                    125 T.C. No. 12



                UNITED STATES TAX COURT



FEDERAL HOME LOAN MORTGAGE CORPORATION, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket Nos. 3941-99, 15626-99.    Filed November 21, 2005.


     P received commitment fees for entering into prior
approval purchase contracts with mortgage originators.
The contracts obligated P to purchase mortgages from
originators during a specified period of time pursuant
to a pricing formula but did not require the
originators to sell mortgages to P. The commitment
fees equaled 2.0 percent of the principal amount of the
mortgages. The commitment fees consisted of a 0.5-
percent nonrefundable portion and a 1.5-percent
refundable portion. In the taxable years 1985 through
1990, P treated the 0.5-percent nonrefundable portion
of the commitment fees as premiums received for writing
put options. As a result, when an originator sold a
mortgage to P, P treated the 0.5-percent portion of the
fee as a reduction of its purchase price and reported
this amount as income over the estimated life of the
mortgage. If an originator failed to sell the mortgage
to P, P reported the 0.5 percent of the fee in the year
                               - 2 -

     in which the originator failed to exercise its right to
     sell the mortgage. R determined that the nonrefundable
     commitment fees should have been reported in the
     taxable year that P received the payment.

          Held: In substance and form, P’s prior approval
     purchase contracts were put options, and P properly
     reported the nonrefundable portion of the commitment
     fees as option premiums.


     Robert A. Rudnick, James F. Warren, Alan J. Swirski,

Richard J. Gagnon, Jr., and B. John Williams, Jr., for

petitioner.

     Gary D. Kallevang, for respondent.


                              OPINION

     RUWE, Judge:   Respondent determined deficiencies in

petitioner’s Federal income taxes in docket No. 3941-99 as

follows:

                     Year              Deficiency

                     1985           $36,623,695
                     1986            40,111,127

Petitioner claims overpayments of $9,604,085 for 1985 and

$12,418,469 for 1986.

     Respondent determined deficiencies in petitioner’s Federal

income taxes in docket No. 15626-99 as follows:

                     Year              Deficiency

                     1987              $26,200,358
                     1988               13,827,654
                     1989                6,225,404
                     1990               23,466,338
                               - 3 -

Petitioner claims overpayments of $57,775,538 for 1987,

$28,434,990 for 1988, $32,577,346 for 1989, and $19,504,333 for

1990.

     In this Opinion, we decide whether certain nonrefundable

commitment fees that mortgage originators paid to petitioner to

enter into Conventional Multifamily Prior Approval Purchase

Contracts (prior approval purchase contracts) are to be

recognized when those fees are paid or should be treated as

premium for “put” options, which would defer recognition until

after delivery or nondelivery of the underlying mortgages.1    This

issue is one of several involved in these cases.2

                            Background

     The parties submitted this issue fully stipulated pursuant

to Rule 122.3   The stipulations of fact and the attached exhibits

are incorporated herein by this reference.   At the time it filed

the petitions, petitioner maintained its principal office in




     1
       The adjustments proposed in the notices of deficiency for
1985 through 1990 pertaining to the commitment fee issue included
a small amount of commitment fees related to single-family
optional delivery mixed in with the prior approval program. The
parties have since resolved the commitment fee issue as to the
single-family program.
     2
       See Fed. Home Loan Mortgage Corp. v. Commissioner, 121
T.C. 129; 121 T.C. 254; 121 T.C. 279 (2003); T.C. Memo. 2003-298.
     3
       All Rule references are to the Tax Court Rules of Practice
and Procedure, and all section references are to the Internal
Revenue Code in effect for the taxable years in issue.
                                - 4 -

McLean, Virginia.    At all relevant times, petitioner was a

corporation managed by a board of directors.

       Petitioner was chartered by Congress on July 24, 1970, by

title III (Federal Home Loan Mortgage Corporation Act) of the

Emergency Home Financing Act of 1970, Pub. L. 91-355, 84 Stat.

450.    Petitioner was established to purchase residential

mortgages and to develop and maintain a secondary market in

conventional mortgages.    A “conventional mortgage” is a mortgage

that is not guaranteed or insured by a Federal agency.    The

“primary mortgage market” is composed of transactions between

mortgage originators (lenders, such as savings and loan

organizations) and homeowners or builders (borrowers).    The

“secondary market” generally consists of sales of mortgages by

originators, and purchases and sales of mortgages and mortgage-

related securities by institutional dealers and investors.      Since

its incorporation, petitioner has facilitated investment by the

capital markets in single-family and multifamily residential

mortgages.    In the course of its business, petitioner acquires

residential mortgages from loan originators.    Petitioner’s

business is a high-volume, narrow-margin business.

       A.   Multifamily Mortgage Program

       A multifamily mortgage loan is a loan secured on a property

consisting of an apartment building with more than four

residences.    Petitioner offered originators two programs for
                                 - 5 -

selling multifamily mortgages:    (1) The immediate delivery

purchase program, and (2) the prior approval conventional

multifamily mortgage purchase program (prior approval program).

          1.   Immediate Delivery Purchase Program

     Petitioner designed the immediate delivery purchase program

to accommodate the purchase of mortgages already closed and on an

originator’s books at the time an originator enters into a

purchase contract with petitioner.       Although this program is

designed for portfolio mortgages, an originator may enter into an

immediate delivery purchase contract with petitioner before

actually closing on the mortgage.    However, if for some reason

the mortgage cannot be delivered, petitioner can impose sanctions

on an originator.

     To participate in the immediate delivery purchase program,

an originator telephones petitioner to make an offer for a

purchase contract.   When petitioner receives a telephone offer

from an originator, that offer is “an irrevocable offer that the

[originator] may not modify.”    Petitioner may accept an offer

within 2 business days of receiving the telephone offer.       When

petitioner accepts an offer, it executes two copies of the

purchase contract and mails the contract to an originator.

Within 24 hours of receiving the purchase contract, an originator

must execute the contract and mail one copy along with a $1,500

nonrefundable application/review fee or 0.1 percent of the
                               - 6 -

purchase contract, whichever is greater, to petitioner’s

applicable regional office.   If an originator failed to

acknowledge and submit a copy of a purchase contract, petitioner

may disqualify or suspend an originator as an eligible seller to

petitioner.   After completing a documentation review,

underwriting, and property inspections, if any, petitioner’s

applicable regional office will contact an originator.     The

mortgages acceptable to petitioner will be identified and

purchased.

