LOS ANGELES -- A war of words between Treasurer Kathleen Brown of California and a small New Jersey bank has prompted Newsweek magazine to pull an advertisement by the bank that sharply criticizes college savings bonds sold by several states.

Editors withdrew the advertisement on Friday, a few weeks after Ms. Brown wrote to complain that an earlie ad went too far by alleging that zero coupon college savers bonds are "unsafe and unsound."

The new ad, which specifically disputed Ms. Brown's assertions, had been scheduled to run this week.

Ms. Brown has promoted zero coupon bonds as one way to help parents save for college costs. Other states, such as New Jersey and Connecticut, have similar programs.

But the College Savings Bank of Princeton, N.J., has placed ads in publications, including Newsweek and The Wall Street Journal, to condemn the use of long-term zero coupons for such purposes. The bank calls zero coupon bonds "highly speculative instruments" and instead promotes its own savings product, a certificate of deposit with interest rates guaranteed to keep pace with inflation in college costs.

The advertisements prompted California's treasurer to take action shortly before the state's recent $40 million sale of zero coupon college saver bonds. In an Oct. 16 letter to Richard M. Smith, editor-in-chief at Newsweek, Ms. Brown did not directly ask the magazine to discontinue the ads but said, "I hope that Newsweek applies a stricter 'truth in advertising' standard in the future."

The bank then developed a new ad that quoted Ms. Brown's letter to dispute her claims.

Diana Pearson, a spokeswoman for Newsweek, said the magazine decided to pull that advertisement until it could review Ms. Brown's assertions and draft a reply to her letter.

"We were taken by surprise when Newsweek decided to pull our ad -- we still don't know why they pulled it," said Peter A. Roberts, chairman of the College Savings Bank. He added that Newsweek had approved the ad for publication only two days before.

"I don't see how she [Ms. Brown] can go to Newsweek and ask them to suppress our ads," Mr. Roberts said. "You could say this is an abuse of the office."

Zero coupon bonds pay no interest until maturity and are exempt from both state and federal taxes for investors in California's bonds. A bank certificate of deposit requires an initial investment, pays varying interest rates, is not exempt from taxes, and is insured by the Federal Deposit Insurance Corp.

The New Jersey bank's recent advertisements include catchy graphics, such as a circle around the words "zero coupon bonds" with a slash through the three words. The ads advise investors to "just say 'NO!' to zeros" because "a zero coupon bond is a fixed-rate-asset while the future cost of college costs is a variable-rate liability."

The ads promote the bank's CollegesSure Certificate of Deposit, which is tied to an index of college costs so it pays a variable interest rate tied to those costs.

Ms. Brown noted in her letter that zero coupon bonds are subject to much wider swings in the market value than current interest bonds, but she said the California program is designed for investors who intend to hold the bonds until maturity. "This buy-and-hold intention eliminated any concern for market fluctuation," Ms. Brown wrote.

The bank's saving product and its promotional material have irritated a California investment adviser, who claimed the New Jersey bank should be investigated by the Securities and Exchange Commission.

Zane Mann, publisher of the California Municipal Bond Adviser, alleged in his October newsletter that the bank's promotional material is "filled with bogus statements about guaranteed yield, blatant misrepresentations about tax liability, complete with misleading graphs and charts using distorted methodology."

Specifically, Mr. Mann criticized the bank's claim that its CollegeSure product is guaranteed to pay college costs, no matter how high they climb, as "disingenuous," especially because CD rates are at their lowest level in five years.

In response, Mr. Roberts sent Mr. Mann a letter threatening legal action and requesting a retraction in the newsletter for "malicious and patently false information." Mr. Mann has said he plans no retraction.

Mr. Roberts said he does guarantee interest rates, adding that numerous national, licensed securities dealers distribute his literature and sell his product. Mr. Roberts added that he has never received a complaint from the SEC.

Mr. Roberts also has attacked other state's use of zero coupons as a college savings tool. He took out full-page advertisements in local New Jersey newspapers criticizing the use of zero coupons for college savings during the state's recent successful $75 million sale of such securities.

"Pete was concerned that we were selling a competing product and getting into his area," said Larry Singer, director of public finance for New Jersey. "I talked to Pete, and I said, 'I think this is a lot of ado about nothing. We stimulate overall interest in saving for college, and you benefit from that.' We believe there is room in the market for different products."

Mr. Roberts, who estimated that he does 10% of his business in California, said he does not believe the government should be promoting a college savings instrument.

"Most definitely we see them as competition," he said. "It's a state saving product that crowds out the private sector. When you get the state involved, even if it's a bad product, it's going to sell."

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