Base Offering Circular Multifamily
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manner as for other Interest Weighted Securities. Consequently, in the absence of further
administrative guidance, the Tax Administrator intends to account for Superpremium Securities
in the same manner as other Interest Weighted Securities. However, there can be no assurance
that the Service will not assert a position contrary to that taken by the Tax Administrator, and,
therefore, Holders of Superpremium Securities should consider making a protective election to
amortize premium on such Securities.
The OID Regulations provide that if a principal purpose in structuring a debt instrument,
engaging in a transaction, or applying the OID Regulations is to achieve a result that is
unreasonable in light of the purposes of the applicable statutes, the Service can apply or depart
from the OID Regulations as necessary or appropriate to achieve a reasonable result. A result is
not considered unreasonable, however, in the absence of a substantial effect on the present value
of a taxpayers tax liability.
In view of the complexities and current uncertainties as to the manner of inclusion in
income of OID on Regular Securities, each investor should consult his own tax advisor to
determine the appropriate amount and method of inclusion in income of OID on such Securities
for federal income tax purposes.
Variable Rate Securities
A Regular Security may pay interest at a variable rate (a Variable Rate Security). The
rules applicable to variable rate debt instruments, as defined in the OID Regulations (VRDIs),
apply to a Variable Rate Security only if: (i) such Security is not issued at a premium to its
noncontingent principal amount in excess of the lesser of (a) .015 multiplied by the product of
such noncontingent principal amount and the WAM (as that term is defined above in the
discussion of the de minimis rule) of the Security or (b) 15% of such noncontingent principal
amount (an Excess Premium); (ii) stated interest on the Security compounds or is payable
unconditionally at least annually at (a) one or more qualified floating rates, (b) a single fixed
rate and one or more qualified floating rates, (c) a single objective rate, or (d) a single fixed
rate and a single objective rate that is a qualified inverse floating rate; and (iii) the qualified
floating rate or the objective rate in effect during an accrual period is set at a current value of that
rate (i.e., the value of the rate on any day occurring during the interval that begins three months
prior to the first day on which that value is in effect under the Security and ends one year
following that day). However, if the Variable Rate Security provides for any contingent
payments (which do not include qualified stated interest), the Tax Administrator will account for
the Variable Rate Security as described in Certain Federal Income Tax Consequences
Original Issue DiscountInterest Weighted Securities and Non-VRDI Securities herein.
A rate is a qualified floating rate if variations in the rate reasonably can be expected to
measure contemporaneous variations in the cost of newly borrowed funds in the currency in
which the debt instrument is denominated. A qualified floating rate may measure
contemporaneous variations in borrowing costs for the issuer of the debt instrument or for issuers
in general. A multiple of a qualified floating rate is considered a qualified floating rate only if
the rate is equal to either (a) the product of a qualified floating rate and a fixed multiple that is
greater than .65 but not more than 1.35 or (b) the product of a qualified floating rate and a fixed
multiple that is greater than .65 but not more than 1.35, increased or decreased by a fixed rate. If