     An originator must deliver the mortgages to petitioner

within the 30-calendar-day commitment period.   In most cases, the

penalty for nondelivery is disqualification or suspension of an

originator from eligibility to sell mortgages to petitioner.4

     Under the immediate delivery purchase program, petitioner

established its required net yield when originators offered the



     4
       Petitioner’s Sellers’ & Servicers’ Guide, which is part of
the contract, states that petitioner “may disqualify or suspend a
* * * [an originator] for * * * [an originator’s] failure to
deliver any documents under a * * * mandatory delivery purchase
program, as required by section 0601”. Sec. 0601 of the Sellers’
and Servicers’ Guide states that “Delivery under the * * *
immediate delivery purchase programs is mandatory. * * *
Delivery is not mandatory under the home mortgage optional
delivery purchase programs.” The guide also provides that
petitioner may disqualify or suspend an originator for “failure
to observe or comply with any term or provision of the purchase
document”. In addition to disqualification and suspension,
petitioner “reserves the right to take whatever other action it
deems appropriate to protect its interests and enforce its
rights”.
                                  - 7 -

contracts.    The required net yield is the interest rate that

petitioner will receive from the mortgage it purchases from an

originator.      Petitioner did not charge an upfront commitment fee

in its immediate delivery purchase program.

            2.     Prior Approval Program

     Alternatively, originators may sell multifamily mortgages to

petitioner under the prior approval program, which began in 1976.

Under this program, petitioner entered into contracts with

originators to purchase a multifamily mortgage before the closing

date of the mortgage.     In general, each executed prior approval

purchase contract pertained to a single mortgage, as opposed to a

pool of mortgages.     Petitioner’s promotional pamphlets state that

this program offered originators the “peace of mind” of knowing

that petitioner would purchase the loan once it closed.       The

pamphlets also explain that once an originator entered into a

prior approval purchase contract with petitioner, “delivery of

the loan is still optional, so [the originators] don’t have to

worry if the deal hits a snag or falls through completely.”

     Under the prior approval program, originators were not

obligated to deliver the multifamily mortgage to petitioner.

Petitioner’s Sellers’ & Servicers’ Guide is part of the contract

between an originator and petitioner.       Petitioner’s Sellers’ &

Servicers’ Guide states:     “Delivery under this program is

optional.    However, unless the optional delivery contract is
                                 - 8 -

converted to a mandatory delivery contract within the 60-day

optional delivery period, the mortgage may not be delivered and

[petitioner] will retain the entire 2-percent commitment fee

required pursuant to section 3004.”      The Sellers’ & Servicers’

Guide also provides:

          The optional delivery date stated in the purchase
     contract will be within 60 days from the date
     [petitioner] issues the purchase contract plus the 10-
     business-day period in which the [originator] may
     accept the purchase contract. During the 60-day
     period, if the [originator] intends to deliver the
     mortgage(s) to [petitioner], the [originator] must
     convert the optional delivery purchase contract to a
     30-day mandatory delivery purchase contract. * * *

     To receive a prior approval purchase contract from

petitioner, an originator must submit a request for prior

approval of a specific multifamily project.      Along with the

request, an originator paid a nonrefundable loan application fee

of the greater of $1,500 or 0.10 percent of the original

principal amount of the mortgage (but not in excess of $2,500).

After completion of processing, including underwriting and

property inspections, petitioner would determine whether the

mortgage was acceptable.   Id.    If acceptable, petitioner would

execute a prior approval purchase contract (also called Form 6),

which it mailed to an originator.    An originator wishing to

participate in the prior approval program would execute the Form

6, and mail or deliver it to petitioner no later than 10 business

days from the
                               - 9 -

date of petitioner’s offer.   Form 6 would set forth details of

the specific mortgage that an originator could deliver.

     Between 1985 and 1991, petitioner required an originator to

submit a 2-percent commitment fee with the executed prior

approval purchase contract.   During the years at issue, the 2-

percent commitment fee consisted of a 0.5-percent nonrefundable

portion and a 1.5-percent portion that was refundable if an

originator delivered the mortgage under the prior approval

purchase contract.5   Petitioner was entitled to keep the

nonrefundable portion when it entered into the agreement.    The

0.5-percent portion of the commitment fee received by petitioner

was not held in trust or escrow and was subject to unfettered

control by petitioner.

     If an originator did not deliver the specific mortgage to

petitioner, it forfeited the 1.5-percent refundable portion of

the commitment fee.   Forfeiture of the refundable portion of the

fee in the event of nondelivery functioned as a delivery




     5
       In 1982, petitioner charged a commitment fee equal to 2
percent of the commitment amount (the principal amount of the
mortgage to be delivered), which was fully refunded to a mortgage
originator if the mortgage was delivered. In September 1983, the
commitment fee was changed so that the amount charged to a
mortgage originator was still 2 percent, with 1 percent being
nonrefundable and 1 percent refundable when the mortgage loan was
delivered. The commitment fee structure was changed again for
the years in issue.
                               - 10 -

incentive consistent with petitioner’s business preference to buy

mortgages in the secondary market.6

     Under the prior approval program, an originator had the

right, but not the contractual obligation, to elect at any time

during the ensuing 60 days (or in some cases 15 days) to enter

into a mandatory commitment to deliver a conforming mortgage to

petitioner.    Under this program, petitioner committed to

purchasing a mortgage when an originator delivered it to

petitioner within the delivery period.7

     Petitioner required originators to service the mortgages

they sold to petitioner.    Originators received compensation for

performing this service (the compensation is known as the minimum

servicing spread).    For the years at issue, the minimum servicing

fee (the originator’s retained spread over the life of the

mortgage) was 25 basis points (bps)8 on mortgages less than $1

million, 12.5 bps on mortgages between $1 and $10 million, and

was negotiable on mortgages more than $10 million.



     6
       For Federal income tax purposes, the 1.5-percent
refundable portion of the commitment fee was treated by
petitioner as a payable upon its receipt and was taken into
income only if the underlying mortgages were not delivered to
petitioner. Petitioner’s tax accounting for the 1.5-percent
refundable portion of the fee is not at issue.
     7
       The Sellers’ & Servicers’ Guide does not use the term “put
options” or “put option” to describe these commitment
arrangements.
     8
         A basis point (bp) is 1/100th of a percent.
                               - 11 -

     To exercise its delivery right under a prior approval

purchase contract, an originator was required to give notice of

conversion to petitioner and enter into a 30-day “mandatory

delivery contract” on Form 64A, Conventional Multifamily

Immediate Delivery Purchase Contract and Prior Approval

Conversion Amendment.   An originator could elect to deliver the

multifamily mortgage at petitioner’s maximum required net yield

or at an alternate required net yield.9   Petitioner’s required

net yield was the rate at which originators could contract to

deliver a mortgage under the immediate delivery purchase program.

