PAC (Planned Amortization Class)Tranche

A CMO tranche that uses a mechanism similar to a sinking fund to determine a fixed principal payment schedule that will apply over a range of prepayment assumptions. The effect of the prepayment variability that is removed from a PAC bond is transferred to a companion tranche.

Remarks: Bond funds including mutual funds (open-end and closed-end, actively managed and indexed), exchange-traded funds and unit investment trusts offer a convenient and affordable way to invest in a diversified portfolio of bonds, but a bond fund investment can differ from a bond investment in ways that are important to understand.