Rev. Rul. 78-11

The Farmer's Home Administration of the Department of Agriculture (Agency) is offering to holders of outstanding Insurance Contracts (Contracts) the right to exchange them in January, 1978, for Certificates of Beneficial Ownership (Certificates). The Contracts represent blocks of specific notes that are insured as to principal and interest pursuant to the consolidated Farm and Rural Development Act of Title V of the Housing Act of 1949.

The Contracts were previously sold pursuant to a public offering and represent ownership of an undivided interest in the specific notes. The notes evidence loans made by the Agency, primarily to farmers, and are deposited with a custodian or bailment agent. The Agency insured that the holders of the Contracts would receive a specific total annual interest rate on the respective unpaid principal balances of the notes in each block. The Agency also agreed that on a date specified in each Contract, it would repurchase the blocks of notes at 100 percent of the unpaid principal balances.

For administrative reasons, the Agency plans to offer to holders of the outstanding Contracts the right to exchange them for Certificates. The Certificates will evidence the holder's continuing beneficial ownership in the particular notes previously represented by the exchanged Contracts. Also, as a result of the exchange, the notes will be held in trusts with the Agency as the trustor and trustee.

The interest rate and due date of the notes underlying a Certificate will not be changed in any respect as a result of the exchange of the Contract for the Certificate. All essential terms and conditions of the Certificates are the same as those of the Contracts.

Held, no gain or loss will be realized by the holders who exchange Contracts for Certificates pursuant to the offer of the Agency.