The maximum required net yield was the fixed rate, or locked-in

interest rate, that petitioner and an originator had previously

agreed upon in Form 6.10   The alternate required net yield was

the rate at which an originator could contract to deliver a

mortgage to petitioner under the immediate delivery purchase

program as quoted by petitioner on any day during the 60-day (or


     9
       Effective July 1986, upon electing to effectuate delivery
with a mandatory delivery contract with an alternative required
net yield, an originator could request an increase in the maximum
amount of the mortgage to be delivered. The amount of any
increase was at the sole discretion of petitioner. Upon the
request for an increase, an originator was required to remit
$1,000 plus 2 percent of the increased mortgage amount within 24
hours. Of this 2 percent, 0.5 percent was nonrefundable and, if
approved, petitioner was entitled to retain the fee. Upon
purchase of the mortgage, petitioner refunded 1.5 percent of the
total mortgage amount as increased.
     10
       The maximum required net yield is the maximum interest
rate that petitioner may receive from the mortgage delivered by
an originator.
                               - 12 -

15-day) optional delivery period; if the required net yield moved

downward, an originator could select the lower required net

yield.    The purchase price and net yield to petitioner became

fixed upon an originator’s selection of either the maximum

required net yield, or the alternate required net yield on any

day during the 60-day (or 15-day) period that an originator

elected an alternate required net yield.    The purchase price

either would reflect a discount from par (100 percent of unpaid

principal balance (UPB)) or would be at par, depending on the

relationship of the rate on the mortgages (coupon rate) actually

tendered by an originator to the “minimum gross yield”, which was

the sum of the required net yield selected and the minimum

servicing spread.11

     For example, suppose an originator and petitioner entered

into a prior approval purchase contract with respect to a

mortgage in the maximum amount of $6 million.    The originator

paid the 2-percent commitment fee in the amount of $120,000.      The

mortgage was subject to a maximum mortgage interest rate of

12.595 percent, and the maximum required net yield to petitioner

was 12.470 percent.   The difference, 0.125 percent or 12.5 bps,

represents the minimum spread to be retained by an originator for


     11
       When an originator serviced a mortgage for petitioner, it
received the amount of interest on the mortgage in excess of the
required net yield. The minimum servicing spread is the
difference between the maximum mortgage interest rate and the
maximum required net yield.
                               - 13 -

servicing the mortgage, or $7,500/year.   If an originator

contemplated selling the subject mortgage to another buyer in

lieu of petitioner, it would have to consider the effect of

forfeiting the otherwise refundable portion of the commitment

fee, or $90,000, in comparison to the spread it could obtain with

another purchaser.

     In the event that petitioner’s required net yield on any day

during the 60-day (or 15-day) period exceeded the “maximum

required net yield”, petitioner could be required on that day to

contract to purchase conforming mortgages at the maximum required

net yield stated on the Form 6, instead of at its current day

required net yield.   This arrangement effectively ensured that an

originator could make a mortgage loan to a borrower at a

particular rate, and would be protected against having to sell it

to petitioner at a discount from par, or at an additional

discount as a result of an increase in petitioner’s required net

yield during the 60-day (or 15-day) period.   Because it could

select the maximum required net yield if market rates increased,

an originator was assured of dealing at a rate that was no higher

than was specified in the prior approval purchase contract.

Thus, an upward movement in interest rates normally would not

prevent an originator from delivering a mortgage under the prior

approval program.    Alternatively, if interest rates went down, an

originator would have the benefit (whether in the form of a
                             - 14 -

greater spread or less of a discount from UPB) of selecting an

alternate required net yield in lieu of the higher maximum

required net yield as stated in the prior approval purchase

contract.12

     If an originator selected an alternate required net yield,

it was required to give notice of this selection no later than

the date of conversion to mandatory delivery.   If an originator

failed to give notice of conversion to a mandatory commitment

within 5 business days of selecting an alternate required net

yield, the prior approval purchase contract would be terminated,

and petitioner would retain the entire 2-percent commitment fee.

     Nondelivery generally occurred when the borrower repudiated

or defaulted on its arrangement with the originator so that the

originator did not have the mortgage to deliver.13   Unlike

originators who entered into an immediate delivery purchase

program, when an originator participating in the prior approval

program failed to deliver a mortgage, it was not disqualified or

suspended as an eligible seller of mortgages to petitioner.



     12
       If petitioner’s required net yield on the day of delivery
election was lower than the maximum required net yield, an
originator holding a higher than current market-rate mortgage
would normally obtain a spread greater than the minimum servicing
spread specified in sec. 2603 of petitioner’s Sellers’ and
Servicers’ Guide.
     13
       An originator finding a more attractive opportunity for
disposing of a mortgage had to consider the forfeiture of the
1.5-percent refundable portion of the commitment fee.
                                - 15 -

     In computing its taxable income for the years 1985 through

1991, petitioner treated the 0.5-percent nonrefundable portion of

the commitment fees as premium received for writing put options

in favor of the various mortgage originators.     Petitioner

generally did not include in taxable income amounts received for

the 0.5-percent nonrefundable portion of the commitment fee in

the year of receipt.     Petitioner deducted such nonrefundable

amounts from the cost basis of mortgages purchased when

originators delivered mortgages to petitioner.     Petitioner

amortized these amounts into income over multiyear periods of 7

or 8 years (i.e., the estimated life of the mortgages in

petitioner’s hands).14    If an originator failed to elect

mandatory delivery of the specified mortgages within the

prescribed period, petitioner recognized the nonrefundable

portion of the commitment fee in the current year if the last day

of the 60-day (or 15-day) period was within the current year.

     During the years 1985 through 1991, petitioner received the

0.5-percent nonrefundable portion of the commitment fees pursuant

to the prior approval program in amounts totaling $9,506,398,

$16,489,524, $9,408,907, $4,525,606, $4,892,445, $2,805,392, and

$41,257, respectively.     On its corporate returns for the years



     14
       When a mortgage was delivered in the same year that
petitioner received the commitment fee, petitioner recognized the
nonrefundable portion of the commitment fee in the year of
receipt, to the extent of amortization for that year.
                              - 16 -

1985 through 1993, petitioner included taxable income of

$5,636,762, $16,627,101, $2,035,928, $2,601,628, $3,213,184,

$3,563,858, $3,569,015, $3,569,015, and $3,569,015, respectively.

