Stripped Mortgage-Backed Securities

Stripped Mortgage-Backed Securities,
called "SMBS," represent interests in a pool of
mortgages, called "Tranches", the cash flow of
which has been separated into interest and principal
components.

Interest only securities, called "IOs",
receive the interest portion of the mortgage
payment and generally increase in value as interest
rates rise and decrease in value as
interest rates fall.

Principal only securities, called "POs",
receive the principal portion of the mortgage
payment and respond inversely to interest rate movement.
As interest rates go up, the value of the PO
would tend to fall, as the PO becomes less attractive
compared with other investment opportunities
in the marketplace.