictably over the life of your investment. CMOs address this problem by dividing a pool into a series of so-called tranches with terms ranging from two to 20 years. When you buy into, say, the 10-year tranche, you receive payments that are predominantly interest for roughly 10 years and then get your principal back over the next 12 to 20 months. Even with a CMO, though, nobody knows how fast loans will be retired -- and thus how soon you'll receive your principal. If interest rates happen to fall, and homeowners rush to refinance, your ''10-year'' CMO could be completely paid off by the eighth or ninth year. Conversely, if rates rise, you may have to wait until the 11th or 12th year to get all your money back. That uncertainty is offset, however, by CMOs' attractive interest rates -- currently about 7.1% to 8.55%, or one-half to 1 1/2 percentage points higher than Treasury securities of similar maturities.

Q My 90-year-old widowed father has been confined to a $5,000-a-month skilled- nursing-care facility for a year to treat the aftereffects (mainly depression and weight loss) of a stroke. His funds are now depleted, and he will soon be going on Medicaid. But he still had to pay income taxes last April. The nursing home said he could not deduct its bills as a medical expense. But when I asked the Internal Revenue Service about that, the answer I got seemed equivocal. What's the story on nursing-home deductions? Alice Silverberg Brooklyn A I have good news: Don Roberts, an IRS spokesman, and Richard Anderson and Peter Strauss, two New York City attorneys who specialize in serving the elderly, all say that your dad can deduct the full $5,000 a month. Had he entered the home merely for custodial care because he or the family felt he needed it, then he could deduct only the cost of the medical treatment he received there. But since he had to go into the home for medical reasons, he can write off the full tab -- including food and lodging. If he didn't take the deduction for 1990, file an amended return that includes a letter from his doctor explaining the medical need for his confinement.

Q Help! My $35 paid to TRW for its credit reporting service produced a report that was blank except for the words ''format inquiry error.'' Apparently, no one at TRW bothered to check this before it was mailed. If I lived in the U.S., I could call TRW and get a new report before applying for an upcoming loan. As it is, however, I am stationed not far from Timbuktu in the Foreign Service. What can I do? David Atwood Bamako, Mali A Your lack of faith in the people at TRW Consumer Information Services is evident in the fact that you wrote to us rather than directly to them. TRW, through spokesman Tim Ruegg, opined that you could have made life easier for yourself if you had written directly to the company. Anyway, after we called, an investigation ensued, and Ruegg admitted that TRW had made an error. Because your forwarding address at the State Department in Washington, D.C. does not include a street name and number, the computer couldn't retrieve your credit information but coughed out a blank instead. By way of apology, TRW has extended your membership in its Credentials program to 18 months (normally, your $35 would entitle you to only 12 months of the service, which provides , you with unlimited copies of your credit report and notifies you if others inquire about your credit). That ought to keep you entertained when things are slow in Bamako. In the meantime, TRW has mailed a new report that should reach you in time for you to get the loan. P.S. TRW will fax reports -- though only in the U.S., not to Mali -- for an extra $15.

Q I was just notified by our company controller that under IRS rules our 401(k) program is discriminatory because it favors higher-paid employees over others in the company. Apparently, this is so even though the company does not contribute to the plan. As a result, I will be allowed to put in less money this year than I'd hoped to. It seems that this ''discrimination'' rule defeats the aim to have people save for retirement. Can I use an Individual Retirement Account for the excess I can no longer put in my 401(k)? Richard L. Klaess Skokie, Ill. A Although the money you contribute is all yours, the government considers the taxes you save on it to be foregone revenue -- that is, money it had its hairy eyeball on before you tucked it out of sight in that tax-deferred account. Thus the government wants to make sure that -- by its own lights, at least -- this revenue is lost in a good cause. One way it does so is to promulgate a batch of tortured regulations intended to guarantee that your 401(k) functions for the benefit of all employees and not just as a tax haven for the relatively well-to-do. Among other things, these antidiscrimination rules -- so called because they're supposed to prevent a plan from discriminating in favor of the rich -- put a cap on how much highly paid workers like you can contribute if lower-paid employees are not putting much into the plan. (You're generally considered highly paid if you make over $60,535 and are among the top 20% of earners at your firm.) Ordinarily, any employee can park up to $8,475 in a 401(k) this year. But since your lesser-paid co-workers are not contributing much -- possibly because your company does not match their deposits to encourage participation -- that limit is reduced for people like you who are compensated more generously. Unfortunately, your 401(k) membership makes you ineligible for deducting contributions to an IRA. But you can at least shield earnings on after-tax savings, either by putting them in a nondeductible IRA or by using them to purchase tax-free municipal bonds. Failing that, try plastering your office with posters urging your lesser-paid co-workers to plow more money into their 401(k)s. By encouraging them to save for their retirements, you'll make it easier to save for yours.

BOX: Marlys J. Harris also answers your financial questions on Cable News Network's Your Money every Saturday at 3:30 p.m. eastern time and Sunday at 9:30 a.m. Send your question, plus your name, address and phone number, to Money Helps, Time & Life Building, Rockefeller Center, New York, N.Y. 10020.