The adjustments in dispute in the 1985-90 taxable years are the

net differences between the amounts of nonrefundable commitment

fees received and reported for tax purposes, as follows:

  Nonrefundable                                       Amount in
 Commitment Fees       Received        Reported     Dispute 1985-90

      1985            $9,506,398    $5,636,762        $3,869,636
      1986            16,489,524    16,627,101          (137,577)
      1987             9,408,907     2,035,928         7,372,979
      1988             4,525,606     2,601,628         1,923,978
      1989             4,892,445     3,213,184         1,679,261
      1990             2,805,392     3,563,858          (758,466)

     In computing its taxable income for the year 1985,

petitioner overstated its income attributable to such receipts

under its method of accounting in the amount of $883,638 as a

result of a computational error.

     During the years 1985 through 1988, and 1990, originators

failed to deliver at least 67 mortgages specified in prior

approval purchase contracts to petitioner.15      See appendix, which

lists these 67 contracts.   As a result, the 1.5-percent

refundable portion of the 2-percent commitment fee was forfeited

to petitioner.   During the relevant period, these 67 contracts



     15
       Petitioner was unable to locate records of the prior
approval purchase contracts executed in 1989 that would identify
the mortgages from that year, if any, where the specified
mortgages were undelivered.
                               - 17 -

represent approximately 1 percent (by value and number) of all

the contracts that petitioner entered into in the prior approval

program.    Petitioner was not necessarily informed of the precise

reason for the nondelivery; petitioner believes that the typical

reason for nondelivery was failure of the underlying mortgage to

have been consummated.

                             Discussion

     Petitioner argues that the 0.5-percent nonrefundable

portions of the commitment fees that originators paid to enter

into prior approval purchase contracts constitute “put” option16

premiums, the tax treatment of which could not be determined

until originators either exercised the options or allowed them to

lapse.    Respondent disagrees, arguing that the 0.5-percent

nonrefundable portions of the commitment fees are not option

premium because the prior approval purchase contracts are not

option contracts.    Respondent argues that petitioner had a fixed

right to the nonrefundable portion of the commitment fees when

the prior approval purchase contracts were executed and that

section 451 requires petitioner, as an accrual basis taxpayer, to

recognize the nonrefundable commitment fees in the year of

receipt because its right to retain the commitment fees was fixed

and determined.


     16
       A “put” option gives the option holder the right, but not
the obligation, to sell something at an agreed upon price or
pricing formula for a limited period of time.
                               - 18 -

     Section 451(a) generally provides that “The amount of any

item of gross income shall be included in the gross income for

the taxable year in which received by the taxpayer, unless, under

the method of accounting used in computing taxable income, such

amount is to be properly accounted for as of a different period.”

Accrual method taxpayers normally recognize income when “all the

events have occurred which fix the right to receive” income and

the amount of income “can be determined with reasonable

accuracy.”   Sec. 1.451-1(a), Income Tax Regs.   However, as more

fully explained, infra, payments of option premiums are not

recognized when received, even when the recipient has a fixed

right to retain the payments, because the character of those

payments is uncertain until the option has been exercised or has

lapsed.   E.g., Old Harbor Native Corp. v. Commissioner, 104 T.C.

191, 200 (1995).    Because of the unique facts in this case, we

must examine the rules governing the tax treatment of option

premiums and the policy underlying those rules to decide whether

a prior approval purchase contract constitutes an option for

Federal income tax purposes.

     “An option has historically required the following two

elements:    (1) A continuing offer to do an act, or to forbear

from doing an act, which does not ripen into a contract until

accepted; and (2) an agreement to leave the offer open for a

specified or reasonable period of time.”    Id. at 201 (citing
                               - 19 -

Saviano v. Commissioner, 80 T.C. 955, 970 (1983), affd. 765 F.2d

643 (7th Cir. 1985)).   “The primary legal effect of an option is

that it limits the promisor’s power to revoke his or her offer.

An option creates an unconditional power of acceptance in the

offeree.”   Id. (citing 1 Restatement, Contracts 2d, sec. 25(d)

(1981)).    An option normally provides a person a right to sell or

to purchase “‘at a fixed price within a limited period of time

but imposes no obligation on the person to do so’”.    See Elrod v.

Commissioner, 87 T.C. 1046, 1067 (1986) (quoting Koch v.

Commissioner, 67 T.C. 71, 82 (1976)).     An agreement that purports

to be an “option”, but is contingent or otherwise conditional on

some act of the offering party, is not an option.     Saviano v.

Commissioner, supra at 970.

     An option contract grants the optionee the right to accept

or reject an offer according to its terms within the time and

manner specified in the option.    Estate of Franklin v.

Commissioner, 64 T.C. 752, 762 (1975), affd. on other grounds 544

F.2d 1045 (9th Cir. 1976); 1 Williston on Contracts, sec. 5:16

(4th ed. 2004).   Options have been characterized as unilateral

contracts because one party to the contract is obligated to

perform, while the other party may decide whether or not to

exercise his rights under the contract.     U.S. Freight Co. v.

United States, 190 Ct. Cl. 725, 422 F.2d 887, 894 (1970).     Courts

have found that the holder of an option must have a “truly
                              - 20 -

alternative choice” to exercise the option or to allow it to

lapse.   Id. at 895; see also Halle v. Commissioner, 83 F.3d 649,

654 (4th Cir. 1996), revg. and remanding Kingstowne L.P. v.

Commissioner, T.C. Memo. 1994-630; Koch v. Commissioner, supra at

82.   Thus,

      the clear distinction between an option and a contract
      of sale is that an option gives a person a right to
      purchase [or sell] at a fixed price within a limited
      period of time but imposes no obligation on the person
      to do so, whereas a contract of sale contains mutual
      and reciprocal obligations, the seller being obligated
      to sell and the purchaser being obligated to buy.
      [Koch v. Commissioner, supra at 82.]

      Option payments are not includable in income to the optionor

until the option either has lapsed or has been exercised.

Kitchin v. Commissioner, 353 F.2d 13, 15 (4th Cir. 1965), revg.

