bonds” to the extent of its share of principal payments and “stripped coupons” to the extent of its share of interest payments on such Regular Class.  Although the tax treatment of a Strip is unclear, the Tax Administrator intends to treat each Strip as a single debt instrument for purposes of information reporting.  The Internal Revenue Service, however,  could  take  a  different  position.    For  example,  the  Internal  Revenue  Service  could  contend  that  a  Strip should be treated as a pro rata part of the Regular Class to the extent that the Strip represents a pro rata portion thereof, and “stripped bonds” or “stripped coupons” with respect to the remainder.  An investor should consult its tax advisor regarding this matter. A Holder of an MX Class should calculate original issue discount with respect to each Strip and include it in ordinary income as it accrues, which may be prior to the receipt of cash attributable to such income, in accordance with a constant interest method that takes into account the compounding of interest.  See “Tax Treatment of Regular Securities  —  Original  Issue  Discount”  above.    The  Holder  should  determine  its  yield  to  maturity  based  on  its purchase price allocated to the Strip and on a schedule of payments projected using a prepayment assumption, and then  make  periodic  adjustments  to  take  into  account  actual  prepayment  experience.  With  respect  to  a  particular Holder,  it  is  not  clear  whether  the  prepayment  assumption  used  to  calculate  original  issue  discount  would  be determined at the time of purchase of the Strip or would be the original prepayment assumption with respect to the related Regular Class. If OID accruing with respect to a Strip, computed as described above, is negative for any period, the MX Holder will be entitled to offset such amount only against future positive OID accruing from such Strip, and the Tax Administrator intends to report income in all cases in this manner.  Although not entirely free from doubt, such a Holder may be entitled to deduct a loss to the extent that its remaining basis would exceed the maximum amount of future payments to which the Holder is entitled with respect to such Strip, assuming no further prepayments of the Mortgages (or,  perhaps,  assuming  prepayments  at  a  rate  equal  to  the  prepayment  assumption  with respect  to  the related Regular Class).  Although the issue is not free from doubt, all or a portion of such loss may be treated as a capital  loss  if  the  Strip  is  a  capital  asset  in  the  hands  of  the  Holder.   An  investor  should  consult  its  tax  advisor regarding this matter. An MX Holder will realize gain or loss on the sale of a Strip in an amount equal to the difference between the amount realized and its adjusted basis in such Strip.  The seller’s adjusted basis generally is equal to the seller’s allocated  cost  of  the  Strip,  increased  by  income  previously  included,  and  reduced  (but  not  below  zero)  by distributions previously received.  Except as described below, any gain or loss on such sale will be capital gain or loss if the MX Holder has held its interest as a capital asset and will be long-term if the interest has been held for the long-term capital gain holding period (more than one year).  Such gain or loss will be ordinary income or loss (i) for a bank or thrift institution or (ii) to the extent income recognized by the Holder is less than the income that would have been recognized if the yield on such interest were 110% of the applicable federal rate under section 1274(d) of the Code. If an investor exchanges a Regular Class for several MX Classes and then sells one of such MX Classes, the  sale  will  subject  the  investor  to  the  coupon  stripping  rules  of  section  1286  of  the  Code.    The  investor  must allocate its basis in the exchanged Regular Class between the part of the Regular Class underlying the MX Class sold and the part of the Regular Class underlying the MX Classes retained in proportion to their relative fair market values as of the date of such sale.  The investor is treated as purchasing the interest retained for the amount of basis allocated to such interest.  The investor must calculate original issue discount with respect to the retained interest as described above. Although the matter is not free from doubt, an investor that acquires in one transaction a combination of MX Classes that may be exchanged for a Regular Class should be treated as owning the Regular Class. Exchanges of MX Classes and Regular Classes An exchange, as described under “Description of Securities — Modification and Exchange” herein, by a Beneficial Owner of (i) REMIC Securities for MX Securities, (ii) MX Securities for interests in the related REMIC Securities or (iii) MX Securities for other MX Securities will not be a taxable exchange.  Such Beneficial Owner will be treated as continuing to own after the exchange  the same combination of interests in the related REMIC Securities that it owned immediately prior to the exchange. Base Offering Circular - Single Family 39 RICHMOND 649290v15