It stands for targeted amortization class tranche. It has a payment schedule geared towards a specified prepayment speed (or the so-called a pricing speed). A TAC tranche operates similar to a PAC tranche, but support classes, in a TAC tranche, provides protection against prepayment risk to which a TAC class is exposed.

If prepayment occurs at a faster pace than the expected prepayment rate in a structure including a TAC tranche, the other support classes (known as non-TAC support classes) take on the excess amounts of prepayment. If prepayments turn out to be substantially above expected levels, the TAC tranche, itself, will be exposed to prepayment risk.

In a CMO structure, TAC tranche is the second safest amongst tranches. The investors (TAC-tranche holders) are exposed to less certain repayments- therefore, they are more subject to prepayment risk and extension risk. The yields of TAC tranches are typically low, but still higher than PAC tranches.