T.C. Memo. 1963-332; Va. Iron Coal & Coke Co. v. Commissioner, 99

F.2d 919 (4th Cir. 1938), affg. 37 B.T.A. 195 (1938); Elrod v.

Commissioner, supra at 1066-1067; Koch v. Commissioner, supra at

89.   In Rev. Rul. 58-234, 1958-1 C.B. 279, 283-284, the

Commissioner has reiterated these same principles:

           An optionor, by the mere granting of an option to
      sell (“put”), or buy (“call”), certain property, may
      not have parted with any physical or tangible assets;
      but, just as the optionee thereby acquires a right to
      sell, or buy, certain property at a fixed price during
      a specified future period or on or before a specified
      future date, so does the optionor become obligated to
      accept, or deliver, such property at that price, if the
      option is exercised. Since the optionor assumes such
      obligation, which may be burdensome and is continuing
      until the option is terminated, without exercise, or
      otherwise, there is no closed transaction nor
      ascertainable income or gain realized by an optionor
      upon mere receipt of a premium for granting such an
                               - 21 -

     option. The open, rather than closed, status of an
     unexercised and otherwise unterminated option to buy
     (in effect a “call”) was recognized, for Federal income
     tax purposes, in A. E. Hollingsworth v. Commissioner,
     27 B.T.A. 621, * * * (1933). It is manifest, from the
     nature and consequences of “put” or “call” option
     premiums and obligations, that there is no Federal
     income tax incidence on account of either the receipt
     or the payment of such option premiums, i.e., from the
     standpoint of either the optionor or the optionee,
     unless and until the options have been terminated, by
     failure to exercise, or otherwise, with resultant gain
     or loss. The optionor, seeking to minimize or conclude
     the eventual burden of his option obligation, might pay
     the optionee, as consideration for cancellation of the
     option, an amount equal to or greater than the premium.
     Hence, no income, gain, profits, or earnings are
     derived from the receipt of either a “put” or “call”
     option premium unless and until the option expires
     without being exercised, or is terminated upon payment
     by the optionor of an amount less than the premium.
     Therefore, it is considered that the principle of the
     decision in North American Oil Consolidated v. Burnet,
     286 U.S. 417 * * * (1932), which involved the receipt
     of “earnings,” is not applicable to receipts of
     premiums on outstanding options.

Rev. Rul. 58-234, 1958-1 C.B. at 284, 285, summarizes the tax

treatment of put option premiums as follows:

     [T]he amount (premium) received by the writer (issuer
     or optionor) of a “put” or “call” option which is not
     exercised constitutes ordinary income, for Federal
     income tax purposes, under section 61 of the Internal
     Revenue Code of 1954, to be included in his gross
     income only for the taxable year in which the failure
     to exercise the option becomes final.

                 *    *    *     *      *   *   *

     [W]here a “put” option is exercised, the amount
     (premium) received by the writer (issuer or optionor)
     for granting it constitutes an offset against the
     option price, which he paid upon its exercise, in
     determining his (net) cost basis of the securities that
                              - 22 -

     he purchased pursuant thereto, for subsequent gain or
     loss purposes. * * *

See also Rev. Rul. 78-182, 1978-1 C.B. 265.

     A contract is an option contract when it provides (A) the

option to buy or sell, (B) certain property, (C) at a stipulated

price, (D) on or before a specific future date or within a

specified time period, (E) for consideration.   W. Union Tel. Co.

v. Brown, 253 U.S. 101, 110 (1920); Halle v. Commissioner, supra

at 654; Old Harbor Native Corp. v. Commissioner, 104 T.C. at 201;

Estate of Franklin v. Commissioner, supra at 762-763; Rev. Rul.

58-234, supra.   To determine whether a contract constitutes an

option, courts look at the contractual language and the economic

substance of the agreement.   Halle v. Commissioner, supra.

     Petitioner’s prior approval purchase contracts exhibit the

following characteristics of an option for tax purposes:     (1) The

prior approval purchase contracts satisfy the formal requirements

of option contracts; (2) the economic substance of the prior

approval purchase contracts indicates that the contracts are an

option; and (3) the rationale for granting open transaction

treatment to option premium applies to petitioner’s transactions.

     1.   Formal Requirements of the Option

     Petitioner’s prior approval purchase contracts provide for

the optional delivery of mortgages by an originator.   The

Sellers’ and Servicers’ Guide states:   “Delivery under this

program is optional.   However, unless the optional delivery
                                - 23 -

contract is converted to a mandatory delivery contract within the

60-day optional delivery period, the mortgage may not be

delivered”.   (Emphasis added.)   The contractual terms

specifically provide that an originator has the right, but not an

obligation, to sell the mortgage to petitioner.    The prior

approval purchase contract specified the mortgage that petitioner

was obligated to purchase if an originator exercised its option.

To participate in the prior approval program, an originator would

execute and deliver to petitioner a Form 6, which set forth the

details of a specific mortgage to be delivered.

     Despite the language of the prior approval purchase

contracts, respondent argues that the form of the contracts does

not create an option.    In support of his argument, respondent

quotes the Sellers’ & Servicers’ Guide, which states:     “‘Under

this program, [petitioner] will contract with the [originator]

before the closing date of the mortgage to purchase a multifamily

mortgage on a specific existing project.’”    Respondent argues

that the terms contain an explicit offer to purchase by

petitioner and an explicit acceptance by an originator.

     We agree that petitioner has made an explicit offer to

purchase an originator’s mortgage; this is consistent with an

option contract.   In fact, an essential characteristic of an

option contract is that one party is obligated to perform, while

the other party may decide whether or not to exercise his rights

under the contract.     U.S. Freight Co. v. United States, 190 Ct.
                                - 24 -

Cl. 725, 422 F.2d 887 (1970).    Respondent’s position ignores both

the reality and the language in the Sellers’ & Servicers’ Guide

that delivery of the mortgage by an originator is “optional”.

       Respondent argues that the prior approval purchase contracts

are not options because these contracts lack a fixed purchase

price that petitioner will pay in the event an originator

delivered a mortgage.    Respondent contends that the price was not

fixed because an originator could deliver a mortgage at either

the maximum required net yield or the alternate required net

yield, which was not fixed until an originator converted a prior

approval purchase contract into a mandatory delivery contract.

