Definition of Targeted Amortization Class (TAC) Bonds

bonds offered as a tranche class of some Collateralized Mortgage Obligations (CMOs). TACs are similar to PAC Bonds in that, unlike conventional CMO classes, they are based on a sinking fund schedule. They differ from PAC bonds, however, in that whereas a PAC's amortization is guaranteed as long as prepayments on the underlying mortgages do not exceed certain limits, a TAC's schedule will be met at only one prepayment rate. At other prepayment rates, the TAC will experience either excesses or shortfalls. A TAC bond provides morecash flow stability than a regular CMO class but less than a PAC, and trades accordingly.