       The prior approval purchase contracts establish a formula to

determine the price, which petitioner and an originator agreed to

use.    Form 6 identified the amount of the mortgage that

petitioner was obligated to purchase.     The maximum required net

yield provides the minimum price that petitioner would pay to an

originator to purchase the mortgage.     While the alternate

required net yield allowed an originator to potentially receive a

more favorable purchase price, we do not think that this feature

of the contract changes the fact that the parties to the prior

approval purchase contracts agreed to a formula that determined
                              - 25 -

the stipulated price.   See Estate of Franklin v. Commissioner, 64

T.C. at 763-764.

     In an option contract, the seller agrees to hold an offer

open for a specified period of time.    Old Harbor Native Corp. v.

Commissioner, supra at 201.   It is clear that the prior approval

purchase contracts establish a specific time for an originator to

exercise its right to sell the mortgage to petitioner.

     Petitioner granted an option for consideration.    The

Sellers’ and Servicers’ Guide states:

          A commitment fee of 2 percent of the amount of the
     purchase contract must be submitted by the
     [originator] with the executed purchase contract.
     Three-fourths of the commitment fee is refundable on
     the Freddie Mac funding date, when the mortgage,
     meeting all of the terms of the purchase contract and
     section 3803, is delivered to the applicable Freddie
     Mac regional office on or before the delivery date
     stated in the purchase contract.

When petitioner and an originator entered into a prior approval

purchase contract, petitioner was entitled to retain the 0.5-

percent nonrefundable portion of the commitment fee.    This

nonrefundable portion of the commitment fee constitutes

consideration to petitioner for granting an option.

     2.   Economic Substance of the Option

     An essential part of any option is that its potential value

to the optionee and its potential future detriment to the

optionor depends on the uncertainty of future events.    An

optionee is willing to pay for potential future value, and the

optionor is willing to accept a potential future detriment for a
                                - 26 -

price.    For example, in a typical put option, the optionee is

willing to pay a premium to the optionor for the right to sell a

security to the optionor at an agreed price sometime in the

future.   If the market value of the security falls below the

exercise price, the optionee can sell the security to the

optionor at a price greater than its value on the exercise date.

That potential opportunity is what the optionee paid for.

Likewise, the premium received by the optionor is compensation

for accepting the potential risk of having to purchase at an

unfavorable price.   If the market value of the security rises

above the exercise price, the option will not be exercised, and

the optionor keeps the option premium for having accepted the

risk associated with uncertainty.

     The prior approval program involves an option to sell

exercisable by an originator.    An originator (optionee) can

choose to enforce its rights to sell a mortgage to petitioner

(optionor) at an agreed pricing formula but is under no legal

obligation to do so.    During the period when it can exercise its

option to sell, the originator can choose between the agreed

maximum yield for petitioner or, if interest rates fall, a lesser

yield for petitioner.   If interest rates rise above the agreed
                             - 27 -

maximum yield, petitioner is required to purchase the mortgage on

terms less favorable than they would have been at current rates.

     The option of whether to sell the mortgage also protects an

originator from the risk it might not close the subject mortgage,

making the sale to petitioner impossible.   Without the option,

the originator’s failure to deliver could result in serious

sanctions including the originator’s disqualification from

further dealings with petitioner.   An originator could avoid the

commitment fee altogether by entering into an immediate delivery

purchase contract; however, a failure to deliver the mortgage to

petitioner under an immediate delivery purchase contract can

result in sanctions including disqualification of an originator

from future mortgage sales to petitioner.   In most cases, the

penalty for nondelivery is disqualification of an originator from

eligibility to sell mortgages to petitioner.    Given petitioner’s

prominent position in the secondary mortgage market,

disqualification of an originator would seem to be of great

importance to an originator and would explain why an originator

is willing to pay the nonrefundable commitment fee in return for

retaining the option to deliver the mortgage.   The uncertainty of

an originator’s ability to deliver a mortgage that has not closed

and the potential detriment to be suffered in that event,

constitutes a future contingency that the optionee is willing to

pay to protect itself against.   This contingency, while

apparently unlikely to occur, is obviously of sufficient concern
                              - 28 -

to originators to justify selection of the prior approval

purchase contract and payment of the nonrefundable portion of the

commitment fee, rather than entering into an immediate delivery

purchase contract and risk default and the related sanctions.

Petitioner, on the other hand, is willing to make delivery

optional, and thereby give up the rights and remedies it would

have had under an immediate delivery contract, in return for the

nonrefundable portion of the commitment fee.

     Respondent argues that the possible forfeiture of the 1.5-

percent refundable portion of the commitment fee makes it

virtually certain that the mortgage sale will be consummated,

negating any real option for an originator.    Petitioner

acknowledges that potential loss of the refundable portion of the

commitment fee was intended to encourage an originator to sell

the mortgage if there was a mortgage to sell.    Indeed, an

originator’s agreement to forfeit the nonrefundable portion

indicates its intent to follow through with the sale if possible.

But the possible inability to deliver and related sanctions were

apparently of sufficient concern to originators to justify

payment of the 0.5-percent nonrefundable portion in order to make

delivery optional.   If such risk were not significant,

originators could simply have entered into mandatory delivery

contracts and avoided the nonrefundable fee.

     Respondent cites Halle v. Commissioner, 83 F.3d 649 (4th

Cir. 1996), as authority for his argument that there was no
                              - 29 -

option.   In Halle, a corporation owned land, which the taxpayer

wanted to purchase.   The taxpayer formed a limited partnership to

purchase all the stock of the corporation.    The limited

partnership and the corporation entered into a stock purchase

agreement, which stated that “‘Seller hereby agrees to sell to

Buyer, and Buyer agrees to purchase from Seller’” the stock of

the corporation for $29 million.    The agreement required the

limited partnership to pay a $3 million deposit and the balance

at settlement.   The agreement permitted the limited partnership

to defer the settlement date by paying monthly installments of

$225,000.   If the limited partnership defaulted, the contract

provided that it would forfeit the downpayment and monthly

installments already paid.   The limited partnership paid the

seller $900,000 to defer settlement and deducted those payments

as settlement interest on its income tax returns.    The

Commissioner disallowed the claimed interest deduction, arguing

that the agreement was an option.

     The Court of Appeals for the Fourth Circuit examined the

language of the stock purchase agreement and the economic

substance of the transaction to determine whether the contract

was an option.   The Court found that under the terms of the

agreement, the seller had an unconditional obligation to sell the

stock, the limited partnership had an unconditional obligation to

purchase the stock, and the agreement did not expressly provide

the limited partnership with the option to withdraw from the
                              - 30 -

transaction.   The court also found that the economic substance of

the stock purchase agreement created indebtedness.   To find that

the contract created indebtedness, the court relied on “(1) the

amount of the contractually specified liquidated damages, (2) the

extent to which [the limited partnership] assumed real economic

burdens of ownership before settlement, (3) [the limited

partnership’s] peripheral activities before settlement, and (4)

the absence of apparent motives for creating an option contract.”

Id. at 655.

     Unlike Halle v. Commissioner, supra, we find that the terms

and the economic realities of the prior approval purchase

contracts indicate that these contracts were options.   The

Sellers’ & Servicers’ Guide indicates that the prior approval

purchase contract offers an alternative to the immediate delivery

purchase program when an originator and the borrower have not

closed on a mortgage.   By entering into an immediate delivery

purchase contract, an originator could receive a commitment from

petitioner without paying the 0.5-percent nonrefundable fee.

However, originators who participated in the prior approval

program chose to pay the commitment fee to protect themselves

from fluctuations in interest rates during the period when the

option was open and the uncertainty associated with the

possibility that the mortgages might not close within the

delivery period.   Had originators been absolutely certain that

they could deliver the mortgages, they could have entered into an
                               - 31 -

immediate delivery purchase contract and avoided any commitment

fee.    The prior approval purchase contracts provided an

originator with protection in the event it could not deliver a

mortgage to petitioner.    Thus, despite the fact that originators

delivered mortgages to petitioner in approximately 99 percent of

the prior approval purchase contracts, originators were

apparently willing to pay a premium for the option because they

were uncertain about when or whether they would in fact have a

mortgage to sell to petitioner.

       3.   Rationale for Option Treatment

       The policy rationale for the tax treatment of an option as

an open transaction is that the outcome of the transaction is

uncertain at the time the payments are made.    That uncertainty

prevents the proper characterization of the premium at the time

it is paid.    See Dill Co. v. Commissioner, 33 T.C. 196, 200

(1959), affd. 294 F.2d 291 (3d Cir. 1961).    “Since the optionor

assumes such obligation, which may be burdensome and is

continuing until the option is terminated, without exercise, or

otherwise, there is no closed transaction nor ascertainable

income or gain realized by an optionor upon mere receipt of a

premium for granting such an option.”    Rev. Rul. 58-234, 1958-1

C.B. at 283.

       Respondent argues that open transaction treatment is

inappropriate because petitioner had a fixed right to the

nonrefundable portion of the commitment fee at the time the prior
                               - 32 -

approval purchase contracts were executed.   However, the fixed

right to a payment does not determine the tax treatment of an

option premium.   In Va. Iron Coal & Coke Co. v. Commissioner, 37

B.T.A. 195 (1938), affd. 99 F.2d 919 (4th Cir. 1938), the

taxpayer received payments for an option and had a fixed right to

retain them.    The Court explained that these payments were

entitled to open transaction treatment, despite the taxpayer’s

right to retain the payments, because the taxpayer did not know

whether the funds would represent income or a return of capital

when they were received.

     The uncertainty associated with the 0.5-percent

nonrefundable portion of the commitment fee is similar to the

uncertainty described by the Board of Tax Appeals in Va. Iron

Coal & Coke Co. v. Commissioner, supra.    In that case (involving

a call option), the Court stated:

     Had the option been exercised, they [the premium] would
     have represented a return of capital, that is, a
     recovery of a part of the basis for gain or loss which
     the property had in the hands of the seller. In that
     event they would not have been income and their return
     as income when received would have been improper.
     * * * But in case of termination of the option and
     abandonment by the Texas Co. of its right to have the
     payments applied as a part of the purchase price, it
     would be apparent for the first time that the payments
     represented clear gain to the petitioner. In that
     case, since no property would be sold, there would be
     no reason to reduce the basis of that retained.

Id. at 198.    In the instant case, when an originator delivered a

mortgage, petitioner properly treated the nonrefundable portion

of the commitment fee as a reduction in the consideration that it
                               - 33 -

paid for the mortgage.   See Rev. Rul. 78-182, 1978-1 C.B. 265,

266; Rev. Rul. 58-234, 1958-1 C.B. at 285 (“[W]here a ‘put’

option is exercised, the amount (premium) received by the writer

(issuer or optionor) for granting it constitutes an offset

against the option price, which he paid upon its exercise, in

determining his (net) cost basis of the securities that he

purchased pursuant thereto, for subsequent gain or loss

purposes.”).   In those instances when an originator failed to

deliver a multifamily mortgage to petitioner within the delivery

period, petitioner realized income in the year that an originator

allowed the option to lapse.   See Rev. Rul. 58-234, supra.

     Finally, respondent relies on Chesapeake Fin. Corp. v.

Commissioner, 78 T.C. 869 (1982), to support his argument against

treating the nonrefundable portion of the commitment fee as

option premium.   In Chesapeake Fin. Corp., the taxpayer made

construction and permanent loans available to developers and

received commitment fees.   Typically, a borrower would apply for

a loan for a proposed project, and the taxpayer would determine

whether the project was economically feasible.   If the taxpayer

decided the project was feasible, it would obtain the borrower’s

authorization to place a loan with an institutional investor.      If

the institutional investor approved the loan, it issued a

commitment to the taxpayer; upon acceptance, the commitment

constituted a contract between the institutional investor and the

taxpayer.   The commitment specified the terms of the proposed
                                - 34 -

loan and generally required the taxpayer to pay a nonrefundable

commitment fee.    Most commitments also required the taxpayer to

pay an additional “deposit fee” in the event the loan failed to

close.   The “deposit fee” usually equaled 1 percent of the

proposed loan.     When the taxpayer received the commitment from

the institutional investor, the taxpayer issued its own

commitment to the borrower, which incorporated the terms and

conditions of the institutional investor’s commitment.      The

borrower was required to pay a commitment fee and an additional

fee equal to the nonrefundable fee that the taxpayer paid to the

institutional investor.     The taxpayer had a fixed right to the

commitment fee when the borrower accepted its commitment;

however, the taxpayer reported the fees in income when the loans

were permanently funded.     The taxpayer argued that under the “all

events” test, it had not earned the fees until the loans were

actually funded.

     The Court found that the taxpayer’s “commitment fees were

received as a payment for specific services rendered to the

borrower in arranging for a favorable loan package for the

borrower with an institutional investor.”     Id. at 878.   The Court

explained that the commitment fees compensated the taxpayer for

“evaluating the economic potential of the proposed project,

finding a willing investor to provide financing and then

negotiating two separate commitments, one from the institutional

investor and one that it issues to the borrower.”     Id.   The Court
                               - 35 -

held that the commitment fees were taxable in the year of

receipt.17

     The commitment fees in Chesapeake Fin. Corp. are

distinguishable from the nonrefundable portion of the commitment

fees received by petitioner for granting options.   Whereas the

taxpayer in Chesapeake Fin. Corp. acted as a loan originator for

the borrower, petitioner agrees to purchase a mortgage from an

originator.18   Chesapeake Fin. Corp. involved a factually

different type of transaction, and does not govern the tax

treatment of petitioner’s commitment fees.   Indeed, in Chesapeake

Fin. Corp., there was apparently no argument and certainly no

consideration or discussion by the Court about whether the fees

might constitute option premiums.   Instead, the taxpayer in

Chesapeake Fin. Corp. argued that the “all events” test was

satisfied when the loans were actually funded, not when it

received the fees.



     17
       In addition to the fees in issue, petitioner also
received a nonrefundable application/review fee of the greater of
$1,500 or 0.10 percent of the original principal amount of the
mortgage (but not in excess of $2,500). This fee, which is not
at issue, appears to compensate petitioner for the type of
services for which the taxpayer received commitment fees in
Chesapeake Fin. Corp. v. Commissioner, 78 T.C. 869 (1982).
     18
       Loans are not sales transactions. “When a taxpayer
receives a loan, he incurs an obligation to repay that loan at
some future date. Because of this obligation, the loan proceeds
do not qualify as income to the taxpayer.” Commissioner v.
Tufts, 461 U.S. 300, 307 (1983). Petitioner did not make loans
to the originators; instead, petitioner agreed to purchase a
mortgage from the originators.
                             - 36 -

     Conclusion

     Because the terms and the economic substance of the prior

approval purchase contracts indicate that petitioner and

originators entered into option contracts, we hold that

petitioner properly treated the 0.5-percent nonrefundable portion

of the commitment fees as option premiums.

     To reflect the foregoing,

                                        An appropriate order will

                                   be issued.
                                   - 37 -

                                  APPENDIX

 Mortgages Not Delivered to Petitioner Under the Prior Approval
                             Program

      During the taxable years 1985 through 1988, and 1990, the 67

mortgages, which the originators failed to deliver to petitioner,

are as follows:

                                       Expiration of       0.5 Percent
                     Contract        60-day (or 15-day)   Nonrefundable
      Contract No.    Amount              Period               Fee

 1     8504030076    $1,000,000          5/17/85            $5,000
 2     8501170017       153,000           6/7/85               765
 3     8510110117       430,000         ll/10/85             2,150
 4     8505100095       100,000         11/15/85               500
 5     8511050016       560,000          12/5/85             2,800
 6     8511210097     4,200,000         12/21/85            21,000
 7     8605200051     2,939,000           6/2/86            14,695
 8     8602070074       269,000          8/11/86             1,345
 9     8607310296     1,365,000          8/30/86             6,825
 10    8512120155       600,000           9/9/86             3,000
 11    8606130126       539,000          9/10/86             2,695
 12    8607170569     1,145,000          9/10/86             5,725
 13    8602260159       100,000          9/17/86               500
 14    8609220258     2,450,000          9/30/86            12,250
 15    8609090420       194,000          10/9/86               970
 16    8609100388     2,365,000         10/10/86            11,825
 17    8609150342     4,020,000         10/15/86            20,100
 18    8607110490     1,145,000         10/23/86             5,725
 19    8609290083       504,000         10/29/86             2,520
 20    8608060428     1,312,000          11/3/86             6,560
 21    8610270173       396,000          11/4/86             1,980
 22    8610300720       297,000          11/7/86             1,485
 23    8610300728       250,000          11/7/86             1,250
 24    8603260291     1,635,000         11/12/86             8,175
 25    8610140245       750,000         11/13/86             3,750
 26    8605160050       250,000         11/14/86             1,250
 27    8607140072       379,000         11/17/86             1,895
 28    8610210279       738,000         11/20/86             3,690
 29    8611200558       350,000         11/24/86             1,750
 30    8610200110       410,000         11/25/86             2,050
 31    8610310637       354,000         11/30/86             1,770
 32    8611040013       605,000          12/4/86             3,025
 33    8612150095       268,000         12/17/86             1,340
 34    8611210206       300,000         12/21/86             1,500
 35    8612240362     1,565,000           2/4/87             7,825
 36    8704300034       537,000          7/14/87             2,685
 37    8708100024       355,000          10/9/87             1,775
 38    8708120349     1,600,000         10/11/87             8,000
 39    8708120350       850,000         10/11/87             4,250
 40    8708120351       255,000         10/11/87             1,275
 41    8708200206     1,400,000         10/19/87             7,000
                                - 38 -
42   8708200328      515,000         10/19/87     2,575
43   8709255114    1,080,000         10/25/87     5,400
44   8712075071      525,000           1/6/88     2,625
45   8801225093    2,602,000          2/21/88    13,010
46   8802085188      700,000           3/9/88     3,500
47   8803245036      450,000          4/23/88     2,250
48   8805105385    1,712,000           6/9/88     8,560
49   8808055045    2,900,000           9/4/88    14,500
50   8808265106    2,000,000          9/25/88    10,000
51   8809305154    3,400,000         10/30/88    17,000
52   8810045195      800,000          11/3/88     4,000
53   8810175155      585,000         11/16/88     2,925
54   8811215091      700,000         11/28/88     3,500
55   8811085234    3,600,000          12/8/88    18,000
56   8811095145      750,000          12/9/88     3,750
57   8912125085    4,240,000          1/ll/90    21,200
58   8912115094      985,000          1/26/90     4,925
59   9001105083      970,000           2/9/90     4,850
60   9001255072      835,000          2/24/90     4,175
61   9002055068    2,335,000           3/7/90    11,775
62   9001195042      700,000          4/10/90     3,500
63   9002205045      130,000          5/22/90       650
64   9001175071    5,490,000          6/29/90    27,450
65   9007115075      100,000          8/10/90       500
66   9002215058      256,000          10/1/90     1,280
67   9008135001      667,700         12/31/90     3,335

 Total            $77,961,700                   $389,905
